SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Fiscal Year Ended June 30, 1996
Commission File Number: 0-13588
FAULDING INC.
(FORMERLY, PUREPAC, INC.)
(Exact name of registrant as specified in its charter)
DELAWARE 04-2769995
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 Elmora Avenue, Elizabeth, New Jersey 07207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 527-9100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. / /
15,064,560
Number of shares outstanding of the Registrant's
Common Stock as of September 16, 1996
$ 36,161,675
Aggregate market value of the voting stock held by nonaffiliates
of the Registrant as of September 16, 1996
<PAGE>
PART I
(All dollar references are in thousands, unless otherwise indicated.)
ITEM 1. BUSINESS
(a) & (b) General Development of Business and Financial
Information
About Industry Segments
Faulding Inc. (the "Company"), through Purepac Pharmaceutical Co.
("Purepac"), a wholly-owned subsidiary, is primarily engaged in the
development, manufacture and sale of generic oral drug products. Through
acquisitions, as noted below, the Company recently has expanded its
operations into the generic injectable and medical device businesses.
The Company was incorporated in Delaware on September 2, 1982. On
February 29, 1996, the Company's name was changed to Faulding Inc in
conjunction with the acquisition transaction discussed herein (see
"Acquisitions"). The Company's executive offices and principal research,
manufacturing and distribution facilities are located at 200 Elmora Avenue,
Elizabeth, New Jersey 07207; its telephone number is (908) 527-9100.
A majority of the outstanding common stock of the Company is owned by
Faulding Holdings Inc. ( Holdings ), a wholly-owned subsidiary of F.H.
Faulding & Co. Limited ( Faulding ), a major Australian pharmaceutical
company.
Acquisitions
On February 29, 1996 the Company acquired all of the outstanding capital
stock of each of Faulding Medical Device Co. ("FMD"), Faulding Puerto
Rico, Inc. ("FPR"), and Faulding Pharmaceutical Co. ("FPC"), collectively the
"Acquired Companies," from Holdings in exchange for 2,438,712 shares of
its common stock. As part of the acquisition, the Company created a Class
B Preferred Stock with 150,000 authorized shares, par value at $.01, all of
which were issued to Holdings for a cash purchase price of $100 per share,
resulting in net proceeds to the Company. All subsequent references herein to
the Company shall be deemed to include the Acquired Companies unless otherwise
stated.
Acquired Companies
FMD is engaged in the design, development and commercialization of
disposable medical devices and injectable drug delivery system devices.
FPR operates a parenteral product pharmaceutical manufacturing facility
producing a variety of generic injectable pharmaceuticals in Aguadilla,
Puerto Rico.
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FPC was established to market the products manufactured by FPR and
certain injectable generic drug products manufactured by Faulding and
licensed to FPC.
(c) Description of Business
Introduction
A generic drug contains the same active drug substances as and is the
therapeutic equivalent of a brand name drug for which patent protection,
granted by the United States Patent Office and/or exclusivity granted by the
United States Food and Drug Administration (the "FDA"), has expired.
Accordingly, a generic drug is marketed under its chemical name or under
a brand name promoted by its generic manufacturer. While subject to the
same government standards as its brand name equivalent, a generic drug
is usually marketed at a substantially lower price.
Sales of generic drugs have increased significantly in recent years, due in
substantial part to greater awareness and acceptance of generic drugs by
physicians, pharmacists and the general public. Among the factors
contributing to such increased awareness and acceptance have been the
enactment and modification of laws in most states permitting (or in some
instances requiring) physicians or pharmacists to substitute generic drugs
for brand name drugs, and the publication by the FDA of a list of
therapeutically equivalent drugs which provides physicians and pharmacists
with the approved sources of generic drug alternatives for each drug
product. In addition, since generic drugs are typically sold at prices
substantially below those of brand name drugs, the prescribing of generic
drugs has been encouraged and, in some instances, required by various
government agencies and private health insurers as a cost-saving measure
in the purchase of, or reimbursement for, drug products.
Products
The Company markets generic prescription drugs in oral solid (tablet and
capsule), and injectable forms. In accordance with FDA requirements, each
dosage strength and form of a generic drug is considered a separate drug
product. Classification of the Company's drug products and their number
can be generally summarized as follows: antibiotic and anti-infective drugs
(6); anti-cancer drugs (6); cardiovascular drugs (37); anti-inflammatories
(14); analgesics (10); anti-depressants and tranquilizers (33); and all others
(24).
Sales of prescription oral drug products and injectable forms represented
84% and 16%, respectively, of the Company's revenue for the year ended
June 30, 1996. For the year ended June 30, 1995, prescription oral drugs,
injectables, and over-the-counter non-prescription drugs ("OTC")
represented 93%, 6% and 1%, respectively. For the year ended June 30,
1994, prescription oral drugs, injectables
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and OTC represented 96%, 3% and 1%, respectively. A majority of the
Company's oral products is sold under its Purepac(R) label and the balance
is sold under private label agreements with certain pharmaceutical
distributors. The majority of the Company's injectable products is sold
under the Faulding(R) label.
Nifedipine, the generic version of Pfizer's PROCARDIA (R) cardiovascular
product, accounted for 4%, 11% and 13% of the Company's revenue for its
years ended June 30, 1996, 1995 and 1994, respectively. In 1992 and
subsequent years, additional companies received approval from the FDA
to sell nifedipine and entered the market. It is typical in the generic drug
industry for the first companies selling a new generic product to initially
have a relatively high profit margin, which then decreases as selling prices
decline when more companies enter the market. Nifedipine has also
received adverse publicity which has reduced overall demand for the
immediate release form sold by Purepac.
New Product Development
Research and development expenditures for the years ended June 30,
1996, 1995 and 1994 amounted to $10,361, $7,729 and $7,562,
respectively. During the year ended June 30, 1996, the Company's new
product development program remained focused on AB-rated (substitutable)
generic equivalents to a number of immediate-release and modified-release
oral prescription products, injectable products and drug delivery devices.
Purepac:
During the year ended June 30, 1996, Purepac received FDA approval for
three new generic drug products: diclofenac sodium delayed-release tablets
and two immediate release products, indapamide tablets and diflunisal
tablets. Diclofenac, a non-steroidal anti-inflammatory product, accounted for
9% of the Company's revenue during the year ended June 30, 1996. During the
year ended June 30, 1995, Purepac received FDA approval for one new generic
drug product. During the years ended June 30, 1996 and 1995, Purepac filed,
respectively, six and two Abbreviated New Drug Applications ("ANDAs") for
solid oral dose products. At each of June 30, 1996 and 1995, Purepac,
respectively, had seven ANDAs pending approval. No assurance can be given as to
the receipt or timing of ANDA approvals and the commercial significance of
any products so approved. See "Government Regulation."
Acquired Companies:
During the year ended June 30, 1996, the Company, through FPC and
FMD, filed four ANDAs for the approval of new injectable products and two
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510K submissions for the approval of new medical devices, and received
FDA approval for one anti-cancer drug product, mitomycin, for injection. At
June 30, 1996, the Acquired Companies had four ANDAs and two 510K
submissions pending approvals.
Marketing and Customers
The Company markets its products primarily through a sales force of 15
people.
The Company's customers include drug wholesalers, national and regional
retail drugstore chains, drug distributors and hospitals. At June 30, 1996,
the Company had approximately 241 customers. For the year ended June
30, 1996, three customers each accounted for approximately 11%, 10% and
10% of sales. The Company believes that the loss of any two or more of
these customers could have a material impact on the Company's financial
position, results of operations and cash flow. For the year ended June 30,
1995, three customers each accounted for approximately 12%, 11% and
10% of sales. For the year ended June 30, 1994, two customers each
accounted for approximately 12% and 11% of sales.
The backlog of firm orders at June 30, 1996 was $1,862, compared with
$1,050 at June 30, 1995 and $3,904 at June 30, 1994. The Company does
not believe that its backlog is material in the understanding of its historical
and prospective operations as annual fluctuations are primarily attributable
to unpredictable timing differences in receipt of product orders. The
Company anticipates that it will fill all of its June 30, 1996 backlog during
its year ending June 30, 1997.
Seasonality is not a factor in the Company's business.
Manufacturing and Sources of Supply
The Company manufactures and packages more than 90% of its products
(measured as a percentage of revenue) in its own manufacturing facilities
(Refer to Item 2 hereof, Properties). Approximately 5% is sourced under a
licensing agreement with and manufactured by Faulding for certain generic
injectable products, including anti-cancer products. The balance of the
Company's products are manufactured to its specifications by a number of
outside contractors. Alternative contract manufacturing sources are
available.
Raw materials essential to the conduct of the Company's business are
pharmaceutical chemicals and packaging components which it purchases
in bulk from a variety of sources. Historically, the Company has not
experienced any significant difficulty in obtaining the raw materials it
requires. If raw materials from a current supplier were to become
unavailable, approval for a replacement supplier must be sought from the
FDA. The FDA approval process could cause a delay of several months or
longer in the manufacture of the product so impacted.
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Environmental Matters
(Dollars in thousands)
The Company's operations require it to comply with a broad variety of laws,
statutes and regulations which are intended to protect both the environment
and the industrial workplace including, among others, the Federal Clean
Water Act, Clean Air Act, Resources Conservation and Recovery Act,
Emergency Planning and Community Right-to-Know Act, Comprehensive
Environmental Response, Compensation and Liability Act and the
Occupational and Safety Health Act, as well as their state and local
equivalents, if any.
The Company believes that it is currently in substantial compliance with all
federal, state and local environmental laws and regulations applicable to its
business as now conducted.
During the years ended June 30, 1996, 1995 and 1994, the Company
expended $106, $55 and $24, respectively, for environmental control
equipment in connection with the expansion of its manufacturing facilities.
Capital expenditures for environmental control equipment for the year
ending June 30, 1997 are estimated to be $170.
Competition
The Company competes with a number of other generic pharmaceutical
companies in a highly competitive and fragmented segment of the health-care
industry. In addition, many brand name companies with substantially
greater financial resources for research, development and marketing are
entering the generic market.
Principal competitive factors in the generic drug market include regulatory
compliance, price, customer service (including prompt fulfillment of orders)
and the ability to introduce generic versions of brand name drugs promptly
after the date of patent expiration granted by the United States Patent Office
and/or exclusivity granted by the FDA.
Government Regulation
Pharmaceutical manufacturers are subject to extensive regulation by the
FDA and other government agencies and authorities. Various federal laws
and regulations govern the testing, manufacturing, safety, labeling,
packaging, storage, pricing, advertising and promotion of the Company's
generic drug products. Failure to comply with such laws and regulations
may result in the imposition of fines, recall and/or seizure of products,
suspension of manufacturing and FDA refusal to approve new drug
applications.
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Regulatory Approval Process
The Company's product line primarily consists of generic drug
products which contain the same active ingredient as the innovator (brand
name) product. The dosage form, route of administration and strength must
be the same as the innovator's product that was previously approved by the
FDA under a full New Drug Application (NDA). The NDA includes the
results of clinical trials that demonstrate safety and efficacy.
Each generic drug product is subject to prior FDA approval through the
submission of an ANDA or Abbreviated Antibiotic Drug Application
("AADA"). An ANDA must contain essentially the same information as a full
NDA, with the exception of safety and efficacy data. Since a generic drug
product contains the same active ingredient in the same amount as the
innovator product, it is assumed to have the same safety and efficacy
profile. A generic product must be bioequivalent to the innovator product
referenced in the application. Applications for most solid oral dosage forms
must, therefore, contain data which demonstrate that the proposed generic
drug product has the same rate and extent of systemic absorption as the
innovator product. An in-vivo bioavailability study is typically conducted in
healthy human subjects to meet this requirement. In addition, the generic
product must meet appropriate in-vitro (dissolution) criteria. For most
injectable drug products, an in-vivo bioequivalence study is not normally
required. Quality Control testing of all drug products is conducted to ensure
that the product meets compendial (United States Pharmacopeia) standards
and in-house specifications, as applicable.
Recent Trends in FDA Procedures
The FDA has placed greater emphasis on the filing of complete ANDAs by
all generic drug product manufacturers, including the Company, and has
enunciated its position that it will not accept any application that does not
contain all necessary information as specified in the FDA's current
guidelines. In addition, the FDA has imposed more stringent requirements
on various aspects of the product development process, the need for
development of new procedures and increased documentation, all of which
extend the time required for manufacturers, including the Company, to
prepare and file ANDAs. Further, review times are also being affected by
a reduction in staff levels at the FDA.
Another major component of the FDA's review process, applicable to all
generic drug manufacturers, is the product specific pre-approval inspection
in which the FDA focuses on the development of the drug product, the
manufacture of exhibit batches and the applicant's capability to manufacture
that product in accordance
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with the methods and specifications defined in the ANDA. This manner of
inspection may also potentially lengthen the approval time for ANDAs.
A significant new guideline was issued by the FDA in November 1995.
This guidance relaxed the regulatory requirements for the implementation
of scale-up and post approval changes ("SUPAC"). This guideline is
intended to save the industry considerable time and money in
manufacturing efficiencies.
Good Manufacturing Practices
As a manufacturer of pharmaceutical products, the Company is also subject
to current Good Manufacturing Practices ("cGMP") standards promulgated
by the FDA. Failure to comply with such standards may result in, among
other actions, the suspension of production and possibly the seizure of non-
complying products.
Medicaid Prudent Pharmaceutical Purchasing Act of 1991
Effective January 1, 1991, all generic pharmaceutical manufacturers were
required to pay a rebate, equal to 10% of the manufacturer's average net
selling price, for each prescription of its products reimbursed by the states
under Medicaid. As of January 1, 1994, the rebate percent increased to
11%.
Proposed Health Care Regulation
Numerous proposals for health care regulation and reform have recently
been proposed at both the federal and state levels. These proposals,
generally, seek to reduce the cost of health care and increase its availability
and efficiency. It cannot be determined at this time which, if any, of such
proposals will be enacted and, to the extent enacted, what effect such
proposals will have on the price, distribution and marketing of
pharmaceutical products, including those of the Company.
Employees
At June 30, 1996, the Company employed 465 full-time employees. Of
these, 58 were executive and administrative personnel. Personnel primarily
engaged in research, product development and regulatory activities totaled
77. Marketing and sales personnel totaled 29. Production and distribution
personnel totaled 215, while quality assurance and quality control totaled
86. Collective bargaining agreements between the Company and Locals
575 and 815 of the International Brotherhood of Teamsters expiring in
January 1997 and January 1999, respectively, covered 119 employees as
of June 30, 1996. The Company has not experienced a material work
stoppage in the past five years and believes that its current labor relations
are satisfactory.
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ITEM 2. PROPERTIES
The Company's executive offices, as well as research, production, principal
warehouse and distribution facilities, are housed in a 245,000 square foot
facility with two adjoining acres of parking space in Elizabeth, New Jersey.
In addition, the Company leases a 13,000 square foot distribution center in
Sparks, Nevada and a 38,000 square foot warehouse and office building in
Linden, New Jersey, a 3,000 square foot office and development laboratory
in Scottsdale, Arizona and a 68,000 square foot facility, comprised of seven
buildings in Aguadilla, Puerto Rico.
The Company believes that its facilities will be sufficient to satisfy its
anticipated needs for the proximate future.
ITEM 3. LEGAL PROCEEDINGS
On September 11, 1995, the United States District Court for the District of
New Jersey granted the Company's motion to dismiss a complaint filed
against the Company and certain of its former senior executives in a lawsuit
entitled Dechter vs. Purepac, Inc., Robert H. Bur and Russell J. Reardon,
94 Civ. 6195. Pursuant to the court's decision, the plaintiffs had the
opportunity to file a motion with the court to submit a proposed amended
complaint. The plaintiffs elected not to file such a motion, thereby
terminating such litigation.
Pursuant to an agreement dated as of December 31, 1995, the Company
has settled certain litigation entitled Merck & Co., Inc. v. Purepac
Pharmaceutical Co. Case No. 95-495 in the United States District Court for
the District of Delaware. In accordance with such agreement, the Company
is to receive a cash settlement. The proceeds will be payable in three equal
annual installments. In addition the Company has agreed not to pursue the
marketing or sale of the pharmaceutical product which was the subject of
the litigation in the United States until the patent expiration, currently
expected in the year 2006.
On August 21, 1996, an action was commenced against the Company,
Purepac, Faulding and Zeneca, Inc. in the United States District Court for
the District of Delaware entitled Purdue Pharma L.P. and the Purdue
Frederick Company vs. F.H. Faulding & Co. Limited, Faulding Inc., Purepac
Pharmaceutical Co. and Zeneca Inc., 96 Civ.427. The complaint alleges that
the manufacture and marketing in the United States of KADIAN (TM) infringes
a patent assigned to one of the plaintiffs and constitutes unfair competitive
practices under Federal and State law. The Company, through Purepac,
manufactures KADIAN (TM) pursuant to a contract manufacturing agreement
with Faulding. Zeneca Inc. is the U.S. distributor of KADIAN (TM).
The complaint seeks, among other things, an order enjoining the Company
and Purepac from the commercial manufacture of KADIAN (TM) and treble and
punitive damages in the event that the defendants have violated Federal or
State unfair competitive and deceptive trade practices law.
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While the Company has not yet been served in the action , the Company
believes the allegations in the complaint to be entirely without
merit and intends, in cooperation with its co-defendants, to vigorously
defend this action. The commencement of the action did not impact the
launch of KADIAN (TM) .
The Company is involved in litigation incidental to the conduct of its
business, in addition to the above matters, and does not believe that the
ultimate adverse resolutions of any, or all, thereof would have a material
adverse effect on its financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the last
quarter of the fiscal year ended June 30, 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's Common Stock was traded on the Nasdaq National
Market System ("Nasdaq/NMS") under the symbol PURE through
February 29, 1996.
Effective February 29, 1996, the Company's name was changed from
Purepac, Inc. to Faulding Inc., and the Nasdaq/NMS trading symbol, as
of March 1, 1996, was changed from PURE to FAUL.
The following table sets forth the range of high and low closing sales prices
of the Company's common stock on the Nasdaq/NMS.
FOR THE QUARTER ENDED: HIGH LOW
- ----------------------------------------------------------------
Fiscal 1995
September 30, 1994 $ 14.250 $ 8.000
December 31, 1994 16.250 10.125
March 31, 1995 11.625 8.750
June 30, 1995 11.375 8.375
Fiscal 1996
September 30, 1995 10.875 7.750
December 31, 1995 8.750 4.625
March 31, 1996 7.750 5.000
June 30, 1996 7.125 4.125
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(b) Holders of Common Stock
The number of holders of record of the Company's common stock at
September 16, 1996 was 455.
(c) Dividends
The Company has neither declared nor paid any dividends on its shares of
common stock since its inception. Any decision as to the future payment of
common stock dividends will depend on the earnings and financial position
of the Company and such other factors as the Board of Directors deems
relevant. No dividends are payable on the common stock until all declared
and accrued dividends have been paid in full on the Company's issued and
outstanding shares of preferred stock, all of which are owned by Holdings.
(Refer to Note 11 of the Notes to Consolidated Financial Statements.)
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA: restated restated
Net sales $ 75,784 $ 64,905 $ 71,952 $ 70,508 $ 64,531
Income (loss)
before preferred
stock dividends (5,001) (1,618) 3,992 9,160 14,979
Preferred stock
dividends 2,307 2,080 2,080 2,080 2,081
Net income
(loss), available
for common stock $ (7,308) $(3,698) $ 6,061(a) $ 7,080 $ 12,776(b)
Net income (loss)
per common share,
primary (.49) $ (.25) $ .41 $ .57 $ 1.05
BALANCE SHEET DATA: restated --- --- ---
Working capital $ 36,296 $ 27,005 $ 24,221 $ 23,150 $ 20,460
Total assets 98,678 85,863 67,267 63,017 52,269
Long-term debt --- --- --- --- ---
Stockholders'
equity $ 82,923 $ 72,079 $ 54,860 $ 48,060 $ 39,699
</TABLE>
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The February 29, 1996 acquisitions of the Acquired Companies (see "Item
1) was accounted for as similar to a pooling of interests. Therefore,
financial operating data presented for the years ended June 30, 1995 and
1994 and balance sheet data as of June 30, 1995 have been restated as if
the acquisitions took place as of July 1, 1993. The data reflects the
accounts of Faulding Inc. and the Acquired Companies.
Financial operating data presented for the years ended June 30, 1993 and 1992
and balance sheet data as of June 30, 1994, 1993 and 1992 has not neen restated
as the restated amounts would not significantly differ the amounts presented.
As FPR and FPC did not commence operations until April 7, 1995, the
Acquired Companies' operations reflect only the results of FMD for the year
ended June 30, 1994. The year ended June 30, 1995 reflects the year's
results of FMD and less than three months' results of FPR and FPC.
(a) Net income available for common stock for the year ended June 30,
1994 included the favorable cumulative effect of a change in accounting
for income taxes of $4,149.
(b) Net income available for common stock for the year ended June 30,
1992 included the unfavorable cumulative effect on prior years of a
change in the method of accounting for income taxes of $122.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in thousands)
Overview: Acquisitions
On February 29, 1996 the Company acquired all of the outstanding capital
stock of each of Faulding Medical Device Co. ("FMD"), Faulding Puerto
Rico, Inc. ("FPR"), and Faulding Pharmaceutical Co. ("FPC"), collectively the
"Acquired Companies," from Faulding Holdings Inc. (the Company's majority
stockholder) in exchange for 2,438,712 shares of its common stock.
This acquisition transaction was accounted for as similar to a pooling
of interests and, therefore, commencing July 1, 1993 financial statements
for the periods presented have been restated as if the acquisition took place
at the beginning of the earliest period presented. The financial statements
reflect the accounts of the Company (including Purepac) and the Acquired
Companies. Since the acquisitions were accounted for as similar to a pooling
of interests, acquisition expenses of $1,043 were charged against the results
of operations during the year ended June 30, 1996.
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Results of Operations
Year Ended June 30, 1996 Compared with the Year Ended June 30, 1995
The following sets forth the pre-tax operating results of , respectively,
the Company prior to its acquisition of the Acquired Companies.
<TABLE>
STATEMENTS OF OPERATIONS - Purepac
<CAPTION>
Three Months Ended Year Ended
June 30, June 30,
---------------------- ---------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 19,667 $ 14,319 $ 63,822 $ 61,146
Cost of sales 12,676 11,391 47,112 46,476
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Gross profit 6,991 2,928 16,710 14,670
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Expenses:
Selling, general and
administrative 2,746 2,504 8,997 9,817
Research and development 2,331 1,632 9,054 6,741
Acquisition Expenses 25 --- 1,043 ---
Restructuring Costs 184 --- 842 ---
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Total expenses 5,286 4,136 19,936 16,558
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Income (loss) from operation 1,705 (1,208) (3,226) (1,888)
Other income (expense), net 24 (39) 1,625 (63)
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Income (loss) before income
taxes 1,729 (1,247) (1,601) (1,951)
- -----------------------------------------------------------------------------
</TABLE>
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<TABLE>
STATEMENTS OF OPERATIONS - Acquired Companies
<CAPTION>
Three Months Ended Year Ended
June 30, June 30,
---------------------- ---------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 3,905 $ 2,066 $ 11,962 $ 3,759
Cost of sales 3,420 1,137 11,285 2,812
- -----------------------------------------------------------------------------
Gross profit 485 929 677 947
- -----------------------------------------------------------------------------
Expenses:
Selling, general and
administrative 880 374 2,867 374
Research and development 289 503 1,307 988
- -----------------------------------------------------------------------------
Total expenses 1,169 877 4,174 1,362
- -----------------------------------------------------------------------------
Income (loss) from operation (684) 52 (3,497) (415)
Other income (expense), net --- (221) (603) (326)
- -----------------------------------------------------------------------------
Income (loss) before income
taxes (684) (169) (4,100) (741)
- -----------------------------------------------------------------------------
</TABLE>
The discussion below relates to the segregated results presented above.
Purepac Results of Operations
Net sales for the three and twelve month periods ended June 30, 1996 were
$19,667 and $63,822, respectively, compared with $14,319 and $61,146 for the
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corresponding 1995 periods. The increase in the fourth quarter's result
of 37% over the prior year's period is primarily due to initial net sales of
diclofenac, which was approved in March 1996. Diclofenac sales in the
fourth quarter represented 23% of the quarter's sales. For the twelve
months ended June 30, 1996, net sales increased by 4%, due principally to
the diclofenac sales offset by competition impacting on Purepac's mature
product line, which includes the product nifedipine. In addition to diclofenac,
FDA approvals of diflunisal and indapamide were received by Purepac,
respectively, in May and June 1996. In addition, initial sales from the
contract manufacturing of KADIAN (TM) for Faulding Services Inc. were recorded
in the quarter ended June 1996. Faulding Services Inc. is a 100% owned
subsidiary of Holdings.
Gross profit for the three and twelve month periods ended June 30, 1996
were $6,991 and $16,710, respectively, compared with $2,928 and $14,670
for the corresponding 1995 periods. Gross profit as a percentage of net
sales for the three and twelve month periods ended June 30, 1996 were
36% and 26%, compared with 20% and 24% for the corresponding periods
in the prior year. For the three and twelve month periods respectively, the
increase in gross profit was due to the sales of diclofenac late in the third
fiscal quarter 1996, partially offset by price erosion due to competition
impacting on Purepac's mature product line.
Selling, general and administrative expenses for the current three and
twelve month periods were $2,746 and $8,997, respectively, compared to
the corresponding prior year's respective amounts of $2,504 and $9,817.
Current period expenses as a percentage of net sales were 14% and 14%,
respectively, compared with 18% and 16% for the corresponding prior year's
periods. In addition, Purepac incurred $1,043 in acquisition expenses in the
twelve months to June 30, 1996 related to the purchase of the Acquired
Companies, and an additional $842 in costs related to the restructuring of
the Purepac business, primarily organizational and personnel changes.
No such acquisition or restructuring costs were incurred in the prior
financial year.
Research and development expenses for the current three and twelve
month periods were $2,331 and $9,054, respectively. This equates to 12%
and 14% of net sales. Expenses for the prior year's corresponding
periods were $1,632 (11%) and $6,741 (11%). The increase in research
and development expenses was mainly due to an increase in biostudies
costs required as part of the ANDA submission process to the FDA, in addition
to the recruitment of key new scientific personnel.
Other income/(expense) for the current three and twelve month periods
were $24 and $1,625, respectively, compared with ($39) and ($63),
respectively, in the prior year's corresponding periods. The $1,625 for the
current twelve month period is mainly attributable to the settlement of a
patent litigation by Purepac which was recorded in the quarter ended
December 31, 1995 and is non-recurrent.
14
<PAGE>
Net income/(loss) before income tax for the current three and twelve month
periods were $1,729 and $(1,601), respectively. If the acquisition and
restructuring costs were excluded for the current year's reported periods,
the net income would be $1,938 and $284. These results compare to net
losses before income tax for the prior year's corresponding periods of
$1,247 and $1,951.
The results for the three and twelve month periods ended June 30, 1996
were affected by negative pricing pressures within the oral generic
pharmaceutical industry, partly counterbalanced by new product approvals
for diclofenac, diflunisal, indapamide and contract manufacturing income for
KADIAN (TM). The future financial results will continue to be dependent on the
ability of income from sales of new products to counter ongoing price
erosion within the industry.
Acquired Companies
The Acquired Companies became wholly owned subsidiaries of Faulding
Inc. effective March 1, 1996. FPC and FPR did not commence operations
until April 7, 1995; hence the prior year represents the full-year operating
results of FMD and less than three months operating results for FPC and
FPR. Current and prior year net sales for FMD relate to a distribution
agreement with a third party -- which was terminated as of December 31,
1995 -- for products sourced from F.H. Faulding & Co. Limited ("Faulding"),
the beneficial majority stockholder of Faulding Inc. The products previously
sold under that agreement, together with additional products sourced from
Faulding, are now being sold by FPC. Consequently, comparison with the
prior year is not representative and hence the following analysis principally
relates to current year operating results.
Net sales for the three and twelve month periods ended June 30, 1996 were
$3,905 and $11,962, respectively. Of these net sales, 51% and 70%,
respectively, were related to products manufactured at the FPR production
facility in Aguadilla, Puerto Rico. These products were sold either under
contract manufacturing agreements or by FPC to its customers in the USA.
The majority of the remainder of the net sales comprises products
manufactured by and licensed from Faulding. Net sales in the current three
month period included mitomycin, which sales commenced in the third
quarter, licensed from Faulding, and approved by the FDA for marketing in
November 1995.
Gross profits for the three and twelve month periods ended June 30, 1996
were $485 and $677, respectively. Gross profits were unfavorably impacted
by both under utilization of the production facility in Puerto Rico and
production related expenses incurred by FMD, which did not record any
related net sales during the periods. Gross profit in the current three
month period included earnings from the sales of mitomycin.
15
<PAGE>
Selling, general and administrative expenses for the current three and
twelve month periods were $880 and $2,867, respectively, representing
principally selling expenses associated with FPC.
Research and development expenses include the development costs
associated with FMD. Expenses for the current three and twelve months
were $289 and $1,307, respectively.
Net loss before income tax for the three and twelve month periods to June
30, 1996 were $684 and $4,100, respectively. Of the current twelve month
loss before income tax, $3,005 was incurred prior to the Acquired
Companies becoming wholly owned subsidiaries of the Company.
Consolidated Income Tax Benefit
The calculation of the provision (benefit) for income taxes of the Company,
which includes Purepac and the Acquired Companies, has been prepared
in accordance with accounting for the acquisitions as similar to a pooling of
interests consistently applying Statement of Financial Accounting Standard
No. 109 ("SFAS109").
For the three month period ended June 30, 1996, Purepac's net income
before income taxes resulted in the recording of an income tax provision of
$671. Purepac's net loss before income tax for the twelve month current
period resulted in the recording of an income tax benefit of $252.
For the Acquired Companies, only the net loss before income tax since
acquisition can be consolidated into the Company's income tax returns. As
a result, an income tax benefit of $291 and $449 has been included in the
three and twelve month current periods, respectively. The income tax
benefit of the net losses prior to acquisition have been fully reserved
against as the recovery of these losses is dependent on future taxable income
of each of the respective companies, which at present cannot be assured.
Year Ended June 30, 1995 Compared With the Year Ended June 30, 1994
(As restated)
Net sales for the year ended June 30, 1995 was $64,905 compared with
$71,952 for the prior year ended June 30, 1994. The decrease reflects
lower sales of certain mature products including nifedipine, primarily due to
declines in selling prices and to a lesser degree volume reductions of some
products as a result of competitive pressures, partially offset by increased
sales of several new products. The nifedipine products accounted for 11%
of net sales for the year compared with 13% for the prior year.
16
<PAGE>
Gross profit for the year was $15,618 compared with $23,417 for the prior
year, a decline of $7,799 (33%). The gross profit as a percent of net sales
for the year ended June 30, 1995 was 24% compared with 33% for the prior
year ended June 30, 1994. The decline was attributable primarily to lower
sales due to increased competition and to a lesser extent to higher raw
material costs.
The selling, general and administrative expenses for the year ended June
30, 1995 were $10,191 compared with $9,410 for the prior year ended June
30, 1994, an increase of $782 (8%). The expense as a percent of net sales
was 16% compared with 13% for the prior year. The increase was primarily
due to higher personnel expenses.
The research and development expenses for the year remained relatively
constant at $7,729 compared with the prior year expense of $7,562. The
expense as a percent of net sales for the year ended June 30, 1995 was
12% compared with 11% for the prior year ended June 30, 1994. The
steady level of expense reflects the continuing commitment to new product
development.
Other income/(expense) of ($390) for the year ended June 30, 1995
included interest expense of $432 partially offset by interest income of $42.
The corresponding prior year other income of $149 included interest income
of $102 and income of $200 from the sale of the Company's Poroplastic
technology to Faulding, partially offset by interest expense of $153. The
interest income decline was primarily due to the reduction of cash available
for investment. The interest expense for both years primarily includes the
interest expense of the Acquired Companies as well as the revolving credit
agreement fees of the Company.
The effective income tax (benefit) rate for the year ended June 30, 1995
was (40%) compared with 39% for the year ended June 30, 1994 before the
cumulative effect of a change in accounting for income taxes.
Net loss for the year ended June 30, 1995 before preferred stock dividends
was $1,618 compared with net income for the prior year before preferred
stock dividends of $3,992.
Financial Condition, Liquidity and Capital Resources
The Company had $1,897 in cash and cash equivalents at June 30, 1996,
compared with $1,225 at June 30, 1995. The current year's increase of
$672 resulted primarily from $15,000 in cash provided by the issuance of
the Class B preferred stock associated with the February 29, 1996
acquisitions and $4,769 provided by additions to paid-in capital. This was
offset by $13,302 used for operating activities, $3,795 for investments in
property, plant and equipment and $2,000 to repay bank loans.
17
<PAGE>
A comparison of the balance sheet accounts at June 30, 1996 to the June
30, 1995 balances shows the following to be noteworthy:
Accounts receivable increased by $6,019 due to the higher sales level,
primarily in the last quarter.
Included in the reserves for doubtful accounts and sales allowances is
the allowance for sales returns, allowances and discounts of $3,135 at
June 30, 1996 compared with $2,497 at June 30, 1995, an increase of
$638. This increase is primarily due to increases of $427 in the
provision for floor stock price adjustments and $195 in the provision
for credits owed to direct source buying groups. The increase in the
provision for such allowances had an adverse effect on net sales and
operations with no effect on cash flows.
Inventory increased by $5,658 primarily in raw materials due to higher
sales volumes and in anticipation of increased production. In addition,
inventory levels within FPC increased to meet anticipated sales of the
products licensed from Faulding.
Due to affiliated companies increased by $2,663 primarily due to the
additional products licensed by and purchased from Faulding by FPC,
primarily during the prior six month period.
The accrued preferred dividends payable to Holdings, of $689 for the three
month period ended June 30, 1996 was subsequently paid on July 1, 1996.
In October 1995, the Company made the decision to restructure certain
aspects of its business. This restructuring was considered necessary to
prepare the Company to be more competitive in the oral generic
pharmaceutical industry. Also, this restructuring is expected to better
position the Company to integrate the Acquired Companies. Costs
associated with this restructuring, including severance payments, totaled
$842.
The Company believes that its current cash resources, anticipated operating
cash flows and funds available under a revolving credit and loan
arrangement with a bank will be sufficient to fund its working capital needs
for the next 24 months. In addition, it is not anticipated that the Acquired
Companies will generate adequate revenues to finance their combined
operating expenses until at least 1998. Depending upon the timing of the
Company's cash flow requirements, which is highly dependent upon the
unpredictable timing of the receipt of FDA product approvals, the future
cash flow needs of the Company could exceed the Company's current cash
resources and its available credit under its existing credit facilities.
As of June 30, 1996, the Company had $1,897 in cash, plus approximately
$15,000 of available borrowings under its existing credit facilities.
18
<PAGE>
Accordingly, the Company may need to seek additional credit facilities or to
seek additional funding from sales of its securities or from other sources.
The Company anticipates that it would be able to increase its credit facilities
or obtain financing from other sources, should it require additional cash flow
to support the commercialization of new products following receipt of FDA
approval therefor. However, there can be no assurance that such financing
will be available when required, if at all, or will be available upon terms the
Company may deem commercially reasonable.
New Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 123 "Accounting For Stock
Based Compensation" ("SFAS 123") which requires that an employer's
financial statements include expanded disclosure regarding stock-based
employee compensation arrangements. The Company is evaluating the
requirements of SFAS 123, which must be adopted during the Company's
fiscal year ended June 30, 1997.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 121 Accounting For The Impairment
Of Long-Lived Assets ( SFAS 121 ), which requires that long-lived
assets be reviewed for impairment whenever events or changes in
circumstance indicate that the carrying amount of an asset may not be
recoverable. To determine a loss, if any, to be recognized, the book value
of the asset would be compared to the market value or expected future cash
flow value. The Company is required to adopt SFAS 121 for the fiscal years
beginning after December 15, 1995. During fiscal year ended June 30,
1997, the Company will adopt SFAS 121 and anticipates, based upon
information currently available, that it will not have a material impact on
its results of operations and financial position.
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," was issued by the Financial Accounting Standards Board
in February 1992. SFAS 109 is effective for years beginning after
December 15, 1992. The Company adopted SFAS 109, effective July 1,
1993. This statement superseded SFAS 96, "Accounting for Income
Taxes." The cumulative effect of adopting SFAS 109 on the Company's
financial statements, for the year ended June 30, 1994 increased income
by $4,149 with a corresponding increase in the deferred tax asset. (Refer
to Note 14 of the Notes to Consolidated Financial Statements.)
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS Page
Report of Independent Public Accountants
Deloitte & Touche LLP........................................21
Consolidated Balance Sheets
June 30, 1996 and 1995.......................................22
Consolidated Statements of Operations
Year ended June 30, 1996, 1995 and 1994......................23
Consolidated Statements of Stockholders' Equity
Year ended June 30, 1996, 1995 and 1994......................24
Consolidated Statements of Cash Flows
Year ended June 30, 1996, 1995 and 1994..................... 25
Notes to Consolidated Financial Statements...........................26
FINANCIAL STATEMENT SCHEDULE
Schedule II: Valuation and Qualifying Accounts
Year ended June 30, 1996, 1995 and 1994......................47
20
<PAGE>
[ LETTERHEAD OF DELOITTE & TOUCHE ]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Shareholders of Faulding Inc.:
We have audited the accompanying consolidated balance sheets of Faulding
Inc. and subsidiaries as of June 30, 1996 and 1995 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of
the three years in the period ended June 30, 1996. Our audits also included
the financial statement schedule listed in the Index at Item 8. These
financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Faulding Inc. and its subsidiaries
at June 30, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1996 in
conformity with generally accepted accounting principles. Also, in our
opinion, such a financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
As discussed in Note 14 to the financial statements, the Company changed its
method of accounting for income taxes effective July 1, 1993, to conform with
the Statement of Financial Accounting Standards No. 109.
Deloitte & Touche LLP
August 16, 1996(August 27, 1996 as to Note 16)
Parsippany, New Jersey
21
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
June 30,
--------------------------------------
1996 1995
- ---------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,897 $ 1,225
Accounts receivable, trade
(less reserves for doubtful
accounts and sales allowances
of $3,355 and $2,616 at June 30,
1996 and 1995, respectively) 17,118 11,099
Inventory (Note 3) 26,496 20,838
Due from affiliated companies
(Note 5) --- 1,816
Other current assets 3,315 2,298
Deferred income taxes (Note 14) 3,225 3,513
- ---------------------------------------------------------------------------
TOTAL CURRENT ASSETS 52,051 40,789
- ---------------------------------------------------------------------------
Property, plant and equipment,
net (Note 4) 41,510 40,565
Other assets (Note 5) 4,279 3,595
Deferred income taxes (Note 14) 838 914
- ---------------------------------------------------------------------------
TOTAL ASSETS $ 98,678 $ 85,863
===========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 7,553 $ 5,684
Due to affiliated companies
(Note 5) 847 ---
Loan payable to bank (Note 7) --- 2,000
Accrued expenses (Note 6) 6,666 5,580
Accrued preferred dividends (Note 11) 689 520
- ---------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 15,755 13,784
- ---------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 12) --- ---
- ---------------------------------------------------------------------------
"Stockholders' equity (Notes 8, 9, 10 and 11):
Class A convertible preferred stock;
par value $.01, authorized 1,834,188
shares; issued and outstanding 834,188
(liquidation value $24,475) 8 8
Class B convertible preferred stock;
par value $.01, authorized 150,000
shares; issued and outstanding 150,000
(liquidation value $15,000) 2 ---
Common stock; par value $.01,
authorized 35,000,000 shares;
issued and outstanding 15,064,560
and 15,019,935 at June 30, 1996
and 1995, respectively 151 150
Capital in excess of par value 57,139 44,302
Retained earnings 25,623 27,619
- ---------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 82,923 72,079
- ---------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 98,678 $ 85,863
===========================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
<CAPTION>
Year Ended June 30,
------------------------------------------------
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 75,784 $ 64,905 $ 71,952
Cost of sales 58,397 49,287 48,535
- -----------------------------------------------------------------------------------------------
Gross profit 17,387 15,618 23,417
- -----------------------------------------------------------------------------------------------
Expenses:
Selling, general and administrative 11,864 10,191 9,410
Research and development 10,361 7,729 7,562
Acquisition expenses 1,043 --- ---
Restructuring costs 842 --- ---
- -----------------------------------------------------------------------------------------------
Total expenses 24,110 17,920 16,972
- -----------------------------------------------------------------------------------------------
Income (loss) from operations (6,723) (2,302) 6,445
Other income (expense), net 1,021 (390) 149
- -----------------------------------------------------------------------------------------------
Income (loss) before income taxes (5,702) (2,692) 6,594
Provision (benefit) for income taxes
(Note 14) (701) (1,074) 2,602
- -----------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE PREFERRED
STOCK DIVIDENDS (5,001) (1,618) (3,992)
Preferred stock dividends 2,307 2,080 2,080
- -----------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING FOR INCOME TAXES (7,308) (3,698) 1,912
Cumulative effect of a change in accounting
for income taxes (Note 14) --- --- 4,149
- -----------------------------------------------------------------------------------------------
NET INCOME (LOSS), AVAILABLE FOR COMMON
STOCK $ (7,308) $ (3,698) $ 6,061
===============================================================================================
PRIMARY EARNINGS PER COMMON SHARE (NOTE 2)
Income (loss) before cumulative effect of
a change in accounting for income taxes $ (.49) $ (.25) $ .13
Cumulative effect of a change in accounting
for income taxes (Note 14) --- --- .28
- -----------------------------------------------------------------------------------------------
Net income (loss) $ (.49) $ .25 $ .41
===============================================================================================
Weighted average number of
common shares outstanding 15,039,391 14,977,248 14,906,896
- -----------------------------------------------------------------------------------------------
EARNINGS PER SHARE ASSUMING FULL DILUTION (NOTE 2):
Income before cumulative effect of
a change in accounting for income taxes $ .20
Cumulative effect of a change
in accounting for income taxes (Note 14) .21
- -----------------------------------------------------------------------------------------------
Net income $ .41
===============================================================================================
Weighted average number of fully diluted shares 19,997,322
- -----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands except share data)
<CAPTION>
Common Stock Preferred Stock
(Note 10) (Note 11) Capital in
------------------------------------------- Excess of Retained
Shares Amount Shares Amount Par Value Earnings Total
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1993
as previously reported 12,427,848 $ 124 834,188 $ 8 $ 27,909 $ 20,019 $ 48,060
Common stock issued pursuant
to acquisitions (Note 2) 2,438,712 24 --- --- 19,497 --- 19,521
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1993
as restated 14,856,560 $ 148 834,188 $ 8 $ 47,406 $ 20,019 $ 67,581
- ------------------------------------------------------------------------------------------------------------------------------
Common stock issued pursuant
to stock grant plan (Note 9) 82,250 1 --- --- (1) --- ---
Class A preferred stock dividend
(Note 11) --- --- --- --- (2,080) --- (2,080)
Stock grant amortization --- --- --- --- 371 --- 371
Reduction of income tax liability
from exercise of stock options
(Note 8) --- --- --- --- 62 --- 62
Pooling of interest adjustement (Note 2) --- --- --- --- --- 306 306
Net income --- --- --- --- --- 8,141 8,141
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1994 14,948,810 $ 149 834,188 $ 8 $ 45,758 $ 28,466 $ 74,381
- ------------------------------------------------------------------------------------------------------------------------------
Common stock issued pursuant
to stock grant plan (Note 9) 71,125 1 --- --- (1) --- ---
Class A preferred stock dividend
(Note 11) --- --- --- --- (2,080) --- (2,080)
Stock grant amortization --- --- --- --- 367 --- 367
Reduction of income tax liability
from issuance of stock pursuant
to stock grant plan (Note 9) --- --- --- --- 258 --- 258
Pooling of interest adjustment (Note 2) --- --- --- --- --- 771 771
Net income --- --- --- --- --- (1,618) (1,618)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1995 15,019,935 $ 150 834,188 $ 8 $ 44,302 $ 27,619 $ 72,079
- ------------------------------------------------------------------------------------------------------------------------------
Preferred stock Class B issued --- --- 150,000 2 14,998 --- 15,000
Common stock issued pursuant
to stock grant plan 44,625 1 --- --- (1) --- ---
Class A preferred stock dividend
(Note 11) --- --- --- --- (2,080) --- (2,080)
Class B preferred stock dividend --- --- --- --- (227) --- (227)
(Note 11)
Stock grant amortization --- --- --- --- 110 --- 110
Reduction of income tax liability
from issuance of stock pursuant
to stock grant plan (Note 9) --- --- --- --- 37 --- 37
Pooling of interest adjustment (Note 2) --- --- --- --- --- 3,005 3,005
Net income (loss) --- --- --- --- --- (5,001) (5,001)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1996 15,064,560 $ 151 984,188 $ 10 $ 57,139 $ 25,623 $ 82,923
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Year Ended June 30,
-------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss), Available for Common Stock $ (7,308) $ (3,698) $ 6,061
Adjustments To Reconcile Net Income (loss)
To Net Cash Provided By (Used For)
OPERATING ACTIVITIES:
Depreciation and amortization 2,862 2,494 2,126
Compensation expense - stock grants 110 366 371
Provision for deferred taxes (including
cumulative effect of accounting change) --- --- (2,834)
Deferred income tax, asset 364 72 ---
INCREASE (DECREASE) IN CASH FROM:
Accounts receivable, trade (6,020) 481 (1,020)
Inventory (5,658) (1,649) (4,272)
Other current assets (928) (661) (188)
Other assets (696) (174) ---
Accounts payable 1,869 (1,383) 99
Accrued expenses 1,086 1,168 (1,063)
Accrued income taxes (51) (1,175) (1,066)
Accrrued dividends 169 --- ---
Due to/from affiliates 899 (4,907) 183
- ------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (5,994) (5,368) (7,664)
- ------------------------------------------------------------------------------------------------
Net Cash Provided By (Used For)
Operating Activities (13,302) (9,066) (1,603)
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant
and equipment (3,795) (15,241) (5,880)
- -------------------------------------------------------------------------------------------------
Net Cash Provided By (Used For)
Investing Activities (3,795) (15,241) (5,880)
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from bank --- 2,000 ---
Repayments to bank (2,000) --- ---
Proceeds from issuance of
preferred stock 15,000 --- ---
Proceeds from additions to
paid in capital 4,769 20,344 ---
- -------------------------------------------------------------------------------------------------
Net Cash Provided By (Used For)
Financing Activities 17,769 22,344 ---
- -------------------------------------------------------------------------------------------------
Increase (Decrease) In Cash
and Cash Equivalents $ 672 $ (1,963) $ (7,483)
=================================================================================================
Cash and cash equivalents,
beginning of year 1,225 3,188 10,671
- -------------------------------------------------------------------------------------------------
Cash and Cash Equivalents,
End of Year $ 1,897 $ 1,225 $ 3,188
=================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest $ 214 $ 77 $ 29
Income taxes $ (857) $ 89 $ 2,355
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
1. Organization and Business
The Company is a manufacturer of oral generic drugs for sale primarily to
drug wholesalers, drugstore chains, and distributors in the United States.
After the February 29, 1996 acquisitions (as discussed herein), the Company
has expanded its operations into the manufacturing and distribution of generic
injectable drugs and medical devices, which products are targeted to be
marketed to hospitals and drug wholesalers.
At June 30, 1996, 1995, and 1994, 61%, 54% and 55%, respectively, of the
outstanding common stock of Faulding Inc. (the "Company") was owned by
Faulding Holdings Inc. ("Holdings"), a wholly-owned subsidiary of F. H.
Faulding & Co. Limited ("Faulding"), a major Australian pharmaceutical
company.
On February 29, 1996, the Company changed its name from Purepac, Inc. to
Faulding Inc.
2. Basis of Presentation and Significant Accounting Policies
Acquisitions
On February 29, 1996 the Company acquired all of the outstanding capital stock
of each of Faulding Medical Device Co. ("FMD"), Faulding Puerto Rico, Inc.
("FPR"), and Faulding Pharmaceutical Co. ("FPC"), collectively the "Acquired
Companies," from Holdings (the Company's principal stockholder) in exchange
for 2,438,712 shares of its common stock. As part of the acquisition, the
Company created a Class B Preferred Stock with 150,000 authorized shares,
par value at $.01, all of which were issued to Holdings for a cash purchase
price of $100 per share, for a total value of $15 million.
At the effective date of acquisition the authorized number of shares of
common stock was increased from 25 million shares to 35 million shares.
Principles of Consolidation
The acquisition transaction was accounted for as similar to a pooling of
interests and, therefore, financial statements for all periods presented have
been restated as if the acquisition took place at the beginning of the earliest
period presented. The financial statements reflect the accounts of Faulding
Inc. (including its wholly owned subsidiary, Purepac Pharmaceutical Co.) and
the Acquired Companies. All intercompany transactions and balances have been
eliminated.
26
<PAGE>
The combined operations reported in the Company's consolidated financial
statements are comprised as follows:
Year Ended June 30, Year Ended June 30,
1996 1995
------------------- -------------------
Faulding Inc.
(formerly Purepac, Inc.)
- ------------------------
Net sales $ 63,822 $ 61,146
Cost of sales 47,112 46,476
Operating expenses 19,936 16,558
Net income (loss) before
preferred stock dividends (1,349) (847)
Combined Operations of
Acquired Companies
- -------------------------
Net sales $ 11,962 3,759
Cost of sales 11,285 2,811
Operating expenses 4,174 1,362
Net income (loss) before
preferred stock dividends (3,651) (771)
Consolidated Operations
- --------------------------
Net sales $ 75,784 64,905
Cost of sales 58,397 49,287
Operating expenses 24,110 17,920
Net income (loss) before
preferred stock dividends (5,001) (1,618)
Note: The Acquired Companies' operations for the year ended June 30,
1995 reflect the year's results of FMD and three month's
results of FPR and FPC, as they did not commence operations
until April 7, 1995.
Since the acquisition transaction was accounted for as similar to a pooling of
interests, the acquisition expenses of $1,043 were charged to results of
operations in the year ended June 30, 1996. The expenses include $576 for
financial advisory services and $467 for professional fees.
Summary of Significant Accounting Policies
The presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements; and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
27
<PAGE>
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosure for financial instruments for which it
is practicable to estimate value. The carrying amounts reflected in the
consolidated balance sheets for cash and cash equivalents, trade receivables
and payables approximate their respective fair values due to the short-term
nature of the instruments.
Revenue Recognition
Sales revenue is recognized upon shipment of the Company's products.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, certificates of deposit and
commercial paper having original maturities of three months or less.
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation and
amortization is computed using the straight-line method over the following
estimated useful lives:
Building and improvements 30 years
Machinery and equipment 4-10 years
Furniture and fixtures 5-10 years
Leasehold improvements remaining term of lease
28
<PAGE>
Trademarks and Patents
Trademarks acquired by Purepac, included in other assets, are amortized over
40 years using the straight-line method, consist of the following:
June 30, 1996 June 30, 1995
------------- -------------
Cost $ 500 $ 500
Accumulated amortization (208) (195)
------------- -------------
Net book value $ 292 $ 305
============= =============
Patents acquired by FMD, included in other assets, are amortized over 10
years using the straight-line method, consist of the following:
June 30, 1996 June 30, 1995
------------- -------------
Cost $ 381 $ 381
Accumulated amortization (57) (19)
------------- -------------
Net book value $ 324 $ 362
============= =============
Research and Development Costs
Research and development costs, including charges for such services provided
by Faulding, are charged to operations as incurred and represent the Company's
independent research and development efforts.
Earnings Per Common Share
Primary earnings per common share is calculated by (i) dividing income before
cumulative effect of a change in accounting for income taxes less preferred
dividends by the weighted average number of common shares outstanding
during the year and (ii) by dividing the cumulative effect of a change in
accounting for income taxes, if any, by such average number of common shares.
Common stock equivalents are excluded as the effect is either not material or
anti-dilutive. Earnings per share, assuming full dilution (principally from
convertible preferred shares), is also presented for the year ended June 30,
1994 and is based on the assumption that all contingently issuable shares were
outstanding from the beginning of the year to the extent dilution results. For
the years ended June 30, 1996 and 1995, fully diluted earnings per share is not
presented as the effect would be anti-dilutive.
29
<PAGE>
Supplemental Cash Flow Information
During the years ended June 30, 1996 and 1995, the Company recognized a tax
benefit when the Company issued 71,125 and 82,250 shares, respectively, of
common stock to employees pursuant to the Company s 1991 Restricted Stock
Incentive Plan. The transactions provided the Company with tax benefits equal
to the fair market value of the stock on the date of issuance. For financial
reporting purposes, the tax benefits were recorded as a reduction of the
deferred tax asset to the extent previously provided and the remainder of the
benefit was recorded as additional capital in excess of par value.
During the year ended June 30, 1994, the Company recognized a tax benefit
when a holder of nonstatutory stock options purchased 14,000 shares of
common stock at $1.81 per share. This transaction provided the Company a tax
benefit to the extent that the fair market value of the stock issued on the
exercise date exceeded the option price. For financial reporting purposes,
this benefit was recorded as additional capital in excess of par value.
3. Inventory
June 30, 1996 June 30, 1995
------------- -------------
Raw materials $ 11,160 $ 6,078
Work-in-process 4,509 6,114
Finished goods 10,827 8,646
------------- -------------
Total $ 26,496 $ 20,838
============= =============
4. Property, Plant and Equipment
June 30, 1996 June 30, 1995
------------- -------------
Land $ 2,199 $ 2,199
Buildings and improvements 16,311 13,021
Machinery and equipment 29,612 23,037
Leasehold improvements 5,100 4,790
Construction in progress 825 7,308
------------- -------------
Total cost $ 54,047 $ 50,355
Less accumulated
depreciation and
amortization (12,537) (9,790)
------------- -------------
Net book value $ 41,510 $ 40,565
============= =============
30
<PAGE>
5. Related-Party Transactions
During the years ended June 30, 1996, 1995 and 1994, the Company paid
Faulding $4,057, $2,289 and $3,789, respectively, for merchandise purchases
(pursuant to agreements to market injectable and oral products, both described
herein), $287, $918 and $1,007, respectively, for research and development
services and $603, $326 and $123, respectively, for interest expense on loan
advances associated with the Acquired Companies prior to the acquisition by the
Company. In addition, the Company paid Faulding Services Inc., $296, $266,
and $186, respectively, for business development services (pursuant to an
agreement with Faulding Services Inc. which terminated on December 31, 1995
and described herein). Faulding Services Inc. is a 100% owned subsidiary of
Holdings.
During the years ended June 30, 1996, 1995, and 1994, the Company was
reimbursed $466, $1,919 and $486, respectively, by Faulding for materials and
services related to research and development projects and $200 during the year
ended June 30, 1994 for the sale to Faulding of the Company s Poroplastic(R)
technology.
30
<PAGE>
Additionally, during the year ended June 30, 1996, the Company invoiced
$1,018 to Faulding Services Inc. for contract manufacturing of KADIAN (TM)
(pursuant to an agreement with Faulding Services Inc., described herein).
During the year ended June 30, 1994, the Company paid Faulding Services Inc.
$623 for engineering and consulting services related to the construction
of a manufacturing suite to accommodate the modified-release technology.
Included in other assets at June 30, 1996 and 1995 is $2,903 paid by the
Company to Faulding in June 1992 to acquire the proprietary technology,
including the scientific information and expertise, processes and procedures,
for the manufacture and sale of the generic version of certain modified-
release pharmaceutical products. The acquired technology is restricted to
use, on an exclusive basis, in the United States of America and its
territories. Amortization of this technology will commence in fiscal 1997.
Amounts due from (due to) affiliated companies are payable on demand and
were as follows as of:
June 30, 1996 June 30, 1995
------------- -------------
Faulding $ (1,881) $ 1,843
Holdings --- 10
Faulding Services Inc. 1,034 (37)
------------- -------------
$ (847) $ 1,816
============= =============
31
<PAGE>
Purepac entered into an agreement with Faulding as of December 5, 1992,
pursuant to which Purepac agreed to provide services to Faulding for the
tableting of pellets and micropellets on a time and materials basis. During
the year ended June 30, 1996, no related services were provided by Purepac to
Faulding.
In addition, Purepac and Faulding entered into a three-year agreement, also
dated as of December 5, 1992, which is automatically renewable for successive
two-year periods, pursuant to which Faulding granted Purepac a non-exclusive
license to import, distribute and market an erythromycin oral product in the
United States.
On January 1, 1993, Purepac and Faulding Services Inc. entered into a
consulting agreement, which terminated on December 31, 1995, pursuant to
which Purepac retained Faulding Services Inc. to serve as a business
development consultant and advisor on a non-exclusive basis.
On August 1, 1993, Purepac entered into a ten-year agreement with Faulding
Services Inc. to manufacture KADIAN (TM) utilizing Faulding technology,
processes and manufacturing methods licensed to Faulding Services Inc.
Faulding Services Inc., at its sole cost, has sought all necessary approvals
and/or registrations from the appropriate regulatory authority to enable the
sale of the product, which was approved by the FDA on July 3, 1996. Under that
agreement, Purepac had commenced the manufacturing of KADIAN (TM) based on
orders received from Faulding Services Inc. and the initial income from this
contract was recorded in the quarter ending June 30, 1996. The parties
amended this agreement in December 1994 to resolve certain inconsistencies
between this agreement and an agreement with an unrelated third party, to
distribute the product manufactured by Purepac. On June 27, 1995 the
Company and Faulding Services Inc. entered into a Services Agreement
pursuant to which Purepac agreed to provide certain services on Faulding
Services Inc. s behalf that Faulding Services Inc. had agreed to provide under
the agreement with the third party.
On March 15, 1995, Purepac and Faulding entered into a three-year non-exclusive
license agreement for Purepac to import and distribute doxycycline, a
delayed-release product, in the United States in exchange for certain payments
to Faulding for its supply of the product to Purepac.
32
<PAGE>
Purepac and Faulding entered into two agreements as of June 26, 1995 for two
products that had been under ongoing development review for several years.
One is a licensing agreement pursuant to which Faulding granted to Purepac an
exclusive ten-year license to utilize certain technology to complete the
development of a modified-release product and manufacture and sell the
product in the United States. Relating to the product development, Purepac
paid to Faulding most of the technology licensing fees prior to June 30, 1994
with the balance paid during the year ended June 30, 1996, all expensed as
research and development costs. In addition, Purepac will be obligated to
pay royalties related to net sales of the product. As of June 30, 1996,
development activity regarding this agreement has not continued.
The second agreement is a ten-year Co-development, Supply and Licensing
Agreement whereby Faulding will develop and deliver a certain component
pellet of a modified-release product for Purepac's use in developing,
manufacturing and distributing such product in the United States. Faulding
will supply Purepac with pellets at a price set forth in the agreement. If
the parties later concur that Purepac will manufacture the pellets, Faulding
will grant Purepac an exclusive license to the pellet technology for the
remainder of the term of the agreement in consideration of a technology
transfer fee of $250 and ongoing royalty payments. As of June 30, 1996,
development activity regarding this agreement has not continued.
On January 23, 1996, FPC and Faulding entered into a Supply Agreement for
injectable products developed and manufactured by Faulding for sale in the
United States. Supply of six anti-cancer products, under this agreement,
commenced in fiscal 1996. ANDA submissions for additional products
covered by this agreement have been filed with the FDA. Additional products
are under development by Faulding.
On January 23, 1996, a Licensing and Supply Agreement was signed between
FMD and Faulding for the medical device products developed by FMD. Though
such products have not yet been launched in the United States, products
utilizing these technologies have received regulatory approval in some other
markets.
6. Accrued Expenses
June 30, 1996 June 30, 1995
------------- -------------
Advertising and promotion programs $ 1,408 $ 1,320
Compensation and payroll taxes 2,446 1,677
Medicaid rebate 668 520
Professional fees 402 848
All other 1,742 1,215
------------- -------------
TOTAL $ 6,666 $ 5,580
============= =============
33
<PAGE>
7. Long-Term Debt
On May 24, 1990, the Company entered into an uncollateralized financing
agreement with a commercial bank, which agreement was amended on May 24,
1992 and again amended in August 1994. The agreement permits the
Company to borrow up to $15,000, of which a maximum of $5,000 may be
borrowed under a term loan facility. Borrowings under the term loan facility
mature five years from the date of the borrowing. The difference between the
total financing agreement of $15,000 and any borrowings under the term loan
facility may be utilized as revolving debt. The Company is required to meet
certain financial covenants, including a minimum debt-to-equity ratio and a
minimum aggregate net asset amount.
At June 30, 1996, the Company had no outstanding borrowings from the bank
and no outstanding letters of credit.
At June 30, 1995, the Company had an outstanding loan from the bank of
$2,000 at an interest rate of 6.64% per annum. At June 30, 1995, there were
no outstanding letters of credit.
8. Stock Options
1994 Stock Option Plan
On October 18, 1994, the shareholders approved the 1994 Stock Option Plan
(the 1994 Plan ) which provides for issuance of up to 1,000,000 options to
acquire shares of the Company s authorized common stock. The options are
intended to qualify as Incentive Stock Options (statutory options) as defined
by the Internal Revenue Code or as Nonstatutory Stock Options.
Under the 1994 Plan, the Incentive Stock Options may be granted to key
employees of the Company or a subsidiary of the Company and the Nonstatutory
Stock Options may be granted to any key employee, officer, non-employee
director or consultant to the Company or a subsidiary of the Company, with
the exception that Nonstatutory Stock Options may not be granted to a holder
of more than 10% of the total voting power of the Company.
The exercise price of all Incentive Stock Options must be at least equal to
the fair market value of such shares on the date of grant. The exercise
price of all Nonstatutory Stock Options granted under the 1994 Plan shall be
determined by the Board of Directors of the Company at the time of grant. No
option granted shall be exercisable after the expiration of ten (10) years
from the date of grant.
34
<PAGE>
During the year ended June 30, 1995, the Company awarded two employees
33,000 Incentive Stock Options exercisable at $9.25 per share. During the
year ended June 30, 1996, the Company awarded nine employees options to
purchase 507,500 shares, of which 343,323 were Incentive Stock Options and
164,177 were Nonstatutory Stock Options. During the year ended June 30,
1996, due to two resignations and one cancelation, awards totaling 108,000
shares were terminated.
Information on the 1994 stock option plan activity is as follows:
Number of Options Awarded
----------------------------------
Incentive
Number of Exercisable Stock Nonstatutory
Employees Price Range Total Options Stock Options
--------- ----------- ------ --------- -------------
Outstanding at
June 30, 1995 2 $ 9.25 33,000 33,000
- ------------------------------------------------------------------------------
Options Awarded 27 $ 4.625- 675,000 510,823 164,177
$ 10.125
Terminated/
Canceled (3) $ 6.125- (108,000) (98,304) (9,696)
$ 9.25
- ------------------------------------------------------------------------------
Outstanding at
June 30, 1996 26 $ 4.625- 600,000 445,519 154,481
$ 10.125
- ------------------------------------------------------------------------------
9. Restricted Stock Incentive Plan
The shareholders approved the Company's 1991 Restricted Stock Incentive Plan
(the "Plan") for key employees of the Company. The Board of Directors have
allotted 465,000 shares for the plan.
On November 25, 1991, the Company awarded grants aggregating 275,000
shares of the Company's common stock to 15 employees. Such grants were
valued at $8.125 per share, being the market value thereof on the date of
grant. During the year ended June 30, 1993, due to two resignations, grants
totaling 20,000 shares were terminated. During the year ended June 30, 1994,
due to one resignation, grants totaling 20,000 shares were terminated.
During the year ended June 30, 1995, due to two resignations, grants totaling
10,500 shares were terminated. During the year ended June 30, 1996, due to
seven resignations, grants totaling 43,000 shares were terminated.
35
<PAGE>
On March 5, 1993, the Company awarded grants aggregating 50,000 shares of
the Company's common stock to six employees. Such grants were valued at
$13.8125 per share, being the market value thereof on the date of grant.
During the year ended June 30, 1994, due to one resignation, grants totaling
7,500 shares were terminated. During the year ended June 30, 1996, due to
one resignation, grants totaling 4,000 shares were terminated.
During the year ended June 30, 1996, the Company issued 44,625 shares of
common stock to employees pursuant to the Plan. As a result of the issuance
of these shares, the Company will have an income tax deduction of $272 in the
year ending June 30, 1997. The deduction will result in a reduction in taxes
payable of approximately $103. In the same year, for financial reporting
purposes, the tax benefit will be recorded as a reduction of the deferred tax
asset to the extent previously provided and the remainder of the benefit will
be recorded as additional capital in excess of par value. It will not be
reflected in the reported earnings or the earnings per share calculations.
During the year ended June 30, 1995, the Company issued 71,125 shares of
common stock to employees pursuant to the Plan. As a result of the issuance
of these shares, the Company had an income tax deduction of $759 in the year
ending June 30, 1996. The deduction resulted in a reduction in taxes payable
of approximately $288. In the same year, for financial reporting purposes,
the tax benefit was recorded as a reduction of the deferred tax asset to the
extent previously provided and the remainder of the benefit was recorded as
additional capital in excess of par value. It was not reflected in the
reported earnings or the earnings per share calculations.
During the year ended June 30, 1994, the Company issued 82,250 shares of
common stock to employees pursuant to the Plan. As a result of the issuance
of these shares, the Company had an income tax deduction of $1,347 in the year
ended June 30, 1995. The deduction resulted in a reduction in taxes payable
of approximately $512. In that year, for financial reporting purposes, the
tax benefit was recorded as a reduction of the deferred tax asset to the extent
previously provided and the remainder of the benefit was recorded as additional
capital in excess of par value. It was not reflected in the reported
earnings or the earnings per share calculations.
36
<PAGE>
Information on the Restricted Stock Incentive Plan activity is as follows:
Number of Grants Awarded, by Date
----------------------------------
November 25, 1991 March 5, 1993
----------------- -------------
Outstanding at June 30, 1992 275,000
- --------------------------------------------------------------------------
Terminated (20,000)
Grants awarded --- 50,000
- --------------------------------------------------------------------------
Outstanding at June 30, 1993 255,000 50,000
- --------------------------------------------------------------------------
Terminated (20,000) (7,500)
Shares Issued (82,250) ---
- --------------------------------------------------------------------------
Outstanding at June 30, 1994 152,750 42,500
- --------------------------------------------------------------------------
Terminated (10,500) ---
Shares Issued (56,250) (14,875)
- --------------------------------------------------------------------------
Outstanding at June 30, 1995 86,000 27,625
- --------------------------------------------------------------------------
Terminated (43,000) (4,000)
Shares Issued (34,000) (10,625)
- --------------------------------------------------------------------------
Outstanding at June 30, 1996 9,000 13,000
==========================================================================
10. Common Stock
During the years ended June 30, 1996, 1995 and 1994, the Company issued in
aggregate 44,625, 71,125, and 82,250 shares of common stock to employees,
pursuant to the Company's 1991 Restricted Stock Incentive Plan discussed in
Note 9. The Company received no proceeds from these transactions. During
the years ended June 30, 1996, 1995 and 1994, the Company recognized $110,
$366 and $385, respectively as compensation expense for the 1991 Restricted
Stock Incentive Plan.
During the year ended June 30, 1996, the Company issued 2,438,712 shares of
common stock to Holdings (the Company's principal stockholder) pursuant to
acquisitions of companies discussed in Note 2. The company received no
proceeds from the exchange of shares for the acquisition of the Acquired
Companies.
37
<PAGE>
11. Preferred Stock
The authorized but unissued preferred stock may be issued from time to time,
in one or more series, by the Board of Directors.
Class A
In 1987, the Company issued and sold to Holdings 834,188 shares of the Class
A preferred stock at $29.34 per share, or $23,133, net of expenses of $1,342.
These shares provide for a cumulative dividend of 8.5% per annum, which
dividend accrues until such time as the Company shall have profits, surpluses or
other funds legally available for payment of dividends. Dividends accrue on
each share of Class A preferred stock on a daily basis at 8.5% per annum of
liquidation value and are payable quarterly on the first days of January,
April, July and October, beginning in January 1988. If any accrued dividends,
for any reason, are not paid on these days, then such dividend shall be
considered in arrears and, until paid, shall continue to be accrued on the
liquidation value (purchase price less dividends paid) plus dividends in
arrears.
During the years ended June 30, 1996, 1995 and 1994, all current year
preferred dividends totaling $2,080, each year were paid. The quarterly
dividend of $520 was declared and accrued at June 30, 1996 and subsequently
paid on July 1, 1996.
Each share of Class A preferred stock may be converted, at the election of
the holder, into six shares of common stock. At June 30, 1996, 5,005,128
shares of common stock were reserved for issuance under the terms of the
Class A preferred stock.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Class A preferred stock shall be entitled to be paid out of
the assets of the Company available for distribution to its stockholders,
whether from capital, surplus or earnings, amounts in cash equal to the sum
of $29.34 per share plus all accrued and unpaid dividends.
On or after December 1, 1997, the Company may, at its election, redeem any or
all shares of Class A preferred stock. For each share of Class A preferred
stock redeemed, the Company shall be obligated to pay a redemption price of
$29.34 per share plus any accrued and unpaid dividends.
38
<PAGE>
Class B
On February 29, 1996, as part of the acquisition of the Acquired Companies,
the Company created a Class B preferred stock with 150,000 authorized shares,
par value at $.01, all of which were issued to Holdings for a cash price of
$100 per share or an aggregate of $15 million. These shares pay an annual
dividend of $4.50 per share or an aggregate of $675 per year, and are
convertible into shares of the Company's common stock at a rate of 10.433
shares of common stock for each share of Class B preferred stock. Dividends
accrue on each share of Class B preferred stock on a daily basis at 4.5% per
annum of liquidation value and are payable quarterly on the first days of
January, April, July and October, beginning April 1, 1996. If any accrued
dividends, for any reason, are not paid on these days, then such dividend
shall be considered in arrears and, until paid, shall continue to be accrued
on the liquidation value (purchase price less dividends paid) plus dividends
in arrears.
The initial dividend for the period February 29, 1996 to March 31, 1996, of
$58 was paid on April 1, 1996. The quarterly dividend of $169 was declared
and accrued at June 30, 1996 and subsequently paid on July 1, 1996.
On or after the first anniversary of the date of issuance, each share of
Class B preferred stock may be converted, at the election of the holder, into
10.433 shares of common stock. At June 30, 1996, 1,564,950 shares of common
stock were reserved for issuance under the terms of the Class B preferred
stock.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Class B preferred stock shall be entitled to be paid out of
the assets of the Company available for distribution to its stockholders,
whether from capital, surplus or earnings, amounts in cash equal to the sum
of $100.00 per share plus all accrued and unpaid dividends.
On or after February 29, 1999, the Company may, at its election, redeem any
or all shares of Class B preferred stock. For each share of Class B
preferred stock redeemed, the Company shall be obligated to pay a redemption
price of $100.00 per share plus any accrued and unpaid dividends.
12. Commitments and Contingencies
Leases
The Company leases certain of its equipment and property under operating
leases which provide for monthly lease payments and, in certain instances,
provide options to purchase the property at fair market value.
39
<PAGE>
The Company through FPR has a long-term lease for a seven building facility
in Aguadilla, Puerto Rico from the Port Authority of the Commonwealth of
Puerto Rico which expires in the year 2020.
For the years ended June 30, 1996, 1995 and 1994, total rental expense for
operating leases amounted to $867, $556 and $350, respectively. The
following is a schedule of future minimum rental payments under such
operating leases:
Fiscal Year Ending June 30,
------------------------------------------
1997 $ 704
1998 531
1999 252
2000 185
2001 178
Thereafter 3,386
Litigation
On September 11, 1995, the United States District Court for the District of
New Jersey granted the Company's motion to dismiss a complaint filed against
the Company and certain of its former senior executives in a lawsuit entitled
Dechter vs. Purepac, Inc., Robert H. Bur and Russell J. Reardon, 94 Civ. 6195.
Pursuant to the court's decision, the plaintiffs had the opportunity to file
a motion with the court to submit a proposed amended complaint. The
plaintiffs elected not to file such a motion, thereby terminating such
litigation.
Pursuant to an agreement dated as of December 31, 1995, the Company has
settled certain litigation entitled Merck & Co., Inc. v. Purepac Pharmaceutical
Co. Case No. 95-495 in the United States District Court for the District of
Delaware. In accordance with such agreement, the Company is to receive a cash
settlement. The proceeds will be payable in three equal annual installments.
In addition the Company has agreed not to pursue the marketing or sale of the
pharmaceutical product which was the subject of the litigation in the United
States until the patent expiration in the year 2006.
40
<PAGE>
On August 21, 1996, an action was commenced against the Company, Purepac,
Faulding and Zeneca, Inc. in the United States District Court for the District
of Delaware entitled Purdue Pharma L.P. and the Purdue Frederick Company vs.
F.H. Faulding & Co. Limited, Faulding Inc., Purepac Pharmaceutical Co. and
Zeneca Inc. 96 Civ.427. The complaint alleges that the manufacture and
marketing in the United States of KADIAN (TM) infringes a patent assigned to
one of the plaintiffs and constitutes unfair competitive practices under Federal
and State law. The Company, through Purepac, manufactures KADIAN (TM) pursuant
to a contract manufacturing agreement with Faulding, and Zeneca Inc. is its
U.S. distributor.
While the Company has not yet been served in the action, the complaint seeks,
among other things, an order enjoining the Company from the commercial
manufacture of KADIAN (TM) and treble and punitive damages in the event that
the defendants have violated Federal or State unfair competitive and deceptive
trade practices law.
The Company believes the allegations in the complaint to be entirely without
merit and intends, in cooperation with its co-defendants, to vigorously
defend this action. The commencement of the action did not impact the launch
of KADIAN (TM) .
The Company is involved in litigation incidental to the conduct of its
business, in addition to the above matters, and does not believe that the
ultimate adverse resolutions of any, or all, thereof would have a material
adverse effect on its financial position, results of operations or cash flows.
13. Employee Benefit Plans
In January 1990, the Company adopted a defined benefit pension plan (the
"Plan"). The Plan covers employees who have one year or more of credited
service and whose employment is not governed by a collective bargaining
agreement. Net periodic pension cost is comprised of the components listed
below, as determined using the projected unit credit actuarial cost method.
The Company's funding policy is to make annual contributions to the Plan in
such amounts necessary to fund benefits provided under the Plan on the basis
of information furnished by the Company's actuary.
41
<PAGE>
Year Ended June 30,
--------------------------------
Net Periodic Pension Cost 1996 1995 1994
------ ------ ------
Service cost for benefits earned
during the period $ 506 $ 305 $ 338
Interest cost on projected
benefit obligation 194 154 121
Return on plan assets (138) (88) (63)
Amortization of prior service cost 19 19 29
Amortization of actuarial loss 34 1 33
------ ------ ------
Total $ 615 $ 391 $ 458
====== ====== ======
June 30, June 30,
Funded Status and Obligation of the Plan 1996 1995
-------- --------
Actuarial present value of accumulated
benefit obligations $ 1,703 $ 1,111
Vested benefits included in above 1,538 993
- -------------------------------------------------------------------------
Projected benefit obligation $ 3,373 $ 2,388
Plan assets at fair value (2,191) (1,462)
Unrecognized prior service cost (155) (175)
Unrecognized net gain (loss) (709) (201)
Additional Liability 2 4
-------- --------
Accrued pension obligation $ 320 $ 554
======== ========
The discount rate used in determining the projected benefit obligations was
7.25% at June 30, 1996, a decrease of .75% from June 30, 1995. The rate of
increase in future compensation levels used in the determination was 5.5% for
both June 30, 1996 and 1995. The expected long-term rate of return on the
Plan's assets used in determining pension cost was 8% for both years.
42
<PAGE>
The Company also has a 401(k) savings and investment plan established
January 1, 1990, which allows employees to defer up to 15% of their salary,
with the Company matching 25% of employees' contributions not exceeding 5% of
their salary. The plan was amended, effective January 1, 1991, to increase
the Company match from 25% to 50% of the first 5% of employees' contribution
and, effective July 1, 1991, to increase the Company matching contribution to
50% of each employee's contribution not exceeding 6% of an employee's salary.
The Company's contribution charged to operations for the years ended June 30,
1996, 1995, and 1994 was $230, $224 and $196, respectively.
14. Income Taxes
The Company adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" ("SFAS 109"), effective July 1, 1993. This
statement superseded Statement of Financial Accounting Standard No. 96,
"Accounting for Income Taxes". The cumulative effect of adopting SFAS 109 on
the Company's financial statements for the year ended June 30, 1994, was to
increase income by $4,149 ($.28 per primary common share and $.21 per share
on a fully diluted basis) with a corresponding increase in the deferred tax
asset.
Beginning with the adoption of SFAS 109, the income tax expense provision
does not include the benefit of recognizing available loss carryforwards to
the extent they have already been recognized as a deferred tax asset.
Instead, there will be a reduction in the deferred tax asset when such
benefits are utilized to reduce taxes payable.
Deferred income tax assets, both current and non-current, reflect the net tax
effects of (a) temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for
income tax purposes, and (b) operating loss and tax credit carryforwards.
The decrease in the current year s deferred tax assets resulted primarily
from the recognition of tax deductible items in the current year.
43
<PAGE>
Net deferred tax assets consisted of the following as of:
June 30, June 30,
1996 1995
------------ ------------
Current Deferred Tax Asset:
Reserve for doubtful accounts $ 989 $ 779
Reserve for inventory obsolescence 298 509
Sundry accruals 542 557
Federal operating loss carryforwards 1,197 1,021
Federal tax credit carryforwards 707 707
State operating loss carryforwards 168 198
------------ ------------
3,901 3,771
------------ ------------
Current Deferred Tax Liability:
Stock grant amortization 336 158
Receivables 216 ---
Prepaids 68 96
Property, plant and equipment 56 4
------------ ------------
676 258
------------ ------------
NET CURRENT DEFERRED TAX ASSET $ 3,225 $ 3,513
============ ============
Non-Current Deferred Tax Asset:
Stock grant amortization $ 359 $ 392
Federal operating loss carryforwards 4,677 3,416
State operating loss carryforwards 63 ---
------------ ------------
5,099 3,808
------------ ------------
Non-Current Deferred Tax Liability:
Receivables 217 ---
Property, plant and equipment 2,919 2,609
License amortization 385 285
------------ ------------
3,521 2,894
------------ ------------
Valuation Allowance (740) ---
------------ ------------
NET NON-CURRENT DEFERRED TAX ASSET $ 838 $ 914
============ ============
44
<PAGE>
The provision for income taxes was comprised of the following:
Year Ended June 30,
--------------------------------
1996 1995 1994
------- -------- -------
Current
Federal $ (624) $(1,026) $ 1,047
State (77) (120) 366
------- -------- -------
(701) (1,146) 1,413
Deferred
Federal 61 1,149
State 11 40
------- -------- -------
Total provision (benefit) $ (701) $ 1,074 $ 2,602
======= ======== =======
The Company has net operating losses and tax credits available as
carryforwards to reduce future federal income taxes. State tax losses are
also available as carryforwards. At June 30, 1996, for federal tax purposes,
the net operating loss and tax credit carryforwards amounted to $14,870 and
$707, respectively; they expire through year 2003. The future utilization of
the net operating loss carryforwards by the Company is subject to limitation
under provisions of the Internal Revenue Code.
In addition, the Company will carryback its current year's federal net
operating loss and recover approximately $1,340 of federal income tax.
The benefit of net operating losses generated by the Acquired Companies prior
to acquisition by the Company cannot be realized until the individual company
generates taxable income to utilize such benefit. As of June 30, 1996 this
had not occurred, a valuation allowance has been provided fully for these net
operating losses.
45
<PAGE>
A reconciliation of the statutory federal rate to the effective tax rate is
as follows:
Year Ended June 30,
--------------------------
1996 1995 1994
----- ----- ----
Statutory federal rate (34%) (34%) 34%
State taxes net of federal benefit (4) (4) 4
Loss of benefit of utilizing pre-
acquisition net operating loss
carryforwards 20 --- --
Non deductible acquisition expenses 6 --- --
Other (2) 1
---------------------------
Effective tax rate (12%) (40%) 39%
===== ===== ====
15. Segment Information
The Company operates in one business segment, the pharmaceutical industry.
Primarily, the Company manufactures and sells oral generic pharmaceutical
products and, since the February 29, 1996 acquisitions, the Company has
expanded into the manufacturing, distribution and commercialization of
generic injectable drugs and medical devices.
For the year ended June 30, 1996, three customers each accounted for
approximately 11%, 10%, and 10% of sales. Sales to the three customers were
$8.7 million, $7.4 million and $7.4 million, respectively. For the year
ended June 30, 1995, three customers each accounted for approximately 12%,
11% and 10% of sales. Sales to the three customers were $7.8 million, $6.9
million and $6.3 million, respectively. For the year ended June 30, 1994,
two customers each accounted for approximately 12% and 11% of sales. Sales
to the two customers were $8.3 million and $8.1 million, respectively.
16. Subsequent Events
On August 27, 1996, a customer of the Company, FoxMeyer Drug Co., filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. The accounts
receivable balance owed by FoxMeyer to the Company was approximately $1.4
million and $1.5 million on June 30, 1996 and August 27, 1996, respectively.
Due to the uncertainties surrounding the bankruptcy filing, the impact on
future results of operations and financial position cannot be determined.
46
<PAGE>
SCHEDULE II
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<CAPTION>
Balance at Charged to Balance
For the Year Ended Beginning Costs and at End
June 30, 1996: of Year Expenses Deductions of Year
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for sales returns,
allowances and discounts $ 2,497 $ 17,324 $ 16,686 $ 3,135
Allowance for doubtful
accounts 119 101 --- 220
- -----------------------------------------------------------------------------------
TOTAL $ 2,616 $ 17,425 $ 16,686 $ 3,355
===================================================================================
Balance at Charged to Balance
For the Year Ended Beginning Costs and at End
June 30, 1995: of Year Expenses Deductions of Year
- -----------------------------------------------------------------------------------
Allowance for sales returns,
allowances and discounts $ 1,365 $ 12,874 $ 11,742 $ 2,497
Allowance for doubtful
accounts 187 (68) --- 119
- -----------------------------------------------------------------------------------
TOTAL $ 1,552 $ 12,806 $ 11,742 $ 2,616
===================================================================================
Balance at Charged to Balance
For the Year Ended Beginning Costs and at End
June 30, 1994: of Year Expenses Deductions of Year
- -----------------------------------------------------------------------------------
Allowance for sales returns,
allowances and discounts $ 2,195 $ 9,016 $ 9,846 $ 1,365
Allowance for doubtful
accounts 254 (67) --- 187
- -----------------------------------------------------------------------------------
TOTAL $ 2,449 $ 8,949 $ 9,846 $ 1,552
===================================================================================
</TABLE>
47
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
(All dollar references are in thousands, unless otherwise indicated.)
ITEM 10. DIRECTORS, OFFICERS AND SIGNIFICANT EMPLOYEES
DIRECTORS
- ---------
The directors of the Company are as follows:
Common Stock
Beneficially
Company Owned as of
Name Office(s) Since Age Sept. 20 1996
- ------------------ ----------------- ----- --- -------------
Edward D. Tweddell Director/Chairman 1990 55 -0-(2)
Alan G. McGregor Director 1988 60 -0-(2)
David Beretta (1) Director 1989 68 -0-
Bruce C. Tully Director 1989 47 -0-
Richard F. Moldin President, Chief 1995 48 10,000(3)
Executive Officer,
Chief Operating
Officer
(1) Mr. Beretta died on September 16, 1996.
(2) Mr. McGregor and Dr. Tweddell are directors of Faulding, the parent of
Holdings, the principal stockholder of the Company. See "Principal
Stockholders" of the Company and "Compensation Committee Interlocks and
Insider Participation."
(3) Excludes 200,000 shares issuable upon the exercise of stock option
awards, not presently exercisable, that have been made to Mr. Moldin
under the Company's 1994 Stock Option Plan. See "Compensation of
Executive Officers."
Edward D. Tweddell, M.D., was elected a director in November 1990 and
was subsequently elected Chairman of the Board. He joined Faulding as
Managing Director of its Faulding Pharmaceuticals Division in September
1988. He was elected to the Board of Directors of Faulding in March 1989
and served as Executive Director of the Faulding Pharma Group from
1990 to November 1993 when he was appointed Group Managing
Director and Chief Executive Officer of Faulding. From July 1987, until
joining Faulding, he held the position of Chairman and Chief Executive
Officer of Pharmol Pacific Ltd., an Australian biotechnology company.
Prior thereto and from April 1986, he was President and Chief Executive
48
<PAGE>
Officer of Homecare Japan, LTD. Dr. Tweddell, who holds a Bachelor of
Science degree in addition to an honors degree in Medicine, spent his
early career in medical practice and, in 1976, joined the multinational
pharmaceutical company, Pfizer International Inc. ("Pfizer"), where he
held a number of senior management positions.
Alan G. McGregor, a director of the Company since June 1988, is
Chairman of Faulding. Mr. McGregor is also a director of James Hardie
Industries Ltd., Burns, Philp & Co. Ltd. and other companies. He has
served as a partner in two major Adelaide, South Australia law firms and
was a Crown Prosecutor with the South Australian Crown Solicitor's
Office.
David Beretta, a director of the Company since April 1989, was President
of Executive Consulting Inc., a business consulting firm in Jamestown,
Rhode Island until his death on September 16, 1996. From April 1991,
Mr. Beretta was Vice Chairman and President of Amtrol Inc., a concern
engaged in the manufacture of products used in flow control, storage,
heating and other treatment of fluids in the water systems market and
selected sectors of the heating, ventilating and air conditioning market in
West Warwick, Rhode Island. Until 1982, he was Chairman of the Board
of Uniroyal, Inc. and remained a director until 1987. He was also a
director of Chartel Power Systems Inc.
Bruce Tully, a director of the Company since April 1989, has been a
Managing Director of BT Securities Corporation, a subsidiary of Bankers
Trust New York Corporation in New York, New York, since September
1989. Prior thereto and from October 1986, he was Managing Director of
Bankers Trust Company and for four years prior thereto, was a Vice
President thereof.
Richard F. Moldin, was appointed President and Chief Executive Officer
of the Company and President of Purepac on July 17, 1995 and was
appointed to serve as a director and Chief Operating Officer of the
Company on July 24, 1995. Prior to joining the Company and from
October 1994 he served as Managing Director, Australia & New Zealand
for Wellcome Australia Limited. From May 1993 until his appointment as
Managing Director, he was Divisional Manager, Primary Manufacturing,
for Wellcome Foundation Limited, U.K. Prior thereto and from September
1979, he served in various executive positions at Burroughs Wellcome
Co., U.S.A., including from October 1991 to February 1993 as Vice
President, Logistics & Primary Manufacturing.
49
<PAGE>
EXECUTIVE OFFICERS
- ------------------
Set forth below is certain information with respect to the Company's
executive officers who are not serving as a director.
Lee Craker, age 41, was appointed Chief Financial Officer of the
Company on May 26, 1995 and was appointed Treasurer on October 11,
1995. Mr. Craker has held various positions with Faulding, or certain
of its affiliates, dating from his initial employment by Faulding in 1973.
From May 1985 to May 1990 he served as Finance and Administration Manager
of David Bull Laboratories Pty. Ltd., a wholly-owned subsidiary of
Faulding. From May 1990 to June 1994, he was Finance and
Administration Manager of the Faulding Pharma Group and from July
1994 until joining the Company in May 1995 he was Finance and
Administration Manager of Faulding Services Inc.
Garth Boehm, Ph.D., age 46, joined the Company as Vice President -
Scientific Affairs in April 1990 and was elected Executive Vice President in
October 1991. He was Deputy Research Director of Faulding
Pharmaceuticals, a division of Faulding, from July 1989 to April 1990.
From 1985 to June 1989, he held senior management positions at
Enterovax Limited, a joint venture of Faulding, the University of Adelaide
and the Australian Industry Development Corporation. Prior thereto and
from 1981, he was Development Scientist of the R&D Division of
Faulding.
William R. Griffith, age 48, was elected Secretary of the Company in
October 1993. Mr. Griffith is a member of Parker Duryee Rosoff & Haft,
counsel to the Company. Mr. Griffith has been a practicing attorney for
more than ten years.
50
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
(Dollars in thousands)
Summary Compensation
Set forth below is the aggregate compensation for services rendered in all
capacities to the Company during its fiscal years ended June 30, 1996,
1995 and 1994 by each of its executive officers who served as an
executive officer on June 30, 1996 and whose compensation exceeded
$100 during its fiscal year ended June 30, 1996:
Summary Compensation Table
Annual Compensation
Name and Fiscal Other Annual
Principal Position Year Salary Bonus Compensation
- ----------------- ------ ------ ----- ------------
Richard F. Moldin 1996 $ 285 $ 105 (1)
Chief Executive Officer, 1995 --- --- ---
President and Chief 1994 --- --- ---
Operating Officer
Lee Craker 1996 $ 158 $ 38 (1)
Chief Financial Officer 1995 --- --- ---
and Treasurer 1994 --- --- ---
Garth Boehm 1996 $ 164 $ 31 (1)
Executive Vice President 1995 $ 161 $ 7 (1)
1994 $ 156 $ 30 (1)
- ------------------
(1) Such amounts for each of the named executive officers listed in the
Summary Compensation Table are less than 10% of the total annual salary and
bonus reported for each such executive officer.
51
<PAGE>
Stock Options and Bonus Plans
The Company's 1994 Stock Option Plan (the "1994 Plan") was adopted by
the Board of Directors on August 16, 1994 and by a majority in interest of
the stockholders of the Company on October 18, 1994. The 1994 Plan
provides for the granting of up to 1,000,000 options which are intended to
qualify either as incentive stock options ("Incentive Stock Options") within
the meaning of Section 422 of the Internal Revenue Code of 1986 or as
options which are not intended to meet the requirements of such section
("Nonstatutory Stock Options"). The total number of shares of Common
Stock reserved for issuance under the 1994 Plan is 1,000,000. Options to
purchase shares may be granted under the 1994 Plan to persons who, in
the case of Incentive Stock Options, are employees (including officers) of
the Company, or, in the case of Nonstatutory Stock Options, are
employees (including officers) or non-employee directors of the Company.
The 1994 Plan is administered by a committee appointed by the Board of
Directors, which has discretionary authority, subject to certain restrictions,
to determine the number of shares issued pursuant to Incentive Stock
Options and Nonstatutory Stock Options and the individuals to whom, the
time at which, and the exercise price for which options will be granted.
The exercise price of all Incentive Stock Options granted under the 1994
Plan must be at least equal to the fair market value of such shares on the
date of the grant or, in the case of Incentive Stock Options granted to the
holder of more than ten percent of the Company's Common Stock, at
least 110% of the fair market value of such shares on the date of the
grant. The maximum exercise period for which Incentive Stock Options
may be granted is ten years from the date of grant (five years in the case
of an individual owning more than 10% of the Company's Common
Stock). The aggregated fair market value (determined at the date of the
option grant) of shares with respect to which Incentive Stock Options are
exercisable for the first time by the holder of the options during any
calendar year shall not exceed $100.
52
<PAGE>
The following table sets forth certain information concerning grants of stock
options to the executive officers of the Company under the 1994 Plan during
the fiscal year ended June 30, 1996.
<TABLE>
Option Grants in Last Fiscal Year
<CAPTION> Potential
Realizable
Value at
Assumed
Annual
Rates of
Stock Price
Individual Appreciation
Grants for Option Term
- -----------------------------------------------------------------------------------------------
% of Total
Options
Granted
to Employees
Number of in Fiscal
Options Year Ended Exercise Expiration
Name Granted June 30, 1996 Price Date 5%($) 10%($)
- -------------------- --------- ------------- -------- --------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Richard F. Moldin
Chief Executive 150,000 25% $ 10.125 7/16/2005 6.555 17.285
Officer, President
and Chief Operating 50,000 8.3% $ 6.25 4/21/2006 4.04 10.67
Officer
Garth Boehm
Executive Vice 30,000 5% $ 6.125 2/28/2006 3.965 10.455
President
</TABLE>
53
<PAGE>
The following table sets forth certain information with respect to options
granted to officers, directors and employees of the Company and its
subsidiaries under the 1994 Plan during the fiscal year ended June 30, 1996.
The dollar value set forth below reflects the difference between the
aggregate exercise price of the options and the estimated value of the
Company's Common Stock at June 30, 1996.
Fiscal Year End Option Values
Number of Unexercised
Options at June 30, 1996 Value of
----------------------------- Unexercised Options
Name Exercisable Unexercisable at June 30, 1996
- ------------------- ----------- ------------- -------------------
Richard F. Moldin -0- 200,000 $ -0-
Chief Executive Officer,
President and Chief
Operating Officer
Garth Boehm -0- 30,000 $ -0-
Executive Vice President
All Non-Executive
Employees as a -0- 370,000 $ -0-
Group
1991 Restricted Stock Incentive Plan
The Company's 1991 Restricted Stock Incentive Plan (the "1991 Plan")
was adopted by the Board of Directors on November 25, 1991 and ratified
by a majority in interest of the stockholders of the Company on October
21, 1992. The stated intent of the 1991 Plan is to induce persons of
outstanding ability and potential to join and remain with the Company and
to enable key employees, who make substantial contribution to the
Company, to acquire proprietary equity interests in the Company.
The Board of Directors chooses the Committee, whose members are
ineligible to receive stock awards under the 1991 Plan, to administer the
Plan. The Committee determines the employees to whom awards of
Common Stock will be granted and the amount, size and terms of each
such award.
54
<PAGE>
A total of 465,000 shares of Common Stock of the Company were
reserved for issuance under the 1991 Plan, of which aggregate grants of
275,000 and 50,000 were awarded in November 1991 and March 1993,
respectively, at the respective values of $8.125 and $13.8125, being the
respective market value thereof on the date of the grant. During the year
ended June 30, 1994, due to two resignations, grants totaling 27,500
shares were terminated and 82,250 shares were issued. During the year
ended June 30, 1995, due to two resignations, 10,500 shares were
terminated and 71,125 shares were issued. During the year ended June
30, 1996, due to eight terminations, grants totaling 47,000 shares were
terminated and 44,625 shares were issued.
Pension Plan
The Company maintains a defined benefit pension plan, fully paid for by
the Company, for the benefit of eligible employees. All non-union
employees become eligible for participation in the pension plan on
January 1 or July 1, as applicable, following completion of one year of
service. 161 persons were participants in the pension plan as of June 30,
1996.
A participant in the Company's pension plan will receive retirement
income based on .91% of his final average annual compensation, defined
in the pension plan as including salary, bonuses, overtime and
commissions, plus .52% of his final average annual compensation in
excess of Social Security covered compensation, multiplied by years of
credited service up to 35 years. Years of service for benefit accrual
purposes are only after January 1, 1976. Final average compensation is
defined in the pension plan as the average of a participant's total
compensation received during the highest paid five consecutive plan
years during the last 10 consecutive plan years immediately prior to
retirement. A participant is 100% vested in his accrued pension benefit
after five years of service as defined in the plan. The vested benefit of
many participants employed prior to October 31, 1989, are provided
through both the Purepac pension plan and the Solvay Group Pension
Plan, the predecessor Company's plan.
55
<PAGE>
The following table indicates the estimated annual plan benefits payable
upon retirement as of June 30, 1996 at age sixty-five after fifteen, twenty,
twenty-five, thirty and thirty-five years of credited service to the Company:
PENSION PLAN TABLE
(Dollars in thousands)
Average
Compensation Annual Benefit Based on Years of Service
- ------------------ ----------------------------------------
15 20 25 30 35
-- -- -- -- --
$ 125,000 ........ $25 $33 $41 $50 $ 58
150,000 ........ 30 40 50 60 70
175,000 ........ 30 40 50 60 70
200,000 ........ 30 40 50 60 70
225,000 ........ 30 40 50 60 70
250,000 ........ 30 40 50 60 70
300,000 ........ 30 40 50 60 70
350,000 ........ 30 40 50 60 70
400,000 ........ 30 40 50 60 70
450,000 ........ 30 40 50 60 70
500,000 ........ 30 40 50 60 70
At June 30, 1996, the credited years of service under the pension plan for
Mr. Moldin was one. Mr. Craker and Dr. Boehm are not participants in the
pension plan.
Savings Plan
The Company has a savings plan, implemented as of January 1, 1990,
covering all non-union employees of the Company and its subsidiaries.
Under the savings plan, employees may defer up to 15% of their salary, to
a maximum of $9 per annum. The Company makes an annual matching
contribution equal to 50% of an employee's contribution, not exceeding
6% of the employee's salary. Matching contributions are vested at the
rate of 20% per annum commencing upon one year's participation in the
savings plan. All vested amounts in a participant's account, including
earnings, may be distributed only following hardship, retirement, death,
permanent or total disability or termination of employment.
For the three year period ended June 30, 1996, the Company had
contributed an aggregate of $650,000 to the savings plan (net of
forfeitures of non-vested amounts), for the respective accounts of 193
participants. Of such $650,000, an aggregate of $11 has been credited
to the accounts of all current executive officers as a group, being $ -0-,
$11, and $ -0- for the respective accounts of Mr. Moldin, Dr. Boehm and
Mr. Craker.
56
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General Compensation Policies
The Company's Compensation Committee (the "Committee") is
responsible for establishing, approving and administering the policies
which govern annual executive salary levels, increases/adjustments,
incentive payments, the award of stock grants under the Company's 1991
Restrictive Stock Incentive Plan and the award of stock options under the
Company's 1994 Stock Option Plan. During the year ended June 30, 1996 and
until the death of David Beretta on September 16, 1996, the Committee was
composed of three members, all of whom were non-employee directors. See
"Compensation Committee Interlocks and Insider Participation." It is
anticipated that the Board of Directors will appoint a replacement member for
Mr. Beretta in the near future.
In setting salary levels, providing incentives and granting stock and option
incentives, the objectives of the Committee are to encourage profitable
growth of the Company in a mutuality of interest between the Company's
executives and stockholders and to balance competitive pay with the
Company's overall performance. Specifically, the Committee attempts to
provide levels of compensation to the President/CEO and the Company's other
executive officers which reflect the contribution of such executives to the
Company's growth in sales, earnings and market share, the development of
stockholder value as reflected in the increase in the Company's stock price
and the implementation of corporate strategies consistent with the growth of
the Company.
Growth in earnings is a significant factor in determining compensation. In
addition, contribution to the development of new product opportunities, the
progress of bioavailability and other studies and of development activities
required to bring products to market and the successful marketing of the
Company's primary products are evaluated in setting compensation
policy. As well, to assure the Company's ability to attract, motivate and
retain talented executives, the Committee attempts to keep the
Company's levels of executive compensation competitive with that of
other health care companies of comparable size and performance.
President/CEO and Executive Officers Compensation
The Company's executive compensation program consists of three key
components: base salary, a cash incentive scheme and long term
incentives through the awards of restricted stock grants and stock options.
57
<PAGE>
The incentive payments have two performance components, each with a 50%
weighting: (a) a financial budget achievement target based on net profit
before taxes and (b) achievement of specific job-related objectives. The
underlying principle for the design and implementation of the Company's
incentive scheme is based on the concept that the Company commit in advance
to predetermined annual levels of performance. Actual results achieved are
measured against that commitment.
The Company's long term incentives to date have been in the form of
restricted stock and stock option grants. The object of this program has
been to advance the longer term interest of the Company and its
stockholders. Equity compensation is an important element of the perfor-
mance-based compensation of the executive officers and helps to ensure
that management's interests remain closely aligned with those of the
Company's stockholders. The Committee is of the view that Restricted
stock awards and stock option grants provide the Company's key
employees an opportunity for increased equity ownership and help to
create an incentive to remain with the Company for the long term, since
the grants vest over a four to six year period.
During the approximate five month period from January to July 17, 1995
Michael R.D. Ashton held the position of President and Chief Executive
Officer of the Company. His yearly salary as President of Faulding Services
Inc. had already been established, was not altered upon his acceptance of
additional responsibilities as President and CEO of the Company and was
paid by Faulding Services Inc.
On July 17, 1995, the Company appointed Richard F. Moldin as its President
and Chief Executive Officer. Mr. Moldin's initial compensation package
reflected the Company's determination to recruit experienced executive officers
who had considerable experience in the pharmaceutical industry by offering them
compensation cometitive with that of health care companies of comparable size
and performance. He received an initial base salary of $285,000 and a grant
of 150,000 stock options under the 1994 Stock Option Plan.
Mr. Moldin received an additional grant of 50,000 stock options in April, 1996
and a cash incentive award of $105,000 in September, 1996. His additional
compensation reflected the Committee's assessment of Mr. Moldin's leadership in
strengthening the position of the Company, his efforts in broadening the
Company's base of operations to include the generic injectable business and
his leadership contribution in implementing the Company's programs during the
fiscal year ended June 30, 1996.
58
<PAGE>
$1,000,000 Limit On Tax Deductible Compensation
As part of the Omnibus Budget Reconciliation Act passed by Congress in
1993, a new limit has been created for the deductibility of compensation
paid to certain officers. These officers are the Chief Executive Officer and
the next four most highly compensated officers in office at the end of the
year. Compensation paid to these officers in excess of $1,000,000, that is
not performance-based, cannot be claimed by the Company as a tax
deduction.
It is the Committee's intention to continue to utilize performance-based
compensation. Accordingly, these regulations should not impact the
compensation paid by the Company to its officers.
Edward D. Tweddell ) Members of the
Alan G. McGregor ) Compensation Committee
September 23, 1996
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Tweddell is Group Managing Director and Chief Executive Officer and
a Director of Faulding. He is also a Director of Holdings, which owns
approximately 61.6% of the Company's Common Stock, plus preferred
stock convertible into additional shares of the Company's Common Stock.
Alan McGregor is Chairman of the Board and a Director of Faulding. See
"Principal Stockholders" and "Certain Relationships and Related
Transactions."
59
<PAGE>
Set forth below is a line graph comparing the cumulative stockholder
return on the Company's Common Stock against the cumulative total
return of the NASDAQ United States Index and the NASDAQ
Pharmaceutical Index for the Company's fiscal years ended June 30,
1996, June 30, 1995, June 30, 1994, June 30, 1993 and June 30, 1992,
respectively.
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG PUREPAC, INC.,
THE NASDAQ UNITED STATES INDEX AND THE NASDAQ
PHARMACEUTICAL INDEX
<CAPTION>
Measurement Period NASDAQ NASDAQ
(Fiscal Year Covered) Faulding Inc. United States Pharmaceutical
- --------------------- ------------- ------------- --------------
<S> <C> <C> <C>
FYE 6/30/91 100 100 100
FYE 6/30/92 256 120 125
FYE 6/30/93 174 151 108
FYE 6/30/94 151 153 91
FYE 6/30/95 188 204 120
FYE 6/30/96 82 261 177
</TABLE>
- --------------
* $100 Invested on 6/30/91 in Stock or Index.
60
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS OF PUREPAC
The following table sets forth certain information regarding shares of the
Company's outstanding Common Stock beneficially owned on September
19, 1995, (i) by each person who is known by the Company to beneficially
own or exercise voting or dispositive control over more than 5% of the
Company's Common Stock, (ii) by each of the Company's Directors, and
(iii) by all executive officers and Directors of the Company as a group:
Name of Number of Shares Percentage
Beneficial Owner Beneficially Owned of Class
- ---------------------------------------------------------------------
Faulding Holdings Inc. 15,848,770(1) 73.3%(1)
529 Fifth Avenue
8th Floor
New York, New York 10017
All executive officers 19,876(2) *
and directors as a Group
(9 persons)
- --------------
(1) Includes 5,005,128 shares issuable upon conversion of 834,188
shares of the Company's Class A Preferred Stock and 1,564,950
shares issuable under conversion of 150,000 share of the Company's
Class B Preferred Stock.
2) Mr. McGregor is Chairman and a director, and Dr. Tweddell is Group
Managing Director, Chief Executive Officer and a director, respectively, of
Faulding, the sole stockholder of Holdings. Dr. Tweddell is also a director
of Holdings. Each of Dr. Tweddell and Mr. McGregor, however, disclaims
any beneficial interest in or voting or dispositive control over the shares of
the Company's Common Stock owned by Holdings. Excludes 190,124 shares
issuable to, but not presently exercisable by, Mr. Moldin under the
1994 Plan. Includes 9,876 shares exercisable by Mr. Moldin as of July 17, 1996
under the 1994 Plan.
* Equals a percentage less than 1% of the outstanding shares of the
Company's stock.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related-Party Transactions
See Item 1. "BUSINESS: Acquisitions" for information with respect to the
Company's acquisition of all of the outstanding capital stock of each of
FMD, FPR, and FPC, from Holdings in exchange for 2,438,712 shares of its
common stock and the contemporaneous sale to Holdings of $15.0 million of
Class B Preferred Stock.
During the years ended June 30, 1996, 1995 and 1994, the Company paid
Faulding $4,057, $2,289 and $3,789, respectively, for merchandise
purchases (pursuant to agreements to market injectable and oral products,
both described herein), $287, $918 and $1,007, respectively, for research
and development services and $603, $326 and $123, respectively, for
interest expense on loan advances associated with the Acquired Companies
prior to the acquisition by the Company. In addition, the Company paid
Faulding Services Inc., $296, $266, and $186, respectively, for business
development services (pursuant to an agreement with Faulding Services Inc.
which terminated on December 31, 1995 and described herein). Faulding
Services Inc. is a 100% owned subsidiary of Holdings.
During the years ended June 30, 1996, 1995, and 1994, the Company was
reimbursed $466, $1,919 and $486, respectively, by Faulding for materials
and services related to research and development projects and $200 during
the year ended June 30, 1994 for the sale to Faulding of the Company s
Poroplastic(R) technology.
Additionally, during the year ended June 30, 1996, the Company invoiced
$1,018 to Faulding Services Inc. for contract manufacturing of KADIAN (TM)
(pursuant to an agreement with Faulding Services Inc., described herein).
During the year ended June 30, 1994, the Company paid Faulding Services
Inc. $623,000 for engineering and consulting services related to the
construction of a manufacturing suite to accommodate the modified-release
technology.
Included in other assets at June 30, 1996 and 1995 is $2,903 paid by the
Company to Faulding in June 1992 to acquire the proprietary technology,
including the scientific information and expertise, processes and procedures,
for the manufacture and sale of the generic version of certain modified-
release pharmaceutical products. The acquired technology is restricted to
use, on an exclusive basis, in the United States of America and its
territories. Amortization of this technology will commence in fiscal 1997.
62
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Amounts due from (due to) affiliated companies are payable on demand and
were as follows as of:
June 30, 1996 June 30, 1995
------------- -------------
Faulding $ (1,881) $ 1,843
Holdings --- 10
Faulding Services Inc. 1,034 (37)
----------- -------------
$ (847) $ 1,816
=========== =============
Purepac entered into an agreement with Faulding as of December 5, 1992,
pursuant to which Purepac agreed to provide services to Faulding for the
tableting of pellets and micropellets on a time and materials basis. During
the year ended June 30, 1996, no related services were provided by Purepac to
Faulding.
In addition, Purepac and Faulding entered into a three-year agreement, also
dated as of December 5, 1992, which is automatically renewable for
successive two-year periods, pursuant to which Faulding granted Purepac a
non-exclusive license to import, distribute and market an erythromycin oral
product in the United States.
On January 1, 1993, Purepac and Faulding Services Inc. entered into a
consulting agreement, which terminated on December 31, 1995, pursuant to
which Purepac retained Faulding Services Inc. to serve as a business
development consultant and advisor on a non-exclusive basis.
On August 1, 1993, Purepac entered into a ten-year agreement with Faulding
Services Inc. to manufacture KADIAN (TM) utilizing Faulding technology,
processes and manufacturing methods licensed to Faulding Services Inc.
Faulding Services Inc., at its sole cost, has sought all necessary approvals
and/or registrations from the appropriate regulatory authority to enable the
sale of the product, which was approved by the FDA on July 3, 1996. Under
that agreement, Purepac had commenced the manufacturing of KADIAN (TM)
based on orders received from Faulding Services Inc. and the initial income
from this contract was recorded in the quarter ending June 30, 1996. The
parties amended this agreement in December 1994 to resolve certain
inconsistencies between this agreement and an agreement with an unrelated
third party, to distribute the product manufactured by Purepac. On June 27,
1995 the Company and Faulding Services Inc. entered into a Services
Agreement pursuant to which Purepac agreed to provide certain services on
Faulding Services Inc.'s behalf that Faulding Services Inc. had agreed to
provide under the agreement with the third party.
63
<PAGE>
On March 15, 1995, Purepac and Faulding entered into a three-year non-
exclusive license agreement for Purepac to import and distribute doxycycline,
a delayed-release product, in the United States in exchange for certain
payments to Faulding for its supply of the product to Purepac.
Purepac and Faulding entered into two agreements as of June 26, 1995 for
two products that had been under ongoing development review for several
years. One is a licensing agreement pursuant to which Faulding granted to
Purepac an exclusive ten-year license to utilize certain technology to
complete the development of a modified-release product and manufacture
and sell the product in the United States. Relating to the product
development, Purepac paid to Faulding most of the technology licensing fees
prior to June 30, 1994 with the balance paid during the year ended June 30,
1996, all expensed as research and development costs. In addition, Purepac
will be obligated to pay royalties related to net sales of the product.
As of June 30, 1996, development activity regarding this agreement has not
continued.
The second agreement is a ten-year Co-development, Supply and Licensing
Agreement whereby Faulding will develop and deliver a certain component
pellet of a modified-release product for Purepac s use in developing,
manufacturing and distributing such product in the United States. Faulding
will supply Purepac with pellets at a price set forth in the agreement. If
the parties later concur that Purepac will manufacture the pellets, Faulding
will grant Purepac an exclusive license to the pellet technology for the
remainder of the term of the agreement in consideration of a technology
transfer fee of $250 and ongoing royalty payments. As of June 30, 1996,
development activity regarding this agreement has not continued.
On January 23, 1996, FPC and Faulding entered into a Supply Agreement for
injectable products developed and manufactured by Faulding for sale in the
United States. Supply of six anti-cancer products, under this agreement,
commenced in January 1996. ANDA submissions for additional products
covered by this agreement have been filed with the FDA. Additional products
are under development by Faulding.
On January 23, 1996, a Licensing and Supply Agreement was signed
between FMD and Faulding for the medical device products developed by
FMD. Though such products have not yet been launched in the United
States, products utilizing these technologies have received regulatory
approval in some other markets.
The Company believes that the terms of the foregoing agreements are at
least as favorable as those it could have obtained in comparable
nonaffiliated third party transactions.
64
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Documents Filed as a Part of This Report
1. FINANCIAL STATEMENTS
Report of Independent Public Accountants - Deloitte & Touche LLP.
Consolidated Balance Sheets - June 30, 1996 and 1995.
Consolidated Statements of Operations - Year ended June 30, 1996, 1995,
and 1994.
Consolidated Statements of Stockholders' Equity - Year ended June 30,
1996, 1995, and 1994.
Consolidated Statements of Cash Flows - Year ended June 30, 1996, 1995,
and 1994.
Notes to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULE
Schedule II: Valuation and Qualifying Accounts - Year ended June 30, 1996,
1995, and 1994.
All other schedules to the consolidated financial statements are omitted
since the required information is either inapplicable or the information is
presented in the financial statements or related notes.
65
<PAGE>
3. EXHIBITS
Exhibit Number Description of Document
(3) (i) Certificate of Incorporation filed September 2, 1982
(1).
(ii) Certificate of Amendment to Certificate of
Incorporation filed June 30, 1983 (1).
(iii) Certificate of Amendment to Certificate of
Incorporation filed November 13, 1987 (3).
(iv) Certificate of Amendment to Certificate of
Incorporation filed February 29, 1996.
(v) By-laws (1).
(4) (i) Copy of Specimen Stock Certificate (1).
(iv) Forms of Series A and Series B Warrants sold to Allen
& Company Incorporated (5).
(10) (i) Stock Purchase and Stockholders' Agreement dated
September 2, 1987, among the Company, Moleculon
Research Company, Arthur S. Obermayer and Faulding
Holdings Inc., formerly Faulding U.S.A. Inc. (4).
(vii) 1991 Restricted Stock Incentive Plan (7).
(viii) Agreement dated as of December 5, 1992, between F. H.
Faulding & Co. Limited and Purepac Pharmaceutical Co.
(8).
(ix) Agreement dated December 5, 1992, between F. H.
Faulding & Co. Limited and Purepac Pharmaceutical Co.
(8).
(x) Agreement dated as of December 5, 1992, between F. H.
Faulding & Co. Limited and Purepac Pharmaceutical Co.
(8).
(xi) Consulting Agreement dated January 1, 1993, between
Purepac Pharmaceutical Co. and Faulding Services Inc.,
formerly Faulding Inc. (8).
66
<PAGE>
(xii) Toll Manufacturing Agreement dated as of August 1, 1993
between Faulding Services Inc., formerly Faulding Inc.
and Purepac Pharmaceutical Co., as amended as of
December 22, 1994 (9).
(xiii) Letter agreement dated as of June 29, 1994, between
Faulding Inc., formerly Purepac, Inc. and F.H.
Faulding & Co. Limited (10).
(xiv) 1994 Stock Option Plan (11).
(xv) Agreement dated as of March 15, 1995 between F.H.
Faulding & Co. Limited and Purepac Pharmaceutical Co.
(13)
(xvi) License Agreement dated June 26, 1995 between F.H.
Faulding & Co. Limited and Purepac Pharmaceutical Co.
(13)
(xvii) Services Agreement dated as of June 26, 1995 between
Faulding Pharmaceutical Co., formerly Faulding
Hospital Products, Inc. and Purepac Pharmaceutical
Co. (13)
(xviii) Services Agreement dated as of June 26, 1995 between
Faulding Services Inc., formerly Faulding Inc. and
Purepac Pharmaceutical Co. (13)
(xix) Co-Development, Supply and Licensing Agreement dated
as of June 26, 1995 between F.H. Faulding & Co.
Limited and Purepac Pharmaceutical Co. (13)
(xx) Letter of Intent between F.H. Faulding & Co. Limited
and the Company dated August 9, 1995 (12).
(xxi) Stock Purchase Agreement, dated as of January 23, 1996
between Faulding Holdings Inc. and Purepac, Inc. (14)
(xxii) Preferred Stock Purchase Agreement, dated as of January
23, 1996 between Faulding Holdings Inc. and Purepac, Inc.
(14)
(xxiii) Development and Distribution Agreement, dated as of
January 23, 1996 between F.H. Faulding & Co. Limited
and Faulding Pharmaceutical Co.
67
<PAGE>
(xxiv) Licensing and Supply Agreement, dated as of January 23,
1996 between F.H. Faulding & Co. Limited and Faulding
Medical Device Co.
(xxv) License Agreement, dated as of February 29, 1996 between
F.H. Faulding & Co. Limited and Purepac, Inc.
(11) Computation of Earnings Per Share.
(11.1) Computation of Earnings Per Share Assuming Full
Dilution.
(21) Subsidiaries of Registrant.
(27) Financial Sata Schedule
__________________________________
(1) Previously filed as an Exhibit to Registration Statement 2-87116
on Form S-1, filed with the Securities and Exchange Commission
(the "Commission") on October 12, 1983 and incorporated herein by
reference.
(2) Previously filed as an Exhibit to Annual Report on Form 10-K for
the fiscal year ended November 30, 1984 and incorporated herein by
reference.
(3) Previously filed as an Exhibit to Current Report on Form 8-K filed
with the Commission on November 25, 1987 and incorporated herein by
reference.
(4) Previously filed as Exhibit to Schedule 13D filed with the Commission
by Faulding Holdings Inc. (formerly Faulding U.S.A. Inc.) on or about
September 15, 1987 and incorporated herein by reference.
(5) Previously filed as an Exhibit to Annual Report on Form 10-K for the
fiscal year ended November 30, 1986 and incorporated herein by
reference.
(6) Previously filed as Exhibit to Annual Report on Form 10-K for the
transition period ended June 30, 1990 and filed with the Commission
on or about September 26, 1990 and incorporated herein by reference.
68
<PAGE>
(7) Previously filed as Exhibit to Registration Statement on Form S-8
filed with the Commission on or about August 18, 1993 and
incorporated herein by reference.
(8) Previously filed as an Exhibit to Annual Report on Form 10-K for the
fiscal year ended June 30, 1993 and incorporated herein by reference.
(9) Previously filed as an Exhibit to Annual Report on Form 10-K for the
fiscal year ended June 30, 1994 and incorporated herein by reference.
Amendment dated as of December 22, 1994 filed herewith.
(10) Previously filed as an Exhibit to Annual Report on Form 10-K for the
fiscal year ended June 30, 1994 and incorporated herein by reference.
(11) Previously filed as an Exhibit to the Proxy Statement filed with the
Commission on September 17, 1994 and incorporated herein by reference.
(12) Previously filed as an Exhibit to Current Report on Form 8-K filed
with the Commission on August 17, 1995 and incorporated herein by
reference.
(13) Previously filed as an Exhibit to Annual Report on Form 10-K for the
fiscal year ended June 30, 1995 and incorporated herein by reference.
(14) Previously filed as an Exhibit to the Proxy Statement filed with the
Commission on January 30, 1996 and incorporated herein by reference.
(b) Reports on Form 8-K
Current Reports on Form 8-K filed with the Commission during July 1,
1995 through June 30, 1996:
Financial
Report Items Reported Statements
------ -------------- ----------
1. Filed August 17, 1995 Item 5 None
69
<PAGE>
INDEX TO EXHIBITS
(3) (iv) Certificate of Amendment of Certificate of Incorporation
filed February 29, 1996.
(10) (xxiii) Development and Distribution Agreement, dated as of
January 23, 1996 between F.H. Faulding & Co. Limited
and Faulding Pharmaceutical Co.
(xxiv) Licensing and Supply Agreement, dated as of January 23,
1996 between F.H. Faulding & Co. Limited and Faulding
Medical Device Co.
(xxv) License Agreement, dated as of February 29, 1996 between
F.H. Faulding & Co. Limited and Purepac, Inc.
(11) Computation of Earnings Per Share.
(11.1) Computation of Earnings Per Share Assuming Full
Dilution.
(21) Subsidiaries of Registrant.
(27) Financial Sata Schedule
70
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PUREPAC, INC.
Date: September 26, 1996 /s/ Edward D. Tweddell
Edward D. Tweddell,
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Date: September 26, 1996 /s/ Richard F. Moldin
Richard F. Moldin,
President and Chief Executive
Officer (Principal Executive Officer)
Date: September 26, 1996 /s/ Lee H. Craker
Lee H. Craker,
Chief Financial Officer
(Principal Accounting Officer)
Date: September 26, 1996 /s/ Alan G. McGregor
Alan G. McGregor
Director
Date: September 26, 1996 /s/ Bruce C. Tully
Bruce C. Tully,
Director
68
EXHIBIT 3 (iv)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PUREPAC, INC.
The undersigned, being the President and Secretary
of Purepac, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of
the State of Delaware (the "Corporation"), pursuant to
Section 242 of the General Corporation Law of the State
of Delaware, do hereby certify:
1. The name of the Corporation is Purepac, Inc..
2. This Certificate of Amendment and the
amendments to the Certificate of Incorporation of the
Corporation set forth herein have been duly approved,
adopted, certified, executed and acknowledged in
accordance with Section 242 of the General Corporation
Law of the State of Delaware.
3. The Certificate of Incorporation of the
Corporation is hereby amended so as to change the name
of the Corporation to Faulding Inc. Accordingly,
Article FIRST of the Certificate of Incorporation is
hereby deleted in its entirety and the following is
substituted therefor:
FIRST: The name of the Corporation is
Faulding Inc.
4. The Certificate of Incorporation of the
Corporation is hereby amended so as to increase the
number of authorized shares of common stock of the
Corporation from 25,000,000 to 35,000,000.
Accordingly, Article FOURTH of the Certificate of
Incorporation is hereby deleted in its entirety and
the following is substituted therefor:
FOURTH: The total number of shares of stock
which the Corporation shall have authority to issue is
36,834,188, which shall consist of 35,000,000 shares,
$.01 par value, designated as Common Stock and
1,834,188 shares, $.01 par value, designated as
Preferred Stock. All cross-references in each Part of
this Article FOURTH refer to other Sections in such
Article unless otherwise indicated.
The following is a statement of the
designations and the powers, preferences and rights,
and the qualifications, limitations or restrictions
thereof, in respect of each class of stock of the
Corporation.
I. PREFERRED STOCK
The Preferred Stock shall be comprised of (i)
a Class A Preferred Stock which shall consist of
834,188 shares and (ii) additional Preferred Stock
("Additional Preferred Stock") which shall consist of
1,000,000 shares.
Part 1: Dividends on Class A Preferred
Stock.
1.1 General Dividend Obligation. The
Corporation shall pay to the holders of the Class A
Preferred Stock out of the assets of the Corporation at
any time available for the payment of dividends under
the provisions of the General Corporation Law of the
State of Delaware; preferential dividends at the times
and in the amounts provided for in this part.
1.2 Accrual of Dividends. Dividends on each
share of Preferred Stock shall be cumulative from the
date of issuance of such share of Class A Preferred
Stock, whether or not at the time such dividend shall
accrue or become due or at any other time there shall
be profits, surplus or other funds of the Corporation
legally available for the payment of dividends.
Dividends shall accrue on each share of Class A
Preferred Stock (at the rate and in the manner
prescribed by Sections 1.2, 1.3 and 2.4) from and
including the date of issuance of such share to and
including the date on which either (a) payment equal to
the Redemption Price of such share (as defined in
Section 2.4) shall have been paid in the manner
prescribed in Section 5.3 or (b) such share shall be
converted into shares of Common Stock, as set forth in
Part 3. For purposes of this Section, the date on
which the Corporation shall initially issue any share
of Class A Preferred Stock shall be deemed to be the
"date of issuance" of such share regardless of how many
times transfer of such share shall be made on stock
records maintained by or for the Corporation and
regardless of the number of certificates which may be
issued to evidence such share (whether by reason of
transfers of such share or for any other reason).
1.3 Payment of Dividends. Dividends shall
accrue on each share of Class A Preferred Stock
(computed on a daily basis on the basis of a 360 day
year) at the rate of 8.5% per annum of the Liquidation
Value (as defined in Section 4.1). Dividends shall be
payable on Class A Preferred Stock quarterly on the
first day of each January, April, July and October
beginning January 1, 1988 and each such day is herein
called a "Dividend Payment Date". On each Dividend
Payment Date all dividends which shall have accrued on
each share of Class A Preferred Stock then outstanding
during the quarter year ending upon the day immediately
preceding such Dividend Payment Date shall be deemed to
become "due" for all purposes of this Section
regardless of whether the Corporation shall be able or
legally permitted to pay such dividend on such Dividend
Payment Date. If any dividend on any share shall for
any reason not be paid at the time such dividend shall
become due, such dividend in arrears shall be paid as
soon as payments of same shall be permissible under the
provisions of the General Corporation Law of the State
of Delaware.
Until such dividend in arrears is paid,
dividends shall continue to accrue on shares of Class A
Preferred Stock but the percentage rate expressed
herein shall be applied to the Liquidation Value
thereof plus all dividends in arrears thereon
(including dividends computed pursuant to this
sentence). Notwithstanding anything to the contrary
contained herein, if any dividend on any share shall
not be paid at the time such dividend shall become due,
at the option of the Company, such dividend may be paid
at any time and from time to time, in whole or in part,
in fully paid and nonassessable shares of Common Stock
of the Corporation valued at the Fair Market Value
thereof as determined in accordance with the provisions
of Section 1.5.
1.4 Distribution of Partial Dividend
Payments. If at any time the Corporation shall pay
less than the total amount of dividends due on
outstanding Class A Preferred Stock at the time of such
payment, such payment shall be distributed among the
holders of Class A Preferred Stock so that an equal
amount shall be paid with respect to each outstanding
share of Class A Preferred Stock.
1.5 Definition of Fair Market Value.
(a) Fair Market Value ("FMV"), for the
purposes of this Part 1, shall mean the market price of
shares of Common Stock of the Corporation if a trading
market exists for the Corporation's shares or the fair
market value of the Common Stock, as ascertained in
accordance with the procedure set forth in Section
1.5(b), if no trading market then exists; provided,
however, that appropriate adjustment shall be made (to
the nearest $.01 per share) to reflect mergers,
recapitalizations, stock splits, combinations or other
similar changes.
(b) If at any time pursuant to the
terms of this Section 1.5 it becomes necessary to
determine the FMV as defined in Subsection 1.5(a)
pursuant to this Subsection 1.5(b), then holder(s) of
shares of Class A Preferred Stock who are entitled to
receive such dividend payments in shares of Common
Stock as set forth in Section 1.3 (the "Holder(s)") and
the Corporation, within ten (10) business days of
notice by the Corporation electing to pay such
dividends in shares of Common Stock at the FMV, shall
notify the other party of its selection of a nationally
recognized investment banking firm as that term is
understood in the investment banking industry (an
"Investment Bank") to deliver an opinion as to the FMV
of such securities. In the event that either party
fails to notify the other party of its selection of an
Investment Bank
within such specified time period, the calculation of
the FMV by the Investment Bank nominated by the other
party shall be determinative and binding on both
parties. The FMV shall be the fair market value of such
securities in the aggregate which shall be determined
by the Investment Banks taking into account all of the
relevant factors and circumstances existing at the time
of such determination. In the event that the two
Investment Banks so selected are unable to agree upon
the fair market value of the securities in question
within thirty (30) days following their selection,
then, unless the difference between the fair market
value ascertained by both such Investment Banks is
greater than 20% per share, the FMV shall be the
arithmetic mean of the two fair market values so
ascertained by the Investment Banks. In the event that
the difference between the fair market values
ascertained by such Investment Banks is greater than
20% per share, the two Investment Banks shall, within
ten (10) days of its engagement, without consultation
with the other two Investment Banks, deliver its
opinion as to the FMV, and the FMV shall be
conclusively calculated in accordance with the
following formula:
Market Price = 2A + B + C
4
where A is the FMV ascertained by the third Investment
Bank and B and C are the FMVs ascertained by each of
the two Investment Banks chosen earlier.
Each of the three Investment Banks shall
be engaged by the Holder(s) and the Corporation. The
Corporation shall pay, in the aggregate, one-half of
the fees and expenses of the Investment Banks, and the
Holder(s) shall pay, in the aggregate, one-half of the
fees and expenses of the Investment Banks, in
proportion to the number of shares of Common Stock to
be issued to each of them.
1.6 Definition of Market Price. Market
Price shall mean, with respect to the Common Stock, the
daily closing prices for the Common Stock of the
Corporation (if a trading market shall exist) for the
twenty (20) consecutive trading days commencing five
(5) trading days preceding the day specified in the
applicable section hereof with the closing price for
each day being the closing price reported on the
principal securities exchange upon which the Common
Stock of the Corporation is traded or, if it is not so
traded, then the average of the closing bid and asked
prices as reported by the National Association of
Securities Dealers Automated Quotation System or if not
quoted thereon, in the interdealer market on the "Pink
Sheets" of the National Quotation Bureau (excluding the
highest and lowest bids on each day there are four or
more market makers).
Part 2: Optional Redemption
2.1 Time of Election. On or after the first
day of the one hundred twenty first (121st) month
following the date of issuance of the Class A Preferred
Stock, the Corporation, at its election, may redeem all
or any shares of Class A Preferred Stock (the
"Scheduled Redemption Date").
2.2 Redeemed Class A Preferred Stock to be
Cancelled. The Corporation shall cancel each share of
Class A Preferred Stock which it shall redeem or for
any other reason acquire, and no shares of Class A
Preferred Stock which shall be redeemed or otherwise
acquired by the Corporation shall thereafter be
reissued, sold or transferred by the Corporation to any
person. The number of shares of Class A Preferred
Stock which the Corporation shall be authorized to
issue shall be deemed to be reduced by the number of
shares of Class A Preferred Stock which the Corporation
shall redeem or otherwise acquire.
2.3 Determination of Number of Each Holder's
Shares to be Redeemed. If the Corporation does not
redeem all of the outstanding shares of Class A
Preferred Stock on the Scheduled Redemption Date, the
number of shares of Calss A Preferred Stock to be
redeemed from each holder thereof shall be determined
by multiplying the total number of shares of Class A
Preferred Stock to be redeemed by a fraction, the
numerator of which shall be the total number of shares
of Class A Preferred Stock held by such holder and the
denominator of which shall be the total number of
Shares of Class A Preferred Stock outstanding, except
that in situations to which Section 2.4(b) hereof
applies, the Corporation shall not repurchase the last
share of Class A Preferred Stock held by any holder.
2.4 Redemption Price.
(a) For each share of Class A Preferred
Stock which shall be redeemed by the Corporation
pursuant to this Part 2, the Corporation shall be
obligated to pay to the holder of such share an amount
(herein called the "Redemption Price") for such share
equal to $29.34 per share. The Corporation shall be
obligated to pay on any Redemption Date both the
Redemption Price for each share and all dividends which
shall have accrued (computed on a daily basis) on each
share to and including the Redemption Date and which
shall not previously have been paid. Such payments
which the Corporation shall be obligated to make on any
Redemption Date shall be deemed to become "due" for all
purposes of this Part 2 regardless of whether paid on
such Redemption Date.
(b) If for any reason the Corporation
is prohibited from paying accrued unpaid dividends on
shares of Class A Preferred Stock being redeemed from
any holder, then such accrued unpaid dividends shall be
added in equal amounts per share to the Liquidation
Value of the shares of Class A Preferred Stock
remaining outstanding in the hands of such holder;
provided, that in no event shall the Corporation redeem
the last share of Class A Preferred Stock (the "Last
Share") held by any holder until the Corporation shall
have paid to such holder all accrued unpaid dividends
on all Class A Preferred Stock held by such holder at
any time. The shares of Class A Preferred Stock
remaining outstanding after any redemption (including
the Last Share), and including the accrued unpaid
dividends thereon, shall continue to earn cumulative
dividends at the rate and in the manner prescribed in
Section 1.3.
(c) Each holder of Class A Preferred
Stock shall be entitled to receive on or at any time
after any Redemption Date the full Redemption Price,
plus accrued unpaid dividends, for each share of Class
A Preferred Stock held by such holder which the
Corporation shall be obligated to redeem on the
Scheduled Redemption Date upon surrender by such holder
to the Corporation at one of its share transfer
agencies, or in the event that at that time there is no
such agency, then at the Corporation's principal
office, of the certificate representing such share of
Class A Preferred Stock duly endorsed in blank or
accompanied by an appropriate form of assignment duly
endorsed in blank. After the payment by the
Corporation in the manner required by Section 5.3 of
the full Redemption Price for any Class A Preferred
Stock, plus accrued unpaid dividends except as
otherwise provided in Section 2.4(b), all rights of the
holder of such Stock shall (whether or not the
certificate representing such share of Class A
Preferred Stock shall have been surrendered for
cancellation) cease and terminate with respect to such
share of Class A Preferred Stock.
2.5 Allocation of Partial Redemption
Payments Among Holders of Class A Preferred Stock. If
at any time the Corporation shall not be able to pay
the full Redemption Price for all shares which the
Corporation shall have become obligated to redeem at or
prior to such time, each holder of shares of Class A
Preferred Stock shall have the right to have redeemed
by the Corporation a number of such holder's shares
equal to the product derived by multiplying the total
number of shares of Class A Preferred Stock which the
Corporation shall be able to redeem at such time by a
fraction, the numerator of which shall be the total
number of shares of Class A Preferred Stock which the
Corporation shall have become obligated to redeem from
such holder at or prior to such time (but which the
Corporation shall not have redeemed at or prior to such
time) and the denominator of which shall be the total
number of shares of Class A Prefcerred Stock which the
Corporation shall have become obligated to redeem from
all holders of Class A Preferred Stock at or prior to
such time (but which the Corporation shall not have
redceemed at or prior to such time).
Part 3: Conversion
3.1 Right to Convert.
(a) The shares of Class A Preferred
Stock, at the option of the respective holders thereof,
may at any time, and from time to time, be converted
into fully paid and nonassessable shares of Common
Stock of the Corporation at the "Conversion Rate"
provided for in subsection 3.1(g) below.
(b) So long as any shares of Class A
Preferred Stock shall be outstanding, the Corporation
will not make any share distribution on its shares of
Common Stock unless the Corporation, by proper legal
action, shall have authorized and reserved an amount of
shares equal to the amount thereof which would have
been declared upon the shares of Common Stock into
which such shares of Class A Preferred Stock might have
been converted, and the Corporation shall, out of such
additional shares so authorized and reserved on account
of such share distribution, upon the conversion of any
shares of Class A Preferred Stock, deliver with any
shares of Common Stock into which shares of Class A
Preferred Stock are converted, but without additional
consideration therefor, such number of shares of Common
Stock as would have been deliverable to the holders of
the Common Stock into which such shares of Class A
Preferred Stock had been so converted had such shares
of Common Stock been outstanding at the time of such
share distribution. For the purpose of this Section
3.1, a share distribution shall be a dividend payable
only in shares of Common Stock of the Corporation of
the same class as the present authorized shares of
Common Stock. This shall not limit the right of the
Corporation, however, to declare and pay any dividends
whether in cash, shares, or otherwise, except as
specifically otherwise provided in this Article FOURTH.
(c) In case of any combination or
change of the shares of Class A Preferred Stock or of
the shares of Common Stock into a different number of
shares of the same or any other class or classes, or in
case of any consolidation or merger of the Corporation
with or into another corporation, or in case of any
sale or conveyance to another corporation of the
property of the Corporation as an entirety or
substantially as an entirety, the Conversion Rate shall
be appropriately adjusted so that the rights of the
holders of shares of Class A Preferred Stock and of the
shares of Common Stock will not be diluted as a result
of such combination, change, consolidation, merger,
sale or conveyance. Adjustments in the rate of
conversion shall be calculated to the nearest one-tenth
of a share.
(d) So long as any shares of Class A
Preferred Stock are outstanding, the Corporation shall
reserve and keep available out of its duly authorized
but unissued shares for the purpose of effecting the
conversion of the shares of Class A Preferred Stock
such number of its duly authorized shares of Common
Stock and other securities as shall from time to time
be sufficient to effect the conversion of all
outstanding shares of Class A Preferred Stock.
(e) Any dividends accrued on any shares
of Class A Preferred Stock from the preceding Dividend
Payment Date to the date of conversion shall be payable
to the holder of record of such shares immediately
prior to its conversion. In the event that any
dividends on the outstanding shares of Common Stock
shall have been declared prior to, and shall be payable
subsequent to, the conversion of such shares of Class A
Preferred Stock, such dividends shall not be payable on
any shares of Common Stock into which such shares of
Class A Preferred Stock shall have been converted.
(f) In the event that the Corporation
shall at any time or from time to time offer to the
holders of the shares of Common Stock any rights to
subscribe for shares or any other securities of the
Corporation, each holder of record of the shares of
Class A Preferred Stock at the time at which the record
is taken of the holders of shares of Common Stock
entitled to receive such rights shall be entitled to
subscribe for and purchase, at the same price at which
such shares or other securities are offered to the
holders of the shares of Common Stock and on the same
terms, the number of such shares or the amount of such
other securities for which such holder would have been
entitled to subscribe if he had been the holder of
record at that time of the number of shares of Common
Stock into which his shares of Class A Preferred Stock
were convertible (pursuant to the provisions hereof) at
such record time.
(g) The initial "Conversion Rate",
subject to adjustment as provided above, shall be six
shares of Common Stock for each share of Class A
Preferred Stock.
3.2 Surrender of Certificates. Any holder
of shares of Class A Preferred Stock desiring to
exercise the right of conversion herein provided shall
surrender to the Corporation at one of its share
transfer agencies, or in the event that at that time
there is no such agency, then at the principal office
of the Corporation, the certificate or certificates
representing the shares of Class A Preferred Stock so
to be converted, duly endorsed in blank for transfer or
accompanied by properly executed instruments for the
transfer thereof, together with a written request for
the conversion thereof. The Corporation shall execute
and deliver, at the Corporation's expense, a new
certificate or certificates representing the shares of
Common Stock into which the shares of Class A Preferred
Stock have been converted and, if applicable, a new
certificate or certificates representing the balance of
the shares of Class A Preferred Stock formerly
represented by the surrendered certificate or
certificates which, at the holder's request, shall not
have been converted into shares of Common Stock. The
Corporation shall not be required to issue fractions of
shares of Common Stock upon conversion of the shares of
Class A Preferred Stock. In the event any fractional
interest in a share of Common Stock shall be
deliverable upon the conversion of any share of Class A
Preferred Stock, the Corporation shall, if surplus is
available, purchase such fractional interest for an
amount in cash equal to the current FMV of such
fractional interest.
Part 4: Liquidation.
4.1 Rights of Holders of Class A Preferred
Stock. In the event of any voluntary or involuntary
liquidation (whether complete or partial), dissolution
or winding up of the Corporation, the holders of Class
A Preferred Stock shall be entitled to be paid out of
the assets of the Corporation available for
distribution to its stockholders, whether from capital,
surplus or earnings, an amount in cash equal to the sum
of $29.34 per share plus any amounts payable pursuant
to Section 2.4(b) (the "Liquidation Value"), plus all
unpaid dividends accrued thereon to the date of final
distribution. No distribution shall be made on any
Junior Securities (as defined in Section 5.1) by reason
of any voluntary or involuntary liquidation (whether
complete or partial), dissolution or winding up of the
Corporation unless each holder of any share of Class A
Preferred Stock shall have received all amounts to
which such holder shall be entitled under this Section
4.1.
4.2 Allocation of Liquidation Payments Among
Holders of Class A Preferred Stock. If upon any
dissolution, liquidation (whether complete or partial),
or winding up of the Corporation, the assets of the
Corporation available for distribution to holders of
Class A Preferred Stock (hereinafter in this Section
4.2 called the "Total Amount Available") shall be
insufficient to pay the holders of outstanding Class A
Preferred Stock the full amounts to which they shall be
entitled under Section 4.1, each holder of Class A
Preferred Stock shall be entitled to receive an amount
equal to the product derived by multiplying the Total
Amount Available by a fraction, the numerator of which
shall be the number of shares of Class A Preferred
Stock held by such holder and the denominator of which
shall be the total number of shares of Class A
Preferred Stock then outstanding.
Part 5: Additional Provisions Governing
Class A Preferred Stock.
5.1 Seniority Over Junior Securities. No
dividend shall be paid on any Junior Securities, no
distribution of cash or property of any kind (other
than Junior Securities) shall be made for any reason
(including but not limited to any voluntary or
involuntary dissolution, winding up, or complete or
partial liquidation of the Corporation) by the
Corporation or any subsidiary with respect to any
Junior Securities, and no redemption or other
acqujisition of any Junior Securities shall be made
directly or indirectly by the Corporation if, when the
payment of any such dividends, distribution, redemption
or acquisition is to be made: (i) any dividend which
shall have become due on any share of Class A Preferred
Stock shall remain unpaid (except unpaid dividends
added to the Liquidation Value of Class A Preferred
Stock pursuant to Section 2.4), or (ii) any other
payment or distribution on or with respect to any
shares of Class A Preferred Stock under the terms
hereof which shall have been due from the Corporation
at such time shall not have been made in full. The
term "Junior Securities" shall mean any equity security
of any kind which the Corporation shall at any time
issue or be authorized to issue other than Class A
Preferred Stock.
5.2 Voting Rights. Class A Preferred Stock
shall not have any voting rights or powers except as
required by the General Corporation Law of Delaware.
5.3 Method of Payments. Any payment at any
time due with respect to any share of Class A Preferred
Stock (including but not limited to any payment of any
dividend due on such share, the payment of the
Redemption Price for such share, and any payment due on
such share under Part 4) shall be made by means of a
check to the order of the record holder shown on the
Corporation's records, mailed by first class mail.
5.4 Amendment and Waiver. No change in the
provisions of this Part 5 of this Article FOURTH of
this Certificate of Incorporation affecting any
interests of the holders of shares of Class A Preferred
Stock shall be binding or effective unless such change
shall have been approved in writing by the holders of
at least 51% of the shares of Class A Preferred Stock
outstanding at the time such change shall be made,
provided that no such change shall, without the prior
written consent of the holders of an aggregate of at
least 80% of the shares of Class A Preferred Stock then
outstanding, be made in the applicable dividend rate.
5.5 Registration of Transfer of Class A
Preferred Stock. The Corporation will keep at one of
its share transfer agencies, or in the event that at
that time there is no such agency, then in its
principal office, a register for the registration of
the Class A Preferred Stock. Upon the surrender of any
certificate representing shares of Class A Preferred
stock at such agency or the Corporation's principal
office, the Corporation will, at the request of the
registered holder of such certificate, execute and
deliver, at the Corporation's expense, a new
certificate or certificates in exchange representing
the number of shares of Class A Preferred Stock
represented by the surrendered certificate. Each such
new certificate shall be registered in such name and
shall represent such number of Class A Preferred Shares
as shall be requested by the holder of the surrendered
certificate, shall be substantially identical in form
to the surrendered certificate, and the shares of Class
A Preferred Stock represented by such new certificate
shall earn cumulative dividends from the date to which
dividends shall have been paid on the shares
represented by the surrendered certificate or
certificates.
5.6 Replacement. Upon receipt by the
Corporation of evidence reasonably satisfactory to it
of the ownership of and the loss, theft, destruction or
mutilation of any certificate evidencing one or more
shares of Class A Preferred Stock (an affidavit of the
registered holder without bond being satisfactory for
this purpose) the Corporation, at its expense, will
execute and deliver in lieu of such certificate, a new
certificate of like kind, representing the number of
shares of Class A Preferred Stock which shall have been
represented by such lost, stolen destroyed or mutilated
certificate, dated and earning cumulative dividends
from the date to which dividends shall have been paid
on such lost, stolen, destroyed or mutilated
certificate.
Part 6: Additional Preferred Stock.
6.1 Authority of Board of Directors. Shares
of Additional Preferred Stock may be issued from time
to time in series or otherwise and the Board of
Directors of the Corporation is hereby authorized,
subject to the limitations provided by law, to
establish and designate the series, if any, of the
Additional Preferred Stock, to fix the number of shares
constituting any such series, and to fix the voting
powers, designations, and relative, participating,
optional, conversion, redemption and other rights of
the shares of Additional Preferred Stock or series
thereof, the qualifications, limitations and
restrictions thereof, and to increase and to decrease
the number of shares of Additional Preferred Stock or
shares constituting any such series. The authority of
the Board of Directors of the Corporation with respect
to shares of Additional Preferred Stock or any series
thereof shall included but shall not be limited to the
authority to determine the following:
(a) The designation of any series.
(b) The number of shares initially
constituting any such series.
(c) The increase, and the decrease to a
number not less than the number of the outstanding
shares of any such series, of the number of shares
constituting such series theretofore fixed.
(d) The rate or rates and the times at
which dividends on the shares of Additional Preferred
Stock or any series thereof shall be paid, and whether
or not such dividends shall be cumulative, and, if such
dividends shall be cumulative, the date or dates from
and after which they shall accumulate.
(e) Whether or not the shares of
Additional Preferred Stock or series thereof shall be
redeemable, and, if such shares shall be redeemable,
the terms and conditions of such redemption, including
but not limited to the date or dates upon or after
which such shares shall be redeemable and the amount
per share which shall be payable upon such redemption,
which amount may vary under different conditions and at
different redemption dates.
(f) The amount payable on the shares of
Additional Preferred Stock or series thereof in the
event of the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided,
however, that the holders of shares ranking senior to
other shares shall be entitled to be paid, or to have
set apart for payment, not less than the liquidation
value of such shares before the holders of shares of
the Common Stock or the holders of any other series of
preferred stock ranking junior to such shares.
(g) Whether or not a sinking fund shall
be provided for the redemption of the shares of
Additional Preferred Stock or series thereof, and, if
such a sinking fund shall be provided, the terms and
conditions thereof.
(h) Whether or not a purchase fund
shall be provided for the shares of Additional
Preferred Stock or series thereof, and, if such a
purchase fund shall be provided, the terms and
conditions thereof.
(i) Whether or not the shares of
Additional Preferred Stock or series thereof shall have
conversion privileges, and, if such shares shall have
conversion privileges, the terms and conditions of
conversion, including but not limited to any provisions
for the adjustment of the conversion rate or the
conversion price.
(j) Any other relative rights,
preferences, qualifications, limitations and
restrictions.
II. COMMON STOCK
All shares of Common Stock shall be identical
and shall entitle the holders thereof to the same
rights and privileges.
Part 1: Dividends
1.1 Dividends. When and as dividends are
declared upon the Common Stock, whether payable in
cash, in property or in securities of the Corporation,
the holders of Common Stock shall be entitled to share
equally, share for share, in such dividends.
1.2 Dissolution. In the event of any
dissolution, liquidation or winding up of the affairs
of the Corporation, either voluntarily or
involuntarily, the holders of shares of Common Stock
shall be entitled, after payment or provision for
payment of the debts and other liabilities of the
Corporation and the amounts to which the holders of any
outstanding preferred shares, including outstanding
shares of Class A Preferred Stock, shall be entitled in
accordance with I. PREFERRED STOCK, Part 1, Section 1.3
of this Article FOURTH as respects the Class A
Preferred Stock or the provisions of a certificate of
designation with respect to any class or series of
Additional Preferred Stock which may then be
outstanding, to share ratably in the remaining assets
of the Corporation.
1.3 Voting Rights. Except as otherwise
provided herein or by law, the holders of the Common
Stock shall be entitled to one vote per share on all
matters upon which Stockholders are entitled to vote.
IN WITNESS WHEREOF, the undersigned have executed
this Certificate of Amendment of Certificate of
Incorporation on the 29th day of February, 1996, and
affirm that the statements contained herein are true
under the penalty of perjury.
/s/ Richard F. Moldin
Richard F. Moldin,President
/s/ William R. Griffith
William R. Griffith, Secretary
EXHIBIT 10 (xxiii)
DEVELOPMENT AND DISTRIBUTION AGREEMENT
BETWEEN
F.H. FAULDING & CO. LIMITED
AND
FAULDING PHARMACEUTICAL CO.
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . 2
2. APPOINTMENT. . . . . . . . . . . . . . . . . . . 6
3. THE PRODUCTS.. . . . . . . . . . . . . . . . . . 7
4. THE PRODUCT SUMMARY SHEETS.. . . . . . . . . . . 9
5. PRODUCT DEVELOPMENT REVIEW PROCESS.. . . . . . .10
6. PRODUCT REGISTRATION.. . . . . . . . . . . . . .12
7. FORECASTS AND ORDERS. . . . . . . . . . . . . . .13
8. INVOICED PURCHASE PRICE;PURCHASE PRICE ADJUSTMENT.14
9. SHIPMENT OF PRODUCTS. . . . . . . . . . . . . . .17
10. AUDITS.. . . . . . . . . . . . . . . . . . . . .19
11. SUB-LICENSEES. . . . . . . . . . . . . . . . . .20
12. QUALITY CONTROL. . . . . . . . . . . . . . . . .21
13. PRODUCT ACCEPTANCE.. . . . . . . . . . . . . . .22
14. NOTIFICATION OF ADVERSE DRUG EXPERIENCES.. . . .24
15. RECALLS. . . . . . . . . . . . . . . . . . . . .25
16. RELATIONSHIP OF FAULDING AND FPC.. . . . . . . .26
17. TRADEMARKS AND LABELING. . . . . . . . . . . . .26
18. ADVERTISING. . . . . . . . . . . . . . . . . . .27
19. NOTICES. . . . . . . . . . . . . . . . . . . . .28
20. WARRANTIES AND INDEMNIFICATIONS. . . . . . . . .28
21. CONFIDENTIALITY. . . . . . . . . . . . . . . . .30
22. TAXATION ISSUES. . . . . . . . . . . . . . . . .31
23. TERM AND TERMINATION.. . . . . . . . . . . . . .32
24. FORCE MAJEURE. . . . . . . . . . . . . . . . . .33
25. COMPLIANCE WITH LAW. . . . . . . . . . . . . . .33
26. EXECUTION OF ALL NECESSARY ADDITIONAL DOCUMENTS.34
27. WAIVER.. . . . . . . . . . . . . . . . . . . . .34
28. ASSIGNMENT AND AMENDMENT.. . . . . . . . . . . .34
29. ENTIRE AGREEMENT.. . . . . . . . . . . . . . . .34
30. GOVERNING LAW. . . . . . . . . . . . . . . . . .34
31. SEVERABILITY.. . . . . . . . . . . . . . . . . .34
32. HEADINGS.. . . . . . . . . . . . . . . . . . . .35
Schedule A Initial Products
DEVELOPMENT AND DISTRIBUTION AGREEMENT dated January
, 1996 (the "Agreement") by and between F.H. FAULDING & CO.
LIMITED, a corporation organized under the laws of the State
of South Australia with offices at 160 Greenhill Road,
Parkside 5063, South Australia ("FAULDING") and FAULDING
PHARMACEUTICAL CO. a corporation organized under the laws of
the State of Delaware with its principal place of business at
200 Elmora Avenue, Elizabeth, New Jersey ("FPC").
WHEREAS, FAULDING is engaged in the development and
manufacture of certain injectable pharmaceutical and medical
products and FPC is a distributor and seller of injectable
pharmaceutical and medical products;
WHEREAS, FAULDING has negotiated the termination of
certain agreements pursuant to which FAULDING, or one of its
Affiliates, had granted to certain third parties the exclusive
right to distribute the Initial Products (as hereinafter
defined) in the United States;
WHEREAS, the parties wish to formalize their
business arrangement pursuant to which FAULDING has permitted
FPC, since September 1995, to distribute one of the Initial
Products, which is identified on Schedule A hereto, on an
exclusive basis in the Territory;
WHEREAS, FPC wishes to be appointed, and FAULDING
has agreed to appoint FPC, as FAULDING's exclusive distributor
in the Territory of each of the Initial Products under the
terms and provisions of this Agreement;
WHEREAS, the parties intend, on an ongoing basis, to
review FAULDING's development program for the Territory with
the expectation that new injectable products may be added as
Products under the provisions of this Agreement;
NOW, THEREFORE, in consideration of the mutual
covenants contained herein, FAULDING and FPC agree to the
following:
1. DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings:
(a) "ADE" shall mean adverse drug experience as
defined under the laws or regulations of the Regulatory
Authority.
(b) "Affiliates" shall mean (i) an entity
controlled by a common parent that owns more than fifty
percent of the voting stock of both such entity and one of the
parties to this Agreement and (ii) such parent company.
(c) "Antecedent Supply Agreements" shall mean (i)
the Marketing and Supply Agreement dated February 2, 1990
between FAULDING Medical Device Co. (formerly, David Bull
Laboratories U.S.A. Inc.) and Schein Pharmaceutical Inc. and
(ii) the Manufacturing and/or Supply Agreement, dated August
23, 1993, between FAULDING (formerly, David Bull Laboratories
Pty Ltd.) and Fujisawa USA, Inc.
(d) "Average Selling Price" shall mean, with
respect to each Product in any Calendar Quarter, the Net Sales
Value of the Net Units Sold during such Quarter divided by the
number of Net Units Sold during such Quarter.
(e) "Batch" with respect to any of the Products
shall refer to a separate and distinct quantity of such
Product, which is (i) processed under continuous and identical
conditions and designated by a distinctive batch number and an
expiration date and (ii) approved by the Regulatory Authority.
(f) "Calendar Quarter" shall mean those three month
periods commencing, respectively, on January 1, April 1, July
1 and October 1, except that the initial Calendar Quarter
shall mean the period commencing on the FPC Licensing Date and
ending on the last day of the Calendar Quarter in which the
FPC Licensing Date occurs.
(g) "Certificate of Analysis" shall mean a document
certifying that a Batch of a Product meets all Specifications,
which is dated and signed by a duly authorized representative
of the Quality Control or Quality Assurance department of
FAULDING.
(h) "DEA" shall mean the United States Drug
Enforcement Agency.
(i) "FDA" shall mean the United States Food and
Drug Administration.
(j) "Firm Order" shall have the meaning set forth in
Section 7(a) of this Agreement.
(k) "FPC Licensing Date" shall mean the later of
the Inclusion Date and the date upon which the parties obtain
all necessary approvals and/or registrations from the
Regulatory Authority to enable Marketing by FPC of such
Product in the Territory.
(l) "GMP" shall mean good manufacturing practice as
required by the regulations of the FDA and/or required by any
other like authority, whether federal or state, regulating the
development and manufacturing and Marketing of therapeutic
substances in any part of the Territory and Australia and the
import and Marketing of therapeutic substances in any part of
the Territory.
(m) "Inclusion Date" shall mean with respect to any
product the date upon which the parties hereto have executed
a Product Summary Sheet for such product and have thereby
incorporated such product as a Product under the terms and
conditions of this Agreement as of such date.
(n) "Initial Products" shall mean the Products set
forth on Schedule A of this Agreement, which the parties
intend to incorporate as Products, as set forth in Section
3(a) of this Agreement.
(o) "Invoiced Purchase Price" shall have the
meaning set forth in Section 8(b)(iii) of this Agreement.
(p) "Issue of Concern" shall have the meaning set
forth in Section 4 of this Agreement.
(q) "Marketing" in respect of any of the Products
means the promotion, advertising, distribution and sale of
such Product and includes a product launch campaign.
(r) "Marketing Year" shall mean with respect to
each Product the period from July 1 to June 30 of each
calendar year, except that the initial Marketing Year shall
mean the period commencing on the FPC Licensing Date and
ending on the last day of the month of June immediately
following the FPC Licensing Date.
(s) "Net Sales Value" shall mean with respect to
the Net Units Sold of any Product during any Calendar Quarter
the gross sales of FPC from sales of such Product to
independent third parties (not including amounts received as
reimbursement of freight, insurance and other costs or taxes
incurred as a result of the direct sale to an independent
third party) invoiced by FPC during such Quarter, less price
discounts, trade returns, trade allowances, chargebacks or
rebates relating to such sales, as calculated using FPC's
standard accounting procedures, in accordance with U.S.
generally accepted accounting principles, consistently
applied.
(t) "Net Units Sold" shall mean, with respect to
the sales of any Product during any Calendar Quarter during
the term of this Agreement, the total number of units of such
Product sold during such Quarter, less any returns.
(u) "Product Review Liaison" shall mean the liaison
appointed by each party to communicate with the other party
with regard to the product development review process with
respect to each Product, as set forth in Sections 4 and 5 of
this Agreement.
(v) "Product Summary Sheet" in respect of each
Product shall have the meaning set forth in Section 4 of this
Agreement.
(w) "Products" shall mean those injectable products
for which a Product Summary Sheet has been prepared and
countersigned by both parties to this Agreement and such
product has thereby been incorporated and made a part of this
Agreement.
(x) "Purchase Price" shall mean with respect to each
of the Products sold to FPC hereunder the greater of (i) fifty
(50%) percent of the Average Selling Price or (ii) 110% of the
U.S. TMC of such Product.
(y) "Purchase Price Adjustment" shall have the
meaning set forth in Section 10(b) hereof.
(z) "Registration" with respect to any Product
shall mean the gaining of all permissions from all Regulatory
Authorities, including, without limitation the DEA, necessary
to permit the commencement of Marketing by FPC of such Product
in the Territory.
(aa) "Regulatory Application" shall mean, as the
case may be, the New Drug Application, the Abbreviated New
Drug Application or the Abbreviated Antibiotic Drug
Application that is filed with the FDA in respect of a
particular Product.
(bb) "Regulatory Authority" shall mean the FDA, the
DEA and/or any other like authority, whether federal or state,
regulating the import, and Marketing of therapeutic substances
in any part of the Territory and the Therapeutics Goods
Administration and/or any other like authority in Australia.
(cc) "Specifications" of a Product shall mean the
specifications for the Product as stated in the Regulatory
Application for such Product.
(dd) "Territory" shall mean the U.S. and its
territories and possessions.
(ee) "U.S." shall mean the United States of
America.
(ff) "U.S. TMC" with respect to any Product shall
mean the cost to FAULDING of manufacturing each unit of such
Product during any Calendar Quarter on a fully absorbed
basis, calculated according to FAULDING's standard costing
system, subject to normal accounting procedures, consistent
with generally accepted Australian accounting principles and
, subject to the provisions of Section 8(c) hereof, as
converted into U.S. dollars at FAULDING's budgeted exchange
rate, which is ordinarily established in the Calendar Quarter
commencing January 1 of each Year; provided, however, such
exchange rate shall not be greater than 105% nor less than 95%
of the T/T mid rate of the Australia and New Zealand Banking
Group Limited in Adelaide, Australia on the date that the
budgeted rate is established.
2. APPOINTMENT.
(a) Subject to the provisions of Sections 3, 4 and
5 of this Agreement, FAULDING hereby grants to FPC beginning
on the FPC Licensing Date for each Product and extending for
the period of time that such Product is included as a Product
under the terms of this Agreement, the exclusive right to
Market such Product in the Territory, and FAULDING agrees to
supply to FPC, subject to the provisions of Sections 5 and 7
of this Agreement, all of its requirements of such Product.
(b) FPC agrees that it will neither Market nor
attempt to Market any Product outside the Territory either on
its own account or through any third party nor will it sell
any Product to any person or corporation within the Territory
where FPC has reasonable grounds to believe that such other
person or corporation intends to sell such Product outside the
Territory.
(c) Subject to the provisions of Section
5(b)(vii), 5(c)(iv) and 5(d) of this Agreement, FPC agrees
that during the term of this Agreement, it shall not source
any of the Products from any third party without the prior
written consent of FAULDING.
(d) Subject to the provisions of Section 5 of this
Agreement, FPC shall use reasonable efforts to Market the
Products covered by this Agreement during the term hereof and
as contemplated by Section 6 of this Agreement, to obtain
and/or maintain the Registration of the Products in the
Territory.
(e) Subject to the time tables set forth in the
Product Summary Sheets and/or established or modified during
the product development review process contemplated by Section
5 of this Agreement, FAULDING shall use reasonable efforts, as
may be applicable, to develop the Products for Registration
and Marketing in the Territory and, subject to the provisions
of Sections 7, 9 and 10(c) of this Agreement, to supply FPC
with Products.
(f) FAULDING hereby grants FPC a right of first
refusal to Market within the Territory as a Product hereunder
any generic injectable product developed or manufactured by
FAULDING, and acceptable for U.S. registration, during the
term of this Agreement, unless otherwise agreed to by the
parties.
3. THE PRODUCTS.
(a) The parties agree that it is their mutual
intention that each of the Initial Products shall be
incorporated into this Agreement as a Product on a date
subsequent to the date on which exclusive marketing rights
under the Antecedent Supply Agreements terminate, as set forth
on Schedule A hereto. The parties further acknowledge that
FPC has been marketing one of the Initial Products, which is
identified on Schedule A hereto, since September 1995 and that
all pertinent terms of this Agreement, including without
limitation, the payment terms set forth in Sections 8 and 9
hereto, shall apply to sales of such Initial Product that have
occurred from September 1995 up to the date hereof as if such
sales had occurred during the term hereof. As soon as
reasonably practicable after the date hereof, the parties
shall commence negotiations of the terms of a Product Summary
Sheet to include each Initial Product as a Product under the
terms of this Agreement.
(b) As provided, and subject to the conditions set
forth, in Section 2(f) hereof, at any time during the term of
this Agreement, FAULDING may notify FPC in writing, by means
of FAULDING's "Monthly International Business & Product
Development Minutes", or by any other written communication
delivered to FPC, of its intent to make a pharmaceutical
product not covered by this Agreement available to FPC (the
"FAULDING Notice of Intent"). FPC shall have sixty days from
its receipt of the FAULDING Notice of Intent to inform
FAULDING in writing whether or not it wishes to negotiate the
terms of a Summary Product Sheet to include such product as an
additional Product under the terms of this Agreement (the
"Section 3(b) Notice"). If (i) FPC informs FAULDING that it
does not have an interest in negotiating with FAULDING, (ii)
FPC fails to deliver to FAULDING a Section 3(b) Notice, within
sixty (60) days of its receipt of the FAULDING Notice of
Intent, of its interest in negotiating with FAULDING, or (iii)
the parties, after negotiating in good faith for a period of
an additional sixty (60) days from the date of receipt by FPC
of the Section 3(b) Notice, are unable to come to an agreement
on the terms that would make such new product a Product
hereunder, FAULDING shall have the right to register and
Market such product in the Territory and/or enter into an
agreement with any third party for the registration and
Marketing of such product in the Territory; provided, however,
that the terms offered to any such third party shall not be
more favorable than those that had been offered to FPC in the
negotiations described in this Section 3(b).
(c) At any time during the term of this Agreement, FPC
may notify FAULDING in writing of its desire to Market a
pharmaceutical product in the Territory (the "FPC Product
Proposal"). Such Proposal will contain as full a description
of the product as reasonably possible, including, without
limitation, detailed unit forecasts for the first five-year
Marketing period, the estimated selling prices for all
presentations requested of FAULDING and, as applicable, the
requested timetable for development and delivery of
registration materials for submission of a Regulatory
Application.
(d) The parties acknowledge and agree that it is their
mutual intent under Section 3(c) for FPC to, and FPC hereby
does, grant FAULDING a right of first refusal to supply
injectable anti-cancer products on FPC's behalf but that,
subject to the limitation set forth in the last sentence of
Section 3(e) hereof, FPC shall be in no way restricted from
sourcing any other products from any other third party.
(e) FAULDING shall have sixty (60) days from its receipt
of the FPC Product Proposal to inform FPC in writing whether
or not it wishes to negotiate the terms of a Product Summary
Sheet to include such product as an additional Product under
the terms of this Agreement (the "Section 3(e) Notice"). If
(i) FAULDING informs FPC through such Notice, that it does not
have an interest in negotiating with FPC, (ii) FAULDING fails
to deliver a Section 3(e) Notice to FPC, within sixty (60)
days of its receipt of the FPC Product Proposal or (iii) the
parties, after negotiating in good faith for a period of an
additional sixty (60) days from the date of receipt by FPC of
the Section 3(e) Notice, are unable to come to an agreement on
the terms that would make such new product a Product
hereunder, FPC shall have the right to Market such product
independently of this Agreement and to enter into an agreement
with a third party for the purchase, and(as may be applicable)
the development, of such product from such third party;
provided, however, that the material terms offered to such
third party must be essentially the same as, and, in any event
no more favorable than, the material terms of the FPC Product
Proposal delivered to FAULDING. Notwithstanding the provisions
of Section 3(d) hereof to the contrary, once FPC has delivered
an FPC Product Proposal to FAULDING hereunder, it may not
Market, nor negotiate with any third party to develop,
manufacture or Market the product which is the subject of the
FPC Product Proposal until one of the conditions set forth in
Subsection (i), (ii) or (iii) of this Section 3(e) has been
satisfied.
4. THE PRODUCT SUMMARY SHEETS.
(a) The parties, upon reaching an agreement between
them to incorporate any product as a Product, as described in
Section 3 of this Agreement, shall prepare and countersign a
Product Summary Sheet in respect of such Product.
(b) Each Product Summary Sheet shall describe the
Product and shall set forth the material terms with respect to
the development, manufacturing and Marketing of the Product
that have been agreed to by the parties as of the execution
date thereof, including, without limitation, the targeted
submission date to the FDA, and as set forth in Section 8 of
this Agreement, the estimated U.S. TMC per unit, the
estimated Net Selling Price per unit and the Invoiced
Purchase Price per unit for the first Marketing Year. The
detailed content and requirements of the Product Summary Sheet
will be agreed upon between the parties from time to time.
5. PRODUCT DEVELOPMENT REVIEW PROCESS.
(a) The parties shall each appoint a liaison (the
"Product Review Liaison") to communicate with each other with
regard to information required in Section 4 and this Section
5 hereof. Either party may change its Product Review Liaison
by written notice to the other party.
(b) During the term of this Agreement, the parties,
through their Product Review Liaisons (i) shall amend the
Product Summary Sheets, through a written document
countersigned by both such Liaisons, to reflect any material
changes in the terms between them with respect to each Product
and (ii) shall promptly give each other written notice, by
facsimile, of any "Issue of Concern" associated with any of
the Products (as defined hereafter in Section 5(c)hereof) as
to which FAULDING or FPC obtains information.
(c) For purposes of this Agreement, an "Issue of
Concern" will mean any circumstance that, in the reasonable
opinion of either party, may materially affect the timing and
continued economic viability of the development, manufacture
or Marketing of any Product, including, without limitation,
the following:
(i) the manufacture, use or sale of any of the Products
has resulted in, or may result in, the infringement of a
third party's patent or other intellectual property
rights or the occurrence of any other intellectual
property issue associated with any of the Products that
has, or may have, a material effect on either party's
business;
(ii) the development of any Product or submissions of a
Regulatory Application to the Regulatory Authority is not
going to be achieved, or is not likely to be achieved,
within six (6) months after the relevant due dates as
agreed to by the parties and set forth in the most
current Product Summary Sheet;
(iii) during any Marketing Year, the forecasted sales of
such Product are less than 75% of the forecasted sales
listed in the most current Product Summary Sheet for such
Product;
(iv) during any Marketing Year, the forecasted net
profit before taxes is less than 75% of the forecasted
net profit before taxes from sales of such Product that
is listed in the most current Product Summary Sheet for
such Product;
(v) projected development, manufacturing, Marketing or
Registration costs of either party are currently expected
to be greater than 130% of such costs previously
forecasted by such party;
(vi) the estimated Net Selling Price, the estimated U.S.
TMC or the Invoiced Purchase Price, in the reasonable
opinion of either party, does not reflect prevailing
market conditions of such Product;
(vii) FAULDING is unable to supply a Product ordered by
FPC for a period of time exceeding ninety (90) days after
the requested delivery date; or
(viii) either party has become aware of a serious safety
concern with respect to such Product.
(d) The recipient of any notice with respect to an
Issue of Concern will promptly acknowledge receipt of such
information, and, thereafter, the parties will negotiate in
good faith to resolve any such Issue of Concern to their
mutual satisfaction. FAULDING shall not be required to
deliver any Product pursuant to which it has delivered or
received, as the case may be, an Issue of Concern Notice under
Section 5(c)(i) or 5(c)(viii)hereof until such time, if ever,
that the parties agree that such Issue of Concern is no longer
applicable to such Product.
(e) After due deliberation and good faith
negotiations between them, if either party determines that it
is not in its best interest to continue to develop,
manufacture or sell, as the case may be, a Product or Products
pursuant to the terms of this Agreement, such party may, by
written notice to the other party, delete such product as a
Product hereunder. In addition to its right to suspend
delivery of Products set forth in Section 5(d) hereof,
FAULDING may only be obligated to deliver Products, which have
been deleted pursuant to this Section 5(e),that are ordered
prior to the date of deletion and the provisions of Section
23(c) shall apply with respect to the deleted Products insofar
as such provisions are consistent with such deletion.
6. PRODUCT REGISTRATION.
(a) FPC shall apply for registration, or for
amendments to existing registrations, of the Products as
required by applicable laws and regulations and obtain and
maintain such registrations in its own name and at its own
expense; provided, however, that prior to expending any such
registration costs, FPC shall submit a written estimate of
such costs to FAULDING for FAULDING's prior written approval.
and provided, further, however, that upon expiration or the
termination of the Agreement for any reason, whatsoever, or
upon the deletion of any Product hereunder, FPC, at the
request of FAULDING, shall promptly transfer the registration
to FAULDING, or its designee, of all of the Products affected,
as the case may be, by such expiration, termination or
deletion. After the transfer of the registration of such
Products to FAULDING or its designee, FAULDING shall promptly
reimburse FPC for (i) all of FPC's reasonable expenses(A) that
relate directly to such registration or transfer (other than
the expenses set forth in Section 6(b) hereto for which FPC is
solely responsible) and (B) for which FAULDING has given its
prior written approval, as set forth in this Section 6(a), or
(ii) for such other amount as may be negotiated by the parties
prior to the transfer.
(b) FPC shall bear the responsibility and expense
for any applicable filings and approvals made in connection
with advertising and promotional materials and shall, at its
sole expense, comply with requirements imposed by the
Regulatory Authority relating to the marketing and
distribution of each of the Products in the Territory.
(c) FAULDING shall provide reasonable assistance to
FPC in the fulfillment of its obligations pursuant to Sections
6(a) and 6(b) hereof.
7. FORECASTS AND ORDERS
(a) At least ninety (90) days prior to the
commencement of the Marketing of any Product, and, thereafter,
by the fifteenth (15th) day of each subsequent month during
the term of this Agreement, FPC shall provide FAULDING with a
forecast of the number of Batches of each Product to be
ordered for delivery during each month for the succeeding
twenty-four (24) month period. Such forecast shall not be a
binding obligation on either party with the exceptions that
(i) the forecast for the most current four month period shall
constitute a firm order(the "Firm Order"); and (ii) FAULDING
shall not be required to supply during any such four month
period more than one hundred and twenty per cent (120%) of the
amount forecasted in the Firm Order for such four month period
but will use all reasonable efforts to supply the full amount
ordered.
(b) The Firm Orders and acknowledgments thereof may
be issued or given on FPC's or FAULDING's standard purchase
order forms, as the case may be, containing standard terms and
conditions, but the terms and conditions of this Agreement,
and not such standard terms and conditions, shall govern the
purchase and sale of Products under this Agreement.
(c) The Firm Order shall state in reasonable detail
the quantities of each Product to be delivered to FPC and the
requested dates for delivery of each such Product. Except
with the written consent of FAULDING, no Firm Order of any
Product will require FAULDING to make a shipment of such
Product (i) on a date less than ninety (90) days after the
date of the order or (ii) containing less than the Batch size
of such Product.
(d) FPC shall pay in full in U.S. dollars against
FAULDING's invoices for any Product shipped to it pursuant to
this Agreement within sixty (60) days from the date of
delivery of such Products to the destination in the Territory
designated by FPC. FPC shall wire transfer all payments
hereunder to a bank or banks designated in writing by FAULDING
unless instructed otherwise by FAULDING. As set forth in
Section 8 hereof, FPC shall pay the aggregate Invoiced
Purchase Price for each of the Products, subject to the
Purchase Price Adjustment mechanism described in such Section.
8. INVOICED PURCHASE PRICE;
PURCHASE PRICE ADJUSTMENT.
(a) FPC shall sell each of the Products to third
parties in arms' length transactions at prices to be set by
FPC in its sole discretion.
(b) Ninety (90) days prior to the commencement of
each Marketing Year, the parties will amend each Product
Summary Sheet to reflect the following information agreed upon
by the parties for such Marketing Year with respect to each
unit of such Product:
(i) FAULDING's good faith estimate of the U.S.
TMC;
(ii) FPC's good faith estimate of the
Net Selling Price; and
(iii) the "Invoiced Purchase Price",
which for purposes of this Agreement
shall be the parties' good faith
estimate of the Purchase Price, as
calculated in Section 1(x) hereof.
(c) All orders of each Product delivered to FPC by
FAULDING hereunder during each Marketing Year will be invoiced
at the Invoiced Purchase Price for such Product set forth in
such Product Summary Sheet, unless the parties agree in
writing to an amended Invoiced Purchase Price and provided,
further, that if the aggregated Purchase Price of any
Product at the end of the first, second or third Calendar
Quarter of any Marketing Year is greater than 110% or less
than 90% of the aggregated Invoiced Purchase Price paid for
such Product during such Quarter, the Invoiced Purchase Price
per unit for the following Calendar Quarter shall equal the
Purchase Price per unit of such Product during the immediately
preceding Quarter. It is further agreed that during any
Marketing Year if:
(i) the applicable currency exchange rate
either increases or decreases by greater
than five (5%) percent; or
(ii) the amount equal to 110% of the U.S.
TMC of any Product either increases or
decreases by greater than ten (10%) due to
(i) a change in the cost of the active drug
substance such that the cost of the affected
Product changes by greater than plus or
minus ten (10%) percent and/or (ii) a change
in the applicable currency exchange rate,
then FAULDING, in a fully documented written proposal, may
request FPC's approval of a TMC change with respect to any
such affected Product. FPC shall respond in writing to
FAULDING's request within thirty (30) days of FPC's receipt of
such request and will not unreasonably withhold approval of
such request.
(d) Within thirty (30) days after the end of each
Calendar Quarter, FPC shall calculate and send to FAULDING a
statement reflecting the following financial data with respect
to the purchase of each of the Products from FAULDING and the
sale of each the Products to its customers during such Quarter
(FPC's "Quarterly Statement"):
(i) the number of Net Units Sold, the Net
Sales Value of the Net Units Sold and the
Average Selling Price per unit;
(ii) the Purchase Price per unit and Purchase
Price payable for Net Units Sold, as
calculated in Section 1(w) hereof,
including the calculation of (i) fifty
(50%) percent of the Average Selling
Price and (ii) 110% of the U.S. TMC of
such Product, as set forth in Section
1(w) hereof;
(iii) the Invoiced Purchase Price per unit
and the Invoiced Purchase Price for
Net Units Sold for purchases during
such Period;
(iv) if (a) the Purchase Price for Net Units
Sold is greater than the Invoiced
Purchase Price for Net Units Sold, the
Purchase Price Adjustment due FAULDING or
(b) the Invoiced Purchase Price for Net
Units Sold is greater than the Purchase
Price for Net Units Sold, the Purchase
Price Adjustment due FPC; and
(v) the sum of the Purchase Price
Adjustments for each of the
Products sold during such Period
and the amount payable to
FAULDING or FPC, as the case may
be.
(e) The parties acknowledge and agree that (i) it
is necessary for the calculations set forth in this Section 8
for FPC to, and FPC shall, account for all sales of each of
the Products hereunder on a strict first-in-first-out basis
and (ii) notwithstanding the provisions of Section 8(c) to
the contrary, at no time during the term hereof will FAULDING
be paid by FPC for any Product hereunder in an amount less
than 110% of the U.S. TMC as agreed in the Product Summary
Sheet on the date of supply of such Product. FPC will compute
the calculations set forth under Section 8(d) hereof using the
U.S. TMC indicated in the most current Product Summary Sheet
at the beginning of the Period unless informed otherwise by
FAULDING in writing under the procedure outlined in Section
8(c). In the event that FAULDING notifies FPC of the revision
of the U.S. TMC, such revised U.S. TMC will apply for all
subsequent shipments of such Product unless otherwise agreed
to by the parties.
(f) The calculations of FPC set forth in its
Quarterly Statement shall be final, unless within twenty (20)
days after receipt of such Statement, FAULDING notifies FPC in
writing of any objection to such calculations, specifying such
objections in reasonable detail. Upon receipt of any such
objection, the matter shall be resolved as set forth in
Section 8(g) of this Agreement.
(g) If FAULDING objects to any calculations in
FPC's Quarterly Statement (the "Disputed Amount"), then each
of the parties shall endeavor to agree promptly upon such
Disputed Amount. In the event that a Disputed Amount has not
been resolved in writing within thirty (30) days after the
date of receipt by FPC of FAULDING's written objection, then
the Disputed Amount shall be submitted to an internationally
recognized accounting firm mutually acceptable to the parties
(the "Arbitrator"). Nothing herein shall be construed to
authorize or permit the Arbitrator to determine any question
or matter whatever under or in connection with this Agreement,
except the determination of what adjustments, if any, must be
made in FPC's calculations set forth in its Quarterly
Statement. Within thirty (30) days of the submission of any
dispute to the Arbitrator pursuant to this Section 8(g), the
Arbitrator shall render a decision along with a statement of
reasons therefor. The decision of the Arbitrator shall be
final and binding upon each party hereto. The fees and
expenses of the Arbitrator for any determination under this
Section 8(g) shall be paid by the party against whom the
discrepancy is resolved.
(h) FPC's payment to FAULDING or any amount due
FPC, as the case may be and as calculated in FPC's Quarterly
Statement, shall be delivered to the other party in U.S.
dollars via wire transfer to the bank or banks designated by
such other party shall be paid by FPC or FAULDING, as the case
may be, within sixty (60) days after the end of the Calendar
Quarter to which the changes pertain. With respect to any
Disputed Amount in FPC's Quarterly Statement, the party
responsible shall pay or repay the other party, or make any
other adjustment required, within twenty (20) days after the
resolution of the dispute by the parties or the decision of
the Arbitrator, as the case may be.
(i) Each of the parties shall keep proper books of
account on all records with respect to any of the Products,
clearly recording all matters and transactions relating to any
of the Products. Each of the parties will permit authorized
representatives of the other party, upon reasonable prior
written notice to inspect such books and records, as set forth
in Section 10 of this Agreement.
9. SHIPMENT OF PRODUCTS
(a) Deliveries of the Products to the destination in
the Territory designated by FPC shall be made by FAULDING,
F.O.B. FAULDING's manufacturing plant in Australia, and as
otherwise designated in the Firm Orders. FAULDING will
ensure that deliveries of the Products are accompanied by
quality control certificates of analysis and will send copies
of such certificates of analysis and shipment details
contemporaneously by telecopier (confirmed by hard copies
mailed) to FPC. FAULDING shall also ensure that all Products
shall be transferred under appropriate storage conditions and
packaged for shipment according to all laws and regulations of
the Territory and Australia, as applicable.
(b) FPC may choose the means of shipment by
notifying FAULDING of its choice on its Firm Order. FPC shall
pay for all freight and insurance costs. Identification of
the goods to the contract shall occur and risk of loss shall
pass to FPC upon delivery of the Products to the carrier. In
the event FPC has not furnished FAULDING with shipping and
insurance instructions in its Order, FAULDING shall deliver
the Products to FPC, F.O.B. FAULDING's manufacturing plant in
Australia, within ninety (90) days of acceptance of the order
by delivery to a carrier selected by FAULDING and FAULDING
shall, in its sole discretion, obtain insurance coverage
thereon, the cost of which shall be borne by FPC and added to
the purchase price.
(c) FPC (i) shall be responsible for the payment of
any import, customs or similar duties imposed by governmental
authorities and of any federal, state, county or municipal
sales or use tax, excise or similar charge, or any other tax
assessment (other than that assessed against income), license,
fee or other charge lawfully assessed or charged on the use
or transportation of the Products sold and delivered to FPC
pursuant to this Agreement; and (ii) shall obtain any
licenses, authorizations or other documents required by any
governmental authorities in order to permit the importation of
the Products sold and delivered to FPC pursuant to this
Agreement. FAULDING shall be responsible, at FPC's cost, for
obtaining necessary export clearances and any licenses,
authorizations or other documents required by any governmental
authorities in order to permit the exportation of the Products
delivered and sold to FPC pursuant to this Agreement.
(d) FAULDING shall include in its invoice to FPC,
described in Section 7 of this Agreement, all expenses
incurred by FAULDING in connection with shipping the Products
and FPC shall pay all such amounts reflected on such invoice
in accordance with the provisions of Section 7(d) hereof.
10. AUDITS.
(a) FPC shall have the right, no more than twice
annually, with a limit of two FPC representatives on each such
occasion and at its own cost, to visit FAULDING's
manufacturing plant(s) for the Products during regular
business hours, upon giving reasonable prior written notice to
FAULDING. During any such visit, FPC shall have the right (i)
to inspect the manufacturing facilities, (ii) to inspect
quality control procedures and (iii) to review any applicable
records to ensure that FAULDING complies with current GMP
regulations and other applicable regulations for the Products.
(b) FPC shall also have the right, no more than
twice annually and at its own cost, during regular business
hours, upon giving reasonable prior written notice to FAULDING
to have an independent professionally qualified auditor or
other qualified representative of FPC, reasonably approved by
FAULDING, audit FAULDING's records relative to the total
manufacturing costs and the calculation of the U.S. TMC of any
of the Products and of any other incidental costs chargeable
to FPC hereunder.
(c) FAULDING shall have the right, no more than
twice annually and at its own cost, during regular business
hours, upon giving reasonable prior written notice to FPC to
have an independent professionally qualified auditor or other
qualified representative of FAULDING, reasonably approved by
FPC, audit FPC's records relative to FPC's books of account,
as set forth in Section 8 hereof.
(d) The party conducting the audit shall assume all
risk of loss and indemnify and hold the other party harmless
from and against any and all loss, liability, damage, claim
and expense including, but not limited to, reasonable
attorneys' fees arising out of or resulting from the auditing
party's presence on the audited party's premises.
(e) Each of the parties will permit any inspection
by the Regulatory Authority, which is required for
Registration and Marketing of any of the Products, of all
records and reports pertinent to the development,
manufacturing, transport and Marketing of each Product.
(f) Each of the parties shall retain any records or
data with respect to their obligations and services pursuant
to this Agreement, and the costs thereof, for a period equal
to the longer of the period of time in accordance with the
pertinent regulations and requirements of Australian Tax
Office and Australian Stock Exchange and the Regulatory
Authorities in the Territory, including, without limitation,
the regulations and requirements of the FDA, the U.S. Internal
Revenue Service and the U.S. Securities and Exchange
Commission and five (5) years after the date of the
termination or expiration of the Agreement.
11. SUB-LICENSEES.
(a) FPC is authorized to appoint its own agents or
sub-licensees ("Sub-licensees) for the solicitation of orders
for and sub-distribution of such Product in the Territory.
The appointment of any Sub-licensee shall be on such terms and
conditions as FPC may reasonably require in writing, provided
such terms and conditions are not inconsistent with the terms
and conditions of this Agreement.
(b) Where a Sub-licensee has been appointed by FPC
pursuant to this Section 11, FPC agrees that it shall at all
times be solely responsible for the acts, or omissions of such
Sub-licensee and hereby agrees to indemnify FAULDING against
any and all loss, liability, damage, claims, cost and expense
(inclusive of attorney's fees and disbursements) arising from
or in connection with such Sub-licensee's acts, or omissions.
12. QUALITY CONTROL.
(a) FAULDING shall perform the quality control
tests on each of the Products necessary for conformity of the
Products to the Specifications.
(b) FAULDING shall provide FPC with reasonable
advance written notice of any proposed changes to the method
of manufacture, associated facilities or other validated
processes associated with any of the Products. FAULDING shall
not make any such change, which requires prior approval by the
Regulatory Authority, before such approval has been obtained.
(c) FAULDING shall label each of the Products and
apply Batch numbers and expiration dates to each Batch of
Products, as required for such Product by the Regulatory
Authority. Upon the testing of each Batch of any Product,
FAULDING will promptly deliver a copy of the Certificate of
Analysis with respect to such Batch to FPC by facsimile.
Deliveries of each Batch of Product will also be accompanied
by a copy of the relevant Certificate of Analysis.
(d) Each party will maintain complete and accurate
records for the periods set forth in Section 10(f) hereof.
Each of the parties will use commercially reasonable efforts
to ascertain the retention requirements of the pertinent
Regulatory Authorities and will keep the other party informed
of any changes that it becomes aware of that may reasonably
impinge upon a Product.
(e) FAULDING agrees that it will cooperate with FPC
in its efforts to maintain the commercial viability of each of
the Products in the Territory, including, but not limited to,
supplying the data necessary to obtain and maintain
Registration approval, as provided for in Section 6(a) of this
Agreement.
(f) Each party shall immediately notify the other
party of any inspections by any Regulatory Authority that are
"for cause", a result of a Recall of any of the Products or
that may, directly or indirectly, in the reasonable opinion of
such party, impinge upon the ability of either party to supply
or Market any of the Products, including, without limitation,
inspections of suppliers requiring approval of the Regulatory
Authority.
13. PRODUCT ACCEPTANCE.
(a) If FPC claims that there is a shortage of any
of the Products delivered by FAULDING pursuant to a Firm
Order, it shall submit written notice to FAULDING within ten
(10) days of the date of the delivery of such Order. In case
of an alleged or actual non-delivery, a written claim must be
submitted to FAULDING within thirty (30) days of FAULDING's
delivery advice notice. In the absence of such a written
claim, in the case of either alleged shortage or non-delivery,
the Products shall be deemed to have been delivered in
accordance with this Agreement. In any event, FPC shall not
be entitled to refuse to accept delivery by reason only of an
alleged or actual shortage.
(b) All Products received by FPC shall be deemed
accepted unless FPC gives FAULDING written notice (the
"Objection Notice") within thirty (30) days of such receipt
specifying the manner in which the Products do not conform to
the Specifications. The Objection Notice shall be accompanied
by written reports of any testing performed by or for FPC on
the relevant Products. Upon receipt of the Objection Notice,
FAULDING may request FPC to return the relevant Products or
samples thereof for further testing. The test results, if any,
submitted to FAULDING by FPC shall be deemed conclusive unless
FAULDING notifies FPC within seven (7) days after the
completion of tests reasonably required to support or refute
FPC's Objection Notice that it disagrees with such test
results. In the event of such notice by FAULDING, the
relevant Products or samples thereof shall be submitted to a
mutually acceptable independent laboratory (the "Independent
Laboratory") for analysis and a written report (the "Report"),
the costs of which shall be paid by the party against whom the
discrepancy is resolved. In the event that the results of the
Report determine that any of the Products objected to by FPC
do not meet the Specifications for such Product, FAULDING will
use commercially reasonable efforts to replace such rejected
Products with conforming goods within ninety (90) days from
the date of the Report, provided that the departure from
Specifications is not due to the fault or act of FPC. All
transportation, shipping and insurance costs and other fees
incident to the shipping back to FAULDING of the Products
determined by the Report to be defective and the shipping to
FPC of the replacement Products will be paid for by FAULDING
and all costs incident to the shipping back of conforming
goods will be paid for by FPC.
(c) In the event that any of the Products are
returned to FPC by its customers for the reason that said
Products are claimed to be defective, FPC, subject to the
provisions of Section 14 hereof, shall notify FAULDING within
thirty (30) days of such return by written notice (the "Return
Notice") specifying the manner in which such Products are
claimed to be defective. Upon receipt of the Return Notice,
FAULDING may request FPC to return the Products which are the
subject of the Return Notice or samples thereof for testing.
If FAULDING concludes that such Products do not conform to the
Specifications or are otherwise defective, FAULDING will
replace such Products with conforming goods within sixty (60)
days after the completion of such tests as are reasonably
required to support or refute the Return Notice, provided that
the departure from Specifications is not due to the fault or
act of FPC or its customer. If FAULDING concludes that the
Products conform to the Specifications and are not otherwise
defective, it shall notify FPC of its objection to the Return
Notice within thirty (30) days of its receipt of the Return
Notice or its receipt of the samples, whichever is later. If
FPC disagrees with FAULDING's conclusion, then the Products
shall be submitted to the Independent Laboratory for a Report,
the costs of which shall be paid by the party against whom the
discrepancy is resolved. In the event that the results of the
Report determine that any of the Products returned to FPC do
not meet the Specifications or are otherwise defective,
FAULDING will use commercially reasonable efforts to replace
such Products with conforming goods within ninety (90) days
from the date of the Report, provided that the departure from
Specifications is not due to the fault or act of FPC or the
customer. All transportation, shipping and insurance costs
and other fees incident to the shipping back to FAULDING of
the Products (i) determined by the Report to be defective and
the shipping to FPC of the replacement Products will be paid
for by FAULDING; and (ii) determined by the Report not to be
defective and the return shipment thereof to FPC will be paid
for by FPC.
(d) Any other complaints received by FPC with
respect to any of the Products, other than complaints
regarding the handling, shipping, supply and labeling of the
Products (collectively, the "Distribution Complaints"), shall
be forwarded to FAULDING and all Distribution Complaints shall
be handled by FPC. Each party shall promptly deliver to the
other party a copy of all correspondence and reports arising
from any such complaints.
14. NOTIFICATION OF ADVERSE DRUG EXPERIENCES.
(a) The parties shall each appoint a liaison (a
"Medical Liaison Officer") to communicate with each other with
regard to information required in this Section 14 and Section
15 hereof. Either party may change its Medical Liaison
Officer by written notice to the other party.
(b) During the term of this Agreement, FAULDING and
FPC shall give each other notice, as set forth in this Section
14, of any ADE associated with any of the Products as to which
FAULDING or FPC obtains information in accordance with the
following:
(i) Any ADE information obtained by FPC and any
ADE information obtained by FAULDING, which in
FAULDING's reasonable opinion may impact upon
FPC's Registration or Marketing of the Product
in the Territory, shall be reported to the
other's Medical Liaison Officer, by telephone
and in writing (only by facsimile) within two
(2) calendar days after initial receipt of the
information. The recipient shall acknowledge
receipt of such information within twenty four
(24) hours of its receipt.
(ii) The reports shall contain to the extent
reasonably possible all information required
by the Regulatory Authority.
(iii) Each of the parties will maintain complete and
accurate records of each ADE for such periods
as may be required by applicable law, but not
less than five (5) years.
(c) FPC will file any ADE Report for any Product
required under applicable laws or regulations of the
Regulatory Authority. Each party shall provide the other
party with copies of all correspondence between the Regulatory
Authority and itself related to Product safety, and
promotional material. Copies of all such correspondence with
the Regulatory Authority covered by this subsection (c) shall
be provided to the other party by the party involved within
ten (10) days of its receipt or delivery, as the case may be,
of such correspondence. In addition, each party shall keep the
other party timely advised in advance of any meetings or
discussions with any Regulatory Authority relevant to the
safety and efficacy of any of the Products.
(d) If FAULDING determines it is necessary to issue
a report with respect to the medical efficacy or safety of any
Product, FAULDING shall provide such report to FPC in
sufficient time to allow for issuance to FPC customers.
15. RECALLS.
(a) In the event that either party determines that
a Product does not conform to the Specifications or that it
should be recalled for any other reason, prior to taking any
action, it shall give written notice to the other party's
Quality Officer specifying its reasons for the necessity of a
recall (the "Recall Notice"). If both parties agree that the
Product should be recalled, FPC will handle the administration
of the recall and FAULDING, if permitted to do so under the
laws and regulations of the Regulatory Authority, will replace
all Products recalled as soon as reasonably practicable.
(b) If, within ten (10) days from the date of the
Recall Notice, the parties have been unable to reach an agree-
ment concerning the necessity of a recall, the parties agree
to submit the Product to the Independent Laboratory for a
Report, the cost of which shall be paid by the party against
whom the discrepancy is resolved. In the event that the
discrepancy is resolved in the Report against FAULDING,
FAULDING shall reimburse FPC for all reasonable out-of-pocket
expenses relating to such recall. In the event that the
discrepancy is resolved in the Report in favor of FAULDING and
FPC elects to recall the Product notwithstanding the Report,
FAULDING shall have no obligation to FPC with respect to
replacement of Products or reimbursement of expenses.
16. RELATIONSHIP OF FAULDING AND FPC.
(a) The relationship between FAULDING and FPC that
is created by this Agreement shall be that of vendor and
purchaser, and not that of principal and agent. In the
performance of this Agreement, neither party shall have the
authority to assume or create any obligation or
responsibility, either expressed or implied, on behalf of or
in the name of the other party, or to bind the other party in
any manner whatsoever.
(b) FPC shall conduct its own business in its own
name and in such a manner as it sees fit, and shall be solely
responsible for determining the prices to be charged for the
Products in the Territory.
17. TRADEMARKS AND LABELING.
(a) Nothing contained herein shall be construed as
conferring any license in favor of FPC to any trademarks owned
or claimed to be owned by FAULDING. Unless it obtains the
written permission of FAULDING, FPC shall not affix or apply
to any of the Products any trademark or other name, logo or
emblem nor shall it remove or tamper with any trademarks
applied to the Products by FAULDING. Nothing contained herein
shall impose any obligation upon FAULDING to register or
otherwise maintain in force any trademark.
(b) FAULDING shall appear on the label of the
Products as the manufacturer thereof and FPC as distributor.
(c) FPC shall at all times recognize the validity
and FAULDING's ownership of any trademarks which FAULDING
permits it to use or permits to be used on or in relation to
the Products and shall at no time do, or allow to be done,
anything by way of omission or commission, which would put in
issue or adversely affect such validity or ownership, or which
would damage or prejudice the reputation or goodwill of
FAULDING as owner thereof.
(d) FPC shall enter into such trademark, service
mark or trade name user agreements or other instruments
relative to the grants of any rights to use any such
trademarks as may be required by FAULDING, such agreements or
other instruments to be coterminous for each Product with the
license granted with respect to such Product as set forth in
the relevant Product Summary Sheet. Upon expiration or
termination of this Agreement or deletion of any Product, FPC
agrees to do and execute such acts, deeds and things that may
be required by FAULDING for the purpose of cancellation of any
such agreements or instruments or the registrations thereof.
(e) Products will be labeled and packaged in
accordance with instructions provided by FPC. FPC will supply
masters for labels, package inserts and packaging. FAULDING
will procure, test, inspect and approve all labels, package
inserts and packaging used for the Products in accordance with
the laws and regulations of the Regulatory Authority.
FAULDING will submit all new labels, package inserts and
packaging used for any Products to FPC for approval prior to
use unless otherwise agreed in writing. In the event that FPC
requests a labelling change, all costs reasonably associated
with the implementation of such change will be borne by FPC.
18. ADVERTISING.
If this Agreement is terminated for any reason,
neither party shall package or label any goods in a manner
that the other party hereto might reasonably consider to be
imitative of any goods sold by such party.
19. NOTICES.
Notices provided under this Agreement to be given or
served by either party on the other shall be given in writing
and served personally or by prepaid registered airmail post or
by courier or by means of facsimile to the following
respective addresses or to such other addresses as the parties
may hereafter advise each other in writing. It is agreed and
understood by the parties that any such notice shall be deemed
given and served on the date transmitted by facsimile, or a
date four (4) days after the date of dispatch by courier or a
date ten (10) days after the date of posting by airmail.
To: FAULDING
F.H. FAULDING & CO. LIMITED
160 Greenhill Road
Parkside 5063 South Australia
Attention: Secretary
Facsimile +61 8 373 3120
To: FPC
FAULDING PHARMACEUTICAL CO.
200 Elmora Avenue
Elizabeth, New Jersey 07207
Attention: Chief Financial Officer
Facsimile +1 908 355 7048
20. WARRANTIES AND INDEMNIFICATIONS.
(a) FPC hereby warrants that:
(i) it will comply with any applicable
regulatory requirements with respect to the
advertising, promotion, storage, distribution and
sales of the Products; and
(ii) with respect to any Product for which FPC
has furnished FAULDING with Specifications,
provided that FAULDING follows FPC's instructions
with respect to such Specifications and Product
formulation, at the Inclusion Date of each
Product, to the best of its knowledge, the
Marketing of such Product pursuant to the terms
of this Agreement will not infringe any patent,
trademark or other intellectual property rights
relevant to the Territory.
Notwithstanding any other provision of any sales agreement,
purchase order or other contract between FAULDING and a
customer, FAULDING shall not be liable for, and FPC agrees to
indemnify FAULDING against and hold FAULDING harmless from,
any and all loss, liability, damage, claim, cost and expense
(including without limitation, attorney's fees and
disbursements) arising from or in connection with any (A)
breach of the warranties by FPC hereunder, (B) other
misrepresentation or breach of this Agreement by FPC and (C)
claim, express, implied or statutory made by FPC as to the
efficacy or safety of any of the Products or the use to be
made by any purchaser of the Products or (D) other act or
omission of FPC in connection with the marketing, distribution
and sale of any of the Products. In addition, if FPC uses its
own trademarks, or other name, logo or emblem, pursuant to
Section 17(a), it agrees to indemnify and hold FAULDING
harmless from and against any and all loss, liability, damage,
claim and expense including, but not limited to, reasonable
attorneys fees, arising out of or relating to the use of such
trademark or other name, logo or emblem.
(b) FAULDING hereby warrants that:
(i) all Products shipped to FPC pursuant to this
Agreement will meet the Specifications for such
Product at the time of shipment and throughout
the stated shelf-life of such Product, provided
however, that such Product has been stored in
accordance with FAULDING's instructions;
(ii) all Products manufactured and shipped to
FPC hereunder will be manufactured in a plant
which meets GMP;
(iii) it will not deliver to FPC pursuant to
this Agreement adulterated or misbranded Product,
as defined by the FDA; and
(iv) at the Inclusion Date of each Product, to
the best of FAULDING's knowledge, the
manufacturing of such Product pursuant to the
terms of this Agreement will not infringe any
patent, trademark or other intellectual property
rights relevant to Australia.
FAULDING hereby agrees to indemnify and hold FPC harmless from
any and all loss (except consequential loss, such as, for
example, loss of business or of profits), liability, damage,
claim, cost and expense (including, without limitation,
reasonable attorney's fees) arising from or in connection with
the breach of FAULDING's warranties hereunder.
Other than as expressly stated above in this Section 20,
FAULDING makes NO WARRANTIES, WHETHER EXPRESS, IMPLIED OR
STATUTORY. THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.
21. CONFIDENTIALITY.
(a) Each of the parties agrees that it will not
disclose any confidential information of the other party that
it may acquire at any time during the term of this Agreement,
including, without limitation, any confidential information of
the other party it may acquire during any Product Review,
without the prior written consent of such party and that it
shall use all reasonable efforts to prevent unauthorized
publication or disclosure by any person of such confidential
information including requiring its employees, consultants or
agents to enter into similar confidentiality agreements in
relation to such confidential information.
(b) The obligations undertaken by each party under
this Section shall continue in force for a period of five (5)
years following the termination or expiration of this
Agreement.
(c) The obligations contained in this Section do
not apply to any information:
(i) which was at the time of receipt by a party in
the public domain or generally known in the
pharmaceutical manufacturing industry otherwise
than by breach of a party's duty of
confidentiality;
(ii) which a party can establish to have been
known to it at the time of receipt from the other
party and not to have been acquired directly or
indirectly from the other party;
(iii) acquired by a party from a third party
otherwise than in breach of an obligation of
confidence to the other party;
(iv) required by law to be provided to
governmental agencies but only for the purpose of
providing it to such governmental agencies; and
(v) disclosed to an Affiliate of either party for
purposes consistent with the terms, and to further
the purposes of this Agreement.
22. TAXATION ISSUES.
(a) Each of the parties is aware that the
commercial arrangements of this Agreement may be subject to
transfer pricing reviews by the relevant taxation authorities
in the Territory and Australia. As a result, this Agreement
may be subject to internal reviews by either or both parties
and to audits by the relevant taxation authorities. If as a
result of such reviews or audits, it becomes necessary or
advisable for either party (the "Affected Party")to change any
commercial arrangements of this Agreement, including, without
limitation, making retroactive adjustments, the other party,
within thirty (30) days after written notification by the
Affected Party, which notification shall explain in reasonable
detail the reason for the proposed change, shall meet with the
Affected Party and each of the parties agrees to negotiate in
good faith, and to use its best efforts to reach agreement
with respect to, any modifications to the commercial terms of
this Agreement. In the event that the parties, despite their
best efforts, cannot reach agreement with respect to any
material change, which in the opinion of either party is
necessary or advisable for the reasons set forth in this
Section 22(a), either party, upon written notice to the other
party, may terminate this Agreement. The provisions of
Sections 23(c) and 20(d) of this Agreement shall apply upon
any termination of the Agreement pursuant to this Section
22(a).
(b) Each of the parties agrees to provide
reasonable assistance, at the other party's reasonable cost,
if such other party is subject to a taxation audit that
reviews any commercial arrangements of this Agreement.
23. TERM AND TERMINATION.
(a) Subject to any other provision hereof, this
Agreement shall remain in effect until June 30, 2005, and the
term of this Agreement shall automatically be renewed
thereafter for up to four successive five-year terms unless
notice is given by either party at least six months prior to
the date of any such renewal of such party's desire not to
renew such term.
(b) This Agreement may be terminated by notice in
writing by either party if the other party shall default in
the performance of any of its obligations under this Agreement
and such default shall continue for a period of not less than
thirty (30) days after written notice specifying such default
shall have been given; by either party if the other party
makes an arrangement with its creditors or goes into
receivership or liquidation, or if a receiver or a receiver
and manager is appointed in respect of the whole or part of
the property or business of the party in default or by either
party if a major part of the assets or all of the assets of
the other party are disposed of or acquired by any other
person.
(c) Immediately upon termination or expiration of
this Agreement, FPC shall (i) accept any and all Products
manufactured or in transit at the time of giving of written
notice of termination or of expiration; and (ii) at FAULDING's
option and request, cancel without penalty all orders for the
Products not in transit at the time of giving written notice
of termination. For a period of six months after the date of
expiration or termination, each of the parties shall continue
to submit Quarterly Statements as set forth in Section 8
hereof and the parties shall as soon as conveniently possible
reconcile all accounts.
24. FORCE MAJEURE.
Neither party shall be liable or be in breach of any
provision of this Agreement for any failure or delay on its
part to perform any obligation where such failure or delay has
been occasioned by any act of God, war, riot, fire, explosion,
flood, sabotage, accident or breakdown of machinery,
unavailability of fuel, labor, containers or transportation
facilities, accidents of navigation or breakdown or damage of
vessels or other conveyancers for air, land or sea, other
impediments or hindrances to transportation, government
intervention, strikes or other labor disturbances or any other
cause beyond the control of the parties.
25. COMPLIANCE WITH LAW.
It shall be the responsibility of FPC to follow all
procedures and take all action which is necessary or required
for agreements of this type by the laws, treaties or
regulations applicable to Marketing the Products in the
Territory. Further, it is agreed that neither party shall be
obligated to carry out or perform any or all of the terms of
this Agreement as shall constitute a violation of any treaty,
law, code or regulation of any governmental authority whether
local, national or international. In any event, the other
terms of this Agreement shall nevertheless continue and the
parties shall use all reasonable efforts to re-negotiate and
amend this Agreement so that the performance of this Agreement
as so amended will not involve any such violation.
26. EXECUTION OF ALL NECESSARY ADDITIONAL DOCUMENTS.
Each party agrees that it will forthwith upon the request
of the other party execute and deliver all such instruments
and agreements and will take all such other actions as the
other party may reasonably request from time to time in order
to effectuate the provision and purposes of this Agreement.
27. WAIVER.
The failure of either of the parties to insist upon a
strict performance of any other terms and provisions therein
shall not be deemed a waiver of any subsequent breach of
default in the terms or provisions of this Agreement.
28. ASSIGNMENT AND AMENDMENT.
Other than an assignment by FAULDING to any of its
Affiliates, neither this Agreement nor any rights arising
hereunder shall be assigned by one party without the prior
written consent of the other and then only upon approval of
the other party and acceptance of such assignment in written
form approved by such party, which approval shall not be
unreasonably withheld. No amendment hereof shall be binding
unless made in writing and signed by the parties hereto.
29. ENTIRE AGREEMENT.
This Agreement incorporates the entire understanding of
the parties and revokes and supersedes any and all agreements,
contracts, understandings or arrangements that might have
existed heretofore between the parties regarding the subject
matter hereof.
30. GOVERNING LAW.
This Agreement shall be construed in accordance with and
governed by the internal laws of the State of New York,
excluding such state's rules relating to conflicts of laws,
and its form, execution, validity, construction and effect
shall be determined in accordance with such internal laws.
31. SEVERABILITY.
If any term or provision of this Agreement shall be held
invalid or unenforceable, the remaining terms hereof shall not
be affected, but shall be valid and enforced to the fullest
extent permitted by law.
<PAGE>
32. HEADINGS.
The headings used in this Agreement are intended for
guidance only and shall not be considered part of this written
understanding between the parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed by
the parties on the date first above written.
F.H. FAULDING & CO. LIMITED
By:
FAULDING PHARMACEUTICAL CO.
By:
<PAGE>
Schedule A
Antecedent Supply Agreement
Under Initial Products Termination Date
Cytarabine Injection June 3, 1995
20 mg/ml, 5ml Vial
Cytarabine Injection June 3, 1995
20 mg/ml, 25ml Vial
Cytarabine Injection June 3, 1995
20 mg/ml, 50ml Vial
Vincristine Sulfate Injection December 31, 1995
1 mg/ml, 1ml Vial
Vincristime Sulfate Injection December 31, 1995
1 mg/ml, 2ml Vial
Sterile Vinblastine Sulfate December 31, 1995
10 mg/vial
FPC began marketing Cytarabine Injection in the U.S. in
September 1995.
EXHIBIT 10(xxiv)
LICENSING AND SUPPLY AGREEMENT, entered into as of
the 23rd day of January, 1996 by and between FAULDING
MEDICAL DEVICE CO., a corporation organized under the laws of
the State of Delaware with its principal place of business at
8777 East Via de Ventura, Suite 315, Scottsdale, Arizona
85258(hereinafter referred to as "FMDC") and F.H. FAULDING &
CO. LIMITED, a corporation organized under the laws of South
Australia, with its principal place of business at 160
Greenhill Road, Parkside, South Australia 5063 (hereinafter
referred to as "FAULDING").
WHEREAS, FMDC, a wholly owned subsidiary of
FAULDING, has designed and developed the Devices (as
hereinafter defined)in conjunction with certain development
efforts of FAULDING;
WHEREAS, the parties have registered certain patents
and trademarks associated with the Devices in various
countries in the Territory in the names hereinafter set forth;
WHEREAS, the parties intend hereby to clarify their
respective ownership rights in and to the Devices, and the
technology, patents and trademarks associated with the
Devices, agreeing, among other things, that FMDC is the
beneficial owner of the Devices Technology and the Patents and
that FAULDING is the beneficial owner of the ONCO-TAIN
Technology, the Operational Know-How and the Trademarks (as
such terms are hereinafter defined);
WHEREAS, the parties wish to formalize their
business arrangement pursuant to which FAULDING has marketed
certain Devices and FAULDING Manufactured Products in the
Territory (as such terms are hereinafter defined);
WHEREAS, FAULDING wishes to be granted, and FMDC is
willing to grant FAULDING, the exclusive right for the term of
this Agreement to market and distribute Devices in the
Territory and to utilize the Devices Technology to
manufacture, market and distribute FAULDING Manufactured
Products in the Territory and FMDC wishes to be granted, and
FAULDING is willing to grant FMDC, the nonexclusive right to
use the Trademarks for the term of this Agreement in
connection with the manufacture and marketing outside of the
Territory of the Devices and products utilizing a Device, all
subject to the terms and conditions of this Agreement;
WHEREAS, FAULDING has requested FMDC, and FMDC,
having the exclusive rights in relation to the manufacture of
the Components, has agreed, subject to the terms and
conditions of this Agreement, to supply FAULDING with the
Components for FAULDING's use in manufacturing FAULDING
Manufactured Products (as such terms are hereinafter defined);
and
WHEREAS, if FMDC, or an Affiliate of FMDC (other
than FAULDING), during the term of this Agreement, shall
decide to manufacture any products that utilize any of the
Devices, FAULDING agrees to grant FMDC or such Affiliate of
FMDC a nonexclusive license during the term of this Agreement
to use the Operational Know-How for the sole purpose of
replicating and scaling-up on the SGV Equipment the process
for the manufacture of products utilizing the Devices.
NOW THEREFORE, in consideration of the mutual
covenants as hereinafter contained, the parties agree as
follows:
1. DEFINITIONS
For the purposes of this Agreement, the following
terms shall have the following meanings:
1.1 "Affiliates" shall mean (a) an entity
controlled by a common parent that owns more than fifty
percent of the voting stock of both such entity and one of the
parties to this Agreement and (b) such parent company.
1.2 "Components" shall mean any item listed on
Schedule A hereto (as such Schedule may be amended from time
to time by mutual agreement between the parties), which is
manufactured by or on behalf of FMDC either as a completed
Device or as a part of a Device and which will be supplied to
FAULDING by FMDC as set forth in Section 9 hereof.
1.3 "Devices" shall mean any of the Devices set
forth on Schedule A hereto (as that Schedule may be amended
from time to time by mutual agreement between the parties),
which may either be a stand-alone Device or may be
incorporated into a FAULDING-Manufactured-Product.
1.4 "Devices Technology" shall mean that technology
(including technical, scientific, industrial information or
knowledge, confidential information and expertise) in relation
to the formulation and composition of the Devices, other than
the ONCO-TAIN Technology, and the processes and the means and
procedures for the manufacture and production of the Devices
and, with the exception of the Operational Know-How, for the
manufacture and production of products utilizing any of the
Devices.
1.5 "FAULDING Manufactured Product(s)" shall mean a
product manufactured by FAULDING that incorporates a Device.
1.6 "Gross Profit" shall mean with respect to any
Device or FAULDING Manufactured Product the Net Sales less the
Total Manufacturing Costs of such Device or FAULDING
Manufactured Product.
1.7 "Net Sales" shall mean, with respect to any
Device or FAULDING Manufactured Product, the gross sales of
FAULDING and its Affiliates during any particular calendar
quarter from sales in the Territory of such Device or FAULDING
Manufactured Product, as the case may be, to unaffiliated
third parties (not including amounts received as reimbursement
of freight, insurance and other costs or taxes) invoiced by
FAULDING or its Affiliates during such quarter, less price
discounts, trade returns, trade allowances, chargebacks or
rebates relating to such sales, as calculated using FAULDING's
standard accounting procedures, in accordance with the
applicable generally accepted accounting principles,
consistently applied. It is understood and agreed that where
the amount of any deduction can not be fairly determined
during the quarter immediately following the quarter in
question, such deduction may be claimed by FAULDING with
respect to the Net Sales during a subsequent quarter.
1.8 "ONCO-TAIN Technology" shall mean the
technology associated with the vial safety sheathing system
known as ONCO-TAIN, including, without limitation, the
ONCO-TAIN know-how.
1.9 "Operational Know-How" shall mean the
processes, methods and procedures associated with the
operation of the SGV Equipment.
1.10 "Patents" shall mean the patents and patent
applications listed on Schedule A hereto as and to the extent
that they relate to the Devices, as such Schedule may be
amended from time to time by mutual agreement of the parties,
together with, as applicable, all continuations,
continuations-in-part, reissues and extensions thereof,
including all patents issuing upon such applications, in each
case as and to the extent that they relate to the making, use
or sale of the Devices.
1.11
(a) "Pre-existing Negotiations of FAULDING" shall
mean the negotiations that FAULDING commenced with the
companies set forth on Schedule B hereto, with respect to the
granting of certain rights to such third parties to distribute
certain Devices and FAULDING Manufactured Products within the
United States.
(b) "Pre-existing Negotiations of FMDC" shall mean
the negotiations that FMDC commenced with the companies set
forth on Schedule C hereto, with respect to the granting of
certain rights to such third parties to distribute certain
Devices within the Territory.
1.12 "Pre-existing Obligation of FAULDING" shall
mean the third-party agreement that Faulding previously
entered into, which is identified on Schedule B hereof.
1.13 "Registration" means the gaining of all
permissions from all Regulatory Authorities in a country in
which the gaining of such permissions is necessary to permit
the commencement of marketing of any of the Devices or
FAULDING Manufactured Product in that country.
1.14 "Regulatory Authority" in respect of a country
means any and all bodies and organizations regulating the
importation, and/or marketing of any of the Devices and
FAULDING Manufactured Products in any part of that country.
1.15 "SGV Equipment" shall mean the equipment used
to manufacture products utilizing the Devices, including,
without limitation, the FAULDING Manufactured Products.
1.16 "Territory" shall mean all the countries of
the world with the exception of the United States of America
and its territories and possessions.
1.17 "Total Cost to FMDC" shall have the meaning
set forth in Section 7.2 of this Agreement.
1.18 "Total Manufacturing Costs" with respect to:
(a) any Component or Device shall mean the total
manufacturing costs of such Component or Device
calculated according to FMDC's standard costing
system, subject to normal accounting procedures,
and consistent with generally accepted U.S.
accounting practices; and
(b) any stand-alone Device or a FAULDING
Manufactured Product shall mean, respectively,
FAULDING's purchase price from FMDC of such Device
or the cost to FAULDING of manufacturing such
FAULDING Manufactured Product on a fully absorbed
basis, calculated according to FAULDING's standard
costing system, subject to normal accounting
procedures, and consistent with generally accepted
Australian accounting principles.
1.19 "Trademarks" shall mean the trademarks set
forth on Schedule D hereto, as such Schedule may be amended
from time to time by the parties.
1.20 "U.S." shall mean the United States of
America.
2. EXCLUSIVE LICENSE TO THE DEVICES TECHNOLOGY
2.1 In consideration of the payments set forth in
Sections 7 and 8 of this Agreement and the license accorded
FMDC pursuant to Section 16.2 of this Agreement, FMDC hereby
grants a license to FAULDING to the Devices Technology for the
sole purposes of manufacturing FAULDING Manufactured Products
and, subject to the conditions set forth in Section 4 of this
Agreement, of marketing such Devices and FAULDING Manufactured
Products within the Territory. The parties agree that,
subject to the provisions of Section 4 of this Agreement, the
license granted hereunder to FAULDING is sole and exclusive
for the term of this Agreement for the manufacture of the
FAULDING Manufactured Products and the marketing of the
Devices and FAULDING Manufactured Products within the
Territory. The parties further acknowledge that FAULDING has
been marketing certain of the Devices and FAULDING
Manufactured Products in the Territory prior to July 1995 and
that all pertinent terms of this Agreement, including without
limitation, the payment terms set forth in Sections 7 and 8
hereof, shall only apply to the sales of such Devices and
FAULDING Manufactured Products that have occurred from July
1995 up to the date hereof as if such sales had occurred
during the term hereof.
2.2 FAULDING agrees that, subject to the provisions
of Section 4 of this Agreement, it will not use or exploit the
Devices Technology for any purpose other than the manufacture
of the FAULDING Manufactured Products and the marketing of
the Devices and the FAULDING Manufactured Products in the
Territory and that, subject to the provisions of Section 4
hereof, it will not:
(a) manufacture, nor permit an Affiliate, agent or
sublicensee to manufacture, any FAULDING
Manufactured Product; and
(b) will not sell, attempt to sell or permit any
Affiliate, agent or sublicensee to sell or attempt
to sell any FAULDING Manufactured Product or
Device,
outside the Territory either on its own account or through any
third party nor will it sell, nor permit any of its
Affiliates, agents or sublicensees to sell, any Device or
FAULDING Manufactured Product to any person or corporation
within the Territory where FAULDING or its Affiliate, agent or
sublicensee has reasonable grounds to believe that such other
person or corporation intends to sell such Device or FAULDING
Manufactured Product outside the Territory.
3. SUB-DISTRIBUTORS
3.1 Subject to the limitations set forth in Section
3.2 of this Agreement, FAULDING shall have the right to
appoint any Affiliate, agent or sub-licensee to market,
distribute, promote and/or sell any Devices or FAULDING
Manufactured Products within the Territory.
3.2 The appointment of any such Affiliate, agent or
sub-licensee under Section 3.1 shall be on such terms and
conditions as FAULDING may reasonably require in writing,
provided such terms and conditions are not inconsistent with
the terms and conditions of this Agreement. FAULDING agrees
that it shall, at all times, be solely responsible for the
acts, deeds or omissions of any Affiliate, agent or sub-licensee
appointed pursuant to Section 3.1 and hereby indemnifies FMDC against
any and all loss, liability, damage, claims, cost and expense arising
from or in connection with such Affiliate's, agent's or sub-licensee's
acts, deeds or omissions.
4. COMPETING PRODUCTS; EXCEPTIONS TO EXCLUSIVITY
4.1 FAULDING shall neither directly nor indirectly
market a drug delivery device either within or outside the
Territory that is the same as, or substantially similar to,
any of the Devices, without the prior written consent of FMDC.
4.2 FAULDING acknowledges and agrees that
notwithstanding the exclusive license set forth in Section 2
hereof, FAULDING hereby consents to the continuation by FMDC
of the Pre-existing Negotiations of FMDC and further agrees
that notwithstanding any provisions of Section 2 to the
contrary, FMDC is not restricted hereunder from investigating
any opportunity to market any Device, or any product utilizing
a Device (collectively, the "FMDC Generated Product") in any
country in the Territory (a "Device Marketing Opportunity"),
provided, however, that FMDC shall provide FAULDING with a
right of first refusal to market, or manufacture and market
such FMDC Generated Product in such country as follows:
(a) At any time during the term of this
Agreement, FMDC may notify FAULDING in
writing of a Device Marketing Opportunity (the
"Notice of Opportunity"). Such Notice of
Opportunity will identify the targeted
market, will contain as full a description of
the FMDC Generated Product as reasonably
possible, and will summarize the proposed
material terms, including the estimated
selling price and, as applicable, the
estimated timetable for development and
submission of registration materials with
respect to such FMDC Generated Product to the
relevant Regulatory Authorities.
(b) FAULDING shall have twenty (20) days from
its receipt of the FMDC Notice of Opportunity
to inform FMDC in writing whether or not it
wishes to negotiate the terms on which it
would, as the case may be, market or
manufacture and market such FMDC Generated
Product under the terms of this Agreement (the
"Response Notice"). If (i) FAULDING informs
FMDC through such Response Notice, that it
does not have an interest in negotiating with
FMDC, (ii) FAULDING fails to deliver a
Response Notice to FMDC, within twenty (20)
days of its receipt of the FMDC Notice of
Opportunity or (iii) the parties, after
negotiating in good faith for a period of an
additional thirty (30) days from the date of
receipt by FMDC of the Response Notice, are
unable to come to an agreement on the terms
that would permit FAULDING, as the case may
be, to market or manufacture and market such
FMDC Generated Product hereunder, FMDC shall
have the right to market such FMDC Generated
Product in the country or countries identified
in the Notice of Opportunity independent of
this Agreement and to enter into an agreement
with a third party for (as may be applicable)
the development, manufacturing and/ or
marketing by, or the purchase from such third
party, of such FMDC Generated Product;
provided, however, that the material terms
offered to such third party must be
essentially the same as, and, in any event no
more favorable than, the material terms of the
FMDC Notice of Opportunity delivered to
FAULDING. Notwithstanding the provisions of
Section 4.2(a) hereof to the contrary, once
FMDC has delivered a Notice of Opportunity to
FAULDING hereunder, it may not market, nor
negotiate with any third party to develop,
manufacture or market the FMDC Generated
Product which is the subject of the Notice of
Opportunity until one of the conditions set
forth in Subsection (i), (ii) or (iii) of this
Section 4.2(b) has been satisfied.
4.3 FMDC acknowledges and agrees that FAULDING is
committed with respect to supplying certain Faulding
Manufactured Products to a third party under the Pre-existing
Obligation and hereby consents to FAULDING's commitment to
such third party with respect to such Products under the terms
of the Pre-existing Obligation. Moreover, FMDC hereby
consents to the continuation by FAULDING of the Pre-existing
Negotiations of FAULDING and, agrees, upon a successful
culmination of any such Negotiations, to negotiate in good
faith with FAULDING to determine on what terms, if any, that
FMDC would consent to FAULDING's entering into a third party
agreement arising from such Negotiations. For purposes of
this Section 4.3, FMDC shall use the same standards of good
faith negotiations as are set forth in Section 4.4 immediately
hereafter.
4.4 The parties acknowledge and agree that
opportunities may arise for (a) FAULDING to supply certain
Devices and FAULDING Manufactured Products to FMDC or an
Affiliate of FMDC for marketing outside of the Territory; (b)
for FAULDING to supply Devices and\or FAULDING Manufactured
Products to a third party distributor on a world-wide basis,
including the United States of America as well as countries
within the Territory; and (c) for FMDC, or an Affiliate of
FMDC, to market a Device or a product utilizing a Device
within, as well as outside of, the Territory. The parties
agree that in each such instance, the party having such an
opportunity (the "Marketing Party") may not, under the terms
of this Agreement, be permitted to enter into any such
arrangement without the prior consent of the other party (the
"Consenting Party") to this Agreement. The parties further
agree that it is in their mutual best interest to negotiate in
good faith, on a country-by-country and product-by-product
basis to determine whether the Consenting Party can reach an
accommodation with the Marketing Party that would be
commercially acceptable to both of them, basing its decision
in each instance, on the competitive impact, which the
Consenting Party reasonably believes, the implementation of
the Marketing Party's opportunity may have on the Consenting
Party's business or prospects.
5. INTELLECTUAL PROPERTY RIGHTS OF FMDC
5.1 FAULDING acknowledges and agrees that FMDC is
the beneficial owner of the Devices Technology and, except as
set forth in Section 14 of this Agreement, of all industrial
and intellectual property rights in relation to the Devices
Technology, including the right to the Patents, registered or
other designs, copyright, and any other confidential
information. Nothing contained in this Agreement shall be
effective to give FAULDING any rights of ownership in and to
the Devices Technology, including, without limitation, any
improvements to such Technology, described in Section 6
hereof, and to the intellectual property owned by FMDC. The
licensing of the Devices Technology hereunder is for the sole
purposes of manufacturing FAULDING Manufacturing Products and
marketing Devices and FAULDING Manufactured Products in the
Territory.
5.2 FAULDING acknowledges and agrees that FMDC is
the beneficial owner of each of the Patents. With respect to
any Patents that have heretofore been issued in FAULDING's
name, FMDC, at its sole discretion, may direct FAULDING in
writing, at any time and from time to time, to assign any or
all of such Patents, at FAULDING's cost, to FMDC or its
designee. Upon receipt of FMDC's directive, FAULDING shall
promptly deliver to FMDC, or to FMDC's nominee, any documents
in its possession relating to such Patent(s) and shall execute
all such documents as may be required, or as FMDC may deem
appropriate, to ensure that any such assignment is effected.
6. IMPROVEMENTS TO THE DEVICES TECHNOLOGY
6.1 Any improvement to the Devices Technology as it
applies to any Component or Device or FAULDING Manufactured
Product made or discovered by FMDC during the term of this
Agreement shall be made known to FAULDING and FAULDING shall
be entitled to use and commercially exploit any such
improvements without any additional payment hereunder.
6.2 FAULDING acknowledges and agrees that FMDC is
the beneficial owner of any improvements to the Devices
Technology as it applies to any Device or any Device utilized
in a Product made or discovered by FAULDING during the term of
this Agreement. FAULDING shall promptly make any such
improvement known to FMDC and, each of FMDC and FAULDING
shall be entitled, consistent with the terms of this
Agreement, to use and commercially exploit any such
improvement without payment to the other party of any fee or
royalty.
7. PURCHASE PRICE OF THE COMPONENTS
7.1 FAULDING shall purchase all of its requirements
of each of the Components from FMDC. It is FMDC's current
intention to have the Components manufactured for FMDC by a
third party contract manufacturer (the "Contract
Manufacturer"), but it is understood and agreed by both of the
parties that at any time during the term of this Agreement, by
ninety (90) days' notice to FAULDING, FMDC has the option of
manufacturing any or all of such Components in-house provided,
however, that FMDC (a) shall supply such Components to
FAULDING on comparable terms as the terms then in effect
through the FMDC's Contract Manufacturer; (b) shall receive
prior authorization from the applicable Regulatory Authorities
for its new manufacturing site and (c) shall ensure that the
Contract Manufacturer continues to manufacture and supply the
Component to FAULDING until such time as the alternate site is
approved.
7.2 Subject to the provisions of Section 8 hereof,
the purchase price for the Components shall be an amount equal
to one hundred seventeen and one half (117-1/2%) percent of the
"Total Cost to FMDC" of such Components. For purposes of this
Agreement, the "Total Cost to FMDC" of any Components:
(i) manufactured by the Contract Manufacturer
shall be the Contract Manufacturer's invoice
price to FMDC for such Components; and
(ii) manufactured in-house shall be FMDC's
Total Manufacturing Costs with respect to such
Components, as defined in Section 1.18 of this
Agreement.
The parties agree that the "Total Cost to FMDC" will include,
without limitation, any costs for laboratory testing,
sterilization and transportation between processing sites.
7.3 FMDC shall keep at its principal office true
and particular accounts and records of all Costs to FMDC in
relation to the manufacturing of such Components for a period
of five years after the date of the shipment of such Component
to FAULDING. FAULDING shall have the right to audit such
records as set forth under Section 13 of this Agreement.
8. REDUCTION OF PURCHASE PRICE
8.1 If during any calendar quarter, FAULDING's
Gross Profit with respect to the sales of any Device or
FAULDING Manufactured Product, which are sold in any country
within the Territory by or on behalf of FAULDING under the
terms of this Agreement, is less than twenty five (25%)
percent of the Total Net Sales of such Device or Product in
such country, FAULDING shall be entitled, with respect to such
sales in such country, to a rebate of its purchase price of
the Component(s)comprising such Device or incorporated into
the FAULDING Manufactured Product to the extent that the
purchase price of such Component(s) for such calendar quarter
shall reduced from one hundred seventeen and one half (117-1/2%)
percent to one hundred ten (110%) of the Total Cost to FMDC of
such Components (the "Rebate").
8.2 If FAULDING determines that it is entitled,
with respect to the sales in any country in the Territory, to
a Rebate with respect to its purchase of any Components
comprising a Device or incorporated into a FAULDING
Manufactured Product in such country, as set forth in Section
8.1 hereof, it shall, within thirty (30) days of such calendar
quarter, calculate and send to FMDC, a detailed statement (the
"Rebate Statement") reflecting the information for each of the
Devices or FAULDING Manufactured Products for such calendar
quarter for which a Rebate is claimed, including: (a) the
product description, (b) the list of markets in which such
Device or Product was sold and a Rebate is being claimed (c)
the aggregate number of such units sold;(d) Net Sales made by
or on behalf of FAULDING with respect to such units; (d)the
Total Manufacturing Costs for such FAULDING Manufactured
Products;(e) the Gross Profit, stated as a dollar amount and
a percentage of Net Sales of such units (f) the purchase price
of each of the Components comprising the Device or
incorporated into a FAULDING Manufactured Product for which a
Rebate is being claimed and (g) the amount of the claimed
adjustment in purchase price to be payable to FAULDING.
FAULDING shall state the amounts due and payable in U.S.
dollars. The exchange rate shall be the T/T mid rate of the
Australia and New Zealand Banking Group Limited in Adelaide,
Australia on the last business day of the calendar quarter in
question.
8.3 The calculations of FAULDING set forth in the
Rebate Statement shall be final, unless within twenty (20)
days after receipt of such Statement, FMDC notifies FAULDING
in writing of any objection to such calculations, specifying
such objections in reasonable detail. Upon receipt of any
such objection, the matter shall be resolved as set forth in
Section 8.4 of this Agreement.
8.4 If FMDC objects to any calculations in the
Rebate Statement (the "Disputed Amount"), then FAULDING and
FMDC shall endeavor to agree promptly upon such Disputed
Amount. In the event that a Disputed Amount has not been
resolved in writing within twenty (20) business days after the
date of receipt by FAULDING of FMDC's written objection, then
the Disputed Amount shall be submitted to a nationally
recognized accounting firm mutually acceptable to FAULDING and
FMDC (the "Arbitrator"). Nothing herein shall be construed to
authorize or permit the Arbitrator to determine any question
or matter whatever under or in connection with this Agreement,
except the determination of what adjustments, if any, must be
made in FAULDING's calculations to comply with the provisions
of Section 8.2 hereof. Within thirty (30) days after the
submission of any dispute to the Arbitrator pursuant to this
Section 8.4, the Arbitrator shall render a decision along with
a statement of reasons therefor. The decision of the
Arbitrator shall be final and binding upon each party hereto.
The fees and expenses of the Arbitrator for any determination
under this Section 8.4 shall be paid by FMDC, except if the
Arbitrator determines that an adjustment in FAULDING's
calculations, which is greater than fifteen (15%) percent of
the total amount claimed, should be made in FMDC's favor, then
such fees and expenses shall be paid by FAULDING.
8.5 FMDC shall pay FAULDING within thirty (30) days
after the date of its receipt of the Rebate Statement, or with
respect to any Disputed Amount, within twenty (20)days after
the decision of the Arbitrator, as set forth in Section 8.4
hereof, any Rebate due to FAULDING. FMDC shall make all such
payments in U.S. dollars via wire transfer to the bank or
banks designated by FAULDING.
8.6 With respect to each Device or FAULDING
Manufactured Product for which a Rebate is claimed by FAULDING
under this Section 8, FAULDING shall keep at its offices true
and particular accounts and records of all sales, the invoiced
amount of such sales and the amount of any other payments
received or paid in relation to sales of such Device or
Product for a period of five years after the date of the
Rebate Statement. FMDC shall have the right to audit such
records as set forth under Section 13 of this Agreement.
9. COMPONENTS: FORECASTS, ORDERS AND PAYMENT
9.1 At least ninety (90) days prior to the start of
each calendar quarter, FAULDING shall provide FMDC with a
forecast of its requirements of Components as required for
manufacturing FAULDING Manufactured Devices or for sale of
Devices or FAULDING Manufactured Products in the Territory for
the next four calendar quarters in batch sizes specified by
FMDC. The forecast for the most current three-month period
shall constitute a firm order ("Firm Order "). The Firm Order
shall be in the form of purchase order reasonably agreed to by
the parties and shall state in detail the quantities of all
Components ordered and dates for delivery and shall be binding
on both parties regarding the Components to be supplied and
purchased. The forecast for the remaining nine-month period
is for planning purposes only and does not constitute a
commitment to purchase or supply. However, FAULDING shall use
all reasonable efforts to make each forecast as accurate as
possible.
9.2 FMDC shall not be required pursuant to any Firm
Order to supply during any particular quarter an amount of any
Component that is more than one hundred ten percent (110%) of
the amount of such Component that was forecasted for such
quarter in FAULDING's most recent non-binding forecast, but
will use all reasonable efforts to supply the full amount
ordered.
9.3 After receipt of a Firm Order, FMDC shall
promptly ship, or shall cause its Contract Manufacturer to
ship, any Components ordered by FAULDING to arrive at the port
of entry designated by FAULDING, as set forth in Section 9.5
hereof, within 15 business days of the requested delivery
date.
9.4 FMDC shall invoice FAULDING for the Components
at the time of shipment of the Components as set forth in
Section 9.3 of this Agreement. FMDC has provided FAULDING in
writing with the current purchase price of each Component and,
upon sixty (60) days prior written notice, will provide
FAULDING with any change to the purchase price of any such
Component. As set forth in Section 13 of this Agreement,
FAULDING shall have the right, pursuant to the provisions of
Section 13 of this Agreement, to audit all records with
respect to the calculation of the purchase price of any
Component, as determined according to the provisions of
Sections 7.2 and 8.1 hereof. Payment shall be made by
FAULDING within sixty (60) days of FAULDING's receipt of the
invoice or of the Components, whichever is later. All payments
for Components by FAULDING shall be paid in U.S. Dollars by
wire transfer to the account specified by FMDC from time to
time.
9.5 FMDC shall ship the Components to FAULDING to
the port of entry in Australia, as designated by FAULDING.
FAULDING may choose the means of shipment by notifying FMDC of
its choice in its Firm Order. FAULDING shall pay for all
freight and insurance costs. Risk of loss of the goods shall
pass to FAULDING upon delivery of the Components to the
carrier. In the event FAULDING has not furnished FMDC with
shipping and insurance instructions in its Firm Order, FMDC
shall deliver the Components to FAULDING F.O.B. the
manufacturing plant of FMDC or its Contract Manufacturer by
delivery to a carrier selected by FMDC and FMDC shall, in its
sole discretion, obtain insurance coverage thereon, the cost
of which shall be borne by FAULDING and added to the purchase
price.
9.6 FAULDING shall be responsible for all
procedures required to clear customs for the Components and
for the payment of any import, customs or similar duties
imposed by governmental authorities and of any federal, state,
county or municipal sales or use tax, excise or similar
charge, or any other tax assessment (other than that assessed
against income), license, fee or other charge lawfully
assessed or charged on the use or transportation of the
Components and Devices sold and delivered to FAULDING pursuant
to this Agreement and shall obtain any licenses, authoriza-
tions or other documents required by any governmental authori-
ties in order to permit the importation and exportation after
manufacture of the Components sold and delivered to FAULDING
pursuant to this Agreement.
9.7 If FAULDING claims that there is a shortage of
any of the Components delivered by FMDC pursuant to a Firm
Order, it shall submit written notice to FMDC within thirty
(30) days of the date of the delivery of such order. In case
of alleged non-delivery, a written claim must be submitted to
FMDC within thirty (30) days of receipt of FMDC's Invoice or
expected date of delivery, whichever is earlier. In the
absence of such a written claim, in the case of either an
alleged shortage or non-delivery, the Components shall be
deemed to have been delivered in accordance with this
Agreement. In any event, FAULDING shall not be entitled to
refuse to accept delivery by reason only of an alleged or
actual shortage.
10. REGISTRATION; REGULATORY APPROVALS
10.1 FAULDING shall seek, or cause an Affiliate or
sub-licensee to seek, all necessary approvals and/or
registrations from the appropriate Regulatory Authorities in
each country in the Territory in which FAULDING chooses to
market any Device or FAULDING Manufactured Product to enable
the marketing of such Device or FAULDING Manufactured Product
in such country. Nothing provided herein, however, shall
require FAULDING to seek registration of any Device or
FAULDING Manufactured Product in any country in the Territory.
10.2 FAULDING, or an Affiliate or sub-licensee of
FAULDING, will carry out all activities required to maintain
or obtain approval of the Devices and FAULDING Manufactured
Products described in Section 10.1 of this Agreement. Upon
written request of FAULDING and at the cost of FAULDING, FMDC
shall provide FAULDING with reasonable assistance in obtaining
and maintaining such approvals.
10.3 To the extent permissible under applicable
laws or regulations, each application for Registration in
relation to a (a)Device shall state that the Device is
supplied by FMDC under license and (b) in relation to a
FAULDING Manufactured Product shall name FAULDING as the
manufacturer of the Product and shall state that the Device is
supplied by FMDC under license . Upon termination of the
License Agreement, the provisions of Section 25.3 of this
Agreement shall apply.
10.4 FAULDING shall notify FMDC of any and all
registrations of each Device and FAULDING Manufactured Product
in the Territory, and upon such registration in any country in
the Territory, FAULDING shall use reasonable efforts, at its
expense, to market, or cause the marketing of, such Device or
FAULDING Manufactured Product in and throughout such country
in order to obtain the optimum market potential for such
Device or FAULDING Manufactured Product within and throughout
such country.
11. ADVERSE EVENTS; RECALLS
11.1 FAULDING agrees that it will, in accordance
with all applicable laws and regulations of the Territory, as
such laws and regulations, may from time to time be amended,
notify FMDC promptly (a)of any adverse reactions reported to
it or to any Affiliate or sub-licensee of FAULDING resulting
from the use of the Devices Technology (and provide to FMDC
copies of all such adverse action reports received by it or
any Affiliate or sub-licensee of FAULDING), (b) of any
complaints from third parties involving the Devices Technology
and (c) of any recall, or proposed recall, of any Devices or
FAULDING Manufactured Products resulting from the use of the
Devices Technology.
11.2 In the event that FMDC uses the Devices
Technology, either outside of the Territory or, subject to the
provisions of Section 4 hereof, within the Territory, in the
manufacture of any other product, FMDC agrees that it will, in
accordance with all applicable laws and regulations, as such
laws and regulations, may from time to time be amended, notify
FAULDING promptly (a) of any serious and unexpected adverse
reactions reported to it or to any of its Affiliates or sub-
licensees resulting from such use of the Devices Technology
(and provide to FAULDING copies of all other adverse action
reports received by it or any sublicensee of FMDC), (b) of any
complaints from third parties involving the Devices Technology
and (c) of any recall of Device or any product utilizing
Devices Technology.
12. QUALITY CONTROL
12.1 Whether FMDC supplies FAULDING with Components
either through its Contract Manufacturer or in-house, FMDC
will ensure that:
(a) the Components are manufactured in conformance
with all applicable regulations, including without
limitation, Good Manufacturing Practices, and in
accordance with the specifications for the
Components agreed to by the parties and FAULDING's
Firm Orders described in Section 9 hereof;
(b) adequate quality control is maintained in
respect of the manufacture, packaging, labeling and
storage of the Components; that any quality control
testing of the Components is conducted in
accordance with all relevant scientific and legal
standards and with all reasonable diligence and
expedition and that all packaging and labeling used
for the Components meets all the requirements under
the applicable laws, rules and regulations of
Australia and the United States of America;
(c) complete and accurate records with respect to
the manufacture, packaging, labeling and storage of
the Components are maintained for such period of
time as is required by applicable law;
(d) all Components will be transferred under
appropriate storage conditions and packaged for
shipment according to all laws and regulations of
the United States of America and Australia, as
applicable, and with all necessary export
clearances obtained; and
(e) FAULDING shall have the right, at its own
cost, (i) twice annually or (ii) upon a (A) report
to FAULDING or any sub-licensee of FAULDING of any
serious and unexpected adverse reactions resulting
from the use of the Device of which the Component
is a part (the "Component's Device"), (B) any
complaints from third parties involving the
Component's Device or the Device Technology, (C)
any recall of the Component's Device or the
FAULDING Manufactured Product of which the
Component's Device is a part;
to visit the manufacturing plant for the Components during
regular business hours, provided reasonable prior written
notice is provided to the Contract Manufacturer and/or FMDC.
12.2 All Components received by FAULDING from FMDC
shall be deemed to comply with the provisions of Section 12.1
hereof unless FAULDING gives FMDC written notice (the
"Objection Notice") within thirty (30) days of such receipt
specifying the manner in which the Components do not conform
to specifications. The Objection Notice shall be accompanied
by written reports of any testing performed by or for FAULDING
on the Components. Upon receipt of the Objection Notice, FMDC
may request FAULDING to return the rejected Components or
samples thereof for further testing. The test results, if any,
submitted to FMDC by FAULDING shall be deemed conclusive
unless FMDC notifies FAULDING within thirty (30) days of its
receipt of the Objection Notice or the samples, whichever is
later, that it disagrees with such test results. In the event
of such notice by FMDC, the rejected Components or samples
thereof shall be submitted to a mutually acceptable
independent laboratory (the "Independent Laboratory") for
analysis in the form of a written report (the "Report"), the
costs of which shall be paid by the party against whom the
discrepancy is resolved. In the event that the results of the
Report determine that any of the Components rejected by
FAULDING do not meet specifications, FMDC will ensure that
such Components are replaced with conforming goods within
ninety (90) days from the date of the Report, provided that
the departure from specifications is not due to any fault or
act of FAULDING. All transportation, shipping and insurance
costs and other fees incident to the shipping back to FMDC of
the Components determined by the Report to be defective and
the shipping to FAULDING of the replacement Components will be
paid for by FMDC if the Components have been determined by the
Report to be defective.
13. AUDITS
13.1 During any visit contemplated by Section
12.1(e) of this Agreement, FAULDING shall have the right (a)
to inspect the manufacturing facilities, (b) to inspect
quality control procedures and (c) to review any records
maintained pursuant to Section 12.1(c) to ensure that the
manufacturer of the Components complies with all applicable
regulations.
13.2 After giving reasonable written notice to
FAULDING, FMDC shall have the right during ordinary business
hours, twice annually, and at its own cost, to have
independent auditors inspect and audit the accounts and
records referred to in Section 8.6 of this Agreement.
13.3 After giving reasonable written notice to
FMDC, FAULDING shall have the right during ordinary business
hours, twice annually, and at its own cost, to have
independent auditors inspect and audit the accounts and
records referred to in Section 7.3 hereof.
13.4 The party conducting the audit shall assume
all risk of loss and indemnify and hold the other party
harmless from and against any and all loss, liability, damage,
claim and expense including, but not limited to, reasonable
attorneys' fees arising out of or resulting from the auditing
party's presence on the audited party's premises.
14. ONCO-TAIN TECHNOLOGY
14.1 FMDC acknowledges and agrees that FAULDING is
the owner of the ONCO-TAIN Technology and of all industrial
and intellectual property rights in relation to the ONCO-TAIN
Technology, including the right to patents, registered or
other designs, copyright, and any other confidential
information. Nothing contained in this Agreement shall be
effective to give FMDC any rights of ownership in and to the
ONCO-TAIN Technology including, without limitation, any
improvements to such Technology, and to the intellectual
property owned by FAULDING.
14.2 In the event that FMDC shall desire to
manufacture or market any product which in any way utilizes
the ONCO-TAIN Technology anywhere, within or outside the
Territory, the parties agree to negotiate in good faith to
determine whether they can reach an agreement that is
commercially acceptable to both of them.
15. OPERATIONAL KNOW-HOW
15.1 FMDC acknowledges and agrees that FAULDING is
the owner of the Operational Know-How and of all industrial
and intellectual property rights in relation to the
Operational Know-How, including the right to patents,
registered or other designs, copyright, and any other
confidential information. Nothing contained in this Agreement
shall be effective to give FMDC any rights of ownership in and
to such Operational Know-How including, without limitation,
any improvements to such Know-How, and FMDC's right to use the
Operational Know-How, as set forth in Section 15.2 of this
Agreement, shall be for the sole purpose of replicating and
scaling-up on the SGV Equipment the process for the
manufacture of products utilizing the Devices Technology.
15.2 The parties understand and agree that FMDC, or
an Affiliate of FMDC other than FAULDING(collectively or
alternatively, "the "Manufacturer") may undertake to
manufacture products utilizing the Devices Technology. In
such event, FAULDING agrees to negotiate in good faith with
the Manufacturer to reach mutually acceptable and commercially
reasonable rates and terms on which to:
(a) provide to the Manufacturer all
Operational Know-How in its possession as may
be necessary and helpful to replicate and
scale-up the process for the manufacture of
products utilizing the Devices; and
(b) provide appropriate scientists and
engineers to aid the Manufacturer in the
commissioning of the SGV Equipment and the
replicating and scaling-up of the process of
manufacturing products utilizing the Devices,
all at the reasonable cost of the
Manufacturer.
15.3 For the purposes of Section 15.2:
(a) "commercially reasonable rates and terms"
shall mean rates and terms that are not less
favorable to the Manufacturer than those rates
and terms, which in the reasonable judgement
of each of FAULDING and the Manufacturer,
could be obtained by the Manufacturer from a
non-affiliated third-party in an arms-length
negotiation in the ordinary course of its
business for similar work; and
(b) "aid...in the commissioning of the SGV
Equipment and the replicating and scaling-up
of the process of manufacturing products
utilizing the Devices" shall include, without
limitation, providing to the Manufacturer on-site
FAULDING engineers to assist in the
scaling-up process, to the reasonable
satisfaction of the Manufacturer, and
permitting personnel of the Manufacturer, at
the Manufacturer's reasonable expense, to
visit FAULDING's premises in Australia for
technical discussions relating to operations
of the SGV Equipment.
16. OWNERSHIP AND LICENSING OF TRADEMARKS
16.1 FMDC acknowledges and agrees that FAULDING is
the beneficial owner of each of the Trademarks. With respect
to any Trademarks that have heretofore been registered by FMDC
(under either its current name or its prior name, DBL, Inc.,
FAULDING, at its sole discretion, may direct FMDC in writing,
at any time and from time to time, to assign any or all of
such Trademarks, at FMDC's cost, to FAULDING or its designee.
Upon receipt of FAULDING's directive, FMDC shall promptly
deliver to FAULDING, or to FAULDING's nominee, any documents
in its possession relating to such Trademark(s) and shall
execute all such documents as may be required, or as FAULDING
may deem appropriate, to ensure any such assignment is
effected.
16.2 FAULDING hereby licenses to FMDC the right to
use the Trademarks in connection with the manufacture,
distribution and sale, outside of the Territory, of the
Devices and products utilizing such Devices, subject to the
terms and conditions of this Agreement. FMDC shall use the
Trademarks only upon, in connection with, and under the terms
of this license. Each of the Trademarks shall at all times be
used in accordance with acceptable trademark practices,
including use of the appropriate notice of registration,
legend or symbol wherever permitted or required by applicable
law. All packaging and promotional material shall so indicate
the licensing of the Trademarks and FMDC, upon FAULDING's
request, will provide FAULDING with samples of all uses of the
Trademarks. FMDC acknowledges and agrees that all goodwill in
the Trademarks shall accrue to FAULDING.
17. WARRANTY
17.1 FMDC represents and warrants to FAULDING that:
(a) it has the corporate authority to enter
into this Agreement and to perform its
obligations hereunder;
(b) it is not aware of any legal, contractual
or other restriction, limitation or condition
which might affect adversely its ability to
perform hereunder;
(c) it is the owner of the Devices Technology
free and clear of any liens or encumbrances of
third parties and has sufficient right, title
and interest in the Devices Technology to
grant the license to FAULDING granted
hereunder for the purpose of manufacturing and
marketing FAULDING Manufactured Products
within the Territory; and
(d) the Components delivered to FAULDING by or
on behalf of FMDC pursuant to this Agreement
shall (i) meet the specifications for such
Components, which have been agreed to by the
parties, at the time of delivery by FMDC to
FAULDING; (ii) be manufactured using materials
mutually approved by the parties and (iii) be
manufactured and stored in compliance with all
applicable laws and regulations, including,
without limitation, Good Manufacturing
Practices; provided, however, that the
warranty provided by FMDC to FAULDING in this
Section 17.1(e)is specifically limited to the
utilization of such Component as part of a
Device and FMDC hereby makes no representation
or warranty whatsoever with respect to the
stability, safety or efficacy of the use of
any Product in a FAULDING Manufactured Product
format.
17.2 FAULDING represents and warrants to FMDC that:
(a) it has the corporate authority to enter
into this Agreement and to perform its
obligations hereunder;
(b) it is not aware of any legal contractual
or other restriction, limitation or condition
which might affect adversely its ability to
perform hereunder.
(c) it is the owner of the ONCO-TAIN
Technology and the Operational Know-How clear
of any liens or encumbrances of third parties
and, upon the licensing of either the
Operational Know-How, or the ONCO-TAIN
Technology as contemplated, respectively, by
Sections 14 and 15 hereof, it will be the
owner of the ONCO-TAIN Technology or
Operational Know-How, as the case may be, free
and clear of any liens or encumbrances and to
the best of its knowledge on the date hereof,
will have sufficient right, title and interest
in the ONCO-TAIN Technology or Operational
Know-How, as the case may be, to grant a
license to FMDC on the terms and conditions
proposed, respectively, in Sections 14 and 15
hereof; and
(d) to the best of its knowledge as of the
date hereof, none of the Trademarks infringes
the rights of any third parties in the United
States of America.
18. INDEMNITY
18.1 FMDC agrees to indemnify, defend and hold
harmless FAULDING, its Affiliates and subsidiaries and their
respective employees against any and all claims, losses
(except consequential losses, such as, for example, the loss
of business or of profits), damages and liabilities, including
reasonable attorney's fees, (a) relating to the Components
supplied hereunder, including liability for death or personal
injury, that results from the negligence or willful misconduct
of FMDC, or (b) arising out of any breach of any obligation
by FMDC hereunder or any representation or warranty by FMDC
hereunder; provided, however, that the indemnity provided by
FMDC pursuant to this Section 18.1 is limited strictly to the
use of Components and Devices and FMDC shall under no
circumstances be held liable, and FAULDING shall hold FMDC
harmless, as set forth in Section 18.2, for any claims or
losses arising from any Product's utilization in conjunction
with a Device or the stability, safety or efficacy of the use
of any Product in a FAULDING Manufactured Product.
18.2 FAULDING agrees to indemnify, defend and hold
harmless FMDC, its Affiliates and subsidiaries and their
employees against any and all claims, losses(except
consequential losses, such as, for example, the loss of
business or of profits), damages and liabilities, including
reasonable attorney's fees, incurred by any of them (a)
relating to any Product's utilization in conjunction with a
Device or the stability, safety or efficacy of the use of any
Product in a FAULDING Manufactured Product or to any other
claim with respect to any FAULDING Manufactured Product
distributed or sold hereunder, including liability for death
or personal injury that results from the negligence or willful
misconduct of FAULDING, or (b) arising out of any breach of
any obligation by FAULDING hereunder, any representation or
warranty by FAULDING hereunder, or any act or omission of
FAULDING or any of its Affiliates or sub-licensees in
connection with the marketing, distribution and sale of the
FAULDING Manufactured Products hereunder.
18.3
(a) If FAULDING or any of its Affiliates or
subsidiaries or FMDC or any of its Affiliates or subsidiaries
(in each case an "Indemnified Party") receives any written
claim which it believes is the subject of indemnity hereunder
by FMDC or FAULDING, as the case may be, (in each case as
"Indemnifying Party"), the Indemnified Party shall, as soon as
reasonably practicable after forming such belief, give notice
thereof to the Indemnifying Party, including full particulars
of such claim to the extent known to the Indemnified Party;
provided, that the failure to give timely notice to the
Indemnifying Party as contemplated hereby shall not release
the Indemnifying Party from any liability to the Indemnified
party other than pursuant to this Section 18. The
Indemnifying Party shall have the right, by prompt notice to
the Indemnified Party, to assume the defense of such claim
with counsel reasonably satisfactory to the Indemnified Party,
and at the cost of the Indemnifying Party. If the
Indemnifying Party does not so assume the defense of such
claim or, having done so, does not diligently pursue such
defense, the Indemnified Party may assume such defense, with
counsel of its choice, but for the account of the Indemnifying
Party. If the Indemnifying Party so assumes such defense, the
Indemnified Party may participate therein through counsel of
its choice, but the cost of such counsel shall be for the
account of the Indemnified Party.
(b) The party not assuming the defense of any such
claim shall render all reasonable assistance to the party
assuming such defense, and all out-of-pocket costs of such
assistance shall be for the account of the Indemnifying Party.
(c) No such claims shall be settled other than by
the party defending the same, and then only with the consent
of the other party, which shall not be unreasonably withheld;
provided, that the Indemnified Party shall have no obligation
to consent to any settlement of any such claim which imposes
on the Indemnified Party any liability or obligation which
cannot be assumed and performed in full by the Indemnifying
party.
18.4
(a) FMDC shall have no liability hereunder for any
claim (hereinafter a "Manufacture Infringement Claim") which,
if true, would constitute a breach of the warranties contained
in Section 17.1(c)hereof based on FAULDING's manufacture or
distribution of any FAULDING Manufactured Product, as the case
may be, after FAULDING receives a notice from FMDC that
FAULDING should cease such manufacture or distribution due to
a Manufacture Infringement Claim.
(b) FAULDING shall have no liability hereunder for
any claim (hereinafter a "Trademark Infringement Claim")
which, if true, would constitute a breach of the warranties
contained in Section 17.2(d)hereof based on FMDC's use of any
of the Trademarks after FMDC receives a notice from FAULDING
that FMDC should cease using any such Trademark due to a
Trademark Infringement Claim.
19. PATENT PROSECUTION AND MAINTENANCE
19.1 FAULDING agrees, on FMDC's behalf and at
FMDC's cost, to apply for, obtain and maintain the Patents.
All expenses for the prosecution and maintenance of each of
the Patents shall be paid by FMDC to FAULDING within sixty
(60) days after FMDC's receipt of an invoice from FAULDING for
such expenses; provided, however, that FAULDING shall seek
instruction from FMDC before each significant action is taken
during the prosecution and maintenance of the Patents and
provided further, however, that FAULDING shall not incur any
cost not usually incurred in the ordinary course of
prosecuting or maintaining such Patents, and which is more
than $1000, without receiving prior approval in writing from
FMDC. FMDC agrees, at its own cost, to co-operate fully with
FAULDING in the prosecution and maintenance of the patents as
reasonably requested by FAULDING in writing.
19.2 FAULDING shall promptly furnish FMDC with true
copies of the Patent(s) concerned.
20. PATENT AND TRADEMARK INFRINGEMENT
20.1 Each party will promptly notify the other
party of any infringement or possible infringement by a third
party of any of the Patents or Trademarks and any claim of
litigation by a third party alleging invalidity of any of the
Patents or Trademarks. Moreover, in the event of any claim or
threat of litigation by a third party alleging infringement by
any of the Patents or Trademarks or if either party discovers
that any of the Patents or Trademarks infringe, or may
possibly infringe, a third party's intellectual property
rights, each Party shall promptly give notice of such claim or
litigation to the other Party.
20.2 The "Litigating Party", which shall be:
(a) FMDC with respect to any actions associated with
alleged infringement of or by the Patents; and
(b) FAULDING with respect to any actions associated with
alleged infringement of or by the Trademarks,
shall have the right but not the obligation to defend or
prosecute any right with respect to such Patent or Trademark,
as the case may be. In such event, the other party shall
cooperate with the Litigating Party.
20.3 If the Litigating Party fails to prosecute or
defend any such action (a) within ninety (90) days after its
giving or receiving notice thereof or, (b) if applicable,
within the earlier of (i) ninety (90) days after the
Litigating Party receives notice of any such action or (ii)
fifteen (15) days prior to the last day permitted by the court
in which the action has been filed to file responsive
pleadings, then the other party shall have the right, but not
the obligation, to prosecute or defend any such action on its
own behalf and, if necessary to sustain standing, the right to
name the Litigating Party, or, if applicable, its successor or
assignee, as a party plaintiff. In such event, the Litigating
Party shall reasonably cooperate with the other party.
20.4 The party prosecuting or defending the action
shall control all aspects of such action and bear all costs of
such action and the proceeds of such action, of which there is
no indemnification or for which indemnification is not sought,
shall belong to the prosecuting or defending party.
21. CONFIDENTIALITY
21.1 FAULDING agrees with FMDC that it will not
disclose to any person or corporation any confidential
information of FMDC that it may acquire at any time during the
term of this License Agreement, including, without limitation
the Devices Technology and any improvements to the Devices
Technology, without the prior written consent of FMDC and that
FAULDING will use all reasonable efforts to prevent
unauthorized publication or disclosure by any person of such
Technology, including, without limitation, requiring its
employees, consultants, Affiliates, sub-licensees and agents
to enter into similar confidentiality agreements in relation
to the Technology and such other confidential information.
21.2 FMDC agrees with FAULDING that it will not
disclose to any person or corporation any confidential
information of FAULDING that it may acquire at any time during
the term of this License Agreement, including, without
limitation, the Operational Know-How and the ONCO-TAIN
Technology without the prior written consent of FAULDING and
that FMDC will use all reasonable efforts to prevent
unauthorized publication or disclosure by any person of such
confidential information, including requiring its employees,
consultants, Affiliates and agents to enter into similar
confidentiality agreements in relation to such confidential
information.
21.3 The obligations undertaken by each party under
this Section 21 shall continue in force for a period of five
(5) years following the termination or expiration of this
Agreement.
21.4 The obligations contained in this Section 21
do not apply to any information:
(a) which was at the time of receipt by a party in the
public domain or generally known in the pharmaceutical
manufacturing industry otherwise than by breach of a party's
duty of confidentiality;
(b) which a party can establish to have been known to it
at the time of receipt from the other party and not to have
been acquired directly or indirectly from the other party;
(c) acquired by a party from a third party otherwise
than in breach of an obligation of confidence to the other
party;
(d) required by law to be provided to governmental
agencies but only for the purpose of providing it to such
governmental agencies;
(e) provided to any Regulatory Authority in the Territory
in connection with the registration of a Device or FAULDING
Manufactured Product; or
(f) disclosed to an Affiliate of either party for
purposes consistent with this Agreement.
22. TAXATION ISSUES
22.1 Each of the parties is aware that the
commercial arrangements of this Agreement may be subject to
transfer pricing reviews by the relevant taxation authorities
in the Territory and the United States. As a result, this
Agreement may be subject to internal reviews by either or both
parties and to audits by the relevant taxation authorities.
If as a result of such reviews or audits, it becomes necessary
or advisable for either party (the "Affected Party")to change
any commercial arrangements of this Agreement, including,
without limitation, making retroactive adjustments, the other
party, within thirty (30) days after written notification by
the Affected Party, which notification shall explain in
reasonable detail the reason for the proposed change, shall
meet with the Affected Party and each of the parties agrees to
negotiate in good faith, and to use its best efforts to reach
agreement with respect to, any modifications to the commercial
terms of this Agreement. In the event that the parties,
despite their best efforts, cannot reach agreement with
respect to any material change, which in the opinion of either
party is necessary or advisable for the reasons set forth in
this Section 22.1, either party, upon written notice to the
other party, may terminate this Agreement. The provisions of
Section 25.3 of this Agreement shall apply upon any
termination of the Agreement pursuant to this Section 22.1.
22.2 Each of the parties agrees to provide
reasonable assistance, at the Affected Party's reasonable
cost, if the Affected Party is subject to a taxation audit
that reviews any commercial arrangement of this Agreement.
23. NOTICES
Notices provided under this Agreement to be given or
served by either party on the other shall be given in writing
and served personally or by prepaid registered airmail or by
express mail or by means of facsimile to the following
respective addresses or to such other addresses as the parties
may hereafter advise each other in writing. It being agreed
and understood by the parties that any such notice shall be
deemed given and served on the dates transmitted by facsimile
or a date ten (10) days after the date of airmail by post or
express mail:
To: FAULDING
The Company Secretary
F.H. FAULDING & CO. LIMITED
160 Greenhill Road
PARKSIDE South Australia 5063
Facsimile +618 373 3120
To: FMDC
President
FAULDING MEDICAL DEVICE CO.
8777 East Via De Ventura
Suite 315
Scottsdale, Arizona 85258
United States of America
Facsimile +1 602 951 9540
with a copy to:
Chief Financial Officer
FAULDING MEDICAL DEVICE CO.
200 Elmora Avenue
Elizabeth, New Jersey 07207
United States of America
Facsimile +1 908 355 7048
24. ASSIGNMENT
Neither party to this Agreement shall assign any
rights hereunder to third parties other than the right of
payment of monies accrued without the prior written consent of
the other party; provided, however, that the restriction
contained herein shall in no way limit the rights to
sublicense granted to FAULDING under Section 3 of this
Agreement or the rights of either party to make assignments to
Affiliates. This Agreement shall be binding upon any
permitted assignee or successor of either party.
25. TERM AND TERMINATION
25.1 This Agreement shall be for a term of twenty
(20) years commencing as of the date of this Agreement and
shall automatically be renewed thereafter for up to four
successive five-year terms unless written notice is given by
either party at least six months prior to the date of any such
renewal of such party's desire not to renew such term.
25.2 This Agreement may be terminated by notice in
writing by either party if the other party shall default in
the performance of any of its obligations under this Agreement
and such default shall continue for a period of not less than
ninety (90) days after written notice specifying such default
shall have been given; by either party if the other party
makes an arrangement with its creditors or goes into
receivership or liquidation (other than voluntary liquidation
for the purpose of internal reorganization), or if a receiver
or a receiver and manager is appointed in respect of the whole
or part of the property or business of the party in default or
by either party if a major part of the assets or all of the
assets of the other party are disposed of to or compulsorily
acquired by any other person.
25.3 Upon the expiration of, or the termination of
this Agreement by either party, FAULDING shall have the right
in each country in the Territory in which, prior to such
termination, it has commenced marketing a Device or a FAULDING
Manufactured Product, to Market such Device or FAULDING
Manufactured Product under the terms of this Agreement until
the earlier of:
(a) three years after the date of expiration or date of
termination; or
(b) the date upon which the applicable Regulatory
Authority has approved for marketing an alternative
drug device for utilization with such Product (the
"Extension Period").
25.4 Upon the latter of:
(a) the termination or expiration of this Agreement,
(b) the termination or expiration of the Extension Period
set forth in Section 25.3 hereof, or
(c) with respect to any records or other data that must
be retained for a period of time in accordance with, and
as set forth in, the regulations of the Regulatory
Authorities in the Territory (the "Retention Period"),
the expiration of the Retention Period,
FAULDING shall promptly deliver to FMDC all information with
respect to the Devices Technology in FAULDING's possession and
FMDC shall promptly deliver to FAULDING all information with
respect to the ONCO-TAIN Technology and Operational Know-How,
if any, in FMDC's possession and the parties shall as soon as
conveniently possible reconcile all accounts.
26. NON WAIVER
Any party's failure to exercise or enforce any right
conferred upon it under this Agreement shall not be deemed to
be a waiver of any such right or operate to bar the exercise
or performance thereof at any time or times thereafter nor
shall any party's waiver of any right under this Agreement at
any given time including rights to any payment be deemed a
waiver for any other time.
27. GOVERNING LAW
This Agreement shall be deemed to be a contract made
under and shall be governed by and construed in accordance
with the laws of the State of New York.
28. ENTIRE AGREEMENT
This Agreement incorporates the entire understanding of
the parties and revokes and supersedes any and all agreements,
contracts, understandings or arrangements that might have
existed heretofore between the parties regarding the subject
matter hereof.
29. HEADINGS
The headings used in this Agreement are intended for
guidance only and shall not be considered part of this written
understanding between the parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed by
the parties on the date first above written.
FAULDING MEDICAL DEVICE CO.
By:
F.H. FAULDING & CO. LIMITED
By:
<PAGE>
LICENSING AND SUPPLY AGREEMENT
BETWEEN
FAULDING MEDICAL DEVICE CO.
AND
F.H. FAULDING & CO. LIMITED<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS. . . . . . . . . . . . . . . . . . . 2
2. EXCLUSIVE LICENSE TO THE DEVICES TECHNOLOGY. . . 5
3. SUB-DISTRIBUTORS . . . . . . . . . . . . . . . . 6
4. COMPETING PRODUCTS; EXCEPTIONS TO EXCLUSIVITY. . 7
5. INTELLECTUAL PROPERTY RIGHTS OF FMDC . . . . . . 8
6. IMPROVEMENTS TO THE DEVICES TECHNOLOGY . . . . .10
7. PURCHASE PRICE OF THE COMPONENTS . . . . . . . .11
8. REDUCTION OF PURCHASE PRICE. . . . . . . . . . .12
9. COMPONENTS: FORECASTS, ORDERS AND PAYMENT. . . .14
10. REGISTRATION; REGULATORY APPROVALS . . . . . . .16
11. ADVERSE EVENTS; RECALLS. . . . . . . . . . . . .17
12. QUALITY CONTROL . . . . . . . . . . . . . . . .18
13. AUDITS . . . . . . . . . . . . . . . . . . . . .19
14. ONCO-TAIN TECHNOLOGY . . . . . . . . . . . . . .20
15. OPERATIONAL KNOW-HOW . . . . . . . . . . . . . .21
16. OWNERSHIP AND LICENSING OF TRADEMARKS. . . . . .22
17. WARRANTY . . . . . . . . . . . . . . . . . . . .23
18. INDEMNITY. . . . . . . . . . . . . . . . . . . .24
19. PATENT PROSECUTION AND MAINTENANCE . . . . . . .27
20. PATENT AND TRADEMARK INFRINGEMENT. . . . . . . .27
21. CONFIDENTIALITY. . . . . . . . . . . . . . . . .28
22. TAXATION ISSUES. . . . . . . . . . . . . . . . .30
23. NOTICES. . . . . . . . . . . . . . . . . . . . .30
24. ASSIGNMENT . . . . . . . . . . . . . . . . . . .31
25. TERM AND TERMINATION . . . . . . . . . . . . . .32
26. NON WAIVER . . . . . . . . . . . . . . . . . . .33
27. GOVERNING LAW. . . . . . . . . . . . . . . . . .33
28. ENTIRE AGREEMENT . . . . . . . . . . . . . . . .33
29. HEADINGS . . . . . . . . . . . . . . . . . . . .34
Schedule A . . . . . . . Components, Devices & Patents
Schedule B . . . . . . Pre-existing Negotiations and
Obligation of FAULDING
Schedule C . . . . . . . Pre-existing Negotiations of FMDC
Schedule D . . . . . . . Trademarks
EXHIBIT 10 (xxv)
LICENSE AGREEMENT
This AGREEMENT, is made and entered into as of this
29th day of February, 1996 by and between F.H. FAULDING
& CO. LIMITED, a corporation organized under the laws of
South Australia ("Licensor") and PUREPAC, INC., a
Delaware corporation ("Licensee").
W I T N E S S E T H:
WHEREAS, Faulding Holdings Inc., a wholly owned
subsidiary of Licensor ("Faulding"), and Licensee entered
into a Stock Purchase Agreement dated as of January 23,
1996 (the "Stock Purchase Agreement") pursuant to which
Licensee, as of the date hereof, purchased all of the
outstanding common stock of each of Faulding Puerto Rico,
Inc., Faulding Pharmaceutical Co. and Faulding Medical
Device Co. (collectively, the "Subsidiaries"), formerly
the wholly-owned subsidiaries of Faulding, in exchange
for certain shares of Licensee's common stock;
WHEREAS, Faulding and Licensee also entered into a
Preferred Stock Purchase Agreement dated as of January
23, 1996 pursuant to which, as of the date hereof,
Faulding purchased 150,000 shares of Licensee's Series B
Preferred Stock for a purchase price of $15,000,000 (the
"Preferred Stock Agreement") (the Stock Purchase
Agreement and the Preferred Stock Agreement are
collectively referred to as the "Faulding Transaction");
WHEREAS, as a result of the Faulding Transaction,
Faulding is a majority owner of Licensee's common stock,
giving effect to the conversion of all of the preferred
stock of Licensee owned by Faulding;
WHEREAS, as a result of the Faulding Transaction,
the Licensee intends to change its name to "Faulding
Inc." and to cause the Subsidiaries to continue to use
the name "Faulding" in their corporate names; and
WHEREAS, Licensor, as the sole owner of all the
rights, title and interest in and to the duly registered
tradename "Faulding", desires to grant, and Licensee
desires to receive, a limited license to use the
tradename "Faulding" according to the terms of this
Agreement;
NOW, THEREFORE, in consideration of these premises
and the mutual covenants herein contained, and for other
good, valuable and sufficient consideration given by each
party to the other, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Grant of License. Licensor hereby grants to
Licensee, and Licensee hereby accepts a non-exclusive,
royalty-free license: (i) to use and display the
tradename "Faulding" (the "Tradename") solely in
connection with Licensee's business as it is currently
configured including, but not limited to, the
development, manufacture and sale of generic drug
products ("Licensee's Business"); and (ii) for the use by
each of the Subsidiaries solely in connection with their
respective businesses as currently configured, in
accordance with the terms and provisions of this
Agreement.
2. Territory of License. Licensee may exercise
the rights granted by this license throughout the world.
3. Term of License; Termination.
a. At any time after Faulding no longer
holds more than 50% of the outstanding common stock of
Licensee on a fully diluted basis, Licensor may notify
Licensee that it has three (3) years from the date of
such notice in which to continue to use the Tradename as
provided herein. Licensee's ability to continue to use
the Tradename after such three year period will be
subject to its reaching an agreement with Licensor
governing such use.
b. Licensor may terminate this
Agreement, and the license hereby granted, on thirty (30)
days' prior written notice to Licensee in the event that
Licensee violates any of its obligations under this
Agreement or in the event that Licensee breaches any
covenant or warranty made in this Agreement.
c. Licensor may terminate this license
on thirty (30) days' prior written notice to Licensee in
the event that, in the exercise of its sole and absolute
discretion, it declines to continue using, maintaining,
or defending the validity of the Tradename. In the event
that the license terminates pursuant to this paragraph 3
c, and Licensor intends to cease use of the Tradename,
Licensee shall be entitled to purchase an assignment of
the Tradename from Licensor for one dollar ($1) by so
notifying Licensor of such intent, after receipt of
Licensor's notice and before the expiration of this
License Agreement.
4. Protection of Trademark.
a) Claims by Third Parties, Licensor's
Indemnification. In the event that Licensee or the
Subsidiaries, or any of them, is informed of any
claim, suit or demand against Licensee on account
of any alleged infringement, unfair competition, or
similar matter relating to its use of the
Tradename, Licensee shall promptly notify Licensor
of any such claim, suit or demand. Thereupon
Licensor shall promptly, take such action as may be
necessary to protect and defend Licensee against
any such claim by any third party and shall
indemnify Licensee against any losses, costs or
expenses incurred in connection therewith.
Licensee shall have no independent power or
authority to settle or compromise any such third
party claim without prior written specific
authorization from Licensor, who shall have the
right to defend, compromise or settle any such
claim, at its sole cost and expense using attorneys
of its own choosing. Licensee agrees to cooperate
fully with Licensor in connection with the defense
or settlement of any such claim.
b) Infringement by Third Parties. In the
event that Licensee, the Subsidiaries, or any of
them, believes that any third party is improperly
using a trademark, tradename or logotype
confusingly similar to the Tradename, Licensee
shall promptly notify Licensor of all facts known
to it relating to such use. Thereupon Licensor
shall conduct its own investigation of such alleged
infringing use and shall have the sole right to
take any action it deems necessary to protect the
Tradename. Licensee shall have no right to
prosecute any claim against any alleged infringer
of either the Tradename or Licensee's licensed use
thereof and shall have no right to settle or
compromise any claim against such alleged
infringer, or to participate in any litigation
against such alleged infringer. Licensee agrees to
cooperate fully with Licensor in connection with
the prosecution of any claim against such alleged
infringer which may be brought by Licensor.
c) No Contest. Licensee shall not, nor
cause the Subsidiaries to, contest or deny the
validity or enforceability of the Tradename or
oppose or seek to cancel any registration thereof
by Licensor, or aid or abet others in so doing
either during the Term of this Agreement or at
anytime thereafter.
d) Maintenance of the Tradename. Licensor at
all times during this Agreement shall maintain the
viability of the Tradename and shall undertake to make
all filings, and to take all other reasonable steps
necessary to protect the Tradename.
5. Compliance with the Laws. Licensee shall use
the Tradename, and conduct Licensee's Business
thereunder, and insure that the Subsidiaries use the
Tradename and conduct their respective businesses
thereunder, in strict compliance with all applicable
laws, rules and regulations of all applicable government
authorities. Throughout the period hereof, including the
wind-down period contemplated by paragraph 3 hereof,
Licensee shall undertake no course of action, and will
insure that the Subsidiaries undertake no course of
action, which may lead to a loss of goodwill or other
diminution in value of the Tradename, and shall use its
reasonable commercial efforts and cause the Subsidiaries
to use the same, to enhance the goodwill and value of the
Tradename.
6. Indemnification by Licensee. Licensee hereby
agrees to defend, indemnify and hold harmless Licensor
from and against any and all suits, actions, claims,
judgments, debts, obligations or rights of action of any
nature or description, and all costs, including
attorney's fees, incurred by Licensor in connection
therewith, arising out of or relating to the rights
granted to Licensee hereunder or any acts, omissions,
statements, or representations of any employee, agent,
subsidiary (including, but not limited to, the
Subsidiaries) officer or director of Licensee relating
thereto. Licensor shall notify Licensee of any such
suit, action, claim, judgment, debt, obligation or right
of action promptly upon receiving notice or being
informed of the existence thereof. Upon such notice
Licensee shall promptly take such action as may be
necessary to protect and defend Tradename against such
suit, action, claim, judgment, debt, obligation or right
of action and shall indemnify Licensor against any loss,
costs or expenses incurred in connection therewith.
Licensor shall have no power or authority to settle or
compromise any such suit, action, claim, judgment, debt,
obligation or right of action and Licensor agrees to
cooperate fully with Licensee with the defense thereof.
7. Assignment. Licensee's rights and interests
hereunder may not be assigned, pledged, conveyed or
otherwise transferred without the prior written consent
of Licensor, which consent shall not be unreasonably
withheld. Any such purported unauthorized pledge,
assignment, conveyance or transfer shall be null and
void.
8. Employment of Agents. Notwithstanding the
terms of paragraph 7 hereof, Licensee may employ or cause
any or all of the Subsidiaries to employ, the services of
distributors, throughout the Territory for and on its
behalf provided that such distributors shall not,
directly or indirectly, be assignees or sublicensees of
Licensee and provided that at all times Licensee shall be
fully responsible for the actions of such distributors
and performance which shall conform in all respects to
the requirements of this Agreement.
9. Effect of Termination. In the event of
expiration or termination of this Agreement pursuant to
paragraph 3 hereof, Licensee shall, and shall likewise
cause the Subsidiaries to, forthwith discontinue the use
of the Tradename, and the Tradename, or any symbols
deceptively similar thereto, shall thereafter not be used
in any manner, or for any purpose, directly or
indirectly, by Licensee and/or the Subsidiaries, and each
of them. Upon the termination or expiration of this
Agreement Licensee shall, and shall cause the
Subsidiaries or any of them to, promptly take all
necessary steps to sever all connection with the
Tradename including, but not limited to, amending all of
its corporate documents, stationery, brochures,
advertising materials, charter and other filings.
10. Rights of Licensor. The expiration or
termination of this Agreement shall be without prejudice
to any other rights or claims of Licensor against
Licensee or any or all of the Subsidiaries or any other
remedy available to it. Such expiration or termination
shall not relieve Licensee of any of its obligations to
Licensor existing at the time of expiration or
termination, or terminate those obligations of Licensee
which, by their nature, survive the expiration or
termination of this Agreement.
11. Miscellaneous.
a) Survival of Representations, Warranties
and Covenants. All statements contained in this
Agreement shall be deemed representations,
warranties and covenants by the Licensor or the
Licensee, as the case may be, hereunder. All
representations, warranties, covenants made by the
Licensor and by the Licensee of this Agreement, or
pursuant hereto, shall survive the termination of
this Agreement.
b) Notices. All notices, requests, demands,
or other communications with respect to this
Agreement shall be in writing and shall be (i) sent
by facsimile transmission, (ii) sent by postal
service, registered or certified mail, return
receipt requested, or (iii) personally delivered by
a nationally recognized express overnight courier
service, charges prepaid, to the following
addresses (or such other addresses as the parties
may specify from time to time in accordance with
this Section)
To the Licensee:
Faulding Inc.
200 Elmora Avenue
Elizabeth, New Jersey 07207
Attention: President
Fax No.: +1 908 355-7048
To the Licensor:
F.H. Faulding & Co. Limited
160 Greenhill Road
Parkside, So. Australia 5064
Attention: Secretary
Fax No.: +618 373 3120
Any such notice shall, when sent in accordance with
the preceding sentence, be deemed to have been
given and received on the earliest of (i) the day
delivered to such address or sent by facsimile
transmission, (ii) the tenth business day following
the date deposited with the postal service, or
(iii) 5 days after shipment by such courier
service.
c) Construction. This Agreement shall be
construed and enforced in accordance with the
internal laws of the State of New York without
giving effect to the principles of conflicts of law
thereof.
d) Counterparts. This Agreement may be
executed in two or more counterparts, each of which
shall be deemed an original, but all of which shall
together constitute one and the same Agreement.
e) No Implied Waiver; Remedies. No failure
or delay on the part of the parties hereto to
exercise any right, or privilege hereunder or under
any instrument executed pursuant hereto shall
operate as a waiver nor shall any single or partial
exercise of any right, power, or privilege preclude
any other or further exercise thereof or the
exercise of any other right, power, or privilege.
All rights, powers, and privileges granted herein
shall be in addition to other rights and remedies
to which the parties may be entitled at law or in
equity.
f) Entire Agreement. This Agreement sets
forth the entire understandings of the parties with
respect to the subject matter hereof, and it
incorporates and merges any and all previous
communications, understandings, oral or written, as
to the subject matter hereof, and cannot be amended
or changed except in writing, signed by the
parties.
g) Headings. The headings of the Sections
of this Agreement, where employed, are for the
convenience of reference only and do not form a
part hereof and in no way modify, interpret or
construe the meanings of the parties.
h) Severability. To the extent that any
provision of this Agreement shall be invalid or
unenforceable, it shall be considered deleted
hereof and the remainder of such provision and of
this Agreement shall be unaffected and shall
continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement the day and year first above written.
F.H. FAULDING & CO. LIMITED
By:
Dr. Edward Tweddell
Managing Director
PUREPAC, INC.
By:
Richard Moldin
Chief Executive
Officer
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(Dollars in thousands except per share earnings)
Year Ended June 30,
-------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------
DATA AS TO EARNINGS:
Income (loss) before
cumulative effect of a $ (5,001) $ (1,618) $ 3,992
change in accounting for
income taxes
Less: preferred stock
dividends (2,307) (2,080) (2,080)
- ----------------------------------------------------------------------------
Income (loss) before
cumulative effect
applicable to common
and common equivalent shares $ (7,308) $ (3,698) $ 1,912
- ----------------------------------------------------------------------------
Cumulative effect of a change
in accounting for income taxes $ --- $ --- $ 4,149
- ----------------------------------------------------------------------------
DATA AS TO NUMBER OF COMMON
SHARES:
Weighted average shares
outstanding 15,039,391 14,977,248 14,906,896
Common equivalent shares
relating to contingent issuance --- 35,877 85,298
- ----------------------------------------------------------------------------
Average number of common shares
and common share equivalents 15,039,391 15,013,125 14,992,194
============================================================================
PRIMARY EARNINGS PER COMMON
SHARE:
Income (loss) before cumulative
effect of a change in accounting
for income taxes $ (.49) $ (.25) $ .13
Cumulative effect of a change in
accounting for income taxes --- --- .28
- ----------------------------------------------------------------------------
Net Income (Loss) $ (.49) $ (.25) $ .41
============================================================================
EARNINGS PER COMMON SHARE AND
COMMON SHARE EQUIVALENT
(Note 1, below):
Income (loss) before cumulative
effect of a change in accounting
for income taxes $ (.49) $ (.25) $ .13
Cumulative effect of a change in
accounting for income taxes --- --- .28
- ----------------------------------------------------------------------------
Net Income (Loss) $ (.49) $ (.25) $ .41
============================================================================
Note 1: Common share equivalents in the aggregate dilute the primary
earnings per common share by less than 3 percent.
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE ASSUMING FULL DILUTION
(Dollars in thousands except per share earnings)
Year Ended June 30,
--------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------
DATA AS TO EARNINGS:
Income (loss) before
cumulative effect of a
change in accounting for
income taxes $ (5,001) $ (1,618) $ 3,992
- ----------------------------------------------------------------------------
Cumulative effect of a
change in accounting for
income taxes $ --- $ --- $ 4,149
- ----------------------------------------------------------------------------
DATA AS TO NUMBER OF
COMMON SHARES:
Average number of common shares
and common share equivalents
(Exhibit 11) 15,039,391 15,013,125 14,992,194
Additional shares assuming
full dilution 6,570,078 5,005,490 5,005,128
- ----------------------------------------------------------------------------
Average number of common shares
assuming full dilution 21,609,469 20,018,615 19,997,322
- ----------------------------------------------------------------------------
EARNINGS PER COMMON SHARE ASSUMING
FULL DILUTION (1996 and 1995 - ANTIDILUTIVE):
Income (loss) before
cumulative effect of a
change in accounting
for income taxes $ (.23) $ .08 $ .20
Cumulative effect of a
change in accounting
for income taxes --- --- .21
- ----------------------------------------------------------------------------
Net Income (Loss) $ (.23) $ .08 $ .41
============================================================================
EXHIBIT 21
SUBSIDIARIES
Name State of Incorporation
- ------------------------------ ----------------------
Purepac Pharmaceutical Co. Delaware
Faulding Medical Device Co. Delaware
Faulding Puerto Rico, Inc. Delaware
Faulding Pharmaceutical Co. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,797
<SECURITIES> 0
<RECEIVABLES> 17,119
<ALLOWANCES> 3,355
<INVENTORY> 26,496
<CURRENT-ASSETS> 52,051
<PP&E> 41,510
<DEPRECIATION> 0
<TOTAL-ASSETS> 98,678
<CURRENT-LIABILITIES> 15,755
<BONDS> 0
<COMMON> 151
0
10
<OTHER-SE> 82,762
<TOTAL-LIABILITY-AND-EQUITY> 98,678
<SALES> 75,784
<TOTAL-REVENUES> 75,784
<CGS> 58,397
<TOTAL-COSTS> 24,110
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,021
<INCOME-PRETAX> (5,702)
<INCOME-TAX> (702)
<INCOME-CONTINUING> (5,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,000)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> 0
</TABLE>
