SCHEIN PHARMACEUTICAL INC, S-1/A, 1998-04-08

SCHEIN PHARMACEUTICAL INC
S-1/A, 1998-04-08
PHARMACEUTICAL PREPARATIONS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1998
REGISTRATION NO. 333-41413

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AMENDMENT NO. 4
TO
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)

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Copies of Communications to:

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

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. [_]

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.

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<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 MARCH 13, 1998

3,000,000 SHARES

[LOGO] SCHEIN
PHARMACEUTICAL

COMMON STOCK

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ALL OF THE 3,000,000 SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE (THE
"COMMON STOCK"), OFFERED HEREBY (THE "OFFERING") ARE BEING SOLD BY SCHEIN
PHARMACEUTICAL, INC. ("SCHEIN PHARMACEUTICAL," "SCHEIN" OR THE "COMPANY").

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 $14.00 AND $16.00 PER SHARE. SEE "UNDERWRITING" FOR A
DISCUSSION OF THE FACTORS 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 "SHP."

------------

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 6 OF THIS PROSPECTUS.

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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.

- --------------------------------------------------------------------------------
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
PER SHARE.................................. $ $ $
TOTAL(3)................................... $ $ $
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</TABLE>
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITING."
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY, ESTIMATED TO BE
$1,500,000.
(3) THE COMPANY HAS GRANTED THE UNDERWRITERS AN OPTION, EXERCISABLE WITHIN 30
DAYS OF THE DATE HEREOF, TO PURCHASE AN AGGREGATE OF UP TO 450,000 SHARES
OF COMMON STOCK 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 AND PROCEEDS TO COMPANY 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>

A BROAD SPECTRUM OF PHARMACEUTICAL EXPERIENCE

BRANDED
PRODUCTS
INFeD(R)
PHOTO Specialty product for
iron management
treatment of severe
anemia

STERILE DOSAGE
MANUFACTURING
CAPABILITIES
PHOTO .Injectables.Ophthalmics
.Otics.Penicillins
.Cephalosporins
.Over 75 million vials and ampules made annually

SOLID DOSAGE
MANUFACTURING
CAPABILITIES
PHOTO .Immediate and
extended-release products
.Over 4 billion tablets and capsules made annually

RESEARCH & DEVELOPMENT
PHOTO .24 ANDAs approved during past three years
.$85 million in R&D expenditures over the last 3 years

SALES, MARKETING
.Approximately 60,000 customers
PHOTO .130-person generic sales and marketing force
.20-person branded sales force

[PHOTO]
MANUFACTURED PRODUCTS
.160 chemical entities.325 dosage strengths
.200 approved ANDAs

LOGO SCHEIN
PHARMACEUTICAL

MARSAM STERIS
PHARMACEUTICALS INC. LABORATORIES

The information in the captions above is presented as of December 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) is a
registered trademark of A. Nattermann & Cie. GmbH. S.M.A.R.T.(TM) and
G.A.I.N.(TM) are trademarks of the Company.
----------------
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."
<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 105-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 believes it is one of the leading generic
pharmaceutical companies in terms of United States revenues. 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 believes that its primary branded product,
INFeD, is the leading injectable iron product in the United States in terms of
revenues. The Company has a substantial pipeline of products under development.
The Company enhances its internal product development, manufacturing and
marketing capabilities through strategic collaborations. Schein generated net
revenues of $490.2 million and operating income of $39.0 million during 1997.

The Company believes it manufactures and markets the broadest generic 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 325 different dosages under approximately
200 Abbreviated New Drug Applications ("ANDAs") approved by the United States
Food and Drug Administration ("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 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 21% of the Company's net revenues in 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.

3
<PAGE>

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 $7.4 billion generic prescription 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) 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; (iii) develop and market branded drugs for select therapeutic
categories; (iv) pursue strategic collaborations to supplement its product
development and manufacturing resources; and (v) expand market penetration
through direct sales and innovative marketing programs.

The Company's commitment to product development has resulted in 24 ANDA
approvals during the past three years. During the past three fiscal years, the
Company, directly and through its strategic collaborations, has expended
approximately $84.7 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 150-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 MGI.

THE OFFERING

Common Stock offered hereby............. 3,000,000 shares

Common Stock to be outstanding after 31,692,720 shares(1)
the Offering...........................
Use of proceeds......................... To reduce existing indebtedness,
which may include a term loan,
senior floating rate notes and a
revolving credit loan. See "Use
of Proceeds."

Proposed NYSE symbol.................... SHP
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(1) Excludes 3,745,770 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 as of February 28, 1998 at a weighted average exercise price
of $16.84 per share. Upon closing of the Offering, the Company intends to
grant up to an additional 936,915 options at an exercise price equal to the
initial public offering price of the Common Stock offered hereby. See
"Management--Stock Options."

4
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
---------------------------
1995(1) 1996 1997
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................................... $391,846 $476,295 $490,170
-------- -------- --------
Gross profit...................................... $141,339 $155,620 $160,409
Costs and expenses:
Selling, general and administrative.............. 75,274 87,329 81,809
Research and development......................... 28,324 27,030 29,387
Amortization of goodwill and other intangibles... 3,399 10,195 10,196
Acquired in-process Marsam research and
development(1).................................. 30,000 -- --
Operating income(1)............................... 4,342 31,066 39,017
Interest expense, net............................. 10,005 23,285 26,578
Other expense (income), net(2).................... (1,245) 1,193 (9,318)
Income (loss) before taxes on income.............. (4,418) 6,588 21,757
Net income (loss)................................. $(14,900) $ 1,397 $ 11,102
======== ======== ========
Basic and diluted earnings (loss) per share(3).... $ (0.52) $ 0.05 $ 0.39
======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 1997
-----------------------
ACTUAL AS ADJUSTED(4)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................... $ 73,249 $ 88,599
Total assets.......................................... 534,126 534,126
Short-term debt, including current portion of long-
term debt............................................ 56,440 41,090
Long-term debt, less current maturities............... 198,705 173,705
Stockholders' equity.................................. 139,715 180,065
</TABLE>
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(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 2 to
the Consolidated Financial Statements of the Company.
(2) Other expense (income), net, includes equity in earnings (loss) of
unconsolidated international ventures of $(0.4) million, $(3.4) million and
$(3.4) million in 1995, 1996 and 1997, respectively and gain on sales of
marketable securities of $12.7 million in 1997.
(3) See Note 1 to the Consolidated Financial Statements of the Company for
information concerning the computation of earnings per share.
(4) 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 $15.00 per
share, and the application of the estimated net proceeds therefrom to repay
debt, as if the transactions had occurred as of December 1997. See "Use of
Proceeds."

5
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RISK FACTORS

An investment in 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.

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 1997 were $104.4 million or 21% 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, Alfred B. Engelberg (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" and "Business--Government Regulations."

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

6
<PAGE>

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

Over the past several years, FDA has inspected the Company's facilities and
in certain instances has reported inspectional observations that included
significant cGMP and application reporting deficiencies. As a result of these
inspectional observations, for varying periods of time, each of the Company's
facilities (other than its Humacao, Puerto Rico oral solid manufacturing
facility) has been ineligible (and one facility is currently ineligible) to
receive new product approvals.

As a result of its 1996 inspection of the Company's subsidiary, Steris
Laboratories, Inc. ("Steris"), FDA advised Steris that it will not approve any
ANDAs for products manufactured at the Steris facility until cGMP and
application reporting deficiencies noted during the inspection have been
corrected. In a 1997 inspection of the Steris facility, FDA identified
additional cGMP deficiencies, and Steris currently continues to be ineligible
to receive new product approvals. Therefore, none of the 11 pending ANDAs that
have been filed from the Steris facility (out of the Company's total of 23
pending ANDAs) is expected to be approved until FDA has confirmed that Steris
has satisfactorily resolved the noted deficiencies. In addition, as a result
of observations made in the 1996 inspection and an investigation by the FDA's
Office of Regulatory Affairs, Steris entered into a plea agreement with the
U.S. Department of Justice. Under the agreement, Steris pled guilty in January
1998 to misdemeanor violations for failure to observe application reporting
requirements for drug stability problems for two drugs during 1994 and 1995
and, consequently, paid a fine of $1.0 million. Also in early 1998, FDA issued
to Steris a Warning Letter relating to the deficiencies observed in the 1997
inspection of the Steris facility, including FDA's request that Steris
delineate its timetable for correction of cGMP deficiencies and provide FDA
with additional information regarding products for which corrective actions
have not been completed. FDA advised Steris in the Warning Letter that failure
to take prompt corrective action could result in seizure of product, an
injunction, and/or prosecution.

7
<PAGE>

In 1995, FDA's inspection of the Company's subsidiary, Danbury Pharmacal,
Inc. ("Danbury"), which operates facilities in Carmel, New York and Danbury,
Connecticut, resulted in observations regarding compliance with cGMP
requirements and the reliability of data submitted by Danbury in support of
certain ANDAs. As a consequence, Danbury voluntarily engaged independent
experts to audit all critical data in a representative sampling of its pending
and approved ANDAs. Reports of the audits, all of which have been completed,
have been submitted to FDA for evaluation. FDA has not advised Danbury about
its review of the audit reports; however, the agency continues to review and
approve ANDAs submitted by Danbury.

Marsam Pharmaceuticals Inc. ("Marsam") was inspected by FDA during 1997 to
evaluate whether certain pending ANDAs could be approved. Certain cGMP
deficiencies were observed during the inspection, and ANDA approvals were
withheld pending completion of remedial actions by Marsam. Following a
reinspection in late 1997, Marsam has received new ANDA approvals.

There can be no assurance that FDA will determine that the Company has
adequately corrected the alleged deficiencies at its operating sites, that
subsequent inspections will not result in additional significant observations,
that approval of any of the pending or subsequently submitted ANDAs by the
Company will be forthcoming or that FDA will not seek to impose additional
regulatory sanctions against the Company or any of its subsidiaries. The range
of possible sanctions includes FDA issuance of adverse publicity, product
recalls or seizures, injunctions, and civil or criminal prosecution. Any such
sanctions, if imposed, could have a material adverse effect on the Company's
business, results of operations or financial condition. See "--Dependence Upon
New Products and Effect of Products Lifecycles," "--Dependence on Regulatory
Approval and Compliance" 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
pricing and other competitive pressures 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. In August
1997, Cardinal Health Inc. announced its intention to merge with Bergen
Brunswig Corporation. In addition, in September 1997 McKesson Corporation
announced its intention to merge with AmeriSource Health Corporation. The
proposed mergers among the four largest pharmaceutical wholesalers in the
United States, if consummated, would result in greater consolidation of the
pharmaceutical wholesaling industry and may intensify pricing and other
competitive pressures on generic pharmaceutical manufacturers. Specifically
for Schein, if the Cardinal Health--Bergen Brunswig merger had been
consummated at the beginning of 1997, the resulting combined customer would
have accounted for approximately 37% of the Company's total net revenues in
1997. The Federal Trade Commission ("FTC") has voted to oppose both of these
proposed mergers. While these companies may appeal the FTC decision, the
Company cannot predict, whether or on what terms, if any, these proposed
mergers would be consummated.

For the year ended December 1997, sales to the Company's ten largest
customers represented approximately 69% of the Company's total net revenues.
For the year ended December 1997, three customers accounted for 19%, 18% and
10%, 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), one of which governs the voting
of their Common Stock and remains 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.
The shares subject to these agreements represent a majority of the shares of
Common Stock

9
<PAGE>

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, the shares subject to these agreements. As a result, Mr.
Sperber will continue to control substantially all matters requiring
stockholder approval, including the election of directors, following the
Offering.

Bayer Corporation, which owns 28.3% of the outstanding shares of Common
Stock immediately prior to the Offering, may purchase shares of the Company up
to a maximum ownership, in the aggregate, of 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 May 15, 2001. Bayer
Corporation 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 at fair market value 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, unless Bayer Corporation has sold shares of Common Stock other
than to certain permitted transferees, (i) shares in connection with its
exercise of certain preemptive rights, (ii) after the Qualified Public
Offering Date (as defined below) and before May 15, 2001, shares necessary to
acquire ownership of at least 21% more of the outstanding Common Stock than
any other holder of 10% or more of the Common Stock (other than an employee
benefit plan or a current stockholder) (the "Investment Spread"), (iii) if,
within 30 days after the Qualified Public Offering Date, Bayer Corporation has
the right to acquire ownership of at least 21% more of the outstanding Common
Stock than any other holder of 10% or more of the Common Stock (other than an
employee benefit plan or current stockholder) and if the total number of
shares issued and outstanding (less restricted securities, as defined therein)
(the "Public Float") is less than 133% of the Investment Spread, shares equal
to the amount such Public Float is less than 133% of the Investment Spread and
(iv) if, on May 15, 2001, the Public Float is less than 133% of the number of
shares that, when added to Bayer Corporation's shares, equals a majority of
the shares then outstanding, shares equal to such amount.

As long as Bayer Corporation owns 10% or more of the outstanding Common
Stock (the "Governance Termination Date"), Bayer Corporation has the right to
nominate a number of members of the Board of Directors of the Company, rounded
down to the nearest whole number (until Bayer holds more than 50% of the
outstanding Common Stock, then rounded up to the nearest whole number), equal
to the product of (a) the number of members of the Board of Directors and (b)
Bayer Corporation's percentage stockholding of Common Stock of the Company at
the time of nomination. Currently, Bayer Corporation has the right to nominate
one director. During the period that Bayer has the right to nominate only one
director, Bayer may designate a second individual to attend Board meetings
solely as an observer without any right to vote or participate in those
meetings.

Until May 15, 2001, the Company may not undertake certain actions without
the consent of Bayer Corporation, including, among other things, (a) engaging
in any business not principally in a segment of the pharmaceutical or health
care industry, (b) amending the Company's charter or by-laws to require more
than majority approval to elect a majority of the Board of Directors, or (c)
engaging in transactions with affiliates on terms more favorable to the
affiliate than could be obtained in arm's length transactions, other than
intercompany transactions and transactions under the Restructuring Agreements.
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 "Qualified Public Offering Date"), the Company may not undertake
certain other actions (including incurring funded debt in excess of certain
ratios or declaring certain dividends or making certain distributions in
respect of the Company's Common Stock) without the consent of Bayer
Corporation.

10
<PAGE>

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 Stockholders--
Restructuring Agreements."

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

The 3,000,000 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. In addition, upon completion of the Offering, 28,692,720 outstanding
shares of Common Stock will be "restricted securities" (as that term is
defined in Rule 144 under the Securities Act of 1933 (the "Securities Act"))
and, under certain circumstances, will be eligible, together with
approximately 2,300,000 shares that may be issued on the exercise of
outstanding options during the 180-day period after the effective date of the
Registration Statement (defined below), for sale in the public market without
registration, subject to the limitations and conditions established pursuant
to Rules 144 and 701 under the Securities Act. 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. Certain holders of
shares of Common Stock 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 the
Registration Statement. Under the terms of the Restructuring Agreements,
certain principal stockholders of the Company are subject to restrictions on
the transfer of their shares. In addition, the holders of 28,475,265 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. 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 Stockholders," "Shares Eligible for Future Sale" and
"Underwriting."

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, 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, gross profit and net
income as a result of, among other things, the timing of regulatory approvals

11
<PAGE>

and market introduction of new products by the Company and its competitors,
and downward pressure on pricing for generic products available from multiple
approved sources. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

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 $15.36 per share (based on an estimated offering price of $15.00 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 certificate of incorporation and by-laws
in effect as of the effective date of the Offering, 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, 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
provide that stockholder action may not be effected without a duly called
meeting. The certificate of incorporation and by-laws of the Company also do
not permit stockholders of the Company to call special meetings of
stockholders. This effectively limits the ability of the Company's
stockholders to conduct any form of consent solicitation. See "Description of
Capital Stock" and "Principal Stockholders."

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."

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 between the Company 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 regulations, 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 reincorporation 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 $40.4 million, assuming a public
offering price of $15.00 per share (the midpoint of the estimated range),
($46.7 million, if the Underwriters' over-allotment option is exercised in
full). The Company intends to use all of the proceeds to repay a portion of
the revolving and/or term loan facility under the Senior Credit Agreement,
which had an outstanding balance of $170.0 million as of February 28, 1998,
which matures on December 31, 2001 and bears interest at a rate of 7.83% at
February 28, 1998, and/or to repurchase and retire a portion of the Senior
Floating Rate Notes Due 2004 (as defined herein), which had an outstanding
balance of $100.0 million as of February 28, 1998, bear interest at a rate of
8.69% at February 28, 1998 and were issued in exchange for the Company's
Senior Subordinated Loan. Reductions to the revolving loan facility may be
reborrowed. All repayments or repurchases to the term loan facility and Senior
Floating Rate Notes Due 2004 will be permanent. 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, until the earlier of the Governance Termination Date,
the Qualified Public Offering Date and a sale of shares by Bayer Corporation
other than to a permitted transferee, the Company may not declare dividends on
the Common Stock without the consent of Bayer Corporation. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources," "Certain Transactions," "Principal
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 December 1997 (i) on a historical basis and (ii) as adjusted to
give effect to the receipt and application of the estimated net proceeds of
the sale of 3,000,000 shares of Common Stock offered by the Company in the
Offering, assuming a public offering price of $15.00 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>
DECEMBER 1997
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Revolving credit facility(1)........................ $ 44,000 $28,650
Current portion of term loan facility............... 11,579 11,579
Current portion of capitalized lease obligations and
other.............................................. 861 861
-------- --------
Total short-term debt............................. $ 56,440 $ 41,090
======== ========
Long-term debt:
Term loan facility.................................. $ 98,421 $ 98,421
Senior Floating Rate Notes Due 2004(2).............. 100,000 75,000
Capitalized lease obligations....................... 284 284
-------- --------
Total long-term debt.............................. 198,705 173,705
-------- --------
Stockholders' equity:
Common stock, par value $.01 per share; 100,000
authorized shares: 28,693 issued and outstanding,
actual; 31,693 issued and outstanding as
adjusted(3)........................................ 287 317
Additional paid-in capital.......................... 38,494 78,814
Retained earnings................................... 99,483 99,483
Other............................................... 1,451 1,451
-------- --------
Total stockholders' equity........................ 139,715 180,065
-------- --------
Total capitalization............................ $338,420 $353,770
======== ========
</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 9 to the Consolidated
Financial Statements of the Company.
(3) Excludes 3,745,770 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 1995 Non-Employee Director
Plan as of February 28, 1998 at a weighted average exercise price of
$16.84 per share. Upon closing of the Offering, the Company intends to
grant options to purchase up to an additional 936,915 shares 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
December 1997 was $(51.8) million, or $(1.81) per share. Consolidated negative
net tangible book value per share represents the amount of the Company's
stockholders' equity, less intangible assets, divided by 28,692,720, the
number of shares of Common Stock outstanding, in each case as of December
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 3,000,000 shares of Common Stock offered by the
Company in the Offering at an assumed initial public offering price of $15.00
(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 December 1997 would have been $(11.4) million, or $(0.36)
per share. This represents an immediate increase in net tangible book value of
$1.45 per share to existing stockholders and an immediate dilution in net
tangible book value of $15.36 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............... $15.00
Consolidated negative net tangible book value per share before
the Offering................................................. $(1.81)
Increase per share attributable to new investors.............. 1.45
------
Pro forma consolidated negative net tangible book value per
share after the Offering..................................... (0.36)
------
Dilution per share to new investors........................... $15.36
======
</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 619,290
shares at an average price of $19.05 per share; and other members and former
members of the Company's and Henry Schein, Inc.'s management--an aggregate of
549,570 shares at an average price of $19.05 per share. See "Certain
Transactions" and "Principal Stockholders."

15
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data with respect to the
Company's financial position at December 1996 and 1997, and its results of
operations for the years ended December 1995, 1996 and 1997, 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 1993, 1994 and
1995, and its results of operations for the years ended December 1993 and
1994, has been derived from the audited consolidated financial statements of
the Company which are not included in this Prospectus. 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" and the Consolidated Financial Statements of the Company included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
----------------------------------------------
1993 1994 1995(1) 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $393,926 $385,428 $391,846 $476,295 $490,170
Cost of sales........... 217,653 237,380 250,507 320,675 329,761
-------- -------- -------- -------- --------
Gross profit........... 176,273 148,048 141,339 155,620 160,409
Costs and expenses:
Selling, general and
administrative........ 64,489 71,783 75,274 87,329 81,809
Research and
development........... 18,055 19,170 28,324 27,030 29,387
Amortization of
goodwill and other
intangibles........... -- -- 3,399 10,195 10,196
Special compensation,
restructuring and
relocation(2)......... 8,426 33,594 -- -- --
Acquired in-process
Marsam research and
development(1)........ -- -- 30,000 -- --
-------- -------- -------- -------- --------
Operating income........ 85,303 23,501 4,342 31,066 39,017
Interest expense, net.. 1,467 1,493 10,005 23,285 26,578
Other expense (income),
net(3)................ 9,215 212 (1,245) 1,193 (9,318)
-------- -------- -------- -------- --------
Income (loss) before
taxes on income and
minority interest..... 74,621 21,796 (4,418) 6,588 21,757
Provision for income
taxes................. 29,096 15,165 10,482 5,191 10,655
Minority interest...... (343) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)....... $ 45,868 $ 6,631 $(14,900) $ 1,397 $ 11,102
======== ======== ======== ======== ========
Basic and diluted
earnings (loss) per
share(4)............... $ 1.62 $ 0.23 $ (0.52) $ 0.05 $ 0.39
======== ======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER
--------------------------------------------
1993 1994 1995(1) 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............. $ 87,035 $ 98,610 $ 92,021 $ 99,111 $ 73,249
Total assets................. 227,861 269,729 522,410 544,312 534,126
Short-term debt, including
current portion of long-term
debt........................ 1,838 3,465 40,078 41,090 56,440
Long-term debt, less current
portion..................... 25,725 42,462 240,480 245,390 198,705
Stockholders' equity......... 130,336 140,164 125,692 129,980 139,715
</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 2 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. 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, and agreed with the Company to pursue future
strategic alliances. Charges for special compensation, restructuring and
relocation incurred in connection with the reorganization aggregated $8.4
million and $33.6 million for 1993 and 1994, respectively.
(3) Other expense (income), net, includes equity in earnings (loss) of
unconsolidated international ventures of $(0.4) million, $(3.4) million
and $(3.4) million in 1995, 1996 and 1997, respectively, gain on sales of
marketable securities of $12.7 million in 1997, and a settlements
contingency of $8.0 million in 1993.
(4) See Note 1 to the Consolidated Financial Statements of the Company for
information concerning the computation of earnings per share.

16
<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. Generic products are
comprised of the Company's core products (including methylphenidate and
ketoprofen ER) and patent review products and settlements resulting from the
Company's patent challenge activities. The Company's primary branded product,
INFeD, is the leading injectable iron product in the United States.

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 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.

The development, manufacture, marketing and sale of pharmaceutical products
is subject to extensive federal, state and local regulation. The Company, like
other industry participants, must obtain approval from the FDA before
marketing most drugs, and must demonstrate continuing compliance with cGMP
regulations in its production. Over the last several years, FDA has inspected
various Company manufacturing facilities. As a result of these inspections,
FDA has required that the Company modify certain of its manufacturing and
other practices and, at times, withheld approval of certain applications for
new products, pending satisfactory resolution of issues identified during the
inspections. However, all the Company's manufacturing facilities have
continued production, and there has been no significant impact on overall
production. Certain significant delays in the review or approval of
applications for new products could have a material adverse effect on the
Company's future prospects. See "Risk Factors--Dependence on Regulatory
Approval and Compliance", "--Pending Regulatory Matters" and "Business--
Government Regulations."

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.

17
<PAGE>

The following table sets forth the net revenues of the Company's generic and
branded businesses for each of the periods shown:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
--------------------
1995 1996 1997
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Generic business:
Core products........................................... $284.8 $322.3 $306.2
Patent reviews
Patent challenge product revenues..................... 35.0 52.5 54.6
Settlement revenues................................... 5.0 13.5 25.0
------ ------ ------
Total patent review revenues.......................... 40.0 66.0 79.6
Total generic revenues................................ 324.8 388.3 385.8
------ ------ ------
Branded business:
INFeD................................................... 67.0 88.0 104.4
------ ------ ------
Total net revenues.................................... $391.8 $476.3 $490.2
====== ====== ======
</TABLE>

Patent challenge product revenues and settlement revenues resulted from the
Company's patent review activities. Settlement revenues in 1995, 1996 and 1997
reflect funds received from a pharmaceutical company pursuant to an agreement
reached with the Company in 1994. Under the agreement, which provides that
certain contingent payments may be made to the Company, the Company received a
final payment of $30 million in the first quarter of 1998, half of which was
paid to the Consultant. In addition to the amounts paid to the Consultant, the
Company incurs substantial other costs related to its patent review activities
as part of its overall product development activities. See Note 10 to the
Consolidated Financial Statements of the Company.

In 1992, the Company entered the branded pharmaceutical segment of the
market by introducing INFeD, which is currently the leading iron injectable
product in the U.S. Net revenues from INFeD as a portion of total net revenues
increased from 17% in 1995 to 21% in 1997. Gross profit margins on INFeD
generally exceed gross profit margins on the Company's generic products.
Accordingly, the gross profit from increased sales of INFeD have offset the
reduction in gross profit from generic products during the periods presented.

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 following table sets forth the percentages of the
Company's net revenues attributable to its generic and branded businesses:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Generic business:
Manufactured sterile dosage..................... 30% 38% 33%
Manufactured solid dosage....................... 35 28 33
Purchased products.............................. 18 15 13
------ ------ ------
Total generic................................. 83 81 79
Branded business:
INFeD........................................... 17 19 21
------ ------ ------
Total......................................... 100% 100% 100%
====== ====== ======
</TABLE>

During the period from 1995 to 1996, the Company's percentage of net
revenues from manufactured sterile dosage products and INFeD increased and the
percentage of net revenues from solid dosage products declined. This reflects
(i) the Company including Marsam's results (predominantly sterile dosage
products) since its acquisition by the Company in September 1995, (ii) INFeD
sales rising faster than the Company's total net revenues, and (iii) older
solid dosage products experiencing declines in selling prices as competitors
have entered the market. The increase in percentage of net revenues from solid
dosage products in 1997 reflects the approval and launch in that year of
methylphenidate and ketoprofen ER.

18
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth certain selected statement of operations data
as a percentage of net revenues for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
-----------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Net revenues.............. 100.0% 100.0% 100.0%
Cost of sales............. 63.9 67.3 67.3
------ ------ ------
Gross profit.............. 36.1 32.7 32.7
Costs and expenses:
Selling, general and
administrative......... 19.2 18.3 16.6
Research and
development............ 7.2 5.7 6.0
Amortization of goodwill
and other intangibles.. 0.9 2.1 2.1
Acquired in-process
Marsam research and
development............ 7.7 -- --
------ ------ ------
Operating income.......... 1.1 6.6 8.0
Interest expense, net... 2.5 4.9 5.4
Other expense (income),
net.................... (0.3) 0.3 (1.9)
------ ------ ------
Income (loss) before
provision for income
taxes.................... (1.1) 1.4 4.5
Provision for income
taxes.................. 2.7 1.1 2.2
------ ------ ------
Net income (loss)......... (3.8)% 0.3% 2.3%
====== ====== ======
</TABLE>

1997 COMPARED TO 1996

Net revenues increased $13.9 million, or 2.9%, from $476.3 million in 1996
to $490.2 million in 1997. In the branded business, sales increased $16.4
million, partially offset by a $2.5 million decline in the generic business.
The increase in branded product sales reflected primarily an increase in units
sold. The decline in generic business resulted from $32.2 million of price
erosion in core products and $20.6 million resulting from a strategic decision
in the second half of 1996 to discontinue certain lower-margin manufacturing
and lower margin outsourced products, partially offset by a $26.6 million
increase in sales of new products, a $10.1 million volume increase in sales of
core products and a $13.6 million increase in total patent review revenues.
The increase in patent review revenues resulted primarily from an $11.5
million increase in settlement revenues. Two new generic products that were
launched in the fourth quarter of 1997 are methlyphenidate and ketoprofen ER
which had combined revenues of $17.8 million.

Gross profit increased $4.8 million, or 3.1%, from $155.6 million in 1996 to
$160.4 million in 1997. The gross margin was flat at 32.7% in 1996 and 1997.
The increase in gross profit was principally the result of the introduction of
new products, increased revenues of INFeD and an increase in settlement
revenues offset by price erosion in both core products and patent challenge
products. Gross profit from patent review revenues increased $5.1 million from
$30.8 million in 1996 to $35.9 million in 1997 and related gross margin
decreased from 46.7% in 1996 to 45.1% in 1997. Such gross profit reflects,
among other things, net revenue from sales of patent challenge products and
settlement revenues, offset, in part, by payments to the Consultant under the
Consulting Agreement, which payments are included in cost of sales. In that
regard, for projects in which the Consultant has rendered an opinion setting
forth the basis for a possible patent challenge, the Company pays the
Consultant half the adjusted gross profits (as defined), 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.
Patent review revenues have historically fluctuated and there can be no
assurance of successful patent challenges in the future. See "Risk Factors--
Dependence on Successful Patent Litigation."

Selling, general and administrative expenses decreased $5.5 million, or
6.3%, from $87.3 million in 1996 to $81.8 million in 1997. Selling, general
and administrative expenses as a percent of net revenues decreased from 18.3%
in 1996 to 16.6% in 1997. The decrease in selling, general and administrative
expenses was due primarily to a reduction in the generic field sales force due
to consolidation of the customer base and overall cost control efforts.

Research and development expenses increased $2.4 million, or 8.7%, from
$27.0 million in 1996 to $29.4 million as a result of increased research and
development activities generally.

19
<PAGE>

Amortization of goodwill and other intangibles was unchanged from the
comparable period in 1996.

As a result of the factors discussed above, operating income increased $7.9
million, or 25.6%, from $31.1 million in 1996 to $39.0 million in 1997.

Interest expense, net, increased $3.3 million, or 14.1%, from $23.3 million
in 1996 to $26.6 million in 1997 principally due to higher amortization of
deferred financing expenses of $2.6 million and increased interest costs of
$0.7 million resulting from refinancing of senior debt with higher cost
subordinated debt in December 1996. The higher cost subordinated debt was
exchanged for lower cost senior floating rate debt in December 1997.

Other expense (income), net, changed by $10.5 million from an expense of
$1.2 million in 1996 to income of $9.3 million in 1997 and was primarily due
to gains on the sale of marketable securities of $12.7 million.

The Company's effective tax rate is higher than the statutory rate due to
the effect of significant non-deductible expenses. The effective tax rate
decreased from 78.8% in 1996 to 49.0% in 1997, primarily as a result of higher
income offsetting fixed non-deductible expenses.

1996 COMPARED TO 1995

Net revenues increased $84.5 million, or 21.6%, from $391.8 million in 1995
to $476.3 million in 1996. In the branded business, sales increased $21.0
million while generic sales increased $63.5 million. The increase in the
branded product sales largely reflected an increase in units sold. The
increase in the generic business is primarily due to $32.2 million in sales
from the Marsam Acquisition in the third quarter of 1995, and a $20.3 million
increase in core product volume, partially offset by $15.0 million in price
erosion. Patent review revenues increased $26.0 million, due to a $17.5
million increase in patent challenge product revenues and an increase in
settlement revenues of $8.5 million.

Gross profit increased $14.3 million, or 10.1% from $141.3 million in 1995
to $155.6 million in 1996. The gross margin decreased from 36.1% in 1995 to
32.7% in 1996. The increase in gross profit was largely attributable to
increased revenues of INFeD, an increase in patent challenge settlement
revenues and the full year of Marsam results, partially offset by price
erosion in both core products and patent challenge products. Gross profit from
patent review revenues decreased $0.3 million from $31.1 million in 1995 to
$30.8 million in 1996 and related gross margin decreased from 77.8% in 1995 to
46.7% in 1996. Price erosion on products in respect of which the Company no
longer shares gross profits with the Consultant were partially offset by sales
of a new patent challenge product in respect of which the Consultant shared
gross profits. Gross profit reflects, among other things, net revenue from
sales of patent challenge products and settlement revenues, offset, in part,
by payments to the Consultant under the Consulting Agreement, which payments
are included in cost of sales. In that regard, for projects in which the
Consultant has rendered an opinion setting forth the basis for a possible
patent challenge, the Company pays the Consultant half the adjusted gross
profits (as defined), 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.

Selling, general and administrative expenses increased $12.0 million, or
15.9%, from $75.3 million in 1995 to $87.3 million in 1996, but decreased as a
percentage of net revenues from 19.2% in 1995 to 18.3% in 1996. Selling,
general and administrative expenses increased due primarily to increased sales
volume, the full year impact of the Marsam Acquisition and an increase in
promotional activities in support of new product launches.

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.

20
<PAGE>

As a result of the factors discussed above, operating income increased $26.8
million from $4.3 million in 1995 to $31.1 million in 1996.

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 financing for the Marsam Acquisition and
higher interest rates.

Other expense (income), net, increased $2.4 million from income of $1.2
million in 1995 to an expense of $1.2 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, which were largely
comprised of amortization of intangibles and the acquired in-process Marsam
research and development charge.

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 intends to finance future acquisitions through the
issuance of new common shares, the incurrence of new debt or both. The
incurrence of new debt is subject to certain limitations under the Senior
Credit Agreement and Senior Floating Rate Notes.

Net cash provided by operating activities was $34.9 million and $10.8
million for the years 1997 and 1996, respectively. The net cash provided by
operating activities during 1997 was attributable to net income, as adjusted
for non-cash charges, of $24.9 million and increase in accounts payable and
accrued expenses and decline in inventories of $27.6 million, offset by an
increase of accounts receivable and prepaid expenses and other assets of $17.6
million. The net cash provided by operating activities during 1996 was
attributable to net income, as adjusted for non-cash charges, of $27.9 million
and an increase in accounts payable and accrued expenses and a decrease in
prepaid expenses and other assets of $13.9 million, offset by an increase in
inventories and accounts receivable of $31.0 million.

Net cash provided by investing activities for 1997 was $0.1 million compared
to net cash used in investing activities in 1996 of $20.0 million. Cash
provided by investing activities in 1997 resulted from the proceeds of sales
of marketable securities of $14.7 million, offset primarily by capital
expenditures, net of $14.4 million. The 1996 use of cash in investing
activities was primarily due to (i) capital expenditures, net, (ii) purchase
of product rights and licenses and (iii) investments in international joint
ventures aggregating $17.4 million.

Net cash used in financing activities for the year 1997 of $36.3 million
resulted from the net repayment of debt. Net cash provided by financing
activities for the year 1996 of $3.6 million was primarily due to net proceeds
of debt.

In September 1995, the Company entered into 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.
Amounts outstanding under the revolving credit facility were $41.0 million and
$44.0 million as of year-end 1996 and 1997, respectively.

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"). As a result
of this payment and a scheduled payment, the term loan facility was reduced to
$145.0 million by December 1996. In the year 1997, the Company made voluntary
principal payments of $35.0 million, thus reducing the term loan portion to
$110.0 million by year end. Quarterly principal payments on the term loan will
begin in September 1998 and end in the year 2001. In addition to such
principal payments, the Company is required to make additional principal
payments from its excess cash flow, as defined in the

21
<PAGE>

agreement, if its leverage exceeds certain levels, and if the Company raises
new capital from either the issuance of securities or certain asset sales not
in the ordinary course of business. 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. The
Senior Credit Agreement also contains restrictions on the payment of dividends
by the Company. The agreement provides that dividends may not be paid unless
Total Debt is below 2.5 times the trailing EBITDA, each such term as defined
in the agreement. Dividends may not exceed 25% of the cumulative net income
less any losses from October 1, 1995 to the most recent fiscal quarter ended.

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 3%. 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 Offering does not constitute a "change of control" under the
Notes. 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 Notes also provide that dividends may be paid if the EBITDA-to-
interest expense ratio is greater than 2.5 times for the years 1998 and 1999
and 3.0 times thereafter. Cumulative dividends cannot exceed 50% of the
cumulative net income and the net proceeds of any equity offering to the most
recent quarter then ended.

The Company in February 1998 entered into a strategic alliance agreement
with Cheminor Drugs Limited and its subsidiaries ("Cheminor") and Dr. Reddy's
Laboratories Limited and its subsidiaries ("Reddy"). Pursuant to the
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 arrangement,
the Company purchased 2.0 million publicly traded shares of Cheminor Drugs
Limited (12.79% of the currently outstanding shares of Cheminor Drugs Limited)
for $10.0 million using funds from the revolving credit facility under the
Senior Credit Agreement, and under certain circumstances has the right and the
obligation to purchase an additional 1.0 million shares for $5.0 million.
Cheminor will have the right to make fair market value purchases of the
Company's Common Stock, once the shares are publicly traded; the purchase
price may be payable from profits otherwise due Cheminor from the alliance.
Each party will also be entitled to representation on the other company's
board of directors consistent with its equity interest.

In March 1998, the Company entered into an agreement with Elan covering
several products in various stages of development. Under the agreement, the
Company is obligated to pay $14.0 million in development and license fees over
the next 12 months. The Company intends to pay such development and license
fees using cash generated from its operations and funds from the revolving
credit facility under the Senior Credit Agreement.

The Company believes that cash generated from its operations, its existing
credit facilities and the availability of $56.0 million under such facilities
as of December 1997 are sufficient to finance its current level of operations
and currently contemplated capital expenditures and strategic investments
through the next 12 months. 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.

The Company intends to use all of the proceeds of the Offering to repay a
portion of the revolving and/or term loan facility under the Senior Credit
Agreement, which matures on December 31, 2001 and bears interest at a rate at
December 1997 of 7.91%, and/or to repurchase and retire a portion of the
Senior Floating Rate Notes Due 2004 (as defined herein), which bear interest
at a rate at December 1997 of 8.94% and which were issued in

22
<PAGE>

exchange for the Company's Senior Subordinated Loan. Reductions to the
revolving loan facility may be reborrowed. All repayments or repurchases to
the term loan facility and Senior Floating Rate Notes Due 2004 will be
permanent. See "Capitalization" and "Business--Strategic Collaborations."

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 1996 and 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>
YEAR ENDED DECEMBER 1996 YEAR ENDED DECEMBER 1997
(UNAUDITED) (UNAUDITED)
-------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Net product sales...... $109,949 $120,398 $108,325 $124,123 $106,839 $114,441 $107,549 $136,341
Settlements revenues... 13,500 -- -- -- 25,000 -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total net revenues..... 123,449 120,398 108,325 124,123 131,839 114,441 107,549 136,341
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit............ 42,420 37,620 35,411 40,169 44,722 36,568 31,977 47,142
Cost and expenses:
Selling, general and
administrative........ 20,636 21,480 21,229 23,984 19,942 19,129 20,885 21,853
Research and
development........... 7,242 8,119 7,683 3,986 6,744 7,434 8,676 6,533
Amortization of
goodwill and other
intangibles........... 2,548 2,550 2,615 2,482 2,550 2,598 2,574 2,474
-------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss)................. 11,994 5,471 3,884 9,717 15,486 7,407 (158) 16,282
Interest expense, net.. 5,321 5,379 5,382 7,203 6,884 6,850 6,722 6,122
Other expenses
(income), net......... (603) (646) 797 1,645 1,094 (1,077) (6,559) (2,776)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
provision for income
taxes.................. 7,276 738 (2,295) 869 7,508 1,634 (321) 12,936
Provision for income
taxes.................. 3,343 733 (503) 1,618 3,625 1,315 155 5,560
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 3,933 $ 5 $ (1,792) $ (749) $ 3,883 $ 319 $ (476) $ 7,376
======== ======== ======== ======== ======== ======== ======== ========
Basic and diluted
earnings (loss) per
share.................. $ 0.14 $ 0.00 $ (0.06) $ (0.03) $ 0.14 $ 0.01 $ (0.02) $ 0.26
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>

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 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

23
<PAGE>

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.

In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 ("SFAS No. 132"), Employers'
Disclosures about Pensions and Other Postretirement Benefits, which
standardizes the disclosure requirements for pensions and other postretirement
benefits. The adoption of SFAS No. 132 in 1998 is not expected to materially
impact the Company's current disclosures.

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 from time to time hedges a portion of its floating rate interest
exposure using various financial instruments. At December 1997, the Company
had no interest rate hedges in place. In February 1998, the Company entered
into $100.0 million of notional amount interest rate hedge agreements for a
minimum of two years.

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.

24
<PAGE>

BUSINESS

GENERAL

Schein Pharmaceutical believes it is one of the leading generic
pharmaceutical companies in terms of United States revenues. 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 believes that its primary
branded product, INFeD, is the leading injectable iron product in the United
States in terms of revenues. The Company has a substantial pipeline of
products under development. The Company enhances its internal product
development, manufacturing and marketing capabilities through strategic
collaborations. Schein generated net revenues of $490.2 million and operating
income of $39.0 million during 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 325 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 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 21% of the Company's net revenues in
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 130-person direct sales and marketing force is one
of 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 $7.4 billion generic prescription 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) focus its product development
activities on complex and other generic drugs that require specialized
development or manufacturing technology and are therefore expected to
encounter limited competition; (iii) develop and market branded drugs for
select therapeutic categories; (iv) pursue strategic collaborations to
supplement product development and manufacturing resources; and (v) expand
market penetration through direct sales and innovative marketing programs.

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<PAGE>

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 MGI.

INDUSTRY OVERVIEW

In the U.S., pharmaceutical products are marketed as either 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 40% 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. Sales of generic drugs in 1995 accounted
for approximately $7.4 billion out of a total U.S. prescription pharmaceutical
market of approximately $77.4 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
maintenance organizations, managed care organizations, pharmacy benefit
managers, group purchasing

26
<PAGE>

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 pressuring 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 $7.4 billion generic prescription 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 325
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.

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 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

27
<PAGE>

development and marketing opportunities in select 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 an NDA for its next generation injectable
iron product was filed with FDA in December 1997. 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.

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.

Expand Market Penetration through Direct Sales and Innovative Marketing
Programs. The Company believes its 130-person direct sales and marketing force
is one of the largest in the U.S. generic pharmaceutical industry. This sales
and marketing force includes 90 field representatives, 20 telemarketing
representatives and 20 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 325 dosage forms and strengths under
approximately 200 approved ANDAs. Schein is currently the sole generic source
for 47 pharmaceutical products.

The following table sets forth the percentages of the Company's net revenues
attributable to its generic and branded businesses:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
----------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Generic business:
Manufactured sterile dosage..................... 18% 25% 30% 38% 33%
Manufactured solid dosage....................... 55 40 35 28 33
Purchased products.............................. 16 19 18 15 13
--- --- --- --- ---
Total generic................................. 89 84 83 81 79
Branded business:
INFeD........................................... 11 16 17 19 21
--- --- --- --- ---
Total......................................... 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>

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<PAGE>

During the period from 1993 to 1996, the Company's percentage of net
revenues from manufactured sterile dosage products and INFeD increased and the
percentage of net revenues from solid dosage products declined. This reflects
(i) the Company including Marsam's results (predominantly sterile dosage
products) since its acquisition by the Company in September 1995, (ii) INFeD
sales rising faster than the Company's total net revenues, and (iii) older
solid dosage products experiencing declines in selling prices as competitors
have entered the market. The increase in percentage of net revenues from solid
dosage products in 1997 reflects the approval and launch in that year of
methylphenidate and ketoprofen ER.

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 manufactured sterile dosage product portfolio is comprised of
approximately 110 products and accounted for approximately 33% of the
Company's total net revenues in 1997. This portfolio includes vecuronium
bromide, an anesthetic product that is currently the Company's largest selling
generic product, sales of which comprised approximately 8% of the Company's
total net revenues during this period. 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
generic sterile dosage products accounted for more than 6% of net revenues in
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 manufactured solid dosage product portfolio is comprised of
approximately 50 products and accounted for approximately 33% of the Company's
total net revenues in 1997. None of the Company's solid dosage products
accounted for more than 6% of net revenues in 1997. The Company's solid dosage
portfolio includes two products for which the Company is currently the sole
generic source.

In the fourth quarter of 1997, the Company launched two significant solid
dosage products. Each of these launches represent generic products that
require specialized development or manufacturing expertise and where
competition is expected to be limited. Methylphenidate is the generic
equivalent of Ritalin(R), which is used in the treatment of attention deficit
disorder. Methylphenidate is a controlled substance that is difficult to
produce and although the branded product has been off patent for a number of
years, Schein is only the second generic producer of methylphenidate.
Ketoprofen ER, a once-a-day non-steroidal anti-inflammatory drug developed
using Elan's extended release technology, was introduced late in the fourth
quarter of 1997 as the first generic equivalent to Oruvail(R), a branded
product that has been off patent for a number of years.

Pursuant to a custom manufacturing agreement dated as of July 1, 1995
between Johnson Matthey and the Company, the Company has exclusive purchase
and supply rights for bulk active methylphenidate hydrochloride produced by
Johnson Matthey. The agreement terminates on December 31, 2005, as amended,
with automatic renewals for additional successive three-year terms. Either
party may terminate the agreement on December 31, 2005 or the end of each
renewal with 24-months' prior notice.

Pursuant to a product development, license and supply agreement dated August
16, 1994, as amended, between Elan and the Company, the Company has the right
to package, market, sell and distribute ketoprofen ER in the U.S. under Elan's
ANDA. Pursuant to the agreement, the Company has paid approximately $2.5
million in development and license fees. Currently, the term of the agreement
is 18 years or, if longer, for the life of Elan's patents. In March 1998, the
Company entered into an agreement with Elan covering several products in
various stages of development. Under the agreement, the Company is obligated
to pay $14.0 million in development and license fees, and additional
development and license fees based on achievement of certain milestones.

The Company supplements its manufactured product line with purchased
products from other generic pharmaceutical manufacturers. Generally, the
Company purchases products through purchase orders without formal arrangements
or material long-term commitments. The gross margins received by the Company
on these products are generally lower than the gross 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% in 1997.

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<PAGE>

BRANDED PRODUCTS

Until 1992, the Company's exclusive 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 21% 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.

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 filed by Makoff R&D
Laboratories, Inc. in
December 1997
Nifedipine OD.................. 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 overload disorders. 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

30
<PAGE>

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."

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. Based on its evaluation of information from various industry sources,
the Company believes that INFeD currently has approximately 85% of the
injectable iron market, and that iron dextran products are marketed by one
other company in the U.S. Net sales of INFeD in 1997 were $104.4 million and
accounted for 21%, 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.

Pursuant to a supply agreement dated May 1, 1992, as amended on December 2,
1993 and June 9, 1995, between Abbott and the Company, Abbott supplies iron
dextran bulk solution to the Company on an exclusive basis. The agreement
terminates on December 31, 1999. Abbott retains the right to manufacture,
sell, ship, market or distribute a finished iron dextran drug product,
provided the product is not manufactured with bulk solution or technology
relating to bulk solution obtained from Abbott or a licensee or sublicensee of
Abbott.

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. Makoff R&D Laboratories,
Inc. ("R&DL"), a specialty renal pharmaceutical company, acquired the rights
to Ferrlecit from Rhone-Poulenc Rorer GmbH under a distribution agreement
dated June 24, 1993 and a trademark agreement dated August 26, 1993. In 1996,
pursuant to an exclusive trademark and distribution agreement with R&DL, the
Company acquired from R&DL 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 filed its NDA in
December 1997. See "--Government Regulations--NDA Process."

Other Products

Nifedipine OD. In the U.K., the Company is currently marketing a brand
version of Nifedipine OD, a once-a-day version of nifedipine used in the
treatment of hypertension. Pursuant to a license obtained from Ethical, this
product is being produced by a U.K. contract manufacturer. The Company is also
preparing for the product'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 $84.7 million
investment in product development over the past three years, the Company has
23 ANDAs pending with FDA as of February 28, 1998 (11 of which were filed from
the

31
<PAGE>

Company's Steris facility and are not expected to be approved until FDA has
confirmed that Steris has satisfactorily resolved certain inspectional
observations) and over 60 products under development internally and with third
parties. The Company believes that this level of 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 150
research and development professionals and supported by others with expertise
in manufacturing, technology, legal, regulatory and intellectual property
issues. See "Risk Factors--Pending Regulatory Matters" and "Business--Pending
Regulatory Matters."

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 (where
required) 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 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.

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 setting forth the basis for a possible patent challenge, 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.

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 projects under the
Consulting Agreement that are currently identified, 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. The
Consultant has rendered opinions with respect to each of the two patented drug
products that are the 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" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations."

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.

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<PAGE>

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 and MGI.

Under the arrangements with Ethical and Elan, the Company funds development
costs for designated products. The strategic partner develops the products.
Following regulatory approval, the strategic partner supplies, and the Company
markets, the products and pays the strategic partner a royalty or profit share
from sales. A product covered by the strategic collaboration with Elan is
ketoprofen ER, which the Company is currently marketing. Several products are
in various stages of development under the Company's arrangements with Ethical
and Elan. To date, the Company has paid an aggregate of approximately $19
million in license and product development fees under these arrangements, and
may be obligated to pay approximately $36 million in additional fees as and
when products covered by the arrangements are successfully developed and
certain milestones are achieved. See "--Products."

The Company in February 1998 entered into a strategic alliance agreement
with Cheminor and Reddy. Pursuant to the 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 arrangement, the Company purchased
2.0 million publicly traded shares of Cheminor Drugs Limited (12.79% of the
currently outstanding shares of Cheminor Drugs Limited) for $10.0 million, and
under certain circumstances has the right and the obligation to purchase an
additional 1.0 million shares for $5.0 million. Cheminor will have the right
to make fair market value purchases of the Company's Common Stock, once the
shares are publicly traded; the purchase price may be payable from profits
otherwise due Cheminor from the alliance. Each party will also be entitled to
representation on the other company's board of directors consistent with its
equity interest. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and "--
Products."

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(/1/)(/2/) Own 112,000 --
Solid dosage.......... Humacao, PR Own 75,000 --
Solid dosage.......... Danbury, CT(/2/) Lease 88,000 2005
Sterile dosage........ Phoenix, AZ(/1/)(/2/) Own 175,000 --
Sterile dosage........ Cherry Hill, NJ(/1/)(/2/) Own 99,700 --
Lease(/3/) 109,800 1999
Distribution Centers
Eastern Distribution.. Brewster, NY(/1/) Lease 98,500 2007
Western Distribution.. Phoenix, AZ Lease 76,000 2000
Corporate Offices....... Florham Park, NJ(/1/) Lease 53,000 2005
</TABLE>
- --------
(1) The Company maintains administrative offices at this facility.
(2) The Company maintains research laboratories at this facility.
(3) In 1998, the Company intends to exercise its option to purchase this
facility. See Note 10 to the Consolidated Financial Statements of the
Company.

33
<PAGE>

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."

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 believes that it 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.

34
<PAGE>

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 90 field representatives,
20 telemarketing representatives and 20 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.

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 service
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 19%, 18% and 10%, respectively, of the Company's total net
revenues for 1997. In August 1997, Cardinal Health Inc. announced its
intention to merge with Bergen Brunswig Corporation. In addition, in September
1997 McKesson Corporation announced its intention to merge with AmeriSource
Health Corporation. The proposed mergers among the four largest pharmaceutical
wholesalers in the United States, if consummated, would result in greater
consolidation of the pharmaceutical wholesaling industry and may intensify
pricing and other competitive pressures on generic pharmaceutical
manufacturers. Specifically for Schein, if the Cardinal Health--Bergen
Brunswig merger had been consummated at the beginning of 1997, the resulting
combined customer would have accounted for approximately 37% of the Company's
total net revenues in 1997. The Federal Trade Commission ("FTC") has voted to
oppose both of these proposed mergers. While these companies may appeal the
FTC decision, the Company cannot predict whether or on what terms, if any,
these proposed mergers would be consummated.

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 believes it has one of the largest generic sales and marketing
organizations in the U.S. generic pharmaceutical industry, with a sales and
marketing organization of 130 people serving the retail, institutional,
alternative site, managed care and other generic drug purchasing markets,
including a 20-person telemarketing

35
<PAGE>

sales force and 20 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 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."), 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 has designed the Generic Acceptance and Intervention Network
("G.A.I.N."), a patient-focused education program to promote the use of
generic products.

BRANDED PRODUCTS

The Company has a sales and marketing organization of 20 people dedicated to
marketing INFeD. In 1994, the Company entered into a three-year co-promotion
arrangement with Bayer Corporation covering the Company's INFeD product. Under
this agreement, certain of Bayer's specialty sales representatives in the
United States and Puerto Rico, on a full-time equivalent basis (aggregating
16), detail INFeD to the nephrology market. In early 1998, this agreement was
extended to December 1998. In addition, as part of its marketing effort in the
oncology market, the Company entered into a co-promotion arrangement with MGI
in March 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

36
<PAGE>

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 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

37
<PAGE>

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-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.

38
<PAGE>

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.

PENDING REGULATORY MATTERS

As a result of its 1996 inspection of the Company's subsidiary, Steris
Laboratories, Inc. ("Steris") located in Phoenix, Arizona, FDA advised Steris
that it will not approve any ANDAs for products manufactured at the Steris
facility until cGMP and application reporting deficiencies noted during the
inspection have been corrected. In a 1997 inspection of the Steris facility,
FDA identified additional cGMP deficiencies, and Steris currently continues to
be ineligible to receive new product approvals. Therefore, none of the 11
pending ANDAs that have been filed from the Steris facility (out of the
Company's total of 23 pending ANDAs) is expected to be approved until FDA has
confirmed that Steris has satisfactorily resolved the noted deficiencies. In
addition, as a result of observations made in the 1996 inspection and an
investigation by the FDA's Office of Regulatory Affairs, Steris entered into a
plea agreement with the U.S. Department of Justice. Under the agreement,
Steris pled guilty in January 1998 to misdemeanor violations for failure to
observe application reporting requirements for drug stability problems for two
drugs during 1994 and 1995 and, consequently, paid a fine of $1.0 million.
Also in early 1998, FDA issued to Steris a Warning Letter relating to the
deficiencies observed in the 1997 inspection of the Steris facility, including
FDA's request that Steris delineate its timetable for correction of cGMP
deficiencies and provide FDA with additional information regarding products
for which corrective actions have not been completed.

The Warning Letter addressed five deficient areas at Steris: polymorph
testing to ensure products conform to appropriate standards of identity,
strength, quality, and purity; process validation; method validation;
microbiological controls; and handling of out-of-specification test results
for finished products. FDA advised Steris in the Warning Letter that failure
to take prompt corrective action with regard to these areas could result in
seizure of product, an injunction, and/or prosecution. Steris has responded to
the Warning Letter and anticipates meeting with FDA in the near future to
determine what additional corrective actions, if any, FDA might require.

In 1995, FDA's inspection of the Company's subsidiary, Danbury Pharmacal,
Inc. ("'Danbury"), which operates facilities in Carmel, New York and Danbury,
Connecticut, resulted in observations regarding compliance with cGMP
requirements and the reliability of data submitted by Danbury in support of
certain ANDAs. As a consequence, Danbury voluntarily engaged independent
experts to audit all critical data in a representative sampling of its pending
and approved ANDAs. Reports of the audits, all of which have been completed,
have been submitted to FDA for evaluation. FDA has not advised Danbury about
its review of the audit reports; however, the agency continues to review and
approve ANDAs submitted by Danbury.

39
<PAGE>

Marsam Pharmaceuticals Inc. ("'Marsam"), located in Cherry Hill, New Jersey,
was inspected by FDA during 1997 to evaluate whether certain pending ANDA's
could be approved. Certain cGMP deficiencies were observed during the
inspection, and ANDA approvals were withheld pending completion of remedial
actions by Marsam. Following a reinspection in late 1997, Marsam has received
five new ANDA approvals.

See "Risk Factors--Pending Regulatory Matters."

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."

Manufacturers of marketed drugs must comply with cGMP regulations and other
applicable laws and regulations required by 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 with which the
Company must also comply. 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 occurrence and $2,500,000 in the aggregate per policy year.
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 December 1997, the Company had approximately 1,850 employees, of which
800 were engaged in manufacturing, 380 were engaged in quality control and
quality assurance, 250 were engaged in administration,

40
<PAGE>

finance and human resources, 150 were engaged in research and product
development, 150 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's
financial position, operations or liquidity.

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 has complied with the subpoena.

41
<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
Dariush Ashrafi................. 51 Executive Vice President, Chief Financial
Officer and Director
Javier Cayado................... 52 Senior Vice President, Technical Operations
Paul Feuerman................... 38 Senior Vice President, General Counsel, and
Director
Paul Kleutghen.................. 45 Senior Vice President, Strategic
Development
David R. Ebsworth*.............. 43 Director
Richard L. Goldberg*............ 62 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 of 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.

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.

Javier Cayado has been Senior Vice President of Technical Operations of the
Company since February 1998. From 1993 to 1998, Mr. Cayado was successively
Vice President, Senior Vice President and General Manager of Danbury
Pharmacal, a wholly owned subsidiary of the Company. Prior to joining Schein
in 1993, Mr. Cayado had a 14-year career with Pfizer Pharmaceutical
culminating with his assignment as General Manager of Pfizer's bulk chemical
and pharmaceutical products plants in Puerto Rico. He received his B.S. in
Chemical Engineering from the University of Connecticut.

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.

Paul Kleutghen has been Senior Vice President of Strategic Development of
the Company since February 1998. From 1993 to 1998, he was Vice President of
Business Development. Between 1989 and 1993, he was Vice President of
Materials and Operations. Prior to joining Schein, Mr. Kleutghen was with
Pfizer Pharmaceutical culminating with his assignment as Director of
Production Planning for the U.S. pharmaceutical division. Mr. Kleutghen earned
an undergraduate degree in Engineering and Computer Science from the
University of Leuven in Belgium and an MBA in Finance from the University of
Chicago.

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,

42
<PAGE>

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).

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 Board of Directors has five directors, three of whom--Martin Sperber,
Dariush Ashrafi and Paul Feuerman--are also officers of the Company and two of
whom--David R. Ebsworth and Richard L. Goldberg--are not officers of the
Company. The Company intends to add two independent directors to the Board of
Directors within one year of the date of the Offering.

Non-employee directors may receive meeting fees and annual grants of options
to purchase shares of the Company's Common Stock pursuant to the Non-Employee
Director Plan. To date, no meeting fees have been paid to non-employee
directors. See "--Stock Options."

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 1999, 2000 and 2001. At each annual election, commencing at the annual
meeting of stockholders in 1999, 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
(as defined herein) 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
(until Bayer holds more than 50% of the Company's outstanding stock, then
rounded up 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. In this regard, Bayer
Corporation nominated David R. Ebsworth as a member of the Board of Directors.
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 in February 1998 entered into a strategic alliance agreement
with Cheminor and Reddy. As part of the arrangement, the Company purchased 2.0
million publicly traded shares of Cheminor Drugs Limited (12.79% of the
currently outstanding shares of Cheminor Drugs Limited) for $10.0 million, and
under certain circumstances has the right and the obligation to purchase an
additional 1.0 million shares for $5.0 million. Cheminor will have the right
to make fair market value purchases of the Company's Common Stock, once the
shares are publicly traded; the purchase price may be payable from profits
otherwise due Cheminor from the alliance. Each party will also be entitled to
representation on the other company's board of directors consistent with its
equity interest, at all times during which each party owns at least ten
percent of the total issued and outstanding shares of the other party.
Currently, Cheminor does not own shares of the Company's Common Stock and,
accordingly, is not entitled to representation on the Company's board of
directors.

43
<PAGE>

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
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.

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 years ended December 1996 and 1997.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
------------------------------ ---------- -------------
SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION(9)(10) SALARY BONUS COMPENSATION OPTIONS(#) PAYOUTS($)(2) COMPENSATION
- ---------------------------------- -------- -------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Martin Sperber........... 1997 $700,000 $400,000 $ 9,436 -- -- $10,880 (3)
Chairman of the Board of 1996 700,000 -- 9,929 -- -- 10,305 (3)
Directors, Chief
Executive Officer and
President
Dariush Ashrafi.......... 1997 341,000 93,000 10,300 57,750 $ 75,000 22,709 (4)
Executive Vice 1996 341,000 59,700 143,725 21,000 75,000 24,321 (4)
President, Chief
Financial Officer and
Director
Javier Cayado............ 1997 220,000 37,000 398 10,500 100,000 29,343 (5)
Senior Vice President 1996 220,000 40,500 969 10,500 125,000 16,910 (5)
Technical Operations
Paul Feuerman............ 1997 225,000 61,000 8,596 15,750 100,000 17,625 (6)
Senior Vice President, 1996 185,000 32,400 7,738 21,000 100,000 13,799 (6)
General Counsel and
Director
Paul Kleutghen........... 1997 211,000 37,300 9,362 8,925 100,000 36,531 (7)
Senior Vice President 1996 211,000 38,800 24,415 21,000 100,000 47,115 (7)
Strategic Development
Marvin Samson............ 1997 400,000 -- 2,659 183,750 -- 24,754 (8)
Former Executive Vice 1996 400,000 70,000 -- 21,000 -- 21,126 (8)
President
</TABLE>

44
<PAGE>

- --------
(1) The compensation described in this table does not include medical, dental
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) LTIP payouts, reflect Long Term Incentive Plan ("LTIP") payments pursuant
to various deferred compensation agreements.
(3) In 1997 All Other Compensation includes $8,000 for the Company Retirement
Plan discretionary contribution, $1,680 for the cost of term life
insurance coverage provided by the Company and $1,200 for the Company
Retirement Plan matching contribution. In 1996 All Other Compensation
includes $7,500 for the Company Retirement Plan discretionary
contribution, $1,680 for the cost of term life insurance coverage provided
by the Company and $1,125 for the Company Retirement Plan matching
contribution.
(4) In 1997 All Other Compensation includes $12,363 for the Supplemental
Retirement Plan contribution, $8,000 for the Company Retirement Plan
discretionary contribution, $1,200 for the Company Retirement Plan
employer matching contribution and $1,146 for the cost of term life
insurance coverage provided by the Company. In 1996 All Other Compensation
includes $14,550 for the Supplemental Retirement Plan contribution, $7,500
for the Company Retirement Plan contribution, $1,146 for the cost of term
life insurance coverage provided by the Company and $1,125 for the Company
Retirement Plan employer matching contribution.
(5) In 1997 All Other Compensation includes $6,458 for the value of the BEARs
Program, $8,000 for the Company Retirement Plan discretionary
contribution, $7,543 for the value of the Life Insurance Plan, $5,402 for
the Supplemental Retirement Plan contribution, $1,200 for the Company
Retirement Plan employer matching contribution and $740 for the cost of
term life insurance coverage provided by the Company. In 1996 All Other
Compensation includes $1,005 for the value of the BEARs Program, $7,500
for the Company Retirement Plan discretionary contribution, $6,541 for the
Supplemental Retirement Plan contribution, $1,125 for the Company
Retirement Plan employer matching contribution and $739 for the cost of
term life insurance provided by the Company.
(6) In 1997 All Other Compensation includes $2,583 for the value of the BEARs
Program, $8,000 for the Company Retirement Plan discretionary
contribution, $5,086 for the Supplemental Retirement Plan contribution,
$1,200 for the Company Retirement Plan matching contribution and $756 the
cost of term life insurance coverage provided by the Company. In 1996 All
Other Compensation includes $402 for the value of the BEARs Program,
$7,500 for the Company Retirement Plan discretionary contribution, $4,150
for the Supplemental Retirement Plan contribution, $1,125 for the Company
Retirement Plan employer matching contribution, and $622 for the cost of
term life insurance provided by the Company.
(7) In 1997 All Other Compensation includes $3,229 for the value of the BEARs
Program, $12,095 for a forgiven equity loss loan, $8,000 for the Company
Retirement Plan discretionary contribution, $5,713 for a forgiven personal
loan, $4,693 for the Supplemental Retirement Plan contribution, $1,200 for
the Company Retirement Plan matching contribution, $892 for the value of
the Life Insurance Plan and $709 for the cost of term life insurance
provided by the Company. In 1996 All Other Compensation includes $502 for
the value of the BEARs Program, $19,884 for a forgiven personal loan,
$12,095 for a forgiven equity loss loan, $7,500 for the Company Retirement
Plan discretionary contribution, $5,300 for the Supplemental Retirement
Plan, $1,125 for the Company Retirement Plan employer matching
contribution and $709 for the cost of term life insurance provided by the
Company. Mr. Kleutghen has a balance on his equity loss loan of $12,095.
The equity loss loan was issued August 1993 for $60,476. The terms of the
loan state that 1/5 of the loan be forgiven each year. Interest at the
rate of 7% on the balance of the loan is due annually. The balance on the
personal loan is $8,730. The personal loan was issued July 1989 for
$75,000. The terms of the loan state the loan and interest will be
forgiven over a period of 10 years.
(8) Marvin Samson served as the Company's Executive Vice President until
January 7, 1998. In 1997 All Other Compensation includes $15,333 for the
value of the Life Insurance Plan, $8,000 for the Company Retirement Plan
discretionary contribution, $1,200 for the Company Retirement Plan
matching contribution and $221 for the cost of term life insurance
coverage provided by the Company. In 1996 All Other Compensation includes
$12,467 for the value of the Life Insurance Plan, $7,500 for the Company
Retirement Plan discretionary contribution, $909 for the cost of term life
insurance coverage provided by the Company and $250 for the Company
Retirement Plan matching contribution.
(9) Michael Casey served as the Company's Executive Vice President until
September 5, 1997. In 1997 Mr. Casey received $242,308 in Salary, options
covering 89,250 shares of Common Stock, $75,000 in LTIP payouts and $1,984
in All Other Compensation. All Other Compensation includes $1,200 for the
Company Retirement Plan matching contribution and $784 for the cost of
term life insurance provided by the Company. After Mr. Casey left the
Company he received additional payments totaling $60,577. In 1996 Mr.
Casey received $326,442 in Salary, $61,300 in Bonus, $102,309 in Other
Annual Compensation, options covering 21,000 shares of Common Stock,
$75,000 in LTIP payouts and $9,477 in All Other Compensation. All Other
Compensation includes $7,260 for the Company Retirement Plan discretionary
contribution, $1,125 in for the Company Retirement Plan matching
contribution and $1,092 for the cost of term life insurance coverage
provided by the Company.
(10) James McGee served as the Company's Executive Vice President and Chief
Operating Officer until December 31, 1996. In 1997 after Mr. McGee left
the Company he received additional payments totaling $1,643,861. In 1996
Mr. McGee received $431,000 in Salary, $75,400 in Bonus $98,825 in Other
Annual Compensation, options covering 21,000 shares of Common Stock,
$2,000,000 in LTIP payments and $180,833 in All Other Compensation. All
Other Compensation includes $104,540 for a forgiven equity loss loan,
$44,670 for the value of the Life Insurance Plan, $21,550 for the
Supplemental Retirement Plan contribution, $7,500 for the Company
Retirement Plan discretionary contribution, $1,448 for the cost of term
life insurance coverage provided by the Company, and $1,125 for the
Company Retirement Plan matching contribution.

45
<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 1997 SHARE DATE 5% 10%
---- ------------------ --------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Martin Sperber.......... -- -- -- -- -- --
Dariush Ashrafi......... 57,750 6.5% $14.29 2007 $ 586,030 $1,421,829
Paul Feuerman........... 15,750 1.8 14.29 2007 159,826 387,772
Jay Cayado.............. 10,500 1.2 14.29 2007 106,551 258,514
Paul Kleutghen.......... 8,925 1.0 14.29 2007 90,568 219,737
Marvin Samson........... 183,750 20.7 14.29 2007 1,864,641 4,524,003
Michael Casey*.......... 89,250 10.1 14.29 2007 -- --
</TABLE>
- --------
* Options subsequently canceled

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.......... -- -- 503,475 -- -- --
Dariush Ashrafi......... -- -- 36,435 115,815 -- $41,033
Paul Feuerman........... -- -- 25,410 34,440 -- 11,183
Jay Cayado.............. -- -- 24,465 22,785 -- 7,455
Paul Kleutghen.......... -- -- 30,450 28,875 -- 6,337
Marvin Samson........... -- -- 7,035 197,715 -- 130,463
Michael Casey........... -- -- 36,435 -- -- --
James McGee............. -- -- 480,585 -- $863,100 --
</TABLE>

EMPLOYMENT AGREEMENTS

The Company entered into an employment agreement with Martin Sperber dated
September 30, 1994, as amended as of March 6, 1998, 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, 2000, 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, 2000 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, 2000. If Mr. Sperber
voluntarily terminates his employment prior to January 1, 2000 (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, 2000, 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

46
<PAGE>

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.

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 a 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% of the average total cash compensation for the highest three of the
last six 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 receiving 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 503,475 shares of Common Stock at a price of $19.05 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 three months from the date of
termination (but may be extended at the discretion of the Company).

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. In 1997, the Company's Board of
Directors determined to award a $93,000 bonus to Mr. Ashrafi, payable to Mr.
Ashrafi in 1998. Pursuant to a 1995 deferred compensation agreement, between
the Company and Mr. Ashrafi, Mr. Ashrafi is entitled to receive an LTIP
payment of $300,000, payable in quarterly payments in the amount of $18,750.
If Mr. Ashrafi's employment with the Company is terminated under certain
circumstances, he 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. Further,
if Mr. Ashrafi is terminated other than for cause or disability, or if he
voluntarily terminates his employment in certain instances, he is entitled to
receive basic health and medical benefits until the earlier of one year
following termination and his full-time employment 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. In 1997, the Company's Board
of Directors determined to award a $61,000 bonus, payable to Mr. Feuerman in
1998. Pursuant to a deferred compensation agreement dated August 8, 1996,
between the Company and Mr. Feuerman, Mr. Feuerman is entitled to receive an
LTIP payment of $500,000, payable in two annual installments of $100,000

47
<PAGE>

each followed by two annual installments of $150,000 each. If Mr. Feuerman's
employment with the Company is terminated under certain circumstances, he 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. Further, if Mr.
Feuerman is terminated other than for cause or disability, or if he
voluntarily terminates his employment in certain instances, he is entitled to
receive basic health and medical benefits until the earlier of one year
following termination and his full-time employment elsewhere.

The Company entered into an employment agreement with Jay Cayado dated
November 22, 1993, pursuant to which Mr. Cayado serves as Senior Vice
President Technical Operations of the Company. Under this agreement, the term
of Mr. Cayado's employment began on November 22, 1993 and terminates 60 days
after either Mr. Cayado 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. Cayado. In 1997, the Company's Board of
Directors determined to award a $37,000 bonus to Mr. Cayado, payable to Mr.
Cayado in 1998. Pursuant to a deferred compensation agreement dated Feb. 7,
1996, between the Company and Mr. Cayado, Mr. Cayado is entitled to receive an
LTIP payment of $450,000, payable annually in one installment of $125,000, one
installment of $100,000 and three installments of $75,000 each. If Mr.
Cayado's employment with the Company is terminated under certain
circumstances, he 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. Further,
if Mr. Cayado is terminated other than for cause or disability, or if he
voluntarily terminates his employment in certain instances, he is entitled to
receive basic health and medical benefits until the earlier of one year
following termination and his full-time employment elsewhere.

The Company entered into an employment agreement with Paul Kleutghen dated
November 29, 1993, pursuant to which Mr. Kleutghen serves as Senior Vice
President, Strategic Development, to the Company. This agreement terminates 60
days after either Mr. Kleutghen 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. Kleutghen. In 1997, the Company's
Board of Directors determined to award a $37,300 bonus, payable to Mr.
Kleutghen in 1998. Pursuant to a deferred compensation agreement dated August
8, 1996, between the Company and Mr. Kleutghen, Mr. Kleutghen 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. Kleutghen's
employment with the Company is terminated under certain circumstances, he 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. Further, if Mr.
Kleutghen is terminated other than for cause or disability, or if he
voluntarily terminates his employment in certain instances, he is entitled to
receive basic health and medical benefits for one year following termination
and the full-time employment elsewhere.

The Company entered into an agreement dated November 29, 1993 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 December 31, 1996. Under an agreement dated September 20, 1996,
Mr. McGee has received payments totaling $1,527,461 and is entitled to receive
(a) $116,400 when bonuses are paid to certain senior executives in respect of
fiscal 1997, and (b) 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 base salary of
$431,000, plus an additional consulting fee equal to a fraction of his annual
base salary (determined by dividing the aggregate bonuses to be paid to
certain senior executive officers of the Company by such senior executive
officers' aggregate annual base salaries) to be paid as and when bonuses are
paid to senior executive officers of the Company in respect of fiscal 1998.

Pursuant to an agreement dated July 28, 1995, Marvin Samson was appointed an
Executive Vice President and Director of the Company, as well as President,
Chief Executive Officer and Chief Operating Officer and Director of Marsam.
Mr. Samson ceased to be an employee and director of the Company and Marsam on
January 7, 1998. In connection with Mr. Samson's employment agreement, the
Company is paying Mr. Samson compensation through 2000, currently at the
annual rate of $400,000. During this period, the Company also is providing
certain insurance and automobile benefits.

48
<PAGE>

A compensation continuation agreement provides for pension payments to Mr.
Samson commencing September 2000 in an amount equal to his annual base salary
immediately prior to retirement and, thereafter, 50% of that amount for each
of the next nine years. The Company has also agreed to provide certain
benefits to Mr. Samson in the form of payments on a split dollar life
insurance contract insuring the lives of Mr. Samson and his wife.

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 2,877,000 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 2,877,000
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 105,000 shares of Common Stock, subject
to adjustment under certain circumstances. Although options granted under the
1993 Plan to purchase 2,653,140 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 common stock which were granted under the 1997 Plan at the then
fair market value and plans to grant 936,915 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
Company intends to reduce the exercise price to the public offering price in
the Offering for all options granted under the 1997 Plan and the 1993 Plan to
non-director employees that have an exercise price above such price.
Currently, options to purchase a total of 1,941,450 shares of Common Stock
would be subject to such a reduction in exercise 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 22,575 shares of Common
Stock under the Non-Employee Director Plan and plans to grant 9,450 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

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<PAGE>

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 July 1, 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 ($10,000 for the
1998 plan year, subject to cost of living adjustments); the amount of a
participant's basic contribution is generally excluded from gross income for
federal or state income tax purposes. In 1998 the Company will make a
mandatory matching contribution to the Company Retirement Plan of $0.50 for
each dollar contributed to the Company Retirement Plan as a basic
contribution, up to the first 6% of a participant's contribution; 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 1998, the Company made a discretionary, non-matching
contribution under the Company Retirement Plan for 1997 equal to 5% of
compensation (as defined in the Company Retirement Plan).

Concurrently with the IPO, participants in the Company Retirement Plan will
be permitted to invest up to the lesser of 5% or $15,000 of their account
balance in Common Stock at the IPO price. After the Offering, participants
will be permitted to invest, at the then current market price, up to 5% of
their and the Company's contributions to the Company Retirement Plan in Common
Stock. Participants will be allowed to sell their shares of Common Stock at
any time.

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, and they acquire a 100% vested and
nonforfeitable interest in the Company's non-matching amounts at retirement,
death, disability or termination pursuant to an employee reduction plan. If
their employment terminates prior to the normal retirement date for any other
reason, 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
Company 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 and Supplemental 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 or the proceeds of the death
benefits.

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

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<PAGE>

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.

1998 Employee Stock Purchase Plan. The Company adopted an Employee Stock
Purchase Plan on January 23, 1998, which provides employees an opportunity to
purchase stock of the Company through payroll deductions upon completion of
the Offering. Employees may elect to withhold from 1% to 20% of their
compensation and purchase Common Stock directly from the Company. Each
employee's annual purchase is limited to Common Stock with a fair market value
of $25,000 per year, which Common Stock will be purchased at 85% of the fair
market value of the Stock. The maximum number of shares of the Company's
Common Stock available for purchase under the plan is 500,000 shares.

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<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. Under the agreement, the parties agreed to share expertise,
personnel, products and production facilities where appropriate to (i) explore
potential areas of mutual interest and cooperation in the U.S. domestic
market, (ii) identify multisource pharmaceutical business opportunities abroad
and (iii) explore the use of Bayer's chemical synthesis expertise to provide
the Company with chemical drug ingredients. The agreement provides that any
decision to pursue a project must be approved by both parties and based on a
separately negotiated contractual agreement.

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, during the periods from 1995 to 1997, in exchange for promotional
support, the Company shared with Bayer the net profits of INFeD in excess of
specified threshold amounts which are based, in part, on the prior year's
sales. In early 1998, this agreement was amended and extended to December
1998. 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 (in the form of payments to Bayer) of
approximately $3.0 million in 1996 and $4.2 million in 1997. There were no
selling expenses (in the form of payments to Bayer) under the first agreement
for 1995. Selling expenses in 1998 under the agreement are expected to remain
approximately constant as a percentage of INFeD revenues compared to 1997. See
"Principal 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.

During 1995, 1996 and 1997, the Company invested approximately $3.5 million,
$2.0 million and $0.2 million, respectively, 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
Corporation, a minority investor in the Company. Each party's interest in
profits and losses is proportional to that party's equity investment in a
venture. The Company recorded losses of approximately $0.4 million, $3.4
million and $3.4 million in 1995, 1996 and 1997, respectively, as its share of
the operating results of these businesses. 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. The Company incurred expenses of approximately $2.1 million, $2.9
million and $2.8 million in 1995, 1996 and 1997, respectively, to identify,
evaluate, and establish these and other potential international business
ventures. Each of Bayer and Schein currently is evaluating the extent of its
continued participation in certain of these ventures.

In 1997, the Company, together with the Pharmaceutical, Consumer Healthcare,
Afga Film and Diagnostics divisions of Bayer Corporation, has created a
marketing collaboration called Bayer Healthcare Partners. Through Bayer
Healthcare Partners, the participants combine their sales and marketing
efforts to offer, on a case-by-case basis, a package of goods and services
designed to be more attractive to a customer, most likely a managed healthcare
provider. The participants share in the costs of these combined marketing
efforts. The Company's participation in Bayer Healthcare Partners is
determined on a year to year basis. In the last six months of 1997, the
Company incurred expenses of approximately $0.1 million and the rate of the
Company's expenditures in 1998 is expected to be similar. Under its existing
arrangement with Bayer Healthcare Partners, the Company is not required to
share revenues or profits with other participants.

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<PAGE>

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 $5.3 million, $8.6 million and $10.0 million in 1995, 1996
and 1997, respectively. Certain of the Company's principal stockholders also
are principal stockholders of Henry Schein, Inc. All transactions between the
Company and Henry Schein, Inc. are on an arm's-length basis.

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 December 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."

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<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of March 31, 1998 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 and (iv) all directors
and executive officers of the Company as a group.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
NUMBER OF SHARES PRIOR TO THE OFFERING AFTER THE OFFERING
BENEFICIALLY OWNED (2) (3) (2)(4)
------------------ --------------------- --------------------
BENEFICIAL OWNER(1)
- -------------------
<S> <C> <C> <C>
Martin Sperber (5)...... 20,504,715 66.2% 60.4%
Marvin H. Schein (6)
(8).................... 9,452,100 30.5% 27.8%
135 Duryea Road
Melville, NY 11747
Bayer Corporation....... 8,141,910 26.3% 24.0%
100 Bayer Road
Pittsburgh, PA 15205
Trusts established by
Pamela Schein (6) (8).. 7,144,410 23.1% 21.0%
Pamela Joseph (7) (8)... 2,785,440 9.0% 8.2%
Dariush Ashrafi......... 36,330 * *
Javier Cayado........... 24,465 * *
Paul Feuerman........... 25,410 * *
Paul Kleutghen.......... 30,450 * *
David R. Ebsworth....... 1,995 * *
Richard L. Goldberg..... 1,995 * *
Directors and Executive
Officers as
Group (7 persons) (5).. 20,625,360 66.6% 60.7%
</TABLE>
- --------
* Denotes less than 1%.
(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.
Percentages shown assume that Bayer does not exercise its preemptive rights
in connection with the Offering. See "--Restructuring Agreements" and
"Description of Capital Stock."
(3) The 30,975,931 shares of Common Stock deemed outstanding prior to the
Offering includes:
(a) 28,692,720 shares of Common Stock outstanding; and
(b) 2,283,211 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.
(4) The 33,975,931 shares of Common Stock deemed outstanding after the
Offering includes:
(a) 28,692,720 shares of Common Stock outstanding prior to the Offering
and 3,000,000 shares offered herein; and
(b) 2,283,211 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.

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<PAGE>

(5) Includes:
(a) 619,290 shares for which Mr. Sperber either is the direct beneficial
owner or holds in trusts for his family members' benefit; and
(b) 503,475 shares issuable pursuant to the exercise of stock options that
are held by Mr. Sperber and are currently exercisable; and
(c) 19,381,950 shares 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.
(6) Includes all shares for which such stockholder is either the direct
beneficial owner or holds in trust for his or her family members and/or
charities for which such stockholder is trustee.
(7) Includes 182,385 shares held in trust, of which Ms. Joseph is a principal
beneficiary.
(8) All shares are held by Mr. Sperber as voting trustee under the Voting
Trust Agreement. See "--Restructuring Agreements."

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., 61.2% 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 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 (until Bayer holds more than 50% of the outstanding Common Stock, then
rounded up 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 earlier of May 15, 2001 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

55
<PAGE>

more than majority approval to elect a majority of the Board of Directors 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 the Restructuring Agreements.
In addition, until the earlier of (i) the Governance Termination Date, (ii)
the Qualified Public Offering Date and (iii) a sale of shares by Bayer
Corporation other than to a Permitted Assignee, the Company may not undertake
certain other actions (including incurring funded debt in excess of certain
ratios or declaring certain dividends or making certain distributions in
respect of the Company's Common Stock) without the consent of Bayer
Corporation.

The Restructuring Agreements include the Standstill, which imposes certain
restrictions on Bayer Corporation and its affiliates until May 15, 2001 (the
"Standstill Period"). During the Standstill Period, Bayer Corporation and its
affiliates may not among other things (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 Company or otherwise seek to amend or waive any provision of the
Standstill. In addition, until the Qualified Public Offering Date, the Company
may not undertake certain other actions (including incurring funded debt in
excess of certain ratios or declaring certain dividends or making certain
distributions in respect of the Company's Common Stock) without the consent of
Bayer Corporation.

After the Standstill Period, 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 Period, 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 at fair market value unless Bayer Corporation has sold
shares of Common Stock other than to certain permitted transferees, (i) shares
in connection with its exercise of certain preemptive rights, (ii) after the
Qualified Public Offering Date (as defined below) and before May 15, 2001,
shares necessary to acquire the Investment Spread, (iii) if, within 30 days
after the Qualified Public Offering Date, Bayer Corporation has the right to
acquire ownership of at least 21% more of the outstanding Common Stock than
any other holder of 10% or more of the Common Stock (other than a employee
benefit plan or current stockholder) and the Public Float is less than 133% of
the Investment Spread, shares equal to the amount such Public Float is less
than 133% of the Investment Spread and (iv) if, on May 15, 2001, the Public
Float is less than 133% of the number of shares that, when added to Bayer
Corporation's shares, equals a majority of the shares then outstanding, shares
equal to such amount. Notwithstanding the foregoing, Bayer Corporation may
purchase additional shares up to a maximum ownership, in the aggregate, of 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

56
<PAGE>

(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)(1) (the "Maximum Rule 144 Sales Amount"), (b) in a wide
distribution in an amount that exceeds the Maximum Rule 144 Sales Amount,
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 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 may not transfer any of its 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. 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) with respect to certain
preemptive rights, rights of first refusal and rights of first offer, 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) with respect to certain registration
rights, 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 Family
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.

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<PAGE>

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
Family Stockholders and the Family 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 "--Restrictions on
Transfer" 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.

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 (b), (i)
and (j) of the first paragraph of "--Restrictions on Transfer" 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
earlier of the second anniversary of the Qualified Public Offering Date and
May 15, 2001, 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.

58
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding
31,692,720 shares of Common Stock and 3,745,770 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
3,000,000 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 28,692,720 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 Stockholders."

Pursuant to the Stock Option Plan, 1,915,620 shares of Common Stock are
available for future option grants, of which the Company plans to grant
options to purchase 936,915 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, Common Stock
issuable pursuant to the Stock Option Plan, shares purchased under the
Employee Stock Purchase Plan and the account balances of participants under
the Company Retirement Plan as of the Offering that 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 promptly after
the date of this Prospectus, 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 28,475,265 shares of Common Stock (the "General Registrable

59
<PAGE>

Shares"), including a total of 19,381,950 shares of Common Stock subject to
the Continuing Stockholders Agreement (as hereinafter defined) under the terms
of an agreement among the Company and the General Rightholders (the "General
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 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 at any time
before 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 19,381,950 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 at any time before the tenth
anniversary of the date of the Offering. See "Principal 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.

60
<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 2,000,000 shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"). Immediately prior to
the Offering, there were 28,692,720 shares of Common Stock outstanding held of
record by 13 stockholders.

Prior to the Offering, the authorized capital stock of the Company consisted
of Class A Common Stock and Class B Common Stock. Each share of Class A and
Class B Common Stock was identical in every respect, except that holders of
shares of Class A Common Stock were entitled to one vote in respect of each
share held on all matters voted upon by the Company's stockholders and holders
of shares of Class B Common Stock were not entitled to vote on any matter.
Concurrent with the Offering, each share of Class B Common Stock was
automatically reclassified as and changed into one new share of the Company's
Class A Common Stock, which has been re-designated "Common Stock."

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 and under the General
Stockholders Agreement) 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.
Subject to the rights of Bayer Corporation under the Restructuring Agreements
to maintain its ownership percentage of the outstanding shares of Common Stock
of the Company, 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,
"Principal Stockholders--Restructuring Agreements."

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

61
<PAGE>

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.

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 certificate of incorporation 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 certificate of incorporation.

ANTI-TAKEOVER EFFECT OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-
LAWS

Certain provisions of the certificate of incorporation and by-laws in effect
as of the effective date of the Offering 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."

62
<PAGE>

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
provide that stockholder action may not be effected without a duly called
meeting. The certificate of incorporation and by laws of the Company also do
not permit stockholders of the Company to call special meetings of
stockholders. This effectively limits the ability of the Company's
stockholders to conduct any form of consent solicitation. See "Principal
Stockholders."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.

63
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company has 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, 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....................................................... 3,000,000
=========
</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 has 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
450,000 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 7% of the shares of Common Stock to
be offered and sold hereby by the Company to the Company's Retirement Plan at
the direction of employees, 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.

The Company has 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.

64
<PAGE>

The Company, the Company's executive officers and directors and certain
other stockholders and optionholders of the Company have agreed, subject to
certain limited exceptions, not, directly or indirectly, to sell, offer,
pledge, contract to sell or grant any option to purchase or otherwise dispose
of or transfer any shares of Common Stock or any securities convertible into
or exercisable or exchangeable for shares of 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 Company's
stockholders or optionholders from such lock-up agreements until the
expiration of such 180-day period.

The Representatives have advised the Company 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 nor any of the Underwriters 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 nor any of the Underwriters 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 will be determined by
negotiation between the Company and the Representatives. Among the factors to
be considered in such negotiations will be 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.

65
<PAGE>

VALIDITY OF SHARES

The validity of the shares of Common Stock being sold in the Offering is
being passed upon for the Company 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, New
York, New York.

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 has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-1 (together with all amendments and
exhibits, the "Registration Statement") under the Securities Act. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules to the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. For further information with respect to the Company
and the Common Stock offered hereby, reference is made to the Registration
Statement and to its exhibits and schedules. The Registration Statement,
including exhibits, may be inspected and copied without charge at the SEC's
principal office located at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the regional offices of the SEC located at Seven
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 may be obtained by mail from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549, upon the payment of prescribed fees. The Commission also maintains a
web site at http://www.sec.gov that contains reports, proxy and information
statements, as well as other information regarding registrants that file
electronically with the SEC.

The Company intends to furnish its stockholders with annual reports
containing audited financial statements and to make available quarterly
reports for the first three quarters of each fiscal year containing interim
unaudited financial information.

66
<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 28, 1996 and December 27, 1997.. F-3
Consolidated Statements of Operations for each of the years ended December
30, 1995, December 28, 1996, and December 27, 1997........................ F-4
Consolidated Statements of Stockholders' Equity for each of the years ended
December 30, 1995, December 28, 1996, and December 27, 1997 .............. F-5
Consolidated Statements of Cash Flows for each of the years ended December
30, 1995, December 28, 1996, and December 27, 1997........................ F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>

F-1
<PAGE>

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 28, 1996 and December 27,
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
27, 1997. 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 28, 1996 and
December 27, 1997, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 27, 1997
in conformity with generally accepted accounting principles.

BDO Seidman, LLP

New York, New York
January 30, 1998, except for Note 1
which is as of April 3, 1998

F-2
<PAGE>

SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS

<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
ASSETS
------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.......................... $ 2,139 $ 804
Accounts receivable, less allowance for possible
losses of
$2,434 and $2,260................................. 72,261 88,781
Inventories........................................ 131,265 119,142
Prepaid expenses and other current assets.......... 4,070 3,831
Deferred income taxes.............................. 9,354 10,204
-------- --------
Total Current Assets............................. 219,089 222,762
Property, Plant and Equipment, net................... 107,740 110,432
Product Rights, Licenses and Regulatory Approvals,
net................................................. 92,685 86,564
Goodwill, net........................................ 102,695 98,366
Other Assets......................................... 22,103 16,002
-------- --------
$544,312 $534,126
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable................................... $ 31,492 $ 36,453
Accrued expenses................................... 40,755 45,025
Income taxes....................................... 6,641 11,595
Revolving credit and current maturities of long-
term debt......................................... 41,090 56,440
-------- --------
Total Current Liabilities........................ 119,978 149,513
Long-Term Debt, less current maturities.............. 245,390 198,705
Deferred Income Taxes................................ 40,166 37,080
Other Liabilities.................................... 8,798 9,113
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.01 par value; 100,000 authorized
shares;
issued and outstanding 28,693 shares at December
28, 1996
and December 27, 1997............................. 287 287
Additional paid-in capital......................... 38,592 38,494
Retained earnings.................................. 88,381 99,483
Other.............................................. 2,720 1,451
-------- --------
Total Stockholders' Equity....................... 129,980 139,715
-------- --------
$544,312 $534,126
======== ========
</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
--------------------------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net Revenues............................ $391,846 $476,295 $490,170
Cost of Sales........................... 250,507 320,675 329,761
-------- -------- --------
Gross profit.......................... 141,339 155,620 160,409
Costs and Expenses:
Selling, general and administrative... 75,274 87,329 81,809
Research and development.............. 28,324 27,030 29,387
Amortization of goodwill and other
intangibles.......................... 3,399 10,195 10,196
Acquired in-process Marsam research
and development...................... 30,000 -- --
-------- -------- --------
Operating Income........................ 4,342 31,066 39,017
Interest expense, net................. 10,005 23,285 26,578
Other expenses (income), net.......... (1,245) 1,193 (9,318)
-------- -------- --------
Income (Loss) Before Provision for
Income Taxes........................... (4,418) 6,588 21,757
Provision for Income Taxes.............. 10,482 5,191 10,655
-------- -------- --------
Net Income (Loss)....................... $(14,900) $ 1,397 $ 11,102
======== ======== ========
Basic Earnings (Loss) Per Share......... $ (0.52) $ 0.05 $ 0.39
======== ======== ========
Weighted Average Number of Shares
Outstanding............................ 28,743 28,718 28,693
======== ======== ========
</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 27, 1997
IN THOUSANDS

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS OTHER
------ ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994........ 28,743 $287 $39,548 $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........ 28,743 287 39,548 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......................... (50) -- (956) -- --
Foreign currency translation
adjustments.................... -- -- -- -- (835)
------ ---- ------- -------- -------
Balance, December 28, 1996........ 28,693 287 38,592 88,381 2,720
Net income...................... -- -- -- 11,102 --
Amortization of options issued
as compensation................ -- -- (98) -- 727
Decline in unrealized gains on
marketable securities.......... -- -- -- -- (2,046)
Foreign currency translation
adjustments.................... -- -- -- -- 50
------ ---- ------- -------- -------
Balance, December 27, 1997 ....... 28,693 $287 $38,494 $ 99,483 $ 1,451
====== ==== ======= ======== =======
</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
--------------------------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Operating activities:
Net income (loss)..................... $ (14,900) $ 1,397 $ 11,102
Depreciation and amortization......... 17,395 25,450 25,474
Provision (benefit) for deferred
income taxes......................... 3,084 (3,342) (2,676)
Acquired in-process Marsam research
and development...................... 30,000 -- --
Gain on sale of marketable
securities........................... -- -- (12,745)
Other................................. 694 4,360 3,698
Changes in assets and liabilities:
Accounts receivable................... (579) (15,743) (16,346)
Inventories........................... 69 (15,305) 12,123
Prepaid expenses and other assets..... (3,744) 2,048 (1,205)
Accounts payable, income taxes,
accrued expenses and other
liabilities.......................... (12,393) 11,891 15,450
--------- --------- --------
Net cash provided by operating
activities............................ 19,626 10,756 34,875
--------- --------- --------
Cash flows from investing activities:
Capital expenditures, net............. (13,986) (11,309) (14,446)
Product rights and licenses........... (3,035) (4,089) (150)
Acquisition of Marsam, net of cash
acquired............................. (229,746) -- --
Investment in international joint
ventures............................. (3,520) (2,036) (173)
Proceeds from sale of marketable
securities........................... -- -- 14,737
Other, net............................ (1,156) (2,582) 119
--------- --------- --------
Net cash provided by (used in)
investing activities.................. (251,443) (20,016) 87
--------- --------- --------
Cash flows from financing activities:
Principal payments on, or repayments
of, debt............................. (167,119) (261,078) (287,090)
Proceeds from issuance of debt........ 401,750 267,000 255,755
Increase in other non-current
assets............................... (5,700) (2,360) (4,962)
--------- --------- --------
Net cash provided by (used in)
financing activities.................. 228,931 3,562 (36,297)
--------- --------- --------
Net decrease in cash and cash
equivalents........................... (2,886) (5,698) (1,335)
Cash and cash equivalents, beginning of
year.................................. 10,723 7,837 2,139
--------- --------- --------
Cash and cash equivalents, end of
year.................................. $ 7,837 $ 2,139 $ 804
========= ========= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 and a line of specialty branded pharmaceuticals. 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 April 3, 1998, effected
a 105-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 the Company, was merged into the Company. The Company was the
only asset held then 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 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. All of the years presented in these statements include
52 weeks.

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)

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 15
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)

COMPUTATION OF EARNINGS PER COMMON SHARE

In 1997, the Financial Accounting Standards Board issued Standard No. 128
("SFAS No. 128"), Earnings per Share. SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share
excludes the dilutive effects of options. Diluted earnings per share is very
similar to the fully diluted earnings per share. Earnings per share has been
computed using the weighted average number of shares of common (both Class A
and Class B). See Note 11. Diluted earnings per share is the same as the basic
amounts for all periods presented and thus has not been presented. The assumed
exercise of stock options could potentially dilute basic earnings per share
amounts in the future.

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

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 June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.

F-9
<PAGE>

SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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,
however, has not determined whether either of these two standards will have a
material impact on its financial statement disclosure.

NOTE 2--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 and is being amortized over 15 years. 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.

During 1995, 1996 and 1997, the Company invested approximately $3.5 million,
$2.0 and $0.2 million, respectively, to acquire up to a 50% interest in each
of several international pharmaceutical businesses. At December 1997, the
Company has guaranteed $4.7 million of borrowings of these 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. Equity losses resulting from the Company's
investments in international businesses in 1995, 1996 and 1997 are included in
Other expenses (income), 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
following their establishment, during which time the businesses are expected
to incur expenses to register products in anticipation of future sales.

NOTE 3--INVENTORIES

Inventories are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Finished products.................................. $ 59,632 $ 45,568
Work-in-process.................................... 27,332 33,160
Raw materials and supplies......................... 44,301 40,414
-------- --------
$131,265 $119,142
======== ========
</TABLE>

F-10
<PAGE>

SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 4--PROPERTY, PLANT AND EQUIPMENT

Major classes of property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land......................................... $ 4,725 $ 5,043
Buildings and improvements................... 63,019 64,026
Plant and office equipment................... 97,825 104,260
Construction-in-progress..................... 3,310 9,553
-------- --------
168,879 182,882
Less: Accumulated depreciation and amortiza-
tion........................................ 61,139 72,450
-------- --------
$107,740 $110,432
======== ========
</TABLE>

Depreciation and amortization expense for property, plant and equipment
amounted to $10.5 million, $12.1 million and $11.7 million in 1995, 1996 and
1997, respectively.

NOTE 5--INTANGIBLE ASSETS

Product Rights, Licenses and Regulatory Approvals, net, consists of the
following:

<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Product rights and licenses.................... $ 12,611 $ 12,732
Regulatory approvals, products................. 78,000 78,000
Regulatory approvals, facilities............... 10,000 10,000
-------- --------
100,611 100,732
Less: Accumulated amortization................. 7,926 14,168
-------- --------
$ 92,685 $ 86,564
======== ========
</TABLE>

Accumulated amortization of goodwill was $5.8 million and $10.2 million at
December 28, 1996 and December 27, 1997, respectively.

NOTE 6--MARKETABLE SECURITIES

Included in Other Assets in the accompanying balance sheets are marketable
equity securities consisting of:

<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cost.......................................... $ 5,660 $3,677
Gross unrealized gains........................ 6,686 3,399
------- ------
Fair value.................................... $12,346 $7,076
======= ======
</TABLE>

Included in Stockholders' Equity--Other as of December 30, 1995, December
28, 1996 and December 27, 1997 are the gross unrealized gain of the above
marketable securities, net of the related tax effect, of $0.1 million, $4.2
million and $2.2 million, respectively.

Included in other income for 1997 is realized gains of $12.7 million from
the sale of marketable securities (see Note 13).

F-11
<PAGE>

SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 7--ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Included in Accounts Payable are outstanding checks of approximately $6.2
million and $6.9 million as of December 28, 1996 and December 27, 1997,
respectively.

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Salaries and related expenses.................. $18,300 $16,554
Profit-sharing expenses........................ 8,637 12,567
Other.......................................... 13,818 15,904
------- -------
$40,755 $45,025
======= =======
</TABLE>

NOTES 8--TAXES ON INCOME

Provisions for Federal, state and Puerto Rico income taxes consist of the
following:

<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.............................. $ 5,736 $7,404 $10,952
State and Puerto Rico................ 1,662 1,129 2,379
------- ------ -------
7,398 8,533 13,331
------- ------ -------
Deferred:
Federal.............................. 2,131 (2,215) (1,705)
State and Puerto Rico................ 953 (1,127) (971)
------- ------ -------
3,084 (3,342) (2,676)
------- ------ -------
$10,482 $5,191 $10,655
======= ====== =======
</TABLE>

The Company has a tax grant in Puerto Rico. The grant provides a 90%
exclusion from Puerto Rico income tax. The grant began in 1996 and expires in
15 years. The grant benefits are recognized in conjunction with the Company's
election to compute its US tax under Internal Revenue Code Section 936 which
reduces the tax by an amount based on the Company's operations. The 936 credit
is estimated to reduce the US tax in 1997 by $0.8 million and in 1996 by $0.5
million.

F-12
<PAGE>

SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Deferred income tax assets and liabilities are classified as current and
non-current as follows:

<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred Income Taxes, Current:
Deferred tax assets........................... $ 9,354 $ 10,204
Deferred tax liabilities...................... -- --
-------- --------
9,354 10,204
-------- --------
Deferred Income Taxes, Non-Current:
Deferred tax assets........................... 8,268 7,341
Deferred tax liabilities...................... (48,434) (44,421)
-------- --------
(40,166) (37,080)
-------- --------
$(30,812) $(26,876)
======== ========
</TABLE>

Differences between the Federal statutory rate and the Company's effective
tax rate are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory rate...................... $(1,546) $2,309 $ 7,615
State and Puerto Rico taxes......... 1,722 241 1,642
Amortization of goodwill............ 505 1,515 1,515
Effect of partially tax-exempt
operations in Puerto Rico.......... -- (519) (752)
Equity in net loss of unconsolidated
affiliates......................... -- 1,202 494
Write-off of acquired in-process
Marsam research and development.... 10,500 -- --
Other, net.......................... (699) 443 141
------- ------ -------
$10,482 $5,191 $10,655
======= ====== =======
</TABLE>

Temporary differences which give rise to a significant portion of deferred
tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Gross Deferred Tax Assets:
Inventory valuation............................. $ 5,220 $ 4,682
Accounts receivable allowances.................. 2,694 3,961
Net operating loss carryforwards, state and
Puerto Rico.................................... 1,880 1,648
Deferred compensation expense................... 4,806 4,648
Other........................................... 3,022 2,606
-------- --------
17,622 17,545
-------- --------
Gross Deferred Tax Liabilities:
Write-up of acquired Marsam assets to fair
value.......................................... (32,692) (30,309)
Depreciation and amortization................... (12,461) (12,883)
Unrealized gains from marketable securities..... (2,489) (1,229)
Other........................................... (792) --
-------- --------
(48,434) (44,421)
-------- --------
$(30,812) $(26,876)
======== ========
</TABLE>

F-13
<PAGE>

SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 9--BORROWINGS

Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,-
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit and term loan agreement.......... $186,000 $154,000
Senior subordinated loan.......................... 100,000 --
Senior floating rate notes........................ -- 100,000
Capitalized lease obligations and other........... 480 1,145
-------- --------
286,480 255,145
Less: Current maturities.......................... 41,090 56,440
-------- --------
$245,390 $198,705
======== ========
</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 available through December 2001. The borrowings
outstanding under the revolving credit facility were $41.0 million and $44.0
million as of December 28, 1996 and December 27, 1997, respectively. 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.

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 of the senior subordinated loan
was 9.60% as of December 28, 1996. As a result of this payment and scheduled
payments, the term loan facility was reduced to $110.0 million at December
1997. Quarterly principal payments on the term loan commence in September 1998
and end in the year 2001.

In December 1997, the senior subordinated loan was repaid when the Company
issued $100.0 million of senior floating rate notes due 2004. Interest on the
notes is payable quarterly at a rate per annum equal to LIBOR plus 3.0%. The
effective borrowing rate was 8.94% as of December 27, 1997.

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 8.10% and 7.91% at December 28, 1996 and December 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 therein) of leverage to EBITDA, working capital and
fixed charge coverage. Amounts available for dividends as permitted by the
credit agreement as of December 27, 1997 were not material. Currently, the
Company's senior credit agreement and its senior floating rate notes contain
restrictions on the payment of dividends. In addition, the Company, under
certain circumstances, may not declare dividends on Common Stock without the
consent of Bayer Corporation.

F-14
<PAGE>

SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The senior floating rate notes are fully and unconditionally guaranteed
jointly and severally by each of the Company's domestic subsidiaries, each of
which is wholly-owned by the Company. These subsidiaries sell all of their
products to Schein Pharmaceutical, Inc., the parent company. Summarized
financial information for these wholly-owned subsidiary guarantors (using the
push-down method of accounting) are as follows:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Current Assets:
Inventory................................... $ 72,586 $ 74,924
Intercompany receivables.................... 107,941 119,191
Other current assets........................ 1,238 4,197
Property, Plant and Equipment, net............ 100,936 104,807
Goodwill, net; Product Rights, Licenses and
Regulatory Approvals, net and Other Assets... 191,903 178,548
Current Liabilities........................... 89,817 109,800
Deferred Income Taxes and Other Liabilities... 45,193 44,921
Long Term Debt (pushed down).................. 204,000 186,000
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Revenues....................... $264,575 $355,262 $373,712
Gross Profit....................... 74,993 91,689 100,151
Operating Income................... (19,268) 14,152 27,193
Net Income (Loss).................. (28,773) (4,179) 7,383
</TABLE>

Separate financial statements of the wholly-owned domestic subsidiary
guarantors are not presented because management believes that they would not
be meaningful to investors.

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. In December 1997,
the Company incurred costs of $4.4 million in connection with the senior
floating rate notes. The amounts amortized in 1995, 1996 and 1997 were $0.7
million, $2.6 million and $3.3 million, respectively.

At December 27, 1997, aggregate required principal payments for the
succeeding four years, the remaining term under existing long-term debt
agreements, excluding the revolving credit facility, are $11.6 million in
1998, $28.9 million in 1999, $34.8 million in 2000 and $34.7 million in 2001.

NOTE 10--COMMITMENTS AND CONTINGENCIES

COMMITMENTS

Consulting Agreement

The Company has a series of agreements (collectively, the "Consulting
Agreement") with a patent attorney (the "Consultant"). 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

F-15
<PAGE>

SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

would normally have expired) or one half of the proceeds of any settlement.
Under the Consulting Agreement, the Consultant, together with the Company, has
identified certain patents on branded pharmaceutical products 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.

In 1994, the Company settled two such patent challenges. One of the
settlements involved a license grant to the Company to begin manufacturing and
marketing the product. Sales of such product commenced in 1996. In connection
with the license grant, profit sharing expenses pursuant to the Consulting
Agreement amounted to $8.6 million and $14.5 million in fiscal 1996 and fiscal
1997, respectively. Profit sharing expenses are included in Cost of Sales in
the accompanying Statements of Operations.

The second settlement allows for cash payments and/or license rights to the
Company. Included in Net Revenues in the accompanying Statements of Operations
are revenues of $5.0 million, $12.5 million and $25.0 million in 1995, 1996
and 1997, respectively. Profit sharing expenses related to this settlement are
included in Cost of Sales and amounted to $2.5 million, $6.3 million and $12.5
million in 1995, 1996 and 1997, respectively.

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 27,
1997, future net minimum annual rental payments under noncancelable leases are
as follows (in thousands):

<TABLE>
<S> <C>
1998................................................................ $ 5,817
1999................................................................ 5,277
2000................................................................ 4,714
2001................................................................ 3,848
2002................................................................ 3,498
2003-2007........................................................... 11,505
-------
Total minimum lease payments........................................ $34,659
=======
</TABLE>

Total rental expense for the years ended 1995, 1996 and 1997 was
approximately $4.7 million, $5.4 million and $5.6 million, 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
1998 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 $4.9 million, $3.5
million and $4.6 million for the years ended 1995, 1996 and 1997,
respectively.

The Company has entered into deferred compensation agreements with certain
officers of the Company. As of December 1997, future obligations under these
agreements were approximately $2.3 million, assuming the officers remain with
the Company over the remaining vesting period of one to two years. These
agreements provide for accelerated vesting if there is a change in control of
the Company under certain other conditions. The Company expensed $2.0 million,
$4.8 million and $0.8 million in the fiscal years ended 1995, 1996 and 1997,
respectively, in connection with these agreements.

F-16
<PAGE>

SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 August 30, 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 $5.5 million under the
agreement, consisting of a $5.0 million licensing fee, which was capitalized.
The Company paid and expensed $2.4 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. In
1997, the Company incurred and expensed $2.3 million in development costs. The
remaining commitment under the agreement as of December 27, 1997 was $18.8
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.

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 28, 1996 and December 27, 1997, the Company had 19,240,620 Class
A and 9,452,100 Class B issued and outstanding.

During 1996, the Company agreed to repurchase 50,190 Class A for
approximately $1.0 million from a former executive of the Company. These
shares were retired in 1996.

F-17
<PAGE>

SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 the Company's 1993 Stock Option Plan, 1995 Non-Employee Director Stock
Option Plan and 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 5,859,000 shares under the plans. However, 222,810 shares under the 1993
Stock Option Plan will not be granted.

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%. For 1997 the
Company used the following assumptions: no dividend yield, expected volatility
of 24%, risk free interest rates of 6% to 7%, and expected lives of 10 years.
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, 1996 and 1997 by approximately $1.0 million, $2.3 million and $3.7
million, respectively and earnings (loss) per share would have been reduced by
$0.03, $0.08 and $0.13, respectively.

The following table summarizes information about stock options outstanding
at December 27, 1997:

<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
$9.52........ 186,375 5.8 $9.52 180,600 $9.52
$14.29....... 734,370 9.2 14.29 15,330 14.29
$19.05....... 2,202,690 7.4 19.05 1,721,475 19.05
--------- ---------
3,123,435 8.1 17.36 1,917,405 18.11
========= =========
</TABLE>

F-18
<PAGE>

SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 31, 1994......... 1,717,380 $17.89
Granted (at $19.05 per share).................. 378,105 19.05
Exercised...................................... -- --
Canceled (at $19.05 per share)................. (8,085) 19.05
--------- ------
Shares under option at December 30, 1995......... 2,087,400 18.10
Granted (at $19.05 per share).................. 513,135 19.05
Exercised...................................... -- --
Canceled (at $14.29 to $19.05 per share)....... 78,960 17.45
--------- ------
Shares under option at December 28, 1996......... 2,521,575 18.31
Granted (at $14.29 per share).................. 887,145 14.29
Exercised...................................... -- --
Canceled (at $9.52 to $19.05 per share)........ (285,285) 16.67
--------- ------
Shares under option at December 27, 1997 (at
$9.52 to $19.05 per share)...................... 3,123,435 $17.36
========= ======
Options exercisable at December
1995........................................... 1,131,900 $18.34
1996........................................... 1,601,880 $17.96
1997........................................... 1,917,405 $18.11
Options available for grant:
1995........................................... 894,600
1996........................................... 460,425
1997........................................... 1,917,405
Weighted average fair value of options granted
during:
1995........................................... $ 8.72
1996........................................... $ 8.54
1997........................................... $ 6.26
</TABLE>

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--INTEREST EXPENSE, NET

Interest expense, net, consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest expense...................... $10,150 $23,715 $26,686
Interest income....................... (145) (430) (108)
------- ------- -------
$10,005 $23,285 $26,578
======= ======= =======
</TABLE>

F-19
<PAGE>

SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 13--OTHER EXPENSES (INCOME), NET

Other expenses (income), net, consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Equity (earnings) loss of
unconsolidated international
ventures.......................... $ 388 $ 3,439 $ 3,372
Gain on sales of marketable
securities........................ -- -- (12,745)
Other, net......................... (1,633) (2,246) 55
------- ------- --------
$(1,245) $ 1,193 $ (9,318)
======= ======= ========
</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
$5.3 million, $8.6 million and $10.0 in fiscal 1995, 1996 and 1997,
respectively. Included in accounts receivable at both, December 28, 1996 and
December 27, 1997 are amounts due from Henry Schein for sale of products of
approximately $0.8 million and $2.7 million, respectively.

In 1994, the Company entered into a three-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 $4.2
million in 1997. There were no selling expenses under this agreement for 1995.
Included in Accrued expenses in the accompanying balance sheet as of December
28, 1996 and December 27, 1997 are approximately $1.3 million and $1.9
million, respectively, of selling expenses under the agreement.

NOTE 15--SUPPLEMENTAL CASH FLOW INFORMATION

The Company paid taxes of approximately $8.9 million, $5.8 million and $7.6
million for the years ended 1995, 1996 and 1997, respectively. The Company
paid interest of approximately $8.0 million, $23.5 million and $25.2 million
for the years ended 1995, 1996 and 1997, respectively.

As discussed in Note 3, the Company acquired all the capital stock of Marsam
for $245.0 million in 1995. In connection with the acquisition, liabilities
were assumed as follows:

<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Fair value of assets acquired.................................. $ 293.0
Cash paid for Marsam stock..................................... (245.0)
-------
Liabilities assumed............................................ $ 48.0
=======
</TABLE>

As discussed in Note 11, the Company accrued approximately $1.0 million as
of December 28, 1996 in connection with the repurchase of 50,190 common
shares.

F-20
<PAGE>

SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 16--MAJOR PRODUCT AND CUSTOMERS

One product generated 17%, 19% and 21% of net revenues for 1995, 1996 and
1997 respectively.

Three customers generated 13%, 11% and 10%, respectively, of 1995 net
revenues. Three customers contributed 16%, 15% and 11%, respectively, of 1996
net revenues. Three customers contributed 19%, 18% and 10%, respectively, of
1997 net revenues. 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 EVENT

The Company has filed a registration statement covering an initial public
offering under which it anticipates generating net proceeds of approximately
$40 million upon the sale of its common stock. If the offering is consummated,
the net proceeds will be used whole or in part to pay down the Company's debt.

In connection with the offering, the Company's Board of Directors authorized
the issuance of up to 2,000,000 shares of Preferred Stock, par value $.01 per
share.

Subsequent to year end, the Company acquired 2.0 million shares or 12.79% of
Cheminor Drugs Limited, a publicly traded pharmaceutical company based in
India, for $10.0 million, and under certain circumstances has the right and
the obligation to purchase an additional 1.0 million shares for $5.0 million.

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 OR ANY OF THE UNDERWRITERS OR BY
ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES 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 DATE 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................................................. 17
Business................................................................... 25
Management................................................................. 42
Certain Transactions....................................................... 52
Principal Stockholders..................................................... 54
Shares Eligible For Future Sale............................................ 59
Description of Capital Stock............................................... 61
Underwriting............................................................... 64
Validity of Shares......................................................... 66
Experts.................................................................... 66
Available Information...................................................... 66
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 OFFERED HEREBY, 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.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

3,000,000 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
NYSE fee...................................................... 170,000
NASD fee...................................................... 6,710
Legal fees and expenses....................................... 550,000
Printing and engraving expenses............................... 350,000
Accounting fees and expenses.................................. 200,000
Transfer agent and registrar fees and expenses................ 15,000
Miscellaneous................................................. 189,971
----------
Total....................................................... $1,500,000
==========
</TABLE>

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 Restated Certificate of Incorporation of the Company adopted by the
Company on March 6, 1998.
3.4 Amended and Restated By-Laws of the Company adopted by the Company on
March 6, 1998.
4.1 Credit Agreement dated as of September 5, 1995 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, Third and Fourth 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.
4.4 Offering Memorandum, dated December 19, 1997, with respect to the
Company's $100,000,000 Senior Floating Rate Notes Due 2004.
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 (Intentionally Omitted)
10.4* Sublicense, Co-marketing and Supply Agreement, dated September 30,
1996, between the Company and Makoff R&D Laboratories, Inc., 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 (Intentionally Omitted)
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.
</TABLE>

II-2
<PAGE>

<TABLE>
<C> <S>
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.
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, including Amendment No. 1 dated as of March 6,
1998.
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.
10.33* Second Consolidated Agreement, dated December 15, 1992, between the
Company, its affiliates, and Alfred B. Engelberg.**
10.34* License and Development Agreement, dated November 30, 1993, between
the Company and Ethical Holdings PLC.**
10.35* License and Development Agreement, dated January 15, 1993, between
the Company and Ethical Holdings Limited, including Amendment, dated
November 4, 1994.**
10.36* Letter Agreement, dated June 23, 1995, between the Company and
Ethical Holdings, Inc., including Revised Schedule 5, effective July
21, 1995.
10.37 (Intentionally Omitted.)
10.38* Multiproduct Technology Transfer, Development and License Agreement,
dated August 30, 1994, between the Company and Ethical Holdings
PLC.**
10.39* License and Development Agreement, dated March 31, 1994, between the
Company and Ethical Holdings PLC.**
10.40 Employment Agreement, dated November 29, 1993, between the Company
and Paul Kleutghen.
10.41 Employment Agreement, dated November 22, 1993 between the Company and
Javier Cayado.
</TABLE>

II-3
<PAGE>

<TABLE>
<C> <S>
10.42 Deferred Compensation Agreement, dated August 8, 1996, between the
Company and Paul Kleutghen.
10.43 Deferred Compensation Agreement, dated November 22, 1993, between the
Company and Jay Cayado.
10.44* Co-Promotion Agreement, dated August 1, 1994, between the Company and
Bayer Corporation (formerly Miles Inc.), including Amendment Number
1, dated January 1, 1997, Amendment Number 2, dated January 1, 1997
and Amendment No. 3 dated as of January 28, 1998.**
10.45 Schein Pharmaceutical, Inc. 1998 Employee Stock Purchase Plan, dated
January 28, 1998.
10.46* Stock Purchase Agreement, dated February 6, 1998, between the Company
and Cheminor Drugs Limited.**
10.47* Shareholders Agreement, dated February 6, 1998, between the Company,
Cheminor Drugs Limited and the principal shareholders of Cheminor
Drugs Limited listed on Schedule A.**
10.48* Strategic Alliance Agreement, dated February 6, 1998, among the
Company, Cheminor Drugs Limited, Dr. Reddy's Laboratories Limited and
Reddy-Cheminor, Inc.**
10.49* Development, License and Supply Agreement, dated March 31, 1998,
between the Company and Elan Corporation, plc.**
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>

(b) Financial Statement Schedules
- --------
* Portions of exhibit have been omitted and filed separately with the SEC
pursuant to a request for confidential treatment.
**Filed herewith.

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.

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.

II-4
<PAGE>

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-5
<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 8th day of April, 1998.

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 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
- ------------------------------------- Board, Chief April 8, 1998
MARTIN SPERBER Executive Officer,
President and
Director (principal
executive officer)

/s/ Dariush Ashrafi Chief Financial
- ------------------------------------- Officer, Executive April 8, 1998
DARIUSH ASHRAFI Vice President and
Director (principal
financial and
accounting officer)

/s/ Paul Feuerman Senior Vice
- ------------------------------------- President, General April 8, 1998
PAUL FEUERMAN Counsel and Director

/s/ David R. Ebsworth Director
- ------------------------------------- April 8, 1998
DAVID R. EBSWORTH

/s/ Richard L. Goldberg Director
- ------------------------------------- April 8, 1998
RICHARD L. GOLDBERG

II-6
<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 January 30, 1998, except for Note 1 which is as of April
3, 1998, 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 27, 1997. 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
January 30, 1998

II-7
<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
30, 1995............. $3,847 $-- $ (506) $494(2) $3,835
====== ==== ======= ==== ======
Year Ended December
28, 1996............. $3,835 $366 $(1,801) $ 34 $2,434
====== ==== ======= ==== ======
Year Ended December
27, 1997............. $2,434 $-- $ (174) $-- $2,260
====== ==== ======= ==== ======
</TABLE>
- --------
(1) Accounts written off--net of recoveries
(2) Relates to the acquisition of Marsam

II-8
<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 Restated Certificate of Incorporation of the Company adopted by
the Company on March 6, 1998.
3.4 Amended and Restated By-Laws of the Company adopted by the
Company on March 6, 1998.
4.1 Credit Agreement dated as of September 5, 1995 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, Third and Fourth 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.
4.4 Offering Memorandum, dated December 19, 1997, with respect to
the Company's $100,000,000 Senior Floating Rate Notes Due 2004.
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 (Intentionally Omitted)
10.4* Sublicense, Co-marketing and Supply Agreement, dated September
30, 1996, between the Company and Makoff R&D Laboratories,
Inc., 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 (Intentionally Omitted)
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).
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE
------- ----
<C> <S> <C>
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, including Amendment No. 1 dated as
of March 6, 1998.
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.
10.33* Second Consolidated Agreement, dated December 15, 1992, between
the Company, its affiliates, and Alfred B. Engelberg.**
10.34* License and Development Agreement, dated November 30, 1993,
between the Company and Ethical Holdings PLC.**
10.35* License and Development Agreement, dated January 15, 1993,
between the Company and Ethical Holdings Limited, including
Amendment, dated November 4, 1994.**
10.36* Letter Agreement, dated June 23, 1995, between the Company and
Ethical Holdings, Inc., including Revised Schedule 5, effective
July 21, 1995.
10.37 (Intentionally Omitted.)
10.38* Multiproduct Technology Transfer, Development and License
Agreement, dated August 30, 1994, between the Company and
Ethical Holdings PLC.**
10.39* License and Development Agreement, dated March 31, 1994,
between the Company and Ethical Holdings PLC.**
10.40 Employment Agreement, dated November 29, 1993, between the
Company and Paul Kleutghen.
10.41 Employment Agreement, dated November 22, 1993 between the
Company and Javier Cayado.
10.42 Deferred Compensation Agreement, dated August 8, 1996, between
the Company and Paul Kleutghen.
10.43 Deferred Compensation Agreement, dated November 22, 1993,
between the Company and Jay Cayado.
10.44* Co-Promotion Agreement, dated August 1, 1994, between the
Company and Bayer Corporation (formerly Miles Inc.), including
Amendment Number 1, dated January 1, 1997, Amendment Number 2,
dated January 1, 1997 and Amendment No. 3 dated as of January
28, 1998.**
10.45 Schein Pharmaceutical, Inc. 1998 Employee Stock Purchase Plan,
dated January 28, 1998.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE
------- ----
<C> <S> <C>
10.46* Stock Purchase Agreement, dated February 6, 1998, between the
Company and Cheminor Drugs Limited.**
10.47* Shareholders Agreement, dated February 6, 1998, between the
Company, Cheminor Drugs Limited and the principal shareholders
of Cheminor Drugs Limited listed on Schedule A.**
10.48* Strategic Alliance Agreement, dated February 6, 1998, among the
Company, Cheminor Drugs Limited, Dr. Reddy's Laboratories
Limited and Reddy-Cheminor, Inc.**
10.49* Development, License and Supply Agreement, dated March 31,
1998, between the Company and Elan Corporation, plc.**
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>
- --------
* Portions of exhibit have been omitted and filed separately with the SEC
pursuant to a request for confidential treatment.
** Filed herewith.

<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 January 30, 1998, except for
Note 1 which is as of April 3, 1998, relating to the consolidated financial
statements of Schein Pharmaceutical, Inc. and Subsidiaries, which is contained
in that Prospectus, and of our report dated January 30, 1998 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.

April 8, 1998
BDO SEIDMAN, LLP

/s/ BDO Seidman, LLP