<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
SCHEIN PHARMACEUTICAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
Delaware 2834 11-2726505
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
100 Campus Drive Florham Park, New Jersey 07932 (973) 593-5500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Corporation Service Corporation
1013 Centre Road
Wilmington, Delaware 19805
(302) 636-5454
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
Copies of Communications to:
<TABLE>
<S> <C>
Edward W. Kerson, Esq. Alan L. Jakimo, Esq.
Proskauer Rose LLP Brown & Wood LLP
1585 Broadway One World Trade Center, 58th Floor
New York, New York 10036-8299 New York, New York 10048
(212) 969-3000 (212) 839-5300
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM REGISTRATION
REGISTERED REGISTERED(/1/) OFFERING PRICE PER UNIT(/2/) AGGREGATE OFFERING PRICE(/2/) FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01
per share............. 3,450,000 shares $18.00 $62,100,000 $18,319.50
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Includes 450,000 shares of Common Stock, which the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Dated , 1998
Shares
[LOGO] SCHEIN
PHARMACEUTICAL
Common Stock
--------------
Of the shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering"), shares are being sold by Schein
Pharmaceutical, Inc. ("Schein Pharmaceutical," "Schein" or the "Company")
and shares are being sold by certain stockholders of the Company (the
"Selling Stockholders"). See "Principal and Selling Stockholders." The Company
will not receive any proceeds from the sale of the shares by the Selling
Stockholders.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. It is currently anticipated that the initial public offering
price will be between $ and $ per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
Application has been made to list the Common Stock on the New York Stock
Exchange under the symbol " ."
--------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price Underwriting Proceeds
to Discounts and Proceeds to to Selling
Public Commissions(1) Company(2) Stockholders(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
Total(3)..................... $ $ $ $
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- --------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company and by the
Selling Stockholders estimated to be $ and $ , respectively.
(3) The Company and the Selling Stockholders have granted the Underwriters an
option, exercisable within 30 days of the date hereof, to purchase an
aggregate of up to shares and shares of Common Stock, respectively,
at the Price to Public, less Underwriting Discounts and Commissions, to
cover over-allotments, if any. If all such additional shares are purchased,
the total Price to Public, Underwriting Discounts and Commissions, Proceeds
to Company and Proceeds to Selling Stockholders will be $ , $ , $
and $ , respectively. See "Underwriting."
--------------
The Common Stock is offered by the several Underwriters named herein when, as
and if received and accepted by them, and subject to their right to reject
orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates for the shares will be made at the
offices of Cowen & Company, New York, New York, on or about , 1998.
--------------
COWEN & COMPANY
BEAR, STEARNS & CO. INC.
SALOMON SMITH BARNEY
, 1998
<PAGE>
[ARTWORK]
A Broad Spectrum of Pharmaceutical Experience.
[PHOTO]
Various packages such as vials, syringes, bottles and blisterpacks containing
Schein Pharmaceutical, Inc. products
[CAPTION]
MANUFACTURED PRODUCTS
160 chemical entities
350 dosage strengths
200 approved ANDAs
[PHOTO]
Vial labeled INFeD(R)
[CAPTION]
INFeD(R)
Branded product for iron management treatment of severe anemia
[PHOTO]
Technician in a sterile containment suit
[CAPTION]
STERILE DOSAGE MANUFACTURING CAPABILITIES
Injectables Ophthalmics Otics Penicillins Cephalosporins
Over 75 million vials and ampules made annually
[PHOTO]
Manufacturing equipment
[CAPTION]
SOLID DOSAGE MANUFACTURING CAPABILITIES
Immediate and extended-release products
Over 4 billion tablets and capsules made annually
[PHOTO]
Technician working with computer
[CAPTION]
RESEARCH & DEVELOPMENT
24 ANDAs pending and 60 other products under development
Spent $74 million in R&D over the last 3 years
[PHOTO]
Employee wearing telephone headset
[CAPTION]
SALES MARKETING
Approximately 60,000 customers
120-person generic sales and marketing force
20-person branded sales force
Schein Pharmaceutical Inc. logo
Marsam Pharmaceuticals Inc. logo
Steris Laboratories logo
[END ARTWORK]
The information in the captions above is presented as of December 3, 1997
and is subject to change. No assurance can be given that any of the Company's
products covered by pending Abbreviated New Drug Applications or other
products under development will be successfully developed or approved by the
United States Food and Drug Administration or achieve significant revenue or
profitability.
----------------
INFeD(R) is a registered trademark of the Company; Ferrlecit(R) and Unipine
XL(R) are registered trademarks of Makoff R&D Laboratories Inc. and Ethical
Holdings plc, respectively.
----------------
Certain persons participating in the Offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock,
including stabilizing the purchase of Common Stock to cover syndicate short
positions and the imposition of penalty bids. For a description of these
activities, see "Underwriting."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus, including information
under "Risk Factors". Except as otherwise noted, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option and
reflects (i) a 123-for-one stock split that will occur immediately prior to the
effective date of the Offering and (ii) the conversion of each outstanding
share of Class A Common Stock and Class B Common Stock into a single class of
Common Stock upon the completion of the Offering. All references to the
Company's operations for a particular fiscal year refer to the 52-53 week
period ended on the last Saturday in December of that year, and all references
to the Company's operations for a particular fiscal quarter refer to the three
month period ended on the last Saturday in that quarter. Unless otherwise
indicated, all references to "Schein Pharmaceutical," "Schein" or the "Company"
refer collectively to Schein Pharmaceutical, Inc. and its predecessors and
subsidiaries.
THE COMPANY
Schein Pharmaceutical is one of the leading generic pharmaceutical companies
in the United States. The Company develops, manufactures and markets one of the
broadest generic product lines in the pharmaceutical industry through the
integration of its product development expertise, diverse, high-volume
production capacity and direct sales and marketing force. The Schein product
line includes both solid dosage and sterile dosage generic products, and the
Company is also developing a line of specialty branded pharmaceuticals. The
Company's primary branded product, INFeD, is the leading injectable iron
product in the United States. The Company has a substantial pipeline of
products under development, including 24 Abbreviated New Drug Applications
("ANDAs") filed with the United States Food and Drug Administration ( "FDA").
The Company supplements its internal product development, manufacturing and
marketing capabilities through strategic collaborations. Schein generated net
revenues of $478.0 million and operating income of $35.2 million during the 12
months ended September 1997.
The Company believes it manufactures and markets the broadest product line of
any U.S. pharmaceutical company in terms of number and types of products. The
Company manufactures and markets approximately 160 chemical entities formulated
in approximately 350 different dosages under approximately 200 ANDAs approved
by FDA. Schein is currently the sole manufacturing source for 47 generic
pharmaceutical products, of which 45 are sterile dosage products. The Company's
solid dosage products include both immediate-release and extended-release
capsules and tablets; sterile dosage products include solutions, suspensions,
powders and lyophilized (freeze-dried) products primarily for administration as
injections, ophthalmics and otics. The manufacture of sterile dosage products
is significantly more complex than the manufacture of solid dosage products,
which limits competition in this product area. The Company currently
manufactures approximately four billion solid dosage tablets and capsules and
75 million sterile dosage vials and ampules annually. Solid dosage generic
products and sterile dosage generic products each accounted for approximately
40% of the Company's net revenues in the 12 months ended September 1997.
Since introducing INFeD in 1992, the Company has been developing a portfolio
of branded products, primarily in select therapeutic markets, such as iron
management for the nephrology, oncology and hematology markets. INFeD is used
in the treatment of certain types of anemia, particularly in dialysis patients,
and accounted for approximately 20% of the Company's net revenues in the nine
months ended September 1997. The Company markets INFeD through a 20-person
dedicated sales and marketing force, as well as through co-marketing
collaborations with Bayer Corporation in the nephrology market and MGI Pharma,
Inc. ("MGI") in the oncology market.
The Company believes its 120-person direct sales and marketing force is the
largest in the U.S. generic pharmaceutical industry. Through its customized
marketing programs, the Company markets its products to
3
<PAGE>
approximately 60,000 customers representing all major customer channels,
including pharmaceutical wholesalers, chain and independent drug retailers,
hospitals, managed care organizations, other group purchasing organizations and
physicians.
Schein's objective is to become the leading generic pharmaceutical company in
the approximately $10.0 billion generic pharmaceutical industry in the United
States. The Company's growth strategy is to: (i) leverage its diverse
pharmaceutical development and manufacturing capabilities to extend the breadth
of its generic product line; (ii) pursue strategic collaborations to supplement
its product development and manufacturing resources; (iii) focus its product
development on complex and other generic drugs that require specialized
development or manufacturing technology and are therefore expected to encounter
limited competition; (iv) develop and market branded drugs for select
therapeutic categories; and (v) expand market penetration through direct sales
and innovative marketing programs.
The Company's commitment to product development has resulted in 23 ANDA
approvals during the past three years and its current pipeline of 24 pending
ANDAs and over 60 additional products under development. During the past three
fiscal years, the Company, directly and through its strategic collaborations,
has expended approximately $74.0 million on product pipeline development
activities, which the Company believes is among the highest product development
expenditure levels for any independent generic drug company. The Company
pursues product development through its 140-person product development staff
and various collaborations and licensing arrangements with other pharmaceutical
and drug delivery technology companies. The Company's product development
efforts focus on: (i) major branded drugs coming off patent; (ii) drugs for
which patent protection has lapsed and for which there are few or no generic
producers; (iii) drugs whose patents may be susceptible to challenge; (iv)
proprietary and branded products focused in select therapeutic areas; and (v)
generic products that require specialized development, formulation, drug
delivery or manufacturing technology.
The Company supplements its internal product development, manufacturing and
marketing capabilities with external sources. During 1994, Schein entered into
a strategic alliance with Bayer Corporation, through which Bayer Corporation
became a 28.3% stockholder of Schein, and Bayer Corporation currently
participates with Schein in several collaborations. In 1995, the Company
acquired Marsam Pharmaceuticals Inc. ("Marsam"), expanding the Company's
ability to develop and manufacture sterile penicillins and oral and sterile
cephalosporins. In addition, the Company has entered into strategic
collaborations involving product development arrangements with companies such
as Ethical Holdings plc ("Ethical") and Elan Corporation plc ("Elan"); raw
material supply arrangements with companies such as Johnson Matthey plc
("Johnson Matthey") and Abbott Laboratories ("Abbott"); and sales and marketing
arrangements with Bayer Corporation and other companies such as Elensys Care
Services, Inc. ("Elensys") and MGI.
THE OFFERING
Common Stock offered by:
The Company............................ shares
The Selling Stockholders............... shares
Common Stock to be outstanding after
the Offering........................... shares(1)
Use of proceeds by the Company.......... To reduce existing indebtedness,
including a term loan, senior
floating rate notes and a
revolving credit loan. See "Use
of Proceeds."
Proposed NYSE symbol....................
- --------
(1) Excludes 3,650,763 shares of Common Stock reserved for issuance upon the
exercise of outstanding options granted pursuant to the Company's 1993
Stock Option Plan, 1997 Stock Option Plan and the 1995 Non-Employee
Director Plan at a weighted average exercise price of $14.65 per share.
Upon closing of the Offering, the Company intends to grant up to an
additional options at an exercise price equal to the initial public
offering price of the Common Stock offered hereby. See "Management--Stock
Options."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER SEPTEMBER
--------------------------- -----------------
1994 1995(1) 1996 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................... $385,428 $391,846 $476,295 $352,172 $353,829
-------- -------- -------- -------- --------
Gross profit................... $148,048 $141,339 $155,620 $115,451 $113,267
Costs and expenses:
Selling, general and
administrative............... 71,416 73,250 84,366 61,149 57,950
Research and development...... 19,170 28,324 27,030 23,044 22,854
-------- -------- -------- -------- --------
$ 57,462 $ 39,765 $ 44,224 $ 31,258 $ 32,463
-------- -------- -------- -------- --------
Operating income(2)(3)......... $ 23,868 $ 6,366 $ 34,029 $ 23,545 $ 24,741
Interest expense, net.......... 1,493 10,005 23,285 16,081 20,456
Other expense (income), net.... 579 779 4,156 1,745 (4,536)
Income (loss) before taxes on
income........................ 21,796 (4,418) 6,588 5,719 8,821
Net income (loss).............. $ 6,631 $(14,900) $ 1,397 $ 2,146 $ 3,726
======== ======== ======== ======== ========
Earnings (loss) per share(4)... $ 0.20 $ (0.44) $ 0.04 $ 0.06 $ 0.11
======== ======== ======== ======== ========
Weighted average number of
common shares outstanding(4).. 33,429 34,071 34,026 34,033 34,115
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 1997
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA(5) AS ADJUSTED(6)
------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $93,480 $76,780 $
Total assets.............................. 520,699 524,899
Short-term debt, including current portion
of long-term debt........................ 32,943 49,643
Long-term debt, less current maturities... 223,470 210,970
Stockholders' equity...................... 137,084 137,084
</TABLE>
- --------
(1) Includes the results of Marsam from September 1995, the date of purchase.
In connection with the purchase of Marsam, the Company recognized acquired
in-process research and development. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 3 to
the Consolidated Financial Statements of the Company.
(2) Reflects a 1994 charge of $33.6 million for special compensation,
restructuring and relocation costs recognized by the Company in connection
with its restructuring and relocation of its corporate headquarters in
1994. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Notes 2 and 12 to the Consolidated Financial
Statements of the Company.
(3) Reflects a 1995 charge of $30.0 million for acquired in-process Marsam
research and development. See Note 3 to the Company's Consolidated
Financial Statements of the Company.
(4) See Note 1 to the Consolidated Financial Statements of the Company for
information concerning the computation of earnings per share.
(5) The pro forma balances assume that the conversion of the Senior
Subordinated Loan (as defined herein) to the Senior Floating Rate Notes Due
2004 (as defined herein), resulting in lower interest rates, and the
prepayment of $12.5 million of a term loan facility, paid in October 1997,
had occurred as of September 1997. Additionally, in connection with the
conversion of the debt, $4.2 million in financing fees and expenses are
treated as having been paid. Both payments were funded through the
Company's revolving credit facility.
(6) Gives effect to the sale of shares of common stock to be sold by the
Company in the Offering at an estimated public offering price of $ per
share, and the application of the estimated net proceeds therefrom to repay
debt, as if the transactions had occurred as of September 1997. See "Use of
Proceeds."
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock involves a high degree of risk.
In addition to the other information in this Prospectus, prospective investors
should carefully consider the following factors in evaluating the Company and
its business before purchasing any shares of Common Stock. Prospective
investors are cautioned that the statements in this Prospectus that are not
descriptions of historical facts may be forward-looking statements that are
subject to risks and uncertainties. The Company's actual results could differ
materially from those currently anticipated due to a number of factors,
including, but not limited to, those identified below and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business" and elsewhere in this Prospectus.
DEPENDENCE UPON NEW PRODUCTS AND EFFECT OF PRODUCT LIFECYCLES
The Company's results of operations depend, to a significant extent, upon
its ability to develop and commercialize new pharmaceutical products in
response to the competitive dynamics within the pharmaceutical industry.
Generally, following the expiration of patents and any other market
exclusivity periods for branded drugs, the first pharmaceutical manufacturers
successfully to market generic equivalents of such drugs achieve higher
revenues and gross profit from the sale of such generic drugs than do others
from the sale of generic equivalents subsequently approved. As competing
generic products reach the market, the prices, sales volumes and profit
margins of the first generic versions often decline significantly. For these
reasons, the Company's ability to achieve growth in revenues and profitability
depends on its being among the first companies regularly to introduce new
generic products. While the Company believes the pipeline of generic drugs and
branded drugs it currently has under development will allow it to compete
effectively, no assurance can be given that any of the drugs in its pipeline
will be successfully developed or approved by FDA, will be among the first to
the market or will achieve significant revenues and profitability. See "--
Dependence on Successful Patent Litigation," "--Competition," "--Dependence on
Regulatory Approval and Compliance," "--Pending Regulatory Matters,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
DEPENDENCE ON CERTAIN EXISTING PRODUCTS
The Company derives and is expected to continue to derive a significant
portion of its revenues and gross profit from a limited number of products.
Net revenues from INFeD in 1996 and the nine months ended September 1997 were
$88.0 million and $72.1 million, respectively, or 19% and 20%, respectively,
of the Company's total net revenues, with gross profit from INFeD as a
percentage of total gross profit being significantly greater. Any material
decline in revenues or gross profit from these products could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Products."
DEPENDENCE ON SUCCESSFUL PATENT LITIGATION
A significant portion of the Company's revenues and gross profit has been
derived from generic versions of branded drug products covered by patents the
Company has challenged under the Drug Price Competition and Patent Term
Restoration Act of 1984 (the "Waxman-Hatch Act"). In several successful
proceedings, the Company has been advised and represented by an independent
patent attorney (the "Consultant") whose involvement has been substantial. The
Company expects that the Consultant will be involved with the Company in no
more than two additional patent challenges, one of which is currently being
litigated. Through its internal efforts, and with the assistance of third-
party collaborators and advisors, the Company has identified a number of
additional patents that may be susceptible to challenge. There can be no
assurance the Company will successfully complete the development of any
additional products involving patent challenges, succeed in any pending or
future patent challenges or, if successful, receive significant revenues or
profit from the products covered by successfully challenged patents. See "--
Dependence Upon New Products and Effect of Product Lifecycles," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Government Regulations" and "Certain Transactions."
6
<PAGE>
COMPETITION
The pharmaceutical industry is intensely competitive. The Company competes
with numerous companies in the pharmaceutical industry generally and the
generic segment of the industry specifically. These competitors include
generic drug manufacturers and large pharmaceutical companies that continue to
manufacture the branded and/or generic versions of drugs after the expiration
of their patents relating to these drugs. Many of the Company's competitors
have greater financial and other resources than the Company and, therefore,
are able to spend more than the Company on research, product development and
marketing. In addition, following the expiration of patents on branded drugs,
manufacturers of these products have employed various strategies intended to
maximize their share of the markets for these products, as well as, in some
cases, generic equivalents of these products, and are expected to continue to
do so in the future. There can be no assurance that developments by others
will not render any product the Company produces or may produce obsolete or
otherwise non-competitive. See "--Dependence Upon New Products and Effect of
Product Lifecycles," "--Consolidation of Distribution Network; Customer
Concentration" and "Business--Competition."
DEPENDENCE ON REGULATORY APPROVAL AND COMPLIANCE
The development, manufacture, marketing and sale of pharmaceutical products
is subject to extensive federal, state and local regulation in the U.S. and
similar regulation in other countries. The Company, like its competitors, must
obtain approval from FDA before marketing most drugs, and must demonstrate
continuing compliance with current Good Manufacturing Practices ("cGMP")
regulations. Generally, for generic products an ANDA is submitted to FDA, and
for new drugs, a New Drug Application ("NDA") is submitted. Under certain
circumstances following product approval and market introduction, FDA can
request product recalls, seize inventories and merchandise in commerce, move
to enjoin further manufacture and product distribution, suspend distribution
or withdraw FDA approval of the product, and debar a company from submitting
new applications. FDA also can take administrative action against a company to
suspend substantive review of pending applications and withhold approvals, if
it concludes that the data and applications from that company may not be
reliable or that there are significant unresolved cGMP issues pertinent to the
manufacture of drugs at a particular facility of that company. Any such
actions are likely to have a material adverse effect on a company's business.
The Company has ANDAs currently pending before FDA and intends to file
additional ANDAs in the future. Delays in the review of these applications or
the inability of the Company to obtain approval of certain of these
applications or to market the product following approval could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "--Dependence Upon New Products and Effect of Product
Lifecycles," "--Pending Regulatory Matters" and "Business--Government
Regulations."
PENDING REGULATORY MATTERS
In early 1996, FDA conducted an inspection of the operations of the
Company's subsidiary, Steris Laboratories, Inc. ("Steris"), located in
Phoenix, Arizona. At the conclusion of that inspection, FDA identified various
cGMP manufacturing and reporting deficiencies in Steris' operations. Steris
has subsequently been advised by FDA that it will not approve any ANDAs for
products manufactured at the Steris facility until FDA confirms that the
manufacturing and reporting deficiencies have been corrected. Ten of the
Company's pending ANDAs have been filed from the Steris facility. Following
the 1996 inspection, Steris implemented numerous measures to correct these
deficiencies and place Steris in compliance with applicable FDA manufacturing
and reporting requirements.
In July 1997, FDA conducted a follow-up inspection of the Steris facility.
At the conclusion of that inspection, FDA identified additional cGMP
deficiencies at the Steris facility. Steris has implemented measures intended
to correct these deficiencies and believes that a full reinspection will be
required before FDA will approve ANDAs for new products manufactured at the
Steris facility. While the Company is currently discussing with FDA the timing
of this reinspection, no assurance can be given as to when it will take place.
Following the 1996 inspection of Steris, FDA's Office of Regulatory Affairs
staff commenced an investigation of Steris' operations that focused primarily
on drug stability issues, including Steris' alleged failure to notify FDA on
an adequate and timely basis of drug stability problems with respect to
certain products
7
<PAGE>
manufactured at the Steris facility. On the basis of this investigation, the
U.S. Department of Justice ("DOJ") notified Steris in a letter dated July 28,
1997 that the alleged reporting deficiencies constituted serious breaches of
regulatory obligations and indicated that it would be willing to negotiate a
settlement of the alleged violations with Steris. The contemplated settlement
will require Steris to pay a substantial misdemeanor fine for failure to
observe application reporting requirements for two drugs during 1994 and 1995.
While the Company does not expect any other sanctions to arise in respect of
this matter, any such sanctions could have a material adverse effect on the
Company's business, results of operations and financial condition.
In 1995, FDA inspected the operations of the Company's subsidiary, Danbury
Pharmacal, Inc. ("Danbury"), which operates facilities in Carmel, New York and
Danbury, Connecticut. As a result of observations made by FDA relating to
Danbury's compliance with cGMP requirements and the integrity of the data
submitted by Danbury in support of certain ANDAs, Danbury voluntarily audited
all data submitted in connection with 26 of its pending and approved ANDAs.
Since the 1995 inspection, FDA has continued to approve ANDAs for products
manufactured by Danbury. In August 1997, FDA reinspected the Carmel and
Danbury facilities. FDA observed certain cGMP deficiencies which the Company
has corrected in a manner satisfactory to FDA. FDA is currently conducting an
additional inspection of those facilities, which the Company believes
primarily will involve evaluations of the ANDA audits and the procedural
changes Danbury instituted to remedy cGMP deficiencies observed during the
1995 FDA inspection.
In June 1997, FDA conducted an ANDA preapproval and cGMP inspection at the
Company's Marsam subsidiary, located in Cherry Hill, New Jersey. Although the
inspection focused primarily on issues relating to the manufacture of certain
drug products that are the subject of five pending ANDAs, the inspection also
included an examination of Marsam's general compliance with cGMP requirements.
Marsam was informed at the conclusion of the inspection that FDA intended to
withhold approval of the five ANDAs until certain alleged cGMP deficiencies
are corrected. Marsam has provided FDA with information it believes
demonstrates that the alleged deficiencies are not significant and that
corrective measures have been implemented. FDA has informed Marsam that a
follow-up inspection will be conducted to determine whether these corrective
actions have been implemented satisfactorily. The Company expects that this
inspection will occur in the near future. Seven of the Company's pending ANDAs
have been filed from the Marsam facility.
There can be no assurance that FDA will determine that the Company has
adequately corrected the alleged deficiencies or that approval of any of the
pending or subsequently submitted ANDAs by the Company will be forthcoming. In
addition, there can be no assurance that FDA, following the reinspection of
the Steris, Danbury and Marsam facilities and its review of their respective
responses to the alleged cGMP deficiencies, will not seek to impose additional
regulatory sanctions against the Company and its subsidiaries. See "--
Dependence Upon New Products and Effect of Product Lifecycles" and "Business--
Government Regulations."
CONSOLIDATION OF DISTRIBUTION NETWORK; CUSTOMER CONCENTRATION
The Company's principal customers are wholesale drug distributors and major
drug store chains. These customers comprise a significant part of the
distribution network for pharmaceutical products in the United States. This
distribution network is continuing to undergo significant consolidation marked
by mergers and acquisitions among wholesale distributors and the growth of
large retail drug store chains. As a result, a small number of large wholesale
distributors control a significant share of the market, and the number of
independent drug stores and small drug store chains has decreased. The Company
expects that consolidation of drug wholesalers and retailers will increase
competitive pricing pressure on generic drug manufacturers. The Company
believes this consolidation has caused and may continue to cause the Company's
customers to reduce purchases of the Company's products. For the nine months
ended September 1997 and for the year ended December 1996, sales to the
Company's ten largest customers represented approximately 70% of the Company's
total net revenues. For the nine months ended September 1997, three customers
accounted for 17%, 16% and 11%, respectively, of the Company's total net
revenues. The same three customers accounted for 16%, 15% and 11%,
respectively, of the Company's total net revenues in 1996. The loss of any of
these customers could materially and adversely affect the Company's business,
results of operations and financial condition. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business--
Industry Overview."
8
<PAGE>
DEPENDENCE ON COLLABORATIVE RELATIONSHIPS
The Company develops and markets certain products through collaborative
arrangements with other companies through which it gains access to dosage
forms, proprietary drug delivery technology, specialized formulation
capabilities and active pharmaceutical ingredients. The Company relies on its
collaborative partners for any number of functions, including product
formulation, approval and supply. There can be no assurance these products
will be successfully developed or that the Company's partners will perform
their obligations under these collaborative arrangements. Further, there can
be no assurance that the Company will be able to enter into future
collaborative arrangements on favorable terms, or at all. Even if the Company
enters into such collaborative arrangements, there can be no assurance that
any such arrangement will be successful. See "Business--Strategy" and
"Business--Strategic Collaborations."
SUPPLY OF RAW MATERIALS
The principal components of the Company's products are active and inactive
pharmaceutical ingredients and certain packaging materials. Many of these
components are available only from a single source and, in many of the
Company's ANDAs, only one supplier of raw materials has been identified, even
in instances when multiple sources exist. Because FDA approval of drugs
requires manufacturers to specify their proposed suppliers of active
ingredients and certain packaging materials in their applications, FDA
approval of any new supplier would be required if active ingredients or such
packaging materials were no longer available from the specified supplier. The
qualification of a new supplier could delay the Company's development and
marketing efforts. Any interruption of supply could have a material adverse
effect on the Company's ability to manufacture its products or to obtain or
maintain regulatory approval of such products. In addition, the Company
obtains a significant portion of its raw materials from foreign suppliers.
Arrangements with international raw material suppliers are subject, among
other things, to FDA regulation, various import duties and other government
clearances. Acts of governments outside the U.S. may affect the price or
availability of raw materials needed for the development or manufacture of
generic drugs. In addition, recent changes in patent laws in jurisdictions
outside the U.S. may make it increasingly difficult to obtain raw materials
for research and development prior to the expiration of the applicable U.S.
patents. There can be no assurance that the Company will establish or, if
established, maintain good relationships with its suppliers or that such
suppliers will continue to supply ingredients in conformity with legal or
regulatory requirements. See "Business--Strategy" and "Business--Manufacturing
and Distribution."
RISK OF PRODUCT LIABILITY CLAIMS; NO ASSURANCE OF ADEQUATE INSURANCE
The testing, manufacture and sale of pharmaceutical products involve a risk
of product liability claims and the adverse publicity that may accompany such
claims. The Company is a defendant in a number of product liability cases, the
outcome of which the Company believes should not materially and adversely
affect the Company's business, financial condition or results of operations.
Although the Company maintains what it believes to be an adequate amount of
product liability insurance coverage, there can be no assurance that the
Company's existing product liability insurance will cover all current and
future claims or that the Company will be able to maintain existing coverage
or obtain, if it determines to do so, insurance providing additional coverage
at reasonable rates. No assurance can be given that one or more of the claims
arising under any pending or future product liability cases, whether or not
covered by insurance, will not have a material adverse effect on the Company's
business, results of operations or financial condition. See "Business--Product
Liability; Insurance" and "Business--Legal Proceedings."
CONTROL OF THE COMPANY
Several of the Company's current principal stockholders are parties to the
Restructuring Agreements (as defined herein), which govern the voting of their
Common Stock until March 2000. The shares subject to these agreements
represent approximately % of the shares of Common Stock to be outstanding
immediately following the Offering. Under these agreements, the voting trustee
(currently Martin Sperber, the Chairman of the Board, Chief Executive Officer
and President of the Company), has the right to vote, or direct the vote of,
9
<PAGE>
the shares subject to these agreements. As a result, Mr. Sperber will be able
to control substantially all matters requiring stockholder approval, including
the election of directors, following the Offering. These agreements remain in
effect until March 2000, subject to earlier termination under certain
circumstances. Upon such termination, the stockholders who are parties to
these agreements may be able to control all matters requiring stockholder
approval, including the election of directors.
Bayer Corporation, which owns 28.3% of the outstanding shares of Common
Stock immediately prior to the Offering, is a party to an agreement (the
"Standstill") with the Company that, among other things, prevents Bayer
Corporation from acquiring or seeking to acquire control of the Company prior
to May 15, 2001. After such date, Bayer Corporation has the right to acquire
control through open market purchases, and under certain circumstances within
six months of the end of the Standstill, to acquire from certain principal
stockholders of the Company or from the Company a number of shares that would
enable Bayer Corporation to own a majority of the outstanding shares of Common
Stock. During the Standstill, under the terms of the Restructuring Agreements,
Bayer Corporation has the right to acquire, including under certain
circumstances the right to acquire from the Company and certain of its
principal stockholders, a significant number of additional shares of Common
Stock.
As long as Bayer Corporation owns 10% or more of the outstanding Common
Stock, Bayer Corporation has the right to nominate one member of the Company's
Board of Directors and the right to nominate one or more additional directors,
depending on the number of shares it owns. Until May 15, 2001, the Company may
not undertake certain actions without the consent of Bayer Corporation,
including, among other things, engaging in any business not principally in a
segment of the pharmaceutical or health care industry or amending the
Company's charter or by-laws to require more than majority approval to elect a
majority of the Board of Directors, merge, consolidate or sell all or
substantially all the Company's assets. In addition, until the shares of the
Company's Common Stock held by more than 300 persons who are neither current
stockholders, their permitted transferees nor employees of the Company have a
total market value in excess of $100.0 million, the Company may not undertake
certain other actions without the consent of Bayer Corporation.
Each of the provisions described above may make it more difficult for a
third party to acquire, or may discourage acquisition bids for, Schein and
could limit the price that certain investors might be willing to pay in the
future for shares of the Common Stock. See "Principal and Selling
Stockholders--Restructuring Agreements" and "Certain Transactions."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Senior Credit Agreement (as defined herein) requires the Company to
maintain specified financial ratios and satisfy certain financial tests. The
Company's ability to meet such financial tests may be affected by events
beyond its control, and there can be no assurance that the Company will meet
such tests. A breach of any of these financial tests could result in an event
of default under the Senior Credit Agreement, in which case the lenders could
elect to declare all liabilities and obligations thereunder to be immediately
due and payable and to terminate all commitments under the Senior Credit
Agreement. If the Company were unable to repay or refinance all amounts
declared due and payable, such lenders could proceed against the collateral
that secures the liabilities and obligations under the Senior Credit
Agreement. Substantially all the assets of the Company secure the liabilities
and obligations under the Senior Credit Agreement. If the Senior Credit
Agreement were to be accelerated, there can be no assurance that the Company
would be able to repay in full such indebtedness and other indebtedness of the
Company, and in such event the equity holders could lose their entire
investment. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
SHARES ELIGIBLE FOR FUTURE SALE
As of , 1998, of the 33,611,472 outstanding shares of Common Stock
were "restricted securities" (as that term is defined in Rule 144 under the
Securities Act of 1933 (the "Securities Act")) and, under certain
circumstances, may be sold without registration pursuant to Rule 144. In
addition to the shares offered
10
<PAGE>
hereby, approximately shares of Common Stock will be eligible for sale in
the public market pursuant to Rules 144 and 701 under the Securities Act
immediately after the Offering (including shares that may be issued on the
exercise of outstanding options). The Company is unable to predict the effect
that sales made under Rule 144, or otherwise, may have on the then prevailing
market price of the Common Stock. Holders of shares of Common Stock
(including shares eligible for immediate sale) and outstanding options to
purchase shares of Common Stock have entered into lock-up agreements in
which such holders have agreed not to offer or sell publicly or otherwise
dispose of such shares without the consent of Cowen & Company for 180 days
after the effective date of this Prospectus. Under the terms of the
Restructuring Agreements, certain principal stockholders of the Company are
subject to restrictions on the transfer of their shares. As of , 1998,
the holders of 32,242,236 shares of Common Stock are entitled to certain
piggyback and demand registration rights with respect to such shares. By
exercising their registration rights, subject to certain limitations, such
holders could cause a large number of shares to be registered and sold in the
public market commencing 180 days after the date of this Prospectus. Such
sales may have an adverse effect on the market price for the Common Stock and
could impair the Company's ability to raise capital through an offering of its
equity securities. See "Principal and Selling Stockholders," "Shares Eligible
for Future Sale" and "Underwriting."
DILUTION
The public offering price is substantially higher than the tangible book
value per share of Common Stock. Investors purchasing shares of Common Stock
in the Offering will therefore incur immediate, substantial dilution estimated
to be $ per share (based on an estimated offering price of $ per share,
the midpoint of the estimated range, and after deducting underwriting
discounts and offering expenses). See "Dilution."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation and Bylaws, as
well as the Delaware General Corporation Law (the "Delaware GCL"), could
discourage a third party from attempting to acquire, or make it more difficult
for a third party to acquire, control of the Company without approval of the
Company's Board of Directors. Such provisions could also limit the price that
certain investors might be willing to pay in the future for shares of the
Common Stock. Such provisions allow the Board of Directors to authorize the
issuance of preferred stock with rights superior to those of the Common Stock.
Moreover, certain provisions of the Company's Articles of Incorporation or
Bylaws generally permit removal of directors with or without cause by a 66
2/3% vote of the stockholders of the Company, require the consent of Bayer
Corporation to amend certain provisions of the Company's Articles of
Incorporation and Bylaws, require a majority vote of the Board of Directors
generally to amend the Company's Articles of Incorporation and Bylaws and
require the Company's Board of Directors or Chairman of the Board to call a
meeting of the stockholders. See "Description of Capital Stock."
ABSENCE OF DIVIDENDS
The Company intends to retain earnings, if any, for use in its business and
does not anticipate paying any cash dividends in the foreseeable future. See
"Dividend Policy."
FLUCTUATING RESULTS OF OPERATIONS
During the past three years, the Company's results of operations have
fluctuated materially on both an annual and a quarterly basis. These
fluctuations have resulted from several factors, including, among others, the
timing of introductions of new products by the Company and its competitors,
timing of receipt of patent settlement revenues, dependence by the Company on
a limited number of products, certain non-recurring expenses related to the
Company's restructuring and relocation in 1994, the Marsam Acquisition (as
defined herein) in 1995 and weak performance by the generic drug industry in
the second half of 1996 and continuing into the first half of 1997. The
Company believes that it will continue to experience fluctuations in net
revenues,
11
<PAGE>
gross profit and net income as a result of, among other things, the timing of
regulatory approvals and market introduction of new products by the Company
and its competitors, and downward pressure on pricing for products available
from multiple approved sources. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
NO PRIOR PUBLIC MARKET; POSSIBLE SHARE PRICE VOLATILITY
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or be
sustained after the Offering. The public offering price of the Common Stock
will be determined by negotiations among the Company, the Selling Stockholders
and the representatives of the Underwriters. The stock market, including the
New York Stock Exchange, on which the Company is applying to list the Common
Stock, has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. In addition, the market price of the Common Stock, like the stock
prices of many publicly traded pharmaceutical companies, may be highly
volatile. Announcements of new products by the Company or its competitors,
approvals of products or other actions by FDA, developments or disputes
concerning patent or proprietary rights or regulation, publicity regarding
actual or potential clinical results relating to products under development by
the Company or its competitors, public concern as to the safety of
pharmaceutical products and economic and other external factors, as well as
period-to-period fluctuations in financial results, among other factors, may
have a significant impact on the market price of the Common Stock. See
"Underwriting."
12
<PAGE>
THE COMPANY
The Company was founded in 1985. From 1992 to 1994, the Company engaged in a
series of corporate reorganization transactions, including the separation of
the Company from Henry Schein, Inc., a company engaged in the direct marketing
of health care products and services to office-based health care
practitioners, and the Company's re-incorporation from New York to Delaware by
way of the merger of the Company's parent into the Company. In 1994, Bayer
Corporation purchased 28.3% of the Company's outstanding shares and agreed to
pursue future strategic alliances with the Company. In September 1995, the
Company acquired all the outstanding shares of Marsam, a developer,
manufacturer and marketer of generic injectable prescription drugs.
The Company is a Delaware corporation with its corporate offices at 100
Campus Drive, Florham Park, New Jersey 07932. Its telephone number is (973)
593-5500.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby, after deducting underwriting discounts and commissions and estimated
offering expenses, will be approximately $ million, assuming a public
offering price of $ per share (the midpoint of the estimated range), ($
million, if the Underwriters' over-allotment option is exercised in full). The
Company intends to use $ million of the net proceeds to repay a portion of
the revolving and/or term loan facility under the Senior Credit Agreement,
which bears interest at a rate of %, and $ million of the net proceeds
to repay a portion of Senior Floating Rate Notes Due 2004 (as defined herein),
which bear interest at a LIBOR-based floating rate. The Company will receive
no part of the proceeds to the Selling Stockholders. See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company does not anticipate paying cash dividends in the foreseeable
future. The Company currently intends to retain any future earnings for use in
the Company's business. Currently, the Company's Senior Credit Agreement and
its Senior Floating Rate Notes Due 2004 contain restrictions on the payment of
dividends. In addition, under certain circumstances, the Company may not
declare dividends on the Common Stock without the consent of Bayer
Corporation. See "Certain Transactions," "Principal and Selling Stockholders"
and Note 9 to the Consolidated Financial Statements of the Company.
13
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of September 1997 (i) on a historical basis, (ii) on a pro forma
basis giving effect to the conversion of the Senior Subordinated Loan (as
defined herein) to the Senior Floating Rate Notes Due 2004 and the payment of
$4.2 million in fees and expenses in connection therewith, in each case in
December 1997, and the prepayment in October 1997 of $12.5 million of a term
loan facility (with proceeds from the Company's revolving credit facility) as
if these events occurred as of September 1997 and (iii) pro forma (on the
basis set forth above) as adjusted to give effect to the receipt and
application of the estimated net proceeds of the sale of shares of
Common Stock offered by the Company in the Offering, assuming a public
offering price of $ per share (the midpoint of the estimated range). This
table should be read in conjunction with the Consolidated Financial Statements
of the Company and the notes thereto included elsewhere in this Prospectus.
See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 1997
------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Revolving credit facility(1).................. $ 26,000 $ 42,700 $
Current portion of term loan facility......... 6,842 6,842
Current portion of capitalized lease
obligations.................................. 101 101
-------- -------- -----
Total short-term debt....................... $ 32,943 $ 49,643 $
======== ======== =====
Long-term debt:
Term loan facility............................ $123,158 $110,658 $
Senior Subordinated Loan...................... 100,000 --
Senior Floating Rate Notes Due 2004(2)........ -- 100,000
Capitalized lease obligations................. 312 312
-------- -------- -----
Total long-term debt........................ 223,470 210,970
-------- -------- -----
Stockholders' equity:
Common stock, par value $.01 per share;
100,000 authorized shares: 33,611 issued and
outstanding, actual and pro forma;
issued and outstanding pro forma as
adjusted(3).................................. 336 336
Additional paid-in capital.................... 38,543 38,543
Retained earnings............................. 92,107 92,107
Other......................................... 6,098 6,098
-------- -------- -----
Total stockholders' equity.................. 137,084 137,084
-------- -------- -----
Total capitalization...................... $360,554 $348,054 $
======== ======== =====
</TABLE>
- --------
(1) For a description of the amount that may be borrowed under the Senior
Credit Agreement, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
(2) For a description of the terms and conditions of the Senior Floating Rate
Notes Due 2004, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 17 to the Consolidated
Financial Statements of the Company.
(3) Excludes 3,650,763 shares of Common Stock reserved for issuance upon the
exercise of outstanding options granted pursuant to the Company's 1993
Stock Option Plan, 1997 Stock Option Plan and the 1995 Non-Employee
Director Plan at a weighted average exercise price of $14.65 per share.
Upon closing of the Offering, the Company intends to grant up to an
additional options at an exercise price equal to the initial public
offering price of the Common Stock offered hereby. See "Management--Stock
Options."
14
<PAGE>
DILUTION
The consolidated negative net tangible book value of the Company as of
September 1997 was approximately $(50.5) million, or $(1.50) per share.
Consolidated negative net tangible book value per share represents the amount
of the Company's stockholders' equity, less intangible assets, divided by
33,611,472, the number of shares of Common Stock outstanding, in each case as
of September 1997.
Dilution per share represents the difference between the amount per share
paid by purchasers of shares of Common Stock offered by the Company in the
Offering and the pro forma consolidated negative net tangible book value per
share of Common Stock immediately after completion of the Offering. After
giving effect to the sale of shares of Common Stock offered by the Company
in the Offering at an assumed initial public offering price of $ (the
midpoint of the estimated range) per share and after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company, the pro forma consolidated negative net tangible book value of the
Company as of September 1997 would have been $ million, or $ per share.
This represents an immediate increase in net tangible book value of $ per
share to existing stockholders and an immediate dilution in net tangible book
value of $ per share to purchasers of Common Stock in the Offering, as
illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $
Consolidated negative net tangible book value per share before
the Offering.................................................... $(1.50)
Increase per share attributable to new investors................. --
------
Pro forma consolidated negative net tangible book value per share
after the Offering.............................................. --
----
Dilution per share to new investors.............................. $--
====
</TABLE>
During the past five years the following persons have acquired shares of the
Common Stock for the following prices: Martin Sperber--an aggregate of 725,454
shares at an average price of $16.26 per share; and other members and former
members of the Company's and Henry Schein, Inc.'s management--an aggregate of
643,782 shares at an average price of $16.26 per share. See "Certain
Transactions" and "Principal and Selling Stockholders."
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's financial position at December 1995 and 1996, and its results of
operations for the years ended December 1994, 1995 and 1996, has been derived
from the audited consolidated financial statements of the Company included
elsewhere in this Prospectus. The selected consolidated financial information
with respect to the Company's financial position at December 1992, 1993 and
1994, and its results of operations for the years ended December 1992 and
1993, has been derived from the audited consolidated financial statements of
the Company which are not included in this Prospectus. The information for the
interim periods is unaudited; however, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of such information have been included. The interim results
of operations may not be indicative of the results for the full year. The
selected consolidated financial data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER SEPTEMBER
---------------------------------------------- -----------------
1992 1993 1994 1995(1) 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $319,875 $393,926 $385,428 $391,846 $476,295 $352,172 $353,829
Cost of sales........... 207,276 217,653 237,380 250,507 320,675 236,721 240,562
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 112,599 176,273 148,048 141,339 155,620 115,451 113,267
Costs and expenses:
Selling, general and
administrative........ 55,763 64,489 71,416 73,250 84,366 61,149 57,950
Research and
development........... 14,234 18,055 19,170 28,324 27,030 23,044 22,854
-------- -------- -------- -------- -------- -------- --------
42,602 93,729 57,462 39,765 44,224 31,258 32,463
Amortization of
goodwill and other
intangibles........... -- -- -- 3,399 10,195 7,713 7,722
Special compensation,
restructuring and
relocation(2)......... 7,417 8,426 33,594 -- -- -- --
Acquired in-process
Marsam research and
development(1)........ -- -- -- 30,000 -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating income........ 35,185 85,303 23,868 6,366 34,029 23,545 24,741
Interest expense, net.. 2,315 1,467 1,493 10,005 23,285 16,081 20,456
Other expense (income),
net(3)................ 195 9,215 579 779 4,156 1,745 (4,536)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
taxes on income and
minority interest..... 32,675 74,621 21,796 (4,418) 6,588 5,719 8,821
Provision for income
taxes(4).............. 12,490 29,096 15,165 10,482 5,191 3,573 5,095
Minority interest...... 2,173 (343) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 18,012 $ 45,868 $ 6,631 $(14,900) $ 1,397 $ 2,146 $ 3,726
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per
common share(5)........ $ 0.56 $ 1.38 $ 0.20 $ (0.44) $ 0.04 $ 0.06 $ 0.11
======== ======== ======== ======== ======== ======== ========
Weighted average number
of common shares
outstanding(5)......... 32,083 33,217 33,429 34,071 34,026 34,033 34,115
</TABLE>
<TABLE>
<CAPTION>
DECEMBER
-------------------------------------------- SEPTEMBER
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 82,731 $ 87,035 $ 98,610 $ 92,021 $ 99,111 $ 93,480
Total assets............ 211,744 227,861 269,729 522,410 544,312 520,699
Short-term debt,
including current
portion of long-term
debt................... 1,185 1,838 3,465 40,078 41,090 32,943
Long-term debt, less
current portion........ 43,440 25,725 42,462 240,480 245,390 223,470
Stockholders' equity.... 85,761 130,336 140,164 125,692 129,980 137,084
</TABLE>
16
<PAGE>
- --------
(1) Includes the results of Marsam from September 1995, the date of purchase.
In connection with the purchase of Marsam, the Company recognized acquired
in-process research and development. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 3 to
the Consolidated Financial Statements of the Company.
(2) Special compensation, restructuring and relocation expenses includes costs
recognized by the Company in connection with its restructuring and
relocation of its corporate headquarters. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Notes 2 and
12 to the Consolidated Financial Statements of the Company.
(3) Other expense (income), net in 1992 includes $0.5 million of an
extraordinary income item.
(4) Provision for income taxes in 1993 includes an adjustment to reduce income
taxes by $1.1 million relating to the adoption of Financial Accounting
Standard Number 109.
(5) See Note 1 to the Consolidated Financial Statements of the Company for
information concerning the computation of earnings per share.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Consolidated Financial
Statements of the Company and Notes thereto included elsewhere in this
Prospectus. This Prospectus contains forward-looking statements that involve
risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in
this Prospectus should be read as being applicable to all related forward-
looking statements wherever they appear in this Prospectus. See "Risk
Factors."
OVERVIEW
The Company currently manufactures and markets two classes of pharmaceutical
products, generic products and branded products. The Company's results of
operations depend on the Company's ability to develop and commercialize new
pharmaceutical products. Generally, following the expiration of patents and
any other market exclusivity periods for branded drugs, the first
pharmaceutical manufacturers successfully to market generic equivalents of
such drugs achieve higher revenues and gross profit from the sale of such
generic drugs than do others from the sale of generic equivalents subsequently
approved. As competing generic equivalents reach the market, the prices, sales
volumes and profit margins of the earliest generic versions often decline
significantly. For these reasons, the Company's ability to achieve growth in
revenues and profitability depends on its being among the first companies to
introduce new generic products. During the past five years, the Company has
introduced a significant number of generic products to the market at patent
expiration dates and in a number of cases prior to patent expiration of the
branded product by successful challenges to the patent under the Waxman-Hatch
Act.
The Company's dependence on a limited number of products, the product cycles
of such products, and the timing of receipt of patent settlement revenues have
resulted in significant fluctuations in the Company's earnings. Continued
growth in the Company's revenues will depend on continued market demand for
its products, as well as the successful introduction and marketing of new
products.
Net revenues from INFeD as a portion of total net revenues increased from
16% in 1994 to 20% in the nine months ended September 1997. Gross profit
margins on INFeD exceed gross profit margins on the Company's generic products
generally; accordingly, the gross profit from increased sales of INFeD have
offset the reduction in gross profit from generic products during the periods
presented.
The following table sets forth the net revenues of the Company's generic and
branded businesses for each of the periods shown:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER SEPTEMBER
-------------------- -----------------
1994 1995 1996 1996 1997
------ ------ ------ -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Generic business:
Core products......................... $291.9 $300.8 $331.6 $ 247.6 $ 221.4
Nortriptyline......................... 32.6 19.0 9.0 7.3 4.5
Vecuronium bromide.................... -- -- 34.2 23.2 30.8
Patent settlement revenues............ -- 5.0 13.5 13.5 25.0
------ ------ ------ -------- --------
Total generic revenues.............. 324.5 324.8 388.3 291.6 281.7
Branded business:
INFeD................................. 60.9 67.0 88.0 60.6 72.1
------ ------ ------ -------- --------
Total net revenues.................. $385.4 $391.8 $476.3 $ 352.2 $ 353.8
====== ====== ====== ======== ========
</TABLE>
18
<PAGE>
From 1992 to 1994, the Company engaged in a series of corporate
reorganization transactions, including the separation of the Company from
Henry Schein, Inc., which is engaged in the direct marketing of health care
products and services to office-based health care practitioners. In connection
with these transactions, Bayer Corporation purchased from the Company's
stockholders 28.3% of the Company's outstanding shares for $312.4 million and
agreed with the Company to pursue future strategic alliances. Charges for
special compensation, restructuring and relocation incurred in connection with
the reorganization aggregated $7.4 million, $8.4 million and $33.6 million for
1992, 1993 and 1994, respectively.
The Company acquired all the outstanding capital stock of Marsam (the
"Marsam Acquisition") in September 1995 for $245.0 million in cash, which
expanded the Company's ability to manufacture sterile penicillins and oral and
sterile cephalosporins.
RESULTS OF OPERATIONS
The following table sets forth certain selected income statement data as a
percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER SEPTEMBER
----------------------- ------------
1994 1995 1996 1996 1997
------ ------ ------ ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................... 61.6 63.9 67.3 67.2 68.0
------ ------ ------ ----- -----
Gross profit............................ 38.4 36.1 32.7 32.8 32.0
Costs and expenses:
Selling, general and administrative... 18.5 18.7 17.7 17.4 16.4
Research and development.............. 5.0 7.2 5.7 6.5 6.4
Amortization of goodwill and other
intangibles.......................... -- 0.9 2.1 2.2 2.2
Acquired in-process Marsam research
and development...................... -- 7.7 -- -- --
Special compensation, restructuring
and relocation....................... 8.7 -- -- -- --
------ ------ ------ ----- -----
Operating income........................ 6.2 1.6 7.2 6.7 7.0
Interest expense, net................. 0.4 2.5 4.9 4.6 5.8
Other expense (income), net........... 0.2 0.2 0.9 0.5 (1.3)
------ ------ ------ ----- -----
Income (loss) before provision for
income taxes........................... 5.6 (1.1) 1.4 1.6 2.5
Provision for income taxes............ 3.9 2.7 1.1 1.0 1.4
------ ------ ------ ----- -----
Net income (loss)....................... 1.7% (3.8)% 0.3% 0.6% 1.1%
====== ====== ====== ===== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
1996
Net revenues increased $1.6 million, or 0.5%, from $352.2 million in 1996 to
$353.8 million in 1997. In the branded business, sales increased $11.5
million, which offset a decline in sales of generic products of $9.9 million.
The increase in branded product sales reflected largely an increase in units
sold. The decline in generic revenues resulted from a $26.2 million decline in
the sales of core products and a $2.8 million decline in sales of
nortriptyline, offset by an $11.5 million increase in patent settlement
revenues received in the first quarter of 1997 and a $7.6 million increase in
sales of vecuronium bromide. The decrease in sales of core products reflected
the strategic decision in the second half of 1996 to discontinue certain low-
margin manufactured products and to reduce selling efforts on outsourced
products as well as competitive pressures on other core products, which was
offset by the impact of a $6.4 million increase in sales of new products.
Gross profit decreased $2.2 million, or 1.9%, from $115.5 million in 1996 to
$113.3 million in 1997. The gross profit margin decreased from 32.8% in 1996
to 32.0% in 1997. This decline in gross profit was largely
19
<PAGE>
comprised of a decline in gross profit on core products which was partially
offset by increased gross profit on INFeD, vecuronium bromide and new
products. Gross profit from patent settlements received in the first quarters
of 1996 and 1997 contributed $5.6 million more in the first quarter of 1997
than in the first quarter of 1996. Gross profit was offset by increases in
manufacturing variances and other costs of $4.6 million in the first nine
months of 1997 as compared to the first nine months of 1996. In the third
quarter of 1997 compared to the third quarter of 1996, the gross profit margin
decreased from 32.7% to 29.7%, reflecting a less favorable mix of products
sold as well as competitive price pressures.
Selling, general and administrative expenses decreased $3.2 million, or
5.2%, from $61.1million in 1996 to $58.0 million in 1997. Selling, general and
administrative expenses as a percentage of net revenues decreased from 17.4%
in 1996 to 16.4% in 1997. The decrease in selling, general and administrative
expenses was due primarily to the effects of various cost reduction
initiatives, including a reduction in the retail field sales force. In the
third quarter of 1997, the Company experienced increased selling, general and
administrative expenses compared to earlier quarters of 1997 due primarily to
higher brand marketing expenses.
Research and development expenses decreased $0.2 million, or 0.8%, from
$23.0 million in 1996 to $22.8 million in 1997. However, expenses in the third
quarter of 1997 increased compared to earlier 1997 quarters largely reflecting
costs associated with a development project nearing launch stage.
Amortization of goodwill and other intangibles was unchanged compared to the
comparable period in 1996.
As a result of the factors discussed above, operating income increased $1.2
million, or 5.1%, from $23.5 million in 1996 to $24.7 million in 1997.
Interest expense, net, increased $4.4 million, or 27.2%, from $16.1 million
in 1996 to $20.5 million in 1997 principally due to higher amortization of
deferred financing expenses of $2.5 million and increased interest costs of
$1.5 million resulting from refinancing of senior debt with higher cost
subordinated debt in December 1996.
Other expense (income), net, changed by $6.2 million from an expense of $1.7
million in 1996 to income of $4.5 million in 1997. Gains on the sale of
marketable securities of $9.9 million, primarily in the third quarter of 1997,
offset increased equity losses from the Company's investment in international
joint ventures of $1.0 million and other expenses.
The Company's effective tax rate is higher than the statutory rate due to
the effect of significant non-deductible expenses. The 1997 effective tax rate
decreased from 62.5% in 1996 to 57.8% in 1997, primarily as a result of higher
income offsetting fixed non-deductible expenses.
1996 COMPARED TO 1995
Net revenues increased $84.4 million, or 21.6%, from $391.9 million in 1995
to $476.3 million in 1996. In the generic business, net revenues increased
$63.5 million and in the branded business, net revenues increased $21.0
million, driven by increased unit sales of INFeD. Increased revenues of
generic products consisted of $34.2 million in sales generated by vecuronium
bromide, a new product launched in March 1996, a $8.5 million increase in
patent settlement revenues and $30.8 million increase in sales of the
Company's core products, offset in part by a decline in nortriptyline sales of
$10.0 million. The sales of core products increased primarily from the Marsam
Acquisition, which increased core product sales by $14.0 million and from $7.6
million in sales of new products.
The Company's gross profit increased $14.3 million, or 10.1%, from $141.3
million in 1995 to $155.6 million in 1996. The gross profit margin fell from
36.1% in 1995 to 32.7% in 1996. An increase in gross profit of $31.2 million
was attributable to the Company's branded business, vecuronium bromide, and
patent settlement revenues, which was partially offset by a $12.6 million
increase in manufacturing and regulatory costs.
Selling, general and administrative expenses increased $11.1 million, or
15.2%, from $73.3 million in 1995 to $84.4 million in 1996 but decreased as a
percentage of net revenues from 18.7% in 1995 to 17.7% in 1996. Selling,
general and administrative expenses increased due primarily to increased sales
volume, the full year impact of the Marsam Acquisition of $3.7 million and an
increase in promotional activities in support of new product launches.
20
<PAGE>
Research and development expenses decreased $1.3 million, or 4.6%, from
$28.3 million in 1995 to $27.0 million in 1996. Acquired in-process Marsam
research and development charges of $30.0 million were fully reflected in
1995.
Amortization of goodwill and other intangibles increased $6.8 million from
$3.4 million in 1995 to $10.2 million in 1996, giving effect to the full year
impact of the Marsam Acquisition.
As a result of the factors discussed above, operating income increased $27.7
million from $6.4 million in 1995 to $34.0 million in 1997.
Interest expense, net, increased $13.3 million from $10.0 million in 1995 to
$23.3 million in 1996. The increase was due primarily to the increase in
average debt associated with the debt financing for the Marsam Acquisition and
higher interest rates.
Other expense (income), net increased $3.4 million from $0.8 million in 1995
to $4.2 million in 1996. Equity losses from the Company's investment in
international joint ventures accounted for $3.0 million of the increase.
The Company's effective tax rate is higher than the statutory rate due to
the effect of significant non-deductible expenses. The 1996 effective income
tax rate of 78.9% represented a decrease from the 1995 effective rate of
237.3% primarily due to the impact of certain nonrecurring and non-deductible
expenses, which were largely comprised of the acquired in-process Marsam
research and development charge of $30.0 million.
1995 COMPARED TO 1994
Net revenues increased $6.4 million, or 1.7%, from $385.4 million in 1994 to
$391.8 million in 1995. In the branded business, net revenues increased $6.1
million and, in the generic business, net revenues increased $0.3 million. The
increase in net revenues in the branded business resulted from an increased
number of units of INFeD sold. In the generic business, the changes consisted
of increases of $4.8 million in sales of new products, $5.0 million in new
patent settlement revenues and $14.0 million from the impact of the Marsam
Acquisition. These increases in the generic business were offset by a $13.6
million decrease in sales of nortriptyline and a $4.1 million decrease in
sales of the Company's other core products due primarily to price declines.
The Company's gross profit decreased $6.7 million, or 4.5%, from $148.0
million in 1994 to $141.3 million in 1995. The gross profit margin decreased
from 38.4% in 1994 to 36.1% in 1995. The decrease was primarily a result of a
$12.8 million decrease attributable to lower selling prices of nortriptyline
and decreased gross profit on other core products due to competitive pricing
pressures. This was partially offset by a $4.0 million increase representing
the impact of the Marsam Acquisition, an increase in gross profit in the
Company's branded business and decreased manufacturing and regulatory costs.
Selling, general and administrative expenses increased $1.9 million, or
2.6%, from $71.4 million in 1994 to $73.3 million in 1995. The increase in
selling, general and administrative expenses was due primarily to an increase
in sales volume, an increase in promotional activities in support of the
Company's branded business, new product launches and the Marsam Acquisition.
Selling, general and administrative expenses increased as a percentage of net
revenues from 18.5% in 1994 to 18.7% in 1995.
Research and development expenses increased $9.1 million, or 47.8%, from
$19.2 million in 1994 to $28.3 million in 1995. Of the $9.1 million increase,
$2.1 million represented spending in connection with a worldwide technology
licensing and development agreement which the Company entered into during
September 1994 and the remaining increase in research and development expenses
was attributable to various new in-house development projects.
Amortization of goodwill and other intangibles of $3.4 million and acquired
in-process Marsam research and development charges of $30.0 million in 1995
resulted from the Company's Marsam Acquisition in September 1995. See Note 3
to the Consolidated Financial Statements of the Company.
21
<PAGE>
The corporate reorganization and relocation were completed during 1994,
resulting in a $33.6 million charge. There were no restructuring or relocation
expenses incurred during 1995.
As a result of the factors discussed above, operating income decreased $17.5
million from $23.9 million in 1994 to $6.4 million in 1995.
Interest expense, net, increased $8.5 million from $1.5 million in 1994 to
$10.0 million in 1995. The increase was due primarily to the increase in
average debt associated with the debt financing for the Marsam Acquisition
funded in September 1995.
The Company's effective tax rate is higher than the statutory rate due to
the effect of significant non-deductible expenses. The 1995 effective income
tax rate of 237.3% increased from the 1994 effective income tax rate of 69.6%,
primarily due to the impact of certain non-recurring and non-deductible
expenses, which were largely comprised of the acquired in-process Marsam
research and development charge of $30.0 million. The 1994 effective income
tax rate also reflects the impact of non-deductible expenses, primarily
special compensation charges in connection with the corporate reorganization
completed during 1994.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its business operations primarily
through a revolving credit facility and used long-term bank financing to fund
acquisitions. The Company plans to use the proceeds of the Offering to reduce
its borrowings under its revolving credit facility and other long-term debt.
Net cash provided by operating activities was $27.1 million and $10.8
million in the nine months ended September 1997 and in the year ended December
1996, respectively. The net cash provided by operating activities during 1997
was primarily attributable to net income, as adjusted for non-cash charges, of
$15.9 million and decreases in inventories and accounts receivable aggregating
$11.4 million. The net cash provided by operating activities during 1996 was
primarily attributable to net income, as adjusted for non-cash charges, of
$27.9 million and an increase in accounts payable and accrued expenses of
$11.9 million, offset by an increase in inventories and accounts receivable of
$31.0 million.
Net cash provided by investing activities for the nine months ended
September 1997 and used in investing activities for the year ended December
1996 was $1.2 million and $20.0 million, respectively. Cash provided by
investing activities in 1997 resulted from the proceeds of sales of marketable
securities of $11.6 million, offset primarily by capital expenditures, net of
$9.0 million. The 1996 use of cash in investing activities was primarily due
to capital expenditures, net, purchase of product rights and licenses and
investments in international joint ventures of $17.4 million.
Net cash used in financing activities for the nine months ended September
1997 of $30.1 million resulted from the net repayment of debt. Net cash
provided by financing activities for the year ended December 1996 of $3.6
million was primarily due to net proceeds of debt.
In September 1995, the Company entered into a secured revolving credit and
term loan agreement (as amended, the "Senior Credit Agreement") with a group
of banks to provide funds for the Marsam Acquisition, the repayment of certain
debt, working capital and general corporate purposes. The Senior Credit
Agreement, which expires in December 2001, provided a term loan facility of
$250.0 million and a revolving credit facility of $100.0 million. In December
1996, the Company prepaid $100.0 million of the term loan portion of the
Senior Credit Agreement using the proceeds from a $100.0 million senior
subordinated loan (the "Senior Subordinated Loan") provided by Societe
Generale, New York branch. As a result of this payment and a scheduled
payment, the term loan facility was reduced to $145.0 million at December
1996. In the first nine months of 1997, the Company made principal payments of
$15.0 million, thus reducing the term loan portion to $130.0 million at
September 1997, and an additional prepayment of $12.5 million was made in
October 1997, reducing the term loan portion to $117.5 million. Quarterly
principal payments on the term loan commence in September 1998 and end in the
year 2001. Amounts outstanding under the revolving credit facility were $41.0
million and $26.0
22
<PAGE>
million as of December 1996 and September 1997, respectively. In addition to
such principal payments, the Company is required to make additional principal
payments in certain circumstances. Borrowings under the Senior Credit
Agreement bear interest, which is payable at least quarterly, at a rate equal
to a floating base rate plus a premium ranging from zero to 1.50% or at a rate
equal to LIBOR plus a premium ranging from 0.75% to 2.50%, depending on the
type of borrowing and the Company's performance against certain criteria.
Outstanding borrowings under the Senior Subordinated Loan bore interest,
payable quarterly, at a rate equal to LIBOR plus 4% or the lender's floating
base rate plus 3% through January 31, 1998.
In December 1997, the Company issued $100.0 million of Senior Floating Rate
Notes Due 2004 (the "Notes"), the proceeds of which were used to repay the
Senior Subordinated Loan. Interest on the Notes is payable quarterly at a rate
per annum equal to LIBOR plus %. The Notes will mature in December 2004,
unless previously redeemed. The Notes will be redeemable, in whole or in part,
at the option of the Company, at any time at the specified redemption prices.
Upon the occurrence of a change in control, each holder of Notes may require
the Company to repurchase such holder's Notes, in whole or in part, at a
repurchase price of 101% of the principal amount, plus accrued and unpaid
interest. The Notes, which are unsecured obligations of the Company, rank pari
passu with or senior to all existing and future indebtedness of the Company,
and will rank senior in right of payment to all existing and future
indebtedness of the Company that is, by its terms, expressly subordinated to
the Notes.
The Company believes that its existing credit facilities and cash expected
to be generated from operations are sufficient to finance its current level of
operations and currently contemplated capital expenditures.
The Company has signed a non-binding letter dated October 7, 1997 with
Cheminor Drugs Limited and its subsidiaries ("Cheminor") and Dr. Reddy's
Laboratories Limited and its subsidiaries ("Reddy") outlining the parties'
intent to enter into a strategic alliance agreement. Cheminor will make
available to the Company its present and future dosage form generic products
on an exclusive basis in the United States and certain other countries, and
the Company will make available to Cheminor and Reddy its present and future
products on an exclusive basis for sale in India and certain other countries.
Cheminor and Reddy will make available to the Company bulk active
pharmaceutical ingredients. As part of the contemplated arrangement, the
Company would purchase 2.0 million publicly traded shares of Cheminor Drugs
Limited for $10.0 million, and under certain circumstances have the right and
the obligation to purchase an additional 1.0 million shares for $5.0 million.
Cheminor would have the right to make fair market value purchases of the
Company's Common Stock, once the shares are publicly traded; the purchase
price could be payable from profits otherwise due Cheminor from the alliance.
Each party would also be entitled to representation on the other company's
board of directors consistent with its equity interest. See "Certain
Transactions."
In the event the Company makes any significant acquisitions, it may be
required to raise additional funds, through the issuance of additional debt or
equity securities. There can be no assurance that such funds, if required,
would be available or, if available, would be on terms acceptable to the
Company.
23
<PAGE>
QUARTERLY INFORMATION
As a result of a variety of factors, including the introduction of new
products by the Company, the timing of receipt of patent settlement revenues
and changes in the degree of competition for the Company's products, the
Company's quarterly results of operations have fluctuated significantly and
are expected to fluctuate significantly in the future.
The following tables present unaudited quarterly financial data for the
years 1995 and 1996, and for the nine months ended September 1997. The Company
believes all necessary adjustments have been included in the amounts stated
below to present fairly the selected quarterly information when read in
conjunction with the Consolidated Financial Statements of the Company and the
notes thereto.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 1995 YEAR ENDED DECEMBER 1996 SEPTEMBER 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED)
---------------------------------- ------------------------------------ ---------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Net product
sales.......... $83,978 $98,880 $ 96,344 $107,644 $109,949 $120,398 $108,325 $124,123 $106,839 $114,441 $107,549
Patent
settlements.... 5,000 -- -- -- 13,500 -- -- -- 25,000 -- --
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total net
revenues....... 88,978 98,880 96,344 107,644 123,449 120,398 108,325 124,123 131,839 114,441 107,549
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit..... 34,454 39,141 33,303 34,441 42,420 37,620 35,411 40,169 44,722 36,568 31,977
Cost and
expenses:
Selling, general
and
administrative.. 18,214 18,298 17,955 18,783 19,907 20,755 20,487 23,217 19,227 18,478 20,245
Research and
development.... 7,579 7,996 7,331 5,418 7,242 8,119 7,683 3,986 6,744 7,434 8,676
Amortization of
goodwill and
other
intangibles.... -- -- 1,128 2,271 2,548 2,550 2,615 2,482 2,550 2,598 2,574
Acquired in-
process Marsam
research &
development.... -- -- 30,000 -- -- -- -- -- -- -- --
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss).......... 8,661 12,847 (23,111) 7,969 12,723 6,196 4,626 10,484 16,201 8,058 482
Interest
expense, net... 743 954 2,790 5,518 5,321 5,379 5,382 7,203 6,884 6,850 6,722
Other expenses
(income), net.. 519 607 456 (803) 126 79 1,539 2,412 1,809 (426) (5,919)
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss)
before provision
for income
taxes........... 7,399 11,286 (26,357) 3,254 7,276 738 (2,295) 869 7,508 1,634 (321)
Provision for
income taxes.... 2,996 4,571 1,693 1,222 3,343 733 (503) 1,618 3,625 1,315 155
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss).......... 4,403 6,715 (28,050) 2,032 3,933 5 (1,792) (749) 3,883 319 (476)
======= ======= ======== ======== ======== ======== ======== ======== ======== ======== ========
Earnings (loss)
per share....... $ 0.12 $ 0.20 $ (0.82) $ 0.06 $ 0.12 $ 0.00 $ (0.05) $ (0.02) $ 0.11 $ 0.01 $ (0.01)
======= ======= ======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
24
<PAGE>
INFLATION
Management does not believe inflation had a material adverse effect on the
financial statements for the periods presented.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board Issued Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per
Share". SFAS No. 128 specifies the computation, presentation and disclosure
requirements for earnings per share. SFAS No. 128 is effective for periods
ending after December 15, 1997. The adoption of this statement is not expected
to have a material effect on the consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
Reporting Comprehensive Income, establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
Disclosures about Segments of an Enterprise and Related Information, which
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise, establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in asserting performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Results of operations and financial position
will be unaffected by implementation of these new standards. The Company has
not determined whether either of these two standards will have a material
impact on its financial statement disclosure.
RISK MANAGEMENT
The Company is potentially subject to a concentration of credit risk with
respect to its trade receivables, the majority of which are due from
wholesalers, drug store chains and distributors. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
The Company maintains sufficient allowances and insurance to cover potential
or anticipated losses for uncollectible accounts.
The Company considers its investment in international subsidiaries and joint
ventures to be both long-term and strategic. As a result, the Company does not
hedge the long-term translation exposure to its balance sheet. Foreign
currency translations to date have not been material.
YEAR 2000 COMPLIANCE
The Company is modifying its computer systems to be Year 2000 compliant. The
Company does not expect that the cost of modifying such systems will be
material. The Company believes it will achieve Year 2000 compliance in advance
of the year 2000, and does not anticipate any material disruption in its
operations as the result of any failure by the Company to be in compliance.
The Company does not have any information concerning the Year 2000 compliance
status of its suppliers and customers.
25
<PAGE>
BUSINESS
GENERAL
Schein Pharmaceutical is one of the leading generic pharmaceutical companies
in the United States. The Company develops, manufactures and markets one of
the broadest generic product lines in the pharmaceutical industry through the
integration of its product development expertise, diverse, high-volume
production capacity and direct sales and marketing forces. The Schein product
line includes both solid dosage and sterile dosage generic products, and the
Company is also developing a line of specialty branded pharmaceuticals. The
Company's primary branded product, INFeD, is the leading injectable iron
product in the United States. The Company has a substantial pipeline of
products under development, including 24 ANDAs filed with FDA. The Company
supplements its internal product development, manufacturing and marketing
capabilities through strategic collaborations. Schein generated net revenues
of $478.0 million and operating income of $35.2 million during the 12 months
ended September 1997.
The Company believes it manufactures and markets the broadest product line
of any U.S. pharmaceutical company in terms of number and types of products.
The Company manufactures and markets approximately 160 chemical entities
formulated in approximately 350 different dosages under approximately 200
ANDAs approved by FDA. Schein is currently the sole manufacturing source for
47 generic pharmaceutical products, of which 45 are sterile dosage products.
The Company's solid dosage products include both immediate-release and
extended-release capsules and tablets; sterile dosage products include
solutions, suspensions, powders and lyophilized (freeze-dried) products
primarily for administration as injections, ophthalmics and otics. The
manufacture of sterile dosage products is significantly more complex than the
manufacture of solid dosage products, which limits competition in this product
area. The Company currently manufactures approximately four billion solid
dosage tablets and capsules and 75 million sterile dosage vials and ampules
annually. Solid dosage generic products and sterile dosage generic products
each accounted for approximately 40% of the Company's net revenues in the 12
months ended September 1997.
Since introducing INFeD in 1992, the Company has been developing a portfolio
of branded products, primarily in select therapeutic markets, such as iron
management for the nephrology, oncology and hematology markets. INFeD is used
in the treatment of certain types of anemia, particularly in dialysis
patients, and accounted for approximately 20% of the Company's net revenues in
the nine months ended September 1997. The Company markets INFeD through a 20-
person dedicated sales and marketing force, as well as through co-marketing
collaborations with Bayer Corporation in the nephrology market and MGI in the
oncology market.
The Company believes its 120-person direct sales and marketing force is the
largest in the U.S. generic pharmaceutical industry. Through its customized
marketing programs, the Company markets its products to approximately 60,000
customers representing all major customer channels, including pharmaceutical
wholesalers, chain and independent drug retailers, hospitals, managed care
organizations, other group purchasing organizations and physicians.
Schein's objective is to become the leading generic pharmaceutical company
in the approximately $10.0 billion generic pharmaceutical industry in the
United States. The Company's growth strategy is to: (i) leverage its diverse
pharmaceutical formulation and manufacturing capabilities to extend the
breadth of its generic product line; (ii) pursue strategic collaborations to
supplement product development and manufacturing resources; (iii) focus its
product development on complex and other generic drugs that require
specialized development or manufacturing technology and are therefore expected
to encounter limited competition; (iv) develop and market branded drugs for
select therapeutic categories; and (v) expand market penetration through
direct sales and innovative marketing programs.
The Company's commitment to product development has resulted in 23 ANDA
approvals during the past three years and its current pipeline of 24 pending
ANDAs and over 60 additional products under development. During the past three
fiscal years, the Company, directly and through its strategic collaborations,
has expended approximately $74.0 million on product pipeline development
activities, which the Company believes is among
26
<PAGE>
the highest product development expenditure levels for any independent generic
drug company. The Company pursues product development through its 140-person
product development staff and various collaborations and licensing
arrangements with other pharmaceutical and drug delivery technology companies.
The Company's product development efforts focus on: (i) major branded drugs
coming off patent; (ii) drugs for which patent protection has lapsed and for
which there are few or no generic producers; (iii) drugs whose patents may be
susceptible to challenge; (iv) proprietary and branded products focused in
select therapeutic areas; and (v) generic products that require specialized
development, formulation, drug delivery or manufacturing technology.
The Company supplements its internal product development, manufacturing and
marketing capabilities from external sources. During 1994, Schein entered into
a strategic alliance with Bayer Corporation, through which Bayer Corporation
became a 28.3% stockholder of Schein, and Bayer Corporation currently
participates with Schein in several collaborations. In 1995, the Company
acquired Marsam, expanding the Company's ability to develop and manufacture
sterile penicillins and oral and sterile cephalosporins. In addition, the
Company has entered into strategic collaborations involving product
development arrangements with companies such as Ethical and Elan; raw material
supply arrangements with companies such as Johnson Matthey and Abbott; and
sales and marketing arrangements with Bayer and other companies such as
Elensys and MGI.
INDUSTRY OVERVIEW
In the U.S., pharmaceutical products are marketed as either as branded or
generic. Branded products are marketed under brand names and through programs
designed to attract physician and consumer loyalty. Branded drugs generally
are covered by patents at the time of their market introduction, thereby
resulting in periods of market exclusivity for the patent holders. Following
the expiration of these patents, marketing of branded drugs often continues,
particularly in cases where there is significant physician or consumer
loyalty.
Generic pharmaceuticals (also known as "multi-source" or "off-patent"
pharmaceuticals) are the chemical and therapeutic equivalents of branded
drugs. Under the Waxman-Hatch Act, generic drugs generally may be sold in the
United States following (i) FDA approval of an ANDA that includes evidence
that the generic drug is bioequivalent to its branded counterpart and (ii) the
expiration, invalidation or circumvention of any patents on the corresponding
branded drug and the expiration of any other market exclusivity periods
applicable to the branded drug.
Since the adoption of the Waxman-Hatch Act, generic pharmaceuticals have
become an increasingly important segment of the U.S. pharmaceutical market,
particularly when measured in terms of the increasing rate at which doctors'
prescriptions have allowed generic drugs to be substituted for branded drugs.
In 1996, prescriptions dispensed in the United States for generic drugs
reached 43% of the total drug prescriptions dispensed. In terms of dollar
sales, however, generic drugs have accounted for a much lower percentage of
the total U.S. pharmaceutical market. In 1996, sales of generic drugs
accounted for approximately $10.0 billion out of a total U.S. prescription
pharmaceutical market of $83.0 billion.
The lower percentage of total dollar sales attributable to generic
pharmaceuticals compared to the growth in the number of generic pharmaceutical
prescriptions dispensed reflects the pricing dynamics for generic
pharmaceuticals. As the number of commercially available generic competitors
of a branded drug increases, their selling prices and gross margins decline
substantially. Generic drugs are generally sold at a 20% to 80% discount from
their branded counterparts. Intense price competition in the generic drug
industry requires companies to introduce new generic drug products regularly
in order to maintain and increase revenues.
Growth of the generic drug industry has been driven primarily by the dollar
volume of branded drugs that have lost patent protection and the rising rate
at which generic drugs have been substituted for branded drugs. Industry
sources estimate that, during the next five years, branded drugs with 1996
U.S. sales of more than $13.0 billion will lose patent protection. The rising
rate of generic substitution has resulted in large part from increasing
pressure within the U.S. health care industry to contain costs. Due to the
lower cost of generic drugs compared to their branded counterparts, third
party payors, such as insurance companies, company health plans, health
27
<PAGE>
maintenance organizations, managed care organizations, pharmacy benefit
managers, group purchasing organizations, government-based programs and
others, have adopted policies that encourage or mandate generic substitution.
In addition, physicians, pharmacists and consumers are becoming increasingly
comfortable with the quality and therapeutic equivalence of generic drugs.
A significant portion of pharmaceuticals are distributed in the United
States through wholesale drug distributors and major retail drug store chains.
During the past several years, there has been a consolidation of these
distribution channels, resulting in a smaller number of wholesale distributors
and the emergence of fewer, larger regional and nationwide retail drug store
chains. In addition to forcing generic drug manufacturers to lower their
prices and/or provide volume discounts, these customers have also been seeking
to reduce the number of sources from which they purchase pharmaceutical
products.
Participants in the generic drug market include independent generic drug
manufacturers such as the Company, generic drug subsidiaries of large branded
pharmaceutical companies and joint ventures and collaborations between branded
pharmaceutical companies and generic drug manufacturers. The participation of
branded pharmaceutical companies in the U.S. generic industry accelerated
during the first half of the 1990s as pricing pressure and generic
substitution grew. The extent to which the branded pharmaceutical companies
will continue to participate in the generic drug industry segment cannot be
predicted by the Company.
The Company believes it is well positioned to capitalize on these industry
trends by leveraging its product development, manufacturing and marketing
capabilities to expand its market penetration.
STRATEGY
The Company's objective is to become the leading generic pharmaceutical
company in the approximately $10.0 billion generic pharmaceutical industry in
the United States. An important focus of the Company includes the development,
manufacture and marketing of complex generic products and branded products for
select therapeutic categories. The Company's strategy for achieving this
objective comprises the following five elements:
Leverage Diverse Pharmaceutical Formulation and Manufacturing Capabilities
to Extend the Breadth of Its Generic Product Line. The Company believes it
manufactures and markets the broadest product line of any U.S. pharmaceutical
company. This product line includes both solid dosage and sterile dosage
products comprising approximately 160 chemical entities in approximately 350
dosage forms and strengths under approximately 200 approved ANDAs. Solid
dosage forms include both immediate-release and extended-release capsules and
tablets; sterile dosage forms include solutions, suspensions, powders and
lyophilized (freeze-dried) products primarily for administration as
injections, ophthalmics and otics. The Company believes its diverse high-
volume manufacturing capabilities enable it to participate in segments of the
generic drug industry where competition is limited. As the U.S. generic drug
market consolidates and major drug buyers increasingly purchase from fewer
suppliers, the Company believes its high volume and diverse drug formulation
and manufacturing capabilities will constitute an important competitive
advantage.
Pursue Strategic Collaborations to Supplement Product Development and
Manufacturing Resources. Schein has formed product development and marketing
alliances with several bulk pharmaceutical producers, drug delivery technology
companies and other drug manufacturers to expand the breadth of its product
development capabilities. Included among these are collaborations with drug
delivery companies, Elan and Ethical, and several bulk pharmaceutical and
finished dosage form producers. The Company plans to utilize collaborative and
licensing arrangements with third parties to share product development risk
and gain access to sales and marketing rights, dosage forms, proprietary drug
delivery technologies, specialized formulation capabilities and active
pharmaceutical ingredients.
Focus Product Development on Complex and Other Generic Drugs that Require
Specialized Development or Manufacturing Technology and Encounter Limited
Competition. The Company targets generic drugs for which it believes it can
achieve relatively high margins by being the first or among the first generic
manufacturers
28
<PAGE>
to launch the product. The Company is currently the sole generic source for 47
products, and the Company is developing several "complex generic" drugs that
are difficult to duplicate due to formulation and/or manufacturing
complexities and other generic drugs for which raw materials are in limited
supply. In addition, the Company closely analyzes pharmaceutical patents and
initiates patent challenges where appropriate opportunities exist. Products
currently being considered for development include several that could lead to
patent challenges. The Company has generated significant revenues and profits
from generic products that have been the subject of successful patent
challenges initiated by the Company.
Develop and Market Branded Drugs for Select Therapeutic
Categories. Leveraging its broad pharmaceutical formulation, development and
manufacturing capabilities, the Company targets branded drug development and
marketing opportunities in selected therapeutic categories with limited
competition. The Company's branded drug development and marketing efforts
currently focus on injectable products used in the management of iron-related
disorders. The Company's first branded product, INFeD, is the leading
injectable iron product in the U.S. Schein's near-term development plan is to
expand the Company's iron management expertise into the oncology, hematology
and gastroenterology markets, and the Company expects that an NDA for its next
generation injectable iron product will be filed with FDA in the first half of
1998. The Company also is pursuing opportunities to broaden its branded
pharmaceutical product line by: (i) formulating and developing, either
internally or through development collaborations, unique products that may be
patented; (ii) acquiring products developed by other drug companies; and (iii)
acquiring formulation technologies for developing new dosage forms of existing
drugs.
Expand Market Penetration through Direct Sales and Innovative Marketing
Programs. The Company believes its 120-person direct sales and marketing force
is the largest in the U.S. generic pharmaceutical industry. This sales and
marketing force includes 90 field representatives, 20 telemarketing
representatives and 10 marketing personnel and covers all major customer
groups, including chain and independent drug retailers, managed care
organizations, pharmaceutical wholesalers, hospitals and group purchasing
organizations. The Company has developed market share initiatives with
selected leading chain and wholesale customers and has implemented customized
marketing programs to meet specific customer needs, including customer
inventory management, patient-focused education and compliance programs. With
respect to its branded product business, the Company has a team of
approximately 20 sales representatives dedicated to marketing INFeD. This
sales and marketing force is complemented by marketing collaborations with
Bayer in the nephrology market and MGI in the oncology market.
PRODUCTS
The Company believes it manufactures and markets the broadest number of
products of any U.S. pharmaceutical company in terms of number and types of
products. The Company's product line includes both solid dosage and sterile
dosage generic products; the Company is also developing a line of specialty
branded pharmaceuticals. The Company manufactures and markets approximately
160 chemical entities in approximately 350 dosage forms and strengths under
approximately 200 approved ANDAs. Schein is currently the sole generic source
for 47 pharmaceutical products.
29
<PAGE>
The following table sets forth the percentages of the Company's net revenues
attributable to its generic and branded businesses:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER ENDED
---------------------------- SEPTEMBER
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Generic business:
Manufactured sterile dosage......... 16% 18% 25% 30% 38% 37%
Manufactured solid dosage........... 58 55 40 35 28 30
Purchased products.................. 18 16 19 18 15 13
--- --- --- --- --- ---
Total generic..................... 92 89 84 83 81 80
Branded business:
INFeD............................... 8 11 16 17 19 20
--- --- --- --- --- ---
Total............................. 100% 100% 100% 100% 100% 100%
=== === === === === ===
</TABLE>
GENERIC PRODUCTS
The Company's generic business consists of the manufacturing and marketing
of sterile and solid dosage products and the marketing of certain additional
purchased products.
The Company's sterile dosage product portfolio is comprised of approximately
110 products and accounted for approximately 37% of the Company's total net
revenues in the nine months ended September 1997. This portfolio includes
vecuronium bromide, an anesthetic product that is currently the Company's
largest selling generic product. The Company is manufacturing and marketing
vecuronium bromide prior to expiration of the patent covering this product
pursuant to a licensing arrangement. None of the Company's other sterile
dosage products accounted for more than 6% of net revenues in the nine months
ended September 1997. Included in the sterile dosage product portfolio are 45
products for which the Company is currently the sole generic source, one of
which is vecuronium bromide.
The Company's solid dosage product portfolio is comprised of approximately
50 products and accounted for approximately 30% of the Company's total net
revenues in the nine months ended September 1997. None of the Company's solid
dosage products accounted for more than 6% of net revenues in the nine months
ended September 1997. The Company's solid dosage portfolio includes two
products for which the Company is currently the sole generic source.
The Company supplements its manufactured product line with purchased
products. The margins received by the Company on these products, however, are
generally lower than the margins received by the Company on products that it
manufactures. In addition, the Company believes its customers are increasingly
seeking to purchase products directly from manufacturers. The percentage of
the Company's total net revenues of generic products manufactured by others
has declined from approximately 18% in 1995 to 13% for the nine months ended
September 1997.
BRANDED PRODUCTS
Until 1992, the Company's focus was on generic pharmaceutical products. In
1992, the Company introduced INFeD, its primary branded product, and currently
has other branded products under development. The Company focuses on products
used in the management of iron-related disorders. Currently, INFeD, an
injectable iron dextran used in the treatment of severe anemia or iron
deficiency, accounts for approximately 20% of the Company's net revenues.
INFeD is most commonly used in the U.S. to treat iron deficiency anemia in
patients with end-stage renal disease who are receiving therapy with
recombinant human erythropoietin (EPO). In addition to the dialysis market,
the high incidence of iron deficiency anemia related to other medical
conditions presents further opportunities for the Company to leverage its
existing INFeD sales and marketing capabilities.
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<PAGE>
The Company is seeking to expand its branded pharmaceutical business through
internal development and collaborative arrangements with other companies, with
a particular view to leveraging its expertise in iron management into the
nephrology, hematology and oncology markets. The following table identifies
the Company's branded product marketing and development activities:
<TABLE>
<CAPTION>
PRODUCT THERAPEUTIC APPLICATION STATUS
------- ----------------------- ------
<S> <C> <C>
INFeD....................... Iron management Launched in U.S. in 1992
Ferrlecit................... Iron management NDA expected to be filed by
Makoff R&D Laboratories,
Inc. in first half of 1998
Unipine XL.................. Hypertension Launched in U.K. in 1996
</TABLE>
IRON MANAGEMENT MARKET
In recent years, there has been increasing focus on improving the quality of
life of patients undergoing chronic disease therapy through, among other
means, iron management. The oxygen carrying component of red blood cells,
hemoglobin, requires iron to function efficiently. In some cases, iron
management requires the treatment of iron deficiency and, in other cases, the
treatment of iron excess. The Company is currently marketing and developing
prescription products for the treatment of anemia in the dialysis and oncology
markets, and seeks to market INFeD for the gastroenterology and bloodless
medicine markets.
Dialysis Market. The dialysis market is currently the largest market for
injectable iron and iron replacement products. Orally administered iron has
historically been, and continues to be, the first form of treatment used by
doctors to treat anemia in dialysis patients. Research has shown, however,
that orally administered iron inadequately treats iron deficiency in dialysis
patients and that injectable iron is more rapidly and directly absorbed in the
body. The National Kidney Foundation's Dialysis Outcome Quality Improvement
(DOQI) guidelines encourage more consistent use of injectable iron to
supplement the use of oral iron in dialysis patients. Approximately 60% to 65%
of dialysis patients are given injectable iron at least once a year. EPO
therapy is currently used to treat approximately 92% of all dialysis patients.
EPO allows patients to generate their own red blood cells, thus greatly
reducing the need for blood transfusions. One of the effects of EPO treatment,
however, is rapid mobilization of iron reserves and depletion of iron stores.
The Company believes that certain studies indicate that INFeD can be used
together with EPO to overcome this iron depletion effect. Accordingly, the use
of EPO therapy has created a need for iron management techniques.
Oncology Market. In the oncology market, which includes patients with cancer
and cancer-related illnesses, anemia is a significant side effect of the
disease and the drugs used in treatment of the disease. Fatigue associated
with anemia is not widely recognized or treated as part of cancer treatment
regimens. Although there is a small base of injectable iron users in this
area, the Company believes there is potential for market expansion.
Hematology and Gastroenterology. INFeD may also have applications in the
area of bloodless medicine. Bloodless medicine is surgery without the use of
blood infusions or transfusions; instead, plasma is supplemented with iron
that is administered to the patient before surgery to build up red blood cells
or after surgery to more rapidly replace red blood cells lost during surgery.
In the gastroenterology market, of the over one million patients with
inflammatory bowel disease, 30% to 70% experience anemia, mostly due to iron
deficiency.
INFeD. INFeD (iron dextran injection, USP 50 mg/mL) is a liquid complex of
ferric hydroxide and dextran that is used in the treatment of patients with
documented iron deficiency in whom oral administration is unsatisfactory or
impossible. INFeD's product label includes the following warning: "Warning:
The parenteral use of complexes of iron and carbohydrates has resulted in
anaphylactic-type reactions. Deaths associated with such administration have
been reported. Therefore, INFeD (iron dextran injection, USP 50 mg/mL) should
be used only in those patients in whom the indications have been clearly
established and laboratory investigations confirm an iron-deficient state not
amenable to oral iron therapy."
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<PAGE>
Currently, iron dextran is the only injectable iron formulation in the U.S.
market. The Company introduced its injectable iron product, INFeD, in May
1992. INFeD currently has approximately 85% of the injectable iron market, and
iron dextran products are marketed by one other company in the U.S. Net sales
of INFeD in 1996 and the nine months ended September 1997 were $88.0 million
and $72.1 million, respectively, and accounted for 19% and 20%, respectively,
of the Company's net revenues. Growth in sales of INFeD has been driven by the
expanding use of EPO and the growing recognition of patient outcomes and
quality of life issues associated with iron deficiency anemia in dialysis
patients. For patients being treated with EPO, injectable iron therapy has
become adjunctive therapy rather than supportive therapy, as studies have
shown that anemic patients may become resistant to EPO and that injectable
iron can help to maintain EPO responsiveness and optimize its effectiveness.
The Company believes that the dialysis market should continue to expand with
the expected increase in the ESRD population, as well as the expanding use of
hemodialysis in the treatment of ESRD patients.
Ferrlecit. Ferrlecit (sodium ferric gluconate complex in sucrose injection)
is intended to be the Company's next generation injectable iron product.
Ferrlecit is administered parenterally to treat hemodialysis patients with
iron deficiency anemia.
Ferrlecit was developed by the Nattermann Company, of Cologne (now Rhone-
Poulenc Rorer GMBH) and is widely used in Europe. In 1996, pursuant to an
exclusive trademark and distribution agreement with Makoff R&D Laboratories
("R&DL"), a specialty renal pharmaceutical company, the Company acquired the
exclusive right to market and distribute Ferrlecit in the U.S. and several
other countries for a period of ten years after market authorization has been
granted by FDA. R&DL has completed Phases I, II and III clinical trials and
expects to file an NDA in the first half of 1998. See "--Government
Regulations--NDA Process."
OTHER PRODUCTS
Unipine XL. In the U.K., the Company is currently manufacturing and
marketing Unipine XL, a once-a-day version of nifedipine used in the treatment
of hypertension, pursuant to a license obtained from Ethical. The Company is
also preparing for Unipine XL's launch in Israel, South Africa, the Caribbean
and selected markets in Latin America and Asia.
PRODUCT DEVELOPMENT
The Company seeks to expand its product portfolio through continuing
investment in research and development. As a result of its approximately $74.0
million investment in product development over the past three fiscal years,
the Company has 24 ANDAs pending with FDA and over 60 products under
development internally and with third parties. The Company believes that this
investment in development activities should accelerate its ANDA filings and
launches in the next several years. The Company's product development
activities are conducted by 140 research and development professionals and
supported by others with expertise in manufacturing, technology, legal,
regulatory and intellectual property issues.
The Company's generic product development efforts focus on: (i) major
branded drugs coming off patent; (ii) drugs for which patent protection has
lapsed and for which there are few or no generic producers; (iii) drugs whose
patents may be susceptible to challenge; (iv) proprietary and branded products
in select therapeutic areas; and (v) generic products that require specialized
development, formulation, drug delivery or manufacturing technology. In
furtherance of its strategy to be among the first to market generic versions
of brand drugs, the Company uses its scientific, pharmacologic, manufacturing
and legal expertise to identify brand products covered by patents that are
susceptible to challenge or circumvention. When the Company decides to pursue
development of a generic version of a brand product so identified, it seeks a
source for the drug's active pharmaceutical ingredient, develops a formulation
for the drug, conducts bioequivalence studies on its formulation and prepares
an ANDA filing. The ANDA filing must include a certification from the Company
that the patent on the brand product is invalid or not infringed, and the
patent holder must be provided with notice of the filing and basis for the
certification. If the patent holder commences litigation within 45 days of the
notice, FDA may not approve
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<PAGE>
the ANDA for a period of 30 months, unless the case is resolved earlier in
court or by settlement. A successful patent challenge may result in a court
determination that the patent on the brand product is invalid, not infringed
or unenforceable. Alternatively, a settlement with the patent holder may
include a license to the Company to sell the generic version of the brand
product prior to the expiration of the patent covering the product.
In its branded product business, the Company intends to develop products for
the management of iron-related disorders and select other businesses, as well
as to promote the use of its primary branded product, INFeD, beyond the
dialysis market to other therapeutic areas, such as oncology and
gastroenterology.
STRATEGIC COLLABORATIONS
To expand its product portfolio and improve its profitability, the Company
will continue to pursue strategic collaborations to access additional dosage
forms, proprietary drug delivery technology, specialized formulation
capabilities and sources of bulk active materials. The Company has product
development arrangements with companies such as Ethical and Elan;
collaborative arrangements for direct access to raw materials with, among
others, Johnson Matthey and Abbott; and sales and marketing arrangements with
companies such as Bayer Corporation, Elensys and MGI. The Company has recently
entered into a non-binding letter of intent regarding Cheminor and Reddy. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
MANUFACTURING AND DISTRIBUTION
The Company operates five manufacturing facilities and two distribution
centers. The following table presents the facilities owned or leased by the
Company and indicates the location and type of each of these facilities.
<TABLE>
<CAPTION>
OWN OR LEASE
PROPERTY LOCATION LEASE SQUARE FEET EXPIRATION
-------- ---------------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Manufacturing
Facilities
Solid dosage......... Carmel, NY Own(/1/)(/2/) 112,000 --
Solid dosage......... Humacao, PR Own 75,000 --
Solid dosage......... Danbury, CT Lease(/2/) 88,000 2005
Sterile dosage....... Phoenix, AZ Own(/1/)(/2/) 175,000 --
Sterile dosage....... Cherry Hill, NJ Own(/1/) 99,700 --
Lease(/2/)(/3/) 109,800 1999
Distribution Centers
Eastern
Distribution........ Brewster, NY Lease(/1/) 98,500 2007
Western
Distribution........ Phoenix, AZ Lease 76,000 2000
Corporate Offices...... Florham Park, NJ Lease(/1/) 53,000 2005
</TABLE>
- --------
(1) The Company maintains administrative offices at this facility.
(2) The Company maintains research laboratories at this facility.
(3) The Company has the option to purchase this facility.
MANUFACTURING FACILITIES
The Company's aggregate manufacturing capacity is among the largest of any
generic pharmaceutical company in the United States. The diversity and
capacity of these facilities are important elements of the Company's strategy
to expand the range of its existing product line and provide several
significant benefits, including (i) the ability to satisfy the growing
preference among many of the Company's customers for buying pharmaceuticals
directly from manufacturers and from fewer sources, (ii) added flexibility in
raw materials sourcing and manufacturing cost control, and (iii) economies of
scale with respect to manufacturing infrastructure functions common to solid
dosage manufacturing and/or sterile dosage manufacturing, such as water
distillation, air purification, drug formulation systems, filling and
packaging lines, and quality control and regulatory compliance. See "--
Strategy" and "--Government Regulations."
33
<PAGE>
The Company has made a substantial investment in plant and equipment and
believes that it is unique in its capacity to produce a broad line of both
sterile dosage products and solid dosage products. The Company manufactures a
variety of product forms and types, including immediate-release and extended-
release solid dosage products and sterile anti-infectives, injectables,
penicillins, cephalosporins, ophthalmics and otics. The Company currently
produces approximately four billion tablets and capsules and 75 million vials
and ampules annually and has the capacity to increase production to six
billion tablets and capsules and 100 million vials and ampules annually. This
range of manufacturing capabilities allows the Company to participate in
segments of the generic industry where competition is limited. Further, the
Company's high-volume production enables it to obtain favorable access to raw
materials, which typically represent a substantial portion of the cost of
producing drug products. See "Risk Factors--Dependence on Regulatory Approval
and Compliance."
The Company is one of only two U.S. generic manufacturers with dedicated
sterile filling facilities for cephalosporin and penicillin antibiotics, which
target the high volume institutional injectable market. In addition, the
Company's ophthalmic and otic drug manufacturing facilities target higher
margin specialty markets.
In accordance with FDA requirements for manufacturers of finished
pharmaceutical products, the Company has developed strict quality control
procedures to ensure the quality and safety of its products. The Company
employs sanitary handling procedures, customized systems for monitoring and
regulating environmental conditions and back-up systems for many of the
critical steps in the production processes. The Company performs sample
testing of raw materials and packaging supplies used in manufacturing its
products and conducts on-site audits of raw material suppliers. In its
manufacturing process, the Company maintains strict quality control procedures
and believes it is in material compliance with FDA's cGMP standards. The
Company has approximately 380 employees dedicated to quality control and
quality assurance. Because developing and obtaining approval of new generic
products requires a large investment and several years of lead time, the
Company believes that companies like itself that have modern, versatile
manufacturing facilities will have a competitive advantage in responding to
market opportunities. See "Risk Factors--Dependence on Regulatory Approval and
Compliance," "Risk Factors--Pending Regulatory Matters" and "--Government
Regulations."
The Company does not manufacture the active pharmaceutical ingredients used
in the preparation of its products. Instead, the Company purchases these
active pharmaceutical ingredients from international and domestic sources. FDA
requires pharmaceutical manufacturers to identify in their drug applications
the supplier(s) of all the raw materials for its products. If raw materials
for a particular product become unavailable from an approved supplier
specified in a drug application, any delay in the required FDA approval of a
substitute supplier could interrupt manufacture of the product, which could
materially and adversely affect the Company's profit margins and market share
for the product. To the extent practicable, the Company attempts to identify
more than one supplier in each drug application. However, in the case of
certain products (including certain products that contribute (or may
contribute) significantly to its sales and net income), the Company has
submitted drug applications that identify only one supplier. The Company has a
program of identifying alternative suppliers where practicable and, in many
cases, filing supplemental applications with FDA for approval.
The Company obtains a significant portion of its raw materials from
international suppliers. Arrangements with international raw material
suppliers are subject, among other things, to FDA, customs and other
government clearances, various duties and regulation by the country of origin.
The Company has a number of collaborative arrangements for exclusive access to
some difficult to source products.
SALES AND MARKETING
The Company believes that it has one of the largest direct sales and
marketing forces in the generic drug industry, with approximately 90 field
representatives, 20 telemarketing representatives and 10 marketing personnel.
This team is focused on enhancing pharmacist and payor knowledge of the Schein
product line and providing a differentiated level of customer service and
support. The sales and marketing force promotes Schein's newly approved
products and supports customers with innovative, value added services in
inventory management and patient education.
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<PAGE>
The Company's broad customer base, which purchases from wholesalers and
directly from the Company, includes: retail customers, including chain drug
stores, mass merchandisers, food stores and independent drug stores; wholesale
distributors; managed care providers, including group purchasing
organizations, HMOs and mail order companies; alternative site customers, such
as long term care companies, home infusion companies and surgery centers; and
medical/surgical suppliers.
Most pharmaceuticals today are sold through national and regional
wholesalers, who command approximately 80% of the U.S. drug distribution
market. While pharmaceutical products are typically distributed via these
wholesalers, pharmaceutical companies often directly enter into contracts with
the retail chains, managed care and institutional customers covering the
actual acquisition price. Under these arrangements, wholesalers often serve as
depots for substantially all of a customer's product needs, allowing it to
maintain minimal inventories and receive overnight deliveries of several
manufacturers' products from a single source. Currently, approximately 64% of
the Company's net revenues are sold through wholesalers, with approximately
82% of these net revenues subject to direct contracts between the Company and
its customers. In general, it is the Company's strategy to seek to enter into
purchase contracts with retail, managed care and institutional customers.
Sales to Bergen Brunswig Corporation, Cardinal Health, Inc. and McKesson Drug
Company accounted for 17%, 16% and 11%, respectively, of the Company's total
net revenues for the nine months ended September 1997 and accounted for 16%,
15% and 11%, respectively, of the Company's total net revenues in fiscal 1996.
The vast majority of the Company's products are sold under the "Schein
Pharmaceutical," "Marsam Pharmaceuticals" and "Steris Laboratories" labels. In
addition, the Company sells a limited number of products to distributors under
private labels.
The Company directs its sales and marketing activities through programs
specific to its generic product and branded product businesses.
GENERIC PRODUCTS
The Company has one of the largest generic sales and marketing organizations
in the U.S. generic pharmaceutical industry, with a sales and marketing
organization of 120 people serving the retail, institutional, alternative
site, managed care and other generic drug purchasing markets, including a 20-
person telemarketing sales force and 10 marketing personnel supporting the 90-
person field sales organization. The Company's large sales and marketing force
permits effective coverage of all purchasers of generic products. The sales
and marketing force promotes newly approved products, encourages substitution
of the Company's generic products for branded products and supports the
customer with value added services in inventory management and patient
education.
The Company has developed market share initiatives with selected leading
chain and wholesale customers and developed and has implemented customized
marketing programs to meet specific customer needs, including the following:
. The Company has implemented a unique vendor managed inventory program,
Schein Pharmaceutical Managed Auto Replenishment Technology
("S.M.A.R.T.(TM)"), which monitors customers' inventory levels daily to
ensure adequate stocking levels, minimize the occurrence of back orders
and returned goods and enhance inventory turnover for such key
customers.
. The Company uses state-of-the-art electronic data interchange ("EDI")
systems, which enable it to efficiently exchange data with its key
wholesale and retail customers for a variety of transactions.
. The Company offers a patient compliance program through which consumers
receive prescription refill reminders from their pharmacies.
. The Company has designed the Generic Acceptance and Intervention Network
("G.A.I.N.(TM)"), a patient-focused education program to promote the use
of generic products for its customers.
BRANDED PRODUCTS
The Company has a sales and marketing organization of 20 people dedicated to
marketing INFeD. The Company also has established a co-promotion arrangement
with Bayer Corporation under which 150 of Bayer's
35
<PAGE>
specialty sales representatives devote a portion of their time in the United
States and Puerto Rico detailing INFeD to the nephrology market. In addition,
as part of its marketing effort in the oncology market, the Company entered
into a co-promotion arrangement with MGI in July 1997 for MGI's 21-person
sales force to support INFeD in the oncology market.
COMPETITION
In the generic pharmaceutical business, the Company competes with a number
of companies, including independent generic manufacturers and larger
pharmaceutical companies, which sell the same generic equivalents of the
Company's products. Many companies, including large pharmaceutical firms with
financial and marketing resources and development capabilities substantially
greater than those of the Company, are engaged in developing, marketing and
selling products that compete with those offered by the Company. The selling
prices of the Company's products may decline as competition increases.
Further, other products now in use or under development by others may be more
effective than the Company's current or future products. The pharmaceutical
industry is characterized by intense competition and rapid product development
and technological change. The Company's pharmaceuticals could be rendered
obsolete or made uneconomical by the development of new pharmaceuticals to
treat the indications addressed by the Company's products, technological
advances affecting the cost of production, or marketing or pricing actions by
one or more of the Company's competitors. The Company's business, results of
operations and financial condition could be materially adversely affected by
any one or more of such developments. Competitors may also be able to complete
the regulatory process for certain products before the Company and, therefore,
may begin to market their products in advance of the Company's products. The
Company believes that competition among prescription pharmaceuticals and
generics will be based on, among other things, product efficacy, safety,
reliability, availability and price. The Company believes that various
competitive factors, including pressure from major wholesalers and delays in
generic drug approvals by FDA, led to price declines beginning in mid-1996 for
generic drugs, largely offsetting growth in unit sales.
From time to time, the Company may compete for the in-license or acquisition
of certain branded products with other pharmaceutical companies pursuing a
similar strategy. The Company's branded product competes with generic
pharmaceuticals which claim to offer equivalent therapeutic benefits at a
lower cost. In some cases, third-party payors encourage the use of lower cost
generic products by paying or reimbursing a user or supplier of a branded
prescription product a lower purchase price than would be paid or reimbursed
for a generic product, making branded products less attractive, from a cost
perspective, to buyers. The aggressive pricing activities of the Company's
generic competitors and the payment and reimbursement policies of third-party
payors could have a material adverse effect on the Company's business, results
of operations and financial condition.
GOVERNMENT REGULATIONS
The research, development and commercial activities relating to branded and
generic prescription pharmaceutical products are subject to extensive
regulation by U.S. and foreign governmental authorities. Certain
pharmaceutical products are subject to rigorous pre-clinical testing and
clinical trials and to other approval requirements by FDA in the United States
under the Federal Food, Drug and Cosmetic Act (the "FDCA") and the Public
Health Services Act and by comparable agencies in most foreign countries.
The FDCA, the Public Health Services Act, the Controlled Substances Act and
other federal statutes and regulations govern or influence all aspects of the
Company's business. Noncompliance with applicable requirements can result in
fines and other judicially imposed sanctions, including product seizures,
injunctive actions and criminal prosecutions. In addition, administrative or
judicial actions can result in the recall of products and the total or partial
suspension of the manufacturing of products, as well as the refusal of the
government to approve pending applications or supplements to approved
applications. FDA also has the authority to withdraw approvals of drugs in
accordance with statutory due process procedures. See "Risk Factors--
Dependence on Regulatory Approval and Compliance" and "Risk Factors--Pending
Regulatory Matters."
FDA approval is required before any dosage form of any new unapproved drug,
including a generic equivalent of a previously approved drug, can be marketed.
All applications for FDA approval must contain
36
<PAGE>
information relating to product formulation, stability, manufacturing
processes, packaging, labeling and quality control. In addition, acts of
foreign governments may affect the price or availability of raw materials
needed for the development or manufacture of generic drugs.
ANDA PROCESS
The Waxman-Hatch Act established abbreviated application procedures for
obtaining FDA approval for those drugs which are off-patent and whose non-
patent exclusivity under the Waxman-Hatch Act has expired and which are shown
to be bioequivalent to previously approved brand name drugs. Approval to
manufacture these drugs is obtained by filing an ANDA. An ANDA is a
comprehensive submission which must contain data and information pertaining to
the formulation, specifications and stability of the generic drug as well as
analytical methods and manufacturing process validation data and quality
control procedures. As a substitute for clinical studies, FDA requires data
indicating that the ANDA drug formulation is bioequivalent to a previously
approved NDA drug. In order to obtain an ANDA approval of a strength or dosage
form which differs from the referenced brand name drug, an applicant must file
and have granted an ANDA Suitability Petition. A product is not eligible for
ANDA approval if it is not bioequivalent to the referenced brand name drug or
if it is intended for a different use. However, such a product might be
approved under an NDA with supportive data from clinical trials.
The advantage of the ANDA approval process is that an ANDA applicant
generally can rely upon bioequivalence data in lieu of conducting pre-clinical
testing and clinical trials to demonstrate that a product is safe and
effective for its intended use(s). The Company files ANDAs to obtain approval
to manufacture and market its generic products. No assurance can be given that
ANDAs or other abbreviated applications will be suitable or available for the
Company's products or that the Company's proposed products will receive FDA
approval on a timely basis, if at all. While the FDCA provides for a 180-day
review period, the Company believes the average length of time between initial
submission of an ANDA and receiving FDA approval is approximately two years.
While the Waxman-Hatch Act established the ANDA, it has also fostered
pharmaceutical innovation through such incentives as market exclusivity and
patent restoration. The Waxman-Hatch Act provides two distinct market
exclusivity provisions which either preclude the submission or delay the
approval of a competitive drug application. A five-year marketing exclusivity
period is provided for new chemical compounds and a three-year marketing
exclusivity period is provided for applications containing new clinical
investigations essential to the approval of the application. The non-patent
market exclusivity provisions apply equally to patented and non-patented drug
products. Any entitlement to patent marketing exclusivity under the Waxman-
Hatch Act is based upon the term of the original patent plus any patent
extension granted under the Waxman-Hatch Act as compensation for reduction of
the effective life of a patent as a result of time spent by FDA in reviewing
the innovator's NDA. The patent and non-patent marketing exclusivity
provisions do not prevent the filing or the approval of an NDA. Additionally,
the Waxman-Hatch Act provides 180-day market exclusivity against effective
approval of another ANDA for the first ANDA applicant who (a) submits a
certificate challenging a listed patent as being invalid or not infringed and
(b) successfully defends in court any patent infringement action based on such
certification. The brand product segment of the pharmaceutical industry has
initiated legislative efforts to limit the impact of the Waxman-Hatch Act,
both on the federal and state levels. Recently, legislation has been
introduced designed to extend the patent protection on certain brand
pharmaceuticals and efforts have been made by the brand pharmaceutical
industry to introduce legislation to limit generic firms' ability to begin
research and development activities prior to patent expiration. In addition,
the brand product pharmaceutical companies have also initiated legislative
efforts in various states to limit the substitution of generic versions of
certain types of branded pharmaceuticals. The Company cannot predict whether
any such legislation will be enacted.
NDA PROCESS
An NDA is a filing submitted to FDA to obtain approval for a drug not
eligible for an ANDA and must contain complete pre-clinical and clinical
safety and efficacy data or a right of reference to such data. Before dosing a
new drug in healthy human subjects or patients may begin, stringent government
requirements for pre-
37
<PAGE>
clinical data must be satisfied. The pre-clinical data, typically obtained
from studies in animal species, as well as from laboratory studies, are
submitted in an Investigational New Drug ("IND") application, or its
equivalent in countries outside the United States, where clinical trials are
to be conducted. 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. In Phase I, which frequently begins with the initial
introduction of the compound into healthy human subjects prior to introduction
into patients, the product is tested for safety, adverse effects, dosage,
tolerance, absorption, metabolism, excretion and other elements of clinical
pharmacology. Phase II typically involves studies in a small sample of the
intended patient population to assess the efficacy of the compound for a
specific indication, to determine dose tolerance and the optional dose range
as well as to gather additional information relating to safety and potential
adverse effects. Phase III trials are undertaken to further evaluate clinical
safety and efficacy in an expanded patient population at typically dispersed
study sites, in order to determine the overall risk-benefit ratio of the
compound and to provide an adequate basis for product labeling. Each trial is
conducted in accordance with certain standards under protocols that detail the
objectives of the study, the parameters to be used to monitor safety and the
efficacy criteria to be evaluated. Each protocol must be submitted to FDA as
part of the IND.
Data from pre-clinical testing and clinical trials may be submitted to FDA
as an NDA for marketing approval and to foreign health authorities as a
marketing authorization application. The process of completing clinical trials
for a new drug is likely to take several years and require the expenditure of
substantial resources. Preparing an NDA or marketing authorization application
involves considerable data collection, verification, analysis and expense, and
there can be no assurance that approval from FDA or any other health authority
will be granted on a timely basis, if at all. 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. FDA or other health authorities may deny an NDA or
marketing authorization application if the regulatory criteria are not
satisfied, or such authorities may require additional testing or information.
Even after initial FDA or other health authority approval has been obtained,
further studies, including Phase IV post-marketing studies, may be required to
provide, for example, additional data on safety, and will be required to gain
approval for the use of a product as a treatment for clinical indications
other than those for which the product was initially tested. Also, FDA or
other regulatory authorities require post-marketing reporting to monitor
serious and unanticipated adverse effects of the drug. Results of post-
marketing programs may limit or expand the further marketing of the products.
Further, if there are any modifications to the drug, including changes in
indication, manufacturing process or labeling or a change in manufacturing
facility, an application seeking approval for such changes must be submitted
to FDA or other regulatory authority. Additionally, FDA regulates post-
approval promotional labeling and advertising activities to assure that such
activities are being conducted in conformity with statutory and regulatory
requirements. Failure to adhere to such requirements can result in regulatory
actions which could have a material adverse effect on the Company's business,
results of operations and financial condition.
OTHER REGULATION
The Prescription Drug Marketing Act (the "PDMA"), which amends various
sections of the FDCA, imposes requirements and limitations upon drug sampling
and prohibits states from licensing distributors of prescription drugs unless
the state licensing program meets certain federal guidelines that include,
among other things, state licensing of wholesale distributors of prescription
drugs under federal guidelines that include minimum standards for storage,
handling and record keeping. In addition, the PDMA sets forth civil and
criminal penalties for violations of these and other provisions. Various
sections of the PDMA are still being implemented by FDA and the states.
Nevertheless, failure by the Company's distributors to comply with the
requirements of the PDMA could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Risk Factors--
Dependence on Regulatory Approval and Compliance" and "Risk Factors--Pending
Regulatory Matters."
38
<PAGE>
Manufacturers of marketed drugs must comply with cGMP regulations and other
applicable laws and regulations required by the FDA, the Drug Enforcement
Agency, the Environmental Protection Agency and other regulatory agencies.
Failure to do so could lead to sanctions, which may include an injunction
suspending manufacturing, the seizure of drug products and the refusal to
approve additional marketing applications. Manufacturers of controlled
substances are also subject to the licensing, quota and regulatory
requirements of the Controlled Substances Act. Failure to comply with the
Controlled Substances Act and the regulations promulgated thereunder could
subject the Company to loss or suspension of those licenses and to civil or
criminal penalties. The Company seeks to ensure that any third party with whom
it contracts for product manufacturing or packaging will comply with cGMPs.
FDA conducts periodic inspections to ensure compliance with these rules.
However, there can be no assurance that any such third parties will be found
to be in compliance with cGMP standards. Any such non-compliance could result
in a temporary or permanent interruption in the development and testing of the
Company's planned products or in the marketing of approved products, as well
as increased costs. Such non-compliance could have a material adverse effect
on the Company's business, results of operations and financial condition.
Products marketed outside the United States, which are manufactured in the
United States, are subject to certain FDA regulations as well as regulation by
the country in which the products are to be sold. The Company is required to
obtain approval for and maintain compliance with applicable regulations
relating to the marketing of its products outside the United States. There can
be no assurance that any such approval may be obtained or such compliance
maintained.
PRODUCT LIABILITY; INSURANCE
The testing, manufacturing and distribution of the Company's products
involve a risk of product liability claims. Pursuant to the Company's various
insurance policies, the Company is self-insured up to the first $500,000 of
claims for each policy year and $2,500,000 in the aggregate. Although no
assurance can be given, the Company believes that its product liability
insurance is adequate. Product liability insurance, however, could cease to be
available or could cease to be available on acceptable terms, either as a
function of the market for product liability insurance for pharmaceutical
companies or the Company's own claims experience. See "Risk Factors--Risk of
Product Liability Claims; No Assurance of Adequate Insurance."
EMPLOYEES
At September 1997, the Company had approximately 1,850 employees, of which
830 were engaged in manufacturing, 380 were engaged in quality control and
quality assurance, 240 were engaged in administration, finance and human
resources, 140 were engaged in research and product development, 140 were
engaged in sales and marketing, 80 were engaged in distribution and 40 were
engaged in regulatory affairs. No employee is represented by a union, and the
Company has never experienced a work stoppage. Management believes its
relationship with its employees is good.
LEGAL PROCEEDINGS
The Company is a defendant in several product liability cases typical for a
company in the pharmaceutical industry. The Company also is involved in other
proceedings and claims of various types. Management believes the disposition
of these matters will not have a material adverse effect on the Company.
In October 1997 the Company received a subpoena from the Department of
Health and Human Services, Office of Inspector General seeking pricing
information for two products formerly marketed by the Company, vinblastine
sulfate and vincristine sulfate. The Company is aware of a number of other
pharmaceutical manufacturers and distributors that have been served with
similar subpoenas, which the Company believes is in connection with a
government investigation into claims for reimbursement by Medicare and/or
Medicaid. The Company intends to comply with the subpoena.
39
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Martin Sperber.................. 66 Chairman of the Board of Directors, Chief
Executive Officer and President
Marvin Samson................... 56 Executive Vice President and Director
Dariush Ashrafi................. 50 Executive Vice President, Chief Financial
Officer and Director
Paul Feuerman................... 38 Senior Vice President, General Counsel, and
Director
David R. Ebsworth*.............. 43 Director
Richard L. Goldberg*............ 61 Director
</TABLE>
- --------
* Members of the Compensation Committee.
Martin Sperber has been Chairman, Chief Executive Officer, President and
Director of the Company since 1989. From 1985 until 1989, Mr. Sperber was
President and Chief Operating Officer of the Company. Mr. Sperber has been
employed in various positions in the Schein organization for over 40 years.
Mr. Sperber is a member of the Board of the Generic Pharmaceutical Industry
Association, a member of the Board of the American Foundation for
Pharmaceutical Education, a member of the American Pharmaceutical Association
and a member of the Council for Overseers of the Long Island University Arnold
and Marie Schwartz College of Pharmacy. Mr. Sperber received his B.S. degree
in pharmacy from Columbia University.
Marvin Samson has been Executive Vice President and Director since the
Marsam Acquisition. Mr. Samson is also President, Chief Executive Officer and
Chairman of the Board of Marsam, a company he founded in 1985. Prior thereto,
Mr. Samson was CEO, President and founder of Elkins-Sinn, Inc., a manufacturer
of generic injectable products. Currently, Mr. Samson is Chairman of the
Generic Pharmaceutical Industry Association, a member of the board of
directors of Sabratek Corp. (NASDAQ), and a member of the board of trustees of
the Philadelphia College of Pharmacy, the West Jersey Hospital System and the
American Society of Hospital Pharmacists Foundation. Mr. Samson received his
B.S. degree in chemistry from Temple University.
Dariush Ashrafi has been Executive Vice President and Chief Financial
Officer since October 1995, and Director since September 1997 and from May
1995 until September 1995 was Senior Vice President and CFO. From 1990 to
1995, Mr. Ashrafi was Senior Vice President, Chief Financial Officer and
director of The Warnaco Group, Inc., an apparel company. Prior to joining
Warnaco, he spent 18 years with Ernst & Young and became a partner in 1983.
Mr. Ashrafi received his B.S. degrees in Aeronautical and Astronautical
Engineering and in Management Science from the Massachusetts Institute of
Technology and his M.S. in Finance from the Massachusetts Institute of
Technology Sloan School.
Paul Feuerman has been General Counsel since 1991. He has been a Vice
President of the Company since January 1992, Senior Vice President since
February 1997, and a Director since September 1997. Mr. Feuerman previously
was associated with the law firm of Proskauer Rose LLP. He received his B.A.
from Trinity College and his J.D. from Columbia Law School.
David R. Ebsworth became a Director of the Company in September 1994 as part
of Bayer Corporation's investment in the Company. He is currently Executive
Vice President, Bayer Corporation and President, Pharmaceutical Division North
America. Between 1983 and 1993, Dr. Ebsworth held various management and sales
marketing positions with the Bayer companies in Germany and Canada. Dr.
Ebsworth received his B.S. and Doctor of Philosophy degrees from the
University of Surrey (England).
40
<PAGE>
Richard L. Goldberg has been a director of the Company since September 1994.
He is currently a Senior Partner at Proskauer Rose LLP and has been a member
of that law firm since 1990. Prior to 1990, he was a Senior Partner at Botein
Hays & Sklar. Mr. Goldberg is also a member of the Board of Directors of
Comtech Telecommunications Corp. (NASDAQ). He is a graduate of Brooklyn
College and received his J.D. from Columbia Law School.
BOARD OF DIRECTORS
The Company's certificate of incorporation as in effect upon the completion
of the Offering divides the board of directors into three classes, with each
class holding office for staggered three-year terms. The terms of one-third of
the current directors will expire at the annual meeting of stockholders in
each of 1998, 1999 and 2000. At each annual election, commencing at the annual
meeting of stockholders in 1998, the successors to the class of directors
whose term expires at that time will be elected to hold office for a term of
three years to succeed those directors whose term expires, so that the term of
one class of directors will expire each year. The classification of directors
has the effect of making it more difficult to change the composition of the
Board of Directors in a relatively short period. In addition, the classified
board provision could discourage a third party from attempting to obtain
control of the Company, even though such an attempt might be beneficial to the
Company and its stockholders or could delay, defer or prevent a change in
control of the Company.
Pursuant to the Restructuring Agreements (as defined herein), until Bayer
Corporation owns less than 10% of the Company's outstanding Common Stock,
Bayer Corporation is entitled to nominate a number of members of the Board of
Directors of the Company, rounded down to the nearest whole number, equal to
the product of (a) the number of members of the Board of Directors and (b) its
percentage stockholdings of Common Stock at the time of nomination. The Voting
Trustee (currently Mr. Sperber) is entitled under the Restructuring Agreements
to nominate the balance of the members of the Board of Directors until the
Voting Trust Termination Date (as defined herein). Until May 15, 2001, the
Voting Trustee and certain of the Company's principal stockholders must vote
for the election of Bayer Corporation's nominee(s). Until the Voting Trust
Termination Date, Bayer Corporation and certain of the Company's principal
stockholders must vote for the election of the Voting Trustee's nominees.
The Company's officers are elected by the Board of Directors for one-year
terms and serve at the discretion of the Board of Directors. See "Principal
and Selling Stockholders," "Risk Factors--Control of the Company" and
"Description of Capital Stock."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has one standing committee: the
Compensation Committee.
The Compensation Committee approves the compensation for senior executives
of the Company, makes recommendations to the Board of Directors with respect
to compensation levels and administers the Company's stock option plans. The
members of the Compensation Committee are Messrs. Ebsworth and Goldberg.
The Company's Board of Directors is expected to appoint directors who are
not affiliated with the Company to an Audit Committee of the Board of
Directors. The Audit Committee will have general responsibility for
surveillance of financial controls, as well as for accounting and audit
activities of the Company. The Audit Committee will annually review the
qualifications of the Company's independent certified public accountants, make
recommendations to the Board of Directors as to their selection and review the
plan, fees and results of their audit.
LIMITATIONS ON LIABILITY
The Company's certificate of incorporation contains a provision that,
subject to certain exceptions, limits the personal liability of the Company's
directors for monetary damages to the Company and its stockholders for
breaches of fiduciary duty owed to the Company or its stockholders.
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<PAGE>
In addition, the Company has entered into agreements with its directors and
officers providing for indemnification of those individuals under certain
circumstances.
The Company has obtained director and officer liability insurance that
insures the Company's directors and officers against certain liabilities.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the Company's remaining executive officers
(the "Named Executive Officers") for the year ended December 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
----------------------------- ---------- --------
SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION(2)(3) SALARY BONUS COMPENSATION OPTIONS PAYOUTS COMPENSATION
- --------------------------------- -------- ------- ------------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Martin Sperber........... $700,000 -- $ 9,929 (4) -- -- $10,305 (4)
Chairman of the Board of
Directors, Chief
Executive Officer and
President
Marvin Samson............ 400,000 $70,000 -- 24,600 -- 37,786 (5)
Executive Vice President
Dariush Ashrafi.......... 341,000 59,700 10,257 (6) 24,600 $ 75,000 24,321 (6)
Executive Vice President
and Chief Financial
Officer
Paul Feuerman............ 185,000 32,400 7,738 (7) 24,600 100,000 13,397 (7)
Senior Vice President
and General Counsel
</TABLE>
- --------
(1) The compensation described in this table does not include medical, group
life insurance or other benefits available generally to all salaried
employees of the Company, as well as certain perquisites and other
personal benefits, the value of which does not exceed the lesser of
$50,000 or 10% of the named executive officer's total salary and bonus
reported in this table.
(2) Michael Casey, who served as the Company's Executive Vice President until
September 5, 1997, received $326,442 in Salary, $61,300 in Bonus, options
covering 24,600 shares of Common Stock, $75,000 in LTIP payouts and $9,477
in All Other Compensation. All Other Compensation includes $7,260 for
profit sharing contribution, $1,125 in 401(k) employer matching
contribution and $1,092 for the cost of term life insurance coverage
provided by the Company.
(3) James McGee, who served as the Company's Executive Vice President and
Chief Operating Officer until May 15, 1997, received $431,000 in Salary,
$75,400 in Bonus, $98,825 in Other Annual Compensation, options covering
24,600 shares of Common Stock, $2,000,000 in LTIP payouts and $180,833 in
All Other Compensation. Other Annual Compensation includes $2,515 in tax
payments for a company car, $661 in tax payments for the supplemental
retirement plan, $113 in tax payments for state unemployment insurance and
$95,536 in tax payments for a relocation loan made on behalf of Mr. McGee.
All Other Compensation includes $7,500 for profit sharing contribution,
$1,125 in 401(k) employer matching contribution, $21,550 in supplemental
retirement plan contribution, $1,448 for the cost of term life insurance
coverage provided by the Company, $104,540 for forgiven equity loss loan
and associated tax deposit and $44,670 for the value of split dollar life
insurance policy.
(4) Other Annual Compensation includes $8,426 in tax payments for a company
car, $1,391 in tax payments for supplemental retirement plan and $112 in
tax payments for state unemployment insurance made on behalf of Mr.
Sperber. All Other Compensation includes $7,500 for profit sharing
contribution, $1,125 in 401(k) employer matching contribution and $1,680
for the cost of term life insurance coverage provided by the Company.
(5) All Other Compensation includes $7,500 for profit sharing contribution,
$250 in 401(k) employer matching contribution, $16,660 in supplemental
retirement plan contribution, $909 for the cost of term life insurance
provided by the Company and $12,467 for the value of split dollar life
insurance policy.
(6) Other Annual Compensation includes $10,257 in tax payments for an
allowance in lieu of a company car made on behalf of Mr. Ashrafi. All
Other Compensation includes $7,500 for profit sharing contribution, $1,125
in 401(k) employer matching contribution, $14,550 in supplemental
retirement plan contribution and $1,146 for the cost of term life
insurance coverage provided by the Company.
(7) Other Annual Compensation includes $7,586 in tax payments for a company
car, $39 in tax payments for the supplemental retirement plan and $113 in
tax payments for state unemployment insurance made on behalf of Mr.
Feuerman. All Other Compensation includes $7,500 for profit sharing
contribution, $1,125 in 401(k) employer matching contribution, $4,150 in
supplemental retirement plan contribution and $622 for the cost of term
life insurance provided by the Company.
42
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
------------------------------------------------------- ---------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION
NAME GRANTED 1996 SHARE DATE 5% 10%
---- ------------------ --------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Martin Sperber.......... -- -- -- -- -- --
Dariush Ashrafi......... 24,600 4.01% $16.26 02/02/06 $ $
Michael Casey........... 24,600 4.01 16.26 02/02/06
Paul Feuerman........... 24,600 4.01 16.26 02/02/06
Marvin Samson........... 24,600 4.01 16.26 02/02/06
James McGee............. 24,600 4.01 16.26 02/02/06
</TABLE>
FISCAL YEAR--END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END
SHARES ACQUIRED ------------------------- -------------------------
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin Sperber.......... -- -- 589,785 -- -- --
Dariush Ashrafi......... -- -- 17,220 93,480 -- --
Michael Casey........... -- -- 17,220 93,480 -- --
Paul Feuerman........... -- -- 16,236 35,424 -- --
Marvin Samson........... -- -- -- 24,600 -- --
James McGee............. -- -- 562,971 -- $ --
</TABLE>
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Martin Sperber dated
September 30, 1994 pursuant to which Mr. Sperber serves as Chairman of the
Board, Chief Executive Officer and President of the Company. Under this
agreement, the term of Mr. Sperber's employment commenced on January 1, 1994
and terminates on January 1, 1999, unless earlier terminated by the death of
Mr. Sperber, by action of the Board of Directors with or without cause, due to
the disability of Mr. Sperber or by Mr. Sperber upon 30 days written notice or
a material breach by the Company of his employment or stock option agreement
that is not cured within 30 days. If Mr. Sperber is terminated without cause,
in addition to all accrued but unpaid compensation to the date of termination,
he is entitled to receive as severance compensation his base salary from the
date of termination through January 1, 1999 and an amount equal to the product
of (i) a fraction, the numerator of which is the amount of earned incentive
compensation for the last full year before termination and the denominator of
which is 365 and (ii) the number of days from termination until January 1,
1999. If Mr. Sperber voluntarily terminates his employment prior to January 1,
1999 (other than for an uncured breach by the Company), he is only entitled to
such severance pay as is determined by the Compensation Committee. Mr. Sperber
currently receives base annual compensation of $700,000. Mr. Sperber may also
receive incentive compensation in an amount to be determined by the
Compensation Committee. If Mr. Sperber's employment is terminated prior to
January 1, 1999, such incentive compensation shall be based on objective
criteria established by the Compensation Committee or $250,000 plus the
product of (x) the fraction derived by dividing (i) the sum of the actual cash
incentive compensation earned by each of the three most senior executives of
the Company other than Mr. Sperber in the year Mr. Sperber's employment is
terminated less the sum of the minimum cash incentive compensation
contemplated for such executives for such year, by (ii) the sum of the maximum
cash incentive compensation contemplated for such executives for such year
less the sum of the minimum cash incentive compensation contemplated for such
executives for such year and (y) $250,000. Mr. Sperber is prohibited from
competing with the Company during the term of the agreement and until the
second anniversary of the date the Company makes its final base salary payment
to Mr. Sperber pursuant to the agreement.
43
<PAGE>
Following termination of Mr. Sperber's employment other than for cause, Mr.
Sperber will be entitled during his lifetime and for the life of his spouse to
continue to participate in, or receive benefits that, on an after-tax basis,
are the same as those under all medical and dental benefit plans, policies and
programs in effect at the termination of his employment. In addition, unless
Mr. Sperber's employment is terminated for cause, Mr. Sperber will be entitled
to an annual pension, beginning after the termination of his employment and
continuing until the later of the death of Mr. Sperber or his spouse, in an
amount equal to 45% (or 40%, if Mr. Sperber's employment is terminated due to
his voluntary resignation) of the average total cash compensation for the
highest three of the last five years prior to termination, reduced generally
by the sum of the amount Mr. Sperber would be entitled to receive under all of
the Company's qualified retirement plans within the meaning of Section 401(a)
of the Internal Revenue Code and under Social Security if he commenced such
benefit payments at age 65. See "--Stock Options."
The Company entered an Option Agreement with Mr. Sperber dated September 30,
1994 under which Mr. Sperber was granted, as a key employee pursuant to the
Company's 1993 Stock Option Plan, a non-qualified option to purchase from the
Company up to 586,095 shares of Common Stock at a price of $16.20 per share.
The option expires on the earlier of September 30, 2004 or upon Termination of
Employment (as defined in the 1993 Stock Option Plan). In the event of Mr.
Sperber's death, disability, retirement or termination without cause, the
option remains exercisable for one year (but may be extended by the Company at
its discretion). Upon termination of Mr. Sperber's employment for cause (or
discovery of justification for termination for cause after termination for
another reason), all outstanding options are immediately cancelled. In the
event Mr. Sperber's employment is terminated for any other reason, all
outstanding options will remain exercisable for one year from the date of
termination (but may be extended at the discretion of the Company).
Pursuant to an employment agreement with Marsam dated July 28, 1995, to
which the Company agreed to be bound by certain provisions, Marvin Samson was
appointed an Executive Vice President and Director of the Company, as well as
President, Chief Executive Officer and Chief Operating Officer of Marsam, for
an initial term that commenced on the date of the Marsam Acquisition and
terminates on the fifth anniversary of that date (the "Initial Term"), which
term is automatically extended for one-year periods unless earlier terminated
upon 180 days advance written notice by either party. During the Initial Term,
Mr. Samson may terminate the agreement at any time, but the Company may only
terminate Mr. Samson for cause. If the Company terminates Mr. Samson's
employment other than for cause during the Initial Term, Mr. Samson is
entitled to severance compensation in the amount of his annual salary, as well
as comparable health and disability insurance coverage (or reimbursement
therefor), for the remainder of the Initial Term (or any extension thereof).
If Mr. Samson terminates the agreement prior to the end of the Initial Term,
he is entitled to continue receiving 50% of his salary and comparable
insurance benefits (or reimbursement therefor) starting on the date of
termination and ending on the earlier of the third anniversary of the
termination or the fifth anniversary of the Marsam Acquisition. Mr. Samson
currently receives base annual compensation of $400,000. In 1996, the
Company's Board of Directors determined to award a $70,000 bonus to Mr.
Samson, payable to Mr.Samson in 1997. Mr. Samson is also entitled to
participate in and receive benefits from the Company's bonus, stock option,
pension, profit-sharing, insurance and other employee benefit plans. In
addition, the agreement provides that during any time when the Company is
obligated to pay Mr. Samson a salary or consulting fee, Mr. Samson is also
entitled to an automobile, or, at the Company's option, an automobile
allowance. Mr. Samson is prohibited from competing with the Company (or owning
more than 3% of the outstanding equity of a competing business) during the
term of his employment or consultancy with the Company, during any period in
which the Company is making severance compensation payments or upon
termination for cause by the Company until the earlier of the sixth
anniversary of the Marsam Acquisition and the fourth anniversary of the
termination.
The Company, at its option, may retain Mr. Samson as a consultant for a
period of one year after the Initial Term (or any extension thereof) or after
Mr. Samson terminates the agreement. As a consultant, Mr. Samson is entitled
to receive a consulting fee in an amount equal to his base salary immediately
prior to termination, as well as comparable health and disability insurance
coverage (or reimbursement therefor). Such consulting fee
44
<PAGE>
may be reduced dollar-for-dollar by any compensation received by Mr. Samson
for other employment that he is engaged in at the time. The Company, at its
option, may terminate the consultancy upon 30 days prior written notice.
The agreement also provides that Mr. Samson, having been elected a director
of the Company effective on the date of the Marsam Acquisition, is entitled to
have his name included in the slate of the Company's management nominees for
re-election as a director during the term of the agreement. Mr. Samson is also
entitled to designate three of Marsam's seven board members.
Following termination of Mr. Samson's employment other than for cause, Mr.
Samson will be entitled to an annual pension for a period of ten years. The
agreement provides for a payment in the first year equal to 100% of his prior
year base salary and a payment equal to 50% of his base salary for the
subsequent nine years. The Company has also agreed to provide certain benefits
to Mr. Samson in the form of payments on the split dollar life insurance
contract insuring the lives of Mr. Samson and his wife.
The Company entered into an employment agreement with Dariush Ashrafi dated
May 1, 1995, pursuant to which Mr. Ashrafi serves as Executive Vice President
and Chief Financial Officer of the Company. Under this agreement, the term of
Mr. Ashrafi's employment began on May 1, 1995 and terminates 60 days after
either Mr. Ashrafi or the Company gives written notice that he or it does not
wish to continue the employment, unless earlier terminated for cause or upon
the death or disability of Mr. Ashrafi. Mr. Ashrafi currently receives annual
base compensation of $341,000. In 1996, the Company's Board of Directors
determined to award a $59,700 bonus to Mr. Ashrafi, payable to Mr. Ashrafi in
1997. Pursuant to a deferred compensation agreement dated April 17, 1995,
between the Company and Mr. Ashrafi, Mr. Ashrafi is entitled to receive a
bonus of $300,000, payable in quarterly payments in the amount of $75,000. If
Mr. Ashrafi is terminated without cause or upon written notice by the Company
that it does not wish to continue Mr. Ashrafi's employment, Mr. Ashrafi is
entitled to receive 100% of his base salary and annual cash bonus paid or
payable by the Company to him in respect of the last full fiscal year
preceding the termination date as one lump sum payment, as well as basic
health and medical benefits until the earlier of one year following
termination and the full-time employment of Mr. Ashrafi elsewhere.
The Company entered into an employment agreement with Paul Feuerman dated
November 29, 1993, pursuant to which Mr. Feuerman serves as Senior Vice
President and General Counsel to the Company. Under this agreement, the term
of Mr. Feuerman's employment began on November 29, 1993 and terminates 60 days
after either Mr. Feuerman or the Company gives written notice that he or it
does not wish to continue the employment, unless earlier terminated for cause
or upon the death or disability of Mr. Feuerman. Mr. Feuerman currently
receives annual base compensation of $225,000. In 1996, the Company's Board of
Directors determined to award a $32,400 bonus, payable to Mr. Feuerman in
1997. Pursuant to a deferred compensation agreement dated August 8, 1996,
between the Company and Mr. Feuerman, Mr. Feuerman is entitled to receive a
bonus of $500,000, payable in two annual installments of $100,000 each
followed by two annual installments of $150,000 each. If Mr. Feuerman is
terminated without cause or upon written notice by the Company that it does
not wish to continue Mr. Feuerman's employment, Mr. Feuerman is entitled to
receive 100% of his base salary and annual cash bonus paid or payable by the
Company to him in respect of the last full fiscal year preceding the
termination date as one lump sum payment, as well as basic health and medical
benefits for one year following termination and the full-time employment of
Mr. Feuerman elsewhere.
The Company entered into an agreement dated September 20, 1996 with James C.
McGee, pursuant to which Mr. McGee served as the Company's Executive Vice
President. Mr. McGee ceased full-time employment and became a consultant to
the Company on May 15, 1997. Under the agreement, Mr. McGee is entitled to
receive as severance a lump sum payment, some portion of his annual base
salary as and when bonuses are paid to certain senior executives in respect of
fiscal 1997 and continuing health and dental insurance coverage. Until
December 31, 1998, Mr. McGee will serve as a consultant to the Company and is
entitled to receive base consulting fees equal to his annual based salary,
plus an additional consulting fee equal to some portion of his annual base
salary to be paid as and when bonuses are paid to senior executive officers of
the Company in respect of fiscal 1998.
45
<PAGE>
STOCK OPTIONS
The Company's 1997 Stock Option Plan (the "1997 Plan") provides for the
granting of options to purchase not more than an aggregate of 3,370,000 shares
of Common Stock, subject to adjustment under certain circumstances. In
addition, the Company's 1993 Stock Option Plan (the "1993 Plan") provided for
the granting of options to purchase not more than an aggregate of 3,370,000
shares of Common Stock, subject to adjustment under certain circumstances. In
addition, the Company's 1995 Non-Employee Director Stock Option Plan (the
"Non-Employee Director Plan" and, together with the 1997 Plan and the 1993
Plan, the "Stock Option Plan") provides for the granting of options to
purchase not more than an aggregate of 123,000 shares of Common Stock, subject
to adjustment under certain circumstances. Although options granted under the
1993 Plan to purchase 2,939,085 shares are still outstanding, no further
grants will be made pursuant to the 1993 Plan. Some or all of the options
granted under the 1997 Plan may be "incentive stock options" within the
meaning of section 422 of the Internal Revenue Code of 1986 (the "Code"). The
Company has granted options to purchase 980,187 shares under the 1997 Plan at
the then fair market value and plans to grant additional options to
purchase shares of Common Stock under the 1997 Plan prior to or at the
completion of the Offering at an exercise price equal to the public offering
price.
The Compensation Committee administers the 1997 Plan. The Compensation
Committee has full power and authority to interpret the 1997 Plan, set the
terms and conditions of individual options and supervise the administration of
the 1997 Plan.
The Compensation Committee determines, subject to the provisions of the 1997
Plan, to whom options are granted, the number of shares of Common Stock
subject to an option, whether stock options will be incentive or non-
qualified, the exercise price of the options (which, in the case of non-
qualified options, may be less than the fair market value of the shares on the
date of grant) and the period during which options may be exercised. All
employees of the Company are eligible to participate in the 1997 Plan. No
options may be granted under the 1997 Plan after March 3, 2007.
The Compensation Committee may amend the 1997 Plan from time to time.
However, the Compensation Committee may not, without stockholder approval,
amend the 1997 Plan to increase the number of shares of Common Stock under the
1997 Plan (except for changes in capitalization as specified in the 1997
Plan).
The Non-Employee Director Plan provides for automatic annual grants of
options to purchase shares of the Company's Common Stock to non-employee
directors of the Company in amounts calculated using a formula provided in the
plan. The Company has granted options to purchase 22,386 shares of Common
Stock under the Non-Employee Director Plan and plans to grant additional
options to purchase shares of Common Stock under the Non-Employee Director
Plan to certain directors prior to or at the completion of the Offering.
The Board of Directors of the Company may amend the Non-Employee Director
Plan from time to time. However, the Board of Directors may not, without
stockholder approval, amend the plan to increase the number of shares of
Common Stock available for option grants under the plan (except for changes in
capitalization specified in the plan).
CERTAIN OTHER EMPLOYEE BENEFIT PLANS
The Company maintains the Retirement Plan of Schein Pharmaceutical, Inc. &
Affiliates (the "Company Retirement Plan"), under which employees (other than
temporary employees) of the Company may participate on the first day of the
first pay period after completing six consecutive calendar months during which
they complete at least 500 hours of service. Effective June 28, 1996, the
Company Retirement Plan became the successor to the Marsam Pharmaceuticals
Retirement Plan.
Participants generally may make basic contributions to the Company
Retirement Plan, by salary deduction, of up to 14% of their compensation from
the Company, subject to applicable federal tax limitations ($9,500 for the
1997 plan year, subject to cost of living adjustments); the amount of a
participant's basic contribution is
46
<PAGE>
generally excluded from gross income for federal or state income tax purposes.
The Company makes a mandatory matching contribution to the Company Retirement
Plan of $.25 for each dollar contributed to the Company Retirement Plan as a
basic contribution, up to the first 3% of a participant's compensation; the
Company also may make additional matching contributions and may make other
non-matching contributions to the Company Retirement Plan at the discretion of
the Board of Directors. In 1997, the Company made a discretionary, non-
matching contribution under the Company Retirement Plan for 1996 equal to 5%
of compensation.
Participants in the Company Retirement Plan have a 100% vested and
nonforfeitable interest in the value of their basic contribution and the
Company's matching contribution. Participants acquire a 10% vested and
nonforfeitable interest in the Company's non-matching contribution amounts for
each of the first four years of service; and a 20% vested and nonforfeitable
interest in the Company's non-matching contribution amounts for each of the
fifth, sixth and seventh years of service; accordingly, after seven years of
service, participants have a 100% vested and nonforfeitable interest in the
value of the Company's non-matching contribution amounts.
Participants are entitled to receive the amounts in their Company Retirement
Plan accounts in a single lump-sum payment on death, disability, retirement or
termination of employment. At the election of the participant, the
participant's Company Retirement Plan account is eligible for payment in
installments of either 5 or 10 years. In certain circumstances, participants
may receive loans and hardship withdrawals from their accounts in the Company
Retirement Plan.
Supplemental Retirement Plan. The Company maintains a Supplemental
Retirement Plan (the "Supplemental Retirement Plan"). Under the Supplemental
Retirement Plan, the Company pays non-qualified deferred compensation to
certain of its employees consisting of benefits based on annual compensation
in excess of limitations imposed by the Code on contributions under the
Retirement Plan. The Supplemental Retirement Plan is an unfunded "pension
benefit plan" subject to the Employee Retirement Income Security Act of 1974,
as amended.
Split Dollar Life Insurance Plan. The Company maintains a Split Dollar Life
Insurance Plan (the "Life Insurance Plan"). Under the Life Insurance Plan,
each participating officer owns a life insurance policy. Each policy is
designed to provide at age 65 an annuity equal to a specified percentage of
the participant's projected average annual salary for the final three years of
employment (less Social Security benefits and certain benefits under the
Company Retirement Plan). A cash surrender value, which is owned by the
individual and designed to fund the annuity, accumulates under each
participant's policy. The Company and the employee will share the cost of
premiums. The premiums advanced by the Company will be repaid out of the cash
value of the policies.
1993 Book Equity Appreciation Rights Program. The Company maintains a Book
Equity Appreciation Rights Program (the "Program") to allow certain employees
to benefit from an increase in the Company's book value (calculated according
to a formula defined in the Program). All participants are fully vested in
their book equity appreciation rights ("BEARs"). The Company does not intend
to make any additional grants of BEARs.
47
<PAGE>
CERTAIN TRANSACTIONS
In 1994, the Company entered into a Heads of Agreement with Bayer
Corporation and Bayer A.G. (collectively, "Bayer"), pursuant to which the
Company and Bayer committed together to explore business opportunities for the
U.S. and abroad.
In 1994, the Company entered into a three-year co-promotion agreement with
Bayer Corporation covering the Company's INFeD product. Under the terms of the
agreement, in 1994, 1995 and 1996, in exchange for promotional support, the
Company shared with Bayer the net profits of INFeD in excess of specified
threshold amounts. In 1996, this agreement was amended and extended to
December 1997. The parties are currently negotiating a further extension of
this agreement. This amended agreement provides that in exchange for
promotional support, the Company pays Bayer Corporation a fixed dollar amount
plus a fixed percentage of sales above a threshold amount. The Company
incurred selling expenses under these agreements of approximately $3.0 million
in 1996 and $2.9 million for the first nine months of 1997. There were no
selling expenses under the first agreement for 1994 and 1995. See "Principal
and Selling Stockholders."
Since 1994, the Company and Bayer, through their respective affiliates, have
entered into several joint ventures to own, manage or develop generic
pharmaceutical businesses outside of the U.S. Each of Schein and Bayer have
contributed various assets and rights and funded the operations of these
ventures, and in certain circumstances have guaranteed certain liabilities of
these ventures, such as leases and lines of credit. It is contemplated that
the Company and Bayer will sell products to certain of these ventures for
resale in their local markets. Bayer and Schein are each currently evaluating
the extent of their continued participation in certain of these ventures.
The Company, together with the Pharmaceutical, Consumer Healthcare, Afga
Film and Diagnostics divisions of Bayer Corporation, has created a
collaboration called Bayer Healthcare Partners. Bayer Healthcare Partners is a
marketing tool through which the various participants combine their sales
efforts to offer a package of goods and services designed to be more
attractive to a customer, most likely a managed health care provider. The
participants share in the costs and profits associated with sales of the
covered products to that customer.
Since 1985, the Company has had a series of non-exclusive agreements
(collectively, the "Consulting Agreement") with the Consultant. Under the
Consulting Agreement, the Consultant and the Company have identified certain
patents on branded pharmaceutical products that might be susceptible to a
challenge, and the Consultant has acted as litigation counsel or advising
counsel to the Company in those instances where the Company decided to proceed
with a patent challenge. For projects in which the Consultant has rendered an
opinion, the Company pays the Consultant half the adjusted gross profit from
the Company's sale of generic versions of the patented product until the date
on which the patent would normally have expired or half the proceeds of any
settlement. In 1995 and 1996, the Company recorded in the aggregate net
product sales and settlements from patent challenges of $106.0 million and
related gross profits of $62.6 million (after deducting payments to the
Consultant of $17.4 million).
The Consultant's services are provided on a non-exclusive basis to the
Company. The Consulting Agreement does not have a specific term and continues
until the current projects under the Consulting Agreement are completed and
all payments due to the Consultant are made. There are two current projects
under the Consulting Agreement, one of which has resulted in a pending patent
challenge initiated by the Company. In accordance with the Consultant's right
to delegate responsibility for defending patent challenge litigation to other
counsel selected with the consent of the Company, responsibility for the
pending patent challenge has been delegated to other counsel. The Consultant
may terminate the Consulting Agreement for certain specified reasons at any
time. Without regard to who terminates the Consulting Agreement or the reasons
therefor, the Consultant will be entitled to payment in conjunction with any
sales or settlements with respect to any patented product for which the
Consultant has previously rendered an opinion setting forth the basis for a
possible patent challenge. The Consultant has rendered opinions with respect
to each of the two patented drug products that are the
48
<PAGE>
respective subjects of the current projects under the Consulting Agreement,
and the Company will owe the Consultant payments to the extent that the
Company successfully develops one or both of these products and challenges the
applicable patents and thereafter markets one or both of these products, or
otherwise favorably settles any such challenge. See "Risk Factors--Dependence
on Successful Patent Litigation," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations."
In the conduct of its business, the Company sells pharmaceutical products to
Henry Schein, Inc. for distribution to its customers. Net sales to Henry
Schein, Inc. were $6.4 million, $5.3 million and $8.6 million in 1994, 1995
and 1996, respectively, and $5.5 million and $5.4 million for the nine months
ended September 1996 and the nine months ended September 1997, respectively.
Other than certain common stockholders, there is no affiliation between Henry
Schein, Inc. and the Company, and all transactions between the Company and
Henry Schein, Inc. are on an arm's-length basis.
The Company has signed a non-binding letter dated October 7, 1997 with
Cheminor and Reddy outlining the parties' intent to enter into a strategic
alliance agreement. As part of the contemplated arrangement, Cheminor could
purchase shares of the Company's Common Stock, once the shares are publicly
traded, at fair market value; the purchase price could be payable from the
profits otherwise due Cheminor from the alliance. Cheminor would have certain
rights to acquire additional shares from time to time, at fair market value,
to maintain its percentage interest in the Company. In addition, Cheminor
would have representation on the Company's Board of Directors consistent with
its equity investment through the purchase of the Company's shares once they
are publicly traded. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
In connection with Mr. Ashrafi's relocation, the Company loaned Mr. Ashrafi
$150,000 at an interest rate of 6.875% per annum evidenced by a promissory
note dated May 31, 1996. As of September 1997, an aggregate principal amount
of $150,000 was outstanding on that loan.
Richard L. Goldberg, who is a Director of the Company, is a member of
Proskauer Rose LLP, which has been retained by the Company to provide legal
services. See "Validity of Shares."
49
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of September 27, 1997,
immediately prior to and immediately after the Offering by (i) each person (or
affiliated group of persons) known by the Company to own beneficially more
than 5% of the Company's Common Stock, (ii) each director of the Company,
(iii) each of the Named Executive Officers, (iv) all directors and executive
officers of the Company as a group and (v) each of the Selling Stockholders.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING BENEFICIAL OWNERSHIP
(2) (3) AFTER THE OFFERING
------------------------- SHARES OF COMMON -----------------------
BENEFICIAL OWNER(1) NUMBER PERCENT STOCK TO BE OFFERED NUMBER PERCENT
- ------------------- ------------- ------------------------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Martin Sperber (4)...... 24,019,809 64.3%
Marvin H. Schein (5)
(6).................... 11,072,460 29.6%
135 Duryea Road
Melville, NY 11747
Bayer Corporation....... 9,537,666 25.5%
100 Bayer Road
Pittsburgh, PA 15205
Pamela Schein (6)....... 8,369,166 22.4%
Pamela Joseph (6) (7)... 3,262,944 8.7%
Directors and Executive
Officers as
Group (6 persons) (4)
(5) (6)................ 24,531,489 65.7%
</TABLE>
- --------
(1) Unless otherwise indicated, the address for each person is c/o Schein
Pharmaceutical, Inc., 100 Campus Drive, Florham Park, New Jersey 07932.
(2) The persons and entities named in the table have sole voting and
investment powers with respect to all of the Common Stock shown as
beneficially owned by them, except as noted below.
(3) The 37,262,235 shares of Common Stock deemed outstanding prior to the
Offering includes:
(a) 33,611,472 shares of Common Stock outstanding or reserved for issuance
on September 27, 1997; and
(b) 3,650,763 shares of Common Stock issuable pursuant to the exercise of
options held by the respective person or group or reserved for issuance
to management, which may be exercised within 60 days after the date of
this Prospectus, as set forth below.
(4) Includes:
(a) 425,703 shares for which Mr. Sperber is the direct beneficial owner and
299,751 shares held in trusts for his family members' benefit; and
(b) 589,785 shares issuable pursuant to the exercise of stock options held
by Mr. Sperber are currently exercisable; and
(c) 22,704,570 shares prior to the Offering and shares after the
Offering over which Mr. Sperber has voting control pursuant to the
voting trust agreement dated September 30, 1994 (the "Voting Trust
Agreement"). Mr. Sperber, acting as voting trustee, is able to control
substantially all matters requiring stockholder approval, including the
election of directors.
(5) Includes shares owned in trust for his family members and/or for
charities of which Mr. Schein is a trustee.
(6) All shares are held by Mr. Sperber as voting trustee under the Voting
Trust Agreement. See "--Restructuring Agreements."
(7) Includes 213,651 shares held in trust, of which Ms. Joseph is a principal
beneficiary.
50
<PAGE>
RESTRUCTURING AGREEMENTS
At the time of Bayer Corporation's acquisition of its 28.3% interest in the
Company, the Company, Bayer Corporation, Mr. Sperber, and certain other
principal stockholders entered into certain agreements (the "Restructuring
Agreements") relating to the governance of the Company and certain other
matters.
Agreements Relating to Control of the Company. The Restructuring Agreements
provide that, until the earlier of March 1, 2000 and the effective date of a
merger, consolidation or combination that results in the Voting Trustee
(currently Mr. Sperber) (the "Voting Trustee") neither holding the position of
chairman of the board, president, chief executive officer or chief operating
officer of the resulting entity nor having the right to designate a majority
of the members of the board of the resulting entity (such earlier date, the
"Voting Trust Termination Date"), the Voting Trustee will have the right to
vote, or direct the vote of, all the shares of Common Stock owned by Marvin
Schein, Pamela Schein and Pamela Joseph and certain trusts established by them
or for their issue (collectively, the "Family Stockholders") (i.e., % of the
outstanding shares of Common Stock immediately after the completion of the
Offering, assuming the Underwriters' over-allotment option is not exercised).
As a result of the foregoing, the Voting Trustee as a practical matter will be
able to control substantially all matters requiring stockholder approval,
including the election of directors, until March 1, 2000 (without giving
effect to any future public issuance of Common Stock by the Company or sales
of Common Stock by Continuing Stockholders). The Restructuring Agreements
provide that Mr. Sperber may designate certain individuals to succeed him as
Voting Trustee under the Restructuring Agreements.
The Restructuring Agreements provide that, until Bayer Corporation owns less
than 10% of the Company's outstanding Common Stock (the "Governance
Termination Date"), Bayer Corporation shall be entitled to nominate a number
of members of the Board of Directors of the Company, rounded down to the
nearest whole number, equal to the product of (a) the number of members of the
Board of Directors and (b) its percentage stockholdings of Common Stock of the
Company at the time of nomination. The Voting Trustee is entitled, until the
Voting Trust Termination Date, to nominate the balance of the members of the
Board of Directors. Until May 15, 2001, the Voting Trustee and the other
Continuing Stockholders (as defined herein) (to the extent their shares of
Common Stock are not voted by the Voting Trustee) must vote for the election
of Bayer Corporation's nominee(s). Until the Voting Trust Termination Date,
Bayer Corporation and the Continuing Stockholders (to the extent their shares
of Common Stock are not voted by the Voting Trustee) must vote for the
election of the Voting Trustee's nominees.
Until the earliest of May 15, 2001, the Governance Termination Date and a
sale of shares by Bayer Corporation other than to a Permitted Assignee (as
defined herein), the Company may not, without Bayer Corporation's consent,
among other things, (a) own, manage or operate any business not principally
engaged in a segment of the pharmaceutical or health care industry or any
business ancillary thereto, (b) amend or restate the Company's charter or by-
laws to require more than majority approval to elect a majority of the Board
of Directors, merge, consolidate or sell all or substantially all the
Company's assets or (c) engage in transactions with any affiliate on terms
more favorable to the affiliate than could be obtained in an arm's-length
transactions, other than intercompany transactions and transactions under or
identified in the Restructuring Agreements.
The Restructuring Agreements provide that the Standstill, which imposes
certain restrictions on Bayer, including that, prior to May 15, 2001 (the
"Standstill Period"), Bayer Corporation may not (a) acquire, announce an
intention to acquire or offer to acquire any assets of the Company or its
subsidiaries (other than in the ordinary course) or equity securities of the
Company, (b) participate in or encourage the formation of a group or entity
that seeks to acquire equity securities of the Company, (c) solicit proxies or
become a participant in any election contest with respect to the Company, (d)
initiate or otherwise solicit stockholders for the approval of stockholder
proposals or induce any other person to initiate any stockholder proposal, (e)
seek to place designees on, or remove any member of, the Board or Directors,
(f) deposit any equity securities in a voting trust or like arrangement, (g)
seek to control the management of the Company or negotiate with any person
with respect to any form of extraordinary transaction with the Company or
other transaction not in the ordinary course of business, or be involved in a
tender or exchange offer or other attempt to violate the Standstill or (h)
request the
51
<PAGE>
Company or otherwise seek to amend or waive any provision of the Standstill.
In addition, until the shares of the Common Stock that are held by more than
300 persons who are neither current stockholders, their permitted transferees
nor employees of the Company have a total market value in excess of $100.0
million (the "Qualified Public Offering Date"), the Company may not undertake
certain other actions without the consent of Bayer Corporation.
After the Standstill, Bayer Corporation has the right, exercisable within
six months of the end of the Standstill and if there is an insufficient number
of shares of Common Stock available on the open market for Bayer Corporation
to acquire a majority of the outstanding Common Stock on the open market, to
acquire from the Family Stockholders and then from the Company, a number of
shares that should enable Bayer Corporation to own a majority of the
outstanding Common Stock.
Notwithstanding the Standstill, Bayer Corporation generally may acquire
Common Stock (a) unless Bayer Corporation has sold shares of Common Stock
other than to a Permitted Assignee, (I) in connection with its exercise of
certain preemptive rights or (II) if, after the Qualified Public Offering
Date, necessary to own at least 21% more of the outstanding Common Stock
(other than a Continuing Stockholder) and (b) up to the "New Percentage,"
defined as: 30% of the Company's outstanding common stock between May 15, 1997
and May 15, 1999; 33 1/3% between May 16, 1999 and May 15, 2000; and 36 2/3%
between May 16, 2000 and the end of the Standstill Period.
Under the Reorganization Documents, if Bayer Corporation for any reason
acquires shares in excess of the New Percentage, until May 15, 2001, Bayer
shall vote those excess shares in accordance with the Voting Trustee's
instructions and those excess shares will not be considered in determining the
number of director nominees to which Bayer Corporation is entitled.
Under the Restructuring Agreements, each of Marvin Schein, Pamela Schein and
Pamela Joseph has agreed that such individual, and such individual's Family
Group, shall not acquire shares if, as a consequence of the acquisition such
individual, together with such individual's Family Group (as defined herein),
owns in excess of (a) in the case of Marvin Schein and his Family Group,
35.85% of the Common Stock, (b) in the case of Pamela Schein and her Family
Group, 27.55% of the Common Stock and (c) in the case of Pamela Joseph and her
Family Group, 12.97% of the Common Stock.
Restrictions on Transfer. The Restructuring Agreements generally provide
that Marvin Schein, Pamela Schein, Pamela Joseph, Mr. Sperber, Stanley
Bergman, certain trusts established by these individuals (collectively, the
"Continuing Stockholders") and certain of their transferees may not transfer
any of their shares of Common Stock until March 1, 2000, except (a) pursuant
to Rule 144 under the Securities Act, but subject to volume limitations
intended to equal the volume limitations applicable to affiliates as set forth
in Rule 144(e) (the "Maximum Rule 144 Sales Amount"), (b) in a wide
distribution in an amount that exceeds the number specified in Rule 144(e)(1),
regardless of whether the seller is an affiliate or Rule 144(k) is applicable,
in connection with which the seller or the underwriter confirms that no direct
or indirect purchaser in that distribution is intended to acquire more than
the Maximum Rule 144 Sales Amount, (c) to certain family members of the
transferor, related trusts or estates, or other entities owned exclusively by
such transferor, family members, trusts or estates (collectively, a "Family
Group"), (d) in private placements, to persons who own fewer than 1% of the
outstanding Common Stock immediately prior to the transfer and who are not
affiliated with or Family Group members of the transferor, of no more than (I)
1% of the outstanding Common Stock to any one person, its affiliates or Family
Group members in any three-month period and (II) 4% of the outstanding Common
Stock to all persons in any twelve-month period, (e) in connection with the
exercise of certain registration rights granted to the Company's stockholders
under the Restructuring Agreements, but only if, to the extent the number of
shares sold exceeds the Maximum Rule 144 Sales Amount, it is confirmed to the
Company that it is intended that no purchaser will acquire more than the
Maximum Rule 144 Sales Amount, (f) pledges to a financial institution or
transfers to a financial institution in the exercise of its pledge rights, (g)
to Bayer Corporation as provided under the Restructuring Agreements, (h)
pursuant to a merger or a consolidation that has been approved by the Board of
Directors and stockholders of the Company, (i) in a tender offer in which
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<PAGE>
Mr. Sperber (or any member of his Family Group who acquired shares from Mr.
Sperber) sells shares and (j) in a tender offer for a majority of the shares
of Common Stock of the Company by a bidder not affiliated with Bayer
Corporation, if Bayer Corporation and its affiliates have failed to pursue a
tender offer or other acquisition permitted under the Restructuring
Agreements. In addition, Continuing Stockholders have been granted
registration rights. See "Shares Eligible For Future Sale."
In addition to the above restrictions, the Restructuring Agreements
generally provide that Bayer Corporation and the Continuing Stockholders may
not transfer any of their shares until May 15, 1999. However, Bayer
Corporation may transfer its shares in connection with certain registration
rights granted to Bayer Corporation under the Restructuring Agreements or to a
Permitted Assignee. The Continuing Stockholders may transfer their shares as
provided in the preceding paragraph. A "Permitted Assignee" is (a) a successor
to all or substantially all the business and assets of Bayer or a majority-
owned subsidiary of Bayer Corporation who agrees to be bound by the
Restructuring Agreements, (b) a single purchaser who, immediately after the
purchase and for 60 days thereafter, owns at least 10% of the shares then
owned by Bayer Corporation and who agrees to be bound by the Standstill and
(c) any person referred to in (a) above and up to three non-affiliated
purchasers who, immediately after the respective purchases and for 60 days
thereafter, own in the aggregate at least 20% of the shares then owned by
Bayer Corporation and who agree to be bound by the Standstill.
If Bayer Corporation sells any of its shares in the Company to any
unaffiliated third party, then the following of Bayer Corporation's rights
under the Restructuring Agreements terminate: the right to consent to certain
transactions of the Company; the right to purchase additional shares on
Company issuances of equity securities; the right to acquire shares to
maintain an ownership percentage of more than 21% of outstanding shares over
certain 10% holders; the right to acquire from the Company or the Continuing
Stockholders under certain circumstances after the Standstill Period, shares
for a controlling interest in the Company; and rights of first refusal with
regard to share transfers by Continuing Stockholders. However, certain of
those rights (i.e., rights to purchase additional shares on Company issuances
of equity securities and rights of first refusal) may be transferred to a
single purchaser who owns at least 10% of the Company's shares then owned by
Bayer Corporation and who agrees to be bound by the Standstill obligations.
Mr. Sperber and Mr. Bergman may not transfer any of their shares to Bayer
Corporation except in certain open market transactions and except to the
extent that Bayer Corporation first offered to purchase such shares from the
Continuing Stockholders and the Continuing Stockholders did not sell such
shares.
The Company may not transfer any of its shares to Bayer Corporation, except
to the extent that Bayer Corporation is entitled to purchase shares under the
Restructuring Agreements and those shares are not purchased in the open market
or from Family Stockholders.
Rights of Inclusion and First Refusal. The Restructuring Agreements provide
that, if at any time prior to the Voting Trust Termination Date, any Family
Stockholder or Family Group member (an "Offeree") receives an offer from a
third party to purchase some or all of the Offeree's shares of Common Stock,
the Offeree wishes to sell the shares (other than in a transaction described
in clauses (a) through (i) of the first paragraph of "Restructuring
Agreements" above) and Mr. Sperber, as Voting Trustee, consents to the
transaction, the Company or its designee shall have the right of first refusal
to purchase those shares on the same terms as in the third party offer.
Under the Restructuring Agreements, if the Company fails to exercise its
right of first refusal and Bayer Corporation has not sold shares other than to
a Permitted Assignee, such right will be deemed assigned to Bayer Corporation,
provided that (a) the stockholdings of Bayer Corporation may not as a result
of its exercising such right exceed the New Percentage and (b) if as a result
of its exercising such right, Bayer Corporation would own a majority of the
shares of Common Stock. Bayer Corporation will exercise such right at a price
per share equal to the greater of (I) the price contained in the third party
offer and (II) the price determined by an investment banking firm, who will
take into consideration, among other things, that control of the Company will
pass at that time to Bayer Corporation.
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<PAGE>
In addition, if, prior to the end of the Standstill or the time that Bayer
Corporation sells shares other than to a Permitted Assignee, the Company is
not entitled to exercise the right of first refusal described above and a
Continuing Stockholder is permitted under the Restructuring Agreements, and in
good faith wishes, to sell shares of Common Stock to a third party (other than
sales under Rule 144 under the Securities Act and sales under clauses (d), (h)
and (i) of the first paragraph of "Restructuring Agreements" above), Bayer
Corporation shall have the right of first offer to purchase those shares of
Common Stock on the same terms as the Continuing Stockholder wishes to sell
the shares of Common Stock.
The Restructuring Agreements provide that if at any time prior to the second
anniversary of the Offering, Bayer Corporation is permitted under the
Restructuring Agreements, and in good faith wishes, to sell shares of Common
Stock to a third party, the Company and the Continuing Stockholders shall have
the right of first offer to purchase those shares of Common Stock on the same
terms as the Bayer Corporation wishes to sell the shares of Common Stock.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
shares of Common Stock and shares of Common Stock reserved for issuance
upon the exercise of outstanding stock options pursuant to the Stock Option
Plan and certain other options granted by the Company. The shares of
Common Stock sold by the Company in the Offering will be immediately freely
tradeable without restriction under the Securities Act, except for any shares
purchased by an "affiliate" of the Company (as that term is defined under the
rules and regulations of the Securities Act), which will be subject to the
resale limitations of Rule 144 under the Securities Act. The remaining
33,611,472 outstanding shares of Common Stock, which were issued by the
Company in private transactions not involving a public offering (and any
shares issued upon exercise of employee stock options granted pursuant to the
Stock Option Plan), are "Restricted Securities" for purposes of Rule 144 and
may not be resold in a public distribution, except in compliance with the
registration requirements of the Securities Act or pursuant to Rule 144. The
share numbers in this section assume the Underwriters' over-allotment options
are not exercised.
Prior to the Offering, there has been no public market for the Common Stock.
The Company cannot predict the effect, if any, sales of shares of Common Stock
or the availability of shares for sale will have on the market price from time
to time. Nevertheless, sales of substantial amounts of Common Stock in the
public market could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
The Company, the Company's officers and directors and certain other
shareholders and option holders of the Company have agreed, subject to certain
limited exceptions, not, directly or indirectly, to offer, sell, assign,
transfer, encumber, contract to sell or otherwise dispose of any outstanding
shares of Common Stock or any securities of the Company substantially similar
to Common Stock (other than in the Offering and, in the case of the Company,
pursuant to the Stock Option Plan) held by them for a period of 180 days after
the date of this Prospectus without the prior written consent (which consent
may be given without notice to the Company's shareholders or other public
announcement) of Cowen & Company. Cowen & Company has advised the Company that
it has no present intention of releasing any of the Company's shareholders or
option holders from such lock-up agreements until the expiration of such 180-
day period.
In addition, Bayer Corporation and the Continuing Stockholders are subject
to certain restrictions under the Restructuring Agreements governing the
transfer of shares. See "Principal and Selling Stockholders."
Pursuant to the Stock Option Plan, shares of Common Stock are available
for future option grants, of which the Company plans to grant options to
purchase approximately shares of Common Stock upon or immediately prior to
the completion of the Offering. See "Management--Stock Options."
Rule 701 under the Securities Act provides that the shares of Common Stock
acquired upon the exercise of outstanding options may be resold by persons
other than affiliates beginning 90 days after the date of this Prospectus,
subject only to the manner of sale provisions of Rule 144, and by affiliates
under Rule 144 without compliance with its one-year minimum holding period,
subject to certain limitations. The Company intends to file one or more
registration statements on Form S-8 under the Securities Act to register all
shares of Common Stock subject to outstanding stock options and Common Stock
issuable pursuant to the Stock Option Plan which do not qualify for an
exemption under Rule 701 from the registration requirements of the Securities
Act. The Company expects to file these registration statements after the
closing of the Offering, and such registration statements are expected to
become effective upon filing. Shares of Common Stock covered by these
registration statements will thereupon be eligible for sale in the public
markets, subject to the Lock-up Agreements, if applicable.
Certain persons and entities (the "General Rightholders") are entitled to
certain rights with respect to the registration under the Securities Act of a
total of shares of Common Stock (the "General Registrable Shares") under
the terms of an agreement among the Company and the General Rightholders (the
"General
55
<PAGE>
Stockholders Agreement"). The General Stockholders Agreement provides that in
the event the Company proposes to register any of its securities under the
Securities Act pursuant to a demand registration request, subject to certain
exceptions, the General Rightholders shall be entitled to include General
Registrable Shares in such registration, subject to the right of the managing
underwriter of any such offering to exclude for marketing reasons some of such
General Registrable Shares from such registration. The General Rightholders
have the additional right under the Continuing Stockholders Agreement to
require the Company to prepare and file, subject to certain conditions and
limitations, three registration statements under the Securities Act with
respect to their General Registrable Shares commencing on May 15, 1997 and
terminating on the earlier of September 30, 2004 and the first date on which
Bayer Corporation owns less than 10% of the outstanding Common Stock of the
Company.
Certain persons and entities (the "Continuing Rightholders") are entitled to
certain rights with respect to the registration under the Securities Act of a
total of shares of Common Stock (the "Continuing Registrable Shares")
under the terms of an agreement among the Company and the Continuing
Rightholders (the "Continuing Stockholders Agreement"). The Continuing
Stockholders Agreement provides that in the event the Company proposes to
register any of its securities under the Securities Act pursuant to a demand
registration request, subject to certain exceptions, the Continuing
Rightholders shall be entitled to include Continuing Registrable Shares in
such registration, subject to the right of the managing underwriter of any
such offering to exclude for marketing reasons some of such Continuing
Registrable Shares from such registration. The Continuing Rightholders have
the additional right under the Continuing Stockholders Agreement to require
the Company to prepare and file, subject to certain conditions and
limitations, four registration statements under the Securities Act with
respect to their Continuing Registrable Shares commencing as of September 1997
and terminating on the tenth anniversary of the date of the Offering. See
"Principal and Selling Stockholders."
No prediction can be made as to the effect, if any, that market sales of
Restricted Securities or the availability of such Restricted Securities for
sale will have on the market price of the Common Stock. Nevertheless, sales of
substantial amounts of Common Stock in the public market will have an adverse
impact on the market price of the Common Stock.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, par value $.01 per share and 5,000,000 shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"). Immediately prior to
the Offering, there were 33,611,472 shares of Common Stock outstanding held of
record by stockholders.
The holders of shares of Common Stock are (i) entitled to one vote per share
on all matters to be voted on by stockholders; (ii) not entitled to cumulate
their votes in elections for directors, which means holders of more than half
the outstanding shares of Common Stock can elect all the directors of the
Company; and (iii) entitled to receive such dividends as may be declared from
time to time by the Board of Directors in its discretion from any assets
legally available for that purpose, after payment of dividends (subject to
restrictions imposed by terms of indebtedness) required to be paid on
outstanding shares of Preferred Stock, if any. In the event of the dissolution
of the Company, whether voluntary or involuntary, if any, after distribution
to the holders of Preferred Stock, if any, of amounts to which they may be
preferentially entitled, the holders of Common Stock are entitled to share
ratably in the assets of the Company legally available for distribution to its
stockholders. The holders of Common Stock have no preemptive, subscription,
conversion or redemption rights, and are not subject to further calls or
assessments, or rights of redemption, by the Company. The Common Stock
currently outstanding, and the Common Stock issued in the Offering, is and
will be validly issued, fully paid and non-assessable. See "Dividend Policy."
PREFERRED STOCK
The Board of Directors of the Company is authorized, without further
stockholder action, to divide any or all shares of the authorized Preferred
Stock into one or more series and to fix and determine the designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereon, of any series so
established, including voting powers, dividend rights, liquidation
preferences, redemption rights and conversion privileges. Although the Company
has no present intention to issue shares of Preferred Stock, the issuance of
shares of Preferred Stock or the issuance of rights to purchase such shares
may have the effect of delaying, deferring or preventing a change in control
of the Company or an unsolicited acquisition proposal. For instance, the
issuance of a series of Preferred Stock might impede a business combination by
including class voting rights that would enable the holder to block such a
transaction. In addition, under certain circumstances, the issuance of
Preferred Stock could adversely affect the voting power of the holders of the
Common Stock. Although the Board of Directors is required to make any
determination to issue such stock based on its judgment as to the best
interests of the stockholders of the Company, the Board of Directors could act
in a manner that would discourage an acquisition attempt or other transaction
that some, or a majority, of the stockholders might believe to be in their
best interests or in which stockholders might receive a premium for their
stock over the then market price of the stock. The Board of Directors does not
intend to seek stockholder approval prior to any issuance of currently
authorized Preferred Stock, unless otherwise required by law.
THE DELAWARE BUSINESS COMBINATION ACT
The Company is incorporated under the Delaware GCL. Section 203 of the
Delaware GCL (the "Delaware Business Combination Act") imposes a three-year
moratorium on business combinations between a Delaware corporation and an
"interested stockholder" (in general, a stockholder owning 15% or more of a
corporation's outstanding voting stock) or an affiliate or associate of an
interested stockholder, unless (i) prior to an interested stockholder becoming
an interested stockholder, the board of directors of the corporation approved
either the business combination or the transaction resulting in the interested
stockholder becoming an interested stockholder; (ii) upon consummation of the
transaction resulting in an interested stockholder becoming an interested
stockholder, the interested stockholder owned 85% or more of the voting stock
outstanding at the time the transaction commenced (excluding, from the
calculation of outstanding shares, shares beneficially owned by directors who
are also officers and certain employee stock plans); or (iii) on or after an
interested stockholder became an interested stockholder, the business
combination is approved by (A) the board of directors and (B) holders of at
least 66 2/3% of the outstanding shares (other than those shares beneficially
owned by the interested stockholder) at a meeting of stockholders.
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<PAGE>
The Delaware Business Combination Act applies to certain corporations
incorporated in Delaware, unless, among other things, the corporation
expressly elects not to be governed by the legislation and sets forth that
election in an amendment to the corporation's certificate of incorporation or
by-laws as approved by (in addition to any other vote required by law) a
majority of the shares entitled to vote (however, the amendment would not be
effective until 12 months after the date of its adoption and would not apply
to any business combination between the corporation and any person who became
an interested stockholder on or prior to the adoption of the amendment). The
Company has not made such an election and, upon completion of the Offering,
will be subject to the Delaware Business Combination Act.
The Delaware Business Combination Act may discourage other persons from
making a tender offer for or acquisitions of substantial amounts of the Common
Stock. This could have the incidental effect of inhibiting changes in
management and may also prevent temporary fluctuations in the market price of
the Common Stock that often result from actual or rumored takeover attempts.
In addition, the limited liability provisions in the Company's certificate of
incorporation with respect to directors and the indemnification provisions in
the Company's by-laws may discourage stockholders from bringing a lawsuit
against directors for breach of their fiduciary duty and may also have the
effect of reducing the likelihood of derivative litigation against directors
and officers, even though such an action, if successful, might otherwise have
benefitted the Company and its stockholders. Furthermore, a stockholder's
investment in the Company may be adversely affected to the extent the Company
pays the costs of settlement and damage awards against the Company's directors
and officers pursuant to the indemnification provisions in the Company's by-
laws.
ANTI-TAKEOVER EFFECT OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-
LAWS
Certain provisions of the certificate of incorporation and by-laws could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company. These provisions are intended to enhance the
likelihood of continuity and stability in the composition of the Board of
Directors and in the policies formulated by the Board of Directors and to
discourage certain types of transactions that may involve an actual or
threatened change of control of the Company, such as an unsolicited
acquisition proposal. Because these provisions could have the effect of
discouraging potential acquisition proposals, they may inhibit fluctuations in
the market price of shares of Common Stock that could otherwise result from
actual or rumored takeover attempts. These provisions also may have the effect
of preventing changes in the management of the Company.
The certificate of incorporation of the Company provides that the Board of
Directors will be divided into three classes of directors with each class
holding office for staggered three-year terms. The classification of directors
will have the effect of making it more difficult to change the composition of
the Board of Directors, because at least two annual meetings of stockholders,
instead of one, generally will be required to effect a change in the majority
of the Board of Directors. Under Delaware law, unless the certificate of
incorporation otherwise provides, a director on a classified board may be
removed by the stockholders only with cause. See "Management--Board of
Directors."
The provisions of Delaware law and the certificate of incorporation and by-
laws of the Company relating to the removal of directors and the filling of
vacancies on the Board of Directors preclude a third party from removing
incumbent directors without cause and simultaneously gaining control of the
Board of Directors by filling, with its own nominees, the vacancies created by
removal. These provisions also reduce the power of stockholders generally,
even those with a majority of the voting power in the Company, to remove
incumbent directors and to fill vacancies on the Board of Directors without
the support of the incumbent directors.
In addition, the certificate of incorporation and by-laws of the Company do
not provide that stockholder action may be effected without a duly called
meeting. This effectively limits the ability of the Company's stockholders to
conduct any form of consent solicitation. The certificate of incorporation and
by-laws of the Company also do not permit stockholders of the Company to call
special meetings of stockholders. See "Principal and Selling Stockholders."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Cowen &
Company, Bear, Stearns & Co. Inc., and Smith Barney Inc. are acting as
representatives (the "Representatives"), has severally agreed to purchase from
the Company and the Selling Stockholders, the number of shares of Common Stock
set forth opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
----------- -----------------
<S> <C>
Cowen & Company...............................................
Bear, Stearns & Co. Inc. .....................................
Smith Barney Inc. ............................................
----
Total.......................................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters are
committed to purchase all shares of Common Stock offered hereby (other than
those covered by the over-allotment option described below) if any of such
shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may re-
allow, a concession not in excess of $ per share to certain other brokers
and dealers. After the shares of Common Stock are released for sale to the
public, the offering price and other selling terms may from time to time be
varied by the Representatives.
The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable for up to 30 days after the date of this Prospectus, to
purchase up to an aggregate of additional shares of Common Stock to cover
over-allotments, if any. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of
shares of Common Stock to be purchased by each of them shown in the foregoing
table bears to the total number of shares of Common Stock offered hereby. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of shares of Common Stock offered hereby.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to shares of Common Stock to be
offered and sold hereby by the Company to directors and employees of the
Company and other persons. The number of shares of Common Stock available for
sale to the general public will be reduced to the extent such persons purchase
such reserved shares. Any reserved shares which are not orally confirmed for
purchase within one day of the pricing of the Offering will be offered by the
Underwriters to the general public on the same terms as the other shares
offered hereby. Certain individuals purchasing reserved shares may be required
to agree not to sell, offer or otherwise dispose of any shares of Common Stock
for a period of three months after the date of this Prospectus.
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The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act, and to contribute to payments the Underwriters may be
required to make in respect thereof.
The Company, the Selling Stockholders, the Company's officers and directors
and certain other stockholders and option holders of the Company have agreed,
subject to certain limited exceptions, not, directly or indirectly, to offer,
sell, assign, transfer, encumber, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for shares of Common Stock or any right to acquire Common Stock
for a period of 180 days after the date of this Prospectus without the prior
written consent (which consent may be given without notice to the Company's
stockholders or other public announcement) of Cowen & Company. Cowen & Company
has advised the Company that it has no present intention of releasing any of
the Selling Stockholders or the Company's stockholders or option holders from
such lock-up agreements until the expiration of such 180-day period.
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales in excess of 5% of the
shares of Common Stock offered hereby to any account over which they exercise
discretionary authority.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Common Stock. As
an exception to these rules, the Representatives are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
Common Stock in the open market to reduce the Underwriters' short position or
to stabilize the price of the Common Stock, they may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those shares of Common Stock as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither the Company or any of the Selling Stockholders on the one hand, nor
any of the Underwriters on the other hand, makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company or any of the Selling Stockholders on the one
hand, nor any of the Underwriters on the other hand, makes any representation
that the Representatives will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price was determined by negotiation
among the Company and the Selling Stockholders on the one hand, and the
Representatives on the other hand. Among the factors considered in such
negotiations were prevailing market conditions, the results of operations of
the Company in recent periods, the market capitalizations and stages of
development of other companies that the Company and the Representatives
believe to be comparable to the Company, estimates of the business potential
of the Company, the present state of the Company's development and other
factors deemed relevant.
60
<PAGE>
VALIDITY OF SHARES
The validity of the shares of Common Stock being sold in the Offering is
being passed upon for the Company and the Selling Stockholders by Proskauer
Rose LLP, New York, New York. Richard L. Goldberg, a partner of Proskauer Rose
LLP, is a member of the Board of Directors of the Company. Certain legal
matters in connection with the Offering will be passed upon for the
Underwriters by Brown & Wood LLP.
EXPERTS
The financial statements and schedule of the Company included in this
Prospectus and in the Registration Statement have been audited by BDO Seidman
LLP, independent certified public accountants, to the extent and for the
periods set forth in their reports appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such reports given
upon the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). All reports, proxy statements, and other information filed by
the Company can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the regional offices of the Commission located
at 7 World Trade Center, Suite 1300, New York, New York 10048, and the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained by mail at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. The Commission maintains a web site
that contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the Commission with a web
site address of http://www.sec.gov.
61
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants......................... F-2
Consolidated Balance Sheets as of December 30, 1995, December 28, 1996 and
September 27, 1997 (unaudited)............................................ F-3
Consolidated Statements of Operations for each of the years ended December
31, 1994, December 30, 1995 and December 28, 1996, and the nine-month
periods ended September 28, 1996 and September 27, 1997 (unaudited)....... F-4
Consolidated Statements of Stockholders' Equity for each of the years ended
December 31, 1994, December 30, 1995 and December 28, 1996, and the nine-
month period ended September 27, 1997 (unaudited)......................... F-5
Consolidated Statements of Cash Flows for each of the years ended December
31, 1994, December 30, 1995 and December 28, 1996, and the nine-month
periods ended September 28, 1996 and September 27, 1997 (unaudited)....... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
[This is the form of report we will be in a position to furnish upon
completion of the stock split discussed in Note 1.]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Schein Pharmaceutical, Inc.
We have audited the accompanying consolidated balance sheets of Schein
Pharmaceutical, Inc. and subsidiaries as of December 30, 1995 and December 28,
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
28, 1996. These consolidated financial statements are the responsibility of
the management of Schein Pharmaceutical, Inc. and subsidiaries. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Schein Pharmaceutical, Inc. and subsidiaries as of December 30, 1995 and
December 28, 1996, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 28, 1996
in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
February 7, 1997, except for Note 1
which is as of , 1997
F-2
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............ $ 7,837 $ 2,139 $ 388
Accounts receivable, less allowance
for possible losses of $3,835,
$2,434 and $2,849................... 57,212 72,261 67,574
Inventories.......................... 115,960 131,265 124,011
Prepaid expenses and other current
assets.............................. 7,598 4,070 3,792
Deferred income taxes................ 9,656 9,354 8,843
-------- -------- --------
Total Current Assets............... 198,263 219,089 204,608
Property, Plant and Equipment, net..... 108,566 107,740 107,348
Product Rights, Licenses and Regulatory
Approvals, net........................ 94,566 92,685 88,102
Goodwill, net.......................... 106,786 102,695 99,448
Other Assets........................... 14,229 22,103 21,193
-------- -------- --------
$522,410 $544,312 $520,699
======== ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current Liabilities:
Accounts payable..................... $ 31,225 $ 31,492 $ 30,196
Accrued expenses..................... 34,939 40,755 42,758
Income taxes......................... -- 6,641 5,231
Revolving credit and current
maturities of long-term debt........ 40,078 41,090 32,943
-------- -------- --------
Total Current Liabilities.......... 106,242 119,978 111,128
Long-Term Debt, less current
maturities............................ 240,480 245,390 223,470
Deferred Income Taxes.................. 41,321 40,166 39,979
Other Liabilities...................... 8,675 8,798 9,038
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.01 par value; 100,000
authorized shares; issued and
outstanding 33,670 shares at
December 30, 1995 and 33,611 shares
at
December 28, 1996 and September 27,
1997................................ 337 336 336
Additional paid-in capital........... 39,498 38,543 38,543
Retained earnings.................... 86,984 88,381 92,107
Other................................ (1,127) 2,720 6,098
-------- -------- --------
Total Stockholders' Equity......... 125,692 129,980 137,084
-------- -------- --------
$522,410 $544,312 $520,699
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
-------------------------------------- ---------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues............ $385,428 $391,846 $476,295 $352,172 $353,829
Cost of sales........... 237,380 250,507 320,675 236,721 240,562
-------- -------- -------- -------- --------
Gross profit.......... 148,048 141,339 155,620 115,451 113,267
Costs and expenses:
Selling, general and
administrative....... 71,416 73,250 84,366 61,149 57,950
Research and
development.......... 19,170 28,324 27,030 23,044 22,854
Amortization of
goodwill and other
intangibles.......... -- 3,399 10,195 7,713 7,722
Special compensation,
restructuring and
relocation........... 33,594 -- -- -- --
Acquired in-process
Marsam research and
development.......... -- 30,000 -- -- --
-------- -------- -------- -------- --------
Operating income........ 23,868 6,366 34,029 23,545 24,741
Interest expense,
net.................. 1,493 10,005 23,285 16,081 20,456
Other expenses
(income), net........ 579 779 4,156 1,745 (4,536)
-------- -------- -------- -------- --------
Income (loss) before
provision for income
taxes.................. 21,796 (4,418) 6,588 5,719 8,821
Provision for income
taxes.................. 15,165 10,482 5,191 3,573 5,095
-------- -------- -------- -------- --------
Net income (loss)....... $ 6,631 $(14,900) $ 1,397 $ 2,146 $ 3,726
======== ======== ======== ======== ========
Earnings (loss) per
common share........... $ .20 $ (.44) $ .04 $ .06 $ .11
======== ======== ======== ======== ========
Weighted average number
of common shares and
equivalents
outstanding............ 33,429 34,071 34,026 34,033 34,115
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 28, 1996 AND NINE MONTHS ENDED SEPTEMBER 27, 1997
IN THOUSANDS
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- -------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS OTHER
------- ------- ------ ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 25,
1993................... 207 $ 207 32,816 $328 $13,360 $127,129 $(10,688)
Net income............ -- -- -- -- -- 6,631 --
Recognition of stock
compensation......... -- -- -- -- 12,965 (3,079) 8,703
Stock issued in
exchange for minority
interest............. -- -- 854 9 13,173 (1,818) --
Restructuring
charges.............. -- -- -- -- -- (1,508) --
Redemption of
preferred stock...... (207) (207) -- -- -- (25,471) --
Amortization of
options issued as
compensation......... -- -- -- -- -- -- 430
------- ------- ------ ---- ------- -------- --------
Balance, December 31,
1994................... -- -- 33,670 337 39,498 101,884 (1,555)
Net loss.............. -- -- -- -- -- (14,900) --
Amortization of
options issued as
compensation......... -- -- -- -- -- -- 389
Unrealized gains from
marketable
securities........... -- -- -- -- -- -- 39
------- ------- ------ ---- ------- -------- --------
Balance, December 30,
1995................... -- -- 33,670 337 39,498 86,984 (1,127)
Net income............ -- -- -- -- -- 1,397 --
Amortization of
options issued as
compensation......... -- -- -- -- -- -- 389
Unrealized gains from
marketable
securities........... -- -- -- -- -- -- 4,293
Repurchase and
retirement of
shares............... -- -- (59) (1) (955) -- --
Foreign currency
translation
adjustments.......... -- -- -- -- -- -- (835)
------- ------- ------ ---- ------- -------- --------
Balance, December 28,
1996................... -- -- 33,611 336 38,543 88,381 2,720
(Period subsequent to
December 28, 1996 to
September 27, 1997 is
unaudited)...........
Net income............ -- -- -- -- -- 3,726 --
Amortization of
options issued as
compensation......... -- -- -- -- -- -- 292
Unrealized gains from
marketable
securities........... -- -- -- -- -- -- 3,059
Foreign currency
translation
adjustments.......... -- -- -- -- -- -- 27
------- ------- ------ ---- ------- -------- --------
Balance, September 27,
1997 (Unaudited)....... -- $ -- 33,611 $336 $38,543 $ 92,107 $ 6,098
======= ======= ====== ==== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
-------------------------------------- ---------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Operating activities:
Net income (loss)...... $ 6,631 $ (14,900) $ 1,397 $ 2,146 $ 3,726
Depreciation and
amortization.......... 8,464 17,395 25,450 18,018 19,749
Provision for deferred
income taxes.......... (6,321) 3,084 (3,342) (985) (1,237)
Acquired in-process
Marsam research
and development....... -- 30,000 -- -- --
Special compensation... 29,039 -- -- -- --
Gain on sale of
marketable
securities............ (9,883)
Other.................. 759 694 4,360 2,192 3,530
Changes in assets and
liabilities:
Accounts receivable.... (13,224) (579) (15,743) (9,779) 4,167
Inventories............ (13,187) 69 (15,305) (30,714) 7,254
Prepaid expenses and
other assets.......... (2,056) (3,744) 2,048 572 278
Accounts payable,
income taxes, accrued
expenses and other
liabilities........... 16,064 (12,393) 11,891 9,821 (513)
-------- --------- --------- --------- ---------
Net cash provided by
(used in) operating
activities............. 26,169 19,626 10,756 (8,729) 27,071
-------- --------- --------- --------- ---------
Cash flows from
investing activities:
Capital expenditures,
net................... (16,135) (13,986) (11,309) (8,625) (8,992)
Product rights and
licenses.............. (4,190) (3,035) (4,089) (1,460) --
Acquisition of Marsam,
net of cash acquired.. -- (229,746) -- -- --
Investment in
international joint
ventures.............. -- (3,520) (2,036) (503) (150)
Proceeds from sale of
marketable
securities............ -- -- -- -- 11,575
Other, net............. (358) (1,156) (2,582) (434) (1,188)
-------- --------- --------- --------- ---------
Net cash provided by
(used in) investing
activities............. (20,683) (251,443) (20,016) (11,022) 1,245
-------- --------- --------- --------- ---------
Cash flows from
financing activities:
Principal payments on,
or repayments of,
debt.................. (67,237) (167,119) (261,078) (102,057) (143,067)
Proceeds from issuance
of debt............... 85,601 401,750 267,000 114,000 113,000
Sale (repurchase) of
other non-current
assets, net........... 1,836 (5,700) (2,360) -- --
Restructuring charges.. (1,508) -- -- -- --
Redemption of preferred
stock................. (20,678) -- -- -- --
-------- --------- --------- --------- ---------
Net cash provided by
(used in) financing
activities............. (1,986) 228,931 3,562 11,943 (30,067)
-------- --------- --------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents............ 3,500 (2,886) (5,698) (7,808) (1,751)
Cash and cash
equivalents, beginning
of year................ 7,223 10,723 7,837 7,837 2,139
-------- --------- --------- --------- ---------
Cash and cash
equivalents, end of
year................... $ 10,723 $ 7,837 $ 2,139 $ 29 $ 388
======== ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER
28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
NOTE 1--SUMMARY OF ACCOUNTING POLICIES
THE COMPANY AND PRINCIPLES OF CONSOLIDATION
Schein Pharmaceutical, Inc. and its subsidiaries (the "Company") are engaged
in developing, manufacturing, marketing and distributing generic
pharmaceutical products. The Company sells to drug store chains, independent
retail pharmacies, managed care organizations, hospitals and other
institutions, both through drug wholesalers and directly, primarily in the
U.S.
The Company's Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission permitting the Company
to sell shares of its common stock in a proposed initial public offering. In
connection with the proposed offering, the Company, on , 1997, effected
a 123-for-one stock split, and increased its authorized common stock to
100,000,000 shares. All applicable share and per share amounts in the
accompanying consolidated financial statements have been retroactively
adjusted to reflect the stock split.
In 1995, Schein Holdings, Inc. ("SHI"), the former parent holding
corporation of Schein Pharmaceutical, Inc., was merged into Schein
Pharmaceutical, Inc. The Company was the only asset held by SHI, and, as such,
the accompanying financial statements reflect the operations of the Company
for the periods reported.
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries. Investments in
unconsolidated affiliated companies are accounted for on the equity method.
All material intercompany accounts and transactions have been eliminated in
consolidation.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
FISCAL YEAR
The Company reports its operations on a 52-53 week basis ending on the last
Saturday of December. Of the years presented in these statements, 1994
includes 53 weeks.
INTERIM FINANCIAL INFORMATION
The financial statements as of September 27, 1997 and for the nine months
ended September 28, 1996 and September 27, 1997 are unaudited but reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of financial
position and results of operations. Operating results for the nine months
ended September 27, 1997 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 27, 1997.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments and other short-
term investments with an initial maturity date of three months or less from
purchase date to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out method.
PROPERTY, PLANT, EQUIPMENT, DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed primarily under the straight-line method over
estimated useful lives. Amortization of capital leases is computed using the
straight-line method over the lease term.
F-7
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER
28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
LONG-LIVED ASSETS
The Company adopted in 1995 Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of. In accordance with SFAS No. 121, the carrying
values of long-lived assets are periodically reviewed by the Company and
impairments would be recognized if the expected future operating non-
discounted cash flows derived from an asset were less than its carrying value.
DEFERRED LOAN FEES
Costs incurred in connection with entering into or amending debt agreements
are capitalized to Other Assets and amortized to interest expense using the
effective interest method over the lives of the related debt.
GOODWILL AND PRODUCT RIGHTS, LICENSES AND REGULATORY APPROVALS
Goodwill is being amortized over 25 years on a straight-line basis. Product
rights, licenses and regulatory approvals are amortized on a straight-line
basis over the expected profitable and useful lives of the underlying products
and manufacturing facilities, generally for periods ranging from 10 to 20
years.
INVESTMENTS IN MARKETABLE SECURITIES
The Company's available-for-sale marketable securities are carried at fair
market value and are included in Other Assets in the accompanying balance
sheets. Unrealized gains are recorded directly to stockholders' equity, net of
applicable income taxes. The Company uses the specific identification method
of determining cost in calculating related gains and losses. The Company does
not own held-to-maturity or trading securities.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities,
approximate fair value because of the current nature of these instruments. The
carrying amounts reported for revolving credit and long-term debt approximate
fair value because the interest rates on these instruments are subject to
changes with market interest rates.
REVENUE RECOGNITION
Revenues are recognized when products are shipped. Provisions for estimated
sales allowances, returns and losses are accrued at the time revenues are
recognized.
RESEARCH AND DEVELOPMENT EXPENDITURES
Expenditures for research and development are expensed as incurred.
TAXES ON INCOME
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under this standard, deferred taxes on income are
provided for those items for which the reporting period and methods for income
tax purposes differ from those used for financial statement purposes using the
asset and liability method. Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
F-8
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER
28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
COMPUTATION OF EARNINGS PER COMMON SHARE
Net earnings per common share is computed using the weighted average number
of shares of common (both Class A and Class B, see Note 11) and common
equivalent shares outstanding. Common equivalent shares are excluded from the
computation if their effect is antidilutive, except that pursuant to the
Securities and Exchange Staff Accounting Bulletin No. 83 common and common
equivalent shares issued at prices below the public offering price during the
twelve months immediately preceding the initial filing date have been included
in the calculation as if they were outstanding for all periods presented using
the treasury stock method and the initial public offering price. Common
equivalent shares consist of the incremental shares issuable upon the exercise
of stock options.
FOREIGN CURRENCY TRANSLATIONS
Assets and liabilities of international affiliates are translated at current
exchange rates and related translation adjustments are reported as a component
of stockholders' equity. Income statement accounts are translated at the
average rates during the period.
CONCENTRATION OF CREDIT RISK
The Company is potentially subject to a concentration of credit risk with
respect to its trade receivables, the majority of which are due from
wholesalers, drug store chains, and distributors. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
The Company maintains sufficient allowances and insurance to cover potential
or anticipated losses for uncollectible accounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company 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.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per
Share". SFAS No. 128 specifies the computation, presentation and disclosure
requirements for earnings per share. SFAS No. 128 is effective for periods
ending after December 15, 1997. The adoption of this statement is not expected
to have a material effect on the consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
Reporting Comprehensive Income, establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
Statement of Accounting Standards No. 131 ("SFAS No. 131"), Disclosures
about Segments of an Enterprise and Related Information, which supersedes SFAS
No. 14, Financial Reporting for Segments of a Business Enterprise, establishes
standards for the way that public enterprises report information about
operating
F-9
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER
28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosures regarding products
and services, geographic areas and major customers. SFAS No. 131 defines
operating segments as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
asserting performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Results of operations and financial position
will be unaffected by implementation of these new standards.The Company has
not determined whether either of these two standards will have a material
impact on its financial statement disclosure.
NOTE 2--RESTRUCTURING
As discussed in Note 1, SHI, the former parent corporation of the Company,
was merged into the Company in 1995. Prior to September 1994, in addition to
its ownership of the Company, SHI was engaged in the manufacture, distribution
and sale of dental, medical and veterinary products ("Henry Schein"). In 1992,
SHI initiated a series of transactions as part of a corporate reorganization
plan (the "Restructuring") to split off Henry Schein to certain SHI
stockholders and realign the ownership interests of SHI. In September 1994,
the series of transactions culminated when the capital stock of Henry Schein
was distributed to individuals (and certain trusts established by them) who
were holders (or beneficiaries of trusts and estates which were holders) of
SHI's common stock prior to September 30, 1994 ("Historical SHI
Stockholders").
The transactions related to the Restructuring were initiated in December
1992 when SHI contributed the net assets of Henry Schein to a newly formed
company which was owned by SHI. Schein Pharmaceutical, Inc. and Henry Schein
both issued common stock to their respective chief executive officers
("CEOs"), which were forfeitable if certain conditions were not satisfied, and
paid cash bonuses to reimburse them for the personal income tax effects of the
stock issuance and reimbursements. SHI subsequently issued shares of its
common stock in exchange for the Schein Pharmaceutical, Inc. stock issuance
and these shares were reflected in the 1992 financial statements.
The Restructuring continued in 1993, when Historical SHI Stockholders and
Company management agreed to a transaction whereby an investor would purchase
a portion of SHI's outstanding shares from Historical SHI Stockholders and
seek future strategic alliances (the "Minority Investor Transaction").
Following governmental regulatory review and Surrogate Court approval, the
closing occurred on September 30, 1994. The Restructuring transactions
recorded in 1994 are as follows:
(i) SHI distributed the shares of Henry Schein to the Historical SHI
Stockholders.
(ii) SHI issued 854,235 shares of its common stock in exchange for the
minority interest-redeemable stock in Schein Pharmaceutical, Inc.'s
subsidiaries. The $13.2 million fair value of the shares issued exceeded
the minority interest previously recorded by $7.3 million. Of this amount,
$5.5 million was classified as special compensation expense in 1994 (for
Schein Pharmaceutical, Inc. employees) and $1.8 million was recorded as a
distribution by the Company to Henry Schein (for the CEO of Henry Schein).
(iii) As a result of the Minority Investor Transaction described above,
the shares of common stock issued to the CEOs of the Company and Henry
Schein became free of the forfeiture provisions. Accordingly, the shares
were revalued using the September 30, 1994 fair value. The amounts relating
to (1) the Company's CEO totaled $18.6 million and was recorded as special
compensation expense, and (2) Henry Schein's CEO totaled $5.7 million, and
the excess of that amount over the 1992 fair value totaled $3.1 million,
which was recorded as a capital distribution.
F-10
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER
28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
(iv) SHI retained the services of investment banking and financial
advisory firms. Of the fees paid to these firms, $1.5 million was charged
to retained earnings, as such amount related to the Minority Investor
Transaction.
(v) SHI redeemed its outstanding preferred stock for $25.7 million,
paying $20.7 million in cash and canceling a $5.0 million loan to a
preferred stockholder.
(vi) SHI established a supplemental retirement program for its CEO and
recognized as current expense the Company's obligation under the plan,
estimated at $5.0 million. This liability is included in Other Liabilities
in the accompanying balance sheets.
Professional fees incurred by the Company of $4.2 million in 1994 in
connection with the Restructuring were recorded as restructuring expense.
NOTE 3--ACQUISITIONS AND INVESTMENTS IN INTERNATIONAL AFFILIATES
The Company acquired all the outstanding capital stock of Marsam
Pharmaceuticals Inc. ("Marsam") in September 1995 for $245.0 million in cash.
Marsam develops, manufactures and markets generic injectable prescription
drugs. The acquisition was accounted for as a purchase. The purchase price of
$245.0 million exceeded the book value of the net assets acquired by $193.0
million. Of the excess purchase price, $92.0 million was allocated to increase
the net assets acquired to fair value, principally related to regulatory
facility and product approvals. Acquired in-process Marsam research and
development projects were valued at $30.0 million and were expensed at the
time of the acquisition. Goodwill of $108.0 million, consisting of the
remaining excess purchase price of $71.0 million and a $37.0 million deferred
tax liability resulting from the write-up of the net assets to fair value. is
being amortized over 25 years. Marsam's results of operations have been
included in the consolidated statements of operations since the date of
acquisition.
The following summarized, unaudited pro forma results of operations for 1994
and 1995 assume the acquisition occurred as of the beginning of 1994. In
preparing the pro forma data, adjustments have been made for the amortization
of goodwill and other intangibles acquired, the interest expense related to
borrowing agreements to finance the purchase price and, in 1994 only, the
write-off of acquired in-process Marsam research and development projects.
Since the valuation of Marsam's net assets and in-process research and
development projects may have differed at January 1, 1994 from amounts
recorded at September 1, 1995, the information presented is not necessarily
indicative of results of operations that would have occurred had the
acquisition been consummated at the beginning of the respective periods, or of
future results of the combined companies.
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Net revenues....................................... $420,441 $417,041
Net income (loss).................................. (39,763) 5,781
</TABLE>
During 1995 and 1996, the Company invested approximately $3.5 million and
$2.0 million, respectively, and $0.2 million for the nine months ended
September 27, 1997, to acquire up to a 50% interest in each of several
international pharmaceutical businesses. These businesses are jointly owned
with subsidiaries of Bayer AG, the parent of Bayer Corp., a minority investor
in the Company. These investments are accounted for under the equity method
and are included in Other Assets in the accompanying balance sheets. The
Company recorded losses of approximately $0.3 million and $3.3 million in
fiscal 1995 and fiscal 1996, respectively, and $1.6 million and $2.7 million
for the nine months ended September 28, 1996 and September 27, 1997,
respectively, as its share of the operating results of these businesses.
Additionally, the Company incurred expenses of approximately $2.1 million and
$2.9 million in fiscal 1995 and fiscal 1996, respectively, and approximately
$2.0 million and $1.8
F-11
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER
28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
million for the nine months ended September 28, 1996 and September 27, 1997,
to identify, evaluate, and establish these and other potential international
business ventures. All equity losses and other expenses resulting from the
Company's investments in international businesses in fiscal 1995 and fiscal
1996 are included in other expense, net, in the accompanying statements of
operations. The Company generally anticipates that these international
businesses will not have significant revenues or operations for a period of
two to three years, during which time the businesses incur expenses to
register products in anticipation of future sales.
NOTE 4--INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Finished products.................... $ 47,874 $ 59,632 $ 50,223
Work in-process...................... 20,671 27,332 36,893
Raw materials and supplies........... 47,415 44,301 36,895
-------- -------- --------
$115,960 $131,265 $124,011
======== ======== ========
</TABLE>
NOTE 5--PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land............................... $ 4,725 $ 4,725 $ 4,725
Buildings and improvements......... 60,770 63,019 63,829
Plant and office equipment......... 85,126 97,825 100,521
Construction-in-progress........... 6,949 3,310 7,976
-------- -------- --------
157,570 168,879 177,051
Less: Accumulated depreciation and
amortization...................... 49,004 61,139 69,703
-------- -------- --------
$108,566 $107,740 $107,348
======== ======== ========
</TABLE>
Depreciation and amortization expense for property, plant and equipment
amounted to $8.3 million, $10.5 million, and $12.1 million in fiscal 1994,
fiscal 1995 and fiscal 1996, respectively, and $9.2 million and $8.5 million
for the nine months ended September 28, 1996 and September 27, 1997,
respectively.
NOTE 6--INTANGIBLE AND OTHER ASSETS
Product Rights, Licenses and Regulatory Approvals, net, consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Product rights and licenses......... $ 8,522 $ 12,611 $ 12,522
Regulatory approvals, products...... 78,000 78,000 78,000
Regulatory approvals, facilities.... 10,000 10,000 10,000
------- -------- --------
96,522 100,611 100,522
Less: Accumulated amortization...... 1,956 7,926 12,420
------- -------- --------
$94,566 $ 92,685 $ 88,102
======= ======== ========
</TABLE>
F-12
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER
28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
Accumulated amortization of goodwill was $1.4 million, $5.8 million and $9.0
million at December 30, 1995, December 28, 1996 and September 27, 1997,
respectively.
Included in Other Assets in the accompanying balance sheets are marketable
securities consisting of equity securities of:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cost................................. $3,317 $ 5,660 $ 3,918
Gross unrealized gain................ 60 6,686 11,322
------ ------- -------
Fair value........................... $3,377 $12,346 $15,240
====== ======= =======
</TABLE>
Included in Other expenses (income), net for the nine months ended September
27, 1997, the Company recorded $9.9 million of realized gains of securities
sold.
NOTE 7--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Included in accounts payable are outstanding checks of approximately $5.4
million, $6.2 million and $5.0 million as of December 30, 1995, December 28,
1996 and September 27, 1997, respectively.
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Salaries and related expenses...... $15,398 $18,300 $17,703
Profit-sharing expenses............ 1,673 8,637 8,060
Other.............................. 17,868 13,818 16,995
------- ------- -------
$34,939 $40,755 $42,758
======= ======= =======
</TABLE>
NOTES 8--TAXES ON INCOME
Provisions for Federal, state and Puerto Rico income taxes consist of the
following:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.............................. $15,786 $ 5,736 $7,404
State and Puerto Rico................ 5,700 1,662 1,129
------- ------- ------
21,486 7,398 8,533
------- ------- ------
Deferred:
Federal.............................. (3,497) 2,131 (2,215)
State and Puerto Rico................ (2,824) 953 (1,127)
------- ------- ------
(6,321) 3,084 (3,342)
------- ------- ------
$15,165 $10,482 $5,191
======= ======= ======
</TABLE>
F-13
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER
28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
Deferred tax assets and liabilities are classified as current and non-
current as follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred Taxes, Current:
Deferred tax assets........................... $ 9,764 $ 9,354
Deferred tax liabilities...................... (108) --
-------- --------
9,656 9,354
-------- --------
Deferred Taxes, Non-Current:
Deferred tax assets........................... 6,905 8,268
Deferred tax liabilities...................... (48,226) (48,434)
-------- --------
(41,321) (40,166)
-------- --------
$(31,665) $(30,812)
======== ========
</TABLE>
Differences between the Federal statutory rate and the Company's effective
tax rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory rate...................... $ 7,629 $(1,546) $2,309
State and Puerto Rico............... 1,869 1,722 241
Special compensation charges........ 5,553 -- --
Amortization of goodwill............ -- 505 1,515
Effect of partially tax-exempt
operations in Puerto Rico.......... -- -- (519)
Equity in net loss of unconsolidated
affiliates......................... -- -- 1,202
Write-off of acquired in-process
Marsam research and development.... -- 10,500 --
Other, net.......................... 114 (699) 443
------- ------- ------
$15,165 $10,482 $5,191
======= ======= ======
</TABLE>
Temporary differences which give rise to a significant portion of deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross Deferred Tax Assets:
Inventory valuation......................... $ 4,358 $ 5,220
Accounts receivable allowances.............. 3,139 2,694
Net operating loss carryforwards, state and
Puerto Rico................................ 1,700 1,880
Deferred compensation expense............... 4,238 4,806
Other....................................... 3,126 3,022
-------- --------
16,561 17,622
-------- --------
Gross Deferred Tax Liabilities:
Write-up of acquired Marsam assets to fair
value...................................... (35,361) (32,692)
Depreciation and amortization............... (12,744) (12,461)
Unrealized gains from marketable
securities................................. -- (2,489)
Other....................................... (121) (792)
-------- --------
(48,226) (48,434)
-------- --------
$(31,665) $(30,812)
======== ========
</TABLE>
F-14
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER
28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
NOTE 9--BORROWINGS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving credit and term loan
agreement........................ $280,000 $186,000 $156,000
Senior subordinated loan.......... -- 100,000 100,000
Capitalized lease obligations..... 558 480 413
-------- -------- --------
280,558 286,480 256,413
Less: Current Maturities.......... 40,078 41,090 32,943
-------- -------- --------
$240,480 $245,390 $223,470
======== ======== ========
</TABLE>
In September 1995, the Company entered into a secured revolving credit and
term loan agreement (as amended, the "credit agreement") with a group of banks
to provide funds for the acquisition of Marsam, the repayment of certain of
its debt, working capital and general corporate purposes. The credit agreement
provided a term loan facility of $250.0 million and a revolving credit
facility of $100.0 million. In December 1996, the Company prepaid $100.0
million of the term loan portion of the credit agreement using the proceeds
from a new senior subordinated loan (see below). As a result of this payment
and a scheduled payment, the term loan facility was reduced to $145.0 million.
Quarterly principal payments on the term loan commence in September 1998 and
end in the year 2001. The revolving credit usage was $30.0 million, $41.0
million and $26.0 million as of December 30, 1995, December 28, 1996 and
September 27, 1997, respectively. The $100.0 million revolving credit line is
available through December 2001. Amounts borrowed under the revolving credit
facility are expected to be repaid during the next year and, accordingly, are
classified as current in the accompanying balance sheets.
Borrowings under the credit agreement bear interest, which is payable at
least quarterly, at a rate equal to the bank's floating base rate plus a
premium ranging from zero to 1.50%, or at a rate equal to LIBOR plus a premium
ranging from 0.75% to 2.50%, depending on the type of borrowing and the
Company's performance against certain criteria. The effective borrowing rate
was 7.14%, 8.10% and 7.80% at December 30, 1995, December 28, 1996 and
September 27, 1997, respectively. A commitment fee ranging from 0.25% to 0.50%
per annum of the unused daily amount of the total commitment is payable
quarterly.
Borrowings under the credit agreement are secured by a mortgage on all real
property, liens on inventory and receivables and a pledge of subsidiaries'
stock. The debt is guaranteed by the Company's domestic subsidiaries.
The credit agreement contains limitations and restrictions concerning
investments, acquisitions, capital expenditures, debt, liens, transactions
with stockholders, dividend payments and borrowings. In addition, the
agreement requires the Company to maintain minimum net worth levels and
certain ratios (as defined) of leverage to EBITDA, working capital and fixed
charge coverage. Amounts available for dividends as of December 28, 1996 were
not material.
In December 1996, the Company entered into an agreement for a $100.0 million
senior subordinated loan with a lead-manager of the credit agreement. The
proceeds of the loan were used to prepay principal on the term loan of the
credit agreement. The effective borrowing rate was 9.60% and 9.72% as of
December 28, 1996 and September 27, 1997, respectively. Outstanding borrowings
under the senior subordinated loan agreement bear interest, payable quarterly,
at a rate equal to LIBOR plus 4% or the bank's floating base rate plus 3%,
through January 31, 1998. Thereafter, the principal amount of the loan will be
increased to reflect related fees due and will mature in five years. Interest
will be due semi-annually and the interest rate will be fixed at a new rate.
See Note 17--Subsequent Events.
F-15
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER
28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
In connection with entering into the credit agreement, the Company incurred
costs of $5.9 million in 1995. During 1996, the Company incurred costs of $2.3
million in connection with entering into the senior subordinated loan and
amending the credit agreement. The Company capitalized these costs, which are
included in Other Assets in the accompanying balance sheets. The amounts
amortized in 1995 and 1996 were $0.7 million and $2.6 million, respectively.
At December 28, 1996, aggregate required principal payments for the
succeeding four years, the remaining term under existing long-term debt
agreements, excluding the revolving credit facility, are $15.3 million in
1998, $38.2 million in 1999, $45.8 million in 2000 and $45.8 million in 2001.
NOTE 10--COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Operating Leases
The Company leases facilities and equipment under operating leases expiring
through 2007. Some of the leases have renewal options and most contain
provisions for passing through certain incremental costs. At December 28,
1996, future net minimum annual rental payments under the noncancelable leases
are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 5,484
1998................................................................ 4,778
1999................................................................ 4,223
2000................................................................ 3,602
2001................................................................ 3,129
2002-2007........................................................... 14,145
-------
Total minimum lease payments........................................ $35,361
=======
</TABLE>
Total rental expense for the fiscal years ended 1994, 1995 and 1996 was
approximately $3.7 million, $4.7 million and $5.4 million, respectively and
$3.9 million and $4.1 million for the nine months ended September 28, 1996 and
September 27, 1997, respectively.
The Company has an agreement to lease warehousing space through September
1999, and then purchase this property for $5.3 million in October 1999. In
1997 the Company intends to exercise its option to purchase this property. The
property consists of a building of approximately 109,800 square feet on
approximately 8.5 acres of land. The purchase price includes a $0.3 million
deposit paid in 1994.
Employee Benefit Plans
During 1996, the Company merged its defined contribution retirement plans
into one plan. The discretionary contributions to the plan vest to employees
over several years. Additionally, employees are permitted to make pre-tax
contributions to the plan with the Company making matching contributions. The
contributions to these plans which were charged to operations, as determined
by the Board of Directors, amounted to approximately $4.2 million, $4.9
million and $3.5 million for the fiscal years ended 1994, 1995 and 1996,
respectively and $3.7 million and $4.7 million for the nine months ended
September 28, 1996 and September 27, 1997, respectively.
The Company has entered into deferred compensation agreements with certain
officers of the Company. As of December 1996, obligations under these
agreements were approximately $6.6 million, assuming the officers remain with
the Company over the vesting period of four years. These agreements provide
for accelerated vesting
F-16
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER
28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
if there is a change in control of the Company and under certain other
conditions. The Company expensed $2.7 million, $2.0 million, and $4.8 million
in the fiscal years ended 1994, 1995, and 1996, respectively, and $1.7 million
and $1.1 million in the nine months ended September 28, 1996 and September 27,
1997, respectively, in connection with these agreements.
The Company established an unfunded supplemental retirement program for its
CEO during 1994. The estimated obligation of $5.0 million is included in Other
Liabilities in the accompanying balance sheets.
The Company maintains a Book Equity Appreciation Rights Program (the
"Program") to allow certain employees to benefit from an increase in the
Company's book value as calculated according to a formula defined in the
Program. All participants are fully vested in their book equity appreciation
rights ("BEARs") and the Company does not intend to make any additional grants
of BEARs. Amounts charged to results of operations were not material in any
period presented.
Product Technology Licensing and Development
On September 1, 1994, the Company entered into a worldwide technology
licensing and development agreement with a U.K.-based pharmaceutical
development company for the development of a portfolio of oral controlled
release and/or transdermal products. Under the terms of the agreement, the
Company is obligated to pay product licensing fees and development costs
totaling $32.0 million, dependent on achievement of interim milestones. In
1994, the Company incurred obligations totaling $5.3 million under the
agreement, consisting of a $5.0 million licensing fee, which was capitalized,
and $0.3 million in development costs, which were charged to research and
development expense. The Company paid and expensed $2.1 million in development
costs in 1995. In 1996, the Company incurred obligations totaling $3.0
million, consisting of a $0.5 million licensing fee, which was capitalized,
and $2.5 million in development costs which were charged to research and
development expense. The remaining commitment under the agreement as of
December 28, 1996 was $21.6 million, subject to the completion of interim
milestones.
On September 30, 1996, the Company entered into a marketing and distribution
agreement with a corporation to jointly commercialize a certain product. Under
the terms of the agreement, the Company is obligated to pay product licensing
fees and development costs of $12.0 million, dependent on the achievement of
certain milestones. In 1996, the Company paid and capitalized a $2.0 million
product license fee.
Consulting Agreement
The Company has a series of agreements (collectively, the "Consulting
Agreement") with a patent attorney (the "Consultant"). Under the Consulting
Agreement, the Consultant, together with the Company, identified certain
patents on branded pharmaceutical products which might be susceptible to a
challenge and the Consultant acted as counsel to the Company in those
instances where it decided to proceed with a patent challenge.
The Consulting Agreement generally provides that if a challenge based on an
opinion of the Consultant results in either a favorable judicial determination
which enables the Company to market a generic version of the product or in a
settlement, the Company will pay the Consultant one half of the adjusted gross
profit (as defined) from its sales of the generic versions of the patented
product (until the date on which the patent would normally have expired) or
one half of the proceeds of any settlement.
In 1994, the Company settled two such patent challenges. One of the
settlements involved a license grant to the Company to market the product
which was the subject of the challenge beginning in 1996. The other allows for
future cash payments and/or license rights to the Company. In connection with
the second settlement, the Company received revenues of $5 and $12.5 million
in 1995 and 1996, respectively, and $12.5 million and $25.0 million in the
nine months ended September 28, 1996 and September 27, 1997, which are
included in Net revenues in the accompanying statements of operations.
F-17
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER
28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
Profit-sharing expenses pursuant to the Consulting Agreement and included in
Cost of sales were $2.5 million in fiscal 1995, $14.9 million in fiscal 1996
and $9.3 million and $24.5 million for the nine months ended September 28,
1996 and September 27, 1997, respectively. In 1994, there were no related
profit-sharing expenses.
CONTINGENCIES
Litigation
The Company is a defendant in several product liability cases. These cases
are typical for a company in the pharmaceutical industry. The Company also is
involved in other proceedings and claims of various types. Management
presently believes that the disposition of all such known proceedings and
claims, individually or in the aggregate, will not have a material adverse
effect on the Company's financial position, operations or liquidity.
NOTE 11--STOCKHOLDERS' EQUITY AND STOCK OPTIONS
COMMON STOCK
The Company has Class A Common Shares ("Class A") and Class B Common Shares
("Class B"). Each of the two classes of stock are identical except that Class
B shares are currently non-voting. Upon the earlier occurrence of an initial
public offering or May 15, 1999, each authorized share of Class B will be
automatically reclassified as and converted into one new Class A share.
Upon the closing of the Company's planned initial public offering, the Class
A and Class B will convert on a one-for-one basis to new shares of the
Company's common stock.
At December 30, 1995, December 28, 1996 and September 22, 1997, the Company
had 22,597,806, 22,539,012, and 22,539,012 Class A issued and outstanding,
respectively. The Company had 11,072,460 Class B for all periods presented.
During 1996, the Company agreed to repurchase 58,794 Common Shares for
approximately $1.0 million from a former executive of the Company. These
shares were retired in 1996.
STOCK OPTION PLAN
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock- Based Compensation. SFAS No. 123 encourages
entities to adopt that method in place of the provisions of Accounting
Principles Board Opinion Number 25, Accounting for Stock Issued to Employees
("APB No. 25"), for all arrangements under which employees receive shares of
stock or other equity instruments of the employer or the employer incurs
liabilities to employees in amounts based on the price of its stock. The
Company continues to account for such transactions in accordance with APB No.
25 and, as required by SFAS No. 123, has provided pro forma information
regarding net income as if compensation cost for the Company's stock option
plan had been determined in accordance with the fair value method prescribed
by SFAS No. 123.
Under a 1993 Stock Option Plan, a 1995 Non-Employee Director Stock Option
Plan, and effective March 3, 1997, a 1997 Stock Option Plan the Company may
grant non-qualified and incentive stock options to certain officers, employees
and directors. The options expire ten years from the grant date. The options
may be exercised subject to continued service (three to five years) and
certain other conditions. Accelerated vesting occurs following a change in
control of the Company and under certain other conditions. The Company may
grant an aggregate of 6,863,031 shares under the plans. However, 430,869
shares under the 1993 Stock Option Plan will not be granted.
F-18
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER
28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
The Company estimates the fair value of each stock option at the grant date
by using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1995 and 1996: no dividend yield,
expected volatility of 0.01%, risk free interest rates of 5% to 7%, expected
lives of 10 years and a discount for marketability of 25%. If compensation
cost for the Company's stock option plan had been determined in accordance
with SFAS No. 123, net income (loss) would have been reduced in 1995 and 1996
by approximately $1.0 million and $2.3 million, respectively.
The following table summarizes information about stock options outstanding
at December 28, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
NUMBER CONTRACTUAL AVERAGE NUMBER EXERCISE
OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE PRICE
----------- ------------ -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Exercise Prices
$8.13........ 228,657 6.9 $ 8.13 215,127 $ 8.13
$16.26....... 2,725,188 7.8 16.26 1,661,361 16.26
--------- --- ------ --------- ------
2,953,845 7.8 $15.63 1,876,488 $15.33
========= === ====== ========= ======
</TABLE>
Transactions under the stock option plans and individual non-qualified
options not under the plans are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Shares under option at December 29, 1993......... 1,517,820 $14.95
Granted (at $16.26 per share).................. 626,562 16.26
Exercised...................................... -- --
Canceled (at $16.26 per share)................. (132,594) 16.26
--------- ------
Shares under option at December 31, 1994......... 2,011,788 15.27
Granted (at $16.26 per share).................. 442,923 16.26
Exercised...................................... -- --
Canceled (at $16.26 per share)................. (9,471) 16.26
--------- ------
Shares under option at December 30, 1995......... 2,445,240 15.45
Granted (at $16.26 per share).................. 601,101 16.26
Exercised...................................... -- --
Canceled (at $8.13 to $16.26 per share)........ (92,496) 14.90
--------- ------
Shares under option at December 28, 1996......... 2,953,845 15.63
Granted (at $12.20 per share).................. 987,813 12.20
Exercised...................................... -- --
Canceled (at $16.26 per share)................. (290,895) 16.26
--------- ------
Shares under option at September 27, 1997 (at
$8.13 to $16.26 per share)...................... 3,650,763 $14.65
========= ======
Options exercisable at December
1994........................................... 1,100,973 $15.90
1995........................................... 1,325,940 $15.66
1996........................................... 1,876,488 $15.33
Weighted average fair value of options granted
during:
1995........................................... $ 7.44
1996........................................... $ 7.29
</TABLE>
F-19
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER
28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
The Company recorded deferred stock compensation of approximately $2.0
million in 1993, reflecting options granted with exercise prices at less than
fair value. This amount is being amortized over five years.
NOTE 12--SPECIAL COMPENSATION, RESTRUCTURING AND RELOCATION
Special compensation, restructuring and relocation expense in fiscal 1994
consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Special compensation--see Note 2............................ $23,582
Excess of fair value of shares exchanged or amounts paid on
exchange of minority interest.............................. 5,457
Professional fees for Restructuring......................... 4,215
Relocation of corporate headquarters........................ 340
-------
$33,594
=======
</TABLE>
NOTE 13--INTEREST EXPENSE, NET
Interest expense, net, consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
-------------------------------------- ---------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest expense........ $1,875 $10,150 $23,715 $16,165 $20,536
Interest income......... (382) (145) (430) (84) (80)
------ ------- ------- ------- -------
$1,493 $10,005 $23,285 $16,081 $20,456
====== ======= ======= ======= =======
</TABLE>
NOTE 14--RELATED PARTY TRANSACTIONS
In the conduct of its business, the Company sells pharmaceutical products to
Henry Schein for distribution to its customers. Net sales to Henry Schein were
$6.4 million, $5.3 million and $8.6 million in fiscal 1994, 1995 and 1996,
respectively, and $5.5 million and $5.4 million for the nine months ended
September 28, 1996 and September 27, 1997. Included in accounts receivable at
both December 30, 1995, December 28, 1996 and September 27, 1997 are amounts
due from Henry Schein for sale of products of approximately $0.9 million, $0.9
million and $0.8 million, respectively.
In 1994, the Company entered into a 3-year co-promotion agreement with Bayer
Corp. covering a certain product of the Company. Under the terms of the
agreement, in exchange for promotional support, the Company shared with Bayer
Corp. financial results in excess of specified threshold amounts. Included in
selling, general and administrative expenses, the Company recorded selling
expenses under the agreement of approximately $3.0 million in 1996 and $2.3
million for the nine months ended September 27, 1997. There were no selling
expenses under this agreement for 1994 and 1995. Included in Accrued expenses
in the accompanying balance sheet as of December 28, 1996 and September 27,
1997 are approximately $1.3 million and $1.7 million, respectively, of selling
expenses under the agreement.
NOTE 15--SUPPLEMENTAL CASH FLOW INFORMATION
In connection with the Restructuring (see Note 2), there were certain non-
cash transactions. In 1994, non-cash transactions were 1) the issuance of SHI
common stock in exchange for all minority interests in Schein Pharmaceutical's
subsidiaries, the formula value of which approximated $6.2 million, 2) a $1.8
million
F-20
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER
28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
distribution to Henry Schein for the excess of the fair value of the common
stock issued in exchange for the minority interest in Schein Pharmaceutical's
subsidiaries over amounts previously recorded, 3) a distribution of $3.1
million to Henry Schein in recognition of the adjusted fair value of the
Company's stock distributed in 1992, and 4) a $5.0 million cancellation of a
preferred stock stockholder loan in connection with the redemption of
preferred stock.
The Company paid taxes of approximately $22.8 million, $8.9 million and $5.8
million for the years ended 1994, 1995 and 1996, respectively. The Company
paid interest of approximately $1.5 million, $8.0 million and $23.2 million
for the years ended 1994, 1995 and 1996, respectively.
In 1994, the Company accrued a $3 million product licensing commitment which
was paid in early 1995. The amount was capitalized under Product Rights,
Licenses and Regulatory Approvals in the accompanying balance sheets.
As discussed in Note 3, the Company acquired all the capital stock of Marsam
for $245 million in 1995. In connection with the acquisition, liabilities were
assumed as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Fair value of assets acquired.................................. $ 293
Cash paid for Marsam stock..................................... (245)
-----
Liabilities assumed............................................ $ 48
=====
</TABLE>
As discussed in Note 11, the Company accrued approximately $1.0 million as
of December 28, 1996 in connection with the repurchase of 58,794 common
shares.
NOTE 16--MAJOR PRODUCT AND CUSTOMERS
One product generated 16%, 17% and 18% of net revenues for fiscal 1994, 1995
and 1996, respectively, and 17% and 20% for the nine months ended September
28, 1996 and September 27, 1997, respectively.
Four customers contributed 13%, 12%, 12% and 10%, respectively, of 1994 net
revenues. Three customers generated 13%, 11% and 10%, respectively, of 1995
net revenues, respectively. Three customers contributed 16%, 15% and 11%,
respectively, of 1996 net revenues. Three customers contributed 17%, 16% and
11%, respectively, of revenues for the period ended September 27, 1997. In all
periods, these customers are nationwide wholesalers through which the majority
of the Company's products are distributed to the retail, institutional and
managed care markets.
NOTE 17--SUBSEQUENT EVENTS
In November 1997, the Company entered into a commitment letter with an
investment banking firm providing for the issuance and sale of $100 million of
Senior Floating Rate Notes due 2004. Interest on the notes will be due
quarterly at a LIBOR-based rate. The Company expects this offering to be
completed in December 1997, at which time the proceeds will be used to retire
the existing $100 million senior subordinated loan (Note 9).
The Company is in the process of filing an initial public offering ("IPO")
whereby it hopes to raise net proceeds of approximately $45 million upon the
sale of its common stock. The net proceeds, if successful, will be used to pay
down the Company's debt.
In connection with the IPO, the Company's Board of Directors authorized the
issuance of up to 5,000,000 shares of Preferred Stock, par value $.01 per
share.
F-21
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY
OF THE UNDERWRITERS OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY A SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Company.............................................................. 13
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Consolidated Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 26
Management............................................................... 40
Certain Transactions..................................................... 48
Principal and Selling Stockholders....................................... 50
Shares Eligible For Future Sale.......................................... 55
Description of Capital Stock............................................. 57
Underwriting............................................................. 59
Validity of Shares....................................................... 61
Experts.................................................................. 61
Available Information.................................................... 61
Index to Consolidated Financial Statements............................... F-1
</TABLE>
------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
[LOGO] SCHEIN
PHARMACEUTICAL
Common Stock
------------------
PROSPECTUS
------------------
COWEN & COMPANY
BEAR, STEARNS & CO. INC.
SALOMON SMITH BARNEY
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred by the Company
in connection with the issuance and distribution of the securities being
registered under this registration statement. Except for the SEC and NASD
filing fees, all expenses have been estimated and are subject to future
contingencies.
<TABLE>
<S> <C>
SEC registration fee.......................................... $18,319.50
NASD fee...................................................... 6,710.00
Legal fees and expenses*......................................
Printing and engraving expenses*..............................
Accounting fees and expenses*.................................
Blue sky fees and expenses*...................................
Transfer agent and registrar fees and expenses*...............
Miscellaneous*................................................
----------
Total....................................................... $
==========
</TABLE>
- --------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article SEVENTH of the Company's Certificate of Incorporation provides that
the Company shall indemnify and hold harmless, to the fullest extent
authorized by the Delaware General Corporation Law, its officers and directors
against all expenses, liability and loss actually and reasonably incurred in
connection with any civil, criminal, administrative or investigative action,
suit or proceeding. The Certificate of Incorporation also extends
indemnification to those serving at the request of the Company as directors,
officers, employees or agents of other enterprises.
In addition, Article SEVENTH of the Company's Certificate of Incorporation
provides that no director shall be personally liable for any breach of
fiduciary duty. Article SEVENTH does not eliminate a director's liability (i)
for a breach of his or her duty of loyalty to the Company or its stockholders,
(ii) for acts of or omissions of such director not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any
transactions from which the director derived an improper personal benefit.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation to indemnify its directors and officers against
expenses(including attorney's fees), judgments, fines and amounts paid in
settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by third parties, if such directors or
officers acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to
any criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors and officers in connection with the defense
or settlement of an action or suit, and only with respect to a matter as to
which they shall have acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interest of the corporation,
except that no indemnification shall be made if such person shall have been
adjudged liable to the corporation, unless and only to the extent that the
court in which the action or suit was brought shall determine upon application
that the defendant officers or directors are reasonably entitled to indemnity
for such expenses despite such adjudication of liability.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a corporation may eliminate or limit the personal liability of a
director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under
II-1
<PAGE>
Section 174 of the General Corporation Law of the State of Delaware, or (iv)
for any transaction from which the director derived an improper personal
benefit. No such provision shall eliminate or limit the liability of a
director for any act or omission occurring prior to the date when such
provision becomes effective.
Pursuant to Section 145 of the DGCL and the Certificate of Incorporation and
the By-laws of the Company, the Company maintains directors' and officers'
liability insurance coverage.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Company.
3.2 Amended and Restated By-Laws of the Company.
3.3 Form of Restated Certificate of Incorporation of the Company to be
adopted.
3.4 Form of Amended and Restated By-Laws of the Company to be adopted.
4.1* Credit Agreement dated as of September 5, 1997 among the Company, the
Lenders (as defined therein), and Chemical Bank as Issuing Bank,
Administrative Agent and as Collateral Agent for the Lenders.
4.2* First, Second and Third Amendments to the Credit Agreement.
4.3* Senior Subordinated Loan Agreement dated as of December 20, 1996
among the Company, the Lenders (as defined therein) and Societe
Generale as Administrative Agent.
5.1* Opinion of Proskauer Rose LLP.
9.1 Voting Trust Agreement, dated September 30, 1994, by and among the
Company, Marvin H. Schein, the trust established by Marvin H. Schein
under trust agreement dated December 31, 1993, the trust established
by Marvin H. Schein under trust agreement dated September 9, 1994,
Pamela Schein, the trust established by the Trustees under Article
Fourth of the Will of Jacob M. Schein for the benefit of Pamela
Schein and her issue under trust agreement dated September 29, 1994,
Pamela Joseph, and the trust established by Pamela Joseph under trust
agreement dated September 28, 1994, and Martin Sperber, as voting
trustee.
10.1* Supply Agreement, dated May 1, 1992, between Abbott Laboratories, and
Steris Laboratories, Inc., including Letter Amendment, dated December
2, 1993, and Letter Amendment, dated June 9, 1995.
10.2* Agreement, dated June 10, 1994, between Steris Laboratories, Inc.,
Akzo Pharma International B.V., and Organon Inc.
10.3* Consolidated Agreement, dated January 1, 1990, between the Company,
its affiliates, and Alfred B. Engelberg.
10.4* Sublicense, Co-marketing and Supply Agreement, dated September 30,
1996, between the Company and Makoff R&D Laboratories, Inc.,
including Operating Agreement, dated September 30, 1996.
10.5* Agreement, dated August 16, 1994, between the Company and Elan Pharma
Ltd. (currently Elan Corporation plc).
10.6* Custom Manufacturing Agreement, dated July 1, 1995, between the
Company and Johnson Matthey, Inc.
10.7 Letter of Intent, dated October 7, 1997, by and among the Company,
Cheminor Drugs Limited and Dr. Reddy's Laboratories Limited.
10.8* Lease Agreement, dated March 30, 1992, between the Company and Harold
Lepler.
10.9* Lease Agreement, dated February 16, 1992, between the Company and
Ronald G. Roth.
10.10* Memorandum of Lease for Danbury, dated December 1, 1995 between
Danbury Pharmacal, Inc. and Albert J. Salame.
10.11* Agreement of Lease for Florham Park Corporate Office, dated April 16,
1993, between the Company and Sammis Morristown Associates, including
First Amendment and Second Amendment thereto.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.12* Cherry Hill Lease Agreement, dated November 12, 1996, between the
Company and Cherry Hill Industrial Sites, Inc.
10.13 Schein Holdings, Inc. 1993 Stock Option Plan (formerly the Schein
Pharmaceutical, Inc. 1993 Stock Option Plan) dated as of November 5,
1993.
10.14 Schein Pharmaceutical, Inc. 1997 Stock Option Plan.
10.15 Schein Pharmaceutical, Inc. 1995 Non-Employee Director Stock Option
Plan (amended and restated as of August 8, 1996).
10.16 Employment Agreement, dated November 29, 1993 between the Company and
Paul Feuerman.
10.17 Deferred Compensation Agreement, dated August 8, 1996, between the
Company and Paul Feuerman.
10.18 Employment Agreement, dated May 1, 1995, between the Company and
Dariush Ashrafi.
10.19 Employment offer letter, dated April 17, 1995, from the Company to
Dariush Ashrafi.
10.20 Employment Agreement, dated September 30, 1994, between the Company
and Martin Sperber.
10.21 Option Agreement Pursuant to 1993 Stock Option Plan dated September
30, 1994 between Schein Holdings, Inc. and Martin Sperber.
10.22 Employment Agreement, dated as of July 28, 1995, between the Company
and Marvin Samson.
10.23 Compensation Continuation Agreement, dated October 19, 1991 between
the Company and Marvin Samson.
10.24 Split Dollar Insurance Agreement, dated March 25, 1991 between the
Company, Michael Samson and Andrew Samson, Trustees under Indenture
of Trust of Marvin Samson.
10.25 Retirement Plan of Schein Pharmaceutical, Inc. and Affiliates;
including Amendment No. 4.
10.26 Amendment No. 1 to the Retirement Plan of Schein Pharmaceutical, Inc.
and Affiliates.
10.27 1993 Book Equity Appreciation Rights Program.
10.28 Form of Book Equity Appreciation Rights Award.
10.29* Form of Split Dollar Life Insurance Agreement.
10.30 General Shareholders Agreement, dated September 30, 1994, by and
among the Corporation, Bayer Corporation (formerly Miles Inc.), each
of the family shareholders listed as such on schedule A thereto, each
of the other shareholders listed as such on schedule A thereto and
Martin Sperber, as trustee under the Voting Trust Agreement.
10.31 Continuing Shareholders Agreement, dated September 30, 1994, by and
among the Company and each of the shareholders listed on schedule A
thereto.
10.32 Heads of Agreement, dated September 30, 1994, by and among the
Company, Bayer Corporation (formerly Miles Inc.) and Bayer A.G..
21.1 List of Subsidiaries.
23.1 Consent of BDO Seidman, LLP.
23.2* Consent of Proskauer Rose LLP (contained in opinion filed as Exhibit
5.1).
24.1 Power of Attorney (set forth on signature page of this registration
statement).
27.1* Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment
(b) Financial Statement Schedules
The following financial statement schedule of the Company included herein
should be read in conjunction with the Consolidated Financial Statements and
the Notes thereto included elsewhere in this Registration Statement.
Report of Independent Public Accountants on Supplemental Schedule to the
Consolidated Financial Statements.
Schedule II--Valuation Allowances
All other schedules for the Company are omitted because either they are not
applicable or the required information is shown in the financial statements or
notes thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement (filed herewith as Exhibit
1.1) certificates in such denominations and registered in such names as
required by the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the 3rd day of December, 1997.
Schein Pharmaceutical, Inc.
/s/ Martin Sperber
By: _________________________________
MARTIN SPERBER
CHAIRMAN OF THE BOARD, CHIEF
EXECUTIVE OFFICER AND
PRESIDENT
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below hereby constitutes and appoints Martin Sperber,
Dariush Ashrafi and Paul Feuerman, or any of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf individually and in any and all capacities (until revoked in writing),
any and all amendments (including post-effective amendments) to this
Registration Statement on Form S-1, and any registration statement to relating
to the same offering as this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b) and the Securities Act of 1933, to file
the same with all exhibits thereto and all other documents in connection
therewith with the Securities and Exchange Commission, granting to such
attorneys-in-fact and agents, and each of them, full power and authority to do
all such other acts and things requisite or necessary to be done, and to
execute all such other documents as they, or either of them, may deem
necessary or desirable in connection with the foregoing, as fully as the
undersigned might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Martin Sperber Chairman of the December 3,
- ------------------------------------- Board, Chief 1997
MARTIN SPERBER Executive Officer,
President and
Director (principal
executive officer)
/s/ Dariush Ashrafi Chief Financial December 3,
- ------------------------------------- Officer, Executive 1997
DARIUSH ASHRAFI Vice President and
Director (principal
financial and
accounting officer)
Executive Vice December ,
- ------------------------------------- President and 1997
MARVIN SAMSON Director
/s/ Paul Feuerman Senior Vice December 3,
- ------------------------------------- President, General 1997
PAUL FEUERMAN Counsel and Director
Director December ,
- ------------------------------------- 1997
DAVID R. EBSWORTH
/s/ Richard L. Goldberg Director December 3,
- ------------------------------------- 1997
RICHARD L. GOLDBERG
II-5
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
Schein Pharmaceutical, Inc.
The audits referred to in our report to Schein Pharmaceutical, Inc. and
Subsidiaries, dated February 7, 1997, except for Note 1 which is as of ,
1997, which is contained in the Prospectus constituting part of this
Registration Statement included the audit of the schedule listed under Item
16(b) for each of the three years in the period ended December 28, 1996. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based upon our audits.
In our opinion, such schedule presents fairly, in all material respects, the
information set forth therein.
BDO Seidman, LLP
New York, New York
February 7, 1997
II-6
<PAGE>
SCHEIN PHARMACEUTICAL, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END
OF PERIOD ADDITIONS DEDUCTIONS(1) OTHER OF PERIOD
---------- --------- ------------- ----- ----------
<S> <C> <C> <C> <C> <C>
Allowance For Doubtful
Accounts:
Year Ended December
31, 1994............. $3,102 $1,500 $ (761) $ 6 $3,847
====== ====== ======= ==== ======
Year Ended December
30, 1995............. $3,847 $ -- $ (506) $494(2) $3,835
====== ====== ======= ==== ======
Year Ended December
28, 1996............. $3,835 $ 366 $(1,801) $ 34 $2,434
====== ====== ======= ==== ======
</TABLE>
- --------
(1) Accounts written off--net of recoveries
(2) Relates to the acquisition of Marsam
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE
------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Company.
3.2 Amended and Restated By-Laws of the Company.
3.3 Form of Restated Certificate of Incorporation of the Company to
be adopted.
3.4 Form of Amended and Restated By-Laws of the Company to be
adopted.
4.1* Credit Agreement dated as of September 5, 1997 among the
Company, the Lenders (as defined therein), and Chemical Bank as
Issuing Bank, Administrative Agent and as Collateral Agent for
the Lenders.
4.2* First, Second and Third Amendments to the Credit Agreement.
4.3* Senior Subordinated Loan Agreement dated as of December 20,
1996 among the Company, the Lenders (as defined therein) and
Societe Generale as Administrative Agent.
5.1* Opinion of Proskauer Rose LLP.
9.1 Voting Trust Agreement, dated September 30, 1994, by and among
the Company, Marvin H. Schein, the trust established by Marvin
H. Schein under trust agreement dated December 31, 1993, the
trust established by Marvin H. Schein under trust agreement
dated September 9, 1994, Pamela Schein, the trust established
by the Trustees under Article Fourth of the Will of Jacob M.
Schein for the benefit of Pamela Schein and her issue under
trust agreement dated September 29, 1994, Pamela Joseph, and
the trust established by Pamela Joseph under trust agreement
dated September 28, 1994, and Martin Sperber, as voting
trustee.
10.1* Supply Agreement, dated May 1, 1992, between Abbott
Laboratories, and Steris Laboratories, Inc., including Letter
Amendment, dated December 2, 1993, and Letter Amendment, dated
June 9, 1995.
10.2* Agreement, dated June 10, 1994, between Steris Laboratories,
Inc., Akzo Pharma International B.V., and Organon Inc.
10.3* Consolidated Agreement, dated January 1, 1990, between the
Company, its affiliates, and Alfred B. Engelberg.
10.4* Sublicense, Co-marketing and Supply Agreement, dated September
30, 1996, between the Company and Makoff R&D Laboratories,
Inc., including Operating Agreement, dated September 30, 1996.
10.5* Agreement, dated August 16, 1994, between the Company and Elan
Pharma Ltd. (currently Elan Corporation plc).
10.6* Custom Manufacturing Agreement, dated July 1, 1995, between the
Company and Johnson Matthey, Inc.
10.7 Letter of Intent, dated October 7, 1997, by and among the
Company, Cheminor Drugs Limited and Dr. Reddy's Laboratories
Limited.
10.8* Lease Agreement, dated March 30, 1992, between the Company and
Harold Lepler.
10.9* Lease Agreement, dated February 16, 1992, between the Company
and Ronald G. Roth.
10.10* Memorandum of Lease for Danbury, dated December 1, 1995 between
Danbury Pharmacal, Inc. and Albert J. Salame.
10.11* Agreement of Lease for Florham Park Corporate Office, dated
April 16, 1993, between the Company and Sammis Morristown
Associates, including First Amendment and Second Amendment
thereto.
10.12* Cherry Hill Lease Agreement, dated November 12, 1996, between
the Company and Cherry Hill Industrial Sites, Inc.
10.13 Schein Holdings, Inc. 1993 Stock Option Plan (formerly the
Schein Pharmaceutical, Inc. 1993 Stock Option Plan) dated as of
November 5, 1993.
10.14 Schein Pharmaceutical, Inc. 1997 Stock Option Plan.
10.15 Schein Pharmaceutical, Inc. 1995 Non-Employee Director Stock
Option Plan (amended and restated as of August 8, 1996).
10.16 Employment Agreement, dated November 29, 1993 between the
Company and Paul Feuerman.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE
------- ----
<C> <S> <C>
10.17 Deferred Compensation Agreement, dated August 8, 1996, between
the Company and Paul Feuerman.
10.18 Employment Agreement, dated May 1, 1995, between the Company
and Dariush Ashrafi.
10.19 Employment offer letter, dated April 17, 1995, from the Company
to Dariush Ashrafi.
10.20 Employment Agreement, dated September 30, 1994, between the
Company and Martin Sperber.
10.21 Option Agreement Pursuant to 1993 Stock Option Plan dated
September 30, 1994 between Schein Holdings, Inc. and Martin
Sperber.
10.22 Employment Agreement, dated as of July 28, 1995, between the
Company and Marvin Samson.
10.23 Compensation Continuation Agreement, dated October 19, 1991
between the Company and Marvin Samson.
10.24 Split Dollar Insurance Agreement, dated March 25, 1991 between
the Company, Michael Samson and Andrew Samson, Trustees under
Indenture of Trust of Marvin Samson.
10.25 Retirement Plan of Schein Pharmaceutical, Inc. and Affiliates;
including Amendment No. 4.
10.26 Amendment No. 1 to the Retirement Plan of Schein
Pharmaceutical, Inc. and Affiliates.
10.27 1993 Book Equity Appreciation Rights Program.
10.28 Form of Book Equity Appreciation Rights Award.
10.29* Form of Split Dollar Life Insurance Agreement.
10.30 General Shareholders Agreement, dated September 30, 1994, by
and among the Corporation, Bayer Corporation (formerly Miles
Inc.), each of the family shareholders listed as such on
schedule A thereto, each of the other shareholders listed as
such on schedule A thereto and Martin Sperber, as trustee under
the Voting Trust Agreement.
10.31 Continuing Shareholders Agreement, dated September 30, 1994, by
and among the Company and each of the shareholders listed on
schedule A thereto.
10.32 Heads of Agreement, dated September 30, 1994, by and among the
Company, Bayer Corporation (formerly Miles Inc.) and Bayer
A.G..
21.1 List of Subsidiaries.
23.1 Consent of BDO Seidman, LLP.
23.2* Consent of Proskauer Rose LLP (contained in opinion filed as
Exhibit 5.1).
24.1 Power of Attorney (set forth on signature page of this
registration statement).
27.1* Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment
2
<PAGE>
EXHIBIT 1.1
DRAFT
__________ Shares
SCHEIN PHARMACEUTICAL, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
January __, 1998
COWEN & COMPANY
BEAR, STEARNS & CO., INC.
SMITH BARNEY INC.
As Representatives of the several Underwriters
c/o Cowen & Company
Financial Square
New York, New York 10005
Dear Sirs:
1. Introductory. Schein Pharmaceutical, Inc., a Delaware corporation (the
------------
"Company"), and the selling stockholders named in Schedule B hereto (the
"Selling Stockholders") propose to sell, pursuant to the terms of this
Agreement, to the several underwriters named in Schedule A hereto (the
"Underwriters," or, each, an "Underwriter"), an aggregate of ________
shares of common stock, par value $.01 per share (the "Common Stock") of
the Company. The aggregate of ________ shares so proposed to be sold is
hereinafter referred to as the "Firm Stock". The Company and the Selling
Stockholders listed in Schedule B hereto also propose to sell to the
Underwriters, upon the terms and conditions set forth in Section 3 hereof,
up to an additional ________ shares of Common Stock (the "Optional Stock").
The Firm Stock and the Optional Stock are hereinafter collectively referred
to as the "Stock". Cowen & Company ("Cowen"), Bear, Stearns & Co. Inc. and
Smith Barney Inc. are acting as representatives of the several Underwriters
and in such capacity are hereinafter referred to as the "Representatives".
<PAGE>
2. Representations and Warranties of the Company and the Selling Stockholders.
--------------------------------------------------------------------------
(a) The Company represents and warrants to, and agrees with, the several
Underwriters that:
(i) A registration statement on Form S-1 (File No. 33-.) in the form
in which it became or becomes effective and also in such form as it
may be when any post-effective amendment thereto shall become
effective with respect to the Stock, including any pre-effective
prospectuses included as part of the registration statement as
originally filed or as part of any amendment or supplement thereto, or
filed pursuant to Rule 424 under the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations (the
"Rules and Regulations") of the Securities and Exchange Commission
(the "Commission") thereunder, copies of which have heretofore been
delivered to you, has been carefully prepared by the Company in
conformity with the requirements of the Securities Act and has been
filed with the Commission under the Securities Act. If it is
contemplated, at the time this Agreement is executed, that a post-
effective amendment to the registration statement will be filed and
must be declared effective before the offering of the Stock may
commence, the term "Registration Statement" as used in this Agreement
means the registration statement as amended by said post-effective
amendment. The term "Registration Statement" as used in this
Agreement shall also include any registration statement relating to
the Stock that is filed and declared effective pursuant to Rule 462(b)
under the Securities Act. The term "Prospectus" as used in this
Agreement means the prospectus in the form included in the
Registration Statement, or, (A) if the prospectus included in the
Registration Statement omits information in reliance on Rule 430A
under the Securities Act and such information is included in a
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act, the term "Prospectus" as used in this Agreement means
the prospectus in the form included in the Registration Statement as
supplemented by the addition of the Rule 430A information contained in
the prospectus filed with the Commission pursuant to Rule 424(b) and
(B) if prospectuses that meet the requirements of Section 10(a) of the
Securities Act are delivered pursuant to Rule 434 under the Securities
Act, then (i) the term "Prospectus" as used in this Agreement means
the "prospectmpletion" (as such term is defined in Rule 434(g) under
the Securities Act) as supplemented by (a) the addition of Rule 430A
information or other information contained in the form of prospectus
delivered pursuant to Rule 434(b)(2) under the Securities Act or (b)
the information contained in the term sheets described in Rule
434(b)(3) under the Securities Act, and (ii) the date of such
prospectuses shall be deemed to be the date of the term sheets. The
term "Pre-effective Prospectus" as used in this Agreement means the
prospectus subject to completion in the form included in the
Registration Statement at the time of the initial filing of the
Registration Statement with the Commission, and as such prospectus
shall have been amended from time to time prior to the date of the
Prospectus.
(ii) The Commission has not issued or threatened to issue any order
preventing or suspending the use of any Pre-effective Prospectus, and,
at its date of issue, each Pre-effective Prospectus conformed in all
material respects with the requirements of the Securities Act and did
not include any untrue statement of a material fact or omit
2
<PAGE>
to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading; and, when the Registration Statement
becomes effective and at all times subsequent thereto up to and
including each of the Closing Dates (as hereinafter defined), the
Registration Statement and the Prospectus and any amendments or
supplements thereto contained and will contain all material statements
and information required to be included therein by the Securities Act
and conformed and will conform in all material respects to the
requirements of the Securities Act and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto,
included or will include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that the foregoing representations, warranties and agreements
shall not apply to information contained in or omitted from any Pre-
effective Prospectus or the Registration Statement or the Prospectus
or any such amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by or on
behalf of any Underwriter, directly or through you, or by any Selling
Stockholder, specifically for use in the preparation thereof; there is
no franchise, lease, contract, agreement or document or legal or
governmental proceeding required to be described in the Registration
Statement or Prospectus or to be filed as an exhibit to the
Registration Statement which is not described or filed therein as
required; and all descriptions of any such franchises, leases,
contracts, agreements or documents, of the Company's Certificate of
Incorporation and By-laws, and of laws, rules, regulations, orders,
judgments and decrees contained in the Registration Statement are
accurate and complete descriptions of such documents in all material
respects and fairly present the information required to be shown.
(iii) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as set
forth or contemplated in the Prospectus, neither the Company nor any
of its subsidiaries has incurred any liabilities or obligations,
direct or contingent, nor entered into any transactions not in the
ordinary course of business, and there has not been any material
adverse change, or any development involving a prospective material
adverse change, in or affecting the condition (financial or
otherwise), properties, business, management, prospects, net worth or
results of operations of the Company and its subsidiaries considered
as a whole, or any change in the capital stock, short-term or long-
term debt of the Company and its subsidiaries considered as a whole.
(iv) The consolidated financial statements, together with the related
notes and schedules, set forth in the Prospectus and elsewhere in the
Registration Statement fairly present, on the basis stated in the
Registration Statement, the consolidated financial condition, results
of operations and changes in financial condition of the
3
<PAGE>
Company and its consolidated subsidiaries at the respective dates or
for the respective periods therein specified. The financial
statements, together with the related notes and schedules, of Marsam
Pharmaceuticals Inc. (a subsidiary of the Company) ("Marsam") set
forth in the Prospectus and elsewhere in the Registration Statement
fairly present, on the basis stated in the Registration Statement, the
financial condition, results of operations and changes in financial
condition of Marsam and its consolidated subsidiary at the respective
dates or for the respective periods therein specified. Such statements
of the Company and Marsam and related notes and schedules have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis except as may be set forth in the
Prospectus. The selected financial and statistical data set forth in
the Prospectus under the captions "Prospectus Summary - Summary
Consolidated Financial Data," "Capitalization," "Dilution," "Selected
Consolidated Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Management - Executive Compensation," "Certain Transactions,"
"Principal and Selling Stockholders" and "Shares Eligible for Future
Sale" fairly present, on the basis stated in the Registration
Statement, the information set forth therein. The unaudited
consolidated interim financial statements included in the Registration
Statement and the Prospectus present fairly the consolidated financial
condition, results of operations and changes in financial condition of
the Company as of the dates or for the periods indicated and have been
prepared on a basis consistent with the respective audited
consolidated financial statements included in the Registration
Statement and the Prospectus.
(v) BDO Seidman LLP, who have expressed their opinions on the audited
financial statements of the Company included in the Registration
Statement and the Prospectus, are independent public accountants as
required by the Securities Act and the Rules and Regulations.
(vi) The Company and each of its subsidiaries have been duly organized
and are validly existing and in good standing as corporations under
the laws of their respective jurisdictions of organization, with power
and authority (corporate and other) to own or lease their properties
and to conduct their businesses as described in the Prospectus; each
of the Company and its subsidiaries is in possession of and operating
in compliance with all franchises, grants, authorizations, licenses,
permits, easements, consents, certificates and orders required for the
conduct of its business, all of which are valid and in full force and
effect; and the Company is and each of such subsidiaries are duly
qualified to do business and in good standing as foreign corporations
in all other jurisdictions where their ownership or leasing of
properties or the conduct of their businesses requires such
qualification. The Company and each of its subsidiaries have all
requisite power and authority, and all necessary consents, approvals,
authorizations, orders, registrations, qualifications, licenses and
permits of and from all public regulatory or governmental agencies and
bodies to
4
<PAGE>
own, lease and operate their properties and conduct their business as
now being conducted and as described in the Registration Statement and
the Prospectus, and no such consent, approval, authorization, order,
registration, qualification, license or permit contains a materially
burdensome restriction not adequately disclosed in the Registration
Statement and the Prospectus. The Company owns or controls, directly
or indirectly, the following corporations, associations or other
entities, each of which is wholly-owned by the Company: Danbury
Pharmacal Inc., Steris Laboratories, Inc., Schein Pharmaceutical P.A.,
Inc., Schein Pharmaceutical Service Co., Schein Pharmaceutical
International, Inc., Ranbaxy Schein Pharma L.L.C., Schein Bayer
Pharmaceutical Services, Inc., Marsam Pharmaceuticals Inc. and Schein
Bayer Pharmaceuticals Australia, Ltd.
(vii) The Company's authorized and outstanding capital stock is on the
date hereof, and will be on the Closing Date, as set forth under the
heading "Capitalization" in the Prospectus; the outstanding shares of
Common Stock of the Company conform to the description thereof in the
Prospectus and have been duly authorized and validly issued and are
fully paid and nonassessable and have been issued in compliance with
all federal and state securities laws and were not issued in violation
of or, except as disclosed in the Prospectus, subject to any
preemptive rights or similar rights to subscribe for or purchase
securities and conform to the description thereof contained in the
Prospectus. Except as disclosed in and or contemplated by the
Prospectus and the financial statements of the Company and related
notes thereto included in the Prospectus, the Company does not have
outstanding any options or warrants to purchase, or any preemptive
rights or other rights to subscribe for or to purchase any securities
or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations, except for options
granted subsequent to the date of information provided in the
Prospectus pursuant to the Company's employee and stock option plans
as disclosed in the Prospectus. The description of the Company's
stock option and other stock plans or arrangements, and the options or
other rights granted or exercised thereunder, as set forth in the
Prospectus, accurately and fairly presents the information required to
be shown with respect to such plans, arrangements, options and rights.
All outstanding shares of capital stock of each subsidiary have been
duly authorized and validly issued, and are fully paid and
nonassessable and (except for directors' qualifying shares) are owned
directly by the Company or by another wholly owned subsidiary of the
Company free and clear of any liens, encumbrances, equities or claims
aor other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into shares of capital
stock or ownership interests in any of the Company's subsidiaries are
outstanding.
5
<PAGE>
(viii) The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued, fully paid and nonassessable and free of
any preemptive or similar rights and will not be subject to any
restrictions upon voting or transfer other than as described in the
Prospectus. The Stock conforms to the description thereof contained
in the Prospectus, and such description conforms to the rights set
forth in the instruments defining the same.
(ix) Except as set forth in the Prospectus, there are no legal or
governmental actions, suits, proceedings or claims pending to which
the Company or any of its subsidiaries or affiliates is a party or of
which any property of the Company or any subsidiary or affiliate is
subject, which, if determined adversely to the Company or any such
subsidiary or affiliate, might individually or in the aggregate (i)
prevent or adversely affect the transactions contemplated by this
Agreement, (ii) suspend the effectiveness of the Registration
Statement, (iii) prevent or suspend the use of the Pre-effective
Prospectus in any jurisdiction or (iv) result in a material adverse
change in the condition (financial or otherwise), properties,
business, management, prospects, net worth or results of operations of
the Company and its subsidiaries considered as a whole and there is no
valid basis for any such legal or governmental proceeding; and to the
Company's knowledge no such proceedings are threatened or contemplated
against the Company or any subsidiary or affiliate by governmental
authorities or others. The Company is not a party nor subject to the
provisions of any material injunction, judgment, decree or order of
any court, regulatory body or other governmental agency or body. The
description of the Company's litigation under the heading "Legal
Proceedings" and regulatory proceedings under the heading "Risk
Factors--Pending Regulatory Matters" in the Prospectus is true and
correct and complies with the Rules and Regulations.
(x) The statements set forth in the Prospectus under the caption
"Description of Capital Stock," insofar as they purport to constitute
a summary of the terms of the capital stock, or under the captions
"Management," "Certain Transactions," "Principal and Selling
Stockholders" and "Shares Eligible for Future Sale," insofar as they
purport to describe the provisions of the documents referred to
therein, are accurate and complete in all material respects.
(xi) The execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated will not conflict
with or result in a breach or violation of any of the terms or
provisions of or constitute a default under any indenture, mortgage,
note, deed of trust, loan agreement, lease or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which it or any of its properties is or may be bound, the
Certificate of Incorporation, By-laws or other organizational
documents of the Company or any of
6
<PAGE>
its subsidiaries, or any law, order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or
any of its subsidiaries or any of their properties and do not and will
not result in the creation of any lien or the like against such
properties.
(xii) Neither the Company nor any of its subsidiaries is, or with
notice or lapse of time or both will be, in violation of or in default
under its Certificate of Incorporation or By-laws or other
organizational documents or in default in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, note, deed of trust,
loan agreement, lease or other agreement or instrument to which it is
a party or by which it or any of its properties may be bound.
(xiii) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery
and performance of this Agreement by the Company and the consummation
of the transactions contemplated hereby, except such as may be
required by the National Association of Securities Dealers, Inc. (the
"NASD") or under the Securities Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act") or the securities or "Blue Sky"
laws of any jurisdiction in connection with the purchase and
distribution of the Stock by the Underwriters.
(xiv) The Company has the full corporate power and authority to enter
into this Agreement and to perform its obligations hereunder
(including to issue, sell and deliver the Stock), and this Agreement
has been duly and validly authorized, executed and delivered by the
Company and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except
to the extent that rights to indemnity and contribution hereunder may
be limited by federal or state securities laws or the public policy
underlying such laws.
(xv) The Company and its subsidiaries are in all material respects in
compliance with, and conduct their businesses in conformity with all
applicable federal, state, local and foreign laws, rules and
regulations or any court or governmental agency or body; to the
knowledge of the Company, otherwise than as set forth in the
Registration Statement and the Prospectus, no prospective change in
any of such federal or state laws, rules or regulations has been
adopted which, when made effective, would have a material adverse
effect on the operations of the Company and its subsidiaries. In the
ordinary course of business, employees of the Company conduct periodic
reviews of the effect of Environmental Laws (as defined below) on the
business operations and properties of the Company and its
subsidiaries, in the ordinary course of which they seek to identify
and evaluate associated costs and liabilities. Except as disclosed in
the Registration Statement, the Company and its subsidiaries are in
compliance with all applicable existing federal, state, local and
7
<PAGE>
foreign laws and regulations relating to the protection of human
health or the environment or imposing liability or requiring standards
of conduct concerning any Hazardous Materials ("Environmental Laws"),
except for such instances of noncompliance which, either singly or in
the aggregate, would not have a material adverse effect. The term
"Hazardous Material" means (i) any "hazardous substance" as defined by
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, (ii) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act, as amended, (iii) any
petroleum or petroleum product, (iv) any polychlorinated biphenyl and
(v) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material, waste or substance regulated under or within the
meaning of any other Environment Law.
(xvi) The Company and its subsidiaries have filed all necessary
federal, state, local and foreign income, payroll, franchise and other
tax returns and have paid all taxes shown as due thereon or with
respect to any of their properties, and there is no tax deficiency
that has been, or to the knowledge of the Company is likely to be,
asserted against the Company or any of its subsidiaries or any of
their respective properties or assets that would adversely affect the
financial position, business or operations of the Company and its
subsidiaries.
(xvii) Except as disclosed in the Registration Statement and
Prospectus no person or entity has the right to require registration
of shares of Common Stock or other securities of the Company because
of the filing or effectiveness of the Registration Statement or
otherwise, except for persons and entities who have expressly waived
such right or who have been given proper notice and have failed to
exercise such right within the time or times required under the terms
and conditions of such right.
(xviii) Neither the Company nor any of its officers, directors or
affiliates has taken or will take, directly or indirectly, any action
designed or intended to stabilize or manipulate the price of any
security of the Company, or which caused or resulted in, or which
might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of the
Company.
(xix) The Company has provided you with all financial statements since
[September 30, 1997] to the date hereof[, including financial
statements for the months of October, November and December of 1997,
that are available to the officers of the Company].
(xx) The Company and its subsidiaries own or possess the right to use
all patents, trademarks (including "INFeD", "Ferrlecit" and "Unipine
XL"), trademark registrations, service marks, service mark
registrations, trade names, copyrights, licenses, inventions, trade
secrets, know-how and rights described in the Prospectus as being
owned by them or any of them or necessary for the conduct of their
8
<PAGE>
respective businesses, and, except as disclosed in the Prospectus, the
Company is not aware of any claim to the contrary or any challenge by
any other person to the rights of the Company and its subsidiaries
with respect to the foregoing. The Company's business as now
conducted and as proposed to be conducted does not and will not
infringe or conflict with in any material respect patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses or
other intellectual property or franchise right of any person. Except
as described in the Prospectus, no claim has been made against the
Company alleging the infringement by the Company of any patent,
trademark, service mark, trade name, copyright, trade secret, license
or other intellectual property right or franchise right of any person.
(xxi) The Company and its subsidiaries have performed all material
obligations required to be performed by them under all contracts
required by Item 601(b)(10) of Regulation S-K under the Securities Act
to be filed as exhibits to the Registration Statement, and neither the
Company nor any of its subsidiaries nor any other party to such
contract is in default under or in breach of any such obligations.
Neither the Company nor any of its subsidiaries has received any
notice of such default or breach.
(xxii) Neither the Company nor any of its subsidiaries is involved in
any labor dispute nor is any such dispute threatened. The Company is
not aware that (A) any executive, key employee or significant group of
employees of the Company or any subsidiary plans to terminate
employment with the Company or any such subsidiary or (B) any such
executive or key employee is subject to any noncompete, nondisclosure,
confidentiality, employment, consulting or similar agreement that
would be violated by the present or proposed business activities of
the Company and its subsidiaries. Neither the Company nor any
subsidiary has or expects to have any liability for any prohibited
transaction or funding deficiency or any complete or partial
withdrawal liability with respect to any pension, profit sharing or
other plan which is subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), to which the Company or any
subsidiary makes or ever has made a contribution and in which any
employee of the Company or any subsidiary is or has ever been a
participant. With respect to such plans, the Company and each
subsidiary are in compliance in all material respects with all
applicable provisions of ERISA.
(xxiii) The Company has obtained the written agreement described in
Section 8(l) of this Agreement from each of its officers, directors
and holders of Common Stock listed on Schedule C hereto.
(xxiv) The Company and its subsidiaries have, and the Company and its
subsidiaries as of the Closing Date will have, good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned or proposed
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to be owned by them which is material to the business of the Company
or of its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described the Prospectus
or such as would not have a material adverse effect on the Company and
its subsidiaries considered as a whole; and any real property and
buildings held under lease by the Company and its subsidiaries or
proposed to be held after giving effect to the transactions described
in the Prospectus are, or will be as of each of the Closing Dates,
held by them under valid, subsisting and enforceable leases with such
exceptions as would not have a material adverse effect on the Company
and its subsidiaries considered as a whole, in each case except as
described in or contemplated by the Prospectus.
(xxv) The Company and its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and
in such amounts as are customary in the businesses in which they are
engaged or propose to engage after giving effect to the transactions
described in the Prospectus; and neither the Company nor any
subsidiary of the Company have any reason to believe that it will not
be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue their business at a cost that would
not materially and adversely affect the condition, financial or
otherwise, or the earnings, business or operations of the Company and
its subsidiaries considered as a whole, except as described in or
contemplated by the Prospectus.
(xxvi) Other than as contemplated by this Agreement, there is no
broker, finder or other party that is entitled to receive from the
Company any brokerage or finder's fee or other fee or commission as a
result of any of the transactions contemplated by this Agreement.
(xxvii) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xxviii) To the Company's knowledge, neither the Company nor any of
its subsidiaries nor any employee or agent of the Company or any of
its subsidiaries has made any payment of funds of the Company or any
of its subsidiaries or received or retained any funds in violation of
any law, rule or regulation, which payment, receipt or retention of
funds is of a character required to be disclosed in the Prospectus.
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(xxix) Neither the Company nor any of its subsidiaries is or, after
application of the net proceeds of this offering as described under
the caption "Use of Proceeds" in the Prospectus, will become an
"investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of
1940, as amended. The Company intends to conduct its affairs in a
manner such that it will not become an entity required to register as
an "investment company" subject to regulation under the Investment
Company Act.
(xxx) The Common Stock has been approved for quotation and trading on
the New York Stock Exchange, subject to official notice of issuance.
(xxxi) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company as to the
matters covered thereby.
(b) Each Selling Stockholder represents and warrants to, and agrees with,
the several Underwriters that such Selling Stockholder:
(i) Now has, and on the Closing Date will have, valid and marketable
title to the Stock to be sold by such Selling Stockholder, free and
clear of any lien, claim, security interest or other encumbrance,
including, without limitation, any restriction on transfer, and has
full right, power and authority to enter into this Agreement, the
Power of Attorney and the Custody Agreement (each as hereinafter
defined), and, to the extent such Selling Stockholder is a
corporation, has been duly organized and is validly existing and in
good standing as a corporation under the laws of its jurisdiction of
organization.
(ii) Now has, and on each of the Closing Dates will have, upon
delivery of and payment for each share of Stock hereunder, full right,
power and authority, any approval required by law to sell, transfer,
assign and deliver the Stock being sold by such Selling Stockholder
hereunder, and each of the several Underwriters will acquire valid and
marketable title to all of the Stock being sold to the Underwriters by
such Selling Stockholder, free and clear of any liens, encumbrances,
equities claims, restrictions on transfer or other defects whatsoever.
(iii) For a period of 180 days after the date of this Agreement,
without the consent of Cowen, such Selling Stockholder will not offer
to sell, sell, contract to sell or otherwise dispose of any Stock or
securities convertible into or exchangeable for Stock, including,
without limitation Stock which may be deemed to be beneficially owned
by such Selling Stockholder in accordance with the Rules and
Regulations, except for the Stock being sold hereunder.
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(iv) Has duly executed and delivered a power of attorney, in
substantially the form heretofore delivered by the Representatives
(the "Power of Attorney"), appointing _________, as attorney-in-fact
(the "Attorney-in-fact") with authority to execute and deliver this
Agreement on behalf of such Selling Stockholder, to authorize the
delivery of the shares of Stock to be sold by such Selling Stockholder
hereunder and otherwise to act on behalf of such Selling Stockholder
in connection with the transactions contemplated by this Agreement.
(v) Has duly executed and delivered a custody agreement, in
substantially the form heretofore delivered by the Representatives
(the "Custody Agreement"), with ________ as custodian (the
"Custodian"), pursuant to which certificates in negotiable form for
the shares of Stock to be sold by such Selling Stockholder hereunder
have been placed in custody for delivery under this Agreement.
(vi) Has, by execution and delivery of each of this Agreement, the
Power of Attorney and the Custody Agreement, created valid and binding
obligations of such Selling Stockholder, enforceable against such
Selling Stockholder in accordance with its terms, except to the extent
that rights to indemnity hereunder may be limited by federal or state
securities laws or the public policy underlying such laws.
(vii) The performance of this Agreement, the Custody Agreement and the
Power of Attorney, and the consummation of the transactions
contemplated hereby and thereby will not result in a breach or
violation by such Selling Stockholder of any of the terms or
provisions of, or constitute a default by such Selling Stockholder
under, any indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other agreement
or instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder or any of its properties is bound, or any
judgment of any court or governmental agency or body applicable to
such Selling Stockholder or any of its properties, or to such Selling
Stockholder's knowledge, any statute, decree, order, rule or
regulation of any court or governmental agency or body applicable to
such Selling Stockholder or any of its properties.
Each Selling Stockholder agrees that the shares of Stock represented by the
certificates held in custody under the Custody Agreement are for the
benefit of and coupled with and subject to the interests of the
Underwriters, the other Selling Stockholders and the Company hereunder, and
that the arrangement for such custody and the appointment of the Attorneys-
in-fact are irrevocable; that the obligations of such Selling Stockholder
hereunder shall not be terminated by operation of law, whether by the death
or incapacity, liquidation or distribution of such Selling Stockholder, or
any other event, that if such Selling Stockholder should die or become
incapacitated or is liquidated or dissolved or any other event occurs,
before the delivery of the Stock hereunder, certificates for the Stock to
be sold by such Selling Stockholder shall be delivered on behalf of such
Selling Stockholder in accordance with the terms and conditions of this
Agreement and the Custody Agreement, and
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<PAGE>
action taken by the Attorneys-in-fact or any of them under the Power of
Attorney shall be as valid as if such death, incapacity, liquidation or
dissolution or other event had not occurred, whether or not the Custodian,
the Attorneys-in-fact or any of them shall have notice of such death,
incapacity, liquidation or dissolution or other event.
3. Purchase by, and Sale and Delivery to, Underwriters--Closing Dates. The
------------------------------------------------------------------
Company and the Selling Stockholders agree, severally and not jointly, to
sell to the Underwriters the Firm Stock, with the number of shares to be
sold by the Company and each Selling Stockholder being the number of Stock
set opposite his, her or its name in Schedule B; and on the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Underwriters
agree, severally and not jointly, to purchase the Firm Stock from the
Company and the Selling Stockholders, the number of shares of Firm Stock to
be purchased by each Underwriter being set opposite its name in Schedule A,
subject to adjustment in accordance with Section 12 hereof. The number of
shares of Stock to be purchased by each Underwriter from each Selling
Stockholder hereunder shall bear the same proportion to the total number of
shares of Stock to be purchased by such Underwriter hereunder as the number
of shares of stock being sold by each Selling Stockholder bears to the
total number of shares of Stock being sold by all Selling Stockholders,
subject to adjustment by the Representatives to eliminate fractions.
The purchase price per share to be paid by the Underwriters to the Company
and the Selling Stockholders will be the price per share set forth in the
table on the cover page of the Prospectus under the heading "Proceeds to
the Company" (the "Purchase Price").
The Company and the Selling Stockholders will deliver the Firm Stock to the
Representatives for the respective accounts of the several Underwriters (in
the form of definitive certificates, issued in such names and in such
denominations as the Representatives may direct by notice in writing to the
Company and the Selling Stockholders given at or prior to 12:00 Noon, New
York Time, on the second full business day preceding the First Closing Date
(as defined below) or, if no such direction is received, in the names of
the respective Underwriters or in such other names as Cowen may designate
(solely for the purpose of administrative convenience) and in such
denominations as Cowen may determine, against payment of the aggregate
Purchase Price therefor by certified or official bank check or checks in
immediately available funds (same day funds), payable to the order of the
Company in the case of the Firm Stock being sold by the Company and _______
as Custodian for each Selling Stockholder in the case of the Firm Stock
being sold by such Selling Stockholder, all at the offices of Brown & Wood
LLP, One World Trade Center, New York, New York 10048. The time and date
of the delivery and closing shall be at _____ A.M., New York Time, on
_______________, 1998, in accordance with Rule 15c6-1 of the Exchange Act.
The time and date of such payment and delivery are herein referred to as
the "First Closing Date". The First Closing Date and the location of
delivery of, and the form of payment for, the Firm Stock may be varied by
agreement between among the Company, the
13
<PAGE>
Selling Stockholders and Cowen. The First Closing Date may be postponed
pursuant to the provisions of Section 12.
The Company and the Selling Stockholders shall make the certificates for
the Stock available to the Representatives for examination on behalf of the
Underwriters not later than 10:00 A.M., New York Time, on the business day
preceding the First Closing Date at the offices of Cowen & Company,
Financial Square, New York, New York 10005.
It is understood that Cowen or Bear, Stearns & Co. Inc. or Smith Barney
Inc., individually and not as Representatives of the several Underwriters,
may (but shall not be obligated to) make payment to the Company or to the
Selling Stockholders on behalf of any Underwriter or Underwriters, for the
Stock to be purchased by such Underwriter or Underwriters. Any such payment
by Cowen or Bear, Stearns & Co. Inc. or Smith Barney Inc. shall not relieve
such Underwriter or Underwriters from any of its or their other obligations
hereunder.
The several Underwriters agree to make an initial public offering of the
Firm Stock at the initial public offering price as soon after the
effectiveness of the Registration Statement as in their judgment is
advisable. The Representatives shall promptly advise the Company and the
Selling Stockholders of the making of the initial public offering.
For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the Prospectus,
the Company and each of the Selling Stockholders hereby grants to the
Underwriters an option to purchase, severally and not jointly, up to the
aggregate number of shares of Optional Stock set forth opposite the
Company's and each such Selling Stockholder's respective names on Schedule
B hereto, for an aggregate of up to ______ shares. The price per share to
be paid for the Optional Stock shall be the Purchase Price. The option
granted hereby may be exercised as to all or any part of the Optional Stock
at any time, and from time to time, not more than thirty (30) days
subsequent to the effective date of this Agreement. No Optional Stock
shall be sold and delivered unless the Firm Stock previously has been, or
simultaneously is, sold and delivered. The right to purchase the Optional
Stock or any portion thereof may be surrendered and terminated at any time
upon notice by the Underwriters to the Company and the Selling
Stockholders.
The option granted hereby may be exercised by the Underwriters by giving
written notice from Cowen to the Company and the Selling Stockholders
setting forth the number of shares of the Optional Stock to be purchased by
them and the date and time for delivery of and payment for the Optional
Stock. Each date and time for delivery of and payment for the Optional
Stock (which may be the First Closing Date, but not earlier) is herein
called the "Option Closing Date" and shall in no event be earlier than two
(2) business days nor later than ten (10) business days after written
notice is given. (The Option Closing Date and the
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<PAGE>
First Closing Date are herein called the "Closing Dates".) [All purchases
of Optional Stock from the Company and the Selling Stockholders shall be
made on a pro rata basis.] Optional Stock shall be purchased for the
account of each Underwriter in the same proportion as the number of shares
of Firm Stock set forth opposite such Underwriter's name in Schedule B
hereto bears to the total number of shares of Firm Stock (subject to
adjustment by the Underwriters to eliminate odd lots). Upon exercise of the
option by the Underwriters, the Company and the Selling Stockholders agree
to sell to the Underwriters the number of shares of Optional Stock set
forth in the written notice of exercise and the Underwriters agree,
severally and not jointly and subject to the terms and conditions herein
set forth, to purchase the number of such shares determined as aforesaid.
The Company and the Selling Stockholders will deliver the Optional Stock to
the Underwriters (in the form of definitive certificates, issued in such
names and in such denominations as the Representatives may direct by notice
in writing to the Company and the Selling Stockholders given at or prior to
12:00 Noon, New York Time, on the second full business day preceding the
Option Closing Date or, if no such direction is received, in the names of
the respective Underwriters or in such other names as Cowen may designate
(solely for the purpose of administrative convenience) and in such
denominations as Cowen may determine, against payment of the aggregate
Purchase Price therefor by certified or official bank check or checks in
Clearing House funds (next day funds), payable to the order of the Company
or to . as Custodian for the Selling Stockholders all at the offices of
Brown & Wood llp, One World Trade Center, New York, New York 10048. The
Company and the Selling Stockholders shall make the certificates for the
Optional Stock available to the Underwriters for examination not later than
10:00 A.M., New York Time, on the business day preceding the Option Closing
Date at the offices of Cowen & Company, Financial Square, New York, New
York 10005. The Option Closing Date and the location of delivery of, and
the form of payment for, the Option Stock may be varied by agreement among
the Company, the Selling Stockholders and Cowen. The Option Closing Date
may be postponed pursuant to the provisions of Section 12.
4. Covenants and Agreements of the Company. The Company covenants and agrees
---------------------------------------
with the several Underwriters that:
(a) The Company will (i) if the Company and the Representatives have
determined not to proceed pursuant to Rule 430A of the of the Rules and
Regulations, use its best efforts to cause the Registration Statement to
become effective as soon as practicable after the execution of this
Agreement, (ii) if the Company and the Representatives have determined to
proceed pursuant to Rule 430A of the Rules and Regulations, use its best
efforts to comply with the provisions of and make all requisite filings
with the Commission pursuant to Rule 430A and Rule 424 of the Rules and
Regulations and (iii) if the Company and the Representatives have
determined to deliver Prospectuses pursuant to Rule 434 of the Rules and
Regulations, to use its best efforts to comply with all the applicable
provisions thereof. The Company will advise the Representatives promptly as
to the time at which the
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<PAGE>
Registration Statement becomes effective, will advise the Representatives
promptly of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of any
proceedings for that purpose, and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible the
lifting thereof, if issued. The Company will advise the Representatives
promptly of the receipt of any comments of the Commission or any request by
the Commission for any amendment of or supplement to the Registration
Statement or the Prospectus or for additional information and will not at
any time file any amendment to the Registration Statement or supplement to
the Prospectus which shall not previously have been submitted to the
Representatives a reasonable time prior to the proposed filing thereof or
to which the Representatives shall reasonably object in writing or which is
not in compliance with the Securities Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly upon
the request of the Representatives, any amendments or supplements to the
Registration Statement or the Prospectus which in the opinion of the
Representatives may be necessary to enable the several Underwriters to
continue the distribution of the Stock and will use its best efforts to
cause the same to become effective as promptly as possible.
(c) If at any time after the effective date of the Registration Statement
when a prospectus relating to the Stock is required to be delivered under
the Securities Act any event relating to or affecting the Company or any of
its subsidiaries occurs as a result of which the Prospectus or any other
prospectus as then in effect would include an untrue statement of a
material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Securities Act, the Company will promptly
notify the Representatives thereof and will prepare an amended or
supplemented prospectus which will correct such statement or omission; and
in case any Underwriter is required to deliver a prospectus relating to the
Stock nine (9) months or more after the effective date of the Registration
Statement, the Company upon the request of the Representatives and at the
expense of such Underwriter will prepare promptly such prospectus or
prospectuses as may be necessary to permit compliance with the requirements
of Section 10(a)(3) of the Securities Act.
(d) The Company will deliver to the Representatives, at or before the
Closing Date, signed copies of the Registration Statement, as originally
filed with the Commission, and all amendments thereto including all
financial statements and exhibits thereto, and will deliver to the
Representatives such number of copies of the Registration Statement,
including such financial statements but without exhibits, and all
amendments thereto, as the Representatives may reasonably request. The
Company will deliver or mail to or upon the order of the Representatives,
from time to time until the effective date of the Registration Statement,
as many copies of the Pre-effective Prospectus as the Representatives may
reasonably request. The Company will deliver or mail to or upon the order
of the Representatives on the date of
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<PAGE>
the initial public offering, and thereafter from time to time during the
period when delivery of a prospectus relating to the Stock is required
under the Securities Act, as many copies of the Prospectus, in final form
or as thereafter amended or supplemented as the Representatives may
reasonably request; provided, however, that the expense of the preparation
and delivery of any prospectus required for use nine (9) months or more
after the effective date of the Registration Statement shall be borne by
the Underwriters required to deliver such prospectus.
(e) The Company will make generally available to its stockholders as soon
as practicable, but not later than fifteen (15) months after the effective
date of the Registration Statement, an earning statement which will be in
reasonable detail (but which need not be audited) and which will comply
with Section 11(a) of the Securities Act, covering a period of at least
twelve (12) months beginning after the "effective date" (as defined in Rule
158 under the Securities Act) of the Registration Statement.
(f) The Company will cooperate with the Representatives to enable the Stock
to be registered or qualified for offering and sale by the Underwriters and
by dealers under the securities laws of such jurisdictions as the
Representatives may designate and at the request of the Representatives
will make such applications and furnish such consents to service of process
or other documents as may be required of it as the issuer of the Stock for
that purpose; provided, however, that the Company shall not be required to
qualify to do business or to file a general consent (other than that
arising out of the offering or sale of the Stock) to service of process in
any such jurisdiction where it is not now so subject. The Company will,
from time to time, prepare and file such statements and reports as are or
may be required of it as the issuer of the Stock to continue such
qualifications in effect for so long a period as the Representatives may
reasonably request for the distribution of the Stock. The Company will
advise the Representatives promptly after the Company becomes aware of the
suspension of the qualifications or registration of (or any such exception
relating to) the Common Stock of the Company for offering, sale or trading
in any jurisdiction or of any initiation or threat of any proceeding for
any such purpose, and in the event of the issuance of any orders suspending
such qualifications, registration or exception, the Company will, with the
cooperation of the Representatives use its best efforts to obtain the
withdrawal thereof.
(g) The Company will furnish to its stockholders annual reports containing
financial statements certified by independent public accountants and with
quarterly summary financial information in reasonable detail which may be
unaudited. During the period of five (5) years from the date hereof, the
Company will deliver to the Representatives and, upon request, to each of
the Underwriters: (i) as soon as practicable after the end of each fiscal
year, copies of each annual report of the Company containing the balance
sheet of the Company as of the close of such fiscal year and statements of
income, stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public accountants, and each
other report furnished by the Company to its stockholders; (ii) copies
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<PAGE>
of any other reports (financial or other) which the Company shall publish
or otherwise make available to any of its stockholders as such; (iii) as
soon as practicable after the filing thereof, each proxy statement, Annual
Report on Form 10-K, Quarterly Report on Form 10-Q, Report on Form 8-K or
other report or financial statement filed by the Company with the
Commission, or the NASD or any securities exchange; and (iv) from time to
time such other information concerning the Company as you may request. So
long as the Company has active subsidiaries, such financial statements will
be on a consolidated basis to the extent the accounts of the Company and
its subsidiaries are consolidated in reports furnished to its stockholders
generally. Separate financial statements shall be furnished for all
subsidiaries whose accounts are not consolidated but which at the time are
significant subsidiaries as defined in the Rules and Regulations.
(h) The Company will use its best efforts to maintain the listing of the
Stock on the New York Stock Exchange.
(i) The Company will maintain a transfer agent and registrar for its Common
Stock.
(j) Prior to filing its quarterly statements on Form 10-Q, the Company will
have its independent auditors perform a limited quarterly review of its
quarterly numbers.
(k) The Company will not offer, sell, assign, transfer, encumber, contract
to sell, grant an option to purchase or otherwise dispose of any shares of
Common Stock or securities convertible into or exercisable or exchangeable
for Common Stock (including, without limitation, Common Stock of the
Company which may be deemed to be beneficially owned by the Company in
accordance with the Rules and Regulations) during the 180 days following
the date on which the price of the Common Stock to be purchased by the
Underwriters is set, other than the Company's sale of Common Stock
hereunder and the Company's issuance of Common Stock upon the exercise of
warrants and stock options which are presently outstanding and described in
the Prospectus.
(l) Prior to filing with the Commission any reports on Form SR pursuant to
Rule 463 of Rules and Regulations, the Company will furnish a copy thereof
to the counsel for the Underwriters and receive and consider its comments
thereon, and will deliver promptly to the Representatives a signed copy of
each report on Form SR filed by it with the Commission.
(m) The Company will apply the net proceeds from the sale of the Stock as
set forth in the description under "Use of Proceeds" in the Prospectus,
which description complies in all respects with the requirements of Item
504 of Regulation S-K.
(n) The Company will supply you with copies of all correspondence to and
from, and all documents issued to and by, the Commission in connection with
the registration of the Stock under the Securities Act.
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(o) Prior to each of the Closing Dates the Company will furnish to you, as
soon as they have been prepared, copies of any unaudited interim
consolidated financial statements of the Company and its subsidiaries for
any periods subsequent to the periods covered by the financial statements
appearing in the Registration Statement and the Prospectus.
(p) Prior to each of the Closing Dates the Company will issue no press
release or other communications directly or indirectly and hold no press
conference with respect to the Company or any of its subsidiaries, the
financial condition, results of operations, business, prospects, assets or
liabilities of any of them, or the offering of the Stock, without your
prior written consent. For a period of twelve (12) months following the
first Closing Date, the Company will use its best efforts to provide to you
copies of each press release or other public communications with respect to
the financial condition, results of operations, business, prospects, assets
or liabilities of the Company at least twenty-four (24) hours prior to the
public issuance thereof or such longer advance period as may reasonably be
practicable.
5. Payment of Expenses. (a) The Company will pay (directly or by
-------------------
reimbursement) all costs, fees and expenses incurred in connection with
expenses incident to the performance of the obligations of the Company [and
of the Selling Stockholders] under this Agreement and in connection with
the transactions contemplated hereby, including but not limited to (i) all
expenses and taxes incident to the issuance and delivery of the Stock to
the Representatives; (ii) all expenses incident to the registration of the
Stock under the Securities Act; (iii) the costs of preparing stock
certificates (including printing and engraving costs); (iv) all fees and
expenses of the registrar and transfer agent of the Stock; (v) all
necessary issue, transfer and other stamp taxes in connection with the
issuance and sale of the Stock to the Underwriters; (vi) fees and expenses
of the Company's counsel and the Company's independent accountants; (vii)
all costs and expenses incurred in connection with the preparation,
printing filing, shipping and distribution of the Registration Statement,
each Pre-effective Prospectus and the Prospectus (including all exhibits
and financial statements) and all amendments and supplements provided for
herein, the Selling Stockholders' Powers of Attorney, the Custody
Agreement, the "Agreement Among Underwriters" between the Representatives
and the Underwriters, the Master Selected Dealers' Agreement, the
Underwriters' Questionnaire and the Blue Sky memoranda (including related
fees and expenses of counsel to the Underwriters) and this Agreement;
(viii) all filing fees, attorneys' fees and expenses incurred by the
Company or the Underwriters in connection with exemptions from the
qualifying or registering (or obtaining qualification or registration of)
all or any part of the Stock for offer and sale and determination of its
eligibility for investment under the Blue Sky or other securities laws of
such jurisdictions as the Representatives may designate; (ix) fees and
expenses of counsel to the Underwriters; (x) all fees and expenses paid or
incurred in connection with filings made with the NASD; and (xi) all other
costs and expenses incident to the performance of their obligations
hereunder which are not otherwise specifically provided for in this
Section.
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(b) Each Selling Stockholder will pay (directly or by reimbursement) [all
fees and expenses incident to the performance of such Selling Stockholder's
obligations under this Agreement which are not otherwise specifically
provided for herein, including but not limited to any fees and expenses of
counsel for such Selling Stockholder, such Selling Stockholder's pro rata
share of fees and expenses of the Attorneys-in-fact and the Custodian and]
all expenses and taxes incident to the sale and delivery of the Stock to be
sold by such Selling Stockholder to the Underwriters hereunder.
(c) In addition to their other obligations under Section 6(a) hereof, the
Company and each Selling Stockholder jointly and severally agree that, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon (i) any statement
or omission or any alleged statement or omission, (ii) any act or failure
to act or any alleged act or failure to act or (iii) any breach or
inaccuracy in their representations and warranties, they will reimburse
each Underwriter on a quarterly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and
enforceability of the Company's and each Selling Stockholder's obligation
to reimburse each Underwriter for such expenses and the possibility that
such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, each Underwriter shall promptly
return it to the Company and each Selling Stockholder, as the case may be,
together with interest, compounded daily, determined on the basis of the
prime rate (or other commercial lending rate for borrowers of the highest
credit standing) announced from time to time by _______, New York, New York
(the "Prime Rate"). Any such interim reimbursement payments which are not
made to an Underwriter in a timely manner as provided below shall bear
interest at the Prime Rate from the due date for such reimbursement. This
expense reimbursement agreement will be in addition to any other liability
which the Company or any Selling Stockholder may otherwise have. The
request for reimbursement will be sent to the Company with a copy to each
Selling Stockholder. In the event that the Company fails to make such
reimbursement payment within thirty (30) days of the reimbursement request,
the Representatives shall notify the Selling Stockholders of their
obligation to make such reimbursement payments within fifteen (15) days;
provided, however, that each Selling Stockholder shall be required to
advance at such time only its pro rata portion of the reimbursement
payment. To the extent that any Selling Stockholder fails to pay its pro
rata portion in timely response to the Underwriters' requelling
Stockholders shall be jointly and severally liable for such reimbursement
payment and each shall render such payment to the Representatives within
fifteen (15) days of written demand therefor by the Representatives.
(d) In addition to its other obligations under Section 6(c) hereof, each
Underwriter severally agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged
statement or omission, described in Section 6(c) hereof which
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relates to information furnished to the Company pursuant to Section 6(c)
hereof, it will reimburse the Company (and, to the extent applicable, each
officer, director, controlling person or Selling Stockholder) on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of
a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director, controlling person or Selling
Stockholder) for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction.
To the extent that any such interim reimbursement payment is so held to
have been improper, the Company (and, to the extent applicable, each
officer, director, controlling person or Selling Stockholder) shall
promptly return it to the Underwriters together with interest, compounded
daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate
from the date of such request. This indemnity agreement will be in addition
to any liability which such Underwriter may otherwise have.
(e) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in paragraph (c) and/or (d) of
this Section 5, including the amounts of any requested reimbursement
payments and the method of determining such amounts, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of
the Board of Governors of the New York Stock Exchange, Inc. or pursuant to
the Code of Arbitration Procedure of the NASD. Any such arbitration must
be commenced by service of a written demand for arbitration or written
notice of intention to arbitrate, therein electing the arbitration
tribunal. In the event the party demanding arbitration does not make such
designation of an arbitration tribunal in such demand or notice, then the
party responding to said demand or notice is authorized to do so. Such an
arbitration would be limited to the operation of the interim reimbursement
provisions contained in paragraph (c) and/or (d) of this Section 5 and
would not resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the provisions of
Section 6.
6. Indemnification and Contribution. (a) The Company agrees to indemnify and
--------------------------------
hold harmless each Underwriter and each person, if any, who controls such
Underwriter within the meaning of the Securities Act and the respective
officers, directors, partners, employees, representatives and agents of
each of such Underwriter (collectively, the "Underwriter Indemnified
Parties" and, each, an "Underwriter Indemnified Party"), against any
losses, claims, damages, liabilities or expenses (including the reasonable
cost of investigating and defending against any claims therefor and counsel
fees incurred in connection therewith), joint or several, which may be
based upon the Securities Act, or any other statute or at common law, (i)
on the ground or alleged ground that any Pre-effective Prospectus, the
Registration Statement or the Prospectus (or any Pre-effective Prospectus,
the Registration Statement or the Prospectus as from time to time amended
or supplemented) includes or allegedly includes an untrue statement of a
material fact or omits to state a material fact
21
<PAGE>
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, unless such statement or omission was made in reliance upon,
and in conformity with, written information furnished to the Company by any
Underwriter, directly or through the Representatives, specifically for use
in the preparation thereof or (ii) for any act or failure to act or any
alleged act or failure to act by any Underwriter in connection with, or
relating in any manner to, the Stock or the offering contemplated hereby,
and which is included as part of or referred to in any loss, claim, damage,
liability or expense arising out of or based upon matters covered by clause
(i) above (provided that the Company shall not be liable under this clause
(ii) to the extent that it is determined in a final judgment by a court of
competent jurisdiction that such loss, claim, damage, or liability or
expense resulted directly from any such acts or failures to act undertaken
or omitted to be taken by such Underwriter through its gross negligence or
willful misconduct). The Company will be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of any
suit brought to enforce any such liability, but if the Company elects to
assume the defense, such defense shall be conducted by counsel chosen by it
and reasonably acceptable to the Underwriters. In the event the Company
elects to assume the defense of any such suit and retain such counsel, any
Underwriter Indemnified Parties, defendant or defendants in the suit, may
retain additional counsel but shall bear the fees and expenses of such
counsel unless (i) the Company shall have specifically authorized the
retaining of such counsel or (ii) the parties to such suit include any such
Underwriter Indemnified Parties, and the Company and such Underwriter
Indemnified Parties at law or in equity have been advised by counsel to the
Underwriters that one or more legal defenses may be available to it or them
which may not be available to the Company, in which case the Company shall
not be entitled to assume the defense of such suit notwithstanding its
obligation to bear the fees and expenses of such counsel. This indemnity
agreement is not exclusive and will be in addition to any liability which
the Company might otherwise have and shall not limit any rights or remedies
which may otherwise be available at law or in equity to each Underwriter
Indemnified Party.
(b) Each Selling Stockholder agrees to indemnify and hold harmless each
Underwriter Indemnified Party against any losses, claims, damages,
liabilities or expenses (including, unless such Selling Stockholder elects
to assume the defense, the reasonable cost of investigating and defending
against any claims therefor and counsel fees incurred in connection
therewith), joint or several, which may be based upon the Securities Act,
or any other statute or at common law, on the ground or alleged ground that
any Pre-effective Prospectus, the Registration Statement or the Prospectus
(or any Pre-effective Prospectus, the Registration Statement or the
Prospectus, as from time to time amended and supplemented) includes an
untrue statement of a material fact or omits to state a 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, unless such statement or omission was made in reliance upon,
and in conformity with, written information furnished to the Company by any
Underwriter, directly or through the Representatives, specifically for use
in the preparation thereof. Such Selling Stockholder shall be entitled to
participate at his
22
<PAGE>
own expense in the defense, or, if he so elects, to assume the defense of
any suit brought to enforce any such liability, but, if such Selling
Stockholder elects to assume the defense, such defense shall be conducted
by counsel chosen by him. In the event that any Selling Stockholder elects
to assume the defense of any such suit and retain such counsel, the
Underwriter Indemnified Parties, defendant or defendants in the suit, may
retain additional counsel but shall bear the fees and expenses of such
counsel unless (i) such Selling Stockholder shall have specifically
authorized the retaining of such counsel or (ii) the parties to such suit
include such Underwriter Indemnified Parties and such Selling Stockholder
and such Underwriter Indemnified Parties have been advised by counsel that
one or more legal defenses may be available to it or them which may not be
available to such Selling Stockholder, in which case such Selling
Stockholder shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the fees and expenses of such
counsel. This indemnity agreement is not exclusive and will be in addition
to any liability which such Selling Stockholder might otherwise have and
shall not limit any rights or remedies which may otherwise be available at
law or in equity to each Underwriter Indemnified Party. The Company
anockholders may agree, as among themselves and without limiting the rights
of the Underwriters under this Agreement, as to their respective amounts of
such liability for which they each shall be responsible.
(c) Each Underwriter severally and not jointly agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Securities Act (collectively, the
"Company Indemnified Parties") and each Selling Stockholder and each
person, if any, who controls a Selling Stockholder within the meaning of
the Securities Act (collectively, the "Stockholder Indemnified Parties"),
against any losses, claims, damages, liabilities or expenses (including,
unless the Underwriter or Underwriters elect to assume the defense, the
reasonable cost of investigating and defending against any claims therefor
and counsel fees incurred in connection therewith), joint or several, which
arise out of or are based in whole or in part upon the Securities Act, the
Exchange Act or any other federal, state, local or foreign statute or
regulation, or at common law, on the ground or alleged ground that any Pre-
effective Prospectus, the Registration Statement or the Prospectus (or any
Pre-effective Prospectus, the Registration Statement or the Prospectus, as
from time to time amended and supplemented) includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances in which they were made, not misleading, but only insofar
as any such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Company by such
Underwriter, directly or through the Representatives, specifically for use
in the preparation thereof; provided, however, that in no case is such
Underwriter to be liable with respect to any claims made against any
Company Indemnified Party or Stockholder Indemnified Party against whom the
action is brought unless such Company Indemnified Party or Stockholder
Indemnified Party shall have notified such Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim
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<PAGE>
shall have been served upon the Company Indemnified Party or Stockholder
Indemnified Party, but failure to notify such Underwriter of such claim
shall not relieve it from any liability which it may have to any Company
Indemnified Party or Stockholder Indemnified Party otherwise than on
account of its indemnity agreement contained in this paragraph. Such
Underwriter shall be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but, if such Underwriter elects to assume the
defense, such defense shall be conducted by counsel chosen by it. In the
event that any Underwriter elects to assume the defense of any such suit
and retain such counsel, the Company Indemnified Parties or Stockholder
Indemnified Parties and any other Underwriter or Underwriters or
controlling person or persons, defendant or defendants in the suit, shall
bear the fees and expenses of any additionald by them, respectively. The
Underwriter against whom indemnity may be sought shall not be liable to
indemnify any person for any settlement of any such claim effected without
such Underwriter's consent. This indemnity agreement is not exclusive and
will be in addition to any liability which such Underwriter might otherwise
have and shall not limit any rights or remedies which may otherwise be
available at law or in equity to any Company Indemnified Party or
Stockholder Indemnified Party.
(d) If the indemnification provided for in this Section 6 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a),
(b) or (c) above in respect of any losses, claims, damages, liabilities or
expenses (or actions in respect thereof) referred to herein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company and
the Selling Stockholders on the one hand and the Underwriters on the other
from the offering of the Stock. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law, then
each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company and
the Selling Stockholders on the one hand and the Underwriters on the other
in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholders on
the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Stockholders
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Companyrs or the Underwriters and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company,
the Selling Stockholders and the Underwriters agree that it would not be
just and
24
<PAGE>
equitable if contribution were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities
or expenses (or actions in respect thereof) referred to above shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating, defending, settling or
compromising any such claim. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount
in excess of the amount by which the total price at which the shares of the
Stock underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. The Underwriters' obligations to
contribute are several in proportion to their respective underwriting
obligations and not joint. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
7. Survival of Indemnities, Representations, Warranties, etc. The respective
----------------------------------------------------------
indemnities, covenants, agreements, representations, warranties and other
statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by them respectively,
pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter,
the Selling Stockholders, the Company or any of its officers or directors
or any controlling person, and shall survive delivery of and payment for
the Stock.
8. Conditions of Underwriters' Obligations. The respective obligations of the
---------------------------------------
several Underwriters hereunder shall be subject to the accuracy, at and
(except as otherwise stated herein) as of the date hereof and at and as of
each of the Closing Dates, of the representations and warranties made
herein by the Company and the Selling Stockholders, to compliance at and as
of each of the Closing Dates by the Company and the Selling Stockholders
with their covenants and agreements herein contained and other provisions
hereof to be satisfied at or prior to each of the Closing Dates, and to the
following additional conditions:
(a) The Registration Statement shall have become effective and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge
of the Company or the Representatives, shall be threatened by the
Commission, and any request for additional information on the part of the
Commission (to be included in the Registration Statement or the Prospectus
or otherwise) shall have been complied with to the reasonable satisfaction
of the Representatives. Any filings of the Prospectus, or any supplement
thereto, required pursuant to Rule 424(b) or Rule 434 of the Rules and
Regulations, shall have been made in the manner and within the time period
required by Rule 424(b) and Rule 434 of the Rules and Regulations, as the
case may be.
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<PAGE>
(b) The Representatives shall have been satisfied that there shall not have
occurred any change, on a consolidated basis, prior to each of the Closing
Dates in the condition (financial or otherwise), properties, business,
management, prospects, net worth or results of operations of the Company
and its subsidiaries considered as a whole, or any change in the capital
stock, short-term or long-term debt of the Company and its subsidiaries
considered as a whole, such that (i) the Registration Statement or the
Prospectus, or any amendment or supplement thereto, contains an untrue
statement of fact which, in the opinion of the Representatives, is
material, or omits to state a fact which, in the opinion of the
Representatives, is required to be stated therein or is necessary to make
the statements therein not misleading, or (ii) it is unpracticable in the
reasonable judgment of the Representatives to proceed with the public
offering or purchase the Stock as contemplated hereby.
(c) The Representatives shall be satisfied that no legal or governmental
action, suit or proceeding affecting the Company which is material and
adverse to the Company or which affects or may affect the Company's or the
Selling Stockholders' ability to perform their respective obligations under
this Agreement shall have been instituted or threatened and there shall
have occurred no material adverse development in any existing such action,
suit or proceeding.
(d) At the time of execution of this Agreement, the Representatives shall
have received from BDO Seidman LLP, independent certified public
accountants, a letter, dated the date hereof, in form and substance
satisfactory to the Underwriters.
(e) The Representatives shall have received from BDO Seidman LLP,
independent certified public accountants, letters, dated each the Closing
Dates, to the effect that such accountants reaffirm, as of each of the
Closing Dates, and as though made on each of the Closing Dates, the
statements made in the letter furnished by such accountants pursuant to
paragraph (d) of this Section 8.
(f) The Representatives shall have received from Proskauer Rose LLP,
counsel for the Company, opinions, dated each of the Closing Dates, to the
effect set forth in Exhibit I hereto.
(g) The Representatives shall have received from ______, counsel for the
Selling Stockholders, an opinion dated each of the Closing Dates to the
effect set forth in Exhibit II hereto.
(h) The Representatives shall have received from Brown & Wood llp, counsel
for the Underwriters, their opinions dated each of the Closing Dates with
respect to the incorporation of the Company, the validity of the Stock, the
Registration Statement and the Prospectus and such other related matters as
it may reasonably request, and the Company and the Selling Stockholders
shall have furnished to such counsel such documents as they may request for
the purpose of enabling them to pass upon such matters.
26
<PAGE>
(i) The Representatives shall have received a certificates, dated each of
the Closing Dates, of the chief executive officer or the President and the
chief financial or accounting officer of the Company to the effect that:
(i) No stop order suspending the effectiveness of the Registration
Statement has been issued, and, to the best of the knowledge of the
signers, no proceedings for that purpose have been instituted or are
pending or contemplated under the Securities Act;
(ii) Neither any Pre-effective Prospectus, as of its date, nor the
Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, as of the time when the Registration Statement
became effective and at all times subsequent thereto up to the
delivery of such certificate, included any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading;
(iii) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as
set forth or contemplated in the Prospectus, neither the Company nor
any of its subsidiaries has incurred any material liabilities or
obligations, direct or contingent, nor entered into any material
transactions not in the ordinary course of business and there has not
been any material adverse change in the condition (financial or
otherwise), properties, business, management, prospects, net worth or
results of operations of the Company and its subsidiaries considered
as a whole, or any change in the capital stock, short-term or long-
term debt of the Company and its subsidiaries considered as a whole;
(iv) The representations and warranties of the Company in this
Agreement are true and correct at and as of each of the Closing Dates,
and the Company has complied with all the agreements and performed or
satisfied all the conditions on its part to be performed or satisfied
at or prior to the Closing Dates; and
(v) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, and except as disclosed in
or contemplated by the Prospectus, (i) there has not been any material
adverse change or a development involving a material adverse change in
the condition (financial or otherwise), properties, business,
management, prospects, net worth or results of operations of the
Company and its subsidiaries considered as a whole; (ii) the business
and operations conducted by the Company and its subsidiaries have not
sustained a loss by strike, fire, flood, accident or other calamity
(whether or not insured) of such a character as to interfere
materially with the conduct of the business and operations of the
Company and its subsidiaries considered as a whole; (iii) no legal or
governmental action, suit or proceeding is pending or threatened
against the Company which is material to the Company, whether or not
arising from transactions in the ordinary
27
<PAGE>
course of business, or which may materially and adversely affect the
transactions contemplated by this Agreement; (iv) since such dates and
except as so disclosed, the Company has not incurred any material
liability or obligation, direct, contingent or indirect, made any
change in its capital stock (except pursuant to its stock plans), made
any material change in its short-term or funded debt or repurchased or
otherwise acquired any of the Company's capital stock; and (v) the
Company has not declared or paid any dividend, or made any other
distribution, upon its outstanding capital stock payable to
stockholders of record on a date prior to the Closing Date.
(j) The Representatives shall have received a certificate or certificates,
dated each of the Closing Dates, of each of the Selling Stockholders to the
effect that as of each of the Closing Dates the representations and
warranties in this Agreement are true and correct as if made on and as of
each of the Closing Dates, and that it has performed all its obligations
and satisfied all the conditions on its part to be performed or satisfied
at or prior to the Closing Dates.
(k) The Company and each of the Selling Stockholders shall have furnished
to the Representatives such additional certificates as the Representatives
may have reasonably requested as to the accuracy, at and as of each of the
Closing Dates, of the representations and warranties made herein by them
and as to compliance at and as of each of the Closing Dates by them with
their covenants and agreements herein contained and other provisions hereof
to be satisfied at or prior to each of the Closing Dates, and as to
satisfaction of the other conditions to the obligations of the Underwriters
hereunder.
(l) Cowen shall have received the written agreements, substantially in the
form of Exhibit III hereto, of the officers, directors and holders of
Common Stock listed in Schedule C that each will not offer, sell, assign,
transfer, encumber, contract to sell, grant an option to purchase or
otherwise dispose of any shares of Common Stock (including, without
limitation, Common Stock which may be deemed to be beneficially owned by
such officer, director or holder in accordance with the Rules and
Regulations) during the 180 days following the date of the final
Prospectus, except for the Stock being sold hereunder by the Selling
Stockholders.
(m) The New York Stock Exchange shall have approved the stock for listing,
subject only to official notice of issuance.
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All opinions, certificates, letters and other documents will be in compliance
with the provisions hereunder only if they are satisfactory in form and
substance to the Representatives. The Company will furnish to the
Representatives conformed copies of such opinions, certificates, letters and
other documents as the Representatives shall reasonably request. If any of the
conditions hereinabove provided for in this Section shall not have been
satisfied when and as required by this Agreement, this Agreement may be
terminated by the Representatives by notifying the Company of such termination
in writing or by telegram at or prior to each of the Closing Dates, but Cowen,
on behalf of the Representatives, shall be entitled to waive any of such
conditions.
9. Effective Date. This Agreement shall become effective immediately as to
--------------
Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and 17 and, as to all other
provisions, at 11:00 a.m. New York City time on the first full business day
following the effectiveness of the Registration Statement or at such
earlier time after the Registration Statement becomes effective as the
Representatives may determine on and by notice to the Company or by release
of any of the Stock for sale to the public. For the purposes of this
Section 9, the Stock shall be deemed to have been so released upon the
release for publication of any newspaper advertisement relating to the
Stock or upon the release by you of telegrams (i) advising Underwriters
that the shares of Stock are released for public offering or (ii) offering
the Stock for sale to securities dealers, whichever may occur first.
10. Termination. This Agreement (except for the provisions of Section 5) may
-----------
be terminated by the Company at any time before it becomes effective in
accordance with Section 9 by notice to the Representatives and may be
terminated by the Representatives at any time before it becomes effective
in accordance with Section 9 by notice to the Company. In the event of any
termination of this Agreement under this or any other provision of this
Agreement, there shall be no liability of any party to this Agreement to
any other party, other than as provided in Sections 5, 6 and 11 and other
than as provided in Section 12 as to the liability of defaulting
Underwriters.
This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to the First
Closing Date trading in securities on any of the New York Stock Exchange,
American Stock Exchange, Nasdaq National Market System, Chicago Board of
Options Exchange, Chicago Mercantile Exchange or Chicago Board of Trade
shall have been suspended or minimum or maximum prices shall have been
established on any such exchange or market, or a banking moratorium shall
have been declared by New York or United States authorities; (ii) trading
of any securities of the Company shall have been suspended on any exchange
or in any over-the-counter market; (iii) if at or prior to the First
Closing Date there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power or of any other
insurrection or armed conflict involving the United States or (B) any
change in financial markets or any calamity or crisis which, in the
judgment of the Representatives, makes it impractical or inadvisable to
offer or sell the Stock on the terms contemplated by the Prospectus; (iv)
if
29
<PAGE>
there shall have been any development or prospective development involving
particularly the business or properties or securities of the Company or any
of its subsidiaries or the transactions contemplated by this Agreement,
which, in the judgment of the Representatives, makes it impracticable or
inadvisable to offer or deliver the Stock on the terms contemplated by the
Prospectus; (v) if there shall be any litigation or proceeding, pending or
threatened, which, in the judgment of the Representatives, makes it
impracticable or inadvisable to offer or deliver the on the terms
contemplated by the Prospectus; or (vi) if there shall have occurred any of
the events specified in the immediately preceding clauses (i) - (v)
together with any other such event that makes it, in the judgment of the
Representatives, impractical or inadvisable to offer or deliver the Stock
on the terms contemplated by the Prospectus.
11. Reimbursement of Underwriters. Notwithstanding any other provisions
-----------------------------
hereof, if this Agreement shall not become effective by reason of any
election of the Company or the Selling Stockholders pursuant to the first
paragraph of Section 10 or shall be terminated by the Representatives under
Section 8 or Section 10, the Company will bear and pay the expenses
specified in Section 5 hereof and, in addition to their obligations
pursuant to Section 6 hereof, the Company will reimburse the reasonable
out-of-pocket expenses of the several Underwriters (including reasonable
fees and disbursements of counsel for the Underwriters) incurred in
connection with this Agreement and the proposed purchase of the Stock, and
promptly upon demand the Company will pay such amounts to you as
Representatives.
12. Substitution of Underwriters. If any Underwriter or Underwriters shall
----------------------------
default in its or their obligations to purchase shares of Stock hereunder
and the aggregate number of shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent
(10%) of the total number of shares underwritten, the other Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase. If any Underwriter or
Underwriters shall so default and the aggregate number of shares with
respect to which such default or defaults occur is more than ten percent
(10%) of the total number of shares underwritten and arrangements
satisfactory to the Representatives and the Company for the purchase of
such shares by other persons are not made within forty-eight (48) hours
after such default, this Agreement shall terminate.
If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a
defaulting Underwriter or Underwriters as provided in this Section 12, (i)
the Company and the Selling Stockholders shall have the right to postpone
the Closing Dates for a period of not more than five (5) full business days
in order that the Company and the Selling Stockholders may effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company
agrees promptly to file any amendments to the Registration Statement or
supplements to the Prospectus which may thereby be made necessary, and (ii)
the respective numbers of shares to be purchased by the remaining
30
<PAGE>
Underwriters or substituted Underwriters shall be taken as the basis of
their underwriting obligation for all purposes of this Agreement. Nothing
herein contained shall relieve any defaulting Underwriter of its liability
to the Company, the Selling Stockholders or the other Underwriters for
damages occasioned by its default hereunder. Any termination of this
Agreement pursuant to this Section 12 shall be without liability on the
part of any non-defaulting Underwriter, the Selling Stockholders or the
Company, except for expenses to be paid or reimbursed pursuant to Section 5
and except for the provisions of Section 6.
13. Notices. All communications hereunder shall be in writing and, if sent to
-------
the Underwriters shall be mailed, delivered or telegraphed and confirmed to
you, as their Representatives c/o Cowen & Company at Financial Square, New
York, New York 10005 except that notices given to an Underwriter pursuant
to Section 6 hereof shall be sent to such Underwriter at the address
furnished by the Representatives or, if sent to the Company, shall be
mailed, delivered or telegraphed and confirmed c/o Schein Pharmaceutical,
Inc., 100 Campus Drive, Florham Park, New Jersey 07932.
14. Successors. This Agreement shall inure to the benefit of and be binding
----------
upon the several Underwriters, the Company and the Selling Stockholders and
their respective successors and legal representatives. Nothing expressed
or mentioned in this Agreement is intended or shall be construed to give
any person other than the persons mentioned in the preceding sentence any
legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of such persons and for the benefit of no other
person; except that the representations, warranties, covenants, agreements
and indemnities of the Company and the Selling Stockholders contained in
this Agreement shall also be for the benefit of the person or persons, if
any, who control any Underwriter or Underwriters within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, and the
indemnities of the several Underwriters shall also be for the benefit of
each director of the Company, each of its officers who has signed the
Registration Statement and the person or persons, if any, who control the
Company or any Selling Stockholders within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act.
15. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of New York.
16. Authority of the Representatives. In connection with this Agreement, you
--------------------------------
will act for and on behalf of the several Underwriters, and any action
taken under this Agreement by Cowen, as Representative, will be binding on
all the Underwriters; and any action taken under this Agreement by any of
the Attorneys-in-fact will be binding on all the Selling Stockholders.
17. Partial Unenforceability. The invalidity or unenforceability of any
------------------------
Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other
31
<PAGE>
Section, paragraph or provision hereof. If any Section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and
only such minor changes) as are necessary to make it valid and enforceable.
18. General. This Agreement constitutes the entire agreement of the parties to
-------
this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof. In this Agreement, the masculine,
feminine and neuter genders and the singular and the plural include one
another. The section headings in this Agreement are for the convenience of
the parties only and will not affect the construction or interpretation of
this Agreement. This Agreement may be amended or modified, and the
observance of any term of this Agreement may be waived, only by a writing
signed by the Company, the Selling Stockholders and the Representatives.
19. Counterparts. This Agreement may be signed in two (2) or more
------------
counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
Any person executing and delivering this Agreement as Attorney-in-fact for
the Selling Stockholders represents by so doing that he has been duly
appointed as Attorney-in-fact by such Selling Stockholder pursuant to a
validly existing and binding Power of Attorney which authorizes such
Attorney-in-fact to take such action.
32
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate your
acceptance thereof in the space provided below for that purpose, whereupon this
letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
SCHEIN PHARMACEUTICAL, INC.
By:____________________________
President
SELLING STOCKHOLDERS LISTED
IN SCHEDULE B
By: Attorney-in-fact
By:______________________________
Attorney-in-fact
Acting on his own behalf and on
behalf of the Selling Stockholders listed
in Schedule B.
33
<PAGE>
Accepted and delivered in
New York, New York as of
the date first above written.
COWEN & COMPANY
BEAR, STEARNS & CO., INC.
SMITH BARNEY INC.
Acting on their own behalf
and as Representatives of several
Underwriters referred to in the
foregoing Agreement.
By: COWEN & COMPANY
By: Cowen Incorporated,
its general partner
By: ______________________________
John P. Dunphy
Managing Director - Syndicate
34
<PAGE>
SCHEDULE A
Name Number of Shares of Number of Shares of
- ---- Firm Stock to be Optional Stock to
Purchased be Purchased
----------- -------------
Cowen & Company .........................
Bear, Stearns & Co., Inc.................
Smith Barney Inc.........................
--------- ----------
Total
========= ==========
35
<PAGE>
SCHEDULE B
Number of Shares Number of Shares
of Firm Stock of Optional Stock
to be Sold to be Sold
----------------- -----------------
Shein Pharmaceutical, Inc. ...........
---------- ----------
========== ==========
36
<PAGE>
SCHEDULE C
[Persons Providing Lock-up Agreements
Pursuant to Section 8(l)]
[TO COME]
<PAGE>
Form of Opinion of Issuer's Counsel Exhibit I
[TO COME]
38
<PAGE>
Form of Opinion of Selling Stockholders' Counsel Exhibit II
[TO COME]
39
<PAGE>
Form of Lock-Up Agreement Exhibit III
[TO COME]
40
<PAGE>
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
SCHEIN PHARMACEUTICAL, INC.
(Pursuant to Section 242 of the
General Corporation Law of the State of Delaware)
It is hereby certified that:
1. The name of the corporation is Schein Pharmaceutical, Inc. (the
"Corporation"). The name under which the Corporation was originally
incorporated was Schein Pharmaceutical Corp., and the date of filing of
the original Certificate of Incorporation of the Corporation with the
Secretary of State of the State of Delaware was September 27, 1993.
2. The Board of Directors of the Corporation duly adopted a
resolution proposing and declaring it advisable that Certificate of
Incorporation of the Corporation be amended and restated in its entirety to
read as follows:
FIRST
The name of the corporation is Schein Pharmaceutical, Inc. (the
"Corporation").
SECOND
The purpose for which the Corporation is formed is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware (the "Delaware General
Corporation Law").
<PAGE>
THIRD
A.
The total number of shares of capital stock which the Corporation shall
have authority to issue is Five Hundred Twenty-Nine Thousand Two Hundred
Ninety-Five (529,295) shares of common stock, $.Ol par value per share (the
"Common Stock"), of which Four Hundred Thousand (400,000) shares shall be
Class A Common Stock, $.0l par value per share (the "Class A Common
Shares"), and One Hundred Twenty-Nine Thousand Two Hundred Ninety-Five
(l29,295) shares shall be Class B Common Stock, $.01 par value per share
(the "Class B Common Shares"). Shares of capital stock of the Corporation
may be issued for such consideration, not less than the par value thereof,
as shall be fixed from time to time by the Board of Directors, and shares
issued for such consideration shall be fully paid and nonassessable.
B.
Each share of the Class B Common Shares issued and outstanding, or
issued and held in the treasury of the Corporation, shall be automatically
reclassified as and changed into one new share of the Corporation's Class
A Common Shares, without any action on the part of the holder thereof upon
the earliest to occur of (1) an initial public offering of shares of Common
Stock, (2) the Termination Date, as that term is defined in the Voting Trust
Agreement (the "Voting Agreement") dated September 30, 1994 among Schein
Holdings, Inc. ("Holdings") and certain shareholders of Holdings, and Martin
Sperber, as voting trustee (the "Voting Trustee"), and (3) May 15,
1999. Upon the occurrence of a transfer on the stock transfer records of
the Corporation by a holder of any share of Class B Common Shares, each such
share of Class B Common Shares so transferred shall be automatically
reclassified as and changed into one new share of the Corporation's Class A
Common Shares, without any action on the part of the holder thereof. In
those cases where a reclassification described in either of the two
preceding sentences would cause a shareholder to receive a fractional share,
the Corporation shall issue to the shareholder a stock certificate
representing such fractional share.
2
<PAGE>
C.
The following is a statement of the powers, preferences and rights and
the qualifications, restrictions and limitations of the Common Stock of the
Corporation:
(1) Class A Common Shares and Class B Common Shares. Each Class A
-----------------------------------------------
Common Share shall be identical in every respect to each Class B Common
Share, except as provided in subparagraph (C)(4). Any Class B Common Share
that is converted into a Class A Common Share in accordance with paragraph B
shall thereafter be a Class A Common Share, with all the powers, preferences
and rights and the qualifications, restrictions and limitations, including,
without limitation, with respect to voting rights, as the Class A Common
Share into which it was converted. No amendment to this Certificate of
Incorporation shall in any manner amend, alter, change or repeal any
provision (other than provisions relating to voting in subparagraph (C)(4))
relating to the Class A Common Shares without at the same time amending,
altering, changing or repealing in the same manner the corresponding
provision relating to the Class B Common Shares, without the consent of a
majority of the outstanding Class B Common Shares or until such time as
there are no Class B Common Shares outstanding.
(2) Dividends. The holders of record of Common Stock shall be
---------
entitled to receive such dividends notably as may from time to time be
declared by the Board of Directors out of funds legally available therefor.
(3) Liquidation. In the event of any liquidation, dissolution or
-----------
winding up of the affairs of the Corporation, voluntary or involuntary, the
net assets of the Corporation available to shareholders shall be distributed
ratably to the holders of Common Stock. Neither the merger or consolidation
of the Corporation with or into another corporation nor any sale, lease,
conveyance or other disposition of all or substantially all of the property,
business or assets of the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the affairs of the Corporation within the
meaning of this Article THIRD.
(4) Voting Rights. Except as otherwise required by law, the holders
-------------
of Class A Common Shares shall be entitled to one vote in respect of each
share held on all matters voted upon by the shareholders of the Corporation.
The holders of Class B Common Shares shall not be entitled to vote on any
matter, or to participate in a shareholders meeting, or to receive notice of
any meeting of shareholders; provided, however at any time the sum of
(x) the number of Class A Common Shares subject to the Voting Agreement plus
----
(y) the number of Class A Common Shares owned by the Voting Trustee (or his
successor) or the Voting Trustee's (or his successor's) affiliates (as
defined in Rule 405
3
<PAGE>
under the Securities Act of 1933) ((x) and (y), together, the "Voting
Number") constitutes less than a majority of the outstanding voting shares
of the Corporation and the Voting Trustee (or his successor) under the
Voting Agreement shall have given written notice to the Corporation and to
the known beneficial owner of such shares that he wishes to vote the
Required Number (as defined below) of Class B Common Shares at a meeting
of shareholders or by written consent for which a record date for notice
of and voting at the meeting or the consent shall have been established,
the Required Number of Class B Common Shares shall automatically be
entitled to participate in and vote at that meeting or in that written
consent on the same basis as class A Common Shares (and shall remain Class
B Common Shares until reclassified and changed in accordance with this
Certificate of Incorporation). As used in this paragraph 4, the term
"Required Number" of Class B Common Shares, for purposes of any such
meeting or written consent, means a number of shares equal to (a) the sum
of (i) one plus (ii) 5O% of the number of shares entitled to vote at the
meeting or by consent, as the case may be (it being understood that the
Required Number of Class B Common Shares shall be counted as though they
were voting shares for purposes of this clause (ii)), reduced by (b) the
Voting Number on the record date for that meeting or consent (it being
understood that the only circumstance in which the Required Number shall
exceed zero is where the Corporation shall have issued a number of voting
shares that results in the Voting Number at a particular time being less
than a majority of the outstanding voting shares at that time).
(5) Other Rights. Except as set forth above, the Common Stock shall not
------------
bear any preferential, conversion or preemptive rights. Without limiting the
generality of the foregoing, no class of Common Stock may be split, consolidated
or reclassified in any manner other than as expressly provided herein, unless
the other class of Common Stock is split, consolidated or reclassified, as the
case may be, on an identical basis.
D.
Upon the filing in the office of the Secretary of State of the State of
Delaware of this Restated Certificate of Incorporation whereby this Article
Fourth is amended to read as set forth herein, the 258,570 issued and
outstanding shares of common stock, par value $.01 per share, of the Corporation
shall be automatically reclassified and changed into 10 validly issued, fully
paid and nonassessable shares of Class A Common Shares. No scrip or fractional
shares will be issued by reason of this amendment.
4
<PAGE>
FOURTH
The registered office of the Corporation in the State of Delaware is to
be located at 32 Loockerman Square, Suite L-lOO, in the city of Dover,
County of Kent, State of Delaware. The name of its registered agent at
that address is The Prentice-Hall Corporation System, Inc.
FIFTH
The duration of the Corporation is to be perpetual.
SIXTH
Unless a greater vote requirement in any matter is provided in this
Certificate of Incorporation or the By-laws, the affirmative vote of a
majority of the directors present and acting at a duly constituted meeting
at which a majority of the entire board of directors is present and acting,
is sufficient for all action of the Board of Directors.
Any action required or permitted to be taken by the board of directors
may be taken without a meeting if all members of the board consent in
writing to the adoption of resolutions authorizing the action.
Elections of directors need not be by ballot unless the By-Laws of the
Corporation shall so provide.
SEVENTH
A.
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty by such
director as a director, provided that this Article SEVENTH shall not
eliminate or limit the liability of a director (1) for any breach of such
director's duty of loyalty to the Corporation or its stockholders, (2) for
acts or omissions of such director not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) under Section
174 of the Delaware General Corporation Law, or (4) for any transaction from
which such director derived an improper personal benefit, in respect of which
such breach of fiduciary duty occurred. If the Delaware General Corporation
Law is amended after approval by the stockholders of this Article SEVENTH to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited
5
<PAGE>
to the fullest extent permitted by the Delaware General Corporation Law, as
so amended from time to time.
B.
(1) Right of Indemnification. Each person who was or is made a
-------------------------
party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, (a) is or was a
director or officer of the Corporation or (b) is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans
(whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent), shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case or any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and
amounts paid or to be paid in settlement) actually and reasonably incurred
or suffered by such person in connection therewith and such indemnification
shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as
provided in paragraph (2) hereof the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof)
was authorized by the Board of Directors of the corporation. The right to
indemnification conferred in this Article SEVENTH shall be a contract right
and shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation
Law requires, the payment of such expenses incurred by a director or officer
in his or her capacity as such (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service with respect to an employee benefit
plan) in advance, of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this
6
<PAGE>
Article SEVENTH or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing indemnification
of directors and officers.
(2) Right of Claimant to Bring Suit. If a claim under paragraph (1) of
-------------------------------
this Article SEVENTH is not paid in full by the Corporation within thirty
days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in
part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in defending
any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that
the claimant has not met the standards of conduct which make it permissible
under the Delaware General Corporation Law for the Corporation to indemnify
the claimant for the amount claimed, but the burden of proving such defense
shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant has not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that
the claimant has not met the applicable standard of conduct.
(3) Non-Exclusivity of Rights. The right to indemnification and the
-------------------------
payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article SEVENTH shall not be exclusive
of any other right which any person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, by-law, agreement,
vote of stockholders or disinterested directors or otherwise.
(4) Insurance. The Corporation may maintain insurance, at its
----------
expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
7
<PAGE>
EIGHTH
Subject to the provisions of Article NINE below, the directors of the
Corporation may, by a vote of a majority of directors present at a meeting
in which a quorum is present, adopt, amend or repeal any By-Law.
NINTH
The Corporation shall not, and shall not permit any of its subsidiaries
to, and no officer, employee or other agent of the Corporation or any of its
subsidiaries shall have the authority, in the name or on behalf of the
Corporation or any of its subsidiaries to, directly or indirectly, without
the prior written consent of Bayer Corporation ("Bayer," formerly Miles
Inc.) (which consent shall be deemed given, if a majority of Bayer's
nominees to the board of directors of the Corporation consent in writing (it
being understood that consent given in this manner shall not be deemed the
exclusive method of giving consent)) amend or restate the Corporation's
certificate of incorporation or By-Laws in any respect, (a) as a result of
which the ability to (i) elect a majority of the members of the board of
directors of the Corporation, (ii) adopt an agreement of merger or
consolidation, (iii) approve a sale of all or substantially all the assets
of the Corporation or (iv) adopt an amendment to the Corporation's
certificate of incorporation or by-laws would require the vote of more than
a majority of the outstanding shares of Common Stock entitled to vote
thereon, (b) that would adversely affect Bayer differently from other
holders of shares of Common Stock or (c) that, by its terms, would prohibit
any foreign national from holding shares of Common stock or serving as a
director.
This Article NINTH may be amended only with the prior written consent of
Bayer (as described above in this Article NINTH), and the provisions of this
Article NINTH shall terminate and be of no further force or effect upon the
termination of Bayer's rights under Section 2.5 of the General Shareholders
Agreement dated September 30, 1994 among Holdings, Miles Inc. and certain
shareholders of Holdings, as provided in such General Shareholders Agreement.
TENTH
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application
of any receiver or receivers appointed for the
8
<PAGE>
Corporation under the provisions of Section 291 of Title 8 of the Delaware Code
or on the application of trustees in dissolution or of any receiver or
receivers appointed for the Corporation under the provisions of Section 279 of
Title 8 of the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders of the Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in
number representing three fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
3. In lieu of a vote, written consent to the foregoing amendment has
been given by the sole stockholder of the Corporation, in accordance with
Section 228 of the General Corporation Law of the State of Delaware, and such
amendment has been duly adopted in accordance with the provisions of Section
242 of the General Corporation Law of the State of Delaware.
4. This amendment to the Certificate of Incorporation shall be
effective on and as of the date of filing this Certificate of Amendment with
the office of the Secretary of State of the State of Delaware.
9
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed in its name by its President and attested to by its
Secretary this 14th day of June, 1995, and the statements contained herein are
affirmed as true under penalties of perjury.
SCHEIN PHARMACETICAL, INC.
By: /s/ Martin Sperber
---------------------------
Martin Sperber
President
ATTEST:
By: /s/ Paul M. Feuerman
- -------------------------
Paul M. Feuerman
Secretary
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
SCHEIN PHARMACEUTICAL, INC.
------
ARTICLE I
---------
OFFICES
The Corporation shall maintain a registered office in the State of
Delaware as required by law. The Corporation may also have offices at other
places, within and without the State of Delaware.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of stockholders shall be held
-----------------
at the principal office of the Corporation or such place within or without the
State of Delaware as the Board of Directors shall authorize.
SECTION 2. ANNUAL MEETINGS. The annual meeting of stockholders for the
---------------
election of directors and the transaction of such other business as may properly
come before the meeting shall be held at such times as may be fixed from time to
time by the Board of Directors. The Board of Directors acting by resolution may
postpone and reschedule any previously scheduled annual meeting of stockholders.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders may be
----------------
called by the Board of Directors or by the Chairman of the Board. Such request
shall state the purpose or purposes of the proposed meeting. Business transacted
at a special meeting shall be confined to the purpose or purposes stated in the
notice. The Board of Directors acting by resolution may postpone and reschedule
any previously scheduled special meeting of stockholders.
SECTION 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Written notice,
----------------------------------
stating the place, date and time of the meeting, the purpose or purposes of
the
<PAGE>
meeting and, unless it is the annual meeting, an indication that it is being
issued by or at the direction of the person or persons calling the meeting,
shall be given to each stockholder entitled to vote thereat.
SECTION 5. FIXING RECORD DATE. In order that the Corporation may
------------------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or for the purpose
of any other lawful action, the Board of Directors may fix, in advance, a
record date for any such determination of stockholders. Such date shall not be
more than sixty nor less than ten days before the date of such meeting, nor
more than sixty days prior to any other action. If no record date is fixed it
shall be determined in accordance with the provisions of law. When a
determination of stockholders of record entitled to notice of or to vote at
any meeting of stockholders has been made as provided in this Section 5, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date for the adjourned meeting or further notice
is required by statute.
SECTION 6. QUORUM. Except as otherwise required by law, by the
------
Certificate of Incorporation or by these By-Laws, the presence, in person or
by proxy, of stockholders holding a majority of the stock of the Corporation
entitled to vote shall constitute a quorum at all meetings of the
stockholders. When a quorum is once present to organize a meeting, it is not
broken by the subsequent withdrawal of any stockholders. In case a quorum
shall not be present at any meeting, a majority in interest of the
stockholders entitled to vote thereat, present in person or by proxy,
shall have power to adjourn the meeting from time to time, without notice
other than an announcement at the meeting of the place, date and hour of the
adjourned meeting, until a quorum shall be present, and at the adjourned
meeting at which a quorum is present any business may be transacted that might
have been transacted at the meeting as originally called.
SECTION 7. WAIVERS. Notice of meeting need not be given to any
-------
stockholder who signs a waiver of notice, in person or by proxy, whether
before or after the meeting. The attendance of a stockholder at a meeting
shall constitute a waiver of notice of such meeting, except when the
stockholder attends a meeting for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened.
SECTION 8. PROXIES. Each stockholder entitled to vote at a meeting
-------
of stockholders or to express consent or dissent without a meeting may
authorize another person or persons to act for him or her by proxy. Every
proxy must be signed by the stockholder or his or her attorney-in-fact. No
proxy shall be valid after expiration of three years from the date thereof
unless otherwise provided in the proxy. Every proxy
2
<PAGE>
shall be revocable at the pleasure of the stockholder executing it, except as
otherwise provided by law.
SECTION 9. VOTING RIGHTS OF STOCKHOLDERS. Every
-----------------------------
stockholder of record shall be entitled at every meeting of the stockholders to
one vote for each share standing in such stockholder's name on the record of
stockholders of the Corporation, unless otherwise provided by statute, by
the Certificate of Incorporation or by these By-Laws.
SECTION 10. VOTING. Except as otherwise provided by law or by the
------
Certificate of Incorporation, all elections for directors shall be decided by a
plurality of the votes cast at a meeting of stockholders by the holders of
shares entitled to vote in the election, and all other corporate action to be
taken by stockholder vote shall be authorized by a majority of the votes cast at
a meeting of stockholders. All voting for the election of directors shall be by
ballot.
ARTICLE Ill
------- ---
DIRECTORS
SECTION 1. NUMBER, QUALIFICATION AND TERM OF OFFICE.
------ ------------- --- ---- -- ------
Except as may otherwise be provided in the Certificate of Incorporation or by
law, the business and affairs of the Corporation shall be managed by or under
the direction of a Board of Directors of four directors, which number may from
time to time be increased or decreased by vote of a majority of the Board of
Directors. No decrease in the number of directors shall shorten the term of any
incumbent director. The directors shall be elected at each annual meeting of the
stockholders and each director shall be elected to serve until his or her
successor shall be elected and shall qualify or until his or her earlier
resignation or removal.
SECTION 2. PLACE OF BOARD MEETINGS. Meetings of the Board of
----- -----------------
Directors, regular or special, may be held at the office of the Corporation or
at such other places, either within or without the State of Delaware, as it may
from time to time determine or as may be specified in the notice of any meeting.
SECTION 3. ANNUAL MEETINGS. An annual meeting of the Board of
------ --------
Directors shall be held immediately following the annual meeting of stockholders
at the place of such annual meeting of stockholders for the purposes of electing
officers of the Corporation and the committees of the Board of Directors and
transacting any other business which may properly come before the meeting.
Notice of annual meetings of the Board of Directors need not be given in order
legally to constitute the meeting, provided a quorum shall be present.
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SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of
------- --------
Directors may be held at such places and times as shall be determined from time
to time by resolution of the directors or at such other times and dates as the
Chairman of the Board or President shall determine and as shall be specified in
the notice of such meetings. Regular meetings may be held without notice if the
time and place of such meetings are fixed by the By-Laws or the Board of
Directors. Notice of regular meetings of the Board of Directors need not be
given except as otherwise required by statute or these By-Laws.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of
------- --------
Directors may be called by the Secretary of the Corporation upon the written
request of the Chairman of the Board or President or any two directors.
SECTION 6. NOTICE OF MEETINGS. Notice of each special meeting of the
------------------
Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 6, which notice shall state the time, place and, if required by statute
or these By-Laws, the purposes of such meeting. Notice of each such meeting
shall be mailed, postage thereon prepaid, to each director, by first-class mail,
at least four days before the day on which such meeting is to be held, or shall
be sent by facsimile transmission or comparable medium, or be delivered
personally or by telephone, at least twenty-four hours before the time at which
such meeting is to be held. Any meeting of the Board of Directors shall be a
legal meeting without notice thereof having been given, if all the directors of
the Corporation then holding office shall be present thereat.
SECTION 7. WAIVERS. Notice of a meeting need not be given to any
-------
director who submits a waiver of notice whether before or after the meeting or
who attends the meeting without protesting at the beginning of the meeting to
the transaction of any business because of lack of notice of the meeting.
SECTION 8. QUORUM OF DIRECTORS. Unless otherwise provided in
-------------------
the Certificate of Incorporation or these By-Laws, a majority of the directors
shall constitute a quorum for the transaction of business or of any specified
item of business. If at any meeting of the Board of Directors there shall be
less than a quorum present, a majority of those present may adjourn the meeting
from time to time until a quorum is obtained, and no further notice thereof need
be given other than by announcement at the meeting which shall be so adjourned.
SECTION 9. PARTICIPATION IN MEETINGS WITHOUT PHYSICAL PRESENCE.
------------- -- -------- ------- -------- --------
Any or all members of the Board or any committee of the Board may participate in
a meeting of the Board or the committee by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear the other at the same time. Participation by such means shall
constitute presence in person at the meeting.
4
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SECTION 10. BOARD ACTION. Unless otherwise provided in the
------------
Certificate of Incorporation or these By-Laws, the vote of a majority of the
directors present shall be the act of the Board. Each director shall have one
vote regardless of the number of shares, if any, which he or she may hold.
SECTION 11. ACTION WITHOUT MEETING. Any action required or
----------------------
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting, if a written consent
thereto is signed by all members of the Board, or of such committee, as the
case may be. The written consent or consents to each such action, including
the resolutions adopted thereby, shall be filed with the minutes of the
proceedings of the Board of Directors or of the committee taking such action.
SECTION 12. REMOVAL OF DIRECTORS. Any director or directors may be
--------------------
removed, either with or without cause, at any time by the affirmative vote of
the holders of a majority of all the shares of stock outstanding and entitled
to vote, at a special meeting of the stockholders called for that purpose and
the vacancies thus created may be filled, at the meeting held for the purpose
of removal, pursuant to Section 14 of this Article III.
SECTION 13. RESIGNATION. Any director may resign at any time. Such
-----------
resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the Board of Directors, President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 14. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
------------------------------------------
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the Board of Directors for any reason
may be filled only in accordance with the provisions of Section 1 general
stockholders agreement dated September 30, 1994 among Schein Holdings Inc.,
Miles Inc. ("Miles") and certain stockholders of Schein Holdings, Inc. (the
"General Stockholders Agreement"). The provisions of the preceding sentence
may be amended only with the written consent of Bayer Corporation ("Bayer,"
formerly Miles), and shall be of no further force or effect upon the
termination of Bayer's rights under Section 1 of the General Stockholders
Agreement, as provided in Section 1.5 of the General Stockholders Agreement.
A director elected to fill a vacancy shall be elected to hold office until
the next annual meeting of stockholders at which the election of such
director is in the regular order of business and until his or her successor
has been elected and qualified.
5
<PAGE>
ARTICLE IV
----------
SPECIAL NOTICE REQUIREMENTS
Except for an action by unanimous written consent of the Board
of Directors pursuant to Article SIXTH of the corporation's certificate of
incorporation, no action or meeting of directors or stockholders of the
Corporation shall have any force or effect, unless the action or meeting
is taken or held (a) in the case of meetings of stockholders or directors
of the Corporation, or any other action of stockholders or directors
of the Corporation, upon at least 15 business days' prior written notice
to Bayer and Bayer's nominee(s) to the Board of Directors and any observer
of Bayer (as provided in Section 1.1 of the General Stockholders
Agreement) and (b) in the case of any actions or meetings of directors or
stockholders of the Corporation, where in the good faith judgment of the
Chairman of the Board of Directors, the circumstances require an action or
a meeting to be held upon fewer than 15 business days' prior written
notice, upon at least 24 hours (in the case of actions or meetings of
directors) and five business days (in the case of actions or meetings of
the stockholders) prior written notice to Bayer and Bayer's nominee(s) to
the Board of Directors and any observer of Bayer (as provided in Section
1.1 of the General Stockholders Agreement), unless Bayer or the Bayer's
nominee(s) to the Board of Directors, as the case may be, shall otherwise
have expressly agreed to a shorter period of prior written notice or
walved such notice in writing. The provisions of this Article IV may be
amended only with the written consent of Bayer, and shall be of no
further force or effect upon the termination of Bayer's rights under
Section 1.4 of the General Stockholders Agreement, as provided in Section
1 of the General Stockholders Agreement.
ARTICLE V
---------
OFFICERS
SECTION 1. OFFICERS. The Board of Directors at its meeting
--------
following the annual meeting of stockholders shall elect a Chairman of the
Board, a President, one or more Vice-Presidents (one or more of whom
may be designated as Executive Vice Presidents or as Senior Vice
Presidents or by other designations), a Secretary, a Treasurer and such
other officers as it may from time to time determine, each of whom shall
have such duties, powers and functions as provided in these By-Laws and as
may be determined from time to time by resolution of the Board of
Directors. Any two or more offices may be held by the same person.
SECTION 2. ELECTION OR APPOINTMENT AND TERM OF OFFICE.
------------------------------------------
Each officer shall be elected or appointed by the Board of Directors to
hold office until the next annual meeting of the Board of Directors and
until such officer's successor is elected or appointed and qualified, or
until such earlier date as shall be prescribed by the Board of Directors
at the time of his or her election or appointment or until an
6
<PAGE>
earlier resignation, removal or displacement from office. Any officer may be
removed at any time, with or without cause, by vote of a majority of the
Board of Directors.
SECTION 3. VACANCIES. In the event of the resignation, removal
---------
or other displacement from office of an officer elected or appointed by the
Board of Directors, the Board, in its sole discretion, may elect or appoint a
successor to fill the unexpired term.
SECTION 4. THE CHAIRMAN OF THE BOARD. The Chairman of the Board
-------------------------
shall be the chief executive officer of the Corporation and shall have such
powers and duties as generally pertain to the responsibilities of chief
executive officer, including the management of the business and affairs of
the Corporation, subject only to the control and direction of the Board of
Directors. The Chairman of the Board shall, when present, preside as chairman
at all meetings of the stockholders and of the Board of Directors.
SECTION 5. THE PRESIDENT. The President reporting to the Chairman
-------------
of the Board, shall have such powers and duties as may be conferred by the
Board of Directors or as may be determined from time to time by the Chairman
of the Board, subject to the control and direction of the Board of Directors.
In the absence of the Chairman of the Board, the President shall preside at
meetings of the stockholders and of the Board of Directors.
SECTION 6. OTHER OFFICERS. The other officers of the Corporation,
--------------
subject and reporting to the Chairman of the Board and/or President, as
determined from time to time by the Board of Directors, shall each have
such powers and duties generally pertaining to their respective offices.
SECTION 7. SHARES OF OTHER CORPORATIONS. Whenever the Corporation
----------------------------
is the holder of shares of any other Corporation, any or all rights and
powers of the Corporation as such stockholder (including the attendance,
acting and voting at stockholders' meetings, and execution of waivers,
consents and proxies) may be exercised on behalf of the Corporation by the
Chairman of the Board, the President or by such other person as the Board
of Directors may authorize.
ARTICLE VI
----------
CERTIFICATES FOR SHARES
SECTION 1. CERTIFICATES. The certificates for shares of the
------------
Corporation shall be in such form as shall be determined by the Board of
Directors.
SECTION 2. FRACTIONAL SHARES. The Corporation may, but shall not be
-----------------
required to, issue fractions of a share. If the Corporation does not in any
case
7
<PAGE>
issue a fraction of a share, it shall instead pay to the stockholder an
amount in cash in lieu of such fraction of a share equal to the fair market
value of such fraction of a share, as deternuned in good faith by the Board
of Directors. In addition, the Corporation may at any time, elect to pay to
each holder of a fraction of a share an amount in cash in lieu of such
fraction of a share equal to the fair market value of such holder's fraction
of a share, as determined in good faith by the Board of Directors.
SECTION 3. LOST, MUTILATED STOLEN OR DESTOYED CERTIFICATES. The
-----------------------------------------------
Corporation may issue a new certificate or new certificates in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
mutilated, stolen or destroyed. The Board of Directors, in its discretion and
as a condition precedent to the issuance thereof, may prescribe such terms
and conditions as it deems expedient, and may require such indemnities as it
deems adequate, to protect the Corporation from any claim that may be made
against it with respect to any such certificate alleged to have been lost,
mutilated, stolen or destroyed.
SECTION 4. TRANSFER AGENT AND REGISTRAR; REGULATIONS.
-----------------------------------------
The Board of Directors may appoint transfer agents or registrars, or both,
and may require all share certificates to bear the signature of either or
both. The Board of Directors may make such additional rules and regulations
as it may deem expedient concerning the issue, transfer and registration of
certificates for shares of the Corporation.
SECTION 5. TRANSFER OF SHARES. Upon surrender to the Corporation
------------------
or the transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, the Corporation shall issue or cause the transfer
agent to issue a new certificate to the person entitled thereto, shall cancel
the old certificate and shall record such transfer upon the books of the
corporation.
ARTICLE VII
-----------
GENERAL
SECTION 1. FISCAL YEAR. The fiscal year of the Corporation shall be
----------
fixed and may from time to time be changed by resolution of the Board of
Directors.
SECTION 2. SEAL. The seal of the Corporation, if any, shall be
----
circular in form and bear the name of the Corporation, and the year and the
state of its organization.
SECTION 3. AMENDMENTS. These By-Laws may be amended or repealed or
----------
new By-Laws may be adopted by the affirmative vote of a majority of the
8
<PAGE>
stockholders, unless a greater percentage is required by the Certificate of
Incorporation or these By-Laws, at any annual or special meeting, if the notice
thereof mentions that amendment or repeal or the adoption of new By-Laws is one
of the purposes of such meeting. These By-Laws may also be amended or repealed
or new By-Laws may be adopted by the affirmative vote of a majority of the Board
of Directors given at any meeting, unless a greater percentage is required by
the Certificate of Incorporation or these By-Laws, if the notice thereof
mentions that amendment or repeal or the adoption of new By-Laws is one of the
purposes of such meeting; provided, however, that if any By-Laws regulating an
impending election of directors is adopted or amended or repealed by the Board
of Directors there shall be set forth in the notice of the next meeting of the
stockholders for the election of directors the By-Laws so adopted or amended or
repealed, together with a concise statement of the changes made.
9
<PAGE>
EXHIBIT 3.3
RESTATED
CERTIFICATE OF INCORPORATION
OF
SCHEIN PHARMACEUTICAL, INC.
(PURSUANT TO SECTION 242 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE)
It is hereby certified that:
1. The name of the corporation is Schein Pharmaceutical, Inc. (the
"Corporation"). The name under which the Corporation was originally
incorporated was Schein Pharmaceutical Corp., and the date of filing of the
original Certificate of Incorporation of the Corporation with the Secretary of
State of the State of Delaware was September 27, 1993.
2. The Board of Directors of the Corporation duly adopted a
resolution proposing and declaring it advisable that Certificate of
Incorporation of the Corporation be amended and restated in its entirety to read
as follows:
FIRST
The name of the corporation is Schein Pharmaceutical, Inc. (the
"Corporation").
SECOND
The purpose for which the Corporation is formed is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "Delaware General Corporation
Law").
<PAGE>
THIRD
B.
The total number of shares of capital stock which the Corporation
shall have authority to issue is One Hundred Million (100,000,000) shares of
common stock, $.01 par value per share (the "Common Stock"), of which Seventy-
Six Million (76,000,000) shares shall be Class A Common Stock, $.01 par value
per share (the "Class A Common Shares"), and Twenty-Four Million (24,000,000)
shares shall be Class B Common Stock, $.01 par value per share (the "Class B
Common Shares") and [Two Million (2,000,000)] shares of preferred stock, $.01
par value per share (the "Preferred Stock"). The Board of Directors may
authorize, without further stockholder approval, the issuance from time to time
of the preferred stock in one or more series with such designations and such
powers, preferences and rights, and such qualifications, limitations or
restrictions (which may differ with respect to each series) as the Board of
Directors may fix by resolution. Shares of capital stock of the Corporation may
be issued for such consideration, not less than the par value thereof, as shall
be fixed from time to time by the Board of Directors, and shares issued for such
consideration shall be fully paid and nonassessable.
C.
Each share of the Class B Common Shares issued and outstanding, or
issued and held in the treasury of the Corporation, shall be automatically
reclassified as and changed into one new share of the Corporation's Class A
Common Shares, without any action on the part of the holder thereof upon the
earliest to occur of (1) an initial public offering of shares of Common Stock,
(2) the Termination Date, as that term is defined in the Voting Trust Agreement
(the "Voting Agreement") dated September 30, 1994 among Schein Holdings, Inc.
("Holdings") and certain shareholders of Holdings, and Martin Sperber, as voting
trustee (the "Voting Trustee"), and (3) May 15, 1999. Upon the occurrence of a
transfer on the stock transfer records of the Corporation by a holder of any
share of Class B Common Shares, each such share of Class B Common Shares so
transferred shall be automatically reclassified as and changed into one new
share of the Corporation's Class A Common Shares, without any action on the part
of the holder thereof. Upon the occurrence of such a reclassification, each
outstanding share of the Class A Common Shares shall cease to be called "Class A
Common Shares" and shall be called "Common Stock", and shall otherwise be
unchanged. In
2
<PAGE>
those cases where a reclassification described in the preceding sentences would
cause a shareholder to receive a fractional share, the Corporation shall issue
to the shareholder a stock certificate representing such fractional share.
D.
The following is a statement of the powers, preferences and rights and
the qualifications, restrictions and limitations of the Common Stock of the
Corporation:
(1) Class A Common Shares and Class B Common Shares. Each Class A
-----------------------------------------------
Common Share shall be identical in every respect to each Class B Common Share,
except as provided in subparagraph (C)(4). Any Class B Common Share that is
converted into a Class A Common Share in accordance with paragraph B shall
thereafter be a Class A Common Share, with all the powers, preferences and
rights and the qualifications, restrictions and limitations, including, without
limitation, with respect to voting rights, as the Class A Common Share into
which it was converted. No amendment to this Certificate of Incorporation shall
in any manner amend, alter, change or repeal any provision (other than
provisions relating to voting in subparagraph (C)(4)) relating to the Class A
Common Shares without at the same time amending, altering, changing or repealing
in the same manner the corresponding provision relating to the Class B Common
Shares, without the consent of a majority of the outstanding Class B Common
Shares or until such time as there are no Class B Common Shares outstanding.
(2) Dividends. The holders of record of Common Stock shall be
---------
entitled to receive such dividends ratably as may from time to time be declared
by the Board of Directors out of funds legally available therefor.
(3) Liquidation. In the event of any liquidation, dissolution or
-----------
winding up of the affairs of the Corporation, voluntary or involuntary, the net
assets of the Corporation available to shareholders shall be distributed ratably
to the holders of Common Stock. Neither the merger or consolidation of the
Corporation with or into another corporation nor any sale, lease, conveyance or
other disposition of all or substantially all of the property, business or
assets of the Corporation shall be deemed to be a liquidation, dissolution or
winding up of the affairs of the Corporation within the meaning of this Article
THIRD.
(4) Voting Rights. Except as otherwise required by law, the holders
-------------
of Class A Common Shares shall be entitled to one vote in respect of each share
held on all matters voted upon by the shareholders of the Corporation. The
holders of Class B Common Shares shall not be entitled to vote on any matter, or
to
3
<PAGE>
participate in a shareholders meeting, or to receive notice of any meeting of
shareholders; provided, however, at any time the sum of (x) the number of Class
A Common Shares subject to the Voting Agreement plus (y) the number of Class A
----
Common Shares owned by the Voting Trustee (or his successor) or the Voting
Trustee's (or his successor's) affiliates (as defined in Rule 405 under the
Securities Act of 1933) ((x) and (y), together, the "Voting Number") constitutes
less than a majority of the outstanding voting shares of the Corporation and the
Voting Trustee (or his successor) under the Voting Agreement shall have given
written notice to the Corporation and to the known beneficial owner of such
shares that he wishes to vote the Required Number (as defined below) of Class B
Common Shares at a meeting of shareholders or by written consent for which a
record date for notice of and voting at the meeting or the consent shall have
been established, the Required Number of Class B Common Shares shall
automatically be entitled to participate in and vote at that meeting or in that
written consent on the same basis as Class A Common Shares (and shall remain
Class B Common Shares until reclassified and changed in accordance with this
Certificate of Incorporation). As used in this paragraph 4, the term "Required
Number" of Class B Common Shares, for purposes of any such meeting or written
consent, means a number of shares equal to (a) the sum of (i) one plus (ii) 50%
of the number of shares entitled to vote at the meeting or by consent, as the
case may be (it being understood that the Required Number of Class B Common
Shares shall be counted as though they were voting shares for purposes of this
clause (ii)), reduced by (b) the Voting Number on the record date for that
meeting or consent (it being understood that the only circumstance in which the
Required Number shall exceed zero is where the Corporation shall have issued a
number of voting shares that results in the Voting Number at a particular time
being less than a majority of the outstanding voting shares at that time).
(5) Other Rights. Except as set forth above, the Common Stock shall
------------
not bear any preferential, conversion or preemptive rights. Without limiting
the generality of the foregoing, no class of Common Stock may be split,
consolidated or reclassified in any manner other than as expressly provided
herein, unless the other class of Common Stock is split, consolidated or
reclassified, as the case may be, on an identical basis.
E.
Upon the filing in the office of the Secretary of State of the State
of Delaware of this Restated Certificate of Incorporation whereby this Article
Fourth is amended to read as set forth herein, each issued and outstanding share
of Class A Common Shares, par value $.01 per share, of the Corporation shall be
automatically reclassified and
4
<PAGE>
changed into 123 validly issued, fully paid and nonassessable shares of Class A
Common Shares, and each issued and outstanding share of Class B Common Shares,
par value $.01 per share, of the Corporation shall be automatically reclassified
and changed into 123 validly issued, fully paid and nonassessable shares of
Class B Common Shares. No scrip or fractional shares will be issued by reason of
this amendment.
FOURTH
The registered office of the Corporation in the State of Delaware is
to be located at 1013 Centre Road, Wilmington, County of New Castle, Delaware,
19805. The name of its registered agent at that address is Corporation Service
Company.
FIFTH
The duration of the Corporation is to be perpetual.
SIXTH
(1) The Board of Directors shall be divided into three classes, as
nearly equal in number as the then total number of directors constituting the
whole board permits, with the term of office of one class expiring each year.
At the next election of directors, directors of the first class shall be elected
to hold office for a term expiring at the next succeeding annual meeting,
directors of the second class shall be elected to hold office for a term
expiring at the second succeeding annual meeting and directors of the third
class shall be elected to hold office for a term expiring at the third
succeeding annual meeting. Subject to the foregoing, at each annual meeting of
stockholders, the successors to the class of directors whose term shall then
expire shall be elected to hold office for a term expiring at the third
succeeding annual meeting and each director so elected shall hold office until
his successor is elected and qualified, or until his earlier resignation or
removal. If the number of directors is changed, any increase or decrease in the
number of directors shall be apportioned among the three classes to make all
classes as nearly equal in number as possible, and the Board of Directors shall
decide which class shall contain an unequal number of directors.
(2) Only persons who are nominated in accordance with the procedures
set forth in this paragraph shall be eligible to serve as directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at an annual meeting of stockholders (a) by or at the direction of
the Board
5
<PAGE>
of Directors or (b) by or on behalf of a stockholder of the
Corporation, or a duly authorized proxy for such stockholder, who is a
stockholder of record at the time of giving notice provided for in this
paragraph and who shall be entitled to vote for the election of directors at the
meeting. Any nominations not made by or at the direction of the Board of
Directors must be made pursuant to a notice in writing to the Secretary of the
Corporation delivered or mailed to, and received at, the principal executive
offices of the Corporation not fewer than 60 days or more than 90 days prior to
the anniversary date of the immediately preceding annual meeting; provided,
--------
however, that in the event the annual meeting with respect to which such notice
- -------
is to be tendered is not held within 30 days before or after such anniversary
date, notice by the stockholder to be timely must be received not earlier than
90 days prior to such annual meeting and not later than 60 days prior to such
annual meeting; and further provided, however, that, notwithstanding the
------- -------- -------
foregoing, with respect to the first annual meeting of stockholders after
January 2, 1998, such notice by the stockholder must be received at the
principal executive offices of the Corporation prior to the close of business on
the tenth day following the date on which notice of the meeting was first given
or made to stockholders generally. Such stockholder's notice shall set forth (a)
as to each person whom the stockholder proposes to nominate for election or
reelection as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934 (including such person's written consent to
being named as a nominee and to serving as a director, if elected); and (b) as
to the stockholder giving the notice (i) the name and address, as they appear on
the Corporation's books, of such stockholder, (ii) the class and number of
shares of stock of the Corporation beneficially owned by such stockholder and
represented by proxy and (iii) a description of all arrangements or
understandings between such stockholder and any other person or persons
(including their names) in connection with such nomination and any material
interest of such stockholder in such nomination. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination that pertains
to the nominee. If the Board of Directors shall determine, based on the facts,
that a nomination was not made in accordance with the above procedures, the
Chairman of the meeting shall so declare to the meeting and the defective
nomination shall be disregarded.
(3) Unless a greater vote requirement in any matter is provided in
this Certificate of Incorporation or the By-laws, the affirmative vote of a
majority of the directors present and acting at a duly constituted meeting at
which a majority of the
6
<PAGE>
entire Board of Directors is present and acting, is sufficient for all action of
the Board of Directors.
(4) Any action required or permitted to be taken by the Board of
Directors may be taken without a meeting if all members of the board consent in
writing to the adoption of resolutions authorizing the action.
(5) Elections of directors need not be by ballot unless the By-Laws of
the Corporation shall so provide.
SEVENTH
B.
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty by such director
as a director, provided that this Article SEVENTH shall not eliminate or limit
the liability of a director (1) for any breach of such director's duty of
loyalty to the Corporation or its stockholders, (2) for acts or omissions of
such director not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of the Delaware General
Corporation Law, or (4) for any transaction from which such director derived an
improper personal benefit, in respect of which such breach of fiduciary duty
occurred. If the Delaware General Corporation Law is amended after approval by
the stockholders of this Article SEVENTH to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended from
time to time.
C.
(1) Right of Indemnification. Each person who was or is made a party
------------------------
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, (a) is or was a director or
officer of the Corporation or (b) is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans (whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent), shall be indemnified and held harmless by the Corporation to the
7
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fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) actually and reasonably incurred or suffered
by such person in connection therewith and such indemnification shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in paragraph (2) hereof the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the corporation. The right to indemnification conferred in this Article SEVENTH
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that, if the Delaware General
Corporation Law requires, the payment of such expenses incurred by a director or
officer in his or her capacity as such (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service with respect to an employee benefit plan)
in advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Article SEVENTH or otherwise. The Corporation may, by action of its Board
of Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
(2) Right of Claimant to Bring Suit. If a claim under paragraph (1)
-------------------------------
of this Article SEVENTH is not paid in full by the Corporation within thirty
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the
8
<PAGE>
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
(3) Non-Exclusivity of Rights. The right to indemnification and the
-------------------------
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article SEVENTH shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
(4) Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, against
any such expense, liability or loss, whether or not the Corporation would have
the power to indemnify such person against such expense, liability or loss under
the Delaware General Corporation Law.
EIGHTH
Subject to the provisions of Article NINTH below, the directors of the
Corporation may, by a vote of a majority of directors present at a meeting in
which a quorum is present, adopt, amend or repeal any By-Law.
NINTH
The Corporation shall not, and shall not permit any of its
subsidiaries to, and no officer, employee or other agent of the Corporation or
any of its subsidiaries shall have the authority, in the name or on behalf of
the Corporation or any of its subsidiaries to, directly or indirectly, without
the prior written consent of Bayer Corporation ("Bayer," formerly Miles Inc.)
(which consent shall be deemed given, if a majority of Bayer's nominees to the
Board of Directors of the Corporation consent in writing (it being understood
that consent given in this manner shall not be deemed the exclusive method of
giving consent)) amend or restate the Corporation's certificate of incorporation
or By-Laws in any respect, (a) as a result of which
9
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the ability to (i) elect a majority of the members of the Board of Directors of
the Corporation, (ii) adopt an agreement of merger or consolidation, (iii)
approve a sale of all or substantially all the assets of the Corporation or (iv)
adopt an amendment to the Corporation's certificate of incorporation or by-laws
would require the vote of more than a majority of the outstanding shares of
Common Stock entitled to vote thereon, (b) that would adversely affect Bayer
differently from other holders of shares of Common Stock or (c) that, by its
terms, would prohibit any foreign national from holding shares of Common Stock
or serving as a director.
This Article NINTH may be amended only with the prior written consent
of Bayer (as described above in this Article NINTH), and the provisions of this
Article NINTH shall terminate and be of no further force or effect upon the
termination of Bayer's rights under Section 2.5 of the General Shareholders
Agreement dated September 30, 1994 among Holdings, Miles Inc. and certain
shareholders of Holdings, as provided in such General Shareholders Agreement.
TENTH
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders, of the
Corporation, as the case may be, and also on the Corporation.
10
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3. In lieu of a vote, written consent to the foregoing amendment has
been given by the stockholders of the Corporation, in accordance with Section
228 of the General Corporation Law of the State of Delaware, and such amendment
has been duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
4. This amendment to the Certificate of Incorporation shall be
effective on and as of the date of filing this Certificate of Amendment with the
office of the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed in its name by its President and attested to by its
Secretary this _____ day of January, 1998, and the statements contained herein
are affirmed as true under penalties of perjury.
SCHEIN PHARMACEUTICAL, INC.
By:___________________________
Martin Sperber
President
ATTEST:
By:___________________________
11
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED BY-LAWS
OF
SCHEIN PHARMACEUTICAL, INC.
----------
ARTICLE I
----------
OFFICES
The Corporation shall maintain a registered office in the State of
Delaware as required by law. The Corporation may also have offices at other
places, within and without the State of Delaware.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of stockholders shall be held
-----------------
at the principal office of the Corporation or such place within or without the
State of Delaware as the Board of Directors shall authorize.
SECTION 2. ANNUAL MEETINGS. The annual meeting of stockholders for
---------------
the election of directors and the transaction of such other business as may
properly come before the meeting shall be held at such times as may be fixed
from time to time by the Board of Directors. The Board of Directors acting by
resolution may postpone and reschedule any previously scheduled annual meeting
of stockholders.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders may be
----------------
called by the Board of Directors or by the Chairman of the Board. Such request
shall state the purpose or purposes of the proposed meeting. Business
transacted at a special meeting shall be confined to the purpose or purposes
stated in the notice. The Board of Directors acting by resolution may postpone
and reschedule any previously scheduled special meeting of stockholders.
SECTION 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Written notice,
----------------------------------
stating the place, date and time of the meeting, the purpose or purposes of the
meeting and, unless it is the annual meeting, an indication that it is being
issued by or at the direction of the person or persons calling the meeting,
shall be given to each stockholder entitled to vote thereat, except
<PAGE>
that (a) it shall not be necessary to give notice to any stockholder who submits
a signed waiver of notice before or after the meeting, and (b) no notice of an
adjourned meeting need be given, except when required by law or if the time and
place are announced at the meeting at which the adjournment is taken, provided
that, if adjournment is for more than 30 days or if, after the adjournment, a
new record date is fixed for the meeting, notice of the adjourned meeting shall
be given. Each notice of a meeting shall be given, personally or by mail, not
fewer than 10 or more than 60 days before the meeting and shall state the time
and place of the meeting, and, unless it is the annual meeting, shall state at
whose direction or request the meeting is called and the purposes for which it
is called. If mailed, notice shall be considered given when mailed to a
stockholder at his address on the Corporation's records. The attendance of any
stockholder at a meeting, without protesting at the beginning of the meeting
that the meeting is not lawfully called or convened, shall constitute a waiver
of notice by him.
SECTION 5. FIXING RECORD DATE. In order that the Corporation may
------------------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date for any such determination of stockholders. Such date shall not be more
than sixty nor less than ten days before the date of such meeting, nor more than
sixty days prior to any other action. If no record date is fixed it shall be
determined in accordance with the provisions of law. When a determination of
stockholders of record entitled to notice of or to vote at any meeting of
stockholders has been made as provided in this Section 5, such determination
shall apply to any adjournment thereof, unless the Board of Directors fixes a
new record date for the adjourned meeting or further notice is required by
statute.
SECTION 6. QUORUM. Except as otherwise required by law, by the
------
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the Corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
When a quorum is once present to organize a meeting, it is not broken by the
subsequent withdrawal of any stockholders. In case a quorum shall not be
present at any meeting, a majority in interest of the stockholders entitled to
vote thereat, present in person or by proxy, shall have power to adjourn the
meeting from time to time, without notice other than an announcement at the
meeting of the place, date and hour of the adjourned meeting, until a quorum
shall be present, and at the adjourned meeting at which a quorum is present any
business may be transacted that might have been transacted at the meeting as
originally called.
SECTION 7. WAIVERS. Notice of meeting need not be given to any
-------
stockholder who signs a waiver of notice, in person or by proxy, whether before
or after the meeting. The attendance of a stockholder at a meeting shall
constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
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SECTION 8. PROXIES. Each stockholder entitled to vote at a meeting
-------
of stockholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him or her by proxy. Every proxy must be
signed by the stockholder or his or her attorney-in-fact. No proxy shall be
valid after expiration of three years from the date thereof unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except as otherwise provided by law.
SECTION 9. VOTING RIGHTS OF STOCKHOLDERS. Every stockholder of
-----------------------------
record shall be entitled at every meeting of the stockholders to one vote for
each share standing in such stockholder's name on the record of stockholders of
the Corporation, unless otherwise provided by statute, by the Certificate of
Incorporation or by these By-Laws.
SECTION 10. VOTING. Except as otherwise provided by law or by the
Certificate of Incorporation, all elections for directors shall be decided by a
plurality of the votes cast at a meeting of stockholders by the holders of
shares entitled to vote in the election, and all other corporate action to be
taken by stockholder vote shall be authorized by a majority of the votes cast at
a meeting of stockholders. All voting for the election of directors shall be by
ballot.
ARTICLE III
-----------
DIRECTORS
SECTION 1. NUMBER, QUALIFICATION AND TERM OF OFFICE. Except as may
----------------------------------------
otherwise be provided in the Certificate of Incorporation or by law, the
business and affairs of the Corporation shall be managed by or under the
direction of a Board of Directors of six directors, which number may from time
to time be increased or decreased by vote of majority of the Board of Directors.
No decrease in the number of directors shall shorten the term of any incumbent
director. One class of directors shall be elected at each annual meeting of
stockholders by a plurality of the votes cast. The nomination, classification
and term of directors shall be governed by the Corporation's certificate of
incorporation.
SECTION 2. PLACE OF BOARD MEETINGS. Meetings of the Board of
-----------------------
Directors, regular or special, may be held at the office of the Corporation or
at such other places, either within or without the State of Delaware, as it may
from time to time determine or as may be specified in the notice of any meeting.
SECTION 3. ANNUAL MEETINGS. An annual meeting of the Board of
---------------
Directors shall be held immediately following the annual meeting of stockholders
at the place of such annual meeting of stockholders for the purposes of electing
officers of the Corporation and the committees of the Board of Directors and
transacting any other business which may properly come before the meeting.
Notice of annual meetings of the Board of
3
<PAGE>
Directors need not be given in order legally to constitute the meeting, provided
a quorum shall be present.
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of
----------------
Directors may be held at such places and times as shall be determined from time
to time by resolution of the directors or at such other times and dates as the
Chairman of the Board or President shall determine and as shall be specified in
the notice of such meetings. Regular meetings may be held without notice if the
time and place of such meetings are fixed by the By-Laws or the Board of
Directors. Notice of regular meetings of the Board of Directors need not be
given except as otherwise required by statute or these By-Laws.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of
----------------
Directors may be called by the Secretary of the Corporation upon the written
request of the Chairman of the Board or President or any two directors.
SECTION 6. NOTICE OF MEETINGS. Notice of each special meeting of the
------------------
Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 6, which notice shall state the time, place and, if required by statute
or these By-Laws, the purposes of such meeting. Notice of each such meeting
shall be mailed, postage thereon prepaid, to each director, by first-class mail,
at least four days before the day on which such meeting is to be held, or shall
be sent by facsimile transmission or comparable medium, or be delivered
personally or by telephone, at least twenty-four hours before the time at which
such meeting is to be held. Any meeting of the Board of Directors shall be a
legal meeting without notice thereof having been given, if all the directors of
the Corporation then holding office shall be present thereat.
SECTION 7. WAIVERS. Notice of a meeting need not be given to any
-------
director who submits a waiver of notice whether before or after the meeting or
who attends the meeting without protesting at the beginning of the meeting to
the transaction of any business because of lack of notice of the meeting.
SECTION 8. QUORUM OF DIRECTORS. Unless otherwise provided in the
-------------------
Certificate of Incorporation or these By-Laws, a majority of the directors shall
constitute a quorum for the transaction of business or of any specified item of
business. If at any meeting of the Board of Directors there shall be less than
a quorum present, a majority of those present may adjourn the meeting from time
to time until a quorum is obtained, and no further notice thereof need be given
other than by announcement at the meeting which shall be so adjourned.
SECTION 9. PARTICIPATION IN MEETINGS WITHOUT PHYSICAL PRESENCE. Any
---------------------------------------------------
or all members of the Board or any committee of the Board may participate in a
meeting of the Board or the committee by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means shall
constitute presence in person at the meeting.
4
<PAGE>
SECTION 10. BOARD ACTION. Unless otherwise provided in the
------------
Certificate of Incorporation or these By-Laws, the vote of a majority of the
directors present shall be the act of the Board. Each director shall have one
vote regardless of the number of shares, if any, which he or she may hold.
SECTION 11. ACTION WITHOUT MEETING. Any action required or permitted
----------------------
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if a written consent thereto is signed
by all members of the Board, or of such committee, as the case may be. The
written consent or consents to each such action, including the resolutions
adopted thereby, shall be filed with the minutes of the proceedings of the Board
of Directors or of the committee taking such action.
SECTION 12. REMOVAL OF DIRECTORS. Any director or directors may be
--------------------
removed, either with or without cause, at any time by the affirmative vote of
the holders of a majority of all the shares of stock outstanding and entitled to
vote, at a special meeting of the stockholders called for that purpose and the
vacancies thus created may be filled, at the meeting held for the purpose of
removal, pursuant to Section 14 of this Article III.
SECTION 13. RESIGNATION. Any director may resign at any time. Such
-----------
resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the Board of Directors, President or Secretary. The acceptance of a resignation
shall not be necessary to make it effective.
SECTION 14. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Newly created
-----------------------------------------
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board of Directors for any reason may be filled only
in accordance with the provisions of Section 1 of the general stockholders
agreement dated September 30, 1994 among Schein Holdings, Inc., Miles Inc.
("Miles") and certain stockholders of Schein Holdings, Inc. (the "General
Stockholders Agreement"). The provisions of the preceding sentence may be
amended only with the written consent of Bayer Corporation ("Bayer," formerly
Miles), and shall be of no further force or effect upon the termination of
Bayer's rights under Section 1 of the General Stockholders Agreement, as
provided in Section 1.5 of the General Stockholders Agreement. A director
elected to fill a vacancy shall be elected to hold office until the next annual
meeting of stockholders at which the election of such director is in the regular
order of business and until his or her successor has been elected and qualified.
5
<PAGE>
ARTICLE IV
----------
SPECIAL NOTICE REQUIREMENTS
Except for an action by unanimous written consent of the Board of
Directors pursuant to Article SIXTH of the corporation's certificate of
incorporation, no action or meeting of directors or stockholders of the
Corporation shall have any force or effect, unless the action or meeting is
taken or held (a) in the case of meetings of stockholders or directors of the
Corporation, or any other action of stockholders or directors of the
Corporation, upon at least 15 business days' prior written notice to Bayer and
Bayer's nominee(s) to the Board of Directors and any observer of Bayer (as
provided in Section 1.1 of the General Stockholders Agreement) and (b) in the
case of any actions or meetings of directors or stockholders of the Corporation,
where in the good faith judgment of the Chairman of the Board of Directors, the
circumstances require an action or a meeting to be held upon fewer than 15
business days' prior written notice, upon at least 24 hours (in the case of
actions or meetings of directors) and five business days (in the case of actions
or meetings of the stockholders) prior written notice to Bayer and Bayer's
nominee(s) to the Board of Directors and any observer of Bayer (as provided in
Section 1.1 of the General Stockholders Agreement), unless Bayer or the Bayer's
nominee(s) to the Board of Directors, as the case may be, shall otherwise have
expressly agreed to a shorter period of prior written notice or waived such
notice in writing. The provisions of this Article IV may be amended only with
the written consent of Bayer, and shall be of no further force or effect upon
the termination of Bayer's rights under Section 1.4 of the General Stockholders
Agreement, as provided in Section 1 of the General Stockholders Agreement.
ARTICLE V
---------
OFFICERS
SECTION 1. OFFICERS. The Board of Directors at its meeting following
--------
the annual meeting of stockholders shall elect a Chairman of the Board, a
President, one or more Vice-Presidents (one or more of whom may be designated as
Executive Vice Presidents or as Senior Vice Presidents or by other
designations), a Secretary, a Treasurer and such other officers as it may from
time to time determine, each of whom shall have such duties, powers and
functions as provided in these By-Laws and as may be determined from time to
time by resolution of the Board of Directors. Any two or more offices may be
held by the same person.
SECTION 2. ELECTION OR APPOINTMENT AND TERM OF OFFICE. Each officer
------------------------------------------
shall be elected or appointed by the Board of Directors to hold office until the
next annual meeting of the Board of Directors and until such officer's successor
is elected or appointed and qualified, or until such earlier date as shall be
prescribed by the Board of Directors at the time of his or her election or
appointment or until an earlier resignation, removal or displacement from
office. Any officer may be removed at any time, with or without cause, by vote
of a majority of the Board of Directors.
6
<PAGE>
SECTION 3. VACANCIES. In the event of the resignation, removal or
---------
other displacement from office of an officer elected or appointed by the Board
of Directors, the Board, in its sole discretion, may elect or appoint a
successor to fill the unexpired term.
SECTION 4. THE CHAIRMAN OF THE BOARD. The Chairman of the Board
-------------------------
shall be the chief executive officer of the Corporation and shall have such
powers and duties as generally pertain to the responsibilities of chief
executive officer, including the management of the business and affairs of the
Corporation, subject only to the control and direction of the Board of
Directors. The Chairman of the Board shall, when present, preside as chairman
at all meetings of the stockholders and of the Board of Directors.
SECTION 5. THE PRESIDENT. The President reporting to the Chairman of
-------------
the Board, shall have such powers and duties as may be conferred by the Board of
Directors or as may be determined from time to time by the Chairman of the
Board, subject to the control and direction of the Board of Directors. In the
absence of the Chairman of the Board, the President shall preside at meetings of
the stockholders and of the Board of Directors.
SECTION 6. OTHER OFFICERS. The other officers of the Corporation,
--------------
subject and reporting to the Chairman of the Board and/or President, as
determined from time to time by the Board of Directors, shall each have such
powers and duties generally pertaining to their respective offices.
SECTION 7. SHARES OF OTHER CORPORATIONS. Whenever the Corporation is
----------------------------
the holder of shares of any other Corporation, any or all rights and powers of
the Corporation as such stockholder (including the attendance, acting and voting
at stockholders' meetings, and execution of waivers, consents and proxies) may
be exercised on behalf of the Corporation by the Chairman of the Board, the
President or by such other person as the Board of Directors may authorize.
ARTICLE VI
----------
CERTIFICATES FOR SHARES
SECTION 1. CERTIFICATES. The certificates for shares of the
------------
Corporation shall be in such form as shall be determined by the Board of
Directors.
SECTION 2. FRACTIONAL SHARES. The Corporation may, but shall not be
-----------------
required to, issue fractions of a share. If the Corporation does not in any
case issue a fraction of a share, it shall instead pay to the stockholder an
amount in cash in lieu of such fraction of a share equal to the fair market
value of such fraction of a share, as determined in good faith by the Board of
Directors. In addition, the Corporation may at any time elect to pay to each
holder of a fraction of a share an amount in cash in lieu of such fraction of a
share equal to the fair market value of such holder's fraction of a share, as
determined in good faith by the Board of Directors.
7
<PAGE>
SECTION 3. LOST, MUTILATED, STOLEN OR DESTROYED CERTIFICATES. The
-------------------------------------------------
Corporation may issue a new certificate or new certificates in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
mutilated, stolen or destroyed. The Board of Directors, in its discretion and
as a condition precedent to the issuance thereof, may prescribe such terms and
conditions as it deems expedient, and may require such indemnities as it deems
adequate, to protect the Corporation from any claim that may be made against it
with respect to any such certificate alleged to have been lost, mutilated,
stolen or destroyed.
SECTION 4. TRANSFER AGENT AND REGISTRAR; REGULATIONS. The Board of
-----------------------------------------
Directors may appoint transfer agents or registrars, or both, and may require
all share certificates to bear the signature of either or both. The Board of
Directors may make such additional rules and regulations as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of the Corporation.
SECTION 5. TRANSFER OF SHARES. Upon surrender to the Corporation or
------------------
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, the Corporation shall issue or cause the transfer agent to issue a new
certificate to the person entitled thereto, shall cancel the old certificate and
shall record such transfer upon the books of the corporation.
ARTICLE VII
-----------
GENERAL
SECTION 1. FISCAL YEAR. The fiscal year of the Corporation shall be
-----------
fixed and may from time to time be changed by resolution of the Board of
Directors.
SECTION 2. SEAL. The seal of the Corporation, if any, shall be
----
circular in form and bear the name of the Corporation, and the year and the
state of its organization.
SECTION 3. AMENDMENTS. These By-Laws may be amended or repealed or
----------
new By-Laws may be adopted by the affirmative vote of a majority of the
stockholders, unless a greater percentage is required by the Certificate of
Incorporation or these By-Laws, at any annual or special meeting, if the notice
thereof mentions that amendment or repeal or the adoption of new By-Laws is one
of the purposes of such meeting. These By-Laws may also be amended or repealed
or new By-Laws may be adopted by the affirmative vote of a majority of the Board
of Directors given at any meeting, unless a greater percentage is required by
the Certificate of Incorporation or these By-Laws, if the notice thereof
mentions that amendment or repeal or the adoption of new By-Laws is one of the
purposes of such meeting; provided, however, that if any By-Laws regulating an
impending election of directors is adopted or amended or repealed by the Board
of Directors there shall be set forth in the notice of the next meeting of the
stockholders for the election of directors the By-Laws so adopted or amended or
repealed, together with a concise statement of the changes made.
8
<PAGE>
EXHIBIT 9.1
VOTING TRUST AGREEMENT
Dated September 30, 1994
------------------------
The parties to this agreement are Schein Holdings, Inc., a New York
corporation (the "Company"), Marvin H. Schein, the trust established by Marvin
H. Schein under trust agreement dated December 31, 1993 ("Marvin's 1993 Trust"),
the trust established by Marvin H. Schein under trust agreement dated September
9, 1994 ("Marvin's 1994 Trust"), Pamela Schein, the trust established by the
Trustees under Article Fourth of the Will of Jacob H. Schein for the benefit of
Pamela Schein and her issue under trust agreement dated September 29, 1994 ("Pam
Schein's Issue's Trust"), Pamela Joseph, and the trust established by Pamela
Joseph under trust agreement dated September 28, 1994 ("Pam Joseph's Issue's
Trust") (collectively, the "Shareholders"), and Martin Sperber, as voting
trustee (in such capacity and together with his successors designated in
accordance with section 5, the "Trustee").
The Shareholders own an aggregate of 184,590 shares of the Company's
common stock (the "Shares") and are parties to a general shareholders agreement
and a continuing shareholders agreement (the "Continuing Shareholders
Agreement"), each dated this date (collectively, the "Shareholders Agreements").
The parties agree as follows:
<PAGE>
1. Shares Held in Trust.
--------------------
1.1 Transfer of Shares to Voting Trustee. Simultaneously with the
------------------------------------
execution of this agreement, (a) the Shareholders are delivering to the
secretary of the Company, for cancellation, stock certificates (together with
stock powers executed in blank) for the Shares, free and clear of any claim,
lien, security interest or other encumbrance (a "Lien"), other than Liens
imposed upon such Shares by the Shareholders Agreements and this agreement, and
(b) the Company is issuing and delivering to the Trustee a stock certificate for
184,590 shares of common stock of the Company, registered in the name of the
Trustee, in his capacity as such, and legended to indicate that such shares are
subject to this agreement (which fact also shall be stated in the stock ledger
of the Company). (The shares so issued to the Trustee, together with
any additional securities referred to in section 3, are referred to collectively
as the "Trust Shares.")
1.2 Voting Trust Certificates. Simultaneously with the execution of
-------------------------
this agreement, the Trustee is issuing and delivering to each Shareholder a
trust certificate (a "Trust Certificate") for the number of shares delivered by
that Shareholder under section 1.1(a). The Trustee shall cause accurate records
to be kept setting forth the name and address of each holder of trust
certificates, the number of Trust Shares represented by each trust certificate,
any dividends or other payments or distributions made in respect of the Trust
Shares and
2
<PAGE>
transfers of Trust Shares permitted by this agreement. Such list and record
shall be open at all reasonable times to the inspection of the Company's
shareholders and the holder(s) of trust certificates. The trust certificates
shall be in the form of exhibit A.
1.3 Trustee to Hold Subject to Agreement. The Trustee shall hold
------------------------------------
and vote (including, for all purposes of this agreement, the giving of consent)
the Trust Shares in accordance with this agreement.
2. Authority of Trustee to Vote the Shares.
---------------------------------------
2.1 Authority. The Trustee shall have full and exclusive power and
---------
authority to vote the Trust Shares in person or by proxy as set forth in section
2.2 (or to refrain from voting) at all meetings of the shareholders of the
Company or by written consent in lieu of such meetings, including, without
limitation, (a) for the election of directors, (b) with respect to matters as to
which the Trustee may have a conflict of interest (provided the Trustee
discloses to the board of directors of the Company and the Shareholders before
any such vote any direct or indirect material financial interest or other
material interest of the Trustee (other than solely by reason of his status as
an officer, director or shareholder of the Company or solely by reason of his
status as Trustee under this agreement) in any matter to be voted on (a
"Conflict Transaction")) and (c) with respect to all other matters for which
shares of the Company's common stock are
3
<PAGE>
entitled to vote. The Trustee shall use his best efforts to give the
Shareholders not fewer than 48 hours' prior written notice of any such meeting
or execution of any such written consent, the subject matter of the meeting or
consent, how he intends to vote (or abstain from voting) with respect to the
subject matter of the meeting or consent and, if applicable, a description in
reasonable detail of the nature of any Conflict Transaction that is the subject
matter of the meeting or consent. Notwithstanding anything to the contrary in
this section 2.1, (i) the Trustee may not, without the prior written consent of
holders of trust certificates or stock certificates representing a majority of
the sum of (A) the Trust Shares plus (B) shares of the Company's common stock
----
held by the Trustee or the Trustee's Permitted Transferees (as defined in the
Continuing Shareholders Agreement), vote in favor of (y) a merger or
consolidation of the Company with or into another entity (except for a merger of
the Company into a wholly-owned subsidiary solely for the purpose of effecting a
reincorporation of the Company as a Delaware corporation) or (z) a liquidation
or dissolution of the Company, or a sale, lease or other transfer, in one
transaction or a series of transactions, of all or substantially all the assets
of the Company (whether directly, or indirectly through the transfer of assets
of its subsidiaries) or of a Significant Business Unit (as defined below); and
(ii) (x) with respect to Conflict Transactions, the Trustee shall vote
consistently with the vote of the disinterested directors of the Company, (y) in
voting (or abstaining from voting) the Trust Shares, the Trustee shall be
4
<PAGE>
charged with the same duties of care and loyalty to the Company, as if the
Trustee were a director of a corporation considering a matter to be voted on by
the board of directors of that corporation, and (z) the Trustee shall not vote
the Trust Shares (1) in favor of the Company taking any action that would
violate the Shareholders Agreements or (2) with a view to affecting materially
and adversely any Shareholder's rights under this agreement or the Shareholders
Agreements (it being understood that nothing in this section shall in any manner
adversely affect the right of any Shareholder to assert against the Company a
claim that the Shareholder is entitled to damages resulting from any action
taken by the Company or the Trustee pursuant to any shareholder vote). For
purposes of this agreement, "Significant Business Unit" means a Significant
Subsidiary (as defined in Rule 1-02 of Regulation S-X) of the Company in respect
of which the condition specified in paragraph (c) of the definition of
significant subsidiary in Rule 1-02 of Regulation S-X exceeds 30%.
2.2 Other Matters. Subject to section 6.2, the Trustee's power to
-------------
vote (or refrain from voting) the Trust Shares pursuant to this agreement shall
be irrevocable until the termination of this agreement in accordance with
section 6.1. The Trustee shall have the right to waive notice of any meeting of
shareholders of the Company, provided the Trustee gives each of the Shareholders
at least 10 days prior written notice (except in the case of extenuating
circumstances, in which case notice
5
<PAGE>
shall be given at the earliest practicable date) that the notice of meeting is
being or has been waived. The Trustee may exercise any power or perform any act
under this agreement by proxy or through an agent or attorney (it being
understood, however, that the Trustee may not confer discretionary authority on
any such proxy, agent or attorney).
2.3 No Disqualification. Nothing in this agreement shall be deemed
-------------------
to prevent the Trustee from serving the Company or any of its subsidiaries as an
officer, director, employee or in any other capacity and receiving compensation
for that service or from engaging in any transaction (subject, if appropriate,
to the requirements of section 2.1) or providing any service not otherwise in
contravention of this agreement.
2.4 No Authority to Transfer Shares. The Trustee shall have no power
-------------------------------
or authority to transfer the Trust Shares, except in accordance with section 7,
and any other transfer or attempted transfer shall be void and of no effect.
3. Additional Securities. Any stock certificates for any voting
---------------------
securities of the Company (or any successor (by merger or otherwise, other than
a successor resulting from a Terminating Merger (as defined in section 6.1)) to
all or substantially all of the business of the Company) issued by way of
dividend, stock split, recapitalization, reorganization, merger (other than a
Terminating Merger (as defined in section 6.1)), consolidation, conversion or
any other change or adjustment in respect of the
6
<PAGE>
Trust Shares shall be delivered by the Company to the Trustee, who shall hold
such securities in accordance with this agreement, and the Trustee shall,
immediately following receipt, issue and deliver, or cause to be issued and
delivered, trust certificates for such changed or additional securities to the
appropriate holder(s) of the trust certificates.
4. Dividends. Except as otherwise provided in section 3 with
---------
respect to voting securities, if the Company shall pay dividends on, or
distribute other securities or property in respect of, the Trust Shares, the
Company shall pay or distribute the same to the Trustee, who shall collect and
receive such dividends, other securities or property, and shall promptly, and in
no event later than five days after receipt, deliver such dividends, other
securities or property, without offset or deduction of any kind, to the
holder(s) of the then outstanding trust certificates in proportion to their
interests in the Trust Shares as shown on the books of the Trustee so that such
distribution is identical to the distribution each holder of a trust certificate
would have received had such person been the holder of record of the securities
represented by such trust certificate.
5. Appointment by Trustee of Successors.
------------------------------------
5.1 Voluntary Appointment. The Trustee may at any time resign as
---------------------
voting trustee and appoint a successor voting trustee meeting the qualifications
of section 5.3. The Trustee
7
<PAGE>
shall give prompt notice to each Shareholder of the identity of the successor
voting trustee.
5.2 Appointment Upon Death or Termination for Incapacity or Cause.
-------------------------------------------------------------
In the event of the death or termination of employment with the Company for
mental or physical incapacity or cause (if the Trustee is party to an employment
agreement with the Company that defines those terms, as those terms are defined
in such employment agreement), or during the continuance of the inability to act
by reason of any such incapacity, of the Trustee, and, subject to sections 5.3
and 5.4, a successor to the voting trustee as designated in writing from time to
time by the Trustee shall automatically fill such vacancy as of such death,
termination or incapacity. Subject to section 5.1, the Trustee shall continue
to serve as such, if his employment with the Company is terminated for any
reason other than as specified in the preceding sentence.
5.3 Qualification of Successor. Any person appointed to serve as a
--------------------------
successor voting trustee under this section 5 must have been prior to such
appointment a senior executive officer of the Company who shall have been
devoting substantially all his business time and effort to the Company, or must
have been a senior executive officer in the pharmaceutical or health-care
industry, in each such case for at least the immediately preceding six months,
provided that no such person shall have been an employee or director of Bayer AG
or any of its majority-owned subsidiaries (including Miles Inc. ("Miles") or any
of its
8
<PAGE>
direct or indirect majority-owned subsidiaries) (all such subsidiaries of Bayer
AG being collectively called "Bayer Controlled Subsidiaries") (other than the
Company or any of its subsidiaries) at any time within six months prior to such
appointment or shall have been a party to a voting agreement with Bayer AG or
any Bayer Controlled Subsidiary, or otherwise a holder of, or an officer,
director or affiliate of a corporation (other than the Company or any of its
subsidiaries) that holds, more than 10% of the Company's outstanding common
stock.
5.4 Authority of Successor. Any person appointed to serve as a
----------------------
successor voting trustee under this section 5 shall be vested with all the
duties, obligations, powers and authority as if originally named voting trustee
and shall serve until the termination of this agreement in accordance with
section 6.1. Any person so appointed shall from and after the date of such
appointment be deemed the voting trustee for all purposes of this agreement.
5.5 Execution of Agreement. Any person appointed to serve as a
----------------------
successor voting trustee under this section 5 shall, prior to serving as such,
execute a copy of this agreement, the signature page of which shall specify that
such person is to be bound by all the terms of this agreement applicable to the
voting trustee.
9
<PAGE>
6. Termination of Agreement.
------------------------
6.1 Termination Date. This agreement shall terminate (the
----------------
"Termination Date") on the earliest of (i) the fifth anniversary of the
Qualified Public Offering Date (as defined in the Continuing Shareholders
Agreement), (ii) March 1, 2000 and (iii) the effective date of a Terminating
Merger, and, subject to section 6.2, no sooner. For purposes of this agreement,
the term "Terminating Merger" means a merger, consolidation or combination of
the Company with another business, if, as a result of that transaction, the
Trustee neither (I) holds the position of chairman of the board, president,
chief executive officer or chief operating officer (or any office performing
analogous functions) of the merged, consolidated or combined entity (the
"Successor") nor (II) has the right or ability to designate a majority of the
members of the board of the Successor or, if the board of the Successor is a
classified board, can reasonably be expected to have the right or ability to
designate a majority of the members of the board of the Successor after each
class then in office shall have been subject to election.
6.2 Termination Upon Transfer of Shares. Notwithstanding anything in
-----------------------------------
this agreement to the contrary, this agreement shall terminate with respect to
any Trust Shares transferred in accordance with section 7 at the time of the
transfer (except that this agreement shall not terminate with respect to any
Trust Shares prior to an initial public offering of the Company's common stock
and shall not terminate before or
10
<PAGE>
after such initial public offering with respect to any Trust Shares transferred
to a Permitted Transferee (as defined in the Continuing Shareholders Agreement),
until the Trust Shares are transferred by the Permitted Transferee in accordance
with section 7).
6.3 Transfer of Shares from Voting Trustee.
--------------------------------------
(a) Upon the termination of this agreement in accordance with
section 6.1, (i) each holder of trust certificates shall promptly deliver to the
Trustee any outstanding trust certificates held by that holder (or an affidavit
stating that such trust certificates are lost, without any requirement to post
any security therefor), (ii) promptly thereafter, and in no event later than two
business days after receipt of such trust certificates or affidavits, as
applicable, the Trustee shall deliver to the secretary of the Company or, at the
direction of the Company, to the Company's transfer agent, for cancellation,
stock certificates (together with stock powers executed in blank and any
requisite stock transfer stamps) for all the Trust Shares held by the Trustee
and (iii) the Company shall cause to be issued to each holder of trust
certificates stock certificates for a number of shares of common stock of the
Company equal to the number of Trust Shares represented by the trust
certificates surrendered (or covered by an affidavit delivered) by each such
holder under clause (i) above, free and clear of any Lien (except (1) as
otherwise required by law, (2) as required under the Continuing
Shareholders Agreement or
11
<PAGE>
(3) as created by the holder of the trust certificates (collectively, "Permitted
Liens")) and without any legend (except any legend relating to transfer
restrictions arising under any applicable securities laws (an "Applicable
Securities Law Legend")). The Trustee and the Company shall take such actions as
reasonably may be requested by the holders of trust certificates to effect such
issuances.
(b) If the Trustee does not deliver stock certificates for the Trust
Shares to the Company or to the Company's transfer agent within the two-day
period set forth in section 6.3(a)(ii), the Company or the Company's transfer
agent, as applicable, shall, upon receipt of notice from any holder of trust
certificates stating that such Trust Shares have not been delivered within such
two-day period (a copy of which notice shall be delivered to the Trustee
simultaneously with the giving of such notice to the Company or to the Company's
transfer agent), cancel on the Company's books and records the stock
certificates for the undelivered Trust Shares, and cause to be issued to each
holder of trust certificates stock certificates for a number of shares of the
Company's common stock equal to the number of Trust Shares represented by the
trust certificates surrendered (or covered by an affidavit delivered) by each
such holder under section 6.3(a)(i), free and clear of any Lien (except
Permitted Liens) and without any legend (except any Applicable Securities Law
Legend).
12
<PAGE>
6.4 Death or Incompetence of Trust Certificate Holder. The death,
--------------------------------------------------
disability or incompetence of a holder of a trust certificate during the term of
this agreement shall in no way affect the validity or enforceability of this
agreement.
7. Transfers of Trust Shares and Trust Certificates.
------------------------------------------------
7.1 Transfer of Trust Shares. Each holder of trust certificates may,
------------------------
by written request (a "Transfer Request"), direct the Trustee to transfer any
Trust Shares represented by that holder's outstanding trust certificates;
however, each such holder may direct the Trustee to transfer Trust Shares only
in accordance with and to the extent permitted under the Shareholders
Agreements. However, no transfer of Trust Shares to a Permitted Transferee
shall be permitted (and any such transfer not permitted shall be void and of no
effect), unless, prior to such transfer, the Permitted Transferee executes and
delivers to the Trustee a copy of this agreement, the signature page of which
shall specify that such Permitted Transferee is bound by and takes such Trust
Shares subject to all the rights and obligations under this agreement that were
applicable to the transferor (it being understood that, notwithstanding anything
to the contrary in this agreement, the Trustee shall retain possession of any
Trust Shares so transferred to a Permitted Transferee and shall issue to the
Permitted Transferee appropriate trust certificates in respect thereof).
13
<PAGE>
7.2 Transfer Mechanics.
------------------
(a) In order to effect a transfer of Trust Shares at the request of a
holder of trust certificates in accordance with section 7.1, (i) such holder
shall deliver to the Trustee, along with the Transfer Request, any outstanding
trust certificates representing the Trust Shares to be transferred (or an
affidavit stating that such trust certificates are lost), (ii) the Trustee shall
promptly thereafter, and in no event later than two business days after receipt
of such trust certificates or affidavits, as applicable, deliver to the
secretary of the Company or, at the direction of the Company, to the Company's
transfer agent, for cancellation, stock certificates (together with stock powers
executed in blank and any requisite stock transfer stamps) for the number of
trust shares to be transferred, and (iii) the Company shall cause to be issued
to the transferee(s) specified in the Transfer Request stock certificates for
the number of shares of the Company's common stock equal to the number of Trust
Shares represented by the trust certificates surrendered under clause (i) above,
free and clear of any Lien (except Permitted Liens) and without any legend
(except any Applicable Securities Law Legend). The Trustee and the Company shall
take such actions as reasonably may be requested by the holders of trust
certificates surrendered under clause (i) of the preceding sentence to effect
the issuance as provided for in this section 7.2(a) of shares of the Company's
14
<PAGE>
common stock to, and in the name of, the transferee(s) specified in the Transfer
Request.
(b) If the Trustee does not deliver stock certificates for the number
of Trust Shares to be transferred to the Company or to the Company's transfer
agent within the two-day period set forth in section 7.2(a)(ii), the Company or
the Company's transfer agent, as applicable, shall, upon receipt of a written
request from the holder of trust certificates who requested the transfer
stating that such Trust Shares have not been delivered within such two-day
period (a copy of which request shall be delivered to the Trustee simultaneously
with the giving of such request to the Company or to the Company's transfer
agent), cancel on the Company's books and records the stock certificates for the
undelivered Trust Shares, and cause to be issued to such holder stock
certificates for a number of shares of the Company's common stock equal to the
number of Trust Shares represented by the trust certificates surrendered by such
holder under section 7.2(a)(i), free and clear of any Lien (except Permitted
Liens) and without any legend (except any Applicable Securities Law Legend).
7.3 Transfer of Trust Certificates. Each holder of trust
------------------------------
certificates agrees that, during the term of this agreement, the trust
certificates may be transferred only as expressly permitted by this agreement or
in the same manner and to the same extent as the Trust Shares may be transferred
in accordance with the Shareholders Agreements, and only if, in the
15
<PAGE>
case of a transfer of Trust Shares to a Permitted Transferee, such Permitted
Transferee executes and delivers to the Trustee a copy of this agreement, the
signature page of which shall specify that such Permitted Transferee is bound by
and takes such trust certificates subject to all the terms of this agreement
that were applicable to the transferor. In such event, the Permitted Transferee
shall hold the trust certificates subject to the terms of this agreement and the
Shareholders Agreements.
7.4 Trustee Information. The Trustee shall supply such information
-------------------
with respect to himself as may be required to be included in any registration
statement or other similar document to be filed with the federal or any state
government by the holders of trust certificates in connection with a transfer by
such holders of Trust Shares or trust certificates contemplated by this
agreement, and shall otherwise use all reasonable efforts to cooperate with such
holders in connection therewith.
8. Compensation and Expenses. Subject to section 9, the Trustee
-------------------------
shall not take or receive or have any claim for compensation or other
consideration for performance of his duties or acting as voting trustee under
this agreement. No holder of trust certificates shall be liable or obligated
for payment of any such expenses.
9. Indemnification of Trustee. The Company shall indemnify and hold
--------------------------
the Trustee harmless from and against any loss, liability, damage or expense
(including reasonable
16
<PAGE>
attorneys' fees) arising out of the Trustee's performance under this agreement
or otherwise arising only out of this agreement (it being understood, however,
that the Company's obligation under this section 9 shall not apply to any loss,
liability, damage or expense resulting from the Trustee's wilful breach of this
agreement or the Trustee's gross negligence). The Company shall from time to
time, upon presentation of invoices, reimburse the Trustee for any amount or
amounts the Trustee is reasonably required to pay to defend against any claim in
respect of which the Trustee advises the Company he is entitled to
indemnification under this section 9, as long as the Trustee shall have
furnished the Company an undertaking to repay such amount or amounts if it shall
ultimately be determined by a final and nonappealable judgment of a court of
competent jurisdiction that he is not so entitled to be indemnified. The rights
of the Trustee under this section 9 are in addition to any other rights the
Trustee may have in his capacity as a director, officer, employee or agent
of the Company or its affiliates under any by-law, agreement, vote of
shareholders or directors or otherwise.
10. Miscellaneous.
-------------
10.1 Governing Law. This agreement shall be governed by and construed
-------------
in accordance with the law of the state of New York applicable to agreements
made and to be performed wholly in New York.
17
<PAGE>
10.2 Notices. The Company shall give each of the Shareholders and
-------
others who are holders of Trust Certificates copies of any notice given
generally to shareholders of the Company. Any notice or other communication
under this agreement shall be in writing and shall be considered given when
delivered personally or mailed by registered mail, return receipt requested, at
the following addresses (or at such other address as a party may designate by
notice to the others) or at such addresses as holders of Trust Certificates may
designate by notice to the others:
if to the Company, to:
Schein Holdings, Inc.
c/o Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attention: General Counsel
with a copy to:
Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, New York 10036
Attention: Richard L. Goldberg, Esq.
if to Marvin H. Schein, Marvin's 1993 Trust or Marvin's 1994
Trust, to:
Marvin H. Schein
Cobble Court
Glen Cove, New York 11771
with a copy to:
Peirez, Ackerman & Levine
175 Great Neck Road
Great Neck, New York
Attention: Leslie J. Levine, Esq.
18
<PAGE>
If to Pamela Schein, to:
Pamela Schein
666 Greenwich Street
Apt. 514
New York, New York 10014
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4669
Attention: Peter J. Hanlon, Esq.
If to Pam Schein's Issue's Trust, to:
Irving Shafran
360 East 72nd Street
New York, New York 10017
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4669
Attention: Peter J. Hanlon, Esq.
If to Pamela Joseph, to:
Pamela Joseph
RR#3, Box 140
Pound Ridge, New York 10576
with a copy to:
Schnader, Harrison, Segal & Lewis
Suite 700
108 N. Washington Avenue
Scranton, Pennsylvania 18503
Attention: Morey M. Myers, Esq.
If to Pam Joseph's Issue's Trust, to:
c/o Morey M. Myers, Esq.
Schnader, Harrison, Segal & Lewis
Suite 700
108 N. Washington Avenue
Scranton, Pennsylvania 18503
Attention: Morey M. Myers, Esq.
19
<PAGE>
If to the Trustee, to:
Martin Sperber
c/o Schein Holdings, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
If a successor voting trustee is designated pursuant to section 5, such
successor shall give notice of his or her address to the other parties in
accordance with this section, and any notice required or permitted to be given
to the voting trustee under this agreement shall be given at such address. Any
notice given to a party shall be deemed also to have been given to each of that
party's Permitted Transferees, and such party shall have the obligation to give
the same notice to each of its Permitted Transferees that at the time of such
notice owns Trust Shares. A copy of any notice or other communications given
under this agreement to the Company or the Trustee also shall be given to the
Shareholders.
10.3 Counterparts. This agreement may be executed in counterparts,
------------
each of which shall be considered an original, but all of which together shall
constitute the same instrument.
10.4 Equitable Relief. The parties acknowledge that the remedy at
----------------
law for breach of this agreement would be inadequate and that, in addition to
any other remedy a party may have for a breach of this agreement, that party
shall be entitled to an injunction restraining any such breach or threatened
breach, or a decree of specific performance, without posting any
20
<PAGE>
bond or security. The remedy provided in this section 10.4 is in addition to,
and not in lieu of, any other rights or remedies a party may have.
10.5 Separability. If any provision of this agreement is invalid or
------------
unenforceable, the balance of this agreement shall remain in effect, and, if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
10.6 Entire Agreement. This agreement contains a complete statement
----------------
of all the arrangements among the parties with respect to its subject
matter, supersedes all existing agreements among them with respect to that
subject matter, may not be changed or terminated orally. Any amendment or
modification must be approved in writing by Miles and must be in writing and
signed by the Company, the Trustee (it being understood that the incumbent
Trustee at the time of the amendment or modification rather than any predecessor
Trustee must sign the amendment or modification) and the holders of Trust
Certificates representing a majority of the Trust Shares, provided that no such
amendment or modification may adversely effect the rights or obligations of
21
<PAGE>
any holder of Trust Certificates without that holder's prior written consent.
SCHEIN HOLDINGS, INC.
By: /s/ Martin Sperber
---------------------------
Authorized Officer
/s/ Martin Sperber
------------------------------
Martin Sperber, as voting
trustee
/s/ Marvin H. Schein
------------------------------
Marvin H. Schein
Trust established by Marvin H.
Schein under trust agreement
dated December 31, 1993
By: /s/ Marvin H. Schein
---------------------------
Marvin H. Schein, Trustee
By: /s/ Leslie Levine
---------------------------
Leslie Levine, Trustee
Trust established by Marvin H.
Schein under trust agreement
dated September 9, 1994
By: /s/ Marvin H. Schein
---------------------------
Marvin H. Schein, Trustee
By: /s/ Leslie Levine
---------------------------
Leslie Levine, Trustee
/s/ Pamela Schein
------------------------------
Pamela Schein
22
<PAGE>
Trust established by the
Trustees under Article Fourth
of the Will of Jacob M. Schein
for the benefit of Pamela
Schein and her issue under
trust agreement dated
September 29, 1994
By: /s/ Irving Shafran, as attorney in fact
----------------------------------------
Irving Shafran, Trustee
/s/ Pamela Joseph
---------------------------------
Pamela Joseph
Trust established by Pamela
Joseph under trust agreement
dated September 28, 1994
By: /s/ Morey M. Myers
-----------------------------
Morey M. Myers, Trustee
23
<PAGE>
No.________ EXHIBIT A
VOTING TRUST CERTIFICATE
SCHEIN HOLDINGS, INC.
THIS IS TO CERTIFY THAT
(1) on the termination of the Voting Trust Agreement hereinafter described as
provided in said Voting Trust Agreement, will be entitled to receive, upon
surrender of this certificate, a certificate or certificates for shares
of common stock of Schein Holdings, Inc., a New York corporation (the "Company")
and (2) on the termination of the Voting Trust Agreement with respect to any
shares as provided in section 6 thereof, will be entitled to receive, upon
surrender of this certificate to the extent of such shares, a certificate or
certificates for such number of shares of common stock of Holdings, and/or (in
the case of (1) and (2)) such other securities, if any, as may then be
deliverable in respect hereof in accordance with the terms of said Voting Trust
Agreement, including any such securities referred to in section 3 of said Voting
Trust Agreement, and, in the meantime, will be entitled to receive payment of
any dividends or distributions, other than such as shall be in the form of
voting securities of the Company, received by the Trustee in respect of a like
number of securities of the Company.
Until the termination of said Voting Trust Agreement and the delivery
of the stock certificates called for hereby, or, with respect to any shares as
to which said Voting Trust Agreement terminates in accordance with section 6
thereof, until such termination, the Trustee shall have full and exclusive power
and authority to vote in person or by proxy (or to refrain from voting) at all
meetings of the shareholders of the Company and to execute consents with respect
to all shares of capital stock of the Company held by the Trustee, for any
purpose, whether ordinary or extraordinary, and generally to exercise all the
<PAGE>
powers of absolute owner thereof, subject in each case to the provisions of said
Voting Trust Agreement, it being expressly stipulated that no voting right
passes to the holder hereof by or under this certificate or by or under any
agreement, express or implied.
This certificate is issued pursuant and subject to the terms and
conditions of a certain Voting Trust Agreement dated September ___, 1994 among
the Company, Marvin H. Schein, the trust established by Marvin H. Schein under
trust agreement dated December 31, 1993, the trust established by Marvin H.
Schein under trust agreement dated September 9, 1994, Pamela Schein, the trust
established by the Trustees under Article Fourth of the Will of Jacob M. Schein
for the benefit of Pamela Schein and her issue under trust agreement dated
September ___, 1994, Pamela Joseph and the trust established by Pamela Joseph
under trust agreement dated September ___, 1994, and Martin Sperber, as voting
trustee. A copy of the Voting Trust Agreement is on file at the principal
office of the Company at 100 Campus Drive, Florham Park, New Jersey 07932. The
holder of this certificate, by the acceptance hereof, assents to all the terms
and provisions of said Voting Trust Agreement.
This certificate is transferable only on the books of the Trustee upon
surrender hereof at the office of the Trustee properly endorsed for transfer by
the registered holder hereof, either in person or by attorney duly authorized,
in accordance with the Voting Trust Agreement. The Trustee shall not be
obligated to recognize any person as the owner of this certificate other than
the person in whose name the same shall be registered on the books of the
Trustee.
IN WITNESS WHEREOF, the Trustee has executed this instrument this
day of , 1994.
__________________________________
Martin Sperber, as Trustee
2
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, MARVIN H. SCHEIN hereby sells, assigns and
transfers unto MARTIN SPERBER, AS VOTING TRUSTEE UNDER THE VOTING TRUST
AGREEMENT DATED SEPTEMBER 30, 1994, ONE HUNDRED shares of Class B Common Stock,
par value $0.01, of Schein Holdings, Inc. (the "Corporation") represented by
Certificate No. 2 herewith, and do hereby irrevocably constitute and appoint
-----
attorney to transfer the said stock on the books of
- ---------------------------
the Corporation with full power of substitution in the premises.
Dated: September 30, 1994
/s/ Marvin H. Schein
---------------------------
Marvin H. Schein
In presence of:
/s/ Leslie J. Levine
- --------------------
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, TRUSTEES UNDER THE TRUST ESTABLISHED BY MARVIN H.
SCHEIN UNDER TRUST AGREEMENT DATED DECEMBER 31, 1993 hereby sell, assign and
transfer unto MARTIN SPERBER, AS VOTING TRUSTEE UNDER THE VOTING TRUST
AGREEMENT DATED SEPTEMBER 30, 1994, SIXTY-FOUR THOUSAND SIX HUNDRED FORTY-TWO
AND 50/100 shares of Class B Common Stock, par value $0.01, of Schein Holdings,
Inc. (the "Corporation") represented by Certificate No. 4 herewith, and do
-----
hereby irrevocably constitute and appoint attorney
----------------------------
to transfer the said stock on the books of the Corporation with full power of
substitution in the premises.
Dated: September 30, 1994
/s/ Marvin H. Schein
---------------------------
Marvin H. Schein, Trustee
/s/ Leslie J. Levine
---------------------------
Leslie J. Levine, Trustee
In presence of:
/s/ Paul Feuerman
- -----------------------
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, TRUSTEES UNDER THE TRUST ESTABLISHED BY MARVIN H.
SCHEIN UNDER TRUST AGREEMENT DATED SEPTEMBER 9, 1994 hereby sell, assign and
transfer unto MARTIN SPERBER, AS VOTING TRUSTEE UNDER THE VOTING TRUST AGREEMENT
DATED SEPTEMBER 30, 1994, TWENTY-FIVE THOUSAND TWO HUNDRED SEVENTY-SEVEN AND
50/100 shares of Class B Common Stock, par value $0.01, of Schein Holdings, Inc.
(the "Corporation") represented by Certificate No. 6 herewith, and do hereby
-----
irrevocably constitute and appoint attorney to
--------------------------
transfer the said stock on the books of the Corporation with full power of
substitution in the premises.
Dated: September 30, 1994
/s/ Marvin H. Schein
---------------------------
Marvin H. Schein, Trustee
/s/ Leslie J. Levine
---------------------------
Leslie J. Levine, Trustee
In presence of:
/s/ Paul Feuerman
- -----------------------
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, PAMELA SCHEIN hereby sells, assigns and transfers
unto MARTIN SPERBER, AS VOTING TRUSTEE UNDER THE VOTING TRUST AGREEMENT DATED
SEPTEMBER 30, 1994, SIXTY-THREE THOUSAND TWO HUNDRED AND TWO shares of Class A
Common Stock, par value $0.01, of Schein Holdings, Inc. (the "Corporation")
represented by Certificate No. 3 herewith, and do hereby irrevocably constitute
-----
and appoint attorney to transfer the said stock on
----------------------------
the books of the Corporation with full power of substitution in the premises.
Dated: September 30, 1994
/s/ Pamela Schein
---------------------------
Pamela Schein
In presence of:
/s/
- ---------------------------
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, TRUSTEE UNDER THE TRUST ESTABLISHED BY TRUSTEE
UNDER ARTICLE FOURTH OF THE WILL OF JACOB M. SCHEIN FOR THE BENEFIT OF PAMELA
SCHEIN AND HER ISSUE UNDER TRUST AGREEMENT DATED September 29, 1994, hereby
sells, assigns and transfers unto MARTIN SPERBER, AS VOTING TRUSTEE UNDER THE
VOTING TRUST AGREEMENT DATED SEPTEMBER 30, 1994, FOUR THOUSAND EIGHT HUNDRED AND
FORTY shares of Class A Common Stock, par value $0.01, of Schein Holdings, Inc.
(the "Corporation") represented by Certificate No. 7 herewith, and do hereby
irrevocably constitute and appoint attorney
---------------------------------
to transfer the said stock on the books of the Corporation with full power of
substitution in the premises.
Dated: September 30, 1994
/s/
---------------------------
In presence of
/s/
- -----------------------
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, PAMELA JOSEPH hereby sells, assigns and transfers
unto MARTIN SPERBER, AS VOTING TRUSTEE UNDER THE VOTING TRUST AGREEMENT DATED
SEPTEMBER 30, 1994, FIVE THOUSAND SEVEN HUNDRED AND FIVE Shares of Class A
Common Stock, par value $0.01, of Schein Holdings, Inc. (the "Corporation")
represented by Certificate No. 2 herewith, and do hereby irrevocably constitute
-----
and appoint attorney to transfer the said stock on the
-------------------------
books of the Corporation with full power of substitution in the premises.
Dated: September 28, 1994
/s/ Pamela Joseph
---------------------------
Pamela Joseph,
In presence of:
/s/ Annelore B. Haines
- ---------------------
ANNELORE B. HAINES
Notary Public, State of New York
No. 41-162835O
Qualified in Oueens County
Certificate Filed in New York County
Commission Expires April 30, 1995
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, PAMELA JOSEPH hereby sells, assigns and transfers
unto MARTIN SPERBER, AS VOTING TRUSTEE UNDER THE VOTING TRUST AGREEMENT DATED
SEPTEMBER 30, 1994, NINETEEN THOUSAND EIGHT HUNDRED AND THIRTY shares of Class A
Common Stock, par value $0.01, of Schein Holdings, Inc. (the "Corporation")
represented by Certificate No. 5 herewith, and do hereby irrevocably constitute
-----
and appoint attorney to transfer the said stock on the
----------------------
books of the Corporation with full power of substitution in the premises.
Dated: September 28, 1994
/s/ Pamela Joseph
---------------------------
Pamela Joseph
In presence of:
/s/ Annelore B. Haines
- ---------------------
ANNELORE B. HAINES
Notary Public, State of New York
No. 41-162835O
Qualified in Oueens County
Certificate Filed in New York County
Commission Expires April 30, 1995
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, TRUSTEE UNDER THE TRUST ESTABLISHED BY PAMELA
JOSEPH UNDER TRUST AGREEMENT DATED SEPTEMBER 28, 1994 hereby sell, assign and
transfer unto MARTIN SPERBER, AS VOTING TRUSTEE UNDER THE VOTING TRUST AGREEMENT
DATED SEPTEMBER 30, 1994, NINE HUNDRED AND NINETY-THREE shares of Class A Common
Stock, par value $ 0.01, of Schein Holdings, Inc. (the "Corporation")
represented by Certificate No.6 herewith, and do hereby irrevocably constitute
----
and appoint attorney to transfer the said stock on the
---------------------
books of the Corporation with full power of substitution in the premises.
Dated: September 28, 1994
/s/ Morey M. Myers
---------------------------
Morey M. Myers
In presence of:
/s/ Annelore B. Haines
- ---------------------
ANNELORE B. HAINES
Notary Public, State of New York
No. 41-162835O
Qualified in Queens County
Certificate Filed in New York County
Commission Expires April 30, 1995
<PAGE>
EXHIBIT 10.7
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, NJ 07932
Tel. 201 593-5500
Fax. 201 593-5590
[SCHEIN LOGO]
Business Dev. Fax (973) 593-3850
Our new area code is (973)
October 7, 1997
Dr. Reddy, Chairman
Cheminor Drugs Limited and
Dr. Reddy's Laboratories Limited
Mr. G.V. Prasad, Managing Director
Cheminor Drugs Limited
(Dr. Reddy's Group)
7-1-27 Ameerpet
Hyderabad
500 016 INDIA
Gentlemen:
Our enthusiasm here for the proposed alliance has only increased following our
recent meetings and communications. We trust that you and your people feel the
same way.
Against that background, on the attached pages we have briefly summarized
principal points for us to focus on in outlining our mutual intentions. Please
confirm the following by signing a copy of this letter and returning it to us:
1. Each of Schein Pharmaceutical, Inc. and its subsidiaries ("Schein") and
Cheminor Drugs Limited and its subsidiaries ("Cheminor") and Dr. Reddy's
Laboratories Limited and its subsidiaries ("Reddy") agrees, in accordance
with our July 18, 1997 Confidentiality Agreement, to keep confidential all
trade secrets and proprietary information of the other ("Confidential
Information") learned as we move toward an alliance, and will similarly
cause its representatives and agents to maintain such confidentiality. On
or after December 1, 1997, as extended by the parties from time to time
(or on such earlier date as the parties may agree), each party, upon
written request of the other, shall return to the other party all due
diligence and other materials, whether or not constituting Confidential
Information, in whatever form or medium, and shall retain no copies
thereof. Any notes or other compilations made by either party or any of
its representatives shall promptly be destroyed, with the destruction
thereof confirmed in writing.
2. Prior to October 31, 1997, neither party will, directly or indirectly have
any conversations with third parties or take any actions that would
materially interfere with the consummation of an alliance along those
lines contemplated by the attachment to this letter, and, during such
period, each of us will provide the other with access to all information
reasonably requested to allow the other to evaluate and negotiate such an
alliance.
<PAGE>
Dr. Reddy
Mr. Prasad
October 7, 1997
Page Two
On October 31, 1997 Cheminor, Reddy and Schein will assess the progress
they have made toward negotiating and drafting definitive agreements,
their respective due diligence reviews, and the other steps necessary for
consummation of their alliance. If each party, in its own discretion, is
satisfied with the progress made to date, they will continue to work
together to finalize their arrangements including, as appropriate,
extension of the duration of the provisions of this paragraph 2.
The outline on the following pages is not, of course, an agreement binding on
eiother party and, unless and until mutually satisfactory agreements are
negotiated and executed, neither party has any obligation to the other, except
as set forth in paragraphs 1 and 2 of this letter.
AGREED:
SCHEIN PHARMACEUTICAL, INC.
By:
-----------------------------
Authorized Officer
CHEMINOR DRUGS LIMITED
By:
-----------------------------
Authorized Officer
DR. REDDY'S LABORATORIES LIMITED
By:
-----------------------------
Authorized Officer
<PAGE>
PRINCIPAL POINTS OF INTENTION
-----------------------------
OPERATIONS
- ----------
The parties would enter into a strategic alliance agreement, the primary purpose
of which would be to establish a framework for a broad strategic alliance that
would work toward a number of goals, including integrating the solid dosage
operations of each of Schein and Cheminor for product development, synthesis,
bulk manufacturing, dosage manufacturing, and marketing, sales and distribution;
and Schein, Cheminor and Reddy with respect to bulk drug manufacture and supply
by Reddy. The strategic alliance agreement would provide, among other things,
for the following, subject to contractual restrictions with third parties:
1. Cheminor will make available to Schein its present and future dosage form
generic products. These products will be available on an exclusive basis
to the USA and, so long as Schein maintains equity ownership in the local
entities, to the following countries: United Kingdom, Canada, Australia,
South Africa, Taiwan, Peru.
For dosage form products currently in production or development by
Cheminor or Reddy, Schein would have to elect within six months following
the execution of the definitive strategic alliance agreement which of
those products to commercialize, with the exception of those products and
territories identified on Schedule I hereto. For dosage form products
subsequently developed and produced by Cheminor or Reddy utilizing
Cheminor/Reddy bulk, Schein would source those products on an exclusive
basis from Cheminor/Reddy.
The exclusivity shall be tied to performance standards which, failing
mutual agreement, shall be as specified in the existing Supply and
Development Agreement between Schein and Cheminor. For all other countries
throughout the world, these products shall be exclusive only if mutually
agreed to by Schein and Cheminor.
Unless otherwise extended, the term of the agreement shall expire on
December 31, 2007. Provided, however, for each product for which an ANDA
is submitted prior to December 31, 2007, Schein, or Cheminor as the case
may be, will have at least five (5) years of marketing rights as defined
above, measured from first commercial sales of the product in the
applicable country. The agreement shall automatically continue for
additional three-year periods unless terminated by five (5) years
notification; provided no termination shall be effective prior to December
31, 2007. Unless notification of termination is given by December 31,
2002, the first three-year extension shall come into effect. For all
periods prior to expiration or termination of the agreement, each party
shall maintain (or exceed) its customary rate of product development and
ANDA submission.
2. During the term of the agreement Cheminor will make available to Schein,
on a non-exclusive basis, the bulk ingredients Cheminor and Reddy now or
in the future manufacture, with Schein treating Cheminor/Reddy as its
preferred supplier of bulk ingredients. Provided, however, that the
parties may mutually agree to make exclusive certain bulk products
including products custom synthesized for Schein, products which may be
designated in the strategic alliance agreement and any other present or
future products agreed to by the parties.
Page 1
<PAGE>
3. Schein will make available to Cheminor and Reddy its present and future
products for sale in India and CIS countries (countries must be specified)
on an exclusive basis.
4. Where appropriate, Schein and Cheminor will provide each other with all
information, materials and technical assistance needed for Schein to
obtain regulatory approvals in the U.S. and elsewhere for products
originating from Cheminor and for Cheminor to obtain approvals in India
and in CIS countries for products originating from Schein.
5. Bulk ingredients and finished product will, in general, be supplied on a
fully absorbed cost basis or, if lower, at the price available to any
third party or affiliate of Cheminor/Reddy or Schein, as the case may be.
Where bulk is to be supplied to Schein by Reddy, Reddy will supply it to
Cheminor at fair market value (the price prevailing in the country where
the product will be marketed), and then Cheminor will supply the bulk to
Schein at Reddy's fully absorbed cost. Profits (as defined under the
existing development agreement) are to be shared equally. For Schein's
current products which it switches to Cheminor/Reddy as a source of bulk,
Schein will share with Cheminor the cost savings (rather than profits)
realized by Schein in utilizing Cheminor/Reddy bulk.
6. While products in the "discovery" program of the Dr. Reddy Foundation are
excluded, it is contemplated that separate arrangements for possible
involvement of such products in the alliance will be subject of future
discussion.
7. The parties would work together to maximize product development synergies
by (i) rationalizing current development pipelines, (ii) establishing a
finished dosage and bulk product development process to optimize the use
of development infrastructure, (iii) providing each other with access to
product and process development infrastructures to maximize the overall
scope of the development pipeline and (iv) establishing a working group to
identify and prioritize future custom synthesized and product development
projects.
8. Cheminor, Reddy and Schein will work together (with Cheminor and Reddy as
the preferred suppliers of bulk and/or finished dosage forms (when Schein
is not the dosage formulator)) to pursue patent challenge opportunities on
an exclusive basis in the U.S. (and such other territory or territories as
the parties may form time to time agree), except as follows:
(a) Schein brings forward a patent challenge opportunity which Cheminor
has not previously presented to Schein and
i) Cheminor or Reddy does not have the facilities, technology or
chemistry available to it to produce the bulk; or
ii) Cheminor or Reddy cannot have available bulk and/or dosage
form on the timetable established in good faith by Schein
necessary for timely and expeditious filing of the patent
challenge.
(b) a third party brings to Schein a basis for a patent challenge,
conditioned on such third party providing the bulk and/or dosage
form to Schein, and neither Schein nor Cheminor has at that time
presented that same opportunity to the other party.
Page 2
<PAGE>
(c) a third party brings to Cheminor a basis for a patent challenge
opportunity, conditioned on a third party providing the finished
dosage and/or marketing, and neither Schein nor Cheminor has at
that time presented that same opportunity to the other party.
If Schein, in accordance with clause (a) above, needs to source bulk from a
third party, then it will endeavor to structure any such arrangement to permit,
at the earliest possible date, sourcing the bulk from Cheminor (at Cheminor's
discretion) on a sharing of cost-savings basis.
If Schein presents Cheminor with a patent challenge opportunity but Cheminor
cannot have bulk available on a timely basis as provided above, then in order to
protect the proprietary and confidential nature of the information disclosed to
Cheminor by Schein, Cheminor would agree to maintain the confidentiality of the
information and not to provide any other party with access to that bulk for the
U.S. market for at least 12 months following Schein's disclosure of that patent
challenge opportunity to Cheminor if at the time of disclosure by Schein to
Cheminor, Cheminor has already developed a laboratory scale synthesis process
for that bulk and Cheminor thereafter receives an unsolicited written inquiry
for that bulk from a third party; otherwise Cheminor will not provide any other
party with access to that bulk for at least 36 months following Schein's
disclosure of that opportunity to Cheminor.
9. The parties would establish an appropriate committee to manage the
alliance.
10. The parties will each establish and utilize cost accounting and reporting
systems that reflect the spirit of the business arrangements with respect
to profit sharing, fully absorbed cost, most favored price, and the like.
11. Schein and Cheminor shall set up a joint working group to oversee and
manage the marketing, sales, distribution and product management of
Cheminor supplied products. This is intended to include Cheminor personnel
performing these functions within Schein's organization with Schein
maintaining ultimate decision-making authority and control over marketing,
sales, distribution and product management of Cheminor supplied products.
INVESTMENT
- ----------
1. Schein would purchase two million shares of Cheminor Drugs Limited for
U.S. $10 million no later than December 1, 1997, subject to Cheminor
obtaining necessary approvals for the investment before November 22, 1997,
or within seven days from the date Cheminor notifies Schein that it has
obtained those approvals, whichever is later (but in no event later than
March 1, 1998 (subject to extensions agreed to by the parties)); provided
that the parties have entered into mutually satisfactory definitive
written agreements covering all matters addressed under these Principal
Points of Intention.
Cheminor and Schein would have a put and call requiring Schein to purchase
or Cheminor to sell up to an additional one million shares at U.S. $5 per
share on or before June 30, 1998, upon Cheminor reaching the performance
target of submitting to the FDA on or before June 30, 1998 three ANDAs of
those on a list agreed to by the parties. The call
Page 3
<PAGE>
would be exercisable by Schein before June 30, 1998, or during the third-
day period following Cheminor's notice to Schein of its election to
terminate the put and call.
2. Schein would have antidilution rights with respect to future sales
(including issuances on mergers, acquisitions and the like) of Cheminor
shares in order to maintain at least its percentage interest in Cheminor,
at fair market value, and rights to increase its percentage interest in
Cheminor over time through open market purchases and private transactions
with shareholders, up to 23% of the total outstanding equity shares of
Cheminor. The principal shareholders of Cheminor will exercise their
voting power in such manner so as to protect the level of holding of
Schein in Cheminor, provided that such acquisition shall be at prevailing
fair market value and the level of holding of Schein in Cheminor does not
exceed 23% of the total outstanding equity shares of Cheminor. Schein
would not attempt to increase its equity ownership in Cheminor above 23%,
without approval by Cheminor's Board.
3. In the event of a merger of Cheminor and Dr. Reddy's Laboratories Limited,
the surviving company and its principal shareholders would seek to obtain
any consents and approvals and make necessary filing to permit Schein, by
acquiring any additional shares at fair market value, to maintain in the
surviving company share holding not exceeding 10% (or the higher share
holding, if any, resulting from the merger). Schein will restrict its
share holding in the surviving company to 10% or the higher share holding,
if any, resulting from the merger.
4. Schein would have Board of Directors representation consistent with its
equity interest, with at least one Schein Board designee so long as Schein
holds 10% or more of outstanding Cheminor (or the company resulting from
the merger of Cheminor and Reddy) shares (or such lesser percentage if
Schein cannot fully exercise its antidilution rights, or if as a result of
the merger Schein holds less than 10% of the surviving company's
outstanding shares).
5. When Schein's shares are publicly traded, Cheminor could make fair market
value purchases of Schein shares using, if Cheminor wished, profits due
Cheminor from the alliance from the initiation of the alliance onward.
Cheminor would have antidilution rights in order to maintain at least its
percentage interest in Schein, at fair market value.
Cheminor would have Board of Directors representation at Schein consistent
with its equity interest, with at least one Cheminor Board designee so
long as Cheminor holds 10% or more of outstanding Schein shares.
6. If Schein wants to sell its shares in Cheminor (or the company resulting
from the merger), the first right of refusal at the fair market value
should be given to the principal shareholders of Cheminor (or the company
resulting from the merger) or their nominees. If Cheminor wants to sell
any future shares it might hold in Schein, it would do so only through
open market public transactions in accordance with applicable securities
laws.
7. Cheminor, Dr. Reddy's Laboratories and Schein would recommend to their
respective Boards to support the other party's exercise of any rights
described above.
Page 4
<PAGE>
MISCELLANEOUS
- -------------
1. Upon request, the parties will provide each other on a timely basis with
financial and other data reasonably requested as may be required for
public and or regulatory filings.
2. Cheminor and Schein each will undertake to obtain on a timely basis all
consents and approvals (including board of directors, stockholders,
regulatory and/or governmental), if any, needed for the consummation of
the strategic alliance transactions and the investments.
3. Definitive agreements will include customary representations, warranties,
covenants and indemnities.
The above points are not exclusive and, while they represent the principal
points for the basis of the parties' understanding, either party may raise
additional issues consistent with the framework established by these Principal
Points of Intention.
Page 6
<PAGE>
SCHEDULE I TO PRINCIPAL POINTS OF INTENTION
-------------------------------------------
Exclusivity shall not apply to the following products for the following
territories:
Australia: Norfloxacin; Enalapril; Ciprofloxacin
Canada: Ciprofloxacin
UK: Ranitidine; Ibuprofen
Exclusivity shall not apply to the following products for the following
territories unless by March 1, 1998 Schein has obtained local entity Board
approval to commercialize these products:
Australia: Ranitidine; Ibuprofen, Naproxen
South Africa: Norfloxacin; Ranitidine; Ciprofloxacin;
Fluoxetine; Enalapril; Omeprazole
UK: Norfloxacin; Nabumetone; Enalapril; Fluoxetine;
Ciprofloxacin; Domperidone; Domperidone maleata;
Omeprazole
<PAGE>
EXHIBIT 10.13 Cover
SCHEIN HOLDINGS, INC.
1993 STOCK OPTION PLAN
(formerly the Schein Pharmaceutical, Inc.
1993 Stock Option Plan)
As of November 5, 1993
<PAGE>
EXHIBIT 10.13 TOC
Table of Contents
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Purposes of the Plan................................................................. 1
2 Definitions.......................................................................... 1
3. Effective Date/Expiration of Plan.................................................... 3
4. Administration....................................................................... 3
(a) Duties of the Committee......................................................... 3
(b) Advisors........................................................................ 4
(c) Indemnification................................................................. 4
(d) Meetings of the Committee....................................................... 4
5. Shares; Adjustment Upon Certain Events............................................... 5
(a) Shares to be Delivered; Fractional Shares....................................... 5
(b) Number of Shares................................................................ 5
(c) Adjustments; Recapitalization, etc.............................................. 5
6. Awards and Terms of Options.......................................................... 7
(a) Grant........................................................................... 7
(b) Exercise Price.................................................................. 7
(c) Number of Shares................................................................ 7
(d) Exercisability.................................................................. 7
(e) Special Rule for Incentive Options.............................................. 7
(f) Acceleration of Exercisability Upon Change of Control........................... 8
(g) Exercise of Options............................................................. 10
7. Effect of Termination of Employment.................................................. 11
(a) Death, Disability, Retirement, etc.............................................. 11
(b) Cause........................................................................... 11
(c) Other Termination............................................................... 11
8. Nontransferability of Options........................................................ 12
9. Rights as a Stockholder.............................................................. 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
10. Determinations....................................................................... 12
11. Termination, Amendment and Modification.............................................. 12
12. Non-Exclusivity...................................................................... 13
13. Use of Proceeds...................................................................... 13
14. General Provisions................................................................... 13
(a) Right to Terminate Employment................................................... 13
(b) Purchase for Investment......................................................... 13
(c) Trusts, etc..................................................................... 14
(d) Notices......................................................................... 14
(e) Severability of Provisions...................................................... 14
(f) Payment to Minors, Etc.......................................................... 14
(g) Headings and Captions........................................................... 15
(h) Controlling Law................................................................. 15
15. Issuance of Stock Certificates;
Legends; Payment of Expenses......................................................... 15
(a) Stock Certificates.............................................................. 15
(b) Legends......................................................................... 15
(c) Payment of Expenses............................................................. 15
16. Listing of Shares and Related Matters................................................ 15
I7. Withholding Taxes.................................................................... 16
</TABLE>
ii
<PAGE>
EXHIBIT 10.13
SCHEIN HOLDINGS, INC.
1993 STOCK OPTION PLAN
1. Purposes of the Plan
--------------------
The purposes of this Schein Holdings, Inc. 1993 Stock Option Plan
(formerly the Schein Pharmaceutical, Inc. 1993 Stock Option Plan) (the "Plan")
are to enable Schein Holdings, Inc. ("Holdings") and its Subsidiaries (as
defined herein) to attract, retain and motivate the employees who are important
to the success and growth of the business of Holdings and to enhance the
long-term mutuality of interest between the Key Employees (as defined herein)
and the stockholders of Holdings by granting the Key Employees options (which
may be either Incentive Stock Options (as defined herein) or non-qualified stock
options) to purchase Holdings' Common Stock (as defined herein).
2. Definitions
-----------
(a) "Act" means the Securities Exchange Act of 1934.
(b) "Board" means the Board of Directors of Holdings.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means such committee, if any, appointed by the Board
to administer the Plan, consisting of one or more directors as may be appointed
from time to time by the Board. If the Board does not appoint a committee for
this purpose, "Committee" means the Board.
(e) "Common Stock" means the common stock of Holdings, par value $0.01
per share, any Common Stock into which the Common Stock may be converted and any
Common Stock resulting from any reclassification of the Common Stock.
(f) "Company" means Holdings, and any of its Subsidiaries whose
employees are Participants in the Plan.
(g) "Disability" means a permanent and total disability, as determined
by the Committee in its sole discretion. A Disability shall be deemed to occur
at the time of the determination by the Committee of the Disability.
(h) "Equity Investor Transaction" means a transaction (or series of
transactions) resulting in the stockholders (or beneficiaries of any such
stockholders which
<PAGE>
are trusts) of the Company receiving after November 1, 1993 and prior to
December 31, 1994 not less than $200 million in the aggregate in respect of the
disposition of shares of Holdings, by cash, dividend or otherwise.
(i) "Fair Market Value" means the value of a Share (as defined herein)
on a particular date, determined as follows:
(i) if the Common Stock is listed or admitted to trading on
such date on a national securities exchange or quoted through the National
Association of Securities Dealers' Automated Quotation ("NASDAQ") National
Market System, the closing sale price of a Share as reported on the
relevant composite transaction tape, if applicable, or on the principal
such exchange (determined by trading value in the Common Stock) or through
the National Market System, as the case may be, on such date, or in the
absence of reported sales on such date, the mean between the highest
reported bid and lowest reported asked prices reported on such composite
transaction tape or exchange or through the National Market System, as the
case may be, on such date; or
(ii) if the Common Stock is not listed or quoted as described
in the preceding clause, but bid and asked prices are quoted through
NASDAQ, the mean between the highest reported bid and lowest reported asked
prices as quoted through NASDAQ on such date; or
(iii) if the Common Stock is not listed or quoted on a national
securities exchange or through NASDAQ or, if pursuant to (i) and (ii) above
the Fair Market Value is to be determined based upon the mean of the
highest reported bid and lowest reported asked prices and the Committee
determines that such mean does not properly reflect the Fair Market Value,
by such other method as the Committee determines to be reasonable and
consistent with applicable law; or
(iv) if the Common Stock is not publicly traded, such amount as
is set by the Committee in good faith.
(j) "Incentive Stock Option" means any Option intended to qualify as
an "incentive stock option", as defined in Section 422 of the Code.
(k) "Key Employee" means any person who is an executive officer or
other valuable employee of the Company, as determined by the Committee,
including those individuals described in Section 5(c)(iv). A Key Employee may,
but need not, be an officer or director of the Company.
(l) "Option" means the right to purchase one Share at a prescribed
purchase price on the terms specified in the Plan. An Option may be an
Incentive Stock Option or a non-qualified option.
2
<PAGE>
(m) "Participant" means a Key Employee of the Company who is granted
Options under the Plan.
(n) "Share" means a share of Common Stock.
(o) "Subsidiary" means any corporation more than 50% of the voting
stock of which is directly or indirectly beneficially owned by Holdings. An
entity shall be deemed a Subsidiary of Holdings only for such periods as the
requisite ownership relationship is maintained.
(p) "Substantial Stockholder" means any Participant who at the time of
grant owns directly or is deemed to own by reason of the attribution rules set
forth in Section 424(d) of the Code Shares possessing more than 10% of the total
combined voting power of all classes of stock of Holdings.
(q) "Termination of Employment" with respect to an individual means
that individual is no longer an employee of Holdings or any of its Subsidiaries.
In the event an entity shall cease to be a Subsidiary of Holdings, there
shall be deemed a Termination of Employment of any individual who is not
otherwise an employee of Holdings or another Subsidiary of Holdings at the time
the entity ceases to be a Subsidiary. A Termination of Employment shall not
include a leave of absence approved for purposes of the Plan by the Committee.
3. Effective Date/Expiration of Plan
---------------------------------
The Plan became effective upon its adoption by the Board of Directors
of Schein Pharmaceutical, Inc., a subsidiary of Holdings ("SPINC"), and approval
by the stockholders of SPINC (the "Effective Date"), and was assumed by
Holdings, a holding company owning all of the capital stock of SPINC at the
time the Plan was assumed and conducting no business other than through SPINC
and its subsidiaries. Grants of Options under the Plan were made after adoption
of the Plan by the Board and from time to time may be made, subject to
stockholder approval to the extent required by law. Contemporaneously with the
assumption of the Plan by Holdings, Options previously granted under the Plan
were automatically converted into Options to purchase Shares of Common Stock of
Holdings. No Option shall be granted under the Plan on or after the tenth
anniversary of the Effective Date (the "Termination Date"), but Options granted
prior to the Termination Date may be exercised after the Termination Date.
4. Administration
--------------
(a) Duties of the Committee. The Plan shall be administered by the
-----------------------
Committee. The Committee shall have full authority to interpret the Plan and to
decide any questions and settle all controversies and disputes that may arise in
connection with
3
<PAGE>
the Plan; to establish, amend and rescind rules for carrying out the Plan; to
administer the Plan, subject to its provisions; to select Participants in, and
grant Options under, the Plan; to determine the terms, exercise price and form
of exercise payment for each Option granted under the Plan; to determine which
Options granted under the Plan shall be Incentive Stock Options; to prescribe
the form or forms of instruments evidencing Options and any other instruments
required under the Plan (which need not be uniform) and to change such forms
from time to time; and to make all other determinations and to take all such
steps in connection with the Plan and the Options as the Committee, in its sole
discretion, deems necessary or desirable. The Committee shall not be bound to
any standards of uniformity or similarity of action, interpretation or conduct
in the discharge of its duties hereunder, regardless of the apparent similarity
of the matters coming before it. Any determination, action or conclusion of the
Committee shall be final, conclusive and binding on all parties.
(b) Advisors. The Committee may designate the Secretary of Holdings,
--------
other employees of the Company or competent professional advisors to assist the
Committee in the administration of the Plan, and may grant authority to such
persons to execute Option Agreements (as defined herein) or other documents on
behalf of the Committee. The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the administration of the
Plan, and may rely upon any opinion received from any such counsel or consultant
and any computation received from any such consultant or agent. Expenses
incurred by the Committee in the engagement of such counsel, consultant or agent
shall be paid by the Company.
(c) Indemnification. No officer of Holdings or SPINC or member or
---------------
former member of the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any Option granted under it. To
the maximum extent permitted by applicable law or the charter or by-laws of
Holdings or SPINC and to the extent not covered by Holdings' or SPINC's
insurance, each officer and member or former member of the Committee or of the
Board shall be indemnified and held harmless by Holdings against any cost or
expense (including reasonable fees of counsel reasonably acceptable to Holdings)
or liability (including any sum paid in settlement of a claim with the approval
of Holdings), and advanced amounts necessary to pay the foregoing at the
earliest time and to the fullest extent permitted, arising out of any act or
omission to act in connection with the Plan, except to the extent arising out of
such officer's, member's or former member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification the
officers, members or former members may have as directors under applicable law
or under the charter or by-laws of Holdings or any Subsidiary of Holdings.
(d) Meetings of the Committee. The Committee shall select one of its
-------------------------
members as a Chairman and shall adopt such rules and regulations as it shall
deem appropriate concerning the holding of its meetings and the transaction of
its business. Any member of the Committee may be removed at any time either
with or without cause by resolution adopted by the Board, and any vacancy on the
Committee may at any time
4
<PAGE>
be filled by resolution adopted by the Board. All determinations by the
Committee shall be made by the affirmative vote of a majority of its members.
Any such determination may be made at a meeting duly called and held at which a
majority of the members of the Committee are in attendance in person or through
telephonic communication. Any determination set forth in writing and signed by
all the members of the Committee shall be as fully effective as if it had been
made by a majority vote of the members at a meeting duly called and held.
5. Shares; Adjustment Upon Certain Events
--------------------------------------
(a) Shares to be Delivered; Fractional Shares. Shares to be issued
-----------------------------------------
under the Plan shall be made available, at the discretion of the Board, either
from authorized but unissued Shares or from issued Shares reacquired by Holdings
and held in treasury. No fractional Shares will be issued or transferred upon
the exercise of any Option. In lieu thereof, Holdings shall pay a cash
adjustment equal to the same fraction of the Fair Market Value of one Share on
the date of exercise.
(b) Number of Shares. Subject to adjustment as provided in this
----------------
Section 5, the maximum aggregate number of Shares that may be issued under the
Plan shall be [27,400]. If Options are for any reason canceled, or expire or
terminate unexercised, the Shares covered by such Options shall again be
available for the grant of Options, subject to the foregoing limit.
(c) Adjustments; Recapitalization, etc. The existence of the Plan and
----------------------------------
the Options granted hereunder shall not affect in any way the right or power of
the Board or the stockholders of Holdings to make or authorize any adjustment,
recapitalization, reorganization or other change in Holdings' capital structure
or its business, any merger or consolidation of Holdings, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or affecting Common
Stock, the dissolution or liquidation of Holdings or any of its Subsidiaries,
any sale or transfer of all or part of its assets or business or any other
corporate act or proceeding. If and whenever Holdings takes any such action,
however, the following provisions, to the extent applicable, shall govern:
(i) If and whenever Holdings shall effect a stock split, stock
dividend, subdivision, recapitalization or combination of Shares or other
changes in Holdings' capital stock, (x) the Purchase Price (as defined
herein) per Share and the number and class of Shares and/or other
securities with respect to which outstanding Options thereafter may be
exercised, and (y) the total number and class of Shares and/or other
securities that may be issued under this Plan shall be proportionately
adjusted by the Committee. The Committee may also make such other
adjustments as it deems necessary to take into consideration any other
event (including, without limitation, accounting changes), if the Committee
determines that such adjustment is appropriate to avoid distortion in the
operation of the Plan.
5
<PAGE>
(ii) Subject to Section 5(c)(iii), if Holdings merges or
consolidates with one or more corporations, then from and after the
effective date of such merger or consolidation, upon exercise of Options
theretofore granted, the Participant shall be entitled to purchase under
such Options, in lieu of the number of Shares as to which such Options
shall then be exercisable but on the same terms and conditions of exercise
set forth in such Options, the number and class of Shares and/or other
securities or property (including cash) to which the Participant would have
been entitled pursuant to the terms of the agreement of merger or
consolidation, if, immediately prior to such merger or consolidation, the
Participant had been the holder of record of the total number of Shares
receivable upon exercise of such Options (whether or not then exercisable).
(iii) In the event of a merger or consolidation in which
Holdings is not the surviving entity or in the event of any transaction
that results in the acquisition of substantially all of Holdings'
outstanding Common Stock by a single person or entity or by a group of
persons and/or entities acting in concert, or in the event of the sale or
transfer of all Holdings' assets (the foregoing being referred to as
"Acquisition Events"), then the Committee may in its discretion terminate
all outstanding Options as of the consummation of the Acquisition Event by
delivering notice of termination to each Participant at least 20 days prior
to the date of consummation of the Acquisition Event; provided that, during
the period from the date on which such notice of termination is delivered
to the consummation of the Acquisition Event, each Participant shall have
the right to exercise in full all the Options that are then outstanding
(without regard to limitations on exercise otherwise contained in the
Options). If an Acquisition Event occurs and the Committee does not
terminate the outstanding Options pursuant to the preceding sentence, then
the provisions of Section 5(c)(ii) shall apply.
(iv) Subject to Section 5(b), the Committee may grant Options
under the Plan in substitution for options held by employees of another
corporation who concurrently become employees of the Company as the result
of a merger or consolidation of the employing corporation with the Company,
or as the result of the acquisition by the Company of property or stock of
the employing corporation. The Company may direct that substitute awards
be granted on such terms and conditions as the Committee considers
appropriate in the circumstances.
(v) If, as a result of any adjustment made pursuant to the
preceding paragraphs of this Section 5, any Participant shall become
entitled upon exercise of an Option to receive any securities other than
Common Stock, then the number and class of securities so receivable
thereafter shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect
to the Common Stock set forth in this Section 5, as determined by the
Committee in its discretion.
6
<PAGE>
(vi) Except as hereinbefore expressly provided, the issuance by
Holdings of shares of stock of any class, or securities convertible into
shares of stock of any class, for cash, property, labor or services, upon
direct sale, upon the exercise of rights or warrants to subscribe therefor
or upon conversion of shares or other securities, and in any case
whether or not for fair value, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number and class of
shares and/or other securities or property subject to Options theretofore
granted or the Purchase Price.
6. Awards and Terms of Options
---------------------------
(a) Grant. The Committee may grant Options, including Options intended
-----
to be Incentive Stock Options, to Key Employees of the Company. Each Option
shall be evidenced by an Option agreement (the "Option Agreement") in such form
as the Committee shall approve from time to time.
(b) Exercise Price. The purchase price per Share (the "Purchase
--------------
Price") deliverable upon the exercise of an Option shall be determined by the
Committee, subject to the following: (i) the Purchase Price shall not be less
than the par value of a Share and (ii) in the case of Incentive Stock Options,
the Purchase Price shall not be less than 100% (110% for an Incentive Stock
Option granted to a Substantial Stockholder) of the Fair Market Value per share
on the date the Incentive Stock Option is granted.
(c) Number of Shares. The Option Agreement shall specify the number of
----------------
Options granted to the Participant, as determined by the Committee in its sole
discretion.
(d) Exercisability. At the time of grant, the Committee shall specify
--------------
when and on what terms the Options granted shall be exercisable. In the case of
Options not immediately exercisable in full, the Committee may at any time
accelerate the time at which all or any part of the Options may be exercised and
may waive any other conditions to exercise, subject to the terms of the Option
Agreement and the Plan. No Option shall be exercisable after the expiration of
ten years from the date of grant (five years, in the case of an Incentive Stock
Option granted to a Substantial Stockholder). Each Option shall be subject to
earlier termination as provided in Section 7 below. Anything herein to the
contrary notwithstanding, no Option shall be exercised until after the
occurrence of an Equity Investor Transaction and all Options shall terminate if
an Equity Investor Transaction shall not occur.
(e) Special Rule for Incentive Options. If required by Section 422 of
----------------------------------
the Code, to the extent the aggregate Fair Market Value of the Shares with
respect to which Incentive Stock Options are exercisable for the first time by
the Participant during any calendar year (under all plans of his or her employer
corporation and its parent and subsidiary corporations) exceeds $100,000, such
Options shall not be treated as Incentive Stock Options. Nothing in this
special rule shall be construed as limiting the
7
<PAGE>
exercisability of any Option, unless the Committee expressly provides for
such a limitation at time of grant.
(f) Acceleration of Exercisability Upon Change of Control. All Options
-----------------------------------------------------
granted and not previously exercisable shall become fully exercisable
immediately upon a Change of Control (as defined herein), if a Change of Control
occurs subsequent to an initial public offering of the Common Stock of Holdings,
or immediately upon a Termination of Employment of the Participant by the
Company without Cause (as defined herein), if the Termination of Employment
occurs subsequent to a Change of Control (without regard to whether an IPO has
therefore occurred). For this purpose, a "Change of Control" shall be deemed to
have occurred upon:
(i) an acquisition directly or indirectly by any individual,
entity or group (within the meaning of Section 13d-3 or 14d-1 of the Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Act) of more than 50% of the combined voting power of
the then outstanding voting securities of Holdings entitled to vote
generally in the election of directors (the "Outstanding Holdings Voting
Securities"); excluding, however, the following: (x) any acquisition by the
Company, (y) any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company or (z) any acquisition by any
corporation pursuant to a reorganization, merger, consolidation or similar
corporate transaction (in each case, a "Corporate Transaction"), if,
pursuant to such Corporate Transaction, the conditions described in clauses
(A), (B) and (C) of paragraph (iii) of this Section 6(f) are satisfied; or
(ii) a change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the Board (the Board
as of the Effective Date shall be hereinafter referred to as the "Incumbent
Board") cease for any reason to constitute at least a majority of the Board;
provided that, for purposes of this Subsection, any individual who becomes a
member of the Board subsequent, to the Effective Date and whose election, or
nomination for election by the Holdings stockholders, was approved by the
members of the Board who also are members of the Incumbent Board (or so
deemed to be pursuant to this proviso) shall be deemed a member of the
Incumbent Board; but, provided further, that any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board shall not be so deemed a member of the Incumbent Board; or
(iii) the approval by the stockholders of Holdings of a
Corporate Transaction or, if consummation of such Corporate Transaction is
subject, at the time of such approval by stockholders, to the consent of any
government or governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation); excluding, however, such a
Corporate Transaction pursuant to
8
<PAGE>
which (A) the beneficial owners (or beneficiaries of the beneficial owners) of
the outstanding Shares and Outstanding Holdings Voting Securities immediately
prior to such Corporate Transaction will beneficially own, directly or
indirectly, more than 60% of, respectively, the outstanding shares of common
stock of the corporation resulting from such Corporate Transaction and the
combined voting power of the outstanding voting securities of such corporation
entitled to vote generally in the election of directors, in substantially the
same proportions as their ownership, immediately prior to such Corporate
Transaction, of the outstanding Shares and Outstanding Holdings Voting
Securities, as the case may be, (B) no Person (other than the Company, any
employee benefit plan (or related trust) of the Company or the corporation
resulting from such Corporate Transaction and any Person beneficially owning,
immediately prior to such Corporate Transaction, directly or indirectly, 20% or
more of the outstanding Shares or Outstanding Holdings Voting Securities, as the
case may be) will beneficially own, directly or indirectly, 20% or more of,
respectively, the outstanding shares of common stock of the corporation
resulting from such Corporate Transaction or the combined voting power of the
then outstanding securities of such corporation entitled to vote generally in
the election of directors and (C) individuals who were members of the Incumbent
Board will constitute at least a majority of the members of the board of
directors of the corporation resulting from such Corporate Transaction; or
(iv) the approval of the stockholders of Holdings of (A) a complete
liquidation or dissolution of Holdings or (B) the sale or other disposition of
all or substantially all the assets of Holdings; excluding, however, such a sale
or other disposition to a corporation with respect to which, following such sale
or other disposition, (x) more than 60% of the then outstanding shares of common
stock of such corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the election
of directors will be then beneficially owned, directly or indirectly, by the
individuals and entities who were the beneficial owners (or beneficiaries of
the beneficial owners), respectively, of the outstanding Shares and Outstanding
Holdings Voting Securities immediately prior to such sale or other disposition
in substantially the same proportion as their ownership, immediately prior to
such sale or other disposition, of the outstanding Shares and Outstanding
Holdings Voting Securities, as the case may be, (y) no Person (other than the
Company and any employee benefit plan (or related trust) of the Company or such
corporation and any Person beneficially owning, immediately prior to such sale
or other disposition, directly or indirectly, 20% or more of the outstanding
Shares or Outstanding Holdings Voting Securities, as the case may be) will
beneficially own, directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (z) individuals who were members
of the Incumbent Board will constitute at least a majority of the members of the
board of directors of such corporation.
9
<PAGE>
(g) Exercise of Options.
-------------------
(i) A Participant may elect to exercise one or more Options by
giving written notice to the Committee of such election and of the number of
Options such Participant has elected to exercise, accompanied by payment in
full of the aggregate Purchase Price for the number of Shares for which the
Options are being exercised.
(ii) Shares purchased pursuant to the exercise of Options shall be
paid for at the time of exercise as follows:
(A) in cash or by check, bank draft or money order payable
to the order of Holdings;
(B) if so permitted by the Committee: (I) through the
delivery of unencumbered Shares (including Shares being acquired pursuant
to the Options then being exercised), provided such Shares (or such
Options) have been owned by the Participant for such period as may be
required by applicable accounting standards to avoid a charge to earnings,
(II) through a combination of Shares and cash as provided above, (III) by
delivery of a promissory note of the Participant to Holdings, such
promissory note to be payable, in the case of an Incentive Stock Option, on
such terms as are specified in the Option Agreement (except that, in lieu
of a stated rate of interest, the Option Agreement may provide that the
rate of interest on the promissory note will be such rate as is sufficient,
at the time the note is given, to avoid the imputation of interest under
the applicable provisions of the Code), or (IV) by a combination of cash
(or cash and Shares) and the Participant's promissory note; provided, that,
if the Shares delivered upon exercise of the Option is an original issue of
authorized Shares, at least so much of the exercise price as represents the
par value of such Shares shall be paid in cash or by a combination of cash
and Shares;
(C) through the delivery of irrevocable instructions to a
broker to deliver promptly to Holdings an amount equal to the aggregate
Purchase Price; or
(D) on such other terms and conditions as may be acceptable
to the Committee and in accordance with applicable law.
(iii) Upon receipt of payment, Holdings shall deliver to the
Participant as soon as practicable a certificate or certificates for the Shares
then purchased.
10
<PAGE>
7. Effect of Termination of Employment
-----------------------------------
(a) Death, Disability, Retirement, etc. Except as otherwise provided
-----------------------------------
in the Participant's Option Agreement, upon Termination of Employment, all
outstanding Options then exercisable and not exercised by the Participant prior
to such Termination of Employment (and any Options not previously exercisable
but made exercisable by the Committee at or after the Termination of Employment)
shall remain exercisable by the Participant to the extent not exercised for the
following time periods (subject to Section 6(d)):
(i) In the event of the Participant's death, such Options shall
remain exercisable (by the Participant's estate or by the person given
authority to exercise such Options by the Participant's will or by
operation of law) for a period of one year from the date of the
Participant's death, provided that the Committee, in its discretion, may at
any time extend such time period to up to three years from the date of the
Participant's death.
(ii) In the event of the Participant's Disability, or the
Participant retires at or after age 65 (or, with the consent of the
Committee or under an early retirement policy of the Company, before age
65), or if the Participant's employment is terminated by the Company
without Cause, such Options shall remain exercisable for one year from the
date of the Participant's Termination of Employment, provided that the
Committee, in its discretion, may at any time extend such time period to
up to three years from the date of the Participant's Termination of
Employment.
(b) Cause. Upon the Termination of Employment of a Participant for
-----
Cause or by the Participant in violation of an agreement between the Participant
and Holdings or any of its Subsidiaries, or if it is discovered after such
Termination of Employment that such Participant had engaged in conduct that
would have justified a Termination of Employment for Cause, all outstanding
Options shall immediately be canceled. Termination of Employment for "Cause"
means (i) the Participant's willful and continued failure substantially to
perform his or her duties with the Company, (ii) fraud, misappropriation or
intentional material damage to the property or business of the Company or (iii)
commission of a felony.
(c) Other Termination. In the event of Termination of Employment for
-----------------
any reason other than as provided in Section 7(a) or 7(b), all outstanding
Options not exercised by the Participant prior to such Termination of Employment
shall remain exercisable (to the extent exercisable by such Participant
immediately before such termination) for a period of three months after such
termination, provided that the Committee in its discretion may extend such time
period to up to one year from the date of the Participant's Termination of
Employment, and provided further that no Options that were not exercisable
during the period of employment shall thereafter become exercisable, unless the
Committee determines that such Options shall be exercisable.
11
<PAGE>
8. Nontransferability of Options
-----------------------------
No Option shall be transferable by the Participant otherwise than by
will or under applicable laws of descent and distribution, and during the
lifetime of the Participant may be exercised only by the Participant or his or
her guardian or legal representative. In addition, no Option shall be assigned,
negotiated, pledged or hypothecated in any way (whether by operation of law or
otherwise), and no Option shall be subject to execution, attachment or similar
process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate
any Option, or in the event of any levy upon any Option by reason of any
execution, attachment or similar process contrary to the provisions hereof, such
Option shall immediately become null and void.
9. Rights as a Stockholder
-----------------------
A Participant (or a permitted transferee of an Option) shall have no
rights as a stockholder with respect to any Shares covered by such Participant's
Option until such Participant (or permitted transferee) shall have become the
holder of record of such Shares, and no adjustments shall be made for dividends
in cash or other property or distributions or other rights in respect to any
such Shares, except as otherwise specifically provided in this Plan.
10. Determinations
--------------
Each determination, interpretation or other action made or taken
pursuant to the provisions of this Plan by the Committee shall be final,
conclusive and binding for all purposes and upon all persons, including, without
limitation, the Participants, Holdings and its Subsidiaries, directors, officers
and other employees of Holdings and its Subsidiaries, and the respective heirs,
executors, administrators, personal representatives and other successors in
interest of each of the foregoing.
11. Termination, Amendment and Modification
---------------------------------------
The Plan shall terminate at the close of business on the tenth
anniversary of the Effective Date, unless terminated sooner as hereinafter
provided, and no Option shall be granted under the Plan on or after that date.
The termination of the Plan shall not terminate any outstanding Options that by
their terms continue beyond the termination date of the Plan. At any time prior
to the tenth anniversary of the Effective Date, the Board or the Committee may
amend or terminate the Plan or suspend the Plan in whole or in part.
Notwithstanding the foregoing, however, no such amendment may, without the
approval of the stockholders of Holdings, effect any change that would require
stockholder approval under applicable law.
12
<PAGE>
Nothing contained in this Section 11 shall be deemed to prevent the
Board or the Committee from authorizing amendments of outstanding Options of
Participants, including, without limitation, the reduction of the Purchase Price
specified therein (or the granting or issuance of new Options at a lower
Purchase Price upon cancellation of outstanding Options), as long as all Options
outstanding at any one time shall not call for issuance of more Shares than the
remaining number provided for under the Plan and as long as the provisions of
any amended Options would have been permissible under the Plan, if such Option,
had been originally granted or issued as of the date of such amendment with such
amended terms.
Notwithstanding anything to the contrary contained in this Section 11,
no termination, amendment or modification of the Plan may, without the consent
of the Participant or the permitted transferee of such Participant's Option,
alter or impair the rights and obligations arising under any then outstanding
Option.
12. Non-Exclusivity
---------------
Neither the adoption of the Plan by the Board nor the submission of
the Plan to the stockholders of Holdings for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting or issuance of stock options, Shares and/or other incentives otherwise
than under the Plan, and such arrangements may be either generally applicable or
limited in application.
13. Use of Proceeds
---------------
The proceeds of the sale of Shares subject to Options under the Plan
are to be added to the general funds of Holdings and used for its general
corporate purposes as the Board shall determine.
14. General Provisions
------------------
(a) Right to Terminate Employment. Neither the adoption of the Plan
-----------------------------
nor the grant of Options shall impose any obligation on the Company to continue
the employment of any Participant, nor shall it impose any obligation on the
part of any Participant to remain in the employ of the Company, subject however
to the provisions of any agreement between the Company and the Participant.
(b) Purchase for Investment. If the Board determines that the law so
-----------------------
requires, the holder of an Option granted hereunder shall, upon any exercise or
conversion thereof, execute and deliver to Holdings a written statement, in form
satisfactory to Holdings, representing and warranting that such Participant is
purchasing
13
<PAGE>
or accepting the Shares then acquired for such Participant's own account and not
with a view to the resale or distribution thereof, that any subsequent offer for
sale or sale of any such Shares shall be made either pursuant to (i) a
Registration Statement on an appropriate form under the Securities Act of 1933
(the "Securities Act'), which Registration Statement shall have become effective
and shall be current with respect to the Shares being offered and sold, or (ii)
a specific exemption from the registration requirements of the Securities Act,
and that in claiming such exemption the holder will, prior to any offer for sale
or sale of such Shares, obtain a favorable written opinion, satisfactory in form
and substance to Holdings, from counsel approved by Holdings as to the
availability of such exception.
(c) Trusts, etc. This Plan is intended to be an "unfunded" deferred
-----------
compensation plan. Nothing contained in the Plan and no action taken pursuant
to the Plan (including, without limitation, the grant of any Option thereunder)
shall create or be construed to create a trust of any kind, or a fiduciary
relationship, between Holdings and any Participant or the executor,
administrator or other personal representative or designated beneficiary of such
Participant, or any other persons. Any reserves that may be established by
Holdings in connection with the Plan shall continue to be part of the general
funds of Holdings, and no individual or entity other than Holdings shall have
any interest in such funds until paid to a Participant. If and to the extent
that any Participant or such Participant's executor, administrator or other
personal representative, as the case may be, acquires a right to receive any
payment from Holdings pursuant to the Plan, such right shall be no greater than
the right of an unsecured general creditor of Holdings.
(d) Notices. Each Participant shall be responsible for furnishing the
-------
Committee with the current and proper address for the mailing to such
Participant of notices and the delivery to such Participant of agreements,
Shares and payments. Any notices required or permitted to be given shall be
deemed given if directed to the person to whom addressed at such address and
mailed by regular United States mail, first class and prepaid. If any item
mailed to such address is returned as undeliverable to the addressee, mailing
will be suspended until the Participant furnishes the proper address.
(e) Severability of Provisions. If any provisions of the Plan shall be
--------------------------
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions of the Plan, and the Plan shall be construed and
enforced as if such provisions had not been included.
(f) Payment to Minors, Etc. Any benefit payable to or for the
----------------------
benefit of a minor, an incompetent person or other person incapable of
receipting therefor shall be deemed paid when paid to such person's guardian or
to the party providing or reasonably appearing to provide for the care of such
person, and such payment shall fully discharge the Committee, the Company and
their employees, agents and representatives with respect thereto.
14
<PAGE>
(g) Headings and Captions. The headings and captions herein are
---------------------
provided for reference and convenience only. They shall not be considered part
of the Plan and shall not be employed in the construction of the Plan.
(h) Controlling Law. The Plan shall be construed and enforced
---------------
according the laws of the State of New York.
15. Issuance of Stock Certificates;
Legends; Payment of Expenses
------------------------------
(a) Stock Certificates. Upon any exercise of an Option and payment of
------------------
the exercise price as provided in such Option, a certificate or certificates for
the Shares as to which such Option has been exercised shall be issued by
Holdings in the name of the person or persons exercising such Option and shall
be delivered to or upon the order of such person or persons.
(b) Legends. Certificates for Shares issued upon exercise of an Option
-------
shall bear such legend or legends as the Committee, in its discretion,
determines to be necessary or appropriate to prevent a violation of, or to
perfect an exemption from, the registration requirements of the Securities Act
or to implement the provisions of any agreements between Holdings and the
Participant with respect to such Shares, including, without limitation, any
right of the Company to purchase Shares issued to the Participant upon the
exercise of Options as contained in the Option Agreement.
(c) Payment of Expenses. The Company shall pay all issue or transfer
-------------------
taxes with respect to the issuance or transfer of Shares, as well as all fees
and expenses necessarily incurred by the Company in connection with such
issuance or transfer and with the administration of the Plan.
16. Listing of Shares and Related Matters
-------------------------------------
If at any time the Board shall determine in its sole discretion that
the listing, registration or qualification of the Shares covered by the Plan
upon any national securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the award or sale of Shares
under the Plan, no Shares will be delivered unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained, or otherwise provided for, free of any conditions not acceptable to
the Board.
15
<PAGE>
17. Withholding Taxes
-----------------
Holdings shall be entitled to withhold (or secure payment from the
Participant in cash or other property, including Shares already owned by the
Participant for six months or more (valued at the Fair Market Value thereof on
the date of delivery) in lieu of withholding) the amount of any Federal, state
or local taxes required by law to be withheld by Holdings for any Shares or cash
payments deliverable under this Plan, and Holdings may defer such delivery
unless such withholding requirement is satisfied.
16
<PAGE>
EXHIBIT 10.14
SCHEIN PHARMACEUTICAL, INC.
1997 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN
--------------------
The purposes of this Schein Pharmaceutical, Inc. 1997 Stock Option
Plan (the "Plan") are to enable Schein Pharmaceutical, Inc. ("SPINC") and its
Subsidiaries (as defined herein) to attract, retain and motivate the employees
who are important to the success and growth of the business of SPINC and to
create a long-term mutuality of interest between those employees and the
stockholders of SPINC by granting those employees options (which may be either
Incentive Stock Options (as defined herein) or Non-Qualified Stock Options (as
defined herein)) to purchase SPINC Common Stock (as defined herein).
2. DEFINITIONS
-----------
(a) "Act" means the Securities Exchange Act of 1934.
(b) "Board" means the Board of Directors of SPINC.
(c) "Code" means the Internal Revenue Code of 1986, as amended. Any
reference to any section of the Code shall also be a reference to any successor
provision.
(d) "Committee" means such committee, if any, appointed by the Board
to administer the Plan, consisting of two or more directors as may be appointed
from time to time by the Board. If the Board does not appoint a committee for
this purpose, "Committee" means the Board.
(e) "Common Stock" means the common stock of SPINC, par value $.O1
per share, any Common Stock into which the Common Stock may be converted and any
Common Stock resulting from any reclassification of the Common Stock.
(f) "Company" means SPINC and any of its Subsidiaries whose employees
are Participants in the Plan.
(g) "Disability" means a permanent and total disability, as
determined by the Committee in its sole discretion. A Disability shall be deemed
to occur at the time of the determination by the Committee of the Disability.
<PAGE>
(h) "Fair Market Value" means, for purposes of this Plan, unless
otherwise required by any applicable provision of the Code or any regulations
thereunder, the value of a Share (as defined herein) on a particular date,
determined as follows:
(i) if the Common Stock is listed or admitted to trading on
such date on a national securities exchange or quoted through the Nasdaq
National Market ("Nasdaq"), the closing sale price of a Share as reported
on the relevant composite transaction tape, if applicable, or on the
principal such exchange (determined by trading value in the Common Stock)
or through the National Market System, as the case may be, on such date, or
in the absence of reported sales on such date, the mean between the highest
reported bid and lowest reported asked prices reported on such composite
transaction tape or exchange or through the National Market System, as the
case may be, on such date; or
(ii) if the Common Stock is not listed or quoted as described
in the preceding clause, but bid and asked prices are quoted through
Nasdaq, the mean between the highest reported bid and lowest reported asked
prices as quoted through Nasdaq on such date; or
(iii) if the Common Stock is not listed or quoted on a national
securities exchange or through Nasdaq or, if pursuant to (i) and (ii) above
the Fair Market Value is to be determined based upon the mean of the
highest reported bid and lowest reported asked prices and the Committee
determines that such mean does not properly reflect the Fair Market Value,
by such other method as the Committee determines to be reasonable and
consistent with applicable law; or
(iv) if the Common Stock is not publicly traded, such amount as
is set by the Committee in good faith.
(i) "Incentive Stock Option" means any Option intended to qualify as
an "incentive stock option", as defined in Section 422 of the Code.
(j) "Non-Qualified Stock Option" shall mean any option awarded under
this Plan that is not an Incentive Stock Option.
(k) "Option" means the right to purchase one Share at a prescribed
purchase price on the terms specified in the Plan. An Option may be an Incentive
Stock Option or a Non-Qualified Stock Option.
(l) "Participant" means an employee of the Company who is granted
Options under the Plan.
2
<PAGE>
(m) "Share" means a share of Common Stock.
(n) "Subsidiary" means any corporation more than 50% of the voting
stock of which is directly or indirectly beneficially owned by SPINC. An entity
shall be deemed a Subsidiary of SPINC only for such periods as the requisite
ownership relationship is maintained.
(o) "Substantial Stockholder" means any Participant who at the time
of grant owns directly (or is deemed to own by reason of the attribution rules
set forth in Section 424(d) of the Code) Shares possessing more than 10% of the
total combined voting power of all classes of stock of SPINC as determined under
Section 422 of the Code.
(p) "Termination of Employment" with respect to an individual means
that individual is no longer an employee of SPINC or any of its Subsidiaries. In
the event an entity shall cease to be a Subsidiary of SPINC, there shall be
deemed a Termination of Employment of any individual who is not otherwise an
employee of SPINC or another Subsidiary of SPINC at the time the entity ceases
to be a Subsidiary. A Termination of Employment shall not include a leave of
absence approved for purposes of the Plan by the Committee.
(q) "Transfer" or "Transferred" shall mean attach, sell, assign,
pledge, encumber, charge or otherwise transfer.
3. EFFECTIVE DATE/EXPIRATION OF PLAN The Plan shall become effective upon its
---------------------------------
adoption by the Board and approval by the stockholders of SPINC (the "Effective
Date"). Grants of Options under the Plan may be made after adoption of the Plan
by the Board, subject to stockholder approval to the extent required by law. No
Option shall be granted under the Plan on or after the tenth anniversary of
the Effective Date (the "Termination Date"), but Options granted prior to the
Termination Date may be exercised after the Termination Date.
4. ADMINISTRATION
--------------
(a) Duties of the Committee. The Plan shall be administered by the
-----------------------
Committee. The Committee shall have full authority to interpret the Plan and to
decide any questions and settle all controversies and disputes that may arise in
connection with the Plan; to establish, amend and rescind rules for carrying out
the Plan; to administer the Plan, subject to its provisions; to select
Participants in, and grant Options under, the Plan; to determine the terms,
exercise price and form of exercise payment for each Option granted under the
Plan; to determine which Options granted under the Plan shall be Incentive Stock
Options; to prescribe the form or forms of instruments evidencing Options and
any other instruments required under the Plan (which need not be uniform) and to
change such forms from time to time; and to make all other determinations and to
take all such steps in connection with the Plan and the Options as
3
<PAGE>
the Committee, in its sole discretion, deems necessary or desirable. The
Committee shall not be bound to any standards of uniformity or similarity of
action, interpretation or conduct in the discharge of its duties hereunder,
regardless of the apparent similarity of the matters coming before it. Any
determination, interpretation or other action made or taken by the Company, the
Board or the Committee arising out of or in connection with the Plan shall be
final, conclusive and binding on all parties.
(b) Advisors. The Committee may designate the Secretary of SPINC,
--------
other employees of the Company or competent professional advisors to assist the
Committee in the admmistration of the Plan, and may grant authority to such
persons to execute Option Agreements (as defined herein) or other documents on
behalf of the Committee. The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the administration of the
Plan, and may rely upon any advice received from any such counsel or consultant
and any computation received from any such consultant or agent and shall not be
liable with respect to any action taken or omitted by it in good faith pursuant
to the advice of counsel. Expenses incurred by the Committee in the engagement
of such counsel, consultant or agent shall be paid by the Company.
(c) Indemnification. No officer or former officer of SPINC, member
---------------
or former member of the Board or the Committee, or person designated pursuant to
paragraph (b) shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted under it. To the maximum extent
permitted by applicable law or the Certificate of Incorporation or By-Laws of
SPINC and to the extent not covered by SPINC's insurance, each officer or former
officer and member or former member of the Committee or of the Board shall be
indemnified and held harmless by SPINC against any cost or expense (including
reasonable fees of counsel reasonably acceptable to SPINC) or liability
(including any sum paid in settlement of a claim with the approval of SPINC),
and advanced amounts necessary to pay the foregoing at the earliest time and to
the fullest extent permitted, arising out of any act or omission to act in
connection with the Plan, except to the extent arising out of such officer's,
former officer's, member's or former member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification the
officers, former officers, members or former members may have as directors under
applicable law or under the Certificate of Incorporation or By-Laws of SPINC or
any Subsidiary of SPINC.
(d) Meetings of the Committee. The Committee shall select one of its
-------------------------
members as a Chairman and shall adopt such rules and regulations, subject to the
By-Laws of SPINC, as it shall deem appropriate concerning the holding of its
meetings and the transaction of its business. Any member of the Committee may be
removed at any time either with or without cause by resolution adopted by the
Board, and any vacancy on the Committee may at any time be filled by resolution
adopted by the Board. A majority of the Committee members shall constitute a
quorum. All determinations by the Committee shall be made by the affirmative
vote of a
4
<PAGE>
majority of its members. Any such determination may be made at a meeting duly
called and held at which a majority of the members of the Committee are in
attendance in person or through telephonic communication. Any determination set
forth in writing and signed by all the members of the Committee shall be as
fully effective as if it had been made by a majority vote of the members at a
meeting duly called and held.
5. SHARES; ADJUSTMENT UPON CERTAIN EVENTS
--------------------------------------
(a) Shares to be Delivered; Fractional Shares. Shares to be issued
-----------------------------------------
under the Plan shall be made available, at the discretion of the Board, either
from authorized but unissued Shares or from issued Shares reacquired by SPINC
and held in treasury. No fractional Shares will be issued or transferred upon
the exercise of any Option. In lieu thereof, SPINC shall pay a cash adjustment
equal to the same fraction of the Fair Market Value of one Share on the date of
exercise.
(b) Number of Shares. Subject to adjustment as provided in this
----------------
Section 5, the maximum aggregate number of Shares that may be issued under the
Plan shall be 27,400. If Options are for any reason canceled, or expire or
terminate unexercised, the Shares covered by such Options shall again be
available for the grant of Options, subject to the foregoing limit.
(c) Adjustments; Recapitalization, etc. The existence of the Plan
----------------------------------
and the Options granted hereunder shall not affect in any way the right or power
of the Board or the stockholders of SPINC to make or authorize any adjustment,
recapitalization, reorganization or other change in SPINC's capital structure
or its business, any merger or consolidation of SPINC, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or affecting Common
Stock, the dissolution or liquidation of SPINC or any of its Subsidiaries, any
sale or transfer of all or part of its assets or business or any other corporate
act or proceeding. If and whenever SPINC takes any such action, however, the
following provisions, to the extent applicable, shall govern:
(i) If and whenever SPINC shall effect a stock split, stock
dividend, subdivision, recapitalization or combination of Shares or other
changes in SPINC's capital stock, (x) the Purchase Price (as defined
herein) per Share and the number and class of Shares and/or other
securities with respect to which outstanding Options thereafter may be
exercised, and (y) the total number and class of Shares and/or other
securities that may be issued under this Plan shall be proportionately
adjusted by the Committee. The Committee may also make such other
adjustments as it deems necessary to take into consideration any other
event (including, without limitation, accounting changes), if the Committee
determines that such adjustment is appropriate to avoid distortion in the
operation of the Plan.
5
<PAGE>
(ii) Subject to Section 5(c)(iii), if SPINC merges or
consolidates with one or more corporations, then from and after the
effective date of such merger or consolidation, upon exercise of Options
theretofore granted, the Participant shall be entitled to purchase under
such Options, in lieu of the number of Shares as to which such Options
shall then be exercisable but on the same terms and conditions of exercise
set forth in such Options, the number and class of Shares and/or other
securities or property (including cash) to which the Participant would have
been entitled pursuant to the terms of the agreement of merger or
consolidation, if, immediately prior to such merger or consolidation, the
Participant had been the holder of record of the total number of Shares
receivable upon exercise of such Options (whether or not then exercisable).
(iii) In the event of a merger or consolidation in which SPINC
is not the surviving entity or in the event of any transaction that results
in the acquisition of all or substantially all of SPINC's outstanding
Common Stock by a single person or entity or by a group of persons and/or
entities acting in concert, or in the event of the sale or transfer of all
or substantially all of SPINC's assets (the foregoing being referred to as
"Acquisition Events"), then the Committee may in its sole discretion
terminate all outstanding Options effective as of the consummation of the
Acquisition Event by delivering notice of termination to each Participant
at least 20 days prior to the date of consummation of the Acquisition
Event; provided that, during the period from the date on which such notice
of termination is delivered to the consummation of the Acquisition Event,
each Participant shall have the right to exercise in full all the Options
that are then outstanding (without regard to limitations on exercise
otherwise contained in the Option Agreement), but contingent on occurrence
of the Acquisition Event, and provided that, if the Acquisition Event does
not take place within a specified period after giving such notice for
any reason whatsoever, the notice and exercise shall be null and void. If
an Acquisition Event occurs and the Committee does not terminate the
outstanding Options pursuant to the preceding sentence, then the provisions
of Section 5(c)(ii) shall apply.
(iv) Subject to Section 5(b), the Committee may grant Options
under the Plan in substitution for options held by employees of another
corporation who concurrently become employees of the Company as the result
of a merger or consolidation of the employing corporation with the Company,
or as the result of the acquisition by the Company of property or stock of
the employing corporation. The Company may direct that substitute awards be
granted on such terms and conditions as the Committee considers appropriate
in the circumstances.
(v) If, as a result of any adjustment made pursuant to the
preceding paragraphs of this Section 5, any Participant shall become
entitled upon exercise of an Option to receive any securities other than
Common Stock, then the number and class of
6
<PAGE>
securities so receivable thereafter shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock set forth in this
Section 5, as determined by the Committee in its discretion.
(vi) Except as hereinbefore expressly provided, the issuance by
SPINC of shares of stock of any class, or securities convertible into
shares of stock of any class, for cash, property, labor or services, upon
direct sale, upon the exercise of rights or warrants to subscribe therefor
or upon conversion of shares or other securities, and in any case whether
or not for fair value, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number and class of shares
and/or other securities or property subject to Options theretofore granted
or the Purchase Price.
6. AWARDS AND TERMS OF OPTIONS
---------------------------
(a) Grant. The Committee may grant Options, including Options
-----
intended to be Incentive Stock Options, to employees of the Company. Each Option
shall be evidenced by an Option agreement (the "Option Agreement") in such form
as the Committee shall approve from time to time. To the extent that any Option
does not qualify as an Incentive Stock Option (whether because of its provisions
or the time or manner of its exercise or otherwise), such Option or the portion
thereof which does not qualify shall constitute a separate Non-Qualified Stock
Option.
(b) Exercise Price. The purchase price per Share (the "Purchase
--------------
Price") deliverable upon the exercise of an Option shall be determined by the
Committee, subject to the following: (i) the Purchase Price shall not be less
than the par value of a Share and (ii) in the case of Incentive Stock Options,
the Purchase Price shall not be less than 100% (110% for an Incentive Stock
Option granted to a Substantial Stockholder) of the Fair Market Value per share
on the date the Incentive Stock Option is granted.
(c) Number of Shares. The Option Agreement shall specify the number
----------------
of Options granted to the Participant, as determined by the Committee in its
sole discretion.
(d) Exercisability. At the time of grant, the Committee shall specify
--------------
when and on what terms the Options granted shall be exercisable. In the case of
Options not immediately exercisable in full, the Committee may at any time
accelerate the time at which all or any part of the Options may be exercised and
may waive any other conditions to exercise, subject to the terms of the Option
Agreement and the Plan. No Option shall be exercisable after the expiration of
ten years from the date of grant (five years, in the case of an Incentive Stock
7
<PAGE>
Option granted to a Substantial Stockholder). Each Option shall be subject to
earlier termination as provided in Section 7 below.
(e) Special Rule for Incentive Options. If required by Section 422 of
----------------------------------
the Code, to the extent the aggregate Fair Market Value of the Shares with
respect to which Incentive Stock Options are exercisable for the first time by
the Participant during any calendar year (under all plans of his or her employer
corporation and its parent and subsidiary corporations) exceeds $100,000, such
Options shall not be treated as Incentive Stock Options. Nothing in this special
rule shall be construed as limiting the exercisability of any Option, unless
the Committee expressly provides for such a limitation at time of grant. Should
the foregoing provision not be necessary in order for the Options to qualify as
Incentive Stock Options, or should any additional provisions be required, the
Committee may amend the Plan accordingly, without the necessity of obtaining the
approval of the stockholders of the Company.
(f) Acceleration of Exercisability Upon Change of Control. All
-----------------------------------------------------
Options granted and not previously exercisable shall become fully exercisable
immediately upon a Change of Control (as defined herein), if a Change of Control
occurs subsequent to an initial public offering of the Common Stock, or
immediately upon a Termination of Employment of the Participant by the Company
without Cause (as defined herein), if the Termination of Employment occurs
subsequent to a Change of Control (without regard to whether an initial public
offering has theretofore occurred). For this purpose, a "Change of Control"
shall be deemed to have occurred upon:
(i) an acquisition by any individual, entity or group (within
the meaning of Section 13d-3 or 14d-1 of the Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Act) of more than 50% of the combined voting power of the then
outstanding voting securities of SPINC entitled to vote generally in the
election of directors (the "Outstanding SPINC Voting Securities");
excluding, however, the following: (x) any acquisition by the Company, (y)
any acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or (z) any acquisition by any corporation
pursuant to a reorganization, merger, consolidation or similar corporate
transaction (in each case, a "Corporate Transaction"), if, pursuant to such
Corporate Transaction, the conditions described in clauses (A), (B) and (C)
of paragraph (iii) of this Section 6(f) are satisfied; or
(ii) a change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the Board (the Board
as of the Effective Date shall be hereinafter referred to as the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board; provided that, for purposes of this Subsection, any individual who
becomes a member of the Board subsequent to the Effective Date and whose
election, or nomination for election by the SPINC stockholders, was
approved by
8
<PAGE>
a majority of the members of the Board who also are members of the
Incumbent Board (or so deemed to be pursuant to this proviso) shall be
deemed a member of the Incumbent Board; but, provided further, that any
such individual whose initial assumption of office is in connection with a
Change of Control described in (i), (iii) or (iv) of this Section 6(f) or
whose initial assumption of office occurs as a result of either an actual
or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board shall not be so deemed a member of the Incumbent Board; or
(iii) the approval by the stockholders of SPINC of a Corporate
Transaction or, if consummation of such Corporate Transaction is subject,
at the time of such approval by stockholders, to the consent of any
government or governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation); excluding, however, such a
Corporate Transaction pursuant to which (A) the beneficial owners (or
beneficiaries of the beneficial owners) of the outstanding Shares and
Outstanding SPINC Voting Securities immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than 60%
of, respectively, the outstanding shares of common stock of the corporation
resulting from such Corporate Transaction and the combined voting power of
the outstanding voting securities of such corporation entitled to vote
generally in the election of directors, in substantially the same
proportions as their ownership, immediately prior to such Corporate
Transaction, of the outstanding Shares and Outstanding SPINC Voting
Securities, as the case may be, (B) no Person (other than the Company, any
employee benefit plan (or related trust) of the Company or the corporation
resulting from such Corporate Transaction and any Person beneficially
owning, immediately prior to such Corporate Transaction, directly or
indirectly, 20% or more of the outstanding Shares or Outstanding SPINC
Voting Securities, as the case may be) will beneficially own, directly or
indirectly, 20% or more of, respectively, the outstanding shares of common
stock of the corporation resulting from such Corporate Transaction or the
combined voting power of the then outstanding securities of such
corporation entitled to vote generally in the election of directors and
(C) individuals who were members of the Incumbent Board will constitute at
least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction; or
(iv) the approval of the stockholders of SPINC of (A) a
complete liquidation or dissolution of SPINC or (B) the sale or other
disposition of all or substantially all the assets of SPINC; excluding,
however, such a sale or other disposition to a corporation with respect to
which, following such sale or other disposition, (x) more than 60% of the
then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of such
corporation
9
<PAGE>
entitled to vote generally in the election of directors will be then
beneficially owned, directly or indirectly, by the individuals and entities
who were the beneficial owners (or beneficiaries of the beneficial owners),
respectively, of the outstanding Shares and Outstanding SPINC Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to
such sale or other disposition, of the outstanding Shares and Outstanding
SPINC Voting Securities, as the case may be, (y) no Person (other than the
Company and any employee benefit plan (or related trust) of the Company or
such corporation and any Person beneficially owning, immediately prior to
such sale or other disposition, directly or indirectly, 20% or more of the
outstanding Shares or Outstanding SPINC Voting Securities, as the case may
be) will beneficially own, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors and (z) individuals who were members of the Incumbent Board
will constitute at least a majority of the members of the board of
directors of such corporation.
(g) Exercise of Options.
-------------------
(i) A Participant may elect to exercise one or more Options by
giving written notice to the Committee of such election and of the number
of Shares with respect to which the Options are being exercised,
accompanied by payment in full of the aggregate Purchase Price for such
Shares.
(ii) Shares purchased pursuant to the exercise of Options shall
be paid for at the time of exercise as follows:
(A) in cash or by check, bank draft or money order
payable to the order of SPINC;
(B) if so permitted by the Committee: (I) through the
delivery of unencumbered Shares (including Shares being acquired
pursuant to the Options then being exercised), provided such Shares
(or such Options) have been owned by the Participant for such period
as may be required by applicable accounting standards to avoid a
charge to earnings, (II) through a combination of Shares and cash as
provided above, (III) by delivery of a promissory note of the
Participant to SPINC, such promissory note to be payable, in the case
of an Incentive Stock Option, on such terms as are specified in the
Option Agreement (except that, in lieu of a stated rate of interest,
the Option Agreement may provide that the rate of interest on the
promissory note will be such rate as is sufficient, at the time the
note is given, to avoid the imputation of interest under the
applicable provisions
10
<PAGE>
of the Code), or (IV) by a combination of cash (or cash and Shares)
and the Participant's promissory note; provided, that, if the Shares
delivered upon exercise of the Option is an original issue of
authorized Shares, at least so much of the exercise price as
represents the par value of such Shares shall be paid in cash or by a
combination of cash and Shares;
(C) through the delivery of irrevocable instructions to a
broker to deliver promptly to SPINC an amount equal to the aggregate
Purchase Price; or
(D) on such other terms and conditions as may be acceptable
to the Committee and in accordance with applicable law.
(iii) Upon receipt of payment and satisfaction of the
requirements, if any, as to withholding of taxes as set forth herein, SPINC
shall deliver to the Participant as soon as practicable a certificate or
certificates for the Shares then purchased. No Shares shall be issued until
payment therefor, as provided herein, has been made or provided for.
(h) Buy Out and Settlement Provisions. The Committee may at any time
---------------------------------
on behalf of SPINC offer to buy out an Option previously granted, based on such
terms and conditions as the Committee shall establish and communicate to the
Participant at the time that such offer is made, and the Participant shall be
entitled to accept or reject such offer in his or her sole discretion.
(i) Modification, Extension and Renewal of Options. Subject to the
----------------------------------------------
terms and conditions and within the limitations of the Plan, the Committee may
modify, extend or renew outstanding Options granted under the Plan (provided
that the rights of a Participant are not reduced without his or her consent), or
accept the surrender of outstanding Options (up to the extent not theretofore
exercised) and authorize the granting of new Options in substitution therefor
(to the extent not theretofore exercised).
(j) Other Terms and Conditions. Options may contain such other
--------------------------
provisions, which shall not be inconsistent with any of the foregoing terms of
the Plan, as the Committee shall deem appropriate including, without limitation,
permitting "reloads" such that the same number of Options are granted as the
number of (i) Options exercised, (ii) shares used to pay for the exercise price
of Options or (iii) shares used to pay withholding taxes ("Reloads"). With
respect to Reloads, the exercise price of the new Option shall be the Fair
Market Value on the date of the Reload and the term of the Option shall be the
same as the remaining term of the Options that are exercised, if applicable, or
such other exercise price and term as determined by the Committee.
11
<PAGE>
7. EFFECT OF TERMINATION OF EMPLOYMENT
-----------------------------------
(a) Death, Disability, Retirement, etc. Except as otherwise provided
----------------------------------
in the Participant's Option Agreement, upon Termination of Employment, all
outstanding Options then exercisable and not exercised by the Participant prior
to such Termination of Employment (and any Options not previously exercisable
but made exercisable by the Committee at or after the Termination of Employment)
shall remain exercisable by the Participant to the extent not exercised for the
following time periods (subject to Section 6(d)):
(i) In the event of the Participant's death, such Options shall
remain exercisable (by the legal representative of the Participant's estate
or by the person given authority to exercise such Options by the
Participant's will or by operation of law) for a period of one year from
the date of the Participant's death, provided that the Committee, in its
discretion, may at any time extend such time period to up to three years
from the date of the Participant's death.
(ii) In the event of the Participant's Disability, or the
Participant retires at or after age 65 (or, with the consent of the
Committee or under an early retirement policy of the Company, before age
65), or if the Participant's employment is terminated by the Company
without Cause, such Options shall remain exercisable for one year from the
date of the Participant's Termination of Employment, provided that the
Committee, in its discretion, may at any time extend such time period to up
to three years from the date of the Participant's Termination of
Employment.
(b) Cause. Upon the Termination of Employment of a Participant for
-----
Cause or by the Participant in violation of an agreement between the Participant
and SPINC or any of its Subsidiaries, or if it is discovered after such
Termination of Employment that such Participant had engaged in conduct that
would have justified a Termination of Employment for Cause, all outstanding
Options shall immediately be canceled. Termination of Employment for "Cause"
means (i) the Participant's willful and continued failure substantially to
perform his or her duties with the Company, (ii) fraud, misappropriation or
intentional material damage to the property or business of the Company or (iii)
commission of a felony.
(c) Other Termination. In the event of Termination of Employment for
-----------------
any reason other than as provided in Section 7(a) or 7(b), all outstanding
Options not exercised by the Participant prior to such Termination of Employment
shall remain exercisable (to the extent exercisable by such Participant
immediately before such termination) for a period of three months after such
termination, provided that the Committee in its discretion may extend such time
period to up to one year from the date of the Participant's Termination of
Employment, and provided further that no Options that were not exercisable
during the period of employment shall
12
<PAGE>
thereafter become exercisable, unless the Committee determines that such Options
shall be exercisable.
8. NONTRANSFERABILITY OF OPTIONS
-----------------------------
No Option shall be Transferable by the Participant otherwise than by
will or under applicable laws of descent and distribution, and during the
lifetime of the Participant may be exercised only by the Participant or his or
her guardian or legal representative. In addition, no Option shall, except as
otherwise provided herein, be Transferable in any way (whether by operation of
law or otherwise), and any attempt to Transfer shall be void, and no such Option
shall in any manner be subject to the debts, contracts, liabilities, engagements
or torts of any person who shall be entitled to such Option, nor shall it be
subject to attachment or legal process for or against such person.
9. RIGHTS AS A STOCKHOLDER
-----------------------
A Participant (or a permitted transferee of an Option) shall have no
rights as a stockholder with respect to any Shares covered by such Participant's
Option until such Participant (or permitted transferee) shall have become the
holder of record of such Shares, and no adjustments shall be made for dividends
in cash or other property or distributions or other rights in respect to any
such Shares, except as otherwise specifically provided in this Plan.
10. DETERMINATIONS
--------------
Each determination, interpretation or other action made or taken
pursuant to the provisions of this Plan by the Company, the Board or the
Committee shall be final, conclusive and binding for all purposes and upon all
persons, including, without limitation, the Participants, SPINC and its
Subsidiaries, directors, officers and other employees of SPINC and its
Subsidiaries, and the respective heirs, executors, administrators, personal
representatives and other successors in interest of each of the foregoing.
11. TERMINATION, AMENDMENT AND MODIFICATION
---------------------------------------
The Plan shall terminate at the close of business on the tenth
anniversary of the Effective Date, unless terminated sooner as hereinafter
provided, and no Option shall be granted under the Plan on or after that date.
The termination of the Plan shall not terminate any
13
<PAGE>
outstanding Options that by their terms continue beyond the termination date of
the Plan. At any time prior to the tenth anniversary of the Effective Date, the
Board or the Committee may amend or terminate the Plan or suspend the Plan in
whole or in part. Notwithstanding the foregoing, however, no such amendment may,
without the approval of the stockholders of SPINC, effect any change that
would require stockholder approval under applicable law.
Nothing contained in this Section 11 shall be deemed to prevent the
Board or the Committee from authorizing amendments of outstanding Options of
Participants, including, without limitation, the reduction of the Purchase Price
specified therein (or the granting or issuance of new Options at a lower
Purchase Price upon cancellation of outstanding Options), as long as all Options
outstanding at any one time shall not call for issuance of more Shares than the
remaining number provided for under the Plan and as long as the provisions of
any amended Options would have been permissible under the Plan if such Option
had been originally granted or issued as of the date of such amendment with such
amended terms.
Notwithstanding anything to the contrary contained in this Section 11,
no termination, amendment or modification of the Plan may, without the consent
of the Participant or the permitted transferee of such Participant's Option,
alter or impair the rights and obligations arising under any then outstanding
Option.
12. NON-EXCLUSIVITY
---------------
Neither the adoption of the Plan by the Board nor the submission of
the Plan to the stockholders of SPINC for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting or issuance of stock options, Shares and/or other incentives otherwise
than under the Plan, and such arrangements may be either generally applicable or
limited in application.
13. USE OF PROCEEDS
---------------
The proceeds of the sale of Shares subject to Options under the Plan
are to be added to the general funds of SPINC and used for its general
corporate purposes as the Board shall determine.
14. GENERAL PROVISIONS
------------------
(a) Right to Terminate Employment. Neither the adoption of the Plan
-----------------------------
nor the grant of Options shall impose any obligation on the Company to continue
the employment of any
14
<PAGE>
Participant, nor shall it impose any obligation on the part of any Participant
to remain in the employ of the Company, subject however to the provisions of any
agreement between the Company and the Participant.
(b) Purchase for Investment. If the Board determines that the law so
-----------------------
requires, the holder of an Option granted hereunder shall, upon any exercise or
conversion thereof, execute and deliver to SPINC a written statement, in form
satisfactory to SPINC, representing and warranting that such Participant is
purchasing or accepting the Shares then acquired for such Participant's own
account and not with a view to the resale or distribution thereof, that any
subsequent offer for sale or sale of any such Shares shall be made either
pursuant to (i) a Registration Statement on an appropriate form under the
Securities Act of 1933 (the "Securities Act"), which Registration Statement
shall have become effective and shall be current with respect to the Shares
being offered and sold, or (ii) a specific exemption from the registration
requirements of the Securities Act, and that in claiming such exemption the
holder will, prior to any offer for sale or sale of such Shares, obtain a
favorable written opinion, satisfactory in form and substance to SPINC, from
counsel approved by SPINC as to the availability of such exception. In addition
to any legend required by this Plan, the certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restriction on Transfer.
(c) Trusts, etc. This Plan is intended to be an "unfunded" deferred
-----------
compensation plan. Nothing contained in the Plan and no action taken pursuant to
the Plan (including, without limitation, the grant of any Option thereunder)
shall create or be construed to create a trust of any kind, or a fiduciary
relationship, between SPINC and any Participant or the executor, administrator
or other personal representative or designated beneficiary of such Participant,
or any other persons. Any reserves that may be established by SPINC in
connection with the Plan shall continue to be part of the general funds of
SPINC, and no individual or entity other than SPINC shall have any interest in
such funds until paid to a Participant. If and to the extent that any
Participant or such Participant's executor, administrator or other personal
representative, as the case may be, acquires a right to receive any payment from
SPINC pursuant to the Plan, such right shall be no greater than the right of an
unsecured general creditor of SPINC.
(d) Notices. Each Participant shall be responsible for furnishing
-------
the Committee with the current and proper address for the mailing to such
Participant of notices and the delivery to such Participant of agreements,
Shares and payments. Any notices required or permitted to be given shall be
deemed given if directed to the person to whom addressed at such address and
mailed by regular United States mail, first class and prepaid. If any item
mailed to such address is returned as undeliverable to the addressee, mailing
will be suspended until the Participant furnishes the proper address.
15
<PAGE>
(e) Severability of Provisions. If any provisions of the Plan shall
--------------------------
be held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions of the Plan, and the Plan shall be construed and
enforced as if such provisions had not been included.
(f) Payment to Minors, Etc. Any benefit payable to or for the benefit
----------------------
of a minor, an incompetent person or other person incapable of receipting
therefor shall be deemed paid when paid to such person's guardian or to the
party providing or reasonably appearing to provide for the care of such person,
and such payment shall fully discharge the Committee, the Company and their
employees, agents and representatives with respect thereto.
(g) Headings and Captions. The headings and captions herein are
---------------------
provided for reference and convenience only. They shall not be considered part
of the Plan and shall not be employed in the construction of the Plan.
(h) Controlling Law. The Plan shall be construed and enforced
---------------
according to the laws of the State of Delaware (regardless of the laws that
might otherwise govern under applicable principles of conflict of laws).
15. ISSUANCE OF STOCK CERTIFICATES;
LEGENDS; PAYMENT OF EXPENSES
----------------------------
(a) Stock Certificates. Upon any exercise of an Option and payment
------------------
of the exercise price as provided in such Option, a certificate or certificates
for the Shares as to which such Option has been exercised shall be issued by
SPINC in the name of the person or persons exercising such Option and shall be
delivered to or upon the order of such person or persons.
(b) Legends. Certificates for Shares issued upon exercise of an
-------
Option shall bear such legend or legends as the Committee, in its discretion,
determines to be necessary or appropriate to prevent a violation of, or to
perfect an exemption from, the registration requirements of the Securities Act
or to implement the provisions of any agreements between SPINC and the
Participant with respect to such Shares, including, without limitation, any
right of the Company to purchase Shares issued to the Participant upon the
exercise of Options as contained in the Option Agreement.
(c) Payment of Expenses. The Company shall pay all issue or transfer
-------------------
taxes with respect to the issuance or transfer of Shares, as well as all fees
and expenses necessarily incurred by the Company in connection with such
issuance or transfer and with the administration of the Plan.
16
<PAGE>
(d) Other Benefits. No Option granted under this Plan shall be deemed
--------------
compensation for purposes of computing benefits under any retirement plan of the
Company nor affect any benefits under any other benefit plan now or subsequently
in effect under which the availability or amount of benefits is related to the
level of compensation.
(e) No Right to Same Benefits. The provisions of Options need not be
-------------------------
the same with respect to each Participant, and such Options to individual
Participants need not be the same under subsequent grants.
(f) Death/Disability. The Committee may in its discretion require
----------------
the transferee of a Participant to supply it with written notice of the
Participant's death or Disability and to supply it with a copy of the will (in
the case of the Participant's death) or such other evidence as the Committee
deems necessary to establish the validity of the transfer of an Option. The
Committee may also require the agreement of the transferee to be bound by all of
the terms and conditions of the Plan.
(g) Section 16(b) of the Act. In the event that SPINC becomes
------------------------
publicly held, all elections and transactions under the Plan by persons subject
to Section 16 of the Act involving shares of Common Stock are intended to comply
with any applicable exemptive condition under Rule 16b-3 under Section 16(b) of
the Act. To the extent applicable, the Committee may establish and adopt written
administrative guidelines, designed to facilitate compliance with Section 16(b)
of the Act, as it may deem necessary or proper for the administration and
operation of the Plan and the transaction of business thereunder. For purposes
of this paragraph, SPINC shall be deemed publicly held when and if SPINC has a
class of common equity securities registered under Section 12 of the Act.
16. LISTING OF SHARES AND RELATED MATTERS
-------------------------------------
If at any time the Board shall determine in its sole discretion that
the listing, registration or qualification of the Shares covered by the Plan
upon any national securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the award or sale of Shares
under the Plan, no Shares will be delivered unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained, or otherwise provided for, free of any conditions not acceptable to
the Board.
17
<PAGE>
17. WITHHOLDING TAXES
-----------------
SPINC shall be entitled to withhold (or secure payment from the
Participant in cash or other property, including Shares already owned by the
Participant for six months or more (valued at the Fair Market Value thereof on
the date of delivery) in lieu of withholding) the amount of any Federal, state
or local taxes required by law to be withheld by SPINC for any Shares or cash
payments deliverable under this Plan, and SPINC may defer such delivery unless
such withholding requirement is satisfied. The Committee may permit any such
withholding obligation with regard to any Participant to be satisfied by
reducing the number of Shares otherwise deliverable or by delivering Shares
already owned. Any fraction of a Share required to satisfy such tax obligations
shall be disregarded and the amount due shall be paid instead in cash by the
Participant.
18
<PAGE>
EXHIBIT 10.15
________________________________________________________________________________
SCHEIN PHARMACEUTICAL, INC.
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(AMENDED AND RESTATED AS OF AUGUST 8, 1996)
________________________________________________________________________________
<PAGE>
EXHIBIT 10.15 TOC
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. Purposes............................................................. 1
II. Definitions.......................................................... 1
III. Effective Date ...................................................... 3
IV. Administration....................................................... 3
A. Duties of the Committee........................................ 3
B. Advisors....................................................... 3
C. Indemnification................................................ 3
D. Meetings of the Committee...................................... 4
E. Disinterested Directors........................................ 4
V. Adjustments.......................................................... 4
A. Shares to be Delivered; Fractional Shares...................... 4
B. Number of Shares............................................... 4
C. Adjustments.................................................... 4
VI. Awards and Terms of Options.......................................... 6
A. Grant.......................................................... 6
B. Date of Grant.................................................. 7
C. Option Terms................................................... 7
D. Expiration..................................................... 7
E. Acceleration of Exercisability................................. 7
VII. Effect of Termination of Directorship................................ 9
VIII. Nontransferability of Options........................................ 9
IX. Rights as a Stockholder.............................................. 10
X. Termination, Amendment and Modification.............................. 10
XI. Issuance of Stock Certificates;
Legends; Payment of Expenses......................................... 11
A. Stock Certificates............................................. 11
B. Legends........................................................ 11
C. Payment of Expenses............................................ 11
XII. Listing of Shares and Related Matters................................ 12
XIII. Withholding Taxes.................................................... 12
XIV. General.............................................................. 12
A. Right to Terminate Directorship................................ 12
B. No Trust....................................................... 12
C. Notices........................................................ 12
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
D. Severability................................................... 13
E. Costs.......................................................... 13
F. Controlling Law................................................ 13
G. Section 16(b).................................................. 13
</TABLE>
ii
<PAGE>
EXHIBIT 10.15
SCHEIN PHARMACEUTICAL, INC.
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(AMENDED AND RESTATED AS OF AUGUST , 1996)
I. PURPOSES
--------
The purposes of this 1995 Non-Employee Director Stock Option Plan
(this "Plan"), as amended and restated effective as of August , 1996, are to
enable Schein Pharmaceutical, Inc. (the "Company") to attract, retain and
motivate directors who will be important to the success of the Company, and to
increase the identity of interest between directors and stockholders of the
Company by granting certain directors options to purchase common stock of the
Company.
II. DEFINITIONS
-----------
For purposes of this Plan, the following terms have the following
meanings:
A. "Act" means the Securities Exchange Act of 1934 and the rules and
regulations under the Securities Exchange Act of 1934.
B. "Board" means the board of directors of the Company.
C. "Committee" means the Board or a duly appointed committee of the
Board to which the Board has delegated its power and functions under this Plan.
D. "Common Stock" means the common stock of the Company, par value
$0.01 per share, any common stock into which such common stock of the Company
may be converted and any common stock resulting from reclassification of such
common stock.
E. "Eligible Director" means an Eligible Director - Class 1 or an
Eligible Director - Class 2.
F. "Eligible Director - Class 1" means a director of the Company
who is not an Eligible Director - Class 2 and who is not an active employee of
the Company or any subsidiary of the Company.
<PAGE>
G. "Eligible Director - Class 2" means a director of the Company
designated by the Board as such at the time the director is first elected to
serve on the Board or, in the case of members of the Board at the time this Plan
is adopted, a director of the Company designated by the Board as such at that
time, and, in each case, who is not an active employee of the Company or any
subsidiary of the Company (it being understood that the Board shall have the
right, but shall not be required, to designate a director as an Eligible
Director - Class 2, and that the Board shall designate a director as an Eligible
Director - Class 2 only if, at the time of the designation, the director shall
have waived all future fees for serving as a director of the Company and for
attending Board and committee meetings (other than fees in the nature of
reimbursement for out-of-pocket expenses for travelling to and from and
attending such meetings)).
H. "Fair Market Value" means the value of a Share as of a
particular date determined as follows:
1. If the Common Stock is listed or admitted to trading on that
date on a national securities exchange or is quoted through the National
Association of Securities Dealers' Automated Quotation ("NASDAQ") National
Market System, the closing sale price of a Share as reported on the
relevant composite transaction tape, if applicable, or on the principal
national securities exchange or through the National Market System, as the
case may be, on that date, or, in the absence of reported sales on that
date, the mean between the highest reported bid and lowest reported asked
prices reported on the relevant composite transaction tape or national
securities exchange or through the National Market System, as the case may
be, on that date.
2. If the Common Stock is not listed or quoted as described in
clause 1, but bid and asked prices are quoted through NASDAQ, the mean
between the highest reported bid and the lowest reported asked prices as
quoted through NASDAQ on that date.
3. If the Fair Market Value would otherwise be determined in
accordance with clause 2 but the Committee determines that that would not
properly reflect the Fair Market Value, by any other method the Committee
determines to be reasonable.
4. If the Common Stock is not publicly traded, an amount
determined by the Committee in good faith.
I. "Option" means the right to purchase one Share at a prescribed
purchase price on the terms specified in this Plan.
J. "Share" means a share of Common Stock.
2
<PAGE>
K. "Termination of Directorship" with respect to an individual means
that individual is no longer a director of the Company.
III. Effective Date
--------------
This Plan became effective January 1, 1995 (the "Effective Date"), and
was approved on September 30, 1995 by holders of a majority of the outstanding
Shares at the time of approval. This Plan was amended and restated as of
August , 1996, subject to the approval of the Plan, as amended and restated, by
holders of a majority of the outstanding Shares at the time of approval.
IV. Administration
--------------
A. Duties of the Committee. This Plan shall be administered by the
-----------------------
Committee. The Committee shall have full authority to interpret this Plan and to
decide any questions and settle any controversies or disputes that may arise in
connection with this Plan; to establish, amend and rescind rules for carrying
out this Plan; to administer this Plan; to prescribe the forms of instruments
evidencing Options and any other instruments required under this Plan, and to
change such forms from time to time; and to make all other determinations and to
take all actions in connection with this Plan and the Options as the Committee,
in its sole discretion, deems necessary or desirable. The Committee shall not be
bound to any standards of uniformity or similarity of action, interpretation or
conduct in the discharge of its duties under this Plan. Any determination,
action or conclusion of the Committee shall be final, conclusive and binding on
all parties.
B. Advisors. The Committee may employ such legal counsel,
--------
consultants and agents as it deems desirable for the administration of this
Plan, and may rely upon any advice or opinion received from any such counsel or
consultant and any computation received from any such consultant or agent. The
Company shall pay all the expenses of any such counsel, consultant or agent.
C. Indemnification. To the maximum extent permitted by applicable
---------------
law, no officer of the Company or member or former member of the Committee or of
the Board shall be liable for any action or determination made in good faith
with respect to this Plan or any Option granted under it. To the maximum extent
permitted by applicable law and the certificate of incorporation and by-laws of
the Company, the Company shall indemnify and hold harmless each officer and
member or former member of the Committee and the Board against any cost or
expense (including reasonable fees
3
<PAGE>
of counsel reasonably acceptable to the Company) or liability (including any sum
paid in settlement of a claim with the approval of the Company), and advanced
amounts necessary to pay the foregoing at the earliest time and to the fullest
extent permitted, arising out of any act or omission to act in connection with
this Plan. Such indemnification shall be in addition to any rights of an
indemnitee under applicable law or the certificate of incorporation or by-laws
of the Company. Notwithstanding anything to the contrary in this paragraph,
however, the rights under this paragraph shall not apply to actions or
determinations by an individual with regard to Options granted to that
individual under this Plan.
D. Meetings of the Committee. The Committee shall adopt such rules
-------------------------
and regulations as it deems appropriate concerning its meetings and the
transaction of its business. All determinations by the Committee shall be made
by the affirmative vote of a majority of its members. Any such determination may
be made at a meeting duly called and held at which a majority of the members of
the Committee are in attendance in person or through telephonic communication.
Any written determination signed by all the members of the Committee shall be as
effective as if made by a majority vote of the members at a meeting duly called
and held.
E. Disinterested Directors. Notwithstanding anything to the contrary
-----------------------
in this Plan, the Committee may not take any action that would cause any
Eligible Director to cease to be a "disinterested person" for purposes of Rule
16b-3 under the Act ("Rule 16b-3") with regard to any stock option or other
equity plan of the Company at any time the Common Stock is subject to section
16(b) of the Act.
V. Adjustments
-----------
A. Shares to Delivered; Fractional Shares. Shares to be issued under
--------------------------------------
this Plan shall be made available, at the sole discretion of the Board, either
from authorized but unissued Shares or from issued Shares reacquired by the
Company and held in treasury. No fractional Shares shall be issued or
transferred upon the exercise of any Option, nor shall any compensation be paid
with regard to fractional shares.
B. Number of Shares. Subject to adjustment as provided in this
----------------
Article V, the maximum aggregate number of Shares that may be issued under this
Plan shall be 1,000. Where Options are for any reason cancelled, or expire or
terminate unexercised, the Shares covered by those Options shall again be
available for the grant of Options, subject to the preceding sentence.
C. Adjustments. The existence of this Plan and the Options granted
-----------
under this Plan shall not affect in any way the right or power of the Board or
the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any
issuance of securities, whether or not senior
4
<PAGE>
to the Common Stock, the dissolution or liquidation of the Company or any sale
or transfer of all or any part of its assets or business, or any other corporate
act or proceeding, but this Article V(C) shall govern outstanding Options in
each such case.
1. If the Company effects a subdivision, recapitalization or
consolidation of Shares or effects a stock dividend on Shares without
receipt of consideration, the aggregate number and kind of shares of
capital stock issuable under this Plan shall be proportionately
adjusted, and each holder of a then outstanding Option shall have the
right to purchase under that Option, in lieu of the number of Shares as
to which the Option was then exercisable but on the same terms and
conditions of exercise set forth in that Option, the number and kind of
shares of capital stock the holder would have owned after the
subdivision, recapitalization, consolidation or dividend, if,
immediately prior to the subdivision, recapitalization, consolidation
or dividend, the holder had been the holder of record of the number of
Shares as to which that Option was then exercisable.
2. If the Company merges or consolidates with one or more
corporations and the Company is the surviving corporation, thereafter,
upon exercise of an Option theretofore granted, the holder shall be
entitled to purchase under that Option, in lieu of the number of Shares
as to which the Option was then exercisable, but on the same terms and
conditions of exercise set forth in that Option, the number and kind of
shares of capital stock or other property to which the holder would
have been entitled pursuant to the agreement of merger or
consolidation, if, immediately prior to the merger or consolidation,
the holder had been the holder of record of the number of Shares as to
which that Option was then exercisable.
3. If the Company is not the surviving corporation in any
merger or consolidation, or if the Company is to be dissolved or
liquidated, then, unless the surviving corporation assumes the Options
or substitutes new options that are determined by the Board in its sole
discretion to be substantially similar in nature and equivalent in
terms and value to Options then outstanding, upon the effective date of
the merger, consolidation, liquidation or dissolution, any unexercised
Options shall expire without additional compensation to the holders;
provided that the Committee shall give notice to each holder at least
20 days prior to the merger, consolidation, dissolution or liquidation
that the Options, if unexercised, will expire upon the merger,
consolidation, dissolution or liquidation, and each holder has the
right to exercise in full, effective as of the consummation of the
merger, consolidation, dissolution or liquidation, all the holder's
then outstanding Options (without regard to limitations on exercise
otherwise contained in the Options, other than pursuant to Article III)
contingent on the occurrence of the merger, consolidation,
dissolution or liquidation, and provided that, if the contemplated
transaction does not take place within 90 days after that notice, the
notice, accelerated vesting and exercise shall be null and void.
Notwithstanding the foregoing, the Options held by persons subject to
section 16(b) of the Act that
5
<PAGE>
would not have vested under this Plan except pursuant to Article VI(E)
prior to the effective date of the merger, consolidation, liquidation
or dissolution shall not expire upon the consummation of the merger,
consummation of the merger, consolidation, liquidation or dissolution,
but shall expire 30 days after they would have otherwise vested under
this Plan and shall, after the merger, consolidation, liquidation or
dissolution, represent the right to receive the number and kind of
shares of capital stock or other property to which the holder would
have been entitled, if, immediately prior to the merger, consolidation,
liquidation or dissolution, the holder had been the holder of record of
the number of Shares as to which that Option was then exercisable.
4. If, as a result of any adjustment pursuant to the preceding
paragraphs of this Article V(C), any holder becomes entitled upon
exercise of an Option to receive any shares of capital stock other than
Common Stock, then the number and kind of shares of capital stock so
receivable shall be subject to adjustment from time to time pursuant to
this Article V(C), mutatis mutandis.
------- --------
5. Except as provided above, the issuance by the Company of
shares of stock of any class or securities convertible into shares of
stock of any class, for cash, property or services, upon direct sale,
upon exercise of rights or warrants or upon conversion of shares or
other securities, whether or not for fair value, shall not affect, and
no adjustment by reason of the issuance shall be made with respect to,
the number of Shares subject to Options granted or the purchase price
per Share.
VI. Awards and Terms of Options
---------------------------
A. Grant. Without further action by the Board or the stockholders
-----
of the Company, each Eligible Director on each Annual Date of Grant (as defined
below) shall be automatically granted options to purchase a number of Shares
determined by dividing $25,OOO (subject to adjustment (the "CPI Adjustment") to
reflect upward changes from the Effective Date to the applicable Annual Date of
Grant in the consumer price index (all items)) by the Fair Market Value on the
Annual Date of Grant, in the case of each Eligible Director - Class 1, and a
number of Shares determined by dividing $62,500 (subject to the CPI Adjustment)
by the Fair Market Value on the Annual Date of Grant, in the case of each
Eligible Director - Class 2, provided that no such Option shall be granted, if,
on the date of grant, the Company shall have liquidated, dissolved or merged or
consolidated with another entity and is not the surviving entity (unless this
Plan shall have been assumed by the surviving entity with regard to future
grants). Notwithstanding the foregoing, if an Eligible Director shall have first
become a member of the Board after the preceding Annual Date of Grant, the
number of Shares subject to the option granted to that Eligible Director shall,
in lieu of the number set forth above, be the number set forth above multiplied
by a fraction, the numerator of which shall be the number of days before the
Annual Date of Grant on which options are being granted
6
<PAGE>
to that Eligible Director during which that Eligible Director shall have been a
member of the Board, and the denominator of which shall be 365.
B. Date of Grant. Grants shall be made annually on the Effective
-------------
Date and each anniversary of the Effective Date (the "Annual Date of Grant");
provided that, if the Common Stock is then publicly traded and that date in any
year is a date on which the national securities exchange or automated quotation
system on which the Common Stock is primarily traded or through which it is
primarily quoted is not open for trading or quotation, the grant shall be made
on the first day thereafter on which the relevant exchange or quotation system
is open for trading or quotation.
C. Option Terms
-----------
1. The purchase price per Share ("Purchase Price") deliverable
upon the exercise of an Option shall be 100% of the Fair Market Value at
the time of the grant of the Option, or the par value of a Share, whichever
is greater.
2. Except as otherwise provided in this Plan, each Option (a)
granted prior to August , 1996 shall be exercisable with respect to 20%
of the Shares subject to the Option on or after the first anniversary of
the date of grant and with respect to an additional 20% of the Shares
subject to the Option on or after each of the next four anniversaries of
the date of grant, and (b) granted on or after August , 1996 shall be
exercisable with respect to one-third of the Shares subject to the Option
on or after the first anniversary of the date of grant and with respect to
an additional one-third of the Shares subject to the Option on or after
each of the next two anniversaries of the date of grant.
3. An Option holder electing to exercise one or more Options
shall give written notice to the secretary of the Company of the election
and the number of Options the holder elects to exercise. Shares so
purchased shall be paid for at the time of exercise in cash or by delivery
of unencumbered Shares (valued, for these purposes, at 100% of the Fair
Market Value at the time) owned by the holder for at least six months (or
such longer period as required by applicable accounting standards to avoid
a charge to earnings) or a combination of cash and such Shares.
D. Expiration. Except as otherwise provided in this Plan, if not
----------
previously exercised, each Option shall expire upon the tenth anniversary of the
date of grant.
E. Acceleration of Exercisability. All Options granted and not
------------------------------
previously exercisable shall become fully exercisable immediately upon a Change
of Control (as defined below). A "Change of Control" shall be deemed to have
occurred upon:
7
<PAGE>
1. any individual, entity or group (within the meaning of
section 13d-3 or 14d-1 of the Act) (a "Person") directly or indirectly
being a beneficial owner (within the meaning of Rule 13d-3 under the Act,
except that a Person shall not be deemed a beneficial owner of securities
solely by virtue of that Person's rights under any voting trust or
shareholders agreement in effect on the Effective Date) of more than 50% of
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Voting Securities"); excluding, however, the following: (x)
the Company, (y) any employee benefit plan (or related trust) sponsored or
maintained by the Company or (z) any corporation that becomes a beneficial
owner pursuant to a reorganization, merger, consolidation or similar
corporate transaction (in each case, a "Corporate Transaction"), if,
pursuant to the Corporate Transaction, the conditions described in clauses
(a), (b) and (c) of paragraph 3 below are satisfied; or
2. a change in the composition of the Board, such that the
individuals who, as of the Effective Date, constitute the Board (the Board
as of the Effective Date, the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided that, for purposes of
this clause, any individual who becomes a member of the Board subsequent
to the Effective Date and whose election, or nomination for election by
the Company's stockholders, was approved by the members of the Board who
also are members of the Incumbent Board (or so deemed to be pursuant to
this proviso) shall be deemed a member of the Incumbent Board; but,
provided further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A under the
Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board shall not be so deemed a
member of the Incumbent Board; or
3. the approval by the stockholders of the Company of a
Corporate Transaction, or, if consummation of the Corporate Transaction is
subject, at the time of such approval by stockholders, to the consent of
any government or governmental agency, the obtaining of the consent (either
explicitly or implicitly by consummation); excluding, however, such a
Corporate Transaction pursuant to which (a) the beneficial owners (or
beneficiaries of the beneficial owners) of the outstanding Shares and
Outstanding Voting Securities immediately prior to the Corporate
Transaction will beneficially own, directly or indirectly, more than 60%
of, respectively, the outstanding shares of common stock of the corporation
resulting from the Corporate Transaction and the combined voting power of
the outstanding voting securities of that corporation entitled to vote
generally in the election of directors, in substantially the same
proportions as their ownership, immediately prior to the Corporate
Transaction, of the outstanding Shares and Outstanding Voting Securities,
as the case may be, (b) no Person (other than the Company, any employee
benefit plan (or related trust) of the Company or the
8
<PAGE>
corporation resulting from the Corporate Transaction and any Person
beneficially owning, immediately prior to the Corporate Transaction,
directly or indirectly, 20% or more of the outstanding Shares or
Outstanding Voting Securities, as the case may be) will beneficially own,
directly or indirectly, 20% or more of, respectively, the outstanding
shares of common stock of the corporation resulting from the Corporate
Transaction or the combined voting power of the then outstanding securities
of that corporation entitled to vote generally in the election of directors
and (c) individuals who were members of the Incumbent Board will constitute
at least a majority of the members of the board of directors of the
corporation resulting from the Corporate Transaction; or
4. the approval of the stockholders of the Company of (a) a
complete liquidation or dissolution of the Company or (b) the sale or other
disposition of all or substantially all the assets of the Company;
excluding, however, such a sale or other disposition to a corporation with
respect to which, following the sale or other disposition, (i) more than
60% of the then outstanding shares of common stock of that corporation and
the combined voting power of the then outstanding voting securities of that
corporation entitled to vote generally in the election of directors will be
then beneficially owned, directly or indirectly, by the individuals and
entities who were the beneficial owners (or beneficiaries of the beneficial
owners), respectively, of the outstanding Shares and Outstanding Voting
Securities immediately prior to the sale or other disposition in
substantially the same proportion as their ownership, immediately prior to
the sale or other disposition, of the outstanding Shares and Outstanding
Voting Securities, as the case may be, (ii) no Person (other than the
Company and any employee benefit plan (or related trust) of the Company or
that corporation and any Person beneficially owning, immediately prior to
such sale or other disposition, directly or indirectly, 20% or more of the
outstanding Shares or Outstanding Voting Securities, as the case may be)
will beneficially own, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of that
corporation and the combined voting power of the then outstanding voting
securities of that corporation entitled to vote generally in the election
of directors and (iii) individuals who were members of the Incumbent Board
will constitute at least a majority of the members of the board of
directors of that corporation.
VII. EFFECT OF TERMINATION OF DIRECTORSHIP
-------------------------------------
Upon Termination of Directorship for any reason other than cause, all
outstanding Options shall continue to vest, and remain exercisable until the
expiration of the Option, in accordance with this Plan. Upon Termination of
Directorship for cause, all outstanding Options shall terminate and become null
and void.
9
<PAGE>
VIII. NONTRANSFERABILITY OF OPTIONS
-----------------------------
No Option shall be transferable by the holder otherwise than by will
or under applicable laws of descent and distribution, and, during the lifetime
of the holder, may be exercised only by the holder or the holder's guardian or
legal representative. In addition, except as provided above, no Option shall be
assigned, negotiated, pledged or hypothecated (whether by operation of law or
otherwise), and no Option shall be subject to execution, attachment or similar
process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate
any Option, or in the event of any levy upon any Option by reason of any
execution, attachment or similar process contrary to the provisions of this
paragraph, the Option shall immediately terminate and become null and void.
IX. RIGHTS AS A STOCKHOLDER
-----------------------
A holder of an Option (or a permitted transferee of an Option) shall
have no rights as a stockholder with respect to any Shares covered by the
holder's Options, until the holder (or permitted transferee) shall have become
the holder of record of the Shares, and no adjustments shall be made for
dividends in cash or other property or distributions or other rights in respect
of any Shares, except as otherwise specifically provided in this Plan.
X. TERMINATION, AMENDMENT AND MODIFICATION
---------------------------------------
This Plan shall terminate at the close of business on the tenth
anniversary of the Effective Date (the "Termination Date"), unless terminated
sooner as provided in this Plan, and no Option shall be granted under this Plan
on or after that date. The termination of this Plan shall not terminate any
outstanding Options that by their terms continue beyond the Termination Date.
The Committee at any time or from time to time may amend this Plan to effect (A)
amendments necessary or desirable in order that this Plan and the Options shall
conform to all applicable laws and regulations, and (B) any other amendments
deemed appropriate, provided that no such amendment may be made if either the
authority to make the amendment or the amendment would cause the Eligible
Directors to cease to be "disinterested persons" with regard to this Plan or any
other stock option or other equity plan of the Company for purposes of Rule 16b-
3, and further provided that the provisions of the Plan relating to the amount,
price and timing of, and eligibility for, awards shall not be amended more than
once every six months except to comport with changes in the Internal Revenue
Code of 1986 and the Employee Retirement Income Security Act of 1974.
Notwithstanding the foregoing, the Committee may not effect any amendment that
would require the approval of the stockholders of the Company under Rule 16b-3,
unless the approval is obtained. In no event, unless no longer required as a
condition of compliance with Rule 16b-3, shall the Committee
10
<PAGE>
without the approval of stockholders normally entitled to vote for the
election of directors of the Company:
1. increase the number of Shares available for grants under this
Plan;
2. reduce the minimum exercise price at which any Option may be
exercised;
3. change the requirements as to eligibility for participation
under this Plan;
4. change the number of Options to be granted or the date on which
Options are to be granted; or
5. materially increase the benefits accruing to the holders of
Options under this Plan.
This Plan may be amended or terminated at any time by the stockholders
of the Company.
Except as otherwise required by law, no termination, amendment or
modification of this Plan may, without the consent of the holder of an Option or
the permitted transferee of the holder's Option, alter or impair the rights and
obligations under any then outstanding Option.
XI. ISSUANCE OF STOCK CERTIFICATES;
LEGENDS; PAYMENT OF EXPENSES
----------------------------
A. Stock Certificates. Upon any exercise of an Option and payment
------------------
of the exercise price as provided in the Option, a certificate or certificates
for the Shares as to which the Option has been exercised shall be issued by the
Company in the name of the person or persons exercising the Option and shall be
delivered to or upon the order of that person or those persons, subject,
however, in the case of Options exercised pursuant to clause 3 of Article V(C),
to the merger, consolidation, dissolution or liquidation triggering the rights
under that section.
B. Legends. Certificates for Shares issued upon exercise of an
-------
Option shall bear such legends as the Committee, in its sole discretion,
determines to be necessary or appropriate to prevent a violation of, or to
perfect an exemption from, the registration requirements of the Securities Act
of 1933 or to implement the provisions of any
11
<PAGE>
agreements between the Company and the holder of the Option with respect to the
Shares.
C. Payment of Expenses. The Company shall pay all issue or transfer
-------------------
taxes with respect to the issuance or transfer of Shares, as well as all fees
and expenses incurred by the Company in connection with the issuance or transfer
and with the administration of this Plan.
XII. LISTING OF SHARES AND RELATED MATTERS
-------------------------------------
If at any time the Board or the Committee determines in its sole
discretion that the listing, registration or qualification of the Shares covered
by this Plan upon any national securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the grant of
Options or the award or sale of Shares under this Plan, no Option grant shall be
effective and no Shares shall be delivered, as the case may be, unless and
until such listing, registration, qualification, consent or approval shall have
been effected or obtained, or otherwise provided for, free of any conditions not
acceptable to the Board.
XIII. WITHHOLDING TAXES
-----------------
The Company shall have the right to require, prior to the issuance or
delivery of any Shares, payment by the holder of an Option of any federal, state
or local taxes required by law to be withheld.
XIV. GENERAL
-------
A. Right to Terminate Directorship. This Plan shall not impose any
-------------------------------
obligation on the Company to retain any Eligible Director as a director, nor
shall it impose any obligation on the part of any Eligible Director to remain as
a director.
B. No Trust. Nothing in this Plan and no action taken pursuant to
--------
this Plan (including, without limitation, the grant of any Option) shall create
or be construed to create a trust of any kind, or a fiduciary relationship,
between the Company and any Option holder or the executor, administrator or
other personal representative or designated beneficiary of a holder or any other
person.
C. Notices. Any notice or other communication to the Company under
-------
this Plan shall be addressed to the Company at its principal executive offices
from time to time. Each Eligible Director shall be responsible for furnishing
the Committee with the Eligible Director's current address for the mailing to
that Eligible Director of notices and
12
<PAGE>
other communications. Any notice or other communication to the Eligible Director
shall, if the Company has received notice that the Eligible Director is then
deceased, be given to the Eligible Director's personal representative, if that
representative has previously informed the Company of his or her status and
address (and has provided such reasonable substantiating information as the
Company may request) by written notice under this section. Any notice under this
Plan shall be deemed to have been given when delivered in person or when
dispatched by telegram or one business day after having been dispatched by a
nationally recognized overnight courier service or three business days after
having been mailed by United States registered or certified mail, return receipt
requested, postage prepaid.
D. Severability. If any provision of this Plan is held invalid or
------------
unenforceable, the invalidity or unenforceability shall not affect any other
provision of the Plan, and this Plan shall be construed and enforced as if
that provision had not been included.
E. Costs. The Company shall bear all expenses included in
-----
administering this Plan, including expenses of issuing Common Stock pursuant to
any Options.
F. Controlling Law. This Plan shall be construed and enforced
---------------
according to the laws of the state of incorporation of the Company.
G. Section 16(b). All elections and transactions under this Plan by
-------------
persons subject to section 16 of the Act involving shares of Common Stock
are intended to comply with all exemptive conditions under Rule 16b-3. To the
extent any provision of this Plan or action by the Committee fails so to comply,
it shall be deemed null and void. The Committee may establish and adopt written
administrative guidelines, designed to facilitate compliance with section 16(b)
of the Act, as it may deem necessary or proper for the administration and
operation of this Plan and the transaction of business under this Plan.
13
<PAGE>
EXHIBIT 10.16
November 29, 1993
Paul Feuerman
77 Park Avenue
Apt #2G
New York, NY 10016
Dear Paul:
We are pleased to confirm the terms of your ongoing employment with Schein
Pharmaceutical, Inc. (the "Company") as Vice President and General Counsel.
1. The Company will employ you as Vice President and General Counsel for
the period from the date of this Agreement and continuing until 60 days after
either you or the Company gives written notice to the other that you or it does
not wish to continue your employment hereunder (a "Non-Continuation Notice").
You accept such employment, and will devote your full time and effort to the
business and affairs of the Company, with such duties consistent with your
position as may be assigned to you from time to time by the President (or such
other officer) or Board of Directors of the Company.
2. In consideration of all services rendered by you during your employment
hereunder, the Company will pay you a base salary at the annual rate of
$150,000, payable in accordance with the Company's payroll practices from time
to time in effect. The Company will review your salary at least once each year
and may in itS discretion increase your salary.
3. For as long as you are employed by the Company you will be entitled to
participate in all bonus, incentive, retirement, profit-sharing, life, medical,
disability and other benefit plans and programs of the Company as are from time
to time generally available to other executives of the Company with comparable
responsibilities, subject to the provisions of those programs.
4. Your employment by the Company: (a) shall terminate upon your death; (b)
shall terminate 60 days after a Non-Continuation notice is given; (c) may be
terminated by the Company for cause at any time; and (d) may be terminated by
the Company if you fail to render the services provided for in this Agreement
for a continuous period of six months by reason of physical or mental illness or
disability.
For purposes of this Agreement, "cause" means (i) your willful and
continued failure substantially to perform your duties with the Company, (ii)
fraud, misappropriation or intentional material damage to the property or
business of the Company or (iii) commission of a felony.
5. If your employment is terminated by the Company's giving a Non-
Continuation
<PAGE>
Notice as provided in Section 1 hereof (the giving of such Notice being a
"Termination Event"), the Company will pay you, in full satisfaction of all of
its obligations hereunder (except for its obligations under paragraphs 6 and 8
hereof), 100% of the amount of compensation (base salary and annual cash bonus)
paid (or payable) by the Company to you in respect of the last full fiscal year
of the Company immediately preceding the date of termination (the "Termination
Payment"). If the Termination Event occurs at any time within two years after a
Significant Date, the Termination Payment will be two times the amount provided
in the preceding sentence reduced by the amount of all compensation actually
paid to you by the Company at any time after the sixth-month anniversary of a
Significant Date; provided that in no event will the Termination Payment be less
than 100% of your compensation for the last full fiscal year preceding
termination, as provided in the preceding sentence. Notwithstanding anything to
the contrary in this Agreement, the maximum amount payable under this Section 5
shall be limited to that amount which when added to all other payments (or the
value of all other benefits) that are "Contingent on a change in control" (as
such term is defined in the Internal Revenue Code of 1986, as amended (the
"Code") of the Company, would not constitute a "parachute payment" (as such term
is defined in the Code). The Termination Payment will be paid in a lump sum and
will be subject to any applicable payroll or other taxes required to be
withheld.
Termination of your employment by the Company for any reason other than
for cause or disability, or your voluntary termination of employment on account
of (i) a 10% or more reduction of your base salary by the Company or (ii) the
Company's assigning you duties or responsibilities that are inconsistent, in any
significant respect, with the scope of duties or responsibilities associated
with Vice President and General Counsel or (iii) relocation of your office other
than to a facility which, as of the date of this Agreement, the Company or any
of its subsidiaries conducts operations, will be deemed a Termination Event.
The Termination Payment will not be subject to offset on account of any
remuneration paid or payable to you for any subsequent employment you may
obtain, whether during or after the period during which the Termination Payment
is made and you shall have no obligation whatever to seek any subsequent
employment.
For purposes of this Agreement, a "Significant Date" means the date on
which the persons (or successors designated by such persons or successors)
presently entitled to elect a majority of the Board of Directors of the company
(the "Parent") controlling the Company, are no longer entitled to elect,
directly or indirectly, a majority of the Board of Directors of the Company,
other than as an immediate result of public sales of stock of the Parent or the
Company; provided however that a Significant Date shall not be deemed to have
occurred if on such date the present Chairman of the Company (including
successors designated by such Chairman or by successors) alone or pursuant to
joint authority with others, are entitled to so elect.
6. For one year following a Termination Event, the Company will also provide
you
<PAGE>
with basic health and medical benefits on the terms that such benefits are
provided to all salaried employees of the Company as of the date of your
termination of employment. If the Termination Event occurs at any time within
two years after a Significant Date, the Company will provide the benefits
described in the preceding sentence until the later of (A) the first anniversary
of the Termination Event and (B) the second anniversary of the Significant Date.
These benefits will cease immediately upon your obtaining other full-time
employment. If the Company is unable to provide any of the foregoing benefits
under then existing plans without costs it considers excessive, the Company will
be entitled to satisfy any such obligation by making a payment to you equal to
two times the cost to the Company during the last full year immediately
preceding the Termination Event of providing such benefits to you.
7. At the time you execute this Agreement, you will also execute and deliver to
the Company the enclosed Confidentiality Undertaking.
8. The Company will reimburse you for reasonable attorneys fees and expenses
incurred by you if you are employed hereunder on a Significant Date and prevail
against the Company with respect to a claim hereunder arising on or after such
date.
9. This Agreement shall be binding upon and inure to the benefit of you and
your legal representatives and the Company and any assignee or successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company.
10. This Agreement: contains the entire agreement between the parties with
respect to the subject matter hereof, may not be modified or terminated orally,
and shall be construed and governed in accordance with the laws of the State of
New York.
If the foregoing is acceptable to you, please execute the enclosed copy
of this Agreement and return it to the undersigned.
Very truly yours,
SCHEIN PHARMACEUTICAL, INC.
By: /s/
-------------------------
Authorized Officer
Agreed to and accepted:
/s/ Paul Feuerman
- ---------------------------
Paul Feuerman
<PAGE>
EXHIBIT 10.17
SCHEIN PHARMACEUTICAL, INC.
DEFERRED COMPENSATION AGREEMENT
Agreement dated August 8, 1996 between Schein Pharmaceutical, Inc. (the
"Company") and Paul Feuerman (the "Employee").
The parties agree as follows:
1. Deferred Compensation. Subject to the provisions of this
---------------------
agreement, the Company shall pay the Employee a bonus of $500,000 (the "Deferred
Compensation Amount"), payable as provided herein. The Company shall pay the
employee (a) $100,000 on December 31, 1996,(b) $100,000 on December 31, 1997,
(c) $150,000 on December 31, 1998, and (d) $150,000 on December 31, 1999,
provided the Employee is in the employ of the Company or any of its subsidiaries
at each such date. Notwithstanding the foregoing, however, if the Employee's
employment with the Company and each of its subsidiaries terminates at any time
before December 31, 1999, the amount, if any, payable to the Employee, and the
time any such amount shall be payable, shall be determined under section 2 of
this agreement. All payments under this agreement shall be subject to applicable
federal, state and local withholdings.
2. Termination of Employment
-------------------------
2.1 General. In the event of a termination of the Employee's
-------
employment by the Company and each of its subsidiaries for any reason including,
without limitation, death or Disability (as defined below), other than a
termination for Cause (as defined in section 2.2) or voluntary termination in
accordance with section 2.3, the Company shall pay the Employee (or his or her
estate), not later than thirty days following the termination of employment, the
balance of any unpaid Deferred Compensation Amount. As used in this agreement,
the term
1
<PAGE>
"Disability" means a permanent disability, as determined by the board of
directors of the Company in its sole discretion. A Disability shall be deemed to
occur at the time of that determination by the board of directors.
2.2 Cause. If the Company or any of its subsidiaries terminates the
-----
Employee's employment for Cause, or the Employee terminates his or her
employment in violation of an agreement with the Company or any of its
subsidiaries, or if it is discovered after such termination of employment that
the Employee had engaged in conduct that would have justified termination if
employment for Cause, the Company shall have no obligation to pay any amount
under this agreement. As used in this agreement, termination of employment for
"Cause" means (a) the Employee's willful and continued failure substantially to
perform his or her duties with the Company and its subsidiaries, (b) fraud,
misappropriation or intentional material damage to the property or business of
the Company or any of its subsidiaries or (c) commission of a felony.
2.3 Voluntary Termination. If the Employee voluntarily terminates
---------------------
his employment with the Company and each of its subsidiaries before any of the
payment dates set forth in section 1, the Company shall have no further
obligation to pay any amount under this agreement.
3. General Provisions
------------------
3.1 Right to Terminate Employment. Notwithstanding anything to the
-----------------------------
contrary in this agreement, nothing in this agreement shall be deemed to impose
any obligation on the Company or any of its subsidiaries to continue the
employment of the Employee, or on the Employee to remain in the employ of the
Company or any of its subsidiaries, subject, however, to the provisions of any
other agreement between the Company or any of its subsidiaries and the Employee.
2
<PAGE>
3.2 Payment not Salary. Any deferred compensation payable under this
------------------
agreement shall not be deemed salary or other compensation to the Employee for
the purposes of computing benefits to which he or she may be entitled under any
pension plan or other arrangement of the Company or an affiliate of the
Company for the benefit of its employees.
3.3 Notices. Any notice or communication under this agreement shall
-------
be in writing and shall be deemed to have been duly given when delivered in
person, or by United States mail, to the appropriate party at the address set
forth below (or such other address as the party shall from time to time
specify):
If to the Company, to:
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attention: Corporate Secretary
If to the Employee, to:
the address indicated on the signature page at the end of this
agreement.
3.4 Severability of Provisions. If any provision of this agreement
--------------------------
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions of this agreement and this agreement shall
be construed and enforced as if such provisions had not been included.
3.5 Headings and Captions. The headings and captions under this
---------------------
agreement are provided for reference and convenience only. They shall not be
considered part of this agreement and shall not be employed in the construction
of this agreement.
3
<PAGE>
3.6 Controlling Law. This agreement shall be construed and enforced
---------------
according to the law of the state of New Jersey applicable to agreements made
and to be performed wholly in New Jersey.
3.7 Counterparts. This agreement may be executed in counterparts,
------------
each of which shall be considered an original, but both of which together shall
constitute the same instrument.
3.8 Entire Agreement. This agreement contains a complete statement
----------------
of all the arrangements between the parties with respect to its subject
matter, supersedes all existing agreements between them with respect to that
subject matter may not be changed or terminated orally, and any amendment or
modification must be in writing and signed by the parties to this agreement.
SCHEIN PHARMACEUTICAL, INC.
By: /s/
----------------------------
Authorized Officer
/s/ Paul Feuerman
----------------------------
Paul Feuerman
77 PARK AVE #2G
----------------------------
Address
NY NY 10016
----------------------------
City, State, Zip Code
4
<PAGE>
EXHIBIT 10.18
May 1, 1995
Dariush Ashrafi
105 Hoover Drive
Cresskill, NJ 07627
Dear Dari:
We are pleased to confirm the terms of your ongoing employment with Schein
Pharmaceutical, Inc. (the "Company") as Senior Vice President and Chief
Financial Officer.
1. The Company will employ you as Senior Vice President and Chief Financial
Officer for the period from the date of this Agreement and continuing until 60
days after either you or the Company gives written notice to the other that you
or it does not wish to continue your employment hereunder (a "Non-Continuation
Notice"). You accept such employment, and will devote your full time and effort
to the business and affairs of the Company, with such duties consistent with
your position as may be assigned to you from time to time by the Chairman (or
such other officer) or Board of Directors of the Company.
2. In consideration of all services rendered by you during your employment
hereunder, the Company will pay you a base salary at the annual rate of
$325,000, payable in accordance with the Company's payroll practices from time
to time in effect. The Company will review your salary at least once each year
and may in its discretion increase your salary.
3. For as long as you are employed by the Company you will be entitled to
participate in all bonus, incentive, retirement, profit-sharing, life, medical,
disability and other benefit plans and programs of the Company as are from time
to time generally available to other executives of the Company with comparable
responsibilities, subject to the provisions of those programs.
4. Your employment by the Company: (a) shall terminate upon your death; (b)
shall terminate 60 days after a Non-Continuation Notice is given; (c) may be
terminated by the Company for cause at any time; and (d) may be terminated by
the Company if you fail to render the services provided for in this Agreement
for a continuous period of six months by reason of physical or mental illness or
disability.
For purposes of this Agreement, "cause" means (i) your willfull and
continued failure substantially to perform your duties with the Company (ii)
fraud, misappropriation or intentional material damage to the property or
business of the Company or (iii) commission of a felony.
5. If your employment is terminated by the Company's giving a Non-Continuation
Notice as provided in Section 1 hereof (the giving of such Notice being a
"Termination Event"), the
<PAGE>
Company will pay you, in full satisfaction of all of its obligations hereunder
(except for its obligations under paragraph 6 hereof), 100% of the amount of
compensation (base salary and annual cash bonus) paid (or payable) by the
Company to you in respect of the last full fiscal year of the Company
immediately preceding the date of termination (the "Termination Payment").
The Termination Payment will be paid in a lump sum and will be subject to any
applicable payroll or other taxes required to be withheld.
Termination of your employment by the Company for any reason other than for
cause or disability, or your voluntary termination of employment on account of
(i) a 10% or more reduction of your base salary by the Company, (ii) the
Company's assigning you duties or responsibilities that are inconsistent, in any
significant respect, with the scope of duties or responsibilities associated
with Senior Vice President and Chief Financial Officer, or (iii) relocation of
your office other than to a facility which, as of the date of this Agreement,
the Company or any of its subsidiaries conducts operations, will be deemed a
Termination Event.
The Termination Payment will not be subject to offset on account of any
remuneration paid or payable to you for any subsequent employment you may
obtain, whether during or after the period during which the Termination Payment
is made and you shall have no obligation whatever to seek any subsequent
employment.
6. For one year following a Termination Event, the Company will also provide
you with basic health and medical benefits on the terms that such benefits are
provided to all salaried employees of the Company as of the date of your
termination of employment. These benefits will cease immediately upon your
obtaining other full-time employment. If the Company is unable to provide any
of the foregoing benefits under then existing plans without costs it considers
excessive, the Company will be entitled to satisfy any such obligation by
making a payment to you equal to the cost to the Company during the last full
year immediately preceding the Termination Event of providing such benefits to
you.
7. At the time you execute this Agreement, you will also execute and deliver to
the Company the enclosed Confidentiality Undertaking.
8. This Agreement shall be binding upon and inure to the benefit of you and
your legal representatives and the Company and any assignee or successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company.
9. This Agreement: contains the entire agreement between the parties with
respect to the subject matter hereof, may not be modified or terminated orally,
and shall be construed and governed in accordance with the laws of the State of
New Jersey.
If the foregoing is acceptable to you, please execute the enclosed copy of
this Agreement and return it to the undersigned.
Very truly yours,
<PAGE>
SCHEIN PHARMACEUTICAL, INC.
/s/
- ---------------------------
Authorized Officer
Agreed to and accepted:
/s/ Dariush Ashrafi
- ---------------------------
Dariush Ashrafi
<PAGE>
EXHIBIT 10.19
Martin Sperber
Chairman and Chief Executive Officer
[LOGO] SCHEIN
PHARMACEUTICAL
April 17, 1995
Mr. Dariush Ashrafi
105 Hoover Drive
Cresskill, NJ 07627
Dear Dari:
I am extremely pleased that you have accepted our offer to become our new
CFO. I have revised the terms of the original offer letter to include those
changes you worked out with Oliver. I hope you enjoyed your vacation in
Mexico. Please call me at your earliest convenience. The specifics of
your offer are described below.
TITLE: Your title will be Senior Vice President and CFO.
REPORTING RELATIONSHIP: You will report to Martin Sperber, Chairman and
CEO, Schein Pharmaceutical, Inc.
BASE SALARY: Your base salary will be $325,000 per annum.
BONUS: You will be eligible to receive an annual discretionary bonus of
between 30-40% of your base salary. This bonus plan is based on both the
performance of the Company and the completion of certain agreed upon goals.
Your bonus for calendar year 1995 will be guaranteed at 30% of your base
salary for 1995.
ADDITIONAL COMPENSATION: You will receive additional compensation in the
-----------------------
amount of $300,000 payable in equal quarterly installments over a four year
------------------------------------------------
period. In the event that you voluntarily leave the Company prior to the
end of the four year period, you will lose the remaining unpaid balance.
If, on the other hand, you are asked to leave the Company through no fault
of your own prior to the end of the four year period, the Company will pay
you the remaining balance.
EMPLOYMENT CONTRACT: The Company will offer you an Employment Contract
which specifies initial salary, benefits and title, including a one year
severance benefit.
COMPANY CAR: The Company will furnish you with an automobile in keeping
with our Company auto policy. The company will reimburse you for all
normal operating costs including insurance, gas, normal maintenance and
repairs.
LONG TERM INCENTIVE PLAN: You will receive an initial option grant of 700
shares, with an exercise price of $2,000 per share and a five year vesting
formula. Currently, Schein is a private Company. However, in public
statements, the Company has communicated its desire to become a public
Company within the next 18-24 months. Attached is a spread sheet which
illustrates the value of your initial options at various company stock
prices.
<PAGE>
Dariush Ashrafi
April 17, 1995
Page 2
At this time, the Company does not have an annual option grant plan in
effect. However, while I can make no firm guarantees, the Company does
contemplate an annual option plan. At that time, the Company could begin
offering option grants to you in the range of 200-300 options per year
based on our current capitalization.
I will be glad to go over this Plan with you. There are formal documents
associated with the Plan which you will receive once you join the Company.
SPLIT DOLLAR LIFE INSURANCE: The Company will purchase a life insurance
policy which will be used to provide both a substantial life insurance
benefit and a cash balance for you upon your retirement. The cash balance
targets a retirement income for you above and beyond the qualified Plan.
Specifically, this Plan targets retirement income of 65% of final base
salary at age 65 after 20 years of service. For people with less than 20
years of service, that percentage is pro-rated. There are documents
associated with this policy that I will go over with you upon joining the
Company.
RETIREMENT PLAN: The Schein Retirement and Savings Plan and certain other
associated plans provide for a discretionary annual contribution to your
retirement plan account. The current discretionary annual contribution is
7% of total compensation.
COMPANY BENEFITS: Attached is a full description of the Schein
Pharmaceutical Benefit Plan. You will accrue four weeks of vacation from
your date of hire.
FINANCIAL COUNSELING: The company has contracted with Clarfeld & Company, a
well-known financial counseling firm to offer certain financial counseling
services including: tax preparation, investment advice and estate planning.
If you are already using a financial planner, the company will reimburse up
to $7,000 per year for covered financial counseling services.
Based on our most recent conversation, you will begin working with us on
Monday, May 1. I look forward to having you on board.
Sincerely,
/s/ Martin Sperber
Martin Sperber
Chairman and CEO
/nn
ENCLOSURE
<PAGE>
EXHIBIT 10.20
EMPLOYMENT AGREEMENT dated September 30, 1994 between SCHEIN
PHARMACEUTICAL, INC., a Delaware corporation (the "Company"), and Martin Sperber
("Sperber").
Sperber is currently Chairman of the Board, Chief Executive Officer and
President of the Company. The Company recognizes that Sperber has made
substantial contributions to the success of the Company over a long period of
time and desires to assure the Company of Sperber's continued service and
Sperber desires to continue to perform services for the Company.
In consideration of the agreements hereinafter set forth, the Company
and Sperber agree as follows:
1. EMPLOYMENT
----------
1.1 Capacity; Duties. The Company hereby employs Sperber as the
----------------
Company's Chairman of the Board, Chief Executive Officer and President. Sperber
shall have supervision over the business and affairs of the Company and its
subsidiaries, shall report and be responsible only to the Board of Directors
of the Company, and shall have powers and authority superior to those of any
other officer or employee of the Company or any of its subsidiaries and any
other person involved with the business and affairs of the Company or any of its
subsidiaries. (While Sperber currently holds certain titles and
responsibilities, it is
<PAGE>
contemplated that, at some point, one or more, but not all, of such titles
and/or responsibilities will with Sperber's consent, which consent may be
withheld in his sole discretion, be conferred by the Board of Directors upon
another person or persons without any diminution in the compensation or benefits
payable to Sperber hereunder, so long as Sperber continues to devote
substantially all of his business time to the Company in at least one of his
current capacities). Sperber accepts such employment and agrees to devote
substantially all of his business time and effort in furtherance of his duties
and responsibilities hereunder. In such connection, Sperber shall not be
required to relocate his residence or perform services which would make the
continuance of his current residence inconvenient to him.
1.2 Employment Period. Sperber's employment shall be for the period
-----------------
commencing on January 1, 1994 and ending on the fifth anniversary thereof (the
"Employment Expiration Date"), unless terminated earlier pursuant to Section 4
hereof (the "Employment Period").
2. COMPENSATION
------------
2.1 Base Salary. As compensation for Sperber's employment hereunder,
-----------
Sperber shall be entitled to receive a base salary (the "Base Salary") at a rate
of $600,000 per annum for the first two years of the Employment Period and
$700,000 per annum for the next three years of the Employment Period, payable
2
<PAGE>
in accordance with the Company's normal payroll practices for its senior
executive officers from time to time in effect.
2.2 Incentive Compensation. Sperber shall be entitled to receive for
----------------------
each year of the Employment Period, in addition to his Base Salary, such
incentive compensation as determined by the Compensation Committee of the Board
of Directors (the "Compensation Committee") based on Sperber's performance
during that year (the "Incentive Compensation"). It is contemplated that the
Compensation Committee will award Incentive Compensation to Sperber in the range
of $250,000 to $500,000 per year, in the absence of extraordinary circumstances,
whether positive or negative, when and as the Company awards incentive bonuses
to its other senior executives; provided that if Sperber's employment is
terminated during any year prior to the Employment Expiration Date, the
Incentive Compensation for such year shall be based on objective criteria, if
any, established by the Compensation Committee; and provided, further, that if
no such objective criteria have been established by the Compensation Committee,
the Incentive Compensation for such year shall be an amount equal to $250,000
plus the product of (x) the fraction derived by dividing (i) the sum of the
actual cash incentive compensation earned by each of the three most senior
executives of the Company (other than Sperber) in the year Sperber's
employment is terminated less the sum of the minimum cash incentive compensation
contemplated for such executives for such year (as set forth in the cash
incentive compensation range established for such executives, in
3
<PAGE>
the absence of extraordinary circumstances, by the Compensation Committee), by
(ii) the sum of the maximum cash incentive compensation contemplated for such
executives for such year (as set forth in the cash incentive compensation range
established for such executives, in the absence of extraordinary circumstances,
by the Compensation Committee) less the sum of the minimum cash incentive
compensation contemplated for such executives for such year (as set forth in the
cash incentive compensation range established for such executives, in the
absence of extraordinary circumstances, by the Compensation Committee) and (y)
$250,000.
2.3 Expenses. The Company shall promptly reimburse Sperber for all
--------
expenses reasonably incurred by him in performance of his duties under this
Agreement, in accordance with the Company's policies and practices in effect
from time to time.
3. BENEFITS
--------
3.1 Benefits. During the Employment Period, Sperber shall be entitled
--------
to participate, to the extent eligible thereunder, in all benefit and perquisite
plans, policies and programs, in accordance with the terms thereof, as are
generally provided from time to time by the Company for its senior executive
officers and without limiting the foregoing, those benefits and perquisites
listed on Schedule 1 attached hereto; provided, that if such benefit or
--------
perquisite is one that is
4
<PAGE>
generally provided by the Company on the date hereof to its senior executive
officers, Sperber's right to participate in such benefit or perquisite plan
shall continue only as long as such benefit or perquisite is provided to the
senior executive officers of the Company. Unless Sperber's employment shall have
been terminated for Cause (as defined in Section 4.3 hereof), during the period
commencing on the date Sperber ceases to be an employee of the Company and
continuing for the life of Sperber and for the life of his spouse, the Company
shall continue the participation of Sperber and his spouse in all health,
medical and dental benefit plans, policies and programs in effect from time to
time with respect to the senior executive officers of the Company generally (at
the same levels and at the same premium cost, if any, to the senior executive
officers of the Company generally); provided that, if Sperber's or his spouse's
continued participation thereunder is not possible under the general terms and
provisions thereof, the Company shall provide such benefits at such levels to
Sperber and his spouse either by obtaining other insurance or by self-insuring
such amounts and shall make such additional payments to Sperber and his
spouse as may be necessary to put the recipient in the same after-tax position
as if such benefits were provided under such plans, policies and programs, net
of any payments or benefits either of them shall receive with respect to health,
medical and dental costs other than pursuant to this Section 3.1.
5
<PAGE>
3.2 Supplemental Retirement Plan. Commencing on the first day of the
----------------------------
month following the month in which Sperber is no longer employed by the Company
on a full-time basis for any reason (including death) other than a termination
for Cause, or such later date as Sperber (or his Spouse, if he is not then
living) shall determine, and continuing monthly thereafter during Sperber's (and
upon Sperber's death, his Spouse's) lifetime, the Company shall pay to Sperber
(and upon Sperber's death, his Spouse if she shall then be living) an amount
equal to 45% of Average Monthly Cash Compensation (as defined below), reduced by
(i) the hypothetical monthly amount that would be receivable by Sperber under
the Company's Qualified Retirement Plans (as defined below) if Sperber's
benefits thereunder were being paid as a straight life annuity commencing at age
65, and (ii) the hypothetical monthly and primary social security that would be
received by Sperber if he commenced social security at age 65. Notwithstanding
the foregoing, if Sperber is married at the time of commencement of the
aforesaid benefit, such benefit (but not including the reduction in the benefit
attributable to amounts to be received under the Company's Qualified Retirement
Plans) shall be actuaria11y adjusted until such time as Sperber shall no longer
be married to his Spouse (including by reason of his Spouse's death) to take
into account the hypothetical payment of a reduced joint-and-50% annuity form of
benefit to Sperber and his Spouse rather than the aforesaid straight life
annuity form of benefit. For purposes of this Section, "Average Monthly Cash
Compensation" shall mean Sperber's Average Total Cash
6
<PAGE>
Compensation divided by 12; "Average Total Cash Compensation" shall mean the
average of the highest three of the last five full fiscal years of Total Cash
Compensation (as defined below) occurring prior to the date Sperber's employment
is terminated; "Total Cash Compensation" shall mean (y) for any full fiscal year
during the Employment Period, the sum of Sperber's Base Salary and Incentive
Compensation earned in respect of such fiscal year, or (z) for any full fiscal
year occurring prior to the Employment Period, the sum of Sperber's aggregate
base salary and incentive compensation earned in respect of such fiscal year as
reflected on the Company's books and records; "Qualified Retirement Plans" shall
mean any plan which the Company sponsors or in which it participates and which
is qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), provided that if the benefit under such plan includes
amounts attributable to Sperber's salary reduction or after-tax contribution to
such plan, the amounts attributable to such contributions and earnings thereon
shall be disregarded in determining the monthly amount attributable to such
plan, and "Spouse" shall mean Sperber's spouse, if any, to whom he is married at
the time of commencement of the benefits described in this Section 3.2. In
converting the benefits into a life annuity form or spousal benefit, the
calculations shall be made at the time of commencement of benefits and not
recalculated (unless and until Sperber shall no longer be married to his Spouse
(including by reason of his Spouse's death)), and an interest rate equal to the
Pension Benefit Guaranty Corporation interest rate for immediate
7
<PAGE>
annuities in effect on the first day of the calendar year in which benefits are
to commence shall be used and the 83 IA Male mortality table shall be used. It
is expressly acknowledged and agreed that the determination of the amounts
payable to Sperber and his Spouse under this Section 3.2 shall not in any way
cause Sperber or his Spouse to elect to take monthly distributions from the
Company's Qualified Retirement Plans or any other payment form, and any and all
permissible payment elections shall be available to him and his Spouse.
4. TERMINATION
-----------
4.1 Termination of Employment. Sperber's employment shall terminate
-------------------------
prior to the Employment Expiration Date only (a) upon Sperber's death; (b) by
action of the Board of Directors with or without Cause or due to Sperber's
Disability (as defined in Section 4.2 hereof); (c) by Sperber following a
material breach of this Agreement or the Sperber Option Agreement by the Company
which is not cured within 30 days after notice from Sperber thereof; or (d) by
Sperber upon 30 days prior written notice to the Company.
4.2 Disability. If, by reason of physical or mental disability,
----------
Sperber is unable to carry out his duties for more than 180 days in any twelve-
month period ("Disability"), the Company may terminate Sperber's employment
hereunder. During any period of Disability prior to such termination, Sperber
shall continue to receive all compensation and other benefits provided
8
<PAGE>
herein as if he had not been disabled at the time, in the amounts and in the
manner provided herein, provided that the Company shall be entitled to a credit
with regard to the amount, if any, paid to Sperber during such period under any
long term or other disability plan maintained by the Company for the benefit of
Sperber.
4.3 Cause. For purposes of this Agreement, the term "Cause" shall be
-----
limited to any action by Sperber during the Employment Period (i) involving
willful malfeasance having a material adverse effect on the Company (other than
his voluntary resignation pursuant to Sections 4.1(c) or 4.1(d) hereof), or (ii)
constituting a material breach of this Agreement which is not cured within 30
days after notice from the Company thereof.
5. CONSEQUENCES OF TERMINATION
---------------------------
5.1 Death. If Sperber's employment hereunder is terminated by reason
-----
of Sperber's death, Sperber's estate shall be paid those obligations accrued
hereunder at the date of his death, consisting of, for this purpose, only (a)
Sperber's unpaid Base Salary through the date of termination, (b) any deferred
compensation earned (together with any accrued earnings thereon) but not yet
paid, (c) any Incentive Compensation awarded to Sperber but not yet paid for the
year preceding the year of termination, (d) any Incentive Compensation for the
year of termination as determined in accordance with Section 2.2 hereof, (e)
any accrued vacation pay, and (f) any other amounts or
9
<PAGE>
benefits owing to Sperber or his beneficiaries under the then applicable benefit
plans, policies and programs of the Company. (Such amounts specified in clauses
(a) through (f) above are hereinafter referred to as "Accrued Obligations".)
Unless otherwise previously directed by Sperber (or, in the case of any benefit
plan qualified under Section 401(a) of the Code (a "Qualified Plan"), as may be
required by such Qualified Plan), all Accrued Obligations shall be paid, to the
extent such obligations are able to be paid in a lump sum, to Sperber's estate
or designated beneficiaries, as the case may be, in a lump sum in cash within 30
days after the date of Sperber's death, and otherwise, in accordance with the
terms of the relevant plan or applicable law. Sperber shall also be entitled to
all rights and benefits, to the extent not duplicative of the Accrued
Obligations, under benefit and incentive plans in accordance with the
respective terms of such plans. Nothing in this Section 5.1 shall be deemed to
limit the right of Sperber's spouse to receive the benefits referred to in
Sections 3.1 and 3.2 hereof.
5.2 Disability. If Sperber's employment is terminated by reason of
----------
Sperber's Disability, unless otherwise directed by Sperber, Sperber shall be
paid all Accrued Obligations, to the extent such obligations are able to be paid
in a lump sum, in a lump sum in cash within 30 days after the date of
termination due to Sperber's Disability, and otherwise, in accordance with the
terms of the relevant plan or applicable law. Nothing in this Section 5.2 shall
be deemed to limit Sperber's and his spouse's
10
<PAGE>
right to receive the benefits referred to in Sections 3.1 and 3.2 hereof.
5.3 Termination for Cause. If Sperber's employment with the Company is
---------------------
terminated for Cause, Sperber shall receive only Accrued Obligations (other than
the obligation specified in clause (d) of Section 5.1 hereof) at the date of
termination, to be paid to Sperber, if able to be paid in a lump sum, in a lump
sum in cash within 30 days after the date of termination, and otherwise, in
accordance with the terms of the relevant plan or applicable law. Benefits and
rights under any benefit or incentive plan shall be paid or retained in
accordance with the terms of such plan.
5.4 Company Termination Without Cause. If Sperber's employment with the
---------------------------------
Company is terminated pursuant to Section 4.1(c) hereof or by the Company
without Cause, the Company shall pay or provide, as the case may be, the
following payments and benefits upon such termination:
(a) The Company shall pay to Sperber, if able to be paid in a lump sum,
in a lump sum in cash within thirty days after the date of termination, and
otherwise, in accordance with the terms of the relevant plan or applicable law,
any Accrued Obligations at the date of termination.
(b) The Company shall pay to Sperber, as severance pay, the Base Salary
payable to Sperber from the date of
11
<PAGE>
termination through the Employment Expiration Date, payable when and as the
Company pays salary to its senior executives.
(c) The Company shall pay to Sperber, as severance pay, when and as the
Company pays salary to its senior executives an amount equal to the product of
(i) a fraction, the numerator of which is the Incentive Compensation earned by
Sperber for the last full year of employment 1mmediately prior to termination,
as determined in accordance with Section 2.2 hereof, and the denominator of
which is 365 and (ii) the number of days from the date of termination
through the Employment Expiration Date; provided, however, that the maximum
-------- -------
amount that the Company shall pay to Sperber under this Section 5.4(c) is the
product of (I) the amount referred to in clause (i) above and (II) 730.
(d) Nothing contained in this Section 5.4 shall be deemed to limit in
any way Sperber's and his spouse's right to receive the benefits referred to in
Sections 3.1 and 3.2 hereof.
5.5 Sperber's Voluntary Resignation. If Sperber voluntarily
--------------------------------
terminates his employment with the Company prior to the Employment Expiration
Date other than pursuant to Section 4.1(c) hereof, the Company shall pay or
provide, as the case may be, the following payments and benefits upon such
termination:
(a) The Company shall pay to Sperber, if able to be paid in a lump sum,
in a lump sum in cash within thirty days after the date of termination, and
otherwise, in accordance with
12
<PAGE>
the terms of the relevant plan or applicable law, any Accrued Obligations at
the date of termination.
(b) The Company shall pay to Sperber, as severance pay, if any, a
lump sum in an amount determined by the Compensation Committee of the Board of
Directors.
(c) Nothing contained in this Section 5.5 shall be deemed to limit
in any way Sperber's and his spouse's right to receive the benefits referred
to in Sections 3.1 and 3.2 hereof.
6. CONFIDENTIAL INFORMATION, NON-COMPETITION, ETC.
-----------------------------------------------
(a) Sperber shall not, without the prior written consent of the Company,
communicate or divulge (other than in the regular course of the Company's
business) to anyone other than the Company, its subsidiaries and those
designated by it, any confidential information, knowledge or data relating to
the Company or any of its subsidiaries or affiliates, or to any of their
respective businesses, obtained by Sperber before or during the Employment
Period from the Company or any of its subsidiaries, except to the extent (A)
Sperber determines in good faith that it is in the best interest of the Company
to do so, (B) Sperber is compelled pursuant to an order of a court or other body
having jurisdiction over such matter to do so (in which case the Company shall
be given prompt notice of such intention to divulge and an opportunity to object
to such disclosure), or (C) such information, knowledge or data is public
knowledge or
13
<PAGE>
generally known within the Company's industry other than through improper
disclosure by Sperber.
(b) Until the second anniversary of the date on which the Company makes
its final Base Salary payment to Sperber pursuant to this Agreement, Sperber
will not (other than on behalf of the Company) directly or indirectly:
(i) as an individual proprietor, partner, stockholder, officer,
employee, director, joint venturer, investor, lender, consultant or in
any other capacity whatsoever (other than as the holder of not more than
three percent of the total outstanding stock of a publicly held
company), engage in the business of developing, producing, marketing or
selling products developed or being developed, produced, marketed or
sold by the Company while Sperber was employed or retained as consultant
by the Company; or
(ii) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company (other than his personal secretary)
to terminate their employment with, or otherwise cease their
relationship with, the Company.
(c) If any restriction set forth in Section 6(b) hereof is found by any
court of competent jurisdiction or arbitrator to be unenforceable because it
extends for too long a period of time or over too great a range of activities or
in too broad a geographic area, it shall be interpreted to extend only
14
<PAGE>
over the maximum period of time, range or activities or geographic area as to
which it may be enforceable.
(d) The restrictions contained in Sections 6(a) and 6(b) hereof are
necessary for the protection of the business and goodwill of the Company and are
considered by Sperber to be reasonable to such purpose. Sperber agrees that any
breach of Sections 6(a) or 6(b) hereof will cause the Company substantial and
irreparable damage and therefore, in the event of any such breach, in addition
to such other remedies which may be available, the Company shall have the right
to seek specific performance and injunctive relief. In no event shall an
asserted violation of the provisions of Sections 6(a) or 6(b) hereof constitute
a basis for deferring or withholding any amounts otherwise payable to Sperber
under this Agreement.
(e) Upon termination of Sperber's employment with the Company, Sperber
shall promptly deliver to the Company all records, files, memoranda, notes,
data, reports, price lists, customer lists, plans, computer programs,
software, software documentation, laboratory and research notebooks and other
documents (and all copies or reproductions of such materials in his possession
or control) belonging to the Company.
7. NO MITIGATION; NO SET-OFF
-------------------------
The Company agrees that if Sperber's employment with the Company is
terminated (including, without limitation, as provided in Section 4.1(c) hereof)
prior to the Employment
15
<PAGE>
Expiration Date for any reason whatsoever, Sperber is not required to seek other
employment or to attempt in any way to reduce any amounts payable to Sperber by
the Company pursuant to this Agreement. Further, the amount of any payment
provided for in this Agreement shall not be reduced by any compensation earned
by Sperber as the result of employment by another employer or otherwise; and the
amount of any benefit (other than the health, medical and dental benefits
provided for in Section 3.1 hereof) provided for in this Agreement shall not be
reduced by any benefit provided to Sperber as the result of employment by
another employer or otherwise. The Company's obligations to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder or under any other agreement shall not be affected by any
circumstances, including without limitation any set-off, counterclaim,
recoupment, defense or other right which the Company or any other person may
have against Sperber.
8. LEGAL FEES
----------
If Sperber sues to collect or negotiates and reaches a settlement
for any part or all of the payments provided for hereunder (or otherwise
successfully enforces the terms of this Agreement) by or through a lawyer or
lawyers, the Company shall advance all reasonable costs of such collection or
enforcement, including reasonable legal fees and disbursements and other fees
and expenses which Sperber may incur, promptly after submission of
documentation reasonably acceptable to the Company in respect
16
<PAGE>
of such costs and expenses. All amounts paid by the Company shall promptly be
refunded to the Company if and when a court of competent jurisdiction issues an
unappealable order to the effect that the Company is entitled to have such sums
refunded.
9. SUCCESSORS; BINDING AGREEMENT
-----------------------------
(a) The Company shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business or assets of the Company to expressly assume and agree in writing
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place,
provided that Sperber need only be the senior executive officer with the
authority, powers and responsibilities set forth in Section 1.1 hereof with
respect to the subsidiary or subdivision which operates the business of the
Company as it exists on the date of such business combination. Failure of the
Company to obtain such express assumption and agreement at or prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle Sperber to compensation and benefits from the Company in the same
amount and on the same terms to which Sperber would be entitled hereunder if the
Company terminated his employment without Cause, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the date of termination. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business
17
<PAGE>
or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(b) The Company may not assign this Agreement except in connection with,
and to the acquiror of, all or substantially all of the business or assets of
the Company, provided such acquiror expressly assumes and agrees in writing to
perform this Agreement as provided in Section 9(a) hereof.
(c) This Agreement shall inure to the benefit of and be enforceable by
Sperber and his personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Sperber should die
while any amount would still be payable to him hereunder had he continued to
live, a11 such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to his devisee, legatee or other
designee or, if there is not such designee, to his estate.
(d) The parties agree that Sperber's current spouse is a third party
beneficiary of the provisions of Sections 3.1, 3.2 and Article 5 hereof, with
the right to enforce such provisions as fully as if she were a party to this
Agreement.
10. MISCELLANEOUS
-------------
(a) Any notices or other communications required or permitted to be
given hereunder shall be in writing and shall be deemed to have been duly made
or given when hand delivered, one
18
<PAGE>
business day after being transmitted by telecopier (confirmed by mail) or sent
by overnight courier against receipt, or five days after being mailed by
registered or certified mail, postage prepaid, return receipt requested to the
party to whom such communication is given at the address set forth below, which
address may be changed by notice given in accordance with this Section:
If to the Company:
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham, N.J. 07932
Attention: Corporate Secretary
If to Sperber:
Martin Sperber
6 Casper Court
Florham Park, N.J. 07932
(b) If any provision of this Agreement shall be declared to be invalid
or unenforceable, in whole or in part, such invalidity or unenforceability shall
not affect the remaining provisions hereof which shall remain in full force and
effect.
(c) No provision of this Agreement may be modified, waived or discharged
orally, but only by a waiver, modification or discharge in writing signed by
Sperber and such officer as may be designated by the Board. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
in compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of
19
<PAGE>
similar or dissimilar provisions or conditions at the time or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
(d) This Agreement represents the entire agreement of the parties and
shall supersede any and all previous contracts, arrangements or understandings
between the Company and Sperber with respect to the subject matter hereof.
(e) This Agreement shall be construed, interpreted, and governed in
accordance with the laws of New York, without reference to rules relating to
conflicts of law.
(f) The section headings herein are for the purpose of convenience only
and are not intended to define or limit the contents of any section.
(g) The parties may sign this Agreement in counterparts, all of which
shall be considered one and the same instrument.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
day and year first above written.
SCHEIN PHARMACEUTICAL, INC.
By: /s/
-------------------------------
Authorized Officer
/s/ Martin Sperber
----------------------------------
MARTIN SPERBER
21
<PAGE>
EXHIBIT 10.21
SCHEIN HOLDINGS, INC.
OPTION AGREEMENT
PURSUANT TO THE
1993 STOCK OPTION PLAN
----------------------
AGREEMENT, dated September 30, 1994 between Schein Holdings, Inc., a
--
New York corporation (the "Company"), and Martin Sperber ("Sperber").
The Stock Option Committee of the Board of Directors of the Company (the
"Committee"), pursuant to the Company's 1993 Stock Option Plan, annexed hereto
as Exhibit A (the "Plan"), has authorized the granting to Sperber, as a
Key Employee (as defined in the Plan), of a nonqualified stock option (the
"Option") to purchase the number of shares of the Company's common stock, par
value $.01 per share (the "Common Stock"), set forth below. The parties hereto
desire to enter into this Agreement in order to set forth the terms of the
Option.
The Shareholders of the Company have approved the terms of the Option
pursuant to an Approval Agreement of even date herewith.
The parties hereto agree as follows:
1. Tax Matters. No part of the Option granted hereby is intended to
-----------
gualify as an "incentive stock option" under Section 422 of the Internal Revenue
Code of 1986, as amended.
2. Grant of Option. Subject in all respects to the Plan and the terms
---------------
and conditions set forth herein, Sperber is hereby granted the Option to
purchase from the Company up to 4,795 Shares (as defined in the Plan), at a
price per Share of $2,000 (the "Option Price").
3. No Vesting. The Option may be exercised by Sperber, in whole or in
----------
part, at any time or from time to time prior to the expiration of the Option as
provided herein.
4. Effect of Termination of Emp1oyment
------------------------------------
(a) Upon Termination of Employment (as defined in the Plan) of Sperber,
all outstanding Options not exercised by Sperber prior to such Termination of
Employment shall remain exercisable by Sperber to the extent not exercised for
the following time periods (subject to Section 5):
(i) In the event of Sperber's death, such Options shall remain
exercisable (by Sperber's estate or by the person
<PAGE>
given authority to exercise such Options by Sperber's will or by operation of
law) for a period of one year from the date of Sperber's death, provided
that the Committee, in its discretion, may at any time extend such time period
to up to three years from the date of Sperber's death.
(ii) In the event of Sperber's Disability (as defined in the Plan), or
Sperber retires at or after age 65 (or, with the consent of the Committee or
under an early retirement policy of the Company, before age 65), or if Sperber's
employment is terminated by the Company without Cause (as defined in Sperber's
Employment Agreement dated of even date herewith), such Options shall remain
exercisable for one year from the date of Sperber's Termination of Employment,
provided that the Committee, in its discretion, may at any time extend such time
period to up to three years from the date of Sperber's Termination of
Employment.
(b) Upon the Termination of Employment of Sperber for Cause in
accordance with the Employment Agreement between Sperber and the Company, or if
it is discovered after any other Termination of Employment that Sperber had
engaged in conduct that would have justified a Termination of Employment for
Cause in accordance with the Employment Agreement, all outstanding Options shall
immediately be canceled.
(c) In the event of Termination of Employment for any reason other than
as provided in Section 4(a) or 4(b), all outstanding Options not exercised by
Sperber prior to such Termination of Employment shall remain exercisable for a
period of three months after such termination, provided that the Committee in
its discretion may extend such time period to up to one year from the date of
Sperber's Termination of Employment.
5. Exercise of Option.
------------------
(a) The Option may be exercised by Sperber by delivering notice to the
Committee (as defined in the Plan) of the election to exercise the Option and of
the number of Shares with respect to which the Option is being exercised, which
notice shall be accompanied by payment in full of the Option Price of the
Shares. Payment for such Shares may be made as follows:
(i) in cash or by certified check, bank draft or money order payable to
the order of the Company;
(ii) (A) through the delivery of unencumbered Shares (including Shares
acquired under the Option then being exercised), provided such Shares (or such
Option) have been owned by Sperber for at least six months, or such longer
period as required by applicable accounting standards to avoid a charge to
earnings, (B) through a combination of Shares and cash as provided above
(C) if so permitted by the Committee, by delivery
2
<PAGE>
of a promissory note of Sperber to the Company or (D) if so permitted by the
Committee, by a combination of cash (or cash and Shares) and Sperber's
promissory note; provided, that, if the Shares delivered upon exercise of the
--------
Option is an original issue of authorized Shares, at least so much of the
exercise price as represents the par value of such Shares shall be paid in cash
or by a combination of cash and Shares; or
(iii) on such terms and conditions as may be acceptable to the
Committee and in accordance with applicable law.
(b) Upon receipt of payment and satisfaction of the requirements, if
any, as to withholding of taxes set forth in the Plan, the Company shall deliver
to Sperber as soon as practicable a certificate or certificates for the Shares
then purchased.
6. Termination. Unless terminated as provided below or otherwise
-----------
pursuant to the Plan, the Option shall expire on the tenth anniversary of this
Agreement, or earlier as provided in the Plan upon a Termination of Employment
of Sperber.
7. Restriction on Transfer of Option. The Option granted hereby is
---------------------------------
not transferable otherwise than by will or under the applicable laws of descent
and distribution and during the lifetime of Sperber may be exercised only by
Sperber or Sperber's guardian or legal representative. In addition, the Option
shall not be assigned, negotiated, pledged or hypothecated in any way (whether
by operation of law or otherwise), and the Option shall not be subject to
execution, attachment or similar process. Upon any attempt to transfer, assign,
negotiate, pledge or hypothecate the Option, or in the event of any levy upon
the Option by reason of any execution, attachment or similar process contrary to
the provisions hereof, the Option shall immediately become null and void.
8. Restriction on Transfer of Shares.
------------------------------------
(a) Except as provided below, Sperber agrees that he will not, prior to
an initial public offering of the Company (an "IPO"), sell, transfer, give,
pledge, exchange, bequest, devise, encumber or otherwise dispose of, whether
voluntarily or by operation of law, all or any part of the Shares issued to
Sperber upon the exercise of this Option, except to members of his immediate
family who agree in writing to take the Shares subject to all of the terms and
conditions set forth in this Agreement, including, without limitation, Sections
8, 9 and 10 hereof.
(b) If Sperber receives a bona fide offer (an "Outside Offer") for
Sperber to sell all or any part of the Shares issued to Sperber upon the
exercise of this Option, and Sperber desires to accept such Outside Offer,
Sperber may not sell such Shares, prior to an IPO, unless Sperber first offers
in writing (the
3
<PAGE>
"Sperber Offer") the Shares desired to be so transferred for sale to the Company
at the Formula Price (as defined in Section 9 below) and otherwise on
substantially the same terms and conditions contained in the Outside Offer. The
Sperber Offer shall state the price and all other material terms contained in
the Outside Offer.
(c) The Company shall have the right (but not the obligation) to accept
the Sperber Offer as to all or any part of the Shares offered within 15 days of
receipt of the Sperber Offer.
(d) At the closing of a purchase hereunder, the Company shall deliver,
at the Company's option, (i) a five-year note in a principal amount equal to the
purchase price of the Shares, such note to bear interest at the rate of interest
charged by banks to its prime commercial customers, (ii) cash in an amount equal
to the purchase price of the Shares or (iii) any combination of (i) and (ii)
above, against receipt from Sperber of certificates for the Shares, free and
clear of all liens, claims, pledges, equities and encumbrances of any nature
whatsoever, duly endorsed in blank or with duly executed stock powers attached,
in proper form for transfer and with such supporting instruments, if any, as
reasonably may be required to effect transfer of registration.
(e) If the Company (through no fault of Sperber) fails to purchase (on
a date and at a time and place designated by the Company) all the Shares as to
which the Company has accepted the Sperber Offer within 90 days of the Company's
receipt of the Sperber Offer, then, unless Sperber sells the Shares in
accordance with the Outside Offer within 30 days of such failure, Sperber shall
again be required to comply with the provisions of this Section 8 as to any
subsequent proposed sale.
9. Repurchase of Shares. If, prior to an IPO, Sperber is no longer
--------------------
employed by the Company (or any of the Company's subsidiaries), the Company
shall have the option, exercisable at any time prior to an IPO, to purchase from
Sperber or Sperber's estate, as the case may be, all or any part of the Shares
issued to Sperber upon the exercise of this Option (other than Shares that have
been sold by Sperber pursuant to Section 9 hereof), at a price equal to the
Formula Price. "Formula Price" means the price determined by multiplying (a)
the Product (as defined below) divided by the aggregate number of shares of
common stock of the Company (whether voting or non-voting) outstanding on the
Quarter End Valuation Date (as defined below) and (b) the number of Shares as to
which the Company's option is exercised. "Product" means the amount determined
by multiplying (x) 48 and (y) the average quarterly After-Tax Earnings (as
defined below) of the Company over the 12 full fiscal quarters ending as of the
last day of the fiscal quarter end coincident with or immediately preceding the
exercise by the Company of such
4
<PAGE>
option. "After-Tax Earnings" shall mean net income as derived from the
Company's applicable statements of income after deduction for all taxes and
dividends declared in respect of the Company's preferred stock and shall be
determined, for the purposes of this Agreement without taking into account
any extraordinary items and any expense recognized in 1992 or 1993 associated
with the corporate restructuring (including, without limitation, the negotiation
and consummation of the transactions relating to the Company on or about
December 24, 1992) or in preparation in 1992 or 1993 for an initial public
offering, net of applicable tax benefit. Except as otherwise expressly provided
herein, After-Tax Earnings of the Company shall be determined by the Company on
a basis consistent with the preceding practice of the Company. "Quarter End
Valuation Date" means the last date of the fiscal quarter coincident with or
immediately preceding the exercise by the Company of such option.
10. Come-Along: Bring-Along; Right to Receive Cash; Right to Put.
------------------------------------------------------------
(a) Prior to an IPO, in the event of an offer for the sale of a
majority of the outstanding shares of common stock of the Company (including,
for this purpose, an offer for a sale of a number of Shares that, when added to
other Shares previously acquired by the offeror or its affiliates, constitutes
such a majority) that the offeree or offerees of such offer desire to accept,
the Company shall use its reasonable best efforts to have the Shares included,
to the extent Sperber desires to have them included, in such sale (or, at the
Company's election, to have the Company purchase the Shares) at the same price
per Share, and on the same terms and conditions, as the other Shares included in
such sale and, to the extent practicable, on a pro rata basis with the other
Shares in accordance with the respective sellers' ownership of Shares.
(b) Prior to an IPO, in the event of an offer for the sale of a
majority of the outstanding shares of common stock of the Company (including,
for this purpose, an offer for a sale of a number of Shares that, when added to
other Shares previously acquired by the offeror or its affiliates, constitutes
such a majority) that the offeree or offerees of such offer desire to accept,
Sperber agrees to have his Shares included, to the extent the offeree or
offerees desire to have such Shares included, in such sale (or, at the Company's
election, to have the Company purchase the Shares) at the same price per Share,
and on the same terms and conditions, as the other Shares included in such sale
and, to the extent practicable, on a pro rata basis with the other Shares in
accordance with the respective sellers' ownership of Shares.
(c) Notwithstanding anything to the contrary herein (but subject to
Section 17 of the Plan), if a Change of Control (as defined in the Plan) occurs
prior to an IPO, Sperber may, but
5
<PAGE>
shall not be required to, elect, by written notice given to the Company within
30 days after the Company gives Sperber written notice of the Change of Control
and by delivery of such documents and instruments of transfer as the Company may
reasonably request to sell, and, upon such election, the Company shall
purchase, all, but not fewer than all, the Shares previously purchased upon
exercise of the Option and all rights with respect to the portion of the Option
that is then exercisable for an amount in cash equal to (i) the product of (A)
the sum of (I) the number of such Shares previously purchased plus (II) the
number of Shares as to which such portion of the Option is then exercisable and
(B) the price per Share paid in connection with the transaction giving rise to
the Change of Control, reduced by (ii) the total exercise price payable for the
number of Shares referred to in (i) (A) (II) above.
11. Rights as a Stockholder. Sperber shall have no rights as a
-----------------------
stockholder with respect to any Shares covered by the Option until Sperber shall
have become the holder of record of the Shares, and no adjustments shall be made
for dividends in cash or other property, distributions or other rights in
respect of any such Shares, except as otherwise specifically provided for in the
Plan.
12. Provisions of Plan Control. This Agreement is subject to all the
--------------------------
terms, conditions and provisions of the Plan and to such rules, regulations and
interpretations relating to the Plan as may be adopted by the Committee and as
may be in effect from time to time. The annexed copy of the Plan is
incorporated herein by reference. If and to the extent that this Agreement
conflicts or is inconsistent with the terms, conditions and provisions of the
Plan, the Plan shall control, and this Agreement shall be deemed to be modified
accordingly.
13. Notices. Any notice or communication given hereunder shall be in
-------
writing and shall be deemed to have been duly given when delivered in person, or
by United States mail, to the appropriate party at the address set forth below
(or such other address as the party shall from time to time specify):
6
<PAGE>
If to the Company, to:
Schein Holdings, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
ATTENTION: Corporate Secretary
If to Sperber, to:
Martin Sperber
6 Casper Court
Florham Park, New Jersey 07932
14. No Obligation to Continue Employment. This Agreement does not
------------------------------------
guarantee that the Company will employ Sperber for any specific time period, nor
does it modify in any respect the Company's right to terminate or modify
Sperber's employment or compensation.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
SCHEIN HOLDINGS, INC.
By: /s/
---------------------
Authorized Officer
/s/ Martin Sperber
--------------------------
MARTIN SPERBER
7
<PAGE>
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT dated as of July 28, 1995 by and between MARSAM
PHARMACEUTICALS INC., a Delaware corporation having its principal office at
Building 31, Olney Avenue, Cherry Hill, New Jersey (the "Company"), and Marvin
S. Samson, residing at 1905 Owl Court, Cherry Hill, New Jersey 08003 (the
"Executive").
The parties are entering into this Agreement to set forth and confirm
their respective rights and obligations with respect to Executive's employment
by the Company.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto mutually agree as follows:
1. Employment and Term. (a) The Company hereby employs the Executive as
-------------------
president, chief executive officer and chief operating officer of the Company
and, as of the Acquisition Date, the Executive shall be appointed an Executive
Vice President of Schein Pharmaceutical, Inc., a Delaware corporation ("SPI")
(collectively, the "Position"). The Executive agrees to serve in the employ of
the Company in the Position for a term (the "Initial Term") which shall commence
on the date of the acquisition by SPI or a subsidiary of SPI of more than a
majority of the outstanding shares of the common stock of the Company on a
fully-diluted basis (the "Acquisition Date"), and, subject to paragraphs l(b)
and l(c) hereof, shall terminate on the fifth anniversary of the Acquisition
Date.
(b) Unless written notice terminating the term of employment is given by
either the Company or the Executive not less than one hundred eighty (180) days
in advance of the termination date of this Agreement, this Agreement shall be
automatically extended, on all of the terms and conditions hereof, for
additional periods of one-year.
(c) The Company shall have the right to terminate the Executive's
employment hereunder prior to the fifth anniversary of the Acquisition Date, but
only for cause. For purposes of this Agreement, "cause" means (i) the
Executive's willful and continued failure substantially to perform his duties
with the Company or SPI, (ii) fraud, misappropriation or intentional material
damage to the property or business of the Company or SPI or (iii) the
Executive's admission or conviction of, or plea of nolo contendere to, any
felony that, in the judgment of the Board of Directors of the Company (the
"Board"),
<PAGE>
adversely affects the Company's reputation or the Executive's ability to carry
out his obligations under this Agreement. The Executive shall not be entitled to
any compensation under this Agreement for any period after such termination
pursuant to this paragraph 1(c) except to the extent the Executive is entitled
to receive benefits under the Plans (as defined herein) following such
termination.
(d) The Executive shall have the right to terminate his employment
hereunder at any time prior to the fifth anniversary of the Acquisition Date.
(e) Anything in this Agreement to the contrary notwithstanding, the
Company, at its option, may retain the Executive as a consultant for a period
(the "advisory period") of one year after (i) the Initial Term (or any extension
under paragraph 1(b) hereof) or (ii) a termination by the Executive pursuant to
paragraph 1(d) hereof, all on the terms and conditions hereinafter provided, in
which event, the Executive shall continue to be bound by the restrictions of
paragraph 7(b) hereof during the advisory period, as if he were an employee for
such period. During the advisory period, the Executive will provide such
advisory services concerning the business, affairs and management of the Company
as may be from time to time requested by the Company, but the Executive shall
not be required to devote more than five (5) days (up to an aggregate of forty
(40) hours) each month to such services, which shall be performed at a time
mutually convenient to both parties. The Company, at its option, may terminate
the advisory period upon not less than thirty (30) days' prior written notice;
provided, that upon termination of the advisory period, the Executive shall no
- --------
longer be bound by the restrictions of paragraph 7(b) hereof. The Executive may,
subject to the restrictions set out in paragraph 7(b) hereof, engage in other
employment during the advisory period, and his advisory services hereunder shall
be required only at times and places consistent with his other employment and
his private activities. During the advisory period, the Company shall pay the
Executive a consulting fee in an amount equal to the Executive's base salary
immediately prior to the termination of employment, payments of such fee to be
made in accordance with the Company's standard payroll policies in effect from
time to time, and provide the Executive and his eligible dependents with health
insurance coverage and disability insurance coverage for the Executive
comparable to coverage while he was an employee hereunder or, at the Company's
option, reimburse the Executive in an amount equal to not more than 125% of the
cost to the Company thereof while an employee during the previous year;
provided, however, that, should the Executive engage in other employment, such
- -------- -------
consulting fee shall be reduced, on a dollar-for-dollar, basis, by an amount
equal to the compensation received by the Executive for such other employment;
and the consulting fee shall be reduced, on a dollar-for-dollar basis, by
compensation paid to the Executive by the Company under paragraph 3(d) hereof
for the
2
<PAGE>
same period of time. Without limiting the application of any other provision of
this Agreement during the advisory period, the Company expressly confirms that
the provisions of paragraph 4 hereof shall apply during the advisory period.
2. Duties. (a) Subject to the ultimate control and discretion of the
------
Board, the Executive shall serve in the Position and perform all duties and
services of an executive nature commensurate with the Position which the Board
may from time to time reasonably assign to him. Except for travel normally
incidental and reasonably necessary to the business of the Company and the
duties of the Executive hereunder, the duties of the Executive shall be
performed in the Cherry Hill, New Jersey area. SPI shall also make available to
the Executive an office for his use in its corporate headquarters.
(b) The Executive shall, consistent with his position as president
and chief executive officer of the Company and executive vice president of SPI,
be responsible for the management of the Company and its organizational
structure, subject to the Board and to the provisions of this Agreement, his
authority to include, without limitation, supplier relationships and salary,
perquisites and, with respect to stock options, (subject additionally to SPI's
Board of Directors) stock options for SPI common stock for the Company's
employees.
(c) The Executive shall, consistent with his position as president
and chief executive officer of the Company and executive vice president of SPI,
be responsible for, and shall co-ordinate, all product development activities
for SPI's and the Company's parenteral products.
(d) The Executive shall, consistent with his position as president
and chief executive officer of the Company and executive vice president of SPI,
be responsible for and shall co-ordinate, all sales and marketing activities for
SPI's and the Company's hospital and home care accounts.
(e) The Executive shall devote all of the Executive's time and
attention during regular business hours to the performance of the Executive's
duties hereunder and, during the term of his employment hereunder, shall not
engage in any other business enterprise which requires the Executive's personal
time or attention, unless granted the prior permission of the Board. The
foregoing shall not prevent the Executive's purchase, ownership or sale of any
interest in, or the Executive's engaging (but not to exceed an average of five
hours per week) in, any business which does not compete with the business of the
Company or SPI or any subsidiary of the Company or SPI or the Executive's
involvement in charitable or community activities, provided, that the time and
attention which the Executive devotes to such business and activities does not
materially interfere with the performance of his duties hereunder.
3
<PAGE>
(f) The Executive shall be entitled to such personal vacations with
full compensation, and to be taken at such time or times, as the Executive and
the Company shall mutually determine.
3. Compensation. (a) For all services to be rendered by the Executive
------------
hereunder, the Company shall pay the Executive an annual salary at a rate of not
less than Four Hundred Thousand Dollars ($400,000) per year, plus such other
compensation as may, from time to time, be determined by the Company. Such
salary and other compensation shall be payable in accordance with the Company's
normal payroll practices as in effect from time to time. At the end of each
fiscal year, the Company shall review the Executive's salary level, and shall
increase such level for the following year to such amount as the Board may
determine.
(b) The compensation provided for in paragraph 3(a) above shall be in
addition to such rights as the Executive may have, during the Executive's
employment hereunder or thereafter, to participate in and receive benefits from
or under any bonus, stock option, pension, profit-sharing, insurance or other
employee benefit plan or plans of the Company which may exist now or hereafter
(collectively, the "Plans"). During the period ending on the first anniversary
of the Acquisition Date, the Executive shall have the right, on a basis
reasonably acceptable to the Company and SPI (such acceptance not to be
unreasonably withheld), to elect to participate (with credit to the greatest
extent possible for prior years of service with the Company), to the extent he
is eligible, and subject to applicable law, in one or more SPI benefit plans in
which senior executives of SPI participate, in lieu of one or more Company
benefit plans relating to the same type of benefit.
(c) If the Company terminates the Executive's employment hereunder,
other than in accordance with paragraph 1(c) above, the Company shall continue
to pay the Executive the salary provided in paragraph 3(a) above, in accordance
with the Company's normal payroll practices in effect from time to time, and
provide the Executive and his eligible dependents with health insurance coverage
and disability insurance coverage comparable to coverage while he was an
employee hereunder or, at the Company's option, reimburse the Executive in an
amount equal to not more than 125% of the cost to the Company thereof while an
employee during the previous year, all for the remainder of the Initial Term or
any extension thereof; and the Executive shall have no further or other rights,
and the Company no further or other liabilities or obligations, under this
Agreement.
(d) If the Executive terminates his employment hereunder prior to the
end of the Initial Term under paragraph l(d) above, the Company shall continue
to pay the Executive 50% of the salary provided for in paragraph 3(a) above, in
accordance with the Company's normal practices in effect from time to time,
4
<PAGE>
and provide the Executive and his eligible dependents with health insurance
coverage and disability insurance coverage comparable to coverage while he was
an employee hereunder or, at the Company's option, reimburse the Executive in an
amount equal to not more than 125% of the cost to the Company thereof while an
employee during the previous year, all for a period beginning on the date of
such termination and ending on the earlier of the third anniversary of the
termination or the fifth anniversary of the Acquisition Date; and the Executive
shall have no further or other rights, and the Company no further or other
liabilities or obligations, under this Agreement.
(e) During any period in which the Company is obligated to pay salary
to the Executive under this paragraph 3 or a consulting fee under paragraph l(e)
of this Agreement, the Company shall provide the Executive with an automobile
or, at the Company's option, an automobile allowance, in accordance with the
Company's policies in effect from time to time.
4. Expenses. The Company shall promptly reimburse the Executive, or
--------
cause the Executive promptly to be reimbursed, for all reasonable expenses paid
or incurred by the Executive in connection with the performance of the
Executive's duties and responsibilities hereunder, upon presentation of expense
vouchers or other appropriate documentation therefor.
5. Additional Covenants. During the Executive's employment under this
--------------------
Agreement, except as otherwise consented to or approved by the Executive and
SPI:
(a) (1) the Board will be comprised of seven members, three to be
designated by the Executive, three to be designated by SPI (the "SPI directors")
and one, who shall be an employee of Bayer Corporation or any of its affiliates
(other than SPI and its subsidiaries), to be designated by SPI, subject to the
approval thereof by the Executive, which approval shall not be unreasonably
withheld (the "Bayer director");
(2) the consent or approval of at least one of the SPI directors
shall be required prior to the Company taking any extraordinary corporate
actions, which, for purposes of this Agreement, shall include, without
limitation, financings; purchases or sales of assets not in the ordinary course
of business; issuances of securities; providing compensation, perquisites or
benefits beyond levels customary in the multisource industry; actions with
respect to the certificate of incorporation or by-laws; reorganizations,
recapitalizations and business combinations; encumbering of assets; and actions
that could result in a violation of agreements relating to indebtedness of SPI
or (with the additional consent or approval of the Bayer director) agreements
between SPI (or any of its affiliates) and Bayer Corporation (or any of its
affiliates);
5
<PAGE>
(3) after consultation with the other directors, the SPI
directors shall be entitled to authorize and approve, as actions of the Board,
corporate actions not inconsistent with the provisions of this paragraph 5,
including, without limitation, financings; issuances of securities; and
encumbering of assets;
(b) the Executive, having been elected a director of SPI effective
upon the Acquisition Date, shall be included in the slate of SPI's management
nominees for re-election as a director;
(c) neither the Company's name nor logo shall be modified in any way,
and the Company may continue to use its name and logo on product labelling and
the like;
(d) the headquarters of the Company shall remain in Cherry Hill, New
Jersey;
(e) the Company shall not be required to sell products to or
manufacture products for SPI or any SPI affiliate on terms less favorable to the
Company than those the Company provides to unaffiliated customers for similar
purchase quantities; and
(f) the Company shall have funds made available to it to the extent
of "Available Cash", which shall equal: cash on hand at the Company at the
Acquisition Date, plus out-of-pocket transaction costs of the Company paid in
----
connection with the acquisition referred to in paragraph l(a), plus 50% of
----
Operating Cash Flow (i.e., net income (after taxes, calculated on a stand-alone
----
basis) plus depreciation plus amortization plus/less working capital
---- ---- ---------
decreases/increases less capital expenditures), plus interest income (at 30-day
---- ----
LIBOR), less interest expense (at SPI's cost of funds), but only in respect of
----
borrowings outstanding when Available Cash is negative, less 50% of negative
----
Operating Cash Flow, to the extent of Available Cash, and thereafter 100% of
negative Operating Cash Flow.
6. Indemnification. The Company shall indemnify the Executive, to the
---------------
fullest extent permitted by law, for any and all liabilities to which the
Executive may be subject, as a result of, in connection with or arising out of
his employment by the Company hereunder, as well as the costs and expenses
(including attorneys' fees) of any legal action brought or threatened to be
brought against him or the Company as a result of, in connection with or arising
out of such employment. The Executive shall be entitled to the full protection
of any insurance policies which the Company may elect to maintain generally for
the benefit of its directors and officers.
7. Confidentiality and Non-competition. (a) The Executive shall not use
-----------------------------------
or disclose at any time during the
6
<PAGE>
Executive's employment with the Company, or at any time thereafter, any trade
secret or proprietary or confidential information of the Company or any of its
affiliates.
(b) During the Executive's employment with the Company; during the
advisory period, if any; during the period the Company continues to make
payments under paragraph 3(c) or 3(d) above; and, in the case of termination of
employment under paragraph l(c) above, until the earlier of the sixth
anniversary of the Acquisition Date and the fourth anniversary of such
termination, the Executive shall not be engaged as an officer, director, or
employee of, or in any way be associated in a management or ownership capacity
with, any corporation, partnership or other enterprise or venture which conducts
a business which is in competition with the business of the Company or SPI or
their subsidiaries as at the time of such termination or expiration, provided,
--------
however, that the Executive may own not more than three percent (3%) of the
- -------
outstanding securities, or equivalent equity interests, of any class of any
corporation or firm which is in competition with the business of the Company or
SPI or their subsidiaries, which securities are listed on a national securities
exchange or traded in the over-the-counter market. The provisions of this
paragraph shall survive the termination or expiration of this Agreement.
8. Representation and Warranty of the Executive. The
--------------------------------------------
Executive represents and warrants that he is not under any obligation,
contractual or otherwise, to any other firm or corporation, which would
prevent his entry into the employ of the Company or his performance of
the terms of this Agreement.
9. Entire Agreement: Amendment. This Agreement, the
---------------------------
Compensation Continuation Agreement dated October 19, 1991 (as currently
in effect) and the Split Dollar Insurance Agreement dated March 25, 1991
(as currently in effect) (which Compensation Continuation Agreement and
Split Dollar Insurance Agreement shall continue in effect in accordance
with their terms unless surrendered by the Executive under the last
sentence of paragraph 3(b) hereof) contain the entire agreement between
the Company and the Executive with respect to the subject matter hereof,
and may not be amended, waived, changed, modified or discharged except
by an instrument in writing executed by the parties hereto and SPI.
10. Assignability. The services of the Executive hereunder are
-------------
personal in nature, and neither this Agreement nor the rights or
obligations of the Company hereunder may be assigned by the Company,
whether by operation of law or otherwise, without the Executive's prior
written consent. This Agreement shall be binding upon, and inure to the benefit
of, the Company and its permitted successors and assigns hereunder. This
Agreement shall not be assignable by the Executive, but shall inure to the
benefit of the Executive's heirs, executors, administrators and legal
representatives.
7
<PAGE>
11. Notice. Any notice which may be given hereunder shall be in writing
------
and be deemed given when hand delivered and acknowledged or, if mailed, one day
after mailing by registered or certified mail, return receipt requested, to
either party hereto at their respective addresses stated above, or at such other
address as either party may be similar notice designate.
12. Specific Performance. The parties agree that irreparable damage
--------------------
would occur in the event that any of the provisions of paragraph 5 or 7 above
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of paragraph 5 or 7 above and to
enforce specifically the terms and provisions of paragraph 5 or 7 above, this
being in addition to any other remedy to which they are entitled at law or in
equity.
13. No Third Party Beneficiaries. Nothing in this Agreement, express or
----------------------------
implied, is intended to confer upon any person or entity other than the parties
(and the Executive's heirs, executors, administrators and legal representatives
as provided in paragraph 10 hereof) and SPI any rights or remedies of any nature
under or by reason of this Agreement.
14. Construction. This Agreement shall be governed by and construed in
------------
accordance with the internal laws of the State of New Jersey, without giving
effect to principles of conflict of laws. All headings in this Agreement have
been inserted solely for convenience of reference only, are not to be considered
a part of this Agreement and shall not affect the interpretation of any of the
provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
MARSAM PHARMACEUTICALS INC.
By
------------------------
Authorized Signatory
---------------------------
Marvin S. Samson
8
<PAGE>
Schein Pharmaceutical, Inc. hereby agrees, commencing on the Acquisition
Date, to be bound by the provisions of Paragraphs 1, 2(a), 2(b), 2(c), 2(d),
3(b), 5(a), 5(b), 5(c), 5(d), 5(e) and 5(f), to the extent they refer to SPI, of
the foregoing Employment Agreement and to cause the Company to perform the
obligations of the Company under the foregoing Employment Agreement.
SCHEIN PHARMACEUTICAL, INC.
By
-----------------------------------
Authorized Signatory
<PAGE>
EXHIBIT 10.23
COMPENSATION CONTINUATION AGREEMENT
-----------------------------------
AGREEMENT made this 19th day of October, 1991, by and between MARSAM
---- -------
PHARMACEUTICALS INC., a Delaware corporation ("Company") and Marvin Samson, 1905
Owl Court, Cherry Hill, New Jersey ("Employee")
BACKGROUND
----------
Employee is and since the Company's inception in 1985 has been, chief
executive officer and a key employee of the Company. Employee and the Company
entered into an Employment Agreement dated as of December 19, 1986, which has
been amended to extend its term to December 31, 1996, and the year to year
thereafter (the "Employment Agreement").
The continued services of Employee and his knowledge of the Company's
activities and of the industry in which the Company participates are of great
value to the Company. The Company believes that it is in its best interests to
provide Employee with the security of a level of continuing payments to Employee
or Employee's designee in the event of his retirement disability or death.
Now, Therefore, intending to be legally bound hereby, the Company and
Employee agree as follows:
1. Term of Agreement. This Agreement shall remain in effect and
-----------------
confer upon Employee the benefits set forth herein so long as Employee's
employment by the Company is not terminated by the Company based upon a clear
showing of due
<PAGE>
cause, as hereinafter defined, and with Employee first having had a reasonable
opportunity to cure. Termination of Employee's employment by the Company shall
be for due cause hereunder in the event that the termination is in connection
with (i) any dishonest action against the Company, (ii) admission or conviction
of any fraud or embezzlement, or (iii) a breach or violation by Employee during
his employment of the confidentiality or non-competition covenants set forth in
paragraph 6 of the Employment Agreement.
2. Retirement. In the event of Employee's retirement, as hereinafter
----------
defined, the Company shall pay to the Employee in the first year following
commencement of retirement an amount equal to Employee's annual base salary
immediately prior to his retirement and, thereafter, fifty percent (50%) of such
amount for each of the next nine years. In the event of Employee's death after
his retirement, there shall be a continuation of the retirement payments for a
period of ten (10) years from the commencement of Employee's retirement, with
the payments after death being made to the beneficiary designated by Employee.
All payment obligations under this agreement shall be met by periodic payments
on the same dates as executive compensation is paid by the Company, except as
otherwise agreed by the parties.
<PAGE>
3. Definition of Retirement. Employee may elect to retire by giving
------------------------
written notice of such election to the Company not less than ninety (90) days
prior to the proposed commencement of retirement, but in no event shall such
retirement be effective prior to the end of Employee's employment term under the
Employment Agreement or any agreement superseding or extending the Employment
Agreement. Furthermore, for the purposes of paragraph 2 hereof, termination of
Employee's employment as the result of either party giving notice of termination
pursuant to paragraph 1 (b) of the Employment Agreement shall be deemed to be
Employee's retirement hereunder. The retirement payments provided for herein
shall be made on the same dates as those on which the Company makes compensation
payments to executive employees generally.
4. Disability. If Employee, while employed by the Company, becomes
----------
unable, for a period of six (6) months during any period of twelve (12)
consecutive months, to perform his duties due to partial or total disability or
incapacity resulting from a mental or physical illness or injury, as certified
by a licensed physician, the Company shall make disability payments to Employee
until the earlier of resumption of employment or the end of the year in which
Employee reaches age sixty-five (65), in an amount equal to Employee's annual
base salary immediately prior to commencement of Employee's disability for the
first year of disability, and
<PAGE>
fifty percent (50%) of said amount in each of the years following. The
disability payments provided for herein shall be reduced to the extent of
payments received by Employee from any disability benefit program arranged and
paid for by the Company, and any fees or other payments by the Company for
services provided by Employee. Upon reaching age 65, Employee, if disabled,
shall be deemed to have retired for purposes of paragraph 2 hereof and shall be
entitled to retirement benefits equal to fifty percent (50%) of Employee's
annual base salary immediately prior to commencement of Employee's disability in
accordance with said paragraph 2.
5. Other Insurance Benefits. During the period of retirement of
------------------------
disability payments under this Agreement, the Company shall continue to provide
Employee with health and medical insurance coverage and benefits to the same
extent as if he had continued to be an executive employee of the Company.
6. Death. In the event of Employee's death while still in the employ
-----
of the Company, the Company shall pay to Employee's designee during the first
year after death an amount equal to Employee's annual base salary immediately
prior to his death and, thereafter, fifty percent (50%) of said amount for each
of the next nine (9) years. In the event of Employee's death while entitled to
disability payments pursuant to paragraph 4 hereof, the Company shall pay to
Employee's designee an amount equal to fifty percent (50%) of Employee's
annual base salary immediately prior to the commencement of Employee's
disability during each of the next nine (9) years.
<PAGE>
Restrictive Covenant. Notwithstanding the time limits set forth in
--------------------
paragraph 6 of the Employment Agreement (or comparable provisions of any
agreement superseding or extending the Employment Agreement) with respect to
Employee's obligations to maintain confidentiality and not compete with the
Company, the payment obligations of the Company under paragraphs 2, 4, and 6
hereof shall cease if the Company, after notice to Employee of its intent to do
so, obtains a judicial determination that Employee's conduct is in violation of
the provisions of the Employment Agreement respecting confidentiality and
noncompetition, or would be in the absence of the time limitation provisions
applicable to such provisions.
8. Binding Effect. This Agreement will be binding on the Company and
--------------
the Employee, their heirs, legal representatives, successors and assigns.
9. Governing Law. Is Agreement shall be deemed to be executed,
-------------
delivered and is intended to be performed in the State of New Jersey and in all
respects is to be governed by the laws of the State of New Jersey.
10. Severance. In the event that performance of any provision hereunder
---------
shall in any way be in contravention of any law, rule or regulation of any
governmental body claiming to have jurisdiction, then, to the extent of such
illegality or violation, this Agreement shall be inoperative without in any
manner impairing its other provisions and obligations.
11. Unfunded Arrangement. The Company shall pay the benefits provided
--------------------
hereunder out of its general assets in cash
<PAGE>
when due. The Company shall not be required to establish any segregated account,
trust escrow, reserve or other arrangement to discharge such benefits. No assets
of the Company shall be deemed segregated or otherwise set aside to discharge
the Company's obligations under this agreement. The rights and benefits of the
Employee or any beneficiary thereof shall be solely those of an unsecured
general creditor.
12. Non-Alienation. None of the payments, benefits or rights of the
--------------
Employee or beneficiary thereof shall be subject to any claim of any creditor of
such person and, in particular, to the fullest extent permitted by law, shall be
free from attachment, garnishment, trustee's process, or any other legal or
equitable process available to any creditor of such person. The Employee or
beneficiary thereof shall not have the right to alienate, anticipate, commute,
pledge, encumber or assign any of the benefits or payments which he may expect
to receive, contingently or otherwise, under this agreement, except the right to
designate a beneficiary or beneficiaries as hereinabove provided.
13. Employment Obligations. This agreement shall not be construed as
----------------------
creating any additional contract of employment between the Company and the
Employee or as giving the Employee, or any person whomsoever, any legal or
equitable rights against the Company unless such rights shall be specifically
provided for in this agreement or conferred by affirmative action of the Company
in accordance with the terms and provisions of this agreement.
<PAGE>
14. Taxes. The Company shall not be responsible for the tax
-----
consequences under federal, state or local law of the Employee under this
agreement. All payments under this agreement shall be subject to withholding
and reporting requirements to the extent provided by applicable law.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Employee has executed this
Agreement, each as of the day and year first above written.
MARSAM PHARMACEUTICALS INC.
By: /s/
----------------------------
Vice President
/s/ Marvin Samson
----------------------------
Marvin Samson
<PAGE>
EXHIBIT 10.24
SPLIT DOLLAR INSURANCE AGREEMENT dated March 25, 1991, by and between
MICHAEL A. SAMSON and ANDREW SAMSON, Trustees under Indenture of Trust of MARVIN
SAMSON, dated October 3, 1989, ("Owner") and MARSAM PHARMACEUTICALS INC., a
Delaware corporation ("Company").
The parties hereto in consideration of the agreements and covenants
hereinafter set forth and intending to be legally bound, agree as follows:
1. This agreement relates to a policy of insurance on the lives of
Marvin Samson and Elaine Samson (together the "Insureds") issued by Phoenix
Mutual Life Insurance Company ("the Insurer"), Policy No. 2487749 ("Policy").
Subject to the conditions hereinafter set forth, Owner shall be the sole owner
of the Policy.
2. The Company has heretofore and so long as Marvin Samson remains an
employee or director of the Company shall continue to pay the portion of the
annual premium on the Policy equal to the Company's "Cash Investment" in the
Policy, which shall be equal to: (i) the annual net premium, minus (ii) the
-----
value of the death benefit to which Owner is then entitled, determined by using
the lesser of (a) the applicable one-year term premium cost computed under
Revenue Ruling 55-747, 1955-2 C.B. 228 (or any superseding ruling thereto) or
- ---------------------
(b) the applicable premium rates charged by the Insurer for initial issue
one-year term insurance.
<PAGE>
The Company shall also pay to or on behalf of the Insureds a bonus equal to the
remaining portion of the annual premium otherwise payable by Owner.
3. In consideration of the payments made pursuant to paragraph 2 hereof,
the Company shall receive from the proceeds of the Policy, upon the death of the
second of the Insureds to die (or upon the surrender of the Policy during the
lifetime of one of the Insureds) an amount equal to the Company's "Cash
Investment" in the Policy as calculated under paragraph 2 hereof. The balance of
the proceeds, if any, shall be paid as provided in the Policy, subject to the
Collateral Assignment Agreement referred to below.
4. To secure the Cash Investment, Owner shall assign to the Company a
security interest in the Policy equal in amount to the Cash Investment and such
security shall be limited to the Company's right to receive such amount out of
the proceeds of the Policy.
5. The assignment to the Company provided for in this agreement shall
be effectuated by the execucion of a Collateral Assignment Agreement
substantially in the form attached hereto as Exhibit "A".
6. Owner shall notify the Insurer of the Collateral Assignment
Agreement and shall take no action that would impair the security interest of
the Company under the Collateral Assignment Agreement. Owner shall have the
right to terminate this agreement and the Collateral Assignment Agreement at any
-2-
<PAGE>
time upon payment to the Company of the Company's Cash Investment in the Policy.
7. Each and every right, interest or incident or ownership associated
with the Policy which is not expressly assigned to the Company by the Collateral
Assignment Agreement shall be retained by Owner, including, but not limited to,
the right to designate and change the beneficiaries of the Policy, the right to
transfer the Policy subject to the rights assigned to the Company, the right to
surrender the Policy subject to the rights assigned to the Company, and the
right to exercise any option provided in the Policy.
8. Subject to taking notice of the Collateral Assignment Agreement when
it is filed at its home office, the Insurer shall have no obligation except as
set forth in the Policy. The Insurer shall not be bound to inquire into or take
notice of any of the covenants herein contained. Upon the death of the second of
the Insureds to die (or upon surrender of the Policy prior to such death), the
Insurer shall be discharged from its obligations upon payment of the proceeds in
accordance with the provisions of the Policy and the Collateral Assignment
Agreement and without regard to this agreement or any amendment hereof.
9. For purpose of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), the Company is the "Named Fiduciary" and "Administrator"
within the meaning of sections 402(a) and 3(16)(A) of ERISA, respectively, and
the
-3-
<PAGE>
fiduciary for deciding claims. All claims shall be resolved under procedures
which comply with regulations promulgated under section 503 of ERISA.
10. Amendments may be made to this agreement by a writing signed by each
of the parties and attached hereto.
11. All matters respecting the vailidty, effect and interpretation of
this agreement shall be determined in accordance with the laws of the State of
New Jersey.
12. This agreement shall be binding upon the parties hereto and their
successors and assigns.
IN WITNESS WHEREOF, this agreement has been executed as of the date
first above written.
MARSAM PHARMACEUTICALS INC. INDENTURE OF TRUST OF MARVIN
SAMSON DATED OCTOBER 3, 1989
By: /s/
-------------------------
Attest: /s/ By /s/Michael A. Samson (SEAL)
--------------------- --------------------
Michael A. Samson
(Corporate Seal)
By /s/A. Samson (SEAL)
-----------------
Andrew Samson
Trustees
-4-
<PAGE>
EXHIBIT A
COLLATERAL ASSIGNMENT AGREEMENT dated ___________________, by and
between MICHAEL A. SAMSON and ANDREW SAMSON, Trustees under Indenture of Trust
of MARVIN SAMSON, dated October 3, 1989 ("Owner") and MARSAM PHARMACEUTICALS
INC., a Delaware corporation (the "Company").
This Agreement relates to Phoenix Mutual Life Insurance Company Policy
No. 2487749 ("Policy") on the lives of Marvin Samson and Elaine Samson (together
the "Insureds").
The parties have entered into a Split Dollar Insurance Agreement
contemporaneously with this Agreement ("Insurance Agreement").
Pursuant to the Insurance Agreement, Owner has agreed to assign to the
Company a security interest in the Policy in order to provide for the payment
to the Company of the Cash Investment as defined in the Insurance Agreement.
The parties hereto, in consideration of the foregoing and the agreements
and covenants hereinafter set forth and intending to be legally bound hereby,
agree as follows:
1. Owner hereby assigns to the Company a security interest in the
Policy in order to secure to the Company the payment of the Cash Investment in
the Policy, consisting of the following rights:
(a) Upon the death of the second of the Insureds to die, the
Company shall have the right to receive so much of the proceeds payable under
the Policy as is equal to the Cash Investment, determined as of the date of
death. The Company may collect such portion of the proceeds directly from the
Insurer.
<PAGE>
(b) In the event the Policy is surrendered by Owner prior to the
death of both Insureds, the Company shall have the right to receive so much of
the proceeds received as is equal to the Cash Investment, determined as of the
date of surrender. The Company may collect such portion of the proceeds on
surrender of the Policy directly from the Insurer.
2. The Insurer is authorized to rely solely on the written statement of
the Company and the Owner for the exercise of any rights under the Policy
assigned herein and as to the amount of the Cash Investment as of any date. The
Insurer is hereby authorized to recognize such statement without investigation
or the giving of any notice. The written acknowledgement of receipt by the
Company for any sums paid to it by the Insurer pursuant to the written statement
of the Cash Investment in the Policy referred to in the first sentence of
this paragraph shall be a full discharge and release of the Insurer with respect
to the Policy. Payment of the Cash Investment shall be made to the exclusive
order of the Company.
3. Each and every right, interest, or incident of ownership associated
with the Policy which is not expressly assigned to the Company by this
Collateral Assignment Agreement is retained by Owner, including, but not limited
to , the right to designate and change the beneficiaries of the Policy, the
right to transfer the Policy subject to the rights assigned to the Company, the
right to surrender the Policy subject to the rights assigned to the Company, and
the right to exercise any option provided in the Policy.
-2-
<PAGE>
4. Each of the undersigned declares that no proceedings in bankruptcy
are pending against them and that their property is not subject to any
assignment for the benefit of creditors.
5. All matters respecting the validity, effect and interpretation of
this Collateral Assignment Agreement shall be determined in accordance with the
laws of the State of New Jersey.
6. This Collateral Assignment Agreement shall be binding upon the
parties hereto and their successors and assigns.
IN WITNESS WHEREOF, the parities have hereunto set their hands and seals
as of the date first above written.
MARSAM PHARMACEUTICALS IN. INDENTURE OF TRUST OF MARVIN
SAMSON DATED OCTOBER 3, 1989
By:
----------------------------
By /s/Michael A. Samson (SEAL)
--------------------
Attest: Michael A. Samson
------------------------
(Corporate Seal)
By /s/Andrew Samson (SEAL)
----------------
Andrew Samson
Trustees
<PAGE>
Exhibit 10 (P)
SPLIT DOLLAR INSURANCE AGREEMENT dated March 25, 1991, by and between
MICHAEL A. SAMSON and ANDREW SAMSON, Trustees under Indenture of Trust of MARVIN
SAMSON, dated October 3, 1989, ("Owner") and MARSAM PHARMACEUTICALS INC., a
Delaware corporation ("Company").
The parties hereto in consideration of the agreements and covenants
hereinafter set forth and intending to be legally bound, agree as follows:
1. This agreement relates to a policy of insurance on the lives of
Marvin Samson and Elaine Samson (together the "Insureds") issued by Phoenix
Mutual Life Insurance Company ("the Insurer"), Policy No. 248749 ("Policy").
Subject to the conditions hereinafter set forth, Owner shall be the sole owner
of the Policy.
2. The Company has heretofore and so long as Marvin Samson remains an
employee or director of the Company shall continue to pay the portion of the
annual premium on the Policy equal to the Company's "Cash Investment" in the
Policy, which shall be equal to: (i) the annual net premium, minus (ii) the
-----
value of the death benefit to which Owner is then entitled, determined by using
the lesser of (a) the applicable one-year term premium cost computed under
Revenue Ruling 55-747, 1955-2 C.B. 228 (or any superseding ruling thereto) or
- ---------------------
(b) the applicable premium rates charged by the Insurer for initial issue one-
year term insurance.
<PAGE>
The Company shall also pay to or on behalf of the Insureds a bonus equal to the
remaining portion of the annual premium otherwise payable by Owner.
3. In consideration of the payments made pursuant to paragraph 2
hereof, the Company shall receive from the proceeds of the Policy, upon the
death of the second of the Insureds to die (or upon the surrender of the Policy
during the lifetime of one of the Insureds) an amount equal to the Company's
"Cash Investment" in the Policy as calculated under paragraph 2 hereof. The
balance of the proceeds, if any, shall be paid as provided in the Policy,
subject to the Collateral Assignment Agreement referred to below.
4. To secure the Cash Investment, Owner shall assign to the Company a
security interest in the Policy equal in amount to the Cash Investment and such
security shall be limited to the Company's right to receive such amount out of
the proceeds of the Policy.
5. The assignment to the Company provided for in this agreement shall
be effectuated by the execution of a Collateral Assignment Agreement
substantially in the form attached hereto as Exhibit "A".
6. Owner shall notify the Insurer of the Collateral Assignment
Agreement and shall take no action that would impair the security interest of
the Company under the Collateral Assignment Agreement. Owner shall have the
right to terminate this agreement and the Collateral Assignment Agreement at any
-2-
<PAGE>
time upon payment to the Company of the Company's Cash Investment in the Policy.
7. Each and every right, interest or incident of ownership associated
with the Policy which is not expressly assigned to the Company by the Collateral
Assignment Agreement shall be retained by Owner, including, but not limited to,
the right to designate and change the beneficiaries of the Policy, the right to
transfer the Policy subject to the rights assigned to the Company, the right to
surrender the Policy subject to the rights assigned to the Company, and the
right to exercise any option provided in the Policy.
8. Subject to taking notice of the Collateral Assignment Agreement when
it is filed at its home office, the Insurer shall have no obligation except as
set forth in the Policy. The Insurer shall not be bound to inquire into or take
notice of any of the covenants herein contained. Upon the death of the second of
the Insureds to die (or upon surrender of the Policy prior to such death), the
Insurer shall be discharged from its obligations upon payment of the proceeds in
accordance with the provisions of the Policy and the Collateral Assignment
Agreement and without regard to this agreement or any amendment hereof.
9. For purposes of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), the Company is the "Named Fiduciary" and "Administrator"
within the meaning of sections 402(a) and 3(16)(A) of ERISA, respectively, and
the
-3-
<PAGE>
fiduciary for deciding claims. All claims shall be resolved under procedures
which comply with regulations promulgated under section 503 of ERISA.
10. Amendments may be made to this agreement by a writing signed by
each of the parties and attached hereto.
11. All matters respecting the validity, effect and interpretation of
this agreement shall be determined in accordance with the laws of the State of
New Jersey.
12. This agreement shall be binding upon the parties hereto and their
successors and assigns.
IN WITNESS WHEREOF, this agreement has been executed as of the date
first above written.
MARSAM PHARMACEUTICALS INC. INDENTURE OF TRUST OF MARVIN
SAMSON DATED OCTOBER 3, 1989
By: /s/
------------------------------
By /s/Michael A. Samson (SEAL)
Attest: /s/ --------------------
-------------------------- Michael A. Samson
(Corporate Seal)
By /s/Andrew Samson (SEAL)
----------------
Andrew Samson
Trustees
-4-
<PAGE>
EXHIBIT 10.25
THE RETIREMENT PLAN OF
SCHEIN PHARMACEUTICAL, INC.
& AFFILIATES
Effective As of January 1, 1992
<PAGE>
PREAMBLE
--------
Schein Pharmaceutical, Inc. (the "Company") established the Schein
Pharmaceutical, Inc. Profit Sharing Plan (the "Plan") for the benefit of its
eligible employees effective December 27, 1987. The Plan was subsequently
amended. Effective January 1, 1992, four other plans were merged into the Plan,
Danbury Pharmacal, Inc. 401(k) Plan, Danbury Pharmacal, Inc. Profit-Sharing
Plan, Steris Laboratories, Inc. 401(k) Plan and Steris Laboratories, Inc.
Profit-Sharing Plan, collectively (the "Merged Plans"). Each of the Merged Plans
were either originally effective January 1, 1989 or amended to comply with the
law in effect at the time of the merger. The Plan was also redesignated as The
Retirement Plan of Schein Pharmaceutical, Inc. & Affiliates.
The Plan is hereby again amended and restated in its entirety effective
January 1, 1992 in order to comply with the Tax Reform Act of 1986, the Omnibus
Budget Reconciliation Acts of 1989 and 1993, the Revenue Reconciliation Act of
1990 and the Unemployment Compensation Amendments Act of 1992. Benefits for any
participant, or beneficiary of such participant, who retired, died or terminated
employment at any time prior to January 1, 1992 will be determined under the
provisions of the Plan as in effect on the date of the participant's retirement,
death, or termination, unless additional benefits are specifically provided by a
subsequent amendment to the Plan. The restated Plan contained herein will apply
to participants, or beneficiaries of such participants, who retire, die or
terminate employment at any time on or after January 1, 1992.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Contents Page
- ------- -------- ----
<S> <C> <C>
I Definitions 1
II Participation 16
III Participant Salary Reduction 19
IV Employer Contributions 28
V Participant Contributions 40
VI Termination of Service 43
VII Time and Method of Payment of Benefits 48
VIII Withdrawals 54
IX Investment of Contributions 56
X Loans 59
XI Employer Administrative Provisions 62
XII Participant Administrative Provisions 64
XIII Committee Duties With Respect to
Participant's Account 69
XIV Fiduciary Duties and Responsibilities 72
XV Top Heavy Rules 74
XVI Exclusive Benefit, Amendment, and Termination 80
Appendix A - Procedures Regarding Qualified
Domestic Relations Orders 87
</TABLE>
<PAGE>
ARTICLE I
DEFINITIONS
Whenever the following words and phrases appear in the Plan, they
shall have the respective meaning set forth below, unless the context clearly
indicates otherwise:
1.01 "Accounting Date" shall be the last day of each calendar month.
Effective July 1, 1994, the Accounting Date shall be the close of each business
day. The fair market value of the Trust's assets will be determined on the
Accounting Date. Further, all contributions and earnings and losses under the
Plan will be allocated as of the Accounting Date.
1.02 "Account Balance" shall mean the aggregate of the amount in the
Participant's Salary Reduction Contribution Account, Voluntary Contribution
Account, Rollover Contribution Account, Matching Contribution Account, Historic
Account, Qualified Non-Elective Contribution Account and Base Contribution
Account as of any date, less any Excess Amounts which must be returned to the
Participant in order to avoid exceeding the limitations of Article IV.
1.03 "Annual Addition" shall mean for any Plan Year the sum of (a)
Employer contributions, (b) Employee contributions, (c) forfeitures, and (d)
amounts allocated to an individual medical account, as defined in Section
415(1)(2) which is part of a pension or annuity plan maintained by the Employer,
and amounts derived from contributions paid or accrued which are attributable to
post-retirement medical benefits allocated to the separate account of a
<PAGE>
key employee, as defined in Section 419A(d)(3) of the Code, under a welfare
benefit fund, as defined in Section 419(e) of the Code, maintained by the
Employer.
1.04 "Base Contribution Account" shall mean the account maintained
for a Participant to record base contributions made by the Employer pursuant to
Article IV.
1.05 "Beneficiary" is a person designated by a Participant who is or
may become entitled to a benefit under the Plan.
1.06 "Break in Service" shall mean a Plan Year during which an
Employee completes less than 501 Hours of Service.
1.07 "Code" means the Internal Revenue Code of 1986, as amended.
1.08 "Committee" shall mean the Plan Committee appointed by the
Company to administer this Plan pursuant to Article XIII hereof. In addition to
its other duties, the Committee shall have full responsibility for compliance
with the reporting and disclosure rules under ERISA as respects this Plan. Each
Committee member is designated a Named Fiduciary under the Plan.
1.09 "Company" means Schein Pharmaceutical, Inc.
1.10 "Compensation" shall mean the total remuneration paid by the
Employer to an Employee for services rendered to the Employer as reflected on
Form W-2 for Federal income tax withholding purposes, including salary,
commissions, overtime and
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<PAGE>
bonuses, reduced by reimbursements or other expense allowances, fringe benefits
(cash and non-cash), moving expenses, deferred compensation (e.g. stock options)
and welfare benefits, but including amounts deferred pursuant to Article III. In
the case of any self-employed individual, Compensation shall mean Earned Income.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA'93 Annual
Compensation Limit. The OBRA'93 Annual Compensation Limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect
for a calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA'93
Annual Compensation Limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under Section 401(a)(17) of the Code shall mean the
OBRA'93 Annual Compensation Limit set forth in this provision.
- 3 -
<PAGE>
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the OBRA'93
Annual Compensation Limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA'93 Annual
Compensation Limit is $150,000.
In determining the Compensation of a Participant for purposes of this
limitation, the rules of Section 414(q)(6) of the Code shall apply, except in
applying such rules, the term "family" shall include only the spouse of the
Participant and any lineal descendants of the Participant who have not attained
age 19 before the close of the Plan Year. If, as a result of the application of
such rules the OBRA'93 Annual Compensation Limit is exceeded, then the
limitation shall be prorated among the affected individuals in proportion to
each such individual's Compensation prior to the application of this limitation.
1.11 "Earned Income" shall mean the net earnings from self-
employment in the trade or business with respect to which the Plan is
established, for which personal services of the individual are a material
income-producing factor. Net earnings will be determined without regard to items
not included in gross income and the deductions allocable to such items. Net
earnings are reduced by (1) contributions by the Employer to a qualified plan to
the
- 4 -
<PAGE>
extent deductible under Section 404 of the Code, and (2) the deduction allowed
to the employer by Section 164(f) of the Code.
1.12 "Effective Date" of this Plan is January 1, 1992.
1.13 "Employee" shall mean any employee of the Employer or of any
other employer required to be aggregated under Sections 414(b), (c), (m), (n) or
(o) of the Code.
1.14 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
1.15 "Employer" shall mean the Company and any Participating
Employer which adopts this Plan, as well as any predecessors or successors to
the Employer.
1.16 "Employment Commencement Date" shall mean the date on which the
Employee first performs an Hour of Service for the Employer.
1.17 "Enrollment Period" shall mean the twenty-one (21) day period
preceding the Plan Entry Date.
1.18 "Highly Compensated Employee" shall mean an Employee who,
during the Plan Year or during the preceding 12-month period:
(a) is a more than 5% owner of the Employer (applying the constructive
ownership rules of Section 318 of the Code);
(b) has Compensation in excess of $75,000 (as adjusted by the
Commissioner of Internal Revenue for the relevant year);
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<PAGE>
(c) has Compensation in excess of $50,000 (as adjusted by the
Commissioner of Internal Revenue for the relevant year) and is part of
the top-paid 20% group of employees (based on Compensation for the
relevant year); or
(d) has Compensation in excess of 50% of the dollar amount prescribed
in Section 415(b) (1) (A) of the Code and is an officer of the
Employer.
If the Employee satisfies the definition in clause (b), (c) or (d) in
the Plan Year but does not satisfy clause (b), (c) or (d) during the preceding
12-month period and does not satisfy clause (a) in either period, the Employee
is a Highly Compensated Employee only if he is one of the 100 most highly
compensated Employees for the Plan Year. The number of officers taken into
account under clause (d) will not exceed the greater of 3 or 10% of the total
number (after application of the exclusions under Section 414(q) of the Code) of
Employees, but no more than 50 officers. If no Employee satisfies the
Compensation requirement in clause (d) for the relevant year, the Committee will
treat the highest paid officer as satisfying clause (d) for that year.
The term "Highly Compensated Employee" also includes any former
Employee who separated from service (or has a deemed separation from service, as
determined under Treasury regulations) prior to the Plan Year, performs no
service for the Employer during the Plan Year, and was a Highly Compensated
Employee either for the separation year or any Plan Year ending on or after his
55th birthday. If the former Employee's separation from service occurred prior
to January 1, 1987, he is a Highly Compensated Employee only if he satisfied
clause (a) of this Section 1.18 or
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<PAGE>
received Compensation in excess of $50,000 during: (1) the year of his
separation from service (or the prior year); or (2) any year ending after his
54th birthday.
The Committee shall also have discretion to use any other definition
of "Highly Compensated Employee" promulgated by the secretary of Treasury.
1.19 "Historic Account" shall mean the account maintained for a
Participant to record any interest as of December 31, 1991 in any Merged Plan,
and earnings and losses thereon.
1.20 "Hour of Service" shall mean:
(a) Each hour of service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to
payment, for the performance of duties during the Plan Year. The
Committee shall credit Hours of Service under this subsection (a) to
the Employee for the Plan Year in which the Employee performs the
duties, irrespective of when paid;
(b) Each hour of service for back pay, irrespective of mitigation of
damages, which the Employer has agreed to pay, or for which the
Employee has received an award. The Committee shall credit Hours of
Service under this subsection (b) to the Employee for the Plan Year(s)
to which the award of the agreement pertains, rather than for the Plan
Year in which the award, agreement or payment is made; and
(c) Each hour of service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to
payment (irrespective of whether the employment relationship is
terminated), for reasons other than for the performance of duties
during a Plan Year, such as Leave of Absence, vacation, holiday, sick
leave, illness, incapacity (including disability), layoff, jury duty,
Military Leave of Absence, or Maternity and Paternity Leave. The
Committee shall not credit more than five hundred one (501) Hours of
Service under this subsection (c) to an Employee on account of any
single continuous period during which the Employee does not perform
any duties (whether or not such period occurs during
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<PAGE>
a single Plan Year). Notwithstanding the above, the Committee shall
credit an Employee with a Military Leave of Absence to the extent
required by law. The Committee shall credit Hours of Service under
this subsection (c) in accordance with the rules of subsections (b) and
(c) of Department of Labor Reg. Section 2530.200(b)-2, which the Plan,
by this reference, specifically incorporates in full within this
subsection (c).
The Committee shall not credit an Hour of Service under more than one
of the above subsections. Furthermore, if the Committee is to credit Hours of
Service to an Employee for the twelve month period beginning with the Employee's
Employment Commencement Date or with an anniversary of such date, then such
twelve month period shall be substituted for the term "Plan Year" wherever the
latter term appears in this Section 1.20. The Committee shall resolve any
ambiguity with respect to the crediting of an Hour of Service in favor of the
Employee.
The Committee shall credit every Employee compensated on an hourly
basis with Hours of Service on the basis of the "actual" method. For purposes
of the Plan, "actual" method means the determination of Hours of Service from
records of hours worked and hours for which the Employer makes payment or for
which payment is due from the Employer.
Employees compensated on other than an hourly basis and for whom hours
are not required to be counted and recorded by any other federal law, such as
the Fair Labor Standards Act, shall be credited with forty-five (45) hours per
week for any week during which the Employee is credited with one (1) Hour of
Service.
- 8 -
<PAGE>
1.21 "Investment Committee" shall mean the Committee appointed by
the Company to manage the assets of the Plan pursuant to Articles IX and XIII
hereof. Each Investment Committee member is designated a Named Fiduciary under
the Plan.
1.22 "Leased Employee" shall mean an individual (who otherwise is
not an Employee of the Employer) who, pursuant to a leasing agreement between
the Employer and any other person, has performed services for the Employer (or
for the Employer and any persons related to the Employer within the meaning of
Section 414(n)(6) of the Code) on a substantially full time basis for at least
one year and who performs services historically performed by employees in the
Employer's business field. The Plan does not treat a Leased Employee as an
Employee of the Employer.
1.23 A "Leave of Absence" shall mean any absence approved by the
Employer, other than absence which qualifies as a Maternity and Paternity Leave
or Military Leave of Absence, including but not limited to, sick or disability
time.
1.24 "Matching Contribution Account" shall mean the account
maintained for a Participant to record matching contributions made by the
Employer pursuant to Article IV.
1.25 "Maternity and Paternity Leave" shall mean an absence from work
for any period by reason of the Employee's pregnancy, birth of the Employee's
child, placement of the child with the Employee in connection with the adoption
of such child, or
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<PAGE>
any absence for the purpose of caring for such child for a period immediately
following the birth or placement. For this purpose, Hours of Service shall be
credited for the computation period in which the absence from work begins, only
if credit therefore is necessary to prevent the Employee from incurring a one
year Break in Service, or in the immediately following computation period. The
Hours of Service credited for a Maternity and Paternity Leave shall be those
which would have normally been credited but for such absence, or, in any case in
which the Committee is unable to determine such hours normally credited, eight
(8) Hours of Service per day. The total Hours of Service required to be
credited for a Maternity and Paternity Leave shall not exceed 501.
1.26 "Merged Plans" shall mean the Danbury Pharmacal, Inc. 401(k)
Plan, the Danbury Pharmacal, Inc. Profit-Sharing Plan, the Schein
Pharmaceutical, Inc. Profit-Sharing Plan, the Steris Laboratories, Inc. 401(k)
Plan and the Steris Laboratories, Inc. Profit-Sharing Plan, or any of them
individually.
1.27 "Military Leave of Absence" shall mean the absence of an
Employee in military service for the United States of America, provided that the
Employee returns to the employ of the Employer prior to the end of any period
prescribed by the laws of the United States during which he has reemployment
rights with the Employer.
1.28 "Named Fiduciary" shall mean a person designated a fiduciary
under this Plan.
- 10 -
<PAGE>
1.29 "Nonforfeitable" shall mean a Participant's or Beneficiary's
unconditional claim, legally enforceable against the Plan, to the Participant's
Account Balance.
1.30 "Normal Retirement Date" shall mean the date the Participant
attains age 65 and five (5) Years of Service.
1.31 "Owner-Employee" shall mean an individual who is a sole
proprietor, or who is a partner owning more than 10 percent of either the
capital or profits interest of the partnership. If this Plan provides
contributions or benefits for one or more Owner-Employees who control both the
business for which this Plan is established and one or more other trades or
businesses, this Plan and the plan established for other trades or businesses
must, when looked at as a single plan, satisfy Sections 401(a) and (d) of the
Code for the employees of this and all other trades or businesses.
If the Plan provides contributions or benefits for one or more Owner-
Employees who control one or more other trades or businesses, the employees of
the other trades or businesses must be included in a plan which satisfies
Sections 401(a) and (d) of the Code and which provides contributions and
benefits not less favorable than provided for Owner-Employees under this plan.
If an individual is covered as an Owner-Employee under the plans of
two or more trades or businesses which are not controlled and the individual
controls a trade or business, then the contributions or benefits of the
employees under the plan of the trades or businesses which are controlled must
be as favorable as
- 11 -
<PAGE>
those provided for him under the most favorable plan of the trade or business
which is not controlled.
For purposes of the preceding paragraphs, an Owner-Employee, or two or
more Owner-Employee, will be considered to control a trade or businesses if the
Owner-Employee, or two or more Owner-Employees together:
(1) own the entire interest in an unincorporated trade or business,
or
(2) in the case of a partnership, own more than 50 percent of either
the capital interest or the profits interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or
more Owner-Employees shall be treated as owning any interest in a partnership
which is owned, directly or indirectly, by a partnership which such Owner-
Employee, or such two or more Owner-Employees, are considered to control within
the meaning of the preceding sentence.
1.32 "Participant" is an Employee who is eligible to be and becomes
a Participant in accordance with the provisions of Article II.
1.33 "Participating Employer" shall mean any member of a controlled
group of corporations, as defined in Section 1563(a) of the Code, of which the
Company is a member, which, with the written consent of the Company, adopts this
Plan.
1.34 "Payment Starting Date" shall mean the first day of the first
period for which the Plan pays an amount in any form.
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<PAGE>
1.35 "Plan" shall mean The Retirement Plan of Schein Pharmaceutical,
Inc. & Affiliates.
1.36 "Plan Entry Dates" shall mean the Effective Date and thereafter
the first day of the first pay period coincident with, or next following, the
date on which an Employee completes Six Months of Service.
1.37 "Plan Year" shall mean the twelve (12) consecutive month period
commencing on January 1 and ending on December 31.
1.38 "Qualified Non-Elective Contribution Account" shall mean the
account maintained for a Participant to record Qualified Non-Elective
Contributions made by the Employer pursuant to Section 3.05.
1.39 "Rollover Contribution Account" shall mean the account
maintained for an Employee to record any Rollover Contributions accepted
pursuant to Section 5.02.
1.40 "Salary Reduction Contribution" shall mean the amount by which
the Participant elects to reduce his Compensation which is then contributed to
the Trust by the Employer.
1.41 "Salary Reduction Contribution Account" shall mean the account
maintained for a Participant to record Salary Reduction Contributions made on
his behalf by the Employer.
1.42 "Salary Reduction Agreement" shall mean the agreement between
the Participant and the Employer whereby the
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<PAGE>
Participant directs the Employer to contribute a designated percentage of his
Compensation to the Trust.
1.43 "Self-Employed Individual" shall mean an individual who has
Earned Income for the taxable year from the trade or business for which the Plan
is established or an individual who would have had Earned Income but for the
fact that the trade or business has no net profits for the taxable year.
1.44 "Six Months of Service" shall mean a period of six (6)
consecutive calendar months during which an Employee completes at least 500
Hours of Service.
1.45 A "Temporary Employee" shall mean a Leased Employee, any agent
or an independent contractor.
1.46 "Trust" shall mean the trust created under the Plan, known as
the Henry Schein, Inc. Affiliates' 401(k) Trust. Effective July 1, 1994, the
Trust is known as the Employee Benefit Plan Trust, as well as any successor
thereto.
1.47 "Trust Fund" shall mean all property of every kind held or
acquired by the Trustee pursuant to this Plan. Trust assets will be valued at
fair market value.
1.48 "Trustee" shall mean the Dreyfus Trust Company. Effective July
1, 1994, the Trustee shall mean the State Street Bank and Trust Company, or any
successor Trustee appointed pursuant to the terms of the Trust.
- 14 -
<PAGE>
1.49 "Voluntary Contribution Account" shall mean the account
maintained for a Participant to record any voluntary contributions made by the
Participant pursuant to Section 5.01 and any amount recharacterized as voluntary
contributions.
1.50 "Year of Service" shall mean a Plan Year during which the
Employee completes at least 1,000 Hours of Service. If the Employer maintains
the plan of a predecessor employer, Year of Service shall also include all Years
of Service with such predecessor employer.
1.51 Wherever used herein, the singular shall include the plural and
the masculine shall include the feminine and the neuter, unless the context
clearly indicates otherwise.
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<PAGE>
ARTICLE II
PARTICIPATION
2.01 ELIGIBILITY. Each Participant in the Plan or in any of the
-----------
Merged Plans as of December 31, 1991 who is in the employ of the Employer on the
Effective Date shall become a Participant on the Effective Date. Each other
Employee shall become a Participant on the Plan Entry Date.
Notwithstanding the foregoing, any person who is a nonresident alien
(within the meaning of Code Section 7701(b)), a Temporary Employee or is a
member of a collective bargaining unit is excluded from participation. If a
Participant does not terminate employment but becomes a member of a collective
bargaining unit, then unless the applicable collective bargaining agreement
provides otherwise, during the period that such Participant is a member of a
collective bargaining unit, the Committee shall limit that Participant's sharing
in the allocation of Employer contributions and Participant forfeitures, if any,
under the Plan to the extent of his Compensation paid by the Employer for
services rendered while he is not a member of a collective bargaining unit.
However, during such period, the Participant's Account Balance shall continue to
share fully in Trust Fund earnings and losses.
If an Employee who is not a Participant ceases to be a member of a
collective bargaining unit, he shall participate in the Plan immediately if he
has satisfied the service condition of this Section 2.01 and would have been a
Participant had he not been a
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<PAGE>
member of a collective bargaining unit during his period of service with the
Employer. Furthermore, an Employee shall receive vesting credit under Article VI
for each included Year of Service during his period of service with the Employer
without regard to whether the Employee is a member of a collective bargaining
unit.
For purposes of this Section 2.01, an Employee is a member of a
collective bargaining unit if he is included in a unit of Employees covered by
an agreement which the Secretary of Labor finds to be a collective bargaining
agreement between employee representatives and one (1) or more employers if
there is evidence that retirement benefits were the subject of good faith
bargaining between such employee representatives and such employer or employers.
The term "employee representatives" does not include an organization of which
more than one half the members are owners, officers or executives of the
Employer.
2.02 MONTH OF SERVICE - PARTICIPATION. For purposes of participation
--------------------------------
under Section 2.01, the Plan shall take into account all of an Employee's
consecutive calendar Months of Service with the Employer. Months of Service
shall include all consecutive calendar Months of Service an Employee completes
with an Employer or any entity which is required to be aggregated with the
Employer pursuant to Sections 414(b), (c), (m), (n), or (o) of the Code.
2.03 PARTICIPATION UPON RE-EMPLOYMENT. A Participant whose
--------------------------------
employment terminates shall re-enter the Plan as a Participant on the date of
his re-employment. An Employee who has
- 17 -
<PAGE>
satisfied the eligibility condition of Section 2.01, but who terminates
employment prior to becoming a Participant, shall become a Participant in the
Plan on the date of his re-employment. Any other Employee whose employment
terminates and who is subsequently re-employed shall become a Participant in
accordance with the provisions of Section 2.01 and Section 2.02.
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<PAGE>
ARTICLE III
PARTICIPANT SALARY REDUCTION
3.01 SALARY REDUCTION AGREEMENT. A Participant may elect to enter
--------------------------
into a Salary Reduction Agreement with the Employer which will be applicable to
all payroll periods within such Plan Year after the Plan Entry Date following
execution of the Salary Reduction Agreement. The terms of any such Salary
Reduction Agreement shall provide that the Participant agrees to a reduction in
Compensation from the Employer equal to any whole percentage from one percent
(1%) to twelve percent (12%) of his Compensation for each payroll period within
such Plan Year. A Participant who does not elect to enter into a Salary
Reduction Agreement with the Employer shall continue to receive his entire
amount of Compensation in cash.
3.02 CHANGE IN SALARY REDUCTION RATE. A Participant may suspend his
-------------------------------
contributions under his Salary Reduction Agreement at any time. A Participant
may amend his Salary Reduction Agreement during any Plan Year as of the first
day of the first pay period in any calendar quarter by filing twenty-one (21)
days advance written notice of any change. Salary Reduction Agreement
amendments shall be effective as of the first day of the first pay period after
the twenty-one (21) days advance notice. Notwithstanding the above limitations,
the Employer may decrease at any time the Salary Reduction Contribution of any
Participant by any percentage, whether whole or fractional, if the Committee
notifies the Employer
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<PAGE>
that such decrease is necessary to ensure that the limitations of Sections 3.04,
3.05 or 4.07 are met for the Plan Year.
3.03 VESTING - SALARY REDUCTION CONTRIBUTION ACCOUNTS. Amounts
------------------------------------------------
credited to a Participant's Salary Reduction Contribution Account shall
be 100% vested and Nonforfeitable at all times. The Committee shall pay all
Salary Reduction Contributions over to the Trust no later than ninety (90) days
after the date the funds were withheld from the Participant's Compensation.
3.04 SALARY REDUCTION CONTRIBUTION LIMITATIONS. Notwithstanding
-----------------------------------------
Section 3.01 hereof, the maximum amount of Compensation a Participant is
permitted to defer during any calendar year is limited to $7,000 as adjusted by
the Secretary of Treasury pursuant to Section 402(g)(5) of the Code. Any amount
that cannot be credited to the Participant's Salary Reduction Contribution
Account due to the foregoing limit shall be paid to the Participant in cash.
For purposes of the limitation of this Section 3.04, the amount contributed to a
Participant's Salary Reduction Contribution Account shall not include any Salary
Reduction Contributions properly returned to the Participant as excess Annual
Additions under Section 4.07.
If a Participant would exceed the limitation of this Section 3.04 when
the amount the Participant elects to contribute to his Salary Reduction
Contribution Account is aggregated with the amounts deferred by the Participant
under other plans or arrangements described in Sections 401(k), 408(k), 403(b),
457 or
- 20 -
<PAGE>
501(c)(18) of the Code, the Participant may request that the Committee
distribute the excess deferrals to him. Such excess deferrals and income or loss
allocable thereto may be distributed no later than April 15 of the year
following the year in which any such excess deferrals are contributed, to
Participants who claim such allocable deferral contributions for the preceding
calendar year. The Participant's claim shall be in writing; shall be submitted
to the Committee no later than March 1; shall specify the Participant's deferral
contribution amount for the preceding calendar year; and shall be accompanied by
the Participant's written statement that if such amounts are not distributed,
such deferral contributions, when added to amounts deferred under other plans or
arrangements described in Sections 401(k), 408(k), 403(b), 457 or 501(c)(18) of
the Code, exceed the limit imposed on the Participant in accordance with the
applicable provisions of the Code for the year in which the deferral occurred.
To the extent the excess deferral arises under this Plan when combined with
other plans of the Employer, the individual will be deemed to have notified the
Committee of the excess deferral and requested distribution of the excess
deferral.
The income or loss allocable to the excess deferrals shall be the sum
of (1) the amount determined by multiplying the income or loss allocable to the
Participant's accounts containing the excess deferrals for the calendar year by
a fraction, the numerator of which is the excess deferrals on behalf of the
Participant for the calendar year and the denominator of which is the
Participant's
- 21 -
<PAGE>
account balance in his accounts containing the excess deferrals as of the last
day of the calendar year in which the excess deferrals are made without regard
to any gain or loss allocable to such total amount for the calendar year; and
(2) ten (10) percent of the amount determined under (1) multiplied by the number
of whole calendar months between the end of the calendar year in which the
excess deferrals were made and the date of distribution, counting the month of
distribution if distribution occurs after the 15th day of such month. Excess
deferrals shall be treated as Annual Additions, unless such amounts are
distributed to the Participant no later than April 15 of the year following the
year in which any such excess deferrals are contributed.
3.05 SALARY REDUCTION DISCRIMINATION LIMITATION. The Employer shall
------------------------------------------
not permit a Participant to defer an amount of Compensation that would cause the
Plan to not satisfy at least one of the following tests in any Plan Year:
(a) The Actual Deferral Percentage for the group of Highly Compensated
Employees shall not exceed the Actual Deferral Percentage of all other
eligible Employees multiplied by 1.25; or
(b) The Actual Deferral Percentage for the group of Highly Compensated
Employees shall not exceed the Actual Deferral Percentage for all other
eligible Employees multiplied by 2.0, provided that the Actual Deferral
Percentage for the group of Highly Compensated Employees does not
exceed the Actual Deferral Percentage of all other eligible Employees
by more than two (2) percentage points or such lesser amount as the
Secretary of the Treasury shall prescribe to prevent the multiple use
of this alternative limitation with respect to any Highly Compensated
Employee.
- 22 -
<PAGE>
The Actual Deferral Percentage for a specified group of Employees for a Plan
Year shall be the average of ratios (calculated separately for each Employee in
such group) of (i) the amount of Salary Reduction Contributions actually paid
over to the Trust on behalf of each such Employee for such Plan Year, to (ii)
the Employee's Compensation for that portion of the Plan Year during which the
Employee was eligible to participate. In computing the Actual Deferral
Percentage, Salary Reduction Contributions shall not include any amounts
properly returned to (i) the Participant as excess Annual Additions under
Section 4.07; or (ii) a non-Highly Compensated Employee as excess deferrals
under Section 3.04. The Actual Deferral Percentage for a Participant who makes
no Salary Reduction Contributions during a Plan Year shall be 0%. Contributions
taken into account for purposes of determining the Actual Deferral Percentage
test must be made before the last day of the twelve-month period immediately
following the Plan Year to which the contributions relate. In computing the
Actual Deferral Percentage, the Committee may include in subparagraph (i) above,
the amount of any Employer contributions which are 100% vested when made and are
subject to the same withdrawal restrictions applicable to Salary Reduction
Contributions. These contributions shall be named "Qualified Non-Elective
Contributions" and shall be placed in the Qualified Non-Elective Contribution
Account of only the Non-Highly Compensated Employees. If matching contributions
are taken into account for purposes of this subparagraph (i), they must meet the
requirements applicable to Employer contributions in the
- 23 -
<PAGE>
preceding sentence and cannot be taken into account under Section 4.02(i). In
the event Salary Reduction Contributions are used to satisfy the Actual
Contribution Percentage test under Section 4.02, the Actual Deferral Percentage
test must be satisfied both with and without inclusion of the Salary Reduction
Contributions used in the Actual Contribution Percentage test.
The Actual Deferral Percentage for any Employee who is a Highly
Compensated Employee for the Plan Year and who has Salary Reduction
Contributions allocated to his account under two or more plans of the Employer
shall be determined as if all such contributions were made under a single plan.
If the above plans have different plan years, all cash or deferred arrangements
ending with or within the same calendar year shall be treated as a single
arrangement.
In the event that this Plan satisfies the requirements of Sections
401(k), 401(a)(4) or 410(b) of the Code only if aggregated with one or more
other plans, or if one or more other plans satisfy the requirements of Sections
401(k), 401(a)(4) or 410(b) of the Code only if aggregated with this Plan, then
this Section 3.05 shall be applied by determining the Actual Deferral
Percentages of Participants as if all such plans were a single plan. Plans may
be aggregated to satisfy Section 401(k) of the Code only if they have the same
plan year.
For purposes of determining the Actual Deferral Percentage of a
Participant who is a five percent (5%) owner or one of the ten most highly-paid
Highly Compensated Employees, the Salary Reduction
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<PAGE>
Contributions and Compensation of such Participant shall include the Salary
Reduction Contributions and Compensation for the Plan Year of Family Members as
defined in Section 414(q)(6) of the Code. Family Members, with respect to such
Highly Compensated Employees, shall be disregarded as separate Employees in
determining the Actual Deferral Percentage both for Participants who are non-
Highly Compensated Employees and for Participants who are Highly Compensated
Employees.
The Employer shall maintain records sufficient to demonstrate
satisfaction of the Actual Deferral Percentage test. The determination and
treatment of the Actual Deferral Percentage amounts of any Participant shall
satisfy such other requirements as may be prescribed by the Secretary of the
Treasury.
3.06 EXCESS CONTRIBUTIONS. Notwithstanding the foregoing paragraph,
--------------------
with respect to any Plan Year in which Salary Reduction Contributions on behalf
of Highly Compensated Employees exceed the applicable limit, the Committee shall
reduce the amount of the Excess Contributions made on behalf of the Highly
Compensated Employees (by reducing such contributions in order of Actual
Deferral Percentages beginning with the highest), and shall distribute any
Excess Contributions which exist after such reduction, as adjusted by the income
or loss allocable to such Excess Contributions, to the affected Highly
Compensated Employees no later than March 15 of the year following the Plan Year
in which any such Excess Contributions are made, but in no event shall such
amounts be distributed later than the end of the Plan Year fol-
- 25 -
<PAGE>
lowing the Plan Year in which such Excess Contributions were contributed.
Excess Contributions shall be allocated to Participants who are subject to the
Family Member aggregation rules as defined in Section 414(q)(6) of the Code in
proportion to the Salary Reduction Contributions and amounts treated as Salary
Reduction Contributions of each Family Member that is combined to determine the
combined Actual Deferral Percentage, in the manner prescribed by the
regulations.
For purposes of Section 3.06, "Excess Contributions" shall mean, with
respect to any Plan Year, the aggregate amount of Employer contributions
actually taken into account in computing the Actual Deferral Percentage of the
Highly Compensated Employees over the maximum amount of such contributions
permitted by the Actual Deferral Percentage test. The income or loss allocable
to the Excess Contributions shall be the sum of (1) the amount determined by
multiplying the income or loss allocable to the Participant's accounts
containing the Excess Contributions for the Plan Year by a fraction, the
numerator of which is the Excess Contributions on behalf of the Participant for
the Plan Year and the denominator of which is the Participant's account balance
in his accounts containing the Excess Contributions as of the Accounting Date of
the Plan Year in which the Excess Contribution is made without regard to any
gain or loss allocable to such total amount for the Plan Year; and (2) ten (10)
percent of the amount determined under (1) multiplied by the number of whole
calendar months between the end of the Plan Year in which the Excess
Contributions were made
- 26 -
<PAGE>
and the date of distribution, counting the month of distribution if distribution
occurs after the 15th day of such month.
- 27 -
<PAGE>
ARTICLE IV
EMPLOYER CONTRIBUTIONS
4.01 MATCHING CONTRIBUTION. The Employer shall make a fixed matching
---------------------
contribution to each Participant's Matching Contribution Account equal to 25% of
the first 3% of such Participant's Salary Reduction Contribution. The Employer
may also elect to make a discretionary matching contribution. Although the
amount to be contributed for each Plan Year by the Employer as a discretionary
matching contribution under this Section 4.01 is purely discretionary, any such
contributed amounts will be allocated to the Matching Contribution Accounts of
each Participant on the basis of a fraction, the numerator of which is equal to
the amount of the Participant's Salary Reduction Contribution, and the
denominator of which is the sum total of all Participants' Salary Reduction
Contributions.
4.02 LIMITATIONS ON MATCHING CONTRIBUTIONS. The Employer shall not
-------------------------------------
make matching contributions to the Plan which would cause the Plan not to
satisfy at least one of the following tests in any Plan Year:
(a) The Actual Contribution Percentage for the group of Highly
Compensated Employees shall not exceed the Actual Contribution
Percentage for all other eligible Employees multiplied by 1.25; or
(b) The Actual Contribution Percentage for the group of Highly
Compensated Employees shall not exceed the Actual Contribution
Percentage for all other eligible Employees multiplied by 2.0, provided
that the Actual Contribution Percentage for the group of Highly
Compensated Employees does not exceed the Actual Contribution
Percentage for all other eligible Employees by more than two (2)
percentage points or such lesser amount as the Secretary of the
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<PAGE>
Treasury shall prescribe to prevent the multiple use of this
alternative limitation with respect to any Highly Compensated Employee.
For purposes of this Section 4.02, the Actual Contribution Percentage for a
specified group of Employees shall be the average of the ratios (calculated
separately as a Contribution Percentage for each Employee in the group) of (i)
Employee voluntary contributions and the matching contributions under the Plan
on behalf of the Employee for the Plan Year, to (ii) the Employee's Compensation
for that portion of the Plan Year during which the Employee was eligible to
participate. The Contribution Percentage for a Participant who is not allocated
a matching contribution shall be 0%. For purposes of determining Contribution
Percentages, Salary Reduction Contributions are considered to have been made in
the Plan Year in which contributed to the Trust. Employer contributions will be
considered made for a Plan Year if made no later than the end of the twelve-
month period beginning on the day after the close of the Plan Year. In computing
Contribution Percentages, the Committee may include in subparagraph (i) above,
Salary Reduction Contributions, except for Salary Reduction Contributions which
are properly distributed as excess Annual Additions under Section 4.07, and base
contributions which are 100% vested when made and are not available for
withdrawal under any circumstances.
In computing Contribution Percentages, the Committee shall not include
matching contributions that are forfeited either to correct Excess Aggregate
Contributions under Section 4.03 or because the contributions to which the
matching contributions
- 29 -
<PAGE>
relate are excess deferrals under Section 3.04, Excess Contributions under
Section 3.06 or Excess Aggregate Contributions under Section 4.03.
The Contribution Percentage for any Employee who is a Highly
Compensated Employee for the Plan Year and who has matching contributions
allocated to his account under two or more plans of the Employer shall be
determined as if all such contributions were made under a single plan. If the
above plans have different plan years, the plans ending with or within the same
calendar year shall be treated as a single plan.
In the event that this Plan satisfies the requirements of Sections
401(m), 401(a)(4) or 410(b) of the Code only if aggregated with one or more
other plans, or if one or more other plans satisfy the requirements of Sections
401(m), 401(a)(4) or 410(b) of the Code only if aggregated with this Plan, then
this Section 4.02 shall be applied by determining the Contribution Percentages
of Employees as if all such plans were a single plan. Plans may be aggregated in
order to satisfy Section 401(m) of the Code only if they have the same plan
year.
For purposes of determining the Contribution Percentage of a
Participant who is a five percent (5%) owner or one of the ten most highly-paid
Highly Compensated Employees, the Contribution Percentage amounts and
Compensation of such Participant shall include the Contribution Percentage
amounts and Compensation for the Plan Year of Family Members as defined in
Section 414(q)(6) of the Code. Family Members, with respect to Highly
Compensated
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<PAGE>
Employees, shall be disregarded as separate employees in determining the
Contribution Percentages both for Participants who are non-Highly Compensated
Employees and for Participants who are Highly Compensated Employees. Excess
Aggregate Contributions shall be allocated to Participants who are subject to
the Family Members aggregation rules of Section 414(q)(6) of the Code in
proportion to the Employee and matching contributions or amounts treated as
matching contributions of each Family Member that is combined to determine the
combined Contribution Percentage, in the manner prescribed by the regulations.
The determination and treatment of the Contribution Percentage of any
Employee shall satisfy such other requirements as may be prescribed by the
Secretary of the Treasury. The Employer shall maintain records sufficient to
demonstrate satisfaction of the Actual Contribution Percentage test.
4.03 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS.
----------------------------------------------
Excess Aggregate Contributions and income allocable thereto shall be distributed
no later than March 15 of the Plan Year following the Plan Year in which any
such Excess Aggregate Contribution were made, but in no event shall the Excess
Aggregate Contributions be distributed later than the last day of the Plan Year
following the Plan Year in which the contributions giving rise to the Excess
Aggregate Contributions were allocated. If Excess Aggregate Contributions are
distributed more than 2 1/2 months after the last day of the Plan Year in which
such excess amounts arose, a ten (10) percent excise tax will be imposed on the
Employer maintaining the
- 31 -
<PAGE>
Plan with respect to those amounts. Excess Aggregate Contributions shall be
treated as Annual Additions under the Plan.
For purposes of Section 4.03, "Excess Aggregate Contributions" shall
mean, with respect to any Plan Year, the excess of the aggregate Contribution
Percentage amounts taken into account in computing the numerator of the
Contribution Percentage actually made on behalf of Highly Compensated Employees
for such Plan Year, over the maximum Contribution Percentage amounts permitted
by the Actual Contribution Percentage test (determined by reducing contributions
made on behalf of Highly Compensated Employees in order of their Contribution
Percentages beginning with the highest of such percentages). Such determination
shall be made after first determining Excess Contributions pursuant to Section
3.06 and then determining Excess Aggregate Contributions pursuant to this
Section 4.03. The Excess Aggregate Contributions to be distributed to a
Participant shall be adjusted by the income or loss allocable to such Excess
Aggregate Contribution. The income or loss allocable to the Excess Aggregate
Contributions shall be the sum of (1) the amount determined by multiplying the
income or loss allocable to the Participant's accounts containing the excess
amounts for the Plan Year by a fraction, the numerator of which is the Excess
Aggregate Contributions on behalf of the Participant for the Plan Year and the
denominator of which is the Participant's account balance in the accounts
containing the excess amounts as of the Accounting Date of the Plan Year in
which the Excess Aggregate Contribution is made without regard to any gain or
loss allocable
- 32 -
<PAGE>
to such total amount for the Plan Year; and (2) ten (10) percent of the amount
determined under (1) multiplied by the number of whole calendar months between
the end of the Plan Year in which the Excess Aggregate Contributions were made
and the date of distribution, counting the date of distribution if distribution
occurs after the 15th day of such month.
4.04 FORFEITURE OF MATCHING CONTRIBUTIONS. In the event a matching
------------------------------------
contribution relates to an excess deferral under Section 3.04, or an Excess
Contribution under Section 3.06, the matching contribution and income allocable
thereto shall be forfeited. The income allocable to a matching contribution
shall be determined in accordance with the procedure for determining income
allocable to Excess Aggregate Contributions set forth in Section 4.03. Forfeited
matching contributions and the income allocable thereto shall be used for
payment of Plan expenses and then used to reduce the Employer's matching
contributions obligation. The forfeited amounts are treated as Annual Additions
under the Plan for those Participants from whose Accounts the amounts are
forfeited.
4.05 DISCRETIONARY BASE CONTRIBUTIONS. For each Plan Year, the
--------------------------------
Employer may contribute to the Trust a discretionary base contribution amount if
the Employer deems it advisable. The Employer's base contribution amount will be
allocated only to Participants who are employed by the Employer on the last day
of the Plan Year and who have been credited with one thousand (1,000) Hours of
Service for that Plan Year, except that a Participant
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<PAGE>
whose service with the Employer terminates in a Plan Year because of death,
disability, or retirement on or after Normal Retirement Date, will share in the
allocation of the Employer's base contribution for the Plan Year.
Notwithstanding the foregoing, if a Participant completes 501 or more Hours of
Service, regardless of whether he is employed on the last day of the Plan Year,
he will receive a base contribution if such contribution is necessary to enable
the Plan to satisfy the minimum coverage test of Section 410(b) of the Code or
the minimum participation test of Section 401(a)(26) of the Code. The allocation
of the Employer's base contribution shall be based on a ratio, the numerator of
which is the Participant's Compensation for the Plan Year, and the denominator
of which is the total Compensation for all Participants for that Plan Year.
4.06 EMPLOYER CONTRIBUTIONS. This Plan is intended to be a profit
----------------------
sharing plan to which Employer contributions shall be made without regard to
current or accumulated profits. All contributions by the Employer shall be paid
to the Trustee not later than the time prescribed by law for filing the federal
income tax return of the Employer, including any extensions which have been
granted for the filing of such return.
4.07 LIMITATION ON ALLOCATION TO PARTICIPANT'S ACCOUNT.
-------------------------------------------------
If an Employee does not and has not ever received an allocation of Annual
Additions, the amount of Annual Additions which the Committee may allocate under
this Plan on a Participant's behalf
- 34 -
<PAGE>
for a Limitation Year shall not exceed the Maximum Permissible Amount. Prior to
the determination of the Participant's actual Compensation for a Limitation
Year, the Committee may determine the Maximum Permissible Amount on the basis of
the Participant's estimated annual Compensation for such Limitation Year. The
Committee shall make this determination on a uniform and reasonable basis for
all Participants similarly situated. As soon as is administratively feasible
after the end of the Limitation Year, the Committee shall determine the Maximum
Permissible Amount for the Limitation Year on the basis of the Participant's
Compensation for the Limitation Year.
If, as a result of the Committee's estimation of the Participant's
Compensation, as a result of a forfeiture allocation, or as a result of a
reasonable error in determining the amount of Salary Reduction Contributions
that may be made with respect to any Participant under the limits of Section 415
of the Code, an Excess Amount exists, any Salary Reduction Contributions or
nondeductible voluntary contributions will be returned to the Participant. To
the extent an Excess Amount still exists, the Committee shall reduce any
Employer contributions and forfeitures to the participant's Accounts at the end
of the Limitation Year by the Excess Amount, and any remaining Excess Amount
shall be carried over to the next Limitation Year. If the participant is not
covered by the Plan as of the end of the Limitation Year, then the Excess Amount
will be allocated to the Accounts of all other
- 35 -
<PAGE>
Participants in the Plan for the Limitation Year before any other amounts are
allocated for such Limitation Year.
If an Employee is a Participant at any time in both a defined benefit
plan and a defined contribution plan maintained by the Employer, the sum of the
defined benefit plan fraction and the defined contribution plan fraction for any
Plan Year may not exceed 1.0.
The defined benefit plan fraction for any Plan Year is a fraction, the
numerator of which is the Participant's projected annual benefit under the plan
(determined at the close of the Plan Year) and the denominator of which is the
lesser of (1) 1.25 multiplied by the dollar limitation in effect for such Plan
Year under Section 415(b) (1) (A) of the Code as adjusted by Section 415(d) of
the Code; or (2) 1.4 multiplied by one-hundred percent (100%) of the
Participant's average monthly Compensation during the three consecutive years
when the total Compensation paid to him was highest, including any adjustment
under Section 415(b) of the Code. Notwithstanding the above, if the Participant
was a participant as of the first day of the first Limitation Year beginning
after December 31, 1986, in one or more defined benefit plans maintained by the
Employer which were in existence on May 6, 1986, the denominator of this
fraction will not be less than 125 percent of the sum of the annual benefits
under such plans which the Participant had accrued as of the close of the last
Limitation Year beginning before January 1, 1987, disregarding any changes in
the terms and conditions of the plan after May 5, 1986. The preceding
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<PAGE>
sentence applies only if the defined benefit plans individually and in the
aggregate satisfied the requirements of Section 415 for all Limitation Years
beginning before January 1, 1987.
The defined contribution plan fraction for any Plan Year is a
fraction, the numerator of which is the sum of the Annual Additions to the
Participant's Account Balance as of the close of the Plan Year, (including the
Annual Additions attributable to the Participant's nondeductible employee
contributions to all defined benefit plans, whether or not terminated,
maintained by the Employer, and the Annual Additions attributable to all welfare
benefit funds, as defined in Section 419(e) of the Code, and individual medical
accounts, as defined in Section 415(1)(2) of the Code, maintained by the
Employer) and the denominator of which is the sum of the applicable maximum
amounts of Annual Additions which could have been made under Section 415(c) of
the Code for such Plan Year and for all prior years of such Participant's
employment. If the employee was a Participant as of the end of the first day of
the first Limitation Year beginning after December 31, 1986, in one or more
defined contribution plans maintained by the Employer which were in existence on
May 6, 1986, the numerator of this fraction will be adjusted if the sum of this
fraction and the defined benefit fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment, an amount equal to the product of (1)
of the excess of the sum of the fractions over 1.0 times (2) the denominator of
this fraction, will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using
- 37 -
<PAGE>
the fractions as they would be computed as of the end of the last Limitation
Year beginning before January 1, 1987, and disregarding any changes in the terms
and conditions of the Plan made after May 5, 1986, but using the Section 415
limitation applicable to the first Limitation Year beginning on or after January
1, 1987.
The applicable maximum amount for any Plan Year shall be equal to the
lesser of (1) 1.25 multiplied by the dollar limitation in effect for such Plan
Year under Section 415(c)(1)(A) of the code; or (2) 1.4 multiplied by twenty-
five percent (25%) of the Participant's Compensation for such Plan Year. For
purposes of this limitation, all defined benefit plans of the Employer, whether
or not terminated, are to be treated as one defined benefit plan and all defined
contribution plans of the Employer, whether or not terminated, are to be treated
as one defined contribution plan.
The following definitions apply to this Section only:
(a) "Maximum Permissible Amount" - For a Limitation Year, the Maximum
Permissible Amount with respect to any Participant shall be the lesser
of (i) $30,000 (or, if greater, 25% of the dollar limitation in effect
under Section 415(b)(1)(A) of the Code), or (ii) twenty-five percent
(25%) of the Participant's Compensation for the Limitation Year.
(b) "Compensation" - Compensation as defined but excluding amounts
deferred pursuant to Article III or pursuant to a cafeteria plan as
defined by Section 125 of the Code.
(c) "Employer" - The Employer which adopts this Plan as well as any
entity which must be aggregated with the Employer pursuant to Sections
414(b), (c), (m), (n) or (o) of the Code.
(d) "Excess Amount" - The excess of the Participant's Annual
Additions credited to the Participant's Account for the Limitation
Year over the Maximum Permissible Amount. Any Excess Amount shall be
held in a suspense account
- 38 -
<PAGE>
which does not participate in the allocation of the Trust's investment
gains and losses. Excess Amounts may not be distributed to
Participants or former Participants, except as otherwise provided in
Section 4.07. Any Excess Amount which is allocated shall be deemed to
be an Annual Addition for the Limitation Year in which it is
allocated.
(e) "Limitation Year" - The Plan Year.
(f) "Projected Annual Benefit" - The annual retirement benefit
(adjusted if such benefit is expressed in a form other than a straight
life annuity or qualified joint and survivor annuity) to which the
Participant would be entitled under the terms of the plan assuming:
(1) the Participant will continue employment until normal
retirement age under the plan (or current age, if later), and
(2) the Participant's Compensation for the current Limitation
Year and all other relevant factors used to determine benefits
under the Plan will remain constant for all future Limitation
Years.
- 39 -
<PAGE>
ARTICLE V
PARTICIPANT CONTRIBUTIONS
5.01 VOLUNTARY CONTRIBUTIONS. A Participant may make nondeductible
-----------------------
employee contributions ("voluntary contributions") equal to any whole percentage
from one percent (1%) to ten percent (10%) of his Compensation for each payroll
period within such Plan Year. Any voluntary contributions made by a Participant
will be allocated to the Participant's Account Balance no later than 30 days
after the next following Accounting Date. The Committee shall not accept any
Participant's voluntary contributions which when aggregated with matching
contributions made on behalf of the Participant do not satisfy the
nondiscrimination test set forth in Section 4.02. For purposes of Section 4.02,
the Contribution Percentage of a Participant who is not allocated a matching
contribution and does not make a voluntary contribution shall be 0%. A
Participant's voluntary contribution will be considered to have been made in the
Plan Year during which it is contributed to the Trust. To the extent Section
4.02 is not satisfied, any Excess Aggregate Contributions must be returned to
the Participant pursuant to Section 4.03. The Committee shall return voluntary
contributions prior to returning any other Excess Aggregate Contributions. All
voluntary contributions made by a Participant and income accruing thereon shall
be one hundred percent (100%) vested. A separate account will be maintained to
reflect voluntary contributions and income accruing thereon. All voluntary
contributions made after December 31, 1986 and the income allocable
- 40 -
<PAGE>
thereto shall be treated as a separate contract for purposes of the distribution
rules under Section 72 of the Code. The Committee shall maintain records of
withdrawals, contributions, earnings and losses attributable to each contract.
Each Participant shall have the right to make withdrawals of his
voluntary contributions from the Voluntary Contribution Account, upon twenty-one
(21) days' prior written notice to the Plan Committee. No withdrawal shall be
for less than Two Hundred Fifty Dollars ($250) and only one withdrawal may be
made under this Section 5.01 in any Plan Year. All withdrawals shall be on the
basis of the value of the Participant's Voluntary Contribution Account as of the
Valuation Date that is at least twenty-one (21) days after the request for
withdrawal is made. For purposes of this Section 5.01, the Voluntary
Contribution Account shall be deemed to include the corresponding sub-accounts,
if any, of the Historic Account.
Withdrawals shall be made from pre-1987 voluntary contributions first.
After the contract attributable to pre-1987 voluntary contributions is depleted,
withdrawals can be made from the other contract.
5.02 ROLLOVER CONTRIBUTIONS. Any Employee, with the Committee's
----------------------
consent, may contribute cash to the Trust Fund, if the contribution is a
Rollover Contribution. For this purpose a Rollover Contribution means (a) an
Eligible Rollover Distribution within the meaning of Section 402(c)(4) of the
Code; (b) a contribution by an Employee of a distribution received from the
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<PAGE>
qualified plan of another employer provided the Employee makes the contribution
within 60 days of his receipt of a distribution which satisfied the requirements
of Section 402(a)(5) of the Code before January 1, 1993 and which satisfied
the requirements of Section 402(c)(l) after December 31, 1992; (c) a
contribution by an Employee under Section 408(d)(3) of the Code of the balance
in an individual retirement account or annuity which amount is attributable to a
prior rollover distribution which satisfied the requirements of Section
402(a)(5) of the Code before January 1, 1993 and which satisfied the
requirements of Section 402(c)(1) after December 31, 1992; or (d) a direct
transfer of the Employee's interest from the trustee of a qualified plan
maintained by another employer. Before accepting the Rollover Contribution, the
Committee may require the Employee to furnish satisfactory evidence that the
proposed transfer is in fact a Rollover Contribution that the Code permits a
Employee to make to a qualified plan. The Committee shall not accept any amount
from or attributable to any defined benefit plan or other plan which would
require the Plan to offer or to provide automatic survivor benefits under
Section 401(a)(11) of the Code. A Rollover Contribution is not an Annual
Addition under Section 1.03 or Section 4.07.
Rollover Contributions are 100% vested at all times and, effective
April 1, 1994, follow the distribution restrictions applicable to base
contributions.
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<PAGE>
ARTICLE VI
TERMINATION OF SERVICE
6.01 NORMAL RETIREMENT DATE. Upon reaching his Normal Retirement
----------------------
Date, a Participant shall be fully vested in his Account Balance. A Participant
who remains employed after reaching his Normal Retirement Date shall continue to
fully participate in this Plan. Upon termination of a Participant's employment
for any reason after Normal Retirement Date, the Committee shall direct the
Trustee to commence payment of the Participant's Account Balance to him (or to
his Beneficiary if the Participant is deceased), in accordance with the
provisions of Article VII no later than sixty (60) days after the close of the
Plan Year in which the Participant's employment terminates.
6.02 PARTICIPANT DISABILITY. A Participant shall be fully vested in
----------------------
his Account Balance if he is deemed disabled by the Committee. The Committee
shall direct the Trustee to commence payment of the Participant's Account
Balance to him in accordance with the provisions of Article VII no later than
sixty (60) days after the close of the Plan Year in which the Participant is
deemed disabled. The Plan shall consider a Participant disabled on the date the
Committee determines the Participant, because of a physical or mental
disability, will be unable to perform the duties of his customary position of
employment (or is unable to engage in any substantial gainful activity) for an
indefinite period which the Committee considers will be of long and continued
duration. The Committee may require a Participant to submit to a physical
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<PAGE>
examination in order to confirm disability. If the disabled Participant is a
member of the Committee, a disinterested third party shall be appointed by the
Committee to evaluate the Committee member's condition. The Committee shall
apply the provisions of this Section 6.02 in a nondiscriminatory, consistent and
uniform manner.
6.03 TERMINATION OF SERVICE PRIOR TO NORMAL RETIREMENT DATE. Upon
------------------------------------------------------
termination of a Participant's employment prior to Normal Retirement Date (for
any reason other than death or disability), the Committee shall direct the
Trustee to commence payment of the Participant's vested Account Balance to him
(or to his Beneficiary if the Participant is deceased), in accordance with the
provisions of Article VII, no later than sixty (60) days after the close of the
Plan Year in which the Participant's employment terminates.
6.04 VESTING - EMPLOYER CONTRIBUTIONS. Amounts credited to a
--------------------------------
Participant's Matching Contribution Account shall be one hundred percent (100%)
vested at all times. A Participant's Base Contribution Account and Historic
Account attributable to similar Employer base contribution amounts, shall be one
hundred percent (100%) vested upon reaching his Normal Retirement Date (if
employed by the Employer on or after that date), or if his employment with the
Employer terminates as a result of death or disability. If a Participant's
employment with the Employer terminates prior to his Normal Retirement Date for
any reason other than death or dis-
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<PAGE>
ability, then for each Year of Service he shall earn a Nonforfeitable percentage
of his Base Contribution Account as determined by the following vesting
schedule:
Percent of
Nonforfeitable
Years of Service Base Contribution Account
---------------- -------------------------
0 0%
1 10%
2 20%
3 30%
4 40%
5 60%
6 80%
7 or more 100%
Notwithstanding the above, the Account Balance of a Participant who as
of December 31, 1991 was a participant in the Danbury Pharmacal, Inc. Profit
Sharing Plan and who had at least three (3) Years of Service as of such date
shall be 50% vested upon completion of four (4) Years of Service.
For purposes of determining Years of Service under Section 6.04, the
Plan shall take into account all Years of Service an Employee completes with the
Employer or any entity which is required to be aggregated with the Employer
pursuant to Sections 414(b), (c), (m), (n) or (o) of the Code.
Solely for purposes of determining a Participant's Nonforfeitable
percentage of his Base Contribution Account and Historic Account which accrued
prior to a Forfeiture Break in Service, the Plan shall disregard any Years of
Service after the Participant first incurs a Forfeiture Break in Service. A
Participant incurs a Forfeiture Break in Service when he incurs five (5)
consecutive one-year Breaks in Service.
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<PAGE>
If a Participant who has no vested interest incurs a Break in Service,
the Committee shall disregard the Participant's pre-break Years of Service for
purposes of determining his vested interest in his post-break Account Balance if
the number of the Participant's aggregate one-year Breaks in Service equals or
exceeds the greater of five (5) or the number of the Participant's aggregate
Years of Service.
6.05 FORFEITURE AND REPAYMENT. If a Participant terminates employment
------------------------
before his interest in his Base Contribution Account or Historic Account are
fully vested, that portion which has not vested shall be forfeited as of the
last day of the Plan Year in which (i) he receives a distribution of the
Nonforfeitable portion of his Account Balance or (ii) he incurs a Forfeiture
Break in Service. If the value of the Participant's vested Base Contribution
Account or Historic Account is zero, the Participant shall be deemed to have
received a distribution of such vested Account Balance. If a Participant who
has received a distribution of the Nonforfeitable portion of his Account Balance
is rehired before he incurs a Forfeiture Break in Service, he may repay to the
Trustees an amount equal to the distribution amount. The Participant must make
repayment prior to the earlier of the date he would incur a Forfeiture Break in
Service after such distribution, or five (5) years after the date on which he is
reemployed. Such repayment shall be credited to his Account Balance and an
additional amount equal to the forfeited portion of his Base Contribution
Account and Historic Account will either be allocated
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<PAGE>
to the Participant's Account Balance out of current forfeitures or contributed
by the Employer as of the last day of that Plan Year. It shall be the duty of
the Employer to give timely notification to any rehired Employee if such
Employee is eligible to make a repayment, of his right to make such a repayment,
and of the consequences of not making such repayment. In the case of a
terminated Participant who is deemed to have received a distribution and is
rehired before he incurs a Forfeiture Break in Service, his forfeited Base
Contribution Account and Historic Account shall be restored upon reemployment.
In the case of a terminated Participant who does not receive a distribution of
the Nonforfeitable portion of his Account Balance and whose service resumes
after five (5) consecutive one-year Breaks in Service, the Nonforfeitable
Account Balance shall be maintained as a fully vested subaccount within his Base
Contribution Account and Historic Account.
Subject to any restoration allocation of a forfeited amount on behalf
of a Participant who repays a distribution as described above, and payment of
Plan expenses, the Employer shall use any remaining forfeiture amounts to reduce
any Employer contribution obligation.
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<PAGE>
ARTICLE VII
TIME AND METHOD OF PAYMENT OF BENEFITS
7.01 TIME OF PAYMENT OF ACCOUNT BALANCE. Unless the Participant
----------------------------------
elects in writing, if distribution has not yet commenced pursuant to Sections
6.02 or 6.03, the Committee shall direct the Trustee to commence distribution of
a Participant's Account Balance determined as of the Accounting Date coincident
with or preceding the event causing distribution no later than sixty (60) days
after the close of the Plan Year in which the later of the following events
occurs:
(a) The date the Participant reaches his Normal Retirement Date, or
(b) The date the Participant terminates service with the Employer.
The Committee shall, however, direct the Trustee to commence distribution no
later than the Participant's Required Beginning Date. The Required Beginning
Date is April 1 of the calendar year following the calendar year in which the
Participant attains age 70 1/2, notwithstanding the Participant's continued
employment; except that any Participant who attained age 70 1/2 before January
1, 1988, and who is not a five percent owner in the Plan Year in which he
attained age 66 1/2 or any later Plan Year, need not commence receiving payments
hereunder until April 1 of the year following the year in which he actually
retires.
7.02 DEFERRED DISTRIBUTION. A Participant who separates from service
---------------------
prior to attaining age 70 1/2 may request that the
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<PAGE>
Committee direct the Trustee to defer commencement of his distribution until his
Required Beginning Date.
7.03 FORMS OF PAYMENT. The Participant may elect one of the optional
----------------
forms of payment described herein. The election of such option must be in
writing, in such form as the Committee shall prescribe, signed by the
Participant and filed with the Committee during the 90 day period preceding the
Payment Starting Date. Any election may be revoked by written notice filed with
the Committee at least 30 days prior to the Participant's Payment Starting Date.
Such distribution may commence less than 30 days after the Participant is
advised that he may elect an immediate distribution, provided that:
(a) the Committee clearly informs the Participant that the Participant
has a right to a period of at least 30 days after receiving the notice
to consider the decision of whether or not to elect a distribution
(and, if applicable, a particular distribution option), and
(b) the Participant, after receiving the notice, affirmatively elects a
distribution.
The following optional forms of distribution will be available:
(a) a lump sum payment;
(b) installment payments over a period of five years; or
(c) installment payments over a period of ten years.
7.04 PAYMENT UPON DEATH. If distribution of the Participant's
------------------
Account Balance has commenced in accordance with a method selected pursuant to
Section 7.03 and the Participant dies before
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<PAGE>
his entire interest is distributed to him, the remaining portion of such
interest shall be distributed at least as rapidly as under the method of
distribution selected by the Participant as of his date of death.
If a Participant dies prior to the commencement of distribution of his
Account Balance, distribution of his Account Balance to his designated
Beneficiary shall be completed by December 31 of the calendar year containing
the fifth anniversary of his death, unless one of the following exceptions
apply:
(a) If the Participant's Account Balance is payable to or for the
benefit of a designated Beneficiary, it may be distributed over a
period not extending beyond the life expectancy of such Beneficiary,
provided such distribution commences no later than the December 31
following the close of the calendar year in which the Participant's
death occurred.
(b) In the event that the Participant's spouse is his designated
Beneficiary, distribution to the spouse must commence no later than the
later of the December 31 of the calendar year in which the deceased
Participant would have attained age 70 1/2 had he survived or the
December 31 following the close of the calendar year in which the
Participant's death occurred. If the surviving spouse dies before
distribution to such spouse has commenced, then the five year
distribution requirement of this Section shall apply as if the spouse
were the Participant.
If the Participant has not designated a method of distribution in
accordance with (a) or (b) above, the Participant's designated Beneficiary must
elect the method of distribution no later than the earlier of (1) December 31 of
the calendar year in which distributions would be required to begin under this
Section,
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<PAGE>
or (2) December 31 of the calendar year which contains the fifth anniversary of
the date of death of the Participant. If the Participant has no designated
Beneficiary, or if the designated Beneficiary does not elect a method of
distribution, distribution of the Participant's entire interest must be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
For purposes of this Section, any amount paid to a child of the
Participant will be treated as if it had been paid to the surviving spouse if
the amount becomes payable to the surviving spouse when the child reaches the
age of majority. For purposes of this Section only, distribution of a
Participant's interest is considered to begin on the Participant's Required
Beginning Date (or, if (b) above is applicable, the date distribution is
required to begin to the surviving spouse).
If the Trustee makes distribution in accordance with the exceptions in
either clause (a) or (b), the minimum distribution for a calendar year equals
the Participant's Nonforfeitable Account Balance as of the latest Accounting
Date preceding the beginning of the calendar year (adjusted by distributions
made after the Accounting Date but prior to the end of the calendar year),
divided by the designated Beneficiary's life expectancy without recalculation.
The Committee shall use the unisex life expectancy multiples under Treasury
regulation Section 1.72-9 for purposes of applying this paragraph. In construing
this Section 7.04, the method of distribution to the Participant's Beneficiary
must
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<PAGE>
satisfy Section 401(a)(9) of the Code and the applicable Treasury regulations.
7.05 MINIMUM DISTRIBUTION REQUIREMENTS. Notwithstanding anything else
---------------------------------
to the contrary herein, the Committee may not direct the Trustee to distribute
the Participant's Nonforfeitable Account Balance, nor may the Participant elect
to have the Trustee distribute his Account Balance over a period extending
beyond the Participant's life expectancy or over a period extending beyond the
joint life and last survivor life expectancy of the Participant and his
designated Beneficiary. The minimum distribution for a calendar year equals the
Participant's Nonforfeitable Account Balance as of the most recent Accounting
Date preceding the calendar year (adjusted for allocations of contributions,
forfeitures and distributions made after the Accounting Date but prior to the
end of the calendar year, if applicable), divided by the applicable life
expectancy or, if the Participant's spouse is not his designated Beneficiary,
the applicable divisor determined from the table set forth in Q&A-4 of Section
1.401(a)(9)-2 of the proposed regulations. The applicable life expectancy shall
be the life expectancy (or joint and last survivor expectancy) calculated using
the attained age of the Participant (or designated Beneficiary) as of the
Participant's (or designated Beneficiary's) birthday in the first distribution
calendar year reduced by one for each calendar year which elapsed since the date
life expectancy was first calculated. Applicable life expectancies will be
determined under the unisex life expectancy multiples under Treasury
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<PAGE>
regulation Section 1.72-9, and will not be recomputed. The minimum distribution
required for the Participant's first distribution calendar year must be made on
or before the Participant's Required Beginning Date. The minimum distribution
for other calendar years, including the minimum distribution for the
distribution calendar year in which the Participant's Required Beginning Date
occurs, must be made on or before December 31 of that distribution calendar
year. The first distribution calendar year is the calendar year immediately
preceding the calendar year which contains the Participant's Required Beginning
Date. All distributions under the Plan must be made in accordance with Section
401(a)(9) of the Code and the Treasury regulations thereunder. To the extent
provisions of this Plan are inconsistent with Section 401(a)(9) of the Code,
Section 401(a)(9) of the Code will override such provisions.
7.06 IMMEDIATE DISTRIBUTION. If the Participant's Nonforfeitable
----------------------
Account Balance is $3,500 or less, including voluntary contributions, if
applicable, the Committee will immediately distribute such amount to the
Participant without his consent upon his termination of employment. No
distribution may be made pursuant to this Section after the Payment Starting
Date without the consent of the Participant, and if applicable, the
Participant's spouse.
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<PAGE>
ARTICLE VIII
WITHDRAWALS
8.01 HARDSHIP WITHDRAWAL. If a Participant elects to withdraw all or
-------------------
any part of his Salary Reduction Contribution Account and his Qualified Non-
Elective Contribution Account prior to the date he attains age 59 1/2, such
withdrawal will require the consent of the Committee and such consent shall be
given only if, under uniform rules of application, the Committee determines that
the purpose of the withdrawal is to meet heavy and immediate financial needs of
the Participant, the amount of the withdrawal does not exceed such financial
needs, and the amount of the withdrawal is not reasonably available from the
other resources of the Participant. Permitted withdrawals include distributions
for (1) payment of college or graduate school tuition and related educational
fees for college or graduate school for the next 12 months for the Participant,
the Participant's spouse, children or dependents; (2) costs directly related to
the purchase of a principal residence for the Participant, excluding mortgage
payments; (3) payments necessary to prevent the Participant's eviction from, or
foreclosure on the mortgage of, the Participant's principal residence; and (4)
expenses for medical care, to the extent not covered by insurance, which have
either been previously incurred by the Participant, the Participant's spouse or
dependents or are necessary for the Participant, the Participant's spouse or
dependents to obtain medical care. Other withdrawals will be
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<PAGE>
approved by the Committee on the basis of uniform, nondiscriminatory standards.
The foregoing definition of hardship may be altered by the Committee,
as may the time, amount and manner of distributions under this Section, to the
extent required by the Code or applicable regulations. No distributions may be
made under this Section to the extent that such distributions would be allocable
to income allocable to Salary Reduction Contributions or income allocable to
Qualified Non-Elective Contributions. A hardship withdrawal must be at least
$250 and limited to only one in any Plan Year.
8.02 AGE 59 1/2 WITHDRAWALS. A Participant may withdraw any portion
----------------------
of his Salary Reduction Contribution Account and Matching Contribution Account
and his Qualified Non-Elective Contribution Account for any reason after
attainment of age 59 1/2. Only one such withdrawal will be permitted in any Plan
Year.
8.03 BASE CONTRIBUTION WITHDRAWALS. A Participant may elect to
-----------------------------
withdraw all of any part of his Nonforfeitable Base Contribution Account and,
effective April 1, 1994, his Rollover Contribution Account, prior to the date on
which he attains age 59 1/2, for the same reasons as those explained in Section
8.01. A Base Contribution Account withdrawal must be in the amount of at least
$250 and no more than one such withdrawal per Plan Year will be permitted.
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<PAGE>
ARTICLE IX
INVESTMENT OF CONTRIBUTIONS
9.01 FUNDING VEHICLE. The Employer has entered into a Trust
---------------
Agreement with the Trustee providing for the establishment of a Trust to which
all Salary Reduction Contributions, matching contributions, base contributions,
Qualified Non-Elective Contributions, rollover contributions, historic
contributions and voluntary contributions, if any, shall be contributed and from
which all benefits under the Plan shall be paid.
9.02 INVESTMENT FUNDS. The Trustee may, pursuant to the direction of
----------------
the Investment Committee, establish and maintain separate subfunds into which
the Participants may direct the investment of their Accounts.
9.03 INVESTMENT ELECTIONS. If the Trustee maintains separate subfunds
--------------------
pursuant to Section 9.02, each Participant's Account Balance attributable to
Salary Reduction Contributions, matching Contributions, rollover contributions
and voluntary contributions contributed on or after January 1, 1992 shall be
allocated to any or all of the subfunds, in multiples of five percent (5%), as
the Participant shall elect. Such election shall be made by the Participant in
writing and shall be filed with the Committee. A Participant's initial election
shall be made during the Enrollment Period preceding his entry into the Plan.
Separate accounts will be maintained reflecting the interest of each Participant
attributable to each subfund.
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<PAGE>
9.04 CHANGE IN INVESTMENT ELECTION. Any investment election made by
-----------------------------
the Participant shall be deemed to be a continuing election until changed. A
Participant may change his investment election with respect to future
contributions by filing an appropriate notice with the Committee at least twenty
one (21) days prior to the first pay period of the next succeeding calendar
quarter for which the election is to be effective. Such change shall be
effective only with respect to future amounts deferred from the Participant's
Compensation, future matching contributions, future rollover contributions and
future voluntary contributions if any. Effective July 1, 1994, a Participant may
change his investment elections on a daily basis.
9.05 TRANSFERS BETWEEN FUNDS. A Participant may direct the Trustee to
-----------------------
transfer designated amounts from one subfund to another. A Participant may not
direct any money in the Historic Account. A Participant may not direct that
amounts be transferred between the Funds more frequently than once during each
calendar quarter. Such transfers will be effective as of the first pay period
of the next calendar quarter. Effective July 1, 1994, a Participant may
transfer all amounts, including Historic Account amounts, on a daily basis.
9.06 INVESTMENT OF EARNINGS. All earnings (whether denominated
----------------------
income, capital gain or otherwise) from investments in each subfund shall be
reinvested in the same subfund.
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<PAGE>
9.07 LOAN FUNDS. Notwithstanding anything in this Article IX to the
----------
contrary, any Employee who borrows from the Trust Fund pursuant to Article X
will be treated as having directed the Trustee to allocate such portion of his
Account Balance as is equal to the borrowed amount to the Employee's Loan Fund.
The Loan Fund, and the promissory note executed by the Employee held therein,
remains a part of the Trust Fund, but to the extent of the loan outstanding at
any time, the borrowing Employee's Loan Fund alone shares in any interest paid
on the loan, and it alone bears any expense or loss it incurs in connection with
the loan. The Trustee may retain in an interest-bearing account any interest and
principal paid on the borrowing Employee's loan in the Loan Fund on behalf of
the borrowing Employee until the Trustee deems it appropriate to add the amount
paid to the Employee's Loan Fund under the Plan (plus interest, if any) back to
the Employee's Account Balance, at the same time reducing the amount treated as
having been allocated to the Employee's Loan Fund by the amount of principal
payments made with respect to the loan.
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<PAGE>
ARTICLE X
LOANS
10.01 LOAN APPLICATIONS. An Employee or a Qualified Beneficiary may
-----------------
make application to the Trustees to borrow from the Trust Fund, and the Trustees
may, in their sole discretion, permit such loan, provided that the reason for
the loan satisfied the conditions for hardship withdrawals of Section 8.01 and
further provided that such loans shall be made available to all such Employees
and Qualified Beneficiaries on a reasonably equivalent basis. Effective April
1, 1994, an Employee or a Qualified Beneficiary may make application to the
Trustees to borrow from the Trust Fund for any reason. A Qualified Beneficiary
for this purpose, is a designated Beneficiary who is a party-in-interest as
defined in Section 3(14) of the Employee Retirement Income Security Act of 1974,
as amended. The authority herein granted to the Trustees to approve loans from
the Trust Fund shall not be used as a means of distributing benefits before they
otherwise become due. A loan must be in the amount of at least two hundred fifty
dollars ($250), and will be made only in multiples of fifty dollars ($50). Only
one loan will be granted in any twelve consecutive month period, and no more
than two loans may be outstanding at any time.
10.02 LOAN TERMS AND CONDITIONS.
-------------------------
(a) The aggregate amount of all such loans to an Employee from this
Plan shall not, at the time any such loan is made, exceed the lesser of (i)
$50,000 reduced by the excess (if any) of the highest outstanding balance of
loans from the Plan during the one year period ending on the day before the date
on which such loan was made, over the outstanding balance of loans
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<PAGE>
from the Plan on the date on which such loan was made, or (ii) fifty percent
(50%) of the vested portion of the Employee's Account Balance at the time of the
making of such loan, or (iii) the Employee's Salary Reduction Contribution
Account. Effective January 1, 1994, the aggregate amount shall no longer be
restricted by condition (iii) above. For purposes of this limitation, all loans
from all qualified plans maintained by the Employer or by any entity which is
required to be aggregated with the Employer pursuant to Sections 414(b), (c),
(m) or (o) of the Code must be aggregated.
(b) Loans shall be made pursuant to notes approved by the Trustees
which shall bear a reasonable interest rate equal to the prevailing rate charged
by lenders for similar loans and shall specify the time and manner of repayment,
as determined by the Trustees.
(c) Loans shall not be made available to Employees who are Highly
Compensated Employees in an amount greater than the amount made available to
other Employees.
(d) An Employee must obtain the consent of his or her spouse, if any,
to use the Account Balance as security for the loan. For all loans, the Employee
and his spouse (if applicable) must consent in writing within the 90 day period
before the making of the loan, to the possible reduction in the Employee's
Account Balance if the terms of the loan are not properly fulfilled and fully
executed. The consent must be in writing, must acknowledge the effect of the
loan, and must be witnessed by a Plan representative or notary public. Such
consent shall thereafter be binding with respect to the consenting spouse or any
subsequent spouse with respect to that loan. A new consent shall be required if
the Account Balance is used for renegotiation, extension, renewal, or other
revision of the loan.
If a valid spousal consent has been obtained, then, notwithstanding any
other provisions of this Plan, the portion of the Employee's vested Account
Balance used as a security interest held by the Plan by reason of a loan
outstanding to the Employee shall be taken into account for purposes of
determining the amount of the Account Balance payable at the time of death or
distribution, but only if the reduction is used as repayment of the loan. If
less than 100% of the Employee's vested Account Balance (determined without
regard to the preceding sentence) is payable to the surviving spouse, then the
Account Balance shall be adjusted by first reducing the vested Account Balance
by the amount of the security used as repayment of the loan, and then
determining the benefit payable to the surviving spouse.
(e) All loans shall be adequately secured. A loan shall be deemed to
be adequately secured if the aggregate amount of all such loans to an Employee
does not exceed fifty percent (50%)
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<PAGE>
of the vested amount of the Employee's Account Balance at the time of the making
of such loan. If, at any time, the aggregate amount of outstanding loans to an
Employee does exceed that limitation, then the Trustees shall require the
Employee to repay the amount of principal balance due on such loans to an amount
not in excess of such limitation, or to adequately secure with collateral other
than the vested amount of the Employee's Account Balance the amount by which
such loans exceed the limitation. The Trustees shall have sole discretion to
determine the nature and amount of security required.
(f) The period for repayment of a loan issued pursuant to this
Section must, by the terms of the note, not exceed five (5) years.
Notwithstanding the above, if the purpose or use of the loan, as determined at
the time of issuance, is to acquire any dwelling unit which within a reasonable
time is to be used as the principal residence of the Employee, the period for
repayment of the loan may be extended to ten (10) years. Repayment of a loan
shall be made through payroll deduction, or if an Employee's employment
terminates, via personal check. Any loan shall, by its terms, require that
repayment of principal and interest be amortized at least quarterly over the
period of the loan on a substantially level basis.
(g) In the event the Employee's employment terminates, the loan shall
be accelerated and any amount due shall be paid from the Loan Fund, unless
otherwise satisfied by the Employee.
(h) In the event of default of an active Employee, foreclosure on the
note and attachment of security will not occur until a distributable event
occurs in the Plan. In the event of default of a terminated Employee, the
Trustee shall deduct the total amount of the loan outstanding and any interest
and other charges then due and owing from the terminated Employee's Loan Fund
securing the Loan.
(i) No loans will be made to any shareholder-employee or Owner-
Employee. For purposes of this requirement, a shareholder-employee means an
employee or officer of an electing small business (Subchapter S) corporation who
owns (or is considered as owning within the meaning of Section 318(a)(1) of
the Code), on any day during the taxable year of such corporation, more than 5%
of the outstanding stock of the corporation.
(j) Except to the extent otherwise prohibited by law, the deduction
of the loan shall be made from the Employee's Account Balance in the following
order of priority: Rollover Contribution Account, Salary Reduction Contribution
Account, Matching Contribution Account, Historic Account and Base Contribution
Account.
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ARTICLE XI
EMPLOYER ADMINISTRATIVE PROVISIONS
11.01 INFORMATION TO COMMITTEE. The Employer shall supply current
------------------------
information to the Committee as to the name, date of birth, date of employment,
annual Compensation, leaves of absence and date of termination of employment of
each Employee who is, or who will be eligible to become, a Participant under the
Plan, together with any other information which the Committee considers
necessary. The Employer's records as to the current information the Employer
furnishes to the Committee shall be conclusive as to all persons.
11.02 NO LIABILITY. The Employer assumes no obligation or
------------
responsibility to any of its Employees, Participants or Beneficiaries for any
act of, or failure to act, on the part of its Committee or the Trustees.
11.03 INDEMNITY OF COMMITTEE. The Employer indemnifies and holds
----------------------
harmless the members of the Committee, and each of them, from and against any
and all loss resulting from liability to which the Committee or members of the
Committee may be subjected by reason of any act or conduct (except willful
misconduct or gross negligence) in their official capacities in the
administration of this Plan or Trust or both, including all expenses reasonably
incurred in their defense in case the Employer fails to provide such defense.
The indemnification provisions of this Section 11.03
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<PAGE>
shall not relieve any Committee member from any liability he may have under the
Code or ERISA for breach of a fiduciary duty.
11.04 FACILITY OF PAYMENT. If satisfactory evidence is received that
-------------------
a person entitled to receive any benefits is physically incapable or mentally
incompetent to receive such payment and give a valid release therefor, and
another person or institution has been maintaining or has custody of such
person, payment of such benefit may be made to such person or institution and
the release of such person or institution shall be a valid and complete
discharge of any liability under this Plan.
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<PAGE>
ARTICLE XII
PARTICIPANT ADMINISTRATIVE PROVISIONS
12.01 BENEFICIARY DESIGNATION. The Beneficiary of a married
-----------------------
Participant shall be the surviving spouse. A married Participant may designate a
Beneficiary other than the spouse only if the Participant obtains the written
consent of the spouse to the alternate beneficiary, the spouse acknowledges the
effect of the consent and the spouse's signature is witnessed by a notary public
or Plan representative. Subject to the foregoing limitation, any Participant may
from time to time designate, in writing, any person or persons, contingently or
successively, to whom the Trustees shall pay his Account Balance in the event of
his death. The Committee shall prescribe the form for the written designation of
Beneficiary and, upon the Participant's filing the form with the Committee, it
effectively shall revoke all designations filed prior to that date by the same
Participant.
12.02 NO BENEFICIARY DESIGNATION. If a Participant fails to name a
--------------------------
Beneficiary, or if the Beneficiary named by a Participant predeceases him, then
the Trustees shall pay the Participant's Account Balance (subject to the
provisions of Articles VI and VII) in the following order of priority to:
(a) The Participant's surviving spouse:
(b) The Participant's surviving children, including adopted children,
in equal shares;
(c) The Participant's surviving parents, in equal shares; or
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<PAGE>
(d) The legal representative of the estate of the last to die of the
Participant and his Beneficiary.
The Committee shall direct the Trustees as to whom the Trustees shall
make payment under this Section 12.02.
12.03 PERSONAL DATA TO COMMITTEE. Each Participant and each
--------------------------
Beneficiary of a deceased Participant must furnish to the Committee such
evidence, data or information as the Committee considers necessary or desirable
for the purpose of administering the Plan. The provisions of this Plan are
effective for the benefit of each Participant upon the condition precedent that
each Participant will furnish promptly full, true and complete evidence, data
and information when requested by the Committee, provided that the Committee
shall advise each Participant of the effect of his failure to comply with its
request.
12.04 ADDRESS FOR NOTIFICATION. Each Participant and each Beneficiary
------------------------
of a deceased Participant shall file with the Committee from time to time, in
writing, his post office address and any change of post office address. Any
communication, statement or notice addressed to a Participant or Beneficiary at
his last post office address filed with the Committee, or as shown on the
records of the Employer, shall bind the Participant, or Beneficiary, for all
purposes of this Plan.
12.05 ASSIGNMENT OR ALIENATION. Neither a Participant nor a
------------------------
Beneficiary shall anticipate, assign or alienate (either at law or in equity)
any benefit provided under the Plan, and the
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<PAGE>
Trustees shall not recognize any such anticipation, assignment or alienation.
Furthermore, a benefit under the Plan is not subject to attachment, garnishment,
levy, execution or other legal or equitable process. The Committee shall,
however, abide by any Qualified Domestic Relations Order as defined in Section
414(p) of the Code and Section 206(d)(3) of ERISA which is served upon the Plan.
Procedures relating to any Qualified Domestic Relations Order received by the
Committee shall be administered pursuant to Exhibit A, attached to this Plan
document.
12.06 NOTICE OF CHANGE IN TERMS. The Committee, within the time
-------------------------
prescribed by ERISA and the applicable regulations thereunder, shall furnish all
Participants and Beneficiaries with a summary description of any material
amendment to the Plan or notice of discontinuance of the Plan and all other
information required by ERISA to be furnished without charge.
12.07 INFORMATION AVAILABLE. Any Participant in the Plan or any
---------------------
Beneficiary may examine copies of the Plan description, latest annual report,
any bargaining agreement, this Plan and Trust, as well as any contract or other
instrument under which the Plan was established or is operated. The Committee
will maintain all of the items listed in this Section 12.07 in its office, or in
such other place or places as it may designate from time to time in order to
comply with the regulations issued under ERISA, for examination during
reasonable business hours. Upon the written request of a Participant or
Beneficiary the Committee shall furnish
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<PAGE>
him with a copy of any item listed in this Section 12.07. The Committee may
make a reasonable charge to the requesting person for the copy so furnished.
12.08 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. The Committee shall
---------------------------------------
provide adequate notice in writing to any Participant or to any Beneficiary
("Claimant") whose claim for benefits under the Plan the Committee has denied.
The Committee's notice to the Claimant shall set forth:
(a) The specific reason for the denial;
(b) Specific references to pertinent Plan provisions on which the
Committee based its denial;
(c) A description of any additional material and information that is
needed; and
(d) That any appeal the Claimant wishes to make of the adverse
determination must be in writing to the Committee within seventy-five
(75) days after receipt of the Committee's notice of denial of
benefits. The Committee's notice must further advise the Claimant that
his failure to appeal the action to the Committee in writing within the
seventy-five (75) day period will render the Committee's determination
final, binding and conclusive.
If the Claimant should appeal to the Committee, he, or his duly
authorized representative, may submit, in writing, whatever issues and comments
he or his duly authorized representative feels are pertinent. The Claimant,
or his duly authorized representative, may review pertinent Plan documents. The
Committee shall re-examine all facts to the appeal and make a final
determination as to whether the denial of benefits is justified under the
circumstances. The Committee shall advise the Claimant of its decision within
sixty (60) days of the Claimant's written request
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<PAGE>
for review, unless special circumstances (such as a hearing) would make the
rendering of a decision within the sixty (60) day limit unfeasible, but in no
event shall the Committee render a decision respecting a denial for a claim for
benefits later than one hundred twenty (120) days after its receipt of a request
for review.
The Committee's notice of denial of benefits shall identify the name
and address of each member of the Committee to whom the Claimant may forward his
appeal.
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<PAGE>
ARTICLE XIII
COMMITTEE DUTIES WITH RESPECT TO PARTICIPANT'S ACCOUNT
13.01 MEMBERS' COMPENSATION AND EXPENSES. The Company shall appoint a
----------------------------------
Committee to administer the Plan, and an Investment Committee to manage the
assets of the Plan, the members of which may or may not be Participants in the
Plan. The members of the Committee and the Investment Committee shall serve
without compensation for services as such, but the Employer shall pay all
expenses of the Committee and the Investment Committee, including the expense
for any bond required under ERISA.
13.02 TERM. Each member of the Committee and the Investment
----
Committee shall serve until his successor is appointed.
13.03 POWERS. In case of a vacancy in the membership of the Committee
------
and Investment Committee, the remaining members of the Committee may exercise
any and all of the powers, authority, duties and discretion conferred upon the
Committee and Investment Committee pending the filling of the vacancy.
13.04 GENERAL. The Committee shall have the following powers and
-------
duties:
(a) To select a Secretary, who need not be a member of the Committee;
(b) To determine the rights of eligibility of an Employee to
participate in the Plan;
(c) To adopt rules of procedure and regulations necessary for the
proper and efficient administration of the Plan;
(d) To enforce the terms of the Plan and the rules and regulations it
adopts;
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(e) To direct the Trustee as respects the crediting and distribution of
the Trust;
(f) To review and render decisions respecting a claim for (or denial of
a claim for) a benefit under the Plan;
(g) To furnish the Employer with information which the Employer may
require for tax or other purposes;
(h) To engage the services of agents whom it may deem advisable to
assist it with the performance of its duties; and
(i) To exercise broad discretionary authority to determine Employees'
and Participants' eligibility for benefits as well as to construe the
terms of the Plan.
The Committee shall exercise all of its powers, duties and discretion
under the Plan in a uniform and nondiscriminatory manner.
13.05 MANNER OF ACTION. The decision of a majority of the members
----------------
appointed and qualified shall control.
13.06 DELEGATION OF FIDUCIARY DUTIES. In accordance with Section
------------------------------
405(c) of ERISA, the Committee is authorized to delegate to specific persons or
officers any of its fiduciary responsibilities. Without limiting the foregoing
grant of authority, the Committee is specifically authorized to delegate the
duties assigned to it under Section 13.04(b)-(i) hereof. Any delegation of
fiduciary duty pursuant to this Section must be made in writing and agreed to by
a majority of the Committee's members. Such delegation shall not be effective
unless and until it is consented to in writing by the persons appointed to
perform the fiduciary duty being delegated.
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<PAGE>
13.07 INDIVIDUAL STATEMENT. As soon as practicable after each calendar
--------------------
quarter of the Plan Year but within the time prescribed by ERISA and the
regulations under ERISA, the Committee will deliver to each Participant a
statement reflecting the condition of his Account Balance in the Trust as of
that date and such other information ERISA requires be furnished to the
Participant or Beneficiary. No Participant, except a member of the Committee,
shall have the right to inspect the records reflecting the Account Balance of
any other Participant.
13.08 LOAN POLICY. This Section 13.08 specifically authorizes the
-----------
Trustee of the Plan to establish an Employee loan program and to make loans on a
nondiscriminatory basis in accordance with this Plan and the loan policy
established by the Committee. The loan policy must be a written document and
must include the identity of the person authorized to administer the Employee
loan program, a procedure for applying for a loan, the criteria for approving or
denying a loan, the limitations, if any, on the types and amounts of loans
available, the procedure for determining a reasonable rate of interest, the
types of collateral which may secure a loan, and the events constituting default
and the steps the Plan will take to preserve Plan assets in the event of
default.
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<PAGE>
ARTICLE XIV
FIDUCIARY DUTIES AND RESPONSIBILITIES
14.01 GENERAL FIDUCIARY STANDARD OF CONDUCT. Each Fiduciary of the
-------------------------------------
Plan shall discharge his duties hereunder solely in the interest of the
Participants and their Beneficiaries and for the exclusive purpose of providing
benefits to Participants and their Beneficiaries and defraying reasonable
expenses of administering the Plan. Each Fiduciary shall act with the care,
skill, prudence and diligence under the circumstances that a prudent man acting
in a like capacity and familiar with such matters would use in conducting an
enterprise of like character and with like aims, in accordance with the
documents and instruments governing this Plan, insofar as such documents and
instruments are consistent with this standard.
14.02 SERVICE IN MULTIPLE CAPACITIES. Any person or group of persons
------------------------------
may serve in more than one Fiduciary capacity with respect to this Plan.
14.03 LIMITATIONS ON FIDUCIARY LIABILITY. Nothing in this Plan shall
----------------------------------
be construed to prevent any Fiduciary from receiving any benefit to which he may
be entitled as a Participant or Beneficiary under this Plan, so long as the
benefit is computed and paid on a basis which is consistent with the terms of
this Plan as applied to all other Participants and Beneficiaries. This Plan
shall not be interpreted to prevent any Fiduciary from receiving any reasonable
compensation for services rendered, or for the
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<PAGE>
reimbursement of expenses properly and actually incurred in the performance of
his duties with the Plan; except that no person so serving who already receives
full-time pay from the Employer shall receive compensation from this Plan,
except for reimbursement of expenses properly and actually incurred.
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<PAGE>
ARTICLE XV
TOP HEAVY RULES
15.01 MINIMUM EMPLOYER CONTRIBUTION. If this Plan becomes top heavy,
-----------------------------
the Plan guarantees a minimum contribution of three percent (3%) of Compensation
for each Non-Key Employee who is a Participant employed by the Employer on the
Accounting Date of the Plan Year. For purposes of determining whether the
minimum contribution is satisfied, Salary Reduction Contributions and matching
contributions shall be disregarded. The minimum contribution shall not be
forfeited under Sections 411(a)(3)(B) or (D) of the Code. The Plan satisfies
the guaranteed minimum contribution for the Non-Key Employee if the Non-Key
Employee's contribution rate is at least equal to the minimum contribution.
Notwithstanding the above, if the contribution rate for the Key
Employee with the highest contribution rate is less than three percent (3%), the
guaranteed minimum contribution for Non-Key Employees shall equal the highest
contribution rate received by a Key Employee (provided that the Employer does
not also sponsor a defined benefit plan which has designated this Plan to
provide the top heavy minimum). The contribution rate is the sum of Employer
contributions (not including Employer contributions to Social Security) and
forfeitures allocated to the Participant's account for the Plan Year divided by
his Compensation for the Plan Year. To determine the contribution rate, the
Committee shall consider all qualified defined contribution plans maintained by
the Employer as a single plan.
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<PAGE>
15.02 ADDITIONAL CONTRIBUTION. If the contribution rate for the Plan
-----------------------
Year with respect to a Non-Key Employee described in Section 15.01 is less than
the minimum contribution, the Employer will increase its contribution for such
Employee to the extent necessary so that his contribution rate for the Plan Year
will equal the guaranteed minimum contribution. The Committee shall allocate
the additional contribution to the Base Contribution Account of the Non-Key
Employee for whom the Employer makes the contribution.
15.03 DETERMINATION OF TOP HEAVY STATUS. The Plan is top heavy for a
---------------------------------
Plan Year if the top heavy ratio as of the Determination Date exceeds sixty
percent (60%). The top heavy ratio is a fraction, the numerator of which is the
sum of the present value of the Account Balances of all Key Employees as of the
Determination Date and distributions made within the five (5) Plan Year period
ending on the Determination Date, and the denominator of which is a similar sum
determined for all Employees. The Committee shall calculate the top heavy ratio
without regard to the Account Balance attributable to any Non-Key Employee who
was formerly a Key Employee. The Committee shall calculate the top heavy ratio,
including the extent to which it must take into account contributions not made
as of the Determination Date, distributions, rollovers and transfers, in
accordance with Section 416 of the Code and the regulations thereunder.
If the Employer maintains other qualified plans (including a simplified
employee pension plan) this Plan is top heavy only if
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it is part of the Required Aggregation Group, and the top heavy ratio for both
the Required Aggregation Group and the Permissive Aggregation Group exceeds
sixty percent (60%). The Committee will calculate the top heavy ratio in the
same manner as required by the first paragraph of this Section 15.03, taking
into account all plans within the aggregation group. The Committee shall
calculate the present value of accrued benefits and the other amounts the
Committee must take into account under defined benefit plans or simplified
employee pension plans included within the group in accordance with the terms of
those plans, Section 416 of the Code and the regulations thereunder. The
Committee shall calculate the top heavy ratio with reference to the
Determination Dates that fall within the same calendar year.
15.04 LIMITATION ON ALLOCATIONS. If, during any Limitation Year, the
-------------------------
Participant is a participant in both a defined contribution plan and a defined
benefit plan which are a part of a top heavy group, the Committee shall apply
the limitations of Article IV to such Participant by substituting "1.0" for
"1.25" each place it appears in Section 4.07. This Section 15.04 shall not apply
if:
(a) The Plan would satisfy Section 15.01 if the guaranteed minimum
contribution was one percent (1%) greater than the guaranteed minimum
contribution the Committee otherwise would calculate; and
(b) The top heavy ratio does not exceed ninety percent (90%).
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<PAGE>
15.05 TOP HEAVY VESTING SCHEDULE. Notwithstanding the vesting
--------------------------
schedule set forth in Section 6.04, if the Plan becomes top heavy as defined in
Section 15.03, for any top heavy Plan Year, a Participant shall earn a
Nonforfeitable percentage of his Base Contribution Account as determined by the
following vesting schedule:
Percent of
Nonforfeitable
Years of Service Base Contribution Account
---------------- -------------------------
0 0%
1 10%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
This Section 15.05 does not apply to any Participant who does not have an Hour
of Service after the Plan has initially become top heavy. Therefore, such
Participant's Nonforfeitable percentage of his Base Contribution Account shall
be determined without regard to this Section 15.05.
If the Plan subsequently ceases to be top heavy, the vesting schedule
set forth in Section 6.04 shall again become applicable to all benefits accruing
thereafter. Notwithstanding the foregoing, any Participant who has three (3) or
more Years of Service when the Plan ceases to be top heavy may elect to have the
vesting schedule set forth in this Section 15.05 continue to apply to benefits
accruing in the future. The Participant's election shall be made in accordance
with Section 16.02. In no event will the change from the vesting schedule set
forth in this Section
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<PAGE>
15.05 to the vesting schedule set forth in Section 6.04 operate to reduce the
Nonforfeitable benefits the Participant accrued while the Plan was in top heavy
status.
15.06 DEFINITIONS. For purposes of applying the provisions of this
-----------
Article XV:
(a) "Key Employee" shall mean, as of any Determination Date, any
Employee or former Employee, or any Beneficiary thereof, who, at any
time during the Plan Year (which includes the Determination Date) or
during the preceding four Plan Years,
(i) is an officer of the Employer who has annual Compensation in
excess of 50% of the amount in effect under Section 415(b)(1)(A)
of the Code;
(ii) one of the ten Employees owning the largest interests in the
Employer with annual Compensation in excess of the dollar limit on
Annual Additions to a defined contribution plan under Section 415
of the Code;
(iii) a more than five percent (5%) owner of the Employer; or
(iv) a more than one percent (1%) owner of the Employer who has
annual Compensation of more than $150,000.
The constructive ownership rules of Section 318 of the Code will apply
to determine ownership in the Employer. The Committee will make the
determination of who is a Key Employee in accordance with Section
416(i)(1) of the Code and the regulations thereunder.
(b) "Non-Key Employee" is an Employee who does not meet the definition
of Key Employee.
(c) "Required Aggregation Group" means: (1) Each qualified plan of the
Employer in which at least one Key Employee participates; and (2) Any
other qualified plan of the Employer which enables a plan described in
(1) to meet the requirements of Sections 401(a)(4) or 410 of the Code.
Any terminated plan that covered a Key Employee and was maintained
within the five year period ending on the
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<PAGE>
Determination Date shall also be included in the Required Aggregation
Group.
(d) "Permissive Aggregation Group" is the Required Aggregation Group
plus any other qualified plans maintained by the Employer, but only if
such group would satisfy in the aggregate the requirements of Sections
401(a)(4) and 410 of the Code. The Committee shall determine which
plan to take into account in determining the Permissive Aggregation
Group.
(e) "Determination Date" for any Plan Year is the Accounting Date of
the preceding Plan Year or, in the case of the first Plan Year of the
Plan, the Accounting Date of that Plan Year.
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ARTICLE XVI
EXCLUSIVE BENEFIT, AMENDMENT AND TERMINATION
16.01 EXCLUSIVE BENEFIT. The Employer shall have no beneficial
-----------------
interest in any asset of the Trust and no part of any asset in the Trust shall
ever revert to or be repaid to an Employer, either directly or indirectly; nor
prior to the satisfaction of all liabilities with respect to the Participants
and their Beneficiaries under the Plan, shall any part of the corpus or income
of the Trust Fund, or any asset of the Trust, be used for, or diverted to,
purposes other than for the exclusive benefit of the Participants or their
Beneficiaries. Notwithstanding anything else herein to the contrary, expenses of
administering the Plan, to the extent not paid by the Employer or otherwise, may
be satisfied by payment from the Trust Fund.
Notwithstanding the foregoing, if the Commissioner of Internal Revenue,
upon the Employer's timely request for initial approval of this Plan, determines
that the Trust created under the Plan is not a qualified trust exempt from
Federal income tax, then the Trustees, upon written notice from the
Employer, shall return the Employer's contributions and increments attributable
to the contributions to the Employer. The Trustees must make the return of the
Employer contribution under this Section 16.01 within one (1) year of a final
disposition of the Employer's request for initial approval of the Plan. The
Plan and Trust shall terminate upon the Trustees' return of the Employer's
contributions.
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<PAGE>
The Employer contributes to this Plan on the condition that its
contribution is deductible under Section 404 of the Code. If the Employer's
contribution is disallowed as a deduction, or if the Employer's contribution is
attributable to a mistake of fact, the Trustee shall return to the Employer the
amount contributed over, as relevant, the amount that would have been
contributed had no mistake of fact occurred, or the amount of the deductible
contribution. Earnings attributable to the excess contribution may not be
returned to the Employer, but losses attributable thereto must reduce the amount
returned. The excess contributions must be returned within one year of the
disallowance or mistake. Further, if the amount returned to the Employer would
cause any Participant's Account Balance to be reduced to less than the balance
which would have been in his Account had the mistaken or nondeductible amount
not been contributed, then the amount to be returned to the Employer must be
limited so as to avoid the reduction. The Trustee may require the Employer to
furnish it with whatever evidence the Trustee deems necessary to enable the
Trustee to confirm that the amount the Employer has demanded be returned as
properly returnable under the Code and ERISA.
16.02 AMENDMENT BY COMPANY. The Company, through duly authorized
--------------------
action of its Board of Directors, shall have the right at any time and from time
to time to amend this Agreement in any manner it deems necessary or advisable
including any amendment in order to qualify (or maintain qualification of) this
Plan and the Trust created under it under the appropriate provisions of the
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<PAGE>
Code. An amendment to the Plan's vesting shall not decrease any Participant's
Nonforfeitable Account Balance as of the later of the date the amendment is
adopted or becomes effective. If the Plan's vesting schedule is amended, each
Participant with three (3) or more Years of Service may elect to have the
vesting schedule applicable immediately prior to the amendment continue to
apply. The period during which such election may be made shall commence with the
date the amendment is adopted or deemed to be made and shall end on the latest
of:
(1) 60 days after the amendment is adopted;
(2) 60 days after the amendment becomes effective; or
(3) 60 days after the Participant is issued written notice of the
amendment by the Employer or Committee.
No amendment shall authorize or permit any of the Trust Fund (other
than the part required to pay taxes and administrative expenses) to be used for
or diverted to purposes other than for the exclusive benefit of the Participants
or their Beneficiaries or estates. No amendment shall cause or permit any
portion of the Trust Fund to revert to or become the property of the Employer;
and the Company shall not make any amendment which affects the rights, duties or
responsibilities of the Trustees or the Committee without the written consent of
the affected Trustee or the affected member of the Committee. No amendment shall
decrease a Participant's Account Balance or eliminate an optional form of
benefit to which the Participant is entitled as a result of service prior to the
amendment. The Company shall make all amendments in writing. Each
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amendment shall state the date to which it is either retroactively or
prospectively effective.
16.03 DISCONTINUANCE. The Company, through duly authorized action of
--------------
its Board of Directors, shall have the right, at any time, to suspend or
discontinue its contributions under the Plan, and to terminate, at any time,
this Plan. Upon complete discontinuance of contributions, the Account Balance of
each affected Participant shall be one hundred (100%) percent Nonforfeitable.
16.04 FULL VESTING ON TERMINATION. Notwithstanding any other
---------------------------
provision of this Plan to the contrary, upon either full or partial termination
of the Plan, an affected Participant's right to his Account Balance shall be one
hundred percent (100%) Nonforfeitable. The Plan shall terminate upon the first
to occur of the following:
(a) The date terminated by action of the Employer provided the Employer
gives the Trustee thirty (30) days' prior notice of termination;
(b) The date the Employer shall be judicially declared bankrupt or
insolvent; or
(c) The dissolution, merger, consolidation or reorganization of the
Employer or the sale by the Employer of all or substantially all of its
assets, unless the successor or purchaser makes provision to continue
the Plan, in which event the successor or purchaser shall substitute
itself as the Employer under this Plan.
16.05 MERGER. The Trustee shall not consent to, or be a party to, any
------
merger or consolidation with another plan, or to a transfer of assets or
liabilities to another plan, unless
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immediately after the merger, consolidation or transfer, the surviving plan
provides each Participant a benefit equal to or greater than the benefit each
Participant would have received had the Plan terminated immediately before the
merger or consolidation or transfer. The Trustee possesses the specific
authority to enter into merger agreements or direct transfer of assets
agreements with the trustees of other retirement plans described in Section
401(a) of the Code and to accept the direct transfer of plan assets, or to
transfer plan assets, as a party to any such agreement.
16.06 DIRECT ROLLOVERS. This Section applies to distributions made on
----------------
or after January 1, 1993. Notwithstanding any provision of the plan to the
contrary that would otherwise limit a distributee's election under this Section,
a distributee may elect, at the time and in the manner prescribed by the
Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.
Definitions:
(a) Eligible rollover distributions: An eligible rollover
distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an eligible
rollover distribution does not include: any distribution that is
one of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under
Section 401(a)(9) of the Code; and
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the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(b) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Section 408(a) of the
Code, an individual retirement annuity the Code, an annuity plan
described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the
distributee's eligible rollover distribution. However, in the
case of an eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity.
(c) Distributee: A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's spouse
or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(p) of the
Code, are distributees with regard to the interest of the spouse
or former spouse.
(d) Direct rollover: A direct rollover is a payment by the plan to
the eligible retirement plan specified by the distributee.
16.07 EMPLOYMENT NOT GUARANTEED. Nothing contained in this Plan or
-------------------------
any modification or amendment to the Plan, or in the creation of any Salary
Reduction Contribution Account, or the payment of any benefit, shall give any
Participant the right to continued employment, or any legal or equitable right
against the Employer, an Employee of the Employer, the Trustee, or their agents
or employees, except as expressly provided by the Plan, the Trust, ERISA or the
Code or by a separate agreement.
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<PAGE>
16.08 STATE LAW. New Jersey law shall determine all questions arising
---------
with respect to the provisions of this Plan, except to the extent Federal
statute supersedes New Jersey law.
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<PAGE>
EXHIBIT A
---------
PROCEDURES REGARDING QUALIFIED DOMESTIC RELATIONS ORDERS
Section 1. General
-------
The Plan shall pay benefits to the person or persons named in a
Qualified Domestic Relations Order, as defined in Section 2 below, in the amount
and to the extent provided in such order. Payment of benefits pursuant to a
Qualified Domestic Relations Order shall not be considered a violation of the
prohibition against assignment and alienation contained in Section 12.05 of the
Plan.
Section 2. Qualified Domestic Relations Orders
-----------------------------------
In order to constitute a Qualified Domestic Relations Order, the order
must meet all of the following requirements:
(a) The order must create or recognize the existence of the right
of an Alternate Payee, as defined in Section 8, to, or must
assign to an Alternate Payee the right to, receive all or a
portion of the benefits payable under the Plan with respect to
a Participant.
(b) The order must constitute a judgment, decree or order
(including approval of a property settlement agreement) which
relates to the provision of child support, alimony payments or
property rights to a spouse, former spouse, child or other
dependent of a Participant,
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<PAGE>
made pursuant to a state domestic relations law (including a
community property law).
(c) The order must specify the following information:
(1) the name and last known mailing address (if any) of the
Participant and the name and last known mailing address
of each Alternate Payee covered by the order,
(2) the amount or percentage of the Participant's benefits
to be paid by the Plan to each Alternate Payee, or the
manner in which such amount or percentage shall be
determined,
(3) the number of payments or periods to which such order
applies, and
(4) the name of each Plan to which the order applies.
(d) The order must not require the Plan to provide any type or
form of benefit, or any option, not otherwise provided under
the terms of this Plan, nor require the Plan to provide
increased benefits (determined on the basis of actuarial
value) nor require the payment of benefits to an Alternate
Payee which are required to be paid to an Alternate Payee
under a previous Qualified Domestic Relations Order.
Notwithstanding the foregoing, the order may require the
payment of benefits to an Alternate Payee while the
Participant is still employed; provided, however, payments are
not required to be made before the earlier
- 88 -
<PAGE>
of (i) the date on which the Participant is entitled to a
distribution under the Plan or (ii) the later of age 50 or the
earliest date on which the Participant would begin receiving
benefits under the Plan if he separated from service. Payments
may be required in any form in which such benefits may be paid
under the Plan to the Participant, except in the form of a
joint and survivor annuity with respect to the Alternate Payee
and his or her subsequent spouse.
Section 3. Payments During Participant's Employment
-----------------------------------------
In the event the Qualified Domestic Relations Order requires payments
to be made to the Alternate Payee while the Participant is employed, payments
shall be computed as if the Participant had retired on the date on which
payments under the order are to begin.
Section 4. Procedures
----------
Upon receipt of any domestic relations order by the Plan, the Committee
shall take the following steps:
(a) The Committee shall promptly notify the Participant and any
Alternate Payee named in such order of the receipt of a
domestic relations order and the Plan's procedures for
determining whether such order is a Qualified
- 89 -
<PAGE>
Domestic Relations Order, as defined in Section 2 above. The
notice to the Alternate Payee shall include a statement that
he or she is entitled to designate a representative for
receipt of copies of any notices that are sent to the
Alternate Payee with respect to a domestic relations order.
The notice shall be sent to the Participant and Alternate
Payee at the address specified in the order, or if none is
specified, at the address of the Participant or Alternate
Payee last known to the Committee.
(b) Within a reasonable period of time after receipt of such
order, the Committee shall determine whether such order is a
Qualified Domestic Relations Order, in accordance with the
provisions of Section 2 above, and notify the Participant and
each Alternate Payee of such determination. In making its
determination, the Committee may seek the advice of legal
counsel as to whether the order meets the requirements of
Section 2 here-of and may, but shall not be required to,
invite written or oral arguments by the Participant and the
Alternate Payee or their Representatives.
- 90 -
<PAGE>
(c) Pending the Committee's determination of whether a domestic
relations order is a Qualified Domestic Relations Order, if
appropriate, the Committee shall instruct the Trustee to
segregate in a separate account the amounts which would be
payable to the Alternate Payee during such period if the
order is a Qualified Domestic Relations Order. If within 18
months from the date on which the first payment would be
required to be made under the Qualified Domestic Relation
Order, it is determined that the order is a Qualified
Domestic Relations Order, the Plan shall pay the segregated
amounts, including any interest thereon, to the person or
persons entitled thereto pursuant to the terms of the
Qualified Domestic Relations Order. If it is determined that
an order is not a Qualified Domestic Relations Order or the
issue as to whether an order is a Qualified Domestic
Relations Order is not resolved within the aforesaid 18 month
period, the Plan shall pay the segregated amounts to the
person or persons entitled to such amounts in the absence of
the order. If it is subsequently determined that an order is
a Qualified Domestic Relations Order, the Plan
- 91 -
<PAGE>
shall pay benefits subsequent to the determination in
accordance with the order. If action is taken in accordance
with this subparagraph, the Plan's obligation to the
Participant and each Alternate Payee shall be discharged to
the extent of any payment made pursuant to the Qualified
Domestic Relations Order.
Section 5. Relationship to Other Plan Provisions
-------------------------------------
To the extent provided in the Qualified Domestic Relations Order, the
Plan shall treat the former spouse of a Participant as the spouse of the
Participant for purposes of the Plan to the extent, and only of the extent, a
spouse has rights pursuant to Sections 205 of ERISA and Sections 401(a)(ll) and
417 of the Code and any spouse of the Participant shall not be treated as a
spouse of the Participant for such purposes.
Section 6. Beneficiary Status
------------------
Each Alternate Payee shall be treated as a Beneficiary under the Plan,
with all the rights accorded to other Beneficiaries under the terms hereof and
as otherwise provided by law.
Section 7. Effective Date
--------------
The above provisions are effective for Qualified Domestic Relations
Orders entered on or after January 1, 1985, except that, in the case of a
domestic relations order entered before January 1, 1985, the Committee (i) may
treat such order as a Qualified
- 92 -
<PAGE>
Domestic Relations Order even though such order fails to meet the requirements
of Section 2 above and (ii) must treat such order as a Qualified Domestic
Relations Order if benefits are being paid pursuant to such order on January 1,
1985.
Section 8. Definition
----------
"Alternate Payee" means the Participant's spouse, former spouse, child
or other dependent of the Participant who is recognized as having a right to
receive all, or a portion of, the benefits payable under the Plan with respect
to that Participant. All other capitalized terms shall have the meanings set
forth in Article 1 of The Retirement Plan of Schein Pharmaceutical, Inc. &
Affiliates.
- 93 -
<PAGE>
AMENDMENT NO. 4 TO THE
RETIREMENT PLAN OF SCHEIN PHARMACEUTICAL, INC.
1. Section 6.04 of Article VI, first paragraph, is hereby amended by deleting
the second and third sentence thereof and inserting in its place the following:
A participant's Base Contribution Account and Historic Account attributable to
similar Employer base contribution amounts, shall be one hundred percent (100%)
vested upon:
a) reaching his Normal Retirement Date (if employed by the Employer on or
after that date),
b) termination of his employment with the Employer as a result of death
or disability,
c) or upon termination of employment with the Employer pursuant to an
employment reduction plan during the period November 1, 1996 through
and including December 31, 1997.
If a Participant's employment with the Employer terminates prior to his Normal
Retirement Date for any reason other than those mentioned above, then for each
Year of Service he shall earn a Nonforfeitable percentage of his Base
Contribution Account as determined by the following vesting schedule:
<TABLE>
<CAPTION>
% of Nonforfeitable
Years of Service Base Contribution Acct.
-------- ------- -----------------------
<S> <C>
0 0%
1 10%
2 20%
3 30%
4 40%
5 60%
6 80%
7 or more 100%
</TABLE>
1
<PAGE>
2. Section 4.04 of Article IV, is hereby amended by deleting the second
sentence thereof and inserting in its place the following:
The Employer's base contribution amount will be allocated only to Participants
who are employed by the Employer on the last day of the Plan Year and who have
been credited with one thousand (1,000) Hours of Service for that Plan Year,
except that a Participant whose service with the Employer terminates in a Plan
Year due to:
a) retirement on or after reaching his Normal Retirement Date,
b) death or disability, or
c) upon termination of employment with the Employer pursuant to an
employment reduction plan during the period November 1, 1996 through
and including December 31, 1997,
will also share in the allocation of the Employer's base contribution for the
Plan Year.
2
<PAGE>
EXHIBIT 10.26
AMENDMENT NO. 1 TO THE
RETIREMENT PLAN OF SCHEIN PHARMACEUTICAL, INC. AND AFFILIATES
Schein Pharmaceutical, Inc. (the "Company") hereby adopts the following
amendments to the Retirement Plan of Schein Pharmaceutical, Inc. and Affiliates
(the "Plan") as follows:
1. Effective January 1, 1994, Section 1.50 of Article I is amended by
deleting the first sentence thereof and substituting the following in its place:
" 1.50 'Year of Service' shall mean a twelve-month period, beginning on
an Employee's date of hire or any anniversary thereof, during which an
Employee has at least one thousand Hours of Service."
2. Effective as of January 1, 1995, Section 4.04 of Article IV is
amended by deleting the third sentence thereof and substituting the following
in its place:
"Forfeited matching contributions and the income allocable thereto shall
be used first for the payment of Plan expenses, and any remaining
forfeitures shall be allocated in the manner described in Section 6.05."
3. Effective as of January 1, 1995, Section 6.05 of Article VI is
amended by deleting the second paragraph thereof and substituting the following
in its place:
"Subject to any restoration allocation of forfeited amounts on behalf of
a Participant who repays a distribution as described above, and the
payment of Plan expenses, remaining forfeiture amounts will be allocated
to all Participants employed on the last day of the Plan Year who have
completed 1000 Hours of Service, on a per capita basis."
4. Effective as of July 1, 1995, Section 10.01 of Article X is amended
by deleting the first and second sentences and
<PAGE>
substituting the following in their place:
"An Employee or a Qualified Beneficiary may make application to the
Trustees to borrow from the Trust Fund, and the Trustees may, in their
sole discretion, permit such loan, provided that such loans shall be
made available to all such Employees and Qualified Beneficiaries on a
reasonably equivalent basis. For purposes of determining the maximum
loan amount available to an Employee, amounts credited to the Employee's
Base Contribution Account will be considered to be a part of his or her
Account Balance for purposes of Section 10.02(a)(ii) only if the
Employee demonstrates that the reason for the requested loan satisfies
the conditions for a hardship withdrawal under Section 8.01."
5. Effective as of July 1, 1995, Section 10.02(a) of Article X is
amended by deleting the second sentence thereof and by deleting from the first
sentence thereof the following:
", or (iii) the Employee's Salary Reduction Contribution Account."
6. Effective as of July 1, 1995, Section 10.02(f) of Article X is
amended by deleting the third sentence and substituting the following in its
place:
"Repayment of a loan shall be made through payroll deductions, or if an
Employee's employment terminates, the Employee may elect, in the manner
prescribed by the Trustees, to make loan repayments directly to the Plan
on a substantially level basis (not less frequently than quarterly)
within the time period set forth in the promissory note representing the
loan. Any loan may be prepaid in full or part at any time."
7. Effective as of July 1, 1995, Section 10.02(g) of Article X is
amended by deleting the phrase "otherwise satisfied by the Employee" from the
first sentence and substituting the following in its place:
<PAGE>
"... the Employee elects, in the manner prescribed by the Trustees to
make, and does make in accordance with such election, loan repayments on
a substantially level basis to the Plan (not less frequently than
quarterly). Any loan shall be subject to such additional acceleration
provisions as shall be determined by the Trustees to be commercially
reasonable."
8. Effective as of January 1, 1995, Section 10.02(j) of Article X is
amended by deleting the words "Historic Account".
9. Effective as of January 1, 1995, Section 10.02(j) of Article X is
further amended by adding the following to the end thereof:
"For purposes of this Section 10.02(j), the Rollover Contribution
Account, Salary Reduction Contribution Account, Matching Contribution
Account and Base Contribution Account shall be deemed to include the
corresponding subaccounts, if any, of the Historic Account."
<PAGE>
AMENDMENT NO.3 TO THE
RETIREMENT PLAN OF SCHEIN PHARMACEUTICAL, INC. AND AFFILIATES
Schein Pharmaceutical, Inc. (the "Company") hereby adopts the following
amendment to the Retirement Plan of Schein Pharmaceutical, Inc. and Affiliates
(the "Plan") as follows:
Effective as of June 1, 1996, Section 8.02 of Article VIII is amended by
inserting the following sentence between the first and second sentences thereof:
"Effective June 1, 1996, a Participant may also withdraw any portion of
his Rollover Contribution Account for any reason after attainment of age
59 1/2."
IN WITNESS WHEREOF, the Company has authorized and directed its duly
authorized officer to execute this Amendment No.3 to the Plan this __ day of
_______, 1996.
Corporate Seal SCHEIN PHARMACEUTICAL, INC.
By:
----------------------------
Attest
Title:
------------------------
<PAGE>
SCHEIN PHARMACEUTICAL, INC.
UNANIMOUS WRITTEN CONSENT OF DIRECTORS IN LIEU OF MEETING
We, the undersigned, being all of the directors of Schein
Pharmaceutical, Inc. (the "Company"), do hereby consent to the adoption of the
following resolutions:
WHEREAS, the Company maintains the Retirement Plan of Schein
Pharmaceutical, Inc. and Affiliates (the "Schein Plan"); and
WHEREAS, the Company desires to amend the Schein Plan to provide that
participant rollover contributions may be withdrawn for any reason after the
participant's attainment of age 59 1/2; and
WHEREAS, the Company further desires to authorize the merger of the
Marsam Pharmaceuticals, Inc. 401(k) Retirement Savings Plan (the "Marsam Plan")
into the Schein Plan;
NOW, THEREFORE, be it
RESOLVED, that the Board of Directors hereby adopts Amendment No. 3 to
the Schein Plan in substantially the form attached hereto effective June 1,
1996; and be it
FURTHER RESOLVED, that effective July 1, 1996, the Marsam Plan be merged
into, and become part of, the Schein Plan, with all account balances under the
Marsam Plan thereupon becoming account balances under the Schein Plan; and be it
FURTHER RESOLVED, that effective July 1, 1996, the Trust Agreement under
the Marsam Plan (the "Marsam Plan Trust") be merged into, and become part of,
the Employee Benefit Plan Trust (the "Schein Plan Trust"), with all assets and
liabilities of the Marsam Plan Trust thereupon becoming assets and liabilities
of the Schein Plan Trust, with the Marsam Plan Trust thereupon ceasing to exist
as an independent entity; and be it
FURTHER RESOLVED, that, upon the merger of the Marsam Plan into the
Schein Plan, the Plan Administrator of the Marsam Plan shall be directed to
deliver to the Plan
<PAGE>
Administrator of the Schein Plan all of the books, records and documents of the
Marsam Plan; and be it
FURTHER RESOLVED, that, upon the merger of the Marsam Plan Trust into
the Schein Plan Trust, the Trustees at that time in office with respect to the
Marsam Plan Trust shall be directed to deliver to the Trustees then in office
under the Schein Plan Trust, all of the books, records and assets of, or
pertaining to, the Marsam Plan Trust, along with all such documentation, fully
executed, as may be necessary to permit the transfer of title, registration or
other indicia of ownership to the Trustees of the Schein Plan Trust; and be it
FURTHER RESOLVED, that the Board of Directors hereby authorizes and
directs the appropriate officers of the Company to take such actions and to
execute such documents and instruments as are deemed necessary or proper to
implement the foregoing resolutions, including without limitation, amendments to
the Schein Plan, the Marsam Plan and trust agreements associated with the Marsam
Plan Trust and the Schein Plan Trust, and the filing of such notices with
regulatory agencies as may be required.
IN WITNESS WHEREOF, we have hereunto set our hands this __ day of _____,
1996.
-------------------------------
-------------------------------
-------------------------------
-------------------------------
<PAGE>
EXHIBIT 10.27
SCHEIN PHARMACEUTICAL, INC.
1993 BOOK EQUITY APPRECIATION RIGHTS PROGRAM
1. Purposes of the Program
-----------------------
The purposes of this Schein Pharmaceutical, Inc. 1993 Book Equity
Appreciation Rights Program (the "Program") are to enable Schein Pharmaceutical,
Inc. ("SPINC") and its Subsidiaries (as defined herein) to attract, retain and
motivate the employees who are important to the success and growth of the
business of SPINC and to enhance the long term mutuality of interest between the
Key Employees (as defined herein) and the stockholders of SPINC by allowing Key
Employees to benefit from an increase in SPINC's book value over the book value
at the time of grant.
2. Definitions
-----------
(a) "BEARs" means book equity appreciation rights granted under
this Program, all as and to the extent provided in this Program.
(b) "Board" means the Board of Directors of SPINC.
(c) "Book Value per Share-Grant Date" means (i) total consolidated
stockholders' equity determined in accordance with generally accepted accounting
principles consistently applied, including, without limitation, common stock,
preferred stock, additional paid-in capital and retained earnings, but excluding
treasury stock and deferred stock compensation ("Book Value"), at the end of the
fiscal year immediately preceding or coinciding with the date of grant, as
specified in the respective BEAR grant (the "Grant Date"), divided by (ii) the
number of outstanding shares of common stock of SPINC at the Grant Date.
(d) "Book Value per Share-as Adjusted-Applicable Date" means (i) Book
Value at the end of the fiscal quarter immediately preceding or coinciding with
the date of the Participant's exercise of the BEAR or Termination of Employment
of the Participant or the date of the Change of Control, or the date the
Committee terminates the Program, as applicable (the "Applicable Date"), plus
amounts attributable to common stock and preferred stock of SPINC
reacquired by the Company, and dividends declared by SPINC in excess of 4% of
net income in any fiscal year (or, in the case of the fiscal quarter ended on
the Applicable Date, if the Applicable Date is other than the last day of a
fiscal year, in such fiscal quarter), in each case after the Grant Date, and
minus amounts attributable to common stock and preferred stock issued by SPINC
<PAGE>
after the Grant Date, divided by (ii) the number of outstanding shares of common
stock of SPINC at the Applicable Date.
(e) "Cause" means (i) the Participant's willful and continued failure
substantially to perform his or her duties with the Company, (ii) fraud,
misappropriation or intentional material damage to the property or business of
the Company or (iii) commission of a felony.
(f) "Change of Control" means:
(i) an acquisition directly or indirectly by any individual,
entity or group (within the meaning of Section 13d-3 or 14d-1 of the
Securities Exchange Act of 1934 (the "Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Act) of
more than 50% of the combined voting power of the then outstanding voting
securities of SPINC entitled to vote generally in the election of directors
(the "Outstanding Voting Securities"); excluding, however, the following:
(x) any acquisition by the Company, (y) any acquisition by an employee
benefit plan (or related trust) sponsored or maintained by the Company, or
(z) any acquisition by any corporation pursuant to a reorganization,
merger, consolidation or similar corporate transaction (in each case, a
"Corporate Transaction"), if, pursuant to such Corporate Transaction,
the conditions described in clauses (A), (B) and (C) of paragraph (iii)
below are satisfied; or
(ii) a change in the composition of the Board such that the
individuals who, as of the date the Program is first adopted (the "Effective
Date"), constitute the Board (the Board as of the Effective Date shall be
hereinafter referred to as the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided that, for purposes of
this Subsection, any individual who becomes a member of the Board and whose
election, or nomination for election by the stockholders, was approved by
members of the Board who also are members of the Incumbent Board (or so
deemed to be pursuant to this proviso) shall be deemed a member of the
Incumbent Board; but, provided further, that any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-ll of
Regulation 14A promulgated under the Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board shall not be deemed a member of the Incumbent Board; or
(iii) the approval by the stockholders of SPINC of a Corporate
Transaction or, if consummation of such Corporate Transaction is subject, at
the time of such approval by stockholders, to the consent of any government
or governmental
2
<PAGE>
agency, the obtaining of such consent (either explicitly or implicitly by
consummation); excluding, however, such a Corporate Transaction pursuant to
which (A) beneficial owners (or beneficiaries of the beneficial owners) of the
outstanding shares of common stock of SPINC (the "Shares") and Outstanding
Voting Securities immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 60% of, respectively, the
outstanding shares of common stock of the corporation resulting from such
Corporate Transaction and the combined voting power of the outstanding voting
securities of such corporation entitled to vote generally in the election of
directors, in substantially the same proportions as their ownership, immediately
prior to such Corporate Transaction, of the outstanding Shares and
Outstanding Voting Securities, as the case may be, (B) no Person (other than the
Company, any employee benefit plan (or related trust) of the Company or the
corporation resulting from such Corporate Transaction and any Person
beneficially owning, immediately prior to such Corporate Transaction, directly
or indirectly, 20% or more of the outstanding Shares or Outstanding Voting
Securities, as the case may be) will beneficially own, directly or indirectly,
20% or more of, respectively, the outstanding shares of common stock of the
corporation resulting from such Corporate Transaction or the combined voting
power of the then outstanding securities of such corporation entitled to vote
generally in the election of directors and (C) individuals who were members of
the Incumbent Board will constitute at least a majority of the members of the
board of directors of the corporation resulting from such Corporate Transaction;
or
(iv) the approval of the stockholders of SPINC of (A) a complete
liquidation or dissolution of SPINC or (B) the sale or other disposition of all
or substantially all the assets of SPINC; excluding, however, such a sale or
other disposition to a corporation with respect to which, following such sale or
other disposition, (x) more than 60% of the then outstanding shares of common
stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors will be then beneficially owned, directly or
indirectly, by the individuals and entities who were the beneficial owners (or
beneficiaries of the beneficial owners), respectively, of the outstanding
Shares and Outstanding Voting Securities immediately prior to such sale or
other disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the outstanding Shares
and Outstanding Voting Securities, as the case may be, (y) no Person (other than
the Company and any employee benefit plan (or related trust) of the Company or
such corporation and any Person beneficially owning, immediately prior to such
sale or other disposition, directly or indirectly, 20% or more of the
outstanding Shares
3
<PAGE>
or outstanding Voting Securities, as the case may be) will beneficially own,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (z) individuals who were
members of the Incumbent Board will constitute at least a majority of the
members of the board of directors of such corporation.
(g) "Committee" means such committee, if any, appointed by the Board
to administer the Program, consisting of one or more directors as may be
appointed from time to time by the Board. If the Board does not appoint a
committee for this purpose, "Committee" means the Board.
(h) "Company" means SPINC, and any of its Subsidiaries whose employees
are Participants in the Program.
(i) "Disability" means a permanent and total disability, as determined
by the Committee in its sole discretion. A Disability shall be deemed to
occur at the time of the determination by the Committee of the Disability.
(j) "Key Employee" means any person who is an executive officer or
other valuable employee of the Company, as determined by the Committee.
(k) "Parent" means Schein Holdings, Inc., a New York corporation, or
any of its successors.
(1) "Participant" means a Key Employee of the Company who is granted
BEARs under the Program.
(m) "Subsidiary" means any corporation more than 50% of the voting
stock of which is directly or indirectly beneficially owned by SPINC.
(n) "Termination of Employment" with respect to an individual means
that individual is no longer an employee of SPINC or any of its Subsidiaries.
In the event an entity shall cease to be a Subsidiary of SPINC, there shall be
deemed a Termination of Employment of an individual who is not otherwise an
employee of SPINC or another Subsidiary of SPINC at the time the entity ceases
to be a Subsidiary. A Termination of Employment shall not include a leave of
absence approved for purposes of the Program by the Committee.
3. Administration
--------------
The Program shall be administered by the Committee, which shall have
full authority to interpret the Program and to decide
4
<PAGE>
any questions and settle all controversies that may arise in connection with the
Program; to establish, amend and rescind rules for carrying out the Program; to
administer the Program, subject to its provisions; to select Participants in,
and grant BEARs under, the Program; to determine the terms for each BEAR granted
under the Program; to prescribe the form or forms of instruments evidencing
BEARs and any other instruments required under the Program (which need not be
uniform); and to make all other determinations and to take all such steps in
connection with the Program and the BEARs as the Committee, in its sole
discretion, deems necessary or desirable. The Committee shall not be bound to
any standards of uniformity or similarity of action, interpretation or conduct
in the discharge of its duties hereunder, regardless of the apparent similarity
of the matters coming before it. Any determination, action or conclusion of the
Committee, including any action to terminate the Program or any action
(including an amendment of the Program) intended to treat Participants and the
Company equitably in light of extraordinary transactions or circumstances that
could otherwise result in inequitable treatment, shall be final, conclusive and
binding on all parties.
4. Grants
------
The Committee may grant BEARs to Key Employees of the Company as the
Committee from time to time shall determine.
5. BEARs
-----
(a) Each BEAR shall entitle the holder thereof to receive an amount
equal to the excess of the Book Value per Share as Adjusted-Applicable Date over
the Book Value per Share-Grant Date as specified in the respective BEAR grant.
(b) One-third of each grant of BEARs to a Participant shall vest on
each of the three December 31's immediately following the date of such grant.
All BEARs granted to a Participant shall become fully vested immediately upon
(i) the Termination of Employment of the Participant by reason of death or
Disability, or as a result of retirement before age 65 with the consent of the
Committee or under an early retirement policy of the Company, or (ii) a Change
of Control, if a Change of Control occurs subsequent to an initial public
offering of shares of common stock of SPINC or the Parent, or immediately upon a
Termination of Employment of the Participant by the Company without Cause (as
defined herein), if the Termination of Employment occurs subsequent to a Change
of Control.
(c) Each year SPINC shall provide to each Participant a statement
setting forth the number of such Participant's BEARs that have vested in the
preceding fiscal year and a calculation of the Book Value per Share-as Adjusted-
Applicable Date of such vested
5
<PAGE>
BEARs, treating the last day of such preceding fiscal year as the Applicable
Date (unless the actual Applicable Date is earlier).
(d) At any time or from time to time prior to the earlier of the
Termination of Employment of a Participant and a Change of Control, the
Participant may elect to exercise (in whole or in part) such Participant's BEARs
that shall have then vested pursuant to the first sentence of Section 5(b).
Such election shall be made by giving written notice to the Committee of such
election and of the number of such vested BEARs such Participant has elected to
exercise (the date of receipt of such notice by the Committee being deemed the
date of exercise). SPINC shall pay to the Participant in cash, not later than
the 90th day following the date of exercise, the amount determined in accordance
with Section 5(a) of each exercised BEAR as of the date of exercise. A
Participant shall not be entitled to receive any amount resulting from an
increase in the Book Value of SPINC after the date of exercise in respect of any
BEARs so exercised.
(e) Upon the occurrence of an event that causes a Participant's BEARs
to vest pursuant to the second sentence of Section 5(b), or otherwise upon a
Participant's Termination of Employment (other than for Cause), SPINC shall
pay to the Participant in cash, not later than the Commencement Date (as defined
herein), an amount equal to the amount the Participant would be entitled to
receive pursuant to Section 5(d), assuming that, immediately prior to the
occurrence of such event or such Termination or Employment, the Participant had
elected to exercise fully all such Participant's BEARs that had then vested
pursuant to the first sentence of Section 5(b). SPINC shall pay to the
Participant in cash, either in a lump sum or, subject to prepayment in whole at
any time or in part from time to time at the option of SPINC, in equal
installments on each of the first five anniversaries of the Commencement
Date, the balance of the amount determined in accordance with Section 5(a);
SPINC also shall pay to the Participant, together with each such installment
payment or prepayment, an amount in the nature of simple interest on the entire
unpaid balance from the Commencement Date to the date of payment or prepayment,
as the case may be, at a rate equal to the yield on five-year United States
Treasury securities at the Commencement Date. The Committee shall have the sole
discretion to determine whether to make a lump sum payment or to pay in
installments or to prepay. In the case of a lump sum payment, payment will be
made as soon as administratively practicable after the occurrence of an event
that causes a Participant's BEARs to vest pursuant to the second sentence of
Section 5(b) or otherwise upon a Participant's Termination of Employment (other
than for Cause), but, in any event, no later than the 90th day after the
occurrence of an event that causes a Participant's BEARs to vest pursuant to the
second sentence of Section 5(b) or otherwise upon a Participant's Termination of
Employment (other than for Cause) (the 90th day following such event or
Termination of Employment being called the "Commencement Date"). A Participant
will not be
6
<PAGE>
entitled to receive any amount resulting from an increase in the Book Value
after the Applicable Date.
(f) Notwithstanding any other provision of the Program, all BEARs and
all rights to any payments in connection therewith shall be discontinued and
forfeited, and the Company shall have no further obligation hereunder to a
Participant, upon the Participant's Termination of Employment for Cause.
6. Nontransferability of BEARs
---------------------------
No BEAR shall be transferable by the Participant otherwise than
by will or under applicable laws of descent and distribution, and during the
lifetime of the Participant may be exercised only by the Participant or his or
her guardian or legal representative. In addition, no BEAR shall be
assigned, negotiated, pledged or hypothecated in any way (whether by operation
of law or otherwise), and no BEAR shall be subject to execution, attachment or
similar process. Upon any attempt to transfer, assign, negotiate, pledge or
hypothecate any BEAR, or in the event of any levy upon any BEAR by reason of any
execution, attachment or similar process contrary to the provisions hereof, such
BEAR shall immediately become null and void.
7. Determinations
--------------
Each determination, interpretation or other action made or taken
pursuant to the provisions of the Program by the Committee shall be final,
conclusive and binding for all purposes and upon all persons, including, without
limitation, the Participants, the Company, the directors, officers and other
employees of the Company and the respective heirs, executors, administrators,
personal representatives and other successors in interest of each of the
foregoing.
8. Non-Exclusivity
---------------
The adoption of the Program by the Board shall not be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, and such arrangements may be either
generally applicable or limited in application.
9. General Provisions
------------------
(a) Right to Terminate Employment. Neither the adoption of the Program
-----------------------------
nor the grant of BEARs shall impose any obligation on the Company to continue
the employment of any Participant, nor shall it impose any obligation on the
part of any Participant to
7
<PAGE>
remain in the employ of the Company, subject however to the provisions of any
agreement between the Company and the Participant.
(b) Trusts. etc. The Program is intended to be an unfunded deferred
-----------
compensation plan. Nothing contained in the Program and no action taken
pursuant to the Program (including, without limitation, the grant of any BEAR
hereunder) shall create or be construed to create a trust of any kind, or a
fiduciary relationship, between SPINC and any Participant or the executor,
administrator or other personal representative or designated beneficiary of such
Participant, or any other persons. Any reserves that may be established by
SPINC in connection with the Program shall continue to be part of the general
funds of SPINC, and no individual or entity other than SPINC shall have any
interest in such funds until paid to a Participant. If and to the extent that
any Participant or such Participant's executor, administrator or other personal
representative, as the case may be, acquires a right to receive any payment from
SPINC pursuant to the Program, such right shall be no greater than the right of
an unsecured general creditor of SPINC.
(c) Notices. Each Participant shall be responsible for furnishing the
-------
Committee with the current and proper address for the mailing to such
Participant of notices and the delivery to such Participant of payments. Any
notices required or permitted to be given shall be deemed given if directed to
the person to whom addressed at such address and mailed by regular United States
mail, first class and prepaid. If any item mailed to such address is returned
as undeliverable to the addressee, mailing will be suspended until the
Participant furnishes the proper address.
(d) Severability of Provisions. If any provisions of the Program
--------------------------
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions of the Program, and the Program shall be
construed and enforced as if such provisions had not been included.
(e) Payment to Minors, Etc. Any benefit payable to or for the benefit
----------------------
of a minor, an incompetent person or other person incapable of receipting
therefor shall be deemed paid when paid to such person's guardian or to the
party providing or reasonably appearing to provide for the care of such person,
and such payment shall fully discharge the Committee, the Company and their
employees, agents and representatives with respect thereto.
(f) Adjustments; Recapitalization, etc. The existence of the Program
----------------------------------
and the BEARs granted hereunder shall not affect in any way the right or power
of the Board or the stockholders of SPINC to make or authorize any adjustment,
recapitalization, reorganization or other change in SPINC's capital structure or
its business, any merger or consolidation of SPINC, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or
8
<PAGE>
affecting Shares, the dissolution or liquidation of SPINC or any of its
subsidiaries, any sale or transfer of all or part of its assets or business or
any other corporate act or proceeding. If and whenever SPINC takes any such
action, however, the total number and class of Shares and/or other securities
used in any Book Value determination under the Program shall be proportionately
adjusted by the Committee. The Committee may also make such other adjustments
as it deems necessary to take into consideration any other event (including,
without limitation to, accounting charges), if the Committee determines that
such adjustment is appropriate to avoid distortion in the operation of the
Program.
(g) Headings and Captions. The headings and captions herein are
---------------------
provided for reference and convenience only. They shall not be considered part
of the Program and shall not be employed in the construction of the Program.
(h) Controlling Law. The Program shall be construed and enforced
---------------
according to the laws of the State of New York.
10. Withholding Taxes
-----------------
SPINC shall be entitled to withhold (or secure payment from the
Participant in cash or other property in lieu of withholding) the amount of any
Federal, state or local taxes required by law to be withheld by SPINC for cash
payments deliverable under the Program.
9
<PAGE>
EXHIBIT 10.28
SCHEIN PHARMACEUTICAL, INC.
1993 BOOK EQUITY APPRECIATION RIGHTS AWARD
To
Schein Pharmaceutical, Inc. ("SPINC") has adopted the Schein
Pharmaceutical 1993 Book Equity Appreciation Rights Program (the "Program").
The Program Committee has determined that you are eligible to receive Book
Equity Appreciation Rights ("BEARs") under the Program and has granted you 60
BEARs, subject to the following terms and conditions:
1. The date of grant is
2. The Book Value per Share-Grant Date of each BEAR hereunder is $321.92.
3. Generally, one-third of the BEARs granted to you will vest on each of the
three December 31's immediately following the date of grant. Please
consult the Program plan document for a more detailed discussion of the
vesting schedule.
4. Generally, you will be able to exercise your vested BEARs, in whole or in
part, any time prior to your Termination of Employment. With respect to
each vested BEAR so exercised prior to your Termination of Employment, you
will be entitled to an amount equal to the excess Book Value per Share-as
Adjusted-Applicable Date of such BEAR as of the date of exercise over the
Book Value per Share-Grant Date of such BEAR. Except as otherwise provided
in the Program, with respect to each vested BEAR not exercised prior to
your Termination of Employment, you will be entitled to an amount equal to
the excess of the Book Value per Share-as Adjusted-Applicable Date over the
Book Value per Share-Grant Date of such BEAR; the amount so due to you will
be paid either in a lump sum or in installments over approximately five
years, as determined by the Committee in its sole discretion.
5. In certain circumstances set forth in the Program plan document, the BEARs
granted to you herein shall become fully vested, and the amount due to you
therefor will be paid either in a lump sum or in installments as set forth
above.
<PAGE>
The grant of BEARs under the Program enables you to share in the
increase in SPINC's Book Value after the date your BEARs are granted. This
letter is intended to provide you with a summary of the terms and conditions
under which your BEARs have been granted. If any conflict should arise between
the summary in this letter and the Program plan document, or if any point is not
covered in this letter or is only partially covered, the terms of the Program
plan document shall govern. All capitalized terms used herein shall have the
respective meanings set forth in the Program plan document.
Date: November 22, 1993
SCHEIN PHARMACEUTICAL, INC.
By:
-----------------------------
Authorized Officer
<PAGE>
EXHIBIT 10.30
GENERAL SHAREHOLDERS AGREEMENT
Dated September 30, 1994
------------------------
The parties to this agreement are Schein Holdings, Inc., a New York
corporation (the "Company"), Miles Inc., an Indiana corporation (the "New
Shareholder"), each of the family shareholders listed as such on schedule A
(collectively, the "Family Shareholders"), each of the other shareholders listed
as such on schedule A (collectively, with the Family Shareholders, the
"Continuing Shareholders") and Martin Sperber, as trustee (the "Trustee") under
the voting trust agreement dated this date and referred to in the Continuing
Shareholders Agreement referred to below (the "Voting Trust Agreement"). The
New Shareholder and the Continuing Shareholders constitute all the Company's
shareholders (except for holders of an aggregate of 2,549 shares of the
Company's common stock) and are collectively referred to as the "Shareholders."
Each Shareholder owns the number and class of shares set forth beside
that Shareholder's name on schedule A. The shares of each class of the
Company's common stock are collectively referred to as the "Shares."
The Company and the Continuing Shareholders also are parties to
another shareholders agreement dated this date (the
<PAGE>
"Continuing Shareholders Agreement"), a copy which has been furnished to
the New Shareholder.
The parties agree as follows:
1. Directors.
---------
1.1 Election. From time to time, the New Shareholder shall be
--------
entitled to nominate a number of members of the Company's board of directors
(rounded to the next lower integer, unless the Fraction (as defined below) is
greater than one-half, in which case rounded to the next higher integer) equal
to the product of (a) the total number of members of the board of directors at
the time of the nomination and (b) a fraction (the "Fraction") determined by
dividing (i) the number of Shares owned by the New Shareholder at the time of
the nomination by (ii) the total number of shares of the Company's common stock
then outstanding. If the number of directors the New Shareholder is entitled to
nominate at any time is less than two, the New Shareholder at that time shall be
entitled to nominate one director and to designate a second individual to
receive notices of, and to attend, all board of directors meetings as an
observer (but who shall not otherwise be entitled to participate in those
meetings). The individuals so nominated and designated (and any individual
nominated under section 1.2(b)) shall be required to be reasonably acceptable to
the Company. During the period (the "Voting Trust Period") the Voting Trust
Agreement is in effect, the Trustee and his successors (the "Successor
Trustees") shall
2
<PAGE>
be entitled to nominate the remaining members of the Company's board of
directors. During the period (the "Standstill Period") from the date of this
agreement to the earlier of the fifth anniversary of the Initial Public Offering
Date (as defined below) and May 15, 2001, the Trustee shall, and shall cause the
Successor Trustees to, and, during the Standstill Period, the Continuing
Shareholders (to the extent Shares owned by them are not subject to the Voting
Trust Agreement, by reason of the termination of the Voting Trust Agreement or
otherwise) shall, vote all Shares owned by them, if any, and take all other
action incidental to that vote requested of them by the New Shareholder to cause
the individuals nominated by the New Shareholder to be elected. During the
Voting Trust Period, the New Shareholder and the Continuing Shareholders (to the
extent Shares owned by Continuing Shareholders are not subject to the Voting
Trust Agreement for any reason) shall vote all Shares owned by them and take all
other action incidental to that vote requested of it by the Trustee or the
Successor Trustees to cause the individuals nominated by the Trustee or a
Successor Trustee, as the case may be, to be elected. As used in this
agreement, the term "Initial Public Offering Date" means the first date
immediately following the last closing of an underwritten sale of shares of the
Company's common stock to the public registered under the Securities Act of 1933
(the "1933 Act") on which the aggregate market value of outstanding common
stock (computed by use of the closing price of the stock (determined as set
forth in section 4.1)) held by more than 300 persons who are neither
Shareholders,
3
<PAGE>
nor Permitted Transferees, nor employees of the Company or its subsidiaries nor
affiliates of the Company exceeds $100,000,000, which shares are listed or
admitted to trading on the New York Stock Exchange or the American Stock
Exchange or quoted on the NASDAQ National Market System.
1.2 Removal; Vacancies.
-------------------
(a) (i) If, during the Standstill Period, the New Shareholder
gives written notice to the Trustee or the Successor Trustees, as the case may
be, and if, during the Standstill Period, the Voting Trust Agreement shall have
terminated and thereafter the New Shareholder gives written notice to the
Continuing Shareholders Designee (as defined below) of its wish to remove a
director previously nominated by the New Shareholder and elected in accordance
with section 1.1, during the Standstill Period the Trustee shall, and shall
cause the Successor Trustees to, and, during the Standstill Period, the
Continuing Shareholders (to the extent Shares owned by them are not subject to
the Voting Trust Agreement, by reason of the termination of the Voting Trust
Agreement or otherwise) shall, vote all Shares owned by them, if any, in favor
of removing that director, and take all other action incidental to that vote
requested of them by the New Shareholder to cause that director to be removed.
As used in this agreement, the term "Continuing Shareholders Designee" means
Marvin H. Schein, provided that (A) if the New Shareholder is notified by a
Family Shareholder of Marvin H. Schein's death, legal incapacity or resignation
4
<PAGE>
("Unavailability"), that term shall mean Pamela Schein or, upon Pamela Schein's
Unavailability prior to Marvin H. Schein's Unavailability, a successor
designated by Marvin H. Schein in a writing delivered to the Company and the New
Shareholder prior to his Unavailability ("Marvin's Successor"), and (B) if
Pamela Schein succeeds Marvin H. Schein as the "Continuing Shareholders
Designee" then, if the New Shareholder is notified by a Family Shareholder of
Pamela Schein's Unavailability, that term shall mean the successor designated by
Pamela Schein in a writing delivered to the Company and the New Shareholder
prior to her Unavailability or, if Pamela Schein shall not have so designated a
successor, then such term shall mean Marvin's Successor, or, if no such person
is so designated, it shall mean the Company.
(ii) If, during the Voting Trust Period, the Trustee or a
Successor Trustee, as the case may be, gives written notice to the New
Shareholder and the Continuing Shareholders (who own Shares not subject to the
Voting Trust Agreement for any reason) of his wish to remove a director
previously nominated by the Trustee or Successor Trustee and elected in
accordance with section 1.1, during the Voting Trust Period the New Shareholder
and those Continuing Shareholders shall vote all Shares owned by them in favor
of removing that director, and take all other action incidental to that vote
requested of them by the Trustee or Successor Trustee, as the case may be, to
cause that director to be removed.
5
<PAGE>
(b) (i) If for any reason any director previously nominated by
the New Shareholder ceases to hold office, the New Shareholder shall promptly
nominate an individual to fill the vacancy so created for the unexpired term,
and, during the Standstill Period, after written notice from the New Shareholder
to the Trustee, the Trustee shall, and shall cause the Successor Trustees to,
and, during the Standstill Period, the Continuing Shareholders (to the extent
Shares owned by them are not subject to the Voting Trust Agreement, by reason of
the termination of the Voting Trust Agreement or otherwise) shall, vote all
Shares owned by them, if any, and take all other action incidental to that vote
requested of them by the New Shareholder to cause the individual so nominated to
be elected to fill the vacancy.
(ii) If for any reason any director previously nominated by
the Trustee or a Successor Trustee ceases to hold office, the Trustee or a
Successor Trustee, as the case may be, shall promptly nominate an individual to
fill the vacancy so created for the unexpired term, and, during the Voting Trust
Period, after written notice to the New Shareholder and the Continuing
Shareholders (who own Shares not subject to the Voting Trust Agreement for any
reason) from the Trustee or a Successor Trustee, the New Shareholder and those
Continuing Shareholders shall vote all Shares owned by them and take all other
action incidental to that vote requested of them by the Trustee or
6
<PAGE>
Successor Trustee, as the case may be, to cause the individual so nominated
to be elected to fill the vacancy.
1.3 Classified Board. At any time the Company's board of directors
----------------
is divided into two or more classes, the members nominated by the New
Shareholder shall, to the extent practicable, be included in the respective
classes in the same manner as are the members nominated by the Trustee and the
Successor Trustees. The classification of the board of directors shall not
cause any reduction in the number of directors the New Shareholder otherwise is
entitled to nominate pursuant to this agreement, and nothing in this agreement
shall be construed to permit any amendment to the Company's certificate of
incorporation or by-laws (or comparable governing documents) ("Governing
Documents") in contravention of section 2.5.
1.4 No Action or Meeting without Notice. No action or meeting of
-----------------------------------
directors or shareholders of the Company shall have any force or effect, unless
the action or meeting is taken or held (a) in the case of meetings of
shareholders or directors, or any other action of shareholders or directors,
upon at least 15 business days' prior written notice to the New Shareholder and
the New Shareholder's nominee(s) and any observer, and (b) in the case of any
actions or meetings of directors or shareholders, where, in the good faith
judgment of the chairman of the board of directors of the Company, the
circumstances require an action or a meeting to be held upon fewer than 15
business days' prior written notice, upon at least 24 hours (in the case of
actions or
7
<PAGE>
meetings of directors) and five business days (in the case of actions or
meetings of the shareholders) prior written notice to the New Shareholder and
the New Shareholder's nominee(s) and any observer, unless the New Shareholder or
the New Shareholder's nominee(s), as the case may be, shall otherwise have
expressly agreed to a shorter period of prior written notice or waived such
notice in writing. As long as this section 1.4 remains in effect, (y) the
provisions of this section 1.4 shall be included in the by-laws of the Company
and (z) no provisions of the Company's Governing Documents relating to notice
requirements for meetings of or actions by the Company's shareholders or board
of directors may be amended without the written consent of the New Shareholder.
1.5 Termination. The provisions of sections 1.1 through 1.4 shall
-----------
terminate and be of no force or effect from and after the first date (the
"Governance Termination Date") upon which the Fraction is less than one-tenth.
2. Certain Major Decisions. In the case of clauses 2.1, 2.5 and 2.6
-----------------------
below, during the Standstill Period, and, in each other case, prior to the
earlier of the Initial Public Offering Date and the Governance Termination Date,
the Company shall not, and shall not permit any of its subsidiaries to, and no
officer, employee or other agent of the Company or any of its subsidiaries shall
have the authority, in the name or on behalf of the Company or any of its
subsidiaries, to, take any of the following actions, directly or indirectly,
without the prior
8
<PAGE>
written consent of the New Shareholder (which consent shall be deemed given, if
a majority of the New Shareholder's nominees referred to in section 1.1 consent
in writing (it being understood that consent given in this manner shall not be
deemed the exclusive method of giving consent)):
2.1 own, manage or operate any business not principally engaged in a
segment of the pharmaceutical or health-care industry, or any business ancillary
to the pharmaceutical or health-care industry;
2.2 effect an initial public offering of shares of common stock of
the Company that includes a primary offering by the Company of more than 25% of
the then outstanding common stock of the Company on a fully diluted basis;
2.3 incur any indebtedness to a third party for borrowed money,
which, by its terms, has a maturity of more than one year ("Funded Debt"), or
issue to a third party any shares of preferred stock that, by the terms of the
preferred stock, is required to be redeemed prior to the issuer's liquidation
("Redeemable Preferred Stock"), if, immediately after the incurrence of that
Funded Debt or the issuance of that Redeemable Preferred Stock, the ratio of the
sum of all Funded Debt plus the redemption price of all Redeemable Preferred
Stock of the Company and its consolidated subsidiaries to the Company's
consolidated stockholders' equity (excluding any such Redeemable Preferred
Stock), determined in accordance with generally accepted
9
<PAGE>
accounting principles consistently applied ("GAAP"), exceeds (a) 1 to 1 during
the period from the date of this agreement to May 15, 1995, and (b) 1.5 to 1
thereafter;
2.4 provide compensation to the senior executive management of the
Company or any of its subsidiaries in excess of levels customary in the
pharmaceutical industry at the time such compensation decisions are made;
2.5 amend or restate the Company's Governing Documents in any
respect, (a) as a result of which the ability to (i) elect a majority of the
members of the board of directors, (ii) adopt an agreement of merger or
consolidation, (iii) approve a sale of all or substantially all the assets or
(iv) adopt an amendment to any Governing Document would require the vote of more
than a majority of the outstanding Shares, (b) that would adversely affect the
New Shareholder differently from other holders of the Shares or (c) that, by its
terms, would prohibit any foreign national from holding Company shares or
serving as a director;
2.6 engage in any transaction with an affiliate on terms more
favorable to the affiliate than would have been obtainable in arm's-length
dealings, except for (a) transactions between or among the Company and its
subsidiaries, (b) transactions contemplated by this agreement, the Continuing
Shareholders Agreement or the Voting Trust Agreement, (c) transactions expressly
disclosed in any schedule to the stock purchase agreement (the "Stock Purchase
Agreement") among the
10
<PAGE>
Company, the New Shareholder and the Sellers referred to in that agreement and
(d) transactions of the kind permitted under section 5.02(g) of the Company's
agreement with Citibank, N.A. dated November 25, 1992, as in effect on the date
of this agreement; and
2.7 declare dividends or make distributions in respect of the
Company's capital stock, or redeem, purchase or otherwise acquire any capital
stock of the Company, except for (a) purchases contemplated by this agreement,
(b) purchases from Continuing Shareholders pursuant to section 2.1 of the
Continuing Shareholders Agreement, as in effect on the date of this agreement,
(c) purchases contemplated or required under the Schein Pharmaceutical, Inc.
1993 Stock Option Plan, in the form in which such Plan exists on the date of
this agreement (it being understood that, if such Plan in the form in which it
exists on the date of this agreement is adopted by the Company or a successor to
the Company, such Plan shall, as so adopted, be deemed to be such Plan in the
form in which it exists on the date of this agreement), (d) purchases
contemplated or required under exchange agreements between the Company and
certain of its shareholders relating to an aggregate of 22,250 shares of
non-voting common stock of Steris Laboratories, Inc. and 9,764 shares of non-
voting common stock of Danbury Pharmacal, Inc. substantially in the form as
attached to schedule 4.6(a) to the Stock Purchase Agreement.
11
<PAGE>
2A. Unresolved Disagreements. In addition to any other rights of the
------------------------
New Shareholder under this agreement, from and after May 15, 1997, if the board
of directors of the Company takes any action with respect to which the New
Shareholder's representatives on the board of directors are not in agreement,
and if the New Shareholder shall have made demand for the registration of all
its Shares pursuant to section 10.1, and such registration shall not have been
effected pursuant to section 10, the New Shareholder shall have the right to
require the chief executive officer and the board of directors of the Company to
meet as promptly as practicable (but in any event within 10 business days) with
the New Shareholder to discuss in good faith a procedure either to resolve the
disagreement or to permit and facilitate the rapid divestiture of the New
Shareholder's Shares (it being understood that neither that procedure nor any
outcome of that procedure shall be binding upon the Company or the New
Shareholder, until and unless mutually acceptable definitive agreements are
executed and delivered by the parties).
3. Visitation; Notice. Prior to the Governance Termination Date,
-------------------
the New Shareholder and its representatives may, from time to time, visit and
inspect the properties of the Company and its subsidiaries, examine their books
of account and discuss their affairs, finances and accounts with the Company's
senior management and independent accountants, all at such reasonable times as
the New Shareholder may wish and in a manner that does not interfere with or
disrupt the business in any
12
<PAGE>
material respect and subject to appropriate confidentiality agreements.
4. Rights to Purchase Additional Shares.
------------------------------------
4.1 Preemptive Rights. If at any time during the Standstill Period
-----------------
the Company proposes to issue (whether for cash, property or services) any
Equity Securities (as defined below) to any person or entity (including a
Shareholder) (other than pro rata issuances of Equity Securities to all holders
of the Company's common stock), the New Shareholder shall have the right (which
it may exercise in whole or in part) to purchase, upon the same terms (but
subject to the penultimate sentence of this section 4.1), a proportionate
quantity of those Equity Securities (or Equity Securities as similar as
practicable to those Equity Securities) in the proportion that the aggregate
number of Shares then beneficially owned by Bayer AG and all direct and indirect
majority-owned subsidiaries of Bayer AG (including the New Shareholder and all
direct and indirect majority-owned subsidiaries of the New Shareholder) (all
such subsidiaries of Bayer AG being collectively called the "Bayer Controlled
Subsidiaries") bears to the total number of Shares then outstanding. (For
purposes of this agreement, Bayer AG and the Bayer Controlled Subsidiaries shall
not be deemed to own beneficially any Shares subject to the Voting Trust
Agreement or held by any of the other Shareholders, and none of the Continuing
Shareholders shall be deemed to own beneficially any Shares held by any of the
other Shareholders and, in each case, otherwise
13
<PAGE>
subject to the provisions of this agreement with respect to voting or
disposition.) The Company shall give notice to the New Shareholder setting
forth the identity of the purchaser and the time, which shall not be fewer than
60 days and not more than 90 days, within which, and the terms upon which, the
New Shareholder may purchase the Equity Securities, which terms shall be the
same as the terms upon which the purchaser may purchase the Equity Securities.
Notwithstanding anything to the contrary in this section 4.1, however, in the
case of any issuance of options, rights or securities convertible into, or
exchangeable or exercisable for, Shares, the Company shall not be deemed to have
issued Equity Securities until the issuance of the Shares underlying such
options, rights or securities, and the New Shareholder's right to purchase
Shares under this section 4.1 shall not become effective, unless the number of
Shares the New Shareholder is entitled to purchase at the time under this
section 4.1 is greater than 1% of the then outstanding Shares (but any
entitlement to purchase Shares that is so suspended shall be carried forward and
cumulated, until the cumulative number of Shares so carried forward equals at
least 1% of the then outstanding Shares, at which time the right that had been
suspended shall cease to be suspended for 60 days, at which time the right shall
terminate). Where the right to purchase Equity Securities under this section
4.1 arises from an issuance of Equity Securities (i) to or for the benefit of
employees or directors of the Company or any of its subsidiaries, (ii) in
connection with an acquisition or (iii) pursuant to a warrant or
14
<PAGE>
option issued in connection with any debt or Redeemable Preferred Stock
financing of the Company ((i), (ii) and (iii), collectively, the "Non-Assignable
Preemptive Rights"), the New Shareholder's purchase price per share for the
Equity Securities shall be the current per share market price of those Equity
Securities at the time the Equity Securities are issued or, in accordance with
the immediately preceding sentence, deemed to be issued. As used in this
agreement, (a) the term "Equity Securities" means shares of capital stock of the
Company having the right to vote or generally to participate, in a manner
similar to common stock, in the profits and losses of the Company, or any
options, rights or securities convertible into, or exchangeable or exercisable
for, such shares of capital stock; and (b) the "current per share market price"
of any Equity Security on any date shall be deemed to be the average of the
daily closing prices per share of such security for the 20 consecutive trading
days immediately prior to such date; provided, however, that in the event that
--------- -------
the current per share market price of any Equity Security is determined during a
period following the announcement by the Company of (i) a dividend or
distribution on such Equity Securities payable in such Equity Security or
securities convertible into such Equity Security or (ii) any subdivision,
combination or reclassification of such Equity Securities, and prior to the
expiration of 20 trading days after the ex-dividend date for such dividend or
distribution, or after the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per
15
<PAGE>
share market price shall be appropriately adjusted to take into account ex-
dividend trading or to reflect the current per share market price of the Equity
Security equivalent. The closing price (the "closing price") for each day shall
be the last sale price, regular way, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the principal
national securities exchange on which the applicable Equity Securities are
listed or admitted to trading or, if such Equity Securities are not listed or
admitted to trading on any national securities exchange, the last quoted price,
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use,
or, if on any such date such Equity Securities are not quoted by such an
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in such Equity Securities selected by
the board of directors of the Company. If such Equity Securities are not
publicly held or not so listed or traded or not the subject of available bid and
asked quotes, "current per share market price" shall mean the fair value per
share as determined in good faith by a majority of the disinterested directors
of the Company. A "trading day" shall mean any day on which the principal
national securities exchange on which the applicable Equity Securities are
listed or admitted to trading is open for the transaction of business or, if the
16
<PAGE>
applicable Equity Securities are not listed or admitted to trading on any
national securities exchange, a business day.
4.2 Interim Investment Protection Right
-----------------------------------
(a) If at any time or from time to time after the Initial Public
Offering Date and during the Standstill Period any person or entity (other than
any Continuing Shareholder, the Company, any subsidiary of the Company, any
employee benefit or stock ownership plan of the Company or any of its
subsidiaries or any entity holding Shares for or pursuant to the terms of any
such plan or any person who has reported that it is the beneficial owner of
Shares in a statement on Schedule 13G and who continues to meet the requirements
of Rule 13d-l(b)(l) or (2) promulgated by the Securities and Exchange Commission
(the "SEC") under the Securities Exchange Act of 1934 (the "Exchange Act"))
that, together with all affiliates of that person or entity, becomes the
beneficial owner of 10% or more of the Shares then outstanding (an "Acquiring
Person"), then, notwithstanding anything to the contrary in section 5.1 but
subject to sections 4.6 and 4.7, the New Shareholder shall immediately have the
right (the "Interim Investment Protection Right") to purchase a number of Shares
(the "Interim Investment Spread") that, when added to the number of Shares
that Bayer AG and Bayer's Controlled Subsidiaries then beneficially own, exceeds
the number of Shares beneficially owned by the Acquiring Person and its
affiliates by a number of Shares equal to 21% of the Shares then outstanding.
17
<PAGE>
(b) If at any time during the first 30 days after the New
Shareholder has the right to exercise the Interim Investment Protection Right
the Public Float (as defined in section 4.2(e)) is less than 133% of the Interim
Investment Spread, the New Shareholder shall have the right, exercisable by
written notice given to the Continuing Shareholders Designee and the Company
within that 30-day period, to purchase from the Family Shareholders, if and to
the extent they or any of them so elect in accordance with this section 4, and
otherwise from the Company, and such electing Family Shareholders and/or the
Company, as the case may be, shall be required to sell, an aggregate number of
Shares up to the number of Shares by which the Public Float is less than 133% of
the Interim Investment Spread at a price per Share equal to the average current
per share market price of the Shares over the 20 trading days immediately
preceding the first day on which the Interim Investment Protection Right becomes
exercisable. Notwithstanding the foregoing, however, if, upon any exercise of
the Interim Investment Protection Right, Bayer AG and Bayer's Controlled
Subsidiaries would beneficially own in the aggregate a majority of the then
outstanding Shares, the purchase price payable per Share for such Shares upon
such exercise shall be the acquisition value per Share (as determined in
accordance with section 4.3(b)) rather than the average current per share market
price (as described in the preceding sentence); however, in determining the
acquisition value per Share, the IB Firm (as defined in section 4.3(b)) shall
take into consideration the temporal limitations on
18
<PAGE>
the New Shareholder's rights to vote Shares being acquired by virtue of section
4.6 and the other considerations set forth in section 4.3(b).
(c) The closing of any purchase and sale under this section 4.2
shall be held at the Company's offices on at least two business days notice
after the fifth business day after (i) the New Shareholder shall have given the
written notice referred to in section 4.2(b), in the event that the price to be
paid by the New Shareholder is the average current per share market price, or
(ii) the New Shareholder shall have received the Value Notice referred to in
section 4.3(b), mutatis mutandis, in the event that the price to be paid by the
------- --------
New Shareholder is the acquisition value per Share. At the closing, the New
Shareholder shall pay the purchase price for the Shares it is purchasing, by
certified or official bank check or wire transfer of funds, and the Family
Shareholders and/or the Company, as the case may be, shall deliver the Shares,
duly endorsed, if being sold by a Family Shareholder, and free and clear of any
encumbrances and with all required stock transfer tax stamps attached.
Notwithstanding anything to the contrary in this section 4.2, the New
Shareholder's right to purchase Shares under this section 4.2 shall not become
effective, unless the number of Shares the New Shareholder is so entitled to
purchase at the time is greater than 1% of the then outstanding Shares (but any
entitlement to purchase Shares that is so suspended shall be carried forward and
cumulated, until the cumulative number of Shares so carried
19
<PAGE>
forward exceeds 1% of the then outstanding Shares, at which time the right that
had been suspended shall cease to be suspended).
(d) If the Family Shareholders elect to sell a number of Shares
pursuant to section 4.2 or 4.3 that, in the aggregate, is equal to or less than
the number the New Shareholder shall have elected to purchase pursuant to
section 4.2 or 4.3 respectively, each such Family Shareholder shall sell the
number of Shares that such Family Shareholder shall have elected to sell and the
Company shall sell to the New Shareholder the balance, if any, of the number of
Shares the New Shareholder shall have elected to purchase. If the Family
Shareholders elect to sell pursuant to section 4.2 or 4.3 a number of Shares
that, in the aggregate, is more than the New Shareholders shall have elected to
purchase pursuant to section 4.2 or 4.3, respectively, each such Family
Shareholder shall sell the number of Shares set forth in a written notice given
to the New Shareholder and the Continuing Shareholders Designee by all the
Family Shareholders who are selling Shares at least one business day before the
closing of the purchase and sale or, in the absence of a notice so given, its
proportionate number of Shares (in the proportion that the number of Shares each
Family Shareholder shall have elected to sell bears to the total number of
Shares all the Family Shareholders shall have elected to sell).
(e) As used in this agreement, the term "Public Float" means the
total number of Shares then issued and outstanding (as shown by the most recent
report or statement filed by the Company
20
<PAGE>
with the SEC), less all Restricted Securities (as defined below); provided,
however that the "Public Float" shall be deemed to equal zero, if (i) the
Initial Public Offering Date has not yet occurred at the time or (ii) the Shares
are not listed or admitted to trading on the New York Stock Exchange or the
American Stock Exchange or quoted on the NASDAQ National Market System.
"Restricted Securities" means any Equity Securities that, at the date of
determination, (A) are held by employees or affiliates of the Company and are
subject to contractual restrictions on resale imposed by the Company or any of
its subsidiaries, (B) cannot be sold by the holder except under a registration
statement under the 1933 Act and have not been so registered or (C) remain
subject to the Voting Trust Agreement.
4.3 Final Investment Protection Right.
---------------------------------
(a) Subject to section 4.6, if, on the last trading day during
the Standstill Period, the Public Float is less than 133% of the number of
Shares that, when added to the aggregate number of Shares Bayer AG and Bayer's
Controlled Subsidiaries then beneficially own, equals a majority of the Shares
then outstanding (the "Final Investment Spread"), the New Shareholder shall have
the right (the "Final Investment Protection Right"), exercisable by written
notice given to the Company and the Continuing Shareholders Designee within six
months after the expiration of the Standstill Period, to give notice of its
interest in purchasing (subject to section 4.3(c)) from the Family Shareholders,
if and to the extent they or any of
21
<PAGE>
them so elect in accordance with this section 4, and otherwise from the Company,
and such electing Family Shareholders or the Company, as the case may be, shall
be required to sell (if the New Shareholder elects to purchase in accordance
with section 4.3(c)), an aggregate number of Shares up to the number of Shares
by which the Public Float is less than 133% of the Final Investment Spread at a
price per Share equal to the acquisition value per Share on the last trading day
of the Standstill Period.
(b) The term "acquisition value per Share" means an amount
determined by an internationally recognized, independent investment banking firm
selected by the Company, the New Shareholder and the Continuing Shareholders
Designee; however, if the Company and the Continuing Shareholders Designee, on
the one hand, and the New Shareholder, on the other hand, are unable to agree on
the selection of that firm within 30 calendar days after the date the notice is
given pursuant to section 4.3(a) (the "Notice Date"), each of the Company and
the Continuing Shareholders Designee, on the one hand, and the New Shareholder,
on the other hand, shall promptly (but in no event later than five business days
after the expiration of that 30 calendar day period) designate an
internationally recognized, independent investment banking firm, which firms
shall promptly (but in no event later than five business days after the
expiration of the previous five business day period) select a third
internationally recognized, independent investment banking firm to determine the
acquisition value per Share (the internationally recognized,
22
<PAGE>
independent investment banking firm so selected is referred to as the "IB
Firm"). The IB Firm shall determine the acquisition value per Share by using
generally accepted valuation techniques at the time of the determination, (i)
taking into consideration the value of shares of common stock of comparable
companies, (ii) recognizing, if applicable under the laws of the state of
incorporation of the Company and the Governing Documents at that time, that upon
the exercise of the Final Investment Protection Right control of the Company
will pass to the New Shareholder by reason of its purchase of such Shares, and
(iii) excluding consideration of (x) contractual obligations under this
agreement, the Continuing Shareholders Agreement or the Voting Trust Agreement
that may limit the ability of the Family Shareholders to sell Shares owned by
them or otherwise inhibit the full exercise of their rights as shareholders and
(y) the number of Shares then beneficially owned by Bayer AG and Bayer's
Controlled Subsidiaries (except to the extent necessary to calculate the number
of Shares constituting the Final Investment Spread) and the fact that the New
Shareholder is the beneficiary of the Final Investment Protection Rights. The
parties shall use reasonable efforts to have the IB Firm give written notice of
the acquisition value per Share and of its bases for such calculation to the
Company, the New Shareholder and the Continuing Shareholders Designee (the
"Value Notice") within 30 days after the selection of the IB Firm. The
determination of the acquisition value per Share by the IB firm shall be final,
conclusive and binding on the parties. The fees and expenses of
23
<PAGE>
the IB Firm shall be paid 50% by the Company and 50% by the New Shareholder.
The closing of any purchase and sale under this section 4.3(b) shall be held at
the Company's offices not later than 30 calendar days after the date the New
Shareholder shall have received the Value Notice. At the closing, the New
Shareholder shall pay the acquisition value per Share for each share pursuant to
which it has given notice under section 4.3(a), and the Family Shareholders
and/or the Company shall deliver the Shares, duly endorsed, if being sold by a
Family Shareholder, and free and clear of any encumbrances and with all
required stock transfer tax stamps attached.
(c) Within 30 calendar days after receipt of the Value Notice, the
New Shareholder will have the right to give notice to the Company and the
Continuing Shareholders Designee of its election to exercise the Final
Investment Protection Right. Within five days after the New Shareholder gives
such notice, each of the Family Shareholders shall have the right to elect, by
written notice given to the New Shareholder and the Company, to sell to the
New Shareholder the number of Shares set forth in that Family Shareholder's
notice, and each such Family Shareholder shall sell the number of Shares that
Family Shareholder shall have so elected to sell and the Company shall sell to
the New Shareholder the balance, if any, of the number of Shares that the New
Shareholder shall have elected to purchase. Notwithstanding anything to the
contrary in this section 4.3(c),
24
<PAGE>
this section 4.3(c) is subject to the provisions of section 4.2(d).
(d) If the New Shareholder purchases any Shares from the Company
pursuant to its exercise of the Final Investment Protection Right, the Company
shall as promptly as practicable (subject to any restrictions under applicable
law) make a pro rata distribution to all holders of Shares other than Bayer AG
and Bayer's Controlled Subsidiaries of an aggregate amount equal to (i) the
product of the acquisition value per Share multiplied by the number of Shares
purchased from the Company pursuant to section 4.3(c), reduced by (ii) the
product of the number of such Shares and the average current per share market
price of the Shares over the 20 trading days immediately preceding the end of
the Standstill Period.
4.4 First Refusal. If the Company fails to exercise its right to
-------------
purchase Shares under section 2.1 of the Continuing Shareholders Agreement
within 20 days after an Offer Notice (as defined in the Continuing Shareholders
Agreement) is given, the Company's right to purchase those Shares shall be
deemed to be assigned to the New Shareholder. However, notwithstanding anything
to the contrary in the Continuing Shareholders Agreement, in the case of any
purchase by the New Shareholder under section 2.1 of the Continuing Shareholders
Agreement by virtue of this section 4.4 after the Initial Public Offering Date,
the New Shareholder shall have the right to purchase only the number of Shares
that, when added to the number of Shares
25
<PAGE>
Bayer AG and Bayer's Controlled Subsidiaries then own, equals the New Percentage
(as defined in section 5.1A) of the then outstanding Shares. In the event of a
dispute concerning the purchase price of Shares acquired under section 2.1 of
the Continuing Shareholders Agreement, the dispute shall be resolved between the
New Shareholder and the Continuing Shareholders pursuant to the dispute
resolution mechanisms set forth in section 2.2 of the Continuing Shareholders
Agreement, in all respects as if the New Shareholder were the Company. In the
case of any Shares as to which the Company shall have failed to exercise its
right to purchase under section 2.1 of the Continuing Shareholders Agreement and
the New Shareholder shall have failed to exercise its right to purchase the
Shares under this section 4.4, it is understood and agreed that the Continuing
Shareholder(s) may sell the Shares to the offeror in accordance with the terms
and conditions of the Continuing Shareholders Agreement (subject to the
limitation set forth in section 2.1 of the Continuing Shareholders Agreement to
the effect that, if the sale is not consummated within 75 days following the
expiration of the 40-day period described in section 2.1 of the Continuing
Shareholders Agreement, the Shares specified in the Offer Notice shall again
become subject to section 2.1 of the Continuing Shareholders Agreement).
Notwithstanding anything to the contrary in the Continuing Shareholders
Agreement, if as a result of the New Shareholder's acquisition of any Shares in
accordance with this section 4.4, Bayer AG and Bayer's Controlled Subsidiaries
would beneficially own a majority of the Shares then
26
<PAGE>
outstanding, the New Shareholder shall purchase those Shares at a price equal to
the greater of (a) the price per Share determined in accordance with section 2.1
of the Continuing Shareholders Agreement and (b) the acquisition value per Share
determined in accordance with section 4.3(b) of this agreement; however, in
determining the acquisition value per Share, the IB Firm shall take into
consideration the temporal limitations on the New Shareholder's rights to vote
Shares being acquired by virtue of section 4.6 and the other considerations set
forth in section 4.3(b).
4.5 Certain Equity Financings. Notwithstanding anything to the
-------------------------
contrary in this agreement, prior to the Initial Public Offering Date, the
Company shall not issue any Equity Securities ((a) except for Equity Securities
issued to or for the benefit of employees or directors of the Company or its
subsidiaries, (b) except in acquisitions, (c) except for Equity Securities
issued in connection with financings that are not primarily comprised of Equity
Securities and (d) except in connection with any underwritten sale of shares of
the Company's common stock to the public registered under the 1933 Act).
4.6 Voting. If, immediately after the New Shareholder acquires any
------
Shares under section 4.2, 4.3, 4.4 or 11.5, or otherwise, during the Standstill
Period, Bayer AG and Bayer's Controlled Subsidiaries beneficially own in the
aggregate (a) on or before the Initial Public Offering Date, more than 28.3% of
the then outstanding Shares, or (b) after the Initial Public
27
<PAGE>
Offering Date, more than the New Percentage (as defined in section 5.1A) of the
then outstanding Shares, then, at all times thereafter during the Standstill
Period, (y) that excess number of Shares shall be voted or not voted in meetings
of shareholders and otherwise in accordance with the written instructions of the
Trustee and the Successor Trustees (regardless of whether the Voting Trust
Agreement is still in effect) (and, in the absence of such instructions, the
Shares shall be deemed not to be present or voting), and (z) that excess number
of Shares shall not be included in the number of Shares owned by the New
Shareholder in determining the Fraction.
4.7 Termination of Certain Rights. If during the Standstill Period
-----------------------------
the New Shareholder sells to any unaffiliated third party any Shares, then the
New Shareholder's rights under sections 2, 4.1, 4.2, 4.3, 4.4 and 8 shall
terminate and be of no further force or effect (it being understood, however,
that, notwithstanding any termination of rights under this section 4.7, nothing
in this section 4.7 shall be deemed to affect in any way any such rights as a
consequence of any assignment by the New Shareholder or its permitted assignees
of such rights in accordance with section 12.2).
5. Standstill. Except as otherwise contemplated by this agreement,
----------
or unless the New Shareholder is invited to do otherwise by the Company's board
of directors, during the Standstill Period, the New Shareholder shall not, and
shall not permit any of its affiliates (within the meaning of Rule 12b-2
28
<PAGE>
under the Exchange Act) (including, without limitation, Bayer AG and Bayer's
Controlled Subsidiaries), or anyone acting on behalf of, or in concert with, the
New Shareholder or any of its affiliates, to, directly or indirectly:
5.1 acquire, announce an intention to acquire, offer or propose to
acquire, solicit an offer to sell or agree to acquire, by purchase, by gift, by
joining a partnership, a limited partnership, a syndicate or any group (within
the meaning of section 13(d)(3) of the Exchange Act) or otherwise, any (a)
assets, businesses or properties of the Company or any of its subsidiaries,
other than in the ordinary course of business, or (b) Equity Securities;
5.2 participate in the formation or encourage the formation of, or
join or in any way participate with, any partnership, limited partnership,
syndicate, group or other person or entity that owns or seeks to acquire
beneficial ownership of Equity Securities;
5.3 solicit, or participate in any solicitation of, proxies or
become a participant in any election contest (the terms used in this section 5.3
having the respective meanings given them in Regulation 14A under the Exchange
Act) with respect to the Company;
5.4 initiate, propose or otherwise solicit shareholders for the
approval of one or more shareholder
29
<PAGE>
proposals with respect to the Company or induce any other person to initiate any
shareholder proposal;
5.5 seek to place designees on the board of directors of the Company,
seek the removal of any member of the board of directors of the Company or seek
to have called any meeting of the shareholders of the Company;
5.6 deposit any Equity Securities in a voting trust or subject any
Equity Securities to a voting agreement or other agreement or arrangement with
respect to voting;
5.7 otherwise act, alone or in concert with others, to seek to
control the management, board of directors, policies or affairs of the Company
or solicit, propose, seek to effect or negotiate with any other person or entity
(including, without limitation, the Company) with respect to any form of
business combination or other extraordinary transaction with the Company or any
of its subsidiaries or any restructuring, recapitalization, similar transaction
or other transaction not in the ordinary course of business with respect to the
Company or any of its subsidiaries, solicit, make or propose or negotiate with
any other person or entity with respect to, or announce an intent to make, any
tender offer or exchange offer for any Equity Securities, or publicly disclose
an intent, purpose, plan or proposal with respect to the Company, any of its
subsidiaries or any securities or assets of the Company or any of its
subsidiaries, that would violate the provisions of this section 5, or
30
<PAGE>
assist, participate in, facilitate or solicit any effort or attempt by any
person or entity to do or seek to do any of the foregoing; or
5.8 request the Company (or its directors, officers, employees or
agents) to amend or waive any provision of this section 5 (including, without
limitation, this section 5.8) or otherwise seek any modification to or waiver of
any of the agreements or obligations of the New Shareholder or its affiliates
(including, without limitation, Bayer AG and Bayer's Controlled Subsidiaries)
under this section 5.
Notwithstanding any of the foregoing sections 5.1 through 5.8 and
during the Standstill Period:
5.1A The New Shareholder shall have the right (a) at any time to own
beneficially any securities the Company distributes to it as part of a pro rata
dividend to all holders of common stock, (b) at any time to acquire or solicit
an offer to acquire any Equity Securities in accordance with section 4 and (c)
at any time, to acquire a number of Shares that, when added to the number of
Shares Bayer AG and Bayer's Controlled Subsidiaries then beneficially own,
equals the New Percentage of the then outstanding Shares. As used in this
agreement, the term "New Percentage" means 30% after the earlier of the Initial
Public Offering Date and May 15, 1997 (such earlier date, the "Deemed Initial
Public Offering Date") and before the second anniversary of the Deemed Initial
Public Offering Date, 33-1/3%
31
<PAGE>
thereafter and before the third anniversary of the Deemed Initial Public
Offering Date, 36-2/3% thereafter and before the fourth anniversary of the
Deemed Initial Public Offering Date and 40% thereafter.
5.2A The New Shareholder shall have the right (a) to discuss any
business matters (including, without limitation, subjects that may be within the
matters listed in sections 5.1 through 5.7) privately with the chief executive
officer of the Company (and the Company agrees that its chief executive officer
will make himself reasonably available for such discussions), (b) to discuss any
business matters with the Company's senior executive officers, if, in the good
faith judgment of the New Shareholder, the business matters relate primarily to
the performance or administration of the heads of agreement dated this date
among Bayer AG, the New Shareholder and Schein Pharmaceutical, Inc. and do not
involve a sale of all or substantially all the business and assets of the
Company or a substantial business unit or any shares of the Company (or a
transaction having a similar effect), (c) to discuss any business matters with
members of the Company's board of directors or (d) to discuss with the
Continuing Shareholders matters unrelated to the Company, or related to the
Company but not otherwise prohibited by this section 5; provided, however, that,
notwithstanding anything to the contrary in this section 5.2A, no proposal shall
be made by the New Shareholder that would require any member of the board of
directors of the Company to consider
32
<PAGE>
amending, modifying or waiving, or taking or permitting any action inconsistent
with, any provision of this section 5 or to consider taking or permitting any
action that would have a similar effect. The New Shareholder also may discuss
its investment in the Company with its own shareholders and with the investment
community, provided that such discussions are not for the purpose of
circumventing any of sections 5.1 through 5.8.
5.3A Notwithstanding the provisions of sections 5.1 through 5.8, the
representative or representatives of the New Shareholder on the board of
directors of the Company shall have the right to take such action as they deem
necessary, proper or advisable to fulfill their fiduciary duties (including any
duty of loyalty) to the Company and its shareholders.
5.4A As a holder of Shares, the New Shareholder may exercise rights
issued to it in the future under any shareholder rights or similar plan (i.e.,
---
a so-called "poison pill" plan) and may acquire the securities issuable upon
exercise of those rights.
5.5A The provisions of sections 5.1 and 5.2 shall be suspended in the
event that any third party (other than Bayer AG and Bayer's Controlled
Subsidiaries and their affiliates) publicly commences an unsolicited tender
offer or exchange offer for a number of Shares of the Company's common stock
that, when added to the number of Shares that third party then beneficially
owns, is a majority of the Company's then outstanding Shares (and
33
<PAGE>
provided that (a) the New Shareholder reasonably believes that the third party
has the financial capacity and legal authority to consummate the tender offer or
exchange offer and the New Shareholder so represents in writing to the Company,
(b) Bayer AG and Bayer's Controlled Subsidiaries shall have had no prior direct
or indirect communication with that third party concerning the tender offer or
exchange offer, and the New Shareholder so represents in writing to the Company,
and (c) the suspension referred to above shall terminate when, if and as long as
that third party is enjoined from proceeding with the tender offer or exchange
offer.
6. Restrictions on Transfer Generally.
----------------------------------
6.1 Transfers to be Made Only as Permitted or Required by This
----------------------------------------------------------
Agreement. The Shareholders may not, directly or indirectly, sell, assign,
- ---------
transfer, pledge or otherwise encumber or dispose of (collectively,
"transfer") any Shares, except as specifically permitted or required by this
agreement or the Continuing Shareholders Agreement. Any other purported transfer
shall be void and of no effect.
6.2 Termination of Restrictions. The provisions of section 6.1 shall
---------------------------
terminate on the earlier of the second anniversary of the Initial Public
Offering Date and May 15, 1999.
6.3 Legend. As long as any provision of this agreement remains in
------
effect, each certificate representing Shares shall bear a legend substantially
as follows:
34
<PAGE>
"The shares represented by this certificate are subject to a
shareholders agreement dated , 1994 that
----------------
restricts the transfer of the shares, a copy of which is on
file at the office of the Company."
7. Come-Along. If, at any time before the earlier of the Initial
----------
Public Offering Date and May 15, 2001, any or all of the Continuing Shareholders
and their Permitted Transferees (as defined in section 1.2(d) of the Continuing
Shareholders Agreement) and employees and former employees of the Company and
its subsidiaries (the "Selling Group") sell or agree to sell to a non-affiliated
third party that number of shares of Equity Securities that, when added to the
shares then beneficially owned by Bayer AG and Bayer's Controlled Subsidiaries
and of other selling shareholders selling in that transaction, would be
sufficient under applicable state corporation law to enable the beneficial owner
to effect a short-form parent-subsidiary merger of the Company with the
purchaser following the sale, whether in a single transaction or a series of
related transactions, the Continuing Shareholders shall cause the third party to
purchase all the Shares beneficially owned by Bayer AG and Bayer's Controlled
Subsidiaries, and the New Shareholder and its Permitted Transferees shall sell
those Shares to the third party on the same terms as the members of the Selling
Group sell or agree to sell Shares. The New Shareholder and its Permitted
Transferees shall use reasonable efforts to cooperate with the Selling Group in
connection with any such sale. Nothing in this
35
<PAGE>
section 7 shall be deemed to diminish the rights of the New Shareholder under
sections 4.4 and 8, subject to section 4.7.
8. New Shareholder's Right of First Offer. Subject to section 4.7,
--------------------------------------
if at any time prior to the end of the Standstill Period (or, if earlier, the
date of termination of the New Shareholder's rights under sections 4.1, 4.2 and
4.3) the right of first refusal under section 4.4 is no longer applicable by
virtue of any termination of the Continuing Shareholders Agreement and one or
more Continuing Shareholders (collectively, the "Continuing Shareholder
Offeror") who are permitted under the Continuing Shareholders Agreement and the
Voting Trust Agreement, and are otherwise able (subject only to this section 8),
and in good faith wish, to sell or cause the sale of any of the Shares to a non-
affiliated third party (other than sales under Rule 144 under the 1933 Act,
sales in a Wide Distribution (as defined in the Continuing Shareholders
Agreement) and transfers under sections 1.2(a)(iii)(G) or (H) of the Continuing
Shareholders Agreement), the Continuing Shareholder Offeror shall promptly
deliver a written notice (a "Continuing Shareholder Offer Notice") to the New
Shareholder containing an offer to sell to the New Shareholder all (but not
fewer than all) the Shares the Continuing Shareholder Offeror wishes to sell
(the "Continuing Shareholder Offered Shares") on the same terms as the
Continuing Shareholder Offeror wishes to sell the Continuing Shareholder Offered
Shares. At any time within 45 days after the Continuing Shareholder Offer
Notice is given, the New Shareholder may notify
36
<PAGE>
the Continuing Shareholder Offeror that the New Shareholder shall purchase all
(but not fewer than all) the Continuing Shareholder Offered Shares, on the terms
specified in the Continuing Shareholder Offer Notice (a "New Shareholder
Acceptance Notice"). If the Continuing Shareholder Offeror receives the New
Shareholder Acceptance Notice within that 45-day period, the Continuing
Shareholder Offeror and the New Shareholder shall consummate the transaction
within 90 days following the Continuing Shareholder Offeror's receipt of the New
Shareholder Acceptance Notice. If the Continuing Shareholder Offeror does not
receive a New Shareholder Acceptance Notice within that 45-day period, the
Continuing Shareholder Offeror shall have the right to sell all (but not fewer
than all) the Continuing Shareholder Offered Shares to any person or entity at a
price equal to or greater than the price set forth in the Continuing Shareholder
Offer Notice, and on such other terms as are not materially less favorable to
the seller(s) than those set forth in the Continuing Shareholder Offer Notice.
If a sale is not consummated within 90 days following the expiration of the 45-
day period referred to above, the Continuing Shareholder Offered Shares shall
again be subject to this section 8.
9. Company's and Continuing Shareholders' Rights of First Offer.
------------------------------------------------------------
If, at any time prior to the earlier of the second anniversary of the Initial
Public Offering Date and May 15, 2001, the New Shareholder is able (subject only
to this section 9), and in good faith wishes, to sell any of its shares to a
non-
37
<PAGE>
affiliated third party, the New Shareholder shall promptly deliver a written
notice (a "New Shareholder Offer Notice") to the Company and the Continuing
Shareholders Designee containing an offer to sell to the Company or the
Continuing Shareholders all (but not fewer than all) the Shares the New
Shareholder wishes to sell (the "New Shareholder Offered Shares") on the same
terms as the New Shareholder Offeror wishes to sell the New Shareholder Offered
Shares. At any time within 45 days after the New Shareholder Offer Notice is
given, the Company may notify the New Shareholder (a "Company Acceptance
Notice") that the Company, or the Continuing Shareholders, or any of them, may,
in a single notice, notify the New Shareholder (a "Continuing Shareholders
Acceptance Notice") that such Continuing Shareholders shall purchase all (but
not fewer than all) the New Shareholder Offered Shares on the terms specified in
the New Shareholder Offer Notice. If the New Shareholder receives a Company
Acceptance Notice within that 45-day period, the New Shareholder and the Company
shall consummate the transaction within 90 days after the New Shareholder Offer
Notice is given. If the New Shareholder does not receive a Company Acceptance
Notice but does receive a Continuing Shareholders Acceptance Notice within that
45-day period, the New Shareholder and such Continuing Shareholders shall
consummate the transaction within 90 days after the New Shareholder Offer Notice
is given. If the New Shareholder does not receive a Company Acceptance Notice
or a Continuing Shareholders Acceptance Notice within that 45-day period, the
New Shareholder Offeror shall have the right to sell all (but not
38
<PAGE>
fewer than all) the New Shareholder Offered Shares to any person or entity at a
price equal to or greater than the price set forth in the New Shareholder Offer
Notice, and on such other terms as are not in any material respect less
favorable to the seller(s) than those set forth in the New Shareholder Offer
Notice. If a sale is not consummated within 90 days following the expiration of
the 45-day period referred to above, the New Shareholder Offered Shares shall
again be subject to this section 9.
10. Registration Rights.
-------------------
10.1 Demand Registration. After the earlier of the first anniversary
-------------------
of the Initial Public Offering Date and May 15, 1997, upon receipt of the
written request of one or more Registration Rights Holders (as defined in
section 12.2) (the "Initiating Holders") that the Company effect the
registration under the 1933 Act of all or part of such Initiating Holders'
Shares having a current per share market price of not less than $50,000,000 (a
"Demand Request"), the Company shall promptly give written notice of such
Registration Request to all other Registration Rights Holders, if any, and
thereafter shall use all reasonable efforts to file a registration statement on
a form to be selected by the Company and to effect the registration under the
1933 Act of the Shares designated in the Demand Request (a "Demand
Registration") and all other Shares the Company has been requested to register
by any other Registration Rights Holders entitled to request registration
pursuant to section 10.2 (the "Other Holders") by written request given to the
Company within
39
<PAGE>
15 calendar days after the giving of such written notice by the Company. The
Company shall be obligated to effect three Demand Registrations; however,
notwithstanding anything to the contrary in this agreement, if, for any reason
(other than the fault of any Registration Rights Holder), the registration fails
to become effective and provide for the distribution of all the Shares specified
in the Demand Request, or the effectiveness is not maintained for at least 60
days in accordance with section 10.4(e) or the Company fails to perform all its
obligations under this section 10.1 with respect to that registration, that
Demand Registration shall not reduce the number of Demand Registrations the
Company was required to effect under this section 10.1 prior to that Demand
Registration. The Company's obligations under this section 10.1 shall terminate
on the earlier of the tenth anniversary of this agreement and the first date on
which the Fraction is less than one-tenth, and the Company shall not be
obligated to effect more than one Demand Registration in any period of 365 days.
10.2 Piggyback Registration. If at any time the Company determines
----------------------
or is requested or receives a demand (pursuant to an agreement binding on the
Company) from any person or entity to register under the 1933 Act for sale to
the public any of the Company's securities, on a form that also would permit the
registration under the 1933 Act for sale to the public of any of the Shares held
by any Registration Rights Holder, the Company shall, each such time, promptly
give each Registration Rights
40
<PAGE>
Holder written notice of its intent to effect a registration and, subject to
sections 10.5 and 10.7, shall include in the registration all Shares held by any
Registration Rights Holder with respect to which the Company has received a
written request (a "Piggyback Request") specifying the number of Shares to be
included within 15 days after the Company has given notice to the Registration
Rights Holders pursuant to this section 10.2.
10.3 Obligation of the New Shareholder. Any Demand Request or
---------------------------------
Piggyback Request (a "Request") from a Registration Rights Holder shall express
the New Shareholder's and its Permitted Transferees' present intent to offer for
sale to the public the number of Shares to be included in the registration
statement and contain an undertaking to provide all such information and
materials and to take all such action as may be required to permit the Company
to comply with all applicable requirements of the SEC and to obtain acceleration
of the effective date of the registration statement.
10.4 Obligations of the Company. With respect to any registration
--------------------------
statement referred to in sections 10.1 or 10.2, the Company shall:
(a) use all reasonable efforts to have the registration
statement declared effective as promptly as practicable, and shall promptly
notify each Registration Rights Holder, and such other persons as the
Registration Rights Holder designates, if any, and confirm such advice in
writing, (i) when
41
<PAGE>
the registration statement becomes effective, (ii) when any post-effective
amendment to the registration statement becomes effective and (iii) of any
request by the SEC for any amendment or supplement to the registration statement
or any prospectus relating to the registration statement or for additional
information;
(b) make available for inspection by any underwriters
participating in any planned disposition of Shares and any attorney, accountant
or other agent retained by each Registration Rights Holder or the underwriters,
all financial and other records reasonably necessary to permit them to
demonstrate that they have conducted a reasonable investigation of matters
described in the registration statement and cause the appropriate Company
officers to supply all such information reasonably requested by each
Registration Rights Holder, the underwriters or their agents;
(c) use all reasonable efforts to qualify, not later than the
effective date of the registration statement, the Shares under such "blue sky"
or other state securities laws as the New Shareholder may reasonably request (it
being understood, however, that the obligation under this section 10.4(c) shall
not be construed to obligate the Company to qualify as a foreign corporation or
as a dealer in securities or to execute or file any general consent to service
of process under the law of any such jurisdiction where it is not otherwise so
subject);
42
<PAGE>
(d) furnish to each Registration Rights Holder such number of
copies of the registration statement, each amendment to the registration
statement, the prospectus included in each such registration statement and each
amendment to each registration statement, each amendment or supplement to any
prospectus and such other documents as each Registration Rights Holder may
reasonably request to facilitate the disposition of the Shares;
(e) for a period of at least 60 days from the effective date of
the registration statement, use reasonable efforts to keep the registration
statement in effect and current and from time to time to amend or supplement the
registration statement or the prospectus to the extent necessary to permit the
completion within that period, in compliance with the 1933 Act, of the sale or
distribution of the Shares. If at any time the SEC institutes or threatens to
institute any proceedings for the purpose of issuing a stop order suspending the
effectiveness of any such registration statement, the Company shall promptly
notify each Registration Rights Holder and use all reasonable efforts to prevent
the issuance of any such stop order or to obtain its withdrawal as soon as
possible. The Company shall promptly advise each Registration Rights Holder of
any order or communication of any public board or body addressed to the Company
suspending or threatening to suspend the qualification of any of the Shares for
sale in any jurisdiction; and
43
<PAGE>
(f) insofar as the methods of distribution proposed to be used
are not reflected in the last prospectus filed by the Company as part of the
registration statement or pursuant to Rule 424 under the 1933 Act, each
Registration Rights Holder shall promptly provide the Company with a description
of the method or methods of distribution of the Shares from time to time
contemplated by each Registration Rights Holder and the Company shall file any
and all amendments and supplements necessary to include that description in the
registration statement.
10.5 Conditions to the Obligations of the Company. The Company may
--------------------------------------------
postpone, for up to 90 days, the filing of any registration statement otherwise
required to be prepared and filed by it under this agreement, if, at the time it
receives a Request, the Company would be required to prepare any financial
statements other than those it customarily prepares or the Company determines in
its reasonable judgment that the registration and offering would interfere with
any material financing, acquisition, corporate reorganization or other material
corporate transaction or development involving the Company that is pending or
imminent at the time and promptly gives each Registration Rights Holder written
notice of that determination (it being understood, however, that, in any such
event, the Company shall use all reasonable efforts to minimize the length of
the postponement). If the Company shall so postpone the filing of a
registration statement, each
44
<PAGE>
Registration Rights Holder shall have the right to withdraw the Request by
giving written notice to the Company within 30 days after the receipt of the
notice of postponement and, in the event of the withdrawal, the Request that was
withdrawn shall not be deemed to have been made.
10.6 Expenses of Registration. All expenses (other than fees and
------------------------
disbursements of counsel for each Registration Rights Holder and the Continuing
Shareholders and underwriting or brokerage commissions attributable to the
Shares to be sold) incurred in connection with all registrations under this
agreement and the "blue sky" qualifications referred to in section 10.4(c),
including, without limitation, all registration and qualification fees,
printers' and accounting fees and fees and disbursements of counsel for the
Company, shall be borne by the Company.
10.7 Underwriting Requirements. In connection with any offering
-------------------------
pursuant to a Piggyback Request, the Company shall not be required to register
any Shares held by any Registration Rights Holder, unless such Registration
Rights Holder accepts the terms of the underwriting and then only in such
quantity as will not, in the written opinion of the underwriters, exceed the
maximum number of Shares that can be marketed without materially and adversely
affecting the offering. If, as a consequence of the provisions of the preceding
sentence, the number of Registration Rights Holders' Shares is reduced, such
reduction shall be made pro rata among the Registration Rights Holders
45
<PAGE>
requesting such registration on the basis of the percentage of the Shares of
such Registration Rights Holders requested so to be registered, and the
percentage of the reduction shall not be more than the percentage of reduction
applicable to any other selling shareholder in the offering.
10.8 Other Registration Rights. Except for the registration rights in
-------------------------
this agreement and in the Continuing Shareholders Agreement, the Company is not
a party or subject to any agreement entitling any person or entity to
registration rights. The Company shall not enter into any other agreement
entitling any person or entity to registration rights that would materially and
adversely affect the rights of any Registration Rights Holder under this
agreement (it being understood that any registration rights other than those in
the Continuing Shareholders Agreement that would have the effect of reducing the
number of Shares that would otherwise be included in a registration statement
shall be deemed materially and adversely to affect the rights of the New
Shareholder and its Permitted Transferees under this agreement).
10.9 Indemnification. In the event any Shares are included in a
---------------
registration statement under this section 10 that relates to an underwritten
offering, to the extent permitted by law, the parties to the underwriting
agreement shall indemnify and hold harmless the other parties, and each person,
if any, who is a director, officer, agent, partner or shareholder of, or who
controls, such other parties, against losses, claims, damages or
46
<PAGE>
liabilities customarily indemnified against in underwritten secondary offerings.
Such indemnification shall include contribution in the manner and to the extent
customarily provided.
11. Certain Other Provisions
------------------------
11.1 Financial Statements. Prior to the earlier of the Initial
--------------------
Public Offering Date and the Governance Termination Date, the Company shall
furnish the New Shareholder (a) not later than 60 days after the end of each of
the first three fiscal quarters of each fiscal year, an unaudited consolidated
balance sheet of the Company and its subsidiaries as of the end of that fiscal
quarter, together with the related unaudited consolidated statements of income,
retained earnings and cash flows for that fiscal quarter and the year to date,
prepared in accordance with GAAP and setting forth in comparative form the
information for the corresponding periods of the previous fiscal year, (b) not
later than 120 days after the end of each fiscal year, an audited consolidated
balance sheet of the Company and its subsidiaries as of the end of that fiscal
year, together with the related audited consolidated statements of income,
retained earnings and cash flow for that fiscal year, prepared in accordance
with GAAP and setting forth in comparative form the information for the
preceding fiscal year, together with the related audit report of the Company's
independent accountants and (c) reports provided to its prime lender that are
not otherwise provided to members of its board of directors.
47
<PAGE>
11.2 Reincorporation. The Company shall exercise reasonable efforts
---------------
to reincorporate the Company, prior to the Initial Public Offering Date, in any
jurisdiction in which the ownership of a majority of the outstanding common
stock of the Company would give the beneficial owner of the stock the ability to
effect control of the Company (including, without limitation, those actions
specified in section 2.5) (it being understood that the Company need not
reincorporate in the event that action would, in the good faith judgment of the
Company's board of directors, cause material adverse tax consequences to the
Company or its shareholders).
11.3 Public Float. The Company shall use reasonable efforts to
------------
effect the Initial Public Offering Date as promptly as practicable so that the
number of Shares comprising the Public Float is at all times during the
Standstill Period that the New Shareholder is permitted to purchase additional
Shares not less than 133% of the number of Shares the New Shareholder is then so
permitted to purchase.
11.4 Reservation of Shares. Subject to section 4.6, (a) the Company
---------------------
shall at all times maintain sufficient authorized but unissued or treasury
Shares so that all rights of the New Shareholder to purchase new Shares from the
Company pursuant to this agreement may be exercised without additional
authorization of Shares, after giving effect to the exercise of all other
options, warrants, convertible securities and other rights to purchase Shares,
and (b) the Company shall not, by amendment to
48
<PAGE>
its Governing Documents or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act, avoid or seek to
avoid the observance or performance of any of the covenants or agreements to be
performed under this agreement by the Company.
11.5 Certain Acquisitions.
--------------------
(a) Each Family Shareholder agrees that he, she or it shall not, and
shall not permit his, her or its Family Group (as defined in the Continuing
Shareholders Agreement) members to, acquire any Shares, if, as a consequence of
the acquisition, the Family Shareholder and the Family Shareholder's Family
Group members own at that time more than 35.85%, in the case of Marvin H. Schein
and his Family Group members, 27.55%, in the case of Pamela Schein and her
Family Group members, and 12.97%, in the case of Pamela Joseph and her Family
Group members, of the outstanding Shares at the time (each, a "Maximum
Percentage").
(b) If a Family Shareholder's (together with his, her or its Family
Group's) holdings of Shares exceeds the applicable Maximum Percentage by reason
of such Family Shareholder's (or his, her or its Family Group's) acquisition of
Shares, the Family Shareholder shall promptly so notify the Company and the New
Shareholder in writing (the "Section 11 Notice"). The Section 11 Notice shall
specify (i) the extent by which the Maximum Percentage has been exceeded, and
(ii) the weighted average per Share acquisition price of the Shares most
recently purchased in
49
<PAGE>
excess of the Maximum Percentage (the "Acquisition Price"). Subject to section
11(c), the Company shall, upon five days notice given by the Company (which the
Company shall in good faith endeavor to give as soon as practicable upon first
learning that the applicable Maximum Percentage has been exceeded) at any time
during the period beginning on the date the relevant Family Shareholder's
(together with his, her or its Family Group) holdings of Shares first exceeds
the applicable Maximum Percentage and ending 90 days following the Company's
receipt of the Section 11 Notice, purchase from that Family Shareholder the
number of Shares in excess of the applicable Maximum Percentage at a price per
Share equal to 50% of (x) the Acquisition Price, or if the applicable Family
Shareholder has not given a Section 11 Notice, (y) the current per share market
price (determined in accordance with section 4.1) on the date the Company first
learns that the applicable Maximum Percentage has been exceeded. The closing of
any such purchase by the Company shall be held at the Company's offices. At the
closing, the Company shall pay the purchase price calculated in accordance with
this section 11(b) by certified check or in immediately available funds, and the
Family Shareholder shall deliver the Shares so to be purchased, duly endorsed,
and free and clear of any encumbrances and with all required stock transfer tax
stamps attached.
(c) If the Company, in its reasonable judgment, does not have the
financial resources to consummate the purchase of the Shares in accordance with
this section 11, it shall promptly
50
<PAGE>
so notify the New Shareholder. The New Shareholder may, at its sole election,
make available to the Company the funds to purchase such Shares, on terms and
conditions reasonably acceptable to the Company and the New Shareholder and
consistent with terms and conditions available from unaffiliated commercial
lenders. If the New Shareholder does not elect to make such funds available to
the Company, then the Company shall so promptly notify the relevant Family
Shareholder, and the Company shall have no obligation to purchase the Shares.
If the New Shareholder so elects to make the funds available, but the Company is
not able for any reason under applicable state corporate law to consummate the
purchase, the Company shall so promptly notify the New Shareholder, and the New
Shareholder may, at its sole election upon five days' notice given to the
Company and the relevant Family Shareholder at any time within 30 days after the
New Shareholder first learns that the Company is unable to consummate the
purchase, purchase the Shares upon the terms and conditions of section 11(b),
subject to the provisions of section 4.6.
(d) The parties acknowledge that the remedy at law for breach of
clause (a) of this section 11.5 would be inadequate and that, in addition to any
other remedy the New Shareholder or the Company may have for a breach of clause
(a) of this section 11.5, the New Shareholder or the Company shall be entitled
to an injunction restraining any such breach or threatened breach, without
posting any bond or security.
51
<PAGE>
12. Miscellaneous.
-------------
12.1 Definitions. As used in this agreement:
-----------
(a) Notwithstanding anything to the contrary in this agreement,
the term "Company" means Schein Holdings, Inc., a New York corporation. In the
event that, directly or indirectly (a) the Company shall consolidate with, or
merge with or into, any other person or entity and the Company shall not be the
continuing or surviving corporation of such consolidation or merger; (b) any
person or entity shall consolidate with the Company, or merge with or into the
Company and the Company shall be the continuing or surviving corporation of such
merger or consolidation and, in connection with such merger or consolidation,
all or part of the Shares shall be changed into or exchanged for stock or other
securities of any other person or cash or any other property; or (c) the Company
shall sell or otherwise transfer (or one or more of its subsidiaries shall sell
or otherwise transfer), in one or more transactions, assets or earning power
(including, without limitation, securities creating any obligation on the part
of the Company and/or any of its subsidiaries) representing in the aggregate
more than 50% of the assets or earning power of the Company and its subsidiaries
(taken as a whole) to any person or persons, then, and in each such case, the
term "Company" shall thereafter be deemed to refer to the person that is the
continuing, surviving, resulting or acquiring person or the person that is the
party receiving the greatest portion of the assets or earning power (including,
52
<PAGE>
without limitation, securities creating any obligation on the part of the
Company and/or any of its subsidiaries) transferred pursuant to such transaction
or transactions.
(b) The term "beneficial ownership" has the meaning given it
under Rule 13d-3 under the Exchange Act.
12.2 Assignment. Neither the New Shareholder nor any of its
----------
affiliates may assign any of its rights under this agreement, except (i) to a
successor to all or substantially all the business and assets of the New
Shareholder, or Bayer AG or to any of the direct and indirect majority-owned
subsidiaries of Bayer AG (including all direct and indirect majority-owned
subsidiaries of the New Shareholder), who agree to be bound by all the
obligations of the New Shareholder under this agreement as if it were the New
Shareholder, (ii) the New Shareholder may assign its rights under sections 4.1
(except for any Non-Assignable Preemptive Rights), 4.4 and 8 to a single
purchaser who, immediately after the purchase and for 60 days thereafter,
beneficially owns at least 10% of the Shares then owned by the New Shareholder
and who agrees to be bound by the obligations in section 5 (and who shall not be
entitled to the rights in section 5.1A(b) and (c)) and (iii) the New Shareholder
may assign its rights under section 10 to any person referred to in clause (i)
above and to up to three non-affiliated purchasers (the "Assignees") designated
by the New Shareholder, who, immediately after the respective purchase and for
60 days thereafter, beneficially own in the aggregate at least 20% of the Shares
then
53
<PAGE>
owned by the New Shareholder and who agree to be bound by the obligations in
section 5.1 (and who shall not be entitled to the rights in section 5.1A) (any
such person and, after an initial public offering by the Company of its shares
of common stock, any Continuing Shareholder, a "Registration Rights Holder");
provided that, for purposes of calculating whether an Assignee owns a number of
Shares equal to the New Percentage, the number of Shares of all the Assignees
shall be aggregated.
12.3 Governing Law. This agreement shall be governed by and
-------------
construed in accordance with the law of the state of New York applicable to
agreements made and to be performed wholly in New York.
12.4 Notices. All notices and other communications under this
-------
agreement shall be in writing and may be given by any of the following methods:
(a) personal delivery; (b) facsimile transmission; (c) registered or certified
mail, postage prepaid, return receipt requested; or (d) overnight delivery
service. Notices shall be sent to the appropriate party at its address or
facsimile number given below (or at such other address or facsimile number for
such party as shall be specified by notice given under this section 12.4):
if to the Company, to it at:
Schein Holdings, Inc.
c/o Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attention: General Counsel
Fax: 201-593-5820
54
<PAGE>
with a copy to:
Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, New York 10036
Attention: Richard L. Goldberg, Esq.
Fax: 212-969-2900
if to the New Shareholder or its Permitted
Transferees, to it at:
Miles Inc.
53rd Floor
One Mellon Bank Center
500 Grant Street
Pittsburgh, Pennsylvania 15219
Attention: Leslie F. Nute, Esq.
Senior Vice President and General Counsel
Fax: 412-394-5580
with copies to:
Bayer AG
D-5090
Leverkusen, Bayerwerk
Germany
Attention: General Counsel
Fax: 011-49-214-3062135
Joseph A. D'Arco, Esq.
Vice President and Associate General Counsel
Miles Inc.
400 Morgan Lane
West Haven, Connecticut 06516
Fax: 203-937-2795
Charles A. Schliebs, Esq.
Jones, Day, Reavis & Pogue
One Mellon Bank Center, 31st Floor
500 Grant Street
Pittsburgh, Pennsylvania 15219
Fax: 412-394-7959
if to a Continuing Shareholder or a Continuing
Shareholder Designee, to him, her or it at the
address set forth beside his, her or its name on
schedule A, with a copy to counsel at the address
set forth beside his, her or its name.
55
<PAGE>
All such notices and communications shall be deemed received upon (a) actual
receipt by the addressee, (b) actual delivery to the appropriate address or (c)
in the case of a facsimile transmission, upon transmission by the sender and
issuance by the transmitting machine of a confirmation slip confirming that the
number of pages constituting the notice have been transmitted without error. In
the case of notices sent by facsimile transmission, the sender shall
contemporaneously mail a copy of the notice to the addressee at the address
provided for above. However, such mailing shall in no way alter the time at
which the facsimile notice is deemed received. A copy of each notice given
hereunder shall also be given to the Continuing Shareholder Designee.
12.5 Counterparts. This agreement may be executed in counterparts,
------------
each of which shall be considered an original, but all of which together shall
constitute the same instrument.
12.6 Equitable Relief. The parties acknowledge that the remedy at
----------------
law for breach of this agreement would be inadequate and that, in addition to
any other remedy a party may have for a breach of this agreement, that party
shall be entitled to an injunction restraining any such breach or threatened
breach, or a decree of specific performance, without posting any bond or
security. The remedy provided in this section 12.6 is in addition to, and not
in lieu of, any other rights or remedies a party may have.
56
<PAGE>
12.7 Separability. If any provision of this agreement is invalid or
------------
unenforceable, the balance of this agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
12.8 Entire Agreement. This agreement contains a complete statement
----------------
of all the arrangements among the parties with respect to its subject matter,
supersedes all existing agreements among them with respect to that subject
matter, may not be changed or terminated orally and any amendment or
modification must be in writing and signed by the Company, the Continuing
Shareholders then owning a majority of the Shares owned by all Continuing
Shareholders, and the New Shareholder, provided that no such amendment or
modification may adversely affect the rights or obligations of any Continuing
Shareholder without that Continuing Shareholder's prior written consent.
SCHEIN HOLDINGS, INC.
By: /s/
--------------------------------
Authorized Officer
MILES INC.
By: /s/
--------------------------------
Authorized Officer
57
<PAGE>
/s/ Martin Sperber
------------------------------------------
Martin Sperber, as Trustee under the
Voting Trust Agreement
THE CONTINUING SHAREHOLDERS:
/s/ Marvin H. Schein
------------------------------------------
Marvin H. Schein
Trust established by Marvin H. Schein
under trust agreement dated September 9,
1994
By:/s/ Marvin H. Schein
---------------------------------------
Marvin H. Schein, Trustee
By:/s/ Leslie Levine
---------------------------------------
Leslie Levine, Trustee
Trust established by Marvin H. Schein
under trust agreement dated December, 31,
1993
By:/s/ Marvin H. Schein
--------------------------------------
Marvin H. Schein, Trustee
By:/s/ Leslie Levine
--------------------------------------
Leslie Levine, Trustee
/s/ Pamela Schein
--------------------------------------
Pamela Schein
58
<PAGE>
Trust established by Trustee under Article
Fourth of the Will of Jacob M. Schein for
the benefit of Pamela Schein and her issue
under trust agreement dated September 29,
1994
By:/s/ Irving Shafran as attorney in fact
---------------------------------------
Irving Shafran, Trustee
/s/ Pamela Joseph
---------------------------------------
Pamela Joseph
Trust established by Pamela Joseph under
trust agreement dated September 28, 1994
By:/s/ Morey M. Myers
---------------------------------------
Morey M. Myers, Trustee
/s/ Martin Sperber
------------------------------------------
Martin Sperber
Trust established by Martin Sperber under
trust agreement dated December 31, 1993
By:/s/ Ellen Sperber
---------------------------------------
Ellen Sperber, Trustee
/s/ Stanley Bergman
------------------------------------------
Stanley Bergman
59
<PAGE>
Trust established by Stanley Bergman under
trust agreement dated December, 31, 1993
By:/s/ Marion Bergman
---------------------------------------
Marion Bergman, Trustee
60
<PAGE>
SCHEDULE A
----------
SHAREHOLDERS
------------
<TABLE>
<CAPTION>
# OF SHARES
# OF SHARES ISSUABLE UPON THE
FAMILY SHAREHOLDERS: OWNED* EXERCISE OF OPTIONS
- ------------------- ----- -------------------
<S> <C> <C>
MARVIN H. SCHEIN 100 CLASS B -0-
COBBLE COURT COMMON SHARES
GLEN COVE, NEW YORK 11771
COUNSEL:
LESLIE J. LEVINE, ESQ.
PEIREZ, ACKERMAN & LEVINE
175 GREAT NECK ROAD
GREAT NECK, NEW YORK 11021
TRUST ESTABLISHED BY MARVIN H. SCHEIN UNDER TRUST 25,277.5 CLASS B
AGREEMENT DATED SEPTEMBER 9, 1994 COMMON SHARES -0-
C/O MARVIN H. SCHEIN
COBBLE COURT
GLEN COVE, NEW YORK 11771
COUNSEL:
LESLIE J. LEVINE, ESQ.
PEIREZ, ACKERMAN & LEVINE
175 GREAT NECK ROAD
GREAT NECK, NEW YORK 11021
TRUST ESTABLISHED BY MARVIN N. SCHEIN UNDER TRUST 64,642.5 CLASS B -0-
AGREEMENT DATED DECEMBER 31, 1993 COMMON SHARES
C/O MARVIN SCHEIN
COBBLE COURT
GLEN COVE, NEW YORK 11771
COUNSEL:
LESLIE J. LEVINE, ESQ.
PEIREZ, ACKERMAN & LEVINE
175 GREAT NECK ROAD
GREAT NECK, NEW YORK 11021
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PAMELA SCHEIN 63,202 CLASS A -0-
666 GREENWICH STREET COMMON SHARES
APT. 514
NEW YORK, NEW YORK 10014
COUNSEL:
PETER J. HANLON, ESQ.
WILLKIE FARR & GALLAGHER
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022
TRUST ESTABLISHED BY TRUSTEE UNDER ARTICLE FOURTH 4,840 CLASS A -0-
OF THE WILL OF JACOB M. SCHEIN FOR THE BENEFIT OF COMMON SHARES
PAMELA SCHEIN AND HER ISSUE UNDER TRUST AGREEMENT
DATED SEPTEMBER 29, 1994
C/O IRVING SHAFRAN
360 EAST 72ND STREET
NEW YORK, NEW YORK 10017
COUNSEL:
PETER J. HANLON, ESQ.
WILLKIE FARR & GALLAGHER
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022
PAMELA JOSEPH 25,535 CLASS A -0-
RR#3, BOX 140 COMMON SHARES
POUND RIDGE, NEW YORK 10576
COUNSEL:
MOREY MYERS, ESQ.
SCHNADER, HARRISON, SEGAL & LEWIS
108 N. WASHINGTON AVENUE
SCRANTON, PENNSYLVANIA 18503
TRUST ESTABLISHED BY PAMELA JOSEPH UNDER TRUST 993 CLASS A -0-
AGREEMENT DATED SEPTEMBER 28, 1994 COMMON SHARES
C/O MOREY MYERS, ESQ.
SCHNADER, HARRISON, SEGAL & LEWIS
108 N. WASHINGTON AVENUE
SCRANTON, PENNSYLVANIA 18503
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OTHER SHAREHOLDERS:
- ------------------
<S> <C> <C>
MARTIN SPERBER 3,461 CLASS A 4,795 CLASS A
6 CASPER COURT COMMON SHARES COMMON SHARES
FLORHAM PARK, NEW JERSEY 07932
TRUST ESTABLISHED BY MARTIN SPERBER UNDER TRUST 2,437 CLASS A -0-
AGREEMENT DATED DECEMBER 31, 1993 COMMON SHARES
C/O ELLEN SPERBER
6 CASPER COURT
FLORHAM PARK, NEW JERSEY 07932
STANLEY BERGMAN 1,204 CLASS A -0-
104A MIDDLEVILLE ROAD COMMON SHARES
NORTHPORT, NEW YORK 11768
TRUST ESTABLISHED BY STANLEY BERGMAN UNDER TRUST 1,959 CLASS A -0-
AGREEMENT DATED DECEMBER 31, 1993 COMMON SHARES
C/O MARION BERGMAN
1O4A MIDDLEVILLE ROAD
NORTHPORT, NEW YORK 11768
CONTINUING SHAREHOLDERS DESIGNEE:
- --------------------------------
MARVIN H. SCHEIN
COBBLE COURT
GLEN COVE, NEW YORK 11771
WITH COPIES TO:
LESLIE J. LEVINE, ESQ., PETER J. HANLON, ESQ. AND
MOREY MYERS, ESQ., AT THEIR RESPECTIVE ADDRESSES
SET FORTH ABOVE
</TABLE>
________________________
* IMMEDIATELY AFTER THE CLOSING UNDER THE STOCK PURCHASE AGREEMENT.
<PAGE>
EXHIBIT 10.31
CONTINUING SHAREHOLDERS AGREEMENT
Dated September 30, 1994
------------------------
The parties to this agreement are Schein Holdings, Inc., a New York
corporation (the "Company"), and each of the shareholders listed on schedule A
(collectively, the "Shareholders").
Each Shareholder owns the number of shares and options to purchase the
number of shares of the Company's common stock set forth beside that
Shareholder's name on schedule A. The shares of common stock now owned by a
Shareholder or a Shareholder's Permitted Transferees (as defined in section
1.2(d)) or hereafter acquired by a Shareholder or a Shareholder's Permitted
Transferees from other Shareholders or Permitted Transferees, or by way of
dividend, stock split, recapitalization, reorganization, merger, consolidation
or other change or adjustment in respect of such shares, or upon exercise of
options, are referred to as the "Shares".
The Company, the Shareholders and Miles Inc. ("Miles") also are parties to
another shareholders agreement dated this date (the "General Shareholders
Agreement").
<PAGE>
The parties agree as follows:
1. Restrictions on Transfer Generally.
----------------------------------
1.1 Transfers to be Made Only as Permitted or Required by This
----------------------------------------------------------
Agreement. Until the Termination Date (as defined in section 1.3), the
- ---------
Shareholders may not, directly or indirectly, sell, assign, transfer, pledge or
otherwise encumber or dispose of (collectively, "transfer") any Shares (or
options to acquire Shares), except as specifically permitted or required by this
agreement, the General Shareholders Agreement, the voting trust agreement (the
"Voting Trust Agreement") dated this date among the Company, Marvin H. Schein,
the trust established by Marvin H. Schein under trust agreement dated December
31, 1993 ("Marvin's 1993 Trust"), the trust established by Marvin H. Schein
under trust agreement dated September 9, 1994 ("Marvin's 1994 Trust"), Pamela
Schein, the trust established by Trustee under Article Fourth of the Will of
Jacob N. Schein for the benefit of Pamela Schein and her issue under trust
agreement dated September 29, 1994 ("Pam Schein's Trust"), Pamela Joseph, the
trust established by Pamela Joseph under trust agreement dated September 28,
1994 ("Pam Joseph's Trust"), and Martin Sperber, as voting trustee (the
"Trustee"), or section 7 of the option agreement dated this date between the
Company and Martin Sperber. Any other purported transfer shall be void and of no
effect.
2
<PAGE>
1.2 Permitted Transfers.
-------------------
(a) Any Shareholder may, at any time (and without the consent of
the Trustee (as defined in the Voting Trust Agreement) or any other party to
this agreement), (i) pledge some or all of that Shareholder's Shares to a
financial institution as security for loans or other forebearances or extensions
of credit, (ii) transfer some or all of that Shareholder's Shares to another
Shareholder or members of that Shareholder's or another Shareholder's Family
Group (as defined in section 1.2(d)) or (iii) transfer some or all of that
Shareholder's Shares (A) in a Wide Distribution (as defined in section 1.2(d))
pursuant to section 3, (B) pursuant to a sale under Rule 144 under the
Securities Act of 1933 (the "1933 Act") in an amount up to the Rule 144 Amount
(as defined in section 1.2(d)(iii)), (C) to a financial institution in
connection with the financial institution's exercise of its rights as a pledgee,
(D) in any sale of Shares by a Family Shareholder (as defined in section 1.2(a))
that is expressly permitted by section 4 of the General Shareholders Agreement
(it being understood that nothing in this clause (D) is intended to or shall
have the effect of eliminating or otherwise affecting any requirement that the
Trustee's consent to a transfer under section 4.4 of the General Shareholders
Agreement be obtained prior to the transfer, which requirement would be
applicable in the absence of this clause (D)), (E) pursuant to an exemption from
registration under the 1933 Act to any buyer who (1) together with such buyer's
affiliates (as
3
<PAGE>
defined in section 6.1) and Family Group members owns fewer than 1% of the
number of outstanding shares of common stock of the Company immediately prior to
such transfer and (2) is neither an affiliate nor Family Group member of such
Shareholder, provided that (I) such Shareholder shall not transfer any Shares
pursuant to this section 1.2(a)(iii)(E), if the number of shares that would be
transferred, when aggregated with the number of shares previously transferred by
such Shareholder pursuant to this section 1.2(a)(iii)(E) during the 12-month
period ending on the date of the proposed transfer, exceeds 4% of the number
of shares of common stock of the Company then outstanding, (II) such Shareholder
shall not transfer more than 1% of the number of shares of common stock of the
Company outstanding to such buyer (or such buyer's affiliates or Family Group
members) in any three-month period, and (III) prior to such transfer, such
Shareholder shall provide the Company with an opinion of counsel, in form and
substance reasonably satisfactory to the Company, that an exemption from
registration under the 1933 Act applies to such transfer, (F) pursuant to a
merger or a consolidation that has been approved by the board of directors of
the Company and shareholders owning the number of shares of common stock of the
Company required to approve that transaction under the Company's certificate of
incorporation and applicable law, (G) in a tender offer in which Martin Sperber
(or any member of his Family Group who acquired Shares from Martin Sperber)
sells Shares (provided that Martin Sperber agrees that he shall give notice to
each of the other Shareholders of his intention so to sell Shares at
4
<PAGE>
least three days prior to tendering his Shares) and (H) in a tender offer by a
bidder not affiliated with Bayer AG or any direct or indirect majority-owned
subsidiaries of Bayer AG (including Miles and all direct and indirect majority-
owned subsidiaries of Miles) (all such subsidiaries of Bayer AG being
collectively called "Bayer's Controlled Subsidiaries"), in which the bidder
shall not be permitted to accept any tendered securities, unless (1) immediately
after the tender offer, it beneficially owns a majority of the shares of common
stock of the Company outstanding on a fully diluted basis, and (2) Bayer AG and
all Bayer's Controlled Subsidiaries shall have failed to pursue a tender offer
or other acquisition permitted by section 5.5A of the General Shareholders
Agreement within 15 days after the commencement of the unaffiliated third
party's tender offer (or having pursued such a tender offer or other
acquisition, shall have ceased to pursue that transaction). No transfer to a
Permitted Transferee shall be effective, however, unless the Permitted
Transferee agrees to be bound by all the terms of this agreement and, in the
case of Marvin Schein, Marvin's 1993 Trust, Marvin's 1994 Trust, Pamela Schein,
Pam Schein's Trust, Pamela Joseph and Pam Joseph's Trust (collectively, the
"Family Shareholders") and their respective Permitted Transferees, the Voting
Trust Agreement, as if the Permitted Transferee were the transferring
Shareholder.
(b) Notwithstanding anything to the contrary in this agreement, the
General Shareholders Agreement or the Voting
5
<PAGE>
Trust Agreement, in no event shall Martin Sperber or Stanley Bergman, or any of
their respective Permitted Transferees, transfer any of their Shares to Bayer AG
or Bayer's Controlled Subsidiaries, other than (i) after the Qualified Public
Offering Date (as defined in section 1.3), in an open market transaction
(excluding block trades and transfers pursuant to a tender offer or merger
otherwise permitted by section 1.2(a)) and (ii) sales of shares that were first
offered to be purchased by Bayer AG or Bayer's Controlled Subsidiaries (not
otherwise in contravention of the General Shareholders Agreement) pursuant to a
written offer to each Family Shareholder (which offer sets forth the material
terms and conditions of the offer), where the Family Shareholders (in such
proportions as the Family Shareholders shall have mutually agreed) shall have
failed to agree in writing to sell to Bayer AG or Bayer's Controlled
Subsidiaries all the shares Bayer AG or Bayer's Controlled Subsidiaries shall
have offered to purchase within 20 days after Bayer AG or Bayer's Controlled
Subsidiaries shall have furnished the written offer to each Family Shareholder,
such sales of shares to be on the same terms and conditions as those offered
each Family Shareholder by Bayer AG or Bayer's Controlled Subsidiaries. In no
event shall the Company or any of its subsidiaries transfer any shares of its
capital stock to Bayer AG or Bayer's Controlled Subsidiaries, except as
expressly permitted by the General Shareholders Agreement.
6
<PAGE>
(c) In addition to the transactions contemplated by section 1.2(a)
and subject to section 2, the Family Shareholders and their respective Family
Group members may, at any time, transfer some or all of their Shares with the
consent of the Trustee, which consent may be withheld in the absolute discretion
of the Trustee. Prior to delivering any such consent pursuant to this section
1.2(c), the Trustee shall notify the Continuing Shareholder Designee (as defined
in the General Shareholders Agreement), who shall promptly send a copy of such
notice to the remaining Family Shareholders and their Family Group members then
holding Shares, of the Trustee's intention to consent to a transfer of Shares by
a Family Shareholder, which notice (a "Consent Notice") shall specify the
maximum number of Shares which the Trustee will then consent to be transferred
pursuant to this section 1.2(c). If, within three days of receiving such notice
from the Continuing Shareholder Designee, Family Shareholders (including the
Family Shareholder who first gave notice) and their Family Group members then
holding Shares shall have notified the Trustee of their desire to transfer a
number of Shares pursuant to section 1.2(c) that, in the aggregate, is equal to
or less than the number of Shares specified in the Trustee's Consent Notice, the
Trustee shall consent to the transfer by such Family Shareholders and Family
Group members of the number of Shares that each such Family Shareholder and
Family Group member shall so have elected to transfer. If Family Shareholders
and their Family Group members then holding Shares elect to transfer a number of
Shares pursuant
7
<PAGE>
to section 1.2(c) that, in the aggregate, is greater than the number of Shares
specified in the Consent Notice, each such Family Shareholder and Family Group
member may sell its proportionate number of the number of Shares specified in
the Consent Notice (in the proportion that the number of Shares each such Family
Shareholder and Family Group member elected to transfer bears to the total
number of Shares all the Family Shareholders and Family Group member shall have
so elected to transfer). Notwithstanding anything contained in this section
1.2(c), in no event shall the Trustee be liable for any loss, claim, damage or
liability arising out of or related to the failure of the Continuing Shareholder
Designee, any Family Shareholder or any Family Group member to receive any
notice pursuant to this section 1.2(c).
(d) As used in this agreement, (1) the term "Permitted
Transferee" means any transferee under clause (i), (ii), (iii)(C) or (iii)(E) of
the first sentence of section 1.2(a), (ii) the term "Family Group" (A) of an
individual means (I) the spouse (or former spouse), parents, children,
grandchildren or direct lineal descendants of such individual, (II) any estate
of any of the individuals referred to in clause (I), (III) any executor,
guardian, committee or other fiduciary acting in such capacity (and the estates
and trusts for which they so act) solely on behalf or for the benefit of such
individual, any of the individuals referred to in clause (I) and any individuals
having the relationships referred to in clause
8
<PAGE>
(I) to any individual Family Shareholder (it being understood that, after the
Qualified Public Offering Date, such fiduciary may be acting also on behalf of
or for the benefit of a charity), (IV) an entity owned exclusively by such
individual or the individuals or entities referred to in clause (I), (II) or
(III) and (V) with respect to Pamela Schein, in addition to the individuals and
entities referred to in clauses (I), (II), (III) and (IV), Marvin Schein and
members of his Family Group, and (B) of a trust means any individual who is a
beneficiary of the trust and (iii) the term "Wide Distribution" means a sale of
a number of Shares that exceeds the number specified in paragraph (e)(1) of
Rule 144 (regardless of whether the seller is an affiliate of the Company or
paragraph (k) of Rule 144 is applicable) (the "Rule 144 Amount") in connection
with which the seller or the underwriter confirms to the Company that the seller
or the underwriter, as the case may be, intends that no direct or indirect
purchaser in that distribution will acquire more than the Rule 144 Amount of
shares of common stock in that distribution.
1.3 Termination of Restrictions. The provisions of section 1.1 shall
---------------------------
terminate on the earlier of (x) the fifth anniversary of the Qualified Public
Offering Date and (y) March 1, 2000 (such earlier date, the "Termination Date");
thereafter the Shares shall be free of all restrictions imposed by section 1 and
all transfer restrictions imposed on Shareholders under the Voting Trust
Agreement and the General Shareholders Agreement
9
<PAGE>
(except as otherwise provided in section 8 of the General Shareholders
Agreement). As used in this agreement, the term "Qualified Public Offering
Date" means the first date immediately following the last closing of an
underwritten sale of shares of the Company's common stock to the public
registered under the 1933 Act on which the aggregate market value of the
outstanding common stock (computed by use of the closing sale price of the stock
on whichever of the New York Stock Exchange, the American Stock Exchange or the
NASDAQ National Market System the common stock is then primarily traded) held by
more than 300 parties who are neither Shareholders, nor Permitted Transferees
nor employees of the Company or its subsidiaries nor affiliates of the Company
exceeds $100,000,000.
1.4 Legend. As long as any provision of this agreement (other than
------
the provisions of section 4) remains in effect, each certificate representing
Shares owned by a Shareholder or a Permitted Transferee shall bear a legend
substantially as follows:
"The shares represented by this certificate are subject to a
continuing shareholders agreement dated September 30, 1994,
and a general shareholders agreement dated September 30,
1994, copies of which are on file at the office of the
Company."
2. Company's Right of First Refusal.
--------------------------------
2.1 Right of First Refusal. If, at any time prior to the Termination
----------------------
Date, any Family Shareholder or any members of
10
<PAGE>
the Family Group of that Family Shareholder (an "Offeree") receives from a non-
affiliated third party a bona fide written offer the Offeree wishes to accept to
purchase some or all of the Offeree's Shares (other than under section 1.2(a)),
and the Trustee consents to the transfer in accordance with section 1.2(c), the
Offeree shall promptly deliver a written notice (an "Offer Notice") of the offer
to the Company (setting forth the identity of the offeror, the proposed purchase
price, the payment terms and all other material terms and conditions of the
offer) and the Company, or any one or more of its wholly-owned subsidiaries or
any employee stock ownership plan established by it (collectively, its
"Designee(s)") shall have the option (exercisable by notice (an "Acceptance
Notice") to the Offeree given within 40 days after the Offer Notice is given) to
purchase all, but not fewer than all, the Shares subject to the Offer Notice at
the same price and on the same terms specified in the Offer Notice. If the offer
provides, in whole or in part, for consideration other than cash and the Company
or its Designee(s) exercises the right granted in this section, the Company or
its Designee(s) shall make a payment in cash to the Offeree that reflects a
value attributable to the non-cash consideration determined in accordance with
section 2.2. If an Acceptance Notice is given within that 40-day period, the
Offeree and the Company or its Designee(s) shall consummate the transaction
within 75 days after the Offer Notice is given (or within 10 days of such later
date as the value of the non-cash consideration is determined under section
2.2). If an Acceptance Notice is not
11
<PAGE>
given within that 40-day period, the Offeree may sell all, but not fewer than
all, the Shares specified in the Offer Notice at a price equal to or greater
than the price set forth in the Offer Notice and on the terms set forth in the
Offer Notice. If a sale is not consummated within 75 days following the
expiration of the 40-day period referred to above, the Shares specified in the
Offer Notice shall again be subject to this section 2.1. Notwithstanding
anything to the contrary in this agreement, (a) the rights of the parties under
this section 2 shall be subject to the rights of Miles under the General
Shareholders Agreement; and (b) if an Acceptance Notice is timely given pursuant
to this section 2.1 but the closing specified in this section does not occur
within the period specified in this section (the "First Refusal Expiration"),
and the failure to close results from any default by the Company or any
Designee, this section 2.1 shall thereafter be of no further force and effect
and the Offeree shall be permitted, subject to the rights, if any, of Miles
assigned by the Company under section 4.4 of the General Shareholders Agreement
and subject to the provisions of section 4.7 of the General Shareholders
Agreement, within 75 days following the First Refusal Expiration to transfer the
Offeree's Shares to the original offeror at the same purchase price, and on
substantially the same terms and other material terms and conditions, as in the
Offer Notice.
2.2 Non-Cash Consideration. The value attributable to the non-cash
----------------------
consideration referred to in section 2.1 shall be an
12
<PAGE>
amount agreed to by the Offeree and the Company or its Designee(s), or, if
they do not agree within 10 business days after the Offer Notice is given, the
value attributable to the non-cash consideration shall be determined (a) in the
case of a security listed on the New York Stock Exchange, the American Stock
Exchange or the NASDAQ National Market System, on the basis of the average of
the closing sale prices of the security comprising the non-cash consideration
during the five trading days immediately preceding the date the Offer Notice is
given, or (b) in each other case, by an arbitrator selected by the American
Arbitration Association, whose determination shall be final, conclusive and
binding on the parties.
3. Registration Rights.
-------------------
3.1 Demand Registration. At any time after the earlier of the first
-------------------
anniversary of the Qualified Public Offering Date and the third anniversary of
this agreement, and upon receipt of a written request (the "Demand Request")
from Marvin H. Schein (or his designee), Pamela Schein (or her designee) or
Pamela Joseph (or her designee) (each, a "Demand Rights Holder"), the Company
promptly shall file a registration statement to register under the 1933 Act for
sale to the public all, and not fewer than all, the Shares (which may include
Shares owned by the Demand Rights Holder's Family Group members) specified in
the Demand Request and thereafter shall file such amendment or amendments to
such registration statement as may be necessary to cause it to become effective
(a "Demand Registration"). The
13
<PAGE>
Demand Request shall specify the plan of distribution of the Shares. If the
plan of distribution involves an underwritten offering, the Demand Rights Holder
shall be entitled to select a co-managing underwriter for the offering; however,
if the Qualified Public Offering Date shall not have occurred prior to the third
anniversary of this agreement, the underwriter so selected may, at the Demand
Rights Holder's option, be the lead managing underwriter. The Company shall be
obligated to effect a total of four Demand Registrations under this section 3.1;
however, Pamela Joseph (or her designee) shall not be entitled to make more than
one Demand Request hereunder; and notwithstanding anything to the contrary in
this agreement, if, for any reason (other than the fault of a Family
Shareholder), the registration fails to become effective and provide for the
distribution of all the Shares specified in the Demand Request, or the
effectiveness is not maintained for at least 60 days in accordance with section
3.4(e) or the Company fails to perform its obligations under this section 3.1
with respect to that registration, that Demand Registration shall not reduce
the number of Demand Registrations the Company was required to effect (or a
Demand Rights Holder was entitled to request) under this section 3.1 prior to
that Demand Registration. The Company's obligations under this section 3.1
shall terminate on the tenth anniversary of the Qualified Public Offering Date,
and the Company shall not be obligated to effect more than one Demand
Registration in any period of 365 days or effect a Demand Registration unless
the amount of Shares specified in the Demand Request (when aggregated with the
amount
14
<PAGE>
of Shares that all other Demand Rights Holders elect to register in connection
with such Demand Request) has a value (determined in accordance with section
2.2(a)) in excess of $25,000,000.
3.2 Piggyback Registration. If at any time the Company determines or
----------------------
is requested or receives a demand from any person or entity to register under
the 1933 Act for sale to the public any of the Company's securities (other than
in connection with any sale of the Company's securities that may result from a
demand request by Miles, if at the time of Miles' request there shall not have
been an initial public offering by the Company of its shares of common stock),
on a form that also would permit the registration under the 1933 Act for sale to
the public of any of the Shares held by the Shareholders and their Family Group
members, the Company shall, each such time, promptly give each Shareholder
written notice of its intent to effect a registration and, subject to sections
3.5 and 3.7, shall include in the registration all Shares held by any
Shareholder (other than Martin Sperber and Stanley Bergman and their respective
Permitted Transferees, in the case of a Demand Registration referred to in
section 3.1) and any such Shareholder's Family Group members with respect to
which the Company has received a written request from that Shareholder (a
"Piggyback Request") specifying the number of Shares to be included within 15
days after the Shareholder has been given notice from the Company. The Company's
obligations under this section 3.2 shall terminate on the fifth anniversary of
the Qualified Public Offering Date.
15
<PAGE>
3.3 Obligation of the Shareholders. Any Demand Request or Piggyback
------------------------------
Request (a "Request") shall express the requesting Shareholder's and the
requesting Shareholder's Family Group members' present intent to offer for sale
to the public the number of each such requesting party's Shares to be included
in the registration statement and contain an undertaking to provide all such
information and materials and to take all such action as may be required to
permit the Company to comply with all applicable requirements of the Securities
and Exchange Commission (the "SEC") and to obtain acceleration of the effective
date of the registration statement.
3.4 Obligations of the Company. With respect to any registration
--------------------------
statement referred to in section 3.1 or 3.2, the Company shall:
(a) use all reasonable efforts to have the registration
statement declared effective as promptly as practicable, and shall promptly
notify each Shareholder selling Shares under the registration statement (a
"Participating Shareholder"), and such other persons as the Participating
Shareholder designates, if any, and confirm such advice in writing, (i) when the
registration statement becomes effective, (ii) when any post-effective amendment
to the registration statement becomes effective and (iii) of any request by the
SEC for any amendment or supplement to the registration statement or any
prospectus relating to the registration statement or for additional information;
16
<PAGE>
(b) make available for inspection by any underwriters
participating in any planned disposition of Shares and any attorney, accountant
or other agent retained by a Participating Shareholder or the underwriters, all
financial and other records reasonably necessary to permit them to demonstrate
that they have conducted a reasonable investigation of matters described in the
registration statement and cause the appropriate Company officers to supply all
such information reasonably requested by a Participating Shareholder, the
underwriters or their agents;
(c) use all reasonable efforts to qualify, not later than the
effective date of the registration statement, the Shares under such "blue sky"
or other state securities laws as a Participating Shareholder may reasonably
request (it being understood, however, that the obligation under this section
3.4(c) shall not be construed to obligate the Company to qualify as a foreign
corporation or as a dealer in securities or to execute or file any general
consent to service of process under the law of any such jurisdiction where it is
not otherwise so subject);
(d) furnish to each Participating Shareholder such number of
copies of the registration statement, each amendment to the registration
statement, the prospectus included in each such registration statement and each
amendment to each registration statement, each amendment or supplement to any
prospectus and such other documents as a Participating
17
<PAGE>
Shareholder may reasonably request to facilitate the disposition of the Shares;
(e) for a period of at least 60 days from the effective date of
the registration statement, use all reasonable efforts to keep the registration
statement in effect and current and from time to time to amend or supplement the
registration statement or the prospectus to the extent necessary to permit the
completion within that period, in compliance with the 1933 Act, of the sale or
distribution of the Shares. If at any time the SEC institutes or threatens to
institute any proceedings for the purpose of issuing a stop order suspending the
effectiveness of any such registration statement, the Company shall promptly
notify each Participating Shareholder and use all reasonable efforts to prevent
the issuance of any such stop order or to obtain its withdrawal as soon as
possible. The Company shall promptly advise each Participating Shareholder of
any order or communication of any public board or body addressed to the Company
suspending or threatening to suspend the qualification of any of the Shares for
sale in any jurisdiction; and
(f) insofar as the methods of distribution proposed to be used
are not reflected in the last prospectus filed by the Company as part of the
registration statement or pursuant to Rule 424 under the 1933 Act, the
Participating Shareholder shall promptly provide the Company with a description
of the method or methods of distribution of the Shares from time to time
contemplated by the Participating Shareholder and the
18
<PAGE>
Participating Shareholder's Family Group members and the Company shall file any
and all amendments and supplements necessary to include that description in the
registration statement.
3.5 Conditions to the Obligations of the Company. The Company may
--------------------------------------------
postpone, for up to 90 days, the filing of any registration statement otherwise
required to be prepared and filed by it under this agreement, if, at the time it
receives a Request, the Company would be required to prepare any financial
statements other than those it customarily prepares or the Company determines in
its reasonable judgment that the registration and offering would interfere with
any material financing, acquisition, corporate reorganization or other material
corporate transaction or development involving the Company that is pending or
imminent at the time and promptly gives each Participating Shareholder written
notice of that determination (it being understood, however, that, in any such
event, the Company shall use all reasonable efforts to minimize the length of
the postponement). If the Company shall so postpone the filing of a registration
statement, each Participating Shareholder shall be deemed to have withdrawn the
Request and the Request shall be deemed not to have been made.
3.6 Expenses of Registration. All expenses (other than fees and
------------------------
disbursements of counsel for the Shareholders and underwriting or brokerage
commissions attributable to the Shares to be sold) incurred in connection with
all registrations under this agreement and the "blue sky" qualifications
referred to in
19
<PAGE>
section 3.4(c), including, without limitation, all registration and
qualification fees, printers' and accounting fees and fees and disbursements of
counsel for the Company, shall be borne by the Company.
3.7 Underwriting Requirements. In connection with any offering
-------------------------
pursuant to a Piggyback Request, the Company shall not be required to register
any Shares held by a Shareholder or the Shareholder's Family Group members,
unless the Shareholder and the Shareholder's Family Group members accept the
terms of the underwriting applicable to Participating Shareholders generally and
then only in such quantity as will not, in the written opinion of the
underwriters, exceed the maximum number of shares that can be marketed without
materially and adversely affecting the offering. If, as a consequence of the
provisions of the preceding sentence, the number of a Shareholder's and the
Shareholder's Family Group members' Shares is reduced, the percentage of the
reduction shall not be more than the percentage of reduction applicable to any
other selling shareholder in the offering.
3.8 Other Registration Rights. Except for the registration rights in
-------------------------
this agreement and in the General Shareholders Agreement, the Company is not a
party or subject to any agreement entitling any person or entity to registration
rights. The Company shall not enter into any other agreement entitling any
person or entity to registration rights that would materially and adversely
affect the rights of the Shareholders
20
<PAGE>
and their Family Group members under this agreement (it being understood that
any registration rights other than those in the General Shareholders Agreement
that would have the effect of reducing the number of Shares that would otherwise
be included in a registration statement shall be deemed materially and adversely
to affect the rights of the Shareholders and their Family Group members under
this agreement).
3.9 Indemnification. In the event any Shares are included in a
---------------
registration statement under this section 3, to the extent permitted by law, the
Company shall indemnify and hold harmless the Participating Shareholders and
their Family Group members, any underwriter for the Company or acting on behalf
of any Participating Shareholder and the Participating Shareholder's Family
Group members, and each person, if any, who is a director, officer, agent,
partner or shareholder of, or who controls, any Participating Shareholder and
the Participating Shareholder's Family Group members or such underwriter,
against losses, claims, damages or liabilities customarily indemnified against
in underwritten secondary offerings. Such indemnification shall include
contribution in the manner and to the extent customarily provided.
4. Certain Tax Matters.
-------------------
4.1 Indemnification. Each individual listed on schedule 4.1 (an
---------------
"Indemnifying Shareholder") shall severally (and not jointly), in the proportion
set forth beside that
21
<PAGE>
Indemnifying Shareholder's name on schedule 4.1, indemnify and hold the Company
harmless from and against any tax liability (including taxes imposed by the
United States or any state, county, local or foreign government or subdivision
or agency thereof, and any interest, penalties or additions attributable to such
taxes, but excluding costs and expenses, including attorneys' fees, incurred by
the Company in contesting such taxes) ("Taxes") resulting solely from the
distribution (the "Distribution") of all the shares of Henry Schein, Inc. in
accordance with the agreement and plan of corporate separation and
reorganization of even date herewith among the Company and all its shareholders,
excluding the Taxes attributable to the acceleration of any deferred
intercompany gains from a deferred intercompany transaction (as defined in
Treasury Regulation (S)l.1502-13) that have been realized by the Company through
the day before the Distribution (a "Tax Claim").
4.2 Participation in Contest. If a Tax Claim, including the
------------------------
assertion of any such claim during the audit process, is asserted against the
Company, the Company shall give each Indemnifying Shareholder prompt notice of
the claim (setting forth in reasonable detail the nature, basis and amount of
the claim) (a "Tax Notice") and, provided an Indemnifying Shareholder
acknowledges in writing the Indemnifying Shareholder's obligation to indemnify
the Company in accordance with this section 4 (an "Acknowledging Indemnifying
Shareholder"), that Acknowledging Indemnifying Shareholder shall be entitled, at
the Acknowledging
22
<PAGE>
Indemnifying Shareholder's own expense, to participate in the defense of the
claim (it being understood that, subject to section 4.3, control of the defense
will remain with the Company, but the Company may not agree to any settlement or
compromise of the claim without the written consent of Acknowledging
Indemnifying Shareholders liable for at least one-half of the indemnification
liability under this section 4, which consent may not be unreasonably withheld).
4.3 Control of Defense. If any Tax Claim is asserted, the
------------------
Indemnifying Shareholders may, by written notice given by Marvin H. Schein or
his designee to the Company within 15 days after receiving a Tax Notice (which
notice from Marvin H. Schein or his designee shall be deemed without further
action by any Indemnifying Shareholders to confirm the irrevocable agreement of
each of the Indemnifying Shareholders to indemnify the Company in respect of all
Taxes relating to the Tax Claim in accordance with this section 4), assume the
defense of the Tax Claim (the "Tax Proceeding") with counsel reasonably
satisfactory to the Company (it being understood that Willkie, Farr & Gallagher
is reasonably satisfactory to the Company), provided that the Company shall
continue to have the right to participate at its own expense in the Tax
Proceeding, and provided that, prior to so assuming that defense, the
Indemnifying Shareholders shall deposit with an escrow agent under an escrow
arrangement reasonably satisfactory to the Company an amount sufficient to pay
all Taxes that counsel to the Indemnifying Shareholders advises the Company is
the
23
<PAGE>
highest probable amount that will be payable in respect of the Tax Claim, which
escrow shall be held until the Tax Claim shall have been resolved as set forth
below, at which time the amount remaining in the escrow, if any, shall be
returned to the Indemnifying Shareholders. The Indemnifying Shareholders shall
instruct the Company how the amounts deposited in the escrow arrangement are to
be invested; however, such investments shall be limited to short-term bonds, the
interest on which is tax free to a New York State recipient, which bonds shall
be rated AAA by Standard & Poors or Moody's rating services. The Company agrees
to provide counsel to the Indemnifying Shareholders with (a) such cooperation as
may be reasonably requested in connection with that counsel's defense of the Tax
Claim and (b) such information as such counsel reasonably requests in connection
with that counsel's defense of such Tax Claim. Notwithstanding anything to the
contrary in this agreement, the Company shall control the defense of any Tax
Proceeding to the extent that such Tax Proceeding involves criminal charges
against the Company or any of its affiliates. After the above-described notice,
if any, from Marvin H. Schein or his designee to the Company of the election to
assume the defense, the Indemnifying Shareholders shall not be liable to the
Company for any legal or other expenses incurred by the Company (other than the
indemnity obligation provided in section 4.1) in connection with the Tax Claim.
No Indemnifying Party shall, without the prior written consent of the Company,
which consent shall not be unreasonably withheld, effect any settlement of any
pending or threatened Tax
24
<PAGE>
Claim asserted against the Company for which indemnity has been sought under
this agreement by the Company, unless (a) the Indemnifying Shareholders affirm
their obligation under this agreement to indemnify the Company for other Tax
Claims that may be asserted or obtain a closing agreement from applicable taxing
authorities with respect to such Tax Claims and (b) the settlement does not
involve a payment in respect of a Tax Claim on the part of the Company, other
than the payment of such sums of money as are actually paid or reimbursed by the
Indemnifying Shareholders.
5. Shareholder Rights.
------------------
5.1 Charter and By-Laws Amendments; Written Consent. Until the
-----------------------------------------------
Termination Date, the Company shall not, and shall not permit any of its
subsidiaries to, and no officer, employee or other agent of the Company or any
of its subsidiaries shall have the authority, in the name or on behalf of the
Company or any of its subsidiaries, to, without the prior written consent of the
Family Shareholders, (a) amend or restate the Company's certificate of
incorporation or by-laws in any respect that would materially and adversely
affect the Family Shareholders or their Permitted Transferees differently from
any other holders of the Company's common stock or to provide for action by
shareholders by written consent without a meeting, or (b) by amendment to the
Company's certificate of incorporation or by-laws or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the
25
<PAGE>
observance or performance of any of the covenants or agreements to be performed
under this agreement by the Company.
5.2 Visitation; Advice. Prior to the Termination Date, the Family
------------------
Shareholders and their representatives may, from time to time, visit and inspect
the properties of the Company and its subsidiaries, examine their books of
account and discuss their affairs, finances and accounts with the Company's
senior management and independent accountants, all at such reasonable times as
the Family Shareholders may wish and in a manner that does not interfere with or
disrupt the business in any material respect and subject to appropriate
confidentiality agreements. Prior to the Termination Date, the Company shall
advise the Family Shareholders at least five business days before effecting any
acquisition of a Significant Subsidiary (as defined in Rule 1-02 of Regulation
S-X) or any amendment of the Company's certificate of incorporation or by-laws.
5.3 Financial Statements. Prior to the earlier of the Qualified
--------------------
Public Offering Date and the Termination Date, the Company shall furnish the
Family Shareholders (a) not later than 60 days after the end of each of the
first three fiscal quarters of each fiscal year, an unaudited consolidated
balance sheet of the Company and its subsidiaries as of the end of that fiscal
quarter, together with the related unaudited consolidated statements of income,
retained earnings and cash flows for that fiscal quarter and the year to date,
prepared in accordance with generally accepted accounting principles ("GAAP")
and setting
26
<PAGE>
forth in comparative form the information for the corresponding periods of the
previous fiscal year, and (b) not later than 120 days after the end of each
fiscal year, an audited consolidated balance sheet of the Company and its
subsidiaries as of the end of that fiscal year, together with the related
audited consolidated statements of income, retained earnings and cash flow for
that fiscal year, prepared in accordance with GAAP and setting forth in
comparative form the information for the preceding fiscal year, together with
the related audit report of the Company's independent accountants.
6. Miscellaneous.
-------------
6.1 Definition. As used in this agreement, the term "affiliate" has
----------
the meaning given it in Rule 405 under the 1933 Act.
6.2 Governing Law. This agreement shall be governed by and construed
-------------
in accordance with the law of the state of New York applicable to agreements
made and to be performed wholly in New York.
6.3 Notices. Any notice or other communication under this agreement
-------
shall be in writing and shall be considered given when delivered personally or
mailed by registered mail, return receipt requested, at the following addresses
(or at such other address as a party may designate by notice to the others):
27
<PAGE>
if to the Company, to it at:
Schein Holdings, Inc.
c/o Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attention: General Counsel
with a copy to:
Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, New York 10036
Attention: Richard L. Goldberg, Esq.
if to any Shareholder, to each of the Shareholders at
the addresses set forth on schedule A.
6.4 Counterparts. This agreement may be executed in counterparts,
------------
each of which shall be considered an original, but all of which together shall
constitute the same instrument.
6.5 Equitable Relief. The parties acknowledge that the remedy at law
----------------
for breach of this agreement would be inadequate and that, in addition to any
other remedy a party may have for a breach of this agreement, that party shall
be entitled to an injunction restraining any such breach or threatened breach,
or a decree of specific performance, without posting any bond or security. The
remedy provided in this section 6.5 is in addition to, and not in lieu of, any
other rights or remedies a party may have.
6.6 Separability. If any provision of this agreement is invalid or
------------
unenforceable, the balance of this agreement shall remain in effect, and if any
provision is inapplicable to any
28
<PAGE>
person or circumstance, it shall nevertheless remain applicable to all other
persons and circumstances.
6.7 Entire Agreement. This agreement contains a complete statement of
----------------
all the arrangements among the parties with respect to its subject matter,
supersedes all existing agreements among them with respect to that subject
matter and may not be changed or terminated orally. Any amendment or
modification must be approved in writing by Miles and must be in writing and
signed by the Company and Shareholders then beneficially owning a majority of
the Shares, provided that no such amendment or modification may adversely effect
the rights or obligations of any Shareholder without that Shareholder's prior
written consent.
6.8 Termination. This agreement (other than the provisions of section
-----------
4) shall terminate on the effective date of a Terminating Merger (as defined in
the Voting Trust Agreement). The provisions of section 4 shall survive any
termination of this agreement.
SCHEIN HOLDINGS, INC.
/s/
By:---------------------------------
Authorized Officer
THE SHAREHOLDERS:
/s/ Marvin H. Schein
------------------------------------
Marvin H. Schein
29
<PAGE>
Trust estab1ished by Marvin H. Schein under
trust agreement dated September 9, 1994
By: /s/ Marvin H. Schein
---------------------------------------
Marvin H. Schein, Trustee
By: /s/ Leslie Levine
---------------------------------------
Leslie Levine, Trustee
Trust established by Marvin H. Schein under
trust agreement dated December 31, 1993
By: /s/ Marvin H. Schein
---------------------------------------
Marvin H. Schein, Trustee
By: /s/ Leslie Levine
---------------------------------------
Leslie Levine, Trustee
/s/ Pamela Schein
------------------------------------------
Pamela Schein
Trust established by Trustee under Article
Fourth of the Will of Jacob M. Schein for
the benefit of Pamela Schein and her
issue under trust agreement dated September
29, 1994
By: /s/ Irving Shafran as attorney in fact
---------------------------------------
Irving Shafran, Trustee
/s/ Pamela Joseph
------------------------------------------
Pamela Joseph
30
<PAGE>
By:_______________________________
Leslie Levine, Trustee
Trust established by Marvin H. Schein
under trust agreement dated December
31, 1993
By:_______________________________
Marvin H. Schein, Trustee
By:_______________________________
Leslie Levine, Trustee
__________________________________
Pamela Schein
Trust established by Trustee under
Article Fourth of the Will of Jacob
M. Schein for the benefit of Pamela
Schein and her issue under trust
agreement dated Sept 29, 1994
By: /s/ Irving Shafran
-------------------------------
Irving Shafran, Trustee
__________________________________
Pamela Joseph
Trust established by Pamela Joseph
under trust agreement dated _______,
1994
By:_______________________________
Morey M. Myers, Trustee
__________________________________
Martin Sperber
31
<PAGE>
Trust established by Pamela Joseph
under trust agreement dated September
28, 1994
By: /s/ Morey M. Myers
-------------------------------
Morey M. Myers, Trustee
/s/ Martin Sperber
-------------------------------
Martin Sperber
Trust established by Martin Sperber
under trust agreement dated December
31, 1993
/s/ Ellen Sperber
-------------------------------
Ellen Sperber,Trustee
32
<PAGE>
/s/ Stanley Bergman
----------------------------------
Stanley Bergman
Trust established by Stanley M.
Bergman under trust agreement dated
December 31, 1993
By: /s/ Marion Bergman
-------------------------------
Marion Bergman, Trustee
33
<PAGE>
SCHEDULE A
----------
SHAREHOLDERS
------------
<TABLE>
<CAPTION>
# of Shares
# of Shares Issuable Upon the
Shareholder Owned* Exercise Of Options
- ----------- ----------- -------------------
<S> <C> <C>
Marvin H. Schein 100 -0-
Cobble Court
Glen Cove, New York 11771
Trust established by Martin H. Schein 25,277.5 -0-
under trust agreement dated Sept 9, 1994
c/o Marvin H. Schein
Cobble Court
Glen Cove, New York 11771
Trust established by Marvin H. Schein under 64,642.5 -0-
trust agreement dated December 31, 1993
c/o Marvin H. Schein
Cobble Court
Glen Cove, New York 11771
Pamela Schein 63,202 -0-
666 Greenwich Street
Apt 514
New York, New York 10014
Trust established by Trustee under Article Fourth 4,840 -0-
of the Will of Jacob M. Schein for the benefit of
Pamela Schein and her issue under trust
agreement dated Sept 29, 1994
c/o Irving Shafran
360 East 72nd Street
New York, New York 10017
Pamela Joseph 25,535 -0-
RR#3, Box 140
Pound Ridge, New York 10576
Trust established by Pamela Joseph under trust 993 -0-
agreement dated Sept. 28, 1994
c/o Morey M. Myers, Esq.
Schnader, Harrison, Segal & Lewis
1O8 N. Washington Ave., Suite 700
Scranton, Pennsylvania 18503
Martin Sperber 3,461 4,795
6 Casper Court
Florham Park, New Jersey 07932
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Trust established by Martin Sperber under trust 2,437 -0-
agreement dated December 31, 1993
c/o Ellen Sperber
6 Casper Court
Florham Park, New Jersey 07932
Stanley Bergman 1,204 -0-
104A Middleville Road
Northport, New York 11768
Trust established by Stanley M. Bergman under 1,959 -0-
trust agreement dated December 31, 1993
c/o Marion Bergman
104A Middleville Road
Northport, New York 11768
</TABLE>
________________
* Immediately after the closing under the stock purchase agreement.
<PAGE>
SCHEDULE 4.1
------------
INDEMNIFYING SHAREHOLDERS
-------------------------
<TABLE>
<CAPTION>
Proportion of
Shareholder Indemnification
----------- ---------------
<S> <C>
Marvin H. Schein 50%
Pamela Schein 35.75%
Pamela Joseph 14.25%
</TABLE>
<PAGE>
EXHIBIT 10.32
HEADS OF AGREEMENT
These Heads of Agreement are intended to reflect the understanding of
the parties concerning (a) U. S. domestic cooperation between Miles Inc.
("Miles") and Schein Pharmaceutical, Inc. ("Schein") on developing synergies
in their respective U.S. Pharmaceutical businesses, (b) international
cooperation between Bayer A.G. ("Bayer")/Miles and Schein to build together an
international multisource pharmaceutical business, and (c) supply of chemical
drug ingredients by Bayer/Miles to Schein, in each case following the Closing
(as defined in the Stock Purchase Agreement dated February 15, 1994, as
amended).
The parties presently intend together to explore opportunities in the
following areas, recognizing that these areas, as well as the specific projects
within an area or market and the manner in which areas, markets and projects may
be explored, are subject to change from time to time as the parties' discussions
continue and as the working relationship among the parties develops over time.
DOMESTIC U.S. BUSINESS
- ----------------------
In order to maximize the benefits of the proposed cooperation for both
Miles and Schein in the U.S. domestic market, Miles and Schein will form joint
strategy teams (with
<PAGE>
confidentiality agreements as appropriate). The teams will be formed promptly
following the Closing, and will be composed of operational, technical and
marketing representatives from each company, and involving such other
disciplines as the companies may from time to time decide. The teams will
explore potential areas of mutual interest and cooperation between Miles and
Schein in the U. S. domestic market, and will report to a Domestic Strategy
Committee comprised of representatives of both Miles and Schein.
INTERNATIONAL BUSINESS
- ----------------------
The objective of the Bayer/Miles - Schein international cooperation is
to identify multisource pharmaceutical business opportunities which the parties
can jointly develop. To accomplish this, the companies may share their
expertise, employing Schein and Bayer products as appropriate, Bayer's
knowledge of international markets, production, marketing and distribution, and
each company's production facilities where appropriate. It will be important to
respect the key factors for success within the multisource market, such as early
market share, range of products and branding.
In order to maximize the benefits of the proposed cooperation for both
Bayer/Miles and Schein in the international market, Bayer and Schein will form
an International Management Committee comprised of representatives of both
Bayer/Miles and Schein. Each of Bayer/Miles and Schein will assign staff (with
2
<PAGE>
confidentiality agreements as appropriate), charged with the development of the
international multisource business; or the Committee may decide to hire persons
from outside the organizations if this is considered appropriate. The staff
will prepare market entry proposals for the International Management Committee,
including recommendations as to
(a) Priority markets
(b) Entry strategies
(c) Resource allocations.
Due to the diverse nature of the international markets, various types
of entry strategy are conceivable, potentially including involvement of other
local companies.
The decision to jointly pursue a project in any of these areas in U.S.
domestic or international markets, and the organizational and economic structure
of a project, will require the unanimous approval of the Domestic Strategy
Committee or the International Management Committee, as the case may be. The
allocation of benefits derived from any jointly-pursued project will require the
approval of both Bayer/Miles and Schein, and will be based on separately
negotiated contractual agreements for each such project, which will take into
account the structure and the relative contributions of each party to those
proposed projects. In the event that an agreement as to a particular project
has not been or cannot be reached in an expeditious fashion, each of the parties
shall be allowed to pursue independent strategies.
3
<PAGE>
CHEMICAL SYNTHESIS
- ------------------
A joint Bayer/Miles - Schein team will investigate the possibility of
using Bayer's expertise in the chemical synthesis area to provide Schein with
chemical drug ingredients. This could include, at Schein's request, future
drugs to be launched by Schein, as well as supplying substances for Schein's
current portfolio, all upon terms and conditions as may from time to time be
mutually agreed to by Bayer/Miles and Schein.
While it is the desire and expectation that cooperation as
contemplated by these Heads of Agreements take place, all of this is subject to
the independent decision making, operation, growth and functioning of each of
the companies involved. These Heads of Agreement contemplate a dynamic and
fluid relationship, and to avoid any misunderstanding, it is important that
these and related points will become binding on the parties in respect of a
4
<PAGE>
particular project only upon execution of definitive, mutually satisfactory
documentation.
These Heads of Agreement have been executed as of this 30th day of
September, 1994.
BAYER AG
By: /s/
-----------------------
MILES INC.
By: /s/
-----------------------
SCHEIN PHARMACEUTICAL, INC.
By: /s/
-----------------------
5
<PAGE>
EXHIBIT 21.1
SCHEIN PHARMACEUTICAL, INC.
LIST OF SUBSIDIARIES*
Schein Pharmaceutical, Inc.
Danbury Pharmacal, Inc.
Danbury Pharmacal Puerto Rico Inc.
Steris Laboratories, Inc.
Marsam Pharmaceuticals, Inc.
Schein Pharmaceutical PA, Inc.
Schein Pharmaceutical Services Co.
Schein Bayer Pharmaceuticals Australia, Ltd. (Partnership) - 30%
Schein Bayer Pharmaceutical Services, Inc. - 50%
Ranbaxy Schein Pharma, L.L.C. - 50%
Schein Pharmaceutical International, Inc.
Schein Pharmaceutical Canada, Inc. - 50%
Schein Pharmaceutical (Netherlands) B.V.
Triomed (Pty) Ltd. (South Africa)
Schein Pharmaceutical (Bermuda) Ltd.
Ethical Generics Limited (United Kingdom) - 50%
Schein Farmaceutica de Peru
Bayfarma de Columbia S.A - 30%
International Generics Company Ltd. - 50%
________________
* All Companies 100% Owned Unless Otherwise Specified
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Schein Pharmaceutical, Inc.
Florham Park, New Jersey
We hereby consent to the use in the Prospectus constituting a part of
this Registration Statement of our report dated February 7, 1997, except for
Note 1 which is as of , 1997, relating to the consolidated financial
statements of Schein Pharmaceutical, Inc. and Subsidiaries, which is contained
in that Prospectus, and of our report dated February 7, 1997, relating to the
Schedule, which is contained in Part II of the Registration Statement.
We also consent to the reference to us under the caption "Experts" in
the Prospectus.
December 1, 1997
BDO SEIDMAN, LLP
