<PAGE>
UNITED STATES
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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-10432
- ------------------------------
ROBERTS PHARMACEUTICAL CORPORATION
-----------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2429994
- --------------------------------- ----------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Meridian Center II
4 Industrial Way West
Eatontown, New Jersey 07724
- --------------------------------- ----------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number,
including area code: (732) 389-1182
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- ---------------------
Common Stock, $.01 par value per share American Stock Exchange
Rights American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
- -----------------------------------------------------------------------------
(Title of class)
<PAGE>
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 the 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. [ ]
The aggregate market value of the common stock, $.01 par value per
share (the "Common Stock"), of the Registrant held by non-affiliates of the
Registrant, as determined by reference to the last sale price of the Common
Stock as reported by the American Stock Exchange as of March 20, 1998 was
$322,924,104.
As of March 20, 1998, the number of outstanding shares of Common Stock
was 30,662,475.
Documents incorporated by Part of Form 10-K into which
reference into this report document is incorporated
-------------------------- ----------------------------
Proxy Statement for the Part III
Annual Meeting of Shareholders
to be held in May 1998.
FORWARD LOOKING STATEMENTS
Certain statements included in (i) Item 1(c) Description of Business
with respect to the Registrant's development of its proprietary pipeline
products and with respect to the Registrant's newly acquired manufacturing and
distribution facilities and with respect to certain discontinued operations of
the Registrant; (ii) Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations; and (iii) certain of the notes to the
Registrant's consolidated financial statements included on pages F-7, F-8, F-13,
F-14, F-17, F-19, F-21 and F-22 herein, are intended to be, and are hereby
identified as, forward looking statements for purposes of the safe harbor
provided by Section 21E of the Securities Exchange Act of 1934, as amended, and
Section 27A of the Securities Act of 1933, as amended. The Registrant cautions
readers that forward looking statements, including, without limitation, those
relating to the Registrant's future business prospects, revenues, cost of sales,
intangible dispositions and write-offs, continuing operations and discontinued
operations, and liquidity and capital resources, are subject to certain risks
and uncertainties, including, without limitation, the ability of the Registrant
to secure regulatory approval in the United States and in foreign jurisdictions
for the Registrant's developmental pipeline drugs, the efforts of the
Registrant's competitors and the introduction of rival pharmaceutical products
which may prove to be more effective than the Registrant's products, general
market
<PAGE>
conditions, the availability of capital, and the uncertainty over the future
direction of the healthcare industry, that could cause actual results to differ
materially from those indicated in the forward looking statements.
<PAGE>
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Roberts Pharmaceutical Corporation (the "Company") is an international
pharmaceutical company which licenses, acquires, develops and commercializes
post-discovery drugs in selected therapeutic categories. The Company was
incorporated under the laws of the State of New Jersey in 1982 and commenced
operations in 1983. In 1988, its name was changed to Roberts Pharmaceutical
Corporation from VRG International, Inc. The Company's executive offices are
located at Meridian Center II, 4 Industrial Way West, Eatontown, New Jersey
07724, and its telephone number is (732) 389-1182. As used herein, the term the
"Company" refers to Roberts Pharmaceutical Corporation and its subsidiaries
unless the context indicates otherwise.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Substantially all revenues, operating profits or losses and assets of
the Company are attributable to one line of business, the acquisition,
development and sale of pharmaceutical products, primarily prescription
pharmaceutical products.
(c) DESCRIPTION OF BUSINESS
The Company was founded to take advantage of the large and growing
opportunity to license, acquire, develop and commercialize post-discovery drugs
in selected therapeutic categories. The Company has organized its drug
development, acquisition and marketing activities to focus on late-stage
development drugs in Phase II or Phase III clinical trials and currently
marketed prescription pharmaceutical products which (i) do not meet the
strategic objectives or profit thresholds of larger pharmaceutical companies or
(ii) are made available by government agencies and research institutions. The
therapeutic categories targeted by the Company are Cardiovascular,
Gynecology/Endocrinology, Urology, Oncology, Hematology and Gastroenterology.
The Company has a broad product portfolio including PROAMATINE(R) and
AGRYLIN/TM/, which are the Company's first proprietary drugs approved by the
U.S. Food and Drug Administration (the "FDA"). See "Approved Pipeline Products."
In addition, the Company has a number of other proprietary late-stage
development products in the Company's pipeline. See "Late-Stage Development
Products."
During 1997, the Company continued the efforts commenced in 1995 and
1996 which were designed to concentrate the Company's business operations in its
core business of licensing, acquiring, developing and selling prescription
pharmaceuticals. The Company has since completed the sale of the core of its
nonprescription pharmaceuticals and has essentially completed the sale of its
home
-2-
<PAGE>
care and medical products divisions ("Homecare"). See "Nonprescription
Pharmaceutical Products," "Prescription Pharmaceutical Products" and "Homecare."
Further, in March 1996, the Company announced its decision to discontinue and
divest the Company's clinical research business operations. The Company is in
the final stages of completing the sale of its contract clinical research
operations. See "Contract Clinical Research."
APPROVED PIPELINE PRODUCTS
PROAMATINE(R). In 1985, the Company acquired from the predecessor in
interest of Nycomed Pharma AG ("Nycomed Pharma") exclusive marketing rights in
the United States, Canada, the United Kingdom and Ireland to PROAMATINE
(midodrine), formerly AMATINE(R), a drug used for the treatment of orthostatic
hypotension and other blood pressure disorders. Orthostatic hypotension is a
condition involving the sudden drop in blood pressure upon assuming an upright
posture, resulting in dizziness, weakness or unconsciousness.
In September 1996, the FDA approved the Company's New Drug Application
("NDA") for PROAMATINE and cleared PROAMATINE for marketing in the United States
for the treatment of symptomatic orthostatic hypotension. The Company commenced
marketing and sales activities in the U.S. with respect to PROAMATINE in the
fourth quarter of 1996.
The FDA approved PROAMATINE pursuant to its accelerated approval
process for new drugs for serious or life threatening illnesses. There are no
other FDA approved treatments available for orthostatic hypotension. Other
current therapies used to treat the condition are associated with significant
adverse side effects such as potassium reduction, fluid retention and cardiac
and central nervous system disorders. The Company is conducting post-approval
and post-launch (Phase IV) studies of PROAMATINE as required as part of the FDA
approval. PROAMATINE is in Phase II trials for stress urinary incontinence. See
"Late Stage Development Products -Therapeutic Category - Urology."
PROAMATINE for orthostatic hypotension has been designated by the FDA
as an "Orphan Drug" under the Orphan Drug Act of 1983 (the "Orphan Drug Act"),
which provides the Company with a seven year period of market exclusivity in the
United States from the date of the FDA approval. See "Government Regulation."
In 1990, the Company was granted approval by the Irish National Drugs
Advisory Board to market PROAMATINE for use in the treatment of orthostatic
hypotension in Ireland, where the drug is sold under the name MIDON(R). In 1991,
the Company obtained regulatory approval for the sale in Canada of PROAMATINE
for use in the treatment of orthostatic hypotension, where the drug is sold
under the name AMATINE(R). AMATINE is sold in Canada by the Company's licensee,
Knoll Pharma Inc. ("Knoll") (formerly Boots Pharmaceuticals Ltd.). In December
1997, the Company filed an
-3-
<PAGE>
application in the United Kingdom for the approval to market PROAMATINE
under the name MIDON(R) for the treatment of orthostatic hypotension.
AGRYLIN(TM). In 1991, the Company obtained an exclusive worldwide
license from Bristol-Myers Squibb to develop, market and sell AGRYLIN
(anagrelide), which has been developed as an oral treatment for thrombocytosis,
a blood disorder characterized by high blood platelet counts which could result
in an abnormally high incidence of adverse blood clotting events, including
heart attack and stroke. There is evidence that some patients with increased
platelet counts have thrombosis or hemorrhage which can be treated successfully
by lowering the platelet count. AGRYLIN is intended to inhibit excessive
platelet production and reduce the morbidity and mortality of heart attack and
stroke in thrombocytosis patients.
In March 1997, the Company received notification from the FDA that the
Company's NDA for AGRYLIN was approved. The Company commenced active marketing
and sales activities with respect to AGRYLIN in the second quarter of 1997.
There is no other FDA approved treatment available for thrombocytosis. Other
current therapies used to reduce excessive platelet production have distinct
disadvantages, such as leukemogenesis, leukopenia and anemia. Further, AGRYLIN
has been designated by the FDA as an Orphan Drug. In December 1997, the Company
filed an application with the FDA to expand the indications of AGRYLIN to
include polycythemia vera.
The Company has received approval of its New Drug Submission ("NDS")
from the Health Protection Branch, Canada ("HPB") for the sale of AGRYLIN
in the Canadian market, and has begun marketing the drug in Canada.
AGRYLIN is currently in registration in Europe. AGRYLIN has been
accepted by the European Community regulatory authorities as a "List B" product,
which includes those products considered to be major therapeutic advances. The
Company has filed a Product License Application with the European Medicines
Evaluation Agency ("EMEA") according to the EMEA harmonization procedures for
the approval of new drugs within the European Community. If approved by the
EMEA, AGRYLIN would receive simultaneous approval throughout the European
Community for sale in member countries. The Company also intends to pursue
filing in other geographic locations such as Japan, Australasia and Latin
America for the sale of AGRYLIN.
PRESCRIPTION PHARMACEUTICAL PRODUCTS
In addition to developing its proprietary pipeline products, the
Company's principal objective is to concentrate its operations primarily on
licensing, acquiring, developing, marketing and selling prescription
pharmaceutical products. To enhance the Company's presence in its targeted
therapeutic categories, the Company has acquired marketed prescription
pharmaceutical products
-4-
<PAGE>
from various pharmaceutical companies. These product lines generate cash flow,
which contributes partial financial support to the Company's drug development
activities, and provides enhanced product sales opportunities for the Company's
sales force. Further, the sale of prescription pharmaceutical products has
enabled the Company to establish marketing channels in its targeted therapeutic
categories which the Company uses to market PROAMATINE and AGRYLIN and expects
to use to market its other late-stage development products if such products are
approved for sale.
Over the last five years, the Company has acquired the United States
and/or foreign product rights for many prescription pharmaceutical products from
various pharmaceutical manufacturers such as Procter & Gamble Pharmaceuticals,
Inc. ("Procter & Gamble"), Bristol-Myers Squibb Company ("Bristol-Myers
Squibb"), Glaxo Canada, Inc. ("Glaxo Canada"), Du Pont Merck Pharmaceutical
Company ("Du Pont Merck"), Merck and Co., Inc. ("Merck"), G.D. Searle & Co.
("G.D. Searle"), SmithKline Beecham plc ("SmithKline Beecham") and Wyeth
Laboratories, U.K. Certain of these products are: NOROXIN(R), an antibiotic used
for the treatment of urinary tract infections; TIGAN(R), a drug used to control
nausea and vomiting; EMINASE(R), a thrombolytic agent used in the treatment of
acute myocardial infarction to dissolve blood clots obstructing coronary
arteries; ETHMOZINE(R), NORPACE(R), TRANDATE(R), SALUTENSIN(R), SALURON(R) and
NITRODISC, cardiovascular products; FLORINEF(R), for adrenocortical
insufficiency; MAXOLON(R), a gastro-intestinal agent used for treatment of
nausea and vomiting associated with cancer chemotherapy; MINTEC(R), a gastro-
intestinal drug used for symptomatic relief of irritable bowel and spastic colon
syndromes in adults; ESTRACE(R), a line of estrogen replacement therapy products
used for symptomatic relief of menopausal symptoms and for the prevention of
osteoporosis; and MEPTID(R) and LODINE(R), analgesic agents.
As part of the Company's divestiture activities, the Company completed
the sale of NORETHIN, an oral contraceptive, to G.D. Searle in December,
1997.
NONPRESCRIPTION PHARMACEUTICAL PRODUCTS
In order to facilitate the growth of the Company's business, the
Company had always focused a part of its operations on the acquisition,
marketing and sale of nonprescription pharmaceutical products. Some of the
nonprescription pharmaceutical products acquired from various pharmaceutical
companies and which are marketed by the Company are CHERACOL D(R) and CHERACOL
PLUS(R), cough/cold products; COLACE(R), PERI-COLACE(R), SQUIBB(R) mineral oil,
SQUIBB(R) Glycerin Suppositories and SQUIBB(R) Cod Liver Oil, used in the
treatment of gastrointestinal disorders, and SLOW-MAG(R), a magnesium
supplement.
In August 1995, the Company identified the sale of nonprescription
pharmaceuticals as a non-core business activity and made the decision to
divest most of the products it had acquired.
-5-
<PAGE>
The Company divested a substantial portion of its nonprescription products
during 1996. The Company has retained and will continue to sell, and under the
right circumstances may acquire, only certain well known, high volume
nonprescription pharmaceutical products, such as COLACE, PERI-COLACE, and SLOW-
MAG, that do not require significant promotional outlays to establish and
maintain consumer brand recognition and the demand for which is not susceptible
to uncontrollable seasonal factors.
LATE-STAGE DEVELOPMENT PRODUCTS
The Company has a portfolio of several late-stage development
products, including PROAMATINE which, in addition to the treatment of
orthostatic hypotension for which it has received FDA approval, is being
developed for the treatment of stress urinary incontinence. Rights to these
late-stage development products were acquired by the Company after substantial
value had been added to the products through research activities conducted by
others. The Company's objective is to continue the development of these late-
stage products and bring them to market as has been accomplished with PROAMATINE
and AGRYLIN. There can be no assurance that regulatory approval of the late-
stage developmental products will be obtained in the United States or abroad.
The Company intends to contract-out the development of several of its late stage
development products, utilizing contract clinical research organizations. Sales
of products acquired from other pharmaceutical companies, and sales of the
Company's prescription and nonprescription pharmaceutical products, have enabled
the Company to develop a marketing and sales infrastructure to facilitate sales
of these late-stage products, if approved.
THERAPEUTIC CATEGORY - GASTROENTEROLOGY
In the latter part of 1996, the Company and Eli Lilly and Company
("Lilly") entered into a series of License Agreements pursuant to which the
Company acquired from Lilly certain rights to four developmental compounds
designated LY246736, LY353433, LY213829 (also known as "Tazofelone") and
LY315535 (collectively, the "Compounds"), which could potentially address some
of the unmet medical needs with respect to certain gastrointestinal disorders
such as inflammatory bowel disease and irritable bowel syndrome. Each of the
License Agreements grants the Company an exclusive license to develop,
manufacture, market and sell the Compounds anywhere in the world, except with
respect to LY315535, for which the Company is licensed only in the United States
and its territories, Canada and Mexico. For a description of certain other terms
of the Lilly License Agreements, see "License Agreements."
Tazofelone is being developed for the treatment of Inflammatory Bowel
Diseases ("IBD"), including ulcerative colitis and Crohn's disease. A Phase II
efficacy trial has been completed for Tazofelone, and Tazofelone could offer
consumers an alternative to existing treatments for IBD which include
corticosteroids, 5ASA and azsulfidine.
-6-
<PAGE>
The other three Compounds are being developed to treat Functional
Bowel Disorders ("FBD"), including irritable bowel syndrome and non-ulcerative
dyspepsia. These Compounds could provide an alternative to current FBD therapies
which include dietary changes, over-the-counter laxatives, antidiarrheals,
prescription antispasmodics, gastroprokinetics, proton pump inhibitors, 5HT\3\
compounds and antacids.
The Company has completed a Phase 1a study of LY315535. The compound
is being developed for the treatment of irritable bowel syndrome and non-ulcer
dyspepsia. The Phase 1a single rising dose study was conducted in human
volunteers. The objectives of the placebo-controlled study were to 1) show
safety across a range of doses and 2) establish a maximum tolerated dose. The
study demonstrated a favorable safety profile with LY315535 being well-tolerated
across a broad range of doses. Given the positive outcome of this study, the
next stage of Phase I testing in humans is scheduled to commence in the near
term.
THERAPEUTIC CATEGORY - CARDIOVASCULAR
In March 1997, the Company and Pfizer Inc. ("Pfizer") entered into a
License Agreement pursuant to which the Company acquired from Pfizer worldwide
rights to a compound in development called Sampatrilat. Sampatrilat, currently
in phase II clinical trials, is intended to treat essential hypertension and
congestive heart failure. The License Agreement grants the Company exclusive
worldwide rights to develop, manufacture, market and sell Sampatrilat anywhere
in the world.
Sampatrilat incorporates, in a single substance, two different but
complimentary modes of activity. It is a potent inhibitor of angiotensin
converting enzyme ("ACE") and also inhibits neutral endopeptidase which, in
turn, results in an elevation of atrial natriuretic factor ("ANF"), the body's
own natural diuretic. This dual mode of activity may offer patients and managed
care providers the potential advantages of a treatment regime involving fewer
drugs, reduced risks, and lower costs in comparison to currently existing
therapies.
Today, treatment of uncomplicated essential hypertension follows a
step therapy paradigm with the initial treatment often being an ACE inhibitor.
However, normalization of blood pressure may require the addition of a second
drug, generally a diuretic, in combination with the ACE inhibitor. This type of
step therapy, involving two and sometimes three drugs, may produce side effects
comprising the additive adverse reactions of the different products employed.
Diuretics commonly employed with ACE inhibitors can produce side
effects that include potassium depletion, gout, elevated blood lipids, and
abnormalities in sugar metabolism. Because ANF is a natural diuretic that does
not possess these properties, the use of Sampatrilat in hypertension or
congestive heart failure patients
-7-
<PAGE>
may confer, through the administration of a single drug, all the advantages of a
pure ACE inhibitor with the addition of greater natruresis thus obviating the
separate diuretics.
THERAPEUTIC CATEGORY - RESPIRATORY
MAXIVENT(R). In 1984, the Company obtained an exclusive license from
ABC Laboratories of Italy ("ABC") to develop and market MAXIVENT (doxofylline)
in the United States, Canada and Japan and, in 1989, obtained a nonexclusive
license to develop and market the drug in the United Kingdom and Ireland.
MAXIVENT is an oral bronchodilator intended for use in the treatment of asthma.
Common asthma is a condition involving the periodic constriction of
the airways resulting in labored and often painful breathing. Treatment is
generally provided by means of bronchodilator drugs which relieve the
constriction of the airways and, in turn, the distress of an attack. The most
commonly used oral bronchodilator is theophylline, a drug with good efficacy but
which is capable of producing certain undesirable side effects such as
disturbances in heart rhythm, central nervous system irritability, convulsions,
gastro-intestinal distress and excess urination. Phase II clinical studies and
Phase III clinical trials indicate that MAXIVENT appears to be comparable in
efficacy to theophylline; however, unlike theophylline, MAXIVENT does not appear
to produce a high incidence of adverse side effects.
The Company has completed Phase III trials and is reviewing various
alternatives for commercialization of this compound, including the outlicensing
thereof. MAXIVENT has been approved for commercial sale in Italy and is
currently being sold in that country under the tradename "ANSIMAR" by the
Company's unaffiliated licensor, ABC.
THERAPEUTIC CATEGORY - GYNECOLOGY/ENDOCRINOLOGY
SOMAGARD(R). In 1988, the Company acquired rights from the Salk
Institute to manufacture and market SOMAGARD (deslorelin) in the United States
and in certain foreign countries, including the United Kingdom and Canada.
SOMAGARD is being developed for the treatment of central precocious puberty in
children, an endocrine disorder that results in premature release of hormones,
and endometriosis in women. Published reports of long-term studies conducted by
the National Institutes of Health have indicated that the administration of
SOMAGARD inhibits the release of hormones which cause the abnormal maturation
process and causes a return to normal growth rates. The Company has completed
Phase III trials for SOMAGARD for use in the treatment of central precocious
puberty and is studying various alternatives for the commercialization of this
product and may elect to complete its development through a licensing
arrangement with a third party.
The Company currently markets the product SUPPRELIN(R) (histrelin), an
Orphan Drug, for central precocious puberty. See
-8-
<PAGE>
"Government Regulation." The Company believes that SOMAGARD will complement
SUPPRELIN. SOMAGARD, if approved by the FDA, would be marketed to
endocrinologists and managed healthcare organizations.
SOMAGARD also is being developed as a treatment for endometriosis. A
number of Phase II clinical trials for this indication have been conducted.
Endometriosis is a gynecologic abnormality which may result in pain, infertility
and sexual and bowel dysfunction. Published reports of studies conducted by the
National Institutes of Health indicate that SOMAGARD relieves pain and restores
normal sexual and bowel function in women with this condition .
THERAPEUTIC CATEGORY - HEMATOLOGY
STANATE(TM). In 1994, the Company acquired the exclusive worldwide
rights from The Rockefeller University to develop, manufacture, market and sell
STANATE (stannsoporfin), which is being developed for the treatment of
hyperbilirubinemia in neonates, a condition caused by an accumulation of
excessive levels of bilirubin produced by the liver. Unless treated,
hyperbilirubinemia can result in jaundice, brain damage and death.
Bilirubin is excreted by the liver pursuant to a metabolic step
requiring the presence of an enzyme which, studies have shown, is not fully
functional in many early term and full term neonates. STANATE is intended to
inhibit the accumulation of excessive levels of bilirubin in neonates and to
provide neonate enzyme systems with an opportunity to mature and take over the
normal elimination of bilirubin.
The most common treatment for hyperbilirubinemia in neonates involves
phototherapy which requires exposure to a light source in order to stimulate the
temporary excretion of bilirubin by the kidneys. Phototherapy is often not fully
effective and requires many hours and sometimes several days of exposure to
light with resulting maternal separation, extensive nursing supervision and
related time-sensitive costs. In contrast, STANATE is administered by injection
and clinical studies have shown that one dose is generally all that is necessary
for treatment purposes. STANATE is currently in Phase II/III clinical trials .
THERAPEUTIC CATEGORY - UROLOGY
PROAMATINE. In addition to its use in the treatment of blood pressure
disorders, PROAMATINE is currently sold in several countries by unaffiliated
third parties to treat stress urinary incontinence, the involuntary loss of
urine from the bladder. There is no approved therapy for stress urinary
incontinence in the United States. PROAMATINE is an alpha agonist which
increases the tension of the urinary sphincter, thereby preventing the
involuntary loss of urine from the bladder. The Company is conducting a Phase II
clinical program in the United States for the use of PROAMATINE in the treatment
of stress urinary incontinence.
-9-
<PAGE>
THERAPEUTIC CATEGORY - ONCOLOGY
RADINYL. In 1985, the Company obtained from the United States
government rights to manufacture and sell the product RADINYL (etanidazole), a
radiosensitizer being developed to enhance the anticancer effects of radiation
therapy and a chemosensitizer being developed to increase the effectiveness of
other anticancer drugs.
For use in conjunction with radiotherapy, RADINYL is currently in
Phase III clinical trials in patients with advanced head and neck cancer. The
patients enrolled in these trials in the United States and Europe were
randomized to receive either RADINYL in conjunction with radiotherapy or
radiotherapy alone. The results of these studies are currently under analysis.
Phase I and Phase II clinical studies are being conducted with RADINYL
to determine its potential in increasing the effectiveness of other anticancer
drugs in the treatment of brain, lung, prostate and bladder cancer and its
potential for use with brachytherapy, a technique involving the direct implant
of a radioactive source into or adjacent to large tumors.
DIRAME(R). In 1992, the Company obtained exclusive worldwide rights
from Bayer AG ("Bayer") to develop and market DIRAME (propiram), a potent,
centrally acting analgesic with low addiction potential intended for use in the
control of moderate to severe acute or chronic pain. See "Government
Regulation."
DIRAME is in Phase III clinical trials which indicate that the
compound appears to be safe and effective in patients with various kinds of
acute and chronic pain.
A joint venture from which Bayer obtained the rights to DIRAME had
initially filed an NDA for DIRAME. Subsequent to such filing, the FDA required
additional studies regarding the drug. The Company is now addressing the issues
raised by the FDA and, in 1993, commenced long-term carcinogenicity studies on
two species of laboratory animals and other clinical studies. The in-life phase
of these studies has been completed and the results are currently under
analysis. In order to complete its NDA filing the Company believes it must
complete an additional Phase III clinical trial. The Company plans to commence
such clinical trial during 1998.
SOMAGARD. In addition to the treatment of central precocious puberty
and endometriosis, SOMAGARD has been studied as adjunctive treatment for
prostate cancer. Other treatments for prostate cancer such as surgery and/or
radiotherapy are often precluded because the cancer has spread to the bones. As
a result, castration, hormonal therapy or chemotherapy are often the only
available treatments. SOMAGARD is being evaluated by the Company as an
alternative to these procedures. The Company has filed a Product License
Application (NDA equivalent) for SOMAGARD for treatment of prostate cancer in
the United Kingdom and has obtained approval from the Irish regulatory
authorities to market the
-10-
<PAGE>
product for this indication. Use of SOMAGARD for the treatment of prostate
cancer in the United States is in Phase III clinical trials.
LICENSE AGREEMENTS
The Company has obtained rights to the late-stage drugs currently
being developed by it through license agreements with pharmaceutical companies,
government agencies and research-based institutions and has sublicensed certain
of these rights to pharmaceutical companies through license and/or marketing
agreements. A discussion of these agreements is provided below.
PROAMATINE Agreements. In 1985, the Company entered into a license
----------------------
agreement with the predecessor in interest of Nycomed Pharma pursuant to which
the Company obtained exclusive rights to develop and market the product
PROAMATINE in the United States, Canada, the United Kingdom, Ireland and certain
other countries. The agreement was amended in January 1994 to, among other
things, provide for a reduction in the delivery price of the product to the
Company in any territory covered by the agreement for a five year period
commencing upon the Company's launch of the product in any such territory and
the addition of minimum sales requirements which must be achieved by the Company
in the territories covered by the agreement in order to maintain exclusivity.
The Company's agreement with Nycomed Pharma, as amended, obligates it to develop
PROAMATINE and obtain governmental approval to market the product in the
licensed territories. The Company is obliged to pay a royalty to Nycomed Pharma
on sales of PROAMATINE by the Company and its distributors and must purchase its
requirements of PROAMATINE from Nycomed Pharma.
In 1991, the Company entered into a marketing agreement with Knoll
which granted Knoll the exclusive right to market and sell PROAMATINE in Canada
(under the name AMATINE) for use in the treatment of orthostatic hypotension.
AGRYLIN Agreements. In 1991, the Company entered into a license
-------------------
agreement with Bristol-Myers Squibb pursuant to which the Company obtained
exclusive worldwide rights to develop and market AGRYLIN. The Company is obliged
to fund the continued development and registration of AGRYLIN, made a payment
upon FDA approval and paid and will continue to pay royalties on sales of the
drug.
The Company entered into various distribution agreements with third
parties for the distribution and sale of AGRYLIN in Norway, Sweden, Finland,
Denmark, Iceland, Israel, Australia and New Zealand. AGRYLIN is not yet approved
in these countries and, as part of the distribution agreement, the distributors
are responsible for obtaining regulatory approval. If regulatory approval is
obtained, the Company will supply finished goods to the distributors which will
provide physical distribution along with marketing and sales support.
-11-
<PAGE>
MAXIVENT Agreements. In 1984, the Company obtained an exclusive
--------------------
license from ABC to develop and market MAXIVENT in the United States, Canada and
Japan and, in 1989, obtained a nonexclusive license to develop and market the
drug in the United Kingdom and Ireland. The exclusive license agreement requires
the Company to develop the product and obtain the requisite FDA and other
approvals. Each of the exclusive and nonexclusive license agreements requires
the Company to purchase its requirements of the bulk drug substance from ABC. If
the Company does not meet certain sales levels to be agreed upon, ABC may
terminate the exclusive license agreement, appoint additional licensees in the
United States, Canada and Japan or market the product directly or through third
parties in the United Kingdom and Ireland.
SOMAGARD License Agreement. In 1988, the Company and the Salk
---------------------------
Institute entered into a license agreement pursuant to which the Company
obtained certain rights to develop and market the product SOMAGARD in the United
States and certain foreign markets, including the United Kingdom and Canada.
Under the terms of the license agreement, the Company is required to pay
royalties on sales of SOMAGARD in countries in which the Salk Institute has
obtained patents.
DIRAME License Agreement. In 1992, the Company entered into a license
-------------------------
agreement with Bayer with respect to the product DIRAME. Pursuant to this
agreement, the Company acquired exclusive worldwide rights from Bayer to
develop, manufacture and market the product DIRAME. The Company paid an up-front
royalty to Bayer for rights to develop and market DIRAME. The Company must also
pay Bayer licensing fees and royalties on sales.
RADINYL Agreements. In 1985, the United States government and the
-------------------
Company entered into a license agreement pursuant to which the Company obtained
certain rights to develop and market the product RADINYL. The license granted to
the Company is exclusive for seven years from the date of the first commercial
sale of the product and nonexclusive thereafter. The agreement pursuant to which
the license has been granted requires the Company to pay certain patent
maintenance fees and royalties to the United States government.
In 1985, the Company and the predecessor in interest of Nycomed Pharma
formed a joint venture company known as Linz-Roberts, Inc. ("Linz-Roberts") to
develop RADINYL. The Company and Nycomed Pharma each owns 50% of the common
stock of Linz-Roberts. The Company contributed its license to RADINYL to Linz-
Roberts and the Company has been granted an exclusive license by the joint
venture to manufacture and distribute RADINYL dosage forms in the United States,
Canada, the United Kingdom and Ireland. Nycomed Pharma has been licensed on an
exclusive basis to manufacture and distribute RADINYL dosage forms in Europe
(except the United Kingdom and Ireland), the Middle East and Africa. Both
parties have the right to grant sublicenses. Nycomed Pharma has been designated
the supplier of bulk RADINYL substance, and the joint venture has contracted to
purchase its entire requirements of
-12-
<PAGE>
bulk RADINYL substance from Nycomed Pharma, provided that Nycomed Pharma can
meet certain price requirements and supply all required quantities. Linz-Roberts
has retained the right to distribute RADINYL in the territories not licensed to
the Company or Nycomed Pharma.
STANATE License Agreement. In 1994, the Company and The Rockefeller
--------------------------
University entered into a license agreement pursuant to which the Company
acquired the exclusive worldwide rights to develop, manufacture, market and sell
STANATE. The Company paid an up-front license fee to Rockefeller University for
the rights to develop, manufacture, market and sell STANATE. The Company must
also pay Rockefeller University annual licensing fees and royalties on sales.
License Agreements for TAZOFELONE and other Lilly Compounds. In 1996,
------------------------------------------------------------
the Company entered into four License Agreements with Lilly pursuant to which
the Company acquired the exclusive rights to develop, manufacture, market and
sell Tazofelone and the Compounds LY246736 and LY353433 anywhere in the world
and the Compound LY315535 in the United States and its territories, Canada and
Mexico. The term of each of the License Agreements shall be the later of either
(i) the life of the last to expire of the patents covering a Compound or (ii)
fifteen years. Under the terms of each of the License Agreements, the Company
paid Lilly a signing fee and is obligated to make certain milestone payments to
Lilly as well as pay Lilly certain royalties based on the sales of any products
resulting from the Compounds.
SAMPATRILAT License Agreement. In March, 1997, the Company entered
------------------------------
into a License Agreement with Pfizer pursuant to which the Company acquired the
exclusive rights to develop, manufacture, market and sell Sampatrilat anywhere
in the world. The term of the License Agreement shall be the earlier of the
expiration of the last to expire of the patents covering Sampatrilat or fifteen
years from the date of first commercial sale of a product containing
Sampatrilat. Under the terms of the License Agreement, the Company paid Pfizer a
signing fee and is obligated to make certain milestone payments as well as pay
Pfizer certain royalties based on the sale of products containing Sampatrilat.
Pfizer has retained the right under certain circumstances should the Company's
sales of Sampatrilat dosage forms equal or exceed a certain percentage of the
worldwide sales of pharmaceuticals sold for the treatment of hypertension in
humans, to convert the Company's license to a non-exclusive license upon the
making of certain payments to the Company.
MARKETING
In the United States, the Company markets and sells its products
primarily through its own sales force and through a network of brokers and
distributors. The Company has positioned its sales operation to impact selected
physician specialties and major buying and decision making entities, such as
managed care
-13-
<PAGE>
organizations and large retail and mass merchandise operations. With the growing
trend in the United States of providing health care through some form of managed
care program, the Company has stepped-up its selling efforts of prescription
products to such managed healthcare organizations. In an effort to increase its
sales to managed healthcare organizations, the Company has employed national
account managers to focus efforts on this growing market. Various marketing,
promotion, sales and training programs have been initiated to improve the
Company's penetration of the managed healthcare market and increase product
sales to managed healthcare organizations.
MANUFACTURING
From its inception, the Company's initial strategy was to outsource
its manufacturing and packaging functions in order to enable the Company to grow
without requiring large capital outlays to produce and package its products. In
that regard, the Company has engaged contractors, primarily large pharmaceutical
companies, to convert active ingredients into finished drug products. In most
instances where the Company has acquired the rights to approved products from
other pharmaceutical companies, the seller or licensor has agreed to manufacture
the Company's requirements of the products for a specified period of time. The
manufacturing activities conducted by third parties for the Company have
consisted of the receipt and storage of materials, purification, production,
packaging and labeling. The Company maintains a manufacturing department which
is responsible for (i) monitoring the manufacturing operations of its
contractors, (ii) inventory control, and (iii) quality control. The Company's
manufacturing department maintains a quality control and quality assurance
program, including a set of standard operating procedures, designed to assure
that the Company's products are manufactured in accordance with Good
Manufacturing Practices standards ("GMP") and other applicable domestic and
foreign regulations.
The Company has determined that it will take control of a major
portion of its manufacturing activities and seek to achieve certain cost
efficiencies. In July, 1997, the Company concluded the purchase from Monsanto
Canada, Inc. of a 100,000 square foot pharmaceutical manufacturing facility
previously operated by Monsanto's Searle Division ("Searle") located in
Oakville, Ontario, Canada. The facility is approved by both the FDA and HPB. In
addition to manufacturing and processing capabilities, the facility includes
laboratory, warehouse and administrative space. The Company has begun
transferring certain product packaging from third parties to this facility, and
should realize certain benefits, including, without limitation, lower production
costs and more flexibility in determining appropriate inventory levels for the
Company's products when it begins to transfer the manufacturing of certain
products to this facility upon appropriate regulatory approval. In addition, the
Company utilized the available office space in Oakville by relocating the
operations of its subsidiary, Roberts Pharmaceutical Canada, Inc., to the
Oakville facility. The Company's ability to transfer the production of certain
of its products to the Oakville facility will be, in certain cases, dependent on
the duration of its current agreements with suppliers,
-14-
<PAGE>
and the ability to obtain regulatory approvals to transfer the manufacture
of these products to Oakville.
The Company is currently in the process of refitting the Oakville
plant in order to accommodate the manufacture of as many of the Company's
products as possible. In addition, the Company will explore the possibility of
using the Oakville facility to engage in contract manufacturing for other
pharmaceutical companies.
DISTRIBUTION
In October 1997, the Company completed the acquisition of an
approximately 70,000 square foot distribution facility located in a suburb of
Chicago. The Company anticipates that it will begin distributing its products
from this facility in the second quarter, 1998. The Company anticipates that its
distribution costs will decrease as a result of the acquisition of its own
distribution facility.
HOMECARE
In August 1995, the Company announced its decision to discontinue and
divest certain non-core, nonpharmaceutical business activities, including the
operations of Homecare, which were no longer compatible with the Company's
objective of growing and developing a pharmaceutical company with a primary
focus on the sale of prescription drugs. Through Homecare, the Company
distributed high value prescription injectable and biotechnology pharmaceutical
products for physician office use and provided medical and other health oriented
therapies in home and outpatient settings. While Homecare's businesses had a
role in the initial stages of the Company's growth and development, those
businesses never represented a significant portion of the Company's consolidated
revenue or earnings. The Company has completely divested the Homecare operations
located in New Jersey, North Carolina and South Carolina. The entity which
purchased the New Jersey operations has also executed an agreement with the
Company to purchase Homecare's New York operations. The final consummation of
such agreement is pending as the purchasers seek state regulatory approval to
finalize the transaction. See "Notes to Consolidated Financial Statements - Note
14."
CONTRACT CLINICAL RESEARCH
Since its inception, the Company, through its subsidiary VRG
International, Inc. ("VRG"), has derived a portion of its revenues from contract
clinical research. Under these arrangements, the Company is paid a fee to
conduct clinical research for pharmaceutical companies that wish to test the
safety and efficacy of their products. The Company has primarily conducted
studies of investigational new drugs for major multinational pharmaceutical
company clients and to a lesser degree performed safety and efficacy tests on a
variety of over-the-counter products. The
-15-
<PAGE>
Company has also provided clinical investigation services to pharmaceutical
companies to assist them in reducing the time required to introduce new drugs to
the market.
The Company's integrated clinical research operations have been
conducted through twelve research-dedicated outpatient clinics located
throughout the U.S.; an in-house patient recruiting system; a custom designed
multi-purpose computerized study tracking system; on-site study coordinators;
qualified contract investigators; sophisticated data management and multi-level
quality control.
Consistent with the Company's decision in 1995 to discontinue and
divest certain of its non-core, nonpharmaceutical businesses, the Company
announced, in March 1996, its intentions to discontinue and divest the business
operations of VRG. Contract clinical research generally has proven to have lower
profit margins than the sale of prescription pharmaceuticals, and the Company
believes that, in the future, contract clinical research has lower growth
prospects for it than the sale of prescription pharmaceuticals. In January,
1998, the Company signed a Letter of Intent to sell VRG's operations subject to
the execution of a definitive acquisition agreement and the successful
completion of due diligence by the purchaser. To date, the Company and the
purchaser are negotiating the terms of said definitive acquisition agreement and
the transaction is expected to close within the month of April, 1998. See "Item
7 Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Notes to Consolidated Financial Statements - Note 14."
PATENTS AND PROPRIETARY RIGHTS
The Company considers the protection of discoveries in connection with
its development activities important to its business. To date, the Company has
acquired certain patents in connection with the acquisition of certain products
and has filed applications for patents covering new processes for manufacturing
anagrelide, the active ingredient in AGRYLIN. Additionally, rights to patented
technology have been licensed to the Company. The late-stage products being
developed by the Company which are afforded patent protection are: AGRYLIN -
patents issued 1982 and applications filed in 1996; RADINYL - patent issued
1983; STANATE -patents issued 1987, 1988, 1992 and 1993. Also, regarding the
Compounds acquired from Lilly, certain patents have been issued in the United
States and several other countries with respect to Tazofelone and the Compound
designated LY246736. In addition, there are other domestic or foreign patent
applications pending for all of the Compounds. Patents have been issued with
respect to the compound Sampatrilat, licensed from Pfizer. Certain of the
Company's products may be afforded protection under laws which provide market
exclusivity for Orphan Drugs and drugs which include a new active ingredient.
See "Government Regulation."
-16-
<PAGE>
COMPETITION
Many companies, including large pharmaceutical, chemical and
biotechnology firms with financial and marketing resources and research and
development staffs and facilities substantially greater than those of the
Company, are engaged in researching, developing, marketing and selling products
intended to treat the same conditions and diseases as the products currently
sold and under development by the Company. Further, other products now in use or
under development by others may be intended to treat the same conditions as the
Company's products. The pharmaceutical industry is characterized by rapid
technological advances, and competitors may develop products more rapidly than
the Company. In addition, competitors may be able to complete the regulatory
approval process sooner than the Company, and therefore market their products
earlier than the Company can market certain of its products.
GOVERNMENT REGULATION
The marketing of pharmaceutical products requires the approval of the
FDA and comparable agencies in foreign countries. The FDA has established
guidelines and safety standards which apply to the preclinical evaluation,
clinical testing, manufacture and marketing of pharmaceutical products. The
process of obtaining FDA approval for a new drug can take many years and
involves the expenditure of substantial resources. The steps required before
such a product can be produced and marketed for human use include preclinical
studies, the filing of an IND, human clinical trials and the approval of an NDA.
Drug marketing exclusivity protection is granted through the Orphan
Drug Act of 1983 (the "Orphan Drug Act") and the Drug Price Competition and
Patent Term Restoration Act of 1984 (commonly referred to as the "Waxman Hatch
Act"). The Orphan Drug Act entitles a company to market exclusivity in the
United States for a period of seven years from the date of FDA approval for
drugs which, among other criteria, are intended to treat a patient population of
less than 200,000. PROAMATINE for idiopathic orthostatic hypotension and AGRYLIN
for thrombocythemia have been granted Orphan Drug status by the FDA. Certain
provisions of the Waxman-Hatch Act grant market exclusivity in the United States
for a period of five years from the date of FDA approval for drugs containing a
new active ingredient. Based upon its review of industry and government data,
the Company believes that DIRAME may qualify for this protection.
The manufacturing processes of the Company and its contractors and
licensors are subject to regulation, including the need to comply with Good
Manufacturing Practices. These same regulations will apply to the Company with
respect to the Oakville, Ontario manufacturing facility which it has purchased
from Searle. See "Manufacturing." The Company's business is also subject to
regulation under the Occupational Safety and Health Act, the
-17-
<PAGE>
Environmental Protection Act, the Toxic Substances Control Act, the Drug
Enforcement Act, the Resource Conservation and Recovery Act, the Pharmaceutical
Marketing Act of 1988 and other current and potential future federal, state or
local regulations.
The Company markets various products containing controlled substances
that are subject to the Department of Justice, Drug Enforcement Administration
regulations. Distribution of prescription drugs classified as controlled
substances or, in some cases, other pharmaceutical products, is subject to
licensing or regulation in certain states. Generally, the entity engaged in the
actual distribution is subject to such regulation. In addition, state licensing
is generally required in the state in which such entity's principal place of
business is located.
United States Federal and state governments continue to seek means to
reduce costs of Medicare and Medicaid programs, including placement of
restrictions on reimbursement for, or access to, certain drug products. Major
changes were made in the Medicaid program under the Omnibus Budget
Reconciliation Act of 1990 (the "Act"). As a result, the Company entered into a
Medicaid Rebate Agreement ("Rebate Agreement") with the United States
Government, under Section 4401 of the Act. Pursuant to the Rebate Agreement, in
order for federal reimbursement to be available for prescription drugs under
state Medicaid plans, the Company must pay certain statutorily prescribed
rebates on Medicaid purchases. Effective July 1, 1991, the law also denies
federal Medicaid reimbursement for drug products of the original NDA-holder if a
less expensive generic version of such drug is available from another
manufacturer, unless the prescriber indicates on the prescription that the
branded product is medically necessary.
In most other markets, governments exert controls over pharmaceutical
prices either directly or by controlling admission to, or levels for,
reimbursement by government health programs. The nature of such controls and
their effect on the pharmaceutical industry vary greatly from country to
country.
EMPLOYEES
As of March 20, 1998, the Company had 498 employees, including 5
officers, 81 persons engaged in research and development activities and 215
persons engaged in marketing and sales activities. In addition to its full-time
staff, the Company engages medical doctors and other professional personnel on a
consultancy basis and, from time to time, consultants and others on a per diem
or hourly basis. The Company believes its relations with its employees are
satisfactory.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
Financial Information about Foreign and Domestic Operations is
presented in Note 13 to the Company's financial statements. See "Notes to
Consolidated Financial Statements - Note 13."
-18-
<PAGE>
ITEM 2. PROPERTIES
The Company's worldwide headquarters are located at Meridian Center
II, 4 Industrial Way West, Eatontown, New Jersey. The building housing the
Company's worldwide headquarters, which was purchased by the Company in 1992 and
occupied in 1993, consists of an aggregate of 80,000 square feet.
The Company owns an office and warehouse building consisting of 30,300
square feet, which is located across the street from the Company's worldwide
headquarters. The Company uses this building for the warehousing of Company
records, archives, certain offices and facilities.
The Company has purchased a 100,000 square foot manufacturing facility
located in Oakville, Ontario, Canada. The Company has purchased an approximately
70,000 square foot distribution center located in Buffalo Grove, Illinois, a
suburb of Chicago. See "Item 1 Business - Manufacturing; Distribution."
The Company's United Kingdom subsidiary, Monmouth Pharmaceuticals,
Ltd., occupies 3,800 square feet of leased office space in the Surrey Research
Park in Guildford, Surrey, England, approximately 30 miles south of London. The
monthly rental for these offices is approximately 6,500 British pounds.
The Company also leases office space in several other locations in the
United States.
-19-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On April 10, 1995, a shareholders' class action suit was instituted in
the United States District Court for the District of New Jersey against the
Company and certain of its officers and a former officer by Grace Cowitt
("Cowitt") on behalf of all persons who purchased shares of the Company's Common
stock between November 7, 1994 and March 22, 1995. The complaint asserted claims
against the Company and certain of its officers and a former officer for
violations of Sections 10(b) and 20(a) of the Securities and Exchange Act of
1934, as amended, and Rule 10b-5 promulgated thereunder with respect to press
releases and filings with the Securities and Exchange Commission and certain
public statements allegedly made by the Company and certain of its officers and
a former officer relating to the Company's business. The plaintiff sought to
recover damages in an unspecified amount. On June 26, 1995, a similar
shareholders' class action suit was instituted in the United States District
Court for the District of New Jersey against the Company and certain of its
officers and a former officer by Dieter Zander ("Zander") on behalf of all
persons who purchased shares of the Company's Common Stock between November 7,
1994 and May 31, 1995. This suit was voluntarily dismissed by Zander in October
1995. In August 1995, a consolidated complaint was filed in which the plaintiff,
Cowitt, extended the proposed class period from March 22, 1995 through May 31,
1995. The Company fully and finally settled this matter in January of 1998. See
"Notes to Consolidated Fiancial Statements - Note 11."
There are no additional material legal, governmental, administrative
or other proceedings pending against the Company, any of its subsidiaries or any
of their properties, or to which the Company or any such subsidiary is a party,
and to the knowledge of management, no such material proceedings are threatened
or contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter ended December 31, 1997, no matter was
submitted to a vote of the Company's security holders through the solicitation
of proxies or otherwise.
-20-
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of March 20, 1998 are listed
below, and brief summaries of their business experience and certain other
information with respect to each of them is set forth in the following table and
in the information which follows the table.
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ROBERT A. VUKOVICH, Ph.D. 54 Chairman of the Board
JOHN T. SPITZNAGEL 56 President and
Chief Executive Officer
ROBERT W. LOY 60 Executive Vice President
PETER M. ROGALIN 55 Vice President, Treasurer
and Chief Financial
Officer
ANTHONY A. RASCIO, ESQ. 55 Vice President, Secretary
and General Counsel
</TABLE>
Robert A. Vukovich, Ph.D. served as Chairman of the Board and
President of the Company from its inception in 1983 until September of 1997 when
he announced that he would forego his day-to-day activities as President to
concentrate on the Company's long-term strategic business and product
development programs. Dr. Vukovich continues to serve as Chairman of the Board.
From 1979 to 1983, he served as Director of the Division of Developmental
Therapeutics for Revlon Health Care Group. From 1970 to 1974, Dr. Vukovich was
employed in various capacities by the Squibb Institute and served as Director of
Clinical Pharmacology for that organization from 1974 to 1979. Prior to 1970,
Dr. Vukovich was a clinical research scientist for The Warner Lambert Research
Institute. Dr. Vukovich is a graduate of Jefferson Medical College,
Philadelphia, Pennsylvania, with training in pharmacology and pathology.
John T. Spitznagel has served as President and Chief Executive Officer
since September, 1997 when the Board of Directors elected him to such office in
connection with Dr. Vukovich's decision to forego his duties as President of the
Company. Mr. Spitznagel served as Executive Vice President - Worldwide Sales and
Marketing from March 1996 to September 1997 and he has also been a Director of
the Company since July 1996. Mr. Spitznagel served as President of Reed and
Carnrick Pharmaceuticals from September 1990 through July 1995. In 1989 and
1990, Mr. Spitznagel served as Chief Executive Officer of BioCryst
Pharmaceuticals, Inc. From 1979 through 1989, Mr. Spitznagel held various
positions with Wyeth-
-21-
<PAGE>
Ayerst Laboratories, advancing from Marketing Director to Senior Vice President
of Marketing and Sales. Mr. Spitznagel was employed by Roche Laboratories from
1971 through 1979 and by Warner-Chilcott Laboratories from 1966 through 1971 in
various sales, marketing and management positions. Mr. Spitznagel received his
undergraduate degree from Rider University and an M.B.A. from Fairleigh
Dickinson University.
Robert W. Loy has served as Executive Vice President - Operations and
New Business Development since March 4, 1996. Mr. Loy served as Chief Operating
Officer of the Company from August 1992 to March 1996 and as Vice President of
the Company from December 1992 to March 1996. Mr. Loy has served as a Director
of the Company since October 1993. From 1963 to 1990, he held various positions
at Squibb Corporation, including that of Vice President, Worldwide Operations
for the Squibb Derm Division. From 1990 to 1992, Mr. Loy served as Vice
President, International Sales and Marketing, with Hollister, Inc. Mr. Loy
received his undergraduate degree from Old Dominion University and attended
Villanova University Graduate School.
Peter M. Rogalin has served as Vice President, Treasurer, Chief
Financial Officer and a Director of the Company since February 5, 1996. From
1978 to 1992, Mr. Rogalin was employed in various executive capacities by
Sterling Winthrop, Inc. (formerly Sterling Drug, Inc.), including Assistant
Treasurer from 1987 through 1992. From 1993 through July 1994, Mr. Rogalin was a
Principal in RK Associates, a consulting firm with specific expertise in
financial and business operations and systems for small and medium sized
companies. From July 1994 through January 1996, Mr. Rogalin served as Vice
President - Finance and Chief Financial Officer of ImClone Systems, Inc., a
biopharmaceutical company engaged in research and development of therapeutic
products for the treatment of cancer and cancer related disorders. Mr. Rogalin,
a Certified Public Accountant, received his undergraduate degree from St.
Lawrence University and an M.B.A. from the Graduate School of Business, New York
University.
Anthony A. Rascio, Esq., has served as Vice President and General
Counsel and a Director of the Company since June 1987. In addition, he served as
Assistant Secretary of the Company from 1987 to 1992, at which time he assumed
the position of Secretary of the Company. From January 1987 to June 1987, Mr.
Rascio was Director, Legal Affairs for the Company. During 1986, Mr. Rascio was
engaged in the private practice of law. From 1984 through 1985, Mr. Rascio was
employed as Director, International Operations by Jeffrey Martin, Inc., a
marketer of cosmetics and proprietary medicines. Mr. Rascio served as Legal
Director, International Pharmaceutical Products Division for Schering-Plough
Corporation from 1980 through 1984 and held various legal positions with that
company from 1971 to 1980. Mr. Rascio received undergraduate and law degrees
from Fordham University.
-22-
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
COMMON STOCK
The Company's Common Stock is traded on the American Stock Exchange
and was held by approximately 900 shareholders of record as of March 20,
1998.
The following table sets forth, for the periods indicated, the high
and low last sale prices for the Company's Common Stock, as reported on the
NASDAQ National Market System in 1996 and from January 1, 1997 through May 21,
1997 and as reported by the American Stock Exchange from May 22, 1997 through
December 31, 1997.
High Low
---- ---
YEAR ENDED DECEMBER 31, 1996
First Quarter $24 $18 5/8
Second Quarter $21 7/8 $17 7/8
Third Quarter $20 3/4 $15 5/16
Fourth Quarter $18 1/8 $11
YEAR ENDED DECEMBER 31, 1997
First Quarter $15 $11
Second Quarter $13 $10 7/8
Third Quarter $13 $ 9 7/16
Fourth Quarter $11 7/8 $ 9
The Company has not paid any cash dividends on its Common Stock in the
past, and it is unlikely that the Company will pay any dividends on its Common
Stock in the foreseeable future.
-23-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data for the Company for each of
the five fiscal years in the period ended December 31, 1997 are derived from
financial statements that have been audited and reported upon by Coopers &
Lybrand L.L.P., independent accountants for the Company. This data should be
read in conjunction with "Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with the Company's
consolidated financial statements and related notes appearing elsewhere in this
report.
-24-
<PAGE>
Operating Statement Data:
Years Ended December 31,
- --------------------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(in thousands, except per share data)
Total Revenue $57,561 $89,020 $113,427 $98,111 $122,508
Operating Income (Loss)
from Continuing
Operations 7,850 25,802 6,873 (50,195)/1/ (762)
Net (Loss) Income from
Continuing Operations 6,415 20,618 2,703 (34,275) 2,517
Net Income (Loss) from
Discontinued Operations 813 (1,206) (27,045) 556 ---
Net Income (Loss) 7,228 19,412 (24,342) (33,719) 2,517
Earnings (Loss) Per
Share of Common Stock
from Continuing
Operations - Diluted .41 1.10 .15 (2.47)/2/ .06
Earnings (Loss) Per Share
of Common Stock
from Discontinued
Operations - Diluted .05 (.06) (1.45) .03 ---
Earnings (Loss) Per Share
of Common Stock - Diluted .46 1.04 (1.30) (2.44) .06
Average Number of
Common Shares - Diluted
Outstanding 15,590 18,708 18,623 19,133 29,497
/1/ Intangible Dispositions and Write-Offs. During the fourth quarter of 1996,
---------------------------------------
the Company completed the sale of the majority of its non-core
nonprescription products along with the NUCOFED and QUIBRON brands in two
independent sales transactions. These sales, net of proceeds, resulted in
a one time, non-cash write off of $11.9 million, which amounted to $7.6
million net of taxes. Also, during the fourth quarter of 1996, the Company
expensed certain purchased development products and recorded an impairment
loss of long-lived intangible assets totalling $25.4 million, which
amounted to $17.8 million net of taxes.
Operating income and net loss were negatively affected by the purchase of
development products and the sale and write down of the intangible assets
in the amounts of $37.3 million for operating income and $25.4 million for
net loss. In the event that these transactions had not occurred, the
operating loss would have been $12.9 million and net loss would have been
$8.3 million.
/2/ Pursuant to a position taken by the SEC staff (the "Staff"), effective
March 13, 1997, on accounting for preferred stock which is convertible at a
discount to market, the Company recorded a charge for Earnings Per Share
purposes of $.61 per share. This charge to Earnings Per Share is
consistent with the Staff's position that the 10% discount available to
holders of the Company's 5% Convertible Preferred Stock ("5% Preferred
-25-
<PAGE>
Stock") should be amortized between the issuance date and the first date
that conversion could occur.
To clarify the adjustments indicated above, a reconciliation of Earnings
Per Share for the twelve months ended December 31, 1996 is composed of the
following elements:
Net (loss) from continuing operations before the
consideration of purchased research and development,
write-off and the sale of intangible assets, the
recognition of the discount upon the
issuance of 5% Preferred Stock or preferred dividends $ (.47)
Purchased research and development and the write-off
and sale of intangible assets (1.33)
5% Preferred Stock dividends (.06)
Issuance of 5% Preferred Stock at a 10% discount to
market (.61) (.67)
------- -------
Net (loss) from continuing operations (2.47)
Income from discontinued operations .03
-------
(Loss) attributable to common stock $(2.44)
=======
<TABLE>
<CAPTION>
Balance Sheet Data:
As of December 31
- -------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Total Assets $343,103 $336,192 $340,290 $372,225 $367,855
Long-Term Debt and
Redeemable Preferred
Stock 45,668 22,411 16,183 10,639 10,327
Shareholders' Equity 238,999 259,129 235,467 309,759 317,303
</TABLE>
-26-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1997
Corporate Revenues. For the year ended December 31, 1997, total
-------------------
revenue increased $24.4 million from $98.1 to $122.5 million. This increase was
the result of an increase in product sales.
Product Sales. For the year ended December 31, 1997, product sales
--------------
increased $23.5 million from $98.1 to $121.6 million. This increase is primarily
the result of sales in the United States of AGRYLIN and PROAMATINE. AGRYLIN was
launched in the first quarter of 1997 and PROAMATINE was launched in the fourth
quarter of 1996. The COLACE line also contributed significant increases.
For the year ended December 31, 1997, sales of the Company's United
Kingdom subsidiary, Monmouth Pharmaceuticals, Ltd., increased $5.5 million from
$12.0 million to $17.5 million. Increased sales of LODINE, launched in the
fourth quarter of 1996, are the primary reason for this increase. Product sales
of the Company's Canadian subsidiary, Roberts Pharmaceutical Canada, Inc.,
increased $0.8 million from $11.7 million to $12.5 million.
Cost of Sales. For the year ended December 31, 1997, cost of sales
--------------
amounted to 42% of product sales as compared to 51% in 1996. This decrease in
cost of sales percentage and corresponding increase in gross profit percentage
is primarily the result of the addition of AGRYLIN to the product mix. AGRYLIN
has a higher gross profit percentage as it is a product the development of which
was completed internally.
Research and Development. Research and development expenses increased
-------------------------
$5.7 million from $7.4 million in 1996 to $13.1 million in 1997. Approximately
$1.6 million of this increase is due to the purchase of development-stage
products where the cost of acquisition is charged immediately to research and
development expense. Other reasons for the increase include a post-launch study
for PROAMATINE, the continued development of DIRAME, STANATE and the purchased
compounds, and increases in registration and user fees. The Company anticipates
research and development expenses will continue to increase in 1998 due to
potential purchases of development-stage drugs and the development of current
compounds.
Marketing and Administrative Expenses. Marketing and administrative
--------------------------------------
expenses increased $1.5 million from $57.2 million
-27-
<PAGE>
in 1996 to $58.7 million in 1997. Marketing expenses increased $0.5 million
primarily as a result of increased sampling, market research, the introduction
of AGRLYIN, and fleet expenses offset by decreases in outside services and
travel and meetings. Administrative expenses increased $1.0 million during 1997
as compared to 1996 in large part due to increases in salaries and benefits
offset by decreases in legal and accounting fees related to the shareholders'
class action lawsuit which was fully and finally settled in January 1998 and the
annual audit.
Interest Income and Expense. For the year ended December 31, 1997,
----------------------------
interest income increased $2.3 million from $2.9 million to $5.2 million as the
result of an increased cash balance due to the private placements that were
completed during 1996. Interest expense decreased from $1.8 million in 1996 to
$0.8 million in 1997 as a result of a decrease in long-term debt related to
product acquisitions.
Income Taxes. For the year ended December 31, 1997, income taxes from
-------------
continuing operations increased $13.5 million from a benefit of $14.6 million to
a benefit of $1.1 million, primarily as a result of improved 1997 operations
versus 1996 and a 1996 write off and disposition of certain intangible assets.
The Company's effective tax benefit of 77% was higher than the normal statutory
rate primarily as a result of the elimination of certain reserves for taxes due
to the closure of years 1991 through 1993 after an IRS audit.
The Company has recorded net deferred tax assets of approximately
$17.3 million. Realization is dependent upon generating sufficient taxable
income to utilize such assets. Although realization is not assured, management
believes it is more likely than not that the deferred tax assets for which a
valuation allowance has not been provided will be realized.
Discontinued Operations. See "Notes to Consolidated Financial
------------------------
Statements - Note 14" for a discussion of discontinued operations.
YEARS ENDED DECEMBER 31, 1995 AND 1996
Corporate Revenues. For the year ended December 31, 1996, total
-------------------
revenue decreased $15.3 million from $113.4 to $98.1 million. This decrease was
the result of a decrease in product sales.
Product Sales. For the year ended December 31, 1996, product sales
--------------
decreased $15.3 million from $113.4 to $98.1 million. This decrease is the
result of the divestiture of certain products during the year, a decline in the
sale of certain products due in part to a shift in promotional activity and a
change in the timing of special discounts and special
-28-
<PAGE>
offers to the trade, increased generic competition and certain back order
situations, offset by fourth quarter sales of PROAMATINE.
For the year ended December 31, 1996, sales of the Company's United
Kingdom subsidiary, Monmouth Pharmaceuticals, Ltd., decreased slightly from
$12.1 million to $12.0 million. Sales of the Company's Canadian subsidiary,
Roberts Pharmaceutical Canada, Inc., increased $0.6 million from $11.1 million
to $11.7 million. This increase is primarily the result of an increase in the
demand for products acquired during 1995 along with the launch of Advantage 24,
a contraceptive product.
Cost of Sales. For the year ended December 31, 1996, cost of sales
--------------
amounted to 51% of product sales as compared to 47% in 1995. This increase in
cost of sales percentage and corresponding decrease in gross profit percentage
is primarily the result of an increase in inventory obsolescence resulting from
the decrease in demand for certain products for which inventory production
schedules had been previously agreed with third party suppliers. Cost of sales
continues to be impacted by sales of NOROXIN, a lower gross profit margin
product, in the Company's product mix.
Research and Development. Research and development expenses increased
-------------------------
from $6.1 million in 1995 to $7.4 million in 1996, an increase of 21.3%. (See
"Notes to Consolidated Financial Statements - Note 1"). This increase results
from expenditures in the development of the Company's two recently approved
products, AGRYLIN and PROAMATINE and purchases of certain development products.
Marketing and Administrative Expenses. Marketing and administrative
--------------------------------------
expenses increased $9.6 million from $47.6 million in 1995 to $57.2 million in
1996. Marketing expenses increased $8.6 million primarily as a result of
increased promotional activities for some of the Company's new products
including PROAMATINE which was launched during the fourth quarter of 1996 and
increased compensation for the sales forces in the United States, United
Kingdom, and Canada. Administrative expenses increased $1.0 million during 1996
as compared to 1995 in large part due to expenses related to the shareholders'
lawsuit and increased insurance costs.
Interest Income and Expense. For the year ended December 31, 1996,
----------------------------
interest income increased $.9 million to $2.9 million as the result of an
increased cash balance due to the private placements that were completed during
1996. Interest expense decreased from $3.5 million in 1995 to $1.8 million in
1996 as a result of a decrease in long-term debt related to product
acquisitions.
-29-
<PAGE>
Income Taxes. For the year ended December 31, 1996, income taxes from
-------------
continuing operations decreased $17.4 million from a provision of $2.8 million
to a benefit of $14.6 million, primarily as a result of a decline in net income
including the write off and disposition of certain intangible assets. The
Company's effective tax benefit of 30% was lower than the normal statutory rate
primarily as a result of the Company's inability to recognize the benefit of the
Canadian net operating loss carryforwards.
Intangible Dispositions and Write-Offs. During the fourth quarter of
---------------------------------------
1996, the Company completed the sale of the majority of its nonprescription
products along with the NUCOFED and QUIBRON brands in two independent
transactions. These sales, net of proceeds, resulted in a one time, non-cash
write off of $11.9 million, which amounted to $7.6 million net of taxes. Also,
during the fourth quarter of 1996, the Company expensed certain purchased
development products and recorded an impairment loss of long-lived intangible
assets totalling $25.4 million, which amounted to $17.8 million net of taxes. If
the estimate of undiscounted cash flows to be generated by the remaining
intangible assets decreases in the future, an additional write-down of those
assets may be required.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
For the year ended December 31, 1997, operating cash inflows amounted
to $3.6 million as a result of the Company's net income enhanced by reductions
in accounts receivable and non-cash charges, primarily depreciation and
amortization, and offset by changes in accounts payable, other current
liabilities and inventory. As of December 31, 1997, the Company had cash, cash
equivalents and marketable securities of $82.8 million. These balances are
primarily attributable to the Common Stock Private Placement completed in July
1996 which resulted in net proceeds of approximately $9.9 million and the
Preferred Stock Private Placement completed in August 1996 which provided
approximately $98.8 million in net proceeds. For the year ended December 31,
1996, operating cash inflows amounted to $0.2 million as a result of the
Company's net loss offset by non-cash charges, including intangible asset
dispositions and write-offs. Cash inflows from operations amounted to $22.8
million in 1995.
The Company's funding requirements will depend on a number of factors,
including the Company's product development programs, product acquisitions, the
level of resources required for the expansion of marketing capabilities,
especially relating to the Company's two approved pipeline products, PROAMATINE
and AGRYLIN, increased investment in accounts receivable and inventory which may
arise from increased sales levels, competitive and technological developments,
the timing and cost of obtaining required regulatory approvals for new products,
relationships
-30-
<PAGE>
with parties to collaborative agreements, the success of acquisition activities
and the continuing revenues generated from sales of PROAMATINE and AGRYLIN.
Existing cash and securities balances and cash generated from
operations are expected to be sufficient to fund operating activities for the
foreseeable future, as well as support near and long term debt obligations,
capital improvements for the manufacturing facility and development of the
existing pipeline compounds. Cash equivalents and marketable securities
currently consist of immediately available money market fund balances and
investment grade securities.
Capital Expenditures. Capital Expenditures in 1997 of approximately
---------------------
$12 million relate primarily to the purchase of the pharmaceutical manufacturing
facility in Canada and the purchase of the distribution facility in the United
States. The Company anticipates additional capital expenditures in 1998 of
approximately $10 million for the purchase of certain manufacturing and computer
equipment associated with manufacturing, distribution and marketing activities.
Foreign Currency Fluctuations. The Company has subsidiary operations
------------------------------
outside the United States. As a result, the Company is subject to fluctuations
in subsidiary revenues and costs reported in United States dollars as a
consequence of currency exchange rate fluctuations, especially rates for the
British pound and Canadian dollar. Such fluctuations were not material in 1997,
1996 and 1995.
Concentration of Credit Risk. Financial instruments that potentially
-----------------------------
expose the Company to concentrations of credit risk consist primarily of short
term cash investments and trade accounts receivable. The Company places its
temporary excess cash investments in short term money market instruments. At
times, such investments may be in excess of the FDIC insurance limit. The
Company markets its products primarily to wholesale drug distributors, retail
pharmacies and physicians in the United Stated and abroad. The Company performs
certain credit evaluation procedures and does not require collateral. Reserves
are maintained for estimated credit losses.
Inflation. Although at reduced levels in recent years, inflation
----------
continues to apply upward pressure on the cost of goods and services used by the
Company. However, the Company believes that the net effect of inflation on its
operations has been minimal during the past three years.
-31-
<PAGE>
New Accounting Pronouncements
- -----------------------------
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130), establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general-purpose financial statements. This
Statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This Statement requires that a company (a) classify items
of other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. This Statement is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required.
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise Related Information" (SFAS No. 131), establishes
standards for the way that public business companies report information about
operating segments in annual financial statements and requires that those
companies report selected information about operating segments in annual
financial statements and requires that those companies report selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. This Statement
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," but retains the requirement to report information about major
customers. This Statement is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated.
The adoption of these Statements will not have an impact on the
Company's consolidated results of operation, financial position or cash
flow.
YEAR 2000 CONVERSION
- --------------------
The Company has evaluated the impact of changes necessary to achieve a
year 2000 date conversion. Software failures due to processing errors arising
from calculations using the year 2000 date are a known risk. Major areas of
potential impact have been identified and it is management's opinion that the
software currently in use, or that which will be in use at the time, is year
2000 compliant. Therefore, the Company does not expect a material impact on
future results due to conversion.
-32-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data of the
Company called for by this item are submitted as a separate section of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-33-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to directors of the Company required to
be furnished pursuant to this item is incorporated herein by reference to the
sections entitled "Election of Directors" and "Compliance with Section 16(a) of
the Securities Exchange Act" from the Company's definitive Proxy Statement for
its Annual Meeting of Shareholders to be held in May 1998. Certain information
relating to executive officers of the Company is set forth in Item 4A of Part I
of this Form 10-K under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information pertaining to executive compensation is incorporated
herein by reference to the section entitled "Election of Directors -Executive
Compensation" from the Company's definitive Proxy Statement for its Annual
Meeting of Shareholders to be held in May 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information pertaining to security ownership of certain beneficial
owners and management is incorporated herein by reference to the sections
entitled "Principal Shareholders" and "Security Ownership of Management" from
the Company's definitive Proxy Statement for its Annual Meeting of Shareholders
to be held in May 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Any information relating to this item is incorporated herein by
reference from the Company's definitive Proxy Statement for its Annual Meeting
of Shareholders to be held in May 1998.
-34-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
Reference is made to the Index of Financial Statements and
Financial Statement Schedules hereinafter
contained................................................. F-1
3. EXHIBITS
Reference is made to the Index of Exhibits
hereinafter contained..................................... E-1
(b) REPORTS ON FORM 8-K
During the fourth quarter ended December 31, 1997, the following
reports on Form 8-K were filed by the Company with the
Securities and Exchange Commission:
Form 8-K (Item 5. Other Events), date of earliest event reported
November 5, 1997 with respect to the appointment by the Company
of Mr. Louis Berardi as Senior Vice President, New Business
Development and Strategic Planning.
Form 8-K (Item 5. Other Events), date of earliest event reported
November 10, 1997 with respect to the completion by the Company
of a Phase Ia clinical study with the compound, LY315535.
Form 8-K (Item 5. Other Events), date of earliest event reported
November 24, 1997 with respect to the approval by the Canadian
regulatory authorities of the Company's application to market
AGRYLIN in Canada.
Form 8-K (Item 5. Other Events), date of earliest event reported
December 17, 1997 with respect to the Company's acquisition of
exclusive distribution rights to the product SLOW MAG(R).
-35-
<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.
ROBERTS PHARMACEUTICAL CORPORATION
----------------------------------
(Registrant)
Date: March 31, 1998 By: /s/ John T. Spitznagel
---------------------------------
John T. Spitznagel, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Robert A. Vukovich Chairman March 31, 1998
- -------------------------
ROBERT A. VUKOVICH
/s/ John T. Spitznagel President and Director March 31, 1998
- ------------------------- (Principal Executive Officer)
JOHN T. SPITZNAGEL
/s/ Peter M. Rogalin Vice President, Treasurer March 31, 1998
- ------------------------- & Director (Principal
PETER M. ROGALIN Financial and Accounting
Officer)
/s/ Robert W. Loy Director March 31, 1998
- -------------------------
ROBERT W. LOY
/s/ Anthony A. Rascio Director March 31, 1998
- -------------------------
ANTHONY A. RASCIO
/s/ Digby W. Barrios Director March 31, 1998
- -------------------------
DIGBY W. BARRIOS
/s/ Zola P. Horovitz Director March 31, 1998
- -------------------------
ZOLA P. HOROVITZ
/s/ Joseph Noonburg Director
- ------------------------- March 31, 1998
JOSEPH NOONBURG
/s/ Marilyn Lloyd Director March 31, 1998
- -------------------------
MARILYN LLOYD
-36-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ROBERTS PHARMACEUTICAL CORPORATION
Page
----
Report of Independent Accountants F-2
Consolidated Balance Sheets as of F-3
December 31, 1995, 1996 and 1997
Consolidated Statements of Operations for F-4
the years ended December 31, 1995, 1996 and 1997
Consolidated Statements of Cash Flows for F-5
the years ended December 31, 1995, 1996 and 1997
Consolidated Statements of Changes in Shareholders' F-6
Equity for the years ended December 31, 1995,
1996 and 1997
Notes to Consolidated Financial Statements F-7
Schedules*
Schedule II, Valuation and Qualifying Accounts F-25
________________
* Schedule I under Article 12 of Regulation S-X has been omitted because
of the absence of the conditions under which certain information is
required and because certain information required is presented in the
financial statements and the notes thereto.
F-1
<PAGE>
Coopers Coopers & Lybrand L.L.P.
&Lybrand a professional services firm
Report of Independent Accountants
---------------------------------
To the Board of Directors and Shareholders
Roberts Pharmaceutical Corporation:
We have audited the accompanying consolidated balance sheets of Roberts
Pharmaceutical Corporation and Subsidiaries as of December 31, 1997, 1996 and
1995, and the related consolidated statements of operations, cash flows, changes
in shareholders' equity for each of the three years in the period ended December
31, 1997 and the financial statement schedules on pages F-25 to F-27 of this
Form 10-K. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Roberts
Pharmaceutical Corporation and Subsidiaries as of December 31, 1997, 1996 and
1995, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Princeton, New Jersey
February 5, 1998
F-2
Coopers & Lybrand L.L.P., a registered limited liability partnership, is a
member firm of Coopers & Lybrand (International)
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31, December 31, December 31,
ASSETS 1995 1996 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 16,357 $ 87,125 $ 42,950
Marketable securities 13,649 7,793 39,887
Accounts and Notes Receivable:
Trade, net 26,318 30,791 24,730
Shareholder 600 - - - - - -
Other - - - 2,889 225
Inventory 20,785 16,665 19,826
Deferred tax assets 10,419 9,040 4,962
Net assets held for sale 4,300 500 3,760
Other current assets 1,342 2,124 1,647
--------------- --------------- ---------------
Total current assets 93,770 156,927 137,987
Fixed assets, net 15,681 14,945 25,913
Intangible assets 230,681 183,579 190,724
Notes receivable - - - 5,304 729
Deferred tax asset - - - 11,216 12,332
Other assets 158 254 170
--------------- --------------- ---------------
Total assets $ 340,290 $ 372,225 $ 367,855
=============== =============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 34,809 $ 6,376 $ 8,037
Accounts payable 14,737 15,848 13,188
Other current liabilities 32,236 29,258 18,756
--------------- --------------- ---------------
Total current liabilities 81,782 51,482 39,981
Long-term debt, excluding current installments 16,183 10,639 10,327
Deferred tax liabilities 6,311 - - - - - -
Other liabilities 547 345 244
Committments and contingent liabilities (Note 9) - - - - - - - - -
Shareholders' equity:
Class B 5% Convertible Preferred stock, $.10 par
value 10,000,000 shares authorized, 4,440,225
issued, 2,721,030 and 475,654 outstanding - - - 272 48
Common stock, $.01 par value,
100,000,000 shares authorized,
18,536,590, 22,961,707 and
29,536,647 outstanding 189 233 299
Additional paid-in capital 256,296 365,150 372,384
Cumulative translation adjustments (297) (301) (1,250)
Retained earnings (deficit) (20,484) (55,358) (53,941)
Treasury stock, 387,594 shares of
common stock, at cost (237) (237) (237)
--------------- --------------- ---------------
Total shareholders' equity 235,467 309,759 317,303
--------------- --------------- ---------------
Total liabilities and
shareholders' equity $ 340,290 $ 372,225 $ 367,855
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31, 1995 1996 1997
-------------- -------------- -------------
<S> <C> <C> <C>
Sales and revenue:
Sales $ 113,380 $ 98,075 $ 121,612
Other revenue 47 36 896
-------------- -------------- -------------
Total sales and revenue 113,427 98,111 122,508
Operating costs and expenses:
Cost of sales 52,870 49,753 51,386
Research & development 6,108 7,408 (2) 13,146
Marketing & administration 47,576 57,239 58,738
Intangible write-offs and dispositions - - - 33,906 (2) -
-------------- -------------- -------------
Total operating costs & expenses 106,554 148,306 123,270
-------------- -------------- -------------
Operating income (loss) 6,873 (50,195) (762)
-------------- -------------- -------------
Other income (expense):
Interest income 2,050 2,907 5,212
Interest expense (3,453) (1,750) (755)
Other income (expense), net 49 188 (2,279)
-------------- -------------- -------------
Total other income (expense) (1,354) 1,345 2,178
-------------- -------------- -------------
Income (loss) from continuing operations
before income taxes 5,519 (48,850) 1,416
Benefit (Provision) for income taxes (2,816) 14,575 1,101
-------------- -------------- -------------
Income (loss) from continuing operations 2,703 (34,275) 2,517
-------------- -------------- -------------
Discontinued operations:
(Loss) from operations of
discontinued divisions,
net of tax benefits
of $2,474, $0, and $0, respectively (4,547) - - - - - -
Estimated (loss) income on disposal of divisions,
net of tax benefits (provision)
of $2,555, ($1,581), and $0 respectively (22,498) 556 - - -
-------------- --------------
-------------
(Loss) income from discontinued operations (27,045) 556 -
-------------- -------------- -------------
Net (loss) income $ (24,342) $ (33,719) $ 2,517
============== ============== =============
Per share of common stock, basic:
Net income (loss) from continuing operations $ 0.15 $ (2.47)(1)(2) $ 0.06
Net (loss) income from discontinued operations (1.46) 0.03 -
-------------- -------------- -------------
Net (loss) income $ (1.31) $ (2.44)(1)(2) $ 0.06
Per share of common stock, fully diluted:
Net income (loss) from continuing operations $ 0.15 $ (2.47)(1)(2) $ 0.06
Net (loss) income from discontinued operations (1.45) 0.03 -
-------------- -------------- -------------
Net (loss) income $ (1.30) $ (2.44)(1)(2) $ 0.06
Weighted average number of common shares outstanding:
Basic 18,536,590 19,132,863 29,414,440
Diluted 18,622,744 19,132,863 29,496,767
</TABLE>
________________________
(1) Includes a $.61 per share charge pursuant to a position taken by the SEC
staff, effective March 13, 1997, on accounting for preferred stock which is
convertible at a discount to market. See Note 1.
(2) Includes a $1.33 per share charge for the sale and write-off of certain
intangible assets and purchased research and development. See Note 4.
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------
1995 1996 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (24,342) $ (33,719) $ 2,517
Adjustments to reconcile net income (loss)
to net cash flows from operating activities:
Depreciation and amortization 7,164 7,531 6,940
Provision for losses on receivables 130 - - - 143
Provision for product sales returns 7,669 6,041 5,994
Provision for inventory obsolescence - - - 4,611 1,941
Write down of intangible assets - - - 14,364 - - -
Loss on sale of intangible assets - - - 7,621 - - -
Loss on abandonment of leasehold improvements - - - 71 - - -
Loss on (income from) discontinued operations 22,498 (556) - - -
Foreign currency (losses) gains (31) 387 - - -
Change in accounts receivable 1,187 (2,544) 6,572
Change in other assets 1,144 (483) (60)
Change in inventory (1,819) (627) (5,436)
Change in accounts payable and
other liabilities 12,460 (3,337) (14,430)
Impact of discontinued operations (3,298) (2,582) (629)
- ----------------------------------------------------------------------------------------------------------------------
Total adjustments 47,104 30,497 1,035
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 22,762 (3,222) 3,552
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
(Investment in) redemption of marketable securities 13,013 5,856 (32,094)
Purchases of intangible assets (1,552) (4,762) (9,058)
Proceeds from sale of intangible assets - - - 1,600 - - -
Purchases of fixed assets (226) (168) (11,986)
Collection on notes receivable - - - - - - 6,738
Impact of discontinued operations (243) - - - - - -
- ----------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by
investing activities 10,992 2,526 (46,400)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Payments on notes payable and long
term debt (28,061) (36,773) (6,588)
Net proceeds from issuance of common stock 803 9,923 1,075
Net proceeds from issuance of preferred stock - - - 99,247 6,000
Cash dividends paid - - - (476) (1,629)
Impact of discontinued operations (7) (397) - - -
- ----------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing
activities (27,265) 71,524 (1,142)
- ----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash
and cash equivalents 49 (60) (185)
- ----------------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents 6,538 70,768 (44,175)
Beginning cash and cash equivalents 9,819 16,357 87,125
- ----------------------------------------------------------------------------------------------------------------------
Ending cash and cash equivalents $ 16,357 $ 87,125 $ 42,950
- ----------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $ 2,979 $ 2,396 $ 823
Income taxes paid 268 233 29
Non cash activities:
Present value of notes issued in
connection with product acquisitions $ 18,279 - - - $ 7,250
Notes received for sale of Pronetics
subsidiaries and product rights - - - $ 8,193 - - -
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Additional Retained
5% Preferred Stock Common Stock Paid-In Earnings
Shares Amount Shares Amount Capital (Deficit)
---------- ---------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1994 18,807,794 $ 188 $ 255,994 $ 3,858
Issuance of common stock 116,390 1 302 - - -
Cumulative translation
adjustment - - - - - - - - - - - -
Year ended December 31, 1995
net loss - - - - - - - - - (24,342)
----------- --------- ---------- ---------
Balance,
December 31, 1995 18,924,184 189 256,296 (20,484)
Issuance of preferred shares 4,200,000 $ 420 - - - - - - 98,827 - - -
Issuance of common stock - - - - - - 651,058 7 9,916 - - -
Cumulative translation
adjustment - - - - - - - - - - - - - - - - - -
Year ended December 31, 1996
net loss - - - - - - - - - - - - - - - (33,719)
5% Preferred dividends - - - - - - - - - - - - - - - (1,155)
5% Preferred stock converted
to common stock (1,478,970) (148) 3,774,059 37 111 - - -
---------- ---------- ----------- --------- ---------- ---------
Balance,
December 31, 1996 2,721,030 272 23,349,301 233 365,150 (55,358)
Issuance of preferred shares 240,225 25 5,976
Issuance of common stock - - - - - - 97,245 1 1,074
Cumulative translation
adjustment - - - - - - - - - - - - - - - - - -
Year ended December 31, 1997
net income - - - - - - - - - - - - - - - 2,517
5% Preferred dividends - - - - - - - - - - - - - - - (1,100)
5% Preferred stock converted
to common stock (2,485,601) (249) 6,477,695 65 184 - - -
---------- ---------- ----------- --------- ---------- ---------
Balance,
December 31, 1997 475,654 $ 48 29,924,241 $ 299 $ 372,384 $ (53,941)
========== ========== =========== ========= ========== =========
<CAPTION>
Cumulative Total
Translation Treasury Shareholders'
Adjustment Stock Equity
--------- ---------- ----------
<S> <C> <C> <C>
Balance,
December 31, 1994 $ (674) $ (237) $ 259,129
Issuance of common stock - - - - - - 303
Cumulative translation
adjustment 377 - - - 377
Year ended December 31, 1995
net loss - - - - - - (24,342)
--------- ---------- ----------
Balance,
December 31, 1995 (297) (237) 235,467
Issuance of preferred shares - - - - - - 99,247
Issuance of common stock - - - - - - 9,923
Cumulative translation
adjustment (4) - - - (4)
Year ended December 31, 1996
net loss - - - - - - (33,719)
5% Preferred dividends - - - - - - (1,155)
5% Preferred stock converted
to common stock - - - - - - -
--------- ---------- ----------
Balance,
December 31, 1996 (301) (237) 309,759
Issuance of preferred shares 6,001
Issuance of common stock - - - - - - 1,075
Cumulative translation
adjustment (949) - - - (949)
Year ended December 31, 1997
net income - - - - - - 2,517
5% Preferred dividends - - - - - - (1,100)
5% Preferred stock converted
to common stock - - - - - - - - -
--------- ---------- ----------
Balance,
December 31, 1997 $ (1,250) $ (237) $ 317,303
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Presentation
---------------------
Roberts Pharmaceutical Corporation is an international
pharmaceutical company which licenses, acquires, develops and
commercializes post-discovery drugs in selected therapeutic
categories. The Company currently markets approved pharmaceutical
products in the United States, Canada, the United Kingdom and several
other European countries. The consolidated financial statements
include the accounts of Roberts Pharmaceutical Corporation and its
majority-owned subsidiaries. All significant intercompany
transactions are eliminated. All dollar amounts are presented in
thousands, except for earnings per share.
Revenue Recognition
-------------------
Product sales, net of estimated future returns, are recorded as
the products are shipped against customer orders.
Licensing revenues are recorded as earned under the terms of each
underlying agreement and are included in other revenue.
Cash Equivalents and Marketable Securities
------------------------------------------
Cash equivalents include all money market investments with
original maturities of three months or less.
Marketable securities consist primarily of debt instruments with
maturities of more than three months and are stated at amortized cost
plus accrued interest, which approximates fair value.
Inventories
-----------
Inventories, consisting primarily of finished goods, are stated
at the lower of first-in, first-out cost or market.
Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of
F-7
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
contingent assets and liabilities at the date of the financial statements
and revenues and expenses during the period reported. Actual results could
differ from those estimates. Estimates include accounting for allowance
for doubtful accounts, inventory obsolescence, future product returns,
depreciation and amortization, value of intangibles, employee benefit
plans, taxes, discontinued operations and contingencies.
Fixed Assets and Depreciation
-----------------------------
Fixed assets are stated at cost less accumulated depreciation.
Depreciation is determined using the straight-line method over the
estimated useful lives of the related assets ranging from five to fifty
years. Gains and losses on disposals are recognized in the year of the
disposal. Expenditures for maintenance and repairs are expensed as
incurred; significant renewals and betterments are capitalized.
Intangible Assets
-----------------
Intangible assets are stated at cost less accumulated
amortization. Amortization is determined using the straight-line method
over the estimated useful lives of the related assets which are estimated
to range from ten to forty years. It is the Company's policy to review
periodically and evaluate whether there has been an impairment in the value
of intangibles.
In the fourth quarter of 1996, the Company recorded a charge to
earnings for an impairment of intangible assets and to expense certain
purchased development products totalling $25.4 million.
Foreign Currency Translation
----------------------------
Effective January 1, 1997, the functional currency of the United
Kingdom subsidiary, Monmouth Pharmaceutical, Ltd., was changed from the
U.S. dollar to the British pound as a result of a change in circumstance.
Monmouth's translation gains and losses for 1997 are accumulated as a
separate component of Shareholders' Equity. In 1996 and 1995, Monmouth's
accounts were remeasured in dollars and translation gains and losses were
included in income in those years.
The functional currency of the Company's Canadian subsidiary is the
Canadian dollar. Translation gains and losses of the Company's Canadian
subsidiary are accumulated as a separate component of Shareholders' Equity.
F-8
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Included in the balance sheet at December 31, 1995, 1996 and 1997
is debt of $1,849, $832 and $0, respectively, denominated in British
pounds.
Concentration of Credit Risk
----------------------------
The Company markets prescription and nonprescription
pharmaceuticals primarily to wholesale drug distributors, retail pharmacies
and physicians in the United States and abroad. The Company performs
certain credit evaluation procedures and does not require collateral. The
Company maintains reserves for estimated credit losses; at December 31,
1995, 1996 and 1997, the reserve for uncollectible accounts amounted to
$1,754, $1,440 and $440, respectively.
At December 31, 1997, cash equivalents and marketable securities
consisted of immediately available money market fund balances and
investment grade debt and preferred stock securities with maturities of
less than one year.
The fair value of investment securities classified as available
for sale, totaled $40,086 at December 31, 1997. These investment
securities mature within one year.
Earnings (loss) per share
-------------------------
As of December 15, 1997, the Company has adopted the provisions
of SFAS 128. Basic income (loss) per share was computed based on the
weighted average number of shares of Common Stock actually outstanding.
Diluted earnings per share were calculated based on the Common Shares
outstanding plus the dilutive effect of potentially dilutive common stock.
F-9
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net income (loss) from operations used in the calculation of earnings per
share was calculated as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Net (loss) income from
operations $ 2,703 $ (34,275) $ 2,517
Preferred dividends --- (1,155) (859)
Discount on 5%
Preferred Stock --- (11,670) ---
----------- ----------- -----------
Net (loss) income for
computation of earnings
per share $ 2,703 $ (47,100) $ 1,658
=========== =========== ===========
Total common stock and potentially dilutive common stock for the
calculation of diluted earnings per share were calculated as follows:
December 31,
---------------------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Weighted average common
shares outstanding 18,536,590 19,132,863 29,414,440
Dilutive effect of:
Preferred Stock Warrants --- --- 82,246
Stock Options 86,154 --- 81
----------- ----------- -----------
Total shares for computation
of EPS 18,622,744 19,132,863 29,496,767
=========== =========== ===========
</TABLE>
The effect of conversion of the original shares of Preferred Stock for
December 31, 1996 is not included in the calculation of earnings per share
because inclusion would be antidilutive. The remaining original 5% Preferred
Stock shares were convertible into 1,332,322 shares of Common Stock at December
31, 1997. Other common stock equivalents which could result in dilution of
earnings in future periods, depending on the market price of the Company's
Common Stock, are stock options held by employees and Common Stock Warrants
granted to the Placement Agent of the 5% Preferred Stock. See Note 8.,
Shareholders' Equity, for further discussion of these securities.
Pursuant to a position taken by the SEC staff (the "Staff"), effective
March 13, 1997, on accounting for preferred stock which is convertible at a
discount to market, the Company adjusted its calculation of 1996 Earnings Per
Share by $.61 per share. This reflected the Staff's position that the 10%
discount available to holders of the Company's 5% Preferred Stock should be
incorporated in the calculation of Earnings Per Share.
F-10
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
To clarify the adjustments indicated above, a reconciliation of
Earnings Per Share for the twelve months ended December 31, 1996 is composed of
the following elements:
Net (Loss) from continuing operations
before the consideration of purchased
research and development and write-off
and the sale of intangible assets, the
recognition of the discount upon the
issuance of 5% Preferred Stock or
preferred dividends $ (.47)
Purchased research and development and
write-off and sale of intangible assets (1.33)
5% Preferred Stock dividends (.06)
Issuance of 5% Preferred Stock
at a 10% discount to market (.61) (.67)
----- --------
Net (Loss) from Continuing Operations (2.47)
Income from Discontinued Operations .03
--------
(Loss) attributable to Common Stock $ (2.44)
========
New Accounting Pronouncements
- -----------------------------
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130), establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general-purpose financial statements. This
Statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This Statement requires that a company (a) classify items
of other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. This Statement is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required.
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise Related Information" (SFAS No. 131), establishes
standards for the way that public business companies report information about
operating segments in annual financial statements and requires that those
companies report selected information about operating segments in annual
financial statements and requires that those companies report selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. This Statement
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," but retains the requirement to report information about major
customers.
F-11
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
This Statement is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated.
The adoption of these Statements will not have an impact on the
Company's consolidated results of operation, financial position or cash flow.
Reclassification
- ----------------
Certain items have been reclassified to conform to the current year
presentation.
2. INVENTORY
---------
Inventory consists of:
December 31,
-------------------------
1995 1996 1997
---- ---- ----
$ 3,539 $ 2,393 $ 2,487
Raw materials
Work-in-process --- --- 451
Finished goods 17,246 14,272 16,888
------- ------- -------
$20,785 $16,665 $19,826
======= ======= =======
3. FIXED ASSETS, NET
Fixed assets consist of:
December 31,
-------------------------
1995 1996 1997
------- ------- -------
Land and buildings $14,823 $14,925 $23,440
Office furniture and
equipment 2,588 2,616 5,466
Leasehold improvements 109 --- ---
------- ------- -------
17,520 17,541 28,906
Less: Accumulated
depreciation and
amortization 1,839 2,596 2,993
------- ------- -------
$15,681 $14,945 $25,913
======= ======= =======
F-12
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INTANGIBLE ASSETS
-----------------
Intangible assets consist of:
December 31,
----------------------------
1995 1996 1997
-------- -------- --------
Product rights acquired $245,287 $204,611 $217,919
Goodwill 3,812 --- ---
-------- -------- --------
249,099 204,611 217,919
Less: Accumulated
amortization 18,418 21,032 27,195
-------- -------- --------
$230,681 $183,579 $190,724
======== ======== ========
Intangible Dispositions and Write-Offs.
---------------------------------------
During the fourth quarter of 1996, the Company completed the sale
of the majority of its non-core nonprescription brands along with the
NUCOFED and QUIBRON brands in two independent sales agreements. These
sales, net of proceeds, resulted in a one time, non-cash write off of $11.9
million, which amounted to $7.6 million net of taxes. Also, during the
fourth quarter of 1996, the Company expensed certain purchased development
products and recorded an impairment loss of long-lived intangible assets
totalling $25.4 million, ($17.8 million net of taxes). If the estimate of
undiscounted cash flows to be generated by the remaining intangible assets
decreases in the future, an additional write-down of those assets may be
required.
Operating income and net loss for 1996 were negatively affected
by the purchase of development products, the sale and write down of the
intangible assets in the amounts of $37.3 million for operating income and
$25.4 million for net loss. The operating loss would have amounted to
$12.9 million and net loss would have been $8.3 million if such
transactions had not occurred.
5. OTHER CURRENT LIABILITIES
-------------------------
Other current liabilities consist of:
December 31,
-------------------------
1995 1996 1997
---- ---- ----
Accrued estimated loss on
discontinuation of VRG
and Homecare $ 8,848 $ 448 $ ---
Accrued estimated future
product returns 15,444 15,570 9,364
Accrued estimated Medicaid
rebates 1,734 1,169 1,150
Income taxes payable 3,707 7,019 3,022
Other accrued liabilities 2,503 5,052 5,220
------- ------- -------
$32,236 $29,258 $18,756
======= ======= =======
F-13
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Product return reserves of $2,336, $728, and $728 have been offset
against accounts receivable for 1995, 1996, and 1997, respectively.
6. LONG-TERM DEBT
--------------
Long-term debt consists of:
December 31,
---------------------------
1995 1996 1997
------- ------- -------
Notes payable on product
acquisitions at an imputed
weighted average interest
rate of 5.75%, 6.0%
and 6.0% $50,846 $16,960 $18,364
Other notes payable 146 55 ---
------- ------- --------
50,992 17,015 18,364
Less: Current installments 34,809 6,376 8,037
------- ------- --------
$16,183 $10,639 $10,327
======= ======= ========
Principal payments in each of the next five years on long-term debt outstanding
at December 31, 1997 amount to:
1998........................................... $ 8,037
1999........................................... 7,025
2000........................................... 3,302
2001........................................... ---
2002........................................... ---
-------
$18,364
=======
Notes payable are collateralized by acquired product rights.
7. SHAREHOLDERS' EQUITY
--------------------
The Company has adopted the disclosure-only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation," but applies Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
its plans. If the Company had elected to recognize compensation cost based on
the fair value at the grant dates for awards in 1995, 1996 and 1997, consistent
with the provisions of SFAS No. 123, the Company's net loss and per share data
would have been changed to the pro forma amounts indicated below:
Years Ended December 31,
------------------------
1995 1996 1997
---- ---- ----
Net Income (Loss) As reported $(24,342) $(33,719) $ 2,517
Pro forma $(24,361) $(36,925) $( 4,620)
---------
Income (Loss) As reported-Basic $( 1.31) $( 2.44) $ 0.06
per share As reported-Diluted $( 1.30) $( 2.44) $ 0.06
Pro forma - Both $( 1.30) $( 2.61) $( 0.19)
----------------
The fair value of stock options used to compute pro forma net loss and per
share disclosures is the estimated present value at grant date using
F-14
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the Black-Scholes option-pricing model with the following weighted average
assumptions: dividend yield of 0%; expected volatility of 54%; a risk free
interest rate of 6%; and a general expectation that employees will exercise
options when they become vested.
The weighted average fair value of stock options, calculated using the
Black-Scholes option-pricing model, granted during the years ended December
31, 1996 and 1997 was $7.17 and $8.48, respectively.
On July 17, 1996, the Company issued and sold in a private placement to
certain investment funds 600,000 shares of the Company's Common Stock at an
issue price of $16.65 per share resulting in gross proceeds to the Company
of $9.9 million. In addition to receiving cash consideration equal to 5%
of the gross proceeds and the reimbursement of certain expenses, the
Placement Agent received Common Stock Warrants to acquire an aggregate of
15,000 shares of Common Stock for a purchase price of $16.65 per share.
These warrants expire in July of 1999.
On August 29, 1996, the Company issued and sold in a private placement to
approximately eighty accredited investors for $25 per share an aggregate of
4,200,000 shares of cumulative 5% Preferred Stock resulting in gross
proceeds of $105 million. In addition to receiving cash consideration
equal to 5% of the gross proceeds and the reimbursement of certain expenses
the Placement Agent received Preferred Stock Warrants to acquire 420,000
shares of 5% Preferred Stock for a purchase price of $25 per share. These
warrants expire in August 1998. In 1997, 240,225 of these warrants were
exercised, resulting in gross proceeds of $6 million. The 5% Preferred
Stock is convertible into a number of shares of Common Stock which depends,
in part, upon the conversion price in effect at the time of the conversion.
The 5% Preferred Stock is convertible into Common Stock at a 10% discount
to market. Of the total 4,440,225 5% Preferred Stock shares issued,
3,964,571 shares have been converted into shares of Common Stock, of which
2,485,601 shares were converted in 1997. On August 29, 1998, all remaining
outstanding shares of the 5% Preferred Stock will be automatically
converted into Common Stock at the conversion price then in effect.
Stock Compensation Plans
------------------------
In prior years, executives and key employees of the Company were granted
stock option awards under the Incentive Stock Option Plan. In May of 1996,
the Company's shareholders approved the Equity Incentive Plan which became
effective May 22, 1996. The Company's Incentive Stock Option
F-15
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Plan was discontinued on the same date. The Equity Incentive Plan provides
for the grant of incentive and nonqualified stock options, stock
appreciation rights, deferred stock awards, restricted stock grants and
other stock based awards to executives and key employees. The total number
of shares of Common Stock authorized for grant under the Equity Incentive
Plan is 1,500,000.
Options to purchase Common Stock may be granted either alone or
in addition to other awards. The term of each option will be fixed by the
Compensation Committee (the "Committee") of the Company's Board of
Directors, provided that no incentive stock option, as defined in the
Internal Revenue Code, will be exercisable after the expiration of ten
years from the date the option is granted. Options will be exercisable at
such time or times as determined by the Committee at or subsequent to
grant. Stock Appreciation Rights ("SARS") may be granted to participants
either alone or in addition to stock options and may, but need not be,
related to a specific option. The provisions of SARs need not be the same
with respect to each recipient.
Performance awards, restricted stock awards and other stock unit
awards may also be granted. Presented below is the total number of the
Company's shares of Common Stock represented by awards granted to the
Company's employees for the years ended December 31, 1996 and December 31,
1997.
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Market Value 1996 Market Value 1997
------------ -------- ------------ ----
<S> <C> <C> <C> <C>
Stock Awards $11.25 16,500 --- ---
Stock appreciation
rights granted $11.50 255,000 --- ---
</TABLE>
On December 3, 1996, out-of-the-money options were cancelled and
reissued with a revalued exercise price of $11.375. All other terms and
conditions remained in effect.
The following table summarizes the status of the Company's stock
options, outstanding and exercisable at January, 1998.
<TABLE>
<CAPTION>
Stock Options Stock Options
Outstanding Exercisable
----------- -----------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Contractual Exercise Exercise
Prices Shares Life Price Shares Price
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$10.06 to $11.375 1,371,763 2 yrs,11 mos $11.02 663,463 $11.37
$11.50 to $11.75 857,060 4 yrs,11 mos $11.51 511,910 $11.50
$12.375 to $13.25 58,500 5 yrs,3 mos $12.73 22,500 $12.86
</TABLE>
F-16
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Presented below is a summary of the status of the Company's stock
options held by employees, and the related transactions for the years ended
December 31, 1996 and December 31, 1997.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1996 1997
-------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Stock Options Price Shares Price Shares
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding $19.060 1,175,710 $11.803 2,108,415
January 1
Granted $11.480 1,113,250 $ 10.78 549,848
Exercised $11.910 (51,058) $11.375 (76,825)
Forfeited/Expired $18.553 (129,487) $ 11.42 (294,125)
Options outstanding $11.803 2,108,415 $ 11.45 2,287,313
December 31
Options available for grant
- Equity Incentive Plan 23,502
</TABLE>
8.INCOME TAXES
------------
The Company utilizes the asset and liability method for taxes, which
requires that deferred income taxes be provided for the cumulative temporary
differences between the financial and tax bases of the Company's assets and
liabilities.
The (provision) benefit for income taxes
consists of:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1996 1997
--------- ------- --------
<S> <C> <C> <C>
Current
Federal $(3,641) $ --- $ 4,055
State and foreign (57) --- ---
------- ------- -------
Total current $(3,698) $ --- $ 4,055
======= ======= =======
Deferred
Federal 728 14,487 (3,148)
State and foreign 154 88 194
------- ------- -------
Total deferred $ 882 $14,575 $(2,954)
======= ======= =======
</TABLE>
F-17
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A comparison of the provision for income taxes as reported, to a
provision based on federal statutory rates and consolidated income before income
taxes is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1996 1997
-------- --------- --------
<S> <C> <C> <C>
(Provision) benefit at
federal statutory rates $(1,876) $16,609 $ (478)
Non-deductible expense (404) (530) (262)
State taxes net of federal effect (3) --- ---
Research and development credits --- (266) ---
Foreign items (405) (809) (523)
Other (128) (429) (337)
Adjustment to prior year
liabilities --- --- 2,701
------- ------- ------
(Provision) benefit for
income taxes $(2,816) $14,575 $1,101
======= ======= ======
</TABLE>
The adjustment to prior year liabilities was a result of the
elimination of certain reserves for taxes due to the closure of years 1991
through 1993 from an IRS audit.
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
December 31, 1997 are presented below:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1997
Federal Debits Credits Debits Credits
- ------- --------------- ------- ------- -------
<S> <C> <C> <C> <C>
Inventory $ 718 $ --- $ 340 $ ---
Allowance for bad debts 855 --- 181 ---
Accrued liabilities 7,139 --- 5,144 ---
Depreciation --- 409 --- 412
Foreign items 2,533 --- 3,159 ---
Amortizable intangibles --- 314 --- 1,657
Loss on Discontinuance 152 --- --- 558
AMT credit --- --- 449 ---
Other 158 --- 138 ---
Net Operating Losses 10,104 --- 12,054 ---
State taxes 4,799 290 3,994 ---
------- ------- ------- -------
Total 26,458 1,013 25,459 2,627
Valuation allowance -
state and foreign (5,197) --- (5,538) ---
$21,261 $ 1,013 $19,921 $2,627
======= ======= ======= =======
</TABLE>
At December 31, 1997, the Company has federal net operating loss
carryforwards of approximately $35.5 million which expire in the year 2011 and
2012, foreign net operating loss carryforwards of approximately $9.8 million and
net operating loss carryforwards for state tax purposes of approximately $64,635
which expire at various dates through 2004.
F-18
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A valuation allowance was provided for certain foreign net
operating losses and certain state deferred tax assets due to the
uncertainty of realization of these assets.
The Company has recorded net deferred tax assets of approximately
$17.3 million. Realization is dependent upon generating sufficient taxable
income to utilize such items. Although realization is not assured,
management believes it is more likely than not that the deferred tax assets
for which a valuation allowance has not been provided, will be realized.
The amount of the deferred tax assets considered realizable, however, could
be reduced at any time if estimates of future taxable income are reduced.
9. LEASES AND OTHER COMMITMENTS
----------------------------
The Company leases office space and certain office equipment
under operating leases. Minimum rental payments in each of the next five
fiscal years required under leases which have initial or remaining lease
terms in excess of one year are as follows:
December 31, 1997
-----------------
1998....................................... $1,524
1999....................................... 960
2000....................................... 445
2001....................................... 277
2002....................................... 82
Rent expense for the years ended December 31, 1995, 1996, and
1997 was $1,321, $177, and $257 respectively.
In accordance with several product acquisitions and licensing
agreements and subject to certain cancellation rights reserved by the
Company, the Company may be required to make minimum payments related to
NOROXIN, SAMPATRILAT and the Lilly Compounds totalling $46.3 million and
purchase PROAMATINE inventory in the amount of $50.1 million through 2002.
10.EMPLOYEE BENEFITS
-----------------
The Company has employment agreements with certain of its
employees which provide them with continued compensation for a period of
two to five years in the event of their termination by the Company and
provide certain of them with additional payments on termination by the
Company equal to three to five times a portion of their average bonus and
incentive compensation from July 1, 1988 to their termination date.
F-19
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Through December 31, 1997 the Company maintained an employee
savings plan available to all employees who met certain age and service
requirements and made discretionary contributions to the plan based on
employee compensation or employee contributions. In the years ended
December 31, 1995, 1996 and 1997, the Company contributions amounted to
$231, $197, and $258 respectively.
Also through December 31, 1997, the Company had a money purchase
pension plan available to all employees who met certain age and service
requirements. The Company made discretionary contributions to the plan
based on employee compensation, and the Company can choose to terminate the
plan at any time. In 1995, 1996 and 1997, the Company recorded
contributions amounting to $217, $206, and $248 respectively.
As of January 1, 1998, the two plans were merged into one
employee savings plan. This plan is available to all employees who meet
certain age and service requirements. The plan requires mandatory
contributions to the plan based on employee contributions and makes
discretionary contributions to the plan based on employee compensation.
Employee Stock Purchase Plan
----------------------------
The Company's Board of Directors approved the Employee Stock
Purchase Plan (the "Plan"), which gives employees of the Company the
opportunity to purchase shares of the Company's Common Stock through
payroll deductions beginning on April 1, 1997. Employees can elect to
participate in the Plan by designating from 1% to 10% of eligible
compensation to be deducted from pay. On the date of exercise, which is
the Friday before the 15th of the month following each quarter end, the per
share purchase price will be 85% of the average high and low per-share
trading price of Roberts common stock on the American Stock Exchange on
that date. 500,000 shares of the Company's Common Stock have been reserved
for issuance under the Employee Stock Purchase Plan. The total number of
shares purchased under the plan in the year ended December 31, 1997 was
4,045 with a total value of $39,388.
11.CONTINGENCY
-----------
A shareholder class action suit was instituted in March, 1995, in
the United States District Court for the District of New Jersey against the
Company and certain of its officers and a former officer for alleged
violations of certain federal securities laws. This suit has been settled.
The net expenses of this settlement to the Company amounted to $2.3 million
and were included in other expense for the quarter ended September 30,
1997.
F-20
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12.ACQUISITIONS
------------
In 1995, 1996, and 1997, the Company acquired inventory,
trademarks and other rights to several products from various pharmaceutical
companies. The aggregate price of these acquisitions was $22.3 million,
$5.1 million, and $15.3 million respectively, consisting of cash and notes
payable. The intangibles related to acquisitions are being amortized on
the straight-line basis over periods ranging from twenty-five to forty
years.
13.SEGMENT REPORTING
-----------------
Selected financial information of the Company's geographic
segments for the years ended December 31, 1995, 1996, and 1997 are as
follows:
Years Ended December 31,
---------------------------------
Geographic segments 1995 1996 1997
--------- ---------- ---------
Revenues - nonaffiliates
Domestic $ 90,177 $ 74,422 $ 91,613
Foreign 23,250 23,689 30,895
-------- -------- --------
$113,427 $ 98,111 $122,508
======== ======== ========
Revenues - affiliates
Domestic $ 483 $ 174 $ 178
======== ======== ========
Operating income (loss)
Domestic $ 10,795 $(46,501) $ 4,471
Foreign (1,424) ( 1,513) ( 2,179)
Adjustments and
eliminations $ (2,498) $( 2,181) $( 3,054)
-------- -------- --------
$ 6,873 $(50,195) $( 762)
======== ======== ========
Identifiable assets at end
of period
Domestic $294,247 $321,809 $304,038
Foreign 48,541 52,597 66,494
Adjustments and
eliminations (2,498) (2,181) ( 2,975)
-------- -------- --------
$340,290 $372,225 $367,557
======== ======== ========
Intercompany revenues are based on market conditions at the time
of sale. Foreign operations primarily include the results of operations in
the United Kingdom, Canada and the Organization for Economic Cooperation
and Development countries which include the Republic of Ireland, certain
other Western European countries and Japan.
F-21
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14.DISCONTINUED OPERATIONS
-----------------------
In August 1995, the Company decided to seek a buyer for the
assets of its Pronetics (Homecare) subsidiaries which were located in New
York, New Jersey, North Carolina, and South Carolina.
The sale of the Homecare division was expected to result in a
loss at closing. Accordingly, the Company charged 1995 operations with the
estimated loss on discontinuing Homecare of $9.7 million, including a
provision of $1.9 million for operating losses until disposal of which $1.3
million was used in the third and fourth quarters of 1995.
Sales of the Homecare subsidiaries were essentially completed in
December 1996. The total realized from the sales was $2.7 million. The
additional loss on sale was offset by a decrease in the assets held for
sale and lower than expected losses from operations in 1996. There was no
income statement effect from the final disposition of the Homecare
division. An additional loss of $2.5 million on disposal of the Hauck
division was recognized in 1996. This expense was due to impairment of the
division's product intangibles.
In March 1996, the Company announced its plan to discontinue and
divest VRG, a contract clinical research organization. The Company
expected the sale of VRG to result in a loss at closing. Accordingly, the
Company charged 1995 operations with the estimated loss on discontinuing
VRG of $12.8 million, including a provision of $5.0 million for operating
losses until disposal. At December 31, 1995, net assets expected to be
realized, consisting primarily of receivables and plant and equipment,
totaled $0.5 million. In 1996, the Company reassessed the estimated
operating loss which resulted in an income statement impact of a $3.1
million gain. In January, 1998, the Company signed a Letter of Intent to
sell VRG's operations subject to the execution of a definitive acquisition
agreement and the successful completion of due diligence by the purchaser.
To date, the Company and the purchaser are negotiating the terms of said
definitive acquisition agreement and the transaction is expected to close
within the month of April, 1998.
F-22
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15.FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The carrying amount of cash and cash equivalents approximates fair value
due to the short-term maturities of these instruments. The fair value of
marketable securities was estimated based on quotes obtained from brokers.
The fair value of long-term debt is estimated based on the discounted
future cash flows using currently available interest rates.
December 31, 1997
------------------------------------
Carrying Amount Fair Value
--------------- ----------
Cash and cash equivalents $ 42,950 $42,950
Marketable securities 39,887 40,086
Long-term debt 18,364 18,033
The carrying amounts in the table are included in the
consolidated balance sheet under the indicated captions.
16.QUARTERLY RESULTS OF OPERATIONS
The following table presents summarized quarterly results
for 1997 (in thousands, except per share data).
(Unaudited)
First Second Third Fourth
----- ------ ----- ------
Revenues $ 26,330 $30,286 $28,357 $36,639
Gross profit 14,678 17,305 14,310 23,933
Net earnings 910/(1)/ 1,288 (2,995)/(2)/ 3,315/(3)/
Diluted net earnings
per share $ 0.02 $ 0.04 $(0.11) $ 0.11
F-23
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents summarized quarterly results for 1996 (in
thousands, except per share data).
(Unaudited)
First Second Third Fourth
----- ------ ----- ------
Revenues $17,228 $26,803 $21,688 $32,392
Gross profit 8,288 13,325 11,331 15,378
Net earnings (4,212) 2,215/(4)/ (3,133)/(5)/ (28,589)/(5)/
Diluted net earnings
per share $ (.23) $ .12 $ (.40)/(6)/ $(1.94)/(6)/
(1) Subsequent to the filing of the Company's quarterly report on Form 10-
Q for the three months ended March 31, 1997, the Company reclassified
costs that had been capitalized as an intangible asset to research and
development expense. The net of tax charge to earnings was $660,000,
or $0.02 per share.
(2) Includes a $2.3 million charge for the settlement of a lawsuit
instituted against the Company for alleged violations of certain
federal securities laws.
(3) In fourth quarter 1997, management made several changes in the
estimates of income tax reserves and allowances for returned goods.
The reduction in income tax reserves resulted from the elimination of
certain reserves due to the closure of years 1991 through 1993 after
an IRS audit. The allowance for returned goods was revalued based
upon a change in estimate of the economic benefit from the product
returns. The impact of these revaluations was $2.7 million and $1.0
million respectively.
(4) Includes a $4.0 million credit for the reassessment of the reserve for
discontinued operations, established in 1995.
(5) Includes a $25.4 million charge for the purchase of certain
development products and the write-off and sale of certain intangible
assets. (See Note 4.)
(6) Includes $.21 and $.40 per share charge for the third and fourth
quarter, respectively, pursuant to the 10% discount to market upon
conversion of the 5% Preferred Stock into Common Stock. Such amount
was not included in the Company's third quarter 1996 10-Q. The amount
is included based on the SEC position effective March 13, 1997 on such
discounts. In addition, includes $.02 and $.04 per share charge for
the third and fourth quarter, respectively, pursuant to dividends paid
and accrued on 5% Preferred Stock.
F-24
<PAGE>
SCHEDULE II
ROBERTS PHARMACEUTICAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Additions
Balance ---------------------------------- Balance
Beginning of Charged to Charged to End of
Period Costs and Expenses Other Accounts Deductions Period
-------------- ------------------ -------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Allowance for uncollectibles $ 1,440 $ 120 $ --- $(1,120) $ 440
Allowance for return goods $16,298 $ 5,667 $(3,000)/(1)/ $(9,130)/(2)/ $ 9,835
</TABLE>
(1) Reversal of allowance established in connection with product acquisition.
(2) $1,671 of the decrease in the allowance for returned goods is related to a
change in the estimation of goods actually returned. Items returned due to
billing and shipping errors are no longer included in the estimation as
these items are restocked and salable.
F-25
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Additions
Balance ---------------------------------- Balance
Beginning of Charged to Charged to End of
Period Costs and Expenses Other Accounts Deductions Period
-------------- ------------------ -------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Allowance for uncollectibles $ 1,754 $ --- $ --- $ 314 $ 1,440
Allowance for return goods $17,780 $ 6,041 $ --- $ 7,523 $16,298
</TABLE>
F-26
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Additions
Balance ---------------------------------- Balance
Beginning of Charged to Charged to End of
Period Costs and Expenses Other Accounts Deductions Period
-------------- ------------------ -------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Allowance for uncollectibles $2,195 $ 130 --- $ (571) $ 1,754
Allowance for return goods $8,951 $7,669 $6,154(1) $(4,994) $17,780
</TABLE>
(1) Allowance established in connection with product acquisitions.
F-27
<PAGE>
Exhibit Index
Exhibit No.
- -----------
o 3.1.1 Amended and Restated Certificate of Incorporation of Registrant
filed with the Secretary of State of the State of New Jersey on
February 1, 1988 and Certificates of Amendment thereto dated
February 2, 1988 and October 31, 1989, respectively.
zz 3.1.2 Certificate of Amendment, dated August 26, 1996, to the Amended
and Restated Certificate of Incorporation of Roberts
Pharmaceutical Corporation.
ee 3.1.3 Certificate of Amendment, dated August 29, 1996, to the Amended
and Restated Certificate of Incorporation of Roberts
Pharmaceutical Corporation.
zz 3.1.4 Certificate of Amendment, dated November 25, 1996, to the Amended
and Restated Certificate of Incorporation of Roberts
Pharmaceutical Corporation.
y 3.2 By-laws of the Registrant, as amended.
+ 4.1 Form of Specimen Certificate, Roberts Pharmaceutical Corporation
Common Stock.
dd 4.2 Form of Specimen Certificate, Roberts Pharmaceutical Corporation
5% Convertible Preferred Stock.
dd 4.4 Form of Stock Purchase Agreement, dated July 17, 1996, executed
by and between Roberts and the purchasers of the Common Stock in
the Common Stock Private Placement.
dd 4.5 Form of Preferred Stock Investment Agreement, dated August 29,
1996, executed by and between Roberts and the purchasers of the
5% Convertible Preferred Stock in the Preferred Stock Private
Placement.
dd 4.6 Form of Stock Purchase Warrant used in connection with the Common
Stock Private Placement.
dd 4.7 Form of Stock Purchase Warrant used in connection with the
Preferred Stock Private Placement.
ff 4.8 Rights Agreement, dated as of December 16, 1996, between Roberts
and Continental Stock Transfer & Trust Company and the Summary of
Rights to purchase Roberts Preferred Stock.
E-1
<PAGE>
ff 4.9 Form of Specimen Rights Certificate to be used upon the
occurrence of a "Distribution Date" as defined in the Rights
Agreement.
+ 10.1 License Agreement (United States), dated November 6, 1989,
between Roberts and Istituto Biologico Chemioterapico (ABC)
S.p.A.
+ 10.2 License Agreement (United Kingdom), dated November 6, 1989,
between Roberts and Istituto Biologico Chemioterapico (ABC)
S.p.A.
o 10.3 License Agreement, dated January 1, 1985, between the National
Technical Information Service and Roberts.
o 10.4 Agreement, dated October 1, 1985, between Hafslund Nycomed Pharma
AG (formerly CL Pharma AG) and Roberts Laboratories, Inc., a
wholly owned subsidiary of Roberts.
aa 10.4.1 Amendment, dated January 19, 1994, to Agreement, dated October 1,
1985, between Hafslund Nycomed Pharma AG and Roberts
Laboratories, Inc., a wholly owned subsidiary of Roberts.
o 10.16 Agreements and other documents of Roberts, Hafslund Nycomed AG
and Linz-Roberts, Inc. including the following exhibits thereto:
(a) Subscription and Shareholders Agreement, dated December 1,
1985, between Roberts, Hafslund Nycomed Pharma AG and Linz-
Roberts, Inc., including the following exhibits thereto:
(i) Certificate of Incorporation of Linz-Roberts, Inc.
(ii) By-Laws of Linz-Roberts, Inc.
(iii) License Agreement, dated January 1, 1985, between
the National Technical Information Service and
Roberts. (See Exhibit 10.3)
(iv) Agreement of Assignment, dated December 1, 1985,
between Roberts and Linz-Roberts, Inc.
(v) Research and Development Agreement, dated as of
December 1, 1985, between Vukovich Research Group,
Inc. and Roberts
(b) License and Distribution Agreement, dated December 1, 1985,
between Roberts and Hafslund Nycomed Pharma AG.
E-2
<PAGE>
o 10.17 License Agreement, dated October 31, 1988, between the
Salk Institute for Biological Studies and Roberts.
(*) zz 10.20.1 Employment Agreement, dated as of November 19, 1996,
between Roberts and John T. Spitznagel.
(*) zz 10.20.2 Employment Agreement, dated as of November 19, 1996,
between Roberts and Peter M. Rogalin.
(*) bb 10.21 Employment Agreement, dated as of December 20, 1994,
between Roberts and Robert A. Vukovich.
(*) bb 10.23 Employment Agreement, dated as of December 20, 1994,
between Roberts and Robert W. Loy.
(*) bb 10.24 Employment Agreement, dated as of December 20, 1994,
between Roberts and Anthony A. Rascio.
o 10.26 Rental Deposit Deed, dated September 28, 1988, between
the University of Surrey and Roberts relating to the
leased office space in Guildford, England.
o 10.27 Underlease, dated September 28, 1988, between the
University of Surrey and Roberts relating to the leased
office space in Guildford, England.
xx 10.42 Distribution Agreement, dated February 15, 1991,
between Roberts and Flint Laboratories (Canada) Ltd.
++ 10.43 Agreement for Products and Sale of Assets, dated March
6, 1991, between Norwich Eaton Pharmaceuticals, Inc.
and Roberts Laboratories Inc., a wholly owned
subsidiary of Roberts.
y 10.48 License Agreement, dated as of August 1, 1991, between
Bristol-Myers Squibb Co. and Roberts Laboratories Inc.,
a wholly owned subsidiary of Roberts.
y 10.51 Agreements of Roberts Laboratories Inc., a wholly owned
subsidiary of Roberts, Boehringer Ingelheim Limited,
Windsor Healthcare Limited and Altam Pharmaceuticals
Limited:
(a) Agreement, dated December 5, 1991, by and among
Roberts Laboratories Inc., a wholly owned
subsidiary of Roberts, Boehringer Ingelheim
Limited and Windsor Healthcare Limited.
E-3
<PAGE>
(b) Supplemental Agreement, dated December 5, 1991, by and among
Roberts Laboratories Inc., a wholly owned subsidiary of
Roberts, Boehringer Ingelheim Limited and Windsor Healthcare
Limited.
y 10.52 Dopar Agreement for Purchase and Sale of Assets, dated December
6, 1991, between Norwich Eaton Pharmaceuticals, Inc. and Roberts
Laboratories Inc., a wholly owned subsidiary of Roberts.
k 10.53 Agreements of Roberts, Roberts Laboratories Inc. and Monmouth
Pharmaceuticals Ltd., wholly owned subsidiaries of Roberts,
American Home Products Corporation, John Wyeth & Brother Limited
and Ayerst, McKenna & Harrison Inc.
(a) Agreement, dated December 20, 1991, by and among Roberts,
Roberts Laboratories Inc., a wholly owned subsidiary of
Roberts, American Home Products Corporation, John Wyeth &
Brother Limited and Ayerst, McKenna & Harrison, Inc.
(b) Manufacturing Agreement, dated December 24, 1991, between
John Wyeth & Brother Limited and Monmouth Pharmaceuticals
Ltd., a wholly owned subsidiary of Roberts.
(c) AHPC License Agreement, dated December 24, 1991, between
American Home Products Corporation and Roberts Laboratories
Inc., a wholly owned subsidiary of Roberts.
(d) The Ayerst License Agreement, dated December 24, 1991,
between Ayerst, McKenna & Harrison Inc. and Roberts
Laboratories Inc., a wholly owned subsidiary of Roberts.
(e) The Wyeth License Agreement, dated December 24, 1991,
between John Wyeth & Brother Limited and Roberts
Laboratories Inc., a wholly owned subsidiary of Roberts.
(f) Distribution Agreement, dated December 24, 1991, between
John Wyeth & Brother Limited and Monmouth Pharmaceuticals
Ltd., a wholly owned subsidiary of Roberts.
(g) Assignments, each dated December 24, 1991, between American
Home Products Corporation and Roberts Laboratories Inc., a
wholly owned subsidiary of Roberts.
E-4
<PAGE>
(h) Assignment, dated December 24, 1991, between John Wyeth &
Brother Limited and Roberts Laboratories Inc., a wholly
owned subsidiary of Roberts.
k 10.55 Stock Purchase Agreement, dated as of January 22, 1992, between
Roberts and Yamanouchi Pharmaceutical Co., Ltd., including
Shareholder Agreement dated as of January 22, 1992 between Dr.
Robert A. Vukovich and Yamanouchi Pharmaceutical Co., Ltd. which
comprises Annex A to such agreement.
j 10.56 Distribution Agreement, dated March 31, 1992, between Research
Industries Corporation and Roberts Pharmaceutical of Canada Inc.,
a wholly owned subsidiary of Roberts.
j 10.57 License Agreement, dated April 2, 1992, between Bayer AG and
Roberts Laboratories Inc., a wholly owned subsidiary of Roberts.
j 10.58 License Agreement, dated April 10, 1992, between Ortho
Pharmaceutical Corporation and Roberts Laboratories Inc., a
wholly owned subsidiary of Roberts.
j 10.59 Purchase Agreement, dated July 6, 1992, between Galen Limited and
Roberts Laboratories Inc., a wholly owned subsidiary of Roberts.
kk 10.60 Asset Purchase Agreement, dated September 29, 1992, between
Smith-Kline Beecham Pharmaceuticals, an unincorporated division
of Smith-Kline Beecham Corporation, and Roberts Laboratories Inc,
a wholly owned subsidiary of Roberts.
j 10.61 Agreement for Purchase and Sale of COMHIST Assets, dated November
24, 1992, between Procter & Gamble Pharmaceuticals, Inc. and
Roberts Laboratories Inc., a wholly owned subsidiary of Roberts.
Upon the request of the Securities and Exchange Commission,
Roberts agrees to furnish a copy of Schedules 1.1(a) through 6.11
and Exhibits A through C to the Agreement for Purchase and Sale
of COMHIST Assets as follows: 1.1(a) - Schedule of Trademarks;
1.1(b) - Schedule of Know-How; 1.1(d) - Tooling Schedule; 1.4 -
Allocation of Purchase Price Schedule; 6.6(4) - Intellectual
Property Claims Schedule; 6.10 - Schedule of Customers; 6.11 -
Financial Information Schedule; A - Form of Trademark Assignment;
B - Form of Bill of Sale; C -Contract Manufacturing Agreement.
j 10.63 Purchase and Sale Agreement, dated December 21, 1992, between The
Du Pont Merck Pharmaceutical Company and Roberts Laboratories
Inc., a wholly owned subsidiary of Roberts.
E-5
<PAGE>
j 10.64 Asset Purchase Agreement, dated December 28, 1992, between G.D.
Searle & Co. and Roberts Laboratories Inc., a wholly owned
subsidiary of Roberts. Upon the request of the Securities and
Exchange Commission, Roberts agrees to furnish a copy of Exhibits
A and B, Schedules 1.12 through 4.2(d), and various miscellaneous
assignments of copyrights and trademarks to the Asset Purchase
Agreement as follows: A - Security Agreement; B - Supply
Agreement; 1.12 - Product Registrations, 2.3 - Purchase Price
Allocations; 4.1(c) - Contracts Requiring Consents; 4.1(f) -
Pending Suits and Claims; 4.1(g) -Compliance; 4.1(h) - Material
Contracts; 4.1(i) - Exceptions to Ownership of Intellectual
Property; 4.1(j) - Financial Information; 4.1(l) -Customer List;
4.1(m) - Material Adverse Changes; 4.2(d) -Buyer's Financial
Statements; assignments of copyrights; assignments of trademarks.
j 10.65 Asset Purchase Agreement, dated March 23, 1993, by and between
Searle Canada, Inc. and Roberts Laboratories Inc., a wholly owned
subsidiary of the Company. Upon the request of the Securities and
Exchange Commission, Roberts agrees to furnish a copy of Exhibit
A and Schedules 1.5(a) through 5.19 to the Asset Purchase
Agreement as follows: A - Supply Agreement; 1.5(a) - Sales
Retained by Seller; 1.5(b) - Pricing Prior to Closing; 1.10 -
Product Registrations; 4.1(c) - Contracts Requiring Consents;
4.1(f) - Pending Suits and Claims; 4.1(g) - Compliance; 4.1(h) -
Material Contracts; 4.1(i) -Exceptions to Ownership of
Intellectual Property; 4.1(j) - Financial Information; 4.1(l) -
Customer List; 4.1(m) -Material Adverse Changes; 5.19 - Packaging
Charges.
# 10.67 Copy of form of Option Agreement used in connection with options
granted under the Roberts Pharmaceutical Corporation Restricted
Stock Option Plan.
# 10.68 Copy of form of Option Agreement used in connection with options
granted under the Roberts Pharmaceutical Corporation Incentive
Stock Option Plan.
j 10.69 Rebate Agreement, dated November 11, 1992, between the Secretary
of Health and Human Services and Roberts Laboratories, Inc., a
wholly owned subsidiary of Roberts.
a 10.70 License Agreement, dated as of March 27, 1993, by and among
Roberts Laboratories Inc., a wholly owned subsidiary of Roberts,
Sawai Pharmaceutical Co., Ltd. and Grelan Pharmaceutical Co.,
Ltd.
a 10.71 Agreements, dated as of May 5, 1993, between Roberts Laboratories
Inc., a wholly owned subsidiary of Roberts, and Glaxo Canada
Inc., dated as of May 5, 1993.
(a) First Asset Purchase Agreement.
E-6
<PAGE>
(b) Promotion Agreement.
(c) Supply Agreement.
(d) Distribution Agreement.
(e) License Agreement.
(f) Registered User Agreement.
(g) Assignment of Trademarks.
(h) Second Asset Purchase Agreement.
a 10.72 Stock Purchase Agreement, dated August 30, 1993, by and
among Roberts, Yamanouchi Pharmaceutical Co., Ltd. and
Yamanouchi U.S.A. Inc.
aa 10.73 Amendment to Stock Purchase Agreement, dated August 30,
1993, by and among Roberts, Yamanouchi Pharmaceutical Co.,
Ltd. and Yamanouchi U.S.A. Inc.
aa 10.74 Agreements, dated as of September 14, 1993, among Bristol-
Myers Squibb Company, Bristol-Myers Squibb Company Canada
Inc. and Roberts Laboratories Inc., a wholly owned
subsidiary of Roberts.
(a) COLACE Et Al. Sale Agreement.
(b) COLACE Et Al. Supply Agreement.
(c) Security Agreement.
(d) Notice of Security Interest in Trademark.
(e) Assignment of Collateral.
(f) Guaranty.
bb 10.75 License Agreement, dated as of July 6, 1994, between The
Rockefeller University and Roberts Laboratories Inc., a
wholly owned subsidiary of Roberts.
bb 10.76 Agreements between Roberts Laboratories Inc., a wholly owned
subsidiary of Roberts, and SmithKline Beecham
Pharmaceuticals, an unincorporated division of SmithKline
Beecham Corporation:
(a) TIGAN Asset Purchase Agreement dated as of March 27,
1995. Upon the request of the Securities and Exchange
Commission, Roberts agrees to furnish a copy of Exhibits
A through D and Schedules 5.4 through 5.11 and Appendix
I as follows: A - List of Products; B - Assignment and
Assumption Agreement; C - Promissory Note; D -
Transitional Services Agreement; 5-4 - Financial
Information; 5.5 - Litigation; 5.6 -Inventory; 5.7 -
Product Formulas; 5.8 - Regulatory Issues; 5.9 - FDA and
Other Administrative Approvals, Registrations and
Permits; 5.11 -Intellectual Property Rights; I -
Purchase Price Adjustments.
E-7
<PAGE>
(b) EMINASE Asset Purchase Agreement dated as of March 27, 1995. Upon
the request of the Securities and Exchange Commission, Roberts
agrees to furnish a copy of Exhibits A through D, Schedules
2.1(a)(1) through 5.11 and Appendices I and II as follows: A -
List of Products; B - Manufacturing Agreement; C - Promissory
Note; D - Transitional Services Agreement; 2.1(a)(1)- Transferable
Product Rights; 2.1(a)(2) - Non-Transferable Product Rights;
2.1(b) - Transferred Contracts; 5.4 - Financial Information; 5.5 -
Litigation; 5.6 - Inventory; 5.7 - Product Formulas; 5.8 -
Regulatory Issues; 5.9 - FDA and Other Administrative Approvals,
Registrations and Permits; 5.11 - Intellectual Property Rights;
I -Territories; II - Purchase Price Adjustments.
gg 10.77 Distribution Agreement, dated February 23, 1995, between Roberts
Laboratories, Inc., a wholly owned subsidiary of the Company, and
Merck and Co., Inc. with respect to NOROXIN.
zz 10.78 License Agreements between Roberts Laboratories Inc., a wholly owned
subsidiary of Roberts, and Eli Lilly and Company:
(a) Tazofelone License Agreement dated November 5, 1996.
(b) Compound LY246736 License Agreement dated November 5, 1996.
(c) Compound LY353433 License Agreement dated November 5, 1996.
(d) Compound LY315535 License Agreement dated December 4, 1996.
zz 10.79 License Agreement between Roberts Laboratories Inc., a wholly owned
subsidiary of the Company, and Pfizer Inc. with respect to
Sampatrilat. Upon request of the Securities and Exchange Commission,
Roberts agrees to furnish a copy of Exhibits 1.7(a) and 3.1(b).
zz 10.80 Agreement, dated December 3, 1996, by and between Roberts and Monsanto
Canada, Inc. with respect to Oakville manufacturing facility.
zz 10.81 Divestiture Agreement, dated December 1, 1996, by and among Roberts,
Pronetics Health Care Group, Inc. (New Jersey), Pronetics Health Care
Group, Inc. (New York), PHCG, Inc. and MJGC Corp. pertaining to the
divestiture of certain Homecare operations.
zz 10.82 Stock Purchase Agreement, dated January 31, 1997, by and among
Roberts, Pronetics Health Care Group, Inc. (North Carolina) and
American Homepatient, Inc. pertaining to the divestiture of certain
Homecare operations.
10.83 Agreement of sale, August 1997, by and between Roberts Pharmaceutical
Corporation and Novartis Pharmaceutical Corporation pertaining to the
acquisition of the distribution facility.
E-8
<PAGE>
10.84 Asset Purchase Agreement, December 1997, by and between Roberts
Laboratories Inc., a wholly owned subsidiary of Roberts, and G.D.
Searle & Co. pertaining to the divestiture of NORETHIN. Upon
request of The Securities and Exchange Commission, Roberts agrees
to furnish copies of Schedules 1.13, 2.3, 4.1(c), (f), (g), (h),
(i), (j), (l), and (m).
10.85 Distribution Agreement, December 1997, by and between Roberts
Laboratories Inc., a wholly owned subsidiary of Roberts, and G.D.
Searle & Co. pertaining to the distribution rights for SLOW-MAG.
21. Subsidiaries of the Registrant.
23. Consent of Coopers & Lybrand L.L.P.
cc 27. Financial Data Schedules.
E-9
<PAGE>
(*) Constitutes a management contract required to be filed as an exhibit
pursuant to Item 14(c) of Form 10-K.
y Incorporated by reference to the identically numbered exhibit to the
Registrant's Registration Statement on Form S-4 (Registration No. 33-
44441).
o Incorporated by reference to the identically numbered exhibit to
Registrant's Registration Statement on Form S-1 (Registration No. 33-
31876).
+ Incorporated by reference to the identically numbered exhibit to
Amendment No. 1 to Registrant's Registration Statement on Form S-1
(Registration No. 33-31876).
x Incorporated by reference to the identically numbered exhibit to
Amendment No. 2 to Registrant's Registration Statement on Form S-1
(Registration No. 33-31876).
z Incorporated by reference pursuant to the identically numbered exhibit
to Amendment No. 1 to Registrant's Registration Statement on Form S-1
(Registration No. 33-40636).
k Incorporated by reference to the identically numbered exhibit to
Registrant's Registration Statement on Form S-1 (Registration No. 33-
45069).
# Incorporated by reference to the identically numbered exhibit to
Registrant's Registration Statement on Form S-8 (Registration No. 33-
34767).
a Incorporated by reference to the identically numbered exhibit to
Registrant's Registration Statement on Form S-3 (Registration No. 33-
68080).
b Incorporated by reference to Registrant's Registration Statement on
Form S-8 (Registration No. 33-51198).
@ Incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1990.
j Incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992.
aa Incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.
bb Incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.
E-10
<PAGE>
gg Incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.
zz Incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
cc Financial Data Schedules are submitted in electronic format only.
dd Incorporated by reference to the identically numbered exhibit to
Registrant's Registration Statement on Form S-3 (Registration No. 333-
13729).
ee Incorporated by reference to Exhibit No. 4.3 to Registrant's
Registration Statement on Form S-3 (Registration No. 333-13729).
ff Incorporated by reference to Exhibit No. 1 to Registrant's
Registration Statement on Form 8-A.
xx Incorporated by reference to Registrant's Current Report on Form 8-K,
dated February 15, 1991.
++ Incorporated by reference to Registrant's Current Report on Form 8-K,
dated March 6, 1991.
vv Incorporated by reference to Registrant's Current Report on Form 8-K,
dated November 5, 1991.
kk Incorporated by reference to Registrant's Current Report on Form 8-K,
dated September 29, 1992.
E-11
<PAGE>
EXHIBIT 10.83
AGREEMENT OF SALE
between
NOVARTIS PHARMACEUTICALS CORPORATION,
Seller
and
ROBERTS PHARMACEUTICAL CORPORATION,
Purchaser
Dated: August ____, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
--
PRELIMINARY STATEMENT 1
SECTION 1 SALE OF PROPERTY; PURCHASE PRICE; PAYMENT
TERMS; ESCROW TERMS 2
1.1 Sale of Property........................... 2
1.2 Purchase Price............................. 2
1.3 Payment Terms.............................. 2
1.4 Escrow Terms............................... 2
SECTION 2 TITLE TO PROPERTY................................. 6
2.1 Title to Premises.......................... 6
2.2 Title to Other Property.................... 6
2.3 Title Defects.............................. 6
2.4 Right to Pay Off Monetary
Encumbrances............................... 6
2.5 Survey..................................... 6
SECTION 3 RIGHT OF ENTRY; TERMINATION;
INDEMNIFICATION: INSURANCE 6
3.1 Right of Entry............................. 6
3.2 Due Diligence Period....................... 7
3.3 Indemnification............................ 7
3.4 Insurance.................................. 7
SECTION 4 REPRESENTATIONS AND WARRANTIES OF SELLER.......... 8
4.1 Representations and Warranties............. 8
4.2 Changes in Representations
and Warranties............................. 9
4.3 Limitation on Seller's Representations,
Warranties, Covenants and Agreements....... 10
4.4 Survival................................... 11
SECTION 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER....... 11
5.1 Representations and Warranties............. 11
5.2 Survival................................... 12
i
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SECTION 6 OTHER COVENANTS AND AGREEMENTS............... 12
6.1 No Liens or Encumbrances............. 12
6.2 Maintenance of Property.............. 12
6.3 Contracts............................ 13
6.4 Closing Deliveries................... 13
6.5 Litigation........................... 13
SECTION 7 CASUALTY; CONDEMNATION....................... 13
7.1 Casualty............................. 13
7.2 Condemnation......................... 13
SECTION 8 CLOSING DATE AND DELIVERY OF
DOCUMENTS. 14
8.1 Closing Date......................... 14
8.2 Documents to be Delivered by
Seller............................... 14
8.3 Documents to be Delivered by
Purchaser............................ 15
8.4 Form 1099............................ 16
SECTION 9 CLOSING ADJUSTMENTS.......................... 16
9.1 Adjustment Time...................... 16
9.2 Description of Items to be Adjusted.. 16
9.3 Final Adjustment of Real Estate Taxes 17
9.4 Errors in Closing Adjustments........ 17
9.5 Survival............................. 17
9.6 Closing Costs........................ 17
SECTION 10 DEFAULT; REMEDIES............................ 17
10.1 Default by Purchaser................. 17
10.2 Default by Seller.................... 18
10.3 Remedies............................. 18
ii
<PAGE>
TABLE OF CONTENTS
-----------------------------------
(Continued)
Page
--
SECTION 11 MISCELLANEOUS............................ 18
11.1 Time of Essence.................... 18
11.2 Brokerage Commission and Finder's
Fee................................ 18
11.3 Assignment......................... 19
11.4 Notices............................ 19
11.5 Attorney's Fees.................... 20
11.6 Successors and Assigns............. 20
11.7 Governing Law...................... 20
11.8 Incorporation of Prior Agreements.. 20
11.9 Modification of Agreement.......... 20
11.10 Drafting Ambiguities............... 20
11.11 Further Assurances................. 21
11.12 Partial Invalidity................. 21
11.13 Counterparts....................... 21
11.14 Confidentiality.................... 21
11.15 Effective Date..................... 22
11.16 Publication........................ 22
EXHIBIT A LEGAL DESCRIPTION OF LAND
EXHIBIT B PERSONAL PROPERTY
EXHIBIT C PERMITTED EXCEPTIONS
EXHIBIT D BILL OF SALE
EXHIBIT E FIRPTA AFFIDAVIT
iii
<PAGE>
AGREEMENT OF SALE
-----------------
AGREEMENT OF SALE (this "Agreement"), dated as of August ___, 1997,
between NOVARTIS PHARMACEUTICALS CORPORATION, a Delaware corporation having
offices at 59 Route 10, East Hanover, New Jersey 07936-1080 ("Seller") and
ROBERTS PHARMACEUTICAL CORPORATION, a New Jersey corporation, whose address is
Meridian Center II, Four Industrial Way West, Eatontown, New Jersey 07724-2274,
its successors and assigns ("Purchaser").
PRELIMINARY STATEMENT
---------------------
Seller is the owner of (a) certain lands lying in the Village of
Buffalo Grove, County of Lake, State of Illinois, having an address of 900
Corporate Grove Drive, Buffalo Grove, Illinois 60089, more particularly
described by metes and bounds on Exhibit A annexed hereto (the "Land"), (b) a
---------
building and all fixtures, structures, facilities and improvements presently
located on the Land (the "Improvements"), (c) all equipment, machinery and
personal property located on the Land or on the Improvements owned by Seller and
identified on Exhibit B annexed hereto, (the "Personal Property") (the Land, the
---------
Improvements and the Personal Property being herein collectively called the
"Premises"), (d) all easements, rights and appurtenances relating to the Land
and the Improvements, including all right, title and interest of Seller in any
highways, roads, streets, alleys and other public ways and in the bed of any
body of water bordering on or adjacent to the Land, (e) to the extent they may
be transferred under applicable law, but without cost to Seller, all licenses,
permits, approvals, certificates of occupancy and other approvals necessary for
the current use and operation of the Premises, including, without limitation,
sewer rights and permits, presently issued in connection with the operation of
all or any part of the Premises or necessary to operate the Property (as
hereinafter defined) as it is presently being operated (collectively "Permits"),
and (f) warranties and rights, if any, booklets and manuals issued or inuring to
Seller by any manufacturers and/or contractors in connection with the
manufacture, construction or installation of equipment and Improvements included
as part of the Premises, together with the record building plans and
specifications for the Improvements and any engineering data or reports relating
to the Premises or any
<PAGE>
part thereof, to the extent any of the foregoing are in Seller's possession. The
items listed above in (a) through (f) are collectively referred to herein as the
"Property".
Seller desires to sell, convey, transfer and assign to Purchaser, and
Purchaser desires to acquire from Seller, the Property.
NOW, THEREFORE, for and in consideration of the premises, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
SALE OF PROPERTY; PURCHASE PRICE; PAYMENT TERMS; ESCROW TERMS
-------------------------------------------------------------
1.1 Sale of Property. Seller hereby agrees to sell, convey,
----------------
transfer and assign to Purchaser, and Purchaser agrees to purchase from Seller,
the Property upon the terms and conditions herein contained.
1.2 Purchase Price. The aggregate purchase price for the Property
--------------
is FOUR MILLION ONE HUNDRED TWENTY FIVE THOUSAND DOLLARS ($4,125,000.00) (the
"Price").
1.3 Payment Terms. The Price shall be payable as follows:
-------------
(a) upon execution of this Agreement, the sum of $750,000.00
(the "Deposit") shall be paid by Purchaser to the Escrow Agent
(as hereinafter defined); and
(b) upon closing of title the sum of $3,375,000.00, plus or
minus any Closing Adjustments (as defined in Section 9 hereof),
shall be paid by certified, cashiers or attorneys' trust account
check or, if requested by Seller, by wire transfer of
immediately available funds to Seller or its designee.
- 2 -
<PAGE>
1.4 Escrow Terms.
------------
(a) The Deposit shall be held in escrow by Shanley & Fisher,
P.C. (the "Escrow Agent") in an interest bearing account until
disbursed as herein provided. Any interest accrued on the
Deposit shall be paid to whichever party is entitled to the
Deposit in accordance with the provisions of this Agreement. If
the transaction contemplated in this Agreement is consummated,
the interest earned on the Deposit shall be split evenly between
Seller and Purchaser. The Deposit shall be held and disbursed by
Escrow Agent in the following manner:
(i) to Seller at the closing upon consummation of the
closing; or
(ii) to Purchaser if Purchaser elects to terminate the
Agreement in accordance with Sections 2, 3, 4, 7 and 10
--------------------------
hereof; or
(iii) to Seller upon receipt of written demand therefor,
stating that Purchaser has defaulted in performance of
Purchaser's obligations under this Agreement and the facts
and circumstances underlying such default and that Seller
is entitled to the Deposit under the provisions of this
Agreement; provided however, that Escrow Agent shall not
honor said demand until the period of time for objection
thereto as set forth in subsection 1.4(b) hereof shall have
expired, nor thereafter if Escrow Agent shall have received
written notice of objection from Purchaser in accordance
with the provisions of clause (b) of this Section 1.4;
-----------
(iv) to Purchaser upon receipt of written demand therefor,
stating that Seller has defaulted in performance of
Seller's
- 3 -
<PAGE>
obligations under this Agreement and the facts and
circumstances underlying such default and that Purchaser is
entitled to the Deposit under the provisions of this
Agreement; provided, however, that Escrow Agent shall not
honor such demand until the period of time for objection
thereto as set forth in subsection 1.4(b) hereof shall have
expired, nor thereafter if Escrow Agent shall have received
written notice of objection from Seller in accordance with
the provisions of clause (b) of this Section 1.4.
-----------
(b) Upon receipt of written demand for the Deposit by Purchaser
or Seller pursuant to clause (iii) or (iv) of Section 1.4(a),
--------------
Escrow Agent shall promptly send a copy thereof to the other
party. The other party shall have the right to object to the
delivery of the Deposit by sending written notice of such
objection to Escrow Agent within the greater of five (5) days or
three (3) business days after Escrow Agent delivers a copy of
the written demand to the objecting party but not thereafter.
Such notice shall set forth the basis for objecting to the
delivery of the Deposit. Upon receipt of such notice, Escrow
Agent shall promptly send a copy thereof to the party who made
the written demand.
(c) In the event of any dispute between the parties regarding
the Deposit, Escrow Agent, at its option, may disregard all
instructions received and either (i) hold the Deposit until the
dispute is mutually resolved and Escrow Agent is advised of this
fact in writing by both Seller and Purchaser, or Escrow Agent is
otherwise instructed by a final unappealable judgment of a court
of competent jurisdiction, or (ii) deposit the Deposit with a
court of competent jurisdiction (whereupon Escrow Agent shall be
released and relieved of any and all liability
- 4 -
<PAGE>
and obligations hereunder from and after the date of such
deposit).
(d) In the event Escrow Agent shall be uncertain as to its
duties or rights hereunder or shall receive conflicting
instructions, claims or demands from the parties hereto, or
instructions which conflict with any of the provisions of this
Agreement, Escrow Agent shall be entitled (but not obligated) to
refrain from taking any action other than to keep safely the
Deposit until Escrow Agent shall be instructed otherwise, in
writing signed by both Seller and Purchaser, or by final
judgment of a court of competent jurisdiction.
(e) Escrow Agent may rely upon, and shall be protected in acting
or refraining from acting upon, any written notice, instruction
or request furnished to it hereunder and believed by it to be
genuine and to have been signed or presented by the proper party
or parties, provided that no modification of this Agreement
which purports to affect the rights, duties or obligations of
Escrow Agent hereunder shall be binding upon Escrow Agent unless
Escrow Agent has signed such modification.
(f) Seller and Purchaser shall jointly and severally hold Escrow
Agent harmless against any loss, damage, liability or expense
incurred by Escrow Agent not caused by its willful misconduct or
gross negligence, arising out of or in connection with its
entering into this Agreement and the carrying out of its duties
hereunder, including the reasonable costs and expenses of
defending itself against any claim of liability or participating
in any legal proceeding. Escrow Agent may consult with counsel
of its choice, and shall have full and complete authorization
and protection for any action taken or suffered by it
- 5 -
<PAGE>
hereunder in good faith and in accordance with the opinion of
such counsel.
(g) Escrow Agent may resign at will and be discharged from its
duties or obligations hereunder by giving notice in writing of
such resignation specifying a date when such resignation shall
take effect; provided, however, that Escrow Agent, prior to such
resignation, identifies a replacement escrow agent (the
"Replacement Escrow Agent") who: (i) is approved in writing by
Seller and Purchaser, which approval shall not be unreasonably
withheld or delayed; (ii) signs a counterpart of this Agreement;
(iii) receives the Deposit from Escrow Agent and acknowledges
receipt thereof; and (iv) agrees to be bound by all of the
provisions hereof. If Escrow Agent resigns and no Replacement
Escrow Agent is designated, Escrow Agent shall deposit the
Deposit with a court of competent jurisdiction. After
resigning, as described above, Escrow Agent shall have no
further duties or liability hereunder.
(h) Purchaser and Seller, together, shall have the right to
terminate the appointment of Escrow Agent hereunder by giving to
it notice of such termination, specifying the date upon which
such termination shall take effect and designating a Replacement
Escrow Agent, consistent with clauses (i) through (iv) of
Section 1.4(g) above. After such termination, Escrow Agent
--------------
shall have no further duties or liability hereunder.
(i) Seller and Purchaser shall share equally the responsibility
for reimbursement to Escrow Agent or Replacement Escrow Agent of
all out-of-pocket expenses, disbursements and advances incurred
or made by either in connection with the carrying out of its
duties hereunder.
- 6 -
<PAGE>
(j) Escrow Agent's and Replacement Escrow Agent's agreements and
obligations hereunder shall terminate and such Escrow Agent or
Replacement Escrow Agent shall be discharged from further duties
and obligations hereunder upon final disbursement of the Deposit
in accordance with the terms of this Agreement.
SECTION 2
TITLE TO PROPERTY
-----------------
2.1 Title to Premises. Title to the Premises shall, as a condition
-----------------
to closing, be good, marketable and insurable at regular rates by Chicago Title
Insurance Company (the "Title Insurer"), subject only to the exceptions set
forth on Exhibit C annexed hereto (the "Permitted Exceptions").
---------
2.2 Title to Other Property. Title to the Personal Property and all
-----------------------
other property intended to be conveyed or assigned hereunder to Purchaser shall
be good and valid, subject to no encumbrances or security interests.
2.3 Title Defects. If Seller is unable to convey title as aforesaid
-------------
due to a title encumbrance or survey exception not caused by any action or
inaction of Seller, this Agreement may be terminated by Purchaser at any time
between the Effective Date (as defined in Section 11.15 hereof) and the Closing
Date (as defined in Section 8.1 hereof); provided, however, that (a) Seller
shall have the right to pay off any monetary encumbrances against
the Property and (b) if legal or other action is necessary to cure title defects
or survey exceptions not willfully caused by any act or inaction of Seller,
Seller shall have the right, but not the obligation, to take such action at its
own expense to cure same whereupon the Closing Date shall be extended for up to
forty-five (45) days. In the event such title encumbrance or survey matter is
not cured within such forty five (45) day period, the Purchaser shall have the
option, to be elected within ten (10) days after the expiration of such forty
five (45) day period, to (i) terminate this Agreement on written notice to
Seller and the Escrow Agent, whereupon the Deposit shall be returned to
- 7 -
<PAGE>
Purchaser, or (ii) purchase the Property without any reduction in the Price.
2.4 Right to Pay Off Monetary Encumbrances. Seller shall have the
--------------------------------------
right to pay off any monetary encumbrances against the Property on the Closing
Date out of the cash then payable.
2.5 Survey. Within thirty (30) days from the date of this
------
Agreement, Seller shall obtain and deliver, at its sole cost and expense, to
Purchaser a current ALTA Survey for the Property containing optional items 1
through 4, 6 through 11 and 13.
SECTION 3
---------
RIGHT OF ENTRY; TERMINATION; INDEMNIFICATION; INSURANCE
-------------------------------------------------------
3.1 Right of Entry. Subject to the requirements of Section 3.3
--------------- -----------
hereof, Purchaser and its authorized representatives shall have the right, from
time to time prior to the Closing Date, upon at least two (2) business days
notice to Seller, to enter the Land and the Improvements for the purpose of
conducting any inspections or investigations of the Property. Purchaser agrees
to conduct all such inspections during normal business hours (unless otherwise
agreed by Seller), with a representative of Seller present (at Seller's option).
Upon Purchaser's reasonable notice to Seller, Seller agrees to make available to
Purchaser Seller's files that contain material information relating to the
Property.
3.2 Due Diligence Period. Within thirty (30) days after the date
--------------------
hereof, Purchaser shall notify Seller in writing if any inspections conducted by
Purchaser or its agents or contractors reveal the presence of any environmental
contamination, or structural defects or other Major Defects (collectively,
"Defects"). For purposes hereof, "Major Defects" shall mean defects which cost
$50,000 or more to cure or repair. Purchaser shall include with such
notification to Seller a copy of the inspection report. If Seller is unwilling
to correct, repair, clean up or remediate the Defects prior to the Closing Date
or provide a credit against the Purchase Price for the estimated cost of such
repair, Purchaser shall have the right to terminate this Agreement by delivering
written notice thereof to Seller within three (3) days after Purchaser's receipt
of Seller's notice that
- 8 -
<PAGE>
it does not intend to make such repairs or provide such credit. Time shall be of
the essence with respect to Purchaser's right to terminate this Agreement
pursuant to this Section 3.2. Notwithstanding the foregoing, Purchaser shall
have the absolute right to terminate this Agreement should Seller be unwilling
or unable, at its sole cost and expense, to correct, repair, clean up or
remediate any Defects.
3.3 Indemnification. Purchaser hereby agrees to indemnify, and
---------------
shall pay, protect and hold Seller harmless from and against all liabilities,
losses, claims, demands, costs, expenses (including reasonable attorneys' fees
and expenses) and judgments of any nature arising or alleged to arise, from or
in connection with any injury to, or death of, any person or loss or damage to
property caused by Purchaser or it agents, employees or consultants in
connection with any entry permitted under Section 3.1 but only to the extent not
-----------
arising out of any act or omission of Seller. The obligations of Purchaser under
this Section 3.3 shall survive any termination of this Agreement.
-----------
3.4 Insurance. Prior to the exercise by Purchaser of its right of
---------
entry under Section 3.1 involving any intrusive testing, Purchaser shall
-----------
furnish, or cause to be furnished, to Seller evidence of comprehensive general
public liability insurance with an insurer authorized to do business in the
State of Illinois rated A++ in Best's Key Rating Guide (or equivalent) against
claims for bodily injury, death and property damage in a single limit amount of
not less than $1,000,000 per occurrence with respect to all claims for bodily
injury or death and $500,000 per occurrence with respect to all claims for
property damage, naming Seller as an additional insured. The policy of
insurance required to be maintained pursuant to this Section 3.4 shall remain in
-----------
effect until the later of thirty (30) days after termination of this Agreement
or the Closing Date. Purchaser's failure to comply with the requirements of
this Section 3.4 shall constitute a material default (as that term is understood
-----------
in Section 10.1 hereof) under this Agreement.
------------
SECTION 4
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
- 9 -
<PAGE>
4.1 Representations and Warranties. As an inducement to Purchaser
------------------------------
to enter into this Agreement, Seller represents and warrants to Purchaser that:
(a) Seller is a corporation duly organized and validly existing
under the laws of the State of Delaware, is authorized to do
business in the State of Illinois, has the power and authority
to enter into this Agreement and to consummate the transactions
herein contemplated, and the execution and delivery hereof and
the performance by Seller of its obligations hereunder will not
violate or constitute an event of default under the terms or
provisions of any agreement, document or other instrument to
which Seller is a party or by which it or the Property is bound;
(b) the execution, delivery and performance of this Agreement by
Seller and the consummation of the transactions contemplated
hereby in the manner contemplated herein will not violate any
provision of law, statute, rule or regulation to which Seller or
the Property is subject or violate any judgment, order, writ,
injunction or decree of any court applicable to Seller or the
Property;
(c) Seller has not entered into any outstanding agreements
(written or oral) granting any rights of possession to the
Property to any third party;
(d) all proceedings required to be taken by or on behalf of
Seller to authorize it to make, deliver and carry out the terms
of this Agreement have been or will be duly and properly taken
and this Agreement is the legal, valid and binding obligation of
Seller enforceable in accordance with its terms;
(e) Seller is not a "foreign person" under the Foreign
Investment in Real Property Tax Act of 1980 ("FIRPTA") and upon
consummation of the
- 10 -
<PAGE>
transaction contemplated hereby, Purchaser will not be required
to withhold from the Price any withholding tax;
(f) Seller has not derived title to the Property by adverse
possession;
(g) Seller has no knowledge, nor has received any notice, of any
pending or threatened, general or special assessment(s) against
the Property;
(h) Seller has not received any notice of proceedings to take
all or any part of the Property by condemnation or right of
eminent domain, nor has Seller received any notice that such
proceedings are threatened;
(i) there are, and as of the Closing Date shall be, no leases,
tenancies or occupancies affecting the Property;
(j) there are no options, rights of first refusal or any other
agreements affecting Seller's right to complete the transactions
contemplated by this Agreement;
(k) there are no outstanding FDA Form 483 inspection reports
pertaining to the Property;
(l) Seller will comply with the requirements of the Illinois
Responsible Property Transfer Act, if, and to the extent,
applicable;
(m) Seller has not received any notice from any governmental
authority having jurisdiction over the Property that the
Property is in violation of any legal requirements; and
(n) Seller has not received any notice of any pending
litigation or, to the best of knowledge of Seller, threatened
litigation, against the Property.
- 11 -
<PAGE>
4.2 Changes in Representations and Warranties. (a) If before the
-----------------------------------------
closing Seller acquires knowledge of any condition which constitutes a material
and adverse change in any of the representations and warranties set forth in
Section 4.1, Seller shall have the right to cure such condition before the
- -----------
closing, and the existence of such condition shall not be a ground for Purchaser
terminating this Agreement, provided that (i) Seller, promptly after discovering
the condition, assures Purchaser in writing that Seller is capable of curing
such condition prior to the closing, and (ii) Seller acts diligently to cure the
condition and completes such cure prior to the closing. Seller agrees that it
shall not intentionally take any action or intentionally omit to take any
action, which action or omission would have the effect of violating any of the
representations or warranties of Seller set forth herein in any material manner.
(b) Seller shall promptly inform Purchaser of any adverse change in
any representation or warranty made by Seller. Subject to the provisions of
clauses (a) and (c) of this Section 4.2, Purchaser's exclusive remedy upon being
--- --- -----------
advised of any material change in the representations and warranties shall be
the termination of this Agreement. If Purchaser desires to terminate this
Agreement due to a material change in any representation or warranty, Purchaser
shall notify Seller within ten (10) days after receipt of notice from Seller
advising of any such change, whereupon, except as expressly provided herein,
this Agreement and all rights and obligations of the respective parties
hereunder shall be null and void.
(c) Seller shall have no responsibility for all current or future
notices of violations of, and/or any enforcement action of any kind whatsoever
taken by any federal, state or municipal government to enforce any federal,
state or municipal laws, statutes, regulations, ordinances, orders or
requirements of any kind whatsoever, whether or not noted by or issued by any
governmental authorities having jurisdiction of any type or character
whatsoever, against or affecting the Property, or any part thereof
("Governmental Enforcement Actions"). Such Governmental Enforcement Actions
shall be the sole responsibility of Purchaser. Notwithstanding the foregoing,
Seller shall cure,
- 12 -
<PAGE>
prior to the Closing Date, any Governmental Enforcement Actions which are
outstanding at or prior to closing, which action(s) are curable by the payment
of a sum not to exceed $10,000.00 in the aggregate. In the event any such
Governmental Enforcement Action(s) are not curable by the payment of such sum,
then subject to the provisions of clauses (a) and (c) of this Section 4.2,
--- --- ------------
Purchaser's sole option shall be (i) to proceed with the closing and waive such
Governmental Enforcement Action(s) or (ii) to terminate this Agreement and
receive a return of the Deposit.
4.3 Limitation on Seller's Representations, Warranties, Covenants
-------------------------------------------------------------
and Agreements. PURCHASER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY SET
- --------------
FORTH IN THIS AGREEMENT AND THE DOCUMENTS TO BE DELIVERED BY SELLER ON THE
CLOSING DATE, NEITHER SELLER NOR ANY AGENT OR REPRESENTATIVE OF SELLER HAS MADE,
AND SELLER IS NOT LIABLE OR RESPONSIBLE FOR OR BOUND IN ANY MANNER BY, ANY
EXPRESS OR IMPLIED REPRESENTATIONS, WARRANTIES, COVENANTS, AGREEMENTS,
OBLIGATIONS, GUARANTEES, STATEMENTS, INFORMATION OR INDUCEMENTS PERTAINING TO
THE PROPERTY OR ANY PART THEREOF, THE TITLE, PHYSICAL AND FINANCIAL CONDITION
THEREOF, THE QUANTITY, FITNESS AND QUALITY THEREOF, THE INCOME, EXPENSES OR
OPERATION THEREOF, THE VALUE AND PROFITABILITY THEREOF, THE USES WHICH CAN BE
MADE THEREOF OR ANY OTHER MATTER OR THING WHATSOEVER WITH RESPECT THERETO.
PURCHASER ACKNOWLEDGES, AGREES, REPRESENTS AND WARRANTS THAT AS OF THE CLOSING
DATE IT WILL HAVE HAD SUCH ACCESS TO THE PROPERTY AND TO INFORMATION AND DATA
RELATING TO ALL OF SAME AS PURCHASER HAS CONSIDERED NECESSARY, PRUDENT,
APPROPRIATE OR DESIRABLE FOR THE PURPOSES OF THIS TRANSACTION AND, WITHOUT
LIMITING THE FOREGOING, THAT PURCHASER AND ITS AGENTS AND REPRESENTATIVES HAVE
INDEPENDENTLY INSPECTED, EXAMINED, INVESTIGATED, ANALYZED AND APPRAISED ALL OF
SAME INCLUDING THE CONDITION, ENVIRONMENTAL CONDITION, VALUE AND PROFITABILITY
THEREOF. WITHOUT LIMITING THE FOREGOING, PURCHASER ACKNOWLEDGES AND AGREES THAT,
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT AND THE DOCUMENTS TO BE
DELIVERED BY SELLER ON THE CLOSING DATE, SELLER IS NOT LIABLE OR RESPONSIBLE FOR
OR BOUND IN ANY MANNER BY (AND PURCHASER HAS NOT RELIED UPON) ANY VERBAL OR
WRITTEN OR SUPPLIED REPRESENTATIONS, WARRANTIES, COVENANTS, AGREEMENTS,
OBLIGATIONS, GUARANTEES, STATEMENTS, INFORMATION OR INDUCEMENTS PERTAINING TO
THE PROPERTY OR ANY PART THEREOF, SUCH CONDITION AND SUCH OPERATION AND ANY
OTHER INFORMATION RESPECTING SAME FURNISHED BY OR OBTAINED FROM SELLER OR ANY
AGENT OR REPRESENTATIVE OF
- 13 -
<PAGE>
SELLER. WITHOUT LIMITING THE FOREGOING, PURCHASER ACKNOWLEDGES AND AGREES THAT
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT AND THE DOCUMENTS TO BE
DELIVERED BY SELLER ON THE CLOSING DATE, PURCHASER IS PURCHASING THE PROPERTY
"AS IS" AT THE DATE HEREOF, WEAR AND TEAR AND DEPLETION AND CASUALTY BETWEEN
SUCH DATE AND THE CLOSING DATE EXCEPTED.
4.4 Survival. The truth, accuracy and completeness of each of the
--------
representations and warranties of Seller as of the date hereof, and as of the
Closing Date, shall constitute a condition precedent to the obligations of
Purchaser hereunder. Each such representation and warranty shall survive the
Closing Date but only with respect to matters for which a claim is made against
the Seller within one year after the Closing Date.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
5.1 Representations and Warranties. As an inducement to Seller to
------------------------------
enter into this Agreement, Purchaser represents and warrants that:
(a) Purchaser is a corporation duly organized and validly
existing under the laws of the State of New Jersey, is in good
standing, has the power and authority to enter into this
Agreement and to consummate the transactions herein contemplated
and that the execution and delivery hereof and the performance
by Purchaser of its obligations hereunder will not violate or
constitute an event of default under the terms or provisions of
any agreement, document or other instrument to which Purchaser
is a party or by which it is bound;
(b) the execution, delivery and performance of this Agreement by
Purchaser and the consummation of the transactions contemplated
hereby in the manner contemplated herein will not violate any
provision of law, statute, rule or regulation to which Purchaser
is subject or violate any
- 14 -
<PAGE>
judgment, order, writ, injunction or decree of any court
applicable to Purchaser; and
(c) no consent, authorization, license, permit, registration or
approval of, or exemption or other action by, any governmental
or public body, commission or authority is required in
connection with the execution, delivery and performance by
Purchaser of this Agreement.
5.2 Survival. The truth, accuracy and completeness of each of the
--------
representations and warranties of Purchaser as of the date hereof, and as of the
Closing Date, shall be a condition precedent to the obligations of Seller
hereof. Each such representation and warranty shall survive the Closing Date
but only with respect to matters for which a claim is made against the Purchaser
within one year after the Closing Date.
SECTION 6
OTHER COVENANTS AND AGREEMENTS
------------------------------
6.1 No Liens or Encumbrances. Seller agrees that it will not
------------------------
create, suffer or permit to be created, and that it will promptly remove
(subject to Section 2.3) or discharge, any liens or encumbrances against the
-----------
Property arising subsequent to the Effective Date (as defined in Section 11.15
hereof).
6.2 Maintenance of Property. From and after the Effective Date
-----------------------
through the Closing Date, Seller will cause the Property to be maintained in
substantially the same condition as such was maintained as of the Effective
Date.
6.3 Contracts. Seller will not enter into contracts or agreements
---------
related to the operation or maintenance of the Property except for a management
agreement or other contracts in good faith and in the ordinary course of
business, any of which provide that same may be terminated on or before the
closing at no cost to Purchaser.
- 15 -
<PAGE>
6.4 Closing Deliveries. Seller shall deliver to Purchaser at closing
------------------
the documents and other items listed in Section 8.2 hereof.
-----------
6.5 Litigation. Seller shall, at its sole cost and expense, defend
----------
any action arising out of the ownership of the Property by Seller, which
obligation shall survive the Closing.
SECTION 7
CASUALTY; CONDEMNATION
----------------------
7.1 Casualty. The provisions of the Illinois Uniform Vendor and
--------
Purchaser Risk Act shall not be applicable to this Agreement. The risk of loss
or damage to the Premises by fire or other casualty before the delivery of the
deed out of escrow hereunder is assumed by Seller. In the event of any damage
to or destruction of the Premises due to fire or any other cause or hazard,
Seller shall promptly give notice thereof to Purchaser describing such damage
and indicating the estimated cost and period required for restoration to
substantially the same condition as existed prior to the damage (the
"Restoration"). If the cost of such Restoration is estimated by an architect or
engineer selected by Seller to be in excess of $300,000.00, or if the estimated
time to substantially complete such Restoration is longer than forty five (45)
days, then Purchaser may, upon notice to Seller given within fifteen (15) days
after receipt of notice of such occurrence and determination of the amount of
the casualty, terminate this Agreement. Upon such termination, except as
expressly provided herein, neither party shall have any further rights or
obligations hereunder. In the event that (i) the cost of Restoration is less
than $300,000.00, or (ii) if the cost of Restoration is in excess of $300,000.00
and Purchaser does not elect to terminate this Agreement, or (iii) the time to
complete the Restoration will not exceed forty five (45) days, or (iv) the time
to complete the Restoration exceeds forty five (45) days and Purchaser does not
elect to terminate this Agreement, Purchaser shall close in accordance with this
Agreement and pay the entire Price, and Seller shall pay to Purchaser, at or
prior to closing, the insurance proceeds Seller receives as a result of such
casualty, or if Seller self-insures, the cost of such restoration.
- 16 -
<PAGE>
7.2 Condemnation. In the event any proceedings or negotiations are
------------
instituted which do or may result in a taking by condemnation or eminent domain
of the Premises or any portion thereof, Seller shall promptly notify Purchaser
thereof, describing the nature and extent thereof. Purchaser may then, at its
election, at any time before the Closing Date terminate this Agreement by
written notice to Seller, whereupon neither party shall have any further rights
against the other hereunder. In the event Purchaser does not terminate this
Agreement by reason of any such taking, then and in that event, the sale of the
Property shall be consummated as herein provided and Seller shall assign to
Purchaser on the Closing Date all of Seller's right, title and interest in and
to all awards payable by reason thereof and shall pay over to Purchaser all
amounts theretofore received by Seller in connection with such taking.
SECTION 8
CLOSING DATE AND DELIVERY OF DOCUMENTS
--------------------------------------
8.1 Closing Date. The closing of the transaction contemplated
------------
hereby shall be held at the offices of Shanley & Fisher, P.C., 131 Madison
Avenue, Morristown, New Jersey, not later than forty-five (45) days from the
Effective Date (as defined in Section 11.15 hereof) (the "Closing Date"). Upon
-------------
closing of this transaction, Purchaser shall have the right to possession of the
Premises.
8.2 Documents to be Delivered by Seller. On the Closing Date,
-----------------------------------
Seller shall deliver to Purchaser the following documents:
(a) duly executed Warranty Deed for the Land and the
Improvements in proper statutory form for recordation and
conveying title to Purchaser as required by Section 2.1 hereof
(b) duly executed Bill of Sale for the Personal Property in form
annexed hereto as Exhibit D;
---------
- 17 -
<PAGE>
(c) a complete set of all surveys, record building plans,
specifications and drawings (and of all documents and other
materials related thereto) for the Premises, to the extent in
Seller's possession;
(d) the original tax bills for the Premises, or copies thereof
if the originals are not available;
(e) duly executed FIRPTA Affidavit of Seller in form annexed
hereto as Exhibit E;
---------
(f) all manuals, diagrams, shop drawings, warranties and related
data in possession of Seller concerning the Premises and the
use, maintenance and operation of its systems, equipment and
facilities;
(g) all keys to the Improvements and Personal Property;
(h) such other documents and instruments as Purchaser or its
Title Insurer may reasonably request to perfect title to any of
the Property in Purchaser;
(i) a closing settlement sheet;
(j) a copy of the latest FDA Form 483 regarding the Property and
Seller's activities conducted on the Property;
(k) any and all warranties, guarantees and service, maintenance
and management contracts which are not terminated as of the
Closing Date with respect to the Property and any work performed
thereon, if any, with an executed assignment thereof in form and
substance reasonably satisfactory to Purchaser and Seller;
- 18 -
<PAGE>
(l) a certified resolution of Seller's Board of Directors
authorizing the execution of the Agreement and the conveying of
the Property;
(m) evidence that all dues or other fees due and payable, as of
the Closing Date, to the Corporate Grove Association have been
paid or otherwise discharged by Seller;
(n) evidence that the Corporate Grove Association has neither a
right of first offer nor a right of first refusal regarding the
sale or transfer of the Property; and
(o) a certification that the representations and warranties
included in this Agreement are, as of the closing, true and
accurate.
8.3 Documents to be Delivered by Purchaser. On the Closing Date,
--------------------------------------
Purchaser shall deliver to Seller the following documents:
(a) a corporate resolution of the Purchaser's directors,
authorizing the consummation of the transactions contemplated
herein; and
(b) a closing settlement sheet.
8.4 Form 1099. On the Closing Date, Seller shall execute and
---------
deliver a Form 1099 and shall instruct the Escrow Agent to file the same with
the Internal Revenue Service.
SECTION 9
CLOSING ADJUSTMENTS
-------------------
9.1 Adjustment Time. All apportionments and adjustments (the
---------------
"Closing Adjustments") shall be made as of 12:00 midnight on the day immediately
preceding the Closing Date, with Purchaser to be treated as owner of the
Property, for purposes of this Section 9, on and after the Closing Date.
---------
- 19 -
<PAGE>
9.2 Description of Items to be Adjusted. The following
-----------------------------------
apportionments and adjustments shall be made as of the time set forth in Section
9.1 unless otherwise expressly provided:
(a) maintenance costs associated with the Common Areas (as that
term is defined in the Covenants referenced in Exhibit C) due
---------
and payable as of the Closing Date shall be paid by Seller;
(b) real estate taxes assessed against the Premises shall be
appropriately pro-rated and paid by Seller;
(c) any special assessments for work commenced prior to the
Effective Date shall be credited against the Price (including
the amount of any unpaid installments of such assessment), and
any assessments for work commenced after the date hereof shall
be Purchaser's responsibility;
(d) the amount of the real estate transfer or stamp tax payable
in connection with the conveyance of the Premises shall be paid
by Seller directly to the taxing authority and Seller and
Purchaser shall execute and deliver real estate transfer
declarations;
(e) water, sewer, gas, telephone and other utility charges shall
not be adjusted but shall be paid by Seller based upon a reading
to be obtained by Seller immediately prior to the Closing Date;
(f) all other income and expense from the Property of every type
and nature. If any of the foregoing cannot be apportioned at
the Closing Date because of the unavailability of the amounts
which are to be apportioned, such items shall be apportioned as
soon as practicable after the Closing Date; and
- 20 -
<PAGE>
(g) Seller shall be entitled to the return of any deposits made
by Seller with utility companies servicing the Property.
9.3 Final Adjustment of Real Estate Taxes. If on the Closing Date
-------------------------------------
final real estate tax bills for the calendar year in which the closing occurs
are not available and the real estate tax adjustment is based upon prior tax
bills, a final tax adjustment shall be made within ten (10) days after the final
tax bill is issued, and Seller or Purchaser, as the case may be, shall make an
appropriate payment to the other based upon such re-adjustment.
9.4 Errors in Closing Adjustments. If after the closing, the
-----------------------------
parties discover any errors in adjustments and apportionments, same shall be
corrected as soon after their discovery as possible.
9.5 Survival. The provisions of this Section 9 shall survive the
-------- ---------
closing, except that no adjustments shall be made later than twelve (12) months
after the Closing Date (except with respect to the provisions of Section 9.3
-----------
which shall survive for a period of twenty-four (24) months, unless prior to
such date the party seeking the adjustment shall have delivered a written notice
to the other specifying the nature and basis for such claim).
9.6 Closing Costs. The parties hereby agree that Purchaser shall be
-------------
responsible for the payment of any and all title insurance fees and premiums in
connection with the transaction contemplated hereby. Seller hereby agrees to
pay at closing any and all transfer taxes payable by reason of the contemplated
transaction. Each party shall be responsible for their respective counsel's
attorney fees.
SECTION 10
DEFAULT; REMEDIES
-----------------
10.1 Default by Purchaser. Seller may terminate this Agreement by
--------------------
notice to Purchaser at any time prior to the Closing Date in the event of a
material default by Purchaser under this Agreement (which remains uncured for
ten (10) business days after Seller's notice to Purchaser thereof) or a material
breach of any
- 21 -
<PAGE>
representation or warranty by Purchaser expressly set forth in this Agreement.
10.2 Default by Seller. Purchaser may terminate this Agreement by
-----------------
notice to Seller at any time prior to the Closing Date in the event of a
material default by Seller under this Agreement (which remains uncured for ten
(10) business days after Purchaser's notice to Seller thereof) or a material
breach of any representation or warranty by Seller expressly set forth in this
Agreement.
10.3 Remedies. (a) If Seller fulfills its obligations hereunder but
--------
Purchaser materially defaults under this Agreement, or materially breaches any
representation or warranty contained herein, Seller shall, as its sole and
exclusive remedy hereunder, have the right to terminate this Agreement and
receive the Deposit together with all interest earned thereon and upon payment
thereof this Agreement shall terminate and the parties hereto shall be relieved
of any further liability or obligation to each other, it being expressly
understood that the payment of such sum to Seller as aforesaid shall be the sole
and exclusive right and remedy of Seller, and constitutes a fair and reasonable
estimate of the amount of damages to be sustained by Seller by reason of
Purchaser's breach of this Agreement.
(b) If Purchaser fulfills its obligations hereunder but Seller
materially defaults under this Agreement, or materially breaches any
representation or warranty contained herein, Purchaser may elect, as the sole
and exclusive remedy of Purchaser, to (i) terminate this Agreement and receive
the Deposit from the Escrow Agent or (ii) seek specific performance of this
Agreement, provided, however, if Seller willfully breaches its obligations
hereunder, Purchaser shall have the right to sue Seller for the damages
Purchaser may incur as a result of such willful breach. Following such
election, Seller shall be relieved of any and all further liability and under no
circumstances shall Seller be liable to Purchaser for any damages whether such
damages are direct or consequential.
- 22 -
<PAGE>
SECTION 11
MISCELLANEOUS
-------------
11.1 Time of the Essence. Seller and Purchaser agree that time is
-------------------
of the essence of this Agreement.
11.2 Brokerage Commission and Finder's Fee. The parties agree that
-------------------------------------
they have dealt with each other and not through any real estate broker,
investment banker, person, firm or entity who would by reason of such dealings
be able to claim a real estate brokerage, business opportunity brokerage or
finder's fee as the procuring cause of this transaction. Each of the parties
agrees to indemnify the other and hold the other harmless of and from any and
all loss, cost, damage, injury or expense arising out of, or in any way related
to, assertions by any other person, firm or entity of a claim to real estate
brokerage, business opportunity brokerage or finder's fee based on alleged
contacts between a party claiming to be a broker and an indemnifying party which
have resulted in allegedly providing the party claiming to be a broker the right
to claim such commission or finder's fee. The provisions of this Section 11.2
------------
shall survive the closing of title.
11.3 Assignment. Purchaser shall not have the right to assign this
----------
Agreement without the prior consent of Seller, provided, however, that Purchaser
shall have the right to assign its rights under this Agreement to an entity
controlling, controlled by or under common control with Purchaser ("Affiliate")
without the consent of Seller. In the event of an assignment to an Affiliate,
Purchaser shall notify Seller and the named Purchaser herein shall remain fully
liable for the obligations of the Purchaser hereunder. For purposes hereof, the
term "control" means the power to direct and influence the management of an
entity.
11.4 Notices. All notices or other communications required or
-------
permitted to be given hereunder shall be given in writing and delivered either
by (a) certified mail, postage prepaid, or (b) a reputable messenger service or
a nationally recognized priority delivery service such as Federal Express,
addressed as follows:
- 23 -
<PAGE>
To Seller:
Gerald McAllister
Novartis Pharmaceuticals Corporation
59 Route 10
Building 101
East Hanover, NJ 07936-1080
copies to:
Deborah A. Morel, Esq.
Novartis Pharmaceuticals Corporation
59 Route 10
East Hanover, NJ 07936-1080
Robert A. Klausner, Esq.
Shanley & Fisher, P.C.
131 Madison Avenue
Morristown, New Jersey 07962-1979
Fax No. (201) 285-1625
To Purchaser:
Roberts Pharmaceutical Corporation
Meridian Center II
Four Industrial Way West
Eatontown, New Jersey 07724-2274
Attn: Anthony A. Rascio, Esq.
The foregoing addresses may be changed or supplemented by written notice given
as above provided. Any such notice sent by mail shall be deemed to have been
received by the addressee on the third business day after posting in the United
States mail, or, if delivered personally or by facsimile before 5:00 p.m. EST,
on a business day, on the date of such delivery.
11.5 Attorney's Fees. Notwithstanding the provisions of Section 10
---------------
hereof, in the event any action or proceeding is commenced to obtain a
declaration of rights hereunder, to enforce any provision hereof or to seek
rescission of this Agreement for default contemplated herein, whether legal or
equitable, the
- 24 -
<PAGE>
prevailing party in such action shall be entitled to recover its reasonable
attorneys' fees in addition to all other relief to which it may be entitled
therein. All indemnities provided for herein shall include, but without
limitation, the obligation to pay costs of defense in the form of court costs
and reasonable attorneys' fees.
11.6 Successors and Assigns. The terms, covenants and conditions
----------------------
herein contained shall be binding upon and inure to the benefit of the
successors and assigns of the parties hereto.
11.7 Governing Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the laws of the State of Illinois.
11.8 Incorporation of Prior Agreements. This Agreement contains the
---------------------------------
entire understanding of the parties hereto with respect to the subject matter
hereof, and no prior or other written or oral agreement or undertaking
pertaining to any such matter shall be effective for any purpose.
11.9 Modification of Agreement. This Agreement may not be amended or
-------------------------
modified, nor may any obligation hereunder be waived orally, and no such
amendment or modification shall be effective for any purpose unless it is in
writing and signed by both parties.
11.10 Drafting Ambiguities. In interpreting any provision of this
--------------------
Agreement, no weight shall be given to, nor shall any construction or
interpretation be influenced by, the fact that counsel for one of the parties
drafted this Agreement, each party recognizing that it and its counsel have had
an opportunity to review this Agreement and have contributed to the final form
of same. Unless otherwise specified (a) whenever the singular number is used in
this Agreement, the same shall include the plural, and the plural shall include
the singular; (b) the words "consent" or "approve" or words of similar import,
mean the prior written consent or approval of Seller or Purchaser, (c) the
words "include" and "including", and words of similar import, shall be deemed to
be followed by the words "without limitation" and (d) the Exhibits to this
Agreement are incorporated herein by reference. The captions and paragraph
headings are provided for
- 25 -
<PAGE>
purposes of convenience of reference only and are not intended to limit, define
the scope of or aid in interpretation of any of the provisions hereof.
11.11 Further Assurances. After the Closing Date Seller shall
------------------
execute, acknowledge and deliver, for no further consideration, all such
assignments, transfers, consents and other documents as Purchaser may reasonably
request to vest in Purchaser, and protect Purchaser's right, title and interest
in, and enjoyment of, the Property.
11.12 Partial Invalidity. If any provision hereof shall be declared
------------------
invalid by any court or in any administrative proceedings, then the provisions
of this Agreement shall be construed in such manner so as to preserve the
validity hereof and the substance of the transaction herein contemplated to the
extent possible.
11.13 Counterparts. This Agreement may be executed and delivered in
------------
several counterparts, each of which, when so executed and delivered, shall
constitute an original, fully enforceable counterpart for all purposes.
11.14 Confidentiality. Purchaser covenants and agrees that all
---------------
information provided to it by Seller in connection with the Property or
resulting from Purchaser's inspections of the Property and review of relevant
materials will be held in strict confidence by it, its agents, employees, and
third-party professional advisers. Purchaser further covenants and agrees that
such information furnished to Purchaser by Seller and reports obtained by
Purchaser during its due diligence which were prepared by third parties, shall
be returned and/or delivered to Seller in the event the transaction contemplated
by this Agreement is not consummated. Purchaser further covenants and agrees to
indemnify and hold Seller harmless from and against any and all claims, costs,
expenses, losses, injuries, liens or damages, including reasonable attorneys'
fees, resulting from Purchaser's, its agents, employees or third-party
professional advisors' unauthorized dissemination of such information. The
indemnification contained herein shall, without limitation, survive the
termination of this Agreement.
- 26 -
<PAGE>
11.15 Effective Date. This Agreement shall be effective upon
--------------
delivery of this Agreement fully executed by Seller and Purchaser, which date
shall be deemed the Effective Date hereof (the "Effective Date"). Either party
may request that the other party promptly execute a memorandum specifying the
Effective Date hereof.
11.16 Publication. Seller and Purchaser agree that they shall not
-----------
make any press announcement or other public announcement regarding the execution
of this Agreement or the transactions contemplated herein without the approval
of the other party, which shall not be unreasonably withheld.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date set forth above.
NOVARTIS PHARMACEUTICALS
CORPORATION
By: __________________________
Name:
Title:
ROBERTS PHARMACEUTICAL
CORPORATION
By: __________________________
Name:
Title:
- 27 -
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF LAND
-------------------------
1. "Lots 148, 149, 150, 151, 152, 153, 154, 155, 156 in The Corporate
Grove, being a subdivision of part of the South West 1/4 of Section 26 and part
of the South 1/2 of Sections 27, Township 43 North, Range 11, East of the Third
Principal Meridian, Village of Buffalo Grove, County of Lake, Illinois,
according to the plat thereof recorded August 22, 1984, in the Office of the
Recorder of Deeds of Lake County, as Document No. 2305059."
2. "That part of Lot 147 lying east of Asbury Drive, all in The Corporate
Grove being a subdivision of part of the South West 1/4 of Section 26 and part
of the South 1/2 of Section 27, Township 43 North, Range 11, East of the Third
Principal Meridian, Village of Buffalo Grove, County of Lake, Illinois,
according to the plat thereof recorded August 22, 1984, in the Office of the
Recorder of Deeds in Lake County, as Document No. 2305059."
<PAGE>
EXHIBIT B
PERSONAL PROPERTY
-----------------
<PAGE>
EXHIBIT C
PERMITTED EXCEPTIONS
--------------------
The Premises shall be conveyed subject to the following exceptions, as
the same may be revised prior to the Effective Date (collectively the "Permitted
Exceptions"):
(1) Terms, covenants and conditions contained in the Declaration of Protective
Covenants for the Corporate Grove, Buffalo Grove, Illinois dated November 8,
1984 and recorded November 9, 1984 as document 2321627 and amended by document
2340915 (the "Covenants").
(2) Private water detention easement over the easterly portion of Lot 156 as
shown on the subdivision plat referred to in the legal description of the Land
("Plat").
(3) Drainage easement over the North twenty (20) feet of the Land as shown on
the Plat.
(4) Public utility easement over the southerly ten (10) feet of the Land as
shown on the Plat.
(5) Building line thirty five (35) feet northerly of the southerly line of the
Land as shown on the Plat.
(6) Waiver and release of all damages to the land by reason of taking and the
construction of railroad on the Land as contained in Warranty Deed from Andreas
Walter and Kathrina Walter, to Chicago and Wisconsin Railroad Company, dated
October 10, 1885 and recorded October 12, 1885 as document 32638.
(7) Terms, covenants and conditions contained in instrument dated May 7, 1984
and recorded May 17, 1984, as document 2284076.
(8) Non-exclusive easements for serving the subdivision and other property with
electric and communications services.
(9) Non-exclusive private easement for serving the subdivision with drainage,
storm water detention, and railroad spur.
(10) General Real Estate Taxes for the year 1997 and subsequent years not then
due or payable.
<PAGE>
EXHIBIT D
BILL OF SALE
------------
KNOW ALL MEN BY THESE PRESENTS THAT:
NOVARTIS PHARMACEUTICALS CORPORATION, a Delaware corporation (herein
"Seller"), for ONE DOLLAR, the receipt of which is hereby acknowledged, does
hereby grant, bargain, sell and assign unto ROBERTS PHARMACEUTICAL CORPORATION,
a New Jersey corporation (herein the "Buyer"), its successors and assigns, all
right, title and interest of Seller in and to the items set forth in Exhibit A
which is attached hereto (herein collectively, the "Personal Property").
TO HAVE AND TO HOLD the said Personal Property unto Buyer, its
successors and assigns, forever.
The interest of Seller in the Personal Property, and the interest
transferred by this Bill of Sale, is that of absolute ownership. Seller hereby
warrants unto Buyer, its successors and assigns, that there is hereby vested in
Buyer good and marketable title to the Personal Property, free and clear of all
liens, claims, charges, encumbrances and rights of others of every kind
whatsoever, and Seller hereby warrants and agrees to defend such title forever
against all other claims and demands whatsoever. THE PERSONAL PROPERTY SOLD
HEREUNDER IS SOLD IN ITS "AS IS", "WHERE IS" CONDITION WITHOUT ANY
REPRESENTATION OR WARRANTY BY SELLER.
IN WITNESS WHEREOF, the Seller has executed this Bill of Sale this
______ day of ________, 1997.
NOVARTIS PHARMACEUTICALS
CORPORATION
By: _________________________
Name:
Title:
<PAGE>
EXHIBIT E
FIRPTA AFFIDAVIT
----------------
Section 1445 of the Internal Revenue Code provides that a transferee of
a U.S. real property interest must withhold tax if the transferor is a foreign
person. To inform Roberts Pharmaceutical Corporation ("Transferee") that
withholding of tax is not required upon the disposition of a U.S. real property
interest by Novartis Pharmaceuticals Corporation ("Transferor"), the undersigned
hereby certifies the following:
1. Transferor is not a foreign corporation, foreign partnership,
foreign trust, or foreign estate (as those terms are defined in
the Internal Revenue Code and Income Tax Regulations);
2. The U.S. employer identification number of Transferor is 221-857-
084.
3. The office address of Transferor is:
59 East Route 10
East Hanover, New Jersey 07936-1080
Transferor understands that this certification may be disclosed to the
Internal Revenue Service by Transferee and that any false statement contained
herein could be punished by fine, imprisonment, or both.
Under penalties of perjury I declare that I have examined this
certification and to the best of my knowledge and behalf it is true, correct and
complete, and I further declare that I have authority to sign this document on
behalf of Transferor.
Sworn to and subscribed NOVARTIS PHARMACEUTICALS
before me this _______ day CORPORATION
of __________, 1997
________________________ By: ____________________
Notary Public Name:
Title:
<PAGE>
EXHIBIT 10.84
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") made as of this ____ day of
December, 1997 by and between Roberts Laboratories Inc., a New Jersey
corporation ("Roberts") and G. D. Searle & Co., a Delaware corporation
("Searle").
Whereas, Roberts currently markets certain products; and
Whereas, the parties wish to provide for the acquisition by Searle of the
rights to the Product (as defined below) in the Territory (as defined below);
and
Whereas, the parties wish to provide for the acquisition by Roberts of
certain distribution rights as provided in the Distribution Agreement (as
defined below) in the territory specified therein.
Now, therefore, the parties agree as follows:
ARTICLE 1 -- DEFINITIONS
- ------------------------
For purposes of this Agreement:
1.1 "Affiliate" means any entity controlled by, able to control or under
---------
common control with a party to this Agreement. For purposes of this
definition, "control" means possession, direct or indirect, of the power
to direct or cause direction of the management and policies of an entity.
1.2 "Business" means Roberts' business of manufacturing, packaging,
--------
promoting, marketing, distributing and selling the Product in the
Territory.
1.3 "Closing Date" means the date set forth in Section 3.1 for the closing of
--------------
the transaction contemplated herein.
1.4 "Distribution Agreement" means the Distribution Agreement to be entered
------------------------
into by Searle and Roberts, a copy of which is attached hereto as Exhibit
A.
1.5 "FDA" means the United States Food and Drug Administration or any
---
successor agency.
1.6 "Fully Absorbed Cost" means:
-------------------
(a) Costs of third party manufacturers, utilities, materials, indirect
materials and supplies used in the manufacturing and packaging of
Product;
<PAGE>
-2-
(b) wages of those employees directly employed in the manufacturing and
packaging of Product;
(c) wages of employees directly employed in quality control, materials
management or related functions which are applicable to the
manufacturing and packaging of Product, and the salaries of the
supervisors of said functions (or an appropriate portion of such
wages and salaries if such personnel are not employed exclusively in
said manufacture);
(d) that portion of payroll taxes, benefits, social security payments,
vacation and bonus payments and other employee costs allocable to
the wages and salaries included within the provisions of
subparagraphs (b) and (c) above;
(e) that portion of manufacturing overhead and expenses (excluding
general and administrative expenses) apportioned in accordance with
generally accepted accounting principles to the manufacture and
packaging of Product; and
(f) costs of transportation of the Product to Roberts' warehouse.
1.7 "Knowledge" means actual knowledge of the officers or directors of an
---------
entity without independent investigation.
1.8 "Net Sales" means the gross invoice value of the Product sold to third
---------
parties in the Territory by Searle and its Affiliates and Transferee,
less:
(a) promotional, cash and trade discounts, contract chargebacks and
rebates and government mandated rebates (including Medicaid
rebates);
(b) allowances and adjustments actually credited to customers for
spoiled, damaged, outdated and returned Product; and
(c) transportation and handling charges, excise, value added and other
taxes and insurance premiums and duties which are billed to
customers as separate items on invoices.
1.9 "Ordinary Course of Business" means the ordinary course of business
---------------------------
consistent with past custom and practice (including with respect to
quantity and frequency).
1.10 "Other Rights" means such of Roberts' confidential know-how, process
------------
patents, and other intangible rights, if any, which are not solely
related to the Product but which are necessary to allow Searle to
manufacture, package, promote, market, distribute and
<PAGE>
-3-
sell such Product in the Territory. It is understood and agreed that no
rights to Roberts' trademark PHARMACOUNSEL(R) or any logo associated
therewith are to be considered as included in "Other Rights" as defined
herein or otherwise.
1.11 "Permitted Exceptions" means all exceptions, charges, restrictions,
--------------------
encumbrances and other matters expressly created pursuant to or permitted
by this Agreement or the agreements to be executed at the closing under
this Agreement.
1.12 "Product" means the Roberts' prescription product Norethin sold in the
-------
Territory in tablet form.
1.13 "Product Registration" means the approved new drug application governing
---------------------
the manufacture, sale and use of the Product as listed on Schedule 1.13.
1.14 "Product Rights" means all of Roberts' right, title and interest in or to
--------------
intangible rights and other assets (other than accounts receivable)
solely related to the manufacture, promotion, marketing, distribution and
sale of the Product in the Territory, including, but not limited to:
inventions, confidential know-how, trade secrets, Product Registration,
common law rights to the trademark "Norethin" and to the extent
assignable, sales contracts, customer orders, purchase orders and other
agreements for the supply by Roberts of the Product in the Territory.
Product Rights shall also not include the trademark PHARMACOUNSEL and
associated logo, sales contracts, customer orders, purchase orders and
other agreements as to which consent to assignment is required but has
not been obtained as of the date of the closing.
1.15 "Territory" means the United States of America, including its territories
---------
and possessions.
1.16 "Transferee" means such third party as Searle may elect to transfer the
------------
Product and any or all of the Product Rights and Other Rights by written
notice to Roberts no later than five (5) days prior to the Closing Date.
<PAGE>
-4-
ARTICLE 2 -- SALE OF ASSETS AND CONSIDERATION
- ---------------------------------------------
2.1 Grant of Distribution Rights. At the closing referred to in Section 3.1,
----------------------------
Searle shall execute and deliver to Roberts the Distribution Agreement.
2.2 Sale of Assets. Roberts shall assign to Searle the Product Rights and
--------------
shall license to Searle or Transferee the Other Rights on the terms set
forth herein.
2.2 Consideration. As consideration for the transactions herein
-------------
contemplated:
(a) Roberts shall assume the obligations set forth in the Distribution
Agreement.
(b) Searle shall assume the obligations set forth herein.
2.3 Assumption of Obligations. Searle shall assume and shall agree to pay,
-------------------------
perform and discharge all of Roberts' liabilities and obligations under
all commitments and other agreements included within Product Rights but
only to the extent that they remain to be performed or fulfilled after
the date of closing, are not overdue or in default as of the closing, and
are set forth and described on Schedule 2.3 attached hereto. Searle may
elect to assign its assumption of obligations hereunder to Transferee,
upon which Transferee shall be directly responsible with respect thereto.
2.4 Inventories. Searle shall purchase Roberts' inventory of finished
-----------
Product on hand as of the Closing Date upon the following terms:
(a) Within fifteen (15) days following the Closing Date, Roberts shall
provide Searle with a statement and count of finished goods
inventory of Product, less finished goods inventory required for
customer orders received prior to Closing, which orders shall be
processed for Roberts' account. Searle shall purchase such
finished goods inventory, EX WORKS (as defined by INCOTERMS 1990
Edition) such facilities where such inventory is held, at a
purchase price equal to Roberts' Fully Absorbed Cost. Searle shall
pay the purchase price within sixty (60) days following receipt of
the statement with respect to said inventory.
(b) Searle shall, at its own expense, arrange for shipment of the
finished goods inventory of the Product to its designated facility.
<PAGE>
-5-
(c) Notwithstanding the foregoing, Searle shall not be required to
purchase any such inventory of the Product which is damaged,
misbranded, adulterated or otherwise unsalable or which will expire
on a date than twelve (12) months from the Closing Date.
ARTICLE 3 -- CLOSING
- --------------------
3.1 Date of Closing. The closing under this Agreement shall take place at
---------------
the offices of Searle, 5200 Old Orchard Road, Skokie, Illinois 60077 at
10:30 a.m. local time on December ___, 1997 (or at such other place or
time as the parties may agree upon in writing) (the "Closing Date").
3.2 Outside Date for Closing. If without the fault of such party, the
------------------------
closing has not occurred by March 31, 1998, Searle or Roberts may
terminate this Agreement by written notice to the other party. Upon such
termination, neither of the parties shall have any liability of any kind
arising out of this Agreement, other than for any liability resulting
from its breach of this Agreement prior to termination.
3.3 Deliveries at the Closing.
-------------------------
(a) At the closing, Roberts shall deliver, or cause to be delivered, the
following:
(i) such bills of sale, assignments or other instruments of
transfer and assignment, all in form and substance
reasonably satisfactory to Searle and its counsel, as shall
be effective to vest in Searle or Transferee valid title to
the Product Rights, free and clear of any claims, liens or
encumbrances other than Permitted Exceptions;
(ii) a copy of resolutions of the board of directors of Roberts
authorizing the execution, delivery and performance by
Roberts of this Agreement, and a certificate of the
secretary or an assistant secretary of Roberts, dated the
Closing Date, that such resolutions were duly adopted and
are in full force and effect;
(iii) the certificate referred to in Section 6.1(d); and
(iv) copies of all consents and approvals received pursuant to
Section 5.5; and
<PAGE>
-6-
(v) a copy of all existing marketing materials (including
marketing plans), advertising copy, key physician records,
and detailing aids solely related to the Product and all
DDD, IMS and prescription data solely related to the
Product, to the extent disclosure and delivery are permitted
under Roberts' agreements with third parties.
(b) At the closing, Searle shall deliver, or cause to be delivered, the
following:
(i) instruments, in form and substance reasonably satisfactory
to Roberts and its counsel, pursuant to which Searle shall
assume the obligations and liabilities to be assumed
pursuant to Section 2.3;
(iii) a copy of resolutions of the board of directors of Searle
authorizing the execution, delivery and performance by
Searle of this Agreement, and a certificate of the secretary
or an assistant secretary of Searle, dated the Closing Date,
that such resolutions were duly adopted and are in full
force and effect; and
(iv) the certificate referred to in Section 6.2(d).
(c) At the closing, Roberts and Searle shall execute and deliver the
Distribution Agreement.
ARTICLE 4 -- REPRESENTATIONS AND WARRANTIES
- -------------------------------------------
4.1 Representations and Warranties of Roberts. Roberts represents and
-----------------------------------------
warrants to Searle that:
(a) Existence. Roberts is a corporation validly existing and in good
---------
standing under the laws of the State of New Jersey and is duly
authorized to carry on its business where and as now conducted and
to own, lease and operate properties as it now does.
(b) Authority. Roberts has full power and authority to enter into and
---------
perform this Agreement in accordance with its terms; the execution,
delivery and performance of this Agreement by Roberts has been duly
authorized by all necessary action of Roberts; and this Agreement
constitutes a valid and
<PAGE>
-7-
binding obligation of Roberts enforceable in accordance with its
terms, except as may be limited by applicable bankruptcy,
reorganization, insolvency or other similar laws affecting the
enforcement of creditors' rights in general and subject to
general principles of equity (regardless of whether enforceability
is considered in a proceeding in equity or at law).
(c) Consents of Third Parties. Subject to receipt of the consents and
-------------------------
approvals required under agreements described in Schedule 4.1(c),
the execution, delivery and performance of this Agreement by Roberts
will not (i) conflict with its organizational documents or conflict
with or result in the breach or termination of or constitute a
default under any agreement, commitment or other instrument, or any
order, judgment or decree, to which it is a party, by which it is
bound or to which any of the Product Rights is subject, except for
any conflicts, breaches, terminations or defaults that are not in
the aggregate material to the Business; (ii) constitute a violation
by it of any law or regulation applicable to it, the enforcement of
which would have a material adverse effect on the Business; or (iii)
result in the creation of any lien, charge or encumbrance upon any
of the Product Rights, other than Permitted Exceptions. No consent,
approval or authorization of, or declaration or filing (other than
filings with the FDA to assign Product Rights) with, any
governmental authority or any third party (other than consents with
respect to agreements referred to in Schedule 4.1(c)) is required on
the part of Roberts in connection with the execution, delivery and
performance of this Agreement.
(d) Title. Following the closing, Searle or Transferee will own good
-----
and marketable title (free and clear of any rights of third parties
other than Permitted Exceptions) to the Product Rights transferred
hereunder and have the right to practice and/or use the Other Rights
licensed herein on its behalf.
(e) Necessary Rights. Following the closing, Searle or Transferee will
----------------
have received from Roberts all permits, licenses, registrations and
other approvals which are then necessary for the registration,
marketing, promotion,
<PAGE>
-8-
distribution, and sale of the Product in the Territory in the manner
conducted by Roberts prior to the closing.
(f) Litigation. Except as set forth in Schedule 4.1(f), there are no
----------
claims, suits, actions or other proceedings which are pending or
threatened against Roberts and which relate to the Product, the
Product Rights, the Other Rights or the Business in which the
claimant seeks recovery of an amount in excess of $10,000.
(g) Compliance. To Roberts' Knowledge except as set forth in Schedule
----------
4.1(g),
(i) the Product Registration is currently maintained, and the
labeling, packaging, marketing, promotion, distribution and
sale of the Product in the Territory are, in compliance in
all material respects with applicable laws and regulations;
and
(ii) there are no ongoing (or completed within the last calendar
year) investigations or inquiries, by any governmental
agency in the Territory, regarding any problem with the
efficacy, safety, labeling, distribution or sale of the
Products by Roberts which could materially and adversely
affect the marketing, promotion, distribution or sale of the
Product in the Territory by Searle or Transferee.
(h) Agreements. Schedule 4.1(h) contains a complete list of all
----------
material agreements and commitments relating to the Business.
Except as set forth in such Schedule, and to the Knowledge of
Roberts, the other parties to those agreements and commitments have
performed all their respective obligations thereunder required to be
performed by them on or before the date of this Agreement, and there
has occurred no event which with the lapse of time or giving of
notice or both would constitute a default under said agreements,
except to the extent that any such failures to perform or defaults
would not have a material adverse effect on the Business.
(i) Intellectual Property. Roberts (a) owns all trade secrets, know-
---------------------
how, inventions, copyrights, and Product Registrations, necessary
for the conduct of
<PAGE>
-9-
the Business as currently conducted ("Intellectual Property")
(subject as indicated on Schedule 4.1(i)) except for the Other
Rights, (b) is, to Roberts' Knowledge, not infringing any other
party's patents, trade secrets, know-how, inventions, or copyrights,
with respect to the Business and (c) has the full right and power to
convey the Intellectual Property to Searle or Transferee as provided
herein. To the Knowledge of Roberts and except as set forth in
Schedule 4.1(i), no other party is infringing in any material
respect any of Robert's trade secrets, or copyrights used in the
Business.
(j) Financial Results. The pro forma financial information in Schedule
-----------------
4.1(j) is correct and fairly presents in all material respects the
results of operations of the Business for the periods identified.
(k) Undisclosed Liabilities. There are no liabilities relating to or
-----------------------
affecting the Product, Product Rights and/or the Business which
Searle shall be obligated to assume except the obligations expressly
referred to in Section 2.3 or contained elsewhere in this Agreement
(including the Exhibits thereto).
(l) Customer List. Schedule 4.1(l) consists of a true, correct and
-------------
complete listing of all customers of Roberts who accounted for
Product revenues for the three (3) quarters ending September 30,
1997.
(m) Material Adverse Change. Except as set forth in Schedule 4.1(m)
-----------------------
attached hereto, since December 31, 1996, Roberts has conducted the
Business and used the Product Rights only in the Ordinary Course of
Business and there has been no material adverse change in the
Business and/or the Product Rights or any material change in
Roberts' accounting methods, principles or procedures relating to
the Business and/or the Product Rights.
4.2 Representations and Warranties of Searle. Searle represents and warrants
----------------------------------------
to Roberts that:
(a) Existence. Searle is a corporation validly existing under the laws
---------
of the State of Delaware, and is duly authorized to carry on its
business where and as now conducted and to own, lease and operate
properties as it now does.
<PAGE>
-10-
(b) Authority. Searle has full power and authority to enter into and
---------
perform this Agreement in accordance with its terms; the execution,
delivery and performance of this Agreement by Searle has been duly
authorized by all necessary action of Searle; and this Agreement
constitutes a valid and binding obligation of Searle enforceable in
accordance with its terms, except as may be limited by bankruptcy,
reorganization, insolvency or other similar laws affecting the
enforcement of creditors' rights in general and subject to general
principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
(c) Consents of Third Parties. The execution, delivery and performance
-------------------------
of this Agreement by Searle will not (i) conflict with its
organizational documents and will not conflict with or result in the
breach or termination of or constitute a default under any
agreement, commitment or other instrument, or any order, judgment or
decree, to which it is a party or by which it is bound; or (ii)
constitute a violation by it of any law or regulation applicable to
it. No consent, approval or authorization of, or declaration or
filing (other than the filings with the FDA to assign Product
Rights) with, any governmental authority or any third party is
required on the part of Searle in connection with the execution,
delivery and performance of this Agreement.
ARTICLE 5 -- FURTHER AGREEMENTS OF THE PARTIES
- ----------------------------------------------
5.1 Operations of Roberts. From the date of this Agreement through the
---------------------
Closing Date, Roberts shall:
(a) operate the Business in the Ordinary Course of Business; and
(b) use reasonable efforts, consistent with past practice, to preserve
the goodwill of Roberts' customers, suppliers and others having
business relations with it with respect to the Business.
5.2 Notice of Events. From the date hereof and until the Closing Date,
----------------
Roberts shall promptly advise Searle in writing of, and furnish any
information Searle may reasonably request with respect to, (a) any claim,
litigation, proceeding or
<PAGE>
-11-
governmental investigation of which it has knowledge that is threatened
or asserted by or against Roberts and directly involves the Business and
(b) any event or condition of which it has Knowledge that would cause any
of the conditions to Searle's obligation to consummate the purchase and
sale under this Agreement not to be fulfilled. Searle shall promptly
advise Roberts in writing of, and furnish any information Roberts may
reasonably request with respect to, any event or condition of which
Searle has Knowledge that would cause any of the conditions to Roberts'
obligation to consummate the purchase and sale under this Agreement not
to be fulfilled.
5.3 Access to Information. Prior to the closing, Roberts shall permit Searle
---------------------
and its representatives to make such investigation of the Product Rights
and Business as Searle may reasonably request and give Searle and its
counsel, accountants and other representatives full access, upon
reasonable notice, during normal business hours throughout the period
prior to the Closing Date, to information concerning such Product Rights
and the records and files of the Business. Any investigation by Searle
shall be conducted in such manner as to minimize interruption of Roberts'
business. If for any reason the purchase and sale under this Agreement
is not consummated, Searle shall return any documents delivered to it by
Roberts.
5.4 Confidentiality of Information Prior to Closing. Except as otherwise
-----------------------------------------------
required by law, Searle shall keep confidential any information obtained
by it and its representatives in connection with the transactions
contemplated by this Agreement, pursuant to the confidentiality agreement
referenced in Section 9.7.
5.5 Consents; Assignment of Agreements. Roberts shall use reasonable efforts
----------------------------------
(but shall not be required to make any payment) to obtain at the earliest
practicable date but in no event later than the Closing Date, by
instruments in form and substance reasonably satisfactory to Searle, all
consents and approvals to the assignment of material agreements and
commitments as listed in Schedule 4.1(h). If, with respect to any
commitment or agreement to be assigned to Searle or Transferee (whether
or not listed on Schedule 4.1(h)), a required consent to the assignment
is not obtained (and, accordingly, pursuant to Section 1.14, it is
excluded from the sale to Searle), Roberts shall use reasonable efforts
to keep in effect and give Searle or Transferee (at Searle's
<PAGE>
-12-
or Transferee's cost and expense) the benefit of such commitment or
agreement to the same extent as if it had been assigned and to the extent
not prohibited by that commitment or agreement, and Searle or Transferee
shall perform Roberts' obligations under the commitment or agreement or
cooperate in Roberts' performance of such obligations. Nothing in this
Agreement shall be construed as an attempt to assign any commitment or
agreement that is by its terms nonassignable without the consent of the
other party.
5.6 Other Action. Each of the parties to this Agreement shall use all
------------
reasonable efforts to cause the fulfillment at the earliest possible date
of all the conditions to the obligations of the other party to consummate
the purchase and sale under this Agreement.
5.7 Further Assurances. At any time and from time to time after the Closing
------------------
Date, each of the parties shall, without further consideration, execute
and deliver such additional instruments of transfer and assumption, and
shall take such other action, as the other party may reasonably request
to carry out the transactions contemplated by this Agreement and effect
an orderly transition of the Business.
5.8 License. From and after the Closing Date, but limited to use in the
-------
Territory with respect to the Product, Roberts hereby grants Searle and
Transferee the non-exclusive, perpetual, royalty-free right (which may be
sub-licensed by Searle or Transferee to third parties for use on behalf
of Searle or Transferee) to practice and use the Other Rights.
5.9 NDC Numbers. Promptly following the Closing Date, Searle or Transferee
-----------
shall take any and all action necessary to change the National Drug Code
number for the Product.
5.10 Labels and Package Inserts. Subject to compliance with applicable laws
--------------------------
and regulations, (i) Roberts agrees to permit Searle and Transferee to
continue to use the labeling and packages, and package inserts that are
existing in Roberts' finished goods inventory on the Closing Date and
(ii) Roberts agrees to permit Searle and Transferee to use, without
modification, the Product literature currently in stock, if any, for
distribution and sales efforts. In no event shall Searle or Transferee
use such existing materials or any other Product labeling, packages or
package inserts (including any
<PAGE>
-13-
referencing Roberts name) for a period longer than one hundred eighty
(180) days from the Closing Date (the "Initial Period"), plus an
additional ninety (90) days after the expiration of the Initial Period
for those materials described in sub-section (i) of this Section 5.10
used in finished goods existing as of the end of the Initial Period.
Notwithstanding the foregoing, Searle and Transferee shall use their best
efforts to reduce each period of such uses to the minimum time possible.
5.11 Returns of Product
------------------
(a) Returns will be the financial responsibility of the party that
originally sold the returned Product. Returns shall be tracked by
lot number. Returned Product with lot numbers sold exclusively by
Roberts will be the financial responsibility of Roberts; returned
Product with lots numbers sold exclusively by Searle will be the
responsibility of Searle; financial responsibility for returned
Product from lots where each party sold a portion of the lot will be
prorated based on the portion of the shared lot that each party
sold.
(b) Both parties agree to enforce preauthorized return or scan and
destroy procedures in an attempt to have customer return Product
and obtain credit from the party who originally sold the Product to
them. Both parties agree to accept returns from the prorated lot.
However, either party may accept Product returns for which they are
not financially responsible in order to maintain their reputation
and good will in the marketplace and the financially responsible
party will reimburse the party processing the return. In these
cases, the processing party will verify the price the customer
originally paid (and therefore the credit provided) with the party
who originally sold the Product.
5.12 Chargebacks and Rebates
-----------------------
(a) Roberts will be financially responsible for all chargeback claims
related to Product sold by a wholesaler to a chargeback contract
customer on and after the Closing Date and during the first three
(3) months of 1998.
(b) Roberts will be financially responsible for all managed care rebates
related to Product dispensed by a pharmacist on and after the
Closing Date and during the first six (6) months of 1998.
<PAGE>
-14-
(c) In general, Searle will forward to Roberts for payment any claims
received related to Sections 5.12(a) and (b) above for which Roberts
is financially responsible. However, for the purpose of
administrative convenience or at the specific request of a customer,
Searle may elect to pay the claim for which Roberts is financially
responsible and Roberts will reimburse Searle with respect to such
claim.
(d) Roberts will be financially responsible for all Medicaid rebates
related to Product dispensed by a pharmacist on and after the
Closing Date and during the first six (6) months of 1998. HCFA will
continue to bill Roberts for Medicaid rebates for up to one year
after the expiration date on the last Norethin product issued with a
Roberts labeler code. For administrative convenience, Roberts will
continue to pay all future Medicaid rebates claims it receives.
Searle will reimburse Roberts for any rebate claims paid by Roberts
but which relate to Product dispensed by a pharmacist after the
aforesaid first six months of 1998.
(e) Roberts shall continue to make any chargeback or rebate payments
with respect to the Product required under agreements, government
mandates or otherwise which relate to supply contracts not assigned
or assignable under Section 5.5 or which are processed by Roberts
due to direct requests of a customer, provided that Searle shall
reimburse Roberts for all such payments pursuant to Section 5.12(d)
above.
5.13 Assignment to Transferee. Searle may elect to assign its
---------------------------
responsibilities under Sections 5.11 and 5.12 to Transferee, upon which
Transferee shall be directly responsible with respect thereto.
Notwithstanding the foregoing, Searle shall remain liable for its
obligations under Sections 5.11 and 5.12 in the event that Transferee
fails to honor such obligations.
5.14 Post-Closing Services. From the Closing Date and until the expiration of
---------------------
twelve (12) weeks thereafter, Roberts shall perform the following
services:
(a) notify all customers and government formularies of the transfer of
the Product to Searle or Transferee (providing Searle or Transferee
with a duplicate set of mailing labels for its use);
<PAGE>
-15-
(b) print notifications of the sale of the Product on selected invoices;
and
(c) invoice, book sales and ship Product as agent for Searle or
Transferee and use all reasonable efforts (short of instituting
third party collection or legal proceedings) to collect amounts due
for Product so shipped. For its services, Searle or Transferee
shall pay Roberts a fee equal to [DELETION] such fee to be paid in
monthly installments within ten (10) days of Roberts' invoice
therefor.
ARTICLE 6 -- CONDITIONS TO OBLIGATIONS OF THE PARTIES
- -----------------------------------------------------
6.1 Conditions Precedent to Obligation of Searle. The obligation of Searle
--------------------------------------------
to consummate the purchase and sale under this Agreement is subject to
the fulfillment, prior to or on the Closing Date, of each of the
following conditions (any or all of which may be waived by Searle):
(a) there shall be no governmental or judicial action, law or regulation
making the purchase and sale under this Agreement unlawful nor any
threat or notice of such action;
(b) all representations and warranties of Roberts shall be true in all
material respects at and as of the Closing Date with the same effect
as though made again at and as of that time;
(c) Roberts shall have performed and complied with all obligations and
agreements required by this Agreement to be performed or complied
with by it prior to or on the Closing Date;
(d) Searle shall have been furnished with a certificate of an officer of
Roberts, dated as of the Closing Date, certifying to the fulfillment
of the conditions specified in Sections 6.1(b) and (c);
(e) there shall not have been from the date of execution to the Closing
Date any material adverse change in the condition (financial or
otherwise) of the Business, the Product, or the Product Rights;
(f) execution and delivery to Searle of the Distribution Agreement in
accordance with the provisions set forth therein; and
<PAGE>
-16-
(g) execution and delivery by Roberts Pharmaceutical Corporation of the
Performance Guarantee attached as Exhibit B hereto.
6.2 Conditions Precedent to Obligation of Roberts. The obligation of Roberts
---------------------------------------------
to consummate the purchase and sale under this Agreement is subject to
the fulfillment, prior to or on the Closing Date, of each of the
following conditions (any or all of which may be waived by Roberts):
(a) there shall be no governmental or judicial action, law or regulation
making the purchase and sale under this Agreement unlawful nor any
threat or notice of such action;
(b) all representations and warranties of Searle shall be true in all
material respects at and as of the Closing Date with the same effect
as though made again at and as of that time;
(c) Searle shall have performed and complied with all obligations and
agreements required by this Agreement to be performed or complied
with by it prior to or on the Closing Date;
(d) Roberts shall have been furnished with a certificate of an officer
of Searle, dated as of the Closing Date, certifying to the
fulfillment of the conditions specified in Sections 6.2(b) and (c);
and
(e) execution and delivery to Roberts of the Distribution Agreement.
ARTICLE 7 -- SURVIVAL OF REPRESENTATIONS AND WARRANTIES, INDEMNIFICATION; AND
- -------------------------------------------------------- --------------------
DEFAULT
- -------
7.1 Survival. Subject to Sections 7.4 and 7.5, the representations and
--------
warranties of each of the parties contained in this Agreement shall
survive the closing; provided however, that the representations and
warranties will expire on the first anniversary of the Closing Date.
There are no representations or warranties other than those set forth in
this Agreement. Except as set forth in this Article 7, neither party
shall have any claim against the other for misrepresentation or breach of
warranty, covenant or agreement under this Agreement.
<PAGE>
-17-
7.2 Indemnification of Searle. Subject to the limitations stated in this
-------------------------
Article 7, Roberts shall indemnify and hold Searle, Transferee and their
respective Affiliates harmless from and against any loss, liability,
damage or expense (including, but not limited to, reasonable attorneys'
fees) based upon, arising out of or otherwise resulting from any
inaccuracy in any representation or any breach of any warranty, covenant
or agreement of Roberts contained in this Agreement or in any certificate
or instrument of assignment delivered by it pursuant to this Agreement.
7.3 Indemnification of Roberts. Subject to the limitations stated in this
--------------------------
Article 7, Searle shall indemnify and hold Roberts and its Affiliates
harmless from and against any loss, liability, damage or expense
(including, but not limited to, reasonable attorneys' fees) based upon,
arising out of or otherwise resulting from any inaccuracy in any
representation or any breach of any warranty, covenant or agreement of
Searle contained in this Agreement or in any certificate delivered by it
pursuant to this Agreement.
7.4 Limitations on Recovery. Neither Roberts nor Searle shall be liable to
-----------------------
the other party under Sections 7.2 or 7.3 of this Article 7, as
applicable, except to the extent that the aggregate amount of all claims
for indemnity by the other party exceeds an amount equal to [DELETION].
7.5 Notice of Claims. Indemnification pursuant to Sections 7.2 or 7.3 of
----------------
this Article 7 shall apply only to the extent that notice of a claim
therefor is asserted in writing and delivered to the indemnifying party
prior to the end of the applicable time period set forth below:
(a) if the claim is based upon a third party claim for damages to
property or personal injury resulting from the manufacture and/or
use of the Product, whether based on breach of warranty, negligence,
product liability or strict liability, the notice period shall be
the statute of limitations for such claim;
(b) if the claim is based upon an assessment of taxes due, the notice
period shall be the applicable statute of limitations; and
(c) for all other claims the notice period shall be one (1) year from
the Closing Date.
<PAGE>
-18-
Any notice of such a claim shall state with reasonable specificity the
representation, warranty, covenant or agreement with respect to which the
claim is made, the facts giving rise to, and the alleged basis for, the
claim, and, if known, the amount of liability asserted by reason of the
claim.
7.6 Defense of Claims. If any claim is made that would give rise to a right
-----------------
of indemnification under this Agreement, the party against whom the claim
is made ("Claimant") shall afford the other party ("Indemnifying Party")
and its counsel (reasonably satisfactory to Claimant), at the
Indemnifying Party's expense, the opportunity to defend or settle the
claim. If such notice and opportunity are not given to the Indemnifying
Party, no liability for indemnification under this Agreement shall be
imposed upon the Indemnifying Party by reason of such claim. The
Indemnifying Party shall notify Claimant no later than ten (10) days
after the date of the notice described in Section 7.5 of this Article 7
of its intention to assume the defense of any such claims. In the event
the Indemnifying Party fails to give such notice to Claimant within the
said time, the Indemnifying Party shall no longer be entitled to assume
such defense and the Claimant shall have the right to assume the defense
thereof with counsel of its choice at the Indemnifying Party's expense
and defend, settle or otherwise dispose of such claim. With respect to
any such claim which the Indemnifying Party shall fail to defend
promptly, said party shall not thereafter question the liability of the
Indemnifying Party to Claimant for any loss or payment with respect to
such claim (including attorneys' fees and cost of defense).
7.7 Determination of Loss. The parties shall make appropriate adjustments
---------------------
for tax benefits and insurance proceeds (reasonably certain of receipt
and utility in each case) and for the time cost of money (using the
Applicable Rate as the discount rate) in determining the amount of loss
for purposes of this Article 7. For the purpose of this Section 7.7 of
this Article 7, "Applicable Rate" means the base rate published from time
to time by Citibank N.A., New York, New York.
7.8 Consequential Damages. Notwithstanding any provision of this Agreement
---------------------
which might otherwise be to the contrary, neither party shall be liable
to the other for lost profits or other consequential damages.
<PAGE>
-19-
ARTICLE 8 -- NON-COMPETITION
- ----------------------------
8.1 Non-Competition. In consideration of the transactions contemplated
---------------
hereunder and other valuable consideration but subject to Section 5.5 of
this Agreement, Roberts hereby covenants and agrees with Searle that
Roberts and each of its Affiliates will not, between the Closing Date and
the second (2nd) anniversary of the Closing Date, engage in, directly or
indirectly, or carry on any business in the Territory in whatever form
which shall consist of the manufacturing and/or packaging, distribution
or sale of any ethical pharmaceutical product whose active ingredient(s)
consist(s) solely of the same active ingredient(s) as the Product;
provided that, nothing in this Article 8 shall in any way restrict or
preclude Roberts or any of its Affiliates from acquiring another company,
business or line of products (including by license thereof or through
investment therein), a non-material portion of which includes such
ethical pharmaceutical products. "Non-material" for purposes of this
Article 8 means that ethical pharmaceutical products containing such
active ingredients, account at the time of purchase for less than ten per
cent (10%) of the gross sales in the Territory of all products included
in the acquired company, business or line of products. If Roberts
acquires any company, line of products or business with products as in
(i) above, Roberts agrees to negotiate with Searle or Transferee, as
applicable, toward a possible sale of such products to Searle or
Transferee in the Territory.
ARTICLE 9 -- MISCELLANEOUS
- --------------------------
9.1 Notices. Any notice or other communication under this Agreement shall be
-------
in writing and shall be considered given when delivered personally or
three (3) days after being mailed by registered mail, return receipt
requested, to the applicable party at the address set forth below (or at
such other address as a party may specify by notice given to the other):
If to Roberts, to: Roberts Laboratories Inc.
Meridian Center III
6 Industrial Way West Telecopy: (908) 389-1014
Eatontown, NJ 07724 Att'n: John T. Spitznagel
<PAGE>
-20-
Att'n: John T. Spitznagel
President
with a copy to: Roberts Laboratories Inc.
Meridian Center III
6 Industrial Way West Telecopy: (908) 389-1014
Eatontown, NJ 07724 Att'n: Anthony A. Rascio
Att'n: Anthony A. Rascio
Vice President and
General Counsel
If to Searle, to: G. D. Searle & Co.
5200 Old Orchard Road
Skokie, Illinois 60077 Telecopy: (847) 470-6743
Att'n: Controller, Att'n: Controller, US Operations
US Operations
with a copy to: G. D. Searle & Co.
5200 Old Orchard Road Telecopy: (847) 967-2045
Skokie, Illinois 60077 Att'n: Robert L. Bogomolny
Att'n: Robert L. Bogomolny
Vice President and
General Counsel
9.2 Finders. Each of the parties represents and warrants to the other that
-------
it has not retained or dealt with any broker or finder in connection with
the transactions contemplated by this Agreement.
9.3 Headings. The Section headings of this Agreement are for reference
--------
purposes only and are to be given no effect in the construction or
interpretation of this Agreement.
9.4 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic law of the state of Illinois applicable to
agreements made and to be performed in Illinois, without regard to
principles of conflicts of laws thereof.
9.5 Severability. If any provision of this Agreement shall be deemed illegal
------------
or unenforceable, such illegality or unenforceability shall not affect
the validity and enforceability of any other provision of this Agreement,
which shall be construed as if such illegal or unenforceable provision or
provisions had not been inserted herein.
<PAGE>
-21-
9.6 Assignment. Neither party may assign any of its rights or delegate any
----------
of its duties under this Agreement without the prior written consent of
the other party. No assignment shall relieve the assigning party of any
of its obligations or liabilities under this Agreement.
9.7 Entire Agreement. This Agreement, including the schedules and exhibits,
----------------
together with the confidentiality agreement dated August 26, 1997 between
Searle and Roberts, contains a complete statement of all the arrangements
between the parties with respect to the transaction contemplated herein,
and cannot be changed or terminated orally. This Agreement may not be
amended except by an instrument in writing signed on behalf of each party
hereto by a duly authorized officer of such party.
9.8 Costs. Each party shall bear its own costs and expenses incurred in
-----
negotiating this Agreement.
9.9 Waiver of Default. No waiver of any default hereunder by any party or
-----------------
any failure to enforce any rights hereunder shall be deemed to constitute
a waiver of any subsequent default with respect to the same or any other
provision hereof. No waiver shall be effective unless made in
writing with specific reference to the relevant provisions(s) of this
Agreement and signed by a duly authorized representative of the party
granting the waiver.
9.10 Publicity. Except as required by law, the parties agree to keep this
---------
Agreement confidential until they mutually agree on publicity. All
publicity regarding this Agreement shall be jointly planned and
coordinated between the parties.
9.11 Survival. All indemnification and confidentiality provisions contained
--------
or referenced in this Agreement shall survive the termination of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
G. D. SEARLE & CO. ROBERTS LABORATORIES INC.
By: _______________________ By: ___________________________
its_____________________ its__________________________
<PAGE>
-22-
Exhibits and Schedules
----------------------
Exhibit
-------
A Distribution Agreement
B Performance Guarantee
Schedule
--------
1.13 Product Registration
2.3 Assumed Obligations
4.1(c) Contracts Requiring Consents
4.1(f) Pending Suits and Claims
4.1(g) Compliance
4.1(h) Material Contracts
4.1(i) Exceptions to Ownership of
Intellectual Property
4.1(j) Financial Information
4.1(l) Customer List
4.1(m) Material Adverse Changes
<PAGE>
EXHIBIT A
DISTRIBUTION AGREEMENT
----------------------
<PAGE>
EXHIBIT B
PERFORMANCE GUARANTEE
---------------------
In consideration of the execution by G. D. Searle & Co. of the foregoing
Asset Purchase Agreement, ("Agreement") Roberts Pharmaceutical Corporation
hereby guarantees to G. D. Searle & Co. and its Affiliates, as principal
and not as surety, the performance by Roberts Laboratories Inc. of all of
its obligations under the Agreement (including, without limitation, the
Exhibits thereto).
This Guarantee shall survive the amendment, expiration or other termination
of the Agreement or any assignment by Roberts Laboratories Inc. of its
rights and obligations under such agreement.
Roberts Pharmaceutical Corporation
By
Its
Date ________________
<PAGE>
EXHIBIT 10.85
-------------
DISTRIBUTION AGREEMENT
----------------------
This DISTRIBUTION AGREEMENT is entered into as of the ___ day of December,
1997 ("Effective Date") between ROBERTS LABORATORIES INC., a New Jersey
corporation ("Distributor") and G. D. SEARLE & CO., a Delaware corporation
("Company").
Whereas, Company has heretofore, directly and/or through others, promoted,
marketed and sold the Product (as hereinafter defined) in the Territory (as
hereinafter defined); and
Whereas, Distributor has the necessary facilities and resources to develop
the market for such Product in the Territory, as well as to carry out the duties
hereinafter specified and is desirous of being granted the right to sell such
Product in the Territory; and
Whereas, Company is willing to grant such right to Distributor upon the
terms and conditions herein set forth;
Now, therefore, it is mutually agreed by the Company and Distributor as
follows:
1. Appointment and Acceptance; Contingency.
---------------------------------------
(a) Subject to the following terms and conditions, Company hereby appoints
Distributor as Company's exclusive distributor (exclusive even as to the Company
and its affiliates and subsidiaries) in the countries listed on Exhibit A (the
"Territory") of the product described in Exhibit B (the "Product") for sale
under the trademark "SLOW-MAG" (the "Trademark") to any and all customers and
accounts. Distributor hereby accepts such appointment. The Company will not,
directly or indirectly, use the Trademark in the Territory during the term of
this Agreement.
(b) It is understood and agreed by the Company and Distributor, that
Distributor may from time to time find it convenient, for the discharge of its
obligations hereunder, to appoint
<PAGE>
-2-
subdistributors, agents or dealers within the Territory. Distributor shall be
entitled to appoint subdistributors, agents or dealers only if the following
conditions have been satisfied:
(i) Distributor shall have notified the Company in writing of the name,
address, and commercial experience of such prospective subdistributor,
agent or dealer and the Company shall have approved such
subdistributor, agent or dealer (which approval will not be
unreasonably withheld); and
(ii) Distributor shall have secured the enforceable written agreement, in
form and substance satisfactory to the Company, of any subdistributor,
agent or dealer that the latter:
(A) shall look solely and exclusively to Distributor for any
compensation of any kind and shall not have any claim or right to
any compensation of any kind whatsoever from the Company, in
particular, termination indemnities, payments, compensations or
other benefits;
(B) shall have no rights with respect to the distribution of the
Product within the Territory greater than the rights of
Distributor under this Agreement; and
(C) shall be subject to the responsibilities and obligations of
Distributor set forth in this Agreement
(c) Distributor agrees that it shall be responsible for the full and
faithful performance of any duty or obligation under this Agreement delegated,
expressly or by implication, by Distributor to any subdistributor, agent or
dealer and shall indemnify and hold harmless the Company against any liability,
termination indemnity, loss, injury, claim, cost, or expense incurred by the
Company as a result of Distributor's appointment of any subdistributor, agent or
dealer, except as such loss, injury, claim, cost, or expense is caused by the
fault of the Company.
<PAGE>
-3-
(d) Company represents and warrants to Distributor that:
(i) [DELETION]
(ii) [DELETION]
(iii) [DELETION]
(iv) [DELETION]
(v) Company's execution and performance of this Agreement does not
conflict with any of the terms and conditions of the License.
(vi) Except as set forth in Schedule 7(a), no third party has any
option, license or other contract or arrangement with Company with
respect to the manufacture, use or sale of the Product in the
Territory or the use of the Trademark, any related patent right or
know-how in the Territory, except for contracts or arrangements with
customers of the Company in the ordinary course of business.
(vii) Company has disclosed to Distributor all material information
in Company's possession, whether scientific or otherwise, concerning
the Product, the rights granted hereunder and the Trademark.
(e) Distributor acknowledges and agrees that the distribution rights
granted under this Agreement are subject to, and limited by, the terms and
conditions of the License, including any termination rights thereunder.
2. Duties of Distributor.
---------------------
<PAGE>
-4-
(a) Distributor accepts the foregoing appointment and agrees to provide all
of the usual and customary services of a distributor in the Territory, which
shall include, without limitation, the following:
(i) Distributor shall use all reasonable efforts to distribute and
sell and diligently promote the Product in the Territory. In this
regard, Distributor shall provide and maintain a sales organization
adequate to meet the needs of the market in the Territory. Nothing in
this Agreement shall be construed as requiring Distributor to maintain
a sale organization outside the United States of America.
(ii) Distributor agrees not to sell and distribute knowingly
counterfeit Company products or Product which has been misbranded or
adulterated or which is otherwise illicit.
(iii) Distributor agrees to include the Product at frequent intervals
in lists, bulletins or catalogs, as they may be issued by Distributor
to its customers, and agrees to check such customers' supplies of
Product regularly to insure adequate stocking and that the Product is
in saleable condition.
(iv) Distributor agrees not to sell the Product outside the Territory
or knowingly sell the Product to customers in the Territory which
intend to or who resell outside the Territory.
(v) Distributor agrees to store and ship the Product strictly in
accordance with the specifications in Exhibit B ("Specifications") and
Company's instructions and as otherwise required by law.
(vi) Distributor agrees not to make any warranty, guarantee, claim or
representation in connection with the Product, unless authorized by
Company or contained in written materials forwarded by Company to
Distributor.
<PAGE>
-5-
(vii) Distributor shall promptly provide Company with copies of any
known Product related complaints of a medical nature, including
adverse reaction and events, or product quality nature.
(b) Nothing contained in this Agreement shall be construed to restrict
Company's right, in its sole discretion, after discussion with Distributor, to
discontinue manufacturing (or having the Product manufactured on its behalf) or
having the Product distributed within the Territory at any time, immediately
upon prior written notice to Distributor if in Company's reasonable scientific
or medical judgment (based upon medical or scientific reasons or on information
or circumstances not known or existing as of the date hereof by Company's senior
medical officer), further sale of the Product in the Territory is not advisable.
(c) Distributor represents and warrants that it is not now selling and will
not during the term hereof sell in the Territory any products directly
competitive with the Product. As used in this Section 2(c), "directly
competitive" means a magnesium supplement product.
(d) Company represents and warrants that it will not during the term hereof,
and for a period of two (2) years after the expiration or earlier termination of
this Agreement other than termination by Company under Section 10(b), sell in
the Territory any products directly competitive with the Product. As used in
this Section 2(d), "directly competitive" means a magnesium supplement product.
Nothing in this Section 2(d) shall in any way restrict or preclude Company or
any of its Affiliates from acquiring another company, business or line of
products (including by license thereof or through investment therein), a non-
material portion of which includes such magnesium supplement pharmaceutical
product. "Non-material" for purposes of this Section 2(d) means that such
magnesium supplement product accounts at the time of purchase for less than ten
per cent (10%) of the gross sales in the Territory of all products included in
the acquired company, business or line of products. If Company acquires any
company, line of products or business with products as in (i) above, Company
agrees to negotiate
<PAGE>
-6-
with Distributor, as applicable, toward a possible sale of such products to
Distributor in the Territory.
3. Purchase of Product.
-------------------
(a) Distributor shall place purchase orders with Company for, and will
purchase and warehouse, such quantities of the Product as Distributor believes
may from time to time be required to meet trade requirements and sampling in the
Territory.
(b) Distributor shall submit written purchase orders to the Company for the
Product and Company shall accept such orders to the extent that they meet the
other requirements of this Section (b) and do not exceed Company's capacity to
produce Product. All sales hereunder shall be subject to the terms and
conditions of this Agreement, except for quantity and delivery date terms which
may be specified in any purchase order hereunder; provided that, delivery shall
in no event be required in less than one hundred twenty (120) days from
Company's receipt of the applicable purchase order. In the event of any
conflict, the terms of this Agreement shall prevail over those contained in
purchase orders or any other documents submitted by Distributor in connection
with this Agreement. Concurrently with the execution of this Agreement,
Distributor will provide Company a forecast of estimated requirements for
Product during the following six (6) calendar quarters. Distributor shall exert
all reasonable efforts to make each forecast as accurate as possible and shall
update such forecast at the end of each calendar quarter for the following six
(6) calendar quarters. Company shall accept and fill orders to the extent they
do not exceed one hundred and twenty percent (120%) of Distributor's forecast
for the applicable calendar quarter and use all reasonable efforts to fill any
portion of such orders in excess of such amount. Unless the parties
subsequently agree to the contrary, Company's obligation to supply Product shall
cease as of January 1, 2002. If Company does not agree to extend its obligation
to supply Product as described above, Company will provide reasonable assistance
to Distributor to find an alternative source of supply; provided that if an
alternative source of supply is not available to Distributor, Company shall
extend its obligation to supply to December 31, 2002.
<PAGE>
-7-
(c) The parties contemplate that Company may transfer manufacture of the
Product to the Company's subsidiary, Searle Industrie, in Evreux, France. Upon
such transfer, the supply of Product and the related provisions hereunder shall
be assumed by said subsidiary, but Company shall guaranty, as principal and not
as surety, the performance by said Searle Industrie of all its obligations of
supply.
(d) The Product shall meet the Specifications, as the same may be amended from
time to time by agreement of the parties or by requirement of the U.S. Food and
Drug Administration ("FDA").
(e) Sales by Company to Distributor shall be made as follows:
(i) Sales shall be made FOB shipping point (Incoterms 1990) at such
facility at which the final packaging of the Product is completed,
whether such facility is a Company facility, third party manufacturer
facility, or, as is currently applicable, Distributor's facility (or
such other shipping point as may be agreed between the parties),
initially for the first twelve (12) months after the Effective Date at
the prices specified in Exhibit C annexed hereto and made a part
hereof. (ii) After the first twelve (12) months period in subsection
3(e)(i) above, if Company proposes in increase the price of the
Product [DELETION], it shall so notify Distributor of such increase no
less than ninety (90) days prior to the expiration of such period.
Such price shall be in effect for the ensuing twelve (12) months
period. Any subsequent price increases must be notified to Distributor
in accordance with the foregoing procedure. In no event however, shall
Company notify Distributor of its desire to increase its price for the
Product more than once in any one year during the term of this
Agreement. The price which Distributor shall pay for the Product shall
be that price in effect when an order for the Product is placed. The
foregoing price increases shall include any increases in active
ingredient costs or finished packaging costs charged by Distributor or
its Affiliates ("Distributor Increases"), and such Distributor
Increases shall not be subject to or included in determining the
[DELETION] set forth above.
<PAGE>
-8-
(iii) All sales, use, gross receipts, added-value and other taxes,
duties, and similar charges, shall be borne by Distributor.
Distributor shall assume responsibility for risk of loss or damage to
the Product to the extent the Product is held at Distributor's
facility or is otherwise in the possession of Distributor, and
Distributor shall be deemed a warehouseman with respect thereto.
Title to the Product shall pass to Distributor upon delivery of
payment to Company for the Product in accordance with Section 3(f)
below.
(f) All payments by Distributor for Product shall be made in United States
dollars to Company (or other designated affiliate), by wire transfer to the bank
account designated by Company or such affiliate from time to time, in a written
notice to Distributor. Payment shall be due thirty (30) days from the date of
shipment. It is understood and agreed that Distributor shall not be obligated
to pay for any shipment, or portion thereof, of Product that has been properly
rejected by Distributor pursuant to this Agreement.
(g) Company shall keep full and accurate books and records related to the
fully absorbed cost of the Product in sufficient detail so amounts payable
hereunder can be properly calculated. Such books and records shall be kept for
the longer of two (2) years after the close of the calendar year to which the
records apply or the period required by law. Commencing with the books and
records for calendar year 1998, Company shall permit (not more than once each
calendar year during the term hereof) independent accountants designated by
Distributor to whom Company has no reasonable objection, to examine said books
and records at reasonable times for the sole purpose of verifying the accuracy
of the written statements submitted to Distributor and the purchase price for
Product paid or payable. Said independent accountants shall not disclose to
Distributor any information other than information relating solely to the
accuracy of the accounting and payments made by Distributor pursuant to this
Agreement and shall otherwise be bound by the confidentiality provisions of this
Agreement.
(h) Distributor shall purchase Company's inventory of finished Product on hand
as of the Effective Date upon the following terms:
<PAGE>
-9-
(i) Within fifteen (15) days following the Effective Date, Company
shall provide Distributor with a statement and count of finished
goods inventory of Product, less finished goods inventory required
for customer orders received prior to the Effective Date, which
orders shall be processed for Company's account. Distributor shall
purchase such finished goods inventory, EX WORKS (as defined by
INCOTERMS 1990 Edition) such facilities where such inventory is
held, at a purchase price [DELETION]. Distributor shall pay the
purchase price within sixty (60) days following receipt of the
statement with respect to said inventory.
(ii) Distributor shall, at its own expense, arrange for shipment of the
finished goods inventory of the Product to its designated
facility.
(iii) Notwithstanding the foregoing, Distributor shall not be required to
purchase any such inventory of the Product which is damaged,
misbranded, adulterated or otherwise unsalable or which will
expire on a date than twelve (12) months from the Effective Date.
4. Obligations of Company
----------------------
(a) Subject to Article 3 above, Company agrees to use all reasonable
efforts to or cause to be sold to Distributor by one or more of Company's
affiliates, on a timely basis the Product in quantities adequate to meet the
needs of the market throughout the Territory. In the event that Company is
unable to fill any accepted purchase order, Company shall promptly notify
Distributor. Distributor shall have the right under this Agreement to cancel any
quantity of Product for which Company has failed or will be unable for any
reason to deliver within one (1) month following the applicable delivery date
set forth in written purchase orders accepted pursuant to this Agreement.
<PAGE>
-10-
(b) Company shall inform Distributor of any orders and/or inquiries for
Product in the Territory which it receives. Company shall not knowingly sell the
Product to customers intending to resell the Product in the Territory.
(c) To the extent permitted by law, any decision to recall or cease
distribution of the Product, as a result of the Product being in violation of
any law, rule or regulation or presenting a possible safety risk, shall be made
by Company, after consultation with Distributor. In the event of any recall,
Company shall, with Distributor's cooperation and assistance, determine the
scope and form of the recall and Distributor shall conduct the recall. Company
will provide Distributor with any information concerning the manufacturing of
the Product which may reasonably be required by Distributor to determine the
need for a recall. Costs for any recall shall be borne by the party required to
indemnify the other party in relation to such recall pursuant to Article 9
hereof. Notwithstanding the foregoing, if Company fails within a reasonable
period of time to recall Product delivered to Distributor pursuant to this
Agreement that Distributor reasonably determines should be recalled due to
safety concerns, Distributor reserves the right to recall such Product after
consultation with Company and subject to such reasonable conditions and
limitations as Company may request.
(d) Company shall perform quality control tests and assays on raw
materials and on finished Product as required under the Specifications.
Distributor shall provide Company and its representatives access to
Distributor's facility where Product is held, if applicable, for the purpose of
performing such tests and assays. To the extent Distributor provides final
packaging of Product, Distributor shall accept and warehouse on behalf of
Company such bulk finished Product as Company or its designated third party
manufacturer shall ship to Distributor's facility.
5. Distribution Rights Payments.
----------------------------
(a) In order to further secure the rights to distribute and market the
Product in the Territory, Distributor has agreed to pay Company the following
sums:
<PAGE>
-11-
(i) Concurrently with the execution and delivery of a Letter of
Intent, dated October 20, 1997, between the parties, Distributor has
paid Company [DELETION] as earnest money ("Earnest Money") by wire
transfer to account number [DELETION].
(ii) [DELETION] concurrently with the signing of this Agreement;
(iii) [DELETION] on the earlier of the termination of this Agreement
by Company under Section 10 or the first anniversary of the Effective
Date;
(iv) [DELETION] on the earlier of the termination of this Agreement
by Company under Section 10 or the second anniversary of the Effective
Date ;
(v) Interest on the amounts set forth in Sections 5(a)(iii) and
(iv) above at an annual rate of [DELETION], payable within thirty (30)
days following the end of each calendar quarter and the date of
payment, as applicable, from the Effective Date to the respective
dates of payment of such amounts; and
(vi) [DELETION] of Net Sales (as defined below) of the Product in the
Territory from the Effective Date through December 31, 2002. Payments
under this sub-Section (v) shall be made quarterly within sixty (60)
days of the close of each calendar quarter.
(b) "Net Sales" means the gross invoice value of the Product billed by
----------
Distributor or its affiliates, to unrelated third parties, less (i) ordinary and
customary cash and trade discounts and bid contract discounts, (ii) chargebacks,
rebates, credits or allowances actually credited or made to customers for
spoiled, damaged, outdated and returned Product, (iii) sales, turnover, excise,
and value-added or other taxes and duties (other than income taxes), and (iv)
reasonable freight, insurance and handling charges to the extent included in
gross invoice value.
<PAGE>
-12-
(c) Each payment shall be accompanied by the report required under
Section (d) of this Article 5 below, plus such other information on the sale of
Product as Company may reasonably request. Except as otherwise provided in
Article 3 of this Agreement, all payments to be made by Distributor to Company
pursuant to this Agreement shall be made in United States dollars by wire
transfer to Company's account number [DELETION] (or other bank or account
designated by Company) in immediately available funds and shall not be reduced
by any taxes, licenses, fees or other withholdings.
(d) Within thirty (30) days after the end of each calendar quarter
during the term hereof, Distributor will provide Company a statement showing the
calculation of Net Sales and the calculation of the payment due.
(e) The payments set forth in Section 5(a) of this Agreement shall be
non-refundable and not creditable against Section 5(a)(vi) payments.
(f) Distributor shall keep full and accurate books and records related
to Net Sales of the Product in sufficient detail so amounts payable hereunder
can be properly calculated. Such books and records shall be kept for the longer
of the term of this Agreement plus two (2) years or the period required by law.
Distributor shall permit (not more than once each calendar year during the term
hereof) independent accountants designated by Company to whom Distributor has no
reasonable objection, to examine said books and records at all reasonable times
for the sole purpose of verifying the accuracy of the written statements
submitted by Distributor and the distribution rights fees paid or payable. Said
independent accountants shall not disclose to Company any information other than
information relating solely to the accuracy of the accounting and payments made
by Distributor pursuant to this Agreement and shall otherwise be bound by the
confidentiality provisions of this Agreement.
(g) Any and all taxes payable in connection with the payments to be
made pursuant to this Agreement shall be for the account of the party upon which
such tax is imposed by law. In the event that Distributor shall be required to
withhold or pay any taxes in the Territory
<PAGE>
-13-
applicable to Company with respect to any such payment, Distributor shall
promptly furnish Company with the respective tax receipts, or other evidence of
payment deemed by Company to be sufficient.
(h) Upon request by Company, Distributor shall file on behalf of
Company any tax returns which the law of the Territory may require. Such tax
returns shall be filed in accordance with Company's instructions and Distributor
shall pay such taxes on Company's behalf, deducting the amounts on such tax
payments from the payments due pursuant to this Agreement.
(i) Overdue amounts payable by Distributor to Company or its affiliate
under Articles 3 and 5 shall bear interest, payable quarterly, from the date due
to and including the date paid at the rate of [DELETION] or, if lower, the
highest rate permitted by applicable law.
(j) [DELETION]
6. Sales Promotion and Reports. Distributor shall maintain:
---------------------------
(a) such facilities in the United States of America as are necessary for
storing and distributing the Product in the Territory;
(b) an accurate and up-to-date list of customers; and
(c) a system of record keeping to permit tracking of the Product sold
hereunder, in the event a recall of any Product is ordered.
Distributor shall retain, and upon reasonable notice and at reasonable times
grant Company and its representatives access to, such records during the term of
this Agreement and for a period of at least two (2) years following its
expiration or other termination.
7. Trademarks and Other Proprietary Rights.
---------------------------------------
<PAGE>
-14-
(a) Except as set forth in Schedule 7(a) attached hereto and made a
part hereof, Company represents that, to the best of its knowledge, the
trademark registration for the Trademark is valid and subsisting in the United
States and other countries of the Territory, and the Company has the exclusive
right to use the Trademark in the Territory.
(b) The parties have agreed, subject to any governmental approvals or
changes, to make changes in the labeling and packaging for the Product so that
they would include Distributor's corporate name. All labels, boxes and
literature shall acknowledge that HCT is the licensee of the Trademark in the
United States.
(c) Distributor acknowledges that the Trademark used in connection with
the Product is not Distributor's property, and Distributor shall not contest
such Trademark or seek to register or have registered any such Trademark or
trade name in the Territory. Distributor shall not display or use any Trademark
or trade name owned by the Company except during the term of this Agreement and
then only in a manner previously approved by Company; provided, however, that no
-------- -------
such prior approval shall be required for the use of advertising or promotional
materials prepared, designed, furnished or approved in writing in advance by
Company. Company shall respond to Distributor's written submissions in this
regard within five (5) business days of receipt. Distributor shall execute any
documents necessary for the recordal of any required registered user agreement
in the Territory.
(d) Distributor shall promptly notify Company if Distributor becomes
aware of any actual or potential infringement of or conflict with the Trademark
or any other proprietary rights relating to the Product in the Territory.
Company, at its expense, shall have the right to deal with such infringement or
conflict by appropriate legal proceedings (but Distributor shall provide all
reasonable assistance in connection therewith) and Company shall be solely
entitled to any compensation or other payment received in connection therewith.
However, if Company and HCT fail to commence and diligently pursue appropriate
legal proceedings against the infringer within ninety (90) days of Distributor's
notice to Company, Distributor shall be solely entitled to
<PAGE>
-15-
deal with such infringement or conflict by such means as Distributor sees fit
(but Company shall provide all reasonable assistance in connection therewith)
and Distributor shall be solely entitled to any compensation or other payment
received in connection therewith. If the use of the Trademark is enjoined in the
Territory, Company shall provide Distributor with a substitute trademark.
(e) Notwithstanding the foregoing Section, in the event Company fails
to commence and diligently pursue appropriate legal proceedings under Section
7(d) above, Distributor may, in addition to the other remedies provided in
Section 7(d) above, in its sole discretion, elect to register a new trademark
for the Product, which trademark shall be the sole and exclusive property of
Distributor.
8. Compliance with Applicable Law.
------------------------------
(a) Subject to Company's compliance with Section 9 and 15 below,
Distributor shall be responsible for compliance of the Product with all
applicable laws and regulations and governmental orders and decrees in the
Territory, federal, state and local, including but not limited to the dietary
supplement regulations promulgated by the FDA and any labeling and advertising
constraints imposed thereunder. Further, Distributor shall promptly inform
Company in writing of any change or proposed change in requirements for
production, promotion or sale of the Product imposed by any governmental entity
in the Territory.
(b) Company shall promptly notify Distributor of any inspections by
federal, state or local regulatory representatives of any Company facility where
the Product is manufactured and/or packaged, and shall, if such inspections
directly relate to the Product, send Distributor copies of the portions of the
reports of any such inspections which directly relate to the Product, including
actions taken by Company to remedy conditions cited in such inspections.
<PAGE>
-16-
(c) Subject to Distributor's compliance with its obligations under this
Agreement, Company shall obtain and maintain all government license, permits and
registrations necessary for the Company's manufacturing, packaging and supply of
Product hereunder.
(d) Not more frequently than once each calendar year during the term
hereof, unless in an emergency situation, Company shall allow a representative
of Distributor (to whom Company has no reasonable objection) to inspect any
Company facility where the Product is manufactured and/or packaged, to assure
compliance with Company's obligations under this Agreement. Such inspection
shall be at reasonable times, following reasonable notice and be subject to such
confidentiality agreement and rules as Company shall designate from time to
time.
9. Warranty, Indemnity and Inspection.
----------------------------------
(a) Company warrants, represents and covenants that, during the supply
period specified in Section 3(b) or any extension thereof,
(i) on the date of shipment, no Product supplied hereunder shall be
adulterated or misbranded within the meaning of the Federal Food,
Drug and Cosmetic Act, as amended (the "Act"), or within the
meaning of any applicable state or municipal laws in which the
definitions of adulteration and misbranding are substantially the
same as those contained in the Act, as the Act and such laws are
constituted and effective at the time of shipment, or consist of or
include any product or article which may not be introduced into
interstate commerce; and
(ii) Company shall have good title to all Product supplied
hereunder, which title shall pass to Distributor as provided herein
following payment therefor, free and clear of any lien, encumbrance
or other conflicting interest of any kind, except as to any lien,
encumbrance or conflicting interest arising with respect thereto as
a result of any act or omission by Distributor.
<PAGE>
-17-
(b) THE WARRANTIES SET FORTH IN SECTION (a) ARE EXCLUSIVE AND IN LIEU OF ANY
OTHER EXPRESS OR IMPLIED WARRANTY CONCENING THE PRODUCT, INCLUDING ANY
IMPLIED WARRANTY OF FITNESS OR MERCHANTABILITY.
(c) All Product ordered hereunder shall be subjected to a visual inspection
upon receipt by Distributor. All claims for shortages, alleged defects, or
breaches of warranty which could be discovered by visual inspection shall
be made in writing to Company no later than thirty (30) days after receipt
of such Product and, if not so made, shall be irrevocably waived by
Distributor. If Company disputes Distributor's rejection (for alleged
Product quality reasons) made as provided above of all or part of any
shipment of finished Product such dispute shall be resolved by an
independent testing organization or consultant, of recognized repute within
the industry in the United States mutually agreed upon by the parties, the
appointment of which shall not be unreasonably withheld or delayed by
either party. The determination of such entity with respect to the
rejection of all or part of any shipment of finished Product shall be final
and binding upon the parties. The cost of such determination shall be
borne by the party against whom the decision is made.
(d) Except as provided in Section 9(e) below, Distributor shall indemnify and
hold Company, its subsidiaries and affiliates and their respective
directors, officers, employees and agents harmless against all claims,
suits, demands, judgments or damages, including reasonable attorneys' fees
and court costs, arising out of or relating to Distributor's (i) breach of
this Agreement, or (ii) packaging, warehousing, handling, sale or promotion
of the Product, as applicable, in the Territory (including, without
limitation any strict liability, product liability, tort or similar claim).
(e) Company will indemnify and hold Distributor, its subsidiaries and
affiliates and their respective directors, officers, employees and agents
harmless against all claims, suits, demands, judgments or damages,
including, reasonable attorneys' fees and court costs, arising
<PAGE>
-18-
out of or relating to Company's (i) breach of this Agreement or (ii)
failure to supply Product complying with any of the Company's express
Product quality requirements of this Agreement or (iii) third party claims
resulting from Product sold prior to the Effective Date.
(f) Notwithstanding the foregoing or any other provision of this Agreement,
neither party shall be liable to the other for lost profits or
consequential damages of any kind.
10. Duration and Termination and Remedies.
-------------------------------------
(a) Subject to Sections (b) and (c) of this Article 10, this Agreement shall be
in effect for the period from the Effective Date until terminated pursuant
to Section (b) below or as otherwise agreed by the parties.
(b) This Agreement may be terminated, effective immediately, by a party
("Injured Party") at any time upon written notice to the other party upon
(i) the failure of the other party to comply with this Agreement in
respect of any obligation, other than an obligation to make any payments
under Sections 5(a) (ii), (iii) and (iv) hereof, which failure is not
cured within thirty (30) days of written notice thereof,
(ii) the suspension, liquidation, dissolution or bulk sale, or notice
thereof, of the other party's business without the prior written consent
of the Injured Party or in the event of the calling of a meeting of such
party's creditors, an assignment by such other party for the benefit of
creditors, the insolvency of any kind of such other party, or the filing
of any attachment, distraint, levy, execution or judgment against such
party, any filing of a voluntary or involuntary petition under the
provisions of any bankruptcy act, or any application for or appointment
of a receiver for the property of such other party, or
<PAGE>
-19-
(iii) the cessation by such other party of its business;
or by the Company if,
(iv) Distributor fails to make any payment under Sections 5(a) (ii),
(iii) and (iv) hereof when due and such failure continues for a period in
excess of thirty (30) days.
(c) Upon termination of this Agreement for any reason, Distributor shall
promptly return to Company all price lists, catalogs and other advertising
literature furnished by Company and, if so requested by Company in writing,
all Product on hand which is in good and saleable condition. If so
requested by Company, Company shall pay Distributor for such Product at
Distributor's purchase price therefor under Section 3. Upon termination of
this Agreement for any reason, all related subdistributorship, agency or
dealership agreements entered into by Distributor shall be automatically
terminated. If Company does not request return of Product held by
Distributor, Distributor shall have six (6) months from the date of
termination within which to sell the Products, subject to all the terms and
conditions of this Agreement.
(d) No termination pursuant to this Agreement shall give rise to any obligation
by either party to the other except as specifically provided in this
Agreement. In particular, each party agrees that it shall not be entitled
to any payment, whether by way of compensation, indemnity or penalty,
arising out of such termination, except as specifically provided in Section
5(j). Any pre-existing claims, however, shall not be waived by the parties
as a result of such termination.
11. Insurance.
---------
Distributor shall obtain and maintain, at its expense, product liability
insurance which includes the Product in an aggregate amount for all products of
not less than [DELETION]. All such insurance shall include Company as an
additional insured and must be issued by such insurer.
<PAGE>
-20-
Distributor shall provide a certificate of insurance evidencing such insurance
concurrently with the execution of this Agreement and will provide new
certificates complying with this Agreement at least thirty (30) days in advance
of the stated expiration date of the period of coverage. Each such certificate
shall recite that the subject insurance is not cancelable and may not be amended
absent at least sixty (60) days notice to Distributor and Company.
12. Current Product Supply Contracts.
--------------------------------
Company shall, if requested by Distributor, use reasonable efforts (but shall
not be required to make any payment) to obtain at the earliest practicable date,
by instruments in form and substance reasonably satisfactory to Distributor, all
consents and approvals to the assignment of material agreements for the supply
of Product to customers within the Territory. If, with respect to any agreement
to be assigned, a required consent to the assignment is not obtained Company
shall use reasonable efforts to keep in effect and give Distributor (at
Distributor's cost and expense) the benefit of such agreement to the same extent
as if it had been assigned and to the extent not prohibited by that agreement,
and Distributor shall perform Company's obligations under the agreement or
cooperate in Company's performance of such obligations. Nothing in this
Agreement shall be construed as an attempt to assign any agreement that is by
its terms nonassignable without the consent of the other party.
13. NDC Numbers and Medicaid Rebates.
--------------------------------
(a) Promptly following the Effective Date, Distributor shall take any and all
action necessary to change the National Drug Code number ("NDC") for the
Product, which change shall be implemented as reasonably agreed upon by the
parties.
(b) For purposes of Company's Rebate Agreement with the Secretary of Health and
Human Services ("HHS") under Section 4401 of the Omnibus Budget
Reconciliation Act of 1990, Company shall continue to make any Rebate
Payment (as defined in such Rebate Agreement) with respect to the Product
required thereunder; provided that, for Rebate Payments
<PAGE>
-21-
for which State Medicaid Utilization Information reports show that Medicaid
payment was made for such drug after the Effective Date, Distributor shall
promptly reimburse Company for all such Rebate Payments in accordance with
Article 17 hereof.
(c) Distributor shall notify all relevant persons and entities, including
Company and First Data Bank, of such NDC change and comply with all laws
and regulations of HHS or its sub-divisions and agencies (including HCFA)
and the Rebate Agreement.
(d) Distributor shall also provide Company all relevant information regarding
Distributor's sales, promotion, pricing and other activities with respect
to the Product, including pricing calculations for purposes of determining
"Best Price", necessary for Company to comply with the Rebate Agreement.
14. Returns of Product
------------------
(a) Returns will be the financial responsibility of the party that
originally sold the returned Product. Returns shall be tracked by
lot number. Returned Product with lot numbers sold exclusively by
Company will be the financial responsibility of Company; returned
Product with lots numbers sold exclusively by Distributor will be the
responsibility of Distributor; financial responsibility for returned
Product from lots where each party sold a portion of the lot will be
prorated based on the portion of the shared lot that each party sold.
(b) Both parties agree to enforce preauthorized return or scan and destroy
procedures in an attempt to have customer return Product and obtain
credit from the party who originally sold the Product to them. Both
parties agree to accept returns from the prorated lot. However,
either party may accept Product returns for which they are not
financially responsible in order to maintain their reputation and good
will in the marketplace and the financially responsible party will
reimburse the party processing the return. In these cases, the
processing party will verify the price the customer originally paid
(and therefore the credit provided) with the party who originally sold
the Product.
<PAGE>
-22-
15. Chargebacks and Rebates
-----------------------
(a) Company will be financially responsible for all chargeback claims
related to Product sold by a wholesaler to a chargeback contract
customer on and after the Effective Date and during the first three
(3) months of 1998.
(b) Company will be financially responsible for all managed care rebates
related to Product dispensed by a pharmacist on and after the
Effective Date and during the first six (6) months of 1998.
(c) In general, Distributor will forward to Company for payment any claims
received related to Sections 15(a) and (b) above for which Company is
financially responsible. However, for the purpose of administrative
convenience or at the specific request of a customer, Distributor may
elect to pay the claim for which Company is financially responsible
and Company will reimburse Distributor with respect to such claim.
(d) Company will be financially responsible for all Medicaid rebates
related to Product dispensed by a pharmacist on and after the
Effective Date and during the first six (6) months of 1998. HCFA will
continue to bill Company for Medicaid rebates for up to one year after
the expiration date on the last Product issued with a Company labeler
code. For administrative convenience, Company will continue to pay
all future Medicaid rebates claims it receives. Distributor will
reimburse Company for any rebate claims paid by Company but which
relate to Product dispensed by a pharmacist after the aforesaid first
six months of 1998.
(e) Company shall continue to make any chargeback or rebate payments with
respect to the Product required under agreements, government mandates
or otherwise which relate to supply contracts not assigned or
assignable under Section 12 or which are processed by Company due to
direct requests of a customer, provided that Distributor shall
reimburse Company for all such payments pursuant to Section 17 below.
<PAGE>
-23-
16. Special Services. From and after the Effective Date and until the
----------------
expiration of twelve (12) weeks thereafter, Company shall,
(a) in written form and substance satisfactory to Distributor, notify all
customers and formularies under contracts existing as of the Effective
Date of this Agreement that as of such date Distributor shall be the
seller of the Product in the Territory (providing Distributor with a
duplicate set of mailing labels for its use).
(b) invoice, book sales and ship Product as agent for Distributor and use
all reasonable efforts (short of instituting third party collection or
legal proceedings) to collect amounts due for Product so shipped. For
its services, Distributor shall pay Searle a fee equal to [DELETION],
such fee to be paid in monthly installments within thirty (30) days of
Company's invoice therefor.
17. Quarterly Payments. Company shall provide Distributor on a calendar
------------------
quarterly basis (within thirty (30) days after the end of the quarter) the
information necessary to calculate payments due under Sections 14 and 15(d) for
the calendar quarter just ended. The payments due under these separate Sections
will be aggregated for each party and shall be made not later than sixty (60)
days after the end of each calendar quarter by wire transfer in immediately
available funds to the bank and account designated from time to time in a notice
from Company.
18. Assignment of Trademark and Paid-up License. [DELETION]
-------------------------------------------
19. Miscellaneous Provisions.
------------------------
(a) The relationship between Company and Distributor hereunder is solely
that of seller and purchaser of the Product. Neither party shall have
any power or authority to bind the other in any manner and shall not
hold itself out as agent or representative of the other party for any
purpose.
<PAGE>
-24-
(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois, without regard to the conflict of
laws principles of such state or any other jurisdiction.
(c) Any notice required to be given by either party shall be in writing
and hand delivered, sent by telecopier or mailed by certified airmail,
postage prepaid, to the other party at its address set forth below or
at such other address as shall have been designated by such other
party by written notice. Notices shall be deemed given (i) when
received, if hand delivered or telecopied or (ii) the earlier of
receipt or five (5) days after deposit in the mails as aforesaid, if
mailed.
if to Company, addressed to:
G. D. Searle & Co.
5200 Old Orchard Road
Skokie, IL 60077
Attention: President
Telecopier: (847) 967-2045
with a copy to:
General Counsel
Telecopier: (847) 967-2045
if to Distributor, addressed to:
Roberts Laboratories Inc.
Meridian Center II
4 Industrial Way
Eatontown, New Jersey 07724
Attention: Anthony A. Rascio
Telecopier: (732) 389-1014
<PAGE>
-25-
(d) The obligations of either party to perform under this Agreement (other than
any obligation to pay money) shall be excused if failure to perform or any
delay is caused by acts of God, strikes, civil commotion, riots, war,
revolution, acts of governments, or any other cause beyond the reasonable
control of the party obligated to perform. Upon the occurrence of any such
event, the duties and obligations of the parties shall be suspended for the
duration of the event preventing proper performance under this Agreement.
(e) No waiver of any default hereunder by either party or any failure to
enforce any rights hereunder shall be deemed to constitute a waiver of any
subsequent default with respect to the same or any other provision. No
waiver shall be effective unless made in writing and signed by the parties.
(f) This Agreement constitutes the complete agreement of the parties with
respect to the subject matter thereof. All prior proposals,
communications, agreements or understandings between Distributor and
Company, whether oral or written, concerning the subject matter hereof, if
any, are superseded by this Agreement. This Agreement may not be modified
except in writing signed by both parties.
(g) Distributor may not assign this Agreement or any right under it without the
prior written consent of Company.
(h) Company shall not be bound to honor any of Distributor's contracts for
resale or supply of the Product.
(i) Each party agrees for the term of this Agreement [DELETION] not to
disclose, or use for any purpose except as otherwise expressly provided
herein, any confidential information relative to the other party's business
acquired pursuant to or during the term of this Agreement. For the
avoidance of doubt, all confidential and proprietary information previously
disclosed to Distributor by Company or related to the Product's
Specifications are confidential and proprietary information of Company's
and subject to the foregoing
<PAGE>
-26-
obligation. The foregoing obligation shall not apply, however, to
information (i) which is or becomes public through no fault of the
recipient, or (ii) which is made lawfully available to the recipient by an
independent third party, or (iii) which was already in recipient's
possession at the time of receipt from the disclosing party as evidenced by
its written records, or (iv) which is independently developed by employees
of the recipient after the date of this Agreement or (v) which is required
by law, regulation, rule, act or order of any governmental authority or
agency to be disclosed.
(j) If either party wishes to make any public disclosure concerning this
Agreement or the terms hereof, the other party shall be provided with an
advance copy of the proposed disclosure and shall have five (5) business
days within which to approve or disapprove such disclosure. Approval shall
not be unreasonably withheld by either party. Absent approval, no public
disclosure concerning this Agreement or the terms hereof shall be made by
either party. Notwithstanding the foregoing, it is understood and agreed
that no approval shall be required in the event that the information to be
disclosed has been the subject of a prior public disclosure.
(k) The provisions of Articles 1, 2, 3, 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and
17 shall survive the expiration or other termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth above.
G.D. Searle & Co. Roberts Laboratories Inc.
By ________________________ By ______________________
Title: Title:
<PAGE>
-27-
Exhibit A
Territory
---------
United States of America, its territories and possessions
[DELETION]
<PAGE>
-28-
Exhibit B
Specifications for Product
--------------------------
ATTACHED
[ATTACHMENT DELETED]
<PAGE>
-29-
Exhibit C
Price for Product
-----------------
[DELETION]
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
STATE OR OTHER JURISDICTION
SUBSIDIARIES OF INCORPORATION
- ------------ ---------------------------
Roberts Laboratories, Inc. New Jersey
Linz-Roberts, Inc. Delaware
VRG International, Inc. New Jersey
Monmouth Pharmaceuticals, Ltd. United Kingdom
Roberts Pharma GmbH Germany
Roberts Pharmaceutical of Canada, Inc. Canada
Roberts Investments, Inc. Delaware
RPC Acquisition Corp. New Jersey
<PAGE>
COOPERS Coopers & Lybrand L.L.P.
& LYBRAND a professional services firm
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Roberts Pharmaceutical Corporation on (1) Form S-3 (File No. 333-13729) and (2)
Form S-8 (File No.'s 33-34767, 33-61543 and 333-09847) of our report dated
February 5, 1998, on our audits of the consolidated financial statements of
Roberts Pharmaceutical Corporation and Subsidiaries as of December 31, 1997,
1996 and 1995 and for each of the three years in the period ended December 31,
1997, which report is included in the Corporation's 1997 Annual Report on Form
10-K.
COOPERS & LYBRAND L.L.P.
Princeton, New Jersey
March 31, 1998
Coopers & Lybrand L.L.P., a registered limited liability partnership, is a
member firm of Coopers & Lybrand (International).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF ROBERTS PHARMACEUTICAL CORPORATION AND
SUBSIDIARIES AS OF DECEMBER 31, 1997, AND THE RELATED CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE TWELVE MONTHS PERIOD ENDED DECEMBER 31, 1997 (THE "FINANCIAL
STATEMENTS") AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 42,950
<SECURITIES> 39,887
<RECEIVABLES> 24,730
<ALLOWANCES> 0
<INVENTORY> 19,826<F1>
<CURRENT-ASSETS> 137,987
<PP&E> 25,913
<DEPRECIATION> 0
<TOTAL-ASSETS> 367,855
<CURRENT-LIABILITIES> 39,981
<BONDS> 10,327<F2>
0
48
<COMMON> 299
<OTHER-SE> 316,956
<TOTAL-LIABILITY-AND-EQUITY> 367,855
<SALES> 121,612
<TOTAL-REVENUES> 122,508
<CGS> 51,386
<TOTAL-COSTS> 51,386
<OTHER-EXPENSES> 71,884
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 755
<INCOME-PRETAX> 1,416
<INCOME-TAX> 1,101<F3>
<INCOME-CONTINUING> 2,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,517
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
<FN>
<F1>Includes raw material inventory of $2,487.
<F2>Non-current portion of long term debt.
<F3>Benefit
</FN>
</TABLE>
