<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File NO. 0-15242
DURAMED PHARMACEUTICALS, INC.
Incorporated Under the IRS Employer I.D.
Laws of the State No. 11-2590026
of Delaware
7155 East Kemper Road
Cincinnati, Ohio 45249
(513) 731-9900
Indicate by checkmark 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, and (2) has been subject to such filing
requirements for the past 90 days.
YES [ X ] NO [ ]
Common Stock, $.01 par value per share:
Shares Outstanding as of November 10, 1997 17,306,723
Page 1 of 22 pages
<PAGE> 2
DURAMED PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I. Financial Information
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheets .......................................... 3- 4
Consolidated Statements of Operations ................................ 5
Consolidated Statements of Cash Flows ................................ 6
Consolidated Statements of Stockholders'
Equity .............................................................. 7
Notes to Consolidated Financial
Statements .......................................................... 8 - 11
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations .................... 12 - 18
PART II. Other Information
ITEM 1. Legal Proceedings .................................................... 19
ITEM 4. Submission of Matters to a Vote of Security Holders .................. 20
ITEM 6. Exhibits and Reports on Form 8-K ..................................... 21
SIGNATURES ..................................................................... 22
</TABLE>
- 2 -
<PAGE> 3
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 689,368 $ 1,811,182
Trade accounts receivable,
less allowance for doubtful accounts:
$1,462,051 and $1,339,000,
in 1997 and 1996 respectively 8,031,023 7,460,452
Inventories 10,088,470 13,188,627
Prepaid expenses and other assets 2,442,303 1,455,251
------------ ------------
Total current assets 21,251,164 23,915,512
Property, plant and equipment:
Land 1,000,000 1,000,000
Buildings and improvements 18,553,612 18,211,740
Equipment, furniture and fixtures 24,247,246 23,589,782
------------ ------------
43,800,858 42,801,522
Less accumulated depreciation
and amortization (15,111,190) (13,499,466)
------------ ------------
Property, plant and equipment - net 28,689,668 29,302,056
Deposits and other assets 643,529 416,288
------------ ------------
Total assets $ 50,584,361 $ 53,633,856
============ ============
</TABLE>
See accompanying notes.
- 3 -
<PAGE> 4
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 3,515,909 $ 4,461,434
Accrued liabilities 5,468,866 5,178,068
Current portion of long-term
debt and other liabilities 2,428,257 3,363,798
Current portion of capital lease obligations 1,154,051 1,113,114
------------ ------------
Total current liabilities 12,567,083 14,116,414
------------ ------------
Long-term debt, less current portion 11,526,360 9,989,461
Long-term capital leases, less current portion 1,247,239 1,727,587
Other long-term liabilities -- 161,171
Mandatory redeemable convertible preferred stock 5,100,000 --
------------ ------------
Total liabilities 30,440,682 25,994,633
------------ ------------
Stockholders' equity:
Convertible Preferred Stock Series B, par value $.001;
outstanding shares in 1997 and 1996 -- 6
Common stock - authorized 50,000,000 shares,
par value $.01; 16,461,086 and 14,603,516 shares in
1997 and 1996 respectively 164,610 146,035
Additional paid-in capital 85,968,116 80,073,586
Accumulated deficit (65,989,047) (52,580,404)
------------ ------------
Total stockholders' equity 20,143,679 27,639,223
------------ ------------
Total liabilities and stockholders' equity $ 50,584,361 $ 53,633,856
============ ============
</TABLE>
See accompanying notes.
- 4 -
<PAGE> 5
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 11,112,962 $ 10,376,186 $ 33,544,362 $ 32,862,304
Cost of goods sold 8,491,124 7,975,304 24,728,906 23,039,155
------------ ------------ ------------ ------------
Gross profit 2,621,838 2,400,882 8,815,456 9,823,149
------------ ------------ ------------ ------------
Operating expenses:
Product development 2,843,454 3,506,457 12,926,000 7,363,260
Purchase of in-process
research and development -- 8,557,275 -- 8,557,275
Selling 738,487 1,617,292 2,527,870 3,474,697
General and administrative 1,974,742 1,943,573 5,867,628 6,466,537
------------ ------------ ------------ ------------
5,556,683 15,624,597 21,321,498 25,861,769
------------ ------------ ------------ ------------
Operating loss (2,934,845) (13,223,715) (12,506,042) (16,038,620)
Interest expense 255,967 404,790 902,601 1,523,065
------------ ------------ ------------ ------------
Loss before
preferred dividends (3,190,812) (13,628,505) (13,408,643) (17,561,685)
Preferred dividends 105,125 293,700 140,741 672,269
------------ ------------ ------------ ------------
Net loss
to common shareholders $ (3,295,937) $(13,922,205) $(13,549,384) $(18,233,954)
============ ============ ============ ============
Loss per share $ (0.21) $ (1.28) $ (0.91) $ (1.85)
============ ============ ============ ============
Weighted average number of
common shares outstanding 15,384,609 10,850,555 14,957,717 9,850,047
============ ============ ============ ============
</TABLE>
See accompanying notes.
- 5 -
<PAGE> 6
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(13,408,643) $(17,561,685)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization 1,689,691 1,693,235
Recognition of deferred revenues -- (500,000)
Provision for doubtful accounts 122,559 870,304
Purchase of in-process research and development -- 8,557,275
Common stock issued in connection with
employee compensation plans 143,397 144,368
Changes in assets and liabilities:
Trade accounts receivable (693,130) (29,936)
Inventories 3,100,157 (4,965,498)
Prepaid expenses and other assets (727,647) 210,710
Accounts payable (945,525) (280,826)
Accrued liabilities 435,149 206,947
Other (153,528) (192,042)
------------ ------------
Net cash (used in) operating activities (10,437,520) (11,847,148)
------------ ------------
Investing activities:
Capital expenditures (1,046,851) (1,084,595)
Refunds (deposits) on capital equipment (55,738) 56,998
Payments in connection with acquisition -- (1,577,649)
------------ ------------
Net cash (used for) investing activities (1,102,589) (2,605,246)
------------ ------------
Cash flows from financing activities:
Payments of long-term debt, including current maturities (8,130,408) (6,716,434)
Net (decrease) increase in revolving credit facility -- (8,664,861)
Long-term borrowings 9,024,878 2,741,300
Issuance of preferred stock - net 9,481,190 29,823,702
Issuance of common stock 311,947 937,916
Preferred stock dividends paid (269,312) (501,309)
------------ ------------
Net cash provided by financing activities 10,418,295 17,620,314
------------ ------------
Net change in cash (1,121,814) 3,167,920
Cash at beginning of period 1,811,182 2,600
------------ ------------
Cash at end of period $ 689,368 $ 3,170,520
============ ============
Supplemental cash flow disclosures:
Interest paid $ 923,042 $ 1,552,796
</TABLE>
See accompanying notes.
- 6 -
<PAGE> 7
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-In Accumulated
Series B Shares Amount Capital Deficit Total
-------- ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1996 $6 14,603,516 $146,035 $80,073,586 $(52,580,404) $27,639,223
Issuance of stock in connection
with benefit plans 24,637 246 143,151 143,397
Issuance of stock in connection
with stock options 135,051 1,351 310,596 311,947
Issuance of stock in settlement
of certain liabilities 89,369 894 892,800 893,694
Conversion of Series B
Preferred Stock (6) 60,590 606 (600) ---
Conversion of Series E
Preferred Stock - Net 1,547,923 15,478 4,689,324 4,704,802
Series E Preferred Stock dividend (140,741) (140,741)
Net loss for the nine month period
ended September 30, 1997 (13,408,643) (13,408,643)
-- ---------- -------- ----------- ------------- -----------
BALANCE - SEPTEMBER 30, 1997 --- 16,461,086 $164,610 $85,968,116 $(65,989,047) $20,143,679
=== ========== ======== =========== ============= ===========
</TABLE>
See accompanying notes.
- 7 -
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Interim Financial Data
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1997. For further information, refer to the consolidated
financial statements and notes thereto included in the Annual Report of Duramed
Pharmaceuticals, Inc. (the "Company" or "Duramed") on Form 10-K/A Amendment No.
2 for the year ended December 31, 1996, as amended (the "1996 10-K").
Note 2: Loss Per Share
Loss per share is computed using the weighted average of common shares
outstanding only. Recognition of outstanding options, warrants and convertible
preferred stock in computing loss per share is not required as their effect
would be antidilutive.
Note 3: Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Components of inventories include:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Raw materials $ 6,917,607 $ 6,767,105
Work-in-process 587,589 452,905
Finished goods 3,722,431 7,520,247
Reserves (1,139,157) (1,551,630)
----------- -----------
Net inventory $10,088,470 $13,188,627
=========== ===========
</TABLE>
The Company had manufactured a commercial launch quantity of its conjugated
estrogens product which was developed in accordance with the Food and Drug
Administration's (FDA) guidance established in 1991 and current official U. S.
Pharmacopeia (USP) compositional standards. On May 5, 1997, the Company was
notified by the FDA that at this time, it would not approve a generic conjugated
estrogens product developed in accordance with the guidance established by the
FDA in 1991 and current official USP compositional standards. The Company is
pursuing various options with respect to its conjugated estrogens product and
related inventory.
- 8 -
<PAGE> 9
In view of the FDA's decision the Company determined that it was prudent to
write off the generic conjugated estrogens inventory; accordingly, a charge in
the amount of $3,465,000 was recorded in the first quarter results and is
reflected in product development expenses for the nine-month period ended
September 30, 1997.
The product currently meets the required stability criteria and will be retained
until such time as it no longer passes those tests. In the event the Company is
ultimately successful in obtaining approval for the product, some or all of the
inventory write-off may be recovered.
Note 4: Debt and Other Long-Term Liabilities
Debt
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Mandatory redeemable
convertible preferred stock $ 5,100,000 $ ---
Revolving credit facility --- ---
Promissory note mortgage loan 8,500,000 ---
Manufacturing facility expansion loan --- 5,500,000
Equipment note 3,875,243 4,000,000
Equipment loans 1,522,461 2,118,979
Note payable to State of Ohio --- 877,342
Installment notes payable 56,913 124,415
----------- -----------
19,054,617 12,620,736
Less amount classified as current 2,428,257 2,631,275
----------- -----------
$16,626,360 $ 9,989,461
=========== ===========
</TABLE>
During June 1997, the Company raised $10.0 million ($9.5 million net of issuance
costs) through an offering of 100,000 shares of 5% Cumulative Convertible
Preferred Stock, Series E ("Series E Stock"). The Series E Stock has a stated
value of $100 and is convertible at the option of the holder into shares of the
Company's common stock at a discount to the average of the closing bid prices of
the common stock over the ten day trading period ending the day prior to the
date of conversion. Half of the shares of Series E Stock became convertible on
August 3, 1997; the remaining half became convertible on September 2, 1997. The
number of common shares to be issued is limited to 2,956,246. Any Series E Stock
which remains outstanding thereafter would be subject to cash redemption. The
cash redemption requirement is computed by multiplying the number of common
shares which the Series E holder would be entitled upon conversion by the
average of the closing bid prices of the Company's common shares for the ten day
trading period ending the day prior to the date of redemption. Any shares of
Series E Stock remaining outstanding on June 4, 1999 are required to be redeemed
for cash at the stated amount plus all accrued and unpaid dividends. As of
September 30, 1997 $4.9 million of Series E Stock had been converted to Common
Stock and $5.1 million was classified as debt since it must be redeemed
if not converted at the option of the holder. Subsequent to September 30, 1997
and through November 10, 1997, $3.5 million of the $5.1 million was converted
into common stock
- 9 -
<PAGE> 10
Through November 10, 1997 the Company issued 2,387,251 shares of common stock in
connection with conversions of Series E stock at an average conversion price of
$3.60 per common share.
The terms of the Company's revolving credit facility currently permit the
Company to borrow up to $6.5 million based upon eligible collateral ($11.9
million as of November 10, 1997), current financial condition and operating
performance. Borrowings on the revolving credit facility bear interest at the
rate of prime plus 1%, and are collateralized by substantially all assets of the
Company including inventory and receivables. As of November 10, 1997, the
Company had $824,000 outstanding under its revolving credit facility.
In September 1997 the Company entered into a long-term agreement with
Warner-Lambert Company ("Warner-Lambert") whereby the Company will manufacture a
name brand pharmaceutical product for Warner-Lambert if the product is
successfully developed and approved by the FDA. In connection with this
agreement, Warner-Lambert has guaranteed a promissory note mortgage loan from
the Company's bank in the amount of $8.5 million, which is secured by a mortgage
on the Company's Cincinnati, Ohio manufacturing facility. The mortgage loan
bears an interest rate which is variable based upon the bank's prime rate (8.5%
at November 10, 1997). The monthly payment required is $35,417 plus interest.
Principal payments are based upon a twenty year amortization with a balloon
payment due on October 1, 2007 of $4,250,000. The proceeds from this loan were
used in part to pay off the manufacturing facility expansion loan and the note
payable to the State of Ohio.
The equipment note represents an obligation to Ortho-McNeil Pharmaceutical
Corporation ("Ortho-McNeil") for equipment that is part of the Company's
facility expansion. The equipment note bears interest at 14% and requires a
monthly interest and principal payment of $135,497 for a three year term. The
note is secured by the equipment.
The equipment loans represent financing by the Company's bank for equipment
purchases, bear interest at the rate of prime plus 1%, and require monthly
installments of principal and interest. One of the loans is payable over a three
year term and requires a monthly principal payment of $42,355 plus interest
through April 1, 1999; the other loan is payable over a five year term and
requires a monthly principal payment of $23,925 plus interest through March 1,
2000. These loans are collateralized by the assets financed.
Other long-term debt also includes facilities of varying amounts and terms which
are generally collateralized by the assets financed.
The Company's other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
Other Long-Term Liabilities September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Abandoned facility obligation - net --- $893,694
Less amount classified as current --- 732,523
-------- --------
$ --- $161,171
======== ========
</TABLE>
- 10 -
<PAGE> 11
The abandoned facility obligation represented the amounts due, net of sublease
income, under terms of a lease which extended through September 30, 1998. Due to
the Company's financial condition at the time, the Company was unable to meet
its commitments under the lease and vacated the facility in 1991. During the
first quarter of 1997, the Company settled the remaining obligation through the
issuance of 89,369 shares of Duramed common stock.
- 11 -
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
CONJUGATED ESTROGENS UPDATE
The Company has had an application for an Abbreviated New Drug Approval ("ANDA")
on file with the FDA for a generic conjugated estrogens product since September
1994. The product was developed based upon the bioequivalency guidance
established by the FDA in 1991, which had been reaffirmed repeatedly over the
past six years, and current official USP compositional standards.
On May 5, 1997, the Company was notified by the FDA that at this time it would
not approve a generic conjugated estrogens product based upon the guidance
established by the FDA in 1991 and current official USP compositional standards.
In view of the FDA's decision the Company determined that it was prudent to
write off the generic conjugated estrogens inventory; accordingly, a charge in
the amount of $3,465,000 was recorded in the first quarter results and was
reflected in product development expenses. The product currently meets the
required stability criteria and will be retained until such time as it no longer
passes those tests. In the event the Company is ultimately successful in
obtaining approval for the product, some or all of the inventory write-off may
be recovered.
The Company filed a Citizen Petition with the U.S. Food and Drug Administration
on July 30, 1997, asking that the Premarin(R) brand of conjugated estrogens
tablets be declared deficient in its labeling in that it fails to identify its
active ingredients. The petition requests that the FDA require the manufacturer
of Premarin(R), Wyeth Ayerst Laboratories, to amend the labeling to comply with
the federal requirements and to withhold approval of any new drug applications
for new dosage strengths, new indications for Premarin(R), and any drug
combinations that include Premarin(R), until the drug is adequately
characterized and its active ingredients definitively identified.
On August 4, 1997, the Company filed an Investigational New Drug ("IND")
application for the initiation of a clinical program to evaluate synthetic
conjugated estrogens in the treatment of postmenopausal symptoms. The
satisfactory completion of this clinical research effort is expected to provide
the efficacy information which will constitute the basis for filing of a New
Drug Application ("NDA") for the Company's product, while study results are
unavailable at this time, we remain optimistic about the performance of our
product and expect to file our NDA with the FDA during the first quarter of
1998.
As previously disclosed, the Company has an agreement related to its generic
conjugated estrogens product with Schein Pharmaceutical, Inc. ("Schein"). The
agreement remains in place
- 12 -
<PAGE> 13
as to the Company's Abbreviated New Drug Application for its generic conjugated
estrogens product. The Company and Schein are in disagreement with respect to
the applicability of this agreement to the NDA which will be sought for the
Company's conjugated estrogens product. See "Part II. Other Information: Item 1.
Legal Proceedings."
The Company also has had agreements with Ortho-McNeil relating to certain
equipment that is a part of the Company's facility expansion and to products
distributed for Ortho-McNeil. Because approval of the Company's generic
conjugated estrogens product was not obtained within the time frame required by
the agreements, the Company's arrangements with Ortho-McNeil have been
renegotiated. The Company has purchased the equipment involved and has received
an extension of its distribution rights for the products through 1998 at which
time the Company expects to continue supplying these products either through
as extension of the agreement or by accessing the products through another
source.
NET SALES
Net sales for the three and nine month periods ended September 30, 1997 were
$11.1 million and $33.5 million as compared to $10.4 million and $32.9 million
for the same periods in 1996. The Company has agreements with several
manufacturers, including Ortho-McNeil, whereby the Company markets and
distributes their generic prescription drug products. The terms of these
agreements vary, but typically provide for a sharing of profits between the
Company and the manufacturer. The percentage of the Company's sales comprised of
products marketed for others were 39% and 36% , for the three and nine month
periods ended September 30, 1997, as compared to 36% and 35% for the same
periods in 1996. Recognition of deferred revenues from Ortho-McNeil contributed
$500,000 to net sales in the first six months of 1996. The deferred revenue
recognized in 1996 relates to $2.0 million received by the Company in 1994 from
Ortho-McNeil. The revenue was amortized into income over a period (1995 - $1.5
million; 1996 - $.5 million) to properly match costs incurred by the Company in
pursuit of approval and commercial launch of its generic conjugated estrogens
product.
GROSS MARGIN
Gross margin, and the corresponding percentage of net sales, was $2.6 million
(24%) and $8.8 million (26%) for the three and nine month periods ending
September 30, 1997 as compared to $2.4 million (23%) and $9.8 million (30%) for
the same periods in 1996. Lower gross margins in 1997 were due primarily to the
product sales mix and lower sales prices on certain of the Company's products.
Gross margins in 1996 were favorably impacted by the recognition of deferred
revenues from Ortho-McNeil discussed above.
Within the past month, three companies have received FDA approval to sell
methylprednisolone, the Company's largest selling product. The Company
anticipates a reduction in its current gross profit levels as a result of this
additional competition on methylprednisolone but cannot predict the extent or
timing thereof. The Company expects
- 13 -
<PAGE> 14
additional product approvals in 1997 or 1998 which should positively impact the
Company's gross margin; however, FDA approval of the Company's pending
applications is outside the Company's control. The extent of impact on the
Company's gross margin level is dependent on the timing of these product
approvals, the successful marketing of the products, and the timing of the
introduction of competing products into the market.
OPERATING EXPENSES
Product Development
Product development expenses in the third quarter of 1997 decreased
approximately $663,000 as compared to the same period in 1996, due to a
reduction in expenses for bioequivalency studies. Excluding the $3,465,000
conjugated estrogens inventory charge during the first quarter of 1997, product
development expenses increased approximately $2.1 million (28%) for the nine
month period ended September 30, 1997, as compared to the same period for 1996.
The increase was due to spending for milestone payments to product development
partners, project expenses at Duramed Europe, and the expansion of the Company's
product development capabilities resulting from the acquisition of Hallmark
Pharmaceuticals, Inc.
The Company's product development program is broad-based with product
development activities in Cincinnati, New Jersey, Kiel Labs in Georgia and
Duramed Europe in Oxford, England. The product development emphasis is on
products and therapeutic categories such as hormones, oncology, cardiovascular
and pain. These products are being developed through sophisticated technology
including patented control release delivery systems. In addition to ten product
applications awaiting approval at the FDA, the Company has approximately 20
active product development projects which the Company believes will result in
filed applications by the end of 1998. The Company received approval of its
Prochlorperazine product (the generic equivalent of Compazine(R)) on May 2,
1997. The Company began shipments in the third quarter of 1997. On September 12,
1997, the Company received approval from the FDA to market its Glipizide product
(the generic equivalent of Glucotrol(R)) and expects to begin shipments during
the first quarter of 1998, following the completion of process validation.
Product development expenditures in the 1996 period are net of reimbursements
received from Schein pursuant to the terms of a contractual agreement in
connection with the scientific support of the ANDA conjugated estrogens product.
Selling
In the first quarter of 1997, the Company recognized additional expense of
$300,000 in connection with certain contractual commitments associated with its
conjugated estrogens product. In the third quarter of 1996 the Company
recognized additional expense of $750,000 to
- 14 -
<PAGE> 15
supplement the reserve for potential uncollectible receivables, primarily as a
result of the Chapter 11 bankruptcy petition filed by a large wholesaler
customer. Exclusive of these charges, the Company's selling expenses decreased
by $129,000 (15%) and $497,000 (18%) for the three and nine month periods ended
September 30, 1997 as compared to the same periods of 1996. The decrease in
expense levels was attributable to steps implemented to control costs.
General and Administrative
General and administrative expenses for the three month period of 1997 were
comparable to the same period of 1996. The decrease in general and
administrative expenses for the nine month period of 1997 compared to the same
period in 1996 was due primarily to a reduction of staff positions and attendant
costs. The expense levels in both the three and nine month periods reflect
comparable levels of legal and consulting costs associated with responding to
various issues in connection with the Company's ANDA for conjugated estrogens.
Net Interest Expense
Interest expense for the three and nine month periods ended September 30, 1997
was lower compared to the same periods in 1996, due primarily to a reduction in
borrowings under the Company's revolving credit facility.
Income Taxes
Due to the reported net loss in the first nine months of 1997 and 1996, no
provision for income tax was recorded.
Preferred Dividends
Preferred dividends for the three and nine months ended September 30, 1997 were
$105,125 and $140,741, which represented the dividend provision associated with
outstanding Cumulative Convertible Preferred Stock, Series E. Preferred
dividends in 1996 represent the dividend provision associated with convertible
preferred stock of other series which converted to common stock in 1996.
Other Matters
On September 24, 1997, the Company extended its distribution agreement with
Ortho-McNeil. Under the terms of agreements with Ortho-McNeil, Duramed has
non-exclusive distribution rights to the Ortho-McNeil products Acetaminophen
with Codeine, Tolmetin Sodium, Tolmetin Sodium DS, Oxycodone with Acetaminophen
and Estropipate.
Management continues to monitor the Company's performance and the balance
between its commitment to product development and its available resources. The
Company continues to experience increasing competition on its existing product
line while it awaits FDA approval on pending ANDA product applications which
would provide new sources of revenue. Prior to the receipt of the
methylprednisolone approvals by the other three companies, and based upon the
- 15 -
<PAGE> 16
Company's expectations at that time with respect to approvals of the products
which it has on file with the FDA, the Company expected that it would not be
able to return to profitable operations until the second half of 1998. Because
of the reduction in gross profits expected from its methylprednisolone product
as a result of the approvals received by the other companies, and the Company's
current expectations with respect to the timing of approvals of its products
which are now on file with the FDA, the Company anticipates a return to
profitable operations in 1998 is unlikely without a modification in the
Company's business plan. The Company is considering various ways in which it may
be able to reduce expenses without impairing materially the research and
development activities which the Company believes are essential to its long-term
success. No definitive alternative course of action has been reached at this
time.
LIQUIDITY AND CAPITAL RESOURCES
In June 1997, the Company successfully raised $10.0 million ($9.5 million net of
issuance costs) through an offering of 100,000 shares of 5% Cumulative
Convertible Preferred Stock, Series E. The proceeds from the issuance of Series
E Stock are being used to fund operating activities, including the expanded
product development program.
The terms of the Company's revolving credit facility currently permit the
Company to borrow up to $6.5 million, based upon eligible collateral ($11.9
million as of November 10, 1997) unless the Company's operating results
substantially improve or the Company obtains additional sources of financing. As
of November 10, 1997 the Company had $824,000 outstanding under the revolving
credit facility.
The increase in prepaid expenses and other assets is a result of deferred
financing costs associated with the Company's issuance of Series E Preferred
Stock and deferred biostudy costs related to the Company's product development
program. The decrease in accounts payable is a result of payments for product
shipments from Ortho-McNeil in connection with the distribution agreement
reached in September 1997.
In September 1997, the Company entered into a long-term manufacturing agreement
with Warner-Lambert, whereby the Company will manufacture a name brand
pharmaceutical product for Warner-Lambert if the product is successfully
developed and approved by the FDA. In connection with this agreement,
Warner-Lambert has guaranteed a promissory note mortgage loan in the amount of
$8.5 million which is secured by the Company manufacturing facility. The
manufacturing agreement also includes a lease agreement whereby Warner-Lambert
will pay the Company a monthly facility access fee in order to occupy certain
space in the Company's facility.
- 16 -
<PAGE> 17
Additionally, in September, a new agreement was reached with Ortho-McNeil which
resulted in an extension of product distribution rights for certain Ortho-McNeil
products and a new equipment note for equipment provided in connection with the
Company's facility expansion that was completed in 1995. The equipment note is
secured by the equipment, requires monthly interest and principal payments of
$135,497 over a three year term, and bears a 14% interest rate.
The Company is in the process of restructuring Duramed Europe which, if
successful, will result in the Company retaining a minority ownership in Duramed
Europe as well as certain rights to products developed by Duramed Europe.
If the Duramed Europe restructuring is completed, the Duramed Europe operations
will be funded by an investment partner. The Company believes that the
restructuring of Duramed Europe is in the Company's best interest in order
to insure that these high value long-term projects continue while retaining
marketing and royalty rights for the Company.
Management is encouraged by the results to date from the Company's product
development program and has concluded that it is in the best interests of the
Company and its stockholders for the Company to continue substantial spending
for research and development and for hiring incremental personnel and procuring
necessary equipment to prepare for the production and launch of certain products
on file. Management has recognized that such actions will result in continued
reported losses for the Company until the Company begins to receive anticipated
revenues from products now on file, or to be filed, with the FDA. Because of the
reduction in gross profits expected from its methylprednisolone product as a
result of the approvals received within the past month by other companies, and
the Company's current expectations with respect to the timing of approvals of
its products which are now on file with the FDA, the Company anticipates that a
return to profitable operations in 1998 is unlikely without a modification in
the Company's business plan. The Company is considering various ways in which it
may be able to reduce expenses without impairing materially the research and
development activities which the Company believes are essential to its long-term
success. In the meantime, the Company's product development program will not be
supported from the Company's operations and therefore will require additional
capital which may result in dilution to current shareholders depending on the
amount of capital required and the terms under which it is raised. Possible
sources of capital may include additional borrowings, sales of additional
securities and sales of tangible or intangible assets. No decisions with respect
to these or other courses of action have been reached at this time. The extent
of the Company's need for additional capital is dependent on whether the Company
receives FDA approval for products on file with the agency in the time frames
included in its business plan and the success of other aspects of its business
plan including its ability to reduce expenses as outlined above. If necessary
capital is not available, implementation of the Company's plans will be
restricted or delayed with a negative effect upon the Company's prospects.
- 17 -
<PAGE> 18
Certain statements in this Form 10-Q constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
including those concerning management's expectations with respect to future
financial performance and future events, particularly relating to sales of
current products as well as the introduction of new manufactured and distributed
products. Such statements involve known and unknown risks, uncertainties and
contingencies, many of which are beyond the control of the Company, which could
cause actual results and outcomes to differ materially from those expressed
herein. Factors that might affect such forward-looking statements set forth in
this Form 10-Q include, among others, (i) increased competition from new and
existing competitors and pricing practices from such competitors, (ii) the
amount of funds continuing to be available for internal research and development
and for research and development joint ventures, (iii) research and development
project failures or delays, or delays in, or the lack of obtaining regulatory
approvals and (iv) the ability of the Company to retain and attract personnel in
key operational areas.
- 18 -
<PAGE> 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to an Agreement dated June 26, 1992 and amended
on April 7, 1994 with Schein Pharmaceutical, Inc. ("Schein") relating
to the development of a generic version of the conjugated estrogens
Premarin(R). On August 7, 1997, the Company filed a complaint for a
declaratory judgment against Schein in the Court of Common Pleas,
Hamilton County, Ohio, Case No. A9705498 ("Ohio action"). The Company
seeks a declaration that the Agreement applies only to a product
approved on the basis of an Abbreviated New Drug Application ("ANDA")
and which would be fully substitutable for Premarin(R) and that the
Agreement does not apply to the Company's efforts to develop or market
any conjugated estrogens product which would be approved and marketed
on the basis of a New Drug Application ("NDA").
In apparent response to the Company's action, on September 29, 1997,
Schein filed a complaint against the Company and other unnamed
defendants in the Superior Court of New Jersey, Chancery Division,
Morris County, Docket No. MRS-C-187-97 ("New Jersey action"). Schein
alleges that the Company breached its obligations to Schein under an
alleged joint venture arising between the parties; and that the unnamed
defendants tortiously interfered with Schein's prospective business
advantage and are liable to Schein. Schein seeks various forms of
relief against the Company, including injunctions barring the Company
from the development of a conjugated estrogens product with any person
or company other than Schein and requiring specific performance from
the Company according to the terms of the Agreement and alleged joint
venture; an accounting and money damages; and a constructive trust.
The Company will vigorously prosecute its claim for declaratory relief
in the Ohio action and vigorously defend the claims in the New Jersey
action.
On October 9, 1997, Schein filed a motion to dismiss the Ohio action
based upon the pending New Jersey action. The court denied this motion
on November 13, 1997.
On October 17, 1997, the Company filed a motion to dismiss or, in the
alternative, to stay the New Jersey action brought by Schein because of
the previously-filed Ohio action. Schein has opposed the motion. The
New Jersey court heard arguments on the motion and took the matter
under advisement pending a decision by the Ohio court on Schein's
motion to dismiss the Ohio action.
The outcome of these lawsuits and claims cannot be predicted with
certainty.
- 19 -
<PAGE> 20
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 1997 Annual Meeting of Shareholders of Duramed
Pharmaceuticals, Inc. (the "Meeting") was held on September 30,
1997. The holders of 13,284,876 shares of the Company's 14,844,666
then outstanding shares of common stock (approximately 89.49%)
were present at the Meeting in person or by proxy.
(b) At the Meeting, the following five individuals were duly nominated
and properly elected as Directors of the Company to serve until
the Annual Meeting of Shareholders in 1998 or until their
successors are elected and qualified - E. Thomas Arington, George
W. Baughman, Derek G. Layton, Stanley L. Morgan, and S.
Sundararaman. The number of votes cast for and withheld with
respect to each nominee for office are indicated below:
<TABLE>
<CAPTION>
Against/
For Withheld
--- --------
<S> <C> <C>
E. Thomas Arington 13,155,109 129,767
George W. Baughman 13,170,430 114,446
Derek G. Layton 13,169,669 115,207
Stanley L. Morgan 13,160,980 123,896
S. Sundararaman 13,166,659 118,217
</TABLE>
(c) At the Meeting, a proposal to ratify and approve the 1997 Stock
Option Plan to replace the 1988 Stock Option Plan was approved as
follows:
<TABLE>
<CAPTION>
Broker
For Against Abstentions Non-Votes
--- ------- ----------- ---------
<S> <C> <C> <C> <C>
4,866,291 507,933 247,372 7,663,280
</TABLE>
(d) At the meeting, a proposal to ratify the appointment of Ernst &
Young LLP as the Company's independent auditors for fiscal 1997
was approved as follows:
<TABLE>
<CAPTION>
Broker
For Against Abstentions Non-Votes
--- ------- ----------- ---------
<S> <C> <C> <C> <C>
12,802,778 322,840 159,258 0
</TABLE>
- 20 -
<PAGE> 21
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibit Number Description
-------------- -----------
<S> <C> <C>
10.1 $8.5 million Promissory Note Adjustable Rate Mortgage Loan
10.2 Open-End Mortgage
10.3 Lease by and between Duramed Pharmaceuticals, Inc. and Warner-
Lambert Company dated as of September 24, 1997
10.4 Guaranty Agreement between The Provident Bank and Warner-
Lambert Company dated as of September 24, 1997
11 Statement re: Computation of Earnings Per Share
27 Financial Data Schedule*
</TABLE>
(b) Reports on Form 8-K for the quarter ended September 30, 1997:
None
- -----------------
*Contained only in electronic filing with Securities and Exchange Commission.
- 21 -
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DURAMED PHARMACEUTICALS, INC.
Dated: November 14, 1997 by: /s/ E. Thomas Arington
------------------ -------------------------------------
E. Thomas Arington
President, Chairman of the Board
Chief Executive Officer
Dated: November 14, 1997 by: /s/ Timothy J. Holt
------------------ -------------------------------------
Timothy J. Holt
Senior Vice President - Finance,
Treasurer, Chief Financial Officer
- 22 -
<PAGE> 1
Exhibit 10.1
PROMISSORY NOTE
ADJUSTABLE RATE MORTGAGE LOAN
DATE OF NOTE: September 24, 1997
- ------------
AMOUNT OF NOTE: Eight Million Five Hundred Thousand
- -------------- and 00/100 Dollars ($8,500,000.00)
MATURITY DATE: October 1, 2007
- -------------
INTEREST RATE:
- -------------
The "Interest Rate" shall be the Prime Rate of the Bank, as defined
herein, charged by the Lender, computed daily for the actual number of days
elapsed over a year of 360 days. For purposes hereof, Prime Rate shall mean the
rate charged by Lender as its "Prime Rate", computed daily for the actual number
of days elapsed over a year of 360 days. Prime Rate is that percentage rate of
interest which is announced by Lender from time to time as its Prime Rate, which
is in effect until a new rate is announced and which provides a base to which
loan rates may be referenced; it is not necessarily the Lender's lowest loan
rate. In the event of a change in such Prime Rate, the interest rate hereunder
shall be adjusted accordingly, and such adjustment shall become effective on the
date such Prime Rate changes.
AMORTIZATION PERIOD:
- --------------------
The "Amortization Period" shall equal Twenty (20) years.
PRINCIPAL AND INTEREST MONTHLY PAYMENT:
- ---------------------------------------
Commencing on November 1, 1997, principal payments shall be due and payable in
equal monthly installments in the amount of Thirty-five Thousand Four Hundred
Sixteen and 67/100 Dollars ($35,416.67) each. Commencing on October 1, 1997
Borrower shall make an interest only payment to Lender and thereafter on the
first day of each month thereafter during the term hereof, interest payments
together with the principal payment set forth above shall be due in monthly
installments as accrued in arrears and as determined in accordance with the
Interest Rate provided above.
FOR VALUE RECEIVED, the undersigned ("Borrower") does hereby covenant
and promise to pay to the order of THE PROVIDENT BANK, an Ohio banking
corporation, or its successors or assigns, at its principal office located at
One East Fourth Street, Cincinnati, Ohio, 45202 ("Lender"), or at such other
place as the Lender may designate to Borrower in writing from time to time, in
legal tender of the United States, the Amount of Note, as set forth on the first
<PAGE> 2
-2-
page hereof, together with interest at the Interest Rate, as set forth on the
first page hereof, on the Amount of Note until this Note is paid in full.
Borrower shall pay a late payment premium of five percent (5%) of any principal
or interest payment made more than ten (10) days after the due date which shall
be due with any such late payment.
On October 1, 1997, Borrower shall make an interest only payment to
Lender and thereafter commencing on November 1, 1997, Borrower shall pay to
Lender an amount equal to the Principal and Interest Monthly Payment, as defined
above, and shall continue to pay such amounts on the first day of each month
thereafter until the Maturity Date when all sums due herewith shall be due and
payable. Such payments shall be applied monthly, first to the payment of sums
advanced by the Lender, if any, as provided in this Note, the Open-End Mortgage
dated of even date herewith granted by Borrower to Lender ("Mortgage") or in any
other document executed as collateral security for the Note ("Loan Documents");
second, to interest which became due previously; third, to interest which became
due for the month for which payment is being made; fourth, to the payment of
late charges provided herein; and the balance to principal, until the full
amount of principal and interest has been paid, or until the unpaid balance of
this Note matures, if sooner.
Upon each monthly determination of the Interest Rate and in accordance
with Lender's normal billing process, the Lender will mail a statement to the
Borrower at the address then listed for Borrower on the Lender's records. Such
statement will provide notice that the Interest Rate has changed, the effective
date of such change, the revised amount of the Borrower's Principal and Interest
Monthly Payment as determined in accordance with the adjusted Interest Rate
which will continue to include a monthly principal payment of Thirty-five
Thousand Four Hundred Sixteen and 67/100 Dollars ($35,416.67) per month, and
will contain such other information as may be required by law or which the
Lender may elect to provide to Borrower. Borrower promises to pay to Lender such
revised Principal and Interest Monthly Payment as determined in accordance with
the terms hereof.
Unless sooner paid, the outstanding principal balance and all accrued
interest due hereunder shall be payable on the Maturity Date.
This Note is secured by the Mortgage and the other Loan Documents which
Mortgage and other Loan Documents specify various defaults (each, a "Default")
upon the happening of which all sums
<PAGE> 3
-3-
owing on this Note may, at the Lender's option, be declared immediately due and
payable without demand or notice.
During the continuance of a Default, the Amount of Note outstanding
shall bear interest at four percent (4%) per annum in excess of the Interest
Rate in effect from time to time, each change in such rate to be effective as of
the date of such change ("Default Rate").
Should the indebtedness represented by this Note or any part thereof be
collected at law or in equity, or in bankruptcy, receivership or any other court
proceedings (whether at the trial or appellate level), or should this Note be
placed in the hands of attorneys for collection upon the occurrence of a
Default, Borrower agrees to pay, in addition to the principal, premium and
interest due and payable hereon, all costs of collection, including reasonable
attorneys' fees and expenses.
All parties to this Note, whether Borrower, principal, surety,
guarantor or endorser, hereby jointly and severally waive presentment for
payment, demand, protest, notice of protest, notice of dishonor and any other
notice required to be given by law in connection with the delivery, acceptance,
performance, default or enforcement of this Note or any endorsement or guaranty
of this Note, except as provided in the Mortgage, and consent to all forbearance
or waiver of any term hereof or release or discharge by the holder hereof of any
of the Borrower, guarantors, endorsers or sureties or the release, substitution
or exchange of any security for the payment hereof or the failure to act on the
part of the holder or any other indulgence shown by the holder from time to
time, in one or more instances (without notice to or further assent from the
Borrower, guarantors, endorsers or sureties) and the Borrower, guarantors,
endorsers or sureties agree that no such action, failure to act or failure to
exercise any right or remedy on the part of the holder shall in any way affect
or impair the obligations of the Borrower hereunder or of any guarantors,
endorsers or sureties or be construed as a waiver by the holder of or otherwise
affect any of the holder's rights under this Note, under any endorsement or
guaranty of this Note or under any document or instrument evidencing any
security for payment of this Note.
This Note may not be changed orally, but only by an agreement in
writing, signed by the party against whom enforcement of any change or
modification is sought.
<PAGE> 4
-4-
Anything herein to the contrary notwithstanding, the obligations of
Borrower under this Note, the Mortgage or other Loan Documents shall be subject
to the limitation that payments of interest shall not be required to the extent
that receipt of any such payment by the Lender would be contrary to provisions
of law applicable to the Lender limiting the maximum rate of interest that may
be charged or collected by the Lender.
The Borrower shall have the right to prepay all, or any part, of the
Amount of Note outstanding and all accrued interest thereon without premium or
penalty. Any partial prepayments of principal shall be applied against
installments of principal due hereunder in the inverse order of maturity.
This Note shall be governed by, and shall be construed and enforced in
accordance with, the laws of the State of Ohio.
As a specifically bargained inducement for Lender to extend credit to
Borrower, the Borrower hereby expressly waives the right to trial by jury in any
lawsuit or proceeding related to this Note or arising in any way from the
indebtedness or transactions involving the Lender and the Borrower.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note on
the day and year first above written.
BORROWER:
DURAMED PHARMACEUTICALS, INC.
a Delaware corporation
By: /s/ David J. Furniss
-----------------------------------
Name: David J. Furniss
---------------------------------
Title: Vice President
--------------------------------
This is to certify that this Note was executed in my presence on the
date hereof by the party whose signature appears above in the capacity
indicated.
/s/ Timothy E. Hoberg
--------------------------------------
Notary Public
My commission expires:
[stamp]
--------------------------------------
<PAGE> 1
Exhibit 10.2
OPEN-END MORTGAGE
-----------------
Maximum Principal Amount $8,500,000.00
THIS OPEN-END MORTGAGE ("Mortgage") made as of the 24th day of
September, 1997 by DURAMED PHARMACEUTICALS, INC., a Delaware corporation, with a
mailing address of 5040 Lester Road, Cincinnati, Ohio 45213, (hereinafter
referred to as "Mortgagor," whether one or more) to THE PROVIDENT BANK, a
banking corporation with a mailing address of One East Fourth Street,
Cincinnati, Ohio 45202 (hereinafter, together with its successors and assigns
called "Mortgagee").
WHEREAS, Mortgagor has executed and delivered to Mortgagee a certain
promissory note in the principal amount of Eight Million Five Hundred Thousand
and 00/100 Dollars ($8,500,000.00) dated of even date herewith (this promissory
note together with any renewals, extensions or modifications thereof which
remain outstanding while the Mortgage is in effect shall hereinafter be referred
to as the "Note"), which Note evidences a loan (the "Loan") from Mortgagee to
Mortgagor wherein Mortgagor promises to pay to Mortgagee so much thereof as may
now or hereafter be disbursed to or for the account of Mortgagor, together with
interest thereon as set forth in the Notes, with the final installment being due
on October 1, 2007.
WHEREAS, the Loan is made pursuant to the terms and in accordance with
or reliance upon certain other agreements and documents, which may include,
without limitation, an Assignment of Leases, Rents and Proceeds from Mortgagor
to Mortgagee dated of even date herewith, an Environmental Indemnification
Agreement and Unconditional Guaranty from Warner-Lambert Company ("Guarantor")
to Mortgagee dated of even date herewith, certificates, and affidavits
(hereinafter collectively referred to herein as "Loan Documents").
ARTICLE 1
---------
THE GRANT
---------
NOW THEREFORE, in consideration of the making of the Loan, Mortgagor
does hereby agree that the Mortgage shall secure the following: (a) the prompt
payment of the indebtedness evidenced by the Note, with interest thereon, and
any late or other charges imposed in accordance with the terms thereof; and (b)
the payment, performance and observance by Mortgagor of all of the covenants and
conditions contained in the Note, this Mortgage and the Loan Documents; (items
(a) and (b) shall hereinafter collectively be referred to as the "Indebtedness
Hereby Secured"), and in order to charge the properties, interests and rights
hereinafter described with such payment, performance and observance, and for
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Mortgagor does hereby mortgage, warrant, grant, bargain, sell,
assign, encumber, convey and grant a security interest to Mortgagee forever in
all of the estate, title, and interest of Mortgagor in the fee simple, leasehold
and easement estates in that certain real property situated in the County of
Hamilton and State of Ohio and more particularly described on Exhibit "A"
attached hereto and by reference made a part hereof ("Real Property");
TOGETHER WITH all and singular the tenements, hereditaments, and
appurtenances thereto belonging, all present and future buildings, structures,
annexations, access rights, rights-of-way or use,
<PAGE> 2
-2-
servitudes, licenses, and improvements thereon, all of the rights, privileges,
licenses, easements and appurtenances belonging to such Real Property, together
with all of the estates and rights in and to lands lying in streets, alleys and
roads adjoining the said Real Property (collectively the "Improvements") and all
Mortgagor's right, title, interest, estate, claim and demand, either at law or
in equity, in and to all fixtures, including, without limiting the generality of
the foregoing, all lighting, heating, cooling, ventilating, air conditioning,
incinerating, sprinkling, gas, plumbing, waste removal and refrigeration
systems, engines, furnaces, boilers, pumps, tanks, heaters, generators, motors,
fire prevention apparatus and all pipes, wires, fixtures, and apparatus forming
a part of or used in connection therewith; elevators and motors, refrigeration
plants or units, storm windows and doors, window and door screens, awnings and
window and door shades, all drapes and curtains and related hardware and
mounting devices, wall-to-wall carpeting; fixtures situated on the Real Property
and used or usable in operation thereof as well as all additions, improvements
and replacements thereto, and proceeds thereof; all water, sanitary and storm
sewer systems including all water mains, service laterals and mineral rights,
hydrants, valves and appurtenances, all sanitary sewer lines, including mains,
laterals, manholes and appurtenances, all paving for streets, roads, walkways or
entrance ways, all minerals, soil, flowers, shrubs, crops, trees, timber and
other emblements now or hereafter on the Real Property or under or above the
same or any part or parcel thereof, all proceeds, or sums payable in lieu of or
as compensation for the loss or damage to Improvements or to the Real Property
upon which the said property covered hereby is or may be located including
without limitation the buildings or improvements now or hereafter located
thereon, and all rights in and to all pertinent present and future fire, hazard,
business interruption, rental interruption and other insurance policies
maintained by Mortgagor on the Improvements and Real Property, all payment and
performance bonds received in connection with any construction or other matter
and all rights thereunder, all plans, specifications, drawings, studies,
surveys, appraisals and other similar work product, all contracts for design,
architectural, engineering or construction services and all rights and claims
thereunder; all other contract rights and agreements for the protection of
property or services to or in connection with, or otherwise benefiting the Real
Property, including without limitation all management agreements and cable
television agreements; all permits, licenses, variances, approvals and/or
consents issued by any governmental entity, utility or other entity; all awards
made by any public body or created by any competent jurisdiction for the taking
or the degradation of value in any eminent domain proceedings, or purchase in
lieu thereof; all of Mortgagor's interest and rights as lessor or lessee in and
to all leases now or hereafter affecting the said Real Property or part thereof;
all contracts for the sale of all or any portion of said Real Property; the Real
Property, Improvements and fixtures are hereinafter referred to as the
"Premises".
Mortgagee is hereby subrogated to the rights of all mortgagees, lien
holders and owners paid off by the proceeds of the Loan secured hereby.
TO HAVE AND TO HOLD, the Premises unto the Mortgagee, its successors
and assigns forever for the use and purposes hereinafter set forth.
<PAGE> 3
-3-
ARTICLE 2
---------
REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 TITLE. Mortgagor does hereby represent and warrant to Mortgagee
that it is lawfully seized of the Premises in fee simple and has full power to
convey the same and to execute this Mortgage; that the Premises are free, clear
and unencumbered of all easements, restrictions, and liens whatsoever, except
those easements, restrictions and liens set forth in the title evidence issued
to Mortgagee in connection herewith, if any ("Permitted Encumbrances"); that
Mortgagor does warrant and will defend the title to the Premises against the
claims and demands of all persons whomsoever except for the Permitted
Encumbrances; that Mortgagor will keep and observe all of the terms of this
Mortgage on Mortgagor's part to be performed; and that Mortgagor will make any
further assurances of title that Mortgagee may reasonably require.
2.2 MECHANICS LIEN MATTERS. Mortgagor represents and warrants that no
Notice of Commencement (as identified in Ohio Revised Code Section 1311.04) as
to the Premises has been filed or will be filed prior to the filing for record
of this Mortgage and that Mortgagor shall promptly provide Mortgagee with a copy
of all Notices of Furnishing (as identified in Ohio Revised Code Section
1311.05) received by Mortgagor.
ARTICLE 3
---------
COVENANTS
---------
Mortgagor further covenants and agrees with Mortgagee as follows:
3.1 PAYMENTS. To pay to Mortgagee, when due, the principal balance of
the Note with interest thereon and all other late charges and/or penalties, all
in accordance with the terms of the Note and to pay all other Indebtedness
Hereby Secured at the times and in the manner herein and therein provided.
3.2 TAXES AND OTHER IMPOSITIONS. To pay, when due according to law, all
taxes, assessments and other charges which are now due or may hereafter be
imposed or assessed upon the Premises, or any part thereof, or that may be
imposed or assessed against the holder of this Mortgage (except when contested
in good faith and when appropriate reserves are established) and the Note by
reason of ownership thereof, by any authority, be it federal, state, county or
city, including but not limited to charges imposed upon the Premises under any
applicable declaration of condominium. Upon the failure of Mortgagor promptly to
pay such taxes, assessments and other charges, Mortgagee shall have the option
to pay and discharge the same after written notice to Mortgagor, and any sum so
expended by Mortgagee shall at once become indebtedness owing from Mortgagor to
Mortgagee, shall be immediately due and payable by Mortgagor with interest
thereon to the extent legally enforceable at the rate of interest provided in
the Note in the event of default and shall together be added to the Indebtedness
Hereby Secured. Upon the request of Mortgagee, Mortgagor will promptly provide
Mortgagee with evidence of payment of the above taxes, assessments and other
charges imposed or assessed upon the Premises.
3.3 INSURANCE. For the term of this Mortgage, to obtain and keep in
full force and effect at the sole cost and expense of Mortgagor or cause to be
obtained and kept policies of insurance
<PAGE> 4
-4-
to: (a) maintain comprehensive general public liability insurance covering the
legal liability of Mortgagor against claims for bodily injury, and/or property
damage arising out of the use, maintenance and/or operation of the Premises and
all areas appurtenant thereto and/or the conduct of Mortgagor's business in such
amounts as Mortgagee may reasonably require but in no event less than $1,000,000
for personal injury or death to one person, $1,000,000 for personal injury or
deaths in one accident and $1,000,000 for property damage; (b) maintain "Broad
form/special perils" insurance on any and all Improvements and Personal Property
located on the Premises against loss by fire or other hazards in an amount not
less than the full insurable value of the Improvements located on the Premises
as Mortgagee may reasonably require, but in no event less than the principal
balance of the Note; (c) in the event any of the Premises is located within a
hundred year flood plain or area designated as subject to flood by the Federal
Emergency Management Agency or other government agency, or when required by any
federal, state or local law, statute, regulation or ordinance, maintain flood
insurance in an amount Mortgagee reasonably deems appropriate; (d) satisfy all
applicable workers' compensation insurance requirements; (e) maintain business
interruption insurance and/or loss of "rental value" insurance in such amounts,
and with such coverages, as may be reasonably satisfactory to Mortgagee, such
insurance to be provided at such time as Mortgagee may specify but in no event
later than the commencement of occupancy by any tenant; (f) during the course of
any construction or repair of the Improvements on the Premises, maintain
builder's completed value risk insurance against "all risks of physical loss,"
including collapse and transit coverage, in nonreporting form, covering the
total value of work performed and equipment, supplies and materials furnished;
(g) obtain and maintain any other insurance concerning the Premises or operation
of business thereon as Mortgagee may reasonably require, including, but not
limited to, any applicable condominium insurance or PUD insurance.
All such policies of insurance shall be written by a
company or companies reasonably acceptable to Mortgagee; shall have attached
thereto the standard form of mortgagee clause; shall name Mortgagee and assigns
as a named insured, loss payee and as Mortgagee, without contribution; shall be
delivered to and held by Mortgagee or assigns; shall provide for thirty (30)
days prior written notice of cancellation or non-renewal to Mortgagee; shall
have attached thereto an agreed amount endorsement; shall include a provision
stating that the waiver of subrogation rights of the insured does not void the
coverage; shall contain endorsements that no act or negligence of the insured or
any occupant and no occupancy or use of the Premises for purposes more hazardous
than permitted by the terms of the policy, nor any breach of any warranty,
declaration or condition by the insured, will affect the validity or
enforceability of such insurance as against Mortgagee; shall contain the
agreement of the insurer waiving all rights of set off, counterclaim or
deductions against Mortgagor.
Mortgagor shall furnish or shall cause to be furnished
to Mortgagee an original policy of all required policies of insurance along with
proof of premiums paid for the current policy year and each subsequent year for
the term of this Mortgage. This Mortgage shall operate as an assignment to
Mortgagee of said policies of insurance, whether delivered or not. At the option
of the Mortgagee, if insurance proceeds are not paid within ninety (90) days of
the casualty or if Mortgagor cannot reinstate its business operations within a
reasonable period of time after the occurrence of a casualty, or if there is a
default, the proceeds of loss under any policy of insurance, whether endorsed
payable to the
<PAGE> 5
-5-
Mortgagee or not, may be applied in payment of the Note or any other sum secured
by this Mortgage, whether or not such sums are then due, or to the restoration
or replacement of any buildings on the Premises without in any way affecting the
lien of this Mortgage or the obligation of the Mortgagor or any other person for
payment of the Indebtedness Hereby Secured.
If the Premises are sold following foreclosure or if
Mortgagee acquires title to the Premises, Mortgagee shall have all the right,
title and interest of the Mortgagor in and to any insurance policies and
unearned premiums thereon and in and to the proceeds resulting from any damage
to the Premises prior to such sale or acquisition.
Upon the failure of Mortgagor to provide or cause to be
provided the aforesaid insurance, Mortgagee shall have the option to procure and
maintain such insurance without notice to Mortgagor. Any sum so expended by
Mortgagee shall at once become indebtedness owing from Mortgagor to Mortgagee
and shall immediately become due and payable by Mortgagor with interest thereon
to the extent legally enforceable, at the rate of interest provided in the Note
in the event of a default, and shall together be added to the Indebtedness
Hereby Secured.
3.4 CONDITION OF PROPERTY; COMPLIANCE WITH LAW; WASTE. To keep the
Premises in good condition and repair and to make all structural and
nonstructural repairs and maintenance necessary and to cause all repairs and
maintenance to be done in a material good and workmanlike manner; to comply in
all material respects with all statutes, laws, ordinances and governmental
rules, regulations and orders which are applicable to the Premises; (except for
items having a value of less than Ten Thousand and 00/100 Dollars ($10,000.00))
not to commit or permit waste on the Premises or remove or permit the removal of
any building, improvement, or fixture from the Premises without prior written
consent of the Mortgagee or unless replaced with an item of greater or equal
value; and not to perform or permit any act which may in any way materially
impair the value of the Premises.
3.5 NO FURTHER ENCUMBRANCES; NO DISPOSITION. Not to make, create, or
suffer to be made or created any sale, transfer, conveyance, assignment or
further encumbrance of the Premises, or any part thereof, or any interest
therein or any contract or agreement to do any of the same without Mortgagee's
prior written consent, which consent may be withheld in Mortgagee's sole and
absolute discretion. A sale, transfer, conveyance or assignment means the
conveyance by the Mortgagor of any legal or equitable right, title or interest
in the Premises, or any part thereof, whether such conveyance is voluntary or
involuntary, by outright sale, deed, installment sale contract, land contract,
lease option contract, or any other method of transferring any interest in real
property, except for the lease from Mortgagor to Guarantor and a license back
from Guarantor to Mortgagor. Any encumbrance means a lien, mortgage or any other
encumbrance subordinate to Mortgagee's Mortgage. Further, in the event of
default under any of the provisions of this Section 3.6, Mortgagee may, without
notice to Mortgagor, deal with such successor or successors in interest with
reference to this Mortgage and the Note and in the same manner as with the
Mortgagor and may forbear to sue or may extend time for payment of the Note
without discharging or in anyway affecting the liability of the Mortgagor
hereunder or under the Note.
3.6 CONDEMNATION. To promptly notify Mortgagee of any action or
proceeding relating to any condemnation or other taking,
<PAGE> 6
-6-
whether direct or indirect of the Premises, or part thereof, and Mortgagor shall
appear in and prosecute any such action or proceedings unless otherwise directed
by Mortgagee in writing. Mortgagor authorizes Mortgagee at Mortgagee's option,
as attorney in fact for Mortgagor, (which authorization shall be irrevocable) to
commence, appear in and prosecute, in Mortgagee's or Mortgagor's name, any
action or proceeding relating to any condemnation or other taking of the
Premises, whether direct or indirect and to settle or compromise any claim in
connection with such condemnation or other taking. The proceeds of any award,
payment or claim for damages, direct or consequential, in connection with any
condemnation or other taking, whether direct or indirect, of the Premises or
any part thereof, or for conveyance in lieu of condemnation, are hereby assigned
to and shall be paid to Mortgagee; and all condemnation money so received shall
be forthwith applied by Mortgagee, at its option in payment of the Note, or any
other sum secured by this Mortgage whether or not such sums are then due, or to
the restoration or replacement of any part of the Premises without in any way
affecting the lien of this Mortgage or the obligation of the Mortgagor or any
other person for payment of Indebtedness Hereby Secured; provided however that
any excess over the balance due under the Note and any other indebtedness
secured by this Mortgage shall be delivered to Mortgagor.
3.7 BOOKS AND RECORDS; FINANCIAL INFORMATION. With respect to the
Premises and the operation thereof, Mortgagor will keep or cause to be kept
proper books of record in accordance with generally accepted accounting
principals consistently applied. Mortgagee shall have the right to inspect the
books and records of the operation of the Premises and make copies thereof at
all reasonable times and upon reasonable notice to Mortgagor. Mortgagor shall
furnish to Mortgagee within ninety (90) days after the end of each fiscal year
of Mortgagor, a statement of income and surplus of Mortgagor for such fiscal
year, in reasonable detail and stating in comparative form the figures as of the
end of the previous fiscal year, including statements of income and expense
relating to operations of the Premises, and at the request of Mortgagee,
certified as to the correctness by a certified public accountant. In addition,
Mortgagor will furnish to Mortgagee such interim financial statements and copies
of federal income tax returns as Mortgagee may reasonably request, certified by
Mortgagor in such form as may be reasonably acceptable to Mortgagee.
3.8 LIABILITY FOR ALL LOAN ADMINISTRATION AND ENFORCEMENT EXPENSES.
Mortgagor shall pay all sums, including costs and reasonable attorney fees for
Mortgagee's outside counsel at such counsel's standard hourly rates for time
actually incurred in the making of the Loan and the administration thereof
including title examination and title insurance premiums and expenses, appraisal
fees, survey fees, inspection fees incurred by Mortgagee to establish or
preserve the lien of this Mortgage or its priority, or in connection with any
suit to enforce this Mortgage to recover the Indebtedness Hereby Secured, or to
protect the security of this Mortgage. All such sums shall be immediately due
and payable, shall bear interest at the highest rate of interest provided in the
Note in the event of default, and shall, together with such interest, be added
to the Indebtedness Hereby Secured.
3.9 APPLICATION OF FUNDS. Unless applicable law provides otherwise, all
payments received by Mortgagee from Mortgagor under the Note or this Mortgage
shall be applied by Mortgagee in the following order of priority:
<PAGE> 7
-7-
(a) Amounts advanced by Mortgagee in accordance with
the terms of this Mortgage, the Note or the Loan Documents,
together with interest thereon;
(b) All late charges, penalties and/or prepayment
penalties due Mortgagee from Mortgagor pursuant to the provisions
of the Note, Mortgage and Loan Documents;
(c) Interest payable on the Note;
(d) Principal balance of the Note; and
(e) All other Indebtedness Hereby Secured.
3.10 ENVIRONMENTAL CONDITIONS. Mortgagor represents and warrants to
Mortgagee (a) that, except as disclosed in environmental reports now or
previously provided to Mortgagee, Mortgagor has no knowledge or information
which would put a reasonable person on notice or cause such person to make
inquiry concerning the likelihood or presence of any hazardous waste condition
or any factor contributing to a risk to the environment located on or emanating
from the Premises; (b) that no environmental enforcement action(s) against or
concerning the Premises are pending or threatened and Mortgagor will notify
Mortgagee if any such action is commenced; (c) that Mortgagor will maintain and
operate the Premises during the term of the Mortgage in material compliance with
all applicable environmental laws of the state where the Premises are located
and of the United States of America; (d) that Mortgagor will remedy any
contamination that may be discovered on the Premises and which is required by
law to be remedied; and (e) the Mortgagor will indemnify and hold Mortgagee
harmless from and against all losses or damages arising from hazardous waste
conditions or risks to the environment which will result in claims against or
liability of Mortgagee as holder of this Mortgage or subsequent owner of the
Premises that are not covered by Mortgagee or its agents or employees or
independent contractors retained by or on behalf of Mortgagee.
3.11 INDEMNIFICATION OF MORTGAGEE. To indemnify Mortgagee for and hold
Mortgagee harmless from and against any loss suffered or any liability, cost or
expense, including without limitation, reasonable attorneys' fees, incurred by
Mortgagee on account of any damage to the person or property of the parties
hereto or of any third parties by reason of or in connection with the use,
operation, maintenance, repair or management of the Premises, whether or not
such damage is partly due to the negligence of Mortgagee, or its employees or
agents, unless such damage was caused solely by the act or acts of Mortgagee or
its employees or agents while on the Premises. Mortgagor shall undertake, at
their sole expense and through counsel satisfactory to Mortgagee, the defense of
Mortgagee in any lawsuit commenced as the result, or alleged to be the result,
of injury or damage occurring by reason of or in connection with the use,
operation, maintenance, repair or management of the Premises.
ARTICLE 4
---------
EVENTS OF DEFAULT
-----------------
Each of the following shall be deemed to be an "Event of Default":
4.1 Default in the payment of principal, interest or any other amounts
due under the Note within five (5) days of when due;
<PAGE> 8
-8-
4.2 Default in the payment of any other Indebtedness Hereby Secured
within five (5) days of when due;
4.3 The failure to obtain and keep in force at all times all insurance
on the Premises and contents thereof and other insurance coverages in accordance
with the terms of this Mortgage and such failure is not fully cured within ten
(10) days after Mortgagee has given written notice thereof to Mortgagor;
4.4 An encumbrance on or sale of the Premises, or any part thereof, in
violation of Section 3.6 herein;
4.5 The filing of any lien unless contested in good faith and with
appropriate reserves established or charge against the Premises or any part
thereof which is not removed or bonded to the satisfaction of Mortgagee within a
period of thirty (30) days thereafter;
4.6 The failure to observe or perform any one or more of the other
terms, covenants or other obligations on the part of Mortgagor sets forth in the
Note, this Mortgage, or the Loan Documents and such default is not fully cured
within thirty (30) days after Mortgagee has given written notice thereof to
Mortgagor; provided, however, that if such default is curable, and if and so
long as Mortgagor is proceeding with due diligence to cure the default, such
period will be extended to whatever reasonable period is required to permit the
Mortgagor to cure the default; provided that such additional curing period does
not, in Mortgagee's sole opinion, jeopardize its vital interest in the Premises;
4.7 The abandonment by Mortgagor of all or a part of the Premises;
4.8 In the case where Mortgagor is a corporation, partnership or trust
entity, the dissolution or cessation of existence as a legal entity of
Mortgagor;
4.9 Any certification, representation or warranty of Mortgagor under
this Mortgage or any of the Loan Documents or any other information provided to
Mortgagee by Mortgagor or his representatives in connection with the Premises is
determined to have been untrue and/or misleading in any material effect when
made;
4.10 Upon the filing of any bankruptcy proceeding by Mortgagor or upon
the filing of any bankruptcy proceeding against Mortgagor which is not dismissed
within sixty (60) days; any assignment by the Mortgagor of any of its property
for the benefit of creditors, or the placing of any of Mortgagor's property in
receivership, trusteeship or conservatorship with or without action or suit in
any court;
4.11 The death of any individual, or dissolution of any corporate
partnership or limited liability company, borrower, co-maker or guarantor;
4.12 The insolvency or bankruptcy of a guarantor;
4.13 The occurrence of any Event of Default under any of the other Loan
Documents.
<PAGE> 9
-9-
ARTICLE 5
---------
REMEDIES
--------
5.1 MORTGAGEE'S REMEDIES. Upon the occurrence of an Event of Default,
Mortgagee shall have the right to exercise all rights and remedies provided by
law or in equity to which Mortgagee is entitled, including without limitation,
(a) the right to proceed to protect and enforce its rights by any action at law,
in equity or other appropriate proceeding, whether for the specific performance
of any agreement contained herein or for an injunction against a violation of
any of the terms, conditions, or provisions hereof or in the aid of the exercise
of any power granted hereby or by law; (b) the right to declare the entire
amount of the Note and all interest thereon, or, at its option, any part of the
foregoing, to be immediately due and payable without further demand or notice;
(c) the right to, at any time or from time to time, proceed at law or in equity
or otherwise to foreclose the lien on this Mortgage as against all or any part
of the Premises; (d) upon the filing of a suit or other commencement of judicial
proceeding to enforce the rights of the Mortgagee under this Mortgage, Mortgagee
shall be entitled, as a matter of right, to the appointment of a receiver or
receivers of the Premises and to receive all receipts therefrom pending such
proceedings, with such power as the court making such appointment shall confer;
and (e) the right to demand that Mortgagor surrenders the possession of the
Premises subject to the rights of any lessee, to take possession of all or any
part of the Premises together with all books, papers and accounts of Mortgagor
pertaining thereto and to operate and manage the same and from time to time to
make all needful repairs and improvements as Mortgagee may deem reasonable; and
to lease the Premises or any part thereof in the name of and for the account of
the Mortgagor and to collect and receive and sequester the rents, revenues and
other income after deducting all proper costs and expenses of so taking, holding
and managing the same including reasonable compensation to Mortgagee.
5.2 RIGHTS AND REMEDIES CUMULATIVE; NO WAIVER OR RELEASE OF OBLIGATION.
The rights and remedies of the Mortgagee as provided in this Mortgage and in the
Note, and in the warranties contained herein and therein shall be cumulative and
concurrent, may be pursued separately, successively or together against
Mortgagor or against the Premises, or both, in the sole discretion of Mortgagee,
and may be exercised as often as occasion therefor shall arise.
Any failure by Mortgagee to insist upon strict perfor-
mance by Mortgagor of any of the terms and provisions of this Mortgage or of the
Note shall not be deemed a waiver of any of the terms or provisions of this
Mortgage or the Note. No delay or omission to exercise any right or power
accruing upon any Event of Default shall impair any right or power or shall be
construed to be a waiver of any such Event of Default or acquiescence therein;
every such right and power may be exercised from time to time and as often as
may be deemed expedient. No waiver of any default or Event of Default hereunder
by the Mortgagee shall extend to or shall affect any subsequent Event of Default
or shall impair any rights or remedies consequent thereon.
Mortgagee may release, regardless of consideration, any
part of the security held for the indebtedness secured by this Mortgage without,
as to the remainder of the security, in any way impairing or affecting the lien
of this Mortgage or its priority over any subordinate lien.
<PAGE> 10
-10-
5.3 EXPENSES. Upon an Event of Default hereunder, Mortgagor shall pay
to Mortgagee such further amount as shall be sufficient to reimburse it fully
for all costs and expenses of collection of the Note and the enforcement of any
security for the Note including without limitation, Mortgagee's fees and
expenses for enforcing this Mortgage or any rights hereunder, reasonable
attorneys', accountants' and appraisers' fees and expenses, court costs and any
taxes and fees or governmental charges incident to such enforcement of rights
and collection.
ARTICLE 6
---------
MISCELLANEOUS
-------------
6.1 BINDING EFFECT. All of the terms, covenants and conditions of this
Mortgage shall bind Mortgagor and its respective heirs, devisees,
administrators, executors, successors and assigns and shall inure to the benefit
of and be available to Mortgagee, and its successors and assigns.
6.2 INTERPRETATION; TIME OF THE ESSENCE. All references to Mortgagor
and Mortgagee shall be read in the singular or plural and in the masculine,
feminine, or neuter gender, as the sentence may require. Time is of the essence
with respect to each and every obligation of Mortgagor under the Note, the
Mortgage and the other Loan Documents.
6.3 GOVERNING LAW. This Mortgage shall be governed by the laws of the
State of Ohio. In the event that any provision of this Mortgage conflicts with
applicable law, such conflict shall not affect other provisions of this Mortgage
or the Note which can be given affect without the conflicting provisions, and to
this end the provisions of this Mortgage are declared to be severable.
6.4 COVENANTS RUN WITH LAND. All of the covenants of this Mortgage
shall run with the land constituting the Premises.
6.5 HEADINGS. The headings to the articles and sections hereof are for
reference only and do not limit in any way the content thereof.
6.6 ADDITIONAL ASSURANCES. Mortgagor hereby agrees to promptly execute
and deliver such further instruments and assurances and will do such further
acts as Mortgagee may reasonably request to perfect the security interest of
Mortgagee in all or any portion of the Premises and/or to more effectively carry
out the purposes of the Note, Mortgage and/or other Loan Documents.
6.7 OPEN-END MORTGAGE. In accordance with the provisions of Ohio
Revised Code Sections 5301.232 and 5301.233, this Mortgage is given to, and the
parties intend that it shall secure indebtedness in a maximum amount of Eight
Million Five Hundred Thousand and 00/100 Dollars ($8,500,000.00) evidenced by
the Note, which indebtedness may include advances made by Mortgagee, after this
Mortgage is filed of record. The making of such advances is obligatory on the
part of Mortgagee subject to the terms and conditions provided for in the Note,
Mortgage and Loan Documents. The maximum amount of the unpaid balance of such
indebtedness, in the aggregate and exclusive of interest thereon, which is or
will be outstanding at any time, is that set forth above, provided that this
Mortgage shall also secure unpaid balances of advances made for the payment of
taxes, assessments, insurance premiums, or costs incurred for the protection of
the Premises.
<PAGE> 11
-11-
6.8 OHIO REVISED CODE SECTION 1311.14. Mortgagor covenants and agree
with Mortgagee that Mortgagee may, at its option, do all things provided to be
done by a Mortgagee under section 1311.14 of the Ohio Revised Code, and any
amendments or supplements thereto, for the protection of Mortgagee's interest in
the Premises.
6.9 OBLIGATIONS UNCONDITIONAL. The obligations of the Mortgagor to
make payments of any and all amounts due hereunder shall be absolute and
unconditional without defense or set-off by reason of any default whatsoever,
including, without limitation a default by any tenant of the Premises under any
lease with the Mortgagor or under any other agreement or instrument between the
Mortgagee and the Mortgagor, and such payments to Mortgagee shall not be
decreased, abated, postponed or delayed for any reason whatsoever, including
without limitation, any acts or circumstances that may constitute failure of
consideration, destruction of or damage to the Premises, the taking of any part
of the Premises, commercial frustration of purpose, failure of any person to
perform or observe any agreement, whether expressed or implied, or any duty,
liability or obligation arising out of or connected with this Mortgage, the
Note, or any other Loan Document, or failure of any resident or occupant of the
Premises to pay the fees, rentals or other charges owed to Mortgagor, and
irrespective of whether or not any such resident or occupant of the Premises
receives either partial or total reimbursement as a credit against such payment,
it being the intention of the parties that the payments required of the
Mortgagor hereunder will be paid in full when due without any delay or
diminution whatsoever.
6.10 WAIVER OF JURY TRIAL. In consideration for the extension of the
Loan to Mortgagor by Mortgagee, Mortgagor hereby expressly waives the right to
trial by jury in any lawsuit or proceeding related to this Mortgage or arising
in any way from the Indebtedness Hereby Secured or the transactions between
Mortgagor and Mortgagee.
NOW, THEREFORE, if Mortgagor shall well and truly pay and discharge the
Indebtedness Hereby Secured as the same shall become due and payable and shall
perform and observe all of the terms, covenants and conditions to be performed
and observed by Mortgagor hereunder then this conveyance shall be null and void
and shall be released by Mortgagee at the expense of Mortgagor; otherwise this
Mortgage is to remain in full force and effect.
IN WITNESS WHEREOF, Mortgagor has executed this Mortgage as of the year
and date first above written.
WITNESSES: Mortgagor:
/s/ Timothy E. Hoberg DURAMED PHARMACEUTICALS, INC.,
- ------------------------------ a Delaware corporation
Printed: Timothy E. Hoberg
----------------------
By: /s/ David J. Furniss
/s/ Jeffrey S. Schloemer ---------------------------
- ------------------------------ Name: David J. Furniss
Printed: Jeffrey S. Schloemer -------------------------
---------------------- Its: Vice President
--------------------------
<PAGE> 12
-12-
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
The foregoing instrument was acknowledged before me this 24th day of
September, 1997 by David Furniss as Vice President of Duramed Pharmaceuticals,
Inc., a Delaware corporation, on behalf of the corporation.
/s/ Timothy E. Hoberg
-------------------------
Notary Public
[stamp]
This instrument was prepared by:
Don R. Gardner
Keating, Muething & Klekamp, P.L.L.
1800 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
(513) 579-6550
<PAGE> 1
Exhibit 10.3
LEASE
LEASE, dated as of September 24, 1997, between DURAMED
PHARMACEUTICALS, INC., an Ohio corporation ("Landlord"), and WARNER-LAMBERT
COMPANY, a Delaware corporation ("Tenant").
W I T N E S S E T H :
ARTICLE 1
---------
PREMISES, TERM, RENT
Section 1.1 PREMISES. (a) Landlord is the owner of the real
property described in EXHIBIT A attached hereto and incorporated herein (the
"LANDLORD'S LAND") and the buildings and ancillary improvements and personal
property located thereon (the Landlord's Land and such buildings, improvements
and personal property are collectively known as the "LANDLORD'S FACILITIES").
Subject to the other terms and conditions contained in this Lease, Landlord
hereby demises and leases to Tenant:
(i) the premises (the "PREMISES") which shall be comprised of
(w) the space marked in blue in EXHIBIT B-1 (the "WARNER SPACE") and
(x) the space marked in green in EXHIBIT B-2 (the "MAIN BUILDING
PREMISES") which space includes the space labeled "Solvent Storage"
(the "SHED PREMISES") and the space labeled "2nd Floor Plan Utility
Support" (the "SECOND FLOOR HIGH CONTAINMENT MANUFACTURING PREMISES")
of the building (the "HIGH CONTAINMENT MANUFACTURING BUILDING") in
which the Warner Space is located (the Main Building Premises, the
Second Floor High Containment Manufacturing Premises and the Shed
Premises are sometimes collectively herein referred to as the "SHARED
SPACE");
(ii) the right to use, in common with Landlord and its
successors and assigns, for vehicular and pedestrian traffic and
parking, the driveways, access roads, rights of way and parking areas
(as the same exist from time to time) now or hereafter serving the
Landlord's Facilities (the "ACCESS AND PARKING FACILITIES");
(iii) the right to use, in common with Landlord and its
successors and assigns, (x) steam produced at Landlord's Facilities,
(y) water and sewer services now or hereafter provided to or servicing
the Landlord's Facilities by public utilities and (z) all transmission
facilities with respect to the services described in clauses (x) and
(y) (the shared utility services are hereinafter referred to as the
"COMMON UTILITIES");
(iv) the right to use, in common with Landlord and its
successor and assigns, the common areas, including, without limitation,
corridors, hallways, elevators, lavatories, stairwells, and loading
docks located in each of the High Containment Manufacturing Building
and the Main Building Premises (collectively, the "Buildings");
<PAGE> 2
2
(v) the right to use, in common with Landlord and its
successors and assigns, the cafeteria facility located in Main Building
in accordance with Landlord's reasonable rules and regulations,
provided that the same are similar in nature (including pricing) as
those that apply to Landlord's employees; and
(vi) the right to locate a construction office type trailer on
Landlord's Land in the area on the eastern side of the High Containment
Manufacturing Building and to connect to the utility lines servicing
Landlord's Facilities.
and Tenant hereby hires, takes and leases all of the foregoing (collectively,
the "LEASED PROPERTY") from the Landlord, for the term, at the rental and on the
terms and conditions set forth in this Lease, subject only to the exceptions to
title described in EXHIBIT C attached hereto and incorporated herein (the
"PERMITTED ENCUMBRANCES").
(b) In addition, Landlord covenants and agrees that it will
cooperate with Tenant and the applicable utility company with respect to
granting, and hereby does grant to Tenant, a nonexclusive easement, over the
Landlord's Land and for the benefit of Tenant, the Leased Property and such
utility company, for the purpose of providing electrical power and other
required utilities to the Leased Property.
(c) (i) Landlord reserves a nonexclusive easement for the use of
the Shared Space for the purpose of manufacturing pharmaceuticals. In using such
easement, Landlord shall not interfere with Tenant's use of the Shared Space for
the purpose of manufacturing that certain product (the "PRODUCT") identified in
a certain new drug application to be submitted by Tenant to the U.S. Food and
Drug Administration. Landlord and Tenant shall communicate and cooperate from
time to time to facilitate the use by Landlord of the Shared Space for
pharmaceutical manufacturing purposes in a manner that does not interfere with
Tenant's use of the Shared Space for the manufacture of the Product.
(ii) Landlord may only use the Second Floor High Containment
Manufacturing Premises for such uses as are in compliance with all applicable
laws and do not interfere with Tenant's use thereof.
(iii) Landlord reserves the right, exercising its reasonable
discretion, to promulgate, modify and enforce from time to time regulations for
the use of the Shared Space and the portion of the Landlord's Facilities that
Tenant is granted the right under Section 1.1 hereof to use for the purpose of
facilitating the use of Landlord's Facilities for manufacture of pharmaceutical
and other products for itself and third parties. Landlord may not, however,
interfere with the manufacturing of the Product in the Shared Space.
(iv) In exercising its rights to use parts of the Shared Space
and Landlord's Facilities under Section 1.1, Tenant shall not interfere with
Landlord's use of the Shared Space or such Landlord's Facilities for
manufacturing purposes, and in exercising its rights to use parts of the Shared
Space as permitted in Section 1.1, Landlord shall not interfere with Tenant's
use of the Shared Space for the purposes permitted under this Lease.
<PAGE> 3
3
(v) Neither party shall be deemed to have defaulted in the
performance of its obligations under this Lease to the extent that the act or
neglect of the other party has prevented such performance.
Section 1.2 TERM. (a) The term of this Lease, for which the Leased
Property is leased, shall be deemed, for the purposes of this Lease, to commence
on September 24, 1997 (the "COMMENCEMENT DATE"), and shall end at midnight on
September 23, 2007, which ending is hereinafter called the "EXPIRATION DATE", or
shall end on such earlier date upon which the term of this Lease shall expire or
be cancelled or terminated, pursuant to any of the provisions of this Lease or
pursuant to law.
(b) Tenant may extend the term of this Lease for all or any
portion of the Premises on the same terms and conditions of this Lease for two
successive renewal terms of two years each, provided only that (i) notice is
given not less than 30 days prior to the Expiration Date (as the same may have
been extended by any prior renewals) by Tenant to Landlord of its desire to so
renew and (ii) no default on the part of Tenant (after receipt of any required
notice and the passage of any grace period) shall have occurred or be continuing
either at the time of exercise or such extension option or at the time when the
term would have expired but for such exercise.
Section 1.3 RENT. (a) The rents reserved under this Lease for the
term hereof (the "RENTS"), except as hereinafter otherwise provided, shall be
and consist of "FIXED RENT" in an amount equal to $1,200,000 per annum which
shall be payable in equal monthly installments of $100,000 in advance on the
first day of each calendar month during the term of this Lease from and after
the Commencement Date, subject to adjustment as provided in Section 1.3(c)
hereof which shall be paid to Landlord at Landlord's office, or such other
place, or to such agent and at such place as Landlord may designate by notice to
Tenant, in lawful money of the United States of America.
(b) If the Commencement Date occurs on a day other than the first
day of a calendar month, the fixed rent for such calendar month shall be
prorated according to the number of days in such month.
(c) The fixed rent for the first full calendar year during the
term of this Lease and thereafter shall be adjusted at the end of each such
calendar year by an amount equal to the average percentage increase in the
Producer Price Index as published by the United States Department of Labor,
Bureau of Labor Statistics but not greater than two percent (2%) per annum (the
"PPI ADJUSTMENT"). The PPI Adjustment will be an amount equal to the average
increase in the PPI over the immediately preceding calendar year. If the PPI is
not available for any period, the most similar available index shall be used.
(d) The fixed rent has been based on the fair rental value of the
Premises, which includes all operating costs with respect to Landlord's
Facilities, costs of electricity, real estate taxes, all utilities and all other
related costs and expenses to operate the Landlord's Facilities not specifically
enumerated herein as additional rent, as the same may increase over
<PAGE> 4
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the term of this Lease. Thus, this Lease does not provide for separate payment
of these costs and expenses or any increase with respect thereto, except as
specified herein.
ARTICLE 2
---------
CERTAIN DEFINITIONS AND CONSTRUCTIONS
Section 2.1 DEFINITIONS. For the purpose of this Lease and all
agreements supplemental to this Lease, and all communications between the
parties with respect to the Lease, unless the context otherwise requires:
"BUILDINGS" shall mean the two buildings comprising a part of
Landlord's Facilities in which the Warner Space and the Main Building
Premises, respectively, are located and the Shed Premises.
"DEFAULT RATE" shall mean a per annum rate equal to 3% over the
prime rate of The Chase Manhattan Bank, as announced from time to time.
"LANDLORD" shall mean the landlord herein named or mortgagee or
successor landlord in possession of the Landlord's Facilities, or so much
thereof as shall include the Leased Property, at any given time.
"PERMITTED MORTGAGES" shall mean the mortgage and other security
documents described on EXHIBIT D attached hereto which create a lien on
all or part of Landlord's Facilities and any subsequent refinancing of
such mortgage.
"PERMITTED MORTGAGEE" shall mean the holder of the indebtedness
secured by, and the beneficiary of, the Permitted Mortgage.
"PERSON" shall include an individual, corporation, partnership,
association, trust or other business entity.
"TENANT" shall mean Tenant herein named or any assignee or other
successor in interest (immediate or remote) of Tenant herein named, when
Tenant herein named or such assignee or other successor in interest, as
the case may be, is in possession of the Leased Property, as owner of the
estate and interest granted by this Lease.
<PAGE> 5
5
ARTICLE 3
---------
USE
Section 3.1 USE. (a) Tenant may only use the Leased Property for
the manufacturing of the Product.
(b) Tenant shall not suffer or permit the Premises or any part
thereof to be used in any manner, or anything to be done therein, or suffer or
permit anything to be brought into or kept therein, which would in any way (i)
subject to the provisions of Section 6.2 hereof, violate any laws or
requirements of public authorities, with respect to the use of the Buildings,
(ii) make void or voidable any standard form of fire or liability insurance
policy then in force with respect to the Buildings, (iii) cause structural
injury to the Buildings or any part thereof or (iv) violate any of Tenant's
other obligations under this Lease.
ARTICLE 4
---------
PERMITTED MORTGAGES
Section 4.1 SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT. Tenant
and The Provident Bank, as a condition to Tenant entering into this Lease, have
entered into a Subordination, Non-Disturbance and Attornment Agreement, the form
of which is attached hereto as Exhibit E.
Section 4.2 PERMITTED MORTGAGES. This Lease shall be superior to
any Permitted Mortgages entered into after the date hereof, unless Tenant and
any future Permitted Mortgagees enter into a Subordination, Non-Disturbance and
Attornment Agreement substantially similar to that attached as EXHIBIT E.
Section 4.3 LANDLORD'S COVENANT TO COMPLY. Landlord covenants to
comply with all of the terms and provisions of, and make all payments due under,
any Permitted Mortgage and the indebtedness secured thereby so as to not permit
a default to occur thereunder.
ARTICLE 5
---------
ASSIGNMENT AND SUBLETTING
Section 5.1 PROHIBITION. Except as provided in Section 5.3, this
Lease shall not be assigned, mortgaged, pledged, encumbered or transferred, and
the Leased Property shall not be sublet, without the prior written consent of
Landlord.
<PAGE> 6
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Section 5.2 NO RELEASE. If this Lease be assigned, whether or not
in violation of the provisions of this Lease, Landlord may collect rent from the
assignee and Tenant shall not be released from its obligations hereunder.
Section 5.3 RELATED TRANSACTIONS. Tenant may, upon prior notice to
Landlord, but without Landlord's consent:
(a) assign this Lease to a corporation or other business entity
(herein sometimes called a "SUCCESSOR CORPORATION") into or with which
Tenant shall be merged, or consolidated, or to which substantially all of
the assets of Tenant may be transferred, provided that the successor
corporation shall have effectively assumed substantially all of the
obligations and liabilities of Tenant under this Lease, by operation of
law or appropriate instruments of merger, consolidation or transfer;
(b) assign this Lease or sublet any part or parts of the Leased
Property to a corporation or other business entity (herein called a
"RELATED CORPORATION") which shall control, be controlled by or be under
common control with Tenant, to use the Leased Property for any of the
purposes permitted to Tenant as used herein in defining a related
corporation, control shall be deemed established by effective control,
direct or indirect, of the controlled corporation or other business
entity); and
(c) permit any related corporation of tenant or any joint venture
or other business entity of which Tenant is a joint venturer or
participant with at least a 10% interest, to use the Leased Property, or
any part thereof, for any of the purposes permitted to Tenant.
With respect to any assignment made pursuant to this Section 5.3, Tenant shall
remain primarily liable under this Lease.
ARTICLE 6
---------
COMPLIANCE WITH LAW AND REQUIREMENTS OF PUBLIC AUTHORITIES
Section 6.1 COMPLIANCE. Tenant at its expense shall comply with
all laws and requirements of public authorities which shall be applicable to the
alterations of the Premises resulting from Tenant's Changes, or Tenant's use or
occupancy thereof. However, Tenant shall not be so required to comply with such
laws and requirements which shall require an alteration or other change to the
Premises, unless such change is required by reason of Tenant's use or occupancy
of the Premises for other than the manufacturing of products relating to hormone
replacement and other uses associates with such manufacturing. Tenant need not
comply with any such law or requirement of public authority so long as Tenant
shall be contesting the validity or the applicability thereof to the Premises in
accordance with Section 6.2. In no event shall Tenant be required to comply with
any such law or requirement of public authority if the violation of same is the
result of the Buildings not being in compliance with such law or requirement as
of the date hereof, nor shall Tenant be
<PAGE> 7
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required to make any structural or other change in the Premises because of a
requirement of law or public authority becoming effective after the Commencement
Date which shall be applicable to the uses of the Buildings generally. Landlord
shall comply with all laws and public authority relating to the Landlord's
Facilities which are not the specific requirements of Tenant.
Section 6.2 CONTEST. Either party may, at its expense (and, if
necessary, in the name of the other but without expense to the other) contest by
appropriate proceedings prosecuted diligently and in good faith, the validity or
applicability to the Premises, the Landlord's Land or the Leased Property, of
any such law or requirement, and the parties shall cooperate with each other in
such proceedings (except that the non-contesting party shall not be obliged to
incur any liability or expense in connection with such contest), provided that:
(a) the non-contesting party shall not be subject to criminal penalty or to
prosecution nor shall the Landlord's Land or Landlord's Facilities, the Premises
or any part thereof be subject to being condemned or vacated by reason of
non-compliance or otherwise by reason of such contest; (b) the contesting party
shall defend, indemnify and hold harmless the non-contesting party against all
liability, losses, costs or damage that the non-contesting party may suffer or
incur by reason or such noncompliance or contest, including reasonable
attorney's fees and other reasonable expenses incurred by the non-contesting
party; and (c) the contesting party shall keep the non-contesting party advised
as to the status of such proceedings.
ARTICLE 7
---------
INSURANCE
Section 7.1 COMPLIANCE WITH LANDLORD'S POLICIES. Tenant shall not
commit or permit any violation of the policies of insurance carried by Landlord,
and shall not do, or permit anything to be done, or keep or permit anything to
be kept in the Premises which would result in the termination of such policies.
Section 7.2 RELEASES. Each party hereby releases the other party
with respect to any claim (including a claim for negligence) which it might
otherwise have against the other party for loss, damage or destruction with
respect to its property or bodily injury (including rental value or business
interest) occurring during the term of this Lease and with respect and to the
extent to which it is insured, or if and to the extent that it is a self-insurer
as to all or any portion, including any deductible amount, with respect and to
the extent to which it could have obtained insurance for the casualty involved
from responsible insurers at normal rates.
Section 7.3 TENANT'S INSURANCE. (a) Tenant shall obtain and
maintain at all times during the term of this Lease, insurance (subject to
reasonable deductibles) against loss or damage by fire and such other risks and
hazards as are insurable under present and future standard forms of fire and
extended coverage insurance policies covering Tenant's Property.
<PAGE> 8
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(b) Tenant shall obtain and maintain at all times during the term
of this Lease a commercial general liability insurance policy protecting
Landlord and Tenant against liability, occasioned by any occurrence on or about
the Premises, which shall be in an amount not less than $1,000,000 for bodily
and personal injury and in respect of property damage together with excess
liability insurance of at least $3,000,000, or in such greater amounts as
Landlord reasonably determines from time to time are generally required by
landlords of commercial buildings in the Cincinnati metropolitan area.
(c) The insurance required to be maintained by Tenant pursuant to
this Section 7.4 may be carried under a blanket policy covering the Premises and
other locations.
Section 7.4 LANDLORD'S INSURANCE. Landlord shall obtain and
maintain at all times during the term of this Lease the insurance of the type
and amount as required to be carried pursuant to the Permitted Mortgage, subject
to the requirements of this Article 7 which shall include, in addition to the
fire and casualty insurance with respect to the Landlord's Facilities, a
commercial general liability insurance policy protecting Landlord and Tenant
against liability, occasioned by any occurrence on or about the Landlord's
Facilities, which shall be in an amount not less than $1,000,000 for bodily and
personal injury and in respect of property damage, together with excess
liability insurance of at least $5,000,000.
ARTICLE 8
---------
TENANT'S CHANGES
Section 8.1 (a) CHANGES. Subject to Landlord's reasonable
approval, Tenant may, at any time and from time to time during the term of this
Lease, at its expense, make such alterations, additions, installations,
substitutions, improvements and decorations (hereinafter collectively called
"CHANGES" and, as applied to changes provided for in this Article, "TENANT'S
CHANGES") in and to the Premises, as Tenant may reasonably consider necessary
for the conduct of its business in the Premises, on the following conditions:
(i) the outside appearance of the Buildings shall not be affected
and the strength of the Buildings or of any of its structural parts shall
not be adversely affected;
(ii) no part of the Buildings outside of the Premises shall be
adversely affected;
(iii) the proper functioning of any of the mechanical, electrical,
sanitary, water and other service systems of the Buildings shall not be
adversely affected;
(iv) before proceeding with any such Tenant's Change, Tenant shall
give Landlord reasonable advance notice thereof; and
<PAGE> 9
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(v) before proceeding with any structural change, or with any
other Tenant's Change which affects the services provided in the
Buildings by Landlord or the basic architecture of the Buildings, Tenant
shall submit to Landlord plans and specifications for the work to be
done, for Landlord's approval, which shall not be unreasonably withheld.
(b) Any Tenant's Change shall become the property of Landlord when
made. Landlord may reasonably withhold or condition its approval of any Tenant's
Change on the basis of how the making of such Tenant's Change may affect the
ability of Landlord to use the Landlord's Facilities and the Landlord's Land,
including the Shared Space, for purpose of manufacturing pharmaceuticals for
itself and third parties. Landlord may condition any approval of a Tenant's
Change on the Tenant not interfering with such manufacturing activity by
Landlord.
Section 8.2 GOVERNMENT APPROVALS. Tenant, to the extent necessary
and at its expense, shall obtain all governmental permits and certificates for
the commencement and prosecution of Tenant's Changes and for final approval
thereof upon completion, and shall cause Tenant's Changes to be performed in
compliance therewith and with all applicable laws and requirements of insurance
bodies, and in good and workmanlike manner. Tenant's Changes shall be performed
in such manner as not unreasonably to interfere with or to delay, or to impose
any additional expense upon Landlord in the construction, maintenance or
operation of the Buildings.
ARTICLE 9
---------
TENANT'S PROPERTY
All of Tenant's personal property, furnishing, furniture,
equipment and trade fixtures ("TENANT'S PROPERTY") shall be and shall remain the
property of Tenant and may be removed by it at any time during the term of this
Lease; provided that, if any of Tenant's Property is removed, Tenant shall
repair or pay the cost of repairing any damage to the Premises or to the
Buildings resulting from such removal.
ARTICLE 10
----------
REPAIRS AND MAINTENANCE
Section 10.1 TENANT'S OBLIGATIONS. Tenant, at its expense,
shall promptly make all repairs, in and about the Premises, as shall be required
by reason of (i) the performance or existence of Tenant's Changes, (ii) the
installation, use or operation of Tenant's Property in the Premises, (iii) the
moving of Tenant's Property in or out of the Buildings, or (iv) the misuse or
neglect of Tenant or any of its employees, agents, or contractors.
<PAGE> 10
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Section 10.2 LANDLORD'S OBLIGATIONS. Landlord, at its sole cost
and expense, shall cause the Buildings to be operated and maintained in a
first-class manner. Landlord, at its expense, shall keep and maintain the
Buildings (including, without limitation, their roofs) and its fixtures,
appurtenances, systems and facilities serving the Premises, in good working
order, condition and repair, structural or otherwise, and shall make all
repairs, structural and otherwise, interior and exterior, as and when needed in
or about the Premises, except for those repairs for which Tenant is responsible
pursuant to any other provisions of this Lease and except to the extent such
obligations may be limited in Article 14 and 15 hereof.
ARTICLE 11
----------
UTILITIES
Section 11.1 ELECTRICITY. (a) Landlord shall furnish the electric
energy that Tenant shall require in the Premises (including with respect to the
Steam Facility), at Landlord's cost, on a rent inclusion basis, that is, the
cost of electricity is included in the fixed rent.
(b) Tenant, at its election, may engage to receive electricity
with respect to the Warner Space directly from the utility providing electricity
to the Buildings and Landlord shall cooperate with Tenant and make available to
Tenant the necessary power lines within Landlord's Facilities to make the
electricity available to the Premises in such capacity as Tenant shall
reasonably require. If Tenant exercises such option, Tenant shall pay for the
cost of doing so and for the cost of all utilities and services so furnished to
it, but the fixed rent shall be reduced by an amount equal to Landlord's cost in
providing such utilities and services to the Premises.
Section 11.2 PUBLIC UTILITIES. Tenant may contract directly for
all utilities and services, including, without limitation, steam, gas and
telephone service, and Landlord shall cooperate with Tenant and make the Common
Utilities available with respect thereto. If Tenant exercises such option,
Tenant shall pay for the cost of doing so and for the cost of all utilities and
services so furnished to it, but the fixed rent shall be reduced by an amount
equal to Landlord's cost in providing such utilities and services to the
Premises.
ARTICLE 12
----------
HEAT, VENTILATION AND AIR-CONDITIONING
Landlord, at its expense, shall cause the heating, ventilating and
air-conditioning systems (HVAC Systems) serving the Premises to be operated so
as to furnish heat, ventilation and air-conditioning (hereinafter collectively
called "AIR-CONDITIONING SERVICE") in the Premises, in compliance with the
performance specifications hereinafter set forth on a twenty-four hour, seven
days a week basis. The HVAC System serving the
<PAGE> 11
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Warner Space is designed to maintain average temperatures and relative humidity
within the Premises of 70(degree) F. +/- 5% F. and 40% humidity +/- 5%.
ARTICLE 13
----------
LANDLORD'S OTHER SERVICES
Section 13.1 WATER. Landlord, at its expense, shall furnish
adequate U.S.P. hot and cold water to the Premises for drinking, pantry,
lavatory, manufacturing and cleaning purposes.
Section 13.2 COMPRESSED AIR. Landlord, at its expense, shall
provide compressed air to the Premises for use therein on a twenty-four hour,
seven days a week basis.
Section 13.3 STEAM FACILITY. Tenant, at its expense, shall have
the right to install its own boiler for the generation of steam for utilization
in the HRT Premises (together with all transmission pipes and power service, the
"STEAM FACILITY") to be installed as part of Tenant's Changes and to be operated
and maintained by Tenant. If and to the extent that parts of the Steam Facility
are required to be placed outside of the Premises or outside the Buildings,
Landlord agrees to cooperate with Tenant in ascertaining appropriate locations
therefor and in obtaining any consents or approvals required for such placement.
Tenant may, at its expense, connect the Steam Facility to the Buildings'
electrical and water distribution system.
Section 13.4 SECURITY. Landlord shall provide the security with
respect to the Premises and those parking areas of the Landlord's Facilities
used by Tenant as described in EXHIBIT F attached hereto.
ARTICLE 14
----------
DESTRUCTION OR DAMAGE
Section 14.1 LANDLORD'S OBLIGATION TO RESTORE. If the Buildings or
the Premises shall be partially or totally damaged or destroyed by fire or other
casualty, then, whether or not the damage or destruction shall have resulted
from the neglect or other fault of Tenant, or its employees, agents or visitors,
and if this Lease shall not have been terminated as in this Article hereinafter
provided, Landlord shall, at its expense, repair the damage and restore and
rebuild the Buildings and the Premises as nearly as may be reasonably
practicable to their condition and character immediately prior to such damage or
destruction, with reasonable dispatch after notice to it of the damage or
destruction; PROVIDED, HOWEVER, that Landlord shall not be required to repair or
replace any of Tenant's Property.
<PAGE> 12
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Section 14.2 RENT STATEMENT. If the Buildings or the Premises
shall be partially damaged or partially destroyed by fire or other casualty
(including water or smoke damage), or in the event of a damage or destruction
described in Section 14.1 hereof, the rents payable hereunder shall be abated to
the extent that the Premises shall have been rendered untenantable for the
period from the date of such damage or destruction to the date the damage shall
be repaired or the destruction restored and the Premises are made available to
Tenant in tenantable condition.
Section 14.3 TERMINATION. If either Buildings shall be so damaged
or destroyed by fire or other casualty (whether or not the Premises are damaged
or destroyed) as to require a reasonably estimated expenditure of more than 50%
of the full insurable value of such Buildings, immediately prior to the
casualty, to repair or restore the Buildings, Landlord may terminate this Lease
by giving Tenant notice to such effect within 60 days after the date of the
casualty.
ARTICLE 15
----------
EMINENT DOMAIN
Section 15.1 SUBSTANTIAL CONDEMNATION. If the whole of either of
the Buildings or a part thereof which includes substantially the entire Premises
located in such Building shall be lawfully taken by condemnation or in any other
manner for any public or quasi-public use or purpose, this Lease with respect to
that portion of the Premises located in such Building shall terminate as of the
date of vesting of title on such taking or the date of taking of possession,
whichever is earlier (such earlier date being hereinafter referred to as the
date of the taking), and the rents hereunder shall be prorated and adjusted as
of the date of taking.
Section 15.2 PARTIAL CONDEMNATION. If any part of either of the
Buildings which does not include substantially the entire Premises, shall be so
taken, this Lease shall be unaffected by such taking, except that the rents
apportioned to the part taken shall be prorated and adjusted as of the date of
taking and from such date the fixed rent shall be reduced according to the
reduction in rentable area of the Premises resulting from such taking.
Section 15.3 AWARD. Except as expressly otherwise provided,
Landlord shall be entitled to receive the entire award in any proceeding with
respect to any taking provided for in this Article, without deduction therefrom
for any estate vested in Tenant by this Lease and Tenant shall receive no part
of such award and Tenant hereby expressly assigns to Landlord all of its right,
title and interest in or to every such award. However, to the extent permitted
by applicable law, Tenant shall be entitled to appear, claim, prove and receive
in the proceedings relating to any taking mentioned in the preceding Sections of
this Article, compensation for the value of Tenant's Property and for its moving
expenses, and for business interruption.
<PAGE> 13
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ARTICLE 16
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SURRENDER
Section 16.1 On the date of termination of this Lease, or upon any
re-entry by Landlord upon the Premises, Tenant, at its expense, shall quit and
surrender the Premises to Landlord in good order, condition and repair, except
for ordinary wear and tear and any damage or destruction by fire or other
casualty or the elements or any other cause beyond Tenant's reasonable control.
Tenant shall not be obligated, at or before quitting and surrendering the
Premises, to restore the Premises or any part thereof to the state or condition
of the Premises, or of such part, existing at any time prior to the completion
of the initial preparation of the Premises for tenant occupancy, except that at
the request of Landlord, Tenant at Tenant's expense shall remove any of Tenant's
Changes specified by Landlord and repair any damage caused by such removal.
ARTICLE 17
----------
CONDITIONS OF LIMITATION
Section 17.1 BANKRUPTCY. This Lease and the term and estate hereby
granted are subject to the limitation that whenever Tenant shall make an
assignment of the property of Tenant for the benefit of creditors, or shall file
a voluntary petition under any bankruptcy or insolvency law, or an involuntary
petition alleging an act of bankruptcy or insolvency shall be filed against
Tenant under any bankruptcy or insolvency law, or whenever a petition shall be
filed by or against Tenant under the reorganization provisions of any law of
like import, or whenever a petition shall be filed by Tenant under the
arrangement provisions of the United States Bankruptcy Act or under the
provisions of any law of like import, or whenever a permanent receiver of Tenant
or of or for the property of Tenant shall be appointed, or, if Tenant shall then
be a banking organization, whenever Tenant shall file an application for
voluntary liquidation and/or dissolution under any law applicable to banking
organizations, then, if and to the extent they are permitted by law, Landlord
(a) at any time after receipt of notice of the occurrence of any such event or
(b) if such event occurs without the acquiescence of Tenant, at any time after
the event continues unstayed for 180 days, may give Tenant a notice of intention
to end the term of this Lease at the expiration of ten (10) days from the date
of service of such notice of intention to end the term of this Lease and, upon
the expiration of said ten (10) day period this Lease and the term and estate
hereby granted, whether or not the term shall theretofore have commenced, shall
terminate with the same effect as if that day were the Expiration Date, but
Tenant shall remain liable for rents to the date of termination and for damages
as provided in Articles 18 and 19.
Section 17.2 FURTHER LIMITATIONS. This Lease and the term and
estate hereby granted are subject to the further limitation that:
(a) whenever Tenant shall default in the payment of an installment
of fixed rent or additional rent on any date upon which the same ought to
be paid, and such
<PAGE> 14
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default shall continue for ten (10) business days after Landlord, shall
have given Tenant a notice specifying such default in respect of fixed
rent or shall continue for thirty (30) days after Landlord, shall have
given Tenant a notice specifying such default in respect of additional
rent, or
(b) whenever Tenant shall do or permit anything to be done,
whether by action or inaction, contrary to any of Tenant's obligations
hereunder, and if such situation shall continue and shall not be remedied
by Tenant within 60 days after Landlord shall have given to Tenant a
notice specifying the same, or, in the case of a happening or default
which cannot with due diligence be cured within a period of 60 days if
Tenant shall not duly institute as promptly as may be practicable after
receipt of such notice and thereafter diligently prosecute to completion
all steps necessary to remedy the same,
then in any of such cases set forth in the foregoing Subsections (a) and (b)
Landlord may give Tenant a notice of intention to end the term of this Lease at
the expiration of ten (10) days from the date of such notice of intention, and
upon the expiration of said ten (10) days this Lease and the term and estate
hereby granted, whether or not the term shall theretofore have commenced, shall
terminate with the same effect as if that day were the Expiration Date, but
Tenant shall remain liable for rent to the date of such termination and for
damages as provided in Article 19.
ARTICLE 18
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RE-ENTRY BY LANDLORD
Section 18.1 If Tenant shall default in the payment of any
installment of fixed rent or additional rent, on any date upon which the same
ought to be paid, and if such default shall continue for ten (10) business days
after Landlord shall have given Tenant a notice specifying such default in
respect of base rent, or shall continue for thirty (30) days after Landlord
shall have given Tenant a notice specifying such default in respect of
additional rent, or if this Lease shall terminate as in Article 17 provided,
Landlord or Landlord's agents may immediately or at any time thereafter re-enter
the Premises or any part thereof, by summary dispossess proceedings or any other
action or proceeding, without being liable to indictment, prosecution or damages
therefor, and may repossess the same, and may remove any persons therefrom, to
the end that Landlord may have, hold and enjoy the Premises again as and of its
first estate and interest therein. The word re-enter, as herein used, is not
restricted to its technical legal meaning. In the event of any termination of
this Lease under the provisions of Article 17, or if Landlord or its agent shall
re-enter the Premises under the provisions of this Article, or in the event of
the termination of this Lease, or of re-entry, by or under any summary
dispossess or other proceeding or action or any provision of law by reason of
default hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord
or its agent the fixed rent and additional rent due up to the time of such
termination of this Lease, or of such recovery of possession of the Premises by
Landlord or its agents and shall also pay to Landlord damages as provided in
Article 19.
<PAGE> 15
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ARTICLE 19
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DAMAGES
Section 19.1 DAMAGES. If this Lease is terminated under the
provisions of Article 17, or in the event of the termination of this Lease, or
of re-entry, by or under any summary dispossess or other proceeding or action or
any provision of law by reason of default hereunder on the part of Tenant,
Tenant shall pay to Landlord as damages, at the election of Landlord, either:
(a) a sum which at the time of such termination of this Lease or
at the time of any such re-entry by Landlord, as the case may be,
represents the then value of the excess, if any, of
(1) the aggregate of the fixed rent and the additional rent
payable hereunder which would have been payable by Tenant
(conclusively presuming the additional rent to be the same as was
payable for the year immediately preceding such termination of
this Lease or the date of any such re-entry, as the case may be,
and ending with the Expiration Date) had this Lease not so
terminated or had Landlord not so re-entered the Premises, over
(2) the aggregate rental value of the Premises for the same
period, both discounted to present worth at 7% per annum, or
(b) sums equal to the fixed rent and the additional rent payable
hereunder which would have been payable by Tenant had this Lease not so
terminated, or had Landlord not so re-entered the Premises, payable upon
the due dates therefor specified herein following such termination or
such entry and until the Expiration Date less such sums, if any, as shall
have been received by Landlord for use and occupation; PROVIDED, HOWEVER,
that if Landlord shall relet the Premises during said period, Landlord
shall credit Tenant with the net rents received by Landlord from such
reletting, as and when received by Landlord, after deducting therefrom
the expenses incurred or paid by Landlord in terminating this Lease or in
re-entering the Premises and in securing possession thereof, as well as
the expenses of reletting, including altering and preparing the Premises
for new tenants, brokers' commissions, and all other expenses properly
chargeable against the Premises and the rental therefrom; it being
understood that any such reletting may be for a period shorter or longer
than the remaining term of this Lease; but in no event shall Tenant be
entitled to receive any excess of such net rents over the sums payable by
Tenant to Landlord hereunder, nor shall Tenant be entitled in any suit
for the collection of damages pursuant to this Subsection to a credit in
respect of any net rents from a reletting, except to the extent that such
net rents are actually received by Landlord.
Section 19.2 CUMULATIVE REMEDIES. All remedies of Landlord herein
created and any other remedies otherwise existing at law or equity are available
to Landlord and are cumulative, and the exercise of one or more rights or
remedies shall not be taken to exclude
<PAGE> 16
16
or waive the right to the exercise of any other. All such rights and remedies
may be exercised and enforced concurrently and whenever and as often as Landlord
shall deem necessary.
Section 19.3 LANDLORD'S RIGHTS. Actions for the recovery of such
damages, or any installments thereof, may be brought by Landlord from time to
time at its election, and nothing contained herein shall be deemed to require
Landlord to postpone action until the date when the term of this Lease would
have expired if it had not been so terminated under the provisions of Article
17, or under any provision of law, or had Landlord not re-entered the Premises.
Nothing herein contained shall be construed to limit or preclude recovery by
Landlord against Tenant of any sums or damages to which, in addition to the
damages particularly provided above, Landlord may lawfully be entitled by reason
of any default hereunder on the part of Tenant. Nothing herein contained shall
be construed to limit or prejudice the right of Landlord to prove for and obtain
as liquidated damages by reason of the termination of this Lease or re-entry on
the Premises for the default of Tenant under this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the bankruptcy, reorganization, insolvency or other like proceedings
in which, such damages are to be proved whether or not such amount be greater,
equal to, or less than any of the sums referred to in Section 19.1.
ARTICLE 20
----------
NO OTHER WAIVERS OR MODIFICATIONS
Section 20.1 The failure of either party to insist in any one or
more instances upon the strict performance of any one or more of the obligations
of this Lease, or to exercise any election herein contained, shall not be
construed as a waiver or relinquishment for the future of the performance of
such one or more obligations of this Lease or of the right to exercise such
election, but the same shall continue and remain in full force and effect with
respect to any subsequent breach, act or omission. No executory agreement
hereafter made between Landlord and Tenant shall be effective to change, modify,
waive, release, discharge, terminate or effect an abandonment of this Lease, in
whole or in part, unless such executory agreement is in writing, refers
expressly to this Lease and is signed by the party against whom enforcement of
the change, modification, waiver, release, discharge or termination or
effectuation of the abandonment is sought.
ARTICLE 21
----------
CURING LANDLORD'S DEFAULTS, OFF-SET
Section 21.1 PERFORMANCE AND SELF-HELP. If Landlord shall default
in the performance or payment of any of Landlord's obligations under this Lease,
Tenant, without thereby waiving such default, may (but shall not be obligated
to) perform or pay the same for the account and at the expense of Landlord,
without notice, in a case of emergency, and in
<PAGE> 17
17
any other case, only if such default continues after the expiration of 15 days
from the date Tenant gives Landlord notice of intention so to do. Tenant or a
designee may enter the other parts of the Buildings as and when reasonably
required to cure such defaults. Bills for any reasonable expenses actually
incurred by Tenant in connection with any such performance or payment by it for
the account of Landlord, as well as bills for any property, material, labor or
services provided, furnished, or rendered, by Tenant, may be sent by Tenant to
Landlord monthly, or immediately, at Tenant's option, and, shall be due and
payable within 10 days after rendition. If not paid in this such 10 day period,
Tenant may offset such amounts, with interest thereon at the default rate,
against payment of rent.
Section 21.2 RENT STATEMENT. If Landlord shall default in the
performance of any of Landlord's obligations under this Lease such that the
Premises shall be untenantable, in addition to its rights under Section 21.1,
Tenant shall have the right to abate the rent until such defaults have been
cured.
ARTICLE 22
----------
NOTICES
Section 22.1 Any notice, statement, demand or other communication
required or permitted to be given, rendered or made by either party to the
other, pursuant to this Lease or pursuant to any applicable law or requirement
of public authority, shall be in writing (whether or not so stated elsewhere in
this Lease) and shall be deemed to have been properly given, rendered or made,
if delivered in person, if sent by recognized overnight delivery service that in
the ordinary course of its business requires a signature from the addressee at
the time of delivery, or if sent by registered or certified mail, return receipt
requested, addressed, if to Tenant at 201 Tabor Road, Morris Plains, New Jersey
07950, Attention: ZP Pharmaceutical Manufacturing, with a copy, Attention: Vice
President and General Counsel; if to Landlord, at Duramed Pharmaceuticals, Inc.,
5040 Duramed Drive, Cincinatti, Ohio 45213, Attention: President and CEO, and
shall be deemed to have been given, rendered or made by the sender on the day so
mailed or delivered to a recognized overnight delivery service, and shall be
deemed to have been received by the addressee upon the date of its signature of,
or its refusal to sign, the requested receipt. Either party may, by notice as
aforesaid, designate a different address or attention designation for notices,
statements, demands or other communications intended for it.
ARTICLE 23
----------
ESTOPPEL CERTIFICATE, MEMORANDUM
Section 23.1 ESTOPPEL CERTIFICATE. Each party agrees, at any time
and from time to time, as requested by the other party, upon not less than 10
days notice, to execute and deliver to the other a statement certifying that
this Lease is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as
<PAGE> 18
18
modified and stating the modifications), certifying the dates to which the fixed
rent and additional rent have been paid, and stating whether or not, to the best
knowledge of the signer, the other party is in default in performance of any of
its obligations under this Lease, and, if so, specifying each such default of
which the signer may have knowledge, it being intended that any such statement
delivered pursuant hereto may be relied upon by others with whom the party
requesting such certificate may be dealing.
Section 23.2 MEMORANDUM OF LEASE. At the request of either party,
Landlord and Tenant shall promptly execute, acknowledge and deliver a memorandum
with respect to this Lease and any supplement thereto and modification thereof
sufficient for recording. Such memorandum shall not in any circumstances be
deemed to change or otherwise affect any of the obligations or provisions of
this Lease as the same may be so supplemented and/or modified. If the term of
this Lease terminates for any reason, Tenant shall file for recording in the
office of the Recorder of Hamilton County, Ohio a cancellation of the term of
this Lease.
ARTICLE 24
----------
QUIET ENJOYMENT
Section 24.1 QUIET ENJOYMENT. Landlord covenants that, so long as
this Lease is in full force and effect, Tenant shall peaceably and quietly have,
hold and enjoy the Premises, in accordance with the terms of this Lease, free
and clear of the claims of those claiming by, from or through Landlord or the
Permitted Encumbrances. Landlord represents and warrants that it owns the
Landlord's Facilities free and clear of all liens and encumbrances other than
the Permitted Encumbrances.
Section 24.2 COVENANT TO PAY TAXES. Landlord covenants to pay when
due all real estate taxes and assessments with respect to Landlord's Facilities
and, upon the request of Tenant, will submit to Tenant promptly after payment
evidence thereof.
ARTICLE 25
----------
GOVERNING LAW
This Lease shall be governed in all respects by the laws of the
State of Ohio.
ARTICLE 26
----------
TERMINATION RIGHTS
<PAGE> 19
19
Landlord and Tenant each have the right to terminate this Lease
pursuant to the terms and provisions of Section 19.3 of the Manufacturing
Agreement dated as of September 24, 1997 between Landlord and Tenant.
<PAGE> 20
20
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed
this Lease as of the date above.
Signed and acknowledged
in the presence of: DURAMED PHARMACEUTICALS,
INC.
/s/ Timothy E. Hoberg By: /s/ David J. Furniss
- ------------------------------ -----------------------
Printed name: Timothy E. Hoberg Name: David J. Furniss
As to Landlord Title: Vice President
WARNER-LAMBERT COMPANY
/s/ Kathleen Shipman By: /s/ Anthony H. Wild
- ------------------------------ -----------------------
Printed name: Kathleen Shipman Name: Dr. Anthony H. Wild
As to Tenant Title: Vice President and
President Pharmaceutical
Sector
/s/ J. R. Shilakes
- ------------------------------
Printed name: J. R. Shilakes
As to Tenant:
<PAGE> 1
Exhibit 10.4
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT (the "Guaranty") is dated as of the 24th day
of September, 1997, between THE PROVIDENT BANK, an Ohio banking corporation
("Provident"), and WARNER-LAMBERT COMPANY, a Delaware corporation (the
"Guarantor").
PRELIMINARY STATEMENT
---------------------
Duramed Pharmaceuticals, Inc., a Delaware corporation (the "Borrower"),
has requested from Provident a loan in the sum of Eight Million Five Hundred
Thousand and 00/100 Dollars ($8,500,000.00) (the "Loan") for the purpose of
refinancing the Borrower's pharmaceutical facility located at 5040 Lester Road,
Cincinnati, Ohio 45213 (the "Premises"). The Loan will be evidenced by a
Promissory Note in the amount of the Loan (the "Note") dated the date hereof,
and will be secured by an Open-End Mortgage (the "Mortgage") and an Assignment
of Leases, Rents and Proceeds (the "Assignment of Leases"). All obligations of
Borrower to Provident under the Note, the Mortgage and the Assignment of Leases
are hereinafter collectively referred to as the "Indebtedness."
NOW, THEREFORE, the parties hereto agree as follows:
1. To induce Provident to make the Loan, the Guarantor hereby
absolutely and unconditionally guarantees the Indebtedness, subject to the other
terms and conditions of this Guaranty. The Guarantor undertakes this guarantee
of the aforementioned payment and performance by Borrower notwithstanding that
any portion of the Indebtedness shall be void or voidable as between the
Borrower and any of its creditors including, any bankruptcy trustee of the
Borrower. The liability of the Guarantor shall be limited to a principal amount
of Eight Million Five Hundred Thousand and 00/100 Dollars ($8,500,000.00), plus
interest thereon as provided in the Note, and all costs of collection (including
reasonable attorneys' fees) and all expenses reimbursable pursuant to Paragraph
2 hereof.
2. This Guaranty is a guarantee of payment and not a guarantee of
collection. Notwithstanding the foregoing, upon Borrower's failure to pay any
portion of the Indebtedness promptly when due, prior to making any demand upon
Guarantor under this Guaranty, Provident shall first, by written notice, make
demand upon the Borrower, with a copy of such notice to Guarantor, to pay such
portion of the Indebtedness as is then due, unless provision of such a notice
shall be prohibited under Title 11 U.S. Code or successor statute, in which case
such notice shall be deemed to have been given as of the date of effectiveness
of the prohibition of such notice. Not less than thirty (30) days after such
notice shall have been given or deemed given, Provident, at its sole option, may
demand payment from the Guarantor of all or any part of the Indebtedness then
due and owing, or may proceed against the Guarantor (or an additional guarantor,
if there be any, or against any one or more of the foregoing) to collect the
Indebtedness, with or without proceeding against the Borrower, any co-maker or
co-surety or co-guarantor, any indorser or any collateral held as security for
the Indebtedness. The Guarantor agrees to reimburse Provident for all reasonable
<PAGE> 2
-2-
expenses of any nature whatsoever including, without limitation, reasonable
attorneys' fees, incurred or paid by Provident in exercising any right, power or
remedy against Guarantor conferred by this Guaranty. Any and all payments upon
the Indebtedness made by the Borrower, Guarantor or any other person, or from
the proceeds of any collateral held as security for the Indebtedness, may be
applied by Provident against the Indebtedness in whatever manner it may
determine in its sole discretion. Until the Indebtedness is paid in full,
Guarantor shall not exercise any right of subrogation with respect to payments
made by Guarantor pursuant to this Guaranty.
3. The liability of Guarantor and the rights of Provident under this
Guaranty shall not be impaired or affected in any manner by, and Guarantor
hereby consents in advance to and waives any requirement of notice for, any (a)
disposition, impairment, release, surrender, substitution, or modification of
any collateral securing the Indebtedness or the obligations created by this
Guaranty or any failure to perfect a security interest in any collateral; (b)
release (including adjudication or discharge in bankruptcy) or settlement with
any person primarily or secondarily liable for the Indebtedness (including,
without limitation, any maker, indorser, guarantor or surety); (c) delay in
enforcement of payment of the Indebtedness or delay in enforcement of this
Guaranty; (d) delay, omission, waiver, or forbearance in exercising any right or
power with respect to the Indebtedness or this Guaranty; (e) defense arising
from the enforceability or validity of the Indebtedness or any part thereof or
the genuineness, enforceability or validity of any agreement relating thereto;
(f) any defenses or counterclaims that the Borrower may assert on the
Indebtedness, including, but not limited to, failure of consideration, breach of
warranty, fraud, payment, statute of frauds, bankruptcy, infancy, statute of
limitations, lender liability, accord and satisfaction and usury; or (g) other
act or omission which might constitute a legal or equitable discharge of
Guarantor. Except such notices and demands as are expressly required hereby,
Guarantor waives presentment, protest, demand for payment, any right of set-off,
notice of dishonor or default, notice of acceptance of this Guaranty, notice of
the incurring of any of the Indebtedness and notice of any other kind in
connection with the Indebtedness or this Guaranty. Notwithstanding the
foregoing, during the time the Indebtedness remains outstanding, Provident will
not, without the prior written consent of Guarantor, which consent shall not be
unreasonably delayed or withheld, agree to any modification to any material term
or condition of the documents which evidence the Indebtedness.
4. The Guarantor agrees that in the event of (a) the dissolution or
insolvency of Borrower, (b) the inability of Borrower generally to pay its debts
as they become due, (c) an assignment by Borrower for the benefit of its
creditors, (d) the institution by Borrower of any action or proceeding with
respect to itself under Title 11 U.S. Code or successor statute, or (e) the
institution by another entity of any action or proceeding with respect to
Borrower under Title 11 U.S. Code or successor statute, and continuance of such
proceeding for sixty (60) days without dismissal, and whether or not such event
shall occur at a time when the Indebtedness is not then due and payable, the
Guarantor shall upon demand by Provident pay the Indebtedness to Provident as if
the Indebtedness was then due and payable.
5. In the event (a) any demand is made by Provident for payment by
Guarantor of any amount less than payment in full of the Indebtedness, or (b)
four (4) monthly payments of interest
<PAGE> 3
-3-
remain outstanding at any one time (or such lesser number of payments as
Provident shall agree in writing), then in any of said events, Guarantor shall
have the option to promptly tender to Provident the full amount owing under this
Guaranty.
6. Upon the payment by Guarantor of all amounts owing under this
Guaranty, Provident shall (a) endorse and deliver to Guarantor the Note, without
recourse and without any warranties whatsoever, except that Provident has good
title to the Note, and (b) execute non-recourse assignments of the Mortgage and
the Assignment of Leases, and Guarantor shall be subrogated to the rights of
Provident in respect of such Indebtedness.
7. Provident will exercise its reasonable efforts to provide to
Guarantor copies of the following documents in its possession during the term of
the Note: (a) default notices with respect to the Indebtedness sent by Provident
to Borrower, and (b) billing statements with respect to the Indebtedness sent by
Provident to Borrower; PROVIDED, that the failure by Provident to provide copies
of such documents will not (i) impair its rights under this Guaranty, or (ii)
constitute a defense available to Guarantor under this Guaranty, or (iii) give
rise to any damage claim against Provident or any other liability on Provident's
part to Guarantor.
8. The Guarantor agrees that this Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, of principal, interest or any other amount with respect to the
Indebtedness is rescinded or must otherwise be restored by Provident upon the
bankruptcy or reorganization of Borrower, any other person or otherwise.
9. In order to secure the payment of the Indebtedness and the
obligations created by this Guaranty, the Guarantor hereby grants to Provident a
security interest in the accounts, securities, and properties in which the
Guarantor has any interest, and that are now, or are at any time hereafter, in
the possession of Provident. The Guarantor shall promptly provide to Provident
hereafter such financial information as it regularly distributes to its
shareholders and at approximately the same time as such information is
distributed to such shareholders.
10. Provident shall not be compelled to resort first to any collateral
for payment of any of the Indebtedness or the obligations created by this
Guaranty but may, at its election, require the obligation to be paid by the
Guarantor, with or without suit.
11. Guarantor agrees that with respect to any uncured event of default
under the Note, the Mortgage or the Assignment of Leases, Provident shall have
the sole option to declare or not to declare a default thereunder, or to waive
any such default from time to time, or to waive the right from time to time to
accelerate the Indebtedness after declaring a default, without in any way
affecting its right, after it does declare a default under the Note, the
Mortgage or the Assignment of Leases, to require payment from the Guarantor
under this Guaranty. After the declaration of any default by Provident under the
Note, the Mortgage or the Assignment of Leases, Provident shall have the sole
right to determine whether to apply payments received from the Borrower toward
obligations under the Indebtedness or any other obligations owing by Borrower to
Provident.
<PAGE> 4
-4-
12. This Guaranty shall inure to the benefit of and bind the parties
hereto, their successors and assigns, and their legal representatives or heirs.
Provident may, at its option, assign this Guaranty to any lending institution,
bank holding company, insurance company or the like, which becomes the indorsee
or assignee of any part of the Indebtedness, or who is in possession of or the
bearer of any part of the Indebtedness that is payable to the bearer, and the
Guarantor shall continue to be liable under this Guaranty to such other party to
the extent of such indorsed, assigned, or possessed Indebtedness.
13. This Guaranty and all the rights and obligations of the parties
thereto shall be governed by the laws of the State of Ohio.
14. As a specifically bargained inducement for Provident to extend
credit to Borrower (a) THE GUARANTOR HEREBY EXPRESSLY WAIVES THE RIGHT TO TRIAL
BY JURY IN ANY LAWSUIT OR PROCEEDING RELATED TO THIS GUARANTY OR ARISING IN ANY
WAY FROM THE INDEBTEDNESS OR TRANSACTIONS INVOLVING PROVIDENT AND THE BORROWER,
AND (b) THE GUARANTOR HEREBY DESIGNATES ALL COURTS OF RECORD SITTING IN
CINCINNATI, OHIO AND HAVING JURISDICTION OVER THE SUBJECT MATTER, STATE AND
FEDERAL, AS FORUMS WHERE ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING
FROM OR OUT OF THIS GUARANTY, ITS MAKING, VALIDITY OR PERFORMANCE, SHALL BE
PROSECUTED AS TO ALL PARTIES, THEIR PERMITTED SUCCESSORS AND ASSIGNS, AND BY THE
FOREGOING DESIGNATION, THE GUARANTOR CONSENTS TO THE JURISDICTION AND VENUE OF
SUCH COURTS.
15. The Guarantor warrants that it has the corporate power to execute
this Guaranty, that all the necessary corporate actions have been taken to
permit the Guarantor to give this Guaranty, and that the person executing this
Guaranty is duly empowered to do so on behalf of the Guarantor.
16. Provident warrants that it has the corporate power to execute this
Guaranty, that all the necessary corporate actions have been taken to permit
Provident to enter into this Guaranty, and that the person executing this
Guaranty is duly empowered to do so on behalf of Provident.
17. Provident warrants that (a) true and correct copies of the Note,
the Mortgage and the Assignment of Leases are attached hereto Exhibits A, B, and
C, respectively; (b) it has no ownership or security interest in any of the
equipment listed on Exhibit D attached hereto; and (c) the Loan constitutes all
loans held by Provident which are secured by the Mortgage and the Assignment of
Leases.
18. This Guaranty sets forth the complete agreement of the parties with
respect to the subject matter hereof and expressly supersedes the prior or
contemporaneous representation or agreement.
<PAGE> 5
-5-
19. No modification or amendment of this Guaranty shall be effective
unless in writing, signed by the party against whom enforcement is sought. No
waiver of any term or provision of this Guaranty shall be effective unless in
writing and only for the instance then given.
20. Any notice or consent required or permitted to be given under this
Guaranty shall be sufficient if made in writing and sent via courier, fax or
certified mail, postage prepaid, and shall be effective when received by the
party to whom sent.
<TABLE>
<CAPTION>
<S> <C> <C>
If to Provident, to:
The Provident Bank
One East Fourth Street
Seventh Floor
Cincinnati, Ohio 45202
Attention: Robert L. Hoverson
Executive Vice President
FAX: (513) 345-7185
with a copy (which copy
shall not constitute
notice) to:
The Provident Bank
One East Fourth Street
Fourth Floor
Cincinnati, Ohio 45202
Attention: Mark E. Magee
Senior Vice President and General Counsel
FAX: (513) 763-8069
If to Guarantor, to:
Warner-Lambert Company
201 Tabor Road
Morris Plains, New Jersey 07950
Attention: Vice President, Pharmaceuticals Manufacturing
FAX: (201) 540-7269
with a copy to: Attention: President and CEO
FAX: (513) 731-1403
Attention: Gregory L. Johnson
Vice President and General Counsel
</TABLE>
<PAGE> 6
-6-
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized representatives to execute and deliver this Guaranty on and as of the
date first above set forth.
THE PROVIDENT BANK
By: /s/ Richard M. Sterling
______________________________________
Its: Vice President
_____________________________________
Date: September 24, 1997
____________________________________
WARNER-LAMBERT COMPANY
By: /s/ Anthony H. Wild
______________________________________
Its: Dr. Anthony H. Wild,
Vice President and President
Pharmaceutical Sector
_____________________________________
Date:____________________________________
<PAGE> 1
EXHIBIT 11
DURAMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary:
Weighted average common shares
outstanding 15,384,609 10,850,555 14,957,717 9,850,047
Assumed conversion of preferred
shares to common shares * * * *
Net effect of dilutive stock options
and warrants - based on treasury
stock method using the average
market price * * * *
----------- ------------ ------------ ------------
Totals 15,384,609 10,850,555 14,957,717 9,850,047
=========== ============ ============ ============
Net loss $(3,295,937) $(13,922,205) $(13,549,384) $(18,233,954)
=========== ============ ============ ============
Per share amount $(0.21) $(1.28) $(0.91) $(1.85)
=========== ============ ============ ============
Fully diluted:
Weighted average common shares
outstanding 15,384,609 10,850,555 14,957,717 9,850,047
Assumed conversion of preferred
shares to common shares * * * *
Net effect of dilutive stock options
based on treasury stock method
using the year-end market price,
if higher than average market price * * * *
----------- ------------ ------------ ------------
Totals 15,384,609 10,850,555 14,957,717 9,850,047
=========== ============ ============ ============
Net loss $(3,295,937) $(13,922,205) $(13,549,384) $(18,233,954)
=========== ============ ============ ============
Per share amount $(0.21) $(1.28) $(0.91) $(1.85)
=========== ============ ============ ============
</TABLE>
*Conversion of stock options and preferred shares not assumed in the
computations because their effect is antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial statements for this quarterly period ended September 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 689,368
<SECURITIES> 0
<RECEIVABLES> 9,493,074
<ALLOWANCES> 1,462,051
<INVENTORY> 10,088,470
<CURRENT-ASSETS> 21,251,164
<PP&E> 43,800,858
<DEPRECIATION> 15,111,190
<TOTAL-ASSETS> 50,584,361
<CURRENT-LIABILITIES> 12,567,083
<BONDS> 11,526,360
5,100,000
0
<COMMON> 164,610
<OTHER-SE> 19,979,069
<TOTAL-LIABILITY-AND-EQUITY> 50,584,361
<SALES> 33,544,362
<TOTAL-REVENUES> 33,544,362
<CGS> 24,728,906
<TOTAL-COSTS> 27,256,776
<OTHER-EXPENSES> 18,793,628
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 902,601
<INCOME-PRETAX> (13,408,643)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,408,643)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,549,384)
<EPS-PRIMARY> (.91)
<EPS-DILUTED> (.91)
</TABLE>
