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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, 1999
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 22,
2000 IS: 31,737,192.
THE AGGREGATE MARKET VALUE, AS OF MARCH 22, 2000, FOR SHARES OF COMMON STOCK
HELD BY NON-AFFILIATES OF THE REGISTRANT IS APPROXIMATELY $2,591,555,000.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
FORWARD-LOOKING STATEMENTS
ANDRX CAUTIONS READERS THAT CERTAIN IMPORTANT FACTORS MAY AFFECT
ANDRX'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 ANDRX. 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. ALL REFERENCES TO "WE," "US" AND ANDRX ARE
TO ANDRX AND ITS SUBSIDIARIES. FACTORS WHICH MAY AFFECT ANDRX' RESULTS INCLUDE,
BUT ARE NOT LIMITED TO, THE RISKS AND UNCERTAINTIES ASSOCIATED WITH A DRUG
DELIVERY COMPANY WHICH HAS ONLY COMMERCIALIZED A FEW PRODUCTS, HAS NEW
TECHNOLOGIES AND LIMITED MANUFACTURING EXPERIENCE, INCLUDING BUT NOT LIMITED TO
CURRENT AND POTENTIAL COMPETITORS WITH SIGNIFICANT TECHNICAL AND MARKETING
RESOURCES, AND DEPENDENCE ON KEY PERSONNEL. ANDRX IS ALSO SUBJECT TO THE RISKS
AND UNCERTAINTIES ASSOCIATED WITH ALL DRUG DELIVERY COMPANIES, INCLUDING CHANGES
IN REGULATORY SCHEMES, DIFFICULTY IN RECEIVING REGULATORY APPROVAL TO MARKET NEW
PRODUCTS, COMPLIANCE WITH GOVERNMENT REGULATIONS AND PATENT INFRINGEMENT AND
OTHER LITIGATION. ADDITIONALLY, ANDRX IS SUBJECT TO RISKS AND UNCERTAINTIES
ASSOCIATED WITH DRUG DISTRIBUTION COMPANIES, INCLUDING BUT NOT LIMITED TO FIERCE
COMPETITION AND DECREASING GROSS PROFITS. IN ADDITION, ANDRX'S INTERNET BASED
HEALTHCARE INFORMATION TECHNOLOGY SUBSIDIARY IS SUBJECT TO THE RISKS AND
UNCERTAINTIES OF AN EARLY STAGE INTERNET COMPANY, INCLUDING BUT NOT LIMITED TO
LIMITED OPERATING HISTORY AND SUBSTANTIAL OPERATING LOSSES, AVAILABILITY OF
CAPITAL RESOURCES, ABILITY TO EFFECTIVELY COMPETE, UNANTICIPATED DIFFICULTIES IN
PRODUCT DEVELOPMENT, ABILITY TO GAIN MARKET ACCEPTANCE AND MARKET SHARE, ABILITY
TO MANAGE GROWTH, RELIANCE ON SHORT-TERM NON-EXCLUSIVE CONTRACTS, ABILITY TO
OBTAIN CONTENT, INTERNET SECURITY RISKS AND UNCERTAINTY RELATING TO THE
EVOLUTION OF THE INTERNET AS A MEDIUM FOR COMMERCE, DEPENDENCE ON THIRD PARTY
CONTENT PROVIDERS, DEPENDENCE ON KEY PERSONNEL, ABILITY TO PROTECT INTELLECTUAL
PROPERTY, THE POSSIBILITY THAT THE TRACKING STOCK RECAPITALIZATION WILL NOT BE
EFFECTED AND THE IMPACT OF FUTURE GOVERNMENT REGULATION. ANDRX IS ALSO SUBJECT
TO OTHER RISKS DETAILED HEREIN OR DETAILED FROM TIME TO TIME IN ANDRX' SEC
FILINGS.
PART I
ITEM 1. BUSINESS
A) NARRATIVE DESCRIPTION OF BUSINESS
OVERVIEW
We formulate and commercialize controlled-release oral pharmaceuticals
using our proprietary drug delivery technologies. We market and sell our generic
or bioequivalent versions of Cardizem(R) CD and Dilacor XR(R). Through our
distribution operations, we sell generic drugs manufactured by third parties
primarily to independent pharmacies, pharmacy chains which do not maintain their
own central warehousing facilities and pharmacy buying groups. Through our
Cybear subsidiary, we develop Internet applications to improve the efficiency of
day-to-day administrative and communications tasks for the various participants
in the healthcare industry.
We have eight proprietary drug delivery technologies that we have
patented or for which we have filed patent applications. We believe our
technologies are flexible and can be modified to apply to a variety of
pharmaceutical products. We use our proprietary drug delivery technologies and
formulation skills to develop:
o bioequivalent versions of selected controlled-release brand
name pharmaceuticals; and
o brand name controlled-release formulations of existing
immediate-release or controlled-release drugs where we believe
that the application of our drug delivery technologies may
improve the efficacy or other characteristics of that product.
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We believe that pharmaceutical companies are increasingly using
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 number of times a drug must be taken, thus improving patient
compliance.
PRODUCT DEVELOPMENT AND COMMERCIALIZATION
BIOEQUIVALENT CONTROLLED-RELEASE PHARMACEUTICALS
We apply our proprietary drug delivery technologies and formulation
skills to develop bioequivalent versions of selected controlled-release brand
name pharmaceuticals. Specifically, we apply our proprietary processes and
formulations to develop a product that will reproduce the brand product's
physiological characteristics, but not infringe upon the patents of the brand
company or innovator. Next, we conduct studies to establish that our product is
bioequivalent to the brand product, and obtain legal advice that our product
will not infringe the innovator's patents or that such patents are invalid or
unenforceable. As required by the Drug Price Competition and Patent Restoration
Act of 1984, known as the Waxman-Hatch Amendments, we then assemble and submit
an Abbreviated New Drug Application, or ANDA, to the FDA for review. As part of
this ANDA, we certify to the FDA that our product will not infringe the
innovator's patents or that such patents are invalid or unenforceable. This
certification is called a Paragraph IV Certification.
Once our ANDA is accepted for filing by the FDA, we must also send a
Paragraph IV Certification to the patent holder. The patent holder may then
initiate a legal challenge to our Paragraph IV Certification. The filing of a
patent infringement lawsuit within 45 days of their receipt of our Paragraph IV
Certification will automatically prevent the FDA from approving our ANDA until
the earlier of 30 months, expiration of the patent or when the infringement case
is decided in our favor. Thus, the developer of bioequivalent products may
invest a significant amount of time and expense in the development of these
products only to be subject to significant delay and the results of patent
litigation before its products may be commercialized.
However, the Waxman-Hatch Amendments also provide an economic incentive
for the early development of bioequivalent pharmaceuticals. The developer of the
bioequivalent product which is the first to have its ANDA, containing a
Paragraph IV Certification for any bioequivalent drug, accepted for filing by
the FDA is awarded a 180 day period of marketing exclusivity against other
companies that subsequently file Paragraph IV Certifications. This means that
the FDA may not approve the marketing of another ANDA containing a Paragraph IV
Certification for that product until the first developer's 180 day period of
marketing exclusivity has expired or has been waived. This marketing exclusivity
begins with the commercial marketing of the product or a court determination
that the patents are not valid, enforceable or infringed.
We believe this period of marketing exclusivity provides an opportunity
for the successful patent challenger to build its market share, to recoup the
expense of the lawsuit and to realize greater profit margins. In addition, once
that exclusivity period has lapsed, we believe the first successful developer
may more effectively defend its position against future competition. Our ability
to secure the benefit of 180-day exclusivity depends on some factors beyond our
control, such as the date of filing, the results of litigation involving other
ANDA filers and proposed changes in FDA regulations which may, for future
filings, decrease the value of the exclusivity period, as described in
"-Government Regulation-ANDA Process." Therefore, even if we qualify for 180-day
exclusivity, we may not be able to benefit from some or any of the 180-day
period.
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We have been sued for patent infringement on many of the products for
which we have filed ANDAs. In addition, in March 2000, the Federal Trade
Commission initiated an administrative proceeding against us relating to a
stipulation and agreement we entered into with respect to the then pending
patent litigation involving Cardizem(R) CD, one of our ANDAs.
We have submitted ANDAs for bioequivalent versions of the following
products:
<TABLE>
<S> <C>
Dilacor XR(R) In October 1997, we received FDA approval and commenced selling Diltia XT(R)our
bioequivalent version of Dilacor XR. This product is used for the treatment
of hypertension and chronic stable angina and is currently being marketed by
Watson Pharmaceuticals, Inc. Our marketing exclusivity expired in Apri
1998. Total U.S. brand and bioequivalent sales for Dilacor XR were approximately
$105 million in 1999.
Cardizem(R)CD In July 1998, we received FDA approval to sell our bioequivalent version of
Cardizem CD, which is used for the treatment of hypertension and chronic
stable angina and is currently being marketed by Aventis S.A. Although approved by
the FDA, we did not market the product due to the pending patent infringement
litigation against us with respect to this product. In June 1999, the litigation
was settled and, we commenced selling Cartia XT (TM), a reformulated version of our
bioequivalent version of Cardizem CD in June 1999. Our marketing exclusivity expired
December 19, 1999. Total U.S. brand and bioequivalen sales for Cardizem CD
were approximately $700 million in 1999.
Prilosec(R) In March 2000, we received tentative FDA approval to sell our bioequivalent
version of Prilosec, which is used for the treatment of ulcers and gastro-esophageal
reflux disease and is currently being marketed by AstraZeneca PLC. Patent
infringement litigation was commenced by AstraZeneca against us with respect to
this product. We believe that we were the first to have our ANDA for this
product accepted for filing by the FDA and that upon final FDA approval our
product should be entitled to the 180-day period of marketing exclusivity. We
do not expect to begin marketing our bioequivalent version of Prilosec before
the expiration of the composition of matter patent in April 2001, which may be
extended for six months as a reward for pediatric studies. Total U.S.
brand sales for Prilosec were approximately $3.5 billion in 1999.
Naprelan(R) In March 2000, we received tentative FDA approval related to our ANDA for our
bioequivalent version of Naprelan, which is used for the treatment of
inflammation and is currently being marketed by Elan Corporation Plc. Elan
commenced patent infringement litigation against us with respect to this
product which is continuing. As we were not the first to have our ANDA for this
product accepted for filing, we may not be able to market our bioequivalent version
of Naprelan until the 180-day marketing exclusivity period of the first ANDA
filer expires or is waived, and either expiration of our 30-month waiting period
or the litigation is concluded in our favor. Total U.S. brand sales for Naprelan
were approximately $50 million in 1999.
Tiazac(R) In September 1998, we submitted an ANDA to the FDA to sell our bioequivalent
version of Tiazac, which is used for the treatment of hypertension and chronic
stable angina and is currently being marketed by Forest Laboratories, Inc.
Biovail Corporation International, the developer of Tiazac, commenced patent
infringement litigation against us with respect to this product. In March
2000, the United States District Court for the Southern
</TABLE>
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<TABLE>
<S> <C>
District of Florida entered an order that our product does not infringe the Biovail
patent, and Biovail filed a notice that it will appeal that decision. We believe
that we were the first to have our ANDA for this product accepted for filing
by the FDA and that upon final FDA approval our product should be entitled to
the 180-day period of marketing exclusivity. The 30-month period from our
ANDA filing expires in March 2001. Total U.S. brand sales for Tiazac were
approximately $170 million in 1999.
Wellbutrin SR(R) In August 1999, we submitted an ANDA to the FDA to sell our bioequivalent
version of Wellbutrin SR, which is used to treat depression and is currently
being marketed by Glaxo Wellcome Plc. Glaxo commenced patent infringement
litigation against us with respect to this product. We believe that we were the
first to have our ANDA for the 150 mg dosage of this product accepted for
filing by the FDA and that this dosage form of our product should be entitled
to 180-day marketing exclusivity. We do not expect to market this product until
the 30-month waiting period expires or the litigation is concluded in our
favor, and we receive FDA approval. Total U.S. brand sales for Wellbutrin SR
were approximately $530 million in 1999.
Zyban(R) In August 1999, we submitted an ANDA to the FDA to sell our bioequivalent
version of Zyban, which is prescribed for the cessation of smoking and is being
marketed by Glaxo. Glaxo commenced patent infringement litigation against
us with respect to this product. We believe that we were the first to have
our ANDA for this product accepted for filing by the FDA and that our product
should be entitled to the 180-day period of marketing exclusivity. We do not
expect to market this product until final FDA approval and the 30-month period
expires or the conclusion of the litigation. Total U.S. brand sales for Zyban
were approximately $105 million in 1999.
K-Dur(R) In August 1999, we submitted an ANDA to the FDA to sell our bioequivalent
version of K-Dur, a potassium supplement that is currently being marketed by
Key Pharmaceuticals, Inc., a subsidiary of Schering Plough Corporation. No
patent infringement suit related to the ANDA for K-Dur has been filed against
us. As we were not the first to have our ANDA for this product accepted for
filing, we cannot market our bioequivalent version of K-Dur until the 180-day
marketing exclusivity period of the first ANDA filer expires or is waived,
assuming the FDA approves our ANDA. Total U.S. brand sales for K-Dur were
approximately $245 million in 1999.
Claritin D-24(R) In February 2000, we submitted an ANDA to the FDA to sell our bioequivalent
version of Claritin D-24, which is a once-a-day antihistamine for the treatment
of allergies and is currently marketed by Schering Plough Corporation. Schering
Plough commenced patent infringement litigation against us. We believe that we
were the first to have our ANDA for this product accepted for filing by the FDA
and that upon final FDA approval our product should be entitled to the 180-day
period of marketing exclusivity. We do not expect to market this product until
the 30-month period expires or the litigation is concluded in our favor,
assuming we receive FDA approval. Total U.S. brand sales for Claritin D-24 were
approximately $350 million in 1999.
Depakote(R) In March 2000, we submitted an ANDA to the FDA to sell our bioequivalent
version of Depakote, which is used to treat epilepsy and is currently marketed
by Abbott Laboratories Inc. Abbott has commenced patent
</TABLE>
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<TABLE>
<S> <C>
infringement litigation against us. As we were not the first to have our ANDA
for this product accepted for filing, we cannot market our bioequivalent
version of Depakote until the 180-day marketing exclusivity period of the first
ANDA filer expires or is waived and until the 30-month period expires or the
litigation is successfully concluded, assuming the FDA approves our ANDA. Total
U.S. brand sales for Depakote were approximately $700 million in 1999.
</TABLE>
In addition, ANCIRC Pharmaceuticals, our 50/50 joint venture with
Watson Pharmaceuticals, Inc. received FDA approval for bioequivalent versions of
the following products:
<TABLE>
<S> <C>
Trental(R) In September 1998, ANCIRC received FDA approval to sell its bioequivalent
version of Trental. This product is for the treatment of patients with
chronic occlusion of arteries of the limbs. This product was formulated by
Andrx, is being manufactured by Watson and is being marketed by us. Total
U.S. brand and bioequivalent sales for Trental were approximately
$85 million in 1999. The ANDA for this product did not contain a Paragraph
IV certification.
Oruvail(R) In March 1999, ANCIRC received FDA approval to sell its bioequivalent version
of Oruvail. This product is being used for the treatment of patients with
rheumatoid arthritis and osteoarthritis. This product is to be manufactured
and marketed by us and was launched in April 1999, but was discontinued in
June 1999 due to technical issues related to the production of this product.
We are in the process of rectifying these problems and expect to start producing and
marketing this product again in 2000. Total U.S. brand and bioequivalent sales
for Oruvail were approximately $50 million in 1999. The ANDA for this product did
not contain a Paragraph IV certification.
</TABLE>
BIOEQUIVALENT PRODUCT PIPELINE. In addition to the products for which
ANDAs have been submitted, we, either directly or through ANCIRC or other
collaborative ventures, are attempting to develop approximately 20 additional
bioequivalent versions of brand name drugs. We are continually evaluating
potential product candidates, including specialty or niche pharmaceutical
products.
BRAND NAME CONTROLLED-RELEASE PHARMACEUTICALS
We develop brand name controlled-release formulations by applying our
proprietary drug delivery technologies to existing immediate-release and
controlled-release drugs. We believe that the application of our 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. In selecting our product candidates, we focus on
high sales volume pharmaceuticals that will lack patent protection at the time
we plan to market our product. We are continually evaluating potential product
candidates for this program.
In order to facilitate development of these products, we plan to
undertake formulation and development on our own and use contract research
organizations for clinical studies. Currently, we are evaluating entering into
collaborative arrangements with other pharmaceutical companies to commercialize
these products. These potential products generally require us to file an
Investigational Drug Application, or IND, with the FDA before commencing
clinical trials and a New Drug Application, or NDA, in order to obtain FDA
approval. We believe that the FDA approval process of our NDA for these type of
brand name controlled-release formulations will be simpler than that typically
associated with most NDAs for new chemical entities because our development
efforts involve chemical entities which have been previously approved by the
FDA. We may also receive
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certain marketing exclusivity rights for a controlled-release product we develop
in our new drug program.
The following describes the status of our brand name controlled-release
products:
<TABLE>
<S> <C>
Lovastatin XL(R) Our product, Lovastatin XL, is a newly developed extended-release tablet
which uses one of our proprietary drug delivery technologies to treat elevated
cholesterol or hypercolesterolemia. Merck & Co., Inc. markets Lovastatin
immediate-release oral tablets under the brand name Mevacor(R). Mevacor
immediate-release tablets are currently marketed in 10 mg, 20 mg and 40 mg
strengths and are administered once a day. The usual recommended starting
dose is 20 mg once a day. The recommended dosing range is 10 mg to 80 mg per
day in one or two doses. Mevacor belongs to a class of drugs known as
statins. Statin products had approximately $5.7 billion in U.S. sales in
1999, of which Mevacor sales were approximately $300 million.
Our tablet formulation also contains 10 mg, 20 mg, 40 mg or 60 mg doses. Several published
studies suggest therapeutic advantages may be achieved by an extended-release dosage form
of Lovastatin, including greater efficacy, resulting in the need for fewer doses, and an
improved safety profile compared to the conventional immediate-release dosage form. In a
Phase II crossover study conducted by us in patients with elevated cholesterol, Lovastatin
XL produced a greater reduction in mean LDL cholesterol than was produced by an equivalent
dose of Mevacor. There was little or no difference in adverse events between Lovastatin XL
and Mevacor. In June 1999, we initiated Phase III studies of Lovastatin XL with over 500
targeted patients in over 40 centers to evaluate the efficacy and safety of our product
before we file an NDA, which we anticipate to occur in 2001.
Metformin XT(R) We have developed Metformin XT, an oral extended-release dosage form of
Metformin using our proprietary modified release system, to treat
non-insulin-dependent diabetes mellitus, commonly referred to as Type II
diabetes. Bristol Myers Squibb Inc. markets metformin as an immediate-release
tablet under the brand name Glucophage(R). Our once daily product is intended to
have bioavailability equivalent to the currently marketed Glucophage product.
Glucophage tablets are marketed in 500 mg, 850 mg or 1000 mg doses. Although
there is no fixed dosage regimen, it is typically administered two to three
times per day with a maximum recommended dose of 2550 mg per day. Bristol
Myers Squibb filed an NDA for a once a day metformin in late 1999. There were over
$2 billion of U.S. sales of glucose-lowering products in 1999 including
Glucophage, Glucotrol XL(R)and Glynase(R). Metformin use has been associated
with gastrointestinal side effects. These adverse events may be partially
avoided using an extended-release dosage form. Another advantage of an
extended-release dosage form is a reduction in the frequency of administration,
which we expect to increase patient compliance.
In January 2000, we successfully completed Phase II clinical studies and we expect
to commence pivotal Phase III clinical studies in the second quarter of 2000. We
believe that other companies may also be developing once-a-day dosage products for
NDA filings in the near future. We anticipate filing an NDA in 2001.
</TABLE>
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We are also in various early stages of development for Omeprazole DR,
an analgesic product and two central nervous system products.
BRAND SALES AND MARKETING STRATEGY
We are developing and evaluating various strategies for the sale and
marketing of our brand name controlled-release pharmaceuticals. These strategies
include licensing our brand name products to other pharmaceutical companies with
sales organizations sufficient to support our products, entering into
co-promotion or contract sales arrangements with respect to the products,
establishing our own sales organization and related infrastructure to support
and manage our sales effort or any combination of the above. If we license our
products or enter into a co-promotional or contract sales arrangements, we would
not incur the significant upfront expenses associated with building a sales
organization, but our potential profit margins for the product may be lower.
Whichever strategy we pursue, we expect that when our current brand name
controlled-release pharmaceuticals are ready to be launched we will have an
established sales organization in place or have entered into arrangements to
market our products to physicians and other health care professionals who
prescribe that product. We also expect to have the ability to access doctors
through Cybear's online communication system.
OUR PROPRIETARY DRUG DELIVERY TECHNOLOGIES
Both our bioequivalent controlled-release pharmaceuticals and our brand
name controlled relase pharmaceuticals generally utilize our proprietary 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 therefore need be taken only once or twice daily.
Controlled-release products typically provide numerous benefits over immediate
release drugs, including:
o greater effectiveness in the treatment of chronic conditions;
o reduced side effects;
o greater convenience (only once or twice a day); and
o higher levels of patient compliance due to a simplified dosing
schedule.
We have eight proprietary drug delivery technologies that are either
patented or for which we have filed patent applications. We have been issued 38
patents with respect to these technologies. We originally designed these
controlled-release technologies specifically for a drug that was being
formulated. However, we believe that our technologies are relatively flexible
and can be modified to apply to a variety of pharmaceutical products.
Our 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 applying an appropriate drug delivery technology to a particular drug
candidate, we consider such factors as:
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o the desired release rates of the drug;
o the physio-chemical properties of the drug;
o the physiology of the gastrointestinal tract and the manner in
which the drug will be absorbed during passage through the
gastrointestinal tract; and
o the effect of food on the absorption rate and transit time of
the drug.
The following summarizes our drug delivery technologies:
<TABLE>
<CAPTION>
DRUG DELIVERY TECHNOLOGY DESCRIPTION
- --------------------------------------------------- -------------------------------------------------------------------
<S> <C>
Pelletized Pulsatile Delivery System
("PPDS") PPDS is designed for use with 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 Tablet System
("SCOT") SCOT utilizes various osmotic modulating agents as well as polymer
coatings to provide a zero-order release of a drug (a constant rate
of release).
Solubility Modulating Hydrogel System
("SMHS") SMHS is designed for products 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 manufacturing.
This technology avoids the "initial burst effect" commonly
observed with other sustained-release hydrogel formulations.
Delayed Pulsatile Hydrogel System
("DPHS") DPHS is designed for use with 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.
Stabilized Pellet Delivery System
("SPDS") SPDS is designed specifically for unstable drugs,
incorporating a pellet core of drug and protective polymer
outer layer(s).
Granulated Modulating Hydrogel System
("GMHS") GMHS incorporates hydrogel and binding polymers with the drug,
which is formed into granules and then pressed into tablet
form.
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 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.
</TABLE>
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<TABLE>
<CAPTION>
DRUG DELIVERY TECHNOLOGY DESCRIPTION
- --------------------------------------------------- -------------------------------------------------------------------
<S> <C>
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.
</TABLE>
COLLABORATIVE ARRANGEMENTS
We work with other pharmaceutical companies to formulate
controlled-release versions of their existing commercialized drugs and drugs
they are developing using our proprietary drug delivery technologies. In
addition to improving drug efficacy, we believe that our drug delivery
technologies will provide these pharmaceutical companies with the opportunity to
enhance the commercial value of their existing drug products and new drug
candidates.
ANCIRC is a 50/50 joint venture between us and Watson for the
development of eight bioequivalent controlled-release pharmaceuticals. Capital
contributions, distributions and net income or losses are allocated equally
Between us and Watson. Capital contributions are utilized by ANCIRC to pay
outside vendors, services rendered by Watson or us to ANCIRC and to purchase
finished goods inventory manufactured by Watson or us on ANCIRC's behalf. We
have made investments in ANCIRC totaling $7.9 million through December 31, 1999.
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From time to time, we have had discussions with Watson to potentially
restructure ANCIRC. We are currently having such discussions although no
definitive agreements have been reached.
DEVELOPMENT AND LICENSING AGREEMENTS
In June 1999, we entered into an agreement with Geneva Pharmaceuticals,
Inc., a member of the Novartis pharmaceutical group. Geneva has agreed to fund
the development costs of certain controlled-release products that we are
developing for submission as NDAs in exchange for exclusive marketing rights to
those products in specified territories. Under this arrangement, one of our NDA
products has been outlicensed for the U.S. Upon receiving approval from the FDA
or other regulatory agencies, we will receive royalties from the sale of these
products in the specified territories. We have committed to continuing to sell
Geneva's bioequivalent products in our Anda, Inc. distribution operation.
We have entered into additional development and licensing agreements
covering bioequivalent pharmaceuticals with other U.S. and foreign
pharmaceutical companies. Pursuant to these agreements, the licensees typically
will fund the cost of product development and will pay us royalties in exchange
for a license to market the products for a specified period in a specified
territory.
MANUFACTURING
We presently have a manufacturing facility capable of producing the
projected necessary commercial quantities of our bioequivalent versions of
Dilacor XR, Cardizem CD, Tiazac, Oruvail, Naprelan and K-Dur. However, since our
existing manufacturing facility will not be suitable for the manufacture of all
of the products that we intend to develop and manufacture, we are in the process
of expanding our manufacturing capabilities by converting portions of our
existing facilities to additional manufacturing and related warehousing space,
and by building a new facility on an adjacent 15 acre parcel of property that we
own. Following the completion of these projects, we will have approximately
200,000 square feet for the manufacture of our products.
We also depend upon Watson to manufacture certain products subject to
the ANCIRC joint venture and on other companies with which we have or may have
agreements to manufacture other products.
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BIOEQUIVALENT PHARMACEUTICAL DISTRIBUTION OPERATIONS
We market and distribute bioequivalent pharmaceuticals manufactured by
third parties through our Anda subsidiary formerly known as Anda Generics Inc.
We purchase pharmaceuticals directly from manufacturers and wholesalers and
market them through our in-house telemarketing staff primarily to independent
pharmacies, pharmacy chains which do not maintain their own central warehousing
facilities and pharmacy buying groups. We offer competitive pricing, quality
products and responsive customer service, which we believe are the critical
elements to competing effectively in this market. Our telemarketing staff
currently has approximately 130 persons and is supplemented by sales executives
who are responsible for national accounts.
In March 2000, we acquired Valmed Pharmaceutical, Inc., a privately
owned distributor of bioequivalent pharmaceuticals based in Grand Island, New
York. The purchase price was $14.8 million in cash, subject to certain
adjustments. The acquisition was recorded using the purchase method of
accounting.
We currently utilize our distribution operations' sales and marketing
personnel for the marketing of our bioequivalent versions of Dilacor XR,
Cardizem CD and ANCIRC's bioequivalent version of Trental. We plan to continue
to utilize Anda personnel and start to use the Valmed operations in the
marketing and distribution of our current products and other products being
developed by us, by ANCIRC and by our collaborative partners.
We purchase our bioequivalent products for resale from a number of
pharmaceutical manufacturers and wholesalers. We believe that we are not
dependent upon any particular supplier and that alternative sources of supply
for most of our products are available if required.
CYBEAR
Cybear is an information technology company that is using the Internet
to improve the efficiency of administrative and communications tasks of managing
patient care while addressing the healthcare industry's need for the secure and
reliable transmission of information. Cybear is an Internet Service Provider, or
ISP, and Application Services Provider, ASP, for the healthcare industry. Cybear
uses or intends to use its own secure private network to provide access to the
Internet's e-mail and productivity applications. These are available on a
transaction or subscription basis to physicians, physician organizations,
pharmacies and hospitals. Some of its online applications include or will
include business tools for hospital messaging, lab orders and results,
streamlined purchasing, prescription writing, claims processing, eligibility
verification, formulary compliance, credentialing, web site creation and
physician-patient communications via the Internet.
In March 1999, Cybear introduced its first product, dr.cybear, a
physician practice portal, which is designed to address the communications and
operational needs of physicians and other healthcare providers. The physician
practice portal is an Internet portal site that provides a combination of
healthcare content, practice management tools, the entry point to a
comprehensive communications network and ongoing access to further products and
services. dr.cybear is marketed to physicians, physician organizations,
hospitals, managed care organizations and integrated delivery networks
throughout the United States.
In September 1999, we entered into an arrangement with Cybear pursuant
to which prescription vaccines and injectables and other items distributed by
Anda can be ordered through Cybear's physician practice portal.
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CYBEAR TRACKING STOCK
In December 1999, Andrx announced a corporate recapitalization plan
which, among other things, would give Andrx shareholders the ability to
distinguish between their investments in Andrx and Cybear. In March 2000, Andrx
and Cybear entered into a definitive agreement with respect to this corporate
recapitalization. This plan, which was recommended by a special committee of the
Board of Directors of Cybear, and was approved by the boards of both Cybear and
Andrx, will create a new class of Andrx common stock, Cybear Group Common, to
separately track the performance of Cybear. The plan will be submitted for
approval to the shareholders of Andrx and Cybear later this year.
Pursuant to an Agreement and Plan of Merger and Reorganization, we will
acquire all of the publicly traded shares of common stock of Cybear in a
tax-free "roll-up" merger. Cybear's public shareholders currently own
approximately 5.4 million shares (assuming the exercise by Edward E. Goldman,
M.D., Cybear's Chief Executive Officer, of an outstanding warrant to acquire
525,000 shares of Cybear common stock currently owned by Andrx) or 30.5%, of the
common shares of Cybear, and those shareholders will receive one share of Cybear
Group Common for every Cybear share they currently own. In the recapitalization,
the number of Cybear shares held by Andrx will be reduced from 12.4 million
shares to 10.3 million shares so as to provide the equivalent of a 20% increase
in shares held by the non-Andrx shareholders of Cybear. As a result, the
non-Andrx shareholders of Cybear will own approximately 34.5% of the Cybear
Group Common following the closing of the transaction. Pursuant to the
recapitalization, each Andrx common share will be converted into (i) one share
of Andrx common stock representing the common equity interests in Andrx other
than its ownership of Cybear, or Andrx Group Common, and (ii) approximately
.1622 shares of Cybear Group Common, after giving effect to Andrx' pending
two-for-one stock split (in the form of a stock dividend) approved on February
29, 2000. Upon completion of the recapitalization, (i) Cybear will be our wholly
owned subsidiary with 100% of its value publicly traded in the form of Cybear
Group Common; (ii) current Cybear public shareholders will own approximately
34.5% of the Cybear Group Common; and (iii) current Andrx shareholders will own
100% of the Andrx Group Common and approximately 65.5% of the Cybear Group
Common.
The recapitalization is intended to (i) reestablish certain tax
consolidation advantages for Andrx; (ii) separate the operating losses of Cybear
from the operating results of Andrx for financial reporting purposes; (iii)
improve liquidity for the publicly traded equity of Cybear; (iv) provide Cybear
with a more viable currency for potential strategic acquisitions; and (v)
preserve financial flexibility for our management to maximize the long-term
growth of shareholder value.
Consummation of the transaction is subject to various conditions,
including approval by shareholders of Andrx and Cybear. In addition to
shareholder approval, the transaction will be subject to various federal and
state regulatory approval and accordingly no assurance can be given that this
transaction will be consummated. Andrx and Cybear will file a joint proxy
statement and a registration statement with respect to the transaction.
COMPETITION
The pharmaceutical industry is highly competitive and is affected by
new technologies, new developments, government regulations, healthcare
legislation, availability of financing and other factors. Many of our
competitors have longer operating histories and greater financial, research and
development, marketing and other resources than us. We expect to be subject to
competition from numerous other entities that currently operate or intend to
operate in the pharmaceutical industry, including companies that are engaged in
the development of controlled-release drug delivery technologies and products,
and other manufacturers that may decide to undertake in-house development of
these products. In our pharmaceutical distribution business, we compete with a
number of large wholesalers and other distributors of pharmaceuticals. In our
Cybear subsidiary, competitors include online services or web sites, ISPs,
publishers and distributors of offline media, healthcare information companies
and large data processing and information companies. We cannot assure you that
we will be able to compete successfully with these companies.
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PATENT LITIGATION AND PROPRIETARY RIGHTS
GENERAL
We believe that our future will depend in part on our ability to obtain
patents and trade secret protection, maintain trade secret protection and
operate without infringing the proprietary rights of others. We have been issued
numerous U.S. and foreign patents and notices of allowances relating to our drug
delivery technologies. In addition, we have filed additional U.S. patent
applications and various foreign patent applications relating to our drug
delivery technologies. We expect to apply for additional U.S. 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. We depend
on our patents and trade secrets. Failure by us to protect our patent rights or
infringement by us of the patent or proprietary rights of others could have a
material adverse effect on our results of operations and financial position.
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 patent rights. Most of the brand name
controlled-release products for which we are developing bioequivalent versions
are covered by one or more patents. Under the Waxman-Hatch Amendments, when a
drug developer files an ANDA for a bioequivalent drug, the developer must make a
certification to the FDA as to whether the developer believes that an unexpired
patent which has been listed with the FDA as covering the relevant brand-name
product will be infringed by the developer's product or is invalid or
unenforceable. If the developer believes that its product does not infringe the
brand product's patents or that the unexpired patent is invalid or
unenforceable, it provides a Paragraph IV Certification to the patent holder,
who may then challenge the developer's Paragraph IV Certification by filing a
lawsuit for patent infringement. If a lawsuit is filed within 45 days from the
day the patent holder received the Paragraph IV Certification, the FDA can
review and tentatively approve the ANDA, but cannot make the marketing approval
effective until a judgment in the action has been rendered in favor of the
developer, 30 months from the date the patent holder received the Paragraph IV
Certification or when the patent expires, whichever is sooner. The outcome of
such litigation is difficult to predict because of the uncertainties inherent in
patent litigation.
Numerous actions have been filed against us. The Dilacor XR action was
dismissed without prejudice; the litigation relating to our bioequivalent
version of Cardizem CD was dismissed with prejudice; the trial court found in
our favor in the Tiazac litigation; and the other actions relating to our ANDAs
for bioequivalent versions of Prilosec, Wellbutrin SR and Zyban, Naprelan,
Depakote and Claritin D-24 are pending. We anticipate that additional actions
may be filed as we, ANCIRC, or our collaborative partners file additional ANDAs
containing Paragraph IV Certifications. Similar patent litigation may affect
NDAs that we file in the future. Our business could be harmed by the delay in
obtaining FDA approval to market our products as a result of litigation, the
expense of litigation whether or not we are successful, or an adverse outcome in
such litigation.
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CARDIZEM CD LITIGATION AND THE STIPULATION
In September 1997, we entered into a stipulation with Hoecsht Marion
Roussel, Inc. (now known as Aventis S.A., or Aventis) and Carderm Capital L.P.
in connection with the patent infringement litigation brought against us by
Aventis relating to the sale of our bioequivalent version of Cardizem CD. In
June 1999, the Aventis litigation was resolved, the lawsuit was dismissed with
prejudice and we received the outstanding stipulation fees owed to us.
In May 1998, Biovail filed a claim against Andrx alleging the
stipulation violated Sections 1 and 2 of the Sherman-Antitrust Act and seeking a
declaratory judgment as to federal law as well as for alleged violations of
state common law of unfair competition, tortious interference with prospective
advantage and tortious interference with contract. Biovail sought injunctive
relief and treble the amount of its actual damages in an unspecified amount,
plus interest, with respect to its federal law claims, and actual and punitive
damages in unspecified amounts, plus interest, with respect to its common law
claims. In July 1998, Andrx filed a motion to dismiss Biovail's claims. That
motion was granted with prejudice with respect to the federal antitrust claims
in January 2000 with the state law claims being dismissed without prejudice.
Biovail has both appealed that dismissal to the Court of Appeals and also has
requested that the District Court reconsider its determination in light of
certain facts that Biovail failed to provide the court. These matters are still
pending. See "Item 3 -- Legal Proceedings."
In March 2000, Andrx received a letter from Purepac Pharmaceutical Co.
stating its belief that Cartia XT, our bioequivalent version of Cardizem CD,
infringed certain claims of a patent that had been issued in its favor on March
7, 2000. The letter also offered to license that patent to us. We are currently
evaluating those patent infringement claims and this licensing offer. Purepac
has also filed a complaint in the U.S. District Court for the Eastern District
of Pennsylvania for patent infringement. In due course, Andrx will prepare its
response to Purepac's claims.
PRILOSEC LITIGATION
We made a Paragraph IV Certification in connection with the ANDA we
filed for our bioequivalent version of Prilosec. We believe that we were the
first to have our ANDA for this product accepted for filing by the FDA and that
once final approval is received, our product should be entitled to the 180-day
period of marketing exclusivity. In May 1998, AstraZeneca filed suit against
Andrx in the U.S. District Court for the Southern District of Florida claiming
patent infringement because of an ANDA filed by Andrx with the FDA for a
bioequivalent version of Prilosec. Andrx responded to this claim by denying
infringement, raising various other defenses, filing certain counterclaims
against AstraZeneca and by seeking a declaration that there has been no
infringement and that the patent is invalid. AstraZeneca seeks an injunction
enjoining Andrx from further infringing the subject patent and an order
directing that the effective date of any FDA approval of Andrx' proposed
bioequivalent version of Prilosec be no earlier than the expiration date of its
patents.
A second Paragraph IV Certification was made by Andrx with regard to a
different strength of Prilosec. This resulted in AstraZeneca filing another suit
in the U.S. District Court for the Southern District of Florida. Both of these
suits have been consolidated in the U.S. District Court for the Southern
District of New York, together with three other patent infringement suits
initiated by AstraZeneca involving ANDAs submitted by other companies for
bioequivalent versions of Prilosec.
TIAZAC LITIGATION
We made a Paragraph IV Certification in connection with the ANDA we
filed for our bioequivalent version of Tiazac. In October 1998, Biovail, Biovail
Laboratories Inc. and Galephar Puerto Rico, Inc., or the Biovail Group, filed
suit against Andrx in the U.S. District Court for the Southern District of
Florida claiming patent infringement because of the ANDA filed by Andrx with the
FDA for a bioequivalent version of Tiazac.
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Andrx responded to this claim by denying infringement, raising various other
defenses, filing certain counterclaims against the Biovail Group and by seeking
a declaration that there has been no infringement and that the patent is
invalid. The Biovail Group sought an injunction enjoining Andrx from further
infringing the subject patent and an order directing that the effective date of
any FDA approval of Andrx' proposed bioequivalent version of Tiazac be no
earlier than the expiration date of the subject patent. In March 2000, the court
entered an order that Andrx's product does not infringe the Biovail patent.
Biovail has filed a notice of appeal of that order.
NAPRELAN LITIGATION
We made a Paragraph IV Certification in connection with the ANDA we
filed for our bioequivalent version of Naprelan. In October 1998, Elan
Corporation Plc filed suit against Andrx in the U.S. District Court for the
Southern District of Florida claiming patent infringement because of the ANDA
filed by Andrx with the FDA for a bioequivalent version of Naprelan. Andrx
responded to this claim by denying infringement, raising various other defenses,
filing certain counterclaims against Elan and by seeking a declaration that
there has been no infringement and that the patent is invalid. Elan seeks a
judgment enjoining Andrx from further infringing the subject patent and ordering
that the effective date of any FDA approval of Andrx' proposed bioequivalent
version of Naprelan be no earlier than the expiration date of the patent.
WELLBUTRIN SR AND ZYBAN LITIGATION
We made Paragraph IV Certifications in connection with the ANDAs we
filed for our bioequivalent versions of Wellbutrin SR and Zyban. In September
1999, Glaxo Wellcome PLC filed suit against Andrx in the U.S. District Court for
the Southern District of Florida claiming patent infringement because of the
ANDAs filed by Andrx with the FDA for bioequivalent versions of Wellbutrin SR
and Zyban. Andrx responded to this claim by denying infringement, raising
various other defenses, filing certain counterclaims against Glaxo and by
seeking a declaration that there has been no infringement and that the patent is
invalid. Glaxo seeks an injunction enjoining Andrx from further infringing the
subject patents and orders directing that the effective date of any FDA approval
of Andrx' proposed bioequivalent versions of Wellbutrin SR and Zyban be no
earlier that the expiration date of the subject patent.
DEPAKOTE LITIGATION
We made a Paragraph IV certification in connection with the ANDA we
filed for our bioequivalent version of Depakote. In March 2000, Abbott
Laboratories filed suit against Andrx, Andrx Pharmaceuticals, Inc. and Andrx
Pharmaceuticals L.L.C. in the United States District Court for the Northern
District Court of Illinois, claiming infringement of two of its patents because
of our filing the aforementioned ANDA. Abbott seeks a judgment enjoing
defendants from further infringing the subject patents and ordering that the
effective date of any FDA approval of the Company's proposed bioequivalent
version of Depakote be no earlier than the expiration dates of the two patents
in suit. Although we have not yet responded to the complaint, we believe that
our product does not infringe the patents involved or that either or both of
such patents are invalid or unenforceable.
CLARITIN D-24 LITIGATION
We made a Paragraph IV certification, in connection with the ANDA we
filed for our bioequivalent version of Claritin D-24. In March 2000, Schering
Plough filed suit against Andrx in the U.S. District court for New Jersey
claiming patent infringement because of an ANDA filed by Andrx with the FDA for
a bioequivalent version of Claritin D-24. Although we have not yet been served
with the complaint, we believe that our product does not infringe the patent
involved or that the patent is invalid or unenforceable.
While Andrx believes its ANDA products do not infringe the patents that
we have been sued upon or that such patents are invalid and/or unenforceable,
the ultimate resolution of these patent litigation matters is not known and
there is no assurance our position will ultimately prevail.
GOVERNMENT REGULATION
Drug manufacturers are required to obtain FDA approval before marketing
their new drug product candidates. This approval process is often costly and
time consuming and we cannot assure you that any drug application will timely be
approved by the FDA or any other health authority, if at all.
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ANDA PROCESS: FDA approval is required before a bioequivalent of a
previously approved drug or a new dosage form of an existing drug can be
marketed. Approval is sought using an ANDA. Complete clinical studies are not
required in support of an ANDA, although typically bioavailability and
bioequivalence studies must be conducted. Bioavailability indicates the rate and
extent of absorption and levels of concentration of a drug product in the blood
stream. Bioequivalence compares the bioavailability of one drug product with
another, and when established, indicates that the rate of absorption and levels
of concentration of a generic drug in the body are substantially equivalent to
the previously approved drug. An ANDA may be submitted for a drug on the basis
that it is the equivalent to a previously approved drug or, in the case of a new
dosage form, is suitable for use for the indications specified.
Under the Waxman-Hatch Amendments, the developer of a bioequivalent
drug which is the first to have its ANDA accepted for filing by the FDA and
includes a Paragraph IV Certification is awarded a 180-day period of marketing
exclusivity. This means that the FDA may not approve another ANDA containing a
Paragraph IV Certification for that product until the first developer's 180-day
period of marketing exclusivity has expired or has been waived. This marketing
exclusivity period begins with the commercial marketing of the product or a
court determination that the relevant patents are invalid, unenforceable or not
infringing. It is important to note that a court determination triggering the
180-day period can occur either in litigation involving the first Paragraph IV
Certification filer or a subsequent filer.
Until recently, the FDA has interpreted the reference in the statute to
a court determination to mean a court decision which is final and
non-appealable. This interpretation was challenged in litigation in which the
courts disagreed with the FDA's interpretation. Prompted in part by those
decisions, the FDA issued guidelines in March 2000 in which it announced a
change in its interpretation of the statute for ANDAs submitted after the
publication of the guidelines. The new guidelines state that the FDA now will
view a court decision to be the first court decision which finds a patent at
issue to be invalid, unenforceable or not infringed. The FDA stated that when a
lower court renders such a decision, the FDA may approve an ANDA as of the date
of that decision and the 180-day exclusivity period will commence on that date,
unless the marketing of the product has already commenced. If the lower court
decision finds the patent is infringed, but the decision is reversed on appeal,
the FDA may approve the ANDA on the date a judgment is entered that the patent
is invalid, unenforceable or not infringed. The FDA stated that neither a stay
or a reversal of a district court decision finding the patent invalid,
unenforceable or not infringed will have an effect on the approval of an ANDA or
on the beginning, or continued running of the exclusivity period.
The FDA's new interpretation of the statute may substantially decrease
the value of the 180-day exclusivity period. A patent holder whose patent is
found invalid, unenforceable or not infringed in a lower court decision may seek
to reverse such a ruling on appeal. Under the new FDA interpretation, even if
such an appeal is taken, however, the 180-day period would start once the lower
court rendered its initial decision. The developer of the product for which the
relevant ANDA was approved would thus be faced with the prospect of beginning
marketing of its product despite the pending appeal and lack of final resolution
of the litigated issue or delaying marketing at a time when under the FDA's new
interpretation the 180-day exclusivity period had started. A decision to delay
marketing of the product following a lower court decision which is subject to an
appeal would mean that the developer of the product would have less than 180
days, and possibly no days, in which it was the exclusive marketer of that
bioequivalent product.
We are unable to predict what impact, if any, the FDA's new guidelines
may have on our business or financial results.
NDA PROCESS: FDA approval is required before any new drug can be
marketed. An NDA is a filing submitted to the FDA to obtain approval of a drug
not eligible for an ANDA and must contain complete pre-clinical and clinical
safety and efficacy data or a reference to such data. Before clinical testing
can begin, stringent government requirements for pre-clinical data must be
satisfied. The pre-clinical data must provide an adequate basis for evaluating
both the safety and the scientific rationale for the initiation of clinical
trials.
Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. The process of completing clinical trials for a
new drug may take several years and requires the expenditure of substantial
resources. Preparing a NDA involves considerable data collection, verification,
analysis and expense. The approval process is affected by a number of factors,
primarily the risks and benefits demonstrated in clinical trials as well as the
severity of the disease and the availability of alternative treatments. The FDA
or other health authorities may deny an NDA if the regulatory criteria are not
satisfied, or may require additional testing or information before that NDA is
approved.
We believe that the FDA's ANDA procedures will apply to our
bioequivalent versions of controlled-release drugs. We cannot assure you that
our bioequivalence studies and other data will result in FDA approval to market
our drug products. Certain ANDA procedures for bioequivalent controlled-release
drugs and other products are presently the subject of petitions filed by brand
name drug manufacturers, which seek changes from the FDA in the approval process
for bioequivalent drugs. We cannot predict at this time whether the FDA will
make any changes to the ANDA procedures as a result of such petitions, ongoing
rulemakings or litigation of its own volition as it did in the case of the new
guidelines discussed above or the effect that such changes may have on us. Any
changes in FDA regulations or policies may make ANDA approvals more difficult
and, thus, may have a material adverse effect on our business.
Patent certification requirements for bioequivalent controlled-release
drugs could also result in significant delays in obtaining FDA approval if
patent infringement litigation is initiated by the holder or holders of the
brand name patents. Delays in obtaining FDA approval of ANDAs and certain NDAs
can also result from a marketing exclusivity period and/or an extension of
patent terms. If some of our drugs do not qualify for ANDA procedures, as will
be the case with certain of our controlled-release formulations, the FDA
approval process may require time consuming and expensive clinical studies and
NDA filings.
The FDA also regulates the development, manufacture, distribution,
labeling and promotion of prescription drugs. It requires that certain records
be kept and reports be made, mandates registration of drug manufacturers and
their products and has the authority to inspect manufacturing facilities for
compliance with cGMP standards. As a distributor of bioequivalent
pharmaceuticals manufactured by third parties, we are subject to state licensure
and other requirements pertaining to the wholesale distribution of prescription
drugs. We could be materially adversely affected by any failure to comply with
licensing and other requirements. Other requirements exist for controlled drugs,
such as narcotics, which are regulated by the Drug Enforcement Administration or
DEA.
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Finally, the FDA has the authority to withdraw approvals of previously
approved drugs for cause, to request recalls of products, to debar companies and
individuals from future regulatory submissions and, through action in court, to
seize products, institute criminal prosecution or close manufacturing plants in
response to violations. The DEA has similar authority. We could be materially
adversely affected by any such FDA or DEA actions.
PRODUCT LIABILITY INSURANCE
The design, development and manufacture of our products or the products
we distribute involve a risk of product liability claims. We have obtained
product liability insurance that covers substantially all products marketed by
our drug distribution operations, in bioequivalence and other studies for our
controlled-release product candidates and for the products we intend to
commercialize. We believe that our product liability insurance is adequate for
our current operations, but may seek to increase our coverage prior to the
commercial introduction of our product candidates. We cannot give assurance that
the coverage limits of our insurance will be sufficient to cover potential
claims. Product liability insurance is expensive and difficult to obtain and may
not be available in the future on acceptable terms or in sufficient amounts, if
available at all. We could be harmed by a successful claim against us in excess
of our insurance coverage.
PERSONNEL
As of December 31, 1999, we had 725 employees, of whom 25 were involved
in corporate administration, 384 were involved in our distribution operations
and 83 were involved in software development and administration. The remaining
233 employees were involved in research, pharmaceutical development and
manufacturing, including over 40 scientists, many of whom hold Ph.D., masters or
medical degrees.
B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Note 17 to the Consolidated Financial Statements included in Item 8
herein.
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ITEM 2. PROPERTIES
We lease approximately 97,000 square feet in a facility in Fort
Lauderdale, Florida, which houses a portion of our 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 May 31, 2003 at a current total annual rent of
approximately $800,000. Each of the leases affords us five five-year renewal
options, and requires us to pay certain increases in common area costs.
We purchased a 15-acre tract of land in Fort Lauderdale adjacent to our
existing facilities. On this parcel, we are building approximately 160,000
square feet of office, warehouse and manufacturing space sufficient to expand
those portions of the existing square foot facility which are being used for
purposes other than research, product development and manufacturing. We expect
to occupy this facility in mid-2000.
In April 1999, we entered into a one-year lease for an additional
18,000 square feet of warehouse space, at an annual rent of approximately
$200,000. We intend to renew this lease for an additional year, as the Company
intends to continue to use this facility until our new building has been
completed and is available for its intended use.
We lease a 152,000 square foot facility in Weston, Florida, for our
distribution operations and a portion of our executive offices. This lease has a
ten year term expiring in 2009, with two five year renewal options, at an
initial annual rental of approximately $1.4 million.
We occupy a 2,900 square foot facility in Hackensack, New Jersey, for
our clinical development operations, pursuant to a five year lease expiring
August 2003 at an initial annual rental of approximately $70,000.
We lease a 56,000 square foot facility in Somerset, New Jersey for the
research and development of certain specialty and niche bioequivalent
pharmaceuticals, pursuant to a five year lease expiring in March 2005, with two
five year renewal options, at an initial annual rental of approximately
$310,000.
Cybear currently leases 21,600 square feet in Boca Raton, Florida
housing its corporate headquarters and network systems. The lease provides for
annual rent of $271,000, excluding taxes, insurance, utilities and common area
maintenance charges. In September 1999, we amended our lease to expand the
leased premises by 16,000 square feet starting April 1, 2000. This will increase
the annual base rent to $490,000 excluding taxes, insurance, utilities and
common area maintenance charges starting on April 1, 2000. In addition, the
lease term was extended to March 31, 2007.
In connection with the Valmed transaction, we acquired a 11,000 square
foot facility in Grand Island, New York for distribution operations.
ITEM 3. LEGAL PROCEEDINGS
See "Item 1. Business - Patents and Proprietary Rights" expires
December 2006 with respect to certain patent litigation matters.
In addition to the previously described litigation, commencing in
August 1998, putative class and individual actions have been filed against Andrx
in Alabama, California, Florida, Illinois, Kansas, Michigan, Minnesota, New
York, Tennessee, Wisconsin, North Carolina and the District of Columbia. Similar
class actions have been commenced in Federal Court. The actions pending in
federal court have been consolidated for multi-district litigation purposes in
the U.S. District Court for the Eastern District of Michigan. In all of these
suits Aventis has been named as a co-defendant. The complaint in each action
alleges that Andrx and Aventis, by way of the Cardizem stipulation, have engaged
in alleged state antitrust and other statutory and common law violations that
allegedly have given Aventis and Andrx a near monopoly in the U.S. market for
Cardizem CD and a bioequivalent version of that pharmaceutical product.
According to the
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complaints, the monopoly possessed by the defendants enabled Aventis to
perpetuate its ability to fix the price of Cardizem CD at an artificially high
price, free from bioequivalent competition, with the result that direct
purchasers such as pharmacies, as well as indirect purchasers such as medical
patients who have been issued prescriptions for Cardizem CD are forced to
overpay for the drug. Each complaint seeks compensatory damages on behalf of
each class member in an unspecified amount and, in some cases, treble damages,
as well as costs and counsel fees, disgorgement, injunctive relief and other
remedies. Andrx Pharmaceuticals believes that these actions have no merit and
intends to mount a vigorous defense against each action.
In October 1998, we became aware that an investigation by the FTC's
staff was being conducted to determine whether Aventis, Andrx or any other
persons have engaged in unfair methods of competition. We cooperated fully with
the FTC's investigation, which relates to the Cardizem stipulation. In March
2000, the Federal Trade Commission commenced an administrative proceeding
against Aventis and Andrx concerning the Cardizem stipulation claiming it has
reason to believe that the stipulation had or may have had the capacity or the
potential to be anticompetitive. The Commission stated it is not seeking any
fines, penalties, disgorgement or any other monetary remedy in the proceeding.
Contrary to the FTC's position, Andrx believes that the Cardizem stipulation was
pro-competitive and benefited consumers and intends vigorously to defend its
position before the administrative law judge.
In January 1999, Andrx and our bioequivalent pharmaceutical
distribution subsidiary, Anda, Inc., a Florida corporation, were served with
third party complaints filed against them by certain doctors and distributors
who are defendants in various legal actions relating to the sale of phentermine
by the Company and its usage as a diet drug when taken in combination with
fenfluramine, commonly known as "phen-fen". The substance of the third party
complaints is that the defendants are without fault with respect to the claims
in those actions but, if they are found liable on any of those claims, then
allegedly having obtained one or more of the drugs from Anda, they are entitled
to indemnification in an amount to pay and discharge any judgment entered
against them in the putative class action together with costs, expenses and
attorney fees. We and Anda have never sold fenfluramine and believe that these
claims are without merit.
In November 1999, another phen-fen diet lawsuit was filed against Anda
in the Superior Court of New Jersey by a husband, who claims to have obtained or
purchased, either directly or indirectly, from Anda and others, and thereafter
ingested, phentermine, dexfenfluramine and fenfluramine, causing serious medical
consequences, all to his financial detriment, and by his wife, who, on behalf of
herself and her two children, claims monetary damages arising from emotional
distress to herself and her children, loss of spousal/paternal companionship and
expenditure of money, time and care for her husband required by her husband's
alleged injuries which are permanent and continuous in nature. Anda has never
sold dexfenfluramine or fenfluramine and believes that these claims, including
any based solely on the use of phentermine, have no merit.
Other than the patent litigation matters and the above described
litigation, we are not party to a legal proceeding wherein an adverse outcome
would have a material adverse effect on our 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 Andrx's fiscal year ended December 31, 1999.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(A) MARKET INFORMATION
Andrx'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. All
prices have been adjusted for a 2-for-1 stock split in the form of a stock
dividend effective May 1999. All prices have not been adjusted for the February
2000, two-for-one stock split in the form of a stock dividend to shareholders of
record at the close of business on March 15, 2000, to be distributed on or about
April 3, 2000.
HIGH LOW
---- ---
1998
----
First Quarter $ 19.13 $ 12.25
Second Quarter 21.32 14.07
Third Quarter 21.50 12.94
Fourth Quarter 25.85 12.32
1999
----
First Quarter $ 46.25 $ 22.25
Second Quarter 78.00 30.81
Third Quarter 78.00 57.13
Fourth Quarter 58.00 38.50
(B) HOLDERS
As of March 1, 2000, there were approximately 200 holders of record of
Andrx common stock. Andrx believes the number of beneficial owners of its common
stock is in excess of 6,500.
(C) DIVIDENDS
Andrx has not paid cash dividends on its common stock and does not
intend to pay cash dividends for the foreseeable future. Andrx intends to retain
earnings, if any, to finance the development and expansion of its business.
Payment of cash dividends in the future will depend, among other things, upon
Andrx's ability to generate earnings, its need for capital and its overall
financial condition.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to, and
should be read in conjunction with, the Andrx's Consolidated Financial
Statements and related notes thereto included in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Item 8. Financial Statements and Supplementary Data".
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
------------------------------------------------------------------------
STATEMENT OF INCOME DATA* 1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues
Distributed products $ 262,402 $ 215,903 $ 146,237 $ 86,721 $ 50,468
Manufactured products 134,796 11,472 3,324 -- --
Stipulation fees 70,733 19,130 -- -- --
Licensing and other 8,059 552 137 50 165
------------ ------------ ------------ ------------ ------------
Total revenues 475,990 247,057 149,698 86,771 50,633
------------ ------------ ------------ ------------ ------------
Operating expenses
Cost of goods sold 235,346 188,226 126,802 72,400 41,781
Selling, general and administrative 55,266 30,646 18,934 13,778 9,847
Research and development 25,327 15,906 9,569 3,055 2,055
Equity in losses of joint venture 370 931 1,682 2,011 1,840
Cybear, Inc. Internet operating expenses 14,744 4,090 1,473 -- --
------------ ------------ ------------ ------------ ------------
Total operating expenses 331,053 239,799 158,460 91,244 55,523
------------ ------------ ------------ ------------ ------------
Income (loss) from operations 144,937 7,258 (8,762) (4,473) (4,890)
Other income (expense)
Minority interest 1,937 85 31 -- --
Gain on sale of Cybear, Inc. shares 643 700 -- -- --
Interest income 3,603 1,064 1,585 1,210 339
Interest expense (1,661) (380) (490) (765) (636)
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes 149,459 8,727 (7,636) (4,028) (5,187)
Income taxes 55,405 333 -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 94,054 $ 8,394 $ (7,636) $ (4,028) $ (5,187)
============ ============ ============ ============ ============
Basic net income (loss) per share $ 3.03 $ 0.28 $ (0.27) $ (0.17) $ (0.27)
============ ============ ============ ============ ============
Diluted net income (loss) per share $ 2.90 $ 0.26 $ (0.27) $ (0.17) $ (0.27)
============ ============ ============ ============ ============
Basic weighted average shares of common
stock outstanding 30,989,900 30,045,400 28,426,200 24,296,000 18,893,600
============ ============ ============ ============ ============
Diluted weighted average shares of common
stock outstanding 32,476,600 31,853,400 28,426,200 24,296,000 18,893,600
============ ============ ============ ============ ============
</TABLE>
* Certain prior years amounts have been reclassified to conform with the
current year presentation and have been restated for the Company's May
17, 1999 two-for-one stock split effected in the form of a 100% stock
dividend.
21
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS)
--------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash, cash equivalents and
investments available-for-sale $ 123,418 $ 23,092 $ 25,543 $ 30,320 $ 13,841
Working capital 180,863 51,345 45,144 32,963 14,402
Total assets 357,954 121,198 90,845 66,538 36,010
Short-term borrowings 20,226 4,107 546 6,563 6,101
Retained earnings (accumulated deficit) 80,303 (13,751) (22,145) (14,509) (10,481)
Total shareholders' equity 220,972 72,583 60,861 42,762 18,325
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
Andrx was organized in August 1992, and commenced marketing and
distributing bioequivalent pharmaceuticals manufactured by third parties. In
February 1993, Andrx began to engage in the development of bioequivalent
versions of controlled-release pharmaceuticals utilizing its proprietary drug
delivery technologies. During 1996, Andrx commenced its efforts to develop brand
name controlled-released products and an Internet based software application for
healthcare providers. Through October 9, 1997, Andrx's distribution operations
had generated substantially all of its revenues. On October 10, 1997, the FDA
granted final approval of Andrx's ANDA for its bioequivalent version of Dilacor
XR, Andrx's first manufactured product, which it immediately launched as
Diltia XT(TM).
In September 1997, Andrx entered into a stipulation agreement in
partial settlement with Aventis of the patent infringement litigation involving
Cardizem CD. The stipulation reduced the risks that both parties faced as the
case was litigated to its conclusion. We agreed to maintain the status quo in
connection with the marketing of our product and to dismiss certain claims
against Aventis. Aventis agreed to compensate us for our lost profits, which
were stipulated to be $100.0 million per year, if Andrx ultimately prevailed in
the litigation and to grant us a license for their patents under certain
conditions, including if we ultimately lost the litigation. Aventis also agreed
to make non-refundable interim quarterly payments of $10.0 million to us,
beginning upon our receipt of final FDA approval for its bioequivalent version
of Cardizem CD and continuing until the litigation was resolved or certain other
events occured. In July 1998, the FDA granted final marketing approval for our
ANDA for a bioequivalent version of Cardizem CD. In June 1999, the litigation
concerning Cardizem CD was resolved and on June 23, 1999, we launched our
reformulated bioequivalent version of Cardizem CD, Cartia XT which enjoyed a
180-day period of marketing exclusivity through December 19, 1999. Accordingly,
for the years ended December 31, 1999 and 1998, Andrx received a total $70.7
million and $19.1 million, respectively, in interim and final stipulation fees.
22
<PAGE>
We are 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 us and Watson. In September 1997, upon FDA
approval, ANCIRC launched its first product, a bioequivalent version of Trental.
On March 24, 1999 the FDA approved the ANDA for a second ANCIRC product, a
bioequivalent version of Oruvail, which was launched in April 1999. ANCIRC
halted the production and sale of ANCIRC's bioequivalent version of Oruvail
in June 1999 and is currently not producing or selling this product. ANCIRC
suspended the production of generic Oruvail as a result of two factors: (i)
while the product sold by ANCIRC met FDA standards, the manufacturing process in
some instances did not yield a product which met internal quality standards,
whereby product rejection rates (due to dissolution failures) was higher than we
would tolerate and the risk of product stability failures for some batches was
higher than we would tolerate, and (ii) with multiple competitors for this
product, the market opportunity for future sales did not warrant the risk of
continued sales in the short term. We expect to resume production and sale of
ANCIRC's bioequivalent version of Oruvail in 2000. This suspension did not have
a material effect on our consoldiated results of operations.
In June 1999, we entered into an agreement with Geneva Pharmaceuticals,
Inc. a member of the Novartis Group, for the sale and marketing of specified
products. Geneva will fund controlled-release dosage forms of existing products
that we are developing for submission as NDAs. We granted marketing rights to
Geneva in specified territories for certain products including one of our NDA
products for the United States. Upon approval by the FDA or other regulatory
agencies, we will receive royalties from the sale of such product. We have also
committed to continuing to sell Geneva's bioequivalent products through Anda. We
are party to other development and licensing agreements with other
pharmaceutical companies for additional controlled-release products.
In 1997, we formed Cybear, our information technology subsidiary, which
uses the Internet to improve the efficiency of administrative and communications
tasks for the various participants in the healthcare industry. In June 1999,
Cybear completed a public offering of its common shares at $16.00 per share,
thereby reducing our ownership in Cybear below 80%.
Cybear is an Internet Service Provider, or ISP, and Application
Services Provider, or ASP, for the healthcare industry. Cybear uses or intends
to use its own secure private network to provide access to the Internet's e-mail
and productivity applications. These are available on a transaction or
subscription basis to physicians, physician organizations, pharmacies and
hospitals.
In March 1999, Cybear introduced its first product, dr.cybear, a
physician-oriented healthcare Internet gateway site or portal that provides a
combination of Internet access, healthcare content, software applications to
increase user productivity, and entry into a comprehensive private
communications network. Cybear markets dr.cybear to physicians and numerous
physician organizations throughout the United States.
In September 1999, we entered into an arrangement with Cybear pursuant
to which prescription vaccines and injectables and other items distributed by
Anda can be ordered through Cybear's physician practice portal.
23
<PAGE>
CYBEAR TRACKING STOCK RECAPITALIZATION PLAN
In December 1999, Andrx announced a corporate recapitalization plan
which, among other things, would give Andrx shareholders the ability to
distinguish, among other things, their investments in Andrx and Cybear. In March
2000, Andrx and Cybear entered into a definitive agreement with respect to this
corporate recapitalization. This plan, which was recommended to the Cybear Board
of Directors by a special committee and approved by the boards of both Cybear
and Andrx, will create a new class of Andrx common stock, Cybear Group Common,
to separately track the performance of Cybear. The plan will be submitted for
approval to the shareholders of Andrx and Cybear during 2000.
Pursuant to an Agreement and Plan of Merger and Reorganization, we will
acquire all of the publicly traded shares of common stock of Cybear in a
tax-free "roll-up" merger. Cybear's public shareholders currently own
approximately 5.4 million shares (assuming the exercise by Edward E. Goldman,
M.D., Cybear's Chief Executive Officer, of an outstanding warrant to acquire
525,000 shares of Cybear common stock currently owned by Andrx), or 30.5%, of
the common shares of Cybear, and those shareholders will receive one share of
Cybear Group Common for every Cybear share they currently own. In the
recapitalization, the number of Cybear shares held by Andrx will be reduced from
12.4 million shares to 10.3 million shares so as to provide the equivalent of a
20% increase in shares held by the non-Andrx shareholders of Cybear. As a
result, the non-Andrx shareholders of Cybear will own approximately 34.5% of the
Cybear Group Common following the closing of the transaction. Pursuant to the
recapitalization, each Andrx common share will be converted into (i) one share
of Andrx common stock representing the common equity interests in Andrx other
than its ownership of Cybear, or Andrx Group Common, and (ii) approximately
.1622 shares of Cybear Group Common, after giving effect to Andrx' pending
two-for-one stock split (in the form of a stock dividend) approved on February
29, 2000. Upon completion of the recapitalization, (i) Cybear will be a wholly
owned subsidiary of Andrx with 100% of its value publicly traded in the form of
Cybear Group Common; (ii) current Cybear public shareholders will own
approximately 34.5% of the Cybear Group Common; and (iii) current Andrx
shareholders will own 100% of the Andrx Group Common and approximately 65.5% of
the Cybear Group Common.
The recapitalization is intended to (i) reestablish certain tax
consolidation advantages for Andrx; (ii) separate the operating losses of Cybear
from the operating results of Andrx for financial reporting purposes; (iii)
improve liquidity for the publicly traded equity of Cybear; (iv) provide Cybear
with a more viable currency for potential strategic acquisitions; and (v)
preserve financial flexibility for Andrx management to maximize the long-term
growth of shareholder value.
Consummation of the transaction is subject to various conditions,
including approval by shareholders of Andrx and Cybear. In addition to
shareholder approval, the transaction will be subject to various federal and
state regulatory approvals and accordingly, no assurance can be given that this
transaction will be consummated. Andrx and Cybear will file a joint proxy
statement and a registration statement with respect to the transaction.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 AS COMPARED TO YEAR ENDED DECEMBER 31, 1998
For 1999, we reported net income of $94.1 million or $2.90 per diluted
weighted average share of common stock outstanding, as compared to net income of
$8.4 million or $0.26 per diluted weighted average share of common stock
outstanding for 1998. The significant increase in net income was a result of the
settlement of the litigation with Aventis and on June 23, 1999 the commencement
of the sale of our bioequivalent version of Cardizem CD, Cartia XT, which
enjoyed a 180 day period of marketing exclusivity through December 19, 1999. The
increase in profitability occurred while we continued to increase our investment
spending in both research and development and Cybear Internet operating
expenses.
Total revenues increased by 92.7% to $476.0 million for 1999, as
compared to $247.1 million for 1998.
Sales from distributed products were $262.4 million for 1999, an
increase of $46.5 million or 21.5%, as compared to $215.9 million for 1998. The
increase in sales from distributed products reflects an increase in sales to
customers, an increase in the number of customers, as well as the participation
in the distribution of new products launched by other pharmaceutical companies,
offset by overall price declines.
24
<PAGE>
Sales from manufactured products were $134.8 million for 1999, as
compared to $11.5 million in 1998. Sales from manufactured products include
sales of Diltia XT, our bioequivalent version of Dilacor XR(R), and
commencing June 23, 1999, Cartia XT.
Pursuant to the stipulation with Aventis, we received a total of $70.7
million in interim and final fees in 1999, as compared to $19.1 million in
interim fees in 1998.
Licensing and other revenues were $8.1 million in 1999, as compared to
$552,000 in 1998 primarily from our domestic and international licensing
arrangements. These revenues in 1999 were primarily generated from our June 1999
agreement with Geneva.
Gross profits from sales of distributed and manufactured products were
$161.9 million or a gross margin of 40.7% in 1999, as compared to $39.1 million
or a gross margin of 17.2% in 1998. The increase in gross profit and gross
margin was primarily the result of an increase in sales of manufactured products
within the product mix.
Selling, general and administrative expenses were $55.3 million or
11.6% of total revenues for 1999, as compared to $30.6 million or 12.4% of total
revenues for 1998. The increase in selling, general and administrative expenses
was primarily due to an increase in the activities necessary to support the
increase in sales of both distributed and manufactured products, including legal
costs related to patent infringement claims associated with our ANDA filings and
also includes a royalty to our Co-Chairman and Chief Scientific Officer related
to sales of Cartia XT in 1999 and the Aventis stipulation fees in 1999 and
1998.
Research and development expenses were $25.3 million in 1999, as
compared to $15.9 million in 1998. The increase in research and development
expenses of $9.4 million or 59.2% reflects the progress and expansion of our
development activities in our ANDA bioequivalent and NDA brand name programs.
Our equity in losses of ANCIRC was $370,000 in 1999, as compared to
$931,000 in 1998. During 1999, sales of ANCIRC products generated $3.3 million
in product sales and $1.2 million in gross profit as compared to $724,000 and
$360,000, respectively, in 1998. In 1999 ANCIRC incurred $2.0 million in
research and development expenses, as compared to $2.2 million in 1998.
In 1999, we incurred $14.7 million of Cybear Internet operating
expenses, as compared to $4.1 million in 1998. The increase in Cybear Internet
operating expenses primarily relates to the progress in the development of
Cybear's Internet based software applications for healthcare providers and the
establishment of the related administrative infrastructure.
Minority interest was $1.9 million in 1999, as compared to $85,000 in
1998. The increase in minority interest was a result of the increase in minority
ownership of Cybear, primarily from Cybear's June 1999 public offering and the
issuance of Cybear common shares in the acquisition of Telegraph Consulting
Corporation. In addition, Cybear's net loss increased to $10.8 million in 1999
from $2.5 million in 1998. As of Decmber 31, 1999, Andrx owned 73% of Cybear.
In 1999, we recognized a gain on the sale of Cybear's common stock of
$643,000, as compared to $700,000 in 1998. Such sales were pursuant to existing
subscription and warrant agreements with Cybear's Chairman and its Chief
Executive Officer which were issued at the then current price of $3.00 per
share.
25
<PAGE>
Interest income was $3.6 million in 1999, as compared to $1.1 million
in 1998. The increase in interest income is the result of the higher average
level of cash, cash equivalents and investments available-for-sale maintained
during 1999, as compared to 1998. The increase was primarily the result of the
net cash provided by operating activities and the net proceeds of $50.8 million
received from Cybear's June 1999 public offering.
Interest expense increased to $1.7 million in 1999, as compared to
$380,000 in 1998. The increase in interest expense was primarily the result of a
higher average level of borrowings under our Anda distribution subsidiarary's
bank loan during 1999, as compared to 1998. The borrowings are primarily
utilized to fund our distribution operations.
For 1998, we recorded Federal and State Income taxes of $55.4 million
or 37% of Income before income taxes. We were not required to provide for income
taxes at the 39% effective Federal and state statutory rate due to the effect of
the utilization of our net operating loss carry forwards, offset by our
inability to utilize Cybear's losses after June 23, 1999, as our ownership in
Cybear was reduced below 80%. Accordingly, 1999 Net income includes the reversal
of a net tax valuation of $4.0 million. Our 1998 income tax provision of
$333,000 resulted from Federal alternative minimum income taxes. Andrx' 1998
regular income tax provision of $2.1 million was fully offset by the reversal of
a corresponding amount of valuation allowance against its net deferred income
tax assets.
The diluted weighted average shares of common stock outstanding was
32.5 million in 1999, as compared to 31.9 million for 1998. Such increase
resulted primarily from the exercises of stock options and warrants during 1999.
YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO YEAR ENDED DECEMBER 31, 1997
For 1998, we reported net income of $8.4 million or $0.26 per diluted
weighted average share of common stock outstanding, as compared to a net loss of
$7.6 million or $0.27 per diluted weighted average share of common stock
outstanding for 1997. We became profitable in 1998 for the first time. This
profitability primarily resulted from interim stipulation fees generated by us
pursuant to the Aventis stipulation, the continued growth in profitability of
our distribution operation and a full year of profits realized from the sale of
our first manufactured product, Diltia XT. We recorded profitability in 1998
while we continued to increase investment spending in both research and
development and Cybear Internet operating expenses.
Total revenues increased by 65.0% to $247.1 million for 1998, as
compared to $149.7 million for 1997.
Sales from distributed products were $215.9 million for 1998, an
increase of $69.7 million or 47.6%, as compared to $146.2 million for 1997.
Sales from manufactured products were $11.5 million for 1998, as
compared to $3.3 million in 1997. We launched our first manufactured product, a
bioequivalent version of Dilacor XR, in October 1997.
Following the FDA's final approval of our ANDA for Cardizem CD on July
9, 1998, Andrx received a total of $19.1 million pursuant to the stipulation.
Licensing and other revenues of $552,000 were generated in 1998, as
compared to $137,000 in 1997 from our domestic and international licensing
arrangements.
Gross profits from sales of distributed and manufactured products were
$39.1 million or 17.2% in 1998, as compared to $22.8 million or a gross margin
15.2% in 1997. The increase in gross profit and gross margin was primarily the
result of an increase in sales of manufactured products within the mix.
26
<PAGE>
Selling, general and administrative expenses were $30.6 million or
12.4% of total revenues for 1998, as compared to $18.9 million or 12.6% of total
revenues for 1997. The increase in selling, general and administrative expenses
was primarily due to an increase in the activities necessary to support the
increase in sales of both distributed and manufactured products including legal
costs related to patent infringement claims associated with our ANDA filings,
and also includes a royalty to our Co-Chairman and Chief Scientific Officer
related to the Aventis stipulation fees.
Research and development expenses were $15.9 million in 1998, as
compared to $9.6 million in 1997. The increase in research and development
expenses of $6.3 million or 66.2% reflects the progress and expansion of our
development activities in our bioequivalent and brand programs.
Our equity in losses of ANCIRC was $931,000 in 1998, as compared to
$1.7 million in 1997. During 1998 ANCIRC's product generated $724,000 in product
sales and $360,000 in gross profits. There were no ANCIRC product sales in 1997.
In 1998, ANCIRC incurred $2.2 million in research and development expenses, as
compared to $3.4 million in 1997.
In 1998, we incurred $4.1 million of Cybear Internet operating expense,
as compared to $1.5 million in 1997. The increase in Cybear Internet operating
expenses primarily relates to the progress in the development of Cybear's
Internet-based software applications for healthcare providers and the
establishment of the related administrative infrastructure.
Minority interest in Cybear's net losses was $85,000 in 1998, as
compared to $31,000 in 1997. The increase in minority interest was a result of
the increase in minority ownership of Cybear, as well as an increase in Cybear's
net losses, which increased from $1.6 million in 1997 to $2.5 million in 1998.
In 1998, we recognized a gain of $700,000 on the sale of Cybear common
stock to Cybear's Chairman, pursuant to an existing subscription agreement. This
sale was at the then current market price of $3.00 per share.
Interest income was $1.1 million in 1998, as compared to $1.6 million
in 1997. The decrease in interest income is the result of the lower average
level of cash, cash equivalents and investments available-for-sale maintained
during 1998, as compared to 1997.
Interest expense decreased to $380,000 in 1998 from $490,000 in 1997.
The decrease in interest expense was primarily the result of a lower average
level of borrowings under Andrx' bank loan during 1998, as compared to 1997.
For 1998, our income tax provision of $333,000 resulted from Federal
alternative minimum income taxes. Our 1998 regular income tax provision was
fully offset by the reversal of a corresponding amount of valuation allowance
against its net deferred income tax assets. For 1997, we had no income taxes as
our income tax benefit was fully offset by a corresponding increase to our
valuation allowance against our net deferred income tax assets.
The diluted weighted average shares of common stock outstanding was
31.9 million in 1998, as compared to 28.4 million for 1997. Such increase
resulted primarily from the inclusion of stock equivalents in profitable 1998.
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had $123.4 million in cash, cash
equivalents and investments available-for-sale of which $38.0 million relates to
Cybear, and $180.9 million of consolidated working capital.
Net cash provided by operating activities was $39.8 million in 1999, as
compared to net cash used in operating activities of $1.6 million in 1998 and
$16.6 million for 1997. In 1999, operating activities provided net cash, as
compared to net cash used in 1998, primarily due to our generating $94.1 million
of net income in 1999, as compared to $8.4 million in 1998. The decrease in net
cash used in operating activities in 1998, as compared to 1997 is due to our
generating net income of $8.4 million in 1998, as compared to a net loss of $7.6
million in 1997. In 1999, 1998 and 1997, operating activities included increases
in accounts receivable, inventories and prepaid and other assets offset by
increases in current liabilities. The 1999 increase in accounts receivable
relates to the sale of Cartia XT. The increase in inventories in 1999 and 1998
includes purchases of inventories for distribution in anticipation of potential
price increases by the generic drug manufacturers.
Net cash used in investing activities was $108.7 million in 1999, as
compared to net cash provided by investing activities of $5.3 million in 1998
and $291,000 in 1997. In 1999, we purchased $85.3 million of investments
available for sales, $22.2 million of property, plant and equipment and Cybear
acquired Telegraph for $1.2 million. The 1999 capital expenditures included the
construction of the new manufacturing, research and development and corporate
facility. Construction of the facility began in 1999 and is anticipated to be
completed by the first quarter of 2001. The total capital requirement for this
project is approximately $55 million, of which approximately $5.1 million was
incurred in 1999. The balance of the 1999 capital expenditures was predominately
the result of the procurement of manufacturing equipment. In 1998, $13.2 million
of investments available-for-sale matured and we purchased $8.0 million of
property, plant and equipment. In 1997, $8.0 million of investments
available-for-sale matured and we purchased $7.7 million of property and
equipment. In 1998 and 1997, the capital expenditures were primarily for the
procurement of manufacturing equipment. The 1998 capital expenditures also
included the purchase of approximately 15 acres of land.
Net cash provided by financing activities was $84.0 million in 1999, as
compared to $7.2 million in 1998 and $19.6 million in 1997. Net cash provided by
financing activities in 1999 consisted of net borrowings of $16.1 million under
our bank loan, $6.7 million in proceeds from the issuance of shares of common
stock upon the exercise of warrants and stock options, $9.4 million of income
tax benefits relating to the exercise of stock options, net proceeds of $50.8
million from Cybear's June 1999 public offering, $379,000 of other capital
transactions of Cybear and $675,000 of proceeds from the sale of shares of
Cybear Common Stock. Net cash provided by financing activities in 1998 consisted
of net borrowings of $3.6 million under our bank loan, $2.8 million in proceeds
from the issuance of shares of common stock upon the exercise of stock options
and warrants and $700,000 in proceeds from the gain on the sale of shares of
Cybear Common Stock. Net cash provided by financing activities for 1997
consisted of $21.3 million from the issuance of shares of common stock in a 1997
private placement, and $4.1 million in proceeds from the issuance of shares of
common stock upon the exercises of warrants and stock options offset by $5.9
million of net repayments on our distribution subsidiary's bank loan.
We had an outstanding short-term borrowing balance of $20.2 million
under this bank loan as of December 31, 1999, as compared to $4.1 million as of
December 31, 1998. The increase in short-term borrowing balance relates
primarily to the financing of additional inventories for distribution.
Borrowings under the bank loan are secured by all of the assets of the
distribution operation, and are subject to a borrowing base related to the value
of that operation's accounts receivable and inventories. The bank loan agreement
requires compliance by us with certain covenants including the maintenance of
minimum working capital and net worth levels by the distribution subsidiary. The
bank loan currently provides that total available borrowings are $30.0 million,
and gives us the ability to further decrease the interest rate if we maintain
certain levels of average outstanding balance. As of December 31, 1999 the
interest rate on the bank borrowings was the prime rate, 8.5%.
28
<PAGE>
We anticipate that our cash requirements will continue to increase, due
to construction of our research and development manufacturing and corporate
facilities, including the related equipment, expected increases in distribution
inventories. For the year ending December 31, 2000, we expect to incur
approximately $50 million in research and development related to our
bioequivalent and brand development programs. We anticipate that our existing
capital resources will be sufficient to enable us to maintain our operations for
the foreseeable future.
YEAR 2000 SYSTEMS COSTS
We undertook various initiatives intended to ensure that our computer
equipment and software would function properly with respect to dates in the Year
2000 and thereafter. For this purpose, the term "computer equipment and
software" includes systems that are commonly thought of as IT systems, including
accounting, data processing, telephone/PBX systems, hand-held terminals,
scanning equipment, and other miscellaneous systems, as well as systems that are
not commonly thought of as IT systems, such as alarm systems, fax machines and
other equipment. Based upon identification and assessment efforts, we believed
that certain computer equipment and software currently used would require
replacement or modification.
We obtained replacements or modifications that are Year 2000 compliant.
Utilizing both internal and external resources to identify and assess needed
Year 2000 remediation, our Year 2000 identification, assessment, remediation and
testing efforts, which began in the first quarter 1998, were completed by
December 31, 1999, prior to any impact.
The cost of our Year 2000 identification, assessment, remediation and
testing efforts, as well as costs we incurred with respect to Year 2000 issues
of third parties, was approximately $1 million and was funded from existing
financial resources.
We are not aware of any difficulties that arose as a result of the Year
2000 issue.
RECENT ACCOUNTING PRONOUNCEMENTS
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income", was issued by the Financial Accounting
Standards Board ("FASB") in June 1997. This SFAS 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. We adopted the provisions of
SFAS No. 130 in the year ended December 31, 1998, as required.
SEGMENT REPORTING
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", was issued by the FASB in June 1997. This SFAS 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. We adopted the provisions of SFAS No. 131
in the year ended December 31, 1998, as required.
29
<PAGE>
DERIVATIVES
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 must be applied to (a) derivative instruments and
(b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after December 31, 1997 (and, at our
election, before January 1, 1998).
SFAS No. 137, "Accounting for Derivative instruments and hedging
activities - Deferral of the Effective date of FASB Statement No. 133", amends
the effective date of SFAS No. 133 to all fiscal years beginning after June 15,
2000.
We expect to adopt SFAS No. 133, as required, and does not expect the
effect of adoption to be significant to the consolidated financial statements.
STOCK SPLIT
On February 29, 2000, our Board of Directors approved a two-for-one
stock split in the form of a stock dividend. Such stock split will be for
holders of record at the close of business on March 15, 2000, and to be
distributed on April 3, 2000. Accordingly, the consolidated financial statements
do not reflect the impact of such stock split. The share and per share amounts
in the accompanying consolidated financial statements will be retroactively
restated for the stock split upon its distribution.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
30
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ANDRX CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS OF
ANDRX CORPORATION AND SUBSIDIARIES:
PAGE
----
Report of Independent Certified Public Accountants 32
Consolidated Balance Sheets
as of December 31, 1999 and 1998 33
Consolidated Statements of Income
for the years ended December 31, 1999, 1998 and 1997 34
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1999, 1998 and 1997 35
Consolidated Statements of Cash Flows
for the years ended December 31, 1999, 1998 and 1997 36
Notes to Consolidated Financial Statements 37
31
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Andrx Corporation:
We have audited the accompanying consolidated balance sheets of Andrx
Corporation (a Florida corporation) and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 27, 2000.
32
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share amounts)
DECEMBER 31,
---------------------
1999 1998
--------- ---------
ASSETS
Current assets
Cash and cash equivalents $ 32,555 $ 17,459
Investments available-for-sale 90,863 5,633
Accounts receivable, net of allowances
of $6,426 in 1999 and $2,529 in 1998 72,032 33,811
Inventories 78,771 42,337
Deferred income tax assets, net 18,442 --
Prepaid and other current assets 11,658 720
--------- ---------
Total current assets 304,321 99,960
Property, plant and equipment, net 38,271 20,429
Other assets 15,362 809
--------- ---------
Total assets $ 357,954 $ 121,198
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 51,863 $ 33,616
Accrued liabilities 35,639 10,837
Bank loan 20,226 4,107
Income taxes payable 15,730 55
--------- ---------
Total current liabilities 123,458 48,615
Commitments and contingencies (Notes 11, 16 and 19)
Minority interest 13,524 --
Shareholders' equity
Convertible preferred stock; $0.001 par
value, 1,000,000 shares authorized; none
issued and outstanding -- --
Common stock; $0.001 par value, 50,000,000
shares authorized; issued and outstanding 31,486,500
shares in 1999 and 30,346,800 shares in 1998 31 30
Additional paid-in capital 140,732 86,305
Retained earnings (accumulated deficit) 80,303 (13,751)
Accumulated other comprehensive loss (94) (1)
--------- ---------
Total shareholders' equity 220,972 72,583
--------- ---------
Total liabilities and shareholders' equity $ 357,954 $ 121,198
========= =========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
33
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Distributed products $ 262,402 $ 215,903 $ 146,237
Manufactured products 134,796 11,472 3,324
Stipulation fees 70,733 19,130 --
Licensing and other 8,059 552 137
------------ ------------ ------------
Total revenues 475,990 247,057 149,698
------------ ------------ ------------
Operating expenses
Cost of goods sold 235,346 188,226 126,802
Selling, general and administrative 55,266 30,646 18,934
Research and development 25,327 15,906 9,569
Equity in losses of joint venture 370 931 1,682
Cybear, Inc. Internet operating expenses 14,744 4,090 1,473
------------ ------------ ------------
Total operating expenses 331,053 239,799 158,460
------------ ------------ ------------
Income (loss) from operations 144,937 7,258 (8,762)
Other income (expense)
Minority interest 1,937 85 31
Gain on sale of Cybear, Inc. shares 643 700 --
Interest income 3,603 1,064 1,585
Interest expense (1,661) (380) (490)
------------ ------------ ------------
Income (loss) before income taxes 149,459 8,727 (7,636)
Income taxes 55,405 333 --
------------ ------------ ------------
Net income (loss) $ 94,054 $ 8,394 $ (7,636)
============ ============ ============
Basic net income (loss) per share $ 3.03 $ 0.28 $ (0.27)
============ ============ ============
Diluted net income (loss) per share $ 2.90 $ 0.26 $ (0.27)
============ ============ ============
Basic weighted average shares of
common stock outstanding 30,989,900 30,045,400 28,426,200
============ ============ ============
Diluted weighted average shares of
common stock outstanding 32,476,600 31,853,400 28,426,200
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
34
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except for share amounts)
<TABLE>
<CAPTION>
STOCK
------------------------------------------
CONVERTIBLE RETAINED ACCUMULATED
PREFERRED COMMON ADDITIONAL EARNINGS OTHER
------------------- ------------------ PAID-IN (ACCUMULATED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) INCOME (LOSS) INCOME (LOSS)
------ ------ ------ ------ ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 -- $ -- 26,835,000 $ 27 $ 57,239 $ (14,509) $ 5
Shares of common stock
issued in connection
with private placements -- -- 1,760,000 2 21,341 -- --
Shares of common stock
issued in connection
with exercises of
warrants and
stock options -- -- 1,118,400 1 4,134 -- --
Options granted to
consultants -- -- -- -- 225 -- --
Unrealized gain
on investments
available-for-sale -- -- -- -- -- -- 32 $ 32
Net loss -- -- -- -- -- (7,636) -- (7,636)
-------------
Comprehensive loss $ (7,604)
------ ------ ---------- ------ ---------- ------------ ------------- =============
Balance, December 31, 1997 -- -- 29,713,400 30 82,939 (22,145) 37
Shares of common stock
issued in connection
with exercises of
warrants and
stock options -- -- 633,400 -- 2,836 -- --
Income tax benefits
related to exercises
of stock options -- -- -- -- 67 -- --
Options granted
to consultants -- -- -- -- 433 -- --
Capital transactions
of Cybear, Inc. -- -- -- -- 30 -- --
Unrealized loss
on investments
available-for-sale -- -- -- -- -- -- (38) $ (38)
Net income -- -- -- -- -- 8,394 -- 8,394
-------------
Comprehensive income $ 8,356
------ ------ ---------- ------ ---------- ------------ ------------- =============
Balance, December 31, 1998 -- -- 30,346,800 30 86,305 (13,751) (1)
Shares of common stock
issued in connection with
exercises of warrants and
stock options -- -- 1,139,700 1 6,682 -- --
Income tax benefits
related to exercises of
stock options -- -- -- -- 9,368 -- --
Options granted
to consultants -- -- -- -- 10 -- --
Capital transactions
of Cybear, Inc. -- -- -- -- 38,367 -- --
Unrealized loss
on investments
available-for-sale,
net of income
tax benefit of $13 -- -- -- -- -- -- (93) $ (93)
Net income -- -- -- -- -- 94,054 -- 94,054
-------------
Comprehensive income $ 93,961
------ ------ ---------- ------ ---------- ------------ ------------- =============
Balance, December 31, 1999 -- $ -- 31,486,500 $ 31 $ 140,732 $ 80,303 $ (94)
====== ====== ========== ====== ========== ============ =============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
35
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 94,054 $ 8,394 $ (7,636)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,516 2,960 2,036
Provision for doubtful accounts 3,897 940 619
Options granted to consultants 10 433 225
Minority interest (1,937) (85) (31)
Gain on sale of Cybear, Inc. shares (643) (700) --
Deferred income tax benefit (18,442) -- --
Equity in losses of joint venture 370 931 1,682
Changes in operating assets and liabilities:
Accounts receivable (42,062) (12,119) (9,749)
Inventories (36,434) (16,436) (13,661)
Prepaid and other assets (22,042) (1,094) (2,296)
Accounts payable and accrued liabilities 42,869 15,092 12,162
Income taxes payable 15,675 55 --
--------- --------- ---------
Net cash provided by (used in) operating activities 39,831 (1,629) (16,649)
--------- --------- ---------
Cash flows from investing activities
Purchases of property, plant and equipment (22,233) (7,986) (7,715)
Maturities (purchases) of investments available-for-sale, net (85,323) 13,247 8,006
Acquisition of Telegraph Consulting Corporation (1,181) -- --
--------- --------- ---------
Net cash provided by (used in) investing activities (108,737) 5,261 291
--------- --------- ---------
Cash flows from financing activities
Proceeds from the issuance of shares of common stock
and exercises of warrants and stock options 6,683 2,836 4,135
Proceeds from the issuance of shares of common stock in
connection with a 1997 private placement -- -- 21,343
Income tax benefits related to exercises of stock options 9,368 67 --
Net borrowings (repayments) under bank loan 16,119 3,569 (5,923)
Net proceeds from Cybear, Inc.'s public share offering 50,778 -- --
Other capital transactions of Cybear, Inc. 379 30 --
Proceeds from sale of Cybear, Inc. shares 675 700 --
--------- --------- ---------
Net cash provided by financing activities 84,002 7,202 19,555
--------- --------- ---------
Net increase in cash and cash equivalents 15,096 10,834 3,197
Cash and cash equivalents, beginning of year 17,459 6,625 3,428
--------- --------- ---------
Cash and cash equivalents, end of year $ 32,555 $ 17,459 $ 6,625
========= ========= =========
Supplemental disclosure of cash paid during the year for:
Interest $ 1,661 $ 380 $ 490
========= ========= =========
Income taxes $ 48,790 $ 210 $ --
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
36
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
(1) GENERAL
Andrx Corporation and subsidiaries ("Andrx" or the "Company") was
organized in August 1992 and 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 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 United States Food and Drug Administration ("FDA") granted final approval of
the Company's abbreviated new drug application ("ANDA"), for a bioequivalent
version of Dilacor XR(R), the Company's first manufactured product, which it
immediately launched as Diltia XT(R).
In September 1997, Andrx entered into a Stipulation and Agreement (the
"Stipulation") with Hoechst Marion Roussel, Inc.(now known as Aventis S.A.
"Aventis") and Carderm Capital, L.P. in partial settlement of a patent
infringement claim brought against Andrx by Aventis (the "Aventis Litigation")
in order to reduce the risks that both parties faced as the case was litigated
to its conclusion. Andrx agreed to maintain the status quo in connection with
the marketing of its product and to dismiss certain claims against Aventis.
Aventis agreed to compensate Andrx for its lost profits, stipulated to be
$100,000 per year, if Andrx ultimately prevailed in the Aventis Litigation and
to grant Andrx a license for its patents under certain conditions, including if
Andrx ultimately lost the litigation. Aventis also agreed to make non-refundable
interim quarterly payments of $10,000 to Andrx, beginning upon Andrx' receipt of
final FDA approval for its bioequivalent version of Cardizem(R) CD and
continuing until the Aventis Litigation was resolved or certain other events
occured. In July 1998, the FDA granted final marketing approval for the
Company's ANDA for a bioequivalent version of Cardizem(R) CD. In June 1999, the
Aventis Litigation was resolved and on June 23, 1999, the Company launched its
reformulated bioequivalent version of Cardizem(R) CD, Cartia XT(TM), which
enjoyed a 180-day period of marketing exclusivity through December 19, 1999.
On November 20, 1998, Cybear, Inc. ("Cybear"), a Florida corporation,
the Company's subsidiary engaged in the development of Internet applications
designed for the healthcare community, merged with a wholly-owned subsidiary of
1997 Corp., a Delaware corporation, pursuant to a Merger Agreement and Plan of
Reorganization dated July 15, 1998. 1997 Corp. was a "blank check" company that
had a registration statement on file with the Securities and Exchange Commission
to seek a business combination with an operating entity. In June 1999, Cybear
completed a public offering of its common shares. As a result of the public
offering, exercises of Cybear stock options, other Cybear stock issuances, and
sales of shares of Cybear common stock by Andrx, Andrx' ownership in Cybear
decreased to approximately 73% as of December 31, 1999.
37
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
CYBEAR TRACKING STOCK RECAPITALIZATION PLAN
In December 1999, Andrx announced a corporate recapitalization plan
which would give Andrx shareholders the ability to distinguish between their
investments in Andrx and Cybear. In March 2000, Andrx and Cybear entered into a
definitive agreement with respect to this corporate recapitalization. This plan,
which was recommended to the Cybear Board of Directors by its Special Committee
and approved by the Boards of both Cybear and Andrx, will create a new class of
Andrx common stock to separately track the performance of Cybear called "Cybear
Group Common". The plan will be submitted for approval to the shareholders of
Andrx and Cybear during 2000.
Pursuant to an Agreement and Plan of Merger and Reorganization (the
"Recapitalization"), Andrx will acquire all of the publicly traded shares of
common stock of Cybear in a tax-free "roll-up" merger. Cybear's public
shareholders currently own approximately 5.4 million shares (assuming the
exercise by Edward E. Goldman, M.D., Cybear's Chief Executive Officer, of an
outstanding warrant to acquire 525,000 shares of Cybear common stock currently
owned by Andrx -- see Note 11), or 30.5%, of the common shares of Cybear, and
those shareholders will receive one share of Cybear Group Common for every
Cybear share they currently own. In the Recapitalization, the number of Cybear
shares held by Andrx will be reduced from 12.4 million shares to 10.3 million
shares so as to provide the equivalent of a 20% increase in shares held by the
non-Andrx shareholders of Cybear. As a result, the non-Andrx shareholders of
Cybear will own approximately 34.5% of the Cybear Group Common following the
closing of the transaction. Pursuant to the Recapitalization, each Andrx common
share will be converted into (i) one share of Andrx Group Common and (ii)
approximately .1622 shares of Cybear Group Common, after giving effect to Andrx'
pending two-for-one stock split (in the form of a stock dividend) approved on
February 29, 2000 (see Note 19). Upon completion of the recapitalization, (i)
Cybear will be a wholly-owned subsidiary of Andrx with 100% of its value
publicly traded in the form of Cybear Group Common; (ii) current Cybear public
shareholders will own approximately 34.5% of the Cybear Group Common; and (iii)
current Andrx shareholders will own 100% of the Andrx Group Common and
approximately 65.5% of the Cybear Group Common.
The Recapitalization is intended to (i) reestablish certain tax
consolidation advantages for Andrx; (ii) separate the operating losses of Cybear
from the operating results of Andrx for financial reporting purposes (iii)
improve liquidity for the publicly traded equity of Cybear; (iv) provide Cybear
with a more viable currency for potential future strategic acquisitions; and (v)
preserve financial flexibility for Andrx management to maximize the long-term
growth of shareholder value.
Consummation of the transaction is subject to various conditions,
including approval by shareholders of Andrx and Cybear. In addition to
shareholder approval, the transaction will be subject to various federal and
state regulatory approvals including the SEC, and, accordingly, no assurance can
be given that this transaction will be consummated. Andrx and Cybear will file a
preliminary joint proxy statement and a registration statement with respect to
the proposed transaction.
38
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
RISKS AND UNCERTAINTIES
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 commercialized a few products, has new technologies and limited
manufacturing experience, current and potential competitors with significant
technical and marketing resources, and dependence on key personnel. The Company
is also subject to the risks and uncertainties associated with all drug delivery
companies, including changes in the regulatory schemes, difficulty in receiving
regulatory approval to market new products, compliance with government
regulations and patent infringement and other litigation. Additionally, the
Company is subject to risks and uncertainties associated with drug distribution
companies, including but not limited to fierce competition and decreasing gross
profits. In addition, the Company's Internet based healthcare information
technology subsidiary is subject to the risks and uncertainties of an early
stage Internet company, including but not limited to limited operating history
and substantial operating losses, availability of capital resources, ability to
effectively compete, economic conditions, unanticipated difficulties in product
development, ability to gain market acceptance and market share, ability to
manage growth, reliance on short-term non-exclusive contracts, ability to obtain
content, Internet security risks and uncertainty relating to the evolution of
the Internet as a medium for commerce, dependence on third party content
providers, dependence on key personnel, ability to protect intellectual
property, the possibility that the tracking stock recapitalization will not be
completed and the impact of future government regulation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Andrx Corporation and its majority owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 or from vendors, returns, pricing adjustments and other adjustments
related to purchases and sales of products, and provisions for litigation (see
Note 16).
Management periodically evaluates estimates used in the preparation of
the consolidated financial statements for continued reasonableness. Appropriate
adjustments, if any, to the estimates used are made prospectively based on such
periodic evaluations.
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.
39
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
INVESTMENTS AVAILABLE-FOR-SALE
The Company utilizes the provisions of Financial Accounting Standards
Board ("FASB") Statement of 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, such investments are carried at market
value and 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 primarily 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 other allowances.
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant 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 carrying
value of the asset would be compared to the market value or expected
undiscounted future cash flow value.
REVENUE RECOGNITION
Sales of distributed and manufactured products and the related cost of
goods sold are recognized at the time a product is shipped. Provisions for
discounts, rebates, returns, pricing adjustments and other adjustments related
to sales to customers are provided in the same period the related sales are
recorded.
40
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
The Company has entered into long term supply arrangements with certain
customers related to manufactured products. Prepayments by the Company to
customers related to such arrangements are capitalized in the Consolidated
Balance Sheet as Prepaid and other current assets and Other assets, as
appropriate, and, are amortized in the Consolidated Statement of Income against
Revenues-Manufactured products over the life of the arrangements, on a
straight-line basis, as appropriate. Such assets are periodically assessed for
realizability and any adjustments for impairment are made as they become known.
Stipulation fees and Licensing and other revenue are recognized when
earned in accordance with the terms of the underlying agreements (see Notes 8
and 16).
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 in both the Company's bioequivalent (ANDA) and brand name
(NDA) programs. Research and development costs are expensed as incurred.
The Company is a 50% partner in ANCIRC Pharmaceuticals, Inc. ("ANCIRC")
(see Note 9). In addition to Andrx' 50% ownership in ANCIRC, the Company also
provides ANCIRC research and development services to ANCIRC at cost.
Accordingly, research and development expenses in the Consolidated Statements of
Income exclude costs of research and development services rendered to ANCIRC, as
such costs are charged to ANCIRC 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 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, 1999,
1998 and 1997, 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).
ISSUANCE OF STOCK BY SUBSIDIARY
The Company accounts for the issuances of shares of common stock by
Cybear as equity transactions within the Consolidated Statements of
Stockholders' Equity and excludes the results of such transactions from the
Consolidated Statements of Income. The Company does not currently intend to
issue shares of common stock of its other subsidiaries.
41
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
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 such benefits
is "more likely than not" (see Note 10). Under the provisions of SFAS No. 109,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities, using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
EARNINGS (LOSS) PER SHARE
The Company utilizes the provisions of SFAS No. 128, "Earnings Per
Share".
For the years ended December 31, 1999 and 1998 in which the Company
generated net income, the diluted basis considers the weighted average shares of
common stock outstanding including common stock equivalents. For the year ended
December 31, 1997, the Company generated net losses, accordingly, all common
stock equivalents were excluded from the calculation of net loss per diluted
share since the effects were anti-dilutive. As such, for the year ended December
31, 1997 diluted net loss per share is based on the weighted average shares of
common stock outstanding.
A reconciliation of the numerators and denominators of basic and
diluted earnings (loss) per share for the years ended December 31, 1999, 1998,
and 1997 is as follows:
42
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
YEARS ENDED DECEMBER 31,
------------ ------------ ------------
1999 1998 1997
------------ ------------ ------------
Basic Earnings (Loss) Per Share
Net income (loss) $ 94,054 $ 8,394 $ (7,636)
============ ============ ============
Basic weighted average shares of
common stock outstanding 30,989,900 30,045,400 28,426,200
============ ============ ============
Basic net income (loss) per share $ 3.03 $ 0.28 $ (0.27)
============ ============ ============
Diluted Earnings (Loss) Per Share
Net income (loss) $ 94,054 $ 8,394 $ (7,636)
============ ============ ============
Weighted average shares of
common stock outstanding 30,989,900 30,045,400 28,426,200
Effect of dilutive items:
Stock options 1,178,300 1,148,000 --
Warrants 308,400 660,000 --
------------ ------------ ------------
Diluted weighted average shares
of common stock outstanding 32,476,600 31,853,400 28,426,200
============ ============ ============
Net income (loss) per share $ 2.90 $ 0.26 $ (0.27)
============ ============ ============
Anti-dilutive weighted options 39,200 50,200 1,892,900
============ ============ ============
The above anti-dilutive weighted options to purchase shares of common
stock were not included in computing diluted earnings per share because their
effects were anti-dilutive for the respective periods.
43
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
STOCK SPLIT
In May 1999, the Company effected a two-for-one stock split in the form
of a 100% stock dividend. All share and per share amounts for prior periods in
the accompanying consolidated financial statements have been restated to reflect
the May 1999 stock split.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1999 and 1998, the carrying amount of Cash and cash
equivalents, Investments available-for-sale, Accounts receivable, net, Accounts
payable, Accrued liabilities, Bank loan and Income taxes 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,
debt instruments of corporations and tax advantaged money market preferreds 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 ongoing credit
evaluations of its customers and maintains allowances for potential
uncollectable accounts.
The Company has no significant off-balance sheet concentration of
credit risk.
COMPREHENSIVE INCOME (LOSS)
The Company adopted the provision of SFAS No. 130, "Reporting
Comprehensive Income", effective January 1, 1998, as required. SFAS No. 130
establishes standards for reporting and presentation of comprehensive income or
loss and its components in financial statements. The Company has included the
required disclosure of this SFAS in the accompanying Consolidated Statements of
Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997, as
required.
BUSINESS SEGMENTS
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which was issued by the FASB in June 1997.
This SFAS replaced SFAS No. 14 "Financial Reporting for Segments of a Business
Enterprise" and establishes new standards for defining the Company's segments
and disclosing information about them. The provisions of SFAS No. 131 require
that the segments be based on the internal structure and reporting of the
Company's operations (see Note 17).
44
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
DERIVATIVES
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The provisions of SFAS No. 133 require
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. The provisions of SFAS No. 133 must be applied to
(a) derivative instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired, or substantively modified after
December 31, 1997 (and, at the Company's election, before January 1, 1998).
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133", amends
the effective date of SFAS No. 133 to all fiscal years beginning after June 15,
2000.
The Company expects to adopt the provisions of SFAS No. 133, as
required, and does not expect the effect of the adoption to be significant to
the consolidated financial statements.
RECLASSIFICATIONS
Certain prior years amounts have been reclassified to conform to the
current year presentation.
(3) CYBEAR, INC.
On June 23, 1999, Cybear, completed a public offering of 3,450,000 of
its common shares at $16.00 per share raising net proceeds of approximately
$50,800. The transaction was recorded as an equity transaction in the Company's
Consolidated Statements of Shareholders' Equity.
On September 17, 1999, Cybear acquired Telegraph Consulting Corporation
("Telegraph"), the programming, networking and interactive design division of
Telegraph New Technology, Inc. The purchase price of approximately $4,088
includes $1,181 in cash, the issuance of 320,000 shares of restricted Cybear
common stock valued at approximately $2,771 and the assumption of approximately
$136 of Telegraph's debt. The acquisition was recorded using the purchase method
of accounting. Accordingly, the excess of the purchase price over the fair value
of the net assets acquired of approximately $3,933 represents goodwill, and is
included in Other assets in the Consolidated Balance Sheet. Such goodwill is
being amortized on a straight-line basis over its estimated life of 10 years.
45
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
The following summarizes the acquisition:
Cash used for acquisition $ 1,181
Cybear common stock issued 2,771
Debt assumed 136
--------
Purchase price 4,088
Working capital acquired (30)
Property and equipment acquired (125)
--------
Excess of purchase price over
fair market value of net assets acquired $ 3,933
========
Pro forma information is not required to be included herein because the
transaction was not material to the Company.
(4) INVESTMENTS AVAILABLE-FOR-SALE
Investments available-for-sale consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury and government
agency securities $ 31,186 $ -- $ (127) $ 31,059
Corporate bonds 10,163 -- (8) 10,155
Tax advantaged money
market preferreds 49,649 -- -- 49,649
--------- ---------- ---------- --------
$ 90,998 $ -- $ (135) $ 90,863
========= ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury and government
agency securities $ 5,634 $ 4 $ (5) $ 5,633
========= ========== ========== ========
</TABLE>
46
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
(5) INVENTORIES
Inventories consist of the following:
DECEMBER 31,
----------------------
1999 1998
-------- --------
Raw materials $ 8,638 $ 4,846
Work in process 3,182 796
Finished goods 66,951 36,695
-------- --------
Total inventories $ 78,771 $ 42,337
======== ========
(6) PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment are summarized as follows:
DECEMBER 31,
----------------------
1999 1998
-------- --------
Land $ 2,804 $ 2,436
Manufacturing equipment 14,029 7,032
Laboratory equipment 4,926 2,872
Leasehold improvements 9,042 6,897
Computer hardware and software 10,067 6,426
Furniture and fixtures 3,544 1,739
Construction in progress 5,636 288
-------- --------
50,048 27,690
Less: accumulated depreciation
and amortization (11,777) (7,261)
-------- --------
Property, plant and equipment, net $ 38,271 $ 20,429
======== ========
(7) BANK LOAN
In April, 1998 Anda, Inc. ("Anda"), the Company's wholly-owned
subsidiary engaged in the distribution of pharmaceutical products, amended its
line of credit agreement to increase the total available borrowings from $10,000
to $30,000 and, to decrease the interest rate and to potentially further
decrease the interest rate if the Company maintains certain levels of average
outstanding balance. As of December 31, 1999, the interest rate on the bank
borrowings of $20,226 was the prime rate, 8.5%.
47
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
Borrowings under the line of credit are available for financing the
Company's operations, are secured by all the assets of Anda and are subject to a
borrowing base related to the value of Anda's accounts receivable and
inventories. The loan is guaranteed by Andrx Corporation and some of its other
subsidiaries. The agreement requires compliance with certain covenants including
the maintenance of minimum working capital and net worth levels by Anda. As of
December 31, 1999, the Company was in compliance with all of the covenants of
this line of credit agreement.
(8) LICENSING AGREEMENTS
In June 1999, Andrx entered into an agreement with Geneva
Pharmaceuticals, Inc. a member of the Novartis group, for the sale and marketing
of specified products. Geneva will fund the development costs of certain
controlled-release dosage forms of existing products that the Company is
developing for submissions as brands (NDAs). Andrx granted marketing rights to
Geneva in specified territories for these products including one of the
Company's NDA products for the United States. Upon receiving FDA approval, Andrx
will receive royalties from the sale of such products. Andrx also has committed
to continuing to sell Geneva's bioequivalent products through Anda.
Andrx has entered into various other domestic and international
licensing agreements. These agreements generally contemplate that one of Andrx'
drug delivery technologies will be utilized to commercialize certain
pharmaceutical products, and that the Company will receive fees pursuant to
these agreements and possibly royalties from the sale or license of the subject
products.
(9) ANCIRC JOINT VENTURE
In July 1994, and as later amended on October 30, 1995, 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
50/50 joint venture to develop, manufacture and market up to eight bioequivalent
controlled-release pharmaceutical products (the "joint venture" or "ANCIRC").
The agreement between the Partners contemplates that Andrx Pharmaceuticals, Inc.
("Andrx Pharmaceuticals"), a wholly-owned subsidiary of the Company, will
perform the research and development formulations for the joint venture
products, that Anda will market and distribute ANCIRC's products following FDA
approval, and that Watson will provide the regulatory support for the joint
venture's products and will manufacture the ANCIRC products.
In September 1998, ANCIRC received approval of its first manufactured
product, a bioequivalent version of Trental(R) and launched this product. On
March 24, 1999 the FDA approved the ANDA for the second ANCIRC product, a
bioequivalent version of Oruvail(R), which was launched in April 1999. ANCIRC
halted the production and sale of ANCIRC's bioequivalent version of Oruvail(R)
in June 1999, and is currently not producing or selling such product.
48
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
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.
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 this joint venture.
49
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
Condensed balance sheet and statement of operations information for
ANCIRC is as follows:
DECEMBER 31,
-----------------
1999 1998
------ ------
ASSETS
Cash and cash equivalents $ 487 $ 695
Inventories 1,115 363
------ ------
Total assets $1,602 $1,058
====== ======
LIABILITIES AND PARTNERS' EQUITY
Current liabilities $ 369 $ 87
Partners' equity 1,233 971
------ ------
Total liabilities and partners' equity $1,602 $1,058
====== ======
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
------- ------- -------
Product sales, net $ 3,307 $ 724 $ --
======= ======= =======
Gross profit $ 1,239 $ 360 $ --
======= ======= =======
Research and development expenses $ 2,004 $ 2,237 $ 3,392
======= ======= =======
Net loss $ (740) $(1,862) $(3,364)
======= ======= =======
As of December 31, 1999 and 1998, Andrx Pharmaceuticals was due $705
and $139, respectively, from ANCIRC for research and development services
rendered. As of December 31, 1999 and 1998 Anda, the distributor of ANCIRC
products, owed ANCIRC $326 and $627, respectively, for purchases of ANCIRC's
products. Amounts due to or from ANCIRC, net, are included in Prepaid and other
current assets in the accompanying Consolidated Balance Sheets. Product sales
and the related costs of product sales are recognized by ANCIRC at the time
product is shipped to third party customers by Anda. Sales to Anda are
discounted by an agreed-upon percentage from the ultimate net selling price
realized from the sale to the third party customers to allow Anda to recover
selling and marketing costs. The Company is committed to the funding of ANCIRC's
future operations.
From time to time, the Partners have discussions to potentially
restructure ANCIRC.
50
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
(10) INCOME TAXES
For the year ended December 31, 1999, the Company provided for $55,405
for Federal and state income taxes or 37% of Income before income taxes. The
Company was not required to provide for income taxes at an effective combined
Federal and state statutory rate of 39% due to the effect of the utilization of
the Company's net operating loss carryforwards. As of June 23, 1999, Cybear was
excluded from Andrx' consolidated tax return and was filed as a separate entity
because Andrx' ownership in Cybear was reduced below 80%. Cybear's net operating
losses after June 23, 1999 did not generate income tax benefits, as its tax
benefits were fully offset by a corresponding increase in the valuation
allowance against its net deferred income tax assets.
For the year ended December 31, 1998, the Company's income tax
provision of $333 resulted from Federal alternative minimum income taxes. The
Company's 1998 regular income tax provision was fully offset by the reversal of
a corresponding amount of valuation allowance against its net deferred income
tax assets.
For the year ended December 31, 1997, the Company had no income taxes
as its income tax benefits were fully offset by a corresponding increase to the
valuation allowance against its net deferred income tax assets.
The components of the provision for income taxes are summarized as
follows:
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- -------- ----
Current provision
Federal $ 69,855 $ 333 $ --
State 3,992 -- --
-------- -------- ----
73,847 333 --
-------- -------- ----
Deferred benefit
Federal (17,445) -- --
State (997) -- --
-------- -------- ----
(18,442) -- --
-------- -------- ----
Total $ 55,405 $ 333 $ --
======== ======== ====
51
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
The following table indicates the significant elements contributing to
the difference between the Federal statutory rate and the Company's effective
tax rate:
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
---- ----- -----
Federal statutory rate 35.0% 35.0% (35.0)%
State income taxes, net of Federal effect 2.0 3.6 (3.6)
Change in valuation allowance on net deferred
income tax assets (7.8) (36.8) 38.6
Federal alternative minimum tax -- 2.0 --
Other, net 7.8 -- --
---- ----- -----
Effective tax rate 37.0% 3.8% --%
==== ===== =====
Deferred income taxes represent the tax effect of the difference
between book and tax bases of assets and liabilities. The major components of
deferred tax assets and liabilities are as follows:
DECEMBER 31,
----------------------
1999 1998
-------- --------
Net operating loss carryforward $ 3,929 $ 1,857
Allowance for doubtful accounts 2,377 976
Other operating reserves 17,230 4,539
Tax over book depreciation (1,137) (465)
Charitable contribution carryforward -- 749
Alternative minimum tax credit carryforward -- 333
-------- --------
22,399 7,989
Valuation allowance (3,957) (7,989)
-------- --------
Deferred income tax assets, net $ 18,442 $ --
======== ========
The following table indicates the activity in the valuation allowance:
1999 1998
-------- --------
Beginning balance, January 1, $ (7,989) $(10,051)
Utilized 7,989 2,062
Provided for Cybear, separate company (3,957) --
-------- --------
Ending balance, December 31, $ (3,957) $ (7,989)
======== ========
52
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
Under the provisions of SFAS No. 109, as of December 31, 1998, the
Company recorded a valuation allowance to reserve against 100% of its net
deferred income tax assets due to the uncertainty of the realization of such
assets. When the uncertainty was resolved in 1999 (see Note 16), such valuation
allowance was fully reversed and the only remaining valuation allowance as of
December 31, 1999 related to the net deferred income tax assets of Cybear of
$3,957 which resulted after June 23, 1999 as previously discussed. As of
December 31, 1999, the Company had a net operating loss carryforward for tax
purposes of approximately $10,000, which is available to only offset future
earnings, if any, of Cybear.
Net operating loss carryforwards are subject to review and possible
adjustment 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%.
(11) COMMITMENTS
PURCHASE COMMITMENTS
The Company has entered into agreements primarily for the construction
of a new manufacturing and research and development facility with future
commitments of approximately $14,000.
OPERATING LEASES
The Company leases manufacturing, laboratory, warehouse, office space,
and various equipment under operating leases which expire at various dates
through 2009. The following schedule summarizes future minimum lease payments
required under non-cancellable operating leases with terms greater than one
year, as of December 31, 1999:
2000 $ 3,830
2001 3,822
2002 3,042
2003 2,548
2004 2,224
Thereafter 9,058
-------
$24,524
=======
Rent expense amounted to $2,674, $1,189 and $969 for the years ended
December 31, 1999, 1998 and 1997, respectively.
53
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain
officers, the terms of which expire at various dates through September 2003. The
following schedule summarizes the future minimum payments under the Company's
employment agreements as of December 31, 1999:
2000 $ 710
2001 612
2002 612
2003 390
------
$2,324
======
Cybear entered into an employment agreement effective August 24, 1998
with Edward Goldman, M.D., Cybear's Chief Executive Officer. Pursuant to the
Employment Agreement, Andrx agreed to issue to Dr. Goldman upon payment of $50,
a warrant to purchase 650,000 shares of Cybear common stock held by Andrx (the
"Warrant") at its then market price of $3.00 per share. In addition, Andrx will
issue to Dr. Goldman stock options for 40,000 shares of Andrx common stock
having an exercise price, per share, of the fair market value of Andrx stock at
the close of business on the date of grant. The stock to be issued pursuant to
the exercise of the Warrant includes piggyback registration rights. The Warrant
is exercisable commencing on April 30, 1999 (the "Warrant Exercise Date"). The
Warrant shall be exercisable for a period of seven years after the Warrant
Exercise Date, subject to certain contractual obligations with Andrx. In October
1999, Dr. Goldman exercised a portion of the warrant for 125,000 shares of
Cybear common stock. Andrx recognized a gain of $343 on the transaction, which
is included in the Consolidated Statement of Income.
(12) RELATED PARTY TRANSACTIONS
The Company is party to a royalty agreement with Dr. Chen, which
provides for royalties to Dr. Chen upon the sale of Andrx' bioequivalent version
of Cardizem(R) CD, for which the Company received final approval in July 1998
from the FDA. In August 1998, the Company amended that royalty agreement to
account for the various contingencies presented by a Stipulation and Agreement
(see Note 16). Royalties paid to Dr. Chen of $7,000 and $637 for the years ended
December 31, 1999 and 1998, respectively, were based on 3.33% of the net sales
of Cartia XT(TM), as defined, and the Stipulation fees. Such royalties are
included in Selling, general, and administrative expenses in the accompanying
Consolidated Statements of Income.
In September 1998, Andrx agreed to sell 333,333 shares of Cybear common
stock for $1,000 or the then current market value of $3.00 per share to Cybear's
Chairman of the Board. As of December 31, 1998, Andrx had sold 233,333 shares to
Cybear's Chairman and in January 1999, Andrx sold the remaining 100,000 shares
under this agreement. Accordingly, Gain on sale of Cybear shares in the
Consolidated Statements of Income include $300 and $700, for the years ended
December 31, 1999 and 1998, respectively, from these transactions.
54
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
(13) SHAREHOLDERS' EQUITY
In June 1997, Capital Research and Management Company ("Capital"), an
investment management firm, purchased 1,460,000 shares of common stock and
Watson purchased an additional 300,000 shares of common stock. The purchase
price paid by each of Capital and Watson was $12.75 per share, the closing price
of Andrx' common stock on June 11, 1997. In a contemporaneous transaction,
certain of the Company's principals also sold a total of 900,000 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. 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.
In June 1999, Watson exercised a warrant to acquire 674,200 shares of
Andrx common stock at an exercise price of $4.45. Such warrant was issued to
Watson in connection with the original investment in the Company in July 1994.
(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 4,000,000.
The Company accounts for options granted to employees under the Plan in
accordance with the provisions of APB Opinion 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 employees stock option grants.
On rare occasions, the Company may issue an insignificant amount of equity
instruments to non-employees. No such options were granted for the year ended
December 31, 1999. Stock options issued to consultants for the years ended
December 31, 1998 and 1997 were accounted for based on the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable, as required by SFAS No. 123. In instances
where the fair value or the goods or services received is not reliably
measurable, the measure is based upon the fair value of the equity instruments
issued, and such value is amortized over the period for which services are
provided. The fair value of equity instruments issued to consultants are valued
using the Black-Scholes option pricing model.
55
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
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>
DECEMBER 31, 1996 1,828,700 $ 1.50 $ 7.25 $ 4.43 927,140 $3.34
Granted 519,800 10.00 18.94 12.60
Exercised (340,328) 1.50 7.00 3.67
Forfeited (86,498) 3.25 18.94 11.30
---------
DECEMBER 31, 1997 1,921,674 1.50 18.94 6.46 991,458 4.49
Granted 1,060,500 12.44 20.25 16.48
Exercised (272,586) 1.50 16.50 5.55
Forfeited (133,592) 1.50 20.25 11.00
---------
DECEMBER 31, 1998 2,575,996 1.50 20.25 10.45 1,128,104 5.91
Granted 772,400 16.75 60.13 40.09
Exercised (434,543) 1.50 19.44 8.22
Forfeited (90,550) 3.63 60.13 20.72
---------
DECEMBER 31, 1999 2,823,303 $ 1.50 $60.13 $18.47 1,263,728 $8.26
========= ====== ====== ====== ========= =====
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT EXERCISABLE OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999
- -------------------------------------------------------------------------------------------- --------------------------------
RANGE OF NUMBER OF WEIGHTED AVG. WEIGHTED AVG. WEIGHTED AVG.
EXERCISE SHARES REMAINING LIFE EXERCISE EXERCISE
PRICES UNDER OPTION (YEARS) PRICE SHARES PRICE
- -------------------------- ----------------- ------------------- ------------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 1.50-$10.00 945,728 4.31 $ 4.76 805,728 $ 4.39
$10.01-$19.00 942,150 5.73 $ 14.87 407,500 $ 14.16
$19.01-$60.13 935,425 7.26 $ 35.97 50,500 $ 22.40
------------- --------- ---- ------- --------- --------
2,823,303 5.76 $ 18.47 1,263,728 $ 8.26
========= ==== ======= ========= ========
</TABLE>
The range of weighted average fair value per share as of the grant date
was $10.72 to $40.82, $11.78 to $32.55, and $5.72 to $12.85 for stock options
granted during the years ended December 31, 1999, 1998 and 1997, respectively.
56
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
The fair market value of an option was estimated using the
Black-Scholes option pricing model with the following assumptions:
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
---- ---- ----
Risk-free interest rate 6.4% 4.6% 5.3%
Average life of options (years) 6.0 5.1 4.9
Average volatility 70.0% 99.0% 48.0%
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:
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- ------- --------
Net income (loss)
As reported $ 94,054 $ 8,394 $ (7,636)
========= ======= ========
Pro forma $ 86,969 $ 5,613 $ (9,317)
========= ======= ========
Basic net income
(loss) per share
As reported $ 3.03 $ 0.28 $ (0.27)
========= ======= ========
Pro forma $ 2.92 $ 0.19 $ (0.33)
========= ======= ========
Diluted net income
(loss) per share
As reported $ 2.90 $ 0.26 $ (0.27)
========= ======= ========
Pro forma $ 2.79 $ 0.18 $ (0.33)
========= ======= ========
(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, 1999, 1998 and 1997, the
Company contributed $366, $229 and $167, respectively, to the 401(k) retirement
plan.
57
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
(16) LITIGATION
WAXMAN-HATCH PATENT INFRINGEMENT 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 patent rights. Most of the brand name
controlled-release products for which the Company is developing bioequivalent
versions are covered by one or more patents. Under the Drug Price Competition
and Patent Restoration Act of 1984 (the "Waxman-Hatch Amendments"), when a drug
developer files an ANDA for a bioequivalent drug, the developer must make a
certification to the FDA as to whether the developer believes that an unexpired
patent that has been listed with the FDA as covering the relevant brand-name
product will be infringed by the developer's product. If the developer believes
that its product does not infringe the brand product patent or that any such
unexpired patent is invalid or unenforceable (a "Paragraph IV Certification"),
the developer must send a Paragraph IV Certification to the patent holder, who
may then initiate a legal challenge to the developer's Paragraph IV
Certification 45 days from the Paragraph IV Certification, which will prevent
the FDA from approving the ANDA, until the earlier of 30 months or when the
infringement case is decided in favor of the developer. The outcome of such
litigation is difficult to predict because of the uncertainties inherent in
patent litigation.
In addition to the current patent infringement claims as described
below, additional claims 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 provides for the estimated Waxman-Hatch patent infrigement
litigation costs to final resolution of each case, 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.
CARDIZEM(R) CD PATENT INFRINGEMENT LITIGATION
In connection with the ANDA filed for Andrx' bioequivalent version of
Cardizem(R) 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,
Aventis commenced litigation in the United States District Court, Southern
District of Florida, alleging that Andrx' product infringes upon one of the six
patents listed as covering Cardizem(R) CD.
In September 1997, Andrx entered into the Stipulation in partial
settlement with Aventis of the patent infringement litigation involving
Cardizem(R) CD in order to reduce the risks that both parties faced as the case
was litigated to its conclusion. The Company agreed to maintain the status quo
in connection with the marketing of its product and to dismiss certain claims
against Aventis. Aventis agreed to compensate the Company for its lost profits,
which were stipulated to be $100.0 million per year, if Andrx ultimately
prevailed in the litigation and to grant Andrx a license for their patents under
certain conditions, including if the Company ultimately lost the litigation.
Aventis also agreed to make non-refundable interim quarterly payments of $10.0
million to the Company, beginning upon its receipt of final FDA approval for its
bioequivalent version of Cardizem(R) CD and continuing until the litigation was
resolved or certain other events occured. In July 1998, the Company received
both final FDA marketing approval for its bioequivalent version of Cardizem(R)
CD and its first quarterly payment for $9,130 (prorated for the 84 days in the
quarter ended September 30, 1998). For the year ended December 31, 1998 the
Company received a total of $19,130 in interim Stipulation fees. In June 1999,
the Aventis Litigation was settled and the lawsuit was dismissed with prejudice.
For the year ended December 31, 1999, the Company received pursuant to the
Stipulation $70,733 in interim and final Stipulation fees from Aventis. On June
23, 1999, the Company commenced selling Cartia XT(TM), its reformulated
bioequivalent version of Cardizem(R) CD. Having been the first Company to have
its ANDA with a Paragraph IV certification accepted as filed by the FDA related
to Cardizem(R) CD, the Company enjoyed 180 days of marketing exclusivity that
expired on or about December 19, 1999.
58
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
FDA LITIGATION
In January 1998, the Company filed an action in the United States
District Court for the District of Columbia against the FDA, Biovail Corporation
International ("Biovail") and F.H. Faulding & Co. ("Faulding"), regarding the
FDA's interpretation of certain provisions of the Waxman-Hatch Amendments. The
Company sought, 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(R) CD and its Dilacor XR(R). On March 26,
1998, the Court entered a temporary restraining order prohibiting Mylan
Pharmaceuticals, Inc. from shipping or otherwise distributing its bioequivalent
version of Dilacor XR(R) until the expiration of the Company's 180-day period of
marketing exclusivity for its bioequivalent version of Dilacor XR(R).
BIOVAIL ANTITRUST LITIGATION
In May 1998, Biovail filed counterclaims against Andrx alleging that
the stipulation violated Sections 1 and 2 of the Sherman-Antitrust Act and a
declaratory judgment as to federal law as well as for alleged violations of
state common law of unfair competition, tortious interference with prospective
advantage and tortious interference with contract. Biovail sought injunctive
relief and treble damages in an unspecified amount, plus interest, with respect
to its federal law claims, and actual and punitive damages in unspecified
amounts, plus interest, with respect to its common law claims. In July 1998,
Andrx filed a motion to dismiss the counterclaim. That motion was granted with
prejudice with respect to the federal antitrust claims in January 2000, with the
state law claims being dismissed without prejudice. On February 2, 2000, Biovail
filed a motion to vacate the order dismissing its counterclaims and on or about
February 6, 2000 filed a notice of appeal to the United States Court of Appeals
for the District of Columbia. The appeal is still pending.
OTHER CARDIZEM(R) CD PATENT INFRINGEMENT CLAIM
On March 7, 2000, Purepac Pharmaceutical Co. (a subsidiary of Faulding,
"Purepac") filed suit against Andrx in the U.S. District Court for the Eastern
District of Pennsylvania claiming patent infringement because of Andrx making,
using, selling and/or offering Cartia XT(TM) which, according to Purepac,
infringes a patent issued to Faulding on March 7, 2000 but now owned by Purepac.
The letter also offered to license that patent to the Company. Andrx is
currently evaluating Purepac's infringement claims and licensing offer and in
due course will file an appropriate response.
59
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
PUTATIVE CLASS ACTION
In addition to the above Cardizem(R) CD Patent Infringement Litigation
with Aventis, commencing in August 1998, putative class actions have been filed
against Andrx Pharmaceuticals in either state or federal courts in Alabama,
California, Florida, Illinois, Kansas, Michigan, Minnesota, New York, North
Carolina, Tennessee, Wisconsin and the District of Columbia. In all of these
suits, Hoechst Aktiengesellschaft and Aventis (collectively, the "Aventis
Group") have been named as co-defendants. The complaint in each action alleges
that Andrx Pharmaceuticals and Aventis Group, by way of the Stipulation, have
engaged in alleged state antitrust and other statutory and common law violations
that allegedly have given Aventis Group and Andrx Pharmaceuticals a near
monopoly in the U.S. market for Cardizem(R) CD and a bioequivalent version of
that pharmaceutical product. According to the complaints, the monopoly possessed
by the defendants enable Aventis Group to perpetuate its ability to fix the
price of Cardizem(R) CD at an artificially high price, free from generic
competition, with the result that direct purchasers (such as pharmacies), as
well as indirect purchasers (such as medical patients who have been issued
prescriptions for Cardizem(R) CD) are forced to overpay for the drug. Each
complaint seeks compensatory damages on behalf of each class member in an
unspecified amount and, in some cases, treble damages, as well as costs and
counsel fees, disgorgement, injunctive relief and other remedies. In June 1999,
most of these class actions were consolidated for pretrial purposes in the
United States District Court for the Eastern District of Michigan. In the
consolidated proceeding, Aventis Group and Andrx Pharmaceuticals have filed
motions to dismiss the complaints on various grounds and plaintiffs have filed
motions for partial summary judgment. All of these motions are still pending.
The four state court actions (two in Kansas and two in Florida) that have not
been included in the consolidated proceeding have been temporarily stayed in
light of the consolidated proceeding in Michigan.
FTC ADMINISTRATIVE PROCEEDING
In October 1998, the Company was advised that the U.S. Federal Trade
Commission ("FTC") is conducting an investigation to determine whether Andrx,
Aventis or any other persons have engaged in unfair methods of competition. The
FTC's investigation, with which the Company has fully cooperated relates to the
Stipulation with Aventis. In March 2000, the FTC commenced an administrative
proceeding against Aventis and Andrx concerning the Stipulation claiming it had
reason to believe that the Stipulation had or may have had the capacity or the
potential to be anti-competitve. The FTC stated it is not seeking any fines,
penalties, disgorgement or any other monetary remedy in the proceeding. Despite
the views of the FTC, the Company continues to believe the Stipulation was
procompetitive and benefited consumers, and intends to vigorously defend its
position before the administrative law judge.
PRILOSEC(R) PATENT INFRINGEMENT LITIGATION
In May 1998, Astra, Aktiebolaget Hassle, Astra Merck Enterprises Inc.
and Astra Merck Inc. (collectively, the "Astra Group"), filed suit against Andrx
in the U.S. District Court for the Southern District of Florida claiming patent
infringement because of an ANDA filed by Andrx with the FDA for a bioequivalent
version of Prilosec(R). Subsequently, another patent infringement suit was filed
by the Astra Group against Andrx in the same Court after Andrx made a second
Paragraph IV certification relative to a different strength of Prilosec(R).
Andrx responded to these claims by denying infringement, raising various other
defenses, filing certain counterclaims against the Astra Group and by seeking a
declaration that there has been no infringement and that the patents are
invalid. The Astra Group seeks an injunction enjoining Andrx from further
infringing the subject patents and an order directing that the effective date of
any FDA approval of Andrx' proposed bioequivalent version of Prilosec(R) be no
earlier than the expiration date of its patents. In September 1999, for pretrial
60
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
purposes, both of these actions were consolidated in the U.S. District Court for
the Southern District of New York with three other patent infringement suits
initiated by the Astra Group relative to ANDAs submitted by other companies for
bioequivalent versions of Prilosec. The consolidated suit is still in the
discovery phase. The Company believes that its product does not infringe on the
subject patents or that such patent is invalid or unenforceable.
TIAZAC(R) PATENT INFRINGEMENT LITIGATION
In October 1998, Biovail, Biovail Laboratories Inc. and Galephar Puerto
Rico, Inc. (collectively, the "Biovail Group") filed suit against Andrx in the
U.S. District Court for the Southern District of Florida claiming patent
infringement because of an ANDA filed by Andrx with the FDA for a bioequivalent
version of Tiazac. Andrx responded to this claim by denying infringement,
raising various other defenses, filing certain counterclaims against the Biovail
Group and by seeking a declaration that there has been no infringement and that
the patent is invalid. The Biovail Group sought an injunction enjoining Andrx
from further infringing the subject patent and an order directing that the
effective date of any FDA approval of Andrx' proposed bioequivalent version of
Tiazac(R) be no earlier than the expiration date of the subject patent. In March
2000, the court entered an order that Andrx' product does not infringe the
Biovail patent. Biovail has filed a notice of appeal from that order.
NAPRELAN(R) PATENT INFRINGEMENT LITIGATION
In October 1998, Elan Corporation, PLC ("Elan") filed suit against
Andrx in the U.S. District Court for the Southern District of Florida claiming
patent infringement because of an ANDA filed by Andrx with the FDA for a
bioequivalent version of Naprelan(R). Andrx responded to this claim by denying
infringement, raising various other defenses, filing certain counterclaims
against Elan and by seeking a declaration that there has been no infringement
and that the patent is invalid. Elan seeks a judgment enjoining Andrx from
further infringing the subject patent and ordering that the effective date of
any FDA approval of Andrx' proposed bioequivalent version of Naprelan(R) be no
earlier than the expiration date of the patent. The Company believes that its
product does not infringe on the subject patents or that such patent is invalid
or unenforceable.
WELLBUTRIN SR(R) AND ZYBAN(R) PATENT INFRINGEMENT LITIGATION
In September 1999, Glaxo Wellcome PLC ("Glaxo") filed suit against
Andrx in the U.S. District Court for the Southern District of Florida claiming
patent infringement because of the ANDAs filed by Andrx with the FDA for
bioequivalent versions of Wellbutrin SR(R) and Zyban(R). Andrx responded to this
claim by denying infringement, raising various other defenses, filing certain
counterclaims against Glaxo and by seeking a declaration that there has been no
infringement and that the patent is invalid. Glaxo seeks an injunction enjoining
Andrx from further infringing the subject patents and orders directing that the
effective date of any FDA approval of Andrx' proposed bioequivalent versions of
Wellbutrin SR(R) and Zyban(R) be no earlier than the expiration date of the
subject patent. The Company believes that its product does not infringe the
subject patents or that such patents are invalid or unenforceable.
DEPAKOTE(R) PATENT INFRINGEMENT LITIGATION
In March 2000, Abbott Laboratories filed suit against Andrx in the
United States District Court for the Northern District Court of Illinois,
claiming infringement of two of its patents because of our filing the
aforementioned ANDA. Abbott seeks a judgment enjoining defendants from further
infringing the subject patents and ordering that the effective date of any FDA
approval of the Company's proposed bioequivalent version of Depakote(R) be no
earlier than the expiration dates of the two patents in suit. Although the
Company has not yet responded to the complaint, the Company believes that its
product does not infringe the patents involved or that either or both patents
are invalid or unenforceable.
CLARITIN D-24(R) PATENT INFRINGEMENT LITIGATION
In February 2000, the Company submitted an ANDA to the FDA to sell the
Company's bioequivalent version of Claritin D-24(R). In March 2000, Schering
Plough Corporation filed suit in the U.S. District Court for New Jersey claiming
patent infringement because of an ANDA filed by the Company with the FDA for a
bioequivalent version of Claritin D-24. Although the Company has not yet been
served with the complaint, the Company believes that its product does not
infringe the patent involved or that the patent is invalid or unenforceable.
61
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
PHENTERMINE (PHEN-FEN) LITIGATION
In January 1999, Andrx was served with third party complaints filed
against them by certain doctors and distributors who are defendants in various
legal actions relating to the sale of phentermine by the Company and its usage
as a diet drug when taken in combination with fenfluramine, commonly known as
"phen-fen". The substance of the third party complaints is that the defendants
are without fault with respect to the claims in those actions but, if they are
found liable on any of those claims, then allegedly having obtained one or more
of the drugs from Andrx, they are entitled to indemnification in an amount to
pay and discharge any judgment entered against them in the putative class action
together with costs, expenses and attorney fees. Andrx has never sold
fenfluramine and believes that these claims are without merit.
In November 1999, another phen-fen diet lawsuit was filed against Andrx
in the Superior Court of New Jersey by (i) a husband, who claims to have
obtained or purchased, either directly or indirectly, from Andrx and others, and
thereafter ingested, phentermine, dexfenfluramine and fenfluramine, causing
serious medical consequences, all to his financial detriment, and (ii) his wife,
who, on behalf of herself and her two children, claims monetary damages arising
from emotional distress to herself and her children, loss of spousal/paternal
companionship and expenditure of money, time and care for her husband required
by her husband's alleged injuries which are permanent and continuous in nature.
Andrx has never sold dexfenfluramine or fenfluramine and believes that these
claims, including any based solely on the use of phentermine, have no merit.
The Company is being represented and defended in both of these lawsuits
by counsel designated by the Company's insurer.
62
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
OTHER LITIGATION
As of December 31, 1999, the Company was involved with other legal
proceedings incidental to its business. Although it is not possible to predict
the outcome of such proceedings, it is the opinion of management, based on the
legal advice of counsel, that the ultimate outcome of those proceedings will not
have any significant adverse effect on the Company's consolidated financial
statements.
(17) SEGMENTS
In 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This SFAS establishes new standards for
defining the Company's segments and disclosing information about them. It
requires that the segments be based on the internal structure and reporting of
the Company's operations.
Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. The operating segments are
managed separately because of the fundamental difference in their operations or
in the uniqueness of their product(s).
63
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
The Company operates in four business segments:
o Anda
o Andrx Pharmaceuticals
o Aura Laboratories, Inc. ("Aura Labs")
o Cybear
Andrx established Anda, its distribution operation, to complement its
Andrx Pharmaceuticals controlled-release bioequivalent segment in anticipation
of improving overall profitability by managing its products from the laboratory
to the drug store shelf. Anda markets and distributes generic pharmaceuticals
manufactured by third parties. Anda 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.
Andrx Pharmaceuticals 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, Andrx Pharmaceuticals has developed eight distinct
drug delivery technologies that are patented or for which patent applications
have been filed. Andrx Pharmaceuticals is applying its proprietary drug delivery
technologies and formulation skills either directly or through collaborative
arrangements, to the development of bioequivalent versions of selected
controlled release brand name pharmaceuticals. Andrx Pharmaceuticals also
constructed a commercial-scale manufacturing facility enabling the Company to
make the transition from the development stages through to the commercial
manufacture of the controlled-release pharmaceuticals. Andrx Pharmaceuticals
sells its products directly to pharmacy chains, wholesalers and distributors and
utilizes the resources of the Anda segment.
Through its wholly-owned subsidiary Aura Labs, the Company is engaged
in applying the proprietary drug delivery technologies developed by Andrx
Pharmaceuticals to clinical programs to the development of brand name
controlled-release formulations of existing immediate-release and
controlled-release drugs. In addition to improving drug efficacy and reducing
side effects, Andrx 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. Aura Labs currently has one
product in Phase III clinical trials and one other product will enter Phase III
clinical trials in 2000.
Through its information technology subsidiary Cybear, the Company uses
the Internet and Internet-based browser technologies to develop applications
designed to improve communication and increase efficiencies for healthcare
providers.
The category "Corporate and Other" consists of corporate headquarters,
including general and administrative expenses, interest income, income taxes and
adjustments for minority interest.
64
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
The Company evaluates the performance of the segments after all
intercompany sales are eliminated. The allocation of income taxes is not
evaluated at the segment level.
The following table presents financial information by business segment:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------------
ANDRX AURA CORPORATE &
ANDA PHARMACEUTICALS LABS CYBEAR OTHER CONSOLIDATED
-------- --------------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $262,321 $213,399 $ -- $ 270 $ -- $475,990
Equity in losses of joint
venture -- (370) -- -- -- (370)
Income (loss) from
operations 20,010 157,959 (9,453) (14,550) (9,029) 144,937
Gain on sale of Cybear
shares 643 -- -- -- -- 643
Interest income -- -- -- 1,282 2,321 3,603
Interest expense (1,661) -- -- -- -- (1,661)
Income tax expense -- -- -- -- (55,405) (55,405)
Depreciation and
amortization 1,209 1,923 46 1,080 258 4,516
Capital expenditures 6,960 13,004 44 2,154 71 22,233
Total assets 123,494 45,623 134 53,105 135,598 357,954
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------------
ANDRX AURA CORPORATE &
ANDA PHARMACEUTICALS LABS CYBEAR OTHER CONSOLIDATED
-------- --------------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $215,903 $ 31,154 $ -- $ -- $ -- $247,057
Equity in losses of joint
venture -- (931) -- -- -- (931)
Income (loss) from
operations 10,698 9,428 (4,023) (4,135) (4,710) 7,258
Gain on sale of Cybear
shares 700 -- -- -- -- 700
Interest income -- -- -- -- 1,064 1,064
Interest expense (380) -- -- -- -- (380)
Income tax expense -- -- -- -- (333) (333)
Depreciation and
amortization 982 1,536 33 123 286 2,960
Capital expenditures 833 4,572 145 2,340 96 7,986
Total assets 68,735 29,989 136 3,332 19,006 121,198
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------------------
ANDRX AURA CORPORATE &
ANDA PHARMACEUTICALS LABS CYBEAR OTHER CONSOLIDATED
-------- --------------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $146,237 $ 3,461 $ -- $ -- $ -- $149,698
Equity in losses of joint
venture -- (1,682) -- -- -- (1,682)
Income (loss) from
operations 7,078 (10,302) (1,104) (1,504) (2,930) (8,762)
Interest income -- -- -- -- 1,585 1,585
Interest expense (490) -- -- -- -- (490)
Depreciation and
amortization 815 941 1 51 228 2,036
Capital expenditures 1,496 5,305 3 242 669 7,715
Total assets 65,995 25,823 9 399 (1,381) 90,845
</TABLE>
65
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
(18) SELECTED QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Total revenues $77,924 $164,560 $111,415 $122,091
Income from operations 8,448 78,784 27,232 30,473
Net income 6,944 48,880 17,827 20,403
Basic net income per share 0.23 1.60 0.57 0.65
Diluted net income per share 0.22 1.51 0.55 0.63
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Total revenues $50,695 $ 55,955 $ 67,266 $ 73,141
Income (loss) from operations (1,233) (1,846) 4,374 5,963
Net income (loss) (959) (1,718) 4,862 6,209
Basic net income
(loss) per share (0.03) (0.06) 0.16 0.21
Diluted net income
(loss) per share (0.03) (0.06) 0.15 0.19
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Total revenues $30,661 $ 32,559 $ 42,661 $ 43,817
Loss from operations (1,691) (2,385) (3,200) (1,486)
Net loss (1,402) (2,261) (2,865) (1,108)
Basic and diluted net
loss per share (0.05) (0.08) (0.09) (0.03)
</TABLE>
(19) SUBSEQUENT EVENTS
STOCK SPLIT
On February 29, 2000, the Board of Directors of the Company approved a
two-for-one stock split in the form of a 100% stock dividend. Such stock split
will be for holders of record at the close of business on March 15, 2000 and to
be distributed on April 3, 2000. Accordingly, the consolidated financial
statements do not reflect the impact of such stock split. The share and per
share amounts in the accompanying consolidated financial statements will be
retroactively restated for the stock split upon the date of its distribution.
66
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except for share and per share amounts)
ACQUISITION OF VALMED PHARMACEUTICAL, INC.
In March 2000, Andrx acquired Valmed Pharmaceutical, Inc., a privately
owned distributor of bioequivalent pharmaceuticals based in Grand Island, New
York. The purchase price was $14,800 in cash, subject to certain adjustments.
The acquisition will be recorded using the purchase method of accounting.
67
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information concerning the directors and
executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Alan P. Cohen (1) 45 Co-Chairman, Chief Executive Officer and Director
Chih-Ming J. Chen, Ph.D. (1) 48 Co-Chairman, Chief Scientific Officer and Director
Elliot F. Hahn, Ph.D. (1) 55 President and Director
Scott Lodin 44 Vice President, General Counsel and Secretary
Angelo C. Malahias 38 Vice President and Chief Financial Officer
Melvin Sharoky, M.D. (2) 49 Executive Director and Director
Rep. Elaine Bloom (2) 62 Director
Irwin C. Gerson (2)(3) 70 Director
Michael A. Schwartz, Ph.D. (3) 69 Director
Lawrence J. DuBow 68 Director
</TABLE>
- --------------------
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
ALAN P. COHEN is Co-Chairman of the Board, Chief Executive Officer and
a director of Andrx, which he founded in August 1992. Mr. Cohen was the Chairman
and a director of Cybear from February 1997 through August 1998, when he
resigned as Chairman. He remains a director of Cybear. He is a graduate of the
University of Florida and is a registered pharmacist. In 1984, Mr. Cohen founded
Best Generics, Inc., a bioequivalent 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.
DR. CHIH-MING J. CHEN has been Co-Chairman since November 1998 and the
Chief Scientific Officer and a director since November 1992. In January 1992,
Dr. Chen formed his own company, ASAN Labs, Inc., which was acquired by Andrx 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.
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.
68
<PAGE>
SCOTT LODIN joined Andrx in January 1994 and is its Vice President,
General Counsel and Secretary. Mr. Lodin has also been the Secretary and a
director of Cybear since February 1997. Prior to joining Andrx, Mr. Lodin was
Special Counsel to 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. Mr. Malahias has also been a director of
Cybear since April 1999. 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 LLP. Mr. Malahias is a certified public accountant.
DR. MELVIN SHAROKY, a director of Andrx since November 1995, joined
Andrx as Executive Director on March 1, 1999. Dr. Sharoky has also been a
director of Cybear since April 1999. Dr. Sharoky is also president of Somerset
Pharmaceuticals Inc., 50% owned by Watson. Dr. Sharoky was a director of Watson
from July 1995 to May 1998. 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. From November 1995 to May
1998, Dr. Sharoky served on Andrx' Board of Directors as the designee of Watson.
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 serves on
the Health Care Services, General Appropriations and the Fiscal Responsibility
Council.
IRWIN C. GERSON, a director of Andrx since November 1993, was the
Chairman of the Lowe McAdams Healthcare division of the Interpublic Group
(formerly William Douglas McAdams, Inc.), a healthcare marketing, communications
and public relations company, from 1987 through December 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.
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.
LAWRENCE J.DUBOW, a director effective April 2000, has been Chairman
and Chief Executive Officer of HMS Sales and Marketing, Inc. which is presently
engaged in marketing pharmaceutical products, since he founded it in 1991. Since
1957, he was engaged in various capacities within the pharmaceutical industry.
Mr. DuBow was the former President of the Drug Wholesales' Association and a
former Chairman of the National Wholesale Druggists' Association.
Our Articles provide that the Board of Directors is divided into three
classes and directors serve staggered three-year terms. Dr. Chih-Ming J. Chen,
Irwin C. Gerson and Dr. Michael A. Schwartz will hold office until the 2000
annual meeting. Dr. Elliot F. Hahn and Representative Elaine Bloom will hold
office until the 2001 annual meeting. Alan P. Cohen and Dr. Melvin Sharoky and
Lawrence J. DuBow will hold office until the 2002 annual meeting.
DIRECTOR COMPENSATION
Effective June 1, 1999, non-employee directors of the Company receive
cash compensation for their services. Non-employee directors receive $5,000 for
each of the regularly scheduled quarterly meetings they attend and a lesser
amount for other participations (including attendance at committee meetings or
other special meetings of the Board). Prior to that, on June 1 of each year
non-employee directors of the
69
<PAGE>
Company were granted stock options under the Plan to purchase 14,000 shares of
Common Stock. Each person who becomes a non-employee director after June 1 of
any year will be granted an option on the date such person becomes a director
(the "Appointment Date") to purchase that number of shares equal to 14,000
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 are 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 previously
granted to non-employee directors under the Plan.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE EXPIRATION
NAME OF OPTIONEE SHARES PRICE DATE
--------------------------------- -------------- ------------- -------------------------
<S> <C> <C> <C>
Elaine Bloom 5,000 $ 1.50 May 12, 2003
18,000 3.25 August 7, 2004
11,750 6.00 June 1, 2006
14,000 11.50 June 1, 2007
14,000 16.94 June 1, 2008
Irwin C. Gerson 5,000 $ 1.50 May 12, 2003
18,000 3.25 August 7, 2004
11,750 6.00 June 1, 2006
14,000 11.50 June 1, 2007
14,000 16.94 June 1, 2008
Michael Schwartz, Ph.D. 5,000 $ 1.50 May 12, 2003
18,000 3.25 August 7, 2004
11,750 6.00 June 1, 2006
14,000 11.50 June 1, 2007
14,000 16.94 June 1, 2008
Melvin Sharoky, M.D.(1) 5,000 $ 5.50 November 11, 2005
11,500 6.00 June 1, 2006
14,000 11.50 June 1, 2007
14,000 16.94 June 1, 2008
</TABLE>
- ------------
(1) Dr. Sharoky joined Andrx as Executive Director on March 1, 1999.
INDEMNIFICATION AGREEMENTS
Andrx has entered into an indemnification agreement with each of its
directors and executive officers. Each indemnification agreement provides that
Andrx 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 Andrx) 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 Andrx, 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 Andrx 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 Andrx, 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 if so
70
<PAGE>
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 Andrx.
71
<PAGE>
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 Andrx's executive officers, directors and holders of more than 10% of
Andrx's common stock, to file reports of ownership and changes in ownership with
the SEC and the Nasdaq National Market. Such persons are required to furnish
Andrx 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, Andrx believes that, with respect to 1998,
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 the years ended December 31, 1999, 1998 and 1997 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 1999
(collectively with the CEO, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------------------------------- -------------
OTHER SECURITIES
FISCAL ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS(#)(1)
- ------------------------------------- --------- ------------ -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Alan P. Cohen 1999 $264,500 $150,000 $18,300 (2)
Co-Chairman and CEO 1998 241,200 50,000 17,300 (3) 50,000
1997 188,400 55,000 13,300 (3) -
Chih-Ming J. Chen, Ph.D. 1999 264,500 150,000 18,300 (2)
Co-Chairman and Chief 1998 241,200 50,000 31,900 (3)(4) 50,000
Scientific Officer 1997 188,400 50,000 15,900 (3) -
Elliot F. Hahn, Ph.D. 1999 264,500 100,000 17,000 (2)
President 1998 241,200 50,000 18,800 (3) 50,000
1997 188,400 50,000 14,700 (3) -
Scott Lodin 1999 199,600 50,000 563,200 (5)(6) 54,000
Vice President, General 1998 178,000 40,000 12,200 (6) 12,000
Counsel and Secretary 1997 148,200 30,000 4,000 (6) 15,000
Angelo C. Malahias 1999 169,700 50,000 207,900 (7) 24,000
Vice President and 1998 154,900 32,500 276,700 (7) 12,000
Chief Financial Officer 1997 129,700 25,000 38,600 (8) 15,000
</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) other than Dr. Hahn, certain medical expense,
reimbursements and health insurance premium reimbursements.
72
<PAGE>
(3) Represents an automobile allowance, premiums for a $1 million life
insurance policy (the beneficiary of which is designated by the Named
Executive Officer) other than Dr. Hahn, certain medical expense
reimbursements and health insurance premium reimbursements and the premiums
for a disability policy (other than for Mr. Cohen), the beneficiary of
which is designated by the Named Executive Officer.
(4) Includes compensation of $11,700 for taxes resulting from the forgiveness
of an interest bearing loan made by Andrx to Dr. Chen.
(5) Represents exercise of options to purchase 8,000 shares of common stock
with an exercise price of $4.00 per share.
(6) Represents reimbursement of premiums on health insurance policies and group
term life insurance benefits. For 1999 and 1998 amount also includes an
automobile allowance.
(7) Represents reimbursement of premiums on health insurance policies and group
term life insurance benefits. For 1999 and 1998 includes exercise of
options to purchase 3,000 and 20,000 shares of common stock, respectively,
with an exercise price of $5.50 per share.
(8) Represents relocation expenses and reimbursement of premiums on health
insurance policies.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Andrx is party to an employment agreement with Mr. Malahias, Andrx'
Vice President and Chief Financial Officer, which expires in January 2001, Mr.
Malahias currently receives a base salary of $200,000 per year. The agreement
provides that if Mr. Malahias' employment is terminated by Andrx without cause,
Mr. Malahias may receive a lump sum payment of $90,000. Other amounts are
payable and acceleration of vesting of certain options may occur in the event
Mr. Malahias' employment is terminated pursuant to a change of control of Andrx.
The agreement also includes provisions regarding confidentiality and
non-solicitation.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants
of stock options made during Fiscal 1999 to any of the Named Executive Officers.
<TABLE>
<CAPTION>
% OF
TOTAL POTENTIAL REALIZABLE
NUMBER OF OPTIONS VALUE OF ASSUMED
SECURITIES GRANTED TO EXERCISE ANNUAL RATES OF
UNDERLYING EMPLOYEES OR BASE STOCK PRICE
OPTIONS IN FISCAL PRICE EXPIRATION APPRECIATION FOR
GRANTED YEAR ($/SH) DATE OPTION TERMS(1)
----------- ----------- --------- --------------------- ----------------------------
5% 10%
------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Scott Lodin 54,000 7.0% $33.38 March 2, 2009 $1,133,400 $2,872,300
Angelo C. Malahias 24,000 3.1% $33.38 March 2, 2009 503,800 1,276,600
</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 SEC and do not represent Andrx'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.
STOCK OPTIONS HELD AT END OF 1999
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, 1999:
73
<PAGE>
<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
ON VALUE
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
-------- -------- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Alan P. Cohen - $ - 25,000 25,000 $ 715,600 $ 715,600
Chih-Ming J. Chen, Ph.D. - - 425,000 25,000 15,625,200 715,600
Elliot F. Hahn, Ph.D. - - 25,000 25,000 715,600 715,600
Scott Lodin 8,000 551,300 103,000 65,000 3,793,500 797,000
Angelo C. Malahias 3,000 202,200 41,000 67,000 1,395,600 1,706,800
</TABLE>
- ------------
(1) Based on a fair market value of $42.31 share at December 31, 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There were no compensation committee interlocks and insider
participation in executive compensation decisions during 1999.
74
<PAGE>
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 15, 2000, by (i) each
person or entity known by Andrx to beneficially own more than 5% of the
outstanding shares of common stock; (ii) each director of Andrx; (iii) each of
the Named Executive Officers; and (iv) all directors and executive officers of
Andrx 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) 2,971,444 9.4%
Chih-Ming J. Chen, Ph.D.(4) 3,347,402 10.6
Elliot F. Hahn, Ph.D.(5) 890,890 2.8
Angelo C. Malahias (6) 59,100 *
Scott Lodin(7) 95,000 *
Elaine Bloom(8) 50,150 *
Irwin C. Gerson(9) 25,000 *
Michael A. Schwartz, Ph.D.(10) 33,750 *
Melvin Sharoky, M.D.(11) 66,650 *
All directors and executive
Officers as a group
(10 persons)(12) 7,528,486 23.8
5% OR GREATER HOLDERS
Watson Pharmaceuticals, Inc.
311 Bonnie Circle
Corona, CA 91720 4,057,738 12.8
</TABLE>
- ------------
* 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 9,750 shares of common stock held jointly by Mr. Cohen and his
spouse, 2,936,694 shares held in family limited partnerships and 25,000
shares of common stock issuable upon the exercise of stock options.
(4) Includes 2,865,376 shares of common stock and held by limited
partnerships for which Dr. Chen is an officer of the corporate general
partner, 2,395 shares held by a charitable family foundation, 425,000
shares of common stock issuable upon the exercise of stock options, and
8,500 shares of common stock issuable upon the exercise of stock
options held by Dr. Chen's spouse.
75
<PAGE>
(5) Represents 860,890 shares of common stock held in a trust for the
benefit of Dr. Hahn's spouse, 5,000 shares held in a family foundation
and 25,000 shares issuable upon the exercise of stock options.
(6) Includes 1,600 shares held as custodian for his minor children and
57,500 shares of common stock issuable upon the exercise of stock
options.
(7) Represents 95,000 shares of common stock issuable upon the exercise of
stock options
(8) Includes 39,750 shares of common stock issuable upon the exercise of
stock options.
(9) Represents 25,000 shares of common stock issuable upon the exercise of
stock options.
(10) Represents 33,750 shares of common stock issuable upon exercise of
stock options.
(11) Includes 64,500 shares of common stock issuable upon exercise of stock
options and 1,660 shares of common stock held by Dr. Sharoky as
custodian for his minor children.
(12) Includes 799,000 shares of common stock issuable upon the exercise of
the stock options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH DR. CHEN
Andrx is party to a royalty agreement with Dr. Chen, which provides for
royalties to Dr. Chen upon the sale of Andrx's bioequivalent version of
Cardizem(R) CD, for which Andrx received final approval in July 1998 from the
FDA. In August 1998, Andrx amended that royalty agreement to account for the
various contingencies presented by the Cardizem(R) CD Stipulation. Royalties
paid to Dr. Chen of $7 million for the year ended December 31, 1999 were based
on 3.33% of the net sales of Cartia XTTM and Cardizem(R) CD Stipulation fees.
Such royalties are included in selling, general, and administrative expenses in
the Consolidated Statement of Income. Andrx is no longer attempting to develop
any other products included in that agreement, as the reference brand product is
no longer being marketed.
TRANSACTIONS WITH WATSON
In July 1994, Andrx and Circa Pharmaceuticals, which was subsequently
acquired by Watson, established the ANCIRC joint venture. In connection with the
establishment of ANCIRC, Andrx 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 1,348,314 shares of common stock on April 30, 1995 and
(ii) the Watson Warrants to purchase 674,158 shares of common stock exercisable
through July 1999 at a price equal to the lesser of $4.45 or the offering price
per share of shares sold in an initial public offering. The Watson Warrants were
exercised in July 1999.
In August 1995, Watson purchased an additional 181,818 shares of common
stock from Andrx at a price of $5.50 per share and Watson was granted a
two-month option to purchase no less than 1,636,364 nor more than 2,909,090
shares of common stock from Andrx, Mr. Cohen, trusts for the benefit of Dr.
Hahn's children (the "Trusts") and Dr. Chen at a price of $5.50 per share (with
no more than363,636 shares being sold by selling shareholders). Watson exercised
such option in October 1995 and in December 1995 purchased 2,289,806 shares from
Andrx, 127,272 shares from Mr. Cohen, 109,092 shares from the Trusts, and
127,272 shares from Dr. Chen, for a total of 2,653,442 shares of common stock.
In connection with the exercise of the option by Watson, the ANCIRC joint
venture agreement was amended to provide that Andrx and Watson would agree on
two additional product candidates to be developed by ANCIRC, and to restructure
the respective interests of Andrx and Watson in ANCIRC so that ANCIRC became a
50/50 joint venture.
76
<PAGE>
In June 1997, Watson purchased an additional 300,000 shares of common
stock from Andrx and 900,000 shares from Andrx' founders at a price of $12.75
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 Andrx pursuant to
which it agreed, among other matters, not to acquire more than a 25% equity
interest in Andrx or engage in certain transactions with Andrx (including a
merger), prior to June 13, 2000, without the prior approval of Andrx's Board of
Directors.
Andrx 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 and expire in June 2000.
In June 1999, Watson exercised a warrant to acquire 674,200 shares of
Andrx Common Stock at an exercise price of $4.45. Such warrant was issued to
Watson in connection with the original investment in the Company in July 1994.
77
<PAGE>
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
Not Applicable
All other schedules for which provision is made in applicable
regulations of the SEC are omitted because they are not applicable or
the required information is in the Consolidated Financial Statements or
notes thereto.
(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
2.2 Agreement and Plan of Merger and Reorganization dated March 23,
2000 by and among Andrx Corporation, Cybear Inc., New Andrx
Corporation, Andrx Acquisition Corp., and Cybear Acquisition
Corp.(2)
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 Intentionally Deleted
10.3 Intentionally Deleted
10.4 Intentionally Deleted
10.5 Intentionally Deleted
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)
10.11 Development and License Agreement dated as of November 10, 1993
by and between Mylan Pharmaceuticals, Inc. and the Registrant(1)(3)
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
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)
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)*
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
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 (6)
10.32 Fourth Addendum to Lease between the Registrant and New Town Commerce
Centre, Ltd., relating to the premises at 4011 S.W. 47th Avenue, Davie,
Florida (6)
10.33 Fifth Addendum to Lease between the Registrant and New Town Commerce
Centre, Ltd., relating to the premises at 4011 S.W. 47th Avenue, Davie,
Florida (6)
10.34 Lease by and between Registrant and New Town Commerce Center, Ltd.,
relating to the premises located at 4111 S.W. 47th Avenue, Davie,
Florida(6)
10.35 Amendment to Royalty Agreement between the Registrant and Chih-Ming J.
Chen, Ph.D. (7)
10.36 Lease Agreement relating to premises located at 500 Blue Lake Drive,
Boca Raton, Florida (7)
10.37 Lease Agreement relating to premises located at 2915 Weston Road,
Weston, Florida (7)
10.38 Product Distribution, Development and Licensing Agreement between
Geneva Pharmaceuticals, Inc., the Global Generics Sector of Novartis AG
and the Registrant. (3) (8)
10.39 Lease Agreement relating to premises located at 180 Passaic Avenue,
Fairfield, New Jersey (2)
10.40 Lease Agreement relating to premises located at 5000 Blue Lake Drive,
Suite 200, Boca Raton, Florida (9)
10.41 Second Amendment to Lease Agreement relating to premises located at
5000 Blue Lake Drive, Suite 200, Boca Raton, Florida (9)
21.1 Subsidiaries of the Registrant(2)
23.2 Consent of Arthur Andersen LLP(2)
27.1 Financial Data Schedule(2)
</TABLE>
*MANAGEMENT COMPENSATION PLAN OR ARRANGEMENT.
(1) Filed as an exhibit of the same number to Andrx'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.
80
<PAGE>
(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.
(6) Filed as an Exhibit of the same number in Annual Report on form 10-K
for the year ended December 31, 1997 and incorporated herein by
reference.
(7) Filed as an Exhibit of the same number in the Quarterly Report on Form
10-Q for the period ended September 30, 1998 and incorporated herein by
reference.
(8) Filed as an Exhibit of the same number in the Quarterly Report on Form
10-Q for the period ended June 30, 1999 and incorporated herein by
reference.
(9) Filed as an Exhibit to Cybear, Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1999 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.
81
<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
Co-Chairman and Chief Executive Officer
By: /s/ Angelo C. Malahias
-----------------------------------------------
Angelo C. Malahias
Vice President and Chief Financial Officer
Date: March 29, 2000
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 Co-Chairman, Chief Executive March 29, 2000
- -------------------------------------------------- Officer and Director
Alan P. Cohen (Principal Executive Officer)
/s/ Chih-Ming J. Chen, Ph.D. Co-Chairman, Chief Scientific March 29, 2000
- -------------------------------------------------- Officer and Director
Chih-Ming J. Chen, Ph.D.
/s/ Elliot F. Hahn, Ph.D. President and Director March 29, 2000
- --------------------------------------------------
Elliot F. Hahn, Ph.D.
/s/ Angelo C. Malahias Vice President and Chief March 29, 2000
- -------------------------------------------------- Financial Officer
Angelo C. Malahias (Principal Financial and
Accounting Officer)
/s/ Rep. Elaine Bloom Director March 29, 2000
- --------------------------------------------------
Rep. Elaine Bloom
/s/ Irwin C. Gerson Director March 29, 2000
- --------------------------------------------------
Irwin C. Gerson
/s/ Michael A. Schwartz, Ph.D. Director March 29, 2000
- --------------------------------------------------
Michael A. Schwartz, Ph.D.
/s/ Melvin Sharoky, M.D. Executive Director and Director March 29, 2000
- --------------------------------------------------
Melvin Sharoky, M.D.
</TABLE>
82
<PAGE>
ANDRX CORPORATION
INDEX TO EXHIBITS
1999 FORM 10-K
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.2 Agreement and Plan of Merger and Reorganization dated March 23,
2000 by and among Andrx Corporation, Cybear Inc., New Andrx
Corporation, Andrx Acquisition Corp., and Cybear Acquisition
Corp.
10.39 Lease Agreement relating to premises located at 180 Passaic Avenue,
Fairfield, New Jersey
22.1 Subsidiaries
23.2 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
ANDRX CORPORATION,
CYBEAR, INC.
NEW ANDRX CORPORATION,
ANDRX ACQUISITION CORP., AND
CYBEAR ACQUISITION CORP.
March 23, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Definitions.............................................................................................2
2. Basic Transaction.......................................................................................6
(a) The Mergers....................................................................................6
(b) Filing of Plan of Merger, Effective Time.......................................................7
(c) Effect of Merger...............................................................................7
(i) General........................................................................................7
(ii) Articles of Incorporation......................................................................7
(iii) Bylaws.........................................................................................7
(iv) Directors......................................................................................8
(v) Officers.......................................................................................8
(d) The Closing....................................................................................8
(e) Intentionally Omitted..........................................................................9
(f) Conversion of Andrx and Cybear Capital Stock...................................................9
(g) Cancellation of Treasury Stock.................................................................9
(h) Unvested Andrx Common Stock and Cybear Common Stock...........................................10
(i) Capital Stock of Merger Subs..................................................................10
(j) Fractional Shares.............................................................................10
(k) Existing New Andrx Capital Stock..............................................................11
(l) Exchange Agent................................................................................11
(m) New Andrx to Provide Stock....................................................................11
(n) Exchange Procedures...........................................................................11
(o) Dividends, Etc................................................................................12
(p) Lost, Stolen or Destroyed Certificates........................................................13
(q) Tax Consequences..............................................................................13
3. Representations and Warranties of Cybear...............................................................13
(a) Organization, Qualification, and Corporate Power..............................................13
(b) Capitalization................................................................................13
(c) Authorization of Transaction..................................................................14
(d) Noncontravention..............................................................................14
(e) Filings with the SEC..........................................................................14
(f) Financial Statements..........................................................................14
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
(g) Events Subsequent to Most Recent Cybear Fiscal Period End.....................................15
(h) Undisclosed Liabilities.......................................................................15
(i) Brokers' Fees.................................................................................15
(j) Disclosure....................................................................................15
(k) Litigation....................................................................................15
(l) Opinion of Financial Advisor..................................................................16
(m) Waiver of Change in Control Provisions........................................................16
4. Representations and Warranties of Andrx................................................................16
(a) Organization of Andrx and Subsidiary Corp.....................................................16
(b) Capitalization................................................................................16
(c) Authorization of Transaction..................................................................16
(d) Noncontravention..............................................................................17
(e) Filings with the SEC..........................................................................17
(f) Financial Statements..........................................................................17
(g) Events Subsequent to Most Recent Andrx Fiscal Period End......................................17
(h) Undisclosed Liabilities.......................................................................18
(i) Brokers' Fees.................................................................................18
(j) Disclosure....................................................................................18
(k) Litigation....................................................................................18
5. Representations and Warranties of New Andrx and Merger Subs............................................18
(a) Organization of New Andrx and Merger Subs.....................................................18
(b) Capitalization................................................................................19
(c) Authorization of Transaction..................................................................19
(d) Noncontravention..............................................................................19
(e) Undisclosed Liabilities.......................................................................19
(f) Brokers' Fees.................................................................................20
(g) Disclosure....................................................................................20
(h) Litigation....................................................................................20
6. Covenants..............................................................................................20
(a) General.......................................................................................20
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
(b) Notices and Consents..........................................................................20
(c) Regulatory Matters and Approvals..............................................................20
(i) Securities Act, Securities Exchange Act, and State Securities Laws...................20
(ii) Approvals............................................................................21
(iii) S-4 Registration Statement and Joint Proxy Statement.................................21
(iv) Cybear Stockholder Meeting...........................................................22
(v) Andrx Stockholder Meeting............................................................22
(vi) HSR and other Filings; Reasonable Efforts............................................22
(d) Operation of Business.........................................................................23
(e) Full Access...................................................................................23
(f) Notice of Developments........................................................................24
(g) Insurance and Indemnification.................................................................24
(h) Expenses......................................................................................24
(i) Assumption of Andrx Option Plan and Cybear Option Plan; Form S-8; Employee Plans..............25
(j) Certain Tax Matters...........................................................................25
(i) Return Filing; Information Sharing Until the Closing Date............................25
(ii) Certain Tax Opinions.................................................................26
(k) No Solicitation...............................................................................27
(l) Voting Agreements.............................................................................28
7. Conditions to Obligation to Close......................................................................28
(a) Conditions to Obligation of New Andrx, Andrx and Merger Subs..................................28
(b) Conditions to Obligation of Cybear............................................................29
8. Termination............................................................................................31
(a) Termination of Agreement......................................................................31
(b) Effect of Termination.........................................................................32
9. Miscellaneous..........................................................................................32
(a) Survival......................................................................................32
(b) Press Releases and Public Announcements.......................................................32
(c) No Third Party Beneficiaries..................................................................32
</TABLE>
-iii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
(d) Entire Agreement..............................................................................32
(e) Succession and Assignment.....................................................................32
(f) Counterparts..................................................................................32
(g) Headings......................................................................................33
(h) Notices.......................................................................................33
(i) Governing Law.................................................................................34
(j) Amendments and Waivers........................................................................34
(k) Severability..................................................................................34
(l) Expenses......................................................................................34
(m) Construction..................................................................................34
(n) Incorporation of Exhibits and Schedules.......................................................35
EXHIBIT A -- PLAN OF MERGER.................................................................................1
EXHIBIT B-1 -- NEW ANDRX AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION......................................................................2
EXHIBIT B-2 -- NEW ANDRX BYLAWS.................................................................................3
EXHIBIT C -- TAX SHARING AGREEMENT..........................................................................4
EXHIBIT D -- CYBEAR TRACKING COMMON STOCK POLICIES...........................................................5
</TABLE>
-iv-
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement") is
made and entered into as of March 23, 2000, by and among Andrx Corporation, a
Florida corporation ("Andrx"), Cybear, Inc., a Delaware corporation ("Cybear"),
New Andrx Corporation, a Delaware corporation ("New Andrx"), Andrx Acquisition
Corp., a Florida corporation and wholly owned subsidiary of New Andrx ("Andrx
Merger Sub"), and Cybear Acquisition Corp., a Florida corporation and wholly
owned subsidiary of New Andrx ("Cybear Merger Sub") (together, Andrx Merger Sub
and Cybear Merger Sub are collectively referred to herein as "Merger Subs").
Andrx, Cybear, New Andrx and the Merger Subs are individually referred to as a
"Party" and collectively referred to herein as the "Parties."
R E C I T A L S
A. The Board of Directors of Andrx has unanimously (i) determined that it
is advisable and fair to, and in the best interests of, Andrx and its
stockholders that, upon the terms and subject to the conditions of this
Agreement, Andrx Merger Sub merge with and into Andrx, with Andrx being the
surviving corporation (the "Andrx Merger"), (ii) approved this Agreement, the
Andrx Merger and the other transactions contemplated hereby and (iii)
recommended the approval of this Agreement and the Andrx Merger by the
stockholders of Andrx.
B. The Board of Directors of Cybear, based upon a recommendation of a
Special Committee (the "Special Committee") consisting of one disinterested
director, has (i) determined that it is advisable and fair to, and in the best
interests of, Cybear and its stockholders that, upon the terms and subject to
the conditions of this Agreement, Cybear Merger Sub merge with and into Cybear,
with Cybear being the surviving corporation (the "Cybear Merger"), (ii) approved
this Agreement, the Cybear Merger and the other transactions contemplated hereby
and (iii) recommended the approval of this Agreement and the Cybear Merger by
the stockholders of Cybear. The Andrx Merger and the Cybear Merger are
collectively referred to herein as the "Mergers."
C. The Board of Directors of New Andrx has (i) determined that the Mergers
are advisable and in the best interests of New Andrx and its stockholders and
(ii) approved this Agreement, the Mergers and the other transactions
contemplated hereby.
D. Pursuant to the Mergers, among other things, the outstanding shares of
Common Stock, par value $.001 per share ("Andrx Common Stock"), of Andrx shall
be converted into the right to receive the consideration set forth herein and
the outstanding shares of Common Stock, par value $.001 per share ("Cybear
Common Stock"), of Cybear shall be converted into the right to receive the
consideration set forth herein.
E. The Parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Andrx Merger to qualify as a
"reorganization" under the provisions of Section 368(a)(1)(A) and 368(a)(2)(E)
of the Code and the exchange of shares pursuant to the Cybear Merger to qualify
as a tax-free exchange under Section 351(a) of the Code.
1
<PAGE>
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"Action" has the meaning set forth in Section 6(g) below.
"Andrx Acquisition Corp." has the meaning set forth in preface above.
"Andrx Articles of Incorporation" has the meaning set forth in Section
2(c)(ii).
"Andrx Capital Stock" means all shares of Andrx Common Stock and all shares
of any other capital stock of Andrx.
"Andrx Closing Tax Opinion" has the meaning set forth in Section 7(a)(xi)
below.
"Andrx Common Stock" has the meaning set forth in the preface above.
"Andrx Exchange Ratio" has the meaning set forth in Section 2(f)(i).
"Andrx Initial Tax Opinion" has the meaning set forth in Section 6(j)(ii)
below.
"Andrx Material Adverse Effect" has the meaning set forth in Section 4(a)
below.
"Andrx Merger" means set forth in the preface above.
"Andrx Merger Sub" has the meaning set forth in the preface above.
"Andrx Merger Sub Common Stock" has the meaning set forth in Section 2(i)
below.
"Andrx Option Plan" means the Andrx Stock Incentive Plan.
"Andrx Options" means all unexpired and unexercised issued and outstanding
options, warrants and other rights to acquire or receive Andrx Capital Stock
(whether or not vested or exercisable).
"Andrx Public Reports" has the meaning set forth in Section 4(e) below.
"Andrx Stockholders Meeting" has the meaning set forth in Section 6(c)(v)
below.
"Andrx Surviving Corporation" has the meaning set forth in Section 2(a)
below.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
2
<PAGE>
"Certificates" has the meaning set forth in 2(n) below.
"Closing" has the meaning set forth in Section 2(d) below.
"Closing Date" has the meaning set forth in Section 2(d) below.
"Closing Tax Certificates" has the meaning set forth in 6(j)(ii) below.
"Code" has the meaning set forth in the preface above.
"Confidential Information" means any information concerning the businesses
and affairs of a Person that is not already generally available to the public.
"Cybear" has the meaning set forth in the preface above.
"Cybear Articles of Incorporation" has the meaning set forth in Section
2(c)(ii).
"Cybear Capital Stock" means all shares of Cybear Common Stock and all
shares of any other capital stock of Cybear.
"Cybear Closing Tax Opinion" has the meaning set forth in Section
7(b)(viii) below.
"Cybear Common Stock" has the meaning set forth in the preface above.
"Cybear Initial Tax Opinion" has the meaning set forth in Section 6(j)(ii)
below.
"Cybear Material Adverse Effect" has the meaning set forth in Section 3(a)
below.
"Cybear Merger" has the meaning set forth in the preface above.
"Cybear Merger Sub" has the meaning set forth in the preface above.
"Cybear Merger Sub Common Stock" has the meaning set forth in Section
2(i)(ii) below.
"Cybear Option Plan" means Cybear's 1997 Stock Option Plan.
"Cybear Options" means all unexpired and unexercised issued and outstanding
options, warrants and other rights to acquire or receive Cybear Capital Stock
(whether or not vested or exercisable).
"Cybear Public Reports" has the meaning set forth in Section 3(e) below.
"Cybear Stockholder" means any Person who or which holds any Cybear Capital
Stock.
"Cybear Stockholders Meeting" has the meaning set forth in Section 6(c)(iv)
below.
3
<PAGE>
"Cybear Surviving Corporation" has the meaning set forth in Section 2(a)
below.
"Cybear Tracking Common Stock" means the Andrx Corporation - Cybear Group
Common Stock, par value $.001 per share, of New Andrx, a class of New Andrx
Capital Stock that will have the terms and features set forth in the New Andrx
Certificate of Incorporation.
"Cybear Tracking Option" has the meaning set forth in Section 2(f)(iii)
below.
"DGCL" means the General Corporation Law of the State of Delaware, as
amended.
"DOJ" means the Antitrust Division of the United States Department of
Justice.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Effective Time" has the meaning set forth in Section 2(b) below.
"Employees" has the meaning set forth in Section 6(i) below.
"Exchange Agent" has the meaning set forth in Section 2(l) below.
"FBCA" means the Business Corporation Act of the State of Florida, as
amended.
"FTC" means the United States Federal Trade Commission.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"HSR Act" has the meaning set forth in Section 3(d) below.
"IRS" means the Internal Revenue Service.
"Indemnified Party" has the meaning set forth in Section 6(g) below.
"Initial Tax Certificate" has the meaning set forth in Section 6(j)(ii).
"Joint Proxy Statement" has the meaning set forth in Section 6(c)(i) below.
"Knowledge" means actual knowledge after reasonable investigation.
"Mergers" has the meaning set forth in the preface above.
"Merger Subs" has the meaning set forth in the preface above.
"Most Recent Andrx Fiscal Period End" has the meaning set forth in 4(f)(ii)
below.
4
<PAGE>
"Most Recent Cybear Fiscal Period End" has the meaning set forth in Section
3(f)(ii) below.
"New Andrx" has the meaning set forth in the preface above.
"New Andrx Certificate of Incorporation" has the meaning set forth in
Section 2(c)(ii) below.
"New Andrx Capital Stock" means all shares of New Andrx Common Stock,
Cybear Tracking Common Stock and all shares of any other capital stock of New
Andrx.
"New Andrx Common Stock" means the Andrx Corporation - Andrx Common Stock,
par value $.001 per share, of New Andrx, a class of New Andrx Capital Stock that
will have the terms and features set forth in the New Andrx Certificate of
Incorporation.
"New Andrx Material Adverse Effect" has the meaning set forth in Section
5(a) below.
"New Andrx Option" has the meaning set forth in Section 2(f)(iii).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Plan of Merger" has the meaning set forth in Section 2(a) below.
"Required Andrx Stockholder Vote" means the affirmative vote in favor of
this Agreement and the Andrx Merger by the holders of a majority of the Andrx
Capital Stock outstanding.
"Required Cybear Stockholder Vote" means the affirmative vote in favor of
this Agreement and the Cybear Merger by the holders of a majority of the Cybear
Capital Stock outstanding; provided that the holders of a majority of the Cybear
Capital Stock outstanding, other than Andrx or its Subsidiaries, have not voted
against this Agreement and the Cybear Merger.
"S-4 Registration Statement" has the meaning set forth in Section 6(c)(i)
below.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
5
<PAGE>
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, OTHER THAN (a) mechanic's, materialmen's, landlord's
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"SG Cowen" has the meaning set forth in Section 3(l) below.
"Special Committee" has the meaning set forth in the preface above.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Superior Proposal" has the meaning set forth in Section 6(k) below.
"Surviving Corporations" has the meaning set forth in Section 2(a) below.
"Takeover Proposal" means any offer or proposal for, or any written
indication of interest in, a merger or other business combination involving
Cybear or any of its Subsidiaries or the acquisition of ten percent (10%) or
more of the outstanding Cybear Capital Stock, or a significant portion of the
assets of, or any of its Subsidiaries, other than the transactions contemplated
by this Agreement.
"Third Party Expenses" has the meaning set forth in Section 6(h) below.
2. BASIC TRANSACTION.
(a) THE MERGERS. Subject to the terms and conditions of this Agreement
and the applicable provisions of the FBCA and the DGCL, at the Effective Time
the plan of merger (the "Plan of Merger") in the form of and as set forth in
this Agreement (or such other instrument setting forth the plan of merger as set
forth in this Section 2), (i) Andrx Merger Sub shall be merged with and into
Andrx, the separate corporate existence of Andrx Merger Sub shall cease and
Andrx shall continue as the surviving corporation, and (ii) Cybear Merger Sub
shall be merged with and into Cybear, the separate corporate existence of Cybear
Merger Sub shall cease and Cybear shall continue as the surviving corporation.
Andrx, as the surviving corporation after the Andrx Merger, is hereinafter
sometimes referred to as the "Andrx Surviving Corporation," Cybear as the
surviving corporation after the Cybear Merger is hereinafter sometimes referred
to as the "Cybear Surviving Corporation," and Andrx Surviving Corporation and
Cybear Surviving Corporation are sometimes hereinafter collectively referred to
as the "Surviving Corporations." As a result of the Mergers, Andrx and Cybear
shall become wholly owned, direct subsidiaries of New Andrx. The effects and
consequences of the Mergers shall be as set forth in Section 2(c) below.
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(b) FILING OF PLAN OF MERGER, EFFECTIVE TIME. In connection with the
Closing, the Parties hereto shall cause the Mergers to be consummated by filing
the Plan of Merger with the Secretary of State of the State of Florida, in
accordance with the relevant provisions of the FBCA and by filing the Plan of
Merger with the Secretary of State of the State of Delaware, in accordance with
the relevant provisions of the DGCL. The Mergers shall become effective at the
time and date on which the Plan of Merger has been duly filed with the Secretary
of State of Florida and the Secretary of State of Delaware or such time and date
as agreed upon by the Parties and specified in the Plan of Merger, being
hereinafter referred to as the "Effective Time."
(c) EFFECT OF MERGER.
(i) GENERAL. At the Effective Time, the effect of the Mergers
shall be as provided in this Agreement, the Plan of Merger and the applicable
provisions of the FBCA and DGCL. Without limiting the generality of the
foregoing, and subject to the foregoing, at the Effective Time, (A) all the
property, rights, privileges, powers and franchises of Andrx and Andrx Merger
Sub shall vest in the Andrx Surviving Corporation, and all debts, liabilities
and duties of Andrx and Andrx Merger Sub shall become the debts, liabilities and
duties of the Andrx Surviving Corporation, and (B) all the property, rights,
privileges, powers and franchises of Cybear and Cybear Merger Sub shall vest in
the Cybear Surviving Corporation, and all debts, liabilities and duties of
Cybear and Cybear Merger Sub shall become the debts, liabilities and duties of
the Cybear Surviving Corporation.
(ii) ARTICLES OF INCORPORATION.
(A) The Articles of Incorporation (the "Andrx Articles of
Incorporation") of Andrx Merger Sub, at the Effective Time, shall be the
Articles of Incorporation of the Andrx Surviving Corporation.
(B) The Articles of Incorporation (the "Cybear Articles
of Incorporation") of Cybear Merger Sub, at the Effective Time, shall be the
Articles of Incorporation of the Cybear Surviving Corporation.
(C) The Amended and Restated Certificate of Incorporation
of New Andrx, substantially as set forth as Exhibit B-1 hereto (the "New Andrx
Certificate of Incorporation"), shall be the Certificate of Incorporation of New
Andrx, provided that at the Effective Time the name of the corporation shall be
"Andrx Corporation."
(iii) BYLAWS.
(A) The Bylaws of Andrx Merger Sub, at the Effective
Time, shall be the Bylaws of the Andrx Surviving Corporation until thereafter
amended as provided by law and such Bylaws.
(B) The Bylaws of Cybear Merger Sub, at the Effective
Time, shall be the Bylaws of the Cybear Surviving Corporation until thereafter
amended as provided by law and such Bylaws.
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(C) The Bylaws of New Andrx shall be substantially as
set forth in Exhibit B-2 hereto.
(iv) DIRECTORS.
(A) The directors of Andrx Merger Sub immediately
prior to the Effective Time shall be the directors of the Andrx Surviving
Corporation as of the Effective Time and until their successors are duly
appointed or elected in accordance with applicable law, or until their earlier
death, resignation or removal in accordance with the Surviving Corporation's
Articles of Incorporation and Bylaws.
(B) The directors of Cybear Merger Sub immediately
prior to the Effective Time shall be the directors of Cybear Surviving
Corporation as of the Effective Time and until their successors are duly
appointed or elected in accordance with applicable law, or until their earlier
death, resignation or removal in accordance with the Surviving Corporation's
Articles of Incorporation and Bylaws.
(C) The directors of New Andrx shall be the existing
directors of Andrx and the director nominee designated by Cybear as set forth
in Section 7(b)(x).
(v) OFFICERS.
(A) The officers of the Andrx Merger Sub at the
Effective Time shall be the officers of the Andrx Surviving Corporation
immediately prior to the Effective Time until their successors are duly
appointed or elected in accordance with applicable law, or until their earlier
death, resignation or removal in accordance with the Andrx Surviving
Corporation's Articles of Incorporation and Bylaws.
(B) The officers of Cybear Merger Sub at the
Effective Time shall be the officers of the Cybear Surviving Corporation
immediately prior to the Effective Time until their successors are duly
appointed or elected in accordance with applicable law, or until their earlier
death, resignation or removal in accordance with the Cybear Surviving
Corporation's Articles of Incorporation and Bylaws.
(C) The officers of New Andrx shall be the existing
officers of Andrx until their successors are duly appointed or elected in
accordance with applicable law, or until their earlier death, resignation or
removal in accordance with the New Andrx Certificate of Incorporation and
Bylaws.
(d) THE CLOSING. Subject to the terms and conditions of this Agreement,
the closing of the transactions contemplated by this Agreement (the "Closing")
shall take place at the offices of Broad and Cassel, 201 South Biscayne
Boulevard, Suite 3000, Miami, Florida 33131, at 10:00 a.m. on (a) the next
business day after the last to be fulfilled or waived of the conditions set
forth in Section 7 shall be fulfilled or waived in accordance herewith (other
than conditions which by their nature are to be satisfied at the Closing, but
subject to such conditions) or (b) at such other time, date or place as Cybear
and New Andrx may agree in writing. The date on which the Closing occurs is
referred to herein as the "Closing Date."
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(e) INTENTIONALLY OMITTED.
(f) CONVERSION OF ANDRX AND CYBEAR CAPITAL STOCK.
(i) Each share of Andrx Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Andrx Common
Stock to be canceled pursuant to Section 2(g)) will be canceled and extinguished
and be converted automatically into the right to receive (A) one share of New
Andrx Common Stock and (B) a fraction (the "Andrx Exchange Ratio") of a share of
Cybear Tracking Common Stock equal to 10,293,378 divided by the number of shares
of Andrx Common Stock outstanding immediately prior to the Effective Date, upon
surrender of the certificate representing such share of Andrx Common Stock in
the manner provided in Section 2(n) (or, in the case of a lost, stolen or
destroyed certificate, upon delivery of an affidavit and, if required, bond in
the manner provided in Section 2(p)). It is the intention of the Parties that
the holders of Cybear Common Stock other than Andrx, which holders currently own
approximately 30.5% of the outstanding Cybear Capital Stock as of the date
hereof, will as a result of the Mergers, own in the aggregate approximately
34.5% of the Cybear Tracking Common Stock assuming full exercise of the warrant
to purchase Cybear Common Stock held by Dr. Edward E. Goldman.
(ii) Each share of Cybear Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Cybear Common
Stock owned by Andrx or its Subsidiaries or shares of Cybear Common Stock to be
canceled pursuant to Section 2(g)) will be canceled and extinguished and be
converted automatically into the right to receive one share of Cybear Tracking
Common Stock upon surrender of the certificate representing such share of Cybear
Common Stock in the manner provided in Section 2(n) (or, in the case of a lost,
stolen or destroyed certificate, upon delivery of an affidavit and, if required,
bond in the manner provided in Section 2(p)).
(iii) At the Effective Time, each outstanding Cybear Option shall
be assumed by New Andrx in such manner that it is converted into an option to
purchase .8842 shares of Cybear Tracking Common Stock for each share of Cybear
Common Stock subject to the Cybear Option (each a "Cybear Tracking Option"). At
the Effective Time, each outstanding Andrx Option shall be assumed by New Andrx
and converted into an option to purchase one share of New Andrx Common Stock
(each a "New Andrx Option") and a Cybear Tracking Option to purchase Cybear
Tracking Common Stock equal to the number of shares of Andrx Common Stock
subject to the Andrx Option multiplied by the Andrx Exchange Ratio. The exercise
price for the New Andrx Option shall be equal to the exercise price on the
existing Andrx Option less the product of the Andrx Exchange Ratio and the price
of the Cybear Common Stock on the Closing Date subject to potential adjustment
to conform with the Emerging Issues Task Force 99-9. The exercise price for the
Cybear Tracking Options issued to holders of the Andrx Options shall be equal to
the price of the Cybear Common Stock at the Closing Date. It is the intention of
the Parties that, to the extent that any such Andrx Option or Cybear Option
constituted an "incentive stock option" (within the meaning of Section 422 of
the Code) immediately prior to the Effective Time, the New Andrx Option or
Cybear Tracking Option continue to qualify as an incentive stock option to the
maximum extent permitted by Section 422 of the Code, and that the assumption of
the New Andrx Option or Cybear Options provided by this Section 2(f)(iii)
satisfy the conditions of Section 424(a) of the Code.
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(g) CANCELLATION OF TREASURY STOCK. Each share of Andrx Common Stock
that is owned by Andrx as treasury stock immediately prior to the Effective Time
shall be canceled and extinguished without any conversion thereof. Each share of
Cybear Common Stock that is owned by Cybear as treasury stock immediately prior
to the Effective Time shall be canceled and extinguished without any conversion
thereof.
(h) UNVESTED ANDRX COMMON STOCK AND CYBEAR COMMON STOCK. If any shares
of Andrx Common Stock or Cybear Common Stock outstanding immediately prior to
the Effective Time are unvested or are subject to a repurchase option, risk of
forfeiture or other condition under any applicable restricted stock purchase
agreement, or other agreement with Andrx or Cybear or under which Andrx or
Cybear has any rights, then (unless such condition terminates by virtue of the
Merger pursuant to the express term of such agreement) the shares of New Andrx
Common Stock issued in exchange for such shares of Andrx Common Stock or Cybear
Common Stock will also be unvested and subject to the same repurchase option,
risk of forfeiture or other condition, and the certificates representing such
shares of New Andrx Common Stock may accordingly be marked with appropriate
legends. Andrx and Cybear shall take all action that may be necessary to ensure
that, from and after the Effective Time, New Andrx is entitled to exercise any
such repurchase option or other right set forth in any such restricted stock
purchase agreement or other agreement.
(i) CAPITAL STOCK OF MERGER SUBS.
(i) At the Effective Time, each share of Common Stock, par value
$.01 per share, of Andrx Merger Sub ("Andrx Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and nonassessable share of Common
Stock, par value $.01 per share, of the Andrx Surviving Corporation, and the
Andrx Surviving Corporation shall become a wholly owned subsidiary of New Andrx.
Each stock certificate of Andrx Merger Sub evidencing ownership of any such
shares shall continue to evidence ownership of such shares of capital stock of
the Andrx Surviving Corporation.
(ii) At the Effective Time, each share of Common Stock, par value
$.01 per share, of Cybear Merger Sub ("Cybear Merger Sub Common Stock") issued
and outstanding immediately prior to the Effective Time shall be converted into
and exchanged for one validly issued, fully paid and nonassessable share of
Common Stock, par value $.01 per share, of the Cybear Surviving Corporation, and
the Cybear Surviving Corporation shall become a wholly owned subsidiary of New
Andrx. Each stock certificate of Cybear Merger Sub evidencing ownership of any
such shares shall continue to evidence ownership of such share of capital stock
of the Cybear Surviving Corporation.
(j) FRACTIONAL SHARES. No fraction of a share will be issued to the
Shareholders of Andrx in the Andrx Merger. Instead, the fractional share
interests of Cybear Tracking Common Stock will be aggregated into whole shares
of Cybear Tracking Common Stock (provided that after such aggregation, the
remaining fractional share of Cybear Tracking, if any, shall be rounded up to
the next whole share) and sold on the open market by the Exchange Agent. The net
proceeds from the sale will be distributed by the Exchange Agent to the
stockholders entitled to receive such fractional share interests from New Andrx
in an amount of
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cash (rounded to the nearest whole cent) equal to the product of such fraction,
multiplied by the last sale price for a share of Cybear Common Stock as quoted
on The Nasdaq National Market on the last full trading day prior to the
Effective Time (less any commissions or expenses paid).
(k) EXISTING NEW ANDRX CAPITAL STOCK. At the Effective Time, any shares
of common stock, par value $.01 per share, of New Andrx issued and outstanding
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(l) EXCHANGE AGENT. New Andrx shall appoint a reputable institution
reasonably acceptable to New Andrx and Cybear to serve as exchange agent (the
"Exchange Agent") in the Merger.
(m) NEW ANDRX TO PROVIDE STOCK. Promptly after the Effective Time, New
Andrx shall make available to the Exchange Agent for exchange in accordance with
this Section 2 the shares of New Andrx Common Stock and Cybear Tracking Common
Stock issuable pursuant to Section 2 in exchange for all of the outstanding
shares of the Andrx Common Stock and Cybear Common Stock immediately prior to
the Effective Time.
(n) EXCHANGE PROCEDURES. Promptly after the Effective Time, New Andrx
shall cause the Exchange Agent to mail to each holder of record (as of the
Effective Time) of a certificate or certificates (the "Certificates"), which
immediately prior to the Effective Time represented outstanding shares of Andrx
Capital Stock or Cybear Capital Stock, as applicable, whose shares were
converted into shares of New Andrx Common Stock and/or Cybear Tracking Common
Stock pursuant to Section 2(f) and any dividends or other distributions pursuant
to Section 2(o), (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall contain
such other provisions as New Andrx may reasonably specify) and (ii) instructions
for use in effecting the surrender of Certificates in exchange for certificates
representing shares of New Andrx Capital Stock and/or Cybear Tracking Common
Stock, as applicable, and any dividends or other distributions pursuant to
Section 2(o). Upon surrender of the Certificates for cancellation to the
Exchange Agent, together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto, the holders of
such Certificates shall be entitled to receive in exchange therefor certificates
representing the number of whole shares of New Andrx Common Stock and/or Cybear
Tracking Common Stock, as applicable, into which their shares of Andrx Capital
Stock or Cybear Capital Stock were converted, as applicable, at the Effective
Time and any dividends or distributions payable pursuant to Section 2(o), and
payment in lieu of fractional shares which the holder has the right to receive
pursuant to Section 2(j) and the Certificates so surrendered shall forthwith be
canceled. Until so surrendered, outstanding Certificates will be deemed from and
after the Effective Time, for all corporate purposes, subject to Section 2(o) as
to the payment of dividends, to evidence the ownership of the number of full
shares of New Andrx Common Stock and/or Cybear Tracking Common Stock into which
such shares of Andrx Capital Stock or Cybear Capital Stock, as applicable, shall
have been so converted and any dividends or distributions payable pursuant to
Section 2(o). If any portion of the New Andrx Common Stock and/or Cybear
Tracking Common Stock (and any dividends or distributions thereon), otherwise
payable hereunder to any person, is to be issued or paid to a person other than
the person in whose name the Certificate is registered,
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it shall be a condition to such issuance or payment that the Certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such issuance or payment shall pay to
the Exchange Agent any transfer or other taxes required as a result of such
issuance or payment to a person other than the registered holder of such
Certificate or establish to the satisfaction of the Exchange Agent that such tax
has been paid or is not payable.
(o) DIVIDENDS, ETC.
(i) Notwithstanding any other provisions of this Agreement, no
dividends or other distributions declared after the Effective Time on the Andrx
Common Stock or Cybear Tracking Common Stock shall be paid with respect to any
shares of Andrx Capital Stock or Cybear Capital Stock, as applicable,
represented by a Certificate until such Certificate is surrendered for exchange
as provided herein. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be paid to the holder of the
Andrx Common Stock or Cybear Tracking Common Stock certificates issued in
exchange therefor, without interest, (A) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such whole shares of Andrx
Common Stock or Cybear Tracking Common Stock and not paid, less the amount of
any withholding taxes which may be required thereon and (B) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such shares of Andrx Common Stock or Cybear
Tracking Common Stock, less the amount of any withholding taxes which may be
required thereon.
(ii) All shares of the Andrx Common Stock or Cybear Tracking Common
Stock issued upon surrender of Certificates in accordance with this Section 2
shall be deemed to be in full satisfaction of all rights pertaining to the
shares of Andrx Capital Stock or Cybear Capital Stock represented thereby, and
from and after the Effective Time, there shall be no transfers on the stock
transfer books of Andrx or Cybear of the shares of Andrx Capital Stock or Cybear
Capital Stock, respectively. If, after the Effective Time, certificates
representing any such shares are presented to the Andrx Surviving Corporation,
or the Cybear Surviving Corporation, they shall be canceled and exchanged for
certificates for the consideration, if any, deliverable in respect thereof
pursuant to this Agreement in accordance with the procedures set forth in this
Section 2.
(iii) Upon demand by New Andrx, the Exchange Agent shall deliver to
New Andrx any portion of the New Andrx Common Stock or Cybear Tracking Common
Stock made available to the Exchange Agent pursuant to Section 2(n) hereof, and
cash in lieu of fractional shares thereof, that remains undistributed to holders
of Andrx Capital Stock or Cybear Capital Stock one year after the Effective
Time. Holders of Certificates who have not complied with this Section 2 prior to
such demand shall thereafter look only to New Andrx for payment of any claim to
such New Andrx Common Stock or Cybear Tracking Common Stock and dividends or
distributions, if any, in respect thereof.
(iv) Each of Andrx Surviving Corporation, Cybear Surviving
Corporation and New Andrx shall be entitled to deduct and withhold from the
Andrx Common
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Stock or Cybear Tracking Common Stock (and any dividends or distributions
thereon), otherwise payable hereunder, to any person such amounts as it is
required to deduct and withhold with respect to making of such payment under any
provision of federal, state, local or foreign income tax law. To the extent that
the Andrx Surviving Corporation, Cybear Surviving Corporation or New Andrx so
withholds those amounts, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of Andrx Capital Stock or
Cybear Capital Stock in respect of which such deduction and withholding was made
by the Andrx Surviving Corporation, Cybear Surviving Corporation or New Andrx,
as the case may be.
(p) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event that any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if required by New Andrx, the posting by such person of
a bond in such reasonable amount as New Andrx may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the applicable merger consideration and unpaid dividend and
distributions on shares of Andrx Common Stock or Cybear Tracking Common Stock
deliverable in respect thereof pursuant to this Agreement.
(q) TAX CONSEQUENCES. It is intended by the parties hereto that the
Andrx Merger shall constitute a reorganization within the meaning of Section
368(a)(1)(A) and (a)(2)(E) of the Code. The parties hereto adopt this Agreement
as a "plan of reorganization" within the meaning of Section 1.368-2(g) and
1.368-3(a) of the United States Income Tax Regulations. It is intended by the
parties hereto that the exchange of shares pursuant to the Cybear Merger shall
constitute a tax-free exchange pursuant to Section 351(a) of the Code.
3. REPRESENTATIONS AND WARRANTIES OF CYBEAR. Cybear represents and warrants
to Andrx, New Andrx and Merger Subs that the statements contained in this
Section 3 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Section 3), except as disclosed in or contemplated by the Cybear Public Reports
or as set forth on the disclosure schedule accompanying this Agreement and
initialed by the Parties (the "Disclosure Schedule"). The Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this Section 3.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Each of Cybear
and its Subsidiaries is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation. Each of
Cybear and its Subsidiaries is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a material
adverse effect on the business, operations, results of operations, assets,
liabilities or financial condition of Cybear and its Subsidiaries taken as a
whole or on the ability of the Parties to consummate the transactions
contemplated by this Agreement (a "Cybear Material Adverse Effect"). Each of
Cybear and its Subsidiaries has full corporate power and authority to carry on
the businesses in which it is engaged and to own and use the properties owned
and used by it.
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(b) CAPITALIZATION. The entire authorized capital stock of Cybear
consists of 25,000,000 shares of Cybear Common Stock, of which 17,772,537 shares
of Cybear Common Stock are issued and outstanding, and 2,000,000 shares of
preferred stock, par value $.01 per share, none of which is issued and
outstanding. All of the issued and outstanding shares of Cybear Common Stock
have been duly authorized and are validly issued, fully paid, and nonassessable.
There are no outstanding or authorized purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments that could
require Cybear to issue, sell, or otherwise cause to become outstanding any of
its capital stock.
(c) AUTHORIZATION OF TRANSACTION. Cybear has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder; PROVIDED, HOWEVER, that
Cybear cannot consummate the Cybear Merger unless and until it receives the
Required Cybear Stockholder Vote. This Agreement constitutes the valid and
legally binding obligation of Cybear, enforceable in accordance with its terms
and conditions.
(d) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of Cybear and its Subsidiaries is
subject or any provision of the charter or bylaws of any of Cybear and its
Subsidiaries or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument or other arrangement to which
any of Cybear and its Subsidiaries is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets), except where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation, or failure to
give notice would not have a Cybear Material Adverse Effect. Other than in
connection with the provisions of the DGCL, the Securities Exchange Act, the
Securities Act, and the state securities laws, and the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), none of Cybear
and its Subsidiaries are required to give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
(e) FILINGS WITH THE SEC. Cybear has made all filings with the SEC that
it has been required to make under the Securities Act and the Securities
Exchange Act (collectively, the "Cybear Public Reports"). Each of the Cybear
Public Reports has complied in all material respects with the Securities Act and
the Securities Exchange Act in effect as of their respective dates. None of the
Cybear Public Reports, as of their respective dates, contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading. Cybear has delivered to Andrx a correct
and complete copy of each Cybear Public Report (together with all exhibits and
schedules thereto and as amended to date).
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(f) FINANCIAL STATEMENTS.
(i) The audited financial statements included in Cybear's Annual
Report on Form 10-K for the year ended December 31, 1998 (including the related
notes and schedules) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly the
financial condition of Cybear and its Subsidiaries as of the indicated dates and
the results of operations of Cybear and its Subsidiaries for the indicated
periods, are correct and complete in all material respects, and are consistent
with the books and records of Cybear and its Subsidiaries.
(ii) The unaudited financial statements included in Cybear's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 (the
"Most Recent Cybear Fiscal Period End"), as of the date thereof, comply in all
material respects with the Securities Exchange Act and the rules and regulations
of the SEC promulgated thereunder, present fairly the results of operations of
Cybear and its Subsidiaries for the periods covered, and are correct and
complete in all material respects.
(g) EVENTS SUBSEQUENT TO MOST RECENT CYBEAR FISCAL PERIOD END. Since
the Most Recent Fiscal Period End, there has not been any change which would
have a Cybear Material Adverse Effect.
(h) UNDISCLOSED LIABILITIES. Neither Cybear nor any of its Subsidiaries
has any obligations or liabilities (contingent or otherwise) except obligations
and liabilities (i) that are fully accrued or provided for in all material
respects in the consolidated balance sheet of Cybear as of the Most Recent
Cybear Fiscal Period End in accordance with GAAP, or disclosed in the notes
therein in accordance with GAAP or (ii) that were incurred after the Most Recent
Cybear Fiscal Period End in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
law). All material agreements currently in effect, including all material
agreements, arrangements or understandings with directors and officers of
Cybear, are filed as Exhibits to Cybear Public Reports.
(i) BROKERS' FEES. None of Cybear or its Subsidiaries has any liability
or obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement for which New
Andrx or Andrx could become liable or obligated except for fees to be paid to SG
Cowen Securities Corporation.
(j) DISCLOSURE. The S-4 Registration Statement and the Joint Proxy
Statement will comply with the Securities Exchange Act in all material respects.
The S-4 Registration Statement and the Joint Proxy Statement will not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they will be made, not misleading; PROVIDED, HOWEVER,
that Cybear makes no representation or warranty with respect to any information
that New Andrx or Andrx will supply specifically for use in the S-4 Registration
Statement and the Joint Proxy Statement. None of the information that Cybear
will supply specifically for use in the S-4 Registration Statement or the Joint
Proxy Statement will contain any untrue statement of a
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material fact or omit to state a material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they will
be made, not misleading.
(k) LITIGATION. Cybear is not (i) subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) a party to or, to
the Knowledge of any directors or executive officers of Cybear, threatened to be
made a party to, any action, suit, proceeding, hearing, or investigation of, in,
or before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator which would have
a Cybear Material Adverse Effect.
(l) OPINION OF FINANCIAL ADVISOR. Cybear has received the opinion of SG
Cowen Securities Corporation ("SG Cowen") to the effect that, as of the date
hereof, the consideration to be received by the stockholders of Cybear in the
Cybear Merger is fair to such holders from a financial point of view and a
complete and correct signed copy of such opinion has been, or promptly upon
receipt thereof, will be delivered to Cybear.
(m) WAIVER OF CHANGE IN CONTROL PROVISIONS. The officers of Cybear and
its Subsidiaries have agreed that for purposes of their employment agreements,
the entering of this Agreement or the consummation of the Mergers shall not be
deemed to be a "Change in Control" as such term is defined in their employment
agreements.
4. REPRESENTATIONS AND WARRANTIES OF ANDRX. Andrx hereby represents and
warrants to Cybear that the statements contained in this Section 4 are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4), except as
disclosed in or contemplated by the Andrx Public Reports or as set forth in the
Disclosure Schedule. The Disclosure Schedule will be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Section
4.
(a) ORGANIZATION OF ANDRX AND SUBSIDIARY CORP. Andrx is a corporation
duly organized and validly existing under the laws of the jurisdiction of its
incorporation. Andrx is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a material
adverse effect on the business, operations, results of operations, assets,
liabilities or financial condition of Andrx taken as a whole or on the ability
of the Parties to consummate the transactions contemplated by this Agreement (an
"Andrx Material Adverse Effect"). Andrx has full corporate power and authority
to carry on the businesses in which it is engaged and to own and use the
properties owned and used by it.
(b) CAPITALIZATION. The entire authorized capital stock of the Andrx
consists of 50,000,000 shares of Andrx Common Stock, of which 31,737,192 shares
of Andrx Common Stock are issued and outstanding (without giving effect to a two
for one stock split in the form of a stock dividend declared on February 29,
2000), and 1,000,000 shares of preferred stock, par value $.001 per share, none
of which are issued and outstanding. There are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require Andrx to
issue, sell, or otherwise cause to become outstanding any of its capital stock.
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<PAGE>
(c) AUTHORIZATION OF TRANSACTION. Andrx has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder; provided, however, that
Andrx cannot consummate the Andrx Merger unless and until it receives the
Required Andrx Shareholder Vote. This Agreement constitutes the valid and
legally binding obligation of Andrx, enforceable in accordance with its terms
and conditions.
(d) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Andrx is subject or any provision of the
charter or bylaws of Andrx or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument or other arrangement
to which Andrx is a party or by which it is bound or to which any of its assets
is subject, except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, or failure to give notice would not
have an Andrx Material Adverse Effect. Other than in connection with the
provisions of the DGCL, FBCA, the Securities Exchange Act, the Securities Act,
and the state securities laws and the HSR Act, Andrx is not required to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(e) FILINGS WITH THE SEC. Andrx has made all filings with the SEC that
it has been required to make under the Securities Act and the Securities
Exchange Act (collectively, the "Andrx Public Reports"). Each of the Andrx
Public Reports has complied in all material respects with the Securities Act and
the Securities Exchange Act in effect as of their respective dates. None of the
Andrx Public Reports, as of their respective dates, contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
(f) FINANCIAL STATEMENTS.
(i) The audited financial statements included in Andrx' Annual
Report on Form 10-K for the fiscal year ended December 31, 1998 (including the
related notes and schedules) have been prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby, present fairly the
financial condition of Andrx and its Subsidiaries as of the indicated dates and
the results of operations of Andrx and its Subsidiaries for the indicated
periods, are correct and complete in all material respects, and are consistent
with the books and records of Andrx and its Subsidiaries.
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<PAGE>
(ii) The unaudited financial statements included in Andrx'
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 (the
"Most Recent Andrx Fiscal Period End"), as of the date thereof, complies in all
material respects with the Securities Exchange Act and the rules and regulations
of the SEC promulgated thereunder, present fairly the results of operations of
Andrx and its Subsidiaries for the periods covered, and is correct and complete
in a material respects.
(g) EVENTS SUBSEQUENT TO MOST RECENT ANDRX FISCAL PERIOD END. Since the
Most Recent Andrx Fiscal Period End, there has not been any change which would
have an Andrx Material Adverse Effect.
(h) UNDISCLOSED LIABILITIES. Andrx does not have any obligations or
liabilities (contingent or otherwise) except obligations and liabilities (i)
that are fully accrued or provided for in all material respects in the
consolidated balance sheet of Andrx as of the Most Recent Andrx Fiscal Period
End in accordance with GAAP, or disclosed in the notes therein in accordance
with GAAP or (ii) that were incurred after the Most Recent Andrx Fiscal Period
End in the Ordinary Course of Business (none of which results from, arises out
of, relates to, is in the nature of, or was caused by any breach of contract,
breach of warranty, tort, infringement, or violation of law). All material
agreements currently in effect, including all agreements, arrangements or
understandings with directors and officers of Andrx are filed as Exhibits to the
Andrx Public Reports.
(i) BROKERS' FEES. Andrx does not have any liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any of Cybear and its
Subsidiaries could become liable or obligated except for fees to be paid to
Credit Suisse First Boston Corporation.
(j) DISCLOSURE. The S-4 Registration Statement and the Joint Proxy
Statement will comply with the Securities Act and the Securities Exchange Act in
all material respects. The S-4 Registration Statement and the Joint Proxy
Statement will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they will be made, not misleading,
PROVIDED, HOWEVER, that Andrx makes no representation or warranty with respect
to any information that Cybear will supply specifically for use in the S-4
Registration Statement and the Joint Proxy Statement. None of the information
that Andrx will supply specifically for use in the S-4 Registration Statement or
the Joint Proxy Statement will contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they will be made, not
misleading.
(k) LITIGATION. Andrx is not (i) subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) a party to or, to the
Knowledge of any directors or executive officers of Andrx, threatened to be made
a party to, any action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator which would have
an Andrx Material Adverse Effect.
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<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF NEW ANDRX AND MERGER SUBS. Each of New
Andrx and the Merger Subs hereby, jointly and severally, represent and warrant
to Cybear that the statements contained in this Section 5 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 5), except as
set forth in the Disclosure Schedule. The Disclosure Schedule will be arranged
in paragraphs corresponding to the numbered and lettered paragraphs contained in
this Section 5.
(a) ORGANIZATION OF NEW ANDRX AND MERGER SUBS. Each of New Andrx and
the Merger Subs is a corporation duly organized and validly existing under the
laws of the jurisdiction of its incorporation. Each of New Andrx and the Merger
Subs is duly authorized to conduct business and is in good standing under the
laws of each jurisdiction where such qualification is required, except where the
lack of such qualification would not have a material adverse effect on the
business, operations, results of operations, assets, liabilities or financial
condition of New Andrx and the Merger Subs taken as a whole or on the ability of
the Parties to consummate the transactions contemplated by this Agreement (a
"New Andrx Material Adverse Effect"). Each of New Andrx and the Merger Subs has
full corporate power and authority to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it.
(b) CAPITALIZATION. The authorized capital stock of New Andrx at the
Effective Time is as set forth in Exhibit B-1. All of the New Andrx Common Stock
and Cybear Tracking Common Stock to be issued in the Mergers has been duly
authorized and, upon consummation of the Mergers, will be validly issued, fully
paid, and nonassessable. Except as contemplated by this Agreement, there are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require New Andrx to issue, sell, or otherwise cause to become
outstanding any of its capital stock.
(c) AUTHORIZATION OF TRANSACTION. Each of New Andrx and the Merger Subs
has full power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of New Andrx
and the Merger Subs, enforceable in accordance with its terms and conditions.
(d) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which New Andrx is subject or any provision of
the charter or bylaws of New Andrx or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument or other arrangement
to which New Andrx is a party or by which it is bound or to which any of its
assets is subject, except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, or failure to give notice
would not have a New Andrx Material Adverse Effect. Other than in connection
with the provisions of the DGCL, FBCA, the Securities Exchange Act, the
Securities Act, and the state securities laws and the HSR
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<PAGE>
Act, New Andrx is not required to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order for the Parties to consummate the transactions contemplated by
this Agreement.
(e) UNDISCLOSED LIABILITIES. Neither New Andrx nor the Merger Subs has
any obligations or liabilities (contingent or otherwise) except obligations and
liabilities of any nature other than those incurred or to be incurred in
connection with the Merger and the transactions related thereto and/or
contemplated pursuant hereto and which have not had and are not reasonably
likely to have a New Andrx Material Adverse Effect.
(f) BROKERS' FEES. New Andrx has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any of Cybear and its
Subsidiaries could become liable or obligated.
(g) DISCLOSURE. The S-4 Registration Statement and the Joint Proxy
Statement will comply with the Securities Act and the Securities Exchange Act in
all material respects. The S-4 Registration Statement and the Joint Proxy
Statement will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they will be made, not misleading,
PROVIDED, HOWEVER, that New Andrx makes no representation or warranty with
respect to any information that Cybear will supply specifically for use in the
S-4 Registration Statement and the Joint Proxy Statement. None of the
information that New Andrx will supply specifically for use in the S-4
Registration Statement or the Joint Proxy Statement will contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made therein, in the light of the circumstances under
which they will be made, not misleading.
(h) LITIGATION. Neither New Andrx nor the Merger Subs is (i) subject to
any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) a
party to or, to the Knowledge of any directors or executive officers of New
Andrx or the Merger Subs, threatened to be made a party to, any action, suit,
proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator.
6. COVENANTS. The Parties agree as follows with respect to the period from
and after the execution of this Agreement through the earlier of Closing or
termination of this Agreement.
(a) GENERAL. Each of the Parties will use its reasonable best efforts
to take all action and to do all things necessary, proper, or advisable in order
to consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 7 below).
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<PAGE>
(b) NOTICES AND CONSENTS. The Parties will give any notices (and will
cause each of its Subsidiaries to give any notices) to third parties, and will
use their reasonable best efforts to obtain (and will cause each of their
Subsidiaries to use their reasonable best efforts to obtain) any required third
party consents, or those reasonably requested by the other Party in connection
with the matters referred to herein.
(c) REGULATORY MATTERS AND APPROVALS. Each of the Parties will (and
Cybear will cause each of its Subsidiaries to) give any notices to, make any
filings with, and use its reasonable best efforts to obtain any authorizations,
consents, and approvals of governments and governmental agencies in connection
with the matters referred to in Section 3(d), Section 4(d) and Section 5(c)
above. Without limiting the generality of the foregoing:
(i) SECURITIES ACT, SECURITIES EXCHANGE ACT, AND STATE SECURITIES
LAWS. As soon as practicable after the execution of this Agreement, New Andrx
and Andrx shall, with the assistance and cooperation of Cybear, prepare and
cause to be filed with the SEC a joint proxy statement (the "Joint Proxy
Statement") and a S-4 Registration Statement (the "S-4 Registration Statement").
Each of New Andrx, Andrx and Cybear shall use all reasonable efforts to cause
the S-4 Registration Statement and the Joint Proxy Statement to comply with
applicable law and the rules and regulations promulgated by the SEC and all
other applicable federal and state securities law requirements, to respond
promptly to any comments of the SEC or its staff and to have the S-4
Registration Statement declared effective under the Securities Act as promptly
as practicable after it is filed with the SEC. New Andrx, Andrx and Cybear shall
use all reasonable efforts to cause the Joint Proxy Statement to be mailed to
their respective stockholders as promptly as practicable after the S-4
Registration Statement is declared effective under the Securities Act. Each of
New Andrx, Andrx or Cybear hereto shall promptly furnish to the other party all
information concerning itself, its stockholders and its affiliates that may be
required or reasonably requested in connection with any action contemplated by
this Section 6(c). If any event relating to New Andrx, Andrx or Cybear occurs,
or if New Andrx, Andrx or Cybear becomes aware of any information, that should
be disclosed in an amendment or supplement to the S-4 Registration Statement or
the Joint Proxy Statement, then New Andrx, Andrx or Cybear, as applicable, shall
inform the other thereof and shall cooperate with each other in filing such
amendment or supplement with the SEC and, if appropriate, in mailing such
amendment or supplement to the stockholders of Andrx and Cybear. Each of New
Andrx, Andrx and Cybear will notify the other promptly upon the receipt of any
comments from the SEC or its staff or any other government officials and of any
request by the SEC or its staff or any other government officials for amendments
or supplements to the S-4 Registration Statement or the Joint Proxy Statement or
for additional information and will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government officials, on the other
hand, with respect to the S-4 Registration Statement, the Joint Proxy Statement
or the Merger. The Joint Proxy Statement shall include (A) the recommendations
of the Board of Directors of Cybear and the Special Committee in favor of this
Agreement, the Merger and the transactions contemplated hereby; and (B) the
recommendation of the Board of Directors of Andrx in favor of approval of this
Agreement, the Merger, and the transactions contemplated hereby. Neither New
Andrx, Andrx nor Cybear shall take any action inconsistent with such
recommendation.
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<PAGE>
(ii) APPROVALS. Prior to the Effective Time, New Andrx shall use
reasonable efforts to obtain all regulatory or other approvals needed to ensure
that the New Andrx Common Stock and Cybear Tracking Common Stock to be issued in
the Merger: (A) will be registered or qualified under the securities law of
every jurisdiction of the United States in which any registered holder of Andrx
Common Stock or Cybear Common Stock, who is receiving shares of registered New
Andrx Common Stock and/or Cybear Tracking Common Stock has an address of record
or be exempt from such registration and (B) will be approved for quotation at
the Effective Time on the Nasdaq National Market; provided, however, that New
Andrx shall not, pursuant to the foregoing, be required (i) to qualify to do
business as a foreign corporation in any jurisdiction in which it is not now
qualified or (ii) to file a general consent to service of process in any
jurisdiction with respect to matters unrelated to the issuance of the New Andrx
Common Stock or Cybear Tracking Common Stock pursuant hereto.
(iii) S-4 REGISTRATION STATEMENT AND JOINT PROXY STATEMENT. Each
of the Parties (in respect of the information respectively supplied by it)
agrees that: (A) none of the information to be supplied by it or its affiliates
for inclusion in the S-4 Registration Statement will, at the time the S-4
Registration Statement becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading; (B) none
of the information to be supplied by it or its affiliates for inclusion in the
Joint Proxy Statement will, at the time Cybear's Proxy Statement is mailed to
the stockholders of Cybear or as of the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading and (iii) as to
matters respecting it, the Joint Proxy Statement and the S-4 Registration
Statement will comply as to form in all material respects with the provisions of
the Securities Act and the Securities Exchange Act, as applicable, and the rules
and regulations promulgated by the SEC thereunder, except that no covenant,
representation or warranty is made by Cybear with respect to statements made or
incorporated by reference therein based on information supplied by New Andrx or
Andrx for inclusion or incorporation by reference therein and no covenant,
representation or warranty is made by New Andrx or Andrx with respect to
statements made or incorporated by reference therein based on information
supplied by Cybear for inclusion or incorporation by reference therein.
(iv) CYBEAR STOCKHOLDER MEETING. Cybear shall promptly after the
date hereof take all action necessary in accordance with applicable law and its
Amended and Restated Certificate of Incorporation and Bylaws to hold and convene
a meeting of Cybear's stockholders (the "Cybear Stockholders Meeting") as soon
as practicable following the date the S-4 Registration Statement is declared
effective by the SEC. Except as required by the SEC or applicable court order
and except as may be required in order to amend or supplement the S-4
Registration Statement or Joint Proxy Statement, Cybear shall not postpone or
adjourn (other than for the absence of a quorum) the Cybear Stockholders Meeting
without the consent of Andrx. Cybear shall take all other action necessary or
advisable to secure the Required Cybear Stockholder Vote.
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<PAGE>
(v) ANDRX STOCKHOLDER MEETING. Andrx shall promptly after the date
hereof take all action necessary in accordance with applicable law and its
Second Amended and Restated Articles of Incorporation and Bylaws to hold and
convene a meeting of Andrx' stockholders (the "Andrx Stockholders Meeting") as
soon as practicable following the date the S-4 Registration Statement is
declared effective by the SEC. Except as required by the SEC or applicable court
order, Andrx shall not postpone or adjourn (other than for the absence of a
quorum) Andrx Stockholders Meeting without the consent of Cybear. Andrx shall
take all other action necessary or advisable to secure the Required Andrx
Stockholder Vote.
(vi) HSR AND OTHER FILINGS; REASONABLE EFFORTS. As soon as may be
reasonably practicable, the Parties shall file with the FTC and the DOJ
Notification and Report Forms relating to the transactions contemplated herein
as required by the HSR Act, as well as comparable pre-merger notification forms
required by the merger notification or control laws and regulations of any
applicable jurisdiction, as agreed to by the Parties. The Parties shall promptly
(A) supply the other with any information which may be required in order to
effectuate such filings and (B) supply any additional competition or merger
control authorities of any other jurisdiction and which the parties may
reasonably deem appropriate.
(d) OPERATION OF BUSINESS. Cybear will not (and will not cause or
permit any of its Subsidiaries to) engage in any practice, take any action, or
enter into any transaction outside the Ordinary Course of Business without the
prior written consent of New Andrx and Andrx. Without limiting the generality of
the foregoing:
(i) none of Cybear and its Subsidiaries will authorize or effect
any change in its charter or bylaws;
(ii) none of Cybear and its Subsidiaries will grant any options,
warrants, or other rights to purchase or obtain any of its capital stock or
issue, sell, or otherwise dispose of any of its capital stock (except upon the
conversion or exercise of options, warrants, and other rights currently
outstanding);
(iii) none of Cybear and its Subsidiaries will declare, set aside,
or pay any dividend or distribution with respect to the Cybear Capital Stock
(whether in cash or in kind), or split, combine, reclassify, redeem, repurchase,
or otherwise acquire, directly or indirectly, Cybear Capital Stock;
(iv) none of Cybear and its Subsidiaries will issue any note, bond,
or other debt security or create, incur, assume, or guarantee any indebtedness
for borrowed money or capitalized lease obligation outside the Ordinary Course
of Business;
(v) none of Cybear and its Subsidiaries will impose any Security
Interest upon any of its assets outside the Ordinary Course of Business;
(vi) none of Cybear and its Subsidiaries will make any capital
investment in, make any loan to, or acquire the securities or assets of any
other Person outside the Ordinary Course of Business;
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<PAGE>
(vii) none of Cybear and its Subsidiaries will make any change in
employment terms for any of its directors or executive officers, or enter into
any other arrangement or agreement with directors or executive officers, and
none of Cybear and its Subsidiaries will make any change in employment terms for
any of its employees outside the Ordinary Course of Business;
(viii) none of Cybear and its Subsidiaries will sell or transfer
to any Person any material rights to Cybear's intellectual property, purchase
any material right to intellectual property or enter into any material license
agreement with any Person with respect to Cybear's intellectual property outside
the Ordinary Course of Business; and
(ix) none of Cybear and its Subsidiaries will commit to any of
the foregoing.
(e) FULL ACCESS. Cybear will (and will cause each of its Subsidiaries
to) permit representatives of New Andrx and Andrx to have full access to all
premises, properties, personnel, books, records (including tax records),
contracts, and documents of or pertaining to each of Cybear and its
Subsidiaries. New Andrx and Andrx will (and will cause each of its employees and
agents to) treat and hold as such any Confidential Information it receives from
any of Cybear and its Subsidiaries in the course of the reviews contemplated by
this Section 6(e), will not use any of the Confidential Information except in
connection with this Agreement, and, if this Agreement is terminated for any
reason whatsoever, agrees to return to Cybear all tangible embodiments (and all
copies) thereof which are in its possession. The provisions of this Section 6(e)
relating to the Confidential Information will survive any termination of this
Agreement.
(f) NOTICE OF DEVELOPMENTS. Each Party will give prompt written notice
to the other of any material adverse development causing a breach of any of its
own representations and warranties in Section 3, Section 4 and Section 5 above.
No disclosure by any Party pursuant to this Section 6(f), however, shall be
deemed to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) INSURANCE AND INDEMNIFICATION.
For a period of six years after the Effective Time, New Andrx shall
indemnify, defend and hold harmless to the fullest extent permitted under
applicable law each person who is now or has been an officer, director,
employee, trustee or agent of Andrx or Cybear (or any subsidiary or division
thereof), including, without limitation, each person controlling any of the
foregoing persons (individually, an "Indemnified Party" and collectively, the
"Indemnified Parties,") against all losses, claims, damages, liabilities, costs
or expenses (including reasonable attorneys' fees), judgments, fines, penalties
and amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation arising out of or pertaining to acts or omissions,
or alleged acts or omissions, by them in their capacities as such, whether
commenced, asserted or claimed before or after the Effective Time. In the event
of any such claim, action, suit, proceeding or investigation (an "Action"), (A)
New Andrx shall pay the reasonable fees and expenses of counsel selected by the
Indemnified Party, which counsel shall be reasonably acceptable to New Andrx in
advance of the final disposition of any such Action to the full extent and under
all circumstances permitted by applicable law as in effect on the date hereof,
upon
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<PAGE>
receipt of any undertaking required by applicable law, and (B) New Andrx
will cooperate in the defense of any such matter; provided, however, that New
Andrx shall not be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withhold) and provided,
further, that New Andrx shall not be obligated pursuant to this Section to pay
the fees and disbursements of more than one counsel for all Indemnified Parties
in any single Action, except to the extent that, in the opinion of counsel for
the Indemnified Parties, two or more of such Indemnified Parties have
conflicting interests in the outcome of such action. New Andrx may obtain
directors' and officers' liability insurance covering its obligations under this
Section.
(h) EXPENSES. Except as set forth in Section 8, whether or not the
Merger is consummated, all fees and expenses incurred in connection with the
Merger, including, without limitation, all legal, accounting, financial
advisory, consulting and all other fees and expenses of third parties ("Third
Party Expenses") incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby, shall be the obligation of the respective party incurring
such fees and expenses; provided, however, that Andrx and Cybear shall share
equally in all fees and expenses, other than Third Party Expenses, incurred in
relation to the filing and printing of the S-4 Registration Statement and the
Joint Proxy Statement (including any preliminary materials related thereto).
(i) ASSUMPTION OF ANDRX OPTION PLAN AND CYBEAR OPTION PLAN; FORM S-8;
EMPLOYEE PLANS.
(i) At the Effective Time, New Andrx shall assume all outstanding
Andrx Options and Cybear Options under the Andrx Option Plan (and shall assume
the Andrx Option Plan) and Cybear Option Plan (and shall assume the Cybear
Option Plan), respectively, and agrees to file promptly after the Closing, a
registration statement on Form S-8 covering the shares of New Andrx Common Stock
and Cybear Tracking Common Stock issuable pursuant to outstanding Andrx Options
and Cybear Options granted under the Andrx Option Plan and Cybear Option Plan,
respectively. Andrx and Cybear shall cooperate with and assist New Andrx in the
preparation of such registration statement.
(ii) Following the Effective Time, New Andrx shall cause each
"employee benefit plan" (as defined in section 3(3) of ERISA) maintained by New
Andrx or affiliates of New Andrx that covers or will cover employees of Andrx or
Cybear or their Subsidiaries who are active at the Effective Time (the
"Employees") to recognize all service, for purposes of eligibility and vesting
of benefits (but not for benefit accrual purposes), that is credited to
Employees for Subsidiaries as of the Effective Time. Following the Effective
Time, New Andrx shall cause each "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA) covering Employees (A) to reduce each eligible employee's
(and their eligible dependents') annual deductible limits under such plans for
the plan year in which the Effective Time occurs to the extent the comparable
benefit plans covering the Employees immediately prior to the Effective Time and
(B) to waive any pre-existing condition limitations or exclusions that do not
apply to Employees immediately prior to the Effective Time.
(iii) Prior to the Effective Time, the Boards of Directors of
Andrx and Cybear shall take such actions, including obtaining all necessary
individual consents, as shall
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<PAGE>
ensure that the Andrx Options (and the Andrx Option Plan) and the Cybear Options
(and the Cybear Option Plan) may be assumed by New Andrx in accordance with
Section 2 hereof and will not have their vesting accelerated as a result of the
consummation of the Merger and the transactions contemplated hereby.
(j) CERTAIN TAX MATTERS.
(i) RETURN FILING; INFORMATION SHARING UNTIL THE CLOSING DATE:
(A) Andrx and Cybear shall prepare and file, or cause to be
prepared and filed, with the appropriate governmental authority all federal tax
returns and all material state, local and foreign tax returns required to be
filed (with extensions) by or with respect to Andrx and the Andrx Subsidiaries
and Cybear and the Cybear Subsidiaries, respectively, on or prior to the Closing
Date;
(B) Andrx and Cybear agree that it will, and will cause its
affiliates to, make available all such information, employees and records of or
relating to Andrx and the Andrx Subsidiaries and Cybear and the Cybear
Subsidiaries, respectively, as New Andrx may request with respect to matters
relating to Taxes (including, without limitation, the right to make copies of
such information and records) and will cooperate with respect to all matters
relating to Taxes (including, without limitation, the filing of tax returns, the
filing of an amended tax return, audits, and proceedings); and
(C) If any of Andrx and the Andrx Subsidiaries and Cybear or
any Cybear Subsidiary or affiliate thereof receives any written notice from any
Tax authority proposing any audit or adjustment to any Tax relating to Andrx or
any Andrx Subsidiaries or Cybear or any Cybear Subsidiary or affiliates thereof,
or such Cybear Subsidiary or affiliates shall give prompt written notice thereof
to Andrx, which notice shall describe in detail each proposed adjustment.
(ii) CERTAIN TAX OPINIONS.
(A) New Andrx and Andrx, jointly and severally, each
represent, warrant and covenant that they have received an opinion of Arthur
Andersen LLP issued for the sole reliance of New Andrx and Andrx, in form and
substance satisfactory to New Andrx and Andrx, that the Andrx Merger, if
consummated in accordance with this Agreement, should qualify as a
reorganization within the meaning of Code Section 368(a) as in effect as of the
date hereof (the "Andrx Initial Tax Opinion") and that the exchange of shares
pursuant to the Cybear Merger should qualify for tax-free treatment pursuant to
Section 351(a).
(B) Cybear represents, warrants and covenants that it has
received an opinion of Arthur Andersen LLP (the "Cybear Initial Tax Opinion"),
issued for the sole reliance of Cybear, in form and substance satisfactory to
Cybear, that the exchange of shares pursuant to the Cybear Merger, if
consummated in accordance with this Agreement and in connection with the Andrx
Merger should qualify as a tax-free exchange within the meaning of Code Section
351(a) as in effect as of the date hereof.
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<PAGE>
(C) New Andrx, Andrx and Cybear shall cooperate in causing
the Andrx Merger to qualify as a tax-free reorganization under Code Section
368(a) and shall treat the Andrx Merger as such a reorganization in which no
other property or money (within the meaning of Code Section 356) is received by
Andrx stockholders for all Tax purposes, including the reporting of the Andrx
Merger as qualifying as such a reorganization on all relevant federal, state,
local and foreign tax returns. New Andrx, Andrx and Cybear shall cooperate in
causing the exchange of shares pursuant to the Cybear Merger to qualify as a
tax-free exchange under Code Section 351(a) and shall treat the exchange as one
in which no other property or money (within the meaning of Code Section 351(b)
is received by the Cybear stockholders for all Tax purposes, including the
reporting of the Cybear Merger as qualifying as a tax-free Section 351(a)
exchange on all relevant federal, state, local and foreign tax returns. New
Andrx, Andrx and Cybear covenant and agree to (and to cause any affiliate or
successor to their assets or business to) vigorously and in good faith defend
all challenges to the tax-free status of the Mergers.
(iii) TAX COVENANTS. New Andrx, Andrx and Cybear covenant to each
other that none of New Andrx, Andrx, Cybear or any of their respective
subsidiaries has taken (or will take) any action inconsistent with the
qualification of the Andrx Merger as a tax-free reorganization under Code
Section 368(a) (or has failed, or will fail to take, any action necessary for
the Andrx Merger to so qualify), including, without limitation, any action
inconsistent with any representation, warranty, or covenant made or to be made
in connection with opinions to be delivered pursuant to Sections 6(a) or 6(b)
hereof. New Andrx, Andrx and Cybear covenant to each other that none of New
Andrx, Andrx, Cybear or any of their respective subsidiaries has taken (or will
take) any action inconsistent with the qualification of the Cybear Merger
qualifying as a tax-free, share-for-share exchange pursuant to Code Section
351(a) (or has failed, or will fail to take, any action necessary for the Cybear
Merger to so qualify), including, without limitation, any action inconsistent
with any representation, warranty, or covenant made or to be made in connection
with opinions to be delivered pursuant to Sections 6(a) or 6(b) hereof. In
addition, New Andrx, Andrx and Cybear each agree that in the event such party
becomes aware of any such fact or circumstance that is reasonably likely to
prevent either the Andrx Merger or the Cybear Merger from qualifying for
tax-free treatment described herein, it will promptly notify the other party in
writing.
(k) NO SOLICITATION. Cybear and its Subsidiaries and the officers,
directors, employees, agents, representatives and advisors of Cybear and its
Subsidiaries (collectively, the "Representatives") will not, directly or
indirectly, (i) take any action to solicit, initiate, encourage (including by
way of furnishing information) or take any other action designed to facilitate
or agree to any Takeover Proposal or (ii) subject to the next three sentences,
engage in negotiations with, or disclose any nonpublic information relating to
Cybear or its Subsidiaries to, or afford access to the properties, books or
records of Cybear or any of its Subsidiaries to, any person that has advised
Cybear that it may be considering making, or that has made, a Takeover Proposal,
or whose efforts to formulate a Takeover Proposal would be assisted thereby;
provided, nothing herein shall prohibit Cybear's Board of Directors from taking
and disclosing to its stockholders a position with respect to an unsolicited
tender offer pursuant to Rules 14d-9 and 14e-2 promulgated under the Securities
Exchange Act. Notwithstanding the immediately preceding sentence, if an
unsolicited Takeover Proposal shall be received by the Board of Directors of
Cybear, then, to the extent the Board of Directors of Cybear believes in good
faith (after receiving written advice from its financial advisor) that such
Takeover Proposal is reasonably
27
<PAGE>
capable of being consummated and would, if consummated, result in a transaction
more favorable to Cybear's Stockholders from a financial point of view than the
transaction contemplated by this Agreement (any such more favorable Takeover
Proposal being referred to in this Agreement as a "Superior Proposal") and the
Board of Directors of Cybear determines in good faith that it is necessary for
the Board of Directors of Cybear to further entertain and consider the Superior
Proposal in order to comply with its fiduciary duties to stockholders under
applicable law, Cybear and its Representatives may furnish information to the
party making such Superior Proposal and engage in negotiations with such party,
and such actions shall not be considered a breach of this Section 6(k) or any
other provisions of this Agreement; provided that in each such event Cybear
notified Andrx of such determination by Cybear's Board of Directors and has
delivered to the other party a true and complete copy of the Superior Proposal
(or summary of any oral proposal) received from such third party and all
documents containing or referring to non-public information of Cybear that are
supplied to such third party. Further, Cybear shall provide such non-public
information pursuant to a restrictive nondisclosure agreement. In addition,
Cybear shall not agree to or endorse, and shall not permit any of its officers,
directors, employees or other representatives to agree to or endorse, any
Takeover Proposal or withdraw its recommendation of this Agreement and the
Cybear Merger unless the Board of Directors of Cybear believes in good faith
(after receiving written advice from its financial advisors) that such action is
required in order for the Board of Directors to comply with its fiduciary duties
to stockholders under applicable law, Cybear has provided Andrx at least ten
business days prior notice thereof and within such ten business days Cybear has
not received a proposal from Andrx superior in value to the Superior Proposal as
determined by Cybear's Board of Directors acting in good faith consistent with
complying with its fiduciary duties to stockholders under applicable law, and
Cybear has terminated this Agreement pursuant to Section 8(a). Cybear will
promptly (and in any event within 24 hours) notify the other party after receipt
of any Takeover Proposal or any notice that any person is considering making a
Takeover Proposal or any request for non-public information relating to Cybear
or any of its subsidiaries or for access to the properties, books or records of
Cybear or any of its subsidiaries by any person that has advised Cybear that it
may be considering making, or that has made, a Takeover Proposal, or whose
efforts to formulate a Takeover Proposal would be assisted thereby (such notice
to include the identity of such person or persons), and will keep Andrx fully
informed of the status and details of any such Takeover Proposal notice, request
or any correspondence or communications related thereto and shall provide the
other party with a true and complete copy of such Takeover Proposal notice or
request or correspondence or communications related thereto, if it is in
writing, or a complete written summary thereof, if it is not in writing. Cybear
shall immediately cease and cause to be terminated any discussion or
negotiations with any persons conducted that may have existed with respect to a
Takeover Proposal prior to the execution of this Agreement.
(l) VOTING AGREEMENTS. Cybear shall use best efforts to obtain as
promptly as practicable (but in any event not later than March 25, 2000) for the
benefit of New Andrx, an agreement from Dr. Edward E. Goldman and John Klein
whereby they agree to vote in favor of this Agreement and the Cybear Merger. New
Andrx shall use best efforts to obtain as promptly as practicable (but in any
event not later than March 25, 2000) for the benefit of Cybear, an agreement
from Alan P. Cohen, Chih-Ming J. Chen and Elliot F. Hahn whereby they agree to
vote in favor of this Agreement and the Andrx Merger.
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<PAGE>
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF NEW ANDRX, ANDRX AND MERGER SUBS. The
obligation of New Andrx, Andrx and the Merger Subs to consummate the
transactions to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions:
(i) this Agreement and the Cybear Merger shall have received the
Required Cybear Stockholder Vote;
(ii) Cybear and its Subsidiaries shall have procured all of the
third party consents specified in Section 6(b) above;
(iii) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of the
Closing Date;
(iv) Cybear shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(v) no court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or arbitrator shall have enacted,
issued, promulgated, enforced or entered any injunction, judgment, order,
decree, ruling, or charge which would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
affect adversely the right of the Cybear Surviving Corporation to own the former
assets, to operate the former businesses, and to control the former Subsidiaries
of Cybear, or (D) affect adversely the right of any of the former Subsidiaries
of Cybear to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect);
(vi) Cybear shall have delivered to New Andrx a certificate signed
by Dr. Edward E. Goldman and Jack Greenman to the effect that each of the
conditions specified above in Section 7(a)(i)-(v) is satisfied in all respects;
(vii) the S-4 Registration Statement shall have become effective
under the Securities Act;
(viii) the New Andrx Common Stock and Cybear Tracking Common Stock
that will be issued in the Mergers shall have been approved for listing on the
Nasdaq National Market, subject to official notice of issuance;
(ix) This Agreement and the Andrx Merger shall have received the
Required Andrx Stockholder Vote;
(x) Andrx shall have received from Arthur Andersen LLP an opinion
(the "Andrx Closing Tax Opinion") to the effect that the Andrx Merger should
constitute a tax-free reorganization pursuant to Code Section 368(a)(1)(A)
addressed to Cybear and Andrx, and dated the Closing Date;
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<PAGE>
(xi) New Andrx and Cybear shall have entered into the Tax Sharing
Agreement attached hereto as Exhibit C (the "Tax Sharing Agreement"); and
(xii) all actions to be taken by Cybear in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to New
Andrx.
New Andrx, Andrx and the Merger Subs may waive any condition specified
in this Section 6(a) if it executes a writing so stating at or prior to the
Closing, except where such condition may not be waived as a matter of law.
(b) CONDITIONS TO OBLIGATION OF CYBEAR. The obligation of Cybear to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the S-4 Registration Statement shall have become effective
under the Securities Act;
(ii) This Agreement and the Andrx Merger shall have received the
Required Andrx Stockholder Vote;
(iii) the New Andrx Common Stock and Cybear Tracking Common Stock
that will be issued in the Merger shall have been approved for listing on the
Nasdaq National Market, subject to official notice of issuance;
(iv) the representations and warranties set forth in Section 4 and
above shall be true and correct in all material respects at and as of the
Closing Date;
(v) New Andrx, Andrx and the Merger Subs shall each have performed
and compiled with all of its covenants hereunder in all material respects
through the Closing;
(vi) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the right of the Andrx Surviving
Corporation, or the Cybear Surviving Corporation to own the former assets, to
operate the former businesses, and to control the former Subsidiaries of Cybear,
or (D) affect adversely the right of any of the former Subsidiaries of Cybear to
own its assets and to operate its businesses (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(vii) each of New Andrx and Andrx shall have delivered to Cybear a
certificate to the effect that each of the conditions specified above in Section
7(b)(i)-(vi) is satisfied in all respects;
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<PAGE>
(viii) this Agreement and the Cybear Merger shall have received the
Required Cybear Stockholder Vote;
(ix) Cybear shall have received from Arthur Andersen LLP an opinion
(the "Cybear Closing Tax Opinion") to the effect that the exchange of shares
pursuant to the Cybear Merger should constitute a tax-free exchange pursuant to
Code Section 351(a), addressed to Cybear and New Andrx, and dated the Closing
Date; and
(x) New Andrx and Cybear shall have entered into the Tax Sharing
Agreement;
(xi) The Board of Directors of New Andrx shall, among others,
consist of one person appointed by Cybear reasonably acceptable to Andrx upon
consummation of the Mergers;
(xii) New Andrx shall have adopted the Cybear Tracking Common Stock
Policies in substantially the form attached hereto as Exhibit D.
(xiii) all actions to be taken by New Andrx in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
Cybear.
Cybear may waive any condition specified in this Section 7(b) if it
executes a writing so stating at or prior to the Closing, except where such
condition may not be waived as a matter of law.
8. TERMINATION.
(a) TERMINATION OF AGREEMENT. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before
or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written
consent at any time prior to the Effective Time;
(ii) New Andrx and Andrx may terminate this Agreement by giving
written notice to Cybear at any time prior to the Effective Time (A) in the
event Cybear has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, Andrx has notified Cybear
of the breach, and the breach has continued without cure for a period of 30 days
after the notice of breach, or (B) if the Closing shall not have occurred on or
before December 31, 2000, by reason of the failure of any condition precedent
under Section 7(a) hereof (unless the failure results primarily from New Andrx
breaching any representation, warranty, or covenant contained in this
Agreement);
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<PAGE>
(iii) Cybear may terminate this Agreement by giving written notice
to New Andrx and Andrx at any time prior to the Effective Time (A) in the event
Andrx has breached any material representation, warranty, or covenant contained
in this Agreement in any material respect, Cybear has notified Andrx of the
breach, and the breach has continued without cure for a period of 30 days after
the notice of breach, or (B) if the Closing shall not have occurred on or before
December 31, 2000, by reason of the failure of any condition precedent under
Section 7(b) hereof (unless the failure results primarily from Cybear breaching
any representation, warranty, or covenant contained in this Agreement);
(iv) Cybear may terminate this Agreement by giving written notice
to Andrx at any time after the Cybear Stockholders Meeting in the event this
Agreement and the Cybear Merger fail to receive the Required Cybear Stockholder
Vote;
(v) New Andrx and Andrx may terminate this Agreement by giving
written notice to Cybear at any time after the New Andrx Stockholders Meeting in
the event the Andrx Merger fails to receive the Required New Andrx Stockholder
Vote;
(vi) Cybear may terminate this Agreement if an unsolicited Takeover
Proposal shall have occurred, and in connection therewith, Cybear's Board of
Directors in compliance with the procedures set forth in Section 6(k) determines
in good faith that such Takeover Proposal is a Superior Proposal and that it is
required by its fiduciary duty to accept such Takeover Proposal and advises
Andrx thereof; and
(vii) by either New Andrx or Andrx, if (a) there shall be a final
nonappealable order of a federal or state court restraining or prohibiting the
consummation of the Merger, or (b) there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any governmental authority, that would make the
consummation of the Merger illegal.
(b) EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to Section 8(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach); PROVIDED, HOWEVER, that
the confidentiality provisions contained in Section 6(e) above shall survive any
such termination.
9. MISCELLANEOUS.
(a) SURVIVAL. None of the representations, warranties, and covenants of
the Parties (other than the provisions in Section 2 above concerning issuance of
the New Andrx Common Stock and Cybear Tracking Common Stock, the provisions in
Section 6(g) above concerning insurance and indemnification and the provisions
in Section 6 concerning post-closing covenants) will survive the Effective Time.
(b) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Party; PROVIDED,
HOWEVER, that any Party may make any public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party
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<PAGE>
will use its best efforts to advise the other Party and its counsel at least one
day prior to making the disclosure).
(c) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; PROVIDED, HOWEVER, that (i) the provisions in
Section 2 above concerning issuance of the New Andrx Shares are intended for the
benefit of the Cybear Stockholders, (ii) the provisions in Section 6(g) above
concerning indemnification are intended for the benefit of the individuals
specified therein and their respective legal representatives, and (iii) the
provisions in Section 6(i) above concerning certain post-closing covenants for
the benefit of the holders of Andrx Options and Cybear Options are intended for
the holders thereof.
(d) ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
(f) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
IF TO CYBEAR:
Edward E. Goldman, M.D.
Cybear, Inc.
5000 Blue Lake Drive
Boca Raton, FL 33431
Telephone: (561)
Facsimile: (561)
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<PAGE>
COPY TO:
Charles Rennert, Esq.
Berman Wolfe Rennert Vogel & Mandler, P.A.
100 Southeast Second Street
Miami, Florida 33131
Telephone: (305) 577-4177
Facsimile: (305) 373-6036
IF TO ANDRX OR NEW ANDRX:
Alan P. Cohen
Andrx Corporation
4001 Southwest 47th Avenue
Ft. Lauderdale, FL 33314
Telephone: (954)
Facsimile: (954)
COPY TO:
Dale S. Bergman, Esq.
Broad and Cassel
Suite 3000
201 South Biscayne Blvd.
Miami, FL 33131
Telephone: (305) 373-9400
Facsimile: (305) 3739493
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Party notice in the manner herein set forth.
(i) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Delaware.
(j) AMENDMENTS AND WAIVERS. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; PROVIDED, HOWEVER,
that any amendment effected subsequent to stockholder approval will be subject
to the restrictions contained in the DGCL. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing
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<PAGE>
and signed by both of the Parties. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) EXPENSES. Each of the Parties and their respective stockholders
will bear its or their own costs and expenses (including legal fees and
expenses) incurred in connection with this Agreement and the transactions
contemplated hereby.
(m) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(n) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
THIS SECTION INTENTIONALLY LEFT BLANK
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
ANDRX CORPORATION, a Florida corporation
By: /s/ Alan P. Cohen
--------------------------------------------------
Alan P. Cohen, Co-Chairman and CEO
NEW ANDRX CORPORATION, a Delaware
corporation
By: /s/ Alan P. Cohen
--------------------------------------------------
Alan P. Cohen, Co-Chairman and CEO
ANDRX ACQUISITION CORP., a Florida corporation
By: /s/ Alan P. Cohen
--------------------------------------------------
Alan P. Cohen, President
CYBEAR ACQUISITION CORP., a Florida corporation
By: /s/ Alan P. Cohen
--------------------------------------------------
Alan P. Cohen, President
CYBEAR, INC., a Delaware corporation
By: /s/ Edward E. Goldman
--------------------------------------------------
Dr. Edward E. Goldman, CEO
36
<PAGE>
EXHIBIT A --
PLAN OF MERGER
<PAGE>
EXHIBIT B-1 --
NEW ANDRX AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
<PAGE>
EXHIBIT B-2 --
NEW ANDRX BYLAWS
<PAGE>
EXHIBIT C --
TAX SHARING AGREEMENT
<PAGE>
EXHIBIT D --
CYBEAR TRACKING COMMON STOCK POLICIES
EXHIBIT 10.39
THIS AGREEMENT, made the __ day of __________, 2000, by and between
STANLEY KARCZYNSKI, having an office at 180 Passaic Avenue, Fairfield, New
Jersey 07006, hereinafter called the "Landlord"; and ANDRX PHARMACEUTICALS (NJ),
INC., a Florida Corporation, having an office at 4001 S.W. 47th Avenue, Ft.
Lauderdale, Florida 33314, Attention: Scott Lodin, Esq., hereinafter called the
"Tenant".
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Landlord owns in fee simple certain lands and premises in
the Township of Franklin, County of Somerset and State of New Jersey, which said
lands and premises are commonly known as 1600 Cottontail Lane, Franklin
Township, New Jersey (the "Property"), all as more particularly referred to and
described by metes and bounds on Schedule "A" annexed hereto and made a part
hereof; and
WHEREAS, the Landlord has erected a building containing approximately
179,789 square feet (hereinafter called the "building") on the lands and
premises aforementioned, of which building the Tenant shall occupy approximately
55,943 square feet, measured from the outside dimensions of the exterior wall to
the center line of common wall (hereinafter called the "leased premises"), all
in accordance with the terms and conditions hereinafter mentioned and the
considerations herein expressed,
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that for the rents
reserved, the mutual considerations herein and the parties mutually intending to
be legally bound hereby, the Landlord does demise, lease and let unto the Tenant
and the Tenant does rent and take from the Landlord the leased premises as
described in Article #1, and the Landlord and Tenant do hereby mutually covenant
and agree as follows:
1. LEASED PREMISES
The leased premises shall consist of approximately 55,943
square
<PAGE>
feet of the building, measured as described above as said building is located on
the Property, together with all improvements therein heretofore constructed by
the Landlord for the use of the Tenant, and together with all easements,
improvements, tenements, appurtenances, hereditaments, fixtures, rights and
privileges appurtenant thereto. A site plan of the building showing the location
of the leased premises is annexed hereto and made a part hereof as Schedule "B".
The street address of the leased premises is 1600 Cottontail Lane. Upon
completion of the demising wall pursuant to Article 4(a) hereof, Landlord, at
its expense, shall direct its architect to determine the square footage of the
leased premises and the building as actually constructed and certify as to same
to both Landlord and Tenant. If the square footage of the leased premises as
determined by Landlord's architect is greater or less than the amount specified
in this lease, then the square footage of the leased premises shall be adjusted
to equal the amount as so determined, and the Fixed Rent, and Tenant's Pro Rata
Share, as such terms are hereinafter defined, and any other amounts specified in
this lease as a function of square footage shall be adjusted proportionately.
Notwithstanding the foregoing, if the square footage of the leased premises as
determined by Landlord's architect exceeds one hundred two (102%) percent of the
square footage of the leased premises as specified in this lease, then Tenant
shall not be responsible for any Fixed Rent or additional rent or other charges
that would be payable with respect to the square footage in excess of such 102%
figure.
2. TERM OF LEASE
2.1 The Landlord leases unto the Tenant and the Tenant hires
the leased premises for the term of five (5) years, to commence on April 1, 2000
(the "Commencement Date").
2.2 Notwithstanding the Commencement Date hereunder, Landlord
shall obtain and deliver a certificate of occupancy permitting Tenant's use and
occupancy of the leased premises in its current, "as is" condition, promptly
following
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execution of this lease. Thereafter, Tenant shall have the right to use and
occupy the leased premises subject to all of the terms and conditions of this
lease, except that Tenant shall not be responsible to pay any Fixed Rent or
additional rent which is applicable to the period prior to the Commencement
Date. The parties further agree to fully cooperate with each other in connection
with the work to be performed pursuant to Article 4 hereof.
3. RENT
3.1 Commencing on the Commencement Date through the expiration
of the lease term, Tenant covenants and agrees to pay annual rent (hereinafter
called "Fixed Rent") in the amount of THREE HUNDRED SEVEN THOUSAND SIX HUNDRED
EIGHTY SIX AND 48/100 ($307,686.48) DOLLARS per annum (based on a rate of $5.50
per square foot per annum), payable in equal installments in the sum of TWENTY
FIVE THOUSAND SIX HUNDRED FORTY AND 54/100 ($25,640.54) DOLLARS per month.
The Tenant covenants and acknowledges that its agreement to
pay the Fixed Rent and additional rent set forth herein ("rent") without off-set
or deduction (except as otherwise expressly set forth in this lease) is a
material inducement by the Tenant to the Landlord to enter into the within lease
agreement. Tenant covenants and agrees that in the event of any material dispute
with respect to the within lease, its obligation to pay the rent shall continue
without abatement notwithstanding any such dispute (except as otherwise
expressly set forth in this lease), and the Tenant agrees that it shall seek
such other remedies as the law or equity may allow by way of plenary or summary
or declaratory proceedings with respect to such issues in dispute.
3.2 Anything hereinabove to the contrary notwithstanding, it
is expressly understood and agreed that the Tenant shall deliver to Landlord the
first monthly installment of Fixed Rent payable hereunder, together with the
security deposit hereinafter referred to, upon execution of this lease.
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3.3 Subject to the provisions of Article 3.4 hereof, the
Tenant's pro rata share for all lease purposes is hereby deemed to be 31.11%
(hereinafter called "Tenant's Pro Rata Share").
3.4 Any installment of rent accruing hereunder, and any other
sum payable hereunder by Tenant to Landlord, which is not paid prior to the
tenth (10th) day following Tenant's receipt of written notice from Landlord that
such sum is overdue, shall bear a late charge of five (5%) percent of such rent,
to be paid therewith, and the failure to pay such charge shall be a default
(subject to applicable notice and cure periods). Such late charge shall be
deemed to be additional rent hereunder. It is expressly understood and agreed
that the foregoing late charge is not a penalty, but agreed upon compensation to
the Landlord for administrative costs incurred by Landlord in connection with
any such late payment. In addition, any payment of rent, which is not paid
within thirty (30) days following Tenant's receipt of written notice from
Landlord that payment is overdue shall require the payment of interest at the
rate of one and one-half (1-1/2%) percent per month, calculated from the date
that such payment was due through the date that any such payment is actually
made.
4. CONDITION OF THE LEASED PREMISES
(a) Landlord shall deliver the leased premises to Tenant in
its current "as is" condition, broom clean, and with all building systems
(including, without limitation, mechanical, electrical, plumbing, heating,
ventilating and air-conditioning ("hvac") and life safety systems) in good
repair and operating condition.
(b) Tenant, at its expense, shall have the right to construct
and install any and all alterations, additions, improvements, trade fixtures,
machinery, equipment, signage and furnishings as may be necessary or desirable
to permit Tenant to occupy same and conduct normal business operations
(including, without limitation, the installation of one or more supplemental
hvac units for the leased premises), subject to the terms and conditions of
Article 21 below and Tenant's compliance with
<PAGE>
applicable governmental laws,
ordinances, rules and regulations. Landlord (at Tenant's expense) shall
cooperate fully with Tenant in order for Tenant to obtain any and all permits,
licenses and approvals needed for any such items to be constructed or installed.
5. USE
The Tenant covenants and agrees to use and occupy the leased
premises for offices, warehousing, light manufacturing and assembly,
distribution and research and development purposes only, which uses by Tenant,
however, are and shall be expressly subject to all applicable zoning ordinances,
rules and regulations of any governmental boards or bureaus having jurisdiction
thereof.
6. REPAIRS AND MAINTENANCE
6.1 The Landlord, shall, with due diligence, at its own cost
and expense and without reimbursement by Tenant, make all repairs, maintenance
and necessary replacements to the structure and foundation of the building
(including without limitation the floor slab and interior and exterior load
bearing walls), and shall perform any required replacement of the roof and
parking area, provided that any damage to the foregoing is not caused by the
negligence of the Tenant, its servants, employees, invitees or agents, in which
case Landlord shall make any necessary replacement and/or repair such damage at
Tenant's sole cost and expense. The Landlord shall maintain and repair the
parking area, maintain and repair the roof, and repair, maintain and replace the
roof leaders, flashings, metal gravel stops, gutters and drains, and maintain
and repair all common areas, if any and the exterior of the building (excluding
Tenant's signs) it being understood that Tenant shall reimburse Landlord within
thirty (30) days after written demand (not more than one demand to be made per
month), for Tenant's Pro Rata Share of the cost of the foregoing, provided that
Landlord shall furnish to Tenant a breakdown of such cost and a computation of
Tenant's Pro Rata Share with respect thereto.
<PAGE>
6.2 The Tenant shall, except as provided in Article 6.1 above,
take good care of the leased premises and, at its cost and expense, keep and
maintain in good repair the leased premises, including, but not limited to the
floor coverings, loading docks, windows and doors, the air-conditioning and
heating plant, the plumbing, pipes and fixtures belonging thereto; and shall
replace, as needed, all working parts in connection with maintenance and repair
of the air-conditioning, electrical, heating and plumbing plants, fixtures and
systems, including ballasts and fluorescent fixtures; and shall keep the water
and sewer pipes and connections free from ice and other obstructions, and shall
generally maintain and repair the leased premises and shall, at the end of the
expiration of the term, deliver up the leased premises in good order and
condition, damages by the elements, and ordinary wear and tear excepted. The
Tenant covenants and agrees that it shall not cause or permit any waste (other
than reasonable wear and tear), damage or disfigurement to the leased premises,
or any overloading of the floors of the building, constituting part of the
leased premises.
6.3 The Tenant shall reimburse the Landlord for Tenant's Pro
Rata Share of the Landlord's total expense in maintaining, repairing and
replacing the lawns and shrubbery, and in maintaining the driveways and parking
areas of the entire Property, which said sum shall be paid by the Tenant to the
Landlord within thirty (30) days from the date of billing together with a
complete breakdown of the cost items and computation of Tenant's Pro Rata Share
with respect thereto. The Landlord shall also keep the walks and parking area
applicable to the entire Property free and clear of ice, snow and debris, with
Tenant being responsible for Tenant's Pro Rata Share of such expenses.
7. UTILITIES
The Tenant shall, at its own cost and expense, pay all utility
meter and service charges attributable to the leased premises as separately
metered (installation of such separate metering to be at Landlord's expense),
including gas,
<PAGE>
electric and water charges, if any, janitorial and garbage disposal services.
Tenant shall be permitted to place a dumpster in the parking area adjacent to
the leased premises, provided that Landlord shall have the right to reasonably
determine the location of such dumpster from time to time. The Tenant shall
reimburse the Landlord for Tenant's Pro Rata Share of all costs and expenses
related to common area electric, sewer and standby sprinkler charges, if any,
for the entire Property, said amounts to be paid by Tenant within thirty (30)
days of receipt of Landlord's invoice therefor containing a complete breakdown
of the cost items and a computation of Tenant's Pro Rata Share with respect
thereto.
8. TAXES
8.1 The Tenant shall, during the term of the lease, promptly
pay quarterly, before such taxes are due, together with the Fixed Rent to be
paid pursuant to Article 3, one-fourth (1/4th) of Tenant's Pro Rata Share of all
real estate taxes assessed against the Property for land, building and
improvements, including such added assessment or omitted assessment which may be
levied against the Property for the year 2000, et seq., by the applicable
governmental taxing authority, said obligation to be prorated as of the
Commencement Date and as of the date of expiration hereunder as applicable. In
addition, the Tenant shall, during the term of this lease, pay at its cost and
expense, Tenant's Pro Rata Share of any levy for the installation of local
improvements affecting the Property as may be assessed by any governmental
boards or bureaus having jurisdiction thereof. Any assessment or impositions for
capital or public improvements which may be payable by law at the option of the
taxpayer in installments, may be so paid by the Tenant in installments, as to
Tenant's Pro Rata Share thereof, together with any required interest. The real
estate tax obligation of the Tenant hereinabove set forth shall include Tenant's
Pro Rata Share, if levied, of any tax or imposition which may be levied by any
governmental authority, agency or subdivision thereof having jurisdiction
applicable to parking lot usage. The
<PAGE>
Landlord shall furnish to Tenant annually a copy of the annual real estate tax
bill and a breakdown of Tenant's Pro Rata Share thereof. In the event of any
change in tax rate or assessment which shall require an adjustment of increase
or decrease in Tenant's annual tax obligation, such difference shall be adjusted
by Landlord and Tenant annually during the month of August of each lease year.
8.2 If at any time during the term of this lease the method or
scope of taxation prevailing at the commencement of the lease term shall be
altered, modified or enlarged so as to cause the method of taxation to be
changed, in whole or in part, so that in substitution for the real estate taxes
now assessed there may be, in whole or in part, a capital levy or other
imposition based on the value of the Property, or the rents received therefrom,
or some other form of assessment based in whole or in part on some other
valuation of the Property, then and in such event, such substituted tax or
imposition shall be payable and discharged by the Tenant pro rata in the manner
required pursuant to such law promulgated which shall authorize such change in
the scope of taxation, and as required by the terms and conditions of the within
lease.
8.3 Nothing in this lease contained shall require the Tenant
to pay any franchise, estate, inheritance, succession, capital levy or transfer
tax of the Landlord, or Federal Income Tax, State Income Tax, or excess profits
or revenue tax, unless such taxes are in substitution for real property taxes as
a result of such change in the manner and scope of taxation as hereinbefore
provided in Article 8.2.
8.4 Anything herein contained to the contrary notwithstanding,
in the event during the term of the lease the Landlord's then first mortgagee
shall require in writing, as a condition of said mortgage, that there be monthly
tax payments deposited with mortgagee in order that mortgagee may pay annual tax
obligations in accordance with the law, then and in that event, Tenant agrees
that it will, upon written notice by the Landlord to Tenant, pay to the Landlord
together with the monthly Fixed Rent, one-twelfth (1/12th) of the annual taxes
as may be required by such mortgagee.
<PAGE>
Such monthly tax payments shall be reconciled annually based on the actual tax
bill for the year in question.
8.5 If Landlord receives any rebate or refund of any
previously paid expense (such as, for example, if an appeal or contest of real
estate taxes by Landlord results in a rebate or refund of previously paid
taxes), Tenant shall receive the benefit of its proportionate share of the
refund.
9. INSURANCE
9.1 The Landlord will, at the pro rata cost and expense of the
Tenant, obtain for the benefit of the Landlord, wherein the Landlord shall be
the named insured, fire insurance with full extended coverage, including flood
insurance if required by Landlord or its first mortgagee, insuring the building
and all of its improvements, in an amount and value equivalent to the full
replacement value of all the insurable improvements located on the Property,
without any deductible clause, which policy of insurance shall include broad
form boiler and machinery coverage (inclusive of air-conditioning system, if
any), if applicable, together with insurance coverage against sprinkler damage
to the building and its improvements. Said insurance, in any event, shall not be
less than the amounts of insurance required by any first mortgage which may be
placed on the Property by the Landlord and shall be in such form as any such
bona fide mortgagee may reasonably require. The Landlord shall have the right
from time to time to reasonably determine the full replacement value as may be
required to comply with full replacement insurance requirements. The insurance
to be obtained by Landlord shall include casualty rent insurance payable to and
insuring the interest of the Landlord as to the value of the rental obligation
hereunder to the extent of one (1) year's gross rental value, inclusive of real
estate taxes and applicable insurance premium.
9.2 The Tenant covenants and agrees that it will, at its sole
cost and expense, carry (i) liability insurance covering the leased premises in
the minimum
<PAGE>
amount of ONE MILLION ($1,000,000.00) DOLLARS per accident for one (1) person,
THREE MILLION ($3,000,000.00) DOLLARS per accident for two (2) or more persons,
and a minimum amount of TWO HUNDRED FIFTY THOUSAND ($250,000.00) DOLLARS for
property damage, and the Tenant further covenants and agrees that it will add as
an additional party insured by such policy the interest of the Landlord and will
furnish Landlord with a certificate of said liability insurance, and (ii)
property insurance which shall insure at replacement cost, without deductible,
all property, fixtures, and equipment in or about the leased premises, such
property insurance to cover at a minimum the perils provided under a standard
fire and full extended coverage form, including without limitation coverage
against sprinkler leakage.
9.3 It is expressly understood and agreed that all policies of
insurance shall contain a clause that the same shall not be canceled except on
ten (10) days' written notice to any and all parties in interest.
9.4 The parties hereto mutually covenant and agree that each
party, in connection with insurance policies required to be furnished in
accordance with the terms and conditions of this lease, or in connection with
insurance policies which they obtain insuring such insurable interest as
Landlord or Tenant may have in their own properties, whether personal or real,
shall expressly waive any right of subrogation on the part of the insurer
against the Landlord or Tenant as the same may be applicable, which right to the
extent not prohibited or violative of any such policy is hereby expressly
waived, and Landlord and Tenant each mutually waive all right of recovery
against each other, their agents, or employees for any loss, damage or injury of
any nature whatsoever to property or person for which either party is required
by this lease to carry insurance.
9.5 Tenant shall pay to Landlord Tenant's Pro Rata Share of
the cost of all insurance provided by Landlord hereunder, except that Tenant
shall pay the full premium for casualty rent insurance attributable to Tenant's
leased premises, which
<PAGE>
payment shall be made by Tenant to Landlord within thirty (30) days after
written demand, which demand shall include a copy of the insurance premium bill
and Certificate of Insurance, together with a computation of Tenant's monetary
obligations in connection therewith.
9A. PASS-THROUGH EXPENSES
9A.1 In connection with Tenant's Pro Rata Share of the
expenses being passed-through to Tenant pursuant to Articles 6, 7, 8 and 9 of
this lease, (i) if Landlord receives any rebate or refund of any previously paid
expense (such as, for example, if an appeal or contest of real estate taxes by
Landlord results in a rebate or refund of previously paid taxes), Tenant shall
receive the benefit of its proportionate share of the refund, and (ii) Landlord
will not bill such expenses to Tenant more than once per month, except for taxes
which will be billed quarterly.
9A.2 During the term or any extension thereof, Tenant shall
have the right to cause Landlord's books and records with respect to the
pass-through of all such expenses and Tenant's Pro Rata Share thereof to be
audited by an independent certified public accountant or a lease auditing firm
of Tenant's choosing. Landlord shall cause such books and records to be made
available for such inspection during such normal business hours and at such
location where Landlord regularly keeps its books and records, upon ten (10)
days' prior notification to Landlord. Such audit shall be done in accordance
with generally accepted accounting principles, consistently applied. If, at the
conclusion of such audit, Tenant's audit of such expenses indicates that Tenant
made any overpayment to Landlord, Landlord shall remit the amount of such
overpayment to Tenant within thirty (30) days after receipt of notice from
Tenant of the amount of such overpayment. Should Landlord disagree with the
results of Tenant's audit, Landlord and Tenant shall refer the matter to a
mutually acceptable independent certified public accountant, who shall work in
good faith with Landlord and Tenant to resolve the discrepancy. The fees and
costs of such independent accountant to which
<PAGE>
such dispute is referred shall be borne by the unsuccessful party and shall be
shared pro rata to the extent each party is unsuccessful as determined by such
independent certified public account, whose decision shall be final and binding.
10. SIGNS
The Tenant shall have the right and privilege of erecting on
and at the leased premises only such signs as are required by Tenant for the
purpose of identifying the Tenant. Tenant shall have the right to construct a
monument sign in front of the leased premises and to install signage on the
doors and the contiguous glass panels of the leased premises, all at Tenant's
sole cost and expense. Said signs shall comply with the applicable rules and
regulations of the applicable governmental boards and bureaus having
jurisdiction thereof. Installation of all such signs shall be subject to the
prior written consent and approval of the Landlord, which shall not be
unreasonably withheld. It is expressly understood and agreed that the Tenant
shall not erect or construct any signs on the roof or the exterior walls of the
building.
11. FIXTURES
11.1 Subject to the limitations contained in Article 11.2
below, the Tenant is given the right and privilege of installing and removing
property, equipment and fixtures in the leased premises during the term of the
lease. However, if the Tenant is in default and moves out, or is dispossessed as
a result of an uncured default by Tenant, and fails to remove any property,
equipment and fixtures or other property prior to such dispossession or removal,
then and in that event, the said property, equipment and fixtures or other
property shall be deemed at the option of the Landlord, to be abandoned; or in
lieu thereof, at the Landlord's option, the Landlord may remove such property
and charge the reasonable cost and expense of removal, storage and disposal of
such property to the Tenant.
11.2 Anything to the contrary contained herein
notwithstanding, it is expressly understood and agreed that the Tenant may
install, connect and operate
<PAGE>
equipment as may be deemed necessary by the Tenant for its business, subject to
compliance with applicable rules and regulations of governmental boards and
bureaus having jurisdiction thereof. Subject to the terms and conditions of this
lease, the machinery, fixtures and equipment belonging to the Tenant shall at
all times be considered and intended to be personal property of the Tenant, and
not part of the realty, and subject to removal by the Tenant, provided at the
time of such removal, that the Tenant, at its own cost and expense, pays for any
damage to the leased premises caused by such removal. Notwithstanding the above,
it is expressly understood and agreed that Tenant may not remove any of its
equipment, fixtures, machinery or other property which is physically connected
to the structure of the leased premises, unless Tenant repairs any damage caused
by such removal and restores the leased premises to a tenantable whole.
12. GLASS
The Tenant expressly covenants and agrees to replace any
broken glass in the windows or other apertures of the leased premises which may
become damaged or destroyed, at Tenant's cost and expense.
13. ASSIGNMENT AND SUBLETTING
13.1 The Tenant may not assign this lease or sublet the leased
premises or any part thereof, unless it shall first advise the Landlord in
writing, by certified mail, return receipt requested, of its intention to assign
or sublease. In such event the Landlord shall have ten (10) business days from
receipt of such notice to elect to consent or not to consent to the assignment
of the lease or the sublease of the leased premises, but which consent shall not
be unreasonably withheld or delayed, providing only the proposed assignee or
subtenant is financially responsible, and any such assignee shall assume in
writing the terms and conditions of the within lease on the part of the Tenant
to be performed. In connection with any permitted assignment or subletting,
except in connection with Article 13.2, the Tenant shall pay to the Landlord
<PAGE>
one half of any increment in rent or other consideration received by Tenant per
square foot per annum over the annual Fixed Rent in effect from time to time
hereunder but subject to Tenant first recouping any and all brokerage fees, cost
of alterations, attorneys' fees, marketing costs and other costs incurred in
connection with the assignment or sublease. In the event Landlord's mortgagee
succeeds to the interest of Landlord hereunder and is advised by its counsel
that all or any portion of the rent payable by Tenant hereunder is or may be
deemed to be unrelated business income within the meaning of the United States
Internal Revenue Code or Regulations issued thereunder, mortgagee, as landlord,
shall have the right at any time from time to time to amend unilaterally the
provisions of this lease, and Tenant agrees that it will execute all documents
reasonably necessary to effect any such amendment, provided that no such
amendment shall increase Tenant's payment obligations or other liability under
this lease or reduce Landlord's obligations hereunder.
13.2 The Landlord's consent shall not be required and the
terms and conditions of Article 13.1 shall not apply if the Tenant assigns this
lease or subleases all or any part of the leased premises from time to time to a
parent, subsidiary, affiliate or a company into which Tenant is merged or with
which Tenant is consolidated, or to the purchaser of all or substantially all of
the assets or capital stock of Tenant.
13.3 In the event of any assignment or subletting permitted by
the Landlord, the Tenant shall remain and be directly and primarily responsible
for payment and performance of the within lease obligations, and the Landlord
reserves the right, at all times, to require and demand that the Tenant pay and
perform the terms and conditions of this lease. No such assignment or subletting
shall be made to any Tenant who shall occupy the leased premises for any use
other than that which is permitted to the Tenant, or for any use which may be
deemed disreputable or extra hazardous, or which would in any way violate
applicable laws, ordinances or rules and regulations of
<PAGE>
governmental boards and bodies having jurisdiction.
14. FIRE AND CASUALTY
14.1 In case of any damage to or destruction of any of the
building or the leased premises by fire or other casualty occurring during the
term of this lease which is not covered by the insurance required to be carried
by Article 9.1 (but Landlord recognizes its obligation to maintain full
replacement cost coverage), or which cannot be repaired within one hundred
eighty (180) days from the happening of such casualty, then, in such event, the
term hereby created shall, at the option of either party, upon written notice to
the other by certified mail, return receipt requested, within thirty (30) days
of such fire or casualty, cease and become null and void from the date of such
destruction or damage. However, if neither party shall elect to cancel this
lease within the thirty (30) day period hereinabove provided, the Landlord shall
thereupon repair and restore the leased premises with reasonable speed and
dispatch, and the rent shall not be accrued after said damage or while the
repairs and restorations are being made, but shall recommence immediately after
the leased premises are restored to substantially the same condition existing
prior to such casualty. Landlord, in any event, shall advise Tenant in writing,
within the aforementioned thirty (30) day period, as to whether or not the
leased premises can be restored within the one hundred eighty (180) day period
from the date of such casualty. Anything in this Article 14 to the contrary
notwithstanding, it is expressly understood and agreed that the Landlord shall
be obligated to restore the leased premises and the building only to the extent
of such cost as will be equivalent to the proceeds received by Landlord pursuant
to the fire insurance and extended coverage to be provided to Landlord as in
Article 9 provided (but Landlord recognizes its obligation to maintain full
replacement cost coverage). If the insurance proceeds are not sufficient to
restore the leased premises and the building to substantially the same condition
which they were in prior to the casualty, then the Landlord shall have a period
of thirty (30) days within which to determine
<PAGE>
whether to terminate the term hereby created, unless the Landlord and Tenant
shall mutually agree to the funding of any such excess construction costs. In
the event of cancellation in accordance with this paragraph, the Tenant shall
promptly surrender the leased premises and the Tenant's interest in said lease
to the Landlord, and the Tenant shall only pay rent to the time of such
destruction or damage, in which event, the Landlord may re-enter and repossess
the leased premises thus discharged from this lease and may remove all parties
therefrom.
14.2 In the event of any insured casualty which shall be
repairable within one hundred eighty (180) days from the happening of such
damage or casualty, and which repair and replacement is fully covered by
insurance proceeds, the Landlord shall repair and restore the leased premises
with reasonable speed and dispatch, and the rent shall abate and be equitably
apportioned as the case may be as to any portion of the leased premises which
shall be unfit for occupancy by the Tenant, or which cannot be used by the
Tenant so as to conduct its business. The rent, however, shall accrue and
recommence immediately upon restoration of the leased premises.
14.3 Nothing hereinabove contained with respect to the
Tenant's right to abate rent under proper conditions shall be construed to limit
or affect the Landlord's right to payment from its insurance company under any
claim for damages covered by the rent insurance policy pursuant to the contract
therefor required to be provided pursuant to Article 9 of this lease.
14.4 For the purposes of this Article 14, in determining what
constitutes reasonable speed and dispatch, consideration shall be given for
delays which would be excuses for non-performance as in Article 27 hereinafter
provided (Force Majeure), but in no event shall the delay cause the excuse of
performance for more than sixty (60) days.
14.5 In the event of such fire or casualty as above provided,
<PAGE>
wherein the Landlord shall rebuild, the Tenant agrees, at its cost and expense,
to forthwith remove any and all of its equipment, fixtures, stock and personal
property as the same may be required to permit Landlord to expedite rebuilding
and/or repair. In any event, the Tenant shall assume at its sole risk the
responsibility for damage or security with respect to such equipment, fixtures,
stock and personal property in the event the building area where the same may be
located has been damaged, until the building shall be restored and made secure.
14.6 Anything in this Article 14 to the contrary
notwithstanding, it is expressly understood and agreed that wherever
reconstruction shall be undertaken, in the event of damage or casualty as in
this Article 14 provided, the Landlord shall prosecute such reconstruction with
reasonable speed and dispatch. In the event, however, such reconstruction or
repair shall not be completed within two hundred ten (210) days from the date of
such damage or casualty, then, in that event, the Tenant shall have the option
at the expiration of the two hundred ten (210) day period to terminate the lease
by notice in writing by Tenant to Landlord by certified mail, return receipt
requested. In the event of such termination, neither party shall thereafter have
any further liability, one to the other, in accordance with the terms and
conditions of the lease. The Landlord during such period of reconstruction shall
give the Tenant reasonable notice of the date on which the leased premises shall
be ready for re-occupancy.
15. COMPLIANCE WITH LAWS, RULES AND REGULATIONS
15.1 (i) The Tenant covenants and agrees that upon acceptance
and occupancy of the leased premises, it will, during the lease term, promptly,
at Tenant's cost and expense, execute and comply with all statutes, ordinances,
rules, orders, regulations and requirements of the Federal, State and City
Government and of any and all their departments and bureaus, applicable to the
leased premises, as the same may require correction, prevention and abatement of
nuisances,
<PAGE>
violations or other grievances, in, upon or connected with the leased premises,
arising from the operations of the Tenant therein.
(ii) The Tenant covenants and agrees, at its own cost and
expense, to comply with such regulations or requests as may be required by the
fire or liability insurance carriers providing insurance for the leased
premises, and will further comply with such other requirements that may be
promulgated by the Board of Fire Underwriters, in connection with the use and
occupancy by the Tenant of the leased premises in the conduct of its business.
(iii) The Tenant covenants and agrees that it will not
permit the emission of any objectionable sound, noise or odors which would be
violative of any applicable governmental rule or regulation. The Tenant further
covenants and agrees that it will handle and dispose of all rubbish, garbage and
waste in connection with the Tenant's operations in the leased premises in
accordance with reasonable regulations established by the Landlord from time to
time in order to keep the leased premises in an orderly condition and in order
to avoid unreasonable emission of dirt, fumes, odors or debris which may
constitute a nuisance or induce pests or vermin.
15.2 In case the Tenant shall fail or neglect to comply with
the aforesaid statutes, ordinances, rules, orders, regulations and requirements
or any of them, or in case the Tenant shall neglect or fail to make any
necessary repairs, then the Landlord or the Landlord's agents may after thirty
(30) days' notice (except for (i) emergency repairs, which may be made
immediately, and (ii) repairs which reasonably require more than thirty (30)
days, in which case Tenant shall have a reasonable time to perform the repairs)
enter said leased premises and make said repairs and comply with any and all of
the said statutes, ordinances, rules, orders, regulations or requirements, at
the cost and expense of the Tenant and in case of the Tenant's failure to pay
therefor, the said cost and expense shall be added to the next month's rent and
be due and payable as such. This provision is in addition to the right of the
Landlord to
<PAGE>
terminate this lease by reason of any default on the part of the Tenant.
15.3 Without limiting anything hereinabove contained in this
Article 15, with respect to Tenant's business operations in the leased premises,
Tenant expressly covenants and agrees to fully comply with the provisions of the
New Jersey Industrial Site Recovery Act (N.J.S.A. 13:1K-6, et seq.) hereinafter
referred to as "ISRA", and all regulations promulgated thereto (or under its
predecessor statute, the New Jersey Environmental Cleanup Responsibility Act)
prior to the expiration or earlier termination of the within lease, or at any
time that any action of the Tenant triggers the applicability of ISRA. In
particular, the Tenant agrees that it shall comply with the provisions of ISRA
in the event of any "closing, terminating or transferring" of Tenant's
operations, as defined by and in accordance with the regulations which have been
promulgated pursuant to ISRA. In the event evidence of such compliance is not
delivered to the Landlord prior to surrender of the leased premises by the
Tenant to the Landlord, it is understood and agreed that the Tenant shall be
liable to pay to the Landlord an amount equal to the annual Fixed Rent then in
effect, prorated on a monthly basis, together with all applicable additional
rent from the date of such surrender until such time as evidence of compliance
with ISRA has been delivered to the Landlord, and together with any reasonable
costs and expenses incurred by Landlord in enforcing Tenant's obligations under
this Article 15.3. Evidence of compliance, as used herein, shall mean a "letter
of non-applicability" issued by the New Jersey Department of Environmental
Protection, hereinafter referred to as "NJDEP", or an approved "negative
declaration", "no further action letter" or a "remediation action workplan"
which has been fully implemented and approved by NJDEP. Evidence of compliance
shall be delivered to the Landlord, together with copies of all submissions made
to, and received from, the NJDEP, including all environmental reports, test
results and other supporting documentation. In addition to the above, Tenant
hereby agrees that it shall cooperate with Landlord (at Landlord's expense) in
the event of the termination or expiration of
<PAGE>
any other lease affecting the Property, or a transfer of any portion of the
property indicated on Schedule "A", or any interest therein, which triggers the
provisions of ISRA. In such case, Tenant agrees that it shall fully cooperate
with Landlord (at Landlord's expense) in connection with any information or
documentation which may be requested by the NJDEP. In the event that any
remediation of the Property is required in connection with the conduct by Tenant
of its business in the leased premises, Tenant expressly covenants and agrees
that it shall be responsible for that portion of said remediation which is
attributable to the Tenant's use and occupancy thereof. Tenant hereby represents
and warrants that to the best of its knowledge its Standard Industrial
Classification No. is 2834, and that Tenant shall not generate, manufacture,
refine, transport, treat, store, handle or dispose of "hazardous substances" as
the same are defined under ISRA and the regulations promulgated pursuant
thereto, except in compliance with all applicable laws, rules, and regulations.
Tenant hereby agrees that it shall promptly inform Landlord of any change in its
SIC number or the nature of the business to be conducted in the leased premises.
Landlord hereby agrees that it shall indemnify, defend and save harmless the
Tenant from and against any and all claims or liabilities incurred in connection
with the environmental condition of the leased premises existing as of the
Commencement Date hereunder. The within covenants shall survive the expiration
or earlier termination of the lease term.
15.4 Notwithstanding anything to the contrary contained in
this lease, Landlord covenants that, as of the date hereof, to the best of its
knowledge, the leased premises and the building complies with all federal, state
and local laws, ordinances, rules and regulations applicable to the leased
premises as of the date hereof, including, without limitation, applicable
environmental laws, zoning, building and fire codes and the Americans with
Disabilities Act and the regulations promulgated thereunder.
15.5 To the extent the presence in or about the building of
<PAGE>
hazardous substances or materials is not caused by Tenant, its agents, employees
or contractors, Tenant will not be liable for the clean-up, removal, and
disposal costs thereof.
16. INSPECTION BY LANDLORD
The Tenant agrees that the Landlord's agents, and other
representatives, shall have the right to enter into and upon the leased
premises, or any part thereof, at all reasonable hours upon reasonable prior
oral notice for the purpose of examining the same, or for exhibiting the same to
prospective tenants (only in the last six (6) months of the term or at any time
that Tenant is in default hereunder) and purchasers in the presence of a
representative of Tenant or making such repairs or alterations therein as may be
necessary for the safety and preservation thereof, without unduly or
unreasonably disturbing the operations of the Tenant (except in the event of
emergency).
17. DEFAULT BY TENANT
17.1 Each of the following shall be deemed a default by Tenant
and breach of this lease:
(1) (i) filing of a petition by the Tenant for
adjudication as a bankrupt, or for reorganization, or for an
arrangement under any federal or state statute.
(ii) dissolution or liquidation of the Tenant.
(iii) appointment of a permanent receiver or a
permanent trustee of all or substantially all the property of
the Tenant.
(iv) taking possession of the property of the
Tenant by a governmental officer or agency pursuant to
statutory authority for dissolution, rehabilitation,
reorganization or liquidation of the Tenant.
(v) making by the Tenant of an assignment for the
benefit of creditors.
(vi) abandonment, vacation or desertion of the
leased premises by the Tenant; provided, however, vacation
shall not be an event of default if Tenant is paying, when
due, all rent payable to Landlord hereunder and
<PAGE>
is timely performing its obligations under this lease.
If any event mentioned in this subdivision (1) shall occur,
Landlord may thereupon or at any time thereafter elect to cancel this lease by
thirty (30) days' notice to the Tenant, and this lease shall terminate on the
day in such notice specified with the same force and effect as if that date were
the date herein fixed for the expiration of the term of the lease.
(2) (i) Default in the payment of the rent or
additional rent herein reserved or any part thereof for a
period of seven (7) days following Tenant's receipt of written
notice from Landlord that same is overdue.
(ii) A default in the performance of any other
covenant or condition of this lease on the part of the Tenant
to be performed for a period of thirty (30) days after notice
or such additional reasonable time as described in the next
sentence. For purposes of this subdivision (2) (ii) hereof, no
default on the part of Tenant in performance of work required
to be performed or acts to be done or conditions to be
modified shall be deemed to exist if steps shall have been
commenced by Tenant diligently after notice to rectify the
same and shall be prosecuted to completion with reasonable
diligence, subject, however, to unavoidable delays.
17.2 In case of any such default under Article 17.1(2) and at
any time thereafter following the expiration of the respective grace periods
above mentioned, Landlord may serve a notice upon the Tenant electing to
terminate this Lease upon a specified date not less than seven (7) days nor more
than thirty (30) days after the date of serving such notice and this Lease shall
then expire on the date so specified as if that date has been originally fixed
as the expiration date of the term herein granted; however, a default under
Article 17.1(2) hereof shall be deemed waived if such default is made good
before the date specified for termination in the notice of termination served on
Tenant.
17.3 In case this Lease shall be terminated as hereinbefore
provided, or by summary proceedings or otherwise, Landlord or its agents may,
immediately or any time thereafter, re-enter and resume possession of the leased
<PAGE>
premises or such part thereof, and remove all persons and property therefrom,
either by summary proceedings or by a suitable action or proceeding at law
without being liable for any damages, provided any entry pursuant to the
foregoing shall be in accordance with law. No re-entry by Landlord shall be
deemed an acceptance of a surrender of this lease.
17.4 In case this lease shall be terminated as hereinafter
provided, or by summary proceedings or otherwise, Landlord may, in its own name
and in its own behalf, relet the whole or any portion of the leased premises,
for any period equal to or greater or less than the remainder of the then
current term, for any sum which it may deem reasonable, to any tenant which it
may reasonably deem suitable and satisfactory, and for any use and purpose which
it may reasonably deem appropriate, and in connection with any such lease
Landlord may make such reasonable changes in the character of the improvements
on the leased premises as Landlord may reasonably determine to be appropriate or
helpful in effecting such lease and may grant concessions or free rent. Landlord
agrees that it will take reasonable steps to mitigate Tenant's damages. Landlord
shall not in any event be required to pay Tenant any surplus of any sums
received by Landlord on a reletting of the leased premises in excess of the rent
reserved in this lease.
17.5 (1) In case this lease be terminated by summary
proceedings, or otherwise, as provided in this Article 17, and whether or not
the leased premises be relet, Landlord shall be entitled to recover from the
Tenant, the following:
(i) a sum equal to all expenses, if any,
including reasonable counsel fees, incurred by Landlord in
recovering possession of the leased premises, and all
reasonable costs and charges for the care of the leased
premises while vacant, which damages shall be due and payable
by Tenant to Landlord at such time or times as such expenses
shall have been incurred by Landlord; and
(ii)A sum equal to all damages set forth in this
Article 17 and in Article 18 hereinafter referred to.
<PAGE>
(2) Without any previous notice or demand, separate
actions may be maintained by Landlord against Tenant from time to time to
recover any damages which, at the commencement of any such action, have then or
theretofore become due and payable to the Landlord under this Article 17 and
subsections hereof without waiting until the end of the then current term.
(3) All sums which Tenant has agreed to pay by way of
taxes, sewer charges, water rents or water meter charges, insurance premiums and
other similar items becoming due from time to time under the terms of this
lease, shall be deemed additional rent reserved in this lease within the meaning
of this Article 17 and subsections hereof.
(4) Notwithstanding anything in this lease to the
contrary, all amounts payable by Tenant to or on behalf of Landlord under this
lease, whether or not expressly denominated as rent, shall constitute rent for
the purposes of section 502(b)(6)of the Bankruptcy Code, 11 U.S.C. Section
502(b)(6), or any successor statute.
18. LIABILITY OF TENANT FOR DEFICIENCY
In the event that the relation of the Landlord and Tenant may
cease or terminate by reason of the uncured default by the Tenant and the
re-entry of the Landlord as permitted by the terms and conditions contained in
this lease or by the ejectment of the Tenant by summary proceedings or other
judicial proceedings, or after the abandonment of the leased premises by the
Tenant without continuing to pay rent when due and the performance of its
obligations under this lease, it is hereby agreed that the Tenant shall remain
liable to pay in monthly payments the rent which shall accrue subsequent to the
re-entry by the Landlord, and the Tenant expressly agrees to pay as damages for
the breach of the covenants herein contained the difference between the rent
reserved and the rent collected and received, if any, by the Landlord, during
the remainder of the unexpired term, as the amount of such difference or
<PAGE>
deficiency shall from time to time be ascertained. Anything herein contained to
the contrary notwithstanding, the rent referred to shall include the stated
Fixed Rent, together with all additional rent and charges required to be paid by
the Tenant under the lease including, but not limited to, taxes and insurance
costs, and the reasonable costs of re-renting.
19. NOTICES
All notices required or permitted to be given to the Landlord
shall be given by certified mail, return receipt requested, or overnight courier
at the address hereinbefore set forth on the first page of this lease, and/or
such other place as the Landlord may designate in writing.
All notices required or permitted to be given to the Tenant
shall be given by certified mail, return receipt requested, at the address
hereinbefore set forth on the first page of this lease, and/or such other place
as the Tenant shall designate in writing, and in any case with a copy to the
leased premises, Attention: Guahua Zhang.
All notice shall be deemed to be effective upon receipt,
unless the same are undeliverable or unclaimed, in which event said notices
shall be deemed to be effective upon mailing.
20. NON-WAIVER
The failure of the Landlord or Tenant, as applicable, to
insist upon strict performance of any of the covenants or conditions of this
lease, or to exercise any option of the Landlord or Tenant, as applicable,
herein conferred in any one or more instances except option to renew, shall not
be construed as a waiver by the Landlord or Tenant, as applicable, of any of its
rights or remedies in this lease, and shall not be construed as a waiver,
relinquishment or failure of any such covenants, conditions, or options, but the
same shall be and remain in full force and effect.
21. RIGHT OF TENANT TO MAKE ALTERATIONS AND IMPROVEMENTS
<PAGE>
21.1 The Tenant may make alterations, additions or
improvements to the leased premises only with the prior written consent of the
Landlord, which consent shall not be unreasonably withheld, provided such
alterations, additions or improvements do not require structural changes in the
leased premises, and do not lessen the value of the leased premises or the
building. Tenant shall furnish detailed plans and specifications to Landlord
with respect to any alterations, additions, or improvements which Tenant may
make. Landlord hereby consents to the construction floor plans annexed hereto
and made a part hereof as Schedule "C". As a condition of such consent, Landlord
reserves the right to require Tenant to remove, at Tenant's sole cost and
expense, any such alterations or additions prior to the expiration of the lease
term and to restore the leased premises to the condition existing prior to the
making of such alterations or additions. If Landlord does not require such
removal, any such alterations or additions shall be deemed to be part of the
realty upon installation, provided that Tenant, at its option, shall have the
right to remove the same, provided it shall be responsible to repair any damage
to the building or the leased premises occasioned by such removal, and provided
such removal is made prior to the expiration of the lease term. All such
alterations, additions or improvements shall be made only in conformity with
applicable governmental and insurance company requirements and regulations
applicable to the leased premises. Tenant shall indemnify, defend and save
harmless the Landlord against any claim for damage or injury in connection with
any of the foregoing work which Tenant may make as hereinabove provided.
Anything in this Article 21.1 to the contrary notwithstanding, Tenant shall not
be required to obtain Landlord's prior written consent for non-structural
alterations if the aggregate cost of a single alteration project shall be less
than $10,000.00.
21.2 Nothing herein contained shall be construed as a consent
on the part of the Landlord to subject the estate of the Landlord to liability
under the
<PAGE>
Construction Lien Law of the State of New Jersey, it being expressly understood
that the Landlord's estate shall not be subject to such liability.
22. NON-LIABILITY OF LANDLORD
22.1 It is expressly understood and agreed by and between the
parties to this agreement that the Tenant shall assume all risk of damage to its
property, equipment and fixtures occurring in or about the leased premises,
except for damage caused by the Landlord's negligence or willful misconduct.
Landlord shall not be liable for any cost incurred by Tenant for damage to its
property, equipment or fixtures to the extent that the amount and nature of
liability is covered by insurance which Tenant is required to maintain pursuant
to Article 9 of this lease.
22.2 It is expressly understood and agreed that in any event
the Landlord shall not be liable for any damage or injury to property or person
caused by or resulting from steam, electricity, gas, water, rain, ice or snow,
or any leak or flow from or into any part of said building, or from any damage
or injury resulting or arising from any other cause or happening whatsoever,
except to the extent any of the foregoing is caused by the negligence or willful
misconduct of Landlord, its agents, employees or contractors.
23. WARRANTY OF TITLE
Landlord represents that it has fee simple title to the
Property and that it has the full right, capacity and authority to enter into
the within lease agreement. Landlord further represents that no restrictive
covenant, easement, lease or other written agreement restricts, prohibits or
otherwise affects Tenant's rights set forth in this lease, including without
limitation parking rights, rights to signage, construction, permitted use or
ingress and egress to and from the leased premises unless Landlord has
previously obtained the consent therefor.
24. RESERVATION OF EASEMENT
The Landlord reserves the right, easement and privilege to
enter on
<PAGE>
the Property and the leased premises in order to install, at its own cost and
expense, any storm drains and sewers and/or utility lines in connection
therewith as may be reasonably required by the Landlord. It is understood and
agreed that if such work as may be required by Landlord requires an installation
which may displace any paving, lawn, seeded area or shrubs, the Landlord, shall,
at its own cost and expense, restore said paving, lawn, seeded area or shrubs.
The Landlord covenants that any of the foregoing work shall not unreasonably
interfere with the normal operation of Tenant's business, and the Landlord shall
indemnify and save the Tenant harmless in connection with such installations.
25. AIR, GROUND AND WATER POLLUTION
The Tenant expressly covenants and agrees to indemnify,
defend, and save the Landlord harmless against any claim, damage, liability,
costs, penalties, or fines which the Landlord may suffer as a result of air,
ground or water pollution caused by the Tenant in its use of the leased
premises. The Tenant covenants and agrees to notify the Landlord immediately of
any claim or notice served upon it with respect to any such claim the Tenant is
causing air, ground or water pollution; and the Tenant, in any event, will take
immediate steps to halt, remedy or cure any pollution of air, ground or water
caused by the Tenant by its use of the leased premises. The within covenant
shall survive the expiration or earlier termination of the term of this lease.
26. LIMIT OF LANDLORD'S LIABILITY
Except for Landlord's fraud, conversion or willful misconduct,
Tenant shall look solely to Landlord's estate and property in the building and
Property (which includes, without limitation, the proceeds of sale, insurance,
condemnation and rents) for the enforcement of any judgment or decree requiring
the payment of money to Tenant by reason of any default or breach by Landlord
under the Lease. Except for Landlord's fraud, conversion or willful misconduct,
in no event shall there be any personal liability on the part of Landlord beyond
its interest in the building and Property
<PAGE>
and no other assets of Landlord shall be subject to levy, execution, attachment
or any other legal process.
27. FORCE MAJEURE
Except for the obligation of the Tenant to pay rent and other
charges as in this lease provided, the period of time during which the Landlord
or Tenant is prevented from performing any act required to be performed under
this lease by reason of fire, catastrophe, strikes, lockouts, civil commotion,
acts of God or the public enemy, government prohibitions or preemptions,
embargoes, inability to obtain material or labor by reason of governmental
regulations or prohibitions, the act or default of the other party, or other
events beyond the reasonable control of Landlord or Tenant, as the case may be,
shall be added to the time for performance of such act.
28. STATEMENTS BY LANDLORD AND TENANT
Landlord and Tenant agree at any time and from time to time
upon not less than ten (10) days' prior notice from the other to execute,
acknowledge and deliver to the party requesting same, a statement in writing,
certifying that this lease is unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), that it is not in default (or if
claimed to be in default, stating the amount and nature of the default) and
specifying the dates to which the Fixed Rent, additional rent and other charges
have been paid in advance, if any, setting forth the Commencement Date and the
date of expiration of the lease term, and providing such other information as
reasonably requested by Landlord; it being intended that any such statement
delivered pursuant to this paragraph may be relied upon as to the facts
contained therein.
29. CONDEMNATION
29.1 If due to condemnation or taking or seizure by any
authority having the right of eminent domain, (i) more than ten (10%) per cent
of the leased premises is taken, or (ii) in the event that more than ten (10%)
per cent of the Property
<PAGE>
is taken (including the parking areas, but exclusive of front, side and rear set
back areas), or (iii) if access to the leased premises be denied, which taking
in the manner hereinabove referred to and in excess of the foregoing percentage
amounts shall unreasonably or unduly interfere with the use of the building,
ground area, parking area, or deny access to the leased premises, then and in
either of such events as hereinabove provided, the lease term created shall, at
the option of the Tenant, terminate, cease and become null and void from the
date when the authority exercising the power of eminent domain takes or
interferes with the use of the building or the leased premises, its use of the
ground area, parking area, or area of access to the leased premises. The Tenant
shall only be responsible for the payment of rent until the time of surrender.
In any event, no part of the Landlord's condemnation award shall belong to or be
claimed by the Tenant. Provided Landlord's award is not diminished, the Tenant
shall have the right to make a claim against the condemning authority for such
independent claim which it may have and as may be allowed by law, for costs and
damages due to relocating, moving and other similar costs and charges directly
incurred by the Tenant and resulting from such condemnation.
29.2 In the event of any partial taking which would not be
cause for termination of the within lease or in the event of any partial taking
in excess of the percentages provided in Article 29.1, and in which event the
Tenant shall elect to retain the balance of the leased premises remaining after
such taking, then and in either event, the rent shall abate in an amount
mutually to be agreed upon between the Landlord and Tenant based on the
relationship that the character of the property taken bears to the property
which shall remain after such condemnation. In any event, no part of the
Landlord's condemnation award shall belong to or be claimed by the Tenant.
However, the Landlord shall, to the extent permitted by applicable law and as
the same may be practicable on the site of the leased premises, at the
Landlord's sole cost and expense, promptly make such repairs and alterations in
order to restore the building
<PAGE>
and/or improvements to the extent of the condemnation award.
30. QUIET ENJOYMENT
The Landlord further covenants that the Tenant, on paying the
rent and performing the covenants and conditions contained in this lease, shall
and may peaceably and quietly have, hold and enjoy the leased premises for the
term aforesaid.
31. SURRENDER OF PREMISES
On the last day, or earlier permitted termination of the lease
term, Tenant shall quit and surrender the leased premises in good and orderly
condition and repair (reasonable wear and tear, and damage by fire or other
casualty excepted) and shall deliver and surrender the leased premises to the
Landlord peaceably, together with all alterations, additions and improvements
in, to or on the leased premises made by Tenant as permitted under the lease.
The Landlord reserves the right, however, to require the Tenant at its cost and
expense to remove any alterations or improvements installed by the Tenant and
not permitted or consented to by the Landlord pursuant to the terms and
conditions of the lease, so as to restore the leased premises to the condition
found at the inception of the lease term, which covenant by Tenant shall survive
the surrender of the leased premises as provided hereunder. Prior to the
expiration of the lease term the Tenant shall remove all of its property,
fixtures, equipment and trade fixtures from the leased premises. All property
not removed by Tenant shall be deemed abandoned by Tenant, and Landlord reserves
the right to charge the reasonable cost of removal, storage and disposal of the
same to the Tenant, which obligation shall survive the lease termination and
surrender hereinabove provided. If the leased premises be not surrendered at the
end of the lease term, Tenant shall indemnify Landlord against loss or liability
resulting from delay by Tenant in surrendering the leased premises including,
without limitation, any claims made by any succeeding tenant founded on the
delay.
32. INDEMNITY
<PAGE>
32.1 Anything in this lease to the contrary notwithstanding,
and without limiting the Tenant's obligation to provide insurance pursuant to
paragraph 9 hereunder, the Tenant covenants and agrees that it will indemnify,
defend and save harmless the Landlord against and from all liabilities,
obligations, damages, penalties, claims, costs, charges and expenses, including
without limitation reasonable attorneys' fees, which may be imposed upon or
incurred by Landlord by reason of any of the following occurring during the term
of this lease:
(i) Any matter, cause or thing arising out of
use, occupancy, control or management of the leased premises
and any part thereof;
(ii) Any negligence on the part of the Tenant or
any of its agents, contractors, servants, employees, licensees
or invitees;
(iii) Any accident, injury, damage to any person
or property occurring in, or about the leased premises;
(iv) Any failure on the part of Tenant to perform
or comply with any of the covenants, agreements, terms or
conditions contained in this lease on its part to be performed
or complied with subject to applicable notice and cure
periods.
The foregoing provisions of this Article 32.1 shall not
require indemnity by Tenant in the event of damage or injury occasioned by the
negligence or acts of commission or omission of the Landlord, its agents,
servants, contractors or employees.
Landlord shall promptly notify Tenant of any such claim
asserted against it and shall promptly send to Tenant copies of all papers or
legal process served upon it in connection with any action or proceeding brought
against Landlord by reason of any such claim.
32.2 Anything in this lease to the contrary notwithstanding,
and without limiting the Landlord's obligation to provide insurance pursuant to
paragraph 9 hereunder, the Landlord covenants and agrees that it will indemnify,
defend and save
<PAGE>
harmless the Tenant against and from all liabilities, obligations, damages,
penalties, claims, costs, charges and expenses, including without limitation
reasonable attorneys' fees, which may be imposed upon or incurred by Tenant by
reason of any of the following occurring during the term of this lease:
(i) Any matter, cause or thing arising out of
use, occupancy, control or management of the building and any
part thereof other than the leased premises;
(ii) Any negligence on the part of the Landlord
or any of its agents, contractors, servants, employees,
licensees or invitees;
(iii) Any failure on the part of Landlord to
perform or comply with any of the covenants, agreements, terms
or conditions contained in this lease on its part to be
performed or complied with subject to applicable notice and
cure periods.
The foregoing provisions of this Article 32.2
shall not require indemnity by Landlord in the event of damage
or injury occasioned by the negligence or acts of commission
or omission of the Tenant, its agents, servants, contractors
or employees.
Tenant shall promptly notify Landlord of any such claim asserted against it and
shall promptly send to Landlord copies of all papers or legal process served
upon it in connection with any action or proceeding brought against Tenant by
reason of any such claim.
33. SHORT FORM LEASE
It is understood between the parties hereto that this lease
will not be recorded, but that a short form lease, describing the Property
leased hereby, giving the term of this lease, and making particular mention of
any special clauses as herein contained other than rent, may be recorded by
Landlord at its expense in accordance with the laws governing and regulating the
recording of such documents in the State of
<PAGE>
New Jersey.
34. LEASE CONSTRUCTION
This lease shall be construed pursuant to the laws of the
State of New Jersey.
35. BIND AND INURE CLAUSE
The terms, covenants and conditions of the within lease shall
be binding upon and inure to the benefit of each of the parties hereto, their
respective executors, administrators, heirs, successors and assigns, as the case
may be.
36. DEFINITIONS
The neuter gender, when used herein and in the acknowledgment
hereafter set forth, shall include all persons and corporations, and words used
in the singular shall include words in the plural where the text of the
instrument so requires.
37. NET RENT
It is the purpose and intent of the Landlord and Tenant that
except as otherwise expressly set forth in this lease the rent shall be
absolutely net to Landlord, so that this lease shall yield, net, to Landlord,
the rent specified in paragraph 3 hereof in each month during the term of the
lease, and that all costs, expenses and obligations of every kind and nature
whatsoever relating to the leased premises which may arise or become due during
the term of this lease, shall be paid by the Tenant, except for such obligations
and charges as have otherwise expressly been assumed by the Landlord in
accordance with the terms and conditions of the lease except as otherwise
expressly set forth in this lease. Nothing herein shall require the Tenant to
undertake obligations in connection with the sale or mortgaging of the leased
premises, or any other obligations of Landlord expressly set forth in this
lease, unless otherwise expressly provided in accordance with the terms and
conditions of this lease.
38. DEFINITION OF TERM OF "LANDLORD"
When the term "Landlord" is used in this lease it shall be
construed
<PAGE>
to mean and include only the owner of the fee title of the Property. Upon the
transfer by the Landlord of the fee title hereunder, the Landlord shall advise
the Tenant in writing by certified mail, return receipt requested of the name of
the Landlord's transferee. In such event, the then Landlord shall be
automatically freed and relieved from and after the date of such transfer of
title of all personal liability with respect to the performance of any of the
covenants and obligations on the part of the Landlord herein contained to be
performed from and after the date of transfer, provided any such transfer and
conveyance by the Landlord is expressly subject to the assumption by the grantee
or transferee of the obligations of the Landlord, arising from and after the
date of transfer, to be performed pursuant to the terms and conditions of the
within lease.
39. COVENANTS OF FURTHER ASSURANCES
If, in connection with obtaining financing for the
improvements on the leased premises, the Mortgage Lender shall request
reasonable modifications in this lease as a condition to such financing, Tenant
will not unreasonably withhold, delay or refuse its consent thereto, provided
that such modifications do not in Tenant's reasonable judgment increase the
obligations of Tenant hereunder or materially adversely affect the leasehold
interest hereby created or Tenant's use and enjoyment of the leased premises. In
addition, and subject to the above proviso, Tenant agrees to execute any
documents reasonably required by Landlord for the purpose of obtaining financing
covering the Property of which the leased premises are a part, provided it is at
the sole cost and expense of the Landlord.
40. REMEDIES
40.1 The rights and remedies given to the Landlord and Tenant,
as applicable, in this lease are distinct, separate and cumulative remedies, and
no one of them, whether or not exercised by the Landlord or Tenant, as
applicable, shall be deemed to be in exclusion of any of the others.
40.2 In addition to any other legal remedies for violation or
breach
<PAGE>
by or on the part of the Tenant or Landlord as applicable, or by any undertenant
or by anyone holding or claiming under the Tenant or Landlord as applicable, or
any one of them, of the restrictions, agreements or covenants of this lease on
the part of the Tenant or Landlord as applicable, to be performed or fulfilled,
such violation or breach shall be restrainable by injunction at the suit of the
Landlord or Tenant, as applicable.
40.3 No receipt of money by the Landlord from any receiver,
trustee or custodian, debtor in possession, or any permitted subtenant, shall
reinstate, continue or extend the term of this lease or affect any notice
theretofore given to the Tenant, or to any such receiver, trustee or custodian,
debtor in possession, or any permitted subtenant, or operate as a waiver or
estoppel of the right of the Landlord to recover possession of the leased
premises for any of the causes therein enumerated by any lawful remedy; and the
failure of either party to enforce any covenant or condition by reason of its
breach by the other party shall not be deemed to void or affect the right of the
other party to enforce the same covenant or condition on the occasion of any
subsequent default or breach.
40.4 No receipt and acceptance of rent by Landlord shall be
deemed to be a waiver of any default by Tenant hereunder, and the same shall not
be deemed to constitute an accord and satisfaction regarding any issue in
dispute between Landlord and Tenant.
40.5 Tenant agrees that it shall reimburse Landlord for
Landlord's reasonable attorney's fees incurred in enforcing the terms and
conditions of this lease on the part of the Tenant to be performed. Tenant
further agrees to reimburse Landlord for Landlord's attorney's fees incurred in
connection with the review by Landlord of any Landlord's waiver, assignment or
sublet agreement or any other documentation reviewed by Landlord at Tenant's
request, which attorney's fees shall not exceed $1,000.00.
41. COVENANT AGAINST LIENS
<PAGE>
Tenant agrees that it shall not knowingly encumber, or suffer
or permit to be encumbered, the leased premises, the Property or the fee thereof
by any lien or encumbrance for construction labor or materials contracted for by
Tenant. The violation of this Article shall be considered a breach of this
lease, subject to applicable notice and cure periods.
42. BROKERAGE
The parties mutually represent to each other that BUSSELL
REALTY CORPORATION is the sole broker who negotiated and consummated the within
transaction, and that neither party dealt with any other broker in connection
with the within lease, it being understood and agreed that the Landlord shall be
responsible, at its sole cost and expense, to pay the real estate brokerage in
connection with this lease transaction. Landlord agrees to indemnify, defend and
save harmless Tenant in connection with the claims of any other real estate
brokers claiming commissions in connection with the within transaction and
claiming authority from Landlord. Tenant agrees to indemnify, defend and save
harmless Landlord in connection with the claims of any other real estate brokers
claiming commissions in connection with the within transaction and claiming
authority from Tenant.
43. SUBORDINATION OF LEASE
This lease shall be subject and subordinate at all times to
the lien of any bona fide mortgages or other encumbrances now or hereafter
placed on the Property, building and leased premises without the necessity of
any further instrument or act on the part of Tenant to effectuate such
subordination, but Tenant covenants and agrees to execute and deliver upon
demand such further instrument or instruments evidencing such subordination of
the lease to the lien of any such mortgage or other encumbrance as shall be
desired by a mortgagee or proposed mortgagee or by any person. Landlord shall
use reasonable efforts to obtain, for Tenant's benefit, a Subordination,
Non-Disturbance and Attornment Agreement from Landlord's current
<PAGE>
mortgagee; Landlord shall obtain such agreement from all future mortgagees and
ground lessors of the Property. Any such Subordination, Non-Disturbance and
Attornment Agreement shall be written on the applicable mortgagee's or ground
lessor's customary form subject to reasonable comment by Tenant.
44. MUTUAL PARKING
It is expressly understood and agreed between the Landlord and
Tenant that Landlord shall provide seventy (70) parking spaces to be used by
Tenant, its employees, agents and invitees. The entire parking area and access
driveways will be for the mutual use and benefit of the Landlord and Tenant
hereunder, and/or the Landlord's other tenants in the building. The parties
agree that they will not permit the access driveways to be blocked so as to
unreasonably interfere with the use of said access driveways and parking area.
45. SECURITY
Upon execution of this lease, the Tenant shall deposit with
the Landlord the sum of FIFTY ONE THOUSAND TWO HUNDRED EIGHTY ONE AND 08/100
($51,281.08) DOLLARS as security for the full and faithful performance of this
lease upon the part of the Tenant to be performed. Upon termination of this
lease, and providing the Tenant is not in default hereunder and has performed
all of the conditions of this lease, the Landlord shall return the said sum of
FIFTY ONE THOUSAND TWO HUNDRED EIGHTY ONE AND 08/100 ($51,281.08) DOLLARS to the
Tenant. Anything herein contained to the contrary notwithstanding, it is
expressly understood and agreed that the said security deposit shall not bear
interest. Tenant covenants and agrees that it will not assign, pledge,
hypothecate, mortgage or otherwise encumber the aforementioned security during
the term of this lease. It is expressly understood and agreed that the Landlord
shall have the right to co-mingle the security funds with its general funds and
said security shall not be required to be segregated.
46. SURVIVAL OF OBLIGATION
<PAGE>
It is expressly understood and agreed that in the event there
are any obligations of Landlord or Tenant with respect to payment or performance
as required under the terms and conditions of this lease that shall have not
been performed prior to the expiration or termination of the lease in accordance
with its terms, such obligation, including the obligation to make rent
adjustments and other lease adjustments, shall survive the expiration or
termination of the lease term and surrender of the leased premises by the Tenant
to the Landlord.
47. FINANCIAL STATEMENTS
The Tenant agrees, at the request of the Landlord and if
required by any mortgagee or ground lessor, to be made not more than once during
any lease year, to furnish its latest current income and balance statements,
certified to by an officer of the corporation.
48. EXECUTION AND DELIVERY
The submission of the within lease by Landlord to Tenant for
review and approval shall not be deemed an option to lease, an offer to lease,
or a reservation of the leased premises in favor of Tenant, it being intended
that no rights or obligations shall be created by Landlord or Tenant until the
execution and delivery of the within lease by Landlord and Tenant, one to the
other.
49. OPTION TO RENEW
Provided the Tenant is not in default pursuant to the terms
and conditions of this lease beyond applicable notice and cure periods, the
Tenant is hereby given the right and privilege to renew the within lease, for
three (3) five (5) year periods, to commence at the end of the initial term of
this lease, or the expiring renewal term, as applicable, which renewals shall be
upon the same terms and conditions as in this lease contained, except as
follows:
(1) Tenant shall pay during the first (1st) five (5)
year renewal term annual Fixed Rent in the amount of THREE HUNDRED SIXTY THREE
<PAGE>
THOUSAND SIX HUNDRED TWENTY NINE AND 52/100 ($363,629.52) DOLLARS per annum
(based on a rate of $6.50 per square foot per annum), payable in equal
installments in the sum of THIRTY THOUSAND THREE HUNDRED TWO AND 46/100
($30,302.46) DOLLARS per month.
(2) Tenant shall pay during the second (2nd) five (5)
year renewal term annual Fixed Rent based upon ninety (90%) per cent of the fair
market value per square foot applicable to the leased premises. The fair market
value shall be determined as follows: After Tenant has given written notice to
the Landlord, as hereinafter provided, of its exercise of the within option, the
Landlord shall deliver to Tenant a written notice stating the Fixed Rent to be
paid for the leased premises during the second (2nd) five (5) year renewal term.
In the event that the Tenant objects to the Fixed Rent quoted by Landlord, the
issue of fair market value shall be open to negotiation between Landlord and
Tenant. In the event the parties cannot agree within thirty (30) days after
Landlord's notice of the then fair market rental value, the parties shall agree
on the appointment of a real estate appraiser (the "Appraiser") having the
M.A.I. designation, the cost of which shall be shared equally by Landlord and
Tenant, which Appraiser shall be knowledgeable in the Somerset County, New
Jersey market rental area, who shall make a fair market rental determination. If
the parties cannot agree within thirty (30) days subsequent to the appointment
of the Appraiser, then the matter shall be submitted to binding arbitration
pursuant to the rules for commercial arbitration of the American Arbitration
Association, at the equal administrative cost of Landlord and Tenant. It is
expressly understood and agreed that in any event the renewal Fixed Rent for the
second (2nd) five (5) year renewal term shall not be less than the annual Fixed
Rent of THREE HUNDRED SIXTY THREE THOUSAND SIX HUNDRED TWENTY NINE AND 52/100
($363,629.52) DOLLARS, in the event that ninety (90%) percent of fair market
rent shall be determined to be less than said sum as such determination shall be
made in the manner hereinabove provided.
<PAGE>
(3) Tenant shall pay during the third (3rd) five (5)
year renewal term annual Fixed Rent based upon the fair market value per square
foot applicable to the Leased Premises. The fair market value shall be
determined as set forth in subarticle (2) above. It is expressly understood and
agreed that in any event the renewal Fixed Rent for the third (3rd) five (5)
year renewal term shall not be less than the annual Fixed Rent payable during
the second (2nd) five (5) year renewal term in the event fair market rent shall
be determined to be less than said sum as such determination shall be made in
the manner hereinabove provided.
(4) The right, option, and privilege of the Tenant to
renew this lease as hereinabove set forth is expressly conditioned upon the
Tenant delivering to the Landlord, in writing, by certified mail, return receipt
requested, six (6) months' prior notice of its intention to renew, which notice
shall be given to the Landlord by the Tenant no later than six (6) months prior
to the date fixed for termination of the original term, first renewal term, or
second renewal term of this lease, as applicable.
(5) The obligation to pay the Fixed Rent as
hereinabove provided shall be in addition to the obligation to pay all
additional rent and other charges as required pursuant to the terms and
conditions of this lease, computed from the initial Commencement Date of this
lease, as applicable.
50. RIGHT OF FIRST OFFER ON SPACE
It is understood and agreed that in the event any space in the
building becomes available from time to time during the initial term of the
within lease agreement, or as extended, the Landlord shall give written
notification of such availability to the Tenant, which notice shall set forth
the rental and other terms upon which Landlord is willing to lease said space to
the Tenant. Tenant shall then have a period of ten (10) business days within
which to accept Landlord's offer to lease said space to the Tenant, which
election by Tenant shall be made by written notice to Landlord within said ten
(10) business day period. In the event Tenant elects not to
<PAGE>
lease said space, or fails to notify Landlord of its election within said ten
(10) business day period, Landlord shall then be free to lease said space to any
third party free and clear of Tenant's rights under this Article, on
substantially the same rental and other terms as offered to Tenant. If Tenant
elects to take such space, Tenant shall enter into an amendment to this lease
agreement incorporating the space into the premises leased hereunder within
thirty (30) days after Landlord's written notice to Tenant. The within right of
first offer is subject to any leasehold rights, interest, or options held by
building tenant Mary Kay Cosmetics as of the date hereof.
51. WAIVER OF LIENS
Landlord hereby waives any statutory and common law liens for
rent (other than judgment liens). Although such waiver is hereby deemed to be
automatic and self-executing, Landlord agrees to execute such instruments as may
be reasonably required from time to time in order to confirm such waiver.
52. PREVAILING PARTY
Notwithstanding anything to the contrary contained in this
lease, in the event of any litigation between Landlord and Tenant arising out of
this lease or Tenant's use and occupancy of the leased premises, the prevailing
party shall be entitled to recover its costs and expenses incurred in such
litigation, including reasonable attorneys' fees, at all levels, including
appeals.
53. SATELLITE DISHES
53.1 Tenant may, at its sole cost and expense, erect,
maintain, install and operate for the business purposes of Tenant during the
term of the lease or any extension thereof, a satellite transmittal/receiving
dish antenna (the "Satellite Dish") on the roof of the building, provided that
(i) Tenant shall comply with all applicable laws, orders and regulations, and
the terms and conditions of this lease, as hereby amended, (ii) the installation
thereof shall not cause excess structural stress affecting the load bearing
capacity of the roof of the building, and (iii) Tenant shall be responsible for
any
<PAGE>
and all damage to the building caused by or arising out of the installation,
maintenance or removal of the Satellite Dish. Tenant's right to install the
Satellite Dish shall include the right to run cable lines to the leased
premises. Landlord hereby reserves the right to grant to other tenants the right
to use the roof for similar purposes.
53.2 The Satellite Dish shall be installed on the roof of the
building in accordance with plans, specifications and configurations submitted
to Landlord for review, and Landlord shall have the right to approve the size,
location, aesthetics and manner of installation of the Satellite Dish, said
approval not to be unreasonably withheld or delayed. In the event that any
penetrations of the roof shall be required, the Tenant shall be required to
utilize the services of the Landlord's roofing contractor in connection with
such installation. Tenant shall promptly reimburse Landlord for all reasonable
costs and expenses, incurred by Landlord in connection with the Satellite Dish.
Tenant shall obtain any governmental licenses and/or permits now or hereafter
required for the installation, operation, use, maintenance and removal of the
Satellite Dish and related facilities.
53.3 Upon notice to Landlord, Tenant shall be given access to
such part of the roof of the building (the "Rooftop Space") for the limited
purpose of exercising Tenant's rights with respect to the Satellite Dish,
subject to reasonable controls and restrictions imposed by Landlord from time to
time. Tenant agrees that the Satellite Dish will operate in a band to be used
for broadcast and reception only, and may not be used in any fashion which would
cause any interference to any data processing operation or any other antennae,
radio systems or microwave dishes located at the building, and any such
interference shall be eliminated within a reasonable period of time not to
exceed seventy-two (72) hours after notice of the same is given to Tenant.
Tenant shall at all times maintain the Satellite Dish and related facilities in
good order and repair, and shall pay all costs therefor, including without
limitation, the cost of electricity. Upon expiration or termination of this
lease, Tenant
<PAGE>
shall, at its own expense, and in accordance with applicable laws, remove the
Satellite Dish and all related conduits, cables and facilities installed on or
in the building and repair any damage caused by such removal to, and restore,
the Rooftop Space, the leased premises and the building.
53.4 Tenant agrees to indemnify, defend and save Landlord, its
employees and its agents, other tenants, licensees, invitees and their
beneficiaries harmless from and against any and all losses, damages costs
(including the cost of litigation and attorneys' fees), claims, penalties and
liabilities of any nature whatsoever arising out of or in connection with the
Satellite Dish and other facilities related thereto, and shall carry contractual
liability insurance to cover the liability hereby assumed.
54. REASONABLENESS
Wherever in this lease the consent or approval of either the
Landlord or the Tenant is required, such consent or approval shall not be
unreasonably withheld, delayed or conditioned, unless the lease expressly
provides that such consent shall be in such party's sole discretion. Whenever
the provisions of this lease allow the Landlord or the Tenant to perform or not
perform some act at their option or in their judgment, the decision of the
Landlord and Tenant to perform or not perform such act must be reasonable.
55. MISCELLANEOUS
If any provision of this lease is held or rendered illegal or
unenforceable it shall be considered separate and severable from this lease and
the remaining provisions of this lease shall remain in force and bind the
parties as though the illegal or unenforceable provision had never been included
in this lease. The captions, section numbers, article numbers, and table of
contents appearing in this lease are inserted only as a matter of convenience
and in no way affect the substance of this lease. This lease and the Schedules
attached hereto set forth the entire agreement between the Landlord and Tenant
concerning the leased premises and
<PAGE>
there are no other agreements or understandings between them. Nothing in this
lease creates any relationship between the parties other than that of lessor and
lessee and nothing in this lease constitutes the Landlord a partner of the
Tenant or a joint venturer or member of a common enterprise with the Tenant.
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands
and seals or caused these presents to be signed by its proper corporate officers
and caused its proper corporate seal to be hereunto affixed, the day and year
first above written.
WITNESS:
/s/ STANLEY KARCZYNSKI (L.S.)
------------------------------------
STANLEY KARCZYNSKI
ATTEST: ANDRX PHARMACEUTICALS (NJ), INC.
A FLORIDA CORPORATION
By: /s/ SCOTT LODIN
---------------------------------
Vice President and
General Counsel
<PAGE>
STATE OF NEW JERSEY )
) SS.:
COUNTY OF )
BE IT REMEMBERED, that on this 4 day of February, 2000, before
me, the subscriber Eli Zimbler, personally appeared STANLEY KARCZYNSKI, who, I
am satisfied, is the Landlord mentioned in the within Instrument, and thereupon
he acknowledged that he signed, sealed and delivered the same as his act and
deed, for the uses and purposes therein expressed.
STATE OF )
) SS.
COUNTY OF )
BE IT REMEMBERED, that on this 4 day of February, 2000, before
me, the subscriber, personally appeared Scott Lodin, who, I am satisfied, is the
person who signed the within Instrument as Vice President and General Counsel of
ANDRX PHARMACEUTICALS (NJ), INC., a Florida Corporation, the Tenant named
therein, and he thereupon acknowledged that the said instrument made by the
corporation and sealed with its corporate seal, was signed, sealed with the
corporate seal and delivered by him as such officer and is the voluntary act and
deed of the corporation, made by virtue of authority from its Board of
Directors.
<PAGE>
L E A S E A G R E E M E N T
- - - - - - - - - - - - - -
BY AND BETWEEN
STANLEY KARCZYNSKI,
"Landlord"
-and-
ANDRX PHARMACEUTICALS (NJ), INC.,
a Florida Corporation
"Tenant"
------------------
DATED:
------------------
LAW OFFICES
EPSTEIN, BROWN, MARKOWITZ & GIOIA
245 Green Village Road
P.O. Box 901
Chatham Township, New Jersey 07928-0901
(973) 593-4900
Fax (973) 593-4966
U:\USERS\IN\KARCZ\12625.304\LEASE.001
<PAGE>
L E A S E A G R E E M E N T
- - - - - - - - - - - - - -
BY AND BETWEEN:
STANLEY KARCZYNSKI,
"Landlord"
-and-
ANDRX PHARMACEUTICALS (NJ), INC.,
a Florida Corporation
"Tenant"
PREMISES: 1600 Cottontail Lane
Franklin Township, New Jersey
PREPARED BY: ROBERT K. BROWN, ESQ
DATED:
U:\USERS\IN\KARCZ\12625.304\LEASE.001
March 23, 2000
<PAGE>
TABLE OF CONTENTS
1. LEASED PREMISES.........................................................1
2. TERM OF LEASE...........................................................2
3. RENT....................................................................3
4. CONDITION OF THE LEASED PREMISES........................................4
5. USE.....................................................................5
6. REPAIRS AND MAINTENANCE.................................................5
7. UTILITIES...............................................................6
8. TAXES...................................................................7
9. INSURANCE...............................................................9
9A. PASS-THROUGH EXPENSES..................................................10
10. SIGNS..................................................................11
11. FIXTURES...............................................................12
12. GLASS..................................................................13
13. ASSIGNMENT AND SUBLETTING..............................................13
14. FIRE AND CASUALTY......................................................14
15. COMPLIANCE WITH LAWS, RULES AND REGULATIONS............................17
16. INSPECTION BY LANDLORD.................................................20
17. DEFAULT BY TENANT......................................................21
18. LIABILITY OF TENANT FOR DEFICIENCY.....................................23
19. NOTICES................................................................24
20. NON-WAIVER.............................................................24
21. RIGHT OF TENANT TO MAKE ALTERATIONS AND IMPROVEMENTS...................25
<PAGE>
22. NON-LIABILITY OF LANDLORD..............................................26
23. WARRANTY OF TITLE......................................................26
24. RESERVATION OF EASEMENT................................................27
25. AIR, GROUND AND WATER POLLUTION........................................27
26. LIMIT OF LANDLORD'S LIABILITY..........................................27
27. FORCE MAJEURE..........................................................28
28. STATEMENTS BY LANDLORD AND TENANT......................................28
29. CONDEMNATION...........................................................29
30. QUIET ENJOYMENT........................................................30
31. SURRENDER OF PREMISES..................................................30
32. INDEMNITY..............................................................31
33. SHORT FORM LEASE.......................................................32
34. LEASE CONSTRUCTION.....................................................33
35. BIND AND INURE CLAUSE..................................................33
36. DEFINITIONS............................................................33
37. NET RENT...............................................................33
38. DEFINITION OF TERM OF "LANDLORD".......................................33
39. COVENANTS OF FURTHER ASSURANCES........................................34
40. REMEDIES...............................................................34
41. COVENANT AGAINST LIENS.................................................35
42. BROKERAGE..............................................................36
43. SUBORDINATION OF LEASE.................................................36
44. MUTUAL PARKING.........................................................37
<PAGE>
45. SECURITY...............................................................37
46. SURVIVAL OF OBLIGATION.................................................37
47. FINANCIAL STATEMENTS...................................................38
48. EXECUTION AND DELIVERY.................................................38
49. OPTION TO RENEW........................................................38
50. RIGHT OF FIRST OFFER ON SPACE..........................................40
51. WAIVER OF LIENS........................................................41
52. PREVAILING PARTY.......................................................41
53. SATELLITE DISHES.......................................................41
54. REASONABLENESS.........................................................43
55. MISCELLANEOUS..........................................................43
Schedule "A" - Legal Description
Schedule "B" - Site Plan
Schedule "C" - Construction Floor Plans
<PAGE>
STATE OF NEW JERSEY )
) SS.:
COUNTY OF ESSEX )
BE IT REMEMBERED, that can this 4 day of February, 2000, before me, the
subscriber, ELI ZIMBER personally appeared STANLEY KARCZYNSKI, who, I am
satisfied, is the Landlord mentioned in the within Instrument, and thereupon he
acknowledged that he signed, sealed and delivered the same as his act and deed,
for the uses and purposes therein expressed.
/s/ ELI ZIMBER
-----------------------------------
ELI ZIMBER
NOTARY PUBLIC OF NEW JERSEY
MY COMMISSION EXPIRES AUG. 25, 2003
[SEAL]
STATE OF )
) SS.
COUNTY OF )
BE IT REMEMBERED, that on this 4 day of February, 2000, before me, the
subscriber, B. JANET LOPEZ personally appeared SCOTT LODIN, who, I am satisfied,
is the person who signed the within Instrument as VP/ GENERAL COUNSEL of ANDRX
PHARMACEUTICALS (NJ), INC., a Florida Corporation, the Tenant named therein, and
he thereupon acknowledged that the said instrument made by the corporation and
sealed with its corporate seal, was signed, sealed with the corporate seal and
delivered by him as such officer and is the voluntary act and deed of the
corporation, made by virtue of authority from its Board of Directors.
/s/ B. JANET LOPEZ
-----------------------------------
B. Janet Lopez
[SEAL] My Commission CC90l405
Expires January 12, 2004
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
or caused these prevents to be signed by its proper corporate officers and
caused its proper corporate seal to be hereunto affixed, the day and year first
above written.
WITNESS.
/s/ ELI ZIMBER /s/ STANLEY KARCZYNSKI (L.S.)
- ------------------------------------ ------------------------------------
Eli Zimber STANLEY KARCZYNSKI
ATTEST: ANDRX PHARMACEUTICALS (NJ), INC.
a Florida Corporation
/s/ Allison Lichter By: /s/ SCOTT LODIN
- ------------------------------------ ---------------------------------
Allison Lichter Vice President and Gen. Counsel
EXHIBIT 22.1
SUBSIDIARIES
Andrx Pharmaceuticals, Inc. - a Florida Corporation, incorporated 9/17/92*
Andrx Pharmaceuticals Sales, Inc. - a Florida Corporation, incorporated 9/7/99*
Andrx Pharmaceuticals (NJ), Inc. - a Florida Corporation, incorporated 11/15/99*
Andrx Pharmaceuticals LLC - a Virginia Limited Liability Company organized
2/11/00#
Andrx Pharmaceuticals Equipment #1 L.C. - a Florida Limited Liability Company,
organized 2/25/99#
Valmed Pharmaceutical, Inc. - a New York Corporation, incorporated 2/11/00*
Valmed Pharmaceutical, LLC, a New York Limited Liability Company, organized
2/11/00#
Andrx Financial Corp. - a Nevada Corporation, incorporated 11/24/99*
Andrx Foreign Sales Corp. - a USVI corporation, incorporated 9/8/99*
Aura Laboratories, Inc. - a Florida Corporation, incorporated 2/20/97*
Aura Pharmaceuticals, Inc. - a Florida Corporation, incorporated 9/7/99*
Anda Generics (Nevada), Inc. - a Nevada Corporation, incorporated 12/30/96*
Anda Sales, Inc. - a Florida Corporation, incorporated 9/7/99#
Anda, Inc. - a Florida Corporation, incorporated 9/17/92*
Cybear, Inc. - a Delaware Corporation, incorporated 3/17/97*
Cybearclub L.C. - a Florida Limited Liability Company, organized 8/25/99#
SR Six, Inc. - a Florida Corporation, incorporated 7/7/94*
Telegraph Consulting Corp. - a Florida Corporation, incorporated 8/13/99#
- ------------
*Direct
#Indirect
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report dated March 27, 2000 included in this Form 10-K
into the Company's previously filed Form S-8 Registration Statement (No.
333-11537).
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 27, 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 32,555,000
<SECURITIES> 90,863,000
<RECEIVABLES> 78,458,000
<ALLOWANCES> 6,426,000
<INVENTORY> 78,771,000
<CURRENT-ASSETS> 304,321,000
<PP&E> 50,048,000
<DEPRECIATION> 11,777,000
<TOTAL-ASSETS> 357,954,000
<CURRENT-LIABILITIES> 123,458,000
<BONDS> 0
0
0
<COMMON> 31,000
<OTHER-SE> 220,941,000
<TOTAL-LIABILITY-AND-EQUITY> 357,954,000
<SALES> 397,198,000
<TOTAL-REVENUES> 475,990,000
<CGS> 235,346,000
<TOTAL-COSTS> 331,053,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,661,000
<INCOME-PRETAX> 149,459,000
<INCOME-TAX> 55,405,000
<INCOME-CONTINUING> 94,054,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,054,000
<EPS-BASIC> 3.03
<EPS-DILUTED> 2.90
</TABLE>
