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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________________ to ________________
Commission file number 34-015178A
ROYCE LABORATORIES, INC.
(Exact Name of Registrant as Specified in its Charter)
FLORIDA 59-2202295
State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization
5350 N.W. 165TH STREET, MIAMI, FLORIDA 33014
(Address of Principal Executive Offices) (Zip Code)
(305) 624-1500
Registrant's Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None None
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, $.005 PAR VALUE 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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
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 is not contained herein, and will not 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. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing.
$ 141,616,901 as of MARCH 1, 1996
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
13,424,204 shares of Common Stock, $.005 par value as of March 1, 1996
List hereunder the following documents if incorporated by reference
and the part of the Form 10-K (E.G., Part I, Part II, etc.) into which the
document is incorporated: (1) any annual report to security holders; (2) any
proxy or information statement; and (3) any prospectus filed pursuant to Rule
424(b) or under the Securities Act of 1933.
THE INFORMATION REQUIRED BY PART III OF FORM 10-K IS INCORPORATED BY REFERENCE
FROM THE REGISTRANT'S DEFINITIVE PROXY STATEMENT WHICH WILL BE FILED IN
ACCORDANCE WITH RULE 14A-1 AND SCHEDULE 14A, SUBSEQUENT TO THE DATE OF FILING OF
THIS REPORT.
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<PAGE>
ROYCE LABORATORIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business.......................................................... 1
Item 2. Properties........................................................ 11
Item 3. Legal Proceedings................................................. 12
Item 4. Matters Submitted to a Vote of the Company's Securities Holders... 12
PART II
Item 5. Market Information................................................ 13
Item 6. Selected Financial Data........................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................... 15
Item 8. Financial Statements and Supplementary Schedules.................. 17
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Statement Disclosure.......................... 17
PART III
Item 10. Directors and Executive Officers of the Registrant................ 18
Item 11. Executive Compensation............................................ 18
Item 12. Security Ownership of Certain Beneficial Owners and Management.... 18
Item 13. Certain Relationships and Related Transactions.................... 18
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 19
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
The Company develops, manufactures and markets generic prescription drugs in
solid dosage form (tablets and capsules). Tablets and capsules comprise the
largest portion of the prescription pharmaceutical market. At present, the
Company manufactures and markets 16 generic prescription drugs in 36 dosage
strengths and has received approval on an additional drug in 3 dosage strengths
which it has not yet commenced manufacturing and marketing. Additionally, the
Company has, at present, abbreviated new drug applications ("ANDAs") pending
with the Food and Drug Administration ("FDA") for 10 new products in 16 dosage
strengths.
The Company's objective is to increase the number of products offered while
being an efficient, low cost manufacturer of generic pharmaceuticals. The
Company's product development strategy is to focus on selected niche or
overlooked products and on products whose brand name equivalents have U.S. sales
of over $100 million. The Company has identified a number of products that it
believes offer growth opportunities, such as drugs having a controlled substance
as one of their active ingredients and used in pain management, and selected
drugs with difficult-to-develop formulations. The Company sells its products,
manufactured under its own or a customer's private label, primarily to drug
wholesalers, generic drug distributors, retail buying groups, managed care
organizations and drug chains. The Company also manufactures products for
private label customers.
GENERIC DRUG MARKET
Based on industry sources, the Company estimates that the total generic
pharmaceutical prescription sales in drug stores in the United States increased
to over $6.0 billion in 1995 from 1994 sales of $5.3 billion. The Company
believes that the passage of the Drug Price Competition and Patent Term
Restoration Act of 1984 (the "Hatch-Waxman Act"), which became effective in
September 1984 and established streamlined procedures for the approval of
generic drugs, is one of the primary factors leading to increased sales of
prescription generic drugs. Between 1995 and 2001 it is estimated that patents
will expire for brand-name drugs representing more than $11 billion in 1993
annual sales in the U.S. Reforms and cost containment efforts in the health care
industry, such as the transition from traditional insurance-based health care
cost reimbursement to controlled cost managed care programs that encourage or
require the use of all available generic drugs, the widespread passage of state
legislation that permits or encourages pharmacists to substitute generic drugs
in filling prescriptions and the proliferation of large-volume drug purchasers
(e.g., HMOs, preferred provider networks and mail order distributors) that are
financially motivated to use generic drugs where available, have all contributed
to higher sales of generic drugs. In addition, there is increased awareness and
acceptance by consumers, physicians and pharmacists that generic drugs are the
therapeutic equivalents of brand-name drugs.
The Company believes that the market for generic drugs will continue to grow
because demographic changes are increasing the volume of drugs sold and the
pressure to contain health care costs is continuing. The elderly consume
significantly more drugs than younger people, and the Company believes that the
market for all drugs will continue to grow as the average age of the United
States population increases. Health care costs continue to escalate and
insurance companies, self-insured employers, governmental agencies and other
health care managers and payors continue to seek ways to contain costs.
According to industry sources, it is estimated that 40% of the U.S. population,
or 104 million people, are enrolled today in a managed care plan. In addition,
more than half of all physicians are affiliated with at least one managed care
plan. The Company believes that because of these factors, generic drugs are
likely to become an increasingly significant element of health care cost
containment effort in the coming years.
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<TABLE>
<CAPTION>
PRODUCTS
The Company's has received ANDA approvals for or markets the
following products:
NUMBER OF
BRAND NAME THERAPEUTIC DOSAGE
PRODUCT NAME EQUIVALENT CLASS STRENGTHS APPROVAL DATE
- ------------ ---------- ----- --------- -------------
<S> <C> <C> <C> <C>
1. Hydrocodone Bitartrate/ Lorcet(R), Lortab(R) Narcotic 6 March 1996
Acetaminophen Vicodin(R), Vicodin(R)ES analgesic
Lorcet(R) Plus
2. Captopril(1) Capoten(R) Anti-hypertensive 4 February 1996
3. Hydroxychloroquine Sulfate(2) Plaquenil(R) Anti-rheumatoid 1 November 1995
Arthritis
4. Piroxicam(1) Feldene(R) Anti-inflammatory 2 September 1995
5. Pindolol(1) Visken(R) Anti-hypertensive 2 February 1995
6. Acetaminophen and Tylenol(R) with Narcotic 3 December 1994
Codeine Phosphate(3) Codeine analgesic
7. Cyclobenzaprine Hydrochloride(1) Flexeril(R) Muscle relaxant 1 November 1994
8. Hydroxyzine Hydrochloride Atarax(R) Tranquilizer 3 March 1994
9. Baclofen Lioresal(R) Muscle relaxant 2 January 1994
10. Lorazepam Ativan(R) Tranquilizer 3 October 1991
11. Perphenazine and Amitriptyline Triavil(R) Anti-depressant 4 October 1991
Hydrochloride
12. Amiloride Hydrochloride and Moduretic(R) Anti-hypertensive 1 July 1991
Hydrochlorothiazide
13. Doxepin Hydrochloride Sinequan(R) Tranquilizer 3 March 1991
14. Chlorzoxazone Parafon Forte(R) Muscle relaxant 1 August 1989
15. Yohimbine Hydrochloride Yocon(R) Sympathicolytic 1 Not required
and mydriatic
16. Quinine Sulfate Capsules(4) None Anti-malarial 1 Not required
17. Quinine Sulfate Tablets(4) None Anti-malarial 1 Not required
<FN>
- ------------------
(1) Each of these products is subject to a license agreement between the
Company and Royce Research and Development Limited Partnership (the
"Partnership"). See "Strategic Relationships."
(2) This product is subject to a license agreement between the Company and the
formulator of the drug. See "Strategic Relationships".
(3) The Company is not marketing this drug at this time, but rather is
currently evaluating the profit potential for this drug prior to
manufacturing and marketing it.
(4) In April 1995, the FDA published a proposed rule stating that Quinine
Sulfate will become a prescription drug and urging manufacturers to comply
with the prescription labeling requirements. In July 1995, the Company
converted labeling for this product to bring it into compliance with the
proposed FDA rule.
</FN>
</TABLE>
2
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During 1995, four of the Company's products each individually accounted for more
than 10 percent of the Company's gross sales (the largest of these products
accounts for approximately 18 percent of the Company's gross sales) and together
collectively accounted for approximately 58 percent of the Company's gross
sales. During 1994, four of the Company's products each individually accounted
for more than 10 percent of the Company's gross sales (the largest of these
products accounted for approximately 22 percent of the Company's gross sales)
and together collectively accounted for approximately 69 percent of the
Company's gross sales.
The Company believes that as new products are developed and approved, sales of
the Company's largest products relative to total sales and the Company's
dependence thereon may vary from period to period.
The Company currently has ANDA submissions pending with the FDA for 10
additional products in 16 dosage strengths. Of the products currently pending,
five are narcotic analgesics, two are tranquilizers, one is a muscle relaxant,
one is an anti-hypertensive and one is an anti-inflammatory. Patent protection
for all of the products as to which the Company has an ANDA pending has expired.
Products with a controlled substance as one of their active ingredients are
subject to extensive regulation and to a quota system which requires approval of
the Drug Enforcement Administration before controlled substance raw materials
can be purchased. Although there can be no assurance, the Company believes that
it will receive a sufficient quota of the controlled substance raw materials
required to manufacture and market its controlled substance products. See
"Government Regulation" and "Raw Materials" below.
PRODUCT DEVELOPMENT STRATEGY
The Company intends to pursue a strategy of developing a variety of generic
products, focusing primarily on selected niche or overlooked opportunities, as
well as on drugs whose brand-name equivalents have U.S. sales of over $100
million. Products are chosen for development primarily based on the patent or
marketing exclusivity expiration date, market size and potential, anticipated
competition, availability of active ingredients and manufacturing requirements.
The Company has identified a number of products that it believes offer growth
opportunities, such as drugs having a controlled substance as one of their
active ingredients which are used in pain management, certain smaller products
for which patent protection has expired and which are not being marketed by
other generic drug manufacturers and selected drugs with difficult-to-develop
formulations. The Company believes that products such as these will offer a
significant opportunity and generally face less competition in the marketplace.
The Company also intends to focus on developing generic versions of high-volume
drugs whose patent or marketing exclusivity is nearing expiration. The Company
will seek to be among the first to offer such products. While such high-volume
drugs generally face significant competition, even a small market share of a
drug generating in excess of $100 million in revenue would be significant and
would enable the Company to broaden the range of products which it offers to its
customers. Recent changes in U.S. patent terms connected with the General
Agreement on Tariffs and Trade (GATT) have resulted in extensions to the patent
terms for several products which the Company is considering for future
development.
The Company believes that the time required for the development and approval of
the products which it plans to market should take approximately two to three
years from the time the Company identifies a drug for which it will seek an ANDA
through the date that FDA approval is obtained. This time period has, in the
past, been longer and may be longer in the future. The Company is presently
engaged in research and development with respect to more than 15 generic
prescription products. The Company expects to file ANDAs for approximately 6 to
12 products over the next twelve months. There can be no assurances as to
whether products can be developed or whether ANDAs filed will be approved. See
"Government Regulation" below for a description of the approval process for
ANDAs.
SALES AND MARKETING
The Company markets its products to drug wholesalers, generic drug distributors,
retail buying groups, drug chains, other drug manufacturers, health care
institutions and governmental agencies. The Company markets its products
primarily through direct contact by the Company's regional sales managers,
telemarketing efforts, responding to requests for proposals and bids, and
through independent sales representatives. The Company
3
<PAGE>
advertises in trade journals and uses direct mailing to independent drug stores,
among other promotional activities targeted to the pharmaceutical industry.
The Company sells its products either under its own label (approximately 42
percent of net sales for 1995) or under a customer's private label
(approximately 58 percent of net sales for 1995). The Company intends to
continue manufacturing products under a customer's private label and believes
that its willingness to offer private label products provides an additional
opportunity for growth, since many of the larger generic drug manufacturers do
not manufacture private label products.
The Company has over 250 customers, which include various divisions of large
individual wholesalers. Customer service is an integral part of the Company's
focus. Maintaining adequate inventories, making timely delivery of its products
and providing support services are emphasized by the Company in order to serve
its customers better.
During 1995, two of the Company's customers, Qualitest and Zenith-Goldline,
accounted for 13 percent and 12 percent, respectively, of the Company's net
sales. During 1994, sales to two of the Company's customers accounted for 14
percent and 10 percent, respectively, of the Company's net sales. No other
customer accounted for more than 10 percent of net sales in either 1995 or 1994.
The Company's top ten customers for these years accounted for approximately 62
percent and 60 percent, respectively, of net sales. The loss of any of these
customers may have an adverse effect on the Company's operations.
STRATEGIC RELATIONSHIPS
The Company believes that strategic marketing relationships with customers and
drug companies in the U.S. and other countries could contribute to increased
sales and gross profit. The Company has entered into several agreements with
this objective in mind.
The Company has a license agreement with Wille Laboratories, PTY. Ltd.
("Wille"), a pharmaceutical manufacturer located in Queensland, Australia. The
license permits Wille to develop, manufacture and market the licensed products
in the Pacific Rim markets, including Australia, New Zealand, Japan, Taiwan and
Hong Kong (the "Territory"). The only product licensed to Wille at this time is
Captopril. Under the agreement, the Company will receive a minimal initial fee
and additional minimal fees while Wille is pursuing regulatory approvals to
manufacture and market the licensed products in the Territory. Thereafter, if
Wille is able to obtain such requisite approvals, the Company will receive a
royalty from Wille with respect to any sales of the licensed products by Wille
in the Territory. There can be no assurance that any regulatory applications
filed by Wille with the appropriate governmental authorities in the Territory
will be approved. Although the Company and Wille have agreed that Captopril will
be licensed under the agreement, there can be no assurance that any other
products will be licensed under such agreement. The Company is not obligated
under such agreement to license any products to Wille other than Captopril, and
Wille is not obligated to accept a license for any additional product from the
Company.
The Company has an option agreement with a customer, whereby the customer was
granted a five-year option to purchase shares of the Company's common stock at
$1.875 per share, upon the satisfaction of certain purchase targets. Options
earned are determined as of June 30 of each year based on the previous 12
months' purchases by the customer. As of December 31, 1995, the maximum number
of options which the customer may earn through the end of this agreement in June
1996 is 106,666 options. If the customer earns options for the contract year
ended June 30, 1996, and at that date a spread exists whereby the fair market
value per share exceeds the option price (the "Spread"), the Company will record
a charge to earnings equal to the Spread times the number of options earned.
The Company has an agreement with another customer whereby the customer agreed
to engage the Company as its sole supplier of the Company's present and future
products for a five year period, subject to certain exceptions. In return, the
Company granted the customer stock options to purchase up to 50,000 shares of
common stock at $6.00 per share, the market price on the date of grant. Such
options vest at the rate of 9,000 per year, with 5,000 options vesting upon
entering into this agreement. In connection with this agreement, the Company has
recorded a charge to earnings of approximately $66,000 in 1995.
4
<PAGE>
The Company has a license agreement with Pharmascience, Inc. ("Pharmascience"),
a Canadian pharmaceutical company. Pursuant to the agreement, Pharmascience
licensed the right to manufacture or purchase from the Company at normal selling
prices and distribute eight of the Company's products under the Pharmascience
private label (including two products as to which the Company does not presently
have an approved ANDA). In connection with the agreement, Pharmascience is
obligated to seek regulatory approval of these products for sale in Canada.
Canada has a generic drug approval procedure similar to that of the United
States. The Company will receive a royalty of 5% on Pharmascience's net sales of
the licensed products in Canada for a period of five years starting from the
date of the first commercial sale of each licensed product by Pharmascience, if
and when the products are approved for sale in Canada.
The Company has an agreement with Duramed Pharmaceuticals, Inc. ("Duramed"),
whereby Duramed markets and distributes nine of the Company's current products
(excluding Hydroxychloroquine Sulfate, Captopril and Hydrocodone Bitartrate) on
an exclusive basis to a select group of warehousing drug chains and to other
classes of trade, on a non-exclusive basis, under the Duramed label. The
agreement is for an initial three-year term, renewable annually thereafter.
With respect to one of its products, the Company has a perpetual license
agreement with the formulator of the drug whereby the Company has agreed to pay
the formulator a sliding royalty with a maximum of 10 percent of net sales of
this product for a ten-year period. In 1994, the Company paid the formulator
certain fees (approximately $70,000) when the Company received an acceptable
bioequivalency study for this drug and charged such fees to expense. In 1995,
the Company issued 10,695 shares of unregistered common stock upon the filing of
an ANDA for this drug and accordingly charged $24,000 to expense. Additionally,
the Company expensed royalties of $38,000 for this product in 1995.
Royce Research and Development Limited Partnership I (the "Partnership")
developed five products (the "Licensed Drugs") pursuant to the terms of a
license agreement (the "License Agreement") between the Company and the
Partnership. The Partnership was funded with approximately $1.0 million. Royce
Research Group, Inc., a wholly owned subsidiary of the Company, is the general
partner of the Partnership, for which it earns an administrative fee based on
sales of the Licensed Drugs, and, owns a one percent interest in the
Partnership. Unaffiliated investors own the limited partnership interests.
Under the terms of the License Agreement, the Company granted to the Partnership
an exclusive irrevocable license to the Licensed Drugs (for a term of five years
from the date of the first commercial sale of each of the Licensed Drugs), and
received from the Partnership licensing fees for the Licensed Drugs, third party
out-of-pocket expenses for raw materials and bioequivalency studies relating to
the Licensed Drugs, and $50,000 for a one-percent royalty interest in the gross
revenues derived from the commercial sale of Piroxicam for a three-year period
from the time it is first commercially sold. After the expiration of such five
year term, all rights to the Licensed Drugs revert back to the Company. All of
the Partnership funds were expended developing the five Licensed Drugs. As of
March 1, 1996, the Company had received approvals for three of the Licensed
Drugs and had ANDAs pending for the other two Licensed Drugs. In addition, the
Company received FDA approval for Piroxicam in 1995. There can be no assurance
that the FDA will approve the pending ANDAs for the remaining Licensed Drugs.
In return for funding the development of the Licensed Drugs, the Partnership
will receive a royalty of 10 percent of the net revenues generated by sales of
the Licensed Drugs over a five-year term commencing with the first commercial
sales of these drugs. During 1995, the Company accrued royalties of $69,000 to
the Partnership.
COMPETITION
The Company competes with generic drug manufacturers, brand name pharmaceutical
companies that manufacture or market generic drugs, the original manufacturers
of brand name drugs that continue to produce such drugs after their respective
patents expire or introduce generic versions of their branded products, and
manufacturers of new drugs that may compete with the Company's generic drugs.
Many competitors have a greater number of products on the market and have
greater financial and other resources than the Company, allowing them to devote
greater resources to research and development and marketing.
5
<PAGE>
The generic drug industry is highly competitive. Most generic drugs enjoy
relatively short periods of limited competition. The introduction of a new
generic drug typically is followed by the introduction of other competitive
generic products into the marketplace, which results in significant declines in
prices and profit margins. Generic drug manufacturers must frequently introduce
new products in order to retain their profitability and sales volume. Approvals
for new products may have a synergistic effect on a company's entire product
line, since orders for new products are frequently accompanied by, or bring
about, orders for other products available from such company. The Company
believes that price is a significant competitive factor, particularly as the
number of generic manufacturers which produce a particular product increases.
The Company's current product line consists mainly of mature generic
pharmaceutical products. The Company faces competition with respect to these
products. The Company's product development strategy is, in part, intended to
attempt to market products subject to lower levels of competition.
The principal competitive factors in the generic pharmaceutical market are the
ability to be one of the first to introduce a product after a patent expires,
product price, product quality, methods of distribution, reputation, customer
service and breadth of product line. The Company believes that its commitment to
service and quality and its willingness to produce private label products for
its customers will enhance its ability to compete with other drug manufacturers.
The Company's brand-name competitors may, in the future, attempt to prevent or
discourage the use of generic equivalents through litigation and negative public
relations campaigns. Some brand-name competitors also have introduced generic
versions of their own branded products prior to the expiration of the patents
for such drugs, which may result in a retention of a larger portion of the
market share available to generic products by these companies following
expiration of the applicable patents.
GOVERNMENT REGULATION
GENERAL
The research and development, manufacture and marketing of the Company's
products are subject to regulation by the FDA and the Drug Enforcement
Administration ("DEA") in the United States and by comparable authorities in
other countries. These national authorities and other federal, state and local
entities regulate, among other things, research and development activities and
the testing, manufacture, labeling, storage, record keeping, advertising and
promotion of the Company's products.
Almost every state and the District of Columbia has drug product selection
legislation that repeals, in part or in whole, previous laws prohibiting the
substitution of generic drugs in prescriptions for their brand-name
counterparts. Drug product selection legislation generally permits or encourages
pharmacists to substitute equivalent generic prescription drug products for
brand-name pharmaceutical products prescribed by physicians, usually where such
substitution has been either authorized or not prohibited by the prescribing
physician.
The Federal Food, Drug, and Cosmetic ("FDC") Act, the Controlled Substances Act
("CSA"), and other federal statutes and regulations govern or influence all
aspects of the Company's business. Noncompliance with applicable requirements
can result in fines and other judicially imposed sanctions, including product
seizures, injunction actions and criminal prosecutions. In addition,
administrative remedies can involve the recall of products, as well as the
refusal by the FDA to approve pending applications or supplements to approved
applications. The FDA also has the authority to withdraw approval of drugs in
accordance with statutory due process procedures and has significant additional
authority under the Generic Drug Enforcement Act of 1992.
FOOD AND DRUG ADMINISTRATION
Except in limited circumstances, FDA approval is required before any dosage form
of any new drug, including generic equivalents of a previously approved drug,
can be marketed. A drug that is not generally recognized by qualified experts as
safe and effective for its intended use, or that is a generic equivalent of a
previously approved prescription drug, is deemed to be a "new" drug requiring
FDA approval. There are two primary types of applications currently needed to
obtain FDA approval of a new drug, a full new drug application ("NDA") and an
ANDA.
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The full NDA typically applies to any drug with active ingredients not
previously approved by the FDA. For the NDA, a prospective manufacturer must
conduct and submit to the FDA complete pre-clinical and clinical studies to
prove that drug's safety and efficacy. The FDA usually requires two adequate and
well-controlled clinical studies to support approval, as well as pre-clinical
animal toxicology studies for supporting safety. An NDA may also be submitted
for a drug with a previously approved active ingredient if the abbreviated
procedure discussed below is not available. If a company obtains approval of a
full NDA for a drug with an active ingredient that has not been previously
approved by the FDA, the company is generally entitled to five years of
marketing exclusivity during which period ANDAs may not be filed for FDA
approval. None of the Company's products currently in development is believed to
require a full NDA.
An ANDA is similar to an NDA except that the FDA waives the requirement to
conduct complete pre-clinical and clinical studies to prove safety and efficacy.
Instead, for drugs that contain the same active ingredient and are intended for
the same use as drugs already approved for use in the United States, the FDA
ordinarily requires only bioavailability data demonstrating that the generic
drug formulation is, within an acceptable range, bioequivalent to a previously
approved drug. "Bioequivalence" compares the bioavailability of one oral dosage
form of a drug product with another and, when established, indicates that the
rate of absorption and the levels of concentration of the generic drug in the
body are substantially equivalent to those of the previously approved equivalent
drug. "Bioavailability" indicates the rate of absorption and levels of
concentration of a drug in the bloodstream needed to produce a therapeutic
effect. The FDA review period can last between 12 and 30 months and the outcome
is not certain. The Company's products have been and in the future will likely
be developed pursuant to the ANDA procedure.
All applications for FDA approval of drug products must contain information
relating to product formulation, stability, manufacturing process, packaging,
labeling and quality control. The manufacturer must establish that the methods,
facilities, and controls used in connection with the production, processing,
packaging, and storage of the drug meet FDA requirements embodied in FDA
regulations and guidelines, generally referred to as the current good
manufacturing practice ("cGMP") requirements. Compliance with cGMP is required
at all times during the manufacturing and processing of drugs. Such compliance
requires considerable Company time and resources in the area of production and
quality control studies performed to establish that the drug will be safe and
effective for its intended uses. The Company believes that it is in substantial
compliance with cGMP requirements.
The FDA may not approve an ANDA if applicable regulatory criteria, including
compliance with cGMP requirements, are not satisfied. The FDA may require
additional testing, or manufacturing or quality control changes. Even if such
data are submitted and such changes are made, the FDA may ultimately decide that
the ANDA does not satisfy the criteria for approval. Following approval of an
ANDA, the FDA expects the applicant to conduct extensive in-process and finished
products testing on consecutive batches made in the initial manufacturing
campaign to validate the reliability of all critical processes during full-scale
commercial production. This is commonly referred to in the industry as the
post-approval or pre-shipment validation process. Only after all processes have
been shown through test data to produce consistent results within quality
specifications will the FDA permit commercial distribution. Accordingly,
following the approval of an ANDA, several weeks or months may be required to
complete testing and the FDA pre-shipment validation process. Product approvals
may be withdrawn by the FDA if compliance with regulatory standards is not
maintained or if new evidence demonstrating that the drug is unsafe or lacks
efficacy for its intended uses becomes known after the product reaches the
market.
In 1988, the House Subcommittee on Oversight and Investigations launched an
investigation into possible wrongdoing by FDA officials and several generic drug
manufacturers pertaining to the ANDA approval process. Concurrently, the U.S.
Department of Justice initiated a similar investigation. Both investigations
revealed instances of criminal activity by certain FDA employees and by the drug
manufacturers and their employees. Five FDA employees pleaded guilty to fraud
and the FDA was accused of being lax in its regulation of the generic drug
industry. Several generic pharmaceutical manufacturers were charged with giving
illegal gratuities to certain FDA officials, substituting branded products for
their own in studies required by the FDA, or engaging in other fraudulent or
unapproved product development practices. As a result of these investigations,
over 200 generic products were recalled, an extensive investigation of the
generic pharmaceutical business was initiated by the FDA, and there was a
dramatic slowing of the ANDA approval process.
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The Generic Drug Enforcement Act of 1992 establishes penalties for wrongdoing in
connection with the development or submission of an ANDA by authorizing the FDA
to permanently or temporarily debar companies or individuals from submitting or
assisting in the submission of an ANDA, and to temporarily deny approvals and
suspend applications to market generic drugs. The FDA must debar companies or
individuals convicted of a federal felony for conduct relating to the
development or approval of an ANDA, and may debar persons convicted of other
misconduct. In addition to debarment, the FDA may refuse to approve an ANDA if
the applicant is under active federal criminal investigation for (i) bribery, or
(ii) making material false statements in connection with any ANDA, or if a
significant question has been raised regarding the integrity of the approval
process or the reliability of the data in the ANDA. The FDA also has authority
to withdraw approval of an ANDA under certain circumstances and to seek civil
penalties. The FDA can also significantly delay the approval of any ANDAs under
the Application Integrity Policy. See "Validity Assessment Program" below.
All new drugs require FDA premarket approval. However, certain products may be
exempt from such approval if they were marketed in the United States prior to
1938 and were subject to the Food and Drugs Act of 1906 and whose labeling has
not changed since 1938. On this basis, the Company and certain other firms
currently market Yohimbine Hydrochloride and Quinine Sulfate without NDA or ANDA
approval. However, there is no assurance that the FDA will continue to agree
with this basis for marketing and will not require the products to be removed
from the market until such an application is approved.
Quinine Sulfate is currently the subject of FDA over-the-counter ("OTC") drug
review, an FDA administrative program which involves review of the safety and
efficacy of active ingredients and label claims for marketed OTC drugs.
Following expert panel review of the drug, FDA makes a determination whether to
publish a final monograph prescribing the ingredients and labeling for the OTC
drug. Publication of a final monograph means that an OTC product that complies
with the monograph may be marketed without FDA pre-market approval, whereas a
decision not to publish a final monograph means that the product cannot be sold
for that indication without pre-market approval. While the OTC drug review
proceeds, a product that contains an ingredient and bears claims that are
included in the review may continue to be marketed pending the final outcome.
In May 1993, the FDA published a final order removing Quinine Sulfate from the
market as an internal analgesic. In August 1994, the FDA published a final order
effective February 22, 1995 removing Quinine Sulfate from the market for
treating nocturnal leg muscle cramps. Quinine Sulfate is still currently
available as a prescription drug for treating chills and fever of malaria. The
FDA plans to issue a final decision regarding proper labeling for this
indication in the future. The Company believes that the FDA intends that Quinine
Sulfate will be marketed as a prescription drug in the future, and that the FDA
will not take any action which results in the removal of Quinine Sulfate from
the marketplace. If the FDA were to require an NDA approval for this product, it
might require the Company to obtain such an approval before continuing to market
this product. In such event, the Company will evaluate the economic feasibility
of developing an NDA for this product.
Sales of products are also subject to regulatory requirements governing human
clinical trials, and regulations regarding workplace safety, environmental
protection and hazardous substance controls, among others. The Company believes
that it is in substantial compliance with all such laws which are applicable to
its business.
DRUG ENFORCEMENT ADMINISTRATION
Certain products are regulated under the CSA, which requires controlled
substance distributors and controlled substance manufacturers to be registered
with the DEA. The DEA has extensive enforcement powers over controlled substance
manufacturers and distributors, including the power to seize products, enjoin
the manufacture or distribution of these products, or criminally prosecute
and/or impose fines against firms and individuals that violate the CSA or DEA
regulations.
The Company is currently subject to the CSA and DEA regulations for marketing
and distribution of three of its approved products and would be subject to such
regulations with respect to six additional products for which the Company has
ANDAs pending before the FDA. The Company believes that it has complied with all
requirements imposed on the controlled substance products sold or proposed for
sale or testing by the Company relating to the premarket development, research,
production, sale and marketing thereof, pursuant to the federal CSA and
applicable state controlled substances laws. Furthermore, the Company believes
that it has complied with all
8
<PAGE>
requirements imposed on implementing regulations promulgated by the DEA
thereunder, and any policies issued by the DEA concerning the development,
production, distribution, sale and marketing of such controlled substances,
including any conditions for approval or acknowledgments, such as issuance of
all registration and licensing applications, and/or any other requirements, such
as physical security, record keeping, reporting and filing requirements, that
are specific to such controlled substances.
VALIDITY ASSESSMENT PROGRAM
The Application Integrity Policy ("AIP") was established by the Office of
Generic Drugs of the FDA "to investigate wrongful acts by some firms submitting
ANDAs, such as committing fraud, making untrue statements of material facts,
committing bribery, or paying illegal gratuities." Under this policy, if the
agency suspects fraud in any new drug application, it may defer substantive
review of the application until the applicant has taken the appropriate
corrective actions to establish the scientific data's reliability. A company
suspected of fraudulent activity in the submission of an application may be
placed in the Validity Assessment Program.
The Validity Assessment Program was established by the FDA as part of its
Application Integrity Policy (originally called the Fraud, Untrue Statements of
Material Facts, Bribery and Illegal Gratuities Policy). The Validity Assessment
Program is intended to establish means by which a drug company or other
regulated firm, suspected by the FDA of seeking to subvert the FDA's review and
approval of premarket applications, may seek to restore the FDA's confidence in
the integrity of its applications.
In order to be removed from the Validity Assessment Program, a company must have
an audit performed by an outside consultant to identify all the wrongful acts
associated with the application submitted to the FDA, and provide all the
reports to the FDA; develop procedures and controls to prevent the violations
from recurring; provide the FDA with a written corrective action plan to ensure
the validity and integrity of product application data; and remove from
authority anyone responsible for any fraudulent conduct that may have been
discovered. If the FDA determines that a company has satisfied the requirements
of the Validity Assessment Program, it will remove the company from such program
and continue its substantive review of the new drug applications pending before
the FDA.
In February 1992, in connection with an inspection of the Company's
manufacturing facility, the FDA raised questions about the data underlying the
Company's ANDAs for Minoxidil, one of the Company's previously approved
products. After investigating the FDA's concerns with respect to this product,
the Company withdrew this product. The Company also investigated, and in May
1992 withdrew, its ANDAs for a second product, Haloperidol, after similar
questions were raised regarding the data underlying these ANDAs. These products
were developed and these ANDAs were approved in 1986 and 1987, prior to
employment by the Company of the Company's current management and product
development personnel. In the Company's and the FDA's investigations of these
applications, which investigations took place between February 1992 and April
1992, it was determined that there were a number of apparent discrepancies in
the underlying data that support these applications and that there was
insufficient documentation to justify certain of the instances where data was
not included in these applications. Based on these findings, the Company
voluntarily withdrew its ANDAs relating to these two products and initiated a
product recall for these products.
In early April 1992, the FDA conducted a further examination of the Company's
ANDA for Piroxicam (the Company had received a tentative approval of its ANDA
for Piroxicam in September 1991). On April 21, 1992, the Company was advised by
the FDA that its ANDA for Piroxicam was deficient and, therefore, not approvable
as submitted. The FDA enumerated a number of discrepancies and inconsistencies
contained in the ANDA, which had originally been filed in 1989, and advised the
Company that unless these issues were resolved to their satisfaction, the
Company might have to provide data on new test batches manufactured in
accordance with cGMP, including the results of new bioequivalency studies, as
appropriate, to support approval of the product.
The Company was placed in the Validity Assessment Program in July 1992. During
the period in which the Company was in the Validity Assessment Program, the FDA
did not review any of the Company's pending ANDAs or accept ANDAs for new
products. Further, during this period, the Company's ANDAs for all of its
pending and approved products were audited by Company personnel under the
supervision of an independent consultant
9
<PAGE>
approved by the FDA. The FDA also conducted an intensive inspection of the
Company's facility and all of the documentation supporting the Company's pending
and approved ANDAs. Additionally, the Company was required to develop procedures
and controls to prevent violations from recurring and provide the FDA with a
corrective action plan to assure the validity and integrity of the Company's
product application data. The Company was released from the Validity Assessment
Program on December 16, 1993. In connection with its release from the Validity
Assessment Program, the Company withdrew its then pending ANDA for Piroxicam.
The Company filed a new ANDA for this product in March 1994, which ANDA was
approved in September 1995. Since its release from the Validity Assessment
Program, the Company has received ANDA approvals for nine products.
HEALTH CARE POLICY AND REIMBURSEMENT
The methods of reimbursement and fixing of reimbursement levels under Medicare,
Medicaid and other reimbursement programs are under active review by federal,
state and local government entities as well as by private third-party
reimbursers and political pressure to contain health care costs at the federal
and state levels is increasing. In addition, Medicaid legislation requires that
all pharmaceutical manufacturers rebate to individual states a percentage of
their revenues arising from Medicaid-reimbursed drug sales. In 1995, the
required rebate for generic drug manufacturers was 11% of the Company's
Medicaid-reimbursed drug sales.
Political, economic and regulatory influences are subjecting the health care
industry in the United States to fundamental change. During 1994, the Clinton
administration proposed comprehensive legislation, known as the Health Security
Act, to reform the health care system (which legislation did not pass). The
Health Security Act mandated basic health care benefits for all Americans,
sought to control health care expenditures by placing caps on private health
insurance premiums and Medicare and Medicaid spending, and proposed the creation
of large insurance purchasing alliances. Although the proposed Health Security
Act did not contain any provisions which directly regulate generic drug
manufacturers, members of the Clinton administration and Congress have expressed
interest in controlling the prices that pharmaceutical companies charge for
their products. The Health Security Act did contain inducements for patients and
providers to use generic drugs, where available. Members of Congress have
introduced other health care reform proposals whose possible impact on generic
drug manufacturers is uncertain. None of these proposals has been adopted. It
can also be anticipated that the Clinton administration will propose new health
care reform legislation in the future. In addition, several states in which the
Company distributes its products have passed or are considering their own health
care reform legislation. The Company anticipates that Congress and state
legislatures will continue to review and assess alternative health care delivery
systems and payment methodologies and that public debate on these issues will
continue. Because of the uncertainties regarding the ultimate features of reform
initiatives and their enactment and implementation, the Company cannot predict
which, if any, of such reform proposals will be adopted, when they may be
adopted or what impact they may have on the generic drug industry in general or
the Company in particular.
RAW MATERIALS
The raw materials essential to the Company's business are purchased primarily
from U.S. distributors of bulk pharmaceutical chemicals manufactured abroad. The
ANDA process requires specification of raw material suppliers, and only one
source has been approved for the active ingredient used in all but three of the
Company's products. The Company has filed supplements with the FDA to add a
second source of supply for several of its products. Two of these supplements
have been approved. There can be no assurance as to if and when the Company's
other supplements will be approved. In the event that raw materials from a
specified supplier were to become unavailable, FDA approval of a new supplier,
if available, would be required, which could cause a delay of between six and
twelve months in the manufacture of the drugs involved and the consequent loss
of revenues. The Company experienced raw material shortages during 1995 on one
of the Company's least significant products and there can be no assurance that
such shortages will not recur in the future. Additionally, arrangements with
foreign suppliers are subject to certain additional risks, including the
availability of governmental clearances, import/export duties, political
instability, currency fluctuations and restrictions on the transfer of funds.
Certain controlled substances are also subject to a DEA quota system and may not
be available in sufficient quantities for the Company to realize its sales
potential of such products.
10
<PAGE>
The Company has recently entered into a development agreement with a raw
material supplier to develop two products and to purchase its raw materials
requirements for these products from the supplier. The Company currently has
ANDAs pending for both of these products. So long as the Company obtains
approval of its pending ANDAs within a specified time period and thereafter
satisfies certain purchase requirements, the supplier has agreed that the
Company shall be its exclusive customer for this raw material in the United
States, Canada and Mexico. There can be no assurance that the Company will
obtain approval of the ANDAs filed for these products.
PRODUCT LIABILITY
Product liability claims constitute a risk to all pharmaceutical manufacturers.
The Company maintains what it believes to be adequate product liability
insurance, although there can be no assurance that the coverage limit of such
policy will be adequate or that the cost of such insurance will not increase.
The Company's insurance provides coverage on a claims-made basis and is subject
to annual renewal. The insurance may not be available in the future on
acceptable terms or at all.
PATENTS, TRADEMARKS, AND LICENSES
Since the Company's current business is manufacturing products for which patents
have expired, it is not anticipated that any of the Company's products in the
near future will be patented. However, the Company may develop new products and
obtain patents for them in the future. The name Royce(R) and its design are
registered as a trademark with the Department of State of Florida and with the
U.S. Patent and Trademark Office.
EMPLOYEES
The Company employed 131 persons as of February 20, 1996. No employees are
members of a collective bargaining unit under a union representation contract.
The Company believes that its relationships with its employees is good.
ITEM 2. PROPERTIES.
The Company's manufacturing plant is located in a 25,000 square foot leased
facility in Miami, Florida under a lease expiring July 31, 2000. Under its
lease, the Company is required to lease an additional 10,200 square feet of
space attached to the existing premises no later than November 1996. The Company
also has two five-year renewal options. Annual rent prior to and after taking
possession of such additional space totals $137,000 and $183,000, respectively,
subject to annual cost of living increases. Under the lease, the Company has an
option to purchase the entire 35,000 square foot building, and an adjacent
building of approximately 42,000 square feet, throughout the term of the lease,
including renewal periods.
In October 1994, the Company entered into a lease for a 40,000 square foot
facility. The lease is for a period of 10 1/2 years, commencing on November 1,
1994 and ending on April 30, 2006. The Company has two additional five year
options. Included in the lease are options to purchase the leased property
during the first year and the sixth year of the lease term and a right of first
refusal to purchase any buildings owned by the lessor to the east of the leased
property. The lease can be terminated by the Company upon 180-day written
termination notice and payment of a termination fee. Annual rent under this
lease totals $195,000. The Company commenced occupancy of this second facility
in May 1995. Currently, it houses the Company's administrative, sales and
finance departments and warehouse operations. The Company anticipates that
during 1996 it will move its research and development laboratory into the new
facility. The Company's manufacturing facility is also undergoing
reconfiguration to expand the Company's manufacturing operations.
The Company believes that its two leased facilities will be sufficient to meet
its requirements over at least the next 18 months.
11
<PAGE>
The Company owns significantly all of its manufacturing and laboratory
equipment. The Company has equipment for all stages of manufacturing tablets and
capsules, including machinery for blending and agitating raw materials,
compressing tablets, encapsulation, bottling and packaging, and labeling. The
Company currently contracts for tablet coating with outside vendors and intends
to perform tablet coating at its manufacturing facility in the near future. The
Company's laboratory also includes computerized testing and data analysis
equipment for quality control and is also equipped for in-house research and
development.
ITEM 3. LEGAL PROCEEDINGS.
In February 1993, the Securities and Exchange Commission initiated a formal
investigation into possible violations of the federal securities laws by the
Company and certain of its officers and directors. The SEC's examination is
focusing on the Company's public disclosure during the period between July 1991
and April 1992 regarding the status of the Company's ANDAs for Piroxicam and
Minoxidil and on sales of securities during this period by certain persons,
including Company executive officers and/or directors Patrick J. McEnany,
Richard W. Gross, Rick A. Wilber, Abul Bhuiyan and Nilkanth Patel. The Company
believes that the SEC investigation is ongoing. While no assurances can be given
as to the outcome of the SEC's investigation, the Company does not believe that
such outcome will have a material adverse effect on the Company's financial
condition or results of operations.
In January 1994, the Company was sued for securities violation by one of its
shareholders who opted out of the settlement of the Company's class action
litigation settled during 1993. See the Company's Annual Report on Form 10-K for
the year ended December 31, 1994 for a description of the class action
litigation. The suit, DINESH SHAH V. ROYCE LABORATORIES, INC. AND CHATFIELD DEAN
& CO., INC., 94 CIV 0061 (S.D. N.Y.) which has also been brought against one of
the underwriters of the Company's January 1992 public offering, alleges that the
Company's January 9, 1992 prospectus was false and misleading. The suit seeks
rescissory damages for violations of Section 11 of the Securities Act of 1933 in
the amount of approximately $40,000 plus interest. The Company is vigorously
defending this suit and believes it has a meritorious defense. No assurances can
be given as to the outcome of this matter.
On August 4, 1995, the Company was sued by Bristol-Myers Squibb Company, Inc.
and E.R. Squibb & Sons, Inc. (collectively, "Bristol-Myers") in the Southern
District of Florida with respect to Captopril (Case No. 95-1682-CIV-Davis), the
Company's generic equivalent to Bristol-Myers' anti-hypertensive drug,
Capoten(R). See the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 for a description of this litigation.
On November 1, 1995, the United States Court of Appeals for the Federal Circuit
(the "Circuit Court") determined that as a matter of law, the safe harbor
provisions of GATT do not permit the Company to make, use or sell Captopril
prior to the February 13, 1996. The Circuit Court further concluded that as a
result of its finding, the statutory bar against FDA approval of the Company's
ANDA for Captopril prior to February 13, 1996 remained in effect. The Company
appealed the Circuit Court's decision to the U.S. Supreme Court; however, the
Supreme Court did not grant certiorari and the matter has now been remanded to
the District Court.
While there can be no assurance, the Company does not believe that this
litigation will have a material adverse impact on its financial position or
results of operations.
ITEM 4. MATTERS SUBMITTED TO A VOTE OF THE COMPANY'S SECURITIES HOLDERS
No matters were submitted to a vote of the Company's securities holders during
the fourth quarter of 1995.
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<PAGE>
PART II
ITEM 5. MARKET INFORMATION
The Company's common stock is traded on the over-the-counter market under the
symbol "RLAB." The following are the average high and low closing bid and ask
prices on NASDAQ for the quarterly periods shown. Such prices represent quotes
or prices between dealers in securities and do not include retail markup,
markdown, or commission and may not necessarily represent actual transactions:
YEAR ENDED 1994 HIGH LOW
- --------------- ---- ---
First Quarter $8.00 $6.13
Second Quarter 6.13 3.00
Third Quarter 4.75 2.75
Fourth Quarter 5.43 3.50
YEAR ENDED 1995
- ---------------
First Quarter $8.88 $4.50
Second Quarter 8.19 5.38
Third Quarter 9.75 6.19
Fourth Quarter 10.38 7.19
YEAR ENDED 1996
- ---------------
First Quarter (through March 1, 1996) $11.75 $8.88
On March 1, 1996, the closing average of the bid and asked prices of the common
stock on NASDAQ was $11.25 per share. At March 1, 1996, there were issued and
outstanding 13,424,204 shares of the common stock held, of record, by 9,905
holders of record (including nominees). The Company believes that there are over
13,500 beneficial holders of its common stock. Additionally, as of the same
date, there were warrants and options outstanding to purchase an additional
2,493,061 shares of common stock at prices ranging from $0.75 to $25.41.
The market prices for securities of companies engaged primarily in the
development, manufacture and marketing of pharmaceuticals has historically been
volatile. The market price of the Company's common stock has been volatile in
the past and may be volatile in the future. Various factors may influence the
market price of the common stock including fluctuations in the Company's
operating results, the announcement of technological innovations or new
commercial products by the Company or its competitors, governmental regulation,
regulatory approvals, publicity regarding the status of the Company's product
development efforts, political developments or proposed legislation in the
health care industry, and other investment considerations (many of which are
beyond the control of the Company).
DIVIDEND POLICY
The Company has never paid cash dividends on its common stock and has no present
plans to do so in the foreseeable future. The Company's current policy is to
retain all earnings, if any, for use in the operation of its business. The
payment of future cash dividends, if any, will be at the discretion of the Board
of Directors and will depend upon earnings, financial requirements of the
Company and such other factors as the Board of Directors may deem relevant.
The Florida Business Corporations Act restricts the payment of cash or other
dividends and distributions to the extent of a corporation's net worth
(shareholder's equity, excluding liquidation preferences) and prohibits such
dividends and distributions when a corporation is unable to pay debts as they
become due in the usual course of business.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA(1)
Net sales.............................. $ 10,503 $ 6,191 $ 3,519 $ 2,422 $ 1,991
Cost of goods sold..................... ( 7,143) ( 4,538) ( 3,017) ( 2,345) ( 1,417)
------------ ---------- ---------- ------------ ----------
Gross profit........................... 3,360 1,653 502 77 574
Expenses related to product recalls.... - - - ( 570) -
Research and development............... ( 2,212) ( 960) ( 305) ( 283) ( 196)
Selling, general and admin-
istrative expenses................... ( 3,634) ( 2,298) ( 2,084) ( 2,284) ( 698)
Write-off of inventory................. - - ( 768)(3) - -
------------ ---------- ---------- ------------ ----------
Operating loss......................... ( 2,486) ( 1,605) ( 2,655) ( 3,060) ( 320)
Other income
(expense), net....................... 150 128 ( 1,278)(4) 162 ( 42)
------------ ---------- ---------- ------------ ----------
Loss from operations
before extraordinary items........... ( 2,336) ( 1,477) ( 3,933) ( 2,898) ( 278)
Net extraordinary items................ - - - - 346(2)
------------ ---------- ---------- ------------ ----------
Net income (loss)...................... ( 2,336) ( 1,477) ( 3,933) ( 2,898) 68
Dividends on redeemable
preferred stock...................... - - - - ( 4)
------------ ---------- ---------- ------------ ----------
Net income (loss) appli-
cable to common shareholders......... ($ 2,336) ($ 1,477) ($ 3,933) ($ 2,898) $ 64
============ ========== ========== ============ ==========
Loss from operations per share......... ($ .19) ($ .14) ($ .41) ($ .31) ($ .03)
Extraordinary item per share........... - - - - .04
------------ ---------- ---------- ------------ ----------
Net income (loss) per share............ ($ .19) ($ .14) ($ .41) ($ .31) $ .01
============ ========== ========== ============ ==========
Weighted average number of
shares outstanding................... 12,352 10,554 9,493 9,321 7,897
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------------------
1995 PROFORMA(5) 1995 1994 1993 1992 1991
---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1)
Total assets.................. $ 15,529 $ 12,093 $ 8,111 $ 4,065 $ 6,657 $ 3,578
Long term debt................ 181 181 33 -- 4 12
Total liabilities............. 3,420 3,420 1,756 600 726 666
Stockholders' equity.......... 12,109 8,673 6,355 3,465 5,931 2,912
<FN>
- ---------------------
(1) Certain amounts presented in prior years' financial data have been
reclassified to conform to the current year's presentation.
(2) Gain on settlement of indebtedness.
(3) Represents write-off of inventory and related matters. See Note 7 of Notes
to Consolidated Financial Statements
(4) Includes a charge against earnings of $1,336 in connection with the
settlement of certain class action and other litigation. See Note 7 of
Notes to Consolidated Financial Statements.
(5) Subsequent to year end, the Company received net proceeds of $3.4 million
upon the exercise of certain warrants issued in the July 1995 private
placement (See Note 8 (II)(A) of the Notes to Consolidated Financial
Statements). These proforma amounts include the effect of such proceeds on
the December 31, 1995 balances.
</FN>
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FINANCIAL INFORMATION INCLUDED HEREIN SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO. THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993 ARE REFERRED TO HEREIN AS "1995," "1994" AND
"1993." THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD LOOKING
STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER FROM THE RESULTS ANTICIPATED HEREIN AS A RESULT OF THE FACTORS SET
FORTH IN THIS REPORT.
GENERAL
The Company has incurred substantial operating losses over the last several
years and had an accumulated deficit of approximately $17.9 million at December
31, 1995.
The Company's future profitability, to a large extent, will depend upon the
Company's ability to successfully commercialize additional generic
pharmaceutical products. Products must be developed and tested, meet strict
regulatory standards, receive requisite regulatory approvals and be manufactured
on a cost-effective basis before successful commercialization can be achieved.
The development and commercialization process is time consuming and costly.
Delays in any part of the process or the inability of the Company to obtain
regulatory approvals for its products could materially adversely affect the
Company's future results of operations. The Company believes that it takes
between 12 and 30 months from the time an ANDA is filed to the time it is
approved, although such time period has been longer in the past and may be
longer in the future. The Company is dependant on the FDA approval process to
introduce new products to the market. There can be no assurance as to when the
Company will have new products to market, or that if products are approved, they
can be successfully commercialized.
The Company's revenues, gross profit margins and net profitability may vary
significantly from quarter to quarter, as well as in comparison to the
corresponding quarter of the preceding year. Revenue variations may result from,
among other factors, the timing of FDA approvals, the timing of initial
shipments of newly approved drugs and the purchasing practices of the Company's
customers. Additionally, gross profit margins may vary due to, among other
factors, when new products are approved for manufacture and marketing, as well
as competition relating to such products. Net profits or losses may also vary
due to the foregoing, plus the timing and amounts of research and development
("R & D") spending. The Company's R & D costs are expensed as incurred,
resulting in charges to earnings prior to the realization of any revenues from a
product.
RESULTS OF OPERATIONS
1995 VS. 1994
Net sales for 1995 were $10.5 million, representing an increase of $4.3 million
or 70% over net sales of $6.2 million for 1994. Approximately 52% of the
increase in net sales was attributable to sales of products which were
introduced by the Company during 1995 ("New Products"),while the remaining 48%
of the increase in net sales was attributable to sales of products in the
Company's product line during 1994 ("Existing Products"). Approximately 64% of
the increase in New Products was attributable to the December 1995 launch of
Hydroxychloroquine Sulfate. The majority of the increase in sales of Existing
Products was attributable to a full year's inclusion of two products introduced
during 1994 and increased sales of Quinine Sulfate, a prescription drug for the
treatment of malaria. See "Business-Government Regulation" for a description of
the FDA drug review on Quinine Sulfate. With the occurrence of the FDA drug
review on Quinine Sulfate, the competition in the marketplace for this drug has
been reduced and as a result, the Company's market share for this product has
increased. While the Company expects that demand for this product will be strong
for 1996, it is likely that unit sales of this drug will decline in the long
term.
The gross profit for 1995 was $3.4 million, or 32% of net sales, compared to
$1.7 million, or 27% of net sales for 1994. Gross profit, as well as the gross
profit margin, increased due to the introduction of New Products and sales
increases of Existing Products, both of which caused an improvement in the
operating leverage on the Company's fixed costs of manufacturing.
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<PAGE>
The Company increased its R&D expenses to $2.2 million or 21% of net sales in
1995 versus $1.0 million or 16% of net sales in 1994. In actual dollars, R&D
expense increased 130%. The increase in R&D spending, both in dollars and
percentage of sales, reflects the Company's commitment to increasing its R&D
expenditures as it believes such efforts are vital to the future growth of the
Company.
Selling, General & Administrative ("SG&A") expenses increased 58% to $3.6
million or 35% of net sales in 1995, versus $2.3 million or 37% of net sales in
1994. Approximately 14% of the increase in SG&A expenses was attributable to
legal fees associated with the Company's litigation over Captopril (See Note
10(IV) of the Notes to Consolidated Financial Statements). In addition, the
Company's reserve for bad debts was increased by $200,000 as a result of a
substantial increase in trade receivables from 1994 levels. The remaining
increase in SG&A expenses was attributable, in part, to increases in certain
variable expenses which increased in relation to sales, such as royalties.
General and administrative expenses were also impacted by increases in payroll
and related expenses due to pay increases and personnel additions, as well as
higher rent and depreciation associated with the Company's new facility.
As a result of the above factors, the Company's operating loss for 1995 was $2.5
million, compared to $1.6 million for 1994. After accounting for other income
and interest expense, the net loss was $2.3 million for 1995 compared to a net
loss of $1.5 million for 1994.
1994 VS. 1993
Net sales for 1994 were $6.2 million, representing an increase of $2.7 million
or 76% over net sales of $3.5 million for 1993. The increase in net sales was
attributable to unit sales increases of all of the Company's products, as well
as the introduction of two new products during 1994.
The Company's gross profit for 1994 was $1.7 million, or 27% of net sales,
compared to a gross profit of $502,000 or 14% of net sales for 1993. The
increase in the gross profit margin was primarily the result of increased sales
volumes, as well as the introduction of two new products during 1994.
R&D expenses for 1994 were $960,000, which represented 15% of net sales,
compared to $305,000 or 8% of net sales for 1993.
SG&A expenses were $2.3 million for 1994, which represented an increase of
$200,000 over SG&A expenses of $2.1 million in 1993. SG&A expenses as a
percentage of net sales were 37% for 1994, compared to 59% for 1993. The dollar
increase in SG&A was attributable, in large part, to higher selling expenses
(including freight expenses resulting from increased sales), as well as higher
advertising expenses. Increased general and administrative expenses from year to
year resulted primarily from increased payroll expense as a result of personnel
additions required to support increased sales and operations. This increase was
offset during 1994 by significantly lower legal expenses than in 1993. SG&A, as
a percentage of net sales, decreased due to economies of scale resulting from
increased sales during 1994.
Additionally, during 1993, the Company recognized charges (primarily non-cash)
of $1.3 million relating to the settlement of two lawsuits, plus a write-off of
Piroxicam inventory and related matters in the amount of $768,000. After
accounting for other income and interest expense, as well as the factors
described above, the net loss for 1994 was $1.5 million, compared to a net loss
of $3.9 million for 1993.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its capital asset and working capital
requirements and a significant portion of its product development efforts
through sales of its equity securities. In July 1995, the Company raised net
proceeds of $4.4 million in a private placement (See Note 8 (II)(A) of the Notes
to Consolidated Financial Statements).
Year end 1995 cash and cash equivalents decreased $1.0 million from year end
1994. This decrease represents the $4.7 million received from financing
activities (primarily from the July 1995 private placement) less $4.7 million
used in operating activities and $1.0 million used for property and equipment
purchases. Subsequent to year
16
<PAGE>
end, the Company received net proceeds of $3.4 million upon the exercise of
certain warrants issued in the July 1995 private placement (See Note 8(II)(A) of
the Notes to Consolidated Financial Statements).
Year end 1995 net accounts receivable increased by $2.0 million over year end
1994 net accounts receivable, due to an increase of $2.0 million in net sales in
the quarter ending December 31, 1995 over the corresponding 1994 quarter. Fourth
quarter 1995 sales increased as a result of the December 1995 launch of
Hydroxychloroquine Sulfate. Inventory at year end 1995 increased by $2.2 million
over year end 1994 inventory due to a higher level of finished goods and
work-in-process to support higher sales, and increased raw materials associated
with the Company's validation of its manufacturing process for two products for
which ANDAs were pending at December 31, 1995 (approvals were subsequently
received in 1996). The Company expects inventory to increase further during 1996
as it introduces several new products and as it builds up inventory to better
meet customers requirements. Year end 1995 accounts payable increased by $1.1
million over year end 1994 accounts payable due primarily to higher purchases of
raw materials and supplies to support higher levels of production and the
anticipation of the launches of two new products during the first quarter of
1996 (both launches of which occurred).
Property and equipment, net of accumulated depreciation, increased $752,000
between December 31, 1994 and December 31, 1995 to meet growing production
needs. A large portion of this increase related to equipment purchases for
manufacturing and R&D purposes, and to leasehold improvements and furniture in
the Company's new facility. The Company took occupancy of its new facility in
May 1995, thereby freeing up space in its former location to be used for
expansion of manufacturing operations.
As the Company grows, its capital requirements will continue to increase. The
Company must be able to finance its inventory requirements and carry accounts
receivable arising from sales of existing and new products. Growth also requires
the Company to expend funds to make improvements to its facilities and to
acquire additional equipment. New product introductions can be particularly
capital intensive. The launch of a generic version of a brand product upon
expiration of the brand's patent, particularly in a large market product,
requires the Company to purchase raw materials to validate its manufacturing
process prior to the expiration of the patent. Subsequent to the launch of such
a new product, the Company may need to purchase significant quantities of raw
materials to allow it to manufacture sufficient inventory to meet customer
demand. Also, the Company may consider it necessary to purchase raw materials
ahead of an approval in order to be one of the earliest entrants to the market
with such generic product when and if such approval is finally received. Such
commitment of funds will not result in sales of such product unless and until
final approval of the Company's ANDA is received for such product and such
product is launched. Additionally, the Company must be able to carry accounts
receivable relating to sales of such new product. Depending on the circumstances
surrounding new product launches, it can take between four and twelve months
from the time the Company pays for the raw materials to the time it collects
proceeds from sales of new products. In the event ANDA approval is not received
for such new products, the Company may lose funds expended or committed for raw
materials relating to such products.
The Company also requires capital to fund research and development efforts.
Since the beginning of 1994, the Company has accelerated its research and
development efforts and has committed increasing amounts of funds to these
efforts. Resources permitting, the Company anticipates that it will continue to
increase its research and development efforts during future periods.
The Company will continue to monitor its capital requirements and seek
additional capital if and when it becomes necessary. The Company regularly
reviews its capital needs and believes that capital will be available when
required. There can be no assurance, however, that necessary funding will be
available in the future and, if available, that the amounts available will
satisfy all of the Company's capital requirements. If the Company were to be
unable to obtain sufficient capital, it would likely be forced to reduce the
level of its research and development efforts and to make other necessary
changes to its present business plans until such funding could be secured.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
See Items 14(a)(1) and (a)(2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL STATEMENT DISCLOSURE
Not applicable.
17
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item will be included in a definitive
proxy statement filed within 120 days after the end of the
Company's fiscal year and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item will be included in a definitive
proxy statement filed within 120 days after the end of the
Company's fiscal year and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item will be included in a definitive
proxy statement filed within 120 days after the end of the
Company's fiscal year and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item will be included in a definitive
proxy statement filed within 120 days after the end of the
Company's fiscal year and is incorporated herein by reference.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(A) (1) CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants...........................F-1
Consolidated Balance Sheets at December 31, 1995 and 1994................... F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993...........................................F-3
Consolidated Statement of Changes in Stockholders' Equity
for the Three Years Ended December 31, 1995................................F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993...........................................F-5
Notes to Consolidated Financial Statements........................... F-6 - F-19
(A) (2) FINANCIAL STATEMENT SCHEDULES
Schedule VIII Valuation and Qualifying Accounts and Reserves
(A) (3) EXHIBITS
3.1 Articles of Incorporation, as amended (incorporated by reference from
Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992 (the "Form 10-K").
3.2 Certificate of Merger between Auntel Capital, Inc. and Auntel
Acquisition Corp. (incorporated by reference from Exhibit 3.2 to the
Form 10-K).
3.3 Restated and Amended By-laws (incorporated by reference from the Forms
10-K for the fiscal years ended December 31, 1987 and 1989,
respectively).
3.4 Articles of Amendment to Articles of Incorporation (incorporated by
reference from Exhibit 3.2 to the Form 10-K).
3.5 Articles of Amendment to Articles of Incorporation (incorporated by
reference from Exhibit 3.4 to the Company's Registration Statement on
Form S-3, dated October 10, 1995, file no. 33-61917).
4.1 Specimen Certificate of Common Stock (incorporated by reference from
Exhibit 4.1 to the Form 10-K).
4.2 Specimen Warrant Certificate for the Series F Warrants (incorporated
by reference from Exhibit 4.2 to the Company's Registration Statement
on Form S-1, SEC file no. 33-72276).
4.3 Form of Warrant Agreement for the Series F Warrants (incorporated by
reference from Exhibit 4.3 to the Company's Registration Statement on
Form S-2, SEC file no. 33-72276).
10.1 Employment Agreement between Abul K. Bhuiyan and Registrant
(incorporated by reference from Exhibit 10.3 to the Company's
Registration Statement on Form S-2, SEC file no. 33-72276).
10.2 Form of License Agreement between Registrant and Royce Research and
Development Limited Partnership I (incorporated by reference from
Exhibit 10.6 to the Form 10-K).
10.3 Form of Partnership Agreement of Royce Research and Development
Limited Partnership I (incorporated by reference from Exhibit 10.7 to
the Form 10-K).
19
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(A) (3) EXHIBITS
10.4 1992 Stock Option Plan (incorporated by reference from Exhibit 10.9 to
the Company's Registration Statement on Form S-2, SEC file no.
33-72276).
10.5 Lease for new facility between the Company and SKA Associates, dated
September 20, 1994 (incorporated by reference from Exhibit 10.8 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1994).
10.6 Employment Agreement between the Company and Patrick J. McEnany, dated
as of January 1, 1994 (incorporated by reference from Exhibit 10.4 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.7 Lease agreement between the Company and Palmetto Lakes Realty
Associates, Ltd dated April 27, 1995.*
10.8 1995 Stock Option Plan (incorporated by reference from the Company's
1995 Proxy Statement dated June 7, 1995).
10.9 Employment Agreement between the Company and Robert E. Band, effective
November 21, 1994.*
10.10 Employment Agreement between the Company and Loren R. Gelber, dated
as of March 19, 1993 (incorporated by reference from Exhibit 10.10 to
the Company's Registration Statement on Form S-3, SEC file no.
33-84620).
10.11 Employment Agreement between the Company and Nilkanth Patel,
effective May 25, 1988.*
10.12 Employment Agreement between the Company and Eugene Sokol, effective
December 1, 1994.*
10.13 Employment Agreement between the Company and Mohammad N. Rahman,
effective May 5, 1995.*
10.14 Employment Agreement between the Company and Jack Bleau, effective
April 1, 1996.*
21.1 List of Subsidiaries of Registrant (incorporated by reference from
Exhibit 22.1 to the Form 10-K).
23.0 Consent of Price Waterhouse LLP relating to the Company's Registration
Statements on Form S-3 (SEC file nos. 33-84620 and 33-61917) and on
Form S-8 (SEC file nos. 33-61973, 33-61971 and 33-61975).*
* Filed herewith
(B) REPORTS ON FORM 8-K
A Current Report on Form 8-K was filed on December 19, 1995, reporting "Other
Events" under Item 5. No financial statements were required to be filed.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Royce Laboratories, Inc. has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized, in the City
of Miami, Florida on the 26h day of March, 1996.
ROYCE LABORATORIES, INC.
By:/s/PATRICK J. MCENANY
------------------------------
Patrick J. McEnany, President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/PATRICK J. MCENANY Chairman, President, Chief March 26, 1996
- -------------------------------- Executive and Operations
Patrick J. McEnany Officer and Director
- -------------------------------- Director and March , 1996
Richard W. Gross Secretary-Treasurer
/s/HENRY S. KEEL, JR. Director March 26, 1996
- --------------------------------
Henry S. Keel, Jr.
/s/GREGORY REED Director March 26, 1996
- --------------------------------
Gregory Reed
/s/RICK A. WILBER Director March 26, 1996
- --------------------------------
Rick A. Wilber
/s/DAVID COHEN Director March 26, 1996
- --------------------------------
David Cohen
/s/CHARLES J. SIMONS Director March 26, 1996
- -------------------------------
Charles J. Simons
/s/HUBERT HUCKEL Director March 26, 1996
- -------------------------------
Hubert Huckel
/s/OGDEN R. REID Director March 26, 1996
- -------------------------------
Ogden R. Reid
/s/ROBERT E. BAND Vice President, Finance and March 26, 1996
- ------------------------------- Chief Financial Officer
Robert E. Band
/s/CLAUDE BERTRAND Controller March 26, 1996
- -------------------------------
Claude Bertrand
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Royce Laboratories, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 19 present fairly, in all material
respects, the financial position of Royce Laboratories, Inc. and its subsidiary
at December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Miami, Florida
February 28, 1996
F-1
<PAGE>
ROYCE LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARES)
DECEMBER 31,
-----------------
ASSETS 1995 1994
- ------ ------- -------
Current assets:
Cash and cash equivalents $ 2,291 $ 3,323
Accounts receivable, net of allowances
of $909 and $385, respectively 3,466 1,453
Inventories 4,212 2,049
Prepaid expenses and other current assets 315 223
------- -------
Total current assets 10,284 7,048
Property and equipment, net 1,732 980
Other assets 77 83
------- -------
$12,093 $ 8,111
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,521 $ 1,376
Accrued liabilities 628 322
Current maturities of long-term debt 90 25
------- -------
Total current liabilities 3,239 1,723
Long-term debt 181 33
------- -------
Total liabilities 3,420 1,756
------- -------
Commitments and contingencies -- --
------- -------
Stockholders' equity:
Common stock, $.005 par value, 35,000,000 shares
authorized; 12,838,466 and 11,954,451
shares issued, respectively 64 60
Additional paid-in capital 26,471 21,821
Accumulated deficit (17,851) (15,515)
Treasury stock (2,500 shares, at cost) ( 11) ( 11)
------- -------
Total stockholders' equity 8,673 6,355
------- -------
$12,093 $ 8,111
======= =======
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-2
<PAGE>
<TABLE>
<CAPTION>
ROYCE LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1995 1994 1993
----------------- --------------- ----------------
<S> <C> <C> <C>
Net sales $ 10,503 $ 6,191 $ 3,519
Cost of goods sold ( 7,143) ( 4,538) ( 3,017)
----------------- --------------- ----------------
Gross profit 3,360 1,653 502
Expenses:
Research and development ( 2,212) ( 960) ( 305)
Selling, general and administrative ( 3,634) ( 2,298) ( 2,084)
Write-off of inventory ( - ) ( - ) ( 768)
----------------- --------------- ----------------
Operating loss ( 2,486) ( 1,605) ( 2,655)
----------------- --------------- ----------------
Other income (expense):
Interest income 161 64 64
Interest expense ( 36) ( 10) ( 4)
Settlement of lawsuits - - ( 1,336)
Miscellaneous income (expense) 25 74 ( 2)
----------------- --------------- ----------------
150 128 ( 1,278)
----------------- --------------- ----------------
Net loss ($ 2,336) ($ 1,477) ($ 3,933)
================= =============== ================
Per share data:
Loss per share ($ .19) ($ .14) ($ .41)
================= =============== ================
Weighted average number of
shares outstanding 12,352,235 10,554,228 9,493,428
================= =============== ================
</TABLE>
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
<TABLE>
<CAPTION>
ROYCE LABORATORIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1995
(IN THOUSANDS EXCEPT SHARES)
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID IN ACCUMULATED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT STOCK EQUITY
------ ------ ------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 9,361,572 $ 47 $ 16,000 ($ 10,105) ($ 11) $ 5,931
Issuance of common stock -
exercise of options 168,254 1 138 - - 139
Issuance of common stock
in payment of
Company obligations 268,801 1 1,327 - - 1,328
Net Loss - - - ( 3,933) - ( 3,933)
---------- --------- -------------- ------------ ----------- -----------
BALANCE AT DECEMBER 31, 1993 9,798,627 49 17,465 ( 14,038) ( 11) 3,465
Issuance of common stock to
employees 3,254 - 26 - - 26
Payment of debt by a director - - 38 - - 38
Issuance of common stock -
exercise of
warrants and option 152,570 1 200 - - 201
Issuance of common stock -
private placement 2,000,000 10 4,116 - - 4,126
Reclassification of loan to
director - - ( 24) - - ( 24)
Net loss - - - ( 1,477) - ( 1,477)
---------- --------- -------------- ------------ ----------- -----------
BALANCE AT DECEMBER 31, 1994 11,954,451 $ 60 $ 21,821 ($ 15,515) ($ 11) $ 6,355
Issuance of common stock in
payment of Company
obligations 12,017 - 32 - - 32
Issuance of common stock -
exercise of options 38,665 - 131 - - 131
Costs related to
stock options earned by a
customer - - 57 - - 57
Collection of loan from officer - - 27 - - 27
Adjustment related to 1994
private placement - - (15) - - (15)
Issuance of common stock -
private placement 833,333 4 4,418 - - 4,422
Net loss - - - ( 2,336) - ( 2,336)
---------- --------- -------------- ------------ ----------- -----------
BALANCE AT DECEMBER 31, 1995 12,838,466 $ 64 $ 26,471 ($ 17,851) ($ 11) $ 8,673
========== ========= ============== ============ =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
ROYCE LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS EXCEPT IN SUPPLEMENTAL DISCLOSURES)
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($ 2,336) ($ 1,477) ($ 3,933)
Adjustments to reconcile net loss
to net cash used in operating activities:
Stock issued in settlement of lawsuits - - 1,319
Depreciation 301 211 139
Change in operating assets and liabilities:
(Increase) in accounts receivable ( 2,013) ( 650) ( 494)
(Increase) decrease in inventories ( 2,163) ( 821) 953
(Increase) in prepaid expenses and
other current assets ( 92) ( 75) ( 55)
Decrease (increase) in other assets 9 ( 60) 4
Increase (decrease) in accounts payable 1,145 1,087 ( 195)
Increase in accrued liabilities 395 40 87
------------- ------------- -------------
Net cash used in operating activities ( 4,754) ( 1,745) ( 2,175)
------------- ------------- -------------
Cash flows from investing activities:
Acquisition of property and equipment ( 955) ( 548) ( 217)
------------- ------------- -------------
Net cash used in investing activities ( 955) ( 548) ( 217)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 171 75 -
Repayments of long-term debt ( 59) ( 20) ( 9)
Net proceeds from issuance of common stock 4,538 4,299 138
Payment of debt by a director or officer 27 38 -
------------- ------------- -------------
Net cash provided by financing activities 4,677 4,392 129
------------- ------------- -------------
Net (decrease) increase in cash and cash
equivalents ( 1,032) 2,099 ( 2,263)
Cash and cash equivalents, beginning of year 3,323 1,224 3,487
------------- ------------- -------------
Cash and cash equivalents, end of year $ 2,291 $ 3,323 $ 1,224
============= ============= =============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
During 1995, 1994 and 1993, the Company made cash payments for interest of
approximately $26,000, $10,000 and $4,000, respectively.
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
In 1995, the Company issued 12,017 shares of unregistered common stock in
satisfaction of contract obligations.
In 1995, the Company incurred $101,000 in capital lease obligations for new
equipment.
In 1994, the Company issued 30,600 shares of common stock to Paradise Valley
Securities, Inc. ("PVS") (See Note 8 (III)(H)).
In 1993, in connection with a settlement of certain class action litigation, the
Company issued 250,000 shares of common stock (See Note 7(I)). In addition, in
1993, the Company issued 18,801 shares of unregistered common stock in lieu of
cash payments for services rendered.
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
ROYCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
I. Operations
Royce Laboratories, Inc. (the "Company") is a Florida corporation engaged in
developing, manufacturing and marketing generic prescription and
non-prescription drugs in solid dosage form (tablets and capsules). The
Company sells its products primarily to U.S. based drug wholesalers, generic
drug distributors, retail buying groups, managed care organizations and drug
chains.
In October 1991, the Company formed a wholly-owned subsidiary, Royce Research
Group, Inc. ("RRGI") to engage, through a licensing agreement with the
Company, in the development and marketing of five generic prescription drugs
(See Note 9).
II. Summary of significant accounting policies
A summary of the significant accounting policies followed by the Company in
the preparation of the accompanying financial statements is presented below.
(A) Principles of consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All significant intercompany
balances and transactions have been eliminated.
(B) Fair value of financial instruments
The financial instruments included in the Company's balance sheets are cash
and cash equivalents and long-term debt. These instruments were carried at
amounts approximating fair value at December 31, 1995 and 1994. The fair
value of long-term debt was estimated based on future cash flows discounted
at current interest rates available to the Company for instruments with
similar maturities and characteristics.
(C) Concentration of credit risk
The Company is potentially subject to a concentration of credit risk
consisting of its accounts receivable, the entire balance of which is due
from generic drug distributors, wholesalers, retail buying groups, managed
care organizations and drug chains. The Company assesses the financial
strength of its customers and does not require collateral. The Company
maintains reserves for potential losses from uncollectible accounts.
(D) Cash and cash equivalents
Cash on hand, deposits in banks, and money market funds, and other highly
liquid investments with an original maturity of three months or less, are
considered cash and cash equivalents.
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
ROYCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(E) Inventory
Inventory is stated at the lower of cost or market. Cost is determined
principally by the first-in, first-out method.
(F) Property and equipment
Property and equipment is stated at cost, less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. Amortization of leasehold
improvements is computed using the straight-line method over the shorter of
the lease term or estimated useful lives of the related assets. Expenditures
for repairs and maintenance are charged to expense as incurred, while
expenditures which extend the useful lives of assets are capitalized.
(G) Income taxes
The Company records income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based upon
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted income tax rates that will be
in effect when the differences are expected to reverse. An allowance is
recorded when it is more likely than not that any or all of a deferred tax
asset will not be realized. The provision for income taxes includes taxes
currently payable plus the net change during the year in deferred tax assets
and liabilities recorded by the Company.
(H) Capital
The Company effected a 1-for-3 reverse stock split in December 1993. All
share amounts referred to in these financial statements and notes have been
adjusted for the stock split.
(I) Revenue recognition
Sales are recorded at the time goods are shipped.
(J) Research and development costs
All research and development costs are expensed as incurred.
(K) Loss per share
Loss per share amounts are computed by dividing net losses by the weighted
average number of shares of common stock outstanding during each of the
periods. Warrants, options and other common stock equivalents have not been
included in the calculation of loss per share because their effect would be
antidilutive.
(L) Reclassifications
Beginning in 1995, volume rebates awarded to customers have been recorded in
net sales. Prior to 1995, such rebates were recorded in selling expenses.
Prior year financial statements have been reclassified to reflect this
change. The effect of this reclassification was to decrease net sales and
selling, general and administrative expenses by $380,000 and $91,000 for the
years ended December 31, 1994 and 1993, respectively.
In addition, certain other amounts in the 1993 and 1994 financial statements
have been reclassified to conform to the 1995 presentation.
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-7
<PAGE>
ROYCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(M) Stock based compensation
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Account Standards No. 123, Accounting For Stock Based
Compensation ("SFAS 123"). SFAS 123, the disclosure provisions of which must
be implemented for fiscal years beginning subsequent to December 15, 1995,
establishes a fair value based method of accounting for stock based
compensation plans, the effect of which can either be disclosed or recorded.
The Company will adopt the provisions of SFAS 123 in 1996. Upon adoption, the
Company intends to retain the intrinsic value method of accounting for stock
based compensation, which it currently uses.
(N) Management estimates
The preparation 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.
The most significant estimates made by management in the accompanying
financial statements relate to accounts receivable allowances. Actual results
could differ from those estimates.
NOTE 2. INVENTORIES
Inventories consisted of the following (in thousands):
1995 1994
------- -------
Raw materials $ 2,439 $ 1,426
Work-in-process 783 284
Finished goods 990 339
------- -------
$ 4,212 $ 2,049
======= =======
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
DECEMBER 31, ESTIMATED
----------------------------- USEFUL LIVES
1995 1994 (YEARS)
---------- ---------- ------------
Leasehold improvements $ 529 $ 216 5 - 10
Machinery and equipment 1,948 1,501 3 - 7
Transportation equipment 17 13 3
Furniture and equipment 435 146 3 - 7
---------- ----------
2,929 1,876
Less accumulated depreciation
and amortization ( 1,197) ( 896)
---------- ----------
$ 1,732 $ 980
========== ==========
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-8
<PAGE>
ROYCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
NOTE 4. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
DECEMBER 31,
-----------------------
1995 1994
-------- --------
<S> <C> <C>
Notes payable to banks, payable in monthly installments, including
interest at rates ranging from 9.6% to 10.5% per annum for terms
expiring at various dates through March 2000, secured by furniture
and equipment. $ 186 $ 58
Capital lease obligations, net of imputed interest of $16, payable in
monthly installments including interest at imputed rates ranging from
10.8% to 13.0% per annum for terms expiring at various dates
through May 1999, secured by equipment. 85 -
---------- ------------
271 58
Less current maturities ( 90) ( 25)
---------- ------------
$ 181 $ 33
========== ============
</TABLE>
Annual maturities of long-term debt including capital lease obligations at
December 31, 1995 were as follows:
1996 $ 90
1997 81
1998 59
1999 32
2000 9
-----------
$ 271
===========
NOTE 5. MAJOR CUSTOMERS
The table below reflects the percentage of total net sales that major
customers (i.e., customers who accounted for more than 10% of the Company's
total net sales in any year) accounted for:
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
---- ---- ----
Customer A 13% 14% 15%
Customer B - 10% -
Customer C 12% - 12%
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-9
<PAGE>
ROYCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. INCOME TAXES
At December 31, 1995 and 1994, the Company had a deferred tax asset of
approximately $6.0 million and $5.4 million, respectively, attributable
primarily to net operating loss carryforwards. The Company has established a
valuation allowance for 100% of the deferred tax asset due to the
uncertainties related to its eventual realizability. The change in the
Company's net deferred tax asset and the related valuation allowance in 1995
was due to losses incurred for income tax purposes during the year. The
Company has net operating loss carryforwards of approximately $16.0 million
for tax purposes which expire between the years 2000 and 2010.
As a result of certain changes in the Company's ownership during 1991, the
utilization of net operating loss carryforwards has been limited to
approximately $350,000 per year for losses incurred prior to 1991. Future
changes in the Company's ownership, if any, may have the effect of further
limiting the annual utilization of loss carryforwards.
NOTE 7. OTHER MATTERS
I. Class action settlement
In April 1992, several class action lawsuits were filed against the Company
and certain of its officers and directors (the "Defendants"). The complaints
alleged that the Defendants had misrepresented the Company's prospects for
obtaining final approval from the Food and Drug Administration ("FDA") to
manufacture and market Piroxicam. On September 28, 1993, the U.S. District
Court approved a settlement of the class action lawsuits. Pursuant to the
settlement agreement, the company agreed to (i) pay $850,000 which was funded
by the Company's Directors and Officers liability insurance; (ii) issue
250,000 shares of free trading common stock; and (iii) issue five year
warrants (See Note 8(III)(E)), to purchase 658,333 shares of free trading
common stock at $15.00 per share. All such shares and warrants were
distributed in early 1995. In 1993, the Company recorded a charge to earnings
of $1,336,000 related to this settlement. Such charge represented the market
value of the 250,000 shares on the settlement date.
II. Write off of inventory and receivables
As a result of the Company's withdrawal of its abbreviated new drug
applications for Minoxidil, Haloperidol and Piroxicam, the Company wrote off
inventory and issued credits to customers in the amounts of $792,000 in 1993.
NOTE 8. CAPITAL STOCK
I. Capital stock - authorized and issued
At December 31, 1995, the Company had authorized 200,000 shares of preferred
stock, $.005 par value (the "Preferred Stock"), none of which was issued and
outstanding.
In addition to its 12,838,466 common shares issued, the Company had a total
of 3,047,143 warrants and options outstanding at December 31, 1995.
II. Stock offerings
A) 1995 Private Placement
During July 1995, the Company completed a $5 million private placement ("1995
Private Placement") of 833,333 units at a price of $6.00 per unit. Each unit
consisted of one share of common stock, $.005 par value, and a
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-10
<PAGE>
ROYCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. CAPITAL STOCK (CONTINUED)
twelve month warrant (the "Private Warrants") to purchase one share of common
stock at an exercise price of $6.50 per share. The price of the shares was
determined in arms-length negotiations between the Company and the placement
agent, Gruntal & Co., Incorporated ("Gruntal"). The Company received
aggregate net proceeds of approximately $4.4 million from this offering. In
addition to fees for serving as the placement agent, Gruntal received
three-year warrants (See Note 8(III)(C)) to purchase 83,333 shares of common
stock at an exercise price of $6.00 per share.
In August 1995, the Company filed a registration statement relating to the
shares of common stock sold in the 1995 Private Placement and the shares of
common stock underlying the warrants sold in the private placement. Such
registration statement was declared effective under the Securities Act of
1933, as amended, during October 1995. The Company has also agreed to use its
best efforts to maintain the effectiveness of the registration statement
until July 1997.
On December 12, 1995, the Company reduced the exercise price of the Private
Warrants from $6.50 to $6.00 for a 60 day period as an incentive for warrant
holders to exercise. Subsequent to December 31, 1995, the Company issued
581,333 shares of its common stock as a result of the exercise of 581,333
Private Warrants. Net proceeds from the exercise of these warrants amounted
to approximately $3.4 million.
B) 1994 Private Placement
During September 1994, the Company completed a private placement ("1994
Private Placement") in which the Company sold an aggregate of 2,000,000
shares of its common stock at a price of $2.50 per share. The price of the
shares was determined in arms-length negotiations between the Company and
Gruntal, which acted as the placement agent of this offering. In addition to
fees for serving as the placement agent, Gruntal also received 200,000
warrants (See Note 8(III)(D)). The Company received aggregate net proceeds of
approximately $4.1 million from this offering. A registration statement
relating to the shares sold in the 1994 Private Placement is effective as of
the date of these financial statements.
III. Stock options, warrants and rights
A) Employee and director stock option plans
(1) Description
In 1992, the Company established a stock option plan which provides for the
granting at the fair market value of the underlying shares at the date of
grant, of incentive options for its employees, officers and directors (the
"1992 Plan"). The 1992 Plan provides for the grant of up to 333,333 shares of
common stock to officers, directors and other key employees. The 1992 Plan
provides for mandatory grants to directors for serving on the Board of
Directors, committees of the Board of Directors, as chairman of committees
and as Chairman of the Board of Directors. Options granted pursuant to the
1992 Plan expire five years from the date they become vested, which is, in
most cases, over a three year period beginning with the grant date. The 1992
Plan is administered by the Compensation Committee of the Board of Directors.
At the Company's annual meeting of shareholders on July 25, 1995, the
shareholders approved the Board of Directors' adoption of a new stock option
plan (the "1995 Plan"). Under the 1995 Plan, the Board is authorized to issue
options to purchase up to 550,000 shares of common stock to officers,
directors, and other key employees. The 1995 Plan provides for mandatory
grants to directors for serving on the Board of Directors, committees of the
Board of Directors, as chairman of committees and as Chairman of the Board of
Directors, which mandatory grants of options superceded the options grants
provided for in the 1992 Plan. The exercise
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-11
<PAGE>
ROYCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. CAPITAL STOCK (CONTINUED)
price of options granted under the 1995 Plan must equal or exceed the fair
market value of the common stock on the date such options are granted. No
options issued under the 1995 Plan may be exercised more than ten years from
the date of grant. The Compensation Committee of the Board of Directors is
responsible for administering the 1995 Plan.
All employee and director options expire at various times between 1996 and
2005.
(2) Employee and director stock option activity in 1995
In 1995, the Board of Directors granted a total of 35,828 stock options under
its 1995 Plan to the President and the outside directors for their services
on the Board and its committees. These options are exercisable at $8.44 per
share and expire in April 2000. During 1995, the Company also granted 110,000
stock options to certain employees of the Company. These options vest
generally over three years, are exercisable at prices between $5.91 and $9.00
per share and expire five years from their vesting dates. All of the above
options were issued at or above the fair market value of the Company's common
stock at the date of grant.
Below is a table summarizing transactions and other relevant data pertaining
to employee and director stock options:
NUMBER OF PRICE PER
1992 PLAN OPTIONS SHARE
- --------- --------- ---------
Options outstanding at December 31, 1992 97,494 $ 9.56 - $25.41
Options granted 113,329 $ 4.50 - $7.69
---------
Options outstanding at December 31, 1993 210,823 $ 4.50 - $25.41
Options granted 85,829 $ 4.63 - $ 5.75
---------
Options outstanding at December 31, 1994 296,652 $ 4.50 - $25.41
Options granted 103,761 $ 5.91 - $9.00
Options exercised ( 9,166) $ 5.75 - $6.63
Options canceled ( 67,080) $19.50 - $25.41
---------
Options outstanding at December 31, 1995 324,167 $ 4.50 - 25.41
=========
1995 PLAN
- ---------
Options outstanding at December 31, 1994 - -
Options granted 42,067 $ 8.44 - $9.00
---------
Options outstanding at December 31, 1995 42,067 $ 8.44 - $9.00
=========
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-12
<PAGE>
ROYCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. CAPITAL STOCK (CONTINUED)
NON-PLAN STOCK OPTIONS
----------------------
Options outstanding at December 31, 1992 446,137 $.75 - $25.41
Options granted 9,999 $6.56
Options exercised ( 137,560) $.75
----------
Options outstanding at December 31, 1993 318,576 $.75 - $25.41
Options granted 462,500 $3.00 - $6.75
Options exercised ( 105,665) $.75
Options canceled ( 3,334) $.75
----------
Options outstanding at December 31, 1994 672,077 $.75 - $25.41
Options exercised ( 29,499) $.75 - $6.56
----------
Options outstanding at December 31, 1995 642,578 $.75 - $25.41
==========
At December 31, 1995, 623,809 of the previously described options were
vested.
B) 1995 private placement warrants
As part of the Company's 1995 Private Placement, the Company issued 833,333
Private Warrants.
Each Private Warrant entitles the holder to purchase one share of common
stock at an exercise price of $6.50 per share. The exercise price is subject
to increase or decrease upon the happening of certain corporate events
including, but not limited to the payment of any stock dividend, stock split,
stock combination or similar transaction. The Private Warrants may be
exercised at any time through July 20, 1996, unless such period is extended
by the Company.
On December 12, 1995, the Company reduced the exercise price of the Private
Warrants from $6.50 to $6.00 for a 60 day period as an incentive for warrant
holders to exercise their Private Warrants. Subsequent to December 31, 1995,
the Company issued 581,333 shares of its common stock as a result of the
exercise of 581,333 Private Warrants. Net proceeds from the exercise of these
warrants amounted to approximately $3.4 million.
C) 1995 Gruntal warrant
As part of its compensation for acting as the placement agent in connection
with the 1995 Private Placement, Gruntal received the 1995 Gruntal warrant
which allows them to purchase 83,333 shares of common stock at an exercise
price equal to $6.00 per share, exercisable until July 21, 1998. The holder
of the 1995 Gruntal warrant may pay the exercise price in cash or use a
cashless exercise. In a cashless exercise, the holder of the 1995 Gruntal
warrant has the right at any time to exercise the warrant in whole or in part
by surrendering the warrant certificate in exchange for the number of shares
of common stock equal to (x) the number of shares as to which the 1995
Gruntal warrant is being exercised multiplied by (y) a fraction, the
numerator of which is the market price (as defined in the 1995 Gruntal
warrant) of the common stock at the date of exercise less the exercise price
and the denominator of which is such market price. The 1995 Gruntal warrant
provides for an adjustment of the
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-13
<PAGE>
ROYCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. CAPITAL STOCK (CONTINUED)
exercise price and the number and type of securities issuable upon the
exercise thereof upon the occurrence of certain events, including the payment
of any stock dividend stock split, stock combination or similar transaction.
D) 1994 Gruntal warrant
As part of its compensation for acting as the placement agent in connection
with the 1994 Private Placement, Gruntal received warrants which allow them
to purchase 200,000 shares of common stock at an exercise price equal to
$3.50 per share, exercisable until August 12, 1999. The holder of the 1994
Gruntal warrant may pay the exercise price in cash or use a cashless
exercise. The provisions for a cashless exercise and adjustments to the
exercise price are similar to those described above for the 1995 Gruntal
warrant.
E) Class action settlement warrants
In accordance with the settlement in 1993 of the class action lawsuit, during
the first quarter of 1995, the Company issued warrants to purchase 658,333
shares of common stock (See Note 7(I)). Each of these warrants (the "Series F
Warrants") entitles the holder to purchase one share of common stock at an
exercise price of $15.00 per share. The Series F Warrants are exercisable
through December 1999, unless such period is extended by the Company. The
exercise price and the number of shares of common stock to be purchased upon
the exercise of each Series F Warrant are subject to increase or decrease
upon the happening of certain corporate events, including but not limited to
the payment of any stock dividend, stock split, stock combination or similar
transactions.
The Series F Warrants may be called at the sole option of the Company upon
thirty days prior written notice to the registered holders thereof so long as
the common stock trades above $18.00 per share for 20 consecutive trading
days ending not more than 10 days prior to the date that the notice of
redemption is given. Any such redemption shall be for all outstanding Series
F Warrants. If the Company elects to redeem the Series F Warrants, then the
Warrant holders shall have the rights to exercise their Series F Warrants
until the redemption date, and thereafter, the holder shall only be entitled
to receive the redemption price therefor.
F) 1992 public offering warrants
As part of the Company's 1992 public offering, 1,150,000 warrants (the
"Public Warrants") were issued. Each Public Warrant entitled the holder to
purchase one sixth (1/6) of a share of common stock (six Public Warrants were
required to purchase one share of common stock) at an exercise price of $30
per Share. On July 8, 1995, all such warrants expired unexercised.
G) 1992 underwriters warrants
The Company has outstanding underwriters' warrants relating to its 1992
public offering ("the 1992 Underwriters Warrants"). Paradise Valley
Securities, Inc. ("PVS"), the managing underwriter of the Company's January
1992 public offering and designees of Chatfield Dean and Co., Inc., one of
the underwriters of such offering, own an aggregate of 33,333 1992
Underwriters Warrants to purchase units of the Company's securities at an
exercise price of $21.60 per unit. Each unit consists of 2 shares of common
stock and a warrant to purchase 1/2 of a share of common stock at an exercise
price of $30 per share. The exercise price and the number of shares of common
stock and warrants which can be purchased upon the exercise of the 1992
Underwriters' Warrants are subject to increase of decrease upon the happening
of certain events, and in the event that the Company issues shares of common
stock at less than $9.00 per share. The issuance of the shares of common
stock and, if issued, the warrants, will cause a reduction in the exercise
price of and an increase in the number of shares of common stock issuable
upon the exercise of this warrant. Issuances of securities subsequent to the
date of issuance of the 1992
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-14
<PAGE>
ROYCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. CAPITAL STOCK (CONTINUED)
Underwriters Warrants have reduced the exercise price of the units to
approximately $17.25 per unit and increased the number of units available for
purchase to approximately 40,000 units. The warrants are exercisable through
January 9, 1997.
H) 1991 public offering warrants
In August 1993, PVS exercised an "Underwriter's Warrant" issued in connection
with the Company's February 1991 public offering. The Underwriter's warrant
entitled PVS to purchase 15,300 Units of the Company's securities. Each unit
consisted of eight shares of common stock, $.005 par value, and two common
stock purchase warrants, at an exercise price of $7.68 per Unit. In
connection with the exercise of this Underwriter's Warrant, the Company
issued 122,400 shares of its common stock and a warrant to purchase 30,600
shares and received $117,504 from the Underwriter.
On May 2, 1994, PVS exercised their warrant to purchase 30,600 shares of the
Company's common stock. The exercise price of the warrant was $3.00 per
share, representing an aggregate exercise price of $91,800. PVS paid the
Company $45,225, which represents the difference between the aggregate
exercise price and a credit of $46,575, which the Company granted to PVS in
return for PVS agreeing to waive its right of first refusal contained in the
underwriting agreement relating to the Company's 1992 public offering. In
connection with this agreement, the Company and PVS executed mutual releases
with respect to all matters arising under the 1992 underwriting agreement and
with respect to the class action litigation.
I) Customer options
In June 1991, the Company entered into an option agreement with a customer,
which agreement was subsequently assigned to the customer's parent. Under the
agreement, the customer was granted a five-year option to purchase shares of
the Company's common stock at $1.875 per share, upon the satisfaction of
certain purchase targets. Options earned are determined as of June 30 of each
year based on the previous 12 months' purchases by the customer. As of
December 31, 1995, the maximum number of options the customer could earn
through the end of this agreement in June 1996 is 106,666 options. If the
customer earns options for the contract year ended June 30, 1996 and at that
date a spread exists whereby the fair market value per share exceeds the
option price (the "Spread"), the Company will record a charge to earnings
equal to the Spread times the number of options earned.
In February 1995, the Company entered into an agreement with another customer
whereby the customer agreed to engage the Company as its sole supplier of the
Company's present and future products for a five year period subject to
certain exceptions. In return, the Company granted the customer stock options
to purchase up to 50,000 shares of common stock at $6.00 per share, the
market price on the date of grant. Such options vest at the rate of 9,000 per
year, with 5,000 options vesting upon entering into this agreement. In
connection with this agreement, the Company has recorded a charge to earnings
of approximately $66,000 in 1995.
J) Anti-takeover right
Certain provisions of the Articles and Bylaws of the Company may be deemed to
have an anti-takeover effect and may delay, defer or prevent a tender offer
or takeover attempt, including an attempt that might result in a premium
being bid over the market price for the shares held by shareholders. Several
provisions may not be amended in the Company's Articles and Bylaws without
the affirmative vote of the shareholder of 80% of the outstanding shares of
common stock.
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-15
<PAGE>
ROYCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. CAPITAL STOCK (CONTINUED)
A supermajority (80%) vote of the shareholders is required to approve certain
transactions with an entity of which 10% or more is beneficially owned by a
10% or more shareholder of the company, unless such transaction is approved
by a majority of the continuing directors.
The Company has a classified Board of Directors divided into three classes
serving staggered terms. At each annual meeting, approximately one-third of
the director's terms of office expire for which elections are held. Directors
may be removed from office only for cause and only by supermajority vote of
the shareholders.
In addition, shareholder action must be effected at a duly called annual or
special meeting of the shareholders and may not be effected by written
consent. Special meetings are called by the Board of Directors pursuant to a
resolution approved by a majority of the entire Board of Directors.
NOTE 9. R&D LIMITED PARTNERSHIP
In 1991, the Company, through its subsidiary RRGI, completed the funding of a
research and development limited partnership (the "Partnership"). The
Partnership received net proceeds of $1,035,000 from its partners to develop
five generic prescription drugs ("Licensed Drugs"). The Partnership's funds
were paid, in part, to the Company for its services in developing the
Licensed Drugs and to obtain a one-percent royalty interest in the gross
revenue derived from the commercial sale of Piroxicam for a three-year
period, with the remainder paid to third party vendors used in the
development of the products. As remuneration for developing the Licensed
Drugs, the Company received $40,000 and $52,000 in 1994 and 1993,
respectively, from the Partnership. In return for funding the development of
the Licensed Drugs, the Partnership will receive a royalty of 10 percent of
the net revenues generated by sales of the Licensed Drugs over a five-year
period.
As of March 1, 1996, the Company had received FDA approvals for three of the
Licensed Drugs and Piroxicam. Applications are pending for the other two
Licensed Drugs. The Company incurred royalty expenses of $69,000 in 1995
related to the sales of the Licensed Drugs and Piroxicam.
NOTE 10. COMMITMENTS AND CONTINGENCIES
I. Operating leases
The Company leases its 25,000 square foot production facility under an
operating lease that expires on July 31, 2000 and provides for two five-year
renewal options. The Company has also agreed to lease an additional 10,228
square foot space contiguous to its existing space when it becomes available,
but no later than November 1996. Pursuant to the lease agreement, the Company
also has an option throughout the term of the lease, including renewal
periods, to purchase the entire building and an adjacent building at a
specified price. Annual rent under the lease is approximately $137,000,
subject to annual cost of living increases.
The Company also leases another nearby 40,000 square foot facility which
houses its executive offices, warehouse and in the future and, will house its
research and development laboratory. The lease is for a 10 1/2 year term,
with two five-year renewal options. The lease requires the Company to make
annual lease payments of approximately $195,000. The Company also has an
option to purchase the leased facility during the first twelve-months of the
lease and during the sixth year of the lease at a specified price.
Total rental expense for operating leases was $324,000, $178,000 and $167,000
for 1995, 1994 and 1993, respectively. The terms of the operating leases for
the Company's facilities require the Company to maintain minimum insurance
coverage and to pay property taxes and repair and maintenance expenses.
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-16
<PAGE>
ROYCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
At December 31, 1995, future minimum lease payments under all non-cancelable
operating leases are as follows (in thousands):
1996 $ 256
1997 260
1998 265
1999 269
2000 216
Thereafter 750
-------
Total minimum lease payments $ 2,016
=======
II. Other commitments
A) Purchase commitments
The Company has entered into a development agreement with a raw material
supplier to develop two products and to purchase its raw material
requirements for these products from the supplier. So long as the Company
files ANDAs, obtains approval of same within a specified time period and
thereafter satisfies certain purchase requirements, the supplier has agreed
that the Company shall be its only customer for this raw material in the
United States, Canada and Mexico. The Company currently has ANDAs pending for
both products.
B) Product license agreement
In August 1993, the Company entered into a perpetual license agreement with
the formulator of a drug whereby the Company has agreed to pay the formulator
a sliding royalty with a maximum of 10 percent of net sales of this product
for a ten-year period. In 1994, the Company paid the formulator certain fees
($70,000 in cash) when the Company received an acceptable bioequivalency
study for this drug and charged such fees to expense. In 1995, the Company
issued the formulator 10,695 shares in unregistered common stock upon the
filing of an ANDA for this drug and accordingly charged $24,000 to expense.
In 1995, the royalty expense incurred for this product was $38,000.
C) Foreign distribution agreements
On July 31, 1994 the Company entered into a license agreement with an
Australian pharmaceutical manufacturer with respect to the licensing of one
or more products developed by the Company. The license permits the Australian
manufacturer to develop, manufacture and market the licensed products in the
Pacific Rim markets, including Australia, New Zealand, Japan, Taiwan and Hong
Kong (the "Territory").
Although the Company and the Australian manufacturer have agreed on the first
product to be licensed under the agreement, there can be no assurance that
any other products will be licensed under such agreement. The Company is not
obligated under such agreement to license any products to the Australian
manufacturer other than the first product, and the Australian manufacturer is
not obligated to accept and license any additional product from the Company.
Under the agreement, the Company will receive a royalty from the Australian
manufacturer with respect to any sales of the licensed products by such
manufacturer in the Territory.
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-17
<PAGE>
ROYCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In November 1994, the Company entered into a license agreement with a
Canadian pharmaceutical company. Pursuant to the agreement, the Canadian
company licensed the right to manufacture or purchase from the company at
normal selling prices and distribute eight of the Company's products under
its private label. Under the agreement, the Company will receive a royalty on
the Canadian company's sales of the licensed products in Canada.
III. Employment Contracts
In 1994, the Company entered into employment contracts with certain officers,
the most significant of which is with the Company's President. The
President's contract provides for an annual base salary, plus cost of living
increases, plus a bonus equal to three percent of pre-tax income, the total
not to exceed three times the President's base salary. Additionally, the
President was granted options to purchase up to 250,000 shares of common
stock at a price of $6.75 per share. Such options become exercisable at the
rate of 50,000 each January 1st, beginning January 1, 1994. The agreement and
these options expire December 31, 1998. The President has agreed not to
compete with the Company for a period of eighteen months after termination of
his employment.
Each contract with the Company's other officers provides for a minimum base
salary, bonuses and stock options, which generally vest over a three-year
period. These contracts expire at various dates between 1995 and 1997.
IV. Contingencies
A) Litigation
In February 1993, the Securities and Exchange Commission initiated a formal
investigation into possible violations of the federal securities laws by the
Company and certain of its officers and directors. The SEC's examination is
focusing on the Company's public disclosure during the period between July
1991 and April 1992 regarding the status of the Company's ANDAs for Piroxicam
and Minoxidil and on sales of securities during this period by certain
persons, including Company executive officers and/or directors. The Company
believes that the SEC's investigation is ongoing. While no assurances can be
given as to the outcome of the SEC's investigation, the Company does not
believe such outcome will have a material adverse effect on the Company's
financial condition or results of operations.
On January 12, 1994, the Company was served with a suit brought by one of its
shareholders who opted out of the Company's settlement of the class action
litigation settled during 1993. The suit, DINESH SHAH V. ROYCE LABORATORIES,
INC. AND CHATFIELD DEAN & CO., INC., 94 CIV 0061 (S.D. N.Y.) which has also
been brought against one of the underwriters of the Company's January 1992
public offering, alleges that the Company's Janu ary 9, 1992 prospectus was
false and misleading. The suit seeks rescissory damages for violations of
Section 11 of the Securities Act of 1933 in the amount of approximately
$40,000 plus interest. The Company is vigorously defending this suit and
believes it has a meritorious defense. No assurances can be given as to the
outcome of this matter.
On August 4, 1995, the Company was sued by Bristol-Myers Squibb Company, Inc.
and E.R. Squibb & Sons, Inc. (collectively, "Bristol-Myers") in the Southern
District of Florida with respect to Captopril (Case No. 95- 1682-CIV-Davis).
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-18
<PAGE>
ROYCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In March 1995, the Company received a tentative approval of its ANDA for
Captopril, the Company's generic equivalent to Bristol-Myers'
anti-hypertensive drug Capoten(R). Under the General Agreement on Tariffs anD
Trade ("GATT") treaty implementing legislation, patent protection for
Capoten(R) was extended from August 8, 1995 until February 13, 1996. The
Company asserted, in a certification (the "Certification") filed with the
FDA, that under GATT, the Company should have the right to market Captopril
after August 8, 1995, subject to the Company's possible obligation to pay
"equitable remuneration" to Bristol-Myers on the Company's sales of Captopril
during the period between August 8, 1995 and February 13, 1996 (the "Delta
Period"). Bristol-Myers suit against the Company was filed based upon the
Company's filing of the Certification.
On August 25, 1995, the District Court determined that under the GATT treaty,
the Company's manufacture, use or sale of Captopril during the Delta Period
would not infringe upon Bristol-Myers' patent for Capoten(R). Based upon this
determination, the District Court granted the Company's Emergency Motion to
set aside the statutory injunction which arises automatically upon the filing
of an infringement action. The District Court further dismissed
Bristol-Myers' complaint for patent infringement. However, the District Court
denied the Company's request that the District Court order an immediate
effective date of the Company's ANDA for Captopril.
Bristol-Myers appealed the decision of the District Court and on November 1,
1995, the United States Court of Appeals for the Federal Circuit (the
"Circuit Court") reversed and remanded, with instructions, the decision of
the District Court. The Circuit Court, in its ruling, determined that as a
matter of law, the safe harbor provisions of GATT do not permit the Company
to make, use or sell Captopril prior to February 13, 1996. The Circuit Court
further concluded that as a result of its finding, the statutory bar against
FDA approval of the Company's ANDA for Captopril prior to February 13, 1996
remained in effect. The Company appealed the Circuit Court's decision to the
U.S. Supreme Court however, the Supreme Court did not grant certiorari and
the matter has now been remanded to the District Court.
While there can be no assurance, the Company does not believe that this
litigation will have a material adverse impact on its financial position or
results of operations.
In the ordinary course of business, the Company is at times involved in other
legal actions and proceedings. Presently, there are no such actions which are
expected to have a significant effect on the Company's operations.
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-19
<PAGE>
<TABLE>
<CAPTION>
ROYCE LABORATORIES, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
CLASSIFICATION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Allowance for Doubtful Accounts: $ 52 $ 200 $ - $ - $ 252
Allowance for Sales Returns and Incentives: $ 333 $ 611 $ - $ 287 $ 657
YEAR ENDED DECEMBER 31, 1994
Allowance for Doubtful Accounts: $ 35 $ 30 $ - $ 13 $ 52
Allowance for Sales Returns and Incentives: $ 63 $ 333 $ - $ 63 $ 333
YEAR ENDED DECEMBER 31, 1993
Allowance for Doubtful Accounts: $ 16 $ 19 $ - $ - $ 35
Allowance for Sales Returns and Incentives: $ 42 $ 63 $ - $ 42 $ 63
</TABLE>
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-20
EXHIBIT 10.7
BUSINESS LEASE BETWEEN
PALMETTO LAKES REALTY ASSOCIATES, LTD.,
LANDLORD
AND
ROYCE LABORATORIES, INC.,
TENANT
<PAGE>
TABLE OF CONTENTS:
ARTICLE 1: RENT AND TERM ...........................................1
ARTICLE 2: TAX, INSURANCE, COMMON AREA MAINTENANCE AND
SECURITY ESCROW .........................................1
ARTICLE 3: SECURITY DEPOSIT ........................................2
ARTICLE 4: EXAMINATION OF PREMISES .................................2
ARTICLE 5: DELAY OF POSSESSION .....................................2
ARTICLE 6: USE OF PREMISES .........................................3
ARTICLE 7: ALTERATIONS .............................................3
ARTICLE 8: EXTERIOR ................................................3
ARTICLE 9: INTERIOR ...............................................3
ARTICLE 10: REGULATIONS .............................................4
ARTICLE 11: INSURANCE ...............................................4
ARTICLE 12: LANDLORD'S LIEN .........................................4
ARTICLE 13: DESTRUCTION OF PREMISES .................................5
ARTICLE 14: PERSONAL PROPERTY .......................................5
ARTICLE 15: CHARGES FOR SERVICES ....................................5
ARTICLE 16: SIGNS AND AWNINGS .......................................5
ARTICLE 17: RIGHT OF ENTRY ..........................................6
ARTICLE 18: TIME ....................................................6
ARTICLE 19: NOTICES .................................................6
ARTICLE 20: LANDLORD'S REMEDIES UPON DEFAULT ........................6
ARTICLE 21: ENVIRONMENTAL INDEMNITY..................................7
ARTICLE 22: INDEMNIFICATION OF LANDLORD..............................8
ARTICLE 23: NO WAIVER BY LANDLORD................................... 8
ARTICLE 24: PEACEFUL POSSESSION......................................8
ARTICLE 25: HEIRS AND ASSIGNS .......................................9
ARTICLE 26: BEYOND LANDLORD'S CONTROL ...............................9
i
<PAGE>
ARTICLE 27: EMINENT DOMAIN ..........................................9
ARTICLE 28: SURRENDER OF PREMISES ..................................10
ARTICLE 29: DISCHARGE OF LIENS .....................................10
ARTICLE 30: COMMON AREA MAINTENANCE ................................10
ARTICLE 31: ATTORNEY'S FEES ........................................11
ARTICLE 32: WATER DAMAGE ...........................................11
ARTICLE 33: MORTGAGE SUBORDINATION AND ESTOPPEL CERTIFICATE.........11
ARTICLE 34: LANDLORD'S LIABILITY ...................................11
ARTICLE 35: APPLICABLE LAW AND CONSTRUCTION ........................12
ARTICLE 36: CAPTIONS 12.............................................12
ARTICLE 37: ASSIGNMENT .............................................12
ARTICLE 38: OPTION TO RENEW ........................................12
ARTICLE 39: PARKING AND ACCESS .....................................13
ARTICLE 40: PENALTIES AND INTEREST .................................13
ARTICLE 41: LANDLORD IMPROVEMENTS ..................................13
ARTICLE 42: SECURITY PATROL ........................................13
ARTICLE 43: BROKER .................................................13
ARTICLE 44: EXPANSION ..............................................13
ARTICLE 45: OPTION TO PURCHASE......................................14
ARTICLE 46: EXISTING LEASE..........................................14
RULES AND REGULATIONS ..............................................16
ii
<PAGE>
BUSINESS LEASE
This agreement, entered into this 27th day of April, 1995 between
PALMETTO LAKES REALTY ASSOCIATES, LTD., hereinafter called the LANDLORD, and
ROYCE LABORATORIES, INC., hereinafter called TENANT.
WITNESS: That Landlord does this day lease unto Tenant the building
space located at 16600-18 NW 54th Avenue and 16636 NW 54th Avenue, Miami,
Florida 33014 containing in the aggregate approximately 25,444 square feet
(hereinafter referred to as the "Premises" or "Initial Space". Premises shall
also include the "Sentry Space" defined in Article 44 hereafter when same is
occupied by Tenant).
ARTICLE 1: RENT AND TERM
TO HAVE AND TO HOLD said Premises for the term of sixty (60) months
beginning August 1, 1995 and ending July 31, 2000, at and for the agreed rental,
payable to and at the office of Landlord, 4752 N.W. 167th Street, Miami Dade,
Florida 33014 as follows:
A. The annual Rent which shall be paid monthly in advance is as
follows:
Year 1 $4.08/square foot
2 $4.24/square foot
3 $4.41/square foot
4 $4.59/square foot
5 $4.77/square foot
B. Tenant shall also pay at the same time and place as the rental
installments such Florida State Sales Tax and other such applicable taxes due on
rentals either city, state, county or federal as may be in effect from time to
time. Tenant shall also make escrow payments as required by this Lease at the
same time and place as the Rent installments.
ARTICLE 2: TAX, INSURANCE,
COMMON AREA MAINTENANCE AND SECURITY ESCROW
A. Tenant shall pay to the Landlord as Additional Rent its
proportionate share of the following ("Operating Expenses"):
(i) Any real estate taxes and assessments (A) which shall or may
become a lien upon, become due and payable to be assessed, imposed, or levied by
lawful taxing authorities against the building, the building site and any other
improvements on the building site; (B) which arise in connection with the use,
occupancy, or possession of the building site or any part thereof, (C) which
become due and payable out of or for the building site, or any part thereof, or
(D) which are imposed, assessed, or levied in lieu of, in substitution for, or
in addition to any or all of the foregoing (collectively referred to hereinafter
as the "Tax Cost"). The Tax Cost shall not include any charge (such as water
meter charge) which is measured by actual user consumption. A real estate tax
bill or copy thereof submitted by Landlord to Tenant shall be conclusive
evidence of the amount of any real estate taxes, assessments, or installment
thereof,
(ii) All premiums for public liability, fire and extended coverage
or all risk, business interruption, and/or any other insurance coverage which
may reasonably
<PAGE>
be carried by Landlord insuring the Premises, the building, the building site or
any improvements thereon ("Insurance Cost"); and
(iii) Expense of Common Area Maintenance as set forth in Article 30
hereunder.
(iv) Tenant's proportional share of any charges incurred by Landlord
for security related services. Landlord does not currently retain a security
service, but, may do so in the future. In the event that Tenant shall be
required to make payments under this subparagraph, Tenant shall not be required
to make any payments under Article 42 hereof.
B. Prior to the Beginning of this Lease and each calendar year,
Landlord shall estimate Tenant's proportionate share of the Operating Expenses
for the following calendar year and give Tenant written notice of such estimate.
Tenant shall pay such amount as Additional Rent in twelve (12) equal monthly
installments. Each calendar year, Landlord shall furnish Tenant with a statement
of the actual Operating Expenses. Tenant shall pay any deficiency upon receipt
of Landlord's notice thereof. Any surplus paid by Tenant during the preceding
calendar year shall be applied against the next monthly installments of Rent or
Additional Rent due from Tenant. Tenant shall further pay any sales tax due on
the above as may be required by law. Tenant's proportionate share shall be
defined as a fraction, the numerator of which shall be the square footage of the
Premises and the denominator of which shall be the aggregate leasable square
footage of the two buildings situate on Tract 5, Second Addition to Palmetto
Lakes Industrial Park, Section Two, according to the Plat thereof, Plat Book 113
at Page 55 of the Public Records of Dade County, Florida. The payment of
Additional Rent due under this paragraph shall be at the initial rate of $.90
per square foot (plus applicable taxes).
ARTICLE 3: SECURITY DEPOSIT
Tenant shall deposit $4,614.00 at the signing of this Lease bringing
its total Security Deposit to $10,559.00. Such sum shall be retained by Landlord
as security for the payment by Tenant of the rents herein agreed to be paid by
Tenant and for the faithful performance by Tenant of the terms and covenants of
this Lease. It is expressly understood that the Security Deposit shall not be
considered an advance payment or a measure of Tenant's damages in case of a
default by Tenant. It is agreed that Landlord, at Landlord's option, may, at any
time after default and the expiration of any applicable grace period, apply said
sum or any part thereof toward the payment of the rents and all other sums
payable by Tenant under this Lease and towards the performance of each and every
of Tenants covenants under this Lease, but such covenants and Tenant's liability
under this Lease shall thereby be discharged only to the extent that the
Security Deposit is charged against the sum due; that Tenant shall remain liable
for any amounts that such sum shall be insufficient to pay; that Landlord may
exhaust any and all rights and remedies against Tenant before resorting to said
sum, but nothing herein contained shall require or be deemed to require Landlord
to do so; that, in the event this deposit shall not be utilized for any such
purposes, then such deposit shall be returned by Landlord to Tenant within
thirty days next after the expiration of the term of this Lease. Landlord shall
not be required to pay Tenant any interest on said Security Deposit.
ARTICLE 4: EXAMINATION OF PREMISES
Tenant, having examined the Premises, is familiar with the condition
thereof and relying solely on such examination will take them in it's present
condition, unless otherwise expressly agreed upon in writing.
2
<PAGE>
ARTICLE 5: DELAY OF POSSESSION
If the Landlord is unable to give possession of the Premises on the
date of the commencement of the aforesaid term by reason of the holding over of
any prior tenant or tenants or for any other reason, an abatement or diminution
of the Rent to be paid thereunder shall be allowed Tenant under such
circumstances, but nothing herein shall operate to extend the term of the Lease
beyond the agreed expiration date; and said abatement in Rent shall be the full
extent of Landlord's liability to Tenant for any loss or damage to Tenant on
account of said delay in obtaining the possession of the Premises. If Landlord
is unable to give possession of the Premises to Tenant within thirty days next
after the commencement of the term of this Lease, then Tenant shall have the
right to cancel this Lease upon written notice thereof delivered to Landlord
within ten days after the lapse of said thirty day period, and upon such
cancellation, Landlord and Tenant shall each be released and discharged from all
liability on this Lease.
ARTICLE 6: USE OF PREMISES
The Premises shall be used by Tenant for vitamin and drug manufacturing
and wholesale distribution and related activities and for no other purposes.
ARTICLE 7: ALTERATIONS
A. Tenant will make no alterations, additions or improvements in or to
the Premises without the written consent of Landlord, which consent shall not be
unreasonably withheld or delayed; and all additions, fixtures, or improvements,
except only store and office furniture and fixtures which shall be readily
removable without injury to the Premises, shall be and remain a part of the
Premises at the expiration of this Lease. Tenant shall not be required to obtain
Landlord's consent to non-structural alterations, additions or improvements
unless the cost thereof shall exceed $25,000.00.
B. Tenant shall use and occupy the Premises in accordance with all
governmental laws, ordinances, rules, and regulations. Tenant shall not use, or
allow the Premises to be used for any purpose other than as specified herein and
shall not use or permit the Premises to be used for any unlawful, disreputable,
or immoral purpose or in any way that will injure the reputation of the building
site.
ARTICLE 8: EXTERIOR
Landlord agrees to keep the exterior part of said Premises in good
repair, but Tenant shall give to Landlord seven (7) days written notice of
needed repairs and Landlord shall have a reasonable time thereafter to make
them. In the event that repairs are required on an emergency basis, the Landlord
shall expedite such repairs to the extent possible. However, if any part of the
exterior or interior of the Premises is injured or damaged by any breaking
and/or entering said Premises, or by an attempt to break and/or enter said
Premises, by any third person or persons, Tenant agrees to promptly cause all
necessary repairs to be made at Tenant's expense (except as otherwise
compensable under the Landlord's insurance coverage) so as to promptly restore
said Premises to its condition immediately prior to said breaking and/or
entering or said attempt to break and/or enter. In the event additional sanitary
facilities are required because of the nature of the operation conducted by the
Tenant, it shall be the Tenant's obligation to supply such additional
facilities.
3
<PAGE>
ARTICLE 9: INTERIOR
Tenant agrees to keep interior part of said Premises all windows,
screens, awnings, doors, including the overhead truck loading doors, interior
walls, pipes, elevators, machinery, plumbing, electric wiring, and other
fixtures and interior appurtenances, in good and substantial repair and clean
condition at Tenant's own expense--fire, windstorm, or other acts of God alone
excepted. All glass, both interior and exterior, is at the sole risk of Tenant
and Tenant agrees to replace at Tenant's own expense, any glass broken during
the terms of this Lease, and the Tenant agrees to insure and to keep insured,
all plate glass in the Premises and to furnish the Landlord with certification
of said insurance. It is hereby understood and agreed that in the event there is
an air conditioning unit (units) in the Premises, the Tenant shall maintain the
same during the term of this Lease and shall return said unit (or units) to the
Landlord at the termination of this Lease in good working order, reasonable wear
and tear and damage by casualty excepted.
ARTICLE 10: REGULATIONS
A. Tenant shall promptly execute and comply with all statutes,
ordinances, rules, order and regulations and requirements of the Federal State,
City Government, and of any and all their departments and bureaus, applicable to
Tenant's occupancy, operation and use for the correction, prevention and
abatement of nuisances or other grievances, in, upon, or connected to Tenant's
occupancy, operation and use, during the said terms, and shall also promptly
comply with and execute all rules, orders, and regulations of the Southeastern
Underwriters Association for the prevention of fires, at Tenant's own cost and
expense.
B. Furthermore, Tenant shall comply with all rules and regulations as
outlined on Exhibit attached. All rules and regulations shall be uniformly
applied by Landlord with respect to all Tenants. In the case of conflict of any
of the rules and regulations and this Lease, the Lease shall prevail.
ARTICLE 11: INSURANCE
A. Tenant shall, at all times during the term and during any other
period that Tenant actually occupies any portion of the Premises, at it's own
expense, keep in full force and effect public liability insurance with minimum
limits of Five Hundred Thousand Dollars ($500,000.00) on account of bodily
injuries to or death of one (1) person, and One Million Dollars ($1,000,000.00)
on account of bodily injuries to or death of more than one (1) person as a
result of any one (1) accident or disaster, and Two Hundred Thousand
($200,000.00) on account of damages to property, naming Landlord and Landlord's
Mortgagee as additional insured. Tenant shall deliver to Landlord prior to the
commencement date or occupancy date, whichever is sooner, and thereafter as
required, a certificate of insurance evidencing the coverage required herein.
The policy shall provide that the insurer cannot cancel the policy without at
least thirty (30) days prior written notice to Landlord. The insurance policy
shall be issued by an insurance company reasonably satisfactory to the Landlord.
B. Tenant shall not carry on any activity in or about the Premises,
other than the uses permitted hereunder, which will in any way cause an increase
in the insurance rates on the Premises and/or the building. Tenant shall pay as
Additional Rent upon demand any increases in such insurance rates resulting from
the use of the Premises.
4
<PAGE>
ARTICLE 12: LANDLORD'S LIEN
A. Tenant hereby grants to Landlord a lien and security interest on all
fixtures and equipment of Tenant now or hereafter placed in or upon the
Premises, effective upon a default by Tenant and the expiration of the
applicable grace period, and such property shall be subject to such lien
security interest of Landlord for repayment of all Rent and other sums agreed to
be paid by Tenant herein. It is provided, however, the Landlord shall not have a
lien with respect to the Premises which would be superior to a lien from a
lending institution, supplier or leasing company, if such lending institution,
supplier or leasing company has a perfected security interest in the equipment,
furniture or other tangible personal property and which security interest has
its origin in a transaction whereby Tenant acquired such equipment, furniture or
other tangible personal property.
B. It is understood and agreed that any merchandise, fixtures,
furniture, or equipment left in the Premises when Tenant vacates shall be deemed
to have been abandoned by Tenant and by such abandonment Tenant automatically
relinquished any right or interest herein. Landlord is authorized to sell,
dispose of or destroy same.
ARTICLE 13: DESTRUCTION OF PREMISES
A. In the event the Premises shall be destroyed or so damaged or
injured by fire or other casualty, during the term of this Lease, whereby the
same shall be rendered untenantable, then Landlord shall render said Premises
tenantable by repairs within ninety days therefrom. If said Premises are not
rendered tenantable, or can not be rendered tenantable, within said time, it
shall be optional with either party hereto to cancel this Lease and in the event
of such cancellation the Rent shall be paid only to the date of such fire or
casualty. The cancellation herein mentioned shall be evidence in writing. During
any time that the Premises are untenantable due to causes set forth in this
paragraph, the Rent shall be abated. If only a portion of the Premises is
rendered untenantable, a just and fair portion of the Rent shall be abated
during the time the portion of the Premises is untenantable.
B. Notwithstanding anything to the contrary contained herein, Landlord
may cancel this Lease with no further liability to Tenant in the event that
following the destruction or injury to the Premises, Landlord's Mortgagee elects
to require Landlord to apply insurance proceeds paid to Landlord as a result of
the casualty to reduce any debt secured by the demised Premises, provided (i)
the destruction made the Premises untenantable and (ii) all other leases in the
building suffering the destruction are being cancelled by Landlord.
ARTICLE 14: PERSONAL PROPERTY
All personal property placed or moved in the Premises shall be at the
risk of Tenant or the owner thereof, and Landlord shall not be liable to Tenant
for any damages to said personal property unless caused by or due to negligence
of Landlord, Landlord's agents or employees.
ARTICLE 15: CHARGES FOR SERVICES
It is understood and agreed between the paries hereto that any charges
against Tenant by Landlord for services, utilities or for work done on the
Premises by order of Tenant, or otherwise accruing under this Lease, shall be
considered as rent due and shall be incurred in any lien for rent.
5
<PAGE>
ARTICLE 16: SIGNS AND AWNINGS
No awnings, sign or signs shall be attached to or erected on the
exterior of the Premises without the written consent of Landlord having first
been obtained, which consent will not be unreasonably withheld or delayed by the
Landlord. Tenant is required to comply with all existing and reasonable future
rules and regulations of the Landlord, as well as city, county, and state
regulations regarding signs or signage on or about the Premises.
ARTICLE 17: RIGHT OF ENTRY
Landlord or any of his agents, shall have the right, upon reasonable
oral notice, to enter said Premises during all reasonable hours to examine the
same or to make such repairs, additions or alterations as may be deemed
necessary for the safety, comfort, or preservations thereof, or of said building
or to exhibit said Premises to prospective purchasers or lenders and to put or
keep upon the doors or windows thereof a notice "FOR RENT" at any time within
sixty days before the expiration of this Lease (and, in connection therewith, to
exhibit same to prospective tenants). Said right of entry shall likewise exist
for the purpose of removing placards, signs, fixtures, alterations, or additions
which do not conform to this Lease.
ARTICLE 18: TIME
It is understood and agreed between the parties hereto that time is the
essence of all of the terms and provisions of this Lease.
ARTICLE 19: NOTICES
It is understood and agreed between the parties hereto that written
notice addressed to Tenant and mailed certified mail, return receipt requested,
or personally delivered to the Premises shall constitute sufficient notice to
the Tenant, and written notice addressed to Landlord and similarly mailed or
personally delivered to the office of Landlord shall constitute sufficient
notice to the Landlord, to comply with the terms of this Lease. Notices shall be
effective, if mailed, when received (or the date when acceptance refused) and,
if personally delivered, the date of delivery. For the purposes hereof, notices
to Tenant shall be mailed or delivered to 5350 N.W. 165 Street, Miami, Florida
33014 to the attention of Mr. Robert Band, Chief Financial Officer.
ARTICLE 20: LANDLORD'S REMEDIES UPON DEFAULT
A. (1) If Tenant shall at any time (i) be in default in the payment
Rent, Additional Rent, or other sums of money required to be paid by Tenant and
Tenant shall fail to remedy such default within ten (10) days of the date such
sum is due; (ii) violate any restriction or rule in the building rules and fail
to remedy such violation within thirty (30) days after receipt of written notice
thereof, (iii) be in default in the performance of any covenant, term,
condition, provision, rule, or regulation of this Lease, and Tenant shall fail
to remedy such default within fifteen (15) days after receipt of written notice
thereof (but Tenant shall not be deemed to be in default if Tenant commences to
remedy said default within said fifteen (15) day period, and proceeds therewith
with due diligence); (iv) commit waste upon the Premises; (v) vacate the
Premises; or (vi) become insolvent or make an assignment for the benefit of
creditors, or if a receiver or trustee of Tenant's property shall be appointed,
or if proceedings under any chapter of the United States Bankruptcy Code shall
be instituted by or against Tenant and shall not be dismissed within sixty (60)
days after being filed, or if any event shall happen which, aside from this
provision, would cause any assignment or devolution of Tenant's interest or
6
<PAGE>
occupancy hereunder by operation of law; then, in any such event, Landlord, in
addition to all other remedies given to Landlord in law or in equity, may by
written notice to Tenant, terminate this Lease, or without terminating this
Lease, re-enter the Premises by summary proceedings or otherwise. In any event,
Landlord may dispossess the Tenant, it being the understanding that under no
circumstances is this Lease to be an asset for Tenant's creditors by operation
of law or otherwise.
(2) In the event of such re-entry, Landlord may relet the
Premises without being obligated so to do, and in the event of a reletting may
apply the rent therefrom first to the payment of Landlord's expenses, including
reasonable attorney's fees incurred by reason of Tenant's default, and the
reasonable expense of reletting, including, without limitation, commissions,
repairs, renovation or alteration of the Premises and then to the amount of
Rent, Additional Rent, and all other sums due from Tenant hereunder, Tenant
remaining liable for all other sums due from Tenant hereunder and for any
deficiency. Any and all such deficiencies shall be payable by the Tenant monthly
on the date herein provided for the payment of Rent.
B. In the event of default by Tenant of any of the terms, provision,
covenants conditions, rules, and regulations of this Lease, Landlord shall have
the right to invoke any remedy permitted to Landlord in law or equity, including
the right to terminate this Lease. Such remedies shall include the right to sue
immediately for any and all damages, including immediate payment of all Rent and
Additional Rent owing for the remainder of the term hereof. No termination of
this Lease and no taking or recovering of possession of the Premises shall
deprive Landlord of any of its remedies or actions against Tenant and Tenant
shall remain liable for all past or future Rent, Additional Rent, and all other
charges payable by Tenant under this Lease, during and for the balance of the
term hereof. The bringing of any action for Rent or other default shall not be
construed as a waiver of the right to obtain possession of the Premises.
C. If suit shall be brought for recovery of possession of the Premises,
for the recovery of Rent, or any other amount due under the provisions of this
Lease, or because of the breach of any other covenant herein contained on the
part of Tenant to be kept or performed, and breach shall be established, Tenant
shall pay to Landlord all expenses incurred therefor, including reasonable
attorney's fees both trial and appellate.
ARTICLE 21: ENVIRONMENTAL INDEMNITY
A. Tenant, its successors and assigns, hereby indemnify and agree to
defend and hold harmless Landlord and its partners, agents, employees, officers
and directors from any and against all losses, liabilities, claims, damages,
penalties, costs and expenses including, without limitation, reasonable
attorney's fees and disbursements arising out of the use, generation, storage,
release, threatened release, or disposal of Hazardous Materials by Tenant, its
employees, contractors, agents, invitees, licensees and anyone claiming under or
through any of them (hereinafter, for purposes of this Section 21, the
aforementioned may be referred to collectively as "Tenant") upon, about or
beneath the Premises or arising in any manner whatsoever out of the violation or
claimed violation by Tenant or any applicable state, city, county or federal
laws, rules or regulations (collectively, "Environmental Laws") or otherwise
pertaining to Tenant's use of the Premises and Tenant's activities thereon. As
used in this Lease, the term "Hazardous Materials" shall mean (i) those
substances included within the definitions of "hazardous materials", "hazardous
substances", "toxic substances", or "solid wastes" or of comparable defined
terms, in, as applicable, the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. 9601 et seq., as amended; the Hazardous
Materials Transportation Act, 49 U.S.C. 1801 et seq.; the Resource Conservation
and Recovery Act, 42 U.S.C. 6901 et seq.; Chapters 73 and 406, Florida
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Statutes and all other applicable state, city, county and federal Environmental
Laws that may have been enacted or may be enacted in the future and the
regulations adopted and publications promulgated pursuant to said laws.
B. The aforementioned indemnity obligations shall include, but not be
limited to, the burden and expense of defending all suits and administrative
proceedings (with counsel reasonably approved by the indemnitee), and conducting
all negotiations of any description, and paying and discharging, when and as the
same become due, any and all liens, judgements, penalties or other sums due
against such indemnified person.
C. The obligations in this Section 21 shall survive the expiration of
the Term.
D. At no cost to Landlord, Tenant shall promptly provide all
information requested by Landlord, the State of Florida or any governmental or
quasi-governmental agency regarding spills, discharges or hazardous substances
or waste at the Premises. Tenant acknowledges that, in connection with its
business, it is considered a small quantity user of certain Hazardous Materials
and at its sole cost and expense shall, if required by law, register such usage
with the appropriate government agency and take such other measures as
appropriate and required by law. Tenant covenants, represents and warrants that
Tenant and the Premises shall remain in compliance with all applicable
Environmental Laws. Tenant will take measures required by applicable
governmental regulations to contain any spills of Hazardous Materials.
ARTICLE 22: INDEMNIFICATION OF LANDLORD
In consideration of said Premises being Leased to Tenant for the above
rental, Tenant agrees: That Tenant, at all times, will indemnify and keep
harmless Landlord from all losses, damage, liabilities and expenses which may
arise or be claimed against Landlord and be in favor of any person, firm or
corporation, for any injuries or damages to the person or property of any
person, firm or corporation, consequent upon or arising from the use or
occupancy of said Premises by Tenant, or consequent upon or arising from any
acts, omissions, neglect or fault of Tenant, (his agents, servants, employees,
licenses, customers, or invitee) or consequent upon or arising from Tenant's
failure to comply with the aforesaid laws, statues, ordinances or regulations;
that Landlord shall not be liable to Tenant for any damages, losses or injuries
to the person or property of Tenant which may be caused by the acts, neglect,
omissions or faults of any person, firm or corporation, and that Tenant will
indemnify and keep harmless Landlord from all damages, liabilities, losses,
injuries, or expenses, which may arise or be claimed against Landlord and be in
favor of any person, firm or corporation, for any injuries or damages to the
person or property of any person, firm or corporation, where said injuries or
damages arises about or upon said Premises. The foregoing shall not be construed
as an indemnification by Tenant of Landlord for damages occurring as a result of
intentional or negligent acts or omissions of the Landlord, its agents, servants
or employees.
ARTICLE 23: NO WAIVER BY LANDLORD
No waiver of any of the terms, covenants, provisions, conditions rules,
and regulations imposed or required by this Lease, and no waiver of any legal or
equitable relief or remedy shall be implied by the failure of Landlord to assert
any rights or to declare any forfeiture, or for any other reason. No waiver of
any of said terms, provisions, covenants, rules, and regulations shall be valid
unless it shall be in writing signed by the Landlord. No waiver or forgiveness
of performance by Landlord in respect to one or more tenants of the building
shall constitute a waiver of forgiveness of performance in favor of Tenant
herein, or any other tenant. No waiver of any pledge of this Lease or the
forgiveness of performance of any one or more of the terms, provisions,
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conditions, rules, and regulations of this Lease may be claimed or pleaded by
Tenant to excuse a subsequent pledge or failure of performance of any other
terms, provisions, conditions, covenants, rules, and regulations of this Lease.
ARTICLE 24: PEACEFUL POSSESSION
Subject to the terms, conditions, and covenants of this Lease, Landlord
warrants and agrees that Tenant shall and may peaceably have, hold and enjoy the
Premises above described, without hindrances or molestation by Landlord.
ARTICLE 25: HEIRS AND ASSIGNS
This Lease and all provisions, covenants and conditions thereof shall
be binding upon and inure to the benefit of the heirs, legal representatives,
successors and assigns of the parties hereto, except that no person, firm,
corporation, or court officer holding under or through Tenant in violation of
any of the terms, provisions or conditions of this Lease, shall have any right,
interest or equity in or to this Lease, the terms of this Lease or the Premises
covered by this Lease.
ARTICLE 26: BEYOND LANDLORD'S CONTROL
None of the acts, promises, covenants, agreements or obligations on the part of
the Tenant to be kept, performed or not to be performed as the case may be, nor
the obligation of the Tenant to pay Rent and/or Additional Rent or other charge
or payment shall be in anyway waived, impaired, excused or affected by reason of
the Landlord being unable at any time or times during the terms of this Lease to
supply, or being prevented from, or delayed in supplying heat, light or any
other service expressly or implied in the part of the Landlord to be supplied,
or by reason of the Landlord being unable to make any alterations, repairs or
decorations or to supply any equipment for fixtures, or any other promise,
covenant, agreement or obligation on the part of the Landlord to be performed,
if the Landlords inability or delay shall arise by reason of any law, rule or
regulation of any Federal, State Municipal or other governmental department,
agency or subdivision thereof, or by reason of conditions of supply and demand
due to national emergency or other conditions or causes beyond the Landlord's
control.
ARTICLE 27: EMINENT DOMAIN
A. In the event any portion of the Premises is taken by any
condemnation or eminent domain proceedings, the monthly rental herein specified
to be paid shall be ratably reduced according to the area of the Premises which
is taken, and Tenant shall be entitled to no other consideration by reason of
such taking, and any damages suffered by Tenant on account of the taking of any
portion of said Premises, and any damages to any structures erected on said
Premises, respectively that shall be awarded to Tenant in said proceedings shall
be paid to and received by Landlord, and Tenant shall have no right therein or
thereto or to any part thereof, and Tenant does hereby relinquish and assign to
Landlord all of Tenant's rights and equities in and to any such damages. Should
all of the Premises be taken by eminent domain, then and in that event, Tenant
shall be entitled to no damages or any consideration by reason of such taking,
except the cancellation and termination of this Lease as of the date of said
taking. Notwithstanding the foregoing, Tenant shall be entitled to file a claim
in a condemnation proceeding for fixtures and equipment owned by Tenant,
relocation costs and other claims specifically permitted by statute, providing
same does not diminish the award to which the Landlord is entitled.
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B. Notwithstanding anything to the contrary herein, Landlord may cancel
this Lease with no further liability of Tenant in the event that following a
taking by condemnation or right of eminent domain, Landlord's Mortgagee elects
to require Landlord to apply any proceeds paid to Landlord as a result of the
condemnation or eminent domain proceedings to reduce the debt secured by the
demised Premises, provided (i) it is a total or material taking and (ii) all
other leases included in the taking are cancelled by Landlord.
C. Tenant shall have the right to cancel this Lease upon a condemnation
if, as a result of such condemnation, it shall not be economically viable for
Tenant to operate its business in the part of the Premises remaining after the
taking by condemnation.
ARTICLE 28: SURRENDER OF PREMISES
A. The Tenant shall keep the Premises in good condition, repair and
appearance. The Tenant shall quit and surrender the Premises at the end of the
Term in good condition, reasonable wear and tear and damage by casualty
excepted. In the event Landlord does not consent to the Tenant's making
alterations, additions or improvements, as provided in Article 7, Landlord
reserves the right, thirty (30) days prior to the end of the Term, to demand
that Tenant remove said alterations or improvements or leave same. In the event
that Landlord requires the removal of said alterations or improvements, then
Tenant shall restore the Premises to their condition prior to the installation
of said additions or improvements. Unless Landlord requires their removal, all
alterations, additions and improvements, which are permanent in character, which
shall have been made upon the Premises either by the Landlord or the Tenant,
except furniture or movable fixtures, machinery and equipment installed at the
expense of the Tenant, shall be the property of the Landlord and shall remain
upon and be surrendered with the Premises as a part thereof at the expiration or
sooner termination of this Lease, without compensation to the Tenant.
B. Tenant agrees that, if Tenant does not surrender to Landlord, at the
end of the term of this Lease, or upon any cancellation of the term of this
Lease, said Leased Premises, then Tenant will pay to Landlord until the date of
such surrender Rent at the rate of 200% of the Rent being paid immediately prior
to the expiration or termination of the Lease.
ARTICLE 29: DISCHARGE OF LIENS
A. Tenant further agrees that Tenant will pay all liens of contractors,
subcontractors, mechanics, laborers, materialmen and other items of like
character, and will indemnify Landlord against all legal costs and charges, bond
premiums for release of liens, including counsel fees reasonably incurred in and
about the defense of any suit on discharging the said Premises or any part
thereof from any liens, judgments, or encumbrances caused or suffered by Tenant.
It is understood and agreed between the parties hereto that the costs and
charges above referred to shall be considered as Rent due and shall be included
in any lien for Rent.
B. The Tenant herein shall not have any authority to create any liens
for labor or material in the Landlord's interest in the above described property
and all persons contracting with the Tenant for the destruction of removal of
any building or for the erection, installation, alteration, or repair of any
building or other improvements in the Premises and all materialmen, contractors,
mechanics, and laborers, are hereby charged with notice that they must look to
the Tenant and to the Tenant's interests only in the Premises to secure the
payment of any bill for work done or material furnished during the term of this
Lease.
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ARTICLE 30: COMMON AREA MAINTENANCE
For the purposes of this Article and Article 2, the "Common Areas" are
defined as including but not limited to the sidewalks, curbs, parking area,
landscaped areas, roof, driveways and other areas not located within the Leased
building. Landlord shall maintain or caused to be maintained the Common Areas in
good order and repair and Landlord will provide periodic sweeping, loose trash
removal, shrubbery and tree maintenance. The Tenant however, at its own cost and
expense, shall keep all portions of the Premises and adjoining area in a clean
and orderly condition, free of dirt, rubbish, and unlawful obstructions placed
thereon by Tenant, its employees, agents or invitees. Tenant shall further
maintain, at its own expense, any additional landscaping placed on or about the
property by Tenant.
ARTICLE 31: ATTORNEY'S FEES
In the event that there shall be any litigation between Landlord and
Tenant in connection with this Lease, the parties agree that the prevailing
party shall be entitled to recover from the non-prevailing party all reasonable
costs and expenses, including reasonable attorneys fees at the trial and
appellate levels.
ARTICLE 32: WATER DAMAGE
It is expressly agreed and understood by and between the parties that
the Landlord shall not be liable for any damage or injury by water, to Tenant's
contents or improvements, which may be sustained by the said Tenant or other
person or for any other damage or injury resulting from the carelessness,
negligence, or improper conduct on the part of any other tenant or agents, or
employees, or by reason of the breakage, leakage, or obstruction of the water,
sewer or soil pipes, or other leakage in or about the said building.
Notwithstanding the foregoing, Landlord shall be liable for any such damage or
injury if it results from the gross negligence of Landlord, its agents, servants
or employees.
ARTICLE 33: MORTGAGE SUBORDINATION AND ESTOPPEL CERTIFICATE
A. This Lease is and shall be subject and subordinate to any and all
permanent or building loan mortgages covering the fee of the Leased Premises now
existing or hereafter made by Landlord and to all advances made or to be made
thereon and to all renewals, modifications, consolidations, replacements, or
extensions thereof, and the lien of any such mortgage or mortgages shall be
superior to all rights hereby or hereunder vested in Tenant to the full extent
of the principal sums secured thereby and interest thereon, provided the holder
of any such mortgage shall enter into a non-disturbance agreement with Tenant
whereby such holder will agree not to disturb Tenants' occupancy under this
Lease if Tenant is not in default hereunder. Subject to the foregoing, this
provision shall be self-operative and no further instrument of subordination
shall be necessary to effectuate such subordination, and the recording of any
such mortgage shall have preference and precedence and be superior and prior in
lien to this Lease, irrespective of the date of recording.
B. Tenant, upon request of Landlord or any holders of a mortgage
against the fee, shall from time to time deliver or cause to be delivered to
Landlord or such mortgagee, within ten (10) days from date of demand a
certificate duly executed and acknowledged in form for recording, without
charge, certifying, if true, that this Lease is valid and subsisting and in full
force and effect and that Landlord is not in default under any of the terms of
this Lease.
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ARTICLE 34: LANDLORD'S LIABILITY
Notwithstanding any provision in this Lease to the contrary, Tenant
agrees that Tenant shall look solely to Landlord's interest under this Leasehold
estate in the event of any default or breach by Landlord with respect to any of
the terms and provisions of this Lease on the part of the Landlord to be
performed or observed, and no other assets of Landlord shall be subject to levy,
execution, or other judicial process or award for the satisfaction of Tenant's
claim.
ARTICLE 35: APPLICABLE LAW AND CONSTRUCTION
The laws of the State of Florida shall govern the validity,
performance, enforcement, and interpretation of this Lease. The invalidity or
unenforceability of any provision of this shall not affect or impair any other
provision. The submission of this document for examination does not constitute
an offer to Lease, or a reservation of or option for the Premises and becomes
effective only upon execution and delivery thereof by Landlord and Tenant. This
Lease may be modified or altered only by agreement in writing between the
parties. Tenant shall have no right to quit the Premises or cancel or rescind
this Lease except as expressly granted herein. No surrender of the Premises for
the remainder of the term of the Lease shall be valid unless accepted by
Landlord in writing.
ARTICLE 36: CAPTIONS
The captions of the paragraphs of this instrument are solely for
convenience and shall not be deemed a part of this instrument for the purpose of
construing the meaning thereof, or for any other purpose.
ARTICLE 37: ASSIGNMENT
A. Tenant shall not assign, transfer, subLease, license, concession,
mortgage, pledge, or otherwise encumber the demised Premises or any part thereof
without the express, written consent of Landlord, (and Mortgagees if required)
first obtained; provided, however, that Landlords consent shall not be
unreasonably withheld or delayed. In the event of any assignment, transfer or
subLease by Tenant, Tenant shall remain liable for the full performance of each
and every covenant and condition hereunder. Any consent to subletting or
assignment shall not constitute a waiver of the necessity for consent to any
subsequent assignment or subletting.
B. An assignment includes one or more sales or transfers by operation
of law or otherwise by which an aggregate of more than 50% of Tenant's shares
(in the case of a corporate Tenant) in any one year shall transferred to a party
or parties who are not shareholders as of the date of this Lease. This paragraph
shall not apply in the event that Tenant's shares are listed on a recognized
stock exchange or if at least 80% of Tenant's shares are owned by a corporation
whose shares are listed on a recognized stock exchange. For purposes of this
paragraph, share ownership shall be determined in accordance with the principals
set forth in Section 544 of the Internal Revenue Code of 1954.
C. Anything in this Article to the contrary notwithstanding, Landlord's
consent shall not be required in connection with an assignment or sublease by
Tenant to its parent, a subsidiary or an affiliate corporation or in connection
with a consolidation or merger.
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ARTICLE 38: OPTION TO RENEW
A. It shall be a condition precedent to the right of Tenant to exercise
the options below, that at the time of exercising the options, and at the
commencement of the Option Periods, that Tenant shall not be in default in the
payment of Rent or Additional Rent hereunder or any other covenants or
conditions contained herein. Any termination of this Lease shall terminate any
right of extension hereunder.
B. Tenant shall have two five (5) year options to extend this Lease.
Rent during these options shall be:
FIRST OPTION PERIOD
-------------------
Year 1 $4.96 per square foot
2 $5.16 per square foot
3 $5.37 per square foot
4 $5.58 per square foot
5 $5.81 per square foot
SECOND OPTION PERIOD
--------------------
Year 1 $6.04 per square foot
2 $6.28 per square foot
3 $6.53 per square foot
4 $6.79 per square foot
5 $7.06 per square foot
ARTICLE 39: PARKING AND ACCESS
Tenant, its business invitees and customers, shall have reasonable use
of the adjacent parking area in common with adjoining tenants at no additional
cost or expense.
ARTICLE 40: PENALTIES AND INTEREST
Notwithstanding any other language to the contrary in this Lease,
Tenant shall pay a late charge penalty of 10% of any Rent and Additional Rent
not paid within ten (10) days after same is due. Furthermore, Tenant shall pay
18% interest calculated on a per annum basis on any balance remaining unpaid
which is past due for thirty (30) days.
ARTICLE 41: LANDLORD IMPROVEMENTS
NONE
ARTICLE 42: SECURITY PATROL
Subject to the provision of Article 2A(iv) above, Tenant agrees to be a
participant in the Palmetto Lakes Industrial Park Association, Inc., Security
Patrol and agrees to abide by all the rules and regulations promulgated by said
association, provided same are uniformly applied to all members and
participants. The Tenant further agrees to pay its prorated share of all
assessments for security patrol imposed by the association during the term of
this Lease. In the event that Tenant fails to comply herewith, Landlord may
elect to treat such non-compliance as a default under the terms and conditions
of this Lease and the Landlord shall be entitled to all remedies provided for in
this Lease in the event of Tenant's default.
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ARTICLE 43: BROKER
Tenant covenants, represents and warrants that in connection with this
Lease, it has dealt with no broker or finder. Tenant agrees to indemnify
Landlord against any and all loss, liability, cost or expense (including
reasonable attorneys' fees and disbursements) for brokerage or finder's fees
arising from this Lease resulting from Tenant's acts.
ARTICLE 44: EXPANSION
A. It shall be a condition precedent to the right of Tenant to occupy
the space described below, that at the time of the initial occupancy, Tenant
shall not be in default in payment of Rent or Additional Rent hereunder or any
other covenants or conditions contained herein. Any termination of this Lease
shall terminate any right of expansion hereunder.
B. Tenant agrees to expand its occupancy to include the 10,228 square
feet currently occupied by Sentry Supplement ("Sentry Space") and located at
16624 N.W. 54th Avenue, Miami, Florida 33014. Tenant agrees to take occupancy of
the Sentry Space in its present "as is" condition immediately upon the vacating
of the Sentry Space but in no event prior to August 1, 1995. Rent for the Sentry
Space will be in accordance with the schedules of rent described in Articles 1,
2 and 38 hereof at the time of initial occupancy and thereafter.
C. Landlord agrees to not renew Sentry Supplement's Lease at the end of
its current lease term, so long as Tenant is not in default of this Lease at
that time.
D. Tenant will increase its security deposit as described in Article 3
at the time of takeover of the Sentry Space by an amount equal to one month's
total Rent plus Additional Rent as described in Articles 1 and 2 with respect to
the Sentry Space.
E. Landlord agrees to give Tenant written notice 15 days prior to the
availability of the Sentry Space so as to afford Tenant an opportunity to
inspect the Sentry Space as to its physical condition and its environmental
status. If, within said 15-day period for due diligence, Tenant shall find, as a
result of such inspections, that work must be done as to the physical condition
of the Sentry Space to restore it to its present "as is" condition or remedial
work is required in order to remove any environmental problems affecting the
Sentry Space, Tenant shall give written notice of same within said 15-day period
and within 5 business days of receipt of said written notice from Tenant,
Landlord shall give written notice to Tenant as to whether or not the Landlord
shall restore the Sentry Space as requested in Tenant's written notice. If the
Landlord refuses to restore the Sentry Space as requested, then Tenant shall not
be obligated to take possession of the Sentry Space and this expansion right
shall expire and be of no further force or effect; provided, however, that if
the Tenant elects within 5 business days of receipt of Landlord's written notice
of refusal to restore the Sentry Space to take possession of the Sentry Spare
without the occurrence of such restoration, then Tenant shall be obligated to
pay Rent and Additional Rent for the Sentry Space. In the event that the
Landlord elects to restore the Sentry Space as requested, then the Landlord
shall do such work (at its own cost and expense) and the Tenant shall be
obligated to take possession of the Sentry Space and to pay Rent and Additional
Rent for the Sentry Space commencing 5 business days after receipt of written
notice of restoration from the Landlord that all such work has been completed;
provided, however, if Tenant elects not to take possession of the Sentry Space,
within 5 business days of receipt of such notice of restoration from the
Landlord, then Tenant's rights to expand to the Sentry Space shall expire and be
of no further force and effect, and Tenant agrees to reimburse the Landlord for
all monies expended by the Landlord in connection with restoring the Sentry
Space pursuant to the
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Tenant's request, and if Tenant fails to reimburse the Landlord said monies
within 10 days of receipt of written demand for said payment, Tenant shall be in
default under the terms and conditions of the Lease.
ARTICLE 45: OPTION TO PURCHASE
A. Provided Tenant is not in default under any of the terms, covenants
and conditions of this Lease, then, and in that event, Tenant shall have the
exclusive option to purchase ("Option") the buildings known as and by Street
Numbers 16600-16698 N.W. 54th Avenue, Miami, Florida 33014 (the "Property") for
a purchase price as hereinafter set forth upon the terms of the Contract for
Sale and Purchase attached hereto as Exhibit A and made a part hereof, (the
"Contract") the terms of which Contract shall govern the sale and purchase of
the Property if the Option is exercised by Tenant. This Option shall exist
during the term of this Lease and any renewals hereof, unless sooner terminated
by any other provisions contained herein. The Property is more particularly
described in the Contract, it being understood and agreed that the Property
shall include all buildings on the Property as well as all areas and space
between the buildings on the Property.
B. Tenant agrees that it will give Landlord not less than sixty (60)
days prior written notice of its exercise of the within option and the closing
of sale with respect to the Property shall be sixty (60) days after the date
that Tenant has exercised the within option.
C. No later than thirty (30) days after Tenant provides Landlord with
written notice of its intent to exercise the Option, Tenant shall deposit in
escrow with Mershon, Sawyer, Johnston, Dunwoody and Cole, Attorneys at Law, the
sum of $50,000.00 which shall serve as a good faith deposit for Tenant's
performance under the Option. The disposition of said deposit shall be as
provided in the Contract. In the event that the Landlord is entitled to recover
the deposit as liquidated damages pursuant to the Contract, then this Option
shall thereupon terminate.
D. The purchase price for the Property, which shall be payable by bank
check or wire-transferred funds, shall be $35.00 per square foot (it being
agreed that the Property consists of 78,000 square feet), provided Tenant shall
have exercised the within option on or before August 1, 1995. In the event that
the within option shall not have been exercised by that date, then, and in that
event, the purchase price shall be increased by four (4%) percent effective
August 1, 1995 for the option period to and including July 31, 1996 and,
thereafter, on each August 1st during the term of this Lease, the purchase price
shall be increased by an additional four (4%) percent over and above the
purchase price in effect for the previous year.
E. The parties hereto agree to execute and record, upon the execution
of this Lease, a Memorandum of Lease, which Memorandum, among other things,
shall indicate the existence of the within option.
F. Anything herein to the contrary notwithstanding, it is understood
and agreed that the Tenant shall have a period of thirty (30) days from the date
of exercise of the within Option to investigate and determine whether there are
any land use plans, zoning, restrictions, prohibitions or other governmental
requirements which would affect the Property and to make such inspections as it
may desire with respect to the physical condition of the building, the land and
compliance with environmental laws and regulations. In the event that the Tenant
shall, for any reason, not be satisfied with the results of such inspection,
then, and in that event, Tenant may, within such thirty (30) day period, notify
Landlord of its intention not to proceed with closing of title with
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respect to the Property, whereupon its obligations to close pursuant to its
exercise of the Option shall be deemed null and void and of no further force and
effect. In such event Tenant shall be entitled to the return of its deposit in
full and this Option shall be terminated. In such event, the Lease will, in all
other respects, remain in full force and effect. In the event that Tenant shall
fail to so notify Landlord within said thirty (30) day period, the provisions of
this paragraph shall be deemed null and void and Tenant shall be required to
proceed with the closing of title with respect to the Property pursuant to the
terms of the Contract.
ARTICLE 46: EXISTING LEASE
Upon the execution of the within Lease by Landlord and Tenant, those
two (2) leases between Landlord and Tenant affecting the Premises, dated August
1, 1982 and March 15, 1992 shall be deemed cancelled and of no further force and
effect, effective upon the commencement of this Lease.
IN WITNESS WHEREOF, the parties hereto have signed, sealed and
delivered this Lease at Miami, Florida on the day and year first written.
WITNESS PALMETTO LAKES REALTY ASSOCIATES, LTD.,
LANDLORD
BY: HRM REALTY, INC., (G.P.)
- ---------------------------------
- --------------------------------- BY: /s/ DAVID S. KLEGER
------------------------------------
DAVID S. KLEGER, President
WITNESS ROYCE LABORATORIES, INC.,
TENANT
- --------------------------------- BY: /s/ ROBERT E. BAND
------------------------------------
- --------------------------------- ROBERT E. BAND, Vice President
of Finance
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EXHIBIT
TO LEASE BETWEEN
PALMETTO LAKES REALTY ASSOCIATES, LTD.
AND
ROYCE LABORATORIES, INC.
DATED THE 27TH DAY OF APRIL 1995
RULES AND REGULATIONS
1. Tenant, its employees and invitees shall observe all traffic
regulations, including posted speed restrictions and warning and stop
signs. Landlord shall have the right of enforcing these regulations by
appropriate measures.
2. Tenant shall not permit smoking in the Warehouse Space except in
designated smoking areas where smoking permits are displayed and safe
receptacles and containers shall be provided by Tenant for discarded
cigars, cigarettes and ashes.
3. Tenant shall not permit storage of merchandise, packing materials, car
plates, pallets, waste or refuse on loading platforms, approaches.
4. Where, in the course of daily operations, it is necessary to temporarily
keep pallet, car plates or handling equipment on the loading platform
Tenant will see that these articles do not come in contact with outside
warehouse walls in such a way as to chip or mar them.
5. Tenant will not fuel fork machines and other gasoline powered equipment
inside warehouse buildings.
6. Tenant shall maintain platforms, track areas and ground adjacent to
warehouse buildings in neat and orderly condition. Waste paper, packing
materials, lumber and refuse shall be gathered and disposed of at least
daily. Sufficient refuse cans shall be placed near operating areas to
permit convenient use of same by Tenant's employees and invitees.
7. Automobiles belonging to Tenant, its employees and invitees shall be
parked only in areas designated by Landlord.
8. Doors in Premises shall not be covered or unreasonably obstructed by
Tenant.
9. Waterclosets and other plumbing shall be used for no other purpose than
those for which they were intended and no sweeping rubbish, rags or
improper articles or materials shall be thrown therein. It is recognized
by the parties that chemicals, paint and thinners are especially
injurious to the proper functioning of the property sewage disposal
system and, without limitation, shall not be disposed of in such sewage
system.
10. No signs, advertisement or notices of any kind shall be painted or
affixed to any part of the outside of the demised Premises except as
permitted by the Lease.
11. No person of disorderly character shall be allowed to frequent or to
remain on or about the Premises.
<PAGE>
12. No nuisance, public or private, shall be created or permitted in the
Premises and the Premises shall be conducted so that no annoyance is
caused to Landlord's employees or other tenants of the Landlord. It is
recognized that the Premises are part of a general warehouse area in
which numerous tenants are located and that reasonable supervision of
the use of the Premises is necessary in order to efficiently maintain
and operate the entire warehouse area and the parties, therefore, agree
that the Landlord shall have the exclusive and sole right within the
concept of reasonableness of determining what constitutes a nuisance and
that its determination shall be binding and absolute.
13. Upon termination of the Lease, the doors and windows of the building
shall be left securely fastened and the keys of the offices, rooms and
toilet rooms shall be delivered to the Landlord.
14. Tenant's firefighting and prevention apparatus shall be adequate and
sufficient and shall be kept in proper working condition and accessible
at all times, so as to at least conform to all applicable laws,
ordinances and regulations.
15. The sidewalks, passages, exits and entrances shall not be obstructed by
any of the tenants or used by them for any purpose other than ingress to
and egress from their respective Premises. The roof is not for the use
of the general public and the Landlord shall, in all cases, retain the
right to control and prevent access thereto by all persons whose
presence in the judgment of the Landlord shall be prejudicial to the
safety, character, reputation and interests of the Building and its
tenants, provided that nothing therein contained shall be construed to
prevent such access to persons with whom the tenants normally deal in
the ordinary course of tenant's business unless such persons are engaged
in illegal activities. No tenant and no employees or invitees of any
tenant shall go upon the roof of any building except to perform repairs
consistent with the terms of the Lease.
16. Tenant shall not cause Landlord unnecessary labor cost by reason of
Tenant's carelessness or indifference in the preservation of good
maintenance to the common area. Landlord shall in no way be responsible
to any tenant for any loss of property on the Premises, however
occurring, or for any damage done to the effects by the janitor or any
other employee or any other person, except as provided in the Lease.
17. Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises or permit or suffer the
Premises to be occupied or used in a manner offensive or objectionable
to the Landlord or other occupants of the building by reason of noise,
odors and/or vibrations or interfere in any way with other tenants or
those having business therein nor shall any animals or birds be brought
in or kept in or about the Premises or the building. No tenant shall
make or permit to be made any unseemingly or disturbing noises or
disturb or interfere with occupants of this or neighboring buildings or
Premises or those having business with them whether by the use of any
musical instrument, radio, phonograph, unusual noise or in any other
way. No tenant shall throw anything out of doors.
18. Except in designated office area no tenant shall lay linoleum, tile,
carpet or other similar floor covering so that the same shall be affixed
to the floor of the Premises in any manner except as approved by the
Landlord, which approval shall not be unreasonably withheld or delayed.
The expense of repairing any damage resulting from a violation of this
rule or removal of any floor covering shall be borne by the tenant by
whom or by whose contractors, employees or invitees the damage shall
have been caused.
2
<PAGE>
19. The Landlord shall in no case be liable for damages for any error with
regard to the admission to or exclusion from the buildings of any
person. In case of invasion, mob, riot, public excitement or other
commotion, the Landlord reserves the right to prevent access to the
building during the continuance of the same by closing of the doors or
otherwise for the safety of the tenants and protection of property in
the building and the buildings.
20. After reasonable notice to Tenant Landlord reserves the right to exclude
or expel from the buildings any person who, in the judgment of Landlord,
is intoxicated or under the influence of liquor or drugs or who does any
act in violation of any of the rules and regulations of the Center.
21. Tenant agrees that it shall comply with all reasonable fire and security
regulations that may be issued from time to time by Landlord and Tenant
also shall provide Landlord with the name of a designated responsible
employee to represent Tenant in all matters pertaining to such fire or
security regulations.
22. Landlord reserves the right by written notice to Tenant to rescind,
alter or waive any rule or regulation at any time prescribed for the
Center when, in Landlord's judgment, it is necessary, desirable or
proper for the best interest of the Center and its tenants.
23. Tenant shall not disturb or solicit any occupant of the Center and shall
cooperate to prevent same.
Tenant agrees to abide by all such rules and regulations hereinabove stated and
any additional reasonable rules and regulations which are adopted by Landlord,
provided same are uniformly applied to all tenants.
3
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, effective the 21st day of November, 1994
by and between ROYCE LABORATORIES, INC., a Florida corporation (hereinafter
called "Corporation), and Robert E. Band (hereinafter called "Employee").
W I T N E S S E T H:
WHEREAS, Corporation desires to obtain the services of Employee, and
Employee desires to become employed by Corporation, upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT. Corporation hereby employs Employee and Employee
hereby accepts such employment upon the terms and conditions hereinafter set
forth.
2. TERM OF EMPLOYMENT. The employment of Employee hereunder shall
commence on November 21, 1994 and shall terminate on November 20, 1995, unless
renewed or sooner terminated in the manner hereinafter provided. The employment
of Employee hereunder shall be automatically renewed on November 21, 1995, of
each subsequent year, unless terminated by the Corporation. Should the
corporation decide to terminate the employment of Employee, the Corporation
shall serve notice of its intention to terminate this Agreement not less than
thirty (30) days prior to such termination.
3. DUTIES OF EMPLOYEE. Employee agrees to serve the Corporation
faithfully to the best of his ability under the direction of the Board of
Directors and Officers of Corporation devoting his energies and skills, and all
of his business time to his duties hereunder. The principal place of employment
of Employee shall be at the offices of Corporation in Miami, Florida, or such
other place as the parties so designate.
1
<PAGE>
It is the intention of the parties that the principal duties of
Employee shall be to serve as Vice President-Finance and Chief Financial
Officer. In such capacity, Employee shall perform such services which are not
inconsistent with his position, promote the interests of Corporation and render
such managerial, administrative and other services as are normally associated
with and incident to such position and as Corporation from time to time may
require of him.
4. REPRESENTATION BY EMPLOYEE. Employee hereby represents and
warrants to the Corporation and its shareholders as follows:
(a) There are no restrictions or covenants that the Employee is
bound to, which would preclude Employee from performing his obligations
hereunder;
(b) Employee did not have a written employment agreement with his
previous employer;
(c) Employee has not entered into a non-competition agreement
that would preclude him from performing his obligations hereunder; and
(d) Employee will not unjustifiably interfere with any
advantageous contractually or business relationship that his previous employer
may have; and
(e) Employee will devote his full time and use his best efforts
on behalf of the Corporation.
5. BASE SALARY. Corporation agrees to pay to Employee as compensation
for all the services to be rendered by Employee during the period from November
21, 1994 through November 20, 1995, a base salary as adjusted below ("Base
Salary") at the rate of $85,000.00 per annum, payable in accordance with the
normal payroll practices of the Corporation. Notwithstanding the foregoing, the
corporation may pay to Employee such other bonus at the sole discretion of the
Company's President.
6. BENEFITS. Employee shall be entitled to all benefits in accordance
with the normal benefit policies of the Corporation, therein, such benefits
shall include, but not be limited to, sick leave, policies of insurance covering
the life of Employee, and stock benefit plan as adopted by Corporation. In
addition, Employee shall be entitled to 3 weeks of paid vacation during each
employment year. Furthermore, Employee shall receive a car allowance in the
amount of $500.00 per month.
2
<PAGE>
7. TERMINATION OF EMPLOYMENT.
(a) Notwithstanding anything to the contrary contained in this
Employment Agreement, the Corporation, by written notice to Employee, shall at
all times have the right to terminate this Employment Agreement and all
obligations herein, for cause. For the purposes of this Employment Agreement,
the term "Cause" shall mean any action of Employee or any failure to act on the
part of Employee which constitutes:
(i) Fraud, embezzlement or any felony in connection with the
Employee's duties as a principal employee of the Corporation or any subsidiary
or affiliate of the Corporation or willful misconduct, act or moral turpitude or
the commission of any other act which causes substantial economic or
reputational injury to the Corporation or any such subsidiary or affiliate; or
(ii) continuing conflict of interest or continuing failure to
follow reasonable directions or instructions of the Board of Directors of the
Corporation. A conflict of interest or a failure to follow directions of the
Board of Directors of the Corporation shall be deemed to be continuing if
Employee shall have received written notice thereof and shall not have
terminated the conflict or the failure within a period of thirty (30) days after
receipt of such notice.
(b) Notwithstanding anything to the contrary contained in this
Employment Agreement, the Corporation by written notice to the Employee shall at
all times have the right to terminate the employment of the Employee under this
Employment Agreement with one hundred eighty (180) days notice if Employee shall
experience a Total Disability. For purposes of this Employment Agreement, the
term "Total Disability" shall mean any mental or physical illness, condition,
disability or incapacity as shall:
(i) prevent executive from reasonably discharging his services
and employment duties hereunder;
(ii) be attested to in writing by a physician acceptable to
the Corporation; and
(iii) continue during any period of ninety (90) consecutive
calendar days or periods aggregating one hundred eighty (180) calendar days in
any calendar year. Total Disability shall be deemed to have occurred on the last
day of such applicable period.
3
<PAGE>
(c) this Employment Agreement shall automatically terminate upon
the date of Employee's death.
8. REPRESENTATION AND WARRANTY OF EMPLOYEE. Employee hereby
represents and warrants that Employee is not a party to any agreement, contract
or understanding which would in any way restrict or prohibit him from
undertaking or performing any of his obligations hereunder in accordance with
the terms and conditions of this Employment Agreement.
9. REMEDIES. It is recognized and hereby acknowledged by the parties
hereto that a breach or violation by Employee of any of the provisions contained
in this Agreement will cause Corporation irreparable injury and damage, the
monetary amount of which may be virtually impossible to ascertain. By reason of
this, Employee acknowledges that Corporation shall be entitled, in addition to
any other remedies it may have at law, to the remedies of injunction, specific
performance and other equitable relief for a breach or violation by Employee of
any of the provisions of this Employment Agreement. This Paragraph 9 shall not,
however, be construed as a waiver of any of the rights which Corporation may
have for damages, or otherwise.
10. RESTRICTIVE COVENANTS; CONFIDENTIALITY.
(a) Employee acknowledges that the services rendered by him are
of a special and unusual character with a unique value to the Corporation, the
loss of which cannot adequately be compensated by damages in an action at law.
Accordingly, because of the confidential information to be obtained by or
disclosed to the Employee, and that as a material inducement to the Corporation
to enter into this Employment Agreement, Employee covenants and agrees as
follows:
(i) During Employee's employment he shall not without prior
written approval of the board of directors of corporation, directly or
indirectly engage in and shall have no interest in any business, firm,
partnership or corporation, whether as an employee, officer, director, agent,
security holder, creditor, consultant or otherwise, engage in any activity that
is the same or similar to, or competitive with any activity now engaged within
the primary business of the Corporation. The foregoing will not prohibit
Employee from investing in public companies.
4
<PAGE>
(ii) During Employee's employment he shall not without prior
written consent of the board of directors of corporation, directly or
indirectly, render services to or for any person, firm, or entity for
compensation or engage in research, developing, manufacturing, testing or
marketing or otherwise provide processing services for any drug with respect to
which the corporation has submitted an Abbreviated New Drug Application, any
dosage form of any of the drugs worked on by any employee of the Corporation
while Employee was employed by the Corporation or any drug identified by the
Corporation for future research and development.
(b) In the course of his employment, it is anticipated that
Employee shall have access to proprietary and confidential knowledge and
information pertaining to the business of the corporation and its business
methods, marketing information and methods, systems plans, policies and the
functional know-how relating to the Corporation and any other business the
Corporation becomes actively engaged in. Employee agrees that, during and after
the term hereof, he shall not (otherwise than pursuant to his duties hereunder)
disclose, to an unauthorized third party, any and all proprietary or
confidential information or trade secrets, pertaining to the Corporation and its
business methods, practices or affairs.
(c) The provisions of this Paragraph 10 (b) shall survive the
termination or expiration of this Employment Agreement.
(d) Employee agrees and acknowledges that the restrictions
contained herein are reasonable in scope and that adherence to same will not
preclude Employee from meaningful employment.
11. EMPLOYEE'S INVENTIONS. Employee acknowledges and agrees that all
inventions, patents, patent applications, copyrights, research, development and
formulas ("Inventions") related to the present or planned business of
Corporation, which are conceived or reduced to practice by Employee during the
period of Employee's employment or during a period of one hundred twenty (120)
days after termination of such employment, whether or not done during Employee's
regular working hours, are the sole property of Corporation. Moreover, Employee
agrees that he will disclose promptly and in writing to Corporation all
Inventions which are covered by this Agreement, and Employee hereby assigns and
agrees to assign to Corporation or its nominee all of her right, title, and
interest in and to such Inventions. Employee agrees not to disclose any of these
Inventions to others without the express consent of Corporation.
5
<PAGE>
Employee agrees, at any time during or after his employment, on
request of Corporation, to execute specific assignments in favor of Corporation
or its nominee of Employee's interest in any of the Inventions covered by this
Agreement, as well as to execute all papers, render all assistance, and perform
all lawful acts which Corporation considers necessary or advisable for the
preparation, filing, prosecution, issuance, procurement, maintenance or
enforcement of patent applications and patents of the United States and foreign
countries for these Inventions, and for the transfer of any interest Employee
may have. employee will execute any and all papers and documents required to
vest title in Corporation or its nominee in the Inventions.
12. COMPLETE AGREEMENT. This Employment Agreement constitutes the
complete understanding among the parties hereto, and supersedes any and all
prior agreements, memoranda, writings or oral understandings among the parties
hereto with respect to the Subject matter hereof, and no alteration, amendment
or modification of any of the terms and provisions hereof shall be valid unless
made pursuant to an instrument in writing signed by all of said parties.
13. SUCCESSORS AND ASSIGNS. All of the terms and provisions of this
Employment Agreement shall inure to the benefit of and be binding upon the
heirs, successors, personal representatives and assigns of the respective
parties hereto. It is the intention of the parties that this agreement shall
remain in effect in the event that Corporation is merged into another
company, or is sold in a stock or asset sale.
14. GOVERNING LAW. This Employment Agreement has been made in and
shall be construed and enforced in accordance with the laws of the State of
Florida.
15. NOTICES. All notices and other communications to be made, served
or given pursuant to the terms of this Employment Agreement shall be in writing
and shall be sent by registered or certified mail, return receipt requested,
postage prepaid, or personally delivered to the party to whom same is intended
to be delivered as follows:
If to Corporation: Royce Laboratories, Inc.
5350 N.W. 165 Street
Miami, Florida 33014
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<PAGE>
If to Employee: Robert E. Band
5350 N.W. 165 Street
Miami, Florida 33014
or at such different address as such party previously may have specified to the
other by a notice sent in accordance with this paragraph 16.
16. PARAGRAPH HEADINGS. The Paragraph headings set forth in this
Employment Agreement are for reference purposes only and shall not be considered
as part of this Employment Agreement in any respect nor shall they in any way
affect the substance of any provisions contained in this Employment Agreement.
17. SEVERABILITY. If any provision or portion thereof of this
Employment Agreement shall be held by any court of competent jurisdiction to be
illegal, void or unenforceable, such provision, or portion thereof, shall be of
no force and effect, but the illegality or unenforceability of such provision,
or portion thereof, shall have no effect upon and shall not impair the
enforceability of any other provision of this Employment Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Employment Agreement the 5th day of December, 1994.
CORPORATION:
ROYCE LABORATORIES, INC. EMPLOYEE:
By: /s/ PATRICK J. McENANY /s/ ROBERT E. BAND
---------------------------------- -----------------------------
PATRICK J. McENANY ROBERT E. BAND
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
7
<PAGE>
EXHIBIT "A"
The areas referred to in Paragraph 10 (a) (i) of the Employment
Agreement shall be the following:
(a) the States of Florida, Georgia, South Carolina, North
Carolina and Virginia.
8
EXHIBIT 10.11
A M E N D M E N T
T O
E M P L O Y M E N T A G R E E M E N T
This Amendment to Employment Agreement, effective the 1st day of June,
1990, by and between Royce Laboratories, Inc., a Florida Corporation
(hereinafter called "Corporation"), and Nilkanth Patel (hereinafter called
"Employee").
W I T N E S S E T H:
WHEREAS, the Corporation and the Employee desire to renew and amend the
Original Employment Agreement, dated the 25th day of May, 1988.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants hereinafter contained,- together with those contained in the
Employment Agreement dated the 25th day of May, 1988, the parties hereto agree
as follows:
1. Additional duties as detailed in Paragraph 3 shall include Director
of Quality Control and Quality Assurance.
2. Paragraph 5 (Base Salary), of the Agreement dated the 25th day of
May, 1988, with respect to compensation shall be amended to reflect that base
salary for the period commencing on the 22nd day of May, 1990, through the 21st
day of May 1991, shall be at the rate of Fifty Thousand and no/100 Dollars
($50,000.00) per annum.
3. Paragraph 6 (Additional Compensation), of the Agreement dated the
25th of May, 1988, with respect to additional compensation shall be amended to
provide in paragraph 6., an option for an additional twenty-five thousand shares
of stock of the Corporation in accordance with the additional provisions of
paragraph 6. of the Original Agreement, said additional option to be exercisable
at thirty-seven ($0.37) per share, exercisable for a period of five (5) years
from the date hereof.
This Amendment is subject to find approval by the Board of Directors and
the Compensation Committee.
After the Company completes a public offering the Company and Mr. Patel
will, readdress the salary posture of this amendment.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
to Employment Agreement (Original Employment Agreement dated the 28th day of
March, 1988), on this ___ day of ____________, 199__.
CORPORATION: EMPLOYEE:
ROYCE LABORATORIES, INC.
By:
------------------------------- ---------------------------------
Patrick J. McEnany NILKANTH PATEL
President
2
<PAGE>
A M E N D M E N T
T O
E M P L O Y M E N T A G R E E M E N T
This Amendment to Employment Agreement, effective the 6th day of July,
1989, by and between Royce Laboratories, Inc., a Florida Corporation
(hereinafter called "Corporation"), and Nilkanth Patel (hereinafter called
"Employee").
W I T N E S S E T H:
Whereas, the Corporation and the Employee desire to renew and amend the
Original Employment Agreement, dated the 25th day of May, 1988.
Now, therefore, in consideration of the foregoing premises and the
mutual covenants hereinafter contained, together with those contained in the
Employment Agreement dated the 25th day of May, 1988, the parties hereto agree
as follows:
1. Paragraph 5 (Base Salary), of the Agreement dated the 25th day of
May, 1988, with respect to compensation shall be amended to reflect that base
salary for the period commencing on the 22nd day of May, 1989, through the 21st
day of May 1990, shall be at the rate of Forty-Five Thousand and no/100 Dollars
($45,000.00) per annum.
2. Paragraph 6 (Additional Compensation), of the Agreement dated the
25th of May, 1988, with respect to additional compensation shall be amended to
provide in paragraph 6., an option for an additional seven thousand shares of
stock of the Corporation in accordance with the additional provisions of
paragraph 6. of the Original Agreement, said additional option to be exercisable
at seventy-five ($0.75) per share, exercisable for a period of five (5) years
from the date hereof. The second two thousand shares, to have been granted six
months after the initial employment date, pursuant to the Original Agreement, is
hereby waived.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
to Employment Agreement (Original Employment Agreement dated the 28th day of
March, 1988), on this 6th day of July, 1989.
CORPORATION
ROYCE LABORATORIES, INC.
By:
---------------------------------
Clifford W. Messina
President
<PAGE>
EMPLOYEE:
------------------------------------
NILKANTH PATEL
2
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, effective as of the 25th day of May, 1988 by
and between ROYCE LABORATORIES, INC., a Florida corporation (hereinafter called
"Corporation"), and NILKANTH PATEL (hereinafter called "Employee").
W I T N E S S E T H:
WHEREAS, Corporation desires to obtain the services of Employee, and
Employee desires to become employed by Corporation, upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT. Corporation hereby employs Employee and Employee hereby
accepts such employment upon the terms and conditions hereinafter set forth.
2. TERM OF EMPLOYMENT. The employment of Employee hereunder shall
commence on May 25, 1988 and shall terminate on May 24, 1989, unless renewed or
sooner terminated in the manner hereinafter- provided. The employment of
Employee hereunder shall be automatically renewed on May 25th, of each
subsequent year, unless terminated by the Corporation. Should the Corporation
decide to terminate the employment of Employee, the Corporation shall serve
notice of its intention to terminate this Agreement not less than thirty (30)
days prior to such termination.
3. DUTIES OF EMPLOYEE. Employee agrees to serve the Corporation
faithfully to the best of his ability under the direction of the Board of
Directors and officers of Corporation devoting his energies and skills, and all
of his business time to his duties hereunder. The principal place of employment
of Employee shall be at the offices of Corporation in Miami, Florida, or such
other place as the parties so designate.
It is the intention of the parties that the principal duties of Employee
shall be to serve as Quality Control Manager. In such capacity, Employee shall
perform such services which are not inconsistent with his position, promote the
interests of Corporation and render such managerial, administrative and other
services as are normally associated with and incident to such position and as
Corporation from time to time may require of him.
4. REPRESENTATIONS BY EMPLOYEE. Employee hereby represents and warrants
to the Corporation and its shareholders as follows:
(a) There are no restrictions or covenants that the Employee is bound
to, which would preclude Employee from performing his obligations hereunder;
<PAGE>
(b) Employee did not have a written employment agreement with his
previous employer;
(c) Employee has not entered into a noncompetition agreement that
would preclude him from performing his obligations hereunder; and
(d) Employee will not unjustifiably interfere with any advantageous
contractually or business relationship that h~s previous employer may have; and
(e) Employee will devote his full time and use his best efforts on
behalf of the Corporation.
5. BASE SALARY. Corporation agrees to pay to Employee as compensation
for all the services to be rendered by Employee during the period from May 25,
1988 through May 24, 1989, a base salary as adjusted below ("Base Salary") at
the rate Thirty-Three Thousand -($33,000.00) Dollars per annum, payable in
accordance with the normal payroll practices of Corporation. Employee's Base
Salary shall be adjusted prospectively to the rate of Thirty-Five Thousand
($35,000.00) Dollars ninety days from the date on which Employee commences
employment hereunder. Notwithstanding the foregoing, the Corporation may pay to
Employee such other bonus or bonuses, if any, as Corporation may determine, from
time to time, to be warranted, based upon the performance of Employee, said
determination to be in the sole and absolute discretion of the Board of
Directors. Any such bonuses may be payable at such time or times as Corporation
may determine.
6. ADDITIONAL COMPENSATION.
The Corporation hereby grants to Employee as of the date hereof an
option to purchase 2,000 shares of common stock, par value $.005 per share (the
"Shares"), of the Corporation pursuant to the terms and conditions of the
Corporation's Non-Qualified Stock Option Plan, as amended (the "Plan"). In
addition, the Corporation shall grant to Employee six months from the date
hereof an option to purchase 2,000 shares pursuant to the Plan, provided that at
such time Employee is employed by the Corporation pursuant to this Agreement.
Such options may be exercised not before one year from the date of grant,
provided that at such time Employee's employment with the Corporation has not
been terminated for any reason whatsoever. The shares to be issued pursuant to
these options have not been registered with the United States Securities and
Exchange Commission, the Department of Banking and Finance of the State of
Florida, or any other agency regulating the sale of securities in any
jurisdiction. Therefore, the stock issued thereunder cannot be sold,
transferred, or otherwise disposed of unless they are subsequently registered
under the laws of the United States and the State of Florida, or if in the
opinion of the Corporation's counsel, an exemption from registration is
available. The Employee will be required, as a condition precedent to the
exercise of these options, to acknowledge that the purchase of these shares is
for investment, for his own account, and without any view to the sale or other
disposition thereof and to comply with
2
<PAGE>
the provisions of Rule 144 promulgated under the Securities and Exchange Act of
1934. The certificates representing these shares shall contain the following
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION UNDER THE ACT OR IN THE OPINION OF
COUNSEL TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS
NOT REQUIRED.
.
7. BENEFITS. Employee shall be entitled to all benefits in accordance
with the normal benefit policies of the Corporation therein, such benefits shall
include, but not be limited to, sick leave, policies of insurance covering the
life of Employee, if any and stock benefit plan as adopted by Corporation. In
addition, Employee shall be entitled to 2 weeks of paid vacation during each
employment year.
8. TERMINATION OF EMPLOYMENT.
(a) Notwithstanding anything to the contrary contained in this
Employment Agreement, the Corporation, by written notice to Employee, shall at
all times have the right to terminate this Employment Agreement and all
obligations herein, for cause. For the purposes of this Employment Agreement,
the term "Cause" shall mean any action of Employee or any failure to act on the
part of Employee which constitutes:
(i) Fraud, embezzlement or any felony in connection with the
Employee's duties as a principal employee of the Corporation or any subsidiary
or affiliate of the Corporation or willful misconduct, act of moral turpitude or
the commission of any other act which causes or may reasonably be expected to
cause substantial economic or reputational injury to the Corporation or any such
subsidiary or affiliate; or
(ii) continuing conflict of interest or continuing failure to follow
reasonable directions or instructions of the Board of Directors of the
Corporation. A conflict of interest or a failure to follow directions of the
Board of Directors of the Corporation shall be deemed to be continuing if
Employee shall have received written notice thereof and shall have not
terminated the conflict or the failure within a period of thirty (30) days after
receipt of such notice.
(b) Notwithstanding anything to the contrary contained in this
Employment Agreement, the Corporation by written notice to the Employee shall at
all times have the right to terminate the employment of Employee under this
Employment Agreement if Employee shall
3
<PAGE>
experience a Total Disability. For purposes of this Employment Agreement, the
term "Total Disability" shall mean any mental or physical illness, condition,
disability or incapacity as shall:
(i) prevent executive from reasonably discharging his services and
employment duties hereunder;
(ii) be attested to in writing by a physician acceptable to the
Corporation; and
(iii) continue during any period of ninety (90) consecutive calendar
days or periods aggregating-one hundred eighty (180) calendar days in any
calendar year. Total Disability shall be deemed to have occurred on the last day
of such applicable period.
(c) This Employment Agreement shall automatically terminate upon the
date of Employee's death.
9. REPRESENTATION AND WARRANTY OF EMPLOYEE. Employee hereby represents
and warrants that Employee is not a party to any agreement, contract or
understanding which would in any way restrict or prohibit him from undertaking
or performing any of his obligations hereunder in accordance with the terms and
conditions of this Employment Agreement. Employee agrees to indemnify and hold
Corporation harmless from and against any and all suits, actions, proceedings,
claims, damages, losses, liabilities and expenses (including, without
- -limitation, attorneys' fees and disbursements, including those incurred in
appellate proceedings) which may be incurred by or asserted against Corporation
in the event that the representation and warranty of Employee contained in the
preceding sentence shall not be true and correct as of the date hereof.
10. REMEDIES. It is recognized and hereby acknowledged by the parties
hereto that a breach or violation by Employee of any of the provisions contained
in this Agreement will cause Corporation irreparable injury and damage,
the--monetary amount of which may be virtually impossible to ascertain. By
reason of this, Employee acknowledges that Corporation shall be entitled in
addition to any other remedies it may have at law, to the remedies of
injunction, specific performance and other equitable relief for a breach or
violation by Employee of any of the provisions of this Employment Agreement.
This Paragraph 9 shall not, however, be construed as a waiver of any of the
rights which Corporation may have for damages, or otherwise.
11. RESTRICTIVE COVENANTS: CONFIDENTIALITY.
(a) Employee acknowledges that the services rendered by him are of a
special and unusual character with a unique value to the Corporation, the loss
of which cannot adequately be compensated by damages in an action at law.
Accordingly, because of the confidential information to be obtained by or
disclosed to the Employee, and that as a material inducement to the Corporation
to enter into this Employment Agreement, Employee covenants and - agrees as
follows:
4
<PAGE>
(i) During Employee's employment and for a period-of three (3) years
after termination of his employment with Corporation, whether pursuant to this
Employment Agreement or otherwise, he shall not, without prior written approval
of the board of directors of Corporation, directly or indirectly engage in and
shall have no interest in any business, firm, partnership or corporation,
whether as an employee, officer, director, agent, security holder, creditor,
consultant or otherwise, engage in any activity that is the same or similar to,
or competitive with any activity now engaged within the primary business of the
Corporation or which will be engaged in by the Corporation, within the area
designated on Exhibit "A" attached hereto.
(ii) During Employee's employment and for a period of three (3) years
after his employment with Corporation, whether pursuant to this Employment
Agreement or otherwise, he shall not, without prior written consent of the board
of directors of Corporation, directly or indirectly, render services to or for
any person, firm, or entity for compensation or engage in research, developing,
manufacturing, testing or marketing or otherwise provide processing services for
any drug with respect to which the Corporation has submitted an Abbreviated New
Drug Application, any dosage form of any of the drugs worked on by any employee
of the Corporation while Employee was employed by the Corporation or any drug
identified by the Corporation for future research and development.
(b) In the course of his employment, it is anticipated that Employee
shall have access to proprietary and confidential knowledge and information
pertaining to the business of the Corporation and its business methods,
marketing information and methods, systems plans, policies and the functional
know-how relating to the Corporation and any other business the Corporation
becomes actively engaged in. Employee agrees that, during and after the term
hereof, he shall not (otherwise than pursuant to his duties hereunder) disclose,
to an unauthorized third party, any and all proprietary or confidential
information or trade secret, pertaining to the Corporation and its business
methods, practices or affairs.
(c) The provisions of this Paragraph 11 shall survive the termination or
expiration of this Employment Agreement.
(d) Employee agrees and acknowledges that the restrictions contained
herein are reasonable in scope and geography and that adherence to same will not
preclude Employee from meaningful employment.
12. EMPLOYEE INVENTIONS. Employee acknowledges and agrees that all
inventions, patents, patent applications, copyrights, research, development
and-formulas ("Inventions") related to the present or planned business of
Corporation, which are conceived or reduced to practice by Employee during the
period of Employee's employment or during a period of one hundred twenty (120)
days after termination of such employment, whether or not done during Employee's
regular working hours, are the sole property of Corporation. Moreover, Employee
agrees that he will disclose promptly and in writing to Corporation all
Inventions which are covered by this Agreement, and Employee hereby assigns and
agrees to assign to Corporation or its nominee all of his right, title,
5
<PAGE>
and interest in and to such Inventions. Employee agrees not to disclose any of
these Inventions to others without the express consent of Corporation.
Employee agrees, at any time during or after his employment, on request
of Corporation, to execute specific assignments in favor of Corporation or its
nominee of Employee's interest in any of the Inventions covered by this
Agreement, as well as to execute all papers, render all assistance, and perform
all lawful acts which Corporation considers necessary or advisable for the
preparation, filing, prosecution, issuance, procurement, maintenance or
enforcement of patent applications and patents of the United States and foreign
countries for these Inventions, and for the transfer of any interest Employee
may have. Employee will execute any and all papers and documents required to
vest title in Corporation or its nominee in the Inventions.
13. COMPLETE AGREEMENT. This Employment Agreement constitutes the
complete understanding among the parties hereto, and supersedes any and all
prior agreements, memoranda, writings or oral understandings among the parties
hereto with respect to the subject matter hereof, and no alteration, amendment
or modification of any of the terms and provisions hereof shall be valid unless
made pursuant to an instrument in writing signed by all of said parties.
14. SUCCESSORS AND ASSIGNS. All of the terms and provisions of this
Employment Agreement shall inure to the benefit of and be binding upon the
heirs, successors, personal representatives and assigns of the respective
parties hereto.
15. GOVERNING LAW. This Employment Agreement has been made in and shall
be construed and enforced in accordance with the laws of the State of Florida.
16. NOTICES. All notices and other communications to be made, served or
given pursuant to the terms of this Employment Agreement shall be in writing and
shall be sent by registered or certified mail, return receipt requested, postage
prepaid,-or personally delivered to the party to whom same is intended to be
delivered as follows:
If to Corporation: Royce Laboratories, Inc.
16600 N.W. 54th Avenue
Miami Lakes, Florida 33014
If to Employee: Nilkanth Patel
--------------------------------------
--------------------------------------
or at such different address as such party previously may have specified to the
other by a notice sent in accordance with this paragraph 16.
6
<PAGE>
17. PARAGRAPH HEADINGS. The paragraph headings set forth in this
Employment Agreement are for reference purposes only and shall not be considered
as part of this Employment Agreement in any respect nor shall they in any way
affect the substance of any provisions contained in this Employment Agreement.
18. SEVERABILITY. If any provision or portion thereof of this Employment
Agreement shall be held by any Court of competent jurisdiction to be illegal,
void or unenforceable, such provision, or portion thereof, shall be of no force
and effect, but the illegality or unenforceability of such provision, or portion
thereof, shall have no effect upon and shall not impair the enforceability of
any other provision of this Employment Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Employment
Agreement this ___ day of ________________, 1996.
CORPORATION
ROYCE LABORATORIES, INC.
By:
--------------------------------------
Russell T. Cali, Jr.
President
EMPLOYEE
-----------------------------------------
NILKANTH PATEL
7
<PAGE>
EXHIBIT "A"
The areas referred to in Paragraph 11(a)(i) of the Employment Agreement
shall be the following:
(a) the States of Florida, Georgia, South Carolina, North Carolina and
Virginia.
8
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, effective the 1st day of December, 1994 by
and between ROYCE LABORATORIES, INC., a Florida corporation (hereinafter called
"Corporation), and Eugene Sokol (hereinafter called "Employee").
W I T N E S S E T H:
WHEREAS, Corporation desires to obtain the services of Employee, and
Employee desires to become employed by Corporation, upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT. Corporation hereby employs Employee and Employee hereby
accepts such employment upon the terms and conditions hereinafter set forth.
2. TERM OF EMPLOYMENT. The employment of Employee hereunder shall
commence on December 1, 1994 and shall terminate on November 30, 1995 unless
renewed or sooner terminated in the manner hereinafter provided. The employment
of Employee hereunder shall be automatically renewed on December 1, 1995, of
each subsequent year, unless terminated by the Corporation. Should the
corporation decide to terminate the employment of Employee, the Corporation
shall serve notice of its intention to terminate this Agreement not less than
thirty (30) days prior to such termination.
3. DUTIES OF EMPLOYEE. Employee agrees to serve the Corporation
faithfully to the best of his ability under the direction of the Board of
Directors and Officers of Corporation devoting his energies and skills, and all
of his business time to his duties hereunder. The principal place of employment
of Employee shall be at the offices of Corporation in Miami, Florida, or such
other place as the parties so designate.
It is the intention of the parties that the principal duties of
Employee shall be to serve as Executive Vice President-Sales and Marketing. In
such capacity, Employee shall perform such
1
<PAGE>
services which are not inconsistent with his position, promote the interests of
Corporation and render such managerial, administrative and other services as are
normally associated with and incident to such position and as Corporation from
time to time may require of him.
4. REPRESENTATION BY EMPLOYEE. Employee hereby represents and warrants
to the Corporation and its shareholders as follows:
(a) There are no restrictions or covenants that the Employee is bound
to, which would preclude Employee from performing his obligations hereunder;
(b) Employee did not have a written employment agreement with his
previous employer;
(c) Employee has not entered into a non-competition agreement that
would preclude him from performing his obligations hereunder; and
(d) Employee will not unjustifiably interfere with any advantageous
contractually or business relationship that his previous employer may have; and
(e) Employee will devote his full time and use his best efforts on
behalf of the Corporation.
5. BASE SALARY. Corporation agrees to pay to Employee as compensation
for all the services to be rendered by Employee during the period from December
1, 1994 through November 30, 1995, a base salary as adjusted below ("Base
Salary") at the rate of $100,000.00 per annum, payable in accordance with the
normal payroll practices of the Corporation. Notwithstanding the foregoing, the
corporation may pay to Employee such other bonus at the sole discretion of the
Company's President.
6. BENEFITS. Employee shall be entitled to all benefits in accordance
with the normal benefit policies of the Corporation, therein, such benefits
shall include, but not be limited to, sick leave, policies of insurance covering
the life of Employee, and stock benefit plan as adopted by Corporation. In
addition, Employee shall be entitled to 3 weeks of paid vacation during each
employment year. Furthermore, Employee shall receive a car allowance in the
amount of $500.00 per month.
2
<PAGE>
7. TERMINATION OF EMPLOYMENT.
(a) Notwithstanding anything to the contrary contained in this
Employment Agreement, the Corporation, by written notice to Employee, shall at
all times have the right to terminate this Employment Agreement and all
obligations herein, for cause. For the purposes of this Employment Agreement,
the term "Cause" shall mean any action of Employee or any failure to act on the
part of Employee which constitutes:
(i) Fraud, embezzlement or any felony in connection with the
Employee's duties as a principal employee of the Corporation or any subsidiary
or affiliate of the Corporation or willful misconduct, act or moral turpitude or
the commission of any other act which causes substantial economic or
reputational injury to the Corporation or any such subsidiary or affiliate; or
(ii) continuing conflict of interest or continuing failure to
follow reasonable directions or instructions of the Board of Directors of the
Corporation. A conflict of interest or a failure to follow directions of the
Board of Directors of the Corporation shall be deemed to be continuing if
Employee shall have received written notice thereof and shall not have
terminated the conflict or the failure within a period of thirty (30) days after
receipt of such notice.
(b) Notwithstanding anything to the contrary contained in this
Employment Agreement, the Corporation by written notice to the Employee shall at
all times have the right to terminate the employment of the Employee under this
Employment Agreement with one hundred eighty (180) days notice if Employee shall
experience a Total Disability. For purposes of this Employment Agreement, the
term "Total Disability" shall mean any mental or physical illness, condition,
disability or incapacity as shall:
(i) prevent executive from reasonably discharging his services
and employment duties hereunder;
(ii) be attested to in writing by a physician acceptable to the
Corporation; and
(iii) continue during any period of ninety (90) consecutive
calendar days or periods aggregating one hundred eighty (180) calendar days in
any calendar year. Total Disability shall be deemed to have occurred on the last
day of such applicable period.
3
<PAGE>
(c) this Employment Agreement shall automatically terminate upon the
date of Employee's death.
8. REPRESENTATION AND WARRANTY OF EMPLOYEE. Employee hereby represents
and warrants that Employee is not a party to any agreement, contract or
understanding which would in any way restrict or prohibit him from undertaking
or performing any of his obligations hereunder in accordance with the terms and
conditions of this Employment Agreement.
9. REMEDIES. It is recognized and hereby acknowledged by the parties
hereto that a breach or violation by Employee of any of the provisions contained
in this Agreement will cause Corporation irreparable injury and damage, the
monetary amount of which may be virtually impossible to ascertain. By reason of
this, Employee acknowledges that Corporation shall be entitled, in addition to
any other remedies it may have at law, to the remedies of injunction, specific
performance and other equitable relief for a breach or violation by Employee of
any of the provisions of this Employment Agreement. This Paragraph 9 shall not,
however, be construed as a waiver of any of the rights which Corporation may
have for damages, or otherwise.
10. RESTRICTIVE COVENANTS; CONFIDENTIALITY.
(a) Employee acknowledges that the services rendered by him are of a
special and unusual character with a unique value to the Corporation, the loss
of which cannot adequately be compensated by damages in an action at law.
Accordingly, because of the confidential information to be obtained by or
disclosed to the Employee, and that as a material inducement to the Corporation
to enter into this Employment Agreement, Employee covenants and agrees as
follows:
(i) During Employee's employment he shall not without prior
written approval of the board of directors of corporation, directly or
indirectly engage in and shall have no interest in any business, firm,
partnership or corporation, whether as an employee, officer, director, agent,
security holder, creditor, consultant or otherwise, engage in any activity that
is the same or similar to, or competitive with any activity now engaged within
the primary business of the Corporation or which will be engaged in by the
Corporation. The foregoing will not prohibit Employee from investing in public
companies.
4
<PAGE>
(ii) During Employee's employment he shall not without prior
written consent of the board of directors of corporation, directly or
indirectly, render services to or for any person, firm, or entity for
compensation or engage in research, developing, manufacturing, testing or
marketing or otherwise provide processing services for any drug with respect to
which the corporation has submitted an Abbreviated New Drug Application, any
dosage form of any of the drugs worked on by any employee of the Corporation
while Employee was employed by the Corporation or any drug identified by the
Corporation for future research and development.
(b) In the course of his employment, it is anticipated that Employee
shall have access to proprietary and confidential knowledge and information
pertaining to the business of the corporation and its business methods,
marketing information and methods, systems plans, policies and the functional
know-how relating to the Corporation and any other business the Corporation
becomes actively engaged in. Employee agrees that, during and after the term
hereof, he shall not (otherwise than pursuant to his duties hereunder) disclose,
to an unauthorized third party, any and all proprietary or confidential
information or trade secrets, pertaining to the Corporation and its business
methods, practices or affairs.
(c) The provisions of this Paragraph 10 (b) shall survive the
termination or expiration of this Employment Agreement.
(d) Employee agrees and acknowledges that the restrictions contained
herein are reasonable in scope and that adherence to same will not preclude
Employee from meaningful employment.
11. EMPLOYEE'S INVENTIONS. Employee acknowledges and agrees that all
inventions, patents, patent applications, copyrights, research, development and
formulas ("Inventions") related to the present or planned business of
Corporation, which are conceived or reduced to practice by Employee during the
period of Employee's employment or during a period of one hundred twenty (120)
days after termination of such employment, whether or not done during Employee's
regular working hours, are the sole property of Corporation. Moreover, Employee
agrees that he will disclose promptly and in writing to Corporation all
Inventions which are covered by this Agreement, and Employee hereby assigns and
agrees to assign to Corporation or its nominee all of her right, title, and
interest in and to such Inventions. Employee agrees not to disclose any of these
Inventions to others without the express consent of Corporation.
5
<PAGE>
Employee agrees, at any time during or after his employment, on
request of Corporation, to execute specific assignments in favor of Corporation
or its nominee of Employee's interest in any of the Inventions covered by this
Agreement, as well as to execute all papers, render all assistance, and perform
all lawful acts which Corporation considers necessary or advisable for the
preparation, filing, prosecution, issuance, procurement, maintenance or
enforcement of patent applications and patents of the United States and foreign
countries for these Inventions, and for the transfer of any interest Employee
may have. employee will execute any and all papers and documents required to
vest title in Corporation or its nominee in the Inventions.
12. COMPLETE AGREEMENT. This Employment Agreement constitutes the
complete understanding among the parties hereto, and supersedes any and all
prior agreements, memoranda, writings or oral understandings among the parties
hereto with respect to the Subject matter hereof, and no alteration, amendment
or modification of any of the terms and provisions hereof shall be valid unless
made pursuant to an instrument in writing signed by all of said parties.
13. SUCCESSORS AND ASSIGNS. All of the terms and provisions of this
Employment Agreement shall inure to the benefit of and be binding upon the
heirs, successors, personal representatives and assigns of the respective
parties hereto. It is the intention of the parties that this agreement shall
remain in effect in the event that Corporation is merged into another company,
or is sold in a stock or asset sale.
14. GOVERNING LAW. This Employment Agreement has been made in and shall
be construed and enforced in accordance with the laws of the State of Florida.
15. NOTICES. All notices and other communications to be made, served or
given pursuant to the terms of this Employment Agreement shall be in writing and
shall be sent by registered or certified mail, return receipt requested, postage
prepaid, or personally delivered to the party to whom same is intended to be
delivered as follows:
If to Corporation: Royce Laboratories, Inc.
5350 N.W. 165 Street
Miami, Florida 33014
6
<PAGE>
If to Employee: Eugene Sokol
5350 N.W. 165 Street
Miami, Florida 33014
or at such different address as such party previously may have specified to the
other by a notice sent in accordance with this paragraph 16.
16. PARAGRAPH HEADINGS. The Paragraph headings set forth in this
Employment Agreement are for reference purposes only and shall not be considered
as part of this Employment Agreement in any respect nor shall they in any way
affect the substance of any provisions contained in this Employment Agreement.
17. SEVERABILITY. If any provision or portion thereof of this Employment
Agreement shall be held by any court of competent jurisdiction to be illegal,
void or unenforceable, such provision, or portion thereof, shall be of no force
and effect, but the illegality or unenforceability of such provision, or portion
thereof, shall be of no force and effect, but the illegality or unenforceability
of such provision, or portion thereof, shall have no effect upon and shall not
impair the enforceability of any other provision of this Employment Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Employment Agreement the 5th day of December 1994.
CORPORATION:
ROYCE LABORATORIES, INC. EMPLOYEE:
By: /s/ PATRICK J. McENANY /s/ EUGENE SOKOL
----------------------------------- -------------------------------
PATRICK J. McENANY EUGENE SOKOL
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
7
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, effective the 5th day of May, 1995 by and
between ROYCE LABORATORIES, INC., a Florida corporation (hereinafter called
"Corporation), and Mohammad N. Rahman (hereinafter called "Employee").
W I T N E S S E T H:
WHEREAS, Corporation desires to obtain the services of Employee, and
Employee desires to become employed by Corporation, upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT. Corporation hereby employs Employee and Employee hereby
accepts such employment upon the terms and conditions hereinafter set forth.
2. TERM OF EMPLOYMENT. The employment of Employee hereunder shall
commence on May 5, 1995 and shall terminate on May 4, 1996, unless renewed or
sooner terminated in the manner hereinafter provided. The employment of Employee
hereunder shall be automatically renewed onMay 5th, of each subsequent year,
unless terminated by the Corporation. Should the corporation decide to terminate
the employment of Employee, the Corporation shall serve notice of its intention
to terminate this Agreement not less than thirty (30) days prior to such
termination.
3. DUTIES OF EMPLOYEE. Employee agrees to serve the Corporation
faithfully to the best of his ability under the direction of the Board of
Directors and Officers of Corporation devoting his energies and skills, and all
of his business time to his duties hereunder. The principal place of employment
of Employee shall be at the offices of Corporation in Miami, Florida, or such
other place as the parties so designate.
1
<PAGE>
It is the intention of the parties that the principal duties of Employee
shall be to serve as Vice President of Plant Operations. In such capacity,
Employee shall perform such services which are not inconsistent with his
position, promote the interests of Corporation and render such managerial,
administrative and other services as are normally associated with and incident
to such position and as Corporation from time to time may require of him.
4. REPRESENTATION BY EMPLOYEE. Employee hereby represents and warrants
to the Corporation and its shareholders as follows:
(a) There are no restrictions or covenants that the Employee is bound
to, which would preclude Employee from performing his obligations hereunder;
(b) Employee did not have a written employment agreement with his
previous employer;
(c) Employee has not entered into a non-competition agreement that
would preclude him from performing his obligations hereunder; and
(d) Employee will not unjustifiably interfere with any advantageous
contractually or business relationship that his previous employer may have; and
(e) Employee will devote his full time and use his best efforts on
behalf of the Corporation.
5. BASE SALARY. Corporation agrees to pay to Employee as compensation
for all the services to be rendered by Employee during the period from present
through Octobrer 3, 1995, a base salary as adjusted below ("Base Salary") at the
rate of Seventy-Five Thousand ($75,000.00) Dollars per annum, payable in
accordance with the normal payroll practices of the Corporation. Notwithstanding
the foregoing, the corporation may pay to Employee such other bonus at the sole
discretion of the Company's President.
6. BENEFITS. Employee shall be entitled to all benefits in accordance
with the normal benefit policies of the Corporation, therein, such benefits
shall include, but not be limited to, sick leave, policies of insurance covering
the life of Employee, and stock benefit plan as adopted by Corporation. In
addition, Employee shall be entitled to 2 weeks of paid vacation during each
employment year. Furthermore, Employee shall receive a car allowance in the
amount of $150.00 per month.
2
<PAGE>
7. TERMINATION OF EMPLOYMENT.
(a) Notwithstanding anything to the contrary contained in this
Employment Agreement, the Corporation, by written notice to Employee, shall at
all times have the right to terminate this Employment Agreement and all
obligations herein, for cause. For the purposes of this Employment Agreement,
the term "Cause" shall mean any action of Employee or any failure to act on the
part of Employee which constitutes:
(i) Fraud, embezzlement or any felony in connection with the
Employee's duties as a principal employee of the Corporation or any subsidiary
or affiliate of the Corporation or willful misconduct, act or moral turpitude or
the commission of any other act which causes substantial economic or
reputational injury to the Corporation or any such subsidiary or affiliate; or
(ii) continuing conflict of interest or continuing failure to
follow reasonable directions or instructions of the Board of Directors of the
Corporation. A conflict of interest or a failure to follow directions of the
Board of Directors of the Corporation shall be deemed to be continuing if
Employee shall have received written notice thereof and shall not have
terminated the conflict or the failure within a period of thirty (30) days after
receipt of such notice.
(b) Notwithstanding anything to the contrary contained in this
Employment Agreement, the Corporation by written notice to the Employee shall at
all times have the right to terminate the employment of the Employee under this
Employment Agreement with one hundred eighty (180) days notice if Employee shall
experience a Total Disability. For purposes of this Employment Agreement, the
term "Total Disability" shall mean any mental or physical illness, condition,
disability or incapacity as shall:
(i) prevent executive from reasonably discharging his services and
employment duties hereunder;
(ii) be attested to in writing by a physician acceptable to the
Corporation; and
(iii) continue during any period of ninety (90) consecutive
calendar days or periods aggregating one hundred eighty (180) calendar days in
any calendar year. Total Disability shall be deemed to have occurred on the last
day of such applicable period.
3
<PAGE>
(c) this Employment Agreement shall automatically terminate upon the
date of Employee's death.
8. REPRESENTATION AND WARRANTY OF EMPLOYEE. Employee hereby represents
and warrants that Employee is not a party to any agreement, contract or
understanding which would in any way restrict or prohibit him from undertaking
or performing any of his obligations hereunder in accordance with the terms and
conditions of this Employment Agreement.
9. REMEDIES. It is recognized and hereby acknowledged by the parties
hereto that a breach or violation by Employee of any of the provisions contained
in this Agreement will cause Corporation irreparable injury and damage, the
monetary amount of which may be virtually impossible to ascertain. By reason of
this, Employee acknowledges that Corporation shall be entitled, in addition to
any other remedies it may have at law, to the remedies of injunction, specific
performance and other equitable relief for a breach or violation by Employee of
any of the provisions of this Employment Agreement. This Paragraph 9 shall not,
however, be construed as a waiver of any of the rights which Corporation may
have for damages, or otherwise.
10. RESTRICTIVE COVENANTS; CONFIDENTIALITY.
(a) Employee acknowledges that the services rendered by him are of a
special and unusual character with a unique value to the Corporation, the loss
of which cannot adequately be compensated by damages in an action at law.
Accordingly, because of the confidential information to be obtained by or
disclosed to the Employee, and that as a material inducement to the Corporation
to enter into this Employment Agreement, Employee covenants and agrees as
follows:
(i) During Employee's employment he shall not without prior
written approval of the board of directors of corporation, directly or
indirectly engage in and shall have no interest in any business, firm,
partnership or corporation, whether as an employee, officer, director, agent,
security holder, creditor, consultant or otherwise, engage in any activity that
is the same or similar to, or competitive with any activity now engaged within
the primary business of the Corporation or which will be engaged in by the
Corporation. The foregoing will not prohibit Employee from investing in public
companies.
4
<PAGE>
(ii) During Employee's employment he shall not without prior
written consent of the board of directors of corporation, directly or
indirectly, render services to or for any person, firm, or entity for
compensation or engage in research, developing, manufacturing, testing or
marketing or otherwise provide processing services for any drug with respect to
which the corporation has submitted an Abbreviated New Drug Application, any
dosage form of any of the drugs worked on by any employee of the Corporation
while Employee was employed by the Corporation or any drug identified by the
Corporation for future research and development.
(b) In the course of his employment, it is anticipated that Employee
shall have access to proprietary and confidential knowledge and information
pertaining to the business of the corporation and its business methods,
marketing information and methods, systems plans, policies and the functional
know-how relating to the Corporation and any other business the Corporation
becomes actively engaged in. Employee agrees that, during and after the term
hereof, he shall not (otherwise than pursuant to his duties hereunder) disclose,
to an unauthorized third party, any and all proprietary or confidential
information or trade secrets, pertaining to the Corporation and its business
methods, practices or affairs.
(c) The provisions of this Paragraph 10 (b) shall survive the
termination or expiration of this Employment Agreement.
(d) Employee agrees and acknowledges that the restrictions contained
herein are reasonable in scope and that adherence to same will not preclude
Employee from meaningful employment.
11. EMPLOYEE'S INVENTIONS. Employee acknowledges and agrees that all
inventions, patents, patent applications, copyrights, research, development and
formulas ("Inventions") related to the present or planned business of
Corporation, which are conceived or reduced to practice by Employee during the
period of Employee's employment or during a period of one hundred twenty (120)
days after termination of such employment, whether or not done during Employee's
regular working hours, are the sole property of Corporation. Moreover, Employee
agrees that he will disclose promptly and in writing to Corporation all
Inventions which are covered by this Agreement, and Employee hereby assigns and
agrees to assign to Corporation or its nominee all of her right, title, and
interest in and to such Inventions. Employee agrees not to disclose any of these
Inventions to others without the express consent of Corporation.
5
<PAGE>
Employee agrees, at any time during or after his employment, on
request of Corporation, to execute specific assignments in favor of Corporation
or its nominee of Employee's interest in any of the Inventions covered by this
Agreement, as well as to execute all papers, render all assistance, and perform
all lawful acts which Corporation considers necessary or advisable for the
preparation, filing, prosecution, issuance, procurement, maintenance or
enforcement of patent applications and patents of the United States and foreign
countries for these Inventions, and for the transfer of any interest Employee
may have. employee will execute any and all papers and documents required to
vest title in Corporation or its nominee in the Inventions.
12. COMPLETE AGREEMENT. This Employment Agreement constitutes the
complete understanding among the parties hereto, and supersedes any and all
prior agreements, memoranda, writings or oral understandings among the parties
hereto with respect to the Subject matter hereof, and no alteration, amendment
or modification of any of the terms and provisions hereof shall be valid unless
made pursuant to an instrument in writing signed by all of said parties.
13. SUCCESSORS AND ASSIGNS. All of the terms and provisions of this
Employment Agreement shall inure to the benefit of and be binding upon the
heirs, successors, personal representatives and assigns of the respective
parties hereto. It is the intention of the parties that this agreement shall
remain in effect in the event that Corporation is merged into another company,
or is sold in a stock or asset sale.
14. GOVERNING LAW. This Employment Agreement has been made in and shall
be construed and enforced in accordance with the laws of the State of Florida.
15. NOTICES. All notices and other communications to be made, served or
given pursuant to the terms of this Employment Agreement shall be in writing and
shall be sent by registered or certified mail, return receipt requested, postage
prepaid, or personally delivered to the party to whom same is intended to be
delivered as follows:
6
<PAGE>
If to Corporation: Royce Laboratories, Inc.
5350 N.W. 165 Street
Miami, Florida 33014
If to Employee: Mohammad N. Rahman
4210 S.W. 82 Way
Davie, Florida 33328
or at such different address as such party previously may have specified to the
other by a notice sent in accordance with this paragraph 16.
16. PARAGRAPH HEADINGS. The Paragraph headings set forth in this
Employment Agreement are for reference purposes only and shall not be considered
as part of this Employment Agreement in any respect nor shall they in any way
affect the substance of any provisions contained in this Employment Agreement.
17. SEVERABILITY. If any provision or portion thereof of this Employment
Agreement shall be held by any court of competent jurisdiction to be illegal,
void or unenforceable, such provision, or portion thereof, shall be of no force
and effect, but the illegality or unenforceability of such provision, or portion
thereof, shall have no effect upon and shall not impair the enforceability of
any other provision of this Employment Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Employment Agreement the 5th day of May, 1995.
CORPORATION:
ROYCE LABORATORIES, INC. EMPLOYEE:
By: /s/ PATRICK J. McENANY /s/ MOHAMMAD N. RAHMAN
--------------------------------- ------------------------------
PATRICK J. McENANY MOHAMMAD N. RAHMAN
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
7
<PAGE>
EXHIBIT "A"
The areas referred to in Paragraph 10 (a) (i) of the Employment
Agreement shall be the following:
(a) the States of Florida, Georgia, South Carolina, North Carolina
and Virginia.
8
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, effective the 1st day of April, 1996 by and
between ROYCE LABORATORIES, INC., a Florida corporation (hereinafter called
"Corporation), and Jack Bleau (hereinafter called "Employee").
W I T N E S S E T H:
WHEREAS, Corporation desires to obtain the services of Employee, and
Employee desires to become employed by Corporation, upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT. Corporation hereby employs Employee and Employee hereby
accepts such employment upon the terms and conditions hereinafter set forth.
2. TERM OF EMPLOYMENT. The employment of Employee hereunder shall
commence on April 1, 1996 and shall terminate on March 31, 1998, unless renewed
or sooner terminated in the manner hereinafter provided. The employment of
Employee hereunder shall be automatically renewed on April 1, of each subsequent
year, unless terminated by the Corporation. Should the corporation decide to
terminate the employment of Employee, the Corporation shall serve notice of its
intention to terminate this Agreement not less than thirty (30) days prior to
such termination. In no event can the Corporation cancel this agreement prior to
March 31, 1998, except for "cause" as defind in paragraph 7 of this agreement.
3. DUTIES OF EMPLOYEE. Employee agrees to serve the Corporation
faithfully to the best of his ability under the direction of the Board of
Directors and Officers of Corporation devoting his energies and skills, and all
of his business time to his duties hereunder. The principal place of employment
of Employee shall be at the offices of Corporation in Miami, Florida, or such
other place as the parties so designate.
It is the intention of the parties that the principal duties of
Employee shall be to serve as
1
<PAGE>
Vice President of Sales and Marketing. In such capacity, Employee shall perform
such services which are not inconsistent with his position, promote the
interests of Corporation and render such managerial, administrative and other
services as are normally associated with and incident to such position and as
Corporation from time to time may require of him.
4. REPRESENTATION BY EMPLOYEE. Employee hereby represents and warrants
to the Corporation and its shareholders as follows:
(a) There are no restrictions or covenants that the Employee is bound
to, which would preclude Employee from performing his obligations hereunder;
(b) Employee did not have a written employment agreement with his
previous employer;
(c) Employee has not entered into a non-competition agreement that
would preclude him from performing his obligations hereunder; and
(d) Employee will not unjustifiably interfere with any advantageous
contractually or business relationship that his previous employer may have; and
(e) Employee will devote his full time and use his best efforts on
behalf of the Corporation.
5. BASE SALARY. Corporation agrees to pay to Employee as compensation
for all the services to be rendered by Employee during the period from April 1,
1996 through March 31, 1998, a base salary as adjusted below ("Base Salary") at
the rate of One Hundred-Fifty Thousand ($150,000.00) Dollars per annum, payable
in accordance with the normal payroll practices of the Corporation.
Notwithstanding the foregoing, the corporation will pay to Employee a bonus
equal to 25% of base salary, based on performance criteria to be mutually agreed
to.
6. BENEFITS. Employee shall be entitled to all benefits in accordance
with the normal benefit policies of the Corporation, therein, such benefits
shall include, but not be limited to, sick leave, policies of insurance covering
the life of Employee, and stock benefit plan as adopted by Corporation. In
addition, Employee shall be entitled to 5 weeks of paid vacation during each
employment year. Furthermore, Employee shall receive a car allowance in the
amount of $500.00 per month.
Also, the Company will provide $500,000 of term life insurance, whereby
employee will
2
<PAGE>
designate the beneficiary of the policy.
Employee shall be issued an option to purchase 80,000 shares of Royce
Laboratories, Inc. common stock, vested over a period of four years. At the end
of each year 20,000 options will vest. The exercise price of the 80,000 options
shall be, as approved by the board of directors, the closing bid price for the
Royce common stock on March 31, 1996.
7. TERMINATION OF EMPLOYMENT.
(a) Notwithstanding anything to the contrary contained in this
Employment Agreement, the Corporation, by written notice to Employee, shall at
all times have the right to terminate this Employment Agreement and all
obligations herein, for cause. For the purposes of this Employment Agreement,
the term "Cause" shall mean any action of Employee or any failure to act on the
part of Employee which constitutes:
(i) Fraud, embezzlement or any felony in connection with the
Employee's duties as a principal employee of the Corporation or any subsidiary
or affiliate of the Corporation or willful misconduct, act or moral turpitude or
the commission of any other act which causes substantial economic or
reputational injury to the Corporation or any such subsidiary or affiliate; or
(ii) continuing conflict of interest or continuing failure to
follow reasonable directions or instructions of the Board of Directors of the
Corporation. A conflict of interest or a failure to follow directions of the
Board of Directors of the Corporation shall be deemed to be continuing if
Employee shall have received written notice thereof and shall not have
terminated the conflict or the failure within a period of thirty (30) days after
receipt of such notice.
(b) Notwithstanding anything to the contrary contained in this
Employment Agreement, the Corporation by written notice to the Employee shall at
all times have the right to terminate the employment of the Employee under this
Employment Agreement with one hundred eighty (180) days notice if Employee shall
experience a Total Disability. For purposes of this Employment Agreement, the
term "Total Disability" shall mean any mental or physical illness, condition,
disability or incapacity as shall:
(i) prevent executive from reasonably discharging his services
and employment
3
<PAGE>
duties hereunder;
(ii) be attested to in writing by a physician acceptable to the
Corporation; and
(iii) continue during any period of ninety (90) consecutive
calendar days or periods aggregating one hundred eighty (180) calendar days in
any calendar year. Total Disability shall be deemed to have occurred on the last
day of such applicable period.
(c) this Employment Agreement shall automatically terminate upon the
date of Employee's death.
8. REPRESENTATION AND WARRANTY OF EMPLOYEE. Employee hereby represents
and warrants that Employee is not a party to any agreement, contract or
understanding which would in any way restrict or prohibit him from undertaking
or performing any of his obligations hereunder in accordance with the terms and
conditions of this Employment Agreement.
9. REMEDIES. It is recognized and hereby acknowledged by the parties
hereto that a breach or violation by Employee of any of the provisions contained
in this Agreement will cause Corporation irreparable injury and damage, the
monetary amount of which may be virtually impossible to ascertain. By reason of
this, Employee acknowledges that Corporation shall be entitled, in addition to
any other remedies it may have at law, to the remedies of injunction, specific
performance and other equitable relief for a breach or violation by Employee of
any of the provisions of this Employment Agreement. This Paragraph 9 shall not,
however, be construed as a waiver of any of the rights which Corporation may
have for damages, or otherwise.
10. RESTRICTIVE COVENANTS; CONFIDENTIALITY.
(a) Employee acknowledges that the services rendered by him are of a
special and unusual character with a unique value to the Corporation, the loss
of which cannot adequately be compensated by damages in an action at law.
Accordingly, because of the confidential information to be obtained by or
disclosed to the Employee, and that as a material inducement to the Corporation
to enter into this Employment Agreement, Employee covenants and agrees as
follows:
4
<PAGE>
(i) During Employee's employment he shall not without prior
written approval of the board of directors of corporation, directly or
indirectly engage in and shall have no interest in any business, firm,
partnership or corporation, whether as an employee, officer, director, agent,
security holder, creditor, consultant or otherwise, engage in any activity that
is the same or similar to, or competitive with any activity now engaged within
the primary business of the Corporation or which will be engaged in by the
Corporation. The foregoing will not prohibit Employee from investing in public
companies.
(ii) During Employee's employment he shall not without prior
written consent of the board of directors of corporation, directly or
indirectly, render services to or for any person, firm, or entity for
compensation or engage in research, developing, manufacturing, testing or
marketing or otherwise provide processing services for any drug with respect to
which the corporation has submitted an Abbreviated New Drug Application, any
dosage form of any of the drugs worked on by any employee of the Corporation
while Employee was employed by the Corporation or any drug identified by the
Corporation for future research and development.
(b) In the course of his employment, it is anticipated that Employee
shall have access to proprietary and confidential knowledge and information
pertaining to the business of the corporation and its business methods,
marketing information and methods, systems plans, policies and the functional
know-how relating to the Corporation and any other business the Corporation
becomes actively engaged in. Employee agrees that, during and after the term
hereof, he shall not (otherwise than pursuant to his duties hereunder) disclose,
to an unauthorized third party, any and all proprietary or confidential
information or trade secrets, pertaining to the Corporation and its business
methods, practices or affairs.
(c) The provisions of this Paragraph 10 (b) shall survive the
termination or expiration of this Employment Agreement.
(d) Employee agrees and acknowledges that the restrictions contained
herein are reasonable in scope and that adherence to same will not preclude
Employee from meaningful employment.
11. EMPLOYEE'S INVENTIONS. Employee acknowledges and agrees that all
inventions, patents,
5
<PAGE>
patent applications, copyrights, research, development and formulas
("Inventions") related to the present or planned business of Corporation, which
are conceived or reduced to practice by Employee during the period of Employee's
employment or during a period of one hundred twenty (120) days after termination
of such employment, whether or not done during Employee's regular working hours,
are the sole property of Corporation. Moreover, Employee agrees that he will
disclose promptly and in writing to Corporation all Inventions which are covered
by this Agreement, and Employee hereby assigns and agrees to assign to
Corporation or its nominee all of her right, title, and interest in and to such
Inventions. Employee agrees not to disclose any of these Inventions to others
without the express consent of Corporation.
Employee agrees, at any time during or after his employment, on
request of Corporation, to execute specific assignments in favor of Corporation
or its nominee of Employee's interest in any of the Inventions covered by this
Agreement, as well as to execute all papers, render all assistance, and perform
all lawful acts which Corporation considers necessary or advisable for the
preparation, filing, prosecution, issuance, procurement, maintenance or
enforcement of patent applications and patents of the United States and foreign
countries for these Inventions, and for the transfer of any interest Employee
may have. employee will execute any and all papers and documents required to
vest title in Corporation or its nominee in the Inventions.
12. COMPLETE AGREEMENT. This Employment Agreement constitutes the
complete understanding among the parties hereto, and supersedes any and all
prior agreements, memoranda, writings or oral understandings among the parties
hereto with respect to the Subject matter hereof, and no alteration, amendment
or modification of any of the terms and provisions hereof shall be valid unless
made pursuant to an instrument in writing signed by all of said parties.
13. SUCCESSORS AND ASSIGNS. All of the terms and provisions of this
Employment Agreement shall inure to the benefit of and be binding upon the
heirs, successors, personal representatives and assigns of the respective
parties hereto. It is the intention of the parties that this agreement shall
remain in effect in the event that Corporation is merged into another company,
or is sold in a stock or asset sale.
14. GOVERNING LAW. This Employment Agreement has been made in and shall
be construed and enforced in accordance with the laws of the State of Florida.
6
<PAGE>
15. NOTICES. All notices and other communications to be made, served or
given pursuant to the terms of this Employment Agreement shall be in writing and
shall be sent by registered or certified mail, return receipt requested, postage
prepaid, or personally delivered to the party to whom same is intended to be
delivered as follows:
If to Corporation: Royce Laboratories, Inc.
5350 N.W. 165 Street
Miami, Florida 33014
If to Employee: Mr. Jack Bleau
454 Ridge Road
Golden, CO 80040
or at such different address as such party previously may have specified to the
other by a notice sent in accordance with this paragraph 16.
16. PARAGRAPH HEADINGS. The Paragraph headings set forth in this
Employment Agreement are for reference purposes only and shall not be considered
as part of this Employment Agreement in any respect nor shall they in any way
affect the substance of any provisions contained in this Employment Agreement.
17. SEVERABILITY. If any provision or portion thereof of this Employment
Agreement shall be held by any court of competent jurisdiction to be illegal,
void or unenforceable, such provision, or portion thereof, shall be of no force
and effect, but the illegality or unenforceability of such provision, or portion
thereof, shall have no effect upon and shall not impair the enforceability of
any other provision of this Employment Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Employment Agreement the 21st day of February, 1996.
CORPORATION:
ROYCE LABORATORIES, INC. EMPLOYEE:
By: /s/ PATRICK J. McENANY /s/ JACK BLEAU
----------------------------- ----------------------------
PATRICK J. McENANY JACK BLEAU
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
8
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Nos. 33-84620 and
33-61917) and in the Registration Statements on Form S-8 (Nos. 33-61973,
33-61971 and 33-61975) of Royce Laboratories, Inc. of our report dated February
28, 1996, appearing on Page F-1 of this Form 10-K.
/s/ PRICE WATERHOUSE LLP
- --------------------------------
PRICE WATERHOUSE LLP
Miami, Florida
March 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,291,000
<SECURITIES> 0
<RECEIVABLES> 3,466,000
<ALLOWANCES> 909,000
<INVENTORY> 4,212,000
<CURRENT-ASSETS> 10,284,000
<PP&E> 1,732,000<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,093,000
<CURRENT-LIABILITIES> 3,239,000
<BONDS> 181,000<F2>
0
0
<COMMON> 64,000
<OTHER-SE> 8,609,000
<TOTAL-LIABILITY-AND-EQUITY> 12,093,000
<SALES> 10,503,000
<TOTAL-REVENUES> 10,503,000
<CGS> 7,143,000
<TOTAL-COSTS> 5,846,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,000
<INCOME-PRETAX> (2,336,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,336,000)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
<FN>
<F1>Net of depreciation.
<F2>Comprised of long-term debt.
</FN>
</TABLE>
