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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 0-28454
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ANDRX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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FLORIDA 65-0366879
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4001 SOUTHWEST 47TH AVENUE
FORT LAUDERDALE, FLORIDA 33314
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(954) 584-0300
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $.001
PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING ON
MARCH 13, 1998 IS: 14,923,700
THE AGGREGATE MARKET VALUE, AS OF MARCH 13, 1998, OF SHARES OF COMMON STOCK HELD
BY NON-AFFILIATES OF THE REGISTRANT IS APPROXIMATELY $254,764,000
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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FORWARD-LOOKING STATEMENTS
ANDRX CORPORATION AND SUBSIDIARIES ("ANDRX" OR THE "COMPANY") CAUTIONS
READERS THAT CERTAIN IMPORTANT FACTORS MAY AFFECT THE COMPANY'S ACTUAL RESULTS
AND COULD CAUSE SUCH RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING
STATEMENTS WHICH MAY BE DEEMED TO HAVE BEEN MADE IN THIS REPORT OR WHICH ARE
OTHERWISE MADE BY OR ON BEHALF OF THE COMPANY. FOR THIS PURPOSE, ANY STATEMENTS
CONTAINED IN THIS REPORT THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE
DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, WORDS SUCH AS "MAY", "WILL", "EXPECT", "BELIEVE", "ANTICIPATE",
"INTEND", "COULD", "WOULD", "ESTIMATE", OR "CONTINUE" OR THE NEGATIVE OTHER
VARIATIONS THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. FACTORS WHICH MAY AFFECT THE COMPANY'S RESULTS
INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS AND UNCERTAINTIES ASSOCIATED WITH A
DRUG DELIVERY COMPANY WHICH HAS ONLY RECENTLY COMMERCIALIZED ITS FIRST PRODUCT,
INCLUDING A HISTORY OF NET LOSSES, SOME UNPROVEN TECHNOLOGIES, LIMITED
MANUFACTURING EXPERIENCE, CURRENT AND POTENTIAL COMPETITORS WITH SIGNIFICANT
TECHNICAL AND MARKETING RESOURCES, NEED FOR FUTURE CAPITAL AND DEPENDENCE ON
COLLABORATIVE PARTNERS AND ON KEY PERSONNEL. ADDITIONALLY, THE COMPANY IS
SUBJECT TO THE RISKS AND UNCERTAINTIES ASSOCIATED WITH ALL DRUG DELIVERY
COMPANIES, INCLUDING COMPLIANCE WITH GOVERNMENT REGULATIONS AND THE POSSIBILITY
OF PATENT INFRINGEMENT LITIGATION. THE COMPANY IS ALSO SUBJECT TO OTHER RISKS
DETAILED HEREIN OR DETAILED FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION").
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF THE BUSINESS
Andrx is engaged in the formulation and commercialization of
controlled-release oral pharmaceuticals utilizing the Company's proprietary drug
delivery technologies. To date, the Company has developed seven distinct drug
delivery technologies that are patented or for which patent applications have
been filed. The Company believes that its technologies are flexible and can be
modified to apply to a variety of pharmaceutical products. The Company is
applying its proprietary drug delivery technologies and formulation skills,
either directly or through collaborative arrangements, to the development of (i)
bioequivalent versions of selected controlled-release brand name
pharmaceuticals, (ii) brand name controlled-release formulations of existing
immediate-release or controlled-release drugs where the Company believes that
the application of the Company's drug delivery technologies may improve the
efficacy or other characteristics of that product and (iii) controlled-release
versions of existing drugs and drugs under development for other pharmaceutical
companies. The Company does not presently intend to develop new chemical
entities.
The Company believes that pharmaceutical companies are increasingly
utilizing controlled-release drug delivery technologies to improve drug therapy.
Controlled-release drug delivery technologies generally provide more consistent
and appropriate drug levels in the bloodstream than immediate-release dosage
forms and may improve drug efficacy and reduce side effects by releasing drug
dosages at specific times and in specific locations in the body. These
technologies also allow for the development of "patient-friendly" dosage forms,
which reduce the frequency of drug administration, thus improving patient
compliance. Controlled-release pharmaceuticals can be especially beneficial for
certain patient populations, such as the elderly, who often require several
medications with differing dosing regimens.
The Company believes the market for advanced drug delivery systems is
large and is growing rapidly. Based on published data, the market for
orally-administered drugs that utilize sustained and controlled-release drug
delivery systems is expected to increase to approximately $50 billion in 2005
from approximately $5.8 billion in 1995. The Company also believes that
pharmaceutical companies that do not possess controlled-released drug delivery
technology expertise will rely upon third parties such as Andrx to develop such
technologies for their product candidates.
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In October 1997, the Company received United States Food and Drug
Administration ("FDA") approval of its Abbreviated New Drug Application ("ANDA")
for its bioequivalent version of Dilacor XR/trademark/, which is marketed by
Watson Pharmaceuticals, Inc. ("Watson"). In September 1997, the Company received
tentative FDA approval of its ANDA for its bioequivalent version of
Cardizem/Registered trademark/ CD, which is marketed by Hoechst Marion Roussel,
Inc. ("HMR"). According to data from IMS America, the brand name versions of
these drugs had combined 1997 United States sales of approximately $800 million.
FDA approval of the ANDA for the Company's bioequivalent version of
Cardizem/registered trademark/CD is tentative because of the pending patent
infringement litigation (the "HMR Litigation") brought against Andrx by HMR and
Carderm Capital L.P. (collectively, "HMRI"), the holders of the patents relating
to Cardizem/registered trademark/CD, following the Company's submission of its
ANDA to the FDA. As a result of the HMR Litigation, the FDA may not grant final
marketing approval of Andrx's product until after either the lawsuit is resolved
in Andrx's favor or July 3, 1998 (30 months after HMR received Andrx's
certification that its product does not infringe the patents listed for
Cardizem/registered trademark/CD).
In September 1997, Andrx entered into a Stipulation and Agreement (the
"Stipulation") with HMRI related to the HMR Litigation. The Stipulation provides
that upon receiving final FDA approval of its ANDA, Andrx will begin to receive
interim payments from HMRI of $10.0 million quarterly which, absent certain
defaults by Andrx, are nonrefundable. These payments will continue until the HMR
Litigation is concluded or other events occur. The payments will increase
retroactively if Andrx prevails in the HMR Litigation, with a lump sum payment
representing an agreed amount of profits that Andrx would have earned had it
begun to sell its product upon receiving final FDA approval of its ANDA. The
Stipulation also provides Andrx with the option of licensing HMRI's patents
covering the Cardizem/registered trademark/CD product at certain times.
The Company is a 50% partner in ANCIRC Pharmaceuticals ("ANCIRC"), a
joint venture with Watson, for the development of up to eight bioequivalent
controlled-release pharmaceuticals. Watson also owns approximately 18% of the
Company's outstanding common stock and has warrants to acquire 337,000
additional shares of the Company's common stock. In April and December 1997,
ANCIRC submitted ANDAs to the FDA for two controlled-release products.
In addition to the four products for which ANDAs have been submitted,
the Company, either directly or through ANCIRC, currently has 19 additional
bioequivalent versions of brand name controlled-release drugs under development
which had combined 1997 United States sales of approximately $5 billion. The
Company is continually evaluating other potential product candidates. In
selecting these product candidates, the Company focuses on high sales volume
pharmaceuticals for which marketing exclusivity or patent rights have expired or
are near expiration.
The Company is also applying its proprietary drug delivery technologies
to the development of brand name controlled-release formulations of existing
immediate-release and controlled-release drugs. In selecting these product
candidates, the Company focuses on high sales volume pharmaceuticals whose
marketing exclusivity or patent rights have expired or are near expiration. The
Company believes that the application of its drug delivery technologies will
improve the efficacy or other characteristics of these products, for example, by
decreasing undesired side effects or reducing the frequency of administration.
The Company currently has five product candidates under development which had
combined 1997 United States sales of approximately $5 billion.
The FDA approval process for the brand name controlled-release
pharmaceuticals which the Company is developing will require the filing of a New
Drug Application ("NDA") with the FDA. Andrx will generally study the innovator
product and evaluate whether it can be improved upon with respect to efficacy
and side effect profile. After a formulation is developed and evaluated, an IND
must be submitted before clinical trials begin. The Company nonetheless believes
that the process will be shorter than that typically associated with most new
drugs because the Company's development efforts involve chemical entities which
have been previously approved by the FDA. The Company may receive certain
marketing exclusivity rights for a controlled-release product it develops, upon
FDA approval for the product. In order to facilitate development of these
products, the Company plans to undertake formulation development and studies,
where appropriate, on its own. Thereafter, the Company may enter into
collaborative arrangements with other pharmaceutical companies to commercialize
these products.
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The Company is also using its proprietary drug delivery technologies in
collaborative arrangements with other pharmaceutical companies to formulate
controlled-release versions of existing commercialized drugs and drugs under
development for these companies. In addition to improving drug efficacy, the
Company believes that its drug delivery technologies will provide pharmaceutical
companies with the opportunity to enhance the commercial value of their existing
products and new drug candidates. The Company currently has two product
candidates under development.
In addition to developing controlled-release pharmaceuticals, the
Company markets and distributes generic drugs manufactured by third parties.
These operations generated substantially all of the Company's revenues prior to
the fourth quarter of 1997, when Andrx commenced selling its bioequivalent
version of Dilacor XR/trademark/, the Company's first manufactured product. The
customer base for this operation consists primarily of independent pharmacies,
pharmacy chains which do not maintain their own central warehousing facilities
and pharmacy buying groups. The Company is using its distribution operations to
assist in the marketing of its bioequivalent version of Dilacor XR/trademark/
and plans to use these operations to assist in the marketing of other
controlled-release products being developed by the Company and its collaborative
partners. These operations also provide Andrx with an ability to directly
observe and participate in developments and trends in the generic pharmaceutical
industry.
The Company was incorporated on August 28, 1992 under the name "Andrx
Pharmaceuticals, Inc.", commenced operations and assumed its present name in
November of that year. The Company's executive offices are located at 4001
Southwest 47th Avenue, Ft. Lauderdale, Florida 33314, and the Company's
telephone number is (954) 584-0300. Unless the context otherwise requires,
references herein to "Andrx" or the "Company" are to Andrx Corporation and its
subsidiaries.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Not applicable
(C) NARRATIVE DESCRIPTION OF BUSINESS
ANDRX'S PROPRIETARY DRUG DELIVERY TECHNOLOGIES
Andrx is developing and applying multiple drug delivery technologies to
control the release characteristics of a variety of orally-administered drugs.
Controlled-release products are formulations which release active drug compounds
in the body gradually and predictably over a 12- or 24- hour period and which
therefore need be taken only once or twice daily. Controlled-release products
typically provide numerous benefits over immediate release drugs, including (i)
greater effectiveness in the treatment of chronic conditions; (ii) reduced side
effects; (iii) greater convenience (only once or twice a day); and (iv) higher
levels of patient compliance due to a simplified dosing schedule. To date, the
Company has developed seven distinct drug delivery technologies that are
patented or for which patent applications have been filed. These
controlled-release technologies were designed specifically for a drug that was
being formulated. The Company believes that its technologies are flexible and
can be modified to apply to a variety of pharmaceutical products.
The Company's drug delivery technologies utilize a variety of polymers
and other materials to encapsulate or entrap the active drug compound and to
release the drug at varying rates at predetermined locations in the
gastrointestinal tract. In developing an appropriate drug delivery technology
for a particular drug candidate, Andrx considers such factors as: (i) the
desired release rates of the drug; (ii) the physico-chemical properties of the
drug; (iii) the physiology of the gastrointestinal tract and the manner in which
the drug will be absorbed during passage through the gastrointestinal tract; and
(iv) the effect of food on the absorption rate and transit time of the drug.
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The following summarizes the Company's drug delivery technologies:
DRUG DELIVERY TECHNOLOGY DESCRIPTION
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PELLETIZED PULSATILE PPDS is designed for use with
DELIVERY SYSTEM ("PPDS") products that require a pulsed
release of the drug. This
technology uses pellets that are
coated with specific polymers and
agents to control the release rate
of the microencapsulated drug. By
varying the proportion and
composition of the polymer mixtures,
the release rate of the drug may be
specifically controlled.
SINGLE COMPOSITION OSMOTIC SCOT utilizes various osmotic
TABLET SYSTEM ("SCOT") modulating agents as well as polymer
coatings to provide a zero-order
release of a drug (a constant rate
of release).
SOLUBILITY MODULATING SMHS is designed for products
HYDROGEL SYSTEM ("SMHS") utilizing a hydrogel-based dosage
system that provides for sustained
release without the need to use
special coatings or structures which
add to the cost of manufacture. This
technology avoids the "initial burst
effect" commonly observed with other
sustained-release hydrogel
formulations.
DELAYED PULSATILE DPHS is designed for use with
HYDROGEL SYSTEM ("DPHS") hydrogel matrix products that are
characterized by an initial zero-
order release of drug followed by a
rapid release. This release
profile is achieved by the blending
of selected hydrogel polymers to
achieve a delayed pulse.
PELTAB SYSTEM ("PELTAB") PELTAB utilizes polymer-coated drug
pellets or drug crystals which are
manufactured into tablets. In
order to provide a controlled
release, a water insoluble polymer
is used to coat discrete drug
pellets or drug crystals which
then can resist the action of fluids
in the gastrointestinal tract. This
technology incorporates a strong
polymer coating enabling the coated
pellets to be compressed into
tablets without significant
breakage.
PORTAB SYSTEM ("PORTAB") PORTAB is designed for controlled-
release dosage forms which utilize
an osmotic core typically containing
a water soluble drug. The core
includes a water soluble component
and a continuous polymer coating.
The purpose of the soluble agent is
to expand the core and thereby
create microporous channels through
which the drug is released.
STABILIZED PELLET DELIVERY SPDS is designed specifically for
unstable drugs, incorporating a
pellet core of drug and protective
polymer outer layer(s).
The Company has been issued 14 U.S. patents, one notice of allowance
and has filed five additional U.S. patent applications and various foreign
patent applications relating to its drug delivery technologies. The Company is
applying several other proprietary controlled-release drug delivery technologies
in its product development programs and continues to develop new technologies
for which it may seek patent protection.
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PRODUCTS AND PRODUCT DEVELOPMENT
BIOEQUIVALENT CONTROLLED-RELEASE PHARMACEUTICALS
GENERAL
The Company is applying its proprietary drug delivery technologies and
formulation skills to the development of bioequivalent versions of selected high
sales volume, controlled-release brand name pharmaceuticals, for which marketing
exclusivity or patent rights have expired or are near expiration. In October
1997, the Company received FDA approval of its ANDA for the bioequivalent
version of Dilacor XR/trademark/ and commenced marketing this product. In
September 1997, the Company received tentative FDA approval of its ANDA for the
bioequivalent version of Cardizem/registered trademark/CD. According to data
from IMS America, the brand name versions of these drugs had combined 1997
United States sales of approximately $800 million. In April and December 1997,
ANCIRC submitted ANDAs to the FDA for two controlled-release products.
In September 1997, the Company entered into the Stipulation with HMRI
wherein Andrx agreed that if the HMR Litigation is not concluded by the date the
FDA grants final approval of the Company's ANDA for a bioequivalent version of
Cardizem/registered trademark/CD, Andrx will not commence the commercial sale of
the product in the United States until a final and unappealable judgment is
issued. The Stipulation provides that upon FDA final approval of its product,
Andrx will begin to receive interim payments from HMRI of $10.0 million per
quarter which, absent certain defaults by Andrx, are non-refundable. These
payments will continue until the HMR Litigation is concluded or other events
occur. The payments will increase retroactively if Andrx prevails in the HMR
Litigation, with a lump sum payment representing an agreed amount of profits
that Andrx would have earned had it begun to sell its product upon receiving
final FDA approval of its ANDA. The Stipulation also provides Andrx with the
option of licensing HMRI's patents covering the Cardizem/registered trademark/CD
product at certain times.
BIOEQUIVALENT PRODUCT PIPELINE
In addition to the four products for which ANDAs have been submitted,
the Company, either directly or through ANCIRC, currently has 19 additional
bioequivalent versions of brand name controlled-release drugs under development
which had 1997 United States sales of approximately $5 billion. The Company is
continually evaluating other potential product candidates.
BIOEQUIVALENT PHARMACEUTICAL DEVELOPMENT PROCESS
When developing bioequivalent pharmaceuticals, the Company is required
to prove that the bioequivalent product candidate will exhibit IN VIVO release
characteristics equivalent to those of the brand name pharmaceutical. For a
controlled-release pharmaceutical, the drug delivery technology utilized to
replicate the release rates of the brand name pharmaceutical must do so without
infringing any unexpired patents. The process by which generic
controlled-release products are developed for manufacture and sale in the U.S.
may be categorized into three basic stages: (i) formulation development; (ii)
bioequivalence studies; and (iii) an ANDA filing with the FDA.
During formulation development, the Company attempts to develop its own
version of the brand name drug. In creating a formulation, the Company utilizes
or adapts its drug delivery technologies to the product candidate or develops a
new drug delivery technology for that product candidate. The Company's
formulation is then evaluated in IN VITRO dissolution studies to determine
whether human bioequivalence studies should be conducted.
Once a suitable formulation has been developed, human bioequivalence
studies are conducted which compare the Company's formulation to the brand name
drug. Because bioequivalence studies can be relatively expensive to perform, the
Company often conducts a preliminary bioequivalence study in which it
manufactures a small batch of its product for testing in a limited number of
human subjects (typically six to eight). If the formulation yields a blood level
profile comparable to the brand name drug, full-scale bioequivalence studies may
be performed, which studies require the manufacture of at least 100,000 dosage
units and usually involve 24 or more human subjects. These studies are conducted
to determine the plasma concentrations of the drug in human subjects under
fasted and fed conditions as well as under multiple dose administration. If
successful, the studies will demonstrate that the rate and
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extent of absorption of the generic version is equivalent to that of the brand
name drug. If the studies demonstrate that the blood level profiles of the
Company's product are not comparable to the brand name drug, the Company will
either modify its formulation or alter the drug delivery technology employed.
After the Company's formulation has been shown to be bioequivalent to
the brand name drug, an ANDA is prepared for submission to the FDA. This ANDA
includes the results of the bioequivalence studies and other data such as IN
VITRO specifications for the Company's formulation, stability data, analytical
data, methods validation and manufacturing procedures and controls.
BRAND NAME CONTROLLED-RELEASE PHARMACEUTICALS
The Company is applying its proprietary drug delivery technologies to
the development of brand name controlled-release formulations of existing
immediate-release and controlled-release drugs. In selecting its product
candidates, the Company focuses on high sales volume pharmaceuticals whose
marketing exclusivity or patent rights have expired or are near expiration. The
Company believes that the application of its drug delivery technologies will
improve the efficacy or other characteristics of these products, for example, by
decreasing undesired side effects or reducing the frequency of administration.
The FDA approval process for the brand name controlled-release
pharmaceuticals which the Company is developing will require the filing of an
ANDA with the FDA. As an initial step in the development process for an NDA,
Andrx will generally study the innovator product and evaluate whether it can be
improved upon with respect to efficacy and side effect profile. After a
formulation is developed and evaluated, an Investigational New Drug Application
("IND") must be submitted to the FDA before clinical trials can begin.
Typically, clinical testing involves a three-phase process. Phase I trials are
conducted with a small number of subjects and are designed to provide
information about both product safety and the expected dose of the drug. Phase
II trials are designed to provide additional information on dosing and
preliminary evidence of product efficacy. Phase III trials are large scale
studies designed to provide statistical evidence of efficacy and safety in
humans. The results of the preclinical studies and clinical trials of a
pharmaceutical product are then submitted to the FDA, in the form of an NDA, for
approval to commence commercial sales. In responding to an NDA, the FDA may
grant marketing approval, request additional information or deny the application
if it determines that the application does not satisfy its regulatory approval
requirements.
The Company currently has five product candidates under development.
One of such product candidates is undergoing Phase II trials and the remainder
are in early stage clinical trials or formulation development.
The Company believes that the FDA approval process or its brand name
controlled-release formulations will be shorter than that typically associated
with most new drugs because the Company's development efforts involve chemical
entities which have been previously approved by the FDA. The Company may also
receive certain marketing exclusivity rights for a controlled-release product it
develops. In order to facilitate development of these products, the Company
plans to undertake formulation development and clinical studies, where
applicable, on its own. Thereafter, the Company may seek to enter into
collaborative arrangements with other pharmaceutical companies to commercialize
these products.
PHARMACEUTICALS DEVELOPED FOR THIRD PARTIES
The Company is also using its proprietary drug delivery technologies to
formulate for other pharmaceutical companies controlled-release versions of
their existing commercialized drugs and drugs they are developing. In addition
to improving drug efficacy, the Company believes that its drug delivery
technologies will provide pharmaceutical companies with the opportunity to
enhance the commercial value of their new drug candidates.
The Company is currently developing two controlled-release versions of
existing commercialized drugs for third parties. The Company is party to
agreements with Sepracor, Inc. ("Sepracor") and an affiliate of Bayer
Corporation (the "Bayer Affiliate") for the development of new products.
Pursuant to these agreements, Andrx's drug delivery technologies will be
combined with existing technologies to develop these two products.
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In addition, from time to time the Company considers licensing or other
agreements to obtain rights to patents or technology which the Company believes
may have commercial value. In 1994, the Company entered into such an agreement
with The UAB Research Foundation to license technology relating to the use of an
orally administered drug to be used in the treatment of cancer. In December
1996, that technology was sub-licensed to ASTA Medica, AG ("ASTA Medica"), a
subsidiary of Degussa, AG, which will be responsible for all product development
costs and will manufacture and market any products utilizing the technology. The
Company will receive a royalty from ASTA Medica on the sale of any products
utilizing the technology and the Company will be responsible for certain royalty
payments related thereto. ASTA Medica is completing the Phase I clinical studies
for this technology in Europe and expects to begin Phase II clinical studies in
the second quarter of 1998.
COLLABORATIVE ARRANGEMENTS
The Company has entered into collaborative arrangements with other
pharmaceutical companies. The Company is a 50% partner in the ANCIRC joint
venture with Watson for the development of up to eight controlled-release
generic drugs and has entered into development and licensing agreements with a
number of U.S. and foreign pharmaceutical companies, including Watson, for
additional generic controlled-release products.
ANCIRC JOINT VENTURE
In July 1994, the Company entered into a joint venture with Circa
Pharmaceuticals, Inc. ("Circa") for the development of up to six generic
controlled-release products. In July 1995, Circa was acquired by Watson. Since
it acquired Circa, Watson has expanded its relationship with Andrx to include up
to eight generic controlled-release products (the "ANCIRC Products") and has
made equity investments in the Company (including common stock purchased from
certain principal shareholders) in the aggregate of approximately $36.9 million.
Watson owns approximately 18% of the Company's outstanding common stock and has
warrants to acquire additional shares of common stock. Watson also has the right
to designate one member of the Company's Board of Directors through the end of
the term expiring in 1999.
In July 1994, the Company and Watson identified six product candidates
for development by ANCIRC. Until three products have been successfully
developed, the Company and Watson will agree on a substitute product candidate
for any product candidate which is not successfully developed. Once three
products are successfully developed, the parties will not be required to agree
upon more than two additional substitute product candidates. In October 1995,
the agreement with Watson was amended to provide that the Company and Watson
would agree on two additional product candidates to be developed by ANCIRC.
Those product candidates were subsequently identified by the parties. The
Company has agreed that Dr. Chih-Ming J. Chen, its Chief Scientist, will
personally supervise the development of all of the ANCIRC Products until at
least five products have been successfully developed.
ANCIRC is a 50/50 joint venture between the Company and Watson with
both the capital contributions and distributions and net income or losses
allocated equally between the Company and Watson. The Company and Watson have
each designated three representatives who together constitute the management
committee of ANCIRC. This management committee is responsible for reviewing each
partner's progress on the various projects on which they are working, preparing
budgets for each quarter, issuing capital calls to the Company and Watson when
necessary, approving expenditures and resolving any disputes which may arise
between the partners. The Company has made investments in ANCIRC totaling $5.8
million through December 31, 1997. The Company is responsible for contributing
50% of any additional capital contributions required by ANCIRC. Capital
contributions are utilized by ANCIRC to pay for services rendered by the
Company, Watson and unrelated third party vendors to ANCIRC.
Under its research and development services agreement with ANCIRC, the
Company is responsible for the development of formulations for each of the
ANCIRC Products. When the Company has developed a formulation which the Company
and Watson believe is promising, Watson is responsible, under its manufacturing
and regulatory approval agreement with ANCIRC, for the manufacture of such
quantities of the ANCIRC Product as may be necessary for ANCIRC to conduct
bioequivalence studies required for an ANDA submission. If such studies are
successful, Watson is also responsible for obtaining the necessary regulatory
approvals for that ANCIRC Product and to manufacture that product
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in commercial quantities. Following regulatory approval, Andrx is responsible
for marketing the ANCIRC products throughout the United States pursuant to a
distribution and marketing agreement with ANCIRC. The costs of developing,
manufacturing and marketing the ANCIRC Products are charged to ANCIRC on an
agreed-upon basis at least quarterly and ANCIRC then pays or reimburses both the
Company and Watson for their respective services. Notwithstanding the foregoing,
the Company and Watson have agreed that Andrx will be the manufacturer of one of
the two products for which ANDAs have been submitted to the FDA.
DEVELOPMENT AND LICENSING AGREEMENTS
The Company has entered into development and licensing agreements
covering generic pharmaceuticals with United States and foreign pharmaceutical
companies, including Watson, for additional generic controlled-release
pharmaceutical products. Pursuant to such agreements, the licensees typically
will fund the cost of product development and will pay the Company royalties in
exchange for a license to manufacture and market the products for a specified
period in a specified territory. Management believes that such arrangements
offer a variety of benefits, including providing an additional source of funding
for product development and affording the Company the ability to have certain of
its generic controlled-release products sold through the distribution networks
of these major pharmaceutical companies. The Company may terminate a development
and licensing agreement if the licensee fails to market the licensed product, in
which case all rights revert to the Company.
GENERIC PHARMACEUTICAL DISTRIBUTION OPERATIONS
In addition to its controlled-release drug development activities,
Andrx markets and distributes generic pharmaceuticals manufactured by third
parties. The Company purchases generic pharmaceuticals directly from
manufacturers and wholesalers and markets them through its in-house
telemarketing staff primarily to independent pharmacies, pharmacy chains which
do not maintain their own central warehousing facilities and pharmacy buying
groups. The Company offers this customer group competitive pricing, quality
products and responsive customer service, which the Company believes are the
critical elements to competing effectively in this market. The Company currently
has a telemarketing staff of approximately 100 persons, supplemented by
sales executives who are responsible for national accounts.
The Company currently utilizes operating profit from its generic
pharmaceutical distribution operations to offset a portion of the Company's
operating expenses, consisting primarily of research and development expenses.
These operations also provide Andrx with an ability to directly observe and
participate in developments and trends in the generic pharmaceutical industry.
The Company plans to expand its generic pharmaceutical distribution operations
by further increasing its customer base to include larger regional and national
pharmacy chains. The Company is also using its distribution operations to assist
in the marketing of its first manufactured product, a bioequivalent version of
Dilacor XR/trademark/, and plans to use these operations to assist in the
marketing of generic controlled-release products developed by the Company and
its collaborative partners.
The Company's distribution operations concentrate on high-volume
generic prescription drugs in capsule or tablet form. These products typically
provide higher gross margins, are subject to more rapid inventory turnover and
require less warehouse space than liquids, creams and many over-the-counter
products. By focusing on these products, the Company believes that it is able to
control inventory investments, minimize overhead and operate in an efficient and
cost-effective manner.
The Company purchases its generic products for resale from a number of
major pharmaceutical manufacturers and wholesalers. The Company believes that it
is not dependent upon any particular supplier and that alternative sources of
supply for most of its products are available if required.
In conjunction with its distribution operations, the Company has
developed a data management system referred to as CyBear/trademark/,
a software application designed to provide cost-effective on-line communications
between computer systems (regardless of compatibility) located in physicians'
offices, pharmacies, HMOs, clinical laboratories and hospitals. Through
CyBear/trademark/, physicians are expected to be able to
electronically transmit prescriptions (where permitted by law), specialist
referrals, patient encounters and laboratory orders and results. This data
management software system is also designed to conduct formula compliance checks
and confirms that the particular medication is reimbursable by the applicable
managed care organizations. Management believes that the use of
CyBear/Trademark/ will provide health
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care professionals greater control over the medications being administered to
their patients. CyBear /Trademark/ is currently being beta-tested with
a limited number of healthcare professionals. The Company is also developing
AndaNet/trademark/, which is designed to provide on-line communications between
the Company and its customers. Through AndaNet/trademark/, pharmacists are
expected to be able to order products from the Company, access pharmacy
journals, publications and on-line education programs and research therapies.
However, there can be no assurance that these software products can be
successfully commercialized.
MANUFACTURING
The Company has a commercial manufacturing facility of approximately
35,000 square feet that is being used to manufacture the Company's bioequivalent
version of Dilacor XR/trademark/. The facility will also be used for the
manufacture of Andrx's bioequivalent version of Cardizem/registered
trademark/CD, as appropriate, subject to HMR Litigation. The Company believes
that such facility will be sufficient for these products. As the Company's
existing manufacturing facility will not be suitable for the manufacture of all
of the additional products which the Company intends to develop and manufacture,
the Company intends to acquire additional property to eventually relocate its
executive offices, thereby enabling the Company to expand its commercial
manufacturing facility.
The Company will be dependent on Watson to manufacture certain products
subject to the ANCIRC joint venture and on other companies with which it has
development and licensing agreements to manufacture those products.
MARKETING
The Company is currently utilizing its existing distribution
operations' sales and marketing personnel for marketing the Company's
bioequivalent version of Dilacor XR/trademark/. The Company plans to utilize
this personnel to assist in the marketing of other controlled-release products
being developed by the Company and ANCIRC. In many instances, the Company's
existing distribution customers will be targeted for the products developed by
the Company. The Company may also contract with outside marketing organizations
to both train Andrx personnel for the marketing of the Company's products and to
market its products.
COMPETITION
The pharmaceutical industry is highly competitive and is affected by
new technologies, new developments with respect to existing technologies and
products, governmental regulations, health care legislation, availability of
financing and other factors. The Company is subject to competition from numerous
entities that currently operate, or intend to operate, in the pharmaceutical
industry. These include companies that are engaged in the development of
controlled-release technologies and products, as well as other pharmaceutical
manufacturers that may decide to undertake in-house development of these
products. Many of the Company's competitors have longer operating histories and
greater financial, research and development, marketing and other resources than
the Company.
Andrx believes that its distinct controlled-release drug delivery
technologies combined with its existing distribution operations will provide
efficiencies in product development and marketing, acceleration of regulatory
filings and cost savings necessary for Andrx to compete effectively. There can
be no assurance, however, that the Company's competitors will not succeed in
developing technologies and products that are as, or more, clinically successful
or cost-effective than any technologies utilized by or products being developed
by Andrx.
In its generic pharmaceutical distribution business, the Company
competes with a number of large wholesalers and other distributors of generic
pharmaceuticals, many of which have substantially greater financial, marketing
and other resources than the Company.
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PATENTS AND PROPRIETARY RIGHTS
GENERAL
Andrx believes that patent and trade secret protection, particularly of
its drug delivery technologies, is important to its business and that its future
will depend in part on its ability to obtain patents, maintain trade secret
protection and operate without infringing the proprietary rights of others.
Andrx has been issued 14 U.S. patents and one notice of allowance
relating to its drug delivery technologies. In addition, Andrx has filed five
additional U.S. patent applications and various foreign patent applications
relating to its drug delivery technologies. The Company expects to apply for
additional United States and foreign patents in the future. The issuance of a
patent is not conclusive as to its validity or as to the enforceable scope of
the claims of the patent. There is no assurance that the Company's patents or
any future patents will prevent other companies from developing similar or
functionally equivalent products or from successfully challenging the validity
of Company's patents. Furthermore, there is no assurance that (i) any of the
Company's future processes or products will be patentable; (ii) any pending or
additional patents will be issued in any or all appropriate jurisdictions; or
(iii) the Company's processes or products will not infringe upon the patents of
third parties. The failure of the Company to protect its patent rights or to
avoid infringement by the Company of the patent or proprietary rights of others
could have a material adverse effect on the Company's results of operations and
financial position.
Andrx also relies on trade secrets and proprietary knowledge, which it
generally seeks to protect by confidentiality and non-disclosure agreements with
employees, consultants, licensees and pharmaceutical companies. There can be no
assurance, however, that these agreements will not be breached, that the Company
will have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known by competitors.
PATENT LITIGATION
There has been substantial litigation in the pharmaceutical, biomedical
and biotechnology industries with respect to the manufacture, use and sale of
new products that are the subject of conflicting patent rights. Most of the
brand name controlled-release products of which the Company is developing
generic versions are covered by one or more patents. Under the Drug Price
Competition and Restoration Act of 1984 ("Waxman-Hatch amendments"), when a drug
developer files an abbreviated application for a generic drug, and the developer
believes that an unexpired patent which has been listed with the FDA as covering
that brand name product will not be infringed by the developer's product or is
invalid or unenforceable, the developer must so certify to the FDA. That
certification must also be provided to the patent holder, who may challenge the
developer's certification of non-infringement, invalidity or unenforceability by
filing a suit for patent infringement. If a suit is filed within 45 days of the
patent holder's receipt of such certification, the FDA can review and approve
the abbreviated application, but is precluded from making the marketing approval
of the product effective until a final judgment in the action has been rendered
or 30 months from the date the certification was received, whichever is sooner.
Should a patent holder commence a lawsuit with respect to alleged patent
infringement by the Company, the uncertainties inherent in patent litigation
make the outcome of such litigation difficult to predict. As described below, to
date, two such actions have been commenced against Andrx (one of which has been
dismissed without prejudice), and it is anticipated that additional actions will
be filed as Andrx or its collaborative partners files additional abbreviated
applications. The Company evaluates the probability of patent infringement
litigation with respect to its abbreviated application submissions on a
case-by-case basis and, accordingly, the Company provided for its litigation
costs in connection with the two ANDAs submitted in late 1995, as appropriate.
The delay in obtaining FDA approval to market the Company's product candidates
as a result of litigation, the expense of such litigation, whether or not the
Company is successful, or an adverse outcome in such litigation could have a
material adverse effect on the Company's results of operations, financial
condition and business.
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<PAGE>
HMR LITIGATION
In connection with the ANDA filed for Andrx's bioequivalent version of
Cardizem/registered trademark/CD, Andrx certified to the FDA that its product
did not infringe upon any of the patents listed as covering that brand name
product and sent the required notices to the holders of each of those patents.
In January 1996, HMRI commenced the HMR Litigation in the United States District
Court, Southern District of Florida, alleging that Andrx's product infringes
upon one of the six patents listed as covering Cardizem/registered trademark/CD.
While the Company believes that this product does not infringe upon the patents
in question, the uncertainties inherent in patent litigation make the outcome of
such litigation difficult to predict. In September 1997, the Company entered
into the Stipulation with HMRI wherein Andrx agreed that if the HMR Litigation
is not concluded by the date the FDA grants final approval of the Company's ANDA
for the bioequivalent version of Cardizem/registered trademark/CD, Andrx will
not commence the commercial sale of the product in the United States until a
final and unappealable judgment is issued. The Stipulation provides that upon
FDA final approval of its product, Andrx will begin to receive interim payments
from HMRI of $10.0 million per quarter which, absent certain defaults by Andrx,
are non-refundable. These payments will continue until the HMR Litigation is
concluded or other events occur. The payments will increase retroactively if
Andrx prevails in the HMR Litigation, with a lump sum payment representing an
agreed amount of profits that Andrx would have earned had it begun to sell its
product upon receiving final FDA approval of its ANDA. The Stipulation also
provides Andrx with the option of licensing HMRI's patents covering the
Cardizem/registered trademark/CD product at certain times. There can be no
assurance that the Company will prevail in the HMR Litigation and an adverse
outcome in the HMR Litigation could have a material adverse effect on the
Company's results of operations, financial condition and business.
RPR LITIGATION
In May 1996, in connection with the ANDA submitted for Andrx's
bioequivalent version of Dilacor XR/trademark/, Jagotec AC and Jago AG, who
licensed the patent listed as covering Dilacor XR/trademark/ to Rhone-Poulenc
Rorer, Inc. ("RPR"), and RPR (collectively, "Rhone"), commenced a lawsuit in the
United States District Court, Southern District of Florida (the "RPR
Litigation"), alleging that the Company's product infringed the patent listed as
covering Dilacor XR/trademark/. In December 1996, the parties entered into a
Settlement Agreement whereby Rhone agreed to dismiss the RPR Litigation, without
prejudice. An order of dismissal was entered by the judge in January 1997.
GOVERNMENT REGULATION
All pharmaceutical manufacturers are subject to extensive regulation by
the federal government, principally the FDA, and, to a lesser extent, by state
and local governments. The Federal Food, Drug, and Cosmetic Act ("FDCA") and
other federal statutes and regulations govern or influence the development,
testing, approval, manufacture, labeling, storage, sale, distribution, promotion
and advertising of prescription drug products. Pharmaceutical manufacturers are
also subject to establishment registration and product listing, certain
recordkeeping and reporting requirements, and periodic FDA inspections.
The FDCA includes procedures for the approval of generic versions of
brand name prescription drugs, defined as "Listed Drugs" because the FDA
publishes a list of approved prescription drug products. Applicants seeking
approval of generic versions of Listed Drugs generally are not required to
repeat the full battery of studies required to support FDA approval of Listed
Drugs. Instead, generic applicants may submit an ANDA showing that the generic
product is bioequivalent to a specified Listed Drug, viz., there are no
statistically significant differences in the rate or extent to which the
products are biologically available, originally as measured by blood level
studies. The FDA is authorized to approve an ANDA for a bioequivalent product
when the reference Listed Drug is off-patent or when the patents for the Listed
Drug are not infringed, invalid or otherwise not enforceable. A bioinequivalent
version of a Listed Drug (including a product not bioequivalent because it is a
controlled-release formulation designed to have a rate of release different from
the Listed Drug, or because the FDA has approved a petition permitting a
different dosage form) may be approved under an ANDA; products that are not
bioequivalent for other reasons may be approved under an alternate form of
application authorized by Section 505(b)(2) of the FDCA (see below).
ANDAs are the approval mechanism for generic products that are the same
as Listed Drugs in all essential respects or are permitted by the FDA to be
modified in some respect that does not present
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safety or effectiveness considerations. When differences from previously
approved chemical entities, strengths, dosage forms, uses or other conditions
raise novel safety or effectiveness issues, those differences require drug
sponsors to conduct preclinical and/or clinical studies necessary to provide
data necessary to make risk-benefit analyses. Such data are submitted in full
NDAs or in Section 505(b)(2) applications to which safety and effectiveness data
are cited from public sources, with at least some new clinical data provided on
the drug for which approval is sought. These approval processes are time
consuming and expensive. In order to conduct clinical investigations and most
bioavailability and bioequivalence studies, a drug sponsor is required to submit
to the FDA an IND containing safety data to justify clinical use and plans for
clinical studies. Drug development, safety and clinical investigations often
require a decade or more. Additionally, the FDCA requires payment of a
substantial user fee upon filing such applications, and the payment of other
fees annually to maintain any approval that is granted.
The Company intends to develop and seek FDA approval of controlled- or
extended-release versions of Listed Drugs currently approved as
immediate-release dosage forms. Because delivery systems and duration of drug
availability will differ significantly between immediate and extended-release
dosage forms, the Company will be required to develop data under INDs and to
submit either full NDAs or Section 505(b)(2) applications for such innovative
products. There is no assurance that publicly available data on the chemical
entity or immediate-release dosage exist, either to a substantial extent or even
minimally, to cite in support of Section 505(b)(2) applications or that the FDA
will accept such data as may exist to support these applications. Additionally,
there can be no assurance that, if full NDA or Section 505(b)(2) approval is
required, such approval can be obtained in a timely manner, if at all.
The FDCA requires ANDA and Section 505(b)(2) applicants to make a
patent certification when submitting an application. An applicant seeking to
market before expiration of a patent covering a Listed Drug may certify to the
FDA that a patent is invalid, unenforceable or not infringed; notice of such a
certification and the grounds for it must be provided to the owner(s) of the
patent and Listed Drug. By instituting a patent infringement suit against the
applicant within 45 days of notice, the owner(s) of the patent or Listed Drug
can stop the FDA from approving the generic drug application for 30 months or
until an earlier court order finding the patent to be invalid, unenforceable or
not infringed.
Although the pertinent provisions of the FDCA remain the subject of
unresolved litigation, they have been interpreted to award the first generic
applicant to successfully challenge the patent status of a Listed Drug with the
right to compete exclusively against the Listed Drug for up to 180 days, viz.,
the FDA ordinarily may not approve another application until after the first
ANDA applicant has marketed its product for 180 days. The FDA's regulations
requiring the ANDA applicant to secure a court order that a patent is invalid,
unenforceable or not infringed as a condition to the 180 days of exclusivity
have been successfully challenged in two cases, and the Company currently is
engaged in litigation challenging those regulations. In this regard, on March
26, 1996, a federal district court in Washington, D.C. entered a temporary
restraining order prohibiting Mylan Pharmaceuticals, Inc. from shipping or
otherwise distributing its bioequivalent version of Dilacor XR/trademark/.
While the FDA allows an abbreviated approval mechanism for generic
drugs, it also fosters pharmaceutical innovation by providing non-patent market
exclusivities and patent term extensions to applicants that develop new products
and uses for existing products. There are two distinct non-patent market
exclusivity provisions which either preclude the submission or delay the
approval of an ANDA or Section 505(b)(2) application. For chemical compounds not
previously approved by the FDA, a five-year period is provided during which
generic applications cannot be submitted. Because application approval generally
takes at least a year, the effect of this application preclusion is to delay
generic competition for six or more years. A three-year marketing exclusivity
period is provided for applications containing new clinical investigations
(other than bioavailability studies) essential to an approval. The three-year
marketing exclusivity period would be applicable to new indications or the
development of a novel drug delivery system. The effect of this exclusivity
award is limited, and generic competition can begin at the expiration of the
three years. The marketing exclusivity provisions apply equally to patented and
non-patented drug products.
Second, the FDCA provides patent term extensions to compensate for
patent protection lost while conducting FDA required clinical studies and during
FDA review of data submissions. A patent may be extended up to five additional
years. However, the total period of patent protection following FDA marketing
approval cannot exceed 14 years. In addition, under the Uruguay Rund Agreements
Act of 1994, which ratified the General Agreement on Tariffs and Trade ("GATT"),
certain brand name drug patent terms have been extended to 20 years from the
date of filing of the pertinent patent applications (which can be longer than
the former 17-year patent term). Patent term extensions may delay the ability
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of the Company to use its proprietary technology, market new extended release
products, file Section 505(b)(2) applications referencing public data on
approved products (see below), and file ANDAs based on Listed Drugs when those
approved products or listed drugs have acquired patent term extensions. In
addition, there is a possibility that Congress will provide additional grounds
for patent extensions of drugs approved under NDAs.
The Company has filed ANDAs with the FDA for generic versions of
Cardizem/registered trademark/CD and Dilacor XR/trademark/ (both diltiazem
hydrochloride, a prescription drug indicated for hypertension), has submitted
ANDAs for two additional products through ANCIRC, and intends to file additional
ANDAs or Section 505(b)(2) applications to obtain approval to market its other
generic controlled-release products. In September 1997, the Company received
tentative FDA approval of its ANDA for the bioequivalent version of
Cardizem/registered trademark/CD. In October 1997, the Company received FDA
approval of its ANDA for the bioequivalent version of Dilacor XR/trademark/. No
assurances exist that ANDAs will be suitable or available for the products
developed by the Company, directly or in collaborative arrangements, or that the
proposed products will receive FDA approval on a timely basis, if at all.
The FDCA requires that drugs manufactured in conformity with "current
good manufacturing practice" ("cGMP"), and the FDA has promulgated and enforces
regulations to assure that manufacturing processes and controls adhere to cGMP
standards. Drugs not manufactured in conformity with cGMP standards are deemed
adulterated under the FDCA. The Company's manufacturing facility was inspected
by the FDA prior to the approval of Cardizem/registered trademark/CD and Dilacor
XR/trademark/ applications, and the FDA advised the Company that its
manufacturing site was then in conformity with cGMP requirements. The Company's
facility will be subject to periodic inspections by the FDA, and there can be no
assurance that the Company's facility will be found to be in compliance with
cGMP.
The FDA also has extensive requirements for the promotion and
advertising of prescription drug products, including restrictions on the
dissemination of information pertaining to extra-label uses of approved
products. Noncompliance with these requirements also can result in various
sanctions discussed below. Furthermore, anti-kickback statutes applicable to
Medicare and Medicaid proscribe certain marketing, pricing and rebate activities
for drugs reimbursed under those programs and provide civil and criminal
penalties for violations. Most states have similar statutes.
Under the FDCA, ANDA applicants (both the company and individuals) who
are convicted of a crime involving dishonest or fraudulent activity (even
outside the FDA regulatory context) are subject to debarment. Debarment is
disqualification from submitting or participating in the submission of future
ANDAs for a period of years or permanently, and the FDA will refuse to accept
ANDAs from any company that employs or uses the services of a debarred
individual in any capacity.
The Prescription Drug Marketing Act ("PDMA"), which amends various
sections of the FDCA, requires, among other things, state licensing of wholesale
distributors of prescription drugs under federal guidelines that include minimum
standards for storage, handling and recordkeeping. PDMA requires wholesale
distributors of prescription drugs such as the Company, to provide certain
customers with a list, in advance of a particular sale, of each prior sale,
purchase or trade of the same drug. PDMA also establishes other requirements for
wholesale distributors, including without limitation, registration with the
state or Federal government and other record-keeping requirements. It also sets
forth civil and criminal penalties for violations of these and other provisions.
Failure to comply with FDCA requirements, including PDMA and cGMP
requirements, can lead to sanctions such as the seizure of drug products,
prohibition of manufacturing and distribution, product recalls, withdrawal of
existing product approvals, refusal to approve new applications for the Company,
refusal of the federal government to enter into supply contracts, and criminal
prosecution of the Company and its officers. Such sanctions could have a
materially adverse effect on the Company.
Approved drug products manufactured in the United States may be
exported to any country in which the products may be sold under the laws of that
country. Unapproved drug products manufactured for export are subject to certain
FDA export regulations as well as regulations by the country in which the
products are to be sold.
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The Company is governed by federal, state and local laws of general
applicability, such as laws regulating working conditions and environmental
protection. The Company also is licensed by, registered with, and subject to
periodic inspection and regulation by, the Drug Enforcement Administration of
the Department of Justice (the "DEA") and Florida state agencies, pursuant to
federal and state legislation relating to drugs and narcotics. Certain drugs
that the Company may develop in the future may be subject to regulations under
the Controlled Substances Act and related statutes.
PRODUCT LIABILITY INSURANCE
The design, development and manufacture of the Company's products
involve an inherent risk of product liability claims. The Company has obtained
product liability insurance that covers substantially all products marketed by
the Company in its generic drug distribution operations, bioequivalence and
other studies for the Company's controlled-release product candidates and the
products the Company intends to commercialize. The Company believes that its
product liability insurance is adequate for its current operations, but may seek
to increase its coverage prior to the commercial introduction of its product
candidates. There can be no assurance that the coverage limits of the Company's
insurance will be sufficient to offset potential claims. Product liability
insurance is expensive and difficult to procure and may not be available in the
future on acceptable terms or in sufficient amounts, if available at all. A
successful claim against the Company in excess of its insurance coverage could
have a material adverse effect upon the Company's results of operations and
financial condition.
PERSONNEL
As of February 27, 1998, the Company had 384 employees, of whom 25 were
involved in corporate administration, 238 were involved in the Company's sales,
marketing and distribution operations, including 100 telemarketers, and 21 were
involved in software development and support. The remaining 100 employees were
involved in research, pharmaceutical development and manufacturing, including
over 47 scientists, 31 of whom hold Ph.D., masters or medical degrees.
SCIENTIFIC ADVISORY BOARD
The Company has established a scientific advisory board ("SAB") which
is comprised of certain members of the medical, health care, pharmaceutical and
scientific communities. The Company generally consults with members of the SAB
from time to time on an individual basis to obtain their ideas, insights, input
and other assistance in helping the Company achieve its goals. Members of the
SAB have agreed to serve in such capacity for a three-year period. Certain
members of the SAB may, from time to time, render consulting services to the
Company for which they may be separately compensated.
ITEM 2. PROPERTIES
The Company leases approximately 96,000 square feet in a facility in
Fort Lauderdale, Florida, which houses the Company's executive offices,
warehousing and shipping facilities, a laboratory and pilot manufacturing plant
and a commercial-scale manufacturing facility. The buildings are occupied
pursuant to leases expiring March 31, 2003 at a current total annual rent of
approximately $700,000. Each of the leases afford the Company five five-year
renewal options, and require the Company to pay certain increases in common area
costs.
The Company also leases approximately 18,500 square feet of office
space in Davie, Florida, which house its non-warehouse distribution staff. Such
space is occupied pursuant to a lease expiring in May 1998, at an annual rent of
$220,000, including common area maintenance costs and real estate taxes, and
affords the Company four six-month renewal options. Additionally, the Company
leases approximately 4,000 square feet in Tampa, Florida, which houses its
software development staff. Such lease is occupied pursuant to a lease expiring
in November 1998 (with two one-year renewal options) at current annual rent of
approximately $60,000.
The Company has also entered into an agreement to purchase a 15-acre
tract of land in the vicinity of the facilities which presently house the
Company's current personnel. On this parcel, the Company contemplates building
office and warehouse space sufficient to replace and expand the 18,500 square
foot facility and portions of the 96,000 square foot facility which are being
used for purposes other than research, product development and manufacturing.
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ITEM 3. LEGAL PROCEEDINGS
See "Item 1. Business - Patents and Proprietary Rights" with respect to
the HMR Litigation.
In May 1996, an employee of the Company resigned from his position and,
in connection therewith, claimed that he was entitled to receive, pursuant to
the terms of his employment arrangement with the Company, a royalty equal to 1%
of gross revenues from certain products under development by the Company. In May
1997, a complaint was filed against the Company seeking a declaratory judgment
as to whether the former employee is entitled to a 1% royalty with respect to
Andrx's versions of Cardizem/registered trademark/CD and Dilacor XR/trademark/.
The Company is contesting this claim and the matter is currently in the
discovery stage.
On March 18, 1998 the Company received a letter from counsel for
Cymedix Lynx Corporation ("Cymedix") alleging the theft and unlawful
appropriation by Andrx and certain of its directors, officers and employees of
certain computer medical software and internet medical communications technology
allegedly owned by Cymedix. The letter demands trebled damages totaling $396.6
million pursuant to the civil theft provisions of Florida law, and also alleges
claims under Florida's Racketeer Influenced and Corrupt Organization Act and
certain other provisions of federal and state law. The Company believes that
Cymedix's accusations and threatened claims have no basis in substantial fact or
legal support and intends to vigorously defend these accusations and claims. On
March 23, 1998, the Company filed a complaint against Cymedix and its parent
corporation, Medix Resources, Inc., for libel and slander arising from the
improper public dissemination of the contents of the aforesaid demand letter.
The Company intends to vigorously prosecute its complaint which seeks damages,
costs, interest and attorneys' fees.
Other than the HMR Litigation and the above described litigation, the
Company is not party to a legal proceeding wherein an adverse outcome would have
a material adverse effect on the Company's results of operations, financial
condition or business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the Company's fiscal year ended December 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(A) MARKET INFORMATION
The Company's Common Stock has been listed for trading on The Nasdaq
National Market under the symbol "ADRX" since June 14, 1996. The following table
sets forth, for the calendar quarters indicated, the range of high and low sale
prices per share of Common Stock as reported by the Nasdaq National Market:
1996 HIGH LOW
- ---- ---- ---
Second Quarter (Commencing June 14, 1996) $17.50 $12.00
Third Quarter 15.50 11.00
Fourth Quarter 17.63 12.75
1997
First Quarter $26.75 $15.25
Second Quarter 38.75 20.50
Third Quarter 45.63 31.75
Fourth Quarter 47.00 28.75
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(B) HOLDERS
At March 13, 1998, there were approximately 215 holders of record of
the Company's common stock. The Company believes the number of beneficial owners
of its common stock is in excess of 2,750.
(C) DIVIDENDS
The Company has not paid dividends on its common stock and does not
intend to pay dividends for the foreseeable future. The Company intends to
retain earnings, if any, to finance the development and expansion of its
business. Payment of dividends in the future will depend, among other things,
upon the Company's ability to generate earnings, its need for capital and its
overall financial condition.
(D) CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 14, 1996, the U.S. Securities and Exchange Commission declared
effective the Company's registration statement on Form S-1 (Registration
Statement No. 333-03614). The offering of the securities registered pursuant to
the registration statement commenced on June 14, 1996. The offering terminated
after the sale of 2,530,000 shares of the Company's common stock, $.001 par
value per share for $12.00 per share. The managing underwriters for the public
offering of the Company's securities were Oppenheimer & Co., Inc. and Gruntal &
Co., Incorporated.
In connection with the offering, the Company incurred expenses of
approximately $2.9 million. These expenses were in the form of direct or
indirect payments to others and not direct or indirect payments to directors or
officers of the Company or to persons owning more than 10% of any class of
securities of the Company. From the net proceeds of approximately $27.4 million,
through December 31, 1997 the Company has used approximately $11.9 million for
research and development costs, $4.5 million for the construction of plant,
building and facilities, $5.4 million for the purchase and installation of
machinery and equipment, and $3.1 million for contributions to ANCIRC. With the
exception of the contributions to ANCIRC, a joint venture between the Company
and Watson, none of the payments from the use of proceeds were made to officers,
directors or persons beneficially owning more than 10% of any class of
securities of the Company.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to, and
should be read in conjunction with, the Consolidated Financial Statements of the
Company and related notes thereto included in Item 8 of this Report and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Years Ended December 31,
(in 000's, except for share and per share amounts)
--------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data*
Revenues
Distributed products, net $ 146,237 $ 86,721 $ 50,468 $ 25,916 $ 5,655
Manufactured products, net 3,324 - - - -
Licensing revenues 137 50 165 155 225
------------- ------------ ------------ ------------ -----------
Total revenues 149,698 86,771 50,633 26,071 5,880
------------- ------------ ------------ ------------ -----------
Cost of revenues
Distributed products 124,177 72,400 41,781 21,362 5,258
Manufactured products 737 - - - -
------------- ------------ ------------ ------------ -----------
Total cost of revenues 124,914 72,400 41,781 21,362 5,258
------------- ------------ ------------ ------------ -----------
Gross profit 24,784 14,371 8,852 4,709 622
------------- ------------ ------------ ------------ -----------
Operating expenses
Selling, general and
administrative 18,734 13,178 8,647 5,390 1,706
Research and development 9,769 3,655 3,255 2,110 960
Idle manufacturing facility
costs 1,888 - - - -
Equity in losses of joint
venture 1,682 2,011 1,840 316 -
Software development 1,442 - - - -
------------- ------------ ------------ ------------ -----------
Total operating expenses 33,515 18,844 13,742 7,816 2,666
------------- ------------ ------------ ------------ -----------
Loss from operations (8,731) (4,473) (4,890) (3,107) (2,044)
Interest income (expense), net 1,095 445 (297) 2 -
------------- ------------ ------------ ------------ -----------
Net loss $ (7,636) $ (4,028) $ (5,187) $ (3,105) $ (2,044)
============= ============ ============ ============ ===========
Basic and diluted
net loss per share $ (0.54) $ (0.33) $ (0.55) $ (0.35) $ (0.26)
============= ============ ============ ============ ===========
Basic and diluted
weighted average shares of
common stock outstanding 14,213,100 12,148,000 9,446,800 8,758,400 7,745,100
============= ============ ============ ============ ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
(in 000's, except for share and per share amounts)
--------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data*
Cash, cash equivalents and
investments available-for-
sale $ 25,543 $ 30,320 $ 13,841 $ 3,846 $ 2,770
Working capital 45,144 32,963 14,402 4,368 3,085
Total assets 90,845 66,538 36,010 16,002 6,837
Short-term borrowings 546 6,563 6,101 2,635 68
Accumulated deficit (22,145) (14,509) (10,481) (5,294) (2,190)
Total shareholders' equity 60,861 42,762 18,325 8,098 3,927
</TABLE>
*Certain prior year amounts have been reclassified to conform to the current
year presentation.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Andrx was organized in August 1992 and in November 1992 commenced
marketing and distributing generic pharmaceuticals manufactured by third
parties. In February 1993, the Company began to engage in the development of
generic versions of controlled-release pharmaceuticals utilizing its proprietary
drug delivery technologies. During 1996, the Company commenced its efforts to
develop brand name controlled-released products and an internet based software
application for healthcare providers. Through October 9, 1997, the Company's
distribution operations had generated substantially all of its revenues. On
October 10, 1997, the FDA granted final approval of the Company's ANDA for its
bioequivalent version of Dilacor XR/trademark/, the Company's first manufactured
product, which it immediately launched. The Company expects negative cash flows
and net losses to continue at least until it receives its final marketing
approval for its bioequivalent version of Cardizem/registered trademark/CD and
it either begins to receive quarterly payments from HMRI of $10.0 million or the
Company launches its bioequivalent version of Cardizem/registered trademark/CD.
The Company will not receive final marketing approval for its bioequivalent
version of Cardizem/registered trademark/CD until after either the HMR
Litigation is resolved in Andrx's favor or July 3, 1998.
The Company is a 50% partner in ANCIRC, a joint venture with Watson,
for the development of up to eight controlled-release pharmaceutical products.
Capital contributions to, distributions from, and net income or losses generated
by ANCIRC are allocated equally between the Company and Watson. The Company is
also party to development and licensing agreements for additional
controlled-release products.
RESULTS OF OPERATIONS
1997 AS COMPARED TO 1996
Net sales from distributed products were $146.2 million in 1997, an
increase of 68.6% or $59.5 million, as compared to $86.7 million in 1996. The
increase in net sales from distributed products reflects the Company's greater
penetration of the generic market. Gross profit on net sales from distributed
products was $22.1 million in 1997, an increase of 54.0%, as compared to $14.3
million in 1996. Gross profit on distributed products as a percentage of net
sales from distributed products decreased to 15.1% in 1997 as compared to 16.5%
in 1996. The decrease in gross profit on distributed products as a percentage of
net sales from distributed products is the result of continuing competition and
pricing pressures within the generic industry. The Company expects that
continuing competition and pricing pressures may reduce the Company's gross
profit percentage on the net sales of distributed products in future periods.
In October 1997, immediately following approval by the FDA, the Company
launched its first manufactured product, a bioequivalent version of Dilacor
XR/trademark/, which generated net sales of $3.3 million in the fourth quarter
of 1997. Gross profit on this manufactured product was $2.6 million or 77.8%.
Selling, general and administrative expenses as a percentage of total
revenues decreased to 12.5% for 1997 from 15.2% for 1996. Selling, general and
administrative expenses increased to $18.7 million in 1997 as compared to $13.2
million in 1996 primarily due to an increase in selling activities to support
the increase in distribution revenues, and includes costs related to the sale of
the Company's first manufactured product.
Research and development expenses increased to $9.8 million in 1997, as
compared to $3.7 million in 1996. The increase in research and development
expenses of 167.3% reflects the progress and expansion of activities in the
Company's ANDA program to develop controlled-release bioequivalent products and
the expansion of activities in the Company's NDA program to develop brand name
controlled-release products. Research and development expenses in 1997 and 1996
also include expenses related to the establishment of a commercial-scale
manufacturing facility. Research and development expenses exclude cost of
research and development services rendered to ANCIRC of $1.5 million in 1997 and
$2.2 million in 1996.
19
<PAGE>
In 1997, the Company incurred $1.9 million of idle manufacturing
facility costs related to the Company's commercial-scale manufacturing
operations. As the Company increases its production of salable products in the
future, these costs will be absorbed as a component of the cost of inventory.
The Company's equity in losses of ANCIRC was $1.7 million in 1997 as
compared to $2.0 million in 1996. ANCIRC's losses decreased to $3.4 million in
1997 as compared to $4.0 million in 1996.
In 1997, the Company incurred $1.4 million in software development
costs related to its efforts to develop and commercialize the Company's
CyBear /Trademark/ and AndaNet/trademark/ healthcare software
applications.
Interest income (expense), net primarily consists of interest income
and interest expense. Interest income was $1.6 million in 1997 as compared to
$1.2 million in 1996. The increase in interest income is the result of the
higher level of cash, cash equivalents and investments available-for-sale during
1997 as compared to 1996, primarily the result of the Company's private
placement transactions in June 1997 which generated net proceeds of $21.3
million. The Company invests in short-term investment grade interest bearing
securities. Interest expense was $490,000 in 1997 as compared to $765,000 in
1996. The decrease was a result of a lower average level of borrowings under the
Company's line of credit agreement during 1997 as compared to 1996. Such
borrowings are utilized to fund the Company's distribution operations and the
Company used a portion of the net proceeds from the June 1997 private placements
to reduce the revolving line of credit balance.
For 1997 and 1996, the Company was not required to provide for federal
or state income taxes due to its net losses. As of December 31, 1997, for
financial reporting purposes and federal income tax purposes, the Company has
net operating loss carryforwards of approximately $19 million and $14 million,
respectively, which, if not utilized, will begin to expire in 2008.
1996 AS COMPARED TO 1995
Net sales from distributed products were $86.7 million in 1996, an
increase of 71.8% or $36.3 million as compared to $50.5 million in 1995. The
increase in net sales from distributed products reflects the Company's increased
penetration of the generic market. Gross profit on net sales from distributed
products was $14.3 million in 1996, an increase of 64.9%, as compared to $8.7
million in 1995. Gross profit on distributed products as a percentage of
distribution revenues was 16.5% in 1996, as compared to 17.2% in 1995. The
decrease in gross profit on distributed products as a percentage of net sales
from distrubuted products is the result of continuing competition and pricing
pressures within the generic industry. The Company expects that such competition
and pricing pressures may reduce the Company's gross profit percentage on the
net sales of distributed products in future periods.
Selling, general and administrative expenses as a percentage of total
revenues decreased to 15.2% in 1996 as compared to 17.1% in 1995. Selling,
general and administrative expenses increased to $13.2 million in 1996, as
compared to $8.6 million in 1995. This increase was primarily attributable to an
increase in selling activities to support the increase in distribution revenues.
Research and development expenses were $3.7 million in 1996, as
compared to $3.3 million in 1995. Research and development expenses in 1996
include expenses related to the establishment of a commercial-scale
manufacturing facility. Research and development expenses in 1996 and 1995
include provisions for anticipated litigation costs in connection with the ANDAs
filed in 1995 for the Company's bioequivalent versions of Cardizem/registered
trademark/CD and Dilacor XR/trademark/. Litigation with respect to Dilacor
XR/trademark/ was settled, without prejudice, in December 1996. The filing of an
ANDA for a bioequivalent version of a brand name pharmaceutical may result in
litigation alleging infringement of patents covering the brand name
pharmaceutical. Even though the Company believes that its drug delivery
technologies and controlled-release products do not infringe on any patent
rights held by others, the Company evaluates the probability of patent
infringement litigation with respect to its ANDA submissions on a case by case
basis and, accordingly, will reserve for anticipated legal expenses as it deems
appropriate. Research and development expenses exclude the cost of services
rendered to ANCIRC of $2.2 million in 1996 and $2.5 million in 1995.
20
<PAGE>
The Company's equity in losses of the joint venture was $2.0 million in
1996 as compared to $1.8 million in 1995. The Company's share of ANCIRC's losses
was decreased from 60% to 50% effective October 30, 1995 in connection with an
amendment to the ANCIRC agreement. ANCIRC's losses increased to $4.0 million in
1996 as compared to $3.2 million in 1995 primarily due to an increase in the
research and development services rendered by Watson to ANCIRC during 1996.
Interest income (expense), net primarily consists of interest income
and interest expense. Interest income was $1.2 million in 1996 as compared to
$250,000 in 1995. The increase in interest income is the result of the net
increase in cash, cash equivalents and investments available-for-sale during
1996 and late 1995, primarily from the sale of shares of the Company's common
stock. In June 1996, the Company completed its initial public offering ("IPO")
generating net proceeds of $27.4 million. In August and December 1995, the
Company sold shares of common stock to Watson for net proceeds of approximately
$13.6 million. Interest expense was $765,000 in 1996 as compared to $636,000 in
1995. Although the interest rate on the Company's bank borrowings decreased
effective January 1996 and October 1996, interest expense increased in 1996 as
compared to 1995, due to a higher average level of borrowings during 1996. Such
higher level of borrowings was required to finance the higher average level of
working capital supporting the growth of the distribution operations.
For 1996 and 1995, the Company was not required to provide for federal
or state income taxes due to its net losses.
LIQUIDITY AND CAPITAL RESOURCES
Prior to June 1996, the Company financed its operations primarily
through private placements of equity securities which generated net proceeds of
$27.9 million and, to a lesser extent, through bank borrowings. In June 1996,
the Company completed its IPO which generated net proceeds of $27.4 million. In
June 1997, the Company completed two private placements which generated net
proceeds of $21.3 million. As of December 31, 1997, Andrx had $25.5 million in
cash, cash equivalents and investments available-for-sale and $45.1 million of
working capital.
Net cash used in operating activities was $16.6 million and $5.5
million in 1997 and 1996, respectively. Net cash used in operating activities in
1997 and 1996 was primarily attributable to research and development expenses
and increases in accounts receivable and inventories, offset by increases in
accounts payable and accrued liabilities.
Net cash provided by investing activities was $291,000 in 1997 as
compared to net cash used in investing activities of $33.8 million in 1996. In
1997, the Company invested $7.7 million in capital expenditures as compared to
$6.9 million in 1996. The capital expenditures in 1997 and 1996 were primarily
for the procurement of manufacturing equipment and construction of the Company's
commercial-scale manufacturing facility. In 1997, $8.0 million of investments
available-for-sale matured while in 1996 the Company purchased $26.9 million in
investments available-for-sale. The Company invests in short-term investment
grade interest bearing securities.
Net cash provided by financing activities was $19.5 million and $28.9
million for 1997 and 1996, respectively. Net cash provided by financing
activities for 1997 consisted primarily of net proceeds of $21.3 million from
the private placements in June 1997 and also included net proceeds of $4.1
million from the exercise of stock options and warrants, offset by $5.9 million
in net repayments under the Company's line of credit. Net cash provided by
financing activities in 1996 consisted primarily of the net proceeds of $27.4
million from the IPO in June 1996, and net proceeds of $1.0 million from the
exercise of stock options and warrants.
The Company had an outstanding short-term borrowing balance under its
distribution subsidiary's revolving line of credit of $538,000 as of December
31, 1997 as compared to $6.5 million as of December 31, 1996. Borrowings under
the line of credit are available for the financing of the Company's distribution
operations, and are secured by all of the assets of that operation and are
subject to a borrowing base related to the value of that operation's accounts
receivable and inventories. The line of credit agreement requires compliance by
the Company with certain covenants including the maintenance of minimum working
capital and net worth levels by the distribution subsidiary. In October 1996,
the Company amended the line of credit agreement whereby, amongst other things,
the interest rate was
21
<PAGE>
decreased from the prime rate (8.5% as of December 31, 1997) plus 1.5% to the
prime rate plus 1.0%, the unused commitment fee was reduced from .5% to .25%,
and under certain circumstances, the agreement permitted the payment of
dividends, repayments and advances from the Company's distribution subsidiary to
Andrx Corporation and its other subsidiaries. In October 1997, the Company
further amended its line of credit whereby the interest rate was decreased from
the prime rate plus 1.0% to the prime rate plus 0.5%. The Company used a portion
of the net proceeds from the June 1997 private placement transactions to reduce
the revolving line of credit balance.
In September 1997, Andrx entered into the Stipulation with HMRI related
to the HMR litigation. In the Stipulation, Andrx agreed that if the HMR
Litigation is not concluded by the date the FDA grants final approval of the
ANDA for the Company's bioequivalent version of Cardizem/registered
trademark/CD, Andrx will not commence the commercial sale of the product in the
United States until a final and unappealable judgment is issued or other events
occur. The Stipulation provides that upon receiving final FDA approval of its
ANDA, Andrx will begin to receive interim payments from HMRI of $10.0 million
quarterly which, absent certain defaults by Andrx, are non-refundable. These
payments will continue until the HMR Litigation is concluded or other events
occur. If Andrx prevails in the HMR Litigation, the payments will be increased
retroactively by a lump sum payment, representing an agreed amount of profits
that Andrx would have earned had it begun to sell its product upon receiving
notice of final FDA approval of its ANDA. The Stipulation also provides Andrx
with the option of licensing HMRI's patents covering Cardizem/registered
trademark/CD at certain times.
The Company anticipates that its cash requirements will continue to
increase, due to expected increases in expenses related to the research and
development of its controlled-release brand name and bioequivalent
pharmaceutical products and the development and marketing of the Company's
healthcare software products. These expenses include, but are not limited to,
increases in personnel and personnel related costs and facilities expansion.
The Company anticipates that its existing capital resources will be
sufficient to enable it to maintain its operations into 1998. Because the
Company will use substantial funds for its product development efforts,
including bioequivalence studies for its bioequivalent controlled-release
product candidates, the expansion of the Company's program to develop brand name
controlled-release products and for software development costs related to its
healthcare software products, the Company expects negative cash flows and net
losses to continue at least until it either receives final marketing approval
for its bioequivalent version of Cardizem/registered trademark/CD and it begins
to receive quarterly payments from HMRI of $10 million or the Company launches
its version of Cardizem/registered trademark/CD. The Company will not receive
final marketing approval until after either the HMR Litigation is resolved in
Andrx's favor or July 3, 1998. The Company anticipates that during 1998
approximately $20 million will be used for research and product development
activities related to bioequivalent and brand name controlled-release products
(including the Company's share of the funding of the ANCIRC joint venture). The
Company may need additional funding in order to continue research and
development for its product candidates and to commercialize products after
receipt of FDA approvals. Additional funding, whether obtained through public or
private debt or equity financing, or from collaborative arrangements, may not be
available when required or may not be available on terms favorable to the
Company, if at all. If additional financing is not available, the Company may be
required to delay, scale back or eliminate some or all of its research and
development programs and software development or to license to third parties
products or technologies that the Company would otherwise seek to develop and
commercialize itself.
YEAR 2000 SYSTEMS COSTS
The Company utilizes software and related technologies throughout its
businesses that will be affected by the date change in the year 2000. The
Company is in the process of evaluating the full scope and related costs to
insure that the Company's systems continue to meet its internal needs and those
of its customers. Anticipated costs for system modifications will be expensed as
incurred and are not expected to have a material impact on the Company's
consolidated results of operations. However, the Company cannot measure the
impact that the year 2000 issue will have on its vendors, suppliers, customers
and other parties with which it conducts business.
22
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income", was issued by the Financial Accounting
Standards Board ("FASB") in June 1997. 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. The Company will adopt the
provisions of SFAS No. 130 beginning January 1, 1998, as required.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", was issued by the FASB in June 1997. This Statement establishes
standards for reporting information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company will adopt the provisions of
SFAS No. 131 beginning January 1, 1998, as required. Adoption of this standard
will not have a material impact on the Company's existing reporting disclosures.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" contains forward-looking statements that involve a number of risks
and uncertainties, the regulatory environment, fluctuations in operating
results, capital spending, year 2000 issues and other risks described elsewhere
in this Report and detailed from time to time in the Company's filings with the
Commission.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ANDRX CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS OF
ANDRX CORPORATION AND SUBSIDIARIES:
PAGE
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets
as of December 31, 1997 and 1996 F-3
Consolidated Statements of Operations
for the years ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of
Andrx Corporation:
We have audited the accompanying consolidated balance sheets of Andrx
Corporation and subsidiaries (a Florida corporation) as of December 31, 1997 and
1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 financial position of Andrx Corporation
and subsidiaries as of December 31, 1997 and 1996, and the 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.
/S/ ARTHUR ANDERSEN LLP
- -------------------------
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
February 17, 1998 (except with respect to the
matter discussed in Note 18, as to which the
date is March 18, 1998).
F-2
<PAGE>
<TABLE>
<CAPTION>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in 000's, except for share and per share amounts)
DECEMBER 31,
-----------------------------------------
1997 1996
---------------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 6,625 $ 3,428
Investments available-for-sale 18,918 26,892
Accounts receivable, net of allowances of $1,589
and $970 as of December 31, 1997
and 1996, respectively 22,632 13,502
Investment in and due from joint venture, net 416 216
Inventories 25,901 12,240
Prepaid and other current assets 636 461
----------- ------------
Total current assets 75,128 56,739
Property and equipment, net 15,403 9,724
Other assets 314 75
----------- ------------
Total assets $ 90,845 $ 66,538
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 24,291 $ 13,839
Accrued liabilities 5,147 3,374
Bank loan 538 6,461
Notes payable 8 102
----------- ------------
Total current liabilities 29,984 23,776
----------- ------------
Commitments and contingencies (Notes 11 and 16)
Shareholders' equity
Convertible preferred stock; $0.001 par
value, 1,000,000 shares authorized; none
issued and outstanding as of December 31,
1997 and 1996 - -
Common stock; $0.001 par value, 25,000,000
shares authorized; 14,856,700 and 13,417,500
shares issued and outstanding as of December
31, 1997 and 1996, respectively 15 13
Additional paid-in-capital 82,954 57,253
Accumulated deficit (22,145) (14,509)
Unrealized gain on investments available-for-sale 37 5
----------- -----------
Total shareholders' equity 60,861 42,762
----------- -----------
Total liabilities and shareholders' equity $ 90,845 $ 66,538
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are in integral part of these balance sheets.
F-3
<PAGE>
<TABLE>
<CAPTION>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in 000's, except for share and per share amounts)
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995
------------------ ------------------ -------------------
<S> <C> <C> <C>
Revenues
Distributed products, net $ 146,237 $ 86,721 $ 50,468
Manufactured products, net 3,324 - -
Licensing revenues 137 50 165
----------------- ----------------- -------------------
Total revenues 149,698 86,771 50,633
----------------- ----------------- -------------------
Cost of revenues
Distributed products 124,177 72,400 41,781
Manufactured products 737 - -
----------------- ----------------- -------------------
Total cost of revenues 124,914 72,400 41,781
----------------- ----------------- -------------------
Gross profit 24,784 14,371 8,852
----------------- ----------------- -------------------
Operating expenses
Selling, general and administrative 18,734 13,178 8,647
Research and development 9,769 3,655 3,255
Idle manufacturing facility costs 1,888 - -
Equity in losses of joint venture 1,682 2,011 1,840
Software development 1,442 - -
----------------- ----------------- -------------------
Total operating expenses 33,515 18,844 13,742
----------------- ----------------- -------------------
Loss from operations (8,731) (4,473) (4,890)
Interest income 1,585 1,210 250
Interest expense (490) (765) (636)
Other income, net - - 89
------------------ ------------------ -------------------
Net loss $ (7,636) $ (4,028) $ (5,187)
================== ================== ====================
Basic and diluted net loss per share $ (0.54) $ (0.33) $ (0.55)
================== ================== ====================
Basic and diluted weighted average shares of
common stock outstanding 14,213,100 12,148,000 9,446,800
================== ================== ====================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in 000's, except for share and per share amounts)
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
CONVERTIBLE ADDITIONAL INVESTMENTS TOTAL
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED AVAILABLE-FOR- SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT SALE EQUITY
----------------- ---------------- ---------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 33,700 $ - 8,553,600 $ 9 $ 13,383 $ (5,294) $ - $ 8,098
Shares of common stock
issued in connection
with private placements - - 1,338,800 1 14,623 - - 14,624
Shares of common stock
issued in connection
with conversion of
shares of convertible
preferred stock (33,700) - 674,200 1 (1) - - -
Shares of common stock
issued in connection
with exercise of
warrants - - 154,500 - 772 - - 772
Shares of common stock
issued in connection
with exercise of
stock options - - 6,000 - 18 - - 18
Net loss - - - - - (5,187) - (5,187)
------- ------- ---------- ------ ---------- ----------- -------------- -------------
BALANCE, DECEMBER 31, 1995 - - 10,727,100 11 28,795 (10,481) - 18,325
Shares of common stock
issued in connection
with initial
public offering - - 2,530,000 2 27,428 - - 27,430
Shares of common stock
issued in connection
with exercise of
warrants - - 28,100 - 204 - - 204
Shares of common stock
issued in connection
with exercise of
stock options - - 132,300 - 826 - - 826
Unrealized gain on
investments
available-for-sale - - - - - - 5 5
Net loss - - - - - (4,028) - (4,028)
------- ------- ---------- ------ ---------- ----------- -------------- -------------
BALANCE, DECEMBER 31, 1996 - - 13,417,500 13 57,253 (14,509) 5 42,762
Shares of common stock
issued in
connection with private
placements - - 880,000 1 21,342 - - 21,343
Shares of common stock
issued in connection
with exercise of
warrants - - 384,500 1 2,846 - - 2,847
Shares of common stock
issued in connection
with exercise of
stock options - - 174,700 - 1,288 - - 1,288
Options granted to
consultants - - - - 225 - - 225
Unrealized gain on
investments
available-for-sale - - - - - - 32 32
Net loss - - - - - (7,636) - (7,636)
------- ------- ---------- ------ ---------- ----------- -------------- -------------
BALANCE, DECEMBER 31, 1997 - $ - 14,856,700 $ 15 $ 82,954 $ (22,145) $ 37 $ 60,861
======= ======= ========== ====== ========== =========== ============== =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in 000's, except for share and per share amounts)
YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (7,636) $ (4,028) $ (5,187)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 2,036 1,017 902
Provisions for doubtful accounts, net 619 396 272
Options granted to consultants 225 - -
Equity in losses of joint venture 1,682 2,011 1,840
Contributions to joint venture (1,800) (2,506) (1,200)
Cancellation of note receivable--employee - - 100
Increase in accounts receivable (9,749) (5,634) (3,940)
(Increase) decrease in due from joint venture (82) 628 (630)
Increase in inventories (13,661) (2,738) (5,909)
Increase in prepaid and other current assets (175) (331) (1)
(Increase) decrease in other assets (239) 17 79
Increase in accounts payable and accrued liabilities 12,225 5,629 6,315
--------- ---------- ----------
Net cash used in operating activities (16,555) (5,539) (7,359)
--------- ---------- ----------
Cash flows from investing activities
Purchases of property and equipment (7,715) (6,909) (1,525)
Maturities (purchases) of investments available-for-sale, net 8,006 (26,887) -
--------- ---------- ----------
Net cash provided by (used in) investing activities 291 (33,796) (1,525)
--------- ---------- ----------
Cash flows from financing activities
Proceeds from issuance of shares of common stock 21,343 27,430 14,624
Proceeds from exercise of stock options and warrants 4,135 1,030 790
Net borrowings (repayments) under bank loan (5,923) 383 3,526
Payment on notes payable (94) (423) (91)
Proceeds from notes payable - 502 30
--------- ---------- ----------
Net cash provided by financing activities 19,461 28,922 18,879
--------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 3,197 (10,413) 9,995
Cash and cash equivalents, beginning of year 3,428 13,841 3,846
--------- ---------- ----------
Cash and cash equivalents, end of year $ 6,625 $ 3,428 $ 13,841
========= ========== ==========
Supplemental disclosure of cash paid during the year for:
Interest $ 490 $ 765 $ 636
========= ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(in 000's, except for share and per share amounts)
(1) GENERAL
Andrx Corporation and subsidiaries ("Andrx" or the "Company") was
organized in August 1992 and in November 1992 commenced marketing and
distributing generic pharmaceutical products manufactured by third parties. In
February 1993, the Company began to engage in the development of bioequivalent
controlled-release pharmaceutical products utilizing its proprietary drug
delivery technologies. During 1996, the Company commenced its efforts to develop
brand name controlled-release products and internet based communications
software products for healthcare providers. During 1997, the United States Food
and Drug Administration ("FDA") granted final marketing approval of the
Company's abbreviated new drug application ("ANDA") for a bioequivalent version
of Dilacor XR/trademark/ and tentative approval of the Company's ANDA for a
bioequivalent version of Cardizem/registered trademark/CD.
In June 1996, the Company completed an initial public offering of
2,530,000 shares of the Company's common stock. The net proceeds of $27,430 are
being used primarily for research and product development activities and for
capital expenditures. In June 1997, the Company completed the sale of 880,000
shares of common stock in private placement transactions. The net proceeds of
$21,343 are being used by Andrx to reduce the outstanding principal balance on
the Company's line of credit, to fund additional research and development and
for working capital and general corporate purposes.
The Company is subject to the risks and uncertainties associated with a
drug delivery company which has only recently commercialized its first product,
including a history of net losses, some unproven technologies, limited
manufacturing experience, current and potential competitors with significant
technical and marketing resources, need for future capital and dependence on
collaborative partners and on key personnel. Additionally, the Company is
subject to the risks and uncertainties associated with all drug delivery
companies, including compliance with government regulations and the possibility
of patent infringement litigation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Andrx Corporation and its subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
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 contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The most significant estimates made by management include the provision
for doubtful accounts receivable, inventory writedowns, discounts and rebates to
customers, returns, pricing adjustments and other adjustments related to sales
of products, and provisions for litigation (see Note 16). Management
periodically evaluates estimates used in the appropriation of the consolidated
financial statements for continued reasonableness. Appropriate adjustments, if
any, to the estimates used are made prospectively based on such periodic
evaluations.
F-7
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(in 000's, except for share and per share amounts)
CASH AND CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months
or less are considered cash equivalents and are carried at cost.
INVESTMENTS AVAILABLE-FOR-SALE
The Company utilizes the provisions of Financial Accounting Standards
Board ("FASB") Statement on Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115
requires that marketable equity securities and all debt securities be classified
into three categories: (i) held to maturity securities, (ii) trading securities,
and (iii) available-for-sale securities. The Company classifies its investments
as available-for-sale and, accordingly, any unrealized gain or loss is reported
as a separate component of shareholders' equity. The cost related to investments
available-for-sale is determined utilizing the specific identification method.
INVENTORIES
Inventories of pharmaceutical products consist of finished goods held
for distribution, and raw materials, work in process and finished goods of
manufactured products. Inventories are stated at the lower of cost (first-in,
first-out) or market. Cost of inventories held for distribution is based on
purchase price, net of vendor discounts, rebates and allowances.
PROPERTY AND EQUIPMENT, NET
Property and equipment are recorded at cost, less accumulated
depreciation or amortization. Depreciation or amortization is provided using the
straight-line method over the following estimated useful lives:
Manufacturing equipment 10 years
Laboratory equipment 5 years
Leasehold improvements Term of lease
Computer hardware and software 3 years
Furniture and fixtures 5 years
Major renewals and betterments are capitalized, while maintenance,
repairs and minor renewals are expensed as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company utilizes the provision of SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
which requires that long-lived assets be reviewed for impairment whenever events
or changes in circumstance indicate that the carrying amount of an asset may not
be recoverable. To determine a loss, if any, to be recognized, the book value of
the asset would be compared to the market value or expected future cash flow
value. The Company adopted the provisions of SFAS No. 121 for the year ended
December 31, 1996, as required. Such provisions had no impact on the Company's
financial position or results of operations as of or for the years ended
December 31, 1997 and 1996.
REVENUE RECOGNITION
Revenues and the related cost of revenues for distributed products and
manufactured products are recognized at the time a product is shipped.
Provisions for discounts and rebates to customers, and returns, pricing
adjustments and other adjustments related to sales are provided in the same
period the
F-8
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(in 000's, except for share and per share amounts)
related sales are recorded. Licensing revenue is recognized when earned in
accordance with the terms of the underlying agreements (see Note 9).
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist of costs related to products
being developed internally as well as costs related to products subject to
licensing agreements. Research and development expenses exclude the cost of
research development services rendered to ANCIRC Pharmaceuticals (see Note 10).
Research and development costs are expensed as incurred.
IDLE MANUFACTURING FACILITY COSTS
During 1997, the Company commenced its commercial-scale manufacturing
operation and incurred manufacturing costs in excess of the amount which were
absorbed as a component of inventory based on the levels of production.
Accordingly, such idle manufacturing facility costs were expensed as incurred
(see Note 8).
SOFTWARE DEVELOPMENT COSTS
Software development costs consist of costs related to the development
of computer software to be marketed and for internal use. Software development
costs incurred during the year ended 1997, were classified as development and
were expensed as incurred.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". Under the provisions of SFAS No. 123, companies can
either measure the compensation cost of equity instruments issued to employees
under employee compensation plans using a fair value based method, or can
continue to recognize compensation cost using the intrinsic value method under
the provisions of Accounting Principles Board Opinion ("APB") No. 25. However,
if the provisions of APB No. 25 are applied, pro forma disclosures of net income
or loss and earnings or loss per share must be presented in the financial
statements as if the fair value method had been applied. For the years ended
December 31, 1997, 1996 and 1995, the Company recognized compensation costs
under the provisions of APB No. 25, and the Company has provided the expanded
disclosure required by SFAS No. 123 (see Note 14).
INCOME TAXES
The provisions of SFAS No. 109, "Accounting for Income Taxes", require,
among other things, recognition of future tax benefits measured at enacted rates
attributable to the deductible temporary differences between the financial
statement and income tax bases of assets and liabilities and to tax net
operating loss carryforwards to the extent that the realization of said benefits
is "more likely than not" (see Note 6).
NET LOSS PER SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share".
SFAS No. 128 supersedes APB No. 15, "Earnings Per Share", and specifies the
computation, presentation and disclosure requirements for earnings or loss per
share. The provisions of SFAS No. 128 are effective for financial statements for
both interim and annual periods ended after December 15, 1997. The Company
adopted the provisions of SFAS No. 128, as required. Due to the Company's
history of net losses, the restatement provisions of SFAS No. 128 do not impact
the Company's prior periods' losses per share.
F-9
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(in 000's, except for share and per share amounts)
For the years ended December 31, 1997 and 1996 basic and diluted net
loss per share is based on the weighted average number of shares of common stock
outstanding. Since the effect of common stock equivalents was antidilutive, all
such equivalents were excluded in diluted loss per share.
Pursuant to Securities and Exchange Commission Staff Accounting
Bulletins, common and common equivalent shares issued at prices below the public
offering price during the 12-month period prior to a public offering are
required to be included in the calculation of basic and diluted earnings or loss
per share as if they were outstanding for all periods presented prior to the
offering (using the treasury stock method and the initial public offering
price). Accordingly, the basic and diluted weighted average number of shares of
common stock outstanding for the year ended December 31, 1995 have been adjusted
to reflect the impact of such additional common and common equivalent shares
issued below the initial public offering price.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1997 and 1996, the carrying amount of cash and cash
equivalents, investments available-for-sale, accounts receivable, net, accounts
payable, accrued liabilities, bank loan, and notes payable approximate fair
value due to the short maturity of these instruments.
CONCENTRATION OF CREDIT RISK
The Company invests in U.S. Treasury and government agency securities,
and debt instruments of corporations with investment grade credit ratings. The
Company has established guidelines relative to diversification and maturities
that are designed to help ensure safety and liquidity.
Accounts receivable are principally due from independent pharmacies,
pharmacy chains, pharmacy buying groups and wholesalers and distributors. Credit
is extended based on an evaluation of the customer's financial condition and
collateral is generally not required. The Company performs periodic credit
evaluations of its customers and maintains allowances for potential credit
losses.
The Company has no significant off-balance sheet concentration of
credit risk.
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income", was issued by the FASB
in June 1997. 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. The Company will adopt the provisions of SFAS No.
130 beginning January 1, 1998, as required.
BUSINESS SEGMENT
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", was issued by the FASB in June 1997. This Statement establishes
standards for reporting information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company will adopt the provisions of
SFAS No. 131 beginning January 1, 1998, as required. Adoption of the provisions
of this standard will not have a material impact on the Company's existing
reporting disclosures.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
F-10
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(in 000's, except for share and per share amounts)
(3) INVESTMENTS AVAILABLE-FOR-SALE
Investments available-for-sale consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
GROSS
AMORTIZED UNREALIZED
COST GAINS NET
---- ----- ---
<S> <C> <C> <C>
U.S. Treasury and
government agencies $ 17,879 $ 30 $ 17,909
Corporate bonds 1,002 7 1,009
-------------- ------------ ----------
$ 18,881 $ 37 $ 18,918
============== ============ ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
GROSS
AMORTIZED UNREALIZED
COST GAINS NET
---- ----- ---
<S> <C> <C> <C>
U.S. Treasury and
government agencies $ 21,291 $ 5 $ 21,296
Corporate bonds 5,596 - 5,596
-------------- ------------ ----------
$ 26,887 $ 5 $ 26,892
============== ============ ==========
</TABLE>
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1996
---- ----
<S> <C> <C>
Raw materials $ 2,511 $ 377
Work in process 573 -
Finished goods 22,817 11,863
------------ ----------
Total inventories $ 25,901 $ 12,240
============ ==========
</TABLE>
F-11
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(in 000's, except for share and per share amounts)
(5) PROPERTY AND EQUIPMENT, NET
Property and equipment are summarized as follows:
DECEMBER 31,
1997 1996
---- ----
Manufacturing equipment $ 6,137 $ 3,924
Laboratory equipment 2,283 1,622
Leasehold improvements 5,979 3,781
Computer hardware and software 3,784 1,755
Furniture and fixtures 1,521 907
----------- ---------
19,704 11,989
Less: accumulated depreciation
and amortization (4,301) (2,265)
----------- ----------
Property and equipment, net $ 15,403 $ 9,724
=========== =========
(6) INCOME TAXES
For the years ended December 31, 1997, 1996 and 1995, the Company was
not required to provide for federal or state income taxes due to its net losses.
Under the provisions of SFAS No. 109, the Company has provided a valuation
allowance to reserve against 100% of its net operating loss carryforwards given
the Company's history of net losses. As of December 31, 1997, for financial
reporting purposes and federal income tax purposes, the Company has net
operating loss carryforwards of approximately $19 million and $14 million,
respectively, which if not utilized, will expire beginning in 2008. Net
operating loss carryforwards are subject to review and possible adjustments by
the Internal Revenue Service and may be limited in the event of certain
cumulative changes in the ownership interest of significant shareholders over a
three-year period in excess of 50%.
(7) BANK LOAN
In January 1996, Anda Generics, Inc. ("Generics"), the Company's wholly
owned subsidiary engaged in the distribution of pharmaceutical products,
increased the maximum amount available under an existing line of credit from
$8,000 to $10,000 and the interest rate was decreased from the prime rate (8.5%
as of December 31, 1997) plus 2.0% to the prime rate plus 1.5%. In October 1996,
the Company amended its line of credit agreement whereby, amongst other things,
the interest rate was decreased from the prime rate plus 1.5% to the prime rate
plus 1.0%, the unused commitment fee was reduced from .5% to .25% and, under
certain circumstances, the agreement permitted the payment of dividends,
repayments and advances from Generics to Andrx Corporation and its other
subsidiaries. In October 1997, the Company further amended its line of credit
agreement whereby the interest rate was decreased from the prime rate plus 1.0%
to the prime rate plus .5%.
F-12
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(in 000's, except for share and per share amounts)
Borrowings under the line of credit are available for financing
Generics' operations, are secured by all the assets of that operation and are
subject to a borrowing base related to the value of Generics' accounts
receivable and inventories. The loan is guaranteed by Andrx Corporation and its
other subsidiaries. The agreement requires compliance with certain covenants
including the maintenance of minimum working capital and net worth levels by
Generics. As of December 31, 1997, the Company was in compliance with all of the
covenants of this line of credit agreement.
(8) MANUFACTURED PRODUCTS
In 1995 the Company commenced construction of its manufacturing
facility and procurement of the related manufacturing equipment required in
connection with its ANDAs for bioequivalent versions of Cardizem/registered
trademark/CD and Dilacor XR/trademark/. The Company commenced limited
utilization of its facility with the commercial-scale production of its version
of Dilacor XR/trademark/ in the second quarter of 1997, in anticipation of
obtaining FDA marketing approval, and commenced sales of that product on October
10, 1997, when FDA marketing approval was obtained. Expenses associated with the
production of Dilacor XR/trademark/ are included as a component of "Inventories"
in the accompanying consolidated balance sheets or as "Cost of
revenues-Manufactured products" in the accompanying consolidated statements of
operations, as appropriate. While the FDA has tentatively approved the Company's
ANDA for its bioequivalent version of Cardizem/registered trademark/CD, the
Company has not commenced significant commercial-scale production of this
product due to the pending litigation (see Note 16). As a result of the limited
utilization of the manufacturing facility, costs not related to current
production, primarily facility costs, are expensed as incurred and are reflected
as "Idle manufacturing facility costs" in the accompanying consolidated
statements of operations.
(9) LICENSING AGREEMENTS
In April 1996, the Company entered into a collaboration agreement for
the development of a brand name controlled-release pharmaceutical product with
Sepracor, Inc. ("Sepracor"). Pursuant to this agreement, Andrx is using one of
its controlled-release drug delivery technologies to formulate a once-a-day
version of fexofenadine (previously known as terfenadine carboxylate), an
antihistamine being developed by Sepracor. A twice-a-day version of this drug
was approved by the FDA in 1996, and is marketed in the U.S. under the brand
name Allegra/registered trademark/ by Hoechst Marion Roussel, Inc. Under the
development agreement with Sepracor, the Company is responsible for developing a
formulation of the product and transferring such technology to Sepracor who will
be responsible for obtaining FDA approval for the product and the
commercialization of the product. The Company has received certain fees under
the development agreement and will be entitled to receive royalties from the
sale or license of the product.
In December 1996, Andrx entered into a worldwide licensing agreement
with ASTA Medica, AG ("Asta Medica"), a subsidiary of Degussa, AG, for the use
of dilazep, an orally administered drug to be used in the treatment of cancer.
Under the terms of the agreement, ASTA Medica will be responsible for clinical
development, the filing of a New Drug Application ("NDA") and the
commercialization of the product. Andrx will receive a royalty from ASTA Medica
based on the worldwide net sales or license of the product and will be
responsible for certain royalty payments related thereto. Andrx originally
licensed this technology, which has now been patented, from The UAB Research
Foundation.
F-13
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(in 000's, except for share and per share amounts)
In September 1997, Andrx entered into an agreement to assist an
affiliate of Bayer Corporation in the development of a new product. This
agreement contemplates that one of Andrx's drug delivery technologies will be
combined with the Bayer affiliate's technologies in order to create an
over-the-counter product. The Company received certain fees under this agreement
and will be entitled to receive royalties from the sale or license of the
product.
(10) JOINT VENTURE
In July 1994, the Company and Circa Pharmaceuticals, Inc., now a wholly
owned subsidiary of Watson Pharmaceuticals, Inc. ("Watson") (the Company and
Watson are hereafter collectively referred to as the "Partners"), formed ANCIRC
Pharmaceuticals, a joint venture to develop, manufacture and market up to six
bioequivalent controlled-release pharmaceutical products (the "joint venture" or
"ANCIRC"). Watson also acquired an equity interest in the Company in exchange
for a payment of $6,000. In addition, Watson may acquire a further equity
interest by the exercise of certain warrants (see Note 13). The agreement
between the Partners contemplates that Andrx Pharmaceuticals, Inc.
("Pharmaceuticals"), a wholly owned subsidiary of the Company, will perform the
research and development formulations for the joint venture products, that
Generics will market and distribute ANCIRC's products following FDA approval,
and that Watson will provide the regulatory support for the joint venture
products and will manufacture the ANCIRC products. ANCIRC has filed ANDAs for
two controlled-release products.
Capital contributions to, distributions from and net income or loss
generated by ANCIRC are allocated in proportion to the respective Partners'
interest in the joint venture. Such interests were originally 60% to Andrx and
40% to Watson. On October 30, 1995, in connection with Watson's purchase of
additional shares of common stock of Andrx (see Note 13), the Partners amended
the joint venture agreement to modify each Partner's respective interest to 50%
and increased the amount of products to be developed for ANCIRC to eight. Under
the terms of the amendment to the joint venture agreement, Watson was not
required to contribute additional capital to ANCIRC to equalize the partners'
capital accounts as of the amendment date. The Partners' capital accounts will
be equalized in future periods out of net cash flow or upon liquidation, to the
extent funds are available.
ANCIRC is managed by and under the direction of a management committee
which is comprised of six members. Three members are appointed by each Partner.
Based on the equal representation of the management committee and the Company's
inability to unilaterally control the joint venture, the Company utilizes the
equity method to account for its investment in or its commitment to this joint
venture.
F-14
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(in 000's, except for share and per share amounts)
The agreements governing the ANCIRC joint venture require Dr. Chih-Ming
J. Chen, Pharmaceutical's President and the Company's Chief Scientist, to
supervise the development of all ANCIRC products until at least five products
have been successfully developed by ANCIRC. If Dr. Chen fails to perform
supervisory services (other than by reason of his death or disability), Watson
has the option to (i) require the Company to repurchase Watson's interests in
ANCIRC and the Company for an amount equal to Watson's investments therein, plus
interest, or (ii) assume the rights of the Company to develop and market the
products. Once ANCIRC has developed three products, Watson is limited to the
option set forth in (ii) of the preceding sentence.
Condensed balance sheet and statement of operations information for
ANCIRC is as follows:
DECEMBER 31,
1997 1996
------------ ----------
Cash and cash equivalents $ 416 $ 701
Inventories 312 -
Laboratory equipment, net 237 25
------------ ----------
Total assets $ 965 $ 726
============ ==========
Current liabilities $ 1,050 $ 1,048
Partners' deficit (85) (322)
------------ ----------
Total liabilities and partners' deficit $ 965 $ 726
============ ==========
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD YEARS ENDED
FROM INCEPTION DECEMBER 31,
(JULY 8, 1994) TO ---------------------------------------------------
DECEMBER 31, 1997 1997 1996 1995
----------------- ---- ---- ----
<S> <C> <C> <C> <C>
Research and development
expenses $ 11,142 $ 3,392 $ 4,039 $ 3,184
========== ========= ======== ========
Net loss $ (11,086) $ ( 3,363) $ (4,022) $ (3,174)
========== === ===== ======== ========
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, Pharmaceuticals
rendered research and development services to ANCIRC of $1,143, $2,206, and
$2,529, respectively. These services were provided at cost, which includes
research and development overhead allocations. As of December 31, 1997 and 1996,
the Company was due $458 and $376, respectively, from ANCIRC for research and
development services rendered and such amounts are included in "Investment in
and due from joint venture, net" in the consolidated balance sheets. The Company
is committed to the funding of ANCIRC's future operations. In 1998, each Partner
made a capital contribution of $600 to ANCIRC, the proceeds of which were
utilized by ANCIRC to pay the Partners' and unrelated third party vendors'
outstanding balances for services rendered through December 31, 1997, including
$458 owed to the Company.
F-15
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(in 000's, except for share and per share amounts)
(11) COMMITMENTS
OPERATING LEASES
The Company leases manufacturing, laboratory, warehouse and office
space, and various equipment under operating leases. The following schedule
summarizes future minimum lease payments required under non-cancelable operating
leases with terms greater than one year, as of December 31, 1997:
1998 $ 812
1999 833
2000 804
2001 770
2002 772
Thereafter 325
---------
$ 4,316
========
Rent expense amounted to $969, $446 and $210 for the years ended
December 31, 1997, 1996 and 1995, respectively.
(12) RELATED PARTY TRANSACTIONS
The Company is party to a royalty agreement with Dr. Chih-Ming J. Chen,
Pharmaceuticals' President, which provides for royalties to Dr. Chen upon the
sale of certain products, including Cardizem/registered trademark/CD, for which
the Company received tentative approval in 1997 from the FDA.
Cardizem/registered trademark/CD is not currently being sold or marketed (see
Note 16). The Company is no longer attempting to develop the other product
included in that agreement, as the reference brand product is no longer being
marketed. In 1996, the Board of Directors canceled Dr. Chen's obligation to
repay a $100 loan and the related accrued interest as a bonus for the submission
of one of the Company's ANDAs in 1995. Accordingly, for the year ended December
31, 1995, the Company recorded $107 of compensation expense in the accompanying
consolidated statements of operations.
During 1995, the management of the Company determined that the net
outstanding accounts receivable balance of $52 due from Pharmacy Services Group,
Inc. ("PSG"), a pharmacy benefits management and mail order marketing company,
and note receivable of $250 were uncollectible, and the Company wrote-off these
balances. PSG was a customer of the Company's distribution operations and was
controlled by a former principal shareholder of the Company. In addition, the
Company's Chairman of the Board and President each owned less than 1% of PSG's
outstanding shares of common stock.
For the years ended December 31, 1996 and 1995, revenues from
distributed products of approximately $119 and $579, respectively, were
generated from related parties, which were owned in part by the Company's
Chairman of the Board. During 1995, management provided an allowance and
wrote-off the net outstanding accounts receivable balance of $157.
F-16
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(in 000's, except for share and per share amounts)
(13) SHAREHOLDERS' EQUITY
On April 30, 1995, 33,700 shares of the Company's convertible preferred
stock held by Watson automatically converted into 674,200 shares of common
stock. Watson also owns a warrant to acquire up to 337,100 shares of the
Company's common stock, which is exercisable in whole or in part until July 8,
1999 at an exercise price of $8.90 per share. Watson has certain registration
rights under the Securities Act of 1933, as amended, related to this common
stock, including the shares to be acquired upon exercise of the warrant. The
issuance of the shares of convertible preferred stock was associated with a
joint venture agreement between the Company and Watson (see Note 10).
In August 1995, the Company issued 90,900 shares of common stock in a
private placement transaction with Watson at $11.00 per share for an aggregate
consideration of $1,000. In December 1995, the Company issued 1,144,900 shares
of common stock in a private transaction with Watson at $11.00 per share for an
aggregate consideration of $12,594. Watson's registration rights were extended
to include the 1,235,800 shares of common stock purchased from the Company as
well as 181,800 shares of common stock purchased from certain of the Company's
principals in 1996. In conjunction with these transactions, the Company and
Watson amended the terms of the joint venture agreement (see Note 10).
In June 1996, the Company completed its initial public offering of
2,530,000 shares of the Company's common stock at a price of $12.00 per share.
The net proceeds from the sale of such stock totaled approximately $27.4
million.
In June 1997, Capital Research and Management Company ("Capital"), an
investment management firm, purchased 730,000 shares of common stock and Watson
purchased 150,000 shares of common stock. The purchase price paid by each of
Capital and Watson was $25.50 per share, the closing price of Andrx's common
stock on June 11, 1997. In a contemporaneous transaction, certain of the
Company's principals also sold a total of 450,000 shares of Andrx common stock
to Watson on the same terms and conditions. Capital and Watson were granted
certain registration rights under the Securities Act of 1933, as amended, with
respect to the shares purchased. In addition, Capital entered into a lock-up
agreement, pursuant to which it agreed not to sell the shares it purchased for a
period of at least one year, without the Company's prior written consent. Watson
entered into a standstill agreement with the Company pursuant to which it
agreed, among other matters, not to acquire more than a 25.0% equity interest in
the Company or to engage in certain transactions with the Company (including a
merger), prior to June 13, 2000, without the prior approval of the Company's
board of directors.
(14) STOCK INCENTIVE PLAN
Under the Company's stock incentive plan as amended (the "Plan") the
Company's Board of Directors or its compensation committee (the "Committee") is
authorized to grant stock options, stock appreciation rights, restricted stock,
deferred stock, performance units, loans and tax offset payments or any
combination thereof, to employees, consultants or advisors of the Company. The
terms for, and exercise price at which any stock option may be awarded is to be
determined by the Committee. Options granted under the Plan must be exercised
within ten years of grant, unless a shorter period is designated at the time of
grant. Options cannot be awarded under the Plan after February 26, 2003. In
1997, the Company's Board of Directors and shareholders approved an increase in
the number of shares available for grant under the Plan to 2,000,000.
F-17
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(in 000's, except for share and per share amounts)
The Company accounts for options granted to employees under the Plan in
accordance with the provisions of APB No. 25. Each stock option has an exercise
price equal to the market price on the date of grant and, accordingly, no
compensation expense has been recorded for any stock option grants.
A summary of the Plan's activity is as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------------------------------- ----------------------
NUMBER
OF EXERCISE PRICE PER SHARE WTD. AVG.
SHARES --------------------------------- EXERCISE
UNDER OPTION LOW HIGH WTD. AVG. SHARES PRICE
------------ --- ---- --------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1994 636,375 $ 3.00 $ 9.00 $ 6.22 109,000 $ 4.65
Granted 210,250 7.25 11.00 9.14
Exercised (6,000) 3.00 3.00 3.00
Forfeited (74,000) 3.00 8.00 7.10
------------
DECEMBER 31, 1995 766,625 3.00 11.00 6.96 307,875 5.95
Granted 378,325 11.00 14.50 12.27
Exercised (132,287) 3.00 11.00 6.25
Forfeited (98,313) 3.00 14.44 10.86
------------
DECEMBER 31, 1996 914,350 3.00 14.50 8.85 463,570 6.67
Granted 259,900 20.00 37.88 25.19
Exercised (170,164) 3.00 14.00 7.33
Forfeited (43,249) 6.50 37.88 22.60
------------
DECEMBER 31, 1997 960,837 3.00 37.88 12.92 495,729 8.97
============
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT EXERCISABLE OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997
- ------------------------------------------------------------------------------ --------------------------
WEIGHTED
RANGE OF WEIGHTED AVG. WEIGHTED AVG. AVG.
EXERCISE REMAINING LIFE EXERCISE EXERCISE
PRICES SHARES (YEARS) PRICE SHARES PRICE
- -------------------- ------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 3.00 - $ 7.25 330,250 5.6 $ 6.37 305,750 $ 6.32
$ 8.00 - $ 14.00 388,687 5.8 11.35 155,854 10.65
$ 14.50 - $ 37.88 241,900 6.8 24.36 34,125 24.96
------- --- --------- ------- ---------
960,837 6.0 $ 12.92 495,729 $ 8.97
======= === ========= ======= =========
</TABLE>
The range of weighted average fair value per share as of the grant date
was $5.72 to $12.85 and $3.46 to $10.31 for stock options granted during the
years ended December 31, 1997 and 1996, respectively.
F-18
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(in 000's, except for share and per share amounts)
The fair market value of an option grant was estimated using the
Black-Scholes option pricing model with the following assumptions:
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
---- ---- ----
Risk-free interest rate 5.3% 5.8% 5.8%
Average life of options (years) 4.9 5.5 5.6
Average volatility 48% 68% 67%
Dividend yield - - -
The following table summarizes the pro forma consolidated results of
operations of the Company as though the provision of the fair value based
accounting method of SFAS No. 123 had been used in accounting for stock options.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Basic and diluted
net loss As reported $ (7,636) $(4,028) $(5,187)
========== ======= =======
Pro forma $ (9,317) $(5,108) $(5,492)
========== ======= =======
Basic and diluted
net loss per share As reported $ (0.54) $ (0.33) $ (0.55)
========== ======= =======
Pro forma $ (0.66) $ (0.42) $ (0.58)
========== ======= =======
</TABLE>
(15) 401(K) PLAN
In February 1995, the Company adopted a 401(k) retirement plan covering
substantially all of its employees. Monthly contributions to the retirement plan
are made by the Company based upon the employees' contributions to the plan.
During the years ended December 31, 1997, 1996 and 1995, the Company contributed
$160, $86 and $64, respectively, to the 401(k) retirement plan.
(16) LITIGATION
In January 1996, Hoechst Marion Roussel, Inc. and Carderm Capital L.P.
(collectively, "Hoechst"), filed suit against the Company claiming patent
infringement as a result of the Company's ANDA filing with the FDA in late 1995
for a bioequivalent version of Cardizem/registered trademark/CD. The Company
responded to these claims by denying infringement, raising various other
defenses and by filing certain counterclaims against Hoechst. While the Company
believes its product does not infringe upon any of the patents held in
connection with the branded product and that it has meritorious defenses against
this suit, the ultimate resolution of this matter is not currently known and as
described below, has delayed the Company from obtaining final FDA approval of
the ANDA for the Company's bioequivalent version of Cardizem/registered
trademark/CD. Although the Company believes it has adequately provided for such
matter based on currently available information, the Company may incur
additional litigation costs in future periods which may be material to the
Company's results of operations and financial position.
F-19
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(in 000's, except for share and per share amounts)
In September 1997, Andrx received tentative FDA approval of the ANDA
for its bioequivalent version of Cardizem/registered trademark/CD. Such approval
is tentative because as a result of the pending patent infringement litigation
brought by Hoechst, the FDA may not grant final approval of the ANDA for Andrx's
product until after either the lawsuit is resolved in Andrx's favor or July 3,
1998 (30 months after Hoechst received Andrx's certification that its product
does not infringe the patents listed for Cardizem/registered trademark/CD).
In September 1997, Andrx entered into a Stipulation and Agreement (the
"Stipulation") with Hoechst related to the Hoechst litigation. In the
Stipulation, Andrx agreed that if the Hoechst litigation is not concluded by the
date the FDA grants final approval of the ANDA for the Company's bioequivalent
version of Cardizem/registered trademark/CD, Andrx will not commence the
commercial sale of the product in the United States until a final and
unappealable judgment is issued. The Stipulation provides that upon receiving
final FDA approval of its ANDA, Andrx will begin to receive interim payments
from Hoechst of $10.0 million quarterly which, absent certain defaults by Andrx,
are non-refundable. These payments will continue until the Hoechst litigation is
concluded or other events occur. If Andrx prevails in the Hoechst litigation,
the payments will be increased retroactively by a lump sum payment, representing
an agreed amount of profits that Andrx would have earned had it begun to sell
its product upon receiving final FDA approval of its ANDA. The Stipulation also
provides Andrx with the option of licensing Hoechst's patents covering
Cardizem/registered trademark/CD at various times throughout the period of the
agreement.
In May 1996, Rhone-Poulenc Rorer, Inc. and Jagotec AG (collectively
"RPR"), commenced a lawsuit against the Company claiming patent infringement as
a result of the Company's ANDA filing with the FDA in late 1995 for a
bioequivalent version of Dilacor XR/trademark/. The Company denied infringement
and raised various other defenses in this claim. In December 1996, RPR agreed to
dismiss the patent infringement lawsuit and the parties signed a settlement
agreement which provided for the dismissal, without prejudice, of all claims and
counterclaims in the lawsuit. An Order of Dismissal was entered by the U.S.
District Court judge on January 7, 1997.
Patent infringement claims of this nature may be made by other
pharmaceutical companies in connection with the Company's filing of other ANDAs
or NDAs with the FDA. The Company evaluates the probability of patent
infringement litigation with respect to each of its ANDA and NDA submissions on
a case by case basis. Accordingly, the Company has provided for estimated
litigation costs, as appropriate. Although the Company believes it has
adequately provided for such matters based on currently available information,
the Company may incur additional litigation costs in future years which may be
material to the Company's results of operations and financial position.
In January 1998, the Company filed an action against the FDA, Biovail
Corporation International and Faulding, Inc., related to the FDA's
interpretation of certain provisions of the Drug Price Competition and Patent
Restoration Act of 1984 (the "Waxman-Hatch Amendments"). The Company seeks,
among other things, a final injunction requiring the FDA to provide the Company
a 180-day period of marketing exclusivity for its bioequivalent version of
Cardizem/registered trademark/CD and its Dilacor XR/trademark/. On March 26,
1996, a federal district court in Washington, D.C. entered a temporary
restraining order prohibiting Mylan Pharmaceuticals, Inc. from shipping or
otherwise distributing its bioequivalent version of Dilacor XR/trademark/.
In May 1997, a former employee of the Company filed a suit against the
Company claiming he is entitled to receive, pursuant to the terms of his
employment arrangement with the Company, a royalty equal to 1% of the gross
revenues from certain products under development by the Company. Such products
include the bioequivalent version of Dilacor XR/trademark/, which was launched
by the Company on October 10, 1997 and the bioequivalent version of
Cardizem/registered trademark/CD. The Company has filed an answer and certain
affirmative defenses to the suit and specifically has denied the products of the
Company in question were developed by the former employee. The Company believes
that this suit is without merit, intends to vigorously defend it and believes
that the outcome will not be material to the Company's results of operations and
financial position.
F-20
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(in 000's, except for share and per share amounts)
(17) SELECTED QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
1997
- ----
<S> <C> <C> <C> <C>
Total revenues $ 30,661 $ 32,559 $ 42,661 $ 43,817
Gross profit $ 4,772 $ 4,901 $ 6,159 $ 8,952
Net loss $ (1,402) $ (2,261) $ (2,865) $ (1,108)
Basic and diluted net
loss per share $ (0.10) $ (0.16) $ (0.19) $ (0.07)
1996
- ----
Total revenues $ 18,039 $ 19,737 $ 23,321 $ 25,674
Gross profit $ 2,991 $ 3,287 $ 3,844 $ 4,249
Net loss $ (722) $ (1,163) $ (1,018) $ (1,125)
Basic and diluted net
loss per share $ (0.07) $ (0.10) $ (0.08) $ (0.08)
</TABLE>
(18) SUBSEQUENT EVENT
On March 18, 1998 the Company received a letter from counsel for
Cymedix Lynx Corporation ("Cymedix") alleging the theft and unlawful
appropriation by Andrx and certain of its directors, officers and employees of
certain computer medical software and internet medical communications technology
allegedly owned by Cymedix. The letter demands trebled damages totaling $396,600
pursuant to the civil theft provisions of Florida law, and also alleges claims
under Florida's Racketeer Influenced and Corrupt Organization Act and certain
other provisions of federal and state law. The Company believes that Cymedix's
accusations and threatened claims have no basis in substantial fact or legal
support and intends to vigorously defend these accusations and claims.
F-21
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters since January 1, 1995.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information concerning the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Alan P. Cohen(1) 43 Chairman of the Board and Chief Executive
Officer and Director
Elliot F. Hahn, Ph.D.(1) 53 President and Director
Chih-Ming J. Chen, Ph.D.(1) 46 Vice President, Chief Scientist and Director
Randy Glover 55 Vice President of Operations
Scott Lodin 42 Vice President, General Counsel and Secretary
Angelo C. Malahias 36 Vice President and Chief Financial Officer
Rep. Elaine Bloom(2) 60 Director
Irwin C. Gerson(3) 68 Director
Elliot Levine(2) 61 Director
Michael A. Schwartz, Ph.D.(3) 67 Director
Melvin Sharoky, M.D.(1) 47 Director
</TABLE>
- -------------------------
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
ALAN P. COHEN is Chairman of the Board, Chief Executive Officer and a
director of Andrx, which he founded in August 1992. He is a graduate of the
University of Florida and is a registered pharmacist. In 1984, Mr. Cohen founded
Best Generics, Inc., a generic drug distribution firm ("Best"), which was sold
to IVAX Corporation ("IVAX") in 1988. Mr. Cohen served as President of Best from
April 1989 until June 1990. Alan P. Cohen and certain members of his family
controlled Corner Drugstore, Inc., a privately-held retail drugstore chain,
which was a shareholder and a customer of the Company. Corner Drugstore, Inc.
filed for reorganization under Chapter 11 of the United States Bankruptcy Code
in December 1994.
DR. ELLIOT F. HAHN has been President and a director of Andrx since
February 1993. From June 1990 to February 1993, Dr. Hahn was employed as Vice
President, Scientific Affairs of IVAX, where he was involved in the evaluation
and international licensing of product opportunities and was responsible for
maintaining the intellectual property of IVAX. From 1988 to 1993, Dr. Hahn also
served as the Vice President of Research of Baker Norton Pharmaceuticals, a
subsidiary of IVAX. Prior to that, he was an Associate Professor at The
Rockefeller University from 1977 to 1988. From 1972 until 1977, Dr. Hahn was an
Assistant Professor at Albert Einstein College of Medicine and a member of the
Institute for Steroid Research at Montefiore Hospital in New York City. Since
1988, he has been an adjunct Associate Professor at the University of Miami
School of Medicine. Dr. Hahn holds a B.S. degree from City College of New York
and a Ph.D. degree in chemistry from Cornell University.
DR. CHIH-MING J. CHEN has served as the Company's Vice President, Chief
Scientist and a director since November 1992. In January 1992, Dr. Chen formed
his own company, ASAN Labs, Inc., which was acquired by the Company in November
1992. Dr. Chen served as the Director of Product Development at IVAX from 1988
to 1992, where he was the leader of a research team which specialized in the
development of drug formulations, including several controlled-release products.
After graduating with a Ph.D. degree in pharmaceutics from Ohio State University
in 1981, Dr. Chen worked at Bristol-Myers and Berlex Labs.
24
<PAGE>
RANDY GLOVER joined Andrx in March 1996 as Vice President of
Operations, with responsibilities for all aspects of manufacturing. From 1991 to
1996, he was Vice President of Manufacturing at IVAX with responsibility for
seven generic pharmaceutical manufacturing plants. From 1982 to 1991, Mr. Glover
held senior manufacturing management positions with Key Pharmaceuticals, Inc.
and Schering-Plough in Florida and Puerto Rico and was employed by the FDA from
1965 to 1981.
SCOTT LODIN joined Andrx in January 1994 and is its Vice President,
General Counsel and Secretary. From 1983 until joining Andrx, Mr. Lodin was an
attorney with Hughes, Hubbard & Reed and a predecessor firm in Miami, Florida,
where he practiced primarily in the areas of corporate and commercial law.
ANGELO C. MALAHIAS joined Andrx as its Vice President and Chief
Financial Officer in January 1996. From January 1995 to January 1996, Mr.
Malahias was Vice President and Chief Financial Officer of Circa, where he also
served as Corporate Controller from July 1994 to January 1995. From 1983 to July
1994 he was employed by KPMG Peat Marwick LLP. Mr. Malahias is a certified
public accountant.
REPRESENTATIVE ELAINE BLOOM, a director of Andrx since October 1993, is
the former Speaker Pro-Tempore of the Florida House of Representatives, of which
she has been a member from 1974 to 1978 and since 1986. She currently chairs the
Joint Legislative Management Committee and serves on the Health Care, Aging and
Human Services and Government Operations Committees.
IRWIN C. GERSON, a director of Andrx since November 1993 and currently
Chairman Emeritus, was the Chairman of the Lowe McAdams Healthcare division of
the Interpublic Group (formerly William Douglas McAdams, Inc.), a health care
marketing, communications and public relations company, from 1987 through
January 1998. Mr. Gerson is a member of the board of trustees of academic
institutions, including Long Island University, Albany College of Pharmacy and
is Chairman of the Council of Overseers of the Arnold and Marie Schwartz College
of Pharmacy. Mr. Gerson is also a director of Cytoclonal Pharmaceutics, Inc., a
biotechnology company.
ELLIOT LEVINE, a director of Andrx since January 1994, was Executive
Vice President and Chief Financial Officer of Cheyenne Software, a developer and
marketer of proprietary network software products, from September 1989 through
November 1996. From February 1988 to September 1989, Mr. Levine was president of
VTX Electronics, a distributor of electronic networking products, and, from
March 1986 to February 1988, he was a Managing Director of Ladenburg, Thalmann &
Co. Inc., an investment banking firm.
DR. MICHAEL A. SCHWARTZ, a director of Andrx since November 1993, is
currently Dean Emeritus and a Professor at the College of Pharmacy at the
University of Florida having served as Dean of that college from April 1978
through May 1996.
DR. MELVIN SHAROKY, a director of Andrx since November 1995, has been a
director of Watson since July 1995. From July 1995 through January 1998, Dr.
Sharoky was President of Watson. From February 1993 through January 1998, Dr.
Sharoky served as the President and Chief Executive Officer of Circa. Dr.
Sharoky serves on Andrx's Board of Directors as the designee of Watson. Pursuant
to the agreements entered into with Watson in connection with its equity
investment in the Company, Watson has the right to designate one member of the
Company's Board of Directors for the term expiring in 1999.
The Company's Articles provide that the Board of Directors is divided
into three classes and directors serve staggered three-year terms. Dr. Elliot F.
Hahn, Elaine Bloom and Elliot Levine will hold office until the annual meeting
of shareholders to be held in 1998, Alan P. Cohen and Dr. Melvin Sharoky will
hold office until the 1999 annual meeting and Dr. Chih-Ming J. Chen, Irwin C.
Gerson and Dr. Michael A. Schwartz will hold office until the 2000 annual
meeting.
25
<PAGE>
DIRECTOR COMPENSATION
Non-employee directors do not receive cash compensation for their
services, although they are each granted stock options under the Stock Incentive
Plan to purchase 7,000 shares of Common Stock on June 1 of each year. The
initial 7,000 share annual grants, which were made to existing non-employee
directors on June 1, 1996, were adjusted based on prior options granted to give
effect to prior periods of service. Each new non-employee director will be
granted an option on the date such person becomes a director (the "Appointment
Date") to purchase that number of shares equal to 7,000 multiplied by a
fraction, the numerator of which is the number of full months between the
Appointment Date and the following June 1, and the denominator of which is
twelve. These options become exercisable in ten equal monthly installments
(unless such director's term commences after June 1, in which case the options
shall vest equally over the number of full months they serve as a director until
the following June 1), beginning the first day of the month following the date
of grant, provided the optionee has continuously served as a non-employee
director. All options granted to non-employee directors are granted at fair
market value on the date of the grant and expire ten years from the date of the
grant. The following sets forth information with respect to options granted to
non-employee directors under the Stock Incentive Plan.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF OPTIONEE SHARES EXERCISE PRICE EXPIRATION DATE
- ---------------- ------ -------------- ---------------
<S> <C> <C> <C>
Elaine Bloom 2,500 $ 3.00 May 12, 2003
9,000 6.50 August 7, 2004
5,875 12.00 May 31, 2006
7,000 23.00 May 31, 2007
Irwin C. Gerson 2,500 3.00 May 12, 2003
9,000 6.50 August 7, 2004
5,875 12.00 May 31, 2006
7,000 23.00 May 31, 2007
Elliot Levine 2,500 8.00 January 23, 2004
9,000 6.50 August 7, 2004
4,000 12.00 May 31, 2006
7,000 23.00 May 31, 2007
Michael Schwartz, Ph.D. 2,500 3.00 May 12, 2003
9,000 6.50 August 7, 2004
5,875 12.00 May 31, 2006
7,000 23.00 May 31, 2007
Melvin Sharoky, M.D. 2,500 11.00 November 11, 2005
5,750 12.00 May 31, 2006
7,000 23.00 May 31, 2007
</TABLE>
INDEMNIFICATION AGREEMENTS
The Company has entered into an indemnification agreement with each of
its directors and executive officers. Each indemnification agreement provides
that the Company will indemnify such person against certain liabilities
(including settlements) and expenses actually and reasonably incurred by him or
her in connection with any threatened or pending legal action, proceeding or
investigation (other than actions brought by or in the right of the Company) to
which he or she is, or is threatened to be, made a party by reason of his or her
status as a director, officer or agent of the Company, provided that such
director or executive officer acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the Company
and, with respect to any criminal proceedings, had no reasonable cause to
believe his or her conduct was unlawful. With respect to any action brought by
or in the right of the Company, a director or executive officer will also be
indemnified, to the extent not prohibited by applicable law, against expenses
and amounts paid in settlement, and certain liabilities
26
<PAGE>
if so determined by a court of competent jurisdiction, actually and reasonably
incurred by him or her in connection with such action if he or she acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers, directors and holders of more than
10% of the Company's Common Stock, to file reports of ownership and changes in
ownership with the Commission and The Nasdaq National Market. Such persons are
required to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it,
or oral or written representations from certain reporting persons that no Forms
5 were required for those persons, the Company believes that, with respect to
1997, all filing requirements applicable to its executive officers, directors
and greater than 10% beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation for
1997, 1996 and 1995 received by the Chief Executive Officer (the "CEO") and the
four most highly compensated other executive officers whose annual salary and
bonus exceeded $100,000 for 1997 (collectively with the CEO, the "Named
Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS(#)(1)
- --------------------------- ---- ------ ----- ------------ -------------
<S> <C> <C> <C> <C> <C>
Alan P. Cohen 1997 $188,400 $ 55,000 $ 13,300(2) -
Chairman of the Board and CEO 1996 141,900 50,000 18,000(2) -
1995 124,300 - 10,600(2) -
Elliot F. Hahn, Ph.D. 1997 $188,400 $ 50,000 $ 14,700(2) -
President 1996 141,900 45,000 19,900(2) -
1995 124,300 - 13,400(2) -
Chih-Ming J. Chen, Ph.D. 1997 $188,400 $ 50,000 $ 15,900(2) -
Vice President and Chief Scientist 1996 141,900 45,000 19,400(2) -
1995 124,300 108,500(3) 14,900(2) -
Randy Glover 1997 $171,700 $ 38,000 $265,000(5) 4,000
Vice President of 1996 108,000 37,800 - 50,000
Operations(4)
Angelo C. Malahias 1997 $129,700 $ 25,000 $ 38,600(7) 7,500
Vice President and Chief 1996 110,800 20,000 12,900(7) 40,000
Financial Officer(6)
</TABLE>
- ----------
(1) Represents options to purchase shares of Common Stock granted to the Named
Executive Officer under the Stock Incentive Plan.
(2) Represents an automobile allowance, premiums for a $1 million life
insurance policy (the beneficiary of which is designated by the Named
Executive Officer), certain medical expense reimbursements and the premiums
for a disability policy (other than for Mr. Cohen), the beneficiary of
which is designated by the Named Executive Officer.
(3) Represents compensation to Dr. Chen arising from the forgiveness of an
interest-bearing loan made by the Company to Dr. Chen.
(4) Mr. Glover joined the Company as Vice President of Operations
in March 1996.
(5) Represents exercise of options to purchase 11,000 shares of common stock
with an exercise price of $11.00 per share.
(6) Mr. Malahias joined the Company as Vice President and Chief Financial
Officer in January 1996.
(7) Represents relocation expenses and reimbursement of premium on medical and
dental insurance.
27
<PAGE>
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company was party to an employment agreement with each of Mr.
Cohen, Dr. Hahn and Dr. Chen which expired in February 1998.
The Company is party to an employment agreement with Mr. Malahias, its
Vice President and Chief Financial Officer, which expires in February 2001. Mr.
Malahias currently receives a base salary of $150,000 per year. The agreement
provides that if Mr. Malahias' employment is terminated by the Company without
cause, Mr. Malahias may receive a lump sum payment up to $90,000. Other amounts
are payable and acceleration of vesting of certain options may occur in the
event Mr. Malahias' employment is terminated pursuant to a change of control of
the Company. The agreement also includes provisions regarding confidentiality
and non-solicitation.
The Company has an agreement with Mr. Lodin, its Vice President and
General Counsel, which provides that in the event Mr. Lodin's employment is
terminated by the Company without cause prior to December 31, 1998, Mr. Lodin
will receive a lump-sum payment equal to 100% of his then annual compensation.
Mr. Lodin currently receives a base salary of $172,500.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants
of stock options made during Fiscal 1997 to any of the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE OF ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
NUMBER OF SECURITIES % OF TOTAL OPTIONS EXERCISE OR OPTION TERMS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION -------------------
GRANTED IN FISCAL YEAR ($/SH) DATE 5% 10%(1)
------------------- ----------------- -------------- -------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Randy Glover 4,000 1.8% $23.00 June 1, 2007 $ 58,000 $147,000
Angelo C. Malahias 7,500 3.5% $20.25 March 2, 2007 $108,000 $275,000
</TABLE>
- ----------
(1) Based upon the exercise price, which was equal to the fair market value
on the date of grant, and annual appreciation at the assumed rates stated
on such price through the expiration date of the options. Amounts shown
represent hypothetical gains that could be achieved for the options if
exercised at the end of the term. These amounts have been determined on
the basis of assumed rates of appreciation mandated by the Commission and
do not represent the Company's estimate or projection of the future stock
price. Actual gains, if any, are contingent upon the continued employment
of the Named Executive Officer through the expiration date, as well as
being dependent upon the general performance of the Common Stock. The
potential realizable values have not taken into account amounts required
to be paid for federal income taxes.
28
<PAGE>
STOCK OPTIONS HELD AT END OF FISCAL 1997
The following table indicates the number of shares acquired and value
realized from the exercise of options and the total number and value of
exercisable and unexercisable stock options held by each of the Named Executive
Officers as of December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END
SHARES ACQUIRED VALUE
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE(1)
----------- -------- ----------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Chih-Ming J. Chen, Ph.D......... - - 200,000 - $5,550,000 -
Randy Glover.................... 11,000 $265,000 9,000 34,000 209,300 $742,500
Angelo C. Malahias.............. - - 8,000 39,500 186,000 849,000
</TABLE>
- ----------
(1) Based on a fair market value of $34.25 per share at December 31, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There were no compensation committee interlocks and insider
participation in executive compensation decisions during 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the common stock as of March 13, 1998, by (i) each
person or entity known by the Company to beneficially own more than 5% of the
outstanding shares of common stock; (ii) each director of the Company; (iii)
each of the Named Executive Officers; and (iv) all directors and executive
officers of the Company as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES % OF CLASS
BENEFICIAL OWNER (1)(2) BENEFICIALLY OWNED OUTSTANDING
- ----------------------- ------------------ -----------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Alan P. Cohen(3).......................... 1,631,464 10.9%
Elliot F. Hahn, Ph.D.(4).................. 982,447 6.6
Chih-Ming J. Chen, Ph.D.(5)............... 1,696,614 11.2
Randy Glover(6)........................... 25,000 *
Angelo C. Malahias(7)..................... 21,300 *
Elaine Bloom(8)........................... 24,775 *
Irwin C. Gerson(9)........................ 24,375 *
Elliot Levine(10)......................... 29,120 *
Michael A. Schwartz, Ph.D.(11)............ 24,375 *
Melvin Sharoky, M.D.(12).................. 21,080 *
All directors and executive
officers as a group
(11 persons)(13)........................ 4,528,050 29.6
5% OR GREATER HOLDERS
Watson Pharmaceuticals, Inc.(14)
311 Bonnie Circle
Corona, CA 91720.......................... 3,028,869 19.8
</TABLE>
29
<PAGE>
- ----------
* Less than 1%
(1) Except as indicated, the address of each person named in the table is
c/o Andrx, 4001 Southwest 47th Avenue, Ft. Lauderdale, Florida 33314.
(2) Except as otherwise indicated, the persons named in this table have
sole voting and investment power with respect to all shares of Common
Stock listed, which include shares of common stock that such persons
have the right to acquire a beneficial interest within 60 days from the
date of this Report.
(3) Includes 4,875 shares of common stock held jointly by Mr. Cohen and his
spouse, and 1,568,347 shares held in family limited partnerships.
(4) Includes 582,945 shares of common stock held in a trust for the benefit
of Dr. Hahn and 399,502 shares of Common Stock held in trusts for the
benefit of Dr. Hahn's children.
(5) Includes 1,200,000 shares of common stock and 257,693 shares of common
stock held by limited partnerships for which Dr. Chen is an officer of
the corporate general partner, and 200,000 shares of common stock
issuable upon the exercise of stock options.
(6) Includes 19,000 shares of common stock issuable upon the exercise of
stock options.
(7) Includes 18,500 shares of common stock issuable upon the exercise of
stock options, 2,000 shares of common stock held jointly by Mr.
Malahias and his spouse, and 800 shares of common stock held by Mr.
Malahias as custodian for his minor children.
(8) Includes 12,875 shares of common stock issuable upon the exercise of
stock options.
(9) Includes 24,375 shares of common stock issuable upon the exercise of
stock options.
(10) Represents 4,620 shares of common stock held jointly by Mr. Levine and
his spouse; 2,000 shares of common stock issuable upon the exercise of
Warrants held jointly by Mr. Levine and his spouse and 22,500 shares of
common stock issuable upon the exercise of stock options.
(11) Represents 24,375 shares of common stock issuable upon exercise of
stock options.
(12) Includes 15,250 shares of common stock issuable upon exercise of stock
options and 830 shares of common stock held by Dr. Sharoky as custodian
for his minor children. Does not include shares of common stock
beneficially owned by Watson, in which shares Dr. Sharoky disclaims
beneficial ownership.
(13) Includes the shares of common stock described in notes (3), (4), (5),
(7), (10) and (12); 338,875 shares of common stock issuable upon the
exercise of the stock options and warrants described in notes (5)
through (12); and 2,500 shares of common stock and 45,000 shares of
common stock issuable upon the exercise of stock options held by Scott
Lodin, the Company's Vice President, General Counsel and Secretary.
(14) Includes 337,079 shares of common stock issuable upon the exercise of
the warrants to purchase common stock held by Watson.
30
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH WATSON
In July 1994, the Company and Circa, which was subsequently acquired by
Watson, established the ANCIRC joint venture. The terms of the ANCIRC joint
venture are described in "Item 7. Business--Collaborative Arrangements," except
that when established, ANCIRC was owned 60% by Andrx and 40% by Watson. In
connection with the establishment of ANCIRC, the Company sold to Watson, for
aggregate consideration of $6.0 million, (i) 33,708 shares of preferred stock,
which in accordance with its terms, converted into 674,160 shares of common
stock on April 30, 1995 and (ii) the Watson Warrants to purchase 337,079 shares
of common stock exercisable through July 1999 at a price equal to the lesser of
$8.90 or the offering price per share of shares sold in an initial public
offering.
In August 1995, Watson purchased an additional 90,909 shares of common
stock from the Company at a price of $11.00 per share and Watson was granted a
two-month option to purchase no less than 818,182 nor more than 1,454,545 shares
of common stock from the Company, Mr. Cohen, trusts for the benefit of Dr.
Hahn's children (the "Trusts") and Dr. Chen at a price of $11.00 per share (with
no more than 181,818 shares being sold by selling shareholders. Watson exercised
such option in October 1995 and in December 1995 purchased 1,144,903 shares from
the Company, 63,636 shares from Mr. Cohen, 54,546 shares from the Trusts, and
63,636 shares from Dr. Chen, for a total of 1,326,721 shares of common stock. In
connection with the exercise of the option by Watson, the ANCIRC joint venture
agreement was amended to provide that the Company and Watson would agree on two
additional product candidates to be developed by ANCIRC, and to restructure the
respective interests of the Company and Watson in ANCIRC so that ANCIRC became a
50/50 joint venture.
In June 1997, Watson purchased an additional 150,000 shares of common
stock from the Company and 450,000 shares from Andrx's founders at a price of
$25.50 per share, the closing price of the common stock on the business date
prior to the sale. Watson also entered into a standstill agreement with the
Company pursuant to which it agreed, among other matters, not to acquire more
than a 25% equity interest in the Company or engage in certain transactions with
the Company (including a merger), prior to June 13, 2000, without the prior
approval of the Company's Board of Directors.
The Company has also granted Watson certain demand and piggyback
registration rights, under the Securities Act of 1933, as amended, with respect
to the shares of common stock held by Watson and the shares underlying the
Watson Warrants, which rights became exercisable commencing June 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT
(1) CONSOLIDATED FINANCIAL STATEMENTS
Reference is made to the Index to Financial Statements included in
Part II, Item 8 of this Report.
(2) FINANCIAL STATEMENT SCHEDULES
PAGE
----
Report of Independent Certified Public Accountants on
Financial Statement Schedule S-1
Schedule II - Valuation and Qualifying Accounts S-2
All other schedules for which provision is made in applicable
regulations of the Commission are omitted because they are not applicable or the
required information is in the Consolidated Financial Statements or notes
thereto.
31
<PAGE>
(3) EXHIBITS
EXHIBIT NO. DESCRIPTION
3.1 Form of Registrant's Amended and Restated Articles of Incorporation(1)
3.2 Form of Registrant's Amended and Restated Bylaws(1)
4.1 Specimen Common Stock Certificate(1)
10.1 Form of Stock Incentive Plan, as amended(1)*
10.2 Employment Agreement between the Registrant and Alan P. Cohen, as
amended(1)*
10.3 Employment Agreement between the Registrant and Elliot F. Hahn, as
amended(1)*
10.4 Employment Agreement between the Registrant and Chih-Ming J. Chen, as
amended(1)*
10.5 Severance Agreement between the Registrant and Scott Lodin(1)*
10.6 Royalty Agreement between the Registrant and Chih-Ming J. Chen(1)*
10.7 Form of Indemnification Agreement between the Registrant and its
officers and directors(1)*
10.8 Development and License Agreement dated as of June 28, 1993 by and
between Zenith Laboratories, Inc. and the Registrant(1)(3)
10.9 Technical Transfer Agreement dated as of July 30, 1993 by and between
Yung Shin Pharmaceutical Ind. Co. Ltd. and the Registrant (1)(3)
10.10 Development and License Agreement dated as of September 22, 1993 by and
between Circa Pharmaceuticals, Inc. and the Registrant(1)(3)
10.11 Development and License Agreement dated as of November 10, 1993 by and
between Mylan Pharmaceuticals, Inc. and the Registrant(1)(3)
10.12 Development and License Agreement dated as of December 7, 1993 by and
between Circa Pharmaceuticals, Inc. and the Registrant(1)(3)
10.13 Development and License Agreement dated as of January 17, 1994 by and
between Purzer Pharmaceutical Co., Ltd. and the Registrant(1)(3)
10.14 Lease Agreement relating to premises located at 4001 SW 47th Avenue,
Ft. Lauderdale, Florida(1)
10.15 Lease Agreement relating to premises located at 4011 SW 47th Avenue,
Ft. Lauderdale, Florida(1)
10.16 Lease Agreement relating to premises located at 3436 University Drive,
Davie, Florida(1)
10.17 Loan and Security Agreement by and between Congress Financial
Corporation (Florida) and the Registrant, as amended(1)
32
<PAGE>
EXHIBIT NO. DESCRIPTION
10.18 ANCIRC General Partnership Agreement between Circa Pharmaceuticals,
Inc. and the Registrant, as amended(1)
10.19 Research and Development Services Agreement dated as of July 8, 1994 by
and between ANCIRC and the Registrant, as amended(1)
10.20 Manufacturing and Regulatory Approval Agreement dated as of July 8,
1994 by and between Circa Pharmaceuticals, Inc. and ANCIRC, as
amended(1)
10.21 Distribution and Marketing Agreement dated as of July 8, 1994 between
ANCIRC and the Registrant, as amended(1)
10.22 Patent and Know How License Agreement dated as of July 8, 1994 between
ANCIRC and the Registrant, as amended(1)
10.23 Patent and Know How License Agreement dated as of July 8, 1994 between
Circa Pharmaceuticals, Inc. and ANCIRC, as amended(1)
10.24 Securities Purchase Agreement dated as of July 8, 1994 between the
Registrant and Circa Pharmaceuticals, Inc.(1)
10.25 Securities Purchase Agreement dated as of August 17, 1995 between the
Registrant and Circa Pharmaceuticals, Inc.(1)
10.26 Securities Purchase Agreement dated as of October 30, 1995 between the
Registrant and Circa Pharmaceuticals, Inc.(1)
10.27 Development Agreement between Sepracor, Inc. and the Registrant(1)(3)
10.28 Sixth Amendment to the Loan and Security Agreement by and between
Congress Financial Corporation (Florida) and Registrant(4)
10.29 Employment Agreement between the Registrant and Angelo C. Malahias(5)*
10.30 First Amendment to Lease Agreement relating to the premises located at
3436 University Drive, Davie, Florida(5)
10.31 Third Addendum to Lease between the Registrant and New Town Commerce
Centre, Ltd., relating to the premises at 4011 S.W. 47th Avenue, Davie,
Florida (2)
10.32 Fourth Addendum to Lease between the Registrant and New Town Commerce
Centre, Ltd., relating to the premises at 4001 S.W. 47th Avenue, Davie,
Florida (2)
10.33 Lease by and between Registrant and New Town Commerce Center, Ltd.,
relating to the premises located at 4111 S.W. 47th Avenue, Davie,
Florida(2)
10.34 Second Amendment to Lease between Registrant and University
Associates Limited, L.L.P. relating to the premises located at 3436
Univesity Drive, Davie, Florida(2)
11.1 Net loss per share computation(2)
21.1 Subsidiaries of the Registrant(5)
23.2 Consent of Arthur Andersen LLP(2)
27.1 Financial Data Schedule(2)
99.1 Financial Statements of ANCIRC Pharmaceuticals(2)
33
<PAGE>
- ----------------
* MANAGEMENT COMPENSATION PLAN OR ARRANGEMENT.
(1) Filed as an exhibit of the same number to the Company's Registration
Statement on Form S-1 (File No. 333-03614) and incorporated herein by
reference.
(2) Filed herewith.
(3) A request for confidential treatment pursuant to Rule 406 under the
Securities Act has been made and granted for certain portions of this
exhibit.
(4) Filed as an exhibit of the same number in Quarterly Report on Form 10-Q
for the period ended September 30, 1996 and incorporated herein by
reference.
(5) Filed as an exhibit of the same number in Annual Report on Form 10-K
for the year ended December 31, 1996 and incorporated herein by
reference.
(B) REPORTS ON FORM 8-K
None.
(C) ITEM 601 EXHIBITS
The exhibits required by Item 601 of Regulation S-K are set forth in
(A)(3) above.
(D) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules required by Regulation S-K are set
forth in (A)(2) above.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ANDRX CORPORATION
By: /S/ ALAN P. COHEN
----------------------------
Alan P. Cohen
Chairman of the Board and
Chief Executive Officer
By: /S/ ANGELO C. MALAHIAS
----------------------------
Angelo C. Malahias
Vice President and
Chief Financial Officer
Date: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ ALAN P. COHEN Chairman of the Board and Chief March 30, 1998
- ---------------------- Executive Officer
Alan P. Cohen (Principal Executive Officer)
/S/ ELLIOT F. HAHN President March 30, 1998
- -----------------------
Elliot F. Hahn, Ph.D.
/S/ CHIH-MING J. CHEN Vice President and Chief Scientist March 30, 1998
- ------------------------
Chih-Ming J. Chen, Ph.D.
/S/ ANGELO C. MALAHIAS Vice President and Chief March 30, 1998
- ------------------------- Financial Officer
Angelo C. Malahias (Principal Financial and
Accounting Officer)
/S/ ELAINE BLOOM Director March 30, 1998
- -------------------------
Rep. Elaine Bloom
/S/ IRWIN C. GERSON Director March 30, 1998
- --------------------------
Irwin C. Gerson
/S/ ELLIOT LEVINE Director March 30, 1998
- --------------------------
Elliot Levine
/S/ MICHAEL A. SCHWARTZ Director March 30, 1998
- --------------------------
Michael A. Schwartz, Ph.D.
/S/ MELVIN SHAROKY Director March 30, 1998
- --------------------------
Melvin Sharoky, M.D.
</TABLE>
35
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders of
Andrx Corporation
We have audited in accordance with generally accepted auditing
standards, the financial statements as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997 included in this
Form 10-K, and have issued our report thereon dated February 17, 1998. Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying Schedule II is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
February 17, 1998 (except with respect to the
matter discussed in Note 18, as to which the
date is March 18, 1998).
S-1
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in 000's)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END OF
OF YEAR ADDITIONS DEDUCTIONS YEAR
------- --------- ---------- ----
<S> <C> <C> <C> <C>
Year ended December 31, 1997
allowance for doubtful accounts $970 $743 $(124) $1,589
==== ==== ====== ======
Year ended December 31, 1996
allowance for doubtful accounts $574 $577 $(181) $ 970
==== ==== ====== =======
Year ended December 31, 1995
allowance for doubtful accounts $552 $547 $(525) $ 574
==== ==== ====== =======
</TABLE>
S-2
<PAGE>
ANDRX CORPORATION
INDEX TO EXHIBITS
1997 FORM 10-K
EXHIBIT
NUMBER DESCRIPTION
10.31 Third Addendum to Lease between the Registrant and New Town Commerce
Centre, Ltd., relating to the premises at 4011 S.W. 47th Avenue, Davie,
Florida
10.32 Fourth Addendum to Lease between the Registrant and New Town Commerce
Centre, Ltd., relating to the premises at 4001 S.W. 47th Avenue, Davie,
Florida
10.33 Lease by and between Registrant and New Town Commerce Center, Ltd.,
relating to the premises located at 4111 S.W. 47th Avenue, Davie,
Florida
10.34 Second Amendment to lease between Registrant and University of
Associates Limited, L.L.P. relating to the premises located at 34365
Univesity Drive, Davie, Florida
11.1 Net Loss per Share Computation
23.2 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
99.1 Financial Statements of ANCIRC Pharmaceuticals
THIRD ADDENDUM TO LEASE BETWEEN ANDRX CORPORATION,
AS TENANT, AND NEW TOWN COMMERCE CENTRE, LTD.,
AS SUCCESSOR IN INTEREST TO METROPOLITAN LIFE INSURANCE
COMPANY, AS SUCCESSOR IN INTEREST TO NEWTOWN ASSOCIATES
LIMITED PARTNERSHIP, AS LANDLORD
This Third Addendum to Lease ("Third Addendum") dated as of the______
day of July, 1997, is made by and between Andrx Corporation, a Florida
Corporation ("Tenant") and New Town Commerce Centre, Ltd. a Florida general
partnership, as successor in interest to Metropolitan Life Insurance Company, as
successor in interest to Newtown Associates Limited Partnership ("Landlord").
WITNESSETH:
WHEREAS, Landlord and Tenant entered into that certain Lease Agreement
and Addendum dated as of January 4, 1994, pertaining to Suite 1101 in that
certain building located at 4011 S.W. 47th Avenue, Davie, Florida 33314 (the
"Original Lease") in the project known as "New Town Commerce Center" (the
"Project"); and
WHEREAS, The Original Lease was modified and amended pursuant to that
certain Addenda dated January 14, 1994 and October 30, 1995 in order to, among
other things, add Suites 1102, 1103 and 1104 in Building 11 to the Original
Lease (the "Addenda"); and
WHEREAS, the Original Lease has also been modified and amended pursuant
to that certain Option to Lease dated January 14, 1994 (the "Option") and a
Non-Disturbance, Attornment and Subordination Agreement dated April 27, 1994
(the "Non-Disturbance Agreement" and the Original Lease, the Addenda, the
Option, and the Non-Disturbance Agreement are herein collectively referred to as
the "Lease").
WHEREAS, Landlord and Tenant have also entered into that certain Lease
Agreement which pertains to the building located at 4001 S.W. 47th Avenue,
Davie, Florida 33314 pursuant to which Tenant has agreed to lease all of the
suites in that building, comprising approximately 48,158 square feet ("Building
Two" and the "Building Two Lease").
NOW, THEREFORE, in consideration of the premises and the sum of Ten
Dollars ($10.00) and other good and valuable consideration exchanged between
Landlord and Tenant and their respective representations, agreements, and
covenants herein contained, Landlord and Tenant hereby agree as follows:
1. INCORPORATION OF RECITALS. The recitals as set forth above are true
and are hereby incorporated by reference herein.
2. RENTABLE AREA. SUITES 1105, 1106, 1107, 1109, 1110 - 1114. Tenant
hereby exercises its option with respect to Suite 1106 containing approximately
2,325
Page 1 of 6
<PAGE>
square feet (which is already occupied and leased by Tenant as of January 1,
1997) and Suite 1109 containing approximately 3,875 square feet (which is
already occupied and leased by Tenant as of January 29, 1997), and with respect
to Suites 1105 and 1107, comprising approximately 2,000 and 3,300 square feet
respectively. Tenant agrees to lease Suites 1105 and 1107 as soon as they become
available. Suite 1107 shall be made available no later than September 1, 1997,
and Suite 1105 shall be made available no later than February 1, 1998. In
addition, Tenant hereby exercises its option with respect to Suites 1110 - 1114,
and agrees to lease those suites, comprising approximately 16,635 square feet in
total, as soon as they become available. Each such suite shall become part of
the Lease as of the date of delivery of said space to Tenant, and following
delivery to Tenant of Suites 1105, 1107, and 1110-1114, that additional space,
together with the other suites presently leased by Tenant in Building Eleven,
shall become part of the Lease, for a combined total of 42,835 square feet.
(Suites 1105, 1106, 1107, 1109 and 1110-1114 are hereinafter referred to as
"Additional Rental Area.")
3. FIRST RIGHT OF REFUSAL. Tenant is hereby given the first right of
refusal with regard to any and all space located in Building Eleven that becomes
available for lease after the date hereof, including any space presently
occupied in which the existing tenant does not now have a written renewal
option. Attached as EXHIBIT A hereto is a schedule reflecting when the leases
for such suites will expire. Landlord shall provide written notice to Tenant in
the event any such space becomes available prior to the date set forth on such
schedule or 90 days prior to that scheduled date, whichever is earlier, and
Tenant shall notify Landlord of its intention to lease (or not lease) such space
not later than twenty (20) days after its receipt of Landlord's notice. In the
event Tenant exercises this right of first refusal, the rental amount for such
additional space (the "Future Additional Space") shall be the rental rate set
forth in Section 6(C) below. That rate per square foot shall be multiplied by
the square feet of Future Additional Space to be occupied by Tenant and added to
the rent Tenant then pays under the Lease. This representation runs appurtenant
to the land and shall survive any transfer in ownership, whatsoever, pertaining
to Building Eleven or any portion thereof.
4. INCORPORATION OF LEASE TERMS. Except as hereinafter provided and
modified, all of the covenants, agreements, terms, definitions, provisions and
conditions of the Lease are hereby incorporated by reference herein, do apply to
the Additional Rental Area and the Future Additional Space, and shall be binding
upon Landlord and Tenant.
5. TERM OF LEASE. Subject to Section 10 below, the term of the Lease
with respect to the Existing Space (hereinafter defined) shall be extended until
May 31, 2003 and with respect to the Additional Rental Area and any Future
Additional Space acquired by Tenant pursuant to the exercise of its option,
shall commence on the first day such space is available to Tenant in a condition
suitable for occupancy, and shall expire on May 31, 2003. Each of the two five
year option periods agreed to in the Option to Lease dated January 14, 1994
shall be superseded by the renewal option set forth in Section 10 herein.
Page 2 of 6
<PAGE>
6. TOTAL RENT PAYABLE. RENTAL RATES.
(a) For Suite 1101-1104, comprising approximately 14,700 square
feet (the "Existing Space"), Tenant shall continue to pay Landlord the total
annual rental of $7.15 per square foot (which amount includes operating
expenses), plus additional Florida sales tax (presently at 6% per annum), until
August 31, 1998. Commencing September 1, 1998, the rental rate for the Existing
Space shall be in accordance with Section 6(C) below.
(b) In consideration of the mutual covenants contained herein,
for the month of August 1997, Tenant shall pay rent in the amount of $11,222.85
plus sales taxes due under the Lease for Suites 1110 - 1114 and 1315 and 1317
between Landlord and A-One-A Wholesale Produce, Inc. Tenant acknowledges that
Tenant shall not be entitled to occupy Suites 1110 - 1114, 1315 or 1317 during
August 1997 (unless, with respect to Suites 1110-1114 only, A-One-A Wholesale
Products, Inc. has previously vacated said space). Tenant's right to occupy
Suites 1110 - 1114 shall only be as set forth herein, and Tenant shall have no
right to occupy Suites 1315 and 1317. Commencing upon delivery of Suites 1110 -
1114 to Tenant by Landlord, said Suites 1110 - 1114 shall be considered part of
the Additional Rental Area, and rent shall be paid in accordance with Section
6(c) below.
(c) Commencing on the first day Tenant gains possession of any
portion of the Additional Rental Area or any Future Additional Space, Tenant
agrees to pay Landlord total annual rental, plus additional Florida sales tax
(presently at 6% per annum) on such space, at the rate of $7.80 per square foot
during 1997 (which amount includes operating expenses). Commencing January 1,
1998 and annually on that date thereafter, that rate (excluding the operating
expenses portion) shall be increased by 3% during the remainder of the Lease
Term. Commencing January 1, 1998 and annually on that date thereafter, the
operating expenses portion shall be increased by an amount equal to Tenant's
share of the actual increase thereof, but not to exceed 5% annually, except for
real estate taxes and insurance which shall be adjusted according to actual
increases or decreases therefor.
(d) The annual rent for the Premises set forth above includes
operating expenses; however, that amount is based upon the usual or "standard"
operating expenses which tenants would incur in leasing Building Eleven. Because
Tenant's use of a portion of Building Eleven for the manufacture of its products
will cause certain of those expenses to materially increase, Tenant agrees that
it will attempt, at Landlord's option to separately meter and shall otherwise be
solely responsible for the operating expenses which are directly attributable to
its manufacturing activities, including, but not limited to, water, lighting,
trash removal, and sewage. Moreover, beginning January 1, 1998, Landlord shall
be entitled to annually increase the operating expenses portion of Tenant's rent
(which were for the base year 1006: insurance - $54,847.00; real estate taxes -
$233,663.36; operating expenses - $483,520.97) by an amount equal to (i)
Tenant's Prorata percentage share of such expenses over the preceding year, less
(ii) the dollar amount of "standard" operating expenses which Tenant assumed
when it became responsible for the payment of the expenses directly attributable
to Tenant's manufacturing activities. Operating Expenses shall be deemed to
include, without limitation, landscaping, security, a reasonable management fee,
electric, sanitation, water, sewer, repairs and maintenance, roofing, taxes and
insurance. Taxes and insurance shall be calculated separately from the other
Operating Expenses, and increases or decreases therefor shall be separately
calculated and applied.
7. TENANT'S WORK ALLOWANCE. Landlord hereby commits to provide to
Tenant no work allowance money for tenant's construction as needed.
8. TENANT IMPROVEMENTS. It is hereby acknowledged and agreed that
Tenant reserves the right to select its own contractor(s), in its sole
discretion, in connection with tis expenditure of Tenant's Work Allowance,
Provided that contractor(s) are bondable, licensed an properly insured.
9. SUITES 1106 AND 1109. It is hereby acknowledged and agreed by
Landlord and Tenant that all terms, provisions and conditonsof the Lease shall
apply to Suite 1106 and 1109 from and after the respectives dates Tenant
commenced occupying said suites, andof this Third Addendum as of the date
hereof.
10. RENEWAL OPTIONS: FUTURE EXPANSION: FAILURE TO EXERCISE.
(a) The renewal options contained in this Section 10 (a) shall
supersede and replace any renewal options previoiusly granted under the Lease.
So long (i) as the Lease and the lease for Building Two are in effect, (ii) the
Lease and the Building Two lease are in good standing, (iii) Tenant is not in
default of the Lease or the Buildilng Two lease, and all of the space in
Building Two and Building Eleven are being leased by Tenant, Tenant shall have
the option to renew the Lease for the entire Building Eleven for two additional
successive periods of five years each. Such options become exercisable at the
end of the Lease, as hereby extended, and Tenant shall give written notice of
Tenant's exercise of such options no later than ninety (90) days prior to the
expiration of the previous term. In addition, notwithstanding anything to the
contrary contained in the terms of the Options heretofore existing, (i) the rent
which Tenant will be required to pay if it exercises for the first option shall
continue at the rate specified in Section 6(c) above, and (ii) the rent which
Tenant will be required to pay if it exercises second option shall continue at
the rate specified in Section 6(c) above, but shall be reset to an amount equal
to ninety (90%) percent of the then current rental rate for space of similar
kind and size,if such ninety (90%) percent of the then market rate amount not
including operating expenses, which shall be paid by Tenant in addition to said
90% of market rate amount and which shall continue to escalate during the Lease
term and any extensions thereof pursuant to Section 6(c) herein is less than the
rent specified in Section 6(c) above for the applicable rental period. The reser
rental rate shall continue to escalate in accordance with the provisions of
Section 6(c). Such market rental rate for space of similar kind and size shall
be reasonably determined by the parties. In the event (i) Tenant exercises
Tenant's option for the first of the two additional five-year terms, thereby
extending the Term of the Lease to May 31, 2013, (ii) the Lease is in good
standing, (iii)
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<PAGE>
Tenant is not in default of the Lease and (Iv) Tenant has leased all of the
space in Building Eleven, Landlord hereby grant Tenant the option to extend the
Lease for three additional successive terms of five years each following the
expiration of the Lease on May 31, 2013. Each such option must be exercised by
Tenant in writing, not less than 180 days before the expiration of the preceding
option term. However, upon Landlord's request, approximately one year before the
expiration of the then existing option terms, Tenant shall informally advise
Landlord, on a non-binding basis, whether Tenant intends to exercise its option
to extend the Lease for the next option period. The rental amount for each such
additional term shall be agreed upon by Landlord and Tenant, based upon market
and other conditions at the time. In the event Tenant does not exercise any
Option, Landlord shall have the right to post signs, advertise and show the
Premises to prospective tenants 150 days prior to the expiration of the then
existing term. Without limiting the generality of the non-assignability of the
Lease by Tenant, the options granted to Tenant hereunder are not assignable or
transferable by Tenant without the prior written consent of Landlord, which
consent shall not be unreasonably withheld.
(e) So long as both of the Leases for Building Eleven and
Building Two between Landlord and Tenant (i) are in effect, (ii) are in good
standing, (iii) Tenant is not in default thereof, and (iv) the entire Building
Eleven and Building Two are being leased by Tenant, Tenant shall have the right,
at Tenant's option, to construct, at Tenant's sole cost and expense, an
improvement connecting either the north or south portions of Building Two and
Building Eleven, thereby making such buildings one contiguous "U"-shaped space
(the "Addition"). The plans and specifications must have the Landlord's prior
written approval which shall not be unreasonably withheld. Landlord represents,
without investigation or inquiry, that it is not aware of any reason why Tenant
will not be able to construct the Addition, other than approvals, permits,
and/or authorizations required from applicable governmental authorities and the
New Town Commerce Center West Association, Inc. (the "Association"), and any
applicable covenants, declarations, easements and restrictions applicable to the
Project ("Restrictions") pursuant to documents recorded in the Public Records of
Broward County, Florida, which documents Tenant acknowledges have been
previously furnished to Tenant by Landlord. In connection with such
construction, Tenant shall comply with all governmental and Association
requirements and with all Restrictions affecting the Premises. If Tenant desires
to proceed to construct the Addition, Landlord shall, at no expense to Landlord,
take such actions as may be reasonably necessary in the discretion of Landlord
to allow Tenant to obtain any governmental and Association authorizations,
permits and/or approvals (if any), which may be required. In the event Tenant is
permitted to and actually constructs the Addition, Tenant shall bear all
expenses associated with the construction and the continued operation of the
Addition during the Lease term and any extensions thereof, including, but not
limited to, maintenance, repair, real estate taxes and insurance. Tenant shall
reimburse Landlord for any real estate taxes and insurance paid for the Addition
by Landlord within ten (10) days of Landlord's written request therefor. The
Addition constructed by Tenant shall be the property of the Landlord. If
required in Landlord's consent to Tenant's construction of the Addition, within
thirty (30) days prior to the expiration or termination of the Lease, Tenant, at
Tenant's sole cost and expense, shall demolish the Addition constructed by
Tenant, and restore the Building Eleven and Building Two to their respective
exterior configurations and exterior conditions prior to the commencement of the
applicable lease for Building Eleven and
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<PAGE>
Building Two. Without limiting the generality of the non-assignability of the
Lease by Tenant, the rights and obligations of Tenant under this Section 10 (b)
are not assignable or transferable to any other party without the prior written
consent of Landlord, which shall not be unreasonably withheld.
(f) In the event Tenant fails to exercise its option to extend
the Lease past May, 2003 and otherwise fails to continue to occupy the Future
Additional Space past such date pursuant to a lease, Tenant shall be required to
pay Landlord for the office space (including demising walls) in the Future
Additional Space in the event Tenant demolishes any of such space before May 31,
2003. Such amount shall be equal to the dollar amount reasonably required to
reconstruct the office space (including demising walls) in the Additional Rental
Area and Future Additional Space which Tenant demolished (if any) and did not
rebuild in accordance with the square footage shown in EXHIBIT B attached
hereto; however, Tenant shall receive credit against said charges for space
tenant did build out as office space in another portion of Building Eleven.
7. Article Six of the Original Lease is amended to state:
"Upon commencement of this Lease, Tenant shall at all times keep the
leased Premises and all partitions, doors, fixtures, equipment and
appurtenances thereof (including lighting, and plumbing fixtures, and
HVAC system) in good order and condition, except for structural
portions of the Premises which shall be maintained by Landlord, but if
Landlord is required to make repairs to structural portions by reason
of the acts or omissions of Tenant, its agents, employees, or invitees,
Landlord may add the cost of such repairs to the rent which shall
thereafter become due."
8. ASSIGNMENT. Without the prior written consent of Landlord, which
shall not be unreasonably withheld, the Lease, as amended hereby, is not
assignable by Tenant and Tenant may not sublet the Premises or any portion
thereof. It is intended by the parties hereto that the Tenant shall not profit
from any permitted assignment of the Lease or sublease of the Premises or any
portion thereof. Therefore, in the event Landlord consents to any assignment or
sublease, Landlord shall receive from Tenant (or, at Landlord's option, directly
from the assignee or sublessee, as applicable), in addition to the rent and
other charges due under the Lease as amended hereby, all rent, charges, fees and
payments paid to Tenant by such assignee or sublessee that exceeds the rent
provided for in the Lease, as amended hereby, except that to the extent any
additional concessions or payments are made by Tenant to assignee or sublessee
to induce such assignee or sublessee to lease the Premises, Tenant shall give
written notice of the amount of same to Landlord at the time Tenant requests
Landlord's approval of assignment or sublease, and Tenant shall be entitled to
retain fifty (50%) of any amount exceeding the rent provided for in the Lease,
as amended hereby, until Tenant has recouped the amount of such inducement to
assignee or sublessee.
9. BROKER COMMISSIONS. Colliers Lehrer Adler is recognized as the only
Broker with regard to this transaction. Tenant warrants that there are no claims
for Broker's commissions or finder's fees in connection with its execution of
this Lease, and agrees to indemnify and save Landlord harmless from any
liability that may arise from
Page 5 of 6
<PAGE>
such a claim, including reasonable attorneys' and paralegals' fee (whether
incurred in court, out of court, on appeal or in bankruptcy or administrative
proceedings).
14. CONTROLLING PROVISION. Notwithstanding the terms, conditions,
duties, and or obligations of the Lease, Landlord and Tenant agree that this
Third Addendum shall take precedence and shall read and construed, when in
conflict, as if it were the original terms, conditions, and agreements between
Landlord and Tenants.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Third
Addendum on the ____ day of June, 1997.
Witness: TENANT:
Andrx Corporation, a Florida Corporation
/S/ ALLISON LICHTER By: /S/ SCOTT LODIN
- --------------------------- --------------------------------
Print Name: ALLISON LICHTER Print Name: SCOTT LODIN
--------------- ------------------------
Title: V.P./GENERAL COUNSEL
----------------------------
/S/ LYNN DIERKSMEIER
- -----------------------------
Print Name: LYNN DIERKSMEIER
-----------------
Witness: LANDLORD:
Colliers Lehrer Adler, as
Manager of:
New Town Commerce Center Ltd.
/S/ ALLISON LICHTER By: /S/ BRETT W. HARRIS
- ---------------------------- ------------------------------
Print Name: ALLISON LICHTER Print Name: Brett W. Harris
--------------- -----------------------
Title: Vice President
----------------------------
/S/ LYNN DIERKSMEIER
- ------------------------------
Print Name: LYNN DIERKSMEIER
-----------------
Page 6 of 6
FOURTH ADDENDUM TO LEASE BETWEEN ANDRX CORPORATION
AND NEWTOWN COMMERCE CENTER LTD., AS SUCCESSOR IN INTEREST
TO NEWTOWN ASSOCIATES LIMITED PARTNERSHIP
This Fourth Addendum is dated the 23rd day of July, 1996 and is by and
between Andrx Corporation, a Florida corporation ("Tenant") and Newtown Commerce
Center, Ltd., as successor in interest to Newtown Associates Limited Partnership
("Landlord").
WITNESSETH:
WHEREAS, Landlord and Tenant entered into that certain Lease Agreement
dated April 23, 1993 (the "Original Lease"), pertaining to Suites 201 to 203 in
that certain building located at 4001 S.W. 47th Avenue, Davie, Florida 33314
("Building Two"); and
WHEREAS, the Original Lease has been modified and amended pursuant to
those certain Addenda dated July 28, 1994, May 1, 1995 and October 30, 1995, in
order to, among other things, add Suites 204, 205, 206, 207, 208, 209, 210, and
211, in Building Two, to the Original Lease and to grant Tenant a right of first
refusal with respect to the remaining space in Building Two (the "Addenda"); and
WHEREAS, the Original Lease has also been modified and amended pursuant
to that certain Option to Lease, dated April 30, 1993 (the "Option") and a
Non-Disturbance, Attornment and Subordination Agreement dated August 25, 1993
(the "Non-Disturbance Agreement" and the Original Lease, the Addenda, the
Option, and the Non-Disturbance Agreement are herein collectively referred to as
the "Lease");
NOW, THEREFORE, in consideration of the premises and the sum of Ten
Dollars ($10.00) and other good and valuable consideration, Landlord and Tenant
hereby agree as follows:
1. Incorporation of Recitals. The Recitals set forth above are true and
correct and are hereby incorporated by reference.
2. Exercise of Option. Tenant hereby exercises its option with respect
to Suites 213 and 214, and agrees to lease those suites, comprising
approximately 4,100 square feet, beginning as of June 1, 1996. That additional
space, together with the other suites presently leased by Tenant in Building
Two, shall become part of the Lease, making a combined total of 37,400 square
feet leased by Tenant pursuant to the Lease.
3. Term and Delivery of Space. The term of the Lease, with respect to
any additional space acquired by Tenant pursuant to the exercise of its option,
shall commence on the first day of the month after such space is vacated, and
shall expire on May 31, 2003. Notwithstanding the foregoing, Landlord shall
allow Tenant to immediately use such additional space without any payment
obligation.
<PAGE>
4. Field Measurement. Tenant shall be entitled to a "Field Measurement"
of any additional space which it acquires, and of the total rentable square
footage of the subject building.
5. Rental Rate. Commencing on the first day of the month after Tenant
gains possession of any additional space in Building Two, Tenant agrees to pay
Landlord the total annual rental set forth below for the suites it occupies,
plus additional Florida sales tax (presently at 6% per annum), in accordance
with the following schedule:
Period :| Rate per Sq. Ft.
Until May 1998 $7.15
June 1998 to May 2001
(36 months) $7.40
June 2001 to May 2003
(36 months) $7.65
The annual rent shown above includes operating expenses.
6. Option: Deliverv of Suite 215. Tenant is hereby given the option of
causing Landlord to vacate Suite 215 during the Lease Term. Upon Tenant's
written request, Landlord hereby agrees to vacate Suite 215 as quickly as may be
practicable. If such option is exercised, Tenant hereby agrees to pay Landlord's
moving expenses and any expenses reasonably incurred in connection with building
out or decorating the space in Newtown Commerce Centre which Landlord moves
into. This provision is subject to a space being available facing S.W. 47th
Avenue.
7. Other Provisions. All other terms and conditions of the Lease shall
remain the same.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this fourth
Addendum on the date set forth above.
Tenant: Landlord:
ANDRX CORPORATION NEWTOWN COMMERCE CENTER, LTD.
By: ADLER MANAGEMENT SERVICES,
INC.
/S/ SCOTT LODIN /S/ BRETT HARRIS
- ------------------------ --------------------------------------
Scott Lodin, V.P./General Counsel Brett Harris, Executive Vice President
LEASE
1. BASIC LEASE PROVISIONS.
1.1 Parties. This Lease (the "Lease"), dated as of this 17th day of
February, 1998, is made by and between NEW TOWN COMMERCE CENTER, LTD.
(hereinafter referred to as "Landlord"), and ANDRX CORPORATION (hereinafter
referred to as "Tenant").
1.2 Premises. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord a portion of real property commonly known as 4111 SW 47th Avenue,
located at NEW TOWN COMMERCE CENTER, LTD. (hereinafter referred to as the
"Center"), consisting of approximately 2,000 square feet (the "Leased
Premises"). The location of the Leased Premises is generally delineated on
Exhibit "A" which is attached hereto and made a part hereof. All of the real
property underlying the Center and adjacent thereto, with all improvements
thereon, including the Center and the Common Areas (as defined below), and used
in connection with the operation of the Center, shall hereinafter be referred to
as the "Project".
1.2.1 The Leased Premises consists of approximately 338 square
feet of office space and approximately 1,662 square feet of warehouse space.
1.3 Use of Additional Areas. The use and occupation by the Tenant of
the Leased Premises shall include the non-exclusive use, in common with others
entitled thereto, of the common areas, employees' parking areas, service roads,
malls, loading facilities, sidewalks and customer car parking areas as such
common areas now exist or as such common areas may hereafter be constructed, and
other facilities as may be designated from time to time by the Landlord, subject
to the terms and conditions of this Lease and to reasonable rules and
regulations for the use thereof as prescribed from time to time by the Landlord.
1.4 Lease of Leased Premises. Tenant will use and occupy the Leased
Premises only for the purposes of Office/Warehouse and for no other use and
purpose. In the event that Tenant uses the Leased Premises for purposes not
expressly permitted herein, Landlord may seek damages without terminating Lease,
in addition to all other remedies available to it, terminate this Lease or
restrain said improper use by injunction. Tenant shall not perform any acts or
carry on any practices which may damage the Project, building or improvements or
be a nuisance or menace to other tenants in the Project or their customers,
employees or invitees or which will result in the increase of casualty insurance
premiums. Tenant agrees to conduct its business in the Leased Premises under the
name or trade name as set forth in the Lease Agreement and under no other name
or trade name except such as may be first approved by Landlord in writing.
Tenant shall be solely responsible to determine if the intended use complies
with all governmental regulations. Landlord, by execution of this Lease or
otherwise, makes no representations that the intended use complies with
governmental regulations.
1.5 Term. The Lease term shall commence on March 1, 1998 (hereinafter
referred to as the "Commencement Date") and shall terminate on February 28,
2000, unless earlier terminated pursuant to the terms hereof (hereinafter
referred to as the "Term"). The "Lease Year" hereunder shall be defined as a
period of twelve (12) consecutive months, with the first Lease Year commencing
on the Commencement Date and each subsequent Lease Year commencing on the
expiration of the immediately preceding Lease Year. The expiration of every
Lease Year shall be referred to as the "Anniversary".
1.6 Failure of Tenant to Take Possession. In the event that Tenant
fails to take possession or, if applicable, to occupy the Leased Premises and to
commence to do business on the Commencement Date, then Tenant shall be in
default hereunder and Landlord shall have the right, at its option, to cancel
this Lease by giving Tenant written notice of intent to cancel thereof and this
Lease will terminate ten (10) days after the giving of such notice and Landlord
will retain all prepaid rentals and security deposits as liquidated and agreed
damages.
1.7 Obligations of Tenant Before Rent Commencement Date. In the event
the Commencement Date precedes the time for payment of rent, Tenant shall
observe and perform all of its obligations under this Lease (except its
obligations to pay Base Rent) beginning on the Commencement Date.
1.8 Obligations of Landlord Before Leased Premises Becomes Vacant. If
this Lease is executed before the Leased Premises becomes vacant, or if any
present Tenant or occupant of the Leased Premises holds over, and Landlord
cannot acquire possession of the Leased Premises prior to the Commencement Date
of this Lease, Landlord shall not be deemed to be in default hereunder, and
Tenant agrees to accept possession of the Leased Premises and rent shall
commence at such time as Landlord is able to deliver the same; provided,
however, Tenant shall not be obligated hereunder unless Landlord is able to
deliver the Leased Premises within ninety (90) days of the Commencement Date.
1.9 Control of Common Areas by Landlord. All areas within the exterior
boundaries of the Project which are not now or hereafter held for lease or
occupation by the Landlord, or used by other persons entitled to occupy floor
space in the Project, including, without limitation, all automobile parking
areas, driveways, entrance and exits thereto, and other facilities furnished by
Landlord in or near the Project, including employee parking areas, the through
way or ways, loading docks, pedestrian sidewalks and ramps, landscaped areas,
exterior stairways and other areas and improvements provided by Landlord for the
general use, in common, of tenants, their officers, agents, employees and
customers ("Common Areas") shall at all times be subject to the exclusive
control and management of Landlord, and Landlord shall have the right, but not
the obligation, to construct, maintain and operate lighting facilities on all
said areas and improvements, to patrol the same, from time to time to change the
area, level, location and arrangement of parking areas and other facilities
herein above referred to; to restrict parking by tenants, their officers, agents
and employees to employee parking areas.
Landlord shall have the right to close all or any portion of said areas or
facilities to such extent as may, in the opinion of Landlord's counsel, be
legally sufficient to prevent a dedication thereof or the accrual of any rights
to any person or the public therein to close temporarily all or any portion of
the parking areas or facilities, to discourage non-customer parking; and to do
and perform such other acts in and to said areas and improvements as, in the use
of good business judgment, the Landlord shall determine to be advisable with a
view to the improvement of the convenience and use thereof by tenants, their
officers, agents, employees and customers. Landlord shall keep said Common Areas
clean and in good repair and available for the purposes for which they are
intended. Landlord shall have the full right and authority to employ all
personnel and to make all rules and regulations pertaining to and necessary for
the proper operation and maintenance of the Common Areas and facilities.
1.10 License. All Common Areas and facilities not within the Leased
Premises, which Tenant may be permitted to use and occupy, are hereby authorized
to be used and occupied under a revocable license, and if any such license be
revoked, or if the amount of such areas be diminished, Landlord shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation or diminution of such
areas be deemed constructive or actual eviction.
2. PAYMENT OF RENT AND OTHER CHARGES.
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<PAGE>
2.1 Base Rent. Tenant agrees to pay to Landlord throughout the Term of
this Lease, monthly payments of base rent ("Base Rent") as set forth below,
which amounts shall be paid to Landlord in advance in United States money on or
before the first day of each month, without any offset or deduction whatsoever,
not including applicable Florida sales and use tax for each of said monthly
payments:
Period Annual Rent Per Total Annual Monthly
Rentable Square Foot Base Rent Base Rent
- --------------------------------------------------------------------------------
03/01/98 to 02/28/99 $ 8.50 $ 17,000.04 $ 1,416.17
- --------------------------------------------------------------------------------
03/01/99 to 02/23/00 $ 8.34 $ 17,679.96 $ 1,473.33
- --------------------------------------------------------------------------------
2.1.1 Services Provided. The following services at minimum are
provided:
2.1.1.1 gardening, landscaping and irrigation, exterior
repairs and painting:
2.1.1.2 sanitary control, removal of trash, rubbish, garbage
and other refuse from the Common Areas but not from any Leased Premises;
2.1.1.3 utilities for Common Areas;
2.1.1.4 a dumpster(s) will be provided for refuse collection.
Dumpsters are for office and incidental waste only. Those tenants determined by
Landlord to produce excessive and/or refuse that we do not allow to be disposed
of in our dumpster(s) will be required to provide their own dumpster at their
expense.
2.2 Sales or Use Tax or Excise Tax. Tenant shall also pay, as
Additional Rent, all sales or use or excise tax imposed, levied or assessed
against the rent or any other charge or payment required herein by any
governmental authority having jurisdiction there over, even though the taxing
statute or ordinance may purport to impose such sales tax against the Landlord.
The payment of sales tax shall be made by Tenant on a monthly basis,
concurrently with payment of the Base Rent.
2.3 Pro Rata Share of Project Area Expenses. For each Lease Year or
partial Lease Year if Project Area Expenses are calculated by calendar year,
Tenant will pay to Landlord, in addition to the Base Rent specified above, as
further additional rent, "Tenant's proportionate share" of "Project Area
Operating Expenses", less the "Base Amount".
2.3.1 "Tenant's proportionate share" shall mean a proportion
of the Project Area Operating Expenses, calculated by multiplying the total
Project Area Operating Expenses by a fraction, the numerator of which shall be
the number of square feet contained in the Leased Premises and the denominator
of which shall be the aggregate number of square feet of leasable building space
in the Project, which Tenant's proportionate share is hereby agreed to be .0069.
2.3.2 "Base Amount" shall mean a sum equal to the aggregate
Project Area Operating Expenses determined by Landlord for the Base Year.
2.3.3 "Project Area Operating Expenses" as used herein means
the total cost and expense incurred in operating and repairing the Project
buildings and improvements and common facilities, hereinafter defined, excluding
only items of expense commonly known and designated as debt service, plus an
administrative fee of fifteen percent (15%) of that sum. Project Area Operating
Expenses shall specifically include, without limitation:
2.3.3.1 Gardening, landscaping and irrigation,
repairs, painting;
2.3.3.2 Management fees;
2.3.3.3 Sanitary control, removal of trash, rubbish,
garbage and other refuse from the Common Areas but not from any Leased Premises;
2.3.3.4 Depreciation on machinery and equipment,
2.3.3.5 The cost of maintenance and support
personnel, including but not limited to payroll and applicable payroll taxes,
worker's compensation insurance and fringe benefits;
2.3.3.6 Utility charges for the common areas;
2.3.3.7 Water and sanitary sewer charges not billed
directly to tenants;
2.3.3.8 Association fees or dues; and
2.3.3.9 Any and all other charges, costs or expenses
which may be associated with Landlord's operation of the Project (excluding Real
Estate Taxes and Insurance).
2.3.4 "Common Facilities" means all areas, space, equipment
and special services provided by Landlord for the common or joint use and
benefit of the occupants or operations of the Project, their employees, agents,
servants, customers and other invitees, including without limitation, parking
areas, access roads, driveways, retaining walls, landscaped areas, pedestrian
malls, courts, stairs, ramps and sidewalks, public rest rooms, washrooms,
community hall or auditorium (if any) and signs, wherever located, identifying
the Project, or providing instructions thereto.
2.3.5 Landlord may estimate the Project Area Operating
Expenses and Tenant shall pay one-twelfth (1/12) of Tenant's proportionate share
of said estimated amount monthly in advance, together with the next due payment
of Base Rent. After the end of each Lease Year, Landlord shall furnish Tenant a
statement of the actual Project Area Operating Expenses. Within thirty (30) days
after receipt by Tenant of said statement, Tenant shall have the right in person
to inspect Landlord's books and records as pertain to said
Page 2 0f l4
<PAGE>
Project Area Operating Expenses, at Landlord's offfice, during normal business
hours, upon four (4) days prior written notice. The statement shall become final
and conclusive between the parties unless Landlord receives written detailed
objections with respect thereto within said thirty (30) day period. Any balance
shown to be due pursuant to said statement shall be paid by Tenant to Landlord
within thirty (30) days following Tenant's receipt thereof and any overpayment
shall be immediately credited against Tenant's obligation to pay Additional Rent
in connection with anticipated Project Area Operating Expenses for the next
year, or, if by reason of any termination of this Lease no such future
obligation exists, refunded to Tenant. Anything herein to the contrary
notwithstanding, Tenant shall not delay or withhold payment of any balance shown
to be due pursuant to a statement rendered by Landlord to Tenant because of any
objection which Tenant may raise with respect thereto and Landlord shall
immediately credit or refund any overpayment found to be owing to Tenant as
aforesaid upon the resolution of said objection.
Additional Rent due by reason of this section for the final months of this Lease
is due and payable even though it may not be calculated until subsequent to the
termination date of the Lease and shall be prorated according to that portion of
said calendar year that this Lease was actually in effect. Tenant expressly
agrees that Landlord, at Landlord's sole discretion, may apply the Security
Deposit, in full or partial satisfaction of any Additional Rent due for the
final months of this Lease, but nothing herein contained shall be construed to
relieve Tenant of the obligation to pay any Additional Rent due for the final
months of this Lease, nor shall Landlord be required to first apply said
Security Deposit to such Additional Rent if there are any other sums or amounts
owed Landlord by Tenant by reason of any other terms or provisions of this
Lease.
2.4 Additional Rent. In order to give Landlord a lien of equal priority
with Landlord's lien for rent, and for no other purpose, including tax
determination, any and all sums of money or charges required to be paid by
Tenant under this Lease, whether or not the same be so designated, shall be
considered "Additional Rent." If such amounts or charges are not paid at the
time provided in this Lease, they shall nevertheless, if not paid when due, be
collectible as Additional Rent with the next installment of rent thereafter
falling due hereunder, but nothing herein contained shall be deemed to suspend
or delay the payment of any amount of money or charges as the same becomes due
and payable hereunder, or limit any other remedy of Landlord.
2.5 Special Assessments For each Lease Year, Tenant will pay to
Landlord, in addition to Base Rent as further Additional Rent, Tenant's
proportionate share of any special assessments assessed against the Project,
with applicable tax, if any. The payment of any such special assessments shall
be made by Tenant on a monthly basis, concurrently with Base Rent. Tenant's
proportionate share of any such special assessment shall be the proportionate
share stated in Section 2.3.1.
2.6 Real Estate Taxes. For each Lease Year or partial Lease Year, if
real estate taxes are computed for a calendar year, Tenant will pay to Landlord,
in addition to Base Rent as further Additional Rent, a percentage share of all
ad valorem and real estate taxes levied by any lawful authority against the
Project less ad valorem and real estate taxes of the Project for the base year.
Percentage share shall be calculated by multiplying the total taxes charged in
the tax bill(s) in which the building of the Leased Premises is included, by a
fraction, the numerator of which shall be the number of square feet contained in
the Leased Premises and the denominator of which shall be the aggregate number
of square feet of leasable building space in property subject to the tax bills
referenced above, which percentage share shall be .0244. Landlord may estimate
the amount in the manner set out in Section 2.3.5.
2.7 Insurance. For each Lease Year or partial Lease Year, if insurance
is paid per calendar year, Tenant will pay to Landlord, in addition to Base Rent
as further Additional Rent, Tenant's proportionate share of Landlord's insurance
premiums on or in respect of the Project, including but not limited to public
liability, property damage, all risk perils, rent and flood insurance, if
carried by Landlord less said insurance premiums for the base year. Tenant's
proportionate share shall be .0069. Landlord may estimate the amount in the
manner set out in Section 2.3.5.
2.8 County Storm Water Charges. N/A
2.9 For the first Lease Year, the estimated monthly payment under
2.3.5, 2.6 and 2.7 is N/A. The base year for computation of proportionate share
and percentage share is 1997.
2.10 Guard/Patrol Services. Landlord, in its sole discretion,
determination and option may, but is not required to enter into a contract or
contracts or otherwise provide or make arrangement for the providing of guard,
patrol and/or security which may include security guards and/or electronic
devices and/or a guard gate and/or gate house. Tenant shall pay its
proportionate share for the expense of the services. Landlord shall in no way be
responsible for the performance or non-performance of the obligations of
guard/patrol/security personnel or service, including but not limited to
negligent or intentional acts, and Tenant hereby releases Landlord from any
claims of any nature whatsoever in connection therewith.
2.11 Rental Payments.
2.11.1 Tenant will promptly pay all rentals and other charges
and render all statements herein prescribed. Any rental payment not received by
Landlord on its due date shall incur a "late charge" equal to five percent (5%)
of such payment to compensate Landlord for its administrative expenses in
connection with such late payment. When rental payments are delivered by Tenant
through the mails, Tenant shall mail such payments suffficiently in advance so
that the Landlord will receive the payments on or before the first day of the
calendar month or on or before the due date in the event the due date is other
than the first day of a calendar month. If Landlord shall pay any moneys, or
incur any expenses in correction of any violation of any covenant or of any
other obligation of Tenant herein set forth or implied herein, the amounts so
paid or incurred shall, at Landlord's option and on notice to Tenant, be
considered additional rentals payable by Tenant, with the first installment of
rental thereafter to become due and payable, and may be collected or enforced as
by law provided in respect to rentals.
2.11.2 In the event any payment of Rent, whether Base rent or
Additional Rent, is made by check and the check is returned to Landlord due to
insuffficient funds, Landlord shall have the right, upon written notice to
Tenant, to require all future rent payments to be made by cashier's check. If
this right is exercised by Landlord, attempted payment by means other than
cashier's check shall not be deemed a payment pursuant to this Lease, unless the
Landlord, in writing, revokes the requirement of a cashiers check.
3. DELIVERY OF LEASED PREMISES.
3.1 Construction of Premises by Landlord.
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3.1.1 Landlord has constructed the Leased Premises prior to
the execution of this Lease. Tenant certifies that it has inspected the Leased
Premises and accepts the Leased Premises existing "as is" condition.
3.2 Tenant's Work. Tenant agrees, at its own cost and expense, to
perform all work and comply with all conditions, more particularly described in
Exhibit "D" annexed hereto, which is necessary to make the Leased Premises
conform with Tenant's plans to be approved by Landlord. No later than thirty
(30) days after the execution of this Lease, Tenant shall furnish Landlord, in
advance of Tenant's commencement of work, for Landlord's written approval, plans
and specifications showing a layout, interior finish, and any work or equipment
to be done or installed by Tenant affecting any structural, mechanical or
electrical part of the Leased Premises or the building containing same. Landlord
agrees it will not unreasonably withhold such approval, it being the only
purpose of this requirement that Tenant's work shall not be detrimental to the
other tenants in the Project or to Landlord's building. To the extent not
inconsistent with this section, Section 6 of this Lease shall apply to this
Section 3.2. Tenant shall be responsible for all costs and expenses for
architectural fees, plans and Tenant improvements.
3.3 Changes and Additions to Building. Landlord hereby reserves the
right at any time to perform maintenance operations and to make repairs,
alterations, or additions, and to build additional stories on the building in
which the Leased Premises are contained and to build adjoining the same.
Landlord also reserves the right to construct other buildings or improvements,
including, but not limited to, structures for motor vehicle parking and the
enclosing and air conditioning of sidewalks in the Project from time to time and
to make alterations thereof or additions thereto. Tenant agrees to cooperate
with Landlord permitting Landlord to accomplish any such maintenance, repairs,
alterations, additions or construction. Temporary, partial obstruction of access
to Tenant's premises caused by such construction shall not be a default of
Landlord.
3.4 Right to Relocate. Landlord reserves the right to relocate the
Tenant from Leased Premises to another premises within the Project upon
reasonable notice. Landlord shall only be responsible for payment of reasonable
costs and expenses incurred by Tenant for the moving of personalty from the
Leased Premises to the new premises. Under no circumstances shall Landlord be
liable for loss of revenue, business or income in the event the right to
relocate is exercised.
4. CONDUCT OF BUSINESS BY TENANT.
4.1 Taking Possession of Premises. Tenant shall occupy the Leased
Premises without delay upon the Commencement Date, and shall conduct its
business continuously in the Leased Premises.
4.2 Objectionable Use of Premises. Without limiting application of any
other provision in this Lease, the following actions and activities shall not be
allowed in on or upon the Leased Premises, the Common Areas or the Project
without the prior written consent of Landlord.
4.2.1 Employment of any mechanical apparatus causing noises or
vibration which may be transmitted beyond the Leased Premises.
4.2.2 Objectionable odors emanating or dispelled from the
leased premises.
4.2.3 Conducting any auction, fire, bankruptcy selling out or
similar sales of any kind on or about the Leased Premises; display merchandise
on the exterior of the Leased Premises either for sale or for promotion
purposes.
4.2.4 Use or operate any machinery, which in Landlord's
reasonable opinion, may harm the building of which the Leased Premises is a
part.
4.2.5 Store, keep or permit the storage of any merchandise,
equipment, machinery or any other item on the walkways, loading docks, parking
areas, roof or grounds surrounding the Leased Premises or Common Areas not
specifically referenced herein.
4.2.6 Store or dump on or about the Demised Premises trash,
rubbish, pallets, chemicals, hazardous, toxic or other such substances or
dispose or attempt to dispose of such items in the sewers or storm drains of the
Demised Premises.
4.2.7 Wash and/or wax and/or repair vehicles. Store or keep
any boats, recreational vehicles, trailers or inoperable or unregistered
vehicles outside Demised Premises or in parking areas, leave vehicles in any
parking areas on the property for an extended period of time.
4.2.8 Residing in the Leased Premises, the Common Area or the
Project.
4.2.9 Abandon or dispose of personal property by leaving same
in the Leased Premises, Common Areas or Project.
4.2.10 Allowing animals or pets on the Leased Premises, Common
Areas or Project.
4.3 Remedies in case of Violation. In the event Tenant violates any
provision of Section 4.2, Landlord shall provide Tenant written notice of the
violation. Tenant shall have three (3) days from date of delivery of notice to
cease and/or cure the objectionable use, providing, however, in the event Tenant
violates the terms of this Section more than twice during the Term, Landlord
shall not be required to provide written notice or a cure period to invoke the
remedies authorized herein.
4.4 In the event Tenant fails to cure and/or cease objectionable
activities Landlord may (1) declare the lease materially breached; (2) cure the
violation as the Landlord in its sole discretion deems appropriate with costs
and fees for doing so charged to the Tenant as Additional Rent; (3) take such
legal or equitable action as is appropriate, including but not limited to
seeking injunctive relief; (4) take such other action as is authorized by law.
These remedies shall be deemed cumulative. Nothing herein shall prohibit
Landlord from taking emergency action in the event any violation threatens the
life, health and/or safety of any person or threatens property on or of the
project.
5. SECURITY DEPOSIT.
5.1 Deposit. Prior to Landlord's execution of this Lease, Tenant shall
deposit with the Landlord the sum of 0.00, and if by check, is subject to
collection. Said deposit shall be held by Landlord, without liability for
interest, and may be commingled with other funds of Landlord as security for the
faithful performance by Tenant of all the terms, covenants, and conditions of
this Lease by Tenant to be kept and performed during the term hereof.
5.2 Use and Return of Deposit. If at any time during the term of this
Lease any of the rent herein reserved shall be overdue and unpaid, or any other
sum payable by Tenant to Landlord hereunder shall be overdue and unpaid or in
the event of the failure of
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Tenant to keep and perform any of the terms, covenants and conditions of this
Lease to be kept and performed by Tenant, then Landlord may, at its option (but
Landlord shall not be required to) appropriate and apply all or any portion of
said deposit to the payment of any such overdue rent or other sum or so much
thereof as shall be necessary to compensate the Landlord for all loss or damage
sustained or suffered by Landlord due to the breach of Tenant. Should the entire
deposit, or any portion thereof, be appropriated and applied by Landlord for the
payment of overdue rent or other sums due and payable by Tenant hereunder, then
Tenant shall, upon the written demand of Landlord forthwith remit to Landlord a
sufficient amount in cash to restore said security to the original sum
deposited, and Tenant's failure to do so within five (5) days after receipt of
such demand shall constitute a breach of this Lease. If Tenant shall fully and
faithfully perform every provision of this Lease to be performed by it, the
Security Deposit or any balance thereof shall be returned to Tenant at the
expiration of the term of this Lease. The security deposit shall not be deemed
last month's rent.
5.3 Transfer of Deposit. Landlord may deliver the funds deposited
hereunder by Tenant to the purchaser or transferee of Landlord's interest in the
Leased Premises, in the event that such interest be sold or transferred, and
thereupon Landlord shall be discharged from any further liability with respect
to such deposit.
6. FIXTURES AND ALTERATIONS.
6.1 Installation by Tenant.
6.1.1 All improvements installed by Tenant shall be new or in
good working order. Tenant shall not make or cause to be made any alterations,
additions or improvements or install or cause to be installed any exterior
signs, exterior lighting, plumbing fixtures, fences, gates, shades or awnings or
make any changes to the common areas or the exterior of the building in which
the Leased Premises are located without first obtaining Landlord's written
approval and consent. Tenant shall present to the Landlord plans and
specifications for such work at the time approval is sought, and simultaneously
demonstrate to Landlord that the proposed alterations comply with local zoning
and building codes. Upon Tenant's breach of this provision, Landlord may take
such action as is necessary to remove the unauthorized installation with all
cost and expense to be charged to Tenant as additional rent. In addition,
Landlord may take such legal action at law or equity as a result of the breach,
including but not limited to injunctive relief.
6.1.2 All construction work done by Tenant within the Leased
Premises and otherwise shall be performed in a good and workmanlike manner, in
compliance with all governmental requirements, and in such manner as to cause a
minimum of interference with other construction in progress (if any) and with
the transaction of business in the Project. Without limitation on the generality
of the foregoing, Landlord shall have the right to require that such work be
performed outside of general business hours, and in accordance with other rules
and regulations which Landlord may, from time to time prescribe. Tenant agrees
to indemnify Landlord and hold it harmless against any loss, liability or
damage, resulting from such work, and Tenant shall, if requested by Landlord,
furnish bond or other security satisfactory to Landlord against any such loss,
liability or damage. Tenant shall be liable to Landlord for any damages
resulting from labor disputes, strikes or demonstrations resulting from Tenant's
construction or alteration work with the employment of non-union workers.
6.2 Responsibility of Tenant. All alterations, decorations, additions
and improvements made by the Tenant, or made by the Landlord on the Tenant's
behalf by agreement under this Lease, shall remain the property of the Tenant
for the term of this Lease, or any extension of renewal thereof. Such
alterations, decorations, additions and improvements shall not be removed from
the premises without prior consent in writing from the Landlord. Upon expiration
of this Lease, or any renewal term thereof, the Landlord shall have the option
of requiring the Tenant to remove all such alterations, decorations, additions
and improvements, and restore the Leased Premises as provided in Section 7.2
hereof. If the Tenant fails to remove such alterations, decorations, additions
and improvements and restore the Leased Premises, then such alterations,
decorations, additions and improvements shall become the property of the
Landlord and in such event, should Landlord so elect, Landlord may restore the
premises to its original condition for which cost, with allowance for ordinary
wear and tear, Tenant shall be responsible and shall pay promptly upon demand.
6.3 Tenant Shall Discharge All Liens. Nothing contained in this Lease
shall be construed as a consent on the part of the Landlord to subject the
estate of the Landlord to liability under the Mechanic's Lien Law of the State
of Florida, it being expressly understood that Landlord's estate shall not be
subject to liens for improvements made by the Tenant. Tenant shall strictly
comply with the Mechanic's Lien Law of the State of Florida as set forth in
Florida Statutes Section 713. In the event that a mechanic's claim of lien is
filed against the property in connection with any work performed by or on behalf
of the Tenant, the Tenant shall satisfy such claim or shall transfer same to
security, within ten (10) days from the date of filing. In the event that the
Tenant fails to satisfy or transfer such claim within said ten (10) day period,
the Landlord may do so and thereafter charge the Tenant, as additional rent, all
costs incurred by the Landlord in connection with satisfaction or transfer of
such claim, including attorneys' fees. Further, the Tenant agrees to indemnify,
defend and save the Landlord harmless from and against any damage or loss
incurred by the Landlord as a result of such mechanics' claim of lien. If so
requested by the Landlord, the Tenant shall execute a short form or memorandum
of this Lease, which may, in the Landlord's discretion be recorded in the Public
Records for the purpose of protecting the Landlord's estate from mechanics'
claims of lien, as provided in Florida Statutes Section 713.10. In the event
such short form or memorandum of lease is executed, the Tenant shall
simultaneously execute and deliver to the Landlord an instrument terminating the
Tenant's interest in the real property upon which the Leased Premises are
located, which instrument may be recorded by the Landlord only at the expiration
of the term of this Lease, or such earlier termination hereof. Landlord only has
the right to record the memorandum without execution by Tenant in the event
Tenant fails to execute the memorandum with seven (7) days of request. The
security deposit paid by the Tenant may be used by the Landlord for the
satisfaction or transfer of any mechanics' claim of lien, as provided in this
Section. This Section shall survive the termination of the Lease.
6.4 Signs. Tenant shall not exhibit, inscribe, paint or afffix any
sign, advertisement, notice or other lettering on any part of the outside of the
Demised Premises or of the building of which the Demised Premises are a part, or
inside the Demised Premises if visible from the outside, without the written
consent of Landlord. If consent is given, Tenant further agrees to maintain such
sign, lettering, etc. as may be approved in accordance with all city, county,
and state laws, ordinance or requirements and in good condition and repair at
all times.
7. REPAIRS AND MAINTENANCE OF LEASED PREMISES.
7.1 Responsibility of Landlord. Provided Tenant is not in default
according to the terms of this Lease and subject to interruption caused by
repairs, renewals, improvements, changes of service and alterations to the
Leased Premises, and further, subject to interruption caused by strikes,
lockouts, labor controversies, inability to obtain fuel or power, accidents,
breakdowns, catastrophes, national or local emergencies, "Acts of God," and
conditions and causes beyond the control of Landlord, Landlord will furnish the
following services to Tenant:
7.1.1 Landlord agrees to repair and maintain in good order and
condition the roof, roof drains, outside walls, foundations and structural
portions, both interior and exterior, of the Leased Premises. Landlord shall
initiate repairs of applicable problems within a reasonable period of time after
receipt of written notice of needed repairs or maintenance with completion as
soon as reasonably possible. There is excepted from this provision, however:
7.1.1.1 Repair or replacement of broken plate or
window glass (except in case of damage by fire or
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other casualty covered by Landlord's fire and extended coverage policy);
7.1.1.2 Interior and exterior doors, door closure devices,
window and door frames, moldings, locks and hardware;
7.1.1.3 Repair of damage caused directly or indirectly by the
negligence or intentional acts of Tenant, its employees, agents, contractors,
customers, invitees; and
7.1.1.4 Interior repainting and redecoration.
7.1.2 Landlord shall not be liable for any injury or damage to
persons or property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water, rain, or leaks from any part of the Leased Premises or from
the pipes, appliances or plumbing works or from the roof, street or subsurface
or from any other place or by dampness or by any other cause of whatever nature.
Landlord shall not be liable for any such damage caused by other tenants or
persons in the Leased Premises, occupants of adjacent property, of the Project,
or the public, or caused by operations in construction of any private, public or
quasi-public work. Landlord shall not be liable in damages or otherwise for any
latent defect in the Leased Premises or in the building of which they form a
part.
7.1.3 In no event, however, shall Landlord be liable for
incidental or consequential damages arising from (i) the failure to make said
repairs, or (ii) making repairs in a untimely manner, nor shall Landlord be
liable for incidental or consequential damages arising from defective
workmanship or materials in making any such repairs.
7.1.4 Except as hereinabove provided Landlord shall not be
obligated or required to make any other repairs, and all other portions of the
Leased Premises shall be kept in good repair and condition by Tenant.
7.2 Responsibilities of Tenant
7.2.1 Tenant agrees to maintain the Leased Premises in good
order and condition.
7.2.2 Tenant will not install any equipment which exceeds the
capacity of the utility lines leading into the Leased Premises or the building
of which the Leased Premises constitute a portion.
7.2.3 Tenant covenants and agrees to keep and maintain in good
order, condition and repair (which repair shall mean replace if necessary) the
Leased Premises and every part thereof, except as hereinbefore provided,
including but without limitation, the exterior and interior portions of all
doors, equipment, security gates, windows, glass, utility facilities, plumbing
and sewage facilities within the Leased Premises or under the floor slab
including free flow up to the main sewage line fixtures, heating equipment, air
conditioning (HVAC) including exterior mechanical equipment, exterior utility
facilities and exterior electrical equipment serving the Leased Premises and
interior walls, floors and ceilings, including compliance with all applicable
building codes including but not limited to those relative to fire
extinguishers. Tenant will use at Tenants cost a pest exterminating contractor
at such intervals as may be necessary to keep the Leased Premises free of
rodents and vermin. If Tenant refuses or neglects to commence or complete
repairs promptly and adequately Landlord may, but shall not be required to do
so, make or complete said repairs and Tenant shall pay the cost thereof to
Landlord upon demand.
7.2.4 Tenant, its employees, or agents, shall not deface any
walls, ceilings, partitions, floors, wood, stone or ironwork without Landlord's
written consent.
7.2.5 Tenant shall comply with the requirements of all laws,
orders, ordinances and regulations of all governmental authorities and will not
permit any waste of property or same to be done and will take good care of the
Leased Premises.
7.2.6 If Tenant refuses or neglects to maintain the Leased
Premises properly as required and does not correct an identified problem(s) to
the reasonable satisfaction of Landlord as soon as reasonably possible after
written demand, Landlord may take such remedial action as Landlord may
reasonably determine, without liability to Tenant, for any loss or damage that
may accrue to Tenant's equipment, fixtures, or other property, or to Tenant's
business by reason thereof and upon completion thereof Tenant shall pay
Landlord's cost for the taking of such action, plus twenty (20%) percent for
overhead, upon presentation of bill therefor, as additional rent. Said bill
shall include interest at fifteen (15%) percent of said cost from the date of
completion by Landlord. In the event the Landlord shall undertake any
maintenance or repair in the course of which it shall be determined that such
maintenance or repair work was made necessary by the negligence or willful act
of Tenant or any of its employees or agents or that the maintenance or repair
is, under the terms of this Lease, the responsibility of Tenant, Tenant shall
pay Landlord's costs therefore plus overhead and interest as above provided in
this Section.
7.2.7 Unless requested in writing by the Landlord to the
contrary, at the expiration of the tenancy hereby created, Tenant shall
surrender the Leased Premises in the same condition as the Leased Premises were
in upon the Commencement Date or following completion of Tenant's Work,
whichever is later, reasonable wear and tear excepted, and damage by unavoidable
casualty excepted, and shall surrender all keys for the Leased Premises to
Landlord. Tenant shall remove ali its trade fixtures, leased equipment and such
part of the said Tenant's Work and any subsequent alterations, decorations,
additions and/or improvements which Landlord requests to be removed before
surrender of the Leased Premises as aforesaid and shall repair any damage to the
Leased Premises caused thereby. All alterations, decorations, additions and/or
improvements left on the Leased Premises shall be in compliance with applicable
governmental codes, laws, ordinances and building standards. Any violation to
paragraph 7.2 and it's subparts shall constitute an unsatisfactory condition.
Tenant's obligation and liability under this covenant shall survive the
expiration or other termination of this Lease. In the event that Tenant shall
vacate the Leased Premises in unsatisfactory condition, in addition to the cost
of repairs, Tenant shall:
7.2.7.1 pay to Landlord a sum equal to 110% of the
Base Rent and Additional Rent for the time period required to effect such
repairs;
7.2.7.2 pay all damages that Landlord may suffer on
account of Tenant's vacating the Leased Premises in unsatisfactory condition;
and
7.2.7.3 indemnify and save Landlord harmless from and
against any and all claims made by succeeding tenant of the Leased Premises
against Landlord on account of delay of Landlord in delivering possession of the
Leased Premises to said succeeding tenant to the extent that such delay is
occasioned by Tenant's vacating the Leased Premises in unsatisfactory condition.
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7.2.8 Tenant shall at its own expense perform all janitorial
and cleaning services within the Leased Premises in order to keep same in a
neat, clean and orderly condition.
7.2.9 Tenant shall give Landlord prompt written notice (and
telephonic notice in the case of an emergency) of any fire or damage occurring
on or to the Leased Premises, any defects in the Leased Premises, and any
defects in any fixtures or equipment for which Landlord is responsible under the
Lease.
8. UTILITIES. Tenant shall be solely responsible for and shall promptly
pay all charges for gas, electricity, telephone or any other separately metered
utility used or consumed in the Leased Premises. Landlord shall not be liable
for an interruption or failure in the supply of any such utilities to the Leased
Premises unless caused by the gross negligence or intentional act of the
Landlord.
9. INSURANCE AND INDEMNITY.
9.1 Tenant shall carry and maintain, at its sole cost and expense, the
following types of insurance, in the amounts specified and in the form
hereinafter provided for:
9.1.1 Public liability and property damage. Tenant shall,
during the Term, maintain insurance against public liability, including that
from personal injury or property damage in or about the Premises resulting from
the occupation, use, or operation of the Premises, insuring both Landlord,
Landlord's managing agent and Tenant and naming the Landlord and Landlord's
managing agent as an additional insured therein, in amounts of not less than ONE
HUNDRED THOUSAND DOLLARS ($100,000.00) against liability for bodily injury
including death and personal injury for any one (1) occurrence and not less than
THREE HUNDRED THOUSAND DOLLARS ($300,000.00) against liability for bodily injury
including death and personal injury for more than one (1) occurrence, and not
less than TWENTY-FIVE THOUSAND DOLLARS ($25,000.00) for property damage.
9.1.2 Plate glass insurance providing full coverage for
replacement of damaged or destroyed glass in or upon the Premises;
9.1.3 Workman's compensation insurance for the benefit of all
employees entering upon the Premises as a result of or in connection with their
employment by Tenant;
9.1.4 All other insurance required of Tenant, as an employer,
pursuant to any law, rule, or ordinance of any governmental authority having
jurisdiction;
9.1.5 Fire, casualty, and extended coverage insurance on
Lessee's fixtures, improvements and finishings, which policies of insurance
shall be in amounts, in such forms and issued by such companies are as approved
by Landlord and shall name Landlord and Tenant as their interests may appear;
and
9.1.6 Such other forms of insurance which are not available as
of the date hereof, but which may become available in the future and are
typically required by landlords of properties similar in character to the
Center, if in the Landlord's sole discretion, the same is necessary to
adequately insure the Premises and underlying property and such other forms of
insurance which may become necessary as the result of any changes in applicable
laws.
9.2 The original of each policy of insurance, certified duplicates
thereof, and certificates of insurance issued by the insurance or insuring
organization shall be delivered to Landlord on or before the Commencement Date
and proof of renewal shall be provided to Landlord not less than thirty (30)
calendar days prior to the expiration of any policy. In addition to and together
with Tenant's pro rata share of operating costs, Tenant shall pay to Landlord
within ten (10) calendar days of its receipt of Landlord's written request, the
entire amount of any extraordinary or additional premium for insurance upon or
for the Premises and/or Center occasioned by or resulting from Tenant's use of
the Premises.
9.3 The aforementioned insurance shall be in companies authorized to
engage in the business of insurance in the State of Florida with a minimum
rating of "A" by A. M. Best and shall be in form, substance, and amount (where
not stated above) satisfactory to Landlord. The insurance shall not be subject
to cancellation except after at least thirty (30) calendar days prior written
notice to Landlord. If any of the aforementioned insurance shall not be procured
or maintained by Tenant, Landlord may, at its option, procure such insurance or
any portion thereof, and Tenant shall pay to Landlord any sums expended by
Landlord therefore upon demand; or, Landlord may, at its option terminate this
Lease.
9.4 Increase in Fire Insurance Premium. Tenant agrees that it will not
keep, use, sell or offer for sale in or upon the Leased Premises any article
which may be prohibited by the standard form of fire and extended risk insurance
policy. Tenant agrees to pay any increase in premiums for fire and extended
coverage insurance that may be charged during the term of this Lease on the
amount of such insurance which may be carried by Landlord on said premises or
the building of which they are a part, resulting from the type of merchandise
used or sold by Tenant in the Leased Premises, whether or not Landlord has
consented to the same.
9.5 Indemnification of Landlord. Tenant shall indemnify Landlord and
save it harmless from and against any and all claims, actions, damages,
liability and expense in connection with loss of life, personal injury and/or
damage to property (a) arising from or out of any occurrence in, upon or at the
Leased Premises (b) arising from or out of the occupancy or use by Tenant or
concessionaires of the Leased Premises, whether occurring in or about the Leased
Premises. In the event Landlord shall be made a party to any litigation
commenced by or against Tenant, then the Tenant shall protect and hold the
Landlord harmless and shall pay all reasonable costs, expenses and reasonable
attorney's fees incurred or paid by the Landlord in connection with such
litigation.
9.6 Waiver of Subrogation. Tenant waives (unless said waiver should
invalidate any such insurance) its right to recover damages against Landlord for
any reason whatsoever to the extent Tenant recovers indemnity from its insurance
carrier. Any insurance policy procured by Tenant which does not name Landlord as
a named insured shall, if obtainable, contain an express waiver of any right of
subrogation by the insurance company against the Landlord. All public liability
and property damage policies shall contain an endorsement that Landlord,
although named as an insured, shall nevertheless be entitled to recover damages
caused by the negligence of Tenant.
10. ATTORNMENT AND SUBORDINATION.
10.1 Attornment. In the event any proceedings are brought for the
foreclosure of, or in the event of exercise of the power of sale under any
mortgage made by the Landlord covering the Leased Premises or in the event a
deed is given in lieu of foreclosure of any such mortgage, if requested to do
so, Tenant shall attorn to the purchaser or grantee in lieu of foreclosure upon
any such foreclosure or sale and recognize such purchaser or grantee in lieu of
foreclosure as the Tenant
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Landlord under this Lease.
10.2 Subordination. Tenant agrees that this Lease and the interest of
Tenant therein shall be, and the same hereby is made subject and subordinate at
all times to all covenants, restrictions, easements and other encumbrances now
or hereafter affecting the fee title of the Project and to all ground and
underlying leases and to any mortgage of any amounts and all advances made and
to be made thereon, which may now or hereafter be placed against or affect any
or all of the land and/or any or all of the buildings and improvements,
including the Leased Premises, now or at any time hereafter constituting a part
of the Project, and/or any ground or underlying leases covering the same, and to
all renewals, modifications, consolidations, participation's, replacements and
extensions thereof. The term "Mortgages" as used herein shall be deemed to
include trust indentures and deeds of trust. The aforesaid provisions shall be
self-operative and no further instrument of subordination shall be necessary
unless required by any such ground or underlying lessors or mortgages. Should
the Landlord, any ground or underlying lessors or mortgagees desire confirmation
of such subordination, Tenant, within ten (10) days following written request
therefor, shall execute and deliver, without charge, any and all documents (in
form acceptable to Landlord and such ground or underlying lessors or mortgagees)
subordinating the Lease and the Tenant's rights hereunder. However, should any
such ground or underlying lessors or any mortgagees request that Lease be made
superior, rather than subordinate, to any such ground or underlying lease and/or
mortgage, then Tenant, within ten (10) days following Landlord's written request
therefor, agrees to execute and deliver, without charge, any and all documents
(in form acceptable to Landlord and such ground or underlying lessors or
mortgagees) effectuating such priority.
11. ASSIGNMENT AND SUBLETTING.
11.1 Consent Required.
11.1.1 Tenant may not assign or in any manner transfer, or
grant or suffer any encumbrance of Tenant's interest in this Lease in whole or
in part, nor sublet all or any portion of the Leased Premises, or grant a
license, concession or other right of occupancy of any portion of the Leased
Premises, without the prior written consent of Landlord in each instance. The
consent by Landlord to any assignment or subletting shall not constitute a
waiver of the necessity for such consent to any subsequent assignment or
subletting. Consent shall not be unreasonably withheld. If this Lease be
assigned, or if the Leased Premises or any part thereof be underlet or occupied
by any party other than Tenant, Landlord may collect rent from the assignee,
subtenant or occupant, and apply the net amount collected to the rent herein
reserved, but no such assignment, underletting, occupancy or collection shall be
deemed a waiver of this covenant, or the acceptance of the assignee, subtenant
or occupant as Tenant, or a release of Tenant from the further performance by
Tenant of the covenants on the part of Tenant herein contained. This prohibition
against assignment or subletting shall be construed to include prohibition
against any assignment or subleasing by operation of law, legal process,
receivership, bankruptcy or otherwise, whether voluntary or involuntary.
Notwithstanding any assignment or sublease, Tenant shall remain fully liable on
this Lease and shall not be released from performing any of the terms, covenants
and conditions of this Lease.
An attempt by Tenant to sublease the Leased Premises, in whole or in part, at a
rental rate greater than that charged under this Lease shall be deemed a valid
reason for withholding consent for the sublease.
11.1.2 The Tenant shall pay an administrative fee of $350 in
connection with any assignment or sublease.
11.1 Consent Required.
11.2 Significant Change of Ownership. If the Tenant is a corporation
(other than one whose shares are regularly and publicly traded either on a
recognized stock exchange or the over-the-counter market), Tenant represents
that the Ownership and power to vote its entire outstanding capital stock
belongs to and is vested in the offficer or officers executing this Lease or
members of his or their immediate family. If there shall occur any change in the
ownership of and/or power to vote the majority of the outstanding capital stock
of Tenant, whether such change of ownership is by sale, assignment, bequest,
inheritance, operation of law or otherwise, without the prior written consent of
Landlord, then Landlord shall have the option to terminate this Lease upon
thirty (30) days notice to Tenant. If Tenant is a partnership, Tenant represents
that the general partner executing this Lease is duly authorized to execute the
same on behalf of said partnership. If there shall occur any change in the
ownership of the interest of the general partners of the partnership, whether
such change results from a sale, assignment, bequest, inheritance, operation of
law or otherwise, or if the partnership is dissolved, without the prior written
consent of Landlord, then Landlord shall have the option to terminate this Lease
upon thirty (30) days notice to Tenant.
11.3 Assignment by Landlord. In the event of the transfer and
assignment by Landlord of its interest in this Lease and/or in the building
containing the Leased Premises to a person expressly assuming Landlord's
obligations under this Lease, Landlord shall thereby be released from any
further obligations thereunder, and Tenant agrees to look solely to such
successor in interest of the Landlord for performance of such obligations. Any
security given by Tenant to secure performance of Tenant's obligations hereunder
may be assigned and transferred by Landlord to such successor in interest, and
Landlord shall thereby be discharged of any further obligation relating thereto.
12. WASTE, GOVERNMENTAL REGULATIONS.
12.1 Waste or Nuisance. Tenant shall not commit or suffer to be
committed any waste upon the Leased Premises or any nuisance or other act or
thing which may disturb the quiet enjoyment of any other tenant in the Project,
or which may adversely affect Landlord's interest in the Leased Premises or the
Project.
12.2 Government Regulations. Tenant shall, at Tenant's sole cost and
expense, comply with all county, municipal, state, federal laws, orders,
ordinances and other applicable requirements of all governmental authorities,
now in force, or which may hereafter be in force, pertaining to, or affecting
the condition, use or occupancy of the Leased Premises, and shall faithfully
observe in the use and occupancy of the Leased Premises all municipal and county
ordinances and state and federal statutes now in force or which may hereafter be
in force. Tenant shall indemnify, defend and save Landlord harmless from all
costs, losses, expenses or damages resulting from Tenant's failure to perform
its obligations under this Section.
13. RULES AND REGULATIONS. Tenant agrees to comply with all rules and
regulations Landlord may adopt from time to time for operation of the Project,
and protection and welfare of Project, its tenants, visitors, and occupants. The
present rules and regulations, which Tenant hereby agrees to comply with,
entitled "Rules and Regulations" are attached hereto as Exhibit "B". Landlord
may amend the rules from time to time and any future rules and regulations shall
become a part of this Lease, and Tenant hereby agrees to comply with the same
upon delivery of a copy thereof to Tenant, providing the same do not materially
deprive Tenant of its rights established under this Lease.
14. ADVERTISING, ETC.
14.1 Solicitation of Business. Tenant and Tenant's employees and agents
shall not solicit business in the parking or other common areas, nor shall
Tenant distribute any handbills or other advertising matter on automobiles
parked in the parking area or in other
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common areas.
14.2 Advertised Name and Address. Tenant may use as its advertised
business address the name of the Project. Tenant shall not use the name of the
Project for any purpose other than as the address of the business to be
conducted by Tenant in the Leased Premises, and Tenant shall not acquire any
property right in or to any name which contains the name of the Project as a
part thereof. Any permitted use by Tenant of the name of the Project during the
term of the Lease shall not permit Tenant to use, and Tenant shall not use, such
name of the Project either after the termination of this Lease or at any other
location. Tenant shall not use the name of the Landlord in any advertisement, or
otherwise.
15. DESTRUCTION OF LEASED PREMISES
15.1 Total or Partial Destruction. If the Leased Premises shall be
damaged by fire, the elements, unavoidable accident or other casualty, without
the fault of Tenant, but are not thereby rendered untenantable in whole or in
part, Landlord shall at its own expense cause such damage, except to Tenant's
equipment and trade fixtures, to be repaired, and the rent and other charges
shall not be abated. Repairs shall commence within a reasonable period of time.
If by reason of such occurrence, the Leased Premises shall be rendered
untenantable only in part, Landlord shall at its own expense cause the damage,
except to Tenant's equipment and trade fixtures, to be repaired within a
reasonable period of time, but only to the condition in which the Leased
Premises were originally delivered to Tenant, and the Base Rent meanwhile shall
be abated proportionately as to the portion of the Leased Premises rendered
untenantable. If such damage shall occur during the last two (2) years of the
term of this Lease (or of any renewal term), Landlord shall have the right, to
be exercised by notice to Tenant within sixty (60) days after said occurrence,
to elect not to repair such damage and to cancel and terminate this Lease
effective as of a date stipulated in Landlord's notice, which shall not be
earlier than thirty (30) days nor later than sixty (60) days after the giving of
such notice. If the Leased Premises shall be rendered wholly untenantable by
reason of such occurrence, the Landlord shall at its own expense cause such
damage, except to Tenant's equipment and trade fixtures, to be repaired, but
only to the condition in which the Leased Premises were originally delivered to
Tenant, and the Base Rent meanwhile shall be abated in whole except that
Landlord shall have the right, to be exercised by notice to Tenant within sixty
(60) days after said occurrence, to elect not to reconstruct the destroyed
Leased Premises, and in such event this Lease and the tenancy hereby created
shall cease as of the date of the said occurrence. There shall be no abatement
of the Base Rent if such damage is caused by the fault of Tenant. Whenever the
Base Rent shall be abated pursuant to this Section 15.1, such abatement shall
continue until the date which shall be the sooner to occur of: (i) fifteen (15)
days after notice by Landlord to Tenant that the Leased Premises have been
substantially repaired and restored; or (ii) the date Tenant's business
operations are restored in the entire Leased Premises.
15.2 Partial Destruction of Building. In the event that fifty (50%)
percent or more of the rentable area of the building in which the Leased
Premises are located shall be damaged or destroyed by fire or other cause,
notwithstanding any other provisions contained herein and that the Leased
Premises may be unaffected by such fire or other cause, Landlord shall have the
right, to be exercised by notice in writing delivered to Tenant within sixty
(60) days after said occurrence, to elect to cancel and terminate this Lease.
Upon the giving of such notice to Tenant, the term of this Lease shall expire by
lapse of time upon the thirtieth day after such notice is given, and Tenant
shall vacate the Leased Premises and surrender the same to Landlord; provided,
however, in the event the building is deemed to be a hazard or danger by any
governmental agency, the Lease shall expire upon the third day after notice is
given.
15.3 Reconstruction of Improvement. In the event of any reconstruction
of the Leased Premises under this Section, said reconstruction shall be in
substantial conformity of the Leased Premises on the Commencement Date. Tenant,
at its sole cost and expense, shall be responsible for the repair and
restoration of all items that was Tenant's Work, and the replacement of its
stock in trade fixtures, furniture, furnishings and equipment. Tenant shall
commence the installation of fixtures, equipment, and merchandise hereof
promptly upon delivery to it of possession of the Leased Premises and shall
diligently prosecute such installation to completion.
15.4 Under no circumstances shall Landlord be responsible or liable to
Tenant for lost income, revenue or profits.
16. EMINENT DOMAIN
16.1 Total Condemnation. If the whole of the Leased Premises shall be
acquired or condemned by eminent domain for any public or quasi-public use or
purpose, then the term of this Lease shall cease and terminate as of the date of
title vesting in such proceeding and all rentals and other charges shall be paid
up to that date and Tenant shall have no claim against Landlord for the value of
any unexpired term of this Lease.
16.2 Partial Condemnation.
16.2.1 If any part of the Leased Premises shall be acquired or
condemned by eminent domain for any public or quasi-public use or purpose, and
in the event that such partial taking or condemnation shall, in the opinion of
Landlord and Tenant, render the Leased Premises unsuitable for the business of
the Tenant, then Landlord and Tenant shall each have the right to terminate this
Lease by notice given to the other within sixty (60) days after the date of
title vesting in such proceeding and Tenant shall have no claim against Landlord
for the value of any unexpired term of this Lease. A taking or condemnation in
excess of 50% of the square footage of the Leased Premises shall be presumed to
render the Leased Premises unsuitable for the business of the tenant.
16.2.2 If more than twenty (20%) percent of the floor area of
the buildings in the Project shall be taken as aforesaid (whether or not the
Leased Premises shall be affected by the taking), Landlord shall have the right
to terminate this Lease by notice to Tenant given within sixty (60) days after
the date of title vesting in such proceeding and Tenant shall have no claim
against Landlord for the value of the unexpired term of this Lease.
16.3 Landlord's Damages. In the event of any condemnation or taking as
hereinabove provided, whether whole or partial, the Tenant shall not be entitled
to any part of the award, as damages or otherwise, for such condemnation and
Landlord is to receive the full amount of such award, the Tenant hereby
expressly waiving any right or claim to any part thereof.
16.4 Tenant's Damages. Although all damages in the event of any
condemnation are to belong to the Landlord, whether such damages are awarded as
compensation for diminution in value of the Leasehold or the fee of the Leased
Premises, Tenant shall have the right to claim and recover from the condemning
authority, but not from Landlord, such compensation as may be separately awarded
or recoverable by Tenant in Tenant's own right on account of any damage to
Tenant's business by reason of the condemnation and for or on account of any
cost or loss to which Tenant might be put in removing Tenant's merchandise,
furniture, fixtures, leasehold improvements and equipment, provided no such
claim shall diminish or otherwise adversely affect Landlord's award. Each party
agrees to execute and deliver to the other all instruments that may be required
to effectuate the provisions of Section 16.3 and this Section 16.4.
16.5 Sale Under Threat of Condemnation. A sale by Landlord to any
authority having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed a
taking under the power of eminent domain for all purposes under this Section.
17. DEFAULT OF TENANT.
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17.1 Events of Default. Upon the happening of one or more of the events
as expressed below, (individually and collectively, "Events of Default"), the
Landlord shall have any and all rights and remedies hereinafter set forth:
17.1.1 In the event Tenant should fail to pay any monthly
installment of rent or any other sums required to be paid hereunder, as and when
the same become due.
17.1.2 To the extent not contrary to Bankruptcy Law, in the
event a petition in bankruptcy (including Chapter 11 bankruptcy proceeding or
any other reorganization proceedings under Bankruptcy Law) is filed by the
Tenant, or is filed against Tenant, and such petition is not dismissed within
thirty (30) days from the filing thereof, or in the event Tenant is adjudicated
a bankrupt.
17.1.3 In the event an assignment for the benefit of creditors
is made by Tenant.
17.1.4 In the event of an appointment by any court of a
receiver or other court offficer of Tenant's property and such receivership is
not dismissed within thirty (30) days from such appointment.
17.1.5 In the event Tenant removes, attempts to remove, or
permits to be removed from the Leased Premises, except in the usual course of
trade, the equipment, furniture, effects or other property of the Tenant brought
thereon.
17.1.6 In the event Tenant, before the expiration of the term
hereof and without the written consent of the Landlord, vacates the Leased
Premises or abandons the possession thereof, or uses the Leased Premises or
property of the Project for a purpose other than identified in the Lease.
17.1.7 In the event an execution or other legal process is
levied upon the equipment, furniture, effects or other property of Tenant
brought on the Leased Premises, or upon the interest of Tenant in this Lease,
and the same is not satisfied or dismissed within ten (10) days from the levy.
17.1.8 In the event Tenant fails to keep, observe or perform
any of the other terms, conditions or covenants on the part of Tenant herein to
be kept, observed and performed for more than ten (10) days after written notice
thereof is given by Landlord to Tenant specifying the nature of such default, or
if the default so specified shall be of such a nature that the same cannot
reasonably be cured or remedied within said ten (10) day period, if Tenant shall
not in good faith have commenced the curing or remedying of such default within
such ten (10) day period and shall not thereafter continuously and diligently
proceed therewith to completion; provided, however, nothing herein shall
prohibit Landlord from taking immediate legal action, with or without notice, to
protect the health, safety or welfare of the Landlord, the Project, tenants of
the Project, other persons or entities in or about the Project or the general
public.
17.1.9 Notwithstanding anything contained herein to the
contrary, in the event of a monetary default on the part of Tenant, Landlord
shall give and shall only be required to give Tenant three (3) days written
notice within which Tenant must cure the monetary default.
17.2 Remedies of Landlord
17.2.1 In the event of any such default or breach, Landlord
shall have the immediate right to re-enter the Leased Premises, either by
summary proceedings, by force or otherwise, and to dispossess Tenant and all
other occupants therefrom and remove and dispose of all property therein in the
manner provided in subdivision (c) of this Section, all without service of any
notice of intention to re-enter and with or without resort to legal process
(which Tenant hereby expressly waives) and without Landlord being deemed guilty
of trespass or becoming liable for any loss or damage which may be occasioned
thereby. In the event of any such default or breach, Landlord shall have the
right, at its option, from time to time, without terminating this Lease, to
re-enter and re-let the premises, or any part thereof, as the agent and for the
account of Tenant upon such terms and conditions as Landlord may deem advisable
or satisfactory, in which event the rents received on such re-letting shall be
applied first to the expenses of such re-letting and collection including but
not limited to, necessary renovation and alterations of the Leased Premises,
reasonable attorney's fees, any real estate commissions paid, and thereafter
toward payment of all sums due or which become due Landlord hereunder, and if a
sufficient sum shall not be thus realized or secured to pay such sums and other
charges, (i) at Landlord's option, Tenant shall pay Landlord any deficiency
monthly, notwithstanding Landlord may have received rental in excess of the
rental stipulated in this Lease in previous or subsequent months, and Landlord
may bring an action therefor as such monthly deficiency shall arise, or (ii) at
Landlord's option, the entire deficiency, which is subject to ascertainment for
the remaining term of this Lease, shall be immediately due and payable by
Tenant. Nothing herein, however, shall be construed to require Landlord to
re-enter in any event. The Landlord shall not, in any event, be required to pay
Tenant any surplus of any sums received by Landlord on a re-letting of said
premises in excess of the rent provided in this Lease.
17.2.2 In the event of any such default or breach, the
Landlord shall have the right, at its option, to declare the rents for the
entire remaining term and other indebtedness, if any, immediately due and
payable without regard to whether or not possession shall have been surrendered
to or taken by Landlord, and may commence action immediately thereupon and
recover judgment therefor.
17.2.3 The Landlord in addition to other rights and remedies
it may have, shall have the right to remove all or any part of the Tenant's
property from said premises and any property removed may be stored in any public
warehouse or elsewhere at the cost of, and for the account of Tenant and the
Landlord shall not be responsible for the care or safekeeping thereof, and the
Tenant hereby waives any and all loss, destruction and/or damage or injury which
may be occasioned by any of the aforesaid acts.
17.2.4 No such re-entry or taking possession of said Leased
Premises by Landlord shall be construed as an election on Landlord's part to
terminate this Lease unless a written notice of such intention is given to
Tenant. Notwithstanding any such re-letting without termination, Landlord may at
all times hereafter, elect to terminate this Lease for such previous default or
breach. Any such re-entry shall be allowed by Tenant without hindrance, and
Landlord shall not be liable in damages for any such re-entry, or guilty of
trespass or forcible entry.
17.2.5 Any and all rights, remedies and options given in this
Lease to Landlord shall be cumulative and in addition to and without waiver of
or in derogation of any right or remedy given to it under any law now or
hereafter in effect.
17.3 Waiver. The waiver by Landlord of any breach of any term,
condition or covenant herein contained shall not be waiver of such term,
condition or covenant, or any subsequent breach of the same or any other term,
condition or covenant herein contained. The consent or approval by Landlord to
or of any act by Tenant requiring Landlord's consent or approval shall not be
deemed to waive or render unnecessary Landlord's consent to or approval of any
subsequent similar act by Tenant. No re-entry hereunder shall bar the recovery
of rents or damages for the breach of any of the terms, conditions or covenants
on the part of Tenant herein contained. The receipt of rent after breach or
condition broken, or delay on the part of Landlord to enforce any right
hereunder, shall not be deemed a waiver or forfeiture, or a waiver of the right
of Landlord to terminate this Lease or to re-enter said Leased Premises or to
re-let same.
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17.4 Expenses of Enforcement. In the event any payment due Landlord
under this Lease shall not be paid on the due date, Tenant agrees to pay
interest on the amount which is delinquent at the highest rate permitted under
the laws of the state in which the Project is located, for such delinquent
payment until made. In the event any check, bank draft, order for payment or
negotiable instrument given to Landlord for any payment under this Lease shall
be dishonored for any reason whatsoever not attributable to Landlord, Landlord
shall be entitled to make an administrative charge to Tenant of One Hundred
($100.00) Dollars. Tenant recognizes and agrees that the charges which Landlord
is entitled to make upon the conditions stated in this Section 17.4 represent,
at the time this Lease is made, a fair and reasonable estimate and liquidation
of the costs of Landlord in the administration of the Project resulting to
Landlord from the events described which costs are not contemplated or included
in any other rental or charges provided to be paid by Tenant to Landlord in this
Lease. Any charges becoming due under this Section of this Lease shall be added
and become due with the next ensuing monthly payment of Base Rent and shall be
collectible as a part thereof.
17.5 Legal Expenses. In the event that it shall become necessary for
Landlord to employ the services of an attorney to enforce any of its rights or
to protect its interest under this Lease or to collect any sums due to it under
this Lease or to remedy the breach of any covenant of this Lease on the part of
the Tenant to be kept or performed, regardless of whether suit be brought,
Tenant shall pay to Landlord such fee as shall be charged by Landlord's attorney
for such services. Should suit be brought for the recovery of possession of the
Leased Premises, or for rent or any other sum due Landlord under this Lease, or
because of the breach of any of Tenant's covenants under this Lease, or to
protect any interest or right under the Lease, Tenant shall pay to Landlord all
expenses of such suit and any appeal thereof, including a reasonable attorney's
fee.
18. ACCESS BY LANDLORD.
18.1 Right of Entry. Landlord and Landlord's agents shall have the
right to enter the Leased Premises at all reasonable times to examine the same,
and to show them to prospective purchasers or lessees of the building, and to
make such repairs, or alterations, improvements or additions as Landlord may
deem necessary or desirable, and Landlord shall be allowed to take all material
into and upon said premises that may be required therefor without the same
constituting an eviction of Tenant in whole or in part and the rent reserved
shall in no way abate while said repairs, alterations, improvements or additions
are being made unless Tenant is prevented from operating in the Leased Premises
in whole or in part, in which event rent shall be proportionately abated during
said period. During the six (6) months prior to the expiration of the term of
this Lease or any renewal term, Landlord may exhibit the premises to prospective
tenants or purchasers. If Tenant shall not be personally present to open and
permit an entry into said premises, at any time, when for any reason an entry
therein shall be necessary or permissible, Landlord or Landlord's agents may
enter the same without in any manner affecting the obligations and covenants of
this Lease. Nothing herein contained, however, shall be deemed or construed to
impose upon Landlord any obligation, responsibility or liability whatsoever, for
the care, maintenance or repair of the building or any part thereof, except as
otherwise herein specifically provided.
18.2 Roof. Use of the roof and air space above the Leased Premises is
reserved exclusively to the Landlord.
19. TENANT s PROPERTY.
19.1 Taxes on Leasehold or Personalty. Tenant shall be responsible for
and shall pay before delinquent all municipal, county or state taxes assessed
during the term of this Lease against any leasehold interest or personal
property or any kind, owned by or placed in, upon or about the Leased Premises
by the Tenant.
19.2 Loss and Damage. Landlord shall not be responsible for any damage
to property of Tenant or of others located on the Leased Premises nor for the
loss of or damage to any property of Tenant or of others by theft or otherwise.
All property of Tenant kept or stored on the Leased Premises shall be so kept or
stored at the risk of Tenant only and Tenant shall hold Landlord harmless from
any and all claims arising out of damage to same, including subrogation claims
by Tenant's insurance carriers.
19.3 Pledge of Assets. Tenant hereby pledges and assigns to Landlord
all furniture, fixtures, goods and chattels of Tenant which shall or may be
brought or placed on the Demised Premises as security for the payment of rent
and Tenant agrees that said lien may be enforced by distress foreclosure or
otherwise at the election of Landlord.
20. HOLD.'NG OVER, SUCCESSORS.
20.1 Holding Over. On the last day of the term of this Lease, or upon
any earlier termination of this Lease, or upon re-entry by Landlord upon the
Leased Premises, Tenant shall peaceably and without notice of any sort, quit and
surrender the Leased Premises to Landlord in accordance with the requirements of
this Lease. Tenant specifically agrees that in the event Tenant retains
possession and does not so quit and surrender the Leased Premises to Landlord,
then Tenant shall pay to Landlord:
20.1.1 all damages that Landlord may suffer on account of
Tenant's failure to so surrender and quit the Leased Premises, and Tenant will
indemnify and save Landlord harmless from and against any and all claims made by
succeeding tenant of the Leased Premises against Landlord on account of delay of
Land"ord in delivering possession of the Leased Premises to said succeeding
tenant to the extent that such delay is occasioned by the failure of tenant to
so quit and surrender said Leased Premises.
20.1.2 rent for each month or any applicable portion of a
month of such holding over at twice the amount payable for the month immediately
preceding the termination of this Lease, during the time Tenant thus remains in
possession.
The provisions of this paragraph do not waive any of Landlord's rights of
re-entry or any other right under the terms of this Lease. If Tenant shall fail
to surrender the Leased Premises as herein provided, no new tenancy shall be
created and Tenant shall be guilty of unlawful detainer.
20.2 Successors. All rights and liabilities herein given to,
or imposed upon, the respective parties hereto shall extend to and bind the
several respective heirs, executors, administrators, successors, and permitted
assigns of the said parties; and if there shall be more than one Tenant, they
shall be bound jointly and severally by the terms, covenants and agreements
herein. No rights, however, shall inure to the benefits of any assignee of
Tenant unless the assignment to such assignee has been approved by Landlord in
writing. Nothing contained in this Lease shall in any manner restrict Landlord's
right to assign or encumber this Lease and, in the event Landlord sells or
transfers its interest in the Project and the purchaser or transferee assumes
Landlord's obligation and covenants, Landlord shall thereupon be relieved of all
further obligations hereunder.
21. ENVIRONMENTAL ACTIONS AND INDEMNIFICATION
21.1 Tenant agrees not to store in, on or outside of the Leased
Premises any hazardous materials of any type, as defined by any local, state or
federal agency or any other toxic, corrosive, reactive or ignitable material
without first obtaining in each case all governmental approvals and permits
required for such storage.
Page 11 of 14
<PAGE>
21.2 Tenant shall indemnify and hold Landlord harmless for any and all
damages, potential damages, losses, liabilities, costs and expenses of
corrective work, obligations, penalties, fines, impositions, fees, levies, lien
removal or bonding costs, claims, litigation, demands, defenses, judgments,
disbursements, or expenses (including without limitation attorneys fees and
expert's fees) related to, concerning or arising out of Tenant causing or
permitting, knowingly or unknowingly, directly or indirectly, hazardous material
to pollute or contaminate the Leased Premises, the Project or any part thereof,
or any person or property in, on, under, above or outside of the Project. The
terms of this paragraph shall survive the expiration or earlier termination of
the term of this Lease.
21.3 Term on Indemnification: The Tenant agrees that this Indemnity
shall continue throughout the term of the Lease and for a period of not less
than ten years following termination of the Lease for any reason. Further, said
ten year period shall be extended during the pendency of litigation or
administrative claims involving Indemnified Losses pertaining to Hazardous
Materials covered by this Indemnity pending at the expiration of the ten year
period. The indemnity shall include reasonable costs and expenses (including
experts' and attorneys' fees and disbursements) incurred or expended by Landlord
in enforcing of this Indemnity. Landlord agrees to utilize counsel designated by
the undersigned (if the undersigned are also parties defendant in such matters)
subject to Landlord's right of approval, not to be unreasonably withheld or
delayed.
22. QUIET ENJOYMENT. Upon payment by the Tenant of the rents herein
provided, and upon the observance and performance of all the covenants, terms
and conditions on Tenant's part to be observed and performed, Tenant shall
peaceably and quietly hold and enjoy the Leased Premises for the term hereby
demised without hindrance or interruption by Landlord or any other person or
persons lawfully or equitably claiming by, through or under the Landlord,
subject, nevertheless, to the terms and conditions of this Lease.
23. MISCELLANEOUS.
23.1 Accord and Satisfaction. No payment by Tenant or receipt by
Landlord of a lesser amount than the monthly rent herein stipulated shall be
deemed to be other than on account of the earliest stipulated rent, nor shall
any endorsement or statement on any check or any letter accompanying the check
or payment as rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy provided in the Lease or by law.
23.2 No Partnership. Landlord does not, in any way or for any purpose,
become a partner of Tenant in the conduct of its business, or otherwise, or
joint venturer or a member of a joint enterprise with Tenant.
23.3 Force Majeure. In the event that either party hereto shall be
delayed or hindered in or prevented from the performance of any act required
hereunder by reason of strikes, lock-outs, labor troubles, inability to procure
materials, failure of power, restrictive governmental laws or regulations,
riots, insurrection, war or other reason of a like nature not the fault of the
party delayed in performing work or doing acts required under the terms of this
Lease, then performance of such act shall be excused for the period of the delay
and the period for the performance of any such act shall be extended for a
period of such delay. The provisions of this Section 23.3 shall not operate to
excuse Tenant from the prompt payment of rent, additional rent or any other
payments required by the terms of this Lease.
23.4 Notices. Except as otherwise required by statute, any notice,
demand, request or other communication required or permiffed be given under this
Lease shall be in writing, signed by the party giving it and conclusively deemed
to have been properly given to and received and to be effective (a) if sent by
tested telex or cable, or hand-delivered against receipt therefor, or by
telecopy or other facsimile transmission, or by express mail service, on the day
on which delivered, as the case may be, at the respective addresses hereafter
set forth, or if such day of delivery is not a business day, on the first
business day thereafter, or (b) if sent by registered or certified mail, return
receipt requested, postage prepaid, on the third business day after the day on
which deposited in any post offfice station or letter box, addressed at the
respective addresses hereafter set forth:
If to Landlord: New Town Commerce Center, Ltd.
3901 SW 47th Avenue
Suite 414
Ft. Lauderdale, FL 33314
With a copy to: Alder Management Services, Inc.
1400 NW 107th Avenue
Miami, FL 33172
If to Tenant: ANDRX CORPORATION
3811 SW 47th Avenue
Suite 507
Ft. Lauderdale, FL 33314
With a copy to:
Any party hereto may, by giving five (5) days written notice to the other party
hereto, designate any other address in substitution of the foregoing address to
which notice shall be given.
23.5 Captions and Section Numbers. The captions, section numbers,
article numbers and index appearing in this Lease are inserted only as a matter
of convenience and in no way define, limit, construe, or described the scope or
intent of such sections or articles of this Lease nor in any way affect this
Lease.
23.6 Tenant Defined, Use of Pronoun. The word "Tenant" shall be deemed
and taken to mean each and every person mentioned as a Tenant herein be the
same, one or more and if there shall be more than one Tenant. Any notice
required or permitted by the terms of this Lease may be given by or to any one
thereof, and shall have the same force and effect as if given or to all thereof.
The use of the neuter singular pronoun to refer to Landlord or Tenant shall be
deemed a proper reference even though Landlord or Tenant may be an individual, a
partnership, a corporation, or a group of two or more individuals or
corporations. The necessary grammatical changes required to make the provisions
of this Lease apply in the plural sense where there is more than one Landlord or
Tenant and to either corporations, associations, partnerships, or individuals,
males or females, shall in all instances be assumed as though in each case fully
expressed.
23.7 Broker's Commission. Each of the parties represents and warrants
that it has dealt with no broker or brokers in connection with the execution of
this Lease, except ADLER MANAGEMENT SERVICES, INC. and each of the parties
agrees to indemnify the other against, and hold it harmless from, all
liabilities arising from any claim for brokerage commissions or finder's fee
Page 12 of 14
<PAGE>
resulting from the indemnitor's acts (including, without limitation, the cost of
counsel fees in connection therewith) except for the persons or entities set
forth above.
23.8 Partial Invalidity. In any term, covenant or condition of this
Lease or the application thereof to any person or circumstances shall, to any
extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term, covenant or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant or condition of this Lease shall be
valid and be enforced to the fullest extent permitted by law.
23.9 Effectiveness of Lease. The submission of this Lease for
examination does not constitute a reservation of or option for the Leased
Premises and this Lease becomes effective as a lease only upon execution and
delivery thereof by Landlord to Tenant, and the receipt of the full security
deposit, and if paid by check, subject to clearance.
23.10 Recording. Tenant shall not record this Lease or any memorandum
thereof without the written consent and joinder of Landlord.
23.11 Liability of Landlord. Anything contained in this Lease, at law
or in equity to the contrary notwithstanding, Tenant expressly acknowledges and
agrees that there shall at no time be or be construed as being any personal
liability by or on the part of Landlord under or in respect of this Lease or in
any way related hereto or the Leased Premises; it being further acknowledged and
agreed that Tenant is accepting this Lease and the estate created hereby upon
and subject to the understanding that it shall not enforce or seek to enforce
any claim or judgment or any other matter, for money or otherwise, personally or
directly against any offficer, director, stockholder, partner, principal
(disclosed or undisclosed), representative or agent of Landlord, but will look
solely to the Landlord's interest in the Project for the satisfaction of any and
all claims, remedies or judgements (or other judicial process) in favor of
Tenant requiring the payment of money by Landlord in the event of any breach by
Landlord of any of the terms, covenants or agreements to be performed by
Landlord under this Lease or otherwise, subject, however, to the prior rights of
any ground or underlying lessors or the holders of the mortgages covering the
Project, and no other assets of Landlord or owners of Landlord shall be subject
to levy, execution or other judicial process for the satisfaction of Tenant's
claims; such exculpation of personal liability as herein set forth to be
absolute, unconditional and without exception of any kind.
23.12 Time of the Essence. Time is of the essence of this Lease and
each and all of its provisions in which performance is a factor.
23.13 Estoppel Information. Tenant agrees, upon request of Landlord, to
execute and deliver to Landlord, without charge and within ten (10) days
following request therefor, a written declaration in form satisfactory to
Landlord: (I) ratifying this Lease; (ii) confirming the commencement and
expiration dates of the term of this Lease; (iii) certifying that Tenant is in
occupancy of the Leased Premises, the date Tenant commenced operating Tenant's
business therein and that this Lease is in full force and effect and has not
been assigned, modified, supplemented or amended, except by such writings as
shall be stated; (iv) that all conditions under this Lease to be performed by
Landlord have been satisfied, except such as shall be stated; (v) that there are
no defenses or offsets against the enforcement of this Lease by Landlord, or
stating those claimed by Tenant; (vi) reciting the amount of advance rental, if
any, paid by Tenant and the date to which rental has been paid; (vii) reciting
the amount of security deposited with Landlord, if any; and (viii) certifying
the status of any other matter requested by Landlord or its lender. Tenant
agrees to execute and deliver similar declarations at any time and from time to
time and within ten (10) days following request therefor by Landlord or by any
mortgage holder or ground or underlying lessor and or purchaser of the Project,
and each of such parties shall be entitled to rely upon such written declaration
made by Tenant. Tenant's failure or refusal to execute the declaration required
hereunder within ten (10) days following the request therefor will constitute a
default hereunder and Landlord shall have such rights and remedies against
Tenant as is available to Landlord for Tenant's default.
23.14 Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
23.15 Choice of Law. This Lease shali be governed by the laws of the
State of Florida. The venue for any action filed in connection herewith by
either party shall be the county in which the Leased Premises are located.
23.16 Waiver of Trial by Jury. THE PARTIES HERETO SHALL AND THEY HEREBY
DO WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY
EITHER OF THE PARTIES HERETO AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING
OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND
TENANT, TENANT'S USE OR OCCUPANCY OF THE LEASED PREMISES, AND/OR ANY CLAIM OF
INJURY OR DAMAGE.
23.17 Counterparts. This Lease may be executed in multiple copies, each
of which shall be deemed an original, and all of such copies shall together
constitute one and the same instrument.
23.18 Acceptance of Funds by Landlord. No receipt of money by the
Landlord from the Tenant after the termination of this Lease or after the
service of any notice or after the commencement of any suit, or after final
judgment for possession of the Leased Premises shall reinstate, continue or
extend the term of this Lease or affect any such notice, demand or suit.
23.19 Radon Gas. Radon is a naturally occurring radioactive gas that,
when it has accumulated in a building in suffficient quantities, may present a
health risk to persons who are exposed to it over time. Levels of Radon that
exceed Federal and State guidelines have been found in buildings in Florida.
Additional information regarding Radon and Radon testing may be obtained from
your county public health unit.
23.20 Attachments. Any Exhibits as well as any Amendments which are
attached to this Lease are a part of this Lease and are incorporated herein as
if fully set forth herein.
23.21 Insertions. No insertion, whether handwritten or otherwise, which
attempts or purports to change or modify the standard type written provisions of
this Lease and/or attachments or amendments thereto shall be effective or
binding unless and until each party to this Lease initials the change(s) or
modification(s) in the margin immediately adjacent thereto. A general initialing
by the parties of a page, at the top or bottom thereof, shall not be deemed
compliance with the above-referenced requirement and shall not bind either party
to the terms or conditions of the insertion.
23.22 Renewal Options. The terms of options to renew, if any, are
subject to the following conditions:
23.22.1 Any right to renew is conditioned upon Tenant not
being in default under any terms of the Lease at the time of election to
exercise the option and at the time the extended period is to begin.
Page 13 of 14
<PAGE>
23.22.2 If Tenant shall elect to exercise any option, it shall
do so by giving Landlord written notice at least ninety (90) days prior to the
expiration of the primary term of the Lease, or the then current extension
thereof. Failure to provide proper notice within the time required shall
terminate the pending or remaining option rights of the Tenant.
23.23.3 Option Terms: Tenant shall have N/A options for
additional N/A year terms. For each year of any option period exercised, the
base rent shall increase N/A over the prior year.
23.23 Entire Agreement. This Lease and the Exhibits, and Amendments, if
any, attached hereto and forming a part hereof, set forth all covenants,
promises, agreements, conditions and understandings between Landlord and Tenant
concerning the Leased Premises and there are no covenants, promises, conditions
or understandings, either oral or written, between them other than are herein
set forth. No provision of this Lease may be amended or added to except by an
agreement in writing signed by the parties hereto or their respective successors
in interest.
WITNESS WHEREOF, Landlord and Tenant have signed and sealed this Lease of the
day and year first above written.
WITNESSES: LANDLORD: New Town Commerce Center, Ud.,
a Florida Limited Partnership
- ------------------------
By: Its General Partner, Adler NT, Inc.,
a Florida Corporation
/S/ PAULA C. HARRELL /S/ BRETT W. HARRIS
- ------------------------ --------------------------------
Brett W. Harris, Authorized Signatory
TENANT:
ANDRX CORPORATION
/S/ SCOTT LODIN
--------------------------------
SCOTT LODIN
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT ("Second Amendment") dated
February 24, 1998, is between University Associates Limited, L.L.P., a Florida
limited partnership by BBM Management, L.L.C. ("Landlord") and Anda Generics,
lnc. ("Tenant").
RECITALS
A. Landlord and Tenant entered into that certain Lease ("Lease"), on April
24, 1986 for that certain Space #21 in that shopping center known as
University Park Plaza.
B. Landlord and Tenant now desire to amend the Lease Agreement as provided
in this Second Amendment.
AGREEMENT
NOW THEREFORE, in consideration of the promises and of the mutual covenants of
the parties hereto, and for other good and valuable consideration, the parties
hereto mutually covenant and agree as follows:
1. Landlord herein grants Tenant the right and privilege of extending the
Lease Agreement for three (3) additional six (6) month options, the
first of which shall commence November 15, 1998.
2. Tenant acknowledges that in the event Tenant should exercise the right
to extend the Lease for either of the additional option periods, that
all terms and conditions of said options shall be in accordance with
Rider to Lease including but not limited to (a) Notice to Landlord of
Tenant's intention to exercise its right to extend the lease term and
(b) The Minimum Base Rent shall adjust in accordance with the Consumer
Price Index as set forth in the Rider to Lease and such rent adjustment
shall occur at the beginning of each option period and shall increase
the Minimum Base Rent by amount of not less than one and one half
(1.5%) percent nor greater than three and one-half (3.5%) percent above
the then current base rent.
3. Tenant acknowledges and reaffirms that the rent is due and payable on
the first day of each calendar month.
4. All other terms and conditions of the Lease Agreement shall remain in
full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease on the
respective dates indicated below.
WITNESSES: LANDLORD: University Associates
Limited, L.L.P., a Florida limited
partnership by BBM Management L.L.C.
/S/ By: /S/
- -------------------------------- --------------------------------
Manager
/S/BELINDA PEREZ Dated:FEBRUARY 24, 1998
- --------------------------------
WITNESSES: TENANT: Anda Generics, Inc.
/S/ALLISON A. LICHTER By: /S/SCOTT LODIN
- -------------------------------- --------------------------------
2
EXHIBIT 11.1
<TABLE>
<CAPTION>
ANDRX CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET LOSS PER SHARE
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in 000's, except for share amounts)
1997 1996 1995
------------ ------------ --------
<S> <C> <C> <C>
Net loss $ (7,636) $ (4,028) $ (5,187)
============ ============ ============
Actual weighted average shares
of common stock outstanding 14,213,100 12,148,000 9,297,900
Impact of shares issued within
12 months of initial public offering,
after application of the treasury method - - 92,000
Impact of warrants granted within
12 months of initial public offering,
after application of the treasury method - - 40,400
Impact of options granted within
12 months of initial public offering,
after application of the treasury method - - 16,500
-------------- -------------- --------------
Basic and diluted weighted average shares
of common stock outstanding 14,213,100 12,148,000 9,446,800
========== ========== ===========
Basic and diluted net loss per share $ (0.54) $ (0.33) $ (0.55)
============= ============= =============
</TABLE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the Form S-8 Registration Statement (No.333-11537) of our reports
dated February 17, 1998 (except with respect to the matter discussed in Note 18,
as to which the date is March 18, 1998) included in Andrx Corporation's Form
10-K for the year ended December 31, 1997 and to all references to our Firm
included in that Registration Statement.
/S/ ARTHUR ANDERSEN LLP
- -----------------------
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 30, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,625,000
<SECURITIES> 18,918,000
<RECEIVABLES> 22,632,000
<ALLOWANCES> 1,589,000
<INVENTORY> 25,901,000
<CURRENT-ASSETS> 75,128,000
<PP&E> 15,403,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 90,845,000
<CURRENT-LIABILITIES> 29,984,000
<BONDS> 0
0
0
<COMMON> 15,000
<OTHER-SE> 60,846,000
<TOTAL-LIABILITY-AND-EQUITY> 90,845,000
<SALES> 149,561,000
<TOTAL-REVENUES> 149,698,000
<CGS> 124,914,000
<TOTAL-COSTS> 33,515,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (490,000)
<INCOME-PRETAX> (7,636,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,636,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,636,000)
<EPS-PRIMARY> (0.54)
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 99.1
ANDRX CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF ANCIRC Pharmaceuticals:
Report of Independent Certified Public Accountants 1
Balance Sheets
as of December 31, 1997 and 1996 2
Statements of Operations
for the years ended December 31, 1997, 1996 and 1995
and the cumulative period from inception (July 8, 1994)
to December 31, 1997 3
Statements of Partners' Deficit
for the years ended December 31, 1997, 1996 and 1995 4
Statements of Cash Flows
for the years ended December 31, 1997, 1996 and 1995
and the cumulative period from inception (July 8, 1994)
to December 31, 1997 5
Notes to Financial Statements 6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of
ANCIRC Pharmaceuticals:
We have audited the accompanying balance sheets of ANCIRC Pharmaceuticals (a New
York general partnership in the development stage) as of December 31, 1997 and
1996, and the related statements of operations, partners' deficit and cash flows
for the years ended December 31, 1997, 1996 and 1995, and for the cumulative
period from inception (July 8, 1994) to December 31, 1997. These financial
statements are the responsibility of the partnership's management. Our
responsibility is to express an opinion on these financial statements 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 financial position of ANCIRC Pharmaceuticals as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years ended December 31, 1997, 1996 and 1995, and for the cumulative
period from inception (July 8, 1994) to December 31, 1997 in conformity with
generally accepted accounting principles.
/S/ ARTHUR ANDERSEN LLP
- -----------------------
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
January 31, 1998.
1
<PAGE>
ANCIRC PHARMACEUTICALS
(A DEVELOPMENT STAGE PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Current assets
Cash and cash equivalents $ 416,200 $ 700,900
Inventories 312,300 -
----------- ----------
Total current assets 728,500 700,900
Laboratory equipment, net of accumulated
depreciation of $36,800 and $6,300 as of
December 31, 1997 and 1996, respectively 236,600 25,100
----------- ----------
Total assets $ 965,100 $ 726,000
=========== ==========
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities
Due to joint venture partners $ 999,200 $ 1,045,500
Accounts payable 51,100 2,300
----------- ----------
Total current liabilities 1,050,300 1,047,800
----------- ----------
Partners' deficit
SR Six, Inc. (42,600) (160,900)
Circasub, Inc. (42,600) (160,900)
----------- ----------
Total partners' deficit (85,200) (321,800)
----------- ----------
Total liabilities and partners' deficit $ 965,100 $ 726,000
=========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets
2
<PAGE>
ANCIRC PHARMACEUTICALS
(A DEVELOPMENT STAGE PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
INCEPTION
(JULY 8, 1994)
TO YEARS ENDED DECEMBER 31,
DECEMBER 31, ------------------------
1997 1997 1996 1995
------------------- ------------------------------------------------------
<S> <C> <C> <C> <C>
Research and development
expenses:
Purchased research and
development services $ 10,154,300 $ 3,065,100 $ 3,841,600 $ 2,825,300
Operating supplies 705,300 168,000 142,900 310,700
Other 281,900 158,600 54,300 47,800
-------------- -------------- ------------- ------------
Total research and
development expenses 11,141,500 3,391,700 4,038,800 3,183,800
-------------- -------------- ------------- ------------
Operating loss (11,141,500) (3,391,700) (4,038,800) (3,183,800)
-------------- -------------- ------------- ------------
Interest income 56,000 28,300 17,000 9,800
-------------- -------------- ------------- ------------
Net loss $(11,085,500) $(3,363,400) $(4,021,800) $(3,174,000)
============== ============== ============= ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements
3
<PAGE>
ANCIRC PHARMACEUTICALS
(A DEVELOPMENT STAGE PARTNERSHIP)
STATEMENTS OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
SR SIX, INC. CIRCASUB, INC. TOTAL
------------ -------------- -----
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ (15,800) $ (10,500) $ (26,300)
Contributions by joint venture partners 1,200,000 800,000 2,000,000
Net loss (1,839,700) (1,334,300) (3,174,000)
------------ ----------- -----------
BALANCE, DECEMBER 31, 1995 (655,500) (544,800) (1,200,300)
Contributions by joint venture partners 2,505,500 2,394,800 4,900,300
Net loss (2,010,900) (2,010,900) (4,021,800)
------------ ----------- -----------
BALANCE, DECEMBER 31, 1996 (160,900) (160,900) (321,800)
Contributions by joint venture partners 1,800,000 1,800,000 3,600,000
Net loss (1,681,700) (1,681,700) (3,363,400)
------------ ----------- -----------
BALANCE, DECEMBER 31, 1997 $ (42,600) $ (42,600) $ (85,200)
============ =========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements
4
<PAGE>
ANCIRC PHARMACEUTICALS
(A DEVELOPMENT STAGE PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
INCEPTION
(JULY 8, 1994)
TO YEARS ENDED DECEMBER 31,
DECEMBER 31, ------------------------
1997 1997 1996 1995
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net loss $ (11,085,500) $ (3,363,400) $ (4,021,800) $ (3,174,000)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation 36,800 30,500 6,300 -
Increase (decrease) in due to joint
venture partners 999,200 (46,300) (230,300) 748,900
Increase (decrease) in accounts payable 51,100 48,800 (7,100) 9,400
Increase in inventories (312,300) (312,300) - -
------------- ------------- ------------- -------------
Cash used in operating activities (10,310,700) (3,642,700) (4,252,900) (2,415,700)
------------- ------------- ------------- -------------
Cash flows from investing activities
Purchases of laboratory equipment (273,400) (242,000) (31,400) -
------------- ------------- ------------- -------------
Cash used in investing activities (273,400) (242,000) (31,400) -
------------- ------------- ------------- -------------
Cash flows from financing activities
Contributions by joint venture partners 11,000,300 3,600,000 4,900,300 2,000,000
------------- ------------- ------------- -------------
Cash provided by financing activities 11,000,300 3,600,000 4,900,300 2,000,000
------------- ------------- ------------- -------------
Net increase (decrease) in cash and
case equivalents 416,200 (284,700) 616,000 (415,700)
Cash and cash equivalents, beginning
of period - 700,900 84,900 500,600
------------- ------------- ------------- -------------
Cash and cash equivalents, end of period $ 416,200 $ 416,200 $ 700,900 $ 84,900
============= ============= ============= =============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements
5
<PAGE>
ANCIRC PHARMACEUTICALS
(A DEVELOPMENT STAGE PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) GENERAL
ANCIRC Pharmaceuticals ("ANCIRC"), a joint venture was formed on July 8, 1994 by
SR Six, Inc., a wholly owned subsidiary of Andrx Corporation (the "Andrx
Partner") and Circasub, Inc., a wholly owned subsidiary of Watson
Pharmaceuticals, Inc. (the "Watson Partner"). Under the terms of the joint
venture agreement (the "Agreement") as amended on October 30, 1995 (the
"Amendment Date"), the purpose of ANCIRC is to develop, manufacture and market
up to eight controlled-release generic pharmaceutical products. The Andrx
Partner will cause certain of its other subsidiaries to perform the research and
develop formulations for the products and to market and distribute ANCIRC's
products following regulatory approval. The Watson Partner will perform the
manufacturing of the products and provide the regulatory support for ANCIRC's
products. To date, the sole activity of ANCIRC has been research and
development. As of January 31, 1998, ANDAs for two controlled-release products
have been submitted to the U.S. Food and Drug Administration for regulatory
approval.
The partnership interests for the period from inception to the Amendment Date
were 60% and 40% for the Andrx Partner and the Watson Partner, respectively.
Effective as of the Amendment Date, the partnership interests are 50% for both
the Andrx Partner and the Watson Partner.
ANCIRC is managed by and under the direction of a management committee which is
composed of six members. Three members are appointed by each of the joint
venture partners. The management committee oversees the operations of ANCIRC and
is responsible for making all major decisions.
MANAGEMENT'S PLANS
Since inception (July 8, 1994) through December 31, 1997, ANCIRC has incurred
net losses of $11,085,500. Management anticipates incurring additional losses in
the near term as the focus of ANCIRC's business is research and development. The
joint venture partners are committed to the funding of ANCIRC's future
operations.
The likelihood of the success of ANCIRC must be considered in light of the
problems, expenses, complications and delays frequently encountered in
connection with the development of new business ventures. These business risks
include dependence on a limited number of key personnel, uncertainty of
regulatory approval and market acceptance of ANCIRC's products.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
All highly liquid investments with an original maturity of three months or less
are considered cash equivalents.
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
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
6
<PAGE>
ANCIRC PHARMACEUTICALS
(A DEVELOPMENT STAGE PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts payable and due to
joint venture partners approximate fair value due to the short maturity of these
instruments.
INVENTORIES
Inventories consist of raw materials held for the manufacture of saleable
product. Inventories are stated at the lower of cost (first-in, first-out) or
market.
LABORATORY EQUIPMENT
Laboratory equipment is recorded at cost and depreciation is provided using the
straight-line method over an estimated life of five years.
PURCHASED RESEARCH AND DEVELOPMENT SERVICES
Purchased research and development services consist of ANCIRC's research costs,
performed and incurred by the joint venture partners, as well as bioequivalent
studies performed by outside research organizations and billed to ANCIRC.
Purchased research and development services are expensed as incurred.
(3) RELATED PARTY TRANSACTIONS
Expenses reported by ANCIRC primarily represent expenses incurred by the joint
venture partners for research and development related to ANCIRC's products. As
of December 31, 1997, ANCIRC had amounts due to the Andrx Partner and the Watson
Partner of $458,200 and $541,000, respectively. As of December 31, 1996 amounts
due to the Andrx Partner and the Watson Partner were $376,600 and $668,900,
respectively.
(4) INCOME TAXES
ANCIRC is organized as a partnership. Accordingly, taxable income or loss is
reported in the tax returns of the individual partners.
(5) PARTNERS' DEFICIT
As discussed in Note 1, as of the Amendment Date, the partnership interest of
the Andrx Partner and the Watson Partner shall each be 50%. Under the terms of
the Agreement, the Watson Partner was not required to contribute additional
capital to ANCIRC to equalize the capital accounts as of the Amendment Date. The
Partners' capital accounts will be equalized in future periods out of net cash
flow or upon liquidation, to the extent funds are available.
