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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission File Number 1-09623
NOVEN PHARMACEUTICALS, INC.
Incorporated under the laws of the I.R.S. Employer Identification Number
State of Delaware 59-2767632
11960 S.W. 144th Street, Miami, Florida 33186
305-253-5099
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
Par Value $.0001
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
As of March 1, 2000, there were 21,760,750 shares of Common Stock
outstanding.
The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 1, 2000, was approximately $301 million.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III: Portions of registrant's Proxy Statement for its 2000 Annual
Meeting of Shareholders.
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NOVEN PHARMACEUTICALS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business................................................................................ 3
Item 2. Properties.............................................................................. 17
Item 3. Legal Proceedings....................................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders..................................... 18
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................... 19
Item 6. Selected Financial Data................................................................. 20
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................. 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............................. 27
Item 8. Financial Statements and Supplementary Data............................................. 27
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................................. 27
PART III
Item 10. Directors and Executive Officers of the Registrant...................................... 27
Item 11. Executive Compensation.................................................................. 27
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 27
Item 13. Certain Relationships and Related Transactions.......................................... 28
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................ 28
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PART I
ITEM 1. BUSINESS.
GENERAL
Noven Pharmaceuticals, Inc. ("Noven") is a leader in the development
and manufacture of advanced transdermal and transmucosal drug delivery products
and technologies. Noven was incorporated in Delaware in 1987, and its principal
executive offices are located at 11960 S.W. 144th Street, Miami, Florida 33186;
its telephone number is (305) 253-5099.
Noven's principal commercialized products are transdermal drug delivery
systems for use in hormone replacement therapy. Noven's first product was an
estrogen patch for the treatment of menopausal symptoms marketed under the brand
name Vivelle(R) in the United States and Canada and under the brand name
Menorest(R) in Europe and certain other markets. In May 1999, Noven's second
generation estrogen patch, the smallest transdermal estrogen patch ever approved
by the United States Food and Drug Administration ("FDA"), was launched in the
United States under the brand name Vivelle-Dot(TM). Noven also developed a
combination estrogen/progestin transdermal patch for the treatment of menopausal
symptoms, which is marketed under the brand name CombiPatch(TM) in the United
States and under the brand name Estalis(R) in Europe. See "Transdermal Drug
Delivery - Products" below for a more complete description of Noven's
transdermal products and their marketing status.
Noven has an active research and development program with over 20
products in development. Research efforts are focused primarily on four
therapeutic categories: hormone replacement therapy ("HRT"), central nervous
system conditions, cardiovascular disease and pain management. Four of its
development projects are currently in the clinical trial stage, including
MethyPatch(TM), a transdermal methylphenidate delivery system for the treatment
of Attention Deficit Hyperactivity Disorder (ADHD). Noven believes that this
product will address several serious issues associated with existing therapies
and, if approved, will compete in the $500 million market for drugs that treat
ADHD. No assurance can be given that this product will be approved by the FDA or
that, if approved, it will be successfully marketed. See "Research and
Development" below for a more complete description of Noven's product
development program.
Noven also developed a novel transmucosal anesthetic delivery system
which was approved for marketing by the United States Food and Drug
Administration ("FDA") in 1996 for the prevention of pain from oral injection
and soft tissue dental procedures. Noven markets this product in the United
States under the brand name DentiPatch(R).
VIVELLE VENTURES LLC
In May 1998, Noven and Novartis Pharmaceuticals Corporation
("Novartis") formed a joint venture company called Vivelle Ventures LLC to
market and sell women's prescription healthcare products, with the initial focus
on marketing Vivelle(R) in the United States and Canada. The joint venture does
business under the name Novogyne Pharmaceuticals ("Novogyne"). Novogyne also
markets Vivelle-Dot(TM) and co-promotes Novartis' Miacalcin(R) Nasal Spray, a
product used to treat osteoporosis. Noven expects that Novogyne's product line
will be expanded further in the future, although no assurance can be given that
Novogyne will add additional products or that such
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products will be successfully marketed. Novogyne is managed by a committee of
five members, three of which are appointed by Novartis and two of which are
appointed by Noven. Pursuant to the joint venture operating agreement, certain
significant actions require a supermajority vote of the committee members. The
President of Novogyne is Robert C. Strauss, who also serves as the President and
Chief Executive Officer of Noven.
The establishment of Novogyne modified a prior relationship in which
Noven had licensed to Novartis the exclusive right to market Vivelle(R) in the
United States and Canada and received royalties from Novartis based upon
Novartis' sales. Noven initially invested $7.5 million in return for a 49%
equity interest in Novogyne. Novartis contributed its rights to Vivelle(R) to
Novogyne and also licensed to Novogyne the right to use the Vivelle(R) trademark
in return for a 51% equity interest in Novogyne. Under the terms of the joint
venture agreements, Noven manufactures Vivelle(R) and Vivelle-Dot(TM), performs
marketing, sales and promotional activities, and receives royalties from
Novogyne based on Novogyne's sales of the products. Novartis distributes
Vivelle(R) and Vivelle-Dot(TM) and provides certain other services to Novogyne,
including marketing to the managed care sector.
Subject to approval by Novogyne's management committee, cash may be
distributed quarterly to Novartis and Noven based upon a contractual formula.
The joint venture agreements provide for an annual preferred return of $6.1
million to Novartis and then an allocation of income between Novartis and Noven
depending upon sales levels attained. Noven's share of income increases as
product sales increase, subject to a maximum of 49%.
Either party may dissolve the joint venture following the second or
third anniversary of the formation of the joint venture in the event that
Novogyne does not achieve (i) sales of at least the lesser of $20 million or 90%
of the annual budgeted sales or (ii) profits sufficient to pay Novartis the
preferred return of $6.1 million in the preceding year (which Noven has the
right to cure). Both of these thresholds were met in 1999. Dissolution can also
result from a change in control of Noven prior to May 1, 2000, or at any time
thereafter if the acquirer is a top ten pharmaceutical company (as measured by
annual dollar sales), or if prior to May 1, 2000, Mr. Strauss is terminated by
Noven "without cause" or leaves due to "good reason," as defined in Mr. Strauss'
employment agreement with Noven. Upon dissolution, Novartis would reacquire the
rights to market Vivelle(R) and Vivelle-Dot(TM) and Novogyne's other assets
would be liquidated and distributed to the parties in accordance with their
capital account balances as determined pursuant to the operating agreement. The
joint venture operating agreement also has a buy/sell provision, effective May
1, 2000, which allows either party to compel either the purchase of the other
party's interest in Novogyne or the sale of its own interest.
STRATEGY
Noven's strategy for continued growth and profitability is to utilize
its proprietary transdermal and transmucosal drug delivery technology to
establish a leadership position in these fields. In pursuing this strategy,
Noven intends to focus on developing products for the following therapeutic
areas: hormone replacement therapy, central nervous system conditions,
cardiovascular disease and pain management. On a long-term basis, Noven will
seek to (i) expand its technology base and seek to develop other drug delivery
technologies, (ii) capitalize on the opportunity presented by its collaboration
with Novartis through Novogyne by (a) licensing certain of Noven's women's
health products to Novogyne and (b) expanding Novogyne's product range beyond
transdermal
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products, (iii) form new strategic alliances with other pharmaceutical companies
and (iv) establish its own sales force to market certain of its independently
developed products. No assurance can be given that Noven will successfully
implement all or part of its long-term strategy.
TRANSDERMAL DRUG DELIVERY
DESCRIPTION
Transdermal drug delivery systems utilize an adhesive patch containing
medication which is administered through the skin and into the bloodstream over
an extended period of time. Transdermal drug delivery systems may offer
significant advantages over conventional oral and parenteral dosage forms,
including non-invasive administration, controlled delivery, improved patient
compliance and avoidance of certain problems and adverse side-effects.
Noven believes that its technology enables it to develop
patient-friendly transdermal systems that improve a patient's quality of life by
reducing irritation and improving adhesion. Noven's patented, proprietary
transdermal drug delivery systems incorporate a thin, solid state,
multi-laminate construction with a drug-bearing interpolymeric adhesive. Noven's
transdermal drug delivery systems are capable of being modified to deliver a
wide variety of chemical entities. By utilizing a unique, patented blend of
polymeric components which effectively modulate the solubility of the drug
compound in the adhesive, Noven has achieved the delivery of lipophilic and
hydrophilic drugs while minimizing the amount of drug needed in the adhesive. By
reducing the dependence of these transdermal systems on chemical means of
enhancement, the irritation potential of the finished product is significantly
reduced. As a result of these developments, larger molecules, previously
believed to be unsuitable for transdermal delivery, can be administered at
efficacious doses without irritation.
PRODUCTS
FIRST GENERATION TRANSDERMAL ESTROGEN DELIVERY SYSTEM
Noven's first generation transdermal estrogen delivery systems
(marketed as Vivelle(R) and Menorest(R)) are available by prescription and
utilize Noven's advanced transdermal matrix technology. These products deliver
17-beta estradiol, the primary estrogen produced by the ovaries, through a patch
that is applied twice weekly. Vivelle(R) and Menorest(R) offer four dosage
strengths, thereby allowing physicians to maintain patients on the appropriate
dose of estrogen.
This product has been approved for marketing by the FDA, as well as by
regulatory authorities in 38 foreign countries, for the treatment of menopausal
symptoms. This product has also been approved for marketing in 36 foreign
countries for the prevention of osteoporosis, and an application was filed with
the FDA in October 1999 seeking marketing approval in the United States for this
indication. Marketing rights to this product are held by Novogyne in the United
States, Aventis S.A. (f/k/a Rhone-Poulenc Rorer, Inc.) ("Aventis") in Japan and
by Novartis in all other territories. Marketing rights outside of the United
States and Canada were held exclusively by Aventis until October 1999, when
Novartis sublicensed Aventis' rights to market the product in all of Aventis'
exclusive markets other than Japan. Novartis is selling this product under the
brand name Menorest(R) in over 20 foreign countries, including France, Germany
and the United Kingdom.
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Novogyne markets this product in the United States under the brand name
Vivelle(R), and Novartis' Canadian affiliate markets this product under the
brand name Vivelle(R) in Canada.
Pursuant to license and supply agreements with Aventis, Novartis and
Novogyne, Noven manufactures Vivelle(R) and Menorest(R) for these parties and
receives royalties based on their sales of the products. The supply agreement
for Menorest(R) is a long-term agreement and the supply agreement for Vivelle(R)
expires in January 2003.
SECOND GENERATION TRANSDERMAL ESTROGEN DELIVERY SYSTEM
Noven's continued efforts to improve its matrix patch technology have
resulted in the successful development of a second generation transdermal
estrogen replacement system called Vivelle-Dot(TM). This second generation
system, utilizing Noven's proprietary Dot Matrix(TM) technology, is only
one-third the area of a Vivelle(R) or Menorest(R) system at any given dosage
level, yet provides the same delivery of drug over the same period. This system
is even more flexible and comfortable to wear than the first generation product,
with a lower potential for skin irritation. This product is bioequivalent to
Noven's first generation product and, like that product, is available in four
dosage strengths.
In January 1999, Noven received FDA approval to market Vivelle-Dot(TM)
for the treatment of the symptoms of menopause, and, in May 1999, Novogyne
launched Vivelle-Dot(TM) in the United States. Novartis has marketing rights for
Vivelle-Dot(TM) in Canada, and Aventis has marketing rights in Japan. Noven has
retained marketing rights to Vivelle-Dot(TM) in all other markets and is
currently seeking marketing partners.
Pursuant to license and supply agreements with Novogyne, Noven
manufactures the product for Novogyne and receives royalties based on Novogyne's
sales of the product.
TRANSDERMAL COMBINATION ESTROGEN/PROGESTIN DELIVERY SYSTEM
Another of Noven's major developments in HRT was the first combination
transdermal therapy system approved for marketing by the FDA, a combination
patch containing 17-beta estradiol and a progestin, norethindrone acetate
(NETA). Benefits of estrogen replacement therapy include menopausal symptom
control, osteoporosis prevention and cardiovascular protection. For women who
have an intact uterus (non-hysterectomized), estrogen replacement therapy has
been associated with an increased risk of uterine cancer. To address this
situation, a combination therapy of estrogen and progestin is prescribed. Using
both products together has been shown to reduce the risk of endometrial cancer
while continuing to produce the benefits of estrogen replacement therapy.
Further, studies have shown that continuous use of both estrogen and low dose
progestin may be effective for many women in eliminating the monthly menstrual
cycle or irregular bleeding.
In 1998, Aventis, Noven's then exclusive worldwide licensee for this
product, received approval from the FDA, as well as by regulatory authorities in
13 foreign countries, for the treatment of menopausal symptoms. Aventis is
presently marketing the product under the brand name CombiPatch(TM) in the
United States. Pursuant to the October 1999 sublicense by Aventis to Novartis
described above, Novartis also acquired the right to market this product outside
of the United States and Japan and is marketing this product under the brand
name Estalis(R) in Sweden. Noven expects
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that Novartis will launch Estalis(R) in more countries over the next several
years, beginning in the year 2000, although no assurance can be given that
Novartis will launch and successfully market Estalis(R) in any given country.
Pursuant to license and supply agreements with Aventis, which has
sublicensed its rights outside of the United States and Japan to Novartis, Noven
manufactures the combination product for these parties and receives royalties
based on their sales of the product.
DEPENDENCE ON LICENSEES AND JOINT VENTURE
During 1999, 6%, 35% and 57% of Noven's revenues were generated from
sales to, and fees and royalties received from, Novartis, Novogyne and Aventis,
respectively. Noven expects to be dependent on sales to Novartis, Novogyne and
Aventis, as well as fees and royalties generated from such parties' sales of its
transdermal delivery systems, for a significant portion of its expected revenues
for the next several years, and no assurance can be given regarding the amount
and timing of such revenues. Failure of any of these parties to successfully
market these products would cause the quantity of products purchased from Noven
and the amount of fees and royalties ultimately paid to Noven to be reduced and
would therefore have a material adverse effect on Noven's business and results
of operations. Noven expects to be able to exert influence on the marketing of
Vivelle(R) and Vivelle-Dot(TM) through its participation in the management of
Novogyne, but the management committee of Novogyne is comprised of a majority of
Novartis representatives. With respect to Aventis' and Novartis' marketing
efforts, Noven's agreements with these parties impose certain obligations on
them, but there can be no assurance that such agreements will provide Noven with
any meaningful level of protection or cause these parties to perform at a level
that Noven deems satisfactory. Aventis recently completed a major merger
transaction, creating an additional level of uncertainty regarding Aventis'
future marketing efforts.
In addition to Noven's dependence on sales by licensees, Noven expects
that a significant amount of its earnings for the next several years will be
generated through its interest in Novogyne, and no assurance can be given
regarding Novogyne's future profitability. Novogyne's sales force is
significantly smaller than the sales forces promoting several competitive
products, including the market leading product, and there can be no assurance
that Novogyne's sales force will be successful. Failure of Novogyne to
successfully market Vivelle(R) and Vivelle-Dot(TM) would have a material adverse
effect on Noven's business and results of operations. See "Competition" below
for a more complete description of the competitive factors affecting Noven and
its business.
HRT MARKET OVERVIEW
There are more than 40 million post-menopausal women in the United
States, and this group is expected to grow by 50% by 2020. Noven estimates that
worldwide sales of all hormone replacement products, including those delivered
transdermally, are approximately $2.5 billion to $3.0 billion annually. With the
aging of the population worldwide, conditions and diseases such as menopause,
osteoporosis and heart disease, which may benefit from hormone replacement
therapy, are expected to become significantly more prevalent.
Menopause begins when the ovaries cease to produce estrogen, or when
both ovaries are removed surgically prior to natural menopause. The most common
acute physical symptoms of
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natural or surgical menopause are hot flashes and night sweats, which can occur
in up to 85% of menopausal women. Another common problem is vaginal dryness.
This condition, which affects an estimated 25% of women, usually begins within
five years after menopause. Moderate-to-severe menopausal symptoms can be
treated by replacing the estrogen the body can no longer produce. Estrogen
replacement therapy relieves hot flashes and night sweats effectively, and
prevents drying and shrinking of the reproductive system.
Another condition related to the inability to produce estrogen is
osteoporosis, a progressive deterioration of the skeletal system through the
loss of bone mass. The loss of estrogen in menopause causes increased skeletal
resorption and decreased bone formation. Osteoporosis currently affects over 20
million women and contributes to approximately 1.5 million fractures annually in
the United States. Morbidity and suffering associated with these fractures are
substantial. Estrogen replacement prevents the loss of bone mass and reduces the
incidence of vertebral and hip fractures in older women. Numerous medical
studies and the National Institutes of Health recommend estrogen replacement
therapy, exercise and Vitamin D as the most effective method of preventing
osteoporosis in post-menopausal women.
Heart disease is the number one killer of post-menopausal women in the
United States. There have been numerous studies that suggest that estrogen
replacement therapy may significantly reduce the risk of cardiovascular disease
in post-menopausal women. Various reported studies have suggested that estrogen
replacement therapy may reduce the risk of colon cancer and may prevent or treat
osteoarthritis, Alzheimer's disease, strokes, and tooth loss in menopausal
women, but the efficacy of estrogen replacement therapy for the prevention or
treatment of these conditions has not been conclusively demonstrated. Other
reported studies suggest that prolonged use of combination estrogen/progestin
hormone replacement therapy may increase the risk of breast cancer in menopausal
women.
TRANSMUCOSAL DRUG DELIVERY
DESCRIPTION
Large, complex, bioengineered molecules such as peptides, proteins and
carbohydrates typically require an injectable route of delivery. When taken
orally (as capsules or tablets) they are broken down and largely inactivated in
the stomach and intestines. The transdermal route is also unsuitable for these
molecules because they are often too large to pass through the skin intact.
Transmucosal drug delivery, however, utilizing Noven's transmucosal patch
technology, might offer a viable alternative. The lining of the mouth is thin
and highly vascular, and drugs can pass rapidly across the mucosa and into the
bloodstream without being subjected to breakdown in the gastrointestinal tract.
Noven's oral patch technology provides the opportunity to focus and maintain a
high concentration of drug against the mucosa to maximize absorption. Noven's
transmucosal drug delivery systems utilize a bio-adhesive patch containing
medication which adheres to the buccal mucosa. These systems then administer the
drug across the mucosa and into the bloodstream. Transmucosal drug delivery
systems also have many of the advantages associated with transdermal drug
delivery, including non-invasive administration and controlled delivery.
There are many other companies active in the development of
transmucosal delivery systems. Challenges faced by Noven and these companies in
developing marketable transmucosal systems
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include designing a stable transmucosal platform that will deliver drug at a
predictable rate, creating an adhesive system that will adhere in a wet
environment, and designing a product that a patient will find comfortable to
wear.
PRODUCTS
DENTIPATCH(R) - TRANSMUCOSAL LIDOCAINE DELIVERY SYSTEM
Noven's first transmucosal delivery system, the DentiPatch(R) system,
is a patented, proprietary technology consisting of a thin, solid state
multi-laminate construction with a drug-bearing bio-adhesive that delivers
lidocaine through the buccal mucosa over time. DentiPatch(R) was approved for
marketing by the FDA in May 1996 and by the United Kingdom Medicines Control
Agency in December 1998 and is the first FDA-approved, and still the only
commercially available, oral transmucosal patch. Noven launched the product
nationwide in April 1997. The product is the first topical anesthetic clinically
proven to prevent pain when large needles are inserted to the bone. It is
indicated for the prevention of pain from oral injections and soft tissue dental
procedures. Noven is currently marketing the DentiPatch(R) system in the United
States through its own marketing and sales department.
RESEARCH AND DEVELOPMENT
Noven's research and development efforts are focused primarily on
developing products in the following fields: hormone replacement therapy,
cardiovascular disease, central nervous system conditions and pain management.
For the years ended December 31, 1999, 1998 and 1997, Noven spent $7.2 million,
$6.8 million and $9.7 million, respectively, for company-sponsored research and
development activities. From time to time, Noven may supplement its research and
development efforts by entering into research and development agreements, joint
ventures and other collaborative arrangements with other companies to defray the
cost of product development. Noven's research and development philosophy is to
identify drugs that can be delivered either transdermally or transmucosally,
which can be developed rapidly and which have substantial market potential.
Noven also seeks therapies that can be improved by using Noven's innovative
technologies. The majority of drugs that Noven will work on are established
agents currently being delivered to patients other than transdermally or
transmucosally.
Statements in this Form 10-K concerning the timing of regulatory
filings and approvals are forward looking statements which are subject to risks
and uncertainties. The length of time necessary to complete clinical trials, and
from submission of an application for market approval to a final decision by a
regulatory authority, varies significantly. No assurance can be given that Noven
will have the financial resources necessary to complete products under
development, that those projects to which Noven dedicates sufficient resources
will be successfully completed, that Noven will be able to obtain regulatory
approval for any such product, or that any approved product may be produced in
commercial quantities, at reasonable costs, and be successfully marketed, either
by Noven or by a licensing partner. Similarly, there can be no assurance that
Noven's competitors, many of whom have greater resources than Noven, will not
develop and introduce products that will adversely affect Noven's business and
results of operations.
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The following table summarizes the status of products marketed,
approved and/or under development by Noven and is qualified by reference to the
more detailed descriptions elsewhere in this Form 10-K. Noven has additional
products in early development and continuously evaluates drugs that may be
suitable for transdermal or transmucosal delivery.
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PRODUCT INDICATION REGULATORY STATUS MARKETING RIGHTS
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TRANSDERMAL HRT
Estrogen/Vivelle(R) and Menopausal Symptoms FDA-approved; Novogyne--U.S.
Menorest(R) Approved in 38 foreign Aventis--JapaN
countries Novartis--all other
territories
Osteoporosis Approved in 36
foreign countries;
Application filed
and pending in U.S.
Second Generation Menopausal Symptoms FDA-approved Novogyne--U.S.
Estrogen/Vivelle-Dot(TM) Application filed and Novartis--Canada
pending in Europe Aventis--Japan
Noven--all other
territories
Osteoporosis Pending results of
Vivelle(R) application in
the U.S. and pending
Vivelle-Dot(TM)
approval in Europe
Third Generation Estrogen Menopausal Symptoms/ Pre-clinical Novogyne-- U.S. and Canada
Osteoporosis development Aventis--Japan
Noven--all other
territories
Combination Estrogen/Progestin Menopausal Symptoms FDA-approved; Aventis--U.S. and Japan
CombiPatch(TM)/Estalis(R) Approved in 13 foreign Novartis--all other
countries territories
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<TABLE>
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PRODUCT INDICATION REGULATORY STATUS MARKETING RIGHTS
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Second Generation Combination Menopausal Symptoms/ Pre-clinical development Aventis--Worldwide
Estrogen/Progestin Osteoporosis
Androgen Libido Phase I study complete Noven
Androgen/Estrogen Menopausal Symptoms/Libido Pre-clinical development Noven
TRANSMUCOSAL
Lidocaine/DentiPatch(R) Dental pain control FDA-approved; Noven
Approved in U.K.
Ketoprofen Dental pain control Pre-clinical development Noven
Undisclosed molecules Osteoporosis Pre-clinical development Noven
OTHER TRANSDERMALS
Methylphenidate/ Attention Deficit Phase II/III clinical Noven
MethyPatch(TM) Hyperactivity Disorder trials
Ketoprofen Pain relief Phase II clinical trials Noven
Undisclosed molecules Central nervous system Pre-clinical development Noven
Nitroglycerin Angina pectoris FDA tentative approval* Noven
Clonidine Hypertension Pre-clinical development Noven
Scopolomine Motion sickness IND filed Noven
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*Subject to expiration or Noven's successful challenge of the relevant patent.
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MANUFACTURING
Noven conducts its manufacturing operations in a facility comprised of
two approximately 40,000 square foot buildings located on approximately 5.5
acres in Miami-Dade County, Florida. This facility was most recently inspected
by the FDA in February 1998 and by the Medicines Control Agency of the United
Kingdom in July 1997 and found to be in compliance with applicable regulatory
requirements. This facility has been certified by the Drug Enforcement Agency to
manufacture products containing controlled substances in anticipation of the
launch of MethyPatch(TM). This facility is currently producing Menorest(R),
Vivelle(R), Vivelle-Dot(TM), CombiPatch(TM), Estalis(R) and DentiPatch(R) for
commercial sale. With this facility, Noven's manufacturing capability is
approximately 400 million patches per year. There is sufficient room for further
development of facilities at this site that would significantly increase Noven's
manufacturing capacity to accommodate additional products under development.
Noven anticipates that full development of this site, including possible new
construction on the property, can accommodate Noven's space requirements for the
foreseeable future. No assurance can be given that Noven will have the financial
resources necessary to adequately expand its manufacturing capacity if and when
the need arises.
Noven has the capacity to design, develop, build and maintain its
production equipment, including fabrication of replacement parts where
appropriate. Additionally, Noven's engineering expertise provides valuable
support to its research and development groups by rapidly fabricating or
modifying equipment essential in the product development program.
Raw materials essential to Noven's business are generally readily
available from multiple sources. Certain raw materials and components used in
the manufacture of Noven's products are, however, available from limited
sources, and in some cases, a single source. Any curtailment in the availability
of such raw materials could be accompanied by production or other delays, and,
in the case of products for which only one raw material supplier exists, could
result in a material loss of sales, with consequent adverse effects on Noven's
business and results of operations. In addition, because raw material sources
for pharmaceutical products must generally be approved by regulatory
authorities, changes in raw material suppliers may result in production delays,
higher raw material costs and loss of sales and customers.
MARKETING
Except for the DentiPatch(R) product, Noven has historically granted
marketing rights to its products to larger pharmaceutical companies. As Noven
develops new products, it will evaluate whether to license such products to a
larger company or to Novogyne or to utilize its own clinical, marketing and
sales capabilities. Noven's evaluation will be conducted on a product-by-product
basis and will include consideration of the characteristics of the particular
market and the estimated costs associated with clinical studies, sales,
marketing and distribution. These combined costs and Noven's financial position
will be factored into the decision of whether to license or directly conduct
clinical trials and market the product. Noven expects that it will seek to
retain manufacturing rights in any future licensing transactions, partly in an
effort to safeguard its proprietary technology. There can be no assurance that
Noven will be able to reach a favorable agreement in any particular transaction
or collaborative arrangement.
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The establishment of Novogyne provided Noven with a sales force over
which it has some management control. If Noven develops any products in the
future for the women's healthcare market, it may seek to license the marketing
rights for such products to Novogyne.
COMPETITION
Noven's operations are conducted in highly competitive areas. All drug
delivery products being developed by Noven will face competition from both
conventional forms of drug delivery (i.e., oral and parenteral), and possibly
alternate forms of drug delivery, such as controlled release oral delivery,
liposomes, implants, gels and creams. In addition, some or all of the products
being developed by Noven will face competition from other transdermal or
transmucosal products that deliver the same drugs to treat the same indications.
Competition in drug delivery systems is generally based on a company's
marketing strength, product performance characteristics (i.e., reliability,
safety, patient convenience) and product price. Acceptance by physicians and
other health care providers, including managed care groups, is also critical to
the success of a product. The first product on the market in a particular
therapeutic area typically is able to obtain and maintain a significant market
share. In a highly competitive marketplace and with evolving technology, there
can be no assurance that additional product introductions or developments by
others will not render Noven's products or technologies noncompetitive or
obsolete.
Noven faces competition from a number of companies in the development
of transdermal and transmucosal drug delivery products, and competition is
expected to intensify as more companies enter the field. Competitors include
Alza Corporation, Elan Corporation, plc, Watson Pharmaceuticals, Inc., Mylan
Pharmaceuticals, LTS Lohmann Therapy Systems, Ethical Holdings, plc, Johnson &
Johnson, Schering-Plough, 3M Corp., Groupe Fournier and others. Some of these
companies are substantially larger than Noven and have greater financial and
research and development resources than Noven, as well as greater experience in
developing and commercializing pharmaceutical products. Noven also competes with
other drug delivery companies in the establishment of business arrangements with
large pharmaceutical companies to assist in the development or marketing of
products.
Noven has attempted to minimize certain competitive risks by its
technological innovation and by developing strategic alliances with Novartis and
Aventis. Noven also believes that its estrogen replacement systems have certain
competitive advantages, such as their small size, reduced irritation and
availability in several different dosages. Unlike certain competitive products,
however, Noven's estrogen replacement systems are not approved in the United
States for the treatment or prevention of osteoporosis. Further, Noven believes
that its technological expertise in developing and manufacturing other
transdermal hormonal systems, such as its combination estrogen/progestin
delivery system and the second generation estrogen delivery system, should
enable it to successfully compete.
Other competitive factors affecting Noven's business include the
prevalence and influence of managed care organizations, government
organizations, buying groups and similar institutions that are able to seek
price discounts and rebates on pharmaceutical products. As the influence of
these entities continues to grow, Noven and its marketing partners may face
increased pricing pressure. Outside of
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the United States, Noven's products may be affected by government price controls
and reimbursement policies.
PATENTS AND PROPRIETARY RIGHTS
Noven seeks to obtain patent protection on its delivery systems and
manufacturing processes where possible. Noven has obtained 19 United States
patents relating to its transdermal and transmucosal delivery systems and
manufacturing processes and has over 100 pending patent applications worldwide.
As a result of the changes in United States patent law under the
General Agreement on Tariffs and Trade and the accompanying Agreement on
Trade-Related Aspects of Intellectual Property Law, which took effect in their
entirety on January 1, 1996, the terms of some existing Noven patents have been
extended beyond the term of seventeen years from the date of grant. Noven
patents filed after June 7, 1995 will have a term of twenty years computed from
the effective filing date.
Noven is unaware of the existence of any challenge to the validity of
its patents or of any third party claim of patent infringement with respect to
any of its products that could have a material adverse effect on Noven's
business or prospects.
Although there is a statutory presumption as to a patent's validity,
the issuance of a patent is not conclusive as to such validity, or as to the
enforceable scope of the claims of the patent. There is no assurance that
Noven's patents or any future patents will prevent other companies from
developing similar or functionally equivalent products. Furthermore, there is no
assurance that any of Noven's future processes or products will be patentable,
that any pending or additional patents will be issued in any or all appropriate
jurisdictions or that Noven's processes or products will not infringe upon the
patents of third parties.
Noven also attempts to protect its proprietary information under trade
secret laws. Generally, Noven's agreements with each employee, licensing
partner, consultant, university, pharmaceutical company and agent contain
provisions designed to protect the confidentiality of its proprietary
information. There can be no assurance that these agreements will not be
breached, that Noven will have adequate legal remedies as a result thereof, or
that Noven's trade secrets will not otherwise become known or be independently
developed by others.
GOVERNMENT REGULATION
Noven's operations are subject to extensive regulation by governmental
authorities in the United States and other countries with respect to the
testing, approval, manufacture, labeling, marketing and sale of pharmaceutical
products. Noven devotes significant time, effort and expense to address the
extensive government regulations applicable to its business.
The marketing of pharmaceutical products requires the approval of the
FDA in the United States. The FDA has established regulations, guidelines and
safety standards which apply to the pre-clinical evaluation, clinical testing,
manufacturing and marketing of pharmaceutical products. The process of obtaining
FDA approval for a new product may take several years and is likely to involve
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<PAGE> 15
the expenditure of substantial resources. The steps required before a product
can be produced and marketed for human use include: (i) pre-clinical studies;
(ii) submission to the FDA of an Investigational New Drug Exemption ("IND"),
which must become effective before human clinical trials may commence in the
United States; (iii) adequate and well controlled human clinical trials; (iv)
submission to the FDA of a New Drug Application ("NDA") or, in some cases, an
Abbreviated New Drug Application ("ANDA"); and (v) review and approval of the
NDA or ANDA by the FDA. An NDA generally is required for products with new
active ingredients, new indications, new routes of administration, new dosage
forms or new strengths. An NDA requires that complete clinical studies of a
product's safety and efficacy be submitted to the FDA, the cost of which is
substantial. These costs can be reduced, however, for delivery systems which
utilize approved drugs. Limited testing may begin on humans after submission and
approval of the IND.
An ANDA involves an abbreviated approval process that may be available
for products that have the same active ingredient(s), indication, route of
administration, dosage form and dosage strength as an existing FDA-approved
product, if clinical studies have demonstrated bio-equivalence of the new
product to the FDA-approved product. Under FDA ANDA regulations, companies that
seek to introduce an ANDA product must also certify that the product does not
infringe on the approved product's patent or that such patent has expired. If
the applicant certifies that its product does not infringe on the approved
product's patent, the patent holder may institute legal action to determine the
relative rights of the parties and the application of the patent, and the FDA
may not finally approve the ANDA until a court finally determines that the
applicable patent is invalid or would not be infringed by the applicant's
product.
Pre-clinical studies are conducted to obtain preliminary information on
a product's efficacy and safety. The results of these studies are submitted to
the FDA as part of the IND and are reviewed by the FDA before human clinical
trials begin. Human clinical trials may commence 30 days after receipt of the
IND by the FDA, unless the FDA objects to the commencement of clinical trials.
Human clinical trials are typically conducted in three sequential
phases, but the phases may overlap. Phase I trials consist of testing the
product primarily for safety in a small number of patients at one or more doses.
In Phase II trials, the safety and efficacy of the product are evaluated in a
patient population somewhat larger than the Phase I trials. Phase III trials
typically involve additional testing for safety and clinical efficacy in an
expanded population at different test sites. A clinical plan, or protocol,
accompanied by the approval of the institution participating in the trials, must
be reviewed by the FDA prior to commencement of each phase of the clinical
trials. The FDA may order the temporary or permanent discontinuation of a
clinical trial at any time.
The results of product development and pre-clinical and clinical
studies are submitted to the FDA as an NDA or an ANDA for approval. If an
application is submitted, there can be no assurance that the FDA will review and
approve the NDA or an ANDA in a timely manner. The FDA may deny an NDA or an
ANDA if applicable regulatory criteria are not satisfied or it may require
additional clinical testing. Even if such data is submitted, the FDA may
ultimately deny approval of the product. Further, if there are any modifications
to the drug, including changes in indication, manufacturing process, labeling,
or a change in a manufacturing facility, an NDA or an ANDA supplement may be
required to be submitted to the FDA. Product approvals may be withdrawn after
the product reaches the market if compliance with regulatory standards is not
maintained or if
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problems occur regarding the safety or efficacy of the product. The FDA may
require testing and surveillance programs to monitor the effect of products
which have been commercialized, and has the power to prevent or limit further
marketing of these products based on the results of these post-marketing
programs.
The approval procedures for the marketing of Noven's products in
foreign countries vary from country to country, and the time required for
approval may be longer or shorter than that required for FDA approval. Even
after foreign approvals are obtained, further delays may be encountered before
products may be marketed. For example, many countries require additional
governmental approval for price reimbursement under national health insurance
systems. If practical and acceptable to the FDA, Noven intends to design its FDA
protocols for the clinical studies of its products to permit acceptance of the
data by foreign regulatory authorities and to thereby reduce the risk of
duplication of clinical studies. However, additional studies may be required to
obtain foreign regulatory approval. Further, some foreign regulatory agencies
may require additional studies involving patients located in their countries.
Foreign and domestic manufacturing facilities are subject to periodic
inspections for compliance with the FDA's good manufacturing practices ("GMP")
regulations and each domestic drug manufacturing facility must be registered
with the FDA. In complying with standards set forth in these regulations, Noven
must expend significant time, money and effort in the area of quality assurance
to insure full technical compliance. Facilities handling controlled substances,
such as Noven, also must be licensed by the United States Drug Enforcement
Administration. Noven has produced transdermal drug delivery products in
accordance with the FDA's GMP regulations for clinical trials, manufacturing
process validation studies and commercial sale. FDA approval to manufacture a
drug is site specific. In the event an approved manufacturing facility for a
particular drug becomes inoperable, obtaining the required FDA approval to
manufacture such drug at a different manufacturing site could result in
production delays, which could adversely affect Noven's business and results of
operations.
The federal and state governments in the United States, as well as
many foreign governments, including the United Kingdom, from time to time
explore ways to reduce medical care costs through health care reform. Due to
uncertainties regarding the ultimate features of reform initiatives and their
enactment and implementation, Noven cannot predict what impact any reform
proposal ultimately adopted may have on the pharmaceutical industry or on the
business or operating results of Noven.
Noven's activities are subject to various federal, state and local
laws and regulations regarding occupational safety, laboratory practices,
environmental protection and hazardous substance control, and may be subject to
other present and possible future local, state, federal and foreign regulations.
Under certain of these laws, Noven could be liable for substantial costs and
penalties in the event that waste is disposed of improperly. While it is
impossible to accurately predict the future costs associated with environmental
compliance and potential remediation activities, compliance with environmental
laws is not expected to require significant capital expenditures and has not
had, and is not presently expected to have, a material adverse effect on Noven's
earnings or competitive position.
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EMPLOYMENT
Noven employs approximately 190 people; approximately 72 are engaged in
manufacturing and process development, 15 in research and development, 46 in
medical affairs, regulatory affairs, quality assurance and quality control and
57 in marketing and administration. No employee is represented by a union and
Noven has never experienced a work stoppage. Noven believes its employee
relations are good. In addition to the employees employed directly by Noven,
Novogyne has a contract sales force of approximately 110 individuals that are
managed by Noven under the terms of the joint venture agreements.
RISK OF PRODUCT LIABILITY CLAIMS
Testing, manufacturing and marketing pharmaceutical products subject
Noven to the risk of product liability claims. Noven believes that it maintains
an adequate amount of product liability insurance, but there can be no assurance
that its insurance will cover all future claims or that Noven will be able to
maintain existing coverage or obtain additional coverage at reasonable rates.
There can be no assurance that claims arising under any product liability cases,
whether or not covered by insurance, will not have a material adverse effect on
Noven's business, financial condition or results of operations.
SEASONALITY
There are no significant seasonal aspects to Noven's business.
ITEM 2. PROPERTIES.
Noven's headquarters and manufacturing facilities are located on a 5.5
acre site in Miami, Florida. On this site, Noven owns an approximately 28,000
square foot building which is used for laboratory, engineering, office and
administrative purposes. Noven also leases from Aventis, for nominal rent, two
approximately 40,000 square foot buildings on this site, which are being used by
Noven for manufacturing, engineering, administrative and warehousing purposes.
One of these facilities has been certified by the Drug Enforcement Agency to
manufacture products containing controlled substances in anticipation of the
launch of MethyPatch(TM). The lease has a term of 31.5 years and Noven has an
option to purchase the leased facilities at any time during the term. Aventis
may terminate the lease prior to the expiration of its term upon termination or
expiration of the 1992 license agreement between Noven and Aventis. Termination
of the lease by Aventis could have a material adverse effect on the business and
results of operations of Noven.
Noven also owns 9.5 acres of vacant land on a contiguous site that
could accommodate up to 160,000 square feet of new buildings for a variety of
manufacturing, warehousing and developmental purposes. Noven believes that its
facilities are in satisfactory condition, are suitable for their intended use
and, in the aggregate, have capacities in excess of those necessary to meet
Noven's present needs.
Noven's sole manufacturing facility and its research and development
activities, as well as its corporate headquarters and other critical business
functions, are located in an area subject to hurricane casualty risk. Although
Noven has certain limited protection afforded by insurance, Noven's business,
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earnings and competitive position could be materially adversely affected in the
event of a major windstorm or other casualty.
ITEM 3. LEGAL PROCEEDINGS.
Noven is a party to pending legal proceedings arising in the normal
course of business, none of which Noven believes is material to its financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Noven did not submit any matters to a vote of stockholders during the
fourth quarter of the fiscal year ended December 31, 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is a list of the names, ages, positions held and
business experience of the persons serving as executive officers of Noven as of
March 1, 2000. Officers serve at the discretion of the Board of Directors. There
is no family relationship between any of the executive officers, and there is no
arrangement or understanding between any executive officer and any other person
pursuant to which the executive officer was selected.
JAMES B. MESSIRY. Mr. Messiry, age 57, has been Vice President and
Chief Financial Officer of the Corporation since January 1999. From 1979 through
1985, and subsequently from 1991 until 1998, he served the Bacardi group of
companies in a variety of senior executive positions in Europe and North
America, most recently as Vice President of Bacardi-Martini, Inc. Between 1986
and 1991, Mr. Messiry held senior finance positions at Dole Fresh Fruit and
Beatrice Latin America. From 1973 to 1979, Mr. Messiry served Pfizer, Inc. in
various financial and strategic planning roles.
STEVEN SABLOTSKY. Mr. Sablotsky, age 45, is a founder of Noven. He has
served as Chairman of the Board of Directors since Noven's organization in 1987,
and served as President and Chief Executive Officer from January 1987 until
December 1997. He is a member of the American Institute of Chemical Engineers.
ROBERT C. STRAUSS. Mr. Strauss, age 58, has been President and Chief
Executive Officer and a Director of the Corporation since December 1997. From
March 1997 to July 1997, he served as President and Chief Operating Officer and
a Director of IVAX Corporation. From 1983 to 1997, he served in various
executive positions with Cordis Corporation, most recently as its Chairman of
the Board, President and Chief Executive Officer. Mr. Strauss serves on the
Board of Directors of Eclipse Surgical Technologies, Inc. (medical devices),
Columbia Laboratories, Inc. (pharmaceuticals) and Percardia Inc. (medical
devices).
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information
Noven's Common Stock is listed on the Nasdaq Stock Market and is traded
under the symbol NOVN. The following table sets forth, for the periods
indicated, the high and low sale prices for the Common Stock as reported on the
Nasdaq Stock Market.
High Price Low Price
---------- ---------
First Quarter, 1998 9 1/4 6 1/8
Second Quarter, 1998 7 5/16 5 1/8
Third Quarter, 1998 7 3/4 2 11/16
Fourth Quarter, 1998 6 3/8 3 1/2
First Quarter, 1999 6 7/8 4 1/4
Second Quarter, 1999 7 1/8 4 1/4
Third Quarter, 1999 9 3/8 5 7/8
Fourth Quarter, 1999 18 3/8 8 1/4
(b) Holders.
As of March 1, 2000 the number of stockholders of record was 497 and
the approximate number of beneficial owners was 7,794.
(c) Dividends.
Noven has never paid a cash dividend on its Common Stock and intends to
retain all earnings for the operation and expansion of its business and does not
anticipate paying cash dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below is derived from the audited
financial statements of Noven. The data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and related notes
appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Product sales $ 31,334 $ 20,114 $ 12,395 $ 19,652 $ 8,747
License revenue 316 1,728 1,872 815 1,703
-------- -------- -------- -------- --------
Total revenues 31,650 21,842 14,267 20,467 10,450
Expenses:
Cost of products sold 12,721 9,447 5,180 10,021 4,814
Research and development 7,171 6,808 9,723 8,730 10,509
Marketing, general and
administrative 7,860 10,105 9,845 4,878 3,442
-------- -------- -------- -------- --------
Total operating costs and expenses 27,752 26,360 24,748 23,629 18,765
Equity in earnings of Vivelle Ventures LLC 1,487 -- -- -- --
Interest income, net 343 439 924 1,178 1,734
-------- -------- -------- -------- --------
Income (loss) before taxes 5,728 (4,079) (9,557) (1,984) (6,581)
Income tax benefit 4,732 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) $ 10,460 $ (4,079) $ (9,557) $ (1,984) $ (6,581)
======== ======== ======== ======== ========
Basic earnings (loss) per share $ 0.49 $ (.19) $ (.47) $ (.10) $ (.34)
======== ======== ======== ======== ========
Diluted earnings (loss) per share $ 0.48 $ (.19) $ (.47) $ (.10) $ (.34)
======== ======== ======== ======== ========
Balance Sheet Data:
Working capital $ 16,581 $ 8,847 $ 18,683 $ 24,859 $ 27,560
Investment in Vivelle Ventures LLC 8,365 7,500 -- -- --
Total assets 56,888 40,156 38,224 44,229 48,646
Long-term notes payable 604 -- -- -- --
Accumulated deficit (27,223) (37,683) (33,604) (24,047) (22,063)
Stockholders' equity 39,393 28,325 29,881 36,077 38,030
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction
with the 1999 financial statements and the related notes included in this Form
10-K.
GENERAL
From its inception in 1987 through 1994, Noven engaged primarily in the
development of advanced transdermal and transmucosal drug delivery systems.
During this period, Noven's revenues consisted primarily of amounts paid to
Noven under license agreements with Novartis Pharmaceuticals Corporation (f/k/a
Ciba Geigy Corporation) ("Novartis") and Aventis S.A. (f/k/a Rhone Poulenc Rorer
Inc. ("Aventis"). In 1995, after receipt of regulatory approvals for its first
generation transdermal estrogen delivery system, a significant portion of
Noven's revenues was derived from the sale of this product to Novartis and
Aventis. In 1996, revenues from the sale of this product increased substantially
as Novartis and Aventis purchased product to supply their distribution channels
and build their own inventory positions. In 1997, although retail sales of the
products increased over 1996, Noven experienced lower sales as Novartis, Aventis
and their distributors reduced inventories.
In May 1998, Noven and Novartis formed a joint venture company called
Vivelle Ventures LLC to market and sell women's healthcare products in the
United States and Canada, with the initial focus on marketing Noven's first
generation estrogen delivery system, Vivelle(R). The joint venture does business
under the name Novogyne Pharmaceuticals ("Novogyne"). The establishment of
Novogyne modified a prior relationship in which Noven had licensed Novartis the
exclusive right to market Vivelle(R) in the United States and Canada and
received royalties from Novartis based upon Novartis' sales. Novogyne is managed
by a committee consisting of 5 members, 3 of which are appointed by Novartis and
2 of which are appointed by Noven. Novartis contributed its rights to Vivelle(R)
to Novogyne and also licensed the right to use the Vivelle(R) trademark in
return for a 51% equity interest in Novogyne. Noven invested $7.5 million in
return for a 49% equity interest in Novogyne. In January 1999, Noven received
FDA approval for its second generation estrogen delivery system,
Vivelle-Dot(TM), which was launched by Novogyne in May 1999. Under the terms of
the joint venture agreements, Noven manufactures Vivelle(R) and Vivelle-Dot(TM),
performs marketing, sales and promotional activities, and receives royalties
from Novogyne based on Novogyne's sales of the products. Novartis distributes
Vivelle(R) and Vivelle-Dot(TM) and provides certain other services to Novogyne,
including marketing to the managed care sector.
The joint venture agreements provide for an annual preferred return of
$6.1 million to Novartis and then an allocation of income between Novartis and
Noven according to a contractual formula depending upon sales levels attained.
Noven's share of income increases as product sales increase, subject to a cap of
49%. In 1999, Novogyne generated sufficient income to meet Novartis' preferred
return and Novogyne's income resulted in the recognition of $1.5 million in
income by Noven. Subject to approval by Novogyne's management committee, cash
may be distributed quarterly to Novartis and Noven based upon a contractual
formula. In 1999, Noven received $0.6 million in distributions from Novogyne
based upon Novogyne's results of operations for the year ended December 31, 1998
and, based on 1999 results, expects to receive $2.2 million in distributions
from Novogyne in 2000. Noven expects that a significant portion of its earnings
for the next several
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years will be generated through its interest in Novogyne, but no assurance can
be given regarding Novogyne's future profitability.
In 1998, Aventis received regulatory approval from the FDA and from
certain European regulatory authorities to market Noven's transdermal
combination estrogen/progestin delivery system. Aventis is presently marketing
the product in the United States under the name CombiPatch(TM). In October 1999,
Novartis Pharma AG sublicensed Aventis' rights to market (1) Noven's combination
estrogen/progestin transdermal system under the name Estalis(R) in all countries
other than the United States and Japan, and (2) Noven's first generation
estrogen transdermal system under the name Menorest(R) in all countries other
than the United States, Canada and Japan. In connection with the sublicense
transaction, and pursuant to Noven's license agreement with Aventis, Noven
received $2.7 million in cash from Aventis as Noven's share of the sublicense
fees paid to Aventis. This amount was recorded as deferred license revenue and
will be recognized as license revenue over seven and one half years. As of March
1, 2000, Estalis(R) was being marketed only in Sweden, but Noven expects that
Novartis Pharma AG will launch Estalis(R) in more countries beginning in 2000.
Noven expects that revenues from product sales to its licensees will
fluctuate from quarter to quarter and year to year depending upon various
factors not in Noven's control, including, but not limited to, the marketing
efforts of each licensee, the inventory requirements of each licensee, and the
timing and scope of Estalis(R) launches by Novartis Pharma AG.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
Total revenues for the year ended December 31, 1999 were $31.7
million, an increase of $9.8 million, or 45%, over the prior year. The increase
in revenues was attributable to product sales, which increased $11.2 million, or
56%, for the year ended December 31, 1999, compared to 1998. Product sales in
1999 included $1.2 million in minimum fee payments related to sales of
Menorest(R) in certain European countries through 1998. The remaining $10.0
million of the increase in product sales was primarily attributable to sales of
CombiPatch(TM), which was launched in the United States by Aventis in September
1998, and to a lesser extent, sales of Vivelle-Dot(TM), which was launched in
the United States by Novogyne in May 1999. License revenue declined by $1.4
million, or 82%, for the year ended December 31, 1999 compared to the prior
year, due to $1.5 million in milestone payments received in 1998.
Gross profit (product sales less cost of products sold) for the year
ended December 31, 1999 was $18.6 million (59% of product sales), compared to
$10.7 million (53% of product sales) for the prior year. The increase in gross
margin resulted primarily from a 20% increase in production volume,
manufacturing efficiencies and the recognition of higher royalty and minimum fee
payments.
Research and development expenses increased approximately $0.4 million,
or 5%, for the year ended December 31, 1999, compared to the prior year. Noven
expects a significant increase in research and development expenses in 2000,
primarily related to clinical studies for Noven's methylphenidate transdermal
delivery system. The future level of research and development expenditures will
depend on, among other things, the status of products under development and the
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outcome of clinical trials, strategic decisions by management, the consummation
of new license agreements and Noven's liquidity.
Marketing, general and administrative expenses decreased
approximately $2.2 million, or 22%, for the year ended December 31, 1999,
compared to the prior year. This decrease was primarily due to lower sales and
marketing expenses associated with DentiPatch(R) as a result of Noven's decision
to reduce promotion of that product and, to a lesser extent, a redeployment of
most of Noven's marketing personnel to Novogyne, which reimburses Noven for its
marketing expenses incurred on behalf of Novogyne.
Interest income, net decreased approximately $0.1 million, or 22%,
for the year ended December 31, 1999 compared to 1998, primarily due to lower
average balances in cash and cash equivalents and an increase in debt mainly
associated with a Master Lease facility entered into in May 1999.
Income tax benefit for the year ended December 31, 1999 resulted from
the recognition of a deferred income tax asset of $5.0 million. Realization of
this deferred income tax asset depends upon generating sufficient future taxable
income. Although realization is not assured, management believes it is more
likely than not that this portion of the deferred income tax asset will be
realized based upon estimated future taxable income. See Note 6, Income Taxes,
in the Notes to Financial Statements for further information.
1998 COMPARED TO 1997
Total revenues increased 53% from $14.3 million in 1997 to $21.8
million in 1998. The increase in revenues was primarily a result of the increase
in sales of Vivelle(R) and the launch of CombiPatch(TM). License revenues
decreased 8% from $1.9 million in 1997 to $1.7 million in 1998. License revenues
were primarily attributable to milestone payments received from licensees.
Cost of products sold increased 82% from $5.2 million in 1997 to $9.4
million in 1998. The gross margin percentage on product sales was 53% in 1998
and 58% in 1997. The decrease in gross margins resulted primarily from a
decrease in manufacturing efficiency caused by initial manufacturing costs
associated with CombiPatch(TM), and to a lesser extent from a shift in product
mix.
Research and development expenses decreased 30% from $9.7 million in
1997 to $6.8 million in 1998. The decrease was attributable to a reduction in
process development activity and reduced costs for validation of manufacturing
equipment and facilities. Research and development expenses for new products
were flat.
Marketing, general and administrative expenses increased 3% from $9.8
million in 1997 to $10.1 million in 1998 due to increases in staffing and
associated office expenses.
Interest income, net decreased 52% from $0.9 million in 1997 to $0.4
million in 1998 due to lower average cash and cash equivalents balances.
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YEAR 2000 COMPLIANCE
The total cost of Noven's Year 2000 project, which addressed potential
problems identified by Noven with respect to Year 2000 issues, was $200,000.
Noven's Year 2000 issues have not had a material adverse effect on Noven's
results of operations, liquidity or financial condition, and Noven does not
expect any such effect in the future. Noven is not aware of any material Year
2000 issues experienced by any material customer, supplier or business partner.
Nonetheless, Noven will continue to monitor its Year 2000 compliance and that of
other third parties, and there can be no assurance that no material adverse
effects will occur in the future.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999 and December 31, 1998, Noven had $15.3 million
and $5.6 million, respectively, in cash and cash equivalents.
Net cash of approximately $9.5 million was provided by operating
activities during 1999, compared to approximately $5.0 million used in operating
activities during the prior year. This increase primarily resulted from growth
in income from operations due to higher product sales and royalties, as well as
receipt of $2.7 million in October 1999 from Aventis in connection with a
sublicense by Novartis Pharma AG of Aventis' rights to market certain of Noven's
products. See Note 3, License Agreements, in the Notes to Financial Statements
for more information. Accrued compensation and related liabilities increased by
$1.7 million over 1998, primarily due to an increase in bonuses payable under a
formula bonus plan that provides for the payment of bonuses if Noven's actual
performance exceeds established performance goals. In 2000, if Noven exceeds the
established company performance goals, bonus awards may exceed initial target
awards. Cash used in 1998 funded Noven's net operating loss and increases in
accounts receivable and inventories, partially offset by increases in accounts
payable, accrued compensation and related liabilities and other accrued
liabilities.
Net cash of approximately $0.8 million was used in investing
activities during 1999, compared to approximately $3.4 million used in investing
activities during the prior year. Net cash used in investing activities during
1999 was for the purchase of fixed assets and payment of patent development
costs, partially offset by a cash distribution from Novogyne. In 1998, the
investment in Novogyne was partially offset by the net cash received by the
maturity of securities.
Net cash of approximately $1.0 million was provided by financing
activities during 1999, compared to approximately $2.7 million provided by
financing activities during 1998. In 1998, $2.5 million was provided by sales of
common stock in connection with the exercise of warrants. In May 1999, Noven
entered into a Master Lease for a maximum principal amount of $1.0 million with
a base lease term of three or four years depending upon the equipment type. The
Master Lease contains certain financial covenants. Under the Master Lease, Noven
has entered into one lease in the amount of $0.6 million with an interest rate
at 8% and an expiration date of May 2003. See Note 5, Notes Payable, in the
Notes to Financial Statements for further information.
Noven's principal sources of short term liquidity are existing cash and
cash generated from product sales, fees and royalties under license agreements
and distributions from Novogyne, which Noven believes will be sufficient to meet
its operating needs and anticipated capital requirements
24
<PAGE> 25
over the short term. For the long term, Noven intends to utilize funds derived
from these sources, as well as funds generated through sales of products under
development. Noven expects that such funds will be comprised of payments
received pursuant to future licensing arrangements, as well as Noven's direct
sales of its own products. Noven expects that its cash requirements will
continue to increase, primarily as a result of expected increases in
expenditures associated with clinical studies for products under development.
There can be no assurance that Noven will successfully complete the development
of such products, that Noven will obtain regulatory approval for any such
products, that any approved product may be produced in commercial quantities, at
reasonable costs, and be successfully marketed, or that Noven will successfully
negotiate future licensing arrangements. To the extent that capital requirements
exceed available capital, Noven will seek alternative sources of financing to
fund its operations. Other than the Master Lease, Noven has no credit facility.
Noven is pursuing financing alternatives, which include a revolving credit
facility, and expects to complete a financing arrangement in the near future. No
assurance can be given that alternative financing will be available, if at all,
in a timely manner, on favorable terms. If Noven is unable to obtain
satisfactory alternative financing, Noven may be required to delay or reduce its
proposed expenditures, including expenditures for research and development, in
order to meet its future obligations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information contained herein, the matters
discussed herein are forward looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
statements involve risks and uncertainties, including but not limited to
economic, competitive, governmental and technological factors affecting Noven's
operations, markets, products and prices, and other factors discussed elsewhere
in this report and the other documents filed by Noven with the Securities and
Exchange Commission ("SEC"). These factors may cause Noven's results to differ
materially from the statements made in this report or otherwise made by or on
behalf of Noven. The following is a brief summary of some of the risk factors,
which are not listed in order of priority, that could adversely affect Noven's
results. Most of these factors are described elsewhere in this report, but the
risks described below are not the only risks Noven faces.
o Noven faces competition from a number of companies in the development
of transdermal and transmucosal drug delivery products, and competition
is expected to intensify as more companies enter the field. Some of
these companies are substantially larger than Noven and have greater
financial and research and development resources than Noven, as well as
greater experience in developing and commercializing pharmaceutical
products. Noven's products compete with other transdermal products as
well as alternative dosage forms of the same or comparable chemical
entities. There can be no assurance that Noven's products will
successfully compete against competitive products or that developments
by others will not render our products obsolete or uncompetitive.
o Novogyne contributed a significant portion of Noven's earnings in 1999,
and Novogyne's results may continue to be material to Noven in the
future. Because, among other things, Noven and Novartis are vastly
different in size, the interests of Noven and Novartis may not always
be aligned. Novogyne's management committee is comprised of a majority
of representatives from Novartis.
25
<PAGE> 26
o Over the short term, Noven expects that its cash requirement will
continue to increase as a result of expected increases in expenses
related to clinical studies for products in development.
o Noven expects to be dependent on sales to Novartis, Novogyne and
Aventis, as well as fees and royalties generated from such parties'
sales of its transdermal delivery systems, for a significant portion of
its expected revenues for the next several years, and no assurance can
be given regarding the amount and timing of such revenues. Failure of
any of these parties to market successfully these products would cause
the quantity of products purchased from Noven and the amount of fees
and royalties ultimately paid to Noven to be reduced and would
therefore have a material adverse effect on Noven's business and
operations. In the short term, Noven's growth depends in part on
Novartis' launch plans and marketing efforts with respect to
Estalis(R), and the scope and success of those efforts are outside the
control of Noven.
o Almost all of Noven's revenues are currently generated through sales of
its hormone replacement therapy transdermal delivery systems. While
these products have been found to be safe and effective by the FDA and
the regulatory authorities of those countries where Noven's products
are approved, published studies have concluded that there may be some
health risks associated with hormone replacement therapy.
o Noven's long-term strategy is dependent, in part, upon the successful
development and commercialization of some or all of Noven's pipeline
products. The length of time necessary to complete clinical trials and
obtain marketing approval from regulatory authorities may be
considerable. No assurance can be given that Noven will have the
financial resources necessary to complete products under development,
that those projects to which Noven dedicates sufficient resources will
be successfully completed, that Noven will be able to obtain regulatory
approval for any such product, or that any approved product can be
produced in commercial quantities, at reasonable costs, and be
successfully marketed, either by Noven or by a licensing partner.
o Noven's operations are subject to extensive regulation by governmental
authorities in the United States and other countries with respect to
the testing, approval, manufacture, labeling, marketing and sale of
pharmaceutical products. Noven devotes significant time, effort and
expense addressing the extensive government regulations applicable to
its business. Even if a product is approved by a regulatory authority,
product approvals may be withdrawn after the product reaches the market
if compliance with regulatory standards is not maintained or if
problems occur regarding the safety or efficacy of the product. Failure
to comply with governmental regulations may result in fines,
unanticipated compliance expenditures, interruptions of production and
resulting loss of sales and criminal prosecution.
o Noven's success will depend, in part, on its ability to obtain or
license patents and operate without infringing the proprietary rights
of others. There is no assurance that Noven's patents or any future
patents will prevent other companies from developing similar or
functionally equivalent products. Furthermore, there is no assurance
that any of Noven's future processes or products will be patentable,
that any pending or additional patents will be issued in any or all
appropriate jurisdictions or that Noven's processes or products will
not infringe upon the patents of third parties.
26
<PAGE> 27
o Like all pharmaceutical companies, Noven faces the risk of loss and
associated adverse publicity from product liability lawsuits. Noven
believes that it maintains an adequate amount of product liability
insurance, but there can be no assurance that its insurance will cover
all future claims or that Noven will be able to maintain existing
coverage or obtain additional coverage at reasonable rates.
o Certain raw materials and components used in the manufacture of Noven's
products are available from limited sources, and, in some cases, a
single source. Any curtailment in the availability of such raw
materials could be accompanied by production or other delays, and, in
the case of products for which only one raw material supplier exists,
could result in a material loss of sales, with consequent adverse
effects on Noven's business and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Noven does not believe that it has material exposure to market rate
risk. Noven has no material debt obligations. Noven may, however, require
additional financing to fund future obligations and no assurance can be given
that the terms of future sources of financing will not expose Noven to material
market rate risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Financial Statements at page 34 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning directors required by item 10 is
incorporated by reference to Noven's Proxy Statement for its 2000 Annual Meeting
of Shareholders. The information concerning executive officers required by item
10 is contained in the discussion entitled "Executive Officers of the
Registrant" in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by item 11 is incorporated by reference to
Noven's Proxy Statement for its 2000 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by item 12 is incorporated by reference to
Noven's Proxy Statement for its 2000 Annual Meeting of Shareholders.
27
<PAGE> 28
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by item 13 is incorporated by reference to
Noven's Proxy Statement for its 2000 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS
See Index to Financial Statements at page 34 of this report.
(a)(2) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because the required information is not
applicable or the information is included in the consolidated financial
statements or the notes thereto.
(a)(3) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Method of Filing
------- ----------- ----------------
<S> <C> <C>
3.1 Noven's Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1
of Noven's Form 10-K for the year ended
December 31, 1998 (File No. 1-09623).
3.2 Noven's By-laws, as amended and restated Incorporated by reference to Exhibit 3.5
as of April 28, 1992. of Noven's Form 10-K for the year ended
December 31, 1993 (File No. 1-09623).
10.1 Noven Pharmaceuticals, Inc. Amended and Incorporated by reference to Noven's
Restated Stock Option Plan.* Form 10-K for the year ended
December 31, 1990 (File No. 1-09623),
as further amended on June 23, 1992
and incorporated by reference to
the definitive Proxy Statement dated
May 11, 1992, for the Annual Meeting
of Shareholders held on June 23, 1992.
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C> <C>
10.2 Amendment to Noven Pharmaceuticals, Inc. Incorporated by reference to Noven's Form 10-Q
Amended and Restated Stock Option Plan.* for the quarter ended June 30, 1999
(File No. 0-17254).
10.3 Noven Pharmaceuticals, Inc. 1997 Incorporated by reference to Noven's definitive
Stock Option Plan.* Proxy Statement dated May 1, 1997, for the
Annual Meeting of Shareholders held on
June 3, 1997.
10.4 Amendment to Noven Pharmaceuticals, Inc. Incorporated by reference to Noven's Form 10-Q
1997 Stock Option Plan.* for the quarter ended June 30, 1999
(File No. 0-17254).
10.5 Noven Pharmaceuticals, Inc. 1999 Incorporated by reference to Noven's
Long-Term Incentive Plan.* definitive Proxy Statement dated
April 19, 1999, for the Annual Meeting
of Shareholders held on June 8, 1999.
10.6 Employment Agreement between Noven Incorporated by reference to Exhibit 10.31
and Robert C. Strauss dated of Noven's Form 10-K for the year ended
December 12, 1997.* December 31, 1997 (File No. 1-09623).
10.7 Form of Employment Agreement (Change Filed herewith.
in Control) between Noven and certain of
its executive officers.*
10.8 Form of Indemnification Agreement for Incorporated by reference to Exhibit 10.4
Directors and Officers. of Noven's Form 10-K for the year ended
December 31, 1998 (File No. 1-09623).
10.9 License Agreement between Noven and Incorporated by reference to Exhibit 10.9
Ciba-Geigy Corporation dated November 15, 1991 of Amendment No. 1 to Noven's Registration
(with certain provisions omitted pursuant Statement on Form S-2 (File No. 33-45784).
to Rule 406).
</TABLE>
29
<PAGE> 30
<TABLE>
<S> <C> <C>
10.10 Agreement between Noven and Turnpike-McNeil Incorporated by reference to Exhibit 10.17
Development Limited dated January 29, 1993 of Noven's Form 10-K for the year ended
(re: real property). December 31, 1992 (File No. 1-09623).
10.11 Agreement between Noven and Turnpike-McNeil Incorporated by reference to Exhibit 10.18
Development Limited dated January 29, 1993 of Noven's Form 10-K for the year ended
(re: real property and building). December 31, 1992 (File No. 1-09623).
10.12 Industrial Lease between Rhone-Poulenc Rorer Incorporated by reference to Exhibit 10.20
Pharmaceuticals Inc. and Noven dated of Noven's Form 10-K for the year
March 23, 1993 and effective February 16, 1993 ended December 31, 1993 (File No. 1-09623).
(with certain provisions omitted pursuant
to Rule 24b-2).
10.13 Formation Agreement by and between Novartis Incorporated by reference to Exhibit 10.32
Pharmaceuticals Corporation and Noven to Noven's Form 10-Q for the quarter ended
dated as of May 1, 1998. March 31, 1998 (File No. 0-17254).
10.14 Operating Agreement of Vivelle Ventures LLC Incorporated by reference to Exhibit 10.33
(a Delaware limited liability company) to Noven's Form 10-Q for the quarter ended
dated as of May 1, 1998. March 31, 1998 (File No. 0-17254).
10.15 Marketing and Promotional Agreement by and Incorporated by reference to Exhibit 10.4
between Noven and Vivelle Ventures LLC to Noven's Form 10-Q for the quarter ended
dated as of May 1, 1998. March 31, 1998 (File No. 0-17254).
10.16 Sublicense Agreement by and among Novartis Incorporated by reference to Exhibit 10.35
Pharmaceuticals Corporation, Noven and to Noven's Form 10-Q for the quarter ended
Vivelle Ventures LLC dated as of May 1, 1998. March 31, 1998 (File No. 0-17254).
10.17 Amended and Restated Limited Assignment Filed herewith.
Agreement by and among Novartis Pharmaceuticals
Corporation, Noven and Vivelle Ventures LLC
dated as of April 1, 1999.
</TABLE>
30
<PAGE> 31
<TABLE>
<S> <C> <C>
10.18 Amended and Restated License Agreement between Incorporated by reference to Exhibit 10.1
Noven and Rhone-Poulenc Rorer, Inc. dated of Noven's Form 10-Q for the
September 30, 1999 (with certain provisions quarter ended September 30, 1999
omitted pursuant to Rule 24b-2). (File No. 0-17254).
10.19 Amended and Restated License Agreement between Incorporated by reference to Exhibit 10.2
Noven and Rhone-Poulenc Rorer, Inc. dated of Noven's Form 10-Q for the quarter
September 30, 1999 (with certain provisions ended September 30, 1999 (File No. 0-17254).
omitted pursuant to Rule 24b-2).
10.20 Amended and Restated Supply Agreement between Filed herewith.
Noven and Novartis Pharmaceuticals Corporation
dated as of April 1, 1999 (with certain
provisions omitted pursuant to Rule 24b-2).
11 Computation of Earnings per Share. Filed herewith.
23 Consent of Deloitte & Touche LLP. Filed herewith.
27 Financial Data Schedule. Filed herewith.
</TABLE>
- ---------------
* Compensation Plan or Agreement.
(b) REPORTS ON FORM 8-K.
No Current Reports on Form 8-K were filed by Noven during the quarter
ended December 31, 1999.
31
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 21, 2000 NOVEN PHARMACEUTICALS, INC.
By: /s/ Robert C. Strauss By: /s/ Steven Sablotsky
------------------------- ------------------------
ROBERT C. STRAUSS STEVEN SABLOTSKY
President and Chief Executive Officer Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
By: /s/ Steven Sablotsky Chairman of the Board March 21, 2000
-------------------------------
Steven Sablotsky
By: /s/ Robert C. Strauss Principal Executive March 21, 2000
------------------------------- Officer and Director
Robert C. Strauss
(President and CEO)
By: /s/ James B. Messiry Principal Financial March 21, 2000
------------------------------- Officer
James B. Messiry
(Chief Financial Officer)
By: /s/ Leonard E. Maniscalco Principal Accounting March 21, 2000
------------------------------- Officer
Leonard E. Maniscalco
(Executive Director - Finance)
By: /s/ Sheldon H. Becher Director March 21, 2000
-------------------------------
Sheldon H. Becher
By: /s/ Sidney Braginsky Director March 21, 2000
-------------------------------
Sidney Braginsky
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C> <C>
By: /s/ Rodolfo C. Bryce Director March 21, 2000
-------------------------------
Rodolfo C. Bryce
By: /s/ Lawrence J. DuBow Director March 21, 2000
-------------------------------
Lawrence J. DuBow
</TABLE>
33
<PAGE> 34
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORTS 35
FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1999 and 1998 37
Statements of Operations for the years ended 38
December 31, 1999, 1998 and 1997
Statements of Stockholders' Equity for the years ended 39
December 31, 1999, 1998 and 1997
Statements of Cash Flows for the years ended 40
December 31, 1999, 1998 and 1997
Notes to Financial Statements 41
</TABLE>
34
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Noven Pharmaceuticals, Inc.:
We have audited the accompanying balance sheets of Noven
Pharmaceuticals, Inc. ("Noven") as of December 31, 1999 and 1998, and the
related statements of operations, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of Noven's management. Our responsibility is
to express an opinion on these financial statements based on our audits. We did
not audit the financial statements of Vivelle Ventures LLC (d/b/a Novogyne
Pharmaceuticals) for the year ended December 31, 1999, Noven's investment in
which is accounted for by use of the equity method. Noven's equity of $8,365,000
in Vivelle Ventures LLC at December 31, 1999 and $1,487,000 of that joint
venture's income for the year then ended are included in the accompanying
financial statements. Such 1999 financial statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for such joint venture for 1999, is based solely
on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits, and for 1999 the report of other auditors, provide a
reasonable basis for our opinion.
In our opinion, based on our audits, and for 1999 the report of other
auditors, such financial statements present fairly, in all material respects,
the financial position of Noven Pharmaceuticals, Inc. as of December 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
February 25, 2000
35
<PAGE> 36
PricewaterhouseCoopers [LOGO]
PricewaterhouseCoopers LLP
400 Campus Drive
P.O. Box 988
Florham Park, NJ 07932
Telephone (973) 236-4000
Facsimile (973) 236-5000
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management Committee of
Vivelle Ventures LLC d/b/a Novogyne Pharmaceuticals
In our opinion, the accompanying balance sheets and the related statements of
operations and members' capital and cash flows present fairly, in all material
respects, the financial position of Vivelle Ventures LLC d/b/a Novogyne
Pharmaceuticals (the "Company") as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the year ended December
31, 1999 and the period May 1, 1998 (date of inception) through December 31,
1998 in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
February 8, 2000
36
<PAGE> 37
NOVEN PHARMACEUTICALS, INC.
Balance Sheets
At December 31, 1999 and 1998
(in thousands except share amounts)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 15,338 $ 5,573
Accounts receivable (less allowance for doubtful accounts
of $167 in 1999 and $268 in 1998) 3,048 3,044
Due from Vivelle Ventures LLC 3,651 3,489
Inventories 3,578 2,733
Prepaid and other current assets 415 421
-------- --------
26,030 15,260
Property, plant and equipment - net 15,329 15,517
Other Assets:
Investment in Vivelle Ventures LLC 8,365 7,500
Net deferred income tax asset 5,000 --
Patent development costs, net 1,805 1,765
Deposits and other assets 359 114
-------- --------
15,529 9,379
-------- --------
$ 56,888 $ 40,156
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,085 $ 4,954
Notes payable - current portion 348 179
Accrued compensation and related liabilities 2,237 913
Other accrued liabilities 1,193 141
Deferred license revenue - current portion 586 226
-------- --------
9,449 6,413
Long-Term Liabilities:
Notes payable 604 --
Deferred license revenue 7,442 5,418
-------- --------
17,495 11,831
Commitments and Contingencies (Note 7) -- --
Stockholders' Equity:
Preferred stock - authorized 100,000 shares of $.01 par
value; no shares issued or outstanding -- --
Common stock - authorized 40,000,000 shares,
par value $.0001 per share; issued and
outstanding 21,546,271 in 1999 and 21,482,423 in 1998 2 2
Additional paid-in capital 66,614 66,669
Accumulated deficit (27,223) (37,683)
Treasury stock, 97,100 shares, at cost -- (663)
-------- --------
39,393 28,325
-------- --------
$ 56,888 $ 40,156
======== ========
</TABLE>
See accompanying notes to financial statements.
37
<PAGE> 38
NOVEN PHARMACEUTICALS, INC.
Statements of Operations
Years Ended December 31, 1999, 1998 and 1997
(in thousands except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Product sales $ 31,334 $ 20,114 $ 12,395
License revenue 316 1,728 1,872
-------- -------- --------
Total revenues 31,650 21,842 14,267
Expenses:
Cost of products sold 12,721 9,447 5,180
Research and development 7,171 6,808 9,723
Marketing, general and administrative 7,860 10,105 9,845
-------- -------- --------
Total operating costs and expenses 27,752 26,360 24,748
-------- -------- --------
Income (loss) from operations 3,898 (4,518) (10,481)
Equity in earnings of Vivelle Ventures LLC 1,487 -- --
Interest income, net 343 439 924
-------- -------- --------
Income (loss) before income taxes 5,728 (4,079) (9,557)
Income tax benefit 4,732 -- --
-------- -------- --------
Net income (loss) $ 10,460 $ (4,079) $ (9,557)
======== ======== ========
Basic earnings (loss) per share $ 0.49 $ (0.19) $ (0.47)
======== ======== ========
Diluted earnings (loss) per share $ 0.48 $ (0.19) $ (0.47)
======== ======== ========
Weighted average number of common
shares outstanding:
Basic 21,508 21,013 20,159
======== ======== ========
Diluted 21,897 21,013 20,159
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
38
<PAGE> 39
NOVEN PHARMACEUTICALS, INC.
Statements of Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- Paid-in Accumulated Treasury
Shares Amount Capital Deficit Stock Total
-------- -------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 19,831 $ 2 $ 60,122 $(24,047) $ -- $ 36,077
Issuance of shares pursuant
to stock option plan, net 141 -- 4 -- -- 4
Issuance of shares pursuant
to license agreement 3 -- 20 -- -- 20
Issuance of shares pursuant
to exercise of warrants 500 -- 4,000 -- -- 4,000
Purchase of shares of treasury
stock, at cost -- -- -- -- (663) (663)
Net loss -- -- -- (9,557) -- (9,557)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1997 20,475 2 64,146 (33,604) (663) 29,881
Issuance of shares pursuant
to stock option plan, net 41 -- 23 -- -- 23
Issuance of shares pursuant
to exercise of warrants 966 -- 2,500 -- -- 2,500
Net loss -- -- -- (4,079) -- (4,079)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1998 21,482 2 66,669 (37,683) (663) 28,325
Issuance of shares pursuant
to stock option plan, net 96 -- 247 -- -- 247
Retirement of shares of treasury
stock, at cost (97) -- (663) -- 663 --
Issuance of shares for bonus
compensation 65 -- 361 -- -- 361
Net income -- -- -- 10,460 -- 10,460
-------- -------- -------- -------- -------- --------
21,546 $ 2 $ 66,614 $(27,223) $ -- $ 39,393
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
39
<PAGE> 40
NOVEN PHARMACEUTICALS, INC.
Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
(in thousands except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 10,460 $ (4,079) $ (9,557)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,363 1,206 1,008
Amortization of patent costs 208 255 358
Recognition of deferred license revenue (316) (226) (226)
Equity in earnings of Vivelle Ventures LLC (1,487) -- --
Recognition of deferred income tax asset (5,000) -- --
(Increase) decrease in accounts receivable (4) (1,819) 2,142
(Increase) in due from Vivelle Ventures LLC (162) (3,489) --
(Increase) decrease in inventories (845) (232) 1,650
Decrease (increase) in prepaid and other current assets 6 (139) (34)
(Increase) decrease in deposits and other assets (245) (50) 1
Increase in accounts payable 131 2,791 638
Increase in accrued compensation and related liabilities 1,683 693 18
Increase (decrease) in other accrued liabilities 1,052 51 (238)
Increase in deferred license revenue 2,700 -- --
-------- -------- --------
Cash flows provided by (used in) operating activities 9,544 (5,038) (4,241)
Cash flows from investing activities:
Maturity of securities, net -- 5,880 7,812
Purchase of fixed assets, net (1,173) (1,480) (550)
Investment in Vivelle Ventures LLC -- (7,500) --
Distribution from Vivelle Ventures LLC 622 -- --
Payments for patent development costs (248) (259) (572)
-------- -------- --------
Cash flows (used in) provided by investing activities (799) (3,359) 6,691
Cash flows from financing activities:
Issuance of common stock 247 2,523 4,024
Note payable 773 179 --
Purchase of treasury stock -- -- (663)
-------- -------- --------
Cash flows provided by financing activities 1,020 2,702 3,361
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 9,765 (5,695) 5,811
Cash and cash equivalents, beginning of year 5,573 11,268 5,457
-------- -------- --------
Cash and cash equivalents, end of year $ 15,338 $ 5,573 $ 11,268
======== ======== ========
</TABLE>
Cash payments for interest were $49.3 in 1999 and $1.0 in 1998; no interest
payments were made in 1997.
Accrued compensation for the years ended 1999 and 1998 includes bonuses for
certain employees and officers. Bonuses for 1998 were partially settled by
issuance of 65,000 shares of common stock with a value of $361.
During 1999, Noven retired 97,100 shares of treasury stock valued at $663.
See accompanying notes to financial statements.
40
<PAGE> 41
NOVEN PHARMACEUTICALS, INC.
Notes to Financial Statements
Years Ended December 31, 1999, 1998 and 1997
1. Summary of significant accounting policies:
Noven Pharmaceuticals, Inc. ("Noven") was incorporated in Delaware in
1987 and is engaged principally in one line of business, the manufacture and
development of advanced transdermal and transmucosal drug delivery technologies
and products.
Vivelle Ventures LLC:
Noven and Novartis Pharmaceuticals Corporation ("Novartis") entered
into a joint venture, Vivelle Ventures LLC (d/b/a Novogyne Pharmaceuticals)
("Novogyne"), effective May 1, 1998, to market and sell women's healthcare
products in the United States and Canada, including Noven's transdermal estrogen
delivery systems marketed under the brand names Vivelle(R) and Vivelle-Dot(TM).
Noven accounts for its 49% investment in Novogyne under the equity method. Noven
has eliminated 49% of its profit on products sold to Novogyne that remain in
Novogyne's inventory.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents:
Cash and cash equivalents includes cash and securities with an original
maturity of three months or less.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out
method) or market. The following are the major classes of inventories as of
December 31 (in thousands):
1999 1998
------ ------
Finished goods $ 125 $ 685
Work in process 973 337
Raw materials 2,480 1,711
------ ------
Total $3,578 $2,733
====== ======
Inventories at December 31, 1999 and 1998 related to Noven's
transdermal and transmucosal delivery systems. To date, Noven has not
experienced and does not anticipate any difficulty acquiring materials necessary
to manufacture its transdermal and transmucosal delivery systems. No assurance
can be given that Noven will not experience any such difficulty in the future.
41
<PAGE> 42
Property, Plant and Equipment:
Property, plant and equipment are recorded at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets ranging up to 31 years. Leasehold improvements are amortized over the
life of the lease or the service life of the improvements, whichever is shorter.
Retired assets are removed from the cost and accumulated depreciation accounts.
Noven, using its best estimates based on reasonable and supportable
assumptions and projections, reviews for impairment long-lived assets and
certain identifiable intangibles to be held and used whenever events or changes
in circumstances indicate that the carrying amount of its assets might not be
recoverable.
Patent Development Costs:
Costs related to the development of patents, principally legal fees,
are capitalized and amortized over the lesser of their estimated economic useful
lives or their remaining legal lives.
Income Taxes:
Noven's share of Novogyne's earnings is included in income before
taxes. Noven accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes". SFAS 109 provides that income taxes are accounted for using an
asset and liability method which requires the recognition of deferred income tax
assets and liabilities for expected future tax consequences of temporary
differences between tax bases and financial reporting bases of assets and
liabilities (see Note 6).
Revenue Recognition:
Revenues from product sales, which include sales to Novogyne of $11
million and $7.2 million in 1999 and 1998, respectively, are recognized at the
time of shipment. Certain minimum fees under license agreements, which are
included in product sales, are recognized when determinable. Royalty revenue
consists only of royalties payable by Novogyne and Novartis from sales of
Vivelle(R) and Vivelle-Dot(TM) in the United States and Vivelle(R) in Canada. To
the extent determinable, royalty revenue is recognized when earned and is
included in product sales in the amount of $2.9 million, $2.6 million and $1.8
million for 1999, 1998 and 1997, respectively. License revenue consists of
up-front, milestone and similar payments under license agreements and is
recognized when earned under the terms of the applicable agreements. In some
cases, license revenue will be deferred and recognized as license revenue over
time. Substantially all of Noven's product sales were to its principal licensees
(see Note 3).
Cost of Products Sold:
Direct and indirect costs of manufacturing are included in cost of
products sold.
Research and Development Costs:
Research and development costs include costs of internally generated
research and development activities and costs associated with work performed
under agreements with third parties. Research and development costs include
direct and allocated expenses and are expensed as incurred.
42
<PAGE> 43
Fair Value of Financial Instruments:
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate fair value due to the
relatively short maturity of the respective instruments.
Earnings (Loss) Per Share:
Basic earnings (loss) per share is computed based on the average number
of common shares outstanding. Diluted earnings per share is computed under the
treasury stock method, whereby dilutive stock options are assumed to be
exercised. Common equivalent shares are not included in the per share
calculations when the effect of their inclusion would be antidilutive.
Employee Stock Plans:
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," Noven
may elect to continue to apply the provisions of the Accounting Principles
Board's Opinion No. 25 (APB 25, "Accounting for Stock Issued to Employees") and
related interpretations in accounting for its employee stock option plans, or
adopt the fair value method of accounting prescribed by SFAS 123. Noven has
elected to continue to account for its stock plans using APB 25, and therefore
is generally not required to recognize compensation expense in connection with
these plans. Companies that continue to use APB 25 are required to present, in
the notes to the financial statements, the pro forma effects on reported net
income and earnings per share as if compensation expense had been recognized
based on the fair value of options granted (see Note 8).
Concentrations of Credit Risk:
Noven's customers consist of Novogyne and a limited number of
pharmaceutical companies with operations throughout the world. Noven performs
ongoing credit evaluations of its customers' financial condition and generally
requires no collateral to secure accounts receivable. Noven maintains an
allowance for doubtful accounts based on an assessment of the collectibility of
such accounts.
Reclassification:
Certain amounts presented in the accompanying financial statements for
prior years have been reclassified to conform to the current year's
presentation.
Recent Accounting Pronouncements:
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes standards for the accounting and reporting of derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and of hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
these instruments at fair value. In July 1999, the FASB issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
Effective Date of FASB Statement No. 133," which changes the effective date of
SFAS No. 133 to fiscal years beginning after June 15, 2000. Noven does not
expect the adoption of SFAS No. 133 to have any effect on its financial
statements or disclosures.
43
<PAGE> 44
2. Property, Plant and Equipment - net:
Property, plant and equipment consist of the following at December 31,
1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Land $ 2,540 $ 2,540
Building and improvements 2,393 2,392
Leased property and leasehold improvements 8,646 8,137
Manufacturing and testing equipment 6,908 6,601
Furniture 830 706
------- -------
21,317 20,376
Less accumulated depreciation and amortization 5,988 4,859
------- -------
$15,329 $15,517
======= =======
</TABLE>
3. License Agreements:
Noven has license agreements with Aventis S.A. (f/k/a Rhone-Poulenc
Rorer Inc.) ("Aventis") and Novartis. At the time of the formation of Novogyne,
Novartis sublicensed its rights under its license agreement to Novogyne. Noven's
agreement with Novogyne grants Novogyne the right to market Noven's transdermal
estrogen delivery systems in the United States and Canada. Novartis' Canadian
affiliate continues to market Noven's first generation transdermal estrogen
delivery system in Canada and has been granted the right to market Noven's
second generation transdermal estrogen delivery system in Canada. The agreement
provides for royalty payments based on sales by Novogyne and Novartis' Canadian
affiliate. Warrants to purchase a total of 1,091,151 shares of Noven common
stock were granted during the period 1991 through 1994 to Novartis under this
agreement. Novartis exercised a warrant for 966,184 shares in the second quarter
of 1998. The remaining warrants have expired.
Noven has two license agreements with Aventis. These agreements grant
Aventis the right to market Noven's first generation transdermal estrogen
delivery system worldwide except for the United States and Canada and Noven's
transdermal combination estrogen/progestin delivery system worldwide. The
agreements also grant Aventis the right to market Noven's second generation
transdermal estrogen delivery system in Japan. The agreements provide Noven
certain milestone payments and fees based on Aventis' sales. Noven received
milestone payments totaling $1.5 million in each of 1998 and 1997, resulting
from Aventis' filing of regulatory applications in 1997 and from Aventis'
receipt of regulatory approval for the combination product in the United States
and certain European countries in 1998. Noven does not expect to receive
significant milestone payments under the existing agreements in 2000. Aventis
funded the construction of a manufacturing facility for the production by Noven
of transdermal drug delivery systems. Noven leases the facility at a nominal
rate for a term of 31.5 years expiring in 2024 and has the right to purchase the
facility at any time during the term of the lease at Aventis' book value. Noven
has recorded both the facility and deferred revenue at amounts equal to the
funds advanced by Aventis which are deferred and recognized as depreciation
expense and license revenue over the life of the underlying lease.
In October 1999, Novartis Pharma AG sublicensed Aventis' rights to
market (1) Noven's combination estrogen/progestin transdermal delivery system in
all countries other than the United States and Japan, and (2) Noven's first
generation estrogen transdermal delivery system in all countries other than the
United States, Canada and Japan.
44
<PAGE> 45
In connection with the sublicense transaction, and pursuant to Noven's
license agreement with Aventis, Noven received $2.7 million in cash from Aventis
as Noven's share of the sublicense fees paid by Novartis to Aventis, which was
recorded as deferred license revenue and will be recognized as license revenue
over seven and one half years.
4. Investment in Vivelle Ventures LLC:
In 1998, Noven invested $7.5 million in return for a 49% equity
interest in Novogyne. In return for a 51% equity interest, Novartis granted an
exclusive sublicense to Novogyne of a license agreement with Noven (see Note 3).
This sublicense assigned certain of Novartis' rights and obligations under a
supply agreement with Noven, and granted an exclusive license to Novogyne of the
Vivelle(R) trademark. Noven shares in the income of Novogyne according to an
established formula after an annual preferred return of $6.1 million to
Novartis. During 1999, Novogyne produced $10.7 million of net income, and Noven
recorded $1.5 million as equity in earnings of Vivelle Ventures LLC. In 2000,
Noven expects to receive a cash distribution of $2.2 million from Novogyne based
on Novogyne's results of operations for the year ended December 31, 1999. For
the fiscal year ended December 31, 1998, Novogyne did not produce sufficient
income under the established formula for Noven to recognize income from the
operations of Novogyne. Under the terms of the agreement, however, Novogyne did
generate sufficient income in 1998 to meet Novartis' preferred return.
During the periods ended December 31, 1999 and 1998, Noven sold $11.0
million and $7.2 million of products to Novogyne, recognized $2.5 million and
$1.7 million in royalties from Novogyne and was reimbursed for $13.9 million and
$6.8 million of sales and marketing expenses incurred on behalf of Novogyne,
respectively. As of December 31, 1999 and 1998, Noven has receivables from
Novogyne of $3.7 million and $3.2 million, respectively, representing products
sold to and marketing expenses reimbursable from Novogyne.
Under the terms of the joint venture agreements, Noven is responsible
for the manufacture of the product, retention of samples and regulatory
documentation, design and implementation of an overall marketing and sales
program in the hospital and retail sales sectors of the market, including the
preparation of annual and quarterly marketing plans and sales force staffing,
and the procurement of advertising services in connection with the marketing and
promotion of the products. All other matters, including inventory control and
distribution, management of marketing and sales programs for the managed care
sector of the market, customer service support, regulatory affairs support and
other administrative services are provided by Novartis.
45
<PAGE> 46
The condensed financial statements of Novogyne are as follows:
Condensed Statements of Operations
For the year ended December 31, 1999 and for the period from May 1,
1998 (date of inception) through December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Revenues $34,274 $16,739
Cost of sales 6,530 3,793
Selling, general and
administrative expenses 17,720 9,900
------- -------
Income from operations 10,024 3,046
Interest income 661 333
------- -------
Net income $10,685 $ 3,379
======= =======
</TABLE>
<TABLE>
<CAPTION>
Condensed Balance Sheets
At December 31, 1999 and 1998 (in thousands):
1999 1998
------- -------
<S> <C> <C>
Total assets (all of which are current) $24,433 $17,125
Total liabilities (all of which are current) $ 9,036 $ 6,246
Members' capital $15,398 $10,879
</TABLE>
The joint venture operating agreement also has a buy/sell provision,
effective May 1, 2000, which allows each party to compel either the purchase of
the other party's interest in Novogyne or the sale of its own interest in
Novogyne. Either party may dissolve Novogyne following the second or third
anniversary of the formation of Novogyne in the event that Novogyne does not
achieve (i) sales of at least the lesser of $20 million or 90% of the annual
budgeted sales or (ii) profits sufficient to pay Novartis the preferred return
of $6.1 million in each such year (which Noven has the right to cure). Both of
these thresholds were met in 1999. Dissolution can also result from a change in
control of Noven prior to May 1, 2000 or at any time thereafter if the acquirer
is a top ten pharmaceutical company (as measured by annual dollar sales), or if
prior to May 1, 2000, the president of Novogyne (who is also the President and
CEO of Noven) is terminated by Noven "without cause" or leaves due to "good
reason," as defined in his employment agreement with Noven. Upon dissolution,
Novartis would reacquire the rights to market Vivelle(R) and Vivelle-Dot(TM) and
Novogyne's other assets would be liquidated and distributed to the parties in
accordance with their capital account balances as determined pursuant to the
operating agreement.
46
<PAGE> 47
5. Notes Payable:
In May 1999, Noven entered into a Master Finance Lease Agreement (the
"Master Lease") for $1 million with a base lease term of three or four years
depending upon the equipment type. The terms of the Master Lease include, among
other provisions, minimum net worth, revenue and operating results requirements,
as well as certain financial ratios, measured on a quarterly basis. Transactions
under the Master Lease have been accounted for as financing arrangements.
Long-term obligations, less installments due within one year, are
summarized below (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Borrowings under Master Lease,
8%, maturing in 2003 $ 545 $ --
Capitalized equipment lease,
11%, maturing in 2004 31 --
Insurance installment
note, 6%, maturing in 2001 376 179
--------- ---------
952 179
Less: installments due within one year 348 179
--------- ---------
$ 604 $ --
========= =========
</TABLE>
6. Income Taxes:
The components of the benefit from income taxes in 1999 are as follows
(in thousands):
<TABLE>
<S> <C>
Current Income Taxes
Federal $ 193
State 75
-------
268
Deferred Income Taxes (Benefit)
Federal (4,655)
State (345)
-------
(5,000)
-------
Income Tax Benefit $(4,732)
=======
</TABLE>
47
<PAGE> 48
Deferred income taxes arise due to timing differences in reporting
of certain income and expense items for book purposes and income tax
purposes. The following table summarizes the tax effects comprising Noven's
net deferred income tax asset as of December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred Income Tax Assets:
Joint Venture interest $ 501 $ 227
Net operating losses 9,999 13,863
General business credit 4,922 4,261
Sublicense revenue 957 --
Other 574 245
-------- --------
Total deferred income tax assets 16,953 18,596
Deferred Income Tax Liabilities:
Basis difference in fixed assets 423 321
-------- --------
Net deferred income tax asset 16,530 18,275
-------- --------
Valuation allowance (11,530) (18,275)
-------- --------
Net Deferred Income Tax Asset $ 5,000 $ --
======== ========
</TABLE>
At December 31, 1998, Noven established $18.3 million in valuation
allowances against its deferred income tax assets, which consisted primarily of
net operating loss and research and development credit carryforwards. A portion
of the carryforwards was utilized against 1999 income, and Noven recognized a
deferred income tax asset of $5.0 million. Realization of the net deferred
income tax asset of $5.0 million is dependent upon generating sufficient future
taxable income. Although realization is not assured, management believes it is
more likely than not that this portion of the net deferred income tax asset will
be realized based upon estimated future taxable income of Noven and,
accordingly, no valuation allowances for this portion of the net deferred income
tax asset were deemed necessary at December 31, 1999.
At December 31, 1999, Noven had net operating loss carryforwards of
approximately $27.0 million. Additionally, at December 31, 1999, Noven had
research and development credit carryforwards of $4.9 million. The net operating
loss carryforwards will expire in 2009 through 2018, and the research and
development credit carryforwards will expire in 2002 through 2019.
48
<PAGE> 49
The difference between the total income tax provision and the statutory
federal income tax rate applied to pretax income is reconciled as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
AMOUNT % AMOUNT % AMOUNT %
------- ------ ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Income taxes at statutory rate $ 1,947 34.0 $(1,387) (34.0) $(3,249) (34.0)
Increase (decrease) in taxes:
State income tax, net of federal
benefits (178) (3.1) -- -- -- --
Research and development
expenditures 225 3.9 211 5.2 355 3.7
Other 19 -- -- -- -- --
Establishment (reduction) of
valuation allowance on deferred
income tax assets (6,745) (117.4) 1,176 28.8 2,894 30.3
------- ------ ------- ----- ------- -----
Income tax benefit $(4,732) (82.6) $ -- -- $ -- --
======= ====== ======= ===== ======= =====
</TABLE>
7. Commitments and Contingencies
Noven has employment agreements that provide for base salaries subject
to cost of living increases each year and other increases and bonuses. These
agreements provide for annual commitments of approximately $744,500 in the
aggregate and with terms extending through 2002.
Noven has a formula bonus plan that includes company and individual
performance goals and incurred $2.1 million and $0.9 million of bonus expenses
in 1999 and 1998, respectively. Under the plan, a fixed percentage of each
employee's base salary is set as a target incentive bonus award for such
employee. To the extent that actual company performance is equal to, exceeds or
is less than the company performance targets, an employee's bonus award may be
equal to, greater than or less than his target award. An employee's
non-financial goals are then considered in determining his final bonus award. In
1999, Noven met or exceeded each of the company performance goals, and in
accordance with the plan formula the bonus awards to most employees were greater
than their initial target awards.
8. Stock Option Plans
Noven established its 1999 Long-Term Incentive Plan (the "1999 Plan")
on June 8, 1999. The 1999 Plan replaced Noven's 1997 Stock Option Plan (the
"1997 Plan") and no future stock option awards may be granted under the 1997
Plan. The 1999 Plan provides for the granting of up to 3,768,848 incentive and
non-qualified stock options to selected individuals, including 2,878,848 shares
that remained available under the 1997 Plan at the time of its termination. The
terms and conditions of these options (including price, vesting schedule, term
and number of shares) are determined by the Stock Option Committee, which
administers the 1999 Plan. The per share exercise price of (i) non-qualified
stock options granted to directors and all other persons can not be less than
the fair market value of the common stock on the date of grant, (ii) incentive
stock options granted to employees can not be less than the fair market value of
the common stock on the date of grant and (iii) incentive stock options granted
to employees owning in excess of 10% of Noven's issued and outstanding common
stock can not be less than 110% of the fair market value of the common stock on
the date of grant. Each option granted under the 1999 Plan is exercisable after
the period(s) specified in the relevant option agreement, and no option can be
exercised after ten years from the date of grant (or five years from the date of
grant in the case of a grantee of an incentive stock option holding more than
10% of the issued and outstanding Noven common stock). At December 31, 1999,
there were approximately 547,000 stock options outstanding under the 1999 Plan.
Generally, the options vest over a period of five years, beginning one year
after date of grant.
49
<PAGE> 50
The 1997 Plan, originally effective January 1, 1997, provided for the
granting of up to 4,000,000 incentive and non-qualified stock options. At
December 31, 1999, there were approximately 1,384,000 stock options outstanding
under the 1997 Plan. The 1997 Plan is also administered by the Stock Option
Committee, and the terms and conditions of the 1997 Plan are similar to those of
the 1999 Plan.
Noven also has an earlier stock option plan, which had provisions
similar to those of the 1997 and 1999 Plans. This plan terminated on December
31, 1996, and no additional options may be granted under this plan. At December
31, 1999, there were approximately 623,000 stock options outstanding under this
plan.
Noven applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations in accounting for
its option plans. Accordingly, no compensation expense has been recognized. Had
compensation cost for Noven's plan been determined based upon the fair value at
the grant date consistent with the methodology prescribed under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation", Noven's net income and earnings per share would have been reduced
to the pro forma amounts indicated below (in thousands except per share
amounts):
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss):
As reported $ 10,460 $ (4,079) $ (9,557)
Pro forma $ 8,412 $ (6,160) $ (10,777)
Basic earnings (loss) per share:
As reported $ 0.49 $ (0.19) $ (0.47)
Pro forma $ 0.39 $ (0.29) $ (0.54)
Diluted earnings (loss) per share:
As reported $ 0.48 $ (0.19) $ (0.47)
Pro forma $ 0.38 $ (0.29) $ (0.54)
</TABLE>
50
<PAGE> 51
The fair value of each option granted during 1999, 1998 and 1997, is
estimated as $5.40, $2.57 and $2.91, respectively, on the date of the grant
using the Black Scholes option-pricing model with the assumptions listed below.
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Volatility 61.3% 64.5% 65.3%
Risk free interest rate 5.72% 5.16% 5.83%
Expected life (years) 7 7 7
</TABLE>
Stock option transactions related to the plans are summarized as
follows (options and shares in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 2,026 $ 7.61 1,594 $ 8.27 1,565 $ 8.95
Granted 755 $ 9.54 675 $ 6.84 612 $ 6.62
Exercised (105) $ 2.91 (56) $ 2.31 (156) $ 2.64
Canceled and expired (122) $ 8.63 (187) $ 11.89 (427) $ 2.45
--------- --------- ---------
Outstanding at end
of year 2,554 $ 8.32 2,026 $ 7.57 1,594 $ 8.27
========= ========= =========
Shares of common
stock reserved 5,834 4,928 4,983
Options exercisable
at end of year 851 656 350
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999 (options in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------- -------------------------------
Range of Number Weighted Average Number
Exercise Outstanding Remaining Weighted Average Exercisable Weighted Average
Prices At Year End Contractual Life Exercise Price At Year End Exercise Price
---------- ----------- --------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0 - $ 4 123 0.8 $ 2.31 100 $ 2.31
$ 4 - $ 6 1,037 5.6 $ 5.64 277 $ 5.94
$ 6 - $ 9 480 3.7 $ 8.44 211 $ 8.50
$ 9 - $14 845 5.2 $ 11.80 225 $ 12.25
$ 14 - $18 69 3.7 $ 16.02 38 $ 16.17
--------- ----------
2,554 4.8 $ 8.32 851 $ 8.28
========= ==========
</TABLE>
51
<PAGE> 52
9. 401(k) Savings Plan
On January 1, 1997, Noven established a savings plan under section
401(k) of the Internal Revenue Code (the "401(k) Plan") covering substantially
all employees who have completed three months of service and have reached the
age of twenty-one. This plan allows eligible participants to contribute from one
to fifteen percent of their current compensation to the 401(k) Plan.
Noven determines, on a year-to-year basis, the amount, if any, that it
will provide as a matching contribution. For the years ended December 31, 1999,
1998 and 1997, Noven made no matching contributions.
10. Segment, Geographic and Customer Data
Noven is engaged principally in one line of business, the development
and commercialization of advanced transdermal drug delivery systems, which
represents more than 90% of total revenue. Products that are sold to Aventis for
resale in Europe are shipped to Ireland. There were no sales or transactions
between geographic areas. The following table presents information about Noven's
revenues by geographic area (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
United States $ 24,571 $ 16,256 $ 6,417
Ireland 7,079 5,586 7,850
--------- --------- ---------
Total Revenue $ 31,650 $ 21,842 $ 14,267
========= ========= =========
</TABLE>
Total revenue by customer of Noven, including royalty payments and
license revenue (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Novartis $ 1,749 $ 1,607 $ 5,017
Aventis 18,059 11,677 7,850
Novogyne 11,021 7,172 --
Other 821 1,386 1,400
--------- --------- ---------
Total Revenue $ 31,650 $ 21,842 $ 14,267
========= ========= =========
</TABLE>
52
<PAGE> 53
11. Unaudited Quarterly Condensed Financial Data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 FIRST SECOND THIRD FOURTH FULL YEAR
---- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenue $ 7,477 $ 7,493 $ 8,060 $ 8,620 $ 31,650
Total operating expenses 6,804 6,589 6,849 7,510 27,752
-------- -------- -------- -------- --------
Income from operations 673 904 1,211 1,110 3,898
Equity in interest of
Vivelle Ventures LLC -- -- -- 1,487 1,487
Interest income - net 52 64 77 150 343
Income tax provision (benefit) 9 9 50 (4,800) (4,732)
-------- -------- -------- -------- --------
Net income $ 716 $ 959 $ 1,238 $ 7,547 $ 10,460
======== ======== ======== ======== ========
Basic earnings per share $ 0.03 $ 0.05 $ 0.06 $ 0.35 $ 0.49
======== ======== ======== ======== ========
Diluted earnings per share $ 0.03 $ 0.05 $ 0.06 $ 0.34 $ 0.48
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1998 FIRST SECOND THIRD FOURTH FULL YEAR
---- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenue $ 2,548 $ 6,395 $ 5,018 $ 7,881 $ 21,842
Total operating expenses 6,014 8,038 4,965 7,343 26,360
-------- -------- -------- -------- --------
Income (loss) from operations (3,466) (1,643) 53 538 (4,518)
Interest income - net 190 86 86 77 439
-------- -------- -------- -------- --------
Net income (loss) $ (3,276) $ (1,557) $ 139 $ 615 $ (4,079)
======== ======== ======== ======== ========
Basic earnings (loss) per share $ (0.16) $ (0.08) $ 0.01 $ 0.03 $ (0.19)
======== ======== ======== ======== ========
Diluted earnings (loss) per share $ (0.16) $ (0.08) $ 0.01 $ 0.03 $ (0.19)
======== ======== ======== ======== ========
</TABLE>
53
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
(CHANGE IN CONTROL)
This Employment Agreement, dated as of _____, 1999, is entered into
between Noven Pharmaceuticals, Inc., a Delaware corporation (the "COMPANY"), and
________ (the "EXECUTIVE").
The Board of Directors of the Company (the "BOARD"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined in Section 2) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control and to
provide the Executive with compensation and benefits arrangements upon a Change
of Control which ensure that the compensation and benefits expectations of the
Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
In consideration of the foregoing and the mutual promises contained
below, the parties agree as set forth below.
1. CERTAIN DEFINITIONS.
(a) "EFFECTIVE DATE" shall mean the first date during the Change of
Control Period (as defined in Section 1(b)) on which a Change of Control occurs.
Anything in this Agreement to the contrary notwithstanding, if a Change of
Control occurs and if the Executive's employment with the company is terminated
prior to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at the
request of a third party who has taken steps reasonably calculated to effect the
Change of Control or (ii) otherwise arose in connection with or in anticipation
of the Change of Control, then for all purposes of this Agreement the "Effective
Date" shall mean the date immediately prior to the date of such termination of
employment.
(b) "CHANGE OF CONTROL PERIOD" shall mean the period commencing on the
date hereof and ending on the third anniversary of such date; provided, however,
that commencing on the date one year after the date hereof, and on each annual
anniversary of such date (such date and each annual anniversary thereof shall be
hereinafter referred to as the "RENEWAL DATE") the Change of Control Period may
be extended by the Company
<PAGE> 2
so as to terminate three years from such Renewal Date by the Company giving
notice to the Executive that the Change of Control Period shall be so extended.
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "CHANGE OF
CONTROL" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT")) (a "PERSON") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of
either (i) the then outstanding shares of common stock of the Company (the
"OUTSTANDING COMPANY COMMON STOCK") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "OUTSTANDING COMPANY VOTING SECURITIES");
provided, however, that the following acquisitions shall not constitute a Change
of Control: (i) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any corporation pursuant to
a reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and (iii)
of subsection (c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"INCUMBENT BOARD") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-1l of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, unless, following such reorganization,
merger or consolidation, (i) more than 70% of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such reorganization,
merger or consolidation in substantially the same proportions as their
ownership,
-2-
<PAGE> 3
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding the Company, any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
reorganization, merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 40% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (iii) at least a majority of the members of the board of directors
of the corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all of the assets of the Company, other than to a
corporation, with respect to which following such sale or other disposition, (A)
more than 70% of, respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company and any employee benefit plan (or related trust) of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 40% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition of
assets of the Company.
3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company, in accordance with the terms and provisions of this Agreement,
for the period commencing on the Effective Date and ending on the second
anniversary of such date (the "EMPLOYMENT PERIOD").
-3-
<PAGE> 4
4. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the 90-day period immediately preceding the Effective Date and (B)
the Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Effective Date or any office which is the
headquarters of the Company and is less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) COMPENSATION.
(i) BASE SALARY. During the Employment Period, the Executive
shall receive an annual base salary ("ANNUAL BASE SALARY"), which shall be paid
in equal installments on a monthly or more frequent basis, at least equal to
twelve times the highest monthly base salary paid or payable to the Executive by
the Company and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed at least annually
and shall be increased at any time and from time to time as shall be
substantially consistent with increases in base salary generally awarded in the
ordinary course of business to other peer executives of the Company and its
affiliated companies. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual
-4-
<PAGE> 5
Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term "AFFILIATED
COMPANIES" shall include any company controlled by, controlling or under common
control with the Company.
(ii) ANNUAL BONUS. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "ANNUAL BONUS") in cash at least equal to the
average annualized (for any fiscal year consisting of less than twelve full
months or with respect to which the Executive has been employed by the Company
for less than twelve full months) bonus paid or payable, including by reason of
any deferral, to the Executive by the Company and its affiliated companies in
respect of the three fiscal years immediately preceding the fiscal year in which
the Effective Date occurs (the "RECENT AVERAGE BONUS"). Each such Annual Bonus
shall be paid no later than the end of the third month of the fiscal year next
following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practice, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 90-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) WELFARE BENEFIT PLANS. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
-5-
<PAGE> 6
(v) EXPENSES. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable employment
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated companies
in effect for the Executive at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(vi) FRINGE BENEFITS. During the Employment Period, the
Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) OFFICE AND SUPPORT STAFF. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 90-day period immediately preceding the Effective Date or, if more favorable
to the Executive, as provided generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(viii) VACATION. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(ix) "PEER EXECUTIVES." For purposes of this Agreement,
references to "peer executives of the Company and its affiliated companies"
shall refer only to Executives based in the United States.
5. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 12(b) of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective on
the 30th day after receipt of such notice by the Executive (the "DISABILITY
EFFECTIVE DATE"), provided that, within the 30 days after
-6-
<PAGE> 7
such receipt, the Executive shall not have returned to full-time performance of
the Executive's duties. For purposes of this Agreement, "DISABILITY" shall mean
the absence of the Executive from the Executive's duties with the Company on a
full-time basis for 180 consecutive business days as a result of incapacity due
to mental or physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably).
(b) CAUSE. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean (i) a material breach by the Executive of the Executive's obligations under
Section 4(a) (other than as a result of incapacity due to physical or mental
illness) which is demonstrably willful and deliberate on the Executive's part,
which is committed in bad faith or without reasonable belief that such breach is
in the best interests of the Company and which is not remedied in a reasonable
period of time after receipt of written notice from the Company specifying such
breach or (ii) the conviction of the Executive of a felony involving moral
turpitude.
(c) GOOD REASON. The Executive's employment may be terminated during
the Employment Period by the Executive for Good Reason. For purposes of this
Agreement, "GOOD REASON" shall mean:
(i) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) or any other action by the Company which results in
a diminution in such position (including any action which results in a
dimunition of status, offices, titles and reporting levels or requirements),
authority, duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b), other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than that described in Section 4(a)(i)(B);
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and satisfy
Section 11(c), provided that such successor has received at least ten days prior
written notice from the Company or the Executive of the requirements of Section
11(c).
-7-
<PAGE> 8
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b). For purposes
of this Agreement, a "NOTICE OF TERMINATION" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 15 days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) DATE OF TERMINATION. "DATE OF TERMINATION" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON: OTHER THAN FOR CAUSE. DEATH OR DISABILITY. If, during
the Employment Period, the Company shall terminate the Executive's employment
other than for Cause or Disability or the Executive shall terminate employment
for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, (2) the
product of (x) the greater of (i) the Annual Bonus paid or payable, including by
reason of any deferral, to the Executive (and annualized for any fiscal year
consisting of less than twelve full months or for which the Executive has been
employed for less than twelve full months) for the most recently completed
fiscal year during the Employment Period, if any, and
-8-
<PAGE> 9
(ii) the Recent Average Bonus (such greater amount shall be hereinafter referred
to as the "HIGHEST ANNUAL BONUS") and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the Date of Termination,
and the denominator of which is 365, and (3) any compensation previously
deferred by the Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1), (2), and (3)
shall be hereinafter referred to as the "ACCRUED OBLIGATIONS"); and
B. the amount (such amount shall be hereinafter
referred to as the "SEVERANCE AMOUNT") equal to the product of (1) two and
(2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual
Bonus; and, provided further, that such amount shall be reduced by the present
value (determined as provided in Section 280G(d)(4) of the Internal Revenue Code
of 1986, as amended (the "CODE")) of any other amount of severance relating to
salary or bonus continuation to be received by the Executive upon termination of
employment of the Executive under any agreement, severance plan, policy or
arrangement of the Company; and
(ii) for the remainder of the Employment Period, or such
longer period as any plan, program, practice or policy may provide, the Company
shall continue benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b) if the
Executive's employment had not been terminated in accordance with the most
favorable plans, practices, programs or policies of the Company and its
affiliated companies as in effect and applicable generally to other peer
executives and their families during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive becomes re-employed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility
(such continuation of such benefits for the applicable period herein set forth
shall be hereinafter referred to as "WELFARE BENEFIT CONTINUATION"). For
purposes of determining eligibility of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive shall be
considered to have remained employed until the end of the Employment Period and
to have retired on the last day of such period; and
(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive and/or the Executive's
family any other amounts or benefits required to be paid or provided or which
the Executive and/or the Executive's family is eligible to receive pursuant to
this Agreement and under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies as in effect and
applicable generally to other peer executives and their families during the
-9-
<PAGE> 10
90-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally thereafter with respect to other peer
executives of the Company and its affiliated companies and their families (such
other amounts and benefits shall be hereinafter referred to as the "OTHER
BENEFITS").
(b) DEATH. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for (i) payment of Accrued Obligations (which shall be
paid to the Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination) and the timely payment or
provision of the Welfare Benefit Continuation and Other Benefits (excluding, in
each case, Death Benefits (as defined below)) and (ii) payment to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination of an amount equal to the greater of (A) the
sum of the Severance Amount, and (B) the present value (determined as provided
in Section 260G(d)(4) of the Code) of any cash amount to be received by the
Executive or the Executive's family as a death benefit pursuant to the terms of
any plan, policy or arrangement of the Company and its affiliated companies, but
not including any proceeds of life insurance covering the Executive to the
extent paid for directly or on a contributory basis by the Executive (which
shall be paid in any event as an Other Benefit) (the benefits included in this
clause (B) shall be hereinafter referred to as the "DEATH BENEFITS").
(c) DISABILITY. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for (i)
payment of Accrued Obligations (which shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination) and the timely payment or
provision of the Welfare Benefit Continuation and Other Benefits (excluding, in
each case, Disability Benefits (as defined below)) and (ii) payment to the
Executive in a lump sum in cash within 30 days of the Date of Termination of an
amount equal to the greater of (A) the sum of the Severance Amount, and (B) the
present value (determined as provided in Section 280G(d)(4) of the Code) of any
cash amount to be received by the Executive as a disability benefit pursuant to
the terms of any plan, policy or arrangement of the Company and its affiliated
companies, but not including any proceeds of disability insurance covering the
Executive to the extent paid for directly or on a contributory basis by the
Executive (which shall be paid in any event as an Other Benefit) (the benefits
included in this clause (B) shall be hereinafter referred to as the "DISABILITY
BENEFITS").
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive Annual Base Salary through the Date of Termination plus
the amount of any compensation previously deferred by the Executive, in each
case to the extent theretofore unpaid. If the Executive terminates employment
during the Employment
-10-
<PAGE> 11
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. NON-EXCLUSIVITY OF RIGHTS. Except as provided in Sections 6(a)(ii),
6(b) and 6(c), nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. FULL SETTLEMENT: RESOLUTION OF DISPUTES.
(a) The payment by the Company to the Executive of the amounts required
by this Agreement shall serve as a full settlement of any and all claims which
the Executive may have against the Company arising out of or in connection with
the termination of the Executive's employment by the Company.
(b) The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, except as provided in Section
6(a)(ii), such amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay promptly as incurred, to the full
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any dispute or contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any dispute or
contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code.
(c) If there shall be any dispute between the Company and the Executive
(i) in the event of any termination of the Executive's employment by the
Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final,
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<PAGE> 12
nonappealable judgment by a court of competent jurisdiction declaring that such
termination was for Cause or that the determination by the Executive of the
existence of Good Reason was not made in good faith, the Company shall pay all
amounts, and provide all benefits, to the Executive and/or the Executive's
family or other beneficiaries, as the case may be, that the Company would be
required to pay or provide pursuant to Section 6(a) as though such termination
were by the Company without Cause or by the Executive with Good Reason;
provided, however, that the Company shall not be required to pay any disputed
amounts pursuant to this paragraph except upon receipt of an undertaking by or
on behalf of the Executive to repay all such amounts to which the Executive is
ultimately adjudged by such court not to be entitled.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
9) (a "PAYMENT") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "EXCISE TAX"), then
the Executive shall be entitled to receive an additional payment (a "GROSS-UP
PAYMENT") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Deloitte &
Touche LLP (the "ACCOUNTING FIRM") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a written opinion
that failure to report the Excise Tax on the Executive's applicable federal
income tax return would not result in the imposition of a
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<PAGE> 13
negligence or similar penalty. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("UNDERPAYMENT"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall: (i) give the
Company any information reasonably requested by the Company relating to such
claim, (ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company, (iii) cooperate with the Company
in good faith in order effectively to contest such claim, and (iv) permit the
Company to participate in any proceedings relating to such claim; provided,
however, that the Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Executive harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation and payment of costs
and expenses. Without limitation on the foregoing provisions of this Section
9(c), the Company shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the Executive
to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such
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<PAGE> 14
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. SUCCESSORS.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
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<PAGE> 15
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
12. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
If to the Company: Noven Pharmaceuticals, Inc.
11960 S.W. 144th Street
Miami, Florida 33186
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert
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<PAGE> 16
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v), shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, prior to the Effective Date, may be terminated by either the Executive or
the Company at any time. Moreover, if prior to the Effective Date, the
Executive's employment with the Company terminates, then the Executive shall
have no further rights under this Agreement. From and after the Effective Date,
this Agreement shall supersede any prior agreement between the parties with
respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
Noven Pharmaceuticals, Inc.
---------------------------
By:
Title:
---------------------------
Executive
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<PAGE> 17
SCHEDULE 10.7
The Company has entered into identical employment agreements (change in
control), a form of which is attached as Exhibit 10.7, with the following
executive officers:
Steven Sablotsky (Chairman of the Board)
James B. Messiry (Vice President and Chief Financial Officer)
<PAGE> 1
Exhibit 10.17
================================================================================
AMENDED AND RESTATED LIMITED ASSIGNMENT AGREEMENT
By and Among
NOVARTIS PHARMACEUTICALS CORPORATION,
NOVEN PHARMACEUTICALS, INC.
and
VIVELLE VENTURES LLC
Dated as of April 1, 1999
================================================================================
<PAGE> 2
AMENDED AND RESTATED LIMITED ASSIGNMENT AGREEMENT
AMENDED AND RESTATED LIMITED ASSIGNMENT AGREEMENT dated as of
April 1, 1999 (this "Agreement") by and among Novartis Pharmaceuticals
Corporation, a Delaware corporation ("Novartis"), as the successor-in-interest
to the Pharmaceuticals Division of Ciba-Geigy Corporation, a New York
corporation ("CIBA"), Vivelle Ventures, LLC, a Delaware limited liability
company ("LLC") and Noven Pharmaceuticals, Inc. a Delaware corporation
("Noven"). Capitalized terms used but not otherwise defined herein shall have
the respective meanings assigned to such terms in that certain Amended and
Restated Supply Agreement dated as of April 1, 1999 by and between Noven and
Novartis (the "Amended and Restated Supply Agreement"), attached hereto as
EXHIBIT A.
W I T N E S S E T H:
WHEREAS, Novartis, as successor-in-interest to CIBA, and Noven
are parties to the Amended and Restated Supply Agreement, pursuant to which
Noven has agreed to supply Novartis with Finished Product and Novartis has
agreed to purchase annually certain minimum quantities of such Finished Product;
WHEREAS, Novartis and Noven have formed LLC for the purpose of
creating a platform to maintain and grow a franchise in women's health, focusing
initially on the manufacture and sale of the 17(beta)-estradiol single active
ingredient in a matrix currently being marketed by Novartis under the trademark
"Vivelle" pursuant to the Restated License Agreement;
WHEREAS, Novartis and Noven agreed in connection with the
formation of the LLC that Novartis would, as its contribution to LLC, among
other things, make a limited assignment to LLC of its rights and obligations
under the Supply Agreement as may be amended from time to time; and
WHEREAS, LLC desires to obtain the rights under the Amended
and Restated Supply Agreement and is willing to assume the obligation to
purchase the quantities of Finished Product specified in the Amended and
Restated Supply Agreement;
NOW THEREFORE, in consideration of the agreements and
covenants set forth above and herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree to amend and restate the Limited Assignment Agreement to more particularly
set forth the parties' rights and obligations hereunder as follows:
1. ASSIGNMENT AND ASSUMPTION. (a) For the term of this
Agreement, Novartis hereby assigns to LLC its rights under Sections 2.9, 2.10,
4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 6.1, 6.2, 6.3,
<PAGE> 3
7.1, 7.2, 7.3 and Article 8 of the Amended and Restated Supply Agreement (the
"Assigned Sections").
(b) For the term of this Agreement, LLC hereby accepts such
assignment and assumes and agrees to perform and discharge the duties and
obligations of Novartis arising under the Assigned Sections.
2. CONSENT TO ASSIGNMENT AND ASSUMPTION; RELEASE. For the term
of this Agreement, Noven hereby consents to the assignment by Novartis of the
rights under the Assigned Sections and the assumption by LLC of the performance,
discharge of duties and obligations arising under the Assigned Sections. For the
term of this Agreement, Noven hereby releases Novartis of all its duties and
obligations (including, without limitation, its obligation to purchase the
Annual Purchase Minimum or pay for any Finished Product purchased by LLC)
arising under the Assigned Sections.
3. RETENTION OF REMAINING RIGHTS AND OBLIGATIONS.
Notwithstanding the foregoing, Novartis retains all rights and obligations not
assigned to LLC hereby.
4. CANADA. Subject to Section 2 of that certain Sublicense
Agreement dated as of May 1, 1998 by and among Novartis, Noven and LLC (the
"Sublicense Agreement"), the parties agree that for purpose of sale to Novartis'
Canadian Affiliate, Novartis may purchase Vivelle (as that term is defined in
that certain Operating Agreement of Vivelle Ventures LLC dated as of May 1, 1998
by and between Novartis and Noven (the "Operating Agreement")) from LLC at the
price at which LLC purchases Vivelle from Noven.
5. ABSOLUTE ASSIGNMENT OF ALL RIGHTS AND OBLIGATIONS. In the
event that Noven purchases all of Novartis' Interest (as that term is defined in
the Operating Agreement) in LLC pursuant to Section 9.5 of the Operating
Agreement, Novartis, Noven and LLC shall execute an assignment agreement
assigning all of Novartis' rights and obligations under the Amended and Restated
Supply Agreement to LLC and releasing Novartis from its obligations under the
Amended and Restated Supply Agreement.
6. INDEMNIFICATION. LLC agrees and warrants to indemnify,
defend and hold harmless Noven and Novartis from and against any and all claims,
damages, expenses, attorneys' fees, settlements, and judgments arising out of
any injury or damage to a third party alleged to be caused by the Finished
Product supplied by Noven to LLC or manufactured for or by LLC; provided,
however that Noven and/or Novartis notifies LLC within twenty (20) days of
receipt of a claim or action, fully cooperates with LLC in the defense of such
claim or action, and permits LLC to control the defense and settlement of such
claim or action. Notwithstanding the above, LLC does not warrant and shall not
be liable to indemnify Noven from and against any claims, damages, expenses,
attorneys' fees, settlements and judgments arising out of any injury or damage
to a third party caused by latent defects in the
2
<PAGE> 4
Finished Product caused by the negligence or willful misconduct on the part of
Noven, for which Noven shall have the right to control the defense and settle
such claim or action. Noven agrees and warrants to indemnify and hold harmless
LLC from and against any and all claims, damages, expenses, attorneys' fees,
settlements and judgments for personal injury to a third party caused by latent
defects in the Finished Product caused by the negligence or willful misconduct
of Noven. This provision shall survive the expiration or termination of this
Agreement.
7. RECALLS. If an authorized government agency of the United
States or any country or territory based on requirements specifically notified
to Noven by LLC shall seize any Finished Product or if LLC deems it necessary to
initiate a voluntary recall for any commercially reasonable reason, LLC shall
immediately notify Noven of such seizure or recall and shall consult with Noven
regarding the timely compliance with all pertinent state or federal regulations
pertaining thereto. Furthermore, each party shall make a permanent and complete
record of all costs incurred thereby, a copy of which shall be delivered to the
other party as soon after the completion of such recall or seizure as
practically may be done. When the cause or reason of said recall or seizure
resides in the negligent failure of Noven to manufacture in accordance with the
Specifications or applicable, notified government rules and regulations, or in
the failure of said product to maintain stability for the period described in
the product labeling, Noven shall reimburse LLC for all reasonable costs
incurred by LLC in effecting such recall or seizure, including all reasonable
credits extended to LLC's customers as a result thereof. When the cause or
reason for said recall or seizure is anything other than that set forth in the
preceding sentence, including, but not limited to, failure by other than Noven
to store, transport or care for the Finished Product, LLC shall bear all costs
of such recall or seizure and indemnify Noven therefrom including reimbursement
for all reasonable costs incurred by Noven in effecting such recall or seizure.
8. TERM; TERMINATION. The term of this Agreement and the
Parties' obligations hereunder shall be deemed to have commenced on the earlier
of the termination of the Supply Agreement or the Effective Date (as defined in
the Amended and Restated Supply Agreement) and shall continue in effect until
the earlier to occur of the following events:
(a) the dissolution of LLC as provided in Article X of the
Operating Agreement dated as of May 1, 1998 between Novartis and Noven;
(b) the termination of the Amended and Restated Supply
Agreement; or
(c) the termination of the Restated License Agreement.
9. OBLIGATIONS UPON TERMINATION. Except as otherwise agreed by
the parties, within thirty (30) days of the effective date of the expiration or
any termination of this Agreement, LLC and any Supplier in possession of
Know-How shall cease to use and deliver to Noven, upon written request, all
Know-How, to the extent that such use is not permitted by the License Agreement
except for any documents or records which either LLC or the Supplier is required
to retain by law, and Noven shall do the same with respect to any LLC Know-How
in its possession. Noven shall deliver to LLC, at LLC's request and expense, all
Finished Product and preprinted packaging, labeling and stock materials which
are in the possession of Noven, for which LLC shall be obligated to make payment
upon delivery.
10. NOTICES. Any notice or communication required or permitted
to be given or made under this Agreement by one of the parties hereto shall be
in writing and shall be
3
<PAGE> 5
deemed to have been sufficiently given or made for all purposes if mailed by
certified mail, postage prepaid, addressed to such other party at its respective
address as follows:
(a) If to Noven, to:
Noven Pharmaceuticals, Inc.
11960 S.W. 144th Street
Miami, FL 33186
Attention: Mr. Robert C. Strauss,
President and Chief Executive Officer
Telephone: (305) 253-5099
Facsimile: (305) 232-1836
with a copy to:
Noven Pharmaceuticals, Inc.
11960 S.W. 144th Street
Miami, FL 33186
Attention: General Counsel
Telephone: (305) 253-5099
Facsimile: (305) 232-1836
or to such other person or address as Noven shall furnish to
the other parties hereto in writing.
(b) If to Novartis, to:
Novartis Pharmaceuticals Corporation
59 Route 10
East Hanover, NJ 07936
Attention: Office of the CEO
Telephone: (973) 781-8005
Facsimile: (973) 781-7036
with copies to:
Novartis Pharmaceuticals Corporation
59 Route 10
East Hanover, NJ 07936
Attention: General Counsel, Legal Department
Telephone: (973) 781-5230
Facsimile: (973) 781-5260
and
White & Case LLP
1155 Avenue of the Americas
New York, NY 10036
Attention: William F. Wynne, Jr., Esq.
Telephone: (212) 819-8200
Facsimile: (212) 354-8113
4
<PAGE> 6
or to such other person or address as Novartis shall furnish
to the other parties hereto in writing.
(c) If to LLC, to:
Vivelle Ventures LLC
c/o Noven Pharmaceuticals, Inc.
11960 S.W. 144th Street
Miami, FL 33186
Attention: Mr. Robert C. Strauss, President
Telephone: (305) 253-5099
Facsimile: (305) 232-1836
with copies to:
Novartis Pharmaceuticals Corporation
59 Route 10
East Hanover, NJ 07936
Attention: General Counsel
Telephone: (973) 781-5230
Facsimile: (973) 781-5260
and
White & Case LLP
1155 Avenue of the Americas
New York, NY 10036
Attention: William F. Wynne, Jr., Esq.
Telephone: (212) 819-8200
Facsimile: (212) 354-8113
or to such other person or address as LLC shall furnish to the
other parties hereto in writing.
11. FORCE MAJEURE. Neither party shall be responsible or
liable to the other hereunder for failure or delay in performance of this
Agreement due to any war, fire, accident or other casualty, or any labor
disturbance or act of God or the public enemy, or any other unforeseeable
contingency beyond such party's control. In addition, in the event of the
applicability of this Paragraph 11, the party affected by such force majeure
shall immediately use
5
<PAGE> 7
its best efforts to eliminate, cure and overcome any of such causes and resume
performance of its obligations.
12. ASSIGNMENT. This Agreement and all rights and obligations
hereunder are personal to the parties hereto and may not be assigned, other than
to Affiliates of Novartis, without the express prior written consent of the
other. Any assignment or attempt at same in the absence of such prior written
consent shall be void and without effect.
13. APPLICABLE LAW. This Agreement shall be construed, and the
rights of the parties determined, in accordance with the laws of the State of
New York without regard to choice of law principles of the State of New York.
14. SEVERABILITY. If any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions hereof shall not in any
way be affected or impaired thereby. In the event any provisions shall be held
invalid, illegal or unenforceable the parties shall use best efforts to
substitute a valid, legal and enforceable provision, which insofar as possible,
implements the purposes hereof. The same principle shall apply in respect of the
filling of any contractual gap.
15. AMENDED AND RESTATED SUPPLY AGREEMENT. Unless otherwise
specified herein, nothing contained in this Agreement shall affect the rights
and obligations of the parties under the Amended and Restated Supply Agreement
or the Restated License Agreement, and the terms and conditions of the Amended
and Restated Supply Agreement and the Restated License Agreement shall remain in
full force and effect.
16. NO WAIVER. The failure of any party hereto at any time or
times to require performance of any provisions hereof shall in no manner affect
its right to enforce such provision at a later time. No waiver by any party
hereto of any condition nor the breach of any term, covenant or representation
contained in this Agreement whether by conduct or otherwise in any one or more
instances shall be deemed to be or construed as a further or continuing waiver
of such condition or breach or a waiver of any other condition or deemed to be
or construed as the breach of any other term, covenant or representation in this
Agreement.
17. DRAFTSMANSHIP. The parties acknowledge and agree that this
Agreement is the product of extensive negotiation and neither party will be
deemed to have drafted this Agreement.
18. ENTIRE AGREEMENT. This Agreement among the parties made on
the date of execution hereof and Section 2 of the Sublicense Agreement,
constitute the entire understanding among the parties relating to the subject
matter hereof, and no amendment or modification to this Agreement shall be valid
or binding upon the parties unless made in writing and signed by the
representatives of such parties.
19. COUNTERPARTS. This Agreement and any amendments hereto may
be executed in one or more counterparts, each of which shall be deemed an
original, but all of which together will constitute one and the same instrument.
Delivery of an executed counterpart of a
6
<PAGE> 8
signature page to this Agreement by telecopier shall be as effective as delivery
of a manually executed counterpart of this Agreement.
7
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their duly authorized representatives as of the day and year
first written above.
NOVARTIS PHARMACEUTICALS CORPORATION
By: /s/ Paulo Costa
---------------------------------
Name: Paulo Costa
Title: President and Chief Executive Officer
Date: January 11, 2000
NOVEN PHARMACEUTICALS, INC.
By: /s/ Steven Sablotsky
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Name: Steven Sablotsky
Title: Chairman
Date: January 19, 2000
VIVELLE VENTURES LLC
By: /s/ Robert C. Strauss
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Name: Robert C. Strauss
Title: President
Date: January 19, 2000
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EXHIBIT 10.20
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AMENDED AND RESTATED SUPPLY AGREEMENT
By and Among
NOVARTIS PHARMACEUTICALS CORPORATION,
and
NOVEN PHARMACEUTICALS, INC.
Dated as of April 1, 1999
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
AMENDED AND RESTATED SUPPLY AGREEMENT
This AMENDED AND RESTATED SUPPLY AGREEMENT (the "Agreement")
is entered into as of April 1, 1999 (the "Effective Date"), by and between
Novartis Pharmaceuticals Corporation, a Delaware corporation ("Novartis") and
Noven Pharmaceuticals, Inc., a Delaware corporation ("Noven") (with each of
Noven and Novartis referred to individually as a "Party" or collectively as the
"Parties").
W I T N E S S E T H :
WHEREAS, Noven and Novartis, as the successor-in-interest to
the Pharmaceuticals Division of Ciba-Geigy Corporation, a New York corporation
("Ciba"), are parties to a certain Restated License Agreement (as defined
herein) covering the development, manufacture, and sale of the Finished Products
and a certain Supply Agreement (as defined herein) pursuant to which Noven
manufactured and supplied the Finished Products to Novartis; and
WHEREAS, Novartis and Noven have formed Vivelle Ventures LLC
pursuant to that certain Formation Agreement (the "Formation Agreement") dated
as of May 1, 1998 (the "LLC") for the purpose of creating a platform to maintain
and grow a franchise in women's health, focusing initially on the manufacture
and sale of the Finished Products; and
WHEREAS, Novartis as its contribution to LLC, among other
things, granted an exclusive sublicense to LLC of Novartis' rights under the
Restated License Agreement and made a limited assignment to LLC of Novartis'
rights and obligations under the Supply Agreement; and
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Securities and Exchange Commission. Asterisks denote omissions.
WHEREAS, Novartis desires Noven to supply it or the LLC, as
the case may be, with the Finished Products and Noven has the capability and is
desirous of supplying Finished Products to Novartis or the LLC pursuant to the
terms and conditions specified herein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions contained herein, the Parties agree to amend and
restate the Supply Agreement as follows, to more particularly set forth each
Party's rights and obligations thereunder:
ARTICLE 1. DEFINITIONS
The following terms, as used in the Agreement, shall have the
meanings set forth in this Article 1:
1.1 Except as otherwise provided herein, all capitalized terms
not defined herein shall have the same meaning ascribed to them in the Restated
License Agreement.
1.2 "GMP" shall mean the Current Good Manufacturing Practices
as that term is defined by the FDA which are in force or hereafter adopted by
the FDA in (a) its applicable regulations promulgated or issued thereunder, (b)
guidelines or directives that Noven and Novartis may mutually agree are
applicable, as amended from time to time and (c) good manufacturing practice as
required by GRB regulations.
1.3 "GRB" means the U.S. Food and Drug Administration or any
other government regulatory body of a country where the Finished Products are to
be sold or distributed which has authority over clinical testing, manufacturing,
marketing or sale of pharmaceutical products.
1.4 "Finished Products" shall mean the 17(beta)-estradiol
single active ingredient in a matrix currently being marketed by LLC under the
trademark "Vivelle" ("Vivelle") and the
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Securities and Exchange Commission. Asterisks denote omissions.
17(beta)-estradiol single active ingredient in a dot matrix currently being
marketed by Novartis (or the LLC as the case may be) under the trademark
"Vivelle-Dot" ("Vivelle-Dot") pursuant to the Restated License Agreement,
manufactured by Noven in accordance with the Specifications (as defined herein)
and supplied to Novartis by Noven in finished packaged form ready for retail
sale and distribution.
1.5 "Materials" shall mean all active ingredients and
excipients used in the manufacture of the Finished Products, as well as the
primary and printed packaging materials, collectively.
1.6 "Plant" shall mean (a) the Noven facility located at 11960
S.W. 144th Street, Miami, Florida 33186, and (b) any other Noven facility agreed
to by Novartis pursuant to paragraph 2.7 which has been qualified by a GRB for
manufacture of the Finished Products.
1.7 "Product Application" means a formal application seeking
approval to manufacture, market and sell the Finished Products within a
particular country or jurisdiction submitted by a Party to the appropriate GRB
under applicable laws, or such application owned by a Party including any
Abbreviated New Drug Application (ANDA) or New Drug Application (NDA), as
defined in the U.S. Federal Food, Drug and Cosmetic Act and applicable
regulations promulgated thereunder, as such are from time to time amended.
1.8 "Project Facilities" shall mean the Plant and all
facilities and equipment used by Noven to carry out the manufacture, storage,
disposal and transportation of the Finished Products, or any component thereof,
including those of any Noven contractor or subcontractor of any rank (including,
without limitation, environmental or health and safety consultant or waste
management firm).
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Securities and Exchange Commission. Asterisks denote omissions.
1.9 "Restated License Agreement" shall mean the Restated
License Agreement entered into between Noven and Novartis, dated November 15,
1991, pursuant to which Noven has granted Novartis an exclusive license under
the Patent Rights and Know-How (as defined therein), to manufacture, have
manufactured, use and sell the Finished Products and which has been exclusively
sublicensed to LLC pursuant to that certain Sublicense Agreement dated May 1,
1998.
1.10 "Specifications" shall mean, collectively, the Noven
manufacturing, packaging and standard testing procedures for the Finished
Products, including all applicable control procedures and analytical test
methods contained therein, as described in Exhibit A attached hereto, as may be
amended from time to time.
1.11 "Supply Agreement" shall mean that certain Supply
Agreement dated as of August 31, 1995 by and between Noven and Novartis assigned
in part to LLC pursuant to a Limited Assignment Agreement dated May 1, 1998 and
which has been amended and restated pursuant to this Agreement.
1.12 "Waste" shall mean all materials, except any Finished
Products or component thereof, present at the Plant and produced or generated in
connection with the manufacture of the Finished Products. Waste shall include
Finished Products or any component thereof which does not meet the
Specifications; waste water, recovered solvents, and other remainders and
materials; and components of the Finished Products, that are not used in the
manufacture by Noven of the Finished Products, or non-compliant Finished
Products which are returned to Noven pursuant to this Agreement.
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ARTICLE 2. MANUFACTURING
2.1 Noven shall manufacture the Finished Products in
accordance with the Specifications and all applicable laws and regulations
relating to the manufacture and packaging thereof, including but not limited to,
Sections 501, 502 and 505 of Federal Food, Drug and Cosmetic Act, as amended
from time to time. Upon Novartis' written request, Noven, at Novartis' expense,
shall provide Novartis with copies of any permits required by state and local
governing authorities having jurisdiction over any Plant for the operation of
any Plant or for the manufacture of the Finished Products.
2.2 The Specifications may be amended by mutual agreement of
Noven and Novartis. In the event that such changes result in increased
production costs to Noven, Noven and Novartis shall mutually agree as to the
allocation of such costs between the Parties. Additionally, Novartis shall
reimburse Noven for the costs of implementing any changes requested by Novartis
in labeling, packaging and preprinting of backing or pouch materials, and of
discontinuing stock of same due to such changes, provided, however, that
Novartis' obligation to reimburse Noven under this Section 2.2 shall be limited
to such quantities of stock as would be necessary for Noven to fill Novartis'
next Order (as defined in Section 4.3 herein) and for active drug substance,
such quantities sufficient to fill Novartis' requirements for a four-month
period. Notwithstanding the foregoing, Novartis, upon prior written notice to
Noven, shall have the right to change unilaterally the Specifications if
required by a GRB. In the event that change(s) required by a GRB result in
increased costs to Noven, all cost increases due to such change(s) shall be
shared equally between Noven and Novartis.
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2.3 Without the prior written approval of Novartis, which
approval shall not be unreasonably withheld, Noven shall not rework or reprocess
any Waste.
2.4 Noven acknowledges that it is familiar with and shall
abide by GMPs.
2.5 Noven shall keep accessible all books (including
laboratory books) and records maintained in connection with the testing of the
Finished Products, including those books and records relating to cross-over
cleaning, for a period of seven (7) years for purposes of United States
requirements and eleven (11) years in order to comply with Canadian requirements
from the date of generation of such documents.
2.6 Noven shall not change the manufacturing site for the
Finished Products from the Plant without the prior written approval of Novartis,
which approval shall not be unreasonably withheld.
2.7 Noven shall inform Novartis of any change in production
equipment used to manufacture the Finished Products prior to implementation, and
Novartis shall review each change in equipment within thirty (30) days after
notification in writing by Noven. All changes must be reviewed and approved in
writing by Novartis prior to being implemented, such approval not to be
unreasonably withheld, and Noven shall validate the production equipment where
required before production is initiated.
2.8 Noven shall package the Finished Products in accordance
with the Specifications and GMP, including identifying and labeling each
shipping unit as appropriate.
2.9 Notwithstanding anything contained herein to the contrary,
any Finished Products supplied by Noven for resale in Canada shall conform with
the standards, specifications, and all laws and regulations applicable with
respect to Canada, including but not
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limited to preprinting and labeling requirements, and shall be manufactured in a
facility approved for that purpose by the proper authorities of Canada, to the
extent that Novartis (a) assists Noven in determining of the applicable
standards, specifications, laws, and regulations of Canada and (b) agrees to an
appropriate increase in the per unit price for Finished Products in an amount
representing any increase in Noven's per unit cost for compliance therewith or
as a result of any Specification changes required by such standards,
specifications, laws and regulations.
2.10 ***.
ARTICLE 3. TERM
3.1 The term of this Agreement and the Parties' obligations
hereunder shall be deemed to have commenced on the earlier of the termination of
the Supply Agreement or the Effective Date and shall continue for three (3)
periods of twelve (12) months (each an "Agreement Year") with the first
Agreement Year commencing on the date this Agreement is executed by all Parties
(the "Term").
3.2 Six (6) months prior to the expiration of the Term the
Parties may negotiate to extend this Agreement for an additional twelve (12)
months (the "Extension Period").
ARTICLE 4. SUPPLY/PURCHASES
4.1 In each Agreement Year, Novartis agrees that it will
purchase from Noven and make payment for a minimum of *** ("Annual Purchase
Minimum"). For the time period representing the earlier of the termination of
the Supply Agreement or the Effective Date through the execution of this
Agreement by both parties (with such period herein referred to as the "Partial
Year"), Novartis agrees that it will purchase from Noven and make payment for a
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minimum amount of Finished Product equal to the pro rata share of the Annual
Purchase Minimum. For purposes of clarification, the Annual Purchase Minimum may
be comprised of any number of Vivelle and Vivelle-Dot individually prepackaged
dosage forms (each a "Unit") totaling, in the aggregate, *** of Finished
Products based upon the prices set forth on Exhibit B (as the same may be
adjusted in accordance with this Agreement). In the event that the actual
purchases of Finished Products are less than the Annual Purchase Minimum in any
Agreement Year, Noven may bill Novartis for the difference within thirty (30)
days following each Agreement Year. All amounts paid by Novartis (or by the LLC
as the case may be) to Noven for samples of Vivelle and Vivelle-Dot will be
credited in full against the Annual Purchase Minimum for the relevant Agreement
Year, Partial Year or portion thereof.
4.2 Noven represents and warrants that it possesses, and
covenants that during the Term and any Extension Period it will possess, the
capability of supplying Novartis, and that it shall supply Novartis pursuant to
Novartis' purchase orders, with *** Units of Finished Products ("Annual Supply
Minimum") during an Agreement Year. Noven further represents and warrants that
it possesses, and covenants that for the Partial Year it will possess, the
capability of supplying Novartis, and that it shall supply Novartis pursuant to
Novartis' purchase orders, with a minimum amount of Finished Product equal to
the pro rata share of the Annual Supply Minimum for said Partial Year. Noven's
failure to meet the Annual Supply Minimum shall be deemed a material breach of
the Agreement.
4.3 Within sixty (60) days after the execution of this
Agreement by both Parties, Novartis shall provide Noven with written forecasts
broken down monthly indicating each of the quantities of Vivelle and Vivelle-Dot
that Novartis estimates it will purchase during
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Securities and Exchange Commission. Asterisks denote omissions.
*** shall constitute a firm order ("Order"). Thereafter, at quarterly intervals,
Novartis shall provide Noven with an Order for one quarter plus an additional
one quarter's forecast, ***.
4.4 Orders will be placed within *** of each of the quantities
of Vivelle and Vivelle-Dot previously forecasted by Novartis ***; provided,
however, that Noven will use commercially reasonable efforts to produce
quantities in excess of *** of such Orders if requested by Novartis. Orders
shall indicate the quantities to be delivered and specific delivery dates which
shall be no sooner than ninety (90) days after receipt of an Order by Noven.
4.5 All Finished Products supplied by Noven pursuant to an
Order shall have been manufactured (a) no earlier than ninety (90) days prior to
the agreed upon delivery date of the Order, and (b) from a full lot of either
the Vivelle or Vivelle-Dot Unit dedicated to be delivered only to Novartis, so
that no portion of the lot from which either the Vivelle or Vivelle-Dot Unit
were manufactured shall have been delivered or planned to be delivered to a
third party. Noven shall complete the manufacturing process, including packaging
the Finished Product for retail sale, no later than six (6) months after the
manufacture of pouched system by Noven at the Plant.
4.6 Delivery of Finished Products shall be ***, title to
shipments of the Finished Products *** to ensure that the viability of the
Finished Product is maintained in accordance with the Specifications, ***.
4.7 The Parties agree that the provisions of this Agreement,
together with any amendments hereto, shall prevail over any inconsistent or
additional statements or provisions contained in any other documents passing
between the parties, including but not limited to, any Order, acknowledgment,
confirmation or notice.
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4.8 The license granted in Article 2 of the Restated License
Agreement shall not limit Noven's right to manufacture in the Territory
transdermal patch products containing estrogen and to export the same outside of
the Territory for resale by third parties outside the Territory, provided that:
(a) Noven shall not manufacture transdermal patch products
containing estrogen as the single active ingredient for any third party
for sale within the Territory without the prior written consent of
Novartis;
(b) All transdermal patch products containing estrogen as the
single active ingredient manufactured in the United States for export
by Noven or exported by Noven shall comply with all applicable laws and
regulations in the United States relating thereto, including without
limitation, GMPs;
(c) Noven will provide Novartis with (i) adverse drug
experience data required to be disclosed by Novartis under 21 C.F.R.
ss. 314.80 and/or 21 C.F.R. ss. 314.81 within five (5) business days of
receipt by Noven of the same as well as (ii) any additional information
required to be submitted by Novartis under 21 C.F.R. ss. 314.81, to the
extent that such additional information relates to transdermal patch
products containing estrogen as a single active ingredient, provided
that Noven now or hereafter has the right to disclose the same under
the terms of existing agreements with third parties, in a timely
manner;
(d) Except as required by law for export, Novartis labels or
labeling identifying Novartis shall not accompany or be placed on
transdermal patch products
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containing estrogen manufactured by Noven other than those manufactured
for Novartis; and
(e) Except for the right to manufacture for export granted
above, nothing in this Agreement confers any other rights upon Noven
under the NDA's or ANDA's transferred or required to be transferred to
Novartis pursuant to Article 7.2 of the Restated License Agreement. The
Restated License Agreement fully sets forth the rights of the parties
with respect to the NDA's and ANDA's transferred or required to be
transferred to Novartis.
ARTICLE 5. QUALITY CONTROL AND QUALITY ASSURANCE
5.1 Each lot of Finished Products manufactured by Noven in
accordance with Article 2 herein shall meet the applicable release standards as
set forth in the Specifications to assure the Finished Products meet regulatory
specifications at all times through the expiration date of that lot as defined
in the applicable Product Application. Noven shall employ appropriate change
control procedures to ensure that the applicable release standards remain
congruent with the applicable Product Application. Control procedures and
analytical test methods referenced in a given Product Application may not be
modified or superseded without the express written or verbal consent of Novartis
and only, if necessary, after approval by the appropriate GRB.
5.2 Noven shall be responsible for procuring all Materials and
shall ensure, through applicable GMP testing, that at all times all Materials
used in the manufacture of the Finished Products are in compliance with their
specifications and, as appropriate, are within the expiration dates printed on
their labels or packaging. Noven shall ensure that all Materials are stored
according to the precise storage conditions provided by their manufacturer or
supplier.
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Noven shall carry out all Materials testing in accordance with GMP and all
laboratory testing failures shall be promptly investigated and documented in
reasonable detail. Noven may release Materials for processing only upon receipt
of satisfactory test results. Noven shall employ appropriate change control
procedures to ensure the control procedures remain congruent with the applicable
Product Application and shall notify Novartis promptly of any changes to control
procedures.
5.3 Noven shall ensure that all Materials released for
processing are tested in accordance with agreed specifications and the filed
Product Application. Noven will confirm that all batches of Materials correspond
to the applicable specifications and GMP and are approved by Noven for
incorporation into the Finished Product. Noven shall retain samples of all
Materials used to prepare a lot of a Finished Product (except for water and
volatile solvents) for a period of at least one year beyond the expiration date
of the last lot of Finished Product containing said component. Packaging
components are represented by Noven's retention of samples of finished dosage
forms. The amount of retained sample shall be sufficient for at least three
complete and full testing analyses in accordance with the control procedures for
that component.
5.4 Noven shall investigate, in accordance with GMP, and
promptly notify Novartis in writing of any extraordinary event occurring during
the manufacture or packaging of a lot of Finished Product that is shipped to
Novartis. An "extraordinary event" is defined as any deviation from the
manufacturing and/or packaging procedures contained in the Specifications or
from GMP which may have the potential to result in a Finished Product outside
the established
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test specifications. Novartis reserves the right to review and evaluate all such
investigations prior to acceptance of a given lot of the Finished Product.
5.5 In-process testing shall be performed by Noven as required
by Noven's standard operating procedures but at all times consistent with the
applicable Product Application. Representative samples from each lot of a
Finished Product shall be tested by Noven for conformance with the requirements
of the applicable Product Application prior to shipment of the full lot unless
shipment prior to testing is agreed to in writing by Novartis. Any lot which
fails to conform to release standards shall be rejected. All laboratory testing
failures must be investigated and documented by the testing laboratory. Product
Specification failures resulting in batch rejections, in-process production and
environmental control specification failures, and critical equipment operating
parameter failures, must be fully investigated by Noven in a timely manner, to
determine the possible root cause, and necessary follow-up actions must be
conducted promptly. Noven shall notify Novartis in writing of each such failure
in the annual product review referred to in Section 5.8.
5.6 Noven shall complete a batch manufacturing record for each
lot of each Finished Product manufactured, retain it for at least seven (7)
years, and upon request shall provide a copy to Novartis. Records for all
Materials used in the manufacture of a particular lot of Finished Products as
well as supporting documentation for the validation of equipment and processes,
shall be retained for a period of one year beyond the expiration date of that
lot.
5.7 Noven shall store retained samples of each lot of Finished
Product as required by the applicable GRB. The amount retained shall be
sufficient for at least three complete and full testing analyses in accordance
with the control procedure.
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5.8 Noven shall perform follow-up stability testing and annual
product review in accordance with its standard operating procedures and
consistent with all applicable GRB regulations for each lot of Finished Product.
5.9 Noven shall be responsible for validating all
manufacturing and control procedures, including all applicable cleaning
procedures. Noven will allow Novartis to audit all relevant documents, as well
as the documentation concerning the qualification and calibration of equipment,
upon reasonable request.
5.10 Noven shall reject any lot which fails to meet the
applicable release standards as set forth in the Specifications or which does
not comply with the specifications set forth in the applicable Product
Application.
5.11 Noven shall provide test data and other information as
requested by Novartis to enable Novartis to evaluate and respond to customer
service and complaint handling operations relating to the Finished Products. In
the case of customer complaints or reports of adverse incidents relating to the
Finished Products, Noven shall provide Novartis, as promptly as possible, but in
all cases within fifteen (15) days from Noven becoming aware of said complaint
or incident, a written evaluation setting forth all relevant details applicable
to the complaint and, to the extent applicable, a copy of each customer or
regulatory complaint it receives concerning a Finished Product.
5.12 Each Party shall inform the other immediately upon
becoming aware of an upcoming or underway inspections by regulatory authorities
relating in any way to a Finished Product manufactured by Noven. Noven also
shall inform Novartis promptly upon becoming
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aware of any serious violation uncovered as a result of an inspection of its
facilities or its procedures which may impact the Finished Products or Novartis'
rights under this Agreement.
5.13 Re-use or issue by Noven of any returned Finished Product
bearing the Novartis tradename or any trademark owned by or licensed to Novartis
requires the express written approval of Novartis. Mis-shipments are not
classified as returned goods and can be placed back in distribution.
5.14 Upon reasonable notice and during normal business hours,
Novartis may inspect, on a confidential basis, Noven's facilities, batch records
and testing records to assure that the manufacturing and control processes were
carried out in accordance with GMP, the Specifications and all applicable GRB
regulations.
5.15 Any changes which may have a quality or regulatory impact
must be submitted to Novartis for approval prior to implementation. These
changes include but are not limited to changes or modifications to the existing:
manufacturing process, equipment, formulation, batch size, Material, suppliers,
processing of Materials, analytical methods, Specifications, storage conditions,
or transport conditions.
5.16 No later than two (2) months prior to the due date of
the annual report required to be filed with any GRB, for each of Vivelle and
Vivelle-Dot, Noven will furnish to Novartis information in reasonable detail
relating to stability data and any changes to the Specifications made in
accordance with this Agreement and any chemistry-related data. The Parties
acknowledge that the due date for the annual report required to be filed with
the U.S. Food and Drug Administration for each calendar year is October for
Vivelle and July for Vivelle-Dot.
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5.17 That certain Quality Assurance Agreement (the "QA
Agreement") by and between the Parties entered into on February 5, 1999,
attached as Exhibit C hereto, as amended from time to time, shall further define
the Parties obligations under this Article 5.
ARTICLE 6. PRICE
6.1 The price of each Unit of Vivelle and Vivelle-Dot
manufactured during the Term of the Agreement is set forth in Exhibit B attached
hereto.
6.2 The price of Finished Product, to be manufactured during
the Extension Period shall be negotiated by the Parties in good faith at least
six (6) months prior to the expiration of the Term of the Agreement.
6.3 The prices described in Section 6.1 shall be adjusted
thirty (30) days prior to each Agreement Year (except for the first Agreement
Year for which there is no adjustment) in accordance with any increases during
the previous Agreement Year in Noven's aggregate costs for materials and labor
used in manufacturing the Finished Products; provided, however, that no
adjustment shall exceed, on a percentage basis, the percentage increase in the
"Producer Price Index" published by the U.S. Department of Labor, Bureau of
Labor Statistics (the "Index") with 1998 as the base year or ***, whichever is
greater. If the cost of (a) either Estradiol, backing material or release liner
increases by *** or (b) any other raw material or combination of raw materials
increases by more than ***, Noven may, upon prior written notice to Novartis,
increase the prices for Finished Products by an amount which does not exceed
such increase in cost. Price increases under the preceding sentence shall be
effective solely during the period the cost increase is in effect and the
materials causing the increase are actually used in Finished Products.
Notwithstanding the prior two sentences, upon receipt of notice from Noven of a
price increase
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described in the prior two sentences, if Novartis is able to purchase the raw
material or materials subject to the cost increase at a lower cost than that
available to Noven, Novartis shall have the option of purchasing such raw
material or materials and providing them to Noven, in which case the price
increase described in the prior two sentences shall not take effect ***. Should
the publication of said Index be discontinued by said Bureau of Labor
Statistics, then such other indexes as may be published by said Bureau most
nearly approaching said discontinued Index shall be used in determining the
adjustment hereunder. Should said Bureau discontinue the publication of any such
index, then such indexes as may be published by another United States
governmental agency, as most nearly approximating the Index, shall govern and be
substituted as the Index hereunder.
6.4 During the Term of the Agreement or the Extension Period,
Novartis may propose making process improvements to manufacturing in order to
maximize the efficiency of the manufacturing processes. Noven shall act in good
faith to review any such proposal and, if implemented by Noven, the Parties
shall negotiate a reduction in the pricing of the Finished Products based upon
the improvement, taking into account each Party's costs incurred in realizing
such benefits, to ensure that the Parties share such benefits equally.
ARTICLE 7. RESPONSIBILITY
7.1 Noven shall use best efforts to manufacture and deliver
Finished Products to Novartis which meet the Specifications. Novartis shall use
best efforts to properly store, handle and care for the Finished Products while
in Novartis' possession or control. Novartis shall, within sixty (60) days after
Novartis receives delivery of each shipment of Finished Products, notify Noven
in the event of the non-compliance of the Specifications of all or any part
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of said shipment to the extent such non-compliance is not due to the fault of
Novartis, and shall immediately provide Noven with samples of the Finished
Products upon Noven's request. Failure to provide such notification to Noven
shall constitute acceptance by Novartis of the shipment, except for latent
defects caused by the gross negligence or willful misconduct of Noven.
7.2 In the event of notification by Novartis of any
non-compliance with the Specifications of the shipment to the extent such
non-compliance is not due to the fault of Novartis, the particular shipment
shall be set aside and held intact by Novartis until all questions relating to
the non-compliance of the shipment have been resolved, corrected, or remedied to
Novartis' satisfaction.
7.3 With respect to the purchase price and cost of
transportation and disposal of Finished Products that are not in compliance with
the Specifications, to the extent such non-compliance is not due to the fault of
Novartis, Noven's liability to Novartis shall be (a) at Novartis' option, (i)
replacement of the Finished Products, (ii) reimbursement of the purchase price
of the Finished Products, or (iii) credit to Novartis for future orders of
Finished Products; and (b) payment for the reasonable cost of transportation and
disposal of any non-compliant Finished Products.
7.4 Noven agrees and warrants to indemnify, defend, and hold
harmless Novartis from and against any and all claims, damages, expenses,
attorneys' fees, settlements, and judgments arising out of any injury or damage
to a third party alleged to be caused by the Finished Products supplied by Noven
to Novartis whether manufactured for or by Noven; provided, however, that
Novartis notifies Noven within twenty (20) days of receipt of a claim or
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Securities and Exchange Commission. Asterisks denote omissions.
action, fully cooperates with Noven in the defense of such claim or action, and
permits Noven to control the defense and settlement of such claim or action.
Notwithstanding the above, Noven does not warrant and shall not be liable to
indemnify Novartis from and against any claims, damages, expenses, attorneys'
fees, settlements and judgments to the extent arising out of any injury or
damage to a third party caused by the negligence or willful misconduct on the
part of Novartis or breach by Novartis of this Agreement, for which Novartis
shall have the right to control the defense and settle such claim or action.
Novartis agrees and warrants to indemnify and hold harmless Noven from and
against any and all claims, damages, expenses, attorneys' fees, settlements and
judgments for personal injury to a third party to the extent caused by the
negligence or willful misconduct of Novartis or breach by Novartis of this
Agreement. This provision shall survive expiration or termination of this
Agreement.
7.5 If an authorized government agency of the United States or
any country or territory shall seize any Finished Products or if Novartis in its
sole judgment deems it necessary to initiate a voluntary recall for any
commercially reasonable reason, Novartis shall immediately notify Noven of such
seizure or recall and shall consult with Noven regarding the timely compliance
with all pertinent state or federal regulations pertaining thereto. Notification
of the applicable GRB authorities shall be coordinated. Furthermore, each Party
shall make a permanent and complete record of all costs incurred thereby, a copy
of which shall be delivered to the other Party as soon after the completion of
such recall or seizure as practically may be done. When the cause or reason of
said recall or seizure resides in the negligent failure of Noven to manufacture
in accordance with the Specifications or applicable government rules and
regulations, or in the failure of said product to maintain stability for the
period described in the
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Securities and Exchange Commission. Asterisks denote omissions.
product labeling, Noven shall reimburse Novartis for all reasonable costs
incurred by Novartis in effecting such recall or seizure, including all
reasonable credits extended to Novartis' customers as a result thereof. When the
cause or reason for said recall or seizure is anything other than that set forth
in the preceding sentence, including, but not limited to, failure by others than
Noven or its agents to properly store or transport the Finished Products,
Novartis shall bear all costs of such recall or seizure and indemnify Noven
therefrom including reimbursement for all reasonable costs incurred by Noven at
Novartis' request in effecting such recall or seizure.
ARTICLE 8. PAYMENT
Payment for the Finished Products furnished to Novartis shall
be made by Novartis no later than thirty (30) days after Novartis' receipt of
the invoice from Noven or delivery of the Finished Products to Novartis,
whichever is later. In the event Novartis shall, with respect to any delivery of
the Finished Products complying with Specifications, fail to make payment of
undisputed amounts when due and payable, and shall fail to remedy such failure
within thirty (30) days after Novartis' receipt of written notice of such
failure from Noven, Noven may suspend its obligation (a) to meet the Annual
Supply Minimum and (b) deliver Finished Products pursuant to an Order, until
such undisputed amount has been paid in full. In addition to the foregoing, upon
written notice to Novartis, interest shall accrue on any undisputed amount due
and payable to Noven at the prime rate plus *** until such amount is paid. The
prime rate shall be the rate specified as the prime rate in the Wall Street
Journal on the date such undisputed amount was due and payable.
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Securities and Exchange Commission. Asterisks denote omissions.
ARTICLE 9. AUDIT AND INSPECTION RIGHTS
9.1 During the term of this Agreement and the Extension
Period, Novartis and its authorized representatives shall have the right, at
Novartis' expense, to audit, inspect and observe the manufacture, storage,
disposal and transportation of the Finished Products or Waste during normal
business hours upon five (5) days prior notice. All employees and
representatives of Novartis (a) shall comply with and observe all applicable
rules and regulations governing their conduct while performing their audit,
inspection, or observation, and (b) shall have no authority to manage,
supervise, or control, any of Noven's employees. Noven agrees to respond to
Novartis' audit findings within thirty (30) days of receipt of the audit report
and to be responsive to the recommendations contained therein.
9.2 Noven shall make available all records and reports
relating to the manufacture, storage, disposal and transportation of Finished
Products and/or Waste to Novartis, as well as those documents relating to
analytical and stability data, for Novartis' review during normal business hours
and upon reasonable prior notice to Noven, and Novartis shall have the right to
copy these documents as required. In the event that Novartis supplies materials
to be used by Noven, Novartis shall have the right to conduct inventory
reconciliation audits and other audits as reasonably required for its internal
control.
9.3 Noven agrees to fully respond within forty-five (45) days
of receipt, to an annual questionnaire provided by Novartis concerning Noven's
safety, health and environmental practices and any changes thereto.
9.4 Noven shall promptly give Novartis advance notice, to the
extent that advance notice is given to Noven, of any site visit to the Plant
regarding the manufacture,
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Securities and Exchange Commission. Asterisks denote omissions.
storage, disposal or transportation of the Finished Products or Waste by any
governmental or regulatory agency; provided, however, that Noven shall notify
Novartis within eight (8) hours of notification to Noven of any site visits by
the FDA or other GRB. Novartis shall have the option of attending any such site
visit by any governmental or regulatory agency, if the site visit relates
directly or indirectly to the manufacturing, storage, disposal and
transportation of the Finished Products. Should Novartis not participate in the
site visit, Noven shall fully report in writing the substance and results of the
visit to Novartis within seven (7) days of the occurrence thereof. In the event
that any such governmental or regulatory agency finds that a Plant is deficient
or unsatisfactory in any respect, Novartis shall have the option to (a) assist
Noven, at Noven's expense in correcting the deficiency, or (b) terminate this
Agreement provided the violations materially impair Noven's capability to
continue to produce Finished Products in accordance with this Agreement.
ARTICLE 10. WASTE DISPOSAL
Noven shall assume responsibility for disposing of all Waste
in accordance with all applicable laws and regulations, and in accordance with
all Novartis requirements, standards and procedures provided in writing to
Noven. Novartis shall provide to Noven a list of disposal sites previously
approved by Novartis. If Novartis and Noven cannot mutually agree upon a
disposal method or site, Novartis shall have the option of assuming the
responsibility to dispose of such Waste itself at Noven's expense, such expense
not to exceed that which would otherwise be incurred or expended by Noven if
lawfully disposed of by Noven. Copies of all documentation evidencing disposal
by Noven shall be made available to Novartis upon Novartis' request and expense.
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Securities and Exchange Commission. Asterisks denote omissions.
ARTICLE 11. SAFETY
Noven shall comply with all applicable health and safety
regulations policies and procedures relating to the manufacture and packaging of
the Finished Products including the transmission by Noven to its employees of
health and safety information relating to the Finished Products, and their
manufacture, storage, disposal and transportation.
ARTICLE 12. ENVIRONMENTAL, HEALTH AND SAFETY WARRANTY INDEMNIFICATION
Noven represents and warrants that all Project Facilities
shall be in full compliance with all applicable health, safety and
environmental, laws, statutes, ordinances, regulations, rules and
pronouncements. Noven agrees and warrants to indemnify, defend and hold harmless
Novartis, its officers and employees, from any and all liability (including
strict and joint and several liability) or loss arising from or related to
(including liability for threatened harm) Project Facilities and Waste disposal.
Novartis agrees and warrants to indemnify, defend and hold harmless Noven, its
officers and employees, from any and all liability (including strict and joint
and several liability) or loss arising from or related to Waste disposal for
which Novartis has assumed responsibility.
ARTICLE 13. CONFIDENTIALITY
(a) Each Party acknowledges that the information disclosed in
connection with the activities contemplated hereunder may contain confidential
information of the disclosing Party ("CONFIDENTIAL INFORMATION"), and that any
such Confidential Information shall remain the property of the disclosing Party
(such Party hereinafter referred to as the "DISCLOSING PARTY"). Each Party
agrees, covenants and acknowledges that, except to the extent expressly
permitted by
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Securities and Exchange Commission. Asterisks denote omissions.
this Agreement or as otherwise agreed to by the Parties in writing, from and
after the Effective Date of this Agreement, it will not disclose, give, sell,
use or otherwise divulge any Confidential Information received from the
Disclosing Party (whether written or oral) which is marked as CONFIDENTIAL or
orally indicated to be confidential and subsequently confirmed in writing as
confidential within thirty (30) days after its disclosure.
(b) Each Party agrees, covenants and acknowledges that from
and after the Effective Date of this Agreement, it will exercise the same degree
of care with respect to protecting the Confidential Information of the
Disclosing Party as the care it exercises with respect to its own Confidential
Information.
(c) In the event a Party or its respective employees,
officers, directors or advisors, who have received Confidential Information
(hereafter the "RECIPIENT"), become legally compelled to disclose any
Confidential Information, such Recipient shall provide the Disclosing Party with
prompt written notice of such requirement so that such Disclosing Party may seek
a protective order or other remedy or waive compliance with this Article 13. In
the event that such protective order or other remedy is not obtained, or such
Disclosing Party waives compliance with this Article 13, then the Recipient
shall furnish only that portion of Confidential Information which is legally
required to be provided and exercise its best efforts to obtain assurances that
appropriate confidential treatment will be accorded the Confidential
Information.
(d) The confidentiality and restrictive use obligations under
this Article 13 shall not apply to (i) any information that, at the time of
disclosure, is or subsequently becomes available publicly; PROVIDED, HOWEVER,
that such information was not disclosed in breach of this Agreement by the
Recipient or any of its Affiliates or their respective employees, officers,
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Securities and Exchange Commission. Asterisks denote omissions.
directors or advisors, or (ii) is hereafter made available to the Recipient from
a source other than the Disclosing Party, which source did not obtain same from
the Disclosing Party and did not impose an obligation of confidentiality on the
Recipient.
(e) The Parties recognize that the performance of the
obligations under this Article 13 are special, unique and extraordinary in
character, and that in the event of the breach by either Party or their
Affiliates or their respective employees, officers, directors or advisors of the
terms and conditions of this Article 13, the Disclosing Party shall be entitled,
if it so elects, to institute and prosecute proceedings in any court of
competent jurisdiction, either at law or in equity, to enforce the specific
performance thereof by such Party or to enjoin such Party or their Affiliates or
their respective employees, officers, directors or advisors from violating the
provisions of this Article 13.
ARTICLE 14. INTELLECTUAL PROPERTY
All inventions, whether patentable or not, conceived and
reduced to practice by Novartis alone shall be owned by Novartis. All
inventions, whether patentable or not, conceived and reduced to practice by
Noven alone shall be owned by Noven. All inventions, whether patentable or not,
conceived and reduced to practice jointly by Novartis and Noven shall be owned
jointly by Novartis and Noven.
ARTICLE 15. TERMINATION AND DEFAULT
15.1 TERMINATION
15.1.1 Novartis may terminate this Agreement during the Term
without cause upon ninety (90) days' written notice; provided, however, that
Novartis shall be obligated to pay
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Securities and Exchange Commission. Asterisks denote omissions.
the Annual Purchase Minimum in accordance with the provisions of Section 4.1
herein for the remainder of the Term, but excluding the Extension Period.
15.1.2 Noven may not terminate this Agreement except as
otherwise provided herein.
15.1.3 The right of, either Party to terminate this Agreement,
as herein provided, shall not be affected in any way by its waiver of or failure
to take action with respect to any previous defaults.
15.1.4 This Agreement and the obligations of the parties
hereunder shall immediately terminate upon termination of the Restated License
Agreement.
15.2 DEFAULT
15.2.1 If Noven shall be in default with respect to any
material obligation hereunder and fail to cure such default within thirty (30)
days after notice thereof, then Novartis may terminate this Agreement during the
Term or the Extension Period by giving thirty (30) days' prior written notice to
that effect.
15.2.2 Notwithstanding Section 15.2.1 above, any intentional
violation by Noven of Article 10, 11 or 12 shall be grounds for immediate
termination by Novartis of this Agreement during the Term or the Extension
Period.
15.2.3 Notwithstanding Section 15.2.1 above, Novartis shall
have the right to immediately terminate this Agreement during the Term or the
Extension Period in the event of (a) a Change of Control event with respect to
Noven as defined in that certain Limited Liability Company Operating Agreement
(the "Operating Agreement") dated as of May 1, 1998 by and between the Parties
that, at such time, would permit Novartis to dissolve the LLC pursuant to the
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terms of such Operating Agreement or (b) an assignment or delegation of this
Agreement by Noven without the prior written consent of Novartis.
15.2.4 In the event that Noven is not able to supply any
portion of the Finished Products pursuant to an Order, then Novartis shall have
the right to manufacture, or have a third party manufacture on its behalf, that
portion of Novartis' requirements of the Finished Products which Noven is not
able to supply. If Noven is not able to supply any portion of the Finished
Products pursuant to an Order for more than one hundred and twenty (120) days,
then Novartis shall have the right (a) to source from another manufacturer, (b)
void the terms of Articles 4 in whole or in part, and (c) terminate this
Agreement.
15.2.5 Either party shall have the right to terminate this
Agreement in the event that any proceeding under a Bankruptcy Act or an
insolvency, receivership or dissolution proceeding is filed by or against the
other party and such proceeding is not dismissed within sixty (60) days after
the filing thereof.
15.2.6 Noven shall also have the right to terminate this
Agreement if Novartis fails to make payment(s) (i) upon undisputed amounts
exceeding *** or (ii) upon any amounts exceeding *** due hereunder within the
time provided therefor and continues in default for more than ninety (90) days
after receiving notice from Noven, such termination to be effective upon further
notice to Novartis after failure by Novartis to cure such default.
ARTICLE 16. OBLIGATIONS UPON TERMINATION
Except as otherwise agreed by the parties, within thirty (30)
days of the effective date of the expiration or any termination of this
Agreement, Novartis and any Supplier in possession of Know-How shall cease to
use and deliver to Noven, upon written request all
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Securities and Exchange Commission. Asterisks denote omissions.
Know-How, to the extent that such use is not permitted by the Restated License
Agreement except for any documents or records which either Novartis or the
Supplier is required to retain by law, and Noven shall do the same with respect
to any Novartis Know-How in its possession. Noven shall deliver to Novartis, at
Novartis' request and expense, all Finished Products and preprinted packaging,
labeling and stock materials which are in the possession of Noven, for which
Novartis shall be obligated to make payment upon delivery.
ARTICLE 17. INSURANCE
Noven shall maintain the types and amounts of insurance set
forth in Exhibit D, attached hereto.
ARTICLE 18. PUBLICITY
Without the prior written consent of Novartis as to the text,
intended date and time (EST time) of publication, Noven agrees not to issue any
press release or other public statement disclosing the existence of or relating
to this Agreement; provided, however, that Noven shall not be prevented from
complying with any duty of disclosure it may have pursuant to law or applicable
stock exchange rules.
ARTICLE 19. ASSIGNMENT
Neither Party shall assign its rights or obligations hereunder
to a third party without the prior written consent of the other Party, such
consent not to be unreasonably withheld, and any attempt to make such assignment
without such consent shall render this Agreement null and void.
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Securities and Exchange Commission. Asterisks denote omissions.
ARTICLE 20. GOVERNING LAW
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to
choice-of-law principles of the State of New York.
ARTICLE 21. SEVERABILITY
If any one or more of the provisions of this Agreement shall
be held to be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remaining provisions hereof shall not in any way be
affected or impaired thereby. In the event any provisions shall be held invalid,
illegal or unenforceable, the parties shall use best efforts to substitute a
valid, legal and enforceable provision, which, insofar as practical, implements
the purposes hereof.
ARTICLE 22. NOTICES
22.1 All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier, facsimile transmission or other electronic means of
transmitting written documents; or (c) sent to the Parties at their respective
addresses indicated herein by registered or certified U.S. mail, return receipt
requested and postage prepaid, or by private overnight mail courier service. The
respective addresses to be used for all such notices, demands or requests are as
follows:
(a) If to Noven, to:
Noven Pharmaceuticals, Inc.
11960 S.W. 144th Street
Miami, FL 33186
Attention: Mr. Robert C. Strauss, President and
Chief Executive Officer
Telephone: (305) 253-5099
Facsimile: (305) 232-1836
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
with a copy to:
Noven Pharmaceuticals, Inc.
11960 S.W. 144th Street
Miami, FL 33186
Attention: General Counsel
Telephone: (305) 253-5099
Facsimile: (305) 232-1836
or to such other person or address as Noven shall furnish to
Novartis in writing.
(b) If to Novartis, to:
Novartis Pharmaceuticals Corporation
59 Route 10
East Hanover, NJ 07936
Attention: Office of the CEO
Telephone: (973) 781-8005
Facsimile: (973) 781-7036
with copies to:
Novartis Pharmaceuticals Corporation
59 Route 10
East Hanover, NJ 07936
Attention: General Counsel
Telephone: (973) 781-5230
Facsimile: (973) 781-5260
and
White & Case LLP
1155 Avenue of the Americas
New York, NY 10036
Attention: William F. Wynne, Jr., Esq.
Telephone: (212) 819-8200
Facsimile: (212) 354-8113
or to such other person or address as Novartis shall furnish
to Noven in writing.
If personally delivered, such communication shall be deemed
delivered upon actual receipt; if electronically transmitted pursuant to this
paragraph, such communication shall be deemed delivered on the day transmitted
unless it is received after 5:00 p.m., New York time,
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Securities and Exchange Commission. Asterisks denote omissions.
or on a day which is not a business day, in which case it shall be deemed
delivered on the next business day after transmission (and sender shall bear the
burden of proof of delivery); if sent by overnight courier pursuant to this
paragraph, such communication shall be deemed delivered upon receipt; and if
sent by U.S. mail pursuant to this paragraph, such communication shall be deemed
delivered as of the date of delivery indicated on the receipt issued by the
relevant postal service, or, if the addressee fails or refuses to accept
delivery, as of the date of such failure or refusal. Either Member may change
its address for the purposes of this Agreement by giving notice thereof in
accordance with this Section.
ARTICLE 23. FORCE MAJEURE
Neither Party shall be responsible or liable to the other
hereunder for failure or delay in performance of this Agreement due to any war,
fire, accident or other casualty, any governmental action, any labor
disturbance, any act of God or the public enemy, or any other cause beyond such
Party's reasonable control. In the event of the application of this Article, the
party affected by such force majeure shall use its best efforts to eliminate,
cure and overcome any of such causes and resume performance of its obligations;
provided, however, that either Party shall have the right to terminate this
Agreement if performance of this Agreement is prevented for a continuous period
of one hundred twenty (120) days.
ARTICLE 24. COST
Unless otherwise specified, each Party shall bear the full
cost of its compliance with the terms of this Agreement and its respective
obligations hereunder. For purposes of this Agreement, the term "costs" when
used herein shall mean the fully allocated costs including but not limited to
the fully allocated cost of goods and services and manufacturing overhead
directly
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
related to Finished Products, and allocation of all administrative and general
expenses directly related to Finished Products. Costs shall be determined by
generally accepted accounting principles, applied on a consistent basis.
ARTICLE 25. LICENSE AGREEMENT AND OTHER AGREEMENTS
Unless otherwise specified herein and the Exhibits attached
hereto, nothing contained in this Agreement shall affect the rights and
obligations of the Parties under the Restated License Agreement, the Formation
Agreement or any other agreement by and between the Parties and the terms and
conditions of all such agreements shall remain in full force and effect.
ARTICLE 26. ENTIRE AGREEMENT
This Agreement and the Exhibits attached hereto constitute the
entire understanding between the Parties relating to the subject matter hereof,
and no amendment or modification to this Agreement shall be valid or binding
upon the Parties unless designated as such, made in writing and signed by the
representatives of such Parties.
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Securities and Exchange Commission. Asterisks denote omissions.
IN WITNESS WHEREOF, this Agreement has been duly executed by
the Parties to be effective as of the day and year first written above.
NOVEN PHARMACEUTICALS, INC.
By /s/ Robert C. Strauss
--------------------------------------
Name: Robert C. Strauss
Title: President and Chief Executive Officer
Date: January 18, 2000
NOVARTIS PHARMACEUTICALS
CORPORATION
By /s/ Paulo Costa
--------------------------------------
Name: Paulo Costa
Title: President and Chief Executive Officer
Date: January 11, 2000
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Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT A
FINISHED PRODUCT SPECIFICATION
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Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT B
FINISHED PRODUCT PRICE SCHEDULE
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Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT C
QUALITY ASSURANCE AGREEMENT
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Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT D
INSURANCE
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Exhibit 11
Noven Pharmaceuticals, Inc.
Computation of Earnings per Share
(in thousands except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
BASIC EARNINGS (LOSS):
Net income (loss) $ 10,460 $ (4,079) $ (9,557)
Weighted average number
of common shares outstanding 21,508 21,013 20,159
======== ======== ========
Basic earnings (loss) per share $ 0.49 $ (0.19) $ (0.47)
======== ======== ========
DILUTED EARNINGS (LOSS):
Net income (loss) $ 10,460 $ (4,079) $ (9,557)
Weighted average number
of common shares outstanding 21,508 21,013 20,159
Potential dilution on exercise of stock options 389 -- --
-------- -------- --------
Weighted average number
of common shares outstanding, as adjusted 21,897 21,013 20,159
======== ======== ========
Diluted earnings (loss) per share $ 0.48 $ (0.19) $ (0.47)
======== ======== ========
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in Registration Statement
No. 333-64081 of Noven Pharmaceuticals, Inc. on Form S-8, in Registration
Statement No. 333-56293 of Noven Pharmaceuticals, Inc. on Form S-3 and in
Registration Statement No. 333-90835 of Noven Pharmaceuticals, Inc. on Form S-8
of our report dated February 25, 2000, appearing in this Annual Report on Form
10-K of Noven Pharmaceuticals, Inc. for the year ended December 31, 1999.
Miami, Florida
March 20, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NOVEN
PHARMACEUTICALS, INC. FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 15,338
<SECURITIES> 0
<RECEIVABLES> 3,215
<ALLOWANCES> 167
<INVENTORY> 3,578
<CURRENT-ASSETS> 26,030
<PP&E> 21,317
<DEPRECIATION> 5,988
<TOTAL-ASSETS> 56,888
<CURRENT-LIABILITIES> 9,449
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 39,393
<TOTAL-LIABILITY-AND-EQUITY> 56,888
<SALES> 31,334
<TOTAL-REVENUES> 31,650
<CGS> 12,721
<TOTAL-COSTS> 27,752
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,728
<INCOME-TAX> (4,732)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,460
<EPS-BASIC> .49
<EPS-DILUTED> .48
</TABLE>
