<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S 3rd QUARTER 10-Q FOR FISCAL 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> JAN-31-1999
<CASH> 4,124,954
<SECURITIES> 0
<RECEIVABLES> 7,219,036
<ALLOWANCES> (144,623)
<INVENTORY> 18,557,520
<CURRENT-ASSETS> 32,525,429
<PP&E> 34,965,807
<DEPRECIATION> (18,272,832)
<TOTAL-ASSETS> 53,444,617
<CURRENT-LIABILITIES> 19,602,686
<BONDS> 0
<COMMON> 10,673
0
0
<OTHER-SE> 33,319,263
<TOTAL-LIABILITY-AND-EQUITY> 53,444,617
<SALES> 10,257,581
<TOTAL-REVENUES> 25,935,573
<CGS> 8,374,690
<TOTAL-COSTS> 38,934,581
<OTHER-EXPENSES> 14,005,114
<LOSS-PROVISION> (27,004,122)
<INTEREST-EXPENSE> (370,131)
<INCOME-PRETAX> (27,252,695)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,252,695)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,252,695)
<EPS-PRIMARY> (2.60)
<EPS-DILUTED> (2.60)
</TABLE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended
January 31, 1999 Commission File No. 0-17174
HAUSER, INC.
(formerly Hauser Chemical Research, Inc.)
Colorado 84-0926801
(State or other jurisdiction of
incorporation or organization) (I.R.S. Identification
Number)
5555 Airport Boulevard, Boulder, Colorado 80301
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number,
including area code:
(303) 443-4662
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 12 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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, $.001 par value 10,673,163
Class Outstanding at January 31, 1999
<PAGE>
Part 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Operations (Unaudited) -
Three and nine months ended
January 31, 1999 and January 31, 1998 1
Consolidated Balance Sheets -
January 31, 1999 and April 30, 1998 2
Consolidated Statements of Cash Flows -
Nine months ended January 31, 1999
and January 31, 1998 3
Notes to Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7-15
Part 2. OTHER INFORMATION
Item 1. Legal Proceedings. 16
Item 2. Changes in Securities. 16
Item 3. Defaults Upon Senior Securities. 16
Item 4. Submission of Matters to a Vote
of Security Holders. 16
Item 5. Other Information. 16
Item 6. Exhibits and Reports on Form 8-K. 16
SIGNATURE PAGE 17
<PAGE>
HAUSER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
<TABLE>
Three months ended Nine months ended
January 31, January 31,
1999 1998 1999 1998
REVENUES:
<S> <C> <C> <C> <C>
Natural product processing $ 3,915,688 $ 2,184,845 $ 10,257,581 $ 7,512,677
Technical services 4,471,668 4,283,919 12,784,147 10,062,162
Paclitaxel 897,770 649,405 2,893,845 3,187,277
Total revenues 9,285,126 7,118,169 25,935,573 20,762,116
COST OF REVENUES:
Natural product processing 3,658,432 2,118,473 8,374,690 6,958,168
Technical services 3,349,237 2,965,616 9,287,157 7,214,803
Paclitaxel 287,166 494,464 1,572,734 2,337,864
Write-off of inventory 19,700,000 - 19,700,000 -
Total cost of revenues 26,994,835 5,578,553 38,934,581 16,510,835
GROSS PROFIT (17,709,709) 1,539,616 (12,999,008) 4,251,281
OPERATING EXPENSES:
Research and development 318,581 536,128 1,136,479 1,793,890
Sales and marketing 624,314 561,695 2,120,511 1,633,401
General and administrative 1,546,238 1,515,974 4,848,124 4,372,178
Write-off of assets 5,900,000 - 5,900,000 -
Total operating expenses 8,389,133 2,613,797 14,005,114 7,799,469
LOSS FROM OPERATIONS (26,098,842) (1,074,181) (27,004,122) (3,548,188)
OTHER INCOME (EXPENSE):
Interest income 29,713 81,363 79,521 281,240
Interest expense (190,653) (3,380) (370,131) (10,043)
Other - - 42,037 361,461
Other income (expense) - net (160,940) 77,983 (248,573) 632,658
LOSS BEFORE INCOME TAXES (26,259,782) (996,198) (27,252,695) (2,915,530)
INCOME TAX BENEFIT - 348,835 - 1,020,435
NET LOSS $(26,259,782) $ (647,363) $(27,252,695) $ (1,895,095)
LOSS PER SHARE BASIC AND DILUTED $(2.51) $(0.06) $(2.60) $(0.18)
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED 10,468,362 10,428,237 10,467,531 10,420,632
See notes to consolidated financial statements.
</TABLE>
<PAGE>
HAUSER, INC.
<TABLE>
CONSOLIDATED BALANCE SHEETS
January 31, April 30,
ASSETS 1999 1998
(unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 4,124,954 $ 2,081,796
Restricted cash 562,617 139,346
Accounts receivable, less allowance for doubtful accounts:
January 31, 1999, $144,623; April 30, 1998, $430,518 7,074,413 9,090,005
Inventory, at cost 10,816,207 10,111,688
Inventory, at net realizable value 7,741,313 -
Prepaid expenses and other 256,773 349,570
Net deferred income tax assets 1,949,152 1,946,339
Total current assets 32,525,429 23,718,744
PROPERTY AND EQUIPMENT
Land and buildings 7,695,394 7,635,216
Lab and processing equipment 23,390,778 31,883,787
Furniture and fixtures 3,879,635 4,671,647
Total property and equipment 34,965,807 44,190,650
Accumulated depreciation and amortization (18,272,832) (21,846,032)
Net property and equipment 16,692,975 22,344,618
OTHER ASSETS:
Goodwill, less accumulated amortization:
January 31, 1999, $791,992; April 30, 1998, $936,670 1,428,988 1,961,462
Inventory, non-current - 14,787,837
Deposits 1,719,972 4,013,992
Net deferred income tax asset 1,010,154 1,010,154
Other 67,099 456,774
Total other assets 4,226,213 22,230,219
TOTAL $ 53,444,617 $ 68,293,581
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,587,654 $ 1,764,294
Current portion of long term debt 6,634,784 1,911,498
Accrued salaries and wages 1,127,122 1,201,201
Deposits 3,710,321 670,155
Product warranty - 1,500,000
Accrued exit costs 4,990,926 -
Other accrued liabilities 551,879 -
Total current liabilities 19,602,686 7,047,148
LONG TERM LIABILITIES 522,668 692,733
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 50,000,000 shares authorized;
shares issued: January 31, 1999, 10,673,163;
April 30, 1998, 10,464,458 10,673 10,464
Additional paid-in capital 58,882,344 58,864,295
(Accumulated deficit) retained earnings (25,573,754) 1,678,941
Net stockholders' equity 33,319,263 60,553,700
TOTAL $ 53,444,617 $ 68,293,581
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
HAUSER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS-Unaudited
Nine months ended January 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(27,252,695) $ (1,895,095)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,163,604 2,839,584
Provision for bad debt 85,850 -
Expenditures for product warranty (1,500,000) -
Provision for paclitaxel and other related assets 25,600,000 -
Change in accrued exit costs (59,074) -
Gain on sales of investment - (361,461)
Deferred income tax benefit - (1,091,127)
Change in deposits and other (2,352,837) (2,295,040)
Change in assets and liabilities:
Accounts receivable 1,929,742 (1,816,429)
Income tax receivable - 1,445,046
Inventory (3,833,465) (3,006,153)
Prepaid expenses and other (223,343) (12,241)
Accounts payable 823,360 612,619
Customer deposits 3,040,166 471,934
Other accrued liabilities 477,800 586,953
Net cash used in operating activities (100,892) (4,521,410)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,521,531) (1,529,485)
Proceeds from sale of investments - 458,479
Issuance of notes receivable - (60,000)
Purchase of investments - (194,922)
Maturity of investments - 294,187
Net change in restricted cash (423,271) -
Net cash used in investing activities (1,944,802) (1,031,741)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in bank line of credit 4,500,000 -
Repayments of long-term debt (429,406) (90,172)
Proceeds from issuance of common stock and warrants 18,258 48,864
Net cash provided by financing activities 4,088,852 (41,308)
Net increase (decrease) in cash and cash equivalents 2,043,158 (5,594,459)
Cash and cash equivalents, beginning of year 2,081,796 8,379,551
Cash and cash equivalents, end of period $ 4,124,954 $ 2,785,092
See notes to consolidated financial statements.
</TABLE>
<PAGE>
HAUSER, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JANUARY
31, 1999 AND APRIL 30, 1998 AND FOR THE THREE AND NINE MONTH
PERIODS ENDED JANUARY 31, 1999 AND 1998 (UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited
financial statements contain all adjustments (consisting only
of normal recurring adjustments) necessary to present fairly
the Company's financial position as of January 31, 1999, and
results of its operations and cash flows for the periods ended
January 31, 1999 and 1998. The year-end balance sheet data was
derived from audited financial statements, but does not
include all disclosures required by generally accepted
accounting principles. Certain fiscal 1998 amounts have been
reclassified to conform to the fiscal 1999 presentation.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of these
financial statements. Actual results could differ from those
estimates.
2. INVENTORIES
Raw material, work in process, and finished goods inventories,
which include costs of materials, direct labor and
manufacturing overhead, are priced at the lower of average
cost or market. Write-downs for excess and obsolete
inventories are charged to expense in the period when
conditions giving rise to the write-downs are first
recognized. The Company purchases raw material inventory
during harvest seasons, generally in the spring and fall.
These purchases may take place well in advance of scheduled
production of finished product.
Non-current inventories represent raw materials, work in
process, and finished goods in various stages of completion in
excess of shipments expected to occur in the next fiscal year.
Inventories, at cost, are classified as follows:
<TABLE>
January 31, April 30,
1999 1998
<S> <C> <C>
Raw materials and supplies $ 2,660,218 $ 5,224,750
Work in process 5,216,394 11,763,470
Finished goods 3,797,793 8,515,134
Total before valuation allowance 11,674,405 25,503,354
Less valuation allowance (858,198) (603,829)
Total inventories 10,816,207 24,899,525
Less non-current inventories - 14,787,837
Current portion of inventories $10,816,207 $10,111,688
</TABLE>
Bulk paclitaxel held for sale at a net realizable value of
$7,741,313, not included in the table above, includes finished
goods of $4,486,946 and work-in-process of $3,254,367.
3. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consisted of the following:
<TABLE>
January 31, 1999 April 30, 1998
<S> <C> <C>
Line of Credit $ 6,000,000 $ 1,500,000
Capital Leases 1,153,452 1,067,125
Other 4,000 37,106
Total 7,157,452 2,604,231
Less current portion 6,634,784 1,911,498
Long Term debt $ 522,668 $ 692,733
</TABLE>
Bank Line of Credit - The Company has a $7,000,000 bank line
of credit at the bank's prime interest rate plus 0.75% which
matures on May 15, 1999. The Company expects to pay the
balance of this line of credit from the new credit facility
with Wells Fargo Bank, N.A. as a result of the anticipated
merger with Zuellig Group N.A., Inc. ("Zuellig"). As of
January 31, 1999, the Company was not in compliance with the
financial covenants for the line of credit. The Company has
obtained a waiver from the bank through January 31, 1999.
4. EARNINGS (LOSS) PER SHARE
The Company calculates basic earnings (loss) per share by
dividing the net earnings or loss by the weighted average
number of shares of common stock outstanding. Diluted
earnings (loss) per share is determined by dividing the net
earnings or loss by the sum of (1) the weighted average number
of common shares outstanding and (2) if not antidilutive, the
effect of outstanding warrants and stock options determined
utilizing the treasury stock method. For the three months
ended January 31, 1999, and 1998, 471 and 569,316 options were
excluded from the calculation of diluted earnings (loss) per
share since the result would have been antidilutive. For the
nine months ended January 31, 1999, and 1998, 6,010 and
592,991 options were excluded from the calculation of diluted
earnings (loss) per share since the result would have been
antidilutive.
5. PRODUCT WARRANTY
During the fourth quarter of fiscal 1998, the Company took a
charge to earnings and reserved $1,500,000 in anticipation of
product returns, rework costs, legal and professional fees,
and process development costs related to the discovery of a
contaminant in its bulk Panax ginseng. In the nine months
ended January 31, 1999, the Company charged $1,500,000 against
the reserve for expenses associated with this issue.
6. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income," ("SFAS 130"). SFAS
130 establishes standards for reporting and displaying
comprehensive income and its components in a financial
statement that is displayed with the same prominence as other
financial statements. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. Comprehensive income (loss)
would have been approximately $(26,259,782) and ($647,363) for
the quarters ended January 31, 1999, and 1998, respectively,
and ($27,252,695) and ($1,648,976) for the nine months ended
January 31, 1999, and 1998, respectively.
In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of
an Enterprise and Related Information," ("SFAS 131"). SFAS 131
requires that public companies report information about their
operating segments based on the financial information used by
the chief operating decision maker in their annual financial
statements and requires those companies to report selected
information in their interim statements. SFAS 131 is effective
for fiscal years beginning after December 15, 1997.
In June 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133"). SFAS 133
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded
in other contracts and for hedging activities. It requires
that an entity recognizes all derivatives as either assets or
liabilities in the statement of financial position and
measures those instruments at fair value. SFAS 133 is
effective for fiscal quarters and fiscal years beginning after
June 15, 1999. Management believes that the adoption of SFAS
133 will not have a significant impact on the Company's
financial condition and results of operations.
7. MERGER
On December 9, 1998, the Company announced that it had entered
into an agreement to merge with three subsidiaries (the
"Contributed Subsidiaries") of Zuellig. The agreement calls
for the Company to exchange approximately 10.05 million common
shares of stock for the Contributed Subsidiaries. The
Contributed Subsidiaries are already aligned with the
Company's Natural Ingredients and Technical Services business
units, but are unrelated to the Company's Pharmaceuticals
business unit. Therefore, as a direct result of the decision
to acquire these subsidiaries, the Company has decided to
discontinue its paclitaxel supply activities. The Company's
original intent was to resume production of paclitaxel once
current legal and regulatory issues were resolved.
In the quarter ended January 31, 1999, the Company incurred a
one-time charge to earnings of $25.6 million. The charge to
cost of sales was comprised of a reduction of bulk paclitaxel
inventory ($10.2 million) to its estimated net realizable
value, a write-off of advanced payments made for the purchase
of cultivated yew trees ($4.5 million) and the estimated costs
of terminating cultivar nursery contracts ($5.0 million). The
charge to operating expenses includes the write-off of
paclitaxel related equipment ($4.7 million) and miscellaneous
other related assets consisting primarily of intangibles ($1.2
million). The net realizable inventory was determined based
upon a contract signed on February 11, 1999, to sell bulk
paclitaxel over the next nine months for a sales value of $9.5
million. The cost to terminate the cultivar nursery contracts
was based on the current contractual terms. The specialized
paclitaxel equipment and related intangibles have no
alternative use and were written down to zero. The Company
does not anticipate any significant reduction in workforce as
a result of the decision to cease production of paclitaxel.
The Company should complete its exit of the paclitaxel
business within the next twelve months.
For the proforma effect of the merger and the disposition of
paclitaxel assets, reference is made to the Proxy Statement
filed with the Securities and Exchange Commission on February
12, 1999.
<PAGE>
Part 1, Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
OVERVIEW
On December 9, 1998, the Company announced it had entered into
an agreement to merge with three subsidiaries of
privately-held Zuellig Group N.A., Inc., ("ZGNA") in a
transaction valued at approximately $66 million. The Company
will acquire Zuellig Botanical Extracts, Inc., Wilcox Drug
Company, Inc., and ZetaPharm, Inc., (the "Contributed
Subsidiaries") thereby creating the leading U.S. supplier of
herbal extracts, botanical raw materials and related products
to the fast-growing nutritional industry. Sales for the
Contributed Subsidiaries for the four quarters ended September
30, 1998, exceeded $100 million.
The agreement calls for the Company to exchange approximately
10.05 million of the Company's common shares for the common
stock of the acquired subsidiaries. Upon closing, the
Company's shareholders will own 51.0% of the combined company,
while ZGNA will own 49.0%. The number of shares to be issued
to ZGNA are subject to downward adjustment under certain
circumstances. The Company also will assume approximately
$19.0 million of the Contributed Subsidiaries' bank debt.
Wells Fargo Bank, N.A. will provide a $35.0 million line of
credit and a $10.0 million fixed asset line in support of the
merged companies. The agreement is subject to approval by the
Company's shareholders and customary closing conditions.
Management expects the transaction to close during the
Company's fiscal 1999 fourth quarter and, aside from
transaction related charges, to be accretive to earnings in
fiscal year 2000.
Concurrent with the merger, the Company will discontinue its
paclitaxel activities. In the quarter ended January 31, 1999,
the Company incurred a one-time charge to earnings of $25.6
million. The charge to cost of sales was comprised of a
reduction of bulk paclitaxel inventory ($10.2 million) to its
estimated net realizable value, a write-off of advanced
payments made for the purchase of cultivated yew trees ($4.5
million) and the estimated costs of terminating cultivar
nursery contracts ($5.0 million). The charge to operating
expenses includes the write-off of paclitaxel related
equipment ($4.7 million) and miscellaneous other related
assets consisting primarily of intangibles ($1.2 million).
The net realizable inventory was determined based upon a
contract signed on February 11, 1999 to sell bulk paclitaxel
over the next nine months for a sales value of $9.5 million.
The cost to terminate the cultivar nursery contracts was based
on the current contractual terms. The specialized paclitaxel
equipment and related intangibles have no alternative use and
were written down to zero. The Company does not anticipate
any significant reduction in workforce as a result of the
decision to cease production of paclitaxel. The Company
should complete its exit of the paclitaxel business within the
next twelve months.
The Company's financial performance in the quarter ended
January 31, 1999, excluding the one-time charge to earnings,
remained flat compared to the same quarter in the prior fiscal
year. Compared to the third quarter of fiscal 1998, total
revenues increased 30% to $9,285,126; gross profit was 21% of
total revenues compared to 20% in the same quarter last year;
and total operating expenses were essentially flat. However,
higher interest expense in the third quarter of fiscal 1999
and no tax benefit on operating losses resulted in a net loss
for the quarter, excluding the one-time charge to earnings, of
$659,782, compared to a net loss of $647,363 in the quarter
ended January 31, 1998.
Growth in the sales of Natural Ingredients products was almost
79% compared to the third quarter last year. The increase is
the result of the higher sales of nutraceutical products,
particularly echinacea during the cold and flu season. While
this year-over-year improvement is positive, market conditions
were still soft as evidenced by continued customer excess
inventories first witnessed in the summer months of 1998.
Natural Ingredients revenues in the third quarter of fiscal
1999 were flat compared to the second quarter of fiscal 1999.
Management believes this market condition could persist well
into calendar year 1999. Revenues from Technical Services
increased 4% over the same quarter last year. This slowdown in
growth is the result of manpower limitations that managment is
addressing through aggressive recruiting activities and a
shift of some resources to internal projects on a temporary
basis.
Management believes that the opportunity for revenue and
profit growth from the Natural Ingredients and Technical
Services business units exists, but the Company has not
attained a sustainable level of profitability and there can be
no assurance of when profitability will again be realized.
The following is a discussion of the Company's activities.
NATURAL INGREDIENTS
Nutraceuticals - The term nutraceuticals is used to identify
the broad range of natural, healthful products that are used
to supplement the diet by increasing the total dietary intake
of important nutrients. The U.S. market for herbal and
botanical supplements is estimated to be $2.3 billion, and is
growing at over 20% per year, according to industry sources.
The Company's products include liquid and dry herbal extracts
of Echinacea, Valerian, St. John's Wort, Siberian Ginseng,
Panax Ginseng, Ginger, Goldenseal, Kava Kava, Black Cohosh,
Saw Palmetto and Rosemary (RoseOx[Registered Trademark]).
Management believes that the Company's expertise in the
production of special products from natural sources and its
extensive regulatory experience position it well in this
market.
On December 3, 1997, the Company announced that the value of
signed agreements with PharmaPrint, Inc. ("PharmaPrint") was
expected to be $20 million over a three year period. The
Company continues to manufacture botanical products and
provide research and development services to PharmaPrint to
support its herbal-based pharmaceuticals. Sales of products
and services to PharmaPrint in the nine months ended January
31, 1999, were 11% of total revenues. Management expects the
percentage of sales from PharmaPrint to decline during fiscal
1999 because of fewer sales of herbal products and technical
services as well as growth in sales to other customers.
Natural Food Ingredients - The Company manufactures, markets
and sells natural food ingredients which include natural
flavor extracts and antioxidants. The extracts are marketed
under the Company's brand name NaturEnhance[Registered
Trademark] Food Ingredients. Competition for products in the
flavor extract market is based on flavor quality and
concentration, availability, customer service, and price. Some
of these factors are beyond the direct control of the Company.
The Company also sells products which perform a function in
foods, such as preservatives, stabilizers, colorants,
antioxidants, and nutritional additives. The Company's
objective is to build a quality line of products generating
revenues and profits in the development, manufacture and sale
of natural food ingredients.
Revenues from natural food ingredients products were $411,947
in the third quarter of fiscal 1999. However, management is
unable to predict the timing and amount of future revenues
from natural food ingredients products.
TECHNICAL SERVICES
The Technical Services business unit, comprised of Hauser
Laboratories and Shuster Laboratories, Inc., (the Company's
wholly-owned subsidiary), operates as a single entity in the
research and development, formulation, analysis and project
delivery to fee-for-service clients. During the third quarter
of fiscal 1999, Technical Services revenues increased 4% over
the same quarter last year. The Company concentrated its
efforts on increasing the number of projects related to custom
synthesis and natural products isolation in the
pharmaceuticals industry. Also, Shuster's TAQA[Trademark] and
Foods 2000 initiatives contributed additional revenues during
the quarter.
Management believes that demand for technical services will
continue to increase and expects this business unit to grow.
Ongoing marketing efforts in the Company's Technical Services
business unit are centered on projects that provide
opportunity to employ the collective capabilities of the
Hauser Laboratories and Shuster Laboratories team.
PHARMACEUTICALS
The pending merger with ZGNA will focus corporate resources on
extract products for the dietary supplement market and
Technical Services. As a result, management will discontinue
its paclitaxel supply activities. In the quarter ended January
31, 1999, the Company incurred a one-time charge to earnings
of $25.6 million. The charge to cost of sales was comprised
of a reduction of bulk paclitaxel inventory ($10.2 million) to
its estimated net realizable value, a write-off of advanced
payments made for the purchase of cultivated yew trees ($4.5
million) and the estimated costs of terminating cultivar
nursery contracts ($5.0 million). The charge to operating
expenses includes the write-off of paclitaxel related
equipment ($4.7 million) and miscellaneous other related
assets consisting primarily of intangibles ($1.2 million).
The net realizable inventory was determined based upon a
contract signed on February 11, 1999 to sell bulk paclitaxel
over the next nine months for a sales value of $9.5 million.
The cost to terminate the cultivar nursery contracts was based
on the current contractual terms. The specialized paclitaxel
equipment and related intangibles have no alternative use and
were written down to zero. The Company does not anticipate
any significant reduction in workforce as a result of the
decision to cease production of paclitaxel. The Company
should complete its exit of the paclitaxel business within the
next twelve months.
RESULTS OF OPERATIONS:
Below is a table that summarizes the Company's results of
operations, including the one-time charge of $25.6 million
taken in the quarter ended January 31, 1999, as a percentage
of total revenues.
<TABLE>
Three months ended Nine months ended
January 31, January 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Total revenues 100.0 % 100.0 % 100.0 % 100.0 %
Gross profit (190.7)% 19.6 % (50.1)% 18.1 %
Research & development 3.4 % 7.5 % 4.4 % 8.6 %
Sales and marketing 6.7 % 7.9 % 8.2 % 7.9 %
General and administrative 16.7 % 19.2 % 18.7 % 18.7 %
Write-off of paclitaxel and other related assets 63.5 % - 22.7 % -
Loss from operations (281.1)% (15.1)% (104.1)% (17.1)%
Other income (expense), net (1.7)% 1.1 % (1.0)% 3.0 %
Loss from operations before taxes (282.8)% (14.0)% (105.1)% (14.0)%
Net loss (282.8)% (9.1)% (105.1)% (9.1)%
</TABLE>
Below is a table that summarizes the Company's results of operations, excluding
the one-time charge of $25.6 million taken in the quarter ended January 31,
1999, as a percentage of total revenues.
<TABLE>
Three months ended Nine months ended
January 31, January 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Total revenues 100.0 % 100.0 % 100.0 % 100.0 %
Gross profit 21.4 % 21.6 % 25.8 % 20.5 %
Research & development 3.4 % 7.5 % 4.4 % 8.6 %
Sales and marketing 6.7 % 7.9 % 8.2 % 7.9 %
General and administrative 16.7 % 21.3 % 18.7 % 21.1 %
Loss from operations (5.4)% (15.1)% (5.4)% (17.1)%
Other income (expense), net (1.7)% 1.1 % (1.0)% 3.0 %
Loss from operations before taxes (7.1)% (14.0)% (6.4)% (14.0)%
Net loss (7.1)% (9.1)% (6.4)% (9.1)%
</TABLE>
REVENUES. A breakout of the Company's revenues by product and service is as
follows:
<TABLE>
Three months Nine months ended
ended January 31, January 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Natural ingredients products (includes $3,915,688 $2,184,845 $10,257,581 $ 7,512,678
nutraceuticals, natural flavor extracts
and food ingredients)
Technical services (includes Hauser 4,471,668 4,283,919 12,784,147 10,062,162
Laboratories and Shuster Laboratories, Inc.)
Pharmaceuticals 897,770 649,405 2,893,845 3,187,276
$9,285,126 $7,118,169 $25,935,573 $20,762,116
</TABLE>
<PAGE>
Total revenues increased 30% to $9,285,126 in the third
quarter of fiscal 1999, from $7,118,169 in the third quarter
of fiscal 1998, the result of higher revenues in each of the
Company's business units. For the nine months ended January
31, 1999, total revenues increased 25% over the same period
last year, with increased revenues in Natural Ingredients and
Technical Services offset by a decrease in Pharmaceuticals
revenues.
Natural Ingredients:
Natural ingredients product revenues increased 79% and 36% in
the three and nine months ended January 31, 1999,
respectively, as compared to the same periods in the prior
fiscal year.
The increases are primarily attributable to success in selling
nutraceutical products. In the quarter ended January 31, 1999,
nutraceuticals revenues were $3,503,741, an increase of
$1,487,263, or 74%, over revenues of $2,016,478 in the same
quarter last year. In the nine months ended January 31, 1999,
nutraceuticals revenues were $9,266,356, an increase of 36%
over revenues of $6,814,235 in same period last year.
Sales of natural food ingredients were $411,947 in the quarter
ended January 31, 1999, an increase of 145% over revenues of
$168,367 in the quarter ended January 31, 1998. For the nine
months ended January 31, 1999, revenues from these products
were $991,225, a 42% increase over revenues of $698,443 in the
nine months ended January 31, 1998. These increases were the
result of higher sales of rosemary extract products sold into
the beverage industry.
Technical Services:
Technical Services revenues were $4,471,668 in the quarter
ended January 31, 1999, compared to $4,283,919 in the quarter
ended January 31, 1998, an increase of 4%. This slowdown in
growth is the result of manpower limitations that management
is addressing through aggressive recruiting activities. In
the nine months ended January 31, 1999, Technical Services
revenues were $12,784,147, a 27% increase over revenues of
$10,062,162 for the same period last year. These increases
were because of ongoing natural products, custom synthesis and
drug development projects at Hauser Laboratories, as well as
increasing revenues from Shuster Laboratories attributable to
the TAQA[Trademark] program and the Foods 2000 initiative.
Pharmaceuticals:
Revenues from pharmaceutical products in the quarter ended
January 31, 1999, increased 38% to $897,770, compared to
$649,405 in the same quarter one year ago. This is the result
of contractual royalty revenues associated with the August 13,
1998 signing of a supply contract with Immunex to provide them
and their collaborative partner IVAX, with bulk paclitaxel. In
the quarter ended January 31, 1999, these high-margin revenues
were $291,000. For the nine months ended January 31, 1999,
revenues declined 9% from the same period one year ago because
of lower sales of paclitaxel.
GROSS PROFIT. Total gross profit in the three and nine
months ended January 31, 1999, includes a one-time charge of
$19.7 million for the write-down of paclitaxel related
inventory to its estimated net realizable value, a write-down
of advance payments made for the purchase of cultivated yew
trees, and estimated costs for terminating yew tree cultivar
contracts. This is part of the total charge taken in the
third quarter of fiscal 1999 of $25.6 million to reflect the
Company's decision to exit the paclitaxel business.
Excluding the one-time charge, gross profit for the Company
was 21.4% and 21.6% of total revenues in the quarters ended
January 31, 1999, and 1998, respectively, and 25.8% and 20.5%
of total revenues in the nine month periods ended January 31,
1999, and 1998, respectively. The increases are the result of
improved efficiencies in the manufacturing process. In the
three and nine month periods ended January 31, 1999, gross
profit for the natural products industry segment was 18.0% and
24.4% of total natural product revenues, respectively. In the
three and nine month periods ended January 31, 1998, gross
profit for the natural products industry segment was 2.6% and
8.6% of total natural product revenues, respectively. The
increases were the result of higher sales volume of
nutraceutical product sales which resulted in improved
efficiencies in manufacturing and therefore lower production
costs. In the third quarter of fiscal 1999, the Company did
experience higher manufacturing costs related to lack of high
quality biomass, which negatively impacted gross margins from
nutraceutical products. Programs have been implemented to
address this issue.
Gross profit for technical services in the three months and
nine months ended January 31, 1999, and 1998, was 25.1% and
27.4%, respectively, as compared to 30.8% and 28.3% in the
three and nine months ended January 31, 1998, respectively.
These changes are the result of a change in the mix of
technical service projects, which can alter gross profit
quarter-to-quarter.
OPERATING EXPENSES. Research and development expenses were
$318,581 in the quarter ended January 31, 1999, compared to
$536,128 in the quarter ended January 31, 1998, a decrease of
almost 41%. Research and development expenses in the nine
months ended January 31, 1999, were $1,136,479, a decrease of
37% compared to the same period last year. These decreases in
research and development costs were because some R&D employees
were deployed to work on billable projects in the Technical
Services business unit, the result of increasing customer
projects. As new staff is hired in Technical Services, the R&D
personnel will go back to their research assignments. The
Company intends to actively continue research and development
efforts, and expects research and development expenses to
return to their historical levels.
Sales and marketing expenses in the quarter ended January 31,
1999, were $624,314, an increase of $62,619, or 11% over the
same three-month period last year. Sales and marketing
expenses in the nine months ended January 31, 1999, were
$2,120,511, an increase of $487,110, or 30% over the same
nine-month period last year. The increases represent the
Company's accelerated efforts to market new products,
particularly in the areas of nutraceuticals and natural food
ingredients. The Company added new staff and increased
spending on advertising and marketing materials for launches
of new products, such as TT550[Trademark], a ginger-based
product for motion sickness. Further, higher commission costs
were incurred as a result of higher revenues.
General and administrative expenses were $1,546,238 in the
third quarter of fiscal 1999, a 2% increase compared to
general and administrative expenses in the same quarter of
fiscal 1998. For the nine months ended January 31, 1999,
general and administrative costs were $4,848,124, an 11%
increase over the same period last year. These increases are
the result of staff additions and additional depreciation
expense on certain new leasehold improvements.
In the three and nine months ended January 31, 1999, the
Company recognized a charge to operating expenses of $5.9
million as part of the total write-down taken in the third
quarter of fiscal 1999 of $25.6 million to reflect the
Company's decision to exit the paclitaxel business. This
operating expense charge includes the write-down of paclitaxel
related equipment and intangibles.
INTEREST INCOME/EXPENSE. Interest income was $29,713 and
$79,521 in the three and nine months ended January 31, 1999,
respectively, compared to $81,363 and $281,240 in the three
and nine months ended January 31, 1998, respectively. The
decrease is the result of less capital available for
investment. Interest expense in the three and nine-month
periods ended January 31, 1999, was $190,653 and $370,131,
respectively, compared to $3,380 and $10,043 in the three and
nine-month periods ended January 31, 1998, respectively. The
increases reflect the Company's use of its line of credit
during fiscal 1999.
OTHER INCOME. Other income was $42,037 and $361,461 for the
nine months ended January 31, 1999, and 1998, respectively.
The decrease in other income is due to the sale of certain
investments held by the Company in fiscal 1998 and the
associated gains from these sales.
INCOME TAXES. The Company has not benefited its net loss for
the three and nine months ended January 31, 1999, because of
uncertainty regarding its realizations. Management is
continuing to evaluate on a quarterly basis the realizability
of the deferred assets on the balance sheet. The deferred tax
assets are recorded net of a valuation allowance of
approximately $27.8 million at January 31, 1999. Management
believes it is more likely than not that these assets, net of
the valuation allowance, will be realized by return to
profitability, although there can be no assurance of when
profitability will be attained. Management's estimate of the
deferred tax assets may change in the future.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Total unrestricted cash and cash equivalents were
$4,124,954 at January 31, 1999, compared to $2,081,796 at
April 30, 1998. The increase is primarily the result of
increased borrowings against the bank line of credit and a
deposit related to the sale of inventory, offset by purchases
of raw material inventory and the acquisition of capital
equipment.
The Company has a revolving line of credit totaling $7,000,000
which expires on May 15, 1999. As of January 31, 1999, the
Company had borrowed $6,000,000 under this line and $731,084
had been applied against letters of credit for the purchase of
raw materials. The Company expects to pay the balance of this
line of credit from the new credit facility with Wells Fargo
Bank, N.A. as a result of the anticipated merger with Zuellig.
Under the terms of the loan agreement, all assets of the
Company, with the exception of intangibles, are secured by the
bank. Additionally, the Company has a lease credit line with a
bank of $500,000; as of January 31, 1999, $350,861 was
available for use under this line. The line of credit requires
the Company to maintain a balance equal to one year's debt
service of the outstanding line in a restricted account. This
account can only be used to reduce the line of credit or pay
interest. The Company does not use derivatives to manage its
interest rate risk.
The merger agreement announced on December 9, 1998, is
expected to provide the Company with necessary capital to fund
operations. As part of the merger, Wells Fargo Bank, N.A. will
provide a $35.0 million line of credit and a $10.0 million
fixed asset line in support of the merged companies.
Therefore, management believes that current cash reserves and
the revolving line of credit are sufficient to meet the
Company's short-term liquidity needs, and the Wells Fargo N.A.
lines of credit will be sufficient to fund anticipated merger
and integration costs. Further, management believes that funds
generated from business opportunities discussed earlier, will
be sufficient to meet the liquidity needs of the Company on a
long-term basis.
In the process of exiting the paclitaxel business, management
intends to negotiate early settlements with its growers of
cultivated yew trees. An estimate of these settlement costs
has been included in the one-time charge to earnings noted
before, but the exact amount is uncertain at this time. The
cost to terminate these contracts is expected to be funded
from the sale of paclitaxel assets.
WORKING CAPITAL. Working capital as of January 31, 1999, was
$12,922,743 compared to $16,671,596 as of April 30, 1998. This
decrease is primarily attributable to the estimated costs
accrued to exit the paclitaxel business.
PROPERTY AND EQUIPMENT. Purchases of property and equipment
in the first nine months of fiscal 1999, totaled $1,917,831.
This was the result of new construction and improvements to
manufacturing equipment for the production of nutraceuticals
and food ingredients products. The Company also entered into
new capital leases totaling $482,627 during the nine months
ended January 31, 1999, primarily for laboratory equipment
used in technical services.
YEAR 2000. The Year 2000 problem is the result of computer
systems and programs recognizing a date using "00" as the year
1900 rather than the year 2000, which could result in
miscalculations or system failures. The term "Year 2000
compliant" means that all computers, computer systems, and
software, including all firmware, microcode, and embedded
software, will accurately and consistently process date data
for all dates in the twentieth and twenty-first centuries
(including leap year considerations and data) without any loss
of functionality or performance. This processing includes
calculating, comparing, sequencing, storing, retrieving,
transmitting, receiving, sorting, and displaying date data
when computers, computer systems, or software are used as
stand-alone systems, or in combination with other software or
hardware. These computer systems will function without
interruption before, during, and after January 1, 2000,
without any change in operation or performance associated with
the advent of the new century. Additionally, these computer
systems will respond to date data input in a way that resolves
any ambiguity as to century in a defined and predetermined
manner; and store and provide output of date data in ways that
are unambiguous as to century. The term "software" includes,
but is not limited to, firmware, embedded software, and
microcode.
The Company has undertaken a thorough review of its current
information technology ("IT") and non-IT systems. This review
is expected to be a continuing process. Initial results of the
testing and identification phase of the Company's core systems
indicate that approximately one third of its desktop computer
systems (approximately 100 machines) and less than one fourth
of its other microprocessor or microcontroller-based equipment
(approximately 20 machines) are in need of replacement for
Year 2000 compliance. The replacement of these machines is
expected to be completed by October 1999. Cost of replacement
is not expected to exceed $200,000. As the review progresses,
this estimate could be revised. For the nine months ended
January 31, 1999, the Company had expensed a total of $152,000
directly related to Year 2000 remediation efforts.
As another part of Year 2000-compliance review, the Company
has also undertaken a logical process of updating or deleting
software systems known to have problems handling two-digit
date information properly. The Company has completed the
testing and identification phase of the review of its core
applications supporting accounting, human resources and
manufacturing processes. Upgrade or replacement of these
applications is expected to be completed in the spring of
1999. The net cost of these upgrades is not expected to exceed
an additional $50,000. The review of other software
applications is underway at this time.
The Company has also implemented a Year 2000 compliance
inquiry program with its current and potential major vendors
and suppliers as to both the status of their equipment and
systems and any delays they anticipate in supplying goods and
services to the Company. Management expects that this inquiry
program will be completed by April 1, 1999. If a third party's
systems are not Year 2000 compliant, that problem will be
addressed directly with that third party.
Management recognizes that failure to meet all Year 2000
issues could result in significant degradation of the
Company's ability to provide laboratory testing, to
manufacture products, and to invoice customers and pay
vendors. Management is addressing these issues directly,
aggressively pursuing upgrading all mission-critical systems.
Management foresees the likely internal "worst case scenario"
to be limited in scope, and could include a very small number
of machines which may not handle date data correctly. In this
event, processing of data will be shifted to other machines
until replacement can be accomplished. No significant
degradation of data collection or processing is anticipated.
The other major risk to normal operations could result from
the inability of our suppliers to provide materials, products
and services. The Company has begun identifying alternative
sources or suppliers to alleviate such circumstances.
If, because of unforeseen circumstances, installed hardware
and software systems cease to function on January 1, 2000, a
disaster recovery contingency plan (currently being drafted)
will be activated to handle the emergency situation. The
disaster recovery plan is expected to include a disaster
recovery computer center with sufficient equipment to allow
the Company to continue data processing operations that will
operate on a 24-hour-a-day basis until normal operations can
be resumed. The Company has established relationships with
several computer system vendors who will be contracted to
provide the necessary hardware and software to support the
contingency plan.
The Company plans to devote the necessary resources to resolve
all significant Year 2000 issues in a timely manner.
SEASONALITY. The Company has experienced seasonality in its
sales of nutraceutical products. Lower demand for these
products is evident in the summer months and tends to increase
in the fall and winter months.
FORWARD LOOKING STATEMENTS
Certain oral and written statements of management of the
Company included in the Form 10-Q and elsewhere, may contain
forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are intended to be
covered by the safe harbors created thereby. These statements
include the plans and objectives of management for future
operations. The forward-looking statements included herein and
elsewhere are based on current expectations that involve
judgments which are difficult or impossible to predict
accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any
of the assumptions could be inaccurate and, therefore, there
can be no assurance that the forward-looking statements will
prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements, the
inclusion of such information should not be regarded as a
representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
Part 2.
Item 1. Legal Proceedings.
In January 1999, the Company was served with a Demand for
Arbitration by a supplier of raw materials. The Demand
alleges that the Company has breached its contract by failing
to pay for certain raw materials. Management believes that
the claims are unfounded, has retained legal counsel and
intends to vigorously defend its position in arbitration.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.1 Paclitaxel Supply Agreement
dated February 3, 1999 (filed with confidential
treatment requested)
(b) Reports on Form 8-K.
On December 14, 1998, the Company filed a
Form 8-K which recited its press release regarding
the Zuellig transaction.
<PAGE>
FORM 10 Q
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
HAUSER, INC.
Date: March 16, 1999
/s/ Dean P. Stull
Chairman of the Board, Chief Executive Officer, and
President
Date: March 16, 1999
/s/ David I. Rosenthal
Chief Financial Officer and Treasurer
Exhibit 10.1
[ ] Paclitaxel Supply Agreement
THIS SUPPLY AGREEMENT ("Agreement"), dated February 3, 1999,
is entered into by and between [ ], a [ ] corporation
("[ ]"), and HAUSER, INC., a Colorado corporation
("Supplier").
WHEREAS, Supplier is a manufacturer of paclitaxel bulk drug
substance, has determined to exit such manufacturing business,
has in stock a quantity of the raw material used to make
paclitaxel bulk drug substance, and desires to use some of
such stock to manufacture and supply to [ ] paclitaxel
bulk drug substance; and
WHEREAS, [ ] desires to have Supplier manufacture and
supply paclitaxel bulk drug substance on and subject to the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions set forth in this Agreement,
and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties
agree as follows:
1. Definitions
1.1 Definitions. In addition to terms defined elsewhere in
this Agreement, the terms set forth below have the meanings
indicated for the purposes of this Agreement.
"Affiliate" means any Person which controls, is controlled by
or is under common control with [ ] or Supplier, as the
case may be. The term "control" means the ownership, directly
or indirectly, of 50 percent or more of the voting stock or
equity interest of the subject Person.
"Designated Period" means the period commencing with the date
of this Agreement and ending on the third anniversary of the
Manufacture Date of the last lot of substance delivered by
Supplier to [ ] under this Agreement.
"DMF" means a Drug Master File for the Substance maintained by
Supplier on file with a Regulatory Authority.
"FDA" means the Food and Drug Administration or any successor
agency of the United States government.
"FDCA" means the United States Food, Drug and Cosmetic Act of
1938, as amended from time to time, and the regulations and
guidelines promulgated pursuant thereto.
"GMP" means "good manufacturing practices," as that term is
defined under the FDCA.
"Manufacture Date" means, with respect to any lot of
Substance, the date of manufacture of such lot as coded in the
label for that lot in accordance with Supplier?s normal
labeling practices.
"Person" means any natural person, corporation, unincorporated
organization, partnership, association, joint stock company,
joint venture, trust or government, or any agency or political
subdivision of any government, or any other entity.
"Product" means a finished dosage form pharmaceutical product
for human consumption containing the Substance as an active
ingredient.
"Protocols" means the analytical methods and procedures
referred to in Schedule 1 and Supplier Protocol [ ], as
such analytical methods and procedures have been provided to [
] in writing prior to the execution of this Agreement.
"Regulatory Authorities" means the FDA and its foreign
equivalents, as applicable.
"Specifications" means the specifications for Substance
attached as Schedule 1 attached hereto and incorporated
herein, as the same may be amended from time to time by mutual
agreement of the parties.
"Substance" means paclitaxel bulk drug substance manufactured
and released by Supplier in accordance with GMP which
satisfies the Specifications.
2. Supply
2.1 Agreement to Supply. On and subject to the terms and
conditions of this Agreement, Supplier shall manufacture and
sell to [ ], and [ ] shall purchase from Supplier, an
aggregate of [ ] kilograms of Substance in such quantities
and at such times as are specified in Schedule 2 hereto.
2.2 Purchase Price; Escrow.
(a) The purchase price to be paid by [ ] to Supplier
for the Substance conforming to this Agreement shall be US$[
] per kilogram delivered. The purchase price shall be paid
as provided in Section 2.4(b), provided that a portion of the
purchase price shall be paid pursuant to escrow as provided in
Section 2.2(b).
(b) (i) Concurrently with the execution of this
Agreement, the parties shall execute and deliver an Escrow
Agreement substantially in the form of Exhibit A hereto, with
[ ], or such other financial institution as the parties
may agree, as the Escrow Agent; and [ ] shall deposit the
sum of US$[ ] (representing the purchase price for the
last US$[ ] of Substance to be delivered by Supplier to [
] pursuant to this Agreement) with the Escrow Agent to hold
as the "Escrowed Funds" in accordance with the Escrow
Agreement. The Escrow Agreement provides that the Escrow
Agent shall make certain releases and deliveries on the tenth
banking day following receipt from Supplier (as "Seller") of a
"Delivery Notice" as prescribed in the Escrow Agreement
unless, prior to that day, the Escrow Agent has received a
"Claim Notice" from [ ] (as "Buyer") as prescribed in the
Escrow Agreement.
(ii) Supplier hereby agrees with [ ] that Supplier will
not deliver a Delivery Notice to the Escrow Agent under the
Escrow Agreement prior to the earliest of the following
events?
(A) Supplier has delivered to [ ] all of the Substance
required to be delivered by Supplier under, and in accordance
with, this Agreement, and at least 30 days have elapsed after
the last such delivery, and either (1) [ ] has not given
Supplier notice of nonconformity as to any of such Substance
pursuant to Section 2.4(a) or (2) all of such Substance as to
which [ ] has given such notice of nonconformity has been
determined to be conforming pursuant to Section 2.4(a); or
(B) Supplier has tendered for delivery to [ ] all of
the Substance required to be tendered by Supplier under this
Agreement (all of which Substance is in conformance with the
requirements therefor under this Agreement) to a date upon
which [ ] repudiates its obligations under this Agreement
or otherwise by action or omission legally excuses Supplier
from further performance under this Agreement, and such
repudiation or legal excuse, as the case may be, remains in
effect and does not arise out of any breach by Supplier.
Credits and refunds given by Supplier as contemplated in this
Agreement shall be included in determining the quantities of
Substance that Supplier is required to deliver or tender for
delivery under this Agreement. Seller agrees to give to [
] a copy of any Delivery Notice that it gives to the Escrow
Agent, no later than the time the Delivery Notice is given to
the Escrow Agent.
(iii) [ ] hereby agrees with Supplier that it will not
deliver a Claim Notice to the Escrow Agent under the Escrow
Agreement unless, to the time the Claim Notice is delivered to
the Escrow Agent, neither of the following has occurred?
(A) Supplier has delivered to [ ] all of the Substance
required to be delivered by Supplier under, and in accordance
with, this Agreement, and at least 30 days have elapsed after
the last such delivery, and either (1) [ ] has not given
Supplier notice of nonconformity as to any of such Substance
pursuant to Section 2.4(a) or (2) all of such Substance as to
which [ ] has given such notice of nonconformity has been
determined to be conforming pursuant to Section 2.4(a);
(B) Supplier has tendered for delivery to [ ] all of
the Substance required to be tendered by Supplier under this
Agreement (all of which Substance is in conformance with the
requirements therefor under this Agreement) to a date upon
which [ ] repudiates its obligations under this Agreement
or otherwise by action or omission legally excuses Supplier
from further performance under this Agreement, and such
repudiation or legal excuse, as the case may be, remains in
effect and does not arise out of any breach by Supplier.
The parties agree that any dispute as to either party's rights
to any portion of the Escrowed Funds may be resolved by
arbitration pursuant to Section 8.14, and each party shall
participate in providing such instructions to the Escrow
Agent, with respect to the Escrowed Funds, as may be required
by award in such arbitration. Upon delivery of any portion of
the Escrowed Funds to Supplier, such delivered portion shall
be credited toward [ ]'s obligations to pay the purchase
price.
2.3 Shipment. Sales of the Substance shall be F.O.B. [
]'s [ ] plant or such other location within the United
States of America as may be designated by [ ]. Supplier
will bear all risk of loss, delay or damage in transit until
the Substance is actually received by [ ]. Supplier shall
pay all costs related to the delivery of the Substance to [
], including, without limitation, all freight, insurance and
handling charges. Title and risk of loss to the Substance
shall pass to [ ] upon [ ]?s receipt of the Substance
at its designated delivery destination.
2.4 Product Inspection; Payment.
(a) All Substance received by [ ] shall be subject to
inspection and testing by [ ] within 30 days following [
]?s receipt thereof. When the results of any testing
conducted within such period indicate that a lot of delivered
Substance does not meet the Specifications or any other
provisions of this Agreement, [ ] will give Supplier
notice thereof, identifying with particularity the claims of
nonconformance, within the applicable 30-day period. Supplier
shall have 30 days after receipt of [ ]?s notice within
which to give notice to [ ] whether Supplier accepts or
rejects [ ]?s claims of nonconformance. Any dispute
arising under this Section 2.4(a) shall be resolved by
re-testing by a qualified testing laboratory acceptable to
both parties. The cost of the re-testing shall be borne by [
] if the lot is shown to be conforming, and by Supplier if
the lot is shown to be nonconforming. Substance which is
determined to be nonconforming pursuant to the foregoing
provisions may be rejected and returned to Supplier at
Supplier's expense including transportation and handling
costs, provided that [ ] returns the nonconforming
Substance to Supplier in accordance with Supplier's
instructions; provided, however, that, if Supplier does not
provide such instructions within 30 days after [ ]'s
notice of rejection, or the testing laboratory's determination
of nonconformity, as the case may be, then [ ] may dispose
of the nonconforming substance in such manner as it
determines, at Supplier's expense. Within 60 days after
rejection of Substance by [ ], or determination of
nonconformity by the testing laboratory, as the case may be,
Supplier shall, at its option, either (i) make replacement
delivery of conforming Substance at no cost or charge to [
] or (ii) issue full refund or credit to [ ] for the
amount paid or invoiced for the nonconforming Substance.
Supplier shall have no further obligation to deliver
replacement quantities of Substance as to which it has issued
refund or credit, and the total quantity purchasable by [
] under this Agreement shall be reduced accordingly. Payment
for Substance shall not be deemed acceptance of such
Substance.
(b) [ ] shall pay Supplier the purchase price for
conforming or otherwise accepted Substance delivered to [
] no later than 30 days after the later of (i) [ ]'s
receipt of the Substance or (ii) determination of conformity
by the testing laboratory as contemplated in Section 2.4(a),
as the case may be. Notwithstanding the foregoing, the
purchase price for the last US$[ ] of Substance to be
delivered by Supplier to [ ] shall be deposited in escrow
by [ ] as contemplated in Section 2.2(b) and, upon
delivery of any portion of the Escrowed Funds to or for the
benefit of Supplier as contemplated in Section 2.2(b), such
delivered portion shall be credited toward [ ]'s
obligations to pay the purchase price.
3. Regulatory Matters and Manufacturing Standards
3.1 Maintenance of Drug Master File.
(a) During the Designated Period, Supplier shall, at
Supplier's expense, (i) [ ].
(b) Supplier shall not make any change to any DMF without
the prior written approval of [ ], which approval shall
not be unreasonably withheld. Supplier shall provide [ ]
with one copy of the non-proprietary portion of each DMF and
any non-proprietary updates and amendments thereto promptly
upon completion thereof. Promptly upon [ ]'s request,
Supplier agrees to provide [ ] with any required
authorization to allow all applicable Regulatory Authorities
to access, review and refer to the DMFs in connection with any
regulatory submissions or product applications by [ ] and
its designees. At the request of [ ] or any Regulatory
Authority, Supplier shall execute and deliver to [ ], or
to the Regulatory Authority with a copy to [ ], as
applicable, any further documents that [ ] or the
Regulatory Authority may request to evidence the rights of [
] hereunder.
(c) After Supplier has delivered [ ] kilograms of
conforming Substance to [ ] and has fully performed and
completed its obligations under 3.1(a)(iii) above, Supplier,
at its option, may assign and transfer any or all of the DMFs
to [ ] (or its designee), provided that such assignment
and transfer can be made without any material adverse effect
on [ ], the Product, approval of the Product, the DMFs or
[ ]?s marketing, sale or use of the Substance or Product,
and [ ] will cooperate to accomplish such assignment and
transfer.
(d) During the Designated Period, Supplier shall monitor
the stability of the Substance and comply with the DMF as on
file with the FDA in accordance with its regulatory
obligations under the FDCA and in accordance with Schedule 1.
Without limiting the generality of the foregoing, during the
Designated Period and thereafter for the period ending with
the fifth anniversary of the Manufacture Date of the last lot
of Substance delivered by Supplier to [ ] under this
Agreement (the period beginning with the end of the Designated
Period and ending on such fifth anniversary being the
?Extended Period?), Supplier shall sample the paclitaxel bulk
drug substance that it manufactures in compliance with
Supplier Protocol [ ], will monitor stability of such
samples in accordance with Supplier Protocol [ ], and
will notify [ ] promptly if, during the Designated Period
or the Extended Period, any of such samples fails to meet the
stability parameters of Supplier Protocol [ ]; provided,
however, that Supplier may, at any time following the
expiration of the Designated Period but before the expiration
of the Extended Period, transfer all of such samples and
stability data to [ ], so that [ ] may continue to so
monitor the stability of such samples. Supplier represents to
[ ] that Supplier Protocol [ ] is in conformity with
the requirements of the International Conference on
Harmonization guidelines with respect to stability testing for
active drug substances. Nothing in this Section 3.1(d) shall
be deemed to constitute a representation or warranty by
Supplier as to the stability or any other characteristic of
the Substance, the only such warranties being made as provided
in Section 4.1.
3.2 Lot Certifications. Supplier shall perform full
release testing for each lot of Substance delivered to [ ]
and shall obtain and retain a representative sample from each
such lot. Supplier shall assay and analyze each such lot in
strict accordance with the Protocols. Supplier shall provide
to [ ], with each delivery of Substance, a copy of the
certificate of analysis for each lot included in the delivery,
together with such other information as [ ] shall
reasonably request in connection therewith.
3.3 Notification of Adverse Events. During the Designated
Period, Supplier shall, immediately upon becoming aware
thereof, inform [ ] of (a) any pending or threatened
litigation, governmental investigation, proceeding or action
involving the Substance or Supplier's manufacturing facilities
for the Substance, (b) any defective, adulterated or
misbranded Substance, (c) any information suggesting that the
Substance is defective or fails to meet the Specifications.
4. Warranties and Indemnity
4.1 Representations, Warranties and Covenants. Supplier
makes to [ ] the representations, warranties and covenants
set forth in Schedule 3 and also represents, warrants and
covenants to [ ] that: (a) Supplier shall obtain and
maintain all necessary permits, registrations and licenses
required to manufacture and supply the Substance under this
Agreement, including without limitation registration of the
establishment where the Substance is manufactured and stored;
(b) Supplier will comply with all laws, rules and regulations,
including all GMP, applicable to the manufacture, labeling,
packaging, storage and shipment of the Substance in effect
from time to time; (c) the Substance supplied pursuant to this
Agreement shall fully conform with the quality and other
requirements of the Specifications; (d) the Substance shall
not be adulterated or misbranded within the meaning of the
FD&C Act, and shall not be a product that would violate any
section of the FD&C Act if introduced into interstate
commerce; (e) during the Designated Period, the Substance
shall be stable as contemplated in Supplier Protocol [ ],
with delivery to by Supplier to [ ] at ambient
temperature, provided that it is continuously stored,
following such delivery to [ ], in accordance with the
recommended storage conditions specified in Supplier Label [
] (as such label has been provided to [ ] in writing
prior to the execution of this Agreement) at temperatures
within the range of [ ]; (f) the Substance and the sale or
use of the Substance by [ ] or its Affiliates will not
infringe any patent, trademark, copyright or other rights of
third parties; and (g) Supplier has full right and authority
to enter into this Agreement without the consent or approval
of any third party.
4.2 Indemnity by Supplier. Supplier shall indemnify and
hold [ ] and its Affiliates and their respective officers,
directors and employees harmless from and against any and all
liability, damage, loss, cost or expense (including attorney's
fees and expenses) arising out of or resulting from any third
party claims made or suits brought against any of such parties
which arise or result from the breach by Supplier of any of
Supplier?s representations, warranties, covenants and
agreements under this Agreement, except to the extent such
liability, damage, loss, cost or expense arises out of or
results from the breach by [ ] of any of [ ]'s
representations, warranties, covenants and agreements under
this Agreement, or from the negligence or willful misconduct
of [ ].
4.3 Indemnity by [ ]. [ ] shall indemnify and hold
Supplier and its Affiliates and their respective officers,
directors and employees harmless from and against any and all
liability, damage, loss, cost or expense (including attorney's
fees and expenses) arising out of or resulting from any third
party claims made or suits brought against any of such parties
which arise or result (a) from [ ]'s use or sale of
Product or (b) from the breach by [ ] of any of [ ]?s
representations, warranties, covenants and agreements under
this Agreement, except to the extent such liability, damage,
loss, cost or expense arises out of or results from the breach
by Supplier of any of Supplier?s representations, warranties,
covenants and agreements under this Agreement, or from the
negligence or willful misconduct of Supplier.
5. Confidentiality
5.1 Confidential Information. During the period from the
date hereof through the tenth anniversary of the date hereof,
each party shall keep confidential and not disclose to others
or use for any purpose, other than as authorized by this
Agreement, all confidential information which was provided to
it by the other party or its Affiliates or their respective
employees or representatives ("Confidential Information"). The
restrictions of this Section 5 shall not apply to any
Confidential Information which (a) is already known to the
recipient at the time of disclosure; (b) is or becomes public
knowledge through no fault of the recipient; (c) is received
from a third party having the lawful right to disclose the
information; (d) subject to Section 5.2, is required by law to
be disclosed; (e) is required to be disclosed in order to
exercise rights granted or retained pursuant to this
Agreement; or (f) is required to be disclosed by [ ] in
connection with any applications filed with Regulatory
Authorities or in connection with its marketing and sale of
the Product.
5.2 Required Disclosure. If either party is required under
applicable law to disclose Confidential Information by any
court or to any governmental authority, the party required to
disclose the Confidential Information shall, prior to such
disclosure, notify the other party of such requirement and all
particulars related to such requirement. The notified party
shall have the right, at its expense, to object to such
disclosure and to seek confidential treatment of any
Confidential Information to be so disclosed on such terms as
it shall determine, and the other party shall fully cooperate
with the notified party in this regard.
5.3 Return of Confidential Information. This Agreement
does not constitute the conveyance of ownership with respect
to or a license to any Confidential Information. Upon the
expiration or termination of this Agreement for any reason,
each party agrees to return to the other party all
documentation or other tangible evidence or embodiment of
Confidential Information belonging to the other party.
6. Inspections
6.1 Regulatory Inspections. Supplier agrees to promptly
notify [ ] of any inspections by any Regulatory Authority
which pertain to the Substance or the premises where the
Substance is manufactured, and shall promptly provide to [
] copies of all correspondence, reports, notices, findings and
other material pertinent to such inspections, as they are
received or produced by Supplier.
6.2 Access. [ ] shall have the right, upon notice to
Supplier and during normal business hours, not more than once
during any calendar year, to inspect and audit Supplier's
facilities at which the Substance is manufactured, packaged or
stored, in order to ensure that the Substance is being
manufactured, packaged and stored in compliance with the
Specifications, current GMP and all applicable laws and
regulations. During such inspections, Supplier shall permit [
] to contact and question the appropriate knowledgeable
personnel of Supplier responsible for manufacturing, packaging
and storing the Substance. Supplier shall make available to [
] and its duly authorized representatives and agents all
books, records and documents which in any way pertain to the
manufacture of the Substance or quality control testing and
compliance procedures.
7. Product Recall
7.1 Product Recall. If, during the Designated Period, (a)
any Regulatory Authority shall rightfully seize any of the
Substance or Product or shall request or require the recall of
any of the Product or (b) [ ] deems it necessary to
initiate a voluntary recall of any Product, and if the cause
or reason for any such seizure or recall relates to the
Substance and (in the case of a seizure or recall by reason of
the action of a Regulatory Authority) the Regulatory Authority
has issued a warning letter to Supplier, then Supplier shall
be responsible for and shall indemnify and hold [ ] and
its Affiliates and their respective officers, directors and
employees harmless from and against any and all claims,
losses, damages and liabilities, including attorneys fees and
expenses, relating to such recall and seizure, including,
without limitation, the cost of notifying customers, the costs
associated with the shipment of recalled Product from [
]'s customers, the cost of the Substance and all credits
extended to [ ]'s customers as a result thereof, and all
other costs of effecting such seizure or recall.
8. Miscellaneous.
8.1 Notice. All notices, requests, consents and other
communications required or permitted under this Agreement
shall be in writing and shall be (as elected by the person
giving such notice) hand delivered by messenger or courier
service, telecommunicated, or mailed by registered or
certified mail (postage prepaid), return receipt requested,
addressed to:
If to [ ]: [ ]
[ ]
[ ]
[ ]
[ ]
[ ]
with a copy to: [ ]
[ ]
[ ]
[ ]
[ ]
[ ]
If to Supplier: [ ]
[ ]
[ ]
[ ]
[ ]
[ ]
Each such notice shall be deemed delivered (1) on the date
delivered if by personal delivery, (2) on the date
telecommunicated if by facsimile, and (3) on the date upon
which the return receipt is signed or delivery is refused or
the notice is designated by the postal authorities as not
deliverable, as the case may be, if mailed. By giving to the
other parties at least 15 days written notice thereof, the
parties and their respective successors and permitted assigns
shall have the right from time to time to change their
respective addresses.
8.2 Further Assurances. Each party agrees to execute and
deliver any and all such other and additional instruments and
documents and do any and all such other acts and things as
may be necessary or expedient to effectuate more fully this
Agreement and to carry out the business contemplated by this
Agreement.
8.3 Survival. The indemnification, confidentiality and
other obligations of the parties shall not be affected or
impaired by and shall survive completion of delivery of and
payment for [ ] kilograms of Substance.
8.4 Force Majeure. The inability of any party to commence
or complete its obligations hereunder by the dates herein
required resulting from delays caused by strikes,
insurrection, acts of God, war, emergencies, shortages or
unavailability of materials, or other causes beyond the
party's reasonable control which shall have been timely
communicated to the other party, shall extend the period for
the performance of the obligations for the period equal to the
period(s) of any such delays(s); provided that such party
shall continue to perform to the extent feasible in view of
such force majeure; and provided further, that if such force
majeure shall continue for a period of six months, the other
party shall have the right to terminate this Agreement upon
written notice to the party unable to perform.
8.5 Assignment; Binding Effect. This Agreement may not be
assigned by Supplier without the written consent of [ ].
Subject to the foregoing, this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.6 Waiver and Amendment. Any representation, warranty,
covenant, term or condition of this Agreement which may
legally be waived, may be waived, or the time of performance
thereof extended, at any time by the party hereto entitled to
the benefit thereof, and any term, condition or covenant
(including, without limitation, the period during which any
condition is to be satisfied or any obligation performed) may
be amended by the parties hereto at any time. Any such
waiver, extension or amendment shall be evidenced by an
instrument in writing executed by an officer authorized to
execute waivers, extensions or amendments. No waiver by any
party, whether express or implied, of its rights under any
provision of this Agreement shall constitute a waiver of such
party's rights under such provisions at any other time or a
waiver of such party's rights under any other provision of
this Agreement. No failure by any party to take any action
against any breach of this Agreement or default by another
party shall constitute a waiver of the former party's right to
enforce any provision of this Agreement or to take action
against such breach or default or any subsequent breach or
default by such other party.
8.7 Entire Agreement. This Agreement and the Exhibit
attached hereto contain every obligation and understanding
between the parties relating to the subject hereof and merges
all prior discussions, negotiations and agreements, if any,
between them, and none of the parties shall be bound by any
conditions, definitions, understandings, warranties or
representations other than as expressly provided or referred
to herein.
8.8 Severability. In the event that any one or more of the
provisions contained in this Agreement shall be declared
invalid, void or unenforceable, in any country, the remainder
of the provisions of this Agreement shall remain in full force
and effect, and such invalid, void or unenforceable provision
shall be interpreted in such country in a manner which
accomplishes, to the extent possible, the original purpose of
such provision.
8.9 Section Headings. The section headings in this
Agreement are for convenience of reference only and shall not
be deemed to affect the interpretation of any provision of
this Agreement.
8.10 No Third Party Rights. The provisions of this
Agreement are for the exclusive benefit of the parties to this
Agreement, and no other Person (including without limitation
any creditor of any party to this Agreement) shall have any
right or claim against any party to this Agreement by reason
of those provisions or be entitled to enforce any of those
provisions against any party to this Agreement.
8.11 Relationship of Parties. This Agreement shall not
constitute or be construed as creating a partnership or joint
venture between [ ] and Supplier, and neither party shall
be liable for any debts or obligations of the other party. [
] shall in no way be considered as being an agent or
representative of Supplier in any dealings which [ ] may
have with any third party, and [ ] may neither act for,
nor bind, Supplier in any such dealings.
8.12 Construction. The parties acknowledge that each has
been advised by counsel during the course of negotiation of
this Agreement and, therefore, that this Agreement shall be
interpreted without regard to any presumption or rule
requiring construction against the party causing this
Agreement to be drafted.
8.13 Governing Law. This Agreement has been entered into
and shall be construed and enforced in accordance with the
laws of the [ ] without reference to the choice of law
principles thereof.
8.14 Arbitration. All disputes arising out of or relating
to this Agreement or to the breach or validity thereof shall
be finally settled by an arbitration proceeding to be held at
a neutral location that is mutually agreeable to the parties
(or is determined by the American Arbitration Association if
the parties are not able to agree) under the Commercial Rules
of Arbitration of the American Arbitration Association by
three neutral arbitrators appointed in accordance with those
rules. The decision of the arbitrators shall be binding and
conclusive upon each party hereto and may be enforced in any
court of competent jurisdiction. At least one of the
arbitrators shall have substantial experience in
pharmaceutical supply agreements. The arbitrators shall be
specifically empowered to render a decree requiring specific
performance.
8.15 Equitable Remedies. Each of the parties acknowledges
and agrees that, in the event of a breach or threatened breach
of this Agreement by any party or the failure of a party to
perform in accordance with the specific terms hereof, the
other party hereto will be irreparably damaged and that
monetary damages would not provide an adequate remedy.
Accordingly, it is agreed that, in addition to any and all
other rights which may be available, at law or in equity, the
non-breaching party shall be entitled to injunctive relief
and/or specifically to enforce the terms and provisions hereof
in any court of competent jurisdiction.
8.16 Remedies Cumulative. The rights and remedies given in
this Agreement to a nondefaulting party shall be deemed
cumulative, and the exercise of one of such remedies shall not
operate to bar the exercise of any other rights and remedies
reserved to a nondefaulting party under the provisions of this
Agreement or given to a nondefaulting party at law or in
equity.
8.17 Prevailing Party. If either party commences an action
against the other to interpret or enforce any of the terms of
this Agreement or as a result of a breach by the other party
of any of its terms, the prevailing party shall be entitled to
recover from the nonprevailing party attorneys' fees, costs
and expenses incurred by the prevailing party in connection
with such action.
8.18 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an
original but all of which together shall constitute one and
the same instrument.
8.19 English Version. In the event that this Agreement is
translated into a language other than English, the English
version of this Agreement shall control all questions of
interpretation with respect thereto.
8.20 Press Releases. Neither party shall issue any press
release or other publicity materials, or make any presentation
with respect to the existence of this Agreement or the terms
and conditions thereof without the prior written consent of
the other party. However, this restriction shall not apply to
disclosures required by law or regulation.
[Signatures follow.]
IN WITNESS WHEREOF, the parties have executed this Agreement
by their authorized representatives effective as of the date
first above written.
HAUSER, INC.
By:
Name:
Title:
[ ]
By:
Name:
Title:
<PAGE>
SCHEDULE 1
Specifications
<TABLE>
Characteristic Test Method Description
<S> <C> <C>
Appearance Visual [ ]
Identity IR [ ] [ ]
HPLC [ ]
Specific rotation [ ] [ ]
Assay [ ] [ ]
Individual impurities [ ] [ ]
Specific Impurity Index
Maximum
Impurity Allowable Area
(%)
[ ] [ ]
[ ] [ ]
[ ] [ ]
[ ] [ ]
[ ] [ ]
[ ] [ ]
[ ] [ ]
Organic volatile impurities [ ] [ ]
[ ] [ ]
[ ] [ ]
[ ] [ ]
[ ] [ ]
[ ] [ ]
[ ] [ ]
Moisture (Karl Fischer) [ ] [ ]
Residue on Ignition [ ] [ ]
Heavy Metals [ ] [ ]
Bacterial Endotoxins [ ] [ ]
Total Microbial Count [ ] [ ]
</TABLE>
<PAGE>
SCHEDULE 2
Shipments
Shipments will begin with approximately [ ] kilograms and
will continue to be shipped as the Substance is produced, not
to exceed [ ] kilograms per month.
<PAGE>
SCHEDULE 3
Additional Representations, Warranties and Covenants
Pursuant to Section 4.1 of the Agreement to which this
schedule is attached, Supplier makes the following
representations, warranties and covenants to [ ]:
1. Supplier has the right (to the exclusion of any third
party) to grant [ ] the right to reference the DMFs as
contemplated in the Agreement, subject to applicable law, and
Supplier owns all right, title and interest (to the exclusion
of any third party) in and to the DMFs to which [ ] is or
may be granted such right of reference.
2. The harvesting operations for all raw materials used to
manufacture Substance shall comply with all pertinent permits,
land use and environmental regulations of applicable
Regulatory Authorities. Supplier shall be responsible for
disposing in an environmentally safe manner any and all
residue resulting from manufacture of Substance. Supplier
agrees that it shall adopt and follow safe handling, storage,
transportation, use, treatment and disposal practices in
connection with Supplier's collection of raw materials and its
manufacture of Substance, including but not limited to, all
such practices required by federal, state and local government
law. Supplier shall instruct its employees, independent
contractors and agents of any precautions or safe use
practices required in the handling, manufacture, storage or
disposal of all materials required for Supplier's collection
of raw materials and its production of Substance. Supplier
possesses skill and expertise in the safe handling, storage,
manufacture and disposal of said products. All of the
Substance sold under the Agreement shall be produced from
Taxus biomass that has been gathered or cultivated in
compliance with any applicable federal, state or provincial
laws and regulations. Supplier shall provide [ ], in
writing, with all pertinent information available regarding
handling precautions and hazards associated with Substance,
including without limitation a current Material Safety Data
Sheet.
3. Supplier has good and marketable title to, and the right
to sell to [ ] in accordance with the Agreement, the
Substance and, at the time of delivery of the Substance to [
], the Substance shall be free and clear of any liens or
encumbrances other than those created or suffered by or under
[ ].
4. Supplier is not debarred under the FD&C Act and it does
not and will not use in any capacity the services of any
Person debarred under the FD&C Act. Neither Supplier, nor, to
the best of its knowledge, any of its employees, agents or
contractors has engaged in any activity that could lead to it
becoming debarred under the FD&C Act.
5. Supplier shall conduct its manufacturing operations
hereunder in a safe and prudent manner, in compliance with all
applicable laws and regulations (including, but not limited
to, those dealing with occupational safety and health, those
dealing with public safety and health, those dealing with
protecting the environment, and those dealing with disposal of
wastes), and in compliance with all applicable provisions of
this Agreement.
