SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Copley Pharmaceutical, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-2514637
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
25 John Road 02021
Canton, Massachusetts (Zip code)
(Address of principal executive offices)
Commission file number: 0-20126
Registrant's telephone number, including area code: (781) 821-6111
Securities registered pursuant to Section 12(b) of the Act:
None Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $.01 Par Value
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 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]
Aggregate market value, as of March 15, 1999, of common stock held by
non-affiliates of the registrant: $88,568,678.00, based on the last reported
sale price on The Nasdaq National Market.
Number of shares of common stock outstanding on March 15, 1999: 19,216,982
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive Proxy Statement pursuant to
Regulation 14A within 120 days of the year ended December 31, 1998. Portions of
such Proxy Statement are incorporated by reference in Part III of this report.
<PAGE>
PART 1
ITEM 1: BUSINESS
Overview
Copley Pharmaceutical, Inc. ("Copley" or the "Company"), established in 1972,
develops, manufactures, markets and distributes a broad range of multi-source
pharmaceutical products. These products include prescription and
over-the-counter ("OTC") drugs and are available in a variety of dosage forms
consisting of tablets, solutions, suspensions, syrups, elixirs, jellies, creams,
ointments and powders. The Company's product categories include, among others,
preparations for neoplasms, endocrine system and metabolic diseases,
anti-infective agents, central nervous system and sense organ drugs, respiratory
system drugs, cardiovascular system drugs, vitamins and nutrients, and skin
preparations. The Company sells its products to prescription and OTC drug
distributors, retail chains, wholesalers, hospitals, health maintenance
organizations ("HMOs"), other managed care entities and government agencies.
Multi-source, or generic, drugs are the chemical and therapeutic
equivalents of brand-name drugs. They are required to meet similar governmental
standards as brand-name drugs and must receive Food and Drug Administration
("FDA") approval prior to manufacture and sale. Multi-source drugs may be
manufactured and marketed only if relevant patents (and any additional
government-mandated market exclusivity periods) have expired. These drugs are
typically sold under their generic chemical names at prices significantly below
those of their brand-name equivalents.
Forward-looking statements (statements which are not historical facts)
in this report are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that all
forward-looking statements, including statements about product filings and
approvals, industry trends, strategic initiatives, raw material supply, net
sales, the Year 2000 issue, price erosion, gross profit, research and
development expenses, selling, marketing and distribution expenses, general and
administrative expenses, capital expenditures, recall related and litigation
expenses, restructuring and other expenses, and interest expense, involve risks
and uncertainties, including the risks and uncertainties detailed below, and
actual results may differ significantly from those in any forward-looking
statements.
Generic Drug Market
Generic pharmaceutical sales have increased significantly industry wide in
recent years, and the Company believes that the trend is likely to continue. In
the next decade, patents will expire on several widely prescribed brand-name
drugs, creating new market opportunities.
Industry growth is due in part to an increased awareness and acceptance
among consumers, physicians and pharmacists that generic drugs are the
therapeutic equivalents of brand-name drugs. Among the factors contributing to
this increased awareness are the passage of state legislation permitting or
encouraging substitution by pharmacists and the FDA's publication of a list of
therapeutic equivalent drugs, which provides physicians and pharmacists with
generic drug alternatives. In addition, since generic pharmaceutical products
are typically sold at prices significantly below those of their brand-name
equivalents, various government agencies and many private managed care or
insurance programs encourage the prescribing of generic drugs as a cost-savings
measure in the purchase of, or reimbursement for, prescription drugs. Many
hospitals have generic-substitution formularies in place. Additionally, drug
chains and mail-order prescription services have shown a preference for
dispensing generic drugs and for distributing private-label versions of OTC
drugs. The Company believes that these factors will continue to influence growth
in the market for generic drugs.
2
<PAGE>
Product Development Strategy and Products
The Company's product development strategy emphasizes multiple approaches for
developing and marketing new products. The Company's principal focus is to
obtain FDA approval to market equivalent formulations of prescription drugs
through the Abbreviated New Drug Application ("ANDA") process. Typically, the
Company targets its ANDA's for niche products with limited competition and
high-volume pharmaceutical products. Additional strategies include introducing
OTC drugs once their brand-name equivalents are converted from prescription to
OTC status and marketing generic versions of certain drugs now manufactured by
Hoechst Marion Roussel, Inc. ("HMRI"), a subsidiary of Hoechst
Aktiengesellschaft, the Company's indirect 51% fully diluted shareholder,
pursuant to the Product Agreement(Refer to note J of the Notes to Consolidated
Financial Statements) between Copley and Hoechst Corporation ("HC").
ANDA-Approved Drugs: The Company's core business remains the development and
marketing of generic prescription drugs. The Company continues to focus on niche
products that offer a significant opportunity for the Company but which may not
necessarily attract larger or numerous competitors, either because the market
for such drugs is relatively small or because the products employ extended
release or other complex delivery systems that are difficult to formulate. The
Company also focuses on certain high-volume pharmaceutical products to respond
to customer demand that suppliers carry a broad array of products.
Copley is seeking to expand its product line with new higher-profit
margin products. The Company has obtained a license from the U.S. Drug
Enforcement Administration to manufacture Schedule 2 and Schedule 4 controlled
substances. In January 1999, the Company received its first FDA approval of an
ANDA for a Schedule 4 drug product. The Company believes it may have a
competitive advantage with respect to these products because relatively few
generic drug companies have facilities approved for the manufacture of
controlled substances.
Prescription to OTC Conversion: The Company believes that a number of drugs will
be reclassified from prescription to OTC over the next several years. The
Company also believes the OTC market will expand as consumers more readily
choose self-treatment and as drug companies and health care payers urge the FDA
to accelerate the approval of OTC products. The Company has experience in this
marketplace, having manufactured several OTC products, including miconazole
nitrate vaginal cream, the generic equivalent of Ortho McNeil's Monistat(R)7 and
two minoxidil topical solution products, the off-patent versions of Pharmacia &
Upjohn's Rogaine(R). In addition, the Company believes that private label store
brands will continue to gain market share within the OTC market.
Generic Versions of HMRI Drugs: The Company's Product Agreement with HC afforded
the Company the opportunity to distribute and market certain identified HMRI
drug products. The Company has entered into five year, renewable contracts to
market glyburide, the generic version of HMRI's DiaBeta(R), and micronized
glyburide, the therapeutic equivalent of Pharmacia & Upjohn's Glynase(R) and
HMRI's GluBate(R), and pentoxifylline, the generic version of HMRI's Trental(R).
The Company does not expect to distribute and market any additional new products
under the Product Agreement.
Additionally, the Company is exploring the possibility of developing
new pharmaceutical products of its own under the federal New Drug
Application ("NDA") process. Also under consideration are alliances with certain
brand-name drug companies to produce generic versions of these companies'
proprietary products. Additional vitamin products and other nutritional
supplements also are potential growth areas. Finally, the Company may enter into
collaborative manufacturing agreements with biotechnology companies to take
advantage of the Company's high capacity, modern manufacturing facility.
3
<PAGE>
As of March 16, 1999 the Company was marketing the following products:
<TABLE>
<S> <C> <S>
Number of Dosage
Products Strengths Brand Name/Company
- - -----------------------------------------------------------------------------------------------------------------------------------
Preparations for Neoplasms, Endocrine System and Metabolic Diseases
glyburide tablets 3 DiaBeta(R)/Hoechst Marion Roussel, Inc.
hydrocortisone enema suspension 1 Cortenema(R)/Solvay
hydrocortisone valerate 3 Westcort(R)/Westwood-Squibb
micronized glyburide tablets 2 GluBate(R)/Hoechst Marion Roussel, Inc.
Glynase(R)/Pharmacia & Upjohn
Anti-Infective Agents
amantadine HCl syrup 1 Symmetrel(R)/Endo
hydroxychloroquine sulfate tablets 1 Plaquenil(R)/Sanofi
mebendazole tablets 1 Vermox(R)/Janssen
miconazole nitrate vaginal cream 1 Monistat(R) 7/Ortho McNeil
Central Nervous System and Sense Organ Drugs
diclofenac sodium delayed-release tablets 3 Voltaren(R)/Novartis
doxepin HCl oral solution 1 Sinequan(R)/Pfizer
ethosuximide syrup 1 Zarontin(R)/Parke-Davis
fluphenazine HCl concentrate oral solution 1 Prolixin(R)/Apothecon
fluphenazine HCl elixir 1 Prolixin(R)/Apothecon
haloperidol oral solution 1 Haldol(R)/McNeil
methazolamide tablets 2 Neptazane(R)/Storz-Lederle
naproxen tablets 3 Naprosyn(R)/Roche
prochlorperazine maleate tablets 2 Compazine(R)/SmithKline Beecham
thioridazine HCl oral solution 1 Mellaril(R)/Novartis
thiothixene HCl oral solution 1 Navane(R)/Pfizer
valproic acid syrup 1 Depakene(R)/Abbott
Respiratory System Drugs
bromatapp extended release ("ER") tablets 1 Dimetapp Extentabs(R)/Whitehall Robins
clemastine fumarate syrup 1 Tavist(R)/Novartis
doxylamine succinate tablets 1 Unisom(R)/Pfizer
R-tannate pediatric suspension 1 Rynatan(R)/Wallace
R-tannate tablets 1 Rynatan(R)/Wallace
Prescription Vitamins and Nutrients
B-complex vitamins plus tablets 1 Berocca(R)Plus/Roche
fluoride tablets 1 Luride(R)/Colgate
multivitamins with fluoride tablets 2 Poly-Vi-Flor(R)/Mead Johnson
multivitamins with fluoride & iron tablets 2 Poly-Vi-Flor(R)with Iron/ Mead Johnson
potassium chloride ER tablets 1 Slow-K(R)/Summit
prenatal plus iron tablets 1 Stuartnatal(R)Plus/Wyeth-Ayerst
Prenatal Optima(R) 1 Prenate Ultra(R)/Sanofi
prenatal Rx tablets 1 Natalins(R)Rx/Mead Johnson
sodium fluoride drops 1 Luride(R)/Colgate
Cardiovascular System Drugs
amiodarone hydrochloride 1 Cordarone(R)/Wyeth-Ayerst
captopril tablets 4 Capoten(R)/Bristol-Myers Squibb
diltiazem HCl tablets 4 Cardizem(R)/Hoechst Marion Roussel, Inc.
guanabenz acetate tablets 2 Wytensin(R)/Wyeth-Ayerst
nadolol tablets 3 Corgard(R)/Bristol-Myers Squibb
pentoxifylline tablets 1 Trental(R)/Hoechst Marion Roussel,Inc.
procainamide HCl ER tablets 3 Procan(R) SR/Monarch
quinidine sulfate ER tablets 1 Quinidex Extentabs(R)/Robins
4
<PAGE>
Number of Dosage
Products Strengths Brand Name/Company
- - -----------------------------------------------------------------------------------------------------------------------------------
Skin Preparations
clobetasol propionate cream 1 Temovate(R)/Glaxo-Wellcome
clobetasol propionate ointment 1 Temovate(R)/Glaxo-Wellcome
lidocaine HCl jelly 1 Xylocaine(R)/Astra
minoxidil topical solution 2% for men 1 Rogaine(R)/Pharmacia & Upjohn
minoxidil topical solution 2% for women 1 Rogaine(R)/Pharmacia & Upjohn
silver nitrate solution 1 silver nitrate
tretinoin 1 Retin-A(R)/Ortho Dermatological
Digestive and Genito-Urinary System Drugs
cholestyramine powder 1 Questran(R)/Bristol-Myers Squibb
cholestyramine light 2 Questran Light(R)/Bristol-Myers Squibb
Oral and Dental Agents
acidulated phosphate fluoride oral rinse 1 Phos-Flur(R)/Colgate
Diagnostic Substances
copper sulfate solution 1 copper sulfate
</TABLE>
Except for Copley, Bromatapp, and Prenatal Optima, all brand names, trademarks
or registered trademarks appearing in this report are the property of others.
For the year ended December 31, 1998, preparations for neoplasms, endocrine
system and metabolic diseases and cardiovascular system drugs (which consists of
both manufactured and distributed products) and anti-infective agents (which
consists only of manufactured products) accounted for 31.9%, 22.1% and 16.8% of
net sales, respectively. For the year ended December 31, 1997, preparations for
neoplasms, endocrine system and metabolic diseases and cardiovascular system
drugs (which consists of both manufactured and distributed products) and
anti-infective agents and central nervous system and sense organ drugs (which
consists only of manufactured products) accounted for 35.9%, 12.2%, 20.7% and
10.5% of net sales, respectively. For the year ended December 31, 1996,
preparations for neoplasms, endocrine system and metabolic diseases (which
cosists of both manufactured and distributed products) and anti-infective agents
and central nervous system and sense organ drugs (which consists only of
manufactured products) accounted for 36.8%, 22.8% and 10.6% of net sales,
respectively. No other single therapeutic category accounted for more than 10%
of the Company's net sales during these periods.
Research and Development
For the years ended December 31, 1998, 1997 and 1996, the Company incurred $11.0
million, $11.7 million and $13.7 million of research and development
expenditures, respectively. The Company believes that this level of research and
development spending as a percentage of manufacturing net sales exceeds the
generic pharmaceutical industry average.
The Company's research and development activities consist primarily of
developing new multisource drug products and improving existing products'
manufacturing processes. The development time for new prescription ANDA
products, including formulation, bioequivalence and stability testing followed
by the FDA approval process, averages from three to five years. The costs
associated with establishing and operating research and development laboratories
for analytic chemistry and formulations, conducting biostudies, complying with
FDA procedures, completing scale-up and process development and hiring,
employing and training technical and scientific staff members have increased in
recent years. The Company intends to focus its research and development efforts
on ANDA filings with the greatest commercial viability.
5
<PAGE>
Marketing and Distribution
The Company markets its products to approximately 250 customers. For the year
ended December 31, 1998, 44.4% of net sales were to drug wholesalers, 33.0% to
retail chains, 21.4% to multi-source distributors of the Company's prescription
drugs and the remaining 1.2% to government agencies, hospitals and HMOs.
Included in wholesaler and multi-source distributor net sales are indirect
contract sales negotiated by the Company with non-warehousing retail chains,
retail buying groups, hospitals, and managed care entities. The Company sells
its products under its own "Copley" label and through private label arrangements
with multi-source distributors. For the year ended December 31, 1998, one
customer that purchased both manufactured and distributed products accounted for
10.8% of total net sales and no other single customer accounted for more than
10% of the Company's net sales. The Company does not believe that the loss of
any one customer would have a material adverse effect on the Company's business
or operations.
Customer service activities are an integral part of the Company's
marketing operations. The Company uses its best efforts to maintain adequate
inventories, make timely delivery of its products and provide technical and
other service support to its customers.
Backlog Orders
The net dollar amount of backlog orders for the Company's manufactured and
distributed products as of December 31, 1998 was approximately $1.5 million as
compared with $1.8 million as of December 31, 1997. The Company's backlog orders
consist of those orders received by the Company but which the Company had not
shipped by the later of two business days following receipt of the order or the
customers' requested due date. Although these orders are subject to cancellation
without penalty, management expects to fill substantially all of such orders
within the current fiscal year.
Raw Materials
The active pharmaceutical ingredient raw materials essential to the
Company's business are purchased primarily from U.S. distributors of bulk
pharmaceutical chemicals manufactured abroad. Arrangements with foreign raw
material suppliers are subject to risk, including the applicability of FDA,
customs and other United States or foreign governmental statutes, regulations
and clearances, the imposition of export and import duties, political and social
instability, the Year 2000 issue, (Refer to Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations) possible currency
fluctuations and restrictions on the transfer of funds. In addition, the
European Community regulatory action to extend the exclusivity period of
patented pharmaceuticals, which is subject to implementation by the member
countries, may make it increasingly difficult to obtain certain raw materials
prior to the expiration of the applicable European patents.
Since the FDA's drug application process requires specification of raw
material suppliers, if raw materials from a specified supplier were to become
unavailable, the Company would be required to file a supplement to its product
filing and revalidate the manufacturing process using the new supplier's
materials. This could cause a delay of several months in the manufacture of the
drug involved and the consequent loss of potential revenue and market share.
When practicable, the Company attempts to qualify two raw material suppliers in
all ANDA's if a second source is available.
Competition
The Company competes with the original manufacturers of brand-name drugs that
continue to be produced after patent expirations, brand-name pharmaceutical
companies that manufacture generic versions of their own drugs, other generic
manufacturers and manufacturers of therapeutically similar drugs that may
compete with the Company's drugs. The principal competitive factors in the
generic pharmaceutical industry are the ability to introduce equivalents of
brand-name drugs promptly after patent expiration, continuity of supply, price,
product quality, breadth of product line, customer service and reputation.
A number of the Company's competitors, including generic divisions and
subsidiaries of large brand-name pharmaceutical companies, have substantially
greater resources to devote to product development, manufacturing and marketing
than the Company. The industry is characterized by rapid technological advances
and by the frequent introduction of new products. The Company's competitors may
develop their products more rapidly or complete the regulatory approval process
sooner, and therefore market their products earlier. New drugs and future
developments in alternative drug delivery technologies or other therapeutic
techniques may provide therapeutic or cost advantages to competing products.
In general, the brand-name companies have sought broader patent
protection, attempting to cover delivery systems, formulations, production
methods, and indications in addition to patenting the active pharmaceutical
ingredient. The branded drug industry also is making increased efforts to extend
patent protection for its products by developing derivative drugs, such as new
dosage levels or new formulations. The Company would be adversely affected if
derivative products were to emerge for the widely prescribed drugs scheduled to
lose patent protection in the next few years.
6
<PAGE>
Although generic pharmaceuticals typically cannot be sold until all
applicable patents have expired, the Waxman-Hatch Act permits a generic drug
manufacturer to claim that a patent is invalid, unenforceable or non-infringed.
These efforts by generic drug manufacturers to challenge patents typically
result in patent-infringement suits by brand-name producers. If a generic
company is the first to successfully challenge a patent, it is able to market a
generic version prior to the expiration of the patent and may be awarded a
180-day exclusivity period before any other generic manufacturer will be
approved for marketing. The Company has undertaken two such challenges (Refer to
Note K of the Notes to Consolidated Financial Statements), and may pursue more
in the future. The Company cannot make assurances that these challenges will be
successful.
Some brand-name competitors try to prevent or discourage the use of
generic equivalents through litigation and negative public relations campaigns.
Some have bundled the sale of generic and patented products and also have
introduced generic versions of their own branded products prior to the
expiration of the patents for such drugs, which has resulted in a greater market
share for these companies following expiration of the applicable patents. Others
have undertaken generic production joint ventures or alliances with competing
generic drug manufacturers.
The Company is witnessing a consolidation of its customers, as chain
drug stores and wholesalers merge or consolidate. In addition, a number of the
Company's customers have instituted source programs that limit the number of
suppliers of generic pharmaceutical products carried by that customer. As a
result of these developments, there is heightened competition among generic drug
producers for the business of this smaller and more selective customer base.
Adding to these pressures, managed care companies sometimes have limited the
number of vendors authorized to fill prescriptions, and there has been growth in
the market share of mail-order prescription services, which typically deal only
with a limited number of drug suppliers.
Expiration of Governance Agreement
In connection with HC's acquisition of a majority of the Company's outstanding
stock in 1993, the Company and HC entered into a Corporate Governance and
Standstill Agreement (as amended, the "Governance Agreement"). The purpose of
the Governance Agreement was to provide limited protections to the minority
shareholders by restricting certain actions HC would otherwise be legally able
to take as the holder of a majority of the Company's stock. On October 8, 1998,
the Governance Agreement expired by its terms, with the exception of certain of
the protections that will continue in force. Refer to "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" for a
more detailed discussion.
Government Regulation
Pharmaceutical manufacturers are subject to extensive regulation by the federal
government, principally the FDA and, to a lesser extent, by state and local
governments. The Federal Food, Drug and Cosmetic Act and other federal statutes
and regulations govern or influence the testing, manufacture, safety, labeling,
storage, record keeping, approval, advertising, promotion, sale and distribution
of pharmaceutical products. Noncompliance with applicable requirements can
result in fines, recall or seizure of products, total or partial suspension of
production and/or distribution, refusal of the government to enter into supply
contracts or to approve NDA or ANDAs and criminal prosecution. The FDA also has
the authority to revoke previously granted drug approvals. Changes in FDA
procedures have increased the time and expense involved in obtaining ANDA
approvals and in complying with the FDA's current Good Manufacturing Practice
("cGMP") standards. The ANDA drug development and approval process now averages
approximately three to five years.
FDA approval is required before each dosage form of any new drug can be
marketed. Applications for FDA approval must contain information relating to
bioequivalency, product formulation, raw material suppliers, stability,
manufacturing processes, packaging, labeling and quality control. FDA procedures
require full-scale manufacturing equipment to be used to produce test batches
for FDA approval. Validation of manufacturing processes also is required by the
FDA before a company can market new products. The FDA conducts pre- and
post-approval reviews and plant inspections to implement these rules.
Supplemental filings for approval to transfer products from one manufacturing
site to another may be under review for a year or more, and certain products may
only be approved for transfer if new bioequivalency studies are done. The FDA
also has increased the number of regular inspections to determine compliance
with its cGMP standards.
The Waxman-Hatch Act of 1984 extended the established abbreviated
application procedure for obtaining FDA approval for generic forms of brand-name
drugs originally marketed before 1962 which are off-patent or whose market
exclusivity has expired. This Act also provides market exclusivity provisions
that could preclude the submission or delay the approval of a competing ANDA.
One such provision allows a five-year market exclusivity period for NDAs
involving new chemical compounds and a three-year market exclusivity period for
new drug applications (including different dosage forms) containing new clinical
investigations essential to the approval of the application. The market
exclusivity provisions apply equally to patented and non-patented drug products.
Another provision may extend patents for up to five years as compensation for
reduction of the effective life of the patent as a result of time spent by the
FDA reviewing a drug application. Patents may also be extended pursuant to the
terms of the Uruguay Round Agreements Act.
7
<PAGE>
In recent years there have been an increasing number of attempts to use
federal legislation to extend the patent life of various drugs beyond the term
permitted under current statutes. These efforts have included attempts to attach
to other legislation narrowly focused amendments intended to protect specific
products. Although the generic drug industry thus far has been mostly successful
in defeating these attempts at extending the monopoly of brand-name drugs, the
Company could be adversely impacted if future legislation is enacted which
extends the patent exclusivity of a number of drugs that are expected to come
off- patent in the coming years.
The Generic Drug Enforcement Act of 1992 establishes penalties for
wrongdoing in connection with the development or submission of an ANDA by
authorizing the FDA to permanently or temporarily debar companies or individuals
from submitting or assisting in the submission of an ANDA, to temporarily deny
approval and suspend applications to market multi-source drugs and to debar
individuals from working in the industry. The FDA may suspend the distribution
of all drugs approved or developed in connection with certain wrongful conduct
and also has authority to withdraw approval of an ANDA under certain
circumstances. The FDA can also significantly delay the approval of a pending
NDA or ANDA under its "Fraud, Untrue Statements of Material Facts, Bribery, and
Illegal Gratuities Policy." Manufacturers of drugs must also comply with the
FDA's cGMP standards or risk sanctions such as the suspension of manufacturing
or the seizure of drug products and the FDA's refusal to approve additional
ANDAs.
Products marketed outside the United States that are manufactured in
the United States are subject to various export statutes and regulations, as
well as regulation by the country in which the products are to be sold.
Medicaid, Medicare and other legislation or programs govern
reimbursement levels, including requiring that all pharmaceutical manufacturers
rebate to individual states a percentage of their revenues arising from
Medicaid-reimbursed drug sales. The required rebate for generic drug
manufacturers is currently 11% of the average net sales price for products
marketed under ANDAs. For products marketed under NDAs, including the glyburide,
micronized glyburide and pentoxifylline distributed by the Company,
manufacturers are required to rebate the greater of 15.1% of average net sales
price or the difference between average net sales price and the lowest net sales
price during a specified period. The Company believes that the federal and/or
state governments may continue to enact measures in the future aimed at reducing
the cost of drugs to the public. The Company cannot predict the nature of such
measures or their impact on the Company's profitability.
The Company also is governed by federal, state and local laws of
general applicability, such as laws regulating working conditions. In addition,
the Company is subject, as are manufacturers generally, to various federal,
state and local environmental protection laws and regulations, including those
governing the discharge of material into the environment. Compliance with such
environmental provisions is not expected to have a material effect on the
earnings, cash requirements or competitive position of the Company in the
foreseeable future. However, changes to or compliance with such environmental
provisions could have a material effect on the Company's earnings, cash
requirements and competitive position.
Personnel
As of February 28, 1999, the Company had 410 full-time and 5 part-time
employees. Of these, 176 were involved in production, 75 in research and
development, 68 in quality affairs, 43 in administration, 38 in facilities
maintenance and engineering, and 15 in sales and marketing.
ITEM 2: PROPERTIES
The Company operates three facilities in the Greater Boston area, including a
251,000 square foot manufacturing facility in Canton, Massachusetts, which
houses research and development, regulatory and quality affairs, production and
corporate offices. The Canton facility is owned by the Company, which financed
its initial acquisition and construction through the issuance of Industrial
Development Revenue Bonds, and is subject to a lien in favor of a commercial
lender. Refer to Note G of the Notes to Consolidated Financial Statements. The
Company owns and operates a 12,000 square foot manufacturing site in South
Boston. In 1996, the Company entered into a five-year lease with a five-year
renewal option for a 68,000 square foot warehousing and distribution facility in
Dedham, Massachusetts for both manufactured and distributed products.
ITEM 3: LEGAL PROCEEDINGS
The information required under this item is incorporated herein by reference to
the Company's Note K of the Notes to Consolidated Financial Statements included
herewith.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last three
months of the year ended December 31, 1998.
8
<PAGE>
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
The Company's common stock is quoted on The NASDAQ National Market under the
symbol "CPLY." The following table sets forth the range of quarterly high and
low bid information for the common stock for the years ended December 31, 1997
and 1998:
Year Ended December 31, 1997 High Low
- - --------------------------------------------------------------------------------
First Quarter $9.63 $6.50
Second Quarter 8.63 4.63
Third Quarter 8.13 5.75
Fourth Quarter 8.88 5.30
Year Ended December 31, 1998 High Low
- - --------------------------------------------------------------------------------
First Quarter $8.25 $6.00
Second Quarter 7.00 5.58
Third Quarter 11.38 5.50
Fourth Quarter 10.50 6.00
As of March 15, 1999, there were approximately 225 shareholders of record and at
least 3,550 beneficial holders. The Company has never paid cash dividends on its
common stock. The agreement governing the Company's long-term indebtedness
contains prohibitions on the payment of cash dividends. The Company has no
intention of paying dividends in the foreseeable future.
ITEM 6: SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Consolidated Financial Statements and Notes thereto
included in this Report on Form 10-K. The Consolidated Statements of Operations
Data for the years ended December 31, 1998, 1997, 1996, 1995 and the
eleven-month period ended December 31, 1994 are derived from audited
consolidated financial statements. The Consolidated Statement of Operations Data
for the year ended December 31, 1994 is unaudited and is presented solely for
comparative purposes.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Eleven-month
period ended
Years ended December 31, December 31,
(In thousands, except per share data) 1998 1997 1996 1995 1994 1994
- - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Operations Data:
Net sales $133,497 $121,483 $123,461 $142,158 $120,348(c) $113,973(c)
Gross profit 32,880 29,655 29,430 41,269 (b) 52,177 48,318
Operating expenses:
Research and development 11,025 11,672 13,682 13,299 9,938 9,057
Selling, general and administrative 10,624 11,870 19,635 (a) 16,324 15,319 14,170
Recall related and litigation 773 3,687 12,343 17,830 4,691 2,766
Income (loss) from operations 10,458 2,426 (16,230) (6,184) 22,229 22,325
Net income (loss) 7,068 564 (12,673)(a) (2,543)(b) 15,109(c) 15,007(c)
Diluted earnings (loss)
per share $ 0.37 $ 0.03 $ (.66)(a) $ (.13)(b) $ .78(c) $ .78(c)
Diluted weighted average
common shares outstanding 19,246 19,222 19,081 18,977 19,309 19,273
Balance Sheet Data:
Working capital $ 71,126 $ 60,144 $ 48,210 $ 59,426 $ 56,704 $ 56,704
Total assets 155,365 145,744 151,727 155,245 152,662 152,662
Long-term debt 4,500 4,800 5,100 5,400 5,700 5,700
Total shareholders' equity 108,304 100,881 100,131 112,524 112,683 112,683
</TABLE>
(a) Includes $3.5 million ($2.1 million after taxes; $0.11 per share) of
restructuring expenses.
(b) Includes $2.5 million ($1.5 million after taxes; $0.08 per share) of
albuterol materials inventory write-offs incurred as a result of the Company's
decision not to reintroduce this product.
(c) Includes approximately $2.0 million ($1.2 million after taxes; $0.06 per
share) of higher than anticipated albuterol product returns.
9
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Overview
Forward-looking statements (statements which are not historical facts) in this
report are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that all forward-looking
statements, including statements about product filings and approvals, industry
trends, strategic initiatives, raw material supply, the Year 2000 issue, net
sales, price erosion, gross profit, research and development expenses, selling,
marketing and distribution expenses, general and administrative expenses,
capital expenditures, recall related and litigation expenses, restructuring and
other expenses, and interest expense, involve risks and uncertainties, including
the risks and uncertainties detailed below, and actual results may differ
significantly from those in any forward-looking statements.
The Company reported net income of $7.1 million or $0.37 per share
(diluted) for the year ended December 31, 1998. Net sales for 1998 were $133.5
million, an increase of 9.9% from 1997 net sales of $121.5 million. New product
launches in the fourth quarter, led primarily by amiodarone hydrochloride,
contributed to the increase in net sales. Price erosion slowed in 1998, but
prices were still lower causing revenue to decrease 6.2% or $ 7.5 million. Gross
margin improved in 1998 to 24.6% from 24.4% in 1997. A favorable sales mix of
higher margin manufactured products contributed to this increase. Operating
expenses of $21.6 million, excluding restructuring and litigation related items,
were 7.4% below 1997 levels. Key events during 1998 included:
o Six product launches, including amiodarone hydrochloride.
o Hiring of key executive personnel.
<TABLE>
<S>
Net Sales
<S> <C> <C> <C> <C>
Year ended Year ended Year ended
December 31, December 31, December 31,
(In millions) 1998 Change 1997 1996
- - --------------------------------------------------------------------------------------------------------------
Manufactured products $ 74.8 5.6% $ 70.9 $ 79.2
Distributed products 58.7 15.9% 50.6 44.3
- - --------------------------------------------------------------------------------------------------------------
Net sales $ 133.5 9.9% $ 121.5 $ 123.5
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
Net sales for 1998 were $133.5 million, an increase of 9.9% from 1997 net sales
of $121.5 million. Sales volumes of existing products along with the
introduction of several new manufactured products helped offset continued price
erosion.
In 1998 the Company introduced six new manufactured products:
hydrocortisone valerate, the off-patent version of Westwood-Squib's Westcort(R);
Prenatal Optima(R), the off-patent version of Sanofi's Prenate Ultra(R);
amiodarone hydrochloride, the off-patent version of Wyeth-Ayerst's Cordarone(R);
tretinoin, the off-patent version of Ortho Dermatological's Retin-A(R);
cholestyramine light, the off-patent version of Bristol-Myers Squibb's Questran
Light(R); and minoxidil topical solution 2% for women, the off-patent version of
Pharmacia & Upjohn's Rogaine(R).
Net sales for 1997 were $121.5 million, a decrease of 1.6% from the
1996 net sales of $123.5 million. Sales volumes of existing products were
essentially flat, with price erosion of existing products slightly greater than
revenue increases from new products.
<TABLE>
<S> <C> <C> <C> <C>
Gross Profit
Year ended Year ended Year ended
December 31, December 31, December 31,
(In millions) 1998 Change 1997 1996
- - --------------------------------------------------------------------------------------------------------------
Manufactured products $20.2 11.4% $18.2 $15.0
As a % of manufactured products net sales 27.0% 25.6% 18.9%
- - --------------------------------------------------------------------------------------------------------------
Distributed products $12.7 10.1% $11.5 $14.4
As a % of distributed products net sales 21.6% 22.7% 32.5%
- - --------------------------------------------------------------------------------------------------------------
Gross profit $32.9 10.9% $29.7 $29.4
As a % of net sales 24.6% 24.4% 23.8%
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
The Company's gross profit increased to $32.9 million, or 24.6% of net sales,
for the year ended December 31, 1998 as compared to $29.7 million, or 24.4% of
net sales, for the same period in 1997. The increase in gross profit resulted
primarily from the higher margins realized on the new products introduced in the
fourth quarter, a more favorable manufacturing plant utilization and a favorable
sales mix of higher margin manufactured products. Manufactured product gross
profit increased to 27.0% of manufactured net sales as compared to 25.6% for the
same period in 1997. Distributed product gross profit decreased to 21.6% of
distributed net sales from 22.7% in 1997 because the introduction of the lower
margin pentoxifylline was available for a full twelve months during the current
year.
For the year ended December 31, 1997, the Company's gross profit
increased to $29.7 million or 24.4% of net sales, as compared to $29.4 million,
or 23.8% of net sales for the same period in 1996. Manufactured product gross
profit increased to 25.6% of manufactured net sales as compared to 18.9% for the
same period in 1996, the increase was primarily due to cost reductions resulting
from improvements in manufacturing processes and inventory management partially
offset by the continued price erosion on the Company's products. Distributed
product gross profit decreased to 22.7% of distributed net sales from 32.5% in
1996 due to the of the introduction of the lower margin pentoxifylline and
renegotiation of the distribution contract. Refer to Note J of the Notes to
Consolidated Financial Statements for a further discussion of these agreements.
<TABLE>
<S> <C> <C> <C> <C>
Operating Expenses
Year ended Year ended Year ended
December 31, December 31, December 31,
(In millions) 1998 Change 1997 1996
- - --------------------------------------------------------------------------------------------------------------
Research and development $ 11.0 (5.5)% $ 11.7 $ 13.7
As a % of manufactured products net sales 14.7% 16.5% 17.3%
- - --------------------------------------------------------------------------------------------------------------
Selling, marketing and distribution $ 4.5 (1.5)% $ 4.6 $ 6.4
As a % of net sales 3.4% 3.8% 5.2%
- - --------------------------------------------------------------------------------------------------------------
General and administrative $ 6.1 (14.2)% $ 7.1 $ 9.7
As a % of net sales 4.6% 5.9% 7.9%
- - --------------------------------------------------------------------------------------------------------------
Recall related and litigation $ 0.8 (79.0)% $ 3.7 $ 12.3
As a % of net sales 0.6% 3.0% 10.0%
- - --------------------------------------------------------------------------------------------------------------
Restructuring $ -- (100.0)% $ 0.2 $ 3.5
As a % of net sales 0.1% 2.8%
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
Research and development expenses decreased 5.5% to $11.0 million for the year
ended December 31, 1998 as compared to $11.7 million for the same period in
1997. Most of this cost reduction is attributed to higher costs related to
validation of a new manufacturing process during the prior year. During 1997,
research and development costs decreased 14.7% to $11.7 million as compared to
$13.7 million for the same period in 1996. Most of this cost reduction is
attributed to lower product validation costs, primarily a function of process
improvements in the manufacture of validation batches. The Company expects
research and development costs to increase in 1999 consistent with its plan to
increase the number of ANDA submissions as compared to 1998.
Selling, marketing and distribution expenses decreased 1.5% to $4.5
million for the year ended December 31, 1998 as compared to $4.6 million for the
previous year. During 1997, selling, marketing, and distribution expenses
decreased 28.1% to $4.6 million from $6.4 million in the prior year. Factors
resulting in this cost reduction are reduced promotion and advertising
expenditures, and cost savings related to restructurings in December 1996 and
June 1997.
General and administrative expenses decreased 14.2% to $6.1 million as
compared to $7.1 million a year earlier, the third consecutive year of decreased
cost. Significant among these cost reductions in 1998 were savings in
compensation and benefits and a reduction in the cost of insurance premiums.
Recall-related and litigation expenses for 1998 totaled $0.8 million,
significantly below expenses of $3.7 million taken in 1997. The 1997 expenses
included an adjustment to the 1996 reserve upon the Company's entry of a plea in
the grand jury investigation, and a smaller adjustment to the reserve for
remaining outstanding claims related to the albuterol product liability cases.
Refer to Note K of the Notes to Consolidated Financial Statements for further
discussion of these items.
In response to increasing pricing pressures and eroding margins, the
Company restructured its operations in the fourth quarter of 1996. The
restructuring included the consolidation of warehouse, manufacturing and office
sites as well as the write off of underutilized and idle equipment and, to a
lesser extent, reductions in the labor force. The Company had a second reduction
in labor force during the second quarter of 1997.
11
<PAGE>
<TABLE>
<S> <C> <C> <C>
Interest and Other Income (Expense)
Year ended Year ended Year ended
December 31, December 31, December 31,
(In millions) 1998 1997 1996
- - ----------------------------------------------------------------------------------------
Interest and other investment income $ 1.8 $ 1.4 $ 0.7
- - ----------------------------------------------------------------------------------------
Interest expense (0.5) (0.6) (0.2)
- - ----------------------------------------------------------------------------------------
Other income (expense), net 0.5 (1.6) (0.1)
- - ----------------------------------------------------------------------------------------
</TABLE>
Interest and other investment income increased $0.4 million during 1998 to $1.8
million as compared to 1997 primarily because of increased average cash
available to invest. Interest expense also decreased in 1998, by $0.1 million.
Much of this decrease relates to interest from an installment payment relating
to the grand jury plea agreement. For 1997, other income (expense) netted an
expense of $1.6 million. This charge was related primarily to cost reduction
initiatives which include the write-off of assets related to the Company's exit
from a partnership in certain republics of the former Soviet Union and the
discontinuance of the Company's participation in a collaborative research effort
in the field of ophthalmology. Refer to Note K of the Notes to Consolidated
Financial Statements.
<TABLE>
Taxes and Net Income (Loss)
<S> <C> <C> <C>
Year ended Year ended Year ended
December 31, December 31, December 31,
(In millions) 1998 1997 1996
- - ----------------------------------------------------------------------------------------
Income tax expense (benefit) $ 4.6 $ 1.1 $ (3.2)
- - ----------------------------------------------------------------------------------------
Effective tax rate 39.5% 66.5% (20.3)%
- - ----------------------------------------------------------------------------------------
Net income (loss) $ 7.1 $ 0.6 $ (12.7)
- - ----------------------------------------------------------------------------------------
</TABLE>
The effective tax rate was higher in both 1997 and 1996 compared to 1998 due
primarily to the nondeductible nature of expenses associated with the resolution
of the grand jury investigation relating to the Company. Refer to Note L of the
Notes to Consolidated Financial Statements for a further discussion of this
matter.
For the year ended December 31, 1998, the Company reported net income
of $7.1 million, or $0.37 per share (diluted), compared to a net income of $0.6
million, or $0.03 per share (diluted), for the same period in 1997. Excluding
recall related and litigation, restructuring and other charges related to cost
reduction initiatives, 1997 net income would have been $4.5 million, or $0.24
per share. Excluding similar items 1996 would have resulted in a net loss of
$0.1 million, or $0.01 per share.
Risk Factors and Future Trends
Forward-looking statements (statements which are not historical facts) in this
report are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that all forward-looking
statements, including statements about product filings and approvals, industry
trends, strategic initiatives, raw material supply, the Year 2000 issue, net
sales, price erosion, gross profit, research and development expenses, selling,
marketing and distribution expenses, general and administrative expenses,
capital expenditures, recall-related and litigation expenses, restructuring and
other expenses, and interest expense, involve risks and uncertainties, including
the risks and uncertainties detailed below, and actual results may differ
significantly from those in any forward-looking statements.
The Company's future results of operations depend on its ability to
obtain FDA approval of ANDAs for its new products, to procure a continuous
supply of raw materials, to validate its manufacturing processes used to produce
consistent test batches for FDA approval and to receive continued customer
acceptance of its products. Raw materials are generally available from several
sources although this may not always be the case. Since the ANDA process
requires specification of raw material suppliers, if raw materials from
specified suppliers become unavailable, the Company would be required to file a
supplement to its product filing and revalidate the manufacturing process using
a new supplier's materials. This could cause a delay of several months in the
manufacture of the drug involved and the consequent loss of potential revenue
and market share. Additionally, there is often a time lag, sometimes
significant, between the receipt of ANDA approval and the actual marketing of
the approved product due to this validation process.
In recent years, there has been an increasing number of attempts to
use federal legislation to extend the patent life of various drugs beyond the
term permitted under current statutes. Although the generic drug industry thus
far has been mostly successful in defeating these attempts at extending the
monopoly of brand-name drugs, the Company could be adversely impacted if future
legislation is enacted which extends the patent exclusivity of a number of drugs
that are expected to come off-patent in the coming years.
12
<PAGE>
The Company's future results of operations also may be affected by a
variety of additional factors consistent with the nature of its business,
including, but not limited to, changes in the intensity of competition affecting
the Company's products and customers. Generic products with limited competition
are generally sold at higher prices, resulting in relatively high gross margins.
As multi-source competition increases, selling prices and gross margins can
decline dramatically and impair overall profitability. Brand-name competitors
are bundling the sale of generic and patented products as well as introducing
generic versions of their own branded products prior to the expiration of the
patents for such drugs, which is resulting in an increasing market share for
these brand-name competitors. Brand-name pharmaceutical companies also have
sought to extend patent protection beyond the active pharmaceutical ingredient
as well as making increased efforts to extend patent protection by developing
derivative drugs. The Company also has witnessed a consolidation of its
customers, as chain drug stores and wholesalers merge or consolidate.
Additionally, a number of the Company's customers have instituted source
programs which limit the number of suppliers of generic pharmaceutical products.
Management expects these trends and the resultant price erosion to continue. The
Company will need to provide a continuous stream of new products and maintain
its strong customer relations to offset these competitive pressures.
The Company's gross margin continues to be depressed by the
underutilization of its manufacturing facility. The Company, through its
restructuring of operations begun in the fourth quarter of 1996 and continuing
in 1997, consolidated some of its facilities in an attempt to streamline its
operations and took additional steps to reduce its overhead. It is anticipated
that the Company's gross margin will continue to be depressed by the
underutilization of its manufacturing facility during 1999 and until such time
as the volume of manufactured products increases significantly. Continuing
compliance with FDA cGMP standards and applicable environmental regulations will
also affect the Company's future results of operations. Significant investments
which increase the Company's overhead need to be made from time to time to
maintain the required infrastructure to comply with the FDA cGMP standards.
The albuterol related litigation and various other legal matters remain
unresolved in part or in whole. Refer to Note K of the Notes to Consolidated
Financial Statements for further discussion. Although the Company has
established reserves it believes appropriate for these matters, the final
outcome may exceed the estimates used in establishing those reserves and may
have a material adverse effect on the Company's consolidated financial
condition, liquidity and results of operations.
Year 2000 Readiness
The Company has a Year 2000 Compliance Program, the purposes of which are to
identify important systems that are not yet Year 2000 ("Y2K") compliant; to
initiate replacement or remedial action to assure that key systems will continue
to operate in the Y2K and to test the replaced or remediated systems; to
identify and contact key suppliers, vendors, customers and business partners to
evaluate their ability to maintain normal operations in the Y2K; and to develop
appropriate contingency plans for dealing with foreseeable Y2K complications.
The Company has appointed a Y2K Project Manager who is responsible for the
Company's Y2K Compliance Program and who reports directly to a member of the
Company's executive committee.
Information Technology Systems
The Company's critical internal information technology ("IT") systems consist of
its Prism manufacturing and JD Edwards financial accounting and Harbinger EDI
400 software packages. The Company has contacted the vendors of these systems
and obtained written certification that these IT systems are currently in
material Year 2000 compliance. The Company also has completed a pilot room
testing of these systems. In addition, the Company is in the process of testing
the Y2K readiness of its other IT applications. The Company, using an outside
consultant, also completed a focused status study on selected aspects of the Y2K
IT compliance testing program.
Embedded Systems
The Company is continuing with its assessment of its mission critical embedded
systems such as production equipment, facility control systems, and quality
control and research and development instrumentation. Specifically, working with
an outside consultant, the Company conducted a pilot program in which two
products were selected for evaluation of the equipment and instruments used in
their processes. These pilot tests included inventory assessment, compliance
testing and, where indicated, remediation planning on selected mission critical
embedded systems. This pilot program was completed in the first quarter of 1999.
The Company is utilizing the pilot design methodology to complete its Y2K
compliance program on the remainder of the Company's mission critical embedded
systems. The Company expects to complete this embedded systems testing phase by
the end of the second quarter of 1999. Remediation steps arising from the Y2K
readiness testing program are being initiated as appropriate. The Company's
strategy is to continue to focus on mission critical systems first. Beyond the
embedded system Y2K testing pilot program and the testing program modeled after
these pilots, the Company has sent Y2K compliance inquiries to the vendors of
these embedded systems, is tracking responses to its inquiries and, depending on
vendor response, is securing compliance information through direct contact with
the manufacturer or through research on the manufacturer's web page. The Company
expects to have completed its efforts to secure documented compliance
information by the conclusion of its testing program on mission critical systems
by the end of the second quarter of 1999. After the Company has completed its
critical embedded systems testing, it plans to expand its inventory assessment
and compliance testing to less critical systems.
13
<PAGE>
As a pharmaceutical manufacturer, the Company's research and development and
manufacturing operations are subject to government regulation. Replacement of
equipment for products subject to FDA approval and manufacturing standards
cannot be accomplished without filings and review by FDA. While the Company has
made significant progress in assessment and compliance testing of its critical
embedded systems, the Company cannot define the precise nature or extent of
remediation required at this time. The failure of the Company to properly and
timely identify equipment that will not function properly as a result of the Y2K
Issue could result in the Company's inability to repair or remediate that
equipment before December 31, 1999. In addition, equipment failures due to the
Y2K issue could result not only in significant replacement costs to the Company
but also in a significant delay in product shipments while the Company seeks to
validate replacement equipment, which could have a material adverse effect on
the Company.
Third-Party Suppliers, Vendors and Customers
The Company's Y2K Compliance Program also includes an investigation of the Y2K
compliance of its major suppliers, vendors, customers and business partners. For
example, third parties handle the payroll function for the Company, the vast
majority of the Company's product orders are received by computer over the
telecommunications systems, and the Company also relies on the services of
banks, utilities, and commercial airlines, among others. The Company continues
to seek and obtain assurances from key service providers that there will be no
interruption of service as a result of Y2K. While the Company has contacted its
supply chain business partners, not all third- party suppliers, vendors or
customers have responded. The Company will continue to make efforts to secure
Y2K compliance status from its supply chain, and is addressing contingency
planning in lieu of third party claimed compliance. There can be no assurances
that the contingency plans will adequately prevent a service interruption by one
or more of the Company's third-party suppliers from having a material adverse
effect on the Company.
The Company continues to contact its key bulk chemical and packaging
suppliers to determine their Y2K compliance status. As with certain of its
equipment, the Company cannot change suppliers of bulk active ingredients unless
the alternative supplier has been approved through the FDA regulatory process.
Where possible, the Company tries to qualify two or more sources of supply.
However, certain of the Company's current and future products will depend on a
sole source of raw material supply. Should one or more of these sole source
suppliers become unable to deliver product in a timely manner due to the Y2K
Issue, the Company would need to identify and qualify a new source of supply.
This process is likely to involve significant delays and cost and could have a
material adverse effect on the Company. In addition, the Company continues to
contact significant customers to determine their progress towards Y2K compliance
and to identify issues, if any, which might develop because of customers'
failure to be prepared for Y2K. In the event issues are identified, the Company
expects to try to develop procedures to permit the Company to continue to supply
the customer despite Y2K. The Company has been assured by its key financial
institutions that they are currently Y2K compliant or will be Y2K compliant in
early 1999.
Year 2000 Costs and Expenses
The Company's policy continues to be to expense all costs related to Y2K
compliance unless the useful life of the technological asset is extended or
increased, in which case the Company will capitalize that cost. For 1999 the
Company anticipates expenses relating to Y2K to include key personnel costs,
consultant engagements, software and hardware accommodations, data entry and
business partner communications. Based on currently available information, the
Company believes that these expenses will not exceed $500,000 and will be funded
through operations. Until the testing is completed on mission critical systems
in the Company's IT and Embedded Systems operations, the potential costs for any
associated remediation cannot be calculated and is not included in the $500,000.
If unforeseen compliance efforts are required or if present compliance efforts
are not completed on time, or if the cost of any required updating, modification
or replacement of the Company's systems or equipment exceeds the Company's
estimates, Y2K could result in material costs and have a material adverse effect
on the Company. For the year ended December 31, 1998 the expenses related to Y2K
were less that $75,000 and consisted mainly of internal payroll costs.
14
<PAGE>
Contingency Plans and Worst Case Scenario
At the present time, the Company has formulated a draft contingency plan
addressing system failures in its business processes due to Y2K. The Company has
received written certifications confirming that its critical internal IT systems
are compliant, and the Company and its Y2K IT system audit supported these
findings. As the Company continues its IT and Embedded Systems compliance
testing on its mission critical operations, it is formulating appropriate
contingency planning. The integrated draft contingency plan encompasses all
functional areas within the Company, their business processes and the tasks
associated with each process. It addresses alternate strategies to support
critical business functions to prevent, wherever possible, business
interruptions. It is expected that this draft contingency plan will be revised
as the Company's testing program concludes and remediation initiatives are
completed. Moreover, it is anticipated that as the Company receives more
complete compliance information from its major suppliers, vendors, customers and
business partners, that additional efforts regarding business interruption
prevention and contingency planning can move forward. The Company expects that
its contingency plan will be completed by May 31, 1999, with certain business
interruption prevention initiatives underway before that date.
One possible worst case scenario for the Company resulting from Y2K
would be that one or more of the Company's sole source bulk chemical suppliers
would become temporarily unable to deliver raw materials to the Company as a
result of a system failure. If this were to happen, the Company would not be
permitted to substitute another manufacturer's raw material for that of its sole
source supplier. The Company would not be able immediately to continue to
manufacture product using that raw material once its inventories of the raw
material were expended. The Company's contingency planning with respect to an
important product might include pre-qualifying a second source for critical raw
materials when possible and/or might include building up key sole source raw
material inventories in advance of December 31, 1999.
Various statements in this discussion of Y2K are forward-looking
statements (statements which are not historical in fact) within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements include
statements of the Company's expectations, anticipated schedules and expected
completion dates, estimated costs and statements regarding expected Y2K
compliance. These forward-looking statements are subject to various risks which
may materially affect the Company's efforts to achieve Y2K compliance to
accomplish its goals and to meet its expectations with respect to Y2K issues.
These risks include the possibility that the Company will not be able to
complete the plans and modifications that it has identified, on a timely basis,
if at all, the availability of skilled consultants, the difficulty of evaluating
and testing the wide variety of information systems and components, both
hardware and software, that must be evaluated, the variety, number and
complexity of equipment used in the Company's operations and the large number of
vendors and customers with which the Company interacts. The Company's assessment
of the effects of Y2K on the Company are based, in part, upon information
received from third parties and the Company's reasonable reliance on that
information. Therefore, the risk that inaccurate information is supplied by
third parties upon which the Company reasonably relied must be considered as a
risk factor that might affect the Company's Y2K efforts. Further, the delay or
failure of third parties to respond to inquiries will hinder the Company's
ability to evaluate and remediate the Year 2000 issue. The Company has not yet
completed evaluating certain aspects of Y2K and expects that its assessment of
Y2K will evolve as its Y2K compliance program progresses and the evolution and
testing process continues.
Expiration of Governance Agreement
In connection with HC's acquisition of a majority of the Company's outstanding
common stock in 1993, the Company and HC entered into a Corporate Governance and
Standstill Agreement (as amended, the "Governance Agreement"). The purpose of
the Governance Agreement was to provide limited protections to the minority
shareholders by restricting certain actions HC would otherwise be legally able
to take as the holder of the majority of the Company's stock. On October 8,
1998, the Governance Agreement expired by its terms, with the exception of
certain limited protections that will continue in force as described below.
Some of the more significant protections in the Governance Agreement
that expired are: (a) the requirement that the Board of Directors consist of
nine members, three being Company Directors, three being HC Directors and three
being Independent Directors (meaning jointly selected by the Company Directors
and HC Directors), and that committees of the Board of Directors be similarly
constituted; (b) the prohibition against HC and its affiliates acquiring
additional shares (other than as necessary to maintain its preexisting
percentage ownership) or otherwise seeking to increase their control of
ownership of the Company without the Company's consent (including the consent of
at least one Company Director); (c) the prohibition against amendments of the
Company's charter and by-laws without the consent of at least one Company
Director; (d) the requirement that HC vote its shares in accordance with all
recommendations of the Board of Directors and not vote in opposition to any
recommendation of the Board of Directors; (e) the requirement that all
transactions between the Company, on the one hand, and HC and its affiliates, on
the other hand, and each transaction in which there is a potential conflict of
interest between the Company and its shareholders (other than HC and its
affiliates) on the one hand, and HC or its affiliates on the other hand, must be
approved by a majority of the Independent Directors; and (f) the requirement
that HC not sell its shares to any person whom HC knows would own 5% or more of
the outstanding shares unless such person agrees in writing to be bound by the
restrictions of the Governance Agreement and to forego certain benefits under
the Governance Agreement.
15
<PAGE>
The restrictions that continue in effect after October 8, 1998 are:
(a) the prohibition against HC or its affiliates acquiring shares of the Company
without the approval of a majority of the Independent Directors, except in
certain privately negotiated, unsolicited transactions which do not reduce the
liquidity of the shares below the level expected to be necessary to maintain a
viable market for the shares and liquidity for the Company's shareholders; and
(b) the requirement that, so long as the Company is a public company, the Board
of Directors include at least three Independent Directors. For these purposes,
an "Independent Director" is a person who (i) is in fact independent, (ii) does
not have any direct financial interest or any material indirect financial
interest in HC or the Company or any of their respective affiliates, and (iii)
is not connected with HC or the Company or any of their respective affiliates as
an officer, employee, consultant, agent advisor, representative, trustee,
partner, director (other than of the Company) or person performing similar
functions. Other than these limited restrictions and subject only to such
fiduciary duties as a majority shareholder may have to minority shareholders
under Delaware law, HC, as a majority shareholder, is able to exercise
substantial control of the Company, including the right to decide in its
discretion most matters requiring shareholder approval, such as the election of
future members of the Board of Directors and approval of any proposed merger or
acquisition of the Company.
Capital Resources and Liquidity
December 31, December 31,
(In millions) 1998 1997
- - --------------------------------------------------------------------------------
Cash and short-term investments $ 43.2 $ 33.3
Working capital 71.1 60.1
Long-term debt 4.5 4.8
Shareholders' equity 108.3 100.9
- - --------------------------------------------------------------------------------
Liquidity
On August 7, 1997, the Company amended its working capital line of credit
agreement to replace one of its financial covenants related to profitability
with a working capital covenant effective June 30, 1997. The Company currently
has a $30.0 million line of credit. This line of credit is reduced by the amount
of stand-by letters of credit. From time to time the Company has been granted
amendments and waivers to its credit agreements.
At December 31, 1998 the Company had $11.7 million in stand-by letters
of credit related to the Albuterol Settlement Trust Fund outstanding under this
working capital line of credit agreement. These standby letters of credit were
obtained by the Company pursuant to the requirements of the Albuterol Settlement
Trust Fund to cover its uninsured obligation. Recourse to the letters of credit
are contingent upon the number of claims filed within certain categories and
will not occur until all claims are processed and settlement amounts are
recommended by the Special Master. Refer to Note K of the Notes to Consolidated
Financial Statements for further discussion of the Settlement Agreement.
The Company continues to make annual payments of $300,000 on its
outstanding Industrial Development Revenue Bonds the ("Bonds"), which are due in
2014. These Bonds are secured by a letter of credit agreement. Effective
December 31, 1996, the Company received from its lender waivers to its credit
agreements with respect to one of its financial covenants related to
profitability. In the event that the Company is unable to obtain future waivers,
if needed, the Company's debt would be reclassified as short-term debt and the
Company could lose its availability to cash under its line of credit.
Forward-looking statements (statements which are not historical facts)
in this report are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that all
forward-looking statements, including statements about product filings and
approvals, industry trends, strategic initiatives, raw material supply, net
sales, the Year 2000 issue, price erosion, gross profit, research and
development expenses, selling, marketing and distribution expenses, general and
administrative expenses, capital expenditures, recall related and litigation
expenses, restructuring and other expenses, and interest expense, involve risks
and uncertainties, including the risks and uncertainties detailed below, and
actual results may differ significantly from those in any forward-looking
statements.
Working Capital
The Company's combined cash and available-for-sale investments were $43.2
million as of December 31, 1998 compared to $33.3 million a year earlier. The
$9.9 million increase primarily reflects $12.6 million of cash generated from
operations offset by $2.7 million of capital expenditures. Working capital
increased $11.0 million primarily from the net income from operations adjusted
by the net decrease in property, plant and equipment.
During 1998, the Company spent $2.7 million for machinery and equipment
and facility enhancements as compared to $1.3 million for 1997. The expenditures
primarily related to the development and manufacturing of new products. During
the year ended December 31, 1996, the Company spent $8.4 million for capital
expenditures. Additions in all years were made from the cash generated from
operations without incurring additional borrowing. The Company anticipates
spending less than $7.5 million for machinery and equipment acquisitions and
facility enhancements during the year ending December 31, 1999.
16
<PAGE>
The Company believes that its current cash resources, cash generated
from operations and the amount available under its amended working capital line
of credit will be sufficient to meet its anticipated operating needs for at
least the next twelve months. However, there can be no assurance that events in
the future will not require the Company to seek additional capital sooner or, if
so required, that such capital will be available at terms favorable or
acceptable to the Company, if at all.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has three forms of debt which are subject to interest rate risk.
They are the industrial revenue bonds, the working capital line of credit and
the outstanding letters of credit. The rates on all three instruments are
variable and fluctuate with the prime rate of interest charged by the respective
bank. Carrying value of these instruments which approximates fair value is $4.8
million and principal is payable as follows; $300,000 for each of the next five
years and $3.3 million thereafter. Interest is payable monthly and interest
expense could be substantially higher if prime rate was to increase in future
periods. The bank's prime rate was 7.75% at December 31, 1998.
Forward-looking statements (statements which are not historical facts)
in this report are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that all
forward-looking statements, including statements about product filings and
approvals, industry trends, strategic initiatives, raw material supply, net
sales, the Year 2000 issue, price erosion, gross profit, research and
development expenses, selling, marketing and distribution expenses, general and
administrative expenses, capital expenditures, recall related and litigation
expenses, restructuring and other expenses, and interest expense, involve risks
and uncertainties, including the risks and uncertainties detailed below, and
actual results may differ significantly from those in any forward-looking
statements.
17
<PAGE>
ITEM 8: CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
Copley Pharmaceutical, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
December 31, December 31,
(In thousands, except share data) 1998 1997
- - -------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 13,016 $ 13,847
Available-for-sale securities 30,206 19,498
Accounts receivable, trade, net of allowances for doubtful accounts
of $500 and $500, respectively 33,945 30,170
Inventories 22,441 23,286
Current deferred tax assets 5,528 5,239
Other current assets 4,742 4,189
---------- ---------
Total current assets 109,878 96,229
---------- ---------
Property, plant and equipment, net 42,800 46,450
Due from related party 2,107 2,364
Other assets 580 701
---------- ---------
Total assets $ 155,365 $ 145,744
---------- ---------
Liabilities and shareholders' equity
Current liabilities:
Accounts payable, trade $ 3,703 $ 2,583
Accounts payable, related party 12,382 13,668
Current portion of long-term debt 300 300
Accrued compensation and benefits 2,175 1,635
Accrued rebates 8,037 9,071
Accrued income taxes 3,527 374
Accrued recall related and litigation expenses 8,010 8,048
Accrued expenses 618 406
---------- ---------
Total current liabilities 38,752 36,085
---------- ---------
Accrued recall related and litigation expenses -- 3,645
Deferred tax liabilities 3,711 269
Accrued compensation and benefits 98 64
Long-term debt 4,500 4,800
Commitments and contingencies (Note K)
Shareholders' equity:
Preferred stock, $.01 par value; authorized 3,000,000 shares; none issued -- --
Common stock, $.01 par value; authorized 60,000,000 shares;
issued 25,370,745 shares 254 254
Additional paid-in capital 78,340 78,063
Unrealized holding gain(loss) on available-for-sale securities 35 (16)
Retained earnings 42,201 35,133
Treasury stock, at cost, 6,178,168 and 6,235,978 shares,
respectively (12,526) (12,553)
---------- ---------
Total shareholders' equity 108,304 100,881
---------- ---------
Total liabilities and shareholders' equity $ 155,365 $ 145,744
---------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
Copley Pharmaceutical, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C>
Year ended Year ended Year ended
December 31, December 31, December 31,
(In thousands, except per share data) 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------
Net sales:
Manufactured products $ 74,822 $ 70,873 $ 79,201
Distributed products 58,675 50,610 44,260
-------- -------- -------
Net sales 133,497 121,483 123,461
-------- -------- -------
Cost of goods sold:
Manufactured products 54,608 52,725 64,233
Distributed products 46,009 39,103 29,798
-------- -------- -------
Cost of goods sold 100,617 91,828 94,031
-------- -------- -------
Gross profit 32,880 29,655 29,430
-------- -------- -------
Operating expenses:
Research and development 11,025 11,672 13,682
Selling, marketing and distribution 4,520 4,590 6,388
General and administrative 6,104 7,110 9,721
Recall related and litigation 773 3,687 12,343
Restructuring -- 170 3,526
-------- -------- -------
Income (loss) from operations 10,458 2,426 (16,230)
-------- -------- -------
Interest and other investment income 1,749 1,442 723
Interest expense (538) (580) (241)
Other income (expense), net 5 (1,603) (144)
-------- -------- -------
Income (loss) before income taxes 11,674 1,685 (15,892)
Provision (benefit) for income taxes 4,606 1,121 (3,219)
-------- -------- -------
Net income (loss) $ 7,068 $ 564 $(12,673)
-------- -------- -------
Other comprehensive income, net of taxes
Unrealized gains (loss) on securities 53 (16) 166
Less: reclassification adjustment for gains
(losses) included in net income (2) -- (274)
-------- -------- -------
Comprehensive income (loss) $ 7,119 $ 548 $(12,781)
-------- -------- -------
Weighted average common shares outstanding:
Basic 19,169 19,127 19,081
Diluted 19,329 19,222 19,081
Net Income (loss) per share:
Basic $ 0.37 $ 0.03 $ (0.66)
Diluted 0.37 0.03 ( 0.66)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE>
Copley Pharmaceutical, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1996, 1997 and 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Additional Unrealized Total
Common Stock Paid-In Retained Holding Treasury Stock Shareholders'
(In thousands) Shares Amount Capital Earnings Gain(Loss) Shares Amount Equity
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 25,371 $254 $77,505 $47,242 $108 6,307 $(12,585) $112,524
Net income (loss) - - - (12,673) - - - (12,673)
Acquisition of treasury
stock by Employee Stock
Purchase Plan - - 295 - - (25) 11 306
Stock option exercises - - (5) - - (16) 7 2
Tax benefit from stock
option exercises - - 80 - - - - 80
Change in unrealized
holding gain (loss) on
available-for-sale securities - - - - (108) - - (108)
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 25,371 254 77,875 34,569 - 6,266 (12,567) 100,131
Net income (loss) - - - 564 - - - 564
Acquisition of treasury
stock by Employee Stock
Purchase Plan - - 188 - - (30) 14 202
Change in unrealized
holding gain (loss) on
available-for-sale securities - - - - (16) - - (16)
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 25,371 254 78,063 35,133 (16) 6,236 (12,553) 100,881
Net income (loss) - - - 7,068 - - - 7,068
Acquisition of treasury
stock by Employee Stock
Purchase Plan - - 184 - - (42) 20 204
Stock option exercises - - 93 - - (16) 7 100
Change in unrealized
holding gain (loss) on
available-for-sale securities - - - - 51 - - 51
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 25,371 $254 $78,340 $42,201 $ 35 6,178 $(12,526) $108,304
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE>
Copley Pharmaceutical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
Year ended Year ended Year ended
December 31, December 31, December 31,
(In thousands) 1998 1997 1996
- - ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 7,068 $ 564 $(12,673)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 6,569 7,144 7,092
Realized losses on disposals of assets 266 1,349 4,795
Deferred income taxes 3,153 1,793 (2,379)
Tax benefit from stock option exercises - - 80
Provision for doubtful accounts - - 696
Proceeds from sale of trading securities - - 601
Equity in loss (earnings) of unconsolidated affiliates - (7) 54
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (3,775) (3,146) 5,745
Decrease (increase) in inventories 845 3,845 95
Decrease (increase) in other current assets (553) 52 548
Decrease (increase) in other assets (19) 121 (951)
Increase (decrease) in accounts payable (166) (1,057) (2,184)
Increase (decrease) in accrued income taxes 3,153 (509) 4,142
Increase (decrease) in other accrued expenses (3,931) (5,136) 10,476
------- ------- --------
Net cash provided by operating activities 12,610 5,013 16,137
------- ------- --------
Cash flows from investing activities:
Capital expenditures (2,691) (1,260) (8,401)
Investments in unconsolidated affiliates - (360) (2,252)
Proceeds from sales of property, plant and equipment 4 201 113
Purchases of available-for-sale securities (34,380) (18,448) (13,695)
Proceeds from sales of available-for-sale securities 8,104 - 114
Proceeds from maturities of available-for-sale securities 15,518 12,825 5,000
------- ------- --------
Net cash provided by (used in) investing activities (13,445) (7,042) (19,121)
------- ------- --------
Cash flows from financing activities:
Payments of long-term debt (300) (300) (300)
Stock option exercises 100 - 2
Issuance of common stock to Employee Stock Purchase Plan 204 202 306
------- ------- --------
Net cash provided by (used in) financing activities 4 (98) 8
------- ------- --------
Net increase (decrease) in cash and cash equivalents (831) (2,127) (2,976)
Cash and cash equivalents at beginning of year 13,847 15,974 18,950
------- ------- -------
Cash and cash equivalents at end of year $13,016 $13,847 $15,974
------- ------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE>
Copley Pharmaceutical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Nature of Business
Copley Pharmaceutical, Inc. (the "Company") develops, manufactures, markets and
distributes a broad range of multi-source pharmaceutical products. These
products include prescription and over-the-counter ("OTC") drugs and are
available in a variety of dosage forms. The Company's customers include retail
chains, wholesalers, distributors, hospitals, health maintenance organizations
("HMOs"), other managed care entities and government agencies. For the year
1998, one customer that purchased both manufactured and distributed products
accounted for 10.8% of total net sales and no other single customer accounted
for more than 10% of total net sales. For the year 1997 one customer that
purchased both manufactured and distributed products accounted for 13.9% of
total net sales and no other single customer accounted for more than 10% of
total net sales. For 1996, no single customer accounted for more than 10% of
total net sales.
The Company not only distributes multi-source products that it
manufactures, but also, as part of a distribution arrangement, markets and
distributes multi-source versions of certain drugs manufactured by Hoechst
Marion Roussel, Inc. ("HMRI"), a subsidiary of Hoechst Aktiengesellschaft
("Hoechst AG"), the Company's indirect 51% fully diluted shareholder. One of
these drugs, glyburide, accounted for 23.4%, 25.2% and 27.1% of the Company's
1998, 1997 and 1996 net sales, respectively. This product had limited
competition until late in 1995, when competing products became available,
resulting in significant erosion of this product's selling price and related
gross profit. Given this intensified competitive environment, management expects
continued decline in this product's net sales and related gross profit in 1999.
Refer to Note J for further discussion of the distribution arrangements.
Historically, the Company's sales have been predominantly in the United
States. During 1995, the Company formed a wholly-owned subsidiary to focus on
foreign expansion opportunities. Refer to Note J for further discussion of the
Company's foreign investments. Because of the length of time it takes to
establish, register and receive approvals to manufacture or distribute products
in a foreign country, it may be an extended period of time before the Company
generates material international revenue, if at all.
The raw materials essential to the Company's business are purchased
primarily from U.S. distributors of bulk pharmaceutical chemicals manufactured
abroad. These raw materials are generally available from several sources;
however, this may not always be the case. Since the federal drug application
process requires specification of raw material suppliers, if raw materials from
specified suppliers became unavailable, the Company would be required to file a
supplement to its product filing and revalidate the manufacturing process using
a new supplier's materials. This could cause a delay of several months in the
manufacture of the drug involved and the consequent loss of potential revenue
and market share.
As a multi-source drug manufacturer, the Company is subject to
extensive regulation by the Food and Drug Administration ("FDA"). Noncompliance
with applicable requirements can result in fines, recall or seizure of products,
total or partial suspension of production and/or distribution, refusal of the
government to enter into supply contracts or to approve New Drug Applications
("NDA") or Abbreviated New Drug Applications ("ANDA") and criminal prosecution.
The FDA also has the authority to revoke previously granted drug approvals.
Changes in FDA procedures have increased the time and expense involved in
obtaining ANDA approvals and in complying with the FDA's current Good
Manufacturing Practice ("cGMP") standards. The ANDA drug development and
approval process currently averages approximately three to five years.
Being a generic pharmaceutical company lends itself to certain
inherent business risks. These risks include rapid technological advances,
frequent introduction of new products, aggressive competition from other generic
drug manufactures and generic divisions and subsidiaries of large brand-name
pharmaceutical companies and the potential for customer consolidations and
future legislation regarding product patent protection.
B. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Copley
Pharmaceutical, Inc. and its wholly-owned subsidiaries. Significant intercompany
transactions have been eliminated. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with an original purchase
maturity of three months or less to be cash equivalents.
22
<PAGE>
Available-for-Sale Securities
Available-for-sale securities include the Company's investments in equity and
debt securities for which the Company does not have the positive intent or
ability to hold to maturity. Available-for-sale securities are carried at market
value, with unrealized gains and losses, net of tax, reported as a separate
component of shareholders' equity. Gross realized gains and losses on the sales
of available-for-sale securities are determined on the specific identification
method and are included in interest and other investment income.
Trading Securities
Trading securities include the Company's investment in debt securities held for
sale in the near term. Trading securities are recorded at market value with
unrealized and realized gains and losses recorded in interest and other
investment income. Gross realized gains and losses on the sales of trading
securities are determined on the specific identification method.
Accounts Receivable and Revenue Recognition
Revenue is recognized upon product shipment. Provisions for rebates, returns and
other adjustments are provided for in the same period as the related sales are
recorded. The Company's accounts receivable balance reflects the amount due from
its customers based on actual outstanding invoices less estimates of credits
that may be issued against these invoiced amounts including, but not limited to,
price adjustments and returned goods. The Company estimates credits to be issued
for price adjustments and returned goods incurred but not currently identified.
At December 31, 1998 and 1997 the credit allowances were $5.2 million and $3.7
million, respectively. Additionally, the Company provides for an allowance for
uncollectible accounts. The Company believes that these estimates made by
management, based on past experience and current trends, are sufficient, but
actual results may differ from these estimates.
Inventories
The Company values its inventories at the lower of cost or market on a first-in,
first-out basis. Management estimates market based on various assumptions about
the future demand for the Company's products, remaining products' shelf lives,
and the future selling price and pricing environment for the products. Actual
results may differ from these estimates.
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost. Maintenance and
repairs which neither materially add to the value of the property nor
appreciably prolong its life are charged to expense as incurred. Tooling costs
are also expensed as incurred. Upon retirement or other disposition, the cost
and related accumulated depreciation are eliminated from the accounts and the
resulting gain or loss is included in income from operations. Depreciation of
property, plant and equipment is computed using the straight-line method over
the following estimated useful lives:
Estimated Useful Life
- - --------------------------------------------------------------------------------
Building and improvements 25 years
Machinery and equipment 5-10 years
Motor vehicles 3-5 years
Furniture and fixtures 5 years
Leasehold improvements are amortized over the shorter of their estimated useful
lives or the term of the lease. Interest is capitalized in connection with
construction of major facilities. The capitalized interest is recorded as part
of the asset to which it relates and is amortized over the asset's estimated
useful life. There was no interest capitalized during the years ending December
31, 1998, 1997 or 1996.
Research and Development
Research and development costs are expensed as incurred.
Advertising and Promotion
All costs associated with advertising and promoting products are expensed in the
year incurred.
23
<PAGE>
Income Taxes
Deferred tax assets and liabilities have been established for the expected
future tax consequences of events that have been recognized in the Company's
consolidated financial statements and tax returns. These deferred tax assets and
liabilities are determined based on the difference between the financial
statement carrying amounts and tax basis of assets and liabilities using
currently enacted tax rates that are expected to be in effect during the years
in which the differences are anticipated to reverse. Deferred tax provision
(benefit) represents the change in the deferred tax asset balance. Tax credits
are treated as reductions of income taxes in the year in which the credits
become available for income tax purposes.
Net Income (Loss) Per Share
The Company applies Statement of Financial Accounting Standards No. 128 ("SFAS
128"), Earnings Per Share to compute net income per share. Under SFAS 128, basic
EPS is calculated by dividing net income (loss) by the weighted-average common
shares outstanding during the period. Diluted EPS reflects the potential
dilution to basic EPS that could occur upon exercise of options to common shares
using the treasury stock method based upon the weighted-average fair value of
the Company's common shares during the period. Diluted net income (loss) per
share is computed by dividing net income (loss) by the weighted average number
of common shares and common share equivalents, if dilutive, outstanding during
the period. For 1998 and 1997, 377,569 and 550,920, respectively, of outstanding
options were not used to calculate diluted net income per share because the
exercise price exceeded the weighted-average fair value during the period and
their inclusion would be antidilutive. For 1996, 736,734 outstanding options
were not used to calculate diluted net income (loss) per share due to the
Company being in a net loss position, therefore the effect would be
antidilutive.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of
credit risk consist principally of available-for-sale securities and trade
account receivables. It is the Company's policy to invest excess cash primarily
in investment-grade marketable securities. Concentrations of credit risk with
respect to trade account receivables are limited due to the large number of
customers comprising the Company's customer base and their dispersion across
different geographies.
Segment Information
The Company applies Statement of Financial Accounting Standards No. 131, ("SFAS
131") Disclosures about Segments of an Enterprise and Related Information. SFAS
131 supersedes SFAS No. 14 , Financial Reporting for Segments of a Business
Enterprise, replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. Currently the Company's two
segments are categorized as manufactured products and distributed products.
The Company's management recognizes the fact that distributed
products have relatively no impact on absorption of overhead or operating
expense of the Company as compared to manufactured products. Consequently,
management focus on evaluating the Company's segments is based on an analysis of
net sales and gross profit as reflected in the Company's statements of
operations. There are no inter-segment revenues. Assets, all of which are
located in the United States are not allocated to specific business segments.
Reclassifications
Certain reclassifications have been made to prior period consolidated financial
statements to conform to the current presentation.
C. Securities
Available-for-Sale Securities
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1997
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
(In thousands) Cost Gain Loss Value Cost Gain Loss Value
- - ------------------------------------------------------------------------------------------------------------------------------------
In Current Assets:
Debt securities:
State and municipal
securities $ 8,827 $ 40 $ - $ 8,867 $ 1,0000 $ - $ - $ 1,000
U.S. Treasury and
government agencies 19,625 19 (19) 19,625 17,814 5 (18) 17,801
Other securities:
Bank certificates of deposit 1,719 - (5) 1,714 700 - (3) 697
- - ------------------------------------------------------------------------------------------------------------------------------------
Total current available-
for-sale securities $30,171 $ 59 $(24) $30,206 $ 19,514 $ 5 $(21) $19,498
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
Gross gains of $3,000 and gross losses of $5,000 were realized on sales of
available-for-sale securities in 1998, no gains or losses were realized on sales
of available-for-sale securities in 1997. Gross gains of $75,000 and gross
losses of $0 were realized on sales of available-for-sale securities during
1996. Gross losses of $349,000 were realized on trading securities in 1996. The
Company no longer holds trading securities.
D. Inventories
December 31, December 31,
(In thousands) 1998 1997
- - --------------------------------------------------------------------------------
Raw materials $10,771 $ 6,596
Work in process 3,207 5,282
Finished goods 8,463 11,408
------- -------
Total inventories $22,441 $23,286
- - --------------------------------------------------------------------------------
E. Property, Plant and Equipment
December 31, December 31,
(In thousands) 1998 1997
- - --------------------------------------------------------------------------------
Land $ 3,335 $ 3,335
Building and improvements 32,320 31,882
Machinery and equipment 32,103 31,393
Motor vehicles 44 44
Furniture and fixtures 5,727 5,144
Leasehold improvements 30 -
-------- --------
73,559 71,798
Less: accumulated depreciation and amortization (32,439) (26,154)
-------- --------
41,120 45,644
Construction in process 1,680 806
-------- --------
Total property, plant and equipment $42,800 $46,450
- - --------------------------------------------------------------------------------
Depreciation and amortization of fixed assets was $6.3 million, $7.1 million and
$7.1 million for 1998, 1997 and 1996, respectively.
F. Income Taxes
The effects of temporary differences that give rise to significant portions of
the deferred tax assets and deferred tax liabilities at December 31, 1998 and
1997 are as follows:
<TABLE>
<S> <C> <C>
December 31, December 31,
(In thousands) 1998 1997
- - -------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Acquired joint product development rights $ - $ 914
Tender offer costs 2,002 1,974
Recall and litigation accrual 1,639 1,615
Operating loss and tax credit carryforwards 1,481 1,796
Charitable contribution carryforwards 273 741
Difference in accounting for inventory and accounts receivable 1,623 596
Difference in cost recognition basis, accrual for books and cash for tax 512 490
------- -------
Total deferred tax assets 7,530 8,126
Deferred tax liabilities:
Depreciation (3,364) (3,156)
Accounts receivable mark-to-market (2,349) -
Total deferred tax liabilities ------- -------
(5,713) (3,156)
------- -------
Total net deferred tax assets $ 1,817 $ 4,970
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
Deferred tax assets are expected to be realized through the reversal of existing
deferred tax liabilities and from the recognition of future taxable income.
Realization of the deferred tax assets is dependent on generating sufficient
future taxable income or the availability of carryback provisions. Although
realization is not assured, management believes that it is more likely than not
that all of the deferred tax assets will be realized and, accordingly, has not
provided a valuation allowance. The amount of deferred tax assets considered
realizable could be reduced in the near term if estimates of future taxable
income are reduced.
Provision for (benefit of) income taxes consists of the following:
<TABLE>
<S> <C> <C> <C>
Year ended Year ended Year ended
December 31, December 31, December 31,
(In thousands) 1998 1997 1996
- - -------------------------------------------------------------------------------------------------------------
Current income tax expense (benefit):
Federal $ 1,429 $(1,149) $(1,033)
State 24 477 193
------- ------- -------
1,453 (672) (840)
------- ------- -------
Deferred income tax expense (benefit):
Federal 2,341 2,102 (1,272)
State 812 (309) (1,107)
------- ------- -------
3,153 1,793 (2,379)
------- ------- -------
Total:
Federal 3,770 953 (2,305)
State 836 168 (914)
------- ------- -------
$ 4,606 $ 1,121 $(3,219)
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
The income tax expense (benefit) for the years 1998, 1997 and 1996 varied from
the amount computed by applying the statutory income tax rate to income (loss)
before taxes. The reasons for the differences are as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Year ended Year ended Year ended
December 31, December 31, December 31,
(In thousands) 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------
Statutory rate $4,086 35% $ 590 35% $(5,562) (35)%
Increases (decreases) in taxes resulting from:
State income taxes, net of
federal tax benefit 543 5% 109 6% (594) (4)%
Research tax credits - - - - (200) (1)%
Tax-exempt interest and dividends (50) - (263) (16)% (136) (1)%
Nondeductible portion of recall-related
and litigation expenses - - 650 39% 3,127 20%
Other, net 27 - 35 2% 146 1%
- - ----------------------------------------------------------------------------------------------------------------
$4,606 40% $ 1,121 66% $(3,219) (20)%
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, the Company had state net operating loss carryforwards of
approximately $4,598,000 which are available to offset future state taxable
income through the year ended December 31, 2001. In addition, at December 31,
1998, the Company had approximately $666,000, $1,091,000 and $750,000 of
charitable contribution carryforwards, state research credit carryforwards and
state investment credit carryforwards, respectively, that are available to
offset future taxable income through the years 2002, 2012 and 2000,
respectively.
G. Debt
Repayment schedule of Industrial Revenue Bonds is as follows:
(In thousands)
- - --------------------------------------------------------------------------------
1999 $ 300
2000 300
2001 300
2002 300
2003 300
Thereafter 3,300
------
$4,800
------
26
<PAGE>
The Industrial Development Revenue Bonds (the "Bonds") were issued for the
initial acquisition and construction of the Company's headquarters and principal
manufacturing site at 25 John Road, Canton, Massachusetts. The Bonds would have
originally matured on August 1, 2004; however, in July 1990, the Bonds were
amended to extend the maturity date to August 1, 2014. Interest is payable
monthly at a floating rate based on the prime rate. The effective interest rate
for the Bonds approximated 4.5%, 4.5% and 4.3% for the years 1998, 1997 and
1996, respectively.
In order to secure the timely payment of principal and interest on the
Bonds, the Company has entered into a letter of credit agreement with its
primary financial institution. The letter of credit agreement imposes minimum
requirements on the maintenance of working capital and certain financial ratios
and includes restrictions on cash dividends, repurchases of the Company's
capital stock, certain investments, advances, guarantees and borrowings. The
Letter of Credit and the Bonds are collateralized by the Company's property at
25 John Road, Canton, Massachusetts, including land, buildings and equipment
thereon and are further collateralized by an assignment of leases and rents on
the Company's South Boston property.
Costs of $704,000 associated with the issuance of the Bonds are being
amortized to interest expense over the life of the Bonds. The
unamortized balance of $283,000 and $301,000 at December 31, 1998 and December
31, 1997, respectively, is included in other assets.
On August 7, 1997, the Company amended its working capital line of
credit agreement to replace one of its financial covenants related to
profitability with a working capital covenant effective June 30, 1997. On July
31, 1996 the Company amended its working capital line of credit agreement to
increase its maximum borrowing capacity from $20.0 million to $30.0 million.
This amendment also provided for the issuance of stand-by letters of credit and
includes related provisions for payment of letter of credit fees equal to 1% of
the face amount of outstanding stand-by letters of credit. The stand-by letters
of credit reduce the funds available from the working capital line of credit. No
other amounts have been drawn against the working capital line of credit. At
December 31, 1998 and 1997, the Company had $11.7 and $14.85 million,
respectively, in outstanding standby letters of credit related to the Albuterol
Settlement Trust Fund. In February 1998 the Company's stand-by letters of credit
were reduced by $3.15 million to reflect its additional cash deposits made
pursuant to the August 1997 court order. Refer to Note K for more information on
the Albuterol Settlement Trust Fund.
Borrowings under the working capital line of credit agreement are due
on demand and bear interest, payable monthly, at the bank's prime rate. The
prime rate was 7.75% at December 31, 1998. Borrowings are collateralized by the
Company's properties located in Canton and South Boston, Massachusetts,
including land and buildings and equipment thereon. The line of credit imposes
restrictive covenants regarding the sale or encumbrance of the land and the
building as well as minimum requirements on the maintenance of working capital
and certain financial ratios and includes restrictions on cash dividends.
The fair value of the Company's long-term debt which approximates
carrying value is estimated by discounting cash flows based on similar current
rates offered to the Company for debt of the same remaining maturities.
H. Common and Preferred Stock
At December 31, 1998 the Company had 1,907,077 shares of common stock reserved
for future issuance in connection with the Company's stock option plans. The
Board of Directors has not assigned any terms to the authorized but unissued
3,000,000 shares of preferred stock.
I. Employee Benefits
Stock Option Plans
Under the Amended and Restated 1992 Stock Plan ("1992 Plan"), the Compensation
Committee of the Board of Directors may recommend that any employee, consultant
or officer be granted incentive stock options or nonqualified stock options to
purchase the Company's common stock. The Board of Directors has the authority to
select optionees and determine the terms of the options granted. Under the 1992
Stock Plan, the options generally become exercisable cumulatively, beginning on
the date of grant, in equal annual installments of 25%, and expire ten years
from the date of grant. The shareholders approved 1,523,750 shares as the
maximum number of shares available to be granted under the 1992 Plan. At
December 31, 1998 the Company had 338,917 shares available to grant under this
plan.
In May 1995, the shareholders voted to replace the 1992 Non-Employee
Director Stock Option Plan with the 1995 Non-Employee Director Stock Option Plan
(the "Director Plan"). Under the Director Plan, upon initial election or
appointment to the Board, the Company automatically grants to its non-employee
directors, excluding directors of affiliated companies, nonqualified stock
options to purchase 15,000 shares of the Company's common stock. This initial
grant vests in equal annual installments of 33 1/3% beginning on the date of
grant. After this initial two-year vesting period, on each subsequent
anniversary date, non-employee directors receive fully vested nonqualified stock
options to purchase 3,333 shares of the Company's common stock. The stock
options are granted at an exercise price equal to the fair market value of the
Company's common stock on the date of grant and expire ten years from the date
of grant. The Director Plan authorized the issuance of 250,000 shares of common
stock. At December 31, 1998 the Company had 196,669 shares available to grant
under this plan.
27
<PAGE>
The Company has an Employee Stock Purchase Plan that authorizes the
issuance of a maximum of 450,000 shares of common stock pursuant to the exercise
of nontransferable options granted to participating employees. At December 31,
1998 the Company had 308,087 shares available to grant under this plan.
Stock option activity during 1996, 1997 and 1998 was as follows:
- - --------------------------------------------------------------------------------
Weighted Average
Shares Exercise Price
- - --------------------------------------------------------------------------------
Outstanding at December 31, 1995 1,040,645 $13.98
Options granted 16,666 15.20
Options exercised (15,908) 0.16
Options forfeited (304,669) 17.18
--------- ------
Outstanding at December 31, 1996 736,734 12.98
--------- ------
Options granted 64,999 6.53
Options forfeited (108,536) 16.21
--------- ------
Outstanding at December 31, 1997 693,197 11.86
--------- ------
Options granted 580,366 7.26
Options exercised (15,717) 6.36
Options forfeited (194,442) 14.41
--------- ------
Outstanding at December 31, 1998 1,063,404 $ 8.97
- - --------------------------------------------------------------------------------
The following table summarizes information about the Company's stock options
at December 31, 1998.
<TABLE>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
Range of Number Weighted Average Weighted Average Number Weighted Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices At 12/31/98 Contractual Life Price At 12/31/98 Price
- - --------- ----------- ---------------- ---------------- ----------- ----------------
$0.93 105,608 1.2 $0.93 105,608 $ 0.93
6.13-10.00 759,442 8.0 7.86 353,832 8.65
14.00-17.25 155,354 6.0 15.85 155,354 15.85
23.50 43,000 5.3 23.50 43,000 23.50
- - -----------------------------------------------------------------------------------------------------------------------------
$0.93-23.50 1,063,404 6.9 $8.97 657,794 $10.08
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, 1997 and 1996, exercisable options and weighted average
exercise prices were 657,794 and $10.08, 634,447 and $12.09 and 608,453 and
$12.05, respectively. Treasury shares of common stock have been issued upon
exercise of stock options. The difference between the cost of the treasury stock
used and the total option price of shares exercised has been reflected in
additional paid-in capital.
The Company applies the disclosure-only provisions of SFAS No. 123. If the
Company had elected to recognize compensation costs in accordance with SFAS No.
123 the reported net income (loss) would have been reduced to the pro forma
amounts for the years ended December 31, 1998, 1997 and 1996 as indicated below:
<TABLE>
<S> <C> <C> <C>
Year ended Year ende Year Ended
December 31, December 31, December 31,
(In thousands, except per share data) 1998 1997 1996
- - -------------------------------------------------------------------------------------------------------
Net income (loss):
As reported $ 7,068 $ 564 $(12,673)
Pro forma 6,244 (241) (13,333)
Diluted earnings (loss) per share:
As reported $ 0.37 $ 0.03 $ (0.66)
Pro forma 0.32 (0.01) (0.70)
- - -------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
The Company estimates the fair value, as of the date of grant, of options
outstanding in the plan using the Black-Scholes option pricing model with the
following assumptions:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
- - -----------------------------------------------------------------------------------------------
Expected Holding Period 5 5 5
Expected future dividend yield 0% 0% 0%
Expected volatility 55% 55% 60%
Risk free interest rate 5.4% 6.4% 6.3%
- - -----------------------------------------------------------------------------------------------
</TABLE>
The risk-free interest rates were based upon U.S. Treasury instrument rates with
maturity equal to expected term. The weighted average fair value of options
granted during the years ended December 31, 1998, 1997 and 1996 with exercise
price equal to fair market value on the date of grant were $3.86, $3.55 and
$8.71, respectively. During 1998, 1997 or 1996 no options were granted with
exercise price in excess of or below fair market value at the date of grant.
Savings Plan
The Company has a defined contribution plan that qualifies under Section 401(k)
of the Internal Revenue Code for the benefit of substantially all full-time,
eligible employees. Employees may contribute between 1% and 15% of their salary
up to the dollar maximum allowed by the Internal Revenue Service. Company
contributions were voluntary and made at the discretion of the Board of
Directors. In January 1996, the Board of Directors voted to assure a minimum
Company contribution of at least 2% of qualified compensation up to the limits
allowed by the Internal Revenue Service. The Company expensed $575,000, $290,000
and $123,000 for contributions under this plan for the years ended 1998, 1997
and 1996, respectively.
Deferred Compensation Plan
The Company established an unfunded deferred compensation plan in August 1995 to
allow for certain of its management or highly compensated employees to defer the
receipt of specified compensation under Sections 201(2), 301(a)(3) and 401(a)(1)
of the Employee Retirement Income Security Act of 1974.
Employee Bonus Plan
The Company makes cash bonus awards to employees, at the discretion of the Board
of Directors, based upon operating results and employee performance. Net bonus
expense was $1,000,000, $0 and $315,000 for the years 1998, 1997 and 1996,
respectively.
J. Related Party Transactions
In November 1993, Hoechst Corporation ("HC"), through an indirect wholly-owned
subsidiary, completed a tender offer and acquired 51% of the fully diluted
shares of the Company.
On July 18, 1995, HC completed its purchase of Marion Merrell Dow Inc.
("MMD") and changed MMD's name to Hoechst Marion Roussel, Inc. ("HMRI"). The
acquisition of MMD and the formation of HMRI resulted in a related party
relationship between the Company and its customer, Rugby Laboratories ("Rugby"),
which was a subsidiary of MMD and subsequently a subsidiary of HMRI. Net sales
to Rugby were approximately $7,000, $17,000 and $1.0 million for the years 1998,
1997 and 1996, respectively. Effective February 27, 1998, Rugby was sold by HMRI
to an unrelated third party.
In connection with HC's acquisition of its majority interest in the
Company, the Company is a party to a Product Agreement with HC pursuant to which
the Company is afforded the opportunity under specified conditions to distribute
and market the generic version of products sold by Hoechst-Roussel
Pharmaceuticals Inc. ("HRPI"), which was an indirect majority-owned subsidiary
of HC. This Product Agreement will expire June 1, 1999. On January 1, 1996, HRPI
was merged into HMRI. HMRI agreed to be bound by the Product Agreement to the
extent that HRPI was bound; that is, the Product Agreement continues to be in
effect for products manufactured by the former HRPI but not for products
manufactured by HMRI prior to the merger with HRPI nor for products developed by
HMRI after January 1, 1996. In furtherance of the Product Agreement, the Company
and HMRI entered into separate contracts relating to specific products as these
products became available for generic distribution and these separate contracts
now continue in effect beyond the expiration of the Product Agreement. In order
to assure continuity of supply and to provide other competitive benefits, the
Company, in 1997, renegotiated the distribution contracts relating to glyburide
and micronized glyburide; as a result, the profit contribution of these products
decreased in 1997. In 1997 the Company entered into an agreement to distribute
HMRI's pentoxifylline product. For the years 1998, 1997 and 1996, approximately
$45,163,000, $39,555,000 and $30,814,000, respectively, of generic versions of
products were purchased from HMRI. The Company does not expect to distribute or
market any additional products under the Product Agreement.
29
<PAGE>
As part of the relationship with HC, the Company also is afforded the
opportunity to purchase generic bulk pharmaceutical ingredients from entities
related to HC under certain circumstances. During 1998,1997 and 1996, the
Company purchased approximately $0, $151,000 and $230,000, respectively, of
generic bulk products under these agreements. The Company is aware that HC has
announced its intention to deemphasize the generic bulk pharmaceutical
manufacturing business and the Company is pursuing alternative sources.
The Company obtains its comprehensive general liability, product
liability, umbrella liability and all risks property insurance coverage through
an insurance and risk-sharing arrangement with HC and its parent, Hoechst AG,
and its various subsidiaries. Insurance coverage is provided by HC, through its
wholly-owned insurance subsidiary, as well as by external parties. Total
premiums paid by the Company for these insurance policies aggregated
approximately $4,563,000, $4,763,000 and $5,140,000 for the years 1998, 1997 and
1996, respectively.
For the years ended 1998, 1997 and 1996, the Company purchased
approximately $0, $26,000 and $265,000, respectively, of bulk raw chemicals from
a chemical company whose president was a member of the Company's Board of
Directors until July 1998.
In 1997, the Company increased its investment by approximately $360,000
in a multi-source pharmaceutical company, MIR Pharmaceutical, whose senior vice
president was a member of the Company's Board of Directors until July 1998. This
company was founded in 1993 to market multi-source drugs, including products
manufactured by the Company, in certain republics of the former Soviet Union.
This investment was written off in June 1997 in the amount of approximately
$955,000. The write-off was included in other income (expense).
At December 31, 1998, the Company was a 49% owner of Chia Tai Copley
Pharmaceutical ("CTCP") which, in turn, was an 85% owner of Wuxi Chia Tai Copley
Pharmaceutical ("WCTCP"). CTCP and WCTCP were formed to manufacture and market
multi-source drug products in the People's Republic of China.
During 1995, the Company's Board of Directors voted to decrease the
Company's financial commitment to and deemphasize the Company's role in CTCP and
WCTCP. Subsequently a subsidiary of Hoechst AG indicated its desire to purchase
an interest in WCTCP and it is anticipated that upon transfer of its indirect
ownership in WCTCP the Company will recover approximately $2.1 million of its
investment in CTCP. In 1998, the Company wrote down its investment of $2.4
million to $2.1 million and reclassified it to a long-term related party
receivable.
K. Commitments and Contingencies
Leases
During 1996, the Company restructured its operations by consolidating warehouse,
manufacturing and office sites. The Company consolidated its warehouse and
distribution operations into one location under a noncancelable operating lease
with a third-party lessor. This 1996 lease is for five years with a five-year
renewal option and requires the payment of insurance, real estate taxes and
other operating expenses. The Company also leases vehicles and office equipment
under one- to five-year operating leases.
Net rental expense was $652,000, $797,000 and $1,053,000 for 1998, 1997
and 1996, respectively. The amount expensed in 1996 included $180,000 of related
party expense incurred under an operating lease with a related party which was
subsequently terminated that same year.
Future minimum lease payments under noncancelable operating leases are as
follows:
(In thousands)
- - --------------------------------------------------------------------------------
1999 $ 651
2000 535
2001 484
2002 1
2003 -
Thereafter -
- - --------------------------------------------------------------------------------
Total minimum lease payments $1,671
- - --------------------------------------------------------------------------------
Albuterol Class Action Lawsuits
In connection with the Company's December 1993 and January 1994 product recall
of albuterol sulfate inhalation solution, 0.5% ("albuterol"), the Company was
served with complaints in numerous lawsuits in federal and state court, some of
which were on behalf of numerous claimants. The federal court lawsuits were
consolidated as a multi-district litigation. A class action was certified by the
United States District Court for the District of Wyoming under the caption In
Re: Copley Pharmaceutical, Inc. "Albuterol" Products Liability Litigation. In
August 1995, prior to the conclusion of the jury trial, the Company entered into
a settlement agreement with the representative plaintiffs in the class action
lawsuit. The settlement calls for the Company to receive a general release of
all non-death claims in return for contributions by the Company and its insurers
of a minimum of $65 million and a maximum of $130 million to settle all
non-death claims relating to the Company's manufacture, sale and recall of
albuterol. An additional $20 million is allocated under the terms of the
settlement as an estimate of the cost of settling claims by persons alleging
wrongful death, which claims are limited by the settlement to compensatory
damages only and are subject to nonbinding negotiation and arbitration. Within
the Company's minimum and maximum contributions, the amount to be paid by the
Company is subject to the number and seriousness of individual claims eventually
filed.
30
<PAGE>
The settlement agreement requires the $150 million maximum contribution
to be funded by a non-refundable $65 million cash deposit and issuance of
letters of credit for the remaining balance, to be held by the Albuterol
Settlement Trust Fund as security for potential future payments. The Company
negotiated agreements with its insurers pursuant to which the Company and its
insurers have agreed to pay defined percentages of required settlement payments
and related expenses. The minimum contribution of $65 million to the class
action settlement has been funded by cash contributions from the Company ($7.35
million) and its insurers ($57.65 million). Most of the remaining balance of the
$150 million maximum contribution has been secured either by a $21 million cash
deposit made pursuant to court order by the Company ($3.15 million) and one of
its insurers ($17.85 million) in a separate account (which also is available to
pay other litigation expenses, judgments and settlements) or by letters of
credit or other security totaling $64 million, $11.7 million of which has been
posted by the Company and $52.3 million of which has been provided by the
Company's insurers.
Approximately 6,650 proofs of claim have been filed with the Special
Master appointed by the Court to oversee the Albuterol Settlement Trust Fund.
The Special Master has approved approximately 5,240 class action claims totaling
approximately $75 million. No awards have been made to approximately 1,000
rejected class action claims. Appeals from some of these decisions of the
Special Master are being taken to the Court. The Court has ordered that no
further claims may be submitted. (These figures include approximately 850
clients of Jacoby & Meyers, representing nearly all of that firm's clients who
are not alleging a death caused by albuterol, who agreed to be treated as if
they were class members and class counsel have agreed that these claimants will
be paid out of the Albuterol Settlement Trust Fund.) In addition, the Company
has reached settlement agreements with approximately 135 class members alleging
wrongful death; approximately 100 claims of class members alleging wrongful
death remain unresolved.
The settlement also is subject to certain other contingencies and does
not cover certain individuals who previously opted out of the class action,
including 40 people who opted out and never filed suit, some of whom now are
barred from bringing suit by the statute of limitations. The Company continues
to be a defendant in lawsuits that were brought by or on behalf of approximately
three people who properly opted out of the class action while the Company has
settled with 81 litigants who had opted out. These settlements were paid out of
the funds described above. There also are two active lawsuits brought by class
members alleging wrongful death who are pursuing litigation under the terms of
the class action settlement agreement.
Including the amounts paid to the class action settlement or deposited
in the separate account described above or paid for other albuterol related
settlements or expenses, the Company has paid $10.5 million and its insurers
have paid approximately $95 million, some of which already has been distributed
and the remainder of which is available to pay class action claims, claims of
parties who opted out of the class action, attorneys' fees, administrative
costs, and expenses in the connection with the pre-trial, trial, settlements,
and ongoing events. At this time, the Company cannot predict the total amount to
be paid out in connection with claims arising from the albuterol recall.
Grand Jury Investigation
On May 28, 1997, the Company announced that it had entered into a plea agreement
pursuant to which it agreed to waive indictment and plead guilty to a one count
Information charging a violation of Title 18, United States Code, Section 371, a
conspiracy to defraud the United States and one of its agencies, the Food and
Drug Administration ("FDA"). The Information alleged that Copley made changes in
the manufacturing processes for four drugs (only two of which currently are
being manufactured by the Company) without proper notification to the FDA and
signed false batch records with respect to two of these drugs. As part of the
plea agreement, the Company agreed to pay a fine of $10.65 million, of which
$3.55 million plus interest remains to be paid in June 1999.
The plea agreement followed a nearly three-year investigation and grand
jury subpoenas for documents from the United States Attorney's Office in
Massachusetts. The Company complied with the subpoenas and cooperated with
federal authorities throughout the investigation. The investigation continues
with respect to individuals, some of whom are indemnified by the Company for
legal fees and related expenses.
Also on May 28, 1997 the Company announced that it had entered into an
agreement with the FDA providing for an independent audit of 20 of Copley's
ANDAs. The Company is cooperating fully with the FDA, and the independent audit
has been substantially completed. The FDA has agreed that during this audit it
will continue to review the Company's pending ANDAs, accept new ANDAs from the
Company and, where appropriate, approve Copley's ANDAs.
31
<PAGE>
SmithKline Beecham Lawsuit
In August 1997, the Company filed an ANDA for nabumetone which certified that
SmithKline Beecham Corporation's ("SB") patent relating to nabumetone was
invalid and unenforceable and that the Company was entitled to manufacture and
sell nabumetone prior to the December 13, 2002 expiration of SB's nabumetone
patent. As a result, on October 31, 1997 the Company was served with a summons
and complaint in a patent infringement action entitled SmithKline Beecham
Corporation and Beecham Group p.l.c. v. Copley Pharmaceutical, Inc. in the
United States District Court for the District of Massachusetts. In their action,
plaintiffs allege that because the Company seeks approval of its ANDA to engage
in the commercial manufacture, use and sale of nabumetone as claimed in their
patent before the patent's expiration, the Company has infringed their
nabumetone patent. Plaintiffs seek damages and an injunction against approval of
the Company's nabumetone ANDA and its sale of nabumetone prior to December 13,
2002. A trial tentatively has been scheduled to begin in October 1999. The
manufacturer and supplier of the nabumetone that the Company has designated for
use in its ANDA has agreed to defend the Company in this action and to indemnify
the Company for any damages that might be assessed as a result of the Company's
sale of nabumetone obtained from the manufacturer. Although the Company believes
that this complaint is without merit and the Company has meritorious defenses to
this action, there can be no assurance that the Company will prevail. A
substantial damages award in this suit could have a material adverse effect on
the Company.
Shareholder Derivative Action
On September 2, 1998, the Company was served as a nominal defendant in a
shareholder derivative action against six of its nine current Directors. The
lawsuit, which was brought by Great Neck Capital Appreciation Investment
Partnership, the alleged owner of an unspecified number of Company shares, is
pending in Norfolk County, Massachusetts Superior Court. On October 2, 1998,
plaintiff filed a First Amended Shareholder Derivative Complaint that named HCCP
Acquisition Corporation, Hoechst Corporation and Hoechst Aktiengesellschaft as
additional defendants. The amended complaint's allegations include claims of
alleged breach of fiduciary duty and alleged waste of corporate assets and seeks
unspecified money damages and injunctive relief. According to the amended
complaint, "Copley is named as a defendant herein solely in a derivative
capacity. This action is brought on its behalf, and no claims are asserted
against it." The Company is obligated to defend and indemnify the Director
defendants and has put its directors and officers insurance carrier on notice of
this claim. The Company has been served with motions to dismiss the amended
complaint filed by the other defendants; these motions remain pending as of the
date of this report.
Other Legal Proceedings
The Company has $8.0 million of estimated recall-related and legal contingency
reserves accrued at December 31, 1998. These reserves reflect the Company's
estimates of its exposure at December 31, 1998 in its various legal proceedings
described above. Actual settlements amounts may differ from amounts estimated.
In addition, the Company is from time to time subject to claims arising in the
ordinary course of business. While the outcome of the claims cannot be predicted
with certainty, management does not expect these matters to have a material
adverse effect on the results of operations and financial condition of the
Company.
L. Supplemental Cash Flow Information
The following provides additional information concerning disclosure of cash flow
activities:
<TABLE>
<S> <C> <C> <C>
Year ended Year ended Year ended
December 31, December 31, December 31,
(In thousands) 1998 1997 1996
- - -------------------------------------------------------------------------------------------------------
Cash paid (received) during the period for:
Interest $ 599 $ 374 $ 241
Income taxes (1,700) (163) (5,062)
- - -------------------------------------------------------------------------------------------------------
</TABLE>
M. Restructuring
In response to increasing pricing pressures and eroding margins, the Company
restructured its operations in the fourth quarter of 1996. The restructuring
included the consolidation of warehouse, manufacturing and office sites as well
as the write-off of underutilized and idle equipment and, to a lesser extent,
reductions in the labor force. The Company had a second reduction in labor force
during the second quarter of 1997.
32
<PAGE>
N. Quarterly Financial Data (Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Three-month periods ended Total
March 31, June 30, September 30, December 31, December 31,
(In thousands, except per share data) 1998 1998 1998 1998 1998
- - ----------------------------------------------------------------------------------------------------------------------
Net sales $28,208 $34,727 $35,340 $ 35,222 $133,497
Gross profit 5,742 8,685 7,527 10,927 32,880
Recall related and litigation expenses 180 15 183 395 773
Net income (loss) 403 2,756 1,097 2,812 7,068
Net income (loss) per share $ 0.02 $ 0.14 $ 0.06 $ 0.15 $ 0.37
Three-month periods ended Total
March 31, June 30, September 30, December 31, December 31,
(In thousands, except per share data) 1997 1997 1997 1997 1997
- - ----------------------------------------------------------------------------------------------------------------------
Net sales $25,816 $25,500 $36,475 $ 33,692 $121,483
Gross profit 4,829 6,848 10,341 7,637 29,655
Recall related and litigation expenses 200 2,167 227 1,093 3,687
Net income (loss) (363) (1,514) 1,754 687 564
Net income (loss) per share $ (0.02) $ (0.08) $ 0.09 $ 0.04 $ 0.03
</TABLE>
Quarterly results are not an indication of future results.
O. Subsequent Events
In December 1998, the Company filed an ANDA for loratadine syrup which certified
that two of Schering Corporation's patents relating to loratadine syrup were
invalid, unenforceable and/or not infringed and that the Company was entitled to
manufacture and sell loratadine syrup in 2002, following the expiration of one
patent but prior to the expiration of two other of Schering's loratadine
patents. As a result, on March 19, 1999, Schering filed a patent infringement
action entitled Schering Corporation v. Copley Pharmaceutical, Inc. in the
United States District Court for the District of Delaware. In its action,
Schering alleges that because the Company seeks approval of its ANDA to engage
in the commercial manufacture, use and sale of loratadine syrup prior to the
expiration of two patents allegedly relating to loratadine syrup, the Company
has infringed at least one of these patents. Schering seeks an injunction
against approval of the Company's loratadine syrup ANDA and its sale of
loratadine syrup prior to at least April 21, 2004. Although the Company believes
that this complaint is without merit and the Company has meritorious defenses to
this action, there can be no assurance that the Company will prevail. A
substantial damages award in this suit could have a material adverse effect on
the Company.
In January 1999 the Company learned that it had been named as a
defendant in a lawsuit entitled K-V Pharmaceutical Company v. Johnson H. Lim,
Hoechst Corporation, and Copley Pharmaceutical, Inc. pending in the St. Louis,
Missouri Circuit Court. Plaintiff alleges that the Company hired one of its
former employees in contravention of an employment agreement between plaintiff
and the individual and seeks actual damages in excess of $1 million as well as
punitive damages and fees and expenses based on a variety of legal theories.
Although the Company believes that this suit is without merit and the Company
has meritorious defenses to this action, there can be no assurance that the
Company will prevail. A substantial damages award in this suit could have a
material adverse effect on the Company.
Copley Pharmaceutical, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Copley Pharmaceutical, Inc.:
In our opinion, the accompanying consolidated balance sheet as of December 31,
1998 and the related consolidated statements of operations, shareholders' equity
and cash flows present fairly, in all material respects, the financial condition
of Copley Pharmaceutical, Inc. and its subsidiaries the ("Company") at December
31, 1998 and the results of their operations and their cash flows for the year
then ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free from 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 audit provides a reasonable basis for the opinion expressed
above. The financial statements of the Company as of December 31, 1997 and for
each of the two years in the period then ended were audited by other independent
accountants whose report dated January 29, 1998 expressed an unqualified opinion
on those statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 27, 1999, except as
to the information presented
in Note O for which the date
is March 29, 1999
33
<PAGE>
The Board of Directors and Shareholders
Copley Pharmaceutical, Inc.:
We have audited the accompanying consolidated balance sheet of Copley
Pharmaceutical, Inc. and subsidiaries (the "Company") as of December 31, 1997
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the two-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibilty is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These 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 the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Copley
Pharmaceutical, Inc. and subsidiaries as of December 31, 1997 and the results of
their operations and their cash flows for each of the years in the the two-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG LLP
Providence, Rhode Island
January 29, 1998
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements and other financial information contained
in this annual report on Form 10-K were prepared by management in conformity
with generally accepted accounting principles. In preparing these consolidated
financial statements, reasonable estimates and judgments have been made when
necessary.
Management is responsible for establishing and maintaining a system of
internal control, designed to provide reasonable assurance as to the integrity
and reliability of the financial records. The concept of reasonable assurance
recognizes that there are inherent limitations in any control system and that
the cost of maintaining a control system should not exceed the expected benefits
to be derived therefrom. Management believes its system of internal control
effectively meets its objective of reliable financial reporting.
The Audit Committee of the Board of Directors is comprised of a
majority of non-employee directors and meets periodically with management and
the independent accountants to review and discuss audit findings and other
financial and accounting matters. The independent accountants have free access
to the Audit Committee, with and without management present, to discuss the
results of their audit work.
The Company's independent accountants are engaged to audit the
Company's consolidated financial statements, in accordance with generally
accepted auditing standards, for the purpose of expressing an opinion on the
consolidated financial statements.
Daniel M.P. Caron
Vice President, Chief Financial Officer and Treasurer
34
<PAGE>
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
KPMG LLP were previously the principal accountants for the Company. On November
19, 1998, that firm's appointment as principal accountants was terminated and
PricewaterhouseCoopers LLP were engaged as principal accountants by the
Company's Board of Directors.
In connection with the audits for the years ended December 31, 1997 and
1996, and during the interim period from December 31, 1997, the date of the last
audited consolidated financial statements, to November 19, 1998, the date of
dismissal, there were no disagreements with KPMG LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements if not resolved to their satisfaction would have
caused them to make reference in connection with their opinion to the subject
matter of disagreement.
The audit reports of KPMG LLP on the financial statements of Copley
Pharmaceutical, Inc. as of and for the years ended December 31, 1997 and 1996
did not contain any adverse opinion or disclaimer of opinion.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The information concerning directors and executive officers of the Company
required under this Item is incorporated herein by reference to the Company's
definitive proxy statement pursuant to Regulation 14A, to be filed with the
Commission not later than 120 days after the close of the Company's year ended
December 31, 1998, under the headings "Occupations of Directors and Executive
Officers" and "Management and Principal Shareholders."
ITEM 11: EXECUTIVE COMPENSATION
The information required under this Item is incorporated herein by reference to
the Company's definitive proxy statement pursuant to Regulation 14A, to be filed
with the Commission not later than 120 days after the close of the Company's
year ended December 31, 1998, under the heading "Compensation and Other
Information Concerning Directors and Executive Officers."
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required under this Item is incorporated herein by reference to
the Company's definitive proxy statement pursuant to Regulation 14A, to be filed
with the Commission not later than 120 days after the close of the Company's
year ended December 31, 1998, under the heading "Management and Principal
Shareholders."
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this Item is incorporated herein by reference to
the Company's definitive proxy statement pursuant to Regulation 14A, to be filed
with the Commission not later than 120 days after the close of the Company's
year ended December 31, 1998, under the heading "Certain Relationships and
Related Transactions."
35
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a)1. Consolidated Financial Statements
For the following financial information included herein see Part II. Item 8
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations and Comprehensive Income for the
years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows
for the years ended December 31, 1998, 1997 and 1996 Notes to
Consolidated Financial Statements Report of Independent Accountants
2. Financial Statement Schedules
Financial statement schedules are not submitted because they are not applicable,
not required or because the information is included in the Consolidated
Financial Statements or Notes to the Consolidated Financial Statements.
3. List of Exhibits
Exhibit No. Description
- - --------------------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of the Company,
as amended.
3.2 Amended and Restated By-Laws of the Company.
10.3 Industrial Revenue Bond Agreements executed by the Company dated July
15, 1989.
10.4 1986 Incentive Stock Option Plan.
10.5 1990 Stock Plan.
10.6 Amended and Restated 1992 Stock Plan.
10.7 1992 Non-Employee Director Stock Plan.
l0.8 1992 Employee Stock Purchase Plan.
10.9 Employee Stock Ownership Plan.
10.10 Profit Sharing and 401(k) Savings Plan, as amended.
10.12 Form of Indemnity Agreement with Directors and Certain Officers.
10.13(b) Employment Agreement, dated as of October 8, 1993, between the Company
and Jane C.I. Hirsh.
10.14(b) Form of Employment Agreement between the Company and certain employees.
10.16 Corporate Governance and Standstill Agreement, dated as of October 8,
1993, by and among the Company, Hoechst Celanese and HCCP
Acquisition Corporation, as amended.
10.18(b) Product Agreement, dated as of October 8, 1993, between Hoechst
Celanese Corporation and the Company.
10.20(c) Amended and Restated Loan Agreement dated August 17, 1993 between
Copley Pharmaceutical, Inc. and The First National Bank of Boston.
10.22(f) 1995 Non-Employee Director Stock Option Plan.
10.23(f) First Amendment to Amended and Restated Loan Agreement dated as of June
29, 1995 by and between the Company and the First National Bank of
Boston ("Bank of Boston").
10.24(f) First Amendment to Amended and Restated Promissory Note dated as of
June 29, 1995 by and between the Company and Bank of Boston.
10.25(f) First Amendment to Reimbursement Agreement dated as of June 29, 1995 by
and between the Company and Bank of Boston.
10.26(g) Agreement of Compromise and Settlement dated August 22, 1995.
10.27(g) Supplement to August 22, 1995 Agreement of Compromise and Settlement.
10.28(g) Escrow and Trust Agreement dated August 28, 1995.
10.29(g) Second Amendment to Amended and Restated Loan Agreement dated as of
August 30, 1995 by and between the Company and Bank of Boston.
10.30(h) Stipulation of Compromise and Settlement dated November 17, 1995.
10.31(h) Third Amendment to Amended and Restated Loan Agreement dated as of
March 25, 1996 by and between the Company and Bank of Boston.
10.32(i) Fourth Amendment to Amended and Restated Loan Agreement dated as of
July 31, 1996 by and between the Company and Bank of Boston.
36
<PAGE>
- - --------------------------------------------------------------------------------
Exhibit No. Description
- - --------------------------------------------------------------------------------
10.33(i) Third Amendment to Amended and Restated Promissory Note dated as of
July 31, 1996 by and between the Company and Bank of Boston.
10.34(j) Letter agreement between the Company and Hoechst Marion Roussel, Inc.
relating to the employment for Ken E.Starkweather.
10.35(j) Fifth Amendment to Amended and Restated Promissory Note dated as of
August 7, 1997 by and between the Company and Bank of Boston.
10.36(k)*Amended and Restated Glyburide Agreement effective January 1, 1997
by and between Hoechst Marion Roussel, Inc. and Copley Pharmaceutical,
Inc.
10.37(k)*Amended and Restated Micronized Glyburide Agreement effective January
1, 1997 by and between Hoechst Marion Roussel,Inc. and Copley
Pharmaceutical, Inc.
10.38(k)*Pentoxifylline Agreement effective January 1, 1997 by and between
Hoechst Marion Roussel, Inc. and Copley Pharmaceutical, Inc.
10.39(l) Plea Agreement dated May 27, 1997.
10.40(l) Criminal information
10.41(l) Agreement between the Company and the Food and Drug Administration.
10.41(*) Nabumetone Agreement
21 Subsidiaries of the Company
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of KPMG LLP
(b) Previously filed as exhibits to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 dated October
14, 1993 and incorporated herein by reference.
(c) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended October 31, 1993 and
incorporated herein by reference.
(d) Previously filed as exhibits to the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1994 and incorporated herein
by reference.
(e) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the eleven-month period ended December 31, 1994 and
incorporated herein by reference.
(f) Previously filed as exhibits to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1995 and
incorporated herein by reference.
(g) Previously filed as exhibits to the Company's Quarterly Report on
Form 10-Q of the quarterly period ended September 30, 1995 and
incorporated herein by reference.
(h) Previously filed as exhibits to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995 and incorporated
herein by reference.
(i) Previously filed as exhibits to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996 and
incorporated herein by reference.
(j) Previously filed as exhibits to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1997 and
incorporated herein by reference.
(k) Previously filed as exhibits to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1997.
* Confidential treatment as to certain portions has been requested
pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of
1934, as amended.
(l) Previously filed as exhibits to the Company's Current Report on Form
8-K dated May 28, 1997.
(b)Reports on Form 8-K
Form 8-K dated November 19, 1998 - Item 4: Change in Registrant's Certifying
Accountant. The Company announced that it had terminated its relationship with
KPMG LLP(KPMG) and has retained PricewatehouseCoopers LLP as its new independent
accountants.
Form 8-KA dated November 19, 1998 - Item 4: Change in Registrant's Certifying
Accountant. The Company announced that it had terminated its relationship with
KPMG LLP(KPMG) and has retained PricewatehouseCoopers LLP as its new independent
accountants.
No other reports on Form 8-K were filed during the last three months of the year
ended December 31, 1998.
(c)Exhibits
The Company hereby files as exhibits to this Report on Form 10-K those exhibits
listed in Item 14(a)(3), above.
(d)Financial Statement Schedules
The Company hereby files as financial statement schedules to this Report on Form
10-K those financial statement schedules, if any, listed in Item 14(a)(2),
above.
37
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Copley Pharmaceutical, Inc.
By: /s/ Daniel L. Korpolinski
Daniel L. Korpolinski
President, CEO
(principal executive officer)
By: /s/ Daniel M. P. Caron
Vice President, Chief Financial Officer and
Treasurer
Date: March 30, 1999
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 Company and in
the capacities and on the dates indicated.
<TABLE>
<S> <S> <C>
Signature Title(s) Date
- - ------------------------------------------------------------------------------------------------------------------------------------
/s/Daniel L. Korpolinski President, CEO and Director March 30, 1999
- - ------------------------ (principal executive officer)
Daniel L. Korpolinski
/s/Daniel M.P. Caron Vice President, Chief Financial Officer March 30, 1999
- - -------------------- and Treasurer (principal accounting officer)
Daniel M.P. Caron
/s/David A. Jenkins Chairman of the Board of Directors March 30, 1999
- - -------------------
David A. Jenkins
/s/ Robert P. Cook Director March 30, 1999
- - -------------------
Robert P. Cook
/s/ Jane C.I. Hirsh President of Copley Pharmaceutical March 30, 1999
- - -------------------
Jane C.I. Hirsh International, Inc. and Director
/s/William K. Hoskins Director March 30, 1999
- - ---------------------
William K. Hoskins
/s/ Kenneth N. Larsen Director March 30, 1999
- - ---------------------
Kenneth N. Larsen
/s/ Charles T. Lay Director March 30, 1999
- - ------------------
Charles T Lay
/s/ Jess G. Thoene Director March 30, 1999
- - ------------------
Jess G. Thoene
/s/ Martin Zeiger Director March 30, 1999
- - -----------------
Martin Zeiger
38
</TABLE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
COPLEY PHARMACEUTICAL, INC.
(Incorporated November 2, 1987)
* * * * * *
I, Jane C.I. Hirsh, President and Chief Executive Officer of Copley
Pharmaceutical, Inc. (the "Corporation"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware, do
hereby certify that the Certificate of Incorporation of Copley Pharmaceutical,
Inc., has been amended, and restated as amended, in accordance with provisions
of Sections 242 and 245 of the General Corporation Law of the State of Delaware,
and, as amended and restated, is set forth in its entirety as follows:
FIRST. The name of the Corporation is Copley Pharmaceutical, Inc., (the
"Corporation").
SECOND. The address of the registered office of the Corporation in the
State of Delaware is 32 Loockerman Square, Suite L-100, in the City of Dover,
County of Kent, Delaware 19901. The name of its registered agent at such address
is Prentice-Hall Corporation System, Inc.
THIRD. The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
FOURTH. The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 33,000,000 shares, consisting
of 30,000,000 shares of Common Stock with a par value of $.01 per share (the
"Common Stock") and 3,000,000 shares of Preferred Stock with a par value of $.01
per share (the "Preferred Stock").
A description of the respective classes of stock and a statement of the
designations, preferences, voting powers (or special, preferential or no voting
powers), relative, participating, optional or other special rights and
privileges and the qualifications, limitations and restrictions of the Preferred
Stock and Common Stock are as follows:
A. COMMON STOCK
1. General. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified bythe rights of holders
of the Preferred Stock.
2. Dividends. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
3. Dissolution, Liquidation or Winding Up. In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or involuntary, each issued and outstanding share of Common
Stock shall entitle the holder thereof to receive an equal portion of the net
assets of the Corporation available for distribution to holders of Common Stock,
subject to any preferential rights of any then outstanding Preferred Stock.
4. Voting Rights. Except as otherwise required by law or this Amended and
Restated Certificate of Incorporation, each holder of Common Stock shall have
one vote in respect of each share of stock held by him or her of record on the
books of the Corporation for the election of directors and on all matters
submitted to a vote of stockholders of the Corporation. Except as otherwise
required by law or provided herein, holders of Common Stock will vote together
with holders of the Preferred Stock as a single class, subject to any special or
preferential voting rights of any then outstanding Preferred Stock. There shall
be no cumulative voting.
B. PREFERRED STOCK
The Preferred Stock may be issued in one or more series at such time or
times and for such consideration or considerations as the Board of Directors of
the Corporation may determine. Each series shall be so designated as to
distinguish the shares thereof from the shares of all other series and classes.
Except as otherwise provided in this Certificate of Incorporation, different
series of Preferred Stock shall not be construed to constitute different classes
of shares for the purpose of voting by classes.
The Board of Directors is expressly authorized to provide for the issuance
of all or any shares of the undesignated Preferred Stock in one or more series,
each with such designations, preferences, voting powers (or special,
preferential or no voting powers), relative, participating, optional or other
special rights and privileges and such qualifications, limitations or
restrictions thereof as shall be stated in the resolution or resolutions adopted
by the Board of Directors to create such series, and a certificate of said
resolution or resolutions shall be filed in accordance with the General
Corporation Law of the State of Delaware. The authority of the Board of
Directors with respect to each such series shall include, without limitation of
the foregoing, the right to provide that the shares of each such series may be:
(i) subject to redemption at such time or times and at such price or prices;
(ii) entitled to receive dividends (which may be cumulative or non-cumulative)
at such rates, on such conditions, and at such times, and payable in preference
to, or in such relation to, the dividends payable on any other class or classes
or any other series; (iii) entitled to such rights upon the dissolution of, or
upon any distribution of the assets of, the corporation; (iv) convertible into,
or exchangeable for, shares of any other class or classes of stock, or of any
other series of the same or any other class or classes of stock of the
Corporation at such price or prices or at such rates of exchange and with such
adjustments, if any; (v) entitled to the benefit of such limitations, if any, on
the issuance of additional shares of such series or shares of any other series
of Preferred Stock; or (vi) entitled to such other preferences, powers,
qualifications, rights and privileges, all as the Board of Directors may deem
advisable and as are not inconsistent with law and the provisions of this
Certificate of Incorporation.
FIFTH. The Corporation is to have perpetual existence.
SIXTH. In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware:
A. The Board of Directors of the Corporation is expressly
authorized to adopt, amend or repeal the By-laws of the Corporation.
B. The books of the Corporation may be kept at such place within
or without the State of Delaware as the By-laws of the Corporation may provide
or as may be designated from time to time by the Board of Directors of the
Corporation.
SEVENTH. No director (including any advisory director) of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director notwithstanding any provision
of law imposing such liability; provided, however, that, to the extent provided
by applicable law, this provision shall not eliminate the liability of a
director (i) for any breach of the director's duty of loyalty to the Corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any director for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
EIGHTH. The Corporation reserves the right to amend or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
and to take other corporate action to the extent and in the manner now or
hereafter prescribed by statute, and all rights conferred upon a stockholder
herein are granted subject to this reservation.
NINTH. This Article is inserted for the management of the business and for
the conduct of the affairs of the Corporation, and it is expressly provided that
it is intended to be in furtherance and not in limitation or exclusion of the
powers conferred by the statutes of the State of Delaware.
1. Number of Directors. The number of directors which shall constitute the
whole Board of Directors shall be determined by resolution of a majority of the
Board of Directors, but in no event shall be less than three. The number of
directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote in such election. Directors need
not be stockholders of the Corporation.
2. Classes of Directors. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the authorized number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I and, if such fraction is two-thirds, one of the extra directors shall be
a member of Class II, unless otherwise provided for from time to time by
resolution adopted by a majority of the Board of Directors.
3. Election of Directors. Elections of directors need not be by written
ballot except as and to the extent provided in the By-laws of the Corporation.
4. Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, however, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting next following
the end of the Corporation's fiscal year ending January 31, 1995; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting next following the end of the Corporation's fiscal year ending January
31, 1994; and each initial director in Class III shall serve for a term ending
on the date of the annual meeting next following the end of the Corporation's
fiscal year ending January 31, 1993.
5. Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as director of the class of which he or she is a
member until the expiration of his or her current term or his or her prior
death, retirement or resignation and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors so as to ensure that
no one class has more than one director more than any other class. To the extent
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation, and any newly eliminated directorships
shall be subtracted from those classes whose terms of office are to expire at
the earliest dates following such allocation, unless otherwise provided for from
time to time by resolution adopted by a majority of the directors then in
office, although less than a quorum.
6. Tenure. Notwithstanding any provisions to the contrary contained
herein, each director shall hold office until his or her successor is elected
and qualified, or until his or her earlier death, resignation or removal.
7. Vacancies. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board of Directors, may
be filled only by vote of a majority of the directors then in office, although
less than a quorum, or by a sole remaining director. A director elected to fill
a vacancy shall be elected for the unexpired term of his or her predecessor in
office, if applicable, and a director chosen to fill a position resulting from
an increase in the number of directors shall hold office until the next election
of the class for which such director shall have been chosen and until his or her
successor is elected and qualified, or until his or her earlier death,
resignation or removal.
8. Quorum. A majority of the total number of the whole Board of Directors
shall constitute a quorum at all meetings of the Board of Directors. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each such director so
disqualified; provided, however, that in no case shall less than one-third (1/3)
of the number so fixed constitute a quorum. In the absence of a quorum at any
such meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
9. Action at Meeting. At any meeting of the Board of Directors at which a
quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law or the
Corporation's Amended and Restated Certificate of Incorporation or By-laws.
10. Removal. Any one or more or all of the directors may be removed
without cause by the holders of at least seventy-five percent (75%) of the
shares then entitled to vote at an election of directors. Any one or more or all
of the directors may be removed with cause by the holders of a majority of the
shares then entitled to vote at an election of directors, unless otherwise
specified by law.
11. Stockholder Nominations and Introduction of Business, Etc. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided in the By-laws of the Corporation.
12. Amendments to Article. Notwithstanding any other provisions of law,
this Amended and Restated Certificate of Incorporation or the Corporation's
By-Laws, and notwithstanding the fact that a lesser percentage may be specified
by law, the affirmative vote of the holders of at least seventy-five percent
(75%) of the votes which all the stockholders would be entitled to cast at any
annual election of directors or class of directors shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Article NINTH.
TENTH. After the closing of an initial public offering by the Corporation,
the Stockholders of the Corporation may not take any action by written consent
in lieu of a meeting. Notwithstanding any other provision of law, this Amended
and Restated Certificate of Incorporation or the Corporation's By-laws, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
votes which all the stockholders would be entitled to cast at any annual
election of directors or class of directors shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Article TENTH.
ELEVENTH. Special meetings of stockholders may be called at any time by
the President, the Chief Executive Officer or the Chairperson of the Board of
Directors. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting. Notwithstanding any other provision of law, this Amended and Restated
Certificate of Incorporation or the Corporation's By-laws, and notwithstanding
the fact that a lesser percentage may be specified by law, the affirmative vote
of the holders of at least seventy-five percent (75%) of the votes which all the
stockholders would be entitled to cast at any annual election of directors or
class of directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article ELEVENTH.
TWELFTH. The Board of Directors of the Corporation, when evaluating any
offer of another party (a) to make a tender or exchange offer for any equity
security of the Corporation or (b) to effect a business combination, shall, in
connection with the exercise of its judgment in determining what is in the best
interests of the Corporation as whole, be authorized to give due consideration
to any such factors as the Board of Directors determines to be relevant,
including, without limitation:
(i) the interests of the Corporation's stockholders, including the
possibility that these interests might be best served by the continued
independence of the corporation;
(ii) whether the proposed transaction might violate federal or
state laws;
(iii) not only the consideration being offered in the proposed
transaction, in relation to the then current market price for the
outstanding capital stock of the Corporation, but also to the market price
for the capital stock of the Corporation over a period of years, the
estimated price that might be achieved in a negotiated sale of the
Corporation as a whole or in part or through orderly liquidation, the
premiums over market price for the securities of other corporations in
similar transactions, current political, economic and other factors
bearing on securities prices and the Corporation's financial condition and
future prospects; and
(iv) the social, legal and economic effects upon employees,
suppliers, customers, creditors and others having similar relationships
with the Corporation, upon the communities in which the Corporation
conducts its business and upon the economy of the state, region and
nation.
In connection with any such evaluation, the Board of Directors is authorized to
conduct such investigations and engage in such legal proceedings as the Board of
Directors may determine.
THIRTEENTH.
1. Actions, Suits and Proceedings Other than by or in the Right of the
Corporation. The Corporation shall indemnify each person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he or she is or was, or has agreed to become, a director
or officer of the Corporation, or is or was serving, or has agreed to serve, at
the request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him her or on his or her behalf in connection with such
action, suit or proceeding and any appeal therefrom, if he or she acted in good
faith and in a manner he or she reasonably believed to be in, or not opposed to,
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful. Notwithstanding anything to the contrary in this Article,
except as set forth in Section 6 below, the Corporation shall not indemnify an
Indemnitee seeking indemnification in connection with a proceeding (or part
thereof) initiated by the Indemnitee unless the initiation thereof was approved
by the Board of Directors of the Corporation.
2. Actions or Suits by or in the Right of the Corporation. The Corporation
shall indemnify any Indemnitee who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of the
fact that he or she is or was, or has agreed to become, a director or officer of
the Corporation, or is or was serving, or has agreed to serve, at the request of
the Corporation, as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other enterprise
(including any employee benefit plan), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees) and amounts paid in settlement actually and reasonably incurred
by him or her or on his or her behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he or she acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses (including
attorneys' fees) which the Court of Chancery of Delaware or such other court
shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding the
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he or she shall be indemnified against all expenses (including
attorneys' fees) actually and reasonably incurred by him or her or on his or her
behalf in connection therewith. Without limiting the foregoing, if any action,
suit or proceeding is disposed of, on the merits or otherwise (including a
disposition without prejudice), without (i) the disposition being adverse to the
Indemnitee, (ii) an adjudication that the Indemnitee was liable to the
Corporation, (iii) a plea of guilty or nolo contendere by the Indemnitee, (iv)
an adjudication that the Indemnitee did not act in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
Corporation, and (v) with respect to any criminal proceeding, an adjudication
that the Indemnitee had reasonable cause to believe his or her conduct was
unlawful, the Indemnitee shall be considered for the purpose hereof to have been
wholly successful with respect thereto.
4. Notification and Defense of Claim. As a condition precedent to his or
her right to be indemnified, the Indemnitee must notify the Corporation in
writing as soon as practicable of any action, suit, proceeding or investigation
involving him or her for which indemnity will or could be sought. With respect
to any action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his or her own counsel in connection with such claim, but the
fees and expenses of such counsel incurred after notice from the Corporation of
its assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 below, in
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the Corporation in advance of the final disposition of such matter, provided,
however, that the payment of such expenses incurred by an Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such undertaking may be accepted without reference to the financial ability of
such person to make such repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines, by clear and convincing evidence, within such 60-day
period that the Indemnitee did not meet the applicable standard of conduct set
forth in Section 1 or 2, as the case may be. Such determination shall be made in
each instance by (a) a majority vote of a quorum of the directors of the
Corporation consisting of persons who are not at that time parties to the
action, suit or proceeding in question ("disinterested directors"), (b) if no
such quorum is obtainable, a majority vote of a committee of two or more
disinterested directors, (c) a majority vote of a quorum of the outstanding
shares of stock of all classes entitled to vote for directors, voting as a
single class, which quorum shall consist of stockholders who are not at that
time parties to the action, suit or proceeding in question, (d) independent
legal counsel (who may be regular legal counsel to the Corporation), or (e) a
court of competent jurisdiction.
7. Remedies. The right to indemnification or advances as granted by this
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the Corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such proceeding shall also be indemnified by the Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of the
State of Delaware or any other applicable laws shall affect or diminish in any
way the rights of any Indemnitee to indemnification under the provisions hereof
with respect to any action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses provided
by this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to the extent authorized from time to
time by its Board of Directors, grant indemnification rights to other employees
or agents of the Corporation or other persons serving the Corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
10. Partial Indemnification. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or her or on his or
her behalf in connection with any action, suit, proceeding or investigation and
any appeal therefrom but not, however, for the total amount thereof, the
Corporation shall nevertheless indemnify the Indemnitee for the portion of such
expenses (including attorneys' fees), judgments, fines or amounts paid in
settlement to which the Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan) against any expense, liability
or loss incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the General
Corporation Law of the State of Delaware.
12. Merger or Consolidation. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by an applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. Definitions. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of the State of Delaware shall
have the respective meanings assigned to such terms in such Section 145(h) and
Section 145(i).
15. Subsequent Legislation. If the General Corporation Law of the State of
Delaware is amended after adoption of this Article to expand further the
indemnification permitted to Indemnitees, then the Corporation shall indemnify
such persons to the fullest extent permitted by the General Corporation Law of
the State of Delaware, as so amended.
IN WITNESS WHEREOF, the undersigned has hereunto signed her name and
affirms that the statements made in this Amended and Restated Certificate of
Incorporation are true under the penalties of perjury this 13th day of April,
1992.
------------------------------
Jane C.I. Hirsh
President and Chief Executive
Officer
Attest:
- - -----------------------------
Alan J. Applebaum
Assistant Secretary
AMENDED AND RESTATED
BY-LAWS
OF
COPLEY PHARMACEUTICAL, INC.
Adopted April 9, 1992
<PAGE>
BY-LAWS
TABLE OF CONTENTS
Page
ARTICLE 1 - Stockholders 1
Section 1.1 Place of Meetings 1
Section 1.2 Annual Meeting 1
Section 1.3 Special Meetings 1
Section 1.4 Notice of Meetings 1
Section 1.5 Voting List 2
Section 1.6 Quorum 2
Section 1.7 Adjournments 2
Section 1.8 Voting and Proxies 2
Section 1.9 Action at Meeting 3
Section 1.10 Introduction of Business at Meeting 3
Section 1.11 Action without Meeting 4
ARTICLE 2 - Directors 4
Section 2.1 General Powers 4
Section 2.2 Number; Election and Qualification 4
Section 2.3 Classes of Directors 5
Section 2.4 Terms in Office 5
Section 2.5 Allocation of Directors Among
Classes in the Event of Increases
or Decreases in the Number of
Directors 5
Section 2.6 Tenure 6
Section 2.7 Vacancies 6
Section 2.8 Resignation 6
Section 2.9 Regular Meetings 6
Section 2.10 Special Meetings 6
Section 2.11 Notice of Special Meetings 6
Section 2.12 Meetings by Telephone Conference Calls 7
Section 2.13 Quorum 7
Section 2.14 Action at Meeting 7
Section 2.15 Action by Consent 7
Section 2.16 Removal 7
Section 2.17 Committees 7
Section 2.18 Compensation of Directors 8
Section 2.19 Amendments to Article 8
ARTICLE 3 - Officers 8
Section 3.1 Enumeration 8
Section 3.2 Election 8
Section 3.3 Qualification 9
<PAGE>
Page
Section 3.4 Tenure 9
Section 3.5 Resignation and Removal 9
Section 3.6 Vacancies 9
Section 3.7 Chairperson of the Board and Vice-
Chairperson of the Board 9
Section 3.8 Chief Executive Officer 10
Section 3.9 President 10
Section 3.10 Vice Presidents 10
Section 3.11 Secretary and Assistant Secretaries 10
Section 3.12 Treasurer and Assistant Treasurers 11
Section 3.13 Salaries 11
ARTICLE 4 - Capital Stock 11
Section 4.1 Issuance of Stock 11
Section 4.2 Certificates of Stock 12
Section 4.3 Transfers 12
Section 4.4 Lost, Stolen or Destroyed
Certificates 12
Section 4.5 Record Date 12
ARTICLE 5 - General Provisions 13
Section 5.1 Fiscal Year 13
Section 5.2 Corporate Seal 13
Section 5.3 Waiver of Notice 13
Section 5.4 Voting of Securities 13
Section 5.5 Evidence of Authority 13
Section 5.6 Certificate of Incorporation 14
Section 5.7 Transactions with Interested Parties 14
Section 5.8 Severability 14
Section 5.9 Pronouns 14
ARTICLE 6 - Amendments 15
Section 6.1 By the Board of Directors 15
Section 6.2 By the Stockholders 15
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
COPLEY PHARMACEUTICAL, INC.
ARTICLE 1 - Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President or, if not so designated, at the
registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election of
directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President (which date shall not be a legal holiday in the place
where the meeting is to be held) at the time and place to be fixed by the Board
of Directors or the President and stated in the notice of the meeting. If no
annual meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-Laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
any time by the Chairperson of the Board, Chief Executive Officer or the
President. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his or her address as it appears
on the records of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him or
her by written proxy executed by the stockholder or his or her authorized agent
and delivered to the Secretary of the corporation. No such proxy shall be voted
or acted upon after three years from the date of its execution, unless the proxy
expressly provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. Any election by stockholders shall be determined
by a plurality of the votes cast by the stockholders entitled to vote at the
election.
1.10 Introduction of Business at Meetings. Except as otherwise provided by
law, at any annual or special meeting of stockholders only such business shall
be conducted as shall have been properly brought before the meeting. In order to
be properly brought before the meeting, such business must have been either (A)
specified in the written notice of the meeting (or any supplement thereto) given
to stockholders of record on the record date for such meeting by or at the
direction of the Board of Directors, (B) brought before the meeting at the
direction of the Board of Directors or the chairman of the meeting or (C)
specified in a written notice given by or on behalf of a stockholder of record
on the record date for such meeting entitled to vote thereat or a duly
authorized proxy for such stockholder, in accordance with all of the following
requirements. A notice referred to in clause (C) hereof must be delivered
personally to or mailed to and received at the principal executive office of the
corporation, addressed to the attention of the Secretary, not more than ten (10)
days after the date of the initial notice referred to in Clause (A) hereof, in
the case of business to be brought before a special meeting of stockholders, and
not less than thirty (30) days prior to the first anniversary date of the
initial notice referred to in clause (A) hereof to the previous year's annual
meeting, in the case of business to be brought before an annual meeting of
stockholders, provided, however, that such notice shall not be required to be
given more than sixty (60) days prior to an annual meeting of stockholders. Such
notice referred to in clause (C) hereof shall set forth (i) a full description
of each such item of business proposed to be brought before the meeting, (ii)
the name and address of the person proposing to bring such business before the
meeting, (iii) the class and number of shares held of record, held beneficially
and represented by proxy by such person as of the record date for the meeting
(if such date has been made publicly available) and as of the date of such
notice, (iv) if any item of such business involves a nomination for director,
all information regarding each such nominee that would be required to be set
forth in a definitive proxy statement filed with the Securities Exchange
Commission pursuant to Section 14 of the Securities Exchange Act of 1934, as
amended, or any successor thereto, and the written consent of each such nominee
to serve if elected, and (v) all other information that would be required to be
filed with the Securities and Exchange Commission if, with respect to the
business proposed to be brought before the meeting, the person proposing such
business was a participant in a solicitation subject to Section 14 of the
Securities Exchange Act of 1934, as amended, or any successor thereto. No
business shall be brought before any meeting of stockholders of the Corporation
otherwise than as provided in this paragraph.
Notwithstanding the foregoing provisions, the Board of Directors shall be
obligated to include information as to any nominee for director in any proxy
statement or other communication sent to stockholders.
The chairperson of the meeting may, if the facts warrant, determine and
declare to the meeting that any proposed item of business was not brought before
the meeting in accordance with the foregoing procedure and, if he or she should
so determine, he or she shall so declare to the meeting and the defective item
of business shall be disregarded.
1.11 Action without Meeting. After the consummation of an initial public
offering by the corporation, the Stockholders of the corporation may not take
any action by written consent in lieu of a meeting. Notwithstanding any other
provision of law, the Certificate of Incorporation or these By-laws, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
votes which all the stockholders would be entitled to cast at any annual
election of directors or class of directors shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Section 1.11.
ARTICLE 2 - Directors
2.1 General Powers. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law or the
Certificate of Incorporation, may exercise the powers of the full Board of
Directors until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors, but in no event shall be less than three. The number
of directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
2.3 Classes of Directors. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the authorized number of directors by three,
then if such fraction is one-third, the extra director shall be a member of
Class I and, if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and the other extra director shall be a member of Class II,
unless otherwise provided for from time to time by resolution adopted by a
majority of the Board of Directors.
2.4 Terms in Office. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, however, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting next following
the end of the Corporation's fiscal year ending January 31, 1995; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting next following the end of the Corporation's fiscal year ending January
31, 1994; and each initial director in Class III shall serve for a term ending
on the date of the annual meeting next following the end of the Corporation's
fiscal year ending January 31, 1993.
2.5 Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as director of the class of which he or she is a
member until the expiration of his or her current term or his or her prior
death, retirement or resignation and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors so as to ensure that
no one class has more than one director more than any other class. To the extent
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation, and any newly eliminated directorships
shall be subtracted from those classes whose terms of office are to expire at
the earliest dates following such allocation, unless otherwise provided for from
time to time by resolution adopted by a majority of the directors then in
office, although less than a quorum.
2.6 Tenure. Notwithstanding any provisions to the contrary contained
herein, each director shall hold office until his or her successor is elected
and qualified, or until his or her earlier death, resignation or removal.
2.7 Vacancies. Unless and until filled by the stockholders, any vacancy in
the Board of Directors, however occurring, including a vacancy resulting from an
enlargement of the Board, may be filled by vote of a majority of the directors
then in office, although less than a quorum, or by a sole remaining director. A
director elected to fill a vacancy shall be elected for the unexpired term of
his or her predecessor in office, and a director chosen to fill a position
resulting from an increase in the number of directors shall hold office until
the next annual meeting of stockholders and until his or her successor is
elected and qualified, or until his or her earlier death, resignation or
removal.
2.8 Resignation. Any director may resign by delivering his or her written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.9 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.10 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairperson of the Board, President, Chief Executive Officer,
two or more directors, or by one director in the event that there is only a
single director in office.
2.11 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or telex,
or delivering written notice by hand, to his or her last known business or home
address at least 48 hours in advance of the meeting, or (iii) by mailing written
notice to his or her last known business or home address at least 72 hours in
advance of the meeting. A notice or waiver of notice of a meeting of the Board
of Directors need not specify the purposes of the meeting.
2.12 Meetings by Telephone Conference Calls. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.13 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.14 Action at Meeting. At any meeting of the Board of Directors at which
a quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these By-Laws.
2.15 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent to the action in writing,
and the written consents are filed with the minutes of proceedings of the Board
of Directors of committee.
2.16 Removal. Any one or more or all of the directors may be removed,
without cause, by the holders of at least seventy-five percent (75%) of the
shares then entitled to vote at an election of directors. Any director or the
entire board of directors may be removed, with cause, by the holders of a
majority of the shares then entitled to vote at an election of directors, unless
otherwise specified by law or the certificate of incorporation.
2.17 Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its business shall be conducted as nearly as possible in the same manner
as is provided in these By-Laws for the Board of Directors.
2.18 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
2.19 Amendments to Article. Notwithstanding any other provisions of law,
the Certificate of Incorporation or these By-Laws, and notwithstanding the fact
that a lesser percentage may be specified by law, the affirmative vote of the
holders of a least seventy-five percent (75%) of the votes which all the
stockholders would be entitled to cast at any annual election of directors or
class of directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article 2.
ARTICLE 3 - Officers
3.1 Enumeration. The officers of the corporation shall consist of a Chief
Executive Officer, a President, a Secretary, a Treasurer and such other officers
with such other titles as the Board of Directors shall determine, including a
Chairperson of the Board, a Vice-Chairperson of the Board, and one or more Vice
Presidents, Assistant Treasurers and Assistant Secretaries. The Board of
Directors may appoint such other officers as it may deem appropriate.
3.2 Election. The Chief Executive Officer, President, Treasurer and
Secretary shall be elected annually by the Board of Directors at its first
meeting following the annual meeting of stockholders. Other officers may be
appointed by the Board of Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his or
her successor is elected and qualified, unless a different term is specified in
the vote choosing or appointing him or her, or until his or her earlier death,
resignation or removal.
3.5 Resignation and Removal. Any officer may resign by delivering his or
her written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote of
a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his or her resignation or removal, or any right to damages
on account of such removal, whether his or her compensation be by the month or
by the year or otherwise, unless such compensation is expressly provided in a
duly authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his or her predecessor and until his or her successor is elected and qualified,
or until his or her earlier death, resignation or removal.
3.7 Chairperson of the Board and Vice-Chairperson of the Board. The Board
of Directors may appoint a Chairperson of the Board and may designate the
Chairperson of the Board as Chief Executive Officer. If the Board of Directors
appoints a Chairperson of the Board, he or she shall perform such duties and
possess such powers as are assigned to him or her by the Board of Directors. If
the Board of Directors appoints a Vice-Chairperson of the Board, he or she
shall, in the absence or disability of the Chairperson of the Board, perform the
duties and exercise the powers of the Chairperson of the Board and shall perform
such other duties and possess such other powers as may from time to time be
vested in him or her by the Board of Directors.
3.8 Chief Executive Officer. The Chief Executive Officer shall, subject to
the direction of the Board of Directors, have general charge and supervision of
the business of the corporation. Unless otherwise provided by the Board of
Directors, he or she shall preside at all meetings of the stockholders, and, if
he or she is a director, at all meetings of the Board of Directors. The Chief
Executive Officer shall perform such other duties and shall have such other
powers as the Board of Directors may from time to time prescribe.
3.9 President. The President shall perform such duties and possess such
powers as the Board of Directors or the Chief Executive Officer may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
Chief Executive Officer, the President shall perform the duties of the Chief
Executive Officer and when so performing shall have all the powers of and be
subject to all the restrictions upon the Chief Executive Officer.
3.10 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the Chief Executive Officer may
from time to time prescribe. In the event of the absence, inability or refusal
to act of the President, the Vice President (or if there shall be more than one,
the Vice Presidents in the order determined by the Board of Directors) shall
perform the duties of the President and when so performing shall have all the
powers of and be subject to all the restrictions upon the President. The Board
of Directors may assign to any Vice President the title of Executive Vice
President, Senior Vice President or any other title selected by the Board of
Directors.
3.11 Secretary and Assistant Secretaries. The Secretary shall perform such
duties and shall have such powers as the Board of Directors or the Chief
Executive Officer may from time to time prescribe. In addition, the Secretary
shall perform such duties and have such powers as are incident to the office of
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.12 Treasurer and Assistant Treasurers. The Treasurer shall perform such
duties and shall have such powers as may from time to time be assigned to him or
her by the Board of Directors or the Chief Executive Officer. In addition, the
Treasurer shall perform such duties and have such powers as are incident to the
office of treasurer, including without limitation the duty and power to keep and
be responsible for all funds and securities of the corporation, to deposit funds
of the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts for such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the Chief Executive Officer or the Treasurer may from
time to time prescribe. In the event of the absence, inability or refusal to act
of the Treasurer, the Assistant Treasurer (or if there shall be more than one,
the Assistant Treasurers in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Treasurer.
3.13 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation shall
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him or her in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairperson or Vice-Chairperson, if any, of
the Board of Directors, or the President or a Vice President, and the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the By-Laws,
applicable securities laws or any agreement among any number of shareholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
President may prescribe, including the presentation of reasonable evidence of
such loss, theft or destruction and the giving of such indemnityas the President
may require for the protection of the corporation or any transfer agent or
registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - General Provisions
5.1 Fiscal Year. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
5.2 Corporate Seal. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise designate,
the President or Treasurer may waive notice of, and act as, or appoint any
person or persons to act as, proxy or attorney-in-fact for the corporation (with
or without power of substitution) at, any meeting of stockholders or
shareholders of any other corporation or organization, the securities of which
may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an Assistant
Secretary, or a temporary Secretary, as to any action taken by the stockholders,
directors, a committee or any officer or representative of the corporation shall
as to all persons who rely on the certificate in good faith be conclusive
evidence of such action.
5.6 Certificate of Incorporation. All references in these By-Laws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or her or their votes are counted for such purpose, if:
(1) The material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
(2) The material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as
of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of these By-Laws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.9 Pronouns. All pronouns used in these By-Laws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
persons or persons may require.
ARTICLE 6 - Amendments
6.1 By the Board of Directors. Except as is otherwise set forth in these
By-Laws, these By-Laws may be altered, amended or repealed or new by-laws may be
adopted by the affirmative vote of a majority of the directors present at any
regular or special meeting of the Board of Directors at which a quorum is
present.
6.2 By the Stockholders. Except as otherwise set forth in these By-Laws,
these By-Laws may be altered, amended or repealed or new by-laws may be adopted
by the affirmative vote of the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
any regular meeting of stockholders, or at any special meeting of stockholders,
provided notice of such alteration, amendment, repeal or adoption of new by-laws
shall have been stated in the notice of such special meeting.
UNITED STATES OF AMERICA
THE COMMONWEALTH OF MASSACHUSETTS
MASSACHUSETTS INDUSTRIAL FINANCE AGENCY
FLEXIBLE MODE INDUSTRIAL DEVELOPMENT REVENUE BOND
(Copley Pharmaceutical, Inc. - 1989 Series)
REGISTERED OWNER:
PRINCIPAL AMOUNT: DOLLARS
MATURITY DATE: August 1, 2004
BOND DATE:
- - ------------------------------------------------------------------------------
THIS BOND IS NOT A GENERAL OBLIGATION OF THE MASSACHUSETTS INDUSTRIAL FINANCE
AGENCY OR A DEBT OR A PLEDGE OF THE FAITH AND CREDIT OF THE COMMONWEALTH OF
MASSACHUSETTS. THE PRINCIPAL OF, PREMIUM, IF ANY, AND INTEREST (EXCLUDING
ADDITIONAL INTEREST (HEREINAFTER DEFINED), IF ANY) ON THIS BOND SHALL BE SECURED
SOLELY BY THE REVENUES SPECIFICALLY PLEDGED UNDER AND BY THE LOAN AND TRUST
AGREEMENT REFERRED TO HEREIN AND BY MONEYS DRAWN UNDER THE LETTER OF CREDIT OR
THE STANDBY CREDIT AGREEMENT REFERRED TO HEREIN.
- - ------------------------------------------------------------------------------
1. Payment Provisions. The Massachusetts Industrial Finance Agency (the
"Issuer"),for value received, promises to pay to the Registered Owner of this
Bond, or registered assigns or legal representatives (but only from the limited
sources and in the manner herein described), the Principal Amount on the
Maturity Date unless redeemed prior thereto as hereinafter provided, and, except
as otherwise provided herein, to pay interest on the unpaid Principal Amount of
this Bond outstanding from time to time from the Bond Date at the rates set
forth below on Adjustable Rate Interest Payment Dates during an Adjustable Rate
Period, the Flexible Rate Interest Payment Dates during a Flexible Rate Period
and the Fixed Rate Interest Payment Dates during the Fixed Rate Period (all as
hereinafter defined).
The final payment of principal, premium, if any, and interest with
respect to this Bond (excluding Additional Interest hereinafter defined, if any)
shall be payable in immediately available funds at the corporate trust office of
the Trustee (hereinafter defined) upon surrender of this Bond, and other
payments (except as otherwise provided herein) shall be payable by wire transfer
of immediately available funds, provided sufficient wire transfer instructions
have been given to the Trustee, and otherwise by check or draft mailed by the
Trustee to the Registered owner at its address appearing on the bond register
kept by the Trustee as of the close of business on the Record Date, which when
used herein shall mean with respect to any Adjustable Rate Interest Payment
Date, the Business Day next preceding such Adjustable Rate Interest Payment
Date, or with respect to any other Interest Payment Date (hereinafter defined),
including the Flexible Rate Interest Payment Date or Fixed Rate Interest Payment
Date, the fifteenth day of the month next preceding such Interest Payment Date.
As used herein, "Business Day" means any day other than a Saturday, Sunday or
other day on which banks are authorized or required to be closed in any of the
City of Boston, Massachusetts, or the municipalities in which the principal
offices of the Trustee, the Remarketing Agent (hereinafter defined) and the Bank
(hereinafter defined) are located.
Principal and premium, if any, and interest are payable in lawful money
of the United States of America.
2. Interest on the Bonds. This Bond shall bear interest from and
including the date hereof (except as herein provided) until payment of the
principal hereof shall have been made or provided for in accordance with the
provisions hereof and of the Agreement (hereinafter defined) whether at
maturity, upon redemption or otherwise. NOTWITHSTANDING ANY OTHER PROVISION TO
THE CONTRARY CONTAINED HEREIN OR IN THE -AGREEMENT, NOTHING CONTAINED IN THIS
BOND OR THE AGREEMENT SHALL BE DEEMED TO ESTABLISH OR, REQUIRE THE PAYMENT,
DIRECTLY OR INDIRECTLY, OF INTEREST OR OTHER CHARGES THE AGGREGATE OF WHICH
WOULD EXCEED THE MAXIMUM RATE OF INTEREST PERMITTED BY ANY APPLICABLE LAW. IN
THE EVENT THAT ANY AMOUNTS REQUIRED TO BE SO PAID EXCEED THE MAXIMUM RATE OF
INTEREST PERMITTED BY ANY SUCH LAW, SUCH AMOUNTS SHALL AUTOMATICALLY BE REDUCED
TO THE MAXIMUM RATE OF INTEREST PERMITTED BY SUCH LAW.
(a) Adjustable Rate Period. During an Adjustable Rate Period (as
hereinafter defined) this Bond shall bear interest at a rate (the "Adjustable
Rate") as that term is defined in the Agreement.
In the event that either (i) The First National Bank of Boston
discontinues the announcement of ARBI (as that term is defined in the Agreement)
or (ii) The First National Bank of Boston ceases to be the Remarketing Agent
pursuant to a Remarketing Agreement dated as of July 15, 1989 (as in effect from
time to time, the Remarketing Agreement among the Borrower (hereinafter
defined), the Trustee and said Bank and including any successor or replacement
Trustee), the Adjustable Rate shall be equal to the average coupon rate of
interest expressed as a percentage of the yield evaluations at par of United
States Treasury obligations having a maturity of 91 days, which shall be
announced by the Remarketing Agent to the Trustee, the Issuer and the Borrower
on Wednesday of each week, beginning on the first such Wednesday following the
discontinuance of ARBI, or the appointment of a Remarketing Agent other than The
First National Bank of Boston, as the case may be, each change in
such-Adjustable Rate to take effect on the Wednesday next following its
announcement.
As used herein, "Adjustable Rate Interest Period" means each period
during the Adjustable Rate Period commencing on (and including) the first
Wednesday of each calendar month (or in the case of the first such period, or
the date designated in an Affirmative Election (hereinafter defined) to convert
to an Adjustable Rate, as applicable, the date of delivery of the Bonds to the
original purchaser or purchasers or the date designated in an Affirmative
Election to convert to an Adjustable Rate, as applicable) and ending on (but
excluding) the first Wednesday of the next succeeding calendar month; and
"Adjustable Rate Period" means the period -from either (i) the date of issuance
and delivery of the Bonds or (ii) the date designated in an Affirmative Election
to convert to an Adjustable Rate, as applicable, to and including the earlier of
(x) a Conversion Date (hereinafter defined) or (y) the date the principal of,
premium, if any, and interest on the Bonds (excluding Additional Interest, if
any) shall have been paid in full in accordance with the Agreement and the
Bonds.
Interest during an Adjustable Rate Period shall be computed on the
basis of a 365-or 366-day year, as applicable, and the number of days actually
elapsed and shall be payable on (i) the first Wednesday in each calendar month
during the Adjustable Rate Period, commencing on the first Wednesday of each
calendar month succeeding (i) the date of delivery of the Bonds to the original
purchaser or purchasers, (ii) the Conversion Date, and (iii) the date the
principal of, premium, if any, and interest on the Bonds (excluding Additional
Interest, if any) shall have been paid in full in accordance with the provisions
of the Agreement and the Bonds (each such date being herein referred to as an
"Adjustable Rate Interest Payment Date").
(b) Conversion to Flexible, Fixed or Adjustable Rates. The Bonds are
issued subject to the provision that the interest rate on the Bonds may change
from the Adjustable Rate and (i) may be converted to a Flexible Rate (as defined
in the Agreement) until a Put Date (hereinafter defined) or (ii) will become
irrevocably fixed until maturity at the Fixed Rate (as defined in the Agreement)
upon the election by the Borrower to exercise an option to convert on such date,
which is the first day of the month as the Borrower shall select, subject to the
terms and conditions of the Agreement (the "Conversion Date"), by giving written
notice to the Issuer, the Trustee, the Remarketing Agent and the Bank not less
than 35 days nor more than 90 days before the Conversion Date, together with an
opinion of Bond Counsel (as defined in the Agreement), all as more particularly
described in the Agreement. Upon receipt of such written notice and opinion, the
Trustee shall call all of the Bonds for mandatory tender for purchase on the
Conversion Date as provided in Section 6(e) hereof.
If the interest rate on the Bonds has been converted to a Flexible Rate
for a Flexible Rate Period (as hereinafter defined), the Borrower must give
written notice as described in the Agreement to the Issuer, the Trustee, the
Remarketing Agent and the Bank of its irrevocable election (an "Affirmative
Election") as of the Put Date then in effect to enter another Flexible Rate
Period or to convert to either (i) an Adjustable Rate or (ii) the Fixed Rate not
less than 35 nor more than 90 days before such Put Date, together within an
opinion of Bond Counsel (as defined in the Agreement), all as more particularly
described in the Agreement. Upon receipt of such written notice and opinion, the
Trustee shall call all of the Bonds for purchase or redemption on such Put Date
as provided in Section 6(e) hereof, provided that if the Borrower fails to give
valid written notice of an Affirmation Election as specified herein and in the
Agreement, the Bonds shall be redeemed and shall not be eligible for purchase as
described in Section 6(e).
"Fixed Rate Interest Payment Date" means the January 1 or July 1 during
the Fixed Rate Period next succeeding the Conversion Date or the Put Date and
each January 1 and July 1 thereafter until the principal of, premium, if any,
and interest (excluding Additional Interest, if any) on the Bonds shall have
been paid in full.
As used herein, "Flexible Rate Interest Payment Date" means, with
respect to any Flexible Rate Period, the first day of the sixth calendar month
after the commencement of such Flexible Rate Period and the first day of each
sixth calendar month thereafter, and (ii) the Put Date; and "Flexible Rate
Period" means the period beginning on a Conversion Date on which the Borrower
has exercised its option to convert to a Flexible Rate or on a Put Date on which
the Borrower has made an election to enter a new Flexible Rate Period, as
applicable, and ending on the next succeeding Put Date.
As used herein, "Put Date" means the date designated by the Borrower
upon exercising its option to convert to a Flexible Rate or to enter a new
Flexible Rate Period, as applicable, as the date as of which the Flexible Rate
Period shall terminate, which date shall be the second Flexible Rate Interest
Payment Date in the Flexible Rate Period or any second Flexible Rate Interest
Payment Date thereafter or, if earlier, the Maturity Date.
Interest during any Flexible Rate Period shall be computed on the basis
of a 360-day year consisting of twelve 30-day months and shall be payable on
each Flexible Rate Interest Payment Date during such Flexible Rate Period.
Interest after conversion to the Fixed Rate shall be calculated on the basis of
a 360-day year consisting of twelve 30-day months and shall be payable on each
Fixed Rate Interest Payment Date during the Fixed Rate Period.
3. Description of Bond Issue. This Bond is one of an issue of
$7,500,000 Massachusetts Industrial Finance Agency Flexible Mode Industrial
Development Revenue Bonds (Copley Pharmaceutical, Inc. - 1989 Series) (the
"Bonds") issued under a Loan and Trust Agreement dated as of July 15, 1989 (as
in effect from time to time, the "Agreement") among Copley Pharmaceutical, Inc.
(the "Borrower"), the Issuer, The First National Bank of Boston, as Trustee (the
"Trustee", which term includes any successors in said trust or, where the
context so requires, any separate Trustee or Co-Trustee appointed by the Trustee
pursuant to the provisions of the Agreement), and The First National Bank of
Boston, as issuer of a Letter of Credit supporting the Bonds. The proceeds of
the Bonds will be loaned (the "Loan") by the Issuer to the Borrower under the
Agreement to finance the cost of acquiring, improving and installing industrial
development facilities to be owned and used by the Borrower in Canton,
Massachusetts, including costs incidental thereto. The Bonds are issued pursuant
to and in full compliance with the laws of The Commonwealth of Massachusetts,
including Chapter 23A of the Massachusetts General Laws and duly adopted by the
Board of Directors of the Issuer, which resolutions also authorize the execution
and delivery of the Agreement. Loan payments sufficient for the prompt payment
when due of the principal of, premium, if any, and interest (excluding
Additional Interest, if any) on the Bonds are to be paid by the Borrower to the
Trustee for the account of the Issuer and deposited in the Bond Fund established
by the Agreement and have been duly pledged by the Issuer to the Trustee for
that purpose.
During an Adjustable Rate Period principal of and interest on the Bonds
are further supported by moneys which may be drawn by the Trustee under an
irrevocable standby letter of credit issued by the Bank to the Trustee (or any
substituted credit facility issued in accordance with Section 512 of the
Agreement) to the extent and in the manner provided therein, and by funds which
may be advanced by the Bank to the Trustee under a Standby Credit Agreement
dated as of July 15, 1989 among the Borrower, the Trustee and the Bank (as from
time to time in effect, the "Standby Credit Agreement", which term shall include
any substituted Standby credit Agreement delivered to the Trustee in accordance
with Section 512 of the Agreement) to the extent and in the manner described
therein. References herein to the "Letter of Credit" shall mean said letter of
credit issued by The First National Bank of Boston, or a substituted credit
facility, whichever is then in effect, and references herein to the "Bank" shall
mean The First National Bank of Boston, or, where appropriate, the issuer of a
substituted credit facility or substitute Standby Credit Agreement. The initial
Letter of Credit has been issued under a Reimbursement Agreement dated as of
July 15, 1989 (as in effect from time to time, the "Reimbursement Agreement")
between the Borrower and the Bank.
The Trustee is entitled under the initial Letter of Credit (which is
scheduled to expire unless earlier terminated upon a Conversion Date or a Put
Date, as the case may be) on the earliest to occur of: (a) 5:00 P.M., Boston
time, on August 2, 1994 or, if that date is not a Business Day, on the first
Business Day after that date; (b) the date on which the Stated Amount (as
defined in the Letter of Credit) thereof is reduced to zero; (c) the date of
establishment of a Substitute Letter of Credit (as defined in the Agreement); or
(d) the date on which the Bank shall have received written notice from the
Trustee that all of the Bonds have been paid in full in accordance with Section
103 of the Agreement, but may be extended, renewed or replaced by a substitute
credit facility, on or before such date) upon the occurrence of an Event of
Default under the Agreement to draw up to (a) the aggregate principal amount of
the Bonds then outstanding to pay the principal of the Bonds, and (b) an amount
equal to up to 127 days' interest accrued on the Bonds (calculated at a maximum
rate of 15% per annum), excluding Additional Interest, on or prior to the
maturity thereof, during the period prior to a Conversion Date or a Put Date.
The Trustee is entitled under the initial Standby Credit Agreement, subject to
the provisions thereof, to obtain advances of up to (a) the aggregate principal
amount of the Bonds then outstanding to pay the principal of the Bonds, and (b)
an amount equal to up to 127 days' interest accrued on the Bonds (calculated at
a maximum rate of 15% per annum), excluding Additional Interest, to pay the
purchase price of any Bonds tendered for purchase during the Adjustable Rate
Period but not remarketed on the purchase date.
INTEREST PAYMENTS ON THIS BOND IN EXCESS OF 15% PER ANNUM AND PAYMENTS
OF ADDITIONAL INTEREST, IF ANY, ON THIS BOND ARE NOT PAYABLE UNDER THE LETTER OF
CREDIT OR SUPPORTED BY ANY OTHER SECURITY.
The Borrower has caused the Letter of Credit to be delivered to the
Trustee pursuant to the requirements of the Agreement which permits a
substitution of a substitute credit facility (including any irrevocable
transferable letter of credit, insurance policy, guaranty, surety bond or other
agreement) if the Borrower shall furnish to the Trustee (i) an opinion of Bond
Counsel stating that the delivery of such substitute credit, facility to the
Trustee is authorized under the Agreement and complies with the terms thereof
and does not result (either prospectively or retroactively) in the inclusion of
interest on the Bonds for federal income tax purposes in the gross income of any
Bondholder or former Bondholder, (ii) an opinion of counsel in form and
substance reasonably satisfactory to the Trustee (and substantially similar in
content with respect to the substitute credit facility as those opinions
originally rendered with respect to the Letter of Credit in connection with the
original issuance of the Bonds) to the effect that the substitute credit
facility is the valid, binding and enforceable obligation of the bank or other
institution issuing it and that payments on the Bonds out of the proceeds of a
drawing on the substitute credit facility will not constitute voidable
preferences under the federal Bankruptcy Code or other applicable laws and
regulations and (iii) either (A) written evidence from Moody's Investors
Service, Inc. ("Moody's"), if this Bond is then rated by Moody's, or Standard &
Poor's Corporation ("S&P"), if this Bond is then rated by S&P, in each case to
the effect that such rating agency has reviewed the proposed substitute credit
facility and that the substitution of the proposed substitute credit facility
for the Letter of Credit will not, by itself or in conjunction with a change in
interest rate made as provided in this Agreement, result in a reduction or
increase of such agency's rating of this Bond from that which then prevails or,
if such a change will occur, receipt by the Trustee of an opinion of Bond
Counsel that such change in rating will not result (either prospectively or
retroactively) in the inclusion of interest on the Bonds for federal income tax
purposes in the gross income of any Bondholder or former Bondholder, or (B)
written evidence confirming to the Trustee that the Bank issuing such substitute
credit facility has senior debt (or, in the absence of such senior debt, has
issued a letter of credit, insurance policy or other credit enhancement device
in support of a third party's debt or has long-term deposits) which has a rating
from Moody's or S&P either (x) equal to or better than the second highest
long-term debt rating category (excluding pluses or minuses), or (y) equal to or
better than the rating of long-term obligations or long-term deposits of the
issuer of the credit facility being replaced by such substitute credit facility
(excluding pluses or minuses) and, in the case such rating is better than the
rating of long-term obligations or long-term deposits of the issuer of the
credit facility being replaced, and such substitution is in conjunction with a
change in the interest rate mode, the Trustee shall also have been furnished
with an opinion of Bond Counsel that such increase in rating will not result
(either prospectively or retroactively) in the inclusion of interest on the
Bonds for federal income tax purposes in the gross income of any Bondholder or
former Bondholder. The Agreement also permits a substitution of a substitute
Standby Credit Agreement complying with the provisions of Section 512 of the
Agreement. The Letter of Credit may by its terms provide for extensions thereof
and the Bank may, at its election, but shall not be obligated to, extend the
Letter of Credit; or the Borrower may provide for a substitute credit facility
for the period after the expiration of the Letter of Credit.
The Bonds are to be equally and ratably secured and entitled to the
protection given by the Agreement and the Letter of Credit, the Standby Credit
Agreement or any substitute credit facility. Reference is hereby made to such
documents for a description of the nature and the extent of the security for the
Bonds, the rights, duties and obligations and immunities of the Issuer, the
Trustee and the Registered Owners and the terms upon which the Bonds are or may
be issued and secured.
4. Effect of Determination of Taxability; Additional Interest Payments.
Upon the occurrence of a Determination of Taxability (as defined in the
Agreement) the Bonds shall be redeemed by the Issuer (but only from the limited
sources and in the manner herein described), prior to stated maturity, in whole
and not in part of a redemption price equal to the outstanding principal amount
redeemed plus accrued and unpaid interest thereon to the redemption date, at the
Adjustable Rate, the Flexible Rate or the Fixed Rate, as the case may be. Any
such redemption shall be made not more than 12 days after the Determination of
Taxability. Any Determination of Taxability shall be conclusive as to the
Issuer, the Borrower and the Registered Owner or former Registered Owner.
Upon a Determination of Taxability there shall also be due from the
Borrower to each Registered Owner or former Registered owner of this Bond which
owned the Bond during any portion of the Penalty Interest Period (as defined
below) Additional Interest for such portion of the Penalty Interest Period
(calculated as interest is calculated during the Adjustable Rate Period, the
Flexible Rate Period or the Fixed Rate Period, as applicable) within forty-five
(45) days of the redemption date. As used herein, "Additional Interest" means
interest on the unpaid Principal Amount of this Bond outstanding from time to
time from the Taxability Date (as defined below) to the redemption date (the
"Penalty Interest Period") at rates in effect from time to time during the
Penalty Interest Period equal to the excess of the Taxable Penalty Rates (as
defined below) over the Adjustable Rates, the Flexible Rate or, the Fixed Rate
in effect from time to time during the Penalty Interest Period. As used herein
"Taxable Penalty Rates" means per annum rates of interest equal to a fraction in
which the numerator is the Adjustable Rate, Flexible Rate or Fixed Rate in
effect from time to time during the Penalty Interest Period and the denominator
is equal to one minus the maximum statutory marginal income tax rate (expressed
as a decimal) applicable to either corporations or individuals (whichever is
higher) in effect from time to time during the Penalty Interest Period. The
Taxable Penalty Rates and the periods after the Taxability Date (which is
determined as described below) during which each Taxable Penalty Rate is in
effect shall be determined by the Remarketing Agent, and such determination
shall be conclusive and binding on the Borrower, the Trustee, the Issuer, the
Bank, and any Bondholder or former Bondholder which owned the Bonds during the
Penalty Interest Period. "Taxability Date" shall mean the date as of which
interest on the Bonds ceased to be excluded from gross income for federal income
tax purposes, and the Trustee shall determine such date by obtaining within 15
days of a Determination of Taxability an opinion acceptable to the Bank of Bond
Counsel with respect to when such date occurred and so notifying the Borrower
and the Remarketing Agent of such date within three Business Days after receipt
of such opinion. Although a claim for Additional Interest on this Bond may be
assigned by written notice to the Borrower, it shall not be transferred by
transfer of this Bond. Additional Interest shall be payable by the Borrower to
the Registered owner or former Registered owners which owned this Bond during
the Penalty Interest Period, or their assigns.
Redemption of this Bond and the payment of Additional Interest as
described in this Section 4 are in lieu of any damages that might otherwise be
payable to the Registered Owner or former Registered Owners of this Bond by
reason of a Determination of Taxability. Any Additional Interest, if not paid
when due, shall bear interest at the FNBB Base Rate plus 3% per annum.
PAYMENTS OF ADDITIONAL INTEREST ARE NOT SUPPORTED BY THE LETTER OF
CREDIT OR ANY OTHER SECURITY AND WILL NOT BE PAID FROM PRIORITY FUNDS, BUT ARE
UNSECURED OBLIGATIONS SOLELY OF THE BORROWER UNDER THE AGREEMENT WHICH SURVIVE
PAYMENT OF THE BONDS. ANY PAYMENTS OF ADDITIONAL INTEREST ON THIS BOND ARE NOT
EXCLUDABLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES. Failure by the
Borrower to pay such Additional Interest to any registered owner or former
registered owner of a Bond at the time principal of such Bond is paid shall not
affect the time of maturity of such principal so long as all other prerequisites
to the payment of such principal are satisfied, and shall not constitute an
Event of Default under the Agreement or this Bond.
5. Exchange and Transfer. This Bond is exchangeable for fully
registered bonds in denominations of not less than $100,000 or any multiple of
$100,000 in excess thereof.
This Bond is transferable on the bond register upon its surrender at
the corporate trust office of the Trustee, accompanied by a written instrument
of transfer in form satisfactory to the Trustee, duly executed by the Registered
owner or its attorney or legal representative but only in the manner and subject
to the limitations and conditions provided in the Agreement.
BY ACCEPTANCE OF THIS BOND, THE REGISTERED OWNER AGREES THAT, EXCEPT IN
CONNECTION WITH THE TENDER OF THIS BOND FOR PURCHASE PURSUANT TO SECTION 401(d)
OR 401(e) OF THE AGREEMENT, IT WILL NOT TRANSFER OR GRANT PARTICIPATIONS IN THIS
BOND IN DENOMINATIONS OF LESS THAN $100,000 AND OTHER THAN TO "ACCREDITED
INVESTORS" AS DEFINED IN SECTION 230.501(a) OF REGULATION D ISSUED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, SO LONG AS THIS BOND BEARS AN ADJUSTABLE
RATE; AND THE REGISTERED OWNER FURTHER AGREES THAT, EXCEPT IN CONNECTION WITH
THE TENDER OF THIS BOND (OR PORTIONS THEREOF) FOR PURCHASE PURSUANT TO SECTION
401(e) OF THE AGREEMENT, IT WILL NOT SELL OR GRANT PARTICIPATIONS IN THIS BOND
OTHER THAN TO SUCH "ACCREDITED INVESTORS" SO LONG AS THIS BOND BEARS A FLEXIBLE
RATE OR A FIXED RATE WITHOUT THE PRIOR WRITTEN CONSENT OF THE REMARKETING AGENT.
6. Redemption or Purchase of Bonds. Principal of the Bonds is subject
to redemption or purchase as follows:
(a) Optional Redemption. (i) During an Adjustable Rate Period or a
Flexible Rate Period the Bonds shall be redeemed as provided in Section 401(a)
of the Agreement, by the Issuer at the written direction of the Borrower (but
only from the limited sources and in the manner herein described), in whole or
in part from time to time in the amount of $100,000 or any multiple of $100,000
in excess thereof (or such lesser amount as shall be necessary to redeem the
Bonds in whole), on any Adjustable Rate Interest Payment Date or Flexible Rate
Interest Payment Date, as appropriate, at a redemption price equal to the
principal amount redeemed, plus accrued interest to the redemption date, subject
to the limitations on redemption set forth in said Section 401(a); provided that
no such redemption shall occur prior to the expiration of six months from
closing date of the issuance and sale of this Bond to the initial purchaser
hereof.
(ii) Subsequent to any conversion to the Fixed Rate, the Bonds shall be
redeemed by the Issuer, at the written direction of the Borrower, in whole or in
part from time to time on any Fixed Rate Interest Payment Date in the amount of
$100,000 or any multiple of $100,000 in excess thereof (or such lesser amount as
shall be necessary to redeem the Bonds in whole), at a redemption price equal to
the principal of and unpaid accrued interest on the Bonds to the date fixed for
redemption by the Borrower plus a premium in the first year in which redemption
is permitted declining one percent in each year thereafter until no redemption
premium remains in effect (expressed as percentages of their principal amount)
as set forth below:
<TABLE>
<S> <S> <C>
Years Following the Conversion Date
Number of Whole Years from the During Which No Redemption is
Conversion Date to the Stated Maturity Permitted
of the Bonds Premium
- - ------------ -------
If more than 11 years 7 years 3%
but less than 15
If more than 7 years 5 years 3%
but less than 11
If more than 3 years 2 years 2%
but less than 7
If 3 years or less No redemption permitted N/A
</TABLE>
Any optional redemption of a part of the Bonds pursuant to this section 6(a)
shall be applied to reduce the final payment and mandatory sinking fund
requirements on the Bonds in inverse order of maturity unless otherwise directed
by the Borrower by notice to the Issuer, the Bank and the Trustee prior to such
redemption.
(b) Extraordinary Optional Redemption. Principal of the Bonds shall be
redeemed in whole but not in part by the Issuer (but only from the limited
sources and in the manner herein described), at the option and direction of the
Borrower, on any date at a redemption price of 100% of the principal amount
redeemed, plus accrued interest to the redemption date, upon the occurrence of
any extraordinary event described in Section 401(b) of the Agreement.
(c) Mandatory Redemption. Principal of the Bonds shall be redeemed from
surplus moneys not applied to the costs of acquiring, improving or equipping of
the Project or from insurance proceeds or condemnation awards deposited in the
Bond Fund from the Project Fund pursuant to Sections 501B and 502(e) of the
Agreement, as the case may be, to the extent, in the manner and at the times
provided for therein at 100% of the principal amount redeemed, plus accrued
interest to the redemption date (excluding Additional Interest, if any). The
Bonds shall also be redeemed: (i) in whole as provided in Section 4 above upon a
Determination of Taxability, (ii) in whole on the Business Day next preceding
the date of expiration or termination of the Letter of Credit (unless such
Letter of Credit is being renewed or replaced as contemplated by Section 512 of
the Agreement), or (iii) in whole or in part upon the occurrence of any other
event described in Section 401(c) of the Agreement at the redemption price and
on the terms set forth therein.
(d) Tender for Purchase upon Election of Bondholder. As provided in
Section 401(d) of the Agreement, during an Adjustable Rate Period this Bond (so
long as it is not a "Borrower Bond" as that term is defined in the Agreement and
the Standby Credit Agreement referred to therein), or any portion thereof that
not less than $100,000, or any multiple of $100,000 in excess thereof may be
tendered for purchase in accordance with the Depositary Agreement (hereinafter
defined) and to the extent of available funds on the demand of the Registered
Owner on any Business Day at a purchase price equal to the principal amount
thereof plus accrued interest to the date of purchase (but excluding Additional
Interest, if any) upon: (A) delivery to the Trustee at its corporate trust
office of a written notice in substantially the form appended as Exhibit 401 to
the Agreement (a "Bondholder's Tender Notice") which (i) states the principal
amount of this Bond or the portion thereof desired to be purchased; (ii) states
the date on which this Bond or specified portion thereof shall be purchased,
which date shall not be prior to the seventh day next succeeding the date of the
delivery of such notice to the Trustee (provided, however, that if the seventh
day next succeeding the date of such delivery is not a Business Day, such date
shall be the next succeeding Business Day), (iii) irrevocably requests such
purchase, and (iv) contains an undertaking of the Registered Owner hereof to
deliver this Bond to The First National Bank of Boston, as depositary or any
successor depositary (the "Depositary"), as provided in such notice; and (B)
delivery of this Bond duly endorsed in blank for transfer at the principal
office of the Depositary at or prior to 10:00 A.M., Boston time, on the purchase
date.
By the acceptance of this Bond, the Registered Owner agrees that if
there are funds available for such purpose in the Bond Purchase Fund established
with the Depositary under the Depositary Agreement dated as of July 15, 1989 (as
in effect from time to time, the "Depositary Agreement") among the Trustee, the
Borrower, the Remarketing Agent and the Depositary, then this Bond or specified
portion thereof tendered to the Depositary for purchase as provided in the
preceding paragraph shall be, on the date specified in the Bondholder's Tender
Notice, purchased at a purchase price equal to the principal amount tendered for
purchase plus accrued interest, if any (but excluding Additional Interest, if
any), to the date of purchase; provided, however, that if the purchase date for
this Bond or portion hereof is an Interest Payment Date, the purchase price
hereof shall be the principal amount tendered for purchase and interest
(excluding Additional Interest, if any, which shall be paid as provided in
Section 4) on this Bond shall be paid to the Registered Owner of this Bond in
the normal course. Moneys in the aforesaid Bond Purchase Fund shall be used by
the Depositary to purchase tendered Bonds in the chronological order delivered
to the Depositary.
NOTICE BY THE REGISTERED OWNER OF TENDER OF THIS BOND OR SPECIFIED
PORTION HEREOF UNDER THIS SUBSECTION IS IRREVOCABLE. BY ACCEPTANCE OF THIS BOND
THE REGISTERED OWNER AGREES THAT UPON RECEIPT BY THE DEPOSITARY OF THE PURCHASE
PRICE FROM A PURCHASER HEREOF THE REGISTERED OWNER SHALL SURRENDER THIS BOND TO
THE DEPOSITARY. IN THE EVENT THAT THE REGISTERED OWNER SHALL FAIL TO DELIVER
THIS BOND TO THE DEPOSITARY AS PROVIDED IN ITS BONDHOLDER IS TENDER NOTICE, THIS
BOND (OR PORTION THEREOF) PROPOSED TO BE RENDERED FOR REDEMPTION SHALL BE DEEMED
TENDERED FOR PURCHASE ON THE TENDER DATE, AND THE TRUSTEE SHALL HOLD THE
PURCHASE PRICE THEREFOR FOR PAYMENT UPON SUBSEQUENT PRESENTATION AND SURRENDER
OF THIS BOND.
(e) Tender for Mandatory Purchase or Redemption on Conversion Date or
Put Date. As provided in Section 401(e) of the Agreement, this Bond (so long as
it is not a Borrower Bond) shall be redeemed or purchased on a Conversion Date
or a Put Date at a price equal to the principal amount thereof plus accrued
interest (excluding Additional Interest, if any) to the Conversion Date or Put
Date.
By acceptance of this Bond, the Registered Owner agrees to tender this
Bond for redemption or purchase in connection with the occurrence of a
Conversion Date or a Put Date pursuant to Section 401(e) of the Agreement,
except that the Bondholder may under certain circumstances irrevocably elect to
retain all or a portion of this Bond by filing with the Trustee (not later than
20 days prior to such Conversion Date or Put Date) a Nontender Election in
substantially in the form of Exhibit 401A to the Agreement, all as provided in
the Section 401(e) of Agreement. IN THE EVENT THAT THE REGISTERED OWNER SHALL
FAIL TO DELIVER ALL OR A PORTION OF THIS BOND WHICH IS SUBJECT TO PURCHASE ON A
CONVERSION DATE OR A PUT DATE TO THE TRUSTEE ON SUCH CONVERSION OR PUT DATE,
THIS BOND (OR SPECIFIED PORTION HEREOF) SHALL NEVERTHELESS BE DEEMED TO HAVE
BEEN TENDERED FOR PURCHASE AND PURCHASED BY THE TRUSTEE ON SUCH CONVERSION OR
PUT DATE, AND THE TRUSTEE SHALL HOLD THE PURCHASE PRICE THEREFOR FOR PAYMENT
UPON SUBSEQUENT PRESENTATION AND SURRENDER OF THIS BOND.
By acceptance of this Bond, the Registered Owner appoints the Trustee
as its duly authorized representative for purposes of endorsing this Bond, if
purchased in accordance with the provisions of Section 401(d) or 401(e) of the
Agreement, for transfer to the purchaser thereof in accordance with said Section
401(d) or 401(e).
(f) Redemption Pursuant to Mandatory Sinking Fund Requirements. The
Bonds are also subject to mandatory redemption pursuant to the terms of the
mandatory sinking fund requirements and mandatory redemption obligations
provided in Section 402 of the Agreement on August 1 in each of the years set
forth in the table below, in the principal amounts set forth opposite such
years, at a redemption price of 100% of the principal amount redeemed, plus
accrued interest to the redemption date (but excluding Additional Interest, if
any):
Principal
Year Amount
1990 $700,000
1991 $700,000
1992 $700,000
1993 $700,000
1994 $700,000
1995 $400,000
1996 $400,000
1997 $400,000
1998 $400,000
1999 $400,000
2000 $400,000
2001 $400,000
2002 $400,000
2003 $400,000
(leaving the principal amount of $400,000 to be paid on the Maturity Date);
provided, however, that the principal amount of Bonds required to be redeemed on
any such date shall be reduced by the amount, if any, required to be paid by the
Borrower to the Bank on such Payment Date pursuant to Section l(a)(i) of the
Reimbursement Agreement.
(g) Notice of Redemption; Selection of Bonds to be Redeemed. Any
redemption either as a whole or in part, shall be made upon notice given by mail
at least 30 days (or, in the case of redemption on account of a Determination of
Taxability, seven (7) days) prior to the date fixed for redemption to the
Registered Owners of Bonds to be redeemed; provided, however, that failure duly
to give such notice by mail to any Registered Owner, or any defect therein,
shall not affect the validity of the proceedings for the redemption of any of
the other Bonds. On the date designated for redemption, notice having been given
as provided in the Agreement, the Bonds or portions thereof so called for
redemption shall become and be due and payable at the redemption price provided
for redemption of such Bonds or such portions thereof on such date, and, if
moneys for payment of the redemption price and the accrued interest (excluding
Additional Interest, if any) shall be held by the Trustee or any paying agent,
all as provided in the Agreement, interest on such Bonds or such portions
thereof so called for redemption shall cease to accrue, such Bonds or such
portions thereof so called for redemption shall cease to be entitled to any
benefit or security for redemption under the Agreement, and the Registered
Owners thereof shall have no rights in respect of such Bonds or such portions
thereof so called for redemption except to receive payment of the redemption
price thereof and the accrued interest so held by the Trustee or by any paying
agent. If a portion of this Bond shall be called for redemption, a new
registered Bond in principal amount equal to the unredeemed portion hereof will
be issued to the Registered Owner upon the surrender hereof.
If less than all of the Bonds shall be called for redemption pursuant
to the foregoing subsections (a), (c) or (f), the particular Bonds or portions
of Bonds to be redeemed shall be selected by the Trustee in the manner provided
in Section 403 of the Agreement. Notice of any redemption shall be given to the
extent, and in the manner, required by the Agreement. That portion of this Bond
called for redemption shall cease to bear interest on the specified redemption
dated provided sufficient moneys as described in the Agreement to redeem such
portion and to pay accrued interest (excluding Additional Interest, if any)
thereon to the redemption date are on deposit with the Trustee at that time.
Thereafter such portion shall cease to be outstanding under the Agreement.
7. Acceleration. In certain events as provided in the Agreement, the
principal of all the Bonds then outstanding under the Agreement may become or be
declared due and payable before their stated maturity, together with interest
accrued thereon.
8. Additional Provisions. The Registered Owner shall have no right to
enforce the provisions of the Agreement or to institute or appear in proceedings
with respect to the Agreement or its enforcement except as provided in the
Agreement. Modifications or alterations of the Agreement, or of any supplements
thereto, may be made only as provided by the Agreement.
Reference is hereby made to the Agreement, the Letter of Credit, the
Reimbursement Agreement, the Standby Credit Agreement and the Depositary
Agreement, each of which is on file and may be inspected during regular business
hours at the corporate trust office of the Trustee, for a description of the
security for the Bonds and for the provisions thereof with respect to the
rights, limitations of rights, duties, obligations and immunities of the Issuer,
the Borrower, the Trustee, the Bank, the Depositary and the Registered owner
hereof.
This Bond shall not constitute the personal obligation, either jointly
or severally, of any director, officer, employee or agent of the Issuer.
This Bond shall not be valid or entitled to any security or benefit
under the Agreement until the certificate of authentication hereon shall have
been signed by the Trustee.
IN WITNESS WHEREOF, the Massachusetts Industrial Finance Agency has
caused this Bond to be duly executed in its name, and its corporate seal to be
hereunto manually impressed or imprinted by facsimile and attested, by the
manual or facsimile signature of its Executive Director, Deputy Director or
General Counsel, or by the Chairman of its Board of Directors.
(Seal or Facsimile) MASSACHUSETTS INDUSTRIAL FINANCE AGENCY
By
Executive Director/Deputy Director/General Counsel/
Chairman of its Board of Directors
CERTIFICATE OF AUTHENTICATION
This Bond is one of the Bonds described in the aforementioned Agreement.
THE FIRST NATIONAL BANK OF BOSTON,
as Trustee
By
Authorized Signature
<PAGE>
NOTATIONS OF ELECTION TO CONVERT TO FLEXIBLE RATE.
A. From ____________, the Bond will bear interest at the rate of
____ percent (___%) per annum through-------------------.
THE FIRST NATIONAL BANK OF BOSTON,
as Trustee
By
Authorized Signature
B. From ____________, the Bond will bear interest at the rate of
____ percent (___%) per annum through-------------------.
THE FIRST NATIONAL BANK OF BOSTON,
as Trustee
By
Authorized Signature
C. From ____________, the Bond will bear interest at the rate of
____ percent (___%) per annum through-------------------.
THE FIRST NATIONAL BANK OF BOSTON,
as Trustee
By
Authorized Signature
<PAGE>
NOTATIONS OF ELECTION TO CONVERT TO ADJUSTABLE RATE
A. From ______________, the Bond will bear interest at the Adjustable
Rate until converted to the Flexible Rate or the Fixed Rate.
THE FIRST NATIONAL BANK OF BOSTON,
as Trustee
By
Authorized Signature
B. From ______________, the Bond will bear interest at the Adjustable
Rate until converted to the Flexible Rate or the Fixed Rate.
THE FIRST NATIONAL BANK OF BOSTON,
as Trustee
By
Authorized Signature
C. From ______________, the Bond will bear interest at the Adjustable
Rate until converted to the Flexible Rate or the Fixed Rate.
THE FIRST NATIONAL BANK OF BOSTON,
as Trustee
By
Authorized Signature
<PAGE>
NOTATION OF CONVERSION TO FIXED RATE
From _________, this Bond will bear interest at the rate of ______
percent (__%) per annum.
THE FIRST NATIONAL BANK OF BOSTON,
as Trustee
By
Authorized Signature
SCHEDULE OF PAYMENTS
NOTE: At any time at the option of the Registered Owner this Bond
may be submitted tot he Trustee for endorsement showing the
balance of principal due thereon and the date to which
interest has been paid.
Balance of
Date of Entry Principal Due
========== =============
---------- -------------
Date of which Interest Paid Signature of Trustee
============== ================
- - -------------- ----------------
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, , the undersigned,
hereby sells, assigns and transfers unto
Please insert Social Security or other identifying number of assignee
================================================================================
(please print or typewrite name and address including zip code of transferee)
- - --------------------------------------------------------------------------------
the within Bond and all rights thereunder and hereby irrevocably constitutes and
appoints
- - --------------------------------------------------------------------------------
attorney to transfer the within Bond on the books kept for registration thereof,
with full power of substitution in the premises.
Dated:_____________________
----------------------------
NOTICE: The signature to
this assignment must
correspond with the name as
it appears upon the face of
the within Bond in every
particular, without
alteration or enlargement
or any change whatever.
Signature Guarantee:
- - ---------------------------------
Bank, Trust Company or Brokerage Firm
By______________________________
Authorized Signature
EXHIBIT B
COPLEY PHARMACEUTICAL, INC.
1986 INCENTIVE STOCK OPTION PLAN
1. Purpose of the Plan
This 1986 Incentive Stock Option Plan (the "Plan") of Copley
Pharmaceutical, Inc., a Massachusetts corporation (the "Company"), is designed
to provide additional incentive to present and future executives and key
employees of the Company and of its subsidiaries by affording them an
opportunity to acquire or increase their proprietary interest in the Company
through the acquisition of shares of its Common Stock. By encouraging stock
ownership by such executives and salaried employees, the Company seeks to
attract and retain in its employ persons of exceptional competence and seeks to
furnish an added incentive for them to increase their efforts on behalf of the
Company. 2. Administration.
The Plan shall be administered by the Board of Directors. All questions
of interpretation and application of the Plan, of options granted hereunder (the
"options"), and of the value of shares of Common stock subject to an option,
shall be subject to the determination of the Board of Directors which
determination shall be final and binding. 3. Option Shares.
The stock subject to the options and other provisions of the Plan shall
be shares of the Company's Class B (Non-Voting) Common Stock, $.01 par value
(the "Common Stock") . The total amount of the Common Stock with respect to
which options may be granted shall not exceed in the aggregate 20,000 shares;
provided, however, that the class and aggregate number of shares which may be
subject to options granted hereunder shall be subject to adjustment in
accordance with the provisions of Paragraph 16 hereof. Such shares may be
treasury shares or authorized but unissued shares.
In the event that any outstanding option for any reason shall expire or
terminate prior to exercise, the shares of Common Stock allocable to the
unexercised portion of such option may again be subject to an option under the
Plan.
4. Authority to Grant Option.
The Board of Directors may grant options from time to time to such
eligible employees of the Company as it shall determine. Subject to any
applicable limitations set forth in the Plan or established from time to time by
the Board of Directors, the number of shares of Common Stock to be covered by
any option shall be as determined by the Board of Directors. 5. Limitation On
Amount of Options Which May Be Granted To Any Employee.
The aggregate fair market value (determined as of the time the option
is granted) of the Common Stock for which any employee may be granted options in
any calendar year under the Plan and any other plans of the Company or any
parent or subsidiary of the Company for the issue of "incentive stock options"
as defined in Section 422A of the Internal Revenue Code of 1954 shall not exceed
$100,000 plus any unused limit carryover to such year permitted by Section 422A.
6. Eligibility.
The individuals who shall be eligible to participate in the Plan shall
be such executives and key employees of the Company, or of any subsidiary
corporation, as the Board of Directors shall from time to time.
No option shall be granted to an individual who, as the time the option
is granted, owns (including ownership attributed pursuant to Section 425 of the
Internal Revenue Code of 1954) more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any subsidiary or parent
(a "greater-than-ten-percent-stockholder"); notwithstanding the above, a
greater-than-ten-percent-stockholder may be granted an option provided that the
purchase price per share shall not be less than one hundred and ten percent
(110%) of the fair market value of the stock at the time such option is granted,
and further provided that no such option shall be exercisable to any extent
after the expiration of five (5) years from the date it is granted.
Except as otherwise provided for all purpose of the Plan the term
"subsidiary corporation" shall meanany corporation of which 50% or more of its
outstanding voting stock is at the time owned by the Company or by one or more
subsidiaries or by the Company and one or more subsidiaries.
7. Option Price.
The price at which shares may be purchased pursuant to options shall be
specified by the Board of Directors at the time the option is granted, and shall
not be less than one hundred percent (100%) (one hundred and ten percent (110%)
in the case of a greater-than-ten percent-stockholder) of the fair market value
of the shares of Common Stock on the date the option is granted, such fair
market value to be determined in accordance with procedures to be established by
the Board of Directors. 8. Duration of Options.
The Board of Directors in its discretion may provide that an option
shall be exercisable during any specified period of time from the date such
option is granted not exceeding ten (10) years (five years in the case of a
greater-than-ten-percent-stockholder) from the date of grant. Notwithstanding
the foregoing, an option granted to an individual under the Plan (the "new
option") shall not be exercisable while there is outstanding (within the meaning
of Section 422A(c)(7) of the Internal Revenue Code) any incentive stock option
which was granted to such individual prior to the grant of the new option to
purchase stock of the Company or in a corporation which (at the time of the
granting of the new option) is a parent or subsidiary corporation of the
Company, or is a predecessor corporation of any of such corporations. 9. Amount
Exercisable; Vesting of Shares Purchased.
Each option may be exercised, so long as it is valid and outstanding,
from time to time in part or as a whole, subject to any limitations with respect
to the number of shares for which the option may be exercised at a particular
time and to such other conditions as the Board of Directors in its discretion
may specify upon granting the option.
The Board of Directors may also or alternatively specify upon granting
an option that all or a portion of the shares purchasable upon exercise thereof
are subject to repurchase by the Company at the exercise price for which they
were originally purchased upon termination of the employment of the optionee
before the option vesting date specified in the option. If any such restriction
is imposed, the option shall contain appropriate provisions or shall provide
that the optionee must execute and deliver a repurchase agreement upon exercise
of the option, and the shares issued upon exercise shall bear an appropriate
legend disclosing the Company's right to repurchase unvested shares. 10.
Exercise of Options.
Subject to the provisions of Paragraph 13 hereof, options shall be
exercised by the delivery of written notice to the Company setting forth the
number of shares with respect to which the option is to be exercised, together
with (a) cash, certified check, bank draft or postal or express money order
payable to the order to the Company for an amount equal to the option price of
such shares, or (b) with the consent of the Company, shares of Common Stock of
the Company having a fair market value equal to the option price of such shares,
or (c) with the consent of the Company, a combination of (a) and (b), and
specifying the address to which the certificates for such shares are to be
mailed. For the purpose of the preceding sentence, the fair market value of the
shares of Common Stock so delivered to the Company shall be determined in
accordance with procedures adopted by the Board of Directors. As promptly as
practicable after receipt of such written notification and payment, the Company
shall deliver to the optionee certificates for the number of shares with respect
to which such option has been so exercised, issued in the optionee's name;
provided, however that such delivery shall be deemed effected for all purposes
when a stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to the optionee, at the
address specified pursuant to this Paragraph 12.
11. Transferability of Options.
Options shall not be transferable by the optionee otherwise than by
will or under the laws of descent and distributions, and shall be exercisable,
during his lifetime, only by him.
12. Termination of Employment or Death of Optionee.
Except as may be otherwise expressly provided herein, the options may
not be exercised after the earlier of:
(i) the date of expiration thereof; or
(ii) The date of termination of the optionee's employment with the
Company by it for case (as determined by the Company), or voluntarily by the
optionee; or,
(iii) ninety (90)days after termination of the optionee's employment
with the Company by it without cause.
Temporary Leave. Whether authorized temporary leave of absence, or
absence on military or government service, shall constitute termination of the
employment relationship between the Company and the optionee shall be determined
by the Board of Directors at the time thereof.
Death or Disability. In the event the optionee shall be retired in good
standing from the employ of the Company for reasons of disability under the then
established rules of the Company or in the event of the death of the holder of
an option while in the employ of the Company and before the date of expiration
of such option, such option may be exercised until the earlier of such date of
expiration or six months following the date of such retirement for reason of
disability or such death, to the extent the optionee was entitled to exercise
such option immediately before his death. After the death of the optionee, his
executors, administrators or any person or persons to whom his option may be
transferred by will or by the laws of descent and distribution, shall have the
right to exercise the option.
Retirement. If, before the date of expiration of the option, the
optionee shall be retired in good standing from the employ of the Company for
reasons of age under the then established rules of the Company, the option may
be exercised until the earlier of such date of expiration or 90 days after the
date of such retirement, to the extent to which the optionee was entitled to
exercise such option immediately prior to such retirement.
Employment Relationship. An employment relationship between the Company and
the optionee shall be deemed to exist during any period in which the optionee is
employed by the Company or by any subsidiary corporation.
13. Requirements of Law.
The Company shall not be required to sell or issue any shares under any
option if the issuance of such shares shall constitute a violation by the
optionee or by the Company of any provision of any law, regulation or order of
any governmental authority. Without limiting the generality of the foregoing,
upon exercise of any option, the Company shall not be required to issue such
shares unless the Board of Directors has received evidence satisfactory to it to
the effect that the holder of such option will not transfer such shares except
pursuant to a registration statement in effect under the Securities Act of 1933,
as now in effect or hereafter amended (the "Act"), and under the applicable
securities laws of any State, unless the Company has received an opinion of
counsel satisfactory to the Company, in form and substance satisfactory to the
Company, to the effect that such registration is not required. Any determination
in this connection by the Board of Directors shall be final, binding and
conclusive. In the event the shares issuable on exercise of an option are dot
registered under the Act, the Company may imprint the following legend or any
other legend which counsel for the Company considers necessary or advisable to
comply with the Act or other applicable laws:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
laws of any State and may not be sold or transferred except upon such
registration or upon receipt by the Corporation of an opinion of
counsel satisfactory to the Corporation, in form and substance
satisfactory to the Corporation, that registration is not required for
such sale or transfer."
The Company may, but shall in no event be obligated to, register any securities
covered hereby pursuant to the Act; and in the event any shares are so
registered the Company may remove any legend on certificates representing such
shares. The Company shall not be obligated to take any other affirmative action
in order to cause the exercise of an option or the issuance of shares pursuant
thereto to comply with any other law, regulation or order of any governmental
authority. 14. No Rights as Stockholder.
No optionee shall have rights as a stockholder with respect to shares
covered by his option until the date of issuance of a stock certificate for such
shares; and, except as otherwise provided in Paragraph 16 hereof, no adjustment
for dividends, or otherwise, shall be made if the record date therefor is prior
to the date of issuance of such certificate. 15. Employment Obligation.
The granting of any option shall not impose upon the Company any
obligation to employ or continue to employ any optionee; and the right of the
Company to terminate the employment of any officer or other employee shall not
be diminished or affected by reason of the fact that an option has been granted
to him.
16. Changes in the Company's Capital Structure.
The existence of outstanding options shall not affect in any way the right or
power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
If the Company shall effect a subdivision or consolidation of s hares
or other capital readjustment, the payment of a stock dividend, or other
increase or reduction of the number of shares of the Common Stock outstanding,
without receiving compensation therefor in money, services or property, then (i)
the number, class, and per share price of shares of stock subject to outstanding
options hereunder shall be appropriately adjusted in such a manner as to entitle
an optionee to receive upon exercise of an option, for the same aggregate cash
consideration, the same total number and class of shares as he would have
received as a result of the event requiring the adjustment had he exercised his
option in full immediately prior to such event; and (ii) the number and class of
shares with respect to which options may be granted under the Plan shall be
adjusted by substituting for the total number of shares of stock that would have
been received by the owner of an equal number of outstanding shares of Common
Stock as the result of the event requiring the adjustment. After a merger of one
or more corporations into the Company, or after a consolidation of the Company
and one or more corporations in which the Company shall be the surviving
corporation, each holder of an outstanding option shall, at no additional cost,
be entitled upon exercise of such option to receive (subject to any required
action by stockholders) in lieu of the number of shares as to which such option
shall then be so exercisable, the number and class of shares of stock or other
securities to which such holder would have been entitled pursuant to the terms
of the agreement of merger or consolidation if, immediately prior to such merger
or consolidation, such holder had been the holder of record of a number of
shares of Common Stock equal to the number of shares as to which such option
shall be so exercised.
If the Company is merged into or consolidated with another corporation
under circumstances where the Company is not the surviving corporation, or if
the Company is liquidated, or sells or otherwise disposes of substantially all
its assets to another corporation while unexercised options remain outstanding
under the Plan, (i) subject to the provisions of clause (iii) below, after the
effective date of such merger, consolidation or sale, as the case may be, each
holder of an outstanding option shall be entitled, upon exercise of such option;
to receive, in lieu of shares of Common Stock, shares of such stock or other
securities, cash or property as the holders of shares of Common Stock received
pursuant to the terms of the merger, consolidation or sale; (ii) the Board of
Directors may accelerate the time for exercise of all unexercised and unexpired
options to and after a .date prior to the effective date of such merger,
consolidation, liquidation or sale, as the case may be, specified by the Board;
or (iii) all outstanding options may be cancelled by the Board of Directors as
of the effective date of any such merger, consolidation, liquidation or sale
provided that (x) notice of such cancellation shall be given to each holder of
an option and (y) each holder of an option shall have the right to exercise such
option to the extent that the same is then exercisable or, if the Directors
shall have accelerated the time for exercise of all unexercised and unexpired
options, in full during the 30-day period preceding the effective date of such
merger, consolidation, liquidation, sale or acquisition.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock then
subject to outstanding options. 17. Amendment or Termination of Plan.
The Board of Directors may modify, revise or terminate this Plan at any
time and from time to time, except that the class of employees eligible to
receive options and the aggregate number of shares issuable pursuant to this
Plan shall not be changed or increased, other than by operation of Paragraph 16
hereof, without the consent of the stockholders. 18. Written Agreement.
Each option granted hereunder shall be embodied in a written option
agreement which shall be subject to the terms and conditions prescribed above
and shall be signed by the President, any Vice President or the Treasurer of the
Company for and in the name and on behalf of the Company. Such an option
agreement shall contain such other provisions as the Board of Directors in its
discretion shall deem advisable.
19. Effective Date and Duration of Plan.
The Plan shall become effective upon its adoption by the Board of
Directors, provided the stockholders of the Company shall have approved the Plan
within twelve (12) months prior to or following the adoption of the Plan by the
Board of Directors. Options may not be granted under the Plan more than ten (10)
years after said effective date. The Plan shall terminate (i) when the total
amount of the Common Stock with respect to which options may be granted shall
have been issued upon the exercise of options or (ii) by action of the Board of
Directors pursuant to Paragraph 17 hereof, whichever shall first occur. 20.
Repurchase Rights.
The Board of Directors may in its discretion provide upon the grant of
any option hereunder that the Company shall have an option to repurchase all or
any number of shares purchased upon exercise of such option within 60 days prior
to, or after, (a) the termination of employment of the employee to whom the
option was granted, or (b) the exercise of an option by a former employee or his
estate following termination of employment. The repurchase price per share
payable by the Company shall be such amount or be determined by such formula as
is fixed by the Board of Directors at the time the option for the shares subject
to repurchase was granted. In the event the Board of Directors shall grant
options subject to the Company's repurchase option, the certificates
representing the shares purchased pursuant to such option shall carry a legend
satisfactory to counsel for the C any referring to the Company's repurchase
option.
* * *
COPLEY PHARMACEUTICAL, INC.
1990 STOCK OPTION PLAN
ARTICLE I
Purpose of the Plan
The purpose of this Plan is to encourage and enable employees,
consultants, directors and others who are in a position to make significant
contributions to the success of COPLEY PHARMACEUTICAL, INC. and of its
affiliated corporations upon whose judgment, initiative and efforts the
Corporation depends for the successful conduct of its business, to acquire a
closer identification of their interests with those of the Corporation by
providing them with opportunities to purchase stock in the Corporation pursuant
to options granted hereunder, thereby stimulating their efforts on behalf of the
Corporation and strengthening their desire to remain involved with the
Corporation.
ARTICLE II
Definitions
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation.
2.4 "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
2.5 "Corporation" means COPLEY PHARMACEUTICAL, INC., a Delaware
corporation, or its successor.
2.6 "Employee" means any person who is a regular full-time or
part-time employee of the Corporationor an Affiliated
Corporation on or after June 25, 1990.
2.7 "Option" means an Incentive Stock Option or Non-Qualified Option
granted by the Board under Article V of this Plan in the form of a right to
purchase Stock evidenced by an instrument containing such provisions as the
Board may establish.
2.8 "Plan" means this 1990 Stock Option Plan.
2.9 "Incentive Stock Option" ("ISO") means an option which qualifies as
an incentive stock option as defined in Section 422A of the Code, as amended.
2.10 "Non-Qualified Option" means any option not intended to
qualify as an Incentive Stock Option.
2.11 "Stock" means the Common Stock, $.0l par value, of the
Corporation or any successor, including any adjustments in the event of changes
in capital structure of the type described in Article IX.
ARTICLE III
Administration of the Plan
3.1 Administration by Board. This Plan shall be administered by the
Board of Directors of the Corporation. The Board may, from time to time,
delegate any of its functions under this plan to one or more committees. All
references in this Plan to the Board shall also include the Committee or
committees, if one or more have been appointed by the Board. From time to time
the Board may increase the size of the Committee or committees and appoint
additional members thereto, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies however caused, or remove
all members of the Committee or committees and thereafter directly administer
the Plan. No member of the Board or a committee shall be liable for any action
or determination made in good faith with respect to the Plan or any options
granted under it.
3.2 Powers. The Board of Directors and/or any committee appointed by
the Board shall have full and final authority to operate, manage and administer
the Plan on behalf of the Corporation. This authority includes, but is not
limited to:
(a) The power to grant Awards conditionally or unconditionally,
(b) The power to prescribe the form or forms of the instruments
evidencing Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to provide regulations for the operation of the
incentive features of the Plan, and otherwise to prescribe and
rescind regulations for interpretation, management and
administration of the Plan,
(e) The power to delegate responsibility for Plan operation,
management and administration on such terms, consistent with
the Plan, as the Board may establish,
(f) The power to delegate to other persons the responsibility of
performing ministerial acts in furtherance of the Plan's
purpose, and
(g) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including
but not limited to, banks, insurance companies, brokerage
firms and consultants.
3.3 Additional Powers. In addition, as to each Option to buy Stock of
the Corporation, the Board shall have full and final authority in its
discretion: (a) to determine the number of shares of Stock subject to each
Option; (b) to determine the time or times at which Options will be granted; (c)
to determine the option price of the shares of Stock subject to each Option,
which price shall be not less than the minimum price specified in Article V of
this Plan; (d) to determine the time or times when each Option shall become
exercisable and the duration of the exercise period (including the acceleration
of any exercise period), which shall not exceed the maximum period specified in
Article V; and (e) to determine whether each Option granted shall be an
Incentive Stock Option or a Non-qualified Option.
In no event may the Company grant an Employee any Incentive Stock
Option that is first exercisable during any one calendar year to the extent the
aggregate fair market value of the Stock (determined at the time the options are
granted) exceeds $100,000 (under all stock option plans of the Corporation and
any Affiliated Corporation) ; provided, however, that this paragraph shall have
no force and effect if its inclusion in the Plan is not necessary for Incentive
Stock Options issued under the Plan to qualify as such pursuant to Section
422A(d)(1) of the Code.
ARTICLE IV
Eligibility
4.1 Eligible Employees. All Employees (including Directors who are
Employees) are eligible to be granted Incentive Stock and Option and
Non-Qualified Option Awards under this Plan.
4.2 Consultants, Directors and other Non-Employees. Any Consultant,
Director (whether or not an Employee) and any other Non-Employee is eligible to
be granted Non-Qualified Option Awards under the Plan.
4.3 Relevant Factors. In selecting individual Employees, Consultants,
Directors and other Non-Employees to whom Awards shall be granted, the Board
shall weigh such factors as are relevant to accomplish the purpose of the Plan
as stated in Article I. An individual who has been granted an Award may be
granted one or more additional Awards, if the Board so determines. The granting
of an Award to any individual shall neither entitle that individual to, nor
disqualify him from, participation in any other grant of Awards.
ARTICLE V
Stock Option Awards
5.1 Number of Shares. Subject to the provisions of Article IX of this
Plan, the aggregate number of shares of Stock for which Options may be granted
under this Plan shall not exceed _____ shares. The shares to be delivered upon
exercise of Options under this Plan shall be made available, at the discretion
of the Board, either from authorized but unissued shares or from previously
issued and reacquired shares of Stock held by the Corporation as treasury
shares, including shares purchased in the open market.
Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors.
5.2 Effect of Expiration, Termination or Surrender. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Company shall reacquire any unvested shares issued pursuant to Options
under the Plan, such shares shall thereafter be available for the granting of
other Options under this Plan.
5.3 Term of Options. The full term of each Option granted hereunder
shall be for such period as the Board shall determine. In the case of Incentive
Stock Options granted hereunder, the term shall not exceed ten (10) years from
the date of granting thereof. Each Option shall be subject to earlier
termination as provided in Sections 6.3 and 6.4. Notwithstanding the foregoing,
options intended to qualify as "Incentive Stock Options" may not be granted to
any employee who at the time such option is granted owns more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
unless such option is not exercisable after the expiration of five (5) years
from the date such option is granted.
5.4 Option Price. The Option price shall be determined by the Board at
the time any option is granted. In the case of Incentive Stock options, the
exercise price shall not be less than 100% of the fair market value of the
shares covered thereby at the time the Incentive Stock Option is granted (but in
no event less than par value), provided that no Incentive Stock Option shall be
granted hereunder to any Employee if at the time of grant the Employee, directly
or indirectly, owns Stock possessing more than 10% of the combined voting power
of all classes of stock of the Corporation and its Affiliated Corporations
unless the Incentive Stock Option price equals not less than 110% of the fair
market value of the shares covered thereby at the time the Incentive Stock
Option is granted.
5.5 Fair Market Value. If, at the time an Option is granted under the
Plan, the Corporation's Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such Option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Stock on the principal national securities exchange on which the Stock is
traded, if the Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Stock on the NASDAQ National
Market List, if the Stock is not then traded on a national securities exchange;
or (iii) the closing bid price (or average of bid prices) last quoted (on that
date) by an established quotation service for over-the-counter securities, if
the Stock is not reported on the NASDAQ National Market List. However, if the
Stock is not publicly traded at the time an Option is granted under the Plan,
"fair market value" shall be deemed to be the fair value of the Stock as
determined by the Board after taking into consideration all factors which it
deems appropriate, including, without limitation, recent sale and offer prices
of the Stock in private transactions negotiated at arm's length.
5.6 Non-Transferability of Options. No Option granted under this Plan
shall be transferable by the grantee otherwise than by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee.
ARTICLE VI
Exercise of option
6.1 Exercise. Each Option granted under this Plan shall be exercisable
on such date or dates and during such period and for such number of shares as
shall be determined pursuant to the provisions of the instrument evidencing such
option. The Board shall have the right to accelerate the date of exercise of any
option, provided that, the Board shall not accelerate the exercise date of any
Incentive Stock Option granted if such acceleration would violate the annual
vesting limitation contained in Section 422A(d)(1) of the Code.
6.2 Notice of Exercise. A person electing to exercise an Option shall
give written notice to the Corporation of such election and of the number of
shares he or she has elected to purchase and shall at the time of exercise
tender the full purchase price of the shares he or she has elected to purchase.
The purchase price can be paid partly or completely in shares of the
Corporation's stock valued at Fair Market Value as defined in Section 5.5
hereof. Until such person has been issued a certificate or certificates for the
shares so purchased, he or she shall possess no rights of a record holder with
respect to any of such shares.
6.3 Option Unaffected by Change in Duties. No Incentive Stock Option
(and, unless otherwise determined by the Board of Directors, no Non-Qualified
Option granted to a person who is, on the date of the grant, an Employee of the
Corporation or an Affiliated Corporation) shall be affected by any change of
duties or position of the optionee (including transfer to or from an Affiliated
Corporation), so long as he or she continues to be an Employee. Employment shall
be considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute. A bona fide leave of absence with the written approval of
the Board shall not be considered an interruption of employment under the Plan,
provided that such written approval contractually obligates the Corporation or
any Affiliated Corporation to continue the employment of the optionee after the
approved period of absence.
If the optionee shall cease to be an Employee for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have accrued as of the date of such cessation;
provided that (i) the Board may provide in the instrument evidencing any option
that the Board may in its absolute discretion, upon any such cessation of
employment, determine (but be under no obligation to determine) that such
accrued purchase rights shall be deemed to include additional shares covered by
such Option; and (ii) unless the Board shall otherwise provide in the instrument
evidencing any Option, upon any such cessation of employment, such remaining
rights to purchase shall in any event terminate upon the earlier of (A) the
expiration of the original term of the option; or (B) where such cessation of
employment is on account of disability, the expiration of one year from the date
of such cessation of employment and, otherwise, the expiration of three months
from such date. For purposes of the Plan, the term "disability" shall mean
"permanent and total disability" as defined in Section 22(e)(3) of the Code.
6.4 Death of Optionee. Should an optionee die while in possession of
the legal right to exercise an Option or Options under this Plan, such persons
as shall have acquired, by will or by the laws of descent and distribution, the
right to exercise any Options theretofore granted, may, unless otherwise
provided by the Board in any instrument evidencing any Option, exercise such
Options at any time prior to one year from the date of death; provided, that
such Option or Options shall expire in all events no later than the last day of
the original term of such Option; provided, further, that any such exercise
shall be limited to the purchase rights which have accrued as of the date when
the optionee ceased to be an Employee, whether by death or otherwise, unless the
Board provides in the instrument evidencing such Option that, in the discretion
of the Board, additional shares covered by such Option may become subject to
purchase immediately upon the death of the optionee.
ARTICLE VII
Terms and Conditions of Options
Options shall be evidenced by instruments (which need not be identical)
in such forms as the Board may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in Articles V and VI hereof and
may contain such other provisions as the Board deems advisable which are not
inconsistent with the Plan, including restrictions applicable to shares of Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Board may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to Incentive Stock Options, or to
such other termination and cancellation provisions as the Board may determine.
The Board may from time to time confer authority and responsibility on one or
more of its own members and/or one or more officers of the Corporation to
execute and deliver such instruments. The proper officers of the Corporation are
authorized and directed to take any and all action necessary or advisable from
time to time to carry out the terms of such instruments.
ARTICLE VIII
Benefit Plans
Awards under the Plan are discretionary and are not a part of regular
salary. Awards may not be used in determining the amount of compensation for any
purpose under the benefit plans of the Corporation, or an Affiliated
Corporation, except as the Board may from time to time expressly provide.
Neither the Plan, an Option or any instrument evidencing an Option confers upon
any Employee the right to continued employment with the Corporation or an
Affiliated Corporation.
ARTICLE IX
Amendment, Suspension or Termination
of the Plan
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination.
The Board may also amend the Plan from time to time, except that
amendments which affect the following subjects must be approved by stockholders
of the Corporation:
(a) Except as provided in Article X relative to capital changes,
the number of shares as to which Options may be granted
pursuant to Article V;
(b) The maximum term of Options granted; (c) The minimum price at which
options may be granted; (d) The term of the Plan; and (e) The
requirements as to eligibility for participation in the Plan. Awards
granted prior to suspension or termination of the Plan may not be
cancelled solely because of such suspension or termination, except with
the consent of the grantee of the Award.
ARTICLE X
Changes in Capital Structure
The instruments evidencing Options granted hereunder shall be subject
to adjustment in the event of changes in the outstanding Stock of the
Corporation by reason of Stock dividends, Stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges or other
relevant changes in capitalization occurring after the date of an Award to the
same extent as would affect an actual share of Stock issued and outstanding on
the effective date of such change. Such adjustment to outstanding Options shall
be made without change in the total price applicable to the unexercised portion
of such options, and corresponding adjustment in the applicable option price per
share shall be made. In the event of any such change, the aggregate number and
classes of shares for which Options may thereafter be granted under Section 5.1
of this Plan may be appropriately adjusted as determined by the Board so as to
reflect such change.
Notwithstanding the foregoing, any adjustments made pursuant to this
Article X with respect to Incentive Stock Options shall be made only after the
Board, after consulting with counsel for the Corporation, determines whether
such adjustments would constitute a "modification" of such Incentive Stock
Options (as that term is defined in Section 425 of the Code) or would cause any
adverse tax consequences for the holders of such Incentive Stock Options. If the
Board determines that such adjustments made with respect to Incentive Stock
Options would constitute a modification of such Incentive Stock Options, it may
refrain from making such adjustments.
In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Board.
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
No fractional shares shall be issued under the Plan and the optionee
shall receive from the corporation cash in lieu of such fractional shares.
ARTICLE XI
Effective Date and Term of the Plan
The Plan shall become effective on June 25, 1990. The Plan shall
continue until such time as it may be terminated by action of the Board;
provided, however, that no Options may be granted under this Plan on or after
the tenth anniversary of the effective date hereof.
ARTICLE XII
Conversion of ISOs into Non-Qualified
Options; Termination of ISOs
The Board, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
Incentive Stock Options, that have not been exercised on the date of conversion,
into Non-Qualified Options at any time prior to the expiration of such Incentive
Stock Options, regardless of whether the optionee is an employee of the
Corporation or an Affiliated Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of such Options. At the time of such conversion, the
Board (with the consent of the optionee) may impose such conditions on the
exercise of the resulting Non-Qualified Options as the Board in its discretion
may determine, provided that such conditions shall not be inconsistent with the
Plan. Nothing in the Plan shall be deemed to give any optionee the right to have
such optionee's Incentive Stock Options converted into Non-Qualified Options,
and no such conversion shall occur until and unless the Board takes appropriate
action. The Board, with the consent of the optionee, may also terminate any
portion of any Incentive Stock Option that has not been exercised at the time of
such termination.
ARTICLE XIII
Application of Funds
The proceeds received by the Corporation from the sale of shares
pursuant to Options granted under the Plan shall be used for general corporate
purposes.
ARTICLE XIV
Governmental Regulation
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
ARTICLE XV
Withholding of Additional Income Taxes
Upon the exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition (as defined in Article XVI) the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includible in such person's gross income. The Board in its
discretion may condition the exercise of an Option on the payment of such
additional withholding taxes.
ARTICLE XVI
Notice to Company of Disqualifying Disposition
Each employee who receives an Incentive Stock Option must agree to
notify the Corporation in writing immediately after the employee makes a
Disqualifying Disposition of any Stock acquired pursuant to the exercise of an
Incentive Stock Option. A Disqualifying Disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the employee was granted the Incentive Stock Option or (b) one year after
the date the employee acquired Stock by exercising the Incentive Stock Option.
If the employee has died before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
ARTICLE XVII
Governing Law; Construction
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the laws of the Commonwealth of
Massachusetts. In construing this Plan, the singular shall include the plural
and the masculine gender shall include the feminine and neuter, unless the
context otherwise requires.
COPLEY PHARMACEUTICAL, INC.
1992 STOCK PLAN, AMENDED AND RESTATED
1. Purpose. This 1992 Stock Plan (the "Plan") is intended to provide
incentives: (a) to the officers and other employees of Copley Pharmaceutical,
Inc. (the "Company"), its parent (if any) and any present or future subsidiaries
of the Company (collectively, "Related Corporations") by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which qualify as "incentive stock options" under Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code") ("ISO" or "ISOs"); (b) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not qualify as ISOs
("Non-Qualified Option" or "Non-Qualified Options"); (c) to directors, officers,
employees and consultants of the Company and Related Corporations by providing
them with awards of stock in the Company ("Awards"); and (d) to directors,
officers, employees and consultants of the Company and Related Corporations by
providing them with opportunities to make direct purchases of stock in the
Company ("Purchases"). Both ISOs and Non-Qualified Options are referred to
hereafter individually as an "Option" and collectively as "Options". Options,
Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights". As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 424 of the Code.
2. Administration of the Plan.
A. Board or Committee Administration. The Plan shall be
administered by the Board of Directors of the Company (the "Board") or by
a committee appointed by the Board (the "Committee"); provided, that, (i)
to the extent required by applicable regulations under Section 162(m) of
the Code, by two or more "outside directors" (as defined in applicable
regulations thereunder) and (ii) to the extent required by Rule 16b-3, or
any successor provision ("Rule 16b-3"), of the Securities Exchange Act of
1934, with respect to specific grants of Stock Rights, the Plan shall be
administered by a disinterested administrator or administrators within the
meaning of Rule 16b-3. Hereinafter, all references in this Plan to the
"Committee" shall mean the Board if no Committee has been appointed.
Subject to ratification of the grant or authorization of each Stock Right
by the Board (if so required by applicable state law), and subject to the
terms of the Plan, the Committee shall have the authority to (i) determine
the employees of the Company and Related Corporations (from among the
class of employees eligible under paragraph 3 to receive ISOs) to whom
ISOs may be granted, and to determine (from among the class of individuals
and entities eligible under paragraph 3 to receive Non-Qualified Options
and Awards and to make Purchases) to whom Non-Qualified Options, Awards
and authorizations to make Purchases may be granted; (ii) determine the
time or times at which Options or Awards may be granted or Purchases made;
(iii) determine the option price of shares subject to each Option, which
price shall not be less than the minimum price specified in paragraph 6,
and the purchase price of shares subject to each Purchase; (iv) determine
whether each Option granted shall be an ISO or a Non-Qualified Option; (v)
determine (subject to paragraph 7) the time or times when each Option
shall become exercisable and the duration of the exercise period; (vi)
determine whether restrictions such as repurchase options are to be
imposed on shares subject to Options, Awards and Purchases and the nature
of such restrictions, if any, and (vii) interpret the Plan and prescribe
and rescind rules and regulations relating to it. If the Committee
determines to issue a Non-Qualified Option, it shall take whatever actions
it deems necessary, under Section 422 of the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated as an
ISO. The interpretation and construction by the Committee of any
provisions of the Plan or of any Stock Right granted under it shall be
final unless otherwise determined by the Board. The Committee may from
time to time adopt such rules and regulations for carrying out the Plan as
it may deem best. No member of the Board or the Committee shall be liable
for any action or determination made in good faith with respect to the
Plan or any Stock Right granted under it.
B. Committee Actions. The Committee may select one of its members
as its chairman, and shall hold meetings at such time and places as it may
determine. Acts by a majority of the Committee, or acts reduced to or
approved in writing by a majority of the members of the Committee (if
consistent with applicable state law), shall be the valid acts of the
Committee. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and
thereafter directly administer the Plan.
C. Grant of Stock Rights to Board Members. Stock Rights may be
granted to members of the Board consistent with the provisions of the
first sentence of paragraph 2(A) above, if applicable. All grants of Stock
Rights to members of the Board shall in all other respects be made in
accordance with the provisions of this Plan applicable to other eligible
persons. Consistent with the provisions of the first sentence of paragraph
2(A) above, members of the Board who are either (i) eligible for Stock
Rights pursuant to the Plan or (ii) have been granted Stock Rights may
vote on any matters affecting the administration of the Plan or the grant
of any Stock Rights pursuant to the Plan, except that no such member shall
act upon the granting to himself of Stock Rights, but any such member may
be counted in determining the existence of a quorum at any meeting of the
Board during which action is taken with respect to the granting to him of
Stock Rights.
3. Eligible Employees and Others. ISOs may be granted to any employee of
the Company or any Related Corporation. Those officers and directors of the
Company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options, Awards and authorizations to make Purchases may be
granted to any employee, officer or director (whether or not also an employee)
or consultant of the Company or any Related Corporation. The Committee may take
into consideration a recipient's individual circumstances in determining whether
to grant an ISO, a Non-Qualified Option, an Award or an authorization to make a
Purchase. Granting of any Stock Right to any individual or entity shall neither
entitle that individual or entity to, nor disqualify him from, participation in
any other grant of Stock Rights.
4. Stock. The stock subject to Options, Awards and Purchases shall be
authorized but unissued shares of Common Stock of the Company, par value $.01
per share (the "Common Stock"), or shares of Common Stock reacquired by the
Company in any manner. The aggregate number of shares which may be issued
pursuant to the Plan is 1,523,750, subject to adjustment as provided in
paragraph 13; provided, however, that such number of shares shall not be subject
to adjustment by reason of the 1.5 for one stock split in the form of a stock
dividend declared by the Board of Directors of the Company at a meeting on April
9, 1992. Any such shares may be issued as ISOs, Non-Qualified Options or Awards,
or to persons or entities making Purchases, so long as the number of shares so
issued does not exceed such number, as adjusted. If any Option granted under the
Plan shall expire or terminate for any reason without having been exercised in
full or shall cease for any reason to be exercisable in whole or in part, the
unpurchased shares subject to such Options by the Company shall again be
available for grants of Stock Rights under the Plan. For the purposes of the
foregoing sentence, shares withheld from the Stock Right exercise to pay the
exercise price shall be deemed to have been issued.
No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 750,000 shares of Common Stock
under the Plan. If any Option granted under the Plan shall expire or terminate
for any reason without having been exercised in full or shall cease for any
reason to be exercisable in whole or in part or shall be repurchased by the
Company, the shares subject to such Option shall be included in the
determination of the aggregate number of shares of Common Stock deemed to have
been granted to such employee under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under the Plan at
any time on or after April 9, 1992 and prior to April 9, 2002. The date of grant
of a Stock Right under the Plan will be the date specified by the Committee at
the time it grants the Stock Right; provided, however, that such date shall not
be prior to the date on which the Committee acts to approve the grant. The
Committee shall have the right, with the consent of the optionee, to convert an
ISO granted under the Plan to a Non-Qualified Option pursuant to paragraph 16.
Options granted under the Plan are intended to qualify as performance-based
compensation to the extent required under Proposed Treasury Regulation Section
1.162-27.
6. Minimum Option Price; ISO Limitations.
A. Price for Non-Qualified Options. The exercise price per share
specified in the agreement relating to each Non-Qualified Option granted
under the Plan shall in no event be less than the minimum legal
consideration required therefor under the laws of Delaware or the laws of
any jurisdiction in which the Company or its successors in interest may be
organized. Non-Qualified Options granted under the Plan, with an exercise
price less than the fair market value per share of Common Stock on the
date of grant, are intended to qualify as performance-based compensation
under Section 162(m) of the Code and any applicable regulations
thereunder. Any such Non-Qualified Options granted under the Plan shall be
exercisable only upon the attainment of a pre-established, objective
performance goal established by the Committee. If the Committee grants
Non-Qualified Options with an exercise price less than the fair market
value per share of Common Stock on the date of grant, such grant will be
submitted for, and will be contingent upon shareholder approval.
B. Price for ISOs. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less
than the fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, the
price per share specified in the agreement relating to such ISO shall not
be less than one hundred ten percent (110%) of the fair market value per
share of Common Stock on the date of grant.
C. $100,000 Annual Limitation on ISOs. Each eligible employee may
be granted ISOs only to the extent that, in the aggregate under this Plan
and all incentive stock option plans of the Company and any Related
Corporation, such ISOs do not become exercisable for the first time by
such employee during any calendar year in a manner which would entitle the
employee to purchase more than $100,000 in fair market value (determined
at the time the ISOs were granted) of Common Stock in that year. Any
options granted to an employee in excess of such amount will be granted as
Non-Qualified Options.
D. Determination of Fair Market Value. If, at the time an Option
is granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the last business day for
which the prices or quotes discussed in this sentence are available prior
to the date such Option is granted and shall mean (i) the average (on that
date) of the high and low prices of the Common Stock on the principal
national securities exchange on which the Common Stock is traded, if the
Common Stock is then traded on a national securities exchange; or (ii) the
last reported sale price (on that date) of the Common Stock on the NASDAQ
National Market List, if the Common Stock is not then traded on a national
securities exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the
NASDAQ National Market List. However, if the Common Stock is not publicly
traded at the time an Option is granted under the Plan, "fair market
value" shall be deemed to be the fair value of the Common Stock as
determined by the Committee after taking into consideration all factors
which it deems appropriate, including, without limitation, recent sale and
offer prices of the Common Stock in private transactions negotiated at
arm's length.
7. Option Duration. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years and one day from the date of grant in
the case of Non-Qualified Options, (ii) ten years from the date of grant in the
case of ISOs generally, and (iii) five years from the date of grant in the case
of ISOs granted to an employee owning stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Related Corporation. Subject to earlier termination as provided in
paragraphs 9 and 10, the term of each ISO shall be the term set forth in the
original instrument granting such ISO, except with respect to any part of such
ISO that is converted into a Non-Qualified Option pursuant to paragraph 16.
8. Exercise of Option. Subject to the provisions of paragraphs 9 through
12, each Option granted under the Plan shall be exercisable as follows:
A. Vesting. The Option shall either be fully exercisable on
the date of grant or shall become exercisable thereafter in such
installments as the Committee may specify.
B. Full Vesting of Installments. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of
the Option, unless otherwise specified by the Committee.
C. Partial Exercise. Each Option or installment may be
exercised at any time or from time to time, in whole or in part, for up to
the total number of shares with respect to which it is then exercisable.
D. Acceleration of Vesting. The Committee shall have the right to
accelerate the date of exercise of any installment of any Option; provided
that the Committee shall not, without the consent of an optionee,
accelerate the exercise date of any installment of any Option granted to
any employee as an ISO (and not previously converted into a Non-Qualified
Option pursuant to paragraph 16) if such acceleration would violate the
annual vesting limitation contained in Section 422(d) of the Code, as
described in paragraph 6(C).
9. Termination of Employment. If an ISO optionee ceases to be employed by
the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of ninety
(90) days from the date of termination of his employment, but in no event later
than on their specified expiration dates, except to the extent that such ISOs
(or unexercised installments thereof) have been converted into Non-Qualified
Options pursuant to paragraph 16. Employment shall be considered as continuing
uninterrupted during any bona fide leave of absence (such as those attributable
to illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period during
which such optionee's right to reemployment is guaranteed by statute. A bona
fide leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any Related Corporation
to continue the employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any grantee of any Stock Right the right to
be retained in employment or other service by the Company or any Related
Corporation for any period of time.
10. Death; Disability.
A. Death. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his death, any ISO of his may be
exercised, to the extent of the number of shares with respect to which he
could have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the
laws of descent and distribution, at any time prior to the earlier of the
specified expiration date of the ISO or 180 days from the date of the
optionee's death.
B. Disability. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his disability, he shall
have the right to exercise any ISO held by him on the date of termination
of employment, to the extent of the number of shares with respect to which
he could have exercised it on that date, at any time prior to the earlier
of the specified expiration date of the ISO or 180 days from the date of
the termination of the optionee's employment. For the purposes of the
Plan, the term "disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Code or successor statute.
11. Assignability. No Option shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution or, with
respect to Non-Qualified Options, pursuant to a qualified domestic relations
order as defined in the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder. During the lifetime of the optionee each
Option shall be exercisable only by him.
12. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Committee may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Option:
A. Stock Dividends and Stock Splits. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common
Stock deliverable upon the exercise of Options shall be appropriately
increased or decreased proportionately, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination or stock dividend.
B. Consolidations or Mergers. If the Company is to be consolidated
with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"),
the Committee or the board of directors of any entity assuming the
obligations of the Company hereunder (the "Successor Board"), shall, as to
outstanding Options, either (i) make appropriate provision for the
continuation of such Options by substituting on an equitable basis for the
shares then subject to such Options the consideration payable with respect
to the outstanding shares of Common Stock in connection with the
Acquisition; or (ii) upon written notice to the optionees, provide that
all Options must be exercised, to the extent then exercisable, within a
specified number of days of the date of such notice, at the end of which
period the Options shall terminate; or (iii) terminate all Options in
exchange for a cash payment equal to the excess of the fair market value
of the shares subject to such Options (to the extent then exercisable)
over the exercise price thereof.
C. Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than a
transaction described in subparagraph B above) pursuant to which
securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, an optionee upon
exercising an Option shall be entitled to receive for the purchase price
paid upon such exercise the securities he would have received if he had
exercised his Option prior to such recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs
shall be made only after the Committee, after consulting with counsel for
the Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424 of the
Code) or would cause any adverse tax consequences for the holders of such
ISOs. If the Committee determines that such adjustments made with respect
to ISOs would constitute a modification of such ISOs, it may refrain from
making such adjustments.
E. Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such
other time and subject to such other conditions as shall be determined by
the Committee.
F. Issuances of Securities. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the
Company.
G. Fractional Shares. No fractional shares shall be issued under
the Plan and the optionee shall receive from the Company cash in lieu of
such fractional shares.
H. Adjustments. Upon the happening of any of the events described
in subparagraphs A, B or C above, the class and aggregate number of shares
set forth in paragraph 4 hereof that are subject to Stock Rights which
previously have been or subsequently may be granted under the Plan shall
also be appropriately adjusted to reflect the events described in such
subparagraphs. The Committee or the Successor Board shall determine the
specific adjustments to be made under this paragraph 13 and, subject to
paragraph 2, its determination shall be conclusive.
If any person or entity owning restricted Common Stock obtained by
exercise of a Stock Right made hereunder receives shares or securities or cash
in connection with a corporate transaction described in subparagraphs A, B or C
above as a result of owning such restricted Common Stock, such shares or
securities or cash shall be subject to all of the conditions and restrictions
applicable to the restricted Common Stock with respect to which such shares or
securities or cash were issued, unless otherwise determined by the Committee or
the Successor Board.
14. Means of Exercising Stock Rights. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefor (a)
in United States dollars in cash or by check, (b) at the discretion of the
Committee, through delivery of shares of Common Stock having a fair market value
equal as of the date of the exercise to the cash exercise price of the Stock
Right, (c) at the discretion of the Committee, by delivery of the grantee's
personal recourse note bearing interest payable not less than annually at no
less than 100% of the lowest applicable Federal rate, as defined in Section
1274(d) of the Code, (d) at the discretion of the Committee and consistent with
applicable law, through the delivery of an assignment to the Company of a
sufficient amount of the proceeds from the sale of the Common Stock acquired
upon exercise of the Stock Right and an authorization to the broker or selling
agent to pay that amount to the Company, which sale shall be at the
participant's direction at the time of exercise, or (e) at the discretion of the
Committee, by any combination of (a), (b), (c) and (d) above. If the Committee
exercises its discretion to permit payment of the exercise price of an ISO by
means of the methods set forth in clauses (b), (c), (d) or (e) of the preceding
sentence, such discretion shall be exercised in writing at the time of the grant
of the ISO in question. The holder of a Stock Right shall not have the rights of
a shareholder with respect to the shares covered by his Stock Right until the
date of issuance of a stock certificate to him for such shares. Except as
expressly provided above in paragraph 13 with respect to changes in
capitalization and stock dividends, no adjustment shall be made for dividends or
similar rights for which the record date is before the date such stock
certificate is issued.
15. Term and Amendment of Plan. This Plan was adopted by the Board on
April 9, 1992, subject (with respect to the validation of ISOs granted under the
Plan) to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the approval
of stockholders is not obtained prior to April 9, 1993, any grants of ISOs under
the Plan made prior to that date will be rescinded. The Plan shall expire at the
end of the day on April 8, 2002 (except as to Options outstanding on that date).
Subject to the provisions of paragraph 5 above, Stock Rights may be granted
under the Plan prior to the date of stockholder approval of the Plan. The Board
may terminate or amend the Plan in any respect at any time, except that, without
the approval of the stockholders obtained within 12 months before or after the
Board adopts a resolution authorizing any of the following actions: (a) the
total number of shares that may be issued under the Plan may not be increased
(except by adjustment pursuant to paragraph 13); (b) the benefits accruing to
participants in the Plan may not be materially increased; (c) the requirements
as to eligibility to participate in the Plan may not be materially modified; (d)
the provisions of paragraph 3 regarding eligibility for grants of ISOs may not
be modified; (e) the provisions of paragraph 6(B) regarding the exercise price
at which shares may be offered pursuant to ISOs may not be modified (except by
adjustment pursuant to paragraph 13); and (f) the expiration date of the Plan
may not be extended. Except as otherwise provided in this paragraph 15, in no
event may action of the Board or stockholders alter or impair the rights of a
grantee, without his consent, under any Stock Right previously granted to him.
16. Conversion of ISOs into Non-Qualified Options; Termination of ISOs.
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such ISOs. At the
time of such conversion, the Committee (with the consent of the optionee) may
impose such conditions on the exercise of the resulting Non-Qualified Options as
the Committee in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any optionee the right to have such optionee's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.
17. Application Of Funds. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. Governmental Regulation. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
19. Withholding of Additional Income Taxes. Upon the exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 20) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section 3402(a) of the Code, may require the optionee, Award
recipient or purchaser to pay additional withholding taxes in respect of the
amount that is considered compensation includible in such person's gross income.
The Committee in its discretion may condition (i) the exercise of an Option,
(ii) the grant of an Award, (iii) the making of a Purchase of Common Stock for
less than its fair market value, or (iv) the vesting of restricted Common Stock
acquired by exercising a Stock Right, on the grantee's payment of such
additional withholding taxes.
20. Notice to Company of Disqualifying Disposition. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
21. Compliance with Regulations. It is the Company's intent that the Plan
comply in all respects with Rule 16b-3 and any applicable Securities and
Exchange Commission interpretations thereof. If any provision of this Plan is
deemed not to be in compliance with Rule 16b-3, the provision shall be null and
void.
22. Governing Law; Construction. The validity and construction of the Plan
and the instruments evidencing Stock Rights shall be governed by the laws of the
State of Delaware, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized. In construing this Plan, the singular
shall include the plural and the masculine gender shall include the feminine and
neuter, unless the context otherwise requires.
COPLEY PHARMACEUTICAL, INC.
1992 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose. This Non-Qualified Stock Option Plan, to be known as the
1992 Non-Employee Director Stock Option Plan (hereinafter, this "Plan") is
intended to promote the interests of Copley Pharmaceutical, Inc. (hereinafter,
the "Company") by providing an inducement to obtain and retain the services of
qualified persons who are not employees or officers of the Company to serve as
members of its Board of Directors (the "Board").
2. Available Shares. The total number of shares of Common Stock, par
value $.01 per share, of the Company (the "Common Stock"), for which options may
be granted under this Plan shall not exceed 67,500 shares, subject to adjustment
in accordance with paragraph 10 of this Plan; provided, however, that such
number of shares shall not be subject to adjustment by reason of the 1.5 for one
stock split in the form of a stock dividend declared by the Board of Directors
of the Company at a meeting on April 9, 1992. Shares subject to this Plan are
authorized but unissued shares or shares that were once issued and subsequently
reacquired by the Company. If any options granted under this Plan are
surrendered before exercise or lapse without exercise, in whole or in part, the
shares reserved therefor shall continue to be available under this Plan.
3. Administration. This Plan shall be administered by the Board or by a
committee appointed by the Board (the "Committee"). In the event the Board fails
to appoint or refrains from appointing a Committee, the Board shall have all
power and authority to administer this Plan. In such event, the word "Committee"
wherever used herein shall be deemed to mean the Board. The Committee shall,
subject to the provisions of the Plan, have the power to construe this Plan, to
determine all questions hereunder, and to adopt and amend such rules and
regulations for the administration of this Plan as it may deem desirable. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to this Plan or any option granted
under it.
4. Automatic Grant of Options. Subject to the availability of shares
under this Plan, (a) each person who is a member of the Board on April 1, 1992
and who is not an employee or officer of the Company on such date shall be
automatically granted on April 1, 1992, without further action by the Board, an
option to purchase 13,500 shares of the Common Stock; and (b) with respect to a
person who is first elected as a member of the Board after April 1, 1992 during
the term of this Plan and who is not an employee or officer of the Company on
the date of such election shall be automatically granted an option to purchase
13,500 shares of the Common Stock on the date of his or her first election as a
member of the Board. The options to be granted under this paragraph 4 shall be
the only options ever to be granted at any time to such member under this Plan.
Except for the specific options referred to above, no other options
shall be granted under this Plan.
5. Option Price. The purchase price of the stock covered by an option
granted pursuant to this Plan shall be 100% of the fair market value of such
shares on the day the option is granted. The option price will be subject to
adjustment in accordance with the provisions of paragraph 10 of this Plan. For
purposes of this Plan, if, at the time an option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on which the Common
Stock is traded, if the Common Stock is then traded on a national securities
exchange; or (ii) the last reported sale price (on that date) of the Common
Stock on the NASDAQ National Market List, if the Common Stock is not then traded
on a national securities exchange; or (iii) the closing bid price (or average of
bid prices) last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the NASDAQ
National Market List. The "fair market value" of the stock issuable upon
exercise of an option granted pursuant to the Plan within 120 days prior to the
time the Company's Common Stock is publicly traded shall be deemed to be equal
to the initial per share purchase price at which the Company's Common Stock is
offered to the public.
6. Period of Option. Unless sooner terminated in accordance with the
provisions of paragraph 8 of this Plan, an option granted hereunder shall expire
on the date which is ten (10) years after the date of grant of the option.
7. Vesting of Shares and Non-Transferability of Options.
(a) Vesting. Options granted under this Plan shall not be
exercisable until they become vested. Options granted under this Plan shall vest
in the optionee and thus become exercisable, in accordance with the following
schedule, provided that the optionee has continuously served as a member of the
Board through such vesting date:
Percentage of Option Shares for
which Option will be Exercisable
Date of Vesting
33-1/3% Less than one year from the date of grant
-------------------------------------
66-2/3% One year from the date of grant
-------------------------------------
100% Two years from the date of grant
The number of shares as to which options may be exercised
shall be cumulative, so that once the option shall become exercisable as to any
shares it shall continue to be exercisable as to said shares, until expiration
or termination of the option as provided in this Plan.
(b) Legend on Certificates. The certificates representing such
shares shall carry such appropriate legend, and such written instructions shall
be given to the Company's transfer agent, as may be deemed necessary or
advisable by counsel to the Company in order to comply with the requirements of
the Securities Act of 1933 or any state securities laws.
(c) Nontransferability. Any option granted pursuant to this
Plan shall not be assignable or transferable other than by will or the laws of
descent and distribution and shall be exercisable during the optionee's lifetime
only by him or her.
8. Termination of Option Rights.
(a) In the event an optionee ceases to be a member of the
Board for any reason other than death or permanent disability, any then
unexercised portion of options granted to such optionee shall, to the extent not
then vested, immediately terminate and become void; any portion of an option
which is then vested but has not been exercised at the time the optionee so
ceases to be a member of the Board may be exercised, to the extent it is then
vested, by the optionee within 90 days of the date the optionee ceased to be a
member of the Board; and all options shall terminate after such 90 days have
expired.
(b) In the event that an optionee ceases to be a member of the
Board by reason of his or her death or permanent disability, any option granted
to such optionee shall be immediately and automatically accelerated and become
fully vested and all unexercised options shall be exercisable by the optionee
(or by the optionee's personal representative, heir or legatee, in the event of
death) until the scheduled expiration date of the option.
9. Exercise of Option. Subject to the terms and conditions of this Plan
and the option agreements, an option granted hereunder shall, to the extent then
exercisable, be exercisable in whole or in part by giving written notice to the
Company by mail or in person addressed to Copley Pharmaceutical, Inc., 25 John
Road, Canton, Massachusetts 02021, at its principal executive offices, stating
the number of shares with respect to which the option is being exercised,
accompanied by payment in full for such shares. Payment may be (a) in United
States dollars in cash or by check, (b) in whole or in part in shares of the
Common Stock of the Company already owned by the person or persons exercising
the option or shares subject to the option being exercised (subject to such
restrictions and guidelines as the Board may adopt from time to time), valued at
fair market value determined in accordance with the provisions of paragraph 5 or
(c) consistent with applicable law, through the delivery of an assignment to the
Company of a sufficient amount of the proceeds from the sale of the Common Stock
acquired upon exercise of the option and an authorization to the broker or
selling agent to pay that amount to the Company, which sale shall be at the
participant's direction at the time of exercise. There shall be no such exercise
at any one time as to fewer than one hundred (100) shares or all of the
remaining shares then purchasable by the person or persons exercising the
option, if fewer than one hundred (100) shares. The Company's transfer agent
shall, on behalf of the Company, prepare a certificate or certificates
representing such shares acquired pursuant to exercise of the option, shall
register the optionee as the owner of such shares on the books of the Company
and shall cause the fully executed certificates) representing such shares to be
delivered to the optionee as soon as practicable after payment of the option
price in full. The holder of an option shall not have any rights of a
stockholder with respect to the shares covered by the option, except to the
extent that one or more certificates for such shares shall be delivered to him
or her upon the due exercise of the option.
10. Adjustments Upon Changes in Capitalization and Other Matters. Upon
the occurrence of any of the following events, an optionee's rights with respect
to options granted to him or her hereunder shall be adjusted as hereinafter
provided:
(a) Stock Dividends and Stock Splits. If, after May 1, 1992,
the shares of Common Stock shall be subdivided or combined into a greater or
smaller number of shares or if the Company shall issue any shares of Common
Stock as a stock dividend on its outstanding Common Stock, the number of shares
of Common Stock deliverable upon the exercise of options shall be appropriately
increased or decreased proportionately, and appropriate adjustments shall be
made in the purchase price per share to reflect such subdivision, combination or
stock dividend. No such adjustment shall be made in respect to reflect the
1.5-for-1 stock split effected as a dividend on April 9, 1992.
(b) Recapitalization Adjustments. In the event of a
reorganization, recapitalization, merger, consolidation, or any other change in
the corporate structure or shares of the Company, to the extent permitted by
Rule 16b-3 under the Securities Exchange Act of 1934, adjustments in the number
and kind of shares authorized by this Plan and in the number and kind of shares
covered by, and in the option price of outstanding options under this Plan shall
be made if, and in the same manner as, such adjustments are made to options
issued under the Company's other stock option plans.
(c) Issuances of Securities. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to options. No adjustments shall be made for dividends paid in
cash or in property other than securities of the Company.
(d) Adjustments. Upon the happening of any of the foregoing
events, the class and aggregate number of shares set forth in paragraph 2 of
this Plan that are subject to options which previously have been or subsequently
may be granted under this Plan shall also be appropriately adjusted to reflect
such events. The Board shall determine the specific adjustments to be made under
this paragraph 10 and its determination shall be conclusive.
11. Restrictions on Issuance of Shares. Notwithstanding the provisions
of paragraphs 4 and 9 of this Plan, the Company shall have no obligation to
deliver any certificate or certificates upon exercise of an option until one of
the following conditions shall be satisfied:
(i) The shares with respect to which the option has been
exercised are at the time of the issue of such shares effectively
registered under applicable Federal and state securities laws as now in
force or hereafter amended; or
(ii) Counsel for the Company shall have given an opinion that
such shares are exempt from registration under Federal and state
securities laws as now in force or hereafter amended; and the Company
has complied with all applicable laws and regulations with respect
thereto, including without limitation all regulations required by any
stock exchange upon which the Company's outstanding Common Stock is
then listed.
12. Representation of Optionee. If requested by the Company, the
optionee shall deliver to the Company written representations and warranties
upon exercise of the option that are necessary to show compliance with Federal
and state securities laws, including representations and warranties to the
effect that a purchase of shares under the option is made for investment and not
with a view to their distribution (as that term is used in the Securities Act of
1933).
13. Option Agreement. Each option granted under the provisions of this
Plan shall be evidenced by an option agreement, which agreement shall be duly
executed and delivered on behalf of the Company and by the optionee to whom such
option is granted. The option agreement shall contain such terms, provisions and
conditions not inconsistent with this Plan as may be determined by the officer
executing it.
14. Termination and Amendment of Plan. Options may no longer be granted
under this P an after April 8, 2002, and this Plan shall terminate when all
options granted or to be granted hereunder are no longer outstanding. The Board
may at any time terminate this Plan or make such modification or amendment
thereof as it deems advisable; provided, however, that the Board may not,
without approval by the affirmative vote of the holders of a majority of the
shares of Common Stock present in person or by proxy and entitled to vote at the
meeting, (a) materially increase the maximum number of shares for which options
may be granted under this Plan (except by adjustment pursuant to Section 10),
(b) materially modify the requirements as to eligibility to participate in this
Plan, (c) materially increase benefits accruing to option holders under this
Plan, or (d) amend this Plan in any manner which would cause Rule 16b3 to become
inapplicable to this Plan; and provided further that the provisions of this Plan
specified in Rule (c)(2)(ii)(A) (or any successor or amended provision thereof)
under the Securities Exchange Act of 1934 (including without limitation,
provisions as to eligibility, amount, price and timing of awards) may not be
amended more than once every six months, other than to comport with changes in
the Internal Revenue Code, the Employee Retirement Income Security Act, or the
rules thereunder. Termination or any modification or amendment of this Plan
shall not, without consent of a participant, affect his or her rights under an
option previously granted to him or her.
15. Withholding of Income Taxes. Upon the exercise of an option, the
Company, in accordance with Section 3402(a) of the Internal Revenue Code, may
require the optionee to pay withholding taxes in respect of amounts considered
to be compensation includible in the optionee's gross income.
16. Compliance with Regulations. It is the Company's intent that the
Plan comply in all respects with Rule 16b-3 under the Securities Exchange Act of
1934 (or any successor or amended version thereof) and any applicable Securities
and Exchange Commission interpretations thereof. If any provision of this Plan
is deemed not to be in compliance with Rule 16b-3, the provision shall be null
and void.
17. Governing Law. The validity and construction of this Plan and the
instruments evidencing options shall be governed by the laws of the State of
Delaware, without giving effect to the principles of conflicts of law thereof.
Date Approved by Board of Directors of the Company: April 23, 1992.
Date Approved by Stockholders of the Company: April 23, 1992.
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS
COVERING SECURITIES THAT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933.
Participant Information Dated January 1, 1998
COPLEY PHARMACEUTICAL, INC.
1992 EMPLOYEE STOCK PURCHASE PLAN
Copley Pharmaceutical, Inc. (the "Company") has filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form S-8 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), to, among other things, offer and sell shares of
the Company's Common Stock pursuant to the Company's 1992 Employee Stock
Purchase Plan (the "Plan"). A copy of the Plan is attached to this document.
Four Hundred Fifty Thousand (450,000) shares of Common Stock, $.01 par value
(the "Common Stock"), relating to the Plan are to be offered pursuant to the
Registration Statement. The information contained in this document is a summary
of certain material information regarding the Plan which the Company is required
to provide to you pursuant to Rule 428(b) of the rules and regulations
prescribed by the Commission pursuant to the Securities Act. This document is
intended to familiarize employees of the Company and its participating
subsidiaries, as designated from tine to time by the Board of Directors of the
Company, with the Plan and its operation as it relates to their participation.
The following summary description in question and answer form is
qualified in its entirety by reference to the full text of the Plan. Additional
information about the Plan and its administrators may be obtained by contacting
the Benefits Manager at the Company's principal executive office, located at 25
John Road, Canton, Massachusetts 02021. The telephone number of the Company at
its office is (781) 821-6111.
What is the purpose of the Plan?
The purpose of the Plan is to provide an incentive to, and to encourage
stock ownership by, all eligible employees of the Company and participating
subsidiaries so that they may share in the growth of the Company by purchasing
shares of Common Stock of the Company. The Plan is designed to encourage
eligible employees to remain in the employ of the Company. It is intended that
options issued pursuant to the Plan will constitute options issued pursuant to
an "employee stock purchase plan" within the meaning of Section 423(b) of the
Internal Revenue Code of 1986, as amended (the "Code").
<PAGE>
Who is eligible to participate?
You are eligible to participate in the Plan if you are employed by the
Company or any of its participating subsidiaries and your customary employment
is more than 20 hours per week and more than five months in any calendar year.
Holders of five percent or more of the total combined voting power or value of
all classes of stock of the Company (or the Company's parent or subsidiaries, if
any) are not eligible to participate
How do you become a participant?
You may elect to participate, after you become eligible, by completing
a form that authorizes your employer to deduct a percentage of your pay, to be
held by the Company and used to purchase Common Stock under the Plan. This form
is available from the Benefits Manager at the Company's principal executive
office. The authorization form must be received by the Company at least ten (10)
days prior to the beginning date of the next succeeding Payment Period (as
defined below). Your payroll deductions will start at the beginning of the next
Payment Period, as described in the Plan.
How Much can you invest in the Plan?
Your authorized payroll deduction must be in percentages within the
following range:
The minimum deduction is 1% of your base pay or salary,
including overtime but excluding any bonuses or commissions.
The maximum deduction is 10% of your base pay or salary,
including overtime but excluding any bonuses or commissions.
The maximum number of shares of Common Stock that you may
purchase in one Payment Period is 1,000 shares.
No employee shall be granted an option which permits such
employee to purchase, in any one calendar year, Common Stock under the
Plan having a fair market value (determined at the time such option is
granted) of more than $25,000.
What are the Payment Periods?
The Payment Periods (other than the initial Payment Period and the
transition Payment Period) under the Plan each have a duration of six (6)
months, commencing on January 1 and July 1, and ending on June 30 and December
31 of each year. The initial Payment Period commenced on December 1, 1993 and
ended on January 31, 1992 and the transition Payment Period commenced on August
1, 1996 and ended on December 31, 1996.
<PAGE>
When and at what price is your stock purchased?
On the first business day of each Payment Period, you as a participant
in the Plan are granted an option by the Company to buy Common Stock on the last
business day of the Payment Period at a price that is equal to the lesser of (i)
85% of the average market price of the Common Stock on the first business day of
the Payment Period or (ii) 85% of the average market price of the Common Stock
on the last business day of the Payment Period. If you continue to be a
participant on the last business day of the Payment Period, your accumulated
payroll deductions are used to exercise that option and purchase that number of
shares of Common Stock (up to a maximum of 1,000 shares), which can be paid for
with your accumulated payroll deductions. In the event that your accumulated
payroll deductions on the last day of the Payment Period would enable you,
except for the 1,000 share limitation, to purchase more than 1,000 shares, the
excess of the amount of payroll deductions over the aggregate purchase price of
the 1,000 shares is refunded to you, without interest.
In whose name will your stock be issued?
Stock purchased by you under the Plan is issued only in your name, or
if you so specify in your authorization, in your name and the name of another
person of legal age. That person will become a joint tenant with rights of
survivorship.
What happens to your payroll deductions?
Your payroll deductions are accumulated and held by the Company in a
non-interest bearing account until the end of the Payment Period when the Common
Stock is purchased. The maximum number of shares of Common Stock that you may
purchase in one Payment Period is 1,000 shares.
What happens to unused payroll deductions?
Generally, unused payroll deductions are refunded.
Can you change your payroll deduction during a Payment Period?
Once a Payment Period begins you cannot increase or decrease your
deduction percentage for that Payment Period (other than by withdrawing in full
from the Plan as described below). To change your deduction percentage for the
next Payment Period, you must submit a new authorization form at least ten (10)
days before the beginning of such Payment Period.
<PAGE>
Can you withdraw from the Plan?
Yes. You can withdraw at any time prior to ten (10) days before the
last business day of each Payment Period. In such case, the entire balance of
your payroll deductions will be refunded to you, without interest. To withdraw
from the Plan, you must deliver a withdrawal notice to the Benefits Manager at
the Company's principal executive office. No partial withdrawals can be made.
If you withdraw, may you again participate in the Plan?
Yes. To re-enter the Plan, you must submit a new authorization form at
least ten (10) days before the beginning of the next Payment Period in which you
intend to participate. You may re-enter the Plan only at the beginning of a
Payment Period.
What happens when you leave the Company?
Your rights under the Plan will terminate if you cease to be an
employee of the Company or its participating subsidiaries because of retirement,
voluntary or involuntary termination, resignation, layoff, discharge, death,
change of status or for any other reason, and all payroll deductions will be
refunded to you, without interest. If you are on a leave of absence during the
last three months of a Payment Period, however, you are treated as a participant
in the Plan on the last day of that Payment Period and your accumulated payroll
deductions will be used to purchase shares of Common Stock.
May you assign or transfer your rights under the Plan?
No. The rights granted to you under the Plan are yours alone and may
not be assigned or transferred to anyone else, other than by will or the laws of
descent and distribution. Your option may be exercised, during your lifetime,
only by you.
Who administers the Plan?
The Plan is currently administered by the Compensation Committee of the
Board of Directors of the Company. Members of the Compensation Committee are
appointed by the Board of Directors. The Board may remove members from or add
members to the Compensation Committee.
The interpretation and construction by the Compensation Committee of
any provisions of the Plan or of any option granted under it shall be final,
unless otherwise determined by the Board of Directors. The Compensation
Committee has the power to adopt rules and regulations for the administration of
the Plan, provided that any such rules and regulations apply on a uniform basis
to all employees under the Plan.
<PAGE>
When will the Plan terminate and how may it be amended?
Unless terminated sooner as provided below, the Plan shall terminate on
April 8, 2002. The Plan may be terminated at any time by the Company's Board of
Directors, but such termination shall not affect options then outstanding under
the Plan. It will terminate in any case when all or substantially all of the
unissued shares of stock reserved for the purposes of the Plan have been
purchased. The Compensation Committee or the Board of Directors may from time to
time adopt amendments to the Plan provided that, without the approval of the
stockholders of the Company, no amendment may (i) materially increase the number
of shares that may be issued under the Plan or change the class of employees
eligible to receive options under the Plan or (ii) cause Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to
become inapplicable to the Plan. If the Company issues a stock dividend on its
Common Stock or is involved in a merger or other reorganization, the number of
shares under the Plan will be appropriately adjusted.
Are there limitations on the sale of stock which was purchased under
the Plan?
Yes. The Plan is intended to provide you with an ownership interest as
an investment, and you may sell Common Stock which you have purchased under the
Plan, subject to compliance with applicable federal or state securities laws and
Copley's Corporate Policy which restricts the sale of Company stock to specified
time periods. In addition, certain officers of the Company may be subject to
Section 16 of the Exchange Act which may restrict the sale of stock acquired
under the Plan by such persons. Moreover, because of certain tax requirements,
you must notify the Company if you dispose of any stock within two years after
the first business day of the Payment Period in which you purchased the stock.
You should carefully consider the tax consequences before selling your shares.
YOU ASSUME THE RISK OF ANY MARKET FLUCTUATION IN THE PRICE OF THE STOCK AFTER
THE SHARES ARE PURCHASED BY YOU.
What are some of the tax consequences associated with the Plan?
The following questions and answers summarize certain tax
considerations for employees participating in the Plan and certain tax effects
to the Company. The summary, however, does not address every situation that may
result in taxation. For example, it does not discuss state taxes or the tax
implications arising from a participant's death. The summary is not intended as
a substitute for careful tax planning, and each employee is urged to consult
with and rely on his or her own advisors with respect to the possible tax
consequences (federal, state and local) of exercising his or her rights under
the Plan. The Plan is not subject to the provisions of the Employee Retirement
Income Security Act of 1974, and the provisions of Section 401(a) of the Code
are not applicable to the Plan.
<PAGE>
What are the likely federal income and social security tax consequences
to employees who participate in the Plan?
The amounts deducted from an employee's pay under the Plan are included
in the employee's compensation subject to federal income and social security
taxes. The employer will withhold taxes on these amounts as if they were
included in the employee's paycheck. An employee will not recognize any
additional income at the time he or she elects to participate in the Plan or
purchases Common Stock under the Plan. An employee will recognize additional
income, however, when he or she disposes of such stock.
If an employee disposes of Common Stock purchased pursuant to the Plan
within two years after the first business day of the Payment Period in which
such stock was purchased, the employee will recognize ordinary compensation
income at the time of disposition in an amount equal to the excess of the fair
market value of the stock on the day the stock was purchased over the purchase
price the employee paid for the stock. This amount may be subject to withholding
taxes, including social security taxes. In addition, the employee generally will
recognize a capital gain or loss in an amount equal to the difference between
the amount realized upon the sale of the stock and his or her basis in the stock
(that is, his or her purchase price plus the amount taxed as compensation
income). If the shares have been held for more than one year, such gain or loss
will be a long-term capital gain or loss.
If an employee disposes of stock purchased pursuant to the Plan more
than two years after the first business day of the Payment Period in which such
stock was purchased, the employee will recognize as ordinary compensation income
at the time of such disposition an amount equal to the lesser of (i) the excess
of the fair market value of the stock measured at the time of such disposition
over the amount paid for the stock, or (ii) approximately 15% of the fair market
value of the stock measured as of the first business day of the Payment Period
in which the stock was purchased. This amount, however, is not subject to social
security taxes or withholding. In addition, the employee generally will
recognize a long-term capital gain or loss in an amount equal to the difference
between the amount realized upon the disposition of the stock and his or her
basis in the stock (that is, his or her purchase price plus the amount, if any,
taxed as compensation income).
What is the significance of the difference between ordinary income and
capital gain?
The maximum rate of tax on ordinary income and short-term capital gain
(gain on capital assets held for one year or less) is currently 39.6%. Pursuant
to recently enacted legislation, the rate of tax on capital gain is generally
20% for capital assets held for more than 18 months and sold after July 28, 1997
(and for assets sold between May 7, 1997, through July 28, 1997, and held for
more than one year). The rate of tax is generally 28% for capital assets held
for more than one year but not more than 18 months.
<PAGE>
The 20% capital gain tax rate will be reduced to 18% for capital assets
that are held for more than five years, the holding period for which begins on
or after January 1, 2001 (or which are marked to market at that time). Other tax
rates may apply in certain cases and to certain taxpayers, including those who
are in lower tax brackets with regard to their overall taxable income. Plan
Participants should consult their own tax advisors about the treatment of
capital losses.
What are the likely federal tax consequences to the Company and its
participating subsidiaries upon an employee's participation in and purchase of
stock under the Plan and the subsequent sale of stock so purchased?
Although the amounts deducted from an employee's pay under the Plan
generally are tax-deductible business expenses of his or her employer, the
Company and its participating subsidiaries will not be allowed any additional
deduction by reason of any employee's participation in or purchase of Common
Stock under the Plan. However, if an employee disposes of stock purchased
pursuant to the Plan within two years after the first business day of the
Payment Period in which such stock was purchased, his or her employer should be
entitled to a deduction in an amount equal to the compensation income recognized
by the employee. If an employee disposes of stock purchased under the Plan more
than two years after the first business day of the Payment Period in which such
stock was purchased, his or her employer will not receive any deduction for
federal income tax purposes with respect to such stock. Except when an employee
disposes of Common Stock after the two-year period described above, the Company
and its participating subsidiaries may be required to withhold taxes upon, and
to pay employment taxes with respect to, any compensation income recognized by
their employees in connection with the Plan.
lNFORMATION INCORPORATED BY REFERENCE
The following documents filed with the Securities and Exchange
Commission by the Company are incorporated by reference as of their respective
dates: (i) the Company's Prospectus as filed under the Securities Act, in
Registration Statement No. 33-47470 on Form S-1, as amended, (ii) the section
entitled "Description of Registrant's Securities to be Registered" contained in
the Company's Registration Statement on Form 8-A filed pursuant to Section 12(g)
of the Exchange Act on April 24, 1992, and (iii) all documents subsequently
filed by the Company with the Commission pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act after the date hereof and prior to the termination
of the offering of shares of Common Stock offered hereby.
<PAGE>
The Company will upon written or oral request provide without charge to
any person to whom this Plan information is delivered a copy of all documents
described above (other than exhibits to such documents). Such request should be
directed to:
Benefits Manager
Copley Pharmaceutical, Inc.
Canton Commerce Center
25 John Road
Canton, MA 02021
(781) 821-6111
COPLEY PHARMACEUTICAL, INC.
RETIREMENT PLAN
(Amended and Restated
Effective January 1, 1998, except as otherwise noted herein)
<PAGE>
- ii -
COPLEY PHARMACEUTICAL, INC.
RETIREMENT PLAN
TABLE OF CONTENTS
ARTICLE 1.....................................................................1
INTRODUCTION..................................................................1
1.1. AMENDMENT AND RESTATEMENT................................................1
1.2.PLAN AND TRUST INTENDED TO QUALIFY........................................1
1.3.DEFINITIONS...............................................................1
ARTICLE 2.....................................................................1
DEFINITIONS...................................................................1
2.1. "ACCOUNTS"...............................................................1
2.2. "AFFILIATED COMPANY".....................................................1
2.3. "ANNUAL ADDITION"........................................................1
2.4. "BENEFICIARY"............................................................1
2.5. "BOARD...................................................................1
2.6. "BREAK IN SERVICE".......................................................1
2.7. "CODE"...................................................................1
2.8. "COMMITTEE"..............................................................1
2.9. "COMPANY"................................................................1
2.10. "COMPANY CONTRIBUTIONS".................................................1
2.11. "COMPANY CONTRIBUTION ACCOUNT"..........................................1
2.12."COMPANY RETIREMENT SAVINGS CONTRIBUTION"................................1
2.13 "COMPANY RETIREMENT SAVINGS CONTRIBUTION ACCOUNT"........................1
2.14. "COMPANY STOCK".........................................................1
2.15. "COMPENSATION"..........................................................1
2.16. "CONTRIBUTION RATIO"....................................................1
2.17. "DEFERRAL RATIO"........................................................1
2.18. "ELECTIVE CONTRIBUTION".................................................1
2.19. "ELECTIVE CONTRIBUTION ACCOUNT".........................................1
2.20. "EMPLOYEE"..............................................................1
2.21. "ENTRY DATE"............................................................1
2.22. "ERISA".................................................................1
2.23. "ESOP"..................................................................1
2.24. "ESOP CASH ACCOUNT".....................................................1
2.25. "ESOP MERGER DATE"......................................................1
2.26. "ESOP STOCK ACCOUNT"....................................................1
2.27. "HIGHLY COMPENSATED EMPLOYEE"...........................................1
2.28. "HIGHLY COMPENSATED PARTICIPANT"........................................1
2.29 "HOUR OF SERVICE"........................................................1
2.30. "INSURANCE COMPANY".....................................................1
2.31. "LIMITATION YEAR".......................................................1
2.32. "MATCHING CONTRIBUTION".................................................1
2.33. "MATCHING CONTRIBUTION ACCOUNT".........................................1
2.34. "MERGER"................................................................1
2.35. "NORMAL RETIREMENT DATE"................................................1
2.36. "PARTICIPANT"...........................................................1
2.37. "PLAN"..................................................................1
2.38. "PLAN YEAR".............................................................1
2.39. "PROFIT SHARING CONTRIBUTION"...........................................1
2.40. "PROFIT SHARING CONTRIBUTION ACCOUNT"...................................1
2.41. "QUALIFIED DOMESTIC RELATIONS ORDER"....................................1
2.42. "ROLLOVER ACCOUNT"......................................................1
2.43. "TRUST".................................................................1
2.44. "TRUST FUND"............................................................1
2.45. "TRUSTEES".............................................................1
2.46 "VALUATION DATE".........................................................1
2.47. "YEAR OF SERVICE".......................................................1
ARTICLE 3.....................................................................1
PARTICIPATION.................................................................1
3.1. DATE OF PARTICIPATION....................................................1
3.2. CESSATION OF PARTICIPATION...............................................1
3.3. REHIRED FORMER EMPLOYEE..................................................1
3.4. REHIRED FORMER PARTICIPANT...............................................1
ARTICLE 4.....................................................................1
CONTRIBUTIONS.................................................................1
4.1. ELECTIVE CONTRIBUTIONS...................................................1
4.2. MATCHING CONTRIBUTIONS...................................................1
4.3. PROFIT-SHARING CONTRIBUTIONS.............................................1
4.4. TIME FOR MAKING AND CREDITING OF CONTRIBUTIONS...........................1
4.5. RETURN OF CONTRIBUTIONS..................................................1
4.6. NONDISCRIMINATION REQUIREMENTS...........................................1
4.7. ADJUSTMENTS BY COMMITTEE.................................................1
4.8. DISTRIBUTION OF EXCESS CONTRIBUTIONS AND EXCESS AGGREGATE CONTRIBUTIONS..1
4.9. DISTRIBUTION OF EXCESS DEFERRALS.........................................1
4.10. OTHER LIMITATIONS.......................................................1
4.11. ORDER OF ADJUSTMENTS TO SATISFY LIMITATIONS.............................1
4.12. ROLLOVER OF AMOUNT DISTRIBUTED FROM ANOTHER QUALIFIED PLAN..............1
4.13. TRANSFER OF AMOUNT DISTRIBUTED FROM A ROLLOVER IRA......................1
4.14. MONITORING OF ROLLOVERS.................................................1
4.15. TREATMENT OF ROLLOVER AMOUNT UNDER THE PLAN.............................1
4.16. MILITARY SERVICE........................................................1
ARTICLE 5.....................................................................1
PARTICIPANT ACCOUNTS..........................................................1
5.1. ACCOUNTS.................................................................1
5.2. ADJUSTMENT OF ACCOUNTS...................................................1
5.3. VESTING OF ACCOUNTS......................................................1
5.4. ELECTION OF FORMER VESTING SCHEDULE......................................1
ARTICLE 6.....................................................................1
IN-SERVICE WITHDRAWALS........................................................1
6.1. GENERAL LIMIT............................................................1
6.2. WITHDRAWALS AFTER AGE 59-1/2.............................................1
6.3. HARDSHIP WITHDRAWALS FROM COMPANY CONTRIBUTION ACCOUNTS..................1
6.4. HARDSHIP WITHDRAWALS FROM SALARY REDUCTION ACCOUNTS......................1
6.5. WITHDRAWALS FROM ROLLOVER CONTRIBUTION ACCOUNTS..........................1
6.6. PROCEDURE FOR MAKING WITHDRAWALS.........................................1
6.7. NON-FORFEITURE PROVISION.................................................1
6.8. SPECIAL VESTING PROVISION................................................1
6.9. FREQUENCY OF WITHDRAWAL..................................................1
6.10. RESTRICTION FOR LOANS...................................................1
6.11. REQUIRED DISTRIBUTIONS AFTER AGE 70-1/2.................................1
6.12. DISTRIBUTIONS REQUIRED BY A QUALIFIED DOMESTIC RELATIONS ORDER..........1
ARTICLE 7.....................................................................1
DISTRIBUTIONS.................................................................1
7.1. NORMAL RETIREMENT........................................................1
7.2. OTHER TERMINATION OF EMPLOYMENT..........................................1
7.3. DISABILITY BENEFITS......................................................1
7.4. DEATH....................................................................1
7.5. LATEST PAYMENT OF CERTAIN BENEFITS.......................................1
7.6. METHOD OF PAYMENT........................................................1
7.7. FORFEITURES..............................................................1
7.8. COMMENCEMENT OF BENEFITS.................................................1
7.9. RESTRICTION OF EARLY DISTRIBUTIONS.......................................1
7.10. MINIMUM DISTRIBUTION REQUIREMENTS.......................................1
7.11. BENEFIT PAYMENT ELECTIONS...............................................1
7.12. DIRECT TRANSFER OF ELIGIBLE ROLLOVER DISTRIBUTIONS......................1
ARTICLE 8.....................................................................1
ADMINISTRATION................................................................1
8.1. PLAN ADMINISTRATOR AND COMMITTEE.........................................1
8.2. POWERS OF PLAN ADMINISTRATOR.............................................1
8.3. NONDISCRIMINATORY EXERCISE OF AUTHORITY..................................1
8.4. RELIANCE ON TABLES, ETC..................................................1
8.5. CLAIMS AND REVIEW PROCEDURES.............................................1
8.6. INDEMNIFICATION OF COMMITTEE MEMBERS.....................................1
8.7. DELEGATION OF DUTIES.....................................................1
8.8. INVESTMENT MANAGER.......................................................1
8.9. RECORDS AND RECORDKEEPING................................................1
8.10. NOTICE TO TRUSTEE.......................................................1
8.11. COMPENSATION AND EXPENSES...............................................1
8.12. SERVICE OF LEGAL PROCESS................................................1
8.13. PERSON AUTHORIZED TO ACT FOR THE COMPANY................................1
ARTICLE 9.....................................................................1
THE TRUST AND THE TRUSTEES....................................................1
9.1. TRUST FUND...............................................................1
9.2. INVESTMENT OF TRUST FUND.................................................1
9.4. RELIANCE BY TRUSTEES ON OTHER PERSONS....................................1
9.5. CONSULTATION BY TRUSTEES WITH COUNSEL....................................1
9.6. ACCOUNTS.................................................................1
9.7. APPROVAL OF ACCOUNTS.....................................................1
9.8. PROCEDURE FOR TRUSTEE ACTION.............................................1
9.9. ALLOCATION OF RESPONSIBILITY.............................................1
9.10. RESIGNATION.............................................................1
9.11. REMOVAL OF TRUSTEES.....................................................1
9.12. APPOINTMENT OF SUCCESSOR TRUSTEE........................................1
9.13. COMPENSATION OF TRUSTEES AND EXPENSES OF TRUST..........................1
9.14. DISPUTES AS TO PERSONS ENTITLED TO PAYMENT..............................1
9.15. ACTION BY MAJORITY VOTE.................................................1
9.16. LIABILITY OF TRUSTEE....................................................1
9.17. INDEMNIFICATION OF TRUSTEES.............................................1
9.18. INSURANCE POLICIES......................................................1
ARTICLE 10....................................................................1
AMENDMENT AND TERMINATION.....................................................1
10.1. AMENDMENT...............................................................1
10.2. TERMINATION.............................................................1
10.3. DISTRIBUTIONS UPON TERMINATION OF THE PLAN..............................1
10.4. MERGER OR CONSOLIDATION OF PLAN; TRANSFER OF PLAN ASSETS................1
ARTICLE 11....................................................................1
TOP HEAVY PROVISIONS..........................................................1
11.1. GENERAL RULE............................................................1
11.2. ADJUSTMENT TO LIMITATION ON BENEFITS....................................1
11.3. MINIMUM VESTING SCHEDULE................................................1
11.4. DEFINITIONS.............................................................1
ARTICLE 12....................................................................1
LOANS TO PARTICIPANTS.........................................................1
12.1. IN GENERAL..............................................................1
12.2. RULES AND PROCEDURES....................................................1
12.3. MAXIMUM AMOUNT OF LOAN..................................................1
12.4. OTHER LIMITATIONS.......................................................1
12.5. NOTE; SECURITY; INTEREST................................................1
12.6. LIABILITY...............................................................1
12.7. REPAYMENT...............................................................1
12.8. REPAYMENT UPON DISTRIBUTION.............................................1
12.9. DEFAULT.................................................................1
12.10. NONDISCRIMINATION......................................................1
ARTICLE 13....................................................................1
MISCELLANEOUS PROVISIONS......................................................1
13.1. COMMUNICATION TO PARTICIPANTS...........................................1
13.2. LIMITATION OF RIGHTS....................................................1
13.3. NONALIENABILITY OF BENEFITS.............................................1
13.4. FAILURE TO QUALIFY INITIALLY............................................1
13.5. GOVERNING LAW...........................................................1
ARTICLE 14....................................................................1
COMPANY STOCK PROVISIONS......................................................1
14.1. PRE-RETIREMENT DIVERSIFICATION RIGHTS...................................1
14.2. VOTING AND TENDERING OF COMPANY STOCK...................................1
14.3. SHARE LEGEND............................................................1
<PAGE>
- 10 -
ARTICLE 1
INTRODUCTION
.........1.1. Amendment and Restatement. This document restates the Copley
Pharmaceutical, Inc. Retirement Plan and Trust which was originally established
effective February 1, 1988. The purpose of this restatement is to reflect (1)
the First through Third Amendments to the Plan and (2) recent changes in law.
This amendment and restatement shall be effective January 1, 1998 (the
"Effective Date"), unless specifically provided otherwise within a particular
Section of the Plan.
.........1.2. Plan and Trust Intended to Qualify. This Plan and its related
Trust are intended to qualify as a profit-sharing plan under Code Sections 401
(a) of the Internal Revenue Code of 1986 (the "Code"), the cash or deferred
arrangement forming part of the Plan is intended to qualify under Code Section
401(k) and the employer matching contributions provisions are intended to
qualify under Code Section 401(m). The Plan also retains certain ESOP features.
Subject to the provisions of Sections 4.5, 9.14, 13.3 and 13.4, no part of the
corpus or income of the Trust forming part of the Plan will be used for or
diverted to purposes other than for the exclusive benefit of each Participant
and Beneficiary.
.........1.3. Definitions. Capitalized words and phrases used in this
document shall have the respective meanings ascribed to -----------
them in Article 2.
<PAGE>
ARTICLE 2
DEFINITIONS
.........Wherever used in the Plan, a pronoun or adjective in the masculine
gender includes the feminine gender, the singular includes the plural, and the
following terms have the following meanings, unless a different meaning is
clearly required by the context:
.........2.1. "Accounts" means, for any Participant, his Elective
Contribution Account, his Matching Contribution Account, his Company Retirement
Savings Contribution Account (formerly referred to as a Profit Sharing
Contribution Account), his ESOP Cash Account and his ESOP Stock Account, his
Rollover Account (if applicable) and any other accounts or subaccounts
established pursuant to Section 5.1. "Account balance" shall mean the total
value of a Participant's Accounts.
.........2.2. "Affiliated Company" means:
.........(a) any corporation (other than the Company) that is a member of a
controlled group of corporations (as defined in CodeSection 414(b)) of which the
Company is also a member;
.........(b) any trade or business (other than the Company), whether or not
incorporated, that is under common control (as defined in Code Section 414(c))
with the Company;
.........(c) any trade or business (other than the Company) that is a
member of an affiliated service group (as defined in Code Section 414(m)) of
which the Company is also a member and
.........(d) any group of individuals required to be considered employed by
the Company under Code Section 414(o) and the regulations thereunder; provided,
that the term "Affiliated Company" shall not include any corporation or
unincorporated trade or business prior to the date on which such corporation,
trade or business satisfies the affiliation or control tests of (a), (b), (c),
or (d) above.
.........In identifying any "Affiliated Companies" for purposes of Section 4.10
(concerning maximum limitations on contributions), the definitions in Code
Section 414(b) and (c) of the Code shall be modified as provided in Code Section
415(h).
.........2.3. "Annual Addition" means, in the case of any Participant, the
sum for any Limitation Year of the Elective Contributions and Company
Contributions made for the Participant's benefit for such Year.
.........2.4. "Beneficiary" means any person entitled under Section 7.4 to
receive benefits under the Plan upon the death of a Participant.
.........2.5. "Board" means the Board of Directors of the Company. The
Board may designate a person or persons (including a committee) to carry out any
fiduciary responsibilities, in accordance with ERISA Section 405.
.........2.6. "Break in Service" means, with respect to any Employee, a Plan
Year during which the Employee does not complete more than 500 Hours of Service.
For purposes of determining a Break in Service, an Employee who is absent from
work by reason of the pregnancy of the Employee, the birth of a child of the
Employee, or the placement of a child with the Employee in connection with the
child's adoption by the Employee, will receive credit for the Hours of Service
which would otherwise have been credited to such Employee but for such absence,
or in any case in which such hours cannot be determined, 8 Hours of Service per
day for such absence. The Hours of Service credited under this provision shall
be credited (1) in the Plan Year in which the absence begins if the crediting is
necessary to prevent a Break in Service in that Plan Year, or (2) in all other
cases, in the following Plan Year. In addition, for purposes of determining a
Break in Service, an Employee will be credited with Hours of Service for periods
during which the Employee is temporarily laid off, provided, however, that no
additional Hours of Service will be credited to the Employee after 12
consecutive calendar months of layoff.
.........2.7. "Code" means the Internal Revenue Code of 1986, as amended
from time to time. Reference to any section or subsection of the Code includes
reference to any comparable or succeeding provisions of any legislation which
amends, supplements or replaces such section or subsection.
.........2.8. "Committee" means the Committee appointed to administer the
Plan in accordance with Section 8.1.
.........2.9. "Company" means Copley Pharmaceutical, Inc., and any successor
to all or a major portion of its assets or business which assumes the
obligations of the Company.
.........2.10. "Company Contributions" means all contributions to the Plan
by the Company, excluding Elective Contributions and Rollover Contributions.
.........2.11. "Company Contribution Account" shall mean the sum of all a
Participant's Accounts except his Elective Contribution Account and Rollover
Account.
.........2.12. "Company Retirement Savings Contribution" means a contribution
made for the benefit of a Participant under Section 4.3 and in prior plan
versions was referred to as "Profit-Sharing Contribution."
.........2.13 "Company Retirement Savings Contribution Account" means, for
any Participant, the account described in Section 5.1 to which any Company
Retirement Savings Contributions are credited and in prior plan versions was
referred to as a "Profit-Sharing Contribution Account."
.........2.14. "Company Stock" means common stock issued by the Company which
qualifies as an "employer security" within the meaning of Section 409(l) of the
Code.
.........2.15. "Compensation" means: the Employee's wages as defined in
Section 3121(a) of the Code for purposes of calculating Social Security Taxes,
but determined without regard to the dollar limitation of Section 3121(a)(1) of
the Code, any rules that limit covered employment based on the type or location
of an Employee's employer, and any rules that limit the remuneration included in
wages based on familial relationship or based on the nature or location of the
employment or the services performed (such as the exception to the definition of
employment in Section 3121(b)(1) through (20) of the Code), subject, however, to
the following provisions:
.........(a) Compensation shall include only compensation paid during a
Plan Year.
.........(b) Compensation for purposes of determining the limitations
in Section 4.10, and the amounts of Elective Contributions, Matching
Contributions and Company Retirement Savings Contributions, shall include
compensation that would have been paid but for elections under Code Sections
125, 401(k), 402(h), 403(b), 457, or 414(h)(2).
.........(c) for purposes of determining:
......... (i) the amount of any required top-heavy contribution
under Section 11.1, and
......... (ii) the status of any individual as a "key employee"
under Article 11, "compensation" shall have the meaning given under Code Section
415(c)(3) and the Treasury Regulations thereunder.
.........(d) for purposes of determining whether an individual is a Highly
Compensated Employee under Section 2.27, the same as described in Section
2.15(b) above, increased by any amounts that would have been received by the
individual from the Company or any Affiliated Companies but for an election
under Code Sections 401(k) or 125; and
.........(e) for purposes of:
......... (i) the nondiscrimination tests under Section 4.6;
......... (ii) the adjustment provisions under Section 4.7; and
......... (iii) the definition of a "Deferral Ratio" under Section 2.17;
.........The Employee's compensation or Earned Income for services performed for
the Company and any Affiliated Companies which (taking into account the
provisions of Chapter 1, Subtitle A of the Code) is currently includible in the
Employee's gross income for the year in question, increased (unless the
Committee elects not to include) by amounts that would have been so includible
but for an election under Code Sections 401(k) or 125.
.........In addition to other applicable limitations set forth in the plan, and
notwithstanding any other provision of the Plan to the contrary, the annual
compensation of each employee taken into account under the Plan shall not exceed
the OBRA `93 annual compensation limit. The OBRA `93 annual compensation limit
is $150,000, as adjusted by the Commissioner for increases in the cost of living
in accordance with Section 401(a)(17)(B) of the Internal Revenue Code. The
cost-of-living adjustment in effect for a calendar year applies to any period,
not exceeding 12 months, over which compensation is determined (determination
period) beginning in such calendar year. If a determination period consists of
fewer than 12 months, the OBRA `93 annual compensation limit will be multiplied
by a fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12. Any reference in this
Plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA
`93 annual compensation limit set forth in this provision.
.........If compensation for any prior determination period is taken into
account in determining an employee's benefits accruing in the current plan year,
the compensation for that prior determination period is subject to the OBRA `93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first plan year beginning on or after January 1, 1994, the OBRA `93 annual
compensation limit is $150,000.
.........2.16. "Contribution Ratio" means, in the case of any Participant for
a Plan Year, the ratio of (a) Matching Contributions made on the Participant's
behalf for the Plan Year to (b) the Participant's Compensation for the Plan
Year.
.........2.17. "Deferral Ratio" means, in the case of any Participant for a
Plan Year, the ratio of (a) Elective Contributions made on the Participant's
behalf for the Plan Year to (b) the Participant's Compensation for the Plan
Year.
.........2.18. "Elective Contribution" means a contribution made for the
benefit of a Participant under Section 4.1.
.........2.19. "Elective Contribution Account" means, for any Participant,
the account described in Section 5.1 to which Elective Contributions made for
the Participant's benefit are credited.
.........2.20. "Employee" means any individual employed by the Company,
and does not include leased employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) unless such leased employees are required to be covered
under the Plan pursuant to Code Section 414(n).
.........2.21. "Entry Date" means effective January 1, 1996, the first day of
a calendar month. During 1994 and 1995, Entry Date meant the first day of the
first, fourth, seventh and tenth month of each Plan year. Prior to 1994, Entry
Date meant the first day of the first and seventh month of the Plan Year."
.........2.22. "ERISA" means the Employee Retirement Income Security Act of
1974, as from time to time amended, and any successor statute or statutes of
similar import.
.........2.23. "ESOP" shall mean the Copley Pharmaceutical, Inc. Employee
Stock Ownership Plan.
.........2.24. "ESOP Cash Account" shall mean the account established on
behalf of each Participant to reflect assets other than Company Stock credited
to such Participant under the ESOP immediately prior to the Merger, and gains
and losses thereto after the Merger.
.........2.25. "ESOP Merger Date" shall mean January 1, 1994, the effective
date of the merger of the ESOP into the Plan.
.........2.26. "ESOP Stock Account" shall mean the account established on
behalf of each Participant to reflect Company Stock credited to such
Participant.
.........2.27. "Highly Compensated Employee" means, effective January 1,1997,
an employee of the Company or any Affiliated Company who,
.........(a) during the Plan Year in question or the preceding Plan Year,
was at any time a 5-percent owner (as defined in Code Section 416(i)(1)) of the
Company or any Affiliated Company; or
.........(b) in the preceding Plan Year, received Compensation in excess of
$80,000. The $80,000 amount in (b) above shall automatically be adjusted if and
to the extent the corresponding amounts in Code Section 414(q) are adjusted by
the Secretary of the Treasury. The determination of who is a highly compensated
employee, will be made in accordance with Section 414(q) of the Code and the
regulations thereunder.
.........2.28. "Highly Compensated Participant" means a Participant who is a
Highly Compensated Employee.
.........2.29 "Hour of Service" means, with respect to any Employee,
.........(a) Each hour for which the Employee is paid or entitled to
payment for the performance of duties for the Company or any Affiliated Company,
each such hour to be credited to the Employee for the 12-month period described
in Sections 2.38 and 2.47 in which the duties were performed;
.........(b) Each hour for which the Employee (A) is directly or indirectly
paid or entitled to payment by the Company or any Affiliated Company (including
payments made or due from a trust fund or insurer to which the Company or
Affiliated Company contributes or pays premiums) on account of a period of time
during which no duties are performed (irrespective of whether the employment
relationship has terminated) due to holiday, incapacity, military duty, or leave
of absence, or (B) is not performing any duties for a period of time due to
sickness or disability of the Employee or his family, an authorized vacation,
jury duty or authorized, unpaid leave of absence; each such hour to be credited
to the Employee for the 12-month period described in Sections 2.45 in which such
period of time occurs, subject to the following rules:
......... (i) No more than 501 Hours of Service shall be credited
under this paragraph (b) to the Employee on account of any single continuous
period during which the Employee performs no duties;
......... (ii) Hours of Service shall not be credited under this
paragraph (b) to an Employee for a payment which solely reimburses the Employee
for medically related expenses incurred by the Employee, or which is made or due
under a plan maintained solely for the purpose of complying with applicable
workers' compensation, unemployment compensation or disability insurance laws;
and
......... (iii) If the period during which the Employee performs no
duties falls within two or more 12 month periods described in Sections 2.45, and
if the payment made on account of such period is not calculated on the basis of
units of time, the Hours of Service credited with respect to such period shall
be allocated between not more than the first two such 12 month periods on any
reasonable basis consistently applied with respect to similarly situated
employees;
.........(c) Each hour counted under paragraph (a) or (b) for which back
pay, irrespective of mitigation of damages, has been either awarded or agreed to
be paid by the Company or any Affiliated Company, each such hour to be credited
to the Employee for the 12 month period described in Sections 2.45 to which the
award or agreement for back pay pertains, provided that crediting of Hours of
Service under this paragraph (c) with respect to periods described in paragraph
(b) above shall be subject to the limitations and special rules set forth in
clauses (i), (ii) and (iii) of paragraph (b); and
.........(d) Each non-compensated hour while an Employee during a period of
absence from the Company or any Affiliated Company in the armed forces of the
United States if the Employee returns to work for the Company or any Affiliated
Company at a time when he has reemployment rights under federal law.
.........Hours of Service to be credited to an hourly paid Employee under (b)
and (c) above will be calculated and credited pursuant to paragraphs (b) and (c)
of Section 2530.200b-2 of the Department of Labor Regulations, which are
incorporated herein by reference. Hours of Service to be credited to a
non-hourly paid Employee under (b) and (c) above shall be credited on the basis
of 8 hours per day, 40 hours per week, with either 125 work days or 25 work
weeks completed in an applicable 12-month period constituting 1,000 Hours of
Service. The Hours of Service to be credited to an Employee during a period
described in (d) above will be determined by the Committee with reference to the
individual's most recent normal work schedule, or at the rate of eight Hours per
day in the event the Committee is unable to establish such schedule.
.........Hours of Service will be credited for employment with other members of
an affiliated group (under Code Section 414(m)), a controlled group of
corporations (under Code Section 414(b)) or a group of trades or businesses
under common control (under Code Section 414(c)), of which the Company is a
member.
.........2.30. "Insurance Company" means New England Mutual Life Insurance
Company of Boston, Massachusetts or such other life insurance company as may be
designated from time to time by the Trustees.
.........2.31. "Limitation Year" means the Plan Year.
.........2.32. "Matching Contribution" means a contribution made for the
benefit of a Participant under Section 4.2.
.........2.33. "Matching Contribution Account" means, for any Participant,
the account described in Section 5.1 to which Matching Contributions made for
the Participant's benefit are credited.
.........2.34. "Merger" shall mean the merger of the ESOP into the Plan
effective as of the ESOP Merger Date (January 1, 1994).
.........2.35. "Normal Retirement Date" means the date the Participant
attains age 65 or the fifth anniversary of the first day of the Plan Year in
which he first became a Participant, whichever is later.
.........2.36. "Participant" means each Employee who participates in the Plan
in accordance with Article 3 of the Plan.
.........2.37. "Plan" means the Copley Pharmaceutical, Inc. Retirement Plan,
as set forth herein, together with any and all
amendments and supplements.
.........2.38. "Plan Year" means the 12-month period ending each December 31.
February 1, 1993 through December 31, 1993 was a short Plan Year. Prior to 1993,
the Plan Year was the period February 1 through January 1.
.........2.39. "Profit Sharing Contribution" means a Company Retirement
Savings Contribution.
.........2.40. "Profit Sharing Contribution Account" means the Company
Retirement Savings Contribution Account.
.........2.41. "Qualified Domestic Relations Order" means any judgment,
decree or order (including approval of a property settlement agreement) which
constitutes a "qualified domestic relations order" within the meaning of Code
Section 414(p). A judgment, decree or order shall not be considered not to be a
Qualified Domestic Relations Order merely because it requires a distribution to
an alternate payee (or the segregation of accounts pending distribution to an
alternate payee) before the Participant's retirement, death, termination of
employment, attainment of age 59-1/2, or suffering of a financial hardship.
.........2.42. "Rollover Account" means the Account, if any, established
under Section 4.15(a) for the purpose of crediting a rollover contribution made
to the Plan by an Employee under Article 4.
.........2.43. "Trust" means the Copley Pharmaceutical, Inc. Retirement Plan
hereunder, together with any and all amendments.
.........2.44. "Trust Fund" means the property held in Trust by the Trustees
for the benefit of Participants, former Participants and their Beneficiaries.
.........2.45 "Trustees" mean the person or persons who are at any time the
acting Trustee under the Trust.
.........2.46. "Valuation Date" means the last business day of each month and
such other day or days as specified by the Committee.
.........2.47. "Year of Service" means the sum of 12-consecutive month
computation periods, beginning with the date on which the Employee first
performs an Hour of Service, during which the Employee completes at least 1,000
Hours of Service.
.........(a) For Vesting purposes only, the following additional rules
shall apply in the case of a Participant who has a Break in Service of at least
5 consecutive years and who later returns to the employ of the Company or an
Affiliated Company:
......... (i) For purposes of determining the nonforfeitable
percentage of his Company Contribution Account that accrued before such Break,
all vesting service earned after such Break and the individual's reemployment
will not be considered.
......... (ii) (A) If a Participant either had some vested
interest in his Company Contribution Account balance earned before his Break or
made Elective Contributions before that Break, both Years of Service earned
before the Break and after the Break shall be counted for purpose of determining
the nonforfeitable percentage of his Company Contribution Account balance that
accrues after such break;
......... (B) If such Participant had no vested interest
in his Company Contribution Account and has not made any Elective Contributions
before his Break, his Years of Services prior to such Break shall be disregarded
for purpose of computing the non-forfeitable percentage of his Company
Contribution Account accrued after the Break if the number of consecutive
One-Year Breaks in Service equals or exceeds the number of his Years of Service
before such Break, (not including in such number of Years of Service any Year of
Service previously excluded because of an earlier Five-Year or One-Year Break in
Service).
<PAGE>
ARTICLE 3
PARTICIPATION
.........3.1. Date of Participation.
.........(a) Each individual who is a Participant on the Effective Date
shall continue to be a Participant of the Plan.
.........(b) Effective January 30, 1996, each other Employee shall become a
Participant in the Plan:
(i) for purposes of making Elective Contributions and
receiving allocations of Matching Contributions, on the
earliest Entry Date on which he has both (A) attained age 21
and (B) completed one month of service; and
(ii) for purposes of eligibility to receive allocations of
Company Retirement Savings Contributions, on the later of (A)
the first day of the Plan Year following the date on which he
became a regular Employee and (B) the date he attained age 21.
3.2. Cessation of Participation. A Participant will cease to be a
Participant as of the date on which he dies or otherwise terminates his
employment with the Company or, if earlier, the date on which the Plan
terminates.
3.3. Rehired Former Employee. If the employment of an Employee is
terminated before he became a Participant and he is subsequently reemployed, all
his Years of Service before such reemployment shall be recognized in determining
his eligibility to participate, and he shall become a Participant upon his
reemployment provided (1) he then meets the eligibility requirements in Section
3.1(b)(i) and (ii) and (2) his reemployment date is coincident with or follows
the date on which he would have first become a Participant had his employment
with the Company continued.
3.4. Rehired Former Participant. If the employment of a
Participant is terminated and he is subsequently reemployed, he shall resume his
participation in the Plan upon reemployment.
<PAGE>
ARTICLE 4
CONTRIBUTIONS
4.1. Elective Contributions. (a) Each Participant may make an election,
pursuant to which from one percent (1%) up to fifteen percent (15%) of his
Compensation for that portion of a Plan Year during which he is a Participant
will be contributed by the Company to the Trust as an Elective Contribution and
allocated to such Participant's Elective Contribution Account in lieu of being
paid to the Participant in cash. Elective Contributions made for the benefit of
any Participant for a Plan Year, however, shall not exceed the applicable dollar
limitation in Code Section 402(g)(1) (as increased from time to time under Code
Section 402(g)(5)), reduced by any other elective deferrals (as defined in Code
Section 402(g)(3)) of the Participant through the Company or any Affiliated
Company for the year.
(b) Each election shall be made on a form prescribed or approved by the
Committee, and such election shall remain in effect for the duration of the Plan
Year unless terminated or modified by a Participant.
(c) A Participant may terminate his election at any time by delivering
his written termination to the Company at least 30 days (or such shorter period
as may be prescribed by the Plan Administrator) before the effective date of
such termination. If a Participant terminates his election, he may enter into a
new election, as of any subsequent Entry Date by filing the new election with
the company at least 30 days (or such shorter period as may be prescribed by the
Plan Administrator) before the effective date of the new election. A Participant
who terminates his election shall not enter into a new election until after the
waiting period of six months.
(d) A Participant may, at least once each calendar year and at such
other time as may be prescribed by the Plan Administrator pursuant to a uniform
non-discriminatory policy, increase or decrease the percentage of his election
by entering into a new election at least 30 days (or such shorter period as may
be prescribed by the Plan Administrator) before the effective date of such
increase or decrease.
(e) To the extent permitted by the Company, a Participant may base his
Elective Contributions on cash bonuses that, at the Participant's election, may
be contributed to the Plan or received by the Participant in cash.
4.2. Matching Contributions. The Company shall contribute an amount (if
any) equal to a percentage of each Participant's Elective Contributions for the
Plan Year as specified by resolution of the Board each Plan Year. The amount of
Matching Contributions may be subject to a maximum as specified by the Board.
The matching percentage and any maximum shall be applied uniformly to all
Participants. Matching Contributions shall be allocated during the Plan Year on
a monthly, quarterly, or semi-annual basis to all Participants who made Elective
Contributions during the period for which Matching Contributions are being made.
4.3. Company Retirement Savings Contributions. Effective January 30,
1996, for each Plan Year the Company may in its discretion contribute an amount
as Company Retirement Savings Contributions to the Trust for the benefit of each
Participant who has completed at least 501 hours of Service during the Plan Year
or who is employed by the Company on the last day of the Plan Year. Provided,
effective January 1, 1996, and for each Plan Year thereafter, the Company will
contribute a minimum of 2% of each Participant's earnings as set forth in the
Participant's Form W-2 for the Plan year. Provided further, effective January 1,
1996, such allocation shall be made only to Participants who both (a) have
completed at least 1,000 Hours of Service during the Plan Year and (b) are
employed by the Company on the last day of the Plan Year. The Company Retirement
Savings Contributions shall be made without regard to current or accumulated
profits of the Company. Company Retirement Savings Contributions shall be
allocated among and credited to the Company Retirement Savings Accounts of
Participants entitled to share in the Company Retirement Savings Contribution in
proportion to their respective amounts of Compensation, no later than 120 days
following the last day of the Plan Year for which they are made.
4.4. Time for Making and Crediting of Contributions. (a) Elective
Contributions will be paid in cash to the Trust as soon as practicable after the
date the Compensation to which they relate is paid, but in any event no later
than the 15th business day following the month in which such contributions would
have otherwise been paid to the Participant in cash. Elective Contributions will
be allocated and credited to the Participants' Elective Contribution Accounts as
of the date no later than the earlier of:
(i) the date such Contributions are received by the Trust and
(ii) the last day of the Plan Year in which the Compensation
is paid. Any Matching Contributions and any Profit-Sharing Contributions for a
Plan Year will be contributed to the Trust on any date or dates the Company may
select, subject to the consent of the Trustee, but all events not later than the
time prescribed by law (including extensions thereof) for filing the Company's
federal income tax return for its taxable year in or with which such Plan Year
ends.
4.5. Return of Contributions. If an Elective Contribution,
Matching Contribution or Profit-Sharing Contribution to the Trust is :
(a) made by reason of a good faith mistake of fact, or
(b) believed by the Company in good faith to be deductible under Code
Section 404, but the deduction is disallowed, the Trustee shall, upon request by
the Company, return to the Company the excess of the amount contributed over the
amount, if any, that would have been contributed had there not occurred a
mistake of fact or a mistake in determining the deduction. For purposes of this
Section, all contributions made to the Plan by the Employer are made conditioned
upon their deductibility under Code Section 404 unless the Company specifies to
the contrary in a Board of Directors Resolution (or document of similar import)
prior to making the contribution. Such excess shall be reduced by amounts
attributable thereto which have been credited to the Accounts of Participants
who have since received distributions from the Trust, except to the extent such
amounts continue to be credited to such Participants' Accounts at the time the
excess is returned to the Company. Such excess shall also be reduced by the
losses of the Trust attributable thereto, if and to the extent such losses
exceed the gains and income attributable thereto. In no event shall the return
of a contribution hereunder cause any Participants' Accounts to be reduced to
less than they would have been had the mistaken or nondeductible amount not been
contributed. No return of a contribution hereunder shall be made more than one
year after the mistaken payment of the contributions, or disallowance of the
deduction, as the case may be.
4.6. Nondiscrimination Requirements.
(a) Effective January 1, 1997, Elective Contributions for any Plan
Year must satisfy at least one of the following tests: (i) The
average of the Deferral Ratios for the Plan Year for all
Highly Compensated Participants does not
exceed 125 percent of the average of the Deferral Ratios for the
preceding Plan Year for all other Participants; or (ii) The
excess of the average of the Deferral Ratios for all Highly
Compensated Participants for the Plan Year
over that for all other Participants for the preceding Plan Year does not exceed
two percentage points, and the average of the Deferral Ratios for all Highly
Compensated Participants for the Plan Year does not exceed twice the average of
the Deferral Ratios for all other Participants for the preceding Plan Year.
(b) Matching Contributions for any Plan Year must satisfy at least one
of the following tests:
(i) the average of the Contribution Ratios for the Plan Year
for all Highly Compensated Participants for the Plan Year does not exceed 125
percent of the average of the Contribution Ratios for all other Participants for
the preceding Plan Year; or
(ii) The excess of the average of the Contribution Ratios for
all Highly Compensated Participants for the Plan Year over that for all other
Participants for the preceding Plan Year does not exceed two percentage points,
and the average of the Contributions Ratios for all Highly Compensated
Participants for the Plan Year does not exceed twice the average of the
Contribution Ratios for all other Participants for the preceding Plan Year
(except that this clause (ii) shall not apply if and to the extent regulations
provide that it cannot apply).
(c) Sections 4.6(a) and 4.6(b) above shall be applied in accordance
with, and interpreted in a manner consistent with, Code Sections 401(k)(3) and
401(m)(2), respectively, and the regulations under each, all of which are hereby
incorporated by reference into this Plan.
The tests described in those sections shall be performed in compliance
with the multiple use limitation as set forth in 401(m)(9) and regulations
thereunder.
4.7. Adjustments by Committee.
(a) The Committee may, in its sole discretion, decrease the amount of
the Elective Contributions to be made for the benefit of any Participant, and
pay the amount of the decrease to the Participant in cash, if the Committee
deems such a decrease to be necessary in order to satisfy one or more of the
following:
(i) the applicable dollar limitation in Code Section 402
(g)(1) (as increased from time to time under Code Section 402(g)(5));
(ii) the nondiscrimination requirement of Section 4.6; or
(iii) the limitations described in Section 4.10. If the
Committee decreases any Elective Contributions in order to meet the
nondiscrimination requirement of Section 4.6, subject to applicable regulations
such decrease shall be made first in the Elective Contributions for the Highly
Compensated Participants whose Elective Contributions represent the highest
dollar amount for the Plan Year, so that no reduction is made in the Elective
Contributions for any Highly Compensated Participant as long as any other Highly
Compensated Participant has a higher dollar amount of Elective Contribution to
Compensation for the Plan Year.
(b) The Committee may, in its sole discretion, decrease the amount of
Matching Contributions to be made for the benefit of Highly Compensated
Participants if the Committee deems such decrease to be necessary in order to
satisfy the nondiscrimination requirement of Section 4.6(b). Any such decrease
shall be made only after any adjustments under Sections 4.7(a) or 4.11 have been
made. Any decrease in Matching Contributions in order to satisfy Section 4.6(b)
shall be made first in the Matching Contributions for the Highly Compensated
Participants whose Matching Contributions represent the highest dollar amount
for the Plan Year, so that no reduction is made in the Matching Contribution for
any Highly Compensated Participant as long as any other Highly Compensated
Participant has a higher dollar amount of Matching Contribution to Compensation
for the Plan Year. If Elective Contributions are taken into account under
Section 4.6(b) in order to satisfy either Sections 4.6(b)(i) or 4.6(b)(ii), then
such Elective Contributions shall be proportionately reduced along with the
Matching Contributions to the extent the Committee deems necessary in order to
satisfy Section 4.6(b).
4.8. Distribution of Excess Contributions and Excess Aggregate
Contributions. If after all contributions for a Plan Year have been made, the
nondiscrimination requirements of Section 4.6 have not been satisfied for the
Plan Year, the Committee shall, as soon as practicable (but in no event later
than the close of the following Plan Year), distribute the excess contributions
and excess aggregate contributions (and income allocable to such excess) to
Highly Compensated Participants, in accordance with Code Sections 401(k)(8) and
401(m)(6) and regulations thereunder, to the extent necessary to satisfy Section
4.6. If there has been a net investment loss instead of income allocable to the
excess contributions or excess aggregate contributions, the amount of excess to
be distributed hereunder shall not be reduced by such loss except to the extent
permitted by Code Sections 401(k)(8) or 401(m)(6) or regulations thereunder.
4.9. Distribution of Excess Deferrals. If, on or before March 1 of any
year, a Participant notifies the Committee, in accordance with Code Section
402(g)(2)(A) and regulations thereunder, that all or a specified part of an
Elective Contribution made or to be made for his benefit represents an excess
deferral for the preceding taxable year of the Participant, the Committee shall
make every reasonable effort to cause such excess deferral to be distributed (in
accordance with Code Section 402(g)(2)(A) and regulations thereunder) to the
Participant no later than the April 15 following such notification. Except to
the extent otherwise provided in regulations, any amount paid to the Trust and
distributed under this Section 4.9 shall be taken into account in applying the
nondiscrimination tests in Section 4.6, the adjustments under Section 4.7, and
the distributions under Section 4.8 as if it had not been distributed, except
that any decrease in the Elective Contribution for a Participant under Section
4.7 or distribution of an excess Elective Contribution to a Participant under
Section 4.8 shall be reduced by the amount of any distribution to the
Participant under this Section 4.9.
4.10.Other Limitations.Notwithstanding any other provisions of the Plan,
(a) the total contributions to be made under the Plan for any Plan Year
shall not exceed the maximum amount deductible under the applicable provisions
of the Code (all such contributions being hereby conditioned on their
deductibility under Code Section 404), and
(b) the Annual Addition to a Participant's Accounts under the Plan for
any Limitation Year, when added to the annual additions to his accounts for such
Year under all other defined contribution plans maintained by the Company or any
Affiliated Company, shall not exceed the lesser of
(i) $30,000 (or, if greater, one-fourth of the limitation
in effect for the Limitation Year under Code Section 415(b)(1)(A)), or
(ii) twenty-five percent (25%) of the Participant's
Compensation for such Limitation Year. In the case of a Participant who also
participates in a defined benefit plan maintained by the Company or any
Affiliated Company, the Annual Addition for a Limitation Year will, if
necessary, be further limited so that the sum of the Participant's "defined
contribution fraction" (as determined under Code Section 415(e) and the
regulations thereunder, including any special transition rules) and his "defined
benefit plan fraction" (as determined under Code Section 415(e) and the
regulations thereunder) for such Limitation Year does not exceed 1.0.
4.11. Order of Adjustments to Satisfy Limitations. To the extent
necessary to satisfy the limitations of Section 4.10 for any Participant, the
Participant's Annual Addition under this Plan shall be reduced before any
reduction in his annual addition under any other defined contribution plan or
his benefit under any defined benefit plan. The Participant's Annual Addition
under this Plan shall be disposed of as follows:
(a) If the Participant is covered by the Plan at the end of the
Limitation Year, the excess amount in the Participant's Accounts will be used to
reduce Matching Contributions and Profit-Sharing Contributions (including any
allocation of forfeitures) for such Participant in the next Limitation Year, and
each succeeding Limitation Year if necessary.
(b) If the Participant is not covered by the Plan at the end of the
Limitation Year, the excess amount will be held unallocated in a suspense
account. The suspense account will be applied to reduce future Matching
Contributions and Profit-Sharing Contributions (including allocation of any
forfeitures) for all remaining Participants in the next Limitation Year, and
each succeeding Limitation Year if necessary. If a suspense account is in
existence at any time during the Limitation Year pursuant to this Section
4.11(b), it will not participate in the allocation of the Trust's investment
gains and losses.
4.12. Rollover of Amount Distributed From Another Qualified Plan. An
Employee who was formerly a participant in a plan described in Code Section
401(a) (the "distributing plan") and who has received an eligible rollover
distribution (as defined in Section 7.12(b)) from the distributing plan (the
"distribution") may contribute to the Trust an amount determined under (c) below
(the "rollover amount") provided the conditions set forth in (a) or (b) below
are satisfied.
(a) The distribution is a direct transfer from another qualified plan
to this Plan; or (b) The distribution must be made to the Employee
either:
(i) within one taxable year of the Employee, and on account of
a termination of the distributing plan or, in the case of a profit-sharing or
stock bonus plan, a complete discontinuance of contributions under the plan, or
(ii) in one or more distributions which constitute a lump sum
distribution within the meaning of Code Section 402(e)(4).
And, the rollover amount must be contributed to the Trust on
or before the 60th day following the Employee's receipt of the distribution from
the distributing plan.
(c) The rollover amount:
(i) must not exceed the fair market value of the distribution,
reduced by the amount contributed to the distributing plan by the Employee, as
determined in accordance with Code Section 72(f) and the Treasury regulations
thereunder, such amount to be reduced by any amounts theretofore distributed to
the Employee which were not includible in his gross income for Federal income
tax purposes, and
(ii) must include no property other than (A) money received in
the distribution, and (B) money attributable to other property received in the
distribution which is sold and the proceeds of which are rolled over pursuant to
Code Section 402(a)(6)(D).
4.13. Transfer of Amount Distributed From a Rollover IRA.
(a) An Employee who has received a distribution meeting the
requirements of Section 4.12(a), and who subsequently deposited such
distribution in an individual retirement account, as defined in Code Section
408, in accordance with Code Section 408(d)(3)(A)(ii), may contribute a
distribution from such account (the "rollover amount") to the Trust provided the
conditions set forth in (b) and (c) are satisfied.
(b) The rollover amount must be contributed to the Trust on or before
the 60th day following the Employee's receipt of the amount from the individual
retirement account.
(c) The distribution from the individual retirement account must
consist of the entire amount in the account, and must include no amount
attributable to any source other than a qualified plan described in Code Section
401(a).
4.14. Monitoring of Rollovers. The Committee shall establish such
procedures and require such information from employees as it deems necessary to
insure that amounts rolled over under Sections 4.12 or 4.13 satisfy the
requirements for tax-free rollovers established by conditions of such Sections
and the Code and Treasury regulations. No amount may be rolled over under
Sections 4.12 or 4.13 until approved by the Committee.
4.15. Treatment of Rollover Amount Under the Plan.
(a) The Committee will establish a Rollover Account for each
Employee making a contribution described in Section 4.12 or 4.13 above.
(b) The Employee will at all times have a fully vested and
nonforfeitable interest in the amount credited to his Rollover Account.
(c) Distributions will be made to the Employee in accordance with
Articles 6 and 7.
(d) An Employee who contributes an amount to the Plan in accordance
with Section 4.12 or 4.13 will not become a Participant until he has satisfied
the requirements of Article 3. However, effective August 1, 1995, such an
Employee will be treated as a Participant, with respect to his interest in his
Rollover Account, for purposes of Articles 6, 7, 8, 9, 10, 12 and 13.
4.16. Military Service. Effective December 12, 1994, notwithstanding
any provision in this Plan to the contrary, contributions, benefits and service
will be provided in accordance with Section 414(u) of the Code.
<PAGE>
ARTICLE 5
PARTICIPANT ACCOUNTS
5.1. Accounts. The Committee will establish and maintain (or cause the
Trustee to establish and maintain) for each Participant an Elective Contribution
Account, a Matching Contribution Account, a Profit-Sharing Contribution Account,
a Rollover Account (if applicable) and such other accounts and subaccounts as
the Committee or the Trustees, as the case may be, in their discretion deem
appropriate.
The Plan Administrator shall establish an ESOP Cash Account and ESOP
Stock Account with respect to each participant in the ESOP immediately before
the Merger. The sum of a Participant's ESOP Cash Account and ESOP Stock Account
immediately after the merger shall not be less than such Participant's account
under the ESOP immediately preceding the Merger. The Plan Administrator shall
maintain a record of the balance in each such account as of the Merger Date.
5.2. Adjustment of Accounts. With respect to the Accounts
established under Section 5.1, the Committee or Trustees, as the case may be,
shall, as of each Valuation Date,
(a) First, reduce the balance of each such Account by the aggregate
amount of all distributions or withdrawals made from each such Account since the
preceding Valuation Date;
(b) Second, adjust the balance of each such Account to reflect the
current fair market value of the assets in which such Accounts are invested; and
(c) Third, allocate to and credit each Participant's Elective
Contribution Account with any Elective Contributions, each Participant's
Matching Contribution Account with any Matching Contributions, and each
Participant's Profit-Sharing Contribution Account with any Profit-Sharing
Contributions which are to be credited as of such Valuation Date. Any Matching
Contributions shall be allocated among and credited to the Matching Contribution
Accounts of Participants entitled to share in the Matching Contribution pursuant
to the Matching Contribution percentage formula determined by the Company under
Section 4.2. Any Profit-Sharing Contributions shall be allocated among and
credited to the Profit-Sharing Contribution Accounts of Participants entitled to
share in the Profit-Sharing Contribution in proportion to their respective
amounts of Compensation for that portion of the Plan Year during which they were
Participants.
5.3. Vesting of Accounts.
(a) A Participant will at all times have a nonforfeitable interest in
100% of his Elective Contribution Account, and, if applicable, his Rollover
Account.
At any point in time (but subject to any acceleration of
vesting under Sections 7.1, 7.3, 7.4, 10.3 or 11.3) a Participant will have a
nonforfeitable interest in a percentage of his Company Contribution Account
determined in accordance with the following schedule and based on his completed
Years of Service:
Applicable Vesting
Years of Service Percentage
1 20%
2 40%
3 60%
4 80%
5 100%
Notwithstanding the preceding sentences, a Participant's nonforfeitable
percentage in his ESOP Cash Account and ESOP Stock Account as of the Merger Date
shall not be less than the Participant's nonforfeitable percentage interest in
his account under the ESOP immediately preceding the Merger Date.
5.4. Election of Former Vesting Schedule. If the Plan is amended at any
time and such amendment directly or indirectly affects the computation of a
Participant's rights to his Accounts, each Participant who has completed three
Years of Vesting Service prior to the expiration of the election period
described below and whose nonforfeitable percentage at any time after such
amendment could be less than such percentage determined without regard to such
amendment may elect during the election period to have the nonforfeitable
percentage of his Accounts determined without regard to such amendment. The
election period referred to in the preceding sentence will begin on the date the
amendment of the vesting schedule is adopted and will end 60 days after the
latest of the following dates:
(a) the date on which such amendment is adopted;
(b) the date on which such amendment becomes effective; and
(c) the date on which the Participant is issued written notice of such
amendment by the Committee. An election under this Section 5.4 may be made only
by an individual who is a Participant at the time such election is made and once
made shall be irrevocable.
<PAGE>
ARTICLE 6
IN-SERVICE WITHDRAWALS
6.1. General Limit. The minimum withdrawal amount shall be $1000.
6.2. Withdrawals After Age 59-1/2. any Participant who is an Employee
and has attained age 59-1/2 or his Normal Retirement Date may withdraw all or a
part of his Accounts by written notice to the Committee. Such notice shall be
made at least 30 days (or such shorter period established by the Committee)
before the proposed withdrawal date. Distribution to the Participant shall be
made from the Trust as soon as reasonably practicable after, and based on the
value of Accounts determined as of the Valuation Date coinciding with or next
following the receipt of such notice.
6.3. Hardship Withdrawals from Company Contribution Accounts. A
Participant's Company Contribution Account, other than the ESOP Stock Account,
shall be eligible for hardship withdrawals under this Section. [Prior to January
1, 1995, accounts eligible for hardship withdrawals under this Section included
a Participant's Matching Contribution Account and Profit Sharing Contribution
Account.] A Participant who is in the employ of the Company may, subject to
Section 6.1, withdraw all or a part of the vested portion of his eligible
Accounts, by filing a written request with the Plan Administrator at least 30
days (or such shorter period as may be prescribed by the Plan Administrator)
before the proposed withdrawal date, provided the Plan Administrator determines
that such withdrawal is being made for one of the following reasons:
(a) To pay all or a portion of the cost of purchase, construction,
improvement or preservation of a house occupied or to be occupied by the
Participant;
(b) To pay all or a portion of the cost of education of the Participant
or any of his dependents; (c) To pay all or a portion of any unusual
expense incurred by the Participant because of illness, accident or
disability of the Participant or any of his dependents; or
(d) To meet any severe and undue financial hardship of the
Participant or any of his dependents.
6.4. Hardship Withdrawals From Salary Reduction Accounts. A Participant
who is in the employ of the Company may, subject to Section 6. 1, withdraw all
or a part of his Elective Contribution Account (excluding any income accrued
after 1988) by filing a written request with the Plan Administrator at least 30
days (or such shorter period as may be prescribed by the Plan Administrator)
before the proposed withdrawal date, provided the Plan Administrator determines
that such withdrawal is being made due to a hardship of the Participant. For
purposes of this Section, hardship is defined as an immediate and heavy
financial need of the Participant where the Participant lacks other available
recourse. Hardship distributions are subject to the Spousal consent requirements
contained in Section 401(a)(11) and 417 of the Code. The following are the only
financial needs considered immediate and heavy: (1) deductible medical expenses
(within the meaning of Section 213(d) of the Code) of the Participant, the
Participant's Spouse's, children, or dependents; (2) the purchase (excluding
mortgage payments) of a principal residence for the Participant; (3) payment of
tuition for the next quarter or semester of post-secondary education for the
Participant, the Participant's Spouse, children or dependents; or (4) the need
to prevent the revocation of the Participant from, or a foreclosure on the
mortgage of, the Participant's principal residence. A distribution shall be
considered as necessary to satisfy an immediate and heavy financial need of the
Participant only if:
(a) The Participant has obtained all distributions, other than hardship
distributions, and all nontaxable loans under all plans maintained by the
Company;
(b) All plans maintained by the Company provide that the employee's
Elective Deferrals (and Employee Contributions) shall be suspended for 12 months
after the receipt of the hardship distribution;
(c) The distribution is not in excess of the amount of an immediate and
heavy financial need; and (d) All plans maintained by the Company
provide that the participant may not make elective Contributions for
the
participant's taxable year immediately following the taxable year of the
hardship distribution in excess of the applicable limit, under Section 402(g) of
the Code for such taxable year less the amount of such Participant's Elective
Contributions for the taxable year of the hardship distribution.
6.5. Withdrawals From Rollover Contribution Accounts. A Participant who
is in the employ of the Company may, subject to Section 6. 1, withdraw all or a
part of his Rollover contribution Account by filing a written request with the
Plan Administrator at least 30 days (or such shorter period as may be prescribed
by the Plan Administrator) before the proposed withdrawal date.
6.6. Procedure for Making Withdrawals. Any request for withdrawal under
this Article shall be filed with the Plan Administrator on such forms as the
Plan Administrator may provide and shall specify the account from which such
withdrawal is being made (other than the ESOP Stock Account) and the value to be
withdrawn in terms of dollars or percentage of account value. If the
Participant's accounts are invested in more than one investment fund, the
Participant shall also specify on such request what portion of his withdrawal is
to be charged against each such investment fund. Each withdrawal shall be
charged against the applicable account as of the date such withdrawals made. Any
withdrawal with respect to assets held under a Group Annuity Policy shall be
subject to such restrictions as may be contained under the terms of the Group
Annuity Policy with respect to the withdrawal of funds thereunder.
6.7. Non-forfeiture Provision. In no event shall any withdrawal made by
a Participant pursuant to the provisions of this Article result in the
forfeiture of such Participant's vested interest under the Plan.
6.8. Special Vesting Provision. If a Participant makes a withdrawal
under this Article from his Company Contribution Account at a time when he is
less than fully vested in such account, the nonforfeitable portion of such
account following such withdrawal shall be calculated by first adding back the
amount of such withdrawals to the balance of such account before applying the
Participant's vested percentage and then deducting the amount of all such
withdrawal from the product of such application.
6.9. Frequency of Withdrawal. Hardship withdrawals may be made on a
monthly basis. The frequency of other withdrawals under this Article shall be as
prescribed by the Plan Administrator pursuant to a uniform, non-discriminatory
policy.
6.10. Restriction for Loans. The portion of the Participant's accounts
available for withdrawal under this Article shall be reduced by the portion of
his accounts assigned as collateral to secure any loan to the Participant under
Article 6.
6.11. Required Distributions After Age 70-1/2. Effective January 1,
1997, notwithstanding any provision of this Plan to the contrary, a Participant
who is a 5-percent owner (as defined in Code Section 416(i)(1), who has attained
age 70-1/2 and is an Employee on the last business day of a calendar year will
be deemed to request a withdrawal of, and will receive from the Trust on such
day, an amount which is necessary to satisfy the minimum required distribution
rules under Code Section 401(a)(9) and the regulations thereunder with respect
to the Participant for that year.
6.12. Distributions Required by a Qualified Domestic Relations Order.
To the extent required by a Qualified Domestic Relations Order, the Trustees
shall make distributions from a Participant's Accounts in a single sum cash
payment to alternate payees named in such Order, regardless of whether the
Participant is otherwise entitled to a distribution at such time under the Plan.
<PAGE>
ARTICLE 7
DISTRIBUTIONS
7.1. Normal Retirement. A Participant who leaves the employ of the
Company on his Normal Retirement Date will be considered to have retired
normally from the Company under the Plan and will receive the value of his
Accounts determined as of the Valuation Date coinciding with or immediately
following his Normal Retirement Date. Distribution to the Participant will
commence no later than sixty (60) days following the close of the Plan Year in
which the retirement occurred.
7.2. Other Termination of Employment. If a Participant's employment
with the Company is terminated for any reason other than normal retirement,
Total and Permanent Disability (as defined in Section 7.3) or death, he shall be
entitled to receive the value of the vested portion of his Accounts as
determined under Section 5.3, as of the Valuation Date coinciding with or
immediately following the date of his termination of employment. Distribution to
the Participant will commence as soon as reasonably practicable following his
termination of employment, but in no event later than sixty (60) days following
the close of the Plan Year in which such termination of employment occurred,
except that in the case of a Participant entitled to a distribution in excess of
$5,000, distribution will not be made prior to the date the Participant attains
age 65 without his written consent. The Accounts of any such former Participant
who withholds his consent shall, until distributed, continue to be adjusted as
of each Valuation Date under Section 5.2(b) to reflect the income and expenses
and investment gains or losses attributable to such Accounts, and the former
Participant will be entitled to the value of such Accounts, as of the Valuation
Date coinciding with or immediately following the earlier of:
(a) the date the Participant consents in writing to a distribution, and
(b) the date the Participant attains age 65.
7.3. Disability Benefits. If a Participant terminates his employment
with the Company before his Normal Retirement Date because of his "Total and
Permanent Disability," he shall be entitled to receive the total amount held in
all his Accounts under the Plan. The Trustee shall distribute such amounts to
the Participant in accordance with the provisions of Section 7.6. For purposes
of this Article 7, "Total and Permanent Disability" shall mean a physical or
mental disorder or disease which (1) renders the Participant incapable of
performing his usual duties for the Company, and (2) can be expected to result
in death or to last for a continuous period of not less than twelve months. The
Total and Permanent Disability of a Participant and the cessation of such
disability shall be determined by the Plan Administrator in accordance with
uniform principles consistently applied, upon the basis of such medical evidence
as the Plan Administrator deems necessary and desirable.
7.4. Death. If a Participant or a former Participant dies before the
distribution of his Accounts has been made on account of his termination of
employment, his designated Beneficiary will be entitled to receive the value of
his Accounts, as of the Valuation Date coinciding with or immediately following
his death. Distribution to a Beneficiary will commence as soon as reasonably
practicable following the applicable Valuation Date, subject to Sections 7.9 and
7.10 below.
A Participant may designate a Beneficiary or change a prior designation
of a Beneficiary by giving notice to the Committee on a form approved by the
Committee; provided however, that if a Participant was married at the time of
his death, he shall be deemed to have designated his surviving spouse as his
beneficiary unless;
(a) his surviving spouse, witnessed by a Plan representative or notary
public, consented to and acknowledged the effect of the designation of the
specific non-spouse Beneficiary (including any class of Beneficiaries or any
contingent Beneficiaries) in a written form approved by the Committee;
(b) his surviving spouse, in a written consent and acknowledgment form
described in (a) above, had expressly permitted future designations by the
Participant without any requirement of future consent; or
(c) it is established to the satisfaction of the Committee that the
consent required under (a) above may not be obtained because there is no spouse,
because the spouse cannot be located, or because of such other circumstances as
the Secretary of the Treasury may prescribe.
Any consent and acknowledgment by a spouse described above, or the
establishment that the consent and acknowledgment cannot be obtained, shall be
effective only with respect to such spouse, but shall be irrevocable once made.
If a Participant dies without a surviving Beneficiary, his Beneficiary
shall be deemed to be his surviving spouse or, if none, his estate.
7.5. Latest Payment of Certain Benefits. In no event will the payment
of benefits to a Participant commence later than the 60th day after the latest
of the following:
(a) the close of the Plan Year in which the Participant attains age 65;
(b) the close of the Plan Year in which occurs the tenth anniversary of
the year in which the Participant commenced participation in the Plan, and
(c) the close of the Plan Year in which the Participant's employment
with the Company terminates. In addition and notwithstanding anything in the
Plan to the contrary, any distribution to a former Participant who terminates
his employment after attaining age 70-1/2 shall also satisfy the minimum
required distribution rules, under Code Section 401(a)(9) and the regulations
thereunder with respect to the former Participant for the year of termination.
7.6. Method of Payment. Any benefits payable under the Plan to a
Participant who has retired or terminated employment for any reason other than
death shall be distributed to the Participant as follows: (1) if the value of
his Vested Account Balance does not exceed $5,000, the distribution shall be in
a lump sum payment; (2) if the value of his Vested Account Balance exceeds
$5,000, the distribution shall, at the election of the Participant and with
Spousal consent, where applicable, be in any one or a combination of the methods
of payment set forth below:
(a) By lump sum payment;
(b) By the purchase of a non-transferable annuity payable over the life
of the Participant or the joint lives of the Participant and a designated
individual. The terms of any such annuity contract purchased and distributed by
the Plan to a Participant or Spouse shall comply with the requirements of the
Plan;
(c) By the payment of installments over a period certain not extending
beyond the life expectancy of the Participant or the joint life expectancy of
the Participant and a designated individual; such payments to be made directly
from the Plan or by the purchase of a non-transferable period certain annuity.
The terms of such annuity contract purchased and distributed by the Plan to a
Participant or Spouse shall comply with the requirements of the Plan.
(d) By the transfer to the Participant of any Policy on his life; or
(e) By the surrender of any Policy on the Participant's life for its
cash value and the distribution of such cash value in accordance with (a) or (c)
above.
A Participant shall have the right to demand a distribution in the form
of Company Stock with respect to the Participant's (i) shares in his ESOP Stock
Account and (ii) the lesser of the current value of his ESOP Cash Account or the
portion of his ESOP Cash Account equal to the value of his ESOP Cash Account as
of the Merger Date.
7.7. Forfeitures.
(a) General. If the employment of a Participant is terminated for a
reason other than normal or disability retirement, at a time when he is less
than fully vested in his Company Contribution Account and has not made any
Elective Contributions, the non-vested portion of such accounts shall be
forfeited as follows:
(i) If the Participant receives a distribution of his entire
vested benefit, the non-vested portion shall be forfeited as of the date of such
distribution.
(ii) If the Participant receives a distribution which is less
than his entire vested benefit, part of the non-vested portion shall be
forfeited as of the date of such distribution; the amount of such forfeiture as
of the date of such distribution; the amount of such forfeiture to be based on a
fraction the numerator of which is the amount of the distribution attributable
to Company Contributions, the denominator of which is the total amount of his
vested Company derived account balances. The remaining non-vested portion shall
be forfeited as of the last day of the Plan Year in which the Participant
sustains a five-year Break in Service.
(iii) If the Participant has no vested interest in his Company
Contribution Account, he shall be deemed to have received his entire vested
benefit and the entire account shall be forfeited as of the date of his
termination of employment with the Company.
(iv) If the distribution of the Participant's vested benefit
is deferred, the non-vested portion shall be forfeited as of the last day of the
Plan Year in which he sustains a five-year Break in Service, or if earlier, when
he receives a distribution as prescribed in (i) or (ii) above.
If a Participant forfeits a portion of his accounts derived from
Employer Contribution Accounts, the ESOP Cash Account and ESOP Stock Account
shall be treated as a single account and any forfeiture shall first be charged
against the ESOP Cash Account and then the ESOP Stock Account.
(b) Restoration of Account. If a Participant who has received a
distribution of all or a portion of his vested benefit is subsequently
reemployed, he may at any time following his reemployment but before the earlier
of (1) 5 years after his date of reemployment or (2) the date he sustains a
five-year Break in Service following the date of distribution, repay the full
amount of his distribution attributable to Company Contributions and thereupon
have his Company derived Account balance fully restored to the amount on the
date of his distribution. Such restoration shall be made as of the date of
repayment by the Participant, but assets for the restored account balance need
not be provided until the last day of the Plan Year following the Plan Year in
which the repayment occurs. Such restoration shall, at the Company's sole
discretion, be made from the income or gain of the Plan for the Plan Year in
which the restoration is to be made or forfeiture occurring in such Plan Year,
or by a special Company contribution. If forfeitures are allocated to
Participants, any such restoration from forfeitures shall be made prior to such
allocation. If a Participant who is deemed to have received his vested interest
in his Company Contribution Account when he terminated employment is
subsequently reemployed before he sustains a five-year Break in Service, his
Company Contribution Account shall be fully restored to the amount on the date
of the deemed distribution.
(c) Separate Accounts. If a Participant who has terminated his
employment at a time when he is less than fully vested in his Company
Contribution Account sustains a five-year Break in Service, and his is
subsequently reemployed by the Company without receiving payment of the entire
nonforfeitable portion of such account, a separate Company Account shall be
established to receive his share of Company Contributions and forfeitures, if
applicable, allocated to him following such reemployment. Upon his subsequent
termination of employment, his nonforfeitable portion shall be determined
separately with respect to such account.
(d) Forfeitures. Any forfeitures under this Section 7.7 occurring in a
Plan Year
(i) first will be applied to the restoration of any Accounts
as required for such Plan Year in this Section 7.7; (ii) to
the extent amounts remain after the application of (a) above,
will be applied against Matching
Contributions for the Plan Year in which the forfeitures occurred;
(iii) to the extent amounts remain after the application of
(a) and (b) above, will be credited as a Profit-Sharing Contribution for all
Participants.
7.8. Commencement of Benefits. Any benefits payable to a Participant
pursuant to this Article shall commence as soon as administratively practicable
following his retirement or termination of employment.
7.9. Restriction of Early Distributions. Notwithstanding any other
provision of the Plan to the contrary, Elective contributions and income
attributable thereto, shall not be distributed to Participants or their
Beneficiaries unless one of the following events occurs:
(a) Termination of the Plan without the establishment of another
defined contribution plan;
(b) The disposition by a corporation to an unrelated corporation of
substantially all of the assets (within the meaning of Section 409(d)(2) of the
Code) used in a trade or business of such corporation if such corporation
continues to maintain this Plan after the disposition, but only with respect to
Employees who continue employment with the corporation acquiring such assets;
(c) The disposition by a corporation to an unrelated entity of such
corporation's interest in a subsidiary (within the meaning of Section 409(d)(3)
of the Code) if such corporation continues to maintain this Plan, but only with
respect to Employees who continue employment with such subsidiary;
(d) The participant's attainment of age 59-1/2;
(e) The hardship of the Participant in accordance with Article VI and
applicable Regulations; or (f) The separation from service, death or
total and permanent disability of the Participant. 7.10. Minimum
Distribution Requirements. The provisions contained in this Article
shall apply to any distribution of a
Participant's interest and shall take precedence over any inconsistent
provisions of this Plan. Definitions of terms for this Section appear in Section
7.10(e).
(a) General Rules and Required Beginning Date. All distributions
required under this Article shall be determined and made in accordance with the
Income Tax Regulations under Section 401(a)(9), including the minimum
distribution incidental benefit requirement of Section 1.401(a)(9)-2 of the
Regulations. The entire interest of a Participant shall be distributed or begin
to be distributed no later than the Participant's Required Beginning Date.
(b) Limits on Distribution Periods. As of the first Distribution
Calendar Year, distributions, if not made in a single-sum, may only be made over
one of the following periods (or a combination thereof):
(i) The life of the Participant;
(ii) The life of the Participant and a designated Beneficiary;
(iii) A period certain not extending beyond the life
expectancy of the Participant; or
(iv) A period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated Beneficiary.
(c) Determination of Amount to be Distributed Each Year. If the
Participant's interest is to be distributed in other than a single sum, the
following minimum distribution rules shall apply on or after the Required
Beginning Date:
(i) If a Participant's benefit is to be distributed over (1) a
period not extending beyond the life expectancy of the Participant or the joint
life and last survivor expectancy of the Participant and the Participant's
designated Beneficiary or (2) a period not extending beyond the life expectancy
of the designated Beneficiary, the amount required to be distributed for each
calendar year, beginning with distributions for the first Distribution Calendar
Year, must at least equal the quotient obtained by dividing the Participant's
benefit by the applicable life expectancy.
(ii) For calendar years beginning before January 1, 1989, if
the Participant's Spouse is not the designated Beneficiary, the method of
distribution selected must assure that at least 50% of the present value of the
amount available for distribution is paid within the life expectancy of the
Participant.
(iii) For calendar years beginning after December 31, 1988,
the amount to be distributed each year, beginning with distributions for the
first Distribution Calendar Year shall not be less than the quotient obtained by
dividing the Participant's benefit by the lesser of (1) the applicable life
expectancy or (2) if the Participant's Spouse is not the designated beneficiary,
the applicable divisor determined from the table set forth in Q&A-4 of Section
1.401(a)(9)-2 of the Income Tax Regulations. Distributions after the death of
the Participant shall be distributed using the applicable life expectancy in
subsection (a) above as the relevant divisor without regard to regulations
Section 1.301(a)(9)-2.
(iv) The minimum distribution required for the Participant's
first Distribution Calendar Year must be made on or before the Participant's
Required Beginning Date. The minimum distribution for other calendar years,
including the minimum distribution for the Distribution Calendar Year in which
the Employee's Required Beginning Date occurs, must be made on or before
December 31 of that Distribution Calendar Year.
(v) If the Participant's benefit is distributed in the form of
an annuity purchased from an insurance company, distributions thereunder shall
be made in accordance with the requirements of Section 401(a(9) of the Code and
the Regulations thereunder.
(d) Death Distribution Provision. If the Participant dies after
distribution of his interest has begun, the remaining portion of such interest
shall continue to be distributed at least as rapidly as under the method of
distribution being used prior to the Participant's death. If the Participant
dies before distribution of his interest begins, distribution of the
Participant's entire interest shall be completed by December 31 of the calendar
year containing the fifth anniversary of the Participant's death except to the
extent that an election is made to receive distributions in accordance with (i)
or (ii) below:
(i) If any portion of the Participant's interest is payable to
a designated Beneficiary, distributions may be made over the life or over a
period certain not greater than the life expectancy of the designated
Beneficiary commencing on or before December 31 of the calendar year immediately
following the calendar year in which the Participant died;
(ii) If the designated Beneficiary is the Participant's
Surviving Spouse, the date distributions are required to begin in accordance
with (a) above shall not be earlier than the later of (1) December 31 of the
calendar year immediately following the calendar year in which the Participant
died and (2) December 31 of the calendar year in which the participant would
have attained age 70-1/2. If the Participant has not made an election pursuant
to this Section by the time of the Participant's death, the Participant's
designated Beneficiary must elect the method of Distribution no later than the
earlier of (1) December 31 of the calendar year in which distributions would be
required to begin under this Section, or (2) December 31 of the calendar year
which contains the 5th anniversary of the date of death of the Participant. If
the Participant has no designated Beneficiary, or if the Designated Beneficiary
does not elect a method of distribution, distribution of the Participant's
entire interest must be completed by December 31 of the calendar year containing
the 5th anniversary of the Participant's death. For purposes of this Section, if
the Surviving Spouse dies after the Participant, but before payments to such
Spouse begin, the provisions contained in this Section 7.10(d), except paragraph
(b) above and the third sentence above, shall be applied as if the Surviving
Spouse were the Participant. For purposes of this Section, any amount paid to a
child of the Participant shall be treated as if it had been paid to the
Surviving Spouse if the amount becomes payable to the Surviving Spouse when the
child reaches the age of majority. For purposes of this Section, distribution of
a Participant's interest is considered to begin on the Participant's Required
Beginning Date (or, if the surviving spouse dies after the Participant but
before payments to the Spouse begin, the date distribution is required to begin
to the Surviving Spouse as provided above). If distribution in the form of an
annuity irrevocably commences to the Participant before the Required Beginning
Date, the date distribution is considered to begin is the date distribution
actually commences.
(e) Definitions. For purposes of this Section 7.10., the following
terms shall be defined as follows: (i) "Applicable Life
Expectancy" shall mean the life expectancy (or joint and last
survivor expectancy)
calculated using the attained age of the Participant (or designated Beneficiary)
as of the Participant's (or designated Beneficiary's) birthday in the applicable
calendar year reduced by one for each calendar year which has elapsed since the
date life expectancy was first calculated. If life expectancy is being
recalculated, the Applicable Life Expectancy shall be the life expectancy as so
recalculated. The applicable calendar year shall be the first Distribution
Calendar Year, and if life expectancy is being recalculated, such succeeding
calendar year.
(ii) "Designated Beneficiary" shall mean the individual who is
designated as the Beneficiary under the Plan in accordance with Section
401(a)(9) and the Regulations thereunder.
(iii) "Distribution Calendar Year" shall mean a calendar year
for which a minimum distribution is required. For distributions beginning before
the Participant's death, the first Distribution Calendar Year is the calendar
year immediately preceding the calendar year which contains the Participant's
Required Beginning Date. For distribution beginning after the Participant's
death, the first Distribution Calendar Year is the calendar year in which
distributions are required to begin pursuant to Section 7.10(d).
(iv) "Life Expectancy". Life expectancy and joint and last
survivor expectancy are computed by use of the expected return multiples in
Tables V and VI of Section 1.72-99 of the Income Tax Regulations. Unless
otherwise elected by the Participant (or Spouse, in the case of distributions
described in Section 7.10(d)(ii)), by the time distributions are required to
begin, life expectancies shall be recalculated annually. Such election shall be
irrevocable as to the Participant (or Spouse) and shall apply to all subsequent
years. The life expectancy of a nonspouse Beneficiary may not be recalculated.
(v) "Participant's Benefit" shall mean the account balance as
of the last Valuation Date in the calendar year immediately preceding the
Distribution Calendar Year (Valuation Calendar Year), increased by the amount of
any contributions or forfeitures allocated to the account balance as of dates in
the Valuation Calendar Year after the Valuation Date, decreased by distributions
made in the valuation calendar year after the Valuation Date. For purposes of
this paragraph, if any portion of the minimum distribution for the first
Distribution Calendar Year is made in the second Distribution Calendar Year on
or before the Required Beginning Date, the amount of the minimum distribution
made in the second Distribution Calendar Year shall be treated as if it had been
made in the immediately preceding Distribution Calendar Year.
(vi) "Required Beginning Date". That the required beginning
date of a Participant who attains age 70-1/2 on or after January 1, 1998, shall
be determined in accordance with (A) or (B) below:
(A) The Required Beginning Date of a Participant
who is not a 5% owner shall be the first day of April of the calendar year
following the calendar year in which the later of retirement or attainment of
age 70-1/2 occurs.
(B) The Required Beginning Date of a Participant
who is a 5% owner shall be the first day of April following the calendar year in
which the Participant attains age 70-1/2.
A Participant shall be treated as a 5% owner for
purposes of this Section if he is a 5% owner as defined in Section 416(i) of the
Code (determined in accordance with Section 416 but without regard to whether
the Plan is Top-Heavy) at any time during the Plan Year ending with or within
the calendar year in which he attains age 66-1/2 or any subsequent Plan Year.
Once distributions have begun to a 5% owner under this Section, they shall
continue to be distributed, even if the Participant ceases to be a 5% owner in a
subsequent year.
(f) Transitional Rule for 5% Owners. Notwithstanding the foregoing
provisions of this Article, distribution on behalf of any Participant, including
a "5% owner," may be made in accordance with all of the following requirements
(regardless of when distribution commences):
(i) the distribution by the Plan is one which would not have
disqualified the Plan under Section 401(a)(9) of the Code as in effect prior to
amendment by the Deficit Reduction Act of 1984;
(ii) The distribution is in accordance with a method of
distribution designated by the Participant whose interest in the Plan is being
distributed or, if the Participant is deceased, by a Beneficiary of such
Employee.
(iii) Such designation was in writing, was signed by the
Participant or the Beneficiary, and was made before January 1, 1984.
(iv) The Participant had accrued a benefit under the Plan as
of December 31, 1983.
(v) The method of distribution designated by the Participant
or the Beneficiary specifies the time at which distribution will commence, the
period over which distributions will be made, and in the case of any
distribution upon the Participant's death, the Beneficiaries of the Participant
listed in order of priority. If a designation is revoked any subsequent
distribution must satisfy the requirements of Section 401(a)(9) of the Code and
the Proposed Regulations thereunder.
(vi) A distribution upon death will not be covered by this
transitional rule unless the information in the designation contains the
required information described above with respect to the distributions to be
made upon the death of the Employee.
(vii) For any distribution which commences before January 1,
1984, but continues after December 31, 1983, the Employee, or the Beneficiary,
to whom such distribution is being made, shall be presumed to have designated
the method of distribution under which the distribution is being made if the
method of distribution was specified in writing and the distribution satisfies
the requirements in subsections (a) and (e) above.
(viii) If a designation is revoked subsequent to the date
distributions are required to begin, the Trust must distribute by the end of the
calendar year following the calendar year in which the revocation occurs the
total amount not yet distributed to satisfy Section 401(a)(9) of the Code and
the Proposed Regulations thereunder, but for the Section 242(b)(2) election. For
calendar years beginning after December 31, 1988, such distributions must meet
the minimum distribution incidental benefit requirements in Section
1.401(a)(9)-2 of the Proposed Regulations. Any changes in the designation shall
be considered to be a revocation of the designation. However, the mere
substitution or addition of another beneficiary (one not named in the
designation) under the designation shall not be considered to be a revocation of
the designation, so long as such substitution or addition does not alter the
period over which distributions are to be made under the designation, directly
or indirectly (for example, by altering the relevant measuring life). In the
case in which an amount is transferred or rolled over from one plan to another
plan, the rules in Q&A J-2 and Q&A J-3 of the Proposed Regulations shall apply.
(g) Transitional Rule for Participants Who Are Not 5% Owners. Any
Participant, other than one who was or is a 5% owner, who is receiving minimum
distributions and has not yet had an event specified in Section 7.5, may by
written request to the Committee discontinue further minimum distributions. The
Committee shall have sixty (60) days after receipt to act upon any such request.
7.11. Benefit Payment Elections. Between 90 days and 30 days, before
the Participant's Normal Retirement Date, the Committee must provide a benefit
notice to a Participant who is eligible to make an election under this Section.
The benefit notice must explain the optional forms of benefit in the Plan,
including the material features and relative values of those options, and the
Participant's rights to defer distribution until he attains Normal Retirement
Age.
If a Participant or beneficiary makes an election prescribed by this
Section, the Committee will direct the Trustee to distribute the Participant's
Account balance in accordance with that election. Any election under this
Section 7.11 is subject to the requirements of Section 7.8, 7.9, and 7.10. The
Participant or Beneficiary must make an election under this Section 7.11 by
filing his election with the Committee at any time before the Trustee otherwise
would commence payment of a Participant's Account balance in accordance with the
requirements of this Article 7.
7.12. Direct Transfer of Eligible Rollover Distributions.
(a) Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Article VII, a
distributee may elect, at the time and in the manner prescribed by the
Committee, to have any portion of an "eligible rollover distribution" paid
directly to an "eligible retirement plan" specified by the distributee in a
"direct rollover".
(b) An "eligible rollover distribution" shall mean any distribution of
all or any portion of the balance to the credit of the distributee, except that
an eligible rollover distribution does not include: any distribution that is one
of a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Section 401(a)(9)
of the Code; and the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(c) An "eligible retirement plan" shall mean an individual retirement
account described in Section 408(a) of the Code, an individual retirement
annuity described in Section 408(b) of the Code, an annuity plan described in
Section 403(a) of the Code, or a qualified trust described in Section 401(a) of
the Code, that accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an individual retirement account or
individual retirement annuity.
(d) A "distributee" shall mean a Participant or former Participant. In
addition, the Participant's or former Participant's surviving spouse and the
Participant's or former Participant's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined in
Section 414(p) of the Code, are distributees with regard to the interest of the
spouse or former spouse.
(e) A "direct rollover" shall mean a payment by the Plan to the
eligible retirement plan specified by the distributee.
<PAGE>
ARTICLE 8
ADMINISTRATION
This Article 8 shall be effective as of January 30, 1996.
8.1. Plan Administrator and Committee. The Company shall be the "Plan
Administrator" and will be a "named fiduciary" for purposes of ERISA Section
402(a)(1) with authority to control and manage the operation and administration
of the Plan, and will be responsible for complying with all of the reporting and
disclosure requirements of Part 1 of Subtitle B of Title I of ERISA. However,
the Board of Directors of the Company may appoint a Retirement Plan
Administration Committee (the "Committee") consisting of as many Employees as
the Board may select and shall delegate to the Committee all of the Company's
powers and responsibilities as Plan Administrator and named fiduciary under the
Plan. Accordingly, for all purposes under this Plan "Plan Administrator" or
"named fiduciary" shall mean the Company or, if appointed, the Committee.
No person serving on the Committee will receive any compensation for
his services as a Committee member. The Committee will act by majority vote. An
individual serving on the Committee who is a Participant will not vote or act on
any matter relating solely to himself.
8.2. Powers of Plan Administrator. The Company and the Committee, if
appointed, will have full power and discretionary authority to administer the
Plan in all of its details, subject, however, to the requirements of ERISA. For
this purpose, the Company's, and if appointed, the Committee's power will
include, but will not be limited to, the following discretionary authority:
(a) to make and enforce such rules and regulations as it deems
necessary or proper for the efficient administration of the Plan or required to
comply with applicable law;
(b) to interpret the Plan, its interpretation thereof in good faith to
be final and conclusive on any Employee, former Employee, Participant, former
Participant and Beneficiary;
(c) to decide all questions concerning the Plan and the eligibility of
any person to participate in the Plan;
(d) to compute the amounts to be distributed to any Participant,
former Participant or Beneficiary in accordance with the provisions of the Plan,
and to determine the person or persons to whom such amounts will be distributed;
(e)to authorize the payment of distributions;
(f) to keep such records and submit such filings, elections,
applications, returns or other documents or forms as may be required under the
Code and applicable regulations, or under other federal, state or local law and
regulations;
(g) to allocate and delegate its ministerial duties and
responsibilities and to appoint such agents, counsel,accountants and consultants
as may be required or desired to assist in administering the Plan; and
(h) by written instrument, to allocate and delegate its fiduciary
responsibilities in accordance with ERISA Section 405.
(i) to employ and retain such attorneys, accountants, investment
advisors, consultants, specialists and other persons or forms to advise or
assist in the performance of its duties.
(j) to select, make available, review and change from time to time,
investment funds in which Participant's can direct the investment of their
Accounts, pursuant to Section 9.2.
8.3. Nondiscriminatory Exercise of Authority. Whenever, in the
administration of the Plan, any discretionary action by the Plan Administrator
is required, the Plan Administrator shall exercise its authority in a
nondiscriminatory manner so that all persons similarly situated will receive
substantially the same treatment. The Plan Administrator shall apply uniform
administrative rules of general application in order to assure similar treatment
to all persons in similar circumstances.
8.4. Reliance on Tables, etc. In administering the Plan, the Plan
Administrator will be entitled, to the extent permitted by law, to rely
conclusively on all tables, valuations, certificates, opinions and reports which
are furnished by any accountant, trustee, counsel or other expert who is
employed or engaged by the Plan Administrator or by the Company on the Plan
Administrator's behalf.
8.5. Claims and Review Procedures. Any person who thinks he is entitled
to a benefit under the Plan shall have the right to file with the Plan
Administrator a written notice of claim for such benefit. the Plan
Administrator, in its discretion, may request a meeting with the claimant to
clarify any matters it deems pertinent. Within 90 days after receipt of such
written notice of claim, the Plan Administrator shall either grant or deny such
claim. If there are special circumstances , a notice may be given to the
claimant that up to 90 additional days will be needed. In the event such claim
is a denied, the Plan Administrator shall give written notice to the claimant
that describes:
(a) The specific reasons for the denial;
(b) Specific reference to the pertinent Plan provisions on which the
denial is based;
(c) A description of any additional material or information that could
be presented in order to review the claim and an explanation of why such
material or information is necessary;
(d) An explanation of the Plan's procedure to appeal the denial of a
claim.
Each claimant shall have the right to appeal the denial of his claim to the Plan
Administrator for a full and far review at any time within 60 days after the
claimant's receipt of the written notice of such denial. The Plan Administrator
shall thereby afford the claimant or his duly authorized representative the
opportunity (1) to review documents pertinent to the claim and (2) to submit
issues and comments in writing. The final decision of the Plan Administrator
shall be made promptly, and no later than 60 days after its receipt from the
claimant of such request for review. An additional 60 days is permitted in
special circumstances after notice to the claimant. Such final decision shall be
made in writing and shall include specific reasons for the decisions, written in
a manner calculated to be understood by the claimant, and specific references to
pertinent Plan provisions on which the decision is based.
8.6. Indemnification of Committee Members. The Company agrees to
indemnify and defend to the fullest extent of the law any Employee or former
Employee who serves or has served as a member of the Committee or who has been
appointed to assist the Committee in administering the Plan or to whoever the
Committee has delegated any of its dates or responsibilities against any
liabilities, damages, costs and expenses (including attorneys' fees and amounts
paid in settlement of any claims approved by the Company) occasioned by any act
or omission to act in connection with the Plan, if such act or omission to act
is in good faith.
8.7. Delegation of Duties. The plan administrator at its discretion may
delegate specific fiduciary responsibilities (other than those of the trustee)
or ministerial duties to employees of the Company or other individuals, all of
whom shall serve at the pleasure of the plan administrator and, if full-time
employees of the Company, without compensation. any such person may resign by
delivering written notice of such resignation to the plan administrator.
vacancies created by resignation, death or other causes may be filled by the
plan administrator or reabsorbed or redelegated by the plan administrator. Any
delegation hereunder shall be communicated in writing to the Company, the
trustee and, if applicable, any insurance Company or investment manager.
8.8. Investment Manager. The Company, or the Committee, if appointed,
as named fiduciary, may, in its discretion, appoint an investment manager to
manage all or a portion of the assets of the Trust. Such manager shall be a
registered investment advisor, bank or insurance company within the meaning of
Section 3(3)) of ERISA and shall acknowledge in writing that he is a fiduciary
with respect to the Trust. The Company or Committee shall notify the Trustee and
the Plan Administrator (if other than the Company) of any such appointment and
shall designate in writing the portion of the Trust assets which shall be
subject to the management of such investment manager.
8.9. Records and Recordkeeping. The Plan Administrator shall keep a
record of all proceedings and acts, and shall keep all such books of account,
records and other data as may be necessary for the proper administration of the
Plan, which, if the Company is not the Plan Administrator, shall be subject to
inspection or audit by the Company at any reasonable time. The Company shall
supply all Employee data and other information required by the Plan
Administrator to administer the Plan, and the Plan Administrator may rely upon
the accuracy of such information. The Plan Administrator shall file or cause to
be filed such annual reports, financial and other statements, and shall furnish
such reports, statements and their documents to such Participants and
Beneficiaries under the Plan as may be required by any federal or state statute
or regulation within the time prescribed for filing and furnishing such
documents.
8.10. Notice to Trustee. The Plan Administrator shall promptly notify
the Trustee and, if applicable, the insurance Company in writing of the death,
retirement or termination of a Participant and shall execute and deliver to the
Trustee such forms as may be required to carry out the provisions of the Plan.
All notices, instructions and certifications by the Company to effectuate the
administration of the Plan shall be in writing signed by the Plan Administrator
or its duly authorized representative.
8.11. Compensation and Expenses. The expenses properly incurred by the
Plan Administrator in the performance of its duties, shall be paid by the Trust
fund except to the extent paid by the Company. However, no compensation shall be
paid to the Plan Administrator if he receives full-time compensation from the
Company.
8.12. Service of Legal Process. The Plan Administrator shall be the
agent for serve of legal process.
8.13. Person Authorized to Act for the Company. Whenever under the
terms of the Plan the Company is permitted or required to take some action, such
action may be taken by any officer of an incorporated Company who has been duly
authorized by the Board of Directors of the Company, or in the case of an
unincorporated Company by any individual employed by the Company who has been
duly authorized by its legally constituted authority.
<PAGE>
ARTICLE 9
THE TRUST AND THE TRUSTEES
This Article 9 shall be effective January 30, 1996.
9.1. Trust Fund. The Trustees will accept and hold in the Trust Fund
contributions made by or on behalf of Participants. The Trust Fund will consist
of all such contributions and the investments and reinvestments thereof without
distinction between principal and income.
9.2. Investment of Trust Fund. (a) General. All contributions to the
Trust for a Participant's benefit shall be held by the Trustees in the Trust
Fund, and except as provided in (d) below, invested solely according to the
Participant's directions, among the investment funds chosen and made available
under the Plan by the Plan Administrator. Such investment direction shall be in
accordance with the provisions contained in this Article. The Participant shall
provide such direction to the Plan Administrator, using such method as the Plan
Administrator may require, which shall specify how such contribution shall be
allocated among such investment funds. The percentage of all such action may be
in multiples of 1% and shall apply uniformly to all contributions.
(b) Changes. A Participant may, at least annually and at such other
times as may be prescribed by the Plan Administrator pursuant to a uniform,
nondiscriminatory policy, change his investment direction with respect to future
contributions by providing a new direction to the Plan Administrator at least 30
days (or such shorter period as may be prescribed by the Plan Administrator)
prior to the effective date of such change, using such method as the Plan
Administrator may require. Such new direction shall apply only to contributions
made by or on behalf of the Participant on or after such date.
(c) Investment of ESOP Cash Account. A Participant's ESOP Cash Account
shall be invested pursuant to Section 9.2(a) hereof. The ESOP Cash Account shall
not be invested in Company Stock.
(d) Investment of ESOP Stock Account. Notwithstanding anything to the
contrary in this Article 9, the assets of the ESOP Stock Account shall be
invested solely in shares of Company Stock. Cash dividends or other cash paid
with respect to shares in a Participant's ESOP Stock Account shall be credited
to such Participant's ESOP Cash Account and reinvested pursuant to Section
9.2(a). Dividends distributed in the form of stock, stock splits and other
adjustments made in the form of stock with respect to a Participant's ESOP Stock
Account shall be credited to such Participant's ESOP Stock Account.
9.3. Powers of the Trustees. In addition to and not in limitation of
such powers granted to them by law or under any other provisions of this
Agreement, the Trustees will have the following powers:
(a) to deal with all or any part of the Trust Fund;
(b) to enforce by suit or otherwise, or to waive, their rights on
behalf of the Trust Fund, and to defend claims asserted against them or the
Trust Fund, provided that the Trustees are indemnified to their satisfaction
against liability and expenses;
(c) to compromise, adjust or settle any and all claims against or in
favor of them or the Trust Fund; (d) to vote or give proxies to vote
any securities held in the Trust Fund; (e) to oppose or participate in
and consent to the organization, merger, consolidation or readjustment
of the finances
of any enterprise, to pay assessments and expenses in connection
therewith, and to deposit securities under any agreements; (f) to open
such bank accounts as they deem appropriate; (g) to purchase, or
subscribe for, any securities or other property and to retain the same
in trust; (h) to sell, exchange, convey, transfer, grant options to
purchase, or otherwise dispose of any securities or other
property held by the Trustees;
(i) to acquire real estate by purchase, exchange or as the result of
any foreclosure, liquidation or other salvage; to hold such real estate in such
manner and upon such terms as the Trustees may deem advisable; and to manage,
operate, repair, develop, partition, mortgage or lease any such real estate,
upon such terms and conditions as the Trustees deem proper, using other trust
assets for any of such purposes if deemed advisable;
(j) to invest in Treasury Bills and other forms of United States
government obligations;
(k) to employ such agents and counsel as may be reasonably necessary
from time to time and to pay them reasonable expenses and compensation (and the
Trustees will not be responsible for any loss occasioned by any such agent or
counsel selected with reasonable care);
(l) to hold securities unregistered, or to register them in their own
name or in the name of nominees; (m) to make, execute, acknowledge and
deliver any and all instruments which may be necessary or appropriate
to carry out
the powers herein granted;
(n) generally to exercise any of the powers of an owner with respect to
all or any part of the Trust Fund; (o) in accordance with ERISA Section
405(b)(1)(B), to allocate, by written instrument, specific
responsibilities,
obligations and duties among themselves; and
(p) if so directed by the Committee, to withhold any and all such
amounts from distributions from the Trust Fund as are required to be withheld
under the Code and applicable regulations.
9.4. Reliance by Trustees on Other Persons. To the extent permitted by
law, the Trustees may rely upon and act upon any writing from any person
authorized by the Plan Administrator to give instructions concerning the Plan
and may conclusively rely upon and be protected in acting upon any written order
from the Plan Administrator or upon any other notice, request, consent,
certificate or other instructions or paper reasonably believed by them to have
been executed by a duly authorized person, so long as they act in good faith in
taking or omitting to take any such action. The Trustees need not inquire as to
the basis in fact of any statement in writing received from the Plan
Administrator, except as may otherwise be required by law.
9.5. Consultation by Trustees With Counsel. The Trustees may consult
with legal counsel (who may be counsel for the Company or the Committee)
concerning any question which may arise with respect to their rights and duties
under the Plan, and the opinion of such counsel will, to the extent permitted by
law, be full and complete protection in respect of any action taken or omitted
by the Trustees hereunder in good faith and in accordance with the opinion of
such counsel.
9.6. Accounts. The Trustee will keep full accounts of all receipts and
disbursements and other transactions hereunder. Within 90 days after the close
of each Plan Year, upon termination of the Trust, and at such other times as may
be appropriate, the Trustees will determine the then net worth of the Trust Fund
and will render to the Company an account of their administration of the Trust
during the period since the last such accounting, including all allocations made
by them during such period.
9.7. Approval of Accounts. To the extent permitted by law, the written
approval of any account by the Company will be final and binding, as to all
matters and transactions stated or shown therein, upon the Company, the
Committee, Participants and all persons who then are or thereafter become
interested in the Trust. The failure of the Company to notify the Trustees
within sixty (60) days after the receipt of any account of its objection to the
account will be the equivalent of written approval. If the Company files any
objections within such sixty (60) day period with respect to any matters or
transactions stated or shown in the account, and the Company and the Trustees
cannot amicably settle the question raised by such objections, the Trustees will
have the right to have such question settled by judicial proceedings. Nothing
herein contained will be construed so as to deprive the Trustees of the right to
have a judicial settlement of their accounts. In any proceeding for a judicial
settlement of any accounts or for instructions, the only necessary parties will
be the Trustees and the Company.
9.8. Procedure for Trustee Action. If the Trustees consist of more than
one party, the Trustees shall act by agreement of a majority of the Trustees at
a meeting, or by unanimous consent in writing without a meeting. In the event of
a deadlock or other situation which prevents agreement of a majority of the
Trustees, the matter shall be decided by the Board of Directors. Further, the
Trustees may authorize one or more of the Trustees to sign all checks and
execute all instruments or memoranda necessary or appropriate to carry out the
actions and decisions of the Trustees, or to act on behalf of the Trustees.
9.9. Allocation of Responsibility. If there is more than one Trustee,
the Trustees shall jointly manage and control the assets of the Trust unless the
Company chooses to allocate specific responsibilities, obligations and duties
among the Trustees. If the Company shall make such an allocation, then each
Trustee shall be responsible for the duties allocated to such Trustee and other
Trustees shall not be liable for any breach of such fiduciary responsibility for
the duties allocated except as provided by ERISA.
9.10. Resignation. Any of the Trustees may resign at any time by filing
with the Company his written resignation, which will be effective 60 days after
receipt thereof by the Company or upon the prior appointment of a successor
Trustee.
9.11. Removal of Trustees. The Company may remove any of the Trustees
at any time by notice in writing forwarded to such Trustees by registered mail
or delivered to such Trustee. Such removal will be effective at the expiration
of 5 business days from the date of mailing or the date of delivery as the case
may be.
9.12. Appointment of Successor Trustee. The Company may appoint a
successor Trustee to replace any Trustee who has died, resigned or been removed,
and may appoint an additional Trustee or additional Trustees at any time and
from time to time. Any such successor Trustee or additional Trustee will, upon
written acceptance of his appointment, become vested with the rights, powers,
discretion, duties and obligations of a Trustee hereunder as if he had been
originally named as Trustee in this Agreement.
9.13. Compensation of Trustees and Expenses of Trust. Trustees who are
also Employees will serve without compensation from the Plan. If a Trustee is
not an Employee, the Trustee shall be paid such compensation for its services as
shall from time to time be agreed to by the Company and the Trustee. Unless paid
by the Company, all expenses of the Trust, including, without limitation,
Trustee compensation, reasonable legal fees, and all taxes of any nature
whatsoever including interest and penalties, assessed against or imposed upon
the Trustees or the Trust Fund or the income thereof, will be paid out of the
Trust Fund. Any amount so paid out of the Trust Fund, unless allocable to the
account of a particular distributee, will be apportioned among the individual
accounts of Participants as the Plan Administrator may direct, or in the absence
of such direction as the Trustees may determine.
9.14. Disputes as to Persons Entitled to Payment. If any dispute arises
as to the persons to whom payment or delivery of funds or property is to be made
by the Trustees, the Trustees may retain such payment and postpone such delivery
until adjudication of such dispute has been made by a court of competent
jurisdiction, or until the Trustees have been indemnified to their satisfaction
against loss, or until such dispute has been settled by the persons concerned.
9.15. Action by Majority Vote. A majority of the Trustees at the time
in office may do any action which this Agreement authorizes or requires the
Trustees to do; and the action of such majority expressed from time to time by
vote at a meeting or in writing without a meeting will constitute the action of
the Trustees and will have the same effect for all purposes as if assented to by
all of the Trustees at the time in office.
9.16. Liability of Trustees. The Trustees shall be fully protected in
acting upon any instrument, certificate, or paper, believed by it to be genuine
and to be signed or presented by the proper person or persons, and the Trustees
shall be under no duty to make any investigation or inquiry as to any statement
contained in any such writing but may accept the same as conclusive evidence of
truth and accuracy of the statements therein contained. Except as otherwise
provided in Section 405 of the Employee Retirement Income Security Act of 1974,
the Trustees shall not be liable for any act or omission of any other fiduciary
under the Plan, or otherwise for any loss, damage or depreciation which may
result in connection with the exercise of its duties or with the exercise of its
discretion or upon any other act or omission hereunder except when due to their
own negligence. No bond, surety or other security shall be required of the
Trustees unless specifically required by the Company or unless required by law,
in which case the cost of such bond, surety or the security shall be an expense
chargeable in accordance with Section 9.13.
9.17. Indemnification of Trustees. The Company agrees to indemnify and
defend to the fullest extent of the law any Employee or former Employee who in
good faith serves or has served in the capacity of Trustee against any
liability, damage, costs and expenses occasioned by his having occupied a
fiduciary position in connection with the Plan. The Company may, by separate
agreement and to the extent permitted by law and its charter and by-laws,
indemnify any individual Trustee, whether or not such person continues to hold
such office, for any liability incurred in the administration of the Trust,
except such liability as may arise from his own personal and willful neglect and
misconduct. Any amounts paid pursuant to such indemnification shall not relieve
such individual Trustee from any liability, responsibility, obligation or duty
that he may have under ERISA.
9.18. Insurance Policies.
(a) Purchase of Insurance Policies. The Trustees may apply a portion of
contributions made by or on behalf of the Participant toward the purchase of
policies issued by the Insurance Company ("Policies") on the life of the
Participants. The Trustees shall be designated the sole owner of such Policies,
but all benefits, rights, privileges and options under such Policies and all
dividends payable or refunds made by the Insurance Company on such Policies
shall be exercised and dealt with for the sole benefit of the Participant (or
his Beneficiary) on whose behalf such Policies were purchased. Employee
contributions may be used to pay premiums on Policies or supplemental
agreements, but such contributions shall not be subject to the limitations
contained in Subsection (b) of this Section.
(b) General Rules and Limitations. All policies shall be issued on a
uniform and nondiscriminatory basis as such date(s) as shall be prescribed by
the Plan Administrator. Any adjustment to an existing Policy to increase or
decrease the face amount and premium may be made as of an anniversary of such
date(s), or as of another date during the calendar year. Payments made to the
Insurance Company with respect to any Policy purchased on behalf of a
Participant shall constitute an investment of funds credited to such
Participant's account, and his accounts shall accordingly be reduced by any such
payments. The purchase of Policies shall be limited as follows:
(i) Ordinary Life. If ordinary life insurance Policies are
purchased, less than 1/2 of the aggregate Employer contributions and forfeitures
allocated to any Participant shall be used to pay the premiums attributable to
them. For purposes of this Section, ordinary life insurance Policies are
Policies with both nondecreasing death benefits and nonincreasing premiums.
(ii) Term and Universal Life. If term life insurance Policies,
universal life insurance Policies, or any other life insurance Policies which
are not ordinary life are purchased, or if supplemental agreements are
purchased, no more than 1/4 of the aggregate Employer contributions and
forfeitures allocated to any Participant will be used to pay the premiums
attributable to them.
(iii) Combination. The sum of 1/2 of the ordinary life
insurance premiums and all other life insurance premiums and supplemental
agreement premiums shall not exceed 1/4 of the aggregate Employer contributions
and forfeitures allocated to any Participant.
(c) Dividends. Any dividends payable on a Policy while premium paying
shall be applied in any manner permitted by the insurer and shall increase the
Participant's accounts on whose life the Policy was issued. Any dividends
payable upon the surrender of a Policy shall increase the Participant's accounts
on whose life the Policy was issued. Any dividends payable on a Policy upon
death of a Participant shall be paid with the Policy proceeds to increase the
death benefit of the Participant.
(d) Premium Refund. Any refund of premiums payable upon the surrender
of a Policy shall increase the Participant's account on whose life the Policy
was issued. Any refund of premiums on a Policy payable upon the death of the
Participant, for the pro-rata portion of the premium paid beyond the date of
death, shall be paid with the Policy proceeds to increase the death benefit of
the Participant.
(e) Conversion of Policies. Notwithstanding any other provisions
herein, in the event any Policy is converted to an annuity pursuant to the
provisions of this Article, such annuity shall be endorsed as nontransferable.
(f) Supplemental Agreements. The cost of any agreement for supplemental
benefits, waiver of premium, waiver of side fund or any other optional coverage
available from the insurer shall be paid from the Participant's account.
(g) Conflict Between Terms. In the event of any conflict between
provisions of the Plan and the terms of any policy, the Trustee shall not
exercise any Policy rights which would be in conflict with the provisions of the
Plan.
9.19. Group Annuity Policies.
(a) Purchase. The Trustee may, but is not required to, obtain from the
Insurance Company a Group Annuity Policy to provide all or a portion of the
benefits of the Plan. The Group Annuity Policy shall provide for the
establishment and maintenance of an investment fund or funds by the Insurance
Company to which contributions made hereunder shall be credited and from which
amounts shall be withdrawn to pay retirement benefits and such other benefits as
may be provided by the Plan.
(b) Separate Investment Accounts. To the extent permitted under
applicable law and regulations, the Group Annuity Policy may provide that
contributions made hereunder may be deposited in the general investment account
of the Insurance Company, with interest guaranteed on such deposits, or in one
or more separate investment accounts of the Insurance Company without any
guarantees as to principal or interest thereon. Such separate investment
accounts may be invested primarily in equities, bonds and other fixed income
securities. The value of the general investment account and such separate
investment accounts shall be determined at least once during each policy year.
(c) Conflicting Provisions. The terms and provisions of the Group
Annuity Policy shall be as agreed upon between the Trustee and the Insurance
Company and shall, to the extent possible, be consistent with the provisions of
the Plan. In the event of any conflict between the provision of the Group
Annuity Policy, the provisions of the Plan shall control.
<PAGE>
ARTICLE 10
AMENDMENT AND TERMINATION
10.1. Amendment. The Company may at any time or times amend the
provisions of the Plan and Trust to any extent and in any manner that it may
deem advisable by a written instrument signed by the Company providing for such
amendment. However, that the Company will not have the power:
(a) to amend the Plan or Trust in such manner as would cause or permit
any part of the assets of the Trust to be diverted to purposes other than for
the exclusive benefit of each Participant and his Beneficiary (except as
permitted by Sections 4.5, 9.14, 13.3 and 13.4), unless such amendment is
required or permitted by law, governmental regulation or ruling;
(b) to amend the Plan or Trust retroactively in such a manner as would
deprive any Participant of any benefit to which he was entitled under the Plan
by reason of contributions made prior to the amendment, unless such amendment is
necessary to conform the Plan or Trust to, or satisfy the conditions of, any
law, governmental regulation or ruling, or to permit the Trust and the Plan to
meet the requirements of Code Sections 401(a) and 501(a); or
(c) to amend the Plan or Trust in such manner as would increase the
duties or liabilities of the Trustees, unless the Trustees consent thereto in
writing.
10.2. Termination. The Company has established the Plan and authorized
the establishment of the Trust with the bona fide intention and expectation that
contributions will be continued indefinitely, but the Company will have no
obligation or liability whatsoever to maintain the Plan for any given length of
time and may discontinue contributions under the Plan or terminate the Plan at
any time by written notice delivered to the Trustees without liability
whatsoever for any such discontinuance or termination. The Plan will be deemed
terminated:
(a) if and when the Company is judicially declared bankrupt,
(b) if and when the Company is a party to a merger in which it
is not the surviving corporation or sells all or substantially all of its
assets, unless the surviving corporation or the purchaser adopts the Plan by an
instrument in writing delivered to the Trustees within 60 days after the merger
or sale, or (c) upon dissolution of the Company.
10.3. Distributions Upon Termination of the Plan. Upon termination or
partial termination of the Plan or complete discontinuance of contributions
thereunder, each Participant will have a nonforfeitable interest in 100% of each
of his Accounts. Upon termination of the Plan, the Trustees will distribute to
each Participant (or other person entitled to distribution) the value of the
Participant's Accounts in a single sum cash payment, in the form of cash.
However, if a successor plan is established within the meaning of Code Section
401(k)(2)(B)(i)(II), Accounts shall be distributed to Participants and their
beneficiaries only in accordance with Articles 6 and 7. Upon the completion of
distributions to all Participants, the Trust will terminate, the Trustees will
be relieved from all liability under the Trust, and no Participant or other
person will have any claims thereunder, except as required by applicable law.
10.4. Merger or Consolidation of Plan; Transfer of Plan Assets. In case
of any merger or consolidation of the Plan with, or transfer of assets and
liabilities of the Plan to, any other Plan, provision must be made so that each
Participant would, if the Plan then terminated, receive a benefit immediately
after the merger, consolidation or transfer which is equal to or greater than
the benefit he would have been entitled to receive immediately before the
merger, consolidation or transfer if the Plan had then terminated.
<PAGE>
ARTICLE 11
TOP HEAVY PROVISIONS
11.1. General Rule. For any year that is a "top-heavy plan year" as
defined in subsection 11.3 below, and other provisions of this Plan to the
contrary notwithstanding, this Plan shall be subject to the minimum contribution
provisions of this Section 11.1. Each Participant who is (a) a non-key employee
and (b) employed on the last day of the Plan Year (regardless of whether such
Participant has completed 1,000 hours of service) shall be entitled to have a
contribution made on his or her behalf by the Company of not less than the
lesser of:
(x) three percent (3%) (the "minimum contribution percentage")
of the Participant's Compensation (as defined in Section 2.15(c)) or
(y) the highest percentage obtained by dividing the total
Elective Contributions and Company Contributions made on behalf of each key
employee by the key employee's compensation (as defined in Section 2.15(c)).
Such contribution shall be made on behalf of each Participant who is a
non key employee.
Contributions taken into account under the immediately preceding
sentence shall include contributions under this Plan and under all other defined
contribution plans required to be included in an aggregation group but shall not
include any plan required to be included in such aggregation group if such plan
enables a defined benefit plan required to be included in such group to meet the
prohibition against discriminations in benefits or contributions under Code
Section 401(a)(4) or the requirements with respect to participation or coverage
under Code Section 410.
Contributions taken into account under this Section 11.1 shall not
include any contributions under the Federal Insurance Contributions Act or any
other Federal or State law. Neither Elective Contributions nor Matching
Contributions shall be taken into account for purposes of satisfying the minimum
allocation requirements of subsection (a) above.
11.2. Adjustment to Limitation on Benefits. For purposes of the
limitation set forth in Section 4.10 of the Plan, the definitions of "defined
contribution plan fraction" and "defined benefit plan fraction" contained
therein shall be modified, for any Plan Year which is a top heavy plan year, by
applying the special rule set forth in Code Section 416(h) unless (a) the Plan
and each plan with which the Plan is required to be aggregated satisfies the
requirements of Code Section 416(h)(2)(A), and (b) such Plan Year would not be a
top heavy plan year if "90 percent" were substituted for "60 percent" in the
first paragraph of Section 11.4(b).
11.3. Minimum Vesting Schedule. For any Plan Year in which the Plan is
in Top-Heavy Status, the minimum vesting under the Plan shall be 20% after 2
Years of Service, increased by 20% for each additional Year of Service
thereafter, but not to exceed 100% after 6 Years of Service. Such minimum
vesting schedule shall apply to all benefits within the meaning of Section
411(a)(7) of the Code except those attributable to Elective Contributions , and
those amounts subject to a more rapid vesting schedule, including benefits
accrued before the effective date of Section 416 of the Code and benefits
accrued before the Plan was in Top-Heavy Status. Notwithstanding the foregoing,
this Section shall not apply to the account balances of any Employee who does
not have an Hour of Service after the Plan initially entered Top-Heavy Status
and such Employee's Account balances attributable to Company Contributions and
forfeitures shall be determined without regard to this Section. Further, no
decrease in a Participant's nonforfeitable percentage may occur in the event the
Plan's Top-Heavy Status changes for any Plan Year. The above minimum vesting
schedule shall continue to apply for subsequent Plan Years irrespective of
whether the Plan remains in Top-Heavy Status.
11.4. Definitions. As used in this Article 11, the following terms
have the following meanings:
(a) "key employee" means a key employee described in Code Section
416(i)(1), determined on the basis of Compensation; and (b) "Top-Heavy
Status" means:
(i) If the Top-Heavy Ratio for this Plan exceeds 60% and this
Plan is not part of any Required Aggregation Group or Permissive Aggregation
Group of plans.
(ii) If this Plan is a part of a Required Aggregation Group of
plans (but which is not part of a Permissive Aggregation Group) and the
Top-Heavy Ratio for the group of plans exceeds 60%, or
(iii) If this Plan is a part of a Required Aggregation Group
of plans and part of a Permissive Aggregation Group and the Top-Heavy Ratio for
the Permissive Aggregation Group exceeds 60%.
(c) "Top-Heavy Ratio":
(i) If the Company maintains one or more defined contribution
plans and the Company has not maintained any defined benefit plan which during
the 5-year period ending on the Determination Date(s) has or has had accrued
benefits, the Top-Heavy Ratio for this plan alone or for the Required or
Permissive Aggregation Group as appropriate is a fraction, the numerator of
which is the sum of the account balances of all Key Employees as of the
Determination Date(s) (including any part of any account balance distributed in
the 5-year period ending on the Determination Date(s)), and the denominator of
which is the sum of all account balances (including any part of any account
balance distributed in the 5-year period ending on the Determination Date(s)),
both computed in accordance with Section 416 of the Code and the regulations
thereunder. Both the numerator and denominator of the Top-Heavy Ratio are
increased to reflect any contribution not actually made as of the Determination
Date, but which is required to be taken into account on that date under Section
416 of the Code and the regulations thereunder.
(ii) If the Company maintains one or more defined contribution
plans and the Company maintains or has maintained one or more defined benefit
plans which during the 5-year period ending on the Determination Date(s) has or
has had any accrued benefits, the Top-Heavy Ratio for any Required or Permissive
Aggregation Group as appropriate is a fraction, the numerator of which is the
sum of the account balances under the aggregated defined contribution plan or
plans for all Key Employees, determined in accordance with (i) above, and the
Present Value of accrued benefits under the aggregated defined benefit plan or
plans for all Key Employees as of the Determination Date(s), and the denominator
of which is the sum of the account balances under the aggregated defined
contribution plan or plans for all Participants, determined in accordance with
(i) above, and the Present Value of accrued benefits under the defined benefit
plan or plans for all Participants as of the Determination Date(s), all
determined in accordance with Section 416 of the Code and the regulations
thereunder. The accrued benefits under a defined benefit plan in both the
numerator and denominator of the Top-Heavy Ratio are increased for any
distribution of an accrued benefit made in the 5-year period ending on the
Determination Date.
(iii) For purposes of (i) and (ii) above, the value of account
balances and the Present Value of accrued benefits shall be determined as of the
most recent Valuation Date that falls within or ends with the 12-month period
ending on the Determination Date, except as provided in Section 416 of the Code
and the regulations thereunder for the first and second Plan Years of a defined
benefit plan. The Account Balances and accrued benefits of a Participant (i) who
is not a Key Employee but who was a Key Employee in a prior year, or (ii) who
has not completed an Hour of Service at any time during the 5-year period ending
on the Determination Date shall be disregarded. The calculation of the Top-Heavy
Ratio, and the extent to which distributions, rollovers, and transfers are taken
into account shall be made in accordance with Section 416 of the Code and the
regulations thereunder. Deductible employee contributions shall not be taken
into account for purposes of computing the Top-Heavy Ratio. When aggregating
plans the value of account balances and accrued benefits shall be calculated
with reference to the Determination Dates that fall within the same calendar
year. The accrued benefit of a Participant other than a Key Employee shall be
determined under (A) the method, if any, that uniformly applies for accrual
purposes under all defined benefit plans maintained by the Employer, or (B) if
there is no such method, as if such benefit accrued not more rapidly than the
slowest accrual rate permitted under the fractional rule of Section 411(b)(1) of
the Code.
(d) "Permissive Aggregation Group": The Required Aggregation Group of
plans plus any other plan or plans of the Company which, when considered as a
group with the Required Aggregation Group would continue to satisfy the
requirements of Sections 401(a)(4) and 410 of the Code.
(e) "Required Aggregation Group": (1) Each qualified plan of the
Company in which at least one Key Employee participates or participated at any
time during the Determination Period (regardless of whether the Plan has
terminated), and (2) any other qualified plan of the Company which enables a
plan described in (1) to meet the requirements of Sections 401(a)(4) or 410 of
the Code.
(f) "Determination Date": For any Plan Year subsequent to the first
Plan year, the last day of the preceding Plan Year. For the first Plan Year of
the Plan, the last day of that year.
(g) "Valuation Date": The last day of each Plan Year.
(h) "Present Value": Present Value shall be based only on the interest
and mortality rates specified in the Adoption Agreement.
<PAGE>
ARTICLE 12
LOANS TO PARTICIPANTS
12.1. In General. Upon the written request of an Eligible Borrower on a
form approved or prescribed by the Committee, and subject to the conditions of
this Article, the Committee shall direct the Trustees to make a loan from the
Trust to such Eligible Borrower. For purposes of this Article 12, an "Eligible
Borrower" shall mean:
(i) a Participant in the Plan who is an Employee, or
(ii) a former Employee, or a Beneficiary of a deceased former
Employee, for whom an account is maintained under the Plan who is a "party in
interest" with respect to the Plan within the meaning of ERISA Section 3(14).
12.2. Rules and Procedures. The Committee shall promulgate such rules
and procedures, consistent with the express provisions of this Article, as it
deems necessary to carry out the purposes of this Article. All such rules and
procedures shall be deemed a part of the Plan for purposes of Department of
Labor's Regulations Section 2550.408b-1(d).
12.3. Maximum Amount of Loan. The following limitations shall apply in
determining the amount of any loan to an Eligible Borrower hereunder:
(a) The amount of the loan, together with all loans (if any)
outstanding under other qualified retirement plans of the Company or Affiliated
Companies, shall not exceed $50,000 reduced by the excess of
(1) the highest outstanding loan balance of the Eligible
Borrower from such plans during the one-year period ending on the day prior to
the date on which the loan is made, over;
(2) the Eligible Borrower's outstanding loan balance from such
plans immediately prior to the loan; and (b) The amount of the loan
shall not exceed 50% of the Eligible Borrower's vested interest in the
Eligible Borrower's
Accounts, determined as of the Valuation Date immediately preceding the date of
the loan.
12.4. Other Limitations. The minimum amount of any single loan under
this Plan shall be $1,000. Loans may be granted to any Participant no more often
than once in any twelve (12) month period and only one loan may remain
outstanding at any time.
12.5. Note; Security; Interest. Each loan shall be evidenced by a note
signed by the Eligible Borrower. The note evidencing a loan to an Eligible
Borrower under this Article shall be an asset of the Trust which is allocated to
the Accounts of such Eligible Borrower, and shall for purposes of the Plan be
deemed to have a value at any given time equal to the unpaid principal balance
of the note plus the amount of any accrued but unpaid interest. Each loan shall
be secured by that portion of the Eligible Borrower's Accounts represented by
the note. The loan shall bear interest at an annual percentage interest rate to
be determined by the Committee. In determining the interest rate, the Committee
shall take into consideration interest rates currently being charged by persons
in the business of lending money with respect to loans made in similar
circumstances. The Committee shall make such determination through consultation
with one or more lending institutions, as the Committee deems appropriate.
12.6. Liability. The Trustee shall not be liable for any loss
occasioned to the Participant's Account under the Trust Fund should it be
determined that any loan does not meet the "prudent man" standards of ERISA.
12.7. Repayment. Each loan made to an Eligible Borrower who is
receiving compensation from the Company shall be repayable by payroll deduction.
Loans made to other Eligible Borrowers (where payroll deduction is no longer
practicable) shall be repayable in such manner as the Committee may from time to
time determine. In each case payments shall be made not less frequently than
quarterly, over a specified term (as determined by the Committee) not to exceed
five years (or a longer period where the loan proceeds are to be used to
purchase the Eligible Borrower's principal residence), with substantially level
amortization (as that term is used in Code Section 72(p)(2)(C)). An Eligible
Borrower may prepay all of his loan at any time, without penalty, by paying the
loan principal then outstanding together with interest accrued and unpaid to the
date of payment. The terms and conditions of each loan shall be arrived at by
mutual agreement between the Trustee and the Participant pursuant to a uniform,
nondiscriminatory policy. All loan repayments and interest earned on any loan
shall be credited to the Participant's accounts in accordance with current
investment directions, and in proportion to amounts that were drawn from the
accounts to make the loan. the Plan Administrator shall take all necessary
action to ensure that each loan is repaid on schedule by its maturity date.
12.8. Repayment Upon Distribution. If, at the time benefits are to be
distributed to an Eligible Borrower or his Beneficiary with respect to a
termination of employment, there remains any unpaid balance of a loan
thereunder, such unpaid balance shall, to the extent consistent with Department
of Labor regulations, become immediately due and payable in full. Such unpaid
balance, together with any accrued but unpaid interest on the loan, shall be
deducted from the Eligible Borrower's Accounts, subject to the default
provisions below, before any distribution of benefits is made. Except as may be
required in order to comply (in a manner consistent with continued qualification
of the Plan under Code Section 401(a)) with Department of Labor regulations, no
loan shall be made to an Eligible Borrower under this Article after the time
distributions to the Eligible Borrower with respect to a termination of
employment are to be paid or commence.
12.9. Default. In the event of a default in making any payment of
principal or interest when due under the note evidencing any loan under this
Article, if such default continues for more than 14 days after written notice of
the default by the Trustees, the unpaid principal balance of the note shall
immediately become due and payable in full. Such unpaid principal, together with
any accrued but unpaid interest, shall thereupon be deducted from the
Participant's Accounts, subject to the further provisions of this Section. The
amount so deducted shall be treated as distributed to the Eligible Borrower and
applied by the Eligible Borrower as a payment of the unpaid interest and
principal (in that order) under the note evidencing such loan. In no event shall
the Committee apply the Eligible Borrower's Accounts to satisfy the
Participant's repayment obligation, whether or not the Participant is in
default, unless the amount so applied otherwise could be distributed in
accordance with this Plan.
Effective January 1, 1995, in the event that a Participant defaults on
any loan under this Article and such default is not corrected within 90 days
(the "Suspension Date"), the Participant's Elective Deferrals under the Plan
shall be suspended until the next Entry Date following the 12 month period
following such default.
12.10. Nondiscrimination. Loans shall be made available under this
Article to all Eligible Borrowers on a reasonably equivalent basis, except that
the Committee may make reasonable distinctions based on creditworthiness.
<PAGE>
ARTICLE 13
MISCELLANEOUS PROVISIONS
13.1. Communication to Participants. The Plan will be communicated to
all Participants by the Company promptly after the Plan is adopted.
13.2. Limitation of Rights. Neither the establishment of the Plan or
the Trust, nor any amendment thereof, nor the creation of any fund or account,
nor the payment of any benefits, will be construed as giving to any Participant
or other person any legal or equitable right against the Company, Committee or
Trustees, except as provided herein, and in no event will the terms of
employment or service of any Participant be modified or in any way be affected
hereby. It is a condition of the Plan, and each Participant expressly agrees by
his participation herein, that each Participant will look solely to the assets
held in the Trust for the payment of any benefit to which he is entitled under
the Plan.
13.3. Nonalienability of Benefits. The benefits provided hereunder will
not be subject to alienation, assignment, garnishment, attachment, execution or
levy of any kind, and any attempt to cause such benefits to be so subjected will
not be recognized, except to such extent as may be required by law.
Notwithstanding any provisions of the Plan to the contrary, if the Committee
receives any Qualified Domestic Relations Order that requires the payment of
benefits hereunder or the segregation of any Account, such benefits shall be
paid, and such Account segregated, in accordance with the applicable
requirements of such Order.
13.4. Failure to Qualify Initially. If it is determined that the Plan
or the Trust does not initially qualify under Code Sections 401 or 501, but
subject to ERISA Section 403(c)(2)(B), all assets then held under the Plan will
be returned to the Company within one year after such determination or refusal
to issue a determination. Upon such distribution the Plan will be considered to
be rescinded and to be of no force or effect.
13.5. Governing Law. The Plan and Trust will be construed, administered
and enforced according to the laws of Massachusetts to the extent such laws are
not inconsistent with and pre-empted by ERISA or other Federal law.
<PAGE>
ARTICLE 14
COMPANY STOCK PROVISIONS
The purpose of this Article 14 is to preserve certain rights and
features attributable to Participant's interests in their accounts under the
ESOP prior to the Merger, as defined below, and as required by Section 9.2 of
the ESOP. The Plan, however, is not intended to be an employee stock ownership
plan, as defined in Code Section 4975(e)(7).
14.1. Pre-Retirement Diversification Rights. If a Participant attains
age 55 and has 10 years of participation in the Plan, including years of
Participation in the ESOP, (so that he is "Qualified Participant"), the Plan
Administrator shall offer such Participant the opportunity to invest, pursuant
to Section 9.01, or to receive a distribution of the value (determined as of the
last preceding Valuation Date) of at least 25% of the number of shares of
Company Stock credited to his ESOP Stock Account in the first five years of his
Qualified Election Period (as defined below), and 50% of the number of shares of
Company Stock credited to his ESOP Stock Account in the last year of the
Qualified Election Period in accordance with the provisions of this Section
14.1. The Participant must elect to diversify his ESOP Stock Account or to
receive such a distribution within 90 days after the end of each of the six Plan
Years during the Qualified Election Period (the "Diversification Election
Period"), and the diversification or the distribution will be made within 90
days after each election made by Participation during the Diversification
Election Period. Amounts for which the Participant requested diversification
shall be transferred to the Participant's ESOP Cash Account. The "Qualified
Election Period" means the six Plan Years beginning with the Plan Year during
which a Participant becomes a Qualified Participant. The amount which may be
diversified or distributed to a Participant during the Qualified Election Period
shall be determined by multiplying the number of shares of Company Stock
credited to the Participant's ESOP Stock Account (including shares of Company
Stock the value of which has been previously distributed or transferred to the
Participant's ESOP Cash Account pursuant to this subsection) by 25% or, with
respect to a Participant's final election, 50%, reduced by the amount of any
prior transfers to the ESOP Cash Account and distributions received by such
Participant pursuant to this Section 14.1. Notwithstanding the foregoing, if the
fair market value of the Company Stock allocated to the ESOP Stock Account of a
Qualified Participant is $500 or less as of the Valuation Date immediately
preceding the first day of any Diversification Election Period, then such
Qualified Participant shall not be entitled to an election under this Section
14.1 for that Diversification Election Period.
14.2. Voting and Tendering of Company Stock.
(a) The Trustee shall vote Company Stock attributable to the
proportionate value of each Participant's ESOP Stock Account in accordance with
directions of each Participant to whose Account such proportionate value has
been allocated to the extent of his share interest (which shall include
fractional as well as whole shares) therein. For purposes of determining the
number of shares to be voted the Trustee shall use the nearest practicable
valuation date as determined by the Plan Administrator in conjunction with the
record date for proxy solicitation by the Employer.
(b) It is intended that the Trustee's functions and responsibilities
with respect to Company Stock with respect to voting and tender exchange offers,
shall be exercised as follows:
(i) Each Participant (and each beneficiary of a deceased
Participant): (1) is hereby designated as a Named Fiduciary with respect to the
Company Stock allocated to his ESOP Stock Account, and (2) shall have the right
to direct the Trustee with respect to the voting of such shares on each matter
brought before any meeting of the stockholders of the Company.
(ii) Before each such meeting of stockholders, the Company
shall cause to be furnished to each Participant and beneficiary a copy of the
proxy solicitation materials, together with a form requesting directions to the
Trustee on how the whole and fractional shares which are allocated to such
Participant's or beneficiary's account, shall be voted on each such matter. Upon
timely receipt of such directions, the Trustee shall each such matter vote as
directed the number of shares (including fractional shares) allocated to such
Participant's or beneficiary's ESOP Stock Account, and the Trustee shall have no
discretion.
(iii) The Trustee shall, separately, in the case of the shares
held by the Plan, vote the whole and fractional allocated shares for which it
has not received direction in the same proportion as the directed shares of such
allocated shares are voted. The Trustee shall have no discretion in such matter.
(iv) The provisions of this paragraph shall apply in the event
a tender offer or exchange offer for Company Stock is commenced by a person or
persons (hereinafter, a "tender offer"), including, but not limited to, a tender
offer within the meaning of the Securities Exchange Act of 1934, as from time to
time amended and in effect. The Trustee shall have no discretion or authority to
sell, exchange or transfer any shares pursuant to such tender offer except to
the extent, and only to the extent, provided in this Plan.
(A) Each Participant, and each beneficiary of a
deceased Participant, is hereby designated as a Named Fiduciary with respect to
the decision whether to tender or exchange certain shares, as follows. Each such
named fiduciary shall have the right to direct the Trustee in writing as to the
manner in which to respond to a tender offer, to the extent of the number of
shares (including fractional shares) which are allocated to his ESOP Stock
Account. The Company shall use its best efforts to timely distribute or cause to
be distributed to each Participant (or beneficiary) such information as will be
distributed to stockholders of the Company in connection with any such tender
offer.
(B) Upon timely receipt of such directions from the
Named Fiduciaries, the Trustee shall respond as
instructed with respect to such shares of Company Stock.
(C) If the Trustee does not receive timely
instruction from a Named Fiduciary as to the manner in
which to respond to such a tender offer, the Trustee shall not tender or
exchange any of the Company Stock (including fractional shares) which are
allocated to such Named Fiduciary's ESOP Stock Account, and the Trustee shall
have no discretion in such matter.
(D) The Plan Administrator shall solicit from each
Participant and beneficiary the directions
described in this paragraph as to whether shares of Company Stock are to be
tendered, and shall instruct the Trustee as to the amount of shares to be
tendered, in accordance with the above provisions.
14.3. Share Legend. Shares of Company Stock held or distributed by the
Trustee may include such legal restrictions on transferability as the Company
may reasonably require in order to assure compliance with applicable federal and
state securities laws.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be signed
in its name and on its behalf by its duly authorized officer, as of the date
first above written.
COPLEY PHARMACEUTICAL, INC.
By: __________________________
<PAGE>
RECEIVED and AGREED to by the Trustees, this _________ day of
_______________________, 1998.
Gene Bauer, Trustee
Daniel Caron, Trustee
Russell French, Trustee
Daniel Hellerman, Trustee
Barbara Morse, Trustee
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of ______________ by and between Copley
Pharmaceutical, Inc., a Delaware corporation (the "Company"), and
______________, a director and/or officer of the Company (the "Indemnitee").
RECITALS
A. The Company desires to attract and retain the services of highly
qualified individuals, such as the Indemnitee, to serve as officers and
directors of the Company.
B. The Company and the Indemnitee recognize the substantial increase in
corporate litigation subjecting officers and directors of corporations to
increased risk of personal liability on account of their service to their
corporations.
C. The Company recognizes that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance or indemnification.
D. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company and wishes to protect
the Indemnitee from personal liability while in such service to the maximum
extent permitted by law.
E. The Indemnitee is willing to serve, or to continue to serve, the
Company, provided that he/she is furnished the indemnity provided for herein.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions.
(a) Agent. For the purposes of this Agreement, "Agent" of the
Company means any person who is or was a director, officer, employee or other
agent of the Company or a Subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the Company
or a Subsidiary of the Company as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
Subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the request of such predecessor corporation. The use of
the term "Agent" shall not be construed to alter the legal relationship between
an Agent, as defined herein, and the Company.
(b) Expenses. For purposes of this Agreement, "Expenses" includes
all direct and indirect costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements and other
out-of-pocket costs) actually and reasonably incurred by the Indemnitee in
connection with either the investigation, defense or appeal of a Proceeding or
establishing or enforcing a right to indemnification under this Agreement,
Section 145 of the General Corporation Law of the State of Delaware ("Section
145") or otherwise; provided, however, that unless otherwise expressly provided
below, expenses shall not include any judgments, fines, ERISA excise taxes or
penalties or amounts paid in settlement of a Proceeding.
(c) Proceeding. For the purposes of this Agreement, "Proceeding"
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever.
(d) Subsidiary. For purposes of this Agreement, "Subsidiary" means
any corporation of which more than 50% of the outstanding voting securities are
owned directly or indirectly by the Company, by the Company and one or more
other Subsidiaries, or by one or more other Subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to
serve as an Agent of the Company, at its will (or under separate agreement, if
such agreement exists), in the capacity Indemnitee currently serves as an Agent
of the Company, so long as he is duly appointed or elected and qualified in
accordance with the applicable provisions of the Certificate of Incorporation
and By-Laws of the Company or any Subsidiary of the Company or until such time
as he tenders his resignation in writing, provided, however, that nothing
contained in this Agreement is intended to create any right to continued service
by Indemnitee.
3. Maintenance of Liability Insurance.
(a) The Company hereby covenants and agrees that, so long as the
Indemnitee shall continue to serve as an Agent of the Company and thereafter so
long as the Indemnitee shall be subject to any possible proceeding by reason of
the fact that the Indemnitee was an Agent of the Company, subject to Section 7,
the Company shall promptly obtain and maintain in full force and effect
directors' and officers' liability insurance ("D&O Insurance") in reasonable
amounts from established and reputable insurers.
(b) In all policies of D&O Insurance, the Indemnitee shall be
named as an insured in such a manner as to provide the Indemnitee the same
rights and benefits as are accorded to the most favorably insured of the
Company's directors, if the Indemnitee is a director; or of the Company's
officers, if the Indemnitee is not a director of the Company but is an officer;
or of the Company's key employees, if the Indemnitee is not an officer or
director but is a key employee.
(c) Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain D&O Insurance if the Company determines in good
faith that such insurance is not reasonably available, the premium costs for
such insurance are disproportionate to the amount of coverage provided, the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or the Indemnitee is covered by similar insurance
maintained by a Subsidiary of the Company.
4. Mandatory Indemnification. The Company shall indemnify the Indemnitee:
(a) Actions other than by or in the Right of the Company. If the
Indemnitee is a person who was or is a party or is threatened to be made a party
to any Proceeding (other than an action by or in the right of the Company) by
reason of the fact that he is or was an Agent of the Company, against Expenses
and any liability (including without limitation judgments, fines, ERISA excise
taxes and penalties, and amounts paid in settlement) actually and reasonably
incurred by him in connection with such Proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the Indemnitee did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
(b) Actions by or in the Right of the Company. If the Indemnitee
is a person who was or is a party or is threatened to be made a party to any
Proceeding by or in the right of the Company to procure a judgment in its favor
by reason of the fact that he is or was an Agent of the Company or by reason of
any action done or not done by him in any such capacity, against Expenses
actually and reasonably incurred by him in connection with the investigation,
defense, settlement or appeal of such Proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been finally adjudged
to be liable due to his willful failure to act in good faith or in a manner
which he reasonably believed to be in, or not opposed to the best interests of
the Company, unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability for such
reason(s), but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery of the State of Delaware or such other court shall deem proper.
(c) Notwithstanding the foregoing, the Company shall not be
obligated to indemnify the Indemnitee pursuant to this Agreement:
(i) on account of any claim against Indemnitee for an
accounting of profits made from thepurchase or sale by Indemnitee of securities
of the Company pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934, as amended,or similar provisions of any federal, state or
local statute or regulation;
(ii) for expenses or liabilities of any type whatsoever
(including, but not limited to,
judgments, fines, ERISA excise taxes or penalties, and amounts paid in
settlement) which have been reimbursed directly to Indemnitee under D&O
Insurance; or
(iii) if indemnification is not lawful.
5. Success on the Merits. To the extent that any Indemnitee described in
Section 4 of this Agreement has been successful on the merits or otherwise in
defense of any Proceeding referred to in said Section 4, or in defense of any
claim, issue or matter therein, he shall be indemnified against Expenses
actually and reasonably incurred by him in connection therewith.
6. Advance Payment. Expenses incurred by the Indemnitee in defending a
Proceeding may be paid by the Company in advance of the final disposition of
such Proceeding upon receipt of an undertaking by or on behalf of the Indemnitee
to repay such amount if it shall ultimately be determined that he is not
entitled to indemnification by the Company as authorized in this Agreement.
7. Non-Exclusivity. The indemnification and advancement of expenses
provided by, or granted pursuant to, the other Sections of this Agreement shall
not be deemed exclusive of any other rights to which those provided
indemnification or advancement of expenses may be entitled under the Certificate
of Incorporation, any By-Law, any vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
8. Continuation of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Agreement shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
9. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any Expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding but not entitled, however, to indemnification for all of
the total amount thereof, the Company shall indemnify the Indemnitee for the
portion thereof to which the Indemnitee is entitled under this Agreement or
applicable law.
10. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any Proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the commencement
of a Proceeding pursuant to Section 10(a) hereof, the Company has D&O Insurance
in effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies of D&O Insurance. The Company shall thereafter take all
necessary or desirable action to cause such insurers to pay, on behalf of the
Indemnitee, all amounts payable as a result of such Proceeding in accordance
with the terms of such policies.
(c) In the event the Company shall be obligated to pay the
Expenses of any Proceeding against the Indemnitee, the Company shall be entitled
to assume the defense of such Proceeding, with counsel approved by the
Indemnitee, upon the delivery to the Indemnitee of written notice of its
election to do so. After delivery of such notice, approval of such counsel by
the Indemnitee and the retention of such counsel by the Company, the Company
will not be liable to the Indemnitee under this Agreement for any fees of
counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that (i) the Indemnitee shall have the right to employ his
own counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A)
the employment of counsel by the Indemnitee has been previously authorized by
the Company, (B) the Indemnitee shall have reasonably concluded that there may
be a conflict of interest between the Company and the Indemnitee in the conduct
of any such defense or (C) the Company shall not, in fact, have employed counsel
to assume the defense of such Proceeding, the fees and expenses of Indemnitee's
counsel shall be paid by the Company.
11. Determination of Right to Indemnification.
(a) Any indemnification under Section 4 of this Agreement (unless
ordered by a court) shall be made by the Company only as authorized in the
specific case unless a determination shall be made that indemnification of the
Indemnitee is not proper in the circumstances because he has not met the
applicable standard of conduct set forth in said Section 4.
(b) The Indemnitee shall be entitled to select the forum in which
the validity of the Company's claim that he is not entitled to indemnification
will be heard from among the following, which forums shall determine that the
Indemnitee is entitled to such indemnification unless the Company shall prove by
clear and convincing evidence that: (i) the Indemnitee has not met the
applicable standard of conduct required to entitle the Indemnitee to such
Indemnification or that Indemnification is otherwise not required pursuant to
Section 12 hereof, and (ii) the requirements of Section 5 have not been met:
(1) A majority vote of a quorum of the Company's Board
of Directors consisting of directors who are not parties to the Proceeding for
which indemnification is being sought;
(2) By independent legal counsel in a written opinion; (3)
A majority vote of the stockholders of the Company; or
(4) A panel of three arbitrators, one of whom is
selected by the Company, another of whom is selected by the Indemnitee and the
last of whom is selected by the first two arbitrators so selected.
(c) As soon as practicable, and in no event later than 30 days
after written notice of the Indemnitee's choice of forum pursuant to Section
11(b) above, the Company shall, at its own expense, submit to the selected forum
in such manner as the Indemnitee or the Indemnitee's counsel may reasonably
request, any claim that the Indemnitee is not entitled to indemnification, and
the Company shall act in the utmost good faith to assure the Indemnitee a
complete opportunity to defend against such claim.
(d) Notwithstanding a determination by any forum listed in Section
11(b) hereof that Indemnitee is not entitled to indemnification with respect to
a specific Proceeding, the Indemnitee shall have the right to apply to the Court
of Chancery of Delaware, the court in which that Proceeding is or was pending,
or any other court of competent jurisdiction, for the purpose of enforcing the
Indemnitee's right to indemnification pursuant to this Agreement. Such court
shall find that the Indemnitee is entitled to indemnification unless the Company
shall prove by clear and convincing evidence that (i) the Indemnitee has not met
the applicable standard of conduct required to entitle the Indemnitee to such
indemnification or that indemnification is otherwise not required pursuant to
Section 12 hereof, and (ii) the requirements of Section 11(a) have not been met.
(e) Notwithstanding any other provision in this Agreement to the
contrary, the Company shall indemnify the Indemnitee against all expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section 11 involving the Indemnitee and against all expenses incurred by
the Indemnitee in connection with any other proceeding between the Company and
the Indemnitee involving the interpretation or enforcement of the rights of the
Indemnitee under this Agreement unless a court of competent jurisdiction finds
that each of the claims and/or defenses of the Indemnitee in any such proceeding
was frivolous or made in bad faith.
12. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise as
required under Section 145, but such indemnification or advancement of expenses
may be provided by the Company in specific cases if a majority of the
disinterested members of the Board of Directors finds it to be appropriate; or
(b) Adverse Judgment Regarding this Agreement. To indemnify the
Indemnitee for any expenses incurred by the Indemnitee with respect to any
proceeding instituted by the Indemnitee to enforce or interpret this Agreement,
if a court of competent jurisdiction finds that the Indemnitee is not entitled
to indemnification pursuant to this Agreement; or
(c) Unauthorized Settlements. To indemnify the Indemnitee under
this Agreement for any amounts paid in settlement of a Proceeding unless the
Company consents to such settlement, which consent shall not be unreasonably
withheld.
13. Non-exclusivity. The provisions for indemnification and advancement of
expenses set forth in this Agreement shall not be deemed exclusive of any other
rights which the Indemnitee may have under any provision of law, the Company's
Certificate of Incorporation or By-Laws, the vote of the Company's shareholders
or disinterested directors, other agreements, or otherwise, both as to action in
his official capacity and to action in another capacity while occupying his
position as an agent of the Company, and the Indemnitee's rights hereunder shall
continue after the Indemnitee has ceased acting as an agent of the Company and
shall inure to the benefit of the heirs, executors and administrators of the
Indemnitee.
14. Interpretation of Agreement. It is understood that the parties hereto
intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law, including those circumstances set forth in this Agreement in
which indemnification would otherwise be discretionary.
15. Severability. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 14 hereof.
16. Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
17. Successors and Assigns. The terms of this Agreement shall bind, and
shall inure to the benefit of, the successors and assigns of the parties hereto.
18. Notice. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written notice.
19. Governing Law. This Agreement shall be governed by and construed
according to the internal laws of the State of Delaware, as applied to contracts
between Delaware residents entered into and to be performed entirely within
Delaware.
20. Consent to Jurisdiction. The Company and the Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and, unless waived by both parties in writing,
agree that any action instituted under this Agreement shall be brought only in
the state courts of the State of Delaware.
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<PAGE>
The parties hereto have entered into this Indemnity Agreement effective as
of the date first above written.
THE COMPANY:
Copley Pharmaceutical, Inc.
25 John Road
Canton, MA 02021
By: ______________________
Name:_____________________
Title:____________________
INDEMNITEE:
--------------------------
NAME
Address:
--------------------------
--------------------------
--------------------------
CORPORATE GOVERNANCE AND
STANDSTILL AGREEMENT
by and among
COPLEY PHARMACEUTICAL, INC.,
HOECHST CELANESE CORPORATION
and
HCCP ACQUISITION CORPORATION
Dated as of October 8, 1993
===============================================================================
<PAGE>
- i -
TABLE OF CONTENTS
Section Page
1. Effectiveness of Agreement.............................................
2. Defined Terms..........................................................
3. Covenants..............................................................
4. Board of Directors.....................................................
5. Authority of Board of Directors........................................
6. Chief Executive Officer of the Company.................................
7. Restrictions on Transfer...............................................
8. Registration Rights....................................................
9. Legends................................................................
10. Termination............................................................
11. Representations........................................................
12. Entire Agreement; Assignment...........................................
13. Validity...............................................................
14. Notices................................................................
15. Governing Law..........................................................
16. Descriptive Headings...................................................
17. Specific Performance...................................................
18. Parties in Interest....................................................
19. Confidentiality Agreement..............................................
20. Counterparts...........................................................
21. Best Efforts...........................................................
<PAGE>
- 8 -
CORPORATE GOVERNANCE AND STANDSTILL AGREEMENT
CORPORATE GOVERNANCE AND STANDSTILL AGREEMENT, dated as of October 8,
1993, by and among Hoechst Celanese Corporation, a Delaware corporation ("HC"),
HCCP Acquisition Corporation, a Delaware corporation and a wholly owned
subsidiary of HC ("Sub"), and Copley Pharmaceutical, Inc., a Delaware
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, HC, Sub and the Company, simultaneously with the execution
hereof, are entering into an Acquisition Agreement (the "Acquisition Agreement")
pursuant to which Sub will commence a cash tender offer (the "Offer") for shares
of common stock, par value $.01 per share, of the Company (the "Shares"); and
WHEREAS, simultaneously herewith HC and Sub are entering into a Stock
Purchase Agreement (the "Stock Purchase Agreement") with the stockholders listed
therein pursuant to which the parties thereto are agreeing to certain matters
with respect to certain of such stockholders' Shares; and
WHEREAS, the parties desire to confirm their understandings with
respect to the matters set forth herein. NOW, THEREFORE, the parties
hereto, in consideration of the mutual covenants and agreements herein
contained, and intending to be legally bound hereby, covenant and agree as
follows:
1........Effectiveness of Agreement. This Agreement shall be effective
upon acquisition by HC or Sub of at least a majority of the outstanding Shares
(the "Effective Time"). In the event that the Acquisition Agreement and the
Stock Purchase Agreement are terminated without HC or Sub acquiring Shares in
connection therewith, this Agreement shall thereupon become null and void and be
of no further force and effect.
2........Defined Terms. As used in this Agreement, the following terms
shall have the meanings ascribedthereto:
.................."Acquisition Agreement" has the meaning set forth in the
"Whereas" clauses.
.................."1933 Act" means the Securities Act of 1933, as amended
including the Rules and Regulationspromulgated thereunder).
.................."1934 Act" means the Securities Exchange Act of 1934,
as amended (including the Rules andRegulations promulgated thereunder).
.................."Affiliate" of any entity or Person shall mean any other
Person controlling, controlled by, or under common control with, such Person.
"Control," when used with respect to any Person, means the power to direct the
management policies of such Person, directly, indirectly, individually or
jointly, whether through ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" having meanings
correlative to the foregoing.
.................."Agreement" has the meaning set forth in the introduction.
.................."Beneficially Own" and "Beneficial Ownership" with respect to
any securities means having beneficial ownership as determined pursuant to Rule
13d-3 under the 1934 Act.
.................."Board" or "Board of Directors" shall mean the Board of
Directors of the Company.
.................."By-laws" means the Amended and Restated By-laws of the
Company adopted April 9, 1992, as such may be amended from time to time.
.................."Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of equity
interests in such Person.
.................."Certificate of Incorporation" means the Amended and Restated
Certificate of Incorporation of the Company, as such may be amended from time to
time.
.................."Company" has the meaning set forth in the Introduction.
.................."Company Directors" shall initially be Jane Hirsh and two
current directors of the Company who are not employees of the Company.
Thereafter, the Company Directors shall be the persons designated by the Company
Directors then in office.
.................."Demand Registration" has the meaning set forth in Section
8(a).
.................."Demand Registration Statement" has the meaning set forth in
Section 8(a).
.................."Effective Time" has the meaning set forth in Section 1.
.................."Extraordinary Matters" has the meaning set forth in Section
4(b).
.................."Fully Diluted Basis" shall mean, with respect to the Capital
Stock of any Person, all shares of such Capital Stock which would be outstanding
if all shares of such Capital Stock issuable or deliverable upon the exercise of
all then outstanding rights, options and warrants (vested or unvested) issued or
granted by such Person to subscribe for or purchase shares of such Capital Stock
of such Person, and upon the conversion or exchange of all then outstanding
securities issued by such Person or any of its Subsidiaries convertible into or
exchangeable for shares of such Capital Stock of such Person, were issued and
outstanding at the time ofdetermination.
.................."HC" has the meaning set forth in the Introduction.
.................."HC Directors" shall be such persons as are so designated by
HC, as such designation may change from time to time.
.................."HC Parties" means collectively HC and Sub and any Affiliates
thereof.
.................."Independent Directors" shall be jointly selected by the
Company Directors and the HC Directors, as such selection may change from time
to time. Following five years from the date hereof, the Independent Directors
shall mean a person who (x) is in fact independent, (y) does not have any direct
financial interest or any material indirect financial interest in HC or the
Company or any of their respective Affiliates (other than by reason of ownership
of not more than 1% of any class of securities thereof), and (z) is not
connected with HC or the Company or any of their respective Affiliates as an
officer, employee, consultant, agent, advisor, representative, trustee, partner,
director (other than of the Company) or person performing similar functions.
.................."Offer" has the meaning set forth in the "Whereas" clauses.
.................."Person" shall mean any individual, firm, corporation,
partnership or other entity.
.................."SEC" means the Securities and Exchange Commission of the
United States or any substantially similar " successor governmental entity.
.................."Shares" has the meaning set forth in the "Whereas" clauses.
.................."Stock Purchase Agreement" has the meaning set forth in the
"Whereas" clauses.
.................."Sub" has the meaning set forth in the Introduction.
.................."Subsidiary" of any Person (that Person, the "Parent") means
any other Person of which Capital Stock representing at least a majority of the
voting power under normal circumstances to elect a majority of the board of
directors or other governing body of such Person shall be owned directly or
indirectly by the Parent and/or one or more of the Parent's Subsidiaries.
.................."Total Voting Power" means the aggregate Voting Power of all
of the Voting Stock, if all Voting Stock were present and voted at a meeting of
the Company's stockholders.
.................."Voting Power" of any Voting Stock means the number of votes
such Voting Stock would be entitled to cast in the election of directors of the
Company at any meeting of stockholders of the Company.
.................."Voting Stock" means the outstanding Shares and any other
outstanding securities issued by the Company having the ordinary power to vote
in the election of directors of the Company, excluding securities issued by the
Company having such power only upon the happening of a contingency.
3........Covenants.
..................(a) From and after the Effective Time, without the
Company's prior written consent(including the consent of at least one Company
Director) the HC Parties will not, directly or indirectly:
(i) acquire, or agree to acquire, Beneficial
Ownership of any Voting Stock except pursuant to Section 3(d) hereof;
(ii) solicit proxies with respect to any Voting Stock
or be a "participant" in a "solicitation" or "election contest" (as
such terms are used in Regulation 14A promulgated under Section 14 of
the 1934 Act) or seek to influence any Person with respect to the
voting of any Voting Stock, in any case in opposition to a
recommendation of the Board, except as contemplated by the Stock
Purchase Agreement;
(iii) vote its Voting Stock with respect to any
matter in opposition to the recommendation of the Board of Directors or
fail to vote its Voting Stock in favor of any matter recommended by the
Board of Directors; or
(iv) have any Voting Stock on deposit in a voting
trust or subject any Voting Stock to any arrangement or agreement with
respect to the voting of such Voting Stock or other agreement having
similar effect.
..................(b) With respect to determining the number of shares of
Voting Stock or other Capital Stock of the Company outstanding at any time,
unless the Company shall have provided the HC Parties with more recent
information in writing, the HC Parties and their Affiliates shall be entitled to
rely upon the information filed by the Company with the SEC setting forth the
number of shares of Voting Stock of the Company outstanding.
..................(c) The HC Parties hereby agree that at any meeting of
the stockholders of the Company or in connection with any action by written
consent by the stockholders of the Company, they shall vote their Voting Stock
Beneficially Owned by them against any action or agreement, and the HC Parties
will not take any other action, that would (x) result in a breach of any
covenant, representation or warranty or any other obligation of the HC Parties
under this Agreement or (y) impede, interfere with or discourage the
transactions contemplated by this Agreement. The Company shall not take any
action that would result in a breach of any covenant, representation or warranty
or any other obligation of the Company under this Agreement or impede, interfere
with or discourage the transactions contemplated by this Agreement.
..................(d) If the Company shall issue any shares of Voting Stock,
including upon the exercise or conversion of options, warrants, rights or other
securities, the Company shall thereupon offer to sell to HC (or any Subsidiary
designated by HC) a number of shares of Voting Stock of the class issued such
that immediately following such issuance, HC would Beneficially Own the lesser
of:(i) 54.3% of the then outstanding Total Voting Power and (ii) the percentage
of the Total Voting Power which HC Beneficially Owned immediately prior to such
issuance. The Company shall offer to sell such shares to HC at a price equal to
the issue price for such shares; provided that, in the case of issuances
pursuant to the exercise of options issued pursuant to a Company employee or
director stock option plan, the Company shall offer to sell shares to HC at a
price equal to the fair market value of such shares on the date of the option
exercise. In the case of cashless option exercises, the Company and HC shall use
their best efforts to enter into arrangements providing that HC shall have the
right to acquire a portion of the shares being issued in connection with such
cashless exercise.
..................The Company shall notify HC promptly, and in any event within
two days of issuance, of the issuance of any shares. Such notice shall also
include the number and class of shares to be offered to HC, the purchase price
thereof and, based on the most recent information available to the Company after
due inquiry, the number of outstanding shares and the number and terms of any
outstanding options, warrants and rights. HC shall have 60 days from the receipt
of such notice to notify the Company as to whether it shall purchase all or any
part of such shares. The closing of such purchase and sale shall take place at
the date and time specified in the HC notice, provided such closing is not less
than two nor more than ten days from the date the Company receives such notice.
..................HC and the Company shall reasonably cooperate to effect the
foregoing, including by entering into such further agreements, providing such
information or execute such instruments, as either party may reasonably request.
..................(e) Except as provided in Section 3(d), any purchases of
Shares by HC or its Affiliates prior to the fifth anniversary hereof shall
require the approval of a majority of the members of the Board of Directors who
are Company Directors. Following the fifth anniversary of the date hereof,
notwithstanding any provisions hereof to the contrary, (i) HC may acquire
Company securities in privately negotiated, unsolicited transactions, so long as
at least 17% of the outstanding Shares remain freely tradeable Shares and (ii)
without the approval of a majority of the Independent Directors, HC will not
otherwise acquire any Shares.
..................(f) So long as there are Company Directors or Independent
Directors on the Board, (i) HC will not take any actions to amend provisions of
the Certificate of Incorporation or By-Laws relating to the indemnification of
directors of the Company or cause the Company to breach any existing indemnity
agreement with officers or directors and (ii) will not cause the Company to
terminate its directors and officers' insurance policy and, following the time
the HC Directors constitute a majority of the Board, will cause the Company to
continue such policy, or other policy of similar scope, as long as the Company
is not required to spend in any year more than 150% of its current annual
expenditures for such purpose.
..................(g) Each transaction or series of related transactions between
the Company and HC or an Affiliate of HC and each other corporate action of the
Company in which there is a potential conflict between the interests of HC or
any Affiliate and the interests of the Company and its other stockholders shall
be subject to the prior approval of a majority of the Independent Directors of
the Company.
4........Board of Directors.
..................(a) At the Effective Time, the Company shall cause the
Board of Directors to consist of 9 persons, 3 of whom are Company Directors, 3
of whom are HC Directors and 3 of whom are Independent Directors. Each of the
Company Directors, HC Directors and Independent Directors shall be divided as
equally as possible among the 3 classes of directors on the Board.
..................(b) After the Effective Time, the Company will use its
best efforts to continue the arrangements set forth in paragraph (a), above,
provided, that (i) if the HC Parties shall Beneficially Own less than 35% of the
Total Voting Power, HC shall cause the resignation of one HC Director, so that
there are two HC Directors on the Board and the Board shall then include four
Independent Directors, (y) if the HC Parties shall Beneficially Own less than
25% of the Total Voting Power, HC shall cause the resignation of HC Directors so
that there is one HC Director on the Board and the Board shall then include five
Independent Directors and (z) if the HC Parties shall Beneficially Own less than
10% of the Total Voting Power, HC shall cause the resignation of all HC
Directors on the Board of Directors.
..................(c) The composition of each committee of the Board of
Directors shall reflect proportionately as closely as possible the composition
of the Board of Directors.
5........Authority of Board of Directors.
..................(a) Except as set forth in paragraph (b) below or
otherwise required by law, the Certificate of Incorporation or the Bylaws, all
actions and decisions of the Board of Directors shall require a majority vote of
the directors then in office.
..................(b) In addition to any stockholder vote or vote by the
Board of Directors which may be required by law, the affirmative vote of at
least one HC Director shall be required in order to authorize the following
actions or matters (collectively, the "Extraordinary Matters"):
(i) in one transaction or a series of related
transactions, the transfer, lease, license, sale, mortgage,
encumbrance, pledge or other disposition of any assets of the Company
or its Subsidiaries involving more than $10 million of assets;
(ii) in one transaction or a series of related
transactions, the purchase or other acquisition of the assets or stock
of, or the investment in or capital contribution to, any other Person,
where the consideration represents more than $10 million;
(iii) in one transaction or a series of related
transactions, the merger, consolidation or other business combination
involving the Company or any of its Subsidiaries where the
consideration represents more than $10 million;
(iv) in one transaction or a series of related
transactions, the issuance, sale or repurchase of Voting Capital Stock
or rights to acquire (including convertible securities) Voting Capital
Stock involving more than $10 million;
(v) amendments to the Certificate of Incorporation or
the By-laws; (vi) the termination of employment or
the hiring of a Chief Executive Officer; (vii) the
approval of an annual budget for the Company and its
Subsidiaries
(including, but not limited to, capital expenditures, debt incurrence
and operating expenses), any amendments thereto and any significant
expenditures or borrowings not contemplated thereby;
(viii) any increase in the annual compensation (other
than pursuant to the annual bonus pool or stock options) for the
officers of the Company subject to Section 16(a) under the 1934 Act
aggregating more than 15% in any one year, any change in the method of
calculating the Company's annual bonus pool (including the formula for
such bonus over 10% of the Company's annual pretax profits) and any
awards of options representing more than an aggregate of 250,000 Shares
for all directors, officers and employees of the Company in any year;
(ix) the declaration, setting aside or payment of any
dividend or distribution on its Capital Stock payable in cash, stock or
property;
(x) the amendment to or waiver of this Agreement; and
(xi) the initiation of bankruptcy, insolvency or
reorganization proceedings involving the Company or any of its
Subsidiaries.
..................In addition, the affirmative vote of at least one Company
Director is required in order to authorize the actions set forth in paragraphs
(b)(v) and (x) above.
..................(c) The provisions set forth in paragraph (b) above
relating to the vote of the Board of Directors required to approve Extraordinary
Matters shall terminate five years from the date hereof; provided, however, that
(i) the provisions set forth in paragraphs (b)(i), (ii), (iii), (iv), (vii) and
(viii) shall terminate if the HC Parties Beneficially Own less than 50% of the
Total Voting Power and (ii) the provisions set forth in paragraph (b) above
shall terminate if the HC Parties Beneficially Own less than 35% of the Total
Voting Power or if a third party shall Beneficially Own at least a majority of
the Total Voting Power; and further provided, however, that such provisions
shall not terminate if the HC Parties' percentage Beneficial Ownership decreased
following an issuance of Voting Stock unless the HC Parties do not acquire a
sufficient number of shares of Voting Stock to be in compliance with this
provision within 70 days of notice to HC of such issuance of Voting Stock.
6........Chief Executive Officer of the Company.
..................(a) Following the Effective Time, the Chairperson of the
Board and Chief Executive Officer of the Company shall be Jane C.I. Hirsh, who
shall serve in accordance with the terms of the Employment Agreementdated the
date hereof, between Ms. Hirsh and the Company.
7........Restrictions on Transfer. The HC Parties may sell, transfer or
dispose of all or a portion of any Voting Stock Beneficially Owned. If any
Person acquiring Voting Stock from the HC Parties, other than in a transaction
pursuant to Rule 144 under the 1933 Act or in a bona fide public offering, in
which the underwriters are instructed to achieve as wide a distribution as
practicable, would, to the best knowledge of the HC Parties after reasonable
inquiry, Beneficially Own 5% or more of the Total Voting Power determined on a
Fully Diluted Basis, such person as a condition to transfer shall agree to be
bound by the provisions hereof, and shall be entitled to all benefits hereof
(including registration rights to the extent transferred), other than Sections 4
and 5.
8........Registration Rights.
..................(a) If a HC Party requests the Company in writing to
register under the 1933 Act any Shares (references to Shares in this Section 8
shall include references to any security of the Company) held by such HC Party
(a "Demand Registration"), the Company shall use its best efforts to cause the
Shares specified in such request to be registered as promptly as practicable
under the 1933 Act so as to permit the sale thereof and in connection therewith
promptly prepare and file, on such appropriate MP form as HC shall reasonably
request, a registration statement (a "Demand Registration Statement") under the
1933 Act to effect such registration and use its best efforts to have such
registration statement become effective as promptly as practicable and otherwise
use its best efforts to make such filings and take such actions as may be
necessary or desirable to allow HC lawfully to distribute Shares; provided,
however, that (i) each such Demand Registration is for the registration of
Shares leaving a market value on the date of such demand of at least $25
million, (ii) the Company shall not be obligated to file a registration
statement pursuant to this Section 8 during the 180-day period following the
effectiveness of any other registration statement filed by the Company pursuant
to this paragraph (a) and (iii) Company's obligations shall cease once three
Demand Registration Statements have become effective and have remained effective
(including not being subject to any stop order or injunction) for the period
contemplated by paragraph (b) below.
..................(b) Upon any registration becoming effective pursuant to
this Section 8, the Company shall use its best efforts to keep such registration
statement current for a period of 90 days or such shorter period which will
terminate when all Shares covered by such Demand Registration Statement have
been sold.
..................(c) Notwithstanding the foregoing, (i) the Company shall
not be obligated to cause any special audit to be undertaken in connection with
any such registration and (ii) with respect to each Demand Registration, the
Company shall be entitled to postpone for up to 90 days the filing of any
registration statement otherwise required to be prepared and filed by it (A) to
the extent necessary to prepare the financial statements of the Company for the
fiscal period most recently ended prior to such written request, (B) if the
Company would be required to disclose in such registration statement the
existence of any fact not otherwise required to be disclosed and the Company
reasonably determines that such disclosure would be materially injurious to it
or (C) if the nationally recognized investment banking firm serving as managing
underwriter notifies the HC Parties that a registration at the time and on the
terms requested would Adversely affect any financing by the Company that had
been contemplated by the Company prior to receipt of notice requesting
registration pursuant to paragraph (a).
..................(d) The Company shall pay all of the expenses incurred in
connection with each Demand Registration, except that the HC Parties shall pay
all fees of .any independent counsel retained by them and any underwriting
Discounts in connection therewith.
..................(e) If requested by the HC Parties, the Company shall
enter into an underwriting agreementwith a nationally recognized investment
banking firm selected by the HC Parties, in connection with a Demand
Registration Statement, containing representations, warranties, indemnities and
agreements then customarily included by an issuer in underwriting agreements
with respect to secondary distributions by such underwriter.
..................(f) If requested by the HC Parties, the Company shall enter
into an indemnification
agreement with the HC Parties providing for indemnification on customary terms.
9........Legends. The certificates evidencing all Voting Stock at any
time Beneficially Owned by an HC Party or any of their respective transferees,
shall bear the following legends unless and until such time as HC or any such
transferee delivers an opinion of counsel reasonably acceptable to the Company
and its counsel to the effect that such legend is not required under this
Agreement or that this Agreement has been terminated in accordance with its
terms, and, in the case of a transferee, that such transfer is not in violation
of this Agreement and that the transferee is not subject to or bound by the
provisions of this Agreement, and stating the basis therefor:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A CORPORATE GOVERNANCE AND STANDSTILL
AGREEMENT DATED AS OF OCTOBER 8, 1993 BY AND AMONG HOECHST
CELANESE CORPORATION, HCCP ACQUISITION CORPORATION AND COPLEY
PHARMACEUTICAL, INC., COPIES OF WHICH ARE ON FILE WITH THE
SECRETARY OF COPLEY, AND ARE HELD AND MAY NOT BE SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, HYPOTHECATED, ENCUMBERED,
OTHERWISE GRANTED AS SECURITY, OR OTHERWISE DISPOSED OF EXCEPT
IN ACCORDANCE THEREWITH.
NO REGISTRATION OF TRANSFER OF THE SECURITIES WILL BE MADE ON
THE BOOKS OF COPLEY UNLESS SUCH TRANSFER IS MADE IN CONNECTION
WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 OR PURSUANT TO AN EXEMPTION FROM APPLICABLE
FEDERAL AND STATE REGISTRATION REQUIREMENTS."
10.......Termination. This Agreement shall terminate five years
following the date hereof, provided that, so long as the Company has equity
securities registered under the 1934 Act, there shall be at least three
Independent Directors on the Board and that Sections 3(e) and 21 shall survive.
Upon a material breach of this Agreement by the Company, on the one hand, or HC
or Sub, on the other hand, the obligations of HC (and Sub) or the Company, as
the case may be, shall terminate. Prior to such termination, the person wishing
to terminate shall give the other parties written notice of the breach and 20
days to cure such breach.
11.......Representations. (a) HC and Sub severally represent and
warrant to the Company that (i) such party has duly authorized, executed and
delivered this Agreement and this Agreement is a valid and binding agreement of
HC and Sub, enforceable against HC and Sub in accordance with its terms and (ii)
the execution of this Agreement by HC and Sub and the consummation by HC and Sub
of the transactions contemplated hereby will not constitute a violation of, or
conflict with, or default under, any contract, commitment, agreement,
understanding, arrangement or restriction of any kind to which HC or Sub is a
party or by which it may be bound, and (b) the Company represents and warrants
to each of the HC Parties that (i) the Company has duly authorized, executed and
delivered this Agreement and this Agreement is a valid and binding agreement of
Company, enforceable against the Company in accordance with its terms and (ii)
the execution of this Agreement by Company and the consummation by the Company
of the transactions contemplated hereby will not constitute a violation of, or
conflict with, or default under, any contract, commitment, agreement,
understanding, arrangement or restriction of any kind to which the Company is a
party or by which the Company is bound.
12.......Entire Agreement; Assignment. This Agreement constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
between the parties or any of them with respect to the subject matter hereof,
and except as provided herein, shall not be assigned by operation of law or
otherwise.
13.......Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
14.......Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telegram, telex or telefax, or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties as follows:
if to the HC Parties:
Hoechst Celanese Corporation
Route 202-206
PO Box 2500
Somerville, NJ 08876
Attention: David A. Jenkins
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Alan C. Myers
if to the Company:
Copley Pharmaceutical, Inc.
25 John Road
Canton, Mass. 02021
Attention: Chief Financial Officer
with a copy to:
Testa, Hurwitz and Thibeault
Exchange Place
53 State Street
Boston, Massachusetts 02109-2809
Attention: Leslie Davis
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
15.......Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
16.......Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
17.......Specific Performance. The parties hereto acknowledge that
damages would be an inadequate remedy for a breach of this agreement and that
the obligations of the parties hereto shall be specifically enforceable, in
addition to any other remedy which may be available at law or in equity.
18.......Parties in Interest. Except as set forth herein, this
Agreement shall be binding upon and inure solely to the benefit of each party
hereto, and nothing in this Agreement, express or implied, is intended to or
shall confer upon any other person or persons any rights, benefits or remedies
of any nature whatsoever under or by reason of this Agreement.
19.......Confidentiality Agreement. The Confidentiality Agreement,
dated September 9, 1993, between HC and the Company shall terminate at the
Effective Time.
20.......Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
21.......Best Efforts. Each party hereto shall use its reasonable best
efforts to cause the transactions contemplated hereby to be consummated and
effected.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their respective officers thereunto duly authorized, all as of the
day and year first above written.
COPLEY PHARMACEUTICAL, INC.
By: /s/ Jane C.I. Hirsh___________________
Name: Jane C.I. Hirsh
Title: Chairperson of the Board,
Chief Executive Officer and President
HOECHST CELANESE CORPORATION
By: /s/ Harry R. Benz___________________
Name: Harry R. Benz
Title: Senior, Vice President-Finance,
Chief Financial Officer and Director
HCCP ACQUISITION CORPORATION
By: /s/ Don Whitcomb___________________
Name: Don Whitcomb
Title: President
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Copley Pharmaceutical, Inc.
We consent to incorporation by reference in registration statements (No.
33-54707), (No. 33-96122) and (No. 33-96122) and (No. 33-96118) on Form S-8 of
Copley Pharmaceutical, Inc. of our report dated January 27, 1999, relating to
the consolidated balance sheets of Copley pharmaceutical, Inc. and subsidiaries
as of December 31, 1998 and the related consolidated statements of operations,
shareholders' equity and cash flows for the years ended December 31, 1998, which
report appears in the December 31, 1998 annual report on Form 10-K of Copley
Pharmaceutical, Inc.
/s/ PricewaterhouseCoopers LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Copley Pharmaceutical, Inc.
We consent to incorporation by reference in registration statements (No.
33-54707), (No. 33-96122) and (No. 33-96122) and (No. 33-96118) on Form S-8 of
Copley Pharmaceutical, Inc. of our report dated January 27, 1998, on our audits
of the consolidated statements of operations, shareholders' equity and cash
flows for the years ended December 31, 1997 and 1996, which report appears in
the December 31, 1998 annual report on Form 10-K of Copley Pharmaceutical, Inc.
/s/ KPMG LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEETS, STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000829987
<NAME> Copley Pharmaceutical, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 13,016
<SECURITIES> 30,206
<RECEIVABLES> 34,445
<ALLOWANCES> (500)
<INVENTORY> 22,441
<CURRENT-ASSETS> 4,742
<PP&E> 75,239
<DEPRECIATION> (32,439)
<TOTAL-ASSETS> 155,365
<CURRENT-LIABILITIES> 38,752
<BONDS> 4,800
0
0
<COMMON> 254
<OTHER-SE> 108,050
<TOTAL-LIABILITY-AND-EQUITY> 155,365
<SALES> 133,497
<TOTAL-REVENUES> 133,497
<CGS> 100,617
<TOTAL-COSTS> 100,617
<OTHER-EXPENSES> 22,422
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 538
<INCOME-PRETAX> 11,674
<INCOME-TAX> 4,606
<INCOME-CONTINUING> 7,068
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,068
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
