<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 26, 1998
REGISTRATION NO. 333-41413
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
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)
----------------
Copies of Communications to:
<TABLE>
<S> <C>
Edward W. Kerson, Esq. Alan L. Jakimo, Esq.
Proskauer Rose LLP Brown & Wood LLP
1585 Broadway One World Trade Center, 58th Floor
New York, New York 10036-8299 New York, New York 10048
(212) 969-3000 (212) 839-5300
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (SUBJECT TO COMPLETION)
DATED , 1998
SHARES
[LOGO] SCHEIN
PHARMACEUTICAL
COMMON STOCK
------------
OF THE SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE (THE "COMMON
STOCK"), OFFERED HEREBY (THE "OFFERING"), SHARES ARE BEING SOLD BY SCHEIN
PHARMACEUTICAL, INC. ("SCHEIN PHARMACEUTICAL," "SCHEIN" OR THE "COMPANY")
AND SHARES ARE BEING SOLD BY CERTAIN STOCKHOLDERS OF THE COMPANY (THE
"SELLING STOCKHOLDERS"). SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY
WILL NOT RECEIVE ANY PROCEEDS FROM THE SALE OF THE SHARES BY THE SELLING
STOCKHOLDERS.
PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK
OF THE COMPANY. IT IS CURRENTLY ANTICIPATED THAT THE INITIAL PUBLIC OFFERING
PRICE WILL BE BETWEEN $ AND $ PER SHARE. SEE "UNDERWRITING" FOR A
DISCUSSION OF THE FACTORS 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.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE.................. $ $ $ $
TOTAL(3)................... $ $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SEE "UNDERWRITING."
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY AND BY THE SELLING
STOCKHOLDERS ESTIMATED TO BE $ AND $ , RESPECTIVELY.
(3) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE GRANTED THE UNDERWRITERS AN
OPTION, EXERCISABLE WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE AN
AGGREGATE OF UP TO SHARES AND SHARES OF COMMON STOCK, RESPECTIVELY,
AT THE PRICE TO PUBLIC, LESS UNDERWRITING DISCOUNTS AND COMMISSIONS, TO
COVER OVER-ALLOTMENTS, IF ANY. IF ALL SUCH ADDITIONAL SHARES ARE PURCHASED,
THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS, PROCEEDS
TO COMPANY AND PROCEEDS TO SELLING STOCKHOLDERS WILL BE $ , $ , $
AND $ , RESPECTIVELY. SEE "UNDERWRITING."
------------
THE COMMON STOCK IS OFFERED BY THE SEVERAL UNDERWRITERS NAMED HEREIN WHEN, AS
AND IF RECEIVED AND ACCEPTED BY THEM, AND SUBJECT TO THEIR RIGHT TO REJECT
ORDERS IN WHOLE OR IN PART AND SUBJECT TO CERTAIN OTHER CONDITIONS. IT IS
EXPECTED THAT DELIVERY OF CERTIFICATES FOR THE SHARES WILL BE MADE AT THE
OFFICES OF COWEN & COMPANY, NEW YORK, NEW YORK, ON OR ABOUT , 1998.
------------
COWEN & COMPANY BEAR, STEARNS & CO. INC.
SALOMON SMITH BARNEY
, 1998
<PAGE>
[PICTURES--ART TO COME]
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."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus, including information
under "Risk Factors". Except as otherwise noted, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option and
reflects (i) a 123-for-one stock split that will occur immediately prior to the
effective date of the Offering and (ii) the conversion of each outstanding
share of Class A Common Stock and Class B Common Stock into a single class of
Common Stock upon the completion of the Offering. All references to the
Company's operations for a particular fiscal year refer to the 52-53 week
period ended on the last Saturday in December of that year, and all references
to the Company's operations for a particular fiscal quarter refer to the three
month period ended on the last Saturday in that quarter. Unless otherwise
indicated, all references to "Schein Pharmaceutical," "Schein" or the "Company"
refer collectively to Schein Pharmaceutical, Inc. and its predecessors and
subsidiaries.
THE COMPANY
Schein Pharmaceutical is one of the leading generic pharmaceutical companies
in the United States. The Company develops, manufactures and markets one of the
broadest generic product lines in the pharmaceutical industry through the
integration of its product development expertise, diverse, high-volume
production capacity and direct sales and marketing force. The Schein product
line includes both solid dosage and sterile dosage generic products, and the
Company is also developing a line of specialty branded pharmaceuticals. The
Company's primary branded product, INFeD, is the leading injectable iron
product in the United States. The Company has a substantial pipeline of
products under development, including 26 Abbreviated New Drug Applications
("ANDAs") filed with the United States Food and Drug Administration ( "FDA").
The Company supplements its internal product development, manufacturing and
marketing capabilities through strategic collaborations. Schein generated net
revenues of $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 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 Pharma, Inc. ("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
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 and its current pipeline of 26 pending
ANDAs and over 60 additional products under development. During the past three
fiscal years, the Company, directly and through its strategic collaborations,
has expended approximately $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 by:
The Company............................ shares
The Selling Stockholders............... shares
Common Stock to be outstanding after
the Offering........................... shares(1)
Use of proceeds by the Company..........
To reduce existing indebtedness,
which may include a term loan,
senior floating rate notes and a
revolving credit loan. See "Use
of Proceeds."
Proposed NYSE symbol....................
- ------------ SHP
(1) Excludes 3,658,881 shares of Common Stock reserved for issuance upon the
exercise of outstanding options granted pursuant to the Company's 1993
Stock Option Plan, 1997 Stock Option Plan and the 1995 Non-Employee
Director Plan at a weighted average exercise price of $14.82 per share.
Upon closing of the Offering, the Company intends to grant up to an
additional options at an exercise price equal to the initial public
offering price of the Common Stock offered hereby. See "Management--Stock
Options."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(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).... $ (0.44) $ 0.04 $ 0.33
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 1997
-----------------------
ACTUAL AS ADJUSTED(4)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................... $ 73,249 $
Total assets.......................................... 534,126
Short-term debt, including current portion of long-
term debt............................................ 56,440
Long-term debt, less current maturities............... 198,705
Stockholders' equity.................................. 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) 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 $ 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
<PAGE>
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 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
6
<PAGE>
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. Ten of the Company's pending ANDAs have been
filed from the Steris facility. 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.
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.
7
<PAGE>
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" 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
pending mergers among the four largest pharmaceutical wholesalers in the U.S.,
if consummated, would result in greater consolidation of the pharmaceutical
wholesaling industry and may increase pricing and other competitive pressures
on generic pharmaceutical manufacturers. Specifically for Schein, if the
Cardinal Health-Bergen Brunswig merger is consummated, this combined customer
would have accounted for approximately 37% of the Company's total net revenues
in 1997.
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."
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."
8
<PAGE>
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 until March 2000 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 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
9
<PAGE>
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 and designate a second individual to attend Board meetings as an
observer.
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.
Each of the provisions described above may make it more difficult for a
third party to acquire, or may discourage acquisition bids for, Schein and
could limit the price that certain investors might be willing to pay in the
future for shares of the Common Stock. See "Principal and Selling
Stockholders--Restructuring Agreements."
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
10
<PAGE>
accelerated, there can be no assurance that the Company would be able to repay
in full such indebtedness and other indebtedness of the Company, and in such
event the equity holders could lose their entire investment. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
SHARES ELIGIBLE FOR FUTURE SALE
As of , 1998, of the 33,611,472 outstanding shares of Common Stock
were "restricted securities" (as that term is defined in Rule 144 under the
Securities Act of 1933 (the "Securities Act")) and, under certain
circumstances, may be sold without registration pursuant to Rule 144. In
addition to the shares offered hereby, approximately shares of Common
Stock will be eligible for sale in the public market pursuant to Rules 144 and
701 under the Securities Act immediately after the Offering (including
shares that may be issued on the exercise of outstanding options). The Company
is unable to predict the effect that sales made under Rule 144, or otherwise,
may have on the then prevailing market price of the Common Stock. Holders of
shares of Common Stock (including shares eligible for immediate sale)
and outstanding options to purchase shares of Common Stock have entered
into lock-up agreements in which such holders have agreed not to offer or sell
publicly or otherwise dispose of such shares without the consent of Cowen &
Company for 180 days after the effective date of this Prospectus. Under the
terms of the Restructuring Agreements, certain principal stockholders of the
Company are subject to restrictions on the transfer of their shares. As of
, 1998, the holders of 32,242,236 shares of Common Stock are entitled to
certain piggyback and demand registration rights with respect to such shares.
By exercising their registration rights, subject to certain limitations, such
holders could cause a large number of shares to be registered and sold in the
public market commencing 180 days after the date of this Prospectus. Such
sales may have an adverse effect on the market price for the Common Stock and
could impair the Company's ability to raise capital through an offering of its
equity securities. See "Principal and Selling Stockholders," "Shares Eligible
for Future Sale" and "Underwriting."
FLUCTUATING RESULTS OF OPERATIONS
During the past three years, the Company's results of operations have
fluctuated materially on both an annual and a quarterly basis. These
fluctuations have resulted from several factors, including, among others, the
timing of introductions of new products by the Company and its competitors,
timing of receipt of patent settlement revenues, dependence by the Company on
a limited number of products, certain non-recurring expenses related to the
Company's restructuring and relocation in 1994, the Marsam Acquisition (as
defined herein) in 1995 and weak performance by the generic drug industry in
the second half of 1996 and continuing into the first half of 1997. The
Company believes that it will continue to experience fluctuations in net
revenues, gross profit and net income as a result of, among other things, the
timing of regulatory approvals and market introduction of new products by the
Company and its competitors, and downward pressure on pricing for 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 $ per share (based on an estimated offering price of $ per share,
the midpoint of the estimated range, and after deducting underwriting
discounts and offering expenses). See "Dilution."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's 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.
11
<PAGE>
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 and Selling 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 among the Company, the Selling Stockholders
and the representatives of the Underwriters. The stock market, including the
New York Stock Exchange, on which the Company is applying to list the Common
Stock, has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. In addition, the market price of the Common Stock, like the stock
prices of many publicly traded pharmaceutical companies, may be highly
volatile. Announcements of new products by the Company or its competitors,
approvals of products or other actions by FDA, developments or disputes
concerning patent or proprietary rights or regulation, publicity regarding
actual or potential clinical results relating to products under development by
the Company or its competitors, public concern as to the safety of
pharmaceutical products and economic and other external factors, as well as
period-to-period fluctuations in financial results, among other factors, may
have a significant impact on the market price of the Common Stock. See
"Underwriting."
12
<PAGE>
THE COMPANY
The Company was founded in 1985. From 1992 to 1994, the Company engaged in a
series of corporate reorganization transactions, including the separation of
the Company from Henry Schein, Inc., a company engaged in the direct marketing
of health care products and services to office-based health care
practitioners, and the Company's 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 $ million, assuming a public
offering price of $ per share (the midpoint of the estimated range), ($
million, if the Underwriters' over-allotment option is exercised in full). The
Company intends to use all of the proceeds 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 of 7.91% at December 1997,
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 of 8.94% at
December 1997 and which 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. The Company will receive no
part of the proceeds to the Selling Stockholders. See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company does not anticipate paying cash dividends in the foreseeable
future. The Company currently intends to retain any future earnings for use in
the Company's business. Currently, the Company's Senior Credit Agreement and
its Senior Floating Rate Notes Due 2004 contain restrictions on the payment of
dividends. In addition, 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 "Certain
Transactions," "Principal and Selling Stockholders" and Note 9 to the
Consolidated Financial Statements of the Company.
13
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of 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 shares of Common Stock offered by the Company in the
Offering, assuming a public offering price of $ per share (the midpoint of
the estimated range). This table should be read in conjunction with the
Consolidated Financial Statements of the Company and the notes thereto
included elsewhere in this Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 1997
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Revolving credit facility(1)........................ $ 44,000 $
Current portion of term loan facility............... 11,579
Current portion of capitalized lease obligations and
other.............................................. 861
-------- -----
Total short-term debt............................. $ 56,440 $
======== =====
Long-term debt:
Term loan facility.................................. $ 98,421 $
Senior Floating Rate Notes Due 2004(2).............. 100,000
Capitalized lease obligations....................... 284
-------- -----
Total long-term debt.............................. 198,705
-------- -----
Stockholders' equity:
Common stock, par value $.01 per share; 100,000
authorized shares: 33,611 issued and outstanding,
actual; [ ] issued and outstanding as
adjusted(3)........................................ 336
Additional paid-in capital.......................... 38,445
Retained earnings................................... 99,483
Other............................................... 1,451
-------- -----
Total stockholders' equity........................ 139,715
-------- -----
Total capitalization............................ $338,420 $
======== =====
</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 3,658,881 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 at a weighted average exercise price of $14.82 per share. Upon
closing of the Offering, the Company intends to grant options to purchase
up to an additional 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 $(1.54) per share. Consolidated negative
net tangible book value per share represents the amount of the Company's
stockholders' equity, less intangible assets, divided by 33,611,472, the
number of shares of Common Stock outstanding, in each case as of 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 shares of Common Stock offered by the Company
in the Offering at an assumed initial public offering price of $ (the
midpoint of the estimated range) per share and after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company, the pro forma consolidated negative net tangible book value of the
Company as of December 1997 would have been $ million, or $ per share.
This represents an immediate increase in net tangible book value of $ per
share to existing stockholders and an immediate dilution in net tangible book
value of $ per share to purchasers of Common Stock in the Offering, as
illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $
Consolidated negative net tangible book value per share before
the Offering.................................................... $(1.54)
Increase per share attributable to new investors................. --
------
Pro forma consolidated negative net tangible book value per share
after the Offering.............................................. --
----
Dilution per share to new investors.............................. $--
====
</TABLE>
During the past five years the following persons have acquired shares of the
Common Stock for the following prices: Martin Sperber--an aggregate of 725,454
shares at an average price of $16.26 per share; and other members and former
members of the Company's and Henry Schein, Inc.'s management--an aggregate of
643,782 shares at an average price of $16.26 per share. See "Certain
Transactions" and "Principal and Selling Stockholders."
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's financial position at December 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)............... $ 1.39 $ .20 $ (0.44) $ 0.04 $ 0.33
======== ======== ======== ======== ========
</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 significant number of generic products to the
market at patent expiration dates and in a number of cases prior to patent
expiration of the branded product by successful challenges to the patent under
the Waxman-Hatch Act.
The Company's dependence on a limited number of products, the product cycles
of such products, and the timing of receipt of patent settlement revenues have
resulted in significant fluctuations in the Company's earnings. Continued
growth in the Company's revenues will depend on continued market demand for
its products, as well as the successful introduction and marketing of new
products.
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 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 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
"Business--Government Regulations" and "Risk Factors--Pending Regulatory
Matters."
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 $307.8
Patent reviews
Patent review product revenues........................ 35.0 52.5 53.0
Settlement revenues................................... 5.0 13.5 25.0
------ ------ ------
Total patent review revenues.......................... 40.0 66.0 78.0
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 review 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 expects a
final payment of $30 million in the first quarter of 1998, half of which will
be 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.
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>
18
<PAGE>
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 $12.0 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 from increased
revenues of INFeD, new products and an increase in settlement revenues offset
by price erosion in core and patent review products.
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.
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 product revenues increased $26.0 million, primarily due
to a $17.5 million increase in patent review product revenues and an increase
in settlement revenues of $8.5 million.
19
<PAGE>
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, increases in patent review product revenues and
settlement revenues and the full year of Marsam results. These increases were
partially offset by significant price erosion primarily in solid dosage core
products in the second half of 1996.
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.
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
either the issuance of new common shares and or the incurrence of new debt.
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
20
<PAGE>
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 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.
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 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, 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.
21
<PAGE>
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. 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 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. The Company will
receive no part of the proceeds to the Selling Stockholders. 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.................. $ 0.12 $ 0.00 $ (0.05) $ (0.02) $ 0.12 $ 0.01 $ (0.01) $ 0.22
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
22
<PAGE>
INFLATION
Management does not believe inflation had a material adverse effect on the
financial statements for the periods presented.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
Reporting Comprehensive Income, establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
Disclosures about Segments of an Enterprise and Related Information, which
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise, establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in asserting performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Results of operations and financial position
will be unaffected by implementation of these new standards. The Company has
not determined whether either of these two standards will have a material
impact on its financial statement disclosure.
RISK MANAGEMENT
The Company is potentially subject to a concentration of credit risk with
respect to its trade receivables, the majority of which are due from
wholesalers, drug store chains and distributors. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
The Company maintains sufficient allowances and insurance to cover potential
or anticipated losses for uncollectible accounts.
The Company 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.
23
<PAGE>
BUSINESS
GENERAL
Schein Pharmaceutical is one of the leading generic pharmaceutical companies
in the United States. The Company develops, manufactures and markets one of
the broadest generic product lines in the pharmaceutical industry through the
integration of its product development expertise, diverse, high-volume
production capacity and direct sales and marketing forces. The Schein product
line includes both solid dosage and sterile dosage generic products, and the
Company is also developing a line of specialty branded pharmaceuticals. The
Company's primary branded product, INFeD, is the leading injectable iron
product in the United States. The Company has a substantial pipeline of
products under development, including 26 ANDAs filed with FDA. The Company
supplements 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.
The Company's commitment to product development has resulted in 24 ANDA
approvals during the past three years and its current pipeline of 26 pending
ANDAs and over 60 additional products under development. During the past three
fiscal years, the Company, directly and through its strategic collaborations,
has expended $84.7 million on product pipeline development activities, which
the Company believes is among the highest
24
<PAGE>
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 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. In the 12 months ended September 1997,
sales of generic drugs accounted for approximately $7.4 billion out of a total
U.S. prescription pharmaceutical market of approximately $80.9 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
25
<PAGE>
maintenance organizations, managed care organizations, pharmacy benefit
managers, group purchasing organizations, government-based programs and
others, have adopted policies that encourage or mandate generic substitution.
In addition, physicians, pharmacists and consumers are becoming increasingly
comfortable with the quality and therapeutic equivalence of generic drugs.
A significant portion of pharmaceuticals are distributed in the United
States through wholesale drug distributors and major retail drug store chains.
During the past several years, there has been a consolidation of these
distribution channels, resulting in a smaller number of wholesale distributors
and the emergence of fewer, larger regional and nationwide retail drug store
chains. In addition to 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
26
<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>
27
<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 reflects the approval and launch in 1997 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 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.
The Company supplements its manufactured product line with purchased
products. The gross margins received by the Company on these products,
however, 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
29
<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. INFeD currently has approximately 85% of the injectable iron market, and
iron dextran products are marketed by one other company in the U.S. Net sales
of INFeD in 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 the 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
26 ANDAs pending with FDA and over 60 products under development internally
and with third
30
<PAGE>
parties. The Company believes that this increased 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.
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.
31
<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. The Company has recently entered
into a non-binding letter of intent regarding Cheminor and Reddy. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
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.
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
32
<PAGE>
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 is one of only two U.S. generic manufacturers with dedicated
sterile filling facilities for cephalosporin and penicillin antibiotics, which
target the high volume institutional injectable market. In addition, the
Company's ophthalmic and otic drug manufacturing facilities target higher
margin specialty markets.
In accordance with FDA requirements for manufacturers of finished
pharmaceutical products, the Company has developed strict quality control
procedures to ensure the quality and safety of its products. The Company
employs sanitary handling procedures, customized systems for monitoring and
regulating environmental conditions and back-up systems for many of the
critical steps in the production processes. The Company performs sample
testing of raw materials and packaging supplies used in manufacturing its
products and conducts on-site audits of raw material suppliers. In its
manufacturing process, the Company maintains strict quality control procedures
and believes it is in material compliance with FDA's cGMP standards. The
Company has approximately 380 employees dedicated to quality control and
quality assurance. Because developing and obtaining approval of new generic
products requires a large investment and several years of lead time, the
Company believes that companies like itself that have modern, versatile
manufacturing facilities will have a competitive advantage in responding to
market opportunities. See "Risk Factors--Dependence on Regulatory Approval and
Compliance," "Risk Factors--Pending Regulatory Matters" and "--Government
Regulations."
The Company does not manufacture the active pharmaceutical ingredients used
in the preparation of its products. Instead, the Company purchases these
active pharmaceutical ingredients from international and domestic sources. FDA
requires pharmaceutical manufacturers to identify in their drug applications
the supplier(s) of all the raw materials for its products. If raw materials
for a particular product become unavailable from an approved supplier
specified in a drug application, any delay in the required FDA approval of a
substitute supplier could interrupt manufacture of the product, which could
materially and adversely affect the Company's profit margins and market share
for the product. To the extent practicable, the Company attempts to identify
more than one supplier in each drug application. However, in the case of
certain products (including certain products that contribute (or may
contribute) significantly to its sales and net income), the Company has
submitted drug applications that identify only one supplier. The Company has a
program of identifying alternative suppliers where practicable and, in many
cases, filing supplemental applications with FDA for approval.
The Company obtains a significant portion of its raw materials from
international suppliers. Arrangements with international raw material
suppliers are subject, among other things, to FDA, customs and other
government clearances, various duties and regulation by the country of origin.
The Company has a number of collaborative arrangements for exclusive access to
some difficult to source products.
33
<PAGE>
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 serve as
depots for substantially all of a customer's product needs, allowing it to
maintain minimal inventories and receive overnight deliveries of several
manufacturers' products from a single source. Currently, approximately 64% of
the Company's net revenues are sold through wholesalers, with approximately
82% of these net revenues subject to direct contracts between the Company and
its customers. In general, it is the Company's strategy to seek to enter into
purchase contracts with retail, managed care and institutional customers.
Sales to Bergen Brunswig Corporation, Cardinal Health, Inc. and McKesson Drug
Company accounted for 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 pending mergers among the four largest pharmaceutical
wholesalers in the U.S., 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 is consummated,
this combined customer would have accounted for approximately 37% of the
Company's total net revenues in 1997.
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 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.
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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 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.
35
<PAGE>
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 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
36
<PAGE>
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.
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
37
<PAGE>
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
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") 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. Ten of the Company's pending
ANDAs have been filed from the Steris facility. 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. 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.
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.
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."
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<PAGE>
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, 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.
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<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 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.
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David R. Ebsworth became a Director of the Company in September 1994 as part
of Bayer Corporation's investment in the Company. He is currently Executive
Vice President, Bayer Corporation and President, Pharmaceutical Division North
America. Between 1983 and 1993, Dr. Ebsworth held various management and sales
marketing positions with the Bayer companies in Germany and Canada. Dr.
Ebsworth received his B.S. and Doctor of Philosophy degrees from the
University of Surrey (England).
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.
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.
The Company's officers are elected by the Board of Directors for one-year
terms and serve at the discretion of the Board of Directors. See "Principal
and Selling Stockholders," "Risk Factors--Control of the Company" and
"Description of Capital Stock."
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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 67,650 $ 75,000 22,709 (4)
Executive Vice 1996 341,000 59,700 143,725 24,600 75,000 24,321 (4)
President, Chief
Financial Officer and
Director
Javier Cayado............ 1997 220,000 37,000 398 12,300 100,000 29,343 (5)
Senior Vice President 1996 220,000 40,500 969 12,300 125,000 16,910 (5)
Technical Operations
Paul Feuerman............ 1997 225,000 61,000 8,596 18,450 100,000 17,625 (6)
Senior Vice President, 1996 185,000 32,400 7,738 24,600 100,000 13,799 (6)
General Counsel and
Director
Paul Kleutghen........... 1997 211,000 37,300 9,362 10,455 100,000 36,531 (7)
Senior Vice President 1996 211,000 38,800 24,415 24,600 100,000 47,115 (7)
Strategic Development
Marvin Samson............ 1997 400,000 (11) 2,659 215,250 -- 24,754 (8)
Former Executive Vice 1996 400,000 70,000 -- 24,600 -- 37,786 (8)
President
</TABLE>
42
<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. Non-
employee directors may receive annual grants of options to purchase shares
of the Company's Common Stock or meeting fees pursuant to the Non-Employee
Director Plan. To date, no meeting fees have been paid to non-employee
directors. See "--Stock Options."
(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
$16,660 for the Supplemental Retirement Plan contribution, $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 104,550 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 24,600 shares of Common Stock,
$75,000 in LTIP payouts and $9,477 in All Other Compensation. All Other
Compensation includes $7,260 for 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 24,600 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.
(11) Determination of 1997 bonus amount is pending finalization.
43
<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......... 67,650 6.5% $12.20 2007 [ ] [ ]
Paul Feuerman........... 18,450 1.8 12.20 2007 [ ] [ ]
Jay Cayado.............. 12,300 1.2 12.20 2007 [ ] [ ]
Paul Kleutghen.......... 10,455 1.0 12.20 2007 [ ] [ ]
Marvin Samson........... 215,250 20.7 12.20 2007 [ ] [ ]
Michael Casey........... 104,550 10.1 12.20 2007 [ ] [ ]
</TABLE>
FISCAL YEAR--END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END
SHARES ACQUIRED ------------------------- -------------------------
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin Sperber.......... -- -- 589,785 -- [ ] [ ]
Dariush Ashrafi......... -- -- 42,558 135,792 [ ] [ ]
Paul Feuerman........... -- -- 29,766 40,344 [ ] [ ]
Jay Cayado.............. -- -- 28,659 26,691 [ ] [ ]
Paul Kleutghen.......... -- -- 35,670 33,825 [ ] [ ]
Marvin Samson........... -- -- 8,118 231,732 [ ] [ ]
Michael Casey........... -- -- 42,681 -- [ ] [ ]
James McGee............. -- -- 562,971 -- [ ] [ ]
</TABLE>
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Martin Sperber dated
September 30, 1994 pursuant to which Mr. Sperber serves as Chairman of the
Board, Chief Executive Officer and President of the Company. Under this
agreement, the term of Mr. Sperber's employment commenced on January 1, 1994
and terminates on January 1, 1999, unless earlier terminated by the death of
Mr. Sperber, by action of the Board of Directors with or without cause, due to
the disability of Mr. Sperber or by Mr. Sperber upon 30 days written notice or
a material breach by the Company of his employment or stock option agreement
that is not cured within 30 days. If Mr. Sperber is terminated without cause,
in addition to all accrued but unpaid compensation to the date of termination,
he is entitled to receive as severance compensation his base salary from the
date of termination through January 1, 1999 and an amount equal to the product
of (i) a fraction, the numerator of which is the amount of earned incentive
compensation for the last full year before termination and the denominator of
which is 365 and (ii) the number of days from termination until January 1,
1999. If Mr. Sperber voluntarily terminates his employment prior to January 1,
1999 (other than for an uncured breach by the Company), he is only entitled to
such severance pay as is determined by the Compensation Committee. Mr. Sperber
currently receives base annual compensation of $700,000. Mr. Sperber may also
receive incentive compensation in an amount to be determined by the
Compensation Committee. If Mr. Sperber's employment is terminated prior to
January 1, 1999, such incentive compensation shall be based on objective
criteria established by the Compensation Committee or $250,000 plus the
product of (x) the fraction derived by dividing (i) the sum of the actual cash
incentive compensation earned by each of the three most senior executives of
the Company other
44
<PAGE>
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 five years prior to termination, reduced generally by the sum of the
amount Mr. Sperber would be entitled to receive under all of the Company's
qualified retirement plans within the meaning of Section 401(a) of the
Internal Revenue Code and under Social Security if he commenced 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 589,785 shares of Common Stock at a price of $16.20 per share.
The option expires on the earlier of September 30, 2004 or upon Termination of
Employment (as defined in the 1993 Stock Option Plan). In the event of Mr.
Sperber's death, disability, retirement or termination without cause, the
option remains exercisable for one year (but may be extended by the Company at
its discretion). Upon termination of Mr. Sperber's employment for cause (or
discovery of justification for termination for cause after termination for
another reason), all outstanding options are immediately cancelled. In the
event Mr. Sperber's employment is terminated for any other reason, all
outstanding options will remain exercisable for 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
45
<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 some portion of his
annual base salary to be paid as and when bonuses are paid to senior executive
officers of the Company in respect of fiscal 1998.
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 of Marsam. Mr. Samson
ceased to be an employee and director of the Company on January 7, 1998. Mr.
Samson's agreement provides, under varying circumstances, for annual payments
ranging between $200,000 and $400,000, and certain insurance and automobile
benefits, over a period of no more than three years from cessation to his
employment.
46
<PAGE>
A compensation continuation agreement provides for pension payments ranging
from $200,000 to $400,000 for a period of no more than ten years, to Mr.
Samson. 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 3,370,200 shares
of Common Stock, subject to adjustment under certain circumstances. In
addition, the Company's 1993 Stock Option Plan (the "1993 Plan") provided for
the granting of options to purchase not more than an aggregate of 3,370,200
shares of Common Stock, subject to adjustment under certain circumstances. In
addition, the Company's 1995 Non-Employee Director Stock Option Plan (the
"Non-Employee Director Plan" and, together with the 1997 Plan and the 1993
Plan, the "Stock Option Plan") provides for the granting of options to
purchase not more than an aggregate of 123,000 shares of Common Stock, subject
to adjustment under certain circumstances. Although options granted under the
1993 Plan to purchase 3,109,194 shares are still outstanding, no further
grants will be made pursuant to the 1993 Plan. Some or all of the options
granted under the 1997 Plan may be "incentive stock options" within the
meaning of section 422 of the Internal Revenue Code of 1986 (the "Code"). The
Company has granted options to purchase 529,146 shares under the 1997 Plan at
the then fair market value and plans to grant additional options to
purchase shares of Common Stock under the 1997 Plan prior to or at the
completion of the Offering at an exercise price equal to the public offering
price.
The Compensation Committee administers the 1997 Plan. The Compensation
Committee has full power and authority to interpret the 1997 Plan, set the
terms and conditions of individual options and supervise the administration of
the 1997 Plan.
The Compensation Committee determines, subject to the provisions of the 1997
Plan, to whom options are granted, the number of shares of Common Stock
subject to an option, whether stock options will be incentive or non-
qualified, the exercise price of the options (which, in the case of non-
qualified options, may be less than the fair market value of the shares on the
date of grant) and the period during which options may be exercised. All
employees of the Company are eligible to participate in the 1997 Plan. No
options may be granted under the 1997 Plan after March 3, 2007.
The Compensation Committee may amend the 1997 Plan from time to time.
However, the Compensation Committee may not, without stockholder approval,
amend the 1997 Plan to increase the number of shares of Common Stock under the
1997 Plan (except for changes in capitalization as specified in the 1997
Plan).
The Non-Employee Director Plan provides for automatic annual grants of
options to purchase shares of the Company's Common Stock to non-employee
directors of the Company in amounts calculated using a formula provided in the
plan. The Company has granted options to purchase 26,445 shares of Common
Stock under the Non-Employee Director Plan and plans to grant 11,070
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
47
<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 5% of their account balance in Common Stock at
the IPO price. 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
48
<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.
49
<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. 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 of approximately $3.0 million
in 1996 and $4.2 million in 1997. There were no selling expenses under the
first agreement for 1995. See "Principal and Selling Stockholders."
Since 1994, the Company and Bayer, through their respective affiliates, have
entered into several joint ventures to own, manage or develop generic
pharmaceutical businesses outside of the U.S. Each of Schein and Bayer have
contributed various assets and rights and funded the operations of these
ventures, and in certain circumstances have guaranteed certain liabilities of
these ventures, such as leases and lines of credit. It is contemplated that
the Company and Bayer will sell products to certain of these ventures for
resale in their local markets.
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. 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
collaboration called Bayer Healthcare Partners. Bayer Healthcare Partners is a
marketing tool through which the various participants combine their sales
efforts to offer a package of goods and services designed to be more
attractive to a customer, most likely a managed healthcare provider. The
participants share in the costs and profits associated with sales of the
covered products to the customer. In the last six months of 1997, the Company
incurred expenses of approximately $0.1 million.
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.
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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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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of December 1997,
immediately prior to and immediately after the Offering by (i) each person (or
affiliated group of persons) known by the Company to own beneficially more
than 5% of the Company's Common Stock, (ii) each director of the Company,
(iii) each of the Named Executive Officers, (iv) all directors and executive
officers of the Company as a group and (v) each of the Selling Stockholders.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING BENEFICIAL OWNERSHIP
(2) (3) AFTER THE OFFERING
-------------------------SHARES OF COMMON -----------------------
BENEFICIAL OWNER(1) NUMBER PERCENT STOCK TO BE OFFERED NUMBER PERCENT
- ------------------- ------------- ----------------------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Martin Sperber (4)...... 24,019,809 70.9%
Marvin H. Schein (5)
(6).................... 11,072,460 32.7%
135 Duryea Road
Melville, NY 11747
Bayer Corporation....... 9,537,666 28.2%
100 Bayer Road
Pittsburgh, PA 15205
Trusts established by
Pamela Schein (6)...... 8,369,166 24.7%
Pamela Joseph (6) (7)... 3,262,944 9.6%
Directors and Executive
Officers as
Group (7 persons) (4)
(5).................... 24,161,136 71.4%
</TABLE>
- --------
(1) Unless otherwise indicated, the address for each person is c/o Schein
Pharmaceutical, Inc., 100 Campus Drive, Florham Park, New Jersey 07932.
(2) The persons and entities named in the table have sole voting and
investment powers with respect to all of the Common Stock shown as
beneficially owned by them, except as noted below.
(3) The 33,857,329 shares of Common Stock deemed outstanding prior to the
Offering includes:
(a) 33,611,472 shares of Common Stock outstanding or reserved for issuance
on December 27, 1997; and
(b) 2,245,857 shares of Common Stock issuable pursuant to the exercise of
options held by the respective person or group or reserved for issuance
to management, which may be exercised within 60 days after the date of
this Prospectus, as set forth below.
(4) Includes:
(a) 725,454 shares for which Mr. Sperber either is the direct beneficial
owner or holds in trusts for his family members' benefit; and
(b) 589,785 shares issuable pursuant to the exercise of stock options held
by Mr. Sperber are currently exercisable; and
(c) 22,704,570 shares prior to the Offering and shares after the
Offering over which Mr. Sperber has voting control pursuant to the
voting trust agreement dated September 30, 1994 (the "Voting Trust
Agreement"). Mr. Sperber, acting as voting trustee, is able to control
substantially all matters requiring stockholder approval, including the
election of directors.
(5) Includes all shares for which Mr. Schein is either the direct beneficial
owner or holds in trust for his family members and/or charities for which
Mr. Schein is trustee.
(6) All shares are held by Mr. Sperber as voting trustee under the Voting
Trust Agreement. See "--Restructuring Agreements."
(7) Includes 213,651 shares held in trust, of which Ms. Joseph is a principal
beneficiary.
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RESTRUCTURING AGREEMENTS
At the time of Bayer Corporation's acquisition of its 28.3% interest in the
Company, the Company, Bayer Corporation, Mr. Sperber, and certain other
principal stockholders entered into certain agreements (the "Restructuring
Agreements") relating to the governance of the Company and certain other
matters.
Agreements Relating to Control of the Company. The Restructuring Agreements
provide that, until the earlier of March 1, 2000 and the effective date of a
merger, consolidation or combination that results in the Voting Trustee
(currently Mr. Sperber) (the "Voting Trustee") neither holding the position of
chairman of the board, president, chief executive officer or chief operating
officer of the resulting entity nor having the right to designate a majority
of the members of the board of the resulting entity (such earlier date, the
"Voting Trust Termination Date"), the Voting Trustee will have the right to
vote, or direct the vote of, all the shares of Common Stock owned by Marvin
Schein, Pamela Schein and Pamela Joseph and certain trusts established by them
or for their issue (collectively, the "Family Stockholders") (i.e., % of the
outstanding shares of Common Stock immediately after the completion of the
Offering, assuming the Underwriters' over-allotment option is not exercised).
As a result of the foregoing, the Voting Trustee as a practical matter will be
able to control substantially all matters requiring stockholder approval,
including the election of directors, until March 1, 2000 (without giving
effect to any future public issuance of Common Stock by the Company or sales
of Common Stock by Continuing Stockholders). The Restructuring Agreements
provide that Mr. Sperber may designate certain individuals to succeed him as
Voting Trustee under the Restructuring Agreements.
The Restructuring Agreements provide that, until 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 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
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<PAGE>
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 (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
54
<PAGE>
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.
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
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<PAGE>
"--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.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
shares of Common Stock and shares of Common Stock reserved for issuance
upon the exercise of outstanding stock options pursuant to the Stock Option
Plan and certain other options granted by the Company. The shares of
Common Stock sold by the Company in the Offering will be immediately freely
tradeable without restriction under the Securities Act, except for any shares
purchased by an "affiliate" of the Company (as that term is defined under the
rules and regulations of the Securities Act), which will be subject to the
resale limitations of Rule 144 under the Securities Act. The remaining
33,611,472 outstanding shares of Common Stock, which were issued by the
Company in private transactions not involving a public offering (and any
shares issued upon exercise of employee stock options granted pursuant to the
Stock Option Plan), are "Restricted Securities" for purposes of Rule 144 and
may not be resold in a public distribution, except in compliance with the
registration requirements of the Securities Act or pursuant to Rule 144. The
share numbers in this section assume the Underwriters' over-allotment options
are not exercised.
Prior to the Offering, there has been no public market for the Common Stock.
The Company cannot predict the effect, if any, sales of shares of Common Stock
or the availability of shares for sale will have on the market price from time
to time. Nevertheless, sales of substantial amounts of Common Stock in the
public market could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
The Company, the Company's officers and directors and certain other
shareholders and option holders of the Company have agreed, subject to certain
limited exceptions, not, directly or indirectly, to offer, sell, assign,
transfer, encumber, contract to sell or otherwise dispose of any outstanding
shares of Common Stock or any securities of the Company substantially similar
to Common Stock (other than in the Offering and, in the case of the Company,
pursuant to the Stock Option Plan) held by them for a period of 180 days after
the date of this Prospectus without the prior written consent (which consent
may be given without notice to the Company's shareholders or other public
announcement) of Cowen & Company. Cowen & Company has advised the Company that
it has no present intention of releasing any of the Company's shareholders or
option holders from such lock-up agreements until the expiration of such 180-
day period.
In addition, Bayer Corporation and the Continuing Stockholders are subject
to certain restrictions under the Restructuring Agreements governing the
transfer of shares. See "Principal and Selling Stockholders."
Pursuant to the Stock Option Plan, shares of Common Stock are available
for future option grants, of which the Company plans to grant options to
purchase approximately shares of Common Stock upon or immediately prior to
the completion of the Offering. See "Management--Stock Options."
Rule 701 under the Securities Act provides that the shares of Common Stock
acquired upon the exercise of outstanding options may be resold by persons
other than affiliates beginning 90 days after the date of this Prospectus,
subject only to the manner of sale provisions of Rule 144, and by affiliates
under Rule 144 without compliance with its one-year minimum holding period,
subject to certain limitations. The Company intends to file one or more
registration statements on Form S-8 under the Securities Act to register all
shares of Common Stock subject to outstanding stock options, 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 which do not qualify for an
exemption under Rule 701 from the registration requirements of the Securities
Act. The Company expects to file these registration statements after the
closing of the Offering, and such registration statements are expected to
become effective upon filing. Shares of Common Stock covered by these
registration statements will thereupon be eligible for sale in the public
markets, subject to the Lock-up Agreements, if applicable.
Certain persons and entities (the "General Rightholders") are entitled to
certain rights with respect to the registration under the Securities Act of a
total of shares of Common Stock (the "General Registrable Shares") under
the terms of an agreement among the Company and the General Rightholders (the
"General
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<PAGE>
Stockholders Agreement"). The General Stockholders Agreement provides that in
the event the Company proposes to register any of its securities under the
Securities Act pursuant to a demand registration request, subject to certain
exceptions, the General Rightholders shall be entitled to include General
Registrable Shares in such registration, subject to the right of the managing
underwriter of any such offering to exclude for marketing reasons some of such
General Registrable Shares from such registration. The General Rightholders
have the additional right under the Continuing Stockholders Agreement to
require the Company to prepare and file, subject to certain conditions and
limitations, three registration statements under the Securities Act with
respect to their General Registrable Shares commencing on May 15, 1997 and
terminating on the earlier of September 30, 2004 and the first date on which
Bayer Corporation owns less than 10% of the outstanding Common Stock of the
Company.
Certain persons and entities (the "Continuing Rightholders") are entitled to
certain rights with respect to the registration under the Securities Act of a
total of shares of Common Stock (the "Continuing Registrable Shares")
under the terms of an agreement among the Company and the Continuing
Rightholders (the "Continuing Stockholders Agreement"). The Continuing
Stockholders Agreement provides that in the event the Company proposes to
register any of its securities under the Securities Act pursuant to a demand
registration request, subject to certain exceptions, the Continuing
Rightholders shall be entitled to include Continuing Registrable Shares in
such registration, subject to the right of the managing underwriter of any
such offering to exclude for marketing reasons some of such Continuing
Registrable Shares from such registration. The Continuing Rightholders have
the additional right under the Continuing Stockholders Agreement to require
the Company to prepare and file, subject to certain conditions and
limitations, four registration statements under the Securities Act with
respect to their Continuing Registrable Shares commencing as of September 1997
and terminating on the tenth anniversary of the date of the Offering. See
"Principal and Selling Stockholders."
No prediction can be made as to the effect, if any, that market sales of
Restricted Securities or the availability of such Restricted Securities for
sale will have on the market price of the Common Stock. Nevertheless, sales of
substantial amounts of Common Stock in the public market will have an adverse
impact on the market price of the Common Stock.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, par value $.01 per share and 5,000,000 shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"). Immediately prior to
the Offering, there were 33,611,472 shares of Common Stock outstanding held of
record by stockholders.
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) 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, 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, "Management--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
59
<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."
60
<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 and
Selling Stockholders."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
61
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Cowen &
Company, Bear, Stearns & Co. Inc. and Smith Barney Inc. are acting as
representatives (the "Representatives"), has severally agreed to purchase from
the Company and the Selling Stockholders, the number of shares of Common Stock
set forth opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
----------- -----------------
<S> <C>
Cowen & Company...............................................
Bear, Stearns & Co. Inc. .....................................
Smith Barney Inc. ............................................
----
Total.......................................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters are
committed to purchase all shares of Common Stock offered hereby (other than
those covered by the over-allotment option described below) if any of such
shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may re-
allow, a concession not in excess of $ per share to certain other brokers
and dealers. After the shares of Common Stock are released for sale to the
public, the offering price and other selling terms may from time to time be
varied by the Representatives.
The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable for up to 30 days after the date of this Prospectus, to
purchase up to an aggregate of additional shares of Common Stock to cover
over-allotments, if any. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of
shares of Common Stock to be purchased by each of them shown in the foregoing
table bears to the total number of shares of Common Stock offered hereby. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of shares of Common Stock offered hereby.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to 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.
62
<PAGE>
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act, and to contribute to payments the Underwriters may be
required to make in respect thereof.
The Company, the Selling Stockholders, the Company's officers and directors
and certain other stockholders and option holders of the Company have agreed,
subject to certain limited exceptions, not, directly or indirectly, to offer,
sell, assign, transfer, encumber, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for shares of Common Stock or any right to acquire Common Stock
for a period of 180 days after the date of this Prospectus without the prior
written consent (which consent may be given without notice to the Company's
stockholders or other public announcement) of Cowen & Company. Cowen & Company
has advised the Company that it has no present intention of releasing any of
the Selling Stockholders or the Company's stockholders or option holders from
such lock-up agreements until the expiration of such 180-day period.
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales in excess of 5% of the
shares of Common Stock offered hereby to any account over which they exercise
discretionary authority.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Common Stock. As
an exception to these rules, the Representatives are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
Common Stock in the open market to reduce the Underwriters' short position or
to stabilize the price of the Common Stock, they may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those shares of Common Stock as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither the Company or any of the Selling Stockholders on the one hand, nor
any of the Underwriters on the other hand, makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company or any of the Selling Stockholders on the one
hand, nor any of the Underwriters on the other hand, makes any representation
that the Representatives will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price was determined by negotiation
among the Company and the Selling Stockholders on the one hand, and the
Representatives on the other hand. Among the factors considered in such
negotiations were prevailing market conditions, the results of operations of
the Company in recent periods, the market capitalizations and stages of
development of other companies that the Company and the Representatives
believe to be comparable to the Company, estimates of the business potential
of the Company, the present state of the Company's development and other
factors deemed relevant.
63
<PAGE>
VALIDITY OF SHARES
The validity of the shares of Common Stock being sold in the Offering is
being passed upon for the Company and the Selling Stockholders by Proskauer
Rose LLP, New York, New York. Richard L. Goldberg, a partner of Proskauer Rose
LLP, is a member of the Board of Directors of the Company. Certain legal
matters in connection with the Offering will be passed upon for the
Underwriters by Brown & Wood LLP.
EXPERTS
The financial statements and schedule of the Company included in this
Prospectus and in the Registration Statement have been audited by BDO Seidman
LLP, independent certified public accountants, to the extent and for the
periods set forth in their reports appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such reports given
upon the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). All reports, proxy statements, and other information filed by
the Company can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the regional offices of the Commission located
at 7 World Trade Center, Suite 1300, New York, New York 10048, and the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained by mail at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. The Commission maintains a web site
that contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the Commission with a web
site address of http://www.sec.gov.
64
<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>
[This is the form of report we will be in a position to furnish upon
completion of the stock split discussed in Note 1.]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Schein Pharmaceutical, Inc.
We have audited the accompanying consolidated balance sheets of Schein
Pharmaceutical, Inc. and subsidiaries as of December 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 , 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 33,611 shares at December
28, 1996
and December 27, 1997............................. 336 336
Additional paid-in capital......................... 38,543 38,445
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......... $ (0.44) $ 0.04 $ 0.33
======== ======== ========
Weighted Average Number of Shares
Outstanding............................ 33,670 33,641 33,611
======== ======== ========
</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........ 33,670 $337 $39,498 $101,884 $(1,555)
Net loss........................ -- -- -- (14,900) --
Amortization of options issued
as compensation................ -- -- -- -- 389
Unrealized gains from marketable
securities..................... -- -- -- -- 39
------ ---- ------- -------- -------
Balance, December 30, 1995........ 33,670 337 39,498 86,984 (1,127)
Net income...................... -- -- -- 1,397 --
Amortization of options issued
as compensation................ -- -- -- -- 389
Unrealized gains from marketable
securities..................... -- -- -- -- 4,293
Repurchase and retirement of
shares......................... (59) (1) (955) -- --
Foreign currency translation
adjustments.................... -- -- -- -- (835)
------ ---- ------- -------- -------
Balance, December 28, 1996........ 33,611 336 38,543 88,381 2,720
Net income...................... -- -- -- 11,102 --
Amortization of options issued
as compensation................ -- -- (98) -- 727
Decline in marketable
securities..................... -- -- -- -- (2,046)
Foreign currency translation
adjustments.................... -- -- -- -- 50
------ ---- ------- -------- -------
Balance, December 27, 1997 ....... 33,611 $336 $38,445 $ 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 , 1998, effected
a 123-for-one stock split, and increased its authorized common stock to
100,000,000 shares. All applicable share and per share amounts in the
accompanying consolidated financial statements have been retroactively
adjusted to reflect the stock split.
In 1995, Schein Holdings, Inc. ("SHI"), the former parent holding
corporation of 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 and majority-owned subsidiaries. Investments in
unconsolidated affiliated companies are accounted for on the equity method.
All material intercompany accounts and transactions have been eliminated in
consolidation.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
FISCAL YEAR
The Company reports its operations on a 52-53 week basis ending on the last
Saturday of December. 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.
FOREIGN CURRENCY TRANSLATIONS
Assets and liabilities of international affiliates are translated at current
exchange rates and related translation adjustments are reported as a component
of stockholders' equity. Income statement accounts are translated at the
average rates during the period.
CONCENTRATION OF CREDIT RISK
The Company is potentially subject to a concentration of credit risk with
respect to its trade receivables, the majority of which are due from
wholesalers, drug store chains and distributors. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
The Company maintains sufficient allowances and insurance to cover potential
or anticipated losses for uncollectible accounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
Reporting Comprehensive Income, establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
Disclosures about Segments of an Enterprise and Related Information, which
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise, establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.
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.
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 guaranteed by the Company's wholly-owned
domestic subsidiaries. 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 4,722
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 in 1996. The second settlement allows for cash payments
and/or license rights to the Company. In connection with the second settlement
the Company received revenues of $5.0 million, $12.5 million and $25.0 million
in 1995, 1996 and 1997, respectively, and such amounts are included in Net
revenues in the accompanying statements of operations.
Profit-sharing expenses pursuant to the Consulting Agreement and included in
Cost of Sales were $2.5 million in fiscal 1995, $14.9 million in fiscal 1996
and $27.0 million in fiscal 1997.
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 September 1, 1994, the Company entered into a worldwide technology
licensing and development agreement with a U.K.-based pharmaceutical
development company for the development of a portfolio of oral controlled
release and/or transdermal products. Under the terms of the agreement, the
Company is obligated to pay product licensing fees and development costs
totaling $32.0 million, dependent on achievement of interim milestones. In
1994, the Company incurred obligations totaling $5.5 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 22,539,012 Class
A and 11,072,460 Class B issued and outstanding.
During 1996, the Company agreed to repurchase 58,794 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 6,863,400 shares under the plans. However, 261,006 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, $0.07 and $0.11, 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
$8.13........ 218,325 5.8 $ 8.13 211,560 $ 8.13
$12.20....... 860,262 9.2 12.20 17,958 12.20
$16.26....... 2,580,294 7.4 16.26 2,016,585 16.26
--------- --- ------ --------- ------
3,658,881 8.1 $14.82 2,246,103 $15.46
========= === ====== ========= ======
</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......... 2,011,788 $15.27
Granted (at $16.26 per share).................. 442,923 16.26
Exercised...................................... -- --
Canceled (at $16.26 per share)................. (9,471) 16.26
--------- ------
Shares under option at December 30, 1995......... 2,445,240 15.45
Granted (at $16.26 per share).................. 601,101 16.26
Exercised...................................... -- --
Canceled (at $12.20 to $16.26 per share)....... (92,496) 14.90
--------- ------
Shares under option at December 28, 1996......... 2,953,845 15.63
Granted (at $12.20 per share).................. 1,039,227 12.20
Exercised...................................... -- --
Canceled (at $8.13 to $16.26 per share)........ 334,191 14.23
--------- ------
Shares under option at December 27, 1997 (at
$8.13 to $16.26 per share)...................... 3,658,881 $14.82
========= ======
Options exercisable at December
1995........................................... 1,325,940 $15.66
1996........................................... 1,876,488 $15.33
1997........................................... 2,246,103 $15.46
Options available for grant:
1995........................................... 1,047,960
1996........................................... 539,355
1997........................................... 2,974,263
Weighted average fair value of options granted
during:
1995........................................... $ 7.44
1996........................................... $ 7.29
1997........................................... $ 5.34
</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 58,794 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
$45.0 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 5,000,000 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, ANY SELLING STOCKHOLDER OR ANY
OF THE UNDERWRITERS OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY A SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
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................................................................... 24
Management................................................................. 40
Certain Transactions....................................................... 50
Principal and Selling Stockholders......................................... 52
Shares Eligible For Future Sale............................................ 57
Description of Capital Stock............................................... 59
Underwriting............................................................... 62
Validity of Shares......................................................... 64
Experts.................................................................... 64
Available Information...................................................... 64
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
[LOGO] SCHEIN
PHARMACEUTICAL
COMMON STOCK
------------------
PROSPECTUS
------------------
COWEN & COMPANY
BEAR, STEARNS & CO. INC.
SALOMON SMITH BARNEY
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred by the Company
in connection with the issuance and distribution of the securities being
registered under this registration statement. Except for the SEC and NASD
filing fees, all expenses have been estimated and are subject to future
contingencies.
<TABLE>
<S> <C>
SEC registration fee.......................................... $18,319.50
NASD fee...................................................... 6,710.00
Legal fees and expenses*......................................
Printing and engraving expenses*..............................
Accounting fees and expenses*.................................
Blue sky fees and expenses*...................................
Transfer agent and registrar fees and expenses*...............
Miscellaneous*................................................
----------
Total....................................................... $
==========
</TABLE>
- --------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article SEVENTH of the Company's Certificate of Incorporation provides that
the Company shall indemnify and hold harmless, to the fullest extent
authorized by the Delaware General Corporation Law, its officers and directors
against all expenses, liability and loss actually and reasonably incurred in
connection with any civil, criminal, administrative or investigative action,
suit or proceeding. The Certificate of Incorporation also extends
indemnification to those serving at the request of the Company as directors,
officers, employees or agents of other enterprises.
In addition, Article SEVENTH of the Company's Certificate of Incorporation
provides that no director shall be personally liable for any breach of
fiduciary duty. Article SEVENTH does not eliminate a director's liability (i)
for a breach of his or her duty of loyalty to the Company or its stockholders,
(ii) for acts of or omissions of such director not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any
transactions from which the director derived an improper personal benefit.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation to indemnify its directors and officers against expenses
(including attorney's fees), judgments, fines and amounts paid in settlements
actually and reasonably incurred by them in connection with any action, suit
or proceeding brought by third parties, if such directors or officers acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reason to believe their conduct was unlawful. In a
derivative action, i.e., one by or in the right of the corporation,
indemnification may be made only for expenses actually and reasonably incurred
by directors and officers in connection with the defense or settlement of an
action or suit, and only with respect to a matter as to which they shall have
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interest of the corporation, except that no
indemnification shall be made if such person shall have been adjudged liable
to the corporation, unless and only to the extent that the court in which the
action or suit was brought shall determine upon application that the defendant
officers or directors are reasonably entitled to indemnity for such expenses
despite such adjudication of liability.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a corporation may eliminate or limit the personal liability of a
director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under
II-1
<PAGE>
Section 174 of the General Corporation Law of the State of Delaware, or (iv)
for any transaction from which the director derived an improper personal
benefit. No such provision shall eliminate or limit the liability of a
director for any act or omission occurring prior to the date when such
provision becomes effective.
Pursuant to Section 145 of the DGCL and the Certificate of Incorporation and
the By-Laws of the Company, the Company maintains directors' and officers'
liability insurance coverage.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Company.
3.2 Amended and Restated By-Laws of the Company.
3.3 Form of Restated Certificate of Incorporation of the Company to be
adopted.
3.4 Form of Amended and Restated By-Laws of the Company to be adopted.
4.1 Credit Agreement dated as of September 5, 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 for 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.
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, and Amendment Number 2, dated January 1, 1997.
10.45 Schein Pharmaceutical, Inc. 1998 Employee Stock Purchase Plan, dated
January 23, 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.
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
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 26th day of February, 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
Chairman of the
/s/ Martin Sperber Board, Chief February 26,
- ------------------------------------- Executive Officer, 1998
MARTIN SPERBER President and
Director (principal
executive officer)
Chief Financial
/s/ Dariush Ashrafi Officer, Executive February 26,
- ------------------------------------- Vice President and 1998
DARIUSH ASHRAFI Director (principal
financial and
accounting officer)
Senior Vice
/s/ Paul Feuerman President, General February 26,
- ------------------------------------- Counsel and Director 1998
PAUL FEUERMAN
Director
- ------------------------------------- February 26,
DAVID R. EBSWORTH 1998
Director
/s/ Richard L. Goldberg February 26,
- ------------------------------------- 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 ,
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
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<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Company.
3.2 Amended and Restated By-Laws of the Company.
3.3 Form of Restated Certificate of Incorporation of the Company to
be adopted.
3.4 Form of Amended and Restated By-Laws of the Company to be
adopted.
4.1 Credit Agreement dated as of September 5, 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 Amendment 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 for 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), including
Supplemental Agreement, dated September 22, 1994.
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).
10.16 Employment Agreement, dated November 29, 1993 between the
Company and Paul Feuerman.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE
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<C> <S> <C>
10.17 Deferred Compensation Agreement, dated August 8, 1996, between
the Company and Paul Feuerman.
10.18 Employment Agreement, dated May 1, 1995, between the Company
and Dariush Ashrafi.
10.19 Employment offer letter, dated April 17, 1995, from the Company
to Dariush Ashrafi.
10.20 Employment Agreement, dated September 30, 1994, between the
Company and Martin Sperber.
10.21 Option Agreement Pursuant to 1993 Stock Option Plan dated
September 30, 1994 between Schein Holdings, Inc. and Martin
Sperber.
10.22 Employment Agreement, dated as of July 28, 1995, between the
Company and Marvin Samson.
10.23 Compensation Continuation Agreement, dated October 19, 1991,
between the Company and Marvin Samson.
10.24 Split Dollar Insurance Agreement, dated March 25, 1991, between
the Company, Michael Samson and Andrew Samson, Trustees under
Indenture of Trust of Marvin Samson.
10.25 Retirement Plan of Schein Pharmaceutical, Inc. and Affiliates,
including Amendment No. 4.
10.26 Amendment No. 1 and Amendment No. 3 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, and Amendment Number
2, dated January 1, 1997.
10.45 Schein Pharmaceutical, Inc. 1998 Employee Stock Purchase Plan,
dated January 23, 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE
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<C> <S> <C>
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>
<PAGE>
EXHIBIT 1.1
DRAFT
__________ Shares
SCHEIN PHARMACEUTICAL, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
January __, 1998
COWEN & COMPANY
BEAR, STEARNS & CO., INC.
SMITH BARNEY INC.
As Representatives of the several Underwriters
c/o Cowen & Company
Financial Square
New York, New York 10005
Dear Sirs:
1. Introductory. Schein Pharmaceutical, Inc., a Delaware corporation (the
------------
"Company"), and the selling stockholders named in Schedule B hereto (the
"Selling Stockholders") propose to sell, pursuant to the terms of this
Agreement, to the several underwriters named in Schedule A hereto (the
"Underwriters," or, each, an "Underwriter"), an aggregate of ________
shares of common stock, par value $.01 per share (the "Common Stock") of
the Company. The aggregate of ________ shares so proposed to be sold is
hereinafter referred to as the "Firm Stock". The Company and the Selling
Stockholders listed in Schedule B hereto also propose to sell to the
Underwriters, upon the terms and conditions set forth in Section 3 hereof,
up to an additional ________ shares of Common Stock (the "Optional Stock").
The Firm Stock and the Optional Stock are hereinafter collectively referred
to as the "Stock". Cowen & Company ("Cowen"), Bear, Stearns & Co. Inc. and
Smith Barney Inc. are acting as representatives of the several Underwriters
and in such capacity are hereinafter referred to as the "Representatives".
<PAGE>
2. Representations and Warranties of the Company and the Selling Stockholders.
--------------------------------------------------------------------------
(a) The Company represents and warrants to, and agrees with, the several
Underwriters that:
(i) A registration statement on Form S-1 (File No. 33-.) in the form
in which it became or becomes effective and also in such form as it
may be when any post-effective amendment thereto shall become
effective with respect to the Stock, including any pre-effective
prospectuses included as part of the registration statement as
originally filed or as part of any amendment or supplement thereto, or
filed pursuant to Rule 424 under the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations (the
"Rules and Regulations") of the Securities and Exchange Commission
(the "Commission") thereunder, copies of which have heretofore been
delivered to you, has been carefully prepared by the Company in
conformity with the requirements of the Securities Act and has been
filed with the Commission under the Securities Act. If it is
contemplated, at the time this Agreement is executed, that a post-
effective amendment to the registration statement will be filed and
must be declared effective before the offering of the Stock may
commence, the term "Registration Statement" as used in this Agreement
means the registration statement as amended by said post-effective
amendment. The term "Registration Statement" as used in this
Agreement shall also include any registration statement relating to
the Stock that is filed and declared effective pursuant to Rule 462(b)
under the Securities Act. The term "Prospectus" as used in this
Agreement means the prospectus in the form included in the
Registration Statement, or, (A) if the prospectus included in the
Registration Statement omits information in reliance on Rule 430A
under the Securities Act and such information is included in a
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act, the term "Prospectus" as used in this Agreement means
the prospectus in the form included in the Registration Statement as
supplemented by the addition of the Rule 430A information contained in
the prospectus filed with the Commission pursuant to Rule 424(b) and
(B) if prospectuses that meet the requirements of Section 10(a) of the
Securities Act are delivered pursuant to Rule 434 under the Securities
Act, then (i) the term "Prospectus" as used in this Agreement means
the "propectus effective upon completion" (as such term is defined in
Rule 434(g) under the Securities Act) as supplemented by (a) the
addition of Rule 430A information or other information contained in
the form of prospectus delivered pursuant to Rule 434(b)(2) under the
Securities Act or (b) the information contained in the term sheets
described in Rule 434(b)(3) under the Securities Act, and (ii) the
date of such prospectuses shall be deemed to be the date of the term
sheets. The term "Pre-effective Prospectus" as used in this Agreement
means the prospectus subject to completion in the form included in the
Registration Statement at the time of the initial filing of the
Registration Statement with the Commission, and as such prospectus
shall have been amended from time to time prior to the date of the
Prospectus.
(ii) The Commission has not issued or threatened to issue any order
preventing or suspending the use of any Pre-effective Prospectus, and,
at its date of issue, each Pre-effective Prospectus conformed in all
material respects with the requirements of the Securities Act and did
not include any untrue statement of a material fact or omit
2
<PAGE>
to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading; and, when the Registration Statement
becomes effective and at all times subsequent thereto up to and
including each of the Closing Dates (as hereinafter defined), the
Registration Statement and the Prospectus and any amendments or
supplements thereto contained and will contain all material statements
and information required to be included therein by the Securities Act
and conformed and will conform in all material respects to the
requirements of the Securities Act and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto,
included or will include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that the foregoing representations, warranties and agreements
shall not apply to information contained in or omitted from any Pre-
effective Prospectus or the Registration Statement or the Prospectus
or any such amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by or on
behalf of any Underwriter, directly or through you, or by any Selling
Stockholder, specifically for use in the preparation thereof; there is
no franchise, lease, contract, agreement or document or legal or
governmental proceeding required to be described in the Registration
Statement or Prospectus or to be filed as an exhibit to the
Registration Statement which is not described or filed therein as
required; and all descriptions of any such franchises, leases,
contracts, agreements or documents, of the Company's Certificate of
Incorporation and By-laws, and of laws, rules, regulations, orders,
judgments and decrees contained in the Registration Statement are
accurate and complete descriptions of such documents in all material
respects and fairly present the information required to be shown.
(iii) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as set
forth or contemplated in the Prospectus, neither the Company nor any
of its subsidiaries has incurred any liabilities or obligations,
direct or contingent, nor entered into any transactions not in the
ordinary course of business, and there has not been any material
adverse change, or any development involving a prospective material
adverse change, in or affecting the condition (financial or
otherwise), properties, business, management, prospects, net worth or
results of operations of the Company and its subsidiaries considered
as a whole, or any change in the capital stock, short-term or long-
term debt of the Company and its subsidiaries considered as a whole.
(iv) The consolidated financial statements, together with the related
notes and schedules, set forth in the Prospectus and elsewhere in the
Registration Statement fairly present, on the basis stated in the
Registration Statement, the consolidated financial condition, results
of operations and changes in financial condition of the
3
<PAGE>
Company and its consolidated subsidiaries at the respective dates or
for the respective periods therein specified. The financial
statements, together with the related notes and schedules, of Marsam
Pharmaceuticals Inc. (a subsidiary of the Company) ("Marsam") set
forth in the Prospectus and elsewhere in the Registration Statement
fairly present, on the basis stated in the Registration Statement, the
financial condition, results of operations and changes in financial
condition of Marsam and its consolidated subsidiary at the respective
dates or for the respective periods therein specified. Such statements
of the Company and Marsam and related notes and schedules have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis except as may be set forth in the
Prospectus. The selected financial and statistical data set forth in
the Prospectus under the captions "Prospectus Summary - Summary
Consolidated Financial Data," "Capitalization," "Dilution," "Selected
Consolidated Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Management - Executive Compensation," "Certain Transactions,"
"Principal and Selling Stockholders" and "Shares Eligible for Future
Sale" fairly present, on the basis stated in the Registration
Statement, the information set forth therein. The unaudited
consolidated interim financial statements included in the Registration
Statement and the Prospectus present fairly the consolidated financial
condition, results of operations and changes in financial condition of
the Company as of the dates or for the periods indicated and have been
prepared on a basis consistent with the respective audited
consolidated financial statements included in the Registration
Statement and the Prospectus.
(v) BDO Seidman LLP, who have expressed their opinions on the audited
financial statements of the Company included in the Registration
Statement and the Prospectus, are independent public accountants as
required by the Securities Act and the Rules and Regulations. Coopers
& Lybrand, who have expressed their opinions on the audited financial
statements of Marsam included in the Registration Statement and the
Prospectus, are independent public accountants as required by the
Securities Act and the Rules and Regulations.
(vi) The Company and each of its subsidiaries have been duly organized
and are validly existing and in good standing as corporations under
the laws of their respective jurisdictions of organization, with power
and authority (corporate and other) to own or lease their properties
and to conduct their businesses as described in the Prospectus; each
of the Company and its subsidiaries is in possession of and operating
in compliance with all franchises, grants, authorizations, licenses,
permits, easements, consents, certificates and orders required for the
conduct of its business, all of which are valid and in full force and
effect; and the Company is and each of such subsidiaries are duly
qualified to do business and in good standing as foreign corporations
in all other jurisdictions where their ownership or leasing of
properties or the conduct of their businesses requires such
qualification. The Company and each of its subsidiaries have all
requisite power and authority, and all necessary consents, approvals,
authorizations, orders, registrations, qualifications, licenses and
permits of and from all public regulatory or governmental agencies and
bodies to
4
<PAGE>
own, lease and operate their properties and conduct their business as
now being conducted and as described in the Registration Statement and
the Prospectus, and no such consent, approval, authorization, order,
registration, qualification, license or permit contains a materially
burdensome restriction not adequately disclosed in the Registration
Statement and the Prospectus. The Company owns or controls, directly
or indirectly, the following corporations, associations or other
entities, each of which is wholly-owned by the Company: Danbury
Pharmacal Inc., Steris Laboratories, Inc., Schein Pharmaceutical P.A.,
Inc., Schein Pharmaceutical Service Co., Schein Pharmaceutical
International, Inc., Ranbaxy Schein Pharma L.L.C., Schein Bayer
Pharmaceutical Services, Inc., Marsam Pharmaceuticals Inc. and Schein
Bayer Pharmaceuticals Australia, Ltd.
(vii) The Company's authorized and outstanding capital stock is on the
date hereof, and will be on the Closing Date, as set forth under the
heading "Capitalization" in the Prospectus; the outstanding shares of
Common Stock of the Company conform to the description thereof in the
Prospectus and have been duly authorized and validly issued and are
fully paid and nonassessable and have been issued in compliance with
all federal and state securities laws and were not issued in violation
of or, except as disclosed in the Prospectus, subject to any
preemptive rights or similar rights to subscribe for or purchase
securities and conform to the description thereof contained in the
Prospectus. Except as disclosed in and or contemplated by the
Prospectus and the financial statements of the Company and related
notes thereto included in the Prospectus, the Company does not have
outstanding any options or warrants to purchase, or any preemptive
rights or other rights to subscribe for or to purchase any securities
or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations, except for options
granted subsequent to the date of information provided in the
Prospectus pursuant to the Company's employee and stock option plans
as disclosed in the Prospectus. The description of the Company's
stock option and other stock plans or arrangements, and the options or
other rights granted or exercised thereunder, as set forth in the
Prospectus, accurately and fairly presents the information required to
be shown with respect to such plans, arrangements, options and rights.
All outstanding shares of capital stock of each subsidiary have been
duly authorized and validly issued, and are fully paid and
nonassessable and (except for directors' qualifying shares) are owned
directly by the Company or by another wholly owned subsidiary of the
Company free and clear of any liens, encumbrances, equities or claims
or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into shares of capital
stock or ownership interests in any of the Company's subsidiaries are
outstanding.
5
<PAGE>
(viii) The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued, fully paid and nonassessable and free of
any preemptive or similar rights and will not be subject to any
restrictions upon voting or transfer other than as described in the
Prospectus. The Stock conforms to the description thereof contained
in the Prospectus, and such description conforms to the rights set
forth in the instruments defining the same.
(ix) Except as set forth in the Prospectus, there are no legal or
governmental actions, suits, proceedings or claims pending to which
the Company or any of its subsidiaries or affiliates is a party or of
which any property of the Company or any subsidiary or affiliate is
subject, which, if determined adversely to the Company or any such
subsidiary or affiliate, might individually or in the aggregate (i)
prevent or adversely affect the transactions contemplated by this
Agreement, (ii) suspend the effectiveness of the Registration
Statement, (iii) prevent or suspend the use of the Pre-effective
Prospectus in any jurisdiction or (iv) result in a material adverse
change in the condition (financial or otherwise), properties,
business, management, prospects, net worth or results of operations of
the Company and its subsidiaries considered as a whole and there is no
valid basis for any such legal or governmental proceeding; and to the
Company's knowledge no such proceedings are threatened or contemplated
against the Company or any subsidiary or affiliate by governmental
authorities or others. The Company is not a party nor subject to the
provisions of any material injunction, judgment, decree or order of
any court, regulatory body or other governmental agency or body. The
description of the Company's litigation under the heading "Legal
Proceedings" and regulatory proceedings under the heading "Risk
Factors--Pending Regulatory Matters" in the Prospectus is true and
correct and complies with the Rules and Regulations.
(x) The statements set forth in the Prospectus under the caption
"Description of Capital Stock," insofar as they purport to constitute
a summary of the terms of the capital stock, or under the captions
"Management," "Certain Transactions," "Principal and Selling
Stockholders" and "Shares Eligible for Future Sale," insofar as they
purport to describe the provisions of the documents referred to
therein, are accurate and complete in all material respects.
(xi) The execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated will not conflict
with or result in a breach or violation of any of the terms or
provisions of or constitute a default under any indenture, mortgage,
note, deed of trust, loan agreement, lease or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which it or any of its properties is or may be bound, the
Certificate of Incorporation, By-laws or other organizational
documents of the Company or any of
6
<PAGE>
its subsidiaries, or any law, order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or
any of its subsidiaries or any of their properties and do not and will
not result in the creation of any lien or the like against such
properties.
(xii) Neither the Company nor any of its subsidiaries is, or with
notice or lapse of time or both will be, in violation of or in default
under its Certificate of Incorporation or By-laws or other
organizational documents or in default in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, note, deed of trust,
loan agreement, lease or other agreement or instrument to which it is
a party or by which it or any of its properties may be bound.
(xiii) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery
and performance of this Agreement by the Company and the consummation
of the transactions contemplated hereby, except such as may be
required by the National Association of Securities Dealers, Inc. (the
"NASD") or under the Securities Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act") or the securities or "Blue Sky"
laws of any jurisdiction in connection with the purchase and
distribution of the Stock by the Underwriters.
(xiv) The Company has the full corporate power and authority to enter
into this Agreement and to perform its obligations hereunder
(including to issue, sell and deliver the Stock), and this Agreement
has been duly and validly authorized, executed and delivered by the
Company and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except
to the extent that rights to indemnity and contribution hereunder may
be limited by federal or state securities laws or the public policy
underlying such laws.
(xv) The Company and its subsidiaries are in all material respects in
compliance with, and conduct their businesses in conformity with all
applicable federal, state, local and foreign laws, rules and
regulations or any court or governmental agency or body; to the
knowledge of the Company, otherwise than as set forth in the
Registration Statement and the Prospectus, no prospective change in
any of such federal or state laws, rules or regulations has been
adopted which, when made effective, would have a material adverse
effect on the operations of the Company and its subsidiaries. In the
ordinary course of business, employees of the Company conduct periodic
reviews of the effect of Environmental Laws (as defined below) on the
business operations and properties of the Company and its
subsidiaries, in the ordinary course of which they seek to identify
and evaluate associated costs and liabilities. Except as disclosed in
the Registration Statement, the Company and its subsidiaries are in
compliance with all applicable existing federal, state, local and
7
<PAGE>
foreign laws and regulations relating to the protection of human
health or the environment or imposing liability or requiring standards
of conduct concerning any Hazardous Materials ("Environmental Laws"),
except for such instances of noncompliance which, either singly or in
the aggregate, would not have a material adverse effect. The term
"Hazardous Material" means (i) any "hazardous substance" as defined by
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, (ii) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act, as amended, (iii) any
petroleum or petroleum product, (iv) any polychlorinated biphenyl and
(v) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material, waste or substance regulated under or within the
meaning of any other Environment Law.
(xvi) The Company and its subsidiaries have filed all necessary
federal, state, local and foreign income, payroll, franchise and other
tax returns and have paid all taxes shown as due thereon or with
respect to any of their properties, and there is no tax deficiency
that has been, or to the knowledge of the Company is likely to be,
asserted against the Company or any of its subsidiaries or any of
their respective properties or assets that would adversely affect the
financial position, business or operations of the Company and its
subsidiaries.
(xvii) Except as disclosed in the Registration Statement and
Prospectus no person or entity has the right to require registration
of shares of Common Stock or other securities of the Company because
of the filing or effectiveness of the Registration Statement or
otherwise, except for persons and entities who have expressly waived
such right or who have been given proper notice and have failed to
exercise such right within the time or times required under the terms
and conditions of such right.
(xviii) Neither the Company nor any of its officers, directors or
affiliates has taken or will take, directly or indirectly, any action
designed or intended to stabilize or manipulate the price of any
security of the Company, or which caused or resulted in, or which
might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of the
Company.
(xix) The Company has provided you with all financial statements since
[September 30, 1997] to the date hereof[, including financial
statements for the months of October, November and December of 1997,
that are available to the officers of the Company].
(xx) The Company and its subsidiaries own or possess the right to use
all patents, trademarks (including "INFeD", "Ferrlecit" and "Unipine
XL"), trademark registrations, service marks, service mark
registrations, trade names, copyrights, licenses, inventions, trade
secrets, know-how and rights described in the Prospectus as being
owned by them or any of them or necessary for the conduct of their
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respective businesses, and, except as disclosed in the Prospectus, the
Company is not aware of any claim to the contrary or any challenge by
any other person to the rights of the Company and its subsidiaries
with respect to the foregoing. The Company's business as now
conducted and as proposed to be conducted does not and will not
infringe or conflict with in any material respect patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses or
other intellectual property or franchise right of any person. Except
as described in the Prospectus, no claim has been made against the
Company alleging the infringement by the Company of any patent,
trademark, service mark, trade name, copyright, trade secret, license
or other intellectual property right or franchise right of any person.
(xxi) The Company and its subsidiaries have performed all material
obligations required to be performed by them under all contracts
required by Item 601(b)(10) of Regulation S-K under the Securities Act
to be filed as exhibits to the Registration Statement, and neither the
Company nor any of its subsidiaries nor any other party to such
contract is in default under or in breach of any such obligations.
Neither the Company nor any of its subsidiaries has received any
notice of such default or breach.
(xxii) Neither the Company nor any of its subsidiaries is involved in
any labor dispute nor is any such dispute threatened. The Company is
not aware that (A) any executive, key employee or significant group of
employees of the Company or any subsidiary plans to terminate
employment with the Company or any such subsidiary or (B) any such
executive or key employee is subject to any noncompete, nondisclosure,
confidentiality, employment, consulting or similar agreement that
would be violated by the present or proposed business activities of
the Company and its subsidiaries. Neither the Company nor any
subsidiary has or expects to have any liability for any prohibited
transaction or funding deficiency or any complete or partial
withdrawal liability with respect to any pension, profit sharing or
other plan which is subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), to which the Company or any
subsidiary makes or ever has made a contribution and in which any
employee of the Company or any subsidiary is or has ever been a
participant. With respect to such plans, the Company and each
subsidiary are in compliance in all material respects with all
applicable provisions of ERISA.
(xxiii) The Company has obtained the written agreement described in
Section 8(l) of this Agreement from each of its officers, directors
and holders of Common Stock listed on Schedule C hereto.
(xxiv) The Company and its subsidiaries have, and the Company and its
subsidiaries as of the Closing Date will have, good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned or proposed
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to be owned by them which is material to the business of the Company
or of its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described the Prospectus
or such as would not have a material adverse effect on the Company and
its subsidiaries considered as a whole; and any real property and
buildings held under lease by the Company and its subsidiaries or
proposed to be held after giving effect to the transactions described
in the Prospectus are, or will be as of each of the Closing Dates,
held by them under valid, subsisting and enforceable leases with such
exceptions as would not have a material adverse effect on the Company
and its subsidiaries considered as a whole, in each case except as
described in or contemplated by the Prospectus.
(xxv) The Company and its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and
in such amounts as are customary in the businesses in which they are
engaged or propose to engage after giving effect to the transactions
described in the Prospectus; and neither the Company nor any
subsidiary of the Company have any reason to believe that it will not
be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue their business at a cost that would
not materially and adversely affect the condition, financial or
otherwise, or the earnings, business or operations of the Company and
its subsidiaries considered as a whole, except as described in or
contemplated by the Prospectus.
(xxvi) Other than as contemplated by this Agreement, there is no
broker, finder or other party that is entitled to receive from the
Company any brokerage or finder's fee or other fee or commission as a
result of any of the transactions contemplated by this Agreement.
(xxvii) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xxviii) To the Company's knowledge, neither the Company nor any of
its subsidiaries nor any employee or agent of the Company or any of
its subsidiaries has made any payment of funds of the Company or any
of its subsidiaries or received or retained any funds in violation of
any law, rule or regulation, which payment, receipt or retention of
funds is of a character required to be disclosed in the Prospectus.
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(xxix) Neither the Company nor any of its subsidiaries is or, after
application of the net proceeds of this offering as described under
the caption "Use of Proceeds" in the Prospectus, will become an
"investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of
1940, as amended. The Company intends to conduct its affairs in a
manner such that it will not become an entity required to register as
an "investment company" subject to regulation under the Investment
Company Act.
(xxx) The Common Stock has been approved for quotation and trading on
the New York Stock Exchange, subject to official notice of issuance.
(xxxi) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company as to the
matters covered thereby.
(b) Each Selling Stockholder represents and warrants to, and agrees with,
the several Underwriters that such Selling Stockholder:
(i) Now has, and on the Closing Date will have, valid and marketable
title to the Stock to be sold by such Selling Stockholder, free and
clear of any lien, claim, security interest or other encumbrance,
including, without limitation, any restriction on transfer, and has
full right, power and authority to enter into this Agreement, the
Power of Attorney and the Custody Agreement (each as hereinafter
defined), and, to the extent such Selling Stockholder is a
corporation, has been duly organized and is validly existing and in
good standing as a corporation under the laws of its jurisdiction of
organization.
(ii) Now has, and on each of the Closing Dates will have, upon
delivery of and payment for each share of Stock hereunder, full right,
power and authority, any approval required by law to sell, transfer,
assign and deliver the Stock being sold by such Selling Stockholder
hereunder, and each of the several Underwriters will acquire valid and
marketable title to all of the Stock being sold to the Underwriters by
such Selling Stockholder, free and clear of any liens, encumbrances,
equities claims, restrictions on transfer or other defects whatsoever.
(iii) For a period of 180 days after the date of this Agreement,
without the consent of Cowen, such Selling Stockholder will not offer
to sell, sell, contract to sell or otherwise dispose of any Stock or
securities convertible into or exchangeable for Stock, including,
without limitation Stock which may be deemed to be beneficially owned
by such Selling Stockholder in accordance with the Rules and
Regulations, except for the Stock being sold hereunder.
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(iv) Has duly executed and delivered a power of attorney, in
substantially the form heretofore delivered by the Representatives
(the "Power of Attorney"), appointing _________, as attorney-in-fact
(the "Attorney-in-fact") with authority to execute and deliver this
Agreement on behalf of such Selling Stockholder, to authorize the
delivery of the shares of Stock to be sold by such Selling Stockholder
hereunder and otherwise to act on behalf of such Selling Stockholder
in connection with the transactions contemplated by this Agreement.
(v) Has duly executed and delivered a custody agreement, in
substantially the form heretofore delivered by the Representatives
(the "Custody Agreement"), with ________ as custodian (the
"Custodian"), pursuant to which certificates in negotiable form for
the shares of Stock to be sold by such Selling Stockholder hereunder
have been placed in custody for delivery under this Agreement.
(vi) Has, by execution and delivery of each of this Agreement, the
Power of Attorney and the Custody Agreement, created valid and binding
obligations of such Selling Stockholder, enforceable against such
Selling Stockholder in accordance with its terms, except to the extent
that rights to indemnity hereunder may be limited by federal or state
securities laws or the public policy underlying such laws.
(vii) The performance of this Agreement, the Custody Agreement and the
Power of Attorney, and the consummation of the transactions
contemplated hereby and thereby will not result in a breach or
violation by such Selling Stockholder of any of the terms or
provisions of, or constitute a default by such Selling Stockholder
under, any indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other agreement
or instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder or any of its properties is bound, or any
judgment of any court or governmental agency or body applicable to
such Selling Stockholder or any of its properties, or to such Selling
Stockholder's knowledge, any statute, decree, order, rule or
regulation of any court or governmental agency or body applicable to
such Selling Stockholder or any of its properties.
Each Selling Stockholder agrees that the shares of Stock represented by the
certificates held in custody under the Custody Agreement are for the
benefit of and coupled with and subject to the interests of the
Underwriters, the other Selling Stockholders and the Company hereunder, and
that the arrangement for such custody and the appointment of the Attorneys-
in-fact are irrevocable; that the obligations of such Selling Stockholder
hereunder shall not be terminated by operation of law, whether by the death
or incapacity, liquidation or distribution of such Selling Stockholder, or
any other event, that if such Selling Stockholder should die or become
incapacitated or is liquidated or dissolved or any other event occurs,
before the delivery of the Stock hereunder, certificates for the Stock to
be sold by such Selling Stockholder shall be delivered on behalf of such
Selling Stockholder in accordance with the terms and conditions of this
Agreement and the Custody Agreement, and
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<PAGE>
action taken by the Attorneys-in-fact or any of them under the Power of
Attorney shall be as valid as if such death, incapacity, liquidation or
dissolution or other event had not occurred, whether or not the Custodian,
the Attorneys-in-fact or any of them shall have notice of such death,
incapacity, liquidation or dissolution or other event.
3. Purchase by, and Sale and Delivery to, Underwriters--Closing Dates. The
------------------------------------------------------------------
Company and the Selling Stockholders agree, severally and not jointly, to
sell to the Underwriters the Firm Stock, with the number of shares to be
sold by the Company and each Selling Stockholder being the number of Stock
set opposite his, her or its name in Schedule B; and on the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Underwriters
agree, severally and not jointly, to purchase the Firm Stock from the
Company and the Selling Stockholders, the number of shares of Firm Stock to
be purchased by each Underwriter being set opposite its name in Schedule A,
subject to adjustment in accordance with Section 12 hereof. The number of
shares of Stock to be purchased by each Underwriter from each Selling
Stockholder hereunder shall bear the same proportion to the total number of
shares of Stock to be purchased by such Underwriter hereunder as the number
of shares of stock being sold by each Selling Stockholder bears to the
total number of shares of Stock being sold by all Selling Stockholders,
subject to adjustment by the Representatives to eliminate fractions.
The purchase price per share to be paid by the Underwriters to the Company
and the Selling Stockholders will be the price per share set forth in the
table on the cover page of the Prospectus under the heading "Proceeds to
the Company" (the "Purchase Price").
The Company and the Selling Stockholders will deliver the Firm Stock to the
Representatives for the respective accounts of the several Underwriters (in
the form of definitive certificates, issued in such names and in such
denominations as the Representatives may direct by notice in writing to the
Company and the Selling Stockholders given at or prior to 12:00 Noon, New
York Time, on the second full business day preceding the First Closing Date
(as defined below) or, if no such direction is received, in the names of
the respective Underwriters or in such other names as Cowen may designate
(solely for the purpose of administrative convenience) and in such
denominations as Cowen may determine, against payment of the aggregate
Purchase Price therefor by certified or official bank check or checks in
immediately available funds (same day funds), payable to the order of the
Company in the case of the Firm Stock being sold by the Company and _______
as Custodian for each Selling Stockholder in the case of the Firm Stock
being sold by such Selling Stockholder, all at the offices of Brown & Wood
LLP, One World Trade Center, New York, New York 10048. The time and date
of the delivery and closing shall be at _____ A.M., New York Time, on
_______________, 1998, in accordance with Rule 15c6-1 of the Exchange Act.
The time and date of such payment and delivery are herein referred to as
the "First Closing Date". The First Closing Date and the location of
delivery of, and the form of payment for, the Firm Stock may be varied by
agreement between among the Company, the
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<PAGE>
Selling Stockholders and Cowen. The First Closing Date may be postponed
pursuant to the provisions of Section 12.
The Company and the Selling Stockholders shall make the certificates for
the Stock available to the Representatives for examination on behalf of the
Underwriters not later than 10:00 A.M., New York Time, on the business day
preceding the First Closing Date at the offices of Cowen & Company,
Financial Square, New York, New York 10005.
It is understood that Cowen or Bear, Stearns & Co. Inc. or Smith Barney
Inc., individually and not as Representatives of the several Underwriters,
may (but shall not be obligated to) make payment to the Company or to the
Selling Stockholders on behalf of any Underwriter or Underwriters, for the
Stock to be purchased by such Underwriter or Underwriters. Any such payment
by Cowen or Bear, Stearns & Co. Inc. or Smith Barney Inc. shall not relieve
such Underwriter or Underwriters from any of its or their other obligations
hereunder.
The several Underwriters agree to make an initial public offering of the
Firm Stock at the initial public offering price as soon after the
effectiveness of the Registration Statement as in their judgment is
advisable. The Representatives shall promptly advise the Company and the
Selling Stockholders of the making of the initial public offering.
For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the Prospectus,
the Company and each of the Selling Stockholders hereby grants to the
Underwriters an option to purchase, severally and not jointly, up to the
aggregate number of shares of Optional Stock set forth opposite the
Company's and each such Selling Stockholder's respective names on Schedule
B hereto, for an aggregate of up to ______ shares. The price per share to
be paid for the Optional Stock shall be the Purchase Price. The option
granted hereby may be exercised as to all or any part of the Optional Stock
at any time, and from time to time, not more than thirty (30) days
subsequent to the effective date of this Agreement. No Optional Stock
shall be sold and delivered unless the Firm Stock previously has been, or
simultaneously is, sold and delivered. The right to purchase the Optional
Stock or any portion thereof may be surrendered and terminated at any time
upon notice by the Underwriters to the Company and the Selling
Stockholders.
The option granted hereby may be exercised by the Underwriters by giving
written notice from Cowen to the Company and the Selling Stockholders
setting forth the number of shares of the Optional Stock to be purchased by
them and the date and time for delivery of and payment for the Optional
Stock. Each date and time for delivery of and payment for the Optional
Stock (which may be the First Closing Date, but not earlier) is herein
called the "Option Closing Date" and shall in no event be earlier than two
(2) business days nor later than ten (10) business days after written
notice is given. (The Option Closing Date and the
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First Closing Date are herein called the "Closing Dates".) [All purchases
of Optional Stock from the Company and the Selling Stockholders shall be
made on a pro rata basis.] Optional Stock shall be purchased for the
account of each Underwriter in the same proportion as the number of shares
of Firm Stock set forth opposite such Underwriter's name in Schedule B
hereto bears to the total number of shares of Firm Stock (subject to
adjustment by the Underwriters to eliminate odd lots). Upon exercise of the
option by the Underwriters, the Company and the Selling Stockholders agree
to sell to the Underwriters the number of shares of Optional Stock set
forth in the written notice of exercise and the Underwriters agree,
severally and not jointly and subject to the terms and conditions herein
set forth, to purchase the number of such shares determined as aforesaid.
The Company and the Selling Stockholders will deliver the Optional Stock to
the Underwriters (in the form of definitive certificates, issued in such
names and in such denominations as the Representatives may direct by notice
in writing to the Company and the Selling Stockholders given at or prior to
12:00 Noon, New York Time, on the second full business day preceding the
Option Closing Date or, if no such direction is received, in the names of
the respective Underwriters or in such other names as Cowen may designate
(solely for the purpose of administrative convenience) and in such
denominations as Cowen may determine, against payment of the aggregate
Purchase Price therefor by certified or official bank check or checks in
Clearing House funds (next day funds), payable to the order of the Company
or to . as Custodian for the Selling Stockholders all at the offices of
Brown & Wood LLP, One World Trade Center, New York, New York 10048. The
Company and the Selling Stockholders shall make the certificates for the
Optional Stock available to the Underwriters for examination not later than
10:00 A.M., New York Time, on the business day preceding the Option Closing
Date at the offices of Cowen & Company, Financial Square, New York, New
York 10005. The Option Closing Date and the location of delivery of, and
the form of payment for, the Option Stock may be varied by agreement
[between/among] the Company [, the Selling Stockholders] and Cowen. The
Option Closing Date may be postponed pursuant to the provisions of Section
12.
4. Covenants and Agreements of the Company. The Company covenants and agrees
---------------------------------------
with the several Underwriters that:
(a) The Company will (i) if the Company and the Representatives have
determined not to proceed pursuant to Rule 430A of the of the Rules and
Regulations, use its best efforts to cause the Registration Statement to
become effective as soon as practicable after the execution of this
Agreement, (ii) if the Company and the Representatives have determined to
proceed pursuant to Rule 430A of the Rules and Regulations, use its best
efforts to comply with the provisions of and make all requisite filings
with the Commission pursuant to Rule 430A and Rule 424 of the Rules and
Regulations and (iii) if the Company and the Representatives have
determined to deliver Prospectuses pursuant to Rule 434 of the Rules and
Regulations, to use its best efforts to comply with all the applicable
provisions thereof. The Company will advise the Representatives promptly as
to the time at which the
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Registration Statement becomes effective, will advise the Representatives
promptly of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of any
proceedings for that purpose, and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible the
lifting thereof, if issued. The Company will advise the Representatives
promptly of the receipt of any comments of the Commission or any request by
the Commission for any amendment of or supplement to the Registration
Statement or the Prospectus or for additional information and will not at
any time file any amendment to the Registration Statement or supplement to
the Prospectus which shall not previously have been submitted to the
Representatives a reasonable time prior to the proposed filing thereof or
to which the Representatives shall reasonably object in writing or which is
not in compliance with the Securities Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly upon
the request of the Representatives, any amendments or supplements to the
Registration Statement or the Prospectus which in the opinion of the
Representatives may be necessary to enable the several Underwriters to
continue the distribution of the Stock and will use its best efforts to
cause the same to become effective as promptly as possible.
(c) If at any time after the effective date of the Registration Statement
when a prospectus relating to the Stock is required to be delivered under
the Securities Act any event relating to or affecting the Company or any of
its subsidiaries occurs as a result of which the Prospectus or any other
prospectus as then in effect would include an untrue statement of a
material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Securities Act, the Company will promptly
notify the Representatives thereof and will prepare an amended or
supplemented prospectus which will correct such statement or omission; and
in case any Underwriter is required to deliver a prospectus relating to the
Stock nine (9) months or more after the effective date of the Registration
Statement, the Company upon the request of the Representatives and at the
expense of such Underwriter will prepare promptly such prospectus or
prospectuses as may be necessary to permit compliance with the requirements
of Section 10(a)(3) of the Securities Act.
(d) The Company will deliver to the Representatives, at or before the
Closing Date, signed copies of the Registration Statement, as originally
filed with the Commission, and all amendments thereto including all
financial statements and exhibits thereto, and will deliver to the
Representatives such number of copies of the Registration Statement,
including such financial statements but without exhibits, and all
amendments thereto, as the Representatives may reasonably request. The
Company will deliver or mail to or upon the order of the Representatives,
from time to time until the effective date of the Registration Statement,
as many copies of the Pre-effective Prospectus as the Representatives may
reasonably request. The Company will deliver or mail to or upon the order
of the Representatives on the date of
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<PAGE>
the initial public offering, and thereafter from time to time during the
period when delivery of a prospectus relating to the Stock is required
under the Securities Act, as many copies of the Prospectus, in final form
or as thereafter amended or supplemented as the Representatives may
reasonably request; provided, however, that the expense of the preparation
and delivery of any prospectus required for use nine (9) months or more
after the effective date of the Registration Statement shall be borne by
the Underwriters required to deliver such prospectus.
(e) The Company will make generally available to its stockholders as soon
as practicable, but not later than fifteen (15) months after the effective
date of the Registration Statement, an earning statement which will be in
reasonable detail (but which need not be audited) and which will comply
with Section 11(a) of the Securities Act, covering a period of at least
twelve (12) months beginning after the "effective date" (as defined in Rule
158 under the Securities Act) of the Registration Statement.
(f) The Company will cooperate with the Representatives to enable the Stock
to be registered or qualified for offering and sale by the Underwriters and
by dealers under the securities laws of such jurisdictions as the
Representatives may designate and at the request of the Representatives
will make such applications and furnish such consents to service of process
or other documents as may be required of it as the issuer of the Stock for
that purpose; provided, however, that the Company shall not be required to
qualify to do business or to file a general consent (other than that
arising out of the offering or sale of the Stock) to service of process in
any such jurisdiction where it is not now so subject. The Company will,
from time to time, prepare and file such statements and reports as are or
may be required of it as the issuer of the Stock to continue such
qualifications in effect for so long a period as the Representatives may
reasonably request for the distribution of the Stock. The Company will
advise the Representatives promptly after the Company becomes aware of the
suspension of the qualifications or registration of (or any such exception
relating to) the Common Stock of the Company for offering, sale or trading
in any jurisdiction or of any initiation or threat of any proceeding for
any such purpose, and in the event of the issuance of any orders suspending
such qualifications, registration or exception, the Company will, with the
cooperation of the Representatives use its best efforts to obtain the
withdrawal thereof.
(g) The Company will furnish to its stockholders annual reports containing
financial statements certified by independent public accountants and with
quarterly summary financial information in reasonable detail which may be
unaudited. During the period of five (5) years from the date hereof, the
Company will deliver to the Representatives and, upon request, to each of
the Underwriters: (i) as soon as practicable after the end of each fiscal
year, copies of each annual report of the Company containing the balance
sheet of the Company as of the close of such fiscal year and statements of
income, stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public accountants, and each
other report furnished by the Company to its stockholders; (ii) copies
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<PAGE>
of any other reports (financial or other) which the Company shall publish
or otherwise make available to any of its stockholders as such; (iii) as
soon as practicable after the filing thereof, each proxy statement, Annual
Report on Form 10-K, Quarterly Report on Form 10-Q, Report on Form 8-K or
other report or financial statement filed by the Company with the
Commission, or the NASD or any securities exchange; and (iv) from time to
time such other information concerning the Company as you may request. So
long as the Company has active subsidiaries, such financial statements will
be on a consolidated basis to the extent the accounts of the Company and
its subsidiaries are consolidated in reports furnished to its stockholders
generally. Separate financial statements shall be furnished for all
subsidiaries whose accounts are not consolidated but which at the time are
significant subsidiaries as defined in the Rules and Regulations.
(h) The Company will use its best efforts to maintain the listing of the
Stock on the New York Stock Exchange.
(i) The Company will maintain a transfer agent and registrar for its Common
Stock.
(j) Prior to filing its quarterly statements on Form 10-Q, the Company will
have its independent auditors perform a limited quarterly review of its
quarterly numbers.
(k) The Company will not offer, sell, assign, transfer, encumber, contract
to sell, grant an option to purchase or otherwise dispose of any shares of
Common Stock or securities convertible into or exercisable or exchangeable
for Common Stock (including, without limitation, Common Stock of the
Company which may be deemed to be beneficially owned by the Company in
accordance with the Rules and Regulations) during the 180 days following
the date on which the price of the Common Stock to be purchased by the
Underwriters is set, other than the Company's sale of Common Stock
hereunder and the Company's issuance of Common Stock upon the exercise of
warrants and stock options which are presently outstanding and described in
the Prospectus.
(l) Prior to filing with the Commission any reports on Form SR pursuant to
Rule 463 of Rules and Regulations, the Company will furnish a copy thereof
to the counsel for the Underwriters and receive and consider its comments
thereon, and will deliver promptly to the Representatives a signed copy of
each report on Form SR filed by it with the Commission.
(m) The Company will apply the net proceeds from the sale of the Stock as
set forth in the description under "Use of Proceeds" in the Prospectus,
which description complies in all respects with the requirements of Item
504 of Regulation S-K.
(n) The Company will supply you with copies of all correspondence to and
from, and all documents issued to and by, the Commission in connection with
the registration of the Stock under the Securities Act.
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(o) Prior to each of the Closing Dates the Company will furnish to you, as
soon as they have been prepared, copies of any unaudited interim
consolidated financial statements of the Company and its subsidiaries for
any periods subsequent to the periods covered by the financial statements
appearing in the Registration Statement and the Prospectus.
(p) Prior to each of the Closing Dates the Company will issue no press
release or other communications directly or indirectly and hold no press
conference with respect to the Company or any of its subsidiaries, the
financial condition, results of operations, business, prospects, assets or
liabilities of any of them, or the offering of the Stock, without your
prior written consent. For a period of twelve (12) months following the
first Closing Date, the Company will use its best efforts to provide to you
copies of each press release or other public communications with respect to
the financial condition, results of operations, business, prospects, assets
or liabilities of the Company at least twenty-four (24) hours prior to the
public issuance thereof or such longer advance period as may reasonably be
practicable.
5. Payment of Expenses. (a) The Company will pay (directly or by
-------------------
reimbursement) all costs, fees and expenses incurred in connection with
expenses incident to the performance of the obligations of the Company and
of the Selling Stockholders under this Agreement and in connection with
the transactions contemplated hereby, including but not limited to (i) all
expenses and taxes incident to the issuance and delivery of the Stock to
the Representatives; (ii) all expenses incident to the registration of the
Stock under the Securities Act; (iii) the costs of preparing stock
certificates (including printing and engraving costs); (iv) all fees and
expenses of the registrar and transfer agent of the Stock; (v) all
necessary issue, transfer and other stamp taxes in connection with the
issuance and sale of the Stock to the Underwriters; (vi) fees and expenses
of the Company's counsel and the Company's independent accountants; (vii)
all costs and expenses incurred in connection with the preparation,
printing filing, shipping and distribution of the Registration Statement,
each Pre-effective Prospectus and the Prospectus (including all exhibits
and financial statements) and all amendments and supplements provided for
herein, the Selling Stockholders' Powers of Attorney, the Custody
Agreement, the "Agreement Among Underwriters" between the Representatives
and the Underwriters, the Master Selected Dealers' Agreement, the
Underwriters' Questionnaire and the Blue Sky memoranda (including related
fees and expenses of counsel to the Underwriters) and this Agreement;
(viii) all filing fees, attorneys' fees and expenses incurred by the
Company or the Underwriters in connection with exemptions from the
qualifying or registering (or obtaining qualification or registration of)
all or any part of the Stock for offer and sale and determination of its
eligibility for investment under the Blue Sky or other securities laws of
such jurisdictions as the Representatives may designate; (ix) fees and
expenses of counsel to the Underwriters; (x) all fees and expenses paid or
incurred in connection with filings made with the NASD; and (xi) all other
costs and expenses incident to the performance of their obligations
hereunder which are not otherwise specifically provided for in this
Section.
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(b) Each Selling Stockholder will pay (directly or by reimbursement) all
fees and expenses incident to the performance of such Selling Stockholder's
obligations under this Agreement which are not otherwise specifically
provided for herein, including but not limited to any fees and expenses of
counsel for such Selling Stockholder, such Selling Stockholder's pro rata
share of fees and expenses of the Attorneys-in-fact and the Custodian and
all expenses and taxes incident to the sale and delivery of the Stock to be
sold by such Selling Stockholder to the Underwriters hereunder.
(c) In addition to their other obligations under Section 6(a) hereof, the
Company and each Selling Stockholder jointly and severally agree that, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon (i) any statement
or omission or any alleged statement or omission, (ii) any act or failure
to act or any alleged act or failure to act or (iii) any breach or
inaccuracy in their representations and warranties, they will reimburse
each Underwriter on a quarterly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and
enforceability of the Company's and each Selling Stockholder's obligation
to reimburse each Underwriter for such expenses and the possibility that
such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, each Underwriter shall promptly
return it to the Company and each Selling Stockholder, as the case may be,
together with interest, compounded daily, determined on the basis of the
prime rate (or other commercial lending rate for borrowers of the highest
credit standing) announced from time to time by _______, New York, New York
(the "Prime Rate"). Any such interim reimbursement payments which are not
made to an Underwriter in a timely manner as provided below shall bear
interest at the Prime Rate from the due date for such reimbursement. This
expense reimbursement agreement will be in addition to any other liability
which the Company or any Selling Stockholder may otherwise have. The
request for reimbursement will be sent to the Company with a copy to each
Selling Stockholder. In the event that the Company fails to make such
reimbursement payment within thirty (30) days of the reimbursement request,
the Representatives shall notify the Selling Stockholders of their
obligation to make such reimbursement payments within fifteen (15) days;
provided, however, that each Selling Stockholder shall be required to
advance at such time only its pro rata portion of the reimbursement
payment. To the extent that any Selling Stockholder fails to pay its pro
rata portion in timely response to the Underwriters' request, the other
Selling Stockholders shall be jointly and severally liable for such
reimbursement payment and each shall render such payment to the
Representatives within fifteen (15) days of written demand therefor by the
Representatives.
(d) In addition to its other obligations under Section 6(c) hereof, each
Underwriter severally agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged
statement or omission, described in Section 6(c) hereof which
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<PAGE>
relates to information furnished to the Company pursuant to Section 6(c)
hereof, it will reimburse the Company (and, to the extent applicable, each
officer, director, controlling person or Selling Stockholder) on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of
a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director, controlling person or Selling
Stockholder) for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction.
To the extent that any such interim reimbursement payment is so held to
have been improper, the Company (and, to the extent applicable, each
officer, director, controlling person or Selling Stockholder) shall
promptly return it to the Underwriters together with interest, compounded
daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate
from the date of such request. This indemnity agreement will be in addition
to any liability which such Underwriter may otherwise have.
(e) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in paragraph (c) and/or (d) of
this Section 5, including the amounts of any requested reimbursement
payments and the method of determining such amounts, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of
the Board of Governors of the New York Stock Exchange, Inc. or pursuant to
the Code of Arbitration Procedure of the NASD. Any such arbitration must
be commenced by service of a written demand for arbitration or written
notice of intention to arbitrate, therein electing the arbitration
tribunal. In the event the party demanding arbitration does not make such
designation of an arbitration tribunal in such demand or notice, then the
party responding to said demand or notice is authorized to do so. Such an
arbitration would be limited to the operation of the interim reimbursement
provisions contained in paragraph (c) and/or (d) of this Section 5 and
would not resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the provisions of
Section 6.
6. Indemnification and Contribution. (a) The Company agrees to indemnify and
--------------------------------
hold harmless each Underwriter and each person, if any, who controls such
Underwriter within the meaning of the Securities Act and the respective
officers, directors, partners, employees, representatives and agents of
each of such Underwriter (collectively, the "Underwriter Indemnified
Parties" and, each, an "Underwriter Indemnified Party"), against any
losses, claims, damages, liabilities or expenses (including the reasonable
cost of investigating and defending against any claims therefor and counsel
fees incurred in connection therewith), joint or several, which may be
based upon the Securities Act, or any other statute or at common law, (i)
on the ground or alleged ground that any Pre-effective Prospectus, the
Registration Statement or the Prospectus (or any Pre-effective Prospectus,
the Registration Statement or the Prospectus as from time to time amended
or supplemented) includes or allegedly includes an untrue statement of a
material fact or omits to state a material fact
21
<PAGE>
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, unless such statement or omission was made in reliance upon,
and in conformity with, written information furnished to the Company by any
Underwriter, directly or through the Representatives, specifically for use
in the preparation thereof or (ii) for any act or failure to act or any
alleged act or failure to act by any Underwriter in connection with, or
relating in any manner to, the Stock or the offering contemplated hereby,
and which is included as part of or referred to in any loss, claim, damage,
liability or expense arising out of or based upon matters covered by clause
(i) above (provided that the Company shall not be liable under this clause
(ii) to the extent that it is determined in a final judgment by a court of
competent jurisdiction that such loss, claim, damage, or liability or
expense resulted directly from any such acts or failures to act undertaken
or omitted to be taken by such Underwriter through its gross negligence or
willful misconduct). The Company will be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of any
suit brought to enforce any such liability, but if the Company elects to
assume the defense, such defense shall be conducted by counsel chosen by it
and reasonably acceptable to the Underwriters. In the event the Company
elects to assume the defense of any such suit and retain such counsel, any
Underwriter Indemnified Parties, defendant or defendants in the suit, may
retain additional counsel but shall bear the fees and expenses of such
counsel unless (i) the Company shall have specifically authorized the
retaining of such counsel or (ii) the parties to such suit include any such
Underwriter Indemnified Parties, and the Company and such Underwriter
Indemnified Parties at law or in equity have been advised by counsel to the
Underwriters that one or more legal defenses may be available to it or them
which may not be available to the Company, in which case the Company shall
not be entitled to assume the defense of such suit notwithstanding its
obligation to bear the fees and expenses of such counsel. This indemnity
agreement is not exclusive and will be in addition to any liability which
the Company might otherwise have and shall not limit any rights or remedies
which may otherwise be available at law or in equity to each Underwriter
Indemnified Party.
(b) Each Selling Stockholder agrees to indemnify and hold harmless each
Underwriter Indemnified Party against any losses, claims, damages,
liabilities or expenses (including, unless such Selling Stockholder elects
to assume the defense, the reasonable cost of investigating and defending
against any claims therefor and counsel fees incurred in connection
therewith), joint or several, which may be based upon the Securities Act,
or any other statute or at common law, on the ground or alleged ground that
any Pre-effective Prospectus, the Registration Statement or the Prospectus
(or any Pre-effective Prospectus, the Registration Statement or the
Prospectus, as from time to time amended and supplemented) includes an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, unless such statement or omission was made in reliance upon,
and in conformity with, written information furnished to the Company by any
Underwriter, directly or through the Representatives, specifically for use
in the preparation thereof. Such Selling Stockholder shall be entitled to
participate at his
22
<PAGE>
own expense in the defense, or, if he so elects, to assume the defense of
any suit brought to enforce any such liability, but, if such Selling
Stockholder elects to assume the defense, such defense shall be conducted
by counsel chosen by him. In the event that any Selling Stockholder elects
to assume the defense of any such suit and retain such counsel, the
Underwriter Indemnified Parties, defendant or defendants in the suit, may
retain additional counsel but shall bear the fees and expenses of such
counsel unless (i) such Selling Stockholder shall have specifically
authorized the retaining of such counsel or (ii) the parties to such suit
include such Underwriter Indemnified Parties and such Selling Stockholder
and such Underwriter Indemnified Parties have been advised by counsel that
one or more legal defenses may be available to it or them which may not be
available to such Selling Stockholder, in which case such Selling
Stockholder shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the fees and expenses of such
counsel. This indemnity agreement is not exclusive and will be in addition
to any liability which such Selling Stockholder might otherwise have and
shall not limit any rights or remedies which may otherwise be available at
law or in equity to each Underwriter Indemnified Party. The Company
and the Selling Stockholders may agree, as among themselves and without
limiting the rights of the Underwriters under this Agreement, as to their
respective amounts of such liability for which they each shall be
responsible.
(c) Each Underwriter severally and not jointly agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Securities Act (collectively, the
"Company Indemnified Parties") and each Selling Stockholder and each
person, if any, who controls a Selling Stockholder within the meaning of
the Securities Act (collectively, the "Stockholder Indemnified Parties"),
against any losses, claims, damages, liabilities or expenses (including,
unless the Underwriter or Underwriters elect to assume the defense, the
reasonable cost of investigating and defending against any claims therefor
and counsel fees incurred in connection therewith), joint or several, which
arise out of or are based in whole or in part upon the Securities Act, the
Exchange Act or any other federal, state, local or foreign statute or
regulation, or at common law, on the ground or alleged ground that any Pre-
effective Prospectus, the Registration Statement or the Prospectus (or any
Pre-effective Prospectus, the Registration Statement or the Prospectus, as
from time to time amended and supplemented) includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances in which they were made, not misleading, but only insofar
as any such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Company by such
Underwriter, directly or through the Representatives, specifically for use
in the preparation thereof; provided, however, that in no case is such
Underwriter to be liable with respect to any claims made against any
Company Indemnified Party or Stockholder Indemnified Party against whom the
action is brought unless such Company Indemnified Party or Stockholder
Indemnified Party shall have notified such Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim
23
<PAGE>
shall have been served upon the Company Indemnified Party or Stockholder
Indemnified Party, but failure to notify such Underwriter of such claim
shall not relieve it from any liability which it may have to any Company
Indemnified Party or Stockholder Indemnified Party otherwise than on
account of its indemnity agreement contained in this paragraph. Such
Underwriter shall be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but, if such Underwriter elects to assume the
defense, such defense shall be conducted by counsel chosen by it. In the
event that any Underwriter elects to assume the defense of any such suit
and retain such counsel, the Company Indemnified Parties or Stockholder
Indemnified Parties and any other Underwriter or Underwriters or
controlling person or persons, defendant or defendants in the suit, shall
bear the fees and expenses of any additional counsel retained by them,
respectively. The Underwriter against whom indemnity may be sought shall
not be liable to indemnify any person for any settlement of any such claim
effected without such Underwriter's consent. This indemnity agreement is
not exclusive and will be in addition to any liability which such
Underwriter might otherwise have and shall not limit any rights or remedies
which may otherwise be available at law or in equity to any Company
Indemnified Party or Stockholder Indemnified Party.
(d) If the indemnification provided for in this Section 6 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a),
(b) or (c) above in respect of any losses, claims, damages, liabilities or
expenses (or actions in respect thereof) referred to herein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company and
the Selling Stockholders on the one hand and the Underwriters on the other
from the offering of the Stock. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law, then
each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company and
the Selling Stockholders on the one hand and the Underwriters on the other
in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholders on
the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Stockholders
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Selling Stockholders or
the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Company, the Selling Stockholders and the Underwriters agree
that it would not be just and
24
<PAGE>
equitable if contribution were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities
or expenses (or actions in respect thereof) referred to above shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating, defending, settling or
compromising any such claim. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount
in excess of the amount by which the total price at which the shares of the
Stock underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. The Underwriters' obligations to
contribute are several in proportion to their respective underwriting
obligations and not joint. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
7. Survival of Indemnities, Representations, Warranties, etc. The respective
----------------------------------------------------------
indemnities, covenants, agreements, representations, warranties and other
statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by them respectively,
pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter,
the Selling Stockholders, the Company or any of its officers or directors
or any controlling person, and shall survive delivery of and payment for
the Stock.
8. Conditions of Underwriters' Obligations. The respective obligations of the
---------------------------------------
several Underwriters hereunder shall be subject to the accuracy, at and
(except as otherwise stated herein) as of the date hereof and at and as of
each of the Closing Dates, of the representations and warranties made
herein by the Company and the Selling Stockholders, to compliance at and as
of each of the Closing Dates by the Company and the Selling Stockholders
with their covenants and agreements herein contained and other provisions
hereof to be satisfied at or prior to each of the Closing Dates, and to the
following additional conditions:
(a) The Registration Statement shall have become effective and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge
of the Company or the Representatives, shall be threatened by the
Commission, and any request for additional information on the part of the
Commission (to be included in the Registration Statement or the Prospectus
or otherwise) shall have been complied with to the reasonable satisfaction
of the Representatives. Any filings of the Prospectus, or any supplement
thereto, required pursuant to Rule 424(b) or Rule 434 of the Rules and
Regulations, shall have been made in the manner and within the time period
required by Rule 424(b) and Rule 434 of the Rules and Regulations, as the
case may be.
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<PAGE>
(b) The Representatives shall have been satisfied that there shall not have
occurred any change, on a consolidated basis, prior to each of the Closing
Dates in the condition (financial or otherwise), properties, business,
management, prospects, net worth or results of operations of the Company
and its subsidiaries considered as a whole, or any change in the capital
stock, short-term or long-term debt of the Company and its subsidiaries
considered as a whole, such that (i) the Registration Statement or the
Prospectus, or any amendment or supplement thereto, contains an untrue
statement of fact which, in the opinion of the Representatives, is
material, or omits to state a fact which, in the opinion of the
Representatives, is required to be stated therein or is necessary to make
the statements therein not misleading, or (ii) it is unpracticable in the
reasonable judgment of the Representatives to proceed with the public
offering or purchase the Stock as contemplated hereby.
(c) The Representatives shall be satisfied that no legal or governmental
action, suit or proceeding affecting the Company which is material and
adverse to the Company or which affects or may affect the Company's or the
Selling Stockholders' ability to perform their respective obligations under
this Agreement shall have been instituted or threatened and there shall
have occurred no material adverse development in any existing such action,
suit or proceeding.
(d) At the time of execution of this Agreement, the Representatives shall
have received from BDO Seidman LLP, independent certified public
accountants, a letter, dated the date hereof, in form and substance
satisfactory to the Underwriters.
(e) The Representatives shall have received from BDO Seidman LLP,
independent certified public accountants, letters, dated each the Closing
Dates, to the effect that such accountants reaffirm, as of each of the
Closing Dates, and as though made on each of the Closing Dates, the
statements made in the letter furnished by such accountants pursuant to
paragraph (d) of this Section 8.
(f) The Representatives shall have received from Proskauer Rose LLP,
counsel for the Company, opinions, dated each of the Closing Dates, to the
effect set forth in Exhibit I hereto.
(g) The Representatives shall have received from ______, counsel for the
Selling Stockholders, an opinion dated each of the Closing Dates to the
effect set forth in Exhibit ___ hereto.
(h) The Representatives shall have received from Brown & Wood llp, counsel
for the Underwriters, their opinions dated each of the Closing Dates with
respect to the incorporation of the Company, the validity of the Stock, the
Registration Statement and the Prospectus and such other related matters as
it may reasonably request, and the Company and the Selling Stockholders
shall have furnished to such counsel such documents as they may request for
the purpose of enabling them to pass upon such matters.
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<PAGE>
(i) The Representatives shall have received a certificates, dated each of
the Closing Dates, of the chief executive officer or the President and the
chief financial or accounting officer of the Company to the effect that:
(i) No stop order suspending the effectiveness of the Registration
Statement has been issued, and, to the best of the knowledge of the
signers, no proceedings for that purpose have been instituted or are
pending or contemplated under the Securities Act;
(ii) Neither any Pre-effective Prospectus, as of its date, nor the
Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, as of the time when the Registration Statement
became effective and at all times subsequent thereto up to the
delivery of such certificate, included any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading;
(iii) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as
set forth or contemplated in the Prospectus, neither the Company nor
any of its subsidiaries has incurred any material liabilities or
obligations, direct or contingent, nor entered into any material
transactions not in the ordinary course of business and there has not
been any material adverse change in the condition (financial or
otherwise), properties, business, management, prospects, net worth or
results of operations of the Company and its subsidiaries considered
as a whole, or any change in the capital stock, short-term or long-
term debt of the Company and its subsidiaries considered as a whole;
(iv) The representations and warranties of the Company in this
Agreement are true and correct at and as of each of the Closing Dates,
and the Company has complied with all the agreements and performed or
satisfied all the conditions on its part to be performed or satisfied
at or prior to the Closing Dates; and
(v) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, and except as disclosed in
or contemplated by the Prospectus, (i) there has not been any material
adverse change or a development involving a material adverse change in
the condition (financial or otherwise), properties, business,
management, prospects, net worth or results of operations of the
Company and its subsidiaries considered as a whole; (ii) the business
and operations conducted by the Company and its subsidiaries have not
sustained a loss by strike, fire, flood, accident or other calamity
(whether or not insured) of such a character as to interfere
materially with the conduct of the business and operations of the
Company and its subsidiaries considered as a whole; (iii) no legal or
governmental action, suit or proceeding is pending or threatened
against the Company which is material to the Company, whether or not
arising from transactions in the ordinary
27
<PAGE>
course of business, or which may materially and adversely affect the
transactions contemplated by this Agreement; (iv) since such dates and
except as so disclosed, the Company has not incurred any material
liability or obligation, direct, contingent or indirect, made any
change in its capital stock (except pursuant to its stock plans), made
any material change in its short-term or funded debt or repurchased or
otherwise acquired any of the Company's capital stock; and (v) the
Company has not declared or paid any dividend, or made any other
distribution, upon its outstanding capital stock payable to
stockholders of record on a date prior to the Closing Date.
(j) The Representatives shall have received a certificate or certificates,
dated each of the Closing Dates, of each of the Selling Stockholders to the
effect that as of each of the Closing Dates the representations and
warranties in this Agreement are true and correct as if made on and as of
each of the Closing Dates, and that it has performed all its obligations
and satisfied all the conditions on its part to be performed or satisfied
at or prior to the Closing Dates.
(k) The Company and each of the Selling Stockholders shall have furnished
to the Representatives such additional certificates as the Representatives
may have reasonably requested as to the accuracy, at and as of each of the
Closing Dates, of the representations and warranties made herein by them
and as to compliance at and as of each of the Closing Dates by them with
their covenants and agreements herein contained and other provisions hereof
to be satisfied at or prior to each of the Closing Dates, and as to
satisfaction of the other conditions to the obligations of the Underwriters
hereunder.
(l) Cowen shall have received the written agreements, substantially in the
form of Exhibit II hereto, of the officers, directors and holders of
Common Stock listed in Schedule C that each will not offer, sell, assign,
transfer, encumber, contract to sell, grant an option to purchase or
otherwise dispose of any shares of Common Stock (including, without
limitation, Common Stock which may be deemed to be beneficially owned by
such officer, director or holder in accordance with the Rules and
Regulations) during the 180 days following the date of the final
Prospectus, except for the Stock being sold hereunder by the Selling
Stockholders.
(m) The New York Stock Exchange shall have approved the stock for listing,
subject only to official notice of issuance.
28
<PAGE>
All opinions, certificates, letters and other documents will be in compliance
with the provisions hereunder only if they are satisfactory in form and
substance to the Representatives. The Company will furnish to the
Representatives conformed copies of such opinions, certificates, letters and
other documents as the Representatives shall reasonably request. If any of the
conditions hereinabove provided for in this Section shall not have been
satisfied when and as required by this Agreement, this Agreement may be
terminated by the Representatives by notifying the Company of such termination
in writing or by telegram at or prior to each of the Closing Dates, but Cowen,
on behalf of the Representatives, shall be entitled to waive any of such
conditions.
9. Effective Date. This Agreement shall become effective immediately as to
--------------
Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and 17 and, as to all other
provisions, at 11:00 a.m. New York City time on the first full business day
following the effectiveness of the Registration Statement or at such
earlier time after the Registration Statement becomes effective as the
Representatives may determine on and by notice to the Company or by release
of any of the Stock for sale to the public. For the purposes of this
Section 9, the Stock shall be deemed to have been so released upon the
release for publication of any newspaper advertisement relating to the
Stock or upon the release by you of telegrams (i) advising Underwriters
that the shares of Stock are released for public offering or (ii) offering
the Stock for sale to securities dealers, whichever may occur first.
10. Termination. This Agreement (except for the provisions of Section 5) may
-----------
be terminated by the Company at any time before it becomes effective in
accordance with Section 9 by notice to the Representatives and may be
terminated by the Representatives at any time before it becomes effective
in accordance with Section 9 by notice to the Company. In the event of any
termination of this Agreement under this or any other provision of this
Agreement, there shall be no liability of any party to this Agreement to
any other party, other than as provided in Sections 5, 6 and 11 and other
than as provided in Section 12 as to the liability of defaulting
Underwriters.
This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to the First
Closing Date trading in securities on any of the New York Stock Exchange,
American Stock Exchange, Nasdaq National Market System, Chicago Board of
Options Exchange, Chicago Mercantile Exchange or Chicago Board of Trade
shall have been suspended or minimum or maximum prices shall have been
established on any such exchange or market, or a banking moratorium shall
have been declared by New York or United States authorities; (ii) trading
of any securities of the Company shall have been suspended on any exchange
or in any over-the-counter market; (iii) if at or prior to the First
Closing Date there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power or of any other
insurrection or armed conflict involving the United States or (B) any
change in financial markets or any calamity or crisis which, in the
judgment of the Representatives, makes it impractical or inadvisable to
offer or sell the Stock on the terms contemplated by the Prospectus; (iv)
if
29
<PAGE>
there shall have been any development or prospective development involving
particularly the business or properties or securities of the Company or any
of its subsidiaries or the transactions contemplated by this Agreement,
which, in the judgment of the Representatives, makes it impracticable or
inadvisable to offer or deliver the Stock on the terms contemplated by the
Prospectus; (v) if there shall be any litigation or proceeding, pending or
threatened, which, in the judgment of the Representatives, makes it
impracticable or inadvisable to offer or deliver the on the terms
contemplated by the Prospectus; or (vi) if there shall have occurred any of
the events specified in the immediately preceding clauses (i) - (v)
together with any other such event that makes it, in the judgment of the
Representatives, impractical or inadvisable to offer or deliver the Stock
on the terms contemplated by the Prospectus.
11. Reimbursement of Underwriters. Notwithstanding any other provisions
-----------------------------
hereof, if this Agreement shall not become effective by reason of any
election of the Company or the Selling Stockholders pursuant to the first
paragraph of Section 10 or shall be terminated by the Representatives under
Section 8 or Section 10, the Company will bear and pay the expenses
specified in Section 5 hereof and, in addition to their obligations
pursuant to Section 6 hereof, the Company will reimburse the reasonable
out-of-pocket expenses of the several Underwriters (including reasonable
fees and disbursements of counsel for the Underwriters) incurred in
connection with this Agreement and the proposed purchase of the Stock, and
promptly upon demand the Company will pay such amounts to you as
Representatives.
12. Substitution of Underwriters. If any Underwriter or Underwriters shall
----------------------------
default in its or their obligations to purchase shares of Stock hereunder
and the aggregate number of shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent
(10%) of the total number of shares underwritten, the other Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase. If any Underwriter or
Underwriters shall so default and the aggregate number of shares with
respect to which such default or defaults occur is more than ten percent
(10%) of the total number of shares underwritten and arrangements
satisfactory to the Representatives and the Company for the purchase of
such shares by other persons are not made within forty-eight (48) hours
after such default, this Agreement shall terminate.
If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a
defaulting Underwriter or Underwriters as provided in this Section 12, (i)
the Company and the Selling Stockholders shall have the right to postpone
the Closing Dates for a period of not more than five (5) full business days
in order that the Company and the Selling Stockholders may effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company
agrees promptly to file any amendments to the Registration Statement or
supplements to the Prospectus which may thereby be made necessary, and (ii)
the respective numbers of shares to be purchased by the remaining
30
<PAGE>
Underwriters or substituted Underwriters shall be taken as the basis of
their underwriting obligation for all purposes of this Agreement. Nothing
herein contained shall relieve any defaulting Underwriter of its liability
to the Company, the Selling Stockholders or the other Underwriters for
damages occasioned by its default hereunder. Any termination of this
Agreement pursuant to this Section 12 shall be without liability on the
part of any non-defaulting Underwriter, the Selling Stockholders or the
Company, except for expenses to be paid or reimbursed pursuant to Section 5
and except for the provisions of Section 6.
13. Notices. All communications hereunder shall be in writing and, if sent to
-------
the Underwriters shall be mailed, delivered or telegraphed and confirmed to
you, as their Representatives c/o Cowen & Company at Financial Square, New
York, New York 10005 except that notices given to an Underwriter pursuant
to Section 6 hereof shall be sent to such Underwriter at the address
furnished by the Representatives or, if sent to the Company, shall be
mailed, delivered or telegraphed and confirmed c/o Schein Pharmaceutical,
Inc., 100 Campus Drive, Florham Park, New Jersey 07932.
14. Successors. This Agreement shall inure to the benefit of and be binding
----------
upon the several Underwriters, the Company and the Selling Stockholders and
their respective successors and legal representatives. Nothing expressed
or mentioned in this Agreement is intended or shall be construed to give
any person other than the persons mentioned in the preceding sentence any
legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of such persons and for the benefit of no other
person; except that the representations, warranties, covenants, agreements
and indemnities of the Company and the Selling Stockholders contained in
this Agreement shall also be for the benefit of the person or persons, if
any, who control any Underwriter or Underwriters within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, and the
indemnities of the several Underwriters shall also be for the benefit of
each director of the Company, each of its officers who has signed the
Registration Statement and the person or persons, if any, who control the
Company or any Selling Stockholders within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act.
15. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of New York.
16. Authority of the Representatives. In connection with this Agreement, you
--------------------------------
will act for and on behalf of the several Underwriters, and any action
taken under this Agreement by Cowen, as Representative, will be binding on
all the Underwriters; and any action taken under this Agreement by any of
the Attorneys-in-fact will be binding on all the Selling Stockholders.
17. Partial Unenforceability. The invalidity or unenforceability of any
------------------------
Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other
31
<PAGE>
Section, paragraph or provision hereof. If any Section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and
only such minor changes) as are necessary to make it valid and enforceable.
18. General. This Agreement constitutes the entire agreement of the parties to
-------
this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof. In this Agreement, the masculine,
feminine and neuter genders and the singular and the plural include one
another. The section headings in this Agreement are for the convenience of
the parties only and will not affect the construction or interpretation of
this Agreement. This Agreement may be amended or modified, and the
observance of any term of this Agreement may be waived, only by a writing
signed by the Company, the Selling Stockholders and the Representatives.
19. Counterparts. This Agreement may be signed in two (2) or more
------------
counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
Any person executing and delivering this Agreement as Attorney-in-fact for
the Selling Stockholders represents by so doing that he has been duly
appointed as Attorney-in-fact by such Selling Stockholder pursuant to a
validly existing and binding Power of Attorney which authorizes such
Attorney-in-fact to take such action.
32
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate your
acceptance thereof in the space provided below for that purpose, whereupon this
letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
SCHEIN PHARMACEUTICAL, INC.
By:____________________________
President
SELLING STOCKHOLDERS LISTED
IN SCHEDULE B
By: Attorney-in-fact
By:______________________________
Attorney-in-fact
Acting on his own behalf and on
behalf of the Selling Stockholders listed
in Schedule B.
33
<PAGE>
Accepted and delivered in
New York, New York as of
the date first above written.
COWEN & COMPANY
BEAR, STEARNS & CO., INC.
SMITH BARNEY INC.
Acting on their own behalf
and as Representatives of several
Underwriters referred to in the
foregoing Agreement.
By: COWEN & COMPANY
By: Cowen Incorporated,
its general partner
By: ______________________________
John P. Dunphy
Managing Director - Syndicate
34
<PAGE>
SCHEDULE A
Name Number of Shares of Number of Shares of
- ---- Firm Stock to be Optional Stock to
Purchased be Purchased
----------- -------------
Cowen & Company .........................
Bear, Stearns & Co., Inc.................
Smith Barney Inc.........................
--------- ----------
Total
========= ==========
35
<PAGE>
SCHEDULE B
Number of Shares Number of Shares
of Firm Stock of Optional Stock
to be Sold to be Sold
----------------- -----------------
Shein Pharmaceutical, Inc. ...........
---------- ----------
========== ==========
36
<PAGE>
SCHEDULE C
[Persons Providing Lock-up Agreements
Pursuant to Section 8(l)]
[TO COME]
<PAGE>
Form of Opinion of Issuer's Counsel Exhibit I
[TO COME]
38
<PAGE>
Form of Opinion of Selling Stockholders' Counsel Exhibit II
[TO COME]
39
<PAGE>
Form of Lock-Up Agreement Exhibit III
[TO COME]
40
<PAGE>
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
SCHEIN PHARMACEUTICAL, INC.
(Pursuant to Section 242 of the
General Corporation Law of the State of Delaware)
It is hereby certified that:
1. The name of the corporation is Schein Pharmaceutical, Inc. (the
"Corporation"). The name under which the Corporation was originally
incorporated was Schein Pharmaceutical Corp., and the date of filing of
the original Certificate of Incorporation of the Corporation with the
Secretary of State of the State of Delaware was September 27, 1993.
2. The Board of Directors of the Corporation duly adopted a
resolution proposing and declaring it advisable that Certificate of
Incorporation of the Corporation be amended and restated in its entirety to
read as follows:
FIRST
The name of the corporation is Schein Pharmaceutical, Inc. (the
"Corporation").
SECOND
The purpose for which the Corporation is formed is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware (the "Delaware General
Corporation Law").
<PAGE>
THIRD
A.
The total number of shares of capital stock which the Corporation shall
have authority to issue is Five Hundred Twenty-Nine Thousand Two Hundred
Ninety-Five (529,295) shares of common stock, $.Ol par value per share (the
"Common Stock"), of which Four Hundred Thousand (400,000) shares shall be
Class A Common Stock, $.0l par value per share (the "Class A Common
Shares"), and One Hundred Twenty-Nine Thousand Two Hundred Ninety-Five
(l29,295) shares shall be Class B Common Stock, $.01 par value per share
(the "Class B Common Shares"). Shares of capital stock of the Corporation
may be issued for such consideration, not less than the par value thereof,
as shall be fixed from time to time by the Board of Directors, and shares
issued for such consideration shall be fully paid and nonassessable.
B.
Each share of the Class B Common Shares issued and outstanding, or
issued and held in the treasury of the Corporation, shall be automatically
reclassified as and changed into one new share of the Corporation's Class
A Common Shares, without any action on the part of the holder thereof upon
the earliest to occur of (1) an initial public offering of shares of Common
Stock, (2) the Termination Date, as that term is defined in the Voting Trust
Agreement (the "Voting Agreement") dated September 30, 1994 among Schein
Holdings, Inc. ("Holdings") and certain shareholders of Holdings, and Martin
Sperber, as voting trustee (the "Voting Trustee"), and (3) May 15,
1999. Upon the occurrence of a transfer on the stock transfer records of
the Corporation by a holder of any share of Class B Common Shares, each such
share of Class B Common Shares so transferred shall be automatically
reclassified as and changed into one new share of the Corporation's Class A
Common Shares, without any action on the part of the holder thereof. In
those cases where a reclassification described in either of the two
preceding sentences would cause a shareholder to receive a fractional share,
the Corporation shall issue to the shareholder a stock certificate
representing such fractional share.
2
<PAGE>
C.
The following is a statement of the powers, preferences and rights and
the qualifications, restrictions and limitations of the Common Stock of the
Corporation:
(1) Class A Common Shares and Class B Common Shares. Each Class A
-----------------------------------------------
Common Share shall be identical in every respect to each Class B Common
Share, except as provided in subparagraph (C)(4). Any Class B Common Share
that is converted into a Class A Common Share in accordance with paragraph B
shall thereafter be a Class A Common Share, with all the powers, preferences
and rights and the qualifications, restrictions and limitations, including,
without limitation, with respect to voting rights, as the Class A Common
Share into which it was converted. No amendment to this Certificate of
Incorporation shall in any manner amend, alter, change or repeal any
provision (other than provisions relating to voting in subparagraph (C)(4))
relating to the Class A Common Shares without at the same time amending,
altering, changing or repealing in the same manner the corresponding
provision relating to the Class B Common Shares, without the consent of a
majority of the outstanding Class B Common Shares or until such time as
there are no Class B Common Shares outstanding.
(2) Dividends. The holders of record of Common Stock shall be
---------
entitled to receive such dividends notably as may from time to time be
declared by the Board of Directors out of funds legally available therefor.
(3) Liquidation. In the event of any liquidation, dissolution or
-----------
winding up of the affairs of the Corporation, voluntary or involuntary, the
net assets of the Corporation available to shareholders shall be distributed
ratably to the holders of Common Stock. Neither the merger or consolidation
of the Corporation with or into another corporation nor any sale, lease,
conveyance or other disposition of all or substantially all of the property,
business or assets of the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the affairs of the Corporation within the
meaning of this Article THIRD.
(4) Voting Rights. Except as otherwise required by law, the holders
-------------
of Class A Common Shares shall be entitled to one vote in respect of each
share held on all matters voted upon by the shareholders of the Corporation.
The holders of Class B Common Shares shall not be entitled to vote on any
matter, or to participate in a shareholders meeting, or to receive notice of
any meeting of shareholders; provided, however at any time the sum of
(x) the number of Class A Common Shares subject to the Voting Agreement plus
----
(y) the number of Class A Common Shares owned by the Voting Trustee (or his
successor) or the Voting Trustee's (or his successor's) affiliates (as
defined in Rule 405
3
<PAGE>
under the Securities Act of 1933) ((x) and (y), together, the "Voting
Number") constitutes less than a majority of the outstanding voting shares
of the Corporation and the Voting Trustee (or his successor) under the
Voting Agreement shall have given written notice to the Corporation and to
the known beneficial owner of such shares that he wishes to vote the
Required Number (as defined below) of Class B Common Shares at a meeting
of shareholders or by written consent for which a record date for notice
of and voting at the meeting or the consent shall have been established,
the Required Number of Class B Common Shares shall automatically be
entitled to participate in and vote at that meeting or in that written
consent on the same basis as class A Common Shares (and shall remain Class
B Common Shares until reclassified and changed in accordance with this
Certificate of Incorporation). As used in this paragraph 4, the term
"Required Number" of Class B Common Shares, for purposes of any such
meeting or written consent, means a number of shares equal to (a) the sum
of (i) one plus (ii) 5O% of the number of shares entitled to vote at the
meeting or by consent, as the case may be (it being understood that the
Required Number of Class B Common Shares shall be counted as though they
were voting shares for purposes of this clause (ii)), reduced by (b) the
Voting Number on the record date for that meeting or consent (it being
understood that the only circumstance in which the Required Number shall
exceed zero is where the Corporation shall have issued a number of voting
shares that results in the Voting Number at a particular time being less
than a majority of the outstanding voting shares at that time).
(5) Other Rights. Except as set forth above, the Common Stock shall not
------------
bear any preferential, conversion or preemptive rights. Without limiting the
generality of the foregoing, no class of Common Stock may be split, consolidated
or reclassified in any manner other than as expressly provided herein, unless
the other class of Common Stock is split, consolidated or reclassified, as the
case may be, on an identical basis.
D.
Upon the filing in the office of the Secretary of State of the State of
Delaware of this Restated Certificate of Incorporation whereby this Article
Fourth is amended to read as set forth herein, the 258,570 issued and
outstanding shares of common stock, par value $.01 per share, of the Corporation
shall be automatically reclassified and changed into 10 validly issued, fully
paid and nonassessable shares of Class A Common Shares. No scrip or fractional
shares will be issued by reason of this amendment.
4
<PAGE>
FOURTH
The registered office of the Corporation in the State of Delaware is to
be located at 32 Loockerman Square, Suite L-lOO, in the city of Dover,
County of Kent, State of Delaware. The name of its registered agent at
that address is The Prentice-Hall Corporation System, Inc.
FIFTH
The duration of the Corporation is to be perpetual.
SIXTH
Unless a greater vote requirement in any matter is provided in this
Certificate of Incorporation or the By-laws, the affirmative vote of a
majority of the directors present and acting at a duly constituted meeting
at which a majority of the entire board of directors is present and acting,
is sufficient for all action of the Board of Directors.
Any action required or permitted to be taken by the board of directors
may be taken without a meeting if all members of the board consent in
writing to the adoption of resolutions authorizing the action.
Elections of directors need not be by ballot unless the By-Laws of the
Corporation shall so provide.
SEVENTH
A.
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty by such
director as a director, provided that this Article SEVENTH shall not
eliminate or limit the liability of a director (1) for any breach of such
director's duty of loyalty to the Corporation or its stockholders, (2) for
acts or omissions of such director not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) under Section
174 of the Delaware General Corporation Law, or (4) for any transaction from
which such director derived an improper personal benefit, in respect of which
such breach of fiduciary duty occurred. If the Delaware General Corporation
Law is amended after approval by the stockholders of this Article SEVENTH to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited
5
<PAGE>
to the fullest extent permitted by the Delaware General Corporation Law, as
so amended from time to time.
B.
(1) Right of Indemnification. Each person who was or is made a
-------------------------
party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, (a) is or was a
director or officer of the Corporation or (b) is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans
(whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent), shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case or any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and
amounts paid or to be paid in settlement) actually and reasonably incurred
or suffered by such person in connection therewith and such indemnification
shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as
provided in paragraph (2) hereof the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article SEVENTH shall be a contract right
and shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation
Law requires, the payment of such expenses incurred by a director or officer
in his or her capacity as such (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service with respect to an employee benefit
plan) in advance, of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this
6
<PAGE>
Article SEVENTH or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing indemnification
of directors and officers.
(2) Right of Claimant to Bring Suit. If a claim under paragraph (1) of
-------------------------------
this Article SEVENTH is not paid in full by the Corporation within thirty
days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in
part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in defending
any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that
the claimant has not met the standards of conduct which make it permissible
under the Delaware General Corporation Law for the Corporation to indemnify
the claimant for the amount claimed, but the burden of proving such defense
shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant has not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that
the claimant has not met the applicable standard of conduct.
(3) Non-Exclusivity of Rights. The right to indemnification and the
-------------------------
payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article SEVENTH shall not be exclusive
of any other right which any person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, by-law, agreement,
vote of stockholders or disinterested directors or otherwise.
(4) Insurance. The Corporation may maintain insurance, at its
----------
expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
7
<PAGE>
EIGHTH
Subject to the provisions of Article NINE below, the directors of the
Corporation may, by a vote of a majority of directors present at a meeting
in which a quorum is present, adopt, amend or repeal any By-Law.
NINTH
The Corporation shall not, and shall not permit any of its subsidiaries
to, and no officer, employee or other agent of the Corporation or any of its
subsidiaries shall have the authority, in the name or on behalf of the
Corporation or any of its subsidiaries to, directly or indirectly, without
the prior written consent of Bayer Corporation ("Bayer," formerly Miles
Inc.) (which consent shall be deemed given, if a majority of Bayer's
nominees to the board of directors of the Corporation consent in writing (it
being understood that consent given in this manner shall not be deemed the
exclusive method of giving consent)) amend or restate the Corporation's
certificate of incorporation or By-Laws in any respect, (a) as a result of
which the ability to (i) elect a majority of the members of the board of
directors of the Corporation, (ii) adopt an agreement of merger or
consolidation, (iii) approve a sale of all or substantially all the assets
of the Corporation or (iv) adopt an amendment to the Corporation's
certificate of incorporation or by-laws would require the vote of more than
a majority of the outstanding shares of Common Stock entitled to vote
thereon, (b) that would adversely affect Bayer differently from other
holders of shares of Common Stock or (c) that, by its terms, would prohibit
any foreign national from holding shares of Common stock or serving as a
director.
This Article NINTH may be amended only with the prior written consent of
Bayer (as described above in this Article NINTH), and the provisions of this
Article NINTH shall terminate and be of no further force or effect upon the
termination of Bayer's rights under Section 2.5 of the General Shareholders
Agreement dated September 30, 1994 among Holdings, Miles Inc. and certain
shareholders of Holdings, as provided in such General Shareholders Agreement.
TENTH
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application
of any receiver or receivers appointed for the
8
<PAGE>
Corporation under the provisions of Section 291 of Title 8 of the Delaware Code
or on the application of trustees in dissolution or of any receiver or
receivers appointed for the Corporation under the provisions of Section 279 of
Title 8 of the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders of the Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in
number representing three fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
3. In lieu of a vote, written consent to the foregoing amendment has
been given by the sole stockholder of the Corporation, in accordance with
Section 228 of the General Corporation Law of the State of Delaware, and such
amendment has been duly adopted in accordance with the provisions of Section
242 of the General Corporation Law of the State of Delaware.
4. This amendment to the Certificate of Incorporation shall be
effective on and as of the date of filing this Certificate of Amendment with
the office of the Secretary of State of the State of Delaware.
9
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed in its name by its President and attested to by its
Secretary this 14th day of June, 1995, and the statements contained herein are
affirmed as true under penalties of perjury.
SCHEIN PHARMACETICAL, INC.
By: /s/ Martin Sperber
---------------------------
Martin Sperber
President
ATTEST:
By: /s/ Paul M. Feuerman
- -------------------------
Paul M. Feuerman
Secretary
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
SCHEIN PHARMACEUTICAL, INC.
------
ARTICLE I
---------
OFFICES
The Corporation shall maintain a registered office in the State of
Delaware as required by law. The Corporation may also have offices at other
places, within and without the State of Delaware.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of stockholders shall be held
-----------------
at the principal office of the Corporation or such place within or without the
State of Delaware as the Board of Directors shall authorize.
SECTION 2. ANNUAL MEETINGS. The annual meeting of stockholders for the
---------------
election of directors and the transaction of such other business as may properly
come before the meeting shall be held at such times as may be fixed from time to
time by the Board of Directors. The Board of Directors acting by resolution may
postpone and reschedule any previously scheduled annual meeting of stockholders.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders may be
----------------
called by the Board of Directors or by the Chairman of the Board. Such request
shall state the purpose or purposes of the proposed meeting. Business transacted
at a special meeting shall be confined to the purpose or purposes stated in the
notice. The Board of Directors acting by resolution may postpone and reschedule
any previously scheduled special meeting of stockholders.
SECTION 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Written notice,
----------------------------------
stating the place, date and time of the meeting, the purpose or purposes of
the
<PAGE>
meeting and, unless it is the annual meeting, an indication that it is being
issued by or at the direction of the person or persons calling the meeting,
shall be given to each stockholder entitled to vote thereat.
SECTION 5. FIXING RECORD DATE. In order that the Corporation may
------------------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or for the purpose
of any other lawful action, the Board of Directors may fix, in advance, a
record date for any such determination of stockholders. Such date shall not be
more than sixty nor less than ten days before the date of such meeting, nor
more than sixty days prior to any other action. If no record date is fixed it
shall be determined in accordance with the provisions of law. When a
determination of stockholders of record entitled to notice of or to vote at
any meeting of stockholders has been made as provided in this Section 5, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date for the adjourned meeting or further notice
is required by statute.
SECTION 6. QUORUM. Except as otherwise required by law, by the
------
Certificate of Incorporation or by these By-Laws, the presence, in person or
by proxy, of stockholders holding a majority of the stock of the Corporation
entitled to vote shall constitute a quorum at all meetings of the
stockholders. When a quorum is once present to organize a meeting, it is not
broken by the subsequent withdrawal of any stockholders. In case a quorum
shall not be present at any meeting, a majority in interest of the
stockholders entitled to vote thereat, present in person or by proxy,
shall have power to adjourn the meeting from time to time, without notice
other than an announcement at the meeting of the place, date and hour of the
adjourned meeting, until a quorum shall be present, and at the adjourned
meeting at which a quorum is present any business may be transacted that might
have been transacted at the meeting as originally called.
SECTION 7. WAIVERS. Notice of meeting need not be given to any
-------
stockholder who signs a waiver of notice, in person or by proxy, whether
before or after the meeting. The attendance of a stockholder at a meeting
shall constitute a waiver of notice of such meeting, except when the
stockholder attends a meeting for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened.
SECTION 8. PROXIES. Each stockholder entitled to vote at a meeting
-------
of stockholders or to express consent or dissent without a meeting may
authorize another person or persons to act for him or her by proxy. Every
proxy must be signed by the stockholder or his or her attorney-in-fact. No
proxy shall be valid after expiration of three years from the date thereof
unless otherwise provided in the proxy. Every proxy
2
<PAGE>
shall be revocable at the pleasure of the stockholder executing it, except as
otherwise provided by law.
SECTION 9. VOTING RIGHTS OF STOCKHOLDERS. Every
-----------------------------
stockholder of record shall be entitled at every meeting of the stockholders to
one vote for each share standing in such stockholder's name on the record of
stockholders of the Corporation, unless otherwise provided by statute, by
the Certificate of Incorporation or by these By-Laws.
SECTION 10. VOTING. Except as otherwise provided by law or by the
------
Certificate of Incorporation, all elections for directors shall be decided by a
plurality of the votes cast at a meeting of stockholders by the holders of
shares entitled to vote in the election, and all other corporate action to be
taken by stockholder vote shall be authorized by a majority of the votes cast at
a meeting of stockholders. All voting for the election of directors shall be by
ballot.
ARTICLE Ill
------- ---
DIRECTORS
SECTION 1. NUMBER, QUALIFICATION AND TERM OF OFFICE.
------ ------------- --- ---- -- ------
Except as may otherwise be provided in the Certificate of Incorporation or by
law, the business and affairs of the Corporation shall be managed by or under
the direction of a Board of Directors of four directors, which number may from
time to time be increased or decreased by vote of a majority of the Board of
Directors. No decrease in the number of directors shall shorten the term of any
incumbent director. The directors shall be elected at each annual meeting of the
stockholders and each director shall be elected to serve until his or her
successor shall be elected and shall qualify or until his or her earlier
resignation or removal.
SECTION 2. PLACE OF BOARD MEETINGS. Meetings of the Board of
----- -----------------
Directors, regular or special, may be held at the office of the Corporation or
at such other places, either within or without the State of Delaware, as it may
from time to time determine or as may be specified in the notice of any meeting.
SECTION 3. ANNUAL MEETINGS. An annual meeting of the Board of
------ --------
Directors shall be held immediately following the annual meeting of stockholders
at the place of such annual meeting of stockholders for the purposes of electing
officers of the Corporation and the committees of the Board of Directors and
transacting any other business which may properly come before the meeting.
Notice of annual meetings of the Board of Directors need not be given in order
legally to constitute the meeting, provided a quorum shall be present.
3
<PAGE>
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of
------- --------
Directors may be held at such places and times as shall be determined from time
to time by resolution of the directors or at such other times and dates as the
Chairman of the Board or President shall determine and as shall be specified in
the notice of such meetings. Regular meetings may be held without notice if the
time and place of such meetings are fixed by the By-Laws or the Board of
Directors. Notice of regular meetings of the Board of Directors need not be
given except as otherwise required by statute or these By-Laws.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of
------- --------
Directors may be called by the Secretary of the Corporation upon the written
request of the Chairman of the Board or President or any two directors.
SECTION 6. NOTICE OF MEETINGS. Notice of each special meeting of the
------------------
Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 6, which notice shall state the time, place and, if required by statute
or these By-Laws, the purposes of such meeting. Notice of each such meeting
shall be mailed, postage thereon prepaid, to each director, by first-class mail,
at least four days before the day on which such meeting is to be held, or shall
be sent by facsimile transmission or comparable medium, or be delivered
personally or by telephone, at least twenty-four hours before the time at which
such meeting is to be held. Any meeting of the Board of Directors shall be a
legal meeting without notice thereof having been given, if all the directors of
the Corporation then holding office shall be present thereat.
SECTION 7. WAIVERS. Notice of a meeting need not be given to any
-------
director who submits a waiver of notice whether before or after the meeting or
who attends the meeting without protesting at the beginning of the meeting to
the transaction of any business because of lack of notice of the meeting.
SECTION 8. QUORUM OF DIRECTORS. Unless otherwise provided in
-------------------
the Certificate of Incorporation or these By-Laws, a majority of the directors
shall constitute a quorum for the transaction of business or of any specified
item of business. If at any meeting of the Board of Directors there shall be
less than a quorum present, a majority of those present may adjourn the meeting
from time to time until a quorum is obtained, and no further notice thereof need
be given other than by announcement at the meeting which shall be so adjourned.
SECTION 9. PARTICIPATION IN MEETINGS WITHOUT PHYSICAL PRESENCE.
------------- -- -------- ------- -------- --------
Any or all members of the Board or any committee of the Board may participate in
a meeting of the Board or the committee by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear the other at the same time. Participation by such means shall
constitute presence in person at the meeting.
4
<PAGE>
SECTION 10. BOARD ACTION. Unless otherwise provided in the
------------
Certificate of Incorporation or these By-Laws, the vote of a majority of the
directors present shall be the act of the Board. Each director shall have one
vote regardless of the number of shares, if any, which he or she may hold.
SECTION 11. ACTION WITHOUT MEETING. Any action required or
----------------------
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting, if a written consent
thereto is signed by all members of the Board, or of such committee, as the
case may be. The written consent or consents to each such action, including
the resolutions adopted thereby, shall be filed with the minutes of the
proceedings of the Board of Directors or of the committee taking such action.
SECTION 12. REMOVAL OF DIRECTORS. Any director or directors may be
--------------------
removed, either with or without cause, at any time by the affirmative vote of
the holders of a majority of all the shares of stock outstanding and entitled
to vote, at a special meeting of the stockholders called for that purpose and
the vacancies thus created may be filled, at the meeting held for the purpose
of removal, pursuant to Section 14 of this Article III.
SECTION 13. RESIGNATION. Any director may resign at any time. Such
-----------
resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the Board of Directors, President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 14. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
------------------------------------------
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the Board of Directors for any reason
may be filled only in accordance with the provisions of Section 1 general
stockholders agreement dated September 30, 1994 among Schein Holdings Inc.,
Miles Inc. ("Miles") and certain stockholders of Schein Holdings, Inc. (the
"General Stockholders Agreement"). The provisions of the preceding sentence
may be amended only with the written consent of Bayer Corporation ("Bayer,"
formerly Miles), and shall be of no further force or effect upon the
termination of Bayer's rights under Section 1 of the General Stockholders
Agreement, as provided in Section 1.5 of the General Stockholders Agreement.
A director elected to fill a vacancy shall be elected to hold office until
the next annual meeting of stockholders at which the election of such
director is in the regular order of business and until his or her successor
has been elected and qualified.
5
<PAGE>
ARTICLE IV
----------
SPECIAL NOTICE REQUIREMENTS
Except for an action by unanimous written consent of the Board
of Directors pursuant to Article SIXTH of the corporation's certificate of
incorporation, no action or meeting of directors or stockholders of the
Corporation shall have any force or effect, unless the action or meeting
is taken or held (a) in the case of meetings of stockholders or directors
of the Corporation, or any other action of stockholders or directors
of the Corporation, upon at least 15 business days' prior written notice
to Bayer and Bayer's nominee(s) to the Board of Directors and any observer
of Bayer (as provided in Section 1.1 of the General Stockholders
Agreement) and (b) in the case of any actions or meetings of directors or
stockholders of the Corporation, where in the good faith judgment of the
Chairman of the Board of Directors, the circumstances require an action or
a meeting to be held upon fewer than 15 business days' prior written
notice, upon at least 24 hours (in the case of actions or meetings of
directors) and five business days (in the case of actions or meetings of
the stockholders) prior written notice to Bayer and Bayer's nominee(s) to
the Board of Directors and any observer of Bayer (as provided in Section
1.1 of the General Stockholders Agreement), unless Bayer or the Bayer's
nominee(s) to the Board of Directors, as the case may be, shall otherwise
have expressly agreed to a shorter period of prior written notice or
walved such notice in writing. The provisions of this Article IV may be
amended only with the written consent of Bayer, and shall be of no
further force or effect upon the termination of Bayer's rights under
Section 1.4 of the General Stockholders Agreement, as provided in Section
1 of the General Stockholders Agreement.
ARTICLE V
---------
OFFICERS
SECTION 1. OFFICERS. The Board of Directors at its meeting
--------
following the annual meeting of stockholders shall elect a Chairman of the
Board, a President, one or more Vice-Presidents (one or more of whom
may be designated as Executive Vice Presidents or as Senior Vice
Presidents or by other designations), a Secretary, a Treasurer and such
other officers as it may from time to time determine, each of whom shall
have such duties, powers and functions as provided in these By-Laws and as
may be determined from time to time by resolution of the Board of
Directors. Any two or more offices may be held by the same person.
SECTION 2. ELECTION OR APPOINTMENT AND TERM OF OFFICE.
------------------------------------------
Each officer shall be elected or appointed by the Board of Directors to
hold office until the next annual meeting of the Board of Directors and
until such officer's successor is elected or appointed and qualified, or
until such earlier date as shall be prescribed by the Board of Directors
at the time of his or her election or appointment or until an
6
<PAGE>
earlier resignation, removal or displacement from office. Any officer may be
removed at any time, with or without cause, by vote of a majority of the
Board of Directors.
SECTION 3. VACANCIES. In the event of the resignation, removal
---------
or other displacement from office of an officer elected or appointed by the
Board of Directors, the Board, in its sole discretion, may elect or appoint a
successor to fill the unexpired term.
SECTION 4. THE CHAIRMAN OF THE BOARD. The Chairman of the Board
-------------------------
shall be the chief executive officer of the Corporation and shall have such
powers and duties as generally pertain to the responsibilities of chief
executive officer, including the management of the business and affairs of
the Corporation, subject only to the control and direction of the Board of
Directors. The Chairman of the Board shall, when present, preside as chairman
at all meetings of the stockholders and of the Board of Directors.
SECTION 5. THE PRESIDENT. The President reporting to the Chairman
-------------
of the Board, shall have such powers and duties as may be conferred by the
Board of Directors or as may be determined from time to time by the Chairman
of the Board, subject to the control and direction of the Board of Directors.
In the absence of the Chairman of the Board, the President shall preside at
meetings of the stockholders and of the Board of Directors.
SECTION 6. OTHER OFFICERS. The other officers of the Corporation,
--------------
subject and reporting to the Chairman of the Board and/or President, as
determined from time to time by the Board of Directors, shall each have
such powers and duties generally pertaining to their respective offices.
SECTION 7. SHARES OF OTHER CORPORATIONS. Whenever the Corporation
----------------------------
is the holder of shares of any other Corporation, any or all rights and
powers of the Corporation as such stockholder (including the attendance,
acting and voting at stockholders' meetings, and execution of waivers,
consents and proxies) may be exercised on behalf of the Corporation by the
Chairman of the Board, the President or by such other person as the Board
of Directors may authorize.
ARTICLE VI
----------
CERTIFICATES FOR SHARES
SECTION 1. CERTIFICATES. The certificates for shares of the
------------
Corporation shall be in such form as shall be determined by the Board of
Directors.
SECTION 2. FRACTIONAL SHARES. The Corporation may, but shall not be
-----------------
required to, issue fractions of a share. If the Corporation does not in any
case
7
<PAGE>
issue a fraction of a share, it shall instead pay to the stockholder an
amount in cash in lieu of such fraction of a share equal to the fair market
value of such fraction of a share, as deternuned in good faith by the Board
of Directors. In addition, the Corporation may at any time, elect to pay to
each holder of a fraction of a share an amount in cash in lieu of such
fraction of a share equal to the fair market value of such holder's fraction
of a share, as determined in good faith by the Board of Directors.
SECTION 3. LOST, MUTILATED STOLEN OR DESTOYED CERTIFICATES. The
-----------------------------------------------
Corporation may issue a new certificate or new certificates in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
mutilated, stolen or destroyed. The Board of Directors, in its discretion and
as a condition precedent to the issuance thereof, may prescribe such terms
and conditions as it deems expedient, and may require such indemnities as it
deems adequate, to protect the Corporation from any claim that may be made
against it with respect to any such certificate alleged to have been lost,
mutilated, stolen or destroyed.
SECTION 4. TRANSFER AGENT AND REGISTRAR; REGULATIONS.
-----------------------------------------
The Board of Directors may appoint transfer agents or registrars, or both,
and may require all share certificates to bear the signature of either or
both. The Board of Directors may make such additional rules and regulations
as it may deem expedient concerning the issue, transfer and registration of
certificates for shares of the Corporation.
SECTION 5. TRANSFER OF SHARES. Upon surrender to the Corporation
------------------
or the transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, the Corporation shall issue or cause the transfer
agent to issue a new certificate to the person entitled thereto, shall cancel
the old certificate and shall record such transfer upon the books of the
corporation.
ARTICLE VII
-----------
GENERAL
SECTION 1. FISCAL YEAR. The fiscal year of the Corporation shall be
----------
fixed and may from time to time be changed by resolution of the Board of
Directors.
SECTION 2. SEAL. The seal of the Corporation, if any, shall be
----
circular in form and bear the name of the Corporation, and the year and the
state of its organization.
SECTION 3. AMENDMENTS. These By-Laws may be amended or repealed or
----------
new By-Laws may be adopted by the affirmative vote of a majority of the
8
<PAGE>
stockholders, unless a greater percentage is required by the Certificate of
Incorporation or these By-Laws, at any annual or special meeting, if the notice
thereof mentions that amendment or repeal or the adoption of new By-Laws is one
of the purposes of such meeting. These By-Laws may also be amended or repealed
or new By-Laws may be adopted by the affirmative vote of a majority of the Board
of Directors given at any meeting, unless a greater percentage is required by
the Certificate of Incorporation or these By-Laws, if the notice thereof
mentions that amendment or repeal or the adoption of new By-Laws is one of the
purposes of such meeting; provided, however, that if any By-Laws regulating an
impending election of directors is adopted or amended or repealed by the Board
of Directors there shall be set forth in the notice of the next meeting of the
stockholders for the election of directors the By-Laws so adopted or amended or
repealed, together with a concise statement of the changes made.
9
<PAGE>
EXHIBIT 3.3
RESTATED
CERTIFICATE OF INCORPORATION
OF
SCHEIN PHARMACEUTICAL, INC.
(Pursuant to Section 242 of the
General Corporation Law of the State of Delaware)
It is hereby certified that:
1. The name of the corporation is Schein Pharmaceutical, Inc.
(the "Corporation"). The name under which the Corporation was originally
incorporated was Schein Pharmaceutical Corp., and the date of filing of the
original Certificate of Incorporation of the Corporation with the Secretary of
State of the State of Delaware was September 27, 1993.
2. The Board of Directors of the Corporation duly adopted a
resolution proposing and declaring it advisable that Certificate of
Incorporation of the Corporation be amended and restated in its entirety to read
as follows:
FIRST
The name of the corporation is Schein Pharmaceutical, Inc. (the
"Corporation").
SECOND
The purpose for which the Corporation is formed is to engage in
any lawful act or activity for which corporations may
<PAGE>
be organized under the General Corporation Law of the State of Delaware (the
"Delaware General Corporation Law").
THIRD
A.
The total number of shares of capital stock which the Corporation
shall have authority to issue is One Hundred Million (100,000,000) shares of
common stock, $.01 par value per share (the "Common Stock"), of which Seventy-
Six Million (76,000,000) shares shall be Class A Common Stock, $.01 par value
per share (the "Class A Common Shares"), and Twenty-Four Million (24,000,000)
shares shall be Class B Common Stock, $.01 par value per share (the "Class B
Common Shareso) and Two Million (2,000,000) shares of preferred stock, $.01 par
value per share (the oPreferred Stocko). The Board of Directors may authorize,
without further stockholder approval, the issuance from time to time of the
preferred stock in one or more series with such designations and such powers,
preferences and rights, and such qualifications, limitations or restrictions
(which may differ with respect to each series) as the Board of Directors may fix
by resolution. Shares of capital stock of the Corporation may be issued for such
consideration, not less than the par value thereof, as shall be fixed from time
to time by the Board of Directors, and shares issued for such consideration
shall be fully paid and nonassessable.
B.
Each share of the Class B Common Shares issued and outstanding,
or issued and held in the treasury of the Corporation, shall be automatically
reclassified as and changed into one new share of the Corporation's Class A
Common Shares, without any action on the part of the holder thereof upon the
earliest to occur of (1) an initial public offering of shares of Common Stock,
(2) the Termination Date, as that term is defined in the Voting Trust Agreement
(the "Voting Agreement") dated September 30, 1994 among Schein Holdings, Inc.
("Holdings") and certain shareholders of Holdings, and Martin Sperber, as voting
trustee (the "Voting Trustee"), and (3) May 15, 1999. Upon the occurrence of a
transfer on the stock transfer records of the Corporation by a holder of any
share of Class B Common Shares, each such share of Class B Common Shares so
transferred shall be automatically reclassified as and changed into one new
share of the Corporation's Class A Common Shares, without any action on the part
of the holder thereof. Upon the occurrence of such a reclassification, each
outstanding share of the Class A Common Shares shall cease to be called oClass A
Common Shareso and shall be called oCommon Stocko, and shall otherwise be
unchanged. In those cases where a reclassification described in the preceding
sentences would cause a shareholder to receive a fractional
2
<PAGE>
share, the Corporation shall issue to the shareholder a stock certificate
representing such fractional share.
C.
The following is a statement of the powers, preferences and
rights and the qualifications, restrictions and limitations of the Common Stock
of the Corporation:
(1) Class A Common Shares and Class B Common Shares. Each
-----------------------------------------------
Class A Common Share shall be identical in every respect to each Class B Common
Share, except as provided in subparagraph (C)(4). Any Class B Common Share that
is converted into a Class A Common Share in accordance with paragraph B shall
thereafter be a Class A Common Share, with all the powers, preferences and
rights and the qualifications, restrictions and limitations, including, without
limitation, with respect to voting rights, as the Class A Common Share into
which it was converted. No amendment to this Certificate of Incorporation shall
in any manner amend, alter, change or repeal any provision (other than
provisions relating to voting in subparagraph (C)(4)) relating to the Class A
Common Shares without at the same time amending, altering, changing or repealing
in the same manner the corresponding provision relating to the Class B Common
Shares, without the consent of a majority of the outstanding Class B Common
Shares or until such time as there are no Class B Common Shares outstanding.
(2) Dividends. The holders of record of Common Stock shall be
---------
entitled to receive such dividends ratably as may from time to time be declared
by the Board of Directors out of funds legally available therefor.
(3) Liquidation. In the event of any liquidation, dissolution
-----------
or winding up of the affairs of the Corporation, voluntary or involuntary, the
net assets of the Corporation available to shareholders shall be distributed
ratably to the holders of Common Stock. Neither the merger or consolidation of
the Corporation with or into another corporation nor any sale, lease, conveyance
or other disposition of all or substantially all of the property, business or
assets of the Corporation shall be deemed to be a liquidation, dissolution or
winding up of the affairs of the Corporation within the meaning of this Article
THIRD.
(4) Voting Rights. Except as otherwise required by law, the
-------------
holders of Class A Common Shares shall be entitled to one vote in respect of
each share held on all matters voted upon by the shareholders of the
Corporation. The holders of Class B Common Shares shall not be entitled to vote
on any matter, or to participate in a shareholders meeting, or to receive notice
of any meeting of shareholders; provided, however, at any time the sum of (x)
the number of Class A Common Shares subject to the
3
<PAGE>
Voting Agreement plus (y) the number of Class A Common Shares owned by the
----
Voting Trustee (or his successor) or the Voting Trustee's (or his successor's)
affiliates (as defined in Rule 405 under the Securities Act of 1933) ((x) and
(y), together, the "Voting Number") constitutes less than a majority of the
outstanding voting shares of the Corporation and the Voting Trustee (or his
successor) under the Voting Agreement shall have given written notice to the
Corporation and to the known beneficial owner of such shares that he wishes to
vote the Required Number (as defined below) of Class B Common Shares at a
meeting of shareholders or by written consent for which a record date for notice
of and voting at the meeting or the consent shall have been established, the
Required Number of Class B Common Shares shall automatically be entitled to
participate in and vote at that meeting or in that written consent on the same
basis as Class A Common Shares (and shall remain Class B Common Shares until
reclassified and changed in accordance with this Certificate of Incorporation).
As used in this paragraph 4, the term "Required Number" of Class B Common
Shares, for purposes of any such meeting or written consent, means a number of
shares equal to (a) the sum of (i) one plus (ii) 50% of the number of shares
entitled to vote at the meeting or by consent, as the case may be (it being
understood that the Required Number of Class B Common Shares shall be counted as
though they were voting shares for purposes of this clause (ii)), reduced by (b)
the Voting Number on the record date for that meeting or consent (it being
understood that the only circumstance in which the Required Number shall exceed
zero is where the Corporation shall have issued a number of voting shares that
results in the Voting Number at a particular time being less than a majority of
the outstanding voting shares at that time).
(5) Other Rights. Except as set forth above, the Common Stock
------------
shall not bear any preferential, conversion or preemptive rights. Without
limiting the generality of the foregoing, no class of Common Stock may be split,
consolidated or reclassified in any manner other than as expressly provided
herein, unless the other class of Common Stock is split, consolidated or
reclassified, as the case may be, on an identical basis.
D.
Upon the filing in the office of the Secretary of State of the
State of Delaware of this Restated Certificate of Incorporation whereby this
Article THIRD is amended to read as set forth herein, each issued and
outstanding share of Class A Common Shares, par value $.01 per share, of the
Corporation shall be automatically reclassified and changed into 123 validly
issued, fully paid and nonassessable shares of Class A Common Shares, and each
issued and outstanding share of Class B Common Shares, par value $.01 per share,
of the Corporation shall be
4
<PAGE>
automatically reclassified and changed into 123 validly issued, fully paid and
nonassessable shares of Class B Common Shares. No scrip or fractional shares
will be issued by reason of this amendment.
E.
Action required or permitted to be taken at a meeting of the
stockholders of the Corporation may not be taken by consent or consents in
writing in lieu of a meeting.
FOURTH
The registered office of the Corporation in the State of Delaware
is to be located at 1013 Centre Road, Wilmington, County of New Castle,
Delaware, 19805. The name of its registered agent at that address is Corporation
Service Company.
FIFTH
The duration of the Corporation is to be perpetual.
SIXTH
(1) The Board of Directors shall be divided into three classes,
as nearly equal in number as the then total number of directors (which shall not
be fewer than five or more than nine, unless otherwise determined by the Board
of Directors) constituting the whole board permits, with the term of office of
one class expiring each year. At the next election of directors, directors of
the first class (which shall initially be comprised of Martin Sperber and
__________) shall be elected to hold office for a term expiring at the next
succeeding annual meeting, directors of the second class (which shall initially
be comprised of _________) shall be elected to hold office for a term expiring
at the second succeeding annual meeting and directors of the third class (which
shall initially be comprised of David Ebsworth and _________) shall be elected
to hold office for a term expiring at the third succeeding annual meeting.
Subject to the foregoing, at each annual meeting of stockholders, the successors
to the class of directors whose term shall then expire shall be elected to hold
office for a term expiring at the third succeeding annual meeting and each
director so elected shall hold office until his successor is elected and
qualified, or until his earlier resignation or removal. If the number of
directors is changed, any increase or decrease in the number of directors shall
be apportioned among the three classes to make all classes as nearly equal in
number as possible, and the Board of Directors
5
<PAGE>
shall decide which class shall contain an unequal number of directors.
(2) Only persons who are nominated in accordance with the
procedures set forth in this paragraph, or in the general stockholders agreement
dated September 30, 1994 among Schein Holdings, Inc. (now Schein Pharmaceutical,
Inc.), Miles Inc. and certain stockholders of Schein Holdings, Inc. (the
"General Stockholders Agreement"), shall be eligible to serve as directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at an annual meeting of stockholders (a) by or at the direction of
the Board of Directors or (b) by or on behalf of a stockholder of the
Corporation, or a duly authorized proxy for such stockholder, who is a
stockholder of record at the time of giving notice provided for in this
paragraph and who shall be entitled to vote for the election of directors at the
meeting. Any nominations not made by or at the direction of the Board of
Directors must be made pursuant to a notice in writing to the Secretary of the
Corporation delivered or mailed to, and received at, the principal executive
offices of the Corporation not fewer than 60 days or more than 90 days prior to
the anniversary date of the immediately preceding annual meeting; provided,
--------
however, that in the event the annual meeting with respect to which such notice
- -------
is to be tendered is not held within 30 days before or after such anniversary
date, notice by the stockholder to be timely must be received not earlier than
90 days prior to such annual meeting and not later than 60 days prior to such
annual meeting; and further provided, however, that, notwithstanding the
------- -------- -------
foregoing, with respect to the first annual meeting of stockholders after
January 2, 1998, such notice by the stockholder must be received at the
principal executive offices of the Corporation prior to the close of business on
the tenth day following the date on which notice of the meeting was first given
or made to stockholders generally. Such stockholder's notice shall set forth (a)
as to each person whom the stockholder proposes to nominate for election or
reelection as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934 (including such person's written consent to
being named as a nominee and to serving as a director, if elected); and (b) as
to the stockholder giving the notice (i) the name and address, as they appear on
the Corporation's books, of such stockholder, (ii) the class and number of
shares of stock of the Corporation beneficially owned by such stockholder and
represented by proxy and (iii) a description of all arrangements or
understandings between such stockholder and any other person or persons
(including their names) in connection with such nomination and any material
interest of such stockholder in such nomination. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to
6
<PAGE>
be set forth in a stockholder's notice of nomination that pertains to the
nominee. If the Board of Directors shall determine, based on the facts, that a
nomination was not made in accordance with the above procedures, the Chairman of
the meeting shall so declare to the meeting and the defective nomination shall
be disregarded.
(3) Unless a greater vote requirement in any matter is provided
in this Certificate of Incorporation or the By-laws, the affirmative vote of a
majority of the directors present and acting at a duly constituted meeting at
which a majority of the entire Board of Directors is present and acting, is
sufficient for all action of the Board of Directors.
(4) Any action required or permitted to be taken by the Board of
Directors may be taken without a meeting if all members of the Board consent in
writing to the adoption of resolutions authorizing the action.
(5) Elections of directors need not be by ballot unless the By-
Laws of the Corporation shall so provide.
SEVENTH
A.
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty by such director
as a director, provided that this Article SEVENTH shall not eliminate or limit
the liability of a director (1) for any breach of such director's duty of
loyalty to the Corporation or its stockholders, (2) for acts or omissions of
such director not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of the Delaware General
Corporation Law, or (4) for any transaction from which such director derived an
improper personal benefit, in respect of which such breach of fiduciary duty
occurred. If the Delaware General Corporation Law is amended after approval by
the stockholders of this Article SEVENTH to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended from
time to time.
B.
(1) Right of Indemnification. Each person who was or is made a
------------------------
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a
7
<PAGE>
"proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the legal representative, (a) is or was a director or officer of the
Corporation or (b) is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans (whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent), shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) actually and reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in paragraph (2) hereof the Corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article SEVENTH shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as such
(and not in any other capacity in which service was or is rendered by such
person while a director or officer, including, without limitation, service with
respect to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Article SEVENTH or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
(2) Right of Claimant to Bring Suit. If a claim under
-------------------------------
paragraph (1) of this Article SEVENTH is not paid in full by the Corporation
within thirty days after a written claim has been received by the Corporation,
the claimant may at any time thereafter bring suit against the Corporation to
recover the
8
<PAGE>
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(3) Non-Exclusivity of Rights. The right to indemnification
-------------------------
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article SEVENTH shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, by-law, agreement, vote
of stockholders or disinterested directors or otherwise.
(4) Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, against
any such expense, liability or loss, whether or not the Corporation would have
the power to indemnify such person against such expense, liability or loss under
the Delaware General Corporation Law.
EIGHTH
Subject to the provisions of Article NINTH below, the directors
of the Corporation may, by a vote of a majority of directors present at a
meeting in which a quorum is present, adopt, amend or repeal any By-Law.
NINTH
9
<PAGE>
The Corporation shall not, and shall not permit any of its
subsidiaries to, and no officer, employee or other agent of the Corporation or
any of its subsidiaries shall have the authority, in the name or on behalf of
the Corporation or any of its subsidiaries to, directly or indirectly, without
the prior written consent of Bayer Corporation ("Bayer," formerly Miles Inc.)
(which consent shall be deemed given, if a majority of Bayer's nominees to the
Board of Directors of the Corporation consent in writing (it being understood
that consent given in this manner shall not be deemed the exclusive method of
giving consent)) amend or restate the Corporation's certificate of incorporation
or By-Laws in any respect, (a) as a result of which the ability to (i) elect a
majority of the members of the Board of Directors of the Corporation, (ii) adopt
an agreement of merger or consolidation, (iii) approve a sale of all or
substantially all the assets of the Corporation or (iv) adopt an amendment to
the Corporation's certificate of incorporation or by-laws would require the vote
of more than a majority of the outstanding shares of Common Stock entitled to
vote thereon, (b) that would adversely affect Bayer differently from other
holders of shares of Common Stock or (c) that, by its terms, would prohibit any
foreign national from holding shares of Common Stock or serving as a director.
This Article NINTH may be amended only with the prior written
consent of Bayer (as described above in this Article NINTH), and the provisions
of this Article NINTH shall terminate and be of no further force or effect upon
the termination of Bayer's rights under Section 2.5 of General Stockholders
Agreement.
TENTH
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement,
10
<PAGE>
the said compromise or arrangement and the said reorganization shall, if
sanctioned by the court to which the said application has been made, be binding
on all the creditors or class of creditors, and/or on all the stockholders, of
the Corporation, as the case may be, and also on the Corporation.
3. The foregoing amendment has been duly adopted by the
stockholders of the Corporation in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware.
4. This amendment to the Certificate of Incorporation shall
be effective on and as of the date of filing this Certificate of Amendment with
the office of the Secretary of State of the State of Delaware.
11
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate
of Amendment to be executed in its name by its President and attested to by its
Secretary this _____ day of January, 1998, and the statements contained herein
are affirmed as true under penalties of perjury.
SCHEIN PHARMACEUTICAL, INC.
By:___________________________
Martin Sperber
President
ATTEST:
By:___________________________
12
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED BY-LAWS
OF
SCHEIN PHARMACEUTICAL, INC.
----------
ARTICLE I
----------
OFFICES
The Corporation shall maintain a registered office in the State
of Delaware as required by law. The Corporation may also have offices at other
places, within and without the State of Delaware.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of stockholders shall be
-----------------
held at the principal office of the Corporation or such place within or without
the State of Delaware as the Board of Directors shall authorize.
SECTION 2. ANNUAL MEETINGS. The annual meeting of stockholders
---------------
for the election of directors and the transaction of such other business as may
properly come before the meeting shall be held at such times as may be fixed
from time to time by the Board of Directors. The Board of Directors acting by
resolution may postpone and reschedule any previously scheduled annual meeting
of stockholders.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders may
----------------
be called by the Board of Directors or by the Chairman of the Board. Such
request shall state the purpose or purposes of the proposed meeting. Business
transacted at a special meeting shall be confined to the purpose or purposes
stated in the notice. The Board of Directors acting by resolution may postpone
and reschedule any previously scheduled special meeting of stockholders.
SECTION 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Written notice,
----------------------------------
stating the place, date and time of the meeting, the purpose or purposes of the
meeting and, unless
<PAGE>
it is the annual meeting, an indication that it is being issued by or at the
direction of the person or persons calling the meeting, shall be given to each
stockholder entitled to vote thereat, except that (a) it shall not be necessary
to give notice to any stockholder who submits a signed waiver of notice before
or after the meeting, and (b) no notice of an adjourned meeting need be given,
except when required by law or if the time and place are announced at the
meeting at which the adjournment is taken, provided that, if adjournment is for
more than 30 days or if, after the adjournment, a new record date is fixed for
the meeting, notice of the adjourned meeting shall be given. Each notice of a
meeting shall be given, personally or by mail, not fewer than 10 or more than 60
days before the meeting and shall state the time and place of the meeting, and,
unless it is the annual meeting, shall state at whose direction or request the
meeting is called and the purposes for which it is called. If mailed, notice
shall be considered given when mailed to a stockholder at his address on the
Corporation's records. The attendance of any stockholder at a meeting, without
protesting at the beginning of the meeting that the meeting is not lawfully
called or convened, shall constitute a waiver of notice by him.
SECTION 5. FIXING RECORD DATE. In order that the Corporation may
------------------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date for any such determination of stockholders. Such date shall not be more
than sixty nor less than ten days before the date of such meeting, nor more than
sixty days prior to any other action. If no record date is fixed it shall be
determined in accordance with the provisions of law. When a determination of
stockholders of record entitled to notice of or to vote at any meeting of
stockholders has been made as provided in this Section 5, such determination
shall apply to any adjournment thereof, unless the Board of Directors fixes a
new record date for the adjourned meeting or further notice is required by
statute.
SECTION 6. QUORUM. Except as otherwise required by law, by the
------
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the Corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
When a quorum is once present to organize a meeting, it is not broken by the
subsequent withdrawal of any stockholders. In case a quorum shall not be present
at any meeting, a majority in interest of the stockholders entitled to vote
thereat, present in person or by proxy, shall have power to adjourn the meeting
from time to time, without notice other than an announcement at the meeting of
the place, date and hour of the adjourned meeting, until a quorum shall be
present, and at the adjourned meeting at which a quorum is present any business
may be transacted that might have been transacted at the meeting as originally
called.
SECTION 7. WAIVERS. Notice of meeting need not be given to any
-------
stockholder who signs a waiver of notice, in person or by proxy, whether before
or after the meeting. The attendance of a stockholder at a meeting shall
constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
2
<PAGE>
SECTION 8. PROXIES. Each stockholder entitled to vote at a
-------
meeting of stockholders or to express consent or dissent without a meeting may
authorize another person or persons to act for him or her by proxy. Every proxy
must be signed by the stockholder or his or her attorney-in-fact. No proxy shall
be valid after expiration of three years from the date thereof unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except as otherwise provided by law.
SECTION 9. VOTING RIGHTS OF STOCKHOLDERS. Every stockholder of
-----------------------------
record shall be entitled at every meeting of the stockholders to one vote for
each share standing in such stockholder's name on the record of stockholders of
the Corporation, unless otherwise provided by statute, by the Certificate of
Incorporation or by these By-Laws.
SECTION 10. VOTING. Except as otherwise provided by law or by the
------
Certificate of Incorporation, all elections for directors shall be decided by a
plurality of the votes cast at a meeting of stockholders by the holders of
shares entitled to vote in the election, and all other corporate action to be
taken by stockholder vote shall be authorized by a majority of the votes cast at
a meeting of stockholders. All voting for the election of directors shall be by
ballot.
ARTICLE III
-----------
DIRECTORS
SECTION 1. NUMBER, QUALIFICATION AND TERM OF OFFICE. Except as
----------------------------------------
may otherwise be provided in the Certificate of Incorporation or by law, the
business and affairs of the Corporation shall be managed by or under the
direction of a Board of Directors of five directors, which number may from time
to time be increased or decreased by vote of majority of the Board of Directors.
No decrease in the number of directors shall shorten the term of any incumbent
director. One class of directors shall be elected at each annual meeting of
stockholders by a plurality of the votes cast. The nomination, classification
and term of directors shall be governed by the Corporation's certificate of
incorporation.
SECTION 2. PLACE OF BOARD MEETINGS. Meetings of the Board of
-----------------------
Directors, regular or special, may be held at the office of the Corporation or
at such other places, either within or without the State of Delaware, as it may
from time to time determine or as may be specified in the notice of any meeting.
SECTION 3. ANNUAL MEETINGS. An annual meeting of the Board of
---------------
Directors shall be held immediately following the annual meeting of stockholders
at the place of such annual meeting of stockholders for the purposes of electing
officers of the Corporation and the committees of the Board of Directors and
transacting any other business which may properly come before the meeting.
Notice of annual meetings of the Board of Directors need not be given in order
legally to constitute the meeting, provided a quorum shall be present.
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of
----------------
Directors may be held at such places and times as shall be determined from time
to time by
3
<PAGE>
resolution of the directors or at such other times and dates as the Chairman of
the Board or President shall determine and as shall be specified in the notice
of such meetings. Regular meetings may be held without notice if the time and
place of such meetings are fixed by the ByLaws or the Board of Directors. Notice
of regular meetings of the Board of Directors need not be given except as
otherwise required by statute or these By-Laws.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of
----------------
Directors may be called by the Secretary of the Corporation upon the written
request of the Chairman of the Board or President or any two directors.
SECTION 6. NOTICE OF MEETINGS. Notice of each special meeting of
------------------
the Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 6, which notice shall state the time, place and, if required by statute
or these By-Laws, the purposes of such meeting. Notice of each such meeting
shall be mailed, postage thereon prepaid, to each director, by first-class mail,
at least four days before the day on which such meeting is to be held, or shall
be sent by facsimile transmission or comparable medium, or be delivered
personally or by telephone, at least twenty-four hours before the time at which
such meeting is to be held. Any meeting of the Board of Directors shall be a
legal meeting without notice thereof having been given, if all the directors of
the Corporation then holding office shall be present thereat.
SECTION 7. WAIVERS. Notice of a meeting need not be given to any
-------
director who submits a waiver of notice whether before or after the meeting or
who attends the meeting without protesting at the beginning of the meeting to
the transaction of any business because of lack of notice of the meeting.
SECTION 8. QUORUM OF DIRECTORS. Unless otherwise provided in the
-------------------
Certificate of Incorporation or these By-Laws, a majority of the directors shall
constitute a quorum for the transaction of business or of any specified item of
business. If at any meeting of the Board of Directors there shall be less than a
quorum present, a majority of those present may adjourn the meeting from time to
time until a quorum is obtained, and no further notice thereof need be given
other than by announcement at the meeting which shall be so adjourned.
SECTION 9. PARTICIPATION IN MEETINGS WITHOUT PHYSICAL
------------------------------------------
PRESENCE. Any or all members of the Board or any committee of the Board may
- --------
participate in a meeting of the Board or the committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at the meeting.
SECTION 10. BOARD ACTION. Unless otherwise provided in the
------------
Certificate of Incorporation or these By-Laws, the vote of a majority of the
directors present shall be the act of the Board. Each director shall have one
vote regardless of the number of shares, if any, which he or she may hold.
4
<PAGE>
SECTION 11. ACTION WITHOUT MEETING. Any action required or
----------------------
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting, if a written consent thereto
is signed by all members of the Board, or of such committee, as the case may be.
The written consent or consents to each such action, including the resolutions
adopted thereby, shall be filed with the minutes of the proceedings of the Board
of Directors or of the committee taking such action.
SECTION 12. REMOVAL OF DIRECTORS. Subject to the general
--------------------
stockholders agreement dated September 30, 1994 among Schein Holdings, Inc. (now
Schein Pharmaceutical, Inc.), Miles Inc. ("Miles") and certain stockholders of
Schein Holdings, Inc. (the "General Stockholders Agreement"), any director or
directors may be removed with cause at any time by the affirmative vote of the
holders of a majority of all the shares of stock outstanding and entitled to
vote, at a special meeting of the stockholders called for that purpose and the
vacancies thus created may be filled, at the meeting held for the purpose of
removal, pursuant to Section 14 of this Article III.
SECTION 13. RESIGNATION. Any director may resign at any time.
-----------
Such resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the Board of Directors, President or Secretary. The acceptance of a resignation
shall not be necessary to make it effective.
SECTION 14. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
-----------------------------------------
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the Board of Directors for any reason may
be filled in a manner that does not contravene the provisions of Section 1 of
the General Stockholders Agreement. The provisions of the preceding sentence may
be amended only with the written consent of Bayer Corporation ("Bayer," formerly
Miles), and shall be of no further force or effect upon the termination of
Bayer's rights under Section 1 of the General Stockholders Agreement, as
provided in Section 1.5 of the General Stockholders Agreement. A director
elected to fill a vacancy shall be elected to hold office until the next annual
meeting of stockholders at which the election of such director is in the regular
order of business and until his or her successor has been elected and qualified.
5
<PAGE>
ARTICLE IV
----------
SPECIAL NOTICE REQUIREMENTS
Except for an action by unanimous written consent of the Board of
Directors pursuant to Article SIXTH of the corporation's certificate of
incorporation, no action or meeting of directors or stockholders of the
Corporation shall have any force or effect, unless the action or meeting is
taken or held (a) in the case of meetings of stockholders or directors of the
Corporation, or any other action of stockholders or directors of the
Corporation, upon at least 15 business days' prior written notice to Bayer and
Bayer's nominee(s) to the Board of Directors and any observer of Bayer (as
provided in Section 1.1 of the General Stockholders Agreement) and (b) in the
case of any actions or meetings of directors or stockholders of the Corporation,
where in the good faith judgment of the Chairman of the Board of Directors, the
circumstances require an action or a meeting to be held upon fewer than 15
business days' prior written notice, upon at least 24 hours (in the case of
actions or meetings of directors) and five business days (in the case of actions
or meetings of the stockholders) prior written notice to Bayer and Bayer's
nominee(s) to the Board of Directors and any observer of Bayer (as provided in
Section 1.1 of the General Stockholders Agreement), unless Bayer or the Bayer's
nominee(s) to the Board of Directors, as the case may be, shall otherwise have
expressly agreed to a shorter period of prior written notice or waived such
notice in writing. The provisions of this Article IV may be amended only with
the written consent of Bayer, and shall be of no further force or effect upon
the termination of Bayer's rights under Section 1.4 of the General Stockholders
Agreement, as provided in Section 1 of the General Stockholders Agreement.
ARTICLE V
---------
OFFICERS
SECTION 1. OFFICERS. The Board of Directors at its meeting
--------
following the annual meeting of stockholders shall elect a Chairman of the
Board, a President, one or more Vice-Presidents (one or more of whom may be
designated as Executive Vice Presidents or as Senior Vice Presidents or by other
designations), a Secretary, a Treasurer and such other officers as it may from
time to time determine, each of whom shall have such duties, powers and
functions as provided in these By-Laws and as may be determined from time to
time by resolution of the Board of Directors. Any two or more offices may be
held by the same person.
SECTION 2. ELECTION OR APPOINTMENT AND TERM OF OFFICE.
------------------------------------------
Each officer shall be elected or appointed by the Board of Directors to hold
office until the next annual meeting of the Board of Directors and until such
officer's successor is elected or appointed and qualified, or until such earlier
date as shall be prescribed by the Board of Directors at the time of his or her
election or appointment or until an earlier resignation, removal or displacement
from office. Any officer may be removed at any time, with or without cause, by
vote of a majority of the Board of Directors.
6
<PAGE>
SECTION 3. VACANCIES. In the event of the resignation, removal or
---------
other displacement from office of an officer elected or appointed by the Board
of Directors, the Board, in its sole discretion, may elect or appoint a
successor to fill the unexpired term.
SECTION 4. THE CHAIRMAN OF THE BOARD. The Chairman of the Board
-------------------------
shall be the chief executive officer of the Corporation and shall have such
powers and duties as generally pertain to the responsibilities of chief
executive officer, including the management of the business and affairs of the
Corporation, subject only to the control and direction of the Board of
Directors. The Chairman of the Board shall, when present, preside as chairman at
all meetings of the stockholders and of the Board of Directors.
SECTION 5. THE PRESIDENT. The President reporting to the Chairman
-------------
of the Board, shall have such powers and duties as may be conferred by the Board
of Directors or as may be determined from time to time by the Chairman of the
Board, subject to the control and direction of the Board of Directors. In the
absence of the Chairman of the Board, the President shall preside at meetings of
the stockholders and of the Board of Directors.
SECTION 6. OTHER OFFICERS. The other officers of the Corporation,
--------------
subject and reporting to the Chairman of the Board and/or President, as
determined from time to time by the Board of Directors, shall each have such
powers and duties generally pertaining to their respective offices.
SECTION 7. SHARES OF OTHER CORPORATIONS. Whenever the
----------------------------
Corporation is the holder of shares of any other Corporation, any or all rights
and powers of the Corporation as such stockholder (including the attendance,
acting and voting at stockholders' meetings, and execution of waivers, consents
and proxies) may be exercised on behalf of the Corporation by the Chairman of
the Board, the President or by such other person as the Board of Directors may
authorize.
ARTICLE VI
----------
CERTIFICATES FOR SHARES
SECTION 1. CERTIFICATES. The certificates for shares of the
------------
Corporation shall be in such form as shall be determined by the Board of
Directors.
SECTION 2. FRACTIONAL SHARES. The Corporation may, but shall not
-----------------
be required to, issue fractions of a share. If the Corporation does not in any
case issue a fraction of a share, it shall instead pay to the stockholder an
amount in cash in lieu of such fraction of a share equal to the fair market
value of such fraction of a share, as determined in good faith by the Board of
Directors. In addition, the Corporation may at any time elect to pay to each
holder of a fraction of a share an amount in cash in lieu of such fraction of a
share equal to the fair market value of such holder's fraction of a share, as
determined in good faith by the Board of Directors.
7
<PAGE>
SECTION 3. LOST, MUTILATED, STOLEN OR DESTROYED CERTIFICATES.
-------------------------------------------------
The Corporation may issue a new certificate or new certificates in
place of any certificate theretofore issued by the Corporation alleged to have
been lost, mutilated, stolen or destroyed. The Board of Directors, in its
discretion and as a condition precedent to the issuance thereof, may prescribe
such terms and conditions as it deems expedient, and may require such
indemnities as it deems adequate, to protect the Corporation from any claim that
may be made against it with respect to any such certificate alleged to have been
lost, mutilated, stolen or destroyed.
SECTION 4. TRANSFER AGENT AND REGISTRAR; REGULATIONS. The
-----------------------------------------
Board of Directors may appoint transfer agents or registrars, or both, and may
require all share certificates to bear the signature of either or both. The
Board of Directors may make such additional rules and regulations as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of the Corporation.
SECTION 5. TRANSFER OF SHARES. Upon surrender to the Corporation
------------------
or the transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, the Corporation shall issue or cause the transfer agent
to issue a new certificate to the person entitled thereto, shall cancel the old
certificate and shall record such transfer upon the books of the corporation.
ARTICLE VII
-----------
GENERAL
SECTION 1. FISCAL YEAR. The fiscal year of the Corporation
-----------
shall be fixed and may from time to time be changed by resolution of the Board
of Directors.
SECTION 2. SEAL. The seal of the Corporation, if any, shall be
-----
circular in form and bear the name of the Corporation, and the year and the
state of its organization.
SECTION 3. AMENDMENTS. These By-Laws may be amended or repealed
----------
or new By-Laws may be adopted by the affirmative vote of a majority of the
stockholders, unless a greater percentage is required by the Certificate of
Incorporation or these By-Laws, at any annual or special meeting, if the notice
thereof mentions that amendment or repeal or the adoption of new By-Laws is one
of the purposes of such meeting. These By-Laws may also be amended or repealed
or new By-Laws may be adopted by the affirmative vote of a majority of the Board
of Directors given at any meeting, unless a greater percentage is required by
the Certificate of Incorporation or these By-Laws, if the notice thereof
mentions that amendment or repeal or the adoption of new By-Laws is one of the
purposes of such meeting; provided, however, that if any By-Laws regulating an
impending election of directors is adopted or amended or repealed by the Board
of Directors there shall be set forth in the notice of the next meeting of the
stockholders for the election of directors the By-Laws so adopted or amended or
repealed, together with a concise statement of the changes made.
8
<PAGE>
EXHIBIT 4.1
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
Among
SCHEIN PHARMACEUTICAL, INC.,
THE LENDERS,
as defined herein,
and
CHEMICAL BANK,
as Issuing Bank,
as Administrative Agent
and as Collateral Agent for the Lenders
[LOGO]SCHEIN
PHARMACEUTICAL
Dated as of September 5, 1995
- --------------------------------------------------------------------------------
<PAGE>
Schein Pharmaceutical After $5MM Pre-Payment
Revised
T/L
Repayment Schedule
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Date Balance after $5MM Applied
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
<S> <C>
Sep-96
- ----------------------------------------------------------------------
Dec-96
- ----------------------------------------------------------------------
Mar-97
- ----------------------------------------------------------------------
Jun-97
- ----------------------------------------------------------------------
Sep-97
- ----------------------------------------------------------------------
Dec-97
- ----------------------------------------------------------------------
Mar-98
- ----------------------------------------------------------------------
Jun-98
- ----------------------------------------------------------------------
Sep-98 $7,368,421
- ----------------------------------------------------------------------
Dec-98 $7,368,421
- ----------------------------------------------------------------------
Mar-99 $9,210,527
- ----------------------------------------------------------------------
Jun-99 $9,210,527
- ----------------------------------------------------------------------
Sep-99 $9,210,527
- ----------------------------------------------------------------------
Dec-99 $9,210,527
- ----------------------------------------------------------------------
Mar-00 $11,052,631
- ----------------------------------------------------------------------
Jun-00 $11,052,631
- ----------------------------------------------------------------------
Sep-00 $11,052,631
- ----------------------------------------------------------------------
Dec-00 $11,052,631
- ----------------------------------------------------------------------
Mar-01 $11,052,631
- ----------------------------------------------------------------------
Jun-01 $11,052,631
- ----------------------------------------------------------------------
Sep-01 $11,052,631
- ----------------------------------------------------------------------
Dec-01 $11,052,633
- ----------------------------------------------------------------------
Total $140,000,000
- ----------------------------------------------------------------------
</TABLE>
Page 1
<PAGE>
Schein Pharmaceutical, Inc.
$350M Credit Facilities
Chemical Bank, Agent
Amount: $350M
RC Facility $100M
Term Facility $250M
Tenor:
6.5 Years (Matures 12/31/01 )
Interest (price grid): LIBOR + 1.25% Range .75%[arrow] 1.50% 7.25%
Prime + .25% Range 0% [arrow] .50% 9.00%
Letter of Credit: Up to $30M available @ 1.625% (subject to grid)
Commitment Fee: 0.375% (unused portion) Range .25% [arrow] .50%
Arrangement Fee: 1.5% -- ($5,250,000)
Agent Fee: $100K annually
Mandatory Prepayments: 75% of Excess cash flow, 100% of new financing
above $10M, and % of proceeds from stock
offering:
50% if leverage is between 3.0x - 4.0x
25% if leverage is between 2.5x - 3.0x
0% if leverage is between 1.0x - 2.5x
Scheduled Prepayments: '95 - $0 '99 - $50M
'96 - $10M '00 - $60M
'97 - $30M '01 - $60M
'98 - $40M
Security: Mortgage all real property
Liens on receivables & inventory
Pledge of all domestic subsidiaries stock including
Marsam and 65% of wholly owned foreign
subsidiaries
Cross company guarantees by domestic subsidiaries
<PAGE>
Schein Pharmaceutical, Inc.
$350M Credit Facilities
Chemical Bank, Agent
<TABLE>
<CAPTION>
Conditions to Closing: Status
---------------------- ------
<S> <C>
Bank required due diligence
Schein Pharmaceutical, Inc.
Financial review Done
Facilities visit Done
Collateral review Done
Environmental review Done
Solvency opinion 8/23/95
Marsam Pharmaceuticals, Inc.
Financial review Done
Facilities visit Done
Collateral review 8/21-22/95
Environmental review Done
Syndication:
Bank Meeting: Done
Information Memorandum Done
Management slides Done
Loan documents 4th Draft 8/22/95
Bank commitments due 8/24/95
Pre Closing 8/24/95
Closing 9/1/95
Funding 9/6/95
Merger Agreement: Done
Tender Offer Expires 9/1/95
Hart Scott Rodino Release Done
</TABLE>
<PAGE>
Financial Schedules
$350M Credit Facilities
PRICING GRID:
<TABLE>
<CAPTION>
Frcst
Financial Ratio Price Grid Commitment
(Category) 0.75%- 1.50% Fee
---------- ------------ ----------
<S> <C> <C> <C>
YR 1995 4 1.25 .375
YR 1996 4-3 1.25 - 1.00 .375
YR 1997 2-1 .875 - .75 .3125-.25
YR 1998 1 .75 .25
YR 1999 1 .75 .25
</TABLE>
WORKING CAPITAL:
Working Capital (June 30, 1995) 3.0X
Projections (1996-1999) 2.5X (Average)
CAPITAL EXPENDITURE:
<TABLE>
<CAPTION>
Projected Limitation
--------- ----------
<S> <C> <C>
YR 1995 20 25
YR 1996 22 25
YR 1997 24 25
YR 1998 23 25
YR 1999 23 25
<CAPTION>
INTERNATIONAL JV'S
Projected Limitation
--------- ----------
<S> <C> <C>
YR 1995 7 10
YR 1996 10 10
YR 1997 5 10
YR 1998 0 10
YR 1999 0 10
<CAPTION>
INVESTMENTS (ALL OTHER)
Projected
---------
<S> <C> <C>
YR 1995 3 Limitation = $10M Aggregate (95,96,97
YR 1996 3 Limitation = $15M Aggregate (97,98,99
YR 1997 3
YR 1998 3
YR 1999 3
</TABLE>
<PAGE>
Financial Schedules
$350M Credit Facilities
<TABLE>
<CAPTION>
NET WORTH
Projected Test
--------- ----
<S> <C> <C>
YR 1995 154 145
YR 1996 196 170
YR 1997 262 225
YR 1998 345 275
YR 1999 435 350
</TABLE>
<TABLE>
<CAPTION>
LEVERAGE RATIO
{Total Debt/EBITDA}
Projected Test Senior Test
--------- ---- -----------
<S> <C> <C> <C>
YR 1995 4.4 5.0 5.0
YR 1996 2.5 4.0 4.0
YR 1997 1.6 3.5 3.0
YR 1998 1.0 3.0 2.5
YR 1999 0.6 3.0 2.5
</TABLE>
<TABLE>
<CAPTION>
MINIMUM FIXED CHARGE COVERAGE
Projected Test
--------- ----
<S> <C> <C>
YR 1995 3.6 1.5
YR 1996 3.0 1.5
YR 1997 2.5 1.5
YR 1998 2.6 1.5
YR 1999 2.8 1.5
</TABLE>
DIVIDEND LIMITATION
Dividend Limitation is in effect until Total Debt/EBITDA = 2.5X Estimated at
Year End 1996
<PAGE>
[EXECUTION COPY]
================================================================================
CREDIT AGREEMENT
Among
SCHEIN PHARMACEUTICAL, INC.,
THE LENDERS,
as defined herein,
and
CHEMICAL BANK,
as Issuing Batik,
as Administrative Agent
and as Collateral Agent for the Lenders
Dated as of September 5, 1995
================================================================================
[CS&M Ref. 6700-331/P95-0114]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
Definitions
<S> <C>
SECTION 1.01. Defined Terms .............................................. 3
SECTION 1.02. Terms Generally ............................................ 35
ARTICLE II
The Credits
SECTION 2.01. Commitments ................................................ 35
SECTION 2.02. Loans ...................................................... 36
SECTION 2.03. Borrowing Procedure ........................................ 39
SECTION 2.04. Evidence of Debt; Repayment of Loans ....................... 40
SECTION 2.05. Fees ....................................................... 41
SECTION 2.06. Interest on Loans .......................................... 43
SECTION 2.07. Default Interest ........................................... 44
SECTION 2.08. Alternate Rate of Interest ................................. 44
SECTION 2.09. Termination and Reduction of
Commitments .............................................. 45
SECTION 2.10. Conversion and Continuation of
Borrowings ............................................... 46
SECTION 2.11. Repayment of Term Facility
Borrowings ................................................ 48
SECTION 2.12. Optional Prepayment ........................................ 49
SECTION 2.13. Mandatory Prepayments ...................................... 50
SECTION 2.14. Reserve Requirements; Change in
Circumstances ............................................ 51
SECTION 2.15. Change in Legality ......................................... 54
SECTION 2.16. Indemnity .................................................. 55
SECTION 2.17. Pro Rata Treatment ......................................... 56
SECTION 2.18. Sharing of Setoffs ......................................... 56
SECTION 2.19. Payments ................................................... 57
SECTION 2.20. Taxes ...................................................... 58
SECTION 2.21. Assignment of Commitments under
Certain Circumstances; Duty To
Mitigate ................................................. 62
</TABLE>
<PAGE>
2
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 2.22. Letters of Credit ........................................... 63
ARTICLE III
Representations and Warranties
SECTION 3.01. Organization; Powers ........................................ 69
SECTION 3.02. Authorization ............................................... 69
SECTION 3.03. Enforceability .............................................. 70
SECTION 3.04. Governmental Approvals ...................................... 70
SECTION 3.05. Financial Statements ........................................ 71
SECTION 3.06. No Material Adverse Change .................................. 72
SECTION 3.07. Title to Properties; Possession
under Leases .............................................. 72
SECTION 3.08. Subsidiaries ................................................ 73
SECTION 3.09. Litigation; Compliance with Laws ............................ 73
SECTION 3.10. Agreements .................................................. 74
SECTION 3.11. Federal Reserve Regulations ................................. 74
SECTION 3.12. Investment Company Act; Public
Utility Holding Company Act ............................... 74
SECTION 3.13. Use of Proceeds ............................................. 75
SECTION 3.14. Tax Returns ................................................. 75
SECTION 3.15. No Material Misstatements ................................... 75
SECTION 3.16. Employee Benefit Plans ...................................... 75
SECTION 3.17. Environmental Matters ....................................... 76
SECTION 3.18. Insurance ................................................... 77
SECTION 3.19. Solvency .................................................... 77
SECTION 3.20. Location of Real Property and Leased
Premises .................................................. 78
SECTION 3.21. Labor Matters ............................................... 79
SECTION 3.22. Tender Offer; Merger ........................................ 79
SECTION 3.23. Capitalization of the Borrower .............................. 80
ARTICLE IV
Conditions of Lending
SECTION 4.01. All Credit Events ........................................... 81
SECTION 4.02. First Credit Event .......................................... 82
SECTION 4.03. Additional Conditions Precedent ............................. 88
</TABLE>
<PAGE>
3
<TABLE>
<CAPTION>
Page
----
ARTICLE V
Affirmative Covenants
<S> <C>
SECTION 5.01. Existence; Businesses and Properties ....................... 89
SECTION 5.02. Insurance .................................................. 89
SECTION S.03. Obligations and Taxes ...................................... 91
SECTION 5.04. Financial Statements, Reports, etc ......................... 91
SECTION 5.05. Litigation and Other Notices ............................... 93
SECTION 5.06. Employee Benefits .......................................... 93
SECTION 5.07. Maintaining Records; Access to
Properties and Inspections ............................... 93
SECTION 5.08. Use of Proceeds ............................................ 94
SECTION 5.09. Compliance with Environmental Laws ......................... 94
SECTION 5.10. Preparation of Environmental Reports ....................... 94
SECTION 5.11. Further Assurances ......................................... 95
SECTION 5.12. Rate Protection Agreements ................................. 96
SECTION 5.13. Merger ..................................................... 96
SECTION 5.14. Board of Directors of the Company .......................... 96
ARTICLE VI
Negative Covenants
SECTION 6.01. Indebtedness ............................................... 96
SECTION 6.02. Liens ...................................................... 98
SECTION 6.03. Sale and Lease-Back Transactions ........................... 100
SECTION 6.04. Investments, Loans and Advances ............................ 100
SECTION 6.05. Mergers, Consolidations and Sales of
Assets ................................................... 101
SECTION 6.06. Dividends and Distributions;
Restrictions on Ability of
Subsidiaries To Pay Dividends ........................... 102
SECTION 6.07. Transactions with Affiliates ............................... 103
SECTION 6.08. Business of Borrower and Subsidiaries ...................... 103
SECTION 6.09. Operating Leases ........................................... 104
SECTION 6.10. Amendments of Certain Agreements;
Conduct of Acquisition ................................... 104
SECTION 6.11. Fiscal Year ................................................ 104
SECTION 6.12. Payment on Other Indebtedness .............................. 104
SECTION 6.13. Capital Expenditures ....................................... 105
</TABLE>
<PAGE>
4
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.14. Leverage Ratio ............................................. 105
SECTION 6.15. Senior Debt Ratio .......................................... 106
SECTION 6.16. Net Worth .................................................. 107
SECTION 6.17. Working Capital ............................................ 107
SECTION 6.18. Fixed Charge Coverage Ratio ................................ 107
ARTICLE VII
Events of Default ........................................................ 107
ARTICLE VIII
The Administrative Agent and the Collateral Agent ........................ 112
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices .................................................... 116
SECTION 9.02. Survival of Agreement ...................................... 117
SECTION 9.03. Binding Effect ............................................. 118
SECTION 9.04. Successors and Assigns ..................................... 118
SECTION 9.05. Expenses; Indemnity ........................................ 123
SECTION 9.06. Rights of Setoff ........................................... 124
SECTION 9.07. Applicable Law ............................................. 125
SECTION 9.08. Waivers; Amendment ......................................... 125
SECTION 9.09. Interest Rate Limitation ................................... 127
SECTION 9.10. Entire Agreement ........................................... 127
SECTION 9.11. WAIVER OF JURY TRIAL ....................................... 127
SECTION 9.12. Severability ............................................... 128
SECTION 9.13. Counterparts ............................................... 128
SECTION 9.14. Headings ................................................... 128
SECTION 9.15. Jurisdiction; Consent to Service of
Process ................................................. 128
SECTION 9.16. Mortgaged Property Casualty and
Condemnation ............................................ 129
SECTION 9.17. Confidentiality ............................................ 135
</TABLE>
<PAGE>
5
Schedule 1.01 Certain Permitted Holders
Schedule 2.01 Commitments
Schedule 3.08 Subsidiaries
Schedule 3.18 Insurance
Schedule 3.20(a) Owned Real Property
Schedule 3.20(b) Leased Real Property
Schedule 4.02(a) Local Counsel
Schedule 6.01 Existing Indebtedness
Schedule 6.02 Existing Liens
Schedule 6.04 Existing Investments
Exhibit A Form of Administrative
Questionnaire
Exhibit B Form of Assignment and Acceptance
Exhibit C Form of Borrowing Request
Exhibit D Form of Guarantee Agreement
Exhibit E Form of Indemnity, Subrogation and
Contribution Agreement
Exhibit F Form of Mortgage
Exhibit G Form of Pledge Agreement
Exhibit H Form of Security Agreement
Exhibit I-1 Form of Opinion of PRG&M
Exhibit I-2 Form of Opinion of Local Counsel
Exhibit J Form of Opinion of Counsel to the
Company
<PAGE>
CREDIT AGREEMENT dated as of September 1, 1995, among SCHEIN
PHARMACEUTICAL, INC., a Delaware corporation (the "Borrower"); the LENDERS (as
defined in Article I); and CHEMICAL BANK, a New York banking corporation as
issuing bank (in such capacity, the "Issuing Bank"), as administrative agent (in
such capacity, the "Administrative Agent") and as collateral agent (in suck
capacity, the "Collateral Agent") for the Lenders.
The Borrower has requested the Lenders to extend credit in order to enable
the Borrower, on the terms and subject to the conditions of this Agreement, to
borrow (a) on a term basis, on the Tender Offer Date (such term and each other
tern used but not otherwise defined in this preamble having the meaning assigned
to it in Article I), an aggregate principal amount not in excess of $250,000,000
(the "Tender Facility") and (b) on a revolving basis, at any time and from time
to time on or after the Tender Offer Date and prior to the Pre-Merger Facilities
Maturity Date, an aggregate principal amount at any time outstanding not in
excess of $100,000,000 (the "Pre-Merger Revolving Facility"). The proceeds of
borrowings under the Tender Facility and up to $50,000,000 of proceeds of
borrowings under the Pre-Merger Revolving Facility are to be used (a) by the
Borrower or Acquisition Co. (i) to purchase outstanding shares of common stock,
par value $.01 per share (the "Shares"), of Marsan Pharmaceuticals Inc., a
Delaware corporation (the "Company"), which Shares will be acquired by the
Borrower or Acquisition Co. pursuant to an all cash tender offer for all the
outstanding Shares (the "Tender Offer") to be made by Acquisition Co. pursuant
to the Merger Agreement, or (ii) to pay related fees and expenses not in excess
of $15,000,000, or (b) used by the Borrower to refinance up to $65,000,000
existing debt of the Borrower and the Subsidiaries (other than the Company and
its subsidiaries). The remaining proceeds of borrowings under the Pre-Merger
Revolving Facility are to be used to provide working capital for the Borrower
and the Subsidiaries and for general corporate purposes.
The Borrower has also requested the Lenders to extend credit in order to
enable the Borrower, on the terms and subject to the conditions of this
Agreement, to borrow (a) on a term basis, from time to time on or after the
<PAGE>
2
Merger Date and prior to the date 120 days after the Merger Date, an aggregate
principal amount not in excess of $250,000,000 (the "Term Facility"), and (b) on
a revolving basis, at any time and from time to time on or after the Merger Date
and prior to the Post-Merger Facilities Maturity Date, an aggregate principal
amount at any time outstanding not in excess of $100,000,000 (the "Post-Merger
Revolving Facility").
The Borrower has also requested the Issuing Bank to issue letters of credit
from time to time on or after the Merger Date and prior to the date that is five
Business Days prior to the Post-Merger Facilities Maturity Date, in an aggregate
face amount at any time outstanding not in excess of $30,000,000, to support
payment obligations incurred in the ordinary course of business by the Borrower
and its Subsidiaries.
The proceeds of the borrowings under the Term Facility and $50,000,000 of
the proceeds of borrowings under the Post-Merger Revolving Facility are to be
used solely (a) to pay any cash consideration due in the Merger to holders of
Shares, (b) to refinance borrowings under the Tender Facility and the Pre-Merger
Revolving Facility and (c) to pay fees and expenses related to the Acquisition
not in excess of $15,000,000 less the amount of such fees and expenses paid on
the Tender Offer Date. The remaining proceeds of borrowings under the
Post-Merger Revolving Facility are to be used to refinance borrowings under the
Pre-Merger Revolving Facility and to provide working capital for the Borrower
and the Subsidiaries.
The Lenders are willing to extend such credit to the Borrower and the
Issuing Bank is willing to issue letters of credit for the account of the
Borrower on the
<PAGE>
3
terms and subject to the conditions set forth herein. Accordingly, the parties
hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the following terms
shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any ABR Term Loan or ABR Revolving Loan.
"ABR Revolving Loan" shall mean any Revolving Loan bearing interest at a
rate determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"ABR Term Loan" shall mean any Term Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Acquisition" shall mean the Tender Offer, the Merger and the other
transactions contemplated by the Merger Agreement and the Tender Offer
Materials.
"Acquisition Co." shall mean SM Acquiring Co., Inc., a Delaware
corporation.
"Adjusted LIBO Rate" shall mean, with respect to any Eurodollar Borrowing
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 3%) equal to the product of (a) the LIBO Rate in
effect for such Interest Period and (b) Statutory Reserves.
"Administrative Agent Fees" shall have the meaning assigned to such term in
Section 2.05(b).
"Administrative Questionnaire" shall mean an Administrative Questionnaire
in the form of Exhibit A.
<PAGE>
6
Interest Expense Coverage Ratio shall be effective with respect to all Loans,
Commitments and Letters of Credit outstanding on and after the due date for
delivery to the Administrative Agent of the financial statements and
certificates required by Section 5.04(a) or 5.04(b) and Section 5.04(c)
indicating such change (even if such statements and certificates are delivered
prior to such due date) until the date immediately preceding the next due date
for delivery of such financial statements and certificates indicating another
such change (even if such statements and certificates are delivered prior to
such due date). Notwithstanding the foregoing, the Applicable Percentage shall
be determined by reference to (a) Category 5(i) for any period after the last
day of the second complete fiscal quarter to commence after the Merger Date
during which the Borrower has failed to deliver the financial statements and
certificates required by Section 5.04(a) or 5.04(b) and Section 5.04(c) if such
failure has continued unremedied for three Business Days following notice
thereof from the Administrative Agent or any Lender and (ii) at any time after
the last day of the second complete fiscal quarter to commence after the Merger
Date during the continuance of an Event of Default and (b) subject to clause (a)
above, Category 4 on or prior to the delivery of the financial statements and
certificates required by Section 5.04(a) or 5.04(b) and Section 5.04(c) for the
second complete fiscal quarter to commence after the Merger Date.
"Assessment Rate" shall mean for any date the annual rate (rounded upwards,
if necessary, to the next 1/100 of 1%) most recently estimated by the
Administrative Agent as the then current net annual assessment rate that will be
employed in determining amounts payable by the Administrative Agent to the
Federal Deposit Insurance Corporation (or any successor thereto) for insurance
by such Corporation (or such successor) of time deposits made in dollars at the
Administrative Agent's domestic offices.
"Asset Sale" shall mean (a) the sale, transfer or other disposition by the
Borrower or any Subsidiary to any person, other than the Borrower or a wholly
owned Subsidiary that is a Guarantor, of (i) any outstanding capital stock of
any Subsidiary or (ii) any other assets of the Borrower or any Subsidiary (other
than inventory, obsolete or worn out assets and Permitted Investments, in each
case disposed of in the ordinary course of business) and (b) the issuance or
sale by any Subsidiary of any shares of its capital stock or other equity
securities of such Subsidiary, or any
<PAGE>
7
obligations convertible into or exchangeable for, or giving any person a right,
option or warrant to acquire such securities or such convertible or exchangeable
obligations, other than an issuance or sale to the Borrower or a wholly owned
Subsidiary.
"Assignment and Acceptance" shall mean an assignment and acceptance entered
into by a Lender and an assignee, and accepted by the Administrative Agent and
the Borrower, respectively, in the form of Exhibit B or such other form as shall
be approved by the Administrative Agent and the Borrower, respectively.
"Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month
Secondary CD Rate and (ii) Statutory Reserves and (b) the Assessment Rate.
"Board" shall mean the Board of Governors of the Federal Reserve System of
the United States of America.
"Book-Entry Shares" shall mean the Shares tendered pursuant to the Tender
Offer in book-entry form through the Book-Entry Transfer Facilities.
"Book-Entry Transfer Facilities" shall mean the registered clearing
corporations designated by Acquisition Co. as "Book-Entry Facilities" for the
purpose of the Tender Offer.
"Borrowing" shall mean a group of Loans of a single Type made by the
Lenders on a single date and as to which a single Interest Period is in effect.
"Borrowing Request" shall mean a request by the Borrower in accordance with
the terms of Section 2.03 and substantially in the form of Exhibit C.
"Breakage Event" shall have the meaning assigned to such term in Section
2.16.
"Business Day" shall mean any day other than a Saturday, Sunday or day on
which banks in New York City are authorized or required by law to close;
provided, however, that, when used in connection with a Eurodollar Loan, the
term "Business Day" shall also exclude any day on which banks are not open for
dealings in dollar deposits in the London interbank market.
<PAGE>
8
"Capital Expenditures" for any period shall mean (a) the sum of (i) net
property, plant and equipment a property rights and deferred license costs of
the Borrower and the Subsidiaries as of the last May of such period, in each
case determined on a consolidated basis in accordance with GAAP, and (ii)
depreciation and amortization of property, plant and equipment and property
rights and deferred license costs of the Borrower and the Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP minus (b) the
sum of (i) the book value as of the last day prior to such period, for the
Borrower and the Subsidiaries determined on a consolidated basis in accordance
with GAAP, of those items of property, plant and equipment, and property rights,
and deferred license costs attributable to licenses, held by the Borrower or a
Subsidiary throughout such period, (ii) any additions to "net property, plant
and equipment" during such period, for the Borrower and the Subsidiaries,
determined on a consolidated basis in accordance with GAAP, resulting from
expenditures of proceeds of insurance settlements in respect of lost, destroyed
or damaged assets, equipment or other property to the extent such expenditures
are made to replace or repair all or any part of such lost, destroyed or damaged
assets, equipment or other property within 12 months of the receipt of such
proceeds and (iii) any additions, net of minority interests, if any, to "net
property, plant and equipment" and "net property rights and deferred license
costs" arising from the Acquisition.
"Capital Lease Obligations" of any person shall mean the obligations of
such person to pay rent or other amounts under any lease of or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.
"Casualty" shall have the meaning assigned to such term in Section 9.16.
A "Chance in Control" shall be deemed to have occurred if (a) any person or
group (within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934
as in effect on the date hereof) other than a Permitted Holder or a group
consisting solely of Permitted Holders shall own directly or indirectly,
beneficially or of record, shares
<PAGE>
9
representing (i) both more than 30% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of the Borrower and a
higher percentage of such aggregate ordinary voting power than is then
represented by shares owned by the Permitted Holders or (ii) more than 50% of
such aggregate ordinary voting power; (b) a majority of the seats (other than
vacant seats) on the board of directors of the Borrower shall at any time have
been occupied by persons who were neither (i) nominated by a Permitted Holder,
nor (ii) on the board of directors of the Borrower on the date of this Agreement
(the "Incumbent Board"); (c) any person or group other than a Permitted Holder
or a group consisting solely of Permitted Holders shall otherwise Control the
Borrower; or (d) a "change in control", however defined, shall occur under any
instrument evidencing other Indebtedness in a principal amount in excess of
$5,000,000 of the Borrower or any Subsidiary. For purposes of clause (b)(ii)
hereof, any individual who becomes a member of the board of directors of the
Borrower subsequent to the date of this Agreement, and whose election, or
nomination for election by the Borrower's stockholders, was approved by the
members of the board who are also members of the Incumbent Board (or so deemed
to be pursuant hereto) shall be deemed a member of the Incumbent Board;
provided, however, that any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A under the Securities Exchange
Act of 1934) or other actual or threatened solicitation of proxies or consents
by or on behalf of a person other than the then board of directors of the
Borrower shall be deemed not to be member of the Incumbent Board.
"Charges" shall have the meaning assigned to such term in Section 9.09.
"Chattel Mortgages" shall mean the chattel mortgages, chattel mortgage
notes and pledge agreements related to the Puerto Rico Subsidiary's machinery
and equipment and other security documents executed and delivered by the Puerto
Rico Subsidiary pursuant to Section 4.02(g)(ii) or 5.11, all in form and
substance acceptable to the Lenders.
"Closing Date" shall mean the date of the first Credit Event.
<PAGE>
10
"Code" shall mean the Internal Revenue Code of 1986, as the same may be
amended from time to time.
"Collateral" shall mean all the "Collateral" as defined in any Security
Document and shall also include the Mortgaged Properties.
"Commitment" shall mean, with respect to any Lender, such Lender's
Revolving Credit Commitment and Term Loan Commitment.
"Commitment Fee" shall have the meaning assigned to such term in Section
2.05(a).
"Commitments" shall mean the Tender Facility Commitments, the Pre-Merger
Revolving Credit Commitments, the Term Facility Commitments, the Post-Merger
Revolving Credit Commitments and the L/C Commitment.
"Company" shall have the meaning assigned to such term in the preamble.
"Condemnation" shall have the meaning assigned to such term in Section
9.16.
"Condemnation Proceeds" shall have the meaning assigned to such term in
Section 9.16.
"'Confidential Information Memorandum" shall mean the Confidential
Information Memorandum of the Borrower dated August 1995.
"Control" shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a person,
whether through the ownership of voting securities, by contract or otherwise,
and "Controlling" and "Controlled" shall have meanings correlative thereto.
"Credit Event" shall have the meaning assigned to such term in Section
4.01.
"Current Assets" as of any date shall mean the total assets that would
properly be classified as consolidated current assets, excluding cash and
Permitted Investments, of the Borrower and the Subsidiaries as of such date in
accordance with GAAP.
<PAGE>
11
"Current Liabilities" as of any date shall mean the total liabilities that
would properly be classified as consolidated current liabilities, excluding all
Loans, of the Borrower and the Subsidiaries as of such date in accordance with
GAAP.
"Default" shall mean any event or condition that upon notice, lapse of time
or both would constitute an Event of Default.
"Defaulted Advance" shall mean, with respect to any Lender at any time, the
amount of any Loan required to have been made by such Lender to the Borrower
pursuant to Section 2.01 at or prior to such time that has not been so made as
of such time by such Lender or by the Administrative Agent on its behalf;
provided, however, any such amount arising in connection with the failure by the
Required Lenders to make Loans that would have been part of a single Borrowing
shall be deemed not to be a Defaulted Advance. In the event that a portion of a
Defaulted Advance shall be deemed made pursuant to Section 2.02(g), the
remaining portion of such Defaulted Advance shall continue to be considered a
Defaulted Advance. To the extent any portion of a Loan made by the
Administrative Agent on a Lender's behalf is not fully repaid by such Lender by
the close of the Business Day following the making of such Loan and the
Administrative Agent thereafter exercises its right pursuant to Section 2.02(c)
to require repayment of such advance by the Borrower, then effective at the time
of such repayment by the Borrower, a Defaulted Advance shall arise equal to the
amount of such repayment.
"Defaulting Lender" shall mean, at any time, any Lender that, at such time,
owes a Defaulted Advance.
"dollars" or "$" shall mean lawful money of the United States of America.
"Domestic Subsidiary" shall mean any Subsidiary organized under the laws of
the United States of America, any State or territory thereof, the District of
Columbia or Puerto Rico.
"EBITDA" for any period shall mean Net Income for such period plus, to the
extent deducted in computing Net Income, the sum of (a) income tax expense, (b)
Interest Expense and (c) depreciation and amortization expense minus, to the
extent added in computing Net Income, (i) any non-
<PAGE>
12
cash, non-recurring gains and (ii) any interest income, all as determined on a
consolidated basis with respect to the Borrower and the Subsidiaries in
accordance with GAAP; provided, however, that, for the purpose of determining
the Leverage Ratio and compliance with Section 6.15 as of any date prior to the
last day of the third fiscal quarter of 1996, EBITDA for any four quarter period
shall equal EBITDA for the period from and including the first day of the fourth
fiscal quarter of 1995 to and including the last day of the most recently
completed fiscal quarter period multiplied by a fraction the numerator of which
is four and the denominator of which is the number of complete fiscal quarters
since September 30, 1995.
"environment" shall mean ambient air, surface water and groundwater
(including potable water, navigable water and wetlands), the land surface or
subsurface strata, the workplace or as otherwise defined in any Environmental
Law.
"Environmental Claim" shall mean any written accusation, allegation, notice
of violation, claim, demand, order, directive, cost recovery action or other
cause of action by, or on behalf of, any Governmental Authority or any person
for damages, injunctive or equitable relief, Remedial Action costs, property
damage, natural resource damages, nuisance, pollution or for fines, penalties or
restrictions, resulting from or based upon: (a) the existence, or the
continuation of the existence, of a Release (including sudden or non-sudden,
accidental or non-accidental Releases); (b) exposure to any Hazardous Material;
(c) the presence, ___; handling, transportation, storage, treatment or disposal
of any Hazardous Material; or (d) the violation or alleged violation of any
Environmental Law or Environmental Permit.
"Environmental Law" shall mean any and all applicable treaties, laws,
rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions
or binding agreements issued, promulgated by or entered into with any
Governmental Authority, relating in any way to the environment, preservation or
reclamation of natural resources, the management, Release or threatened Release
of any Hazardous Material or to health and safety matters, including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.
ss.ss. 9601 et seq. (collectively "CERCLA"), the Solid
<PAGE>
13
Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of
1976 and Hazardous and Solid Amendments of 1984, 42 U.S.C. ss.ss. 6901 et seq.
the Federal Water Pollution Control Act, as amended by the Clean Water Act of
1977, 33 U.S.C. ss.ss. 1251 et seq. the Clean Air Act of 1970, as amended 42
U.S.C. ss.ss. 7401 et seq. the Toxic Substances Control Act of 1976, 15 U.S.C.
ss.ss. 2601 et seq., the Occupational Safety and Health Act of 1970, as amended,
29 U.S.C. ss.ss. 651 et seq., the Emergency Planning and Community Right-to-Know
Act of 1986, 42 U.S.C. ss.ss. 11001 et seq. the Safe Drinking Water Act of 1974,
as amended, 42 U.S.C. ss.ss. 300(f) et seq. the Hazardous Materials
Transportation Act, 49 U.S.C. ss.ss. 1801 et sea., and any similar or
implementing state or local law, and all amendments or regulations promulgated
thereunder.
"Environmental Permit" shall mean any permit, approval, authorization,
certificate, license, variance, filing or permission required by or from any
Governmental Authority pursuant to any Environmental Law.
"Equity Issuance" shall mean any issuance or sale by the Borrower of any
shares of its capital stock or other equity securities of the Borrower, or any
obligations convertible into or exchangeable for, or giving any person a right,
option or warrant to acquire such securities or such convertible or exchangeable
obligations; provided, however, that Equity Issuance shall not include any of
the foregoing to the extent arising from or in connection with the issuance of
any stock rights, options or warrants to a director, officer or employee of the
Borrower or any Subsidiary under a duly instituted stock option plan and any
exercise thereof, to the extent the aggregate Net Proceeds thereof in any fiscal
year do not exceed $3,000,000.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that, together with the Borrower or the Company, is treated as a
single employer under Section 414(b) or (c) of the Code, or solely for purposes
of Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.
<PAGE>
14
"ERISA Event" shall mean (a) any "reportable event", as defined in Section
4043 of ERISA or the regulations issued thereunder, with respect to a Plan; (b)
the adoption of any amendment to a Plan that would require the provision of
security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c)
the existence with respect to any Plan of an "accumulated funding deficiency"
(as defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (d) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (e) the incurrence of any liability under Title IV of ERISA
with respect to the termination of any Plan or the withdrawal or partial
withdrawal of the Borrower or any of its ERISA Affiliates from any Plan or
Multiemployer Plan; (f) the receipt by the Borrower or any ERISA Affiliate from
the PBGC or a plan administrator of any notice relating to the intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (g)
the receipt by the Borrower or any ERISA Affiliate of any notice concerning the
imposition of Withdrawal Liability or a determination that a Multiemployer Plan
is, or is expected to be, insolvent or in reorganization, within the meaning of
Title IV of ERISA; (h) the occurrence of a "prohibited transaction" with respect
to which the Borrower or any of its Subsidiaries is a "disqualified person"
(within the meaning of Section 4975 of the Code) or with respect to which the
Borrower or any such Subsidiary could otherwise be liable, other than a
transaction for which a statutory exemption is available or for which an
administrative exemption has been obtained; and (i) any other event or condition
with respect to a Plan or Multiemployer Plan that would reasonably be expected
to result in liability or the Borrower.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
Loans.
"Eurodollar Loan" shall mean any Eurodollar Revolving Loan or Eurodollar
Term Loan.
"Eurodollar Revolving Loan" shall mean any Revolving Loan bearing interest
at a rate determined by reference to the Adjusted LIBO Rate in accordance with
the provisions of Article II.
"Eurodollar Term Loan" shall mean any Term Loan bearing interest at a rate
determined by reference to the
<PAGE>
15
Adjusted LIBO Rate in accordance with the provisions of Article II.
"Event of Default" shall have the meaning assigned to such term in Article
VII.
"Excess Cash Flow" for any period shall mean EBITDA for such period minus
(a) Interest Expense for such period, to the extent paid in cash during such
period, (b) any prepayments of Term Loans made during such period and any
scheduled repayments of principal of Indebtedness made by the Borrower or any
Subsidiary in cash during such period, (c) permitted Capital Expenditures and
investments pursuant to Section 6.04(i) or 6.04(1) during such period that are
paid in cash, (d) taxes paid in cash by the Borrower and the Subsidiaries on a
consolidated basis during such period, (e) an amount equal to any increase in
Net Working Capital during such period (to the extent not taken into account in
clauses (a), (d) and (f) of this definition), (f) extraordinary cash expenses of
the Borrower and the Subsidiaries paid on a consolidated basis during such
period but not included in determining EBITDA, (g) cash disbursements incurred
by the Borrower in transactions described in Section 6.07(d) to the extent that
GAAP does not permit such disbursements to be accounted for as expenses and
requires such disbursements to be accounted for as a distribution to
shareholders and (h) cash dividends paid by the Borrower in accordance with
Section 6.06(a)(iv) plus (i) an amount equal to any decrease in Net Working
Capital during such period (to the extent not taken into account in clauses (a),
(d) and (f) of this definition) and (ii) extraordinary cash income of the
Borrower and the Subsidiaries received on a consolidated basis during such
period but not included in determining EBITDA.
"Facility" shall mean the Tender Facility, the Pre-Merger Revolving Credit
Facility, the Term Loan Facility or the Post-Merger Revolving Credit Facility.
"Federal Funds Effective Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day that is a Business Day, the average of
the quotations for the day for such transactions received by the
<PAGE>
16
Administrative Agent from three Federal funds brokers of recognized standing
selected by it.
"Fee Letter" shall mean the Amended and Restated Fee Letter dated June 6,
1995, between the Borrower and the Administrative Agent.
"Fees" shall mean the Commitment Fees, the Administrative Agent Fees, the
L/C Participation Fees and the Issuing Bank Fees.
"Financial Officer" of any corporation shall mean the chief financial
officer, principal accounting officer, Treasurer or Controller of such
corporation.
"Fixed Charge Coverage Ratio" as of any date shall mean the ratio of (a)(i)
EBITDA plus (ii) if such date is on or after the last day of the third fiscal
quarter of 1997, the Permitted Carryforward Amount, minus (iii) Capital
Expenditures, in each case for the most recent complete four fiscal quarter
period ended on or prior to such date, to (b)(i) Interest Expense plus (ii) the
aggregate scheduled payments of principal in respect of Indebtedness of the
Borrower or any Subsidiary, in each case for the most recent complete four
fiscal quarter period ended on or prior to such date. The "Permitted
Carryforward Amount" for any four fiscal quarter period (the "subject period")
shall mean the lowest of (A) 50% of the excess, if any, of (I) $25,000,000 over
(II) Capital Expenditures for the four fiscal quarter period (the "prior
Period") ending immediately prior to the commencement of the subject period, (B)
50% of the amount of additional Capital Expenditures that could have been made
in the prior period without violating Section 6.18 and (C) actual Capital
Expenditures for the subject period.
"Foreign Subsidiary" shall mean any Subsidiary other than a Domestic
Subsidiary.
"GAAP" shall mean United States generally accepted accounting principles
applied on a consistent basis.
"Governmental Authority" shall mean any Federal, state, local or foreign
government, court or governmental agency, authority, instrumentality or
regulatory body.
"Guarantee" of or by any person shall mean any obligation, contingent or
otherwise, of such person guaranteeing any Indebtedness of any other person (the
<PAGE>
17
"primary obligor") in any manner, whether directly or indirectly, and including
any obligation of such person, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or to
purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Indebtedness, (b) to purchase or lease property, securities
or services for the purpose of assuring the owner of such Indebtedness of the
payment of such Indebtedness or (c) to maintain working capital, equity capital
or any other financial statement condition or liquidity of the primary obligor
so as to enable the primary obligor to pay such Indebtedness; provided, however,
that the term Guarantee shall not include endorsements for collection or deposit
in the ordinary course of business.
"Guarantee Agreements" shall mean the Guarantee Agreement, substantially in
the form of Exhibit D, made by the Guarantors in favor of the Collateral Agent
for the benefit of the Secured Parties.
"Guarantor" shall mean any person from time to time party to the Guarantee
Agreement as a guarantor.
"Hazardous Materials" shall mean all explosive or radioactive substances or
wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or
gaseous wastes, including petroleum or petroleum distillates, asbestos or
asbestos containing materials, polychlorinated biphenyls ("PCBs") or
PCB-containing materials or equipment, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Health Care Laws" shall mean any and all applicable current and future
treaties, laws, rules, regulations, codes, ordinances, orders, decrees,
judgments, injunctions, notices or binding agreements issued, promulgated or
entered into by the Food and Drug Administration, the Health Care Financing
Administration, the Department of Health and Human Services ("HHS"), the Office
of Inspector General of HHS, the Drug Enforcement Administration or any other
Governmental Authority (including any professional licensing laws, certificate
of need laws and state reimbursement laws), relating in any way to the
manufacture, distribution, marketing, sale, supply or other disposition of any
product or service of the Borrower or any Subsidiary, the conduct of the
business of the
<PAGE>
18
Borrower or any Subsidiary, the provision of health care services generally, or
to any relationship among the Borrower and the Subsidiaries, on the one hand,
and their suppliers and customers and patients and other end-users of their
products and services, on the other hand.
"Indebtedness" of any person shall mean, without duplication, (a) all
obligations of such person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such person
upon which interest charges are customarily paid, (d) all obligations of such
person under conditional sale or other title retention agreements relating to
property or assets purchased by such person, (e) all obligations of such person
issued or assumed as the deferred purchase price of property or services
(excluding trade accounts payable and accrued obligations incurred in the
ordinary course of business), (f) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property owned or acquired by such
person, whether or not the obligations secured thereby have been assumed, (g)
all Guarantees by such person of Indebtedness of others, (h) all Capital Lease
Obligations of such person, (i) all obligations of such person in respect of
Rate Protection Agreements add (j) all obligations of such person as an account
party in respect of letters of credit and bankers' acceptances (and the amount
of such Indebtedness shall equal the net payments accrued by such person in
accordance with GAAP); provided, however, that Indebtedness described in clause
(i) above shall be excluded for purposes of determining the Leverage Ratio and
the amount of Senior Debt. The Indebtedness of any person shall include the
Indebtedness of any partnership in which such person is a general partner.
"Indemnitee" shall have the meaning assigned to such term in Section 9.05.
"Indemnity, Subrogation and Contribution Agreement" shall mean the
Indemnity, Subrogation and Contribution Agreement, substantially in the form of
Exhibit E, among the Borrower, the Guarantors and the Collateral Agent.
"Information" shall have the meaning assigned to such term in Section 9.17.
<PAGE>
19
"Insurance Proceeds" shall have the meaning assigned to such term in
Section 9.16.
"Interest Expense" for any period shall mean the gross interest expense of
the Borrower and the Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP, including (a) the amortization of debt discounts,
(b) the amortization of all fees (including fees with respect to interest rate
protection agreements) payable in connection with the incurrence of Indebtedness
to the extent included in interest expense and (c) the portion of any payments
or accruals with respect to Capital Lease Obligations allocable to interest
expense. For purposes of the foregoing, gross interest expense shall be
determined after giving effect in accordance with GAAP to any net payments made,
received or accrued by such person with respect to Rate Protection Agreements
entered into as a hedge against interest rate exposure.
"Interest Expense Coverage Ratio" as of any date shall mean the ratio of
(a) EBITDA to (b) Interest Expense, in each case for the most recent complete
four fiscal quarter period ended on or prior to such date.
"Interest Payment Date" shall mean, with respect to any Loan, (a) the last
day of the Interest Period applicable to the Borrowing of which such Loan is a
part and, in the case of a Eurodollar Borrowing with an Interest Period of more
than three months' duration, each day that would have been an Interest Payment
Date had successive Interest Periods of three months' duration been applicable
to such Borrowing, (b) the date of any prepayment of such Loan (other than the
prepayment pursuant to Section 2.12(a) of an ABR Revolving Loan) or conversion
of such Loan (if a Eurodollar Loan) to a Borrowing of a different Type and (c)
the Pre-Merger Facilities Maturity Date and the Post-Merger Facilities Maturity
Date.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically
corresponding day (or, if there is no numerically corresponding day, on the last
day) in the calendar month that is 1, 2, 3 or 6 months (or, if Interest Periods
of such duration shall be available from each Lender, 9 or 12 months)
thereafter, as the Borrower may elect and (b) as to any ABR Borrowing, the
period commencing on the date of such Borrowing and ending on the next
succeeding March 31, June 30, September 30 or
<PAGE>
21
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing, the rate
(rounded upwards, if necessary, to the next 1/16 of 1%) at which dollar deposits
approximately equal in principal amount to the Administrative Agent's portion of
such Eurodollar Borrowing and for a maturity comparable to such Interest Period
are offered to the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, encumbrance, charge or security interest in or on such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement relating to such asset
(excluding any leases that constitute operating leases under GAAP) and (c) in
the case of securities, shall also include any purchase option, call or similar
right of a third party with respect to such securities (excluding any option,
call or similar right in respect of securities that are not issued and
outstanding).
"Loan Documents" shall mean this Agreement, the Letters of Credit, the
Guarantee Agreement, the Security Documents and the Indemnity, Subrogation and
Contribution Agreement.
"Loan Parties" shall mean the Borrower and the Guarantors.
"Loans" shall mean the Revolving Loans and the Term Loans.
"Margin Stock" shall have the meaning assigned to such term in Regulation
U.
"Material Adverse Effect" shall mean (a) a materially adverse effect on the
business, assets, operations or condition, financial or otherwise, of the
Borrower and the Subsidiaries, taken as a whole, (b) impairment of the ability
of the Borrower and the Subsidiaries, taken as a whole, to perform their
obligations under the Loan Documents in any material respect or (c) material
impairment of the rights of or benefits available to the Lenders under any Loan
Document. In determining whether any Casualty or Condemnation has
<PAGE>
22
resulted in a Material Adverse Effect, appropriate regard shall be had for any
related Insurance Proceeds or Condemnation Proceeds and the Borrowers or any
Subsidiary's application thereof.
"Maturity Date" shall mean the Pre-Merger Facilities Maturity Date or the
Post-Merger Facilities Maturity Date, as applicable.
"Maximum Rate" shall have the meaning assigned to such term in Section
9.09.
"Merger" shall mean the merger of Acquisition Co. with and into the
Company, in which the Company shall be the surviving corporation, to be effected
pursuant to the Merger Agreement.
"Merger Agreement" shall mean the Agreement and Plan of Merger dated as of
July 28, 1995, among the Borrower, Acquisition Co. and the Company.
"Merger Date" shall mean the date of consummation of the Merger.
"Mortgaged Properties" shall mean the owned real properties of the Loan
Parties from time to time.
"Mortgages" shall mean the mortgages, deeds of trust, assignments of
leases and rents and other security documents executed and delivered by any Loan
Party pursuant to Section 4.02(j) or 5.11, each substantially in the form of
Exhibit F.
"Multiemployer Plan" shall mean a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"Net Income" for any period shall mean the consolidated net income or loss
of the Borrower and the Subsidiaries for such period determined in accordance
with GAAP, excluding (a) (to the extent included in such consolidated net income
or loss) the income (or loss) of any person (other than any Subsidiary) in which
any other person (other than the Borrower or any wholly owned Subsidiary) has an
equity interest, except to the extent of the amount of dividends or other
distributions actually paid to the Borrower or any Subsidiary by such person
during such period, (b) the income (or loss) of any person accrued prior to the
date it becomes a Subsidiary or is merged into or
<PAGE>
23
consolidated with the Borrower or any Subsidiary or the date such person's
assets are acquired by the Borrower or any Subsidiary, (c) any after tax gains
or losses attributable to sales of assets not in the ordinary course of business
and (d) (to the extent not included in clauses (a) through (c) above) any
extraordinary gains or non-cash extraordinary losses determined in accordance
with GAAP.
"Net Proceeds" shall mean: (a) with respect to any Asset Sale, the cash
proceeds thereof net of (i) costs of sale (including payment of the outstanding
principal amount of, premium or penalty, if any, and interest on any
Indebtedness (other than Loans) required to be repaid under the terms thereof as
a result of such Asset Sale), (ii) taxes paid or payable in the year such Asset
Sale occurs or in the following year as a result thereof and (iii) amounts
provided as a reserve, in accordance with GAAP, against any liabilities under
any indemnification obligations associated with such Asset Sale (provided that,
to the extent and at the time any such amounts are released from such reserve,
such amounts shall constitute Net Cash Proceeds); provided, however, that, with
respect to any Asset Sale described in clause (a)(ii) of the definition thereof,
the Net Proceeds thereof shall equal zero except to the extent that such Net
Proceeds (determined without regard to this proviso), together with the Net
Proceeds of all Asset Sales described in clause (a)(ii) of the definition
thereof (determined without regard to this proviso) previously received during
the then-current fiscal year, exceeds $1,000,000; and (b) with respect to any
Equity Issuance or any Specified Debt Issuance, the cash proceeds thereof net of
underwriting commissions or placement fees and expenses directly incurred in
connection therewith.
"Net Working Capital" as of any date shall mean the excess as of such date
of (a) Current Assets over (b) Current Liabilities.
"Net Worth" as of any date shall mean Stockholder's Equity as of such date.
"New Lending Office" shall have the meaning assigned to such term in
Section 2.20.
"Non-U.S. Lender" shall have the meaning assigned to such term in Section
2.20.
<PAGE>
24
"Obligations" shall mean, collectively, (a) the obligation to pay (i) the
principal of and premium, if any, and interest (including interest accruing
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Loans when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, (ii) all other monetary obligations,
including reimbursement obligations, fees, costs, expenses and indemnities,
whether primary, secondary, direct, contingent, fixed or otherwise (including
monetary obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of the Loan Parties to the Secured Parties under
this Agreement and the other Loan Documents and (iii) any amount in respect of
the foregoing that the Administrative Agent, the Collateral Agent or any Lender,
in its sole discretion, may elect to pay or advance under this Agreement or any
other Loan Document on behalf of any Loan Party after the occurrence and during
the continuation of a Default or an Event of Default, (b) the reimbursement
obligations of the Borrower described in Section 6.01(i) and (c) unless
otherwise agreed upon in writing by the applicable Lender, all net monetary
obligations of the Borrower under each Rate Protection Agreement entered into
with any Lender to hedge interest rate exposure with respect to this Agreement.
"Other Taxes" shall have the meaning assigned to such term in Section
2.20.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and
defined in ERISA.
"Perfection Certificate" shall mean the Perfection Certificate
substantially in the form of Annex 1 to the Security Agreement.
"Permitted Foreign Company" shall mean (a) any corporation, business trust,
joint venture, association, company or partnership formed under the laws of a
country (or any political subdivision thereof) other than the United States,
engaged primarily in a segment of the pharmaceutical or health-care industry or
ancillary thereto and at least 50% of the equity interest of which is held,
directly or indirectly, by the Borrower and Bayer AG (provided that, if
applicable local law would not permit 50% of the equity
<PAGE>
25
interest in such an entity to be held by the Borrower and Bayer AG, such
percentage may be as low as 49% if the Borrower and Bayer AG otherwise Control
the applicable entity), (b) any subsidiary of a Permitted Foreign Company
described in clause (a) above and (c) any wholly owned Foreign Subsidiary the
only material assets of which are securities of Permitted Foreign Companies
described in clause (a) above.
"Permitted Holders" shall mean (a)(i) the persons listed on Schedule 1.01,
(ii) any individual forming part of the senior management of the Borrower on the
date of this Agreement, (iii) any trust for the benefit of any of the foregoing
and (iv) the estate or personal representative of any of the foregoing, (b) any
employee benefit plan (or related trust) for the benefit of the employees of the
Borrower and the Subsidiaries and (c) Bayer AG and any of its subsidiaries.
"Permitted Investments" shall mean:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed
by the full faith and credit of the United States of America), in each case
maturing within 90 days from the date of acquisition thereof;
(b) investments in commercial paper maturing within 90 days from the
date of acquisition thereof and having, at such date of acquisition, credit
ratings that are not lower than "A2" if rated by Standard & Poor's or "P2"
if rated by Moody's Investors Service, Inc.;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within 90 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts
issued or offered by, any domestic office of (i) any commercial bank
organized under the laws of the United States of America or any State
thereof that has a combined capital and surplus and undivided profits of
not less than $25O,000,000 or (ii) any Lender;
(d) in the case of any Foreign Subsidiary, investments not in excess
of $5,000,000 in the
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26
aggregate in dollar-denominated certificates of deposit, banker's
acceptances and time deposits maturing within 90 days from the date of
acquisition thereof issued or guaranteed by or placed with, and money
market deposit accounts issued or offered by, any local office of (i) any
commercial bank organized under the laws of the United States of America or
any State thereof that has a combined capital and surplus and undivided
profits of not less than $250,000,000, (ii) any Lender or (iii) any local
commercial bank that is an Affiliate of any Lender; and
(e) other investment instruments approved in writing by the Required
Lenders and offered by financial institutions which have a combined capital
and surplus and undivided profits of not less than $250,000,000.
"person" shall mean any natural person, corporation, business trust, joint
venture, association, company, limited liability company, partnership or
government, or any agency or political subdivision thereof.
"Plan" shall mean any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 307 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Pledge Agreement" shall mean the Pledge Agreement, substantially in the
form of Exhibit G, among Borrower, the Subsidiaries from time to time party
thereto and the Collateral Agent for the benefit of the Secured Parties.
"Post-Merger Facilities Maturity Date" shall mean December 31, 2001.
"Post-Merger Revolving Credit Commitment" shall mean, with respect to any
Lender, the commitment of such Lender to make Post-Merger Revolving Loans
hereunder as set forth on Schedule 2.01, or in the Assignment and Acceptance
pursuant to which such Lender assumed its Post-Merger Revolving Credit
Commitment, as applicable, as the same may be (a) reduced from time to time
pursuant to Section 2.09
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27
and (b) reduced or increased from time to time pursuant to assignments by or to
such Lender pursuant to Section 9.04.
"Post-Merger Revolving Credit Exposure" shall mean, with respect to any
Lender at any time, the aggregate principal amount at such time of all
outstanding Post-Merger Revolving Loans of such Lender, plus the aggregate
amount at such time of such Lender's L/C Exposure.
"Post-Merger Revolving Facility" shall have the meaning assigned to such
term in the preamble.
"Post-Merger Revolving Facility Borrowing" shall mean a Borrowing comprised
of Post-Merger Revolving Loans.
"Post-Merger Revolving Loan" shall mean a Loan made pursuant to Section
2.01(d).
"Pre-Merger Facilities Maturity Date" shall mean the earlier of the Merger
Date and the date 270 days after the Tender Offer Date.
"Pre-Merger Revolving Credit Commitment" shall mean, with respect to any
Lender, the commitment of such Lender to make Pre-Merger Revolving Loans
hereunder as set forth on Schedule 2.01, or in the Assignment and Acceptance
pursuant to which such Lender assumed its Pre-Merger Revolving Credit
Commitment, as applicable, as the same may be (a) reduced from time to time
pursuant to Section 2.09 and (b) reduced or increased from time to time pursuant
to assignments by or to such Lender pursuant to Section 9.04.
"Pre-Merger Revolving Facility" shall have the meaning assigned to such
term in the preamble.
"Pre-Merger Revolving Facility Borrowing" shall mean a Borrowing comprised
of Pre-Merger Revolving Loans.
"Pre-Merger Revolving Loan" shall mean a Loan made pursuant to Section
2.01(b).
"Prime Rate" shall mean the rate of interest per annum publicly announced
from time to time by the Administrative Agent as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective on the date such change is publicly announced as being effective.
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28
"Pro Rata Percentage" of any Revolving Credit Lender at any time shall mean
the percentage of the Total Revolving Credit Commitment at such time represented
by such Lender's Revolving Credit Commitment at such time. In the event the
Revolving Credit Commitments shall have expired or been terminated, the Pro Rata
Percentages shall be determined on the basis of the Revolving Credit Commitments
most recently in effect, but giving effect to any assignments pursuant to
Section 9.04.
"Properties" shall have the meaning assigned to such term in Section 3.17.
"Puerto Rico Subsidiary" shall mean Danbury Pharmacal Puerto Rico, Inc., a
Delaware corporation.
"Rate Protection Agreement" shall mean any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, currency exchange
agreement or similar agreement entered into by the Borrower or any Subsidiary to
provide protection against fluctuations in interest rates or currency exchange
rates.
"Register" shall have the meaning assigned to such term in Section 9.04.
"Regulation G" shall mean Regulation G of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulation U" shall mean Regulation U of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulation X" shall mean Regulation X of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Release" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposing,
depositing, dispersing, emanating or migrating of any Hazardous Material in,
into, onto or through the environment.
"Remedial Action" shall mean: (a) "remedial action" as such term is defined
in CERCLA, 42 U.S.C. Section 9601(24); and (b) any other action required by any
<PAGE>
29
Governmental Authority or voluntarily undertaken to (x) cleanup, remove, treat,
abate or in any other way address any Hazardous Material in the environment; (y)
prevent the Release or threat of Release, or minimize the further Release of any
Hazardous Material so it does not migrate or endanger or threaten to endanger
public health, welfare or the environment; or (z) perform studies and
investigations in connection with, or as a precondition to, clause (x) or (y)
above.
"Repayment Date" shall have the meaning assigned to such term in Section
2.11.
"Required Lenders" at any time shall mean Lenders having Loans, L/C
Exposures and unused Revolving Credit Commitments and Term Loan Commitments at
such time representing at least a majority of the sum of all Loans outstanding,
L/C Exposures and unused Revolving Credit Commitments and Term Loan Commitments
at such time; provided, however, if any Lender shall be a Defaulting Lender at
such time, there shall be excluded from the determination of Required Lenders at
such time (a) the aggregate principal amount of the Loans made by such Lender
and outstanding at such time and (b) the aggregate Commitments of such Lender at
such time.
"Responsible Officer" of any corporation shall mean any senior executive
officer or Financial Officer of such corporation and any other officer or
similar official thereof responsible for the administration of the obligations
of such corporation in respect of this Agreement.
"Revolving Credit Borrowing" shall mean a Borrowing comprised of Revolving
Loans.
"Revolving Credit Commitment" shall mean, with respect to any Lender, (a)
prior to the Merger Date, the Pre-Merger Revolving Credit Commitment of such
Lender and (b) on and after the Merger Date, the Post-Merger Revolving Credit
Commitment.
"Revolving Credit Exposure" shall mean, with respect to any Lender at any
time, the aggregate principal amount at such time of all outstanding Revolving
Loans of such Lender, plus the aggregate amount at such time of such Lender's
L/C Exposure.
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30
"Revolving Credit Lender" at any time shall mean a Lender with a Revolving
Credit Commitment at such time.
"Revolving Loans" shall mean the Pre-Merger Revolving Loans and Post-Merger
Revolving Loans. Each Revolving Loan shall be a Eurodollar Revolving Loan or an
ABR Revolving Loan.
"Sale and Lease-Back Transaction" shall mean any arrangement, directly or
indirectly, whereby the Borrower or any Subsidiary shall sell or transfer to any
person any property, real or personal, used or useful in its business, whether
now owned or hereafter acquired, and thereafter the Borrower or any Subsidiary
shall rent or lease (for a term in excess of one year) such property, or other
property that it intends to use for substantially the same purpose or purposes
as the property being sold or transferred, from such person or any of its
Affiliates.
"Secured Parties" shall mean each Lender, the Issuing Bank, the
Administrative Agent, the Collateral Agent, the beneficiary of each
indemnification obligation on the part of any Loan Party contained in any Loan
Document and the successors and assigns of the foregoing.
"Security Agreement" shall mean the Security Agreement, substantially in
the form of Exhibit H, between the Borrower, the Subsidiaries from time to time
party thereto and the Collateral Agent for the benefit of the Secured Parties.
"Security Documents" shall mean the Mortgages, the Security Agreement, the
Pledge Agreement, the Chattel Mortgages and each of the security agreements,
mortgages and other instruments and documents executed and delivered pursuant to
any of the foregoing or pursuant to Section 5.11.
"Senior Debt" shall mean (a) all Indebtedness of the Borrower and the
Guarantors, other than Subordinated Debt, and (b) all Indebtedness of the
Subsidiaries that are not Guarantors.
"Shares" shall have the meaning assigned to such term in the preamble.
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31
"Specified Debt Issuance" shall mean the issuance by the Borrower of any
Indebtedness permitted by Section 6.01(g).
"Specified Guarantor" shall mean any Guarantor that would be a "significant
subsidiary" of the Borrower, determined in accordance with Regulation 1.01 of
Regulation S-X of the Securities and Exchange Commission as if the references to
"10 percent" in the definition thereof were references to "5 percent".
"Statutory Reserves" shall mean a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board and any other banking authority, domestic or foreign,
to which the Administrative Agent or any Lender (including any branch,
Affiliate, or other fronting office making or holding a Loan) is subject (a)
with respect to the Base CD Rate, for new negotiable nonpersonal time deposits
in dollars of over $100,000 with maturities approximately equal to three months,
and (b) with respect to the Adjusted LIBO Rate, for Eurocurrency Liabilities (as
defined in Regulation D of the Board). Such reserve percentages shall include
those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to
constitute Eurocurrency Liabilities and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets
that may be available from time to time to any Lender under such Regulation D.
Statutory Reserves shall be adjusted automatically on and as of the effective
date of any change in any reserve percentage.
"Stockholder's Equity" as of any date shall mean, on a consolidated basis
for the Borrower and the Subsidiaries, (a) the sum of capital stock taken at par
value, capital surplus and retained earnings as of such date, minus (b) treasury
stock and any minority interest in Subsidiaries as of such date, all determined
in accordance with GAAP.
"Subordinated Debt" means unsecured Indebtedness of the Borrower that (a)
does not have any scheduled payments of principal prior to the 180th day
following the Post-Merger Facilities Maturity Date, (b) the principal of which
is subordinated to the prior payment in full in cash
<PAGE>
32
of all the Obligations in a manner reasonably satisfactory to the Administrative
Agent and (c) otherwise has terms and conditions reasonably satisfactory to the
Administrative Agent.
"subsidiary" shall mean, with respect to any person (herein referred to as
the "parent"), any corporation, partnership, limited liability company,
association or other business entity (a) of which securities or other ownership
interests representing more than 50% of the equity or more than 50% of the
ordinary voting power or more than 50% of the general partnership interests are,
at the time any determination is being made, owned, controlled or held by the
parent or one or more other subsidiaries of the parent, or (b) that is or would
otherwise be treated on a consolidated basis with the parent under, and in
accordance with, GAAP.
"Subsidiary" shall mean any subsidiary of the Borrower, including (on and
after the Tender Offer Date) the Company and its subsidiaries.
"Taxes" shall have the meaning assigned to such term in Section 2.20.
"Tender Facility" shall have the meaning assigned to such term in the
preamble.
"Tender Facility Borrowing" shall mean a Borrowing comprised of Tender
Facility Loans.
"Tender Facility Commitment" shall mean, with respect to any Lender, the
commitment of such Lender to make a Tender Facility Loan hereunder as set forth
on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such
Lender assumed its Tender Facility Commitment, as applicable, as the same may be
(a) reduced from time to time pursuant to Section 2.09 and (b) reduced or
increased from time to time pursuant to assignments by or to such Lender
pursuant to Section 9.04.
"Tender Facility Loan" shall mean a Loan made pursuant to Section
2.01(a).
"Tender Offer" shall have the meaning assigned to such term in the
preamble.
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33
"Tender Offer Date" shall mean the first date on which the Borrower or
Acquisition Co. accepts Shares for payment pursuant to the Tender Offer.
"Tender Offer Materials" shall mean the tender offer statement on Schedule
14D-1 filed by the Borrower with the Securities and Exchange Commission with
respect to the Tender Offer, and all amendments and supplements thereto that are
similarly filed.
"Term Borrowing" shall mean a Borrowing comprised of Tender Facility Loans
or Term Facility Loans.
"Term Facility" shall have the meaning assigned to such term in the
preamble.
"Term Facility Availability Period" shall mean the period from and
including the Merger Date to and including the date 120 days thereafter.
"Term Facility Borrowing" shall mean a Borrowing comprised of Term Facility
Loans.
"Term Facility Commitment" shall mean' with respect to any Lender, the
commitment of such Lender to make Term Facility Loans hereunder as set forth on
Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender
assumed its Term Facility Commitment, as applicable, as the same may be (a)
reduced from time to time pursuant to Section 2.09 and (b) reduced or increased
from time to time pursuant to assignments by or to such Lender pursuant to
Section 9.04.
"Term Facility Loan" shall mean a Loan made pursuant to Section 2.01(c).
"Term Loan Commitment" shall mean, with respect to any Lender, (a) prior to
the Merger Date, the Tender Facility Commitment of such Lender and (b) on and
after the Merger Date, the Term Facility Commitment of such Lender.
"Term Loans" shall mean the Tender Facility Loans and the Term Facility
Loans. Each Term Loan shall be a Eurodollar Term Loan or an ABR Term Loan.
"Three-Month Secondary CD Rate" shall mean, for any day, the secondary
market rate for three-month certificates of deposit reported as being in effect
on such
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34
day (or, if such day shall not be a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so reported on such day
or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day shall not be a Business Day, on the next preceding
Business Day) by the Administrative Agent from three New York City negotiable
certificate of deposit dealers of recognized standing selected by it.
"Total Debt" as of any date shall mean the total Indebtedness of the
Borrower and the Subsidiaries as of such date determined on a consolidated basis
in accordance with GAP .
"Total Revolving Credit Commitment" at any time shall mean the aggregate
amount of the Revolving Credit Commitments, as in effect at such time.
"Transaction Party" shall mean the Borrower, the Company and each
subsidiary of the Borrower or the Company.
"Transactions" shall have the meaning assigned to such term in Section
3.02.
"Transferee" shall have the meaning assigned to such term in Section 2.20.
"Type", when used in respect of any Loan or Borrowing, shall refer to the
Rate by reference to which interest on such Loan or on the Loans comprising such
Borrowing is determined. For purposes hereof, the term "Rate" shall include the
Adjusted LIBO Rate and the Alternate Base Rate.
"wholly owned Subsidiary" shall mean a Subsidiary the securities (except
for directors' qualifying shares) or other ownership interests representing 100%
of the equity or 100% of the ordinary voting power or 100% of the general
partnership interests of which are, at the time any determination is being made,
owned by the Borrower or one of
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35
more wholly owned Subsidiaries or by the Borrower and one or more wholly owned
Subsidiaries.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
"Work" shall have the meaning assigned to such term in Section 9.16.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". All references
herein to Articles, Sections, Exhibits and Schedules shall be deemed references
to Articles and Sections of, and Exhibits and Schedules to, this Agreement
unless the context shall otherwise require. Except as otherwise expressly
provided herein, (a) any reference in this Agreement to any Loan Document shall
mean such document as amended, restated, supplemented or otherwise modified from
time to time and (b) all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided,
however, that for purposes of determining compliance with the covenants
contained in Article VI and the definition of "Applicable Percentage", all
accounting terms herein shall be interpreted and all accounting determinations
hereunder shall be made in accordance with GAAP as in effect or the date of this
Agreement and applied on a basis consistent with the application used in the
financial statements referred to in Section 3.05(a).
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions and relying
upon the representations and warranties herein set forth, each Lender agrees,
severally and not jointly, (a) to make a term loan to the Borrower on the Tender
Offer Date in an aggregate principal amount not to exceed the Tender Facility
Commitment of such Lender, (b) to make revolving loans to the Borrower, at any
time and
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36
from time to time on or after the Tender Offer Date and until the earlier of the
Pre-Merger Facilities Maturity Date and the termination of the Pre-Merger
Revolving Credit Commitment of such Lender in accordance with the terms hereof,
in an aggregate principal amount at any time outstanding not to exceed the
Pre-Merger Revolving Credit Commitment of such Lender, (c) to make term loans to
the Borrower, at any time and from time to time during the Term Facility
Availability Period, in an aggregate principal amount not to exceed the Term
Facility Commitment of such Lender and (d) to make revolving loans to the
Borrower, at any time and from time to time on or after the Merger Date and
until the earlier of the Post-Merger Facilities Maturity Date and the
termination of the Post-Merger Revolving Credit Commitment of such Lender in
accordance with the terms hereof, in an aggregate principal amount at any time
outstanding that will not result in (i) the Post-Merger Revolving Credit
Exposure of such Lender exceeding (ii) the Post-Merger Revolving Credit
Commitment of such Lender. Within the limits set forth in clauses (b) and (d) of
the preceding sentence, the Borrower may borrow, pay or prepay and reborrow
Pre-Merger Revolving Loans and Post-Merger Revolving Loans subject to the terms,
conditions and limitations set forth herein. Amounts paid or prepaid in respect
of Tender Facility Loans and Term Facility Loans may not be reborrowed.
SECTION 2.02. Loans. (a) Each Loan shall be made as part of a Borrowing
consisting of Loans made by the Lenders ratably in accordance with their
applicable Tender Facility Commitments, Pre-Merger Revolving Credit Commitments,
Term Facility Commitments or Post-Merger Revolving Credit Commitments; provided,
however, that the failure of any Lender to make any Loan shall not in itself
relieve any other Lender of its obligation to lend hereunder (it being
understood, however, that no Lender shall be responsible for the failure of any
other Lender to make any Loan required to be made by such other Lender). Except
for Loans deemed made pursuant to Section 2.02(f) or 2.02(g), the Loans
comprising any Borrowing shall be in an aggregate principal amount that is (i)
an integral multiple of $1,000,000 and, in the case of a Eurodollar Borrowing,
not less than $5,000,000 or (ii) equal to the remaining available balance of the
applicable Commitments.
(b) Subject to Sections 2.08 and 2.15, each Borrowing shall be comprised
entirely of AIR Loans or Eurodollar Loans, as the Borrower may request pursuant
to
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37
Section 2.03. Each Lender may at its option make any Eurodollar Loan by causing
any domestic or foreign branch or Affiliate of such Lender to make such Loan;
provided, however, that (i) any exercise of such option shall not affect the
obligation of the Borrower to repay such Loan in accordance with the terms of
this Agreement and (ii) the exercise of such option shall not result in an
increase in Statutory Reserves above those applicable to members of the Federal
Reserve System. Borrowings of more than one Type may be outstanding at the same
time; Provided, however, that the Borrower shall not be entitled to request any
Borrowing that, if made, would result in more than 15 Eurodollar Borrowings
outstanding hereunder at any time. For purposes of the foregoing, Borrowings
having different Interest Periods, regardless of whether they commence on the
same date, shall be considered separate Borrowings.
(c) Each Lender shall make each Loan to be made by it hereunder on the
proposed date thereof by wire transfer of immediately available funds to such
account in New York City as the Administrative Agent may designate not later
than 1:00 p.m., New York City time, and the Administrative Agent shall by 2:00
p.m., New York City time, credit the amounts so received to an account with the
Administrative Agent designated by the Borrower in the applicable Borrowing
Request, which account must be in the name of the Borrower, or, if a Borrowing
shall not occur on such date because any condition precedent herein specified
shall not have been met, return the amounts so received to the respective
Lenders.
(d) Unless the Administrative Agent shall have received notice from a
Lender prior to 1:00 p.m. on the date of any Borrowing that such Lender shall
not make available to the Administrative Agent such Lender's portion of such
Borrowing, the Administrative Agent may assume that such Lender has made such
portion available to the Administrative Agent on the date of such Borrowing in
accordance with paragraph (c) above and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If the Administrative Agent shall have so made funds
available then, to the extent that such Lender shall not have made such portion
available to the Administrative Agent, the Borrower and such Lender severally
agree to repay to the Administrative Agent, in the case of the Borrower, within
one Business Day of demand, and in the case of such Lender, forthwith on demand,
such corresponding amount together with
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38
interest thereon, for each day from and including the date such amount is made
available to the Borrower until the date such amount is repaid to the
Administrative Agent at (i) in the case of the Borrower, the interest rate
applicable at the time to the Loans comprising such Borrowing and (ii) in the
case of such Lender, a rate determined by the Administrative Agent to represent
its cost of overnight or short-term funds (which determination shall be
conclusive absent manifest error). If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount shall constitute
such Lender's Loan as part of such Borrowing for purposes of this Agreement. The
Administrative Agent will promptly notify the Borrower of any Lender's failure
to make available such Lender's portion of any Borrowing if such failure
continues unremedied for one Business Day.
(e) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request any Eurodollar Borrowing if the Interest Period
requested with respect thereto would end after the Pre-Merger Facilities
Maturity Date or the Post-Merger Facilities Maturity Date, as applicable.
(f) If the Issuing Bank shall not have received from the Borrower the
payment required to be made by Section 2.22(e) within the time specified in such
Section, the Issuing Bank shall promptly notify the Administrative Agent of the
L/C Disbursement and the Administrative Agent shall promptly notify each
Revolving Credit Lender of such L/C Disbursement and its Pro Rata Percentage
thereof. Each Revolving Credit Lender shall pay by wire transfer of immediately
available funds to the Administrative Agent not later than 2:00 p.m., New York
City time, on such date (or, if such Revolving Credit Lender shall have received
such notice later than 12:00 noon, New York City time, on any day, not later
than 10:00 a.m., New York City time, on the immediately following Business Day),
an amount equal to such Lender's Pro Rata Percentage of such L/C Disbursement
(it being understood that such amount shall be deemed to constitute an ABR
Revolving Loan of such Lender and such payment shall be deemed to have reduced
the L/C Exposure), and the Administrative Agent shall promptly pay to the
Issuing Bank amounts so received by it from the Revolving Credit Lenders. The
Administrative Agent shall promptly pay to the Issuing Bank any amounts received
by it from the Borrower pursuant to Section 2.22(e) prior to the time that any
Revolving Credit Lender makes any payment pursuant to
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39
this paragraph (f); any such amounts received by the Administrative Agent
thereafter shall be promptly remitted by the Administrative Agent to the
Revolving Credit Lenders that shall have made such payments and to the Issuing
Bank, as their interests may appear. If any Revolving Credit Lenders shall not
have made its Pro Rata Percentage of such L/C Disbursement available to the
Administrative Agent as provided above, the Borrower and such Lender severally
to pay interest on such amount, for each day from and including the date such
amount is required to be paid in accordance with this paragraph (f) to but
excluding the date such amount is paid, to the Administrative Agent at (i) in
the case of the Borrower, a rate per annum equal to the interest rate applicable
to ABR Revolving Loans and (ii) in the case of such Lender, for the first such
day, the Federal Funds Effective Rate, and for each day thereafter, the
Alternate Base Rate. The Administrative Agent will promptly notify the Borrower
or any Lender's failure to make available such Lender's Pro Rata Percentage of
any L/C Disbursement if such failure continues unremedied for one Business Day.
(g) If the Borrower shall exercise its right of set-off pursuant to Section
9.06(b), the amount so set off shall be deemed to be a Eurodollar Revolving Loan
with an Interest Period of one month made by the applicable Defaulting Lender on
the date, and to the extent, of such set-off.
SECTION 2.03. Borrowing Procedure. In order to request a Borrowing (other
than a deemed Borrowing pursuant to Section 2.02(f) or 2.02(g), as to which this
Section 2.03 shall not apply), the Borrower shall telecopy (with receipt
confirmed telephonically) to the Administrative Agent a duly completed Borrowing
Request (a) in the case of a Eurodollar Borrowing, not later than 12:00 noon,
New York City time, three Business Days before a proposed Borrowing, and (b) in
the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, on
the same Business Day as the proposed Borrowing is to be made. Each Borrowing
Request shall be irrevocable, shall be signed by or on behalf of the Borrower
and shall specify the following information: (i) whether being requested is to
be a Tender Facility Borrowing, a Term Facility Borrowing, a Pre-Merger
Revolving Facility Borrowing or a Post-Merger Revolving Facility Borrowing, and
whether such Borrowing is to be a Eurodollar Borrowing or an ABR Borrowing; (ii)
the date of such Borrowing (which shall be a Business Day); (iii) the
<PAGE>
40
number and location of the account to which funds are to be disbursed (which
shall be an account that complies with the requirements of Section 2.02(c));
(iv) the amount of such Borrowing; and (v) if such Borrowing is to be a
Eurodollar Borrowing, the Interest Period with respect thereto; provided,
however, that, notwithstanding any contrary specification in any Borrowing
Request, each requested Borrowing shall comply with the requirements set forth
in Section 2.02. If no election as to the Type of Borrowing is specified in any
such notice, then the requested Borrowing shall be an ABR Borrowing. If no
Interest Period with respect to any Eurodollar Borrowing is specified in any
such notice, then the Borrower shall be deemed to have selected an Interest
Period of one month's duration. The Administrative Agent shall promptly (and in
any event on the same day that the Administrative Agent receives such notice, if
received by 1:00 p.m., New York City time, on such day) advise the applicable
Lenders of any notice given pursuant to this Section 2.03 (and the contents
thereof), and of each Lender's portion of the requested Borrowing.
SECTION 2.04. Evidence of Debt; Repayment of Loans. (a) Subject to Section
9.06(b), the Borrower hereby unconditionally promises to pay to the
Administrative Agent for the account of each Lender (i) the principal amount of
each Tender Facility Loan of such Lender on the Pre-Merger Facilities Maturity
Date, (ii) the principal amount of each Term Facility Loan of such Lender as
provided in Section 2.11 and (iii) the then unpaid principal amount of each
Revolving Loin of such Lender on the applicable Maturity Date.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender from time to time, including the
amounts of principal and interest payable and paid such Lender from time to time
under this Agreement.
(c) The Administrative Agent shall maintain accounts in which it shall
record (i) the amount of each Loan made hereunder, the Type thereof and the
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable from the Borrower to each Lender hereunder and (iii) the amount
of any sum received by the Administrative Agent hereunder from the Borrower and
each Lender's share thereof.
<PAGE>
41
(d) The entries made in the accounts maintained pursuant to paragraphs (b)
and (c) above shall be prima facie evidence of the existence and amounts of the
obligations therein recorded; provided, however, that the failure of any Lender
or the Administrative Agent to maintain such accounts or any error therein shall
not in any manner affect the obligations of the Borrower to repay the Loans in
accordance with their terms, except to the extent that the correction of such
error results in a reduction of the Borrower's obligations hereunder.
(e) Notwithstanding any other provision of this Agreement, in the event any
Lender shall request and receive a promissory note payable to such Lender and
its registered assigns to evidence the Loans made by it hereunder, the interests
represented by such note shall at all times (including after any assignment of
all or part of such interests pursuant to Section 9.04) be represented by one or
more promissory notes payable to the payee named therein or its registered
assigns.
SECTION 2.05. Fees. (a) The Borrower shall pay to each Lender, through the
Administrative Agent, on the date of this Agreement and on the last day of
March, June, September and December in each year and on each date on which the
Tender Facility Commitment or the Pre-Merger Revolving Credit Commitment of such
Lender shall expire or be terminated as provided herein, a commitment fee (a
"Commitment Fee") equal to 0.375% per annum on the average daily unused amount
of the Tender Facility Commitment and Pre-Merger Revolving Loan Commitment of
such Lender during the preceding quarter (or other period commencing with the
date, on or prior to the date of this Agreement, on which the Borrower shall
accept the Commitments of such Lender or ending with the Pre-Merger Facilities
Maturity Date or the date on which the Commitments of such Lender shall expire
or be terminated). In addition, the Borrower shall, after the Merger Date, pay
to each Lender, through the Administrative Agent, on the last day of March,
June, September and December in each year and on the date on which the Term
Facility Commitment and the Post-Merger Revolving Credit Commitment of such
Lender shall expire or be terminated as provided herein, a Commitment Fee equal
to the Applicable Percentage per annum in effect from time to time on the
average daily unused amount of the Term Facility Commitment and the Post-Merger
Revolving Credit Commitment (taking into account such Lender's L/C Exposure as a
used amount thereof) of such Lender during the preceding quarter (or other
period
<PAGE>
42
commencing with the Merger Date or ending with the Post-Merger Facilities
Maturity Date or the date on which the Term Facility Commitment and the
Post-Merger Revolving Credit Commitment of such Lender shall expire or be
terminated). All Commitment Fees shall be computed on the basis of the actual
number of days elapsed in a year of 360 days. The Commitment Fee due to each
Lender shall commence to accrue on the date of acceptance by the Borrower of the
Commitment of such Lender and shall cease to accrue on the date on which the
Commitment of such Lender shall be terminated as provided herein.
Notwithstanding this paragraph (a), no Commitment Fee shall be due or payable to
any Lender that is a Defaulting Lender on the due date for payment of such
Commitment Fee.
(b) The Borrower shall pay to the Administrative Agent, for its own
account, the administrative fees set forth in the Fee Letter at the times and in
the amounts specified therein (the "Administrative Agent Fees").
(c) The Borrower shall pay (i) to each Revolving Credit Lender with a
Post-Merger Revolving Credit Commitment, through the Administrative Agent, on
the last day of March, June, September and December of each year (commencing
with the first such day following the Merger Date) and on the date on which the
Post-Merger Revolving Credit Commitment of such Lender shall be terminated
pursuant to Section 2.09 and no Letter of Credit shall remain outstanding, a fee
(an "L/C Participation Fee") calculated on such Lender's Pro Rata Percentage of
the average daily aggregate L/C Exposure during the preceding quarter (or other
period commencing with the Merger Date or ending with the Post-Merger Revolving
Facilities Maturity Date or the date on which all Letters of Credit have been
canceled or have expired and the Post-Merger Revolving Credit Commitments of all
Lenders shall expire or be terminated pursuant to Section 2.09) at a rate equal
to the Applicable Percentage from time to time used pursuant to Section 2.06 to
determine the interest rate on Revolving Credit Borrowings comprised of
Eurodollar Loans, and (ii) to the Issuing Bank on the last day of March, June,
September and December of each year (commencing with the first such day
following the Merger Date), a fronting fee of 0.125% per annum on the average
daily aggregate L/C Exposure during the preceding quarter (or other period
commencing with the Merger Date or ending with the Post-Merger Facilities
Maturity Date or the date on which all Letters of Credit have been canceled or
have expired and the Post-Merger
<PAGE>
43
Revolving Credit Commitments of all Lenders shall expire or be terminated) and,
with respect to each Letter of Credit, any other fees agreed upon by the
Borrower and the Issuing Bank plus, in connection with the issuance, amendment
or transfer of any Letter of Credit or any L/C Disbursement, the Issuing Bank's
customary documentary and processing charges, as disclosed to the Borrower prior
to the issuance of such Letter of Credit (the "Issuing Bank Fees"). All L/C
Participation Fees and Issuing Bank Fees shall be computed on the basis of the
actual number of days elapsed in a year of 360 days. Notwithstanding this
paragraph (c), no L/C Participation Fee shall be due or payable to any Lender
that is a Defaulting Lender on the due date for payment of such L/C
Participation Fee.
(d) The payment of Fees shall be subject to Section 9.06(b). All Fees shall
be paid on the dates due, in immediately available funds, to the Administrative
Agent for distribution, if and as appropriate, among the Lenders, except that
the Issuing Bank Fees shall be paid directly to the Issuing Bank. Once paid,
none of the Fees shall be refundable under any circumstances, except to the
extent such payment shall have been made as a consequence of manifest error.
SECTION 2.06. Interest on Loans. (a) Subject to the provisions of Section
2.07, the Loans comprising each ABR Borrowing shall bear interest (computed on
the basis of the actual number of days elapsed over a year of 365 or 366 days,
as the case may be, when the Alternate Base Rate is determined by reference to
the Prime Rate and over a year of 360 days at all other times) at a rate per
annum equal to the Alternate Base Rate plus the Applicable Percentage in effect
from time to time.
(b) Subject to the provisions of Section 2.07, the Loans comprising each
Eurodollar Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 360 days) at a rate per annum equal to the
Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the
Applicable Percentage in effect from time to time.
(c) The payment of interest shall be subject to Section 9.06(b). Interest
shall accrue from and including the first day of an Interest Period to but
excluding the last day of such Interest Period. Interest on each Loan shall
accrue daily for the account of the holder from time
<PAGE>
44
to time of such Loan and shall be payable on the Interest Payment Dates
applicable to such Loan except as otherwise provided in this Agreement. The
applicable Alternate Base Rate or Adjusted LIBO Rate for each Interest Period or
day within an Interest Period, as the case may be, shall be determined by the
Administrative Agent, and such determination shall be conclusive absent manifest
error.
SECTION 2.07. Default Interest. If the Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, by acceleration or otherwise, or under any other Loan Document,
the Borrower shall on demand from time to time pay interest, to the extent
permitted by law, on such defaulted amount to but excluding the date of actual
payment (after as well as before judgment) (a) in the case of overdue principal,
at the rate otherwise applicable to such Loan pursuant to Section 2.06 plus
2.00% per annum and (b) in all other cases, at a rate per annum (computed on the
basis of the actual number of days elapsed over a year of 365 or 366 days, as
the case may be, when determined by reference to the Prime Rate and over a year
of 360 days at all other times) equal to the sum of the Alternate Base Rate plus
2.00%.
SECTION 2.08. Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Administrative Agent shall have
determined in good faith that dollar deposits in the principal amounts of the
Loans comprising such Borrowing are not generally available in the London
interbank market, or that the rates at which such dollar deposits are being
offered will not adequately and fairly reflect the cost any Lender of making or
maintaining its Eurodollar Loan during such Interest Period, or that reasonable
means do not exist for ascertaining the Adjusted LIBO Rate, the Administrative
Agent will, as soon as practicable thereafter, give written notice of such
determination to the Borrower and the Lenders. In the event of any such
determination, until the Administrative Agent shall have advised the Borrower
and the Lenders that the circumstances giving rise to such notice no longer
exist, any request by the Borrower for a Eurodollar Borrowing pursuant to
Section 2.03 or 2.10 shall be deemed to be a request for an ABR Borrowing. The
Administrative Agent will promptly advise the Borrower once the circumstances
giving rise to any such notice no longer exist. Each determination by the
<PAGE>
45
Administrative Agent hereunder shall be conclusive absent manifest error.
SECTION 2.09. Termination and Reduction of Commitments. (a) The Tender
Facility Commitments shall automatically terminate at 5:00 p.m., New York City
time, on the Tender Offer Date. The Term Facility Commitments shall
automatically terminate at 5:00 p.m., New York City time, on the last day of the
Term Facility Availability Period. The Pre-Merger Revolving Credit Commitments
shall automatically terminate at 5:00 p.m., New York City time, on the
Pre-Merger Facilities Maturity Date. The Post-Merger Revolving Credit
Commitments shall automatically terminate on the Post-Merger Facilities Maturity
Date. The L/C Commitment shall automatically terminate at the earlier-of (i)
5:00 p.m., New York City time, on the sixth Business Day prior to the
Post-Merger Facilities Maturity Date and (ii) the termination of the Post-Merger
Revolving Credit Commitments. Notwithstanding the foregoing, (i) all the
Commitments shall automatically terminate at 5:00 p.m., New York City time, on
December 1, 1995, if the initial Credit Event shall not have occurred by such
time and (ii) the Post-Merger Revolving Credit Commitments and the Term Facility
Commitments shall automatically terminate at 5:00, New York City time, on the
Pre-Merger Facilities Maturity Date unless the Merger shall previously have been
consummated.
(b) Upon at least three Business nays' prior irrevocable telephonic notice
to the Administrative Agent (confirmed in writing), the Borrower may at any time
in whole permanently terminate, or from time to time in part permanently reduce,
the Tender Facility Commitments, the Term Facility Commitments, the Pre-Merger
Revolving Loan Commitments or the Post-Merger Revolving Credit Commitments;
provided, however, that (i) each partial reduction of the Commitments with
respect to any Facility shall be in an integral multiple of $1,000,000 and in a
minimum amount of $5,000,000 and (ii) the Total Revolving Credit Commitment
shall not be reduced to an amount that is less than the Aggregate Revolving
Credit Exposure at the time. Any payment of Revolving Loans pursuant to Section
2.13(a) or 2.13(c) shall automatically reduce the applicable Revolving Credit
Commitments by the amount of such payment.
(c) Each reduction in the Tender Facility Loan Commitments, the Term
Facility Loan Commitments, the Pre-Merger Revolving Loan Commitments or the
Post-Merger
<PAGE>
46
Revolving Credit Commitments hereunder shall be made ratably among the Lenders
in accordance with their respective applicable Commitments. The Borrower shall
pay to the Administrative Agent for the account of the applicable Lenders, on
the date of each termination or reduction, the Commitment Fees on the amount of
the Commitments so terminated or reduced accrued to but excluding the date of
such termination or reduction.
SECTION 2.10. Conversion and Continuation of Borrowings. The Borrower shall
have the right at any time upon prior irrevocable telephonic notice to the
Administrative Agent (confirmed promptly in writing) (a) not later than 11:00
a.m., New York City time, on the Business Day of the proposed conversion, to
convert any Eurodollar Borrowing into an ABR Borrowing, (b) not later than 12:00
noon, New York City time, three Business Days prior to conversion or
continuation, to convert any ABR Borrowing, into a Eurodollar Borrowing or to
continue any Eurodollar Borrowing as a Eurodollar Borrowing for an additional
Interest Period, and (c) not later than 12:00 noon, New York City time, three
Business Days prior to conversion, to convert the Interest Period with respect
to any Eurodollar Borrowing to another permissible Interest Period, subject in
each case to the following:
(i) each conversion or continuation shall be made pro rata among the
Lenders in accordance with the respective principal amounts of the Loans
comprising the converted or continued Borrowing;
(ii) if less than all the outstanding principal amount of any
Borrowing shall be converted or continued, then each resulting Borrowing
shall satisfy the limitations specified in Sections 2.02(a) and 2.02(b)
regarding the principal amount and maximum number of Borrowings of the
relevant Type;
(iii) each conversion shall be effected by each Lender and the
Administrative Agent by recording for the account of such Lender the new
Loan of such Lender resulting from such conversion and reducing the Loan
(or portion thereof) of such Lender being converted by an equivalent
principal amount;
(iv) if any Eurodollar Borrowing is converted at a time other than the
end of the Interest Period applicable thereto, the Borrower shall pay, upon
<PAGE>
47
demand, any amounts due to the Lenders pursuant to Section 2.16;
(v) unless each Lender otherwise agrees, any portion of a Borrowing
maturing or required to be repaid in less than one month from the date of
any conversion or continuation may not be converted into or continued as a
Eurodollar Borrowing;
(vi) any portion of a Eurodollar Borrowing that cannot be converted
into or continued as a Eurodollar Borrowing by reason of the immediately
preceding clause shall be automatically converted at the end of the
Interest Period in effect for such Borrowing into an ABR Borrowing;
(vii) no Interest Period may be selected for any Eurodollar Term
Borrowing that would end later than a Repayment Date occurring on or after
the first day of such Interest Period if, after giving effect to such
selection, the aggregate outstanding amount of (A) the Eurodollar Term
Borrowings with Interest Periods ending on or prior to such Repayment Date
and (B) the ABR Term Borrowings would not be at least equal to the
principal amount of Term Borrowings to be paid on such Repayment Date;
(viii) no Borrowing may be converted into, or continued as, a
Eurodollar Borrowing when any Default has occurred and is continuing and
the Administrative Agent or the Required Lenders have determined that such
conversion or continuation is not appropriate (and, instead, any such
Borrowing will be converted into or remain as an ABR Borrowing on the last
day of the Interest Period applicable thereto); and
(ix) no Borrowing may be converted into, or continued as, a Eurodollar
Borrowing when any Event of Default has occurred and is continuing, unless
the Required Lenders have determined that such conversion or continuation
is appropriate (and, instead, any such Borrowing will be converted into or
remain as an ABR Borrowing on the last day of the Interest Period
applicable thereto).
Each notice pursuant to this Section 2.10 shall refer to this Agreement and
specify (i) the identity and amount of the Borrowing that the Borrower requests
be
<PAGE>
48
converted or continued, (ii) whether such Borrowing is to be converted to or
continued as a Eurodollar Borrowing or an ABR Borrowing, (iii) if such notice
requests a conversion, the date of such conversion (which shall be a Business
Day) and (iv) if such Borrowing is to be converted to or continued as a
Eurodollar Borrowing, the Interest Period with respect thereto. If no Interest
Period is specified in any such notice with respect to any conversion to or
continuation as a Eurodollar Borrowing, the Borrower shall be deemed to have
selected an Interest Period of one months duration. The Administrative Agent
shall advise the Lenders of any notice given pursuant to this Section 2.10 and
of each Lender's portion of any converted or continued Borrowing. If the
Borrower shall not have given notice in accordance with this Section 2.10 to
continue any Borrowing into a subsequent Interest Period (and shall not
otherwise have given notice in accordance with this Section 2.10 to convert such
Borrowing), such Borrowing shall, at the end of the Interest Period applicable
thereto (unless repaid pursuant to the terms hereof), automatically be continued
into a new Interest Period as an ABR Borrowing, unless such Borrowing is
comprised of Loans deemed made pursuant to Section 2.02(g), in which case such
Borrowing shall be continued as a Eurodollar Borrowing with an Interest Period
of one month.
SECTION 2.11. Repayment of Term Facility Borrowings. (a) The Term Facility
Borrowings shall be
<PAGE>
================================================================================
<TABLE>
<CAPTION>
SCHEIN DEBT REPAYMENT SCHEDULE CHANGE
Balance After
Original Date Original Amount $100 MM Applied
- --------------------------------------------------------------------------------
<S> <C> <C>
Sep-96 $5,000,000 $0(1)
Dec-96 $5,000,000 $0
Mar-96 $7,500,000 $0
Jun-97 $7,500,000 $0
Sep-97 $7,500,000 $0
Dec-97 $7,500,000 $0
Mar-98 $10,000,000 $0
Jun-98 $10,000,000 $0
Sep-98 $10,000,000 $7,631,579
Dec-98 $10,000,000 $7,631,579
Mar-99 $12,500,000 $9,539,474
Jun-99 $12,500,000 $9,539,474
Sep-99 $12,500,000 $9,539,474
Dec-99 $12,500,000 $9,539,474
Mar-00 $15,000,000 $11,447,368
Jun-00 $15,000,000 $11,447,368
Sep-00 $15,000,000 $11,447,368
Dec-00 $15,000,000 $11,447,368
Mar-01 $15,000,000 $11,447,368
Jun-01 $15,000,000 $11,447,368
Sep-01 $15,000,000 $11,447,368
Dec-01 $15,000,000 $11,447,370
</TABLE>
(1) regular payment made prior to $100 MM subordinated debt prepayment
<PAGE>
49
repaid in 22 consecutive installments payable on the dates (each a "Repayment
Date") and in the amounts set forth below:
<TABLE>
<CAPTION>
Repayment Date Amount
-------------- ------------
<S> <C>
9/30/96 $5,000,000
12/31/96 $5,000,000
3/31/97 $7,500,000
6/30/97 $7,500,000
9/30/97 $7,500,000
12/31/97 $7,500,000
3/31/98 $10,000,000
6/30/98 $10,000,000
9/30/98 $10,000,000
12/31/98 $10,000,000
3/31/99 $12,500,000
6/30/99 $12,500,000
9/30/99 $12,500,000
12/31/99 $12,500,000
3/31/00 $15,000,000
6/30/00 $15,000,000
9/30/00 $15,000,000
12/31/00 $15,000,000
3/31/01 $15,000,000
6/30/01 $15,000,000
9/30/01 $15,000,000
12/31/01 $15,000,000
</TABLE>
(b) Each prepayment of Term Loans pursuant to this Section 2.11 shall be
subject to Section 9.06(b). Each prepayment of principal of Term Facility
Borrowings pursuant to Section 2.12 or 2.13 shall be applied to reduce pro rata
the scheduled payments of principal due under this Section 2.11 after the date
of such prepayment. To the extent not previously paid, all Term Facility
Borrowings shall be due and payable on the Post-Merger Facilities Maturity Date.
Each payment of Term Facility Borrowings pursuant to this Section 2.11 shall be
accompanied by accrued interest on the principal amount paid to but excluding
the date of payment.
SECTION 2.12. Optional Prepayment. (a) The Borrower shall have the right at
any time and from time to time to prepay any Borrowing, in whole or in part,
upon at least three Business Days' prior irrevocable telephonic notice (promptly
confirmed in writing) to the Administrative Agent before 11:00 a.m., New York
City time; provided,
<PAGE>
50
however, that each partial prepayment of Borrowings under any Facility shall be
in an amount that is an integral multiple of $1,000,000.
(b) Each notice of prepayment shall specify the prepayment date and the
principal amount of each Borrowing (or portion thereof) to be prepaid and shall
commit the Borrower to prepay such Borrowing by the amount stated therein on the
date stated therein. All prepayments under this Section 2.12 shall be subject to
Section 2.16 but otherwise without premium or penalty and shall be subject to
Section 9.06(b). All prepayments under this Section 2.12 (other than prepayments
of ABR Revolving Loans) shall be accompanied by accrued interest on the
principal amount being prepaid to but excluding the date of payment.
SECTION 2.13. Mandatory Prepayments. (a) Not later than 100 days after the
end of each fiscal year of Borrower, commencing with the fiscal year ending
December 28, 1996, the Borrower shall (i) calculate Excess Cash Flow for such
fiscal year and apply 75% of such Excess Cash Flow to prepay Borrowings in
accordance with paragraph (d) below and (ii) deliver to the Administrative Agent
a certificate signed by any Financial Officer of the Borrower setting forth the
amount, if any, of Excess Cash Flow for such period and the calculation thereof,
in reasonable detail.
(b) In the event of any termination of all the Pre-Merger Revolving Credit
Commitments or Post-Merger Revolving Credit Commitments, the Borrower shall
repay or prepay all the outstanding Pre-Merger Revolving Facility Borrowings or
Post-Merger Revolving Facility Borrowings, respectively, on the date of such
termination. In the event of any partial reduction of the Revolving Credit
Commitments, then (i) at or prior to the effective date of such reduction, the
Administrative Agent shall notify the Borrower and the Revolving Credit Lenders
of the Aggregate Revolving Credit Exposure after giving effect thereto and (ii)
if the Aggregate Revolving Credit Exposure would exceed the Total Revolving
Credit Commitment after giving effect to such reduction or termination, then the
Borrower shall, on the date of such reduction or termination, repay or prepay
Revolving Credit Borrowings or cash-collateralize outstanding Letters of Credit
in an amount sufficient to eliminate such excess.
<PAGE>
51
(c) The Borrower shall apply 100% of Net Proceeds promptly upon its receipt
thereof (or, if applicable, promptly upon any amounts being deemed to constitute
Net Proceeds as provided in the definition of such term) to prepay Borrowings in
accordance with paragraph (d) below; provided, however, that, in the case of Net
Proceeds from an Equity Issuance, (x) the Borrower shall only be required to
apply 50% of such Net Proceeds to the prepayment of Loans if immediately prior
to receipt thereof the Leverage Ratio is greater than 3.00 to 1.00 but not
greater than 4.00 to 1.00 and 25% of such Net Proceeds to the prepayment of
Loans if at the time of receipt thereof the Leverage Ratio is greater than 2.50
to 1.00 but not greater than 3.00 to 1.00 and (y) the Borrower shall not be
required to apply any of such Net Proceeds to the prepayment of Loans if at the
time of receipt thereof the Leverage Ratio is not greater than 2.50 to 1.00. The
Borrower shall deliver to the Administrative Agent (i) at the time of each
prepayment required under this paragraph (c), a certificate signed by a
Financial Officer of the Borrower setting forth in reasonable detail the
calculation of the amount of such prepayment and (ii) not later than the later
of (A) the date on which a Responsible Officer of the Borrower becomes aware
that such prepayment will be made and (B) the date that is three Business Days
prior to the date of such prepayment, a notice of such prepayment. Such
certificate shall also describe in reasonable detail the facts and circumstances
giving rise to the applicable prepayment event and a reasonably detailed
calculation of the Net Proceeds therefrom.
(d) Prepayments under paragraphs (a) and (c) above shall be applied first
against outstanding Term Loans and second against outstanding Revolving Loans.
Prepayments required under this Section 2.13 in respect of any Facility shall be
applied first against ABR Loans outstanding under such Facility and then against
Eurodollar Loans outstanding under such Facility.
(e) All prepayments under this Section 2.13 shall be subject to Section
2.16 but otherwise without premium or penalty and shall be subject to Section
9.06(b). All prepayments under this Section 2.13 shall be accompanied by accrued
interest on the principal amount being prepaid to but excluding the date of
payment.
SECTION 2.14. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision of this Agreement, if after the date of this
Agreement any
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52
change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender or the Issuing
Bank of the principal of or interest on any Eurodollar Loan made by such Lender
or any Fees or other amounts payable hereunder (other than changes in respect of
taxes imposed on the overall net income of such Lender or the Issuing Bank by
the jurisdiction in which such Lender or the Issuing Bank has its principal
office or by any political subdivision or taxing authority therein), or shall
impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of or credit
extended by any Lender or the Issuing Bank (except any such reserve requirement
that is fully reflected in the Adjusted LIBO Rate) or shall impose on such
Lender or the Issuing Bank or the London interbank market any other condition
affecting this Agreement or Eurodollar Loans made by such Lender or any Letter
of Credit or participation therein, and the result of any of the foregoing shall
be to increase the cost to such Lender or the Issuing Bank of making or
maintaining any Eurodollar Loan or increase the cost to any Lender of issuing or
maintaining any Letter of Credit or purchasing or maintaining a participation
therein or to reduce the amount of any sum received or receivable by such Lender
or the Issuing Bank hereunder (whether of principal, interest or otherwise) by
an amount deemed by such Lender or the Issuing Bank to be material, then the
Borrower shall pay to such Lender or the Issuing Bank, as the case may be, upon
demand such additional amount or amounts as shall compensate such Lender or the
Issuing Bank, as the case may be, for such additional costs incurred or
reduction suffered.
(b) If any Lender or the Issuing Bank shall determine that the adoption
after the date of this Agreement of any law, rule, regulation, agreement or
guideline regarding capital adequacy, or any change after the date hereof in any
such law, rule, regulation, agreement or guideline (whether such law, rule,
regulation, agreement or guideline has been adopted) or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or the Issuing Bank or any Lender's or the
Issuing Bank's holding company with any request or directive regarding capital
adequacy (whether or not having the force
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53
of law) of any Governmental Authority has or would have the effect of reducing
the rate of return on such Lender's or the Issuing Bank's capital or on the
capital of such Lender's or the Issuing Bank's holding company, if any, as a
consequence of this Agreement or the Loans made or participation's in Letters of
Credit purchased by such Lender pursuant hereto or the Letters of Credit issued
by the Issuing Bank pursuant hereto to a level below that which such Lender or
the Issuing Bank or such Lender's or the Issuing Bank's holding company could
have achieved but for such applicability, adoption, change or compliance (taking
into consideration such Lenders or the Issuing Bank's policies and the policies
of such Lender's or the Issuing Bank's holding company with respect to capital
adequacy) by an amount deemed by such Lender or the Issuing Bank to be material,
then from time to time the Borrower shall pay to such Lender or the Issuing
Bank, as the case may be, such additional amount or amounts as shall compensate
such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding
company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth in
reasonable detail (i) the calculation of amount or amounts necessary to
compensate such Lender or the Issuing Bank or its holding company, as
applicable, as specified in paragraph (a) or (b) above and (ii) the facts and
circumstances giving rise to such compensation, shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender or the Issuing Bank the amount shown as due on any such certificate
delivered by it within 10 Business Days after its receipt of the same.
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation; provided,
however, that neither any Lender nor the Issuing Bank may demand compensation
under this Section 2.14 for any period commencing earlier than 60 days prior to
such demand. The protection of this Section 2.14 shall be available to each
Lender and the Issuing Bank regardless of any possible contention of the
invalidity or inapplicability of the law, rule, regulation, agreement, guideline
or other change or condition that shall have occurred or been imposed; provided,
however, that each Lender and the Issuing Bank shall take reasonable actions
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54
(which shall not require such Lender or the Issuing Bank to incur an
unreimbursed loss or unreimbursed cost or expense or otherwise take any action
precluded by legal or regulatory restrictions or suffer any disadvantage or
burden deemed by it to be significant) to avoid any need to claim compensation
under this Section 2.14 arising out of any reasonably foreseeable change in
circumstances.
(e) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.14 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder, the expiration or cancellation of all Letters of Credit and the
reimbursement of all draws thereunder.
SECTION 2.15. Change in Legality. (a) Notwithstanding any other provision
of this Agreement, if after the date of this Agreement, any change in any law or
regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or maintain any Eurodollar Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan, then, by
written notice to the Borrower and to the Administrative Agent:
(i) such Lender may declare that Eurodollar Loans shall not thereafter
(for the duration of such unlawfulness) be made by such Lender hereunder
(or be continued for additional Interest Periods and ABR Loans will not
thereafter (for such duration) be converted into Eurodollar Loans),
whereupon any request for a Eurodollar Borrowing (or to convert an ABR
Borrowing to a Eurodollar Borrowing or to continue a Eurodollar Borrowing,
for an additional Interest Period) shall, as to such Lender only, be deemed
a request for an ABR Loan (or a request to continue an ABR Loan as such for
an additional Interest Period or to convert a Eurodollar Loan into an ABR
Loan, as the case may be), unless such declaration shall be subsequently
withdrawn; and
(ii) such Lender may require that all outstanding Eurodollar Loans
made by it be converted to ABR Loans, in which event all such Eurodollar
Loans shall be automatically converted to ABR Loans as of the
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55
effective date of such notice as provided in paragraph (b) below (and
Section 2.16 shall not apply to any such automatic conversion).
In the event any Lender shall exercise its rights under clause (i) or (ii)
above, all payments and prepayments of principal that would otherwise have been
applied to repay the Eurodollar Loans that would have been made by such Lender
or the converted Eurodollar Loans of such Lender shall instead be applied to
repay the ABR Loans made by such Lender in lieu of, or resulting from the
conversion of, such Eurodollar Loans.
(b) For purposes of this Section 2.15, a notice to the Borrower by any
Lender shall be effective as to each Eurodollar Loan made by such Lender, if
lawful, on the last day of the Interest Period currently applicable to such
Eurodollar Loan; in all other cases such notice shall be effective on the date
of receipt by the Borrower.
SECTION 2.16. Indemnity. The Borrower shall indemnify each Lender against
any loss or expense that such Lender may sustain or incur as a direct
consequence of (a) any event, other than a default by such Lender in the
performance of its obligations hereunder, which results in (i) such Lender
receiving or being deemed to receive any amount on account of the principal of
any Eurodollar Loan prior to the end of the Interest Period in effect therefor,
(ii) the conversion of any Eurodollar Loan to an ABR Loan, or the conversion of
the Interest Period with respect to any Eurodollar Loan, in each case other than
on the last day of the Interest Period in effect therefor, or (iii) any
Eurodollar Loan to be made by such Lender (including any Eurodollar Loan to be
made pursuant to a conversion or continuation under Section 2.10) not being made
after notice of such Loan shall have been given by the Borrower hereunder (any
of the events referred to in this clause (a) being called a "Breakage Event") or
(b) any default in the making of any payment or prepayment required to be made
hereunder. In the case of any Breakage Event, such loss shall include an amount
equal to the excess, as reasonably determined by such Lender, of (i) its cost of
obtaining funds for the Eurodollar Loan that is the subject of such Breakage
Event for the period from the date of such Breakage Event to the last day of the
Interest Period in effect (or that would have been in effect) for such Loan over
(ii) the amount of interest likely to be realized by such Lender in redeploying
the funds released or not utilized by reason of such
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56
Breakage Event for such period. A certificate of any Lender setting forth in
reasonable detail (i) the calculation of any amount or amounts which such Lender
is entitled to receive pursuant to this Section 2.16 and (ii) the facts and
circumstances giving rise to such entitlement, shall be delivered to the
Borrower (in the case of a claim under clause (a) above, within 60 days of the
applicable Breakage Event) and shall be conclusive absent manifest error.
Without prejudice to the survival of any other agreement contained herein, the
agreements and obligations contained in this Section 2.16 shall survive the
payment in full of the principal of and interest on all Loans made hereunder,
the expiration or cancellation of all Letters of Credit and the reimbursement of
all draws thereunder.
SECTION 2.17. Pro Rata Treatment. Except as required under Section 2.15 and
subject to Section 9.06(b), each Borrowing, each payment or prepayment of
principal of any Borrowing, each payment of interest on the Loans, each payment
of the Commitment Fees, each reduction of Commitments and each refinancing of
any Borrowing with, conversion of any Borrowing to or continuation of any
Borrowing as a Borrowing of any Type shall be allocated pro rata among the
Lenders in accordance with their respective applicable Commitments (or, if such
Commitments shall have expired or been terminated, in accordance with the
respective principal amounts of their outstanding Loans). In computing any
Lender's portion of any Borrowing to be made hereunder, the Administrative Agent
may, in its discretion, round each Lender's percentage of such Borrowing to the
next higher or lower whole dollar amount.
SECTION 2.18. Sharing of Setoffs. If any Lender shall, through the exercise
of a right of banker's lien, setoff or counterclaim against the Borrower, or
pursuant to a secured claim under Section 506 of Title 11 of the United States
Code or other security or interest arising from, or in lieu of, such secured
claim, received by such Lender under any applicable bankruptcy, insolvency or
other similar law or otherwise, or by any other means, obtain pavement
(voluntary or involuntary) in respect of any Loan or Loans or L/C Disbursement
as a result of which the unpaid principal portion of its Term Loans and
Revolving Loans and participations in L/C Disbursements shall be proportionately
less than the unpaid principal portion of the Term Loans and Revolving Loans and
participations in L/C Disbursements of any other Lender, it shall be deemed
simultaneously to have purchased from such other Lender at face value, and shall
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57
promptly pay to such other Lender the purchase price for, a participation in the
Term Loans and Revolving Loans and L/C Exposure, as the case may be of such
other Lender, so that the aggregate unpaid principal amount of the Term Loans
and Revolving Loans and L/C Exposure and participations in Term Loans and
Revolving Loans and L/C Exposure held by each Lender shall be in the same
proportion to the aggregate unpaid principal amount of all Term Loans and
Revolving Loans and L/C Exposure then outstanding as the principal amount of its
Term Loans and Revolving Loans and L/C Exposure prior to such exercise of
banker's lien, setoff or counterclaim or other event was to the principal amount
of all Term Loans and Revolving Loans and L/C Exposure outstanding prior to such
exercise of banker's lien, setoff or counterclaim or other event; provided,
however, that if any such purchase or purchases or adjustments shall be made
pursuant to this Section 2.18 and the payment giving rise thereto shall
thereafter be recovered, such purchase or purchases or adjustments shall be
rescinded to the extent of such recovery and the purchase price or prices or
adjustment restored without interest. The Borrower expressly consents to the
foregoing arrangements and agrees that any Lender holding a participation in a
Term Loan or Revolving Loan or L/C Disbursement deemed to have been so purchased
may exercise any and all rights of banker's lien, setoff or counterclaim with
respect to any and all moneys owing by the Borrower to such Lender by reason
thereof as fully as if such Lender had made a Loan directly to the Borrower in
the amount of such participation.
SECTION 2.19. Payments (a) Subject to Section 9.06(b), the Borrower shall
make each payment (including principal of or interest on any Borrowing or any
L/C Disbursement or any Fees or other amounts) hereunder and under any other
Loan Document not later than 1:00 p.m., New York City time, on the date when due
in immediately available dollars, without setoff, defense or counterclaim (but
without prejudice, waiver or effect of estoppel with respect to any defense or
counterclaim). Each such payment (other than Issuing Bank Fees, which shall be
paid directly to the Issuing Bank) shall be made to the Administrative Agent at
its offices at 270 Park Avenue, New York, New York.
(b) Whenever any payment (including principal of or interest on any
Borrowing, any Fees or any other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Busi-
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ness Day, and such extension of time shall in such case be included in the
computation of interest or Fees, if applicable.
SECTION 2.20. Taxes. (a) Any and all payments by the Borrower hereunder and
under any other Loan Document shall be made, in accordance with Section 2.19,
free and clear of and without deduction for any and all current or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding (i) income taxes imposed on the net income of the
Administrative Agent, any Lender or the Issuing Bank (or any transferee or
assignee thereof, including a participation holder (any such entity a
"Transferee")) and (ii) franchise taxes imposed on the net income of the
Administrative Agent, any Lender or the Issuing Bank (or Transferee), in each
case by the jurisdiction (A) under the laws of which the Administrative Agent,
such Lender or the Issuing Bank (or Transferee) is organized or any political
subdivision thereof or (B) in which the applicable lending office of the
Administrative Agent, such Lender or the Issuing Bank (or any Transferee) is
located or any political subdivision thereof (all such nonexcluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities, collectively
or individually, being called "Taxes"). If the Borrower shall be required to
deduct any Taxes from or in respect of any sum payable hereunder or under any
other Loan Document to the Administrative Agent, any Lender or the Issuing Bank
(or any Transferee), (i) the sum payable shall be increased by the amount (an
"additional amount") necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.20) the Administrative Agent, such Lender or the Issuing Bank (or Transferee),
as the case may be, shall receive an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall make such
deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower agrees to bear and shall pay to the relevant
Governmental Authority in accordance with applicable law any current or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies (including mortgage recording taxes and similar fees) that arise
from any payment made hereunder or under any other Loan Document or from the
execution, delivery or registration of, or otherwise with
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59
respect to, this Agreement or any other Loan Document ("Other Taxes').
(c) The Borrower shall indemnify the Administrative Agent, each Lender and
the Issuing Bank (or Transferee) for the full amount of Taxes and Other Taxes
paid by the Administrative Agent, such Lender or the Issuing Bank (or
Transferee), as the case may be, and any liability (including penalties,
interest and expenses (including reasonable attorney's fees and expenses))
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted by the relevant Governmental Authority.
A certificate as to the amount of such payment or liability prepared by the
Administrative Agent, a Lender or the Issuing Bank (or Transferee), or the
Administrative Agent on its behalf, and setting forth in reasonable detail (i)
the calculation of and (ii) the facts and circumstances giving rise to such
payment or liability, absent manifest error, shall be final, conclusive and
binding for all purposes. Such indemnification shall be made within 30 days
after the date the Administrative Agent, any Lender or the Issuing Bank (or
Transferee), as the case may be, makes written demand therefor. Neither any
Lender nor the Issuing Bank (or Transferee) may make any claim for
indemnification more than 180 days after such Lender or the Issuing Bank (or
Transferee), as applicable, knows of the payment or liability with respect to
which such indemnification is to be sought (such 180 days to be reduced to 60
days if at the time of such claim for indemnification such Lender (or
Transferee) holds Loans or participations therein or the Issuing Bank has
outstanding Letters of Credit, as applicable).
(d) If the Administrative Agent, a Lender or the Issuing Bank (or
Transferee) receives a refund in respect of any Taxes or Other Taxes as to which
it has been indemnified by the Borrower or with respect to which the Borrower
has paid additional amounts pursuant to this Section 2.20, it shall within 30
days from the date of such receipt pay over such refund to the Borrower (but
only to the extent of indemnity payments made, or additional amounts paid, by
the Borrower under this Section 2.20 with respect to the Taxes or Other Taxes
giving rise to such refund), net of all out-of-pocket expenses of the
Administrative Agent, such Lender or the Issuing Bank (or Transferee) and
without interest (other than interest paid by the relevant Governmental
Authority with respect to such refund); provided, however, that the Borrower,
upon the request of the Administrative
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60
Agent, such Lender or the Issuing Bank (or Transferee), shall repay the amount
paid over to the Borrower (plus penalties, interest or other charges) to the
Administrative Agent, such Lender or the Issuing Bank (or Transferee) in the
event the Administrative Agent, such Lender or the Issuing Bank (or Transferee)
is required to repay such refund to such Governmental Authority.
(e) As soon as practicable after the date of any payment of Taxes or Other
Taxes by the Borrower to the relevant Governmental Authority, the Borrower shall
deliver to the Administrative Agent, at its address referred to in Section 9.01,
the original or a certified copy of a receipt issued by such Governmental
Authority evidencing payment thereof.
(f) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.20 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder, the expiration or cancellation of all Letters of Credit and the
reimbursement of all draws thereunder.
(g) Each Lender (or Transferee) that is organized under the laws of a
jurisdiction other than the United States, any State thereof or the District of
Columbia (a "Non-U.S. Lender") shall deliver to the Borrower and the
Administrative Agent two copies of either United States Internal Revenue Service
Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption
from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code
with respect to payments of "portfolio interest", Form W-8, or any subsequent
versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a
Form W-8, certificate representing that such Non-U.S. Lender is not a bank for
purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within
the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a
controlled foreign corporation related to the Borrower (within the meaning of
Section 864(d)(4) of the Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from, or reduced rate of, U.S.
Federal withholding tax on payments by the Borrower under this Agreement and the
other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on
or before the date it becomes a party to this Agreement (or, in the case of a
Transferee that is a participation holder, on or before
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the date such participation holder becomes a Transferee hereunder) and on or
before the date, if any, such Non-U.S. Lender changes its applicable lending
office by designating a different lending office (a "New Lending Office"). In
addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Notwithstanding any other provision of this paragraph (g), a Non-U.S.
Lender shall not be required to deliver any form pursuant to this paragraph (g)
that such Non-U.S. Lender is not legally able to deliver.
(h) The Borrower shall not be required to indemnify any Non-U.S. Lender or
to pay any additional amounts to any Non-U.S. Lender, in respect of United
States Federal withholding tax pursuant to paragraph (a) or (c) above to the
extent that (i) the obligation to withhold amounts with respect to United States
Federal withholding tax existed on the date such Non-U.S. Lender became a party
to this Agreement (or, in the case of a Transferee that is a participation
holder, on the date such participation holder became a Transferee hereunder) or,
with respect to payments to a New Lending Office, the date such Non-U.S. Lender
designated such New Lending Office with respect to a Loan; provided, however,
that this paragraph (h) shall not apply (x) to any Transferee or New Lending
Office that becomes a Transferee or New Lending Office as a result of an
assignment, participation, transfer or designation made at the request of the
Borrower and (y) to the extent the indemnity payment or additional amounts any
Transferee, or any Lender (or Transferee), acting through a New Lending Office,
would be entitled to receive (without regard to this paragraph (h)) do not
exceed the indemnity payment or additional amounts that the person making the
assignment, participation or transfer to such Transferee, or Lender (or
Transferee) making the designation of such New Lending Office, would have been
entitled to receive in the absence of such assignment, participation, transfer
or designation or (ii) the obligation to pay such additional amounts would not
have arisen but for a failure by such Non-U.S. Lender to comply with the
provisions of paragraph (g) above.
(i) Nothing contained in this Section 2.20 shall require any Lender or the
Issuing Bank (or any Transferee) or the Administrative Agent to make available
any of its tax returns (or any other information that it deems to be
confidential or proprietary).
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SECTION 2.21. Assignment of Commitments under Certain Circumstances; Duty
To Mitigate. (a) In the event (i) any Lender or the Issuing Bank delivers a
certificate requesting compensation pursuant to Section 2.14, (ii) any Lender or
the Issuing Bank delivers a notice described in Section 2.15, (iii) the Borrower
is required to pay any additional amount to any Lender or the Issuing Bank or
any Governmental Authority on account of any Lender or the Issuing Bank pursuant
to Section 2.20 or (iv) the Administrative Agent notifies the Borrower of any
Lender's failure to fund as provided in Section 2.02(d) or 2.02(f), the Borrower
may, at its sole expense and effort, upon notice to such Lender or the Issuing
Bank and the Administrative Agent, require such Lender or the Issuing Bank to
transfer and assign, without recourse (in accordance with and subject to the
restrictions contained in Section 9.04), all its interests, rights and
obligations under this Agreement to an assignee that shall assume such assigned
obligations (which assignee may be another Lender, if a Lender accepts such
assignment); provided, however, that (x) such assignment shall not conflict with
any law, rule or regulation or order of any court or other Governmental
Authority having jurisdiction, (y) the Borrower or such assignee shall have paid
to the affected Lender or the Issuing Bank in immediately available funds an
amount equal to the sum of the principal of the outstanding Loans and
participations in L/C Disbursements of such Lender or the Issuing Bank plus all
other amounts (excluding interest and Fees, which shall be paid when due to the
assigning Lender or the Issuing Bank under Sections 2.06 and 2.05, respectively)
accrued for the account of such Lender or the Issuing Bank hereunder (including
any amounts under Sections 2.14, 2.16 and 2.20) and (z) if prior to any such
transfer and assignment the circumstances or event that resulted in such
Lender's or the Issuing Bank's claim for compensation under Section 2.14 or
notice under Section 2.1 or the amounts paid pursuant to Section 2.20, as the
case may be, cease to cause such Lender or the Issuing Bank to suffer increased
costs or reductions in amounts received or receivable or reduction in return on
capital, or cease to have the consequences specified in Section 2.15, or cease
to result in amounts being payable under Section 2.20, as the case may be
(including as a result of any action taken by such Lender or the Issuing Bank
pursuant to paragraph (b) below), or if such Lender or the Issuing Bank shall
waive its right to claim further compensation under Section 2.14 in respect of
such circumstances or event or shall withdraw its notice under Section 2.15 or
shall waive its right to
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further payments under Section 2.20 in respect of such circumstances or event or
shall fund as provided in Section 2.02(d) or 2.02(f), as the case may be, then
such Lender or the Issuing Bank shall not thereafter be required to make any
such transfer and assignment hereunder.
(b) If (i) any Lender or the Issuing Bank shall request compensation under
Section 2.14, (ii) any Lender or the Issuing Bank delivers a notice described in
Section 2.15 or (iii) the Borrower is required to pay any additional amount to
any Lender or the Issuing Bank or any Governmental Authority on account of any
Lender or the Issuing Bank, pursuant to Section 2.20, then such Lender or the
Issuing Bank shall use reasonable efforts (which shall not require such Lender
or the Issuing Bank to incur an unreimbursable loss or unreimbursable cost or
expense or otherwise take any action inconsistent with its internal policies or
legal or regulatory restrictions or suffer any disadvantage or burden deemed by
it in good faith to be significant) (x) to file any certificate or document
reasonably requested in writing by the Borrower or (y) to assign its rights and
delegate and transfer its obligations hereunder to another of its offices,
branches or affiliates, if such filing or assignment would reduce its claims for
compensation under Section 2.14 or enable it to withdraw its notice pursuant to
Section 2.15 or would reduce amounts payable pursuant to Section 2.20, as the
case may be, in the future. The Borrower shall pay all reasonable costs and
expenses incurred by any Lender or the Issuing Bank in connection with any such
filing or assignment, delegation and transfer.
SECTION 2.22. Letters of Credit. (a) General. The Borrower may request the
issuance, after the Merger Date, of a Letter of Credit, in a form reasonably
acceptable to the Administrative Agent and the Issuing Bank, appropriately
completed, for the account of the Borrower, at any time and from time to time
while the L/C Commitment remains in effect. This Section 2.22 shall not be
construed to impose an obligation upon the Issuing Bank to issue any Letter of
Credit that is inconsistent with the terms and conditions of this Agreement.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions.
In order to request the issuance of a Letter of Credit (or to amend, renew or
extend an existing Letter of Credit), the Borrower shall hand deliver or
telecopy to the Issuing Bank and the Administrative Agent (reasonably in advance
of the requested
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date of issuance, amendment, renewal or extension) a notice requesting the
issuance of a Letter of Credit, or identifying the Letter of Credit to be
amended, renewed or extended, the date of issuance, amendment, renewal or
extension, the date on which such Letter of Credit is to expire (which shall
comply with paragraph (c) below), the amount of such Letter of Credit, the name
and address of the beneficiary thereof and such other information as shall be
necessary to prepare such Letter of Credit. Following receipt of such notice and
prior to the issuance of the requested Letter of Credit or the applicable
amendment, renewal or extension, the Administrative Agent shall notify the
Borrower and the Issuing Bank of the amount of the Aggregate Revolving Credit
Exposure after giving effect to (i) the issuance, amendment, renewal or
extension of such Letter of Credit, (ii) the issuance or expiration of any other
Letter of Credit that is to be issued or shall expire prior to the requested
date of issuance of such Letter of Credit and (iii) the borrowing or repayment
of any Revolving Credit Loans that (based upon notices delivered to the
Administrative Agent by the Borrower) are to be borrowed or repaid prior to the
requested date of issuance of such Letter of Credit. A Letter of Credit shall be
issued, amended, renewed or extended only if, and upon issuance, amendment,
renewal or extension of each Letter of Credit the Borrower shall be deemed to
represent and warrant that, after giving effect to such issuance, amendment,
renewal or extension (A) the L/C Exposure shall not exceed $30,000,000, and (B)
the Aggregate Revolving Credit Exposure shall not exceed the Total Revolving
Credit Commitment.
(c) Expiration Date. Each Letter of Credit shall expire at the close of
business on the earlier of the date one year after the date of the issuance of
such Letter of Credit and the date that is five Business Days prior to the
Post-Merger Facilities Maturity Date, unless such Letter of Credit expires by
its terms on an earlier date.
(d) Participations. By the issuance of a Letter of Credit and without any
further action on the part of the Issuing Bank or the Lenders, the Issuing Bank
hereby grants to each Lender, and each such Lender hereby acquires from the
applicable Issuing Bank, a participation in such Letter of Credit equal to such
Lender's Pro Rata Percentage of the aggregate amount available to be drawn under
such Letter of Credit, effective upon the issuance of such Letter of Credit. In
consideration and in furtherance of the foregoing, each Lender hereby absolutely
and unconditionally
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agrees to pay to the Administrative Agent, for the account of the Issuing Bank,
in accordance with Section 2.02(f), such Lender's Pro Rata Percentage of each
L/C Disbursement made by the Issuing Bank and not reimbursed by the Borrower
forthwith on the date due as provided in paragraph (e) below. Each Lender
acknowledges and agrees that its obligation to acquire participations pursuant
to this paragraph (d) in respect of Letters of Credit is absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including the occurrence and continuance of a Default or an Event of Default,
and that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any L/C Disbursement in
respect of a Letter of Credit, the Borrower shall pay the amount of such L/C
Disbursement to the Administrative Agent, for the account of the Issuing Bank,
not later than two hours after the Borrower shall have received notice from the
Issuing Bank that payment of such draft has been made, or, if the Borrower shall
have received such notice later than 10:00 a.m., New York City time, on any
Business Day, not later than 10:00 a.m., New York City time, on the immediately
following Business Day. The Borrower's obligations to reimburse L/C
Disbursements as provided in this paragraph (e) shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement, under any and all circumstances whatsoever, and irrespective of:
(i) any lack of validity or enforceability of any Letter of Credit or
any Loan Document, or any term or provision therein;
(ii) any amendment or waiver of or any consent to departure from all
or any of the provisions of any Letter of Credit or any Loan Document;
(iii) the existence of any claim, setoff, defense or other right that
the Borrower, any other party guaranteeing, or otherwise obligated with,
the Borrower, any Subsidiary or other Affiliate thereof or any other person
may at any time have against the beneficiary under any Letter of Credit,
the Issuing Bank, the Administrative Agent or any Lender or any other
person, whether in connection with this
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Agreement, any other Loan Document or any other related or unrelated
agreement or transaction;
(iv) any draft or other document presented under a Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any respect;
(v) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or other document that does not comply with the
terms of such Letter of Credit; and
(vi) any other act or omission to act or delay of any kind of the
Issuing Bank, the Lenders, the Administrative Agent or any other person or
any other event or circumstance whatsoever, whether or not similar to any
of the foregoing, that might, but for the provisions of this Section 2.22,
constitute a legal or equitable discharge of the Borrower's obligations
hereunder;
provided, however, that any payment by the Borrower under this paragraph (e)
shall be without prejudice to, and shall not have any effect of estoppel or
waiver with respect to, any claim of the Borrower against the Issuing Bank under
paragraph (f) below.
(f) Liability of Issuing Bank. Without limiting the generality of paragraph
(e) above, it is expressly understood and agreed that the absolute and
unconditional obligation of the Borrower hereunder to reimburse L/C
Disbursements shall not be excused by the gross negligence or wilful misconduct
of the Issuing Bank. However, the foregoing shall not be construed to excuse the
Issuing Bank from liability to the Borrower to the extent of any direct damages
(as opposed to consequential damages, claims in respect of which are hereby
waived by the Borrower to the extent permitted by applicable law) suffered by
the Borrower that are caused by the Issuing Bank's gross negligence or wilful
misconduct in determining whether drafts and other documents presented under a
Letter of Credit comply with the terms thereof; it is understood that the
Issuing Bank may accept documents that appear on their face to be in order,
without responsibility for further investigation, regardless of any notice or
information to the contrary and, in making any payment under any Letter of
Credit, (i) the Issuing Bank's exclusive reliance on the documents presented to
it
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under such Letter of Credit as to any and all matters set forth therein,
including reliance on the amount of any draft presented under such Letter of
Credit, whether or not the amount due to the beneficiary thereunder equals the
amount of such draft and whether or not any document presented pursuant to such
Letter of Credit proves to be insufficient in any respect, if such document on
its face appears to be in order, and whether or not any other statement or any
other document presented pursuant to such Letter of Credit proves to be forged
or invalid or any statement therein proves to be inaccurate or untrue in any
respect whatsoever and (ii) any noncompliance in any immaterial respect of the
documents presented under such Letter of Credit with the terms thereof shall, in
each case, be deemed not to constitute wilful misconduct or gross negligence of
the Issuing Bank.
(g) Disbursement Procedures. The Issuing Bank shall, promptly following its
receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit. The Issuing Bank shall as promptly as possible
give telephonic notification, confirmed by telecopy, to the Administrative Agent
and the Borrower of such demand for payment and whether the Issuing Bank has
made or will make an L/C Disbursement thereunder; provided, however, that any
failure to give or delay in giving such notice shall not relieve the Borrower of
its obligation to reimburse the Issuing Bank and the Lenders with respect to any
such L/C Disbursement. The Administrative Agent shall promptly give each Lender
notice thereof.
(h) Interim Interest. If the Issuing Bank shall make any L/C Disbursement
in respect of a Letter of Credit, then, unless the Borrower shall reimburse such
L/C Disbursement in full on such date, the unpaid amount thereof shall bear
interest for the account of the Issuing Bank, for each day from and including
the date of such L/C Disbursement, to but excluding the earlier of the date of
payment or the date on which interest shall commence to accrue thereon at the
rate per annum that would apply to such amount if such amount were an ABR Loan.
(i) Resignation or Removal of the Issuing Bank. The Issuing Bank may resign
at any time by giving 180 days' prior written notice to the Administrative
Agent, the Lenders and the Borrower, and may be removed at any time by the
Borrower by notice to the Issuing Bank, the Administrative Agent and the
Lenders. Subject to the next
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succeeding paragraph, upon the acceptance of any appointment as the Issuing Bank
hereunder by a Lender that shall agree to serve as successor Issuing Bank, such
successor shall succeed to and become vested with all the interests, rights and
obligations of the retiring Issuing Bank and the retiring Issuing Bank shall be
discharged from its obligations to issue additional Letters of Credit hereunder.
At the time such removal or resignation shall become effective, the Borrower
shall pay all accrued and unpaid Fees pursuant to Section 2.05(c)(ii). The
acceptance of any appointment as the Issuing Bank hereunder by a successor
Lender shall be evidenced by an agreement entered into by such successor, in a
form satisfactory to the Borrower and the Administrative Agent, and, from and
after the effective date of such agreement, (i) such successor Lender shall have
all the rights and obligations of the previous Issuing Bank under this Agreement
and the other Loan Documents and (ii) references herein and in the other Loan
Documents to the term "Issuing Bank" shall be deemed to refer to such successor
or to any previous Issuing Bank, or to such successor and all previous Issuing
Banks, as the context shall require. After the resignation or removal of the
Issuing Bark hereunder, the retiring Issuing Bank shall remain a party hereto
and shall continue to have all the rights and obligations of an Issuing Bank
under this Agreement and the other Loan Documents with respect to Letters of
Credit issued by it prior to such resignation or removal, but shall not be
required to issue additional Letters of Credit.
(j) Cash Collateralizatlon. If any Event of Default shall occur and be
continuing, the Borrower shall, on the Business Day it receives notice from the
Administrative Agent, deposit in an account with the Collateral Agent, for the
benefit of the Revolving Credit Lenders, an amount in cash equal to the L/C
Exposure as of such date. Such deposit shall be held by the Collateral Agent as
collateral for the payment and performance of the Obligations. The Collateral
Agent shall have exclusive dominion and control, including the exclusive right
of withdrawal, over such account. Other than any interest earned on the
investment of such deposits in Permitted Investments, which investments shall be
made at the option and sole discretion of the Collateral Agent, such deposits
shall not bear interest. Interest or profits, if any, on such investments shall
accumulate in such account. Moneys in such account shall (i) automatically be
applied by the Collateral Agent to reimburse the Issuing Bank for L/C
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Disbursements for which it has not been reimbursed, (ii) be held for the
satisfaction of the reimbursement obligations of the Borrower for the L/C
Exposure at such time and (iii) if the maturity of the Loans has been
accelerated (but subject to the consent of Revolving Credit Lenders holding
participations in outstanding Letters of Credit representing greater than 50% of
the aggregate undrawn amount of all outstanding Letters of Credit), be applied
to satisfy the Obligations. If the Borrower is required to provide an amount of
cash collateral hereunder as a result of the occurrence of an Event of Default,
such amount (to the extent not applied as aforesaid) shall be returned, together
with any remaining interest, to the Borrower within two Business Days after all
Events of Default have been cured or waived.
ARTICLE III
Representations and warranties
The Borrower represents and warrants to the Administrative Agent, the
Collateral Agent, the Issuing Bank and each of the Lenders that:
SECTION 3.01. Organization; Powers. The Borrower and each Subsidiary (a) is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, (b) has all requisite power and
authority to own its property and assets and to carry on its business as now
conducted and as proposed to be conducted, (c) is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required, except where the failure so to qualify could not reasonably be
expected to result in a Material Adverse Effect, and (d) has the corporate power
and authority to execute, deliver and perform its obligations under each of the
Loan Documents, the Merger Agreement and each other agreement or instrument
contemplated hereby to which it is or will be a party and, in the case of the
Borrower, to borrow hereunder.
SECTION 3.02. Authorization. The execution, delivery and performance by
each Loan Party of the Merger Agreement, each of the Loan Documents and the
borrowings hereunder (collectively, the "Transactions") and the Acquisition (a)
have been duly authorized by all requisite corporate and, if required,
stockholder action (other than
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any action by the stockholders of the Company to approve the Merger) and (b)
will not (i) violate (A) any provision of law, statute, rule or regulation, or
of the certificate or articles of incorporation or other constitutive documents
or by-laws of the Borrower or any Subsidiary, (B) any order of any Governmental
Authority or (C) any provision of any indenture, agreement or other instrument
to which the Borrower or any Subsidiary is a party or by which any of them or
any of their property is or may be bound, (ii) be in conflict with, result in a
breach of or constitute (alone or with notice or lapse of time or both) a
default under, or give rise to any right to accelerate or to require the
prepayment, repurchase or redemption of any obligation under any such indenture,
agreement or other instrument or (iii) result in the creation or imposition of
any Lien upon or with respect to any property or assets now owned or hereafter
acquired by the Borrower or any Subsidiary (other than any Lien created under
the Security Documents), other than (in the case of clauses (b)(i)(C) and (ii)
above) for such matters that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
SECTION 3.03. Enforceability. This Agreement has been duly executed and
delivered by the Borrower and constitutes, and each other Loan Document when
executed and delivered by each Loan Party thereto will constitute, a legal,
valid and binding obligation of such Loan Party enforceable against such Loan
Party in accordance with its terms, except as enforceability thereof may be
limited by bankruptcy, insolvency or similar laws of general application
affecting creditors' rights.
SECTION 3.04. Governmental Approvals. No action, consent or approval of,
registration or filing with or any other action by any Governmental Authority is
or will be required in connection with the Transactions or the Acquisition,
except for (a) the filing of Uniform Commercial Code financing statements, (b)
recordation of the Mortgages, (c) the items described in Section 3.22, (d)
securing documentation from the New Jersey Department of Environmental
Protection to the effect that the requirements of the New Jersey Industrial Site
Recovery Act have been complied with and that the Acquisition may proceed and
(e) such as have been made or obtained and are in full force and effect.
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SECTION 3.05. Financial Statements. (a) The Borrower has heretofore
furnished to the Lenders its consolidated balance sheets and statements of
income, shareholders' equity and cash flows (i) as of and for the fiscal year
ended December 31, 1994, audited by and accompanied by the opinion of BDO
Seidman, independent public accountants, and (ii) as of and for the fiscal
quarter and the portion of the fiscal year ended July 1, 1995, certified by a
Financial Officer. Such financial statements present fairly the financial
condition and results of operations of the Borrower and its consolidated
Subsidiaries as of such dates and for such periods. Such balance sheets and the
notes thereto disclose all material liabilities, direct or contingent, of the
Borrower and its consolidated Subsidiaries as of the dates thereof. Such
financial statements were prepared in accordance with GAAP applied on a
consistent basis, subject (in the case of the statements referred to in clause
(ii) above) to normal, year-end recurring adjustments.
(b) The Borrower has heretofore furnished to the Lenders its unaudited pro
forma consolidated balance sheet as of July 1, 1995, and pro forma consolidated
income statement for the two fiscal quarters ended July 1, 1995, prepared giving
effect to the Transactions and the Acquisition as if they had occurred on July
1, 1995, and December 31, 1994, respectively. Such pro forma financial
statements have been prepared in good faith by the Borrower, based on the
assumptions used to prepare the pro forma financial information contained in the
Confidential Information Memorandum (which assumptions are believed by the
Borrower on the date hereof and on the Tender Offer Date to be reasonable), are
based on the best information available to the Borrower as of the date of
delivery thereof, accurately reflect all adjustments required to be made to give
effect to the Transactions and the Acquisition and present fairly on a pro forma
basis the estimated consolidated financial position of the Borrower and the
Subsidiaries as of July 1, 1995, and estimated consolidated results of
operations of the Borrower and the Subsidiaries for the two fiscal quarters
ended July 1, 1995, assuming that the Transactions and the Acquisition had
actually occurred at July 1, 1995, and December 31, 1994, respectively.
(c) The Borrower has heretofore furnished to the Lenders the consolidated
balance sheets and statements of operations, stockholders' equity and cash flows
of the
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Company (i) as of and for the fiscal year ended December 31, 1994, audited by
and accompanied by the opinion of Coopers & Lybrand LLP, independent public
accountants, and (ii) as of and for the fiscal quarter and the portion of the
fiscal year ended June 30, 1995. The Borrower has no knowledge that these
financial statements have not been prepared in accordance with GAAP applied on a
consistent basis (except to the extent set forth in those financial statements,
including the notes, if any) or do not present fairly in all material respects
the consolidated financial position of the Company as of their respective dates,
and the consolidated results of operations and changes in financial condition
and cash flows for the periods presented, subject, in the case of the unaudited
interim financial statements, to normal, recurring, year-end adjustments.
SECTION 3.06. No Material Adverse Change. There has been no material
adverse change in the business, assets, operations, prospects or condition,
financial or otherwise, of the Borrower and the Subsidiaries, taken as a whole,
since December 31, 1994.
SECTION 3.07. Title to Properties; Possession under Leases. (a) Each of the
Borrower and the Subsidiaries has good and marketable title to, or valid
leasehold interests in, all its material properties and assets (including all
Mortgaged Property). All such material properties and assets are free and clear
of Liens, other than Liens expressly permitted by Section 6.02, and no material
portion of any Mortgaged Property is subject to any lease, license, sublease or
other agreement granting to any person any right to use, occupy or enjoy such
portion.
(b) Each of the Borrower and the Subsidiaries has complied with all
obligations under all material leases to which it is a party and all such leases
are in full force and effect. Each of the Borrower and the Subsidiaries enjoys
peaceful and undisturbed possession under all such material leases.
(c) Neither the Borrower nor any Subsidiary has received any notice of, nor
has any knowledge of, any pending or contemplated condemnation proceeding
affecting the Mortgaged Properties or any sale or disposition thereof in lieu of
condemnation.
(d) Neither the Borrower nor any Subsidiary is obligated under any right of
first refusal, option or other
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contractual right to sell, assign or otherwise dispose of any Mortgaged Property
or any interest therein.
SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth as of the Tender Offer
Date a list of the Subsidiaries (other than the Company and its subsidiaries)
and the percentage ownership interest of the Borrower therein. The shares of
capital stock or other ownership interests so indicated on Schedule 3.08 are
fully paid and non-assessable and are owned by the Borrower, directly or
indirectly, free and clear of all Liens (other than Liens pursuant to the
Security Documents).
SECTION 3.09. Litigation; Compliance with Laws. (a) Except as disclosed in
the Tender Offer Materials or the Company's Schedule 14D-9 with respect to the
Tender Offer, there are not any actions, suits or proceedings at law or in
equity or by or before any Governmental Authority now pending or, to the
knowledge of the Borrower, threatened against or affecting any Transaction Party
or any business, property or rights of any such person (i) that involve any Loan
Document, the Transactions or the Acquisition or (ii) as to which there is a
likelihood of an adverse determination and that, if adversely determined, could
reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect.
(b) None of the Borrower and the Subsidiaries or any of their respective
material properties or assets (including the Mortgaged Properties) is in
violation of, nor will the continued operation of such material properties and
assets as currently conducted violate, any law, rule or regulation (including
any Health Care Law, any Environmental Law, any zoning or building ordinance,
code or approval or any building permit) or any restriction of record or
agreements affecting the Mortgaged Property, or is in default with respect to
any judgment, writ, injunction, decree or order of any Governmental Authority,
other than, in each case, such violations and defaults that, individually and in
the aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
(c) Certificates of occupancy and material permits (or other documents
expressly provided for under applicable law in lieu thereof) are in effect for
each Mortgaged Property as currently constructed, and true and complete copies
of such certificates of occupancy have been
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delivered to the Collateral Agent as mortgagee with respect to each Mortgaged
Property.
SECTION 3.10. Agreements. (a) Neither the Borrower nor any Subsidiary is a
party to any agreement or instrument or subject to any corporate restriction
that has resulted or could reasonably be expected to result in a Material
Adverse Effect.
(b) Neither the Borrower nor any of the Subsidiaries is in default in any
manner under any provision of any indenture or other agreement or instrument
evidencing Indebtedness, the General Shareholders Agreement dated September 30,
1994, or any other agreement or instrument to which it is a party or by which it
or any of its properties or assets are or may be bound, other than such defaults
that, individually and in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.11. Federal Reserve Regulations. (a) Neither the Borrower nor any
Subsidiary is engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of buying or carrying Margin Stock.
(b) No part of the proceeds of any Loan or any Letter of Credit will be
used, whether directly or indirectly, and whether immediately, incidentally or
ultimately, for any purpose that entails a violation of, or that is inconsistent
with, the provisions of the Regulations of the Board, including, to one extent
applicable, Regulation G, U or X. Margin Stocks do not constitute 25% or more of
the assets of the Borrower and the Subsidiaries, taken as a whole.
(c) No Indebtedness of the Borrower or any Subsidiary (other than the
Obligations) is "directly or indirectly secured" (within the meaning of
Regulation U and Regulation G) by any Margin Stock.
SECTION 3.12. Investment Company Act; Public Utility Holding Company Act.
Neither the Borrower nor any Subsidiary is (a) an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of 1940,
(b) a "holding company" as defined in, or subject to regulation under, the
Public Utility Holding Company Act of
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1935 or (c) otherwise subject to any law, rule or regulation that limits its
ability to incur Indebtedness.
SECTION 3.13. Use of Proceeds. The Borrower will use the proceeds of the
Loans and will request the issuance of Letters of Credit only for the purposes
specified in the preamble to this Agreement.
SECTION 3.14. Tax Returns. Each of the Borrower and the Subsidiaries has
filed or caused to be filed all Federal, state, local and foreign tax returns or
materials required to have been filed by it and has paid or caused to be paid
all taxes due and payable by it and all assessments received by it, except taxes
that are being contested in good faith by appropriate proceedings and for which
the Borrower or such Subsidiary, as applicable, shall have set aside on its
books (in accordance with GAAP accounting requirements) adequate reserves.
SECTION 3.15. No Material Misstatements. (a) the Confidential Information
Memorandum or (b) information, report, financial statement, schedule authored
by, and furnished by or on behalf of, the Borrower in writing to the
Administrative Agent in connection with the negotiation of any Loan Document or
included therein or delivered pursuant thereto contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they are made
misleading; provided, however, that to the extent any such information, report,
financial statement, exhibit or schedule was based upon or constitutes a
forecast or projection, the Borrower represents only that (x) it acted in good
faith and utilized reasonable assumptions and due care in the preparation of
such information, report, financial statement, exhibit or schedule and (y) with
respect to the projections contained in the Confidential Information Memorandum,
as of the date of this Agreement and as of the Closing Date, the Borrower
believes the assumptions underlying such projections are reasonable.
SECTION 3.16. Employee Benefit Plans. Each of the Borrower and the ERISA
Affiliates is in compliance in all respects with the applicable provisions of
ERISA and the Code and the regulations and published interpretations thereunder,
except for such failures to comply that, individually and in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect. No
ERISA
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Event has occurred or is reasonably expected to occur that, when taken together
with all other such ERISA Events, could reasonably be expected to result in a
Material Adverse Effect. As of the date of this Agreement, none of the Plans is
a "defined benefit plan" as defined in Section 3(35) of ERISA or Section 414(j)
of the Code. The present value of all benefit liabilities under each Plan (based
on those assumptions used for purposes of Statement of Financial Accounting
Standards No. 87) did not, as of the last annual valuation date applicable
thereto, exceed by more than $15,000,000 the fair market value of the assets of
such Plan, and the present value of all benefit liabilities of all underfunded
Plans (based on those assumptions used for purposes of Statement of Financial
Accounting Standards No. 87) did not, as of the last annual valuation dates
applicable thereto, exceed by more than $15,000,000 the fair market value of the
assets of all such underfunded Plans.
SECTION 3.17. Environmental Matters. (a) The properties owned or operated
by the Borrower and the Subsidiaries (the "Properties") do not contain any
Hazardous Materials in amounts or concentrations that constitute a violation of,
or could give rise to under, any Environmental Law, other than such violations
and liabilities that, individually and in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
(b) The Properties and all operations of the Borrower and the Subsidiaries
are in compliance, and in the last six years have been in compliance, with all
Environmental Laws and all Environmental Permits have been obtained and are in
effect, other than such items that, individually and in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
(c) There have not been any Releases or threatened Releases at, from, under
or, to the knowledge of the Borrower, proximate to the Properties or otherwise
in connection with the operations of the Borrower or the Subsidiaries, which
Releases or threatened Releases, in the aggregate, could reasonably be expected
to result in a Material Adverse Effect.
(d) Neither the Borrower nor any Subsidiary has received any notice of an
Environmental Claim in connection with the Properties or the operations of the
Borrower or the Subsidiaries or with regard to any person whose liabilities for
environmental matters the Borrower or the Subsidiaries
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has retained or assumed, in whole or in part, contractually, or to the knowledge
of the Borrower by operation of law or otherwise, which, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect,
nor do the Borrower or the Subsidiaries have any knowledge that any such notice
is likely to be received or is being threatened.
(e) Hazardous-Materials have not been transported from the Properties, nor
have Hazardous Materials been generated, treated, stored or disposed of at, on
or under any Property in a manner that could reasonably be expected to give rise
to any material liability under any Environmental Law, nor has the Borrower or
Subsidiary retained or assumed any liability, contractually, or to the knowledge
of the Borrower by operation of law or otherwise, with respect to the
generation, treatment, storage or disposal of Hazardous Materials, which
transportation, generation, treatment, storage or disposal, or retained or
assumed liabilities, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect.
SECTION 3.18. Insurance. Schedule 3.18 sets forth a true, complete and
correct description of all insurance maintained by the Borrower or the
Subsidiaries as of the date hereof and the Closing Date. As of each such date,
such insurance is in full force and effect and all premiums due have been paid.
The Borrower and the Subsidiaries have insurance in such amounts and covering
such risks and liabilities as are in accordance with normal industry practice.
SECTION 3.19. Solvency. (a) The fair salable value of the assets of the
Borrower and each Subsidiary exceeds and shall, immediately following each of
the Tender Offer Date and the Merger Date and the consummation of the related
financings, exceed the amount that will be required to be paid on or in respect
of the existing debts and other liabilities (including contingent liabilities)
of the Borrower or such Subsidiary as they mature.
(b) The assets of the Borrower and each Subsidiary do not, and upon
consummation of the Acquisition will not, constitute unreasonably small capital
for the Borrower or such Subsidiary to carry out its business as now conducted
and as proposed to be conducted, including the capital needs of the Borrower or
such Subsidiary, taking
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into account the particular capital requirements of the business conducted by
the Borrower and each Subsidiary, and the projected capital requirements and
capital availability thereof.
(c) The Borrower and each Subsidiary do not intend to and shall not incur
debts beyond their respective ability to pay such debts as they mature taking
into account the timing and amounts of cash to be received by the Borrower and
such Subsidiary and of amounts to be payable on or in respect of obligations of
the Borrower and such Subsidiary. The cash flow of the Borrower and each
Subsidiary, after taking into account all anticipated uses of the cash of the
Borrower and each Subsidiary, will at all times be sufficient to pay all such
amounts on or in respect of debt of the Borrower or such Subsidiary when such
amounts are required to be paid.
(d) The representations made in this Section 3.19 with respect to any
Subsidiary that is a Guarantor are made after taking into consideration and
giving effect to the Indemnity, Contribution and Subrogation Agreement.
SECTION 3.20. Location of Real Property and Leased Premises. (a) Schedule
3.20(a) lists completely and correctly as of the date of this Agreement all real
property owned by the Borrower and the Subsidiaries and the addresses thereof
and, to the knowledge of the Borrower, all real property owned by the Company
and its subsidiaries as of the date of this Agreement and the addresses thereof.
The Borrower and the Subsidiaries own in all the real property set forth on
Schedule 3.20(a) as owned by the Borrower or any Subsidiary and, to the
knowledge of the Borrower, the Company and its subsidiaries own in fee all the
real property set forth on Schedule 3.20(a) as owned by the Company or any of
its subsidiaries.
(b) Schedule 3.20(b) lists completely and correctly as of the date of this
Agreement all material real property leased by the Borrower and the Subsidiaries
and the addresses thereof and, to the knowledge of the Borrower, all real
property leased by the Company and its subsidiaries as of the date of this
Agreement and the addresses thereof. The Borrower and the Subsidiaries, as the
case may be, have valid leasehold interests in all the material real property
set forth on Schedule 3.20(b) as leased by the Borrower or any Subsidiary and,
to the knowledge of the Borrower, the Company and its subsidiaries, as the case
may be, have valid
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leasehold interests in all the real property set forth on Schedule 3.20(b) as
leased by the Company or any of its subsidiaries.
SECTION 3.21. Labor Matters. As of the date of this Agreement and the
Closing Date, there are no strikes, lockouts or slowdowns against the Borrower
or any Subsidiary pending or, to the knowledge of the Borrower, threatened. The
hours worked by and payments made to employees of the Borrower and the
Subsidiaries have not been in violation of the Fair Labor Standards Act or any
other applicable Federal, state, local or foreign law dealing with such matters.
All payments due from the Borrower or any Subsidiary, or for which any claim may
be made against the Borrower or any Subsidiary, on account of wages and employee
health and welfare insurance and other benefits, have been paid or accrued as a
liability on the books of the Borrower or such Subsidiary. The consummation of
the Acquisition will not give rise to any right of termination or right of
renegotiation on the part of any union under any collective bargaining agreement
to which the Borrower or any Subsidiary is bound.
SECTION 3.22. Tender Offer; Merger. (a) All consents and approvals of,
filings and registrations with and other actions in respect of all Governmental
Authorities required in order to make or consummate the Tender Offer, to
purchase Shares pursuant thereto and to consummate the Merger have been
obtained, given, filed or taken and are in full force and effect, other than (i)
the filing of the certificates of merger necessary to accomplish the Merger
with, and their acceptance by, the Secretary of State of the State of Delaware
and any necessary approval of the Merger by the stockholders of the Company, in
each case pursuant to the General Corporation Law of the State of Delaware, (ii)
filings and other actions required pursuant to the Securities Act of 1933, the
Securities Exchange Act of 1934 and the respective rules and regulations
thereunder in connection with the Merger and any necessary approval thereof by
the stockholders of the Company and (iii) filings and other actions required
pursuant to state securities or blue sky laws in connection with the Merger.
(b) The Tender Offer Materials and all amendments or supplements thereto
disseminated to the public on or prior to the Tender Offer Date at the time of
their dissemination to the public did not and will not on the Tender Offer Date,
and the Tender Offer Materials and all
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amendments or supplements thereto that were or will be disseminated to the
public after the Tender Offer Date did not or will not at the time of their
dissemination to the public, contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were or are made,
not misleading. Copies of the Tender Offer Materials and all amendments or
supplements thereto will be delivered to the Administrative Agent not later than
the time they are made available to the public or filed with the Securities and
Exchange Commission.
(c) The Merger Agreement has been duly authorized, executed and delivered
by each of the Borrower, Acquisition Co. and the Company and constitutes a
legal, valid and binding obligation of each such corporation, enforceable in
accordance with its terms. A true, correct and complete copy of the Merger
Agreement has been furnished to the Administrative Agent.
(d) As of the date of this Agreement and as of the Closing Date, (i) each
of the representations and warranties made by the Borrower and Acquisition Co.
in the Merger Agreement is true and correct in all material respects and (ii)
the Borrower does not have any knowledge of any circumstances or conditions that
would render the representations and warranties of the Company in the Merger
Agreement untrue or incorrect in any material respect.
(e) Prior to the Tender Offer Date, none of the Transaction Parties
purchased or otherwise acquired any Shares for a price per Share in excess of
the price specified in Section 1.1 (a) of the Merger Agreement, other than
Shares acquired by the Company not in violation of the Merger Agreement.
SECTION 3.23. Capitalization of the Borrower. As of the date of this
Agreement, the authorized capital stock of the Borrower consists of 529,295
shares of common stock, par value $0.01 per share, of which 273,742 shares are
issued and outstanding. All such outstanding shares of Stock are fully paid and
nonassessable.
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ARTICLE IV
Conditions of Lending
The obligations of the Lenders to make Loans and of the Issuing Bank to
issue, renew or extend Letters of Credit hereunder are subject to the
satisfaction of the following conditions:
SECTION 4.01. All Credit Events. On the date of each Borrowing and each
issuance, renewal or extension of a Letter of Credit (each such event being
called a "Credit Event"):
(a) The Administrative Agent shall have received any notice of such
Borrowing required by Section 2.03 or, in the case of the issuance, renewal or
extension of a Letter of Credit, the Issuing Bank and the Administrative Agent
shall have received a notice requesting the issuance of such Letter of Credit as
required by Section 2.22(b).
(b) The representations and warranties set forth in Article III shall be
true and correct in all material respects on and as of the date of such Credit
Event with the same effect as though made on and as of such date, except to the
extent such representations and warranties expressly relate to an earlier date.
(c) The Loan Parties, taken as a whole, shall be in compliance in all
material respects with all the terms and provisions set forth in this Agreement
and in the other Loan Documents, and at the time of and immediately after such
Credit Event, no Event of Default or Default shall have occurred and be
continuing.
(d) The Lenders shall be satisfied, in the exercise of good faith, that, so
long as the Shares constitute Margin Stock, 50% of the loan value (determined in
accordance with Regulation U) of the Shares held by the Borrower or Acquisition
Co., together with the good faith loan value (determined in accordance with
Regulation U) of all the other Collateral, shall exceed the outstanding
principal amount of the Loans and the L/C Exposure (taking into account the
Loans to be made and Letters of Credit to be issued on the date of such Credit
Event).
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Each Credit Event shall be deemed to constitute a representation and warranty by
the Borrower on the date of such Credit Event as to the matters specified in
paragraphs (b) and (c) above.
SECTION 4.02. First Credit Event. On the Closing Date
(a) The Administrative Agent shall have received, on behalf of itself,
the Lenders and the Issuing Bank, a favorable written opinion of (i)
Proskauer Rose Goetz & Mendelsohn LLP, counsel for the Borrower,
substantially to the effect set forth in Exhibit I-1 and (ii) each local
counsel listed on Schedule 4.02(a), substantially to the effect set forth
in Exhibit I-2, in each case (A) dated the Closing Date, (B) addressed to
the Issuing Bank, the Administrative Agent and the Lenders, and (C)
covering such other matters relating to the Loan Documents, the
Transactions and the Acquisition as the Administrative Agent shall
reasonably request, and the Borrower hereby requests such counsel to
deliver such opinions.
(b) All legal matters incident to this Agreement and the other Loan
Documents shall be reasonably satisfactory to the Administrative Agent.
(c) The Administrative Agent shall have received (i) a copy of the
certificate or articles of incorporation, including all amendments thereto,
of each Loan Party, certificates of a recent date by the Secretary of State
of the state of its organization, and a certificate as to the good standing
of each Loan Party as of a recent date, from such Secretary of State; (ii)
a certificate of the Secretary or Assistant Secretary of each Loan Party
dated the Closing Date and certifying (A) that attached thereto is a true
and complete copy of the by-laws of such Loan Party as in effect on the
Closing Date and at all times since a date prior to the date of the
resolutions described in clause (B) below, (B) that attached thereto is a
true and complete copy of resolutions duly adopted by the Board of
Directors of such Loan Party authorizing the execution, delivery and
performance of the Loan Documents to which such person is a party and, in
the case of the Borrower, the borrowings hereunder, and that such
resolutions have not been modified, rescinded or amended and are in full
force and effect, (C) that
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the certificate or articles of incorporation of such Loan Party have not
been amended since the date of the last amendment thereto shown on the
certificate of good standing furnished pursuant to clause (i) above, and
(D) as to the incumbency and specimen signature of each officer executing
any Loan Document or any other document delivered in connection herewith on
behalf of such Loan Party; (iii) a certificate of another officer as to the
incumbency and specimen signature of the Secretary or Assistant Secretary
executing the certificate pursuant to clause (ii) above; and (iv) such
other documents as the Administrative Agent may reasonably request.
(d) The Administrative Agent shall have received a certificate, dated
the Closing Date and signed by a Financial Officer of the Borrower,
confirming compliance with the conditions precedent set forth in Sections
4.01(b) and 4.04(c).
(e) The Administrative Agent shall have received all Fees and other
amounts due and payable on or prior to the Closing Date, including, to the
extent invoiced, reimbursement or payment of all reasonable out-of-pocket
expenses required to be reimbursed or paid by the Borrower hereunder or
under any other Loan Document.
(f) The Pledge Agreement shall have been duly executed by the Borrower
and each Subsidiary (other than the Company and its subsidiaries) and
delivered to the Collateral Agent and shall be in full force and effect,
and all the outstanding capital stock of the Subsidiaries held by the
Borrower or any such Subsidiary shall have been duly and validly pledged
thereunder to the Collateral Agent for the ratable benefit of the Secured
Parties, and certificates representing such shares, accompanied by
instruments of transfer and undated stock powers endorsed in blank, shall
be in the actual possession of the Collateral Agent or, in the case of
Book-Entry Shares, transferred into an account of the Collateral Agent
maintained with the applicable Book-Entry Transfer Facility; provided,
however, that (i) neither the Borrower nor any Domestic Subsidiary shall be
required to pledge more than 65% of the capital stock of any Foreign
Subsidiary and (ii) no Foreign Subsidiary shall be required to pledge the
capital stock of any Foreign Subsidiary.
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(g) (i) The Security Agreement shall have been duly executed by the
Borrower and each Subsidiary (other than the Company and its subsidiaries)
and shall have been delivered to the Collateral Agent and shall be in full
force and effect on such date and each document (including each Uniform
Commercial Code financing statement) required by law or reasonably
requested by the Collateral Agent to be filed, registered or recorded in
order to create in favor of the Collateral Agent for the benefit of the
Secured Parties a valid and perfected first priority security interest in
and lien on the Collateral (subject to any Lien expressly permitted by
Section 6.02 and in existence on the Closing Date) described in such
agreement shall have been delivered to the Collateral Agent; provided,
however, that the Foreign Subsidiaries and the Puerto Rico Subsidiary shall
not be required to execute the Security Agreement and (ii) the Chattel
Mortgages shall have been duly executed by the Puerto Rico Subsidiary and
shall have been delivered to the Collateral Agent and shall be in full
force and effect on such date and each document required by law or
reasonably requested by the Collateral Agent to be filed, registered or
recorded in order to create in favor of the Collateral Agent for the
benefit of the Secured Parties a valid and perfected first priority
security interest in and lien on the Collateral (subject to any Lien
expressly permitted by Section 6.02 and in existence on the Closing Date)
described in such agreement shall have been delivered to the Collateral
Agent.
(h) The Collateral Agent shall have received the results of a search
of the Uniform Commercial Code (or equivalent) filings made with respect to
the Loan Parties in the states (or other jurisdictions) in which the chief
executive office of each such person is located, any offices of such
persons in which records have been kept relating to Accounts and the other
jurisdictions in which Uniform Commercial Code filings (or equivalent
filings) are to be made pursuant to paragraph (g) above, together with
copies of the financing statements (or similar documents) disclosed by such
search, and accompanied by evidence satisfactory to the Collateral Agent
that the Liens indicated in any such financing statement (or similar
document) would be permitted under Section 6.02 or have been released.
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(i) The Collateral Agent shall have received a Perfection Certificate
with respect to the Loan Parties dated the Closing Date and duly executed
by a Responsible Officer of the Borrower.
(j) (i) Each of the Security Documents, in form and substance
satisfactory to the Lenders, relating to each of the Mortgaged Properties
shall have been duly executed by the parties thereto and delivered to the
Collateral Agent and shall be in full force and effect, (ii) each of such
Mortgaged Properties shall not be subject to any Lien other than those
permitted under Section 6.02, (iii) a lender's title insurance policy, in
form and substance acceptable to the Collateral Agent, insuring such
Security Document as a first lien on such Mortgaged Property (subject to
any Lien permitted by Section 6.02 and in existence on the Closing Date)
shall have been received by the Collateral Agent) and (iv) the Collateral
Agent shall have received such other documents, including a policy or
policies of title insurance issued by a nationally recognized title
insurance company, together with such endorsements, coinsurance and
reinsurance as may be requested by the Collateral Agent, insuring the
Mortgages as valid first liens on the Mortgaged Properties, free of Liens
other than those permitted under Section 6.02 and in existence on the
Closing Date, together with such surveys and legal opinions required to be
furnished pursuant to the terms of the Mortgages or as reasonably requested
by the Collateral Agent or the Lenders.
(k) The Guarantee Agreement shall have been duly executed by each
Subsidiary (other than the Company and its subsidiaries), shall have been
delivered to the Collateral Agent and shall be in full force and effect;
provided, however, that no Foreign Subsidiary shall be required to execute
the Guarantee Agreement.
(l) The Indemnity, Subrogation and Contribution Agreement shall have
been duly executed by each Loan Party, shall have been delivered to the
Collateral Agent and shall be in full force and effect.
(m) The Administrative Agent shall have received a copy of, or a
broker's or insurance company certificate as to coverage under, the
insurance
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policies required by Section 5.02 and the applicable provisions of the
Security Documents.
(n) The Shares to be purchased with the proceeds of the Loans to be
made on the Closing Date shall have been validly tendered to Acquisition
Co. in accordance with the Tender Offer Materials, and not withdrawn, and
shall be available for purchase pursuant to the Tender Offer.
(o) All conditions to the purchase of Shares in the Tender Offer shall
have been satisfied without giving effect to any waiver or amendment
thereof not approved by the Required Lenders, and Acquisition Co. shall
have accepted for payment pursuant to the Tender Offer a majority of the
Shares (on a fully diluted basis) (excluding any Shares tendered through
"guaranteed delivery" procedures and not yet delivered to Acquisition Co.
or its agents); provided, however, that the approval of the Required
Lenders shall not be required for any extension of the Tender Offer.
(p) There shall not be any action, suit or proceeding at law or in
equity or by or before any Governmental Authority pending or, to the
knowledge of the Borrower, threatened against or affecting any Transaction
Party or any business, property or rights of such person and relating to
the Transactions or the Acquisition (i) that could reasonably be expected
to result in a Material Adverse Effect or (ii) that is reasonably likely to
restrain, prevent or impose materially burdensome conditions on any
Transaction or the Acquisition.
(q) To the extent applicable, the Borrower shall have delivered to
each Lender a statement on Form U-1 or Form G-3 complying with the
requirements of Regulation U or Regulation G, as applicable.
(r) No change, and no development or event involving a prospective
change, in respect of the assets, capitalization, corporate structure,
securities, condition (financial or otherwise), prospects or results of
operations of the Borrower or the Company shall have occurred that is
deemed by the Lenders, in their good faith judgment, to involve a
reasonable likelihood of a Material Adverse Effect.
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(s) The Administrative Agent shall have received a customary
collateral review, reasonably satisfactory in form and substance to the
Administrative Agent.
(t) The Administrative Agent shall have received (i) the financial
statements referred to in Section 3.05(b) and (ii) consolidated income
statement projections, consolidated cash flow projections, consolidated
balance sheet projections and related assumptions for the Borrower for each
year until the Post-Merger Facilities Maturity Date, after giving effect to
the Transactions and the Acquisition.
(u) The Administrative Agent shall have received for each Mortgaged
Property a copy of the original permanent or temporary certificate of
occupancy, if any, issued upon completion of such Mortgaged Property (or
any amendment issued upon completion of any alteration) by the appropriate
Governmental Authority.
(v) The Administrative Agent shall have received (i) an environmental
assessment report in form, scope and substance reasonably satisfactory to
the Lenders, from Dames & Moore, as to any material environmental hazards,
liabilities or Remedial Action to which the Borrower or any of the
Subsidiaries may be subject and the Lenders shall be reasonably satisfied
with the nature and cost of any such hazards, liabilities or Remedial
Action and with the Borrower's plans with respect thereto and (ii) written
evidence of compliance with the New Jersey Industrial Site Recovery Act
pursuant to paragraph (I) of Annex A to the Merger Agreement.
(w) The Lenders shall have received a solvency letter from Valuation
Research Corporation satisfactory to the Lenders confirming the solvency of
the Borrower after giving effect to the Acquisition.
(x) The Administrative Agent shall have received evidence reasonably
satisfactory to it of the termination or cancellation of, and payment in
full of all amounts outstanding under or in respect of, (i) the Credit
Agreement dated as of November 25, 1992, among the Borrower, the Banks
named therein and Citibank, N.A., as agent, (ii) the Standby Letter of
Credit Agreement dated October, 1992, between the Borrower and Mellon Bank,
N.A., (iii) the $10,000,000 promissory
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note dated November 22, 1994, from the Borrower to Midlantic National Bank
and (iv) the Financing Agreement dated March 9, 1992, between Danbury
Pharmacal Puerto Rico, Inc. (formerly known as Danbury Pharmacal Caribe,
Inc.), and Banco Popular de Puerto Rico.
SECTION 4.03. Additional Conditions Precedent. On the date of the initial
Term Facility Borrowing or Post-Merger Revolving Facility Borrowing:
(a) The Merger shall have been, or simultaneously therewith shall be,
consummated in accordance with applicable law and the terms of the Merger
Agreement (and without giving effect to any waiver or amendment not
approved by the Required Lenders).
(b) The Company and each of its subsidiaries shall have become parties
to the Guarantee Agreement, the Security Agreement, the Pledge Agreement
and the Indemnity, Subrogation and Contribution Agreement and the
conditions set forth in paragraphs (f), (g), (h), (i), (j), (k), (1) and
(m) of Section 4.02 (but without giving effect to the first parenthetical
in each paragraph) shall, insofar as they relate to the Company and its
subsidiaries, have been satisfied on and as of such date as if all
references therein to the Closing Date were references to such date. The
Administrative Agent shall have received, with respect to the Company and
each of its subsidiaries, the certificates contemplated by Section 4.02(c)
and an opinion of counsel to the Company substantially in the form of
Exhibit J.
ARTICLE V
Affirmative Covenants
The Borrower covenants and agrees with each Lender that so long as this
Agreement shall remain in effect and until the Commitments have been terminated
and the principal of and interest on each Loan, all Fees and all other expenses
or amounts payable under any Loan Document have been paid in full and all
Letters of Credit have been canceled or have expired and all amounts drawn
thereunder
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have been reimbursed in full, unless the Required Lenders shall otherwise
consent in writing, the Borrower shall, and shall cause each Subsidiary to:
SECTION 5.01. Existence. Businesses and Properties. (a) Do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence, except as otherwise expressly permitted under Section 6.05.
(b) Do or cause to be done all things necessary to obtain, preserve, renew,
extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; comply with all applicable laws, rules,
regulations and decrees and orders of any Governmental Authority, whether now in
effect or hereafter enacted, except where the failure to comply could not
reasonably be expected to result in a Material Adverse Effect; and at all times
maintain and preserve all property material to the conduct of such business and
keep such property in good repair, working order and condition and from time to
time make, or cause to be made, all needful and proper repairs, renewals,
additions, improvements and replacements thereto necessary, in the Borrower's
reasonable judgment, in order that the business carried on in connection
therewith may be properly conducted at all times.
SECTION 5.02. Insurance. (a) Keep its insurable properties adequately
insured at all times by financially sound and reputable insurers; and maintain
such other insurance, to such extent and against such risks, including fire and
other risks insured against by extended coverage, as is customary with companies
in the same or similar businesses operating in the same or similar locations.
(b) If at any time the area in which the Premises (as defined in the
Mortgages) are located is designated a "flood hazard area" in any Flood
Insurance Rate Map published by the Federal Emergency Management Agency (or any
successor agency), obtain flood insurance in such total amount as may be
required by applicable law and otherwise comply with the National Flood
Insurance Program as set forth in the Flood Disaster Protection Act of 1973, as
it may be amended from time to time.
(c) With respect to any Mortgaged Property, carry and maintain
comprehensive general liability insurance,
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including the "broad form CGL endorsement" and coverage against claims made for
personal injury (including bodily injury, death and property damage) and
umbrella liability insurance against any and all claims, in no event for a
combined single limit of less than $1,000,000, naming the Collateral Agent as an
additional insured, on forms reasonably satisfactory to the Collateral Agent.
Cause all policies insuring against damage to the Mortgaged Property to be
endorsed or otherwise amended to include a "standard" or "New York" lender's
loss payable endorsement, in form and substance satisfactory to the
Administrative Agent and the Collateral Agent, which endorsement shall provide
that, from and after the Closing Date, the insurance carrier shall give the
Administrative Agent or the Collateral Agent at least 30 days' prior notice of
termination of such policies.
(d) In connection with the covenants set forth in this Section 5.02, it is
understood and agreed that:
(i) none of the Administrative Agent, the Lenders, the Issuing Bank,
or their respective agents or employees shall be liable for any loss or
damage insured by the insurance policies required to be maintained under
this Section 5.02, it being understood that (A) the Borrower and the other
Loan Parties shall look solely to their insurance companies or any other
parties other than the aforesaid parties for the recovery of such loss or
damage and (B) such insurance companies shall have no rights of subrogation
against the Administrative Agent, the Collateral Agent, the Lenders, the
Issuing Bank or their agents or employees; provided, however, that the
insurance policies do not provide waiver of subrogation rights against such
parties, as required above, then the Borrower hereby agrees, to the extent
permitted by law, to waive (and to cause each Subsidiary to waive) its
right of recovery, if any, against the Administrative Agent, the Collateral
Agent, the Lenders, the Issuing Bank and their agents and employees; and
(ii) the designation of any form, type or amount of insurance coverage
by the Administrative Agent, the Collateral Agent or the Required Lenders
under this Section 5.02 shall in no event be deemed a representation,
warranty or advice by the Administrative Agent, the Collateral Agent or the
Lenders that such insurance is adequate for the purposes of the business
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of the Borrower and the Subsidiaries or the protection of their properties.
SECTION 5.03. Obligations and Taxes. Pay its Indebtedness and pay or
perform its other material obligations in accordance with their terms and pay
and discharge when due all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or in respect of its property,
before the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise that, if unpaid, might
give rise to a Lien upon such properties or any part thereof; provided, however,
that such payment and discharge shall not be required with respect to any such
obligation, tax, assessment, charge, levy or claim so long as the validity,
amount or entitlement thereof shall be contested in good faith by appropriate
proceedings and the Borrower shall have set aside on its books adequate reserves
with respect thereto in accordance with GAAP and such contest operates to
suspend enforcement of any related Lien and, in the case of a Mortgaged
Property, there is no material risk of forfeiture of such property.
SECTION 5.04. Financial Statements, Reports, etc. In the case of the
Borrower, furnish to the Administrative Agent:
(a) within 100 days after the end of each fiscal year, its
consolidated balance sheet and related statements of operations,
stockholders' equity and cash flows showing the financial condition of the
Borrower and its consolidated Subsidiaries as of the close of such fiscal
year and the results of its operations and the operations of such
Subsidiaries during such year, all audited by BDO Seidman LLP or other
independent public accountants of recognized national standing and
accompanied by an opinion of such accountants (which shall not be qualified
in any material respect) to the effect that such consolidated financial
statements fairly present the financial condition and results of operations
of the Borrower and its consolidated Subsidiaries on a consolidated basis
in accordance with GAAP consistently applied;
(b) within 60 days after the end of each of the first three fiscal
quarters of each fiscal year, its consolidated balance sheet and related
statements of operations, stockholders' equity and cash flows showing
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the financial condition of the Borrower and its consolidated Subsidiaries
as of the close of such fiscal quarter and the results of its operations
and the operations of such Subsidiaries during such fiscal quarter and the
then elapsed portion of the fiscal year, all certified by one of its
Financial Officers as fairly presenting the financial condition and results
of operations of the Borrower and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments;
(c) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of the accounting firm (in the case
of delivery under clause (a) above) or Financial Officer (in the case of
delivery under clause (b) above) opining on or certifying such statements
(which certificate, when furnished by an accounting firm, may be limited to
accounting matters and disclaim responsibility for legal interpretations)
certifying that, to the knowledge of the signer, no Event of Default or
Default has occurred or, if such an Event of Default or Default has
occurred, specifying the nature and extent thereof and any corrective
action taken or proposed to be taken with respect thereto, and attaching
calculations showing compliance with Sections 6.13, 6.14, 6.15, 6.16, 6.17
and 6.18 and the Interest Expense Coverage Ratio as of the end of such
fiscal period;
(d) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
the Borrower or any Subsidiary with the Securities and Exchange Commission,
or any Governmental Authority succeeding to any or all of the functions of
said Commission, or with any national securities exchange, or distributed
to its shareholders, as the case may be;
(e) as soon as available, and in any event no later than 100 days
after the end of each fiscal year, commencing with the fiscal year ending
December 30, 1995, forecasted financial projections for the Borrower
through the end of the then-current fiscal year (including a description of
the underlying assumptions and management's discussion of historical
results), all certified by a Financial Officer of the Borrower to be a good
faith estimate of the forecasted financial
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projections and results of operations for the period through the
then-current fiscal year; and
(f) promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of the Borrower or any
Subsidiary, or compliance with the terms of any Loan Document, as the
Administrative Agent or any Lender may reasonably request.
SECTION 5.05. Litigation and Other Notices. Furnish to the Administrative
Agent, the Issuing Bank and each Lender prompt written notice of the following:
(a) any Event of Default or Default, specifying the nature and extent
thereof and the corrective action (if any) taken or proposed to be taken
with respect thereto;
(b) the filing or commencement of, or any threat or notice of
intention of any person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any Governmental
Authority, against the Borrower or any Subsidiary thereof that could
reasonably be expected to result in a Material Adverse Effect; and
(c) any effect or impairment known to the Borrower that has resulted
in, or could reasonably be expected to result in, a Material Adverse
Effect.
SECTION 5.06. Employee Benefits. (a) Comply in all respects with the
applicable provisions of ERISA and the Code, except where the failure to comply
could not reasonably be expected to result in a Material Adverse Effect, and (b)
furnish to the Administrative Agent (i) as soon as possible after, and in any
event within 20 days after any Responsible Officer of the Borrower or any ERISA
Affiliate knows, any ERISA Event has occurred that, alone or together with any
other ERISA Events that have occurred could reasonably be expected to result in
liability of the Borrower in an aggregate amount exceeding $1,000,000, a
statement of a Financial Officer of the Borrower setting forth details as to
such ERISA Event and the action, if any, that the Borrower proposes to take with
respect thereto.
SECTION 5.07. Maintaining Records; Access to Properties and Inspections.
Keep proper books of record and
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account in which full, true and correct entries in conformity with GAAP and all
requirements of applicable law are made of all material dealings and
transactions in relation to its business. The Borrower will, and will cause each
Subsidiary to, permit any representatives designated by the Administrative Agent
or any Lender to visit and inspect the financial records and the properties of
the Borrower or any Subsidiary upon prior notice to a Financial Officer of the
Borrower, at mutually agreed times during normal business hours and as often as
reasonably requested and to make extracts from and copies of such financial
records (such visits and inspections to be coordinated, to the extent possible,
through the Administrative Agent). Permit any representatives designated by the
Administrative Agent or any Lender to discuss the affairs, finances and
condition of the Borrower or any Subsidiary with the officers thereof (all in a
manner reasonably calculated not to materially disrupt the normal business
operations and activities of the Borrower and the Subsidiaries) and independent
accountants therefor.
SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans and request
the issuance of Letters of Credit only for the purposes set forth in the
preamble to this Agreement.
SECTION 5.09. Compliance with Environmental Laws. Comply, and cause all
lessees and other persons occupying its Properties to comply, in all material
respects with all Environmental Laws and Environmental Permits applicable to its
operations and Properties; obtain and renew all material Environmental Permits
necessary for its operations and Properties; and conduct any Remedial Action in
accordance with Environmental Laws; provided, however, that neither the Borrower
nor any Subsidiary shall be required to undertake any Remedial Action to the
extent that its obligation to do so is being contested in good faith and by
proper proceedings and appropriate reserves are being maintained with respect to
such circumstances.
SECTION 5.10. Preparation of Environmental Reports. If a Default caused by
reason of a breach of Section 3.17 or 5.09 shall have occurred and be
continuing, at the written request of the Required Lenders through the
Administrative Agent, provide to the Lenders within 45 days after such request,
at the expense of the Borrower, an environmental site assessment report for the
Properties which are the subject of such default prepared by an
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environmental consulting firm acceptable to the Administrative Agent and
indicating the presence or absence of Hazardous Materials and the estimated cost
of any compliance or Remedial Action required by Environmental Laws in
connection with such Properties.
SECTION 5.11. Further Assurances. Execute any and all further documents,
financing statements, agreements and instruments, and take all further action
(including filing Uniform Commercial Code and other financing statements,
mortgages and deeds of trust) that may be required under applicable law, or that
the Required Lenders, the Administrative Agent or the Collateral Agent may
reasonably request, in order to effectuate the transactions contemplated by the
Loan Documents and in order to grant, preserve, protect and perfect the validity
and first priority of the security interests created or intended to be created
by the Security Documents. The Borrower shall cause any subsequently acquired or
organized Subsidiary to became a party to the Guarantee Agreement and the
Indemnity Subrogation and Contribution Agreement and each applicable Security
Document; provided, however, that no Foreign Subsidiary shall be required to
become a party to the Guarantee Agreement or to any Security Document. In
addition, from time to time, the Borrower shall, at its cost and expense,
promptly secure the Obligations by pledging or creating, or causing to be
pledged or created, perfected security interests with respect to such of its
assets and properties as the Administrative Agent or the Required Lenders shall
designate (it being understood that it is the intent of the parties that the
Obligations shall be secured by, among other things, substantially all the
assets of the Borrower and the Domestic Subsidiaries (including real and other
properties acquired subsequent to the Closing Date)). Such security interests
and Liens shall be created under the Security Documents and other security
agreements, mortgages, deeds of trust and other instruments and documents in
form and substance satisfactory to the Collateral Agent, and the Borrower shall
deliver or cause to be delivered to the Lenders all such instruments and
documents (including legal opinions, title insurance policies and lien searches)
as the Collateral Agent shall reasonably request to evidence compliance with
this Section 5.11. The Borrower shall provide such evidence as the Collateral
Agent shall reasonably request as to the perfection and priority status of each
such security interest and Lien.
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SECTION 5.12. Rate Protection Agreements. In the case of the Borrower,
within 100 days following the Merger Date, enter into (and thereafter maintain
in effect) Rate Protection Agreements providing for interest rate protection on
customary terms, for a period of at least two years following the Merger Date,
with respect to at least 50% of the sum of the aggregate principal amount of the
then-outstanding Term Loans.
SECTION 5.13. Merger. (a) Use best efforts, consistent with applicable law,
to effect the Merger as promptly as practicable after the consummation of the
Tender Offer.
(b) If the Borrower or Acquisition Co. shall own at least 90% of the Shares
following the consummation of the Tender Offer, effect the Merger without a
meeting of stockholders of the Company within seven days.
SECTION 5.14. Board of Directors of the Company. In the case
of the Borrower, exercise its rights with respect to the Company's Board of
Directors under Section 1.4 of the Merger Agreement as soon as practicable
following the consummation of the Tender Offer.
ARTICLE VI
Negative Covenants
The Borrower covenants and agrees with each Lender that, so long as this
Agreement shall remain in effect and until the Commitments have been terminated
and the principal of and interest on each Loan, all Fees and all other expenses
or amounts payable under any Loan Document have been paid in full and all
Letters of Credit have been canceled or have expired and all amounts drawn
thereunder have been reimbursed in full, unless the Required Lenders shall
otherwise consent in writing, the Borrower shall not, and shall not cause or
permit any Subsidiary to:
SECTION 6.01. Indebtedness. Incur, create, assume or permit to exist any
Indebtedness, except:
(a) Indebtedness existing on the date of this Agreement and set forth
in Schedule 6.01;
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(b) Indebtedness created hereunder or under any other Loan Document;
(c) in the case of any Subsidiary, Indebtedness owed to the Borrower
or any wholly owned Subsidiary that is a Guarantor, which Indebtedness is
evidenced by a note or notes pledged to the Collateral Agent under the
Pledge Agreement;
(d) prior to the Merger Date, Indebtedness of any subsidiary of the
Company owed to the Company;
(e) in the case of the Borrower, Indebtedness under Rate Protection
Agreements entered into in the ordinary course of business on terms and
with counterparties reasonably satisfactory to the Administrative Agent
(and any Lender is hereby deemed to be satisfactory);
(f) Indebtedness of the Company and its subsidiaries incurred after
the date of this Agreement and prior to the Tender Offer Date and not
incurred in violation of the Merger Agreement;
(g) Subordinated Debt issued after the Merger Date;
(h) accounts payable, rent obligations (other than Capital Lease
Obligations) and operating expenses incurred in the ordinary course of
business;
(i) in the case of the Borrower, reimbursement obligations in favor of
any Lender in respect of letters of credit issued by such Lender after the
date of this Agreement and prior to the Merger Date and not in excess of
$2,000,000, in the aggregate for all Lenders, at any time outstanding;
(j) purchase money Indebtedness incurred in the ordinary course of
business after the date of this Agreement (including financings through
industrial revenue and similar bonds) to finance Capital Expenditures
permitted under Section 6.13; provided, however, that such Indebtedness is
incurred within 90 days after the making of the Capital Expenditure so
financed;
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(k) in the case of the Borrower, Indebtedness issued as consideration
for the repurchase of stock or options, as permitted by Section 6.06
(a)(ii), not in excess of $5,000,000 aggregate principal amount outstanding
at any time;
(l) Indebtedness consisting of Guarantees of Indebtedness permitted
under clause (h) above; and
(m) other Indebtedness of the Borrower not in excess of $10,000,000
aggregate principal amount at any time outstanding, of which up to
$3,500,000 may be in the form of Capital Lease Obligations and the balance
shall be unsecured.
SECTION 6.02. Liens. Create, incur, assume or permit to exist any Lien on
any property or assets (including stock or other securities of any person,
including any Subsidiary) now owned or hereafter acquired by it or on any income
or revenues or rights in respect of any thereof, except:
(a) any Lien on property or assets of the Borrower and the
Subsidiaries existing on the date of this Agreement and set forth in
Schedule 6.02; provided, however, that such Lien shall secure only those
obligations that it secures on the date hereof;
(b) any Lien created under the Loan Documents;
(c) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary; provided, however,
that (i) such Lien is not created in contemplation of or in connection with
such acquisition, (ii) such Lien does not apply to any other property or
assets of the Borrower or any Subsidiary and (iii) such Lien does not (A)
materially interfere with the use and occupancy of any Mortgaged Property,
(B) materially reduce the fair market value of such Mortgaged Property but
for such Lien or (C) result in any material increase in the cost of
operating, occupying or owning or leasing such Mortgaged Property;
(d) any Lien incurred by the Company or any of its subsidiaries after
the date of this Agreement and prior to the Tender Offer Date and not
incurred in violation of the Merger Agreement; provided, however, that such
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Lien shall be discharged or released on or prior to the Merger Date;
(e) any Lien for taxes, assessments or government charges not yet due
or that are being contested in compliance with Section 5.03;
(f) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business and securing
obligations that are not due and payable or that are being contested in
compliance with Section 5.03;
(g) pledges and deposits made in the ordinary course of business in
compliance with workmen's compensation, unemployment insurance and other
social security laws or regulations;
(h) deposits to secure the performance of bids, trade contracts (other
than for Indebtedness), leases (other than Capital Lease Obligations),
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business;
(i) zoning restrictions, easements, rights-of-way, restrictions on use
of real property and other similar encumbrances incurred in the ordinary
course of business that, in the aggregate, are not substantial in amount
and do not materially detract from the value of the property subject
thereto or interfere with the ordinary conduct or the business of the
Borrower or any Subsidiary;
(j) unpaid vendors' Liens, rights of reclamation or other like Liens
of sellers of inventory arising in the ordinary course of business and
securing obligations not past due;
(k) any purchase money security interest in fixed assets; provided,
however, that (i) such security interest only secures Indebtedness
permitted under Section 6.01(j), (ii) such security interest is created and
perfected substantially simultaneously with the incurrence of such
Indebtedness, (iii) such security interest applies only to fixed assets the
purchase of which is financed with such Indebtedness and (iv) the
Indebtedness secured thereby is not less than 75% nor
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more than 85% of the fair market value of the fixed assets subject to such
security interest (measured at the date of incurrence of such security
interest); and
(l) any Lien represented by the interest of a lessor in property the
subject of a Capital Lease Obligation of the Borrower permitted by Section
6.01(m); and
(m) any Lien in favor of Bayer AG or any of its subsidiaries in
respect of securities of a Permitted Foreign Company (other than a
Permitted Foreign Company described in clause (c) of the definition
thereof).
SECTION 6.03. Sale and Lease-Back Transactions. Enter into any Sale and
Lease-Back Transaction.
SECTION 6.04. Investments, Loans and Advances. Purchase, hold or acquire
any capital stock, evidences of indebtedness or other securities of, make or
permit to exist any loans or advances to, Guarantee any Indebtedness of, or make
or permit to exist any investment or any other interest in, any other person,
except:
(a) investments by the Borrower existing on or subscribed to prior to
the date of this Agreement in the capital stock of the Subsidiaries;
(b) investments in the Shares;
(c) investments by the Company existing on the Tender Offer Date in
the capital stock of its subsidiaries; provided, however, that none of such
investments shall have been made in violation of the Merger Agreement;
(d) loans and advances to officers or employees of the Borrower or any
Subsidiary in the ordinary course of business not in excess of $1,500,000
at any time outstanding;
(e) investments in, or loans and advances to, wholly owned
Subsidiaries that are Guarantors or, in the case of an investment, that
shall become wholly owned Subsidiaries that are Guarantors following such
investment;
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(f) Guarantees entered into in the ordinary course of business of
Indebtedness of wholly owned Subsidiaries that are Guarantors;
(g) Permitted Investments;
(h) investments existing on or subscribed to prior to the date of this
Agreement and set forth on Schedule 6.04;
(i) in the case of the Borrower and the Subsidiaries other than
Permitted Foreign Companies, investments in, and loans or advances to,
Permitted Foreign Companies in a net aggregate amount not to exceed
$10,000,000 in any fiscal year plus, commencing with fiscal year 1997, 50%
of the excess, if any, of (A) $10,000,000 over (B) the aggregate amount of
such investments, loans and advances made during the preceding fiscal year;
(j) in the case of the Borrower and the Subsidiaries other than
Permitted Foreign Companies, Guarantees of Indebtedness of Permitted
Foreign Companies; provided, however, that any payment on such a Guarantee
shall not be permitted under this clause (j) (but may be permitted under
clause (i) above or clause (l) below);
(k) in the case of Permitted Foreign Companies, any investment in, or
loan or advance to, or Guarantee of Indebtedness of, any Permitted Foreign
Company; and
(l) other or additional investments, loans and advances in a net
aggregate amount not to exceed $10,000,000 at any time prior to the last
day of fiscal year 1997 and $15,000,000 thereafter.
SECTION 6.05. Mergers, Consolidations and Sales of Assets. Other than the
Tender Offer and the Merger, merge into or consolidate with any other person, or
permit any other person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or in a series of
transactions) all or any substantial part of its assets (whether now owned or
hereafter acquired) or any capital stock of any Subsidiary, except that (a) the
Borrower and any Subsidiary may sell inventory in the ordinary course of
business, (b) if at the time thereof and immediately after giving effect thereto
no
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Event of Default or Default shall have occurred and be continuing (i) any wholly
owned Subsidiary may merge into the Borrower in a transaction in which the
Borrower is the surviving corporation and (ii) any wholly owned Subsidiary may
merge into or consolidate with any other Subsidiary in a transaction in which
the surviving entity is a wholly owned Subsidiary and (c) if at the time thereof
and immediately after giving effect thereto no Event of Default or Default shall
have occurred and be continuing, any Subsidiary may dissolve or liquidate
through a transfer of its assets to its shareholders.
SECTION 6.06. Dividends and Distributions; Restrictions on Ability of
Subsidiaries To Pay Dividends. (a) Other than the payment for Shares in the
Merger (including Shares with respect to which appraisal rights shall be
exercised) and payments required by the Merger Agreement in respect of options
covering Shares, declare or pay, directly or indirectly, any dividend or make
any other distribution (by reduction of capital or otherwise), whether in cash,
property, securities or a combination thereof, with respect to any shares of its
capital stock or directly or indirectly redeem, purchase, retire or otherwise
acquire for value (or permit any Subsidiary to purchase or acquire) any shares
of any class of its capital stock or set aside any amount for any such purpose;
provided, however, that (i) any Subsidiary may declare and pay dividends or make
other distributions to the Borrower or any wholly owned Subsidiary that is a
Guarantor, (ii) if at the time thereof and immediately after giving effect
thereto no Event of Default shall have occurred and be continuing, the Borrower
may repurchase stock or options from former directors, former officers and
former employees (or their legal representatives) in the ordinary cause of
business in accordance with any duly instituted stock option plan, (iii) the
Borrower may perform its obligations under the agreements referred to in Section
6.07(d) and (iv) after December 30, 1995, the Borrower may declare and pay
dividends with respect to its common stock if (A) at the time thereof and
immediately after giving effect thereto, no Event of Default or Default shall
have occurred and be continuing, (B) at the time thereof and after giving effect
to any Indebtedness to be incurred in connection therewith, the Leverage Ratio
shall not be greater than 2.5 to 1.0 and (C) after giving effect thereto, the
aggregate amount of all such dividends since December 31, 1995, shall not exceed
25% of Net Income for the period from and including October 1,
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1995, to and including the last day of the most recent complete fiscal quarter.
(b) Other than the Merger Agreement and this Agreement, permit any
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
such Subsidiary to (i) pay any dividends or make any other distributions on its
capital stock or any other interest or (ii) make or repay any loans or advances
to the Borrower or the parent of such Subsidiary.
SECTION 6.07. Transactions with Affiliates. Sell or transfer any property
or assets to, or purchase or acquire any property or assets from, or otherwise
engage in any other transactions with, any of its Affiliates, except that the
Borrower or any Subsidiary may engage in any of the foregoing transactions in
the ordinary course of business at prices and on terms and conditions not less
favorable to the Borrower or such Subsidiary than could be obtained on an
arm's-length basis from unrelated third parties; provided, however, that the
foregoing shall not apply to:
(a) loans and advances permitted by Section 6.04(d);
(b) the formation of any Permitted Foreign Company;
(c) transactions between or among the Borrower and wholly owned
Subsidiaries that are Guarantors;
(d) transactions required by the General Shareholders Agreement dated
September 30, 1994, and the Continuing Shareholders Agreement dated
September 30, 1994, in each case as in effect on the date of this
Agreement; and
(e) the grant of stock options by the Borrower to its directors,
officers and employees in the ordinary course of business and the exercise
of such stock options; and
(f) the consummation of the Merger.
SECTION 6.08. Business of Borrower and Subsidiaries. (a) Own, manage or
operate any business not
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principally engaged in a segment of the pharmaceutical or health-care industry
or ancillary thereto.
(b) Make any change materially adverse to the Lenders in the nature of
its business as carried on at the date of this Agreement.
SECTION 6.09. Operating Leases. Permit the aggregate rental expense for the
Borrower and the Subsidiaries for any fiscal year, determined on a consolidated
basis in accordance with GAAP, to exceed $8,000,000.
SECTION 6.10. Amendments of Certain Agreements; Conduct of Acquisition. (a)
Amend, waive, modify or terminate any provisions of its constitutive documents
or any agreement if the effect of such amendment, waiver, modification or
termination could reasonably be expected to have a Material Adverse Effect.
(b) Amend, waive or modify any provision of the Merger Agreement in any
material respect or, after the Closing Date, terminate the Merger Agreement;
provided, however, that the approval of the Lenders shall not be required for
any extension of the Tender Offer.
(c) Pay more than $250,000,000 (net of any cash paid to the Company upon
the exercise of outstanding options) to shareholders to acquire all the
outstanding Shares (other than Shares with respect to which appraisal rights
shall be exercised) and acquire, redeem or terminate all outstanding rights to
acquire Shares.
SECTION 6.11. Fiscal Year. Change the end of its fiscal year; provided,
however, that approval from the Required Lenders for any such changes shall not
be unreasonably withheld.
SECTION 6.12. Payment on Other Indebtedness. Make any distribution, whether
in cash, property, securities or a combination thereof, other than scheduled
payments of principal and interest as and when due (to the extent not prohibited
by applicable subordination provisions), in respect of, or pay, or offer to
commit to pay, or directly or indirectly redeem, repurchase, retire or otherwise
acquire for consideration, or set apart any sum for the aforesaid purposes, any
Indebtedness (other than the
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Obligations), except for payments in the form of common stock of the Borrower.
SECTION 6.13. Capital Expenditures. Permit the aggregate amount of Capital
Expenditures made (a) for the period from and including September 1, 1995, to
and including December 30, 1995, to exceed $10,000,000 or (b) In any fiscal
year, commencing with fiscal year 1996, to exceed $25,000,000 plus, commencing
with fiscal year 1997, 50% of the excess, if any, of (i) $25,000,000 over (ii)
actual Capital Expenditures for the preceding fiscal year.
SECTION 6.14. Leverage Ratio. Permit the Leverage Ratio as of any date
during any period specified below to be in excess of the ratio set forth below
next to such period:
Period Ratio
From and including the last day
of fiscal 1995 to but
excluding the last day of
the second fiscal quarter
of 1996
5.00 to 1.00
From and including the last
day of the second fiscal
quarter of 1996 to but
excluding the last day of
the third fiscal quarter or
1996 4.75 to 1.00
From and including the last
day of the third fiscal
quarter of 1996 to but
excluding the last day of
fiscal 1996 4.50 to 1.00
From and including the last
day of fiscal 1996 to but
excluding the last day of
fiscal 1997 4.00 to 1.00
From and including the last
day of fiscal 1997 to but
excluding the last day of
fiscal 1998 3.50 to 1.00
Thereafter 3.00 to 1.00
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106
SECTION 6.15. Senior Debt Ratio. Permit the ratio of (i) Senior Debt as of
any date during any period specified below to (ii) EBITDA for the most recent
complete four fiscal quarter period ended on or prior to such date to be in
excess of the ratio set forth below next to such period:
Period Ratio
From and including the last
day of fiscal 1995 to but
excluding the last day of
the second fiscal quarter
of 1996 5.00 to 1.00
From and including the last
day of the second fiscal
quarter of 1996 to but
excluding the last day of
the third fiscal quarter of
1996 4.75 to 1.00
From and including the last
day of the third fiscal
quarter of 1996 to but
excluding the last day
of fiscal 1996 4.50 to 1.00
From and including the last
day of fiscal 1996 to but
excluding the last day of
fiscal 1997 4.00 to 1.00
From and including the last
day of fiscal 1997 to but
excluding the last day of
fiscal 1998 3.00 to 1.00
Thereafter 2.50 to 1.00
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107
SECTION 6.16. Net Worth. Permit Net Worth as of any date during any period
specified below to be less than the amount set forth below next to such period:
Period Amount
From and including the last
day of the third fiscal
quarter of 1995 to but
excluding the last day of
fiscal 1996 $145,000,000
From and including the last
day of fiscal 1996 to but
excluding the last day of
fiscal 1997 $170,000,000
From and including the last
day of fiscal 1997 to but
excluding the last day of
fiscal 1998 $225,000,000
From and including the last
day of fiscal 1998 to but
excluding the last day of
fiscal 1999 $275,000,000
Thereafter $350,000,000
SECTION 6.17. Working Capital. Permit the ratio of Current Assets to
Current Liabilities as of the last day of any fiscal quarter to be less than
1.75 to 1.Q0.
SECTION 6.18. Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage
Ratio as of any date to be less than 1.5 to 1.0.
ARTICLE VII
Events of Default
In case of the happening of any of the following events ("Events of
Default"):
(a) any material representation or warranty made or deemed made by any
Loan Party in any Loan Document or in connection with the borrowings or
issuances of Letters of Credit hereunder, or any representation,
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warranty, statement or information contained in any report, certificate,
financial statement or other instrument authored and furnished by any Loan
Party to the Administrative Agent in connection with or pursuant to any
Loan Document, shall prove to have been false or misleading in any material
respect when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of any Loan
or the reimbursement with respect to any L/C Disbursement when and as the
same shall become due and payable, whether at the due date thereof or at a
date fixed for prepayment thereof or by acceleration thereof or otherwise;
(c) default shall be made in the payment of any Fee or any interest on
any Loan or L/C Disbursement or any other amount (other than an amount
referred to in clause (b) above) due under any Loan Document, when and as
the same shall become due and payable, and such default shall continue
unremedied for a period of three Business Days;
(d) default shall be made in the due observance or performance by the
Borrower or any Subsidiary of any covenant, condition or agreement
contained in Section 5.01(a), 5.05 or 5.08 or in Article VI;
(e) default shall be made in the due observance or performance by the
Borrower or any Subsidiary of any covenant, condition or agreement
contained in any Loan Document (other than those specified in clause (b),
(c) or (d) above) and such default shall continue unremedied for a period
of 30 days after notice thereof from the Administrative Agent or any Lender
to the Borrower;
(f) the Borrower or any Subsidiary shall (i) fail to pay any principal
or interest, regardless of amount, due in respect of any Indebtedness in a
principal amount in excess of $5,000,000, when and as the same shall become
due and payable, or (ii) fail to observe or perform any other term,
covenant, condition or agreement contained in any agreement or instrument
evidencing or governing any such Indebtedness if the effect of any failure
referred to in this clause (ii) is to cause, or to permit the holder or
holders of such Indebtedness or a trustee on its or their behalf (with
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or without the giving of notice, the lapse of time or both) to cause, such
Indebtedness to become due prior to its stated maturity;
(g) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i)
relief in respect of the Borrower or any Subsidiary, or of a substantial
part of the property or assets of the Borrower or a Subsidiary, under Title
11 of the United States Code, as now constituted or hereafter amended, or
any other Federal, state or foreign bankruptcy, insolvency, receivership or
similar law, (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any
Subsidiary or for a substantial part of the property or assets of the
Borrower or a Subsidiary or (iii) the winding-up or liquidation of the
Borrower or any Subsidiary; and such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any of
the foregoing shall be entered;
(h) the Borrower or any Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other Federal,
state or foreign bankruptcy, insolvency, receivership or similar law, (ii)
consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or the filing of any petition described
in clause (g) above, (iii) apply for or consent to the appointment Of a
receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or any Subsidiary or for a substantial part of the
property or assets of the Borrower or any Subsidiary, (iv) file an answer
admitting the material allegations of a petition filed against it in any
such proceeding, (v) make a general assignment for the benefit of
creditors, (vi) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (vii) take any action for
the purpose of effecting any of the foregoing;
(i) one or more judgments for the payment of money in an aggregate
amount in excess of $5,000,000 (net of amounts covered by insurance) shall
be rendered against the Borrower, any Subsidiary or any combination thereof
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and the same shall remain undischarged for a period of 30 consecutive days
during which execution shall not be effectively stayed, or any action shall
me legally taken by a judgment creditor to levy upon assets or properties
of the Borrower or any Subsidiary to enforce any such judgment;
(j) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other such ERISA Events that
have occurred, could reasonably be expected to result in liability of the
Borrower and the ERISA Affiliates in an aggregate amount exceeding
$5,000,000;
(k) any security interest purported to be created by any Security
Document shall be asserted by the Borrower or any other Loan Party not to
be a valid, perfected, first priority (except as otherwise expressly
provided in this Agreement or such Security Document) security interest in
the securities, assets or properties covered thereby, except to the extent
(i) that any such loss of perfection or priority results from the failure
of the Collateral Agent to maintain possession of certificates representing
securities pledged under the Pledge Agreement, the failure of the
Collateral Agent to make filings in the jurisdictions indicated on the
Perfection Certificate or the failure of the Collateral Agent to make any
necessary continuation filing or (ii) that such loss is covered by a
lender's title insurance policy and the related insurer promptly after such
loss shall have acknowledged in writing that such loss is covered by such
title insurance policy;
(l) (i) the Pledge Agreement shall not, or shall cease to, be
effective to create in favor of the Collateral Agent, for the ratable
benefit of the Secured Parties, a legal, valid and enforceable security
interest in the Collateral (as defined in the Pledge Agreement) or the
Pledge Agreement shall not, or shall cease to, constitute a perfected Lien
on, and security interest in, all right, title and interest of the pledgors
thereunder in such Collateral, in each case prior and superior in right to
any other person, (ii) the Security Agreement or the Chattel Mortgage shall
not, or shall cease to, be effective to create in favor of the Collateral
Agent, for the ratable benefit of the Secured Parties, a legal, valid and
enforceable
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security interest in the Collateral (as defined in the Security Agreement)
or the Mortgaged Property (as defined in the Chattel Mortgage), as
applicable, or the Security Agreement or the Chattel Mortgage shall not, or
shall cease to, constitute a perfected Lien on, and security interest in,
all right, title and interest of the grantors thereunder in such Collateral
or Mortgaged Property, as applicable, in each case prior and superior in
right to any other person, other than with respect to Liens expressly
permitted by Section 6.02, or (iii) the Mortgages shall not, or shall cease
to, be effective to create in favor of the Collateral Agent, for the
ratable benefit of the Secured Parties, a legal, valid and enforceable Lien
on all of the Loan Parties' right title and interest in and to the
Mortgaged Properties thereunder and the proceeds thereof, or the Mortgages
shall not, or shall cease to, constitute a perfected Lien on, and security
interest in, all right, title and interest of the Borrower and the
Subsidiaries in such Mortgaged Properties and the proceeds thereof, in each
case prior and superior in right to any other person, other than with
respect to Liens expressly permitted by Section 6.02, except in each case
to the extent (A) that any such loss of perfection or priority results from
the failure of the Collateral Agent to maintain possession of certificates
representing securities pledged under the Pledge Agreement or mortgage
notes pledged under any other Security Document, the failure of the
Collateral Agent to make filings in the jurisdictions indicated on the
Perfection Certificate (or instruct the Borrower to make such filings) or
the failure of the Collateral Agent to make any necessary continuation
filing (or instruct the Borrower to make such filings), (B) that such loss
is covered by a lender's title insurance policy and the related insurer
promptly after such loss shall have acknowledged in writing that such loss
is covered by such title insurance policy, or (C) the aggregate fair market
value of all Collateral with respect to which such loss applies is less
than $1,000,000;
(m) the Guarantee Agreement shall cease to be, or shall be asserted by
the Borrower or any other Loan Party not to be, a legal, valid and binding
obligation of (i) any Specified Guarantor or (ii) multiple Guarantors that,
taken together, would constitute a Specified Guarantor; or
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(n) there shall have occurred a Change in Control;
then, and in every such event (other than an event with respect to the Borrower
described in clause (g) or (h) above), and at any time thereafter during the
continuance of such event, the Administrative Agent may, and at the request of
the Required Lenders shall, by notice to the Borrower, take either or both of
the following actions, at the same or different times: (i) terminate forthwith
the Commitments and (ii) declare the Loans then outstanding to be forthwith due
and payable in whole or in part, whereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and any
unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder
and under any other Loan Document, shall become forthwith due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Borrower, anything contained herein or
in any other Loan Document to the contrary notwithstanding; and in any event
with respect to the Borrower described in paragraph (g) or (h) above, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and any unpaid accrued Fees
and all other liabilities of the Borrower accrued hereunder and under any other
Loan Document, shall automatically become due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived by the Borrower, anything contained herein or in any other Loan
Document to the contrary notwithstanding.
ARTICLE VIII
The Administrative Agent and the Collateral Agent
In order to expedite the transactions contemplated by this Agreement,
Chemical Bank is hereby appointed to act as Administrative Agent and Collateral
Agent on behalf of the Lenders and the Issuing Bank (for purposes of this
Article VIII, the Administrative Agent and the Collateral Agent are referred to
collectively as the "Agents"). Each of the Lenders and each assignee of any such
Lender, hereby irrevocably authorizes the Agents to take such actions on behalf
of such Lender or assignee or the Issuing Bank and to exercise such powers as
are specifically delegated to the Agents by the terms and provisions hereof and
of the other Loan Documents, together with such actions and powers as are
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reasonably incidental thereto. The Administrative Agent is hereby expressly
authorized by the Lenders and the Issuing Bank, without hereby limiting any
implied authority, (a) to receive on behalf of the Lenders and the Issuing Bank
all payments of principal of and interest on the Loans, all payments in respect
of L/C Disbursements and all other amounts due to the Lenders hereunder, and
promptly to distribute to each Lender or the Issuing Bank its proper share of
each payment so received; (b) to give notice on behalf of each of the Lenders to
the Borrower of any Event of Default specified in this Agreement of which the
Administrative Agent has actual knowledge acquired in connection with its agency
hereunder; and (c) to distribute to each Lender copies of all notices, financial
statements and other materials delivered by the Borrower pursuant to this
Agreement as received by the Administrative Agent. Without limiting the
generality of the foregoing, the Agents are hereby expressly authorized to
execute any and all documents (including releases) with respect to the
Collateral and the rights of the Secured Parties with respect thereto, as
contemplated by and in accordance with the provisions of this Agreement and the
Security Documents.
Each Lender specifically acknowledges the provisions of Section 9.06(b),
which provide that, under certain circumstances, payments otherwise due to a
Defaulting Lender need not be made. Each Lender further acknowledges that one of
the consequences of such provisions is that amounts received by the
Administrative Agent for the account of the Lenders may not be distributed on a
pro rata basis. The Administrative Agent shall be conclusively entitled to rely
on any notice furnished pursuant to Section 9.06(b), and neither the
Administrative Agent nor any of its directors, officers, employees or agents
shall be liable as such for any action taken or omitted by them as contemplated
or required by Section 9.06(b) or in reliance upon any such notice except to the
extent of its gross negligence or willful misconduct in determining whether any
notice under Section 9.06(b) on its face meets the requirements thereof. The
exculpation provided in the immediately preceding sentence shall be available
notwithstanding: (a) any dispute as to whether a Lender is a Defaulting Lender;
(b) any dispute as to whether a Default shall have occurred and be continuing;
(c) any dispute as to the amount of any Defaulted Advance; (d) any other dispute
as to the validity of any set-off under Section 9.06(b); or (e) the belief of
the Administrative Agent as to any of the foregoing matters.
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Neither the Agents nor any of their respective directors, officers,
employees or agents shall be liable as such for any action taken or omitted by
any of them except for its or his own gross negligence or willful misconduct, or
be responsible for any statement, warranty or representation herein or the
contents of any document delivered in connection herewith, or be required to
ascertain or to make any inquiry concerning the performance or observance by the
Borrower or any other Loan Party of any of the terms, conditions, covenants or
agreements contained in any Loan Document. The Agents shall not be responsible
to the Lenders for the due execution, genuineness, validity, enforceability or
effectiveness of this Agreement or any other Loan Documents, instruments or
agreements. The Agent shall in all cases be fully protected in acting, or
refraining from acting, in accordance with written instructions signed by the
Required Lenders and, except as otherwise specifically provided herein, such
instructions and any action or inaction pursuant thereto shall be binding on all
the Lenders. Each Agent shall, in the absence of knowledge to the contrary, be
entitled to rely on and instrument or document believed by it in good faith to
be genuine and correct and to have been signed or sent by the proper person or
persons. Neither the Agents nor any of their respective directors, officers,
employees or agents shall have any responsibility to the Borrower or any other
Loan Party on account of the failure of or delay in performance or breach by any
Lender or the Issuing Bank of any of its obligations hereunder or to any Lender
or the Issuing Bank on account of the failure of or delay in performance or
breach by any other Lender or the Issuing Bank or the Borrower or any other Loan
Parry of any or their respective obligations hereunder or under any other Loan
Document or in connection herewith or therewith. Each of the Agents may execute
any and all duties hereunder by or through agents or employees and shall be
entitled to rely upon the advice of legal counsel selected by it with respect to
all matters arising hereunder and shall not be liable for any action taken or
suffered in good faith by it in accordance with the advice of such counsel.
The Lenders hereby acknowledge that neither Agent shall be under any duty
to take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agreement unless it shall be requested in writing to do so by
the Required Lenders.
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Subject to the appointment and acceptance of a successor Agent as provided
below, either Agent may resign at any time by notifying the Lenders and the
Borrower. Upon any such resignation, the Required Lenders shall have the right
to appoint a successor with the prior approval of the Borrower (such approval
not to be unreasonably withheld or delayed). If no successor shall have been so
appointed by the Required Lenders and shall have accepted such appointment
within 30 days after the retiring Agent gives notice of its resignation, then
the retiring Agent may, on behalf of the Lenders, appoint a successor Agent
which shall be a bank with an office in New York, New York, having a combined
capital and surplus of at least $500,000,000 or an Affiliate of any such bank.
Upon the acceptance of any appointment as Agent hereunder by a successor bank,
such successor shall succeed to and become vested with all the rights,
powers,privileges and duties of the retiring Agent and the retiring Agent shall
be discharged from its duties and obligations hereunder. After the Agent's
resignation hereunder, the provisions of this Article and Section 9.05 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Agent.
With respect to the Loans made by it hereunder, each Agent in its
individual capacity and not as Agent shall have the same rights and powers as
any other Lender and may exercise the same as though it were not an Agent, and
the Agents and their Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not an Agent.
Each Lender agrees (a) to reimburse the Agents, on demand, in the amount of
its pro rata share (based on its Commitments hereunder) of any reasonable
out-of-pocket expenses incurred for the benefit of the Lenders by the Agents,
including counsel fees and compensation of agents and employees paid for
services rendered on behalf of the Lenders, that shall not have been reimbursed
by the Borrower and (b) to indemnify and hold harmless each Agent and any of its
directors, officers, employees or agents, on demand, in the amount of such pro
rata share, from and against any and all liabilities, taxes, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever that may be imposed on, incurred
by or asserted against it in its capacity as Agent or any of them in any way
relating to or
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arising out of this Agreement or any other Loan Document or any action taken or
omitted by it or any of them under this Agreement or any other Loan Document, to
the extent the same shall not have been reimbursed by the Borrower, provided,
however, that no Lender shall be liable to an Agent or any such other
indemnified person for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the gross negligence or willful misconduct of such Agent or any
of its directors, officers, employees or agents. In the event any Agent is
subsequently reimbursed by any Loan Party for any such expenses, liabilities,
taxes, obligations, losses, damages, penalties, judgments, costs or
disbursements, such Agent shall reimburse each Lender, pro rata, to the extent
of any payment made by such Lender with respect thereto under this paragraph.
Each Lender acknowledges that it has, independently and without reliance
upon the Agents or any other Lender and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender also acknowledges that it will, independently
and without reliance upon the Agents or any other Lender and based on such
documents and information as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action under or based
upon this Agreement or any other Loan Document, any related agreement or any
document furnished hereunder or thereunder.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. Notices and other communications provided for herein
shall be in writing and shall be delivered by hand or overnight courier service,
mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at 100 Campus Drive, Florham Park, NJ
07932, Attention of the Chief Financial Officer, Telecopy No. (201)
593-5580), with a copy to the General Counsel (Telecopy No. (201)
593-5820);
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(b) if to the Administrative Agent, to Chemical Bank Agency Services,
Grand Central Tower, 140 East 45th Street, New York, New York 10017,
Attention of Janet Belden (Telecopy No. (212) 622-0122), with a copy to
Chemical Bank, at 270 Park Avenue, New York 10017, Attention of David
Corcoran (Telecopy No. (212) 972-0009); and
(c) if to a Lender, to it at its address (or telecopy number)
set-forth in Schedule 2.01 or in the Assignment and Acceptance pursuant to
which such Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 9.01 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 9.01.
SECTION 9.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and the Issuing Bank and shall survive the
making by the Lenders of the Loans and the issuance of Letters of Credit by the
Issuing Bank, regardless of any investigation made by the Lenders or the Issuing
Bank or on their behalf, and shall continue in full force and effect as long as
the principal of or any accrued interest on any Loan or any Fee or any other
amount payable under this Agreement or any other Loan Document is outstanding
and unpaid or any Letter of Credit is outstanding and so long as the Commitments
have not been terminated. The provisions of Sections 2.14, 2.16, 2.20 and 9.05
shall remain operative and in full force and effect regardless of the expiration
of the term of this Agreement, the consummation of the transactions contemplated
hereby, the repayment of any Loans, the expiration of the Commitments, the
expiration of any Letter of Credit, the Invalidity or unenforceability of any
term or provision of his Agreement or any other Loan Document, or any
investigation made by or on behalf of the Administrative
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Agent, the Collateral Agent, any Lender or the Issuing Bank.
SECTION 9.03. Binding Effect. This Agreement shall become effective when it
shall have been executed by the Borrower and the Administrative Agent and when
the Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective permitted successors and assigns.
SECTION 9.04. Successors and Assigns. (a) Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
permitted successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of the Borrower, the Administrative Agent, the
Issuing Bank or the Lenders that are contained in this Agreement shall bind and
inure to the benefit of their respective successors and assigns
(b) Each Lender may assign to one or more assignees all or a portion of its
interests, rights and obligations under this Agreement (including all or a
portion of its Commitments and the Loans at the time owing to it); provided,
however, that (i) except in the case of an assignment to a Lender or an
Affiliate of such Lender, (x) the Borrower and the Administrative Agent (and, in
the case of any assignment of a Revolving Credit Commitment, the Issuing Bank)
must give their prior written consent to such assignment (which consent shall
not be unreasonably withheld), (y) no assignment may be offered or made to any
pharmaceutical company or to any Affiliate of a pharmaceutical company and (z)
the amount of the Commitment and Loans of the assigning Lender subject to each
such assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Administrative Agent) shall not
be less than $10,000,000 (or, if less, the entire remaining amount of such
Lender's Commitment), (ii) the parties to each such assignment shall execute and
deliver to the Administrative Agent an Assignment and Acceptance, with a copy
thereof furnished to the Borrower, together (except in the case of any
assignment to an Affiliate of the assigning Lender) with a processing and
recordation fee of $3,500 and (iii) the assignee, if it shall not be a Lender,
shall deliver to the Administrative Agent an Administrative Questionnaire Upon
acceptance and recording pursuant to paragraph (e) below, from and after
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the effective date specified in each Assignment and Acceptance, which effective
date shall be at least five Business Days after the execution thereof, (A) the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement and (B) the assigning Lender thereunder shall, to
the extent of the interest assigned by such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of Sections
2.14, 2.16, 2.20 and 9.05, as well as to any interest and Fees accrued for its
account and not yet paid).
(c) By executing and delivering an Assignment and Acceptance, the assigning
Lender thereunder and the assignee thereunder shall be deemed to confirm to and
agree with each other and the other parties hereto as follows: (i) such
assigning Lender warrants that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim and that its
Commitments and the outstanding balances of its Term Loans and Revolving Loans,
in each case without giving effect to assignments thereof which have not become
effective, are as set forth in such Assignment and Acceptance, (ii) except as
set forth in (i) above, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement, or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement, any other Loan Document or any other instrument or
document furnished pursuant hereto, or the financial condition of the Borrower
or any Subsidiary or the performance or observance by the Borrower or any
Subsidiary of any of its obligations under this Agreement, any other Loan
Document or any other instrument or document furnished pursuant hereto; (iii)
such assignee represents and warrants that it is legally authorized to enter
into such Assignment and Acceptance and that neither it nor any of its
Affiliates is engaged in the pharmaceutical or health-care industry; (iv) such
assignee confirms that it has received a copy of this Agreement, together with
copies of the most recent financial statements referred to in Section 3.05(a) or
delivered pursuant to Section 5.04 and such other documents and information as
it has deemed appropriate to make its own
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credit analysis and decision to enter into such Assignment and Acceptance; (v)
such assignee shall independently and without reliance upon the Administrative
Agent, the Collateral Agent, such assigning Lender or any other Lender and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (vi) such assignee appoints and authorizes the Administrative
Agent and the Collateral Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to the Administrative
Agent and the Collateral Agent, respectively, by the terms hereof, together with
such powers as are reasonably incidental thereto; and (vii) such assignee agrees
that it shall perform in accordance with their terms all the obligations which
by the terms of this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices in The City of Net York a copy of
each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
conclusive and the Borrower, the Administrative Agent, the Issuing Bank, the
Collateral Agent and the Lenders may treat each person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all purposes
of this Agreement, notwithstanding notice to the contrary. The Register shall be
available for inspection by the Borrower, the Issuing Bank, the Collateral Agent
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance executed
by an assigning Lender and an assignee, an Administrative Questionnaire
completed in respect of the assignee (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) above and, if required, the written consent of the Borrower, the Issuing
Bank and the Administrative Agent to such assignment, the Administrative Agent
shall (i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register and (iii) give prompt notice thereof to the
Lenders and the Issuing Bank. No assignment shall be
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effective unless it has been recorded in the Register as provided in this
paragraph (e).
(f) Each Lender may without the consent of the Borrower, the Issuing Bank
or the Administrative Agent sell participations to one or more banks or other
entities in all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it);
provided, however, that (i) such Lender's obligations under this Agreement shall
remain unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) each participating
bank or other entity shall be entitled to the benefit of the cost protection
provisions contained in Sections 2.14, 2.16 and 2.20 to the same extent as if it
were a Lender, but not in an amount greater than that of the Lender from which
it acquired its participation (and any entitlement thereto of such participant
shall reduce pro tanto the right of such Lender to claim the benefit of such
provisions), (iv) a participation may not be offered or sold to any
pharmaceutical company or to any Affiliate of a pharmaceutical company and (v)
the Borrower, the Administrative Agent, the Issuing Bank and the Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement, and such Lender shall
retain the sole right to enforce the obligations of the Borrower relating to the
Loans or L/C Disbursements and to approve any amendment, modification or waiver
of any provision of this Agreement (other than amendments, modifications or
waivers decreasing any fees payable hereunder or the amount of principal of or
the rate at which interest is payable on the Loans, extending any scheduled
principal payment date or date fixed for the payment of interest on the Loans or
changing or extending the Commitments).
(g) Notwithstanding Section 9.17, any Lender or participant may, in
connection with any assignment or participation or proposed assignment or
participation pursuant to this Section 9.04, disclose to the assignee or
participant or proposed assignee or participant any information relating to the
Borrower furnished to such Lender by or on behalf of the Borrower; provided,
however, that, prior to any such disclosure of information designated by the
Borrower as confidential, each such assignee or participant or proposed assignee
or participant shall execute an agreement (a copy of which shall be given to the
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Borrower) whereby such assignee or participant shall agree to preserve the
confidentiality of such confidential information on terms no less restrictive
than those applicable to the Lenders pursuant to Section 9.17.
(h) Any Lender may at any time assign all or any portion of its rights
under this Agreement or any note issued in connection herewith to a Federal
Reserve Bank to secure extensions of credit by such Federal Reserve Bank to such
Lender; provided, however, that no such assignment shall release a Lender from
any of its obligations hereunder or substitute any such Bank for such Lender as
a party hereto. In order to facilitate such an assignment to a Federal Reserve
Bank, the Borrower shall, at the request of the assigning Lender, duly execute
and deliver to the assigning Lender a promissory note or notes evidencing the
Loans made to the Borrower by the assigning Lender hereunder.
(i) The Borrower shall not assign or delegate any of its rights or duties
hereunder without the prior written consent of the Administrative Agent, the
Issuing Bank and each Lender, and any attempted assignment without such consent
shall be null and void.
(j) In the event that Standard & Poor's, Moody's Investors Service, Inc.,
and Thompson's BankWatch (or InsuranceWatch Ratings Service, in the case of
Lenders that are insurance companies (or Best's Insurance Reports, if such
insurance company is not rated by InsuranceWatch Ratings Service)) shall, after
the date that any Lender becomes a Lender, downgrade the long-term certificate
of deposit ratings of such Lender, and the resulting ratings shall be below
BBB-, Baa3 and C (or BE, in the case of a Lender that is an insurance company
(or B. in the case of an insurance company not rated by InsuranceWatch Ratings
Service)), then the Issuing Bank shall have the right, but not the obligation,
at its own expense, upon notice to such Lender and the Administrative Agent, to
replace (or to request the Borrower to use its reasonable efforts to replace)
such Lender with an assignee (in accordance with and subject to the restrictions
contained in paragraph (b) above), and such Lender hereby agrees to transfer and
assign without recourse (in accordance with and subject to the restrictions
contained in paragraph (b) above) all its interests, rights and obligations in
respect of its Revolving Credit Commitment to such assignee; provided, however,
that (i) no such assignment shall conflict with any
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law, rule and regulation or order of any Governmental Authority and (ii) the
Issuing Bank or such assignee, as the case may be, shall pay to such Lender in
immediately available funds on the date of such assignment the principal of and
interest accrued to the date of payment on the Loans made by such Lender
hereunder and all other amounts accrued for such Lender's account or owned to it
hereunder.
SECTION 9.05. Expenses; Indemnity. (a) The Borrower shall pay all
reasonable out-of-pocket expenses reasonably incurred by the Administrative
Agent, the Collateral Agent and the Issuing Bank in connection with the
syndication of the credit facilities provided for herein and the preparation and
administration of this Agreement and the other Loan Documents or in connection
with any amendments, modifications or waivers of the provisions hereof or
thereof) (whether or not the transactions hereby or thereby contemplated shall
be consummated) or incurred during the continuance of a Default by the
Administrative Agent, the Collateral Agent or any Lender in connection with the
enforcement or protection of its rights in connection with this Agreement and
the other Loan Documents or in connection with the Loans made or Letters of
Credit issued hereunder, including the reasonable fees, charges and
disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agent
and the Collateral Agent, and, in connection with any such enforcement or
protection, the reasonable fees, charges and disbursements of any other counsel
for the Administrative Agent, the Collateral Agent or any Lender; provided,
however, that the Borrower shall not be required to pay for separate counsel for
the Administrative Agent and the Collateral Agent.
(b) The Borrower shall indemnify the Administrative Agent, the Collateral
Agent, each Lender and the Issuing Bank, each Affiliate of any of the foregoing
persons and each of their respective directors, officers, employees and agents
(each such person being called an "Indemnitee") against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including reasonable counsel fees, charges and disbursements,
incurred by or asserted against any Indemnitee arising out of, in any way
connected with, or as a result of (i) the execution or delivery of this
Agreement or any other Loan Document or any agreement or instrument contemplated
thereby, the performance by the parties thereto of their respective obligations
thereunder or the consummation of the Transactions and the other transactions
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contemplated thereby (excluding, in the case of each Indemnitee other than
Chemical Bank and its Affiliates, legal expenses incurred prior to the date of
this Agreement), (ii) the use of the proceeds of the Loans or issuance of
Letters of Credit, (iii) any claim, litigation, investigation or proceeding
relating to any of the foregoing, whether or not any Indemnitee is a party
thereto, (iv) any actual or alleged presence or Release of Hazardous Materials
on any property owned or operated by the Borrower or any Subsidiary, or any
Environmental Claim related in any way to the Borrower or the Subsidiaries or
(v) in the case of the Administrative Agent, its Affiliates and each of their
respective directors, officers, employees and agents, any claims by any Lender
arising out of any exercise or attempted exercise by the Borrower of rights
under Section 9.06(b); provided, however, that such indemnity shall not, as to
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of such Indemnitee (limited, in the case of
clause (v) above, to gross negligence or wilful misconduct in determining
whether any notice under Section 9.06(b) on its face meets the requirements
thereof).
(c) The provisions of this Section 9.05 shall remain operative and in full
force and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loans, the expiration of the Commitments, the expiration of any Letter of
Credit, the invalidity or unenforceability of any term or provision of this
Agreement or any other Loan Document, or any investigation made by or on behalf
of the Administrative Agent, the Collateral Agent, any Lender or the Issuing
Bank. All amounts due under this Section 9.05 shall be payable on written demand
therefor.
SECTION 9.06. Rights of Setoff. (a) If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement and
other Loan Documents held by such
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125
Lender, irrespective of whether or not such Lender shall have made any demand
under this Agreement or such other Loan Document and although such obligations
may be unmatured. The rights of each Lender under this paragraph (a) are in
addition to other rights and remedies (including other rights of setoff) which
such Lender may have.
(b) If, at any time, (i) any Lender shall be a Defaulting Lender and shall
owe a Defaulted Advance to the Borrower, (ii) no Default shall have occurred and
be continuing and neither the Required Lenders (determined without regard for
the proviso in the definition thereof) nor the Administrative Agent shall have
asserted in writing to the Borrower that a Default shall have occurred and be
continuing and (iii) the Borrower shall be required to make any payment
hereunder or under any Loan Document to or for the account of such Defaulting
Lender, then, unless the Borrower otherwise notifies the Administrative Agent,
the Borrower shall, to the fullest extent permitted by law, set off and apply
the amount of such payment against the Defaulted Advance. Prior to the due time
for any payment with respect to which the Borrower intends to exercise its
rights under this paragraph (b), the Borrower will deliver to the Administrative
Agent a notice signed by a Responsible Officer stating (A) that the conditions
set forth in clauses (i) and (ii) above are satisfied, (B) the amount of the
Defaulted Advance and the applicable Defaulting Lender and (C) the amount to be
set off.
SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(OTHER THAN LETTERS OF CREDIT AND AS EXPRESSLY SET FORTH IN OTHER LOAN
DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF
CREDIT, OR IF NO SUCH LAWS OR ROLES ARE DESIGNATED, THE UNIFORM CUSTOMS AND
PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF
COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT
GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the
Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank in
exercising any power or right hereunder or under any other Loan Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any
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126
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent, the
Collateral Agent, the Issuing Bank and the Lenders hereunder and under the other
Loan Documents are cumulative and are not exclusive of any rights or remedies
that they would otherwise have. No waiver of any provision of this Agreement or
any other Loan Document or consent to any departure by the Borrower therefrom
shall in any event be effective unless the same shall be permitted by paragraph
(b) below, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice or demand on
the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Borrower and the Required Lenders; provided, however, that no such
agreement shall (i) decrease the principal amount of, or extend the maturity of
or any scheduled principal payment date or date for the payment of any interest
on any Loan or any date for reimbursement of an L/C Disbursement, or waive or
excuse any such payment or any part thereof, or decrease the rate of interest on
any Loan or L/C Disbursement, without the prior written consent of each Lender
directly affected thereby, (ii) change or extend the Commitment or decrease the
Commitment Fees or L/C Participation Fees of any Lender or extend the time for
payment thereof without the prior written consent of such Lender, or (iii) amend
or modify the provisions of Section 2.16 or 9.04(i), the provisions of this
Section 9.08 or the definition of the term "Required Lenders" without the prior
written consent of each Lender, (iv) release all or a substantial part of the
Collateral, or release any Specified Guarantor, without the prior written
consent of Lenders having Loans, L/C Exposures and unused Revolving Credit and
Term Loan Commitments at such time representing at least 80% of the sum of all
Loans outstanding, L/C Exposures and unused Revolving Credit and Term Loan
Commitments at such time, or (v) amend, modify or otherwise affect the rights or
duties of the Administrative Agent, the Collateral Agent or the Issuing Bank
hereunder or under any other Loan Document without the prior written consent of
the Administrative Agent, the Collateral Agent or the Issuing Bank.
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127
SECTION 9.09. Interest Rate Limitation. Notwithstanding anything herein to
the contrary, if at any time the interest rate applicable to any Loan or
participation in any L/C Disbursement, together with all fees, charges and other
amounts which are treated as interest on such Loan or participation in such L/C
Disbursement under applicable law (collectively the "Charges"), shall exceed the
maximum lawful rate (the "Maximum Rate") which may be contracted for, charged,
taken, received or reserved by the Lender holding such Loan or participation in
accordance with applicable law, the rate of interest payable in respect of such
Loan or participation hereunder, together with all Charges payable in respect
thereof, shall be limited to the Maximum Rate and, to the extent lawful, the
interest and Charges that would have been payable in respect of such Loan or
participation but were not payable as a result or the operation of this Section
shall be cumulated and the interest and Charges payable to such Lender in
respect of other Loans or participations or periods shall be increased (but not
above the Maximum Rate therefor) until such cumulated amount, together with
interest thereon at the Federal Funds Effective Rate to the date of repayment,
shall have been received by such Lender.
SECTION 9.10. Entire Agreement. This Agreement, the Fee Letter and the
other Loan Documents constitute the entire contract between the parties relative
to the subject matter hereof. Any other previous agreement among the parties
with respect to the subject matter hereof is superseded by this Agreement and
the other Loan Documents. Nothing in this Agreement or in the other Loan
Documents, expressed or implied, is intended to confer upon any party other than
the parties hereto and thereto any rights, remedies, obligations or liabilities
under or by reason of this Agreement or the other Loan Documents.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG
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128
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11.
SECTION 9.12. Severability. In the event any one or more of the provisions
contained in this Agreement or in any other Loan Document should be held
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby. The parties shall endeavor in
good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
SECTION 9.13. Counterparts. This Agreement may be executed in counterparts
(and by different parties hereto on different counterparts), each of which shall
constitute an original but all of which when taken together shall constitute a
single contract, and shall become effective as provided in Section 9.03.
Delivery of an executed signature page to this Agreement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Agreement.
SECTION 9.14. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 9.15. Jurisdiction; Consent to Service of Process. (a) Each party
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction o
f any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each party hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each party hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any
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129
right that the Administrative Agent, the Collateral Agent, the Issuing Bank or
any Lender may otherwise have to bring any action or proceeding relating to this
Agreement or the other Loan Documents against the Borrower or its properties in
the courts of any jurisdiction.
(b) Each party hereto hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each party hereto hereby irrevocably waives, to
the fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party hereto irrevocably consents to service of process in the
manner provided for notices in Section 9.01. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.
SECTION 9.16. Mortgaged Property Casualty and Condemnation. (a)
Notwithstanding any other provision of this Agreement or the Security Documents,
the Collateral Agent is authorized, at its option (for the benefit of the
Secured Parties), to collect and receive, to the extent payable to the Borrower
or any other Loan Party, all insurance proceeds, damages, claims and rights of
action under any insurance policies with respect to any casualty or other
insured damage ("Casualty") to any portion of any Mortgaged Property
(collectively "Insurance Proceeds"), unless the amount of the related Insurance
Proceeds is less than $1,000,000 and an Event of Default shall not have occurred
and be continuing. The Borrower shall notify the Collateral Agent and the
Administrative Agent, in writing, promptly after the Borrower or any Subsidiary
obtains notice or knowledge of any Casualty to a Mortgaged Property, which
notice shall set forth a description of such Casualty and the Borrower's good
faith estimate of the amount of related damages. The Borrower shall, subject to
the foregoing limitations, endorse and transfer or cause to be endorsed or
transferred any Insurance Proceeds received by it or any other Loan Party to the
Collateral Agent.
(b) In the event of any Casualty of less than or equal to 50% of the
useable square footage of the
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130
improvements of any Mortgaged Property, the Borrower shall, subject to the
conditions contained in paragraph (f) below, restore such Mortgaged Property to
substantially its same condition immediately prior to such Casualty. In the
event of any Casualty of greater than 50% of the useable square footage of the
improvements of any Mortgaged Property and so long as no Default or Event of
Default has occurred and is continuing, the Borrower shall have the option to:
(i) subject to the conditions contained in paragraph (f) below,
restore such Mortgaged Property to a condition substantially similar to its
condition immediately prior to such Casualty and to invest the balance, if
any, of any Insurance Proceeds in equipment or other assets used in the
Borrower's principal lines of business within 20 months after the receipt
thereof, provided that the Borrower, pending such reinvestment, promptly
deposits such excess Insurance Proceeds in a cash collateral account
established with the Collateral Agent for the benefit of the Secured
Parties,
(ii) replace such Mortgaged Property with property of utility
comparable to that of the replaced Mortgaged Property and to invest the
balance, if any, of any Insurance Proceeds, in equipment, vehicles or other
assets used in the Borrowers principal lines of business within 20 months
after the receipt thereof, provided that the Borrower, pending such
reinvestment, promptly deposits such excess Insurance Proceeds in a cash
collateral account established with the Collateral Agent for the benefit of
the Secured Parties, or
(iii) apply the related Insurance Proceeds to (after reimbursement of
the reasonable costs, if any, incurred by the Collateral Agent in
connection with such Casualty) prepay Loans (in the order set forth in
Section 2.13(d)).
Any Insurance Proceeds on account of damage to fixed assets, fixtures, plant or
equipment that are not applied to restore or replace such Mortgaged Property or
reinvested in the Borrower's principal lines of business as contemplated above
shall be applied (after reimbursement of the reasonable costs, if any, incurred
by the Collateral Agent in connection with such Casualty) to prepay Loans (in
the order set forth in Section 2.13(d)).
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131
(c) If required to do so, the Borrower shall make the election contemplated
by paragraph (b) above by notifying the Collateral Agent and the Administrative
Agent promptly after the later to occur of (i) 10 Business Days after the
Borrower and its insurance carrier reach a final determination of the amount of
any Insurance Proceeds and (ii) 90 days after the occurrence of the Casualty. If
the Borrower shall be required or shall elect to restore the Mortgaged Property,
the insufficiency of any Insurance Proceeds to defray the entire expense of such
restoration shall in no way relieve the Borrower of such obligation so to
restore. In the event the Borrower shall be required to restore or shall notify
the Collateral Agent and the Administrative Agent of its election to restore,
the Borrower shall diligently and continuously prosecute the restoration of the
Mortgaged Property to completion. In the event of a Casualty where the Borrower
is required to make the election set forth in paragraph (b) above and the
Borrower shall fail to notify the Collateral Agent and the Administrative Agent
of its election within the period set forth above or shall elect not to restore
the Mortgaged Property, the Borrower shall apply such Insurance Proceeds (after
reimbursement of all reasonable costs incurred by the Collateral Agent in
connection with the applicable Casualty) to prepay Loans (in the order set forth
in Section 2.13(d)). In addition, upon such prepayment, the Borrower shall be
obligated to place the remaining portion, if any, of the Mortgaged Property in a
safe condition that is otherwise in compliance with the requirements of
applicable Governmental Authorities and the provisions of this Agreement and the
applicable Mortgage.
(d) The Borrower shall notify the Collateral Agent and the Administrative
Agent immediately upon obtaining knowledge of the institution of any action or
proceeding for the taking of any Mortgaged Property, or any part thereof or
interest therein, for public or quasi-public use under the power of eminent
domain, by reason of any public improvement or condemnation proceeding, or in
any other manner (a "Condemnation"). No settlement or compromise of any claim in
connection with any such action or proceeding shall be made without the consent
of the Collateral Agent, which consent shall not be unreasonably withheld. The
Collateral Agent is authorized, at its option (for the benefit of the Secured
Parties), to collect and receive, for application in accordance with paragraphs
(e) and (f) below, all proceeds of any such Condemnation (in each case, the
"Condemnation Proceeds"), unless the amount
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132
of the related Condemnation Proceeds is less than $1,000,000 and an Event of
Default shall not have occurred and be continuing. The Borrower shall execute or
cause to be executed such further assignments of any Condemnation Proceeds as
the Collateral Agent may reasonably require.
(e) In the event of any Condemnation of the Mortgaged Property or any part
thereof, and subject to paragraph (f) below, the Borrower shall apply any
Condemnation Proceeds first, in the case of a partial Condemnation, to the
repair or restoration of any integrated structure subject to such Condemnation
or, in the case of a total Condemnation or a Condemnation of substantially all a
Mortgaged Property (a "substantially all" Condemnation), to the location of a
replacement property, acquisition of such replacement property and construction
of the replacement structures, and second, shall apply the remainder of such
Condemnation Proceeds (after reimbursement of the reasonable costs, if any,
incurred by the Collateral Agent in connection with such Condemnation) to prepay
Loans (in the order set forth in Section 2.13(d)).
(f) Except as otherwise specifically provided in this Section 9.16, all
Insurance Proceeds (other than Insurance Proceeds arising out of any Casualty
but not on account of damage to fixed assets, fixtures, plant or equipment) and
all Condemnation Proceeds (i) are to be applied to the restoration of the
applicable Mortgaged Property (after reimbursement of the reasonable costs, if
any, incurred by the Collateral Agent in connection with the applicable Casualty
or Condemnation, including reasonable attorneys' fees, other charges and
disbursements and costs allocable to inspecting the Work (as defined below)) and
(ii) shall be applied to the payment of the cost of restoring or replacing the
Mortgaged Property so damaged, destroyed or taken or of the portion or portions
of the Mortgaged Property not so taken (the "Work") and (iii) shall be paid out
from time to time to the Borrower as and to the extent the Work (or the location
and acquisition of any replacement of any Mortgaged Property) progresses for the
payment thereof, but subject to each of the following conditions:
(A) the Borrower must promptly commence the restoration process
or the location, acquisition and replacement process in connection
with the Mortgaged Property;
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133
(B) the Work shall be in the charge of an architect or engineer
and before the Borrower commences any Work, other than temporary work
to protect property or prevent interference with business, the
Collateral Agent shall have received the plans and specifications and
the general contract for the Work from the Borrower (which plans and
specifications shall provide for such Work that, upon completion
thereof, the improvements shall (x) be in compliance with all
requirements of applicable Governmental Authorities such that all
representations and warranties of the Borrower relating to the
compliance of such Mortgaged Property with applicable laws, rules or
regulations in this Agreement or the Security Documents shall be
correct in all respects and (y) be at least equal in value and general
utility to the improvements that were on such Mortgaged Property (or
that were on the Mortgaged Property that has been replaced, if
applicable) prior to the Casualty or Condemnation, and in the case of
a Condemnation, subject to the effect of such Condemnation;
(C) except as provided in clause (D) below, each request for
payment shall be made on seven days' prior notice to the Collateral
Agent and shall be accompanied by a certificate to be made by a
Responsible Officer of the Borrower, stating (x) that all the Work
completed has been done in substantial compliance with the plans and
specifications and (y) that the sum requested is justly required to
reimburse the Borrower for payments by the Borrower to, or is justly
due to, the contractor, subcontractors, materialmen, laborers,
engineers, architects or other persons rendering services or materials
for the Work (giving a brief description of such services and
materials) and that, when added to all sums previously paid out by the
Collateral Agent, does not exceed the value of the Work done to the
date of such certificate;
(D) each request for payment in connection with the acquisition
of a replacement Mortgaged Property shall be made on 30 days' prior
notice to the Collateral Agent and, in connection therewith, (x) each
such request shall be accompanied by a copy of the sales contract or
other document governing the acquisition of the replacement property
by the Borrower and a certificate of the Borrower stating that the sum
requested represents the sales price under such contract or document
and the related reasonable
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134
transaction fees and expenses (including brokerage fees) and setting
forth in sufficient detail the various components of such requested
sum and (y) the Borrower shall (I) in addition to any other items
required to be delivered under this Section 9.16), provide the
Administrative Agent and the Collateral Agent with such opinions,
documents, certificates, title insurance policies, surveys and other
insurance policies as they may reasonably request and (II) take such
other actions as the Administrative Agent and the Collateral Agent may
reasonably deem necessary or appropriate (including actions with
respect to the delivery to the Collateral Agent of a first priority
Mortgage with respect to such real property for the ratable benefit of
the Secured Parties);
(E) there shall be no Default or Event of Default that has
occurred and is continuing (other than any Default or Event of Default
arising out of such Casualty or Condemnation);
(F) the request for any payment after the Work has been completed
shall be accompanied by a copy of any certificate or certificates
required by law to render occupancy of the improvements being rebuilt,
repaired or restored legal; and
(G) after commencing the Work, the Borrower shall continue to
perform the Work diligently and in good faith to completion in
accordance with the approved plans and specifications.
(g) Notwithstanding any other provisions of this Section 9.16, if the
Borrower shall have elected to replace a Mortgaged Property in connection with a
total or "substantially all" Condemnation as contemplated in paragraph (e)
above, all Condemnation Proceeds held by the Collateral Agent in connection
therewith shall be applied to prepay Loans (in the order set forth in Section
2.13(d)) if (i) the Borrower notifies the Collateral Agent and the
Administrative Agent that it does not intend to replace the related Mortgaged
Property, (ii) a Responsible Officer of the Borrower shall not have notified the
Administrative Agent and the Collateral Agent in writing that the Borrower has
acquired or has entered into a binding contract to acquire land upon which it
will construct the replacement property within six months after the related
Condemnation or (iii) the Borrower shall have not have begun construction of
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135
the replacement structures within one year after the related Condemnation and
the principal reason for such failure to begin construction is the failure of
the Borrower to diligently pursue the replacement of the related Mortgaged
Property.
(h) Any amounts held by the Collateral Agent pursuant to this Section 9.16
shall be held as collateral for the payment and performance of the Obligations.
Except as otherwise expressly specified in this Section 9.16, the Collateral
Agent shall have exclusive dominion and control, including the exclusive right
of withdrawal, over such amounts. At the option of the Collateral Agent, such
amounts may be invested in Permitted Investments (in which event interest
thereon shall be added to such amounts and be subject to this Section 9.16) or,
if the Borrower so directs, used to prepay Revolving Credit Borrowings (in which
event any reborrowing of such amounts shall be applied in accordance with this
Section 9.16). Except as provided in the preceding sentence, such amounts shall
not bear interest. Nothing in this Section 9.16 shall prevent the Collateral
Agent from applying at any time all or any part of the Insurance Proceeds or
Condemnation Proceeds to the curing of any Event of Default under this
Agreement.
(i) Any Insurance Proceeds not on account of damage to fixed assets,
fixtures, plant or equipment need not be applied to restoration, repair or the
prepayment of Loans and, if received by the Collateral Agent, shall promptly be
paid over to the Borrower unless an Event of Default shall be continuing.
SECTION 9.17. Confidentiality . The Administrative Agent, the Collateral
Agent, the Issuing Bank and each of the Lenders agrees to keep confidential (and
to use its best efforts to cause its respective agents and representatives to
keep confidential) the Information (as defined below) and all copies thereof,
extracts therefrom and analyses or other materials based thereon, except that
the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender
shall be permitted to disclose Information (a) to such of its respective
officers, directors, employees, agents, affiliates and representatives as need
to know such Information, (b) to the extent requested by any regulatory
authority, (c) to the extent otherwise required by applicable laws and
regulations or by any subpoena or similar legal process, upon prior notice
thereof (unless prohibited by the terms of such subpoena or process) to the
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136
Borrower in a manner reasonably calculated to afford the Borrower an opportunity
to seek a protective order or other injunctive relief, (d) in connection with
any suit, action or proceeding relating to the enforcement or protection of its
rights hereunder or under the other Loan Documents or (e) to the extent such
Information (i) becomes publicly available other than as a result of a breach of
this Section 9.17 or (ii) becomes available to the Administrative Agent, the
Issuing Bank, any Lender or the Collateral Agent on a nonconfidential basis from
a source other than the Borrower. For the purposes of this Section 9.17,
"Information" stall mean all financial statements, certificates, reports,
agreements and information (including all analyses, compilations and studies
prepared by the Administrative Agent, the Collateral Agent, the Issuing Bank or
any Lender based on any of the foregoing) that are received from the Borrower
and related to the Borrower, any shareholder of the Borrower or any employee,
customer or supplier of the Borrower, other than any of the foregoing that were
available to the Administrative Agent, the Collateral Agent, the Issuing Bank or
any Lender on a nonconfidential basis prior to its disclosure thereto by the
Borrower, and which are in the case of Information provided after the date
hereof, clearly identified at the time of delivery as confidential. The
provisions of this Section 9.17 shall remain operative and in full force and
effect regardless of the expiration and term of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
SCHEIN PHARMACEUTICAL, INC.,
by __________________________
Name:
Title:
<PAGE>
Chemical Bank $350 M Loan
Amortization of Loan fees
Schedule of Fees
Syndication Fee 5,250,000
Valuation Research (solvency) 35,566
Dames & Moore (environment) 28,000
PR filing fees (mort tax) 36,618
Cravath Fees (legal bank) 214,786
Proskauer Fees (legal co) 150,000
Title fees (Carmel & Phoenix) 256,120
5,971,090
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Repayment Date 250,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
Sep-95 0 250,000,000 100,000,000 350,000,000 29,166,667 0.01808318
31-Dec-95 0 250,000,000 100,000,000 350,000,000 87,500,000 0.05424955
- -----------------------------------------------------------------------------------------------------------------------------------
31-Mar-96 0 250,000,000 100,000,000 350,000,000 87,500,000 0.05424955
30-Jun-96 0 250,000,000 100,000,000 350,000,000 87,500,000 0.05424955
30-Sep-96 5,000,000 245,000,000 100,000,000 345,000,000 86,250,000 0.05347455
31-Dec-96 5,000,000 240,000,000 100,000,000 340,000,000 85,000,000 0.05269956
- -----------------------------------------------------------------------------------------------------------------------------------
31-Mar-97 7,500,000 232,500,000 100,000,000 332,500,000 83,125,000 0.05153707
30-Jun-97 7,500,000 225,000,000 100,000,000 325,000,000 81,250,000 0.05037458
30-Sep-97 7,500,000 217,500,000 100,000,000 317,500,000 79,375,000 0.04921209
31-Dec-97 7,500,000 210,000,000 100,000,000 310,000,000 77,500,000 0.0480496
- -----------------------------------------------------------------------------------------------------------------------------------
31-Mar-98 10,000,000 200,000,000 100,000,000 300,000,000 75,000,000 0.04649961
30-Jun-98 10,000,000 190,000,000 100,000,000 290,000,000 72,500,000 0.04494963
30-Sep-98 10,000,000 180,000,000 100,000,000 280,000,000 70,000,000 0.04339964
31-Dec-98 10,000,000 170,000,000 100,000,000 270,000,000 67,500,000 0.04184965
- -----------------------------------------------------------------------------------------------------------------------------------
31-Mar-99 12,500,000 157,500,000 100,000,000 257,500,000 64,375,000 0.03991217
30-Jun-99 12,500,000 145,000,000 100,000,000 245,000,000 61,250,000 0.03797468
30-Sep-99 12,500,000 132,500,000 100,000,000 232,500,000 58,125,000 0.03603720
31-Dec-99 12,500,000 120,000,000 100,000,000 220,000,000 55,000,000 0.03409972
- -----------------------------------------------------------------------------------------------------------------------------------
31-Mar-00 15,000,000 105,000,000 100,000,000 205,000,000 51,250,000 0.03177474
30-Jun-00 15,000,000 90,000,000 100,000,000 190,000,000 47,500,000 0.02944975
30-Sep-00 15,000,000 75,000,000 100,000,000 175,000,000 43,750,000 0.02712477
31-Dec-00 15,000,000 60,000,000 100,000,000 160,000,000 40,000,000 0.02479979
- -----------------------------------------------------------------------------------------------------------------------------------
31-Mar-01 15,000,000 45,000,000 100,000,000 145,000,000 36,250,000 0.02247481
30-Jun-01 15,000,000 30,000,000 100,000,000 130,000,000 32,500,000 0.02014983
30-Sep-01 15,000,000 15,000,000 100,000,000 115,000,000 28,750,000 0.01782485
31-Dec-01 15,000,000 0 100,000,000 100,000,000 25,000,000 0.01549987
- -----------------------------------------------------------------------------------------------------------------------------------
250,000,000 1,612,916,667 1
</TABLE>
<TABLE>
<CAPTION>
Closing Exp $100K Ticking Total Year
Amortization Agent Fee Amortization Expense
Fees Chemical Fees
Repayment Date
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sep-95 107,976.31 8,333.33 309,896.00 426,205.64
31-Dec-95 323,928.92 25,000.00 348,928.92 775,134.56
- ----------------------------------------------------------------------------------------------------------------------
31-Mar-96 323,928.92 25,000.00 348,928.92
30-Jun-96 323,928.92 25,000.00 348,928.92
30-Sep-96 319,301.36 25,000.00 344,301.36
31-Dec-96 314,673.80 25,000.00 339,673.80 1,381,833.00
- ----------------------------------------------------------------------------------------------------------------------
31-Mar-97 307,732.47 25,000.00 332,732.47
30-Jun-97 300,791.14 25,000.00 325,791.14
30-Sep-97 293,849.80 25,000.00 318,849.80
31-Dec-97 286,908.47 25,000.00 311,908.47 1,289,281.88
- ----------------------------------------------------------------------------------------------------------------------
31-Mar-98 277,653.36 25,000.00 302,653.36
30-Jun-98 268,398.25 25,000.00 293,398.25
30-Sep-98 259,143.13 25,000.00 284,143.13
31-Dec-98 249,888.02 25,000.00 274,888.02 1,155,082.76
- ----------------------------------------------------------------------------------------------------------------------
31-Mar-99 238,319.13 25,000.00 263,319.13
30-Jun-99 226,750.24 25,000.00 251,750.24
30-Sep-99 215,181.35 25,000.00 240,181.35
31-Dec-99 203,612.46 25,000.00 228,612.46 983,863.19
- ----------------------------------------------------------------------------------------------------------------------
31-Mar-00 189,729.79 25,000.00 214,729.79
30-Jun-00 175,847.13 25,000.00 200,847.13
30-Sep-00 161,964.46 25,000.00 186,964.46
31-Dec-00 148,081.79 25,000.00 173,081.79 775,623.17
- ----------------------------------------------------------------------------------------------------------------------
31-Mar-01 134,199.12 25,000.00 159,199.12
30-Jun-01 120,316.45 25,000.00 145,316.45
30-Sep-01 106,433.79 25,000.00 131,433.79
31-Dec-01 92,551.12 25,000.00 117,551.12 553,500.48
- ----------------------------------------------------------------------------------------------------------------------
5,971,089.70 6,914,319.03 6,914,319.03
</TABLE>
<PAGE>
SCHEIN PHARMACEUTICAL, INC.
CHEMICAL BANK CREDIT AGREEMENT
LIST OF CLOSING DOCUMENTS
SCHEDULE 1.01
CERTAIN PERMITTED HOLDERS
SCHEDULE 3.08
SUBSIDIARIES AND PERCENTAGE OWNED THEREIN
SCHEDULE 3.18
INSURANCE
SCHEDULE 3.20 (A)
LIST OF OWNED LOCATIONS
SCHEDULE 3.20 (B)
LIST OF MATERIAL LEASED LOCATIONS
SCHEDULE 4.02(A)
LIST OF LOCAL COUNSEL
SCHEDULE 6.01
EXISTING INDEBTEDNESS
SCHEDULE 6.02
EXISTING LIENS
SCHEDULE 6.04
EXISTING INVESTMENTS
EXHIBIT D
GUARANTEE AGREEMENT
SCHEDULE I - NAME AND ADDRESS OF EACH GUARANTOR
EXHIBIT G
SCHEDULE I - SHARES OF CAPITAL STOCK PLEDGED
EXHIBIT G
SCHEDULE II - NAME AND ADDRESS OF EACH PLEDGOR
EXHIBIT G
ANNEX I - PERFECTION CERTIFICATE
EXHIBIT H
SCHEDULE I - COPYRIGHTS
SCHEDULE II - LICENSES
SCHEDULE III - PATENTS
SCHEDULE IV - TRADEMARKS
<PAGE>
BY LAWS - SCHEIN PHARMACEUTICAL, INC.
BY LAWS - SCHEIN PHARMACEUTICAL INTERNATIONAL, INC.
BY LAWS - SCHEIN PHARMACEUTICAL PA, INC.
BY LAWS - SCHEIN PHARMACEUTICAL SERVICE COMPANY
BY LAWS - SM ACQUIRING CO., INC.
BY LAWS - STERIS LABORATORIES, INC.
BY LAWS - DANBURY PHARMACAL, INC.
BY LAWS - DANBURY PHARMACAL PUERTO RICO, INC.
RESOLUTIONS - SCHEIN PHARMACEUTICAL, INC.
RESOLUTIONS - SCHEIN PHARMACEUTICAL INTERNATIONAL, INC.
RESOLUTIONS - SCHEIN PHARMACEUTICAL PA, INC.
RESOLUTIONS - SCHEIN PHARMACEUTICAL SERVICE COMPANY
RESOLUTIONS - SM ACQUIRING CO., INC.
RESOLUTIONS - STERIS LABORATORIES, INC.
RESOLUTIONS - DANBURY PHARMACAL, INC.
RESOLUTIONS - DANBURY PHARMACAL PUERTO RICO, INC.
CTF INCORP. - SCHEIN PHARMACEUTICAL, INC.
CTF INCORP. - SCHEIN PHARMACEUTICAL INTERNATIONAL, INC.
CTF INCORP. - SCHEIN PHARMACEUTICAL PA, INC.
CTF INCORP. - SCHEIN PHARMACEUTICAL SERVICE COMPANY
CTF INCORP. - SM ACQUIRING CO., INC.
CTF INCORP. - STERIS LABORATORIES, INC.
CTF INCORP. - DANBURY PHARMACAL, INC.
CTF INCORP. - DANBURY PHARMACAL PUERTO RICO, INC.
<PAGE>
SECRETARY'S CTF. - SCHEIN PHARMACEUTICAL, INC.
SECRETARY'S CTF. - SCHEIN PHARMACEUTICAL INTERNATIONAL, INC.
SECRETARY'S CTF. - SCHEIN PHARMACEUTICAL PA, INC.
SECRETARY'S CTF. - SCHEIN PHARMACEUTICAL SERVICE COMPANY
SECRETARY'S CTF. - SM ACQUIRING CO., INC.
SECRETARY'S CTF. - STERIS LABORATORIES, INC.
SECRETARY'S CTF. - DANBURY PHARMACAL, INC.
SECRETARY'S CTF. - DANBURY PHARMACAL PUERTO RICO, INC.
FINANCIAL OFFICER'S CERTIFICATE - SCHEIN PHARMACEUTICAL, INC.
CERTIFICATE OF OCCUPANCY FOR EACH MORTGAGED PROPERTY
INSURANCE BROKER'S CERTIFICATES
EVIDENCE OF CANCELLATION - CITIBANK
EVIDENCE OF CANCELLATION - MELLON BANK
EVIDENCE OF CANCELLATION - MIDLANTIC
EVIDENCE OF CANCELLATION - BANCO POPULAR
SOLVENCY LETTER
UCC FINANCING STATEMENTS
FORMS U-1
<PAGE>
****** -COMM. JOURNAL- ********* DATE MAR-18-1996 ********** TIME 17:49 *** P.01
MODE = MEMORY TRANSMISSION START=MAR-18 17:46 END=MAR-18 17:49
NO. COM ABBR/NTWK STATION NAME/ PAGES PRG.NO. PROGRAM NAME
TELEPHONE NO.
001 OK [07] PROSKAUR 010/010
-SCHEIN PHARMACEUTICALS -
******************************** -201-593-5598 - ***** - - *********
10
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA,
by
______________________________
Name:
Title:
THE NIPPON CREDIT BANK, LTD.,
by
______________________________
Name:
Title:
UNITED JERSEY BANK,
by
______________________________
Name:
Title:
THE YASUDA TRUST AND BANKING CO.,
LIMITED, NEW YORK BRANCH
by
______________________________
Name:
Title:
* Page redacted pursuant to confidential treatment request.
<PAGE>
****** -COMM. JOURNAL- ********* DATE MAR-18-1996 ********** TIME 12:32 *** P.01
MODE = MEMORY TRANSMISSION START=MAR-18 12:29 END=MAR-18 12:32
FILE NO = 190
NO. COM ABBR/NTWK STATION NAME/ PAGES PRG.NO. PROGRAM NAME
TELEPHONE NO.
001 OK [08] BDO SIEDMAN 011/011
-SCHEIN PHARMACEUTICALS -
******************************** -201-593-5598 - ***** - - *********
CRAVATH, SWAINE & MOORE
Worldwide Plaza, 825 Eighth Avenue
New York, NY 10019
Telephone: (212) 474-1190
Fax: (212) 474-3700
Date: March 18, 1996
================================================================================
Name/Firm Fax No. Phone No.
- --------------------------------------------------------------------------------
To: Mr. James Meer (201) 593-5598 (201) 593-5911
- --------------------------------------------------------------------------------
From: S. Soundararajan (212) 474-3700 (212) 474-1942
================================================================================
TOTAL NUMBER OF PAGES, INCLUDING THIS COVER SHEET: 11
IF YOU DO NOT RECEIVE ALL THE PAGES, PLEASE CALL (212) 474-1190
================================================================================
Message: Attached is the execution copy of the Amendment circulated last week.
Please call if you have any questions.
================================================================================
THIS MESSAGE IS INTENDED ONLY FOR THE USE OF THE INDIVIDUAL OR ENTITY TO WHICH
IT IS ADDRESSED AND MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL AND
EXEMPT FROM DISCLOSURE. If the reader of this message is not the intended
recipient or an employee or agent responsible for delivering the message to the
intended recipient, you are hereby notified that any dissemination,
distribution, or COpying of this communication is strictly prohibited. If you
have received this communication in error, please notify us immediately by
telephone at (212)474-1190 and return the original message to us by mail. Thank
you.
Reference No. 6700-331
Document Description: _________________________________________________________
* Page redacted pursuant to confidential treatment request.
<PAGE>
CRAVATH, SWAINE & MOORE
Worldwide Plaza, 825 Eighth Avenue
New York, NY 10019
Telephone: (212) 474-1190
Fax: (212) 474-3700
Date: March 18, 1996
================================================================================
Name/Firm Fax No. Phone No.
- --------------------------------------------------------------------------------
To: Mr. James Meer (201) 593-5598 (201) 593-5911
- --------------------------------------------------------------------------------
From: S. Soundararajan (212) 474-3700 (212) 474-1942
================================================================================
TOTAL NUMBER OF PAGES, INCLUDING THIS COVER SHEET: 11
IF YOU DO NOT RECEIVE ALL THE PAGES, PLEASE CALL (212) 474-1190
================================================================================
Message: Attached is the execution copy of the Amendment circulated last week.
Please call if you have any questions.
================================================================================
THIS MESSAGE IS INTENDED ONLY FOR THE USE OF THE INDIVIDUAL OR ENTITY TO WHICH
IT IS ADDRESSED AND MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL AND
EXEMPT FROM DISCLOSURE. If the reader of this message is not the intended
recipient or an employee or agent responsible for delivering the message to the
intended recipient, you are hereby notified that any dissemination,
distribution, or copying of this communication is strictly prohibited. If you
have received this communication in error, please notify us immediately by
telephone at (212)474-1190 and return the original message to us by mail. Thank
you.
Reference No. 6700-331
Document Description: _________________________________________________________
<PAGE>
Schein Pharmaceutical, Inc.
$350M Credit Facilities
Chemical Bank, Agent
Amount: $350M
RC Facility $100M
Term Facility $250M
Tenor: 6.5 Years (Matures 12/31/01)
Interest (price grid): LIBOR + 1.25% Range .75% > 1.50% 7.25%
Prime + .25% Range 0% > .50% 9.00%
Letter of Credit: Up to $30M available @ 1.625% (subject to grid)
Commitment Fee: 0.375% (unused portion, Range .25% > .50%
Arrangement Fee: 1.5% -- ($5,250,000)
Agent Fee: $100K annually
Mandatory Prepayments: 75% of Excess cash flow, 100% of new financing
above $10M, and % of proceeds from stock
offering:
50% if leverage is between 3.0x - 4.0x
25% if leverage is between 2.5x - 3.0x
0% if leverage is between 1.0x - 2.5x
Scheduled Prepayments: '95 - $0 '99 - $50M
'96 - $10M '00 - $60M
'97 - $30M '01 - $60M
'98 - $40M
Security: Mortgage all real property
Liens on receivables & inventory
Pledge of all domestic subsidiaries stock including
Marsam and 65% of wholly owned foreign
subsidiaries
Cross company guarantees by domestic subsidiaries
<PAGE>
Financial Covenants: Limitations on capital expenditures -
$25M/yr + 50% carryforward of unspent amount
commencing fiscal year '97
Maximum Total Leverage (debt) to EBITDA for '95
5x > '98 3x
Minimum net worth - $145M
+$25M earnings in '96
+$55M earnings in '97
+$50M earnings in '98
+$75M earnings in '99
Minimum levels of working capital - 1.75x
Minimum fixed charge coverage - 1.5x all years
(EBITDA-Cap Exp/Interest + Debt Payments)
Limitations on dividends -
Deemed dividends per the Shareholder
Agreement for registration expenses & fees
permitted + 25% of Net Income after leverage
drop below 2.5x (Est. '96 end of year)
Limitations on investments:
A) $10M annually for foreign investments, Bayer
JV's) (-50% of carryforward of unspent
amount)
B) $10M Aggregate of all other investments up
to '97 and $15M aggregate thereafter
Limitations on Debt to buy back stock options
$5M
Transactions with Affiliates (Bayer and
Shareholders)
A) Limits to Shareholder agreement
B) Stock options permitted
C) Foreign JV's permitted up to $10M/yr
D) Loans to officers and amployees up to $1.5 M
aggregate
Limitations on Merger Agreement
A) Materially change terms other than to extend
Tender Offer period
B) To pay more than $250M for Marsam
<PAGE>
<TABLE>
<CAPTION>
Bank Allocation
---- ----------
<S> <C>
Arranger and Administrative Agent:
Chemical Bank $ 22,500,000
Lead Managers:
The Bank of Nova Scotia 20,000,000
Chase National Corporate Services, Inc. 20,000,000
Citicorp 20,000,000
Credit Lyonnais 20,000,000
Deutsche Bank 20,000,000
Mellon Bank, N.A. 20,000,000
National Westminster Bank USA 20,000,000
Participants:
The Bank of Tokyo Trust Company 12,500,000
Comerica Bank 12,500,000
Credit Suisse 12,500,000
HypoBank 12,500,000
Midlantic Bank, N.A. 12,500,000
Rabobank Nederland 12,500,000
Societe Generale 12,500,000
Society National Bank 12,500,000
Westdeutsche Landesbank Girozentrale 12,500,000
ABN-Amro Bank 7,500,000
Bank of Montreal 7,500,000
The Bank of New York 7,500,000
Commerzbank 7,500,000
The Daiwa Bank, Limited 7,500,000
DG Bank 7,500,000
First Union National Bank of North Carolina 7,500,000
The Nippon Credit Bank, Ltd. 7,500,000
United Jersey Bank 7,500,000
The Yasuda Trust and Banking Co., LTD. 7,500,000
------------
$350,000,000
</TABLE>
<PAGE>
Schein Pharmaceutical, Inc.
Fund Summary
As of September 30, 1995
<TABLE>
<CAPTION>
Market % of
Fund Value Total
---- ----- -----
<S> <C> <C>
LaSalle Bank (GIC) $ 7,004,409 19.41%
Columbia Fixed Income 7,374,917 20.44%
Vanguard Quantitative 10,357,325 28.70%
PBHG Growth Fund 7,734,374 21.43%
T. Rowe Price Int'l Stock Fund 3,613,526 10.01%
-----------
Total * $36,084,551
</TABLE>
* Includes Lifestyle funds
<TABLE>
<CAPTION>
-----------------------------------------------------------
Market % of
Value Total
Lifestyle Funds LaSalle Columbia Vanguard PBHG T. Rowe
- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Conservative $ 2,266,595 13.21% 832,391 675,602 514,228 138,487 105,888
36.72% 29.81% 22.69% 6.11% 4.67%
Moderate 8,824,227 51.45% 1,161,293 2,942,105 2,890,303 1,040,537 789,999
13.16% 33.34% 32.75% 11.79% 8.95%
Aggressive 6,061,687 35.34% 1,389,574 2,859,584 1,029,314 783,215
22.92% 47.17% 16.98% 12.92%
Total $17,152,508
-----------------------------------------------------------
</TABLE>
<PAGE>
Schedule 6.04
-------------
EXISTING INVESTMENTS
Nature of
Name Investment
- ---- ----------
Elensys Care Services Inc. Con. Pfd. Stk.
Triomed (Proprietary) Limited, South Africa Common Stock
*Brovar S&P (Proprietary) Ltd., South Africa Common Stock
*Ethical Generics Limited, UK Common Stock
Schein Bayer Pharm. Svcs. Common Stock
*Schein Pharmaceutical Canada, Inc. Common Stock
Duramed Pharmaceuticals, Inc. Convertible Note
Miscellaneous investments not exceeding $250,000 in aggregate.
* Currently owned 100% by Schein Pharmaceutical, Inc. or one of its
affiliates; it is contemplated that a 50% interest will be transferred to
an affiliate of Bayer AC.
<PAGE>
CRAVATH, SWAIN & MOORE
Worldwide Plaza, 825 Eighth Avenue
New York, NY 10019
Telephone: (212) 474-1000
Fax: (212) 474-3700
Date: December 17, 1996
================================================================================
Name/Firm Fax No. Phone No.
- --------------------------------------------------------------------------------
To: See Next Page For
Multiple Addressees
- --------------------------------------------------------------------------------
From: S. Soundararajan Room: 4438 (212) 474-3700 (212) 474-1942
================================================================================
TOTAL NUMBER OF PAGES, INCLUDING THIS COVER SHEET: 17
IF YOU DO NOT RECEIVE ALL THE PAGES, PLEASE CALL (212) 474-3130
================================================================================
Message: This version of the amendment will be circulated to the Bank Group
tonight (along with the Subordinated Loan Agreement) absent any
objections. Please call me if you have any questions or comments.
Thank you.
CC: DH, WKS, PF, CO
================================================================================
THIS MESSAGE IS INTENDED ONLY FOR THE USE OF THE INDIVIDUAL OR ENTITY TO WHICH
IT IS ADDRESSED AND MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL AND
EXEMPT FROM DISCLOSURE. If the reader of this message is not the intended
recipient or an employee or agent responsible for delivering the message to the
intended recipient, you are hereby notified that any dissemination,
distribution, or copying of this communication is strictly prohibited. If you
have received this communication in error, please notify us immediately by
telephone at (212)474-3130 and return the original message to us by mail. Thank
you.
Reference No. 6700-331
DATE SENT: _______________ DATE CONFIRMED: ____________ [ILLEGIBLE]
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Name/Firm Fax No. Phone No.
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To: Dawn Lee Lum (212) 270-3279 (212) 2472
Chase
- --------------------------------------------------------------------------------
2. To: Greg Weiss (212) 455-2502 (212) 455-7080
Simpson Thacher & Bartlett
- --------------------------------------------------------------------------------
3. To: Jeff Mullen (212) 455-2502 (212) 455-2000
Simpson Thacher & Bartlett
- --------------------------------------------------------------------------------
4. To: Scott Phillips (212) 278-5387 (212) 278-5460
Societe Generale
- --------------------------------------------------------------------------------
5. To: Robert Cantone (212) 969-2900 (212) 969-3000
Proskauer Rose Goetz &
Mendelsohn
- --------------------------------------------------------------------------------
6. To: Charles Dropkin (212) 969-2900 (212)969-3535
Proskauer Rose Goetz &
Mendelsohn
- --------------------------------------------------------------------------------
7. To: Jim Meer (201) 593-5598 (201) 593-5911
Schein Pharmaceutical
================================================================================
</TABLE>
<PAGE>
THIRD AMENDMENT dated as of December 20, 1996
(this "Amendment"), to the CREDIT AGREEMENT dated
as of September 1, 1995, among SCHEIN
PHARMACEUTICAL, INC., a Delaware corporation (the
"Borrower"); the LENDERS (as defined in Article I
of the Credit Agreement); and THE CHASE MANHATTAN
BANK, a New York banking corporation as issuing
bank (in such capacity, the "Issuing Bank"), as
administrative agent (in such capacity, the
"Administrative Agent") and as collateral agent
(in such capacity, the "Collateral Agent") for the
Lenders.
The Borrower has requested that the Credit Agreement be amended as
hereinafter set forth, and the Lenders have agreed to such amendment, upon the
terms and subject to the conditions set forth herein. Accordingly, the Borrower
and the Lenders hereby agree as follows:
ARTICLE I
Defined Terms
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement, as amended hereby (the
"Amended Credit Agreement").
ARTICLE II
Amendments to and Waivers under the Credit Agreement
The Credit Agreement is amended, effective as of the date hereof (but
subject to the conditions set forth in Article IV hereof), as set forth below:
SECTION 2.01 Amendments to Article I. (a) The following definitions are
added to Section 1.01 of the Credit Agreement in the proper alphabetical order:
"'Acceptable Refinancing' shall mean a series of transactions in which
the Borrower (a) completes an issuance and sale of its capital stock (or
rights, warrants or options to acquire its capital stock) or of
Subordinated Debt (which Subordinated Debt, unless it (x) is described in
the second sentence of the definition of "Subordinated Debt" or (y) is on
terms (including, without limitation, maturity, interest rates,
subordination provisions, prepayment, redemption, defeasance or similar
provisions, covenants and events of default) at least as favorable in all
respects to the Borrower or the Lenders as the terms of the Indebtedness
issued (or that would have been issued) under the Conversion Note
Indenture), or any combination thereof, in either case yielding net cash
proceeds to the Borrower of at least $96,000,000, and (b) applies such net
cash proceeds to prepay Term Loans in the manner contemplated by Sections
2.11 and 2.13."
<PAGE>
3
"'Conversion Note Indenture' shall mean the "Conversion Note
Indenture" referred to in the Senior Subordinated Loan Agreement, in the
form attached as Annex I-B to the Third Amendment."
"'Refinancing Debt' shall have the meaning assigned to such term in
Section 6.01(g)."
"'Senior Subordinated Loan Agreement' shall mean the $100,000,000
Senior Subordinated Loan Agreement dated as of December [ ], 1996, among
the Borrower, certain lenders and Societe Generale, as administrative
agent, in the form attached as Annex I-A to the Third Amendment."
"'Third Amendment' shall mean the Third Amendment dated as of December
20, 1996, to this Agreement."
(b) The definition of "Subordinated Debt" is amended to read as follows:
"'Subordinated Debt' means unsecured Indebtedness of the Borrower that
(a) does not have any scheduled payment of principal prior to the 180th day
following the Post-Merger Facilities Maturity Date, (b) the principal of
which is subordinated to the prior payment in full in cash of all the
Obligations in a manner reasonably satisfactory to the Administrative Agent
and (c) otherwise has terms and conditions reasonably satisfactory to the
Administrative Agent. Notwithstanding any other provision of this
Agreement, Subordinated Debt shall include (i) Indebtedness incurred under
and on the terms set forth in the Senior Subordinated Loan Agreement or the
Conversion Note Indenture, and (ii) Refinancing Debt; provided that the
terms of such Refinancing Debt (including, without limitation, maturity,
interest rates, subordination provisions, prepayment, redemption,
defeasance or similar provisions, covenants and events of default) shall be
in all material respects at least as favorable to the Borrower and the
Lenders as the terms of the Indebtedness being refinanced, or, in the case
of interest rates, shall be consistent with rates of interest at the time
prevailing in the market for comparable obligations (or, if the
Indebtedness being refinanced was incurred under the Senior Subordinated
Loan Agreement or the Conversion Note Indenture, at least as favorable to
the Borrower and the Lenders as the terms of the Indebtedness issued (or
that would have been issued) under the Conversion Note Indenture including,
without limitation, the interest rate provided for in the form of Senior
Subordinated Conversion Note annexed as Exhibit B thereto)."
SECTION 2.02 Amendments to Article II. (a) Section 2.11(b) of the Credit
Agreement is amended by (i) inserting the phrase "(other than Section 2.13(f))"
between "2.13" and "shall" and (ii) inserting the following at the end of the
second sentence following the word "prepayment":
", and each prepayment of principal of Term Facility Borrowings
pursuant to Section 2.13(f) shall be applied (A) first, to reduce
<PAGE>
4
in full the amounts due on or prior to June 30, 1998, in order of maturity
and (B) second, to reduce pro rata the scheduled payments of principal due
under this Section 2.11 after June 30, 1998".
(b) Section 2.13 of the Credit Agreement is amended by inserting the
following new subsection (f):
"(f) Notwithstanding anything in paragraph (a), (b) or (c) above, (i)
the Borrower shall apply 100% of the Net Proceeds of any Acceptable
Refinancing promptly upon receipt to prepay outstanding Term Loans in
accordance with Section 2.11(b), and (ii) the Borrower may apply the Net
Proceeds of any Refinancing Debt incurred in compliance with Section
6.01(g) or of any issuance and sale of its capital stock (or rights,
warrants or options to acquire its capital stock) to repay any Indebtedness
incurred as part of an Acceptable Refinancing or any other Refinancing
Debt."
SECTION 2.03 Amendments to Article VI. (a) Clause (g) of Section 6.01 is
amended to read as follows:
"(g) Subordinated Debt issued after the Merger Date (including any
Indebtness incurred as part of an Acceptable Refinancing, and any
Subordinated Debt the proceeds of which are used to refinance any such
Indebtedness or any other Subordinated Debt the proceeds of which have been
so used ("Refinancing Debt"); provided that the terms of such Refinancing
Debt (including, without limitation, maturity, interest rates,
subordination provisions, prepayment, redemption, defeasance or similar
provisions, covenants and events of default) shall be in all material
respects at least as favorable to the Borrower and the Lenders as the terms
of the Indebtedness being refinanced or, in the case of interest rates,
shall be consistent with rates of interest at the time prevailing in the
market for comparable obligations (or, if the Indebtedness being refinanced
was incurred under the Senior Subordinated Loan Agreement or the Conversion
Note Indenture, at least as favorable to the Borrower and the Lenders as
the terms of the Indebtedness issued (or that would have been issued) under
the Conversion Note Indenture including, without limitation, the interest
rate provided for in the form of Senior Subordinated Conversion Note
annexed as Exhibit B thereto)."
(b) Section 6.12 is amended by deleting the text after the word
"Indebtedness" and inserting in place thereof:
"except that the Borrower and the Subsidiaries may (i) make payments in
respect of the Obligations, (ii) make payments in the form of common stock
of the Borrower and (iii) refinance Indebtedness incurred as part of an
Acceptable Refinancing or Refinancing Debt with the proceeds of any
issuance and sale of capital stock (or rights, warrants or options to
acquire capital stock) of the Borrower or of any Refinancing Debt permitted
under Section 6.01(g)."
<PAGE>
11
THE BANK OF NOVA SCOTIA,
by ______________________________
Name:
Title:
CITICORP USA, INC.,
by ______________________________
Name:
Title:
CREDIT LYONNAIS, NEW YORK BRANCH,
by ______________________________
Name:
Title:
CREDIT LYONNAIS, CAYMAN ISLAND
BRANCH,
by ______________________________
Name:
Title:
DEUTSCHE BANK, A.G., NEW YORK AND/OR
CAYMAN ISLAND BRANCHES,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
MELLON BANK, N.A.,
by ______________________________
Name:
Title:
<PAGE>
FLEET BANK, N.A. (formerly known as
NatWest Bank, N.A.),
by ______________________________
Name:
Title:
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, successor by merger to:
THE BANK OF TOKYO TRUST COMPANY,
by ______________________________
Name:
Title:
BAYERISCHE HYPOTHEKEN-UND WECHSEL-BANK
AKTIENGESSELLSCHAFT, NEW YORK BRANCH,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
COMERICA BANK,
by ______________________________
Name:
Title:
COOPERATIEVE CENTRALE RAIFFEIFEN-
BOERENLESNBANK, B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
<PAGE>
12
CREDIT SUISSE,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
KEYBANK NATIONAL ASSOCIATION,
by ______________________________
Name:
Title:
PNC BANK, N.A.,
by ______________________________
Name:
Title:
SOCIETE GENERALE, NEW YORK BRANCH,
by ______________________________
Name:
Title:
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
<PAGE>
14
ABN AMRO BANK N.V., NEW YORK BRANCH,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
BANK OF MONTREAL,
by ______________________________
Name:
Title:
THE BANK OF NEW YORK,
by ______________________________
Name:
Title:
COMMERZBANK AKTIENGESELLSHAFT, NEW YORK
BRANCH,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK,
CAYMAN ISLAND BRANCH,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
<PAGE>
15
FIRST UNION NATIONAL BANK,
by ______________________________
Name:
Title:
THE NIPPON CREDIT BANK, LTD.,
by ______________________________
Name:
Title:
SUMMIT BANK,
by ______________________________
Name:
Title:
THE YASUDA TRUST AND BANKING CO.,
LIMITED, NEW YORK BRANCH,
by ______________________________
Name:
Title:
<PAGE>
EXHIBIT 4.2
- --------------------------------------------------------------------------------
FIRST,
SECOND
&
THIRD AMENDMENTS
To The
$350 MILLION
CREDIT AGREEMENT
- --------------------------------------------------------------------------------
[LOGO] SCHEIN
P H A R M A C E U T I C A L
<PAGE>
-EXECUTION COPY-
December 17, 1996
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Gentlemen:
Reference is made to that certain General Shareholders Agreement (the
"Agreement") dated September 30, 1994 among Schein Pharmaceutical, Inc.
(formerly Schein Holdings, Inc.) (hereinafter "you" or the "Company"), Bayer
Corporation (formerly Miles Inc.) (hereinafter "we" or "Bayer"), each of the
family shareholders listed as such on Schedule A to the Agreement, each of the
other shareholders listed as such on Schedule A to the Agreement, and Martin
Sperber as trustee under the Voting Trust Agreement dated September 30, 1994.
1. You have advised Bayer that the Company proposes to refinance (the
"Refinancing") a portion of its indebtedness substantially in accordance with
the attached Senior Subordinated Credit Facility Term Sheet.
2. You have also requested that the references in the attached letter dated
June 14, 1995 between Bayer and the Company (the "Letters) to "1996" and "1997,"
be changed to "1997" and "l998", respectively.
3. You have further requested that "stockholders equity" as determined
under the Agreement be deemed to include the amount of any charge by the Company
for acquired in process research and development expenses of the Company
resulting from the acquisition of Marsam Pharmaceuticals Inc. to the extent such
charge is less than $35,000,000.
On the terms and subject to the fulfillment of the conditions set forth
below, and for the purposes of Section 2.3 of the Agreement, Bayer hereby
consents to the Refinancing (including the Conversion Notes thereunder) so that
upon and after such Refinancing the ratio of the sum of all Funded Debt plus the
redemption price of all Redeemable Preferred Stock of the Company and its
consolidated subsidiaries to the Company's consolidated stockholders' equity
(excluding any Redeemable Preferred Stock), determined in accordance with GAAP
(subject to the adjustment described in paragraph 3, above) (the "Ratio"),
<PAGE>
Schein Pharmaceutical, Inc.
December 17, 1996
Page 2
shall forthwith be as described in the Letter as modified by paragraph 2, above.
Notwithstanding the foregoing, if for any reason (a) any Post-Merger
Facility (as defined by the Letter) that has not been refinanced and/or (b) any
credit facility entered into in connection with the Refinancing is prepaid in
whole, again refinanced (unless such refinancing is accomplished on terms no
less favorable to Company, as determined solely by Bayer in its reasonable
discretion) or otherwise terminated, then the applicable Ratio shall thereafter
be 1.50 to 1.
This consent shall become effective upon the execution and delivery of
definitive documentation regarding the Refinancing.
Please indicate your acceptance of the foregoing terms and conditions
imposed by this consent by executing both of the enclosed copies of this letter
and returning one copy to the undersigned.
BAYER CORPORATION
By: /s/ Jon R. Wyne
---------------------------
Name: Jon R. Wyne
------------------------
Title: Senior Vice President
------------------------
And Treasurer
Accepted and agreed to
this 17 day of December, 1996
SCHEIN PHARMACEUTICAL, INC.
By: /s/ Dariush Ashrafi
----------------------
Name: DARIUSH ASHRAFI
---------------------------
Title: EXECUTIVE VICE PRESIDENT
---------------------------
& CHIEF FINANCIAL OFFICER
<PAGE>
Schein Pharmaceutical, Inc.
$100,000,000 Senior Subordinated Loan and Conversion Notes
SUMMARY OF TERMS
Issuer of Notes: Schein Pharmaceutical, Inc. (the "Company" or the
"Issuer").
Lender and Conversion Notes
Underwriter: Societe Generale or Societe Generale Securities
Corporation ("SocGen"), as determined by Societe
Generale.
Structure: Structured as a single facility with two parts,
the Initial Loan and its subsequent conversion
(the "Conversion") into the Conversion Notes under
certain circumstances as described in more detail
below. The Company expects that prior to the
issuance of the Conversion Notes, the Initial Loan
will be refinanced by any or all of the following:
bank debt, a public offering or private placement
of high yield senior subordinated or subordinated
securities or an initial public or private
offering of common equity of the Company or one of
its subsidiaries (the "Refinancing"). The Initial
Loan will convert to the Conversion Notes if such
Refinancing is not consummated and the Initial
Loan is outstanding as of January 31, 1998 (the
"Maturity Date") pursuant to the terms set forth
below.
Initial Loan
Title of Initial Loan: Senior Subordinated Loan.
Principal Amount: $100,000,000 aggregate principal amount.
Closing: Closing of the Initial Loan (the "Closing Date")
is expected to occur on or before December 20,
1996.
Maturity: The Initial Loan will mature on January 31, 1998
unless the Conversion has occurred. If the
Conversion occurs, the Initial Loan will be
converted to the Conversion Notes described below
on such date, provided that (i) there shall be no
default under the Initial Loan or any senior
indebtedness of the Issuer; (ii) all fees and
interest payable in connection with the Initial
Loan shall have been paid in full; and (iii) no
order shall be in effect enjoining the issuance of
the Conversion Notes.
Ranking: Senior subordinated, pursuant to subordination
provisions customary for high yield securities and
acceptable to SocGen. The Initial Loan will be
junior only to (i) the Company's existing senior
indebtedness as of the Closing Date and any
indebtedness which refinances such senior
indebtedness on substantially similar terms (the
"Senior Debt") and (ii) a basket of other senior
indebtedness in form, amount and terms
satisfactory to SocGen in all respects, and any
other future indebtedness will be junior to the
Initial Loan.
1
<PAGE>
It is understood and agreed that the obligations
in respect of the Initial Loan and the Conversion
Notes, as the case may be, will be and remain
obligations of the same corporate entity as the
Senior Debt and that the Initial Loan and the
Conversion Notes will have the benefit of
subordinated guarantees from each entity
guaranteeing senior debt.
Interest Payment Dates: Quarterly, in arrears, commencing the three-month
after the Closing Date.
Interest Rate: LIBOR from time to time in effect plus 400 basis
points.
Interest on any overdue interest and principal
payments and on other amounts overdue on the
Initial Loan shall accrue at a rate of 200 basis
points in excess of the applicable rate determined
as provided above.
All interest shall be computed on the basis of a
360-day year consisting of twelve 30-day months.
Upfront Fee: 1.5% of the principal amount of the Initial Loan
shall be earned at Closing; however, 1.0% shall be
paid at Closing and the other 0.5% shall be paid
at the earlier of (i) the repayment of the Initial
Loan and (ii) the Maturity Date.
Drawdowns: On the Closing Date, the Company shall draw down
the entire $100,000,000 principal amount of the
Initial Loan.
Mandatory Redemption: Subject to the requirements of the Senior Debt
(including, without limitation, certain carveouts
to be agreed upon with respect to asset
sales and permitted investments), the Company
must repay the Initial Loan at 100% of principal
amount redeemed plus accrued interest to the
redemption date with proceeds from the Refinancing
or from certain asset sales to be mutually agreed
upon.
Principal amounts repaid under this mandatory
redemption provision may not be drawn down again.
Conversion Notes
Amount: Principal amount of the Conversion Notes will
equal 103.5% of the principal amount of the
Initial Loan for which they are converted.
Maturity: Five (5) years following the original issuance of
the Conversion Notes.
Interest Payment Dates: Semi-annually, in arrears, commencing six-months
after the issuance of the Conversion Notes.
2
<PAGE>
Interest Rate: A rate fixed at the time of the issuance of the
Conversion Notes equal to the higher of (i) five
(5) year Treasuries plus 600 basis points and (ii)
the Bear Stearns High Yield Single B Index plus
175 basis points.
Interest on any overdue interest and principal
payments and on other amounts overdue on the
Conversion Notes shall accrue at a rule of 200
basis points in excess of the applicable rate
determined as provided above.
All interest shall be computed on the basis of a
360 day year consisting of twelve 30-day months.
Ranking: Same as the Initial Loan.
General Terms Applicable to the Initial Loan and the Conversion Notes
Optional Prepayment: The Initial Loan may be prepaid at the option of
the Company in whole or in part up to an aggregate
principal amount equal to $25 million plus accrued
interest to the prepayment date (see above).
Partial prepayments will be allowed only in whole
dollar amounts of at least $1,000,000 of principal
up to $25 million.
Principal amounts prepaid may not be drawn down
again.
The Conversion Notes will be non-callable for the
life of the issue.
Transferability: The Initial Loan and the Conversion Notes shall be
transferable, without restriction, by the
lender(s) or holder(s) thereof. See "Registration
Rights".
Registration Rights: The Issuer is required to file a registration
statement for the Conversion Notes by the date
that is 60 days prior to the Maturity Date. The
Issuer will then use its best efforts to cause to
become effective such registration statement for
the Conversion Notes as soon as practicable after
filing.
Representations: The Initial Loan agreement (the "Agreement") and
the Conversion Note indenture (which terms
includes any agreement, security documents or
other documents as SocGen may determine to be
appropriate to effect the transactions
contemplated hereby) will contain representations
and warranties by the Issuer to SocGen, including
affirmation of its intention to take all necessary
and deliberate actions to effect a Refinancing of
the Initial Loan as soon as practicable pursuant
to a securities offering or otherwise.
Covenants: The Agreement (and, if executed, the indenture for
the Conversion Notes) will contain affirmative and
negative covenants satisfactory to SocGen,
including those customary for financings of high
yield
3
<PAGE>
securities of this type.
Affirmative covenants will include, but not be
limited to, compliance with law, maintenance of
existence, insurance, payment of taxes, reporting
and delivery of financial statements.
Negative covenants will include, but not be
limited to, the following:
o limitations on liens securing debt that is
pari passu with or subordinate to the Initial
Loan or the Conversion Notes
o limitations on sale/leasebacks
o limitations on additional indebtedness,
contingent obligations and preferred stock of
the Company
o limitations on indebtedness and the issuance
of preferred stock by any subsidiary
o limitations on dividends or any payments on
the capital stock of the Company and for its
subsidiaries
o limitations on the redemption or repurchase of
capital stock
o limitations on the sale of assets and
subsidiary stock and transactions with
affiliates
o limitations on distributions from any
non-wholly owned subsidiaries
o limitations on mergers and/or consolidations
o limitations on investments and joint ventures
o financial covenants satisfactory to SocGen and
customary for privately held high yield
securities, except that certain of such
covenants as the Company and SocGen shall
mutually agree shall no longer apply
following the resale of the Conversion Notes
in a registered offering to more than fifteen
holders
Events of Default: The Agreement (and, if executed, the indenture for
the Conversion Notes) will contain default
provisions satisfactory to SocGen, including, but
not limited to:
o failure to pay principal or interest on the
Initial Loan or the Conversion Notes, as the
case may be, or any other amount due under
the Agreement (or, if applicable, the
indenture) when and as due
o failure to comply with any of the covenants or
other terms of the Agreement (or, if
applicable, the indenture)
4
<PAGE>
o material breach of any representation or
warranty in the Agreement (or, if applicable,
the indenture)
o cross-payment default and cross-acceleration
on material obligations of the Company or any
material subsidiary
o certain events of bankruptcy of the Company or
any material subsidiary
o change of control of the Company
o material judgment against the Company or any
material subsidiary not waived or stayed
Certain of the foregoing will be subject to grace
periods to be agreed upon.
Governing Law: The Agreement (and, if applicable, the indenture),
and all other documents related to the
transactions contemplated hereby (to the extent
determined to be appropriate by SocGen) shall be
governed by and construed in accordance with the
laws of the State of New York, without giving
effect to conflicts of law principles.
Underwriting
Advisory Fee: The Company shall pay to SocGen an advisory fee
equal to 1.5% of the principal amount of the
Initial Loan upon the occurrence of a Refinancing.
Underwriting Commission: In the event the Company selects SocGen to
participate as an underwriter in a Refinancing,
SocGen's underwriting commission (to be
determined at the time of Refinancing) shall be
reduced by an amount equal to the lesser of (i)
SocGen's total underwriting commission earned from
such Refinancing and (ii) the Advisory Fee. In the
event such underwriting commission exceeds
$1,500,000, the Company selects SocGen to act as
lead manager of such an underwriting, and SocGen
earns at least 70% of the total commissions paid
for such underwriting, and SocGen shall reimburse
the Company for expenses incurred by the Company
in connection with the Refinancing in an amount
equal to the lesser of (i) SocGen's total
underwriting commission earned from such
Refinancing minus $1,500,000 and (ii) $500,000.
5
<PAGE>
Bayer [LOGO]
================================================================================
June 14, 1995
Schein Holdings, Inc.
c/o Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Gentlemen:
Reference is made to that certain General Shareholders Agreement (the
"Agreement") dated September 30, 1994 among Schein Holdings, Inc. (hereinafter
"you" or the "Company"), Bayer Corporation (formerly Miles Inc.) (hereinafter
"we" or "Bayer"), each of the family shareholders listed as such on Schedule A
to the Agreement, each of the other shareholders listed as such on Schedule A to
the Agreement, and Martin Sperber as trustee under the Voting Trust Agreement
dated September 30, 1994.
You have advised Bayer that the Company proposes to make an Acquisition (as
such term is defined in a commitment letter dated June 6, 1995 from Chemical
Bank and Chemical Securities Inc. to the Company in the form attached hereto
(the "Commitment Letter") and that, in connection with the Acquisition, you will
require the Facilities (as such term is defined in the Commitment Letter). In
order to obtain the Facilities, you have requested that Bayer consent, as set
forth below, to the Incurrence of the indebtedness under the Facilities on the
terms and subject to the conditions provided for in the Commitment Letter (the
"Indebtedness").
Defined terms not otherwise defined herein shall have the meanings
specified in the Agreement.
On the terms and subject to the fulfillment of the conditions set forth
below, and for the purposes of Section 2.3 of the Agreement, Bayer hereby
consents to the incurrence of the Indebtedness so that upon and after such
incurrence the ratio of the sum of all Funded Debt plus the redemption price of
all Redeemable Preferred Stock of the Company and its consolidated subsidiaries
to the Company's consolidated stockholders' equity (excluding any Redeemable
Preferred Stock), determined in accordance with GAAP (the "Ratio"), shall
forthwith be as follows:
Bayer Corporation
One Mellon Center
500 Grant Street
Pittsburgh, PA 15219-2507
Phone: 412 394-5566
<PAGE>
Schein Holdings, Inc.
June 14, 1995
Page 2
Until but excluding
the last day of fiscal
year 1996 2.50 to 1
From the last day of fiscal year
1996 until but excluding
the last day at fiscal year 1997 1.90 to 1
From and after ths last day of fiscal
year 1997 1.50 to 1
; provided, however, if for any reason (a) the Pre-Merger Facilities (as defined
in the Commitment Letter) are terminated or prepaid prior to the Merger Data tan
defined in the Commitment Letter) without refinancing (i) pursuant to the
Post-Merger Facilities (as defined in the Commitment Letter) or (ii) on terms no
less favorable to Company (as determined solely by Bayer in its reasonable
discretion), or (b) either of the Post-Merger Facilities are prepaid in whole,
refinanced (unless such refinancing is accomplished on terms no less favorable
to Company, as determined by solely by Bayer in its reasonable discretion) or
otherwise terminated, then the applicable Ratio shall thereafter be 1.50 to 1.
In the event that the initial borrowing uncles the Facilities does not
occur on or before October 31, 1995, this letter and the consent contained
herein shall cease to have any effect and the Ratio shall thereafter be 1.50 to
l.
Please indicate your acceptance of the foregoing terms and conditions
imposed by this consent by executing both of the enclosed copies of this letter
and returning one copy to the undersigned.
BAYER CORPORATION
By: /s/ Gerd D. Mueller
------------------------------
Name: Gerd D. Mueller
----------------------------
Title: E.V.P., Chief Admin.
---------------------------
and Financia1 Officer
Accepted and agreed to
this _ day of June, l995
SCHEIN HOLDINGS, INC.
By: [ILLEGIBLE]
--------------------------
Name:
-------------------------
Title:
------------------------
<PAGE>
December 17, 1996
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Gentlemen:
Reference is made to that certain General Shareholders Agreement (the
"Agreement") dated September 30, 1994 among Schein Pharmaceutical, Inc.
(formerly Schein Holdings, Inc.) (hereinafter "you" or the "Company"), Bayer
Corporation (formerly Miles Inc.) (hereinafter "we" or "Bayer"), each of the
family shareholders listed as such on Schedule A to the Agreement, each of the
other shareholders listed as such on Schedule A to the Agreement, and Martin
Sperber as trustee under the Voting Trust Agreement dated September 30, 1994.
1. You have advised Bayer that the Company proposes to refinance (the
"Refinancing") a portion of its indebtedness substantially in accordance with
the attached Senior Subordinated Credit Facility Term Sheet.
2. You have also requested that the references in the attached letter dated
June 14, less between Bayer and the Company (the Letter) to "1996," and "1997,"
be changed to "1997" and "1998," respectively.
3. You have further requested that "stockholders equity" as determined
under the Agreement be deemed to include the amount of any charge by the Company
for acquired in process research and development expenses of the Company
resulting from the acquisition of Marsam Pharmaceuticals Inc. to the extent such
charge is less than $35,000,000.
On the terms and subject to the fulfillment of the conditions set forth
below, end for the purposes of Section 2.3 of the Agreement, Bayer hereby
consents to the Refinancing (including the Conversion Notes thereunder) so that
upon and after such Refinancing the ratio of the sum of all Funded Debt plus the
redemption price of all Redeemable Preferred Stock of the Company and its
consolidated subsidiaries to the Company's consolidated stockholders' equity
(excluding any Redeemable Preferred Stock), determined An accordance with GAAP
(subject to the adjustment described in paragraph 3, above) (the "Ratio"),
<PAGE>
FIRST AMENDMENT dated as of February 26,
1996 (this "Amendment"), to the CREDIT AGREEMENT
dated as of September 1, 1995, among SCHEIN
PHARMACEUTICAL, INC., a Delaware corporation (the
"Borrower"); the LENDERS (as defined in Article I
of the Credit Agreement); and CHEMICAL BANK, a New
York banking corporation as issuing bank (in such
capacity, the "Issuing Bank"), as administrative
agent (in such capacity, the "Administrative
Agent") and as collateral agent (in such capacity,
the "Collateral Agent") for the Lenders.
The Borrower has requested that the Credit Agreement be amended as
hereinafter set forth and the Lenders have agreed to such amendment, upon the
terms and subject to the conditions set forth herein. Accordingly, the Borrower
and the Lenders hereby agree as follows:
ARTICLE I
Defined Terms
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement.
ARTICLE II
Amendments to the Credit Agreement
The Credit Agreement is amended, effective as of the date hereof, as set
forth below:
SECTION 2.01. Amendment to Section 1.01. The definition of "Net Income" is
hereby amended by (1) deleting the period at the end of clause (d) and (ii)
adding at the end thereof the following:
"; provided that, solely for the purpose of determining Net Income for the
third fiscal quarter of 1995 (and for any fiscal period including the third
fiscal quarter of 1995), the amount of any charge by the Borrower for
acquired in process research and
<PAGE>
development expenses of the Company for the Marsam acquisition, to the
extent such charge is less than $35,000,000, and tax adjustments related
thereto shall be excluded."
SECTION 2.02. Amendment to Section 1.01. The definition of "Net Worth" is
hereby amended by (i) deleting the period at the end thereof and (ii) adding at
the end thereof the following:
"plus the amount of any charge by the Borrower for acquired in process
research and development expenses of the Company for the Marsam acquisition
to the extent such charge is less than $35,000,000."
ARTICLE III
Representations and Warranties
The Borrower hereby represents and warrants to each Lender that;
(a) The representations and warranties set forth in Article III of the
Credit Agreement are true and correct in all material respects as of the
date hereof with the same effect as made on and as of such date, except to
the extent such representations and warranties expressly relate to an
earlier date.
(b) After giving effect to Article II hereof, no Default or Event of
Default has occurred and is continuing.
(c) The charge by the Borrower for acquired in process research and
development expenses of the Company for the Marsam acquisition is not
expected to exceed $35,000,000.
<PAGE>
ARTICLE IV
Effectiveness
This Amendment shall become effective as of September 1, 1995, upon
satisfaction of each of the following conditions precedent.
(a) The Administrative Agent shall have received duly executed
counterparts hereof which, when taken together, bear the authorized
signatures of the Borrower and the Required Lenders.
(b) The Administrative Agent shall have received a certificate of a
Financial Officer of the Borrower, dated the date hereof, confirming (i)
that the representations and warranties set forth in the Credit Agreement
are true and correct in all material respects as of the date hereof, with
the same effect as though made on and as of such date, except to the extent
that such representations and warranties expressly relate to an earlier
dare, (ii) that, after giving effect to Article II hereof, no Event of
Default or Default has occurred and is continuing and (iii) that the charge
by the Borrower of purchased research and development expenses of the
Company for the Marsam acquisition is not expected to exceed $35,000,000
ARTICLE V
Miscellaneous
SECTION 5.01. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
SECTION 5.02. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original but all of which, when taken
together, shall constitute but one instrument. Delivery of an executed
counterpart of a signature page of this Amendment by facsimile transmission
shall be as effective as delivery of a manually executed counterpart of this
Amendment.
SECTION 5.03. Headings. The headings of this Amendment are for reference
only and shall not limit or otherwise affect the meaning hereof.
<PAGE>
THE BANK OF NOVA SCOTIA,
by ______________________________
Name:
Title:
THE CHASE MANHATTAN BANK, N.A.,
by ______________________________
Name:
Title:
CITICORP USA, INC.,
by ______________________________
Name:
Title:
CREDIT LYONNAIS, NEW YORK BRANCH,
by ______________________________
Name:
Title:
CREDIT LYONNAIS, CAYMAN ISLAND BRANCH,
by ______________________________
Name:
Title:
<PAGE>
DEUTSCHE BANK, A.G., NEW YORK
AND/OR CAYMAN ISLAND BRANCHES,
by ______________________________
Name:
Title:
MELLON BANK, N.A.,
by ______________________________
Name:
Title:
NATWEST BANK, N.A.,
by ______________________________
Name:
Title:
THE BANK OF TOKYO TRUST COMPANY,
by ______________________________
Name:
Title:
BAYERISCHE HYPOTHEKEN-UND WECHSEL-
BANK AKTIENGESSELLSCHAFT, NEW YORK
BRANCH,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
<PAGE>
COMERICA BANK,
by ______________________________
Name:
Title:
COOPERATIEVE CENTRALE RAIFFEIFEN-
BOERENLEENBANK, B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
CREDIT SUISSE,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
SOCIETY NATIONAL BANK,
by ______________________________
Name:
Title:
<PAGE>
MIDLANTIC BANK, N. A .,
by ______________________________
Name:
Title:
SOCIETE GENERALE, NEW YORK BRANCH,
by ______________________________
Name:
Title:
WESTDEUTSCHE LANDESBANK
GIROZENTRALE,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
ABN AMRO BANK N.V., NEW YORK
BRANCH,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
<PAGE>
BANK OF MONTREAL,
by ______________________________
Name:
Title:
THE BANK OF NEW YORK,
by ______________________________
Name:
Title:
COMMERZBANK AKTIENGESELLSHATT, NEW
YORK BRANCH
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK, CAYMAN ISLAND
BRANCH,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
<PAGE>
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA,
by ______________________________
Name:
Title:
THE NIPPON CREDIT BANK, LTD.,
by ______________________________
Name:
Title:
UNITED JERSEY BANK,
by ______________________________
Name:
Title:
THE YASUDA TRUST AND BANKING CO.,
LIMITED, NEW YORK BRANCH,
by ______________________________
Name:
Title:
<PAGE>
[LETTERHEAD OF CRAVATH, SWAINE & MOORE
(212) 474-1942
MEMORANDUM
Schein Pharmaceuticals
October 3, 1996
I enclose execution and conformed copies of the Schein Pharmaceutical
Second Amendment and Waiver. If you have any questions, please call.
Best regards,
Srinivasan Soundararajan
Ms. Dawn Lee Lum
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017
Mr. James A. Meer
Schein Pharmaceuticals
100 Campus Drive
Florham Park, NJ 07932
The Lenders party to
the Credit Agreement
Encl.
<PAGE>
SECOND AMENDMENT AND WAIVER dated as of
September 27, 1996 (this "Amendment"), to the
CREDIT AGREEMENT dated as of September 1, 1995,
among SCHEIN PHARMACEUTICAL, INC., a Delaware
corporation (the "Borrower"); the LENDERS (as
defined in Article I of the Credit Agreement); and
THE CHASE MANHATTAN BANK, a New York banking
corporation as issuing bank (in such capacity, the
"Issuing Bank"), as administrative agent (in such
capacity, the "Administrative Agent") and as
collateral agent (in such capacity, the
"Collateral Agent") for the Lenders.
The Borrower has requested that the Credit Agreement be amended and waived
as hereinafter set forth, and the Lenders have agreed to such amendments and
waivers, upon the terms and subject to the conditions set forth herein.
Accordingly, the Borrower and the Lenders hereby agree as follows:
ARTICLE I
Defined Terms
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement.
ARTICLE II
Amendments to the Credit Agreement
The Credit Agreement is amended, effective as of the date hereof, as set
forth below:
SECTION 2.01. Amendment to Section 1.01. The definition of "Applicable
Percentage" is hereby amended by (i) replacing the existing Category 5 with the
following new Category 5 and (ii) inserting the following two new categories,
Category 6 and Category 7, at the end of the table contained therein:
<PAGE>
2
<TABLE>
<S> <C> <C> <C>
Category 5
- ----------
Leverage Ratio greater than or equal to
4.5 to 1.0 but less than 5.0 to 1.0;
Interest Expense Coverage Ratio less
than or equal to 3.0 to 1.0 but greater
than 2.5 to 1.0 1.5000 0.5000 0.5000
Category 6
- ----------
Leverage Ratio greater than or equal to
5 to 1.0 but less than 5.5 to 1.0;
Interest Expense Coverage Ratio less
than or equal to 2.5 to 1.0 but greater
than 2.0 to 1.0 2.0000 1.0000 0.5000
Category 7
- ----------
Leverage Ratio greater than or equal to
5.5 to 1.0; or Interest Expense Coverage
Ratio less than or equal to 2.0 to 1.0 2.5000 1.5000 0.5000
</TABLE>
SECTION 2.02. Waivers. (a) The Lenders hereby waive any Event of Default
resulting from a failure to comply with the provisions of Sections 6.14 and 6.15
of the Credit Agreement for the period from and including the last day of the
third fiscal quarter of 1996 to but excluding the last day of fiscal 1996.
(b) The waivers provided for by paragraph (a) above shall terminate and
expire at 12:01 a.m., New York time, December 31, 1996, and at all times
thereafter the Credit Agreement shall apply in all respects, and the
Administrative Agent, the Collateral Agent and the Lenders shall have all such
rights and remedies, as if such waiver had never been granted.
SECTION 2.03. Maximum Utilization of Post-Merger Revolving Facility. The
Borrower hereby agrees that, from the date hereof until December 31, 1996, the
aggregate Post-Merger Revolving Credit Exposures will not exceed $75,000,000,
irrespective of the amount of the Post-Merger Revolving Credit Commitments
available during such period. The Borrower further agrees that any failure to
comply with this Section 2.03 shall constitute an Event of Default under the
Credit Agreement.
<PAGE>
3
ARTICLE III
Representations and Warranties
The Borrower hereby represents and warrants to each Lender that:
(a) After giving effect to this Amendment, the representations and
warranties set forth in Article III of the Credit Agreement are true and correct
in all material respects as of the date hereof with the same effect as made on
and as of such date, except to the extent such representations and warranties
expressly relate to an earlier date.
(b) After giving effect to Article II hereof, no Default or Event of
Default has occurred and is continuing.
ARTICLE IV
Effectiveness
This Amendment shall become effective as of the date hereof, upon
satisfaction of each of the following conditions precedent.
(a) The Administrative Agent shall have received duly executed counterparts
hereof which, when taken together, bear the authorized signatures of the
Borrower and the Required Lenders.
(b) The Administrative Agent shall have received a certificate of a
Financial Officer of the Borrower, dated the date hereof, confirming that after
giving effect to this Amendment (i) the representations and warranties set forth
in Article III of the Credit Agreement are true and correct in all material
respects on and as of the date hereof, with the same effect as though made on
and as of such date, except to the extent that such representations and
warranties expressly relate to an earlier date and (ii) no Event of Default or
Default has occurred and is continuing.
(c) Each of the Lenders executing this Amendment shall have received from
the Borrower, through the Administrative Agent, on the Effective Date, in
<PAGE>
4
immediately available funds, a fee equal to 0.10% of the sum of (x) its
Post-Merger Revolving Credit Commitment as in effect on the date hereof plus (y)
its portion of Term Facility Loans outstanding as of the date hereof.
ARTICLE V
Miscellaneous
SECTION 5.01. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
SECTION 5.02. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original but all of which, when taken
together, shall constitute but one instrument. Delivery of an executed
counterpart of a signature page of this Amendment by facsimile transmission
shall be as effective as delivery of a manually executed counterpart of this
Amendment.
SECTION 5.03. Headings. The headings of this Amendment are for reference
only and shall not limit or otherwise affect the meaning hereof.
SECTION 5.04. Effect of Amendment. Except as specifically amended hereby,
the Credit Agreement shall continue in full force and effect in accordance with
the provisions thereof. As used therein, the terms "Agreement", "herein",
"hereunder", "hereinafter", "hereto", "hereof", and words of similar import
shall, unless the context otherwise requires, refer to the Credit Agreement as
amended hereby.
SECTION 5.05. Effect of Waiver Generally. Except as expressly set forth
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of the
Lenders under the Credit Agreement or any Loan Document, and shall not alter,
modify, amend or in any way affect any of the terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement or any other Loan
Document, all of which are ratified and affirmed in all respects and shall
continue in full force and effect. Nothing herein shall be deemed to entitle the
Borrower to a consent to, or a waiver, amendment, modification or other
<PAGE>
5
change of, any of the terms, conditions, obligations, covenants or agreements
contained in the Credit Agreement or any other Loan Document in similar or
different circumstances. This Amendment shall apply and be effective only with
respect to the provisions of the Credit Agreement specifically referred to
herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
SCHEIN PHARMACEUTICAL, INC.,
by /s/ [ILLEGIBLE]
-------------------------------
Name:
Title: Vice President &
Treasurer
THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), individually
and as Administrative Agent,
Collateral Agent and Issuing Bank,
by /s/ Dawn Lee Lum
-------------------------------
Name: Dawn Lee Lum
Title: Vice President
<PAGE>
6
THE BANK OF NOVA SCOTIA,
by
-------------------------------
Name:
Title:
CITICORP USA, INC.,
by
-------------------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH,
by /s/ Mary E. Collier
-------------------------------
Name: Mary E. Collier
Title: VICE PRESIDENT
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH,
by /s/ Mary E. Collier
-------------------------------
Name: Mary E. Collier
Title: AUTHORIZED SIGNATURE
DEUTSCHE BANK, A.G., NEW YORK
AND/OR CAYMAN ISLAND BRANCHES,
by /s/ Iain Stewart
-------------------------------
Name: Iain Stewart
Title: Assistant Vice President
by /s/ Alka Goyal
-------------------------------
Name: Alka Goyal
Title: Assistant Vice President
<PAGE>
7
MELLON BANK, N.A.,
by /s/ Caroline R. Walsh
-------------------------------
Name: Caroline R. Walsh
Title: Assistant Vice President
FLEET BANK, N.A. (formerly
known as NatWest Bank, N.A. ),
by /s/ Pauline McHugh
-------------------------------
Name: Pauline McHugh
Title: Vice President
Bank of Tokyo-Mitsubishi Trust THE BANK OF TOKYO TRUST
Company, successor by merger to: COMPANY,
by /s/ Michael C. Irwin
-------------------------------
Name: Michael C. Irwin
Title: Vice President
BAYERISCHE HYPOTHEKEN-UND WECHSEL-
BANK AKTIENGESSELLSCHAFT, NEW YORK
BRANCH
by /s/ Gisela Kroess
-------------------------------
Name: Gisela Kroess
Title: VP
by /s/ David Rockwell
-------------------------------
Name: David Rockwell
Title: SVP
COMERICA BANK,
by [ILLEGIBLE]
-------------------------------
Name: [ILLEGIBLE]
Title: VICE PRESIDENT
<PAGE>
8
COOPERATIVE CENTRALE RAIFFEIFEN-
BOERENLEENBANK, B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
by /s/ Angel R. Reilly
-------------------------------
Name: Angel R. Reilly
Title: Vice President
by /s/ Ian Reece
-------------------------------
Name: Ian Reece
Title: Vice President &
Manager
CREDIT SUISSE,
by /s/ Christopher J. Eldin
-------------------------------
Name: CHRISTOPHER J. ELDIN
Title: MEMBER OF SENIOR
MANAGEMENT
by /s/ Thomas G. Muoio
-------------------------------
Name: THOMAS G. MUOIO
Title: ASSOCIATE
KeyBank National Association
by /s/ Marianne T. Meil
-------------------------------
Name: Marianne T. Meil
Title: Vice President
MIDLANTIC BANK, N.A.,
by /s/ Michael Nardo
-------------------------------
Name: Michael Nardo
Title: Vice President
<PAGE>
9
SOCIETE GENERALE, NEW YORK BRANCH,
by /s/ Michelle Martin
-------------------------------
Name: Michelle Martin
Title: Assistant Vice President
WESTDEUTSCHE LANDESBANK
GIROZENTRALE,
by /s/ [ILLEGIBLE]
-------------------------------
Name: [ILLEGIBLE]
Title: Vice President
by /s/ R. Cechura
-------------------------------
Name: R. CECHURA
Title: VP
ABN AMRO BANK N.V., NEW YORK
BRANCH
by /s/ George M. Dugan
-------------------------------
Name: George M. Dugan
Title: Vice President
by /s/ David W. Stack
-------------------------------
Name: David W. Stack
Title: Assistant Vice President
BANK OF MONTREAL
by /s/ Thomas H. Peer
-------------------------------
Name: Thomas H. Peer
Title: Director
<PAGE>
10
THE BANK OF NEW YORK,
by /s/ Walter C. Parelli
-------------------------------
Name: Walter C. Parelli
Title: Assistant Vice President
COMMERZBANK AKTIENGESELLSHAFT, NEW
YORK BRANCH,
by /s/ [ILLEGIBLE]
-------------------------------
Name:
Title:
by /s/ Jurgen Boysen
-------------------------------
Name: Jurgen Boysen
Title: Senior Vice President
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK, CAYMAN ISLAND
BRANCH,
by /s/ [ILLEGIBLE]
-------------------------------
Name: [ILLEGIBLE]
Title:
by /s/ Leo Von Reissig
-------------------------------
Name: LEO VON REISSIG
Title: Assistant Vice President
FIRST UNION NATIONAL BANK
by /s/ Robert H. Waters, Jr.
-------------------------------
Name: Robert H. Waters, Jr.
Title: Senior Vice President
<PAGE>
11
THE NIPPON CREDIT BANK, LTD.,
by /s/ Clifford Abramsky
-------------------------------
Name: Clifford Abramsky
Title: Senior Manager
SUMMIT BANK,
by /s/ Bruce A. Gray
-------------------------------
Name: BRUCE A. GRAY,
Title: VICE PRESIDENT
THE YASUDA TRUST AND BANKING CO.,
LIMITED, NEW YORK BRANCH,
by /s/ Patrick J. Owens
-------------------------------
Name: Patrick J. Owens
Title: First Vice President
<PAGE>
SCHEIN PHARMACEUTICAL, INC.
CERTIFICATE OF THE FINANCIAL OFFICER
To: The Chase Manhattan Bank (formerly known as Chemical Bank), as Issuing Bank,
Administrative Agent and Collateral Agent pursuant to the Credit Agreement
dated as of September 1, 1995 among Schein Pharmaceutical, Inc. (the
"Borrower"), Chase Manhattan Bank (in such capacities) and the Lenders party
thereto ("Credit Agreement").
1. This Certificate is furnished pursuant to the Second Amendment and
Waiver, dated as of September 27, 1996 to the Credit Agreement. Unless otherwise
defined herein, capitalized terms used in this Certificate shall have the
meanings set forth in the Credit Agreement.
2. On and as of the date hereof after giving effect to the Second
Amendment, the representations and warranties contained in the Credit Agreement
are true and correct in ail material respects with the same effect as though
such representations and warranties had been made on and as of the date hereof,
unless stated to relate to a specific earlier date, in which case such
representations and warranties were true and correct in all material respects as
of such earlier date.
3. On the date hereof after giving effect to Article III of the Second
Amendment, no Default or Event of Default has occurred and is continuing.
Dated: 9/27/96 By: /s/ James A. Meer
------------------------------
James A. Meer
Vice President & Treasurer
<PAGE>
CONFORMED COPY
SECOND AMENDMENT AND WAIVER dated as of
September 27, 1996 (this "Amendment"), to the
CREDIT AGREEMENT dated as of September 1, 1995,
among SCHEIN PHARMACEUTICAL, INC., a Delaware
corporation (the "Borrower"); the LENDERS (as
defined in Article I of the Credit Agreement); and
THE CHASE MANHATTAN BANK, a New York banking
corporation as issuing bank (in such capacity, the
"Issuing Bank"), as administrative agent (in such
capacity, the "Administrative Agent") and as
collateral agent (in such capacity, the
"Collateral Agent") for the Lenders.
The Borrower has requested that the Credit Agreement be amended and waived
as hereinafter set forth, and the Lenders have agreed to such amendments and
waivers, upon the terms and subject to the conditions set forth herein.
Accordingly, the Borrower and the Lenders hereby agree as follows:
ARTICLE I
Defined Terms
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement.
ARTICLE II
Amendments to the Credit Agreement
The Credit Agreement is amended, effective as of the date hereof, as set
forth below:
SECTION 2.01. Amendment to Section 1.01. The definition of "Applicable
Percentage" is hereby amended by (i) replacing the existing Category 5 with the
following new Category 5 and (ii) inserting the following two new categories,
Category 6 and Category 7, at the end of the table contained therein:
<PAGE>
2
<TABLE>
<S> <C> <C> <C>
Category 5
- ----------
Leverage Ratio greater than or equal
to 4.5 to 1.0 but less than 5.0 to
1.0; Interest Expense Coverage Ratio
less than or equal to 3.0 to 1.0 but
greater than 2.5 to 1.0 1.5000 0.5000 0.5000
Category 6
- ----------
Leverage Ratio greater than or equal
to 5 to 1.0 but less than 5.5 to 1.0;
Interest Expense Coverage Ratio less
than or equal to 2.5 to 1.0 but
greater than 2.0 to 1.0 2.0000 1.0000 0.5000
Category 7
- ----------
Leverage Ratio greater than or equal
to 5.5 to 1.0; or Interest Expense
Coverage Ratio less than or equal to
2.0 To 1.0 2.5000 1.5000 0.5000
</TABLE>
SECTION 2.02. Waivers. (a) The Lenders hereby waive any Event of Default
resulting from a failure to comply with the provisions of Sections 6.14 and 6.15
of the Credit Agreement for the period from and including the last day of the
third fiscal quarter of 1996 to but excluding the last day of fiscal 1996.
(b) The waivers provided for by paragraph (a) above shall terminate and
expire at 12:01 a.m., New York time, December 31, 1996, and at all times
thereafter the Credit Agreement shall apply in all respects, and the
Administrative Agent, the Collateral Agent and the Lenders shall have all such
rights and remedies, as if such waiver had never been granted.
SECTION 2.03. Maximum Utilization of Post-Merger Revolving Facility. The
Borrower hereby agrees that, from the date hereof until December 31, 1996, the
aggregate Post-Merger Revolving Credit Exposures will not exceed $75,000,000,
irrespective of the amount of the Post-Merger Revolving Credit Commitments
available during such period. The Borrower further agrees that any failure to
comply with this Section 2.03 shall constitute an Event of Default under the
Credit Agreement.
<PAGE>
3
ARTICLE III
Representations and Warranties
The Borrower hereby represents and warrants to each Lender that:
(a) After giving effect to this Amendment, the representations and
warranties set forth in Article III of the Credit Agreement are true and
correct in all material respects as of the date hereof with the same effect
as made on and as of such date, except to the extent such representations
and warranties expressly relate to an earlier date.
(b) After giving effect to Article II hereof, no Default or Event of
Default has occurred and is continuing.
ARTICLE IV
Effectiveness
This Amendment shall become effective as of the date hereof, upon
satisfaction of each of the following conditions precedent.
(a) The Administrative Agent shall have received duly executed
counterparts hereof which, when taken together, bear the authorized
signatures of the Borrower and the Required Lenders.
(b) The Administrative Agent shall have received a certificate of a
Financial Officer of the Borrower, dated the date hereof, confirming that
after giving effect to this Amendment (i) the representations and
warranties set forth in Article III of the Credit Agreement are true and
correct in all material respects on and as of the date hereof, with the
same effect as though made on and as of such date, except to the extent
that such representations and warranties expressly relate to an earlier
date and (ii) no Event of Default or Default has occurred and is
continuing.
(c) Each of the Lenders executing this Amendment shall have received
from the Borrower, through the Administrative Agent, on the Effective Date,
in
<PAGE>
4
immediately available funds, a fee equal to 0.10% of the sum of (x) its
Post-Merger Revolving Credit Commitment as in effect on the date hereof
plus (y) its portion of Term Facility Loans outstanding as of the date
hereof.
ARTICLE V
Miscellaneous
SECTION 5.01. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
SECTION 5.02. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original but all of which, when taken
together, shall constitute but one instrument. Delivery of an executed
counterpart of a signature page of this Amendment by facsimile transmission
shall be as effective as delivery of a manually executed counterpart of this
Amendment.
SECTION 5.03. Headings. The headings of this Amendment are for reference
only and shall not limit or otherwise affect the meaning hereof.
SECTION 5.04. Effect of Amendment. Except as specifically amended hereby,
the Credit Agreement shall continue in full force and effect in accordance with
the provisions thereof. As used therein, the terms "Agreement", "herein",
"hereunder", "hereinafter", "hereto", "hereof", and words of similar import
shall, unless the context otherwise requires, refer to the Credit Agreement as
amended hereby.
SECTION 5.05. Effect of Waiver Generally. Except as expressly set forth
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of the
Lenders under the Credit Agreement or any Loan Document, and shall not alter,
modify, amend or in any way affect any of the terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement or any other Loan
Document, all of which are ratified and affirmed in all respects and shall
continue in full force and effect. Nothing herein shall be deemed to entitle the
Borrower to a consent to, or a waiver, amendment, modification or other
<PAGE>
5
change of, any of the terms, conditions, obligations, covenants or
agreements contained in the Credit Agreement or any other Loan Document in
similar or different circumstances. This Amendment shall apply and be
effective only with respect to the provisions of the Credit Agreement
specifically referred to herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
SCHEIN PHARMACEUTICAL, INC.,
by
/s/ James A. Meer
-----------------------
Name: James A. Meer
Title: Vice President &
Treasurer
THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), individually
and as Administrative Agent,
Collateral Agent and Issuing Bank,
by
/s/ Dawn Lee Lum
-----------------------
Name: Dawn Lee Lum
Title: Vice President
<PAGE>
6
THE BANK OF NOVA SCOTIA,
by
/s/ Stephen Lockhart
-----------------------
Name: Stephen Lockhart
Title: Vice President
CITICORP USA, INC.,
by
/s/ Margaret Au Brown
-----------------------
Name: Margaret Au Brown
Title: Vice President
CREDIT LYONNAIS, NEW YORK BRANCH,
by
/s/ Mary E. Collier
-----------------------
Name: Mary E. Collier
Title: Vice President
CREDIT LYONNAIS, CAYMAN ISLAND
BRANCH,
by
/s/ Mary E. Collier
-----------------------
Name: Mary E. Collier
Title: Vice President
<PAGE>
7
DEUTSCHE BANK, A.G., NEW YORK
AND/OR CAYMAN ISLAND BRANCHES,
by
/s/ Iain Stewart
-------------------------------
Name: Iain Stewart
Title: Assistant Vice President
by
/s/ Alka Goyal
-------------------------------
Name: Alka Goyal
Title: Assistant Vice President
MELLON BANK, N.A.,
by
/s/ Caroline R. Walsh
-------------------------------
Name: Caroline R. Walsh
Title: Assistant Vice President
FLEET BANK, N.A. (formerly
known as NatWest Bank, N.A.),
by
/s/ Pauline McHugh
-------------------------------
Name: Pauline McHugh
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, successor by merger
to: THE BANK OF TOKYO TRUST
COMPANY,
by
/s/ Michael C. Irwin
-------------------------------
Name: Michael C. Irwin
Title: Vice President
<PAGE>
8
BAYERISCHE HYPOTHEKEN-UND WECHSEL-
BANK AKTIENGESSELLSCHAFT, NEW YORK
BRANCH,
by
/s/ Gisela Kroess
-------------------------------
Name: Gisela Kroess
Title: Vice President
by
/s/ David Rockwell
-------------------------------
Name: David Rockwell
Title: Senior Vice President
COMERICA BANK,
by
/s/ Chris Georvassilis
-------------------------------
Name: Chris Georvassilis
Title: Vice President
COOPERATIEVE CENTRALE RAIFFEIFEN-
BOERENLEENBANK, B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH,
by
/s/ Angela R. Reilly
-------------------------------
Name: Angela R. Reilly
Title: Vice President
by
/s/ Ian Reece
-------------------------------
Name: Ian Reece
Title: Vice President &
Manager
,
<PAGE>
9
CREDIT SUISSE,
by
/s/ Christopher J. Eldin
-------------------------------
Name: Christopher J. Eldin
Title: Member of Senior
Management
by
/s/ Thomas G. Muoio
-------------------------------
Name: Thomas G. Muoio
Title: Associate
KEYBANK NATIONAL ASSOCIATION,
by
/s/ Marianne T. Meil
-------------------------------
Name: Marianne T. Meil
Title: Vice President
PNC BANK, N.A.,
by
/s/ Michael Nardo
-------------------------------
Name: Michael Nardo
Title: Vice President
SOCIETE GENERALE, NEW YORK BRANCH,
by
/s/ Michelle Martin
-------------------------------
Name: Michelle Martin
Title: Assistant Vice
President
<PAGE>
10
WESTDEUTSCHE LANDESBANK
GIROZENTRALE,
by
/s/ Donald F. Wolf
-------------------------------
Name: Donald F. Wolf
Title: Vice President
by
/s/ R. Cechura
-------------------------------
Name: R. Cechura
Title: Vice President
ABN AMRO BANK N.V., NEW YORK
BRANCH,
by
/s/ George M. Dugan
-------------------------------
Name: George M. Dugan
Title: Vice President
by
/s/ David W. Stack
-------------------------------
Name: David W. Stack
Title: Assistant Vice
President
BANK OF MONTREAL,
by
/s/ Thomas H. Peer
-------------------------------
Name: Thomas H. Peer
Title: Director
THE BANK OF NEW YORK,
by
/s/ Walter C. Parelli
-------------------------------
Name: Walter C. Parelli
Title: Assistant Vice
President
<PAGE>
11
COMMERZBANK AKTIENGESELLSHAFT, NEW
YORK BRANCH,
by
/s/ Sean Harrigan
-------------------------------
Name: Sean Harrigan
Title: Senior Vice President
by
/s/ Jurgen Boysen
-------------------------------
Name: Jurgen Boysen
Title: Senior Vice President
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK, CAYMAN ISLAND
BRANCH,
by
/s/ Karen A. Brinkman
-------------------------------
Name: Karen A. Brinkman
Title: Vice President
by
/s/ Leo von Reissig
-------------------------------
Name: Leo von Reissig
Title: Assistant Vice
President
FIRST UNION NATIONAL BANK,
by
/s/ Robert H. Waters, Jr.
-------------------------------
Name: Robert H. Waters, Jr.
Title: Senior Vice President
THE NIPPON CREDIT BANK, LTD.,
by
/s/ Clifford Abramsky
-------------------------------
Name: Clifford Abramsky
Title: Senior Manager
<PAGE>
12
SUMMIT BANK,
by
/s/ Bruce A. Gray
-------------------------------
Name: Bruce A. Gray
Title: Vice President
THE YASUDA TRUST AND BANKING CO.,
LIMITED, NEW YORK BRANCH,
by
/s/ Patrick J. Owens
-------------------------------
Name: Patrick J. Owens
Title: First Vice President
<PAGE>
SCHEIN PHARMACEUTICAL, INC.
CERTIFICATE OF THE FINANCIAL OFFICER
To: The Chase Manhattan Bank (formerly known as Chemical Bank), as Issuing Bank,
Administrative Agent and Collateral Agent pursuant to the Credit Agreement dated
as of September 1, 1995 among Schein Pharmaceutical, Inc. (the "Borrower"),
Chase Manhattan Bank (in such capacities) and the Lenders party thereto ("Credit
Agreement").
1. This Certificate is furnished pursuant to the Second Amendment and
Waiver, dated as of September 27, 1996 to the Credit Agreement. Unless otherwise
defined herein, capitalized terms used in this Certificate shall have the
meanings set forth in the Credit Agreement.
2. On and as of the date hereof after giving effect to the Second
Amendment, the representations and warranties contained in the Credit Agreement
are true and correct in all material respects with the same effect as though
such representations and warranties had been made on and as of the date hereof,
unless stated to relate to a specific earlier date, in which case such
representations and warranties were true and correct in all material respects as
of such earlier date.
3. On the date hereof after giving effect to Article III of the Second
Amendment, no Default or Event of Default has occurred and is continuing.
Dated: 9/27/96 By: /s/ James A. Meer
--------------------------
James A. Meer
Vice President & Treasurer
<PAGE>
[LOGO] SCHEIN
PHARMACEUTICAL
MEMORANDUM
TO: P. Feuerman
FROM: Jim Meer
DATE: January 24, 1997
SUBJECT: Third Amendment to Chase Agreement
- --------------------------------------------------------------------------------
Attached is an execution copy of the Third Amendment to the Chase $350 Million
Credit Agreement along with the exhibits for your permanent flies.
A conformed copy of the amendment only is forwarded to the list below.
cc:
D. Ashrafi
D. Barron
B. Gilesa
C. O'Neill
W. Stearns (2) - BDO
Att
<PAGE>
CONFORMED COPY
THIRD AMENDMENT dated as of December 20,
1996 (this "'Amendment")' to the CREDIT AGREEMENT
dated as of September 1, 1995, among SCHEIN
PHARMACEUTICAL, INC., a Delaware corporation (the
"Borrower"); the LENDERS (as defined in Article I
of the Credit Agreement); and THE CHASE MANHATTAN
BANK, a New York banking corporation as issuing
bank (in such capacity, the "Issuing Bank"), as
administrative agent (in such capacity, the
"Administrative Agent") and as collateral agent
(in such capacity, the "Collateral Agent") for the
Lenders.
The Borrower has requested that the Credit Agreement be amended as
hereinafter set forth, and the Lenders have agreed to such amendment, upon the
terms and subject to the conditions set forth herein. Accordingly, the Borrower
and the Lenders hereby agree as follows:
ARTICLE I
Defined Terms
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement, as amended hereby (the
"Amended Credit Aqreement").
ARTICLE II
Amendments to and Waivers under the Credit Agreement
The Credit Agreement is amended, effective as of the date hereof (but
subject to the conditions set forth in Article IV hereof), as set forth below:
SECTION 2.01. Amendments to Article I. (a) The following definitions are
added to Section 1.01 of the Credit Agreement in the proper alphabetical order:
" 'Acceptable Refinancing' shall mean a series of transactions in
which the Borrower (a) completes an issuance and sale of its capital stock
(or rights, warrants or options to acquire its capital stock) or of
Subordinated Debt (which Subordinated Debt, unless it (x) is described in
the second sentence of the definition of "Subordinated Debt" or (y) is on
terms (including, without limitation, maturity, interest rates,
subordination provisions, prepayment, redemption, defeasance or similar
provisions, covenants and events of default) at least as favorable in all
respects to the Borrower or the Lenders as the terms of the Indebtedness
issued (or that would have been issued) under the Conversion Note
Indenture, is on terms approved in writing by the Required Lenders), or any
combination thereof, in either case yielding net cash proceeds to the
Borrower of at least $96,000,000, and (b) applies such net cash proceeds to
prepay Term Loans in the manner contemplated by Sections 2.11 and 2.13."
<PAGE>
2
" 'Conversion Note Indenture' shall mean the "Conversion Note
Indenture" referred to in the Senior Subordinated Loan Agreement, in the
form attached as Annex I-B to the Third Amendment."
" 'Refinancing Debt' shall have the meaning assigned to such term in
Section 6.0l(g)."
" 'Senior Subordinated Loan Aareement' shall mean the $100,000,000
Senior Subordinated Loan Agreement dated as of December [ ], 1996, among
the Borrower, certain lenders and Societe Generale, as administrative
agent, in the form attached as Annex I-A to the Third Amendment."
" 'Third Amendment' shall mean the Third Amendment dated as of
December 20, 1996, to this Agreement.'
(b) The definition of "Subordinated Debts" is amended to read as follows:
" 'Subordinated Debt' means unsecured Indebtedness of the Borrower
that (a) does not have any scheduled payments of principal prior to the
180th day following the Post-Merger Facilities Maturity Date, (b) the
principal of which is subordinated to the prior payment in full in cash of
all the Obligations in a manner reasonably satisfactory to the
Administrative Agent and (c) otherwise has terms and conditions reasonably
satisfactory to the Administrative Agent. Notwithstanding any other
provision of this Agreement, Subordinated Debt shall include (i)
Indebtedness incurred under and on the terms set forth in the Senior
Subordinated Loan Agreement or the Conversion Note Indenture, and (ii)
Refinancing Debt; provided that the terms of such Refinancing Debt
(including, without limitation, maturity, interest rates, subordination
provisions, prepayment, redemption, defeasance or similar provisions,
covenants and events of default) shall be in all material respects at least
as favorable to the Borrower and the Lenders as the terms of the
Indebtedness being refinanced (or, if the Indebtedness being refinanced we,
incurred under the Senior Subordinated Loan Agreement or the Conversion
Note Indenture, at least as favorable to the Borrower and the Lenders as
the terms of the Indebtedness issued (or that would have been issued) under
the Conversion Note Indenture) or, in the case of interest rates, shall be
consistent with rates of interest at the time prevailing in the market for
comparable obligations."
SECTION 2.02. Amendments to Article II. (a) Section 2.11(b) of the Credit
Agreement is amended by (i) inserting the phrase "(other than Section 2.13(f))"
between "2.13" and "shall" and (ii) inserting the following at the end of the
second sentence following the word "prepayment":
", and each prepayment of principal of Term Facility Borrowings pursuant to
Section 2.13(f) shall be applied (A) first, to reduce in full the amounts
due on or prior to June 30, 1998, in order of maturity and (B) second, to
reduce pro rata the scheduled payments of principal due under this Section
2.11 after June 30, 1998".
<PAGE>
3
(b) Section 2.13 of the Credit Agreement is amended by inserting the
following new subsection (f):
"(f) Notwithstanding anything in paragraph (a), (b) or (c) above, (i)
the Borrower shall apply 100% of the Net Proceeds of any Acceptable
Refinancing promptly upon receipt to prepay outstanding Term Loans in
accordance with Section 2.11(b), and (ii) the Borrower may apply the Net
Proceeds of any Refinancing Debt incurred in compliance with Section
6.01(g) or of any issuance and sale of its capital stock (or rights,
warrants or options to acquire its capital stock) to repay any Indebtedness
incurred as part of an Acceptable Refinancing or any other Refinancing
Debt."
SECTION 2.03. Amendments to Article VI. (a) Clause (g) of Section 6.01 is
amended to read as follows:
"(g) Subordinated Debt issued after the Merger Date (including any
Indebtedness incurred as part of an Acceptable Refinancing, and any
Subordinated Debt the proceeds of which are used to refinance any such
indebtedness or any other Subordinated Debt the proceeds of which have been
so used ("Refinancing Debt"); provided that the terms of such Refinancing
Debt (including, without limitation, maturity, interest rates,
subordination provisions, prepayment, redemption, defeasance or similar
provisions, covenants and events of default) shall be in all material
respects at least as favorable to the Borrower and the Lenders as the terms
of the Indebtedness being refinanced (or, if the Indebtedness being
refinanced was incurred under the Senior Subordinated Loan Agreement or the
Conversion Note Indenture, at least as favorable to the Borrower and the
Lenders as the terms of the Indebtedness issued (or that would have been
issued) under the Conversion Note Indenture) or, in the case of interest
rates, shall be consistent with rates of interest at the time prevailing in
the market for comparable obligations.
(b) Section 6.12 is amended by deleting the text after the word
"Indebtedness" and inserting in place thereof:
"except that the Borrower and the Subsidiaries may (i) make payments in
respect of the Obligations, (ii) make payments in the form of common stock
of the Borrower and (iii) refinance Indebtedness incurred as part of an
Acceptable Refinancing or Refinancing Debt with the proceeds of any
issuance and sale of capital stock (or rights, warrants or options to
acquire capital stock) of the Borrower or of any Refinancing Debt permitted
under Section 6.01(g)."
(c) Section 6.14 of the Credit Agreement is amended by deleting the table
set forth therein and inserting in its place the following:
"From and including the last day of
fiscal 1996 to but excluding the
last day of the second fiscal
quarter of 1997 6.50 to 1.00
<PAGE>
4
From and including the last day of
the second fiscal quarter of 1997 to
but excluding the last day of the
third fiscal quarter of 1997 6.00 to 1.00
From and including the last day of
the third fiscal quarter of 1997 to
but excluding the last day of fiscal
1997 5.75 to 1.00
From and including the last day of
fiscal 1997 to but excluding the
last day of the second fiscal
quarter of 1998 5.25 to 1.00
From and including the last day of
the second fiscal quarter of 1998 to
but excluding the last day of the
third fiscal quarter of 1998 5.00 to 1.00
From and including the last day of
the third fiscal quarter of 1998 to
but excluding the last day of the
second fiscal quarter of 1999 4.50 to 1.00
From and including the last day of
the second fiscal quarter of 1999 to
but excluding the last day of fiscal
1999 4.00 to 1.00
Thereafter 3.50 to 1.00"
(d) Section 6.15 of the Credit Agreement is amended by deleting the table
set forth therein and inserting in its place the following:
"From and including the last day of
fiscal 1996 to but excluding the
last day of the second fiscal
quarter of 1997 6.50 to 1.00
<PAGE>
5
From and including the last day of
the second fiscal quarter of 1997 to
but excluding the last day of the
third fiscal quarter of 1997 4.50 to 1.00
From and including the last day of
the third fiscal quarter of 1997 to
but excluding the last day of the
second fiscal quarter of 1998 4.00 to 1.00
From and including the last day of
the second fiscal quarter of 1998 to
but excluding the last day of fiscal
1998 3.50 to 1.00
Thereafter 3.00 to 1.00
provided that if the Borrower completes an Acceptable Refinancing not later
than June 30, 1997, the ratio of Senior Debt to EBITDA for the period from
and including the day of the completion of such Acceptable Refinancing to
but excluding the last day of the second fiscal quarter of 1997 shall be
4.75 to 1.00"
(e) Section 6.16 of the Credit Agreement is amended by deleting the table
set forth therein and inserting in its place the following:
"From and including the last day of
fiscal 1996 to but excluding the
last day of the third fiscal charter
of 1998 $155,000,000
From and including the last day of
the third fiscal quarter of 1998 to
but excluding the last day of fiscal
1998 $160,000,000
From and including the last day of
fiscal 1998 to but excluding the
last day of fiscal 1999 $170,000,000
Thereafter $190,000,000"
<PAGE>
6
(f) Section 6.18 of the Credit Agreement is deleted and replaced with the
following new Section 6.18:
"SECTION 6.18. Fixed Charge Coverage Ratio. Permit the Fixed Charge
Coverage Ratio as of any date during any period specified below to be less
than the amount set forth below opposite such period; provided that for
purposes of computing the Fixed Charge Coverage Ratio, the scheduled
principal repayments in respect of the Term Facility Loans due on September
30, 1996, and December 31, 1996, shall be excluded:
From and including the last day of
fiscal 1996 to but excluding the
last day of fiscal 1997 1.00 to 1.00
From and including the last day of
fiscal 1997 to but excluding the
last day of fiscal 1999 1.10 to 1.00
From and including the last day of
fiscal 1999 to but excluding the
last day of fiscal 2000 1.25 to 1.00
Thereafter 1.50 to 1.00"
(g) The following new Section 6.19 is inserted at the end of Article VI:
"SECTION 6.19. Amendment of Certain Indebtedness. Amend or modify any
provision of any instrument or agreement evidencing or governing (a) any
Indebtedness incurred as part of an Acceptable Refinancing, (b) any
Refinancing Debt or (c) any other Subordinated Debt, in each case in a
manner adverse in any respect to the Borrower or to the Lenders, without
the consent of the Required Lenders."
SECTION 2.05. FoxMeyer Receivables. The provisions of Sections 5.11 and
6.02 of the Credit Agreement and the provisions of the Security Agreement are
waived to the extent (and only to the extent) necessary to permit the Borrower
to assign the pre-bankruptcy receivables of FoxMeyer Corporation and its
affiliates ("FoxMeyer") to National Union Fire Insurance Company ("National
Union"), as required under the terms of a credit insurance policy issued by
National Union in favor of the Borrower in order to perfect a claim of the
Borrower under such policy (estimated by the Borrower to be in the range of
$3,300,000 to $3,600,000) resulting from the bankruptcy of FoxMeyer. In
connection with such assignment, the Collateral Agent is authorized and directed
to execute, deliver and file all such instruments and other documents as it may
deem necessary to effect or evidence the release of such receivables from the
Lien of the Security Agreement.
<PAGE>
7
ARTICLE III
Representations and Warranties
The Borrower represents and warrants to each Lender that:
(a) After giving effect to this Amendment, the representations and
warranties set forth in Article III of the Credit Agreement are true and
correct in all material respects as of the date hereof with the same effect
as if made on and as of such date, except to the extent such
representations and warranties expressly relate to an earlier date.
(b) After giving effect to this Amendment, no Default or Event of
Default has occurred and is continuing.
ARTICLE IV
Effectiveness
This Amendment shall become effective as of the date hereof but only upon
satisfaction of each of the following conditions precedent.
(a) The Administrative Agent shall have received duly executed
counterparts hereof which, when taken together, bear the authorized
signatures of the Borrower and the Required Lenders.
(b) The Administrative Agent shall have received a certificate of a
Financial Officer of the Borrower, dated the date hereof, confirming that
after giving effect to this Amendment (i) the representations and
warranties set forth in Article III of the Credit Agreement are true and
correct in all material respects on and as of the date hereof, with the
same effect as though made on and as of such date, except to the extent
that such representations and warranties expressly relate to an earlier
date and (ii) no Event of Default or Default has occurred and is
continuing.
(c) Each of the Lenders executing this Amendment shall have received
from the Borrower, through the Administrative Agent, on the date hereof, in
immediately available funds, a fee equal to 0.10% of the sum of (x) its
Post-Merger Revolving Credit Commitment as in effect on the date hereof
plus (y) its portion of Term Facility Loans outstanding as of the date
hereof.
ARTICLE V
Miscellaneous
SECTION 5.01. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
<PAGE>
8
SECTION 5.02. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original but all of which, when taken
together, shall constitute but one instrument. Delivery of an executed
counterpart of a signature page of this Amendment by facsimile transmission
shall be as effective as delivery of a manually executed counterpart of this
Amendment.
SECTION 5.03. Headings. The headings of this Amendment are for reference
only and shall not limit or otherwise affect the meaning hereof.
SECTION 5.04. Effect of Amendment. Except as specifically amended hereby,
the Credit Agreement shall continue in full force and effect in accordance with
the provisions thereof. As used therein, the terms "Agreement", "herein",
"hereunder", "hereinafter", "hereto",
<PAGE>
9
"hereof", and words of similar import shall, unless the context otherwise
requires, refer to the Credit Agreement as amended hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
SCHEIN PHARMACEUTICAL. INC.,
by
/s/ James A. Meer
------------------------------
Name: James A. Meer
Title: Vice President and
Treasurer
THE CHASE MANHATTAN BANK (formerly known
as Chemical Bank), individually and as
Administrative Agent, Collateral Agent
and Issuing Bank,
by
/s/ Dawn Lee Lum
-------------------------------
Name: Dawn Lee Lum
Title: Vice President
<PAGE>
10
THE BANK OF NOVA SCOTIA,
by
/s/ Brian Allen
-------------------------------
Name: Brian Allen
Title: Senior Relationship
Manager
CITICORP USA, INC.,
by
/s/ Thomas D. Stott
-------------------------------
Name: Thomas D. Stott
Title: Vice President
CREDIT LYONNAIS, NEW YORK BRANCH,
by
/s/ Robert Ivosevich
-------------------------------
Name: Robert Ivosevich
Title: Senior Vice President
CREDIT LYONNAIS, CAYMAN ISLAND BRANCH,
by
/s/ Robert Ivosevich
-------------------------------
Name: Robert Ivosevich
Title: Authorized Signature
DEUTSCHE BANK, A.G., NEW YORK AND/OR
CAYMAN ISLAND BRANCHES,
by
/s/ Alka Jainigoyal
-------------------------------
Name: Alka Jainigoyal
Title: Assistant Vice President
by
/s/ Iain Stewart
-------------------------------
Name: Iain Stewart
Title: Assistant Vice
President
MELLON BANK, N.A.,
by
/s/ Caroline R. Walsh
-------------------------------
Name: Caroline R. Walsh
Title: Assistant Vice
President
<PAGE>
11
FLEET BANK, N.A. (formerly known as
NatWest Bank, N.A.), by
by
-------------------------------
Name:
Title:
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, successor by merger to:
THE BANK OF TOKYO TRUST COMPANY,
by
/s/ George Stewart
-------------------------------
Name: George Stewart
Title: Senior Vice President
BAYERISCHE HYPOTHEKEN-UND WECHSEL-BANK
ARTIENGESSELLSCHAFT, NEW YORK BRANCH,
by
/s/ David A. Rockwell
-------------------------------
Name: David A. Rockwell
Title: Senior Vice President
by
/s/ Yoram Dankner
-------------------------------
Name: Yoram Dankner
Title: Senior Vice President
COMERICA BANK,
by
/s/ Chris Georvassilis
-------------------------------
Name: Chris Georvassilis
Title: Vice President
COOPERATIEVE CENTRALE RAIFFEIFEN-
BOERENLEENBANK, B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH,
by
/s/ Dana W. Hemenwav
-------------------------------
Name: Dana W. Hemenway
Title: Vice President
by
/s/ W. Jeffrey Vollack
-------------------------------
Name: W. Jeffrey Vollack
Title: Vice President, Manager
<PAGE>
12
CREDIT SUISSE,
by
/s/ Christopher J. Eldin
-------------------------------
Name: Christopher J. Eldin
Title: Member of Senior
Management
by
/s/ Thomas G. Muoio
-------------------------------
Name: Thomas G. Muolo
Title: Associate
KEYBANK NATIONAL ASSOCIATION,
by
/s/ Frank J. Jancar
-------------------------------
Name: Frank J. Jancar
Title: Vice President
PNC BANK, N.A.,
by
/s/ Michael Nardo
-------------------------------
Name: Michael Nardo
Title: Vice President
SOCIETE GENERALE, NEW YORK BRANCH,
by
/s/ Michelle Martin
-------------------------------
Name: Michelle Martin
Title: Assistant Vice President
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
by
/s/ Cynthia M. Niesen
-------------------------------
Name: Cynthia M. Niesen
Title: Managing Director
by
/s/ R. Cechura
-------------------------------
Name: R. Cechura
Title: Vice President
<PAGE>
13
ABN AMRO BANX N.V., NEW YORK BRANCH,
by
-------------------------------
Name:
Title:
by
-------------------------------
Name:
Title:
BANK OF MONTREAL,
by
/s/ Thomas H. Peer
-------------------------------
Name: Thomas H. Peer
Title: Director
THE BANK OF NEW YORK,
by
/s/ Walter S. Parelli
-------------------------------
Name: Walter S. Parelli
Title: Assistant Vice President
COMMERZBANK AKTIENGESELLSHAFT, NEW YORK
BRANCH,
by
-------------------------------
Name:
Title:
by
-------------------------------
Name:
Title:
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK,
CAYMAN ISLAND BRANCH,
by
/s/ Norah McCann
-------------------------------
Name: Norah McCann
Title: Senior Vice President
by
/s/ Karen A. Brinkman
-------------------------------
Name: Karen A. Brinkman
Title: Vice President
<PAGE>
14
FIRST UNION NATIONAL BANK,
by
/s/ Lance M. Zaremba
-------------------------------
Name: Lance M. Zaremba
Title: Assistant Cashier
THE NIPPON CREDIT BANK, LTD.,
by
/s/ Clifford Abramsky
-------------------------------
Name: Clifford Abramsky
Title: Senior Manager
SUMMIT BANK,
by
/s/ Lawrence F. Zema
-------------------------------
Name: Lawrence F. Zema
Title: Vice President and
Regional Manager
THE YASUDA TRUST AND BANKING CO.,
LIMITED, NEW YORK BRANCH,
by
/s/ Rohn Laudenschlager
-------------------------------
Name: Rohn Laudenschlager
Title: Senior Vice President
<PAGE>
EXECUTION COPY
EXHIBIT 4.2
FOURTH AMENDMENT dated as of November 25, 1997
(this "Amendment"), to the CREDIT AGREEMENT dated as of
September 1, 1995, among SCHEIN PHARMACEUTICAL, INC., a Delaware
corporation (the "Borrower"); the LENDERS (as defined in Article
I of the Credit Agreement); and THE CHASE MANHATTAN BANK, a New
York banking corporation as issuing bank (in such capacity, the
"Issuing Bank"), as administrative agent (in such capacity, the
"Administrative Agent") and as collateral agent (in such
capacity, the "Collateral Agent") for the Lenders.
The Borrower has requested that the Credit Agreement be amended
as hereinafter set forth to permit the Borrower to amend certain terms of the
form of Conversion Note Indenture attached as Annex l-B to the Third Amendment
to reflect the issuance of the Senior Floating Rate Notes on the Conversion Date
(as such term is defined in the Senior Floating Rate Note Documents). The
Lenders have agreed to amend the Credit Agreement as set forth herein, upon the
terms and subject to the conditions set forth below. Accordingly, the Borrower
and the Lenders hereby agree as follows:
ARTICLE I
Defined Terms
-------------
Capitalized terms used and not otherwise defined herein shall
have the meanings assigned to them in the Credit Agreement. As used herein, the
following terms shall have the meanings assigned to them below (and to the
extent such terms are used in the Credit Agreement after giving effect to this
Amendment and Waiver, the following definitions are hereby added in their proper
alphabetical order to Section 1.01 of the Credit Agreement):
"Senior Subordinated Loan Agreement" shall mean the Senior
----------------------------------
Subordinated Loan Agreement dated as of December 20, 1996, between the Borrower
and Societe Generale, as Lender and administrative agent.
"Senior Floating Rate Note Documents" means the agreements
-----------------------------------
and instruments governing or evidencing the Senior Floating Rate Notes.
"Senior Floating Rate Notes" means Indebtedness of the Borrower
--------------------------
in the amounts and on the terms set forth in Exhibit A hereto and the related
Guarantees of the Subsidiaries referred to in such Exhibit A and shall
include, without limitation, any Indebtedness of the Borrower the terms of
which (including, without limitation, principal amount, maturity, interest
rates, subordination provisions, prepayment or similar provisions, covenants and
events of default) are in all material respects at least as favorable to the
Borrower and the Lenders as the terms set forth in Exhibit A.
ARTICLE II
Amendments to the Credit Agreement
----------------------------------
The Credit Agreement is amended, effective upon the satisfaction
of the conditions set forth in Article IV, as set forth below:
<PAGE>
63
SECTION 2.01. Amendment of Section 1.01. The definition of "Loan
-------------------------
Documents" in Section 1.01 of the Credit Agreement is amended by the insertion
immediately prior to the period at the end of such definition of the words ",as
amended and in effect from time to time".
SECTION 2.02. Amendment of Section 6.01. Section 6.01 of the
-------------------------
Credit Agreement is amended by the deletion of the word "and" following clause
(l) thereof, the insertion of a semicolon and the word "and" after clause (m)
thereof and the insertion of the following new clause (n):
"(n) the Senior Floating Rate Notes".
SECTION 2.03. Amendment of Section 6.10. Section 6.10 of the
-------------------------
Credit Agreement is amended by the insertion of the following new paragraph (d):
"(d) Amend or modify the Senior Floating Rate Note Documents in
any respect adverse to the Borrower or any of its Subsidiaries or to the rights
or interests of the Lenders without the prior written consent of the Required
Lenders".
SECTION 2.04. Amendment of Section 6.12. Section 6.12 of the
-------------------------
Credit Agreement is amended by the insertion immediately prior to the period at
the end of such Section of the words ", and except that (iv) the outstanding
Subordinated Debt issued under the Senior Subordinated Loan Agreement may be
exchanged for the Senior Floating Rate Notes on the Conversion Date (as such
term is defined in the Senior Floating Rate Note Documents) and (v) Indebtedness
outstanding under the Senior Floating Rate Notes may be repaid with the proceeds
of (a) an Equity Issuance or (b) net proceeds of any Subordinated Debt incurred
on terms and conditions acceptable to the Lenders and used to refinance the
Senior Floating Rate Notes.
SECTION 2.05. Amendment of Section 6.15. Section 6.15 of the
-------------------------
Credit Agreement is amended as follows:
From and including the last day of
the second fiscal quarter of 1997 to
but excluding the last day of fiscal
1997 4.50 to 1.00
From and including the last day of
fiscal 1997 to but excluding the last
day of the second fiscal quarter of
1998 4.75 to 1.00
From and including the last day of
the second fiscal quarter of 1998 to
but excluding the last day of fiscal
1998 4.50 to 1.00
From and including the last day of
fiscal 1998 to but excluding the last
day of the second fiscal quarter of
1999 3.75 to 1.00
From and including the last day of
the second fiscal quarter of 1999 to
but excluding the last day of fiscal
1999 3.50 to 1.00
<PAGE>
64
From and including the last day of 2.75 to 1.00
fiscal 1999 to but excluding the last
day of the second fiscal quarter of
2000
Thereafter 2.50 to 1.00
ARTICLE III
Representations and Warranties
------------------------------
The Borrower hereby represents and warrants to each Lender that:
(a) After giving effect to this Amendment, the
representations and warranties set forth in Article III of the Credit
Agreement are true and correct in all material respects as of the date
hereof with the same effect as made on and as of such date, except to the
extent such representations and warranties expressly relate to an earlier
date.
(b) After giving effect to Article II hereof, no Default or
Event of Default has occurred and is continuing.
ARTICLE IV
Effectiveness
-------------
This Amendment shall become effective on and as of any date
on or prior to December 12, 1997, on which each of the following conditions
precedent shall have been satisfied.
(a) The Administrative Agent shall have received duly
executed counterparts hereof which, when taken together, bear the authorized
signatures of the Borrower and Lenders.
(b) The Administrative Agent shall have received a
certificate of a Financial officer of the Borrower, dated the date hereof,
confirming that after giving effect to this Amendment (i) the representations
and warranties set forth in Article III of the Credit Agreement are true and
correct in all material respects on and as of the date hereof, with the same
effect as though made on and as of such date, except to the extent that such
representations and warranties expressly relate to an earlier date and (ii) no
Event of Default or Default has occurred and is continuing.
(c) The Senior Floating Rate Notes Documents shall have been
executed and delivered by the Borrower and the other parties thereto, shall be
consistent in all respects with the summaries of terms set forth in Exhibit A
hereto and shall be satisfactory in form and substance to the Administrative
Agent.
(d) Each of the Lenders executing this Amendment shall have
received from the Borrower, through the Administrative Agent, on or before the
date hereof, in immediately available funds, a fee equal to 0.15% of the sum of
(x) its Post-Merger Revolving Credit Commitment as in effect on the date hereof
plus (y) its portion of Term Facility Loans outstanding as of the date hereof.
- ----
<PAGE>
65
ARTICLE V
Miscellaneous
-------------
SECTION 5.01. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED
-------------
IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
SECTION 5.02. Counterparts. This Amendment may be executed in
------------
any number of counterparts, each of which shall be an original but all of which,
when taken together, shall constitute but one instrument. Delivery of an
executed counterpart of a signature page of this Amendment by facsimile
transmission shall be as effective as delivery of a manually executed
counterpart of this Amendment.
SECTION 5.03. Headings. The headings of this Amendment are for
--------
reference only and shall not limit or otherwise affect the meaning hereof.
SECTION 5.04. Effect of Amendment. Except as specifically
-------------------
amended hereby, the Credit Agreement shall continue in full force and effect in
accordance with the provisions thereof. As used therein, the terms "Agreement",
"herein", "hereunder", "hereinafter", "hereto", "hereof", and words of
similar import shall, unless the context otherwise requires, refer to the Credit
Agreement as amended hereby. Except as expressly set forth herein, this
Amendment shall not by implication or otherwise limit, impair, constitute a
waiver of, or otherwise affect the rights and remedies of the Lenders under the
Credit Agreement or any Loan Document, and shall not alter, modify, amend or in
any way affect any of the terms, conditions, obligations, covenants or
agreements contained in the Credit Agreement or any other Loan Document, all of
which are ratified and affirmed in all respects and shall continue in full
force and effect. Nothing herein shall be deemed to entitle the Borrower to a
consent to, or a waiver, amendment, modification or other change of, any of the
terms, conditions, obligations, covenants or agreements contained in the Credit
Agreement or any other Loan Document in similar or different circumstances. This
Amendment shall apply and be effective only with respect to the provisions of
the Credit Agreement specifically referred to herein.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
SCHEIN PHARMACEUTICAL, INC.,
by: /s/ James A. Meer
----------------------------
Name: James A. Meer
Title: Vice President
THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), individually and
as Administrative Agent, Collateral Agent
and Issuing Bank,
by:
------------------------------
Name:
Title:
<PAGE>
66
ARTICLE V
Miscellaneous
-------------
SECTION 5.01. Governing Law, THiS AMENDMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
SECTION 5.02. Counterparts. This Amendment may be executed in any
------------
number of counterparts, each of which shall be an original but all of which,
when taken together, shall constitute but one instrument. Delivery of an
executed counterpart of a signature page of this Amendment by facsimile
transmission shall be as effective as delivery of a manually executed
counterpart of this Amendment.
SECTION 5.03. Headings. The headings of this Amendment are for
--------
reference only and shall not limit or otherwise affect the meaning hereof.
SECTION 5.04. Effect of Amendment. Except as specifically amended
-------------------
hereby, the Credit Agreement shall continue in full force and effect in
accordance with the provisions thereof. As used therein, the terms "Agreement",
"herein", "hereunder", "hereinafter", "hereto", "hereof", and words of similar
import shall, unless the context otherwise requires, refer to the Credit
Agreement as amended hereby. Except as expressly set forth herein, this
Amendment shall not by implication or otherwise limit, impair, constitute a
waiver of, or otherwise affect the rights and remedies of the Lenders under the
Credit Agreement or any Loan Document, and shall not alter, modify, amend or in
any way affect any of the terms, conditions, obligations, covenants or
agreements contained in the Credit Agreement or any other Loan Document, all of
which are ratified and affirmed in all respects and shall continue in full force
and effect. Nothing herein shall be deemed to entitle the Borrower to a consent
to, or a waiver, amendment, modification or other change of, any of the terms,
conditions, obligations, covenants or agreements contained in the Credit
Agreement or any other Loan Document in similar or different circumstances. This
Amendment shall apply and be effective only with respect to the provisions of
the Credit Agreement specifically referred to herein.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
SCHEIN PHARMACEUTICAL, INC.,
by: /s/ James A. Meer
------------------------------
Name: James A. Meer
Title: Vice President
THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), individually and
as Administrative Agent, Collateral Agent
and Issuing Bank,
by: /s/ Dawn Lee Lum
------------------------------
Name: Dawn Lee Lum
Title: Vice President
<PAGE>
67
THE BANK OF NOVIA SCOTIA,
by: /s/ Stephen Lockhart
------------------------
Name: Stephen Lockhart
Title: VP
CITICORP USA, INC.,
by: /s/ Dennis I. Bermack
------------------------
Name: Dennis I. Bermack
Title: Managing Director
CREDIT LYONNAIS, NEW YORK BRANCH,
by:
------------------------
Name:
Title:
CREDIT LYONNAIS, CAYMAN ISLAND BRANCH,
by:
------------------------
Name:
Title:
DEUTSCHE BANK, A.G., NEW YORK
AND/OR CAYMAN ISLAND BRANCHES,
by: /s/ Iain Stewart
------------------------
Name: Iain Stewart
Title: Vice President
by: /s/ Susan L. Pearson
------------------------
Name: Susan L. Pearson
Title: Vice President
MELLON BANK, N.A.,
by: /s/ Caroline R. Walsh
------------------------
Name: Caroline R. Walsh
Title: AVP
<PAGE>
68
FLEET BANK, N.A. (formerly known as
NatWest Bank, N.A.).
by: /s/ Robert Isaksen
------------------------
Name: Robert Isaksen
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, successor by merger to: THE
BANK OF TOKYO TRUST COMPANY,
by: /s/ S.E. Goddard
------------------------
Name: S.E. Goddard
Title: AVP
BAYERISCHE HYPOTHEKEN-UND WECHSEL-
BANK AKTIENGESSELLSCHAFT, NEW YORK
BRANCH,
by:
------------------------
Name:
Title:
by:
------------------------
Name:
Title:
COMERICA BANK,
by: /s/ Kimberly S. Kersten
------------------------
Name: Kimberly S. Kersten
Title: Vice President
COOPERATIVE CENTRALE RAIFFEIFEN-
BOERENLEENBANK, BA.,"RABOBANK
NEDERLAND", NEW YORK BRANCH,
by: /s/ Ellen A. Polansky
------------------------
Name: Ellen A. Polansky
Title: Vice President
by: /s/ Robert S. Bucklin
------------------------
Name: Robert S. Bucklin
Title: Chief Corporate Banking Officer
<PAGE>
69
CREDIT SUISSE,
by:
---------------------------
Name:
Title:
by:
---------------------------
Name:
Title:
KEYBANK NATIONAL ASSOCIATION
by: /s/ Marianne T. Meil
---------------------------
Name: Marianne T. Meil
Title: Vice President
PNC BANK, N.A.
by: /s/ Michael Nardo
---------------------------
Name: Michael Nardo
Title: Vice President
SOCIETE GENERALE, NEW YORK BRANCH
by: /s/ Michelle Martin
---------------------------
Name: Michelle Martin
Title: Assistant Vice President
<PAGE>
70
WESTDEUTSCHE LANDESBANK
GIROZENTRALE,
by: /s/ D. Wolf
---------------------------
Name: D. Wolf
Title: VP
by: /s/ Catherine Ruhland
---------------------------
Name: Catherine Ruhland
Title: Vice President
ABN AMRO BANK N.V., NEW YORK BRANCH,
by:
---------------------------
Name:
Title:
by:
---------------------------
Name:
Title:
BANK OF MONTREAL,
by:
---------------------------
Name:
Title:
THE BANK OF NEW YORK,
by: /s/ Pandolph E.J. Medrano
---------------------------
Name: Pandolph E.J. Medrano
Title: Vice President
<PAGE>
71
COMMERZBANK AKTIENGESELLSHAFT, NEW
YORK BRANCH,
by:
---------------------------
Name:
Title:
by:
---------------------------
Name:
Title:
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK, CAYMAN ISLAND
BRANCH,
by: /s/ Norah McCann
---------------------------
Name: Norah McCann
Title: SVP
by: /s/ Sabine Wendt
---------------------------
Name: Sabine Wendt
Title: Asst. Vice President
FIRST UNION NATIONAL BANK,
by: /s/ Richard W. Vieser, Jr.
---------------------------
Name: Richard W. Vieser, Jr.
Title: Sr. Portfolio Manager
THE NIPPON CREDIT BANK, LTD.,
by:
---------------------------
Name:
Title:
SUMMIT BANK,
by: /s/ Wayne R. Trotman
---------------------------
Name: Wayne R. Trotman
Title: Vice President & Regional Manager
<PAGE>
72
THE YASUDA TRUST AND BANKING CO.,
LIMITED, NEW YORK BRANCH,
by: /s/ Rohn Laudenschlager
---------------------------
Name: Rohn Laudenschlager
Title: Senior Vice President
COMMERCIAL LOAN FUNDING TRUST I,
by LEHMAN COMMERCIAL PAPER, INC., not
in its individual capacity but solely as
Administrative Agent
by: /s/ Michele A. Awernon
---------------------------
Name: Michele A. Awernon
Title: Authorized Signatory
<PAGE>
EXHIBIT 4.3
================================================================================
SCHEIN PHARMACEUTICAL, INC.,
$100,000,000
SENIOR SUBORDINATED LOAN AGREEMENT
Dated as of December 20, 1996
SOCIETE GENERALE
as Administrative Agent
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
ARTICLE I
<S> <C>
Definitions ........................................... 1
SECTION 1.1. Defined Terms ................................................ 1
SECTION 1.2. Terms Generally .............................................. 19
ARTICLE II
The Loans .............................................. 19
SECTION 2.1. Commitments .................................................. 19
SECTION 2.2. Loans ........................................................ 20
SECTION 2.3. Borrowing Procedure .......................................... 21
SECTION 2.4. Evidence of Debt; Repayment of Loans ......................... 21
SECTION 2.5. Fees ......................................................... 22
SECTION 2.6. Interest on Loans ............................................ 22
SECTION 2.7. Default Interest ............................................. 23
SECTION 2.8. Alternate Rate of Interest ................................... 23
SECTION 2.9. Conversion and Continuation of Borrowings .................... 23
SECTION 2.10. Optional Prepayment ......................................... 25
SECTION 2.11. Mandatory Prepayments ....................................... 25
SECTION 2.12. Reserve Requirements; Change in Circumstances ............... 26
SECTION 2.13. Change in Legality .......................................... 27
SECTION 2.14. Indemnity ................................................... 28
SECTION 2.15. Pro Rata Treatment .......................................... 29
SECTION 2.16. Sharing of Setoffs .......................................... 29
SECTION 2.17. Payments .................................................... 29
SECTION 2.18. Taxes ....................................................... 30
SECTION 2.19. Assignment of Commitments under Certain Circumstances;
Duty To Mitigate ...................................... 32
SECTION 2.20. Conversion Notes ............................................ 33
ARTICLE III
Representations and Warranties of the Borrower ......... 34
SECTION 3.1. Organization; Powers ......................................... 34
SECTION 3.2. Authorization ................................................ 34
SECTION 3.3. Enforceability ............................................... 35
SECTION 3.4. Governmental Approvals ....................................... 35
SECTION 3.5. Financial Statements ......................................... 35
SECTION 3.6. No Material Adverse Change ................................... 35
SECTION 3.7. Title to Properties; Possession under Leases ................. 35
SECTION 3.8. Subsidiaries ................................................. 36
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
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----
<S> <C>
SECTION 3.9. Litigation; Compliance with Laws ............................ 36
SECTION 3.10. Agreements ................................................. 36
SECTION 3.11. Federal Reserve Regulations ................................ 36
SECTION 3.12. Investment Company Act; Public Utility Holding Borrower
Act ........................................................ 37
SECTION 3.13. Use of Proceeds ............................................ 37
SECTION 3.14. Tax Returns ................................................ 37
SECTION 3.15. No Material Misstatements .................................. 37
SECTION 3.16. Employee Benefit Plans ..................................... 37
SECTION 3.17. Environmental Matters ...................................... 38
SECTION 3.18. Insurance .................................................. 39
SECTION 3.19. Solvency ................................................... 39
SECTION 3.20. Labor Matters .............................................. 39
SECTION 3.21. Capitalization of the Borrower ............................. 40
SECTION 3.22. Shareholders Agreements .................................... 40
ARTICLE IV
Closing Conditions ..................................... 40
SECTION 4.1. Proceedings Satisfactory ..................................... 40
SECTION 4.2. Opinions of Counsel to the Borrower and each Subsidiary ...... 41
SECTION 4.3. Representations and Warranties True, Etc.; Certificates ...... 41
SECTION 4.4. Consents and Approvals ....................................... 41
SECTION 4.5. Amendment to Chase Credit Agreement .......................... 41
SECTION 4.6. Guarantee .................................................... 41
SECTION 4.7. Conversion Notes Registration Rights Agreement ............... 41
SECTION 4.8. Fees ......................................................... 41
SECTION 4.9. Indemnity, Subrogation and Contribution Agreement ............ 42
ARTICLE V
Affirmative Covenants .................................. 42
SECTION 5.1. Existence; Businesses and Properties ......................... 42
SECTION 5.2. Insurance .................................................... 42
SECTION 5.3. Obligations and Taxes ........................................ 42
SECTION 5.4. Financial Statements, Reports, etc ........................... 43
SECTION 5.5. Litigation and Other Notices ................................. 44
SECTION 5.6. Employee Benefits ............................................ 44
SECTION 5.7. Maintaining Records; Access to Properties and Inspections .... 44
SECTION 5.8. Compliance with Environmental Laws ........................... 45
SECTION 5.9. Preparation of Environmental Reports ......................... 45
SECTION 5.10. Further Assurances .......................................... 45
SECTION 5.11. Registration of Conversion Notes ............................ 45
SECTION 5.12. Refinancing ................................................. 45
SECTION 5.13. Syndication of Loans ........................................ 46
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
ARTICLE VI
<S> <C>
Negative Covenants .................................... 46
SECTION 6.1. Indebtedness ................................................ 46
SECTION 6.2. Liens ....................................................... 47
SECTION 6.3. Sale and Lease-Back Transactions ............................ 48
SECTION 6.4. Investments, Loans and Advances ............................. 49
SECTION 6.5. Mergers, Consolidations and Sales of Assets ................. 50
SECTION 6.6. Dividends and Distributions; Restrictions on Ability of
Subsidiaries To Pay Dividends ......................... 50
SECTION 6.7. Transactions with Affiliates ................................ 50
SECTION 6.8. Business of Borrower and Subsidiaries ....................... 51
SECTION 6.9. Operating Leases ............................................ 51
SECTION 6.10. Amendments of Certain Agreements ........................... 51
SECTION 6.11. Fiscal Year ................................................ 51
SECTION 6.12. Payment on Other Indebtedness .............................. 51
SECTION 6.13. Net Worth .................................................. 52
ARTICLE VII
Events of Default ...................................... 52
SECTION 7.1. Events of Default ........................................... 52
ARTICLE VIII
Subordination ......................................... 54
SECTION 8.1. Subordinated Indebtedness Subordinated
to Senior Indebtedness ............................................ 54
SECTION 8.2. Subordinated Indebtedness Subordinated
to Prior Payment of All Senior Indebtedness on Dissolution,
Liquidation, Reorganization, Etc .................................. 55
SECTION 8.3. No Payments With Respect to
Subordinated Indebtedness in Certain Circumstances ................ 56
SECTION 8.4. Holders of Subordinated Indebtedness
to be Subrogated to Rights of Holders of Senior Indebtedness ...... 58
SECTION 8.5. Obligations of the Borrower and
the Guarantors Unconditional ...................................... 58
SECTION 8.6. Holders of Subordinated Indebtedness
Entitled to Assume Payments Not Prohibited in Absence of Notice ... 59
SECTION 8.7. Effect of Failure to Pay Subordinated Indebtedness .......... 59
SECTION 8.8. Miscellaneous Subordination Provisions ...................... 59
ARTICLE IX
The Administrative Agent .............................. 60
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
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ARTICLE X
<S> <C>
Miscellaneous .......................................... 63
SECTION 10.1. Notices ..................................................... 63
SECTION 10.2. Survival of Agreement ....................................... 63
SECTION 10.3. Binding Effect .............................................. 64
SECTION 10.4. Successors and Assigns ...................................... 64
SECTION 10.5. Expenses; Indemnity ......................................... 67
SECTION 10.6. Rights of Setoff ............................................ 68
SECTION 10.7. Applicable Law .............................................. 68
SECTION 10.8. Waivers; Amendment .......................................... 68
SECTION 10.9. Interest Rate Limitation .................................... 69
SECTION 10.10. Entire Agreement ........................................... 69
SECTION 10.11. WAIVER OF JURY TRIAL ....................................... 69
SECTION 10.12. Severability ............................................... 69
SECTION 10.13. Counterparts ............................................... 70
SECTION 10.14. Headings ................................................... 70
SECTION 10.15. Jurisdiction; Consent to Service of Process ................ 70
SECTION 10.16. Confidentiality ............................................ 70
Schedule 1.1 Certain Permitted Holders
Schedule 2.1 Commitments
Schedule 3.8 Subsidiaries
Schedule 3.18 Insurance
Schedule 6.2 Existing Liens
Schedule 6.4 Existing Investments
Exhibit A Form of Administrative Questionnaire
Exhibit B Form of Assignment and Acceptance
Exhibit C Form of Conversion Note Indenture
Exhibit D Form of Conversion Note Registration
Rights Agreement
Exhibit E Form of Guarantee Agreement
Exhibit F Form of Indemnity, Subrogation and
Contribution Agreement
Exhibit G Form of Opinion of PRG&M
</TABLE>
-iv-
<PAGE>
SENIOR SUBORDINATED LOAN AGREEMENT
SENIOR SUBORDINATED LOAN AGREEMENT, dated as of December 20, 1996, among
SCHEIN PHARMACEUTICAL, INC., a Delaware corporation (the "Borrower"), the
several banks and other financial institutions from time to time parties to this
Agreement (collectively, the "Lenders"; individually, a "Lender") and SOCIETE
GENERALE, a French banking corporation, acting through its New York Branch, as
Administrative Agent for the Lenders hereunder (in such capacity, the
"Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Borrower has requested that the Lenders enter into this
Agreement to make available to the Borrower a credit facility in the amount of
$100,000,000, and the Lenders are willing to do so on the terms and conditions
contained herein;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.1. Defined Terms. As used in this Agreement, the following terms
shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Loan bearing interest at a rate determined
by reference to the Alternate Base Rate in accordance with the provisions
of Article II.
"Adjusted LIBO Rate" shall mean, with respect to any Interest Period,
an interest rate per annum (rounded upwards, if necessary, to the next 1/16
of 1%) equal to the product of (a) the LIBO Rate in effect for such
Interest Period and (b) Statutory Reserves.
"Administrative Agent" has the meaning specified in the introductory
paragraph of this Agreement.
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in the form of Exhibit A.
<PAGE>
2
"Affiliate" shall mean, when used with respect to a specified Person,
another Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control
with the Person specified and, for the purposes of Section 6.7, shall
include the officers, directors and shareholders of the Borrower or any
Subsidiary, their Affiliates, the members of their immediate family and any
trust for the benefit of any of the foregoing.
"Alternate Base Rate" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate
in effect on such day plus 1% and (c) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. If for any reason the Administrative
Agent shall have determined (which determination shall be conclusive absent
manifest error) that it is unable to ascertain the Base CD Rate or the
Federal Funds Effective Rate or both for any reason, including the
inability or failure of the Administrative Agent to obtain sufficient
quotations in accordance with the terms thereof, the Alternate Base Rate
shall be determined as if the Base CD Rate or the Federal Funds Effective
Rate, or both, as appropriate, were unchanged from that existing on the
last date for which ascertainment thereof was made, until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate
Base Rate due to a change in the Prime Rate, the Base CD Rate or the
Federal Funds Effective Rate shall be effective on the effective date of
such change in the Prime Rate, the Base CD Rate or the Federal Funds
Effective Rate, respectively.
"Applicable Margin" shall mean, with respect to (a) any Eurodollar
Loan, 4.00% and (b) any ABR Loan, 3.00%, provided, however, if and so long
as any amount of Net Proceeds shall be deposited in the cash collateral
account referred to in the proviso to Section 2.11 (c) the term "Applicable
Margin" shall mean, for any day with respect to that portion of the then
outstanding Loans as is equal to the amount of such Net Proceeds on deposit
in such cash collateral account at the close of business on such day, with
respect to (x) any Eurodollar Loan, 0.35% and (y) any ABR Loan, (0.65)%.
"Assessment Rate" shall mean for any date the annual rate (rounded
upwards, if necessary, to the next 1/100 of 1%) most recently estimated by
the Administrative Agent as the then current net annual assessment rate
that will be employed in determining amounts payable by the Administrative
Agent to the Federal Deposit Insurance Corporation (or any successor
thereto) for insurance by such Corporation (or such successor) of time
deposits made in dollars at the Administrative Agent's United States
offices.
"Asset Sale" shall mean (a) the sale, transfer or other disposition by
the Borrower or any Subsidiary to any Person, other than the Borrower or a
wholly owned Subsidiary that is a Guarantor, of (i) any outstanding capital
stock of any Subsidiary or (ii) any other assets of the Borrower or any
Subsidiary (other than inventory, obsolete or worn out assets and Permitted
Investments, in each case disposed of in the ordinary course of business)
and (b) the issuance or sale by any Subsidiary of any shares of its
<PAGE>
3
capital stock or other equity securities of such Subsidiary, or any
obligations convertible into or exchangeable for, or giving any Person a
right, option or warrant to acquire, such securities or such convertible or
exchangeable obligations, other than an issuance or sale to the Borrower or
a wholly owned Subsidiary.
"Assignment and Acceptance" shall mean an assignment and acceptance
entered into by a Lender and an assignee, and, to the extent required by
Section 10.4(b), accepted by the Administrative Agent and the Borrower,
respectively, in the form of Exhibit B or such other form as shall be
approved by the Administrative Agent and the Borrower, respectively.
"Base CD Rate" shall mean the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the
Assessment Rate.
"Bayer" shall mean Bayer AG, a German corporation.
"Board" shall mean the Board of Governors of the Federal Reserve
System of the United States of America.
"Borrower" shall have the meaning assigned to such term in the
preamble.
"Borrowing" shall mean a group of Loans of a single Type made by the
Lenders on a single date and as to which a single Interest Period is in
effect.
"Breakage Event" shall have the meaning assigned to such term in
Section 2.14.
"Business Day" shall mean any day other than a Saturday, Sunday or day
on which banks in New York City are authorized or required by law to close;
provided, however, that, when used in connection with a Eurodollar Loan,
the term "Business Day" shall also exclude any day on which banks are not
open for dealings in dollar deposits in the London interbank market.
"Capital Lease Obligations" of any Person shall mean the obligations
of such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under
GAAP, and the amount of such obligations shall be the capitalized amount
thereof determined in accordance with GAAP.
A "Chance in Control" shall be deemed to have occurred if (a) any
Person or group (within the meaning of Rule 13d-5 of the Exchange Act as in
effect on the date hereof) other than a Permitted Holder or a group
consisting solely of Permitted Holders shall own directly or indirectly,
beneficially or of record, shares representing (i) both more than 30% of
the aggregate ordinary voting power represented by the issued and
outstanding capital stock of the Borrower and a higher percentage of such
<PAGE>
4
aggregate ordinary voting power than is then represented by shares owned by
the Permitted Holders or (ii) more than 50% of such aggregate ordinary
voting power; (b) a majority of the seats (other than vacant seats) on the
board of directors of the Borrower shall at any time have been occupied by
Persons who were neither (i) nominated by a Permitted Holder, nor (ii) on
the board of directors of the Borrower on the date of this Agreement (the
"Incumbent Board"); (c) any Person or group other than a Permitted Holder
or a group consisting solely of Permitted Holders shall otherwise Control
the Borrower or (d) a "change in control", however defined, shall occur
under any instrument evidencing other Indebtedness in a principal amount in
excess of $5,000,000 of the Borrower or any Subsidiary. For purposes of
clause (b)(ii) hereof, any individual who becomes a member of the board of
directors of the Borrower subsequent to the date of this Agreement, and
whose election, or nomination for election by the Borrower's stockholders,
was approved by the members of the board who are also members of the
Incumbent Board (or so deemed to be pursuant hereto) shall be deemed a
member of the Incumbent Board; provided, however, that any such individual
whose initial assumption of office occurs as a result of either an actual
or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the then board of directors of the Borrower shall be deemed not to be a
member of the Incumbent Board.
"Charges" shall have the meaning assigned to such term in Section
10.9.
"Chase Credit Agreement" shall mean the Credit Agreement, dated as of
September 1, 1995, among the Borrower, the lenders parties thereto and The
Chase Manhattan Bank, as agent for the lenders, as amended by agreements
dated February 26, 1996, September 27, 1996 and December 20, 1996, and as
the same hereafter may be amended, supplemented or otherwise modified from
time to time.
"Chase Credit Facility" shall mean the Chase Credit Agreement,
together with the documents related thereto (including, without limitation,
any guarantee agreements and security documents), in each case as such
agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including
any agreement or plan of reorganization extending the maturity of,
refinancing, replacing or otherwise restructuring (including adding
Subsidiaries of the Borrower as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or
any successor or replacement agreement and whether by the same or any other
agent, lender or group of lenders.
"Closing Date" shall mean the date upon which the conditions precedent
set forth in Article IV shall be satisfied.
"Code" shall mean the Internal Revenue Code of 1986, as the same may
be amended from time to time.
<PAGE>
5
"Commitment" shall mean, as to any Lender, its obligation to make a
Loan to the Borrower on the Closing Date in an amount equal to the amount
set forth opposite such Lender's name in Schedule 2.1 under the heading
"Commitment".
"Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise, and "Controlling" and "Controlled" shall have meanings
correlative thereto.
"Conversion Date" shall mean January 31, 1998.
"Conversion Note Indenture" shall mean the indenture, to be dated on
or about the Conversion Date, by and among the Borrower and the
Subsidiaries of the Borrower (as guarantors) and the trustee thereunder
substantially in the form of Exhibit C hereto.
"Conversion Notes" shall mean the promissory notes to be issued
pursuant to the Conversion Note Indenture pursuant to Section 2.20.
"Conversion Notes Registration Rights Agreement" shall mean that
certain Conversion Notes Registration Rights Agreement to be executed and
delivered by the Borrower pursuant to Section 4.7 substantially in the form
of Exhibit D hereto.
"Default" shall mean any event or condition that upon notice, lapse of
time or both would constitute an Event of Default.
"dollars" or "$" shall mean lawful money of the United States of
America.
"Domestic Subsidiary" shall mean any Subsidiary organized under the
laws of the United States of America, any State or territory thereof, the
District of Columbia or Puerto Rico.
"EBITDA" for any period shall mean Net Income for such period plus, to
the extent deducted in computing Net Income, the sum of (a) income tax
expense, (b) Interest Expense and (c) depreciation and amortization expense
minus, to the extent added in computing Net Income, (i) any non-cash,
non-recurring gains and (ii) any interest income, all as determined on a
consolidated basis with respect to the Borrower and the Subsidiaries in
accordance with GAAP.
"environment" shall mean ambient air, surface water and groundwater
(including potable water, navigable water and wetlands), the land surface
or subsurface strata, the workplace or as otherwise defined in any
Environmental Law.
"Environmental Claim" shall mean any written accusation, allegation,
notice of violation, claim, demand, order, directive, cost recovery action
or other cause of action by, or on behalf of, any Governmental Authority or
any Person for damages,
<PAGE>
6
injunctive or equitable relief, Remedial Action costs, property damage,
natural resource damages, nuisance, pollution or for fines, penalties or
restrictions, resulting from or based upon: (a) the existence, or the
continuation of the existence, of a Release (including sudden or
non-sudden, accidental or non-accidental Releases); (b) exposure to any
Hazardous Material; (c) the presence, use, handling, transportation,
storage, treatment or disposal of any Hazardous Material; or (d) the
violation or alleged violation of any Environmental Law or Environmental
Permit.
"Environmental Law" shall mean any and all applicable treaties, laws,
rules, regulations, codes, ordinances, orders, decrees, judgments,
injunctions or binding agreements issued, promulgated by or entered into
with any Governmental Authority, relating in any way to the environment,
preservation or reclamation of natural resources, the management, Release
or threatened Release of any Hazardous Material or to health and safety
matters, including the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. ss.ss. 9601 et seq. (collectively
"CERCLA"), the Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act of 1976 and Hazardous and Solid Amendments of
1984, 42 U.S.C. ss.ss. 6901 et seq., the Federal Water Pollution Control
Act, as amended by the Clean Water Act of 1977, 33 U.S.C. ss.ss. 1251 et
seq., the Clean Air Act of 1970, as amended 42 U.S.C. ss.ss. 7401 et seq.,
the Toxic Substances Control Act of 1976, 15 U.S.C. ss.ss. 2601 et seq.,
the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C.
ss.ss. 651 et seq., the Emergency Planning and Community Right-to-Know Act
of 1986, 42 U.S.C. ss.ss. 11001 et seq., the Safe Drinking Water Act of
1974, as amended, 42 U.S.C. ss.ss. 300(f) et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. ss.ss. 1801 et seq., and any similar or
implementing state or local law, and all amendments or regulations
promulgated thereunder.
"Environmental Permit" shall mean any permit, approval, authorization,
certificate, license, variance, filing or permission required by or from
any Governmental Authority pursuant to any Environmental Law.
"Equity Issuance" shall mean any issuance or sale by the Borrower of
any shares of its capital stock or other equity securities of the Borrower,
or any obligations giving any Person a right, option or warrant to acquire
such securities; provided. however, that Equity Issuance shall not include
any of the foregoing to the extent arising from or in connection with the
issuance of any stock rights, options or warrants to a director, officer or
employee of the Borrower or any Subsidiary under a duly instituted stock
option plan and any exercise thereof, to the extent the aggregate Net
Proceeds thereof in any fiscal year do not exceed $3,000,000.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single
employer under
<PAGE>
7
Section 414(b) or (c) of the Code, or solely for purposes of Section 302 of
ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" shall mean (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder, with respect to
a Plan; (b) the adoption of any amendment to a Plan that would require the
provision of security pursuant to Section 401(a)(29) of the Code or Section
307 of ERISA; (c) the existence with respect to any Plan of an "accumulated
funding deficiency" (as defined in Section 412 of the Code or Section 302
of ERISA), whether or not waived; (d) the filing pursuant to Section 412(d)
of the Code or Section 303(d) of ERISA of an application for a waiver of
the minimum funding standard with respect to any Plan; (e) the incurrence
of any liability under Title IV of ERISA with respect to the termination of
any Plan or the withdrawal or partial withdrawal of the Borrower or any of
its ERISA Affiliates from any Plan or Multiemployer Plan; (f) the receipt
by the Borrower or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to the intention to terminate any Plan
or Plans or to appoint a trustee to administer any Plan; (g) the receipt by
the Borrower or any ERISA Affiliate of any notice concerning the imposition
of Withdrawal Liability or a determination that a Multiemployer Plan is, or
is expected to be, insolvent or in reorganization, within the meaning of
Title IV of ERISA; (h) the occurrence of a "prohibited transaction" with
respect to which the Borrower or any of its Subsidiaries is a "disqualified
Person" (within the meaning of Section 4975 of the Code) or with respect to
which the Borrower or any such Subsidiary could otherwise be liable, other
than a transaction for which a statutory exemption is available or for
which an administrative exemption has been obtained; and (i) any other
event or condition with respect to a Plan or Multiemployer Plan that would
reasonably be expected to result in liability of the Borrower.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
Loans.
"Eurodollar Loan" shall mean any Loan bearing interest at a rate
determined by reference to the Adjusted LIBO Rate in accordance with the
provisions of Article II.
"Event of Default" shall have the meaning assigned to such term in
Article VII.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar statute then in effect, and a reference to a particular
section thereof shall include a reference to the comparable section, if
any, of any such similar statute.
"Federal Funds Effective Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for
<PAGE>
8
the day for such transactions received by the Administrative Agent from
three Federal funds brokers of recognized standing selected by it.
"Fee Letter" shall mean the fee letter, dated as of the date hereof,
between the Borrower and the Administrative Agent.
"Fees" shall have the meaning ascribed thereto in Section 2.5.
"Financial Officer" of any corporation shall mean the chief financial
officer, principal accounting officer, Treasurer or Controller of such
corporation.
"Foreign Subsidiary" shall mean any Subsidiary other than a Domestic
Subsidiary.
"GAAP" shall mean United States generally accepted accounting
principles applied on a consistent basis.
"Governmental Authority" shall mean any Federal, state, local or
foreign government, court or governmental agency, authority,
instrumentality or regulatory body.
"Guarantee" of or by any Person shall mean any obligation, contingent
or otherwise, of such Person guaranteeing any Indebtedness of any other
Person (the "primary obliger") in any manner, whether directly or
indirectly, and including any obligation of such Person, direct or
indirect, (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such
Indebtedness, (b) to purchase or lease property, securities or services for
the purpose of assuring the owner of such Indebtedness of the payment of
such Indebtedness or (c) to maintain working capital, equity capital or any
other financial statement condition or liquidity of the primary obliger so
as to enable the primary obliger to pay such Indebtedness; provided,
however, that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business.
"Guarantee Agreement" shall mean the Guarantee Agreement,
substantially in the form of Exhibit E hereto, to be made by the Guarantors
in favor of the Administrative Agent for the benefit of the Lenders.
"Guarantor" shall mean any Person from time to time party to the
Guarantee Agreement as a guarantor.
"Hazardous Materials" shall mean all explosive or radioactive
substances or wastes, hazardous or toxic substances or wastes, pollutants,
solid, liquid or gaseous wastes, including petroleum or petroleum
distillates, asbestos or asbestos containing materials, polychlorinated
biphenyls ("PCBs") or PCB-containing materials or
<PAGE>
9
equipment, radon gas, infectious or medical wastes and all other substances
or wastes of any nature, regulated pursuant to any Environmental Law.
"Health Care Laws" shall mean any and all applicable current and
future treaties, laws, rules, regulations, codes, ordinances, orders,
decrees, judgments, injunctions, notices or binding agreements issued,
promulgated or entered into by the Food and Drug Administration, the Health
Care Financing Administration, the Department of Health and Human Services
("HHS"), the Office of Inspector General of HHS, the Drug Enforcement
Administration or any other Governmental Authority (including any
professional licensing laws, certificate of need laws and state
reimbursement laws), relating in any way to the manufacture, distribution,
marketing, sale, supply or other disposition of any product or service of
the Borrower or any Subsidiary, the conduct of the business of the Borrower
or any Subsidiary, the provision of health care services generally, or to
any relationship among the Borrower and the Subsidiaries, on the one hand,
and their suppliers and customers and patients and other end-users of their
products and services, on the other hand.
"Indebtedness" of any Person shall mean, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits
or advances of any kind, (b) all obligations of such Person evidenced by
bonds, debentures, notes or similar instruments, (c) all obligations of
such Person upon which interest charges are customarily paid, (d) all
obligations of such Person under conditional sale or other title retention
agreements relating to property or assets purchased by such Person, (e) all
obligations of such Person issued or assumed as the deferred purchase price
of property or services (excluding trade accounts payable and accrued
obligations incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien on property owned or acquired by such Person, whether or not
the obligations secured thereby have been assumed, (g) all Guarantees by
such Person of Indebtedness of others, (h) all Capital Lease Obligations of
such Person, (i) all obligations of such Person in respect of Rate
Protection Agreements and (j) all obligations of such Person as an account
party in respect of letters of credit and bankers' acceptances (and the
amount of such Indebtedness shall equal the net payments accrued by such
Person in accordance with GAAP). The Indebtedness of any Person shall
include the Indebtedness of any partnership in which such Person is a
general partner.
"Indemnitee" shall have the meaning assigned to such term in Section
10.5.
"Indemnity, Subrogation and Contribution Agreement" shall mean the
Indemnity, Subrogation and Contribution Agreement, substantially in the
form of Exhibit F, to be entered into among the Borrower, the Guarantors
and the Administrative Agent.
"Information" shall have the meaning assigned to such term in Section
10.16.
<PAGE>
10
"Interest Expense" for any period shall mean the gross interest
expense of the Borrower and the Subsidiaries for such period determined on
a consolidated basis in accordance with GAAP, including (a) the
amortization of debt discounts, (b) the amortization of all fees (including
fees with respect to interest rate protection agreements) payable in
connection with the incurrence of Indebtedness to the extent included in
interest expense and (c) the portion of any payments or accruals with
respect to Capital Lease Obligations allocable to interest expense. For
purposes of the foregoing, gross interest expense shall be determined after
giving effect in accordance with GAAP to any net payments made, received or
accrued by such Person with respect to Rate Protection Agreements entered
into as a hedge against interest rate exposure.
"Interest Payment Date" shall mean, with respect to any Loan, (a) the
last day of the Interest Period applicable to the Borrowing of which such
Loan is a part and (b) the date of any prepayment of such Loan or
conversion of such Loan (if a Eurodollar Loan) to a Borrowing of a
different Type.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending on the
numerically corresponding day (or, if there is no numerically corresponding
day, on the last day) in the calendar month that is 1, 2 or 3 months
thereafter, as the Borrower may elect and (b) as to any ABR Borrowing, the
period commencing on the date of such Borrowing and ending on the next
succeeding March 31, June 30, September 30 or December 31; provided,
however, that if any Interest Period would end on a day other than a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless, in the case of a Eurodollar Borrowing only, such next
succeeding Business Day would fall in the next calendar month, in which
case such Interest Period shall end on the next preceding Business Day.
"Junior Subordinated Payments" shall mean any payment, distribution or
other transfer of any kind or character, whether direct or indirect, by
set-off or otherwise, and whether in cash, property, securities or
otherwise, which may be payable or deliverable by reason of the payment of
any Indebtedness of the Borrower or any Guarantor subordinate in right of
payment to the payment of the Subordinated Indebtedness of the Borrower or
such Guarantor, as the case may be.
"Lenders" shall mean (a) the financial institutions listed on Schedule
2.1 (other than any such financial institution that has ceased to be a
party hereto pursuant to an Assignment and Acceptance) and (b) any
financial institution that has become a party hereto pursuant to an
Assignment and Acceptance.
"LIBO Rate" shall mean, with respect to any Interest Period, the rate
appearing on Page 3750 of the Telerate Service (or on any successor or
substitute page of such Service, or any successor to or substitute for such
Service, providing rate quotations comparable to those currently provided
on such page of such Service, as determined by the Administrative Agent
from time to time for purposes of providing quotations of
<PAGE>
11
interest rates applicable to dollar deposits in the London interbank
market) at approximately 11:00 a.m., London time, two Business Days prior
to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event
that such rate is not available at such time for any reason, then the "LIBO
Rate" with respect to such Interest Period shall be the rate (rounded
upwards, if necessary, to the next 1/16 of 1%) at which dollar deposits of
$5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of
such Interest Period.
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed
of trust, lien, pledge, encumbrance, charge or security interest in or on
such asset, (b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or title retention agreement relating to such
asset (excluding any leases that constitute operating leases under GAAP)
and (c) in the case of securities, shall also include any purchase option,
call or similar right of a third party with respect to such securities
(excluding any option, call or similar right in respect of securities that
are not issued and outstanding).
"Loan" shall have the meaning assigned to such term in Section 2.2.
"Loan Documents" shall mean this Agreement, any promissory notes
evidencing the Loans, the Conversion Notes, the Conversion Notes
Registration Rights Agreement, the Conversion Note Indenture, the Guarantee
Agreement, the Indemnity, Subrogation and Contribution Agreement and all
other agreements, instruments and documents now or hereafter executed and
delivered pursuant to or in connection therewith, as each of such
agreements, instruments and documents may from time to time be amended,
modified or supplemented in accordance with its terms.
"Loan Party" shall mean the Borrower and each Guarantor.
"Margin Stock" shall have the meaning assigned to such term in
Regulation U.
"Material Adverse Effect" shall mean (a) a materially adverse effect
on the business, assets, operations or condition, financial or otherwise,
of the Borrower and the Subsidiaries, taken as a whole, (b) impairment of
the ability of the Borrower and the Subsidiaries, taken as a whole, to
perform their obligations under the Loan Documents in any material respect
or (c) material impairment of the rights of or benefits available to the
Lenders under any Loan Document.
"Maturity Date" shall mean January 31, 2003.
"Maximum Rate" shall have the meaning assigned to such term in Section
10.9.
"Moody's" shall mean Moody's Investors Service, Inc.
<PAGE>
12
"Multiemployer Plan" shall mean a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Net Income" for any period shall mean the consolidated net income or
loss of the Borrower and the Subsidiaries for such period determined in
accordance with GAAP, excluding (a) (to the extent included in such
consolidated net income or loss) the income (or loss) of any Person (other
than any Subsidiary) in which any other Person (other than the Borrower or
any wholly owned Subsidiary) has an equity interest, except to the extent
of the amount of dividends or other distributions actually paid to the
Borrower or any Subsidiary by such Person during such period, (b) the
income (or loss) of any Person accrued prior to the date it becomes a
Subsidiary or is merged into or consolidated with the Borrower or any
Subsidiary or the date such Person's assets are acquired by the Borrower or
any Subsidiary, (c) any after tax gains or losses attributable to sales of
assets not in the ordinary course of business and (d) (to the extent not
included in clauses (a) through (c) above) any extraordinary gains or
non-cash extraordinary losses determined in accordance with GAAP.
"Net Proceeds" shall mean: (a) when used with respect to any Asset
Sale, the cash proceeds thereof net of (i) costs of sale (including payment
of the outstanding principal amount of, premium or penalty, if any, and
interest on any Indebtedness (other than Loans) required to be repaid under
the terms thereof as a result of such Asset Sale), (ii) taxes paid or
payable in the year such Asset Sale occurs or in the following year as a
result thereof and (iii) amounts provided as a reserve, in accordance with
GAAP, against any liabilities under any indemnification obligations
associated with such Asset Sale (provided that, to the extent and at the
time any such amounts are released from such reserve, such amounts shall
constitute Net Proceeds); provided, however, that, with respect to any
Asset Sale described in clause (a)(ii) of the definition thereof, the Net
Proceeds thereof shall equal zero except to the extent that such Net
Proceeds (determined without regard to this proviso), together with the Net
Proceeds of all Asset Sales described in clause (a)(ii) of the definition
thereof (determined without regard to this proviso) previously received
during the then-current fiscal year, exceeds $1,000,000; and (b) when used
with respect to any Equity Issuance or sale of Indebtedness of the
Borrower, the cash proceeds thereof net of underwriting commissions or
placement fees and expenses directly incurred in connection therewith.
"Net Worth" as of any date shall mean Stockholder's Equity as of such
date plus the amount of any charge by the Borrower for acquired in process
research and development expenses of the Borrower for the Marsam
acquisition to the extent such charge is less than $35,000,000.
"New Office" shall have the meaning assigned to such term in Section
2.18.
"Non-U.S. Lender" shall have the meaning assigned to such term in
Section 2.18.
<PAGE>
13
"Obligations" all obligations (monetary or otherwise) of the Borrower
and each other Loan Party arising under or in connection with this
Agreement and the other Loan Documents.
"Officer's Certificate" means with respect to any corporation, a
certificate signed by an Responsible Officer of the specified corporation.
"Other Taxes" shall have the meaning assigned to such term in Section
2.18.
"Payment Bar Notice" shall have the meaning assigned to such term in
Section 8.3.
"Payment Default" shall have the meaning assigned to such term in
Section 8.3.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
and defined in ERISA.
"Permitted Chase Credit Agreement Amendment" shall mean any amendment,
modification, supplement or refinancing (for the purposes of this
definition, an "amendment") of the Chase Credit Facility; provided, that
(i) such amendment shall not increase the aggregate outstanding principal
amount of such Indebtedness thereby amended or refinanced (or, in the case
of any revolving, letter of credit or similar Indebtedness, shall not
increase the maximum aggregate commitment with respect thereto in effect
immediately prior to such amendment) above the amount specified in Section
6.1(b) hereof, (ii) the documents pursuant to which such Indebtedness is
amended or refinanced shall not impose on the Borrower interest rate
margins (referred to as an "Applicable Percentage" under the Chase Credit
Agreement), unused commitment fees, or other fees or other amounts payable
over time that are more than 100 basis points per annum higher than the
highest respective amounts thereof payable under the terms of the Chase
Credit Facility as in effect on the date hereof and (iii) the documents
pursuant to which such Indebtedness is amended or refinanced shall not
contain terms or conditions that impose materially more restrictive terms
or conditions, taken as a whole, with respect to payments in respect of the
Subordinated Indebtedness than those contained in the Chase Credit Facility
as in effect on the date hereof.
"Permitted Foreign Company" shall mean (a) any corporation, business
trust, joint venture, association, company or partnership formed under the
laws of a country (or any political subdivision thereof) other than the
United States, engaged primarily in a segment of the pharmaceutical or
health-care industry or ancillary thereto and at least 50% of the equity
interest of which is held, directly or indirectly, by the Borrower and
Bayer (provided that, if applicable local law would not permit 50% of the
equity interest in such an entity to be held by the Borrower and Bayer,
such percentage may be as low as 49% if the Borrower and Bayer otherwise
Control the applicable entity), (b) any subsidiary of a Permitted Foreign
Company described in clause (a) above and (c) any wholly owned Foreign
Subsidiary the only material assets of which are securities of Permitted
Foreign Companies described in clause (a) above.
<PAGE>
14
"Permitted Holders" shall mean (a)(i) the Persons listed on Schedule
1.1, (ii) any individual forming part of the senior management of the
Borrower on the date of this Agreement, (iii) any trust for the benefit of
any of the foregoing and (iv) the estate or personal representative of any
of the foregoing, (b)any employee benefit plan (or related trust) for the
benefit of the employees of the Borrower and the Subsidiaries and (c) Bayer
and any of its subsidiaries.
"Permitted Investments" shall mean:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed
by the full faith and credit of the United States of America), in each case
maturing within 90 days from the date of acquisition thereof;
(b) investments in commercial paper maturing within 90 days from the
date of acquisition thereof and having, at such date of acquisition, credit
ratings that are not lower than "A2" if rated by Standard & Poor's or "P2"
if rated by Moody's;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within 90 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts
issued or offered by, any domestic office of (i) any commercial bank
organized under the laws of the United States of America or any State
thereof that has a combined capital and surplus and undivided profits of
not less than $250,000,000 or (ii) any Lender or any lender under the Chase
Credit Facility;
(d) in the case of any Foreign Subsidiary, investments not in excess
of $5,000,000 in the aggregate in dollar-denominated certificates of
deposit, banker's acceptances and time deposits maturing within 90 days
from the date of acquisition thereof issued or guaranteed by or placed
with, and money market deposit accounts issued or offered by, any local
office of (i) any commercial bank organized under the laws of the United
States of America or any State thereof that has a combined capital and
surplus and undivided profits of not less than $250,000,000, (ii) any
Lender or any lender under the Chase Credit Facility or (iii) any local
commercial bank that is an Affiliate of any Lender or any lender under the
Chase Credit Facility; and
(e) other investment instruments approved in writing by the Required
Lenders or required lenders under the Chase Credit Facility and offered by
financial institutions which have a combined capital and surplus and
undivided profits of not less than $250,000,000.
"Person" shall mean any natural person, corporation, business trust,
joint venture, association, company, limited liability company, partnership
or government, or any agency or political subdivision thereof.
<PAGE>
15
"Plan" shall mean any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or
Section 412 of the Code or Section 307 of ERISA, and in respect of which
the Borrower or any ERISA Affiliate is (or, if such plan were terminated,
would under Section 4069 of ERISA be deemed to be) an "employer" as defined
in Section 3(5) of ERISA.
"Prime Rate" shall mean the rate of interest per annum publicly
announced from time to time by SocGen as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective on the date such change is publicly announced as being effective.
"Properties" shall have the meaning assigned to such term in Section
3.17.
"Rate Protection Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement,
currency exchange agreement or similar agreement entered into by the
Borrower or any Subsidiary to provide protection against fluctuations in
interest rates or currency exchange rates.
"Register" shall have the meaning assigned to such term in Section
10.4.
"Regulation G" shall mean Regulation G of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation U" shall mean Regulation U of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation X" shall mean Regulation X of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing, depositing, dispersing, emanating or migrating of any Hazardous
Material in, into, onto or through the environment.
"Remedial Action" shall mean: (a) "remedial action" as such term is
defined in CERCLA, 42 U.S.C. Section 9601(24); and (b) any other action
required by any Governmental Authority or voluntarily undertaken to (x)
cleanup, remove, treat, abate or in any other way address any Hazardous
Material in the environment; (y) prevent the Release or threat of Release,
or minimize the further Release of any Hazardous Material so it does not
migrate or endanger or threaten to endanger public health, welfare or the
environment; or (z) perform studies and investigations in connection with,
or as a precondition to, clause (x) or (y) above.
"Reorganization Securities" shall mean, with respect to any
reorganization, composition, arrangement, adjustment or readjustment of the
Borrower or any Guarantor or of their respective securities, securities of
the Borrower or such
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16
Guarantor as reorganized or readjusted that are subordinated, at least to
the same extent as the Loans, to the payment of all outstanding Senior
Indebtedness after giving effect to such plan of reorganization or
readjustment; provided, however, that (a) in the case of debt securities,
(i) such securities shall not provide for amortization (including sinking
fund and mandatory prepayment provisions) commencing prior to six months
following the final scheduled maturity of all Senior Indebtedness of the
Borrower or such Guarantor (as modified by such plan of reorganization or
readjustment), as the case may be, (ii) if the rate of interest on such
securities is fixed, such rate of interest shall not exceed the greater of
(A) the rate of interest on the Loans on the effective date of such plan of
reorganization or readjustment and (B) the sum of (x) the weighted average
rate of interest on the Indebtedness under the Chase Credit Agreement on
the effective date of such plan of reorganization or readjustment and (y)
the difference (such difference, the "Interest Differential"), if positive,
between the rate of interest on the Loans and the weighted average rate of
interest on Indebtedness under the Chase Credit Agreement, in each case
immediately prior to the commencement of such reorganization, composition,
arrangement, adjustment or readjustment, (iii) if the rate of interest on
such securities floats, such interest rate shall not exceed at any time the
sum of the weighted average interest rate on Indebtedness under the Chase
Credit Agreement at such time and the Interest Differential, and (iv) such
securities shall not have covenants or default provisions materially more
beneficial to the holders thereof or more restrictive on the Borrower or
the Guarantors than those in effect with respect to the Loans on the
Closing Date and (b) in the case of all securities (including debt
securities), the distribution of such securities was authorized by an order
or decree of a court of competent jurisdiction and such order gives effect
to (and states in such order or decree that effect has been given to) the
subordination of such securities to all Senior Indebtedness of the Borrower
or such Guarantor not paid in full in cash in connection with such
reorganization, provided that all such Senior Indebtedness is assumed by
the reorganized corporation, and the rights of the holders of any such
Senior Indebtedness are not, without the consent of such holders, altered
by such reorganization, which consent shall be deemed to have been given if
the holders of such Senior Indebtedness, individually or as a class, shall
have approved such reorganization.
"Required Lenders" shall mean, as of any date, the holder or holders
of a majority of the aggregate principal amount of the Loans outstanding on
such date, but excluding any Loans held by the Borrower or any of its
Subsidiaries or Affiliates.
"Responsible Officer" of any corporation shall mean any senior
executive officer or Financial Officer of such corporation and any other
officer or similar official thereof responsible for the administration of
the obligations of such corporation in respect of this Agreement.
"Sale and Lease-Back Transaction" shall mean any arrangement, directly
or indirectly, whereby the Borrower or any Subsidiary shall sell or
transfer to any Person any property, real or personal, used or useful in
its business, whether now owned or hereafter acquired, and thereafter the
Borrower or any Subsidiary shall rent or lease
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17
(for a term in excess of one year) such property, or other property that it
intends to use for substantially the same purpose or purposes as the
property being sold or transferred, from such Person or any of its
Affiliates.
"SEC" means the Securities and Exchange Commission and any successor
agency, authority, commission or Governmental Authority.
"Securities Act" means as of any date the Securities Act of 1933, as
amended, or any similar federal statute then in effect, and a reference to
a particular section thereof include a reference to the comparable section,
if any, of any such similar Federal statute.
"Senior Event of Default" shall have the meaning assigned to such term
in Section 8.3.
"Senior Indebtedness" shall mean (a) all obligations of the Borrower
and the Guarantors now or hereafter incurred with respect to payment of the
principal amount of the loans made under the Chase Credit Facility
(including, without limitation, all obligations in respect of letters of
credit issued thereunder), interest accrued thereon (including interest
accruing at the rate provided for in the Chase Credit Agreement after the
commencement of any bankruptcy, insolvency, reorganization or similar
proceeding with respect to the Borrower, whether or not an allowed claim in
such proceeding), prepayment premiums payable with respect thereto, and
fees, costs, expenses, indemnities and other amounts payable with respect
thereto, and (b) all obligations of the Borrower and the Guarantors under
Rate Protection Agreements payable to any lender or agent party to the
Chase Credit Agreement or any affiliate of such lender or agent (including,
without limitation, all obligations of the Guarantors incurred pursuant to
guarantees of the obligations referred to in clauses (a) and (b) above now
or hereafter executed) but in the case of any amendment or refinancing of
the Chase Credit Facility, only to the extent a Permitted Chase Credit
Agreement Amendment.
"SocGen" shall mean Societe Generale.
"Specified Guarantor" shall mean any Guarantor that would be a
"significant subsidiary" of the Borrower, determined in accordance with
Regulation 1.1 of Regulation S-X of the SEC as if the references to "10
percent" in the definition thereof were references to "5 percent".
"Standard and Poor's" shall mean Standard and Poor's Rating Group.
"Statutory Reserves" shall mean a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is
the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves)
expressed as a decimal established by the Board and any other banking
authority, domestic or foreign, to which the
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18
Administrative Agent or any Lender is subject (a) with respect to the Base
CD Rate, for new negotiable nonpersonal time deposits in dollars of over
$100,000 with maturities approximately equal to three months, and (b) with
respect to the Adjusted LIBO Rate, for Eurocurrency Liabilities (as defined
in Regulation D of the Board). Such reserve percentages shall include those
imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to
constitute Eurocurrency Liabilities and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or
offsets that may be available from time to time to any Lender under such
Regulation D. Statutory Reserves shall be adjusted automatically on and as
of the effective date of any change in any reserve percentage.
"Stockholder's Equity" as of any date shall mean, on a consolidated
basis for the Borrower and the Subsidiaries, (a) the sum of capital stock
taken at par value, capital surplus and retained earnings as of such date,
minus (b) treasury stock and any minority interest in Subsidiaries as of
such date, all determined in accordance with GAAP.
"Subordinated Indebtedness" means (a) all Obligations of the Borrower
now or hereafter incurred with respect to payment of the principal amount
of the Loans, interest accrued thereon, prepayment premiums payable with
respect thereto, and fees, costs, expenses, indemnities and other amounts
payable with respect thereto, and (b) all obligations of the Guarantors
incurred pursuant to Guarantees of such obligations now or hereafter
executed pursuant to the terms of this Agreement.
"subsidiary" shall mean, with respect to any Person (herein referred
to as the "parent"), any corporation, partnership, limited liability
company, association or other business entity (a) of which securities or
other ownership interests representing more than 50% of the equity or more
than 50% of the ordinary voting power or more than 50% of the general
partnership interests are, at the time any determination is being made,
owned, controlled or held by the parent or one or more other subsidiaries
of the parent, or (b) that is or would otherwise be treated on a
consolidated basis with the parent under, and in accordance with, GAAP.
"Subsidiary" shall mean any subsidiary of the Borrower.
"Taxes" shall have the meaning assigned to such term in Section 2.18.
"Three-Month Secondary CD Rate" shall mean, for any day, the secondary
market rate for three-month certificates of deposit reported as being in
effect on such day (or, if such day shall not be a Business Day, the next
preceding Business Day) by the Board through the public information
telephone line of the Federal Reserve Bank of New York (which rate will,
under the current practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such day), or, if
such rate shall not be so reported on such day or such next preceding
Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York
City received at approximately
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19
10:00 a.m., New York City time, on such day (or, if such day shall not be a
Business Day, on the next preceding Business Day) by SocGen from three New
York City negotiable certificate of deposit dealers of recognized standing
selected by it.
"Transactions" shall have the meaning assigned to such term in Section
3.2.
"Transferee" shall have the meaning assigned to such term in Section
2.18.
"Type", when used in respect of any Loan, shall refer to the Rate by
reference to which interest on such Loan is determined. For purposes
hereof, the term "Rate" shall include the Adjusted LIBO Rate and the
Alternate Base Rate.
"wholly owned Subsidiary" shall mean a Subsidiary the securities
(except for directors' qualifying shares) or other ownership interests
representing 100% of the equity or 100% of the ordinary voting power or
100% of the general partnership interests of which are, at the time any
determination is being made, owned by the Borrower or one or more wholly
owned Subsidiaries or by the Borrower and one or more wholly owned
Subsidiaries.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan,
as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.2. Terms Generally. The definitions in Section 1.1 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". All references
herein to Articles, Sections, Exhibits and Schedules shall be deemed references
to Articles and Sections of, and Exhibits and Schedules to, this Agreement
unless the context shall otherwise require. Except as otherwise expressly
provided herein, (a) any reference in this Agreement to any Loan Document shall
mean such document as amended, restated, supplemented or otherwise modified from
time to time and (b) all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided,
however, that for purposes of determining compliance with the covenants
contained in Article VI, all accounting terms herein shall be interpreted and
all accounting determinations hereunder shall be made in accordance with GAAP as
in effect on the date of this Agreement and applied on a basis consistent with
the application used in the financial statements referred to in Section 3.5(a).
ARTICLE II
The Loans
SECTION 2.1. Commitments. Subject to the terms and conditions and relying
upon the representations and warranties herein set forth, each Lender agrees,
severally and not jointly, to make a term loan to the Borrower on the Closing
Date in a principal amount equal
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20
to the Commitment of such Lender. Amounts paid or prepaid in respect of the
Loans may not be reborrowed.
SECTION 2.2. Loans. (a) Each loan hereunder (collectively, the "Loans")
shall be made as part of a Borrowing consisting of Loans made by the Lenders
ratably in accordance with their applicable Commitments; provided, however, that
the failure of any Lender to make any Loan shall not in itself relieve any other
Lender of its obligation to lend hereunder (it being understood, however, that
no Lender shall be responsible for the failure of any other Lender to make any
Loan required to be made by such other Lender).
(b) Subject to Sections 2.8 and 2.13, each Borrowing shall be comprised
entirely of ABR Loans or Eurodollar Loans as the Borrower may request pursuant
to Section 2.3. Each Lender may at its option make any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Lender to make such
Loan; provided, however, that (i) any exercise of such option shall not affect
the obligation of the Borrower to repay such Loan in accordance with the terms
of this Agreement and (ii) the exercise of such option shall not result in an
increase in Statutory Reserves above those applicable to members of the Federal
Reserve System. Borrowings of more than one Type may be outstanding at the same
time; provided, however, that the Borrower shall not be entitled to request any
Borrowing that, if made, would result in more than three Eurodollar Borrowings
outstanding hereunder at any time. For purposes of the foregoing, Borrowings
having different Interest Periods, regardless of whether they commence on the
same date, shall be considered separate Borrowings.
(c) Each Lender shall make the Loan to be made by it hereunder on the
Closing Date by wire transfer of immediately available funds to such account in
New York City as the Administrative Agent may designate not later than 1:00
p.m., New York City time, and the Administrative Agent shall by 2:00 p.m., New
York City time, credit the amounts so received to an account of the Borrower
designated by the Borrower in the applicable borrowing request.
(d) Unless the Administrative Agent shall have received notice from a
Lender prior to 1:00 p.m. on the Closing Date that such Lender shall not make
available to the Administrative Agent such Lender's portion of the Borrowing to
be effected on such Date, the Administrative Agent may assume that such Lender
has made such portion available to the Administrative Agent on the Closing Date
in accordance with paragraph (c) above and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on the Closing
Date a corresponding amount. If the Administrative Agent shall have so made
funds available then, to the extent that such Lender shall not have made such
portion available to the Administrative Agent, the Borrower and such Lender
severally agree to repay to the Administrative Agent, in the case of the
Borrower, within one Business Day of demand, and in the case of such Lender,
forthwith on demand, such corresponding amount together with interest thereon,
for each day from and including the date such amount is made available to the
Borrower until the date such amount is repaid to the Administrative Agent at (i)
in the case of the Borrower, the interest rate applicable at the time to the
Loans comprising such Borrowing and (ii) in the case of such Lender, a rate
determined by the Administrative Agent to represent its cost of overnight or
short-term funds (which
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21
determination shall be conclusive absent manifest error). If such Lender shall
repay to the Administrative Agent such corresponding amount, such amount shall
constitute such Lender's Loan as part of such Borrowing for purposes of this
Agreement. The Administrative Agent will promptly notify the Borrower of any
Lender's failure to make available such Lender's portion of any Borrowing if
such failure continues unremedied for one Business Day.
(e) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request any Eurodollar Borrowing if the Interest Period
requested with respect thereto would end after the Maturity Date.
SECTION 2.3. Borrowing Procedure. In order to request the Borrowing to be
made on the Closing Date, the Borrower shall telecopy (with receipt confirmed
telephonically) to the Administrative Agent a written borrowing request (a) in
the case of a Eurodollar Borrowing, not later than 10:30 a.m., New York City
time, two Business Days before a proposed Borrowing, and (b) in the case of an
ABR Borrowing, not later than 10:30 a.m., New York City time, on the same
Business Day as the proposed Borrowing is to be made. Such borrowing request
shall be irrevocable, shall be signed by or on behalf of the Borrower and shall
specify the following information: (i) whether the Borrowing then being
requested is to be a Eurodollar Borrowing or an ABR Borrowing; (ii) the date of
the Borrowing (which shall be a Business Day); (iii) the number and location of
the account to which funds are to be disbursed (which shall be an account that
complies with the requirements of Section 2.2(c)); and (iv) the length of the
initial Interest Period with respect thereto. If no election as to the Type of
Borrowing is specified in any such notice, then the requested Borrowing shall be
an ABR Borrowing. If no interest Period with respect to any Eurodollar Borrowing
is specified in any such notice, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration. The Administrative Agent
shall promptly (and in any event on the same day that the Administrative Agent
receives such notice, if received by 1:00 p.m., New York City time, on such day)
advise the applicable Lenders of any notice given pursuant to this Section 2.3
(and the contents thereof), and of each Lender's portion of the requested
Borrowing.
SECTION 2.4. Evidence of Debt; Repayment of Loans. (a) The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of
each Lender the principal amount of the Loan made by such Lender on the Maturity
Date (subject, however, to the provisions of Section 2.20).
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from the Loan made by such Lender, including the amounts of principal
and interest payable and paid such Lender from time to time under this
Agreement.
(c) The Administrative Agent shall maintain accounts in which it shall
record (i) the amount of each Loan made hereunder, the Type thereof and the
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable from the Borrower to each Lender hereunder and (iii) the amount
of any sum received by the Administrative Agent hereunder from the Borrower and
each Lender's share thereof.
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22
(d) The entries made in the accounts maintained pursuant to paragraphs (b)
and (c) above shall be prima facie evidence of the existence and amounts of the
obligations therein recorded; provided, however, that the failure of any Lender
or the Administrative Agent to maintain such accounts or any error therein shall
not in any manner affect the obligations of the Borrower to repay the Loans in
accordance with their terms, except to the extent that the correction of such
error results in a reduction of the Borrower's obligations hereunder.
(e) Notwithstanding any other provision of this Agreement, in the event any
Lender shall request and receive a promissory note payable to such Lender and
its registered assigns to evidence the Loan made by it hereunder, the interests
represented by such note shall at all times (including after any assignment of
all or part of such interests pursuant to Section 10.4) be represented by one or
more promissory notes payable to the payee named therein or its registered
assigns. Any such promissory notes shall include a paragraph indicating that the
obligations evidenced thereby are subject to the provisions of Article VIII
hereof.
SECTION 2.5. Fees. (a) The Borrower shall pay to SocGen the Fees (the
"Fees") agreed to in the Fee Letter on the dates specified therein.
(b) All Fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate as
determined by the Administrative Agent, among the Lenders but no Lender shall
have any claim against the Borrower once the Borrower has paid the Fees to the
Administrative Agent. Once paid, none of the Fees shall be refundable under any
circumstances, except to the extent such payment shall have been made as a
consequence of manifest error.
SECTION 2.6. Interest on Loans. (a) Subject to the provisions of Section
2.7, the Loans comprising each Eurodollar Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 360
days) at a rate per annum equal to the Adjusted LIBO Rate for the Interest
Period in effect for such Borrowing plus 4.00%.
(b) Subject to the provisions of Section 2.7, the Loans comprising each ABR
Borrowing shall bear interest (computed on the basis of the actual number of
days elapsed over a year of 365 or 366 days, as the case may be, when the
Altemate Base Rate is determined by reference to the Prime Rate and over a year
of 360 days at all other times) at a rate per annum equal to the Alternate Base
Rate plus 3.00%.
(c) Interest shall accrue from and including the first day of an Interest
Period to but excluding the last day of such Interest Period. Interest on each
Loan shall accrue daily for the account of the holder from time to time of such
Loan and shall be payable on the Interest Payment Dates applicable to such Loan
except as otherwise provided in this Agreement. The applicable Alternate Base
Rate or Adjusted LIBO Rate for each Interest Period or day within an Interest
Period, as the case may be, shall be determined by the Administrative Agent, and
such determination shall be conclusive absent manifest error.
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23
SECTION 2.7. Default Interest. If the Borrower shall default in the payment
of the principal of or interest on any Loan or any other amount becoming due
hereunder, by acceleration or otherwise, or under any other Loan Document, the
Borrower shall on demand from time to time pay interest, to the extent permitted
by law, on such defaulted amount to but excluding the date of actual payment
(after as well as before judgment) (a) in the case of overdue principal, at the
rate otherwise applicable to such Loan pursuant to Section 2.6 plus 2.00% per
annum and (b) in all other cases, at a rate per annum (computed on the basis of
the actual number of days elapsed over a year of 365 or 366 days, as the case
may be, when determined by reference to the Prime Rate and over a year of 360
days at all other times) equal to the sum of the Alternate Base Rate plus 5.00%.
SECTION 2.8. Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Administrative Agent shall have
determined in good faith that dollar deposits in the principal amounts of the
Loans comprising such Borrowing are not generally available in the London
interbank market, or that the rates at which such dollar deposits are being
offered will not adequately and fairly reflect the cost to any Lender of making
or maintaining its Eurodollar Loan during such Interest Period, or that
reasonable means do not exist for ascertaining the Adjusted LIBO Rate, the
Administrative Agent will, as soon as practicable thereafter, give written
notice of such determination to the Borrower and the Lenders. In the event of
any such determination, until the Administrative Agent shall have advised the
Borrower and the Lenders that the circumstances giving rise to such notice no
longer exist, any request by the Borrower for a Eurodollar Borrowing pursuant to
Section 2.3 or 2.9 shall be deemed to be a request for an ABR Borrowing. The
Administrative Agent will promptly advise the Borrower once the circumstances
giving rise to any such notice no longer exist. Each determination by the
Administrative Agent hereunder shall be conclusive absent manifest error.
SECTION 2.9. Conversion and Continuation of Borrowings. The Borrower shall
have the right at any time upon prior irrevocable telephonic notice to the
Administrative Agent (confirmed promptly in writing) (a) not later than 10:30
a.m., New York City time, two Business Days prior to the proposed conversion, to
convert any Eurodollar Borrowing into an ABR Borrowing, (b) not later than 10:30
a.m., New York City time, two Business Days prior to conversion or continuation,
to convert any ABR Borrowing into a Eurodollar Borrowing or to continue any
Eurodollar Borrowing as a Eurodollar Borrowing for an additional Interest Period
and (c) not later than 10:30 a.m., New York City time, two Business Days prior
to conversion, to convert the Interest Period with respect to any Eurodollar
Borrowing to another permissible Interest Period, subject in each case to the
following:
(i) each conversion or continuation shall be made pro rata among the
Lenders in accordance with the respective principal amounts of the Loans
comprising the converted or continued Borrowing;
(ii) each requested conversion or continuation shall be with respect
to all of the then outstanding Loans or with respect to a portion thereof
equal to $10,000,000 or a whole multiple of $5,000,000 in excess thereof;
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24
(iii) each conversion shall be effected by each Lender and the
Administrative Agent by recording for the account of such Lender the new
Loan of such Lender resulting from such conversion and reducing the Loan
(or portion thereof) of such Lender being converted by an equivalent
principal amount;
(iv) if any Eurodollar Borrowing is converted at a time other than the
end of the Interest Period applicable thereto, the Borrower shall pay, upon
demand, any amounts due to the Lenders pursuant to Section 2.14;
(v) unless each Lender otherwise agrees, any portion of a Borrowing
maturing or required to be repaid in less than one month from the date of
any conversion or continuation may not be converted into or continued as a
Eurodollar Borrowing;
(vi) any portion of a Eurodollar Borrowing that cannot be converted
into or continued as a Eurodollar Borrowing by reason of the immediately
preceding clause shall be automatically converted at the end of the
Interest Period in effect for such Borrowing into an ABR Borrowing;
(vii) no Interest Period may be selected for any Eurodollar Borrowing
that would end later than the Maturity Date;
(viii) no Borrowing may be converted into, or continued as, a
Eurodollar Borrowing when any Default has occurred and is continuing and
the Administrative Agent or the Required Lenders have determined that such
conversion or continuation is not appropriate (and, instead, any such
Borrowing will be converted into or remain as an ABR Borrowing on the last
day of the Interest Period applicable thereto); and
(ix) no Borrowing may be converted into, or continued as, a Eurodollar
Borrowing when any Event of Default has occurred and is continuing, unless
the Required Lenders have determined that such conversion or continuation
is appropriate (and, instead, any such Borrowing will be converted into or
remain as an ABR Borrowing on the last day of the Interest Period
applicable thereto).
Each notice pursuant to this Section 2.9 shall refer to this Agreement and
specify (i) whether the Borrowing is to be converted to or continued as a
Eurodollar Borrowing or an ABR Borrowing, (ii) if such notice requests a
conversion, the date of such conversion (which shall be a Business Day) and
(iii) if such Borrowing is to be converted to or continued as a Eurodollar
Borrowing, the Interest Period with respect thereto. If no Interest Period is
specified in any such notice with respect to any conversion to or continuation
as a Eurodollar Borrowing, the Borrower shall be deemed to have selected an
Interest Period of one months duration. The Administrative Agent shall advise
the Lenders of any notice given pursuant to this Section 2.9 and of each
Lender's portion of any converted or continued Borrowing. If the Borrower shall
not have given notice in accordance with this Section 2.9 to continue any
Borrowing into a subsequent Interest Period (and shall not otherwise have given
notice in accordance with this Section 2.9 to convert such Borrowing),
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25
such Borrowing shall, at the end of the Interest Period applicable thereto
(unless repaid pursuant to the terms hereof), automatically be continued into a
new Interest Period as a Eurodollar Borrowing having an Interest Period of one
months duration.
SECTION 2.10. Optional Prepayment. (a) The Borrower shall have the right at
any time and from time to time to prepay any Borrowing, in whole or in part,
upon at least two Business Days' prior irrevocable telephonic notice (promptly
confirmed in writing) to the Administrative Agent before 10:30 a.m., New York
City time; provided, however, that each partial prepayment shall be in an amount
that is an integral multiple of $1,000,000 and provided, further, that no
prepayment shall be permitted under this Section 2.10 if, after giving effect
thereto, the aggregate principal amount of the then outstanding Loans would be
less than $75,000,000 but greater than $0.
(b) Each notice of prepayment shall specify the prepayment date and the
principal amount of each Borrowing (or portion thereof) to be prepaid and shall
commit the Borrower to prepay such Borrowing by the amount stated therein on the
date stated therein. All prepayments under this Section 2.10 shall be subject to
Section 2.14 but otherwise without premium or penalty. All prepayments under
this Section 2.10 shall be accompanied by accrued interest on the principal
amount being prepaid to but excluding the date of payment.
SECTION 2.11. Mandatory Prepayments. (a) The Borrower shall, if and to the
extent required pursuant to the Chase Credit Facility, apply 100% of the Net
Proceeds of any Asset Sale promptly upon its receipt thereof (or, if applicable,
promptly upon any amounts being deemed to constitute Net Proceeds as provided in
the definition of such term) to (i) prepay the term loans outstanding under the
Chase Credit Facility and/or (ii) prepay revolving credit loans outstanding
under the Chase Credit Facility provided that the commitment of the lenders
thereunder to lend revolving credit loans shall be permanently reduced to the
extent of such prepayment. To the extent not used in accordance with the
preceding sentence, the Borrower shall, or shall cause its Subsidiaries to,
prepay Borrowings with such Net Proceeds not later than the date which is one
Business Day after the date of receipt thereof.
(b) The Borrower shall apply 100% of the Net Proceeds of any Equity
Issuance promptly upon its receipt thereof (or, if applicable, promptly upon any
amounts being deemed to constitute Net Proceeds as provided in the definition of
such term) to prepay Borrowings with such Net Proceeds not later than the date
which is one Business Day after the date of receipt thereof.
(c) Anything in Section 2.1 1(a) or (b) to the contrary notwithstanding,
the Borrower shall not be required to make any prepayment pursuant to such
Sections to the extent that, after giving effect thereto, the aggregate
principal amount of the then outstanding Loans would be less than $75,000,000
but greater than $0, provided, however, that if at any time the aggregate amount
of prepayments pursuant to such Sections that shall have been prevented from
being made pursuant to the operation of the foregoing provisions of this
paragraph shall equal or exceed $75,000,000 then such prepayments shall be
required to be
<PAGE>
26
made at such time and, provided, further, that, until applied in accordance with
the foregoing proviso, all Net Proceeds otherwise required to prepay the Loans
and not applied to effect a prepayment pursuant to the operation of this
paragraph shall be held in a cash collateral account established by the
Administrative Agent the amounts on deposit in which shall be invested in
Permitted Investments designated by the Borrower (or, in the absence of such
designation, as selected by the Administrative Agent in its sole discretion)
subject to the right of the Required Lenders at any time to require that the
amounts on deposit in such cash collateral account be applied to make the
prepayments otherwise prevented by this paragraph.
(d) The Borrower shall deliver to the Administrative Agent (i) at the time
of each prepayment required under this Section 2.11, a certificate signed by a
Financial Of fleer of the Borrower setting forth in reasonable detail the
calculation of the amount of such prepayment and (ii) not later than the later
of (A) the date on which a Responsible Officer of the Borrower becomes aware
that such prepayment will be made and (B) the date that is three Business Days
prior to the date of such prepayment, a notice of such prepayment. Such
certificate shall also describe in reasonable detail the facts and circumstances
giving rise to the applicable prepayment event and a reasonably detailed
calculation of the Net Proceeds therefrom.
(e) All prepayments under this Section 2.11 shall be subject to Section
2.14 but otherwise without premium or penalty. All prepayments under this
Section 2.11 shall be accompanied by accrued interest on the principal amount
being prepaid to but excluding the date of payment.
SECTION 2.12. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision of this Agreement, if after the date of this
Agreement any change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender of the
principal of or interest on any Eurodollar Loan held by such Lender or any Fees
or other amounts payable hereunder (other than changes in respect of taxes
imposed on the overall net income of such Lender by the jurisdiction in which
such Lender has its principal office or by any political subdivision or taxing
authority therein), or shall impose, modify or deem applicable any reserve,
special deposit or similar requirement against assets of, deposits with or for
the account of or credit extended by any Lender (except any such reserve
requirement that is fully reflected in the Adjusted LIBO Rate) or shall impose
on such Lender or the London interbank market any other condition affecting this
Agreement or any Eurodollar Loan held by such Lender, and the result of any of
the foregoing shall be to increase the cost to such Lender of making or
maintaining any Eurodollar Loan by an amount deemed by such Lender to be
material, then the Borrower shall pay to such Lender upon demand such additional
amount or amounts as shall compensate such Lender for such additional costs
incurred or reduction suffered.
(b) If any Lender shall determine that the adoption after the date of this
Agreement of any law, rule, regulation, agreement or guideline regarding capital
adequacy, or any change after the date hereof in any such law, rule, regulation,
agreement or guideline
<PAGE>
27
(whether such law, rule, regulation, agreement or guideline has been adopted) or
in the interpretation or administration thereof by any Governmental Authority
charged with the interpretation or administration thereof, or compliance by any
Lender or any Lender's holding company with any request or directive regarding
capital adequacy (whether or not having the force of law) of any Governmental
Authority has or would have the effect of reducing the rate of return on such
Lender's capital or on the capital of such Lender's holding company, if any, as
a consequence of this Agreement or the Loans made by such Lender pursuant hereto
to a level below that which such Lender or such Lender's holding company could
have achieved but for such applicability, adoption, change or compliance (taking
into consideration such Lender's policies and the policies of such Lender's
holding company with respect to capital adequacy) by an amount deemed by such
Lender to be material, then from time to time the Borrower shall pay to such
Lender, as the case may be, such additional amount or amounts as shall
compensate such Lender or such Lender's holding company for any such reduction
suffered.
(c) A certificate of a Lender setting forth in reasonable detail (i) the
calculation of the amount or amounts necessary to compensate such Lender or its
holding company, as applicable, as specified in paragraph (a) or (b) above and
(ii) the facts and circumstances giving rise to such compensation, shall be
delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay such Lender the amount shown as due on any such certificate
delivered by it within 10 Business Days after its receipt of the same.
(d) Failure or delay on the part of any Lender to demand compensation for
any increased costs or reduction in amounts received or receivable or reduction
in return on capital shall not constitute a waiver of such Lender's right to
demand such compensation; provided, however, that the Lender may not demand
compensation under this Section 2.12 for any period commencing earlier than 60
days prior to such demand. The protection of this Section 2.12 shall be
available to each Lender regardless of any possible contention of the invalidity
or inapplicability of the law, rule, regulation, agreement, guideline or other
change or condition that shall have occurred or been imposed; provided, however,
that each Lender shall take reasonable actions (which shall not require such
Lender to incur an unreimbursed loss or unreimbursed cost or expense or
otherwise take any action precluded by legal or regulatory restrictions or
suffer any disadvantage or burden deemed by it to be significant) to avoid any
need to claim compensation under this Section 2.12 arising out of any reasonably
foreseeable change in circumstances.
(e) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.12 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder.
SECTION 2.13. Change in Legality. (a) Notwithstanding any other provision
of this Agreement, if after the date of this Agreement, any change in any law or
regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or hold any
<PAGE>
28
Eurodollar Loan or to give effect to its obligations as contemplated hereby with
respect to any Eurodollar Loan, then, by written notice to the Borrower and to
the Administrative Agent:
(i) such Lender may declare that Eurodollar Loans shall not thereafter
(for the duration of such unlawfulness) be made by such Lender hereunder
(or be continued for additional Interest Periods and ABR Loans will not
thereafter (for such duration) be converted into Eurodollar Loans),
whereupon any request for a Eurodollar Loan (or to convert an ABR Loan to a
Eurodollar Loan or to continue a Eurodollar Loan, for an additional
Interest Period) shall, as to such Lender only, be deemed a request for an
ABR Loan (or a request to continue an ABR Loan as such for an additional
Interest Period or to convert a Eurodollar Loan into an ABR Loan, as the
case may be), unless such declaration shall be subsequently withdrawn; and
(ii) such Lender may require that all outstanding Eurodollar Loans
made by it be converted to ABR Loans, in which event all such Eurodollar
Loans shall be automatically converted to ABR Loans as of the effective
date of such notice as provided in paragraph (b) below (and Section 2.14
shall not apply to any such automatic conversion).
In the event any Lender shall exercise its rights under clause (i) or (ii)
above, all payments and prepayments of principal that would otherwise have been
applied to repay the Eurodollar Loans that would have been made by such Lender
or the converted Eurodollar Loans of such Lender shall instead be applied to
repay the ABR Loans made by such Lender in lieu of, or resulting from the
conversion of, such Eurodollar Loans.
(b) For purposes of this Section 2.13, a notice to the Borrower by any
Lender shall be effective as to each Eurodollar Loan made by such Lender, if
lawful, on the last day of the Interest Period currently applicable to such
Eurodollar Loan; in all other cases such notice shall be effective on the date
of receipt by the Borrower.
SECTION 2.14. Indemnity. The Borrower shall indemnify each Lender against
any loss or expense that such Lender may sustain or incur as a direct
consequence of (a) any event, other than a default by such Lender in the
performance of its obligations hereunder, which results in (i) such Lender
receiving or being deemed to receive any amount on account of the principal of
any Eurodollar Loan prior to the end of the Interest Period in effect therefor,
(ii) the conversion of any Eurodollar Loan to an ABR Loan, or the conversion of
the Interest Period with respect to any Eurodollar Loan, in each case other than
on the last day of the Interest Period in effect therefor, or (iii) any
Eurodollar Loan to be made by such Lender not being made after notice of such
Loan shall have been given by the Borrower hereunder (any of the events referred
to in this clause (a) being called a "Breakage Event") or (b) any default in the
making of any payment or prepayment required to be made hereunder. In the case
of any Breakage Event, such loss shall include an amount equal to the excess, as
reasonably determined by such Lender, of (i) its cost of obtaining funds for the
Eurodollar Loan that is the subject of such Breakage Event for the period from
the date of such Breakage Event to the last day of the Interest Period in effect
(or that would have been in effect) for such Loan over (ii) the amount of
interest likely to be realized by such Lender in
<PAGE>
29
redeploying the funds released or not utilized by reason of such Breakage Event
for such period. A certificate of any Lender setting forth in reasonable detail
(i) the calculation of any amount or amounts which such Lender is entitled to
receive pursuant to this Section 2.14 and (ii) the facts and circumstances
giving rise to such entitlement, shall be delivered to the Borrower (in the case
of a claim under clause (a) above, within 60 days of the applicable Breakage
Event) and shall be conclusive absent manifest error. Without prejudice to the
survival of any other agreement contained herein, the agreements and obligations
contained in this Section 2.14 shall survive the payment in full of the
principal of and interest on all Loans made hereunder.
SECTION 2.15. Pro Rata Treatment. Except as required under Section 2.13,
each Borrowing, each payment or prepayment of principal of any Borrowing, each
payment of interest on the Loans, and each refinancing of any Borrowing with,
conversion of any Borrowing to or continuation of any Borrowing as a Borrowing
of any Type shall be allocated pro rata among the Lenders in accordance with the
respective principal amounts of their outstanding Loans. In computing any
Lender's portion of any Borrowing to be made hereunder, the Administrative Agent
may, in its discretion, round each Lender's percentage of such Borrowing to the
next higher or lower whole dollar amount.
SECTION 2.16. Sharing of Setoffs. If any Lender shall, through the exercise
of a right of banker's lien, setoff or counterclaim against the Borrower, or
pursuant to a secured claim under Section 506 of Title 11 of the United States
Code or other security or interest arising from, or in lieu of, such secured
claim, received by such Lender under any applicable bankruptcy, insolvency or
other similar law or otherwise, or by any other means, obtain payment (voluntary
or involuntary) in respect of any Loan as a result of which the unpaid principal
portion of its Loans shall be proportionately less than the unpaid principal
portion of the Loans of any other Lender, it shall be deemed simultaneously to
have purchased from such other Lender at face value, and shall promptly pay to
such other Lender the purchase price for, a participation in the Loans of such
other Lender, so that the aggregate unpaid principal amount of the Loans held by
each Lender shall be in the same proportion to the aggregate unpaid principal
amount of all Loans then outstanding as the principal amount of its Loans prior
to such exercise of banker's lien, setoff or counterclaim or other event was to
the principal amount of all Loans outstanding prior to such exercise of banker's
lien, setoff or counterclaim or other event; provided, however' that if any such
purchase or purchases or adjustments shall be made pursuant to this Section 2.16
and the payment giving rise thereto shall thereafter be recovered, such purchase
or purchases or adjustments shall be rescinded to the extent of such recovery
and the purchase price or prices or adjustment restored without interest. The
Borrower expressly consents to the foregoing arrangements and agrees that any
Lender holding a participation in a Loan deemed to have been so purchased may
exercise any and all rights of banker's lien, setoff or counterclaim with
respect to any and all moneys owing by the Borrower to such Lender by reason
thereof as fully as if such Lender had made a Loan directly to the Borrower in
the amount of such participation.
SECTION 2.17. Payments. (a) The Borrower shall make each payment (including
principal of or interest on any Borrowing or any Fees or other amounts)
hereunder and under any other Loan Document not later than 1:00 p.m., New York
City time, on the
<PAGE>
30
date when due in immediately available dollars, without setoff, defense or
counterclaim (but without prejudice, waiver or effect of estoppel with respect
to any defense or counterclaim). Each such payment shall be made to the
Administrative Agent at its offices at 1221 Avenue of the Americas, New York,
New York 10020.
(b) Whenever any payment (including principal of or interest on any
Borrowing, any Fees or any other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
interest or Fees, if applicable.
SECTION 2.18. Taxes. (a) Any and all payments by the Borrower hereunder and
under any other Loan Document shall be made, in accordance with Section 2.17,
free and clear of and without deduction for any and all current or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding (i) income taxes imposed on the net income of the
Administrative Agent or any Lender (or any transferee or assignee thereof,
including a participation holder (any such entity a "Transferee")) and (ii)
franchise taxes imposed on the net income of the Administrative Agent or any
Lender (or Transferee), in each case by the jurisdiction (A) under the laws of
which the Administrative Agent or any Lender (or Transferee) is organized or any
political subdivision thereof or (B) in which the applicable office of the
Administrative Agent or any Lender (or any Transferee) is located or any
political subdivision thereof (all such nonexcluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities, collectively or individually,
being called "Taxes"). If the Borrower shall be required to deduct any Taxes
from or in respect of any sum payable hereunder or under any other Loan Document
to the Administrative Agent or any Lender (or any Transferee), (i) the sum
payable shall be increased by the amount (an "additional amount") necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.18) the Administrative Agent or any
Lender (or Transferee), as the case may be, shall receive an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrower
shall make such deductions and (iii) the Borrower shall pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable
law.
(b) In addition, the Borrower agrees to bear and shall pay to the relevant
Governmental Authority in accordance with applicable law any current or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies (including mortgage recording taxes and similar fees) that arise
from any payment made hereunder or under any other Loan Document or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document ("Other Taxes").
(c) The Borrower shall indemnify the Administrative Agent or any Lender (or
Transferee) for the full amount of Taxes and Other Taxes paid by the
Administrative Agent or any Lender (or Transferee), as the case may be, and any
liability (including penalties, interest and expenses (including reasonable
attorney's fees and expenses)) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted by
the relevant Governmental Authority. A certificate as to the amount of such
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31
payment or liability prepared by the Administrative Agent or any Lender (or
Transferee), or the Administrative Agent on its behalf, and setting forth in
reasonable detail (i) the calculation of and (ii) the facts and circumstances
giving rise to such payment or liability, absent manifest error, shall be final,
conclusive and binding for all purposes. Such indemnification shall be made
within 30 days after the date the Administrative Agent or any Lender (or
Transferee), as the case may be, makes written demand therefor. No Lender (or
Transferee) may make any claim for indemnification more than 180 days after such
Lender (or Transferee) knows of the payment or liability with respect to which
such indemnification is to be sought (such 180 days to be reduced to 60 days if
at the time of such claim for indemnification such Lender (or Transferee) holds
Loans or participations therein.
(d) If the Administrative Agent or any Lender (or Transferee) receives a
refund in respect of any Taxes or Other Taxes as to which it has been
indemnified by the Borrower or with respect to which the Borrower has paid
additional amounts pursuant to this Section 2.18, it shall within 30 days from
the date of such receipt pay over such refund to the Borrower (but only to the
extent of indemnity payments made, or additional amounts paid, by the Borrower
under this Section 2.18 with respect to the Taxes or Other Taxes giving rise to
such refund), net of all out-of-pocket expenses of the Administrative Agent or
such Lender (or Transferee) and without interest (other than interest paid by
the relevant Governmental Authority with respect to such refund); provided,
however, that the Borrower, upon the request of the Administrative Agent or such
Lender (or Transferee), shall repay the amount paid over to the Borrower (plus
penalties, interest or other charges) to the Administrative Agent or such Lender
(or Transferee) in the event the Administrative Agent or such Lender (or
Transferee) is required to repay such refund to such Governmental Authority.
(e) As soon as practicable after the date of any payment of Taxes or Other
Taxes by the Borrower to the relevant Governmental Authority, the Borrower shall
deliver to the Administrative Agent, at its address referred to in Section 10.1,
the original or a certified copy of a receipt issued by such Governmental
Authority evidencing payment thereof.
(f) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.18 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder.
(g) Each Lender (or Transferee) that is organized under the laws of a
jurisdiction other than the United States, any State thereof or the District of
Columbia (a "Non-U.S. Lender") shall deliver to the Borrower and the
Administrative Agent two copies of either United States Internal Revenue Service
Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption
from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code
with respect to payments of "portfolio interest", a Form W-8, or any subsequent
versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a
Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for
purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within
the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a
controlled foreign corporation related to the Borrower (within the meaning of
Section 864(d)(4) of the Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from, or
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32
reduced rate of, U.S. Federal withholding tax on payments by the Borrower under
this Agreement and the other Loan Documents. Such forms shall be delivered by
each Non-U.S. Lender on or before the date it becomes a party to this Agreement
(or, in the case of a Transferee that is a participation holder, on or before
the date such participation holder becomes a Transferee hereunder) and on or
before the date, if any, such Non-U.S. Lender changes its applicable office by
designating a different office (a "New Office"). In addition, each Non-U.S.
Lender shall deliver such forms promptly upon the obsolescence or invalidity of
any form previously delivered by such Non-U.S. Lender. Notwithstanding any other
provision of this paragraph (g), a Non-U.S. Lender shall not be required to
deliver any form pursuant to this paragraph (g) that such Non-U.S. Lender is not
legally able to deliver.
(h) The Borrower shall not be required to indemnify any Non-U.S. Lender or
to pay any additional amounts to any Non-U.S. Lender, in respect of United
States Federal withholding tax pursuant to paragraph (a) or (c) above to the
extent that (i) the obligation to withhold amounts with respect to United States
Federal withholding tax existed on the date such Non-U.S. Lender became a party
to this Agreement (or, in the case of a Transferee that is a participation
holder, on the date such participation holder became a Transferee hereunder) or,
with respect to payments to a New Office, the date such Non-U.S. Lender
designated such New Office with respect to a Loan; provided, however, that this
paragraph (h) shall not apply (x) to any Transferee or New Office that becomes a
Transferee or New Office as a result of an assignment, participation, transfer
or designation made at the request of the Borrower and (y) to the extent the
indemnity payment or additional amounts any Transferee, or any Lender (or
Transferee), acting through a New Office, would be entitled to receive (without
regard to this paragraph (h)) do not exceed the indemnity payment or additional
amounts that the Person making the assignment, participation or transfer to such
Transferee, or Lender (or Transferee) making the designation of such New Office,
would have been entitled to receive in the absence of such assignment,
participation, transfer or designation or (ii) the obligation to pay such
additional amounts would not have arisen but for a failure by such Non-U.S.
Lender to comply with the provisions of paragraph (g) above.
(i) Nothing contained in this Section 2.18 shall require any Lender (or any
Transferee) or the Administrative Agent to make available any of its tax returns
(or any other information that it deems to be confidential or proprietary).
SECTION 2.19. Assignment of Commitments under Certain Circumstances; Duty
To Mitigate. (a) In the event (i) any Lender delivers a certificate requesting
compensation pursuant to Section 2.12, (ii) any Lender delivers a notice
described in Section 2.13, (iii) the Borrower is required to pay any additional
amount to any Lender or any Governmental Authority on account of any Lender
pursuant to Section 2.18 or (iv) the Administrative Agent notifies the Borrower
of any Lender's failure to fund as provided in Section 2.2(d), the Borrower may,
at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to transfer and assign, without
recourse (in accordance with and subject to the restrictions contained in
Section 10.4), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such assigned obligations (which assignee may be
another Lender, if a Lender accepts such assignment); provided, however, that
(x) such assignment shall not conflict with any law, rule or regulation
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33
or order of any court or other Governmental Authority having jurisdiction, (y)
the Borrower or such assignee shall have paid to the affected Lender in
immediately available funds an amount equal to the sum of the principal of the
outstanding Loans of such Lender plus all other amounts (excluding interest and
Fees, which shall be paid when due to the assigning Lender under Sections 2.6
and 2.5, respectively) accrued for the account of such Lender hereunder
(including any amounts under Sections 2.12, 2.14 and 2.18) and (z) if prior to
any such transfer and assignment the circumstances or event that resulted in
such Lender's claim for compensation under Section 2.12 or notice under Section
2.13 or the amounts paid pursuant to Section 2.18, as the case may be, cease to
cause such Lender to suffer increased costs or reductions in amounts received or
receivable or reduction in return on capital, or cease to have the consequences
specified in Section 2.13, or cease to result in amounts being payable under
Section 2.18, as the case may be (including as a result of any action taken by
such Lender pursuant to paragraph (b) below), or if such Lender shall waive its
right to claim fiber compensation under Section 2.12 in respect of such
circumstances or event or shall withdraw its notice under Section 2.13 or shall
waive its right to further payments under Section 2.18 in respect of such
circumstances or event or shall fund as provided in Section 2.2(d), as the case
may be, then such Lender shall not thereafter be required to make any such
transfer and assignment hereunder.
(b) If (i) any Lender shall request compensation under Section 2.12, (ii)
any Lender delivers a notice described in Section 2.13 or (iii) the Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority on account of any Lender, pursuant to Section 2.18, then such Lender
shall use reasonable efforts (which shall not require such Lender to incur an
unreimbursable loss or unreimbursable cost or expense or otherwise take any
action inconsistent with its internal policies or legal or regulatory
restrictions or suffer any disadvantage or burden deemed by it in good faith to
be significant) (x) to file any certificate or document reasonably requested in
writing by the Borrower or (y) to assign its rights and delegate and transfer
its obligations hereunder to another of its offices, branches or affiliates, if
such filing or assignment would reduce its claims for compensation under Section
2.12 or enable it to withdraw its notice pursuant to Section 2.13 or would
reduce amounts payable pursuant to Section 2.18, as the case may be, in the
future. The Borrower shall pay all reasonable costs and expenses incurred by any
Lender in connection with any such filing or assignment, delegation and
transfer.
SECTION 2.20. Conversion Notes. On the Conversion Date: the Borrower shall
deliver to each Lender a Conversion Note payable to the order of such Lender in
a principal amount equal to 103.5% of the principal amount of the Loan then held
by such Lender; such Lender shall accept such Conversion Note in exchange for
any promissory note then held by such Lender as evidence of such Loan; and such
Loan shall thereafter be evidenced and governed by and be payable in accordance
with such Conversion Note and the Conversion Note Indenture; provided, however,
that the exchange of promissory notes provided for in this Section 2.20 shall
not occur unless on the Conversion Date the following conditions shall have been
satisfied:
(i) all accrued interest on all Loans shall have been paid in full in
cash;
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34
(ii) no Default or Event of Default shall have occurred and be
continuing, and no Default or Event of Default (as such terms are defined
in the Chase Credit Agreement) shall have occurred and be continuing;
(iii) such exchange would not violate any law or regulation or any
order or decree of any court or Governmental Body applicable to the
Borrower;
(iv) The Borrower and a trustee satisfactory to the Borrower and the
Administrative Agent shall have executed and delivered the Conversion Note
Indenture substantially in the form of Exhibit C hereto; and
(v) the Lenders shall have received (A) an opinion of counsel for the
Borrower as to the Conversion Notes and the Conversion Note Indenture, in
form and substance reasonably satisfactory to the Administrative Agent, and
(B) a certificate of the Borrower, signed by a Responsible Officer, as to
the names, officers and signatures of its officers executing the Conversion
Notes and the Conversion Note Indenture on such date.
The Conversion Notes (if any) issued pursuant to this Section 2.20 will
mature on the Maturity Date.
ARTICLE III
Representations and Warranties of the Borrower
The Borrower represents and warrants to the Administrative Agent and the
Lenders that:
SECTION 3.1. Organization; Powers. The Borrower and each Subsidiary (a) is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, (b) has all requisite power and
authority to own its property and assets and to carry on its business as now
conducted and as proposed to be conducted, (c) is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required, except where the failure so to qualify could not reasonably be
expected to result in a Material Adverse Effect, and (d) has the corporate power
and authority to execute, deliver and perform its obligations under each of the
Loan Documents and each other agreement or instrument contemplated hereby to
which it is or will be a party.
SECTION 3.2. Authorization. The execution, delivery and performance by the
Borrower and each Subsidiary of this Agreement and each other Loan Document
(collectively, the "Transactions") (a) have been duly authorized by all
requisite corporate and, if required, stockholder action and (b) will not (i)
violate (A) any provision of law, statute, rule or regulation, or of the
certificate or articles of incorporation or other constitutive documents or
by-laws of the Borrower or any Subsidiary, (B) any order of any Governmental
Authority or
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35
(C) any provision of any indenture, agreement or other instrument to which the
Borrower or any Subsidiary is a party or by which any of them or any of their
property is or may be bound, (ii) be in conflict with, result in a breach of or
constitute (alone or with notice or lapse of time or both) a default under, or
give rise to any right to accelerate or to require the prepayment, repurchase or
redemption of any obligation under any such indenture, agreement or other
instrument or (iii) result in the creation or imposition of any Lien upon or
with respect to any property or assets now owned or hereafter acquired by the
Borrower or any Subsidiary, other than (in the case of clauses (b)(i)(C) and
(ii) above) for such matters that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
SECTION 3.3. Enforceability. This Agreement has been duly executed and
delivered by the Borrower and constitutes, and each other Loan Document when
executed and delivered by the Borrower will constitute, a legal, valid and
binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms, except as enforceability thereof may be limited by
bankruptcy, insolvency or similar laws of general application affecting
creditors' rights.
SECTION 3.4. Governmental Approvals. No action, consent or approval of,
registration or filing with or any other action by any Governmental Authority is
or will be required in connection with the Transactions, except for such as have
been made or obtained and are in full force and effect.
SECTION 3.5. Financial Statements. The Borrower has heretofore furnished to
the Lenders its consolidated balance sheets and statements of income,
shareholders' equity and cash flows (i) as of and for the fiscal year ended
December 30, 1995, audited by and accompanied by the opinion of BDO Seidman,
independent public accountants, and (ii) as of and for the fiscal quarter and
the portion of the fiscal year ended September 28, 1996, certified by a
Financial Officer. Such financial statements present fairly the financial
condition and results of operations of the Borrower and its consolidated
Subsidiaries as of such dates and for such periods. Such balance sheets and the
notes thereto disclose all material liabilities, direct or contingent, of the
Borrower and its consolidated Subsidiaries as of the dates thereof. Such
financial statements were prepared in accordance with GAAP applied on a
consistent basis, subject (in the case of the statements referred to in clause
(ii) above) to normal, year-end recurring adjustments.
SECTION 3.6. No Material Adverse Change. There has been no material adverse
change in the business, assets, operations, prospects or condition, financial or
otherwise, of the Borrower and the Subsidiaries, taken as a whole, since
September 28, 1996.
SECTION 3.7. Title to Properties; Possession under Leases. (a) Each of the
Borrower and the Subsidiaries has good and marketable title to, or valid
leasehold interests in, all its material properties and assets. All such
material properties and assets are free and clear of Liens, other than Liens
expressly permitted by Section 6.2 granting to any Person any right to use,
occupy or enjoy such portion.
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(b) Each of the Borrower and the Subsidiaries has complied with all
obligations under all material leases to which it is a party, and all such
leases are in full force and effect. Each of the Borrower and the Subsidiaries
enjoys peaceful and undisturbed possession under all such material leases.
SECTION 3.8. Subsidiaries. Schedule 3.8 sets forth as of the date hereof a
list of the Subsidiaries and the percentage ownership interest of the Borrower
therein. The shares of capital stock or other ownership interests so indicated
on Schedule 3.8 are fully paid and non-assessable and are owned by the Borrower,
directly or indirectly, free and clear of all Liens except under the Chase
Credit Facility.
SECTION 3.9. Litigation; Compliance with Laws. (a) There are not any
actions, suits or proceedings at law or in equity or by or before any
Governmental Authority now pending or, to the knowledge of the Borrower,
threatened against or affecting any Loan Park or any business, property or
rights of any such Person (i) that involve any Loan Document or the Transactions
or (ii) as to which there is a likelihood of an adverse determination and that,
if adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect.
(b) None of the Borrower and the Subsidiaries or any of their respective
material properties or assets is in violation of, nor will the continued
operation of such material properties and assets as currently conducted violate,
any law, rule or regulation (including any Health Care Law, any Environmental
Law, any zoning or building ordinance, code or approval or any building permit)
or any restriction of record or agreements affecting any such properties or
assets, or is in default with respect to any judgment, writ, injunction, decree
or order of any Governmental Authority, other than, in each case, such
violations and defaults that, individually and in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.10. Agreements. (a) Neither the Borrower nor any Subsidiary is a
party to any agreement or instrument or subject to any corporate restriction
that has resulted or could reasonably be expected to result in a Material
Adverse Effect.
(b) Neither the Borrower nor any of the Subsidiaries is in default in any
manner under any provision of any indenture or other agreement or instrument
evidencing Indebtedness, the General Shareholders Agreement dated September 30,
1994, as amended, and the Continuing Shareholders Agreement dated September 30,
1994, or any other agreement or instrument to which it is a party or by which it
or any of its properties or assets are or may be bound, other than such defaults
that, individually and in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.11. Federal Reserve Regulations. (a) Neither the Borrower nor any
Subsidiary is engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of buying or carrying Margin Stock.
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37
(b) No part of the proceeds of any Loan will be used, whether directly or
indirectly, and whether immediately, incidentally or ultimately, for any purpose
that entails a violation of, or that is inconsistent with, the provisions of the
Regulations of the Board, including, to the extent applicable, Regulation G. U
or X. Margin Stocks do not constitute 25% or more of the assets of the Borrower
and the Subsidiaries, taken as a whole.
(c) No Indebtedness of the Borrower or any Subsidiary (other than the
Obligations) is "directly or indirectly secured" (within the meaning of
Regulation U and Regulation G) by any Margin Stock.
SECTION 3.12. Investment Company Act; Public Utility Holding Company Act.
Neither the Borrower nor any Subsidiary is (a) an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of 1940,
(b) a "holding company" as defined in, or subject to regulation under, the
Public Utility Holding Company Act of 1935 or (c) otherwise subject to any law,
rule or regulation that limits its ability to incur Indebtedness.
SECTION 3.13. Use of Proceeds. The Borrower will use the proceeds of the
Loans to prepay the loans under the Chase Credit Agreement.
SECTION 3.14. Tax Returns. Each of the Borrower and the Subsidiaries has
filed or caused to be filed all Federal, state, local and foreign tax returns or
materials required to have been filed by it and has paid or caused to be paid
all taxes due and payable by it and all assessments received by it, except taxes
that are being contested in good faith by appropriate proceedings and for which
the Borrower or such Subsidiary, as applicable, shall have set aside on its
books (in accordance with GAAP accounting requirements) adequate reserves.
SECTION 3.15. No Material Misstatements. None of any information, report,
financial statement, exhibit or schedule authored by, and furnished by or on
behalf of, the Borrower in writing to the Administrative Agent or any Lender in
connection with the negotiation of any Loan Document or included therein or
delivered pursuant thereto contains any material misstatement of fact or omits
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they are made not misleading; provided.
however that to the extent any such information, report, financial statement,
exhibit or schedule was based upon or constitutes a forecast or projection, the
Borrower represents only that (x) it acted in good faith and utilized reasonable
assumptions and due care in the preparation of such information, report,
financial statement, exhibit or schedule and (y) with respect to projections
delivered by the Borrower to the Administrative Agent on December____, 1996, as
of the date of this Agreement and as of the Closing Date, the Borrower believes
the assumptions underlying such projections are reasonable.
SECTION 3.16. Employee Benefit Plans. Each of the Borrower and the ERISA
Affiliates is in compliance in all respects with the applicable provisions of
ERISA and the Code and the regulations and published interpretations thereunder,
except for such failures to comply that, individually and in the aggregate,
could not reasonably be expected to result
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38
in a Material Adverse Effect. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events,
could reasonably be expected to result in a Material Adverse Effect. As of the
date of this Agreement, none of the Plans is a "defined benefit plan" as defined
in Section 3(35) of ERISA or Section 414(1) of the Code. The present value of
all benefit liabilities under each Plan (based on those assumptions used for
purposes of Statement of Financial Accounting Standards No. 87) did not, as of
the last annual valuation date applicable thereto, exceed by more than
$15,000,000 the fair market value of the assets of such Plan, and the present
value of all benefit liabilities of all underfunded Plans (based on those
assumptions used for purposes of Statement of Financial Accounting Standards No.
87) did not, as of the last annual valuation dates applicable thereto, exceed by
more than $15,000,000 the fair market value of the assets of all such
underfunded Plans.
SECTION 3.17. Environmental Matters. (a) The properties owned or operated
by the Borrower and the Subsidiaries (the "Properties") do not contain any
Hazardous Materials in amounts or concentrations that constitute a violation of,
or could give rise to under, any Environmental Law, other than such violations
and liabilities that, individually and in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
(b) The Properties and all operations of the Borrower and the Subsidiaries
are in compliance, and in the last six years have been in compliance, with all
Environmental Laws, and all Environmental Permits have been obtained and are in
effect, other than such items that, individually and in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
(c) There have not been any Releases or threatened Releases at, from, under
or, to the knowledge of the Borrower, proximate to the Properties or otherwise
in connection with the operations of the Borrower or the Subsidiaries, which
Releases or threatened Releases, in the aggregate, could reasonably be expected
to result in a Material Adverse Effect.
(d) Neither the Borrower nor any Subsidiary has received any notice of an
Environmental Claim in connection with the Properties or the operations of the
Borrower or the Subsidiaries or with regard to any Person whose liabilities for
environmental matters the Borrower or the Subsidiaries has retained or assumed,
in whole or in part, contractually, or to the knowledge of the Borrower by
operation of law or otherwise, which, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect, nor do the
Borrower or the Subsidiaries have any knowledge that any such notice is likely
to be received or is being threatened.
(e) Hazardous Materials have not been transported from the Properties, nor
have Hazardous Materials been generated, treated, stored or disposed of at, on
or under any Property in a manner that could reasonably be expected to give rise
to any material liability under any Environmental Law, nor has the Borrower or
Subsidiary retained or assumed any liability, contractually, or to the knowledge
of the Borrower by operation of law or otherwise,
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39
with respect to the generation, treatment, storage or disposal of Hazardous
Materials, which transportation, generation, treatment, storage or disposal, or
retained or assumed liabilities, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.18. Insurance. Schedule 3.18 sets forth a true, complete and
correct of all insurance maintained by the Borrower and the Subsidiaries as of
the date hereof and the Closing Date. As of each such date, such insurance is in
full force and effect and all premiums due have been paid. The Borrower and the
Subsidiaries have insurance in such amounts and covering such risks and
liabilities as are in accordance with normal industry practice.
SECTION 3.19. Solvency. (a) The fair salable value of the assets of the
Borrower and each Subsidiary exceeds the amount that will be required to be paid
on or in respect of the existing debts and other liabilities (including
contingent liabilities) of the Borrower or such Subsidiary as they mature.
(b) The assets of the Borrower and each Subsidiary do not constitute
unreasonably small capital for the Borrower or such Subsidiary to carry out its
business as now conducted and as proposed to be conducted, including the capital
needs of the Borrower or such Subsidiary, taking into account the particular
capital requirements of the business conducted by the Borrower and each
Subsidiary, and the projected capital requirements and capital availability
thereof.
(c) The Borrower and each Subsidiary do not intend to and shall not incur
debts beyond their respective ability to pay such debts as they mature taking
into account the timing and amounts of cash to be received by the Borrower and
such Subsidiary and of amounts to be payable on or in respect of obligations of
the Borrower and such Subsidiary. The cash flow of the Borrower and each
Subsidiary, after taking into account all anticipated uses of the cash of the
Borrower and each Subsidiary, will at all times be sufficient to pay all such
amounts on or in respect of debt of the Borrower or such Subsidiary when such
amounts are required to be paid.
(d) The representations made in this Section 3.19 with respect to any
Subsidiary that is a Guarantor are made after taking into consideration and
giving effect to the Indemnity, Contribution and Subrogation Agreement.
SECTION 3.20. Labor Matters. As of the date of this Agreement and the
Closing Date, there are no strikes, lockouts or slowdowns against the Borrower
or any Subsidiary pending or, to the knowledge of the Borrower, threatened. The
hours worked by and payments made to employees of the Borrower and the
Subsidiaries have not been in violation of the Fair Labor Standards Act or any
other applicable Federal, state, local or foreign law dealing with such matters.
All payments due from the Borrower or any Subsidiary, or for which any claim may
be made against the Borrower or any Subsidiary, on account of wages and employee
health and welfare insurance and other benefits, have been paid or accrued as a
liability on the books of the Borrower or such Subsidiary.
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SECTION 3.21. Capitalization of the Borrower. As of the date of this
Agreement, the authorized capital stock of the Borrower consists of 529,295
shares of common stock, par value $0.01 per share, of which 273,742 shares are
issued and outstanding. All such outstanding shares of stock are fully paid and
nonassessable.
SECTION 3.22. Shareholders Agreements. The Administrative Agent has
received a complete copy of the General Shareholders Agreement dated September
30, 1994 and the Continuing Shareholders Agreement dated September 30, 1994
(including all exhibits, schedules and disclosure letters referred to therein or
delivered pursuant thereto) and all amendments and waivers relating thereto and
other side letters or agreements affecting the terms thereof.
ARTICLE IV
Closing Conditions
The obligations of the Lenders to make Loans on the Closing Date are
subject to the satisfaction, on or before December 28, 1996, of the following
conditions:
SECTION 4.1. Proceedings Satisfactory. All corporate and other proceedings
taken or to be taken in connection with the transactions contemplated to occur
on the Closing Date and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Administrative Agent and its special
counsel, and the Administrative Agent and its special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request, including, without limitation:
(a) certified copies of the certificate or articles of incorporation (or
other comparable constituting document) of the Borrower and each Subsidiary,
with all amendments thereto to the Closing Date;
(b) certified copies of the by-laws (or other comparable constituting
document) of the Borrower and each Subsidiary, with all amendments thereto to
the Closing Date;
(c) certified copies of resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance of this Agreement,
the Loans and the other Loan Documents to which the Borrower is a party;
(d) certified copies of resolutions of the Board of Directors of each
Subsidiary of the Borrower authorizing the execution, delivery and performance
by such Subsidiary of the Loan Documents to which such Subsidiary is a party;
and
(e) certificates as to the incumbency and signatures of each of the
officers of the Borrower and each Subsidiary who shall execute this Agreement or
any other Loan Document on behalf of such respective party.
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41
SECTION 4.2. Opinions of Counsel to the Borrower and each Subsidiary. The
Administrative Agent shall have received from Proskauer Rose Goetz & Mendelsohn
LLP, counsel to the Borrower and each domestic Subsidiary in connection with the
Transactions, a favorable legal opinion, dated the Closing Date and addressed to
the Administrative Agent, covering the matters specified in Exhibit G.
SECTION 4.3. Representations and Warranties True, Etc.; Certificates. The
representations and warranties of the Borrower and each Subsidiary contained in
Section 3 and elsewhere in this Agreement and the other Loan Documents shall be
true on and as of the Closing Date with the same effect as if such
representations and warranties had been made on and as of the Closing Date after
giving effect to the Transactions. The Borrower shall have performed all
agreements on its part required to be performed under this Agreement on or prior
to the Closing Date, and there shall exist no Default or Event of Default on the
Closing Date after giving effect to the Transactions. The Borrower shall have
delivered to the Administrative Agent an Officer's Certificate, dated the
Closing Date, to the effect of the matters stated in the foregoing sentences of
this Section 4.3.
SECTION 4.4. Consents and Approvals. All necessary consents, approvals and
authorizations of, and declarations, registrations and filings with,
Governmental Authorities and nongovernmental Persons required in order to
consummate the Transactions shall have been obtained or made and shall be in
full force and effect.
SECTION 4.5. Amendment to Chase Credit Agreement. The Administrative Agent
shall have received a fully executed copy of an amendment to the Chase Credit
Agreement that shall amend the Chase Credit Agreement to permit the borrowing by
the Borrower of the Loans and the issuance of the Conversion Notes on the terms
and conditions of this Agreement, to permit, subject to the subordination
provisions set forth in Article VIII hereof, the payment of the principal of and
interest on the Loans and the Conversion Notes and the payment of the other
amounts provided for herein and to modify certain of the financial covenants
contained therein, and such amendment shall be in form and substance
satisfactory to the Administrative Agent.
SECTION 4.6. Guarantee. The Guarantee Agreement shall have been duly
executed by each Subsidiary, shall have been delivered to the Administrative
Agent and shall be in full force and effect; provided, however, that no Foreign
Subsidiary shall be required to execute the Guarantee Agreement.
SECTION 4.7. Conversion Notes Registration Rights Agreement. The Conversion
Notes Registration Rights Agreement shall have been duly executed by the
Borrower, shall have been delivered to the Administrative Agent and shall be in
full force and effect.
SECTION 4.8. Fees. The fees required to be paid on the Closing Date
pursuant to the Fee Letter shall be paid concurrently with the making of the
Loans on the Closing Date. The fees and expenses incurred by Simpson Thacher &
Bartlett and payable by the Borrower pursuant to Section 10.5 in connection with
the preparation of this Agreement
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42
and the other Loan Documents and the transactions contemplated hereby shall be
paid by the Borrower on the Closing Date upon presentation of its invoice.
SECTION 4.9. Indemnity Subrogation and Contribution Agreement. The
Indemnity, Subrogation and Contribution Agreement shall have been duly executed
by the Borrower and each Subsidiary, shall have been delivered to the
Administrative Agent and shall be in full force and effect.
ARTICLE V
Affirmative Covenants
The Borrower covenants and agrees with each Lender that so long as this
Agreement shall remain in effect and until the principal of and interest on the
Loans, all fees and all other expenses or amounts payable under any Loan
Document have been paid in full, unless the Required Lenders shall otherwise
consent in writing, the Borrower shall, and shall cause each Subsidiary to:
SECTION 5.1. Existence; Businesses and Properties. (a) Do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence, except as otherwise expressly permitted under Section 6.5.
(b) Do or cause to be done all things necessary to obtain, preserve, renew,
extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; comply with all applicable laws, rules,
regulations and decrees and orders of any Governmental Authority, whether now in
effect or hereafter enacted, except where the failure to comply could not
reasonably be expected to result in a Material Adverse Effect; and at all times
maintain and preserve all property material to the conduct of such business and
keep such property in good repair, working order and condition and from time to
time make, or cause to be made, all needful and proper repairs, renewals,
additions, improvements and replacements thereto necessary, in the Borrower's
reasonable judgment, in order that the business carried on in connection
therewith may be properly conducted at all times.
SECTION 5.2. Insurance. Keep its insurable properties adequately insured at
all times by financially sound and reputable insurers; and maintain such other
insurance, to such extent and against such risks, including fire and other risks
insured against by extended coverage, as is customary with companies in the same
or similar businesses operating in the same or similar locations.
SECTION 5.3. Obligations and Taxes. Pay its Indebtedness and pay or perform
its other material obligations in accordance with their terms and pay and
discharge when due all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or in respect of its property,
before the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise that, if
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43
unpaid, might give rise to a Lien upon such properties or any part thereof;
provided, however, that such payment and discharge shall not be required with
respect to any such obligation, tax, assessment, charge, levy or claim so long
as the validity, amount or entitlement thereof shall be contested in good faith
by appropriate proceedings and the Borrower shall have set aside on its books
adequate reserves with respect thereto in accordance with GAAP and such contest
operates to suspend enforcement of any related Lien.
SECTION 5.4. Financial Statements, Reports, etc. In the case of the
Borrower, furnish to the Administrative Agent:
(a) within 100 days after the end of each fiscal year, its
consolidated balance sheet and related statements of operations,
stockholders' equity and cash flows showing the financial condition of the
Borrower and its consolidated Subsidiaries as of the close of such fiscal
year and the results of its operations and the operations of such
Subsidiaries during such year, all audited by BDO Seidman LLP or other
independent public accountants of recognized national standing and
accompanied by an opinion of such accountants (which shall not be qualified
in any material respect) to the effect that such consolidated financial
statements fairly present the financial condition and results of operations
of the Borrower and its consolidated Subsidiaries on a consolidated basis
in accordance with GAAP consistently applied;
(b) within 60 days after the end of each of the first three fiscal
quarters of each fiscal year, its consolidated balance sheet and related
statements of operations, stockholders' equity and cash flows showing the
financial condition of the Borrower and its consolidated Subsidiaries as of
the close of such fiscal quarter and the results of its operations and the
operations of such Subsidiaries during such fiscal quarter and the then
elapsed portion of the fiscal year, all certified by one of its Financial
Officers as fairly presenting the financial condition and results of
operations of the Borrower and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments;
(c) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of the accounting firm (in the case
of delivery under clause (a) above) or Financial Officer (in the case of
delivery under clause (b) above) opining on or certifying such statements
(which certificate, when furnished by an accounting firm, may be limited to
accounting matters and disclaim responsibility for legal interpretations)
certifying that, to the knowledge of the signer, no Event of Default or
Default has occurred or, if such an Event of Default or Default has
occurred, specifying the nature and extent thereof and any corrective
action taken or proposed to be taken with respect thereto, and attaching
calculations showing compliance with Section 6.13 as of the end of such
fiscal period;
(d) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
the Borrower or any Subsidiary with the SEC, or any Governmental Authority
succeeding to any or all of
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44
the functions of said Commission, or with any national securities exchange,
or distributed to its shareholders, as the case may be;
(e) as soon as available, and in any event no later than 100 days
after the end of each fiscal year, commencing with the fiscal year ending
December 28, 1996, forecasted financial projections for the Borrower
through the end of the then-current fiscal year (including a description of
the underlying assumptions and management's discussion of historical
results), all certified by a Financial Officer of the Borrower to be a good
faith estimate of the forecasted financial projections and results of
operations for the period through the then-current fiscal year; and
(f) promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of the Borrower or any
Subsidiary, or compliance with the terms of any Loan Document, as the
Administrative Agent or any Lender may reasonably request.
SECTION 5.5. Litigation and Other Notices. Furnish to the Administrative
Agent and each Lender prompt written notice of the following:
(a) any Event of Default or Default, specifying the nature and extent
thereof and the corrective action (if any) taken or proposed to be taken
with respect thereto;
(b) the filing or commencement of, or any threat or notice of
intention of any Person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any Governmental
Authority, against the Borrower or any Subsidiary thereof that could
reasonably be expected to result in a Material Adverse Effect; and
(c) any effect or impairment known to the Borrower that has resulted
in, or could reasonably be expected to result in, a Material Adverse
Effect.
SECTION 5.6. Employee Benefits. (a) Comply in all respects with the
applicable provisions of ERISA and the Code, except where the failure to comply
could not reasonably be expected to result in a Material Adverse Effect, and (b)
furnish to the Administrative Agent (i) as soon as possible after, and in any
event within 20 days after any Responsible Officer of the Borrower or any ERISA
Affiliate knows, any ERISA Event has occurred that, alone or together with any
other ERISA Events that have occurred could reasonably be expected to result in
liability of the Borrower in an aggregate amount exceeding $1,000,000, a
statement of a Financial Officer of the Borrower setting forth details as to
such ERISA Event and the action, if any, that the Borrower proposes to take with
respect thereto.
SECTION 5.7. Maintaining Records; Access to Properties and Inspections.
Keep proper books of record and account in which full, true and correct entries
in conformity with GAAP and all requirements of applicable law are made of all
material dealings and transactions in relation to its business. The Borrower
will, and will cause each Subsidiary to, permit any representatives designated
by the Administrative Agent or any Lender to visit and
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45
inspect the financial records and the properties of the Borrower or any
Subsidiary upon prior notice to a Financial Officer of the Borrower, at mutually
agreed times during normal business hours and as often as reasonably requested
and to make extracts from and copies of such financial records (such visits and
inspections to be coordinated, to the extent possible, through the
Administrative Agent). Permit any representatives designated by the
Administrative Agent or any Lender to discuss the affairs, finances and
condition of the Borrower or any Subsidiary with the officers thereof (all in a
manner reasonably calculated not to materially disrupt the normal business
operations and activities of the Borrower and the Subsidiaries) and independent
accountants therefor.
SECTION 5.8. Compliance with Environmental Laws. Comply, and cause all
lessees and other Persons occupying its Properties to comply, in all material
respects with all Environmental Laws and Environmental Permits applicable to its
operations and Properties; obtain and renew all material Environmental Permits
necessary for its operations and Properties; and conduct any Remedial Action in
accordance with Environmental Laws; provided, however, that neither the Borrower
nor any Subsidiary shall be required to undertake any Remedial Action to the
extent that its obligation to do so is being contested in good faith and by
proper proceedings and appropriate reserves are being maintained with respect to
such circumstances.
SECTION 5.9. Preparation of Environmental Reports. If a Default caused by
reason of a breach of Section 3.17 or 5.8 shall have occurred and be continuing,
at the written request of the Required Lenders, provide to the Lenders within 45
days after such request, at the expense of the Borrower, an environmental site
assessment report for the Properties which are the subject of such Default
prepared by an environmental consulting firm acceptable to the Administrative
Agent and indicating the presence or absence of Hazardous Materials and the
estimated cost of any compliance or Remedial Action required by Environmental
Laws in connection with such Properties.
SECTION 5.10. Further Assurances. Execute any and all further documents,
agreements and instruments, and take all further action that may be required
under applicable law, or that the Required Lenders or the Administrative Agent
may reasonably request, to effectuate the transactions contemplated by the Loan
Documents. The Borrower shall cause any subsequently acquired or organized
Subsidiary to became a party to the Guarantee Agreement and the Indemnity,
Subrogation and Contribution Agreement; provided, however, that no Foreign
Subsidiary shall be required to become a party to the Guarantee Agreement.
SECTION 5.11. Registration of Conversion Notes. Not later than 60 days
prior to the Conversion Date, authorize and file with the SEC under the
Securities Act a registration statement meeting the requirements of Section 2 of
the Conversion Notes Registration Rights Agreement and otherwise comply in all
respects with the requirements of such Agreement.
SECTION 5.12. Refinancing. Use its commercially reasonable best efforts to
effect prior to January 31, 1998 a public offering and/or a private placement of
an Equity Issuance and/or a sale of Indebtedness of the Borrower and/or any
Subsidiary the aggregate
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46
Net Proceeds of which, together with other available funds, shall be sufficient
to prepay in full the then outstanding Loans.
SECTION 5.13. Syndication of Loans. Assist the Lenders in completing a
syndication of the Loans, such assistance to include (a) assistance in the
preparation of a confidential information memorandum and other marketing
materials to be used in connection with the syndication, (b) the hosting, with
SocGen, of one or more meetings of prospective Lenders, (c) direct contact
between senior management and advisors of the Borrower and the proposed Lenders
and (d) the Borrower using commercially reasonable efforts to seek to ensure
that the syndication efforts benefit materially from the Borrower's existing
lending relationships. To assist the Lenders in their syndication efforts, the
Borrower agrees promptly upon the request of SocGen to prepare and provide to
SocGen all information with respect to the Borrower and the other transactions
contemplated hereby, including all financial information and projections, as
SocGen may reasonably request in connection with the syndication of the Loans.
ARTICLE VI
Negative Covenants
The Borrower covenants and agrees with each Lender that, so long as this
Agreement shall remain in effect and until the principal of and interest on the
Loans, all fees and all other expenses or amounts payable under any Loan
Document have been paid in full, unless the Required Lenders shall otherwise
consent in writing, the Borrower shall not, and shall not cause or permit any
Subsidiary to:
SECTION 6.1. Indebtedness. Incur, create, assume or permit to exist any
Indebtedness, except:
(a) Indebtedness in respect of this Agreement and the other Loan
Documents;
(b) Indebtedness incurred pursuant to the Chase Credit Facility in an
aggregate amount, at any one time outstanding, not to exceed the sum of (i)
$100,000,000 (to the extent pursuant to a revolving credit and/or letter of
credit facility) and (ii) the aggregate principal of the Indebtedness
outstanding on the date hereof under the Chase Credit Agreement as in
effect as of the date hereof (other than that described in clause (i)
above) less (in the case of the Indebtedness described in this clause (ii))
(x) an amount equal to that portion of the proceeds of the Loans that shall
be used to prepay the principal of such Indebtedness under the Chase Credit
Facility and (y) any other amounts paid subsequent to the date hereof on
account of such Indebtedness;
(c) in the case of any Subsidiary, Indebtedness owed to the Borrower
or any wholly owned Subsidiary that is a Guarantor, which Indebtedness is
evidenced by a note or notes pledged to secure the Indebtedness under the
Chase Credit Facility; and, in the case of
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47
the Borrower, Indebtedness owed to any Subsidiary, which Indebtedness is
subordinated to the Obligations and Senior Indebtedness on terms and
conditions approved in writing by the Administrative Agent;
(d) in the case of the Borrower, Indebtedness under Rate Protection
Agreements entered into in the ordinary course of business on terms and
with counterparties reasonably satisfactory to the Administrative Agent
(and any Lender and any lender under the Chase Credit Agreement is hereby
deemed to be satisfactory);
(e) accounts payable, rent obligations (other than Capital Lease
Obligations) and operating expenses incurred in the ordinary course of
business;
(f) purchase money Indebtedness incurred in the ordinary course of
business after the date of this Agreement (including financings through
industrial revenue and similar bonds) to finance capital expenditures;
provided, however, that such Indebtedness is incurred within 90 days after
the making of the capital expenditure so financed;
(g) in the case of the Borrower, Indebtedness issued as consideration
for the repurchase of stock or options, as permitted by Section 6.6(a)(ii),
not in excess of $5,000,000 aggregate principal amount outstanding at any
time;
(h) Indebtedness consisting of Guarantees of Indebtedness permitted
under clause (e) above; and
(i) other Indebtedness of the Borrower not in excess of $10,000,000
aggregate principal amount at any time outstanding, of which up to
$3,500,000 may be in the form of Capital Lease Obligations and the balance
shall be unsecured.
SECTION 6.2. Liens. Create, incur, assume or permit to exist any Lien on
any property or assets (including stock or other securities of any Person,
including any Subsidiary) now owned or hereafter acquired by it or on any income
or revenues or rights in respect of any thereof, except:
(a) any Lien on property or assets of the Borrower and the
Subsidiaries existing on the date of this Agreement and set forth in
Schedule 6.2; provided however, that such Lien shall secure only those
obligations that it secures on the date hereof;
(b) any Lien created under the Chase Credit Facility;
(c) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary; provided, however,
that (i) such Lien is not created in contemplation of or in connection with
such acquisition and (ii) such Lien does not apply to any other property or
assets of the Borrower or any Subsidiary;
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48
(d) any Lien for taxes, assessments or government charges not yet due
or that are being contested in compliance with Section 5.3;
(e) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business and securing
obligations that are not due and payable or that are being contested in
compliance with Section 5.3;
(f) pledges and deposits made in the ordinary course of business in
compliance with workmen's compensation, unemployment insurance and other
social security laws or regulations;
(g) deposits to secure the performance of bids, trade contracts (other
than for Indebtedness), leases (other than Capital Lease Obligations),
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business;
(h) zoning restrictions, easements, rights-of-way, restrictions on use
of real property and other similar encumbrances incurred in the ordinary
course of business that, in the aggregate, are not substantial in amount
and do not materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the business of the
Borrower or any Subsidiary;
(i) unpaid vendors' Liens, rights of reclamation or other like Liens
of sellers of inventory arising in the ordinary course of business and
securing obligations not past due;
(j) any purchase money security interest in fixed assets; provided,
however, that (i) such security interest only secures Indebtedness
permitted under Section 6.1(f), (ii) such security interest is created and
perfected substantially simultaneously with the incurrence of such
Indebtedness, (iii) such security interest applies only to fixed assets the
purchase of which is financed with such Indebtedness and (iv) the
Indebtedness secured thereby is not less than 75% nor more than 85% of the
fair market value of the fixed assets subject to such security interest
(measured at the date of incurrence of such security interest);
(k) any Lien represented by the interest of a lessor in property the
subject of a Capital Lease Obligation of the Borrower permitted by Section
6.1(i); and
(1) any Lien in favor of Bayer or any of its subsidiaries in respect
of securities of a Permitted Foreign Company (other than a Permitted
Foreign Company described in clause (c) of the definition thereof).
SECTION 6.3. Sale and Lease-Back Transactions. Enter into any Sale and
Lease-Back Transaction.
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49
SECTION 6.4. Investments Loans and Advances. Purchase, hold or acquire any
capital stock, evidences of indebtedness or other securities of, make or permit
to exist any loans or advances to, Guarantee any Indebtedness of, or make or
permit to exist any investment or any other interest in, any other Person,
except:
(a) investments by the Borrower existing on or subscribed to prior to
the date of this Agreement in the capital stock of the Subsidiaries;
(b) loans and advances to officers or employees of the Borrower or any
Subsidiary in the ordinary course of business not in excess of $1,500,000
in the aggregate at any time outstanding;
(c) investments in, or loans and advances to, wholly owned
Subsidiaries that are Guarantors or, in the case of an investment, that
shall become wholly owned Subsidiaries that are Guarantors following such
investment, and investments in, or loans and advances to, the Borrower
(provided that the Indebtedness of the Borrower created by such loans and
advances shall be subordinated in accordance with the requirements of
Section 6.1(c) hereof);
(d) Guarantees entered into in the ordinary course of business of
Indebtedness of wholly owned Subsidiaries that are Guarantors;
(e) Permitted Investments;
(f) investments existing on or subscribed to prior to the date of this
Agreement and set forth on Schedule 6.4;
(g) in the case of the Borrower and the Subsidiaries other than
Permitted Foreign Companies, investments in, and loans or advances to,
Permitted Foreign Companies in a net aggregate amount not to exceed
$10,000,000 in any fiscal year plus, commencing with fiscal year 1997, 50%
of the excess, if any, of (A) $10,000,000 over (B) the aggregate amount of
such investments, loans and advances made during the preceding fiscal year;
(h) in the case of the Borrower and the Subsidiaries other than
Permitted Foreign Companies, Guarantees of Indebtedness of Permitted
Foreign Companies; provided, however, that any payment on such a Guarantee
shall not be permitted under this clause (h) (but may be permitted under
clause (g) above or clause (j) below);
(i) in the case of Permitted Foreign Companies, any investment in, or
loan or advance to, or Guarantee of Indebtedness of, any Permitted Foreign
Company;
(j) other or additional investments, loans and advances in a net
aggregate amount not to exceed $10,000,000 at any time prior to the last
day of fiscal year 1997 and $15,000,000 thereafter; and
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50
(k) Guarantees under the Guarantee Agreement and the Guarantee
Agreement (as defined in the Chase Credit Agreement).
SECTION 6.5. Mergers, Consolidations and Sales of Assets. Merge into or
consolidate with any other Person, or permit any other Person to merge into or
consolidate with it, or sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) all or any substantial part of its
assets (whether now owned or hereafter acquired) or any capital stock of any
Subsidiary, except that (a) the Borrower and any Subsidiary may sell inventory
in the ordinary course of business, (b) if at the time thereof and immediately
after giving effect thereto no Event of Default or Default shall have occurred
and be continuing (i) any wholly owned Subsidiary may merge into the Borrower in
a transaction in which the Borrower is the surviving corporation and (ii) any
wholly owned Subsidiary may merge into or consolidate with any other Subsidiary
in a transaction in which the surviving entity is a wholly owned Subsidiary and
(c) if at the time thereof and immediately after giving effect thereto no Event
of Default or Default shall have occurred and be continuing, any Subsidiary may
dissolve or liquidate through a transfer of its assets to its shareholders.
SECTION 6.6. Dividends and Distributions; Restrictions on Ability of
Subsidiaries To Pay Dividends. (a) Declare or pay, directly or indirectly, any
dividend or make any other distribution (by reduction of capital or otherwise),
whether in cash, property, securities or a combination thereof, with respect to
any shares of its capital stock or directly or indirectly redeem, purchase,
retire or otherwise acquire for value (or permit any Subsidiary to purchase or
acquire) any shares of any class of its capital stock or set aside any amount
for any such purpose; provided, however, that (i) any Subsidiary may declare and
pay dividends or make other distributions to the Borrower or any wholly owned
Subsidiary that is a Guarantor, (ii) if at the time thereof and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing, the Borrower may repurchase stock or options from former directors,
former officers and former employees (or their legal representatives) in the
ordinary cause of business in accordance with any duly instituted stock option
plan and (iii) the Borrower may perform its obligations under the agreements
referred to in Section 6.7(d).
(b) Other than this Agreement and the Chase Credit Agreement, permit any
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
such Subsidiary to (i) pay any dividends or make any other distributions on its
capital stock or any other interest or (ii) make or repay any loans or advances
to the Borrower or the parent of such Subsidiary.
SECTION 6.7. Transactions with Affiliates. Sell or transfer any property or
assets to, or purchase or acquire any property or assets from, or otherwise
engage in any other transactions with, any of its Affiliates, except that the
Borrower or any Subsidiary may engage in any of the foregoing transactions in
the ordinary course of business at prices and on teens and conditions not less
favorable to the Borrower or such Subsidiary than could be
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51
obtained on an arm's-length basis from unrelated third parties; provided,
however, that the foregoing shall not apply to:
(a) loans and advances permitted by Section 6.4(b);
(b) the formation of any Permitted Foreign Company;
(c) transactions between or among the Borrower and wholly owned
Subsidiaries that are Guarantors;
(d) transactions required by the General Shareholders Agreement dated
September 30, 1994, and the Continuing Shareholders Agreement dated
September 30, 1994, in each case as in effect on the date of this
Agreement; and
(e) the grant of stock options by the Borrower to its directors,
officers and employees in the ordinary course of business and the exercise
of such stock options.
SECTION 6.8. Business of Borrower and Subsidiaries. (a) Own, manage or
operate any business not principally engaged in a segment of the pharmaceutical
or healthcare industry or ancillary thereto.
(b) Make any change materially adverse to the Lenders in the nature of its
business as carried on at the date of this Agreement.
SECTION 6.9. Operating Leases. Permit the aggregate rental expense for the
Borrower and the Subsidiaries for any fiscal year, determined on a consolidated
basis in accordance with GAAP, to exceed $8,000,000.
SECTION 6.10. Amendments of Certain Agreements. Amend, waive, modify or
terminate any provisions of its constitutive documents or any agreement if the
effect of such amendment, waiver, modification or termination could reasonably
be expected to have a Material Adverse Effect.
SECTION 6.11. Fiscal Year. Change the end of its fiscal year; provided,
however, that approval from the Required Lenders for any such changes shall not
be unreasonably withheld.
SECTION 6.12. Payment on Other Indebtedness. Make any distribution, whether
in cash, property, securities or a combination thereof, other than scheduled
payments of principal and interest as and when due (to the extent not prohibited
by applicable subordination provisions), in respect of, or pay, or offer to
commit to pay, or directly or indirectly redeem, repurchase, retire or otherwise
acquire for consideration, or set apart any sum for the aforesaid purposes, any
Indebtedness (other than the Obligations and any Senior Indebtedness), except
for payments in the form of common stock of the Borrower.
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52
SECTION 6.13. Net Worth. Permit Net Worth at any time to be less than
$145,000,000.
ARTICLE VII
Events of Default
SECTION 7.1. Events of Default. In case of the happening of any of the
following events ("Events of Default"):
(a) any material representation or warranty made or deemed made
by the Borrower or any Subsidiary in any Loan Document or any
representation, warranty, statement or information contained in any
report, certificate, financial statement or other instrument authored
and furnished by the Borrower or any Subsidiary to the Administrative
Agent or any Lender in connection with or pursuant to any Loan
Document, shall prove to have been false or misleading in any material
respect when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of any
Loan when and as the same shall become due and payable, whether at the
due date thereof or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise;
(c) default shall be made in the payment of any Fee or any
interest on any Loan or any other amount (other than an amount
referred to in clause (b) above) due under any Loan Document, when and
as the same shall become due and payable, and such default shall
continue unremedied for a period of three Business Days;
(d) default shall be made in the due observance or performance by
the Borrower or any Subsidiary of any covenant, condition or agreement
contained in Section 5.1(a), 5.5 or 5.8 or in Article VI;
(e) default shall be made in the due observance or performance by
the Borrower or any Subsidiary of any covenant, condition or agreement
contained in any Loan Document (other than those specified in clause
(b), (c) or (d) above) and such default shall continue unremedied for
a period of 30 days after notice thereof from the Administrative Agent
or any Lender to the Borrower;
(f) the Borrower or any Subsidiary shall (i) fail to pay any
principal or interest, regardless of amount, due in respect of any
Indebtedness in a principal amount in excess of $5,000,000, when and
as the same shall become due and payable, or (ii) fail to observe or
perform any other term, covenant, condition or agreement contained in
any agreement or instrument evidencing or governing any such
Indebtedness if the effect of any failure referred to in this clause
(ii) is to cause such Indebtedness to become due prior to its stated
maturity;
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53
(g) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Borrower or any
Subsidiary, or of a substantial part of the property or assets of the
Borrower or a Subsidiary, under Title 11 of the United States Code, as
now constituted or hereafter amended, or any other Federal, state or
foreign bankruptcy, insolvency, receivership or similar law, (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Subsidiary or
for a substantial part of the property or assets of the Borrower or a
Subsidiary or (iii) the winding-up or liquidation of the Borrower or
any Subsidiary; and such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering
any of the foregoing shall be entered;
(h) the Borrower or any Subsidiary shall (i) voluntarily commence
any proceeding or file any petition seeking relief under Title 11 of
the United States Code, as now constituted or hereafter amended, or
any other Federal, state or foreign bankruptcy, insolvency,
receivership or similar law, (ii) consent to the institution of, or
fail to contest in a timely and appropriate manner, any proceeding or
the filing of any petition described in clause (g) above, (iii) apply
for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any
Subsidiary or for a substantial part of the property or assets of the
Borrower or any Subsidiary, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v)
make a general assignment for the benefit of creditors, (vi) become
unable, admit in writing its inability or fail generally to pay its
debts as they become due or (vii) take any action for the purpose of
effecting any of the foregoing;
(i) one or more judgments for the payment of money in an
aggregate amount in excess of $5,000,000 (net of amounts covered by
insurance) shall be rendered against the Borrower, any Subsidiary or
any combination thereof and the same shall remain undischarged for a
period of 30 consecutive days during which execution shall not be
effectively stayed, or any action shall be legally taken by a judgment
creditor to levy upon assets or properties of the Borrower or any
Subsidiary to enforce any such judgment;
(j) an ERISA Event shall have occurred that, in the opinion of
the Required Lenders, when taken together with all other such ERISA
Events that have occurred, could reasonably be expected to result in
liability of the Borrower and the ERISA Affiliates in an aggregate
amount exceeding $5,000,000;
(k) the Guarantee Agreement shall cease to be, or shall be
asserted by the Borrower or any Subsidiary not to be, a legal, valid
and binding obligation of (i) any Specified Guarantor or (ii) multiple
Guarantors that, taken together, would constitute a Specified
Guarantor;
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(l) there shall have occurred a Change in Control; or
(m) the conditions specified in Section 2.20 hereof to the
delivery and acceptance of the Conversion Notes on the Conversion Date
shall not be satisfied on the Conversion Date;
then, and in every such event (other than an event with respect to the Borrower
described in clause (g), (h) or (m) above), and at any time thereafter during
the continuance of such event, the Required Lenders may, by notice to the
Borrower, declare the unpaid principal amount of the Loans to be, and the same
shall forthwith become, due and payable, together with the interest accrued
thereon and all fees, costs, expenses, indemnities and other amounts payable
hereunder or under the other Loan Documents, (x) if none of the Senior
Indebtedness is outstanding, immediately, and (y) if any Senior Indebtedness is
outstanding under the Chase Credit Agreement, upon the first to occur of (I) the
acceleration of such Senior Indebtedness and (II) the fifth Business Day after
receipt by the Borrower and the administrative agent under the Chase Credit
Agreement of such written notice given hereunder, all without presentment,
demand, notice, protest or other requirements of any kind, all of which are
hereby expressly waived; and in any event with respect to the Borrower described
in paragraph (g), (h) or (m) above, the unpaid principal amount of the Loans
together with accrued interest thereon and all fees, costs, expenses,
indemnities and other amounts payable hereunder or under the Loan Documents,
shall automatically become due and payable, without presentment, demand, protest
or any other notice of any kind, all of which are hereby expressly waived by the
Borrower, anything contained herein or in any other Loan Document to the
contrary notwithstanding.
Notwithstanding the foregoing, in the event of a declaration of
acceleration in respect of the Loans because an Event of Default specified in
subsection (f)(ii) of this Section 7.1 shall have occurred and be continuing as
a result of an acceleration of other Indebtedness, such declaration of
acceleration of the Loans shall be automatically annulled if the holders of the
Indebtedness that is the subject of such acceleration have rescinded their
declaration of acceleration in respect of such Indebtedness, and written notice
of such rescission shall have been given to the Administrative Agent by the
Borrower and countersigned by the holders of the Indebtedness that is the
subject of such acceleration or a trustee, fiduciary or agent for such holders,
within 20 Business Days after such declaration of acceleration in respect of
such Indebtedness, and no other Event of Default has occurred during such 20
Business Day period which has not been cured or waived during such period.
ARTICLE VIII
Subordination
SECTION 8.1. Subordinated Indebtedness Subordinated to Senior Indebtedness.
Each of the Borrower and the Guarantors, for itself and its respective
successors and assigns, covenants and agrees, and each holder of any
Subordinated Indebtedness, by itS acceptance thereof, shall be deemed to have
agreed, that the payment of
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the Subordinated Indebtedness shall be subordinate and subject in right of
payment, to the extent and in the manner hereinafter set forth, to the prior
payment in full in cash of all Senior Indebtedness, and that each holder of
Senior Indebtedness whether now outstanding or hereafter created, incurred,
assumed or guaranteed shall be deemed to have acquired Senior Indebtedness in
reliance upon the provisions contained in this Article VIII.
SECTION 8.2. Subordinated Indebtedness Subordinated to Prior Pavment of All
Senior Indebtedness on Dissolution, Liquidation, Reorganization, Etc. Upon any
payment, distribution or other transfer of the assets of the Borrower or any
Guarantor (or any other payment, distribution or other transfer on behalf of the
Borrower or any Guarantor from any source) of any kind or character, whether
direct or indirect, by set-off or otherwise, and whether in cash, Property,
securities or otherwise, to creditors upon any dissolution, winding-up,
liquidation, reorganization, arrangement, composition, adjustment or
readjustment or similar proceeding of the Borrower or any Guarantor or their
respective securities or debt (whether voluntary or involuntary, or in
bankruptcy, insolvency, reorganization, liquidation or receivership proceedings,
or upon an assignment for the benefit of creditors, or any other marshalling of
the assets and liabilities of the Borrower or any Guarantor), then in such
event:
(a) the holders of Senior Indebtedness shall be entitled to
receive payment in full in cash of all Senior Indebtedness, before any
payment is made on account of or applied on the Subordinated
Indebtedness (other than payments of Reorganization Securities);
(b) any payment, distribution or other transfer of assets of the
Borrower or any Guarantor of any kind or character, whether direct or
indirect, by set-off or otherwise, and whether in cash, Property,
securities or otherwise (including, without limitation, Junior
Subordinated Payments, but excluding Reorganization Securities), to
which the holders of the Subordinated Indebtedness would be entitled
except for the provisions of this Article VIII, shall be paid or
delivered by any debtor, custodian, liquidating trustee, agent or
other Person making such payment or distribution, directly to the
holders of such Senior Indebtedness, or their representative or
representatives, ratably according to the aggregate amounts remaining
unpaid on account of such Senior Indebtedness held or represented by
each, for application to the payment of all such Senior Indebtedness
remaining unpaid, to the extent necessary to pay all such Senior
Indebtedness in full in cash after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness;
and
(c) in the event that, notwithstanding the foregoing provisions
of this Section 8.2, any payment, distribution or other transfer of
assets of the Borrower or such Guarantor (or any other payment,
distribution or transfer on behalf of the Borrower or such Guarantor
from any source) of any kind or character, whether direct or indirect,
by set-off or otherwise, and whether in cash, Property, securities or
otherwise (including, without limitation, Junior Subordinated
Payments, but excluding Reorganization Securities), shall be received
by any holder of Subordinated Indebtedness before all such Senior
Indebtedness is paid in full in cash, such payment or distribution
shall be held in trust for the benefit of, and shall immediately be
paid or delivered by such holder to, as the case may be, the holders
of such Senior Indebtedness remaining unpaid, or their representative
or representatives, for application to the payment of all such Senior
Indebtedness remaining unpaid, ratably
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56
according to the aggregate amounts remaining unpaid on account of such Senior
Indebtedness held or represented by each, to the extent necessary to pay all
such Senior Indebtedness in full after giving effect to any concurrent payment
or distribution to the holders of such Senior Indebtedness.
The Borrower shall give prompt notice to each holder of outstanding
Subordinated Indebtedness of any dissolution, winding-up, total or partial
liquidation, reorganization, composition, arrangement, adjustment or
readjustment of the Borrower or of any Guarantor or of their respective
securities.
Upon any distribution of assets of the Borrower or any Guarantor referred
to in this Article VIII, the holders of the Subordinated Indebtedness shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which such bankruptcy, insolvency, reorganization, liquidation,
receivership or other proceeding is pending, or a certificate of the debtor,
custodian, liquidating trustee, agent or other Person making any distribution to
such holders, for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of the Senior Indebtedness, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article VIII.
SECTION 8.3. No Payments With Respect to Subordinated Indebtedness in
Certain Circumstances.
(a) (i) No payment in respect of the Subordinated Indebtedness shall be
made by or on behalf of the Borrower or any Guarantor if, at the time of such
payment or immediately after giving effect thereto, each of the following three
conditions shall be satisfied:
(x) the Borrower and the Administrative Agent shall have received
written notice (each a "Payment Bar Notice") from any Person duly
acting as agent or representative of the holders of Senior
Indebtedness of the occurrence of an event of default pursuant to the
documents evidencing the Senior Indebtedness (a "Senior Event of
Default") (other than a default in the payment of any interest,
commitment fee or letter of credit fee on, or principal (including any
reimbursement obligation) of, any Senior Indebtedness after the
expiration of any applicable grace period (a "Payment Default")), and
(y) such Senior Event of Default shall not have been cured or
waived in accordance with the applicable provisions of the documents
evidencing the Senior Indebtedness, and
(z) not more than 180 days shall have elapsed after the date of
receipt by the Borrower of such Payment Bar Notice;
provided however, that not more than one Payment Bar Notice shall be given
during any period of 365 consecutive days; and provided, further, that no facts
or circumstances
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57
constituting a Senior Event of Default existing on the date any Payment Bar
Notice is given and as to which the administrative agent under the Chase Credit
Agreement has received notice may be used as a basis for any subsequent Payment
Bar Notice, unless such facts or circumstances have been cured or waived for a
period of not less than 90 consecutive days subsequent to the giving of the
initial Payment Bar Notice (it being acknowledged that any subsequent action or
breach that would give rise to a separate Senior Event of Default pursuant to
any provision under which a Senior Event of Default previously existed or was
continuing shall constitute a new Senior Event of Default for this purpose).
The Borrower and the Guarantors shall resume payments in respect of the
Subordinated Indebtedness prohibited under the foregoing provisions of this
Section 8.3(a)(i) (provided that such payments are not then prohibited under
another provision of this Agreement other than this Section 8.3(a)(i)), upon the
earlier to occur of (x) the cure or waiver of such Senior Event of Default in
accordance with the applicable provisions of the documents evidencing the Senior
Indebtedness or (y) the expiration of such period of 180 days.
(ii) No payment in respect of the Subordinated Indebtedness shall be
made by or on behalf of the Borrower or any Guarantor if, at the time of
such payment or immediately after giving effect thereto, each of the
following two conditions shall be satisfied:
(x) a Payment Default shall have occurred, and
(y) such Payment Default shall not have been cured or waived in
accordance with the applicable provisions of the documents evidencing the
Senior Indebtedness.
(b) Notwithstanding the above, following an acceleration of the maturity of
any Senior Indebtedness and as long as such acceleration shall continue
unrescinded and unannulled, such Senior Indebtedness shall first be paid in full
in cash, or provision for such payment shall be made in a manner satisfactory to
the holders of such Senior Indebtedness, before any payment is made on account
of or applied on the Subordinated Indebtedness.
(c) In the event that any payment of assets of the Borrower or any
Guarantor shall be received by any holder of Subordinated Indebtedness in
contravention of the foregoing provisions of this Section 8.3, such payment
shall be held in trust for the benefit of, and shall be immediately paid or
delivered by such holder to, as the case may be, the holders of such Senior
Indebtedness remaining unpaid, or their representative or representatives, for
application to the payment or prepayment of all such Senior Indebtedness
remaining unpaid, ratably according to the aggregate amounts remaining unpaid on
account of the Senior Indebtedness held or represented by each, to the extent
necessary to pay all such Senior Indebtedness in full in cash after giving
effect to any concurrent payment or provision therefor to the holders of such
Senior Indebtedness.
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(d) The Borrower shall give prompt written notice to each holder of
outstanding Subordinated Indebtedness of any Senior Event of Default in respect
of Senior Indebtedness referred to in subsection (a) of this Section 8.3 and of
any acceleration of the maturity of any Senior Indebtedness.
(e) The provisions of this Section 8.3 shall not be applicable in any case
in which the provisions of Section 8.2 are applicable.
SECTION 8.4. Holders of Subordinated Indebtedness to be Subrogated to
Rights of Holders of Senior Indebtedness. Subject to the payment in full in cash
of all Senior Indebtedness, the holders of Subordinated Indebtedness shall be
subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of assets of the Borrower or any Guarantor applicable
to the Senior Indebtedness until the Subordinated Indebtedness shall be paid in
full, and, for purposes of such subrogation, no payment or distribution to the
holders of the Senior Indebtedness of assets, whether in cash, Property or
securities, distributable to the holders of Senior Indebtedness under the
provisions hereof to which the holders of Subordinated Indebtedness would be
entitled except for the provisions of this Article VIII, and no payment pursuant
to the provisions of this Article VIII to the holders of Senior Indebtedness by
the holders of Subordinated Indebtedness shall, as between the Borrower and the
Guarantors, their creditors other than the holders of the Senior Indebtedness,
and the holders of the Subordinated Indebtedness, be deemed to be a payment by
the Borrower or any Guarantor to or on account of such Senior Indebtedness, it
being understood that the provisions of this Article VIII are, and are intended,
solely for the purpose of defining the relative rights of the holders of
Subordinated Indebtedness, on the one hand, and the holders of Senior
Indebtedness, on the other hand.
SECTION 8.5. Obligations of the Borrower and the Guarantors Unconditional.
Nothing contained in this Article VIII or elsewhere in this Agreement is
intended to or shall impair, as between the Borrower and the Guarantors, and
their creditors other than the holders of Senior Indebtedness, the obligations
of the Borrower or any Guarantor to the holders of Subordinated Indebtedness to
pay any Subordinated Indebtedness as and when such Subordinated Indebtedness
shall become due and payable in accordance with its terms, or to affect the
relative rights of the holders of Subordinated Indebtedness and creditors of the
Borrower or any Guarantor other than the holders of Senior Indebtedness, nor
shall anything herein or therein prevent any holder of Subordinated Indebtedness
from exercising all remedies otherwise permitted by applicable law upon the
happening of an Event of Default under this Agreement subject to the rights, if
any, under this Article VIII of the holders of Senior Indebtedness in respect of
assets, whether in cash, Property or securities, paid or distributed by or on
behalf of the Borrower or any Guarantor and received upon the exercise of any
such remedy.
This Article VIII is intended to establish the relative rights of the
holders of the Subordinated Indebtedness, on the one hand, and the holders of
Senior Indebtedness, on the other hand, and shall not be deemed to affect the
obligations of the Borrower or the Guarantors to the holders of Subordinated
Indebtedness.
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SECTION 8.6. Holders of Subordinated Indebtedness Entitled to Assume
Payments Not Prohibited in Absence of Notice. No holder of Subordinated
Indebtedness shall at any time be charged with knowledge of the existence of any
facts which would prohibit the making of any payment to it, unless and until the
Administrative Agent, on behalf of such holder, shall have received written
notice thereof at its principal office from the Borrower or any holder of Senior
Indebtedness or from a duly authorized agent or representative of the holders of
Senior Indebtedness (who shall be the Administrative Agent under the Chase
Credit Agreement); and prior to the receipt of any such written notice by the
Administrative Agent, on behalf of the holder of the Subordinated Indebtedness,
each such holder of the Subordinated Indebtedness shall be entitled to assume
conclusively that no such facts exist.
Each holder of Subordinated Indebtedness shall be entitled to rely on the
delivery to it of a written notice by a Person representing himself to be a
holder of Senior Indebtedness or a duly authorized agent or representative of
the holders of Senior Indebtedness to establish that such notice has been given
by the holders of Senior Indebtedness or such duly authorized agent or
representative. In the event that such holder of Subordinated Indebtedness
determines in good faith that further evidence is required with respect to the
right of any holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article VIII, such holder of Subordinated
Indebtedness may request such Person to furnish evidence to the reasonable
satisfaction of such holder of Subordinated Indebtedness as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article VIII, and if such
evidence is not furnished such holder of Subordinated Indebtedness may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment; provided that, upon the written request of such
Person to such holder, such payment shall be made to the court having
jurisdiction over such judicial determination or to another Person mutually
satisfactory to such Person and such holder, as escrowee, to be held and
invested pending such judicial determination in accordance with such
instructions as shall be mutually satisfactory to such Person and such holder
and upon such judicial determination becoming final and nonappealable to be
distributed in accordance therewith to the Person entitled thereto.
SECTION 8.7. Effect of Failure to Pav Subordinated Indebtedness. The fact
that failure to make any payment on account of Subordinated Indebtedness is
prevented by reason of the operation of any provision of this Article VIII shall
not be construed as preventing the occurrence of an Event of Default under this
Agreement.
SECTION 8.8. Miscellaneous Subordination Provisions. (a) The subordination
provisions contained herein are solely for the benefit of the holders from time
to time of Senior Indebtedness and their representatives, assignees and
beneficiaries and may not be rescinded, cancelled, amended or modified in any
way. No holder of Subordinated Indebtedness shall subordinate any Subordinated
Indebtedness to any indebtedness or obligation of the Borrower or any Guarantor
other than Senior Indebtedness.
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(b) No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Borrower
or any Guarantor or by any act or failure to act, in good faith, by any such
holder, or by any non-compliance by the Borrower or any Guarantor with the
terms, provisions and covenants of this Agreement, regardless of any knowledge
thereof any such holder may have or be otherwise charged with.
(c) Without in any way limiting the generality of paragraph (b) of this
Section, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the holders of the Loans, without
incurring responsibility to the holders of the Loans and without impairing or
releasing the subordination provided in this Article VIII or the obligations
hereunder of the holders of the Loans to the holders of Senior Indebtedness, do
any one or more of the following: (1) change the manner, place or terms of
payment or extend the time of payment of, or renew or alter, Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (2) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (3)
release any Person liable in any manner for the collection of Senior
Indebtedness; and (4) exercise or refrain from exercising any rights against the
Borrower and any other Person.
(d) The holders of Senior Indebtedness (and/or their designated agents or
representatives) are authorized to demand specific performance of the
subordination provisions contained herein. Each holder of Subordinated
Indebtedness irrevocably waives any defense based on the adequacy of a remedy at
law which might be asserted as a bar to such remedy of specific performance and
any requirement for the securing or posting of any bond in connection with such
remedy.
(e) Each holder of Subordinated Indebtedness acknowledges and agrees that
the holders of Senior Indebtedness have relied upon and will continue to rely
upon the subordination provided for herein and hereby waives notice of or proof
of reliance hereon, demand for payment and notice of default.
(f) The subordination provisions of this Article VIII shall, to the fullest
extent permitted by law, continue to be effective or be reinstated, as the case
may be, if at any time payment and performance of the Senior Indebtedness is,
pursuant to applicable law, avoided, recovered, or rescinded or must otherwise
be restored or returned by any holder of Senior Indebtedness, whether as a
"voidable preference," "fraudulent conveyance," "fraudulent transfer," or
otherwise, all as though such payment or performance had not been made.
ARTICLE IX
The Administrative Agent
To expedite the transactions contemplated by this Agreement, SocGen is
hereby appointed to act as Administrative Agent on behalf of the Lenders. Each
of the Lenders and
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each assignee of any such Lender, hereby irrevocably authorizes the
Administrative Agent to take such actions on behalf of such Lender or assignee
and to exercise such powers as are specifically delegated to the Administrative
Agent by the terms and provisions hereof and of the other Loan Documents,
together with such actions and powers as are reasonably incidental thereto. The
Administrative Agent is hereby expressly authorized by the Lenders, without
hereby limiting any implied authority, (a) to receive on behalf of the Lenders
all payments of principal of and interest on the Loans and all other amounts due
to the Lenders hereunder, and promptly to distribute to each Lender its proper
share of each payment so received; (b) to give notice on behalf of each of the
Lenders to the Borrower of any Event of Default specified in this Agreement of
which the Administrative Agent has actual knowledge acquired in connection with
its agency hereunder; and (c) to distribute to each Lender copies of all
notices, financial statements and other materials delivered by the Borrower
pursuant to this Agreement as received by the Administrative Agent.
Neither the Administrative Agent nor any of its respective directors,
officers, employees or agents shall be liable as such for any action taken or
omitted by any of them except for its or his own gross negligence or wilful
misconduct, or be responsible for any statement, warranty or representation
herein or the contents of any document delivered in connection herewith, or be
required to ascertain or to make any inquiry concerning the performance or
observance by the Borrower or any other Loan Party of any of the terms,
conditions, covenants or agreements contained in any Loan Document. The
Administrative Agent shall not be responsible to the Lenders for the due
execution, genuineness, validity, enforceability or effectiveness of this
Agreement or any other Loan Documents, instruments or agreements. The
Administrative Agent shall in all cases be fully protected in acting, or
refraining from acting, in accordance with written instructions signed by the
Required Lenders and, except as otherwise specifically provided herein, such
instructions and any action or inaction pursuant thereto shall be binding on all
the Lenders. The Administrative Agent shall, in the absence of knowledge to the
contrary, be entitled to rely on any instrument or document believed by it in
good faith to be genuine and correct and to have been signed or sent by the
proper person or persons. Neither the Administrative Agent nor any of its
respective directors, officers, employees or agents shall have any
responsibility to the Borrower or any other Loan Party on account of the failure
of or delay in performance or breach by any Lender of any of its obligations
hereunder or to any Lender on account of the failure of or delay in performance
or breach by any other Lender or the Borrower or any other Loan Party of any of
their respective obligations hereunder or under any other Loan Document or in
connection herewith or therewith. The Administrative Agent may execute any and
all duties hereunder by or through agents or employees and shall be entitled to
rely upon the advice of legal counsel selected by it with respect to all matters
arising hereunder and shall not be liable for any action taken or suffered in
good faith by it in accordance with the advice of such counsel.
The Lenders hereby acknowledge that the Administrative Agent shall not be
under any duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement unless it shall be requested in
writing to do so by the Required Lenders.
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62
Subject to the appointment and acceptance of a successor Administrative
Agent as provided below, the Administrative Agent may resign at any time by
notifying the Lenders and the Borrower. Upon any such resignation, the Required
Lenders shall have the right to appoint a successor with the prior approval of
the Borrower (such approval not to be unreasonably withheld or delayed). If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Administrative Agent
gives notice of its resignation, then the retiring Administrative Agent may, on
behalf of the Lenders, appoint a successor Administrative Agent which shall be a
bank with an office in New York, New York, having a combined capital and surplus
of at least $500,000,000 or an Affiliate of any such bank. Upon the acceptance
of any appointment as Administrative Agent hereunder by a successor bank, such
successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. After the Administrative Agent's resignation hereunder, the
provisions of this Article and Section 10.5 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Administrative Agent.
With respect to the Loans made by it hereunder, the Administrative Agent in
its individual capacity and not as Administrative Agent shall have the same
rights and powers as any other Lender and may exercise the same as though it
were not the Administrative Agent, and the Administrative Agent and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Borrower or any Subsidiary or other Affiliate thereof
as if it were not the Administrative Agent.
Each Lender agrees (a) to reimburse the Administrative Agent, on demand, in
the amount of its pro rata share (based on the principal amount of its Loan
outstanding on the date indemnification is sought) of any reasonable
out-of-pocket expenses incurred for the benefit of the Lenders by the
Administrative Agent, including counsel fees and compensation of agents and
employees paid for services rendered on behalf of the Lenders, that shall not
have been reimbursed by the Borrower and (b) to indemnify and hold harmless the
Administrative Agent and any of its directors, officers, employees or agents, on
demand, in the amount of such pro rata share, from and against any and all
liabilities, taxes, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever that
may be imposed on, incurred by or asserted against it in its capacity as
Administrative Agent or any of them in any way relating to or arising out of
this Agreement or any other Loan Document or any action taken or omitted by it
or any of them under this Agreement or any other Loan Document, to the extent
the same shall not have been reimbursed by the Borrower, provided, however, that
no Lender shall be liable to the Administrative Agent or any such other
indemnified person for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the gross negligence or wilful misconduct of the Administrative
Agent or any of its directors, officers, employees or agents. In the event the
Administrative Agent is subsequently reimbursed by any Loan Party for any such
expenses, liabilities, taxes, obligations, losses, damages, penalties,
judgments, costs or disbursements, the Administrative Agent shall reimburse each
Lender, pro rata, to the extent of any payment made by such Lender with respect
thereto under this paragraph.
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63
Each Lender acknowledges that it has, independently and without reliance
upon the Administrative Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Administrative Agent or any
other Lender and based on such documents and information as it shall from time
to time deem appropriate, continue to make its own decisions in taking or not
taking action under or based upon this Agreement or any other Loan Document, any
related agreement or any document furnished hereunder or thereunder.
ARTICLE X
Miscellaneous
SECTION 10.1. Notices. Notices and other communications provided for herein
shall be in writing and shall be delivered by hand or overnight courier service,
mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at 100 Campus Drive, Florham Park, NJ
07932, Attention of the Chief Financial Officer, Telecopy No. (201)
593-5580), with a copy to the General Counsel (Telecopy No. (201)
593-5820);
(b) if to the Administrative Agent, to Societe Generale, 1221 Avenue
of the Americas, New York, New York 10020, Attention of Maggie O'Donnell
(Telecopy No. (212) 278-7490), with a copy to Simpson Thacher & Bartlett,
at 425 Lexington Avenue, New York 10017, Attention of Gregory A. Weiss,
Esq. (Telecopy No. (212) 455-2502); and
(c) if to a Lender, to it at its address (or telecopy number) set
forth in Schedule 2.1 or in the Assignment and Acceptance pursuant to which
such Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 10.1 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 10.1.
SECTION 10.2. Survival of Agreement. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and shall survive the making by the Lenders
of the Loans, regardless of any investigation made by the Lenders or on their
behalf, and shall continue in full force and effect as long as the principal
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64
of or any accrued interest on any Loan or any Fee or any other amount payable
under this Agreement or any other Loan Document is outstanding and unpaid. The
provisions of Sections 2.14, 2.18 and 10.5 shall remain operative and in full
force and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loans, the invalidity or unenforceability of any term or provision of this
Agreement or any other Loan Document, or any investigation made by or on behalf
of the Administrative Agent or any Lender.
SECTION 10.3. Binding Effect. This Agreement shall become effective when it
shall have been executed by the Borrower and the Administrative Agent and when
the Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective permitted successors and assigns.
SECTION 10.4. Successors and Assigns. (a) Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
permitted successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of the Borrower, the Administrative Agent or the
Lenders that are contained in this Agreement shall bind and inure to the benefit
of their respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or a portion of its
interests, rights and obligations under this Agreement (including all or a
portion of the Loans at the time owing to it); provided, however, that (i)
except in the case of an assignment to a Lender or an Affiliate of such Lender,
(x) the Borrower and the Administrative Agent must give their prior written
consent to such assignment (which consent shall not be unreasonably withheld),
(y) no assignment may be offered or made to any pharmaceutical company or to any
Affiliate of a pharmaceutical company and (z) the amount of the Loans of the
assigning Lender subject to each such assignment (determined as of the date the
Assignment and Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000, (ii) the parties to
each such assignment shall execute and deliver to the Administrative Agent an
Assignment and Acceptance, with a copy thereof furnished to the Borrower,
together (except in the case of any assignment to an Affiliate of the assigning
Lender) with a processing and recordation fee of $3,500 and (iii) the assignee,
if it shall not be a Lender, shall deliver to the Administrative Agent an
Administrative Questionnaire. Upon acceptance and recording pursuant to
paragraph (e) below, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least five Business
Days after the execution thereof, (A) the assignee thereunder shall be a party
hereto and, to the extent of the interest assigned by such Assignment and
Acceptance, have the rights and obligations of a Lender under this Agreement and
(B) the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all or the remaining portion of an assigning Lender's rights and obligations
under this Agreement, such Lender shall cease to be a party hereto but shall
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continue to be entitled to the benefits of Sections 2.14, 2.18 and 10.5, as well
as to any interest and Fees accrued for its account and not yet paid).
(c) By executing and delivering an Assignment and Acceptance, the assigning
Lender thereunder and the assignee thereunder shall be deemed to confirm to and
agree with each other and the other parties hereto as follows: (i) such
assigning Lender warrants that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim and that the
outstanding balances of its Loans, in each case without giving effect to
assignments thereof which have not become effective, are as set forth in such
Assignment and Acceptance, (ii) except as set forth in (i) above, such assigning
Lender makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement, any other
Loan Document or any other instrument or document furnished pursuant hereto, or
the financial condition of the Borrower or any Subsidiary or the performance or
observance by the Borrower or any Subsidiary of any of its obligations under
this Agreement, any other Loan Document or any other instrument or document
furnished pursuant hereto; (iii) such assignee represents and warrants that it
is legally authorized to enter into such Assignment and Acceptance and that
neither it nor any of its Affiliates is engaged in the pharmaceutical or
health-care industry; (iv) such assignee confirms that it has received a copy of
this Agreement, together with copies of the most recent financial statements
referred to in Section 3.5 or delivered pursuant to Section 5.4 and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (v) such
assignee shall, independently and without reliance upon the Administrative
Agent, such assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (vi) such
assignee appoints and authorizes the Administrative Agent to take such action as
agent on its behalf and to exercise such powers under this Agreement as are
delegated to the Administrative Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; and (vii) such assignee agrees that
it shall perform in accordance with their terms all the obligations which by the
terms of this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices in The City of New York a copy of
each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the principal amount
of the Loans owing to, each Lender pursuant to the terms hereof from time to
time (the "Register"). The entries in the Register shall be conclusive and the
Borrower, the Administrative Agent and the Lenders may treat each person whose
name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary.
(e) Upon its receipt of a duly completed Assignment and Acceptance executed
by an assigning Lender and an assignee, an Administrative Questionnaire
completed in respect of the assignee (unless the assignee shall already be a
Lender hereunder), the processing and
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recordation fee referred to in paragraph (b) above and, if required, the written
consent of the Borrower and the Administrative Agent to such assignment, the
Administrative Agent shall (i) accept such Assignment and Acceptance and (ii)
record the information contained therein in the Register. No assignment shall be
effective unless it has been recorded in the Register as provided in this
paragraph (e).
(f) Each Lender may without the consent of the Borrower or the
Administrative Agent sell participations to one or more banks or other entities
in all or a portion of its rights and obligations under this Agreement
(including all or a portion of the Loans owing to it); provided, however, that
(i) such Lender's obligations under this Agreement shall remain unchanged, (ii)
such Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) each participating bank or other entity
shall be entitled to the benefit of the cost protection provisions contained in
Sections 2.14 and 2.18 to the same extent as if it were a Lender, but not in an
amount greater than that of the Lender from which it acquired its participation
(and any entitlement thereto of such participant shall reduce pro tanto the
right of such Lender to claim the benefit of such provisions), (iv) a
participation may not be offered or sold to any pharmaceutical company or to any
Affiliate of a pharmaceutical company and (v) the Borrower, the Administrative
Agent and the Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement, and such Lender shall retain the sole right to enforce the
obligations of the Borrower relating to the Loans and to approve any amendment,
modification or waiver of any provision of this Agreement (other than
amendments, modifications or waivers decreasing any fees payable hereunder or
the amount of principal of or the rate at which interest is payable on the Loans
or extending any scheduled principal payment date or date fixed for the payment
of interest on the Loans).
(g) Notwithstanding Section 10.16, any Lender or participant may, in
connection with any assignment or participation or proposed assignment or
participation pursuant to this Section 10.4, disclose to the assignee or
participant or proposed assignee or participant any information relating to the
Borrower furnished to such Lender by or on behalf of the Borrower; provided,
however, that, prior to any such disclosure of information designated by the
Borrower as confidential, each such assignee or participant or proposed assignee
or participant shall execute an agreement (a copy of which shall be given to the
Borrower) whereby such assignee or participant shall agree to preserve the
confidentiality of such confidential information on terms no less restrictive
than those applicable to the Lenders pursuant to Section 10.16.
(h) Any Lender may at any time assign all or any portion of its rights
under this Agreement or any note issued in connection herewith to a Federal
Reserve Bank to secure extensions of credit by such Federal Reserve Bank to such
Lender; provided, however, that no such assignment shall release a Lender from
any of its obligations hereunder or substitute any such Bank for such Lender as
a party hereto. In order to facilitate such an assignment to a Federal Reserve
Bank, the Borrower shall, at the request of the assigning Lender, duly execute
and deliver to the assigning Lender a promissory note or notes evidencing the
Loans made to the Borrower by the assigning Lender hereunder (each of
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which promissory notes shall include a paragraph indicating that the obligations
evidenced thereby are subject to the provisions of Article VIII hereof).
(i) The Borrower shall not assign or delegate any of its rights or duties
hereunder without the prior wriden consent of the Administrative Agent and each
Lender, and any attempted assignment without such consent shall be null and
void.
SECTION 10.5. Expenses; Indemnity. (a) The Borrower shall pay all
reasonable out-of-pocket expenses reasonably incurred by the Administrative
Agent in connection with the syndication of the credit facilities provided for
herein and the preparation and administration of this Agreement and the other
Loan Documents or in connection with any amendments, modifications or waivers of
the provisions hereof or thereof (whether or not the transactions hereby or
thereby contemplated shall be consummated) or incurred during the continuance of
a Default by the Administrative Agent or any Lender in connection with the
enforcement or protection of its rights in connection with this Agreement and
the other Loan Documents or in connection with the Loans made hereunder,
including the reasonable fees, charges and disbursements of Simpson Thacher &
Bartlett, counsel for the Administrative Agent, and, in connection with any such
enforcement or protection, the reasonable fees, charges and disbursements of
such other special counsel for the Administrative Agent as the Administrative
Agent may deem necessary.
(b) The Borrower shall indemnify the Administrative Agent, each Lender,
each Affiliate of any of the foregoing persons and each of their respective
directors, officers, employees and agents (each such person being called an
"indemnitee") against, and hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses, including reasonable
counsel fees, charges and disbursements, incurred by or asserted against any
Indemnitee arising out of, in any way connected with, or as a result of (i) the
execution or delivery of this Agreement or any other Loan Document or any
agreement or instrument contemplated thereby, the performance by the parties
thereto of their respective obligations thereunder or the consummation of the
Transactions and the other transactions contemplated thereby (excluding, in the
case of each Indemnitee other than SocGen and its Affiliates, legal expenses
incurred prior to the date of this Agreement), (ii) the use of the proceeds of
the Loans, (iii) any claim, litigation, investigation or proceeding relating to
any of the foregoing, whether or not any Indemnitee is a party thereto or (iv)
any actual or alleged presence or Release of Hazardous Materials on any property
owned or operated by the Borrower or any Subsidiary, or any Environmental Claim
related in any way to the Borrower or the Subsidiaries; provided, however, that
such indemnity shall not, as to any Indemnitee, be available to the extent that
such losses, claims, damages, liabilities or related expenses are determined by
a court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or wilful misconduct of such Indemnitee.
(c) The provisions of this Section 10.5 shall remain operative and in full
force and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loans, the invalidity or unenforceability of any term or provision of this
Agreement or any other Loan Document, or
<PAGE>
68
any investigation made by or on behalf of the Administrative Agent or any
Lender. All amounts due under this Section 10.5 shall be payable on written
demand therefor.
SECTION 10.6. Rights of Setoff. If an Event of Default shall have occurred
and be continuing, each Lender is hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower against any of and all the obligations of
the Borrower now or hereafter existing under this Agreement and other Loan
Documents held by such Lender, irrespective of whether or not such Lender shall
have made any demand under this Agreement or such other Loan Document and
although such obligations may be unmatured. The rights of each Lender under this
section are in addition to other rights and remedies (including other rights of
setoff) which such Lender may have.
SECTION 10.7. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
NEW YORK.
SECTION 10.8. Waivers; Amendment. (a) No failure or delay of the
Administrative Agent or any Lender in exercising any power or right hereunder or
under any other Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Administrative Agent and the Lenders hereunder and under the
other Loan Documents are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provision of this
Agreement or any other Loan Document or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) below, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice or demand
on the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Borrower and the Required Lenders; provided, however, that no such
agreement shall (i) decrease the principal amount of, or extend the maturity of
or any scheduled principal payment date or date for the payment of any interest
on any Loan, or waive or excuse any such payment or any part thereof, or
decrease the rate of interest on any Loan, without the prior written consent of
each Lender directly affected thereby, (ii) amend or modify the provisions of
Section 2.14 or 10.4(i), the provisions of this Section 10.8 or the definition
of the term "Required Lenders" without the prior written consent of each Lender,
(iii) release any Specified Guarantor without the prior written consent of
Lenders having Loans at such time representing at least 80% of the sum of all
Loans outstanding at such time or (iv) amend, modify or otherwise affect the
rights or duties of the Administrative Agent hereunder or under any other Loan
Document without the prior written consent of the Administrative Agent.
<PAGE>
69
SECTION 10.9. Interest Rate Limitation. Notwithstanding anything herein to
the contrary, if at any time the interest rate applicable to any Loan, together
with all fees, charges and other amounts which are treated as interest on such
Loan under applicable law (collectively the "Charges"), shall exceed the maximum
lawful rate (the "Maximum Rate") which may be contracted for, charged, taken,
received or reserved by the Lender holding such Loan or participation in
accordance with applicable law, the rate of interest payable in respect of such
Loan, together with all Charges payable in respect thereof, shall be limited to
the Maximum Rate, and, to the extent lawful, the interest and Charges that would
have been payable in respect of such Loan but were not payable as a result of
the operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender.
SECTION 10.10. Entire Agreement. This Agreement, the Fee Letter and the
other Loan Documents constitute the entire contract between the parties relative
to the subject matter hereof. Any other previous agreement among the parties
with respect to the subject matter hereof is superseded by this Agreement and
the other Loan Documents. Nothing in this Agreement or in the other Loan
Documents, expressed or implied, is intended to confer upon any party other than
the parties hereto and thereto and holders of Senior Indebtedness with respect
to Article VIII any rights, remedies, obligations or liabilities under or by
reason of this Agreement or the other Loan Documents.
SECTION 10.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.11.
SECTION 10.12. Severability. In the event any one or more of the provisions
contained in this Agreement or in any other Loan Document should be held
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby. The parties shall endeavor in
good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
<PAGE>
70
SECTION 10.13. Counterparts. This Agreement may be executed in counterparts
(and by different parties hereto on different counterparts), each of which shall
constitute an original but all of which when taken together shall constitute a
single contract, and shall become effective as provided in Section 10.3.
Delivery of an executed signature page to this Agreement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Agreement.
SECTION 10.14. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 10.15. Jurisdiction; Consent to Service of Process. (a) Each party
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each party hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each party hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Administrative Agent or any Lender may otherwise have to bring any action or
proceeding relating to this Agreement or the other Loan Documents against the
Borrower or its properties in the courts of any jurisdiction.
(b) Each party hereto hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each party hereto hereby irrevocably waives, to
the fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party hereto irrevocably consents to service of process in the
manner provided for notices in Section 10.1. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.
SECTION 10.16. Confidentialiy. The Administrative Agent and each of the
Lenders agrees to keep confidential (and to use its best efforts to cause its
respective agents and representatives to keep confidential) the Information (as
defined below) and all copies thereof, extracts therefrom and analyses or other
materials based thereon, except that the Administrative Agent or any Lender
shall be permitted to disclose Information (a) to such of its respective
officers, directors, employees, agents, affiliates and representatives as need
to know such Information, (b) to the extent requested by any regulatory
authority, (c) to the extent otherwise required by applicable laws and
regulations or by any subpoena or similar
<PAGE>
71
legal process, upon prior notice thereof (unless prohibited by the terms of such
subpoena or process) to the Borrower in a manner reasonably calculated to afford
the Borrower an opportunity to seek a protective order or other injunctive
relief, (d) in connection with any suit, action or proceeding relating to the
enforcement or protection of its rights hereunder or under the other Loan
Documents or (e) to the extent such Information (i) becomes publicly available
other than as a result of a breach of this Section 10.16 or (ii) becomes
available to the Administrative Agent or any Lender on a nonconfidential basis
from a source other than the Borrower. For the purposes of this Section 10.16,
"Information" shall mean all financial statements, certificates, reports,
agreements and information (including all analyses, compilations and studies
prepared by the Administrative Agent or any Lender based on any of the
foregoing) that are received from the Borrower and related to the Borrower, any
shareholder of the Borrower or any employee, customer or supplier of the
Borrower, other than any of the foregoing that were available to the
Administrative Agent or any Lender on a nonconfidential basis prior to its
disclosure thereto by the Borrower, and which are in the case of Information
provided after the date hereof, clearly identified at the time of delivery as
confidential. The provisions of this Section 10.16 shall remain operative and in
full force and effect regardless of the expiration and term of this Agreement.
<PAGE>
72
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
SCHEIN PHARMACEUTICAL, INC.,
by /s/ Dariush Ashrafi
---------------------
Name:Dariush Ashrafi
Title:Executive Vice President &
Chief Financial Officer
SOCIETE GENERALE, NEW YORK
BRANCH, individually and as
Administrative Agent,
by /s/ Salvatore Galatioto
-----------------------
Name:Salvatore Galatioto
Title:First Vice President
<PAGE>
Schedule 1.1
CERTAIN PERMITTED HOLDERS
Pamela Joseph
Trusts established by Pamela Joseph (including trustee(s) thereunder)
Pamela Schein
Trusts established by Pamela Schein (including trustee(s) thereunder)
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 (including trustee thereunder)
Marvin H. Schein
Trusts established by Marvin H. Schein (including trustee(s) thereunder)
Martin Sperber
Trusts established by Martin Sperber (including trustee(s) thereunder)
Stanley M. Bergman
Trusts established by Stanley M. Bergman (including trustee(s) thereunder)
Voting Trustee under Voting Trust Agreement dated September 30, 1994
<PAGE>
Schedule 2.1
COMMITMENTS
Name and Contact Person
Address of Lender and Teleconv Number Commitment
SOCIETE GENERALE Michelle Martin $100,000,000
1221 Avenue of the Americas (212) 278-7430
New York, NY 10020
<PAGE>
Schedule 3.8
Domestic Subsidiaries and percentage owned therein
<TABLE>
<CAPTION>
Name % of Ownership
---- --------------
<S> <C>
Schein Pharmaceutical International, Inc. 100.0%
Schein Pharmaceutical PA, Inc. 100.0%
Schein Pharmaceutical Service Company 100.0%
Steris Laboratories, Inc. 100.0%
Danbury Pharmacal, Inc. 100.0%
Danbury Pharmacal Puerto Rico, Inc.(1), 100.0%
Marsam Pharmaceuticals Inc. 100.0%
MIS,Inc.(2)
</TABLE>
(1) Shares held by Danbury Phammacal, Inc.
(2) Shares held by Marsam Pharmaceuticals, Inc.
<PAGE>
Schedule 3.18
INSURANCE
(ATTACHED)
<PAGE>
Morristown, NJ 07962-1966 SMarsh &
Telephone 201 285-4600 McLennan
SCHEIN PHARMACEUTICAL INC.
<TABLE>
<CAPTION>
Insurance Outline Schedule B As of Augugt 7, 1996
====================================================================================================================================
<S> <C> <C> <C> <C>
Coverage Company Policy Term Average
Number Annual
Cost
- ------------------------------------------------------------------------------------------------------------------------------------
EMPLOYERS' LIABILITY {WORKERS' COMPENSATION)
- --------------------------------------------
Limits:
$1,000,000 each accident
$1,000,000 policy limit
$1,000,000 each employee
Insurance Co. of the State of PA 1131802(AOS) 6/30/96-97
National Union Fire Ins. Co. 1131790 (OR, WI)
Insurance Co. of the State of PA 1131791 (CA)
GENERAL LIABILITY (EXCLUDING PRODUCTS)
- ---------------------------------------
Limits:
$ 1,000,000 BI/PD per occurrence
$ 1,000,000 per fire legal
$ 10,000 medical pay per person
$ 1,000,000 personal and advertising injury
$20, 000, 000 general aggregate limit (products/completed operations}
National Union Fire 1437699 (AOS) 6/30/96-97
Insurance Company
AUTOMOBILE LIABILITY
- -----------------------
Limits:
S1,000,000 combined single limit
S 10,000 medical pay per person
National Union Fire Ins. Co. 1438731 (AOS) 6/30/96-97
National Union Fire Ins. Co. 1438732 (TX)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
P.O. Box 1960
Morristown, NJ 07962-1966 Marsh &
telephone 201 285-4600 McLennan
SCHEIN PHARMACEUTICAL INC.
Insurance Outline Schedule B As of Augugt 7, 1996
====================================================================================================================================
Coverage Company Policy Term Average
Number Annual
. Cost
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRODUCTS LIABILITY
- ------------------
Limits:
$20,000,000 each occurrence and aggregate xs $500,000 SIR per occurrence $2,500,000 aggregate
Columbla Casualty Ins. Co. ADT000682 3/8/96-97
EXCESS LIABILITY (Products Only)
- -----------------
Limits:
$5,000,000 each lose and aggregate per form
Gerilng Konzern 509/DL064596 3/8/96-97
EXCESS LIABILITY (Excluding Products}
- -----------------
Limits:
$25,000,000 each occurrence and aggregate
National Union Fire BE9324061 6/30/96-98
Insurance Company
EXCESS LIABILITY (Including Products)
- -----------------
Limits:
$25,000,000 each occurrence and aggregate
excess of $25,000,000 (or Schedule B underlying limits lf greater}
X.L. Insurance Company XLUMB-01037 6/30/96-97
</TABLE>
<PAGE>
Marsh & McLennan, Incorporated Marsh &
44 Whippany Road McLennan
P.O. Box 1966
Morristown, NJ 07962-1966
Telephone 201 285-4600
<TABLE>
<CAPTION>
SCHEIN PHARMACEUTICAL INC. As of: November7,1996
Insurance Outline - Schedule of Property Lines of Coverage
====================================================================================================================================
Coverage Company Policy Number Term
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALL-RISK PROPERTY POLICY Industrial Risk Insurers #31-3-64722 6/30/96-97
- --------------------------
Insuring All Real & Personal
Property, includinq Boiler &
Machinery and Inland Transit
Territory: US & Canada
Blanket Policy Limit:
$1,097,580,000
ALL-RISK PROPERTY POLICY Puerto Rican-American #r4657073 6/30/96-97
- -------------------------- Insurance Company
Insuring All Real & Personal
Property, including Boiler &
Machinery and Inland Transit
Territory: Puerto Rico
Blanket Policy Limit:
$61,073,000
Subilmits Include:
- -------------------
$55,000,000 Annual Aggregate for Earthquake, except Zone 1
$35,000,000 Annual Aggregate for Earthquake in Puerto Rico
$ 1,OOO,OOO Annual Aggregate for Earthquake at Miscellaneous Unnamed Locations, outside of Zone 1
$ 6,000,000 Annual Aggregate for Earthquake at Santa Ana, CA location
$55,000, 000 Annual Aggregate for Flood, except Zone A
$35,000,000 Annual Aggregate for Flood in Puerto Rico
$20, 000,000 Annual Aggregate for Flood at Danbury, CT and at Miscellaneous Unnamed Locations, outside of Zone A
$1,000,000 Annual Aggregate for Flood at Newly Acquired Property in Zone A
</TABLE>
<PAGE>
Marsh & McLennan, Inocorporated Marsh &
44 Whippany Road McLennan
P.O. Box 1966
Morristown, NJ 07962-1966
Telephone 201 285-4600
<TABLE>
<CAPTION>
SCHEIN PHARMACEUTICAL INC. As of: November7,1996
Insurance Outline (Schedule B)
====================================================================================================================================
Coverage Company Policy Number Term
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Subilmits, cont'd:
- ------------------
$20,000,000 Contingent Business Interruption, except;
$50,000,000 Contingent Business Interruption for Abbott and Weat Co.
$13,000,000 Contingent Business Interruption for Foreign Suppliers
$10,000,000 Extra Expense at All Locations, except:
$ 5,000,000 at Florham Park, NJ & Cherry Hill locations
$ 500,000 at Miscellaneous Unnamed Locations
$10,000,000 Accounts Receivable
$l0,000,000 Off Premises Power
$ 5,000,000 Miscellaneous Unnamed Locations (unless otherwise stated)
$ 5,000,000 Fine Arts (Unscheduled)
$ 5,000,000 Transit
$ 5,000,000 EDP Media Regeneration
$ 5,000,000 Valuable Papers & Records
$ 5,000,000 Debris Removal (or 25% of Loss, whichever is Greater)
$ 5,000,000 Newly Acquired Property - HPR Locations
$ 2,500,000 Newly Acquired Property - Non HPR Locations
$ 1,000,000 Expediting Expense
$ 200,000 Exhibition, Exposition, Fair or Trade Shows
$ 250,000 Leasehold Interest
$ 25,000 Annual Aggregate for Pollution Clean-Up from Land or Water
365 Days Extended Period of Indemnity after Reconstruction
Deductibles:
- -----------
$ 25,000 Per Occurrence, except:
$ 25,000 For Transit
$ 10,000 For Boiler & Machinery Property Damage / 1 x ADV for Boiler & Machinery Time Element
</TABLE>
<PAGE>
Marsh & McLennan, Incorporated Marsh &
44 Whippany Road McLennan
P.O. Box 1966
Morristown, NJ 07962-1966
Telephone 201 285-4600
<TABLE>
<CAPTION>
SCHEIN PHARMACEUTICAL INC. As of: November7,1996
Insurance Outline (Schedule B)
====================================================================================================================================
Coverage Company Policy Number Term Premiums
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deductibles cont'ds
- -------------------
5% of 100% Property Damage Values, minimum of $125,000 for Earthquake within California, Nevada, Alaska and at
Miscellaneous Unnamed Locations
10 x Average Dally Value, minimum of $125,000 for Time Element caused by Quake in CA, NV, AK & Misc. Unnamed Locs.
2% of 100% Property Damage Values for Windstorm in Puerto Rico and at Miscellaneous Unnamed Locations
5 x Average Dally Value, maximum of $500,000 and minimum of $25,000 for Time Element caused by Windstorm
$ 250,000 For Earthquake In Puerto Rico (Combined PD & BI)
$ 250,000 For Flood In Zone A - Danbury, CT, Miscellaneous Unnamed/Newly Acquired Locations & CBI Locations
$ 100,000 For Flood in Zone B, a Miscellaneous Unnamed Locations & CBI Locations
24 Hour Waiting Period - Off Premises Power
ALL-RISK OCEAN CARGO POLICY Continental Insurance Co. #OC-242376 6/30/96 and
- ----------------------------
Insuring all waterborne cargo Continuous until Deposit
except that which lncepts as Cancelled (Adjusted
Inland Transit. upon Audit)
Territory: World-Wide
Policy Limits
$ 7,500,000 per steamer/veseel
$ 2,000,000 per aircraft
$ 1,0OO,OOO per any truck or trailer; domestic conveyance
$ 750,000 if stowed on deck
Deductible:
$ 1,500 per occurrence
CRF/Schein '96
</TABLE>
<PAGE>
Marsh & McLennan, Incorporated Marsh &
44 Whippany Road McLennan
P.O. Box 1966
Morristown, NJ 07962-1966
Telephone 201 285-4600
<TABLE>
<CAPTION>
SCHEIN PHARMACEUTICAL INC. As of November, 1996
Insurance Outline
====================================================================================================================================
Coverage Company Policy Term Average
Number Annual
Cost
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Crime Insurance [arrow]Federal Insurance Company 81338591-D CCG 6/30/96 - 6/30/99
Limit of Liability: $10,000,000
Deductible: $l00,000
Named Insured: Schein Pharmaceutical, Inc.and any subsidiary now
existing or hereafter created or sacquired
Insuring Agreements: Employee Dishonesty
Premises
Transit
Depositors Forgery
Computer Teft/Funds Transfer
Credit Card Forgery
Computer Theft of Merchandise Coverage
Money Orders & Counterfeit Currency
Directors & Officers
Liability - Run-off [arrow]National Union Fire Insurance
Company of Pittsburgh, Pa. (AIG) 443-74-19 9/30/94 - 9/30/2000
Limit of Liability: $10,000,000 (Extended Aggregate over the run-off period)
Retention: $5,000 each loss
$25,000 aggregate
$250,000 Corporate Reimbursement
Named Insured: Schein Pharmaceutical, Inc. (Schein Holdings, Inc.)
including Henry Schein, Inc.
</TABLE>
<PAGE>
Marsh & McLennan, Incorporated Marsh &
44 Whippany Road McLennan
P.O. Box 1966
Morristown, NJ 07962-1966
Telephone 201 285-4600
<TABLE>
<CAPTION>
SCHEIN PHARMACEUTICAL INC. As of November, 1996
Insurance Outline
====================================================================================================================================
Coverage Company Policy Term Average
Number Annual
Cost
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Excess Directors & Officers
Liability - Run-off [arrow]Federal Insurance Company 81274904-A 9/30/94 - 9/30/2OOO
Limit of Liability: $l0,000,000 (Extended Aggregate over the run-off period)
Retention: $10,005,000 each loss
$10,025,000 aggregate
$10,250,000 Corporate Reimbursement
Named Insured: Schein Pharmaceutical, Inc. (Schein Holdings, Inc.) .
including Henry Schein, Inc
Fiduciary Liability [arrow]Aetna Casualty & Surety Company 00l FF l01045482 BCM 6/30/96 - 6/30/93
Limit of Liability: $3,000,000 each loss
$3,000,000 aggregate each annual anniversary
Deductible: $O
Special Risk [arrow]Reliance Insurance Company NFK1394206 6/30/9S - 6/30/2000
This policy is of a confidential nature. If you should need details on this
policy, please contact James Meer, Vice President and Treasurer,
Schein Pharmaceutical, Inc. or Marsh & McLennan, Inc.
</TABLE>
<PAGE>
AON RISK SERVICES, INC. OF NEW YORK ~
PAGE 1 OF 1
<TABLE>
<CAPTION>
DATE: NOVEMBER 20, 1996
Schein Pharmaceutical, Inc.
100 Campus drive
SCHEDULE OF INSURANCE FOR: Florham Park. N1 07932
- ------------------------------------------------------------------------------------------------------------------------------------
COVERAGE AND LOCATION AMOUNT OR TERM COMPANY POLICY NUMBER COMMENTS
LIMIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Directors & Officers Liability and Company $10,000.000 9/30/96- National Union Fire 484 -03086 Primary Retention
Reimbursement, Employment Practices 9/30/97 Insurance Company (AIG) is $100,000
Insurance; Worldwide
Excess Directors & Officers Liability and $5,000,000 9/30/96- Continental Casualty (CNA) 132032273
Company Reimbursement, Employment Excess of 9/30/97
Practices Insurance; Worldwide $10,000,000
Excess Directors & Officers Liability and $5,000,000 9/30/97- Reliance Insurance Company
Company Reimbursement Employment Excess of 9/30/96 (Reliance National) NDA0132297-96
Practices Insurance; Worldwide $15,000,000
</TABLE>
<PAGE>
SCHDULE 6.2
EXISTING LIENS
SEE ATTACHED
<PAGE>
SCHEDULE 6.2
EXISTING LIENS
SCHEIN PHARMACEUTICAL, INC.
NEW JERSEY SECRETARY OF STATE
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
04-19-94 SCHEIN PHARMACEUTICAL, NORTHERN TELECOM 1565399 EQUIPMENT
INC. FINANCE CORP.
- --------------------------------------------------------------------------------
05-12-94 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1570324 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
10-07-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1534353 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
10-07-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1534354 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
10-13-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1535000 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
01-14-94 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1550357 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
10-20-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1536204 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
10-20-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1536222 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
05-17-94 SCHEIN PHARMACEUTICAL, SHARP ELECTRONIC 1570900 EQUIPMENT
INC. CREDIT CO.
- --------------------------------------------------------------------------------
05-05-94 SCHEIN PHARMACEUTICAL, NEW YORK SYSTEMS 1569087 EQUIPMENT
INC. EXCHANGE
- --------------------------------------------------------------------------------
01-20-94 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1550717 EQUIPMENT
INC. FINANCE CORP.
- --------------------------------------------------------------------------------
06-05-95 SCHEIN BAYER NTFC CAPITAL 1637983 EQUIPMENT
PHARMACEUTICAL CORPORATION
SERVICES, INC.
- --------------------------------------------------------------------------------
05-30-95 SCHEIN PHARMACEUTICAL, PITNEY BOWES CREDIT 1637093 EQUIPMENT
INC. CORPORATION
- --------------------------------------------------------------------------------
06-14-93 SCHEIN PHARMACEUTICAL, NEW YORK SYSTEMS 1515052 EQUIPMENT
INC. EXCHANGE, INC.
- --------------------------------------------------------------------------------
01-20-94 SCHEIN PHARMACEUTICAL, NORTHERN TELECOM 1550718 EQUIPMENT
INC. FINANCE
CORPORATION
- --------------------------------------------------------------------------------
07-11-96 SCHEIN PHARMACEUTICAL, GE CAPITAL 1709018 EQUIPMENT
INC. COMPUTER LEASING
CORP.
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
2
SCHEDULE 6.2
EXISTIING LIENS
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
04-25-92 SCHEIN PHARMACEUTICAL, NEW YORK SYSTEMS 1694498 EQUIPMENT
INC. EXCHANGE, INC
- --------------------------------------------------------------------------------
09-11-96 SCHEIN PHARMACEUTICAL, BUSINESS CREDIT 1721039 EQUIPMENT
INC. LEASING
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 6.2
EXISTIING LIENS
SCHEIN PHARMACEUTICAL, INC
NEW YORK SECRETARY OF STATE
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
01-10-94 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 005475 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
05-12-94 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 095810 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
01-07-93 SCHEIN PHARMACEUTICAL, SHARP FINANCIAL 003704 EQUIPMENT
INC. SERVICES
- --------------------------------------------------------------------------------
10-07-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 212040 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
10-15-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 217624 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
10-18-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 219058 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
01-13-93 SCHEIN PHARMACEUTICAL, IBM CREDIT 007755 EQUIPMENT
INC. CORPORATION
- --------------------------------------------------------------------------------
05-29-94 SCHEIN PHARMACEUTICAL, XEROX CORPORATION 104185 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
04-11-94 SCHEIN PHARMACEUTICAL, NORTHERN TELECOM 070276 EQUIPMENT
INC. FINANCE CORPORATION
- --------------------------------------------------------------------------------
05-23-94 SCHEIN PHARMACEUTICAL, XEROX CROP. 104185 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
11-27-95 SCHEIN PHARMACEUTICAL, IBM CREDIT CORP. 236269 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 6.2
EXISTIING LIENS
SCHEIN PHARMACEUTICAL, INC.
ARIZONA SECRETARY OF STATE
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
02-25-91 SCHEIN PHARMACEUTICAL, VALLEY LEASING 654774 EQUIPMENT
INC. COMPANY
- --------------------------------------------------------------------------------
12-08-93 SCHEIN PHARMACEUTICAL, ZIONS CREDIT 654774 EQUIPMENT
INC. CORPORATION
- --------------------------------------------------------------------------------
10-12-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 761297 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
10-12-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 761562 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
04-11-94 SCHEIN PHARMACEUTICAL, NORTHERN TELECOM 782116 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
05-24-96 SCHEIN PHARMACEUTICAL, LINC QUANTUIM 899437 EQUIPMENT
INC. ANALYTICS, INC.
- --------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
SCHEDULE 6.2
EXISTIING LIENS
SCHEIN PHARMACEUTICAL, INC.
PUTNAM COUNTY, NEW YORK
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
10-12-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1993-850 EQUIPMENT
INC. FINANCING,INC.
- --------------------------------------------------------------------------------
04-13-94 SCHEIN PHARMACEUTICAL, NORTHERN TELECOM 1994-300 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
05-13-94 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1994-390 EQUIPMENT
INC. FINANCING, INC
- --------------------------------------------------------------------------------
10-93-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1993-881 EQUIPMENT
INC. FINANCING, INC
- --------------------------------------------------------------------------------
08-11-94 SCHEIN PHARMACEUTICAL, XEROX CORP. 1994-679 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
12-06-95 SCHEIN PHARMACEUTICAL, IBM CREDIT CORP. 1995-1008 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
SCHEDULE 6.2
EXISTIING LIENS
SCHEIN PHARMACEUTICAL, INC.
MARICOPA COUNTY, ARIZONA
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
01-04-94 SCHEIN PHARMACEUTICAL, ZIONS CREDIT 94-0005530 EQUIPMENT
INC. CORPORATIOIN
- --------------------------------------------------------------------------------
</TABLE>
DANBURY PHARMACAL, INC
CONNECTICUT SECRETARY OF STATE
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
01-22-86 DANBURY PHARMACAL, CITICORP INDUSTRIAL 631629 EQUIPMENT
INC. CREDIT
- --------------------------------------------------------------------------------
01-22-86 DANBURY PHARMACAL, CITICORP INDUSTRIAL 895542 EQUIPMENT
INC. CREDIT
- --------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
SCHEDULE 6.2
EXISTING LIENS
DANBURY PHARMACAL, INC.
NEW YORK SECRETARY OF STATE
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
09-25-90 DANBURY PHARMACAL, CITICORP INDUSTRIAL 206483 EQUIPMENT
INC. CREDIT
- --------------------------------------------------------------------------------
01-13-86 DANBURY PHARMACAL, CITICORP INDUSTRIAL 010995 EQUIPMENT
INC. CREDIT
- --------------------------------------------------------------------------------
04-12-93 DANBURY PHARMACAL, MINOLTA LEASING 078529 EQUIPMENT
INC. SERVICES
- --------------------------------------------------------------------------------
02-10-93 DANBURY PHARMACAL, CITICORP INDUSDTRIAL 031308 EQUIPMENT
INC. CREDIT
- --------------------------------------------------------------------------------
04-06-92 DANBURY PHARMACAL, NORTHERN TELECOM 069322 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
04-07-94 DANBURY PHARMACAL, MINOLTA LEASING 067628 EQUIPMENT
INC. SERVICES
- --------------------------------------------------------------------------------
03-01-94 DANBURY PHARMACAL, MINOLTA LEASING 039122 EQUIPMENT
INC. SERVICES
- --------------------------------------------------------------------------------
08-12-93 DANBURY PHARMACAL, TOKAI FINANCIAL 173461 EQUIPMENT
INC. SERVICES
- --------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
SCHEDULE 6.2
EXISTING LIENS
DANBURY PHARMACAL, INC.
PUTNAM COUNTY
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
04-13-93 DANBURY PHARMACAL, MINOLTA LEASING 1993-268 EQUIPMENT
INC. SERVICES
- --------------------------------------------------------------------------------
02-18-92 DANBURY PHARMACAL, NORTHERN TELECOM 1992-133 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
05-03-94 DANBURY PHARMACAL, MINOLTA LEASING 1994-156 EQUIPMENT
INC. SERVICES
- --------------------------------------------------------------------------------
04-11-94 DANBURY PHARMACAL, MINOLTA LEASING 1994-286 EQUIPMENT
INC. SERVICES
- --------------------------------------------------------------------------------
08-13-93 DANBURY PHARMACAL, TOKAI FINANCIAL 1993-677 EQUIPMENT
INC. SERVICES
- --------------------------------------------------------------------------------
</TABLE>
STERIS LABORATORIES, INC.
ARIZONA SECRETARY OF STATE
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
04-27-92 STERIS LABS, INC. EATON FINANCIAL CORP. 702835 EQUIPMENT
- --------------------------------------------------------------------------------
09-04-92 STERIS LABS, INC. EATON FINANCIAL CORP 717047 EQUIPMENT
- --------------------------------------------------------------------------------
05-11-94 STERIS LABS, INC. TOKAI FINANCIAL 785949 EQUIPMENT
SERVICES
- --------------------------------------------------------------------------------
10-05-94 STERIS LABS, INC. TOKAI FINANCIAL 804043 EQUIPMENT
SERVICES
- --------------------------------------------------------------------------------
01-06-95 STERIS LABS, INC. ADVANCED COPY 815161 EQUIPMENT
SYSTEMS, INC
- --------------------------------------------------------------------------------
03-29-95 STERIS LABS, INC. ADVANCED COPY 825394 EQUIPMENT
SYSTEMS, INC.
- --------------------------------------------------------------------------------
09-27-95 STERIS LABS, INC. ADVANCED COPY 848211 EQUIPMENT
SYSTEMS, INC.
================================================================================
</TABLE>
8
<PAGE>
SCHEDULE 6.2
EXISTING LIENS
MARSAM PHARMACEUTICALS, INC.
NEW JERSEY SECRETARY OF STATE
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
03-01-95 MARSAM PHARMACEUTICALS, LIQUID CARBONIC CORP. 1621304 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
09-29-95 MARSAM PHARMACEUTICALS, IBM CREDIT CORP. 1674940 EQUIPMENT
INC.
================================================================================
</TABLE>
9
<PAGE>
Schedule 6.4
EXISTING INVESTMENTS
<TABLE>
<CAPTION>
Nature of
Name Investment
---- ----------
<S> <C>
Bayfama de Columbia S.A.(2) Common Stock
Brovar S&P (Proprietary) Ltd., South Africa(1) Common Stock
Duramed Pharmaceuticals, Inc. Convertible Note
Elensys Care Services Inc. Conv. Pfd. Stk.
Ethical Generics Limited, UK(1) Common Stock
International Generics Co., Ltd. (Taiwan)(1) Common Stock
Ranbaxy Schein Pharma L.L.C.(1) L.L.C. Interest
Sabratek Corporation Common Stock & Warrants
Schein Bayer Pharmaceuticals Australia(2) Partnership
Schein Bayer Pharm. Svcs. Common Stock
Schein Pharmaceutical Canada, Inc.(1) Common Stock
Triomed (Proprietary) Limited, South Africa(1) Common Stock
Miscellaneous investments not exceeding $250,000 in aggregate.
</TABLE>
(1) Currently owned 50% by Schein Pharmaceutical, Inc. or one of its affiliates.
(2) Currently owned 30% by Schein Pharmaceutical, Inc. or one of its affiliates.
<PAGE>
(Letterhead of SocGen)
EXHIBIT A
to the Loan Agreement
SCHEIN PHARMACEUTICAL, INC.
ADMINISTRATIVE QUESTIONNAIRE
Please accurately complete the following information and return via FAX to the
attention of ____________________________ at SocGen as soon as possible.
FAX Number: 212-_____-_____
LEGAL NAME OF YOUR INSTITUTION TO APPEAR IN DOCUMENTATION:
________________________________________________________________________________
GENERAL INFORMATION - DOMESTIC LENDING OFFICE:
Institution Name:_______________________________________________________________
Street Address:_________________________________________________________________
City, State, Zip Code:__________________________________________________________
GENERAL INFORMATION - EURODOLLAR LENDING OFFICE:
Institution Name:_______________________________________________________________
Street Address:_________________________________________________________________
City, State, Zip Code:__________________________________________________________
CONTACTS/NOTIFICATION METHODS:
CREDIT CONTACTS:________________________________________________________________
Primary Contact:________________________________________________________________
Street Address:_________________________________________________________________
City, State, Zip Code:__________________________________________________________
Phone Number:___________________________________________________________________
FAX Number:_____________________________________________________________________
Backup Contact:_________________________________________________________________
Street Address:_________________________________________________________________
City, State, Zip Code:__________________________________________________________
Phone Number:___________________________________________________________________
FAX Number:_____________________________________________________________________
<PAGE>
TAX WITHHOLDING
__________________
Non Resident Alien ________________Y*____________________ N
* Form 4224 Enclosed
Tax ID Number__________________________________
CONTACTS/NOTIFICATION METHODS:
ADMINISTRATIVE CONTACTS - BORROWINGS, PAYDOWNS, INTEREST, FEES, ETC.
Contact:________________________________________________________________________
Street Address:_________________________________________________________________
City, State, Zip Code:__________________________________________________________
Phone Number:___________________________________________________________________
FAX Number:_____________________________________________________________________
PAYMENT INSTRUCTIONS:
Name of Bank where funds are to be transferred:
______________________________________________________________________
Routing Transit/ABA number of Bank where funds are to be transferred:
______________________________________________________________________
Name of Account, if applicable:
______________________________________________________________________
Account Number:_________________________________________________________________
Additional Information:_________________________________________________________
________________________________________________________________________________
It is very important that all of the above information is accurately filled in
and returned promptly. If there is someone other than yourself who should
receive this questionnaire, please notify me of their name and FAX number and we
will FAX them a copy of the questionnaire. If you have any questions, please
call me at 212-_____-_____.
<PAGE>
EXHIBIT B
to the Loan Agreement
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Senior Subordinated Loan Agreement dated as of
December 20, 1996 (as amended, restated, supplemented or otherwise modified from
time to time, the "Loan Agreement"), among Schein Pharmaceutical, Inc., the
Lenders listed from time to time party thereto (the "Lenders") and Societe
Generale, as Administrative Agent. Capitalized terms used herein but not defined
herein shall have the meanings assigned to such terms in the Loan Agreement.
1. The Assignor named below hereby sells and assigns, without recourse, to
the Assignee named below,(1) and the Assignee hereby purchases and assumes,
without recourse to the Assignor, from the Assignor, effective as of the
Effective Date set forth below (but not prior to registration of the information
contained herein in the Register pursuant to Section 10.4(d) of the Loan
Agreement), the interests set forth below (the "Assigned Interest") in the
Assignor's rights and obligations under the Loan Agreement and other Loan
Documents, including, without limitation, the amounts and percentages set forth
below of the Loans owing to the Assignor which are outstanding on the Effective
Date. Each of the Assignor and the Assignee hereby makes and agrees to be bound
by all the representations, warranties and agreements set forth in Section
10.4(c) of the Loan Agreement, a copy of which has been received by each such
party. From and after the Effective Date (x) the Assignee shall be a party to
and be bound by the provisions of the Loan Agreement and, to the extent of the
interests assigned by this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and under the Loan Documents and (y) the
Assignor shall, to the extent of the interests assigned by this Assignment and
Acceptance, relinquish its rights and be released from its obligations under the
Loan Agreement.
2. This Assignment and Acceptance is being delivered to the Administrative
Agent together with (i) if the Assignee is organized under the laws of a
jurisdiction outside the United States, the forms specified in Section 2.18(g)
of the Loan Agreement, duly completed and executed by such Assignee, (ii) if the
Assignee is not already a Lender under the Loan Agreement, an Administrative
Questionnaire in the form of Exhibit A to the Loan Agreement and (iii) a
processing and recordation fee of [$3,500]. The Administrative Agent shall
record the information contained in this Assignment and Acceptance in the
Register pursuant to Section 10.4(d) of the Loan Agreement.
- ----------
(1)Assignee may not be a pharmaceutical company or any Affiliate of a
pharmaceutical company.
<PAGE>
2
3. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of
Assignment (may not be
fewer than 5 Business Days
after Date
of Assignment):
<PAGE>
3
<TABLE>
<CAPTION>
Percentage Assigned
of Loan (set forth
to at least 8
decimals), as a
Principal percentage of the
Amount Assigned 2/ Loans of all Lenders
------------------ --------------------
<S> <C>
$ %
</TABLE>
- ----------
2/ Not less than $5,000,000 or the entire remaining amount of such Loan.
<PAGE>
4
The terms set forth above are
hereby agreed to by:
__________________________,
as Assignor.
by
__________________________
Name:
Title:
__________________________,
as Assignee.
by
__________________________
Name:
Title:
Consented to by:
SOCIETE GENERALE, as
Administrative Agent
by
______________________________
Name:
Title:
SCHEIN PHARMACEUTICAL, INC.,
by
______________________________
Name:
Title:
<PAGE>
EXHIBIT C
to the Loan Agreement
================================================================================
SCHEIN PHARMACEUTICAL, INC.
THE GUARANTORS PARTY HERETO
AND
_______________________, Trustee
INDENTURE
Dated as of [January 31], 1998
----------
[$103,500,000]
SENIOR SUBORDINATED CONVERSION NOTES DUE 2003
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
ARTICLE I
<S> <C>
DEFINITIONS .............................. 1
SECTION 1.1 Certain Terms Defined ....................................... 1
ARTICLE II
ISSUE, EXECUTION, FORM AND
REGISTRATION OF SECURITIES ...................... 18
SECTION 2.1 Authentication and Delivery of Securities ................... 18
SECTION 2.2 Execution of Securities ..................................... 19
SECTION 2.3 Certificate of Authentication ............................... 19
SECTION 2.4 Form, Denomination and Date of Securities;
Payments of Interest ...................................... 19
SECTION 2.5 Registration, Transfer and Exchange ......................... 21
SECTION 2.6 Mutilated, Defaced, Destroyed, Lost and Stolen Securities ... 24
SECTION 2.7 Cancellation of Securities; Destruction Thereof ............. 25
SECTION 2.8 Temporary Securities; Global Securities ..................... 25
SECTION 2.9 Effective Registration ...................................... 27
ARTICLE III
COVENANTS OF THE COMPANY ....................... 27
SECTION 3.1 Payment of Principal and Interest ........................... 27
SECTION 3.2 Offices for Payments, etc ................................... 27
SECTION 3.3 Appointment to Fill a Vacancy in Office of Trustee .......... 27
SECTION 3.4 Paying Agents ............................................... 28
SECTION 3.5 Certificate to Trustee ...................................... 28
SECTION 3.6 Securityholders' Lists ...................................... 29
SECTION 3.7 Commission Reports .......................................... 29
SECTION 3.8 Limitation on Indebtedness .................................. 29
SECTION 3.9 Limitation on Restricted Payments ........................... 31
SECTION 3.10 Restrictions on Sales of Assets and Subsidiary Stock ........ 34
SECTION 3.11 Limitation on Restrictions on Distributions from
Restricted Subsidiaries ................................... 36
SECTION 3.12 Limitation on Sale of Capital Stock of
Restricted Subsidiaries ................................... 37
SECTION 3.13 Limitation on Liens ......................................... 37
SECTION 3.14 Limitations on Affiliate Transactions ....................... 39
SECTION 3.15 Change of Control ........................................... 39
SECTION 3.16 Limitation on Lines of Business ............................. 41
SECTION 3.17 Payments for Consent ........................................ 41
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 3.18 Waiver of Stay, Extension or Usury Laws ..................... 41
ARTICLE IV
DEFAULTS AND REMEDIES ........................ 41
SECTION 4.1 Event of Default Defined; Acceleration of Maturity .......... 41
SECTION 4.2 Acceleration ................................................ 44
SECTION 4.3 Other Remedies .............................................. 44
SECTION 4.4 Waiver of Past Defaults ..................................... 44
SECTION 4.5 Control by Majority ......................................... 45
SECTION 4.6 Limitation on Suits ......................................... 45
SECTION 4.7 Rights of Holders to Receive Payment ........................ 45
SECTION 4.8 Collection Suit by Trustee .................................. 45
SECTION 4.9 Trustee May File Proofs of Claim ............................ 46
SECTION 4.10 Priorities .................................................. 46
SECTION 4.11 Undertaking for Costs ....................................... 46
ARTICLE V
CONCERNING THE TRUSTEE ........................ 47
SECTION 5.1 Duties and Responsibilities of the Trustee; During Default;
Prior to Default ............................................ 47
SECTION 5.2 Certain Rights of the Trustee ............................... 48
SECTION 5.3 Trustee Not Responsible for Recitals, Disposition of
Securities or Application of Proceeds Thereof ............... 49
SECTION 5.4 Trustee and Agents May Hold Securities; Collections, etc .... 49
SECTION 5.5 Moneys Held by Trustee ...................................... 49
SECTION 5.6 Compensation and Indemnification of Trustee and
Its Prior Claim ........................................... 49
SECTION 5.7 Right of Trustee to Rely on Officer's Certificate, Etc ...... 50
SECTION 5.8 Persons Eligible for Appointment as Trustee ................. 50
SECTION 5.9 Resignation and Removal; Appointment of Successor Trustee ... 50
SECTION 5.10 Acceptance of Appointment by Successor Trustee .............. 51
SECTION 5.11 Merger, Conversion, Consolidation or Succession to
Business of Trustee ....................................... 52
SECTION 5.12 Notice of Defaults .......................................... 52
SECTION 5.13 Reports by the Trustee ...................................... 53
ARTICLE VI
CONCERNING THE SECURITYHOLDERS .................... 53
SECTION 6.1 Evidence of Action Taken by Securityholders ................. 53
SECTION 6.2 Proof of Execution of Instruments and of Holding
of Securities; Record Date ................................ 53
SECTION 6.3 Holders to be Treated as Owners ............................. 53
SECTION 6.4 Securities Owned by Company Deemed Not Outstanding .......... 54
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.5 Right of Revocation of Action Taken ......................... 54
ARTICLE VII
AMENDMENTS .............................. 55
SECTION 7.1 Without Consent of Holders .................................. 55
SECTION 7.2 With Consent of Holders ..................................... 56
SECTION 7.3 Compliance with Trust Indenture Act ......................... 56
SECTION 7.4 Revocation and Effect of Consents and Waivers ............... 56
SECTION 7.5 Notation on or Exchange of Securities ....................... 57
SECTION 7.6 Trustee to Sign Amendments .................................. 57
ARTICLE VIII
MERGER AND CONSOLIDATION ....................... 57
SECTION 8.1 When Company May Merge, Etc.................................. 57
SECTION 8.2 Successor Corporation Substituted ........................... 58
ARTICLE IX
DISCHARGE OF INDENTURE; DEFEASANCE .................. 58
SECTION 9.1 Discharge of Liability on Securities: Defeasance ............ 58
SECTION 9.2 Conditions to Defeasance .................................... 59
SECTION 9.3 Application of Trust Money .................................. 61
SECTION 9.4 Repayment to Company ........................................ 61
SECTION 9.5 Indemnity for U.S. Government Obligations ................... 61
SECTION 9.6 Reinstatement ............................................... 61
ARTICLE X
SUBORDINATION ............................ 62
SECTION 10.1 Agreement to Subordinate .................................... 62
SECTION 10.2 Liquidation, Dissolution, Bankruptcy ........................ 62
SECTION 10.3 Default on Senior Indebtedness .............................. 62
SECTION 10.4 Acceleration of Payment of Securities ....................... 63
SECTION 10.5 When Distribution Must Be Paid Over ......................... 64
SECTION 10.6 Subrogation ................................................. 64
SECTION 10.7 Relative Rights ............................................. 64
SECTION 10.8 Subordination May Not Be Impaired by Company ................ 64
SECTION 10.9 Rights of Trustee and Paying Agent........................... 64
SECTION 10.10 Distribution or Notice to Representative .................... 65
SECTION 10.11 Article X Not To Prevent Events of Default or Limit
Right to Accelerate ....................................... 65
SECTION 10.12 Trust Moneys Not Subordinated ................................ 65
SECTION 10.13 Trustee Entitled to Rely ..................................... 65
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 10.14 Trustee to Effectuate Subordination ......................... 65
SECTION 10.15 Trustee Not Fiduciary for Holders of Senior Indebtedness .... 66
SECTION 10.16 Reliance by Holders of Senior Indebtedness on Subordination
Provisions ................................................ 66
SECTION 10.17 Miscellaneous Subordination Provisions ...................... 66
ARTICLE XI
SUBSIDIARY GUARANTEE ......................... 67
SECTION 11.1 Subsidiary Guarantee ........................................ 67
SECTION 11.2 Limitation on Liability ..................................... 69
SECTION 11.3 Successors and Assigns ...................................... 69
SECTION 11.4 No Waiver ................................................... 69
SECTION I 1.5 Modification ................................................ 69
SECTION 11.6 Release ..................................................... 69
ARTICLE XII
MISCELLANEOUS PROVISIONS ....................... 70
SECTION 12.1 Incorporators, Stockholders, Officers and Directors
of Company Exempt from Individual Liability ............... 70
SECTION 12.2 Provisions of Indenture for the Sole Benefit of
Parties and Securityholders ............................... 70
SECTION 12.3 Successors and Assigns of Company Bound by Indenture ........ 70
SECTION 12.4 Notices and Demands on Company, Trustee and Securityholders . 70
SECTION 12.5 Officers' Certificates and Opinions of Counsel;
Statements to Be Contained Therein ........................ 71
SECTION 12.6 Payments Due on Saturdays; Sundays and Holidays ............. 72
SECTION 12.7 Conflict of Any Provision of Indenture with Trust
Indenture Act ............................................. 72
SECTION 12.8 Counterparts ................................................ 72
SECTION 12.9 Effect of Headings .......................................... 72
ARTICLE XIII
REDEMPTION OF SECURITIES ....................... 72
SECTION 13.1 Right of Optional Redemption; Prices ........................ 72
SECTION 13.2 Applicability of Article .................................... 73
SECTION 13.3 Election to Redeem; Notice to Trustee ....................... 73
SECTION 13.4 Notice of Redemption; Partial Redemptions ................... 73
SECTION 13.5 Payment of Securities Called for Redemption ................. 74
SECTION 13.6 Exclusion of Certain Securities from Eligibility for
Selection for Redemption .................................. 75
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SCHEDULE 1.1 CERTAIN PERMITTED HOLDERS
SCHEDULE 1.2 CORPORATE TRUST OFFICE
SCHEDULE 1.3 DESIGNATED SUBSIDIARIES
EXHIBIT A - FORM OF INITIAL NOTE
EXHIBIT B - FORM OF CONVERSION NOTE
EXHIBIT C - FORM OF TRANSFEROR CERTIFICATE FOR TRANSFER FROM
RESTRICTED GLOBAL SECURITY OR RESTRICTED SECURITY
TO RESTRICTED SECURITY
EXHIBIT D - FORM OF ACCREDITED INVESTOR TRANSFEREE CERTIFICATE
EXHIBIT E - FORM OF LEGAL OPINION ON TRANSFER
EXHIBIT F - FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM
RESTRICTED SECURITY TO RESTRICTED GLOBAL SECURITY
EXHIBIT G - ASSIGNMENT FORM
</TABLE>
v
<PAGE>
THIS INDENTURE, dated as of _________, 199_ is entered into among Schein
Pharmaceutical, Inc., a Delaware corporation (the "Company"), the Guarantors
party hereto (the "Guarantors") and ____________________, a ___________
corporation (the "Trustee").(1)
WITNESSETH:
WHEREAS, the Company has duly authorized the issue of its Initial Senior
Subordinated Conversion Notes due 2003 (the "Initial Notes") and, when issued in
exchange for Initial Notes as provided in the Registration Rights Agreement (as
defined herein), the Company's Senior Subordinated Conversion Notes due 2003
(the "Conversion Notes" and together with the Initial Notes, the "Securities"),
and to provide, among other things, for the authentication, delivery and
administration thereof, the Company has duly authorized the execution and
delivery of this Indenture; and
WHEREAS, all things necessary to make the Securities, when executed by the
Company and authenticated and delivered by the Trustee as in this Indenture
provided, the valid, binding and legal obligations of the Company, and to
constitute these presents a valid indenture and agreement according to its
terms, have been done;
NOW, THEREFORE:
In consideration of the premises, the Company, the Guarantors and the
Trustee mutually covenant and agree for the equal and proportionate benefit of
the respective holders from time to time of the Securities as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Certain Terms Defined. The following terms (except as otherwise
expressly provided or unless the context otherwise clearly requires) for all
purposes of this Indenture and of any indenture supplemental hereto shall have
the respective meanings specified in this Section. All other terms used in this
Indenture which are defined in the
- ----------
(1) This form of Indenture is drafted to accommodate the possibility that the
registration required pursuant to Section 5.11 of the Loan Agreement is not
completed by the Conversion Date, that the Conversion Notes (as defined in
the Loan Agreement) will be issued on the Conversion Date pursuant to a
Rule 144A private placement and that a registered exchange offer will be
completed as soon as practicable thereafter. If the registration required
pursuant to Section 5.11 of the Loan Agreement is completed by the
Conversion Date, the provisions in this Indenture relating to the "Initial
Notes", procedures required by Rule 144A and related provisions will be
deleted.
<PAGE>
2
Trust Indenture Act (as defined herein), or the definitions of which in the
Securities Act as (defined herein) are referred to in the Trust Indenture Act
(except as herein otherwise expressly provided or unless the context otherwise
clearly requires), shall have the meanings assigned to such terms in the Trust
Indenture Act and in the Securities Act as in force at the date of this
Indenture. All accounting terms used herein and not expressly defined shall have
the meanings given to them in accordance with GAAP (as defined herein). The
words "herein", "hereof" and "hereunder" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section or other
subdivision. The terms defined in this Article include the plural as well as the
singular.
"Account" means any account (as that term is defined in Section 9-106 of
the Uniform Commercial Code as in effect from time to time in the State of New
York) of the Company or any of its Subsidiaries arising from the sale or lease
of goods or rendering of services.
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Restricted Subsidiary or (ii) assumed by the Company
or a Restricted Subsidiary in connection with the acquisition of assets from
such Person. Acquired Indebtedness shall be deemed to be incurred on the date of
the related acquisition of assets from any Person or the date the acquired
Person becomes a Restricted Subsidiary.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business or (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; provided, however, that
in the case of clause (ii) such Person is primarily engaged in a Related
Business.
"Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any Person who is a director or
officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any
Person described in clause (i) above. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of Sections 3.9, 3.10 and 3.14, "Affiliate" shall also mean any
beneficial owner of (x) shares and (y) rights or warrants to purchase shares
(whether or not currently exercisable) representing in the aggregate 10% or more
of the total voting power (assuming the exercise of any such rights or warrants)
of the outstanding voting shares of Capital Stock of the Company on a fully
diluted basis and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
"Affiliate Transaction" has the meaning specified in Section 3.14(a).
"Agent Members" has the meaning specified in Section 2.4(c).
<PAGE>
3
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Restricted Subsidiaries (including
any disposition by means of a merger, consolidation or similar transaction)
other than (i) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Restricted Subsidiary, (ii) a
disposition of inventory in the ordinary course of business, (iii) a disposition
of obsolete or worn out equipment or equipment that is no longer useful in the
conduct of the business of the Company and its Restricted Subsidiaries and that
is disposed of in each case in the ordinary course of business, (iv) a transfer
involving assets with a Fair Market Value not in excess of $5,000,000, (v) any
sale of equity interests in, or Indebtedness or other securities of, an
Unrestricted Subsidiary, (vi) a disposition of all or substantially all of the
assets of the Company in a manner permitted pursuant to Article VIII and (vii)
any exchange or assignment in the ordinary course of business with any Person
engaged in a Related Business of rights to manufacture and market drugs or other
pharmaceutical products.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to Preferred Stock multiplied by the
amount of such payment by (ii) the sum of all such payments.
"Bankruptcy Law" has the meaning specified in Section 4.1.
"Bayer" shall mean Bayer AG, a German corporation.
"Blockage Notice" has the meaning specified in Section 10.3.
"Board of Directors" means either the Board of Directors of the Company or
any committee of such Board of Directors duly authorized to act hereunder.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
close.
"Capital Stock" means (i) any and all shares, interests, participations or
other equivalents of or interests in (however designated) corporate stock,
including, without limitation, shares of preferred or preference stock, (ii) all
partnership interests (whether general or limited) in any Person which is a
partnership, (iii) all membership interests or limited liability company
interests in any limited liability company, and (iv) all equity or ownership
interests in any Person of any other type.
"Capitalized Lease Obligations" means, without duplication, all monetary
obligations of the Company or any of its Restricted Subsidiaries under any
leasing or similar
<PAGE>
4
arrangement which, in accordance with GAAP, would be classified as capitalized
leases and, for purposes of this Indenture, the amount of such obligations shall
be the capitalized amount thereof, determined in accordance with GAAP, and the
stated maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"Change of Control" means (i) any sale, lease or other transfer (other than
a bona fide pledge of assets to secure Indebtedness incurred in accordance with
the Indenture or under the Senior Credit Agreement) by the Company or any
Restricted Subsidiary of all or substantially all of the assets of the Company
to any Person as an entirety or substantially as an entirety in one transaction
or a series of related transactions; (ii) the Company consolidates or merges
with or into another Person pursuant to a transaction in which the outstanding
Voting Shares of the Company are changed into or exchanged for cash, securities
or other property, other than any such transaction where (a) the outstanding
Voting Shares of the Company are changed into or exchanged for Voting Shares
(other than Disqualified Stock) of the surviving corporation and (b) the holders
of the Voting Shares of the Company immediately prior to such transaction own,
directly or indirectly, not less than a majority of the Voting Shares of the
surviving corporation immediately after such transaction; (iii) a "person" or
"group" (within the meaning of Section 13(d) or 14(d)(2) of the Exchange Act),
other than a Permitted Holder or a group consisting solely of Permitted Holders,
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act) of more than 35% of all Voting Shares of the Company then
outstanding; (iv) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company was approved by
a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; or (v) the
shareholders of the Company shall approve any plan or proposal for the
liquidation or dissolution of the Company.
"Change of Control Offer" has the meaning set forth in Section 3.15.
"Change of Control Purchase Date" has the meaning specified in Section
3.15.
"Change of Control Purchase Price" has the meaning specified in Section
3.15.
"Code" means the Internal Revenue Code of 1986, as amended.
"covenant defeasance option" has the meaning specified in Section 9.1(b).
"Commission" means the Securities and Exchange Commission.
"Company" means Schein Pharmaceutical, Inc., a Delaware corporation, and,
subject to Article VIII, its successors and assigns.
<PAGE>
5
"Consolidated Cash Flow" for any period means the Consolidated Net Income
of the Company and its consolidated Restricted Subsidiaries for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) income tax expense; plus (ii) Consolidated Interest Expense; plus
(iii) depreciation expense; plus (iv) amortization expense; plus (v) any other
non-cash expenses, in each case for such period.
"Consolidated Coverage Ratio," as of any date of determination, means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period
consisting of the most recent four consecutive fiscal quarters ending prior to
the date of such determination to (ii) Consolidated Interest Expense for such
period; provided, however, that (A) if the Company or any of its Restricted
Subsidiaries has incurred any Indebtedness since the beginning of such period
that remains outstanding or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an incurrence of Indebtedness, or
both, Consolidated Cash Flow and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been incurred on the first day of such
period and the discharge of any other Indebtedness repaid, repurchased, defeased
or otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, (B) if since the
beginning of such period the Company or any of its Restricted Subsidiaries shall
have made any Asset Disposition, Consolidated Cash Flow for such period shall be
reduced by an amount equal to the Consolidated Cash Flow (if positive)
attributable to the assets which are the subject of such Asset Disposition for
such period or increased by an amount equal to the Consolidated Cash Flow (if
negative) attributable thereto for such period, and Consolidated Interest
Expense for such period shall be reduced by an amount equal to the Consolidated
Interest Expense attributable to any Indebtedness of the Company or any of its
Restricted Subsidiaries repaid, repurchased, defeased or otherwise discharged
with respect to the Company and its continuing Restricted Subsidiaries in
connection with such Asset Disposition for such period (or, if the Capital Stock
of any Restricted Subsidiary of the Company is sold, the Consolidated Interest
Expense for such period directly attributable to the Indebtedness of such
Restricted Subsidiary to the extent the Company and its continuing Restricted
Subsidiaries are no longer liable for such Indebtedness after such sale), (C) if
since the beginning of such period the Company or any of its Restricted
Subsidiaries (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary of the Company (or any Person which becomes a Restricted
Subsidiary of the Company) or an acquisition of assets, including any Investment
in a Restricted Subsidiary of the Company or any acquisition of assets occurring
in connection with a transaction causing a calculation to be made hereunder,
which constitutes all or substantially all of an operating unit of a business,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto (including the incurrence of
any Indebtedness) as if such investment or acquisition occurred on the first day
of such period, and (D) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary of the Company or was merged with or
into the Company or any Restricted Subsidiary of the Company since the beginning
of such period) shall have made any Asset Disposition or any Investment or
acquisition of assets that would have required an adjustment pursuant to clause
(B) or (C) above if made by the Company or a Restricted Subsidiary of the
Company during such period, Consolidated Cash Flow and Consolidated Interest
Expense for such period shall be calculated after giving
<PAGE>
6
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto and the amount of Consolidated Interest
Expense associated with any Indebtedness incurred in connection therewith, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Indebtedness shall be calculated as if the rate in effect on the
date of determination had been the applicable rate for the entire period (taking
into account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Restricted Subsidiaries, plus, to the extent not
included in such interest expense and without duplication, (i) interest expense
attributable to Capitalized Lease Obligations, (ii) amortization of debt
discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash
interest expense, (v) commissions, discounts and other fees and charges owed
with respect to letters of credit and banker's acceptance financing, (vi)
interest actually paid by the Company or any such Restricted Subsidiary under
any Guarantee of Indebtedness or other obligation of any other Person, (vii) net
costs associated with Interest Rate Agreements (including amortization of fees),
and (viii) the product of (a) all Preferred Stock dividends in respect of all
Preferred Stock of Restricted Subsidiaries of the Company and Disqualified
Capital Stock of the Company held by Persons other than the Company or a
Restricted Subsidiary multiplied by (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of the Company, expressed as a decimal, in
each case, determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Restricted Subsidiaries; provided, however,
that there shall not be included in such Consolidated Net Income: (i) any net
income (loss) of any Person if such Person is not a Restricted Subsidiary,
except that subject to the limitations contained in clause (iv) below, the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (iii) below); (ii) any net income (loss) of any
person acquired by the Company or a Restricted Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any net income (loss) of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Restricted Subsidiary, directly
or indirectly, to the Company, except that subject to the limitations contained
in (iv) below, the Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash that could have been distributed by such
Restricted Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend
<PAGE>
7
(subject, in the case of a dividend that could have been made to another
Restricted Subsidiary, to the limitation contained in this clause); (iv) any
gain or loss realized upon the sale or other disposition of any assets of the
Company or its consolidated Restricted Subsidiaries which are not sold or
otherwise disposed of in the ordinary course of business and any gain or loss
realized upon the sale or other disposition of any Capital Stock of any Person;
(v) any extraordinary gain or loss; (vi) the cumulative effect of a change in
accounting principles; and (vii) any loss resulting from a charge for acquired
in-process research and development expenses incurred in connection with the
acquisition of any other Person permitted hereunder.
"Conversion Notes" has the meaning specified in the Recitals.
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
administered, which office is, at the date as of which this Indenture is dated,
located at the address listed on Schedule 1.2.
"Credit Agent" means The Chase Manhattan Bank, in its capacity as
Administrative Agent for the lenders party to the Senior Credit Agreement, or
any successor or successors thereto.
"Custodian" has the meaning specified in Section 4.1.
"Default" means any event that is or, with the passage of time or the
giving of notice or both, would be an Event of Default.
"Depository" shall mean The Depository Trust Company, its nominees, and
their respective successors.
"Designated Indebtedness" means all obligations under or in respect of (i)
the Senior Credit Agreement and (ii) any other Senior Indebtedness which, at the
date of determination, has an aggregate principal amount outstanding of, or
under which, at the date of determination, the holders thereof are committed to
lend up to, at least $10,000,000 and is specifically designated by the Company
in the instrument evidencing or governing such Senior Indebtedness as
"Designated Senior Indebtedness" for purposes of this Indenture.
"Designated Subsidiary" means, individually, any Subsidiary listed on
Schedule 1.3
"Disqualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person which by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable) or upon the happening
of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Capital Stock, or (iii) is redeemable at the option of the holder
thereof, in whole or in part, in each case on or prior to the first anniversary
of the final Stated Maturity of the Securities.
<PAGE>
8
"Effective Registration" means that the Company shall have (i) commenced a
Registered Exchange Offer for the Initial Notes pursuant to an effective
registration statement under the Securities Act or (ii) filed and caused to
become effective a Notes Shelf Registration under the Securities Act for the
sale of Securities by the Holders.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" means any event or condition specified as such in
Section 4.1 which shall have continued for the period of time, if any, therein
designated.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy as determined by the Board of Directors in good faith
and evidenced by a resolution of the Board of Directors.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession.
All ratios and computations based on GAAP contained in this Indenture shall be
computed in conformity with GAAP as in effect on the date of this Indenture.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of any other Person (whether arising by virtue
of partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obliges of such Indebtedness of the payment thereof or
to protect such obliges against loss in respect thereof (in whole or in part);
provided, however. that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guarantor" means (i) each of the Company's Restricted Subsidiaries
existing on the date hereof and (ii) each other Person that executes a guarantee
of the obligations of the Company under the Securities and this Indenture from
time to time, and their respective successors and assigns; provided, however,
that "Guarantor" shall not include any Person that
<PAGE>
9
is released from its Guarantee of the obligations of the Company under the
Securities and this Indenture.
"Holder," "holder of Securities," "Securityholder" or other similar terms
means the registered holder of a Security.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of Indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii) and (v)) entered into in the ordinary
course of business of such Person to the extent that such letters of credit are
not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed
no later than the third business day following receipt by such Person of a
demand for reimbursement following payment on the letter of credit), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (other than accounts payable to trade creditors arising in
the ordinary course of business), which purchase price is due more than six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services, (v) all Capitalized Lease
Obligations of such Person, (vi) all Indebtedness of other Persons secured by a
Lien on any asset of such Person, whether or not such Indebtedness is assumed by
such Person; provided, however, that the amount of Indebtedness of such Person
shall be the lesser of (A) the Fair Market Value of such asset at such date of
determination or (B) the amount of such Indebtedness of such other Persons,
(vii) all Indebtedness of other Persons to the extent Guaranteed by such Person,
(viii) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Capital Stock or,
with respect to any Restricted Subsidiary of the Company, any Preferred Stock
(but excluding, in each case, any accrued dividends), and (ix) to the extent not
otherwise included in this definition, obligations of such Person under Interest
Rate Agreements. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and the liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
"Indenture" means this instrument as originally executed and delivered or,
if amended or supplemented as herein provided, as so amended or supplemented.
"Initial Notes" has the meaning specified in the Recitals.
"Institutional Accredited Investor" shall mean an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Differential" has the meaning specified in the definition of
"Reorganization Securities."
<PAGE>
10
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person.
"Issue Date" means the date on which the Securities are originally issued.
"legal defeasance option" has the meaning specified in Section 9.1(b).
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property, or any filing or recording of any
instrument or document in respect of the foregoing, to secure payment of a debt
or performance of an obligation or other priority or preferential arrangement of
any kind or nature whatsoever.
"Loan Agreement" means the Senior Subordinated Loan Agreement dated as of
December 20, 1996 among the Company, the financial institutions party thereto as
lenders and Societe Generale, as administrative agent.
"Loans" means the loans made to the Company pursuant to the Loan Agreement.
"Material Subsidiary" means (i) any Subsidiary of the Company which is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act and the Exchange Act (as such Regulation is in effect on the date
hereof) and (ii) any other Subsidiary of the Company which is material to the
business, earnings, prospects, assets or condition, financial or otherwise, of
the Company and its Subsidiaries taken as a whole.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred, and all federal, state, foreign and local taxes required to be paid or
accrued as a
<PAGE>
11
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to such
Asset Disposition, in accordance with the terms of any Lien upon such assets, or
which must by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
any Person owning a beneficial interest in assets subject to sale or minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition, and (iv) the deduction of appropriate amounts to be provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the assets disposed of in such Asset Disposition and retained by the
Company or any Restricted Subsidiary of the Company after such Asset
Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Non-Global Purchaser" has the meaning specified in Section 2.4(d).
"Note Obligations" has the meaning specified in Section 10.1.
"Notes Shelf Registration" shall have meaning given such term in the
Registration Rights Agreement.
"Offer" has the meaning specified in Section 3.10(a)(iii)(D).
"Offer Amount" has the meaning specified in Section 3.10(c)(ii).
"Offer Period" has the meaning specified in Section 3.10(c)(ii).
"Officer" means any senior executive officer, the chief financial officer,
the principal accounting officer, the Controller, the Treasurer, the Secretary
or the Assistant Secretary of the Company.
"Officer's Certificate" means a certificate signed by any senior executive
officer and by the chief financial officer, the principal accounting officer,
the Controller, the Treasurer or the Secretary or any Assistant Secretary of the
Company and delivered to the Trustee. Each such certificate shall comply with
Section 314 of the Trust Indenture Act and include the statements provided for
in Section 12.5.
"Opinion of Counsel" means an opinion in writing signed by legal counsel
who may be an employee of or counsel to the Company or who may be other counsel
satisfactory to the Trustee. Each such opinion shall comply with Section 314 of
the Trust Indenture Act and include the statements provided for in Section 12.5,
if and to the extent required hereby.
<PAGE>
12
"outstanding" when used with reference to Securities, shall, subject to the
provisions of Section 6.4, mean, as of any particular time, all Securities
authenticated and delivered by the Trustee under this Indenture, except:
(a) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(b) Securities, or portions thereof, for the payment or redemption of
which moneys in the necessary amount shall have been deposited in trust
with the Trustee or with any paying agent (other than the Company) or shall
have been set aside, segregated and held in trust by the Company (if the
Company shall act as its own paying agent), provided that if such
Securities are to be redeemed prior to the maturity thereof, notice of such
redemption shall have been given as herein provided, or provision
satisfactory to the Trustee shall have been made for giving such notice;
and
(c) Securities in substitution for which other Securities shall have
been authenticated and delivered, or which shall have been paid, pursuant
to the terms of Section 2.6 (unless proof satisfactory to the Trustee is
presented that any of such Securities is held by a person in whose hands
such Security is a legal, valid and binding obligation of the Company).
"Payment Blockage Period" has the meaning specified in Section 10.3.
"Permitted Foreign Company" means (a) any corporation, business trust,
joint venture, association, company or partnership formed under the laws of a
country (or any political subdivision thereof) other than the United States,
engaged primarily in any segment of the pharmaceutical or health-care industry
or ancillary thereto and at least 50% of the equity interest of which is held,
directly or indirectly, by the Company and Bayer (Provided that, if applicable
local law would not permit 50% of the equity interest in such an entity to be
held by the Company and Bayer, such percentage may be as low as 49% if the
Company and Bayer otherwise Control the applicable entity), (b) any subsidiary
of a Permitted Foreign Company described in clause (a) above and (c) any wholly
owned foreign subsidiary the only material assets of which are securities of
Permitted Foreign Companies described in clause (a) above.
"Permitted Holders" means (a)(i) the Persons listed on Schedule l.l, (ii)
any individual forming part of the senior management of the Company on the date
of this Indenture, (iii) any trust for the benefit of any of the foregoing
and/or any member of their immediate families and (iv) the estate or personal
representative of any of the foregoing, (b) any employee benefit plan (or
related trust) for the benefit of the employees of the Company and its
Restricted Subsidiaries and (c) Bayer and any of its subsidiaries.
"Permitted Investment" means an Investment by the Company or any of its
Subsidiaries in (i) a Restricted Subsidiary of the Company or a Person which
will, upon making such Investment, become a Restricted Subsidiary; provided,
however. that the primary business of such Subsidiary is a Related Business;
(ii) another Person if as a result of such
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13
Investment such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all its assets to, the Company or a
Subsidiary of the Company; provided, however, that such Person's primary
business is a Related Business; (iii) Temporary Cash Investments; (iv)
receivables owing to the Company or any of its Subsidiaries, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; (v) payroll, travel and similar advances
to cover matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (vi) loans or advances to employees (other than those
referred to in clause (xi) below) made in the ordinary course of business not in
excess of S2,500,000 outstanding at any time; (vii) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any of its Subsidiaries or in satisfaction
of judgments or claims; (viii) Interest Rate Agreements which are entered into
by the Company for bona fide hedging purposes (as determined in good faith by
the Board of Directors or senior management of the Company) with respect to
Indebtedness of the Company incurred without violation of this Indenture or to
customary commercial transactions of the Company entered into in the ordinary
course of business; (ix) any Investment (other than a Temporary Cash Investment)
evidenced by securities or other assets received in connection with an Asset
Disposition pursuant to Section 3.10; (x) Investments, the payment for which
consists exclusively of Equity Interests (exclusive of Disqualified Capital
Stock) in the Company; or (xi) loans to employees made in connection with the
exercise by them of options to purchase shares of the common stock of the
Company, provided that the proceeds of such loans are used to purchase such
shares and that such loans are secured by a pledge of such shares so purchased.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision hereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"principal" of a Security means the principal of the Security plus the
premium, if any, payable on the Security which is due or overdue or is to become
due at the relevant time.
"property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person under GAAP.
"Public Equity Offering" means an underwritten primary public offering for
the account of the Company of Capital Stock (or other voting shares or voting
interests) of the Company pursuant to an effective registration statement (other
than a registration statement on Form S-4, S-8 or any successor or similar
forms) under the Securities Act.
<PAGE>
14
"Purchase Date" has the meaning specified in Section 3.10(c).
"QIB" shall mean a "qualified institutional buyer" as defined in Rule 144A
under the Securities Act.
"record date" has the meaning specified in Section 2.4.
"Refinanced Indebtedness" has the meaning specified in Section 3.8(b)(xii).
"Refinancing Indebtedness" means Indebtedness issued in exchange for, or
the proceeds of which are used to extend, refinance, renew, replace or refund
any Indebtedness permitted to be incurred pursuant to Section 3.8.
"Registered Exchange Offer" shall have the meaning given such term in the
Registration Rights Agreement.
"Registration Rights Agreement" means the Conversion Notes Registration
Rights Agreement dated December 20, 1996, between the Company, the Guarantors
and Societe Generale with respect to the Securities.
"Related Business" means any segment of the pharmaceutical or health-care
industry or ancillary thereto.
"Reorganization Securities" means, with respect to any reorganization,
composition, arrangement, adjustment or readjustment of the Company or any
Guarantor or of their respective securities, securities of the Company or such
Guarantor as reorganized or readjusted that are subordinated, at least to the
same extent as the Securities, to the payment of all outstanding Senior
Indebtedness after giving effect to such plan of reorganization or readjustment;
provided, however, that (a) in the case of debt securities, (i) such securities
shall not provide for amortization (including sinking fund and mandatory
prepayment provisions) commencing prior to six months following the final
scheduled maturity of all Senior Indebtedness of the Company or such Guarantor
(as modified by such plan of reorganization or readjustment), as the case may
be, (ii) if the rate of interest on such securities is fixed, such rate of
interest shall not exceed the greater of (A) the rate of interest on the
Securities and (B) the sum of (x) the weighted average rate of interest on the
Indebtedness under the Senior Credit Agreement on the effective date of such
plan of reorganization or readjustment and (y) the difference (such difference,
the "Interest Differential") between the rate of interest on the Securities and
the weighted average rate of interest on Indebtedness under the Senior Credit
Agreement, in each case immediately prior to the commencement of such
reorganization, composition, arrangement, adjustment or readjustment, (iii) if
the rate of interest on such securities floats, such interest rate shall not
exceed at any time the sum of the weighted average interest rate on Indebtedness
under the Senior Credit Agreement at such time and the Interest Differential,
and (iv) such securities shall not have covenants or default provisions
materially more beneficial to the holders of the Securities or more restrictive
of the Borrower or the Guarantor than those in effect with respect to the
Securities on their issue date and (b) in the case of all securities (including
debt
<PAGE>
15
securities), the distribution of such securities was authorized by an order or
decree of a court of competent jurisdiction and such order gives effect to (and
states in such order or decree that effect has been given to) the subordination
of such securities to all Senior Indebtedness of the Company or such Guarantor
not paid in full in cash in connection with such reorganization; provided that
all such Senior Indebtedness is assumed by the reorganized corporation, and the
rights of the holders of any such Senior Indebtedness are not, without the
consent of such holders, altered by such reorganization, which consent shall be
deemed to have been given if the holders of such Senior Indebtedness,
individually or as a class, shall have approved such reorganization.
"Representative" for any issue of Indebtedness shall mean the Person acting
as agent, trustee or in a similar representative capacity for the holders of
such Indebtedness, provided that if, and for so long as, any issue of
Indebtedness lacks such a representative, then the Representative for such issue
of Indebtedness shall at all such times constitute the holders of a majority in
outstanding principal amount of the respective issue of Indebtedness.
"Restricted Global Security" has the meaning specified in Section 2.4(b).
"Restricted Payments" has the meaning specified in Section 3.9(a)(iv).
"Restricted Securities" has the meaning specified in Section 2.4(d).
"Restricted Securities Legend" has the meaning specified in Section 2.4.
"Restricted Subsidiary" shall mean any Subsidiary other than an
Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Security" or "Securities" means, the Conversion Notes.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Agreement" means, collectively, the Senior Credit Agreement,
dated as of September 5, 1995, by and among the Company, the lenders named
therein, and The Chase Manhattan Bank as Administrative Agent for the lenders,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, as such credit agreement and/or
related documents may be amended, restated, supplemented, renewed, replaced or
otherwise modified from time to time whether or not with the same agent or
lenders and irrespective of any changes in the terms and conditions thereof.
Without limiting the generality of the foregoing, the term "Senior Credit
Agreement" shall include any amendment, amendment and restatement, renewal,
extension, restructuring, supplement or modification to the Senior Credit
Agreement and all refundings, refinancing
<PAGE>
16
and replacements of any facility provided for therein, including any agreement
or agreements, (i) extending the maturity of any Indebtedness incurred
thereunder or contemplated thereby, (ii) adding or deleting borrowers or
guarantors thereunder, or (iii) increasing the amount of Indebtedness incurred
thereunder or available to be borrowed thereunder to the extent permitted this
Indenture.
"Senior Indebtedness" means (a) the principal of, premium (if any) and
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company regardless of whether
an allowed claim in such proceeding) on, and fees and other amounts owing in
respect of, the Senior Credit Agreement and other Indebtedness of the Company or
a Guarantor which is permitted under this Indenture and whether outstanding on
the Issue Date or thereafter issued, unless, in the instrument creating or
evidencing the same or pursuant to which it is outstanding, it is provided that
the obligations of the Company or such Guarantor in respect of such Indebtedness
are not superior in right of payment to the Securities and (b) all obligations
of the Company and the Guarantors under Interest Rate Agreements payable to any
lender or agent party to the Senior Credit Agreement or any Affiliate of such
lender or agent (including, without limitation, all obligations of the
Guarantors incurred pursuant to guarantees of the indebtedness and other
obligations referred to in clauses (a) and (b) above now or hereafter executed);
provided, however, that Senior Indebtedness will not include (i) any obligation
of the Company or any Guarantor to any Subsidiary of the Company or the Company
or (ii) any Senior Subordinated Indebtedness or Subordinated Indebtedness.
"Senior Subordinated Indebtedness" means the Securities and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Securities in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company that is not Senior Indebtedness.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Indebtedness" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter incurred) that is subordinate or
junior in right of payment to the Securities pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person, or (iii) one or more Subsidiaries of such
Person. Unless otherwise specified herein, each reference to a Subsidiary shall
refer to a Subsidiary of the Company.
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17
"Subsidiary Guarantee" has the meaning specified in Section 11.1.
"Successor Company" has the meaning specified in Section 8.1(i).
"Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency or
instrumentality thereof or obligations Guaranteed by the United States of
America or any agency or instrumentality thereof, (ii) Investments in time
deposit accounts, certificates of deposit and money market deposits maturing
within 180 days of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States of America, any
state thereof or any foreign country recognized by the United States of America
having capital, surplus and undivided profits aggregating in excess of
$500,000,000 (or the foreign currency equivalent thereof) and whose long-term
debt, or whose parent holding company's long-term debt, is rated "A" (or such
similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the Securities
Act), (iii) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered into
with a bank meeting the qualifications described in clause (ii) above, or (iv)
Investments in commercial paper, maturing not more than 180 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America or any
foreign country recognized by the United States of America with a rating at the
time as of which any investment therein is made of "P-l" (or higher) according
to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard
Poor's Ratings Group.
"Trust Indenture Act" means the Trust Indenture Act as in force at the date
as of which this Indenture was originally executed, except until qualification
of this Indenture under the Trust Indenture Act, then as of the date of such
qualification, and except to the extent that any subsequent amendment of the
Trust Indenture Act shall apply retroactively to this Indenture.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Trustee" means the entity identified as "Trustee" in the first paragraph
hereof and, subject to the provisions of Article V, shall also include any
successor trustee.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Unrestricted Subsidiary" means (i) the Designated Subsidiaries and (ii)
any Subsidiary (other than a Subsidiary which would constitute a Material
Subsidiary) that at the time of determination shall have been designated an
Unrestricted Subsidiary by the Board of
<PAGE>
18
Directors of the Company in the manner provided below and which remains so
designated at the time of determination. The Board of Directors of the Company
may, by a Board resolution delivered to the Trustee, designate any Restricted
Subsidiary of the Company (other than a Material Subsidiary) (including any
newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted
Subsidiary unless such Restricted Subsidiary owns any Capital Stock of, or holds
any Lien on any property of, the Company or any Restricted Subsidiary, and
provided no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such designation. The Board of Directors
of the Company may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of the Company, provided that (i) no Default or Event of Default
shall have occurred and be continuing at the time of or after giving effect to
such designation and (ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such designation would, if incurred
at such time, have been permitted to be incurred for all purposes of this
Indenture. Any designation by the Board of Directors of the Company pursuant to
this Indenture shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the Board resolutions giving effect to such designation and an
Officer's Certificate certifying that such designation complied with the
foregoing provisions.
"Voting Shares" of a Person means all classes of Capital Stock of such
Person then outstanding and normally entitled to vote in the election of
directors or managers.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Capital Stock, as the case may be, at any date, the number of
years obtained by dividing (a) the sum of the products obtained by multiplying
(x) the amount of each then remaining installment, sinking fund, serial maturity
or other required payments of principal, including payment at final maturity, in
respect thereof, by (y) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment,
by (b) the then outstanding principal amount or liquidation preference, as
applicable, of such Indebtedness or Disqualified Capital Stock, as the case may
be.
ARTICLE II
ISSUE, EXECUTION, FORM AND
REGISTRATION OF SECURITIES.
SECTION 2.1 Authentication and Delivery of Securities Upon the execution
and delivery of this Indenture, or from time to time thereafter, Securities in
an aggregate principal amount not to exceed $103,500,000 (except as otherwise
provided in Section 2.6) may be executed by the Company and delivered to the
Trustee for authentication, and the Trustee shall thereupon authenticate and
deliver said Securities to or upon the written order of the Company, signed by
both (a) any senior executive officer of the Company and (b) by its chief
financial officer, principal accounting officer, Controller, Treasurer or any
Assistant Treasurer or its Secretary or any Assistant Secretary without any
further action by the Company.
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19
SECTION 2.2 Execution of Securities. The Securities shall be signed on
behalf of the Company by both (a) any senior executive officer of the Company
and (b)by its chief financial officer, principal accounting officer, Controller,
Treasurer or any Assistant Treasurer or its Secretary or any Assistant
Secretary, under its corporate seal. Such signatures may be the manual or
facsimile signatures of the present or any future such officers. The corporate
seal of the Company may be in the form of a facsimile thereof and may be
impressed, affixed, imprinted or otherwise reproduced on the Securities and may,
but need not, be attested. Typographical and other minor errors or defects in
any such reproduction of the seal or any such signature shall not affect the
validity or enforceability of any Security which has been duly authenticated and
delivered by the Trustee.
In case any officer of the Company who shall have signed any of the
Securities shall cease to be such officer before the Security so signed shall be
authenticated and delivered by the Trustee or disposed of by the Company, such
Security nevertheless may be authenticated and delivered or disposed of as
though the person who signed such Security had not ceased to be such officer of
the Company; and any Security may be signed on behalf of the Company by such
persons as, at the actual date of the execution of such Security, shall be the
proper officers of the Company, although at the date of the execution and
delivery of this Indenture any such person was not such officer.
SECTION 2.3 Certificate of Authentication. Only such Securities as shall
bear thereon a certificate of authentication substantially in the form
hereinbefore recited, executed by the Trustee by manual signature of one of its
authorized officers, shall be entitled to the benefits of this Indenture or be
valid or obligatory for any purpose. Such certificate by the Trustee upon any
Security executed by the Company shall be conclusive evidence that the Security
so authenticated has been duly authenticated and delivered hereunder and that
the holder is entitled to the benefits of this Indenture.
SECTION 2.4 Form, Denomination and Date of Securities; Payments of
Interest. (a) The Initial Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto, and the Conversion Notes
and the Trustee's certificate of authentication shall be in substantially the
form of Exhibit B hereto, each of which is part of this Indenture. The
Securities shall be numbered, lettered, or otherwise distinguished in such
manner or in accordance with such plans as the officers of the Company executing
the same may determine with the approval of the Trustee. Any of the Securities
may be issued with appropriate insertions, omissions, substitutions and
variations, and may have imprinted or otherwise reproduced thereon such legend
or legends, not inconsistent with the provisions of this Indenture, as may be
required to comply with any law or with any rules or regulations pursuant
thereto, or with the rules of any securities market in which the Securities are
admitted to trading, or to conform to general usage. All Securities shall be
otherwise substantially identical expect as to denomination and as provided
herein.
Each Security shall be dated the date of its authentication, shall bear
interest from the applicable date, and shall be payable on the dates specified
on the face of the form of Security recited above.
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20
The Person in whose name any Security is registered at the close of
business on any record date with respect to any interest payment date shall be
entitled to receive the interest, if any, payable on such interest payment date
notwithstanding any transfer or exchange of such Security subsequent to the
record date and prior to such interest payment date, except if and to the extent
that the Company shall default in the payment of the interest due on such
interest payment date, in which case such defaulted interest shall be paid to
the Persons in whose names outstanding Securities are registered at the close of
business on a subsequent record date (which shall be not less than five business
days prior to the date of payment of such defaulted interest) established by
notice given by mail by or on behalf of the Company to the holders of Securities
not less than 15 days preceding such subsequent record date. The term "record
date" as used with respect to any interest payment date (except a date for
payment of defaulted interest) shall mean if such interest payment date is the
first day of a calendar month, the fifteenth day of the next preceding calendar
month and shall mean, if such interest payment date is the fifteenth day of a
calendar month, the first day of such calendar month, whether or not such record
date is a business day.
(b)The Initial Notes are being offered and sold by the Company pursuant to
the Loan Agreement. The Initial Notes offered and sold to QIBs in reliance on
Rule 144A, except as provided in Section 2.4(d) hereof, shall be issued
initially in the form of one or more permanent global Securities in definitive,
fully registered form without interest coupons with the Global Securities Legend
and Restricted Securities Legend set forth in the form of Initial Notes (the
"Restricted Global Security") deposited with the Trustee, at the Corporate Trust
Office, as custodian for and registered in the name of the Depository or a
nominee of the Depository, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The aggregate principal amount of the
Restricted Global Security may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depository or its nominee
as hereinafter provided.
(c) This Section 2.4(c) shall apply only to the Restricted Global Security
deposited with or on behalf of the Depository.
Members of, or participants in, the Depository (the "Agent Members") shall
have no rights under this Indenture with respect to any Restricted Global
Security held on their behalf by the Depository or under the Restricted Global
Security, and the Depository may be treated by the Company, the Trustee, and any
agent of the Company or the Trustee as the absolute owner of the Restricted
Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee, or any agent of the
Company or the Trustee, from giving effect to any written certification, proxy
or other authorization furnished by the Depository or impair, as between the
Depository and its Agent Members, the operation of customary practices governing
the exercise of the rights of a holder of any Security.
(d) Except as provided in this Section 2.4(d) and Section 2.8, owners of
beneficial interests in the Restricted Global Security will not be entitled to
receive physical delivery of certificated Initial Notes. Purchasers of Initial
Notes who are not QIBs or QIBs who elect to receive certificated Initial Notes
instead of holding their interest through the
<PAGE>
21
Restricted Global Security (collectively, the "Non-Global Purchasers") will
receive certificated Initial Notes bearing the Restricted Securities Legend (the
"Restricted Securities"); provided, however, that upon transfer to a QIB of any
such certificated Initial Notes initially issued to a Non-Global Purchaser, such
certificated Initial Notes will, unless the transferee requests otherwise or the
Restricted Global Security has previously been exchanged in whole for Restricted
Securities, be exchanged for an interest in the Restricted Global Security
pursuant to the provisions of Section 2.5. Restricted Securities will bear the
Restricted Securities Legend unless removed in accordance with Section 2.5.
Upon the occurrence of an Effective Registration involving a Notes Shelf
Registration, all requirements with respect to the Restricted Global Security
and legends on Initial Notes will cease to apply, and certificated Initial Notes
without the Restricted Securities Legend will be available to the Holders. Upon
the occurrence of an Effective Registration involving the Registered Exchange
Offer, all requirements with respect to the Restricted Global Security will
cease to apply and certificated Initial Notes with the "Restricted Securities
Legend" will be available to Holders that do not exchange their Initial Notes
for Conversion Notes, and certificated Conversion Notes without any legends will
be available to Holders that exchange their Initial Notes for Conversion Notes.
All certificated Securities shall be issuable in denominations of $1,000
principal amount and any integral multiple thereof.
SECTION 2.5 Registration, Transfer and Exchange. (a) The Company will keep
at each office or agency to be maintained for the purpose as provided in Section
3.2 a register or registers in which, subject to such reasonable regulations as
it may prescribe, it will register, and will register the transfer of,
Securities as in this Article provided. Such register shall be in written form
in the English language or in any other form capable of being converted into
such form within a reasonable time. At all reasonable times such register or
registers shall be open for inspection by the Trustee.
Upon due presentation for registration of transfer of any Security at each
such office or agency, the Company shall execute and the Trustee shall
authenticate and deliver in the name of the transferee or transferees a new
Security or Securities in authorized denominations for a like aggregate
principal amount.
Any Security or Securities may be exchanged for a Security or Securities in
other authorized denominations, in an equal aggregate principal amount.
Securities to be exchanged shall be surrendered at each office or agency to be
maintained by the Company for the purpose as provided in Section 3.2. and the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor the Security or Securities which the Securityholder making the exchange
shall be entitled to receive, bearing numbers not contemporaneously outstanding.
All Securities presented for registration of transfer, exchange, redemption
or payment shall (if so required by the Company or the Trustee) be duly endorsed
by, or be accompanied by a written instrument or instruments of transfer in form
satisfactory to the
<PAGE>
22
Company and the Trustee duly executed by, the holder or his attorney duly
authorized in writing.
The Company may require payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection with any exchange or
registration of transfer of Securities. No service charge shall be made for any
such transaction.
The Trustee shall not be required to exchange or register a transfer of (a)
any Securities for a period of 15 days next preceding the first mailing of
notice of redemption of Securities to be redeemed or (b) any Securities
selected, called or being called for redemption except, in the case of any
Security where public notice has been given that such Security is to be redeemed
in part, the portion thereof not so to be redeemed.
All Securities issued upon any transfer or exchange of Securities shall be
valid obligations of the Company, evidencing the same debt, and entitled to the
same benefits under this Indenture, as the Securities surrendered upon such
transfer or exchange.
(b) Notwithstanding any provision to the contrary herein, so long as the
Restricted Global Security remains outstanding and is held by or on behalf of
the Depository, transfers of the Restricted Global Security, in whole or in
part, shall only be made in accordance with Section 2.4(d) and this Section 2.5
as set forth below.
(i) Subject to clauses (ii) through (iv) below, transfers of the
Restricted Global Security shall be limited to transfers of the Restricted
Global Security in whole, but not in part, to nominees of the Depository or
to a successor of the Depository or such successor's nominee.
(ii) Restricted Global Security to Restricted Security. If a holder of
a beneficial interest in the Restricted Global Security deposited with the
Depository wishes at any time to transfer its interest therein to a Person
who wishes to take delivery thereof in the form of a Restricted Security,
such holder may, subject to the rules and procedures of the Depository,
cause the exchange of such interest for one or more Restricted Securities
of any authorized denomination or denominations and of the same aggregate
principal amount. Upon receipt by the Trustee at its Corporate Trust Office
of (l) instructions from the Depository directing the Trustee to
authenticate and deliver one or more Restricted Securities of the same
aggregate principal amount as the beneficial interest in the Restricted
Global Security to be exchanged, such instructions to contain the name or
names of the designated transferee or transferees, the authorized
denomination or denominations of the Restricted Securities to be so issued
and appropriate delivery instructions, (2) a certificate in the form of
Exhibit C attached hereto given by the holder of such beneficial interest
and stating that the Person transferring such interest in the Restricted
Global Security reasonably believes that the Person acquiring the
Restricted Securities for which such interest is being exchanged is an
Institutional Accredited Investor and is acquiring such Restricted
Securities for its own account or for one or more accounts as to which
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23
the transferee exercises sole investment discretion, (3) a certificate in
the form of Exhibit D attached hereto given by the Person acquiring the
Restricted Securities for which such interest is being exchanged, to the
effect set forth therein, and (4) an opinion of counsel to the holder of
such beneficial interest in the form of Exhibit E attached hereto, to the
effect set forth therein, then the Trustee will instruct the Depository to
reduce the Restricted Global Security by the aggregate principal amount of
the beneficial interest therein to be exchanged, and concurrently with such
reduction the Company shall execute, and the Trustee shall authenticate and
deliver, one or more Restricted Securities of the same aggregate principal
amount, in accordance with the instructions referred to above.
(iii) Restricted Securitv to Restricted Global Security. If a holder
of a Restricted Security wishes at any time to transfer such Restricted
Security to a Person who wishes to take delivery thereof in the form of an
interest in the Restricted Global Security, such holder may, subject to the
rules and procedures of the Depository, cause the exchange of such
Restricted Security for an equivalent beneficial interest in the Restricted
Global Security. Upon receipt by the Trustee at its Corporate Trust Office
of (1) such Restricted Security, duly endorsed as provided herein, (2)
instructions from such holder directing the Trustee to credit or cause to
be credited a beneficial interest in the Restricted Global Security equal
to the principal amount of the Restricted Security to be exchanged, such
instructions to contain information regarding the participant account with
the Depository to be credited with such interest, and (3) a certificate in
the form of Exhibit F attached hereto, then the Trustee shall cancel or
cause to be cancelled such Restricted Security and shall instruct the
Depository to credit or cause to be credited to the account of the Person
specified in such instructions a beneficial interest in the Restricted
Global Security equal to the principal amount of the Restricted Security so
cancelled.
(iv) Restricted Securitv to Restricted Security. If a holder of a
Restricted Security wishes at any time to transfer such Restricted Security
to a Person who wishes to take delivery thereof in the form of a Restricted
Security, such holder may, subject to the restrictions on transfer set
forth herein and in such Restricted Security, cause the exchange of such
Restricted Securities for one or more Restricted Securities of any
authorized denomination or denominations and of the same aggregate
principal amount. Upon receipt by the Trustee at its Corporate Trust Office
of (1) such Restricted Security, duly endorsed as provided herein, (2)
instructions from such holder directing the Trustee to authenticate and
deliver one or more Restricted Securities of the same aggregate principal
amount as the Restricted Security to be exchanged, such instructions to
contain the name or names of the designated transferee or transferees, the
authorized denomination or denominations of the Restricted Securities to be
so issued and appropriate delivery instructions, (3) a certificate from the
holder of the Restricted Security to be exchanged in the form of Exhibit C
attached hereto (in the event that the transfer is being made to an
Institutional Accredited Investor otherwise than pursuant to Rule 144A),
(4) a certificate in the form of Exhibit D attached hereto (in the event
the transfer is being made to an Institutional Accredited Investor
otherwise than pursuant to Rule 144A) given by the
<PAGE>
24
Person acquiring the Restricted Securities for which such interest is being
exchanged, to the effect set forth therein, and (5) an opinion of counsel
to the transferor of such Restricted Security in the form of Exhibit E
hereto, to the effect set forth therein, then the Trustee shall cancel or
cause to be cancelled such Restricted Security and, concurrently therewith,
the Company shall execute, and the Trustee shall authenticate and deliver,
one or more Restricted Securities of the same aggregate principal amount,
in accordance with the instructions referred to above.
(v) Other Exchanges. In the event that the Restricted Global Security
is exchanged pursuant to Section 2.8 for Securities in definitive
registered form without interest coupons, prior to an Effective
Registration such Initial Notes may be exchanged for one another only in
accordance with those procedures that are substantially consistent with the
provisions of clauses (i) through (iv) above (including the certification
requirements thereof intended to insure that such transfers comply with the
Securities Act) and which may be from time to time adopted by the Company
and the Trustee.
If Initial Notes are issued upon the transfer, exchange or replacement of
Initial Notes bearing the Restricted Securities Legend, or if a request is made
to remove such Restricted Securities Legend on Initial Notes, the Initial Notes
so issued shall bear the Restricted Securities Legend, or the Restricted
Securities Legend shall not be removed, as the case may be, unless (i) there is
delivered to the Company such satisfactory evidence, which may include an
opinion of counsel licensed to practice law in the State of New York, as may be
reasonably required by the Company that neither the legend nor the restrictions
on transfer set forth therein are required to ensure that transfers thereof
comply with the provisions of the Securities Act or, with respect to Restricted
Securities, that such Initial Notes are not "restricted" within the meaning of
Rule 144 under the Securities Act or (ii) there is an Effective Registration
involving the Notes Shelf Registration with respect to the Initial Notes then in
effect or the Initial Note as to which the Restricted Securities Legend is
sought to be removed has been disposed of in accordance with the Notes Shelf
Registration. Upon (i) provision of such satisfactory evidence or (ii)
notification by the Company to the Trustee of an Effective Registration with
respect to the Initial Notes, the Trustee, at the direction of the Company,
shall authenticate and deliver Initial Notes that do not bear the Restricted
Securities Legend.
SECTION 2.6 Mutilated, Defaced, Destroyed, Lost and Stolen Securities. In
case any temporary or definitive Security shall become mutilated, defaced or be
apparently destroyed, lost or stolen, the Company in its discretion may execute,
and upon the written request of any officer of the Company, the Trustee shall
authenticate and deliver, a new Security, bearing a number not contemporaneously
outstanding, in exchange and substitution for the mutilated or defaced Security,
or in lieu of and substitution for the Security so apparently destroyed, lost or
stolen. In every case the applicant for a substitute Security shall furnish to
the Company and to the Trustee and any agent of the Company or the Trustee such
security or indemnity as may be required by them to indemnify and defend and to
save each of them harmless and, in every case of destruction, loss or theft
evidence to their satisfaction of the apparent destruction, loss or theft of
such Security and of the ownership thereof.
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25
Upon the issuance of any substitute Security, the Company may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses (including the fees
and expenses of the Trustee) connected therewith. In case any Security which has
matured or is about to mature, or has been called for redemption in full, shall
become mutilated or defaced or be apparently destroyed, lost or stolen, the
Company may, instead of issuing a substitute Security, pay or authorize the
payment of the same (without surrender thereof except in the case of a mutilated
or defaced Security), if the applicant for such payment shall furnish to the
Company and to the Trustee and any agent of the Company or the Trustee such
security or indemnity as any of them may require to save each of them harmless
from all risks, however remote, and, in every case of apparent destruction, loss
or theft, the applicant shall also furnish to the Company and the Trustee and
any agent of the Company or the Trustee evidence to their satisfaction of the
apparent destruction, loss or theft of such Security and of the ownership
thereof.
Every substitute Security issued pursuant to the provisions of this Section
by virtue of the fact that any Security is apparently destroyed, lost or stolen
shall constitute an additional contractual obligation of the Company, whether or
not the apparently destroyed, lost or stolen Security shall be at any time
enforceable by anyone and shall be entitled to all the benefits of (but shall be
subject to all the limitations of rights set forth in) this Indenture equally
and proportionately with any and all other Securities duly authenticated and
delivered hereunder. All Securities shall be held and owned upon the express
condition that, to the extent permitted by law, the foregoing provisions are
exclusive with respect to the replacement or payment of mutilated, defaced, or
apparently destroyed, lost or stolen Securities and shall preclude any and all
other rights or remedies notwithstanding any law or statute existing or
hereafter enacted to the contrary with respect to the replacement or payment of
negotiable instruments or other securities without their surrender.
SECTION 2.7 Cancellation of Securities; Destruction Thereof. All Securities
surrendered for payment, redemption, registration of transfer or exchange, if
surrendered to the Company or any agent of the Company or the Trustee, shall be
delivered to the Trustee for cancellation or, if surrendered to the Trustee,
shall be cancelled by it; and no Securities shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Indenture. The
Trustee shall deliver cancelled Securities held by it to the Company. If the
Company shall acquire any of the Securities, such acquisition shall not operate
as a redemption or satisfaction of the indebtedness represented by such
Securities unless and until the same are delivered to the Trustee for
cancellation.
SECTION 2.8 Temporary Securities; Global Securities. Pending the
preparation of definitive Securities, the Company may execute and the Trustee
shall authenticate and deliver temporary Securities (printed, lithographed,
typewritten or otherwise reproduced, in each case in form satisfactory to the
Trustee). Temporary Securities shall be issuable as registered Securities
without coupons, of any authorized denomination, and substantially in the form
of the definitive Securities but with such omissions, insertions and variations
as may be appropriate for temporary Securities, all as may be determined by the
Company with the concurrence of the Trustee. Temporary Securities may contain
such
<PAGE>
26
reference to any provisions of this Indenture as may be appropriate. Every
temporary Security shall be executed by the Company and be authenticated by the
Trustee upon the same conditions and in substantially the same manner, and with
like effect, as the definitive Securities. Without unreasonable delay, the
Company shall execute and shall furnish definitive Securities and thereupon
temporary Securities may be surrendered in exchange therefor without charge at
each office or agency to be maintained by the Company for the purpose pursuant
to Section 3.2, and the Trustee shall authenticate and deliver in exchange for
such temporary Securities a like aggregate principal amount of definitive
Securities of authorized denominations. Until so exchanged the temporary
Securities shall be entitled to the same benefits under this Indenture as
definitive Securities.
The Restricted Global Security deposited with the Depository pursuant to
Section 2.4 shall be transferred to the beneficial owners thereof only if such
transfer complies with Section 2.5(b) of this Indenture and (i) the Depository
notifies the Company that it is unwilling or unable to continue as Depository
for the Restricted Global Security or if at any time such Depository ceases to
be a "clearing agency" registered under the Exchange Act and a successor
depositary is not appointed by the Company within 90 days of such notice, (ii)
the Company executes and delivers to the Trustee an Officer's Certificate
stating that such Global Restricted Security shall be exchangeable, or (iii) an
Event of Default has occurred and is continuing with respect to the Securities.
Any Restricted Global Security that is transferable to the beneficial
owners thereof pursuant to this Section 2.8 shall be surrendered by the
Depository to the Trustee at its Corporate Trust Office, to be so transferred,
in whole or from time to time in part, without charge, and the Trustee shall
authenticate and deliver, upon such transfer of each portion of such Restricted
Global Security, an equal aggregate principal amount of Restricted Securities of
authorized denominations. Any portion of the Restricted Global Security
transferred pursuant to this Section 2.8 shall be executed, authenticated and
delivered only in denominations of $1,000 and any integral multiple thereof and
registered in such names as the Depository shall direct. Any Initial Note
delivered in exchange for an interest in the Restricted Global Security shall,
except as otherwise provided by Section 2.5, bear the Restricted Securities
Legend.
Subject to the foregoing provisions of this Section 2.8, the registered
Holder of a Global Security may grant proxies and otherwise authorize any
Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Securities.
In the event of the occurrence of either of the events specified in the
second paragraph of this Section 2.8, the Company will promptly make available
to the Trustee a reasonable supply of certificated Securities in definitive,
fully registered form without interest coupons.
SECTION 2.9 Effective Registration. In the event the Company has an
Effective Registration, the Company shall notify the Trustee thereof within two
Business Days after the effective date of such Effective Registration. If the
Effective Registration involves a
<PAGE>
27
Notes Shelf Registration, the Company shall promptly cause to be delivered to
the Trustee certificates for Initial Notes without legends and the Trustee shall
authenticate and deliver certificated Initial Notes without legends to Holders
presenting their certificated Initial Notes for exchange or to Holders of
interests in the Restricted Global Security in the names and denominations
specified by the Depository or to transferees of Initial Notes covered by the
Notes Shelf Registration. If the Effective Registration is with respect to a
Registered Exchange Offer for the Initial Notes, the Trustee shall notify the
Holders of receipt of such notice and, after receipt of a written order of the
Company (signed as specified in Section 2.1) for the authentication and delivery
of Conversion Notes and a properly completed letter of transmittal or other
requested documents from a Holder as specified in the exchange offer documents,
shall exchange such Holder's Initial Notes for Conversion Notes upon the terms
set forth in the exchange offer documents.
ARTICLE III
COVENANTS OF THE COMPANY
SECTION 3.1 Payment of Principal and Interest. The Company covenants and
agrees that it will duly and punctually pay or cause to be paid the principal
of, and interest on, each of the Securities at the place or places, at the
respective times and in the manner provided in the Securities. Each installment
of interest on the Securities may be paid by mailing checks for such interest
payable to or upon the written order of the holders of Securities entitled
thereto as they shall appear on the registry books of the Company.
SECTION 3.2 Offices for Payments. etc. So long as any of the Securities
remain outstanding, the Company will maintain in the City of New York the
following: (a) an office or agency where the Securities may be presented for
payment, (b) an office or agency where the Securities may be presented for
registration of transfer and for exchange as in this Indenture provided and (c)
an office or agency where notices and demands to or upon the Company in respect
of the Securities or of this Indenture may be served. The Company will give to
the Trustee written notice of the location of any such office or agency and of
any change of location thereof. The Company hereby initially designates the
Corporate Trust Office of the Trustee or such other location as the Company may
designate upon notice from the Trustee, as the office or agency for each such
purpose. In case the Company shall fail to maintain any such office or agency or
shall fail to give such notice of the location or of any change in the location
thereof, presentations and demands may be made and notices may be served at the
Corporate Trust Office.
SECTION 3.3 Appointment to Fill a Vacancy in Office of Trustee. The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 5.9, a Trustee, so that there
shall at all times be a Trustee hereunder.
SECTION 3.4 Paving Agents. The paying agent will initially be the Trustee.
Whenever the Company shall appoint a paying agent other than the Trustee, it
will cause such
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28
paying agent to execute and deliver to the Trustee an instrument in which such
agent shall agree with the Trustee, subject to the provisions of this Section:
(a) that it will hold all sums received by it as such agent for the
payment of the principal of or interest on the Securities (whether such
sums have been paid to it by the Company or by any other obligor on the
Securities) in trust for the benefit of the holders of the Securities or of
the Trustee,
(b) that it will give the Trustee notice of any failure by the Company
(or by any other obligor on the Securities) to make any payment of the
principal of or interest on the Securities when the same shall be due and
payable, and
(c) pay any such sums so held in trust by it to the Trustee upon the
Trustee's written request at any time during the continuance of the failure
referred to in clause (b) above.
The Company will, prior to each due date of the principal of or interest on
the Securities, deposit with the paying agent a sum sufficient to pay such
principal or interest, and (unless such paying agent is the Trustee) the Company
will promptly notify the Trustee of any failure to take such action.
If the Company shall act as its own paying agent, it will, on or before
each due date of the principal of or interest on the Securities, set aside,
segregate and hold in trust for the benefit of the holders of the Securities a
sum sufficient to pay such principal or interest so becoming due. The Company
will promptly notify the Trustee of any failure to take such action.
Anything in this Section to the contrary notwithstanding, the Company may
at any time, for the purpose of obtaining a satisfaction and discharge of this
Indenture or for any other reason, pay or cause to be paid to the Trustee all
sums held in trust by the Company or any paying agent hereunder, as required by
this Section, such sums to be held by the Trustee upon the trusts herein
contained. Upon such payment to the Trustee, the relevant paying agent, if any,
shall be released from any liability with respect to such sums.
Anything in this Section to the contrary notwithstanding, the agreement to
hold sums in trust as provided in this Section are subject to the provisions of
Sections 9.4 and 9.6.
SECTION 3.5 Certificate to Trustee. The Company will furnish to the
Trustee, on or before 120 days after the end of each fiscal year of the Company
ending after the date hereof, an Officer's Certificate from the principal
executive, financial or accounting officer of the Company as to his or her
knowledge of the Company's compliance with all conditions and covenants under
this Indenture (such compliance to be determined without regard to any period of
grace or requirement of notice provided under this Indenture).
SECTION 3.6 Securityholders' Lists. If and so long as the Trustee shall not
be the Security registrar, the Company will furnish or cause to be furnished to
the Trustee a
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29
list in such form as the Trustee may reasonably require of the names and
addresses of the holders of the Securities pursuant to Section 312 of the Trust
Indenture Act (a) semiannually not more than 15 days after each record date for
the payment of semiannual interest on the Securities, as hereinabove specified,
as of such record date and (b) at such other times as the Trustee may request in
writing, within 30 days after receipt by the Company of any such request as of a
date not more than 15 days prior to the time such information is furnished.
SECTION 3.7 Commission Reports. Notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, so long as any Securities are outstanding, the Company will furnish to the
Trustee and the holders of Securities (i) within 45 days after the end of each
of the first three fiscal quarters of each fiscal year and 90 days of the end of
each fiscal year all quarterly and annual financial information, as the case may
be, that would be required to be contained in a filing with the Commission on
Forms 10-Q and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports. In addition, whether or not required
by the rules and regulations of the Commission, the Company will file a copy of
all such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request.
Furthermore, for so long as any of the Securities remain outstanding, the
Company shall make available to any prospective purchaser of the Securities or
beneficial owner of the Securities, in connection with any sale thereof, the
information required by Rule 144A(d)(4) under the Securities Act.
SECTION 3.8 Limitation on Indebtedness. (a) The Company shall not, and
shall not permit any of its Restricted Subsidiaries to, incur any Indebtedness;
provided, however, that the Company may incur Indebtedness (including through
the issuance of Disqualified Capital Stock) if on the date of such incurrence
the Consolidated Coverage Ratio would be greater than (i) 2.50: 1, if such
Indebtedness is incurred prior to the expiration of 24 months after the Issue
Date and (ii) 3.00: 1, if such Indebtedness is incurred on or subsequent to the
expiration of 24 months after the Issue Date.
(b) Notwithstanding Section 3.8(a), the Company and its Restricted
Subsidiaries may incur Indebtedness to the extent set forth below:
(i) the incurrence by the Company of Indebtedness under the Senior
Credit Agreement and the issuance of letters of credit thereunder (with
letters of credit being deemed to have a principal amount equal to the face
amount thereof) up to an aggregate principal amount of $250,000,000
outstanding at any one time, less principal repayments of term loans and
permanent commitment reductions with respect to revolving loans and letters
of credit under the Senior Credit Agreement made after the Issuance Date
with the Net Cash Proceeds of Asset Dispositions, if any;
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30
(ii) Indebtedness (x) of the Company to any Restricted Subsidiary and
(y) of any Restricted Subsidiary to the Company or any other Restricted
Subsidiary;
(iii) Indebtedness of the Company represented by the Securities;
(iv) any Indebtedness of the Company (other than the Indebtedness
described in clauses (i) and (ii) above) outstanding on the date of this
Indenture;
(v) Indebtedness represented by the Guarantees of the Securities and
Guarantees of Indebtedness incurred pursuant to clause (i) above;
(vi) Indebtedness of the Company or any Restricted Subsidiary under
Interest Rate Agreements that are entered into by the Company or such
Restricted Subsidiary for bona fide hedging purposes (as determined in good
faith by the Board of Directors or senior management of the Company or such
Restricted Subsidiary) with respect to Indebtedness of the Company or such
Restricted Subsidiary incurred without violation of this Indenture or with
respect to customary commercial transactions of the Company or such
Restricted Subsidiary entered into in the ordinary course of business;
(vii) Indebtedness (including Capitalized Lease Obligations) incurred
by the Company or any Restricted Subsidiary to finance the purchase, lease
or improvement of property (real or personal) or equipment (whether through
the direct purchase of assets or the Capital Stock of any Person owning
such assets) in an aggregate principal amount which, when aggregated with
the principal amount of all other Indebtedness then outstanding and
incurred pursuant to this clause (vii), does not exceed $25,000,000;
(viii) Indebtedness incurred by the Company or any Restricted
Subsidiary constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; provided, that upon the
drawing of such letters of credit or the incurrence of such Indebtedness,
such obligations are reimbursed within 30 days following such incurrence;
(ix) Acquired Indebtedness; provided, however, that such Indebtedness
is not incurred in contemplation of such acquisition or merger; and
provided, further that the Company would have been able to incur such
Indebtedness at the time of the incurrence thereof pursuant to clause (a)
above, determined on a pro forma basis as if such transaction had occurred
at the beginning of such four-quarter period and such Indebtedness and the
operating results of such merged or acquired entity had been included for
all purposes in such pro forma calculation as if such entity had been a
Restricted Subsidiary at the beginning of such four-quarter period;
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31
(x) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(xi) additional indebtedness in an aggregate amount not to exceed
$10,000,000 at any one time outstanding; and
(xii) Refinancing Indebtedness; provided, however, that (A) the
principal amount of such Refinancing Indebtedness shall not exceed the
principal or accreted amount (in the case of any Indebtedness issued with
original issue discount, as such) of Indebtedness so extended, refinanced,
renewed, replaced, substituted or refunded (the "Refinanced Indebtedness"),
(B) the Refinancing Indebtedness shall have a Weighted Average Life to
Maturity of not less than the stated maturity of the Refinanced
Indebtedness, and (C) the Refinancing Indebtedness shall rank in right of
payment relative to the Securities on terms at least as favorable to the
holders of Securities as those contained in the documentation governing the
Refinanced Indebtedness.
(c) Notwithstanding any other provision of this Section 3.8, neither the
Company nor any Restricted Subsidiary shall incur any Indebtedness (i) pursuant
to Section 3.8(b), if the proceeds thereof are used, directly or indirectly, to
repay, prepay, redeem, defease, retire, refund or refinance any Subordinated
Indebtedness unless such Indebtedness shall be subordinated to the Securities to
at least the same extent as such Subordinated Indebtedness or (ii) pursuant to
Section 3.8(a) or Section 3.8(b) if such Indebtedness is subordinate or junior
in ranking in any respect to any Senior Indebtedness unless such Indebtedness is
Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness.
(d) The Company shall not incur any Secured Indebtedness that is not Senior
Indebtedness unless contemporaneously therewith effective provision is made to
secure the Securities equally and ratably with such Secured Indebtedness for so
long as such Secured Indebtedness is secured by a Lien.
SECTION 3.9 Limitation on Restricted Payments. (a) The Company shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of its Capital Stock (other than dividends or
distributions payable solely in shares of its Capital Stock (other than
Disqualified Capital Stock) or in options, warrants or other rights to
acquire such Capital Stock and other than dividends and distributions paid
by a Restricted Subsidiary to the Company or to another Restricted
Subsidiary),
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of the Capital Stock of the Company or
any Restricted Subsidiary or options, warrants or other rights to acquire
such Capital Stock,
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32
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to the relevant scheduled
principal payment, sinking fund or maturity, any Subordinated Indebtedness,
or
(iv) make any Investment in any Person, including, without limitation,
any Unrestricted Subsidiary (other than a Permitted Investment)
(the foregoing actions described in clauses (i) through (iv) above being
hereinafter collectively referred to as "Restricted Payments") unless after
giving effect to the proposed Restricted Payment, (A) no Default or Event of
Default shall have occurred and be continuing and such Restricted Payment shall
not cause or constitute a Default or an Event of Default; (B) immediately before
and immediately after giving effect to such transaction on a pro forma basis,
the Company could incur at least $1.00 of additional Indebtedness pursuant to
Section 3.8(a); and (C) the aggregate amount of all such Restricted Payments
(the amount of any such Restricted Payment, if other than cash, to be determined
in good faith by the Board of Directors of the Company, whose determination
shall be conclusive and evidenced by a resolution of the Board of Directors)
declared or made after the Issue Date (including such Restricted Payment) does
not exceed the sum of:
(1) 50% of the aggregate cumulative Consolidated Net Income (or, if
such aggregate cumulative Consolidated Net Income shall be a loss, minus
100% of such loss) of the Company accrued on a cumulative basis during the
period (taken as one accounting period) from the fiscal quarter that first
begins after the Issue Date to the end of the Company's most recently ended
fiscal quarter for which internal financial statements are available at the
time of such Restricted Payment;
(2) the aggregate Net Cash Proceeds received after the Issue Date by
the Company from the issuance or sale (other than to any of its
Subsidiaries) of its shares of Capital Stock (other than Disqualified
Capital Stock) or any options, warrants or rights to purchase such shares
of Capital Stock (other than Disqualified Capital Stock) or other cash
contributions to its capital (excluding amounts used pursuant to clauses
(ii) or (iii) of Section 3.9(b));
(3) the aggregate Net Cash Proceeds received after the Issue Date by
the Company (other than from any of its Subsidiaries) upon the exercise of
any options, warrants or rights to purchase shares of Capital Stock (other
than Disqualified Capital Stock) of the Company;
(4) the aggregate Net Cash Proceeds received after the Issue Date by
the Company from Indebtedness of the Company or Disqualified Capital Stock
of the Company that has been converted into or exchanged for Capital Stock
(other than Disqualified Capital Stock) of the Company or options, warrants
or rights to acquire such Capital Stock, to the extent such Indebtedness of
the Company or Disqualified Capital Stock of the Company was originally
incurred
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33
or issued for cash, plus the aggregate Net Cash Proceeds received by the
Company at the time of such conversion or exchange;
(5) to the extent not included in Consolidated Net Income, the net
reduction (received by the Company or any Restricted Subsidiary in cash) in
Investments (other than Permitted Investments) made by the Company and the
Restricted Subsidiaries since the Issue Date, not to exceed, in the case of
any Investments in any Person, the amount of Investments (other than
Permitted Investments) made by the Company and the Restricted Subsidiaries
in such Person since the Issue Date.
(b) Notwithstanding Section 3.9(a) and in the case of clauses (v) and (vi)
below, so long as there is no Default or Event of Default continuing, the
following actions shall not be prohibited:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would be
permitted by the provisions of Section 3.9(a) (such payment being deemed to
have been paid on such date of declaration for purposes of the calculation
required by this Section 3.9);
(ii) the repurchase, redemption, or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or warrants,
options or other rights to acquire such stock in exchange for, or out of
the Net Cash Proceeds of a substantially concurrent issue and sale (other
than to a Subsidiary) for cash of, any Capital Stock (other than
Disqualified Capital Stock) of the Company or warrants, options or other
rights to acquire such Capital Stock;
(iii) any repurchase, redemption, defeasance, retirement, refinancing
or acquisition for value or payment of principal of any Subordinated
Indebtedness in exchange for, or out of the net proceeds of a substantially
concurrent issuance and sale (other than to a Subsidiary) for cash of, any
Capital Stock (other than Disqualified Capital Stock) of the Company or
warrants, options or other rights to acquire such Capital Stock;
(iv) the repurchase, redemption, defeasance, retirement or other
acquisition for value or payment of principal of any Subordinated
Indebtedness through the issuance of Refinancing Indebtedness;
(v) investments in, and loans or advances to, Permitted Foreign
Companies in a net aggregate amount not to exceed $10,000,000 in any fiscal
year, provided. however, that, to the extent that the net aggregate amount
of such investments, loans and advances in any fiscal year is less than
$10,000,000, 50% of such difference may be carried forward and added to the
$10,000,000 permitted amount for the subsequent fiscal year; and
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34
(vi) Investments in other Persons (including, without limitation,
Unrestricted Subsidiaries) having an aggregate fair market value, taken
together with all other Investments made pursuant to this paragraph (vi)
that are at that time outstanding, not to exceed $15,000,000 at the time of
such Investment (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes
in value).
The actions described in clauses (i) and (vi) of this Section 3.9(b) shall be
Restricted Payments that shall be permitted to be made in accordance with this
Section 3.9(b) but shall reduce the amount that would otherwise be available for
Restricted Payments under Section 3.9(a)(C) (provided that any dividend paid
pursuant to clause (i) of this Section 3.9(b) shall reduce the amount that would
otherwise be available under Section 3.9(a)(C) when declared, but not also when
paid pursuant to such clause (i)) and the actions described in clauses (ii),
(iii), (iv) and (v) of this Section 3.9(b) shall be permitted to be taken in
accordance with this Section 3.9 and shall not reduce the amount that would
otherwise be available for Restricted Payments under Section 3.9(a)(C).
SECTION 3.10 Restrictions on Sales of Assets and Subsidiary Stock. (a) The
Company shall not, and shall not permit any Restricted Subsidiary to, make any
Asset Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person assuming
sole responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the Fair Market Value of the shares
or assets that are the subject matter of such Asset Disposition, (ii) at least
80% of the consideration therefor received by the Company or such Restricted
Subsidiary is in the form of cash; and (iii) an amount equal to 100% of the Net
Available Cash from such Asset Disposition is applied by the Company (or such
Restricted Subsidiary, as the case may be) (A) first, to the extent the Company
elects (or is required by the terms of any Senior Indebtedness or any
Indebtedness (other than Preferred Stock) of a Restricted Subsidiary), to
prepay, repay or purchase such Senior Indebtedness or such Indebtedness (other
than Preferred Stock) of a Restricted Subsidiary (in each case other than
Indebtedness owed to the Company or an Affiliate of the Company) within 180 days
after the later of the date of such Asset Disposition or the receipt of such Net
Available Cash, (B) second, to the extent of the balance of Net Available Cash
after application in accordance with clause (A), to the extent the Company
elects, to secure letter of credit obligations to the extent such related
letters of credit have not been drawn upon or returned undrawn; (C) third, to
the extent of the balance of Net Available Cash after application in accordance
with clauses (A) and (B), to the extent the Company or such Restricted
Subsidiary elects, within one year from the later of the date of such Asset
Disposition or the receipt of such Net Available Cash, to reinvest in Additional
Assets; and (D) fourth, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A), (B) and (C), to make an offer
(the "Offer") to purchase Securities pursuant and subject to the conditions of
this Indenture to the holders of the Securities at a purchase price of 100% of
the principal amount thereof plus accrued and unpaid interest to the purchase
date; provided, however, that, in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A) or (B) above, the Company or
such Restricted Subsidiary shall retire such Indebtedness and shall cause the
related loan commitment (if any) to be permanently reduced in an amount
<PAGE>
35
equal to the principal amount so prepaid, repaid or purchased. The Company shall
not be required to make an offer for Securities pursuant to this Section 3.10 if
the Net Available Cash available therefor (aver application of the proceeds as
provided in clauses (A), (B) and (C)) is less than $15,000,000 (which lesser
amount shall be carried forward for purposes of determining whether an offer is
required with respect to the Net Available Cash from any subsequent Asset
Disposition).
For the purposes of Section 3.10(a)(ii), the following will be deemed to be
cash: (x) the assumption of Indebtedness (other than Disqualified Capital Stock)
of the Company or any Restricted Subsidiary and the release of the Company or
such Restricted Subsidiary from all liability on such Indebtedness in connection
with such Asset Disposition and (y) securities received by the Company or any
Restricted Subsidiary of the Company from the transferee that are promptly
converted by the Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of
Securities pursuant to clause (iii)(D) of Section 3.10(a), the Company will be
required to purchase Securities tendered pursuant to an offer by the Company for
the Securities at a purchase price of 100% of their principal amount plus
accrued interest to the purchase date in accordance with the procedures
(including prorating in the event of oversubscription) set forth in Section
3.10(c).
(c) (i) Promptly, and in any event within 10 days after the Company is
required to make an Offer, the Company shall deliver to the Trustee and send, by
first class mail to each Holder, a written notice stating that the Holder may
elect to have his or her Securities purchased by the Company either in whole or
in part (subject to prorating as hereinafter described in the event the Offer is
oversubscribed) in integral multiples of $1,000 of principal amount, at the
applicable purchase price. The notice shall specify a purchase date not less
than 30 days nor more than 60 days after the date of such notice (the "Purchase
Date").
(ii) Not later than the date upon which such written notice of an
Offer is delivered to the Trustee and the Holders, the Company shall
deliver to the Trustee an Officers' Certificate setting forth (A) the
amount of the Offer (the "Offer Amount"), (B) the allocation of the Net
Available Cash from the Asset Dispositions as a result of which such Offer
is being made and (C) the compliance of such allocation with the provisions
of Section 3.10(a). Upon the expiration of the period (the "Offer Period")
for which the Offer remains open, the Company shall deliver to the Trustee
for cancellation the Securities or portions thereof which have been
properly tendered to and are to be accepted by the Company. The Trustee
shall, on the Purchase Date, mail or deliver payment to each tendering
Holder in the amount of the purchase price of the Securities tendered by
such Holder to the extent such funds are available to the Trustee.
(iii) Holders electing to have a Security purchased will be required
to surrender the Security, with an appropriate form duly completed, to the
Company at
<PAGE>
36
the address specified in the notice prior to the expiration of the Offer
Period. Each Holder will be entitled to withdraw its election if the
Trustee or the Company receives, not later than one Business Day prior to
the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter from such Holder setting forth the name of such
Holder, the principal amount of the Security or Securities which were
delivered for purchase by such Holder and a statement that such Holder is
withdrawing its election to have such Security or Securities purchased. If
at the expiration of the Offer Period the aggregate principal amount of
Securities surrendered by Holders exceeds the Offer Amount, the Company
shall select the Securities to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only
Securities in denominations of $1,000, or integral multiples thereof, shall
be purchased). Holders whose Securities are purchased only in part will be
issued new Securities equal in principal amount to the unpurchased portion
of the Securities surrendered.
(d) The Company shall comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other securities laws or
regulations in connection with the repurchase of Securities pursuant to this
Section 3.10.
To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section 3.10, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under this Indenture by virtue thereof.
SECTION 3.11 Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary (a) to pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness owed to the Company or any Restricted Subsidiary,
(b) to make any loans or advances to the Company or any Restricted Subsidiary or
(c) to transfer any of its property or assets to the Company or any Restricted
Subsidiary, except: (i) any encumbrance or restriction pursuant to an agreement
in effect at or entered into on the Issue Date; (ii) any encumbrance or
restriction with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Indebtedness incurred by such Restricted Subsidiary on or prior
to the date on which such Restricted Subsidiary was acquired by the Company
(other than Indebtedness incurred as consideration in, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by the Company) and outstanding
on such date; (iii) any encumbrance or restriction pursuant to an agreement
effecting a refinancing of Indebtedness incurred pursuant to an agreement
referred to in clause (i) or (ii) of this Section 3.11 or contained in any
amendment to an agreement referred to in clause (i) or (ii) of this Section 3.1
1; provided, however, that the encumbrances and restrictions with respect to
such Restricted Subsidiary contained in any such refinancing agreement or
amendment are no less favorable in any material respect to the holders of the
Securities than encumbrances and restrictions with respect to such Restricted
Subsidiary contained in such agreements; and (iv)
<PAGE>
37
in the case of Section 3.11(c), any encumbrance or restriction (A) that
restricts in a customary manner the subletting, assignment or transfer of any
property or asset that is a lease, license, conveyance or contract or similar
property or asset that is the subject of such encumbrance or restriction, (B)
existing by virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by this Indenture, or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; provided that,
in each case, such encumbrance or restriction relates to, and restricts dealings
with, only the property or asset that is the subject of such encumbrance or
restriction; and provided further, that such encumbrance or restriction does not
prohibit, limit or otherwise restrict the making or payment of any dividend or
other distribution to the Company or any Restricted Subsidiary; (v) any
restriction with respect to a Restricted Subsidiary imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially all
the Capital Stock or assets of such Restricted Subsidiary pending the closing of
such sale or disposition; and (vi) any restrictions on cash or other deposits or
net worth imposed by customers under contracts entered into in the ordinary
course of business.
SECTION 3.12 Limitation on Sale of Capital Stock of Restricted
Subsidiaries. The Company (i) shall not, and shall not permit any Restricted
Subsidiary to, transfer, convey, sell or otherwise dispose of any Capital Stock
of any Restricted Subsidiary to any Person (other than to the Company or a
Restricted Subsidiary) and (ii) shall not permit any Restricted Subsidiary to
issue any of its Capital Stock to any Person other than to the Company or a
Restricted Subsidiary; provided, however, that this Section 3.12 shall not
prohibit the transfer, conveyance, sale or other disposition of all of the
Capital Stock of a Restricted Subsidiary if the net cash proceeds from such
transfer, conveyance, sale or other disposition are applied in accordance with
Section 3.10; and, provided, further, that this Section 3.12 shall not prohibit
the transfer, conveyance, sale or other disposition of less than all of the
Capital Stock of a Restricted Subsidiary or the issuance by any Restricted
Subsidiary of any of its Capital Stock to any Person as long as (A) the net cash
proceeds from such transfer, conveyance, sale or other disposition or issuance
are applied in accordance with Section 3.10, (B) immediately after giving effect
to such transaction, no Event of Default shall have occurred and be continuing,
(C) immediately after giving pro forma effect to such transaction, as if such
transaction had occurred at the beginning of the applicable four-quarter period,
the Company would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Coverage Ratio test as set forth in
Section 3.8(a) and (D) immediately after giving effect to such transaction, such
Restricted Subsidiary remains a Restricted Subsidiary of the Company.
SECTION 3.13 Limitation on Liens. The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, incur, assume or
suffer to exist any Lien of any kind upon any of its property or assets
(including any shares of Capital Stock or Indebtedness of any Restricted
Subsidiary), whether owned on the Issue Date or acquired after the Issue Date,
or any income or profits therefrom, except if the Securities (or the Guarantee
of the Securities, in the case of Liens on properties or assets of any
Guarantor) and all other
<PAGE>
38
amounts due under this Indenture are directly secured equally and ratably with
(or prior to in the case of Liens with respect to Subordinated Indebtedness) the
obligation or liability secured by such Lien, excluding, however, from the
operation of the foregoing any of the following:
(a) any Lien existing as of the Issue Date;
(b) any Lien arising by reason of (i) any judgment, decree or order of any
court, so long as such Lien is in existence less than 30 days after the entry
thereof or adequately bonded or the payment of such judgment, decree or order is
covered (subject to a customary deductible) by insurance maintained with
responsible insurance companies; (ii) taxes, assessments or other governmental
charges that are not yet delinquent or are being contested in good faith; (iii)
security for payment of workers' compensation or other insurance; (iv) good
faith deposits in connection with tenders, leases or contracts (other than
contracts for the payment of borrowed money); (v) zoning restrictions,
easements, licenses, reservations, provisions, covenants, conditions, waivers,
restrictions on the use of property or minor irregularities of title (and with
respect to leasehold interests, mortgages, obligations, liens and other
encumbrances incurred, created, assumed or permitted to exist and arising by,
through or under a landlord or owner of the leased property, with or without
consent of the lessee), none of which materially impairs the use of any property
or assets material to the operation of the business of the Company or any
Restricted Subsidiary or the value of such property or assets for the purpose of
such business; (vi) deposits to secure public or statutory obligations, or in
lieu of surety or appeal bonds with respect to matters not yet finally
determined and being contested in good faith by negotiations or by appropriate
proceedings that suspend the collection thereof; or (vii) operation of law in
favor of mechanics, materialmen, laborers, employees or suppliers, incurred in
the ordinary course of business for sums that are not yet delinquent or are
being contested in good faith by negotiations or by appropriate proceedings that
suspend the collection thereof;
(c) any Lien now or hereafter existing on property or assets of the Company
or any Guarantor securing Senior Indebtedness of such Person;
(d) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of such
Indebtedness by the Company or a Restricted Subsidiary; provided that any such
Lien extends only to the assets that were subject to such Lien securing such
Acquired Indebtedness prior to the related acquisition;
(e) leases or subleases granted by the Company or any of its Subsidiaries
to any other Person in the ordinary course of business;
(f) Liens in the nature of trustees' Liens granted pursuant to any
indenture governing any indebtedness permitted by Section 3.8, in each case in
favor of the trustee under such indenture and securing only obligations to pay
any compensation to such trustee, to reimburse its expenses and to indemnify it
under the terms thereof; and
<PAGE>
39
(g)any extension, renewal, refinancing or replacement, in whole or in part,
of any Lien described in the foregoing clauses (a) through (f) so long as the
amount of property or assets subject to such Lien is not increased thereby.
SECTION 3.14 Limitations on Affiliate Transactions. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
enter into or conduct any transaction (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with any Affiliate of
the Company (an "Affiliate Transaction") unless: (i) the terms of such Affiliate
Transaction are no less favorable to the Company or such Restricted Subsidiary,
as the case may be, than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an Affiliate;
(ii) in the event such Affiliate Transaction involves an aggregate amount in
excess of $1,000,000 (unless such Affiliate Transaction constitutes an agreement
with Bayer or its Affiliate relating to an investment by the Company and an
investment by Bayer or its Affiliate in a Permitted Foreign Company in which
case the requirements of this clause shall be applicable only if the amount
being invested by the Company exceeds $10,000,000), the terms of such
transaction have been approved by a majority of the members of the Board of
Directors of the Company and by a majority of the disinterested members of such
Board, if any (and such majority or majorities, as the case may be, determines
that such Affiliate Transaction satisfies the criteria in (i) above) and (iii)
in the event such Affiliate Transaction involves an aggregate amount in excess
of $15,000,000 (unless such Affiliate Transaction constitutes an agreement with
Bayer or its Affiliate relating to an investment by the Company and an
investment by Bayer or its Affiliate in a Permitted Foreign Company in which
case the requirements of this clause shall be applicable only if the amount
being invested by the Company exceeds $25,000,000), the Company has received a
written opinion from an independent investment banking firm of nationally
recognized standing that such Affiliate Transaction is fair to the Company or
such Restricted Subsidiary, as the case may be, from a financial point of view.
(b) The provisions of Section 3.14(a) will not prohibit (i) any Restricted
Payment permitted to be paid or made pursuant to Section 3.9, (ii) the
performance of the Company's or a Restricted Subsidiary's obligations under any
employment contract, stock option, collective bargaining agreement, employee
benefit plan, related trust agreement or any other similar arrangement
heretofore or hereafter entered into in the ordinary course of business, (iii)
payment of compensation to employees, officers, directors or consultants in the
ordinary course of business, (iv) maintenance in the ordinary course of business
of benefit programs or arrangements for employees, officers or directors,
including vacation plans, health and life insurance plans, deferred compensation
plans, and retirement or savings plans and similar plans, (v) any transaction
between the Company and a Restricted Subsidiary or between Restricted
Subsidiaries, (vi) any agreement in effect as of the Issue Date or any amendment
thereto or any transaction contemplated thereby, (vii) transactions required of
the Company or any Restricted Subsidiary under, or contemplated by, the General
Shareholders Agreement dated September 30, 1994, and the Continuing Shareholders
Agreement dated September 30, 1994, in each case as in effect on the date of
this Indenture or (viii) any agreement entered into in the ordinary course of
business between the Company and a person who constitutes an Affiliate solely by
reason of such person being an officer or director of the Company which
agreement provides for the repurchase by the Company, upon or following
<PAGE>
40
the termination of such person's employment or directorship with the Company, of
shares of Capital Stock of the Company owned by such person.
SECTION 3.15 Chance of Control. (a) If a Change of Control shall occur at
any time, then each holder of Securities shall have the right to require that
the Company purchase such holder's Securities in whole or in part in any
integral multiple of $1,000, for a cash purchase price (the "Change of Control
Purchase Price") equal to 101% of the principal amount of such Securities, plus
accrued and unpaid interest, if any, on such Securities to the date of purchase
(the "Change of Control Purchase Date"), pursuant to an offer (the "Change of
Control Offer"), made in conformity with the procedures set forth in Sections
3.15(b), (c) and (d).
(b) Within 15 days following any Change of Control, the Company shall
notify the Trustee thereof and give written notice of such Change of Control to
each holder of Securities by first-class mail, postage prepaid, at his address
appearing in the security register, stating:
(i) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's Securities, in whole
or in part, at the Change of Control Purchase Price;
(ii) the Change of Control Purchase Price and the Change of Control
Purchase Date, which shall be a Business Day no earlier than 30 days nor
later than 60 days from the date such notice is mailed, or such later date
as is necessary to comply with requirements under the Exchange Act;
(iii) that any Security not tendered for purchase will continue to
accrue interest;
(iv) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Securities accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Purchase Date; and
(v) the procedures that a Holder must follow to accept a Change of
Control Offer or to withdraw such acceptance.
(c) Holders electing to have Securities purchased will be required to
surrender such Securities, together with the execution form provided for on
Exhibit G duly executed, to the Company at the address specified in the notice
at least 10 Business Days prior to the Change of Control Purchase Date. Holders
will be entitled to withdraw their election if the Company receives, not later
than three Business Days prior to the Change of Control Purchase Date, a
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Securities delivered for purchase by the Holder as to
which his election is to be withdrawn and a statement that such Holder is
withdrawing his election to have such Securities purchased. Holders whose
Securities are purchased only in part will be
<PAGE>
41
issued new Securities equal in principal amount to the unpurchased portion of
the Securities surrendered.
(d) The Company will comply with any applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable securities
laws or regulations in connection with a Change of Control Offer. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of this Section, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section by virtue thereof.
(e) The Company will not, and will not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions in
effect on the Issue Date with respect to Indebtedness outstanding on the Issue
Date and refinancings thereof and customary default provisions) that would
materially impair the ability of the Company to make a Change of Control Offer
to purchase the Securities or, if such Change of Control Offer is made, to pay
for the Securities tendered for purchase.
SECTION 3.16 Limitation on Lines of Business. The Company shall not, and
shall not permit its Restricted Subsidiaries to, engage in any business other
than those engaged in on the date of this Indenture and any other segment of the
pharmaceutical or health-care industry or ancillary thereto.
SECTION 3.17 Payments for Consent. Neither the Company nor any Subsidiary
shall, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any Holder of the Securities
for or as an inducement to any consent, waiver or amendment of any terms or
provisions of the Securities unless such consideration is offered to be paid or
agreed to be paid to all Holders of the Securities who so consent, waive or
agree in the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.
SECTION 3.18 Waiver of Stay, Extension or Usury Laws. The Company covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, plead, or in any manner whatsoever claim, and will resist any and all
efforts to be compelled to take the benefit or advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive the
Company from paying all or any portion of the principal of or interest on the
Securities as contemplated herein, wherever enacted, now or at any time
hereafter in force, or which may affect the covenants or the performance of this
Indenture; and (to the extent that it may lawfully do so) the Company hereby
waives all benefit or advantage of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
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42
ARTICLE IV
DEFAULTS AND REMEDIES
SECTION 4.1 Event of Default Defined; Acceleration of Maturity. An "Event
of Default" occurs if:
(a) the Company defaults in any payment of interest on any Security when
the same becomes due and payable, whether or not such payment shall be
prohibited by Article X, and such default continues for a period of 30 days;
(b) the Company defaults in the payment of the principal of any Security
when the same becomes due and payable at its Stated Maturity, upon optional
redemption, upon required repurchase, upon declaration or otherwise, whether or
not such payment shall be prohibited by Article X;
(c) the Company fails to comply with Section 8. 1;
(d) the Company fails to comply with Section 3.7, 3.8, 3.9, 3.10, 3.11,
3.12, 3.13, 3.14, 3.15 or 3.16 (in each case other than a failure to repurchase
Securities when required pursuant to Section 3.10 or 3.15, which failure shall
constitute an Event of Default under Section 4.1(b)) and such failure continues
for 30 days after the notice specified below;
(e) the Company fails to comply with any covenant, condition or agreement
in this Indenture or the Securities (other than those referred to in clauses
(a), (b), (c) and (d) above) and such failure continues for 30 days after the
notice specified below;
(f) Indebtedness of the Company or any Restricted Subsidiary is not paid
within any applicable grace period after final maturity or is accelerated by the
holders thereof because of a default and the total amount of such unpaid or
accelerated Indebtedness exceeds $10,000,000 or its foreign currency equivalent
at the time;
(g) the Company or a Material Subsidiary pursuant to or within the meaning
of any Bankruptcy Law:
(i) commences a voluntary case;
(ii) consents to the entry of an order for relief against it in an
involuntary case;
(iii) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
(iv) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to insolvency;
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(h) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(i) is for relief against the Company or any Material Subsidiary in an
involuntary case;
(ii) appoints a Custodian of the Company or any Material Subsidiary or
for any substantial part of its property; or
(iii) orders the winding up or liquidation of the Company or any
Material Subsidiary;
or any similar relief is granted under any foreign laws and the order, decree or
relief remains unstayed and in effect for 60 days;
(i) any judgment or decree for the payment of money in excess of
$10,000,000 or its foreign currency equivalent at the time (to the extent not
covered by insurance) is entered against the Company or any Material Subsidiary
and is not discharged and either (A) an enforcement proceeding has been
commenced by any creditor upon such judgment or decree and is not promptly
stayed or (B) there is a period of 60 days following the entry of such judgment
or decree during which such judgment or decree is not discharged or the
execution thereof stayed; or
(j) the failure of any Subsidiary Guarantee to be in full force and effect
(except as contemplated by the terms thereof) or the denial or disaffirmation by
any Subsidiary Guarantor of its obligations hereunder or any Subsidiary
Guarantee if such failure is not cured, or such denial or disaffirmation is not
rescinded or revoked, within 10 days.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
Notwithstanding the foregoing, a Default under Section 4.1(d) or Section
4.1(e) will not constitute an Event of Default until the Trustee or the Holders
of at least 25% in principal amount of the outstanding Securities notify the
Company in writing of the Default and the Company does not cure such Default
within the time specified in said Section 4.1(d) or (e) after receipt of such
notice. Such notice must specify the Default, demand that it be remedied, and
state that such notice is a "Notice of Default."
An Event of Default specified in Section 4.1(f) and all consequences
thereof (including without limitation, any acceleration or resulting payment
default) shall be annulled,
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waived and rescinded, automatically and without any action by the Trustee or the
Holders of the Securities, if within 20 days after the occurrence of such Event
of Default, (i) the holders of the Indebtedness to which such Event of Default
relates have rescinded or waived the acceleration, notice or action (as the case
may be) giving rise to such Event of Default or (ii) the default that is the
basis for such Event of Default has been cured.
The Company shall deliver to the Trustee: (i) within 5 days after the
occurrence thereof, written notice in the form of an Officer's Certificate of
any Event of Default under clause (f) and any event which with the giving of
notice or the lapse of time would become an Event of Default under clause (d),
(e) or (i), its status and what action the Company is taking or proposes to take
with respect thereto and (ii) within 120 days after the end of each fiscal year,
written notice in the form of an Officer's Certificate indicating whether the
Officers signing such Officer's Certificate had actual knowledge of any Default
that occurred during such previous fiscal year.
SECTION 4.2 Acceleration. If an Event of Default (other than an Event of
Default specified in Section 4.1(g) or (h) with respect to the Company) occurs
and is continuing, the Trustee, by notice to the Company, or the Holders of at
least 25% in outstanding principal amount of the Securities, by notice to the
Company and the Trustee, may declare the principal of, and accrued and unpaid
interest on, all the Securities to be due and payable. Upon such a declaration,
such principal and interest shall be due and payable (i) if no Indebtedness is
outstanding under the Senior Credit Agreement, immediately, and (ii) if any
Indebtedness is outstanding under the Senior Credit Agreement, upon the first to
occur of (x) the acceleration of any such Indebtedness or (y) the fifth Business
Day after receipt by the Company and the Credit Agent of such written notice of
acceleration. If an Event of Default specified in Section 4.1(g) or (h) with
respect to the Company occurs and is continuing, the principal of, and accrued
and unpaid interest on, all the Securities shall into facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders. The Holders of a majority in principal amount of the
Securities, by notice to the Trustee, may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Default or Event of
Default or impair any right consequent thereto.
SECTION 4.3 Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. No remedy shall be deemed
exclusive of any other remedy and all available remedies shall be cumulative.
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45
SECTION 4.4 Waiver of Past Defaults. The Holders of a majority in
outstanding principal amount of the Securities, by notice to the Trustee, may
waive an existing Default or Event of Default and its consequences except (i) a
Default or Event of Default in the payment of the principal of or interest on a
Security or (ii) a Default or Event of Default in respect of a provision that
under Section 7.2 cannot be amended without the consent of each Holder affected.
When a Default or Event of Default is waived, it is deemed cured, but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any consequent right.
SECTION 4.5 Control by Majority. The Holders of a majority in outstanding
principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 5.1, that the Trustee determines is unduly prejudicial to the
rights of other Holders (it being understood that, subject to Section 5.1, the
Trustee shall have no duty to ascertain whether or not such actions or
forbearances are unduly prejudicial to such Holders) or would subject the
Trustee to personal liability; provided, however, that the Trustee may take any
other action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking or refraining from taking any such action hereunder,
the Trustee shall be entitled to indemnification satisfactory to it in its sole
discretion against all losses and expenses caused by its taking or refraining
from taking such action.
SECTION 4.6 Limitation on Suits. A Holder may not pursue any remedy with
respect to this Indenture or the Securities unless:
(a) the Holder gives to the Trustee written notice stating that an Event of
Default is continuing;
(b) the Holders of at least 25% in outstanding principal amount of the
Securities make a written request to the Trustee to pursue the remedy;
(c) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(e) the Holders of a majority in principal amount of the Securities do not
give the Trustee a direction inconsistent with the request during such 60-day
period.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
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46
SECTION 4.7 Rights of Holders to Receive Payment. Notwithstanding any other
provision of this Indenture, the right of any Holder to receive payment of the
principal of and interest on the Securities held by such Holder on or after the
respective due dates expressed in the Securities, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
SECTION 4.8 Collection Suit by Trustee. If an Event of Default specified in
Section 4.1(a) or (b) occurs and is continuing, the Trustee may recover judgment
in its own name and as trustee of an express trust against the Company for the
whole amount then due and owing (together with interest on any unpaid interest
to the extent lawful) and the amounts provided for in Section 5.6.
SECTION 4.9 Trustee May File Proofs of Claim. The Trustee may file such
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee and the Holders allowed in any
judicial proceedings relative to the Company, its Subsidiaries or their
respective creditors or properties and, unless prohibited by law or applicable
regulations, may vote on behalf of the Holders in any election of a trustee in
bankruptcy or other Person performing similar functions, and any Custodian in
any such judicial proceeding is hereby authorized by each Holder to make
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and its counsel, and any other amounts due
the Trustee under Section 5.6.
SECTION 4.10 Priorities. If the Trustee collects any money or property
pursuant to this Article IV, it shall pay out the money or property in the
following order:
FIRST: Costs and expenses of collection, including all sums paid or
advanced by the Trustee hereunder and the reasonable compensation, expenses
and disbursements of the Trustee, its agents, and counsel and all other
amounts due to the Trustee under Section 5.6;
SECOND: To holders of Senior Indebtedness to the extent required by
Article X;
THIRD: To Holders for amounts due and unpaid on the Securities for
principal and interest, without preference or priority of any kind,
according to the amounts due and payable on the Securities for principal
and interest, respectively; and
FOURTH: To the Company.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 4.10. At least 15 days before such record date,
the Company shall mail to each Holder and the Trustee a notice that states the
record date, the payment date and the amount to be paid.
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47
SECTION 4.11 Undertaking for Costs. In any suit for the enforcement of any
right or remedy under this Indenture or in any suit against the Trustee for any
action taken or omitted by it as Trustee, a court in its discretion may require
the filing by any party litigant in the suit of an undertaking to pay the costs
of the suit, and the court in its discretion may assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made by
the party litigant. This Section 4.11 does not apply to a suit by the Trustee, a
suit by a Holder pursuant to Section 4.7 or a suit by Holders of more than 10%
in outstanding principal amount of the Securities.
ARTICLE V
CONCERNING THE TRUSTEE
SECTION 5.1 Duties and Responsibilities of the Trustee; During Default;
Prior to Default. The Trustee, prior to the occurrence of an Event of Default
and after the curing or waiving of all Events of Default that may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Indenture. In case an Event of Default has occurred that has not
been cured or waived, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and skill in
their exercise, as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs. The Trustee shall not be charged with
knowledge of the existence of an Event of Default, other than with respect to a
payment default, unless and until the Trustee has actual knowledge of such Event
of Default or the Trustee shall have received notice thereof in writing from the
Company or from the holders of a majority in principal amount of the Securities.
No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own wilful misconduct, except that
(a) prior to the occurrence of an Event of Default and after the curing or
waiving of all such Events of Default that may have occurred:
(i) the duties and obligations of the Trustee shall be determined
solely by the express provisions of this Indenture, and the Trustee shall
not be liable except for the performance of such duties and obligations as
are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any statements,
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such statements,
certificates or opinions that are specifically required by any proving
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48
hereof to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment made in good
faith by a responsible officer or responsible officers of the Trustee, unless it
shall be proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(c) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of the
holders of not less than a majority in principal amount of the Securities at the
time outstanding relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Indenture.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if there shall be reasonable ground for believing that the
repayment of such funds or adequate indemnity against such liability is not
reasonably assured to it.
This Section 5.1 is in furtherance of and subject to Sections 315 and 316
of the Trust Indenture Act.
SECTION 5.2 Certain Rights of the Trustee. In furtherance of and subject to
the Trust Indenture Act, and subject to Section 5.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, Officer's Certificate or any other certificate,
statement, instrument, opinion, report, notice, request, consent, order, bond,
debenture, note, coupon, security or other paper or document believed by it to
be genuine and to have been signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the Company mentioned herein
shall be sufficiently evidenced by an Officer's Certificate (unless other
evidence in respect thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to the Trustee by a copy
thereof certified by the secretary or an assistant secretary of the Company;
(c) the Trustee may consult with counsel and any advice or Opinion of
Counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted to be taken by it hereunder in good faith
and in reliance on such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the trusts
or powers vested in it by this Indenture at the request, order or direction of
any of the Securityholders pursuant to the provisions of this Indenture, unless
such Securityholders shall
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have offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred therein or thereby;
(e) the Trustee shall not be liable for any action taken or omitted by it
in good faith and believed by it to be authorized or within the discretion,
rights or powers conferred upon it by this Indenture;
(f) prior to the occurrence of an Event of Default hereunder and after the
curing or waiving of all Events of Default, the Trustee shall not be bound to
make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, approval, appraisal, bond, debenture, note, coupon, security, or other
paper or document unless requested in writing to do so by the holders of not
less than a majority in aggregate principal amount of the Securities then
outstanding; provided that, if the payment within a reasonable time to the
Trustee of the costs, expenses or liabilities likely to be incurred by it in the
making of such investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms of this
Indenture, the Trustee may require reasonable indemnity against such costs,
expenses or liabilities as a condition to proceeding; the reasonable expenses of
every such examination shall be paid by the Company or, if paid by the Trustee
or any predecessor trustee, shall be repaid by the Company upon demand; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys not regularly in its employ and the Trustee shall not be responsible
for any misconduct or negligence on the part of any such agent or attorney
appointed with due care by it hereunder.
SECTION 5.3 Trustee Not Responsible for Recitals, Disposition of Securities
or Application of Proceeds Thereof. The recitals contained herein and in the
Securities, except the Trustee's certificates of authentication, shall be taken
as the statements of the Company, and the Trustee assumes no responsibility for
the correctness of the same. The Trustee makes no representation as to the
validity or sufficiency of this Indenture or of the Securities. The Trustee
shall not be accountable for the use or application by the Company of any of the
Securities or of the proceeds thereof.
SECTION 5.4 Trustee and Agents May Hold Securities, Collections, etc. The
Trustee or any agent of the Company or the Trustee, in its individual or any
other capacity, may become the owner or pledgee of Securities with the same
rights it would have if it were not the Trustee or such agent and may otherwise
deal with the Company and receive, collect, hold and retain collections from the
Company with the same rights it would have if it were not the Trustee or such
agent.
SECTION 5.5 Moneys Held By Trustee. Subject to the provisions of Section
9.6, all moneys received by the Trustee shall, until used or applied as herein
provided, be held in trust for the purposes for which they were received, but
need not be segregated from other funds except to the extent required by
mandatory provisions of law. Neither the Trustee
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nor any agent of the Company or the Trustee shall be under any liability for
interest on any moneys received by it hereunder.
SECTION 5.6 Compensation and Indemnification of Trustee and Its Prior
Claim. The Company covenants and agrees to pay to the Trustee from time to time,
and the Trustee shall be entitled to, reasonable compensation as agreed to by
the Company and the Trustee (which shall not be limited by any provision of law
in regard to the compensation of a trustee of an express trust), and the Company
covenants and agrees to pay or reimburse the Trustee and each predecessor
trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by or on behalf of it in accordance with any of the provisions
of this Indenture (including the reasonable compensation and the expenses and
disbursements of its counsel and of all agents and other persons not regularly
in its employ) except any such expense, disbursement or advance as may arise
from its negligence or bad faith. The Company also covenants to indemnify the
Trustee and each predecessor trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of this
Indenture or the trusts hereunder and its duties hereunder, including the costs
and expenses of enforcing this Indenture against the Company (including this
Section 5.6) and of defending itself against or investigating any claim (whether
asserted by a Holder or the Company) of liability in the premises. The
obligations of the Company under this Section to compensate and indemnify the
Trustee and each predecessor trustee and to pay or reimburse the Trustee and
each predecessor trustee for expenses, disbursements and advances shall
constitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. Such additional indebtedness shall be a senior
claim to that of the Securities upon all property and funds held or collected by
the Trustee as such, except funds held in trust for the benefit of the holders
of particular Securities, and the Securities are hereby subordinated to such
senior claim.
SECTION 5.7 Right of Trustee to Rely on Officer's Certificate, Etc. Subject
to Sections 5.1 and 5.2, whenever in the administration of the trusts of this
Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Trustee, be deemed to be conclusively proved and established by an
Officer's Certificate delivered to the Trustee, and such certificate, in the
absence of negligence or bad faith on the part of the Trustee, shall be full
warrant to the Trustee for any action taken, suffered or omitted by it under the
provisions of this Indenture upon the faith thereof.
SECTION 5.8 Persons Eligible for Appointment as Trustee. The Trustee
hereunder shall at all times be a corporation having a combined capital and
surplus of at least $50,000,000, and which is eligible in accordance with the
provisions of Section 310(a) of the Trust Indenture Act. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of a Federal, State or District of Columbia supervising or
examining authority, then for the purposes of this Section, the combined capital
and
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surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
SECTION 5.9 Resignation and Removal; Appointment of Successor Trustee. (a)
The Trustee may at any time resign by giving written notice of resignation to
the Company and by mailing notice thereof by first-class mail to holders of
Securities at their last addresses as they shall appear on the Security
register. Upon receiving such notice of resignation, the Company shall promptly
appoint a successor trustee by written instrument in duplicate, executed by
authority of the Board of Directors, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the successor trustee. If no
successor trustee shall have been so appointed and have accepted appointment
within 30 days after the mailing of such notice of resignation, the resigning
trustee may petition any court of competent jurisdiction for the appointment of
a successor trustee, or any Securityholder who has been a bona fide holder of a
Security or Securities for at least six months may, on behalf of himself and all
others similarly situated, petition any such court for the appointment of a
successor trustee. Such court may thereupon, after such notice, if any, as it
may deem proper, prescribe and appoint a successor trustee.
(b) In case at any time any of the following shall occur:
(i) the Trustee shall fail to comply with the provisions of Section
310(b) of the Trust Indenture Act, after written request therefor by the
Company or by any Securityholder who has been a bona fide holder of a
Security or Securities for at least six months; or
(ii) the Trustee shall cease to be eligible in accordance with the
provisions of Section 5.8 and shall fail to resign after written request
therefor by the Company or by any such Securityholder; or
(iii) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver or liquidator of the
Trustee or of its property shall be appointed, or any public officer shall
take charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation;
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors of the Company, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee, or,
subject to Section 315(e) of the Trust Indenture Act, any Securityholder who has
been a bona fide holder of a Security or Securities for at least six months may
on behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor trustee. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, remove the Trustee and appoint a successor
trustee.
(c) The holders of a majority in aggregate principal amount of the
Securities at the time outstanding may at any time remove the Trustee and
appoint a successor trustee by
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delivering to the Trustee so removed, to the successor trustee so appointed and
to the Company the evidence provided for in Section 6.1 of the action in that
regard taken by the Securityholder.
(d) Any resignation or removal of the Trustee and any appointment of a
successor trustee pursuant to any of the provisions of this Section 5.9 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 5.l0.
SECTION 5.10 Acceptance of Appointment by Successor Trustee. Any successor
trustee appointed as provided in Section 5.9 shall execute and deliver to the
Company and to its predecessor trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor trustee
shall become effective and such successor trustee, without any further act, deed
or conveyance, shall become vested with all rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as trustee herein; but, nevertheless, on the written request of the
Company or of the successor trustee, upon payment of its charges then unpaid,
the trustee ceasing to act shall, subject to Section 9.6, pay over to the
successor trustee all moneys at the time held by it hereunder and shall execute
and deliver an instrument transferring to such successor trustee all such
rights, powers, duties and obligations. Upon request of any such successor
trustee, the Company shall execute any and all instruments in writing for more
fully and certainly vesting in and confirming to such successor trustee all such
rights and powers. Any trustee ceasing to act shall, nevertheless, retain a
prior claim upon all property or funds held or collected by such trustee to
secure any amounts then due it pursuant to the provisions of Section 5.6.
Upon acceptance of appointment by a successor trustee as provided in this
Section 5.10, the Company shall mail notice thereof by first-class mail to the
holders of Securities at their last addresses as they shall appear in the
Security register. If the acceptance of appointment is substantially
contemporaneous with the resignation, then the notice called for by the
preceding sentence may be combined with the notice called for by Section 5.9. If
the Company fails to mail such notice within 10 days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Company.
SECTION 5.11 Merger, Conversion, Consolidation or Succession to Business of
Trustee. Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the corporate trust business of the Trustee, shall be
the successor of the Trustee hereunder, provided that such corporation shall be
eligible under the provisions of Section 5.8, without the execution or filing of
any paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture any of the Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any
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53
predecessor trustee and deliver such Securities so authenticated; and, in case
at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor trustee; and in all
such cases such certificate shall have the full force which it is anywhere in
the Securities or in this Indenture; provided that the certificate of the
Trustee shall have provided that the right to adopt the certificate of
authentication of any predecessor trustee or to authenticate Securities in the
name of any predecessor trustee shall apply only to its successor or successors
by merger, conversion or consolidation.
SECTION 5.12 Notice of Defaults. If a Default or Event of Default occurs
and is continuing and if a Trust Officer has actual knowledge thereof, the
Trustee shall mail to each Holder notice of the Default or Event of Default
within 90 days after it occurs. Except in the case of a Default or Event of
Default in payment of principal of, or interest on, any Security (including
payments pursuant to the optional redemption or required repurchase provisions
of such Security, if any), the Trustee may withhold the notice if and so long as
its board of directors, the Executive Committee of its board of directors or a
committee of its Trust Officers in good faith determines that withholding the
notice is in the interests of Securityholders.
SECTION 5.13 Reports by the Trustee. The Trustee shall transmit to the
Holders all reports required under Section 313(a) of the Trust Indenture Act.
ARTICLE VI
CONCERNING THE SECURITYHOLDERS
SECTION 6.1 Evidence of Action Taken by Securityholders. Any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be given or taken by Securityholders may be
embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Securityholders in person or by agent duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee. Proof of execution of any instrument or of a writing appointing any
such agent shall be sufficient for any purpose of this Indenture and (subject to
Sections 5.1 and 5.2) conclusive in favor of the Trustee and the Company, if
made in the manner provided in this Article.
SECTION 6.2 Proof of Execution of Instruments and of Holding of Securities;
Record Date. Subject to Sections 5.1 and 5.2, the execution of any instrument by
a Securityholder or his agent or proxy may be proved in accordance with such
reasonable rules and regulations as may be prescribed by the Trustee or in such
manner as shall be satisfactory to the Trustee. The holding of Securities shall
be proved by the Security register or by a certificate of the registrar thereof.
The Company may set a record date for purposes of determining the identity of
holders of Securities entitled to vote or consent to any action referred to in
Section 6.1, which record date may be set at any time or from time to time by
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notice to the Trustee, for any date or dates (in the case of any adjournment or
resolicitation) not more than 60 days nor less than five days prior to the
proposed date of such vote or consent, and thereafter, notwithstanding any other
provisions hereof, only holders of Securities of record on such record date
shall be entitled to so vote or give such consent or to withdraw such vote or
consent.
SECTION 6.3 Holders to be Treated as Owners. The Company, the Trustee and
any agents of the Company or the Trustee may deem and treat the person in whose
name any Security shall be registered upon the Security register as the absolute
owner of such Security (whether or not such Security shall be overdue and
notwithstanding any notation of ownership or other writing thereon) for the
purpose of receiving payment of or on account of the principal of and, subject
to the provisions of this Indenture, interest on such Security and for all other
purposes; and neither the Company nor the Trustee nor any agent of the Company
or the Trustee shall be affected by any notice to the contrary; provided,
however, that the Depository, or its nominee, shall be deemed the owner of the
Restricted Global Security, and owners of beneficial interests in the Restricted
Global Security will not be considered the owners of any Securities. All such
payments so made to any such person, or upon his order, shall be valid, and, to
the extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for moneys payable upon any such Security.
SECTION 6.4 Securities Owned by Company Deemed Not Outstanding. In
determining whether the holders of the requisite aggregate principal amount of
Securities have concurred in any direction, consent or waiver under this
Indenture, Securities which are owned by the Company or any other obligor on the
Securities or by any person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company or any other obligor
on the Securities shall be disregarded and deemed not to be outstanding for the
purpose of any such determination, except that for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, consent
or waiver only Securities which the Trustee knows are so owned shall be so
disregarded. Securities so owned which have been pledged in good faith may be
regarded as outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities or any
person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Company or any other obligor on the Securities.
In case of a dispute as to such right, the advice of counsel shall be full
protection in respect of any decision made by the Trustee in accordance with
such advice. Upon request of the Trustee, the Company shall furnish to the
Trustee promptly an Officer's Certificate listing and identifying all
Securities, if any, known by the Company to be owned or held by or for the
account of any of the above-described persons; and, subject to Sections 5.1 and
5.2, the Trustee shall be entitled to accept such Officer's Certificate as
conclusive evidence of the facts therein set forth and of the fact that all
Securities not listed therein are outstanding for the purpose of any such
determination.
SECTION 6.5 Right of Revocation of Action Taken. At any time prior to (but
not after) the evidencing to the Trustee, as provided in Section 6.1, of the
taking of any action by the holders of the percentage in aggregate principal
amount of the Securities
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55
specified in this Indenture in connection with such action, any holder of a
Security the serial number of which is shown by the evidence to be included
among the serial numbers of the Securities the holders of which have consented
to such action may, by filing written notice at the Corporate Trust Office and
upon proof of holding as provided in this Article, revoke such action so far as
concerns such Security. Except as aforesaid, any such action taken by the holder
of any Security shall be conclusive and binding upon such holder and upon all
future holders and owners of such Security and of any Securities issued in
exchange or substitution therefor, irrespective of whether or not any notation
in regard thereto is made upon any such Security. Any action taken by the
holders of the percentage in aggregate principal amount of the Securities
specified in this Indenture in connection with such action shall be conclusively
binding upon the Company, the Trustee and the holders of all the Securities.
ARTICLE VII
AMENDMENTS
SECTION 7.1 Without Consent of Holders. The Company and the Trustee may
amend this Indenture or the Securities without notice to or consent of any
Holder:
(a) to cure any ambiguity, omission, defect or inconsistency;
(b) to comply with Article VIII;
(c) to provide for uncertificated Securities in addition to or in place of
certificated Securities; provided, however, that the uncertificated Securities
are issued in registered form for purposes of Section 163(f) of the Code or in a
manner such that the uncertificated Securities are described in Section
163(f)(2)(B) of the Code;
(d) to make any change in Article X that would limit or terminate the
benefits available to any holder of Senior Indebtedness (or Representatives
therefor) under Article X;
(e) to add Guarantees with respect to the Securities or to secure the
Securities;
(f) to add to the covenants of the Company for the benefit of the Holders
or to surrender any right or power herein conferred upon the Company;
(g) to comply with any requirements of the Commission in connection with
qualifying this Indenture under the Trust Indenture Act;
(h) to make any change that does not adversely affect the rights of any
Holder; or
(i) to provide for the issuance of the Conversion Notes, which will have
terms substantially identical in all material respects to the Initial Notes
(except that the transfer restrictions contained in the Initial Notes will be
modified or eliminated, as appropriate), and
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56
which will be treated, together with any outstanding Initial Notes, as a single
issue of securities.
An amendment under this Section 7.1 may not make any change that adversely
affects the rights under Article X of any holder of Senior Indebtedness then
outstanding unless the holders of such Senior Indebtedness (or any group or
representative thereof authorized to give a consent) consent to such change.
After an amendment under this Section 7.1 becomes effective, the Company
shall mail to each Holder a notice briefly describing such amendment. The
failure to give such notice to all Holders, or any defect therein, shall not
impair or affect the validity of an amendment under this Section 7.1.
SECTION 7.2 With Consent of Holders. The Company and the Trustee may amend
this Indenture or the Securities without notice to any Holder but with the
written consent of the Holders of at least a majority in principal amount of the
Securities. However, without the consent of each Holder affected, an amendment
may not:
(a) reduce the amount of Securities whose Holders must consent to an
amendment;
(b) reduce the rate of or extend the time for payment of interest on any
Security;
(c) reduce the principal of or extend the Stated Maturity of any Security
(d) reduce the premium payable upon the redemption or repurchase of any
Security or change the time at which any Security may or shall be redeemed or
repurchased in accordance with this Indenture;
(e) make any Security payable in money other than that stated in the
Security;
(f) modify or affect in any manner adverse to the Holders, the terms and
conditions of the obligation of the Company for the due and punctual payment of
the principal of or interest on Securities; or
(g) make any change in Section 4.4 or 4.7 or the second sentence of this
Section 7.2.
It shall not be necessary for the consent of the Holders under this Section
to approve the particular form of any proposed amendment, but it shall be
sufficient if such consent approves the substance thereof.
An amendment under this Section 7.2 may not make any change that adversely
affects the rights under Article X of any holder of Senior Indebtedness then
outstanding
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57
unless the holders of such Senior Indebtedness (or any group or representative
thereof authorized to give a consent) consent to such change.
After an amendment under this Section 7.2 becomes effective, the Company
shall mail to Holders a notice briefly describing such amendment. The failure to
give such notice to all Holders, or any defect therein, shall not impair or
affect the validity of an amendment under this Section 7.2.
SECTION 7.3 Compliance with Trust Indenture Act. Every amendment to this
Indenture or the Securities shall comply with the Trust Indenture Act as then in
effect.
SECTION 7.4 Revocation and Effect of Consents and Waivers. A consent to an
amendment or a waiver by a Holder of a Security shall bind the Holder and every
subsequent Holder of that Security or portion of the Security that evidences the
same debt as the consenting Holder's Security, even if notation of the consent
or waiver is not made on the Security. However, any such Holder or subsequent
Holder may revoke the consent or waiver as to such Holder's Security or portion
of Security if the Trustee receives the notice of revocation before the date the
amendment or waiver becomes effective. After an amendment or waiver becomes
effective, it shall bind every Holder.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to give their consent or take any
other action described above or required or permitted to be taken pursuant to
this Indenture. If a record date is fixed, then notwithstanding the immediately
preceding paragraph, those Persons who were Holders at such record date (or
their duly designated proxies), and only those Persons, shall be entitled to
give such consent or to revoke any consent previously given or to take any such
action, whether or not such Persons continue to be Holders after such record
date. No such consent shall become valid or effective more than 120 days after
such record date.
SECTION 7.5 Notation on or Exchange of Securities. If an amendment changes
the terms of a Security, the Trustee may require the Holder of the Security to
deliver it to the Trustee. The Trustee may place an appropriate notation on the
Security regarding the changed terms and return it to the Holder. Alternatively,
if the Company or the Trustee so determines, the Company in exchange for the
Security shall issue and the Trustee shall authenticate a new Security that
reflects the changed terms. Failure to make the appropriate notation or to issue
a new Security shall not affect the validity of such amendment.
SECTION 7.6 Trustee to Sign Amendments. The Trustee shall sign any
amendment authorized pursuant to this Article VII if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.1) shall be fully protected in relying
upon, an Officer's Certificate and an Opinion of Counsel stating that such
amendment is authorized or permitted by this Indenture.
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58
ARTICLE VIII
MERGER AND CONSOLIDATION
SECTION 8.1 When Company May Merge, Etc. The Company shall not consolidate
with or merge with or into, or convey, transfer or lease all or substantially
all its assets to, any Person, unless: (i) the resulting, surviving or
transferee Person (the "Successor Company") shall be a Person organized and
existing under the laws of the United States of America, any state thereof or
the District of Columbia and the Successor Company (if not the Company) shall
expressly assume, by an indenture supplemental to this Indenture, executed and
delivered to the Trustee, in form reasonably satisfactory to the Trustee, all
the obligations of the Company under the Securities and this Indenture; (ii)
immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been incurred by
such Successor Company or such Restricted Subsidiary at the time of such
transaction), no Event of Default shall have occurred and be continuing; (iii)
immediately after giving pro forma effect to such transaction, as if such
transaction had occurred at the beginning of the applicable four-quarter period,
the Successor Company would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Coverage Ratio test set forth in
Section 3.8(a); and (iv) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
SECTION 8.2 Successor Corporation Substituted. The Successor Company shall
be the successor of the Company and shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under this Indenture, but
the predecessor Company in the case of a conveyance, transfer or lease shall not
be released from the obligation to pay the principal of and interest on the
Securities.
Such Successor Company may cause to be signed, and may issue either in its
own name or in the name of the Company prior to such succession any or all of
the Securities issuable hereunder which theretofore shall not have been signed
by the Company and delivered to the Trustee; and, upon the order of such
successor corporation, instead of the Company, and subject to all the terms,
conditions and limitations in this Indenture prescribed, the Trustee shall
authenticate and shall deliver any Securities which previously shall have been
signed and delivered by the officers of the Company to the Trustee for
authentication, and any Securities which such successor corporation thereafter
shall cause to be signed and delivered to the Trustee for that purpose. All of
the Securities so issued shall in all respects have the same legal rank and
benefit under this Indenture as the Securities theretofore or thereafter issued
in accordance with the terms of this Indenture as though all of such Securities
had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, lease or conveyance such
changes in phraseology and form (but not in substance) may be made in the
Securities thereafter to be issued as may be appropriate.
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59
In the event of any such sale or conveyance (other than a conveyance by way
of lease) the Company or any Successor Company which shall theretofore have
become such in the manner described in this Article shall be discharged from all
obligations and covenants under this Indenture and the Securities and may be
liquidated and dissolved.
ARTICLE IX
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 9.1 Discharge of Liability on Securities; Defeasance. (a) When (i)
the Company delivers to the Trustee all outstanding Securities (other than
Securities replaced pursuant to Section 2.6) for cancellation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article XIII and the
Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity or upon redemption all outstanding Securities (other than Securities
replaced pursuant to Section 2.6), including interest thereon to maturity or
such redemption date, and if in either case the Company pays all other sums
payable hereunder by the Company, then this Indenture shall, subject to Section
9.1(c), cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Company
(accompanied by an Officers' Certificate and an Opinion of Counsel stating that
all conditions precedent specified herein relating to the satisfaction and
discharge of this Indenture have been complied with) and at the cost and expense
of the Company.
(b) Subject to Sections 9.1(c) and 9.2, the Company at any time may
terminate (i) all its obligations under the Securities and this Indenture and
all obligations of the Subsidiary Guarantors under the Subsidiary Guarantee and
this Indenture ("legal defeasance option") or (ii) its obligations under
Sections 3.5, 3.7 through 3.18, 8.1(iii) and 8.1(iv) and the operation of
Sections 4.1(d), 4.1(e), 4.1(f), 4.1(g) (but only with respect to a Material
Subsidiary), 4.1(h) (but only with respect to a Material Subsidiary) and 4.1(i)
("covenant defeasance option"); provided, however, no deposit under this Article
IX shall be effective to terminate the obligations of the Company under the
Securities or this Indenture prior to 123 days following any such deposit. The
Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the Company
exercises its covenant defeasance option, payment of the Securities may not be
accelerated because of an Event of Default specified in Sections 4.1(d), (e),
(f), (g) (but only with respect to a Material Subsidiary), 4.1(h) (but only with
respect to a Material Subsidiary) and 4.1(i) or because of the failure of the
Company to comply with Section 8.1(iii) and Section 8.1 (iv).
Upon satisfaction of the conditions set forth herein and upon request of
the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
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60
(c) Notwithstanding the provisions of Sections 9.1(a) and (b), the
Company's obligations in Article II, Sections 5.6, 5.9, 9.4, 9.5 and 9.6 shall
survive until the Securities have been paid in full. Thereafter, the Company's
obligations in Sections 5.6, 9.4 and 9.5 shall survive.
SECTION 9.2 Conditions to Defeasance. The Company may exercise its legal
defeasance option or its covenant defeasance option only if:
(a) the Company irrevocably deposits in trust with the Trustee money or
U.S. Government Obligations for the payment of principal of and interest on the
Securities to maturity or redemption, as the case may be;
(b) the Company delivers to the Trustee a certificate from a nationally
recognized firm of independent accountants expressing their opinion that the
payments of principal and interest when due and without reinvestment of the
deposited U.S. Government Obligations plus any deposited money without
investment will provide cash at such times and in such amounts as will be
sufficient to pay principal and interest when due on all the Securities to
maturity or redemption, as the case may be;
(c) no Event of Default shall have occurred or be continuing on the date of
such deposit and 123 days pass after the deposit is made and during the 123-day
period no Default specified in Section 4.1(g) or 4.1(h) with respect to the
Company occurs which is continuing at the end of such period;
(d) the deposit does not constitute a default under any other agreement
binding on the Company and is not prohibited by Article X;
(e) the Company delivers to the Trustee an Opinion of Counsel to the effect
that the trust resulting from the deposit does not constitute, or is qualified
as, a regulated investment company under the Investment Company Act of 1940;
(f) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling, or (B) since the date hereof there has been a change in the applicable
Federal income tax law, in either case to the effect that, and based thereon
such Opinion of Counsel shall confirm that, the Holders will not recognize
income, gain or loss for Federal income tax purposes as a result of such
defeasance and will be subject to Federal income tax purposes on the same
amounts, in the same manner and at the same times as would have been the case if
such legal defeasance had not occurred;
(g) in the case of the covenant defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the Holders
will not recognize income, gain or loss for Federal income tax purposes as a
result of such covenant defeasance and will be subject to Federal income tax on
the same amounts, in the same
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61
manner and at the same times as would have been the case if such covenant
defeasance had not occurred;
(h) The Holders shall have a perfected security interest under applicable
law in the cash or U.S. Government Obligations deposited pursuant to Section
9.2(a);
(i) The Company shall have delivered to the Trustee an Opinion of Counsel,
in form and substance reasonably satisfactory to the Trustee, to the effect
that, after the passage of 123 days following the deposit, the trust funds will
not be subject to any applicable bankruptcy, insolvency, reorganization or
similar law affecting creditors' rights generally;
(j) such defeasance shall not cause the Trustee to have a conflicting
interest with respect to any securities of the Company; and
(k) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent to the defeasance
and discharge of the Securities and this Indenture as contemplated by this
Article IX have been complied with.
Before or after a deposit, the Company may make arrangements satisfactory
to the Trustee for the redemption of Securities at a future date in accordance
with Article III.
SECTION 9.3 Application of Trust Money. The Trustee shall hold in trust
money or U.S. Government Obligations deposited with it pursuant to this Article
IX. It shall apply the deposited money and the money from U.S. Government
Obligations through the paying agent and in accordance with this Indenture to
the payment of principal of and interest on the Securities. Money and securities
so held in trust are not subject to Article X.
SECTION 9.4 Repayment to Company. The Trustee and the paying agent shall
promptly turn over to the Company upon request any excess money or securities
held by them upon payment of all the obligations under this Indenture.
Subject to any applicable abandoned property law, the Trustee and the
paying agent shall pay to the Company upon request any money held by them for
the payment of principal of or interest on the Securities that remains unclaimed
for two years, and, thereafter, Holders entitled to the money must look to the
Company for payment as general creditors.
SECTION 9.5 Indemnity for U.S. Government Obligations. The Company shall
pay and shall indemnify the Trustee against any tax, fee or other charge imposed
on or assessed against deposited U.S. Government Obligations or the principal
and interest received on such U.S. Government Obligations.
SECTION 9.6 Reinstatement. If the Trustee or paying agent is unable to
apply any money or U.S. Government Obligations in accordance with this Article
IX by reason of any legal proceeding or by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, the
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62
obligations of the Company and the Subsidiary Guarantors under this Indenture
and the Securities shall be revived and reinstated as though no deposit had
occurred pursuant to this Article IX until such time as the Trustee or paying
agent is permitted to apply all such money or U.S. Government Obligations in
accordance with this Article IX; provided, however, that, if the Company has
made any payment of interest on or principal of any Securities because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money or U.S.
Government Obligations held by the Trustee or paying agent.
ARTICLE X
SUBORDINATION.
SECTION 10.1 Agreement to Subordinate. The Company agrees, and each
Securityholder by accepting a Security agrees, that the payment of the principal
of and interest on the Securities, the payment of all other obligations relating
to the Securities (including prepayment premiums, liquidated damages, fees,
costs, expenses, indemnities and rescission or damage claims) and the payment of
any obligation in respect of any Guarantee of obligations relating to the
Securities (all of the foregoing being collectively referred to as the "Note
Obligations") are subordinate in right of payment, to the extent and in the
manner provided in this Article X, to the prior payment in full of all Senior
Indebtedness and that the subordination is for the benefit of and enforceable by
the holders of Senior Indebtedness. The Securities shall in all respects rank
pari passu with all other Senior Subordinated Indebtedness of the Company, and
only Indebtedness of the Company that is Senior Indebtedness shall rank senior
to the Securities in accordance with the provisions set forth herein. All
provisions of this Article X shall be subject to Section 10.12. For purposes of
this Article X, "payment in full" means payment in cash.
SECTION 10.2 Liquidation, Dissolution, Bankruptcy. Upon any payment,
distribution or other transfer of the assets of the Company or any Guarantor (or
any other payment, distribution or other transfer on behalf of the Company or
any Guarantor from any source) of any kind or character, whether direct or
indirect, by set-off or otherwise, or whether in cash, property or securities
(other than Reorganization Securities) upon any dissolution, winding up, total
or partial liquidation or reorganization of the Company or any Guarantor
(whether voluntary or involuntary, including in bankruptcy, insolvency or
receivership proceedings or upon any assignment for the benefit of creditors or
any other marshalling of the Company's or any Guarantor's assets and
liabilities):
(a) holders of Senior Indebtedness shall be entitled to receive
payment in full of all Senior Indebtedness before Securityholders shall be
entitled to receive any payment or any distribution of cash, securities or
other property with respect to the Note Obligations (other than
Reorganization Securities); and
(b) until the Senior Indebtedness is paid in full, any payment,
distribution or other transfer of assets of the Company or any Guarantor of
any kind or character,
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63
whether direct or indirect, by set-off or otherwise, and whether in cash,
securities or property (other than Reorganization Securities), to which
Securityholders would be entitled but for this Article X shall be made to
holders of Senior Indebtedness as their interests may appear.
SECTION 10.3 Default on Senior Indebtedness. The Company may not, and will
not permit any Guarantor to, make any payment, distribution or other transfer of
the assets of the Company or such Guarantor (or any other payment, distribution
or other transfer on behalf of the Company or any Guarantor from any source) of
any kind, or character, whether direct or indirect, by set-off or otherwise, and
whether in cash, property or securities (other than Reorganization Securities)
in respect of the Note Obligations, or make any deposit pursuant to Section 9.1
and may not, directly or indirectly, repurchase, redeem or otherwise retire any
Securities, whether pursuant to the terms of the Securities or upon acceleration
or otherwise (collectively, "pay the Securities") if (i) all or any portion of
the principal (including any reimbursement obligation) of, premium, if any, or
interest, commitment fee or letter of credit fee on or relating to, any
Designated Senior Indebtedness is not paid when due or (ii) any other default on
Designated Senior Indebtedness occurs and the maturity of such Designated Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
(x) the default has been cured or waived and any such acceleration has been
rescinded or (y) such Designated Senior Indebtedness has been paid in full;
provided, however, that the Company may pay the Securities without regard to the
foregoing if the Company and the Trustee receive written notice approving such
payment from the Representatives of all Designated Senior Indebtedness with
respect to which either of the events set forth in clause (i) or (ii) of the
immediately preceding sentence has occurred and is continuing. During the
continuance of any default (other than a default described in clause (i) or (ii)
of the preceding sentence) with respect to any Designated Senior Indebtedness
pursuant to which the maturity thereof may be accelerated immediately without
further notice (except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace periods, neither the
Company nor any other Person may pay the Securities for a period (a "Payment
Blockage Period") commencing upon the receipt by the Trustee (with a copy to the
Company) of written notice (a "Blockage Notice") of such default from the
Representative of any Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to the Trustee
and the Company from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice is no longer continuing,
or (iii) by repayment in full of such Designated Senior Indebtedness); provided'
however, that so long as there shall remain outstanding any Senior Indebtedness
under the Senior Credit Agreement, a Blockage Notice may be given only by the
Credit Agent unless otherwise agreed to in writing by the lenders named therein.
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the first sentence of this section),
the Company may resume payments on the Securities after such Payment Blockage
Period. Not more than one Blockage Notice may be given in any consecutive
360-day period, irrespective of the number of defaults with respect to
Designated Senior Indebtedness during such period.
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64
SECTION 10.4 Acceleration of Payment of Securities. If payment of the
Securities is accelerated because of an Event of Default, the Company or the
Trustee shall promptly notify the holders of the Designated Senior Indebtedness
(or their Representatives) of the acceleration. If any Designated Senior
Indebtedness is outstanding, neither the Company nor any other Person may pay
the Securities until five Business Days after the Representatives of all
Designated Senior Indebtedness receive notice of such acceleration and,
thereafter, may pay the Securities only if such payments are otherwise permitted
pursuant to this Article X at such time.
SECTION 10.5 When Distribution Must Be Paid Over. If a distribution is made
to Securityholders that, because of this Article X, should not have been made to
them, the Securityholders who receive the distribution shall hold it in trust
for holders of Senior Indebtedness and pay it over to them as their interests
may appear.
SECTION 10.6 Subrogation. After all Senior Indebtedness is paid in full and
until the Securities are paid in full, Securityholders shall be subrogated to
the rights of holders of Senior Indebtedness to receive distributions applicable
to Senior Indebtedness. A distribution made under this Article X to holders of
Senior Indebtedness which otherwise would have been made to Securityholders is
not, as between the Company and Securityholders, a payment by the Company on
Senior Indebtedness.
SECTION 10.7 Relative Rights. This Article X defines the relative rights of
Securityholders and holders of Senior Indebtedness. Nothing in this Indenture
shall:
(1) impair, as between the Company and Securityholders, the obligation
of the Company, which is absolute and unconditional, to pay principal of
and interest on the Securities in accordance with their terms; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default, subject to the rights hereunder of
holders of Senior Indebtedness to receive any payment, distribution or
transfer otherwise payable to Securityholders.
SECTION 10.8 Subordination May Not Be Impaired By Company. No right of any
holder of Senior Indebtedness to enforce the subordination of the Indebtedness
evidenced by the Securities shall be impaired by any act or failure to act by
the Company or by its failure to comply with this Indenture.
SECTION 10.9 Rights of Trustee and Paying Agent. Notwithstanding Section
10.3, the Trustee or paying agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, a Trust Officer of the Trustee
receives notice that payments may not be made under this Article X. The Company,
the registrar, if any, the paying agent, a Representative or a holder of
Designated Senior Indebtedness may give such notice; provided, however, that, if
an issue
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65
of Designated Senior Indebtedness has a Representative, only the Representative
may give such notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. The
Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article X with respect to any Senior Indebtedness which may at any time be held
by it, to the same extent as any other holder of Senior Indebtedness; and,
nothing in Article V shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article X shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 5.6.
SECTION 10.10 Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness,
the distribution may be made and the notice given to their Representative (if
any).
SECTION 10.11 Article X Not To Prevent Events of Default or Limit Right to
Accelerate. The failure to make a payment pursuant to the Securities by reason
of any provision in this Article X shall not be construed as preventing the
occurrence of a Default. Nothing in this Article X shall have any effect on the
right of the Securityholders or the Trustee to accelerate the maturity of the
Securities.
SECTION 10.12 Trust Moneys Not Subordinated. Notwithstanding anything
contained herein to the contrary, payments from money or the proceeds of U.S.
Government Obligations held in trust in accordance with Article IX by the
Trustee for the payment of principal of and interest on the Securities shall not
be subordinated to the prior payment of any Senior Indebtedness or subject to
the restrictions set forth in this Article X, and none of the Securityholders
shall be obligated to pay over any such amount to the Company or any holder of
Senior Indebtedness of the Company or any other creditor of the Company.
SECTION 10.13 Trustee Entitled to Rely. Upon any payment or distribution
pursuant to this Article X, the Trustee and the Securityholders shall be
entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 10.2
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior
Indebtedness for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of the Senior Indebtedness and
other Indebtedness of the Company or any Guarantor, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article X. In the event that the Trustee
determines, in good faith, that evidence is required with respect to the right
of any Person as a holder of Senior Indebtedness to participate in any payment
or distribution pursuant to this Article X, the Trustee may request such Person
to furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and other
facts pertinent to the rights of such Person under this Article X, and, if such
evidence is not furnished, the
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Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment. The provisions of Sections
5.1 and 5.2 shall be applicable to all actions or omissions of actions by the
Trustee pursuant to this Article X.
SECTION 10.14 Trustee to Effectuate Subordination. Each Securityholder by
accepting a Security authorizes and directs the Trustee on his behalf to take
such action as may be necessary or appropriate to acknowledge or effectuate the
subordination between the Securityholders and the holders of Senior Indebtedness
as provided in this Article X and appoints the Trustee as attorney-in-fact for
any and all such purposes.
SECTION 10.15 Trustee Not Fiduciary for Holders of Senior Indebtedness. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior
Indebtedness and shall not be liable to any such holders if it shall mistakenly,
in the absence of gross negligence or willful misconduct, pay over or distribute
to Securityholders or the Company or any other Person, money or assets to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article X
or otherwise.
SECTION 10.16 Reliance by Holders of Senior Indebtedness on Subordination
Provisions. Each Securityholder by accepting a Security acknowledges and agrees
that the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of any Senior Indebtedness,
whether such Senior Indebtedness was created or acquired before or after the
issuance of the Securities, to acquire and continue to hold, or to continue to
hold, such Senior Indebtedness and such holder of Senior Indebtedness shall be
deemed conclusively to have relied on such subordination provisions in acquiring
and continuing to hold, or in continuing to hold, such Senior Indebtedness.
SECTION 10.17 Miscellaneous Subordination Provisions. (a) The subordination
provisions contained herein are solely for the benefit of the holders from time
to time of Senior Indebtedness and their representatives, assignees and
beneficiaries and may not be rescinded, cancelled, amended or modified in any
way other than any amendment or modification that would not adversely affect the
rights of any holder of Senior Indebtedness. No holder of Subordinated
Indebtedness shall subordinate any Subordinated Indebtedness to any indebtedness
or obligation of the Company or any Guarantor other than Senior Indebtedness.
(b) No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or any Guarantor or by any act or failure to act, in good faith, by any such
holder, or by any non-compliance by the Company or any Guarantor with the terms,
provisions and covenants of this Indenture, regardless of any knowledge thereof
any such holder may have or be otherwise charged with.
(c) Without in any way limiting the generality of Section 10.17(b), the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the holders of the Securities, without incurring
responsibility to the holders of the Securities and without impairing or
releasing the subordination provided in this Article X or
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67
the obligations hereunder of the holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (i) change the manner,
place or terms of payment or extend the time of payment of, or renew or alter,
Senior Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
(d) The subordination provisions of this Article X shall, to the fullest
extent permitted by law, continue to be effective or be reinstated, as the case
may be, if at any time payment and performance of the Senior Indebtedness is,
pursuant to applicable law, avoided, recovered, or rescinded or must otherwise
be restored or returned by any holder of Senior Indebtedness, whether as a
"violable preference," "fraudulent conveyance, "fraudulent transfer," or
otherwise, all as though such payment or performance had not been made.
(e) If, upon any proceeding referred to in Section 10.2, the Trustee does
not file a claim in such proceeding prior to ten Business Days before the
expiration of the time to file such claim, the holders of the Senior
Indebtedness or their agent may file such claim on behalf of the holders of the
Securities.
ARTICLE XI
SUBSIDIARY GUARANTEE
SECTION 11.1 Subsidiary Guarantee. Each Guarantor hereby unconditionally
and irrevocably guarantees (each a "Subsidiary Guarantee") on a senior
subordinated basis to each Holder and to the Trustee and its successors and
assigns all obligations of the Company under this Indenture and the Securities.
The Guarantor further agrees that the obligations of the Company may be extended
or renewed, in whole or in part, without notice or further assent from such
Guarantor, and that such Guarantor will remain bound under this Article XI
notwithstanding any extension or renewal of any such obligation.
Each Guarantor waives presentation to, demand of, payment from and protest
to the Company of any of the Company's obligations and also waives notice of
protest for nonpayment. Each Guarantor waives notice of any default under the
Securities or the Company's obligations. The obligations of any Guarantor
hereunder shall not be affected by (a) the failure of any Holder or the Trustee
to assert any claim or demand or to enforce any right or remedy against the
Company or any other Person under this Indenture, the Securities or any other
agreement or otherwise; (b) any extension or renewal of any thereof; (c) any
rescission, waiver, amendment or modification of any of the terms or provisions
of this Indenture, the Securities or any other agreement; (d) the release of any
security held by any Holder or the trustee for the obligations of the Company or
any of them; (e) the failure of any Holder or Trustee to exercise any right or
remedy against any other guarantor of the obligations of the Company; or (fl any
change in the ownership of such Guarantor.
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Each Guarantor further agrees that its Subsidiary Guarantee constitutes a
guarantee of payment, performance and compliance when due (and not a guarantee
of collection) and waives any right to require that any resort be had by any
Holder or the Trustee to any security held for payment of the obligations of the
Company.
Each Guarantor's Subsidiary Guarantee is, to the extent and manner set
forth in Article X, subordinated in right of payment to the prior payment in
full of all Senior Indebtedness of such Guarantor and each such Guarantor's
Subsidiary Guarantee is made subject to such provisions of this Indenture. For
purposes of this Section 11.1, "payment in full," as used with respect to Senior
Indebtedness means the receipt of cash.
The obligations of each Guarantor hereunder shall not be subject to any
reduction, limitation, impairment or termination for any reason, including any
claim of waiver, release, surrender, alteration or compromise, and shall not be
subject to any defense of set-off, counterclaim, recoupment or termination
whatsoever or by reason of the invalidity, illegality or unenforceability of the
obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of each Guarantor herein shall not be discharged or impaired or
otherwise affected by the failure of any Holder or the Trustee to assert any
claim or demand or to enforce any remedy under this Indenture, the Securities or
any other agreement, by any waiver or modification of any thereof, by any
default, failure or delay, willful or otherwise, in the performance of the
obligations, or by any other act or thing or omission or delay to do any other
act or thing which may or might in any manner or to any extent vary the risk of
such Guarantor or would otherwise operate as a discharge of such Guarantor as a
matter of law or equity.
Each Guarantor further agrees that its Subsidiary Guarantee shall continue
to be effective or be reinstated, as the case may be, if at any time payment, or
any part thereof, of principal of or interest on any obligation is rescinded or
must otherwise be restored by any Holder or the Trustee upon the bankruptcy or
reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other right
that any Holder or the Trustee has at law or in equity against any Guarantor by
virtue hereof, upon the failure of the Company to pay the principal of or
interest on any of the Securities when and as the same shall become due, whether
at maturity, by acceleration, by redemption or otherwise, or to perform or
comply with any other monetary obligation of the Company under this Indenture or
the Securities, each Guarantor hereby promises to and will, upon receipt of
written demand by the Trustee, but subject to Article X forthwith pay, or cause
to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of
(i) the unpaid principal amount of such obligations, (ii) accrued and unpaid
interest on such obligations (but only to the extent not prohibited by law) and
(iii) all other monetary obligations of the Company to the Holders and the
Trustee.
Each Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all such obligations. Each Guarantor further
agrees that, as between it, on the one hand, and the Holders and the Trustee, on
the other hand, (x) the maturity of the obligations
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69
guaranteed hereby may be accelerated as provided in Article IV for the purposes
of such Guarantor's Subsidiary Guarantee, notwithstanding any stay, injunction
or other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such obligations as provided in Article IV, such obligations (whether or not due
and payable) shall forthwith become due and payable by the Guarantor for the
purposes of this Section.
Each Guarantor also agrees to pay any and all costs and expenses (including
reasonable counsels' fees and expenses) incurred by the Trustee or any Holder in
enforcing any rights under this section with respect to such Guarantor.
SECTION 11.2 Limitation on Liability. Any term or provision of this
Indenture to the contrary notwithstanding, the maximum, aggregate amount of the
obligations guaranteed hereunder by any Guarantor shall not exceed the maximum
amount that can, after giving effect to all other contingent and fixed
liabilities of such Guarantor be hereby guaranteed without rendering this
Indenture, as it relates to such Guarantor, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
SECTION 11.3 Successors and Assigns. This Article XI shall be binding upon
each Guarantor and its respective successors and assigns and shall enure to the
benefit of the successors and assigns of the Trustee and the Holders and, in the
event of any transfer or assignment of rights by any Holder or the Trustee, the
rights and privileges conferred upon that party in this Indenture and in the
Securities shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions of this Indenture.
SECTION 11.4 No Waiver. Neither a failure nor a delay on the part of either
the Trustee or the Holders in exercising any right, power or privilege under
this Article XI shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege. The rights, remedies and benefits of the trustee and the Holders
herein expressly specified are cumulative and not exclusive of any other rights,
remedies or benefits which either may have under this Article XI at law, in
equity, by statute or otherwise.
SECTION 11.5 Modification. No modification, amendment or waiver of any
provision of this Article XI, nor the consent to any departure by any Guarantor
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Trustee, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given. No notice to
or demand on any Guarantor in any case shall entitle such Guarantor to any other
or further notice or demand in the same, similar or other circumstance.
SECTION 11.6 Release. If at any time shares of the Capital Stock of any
Guarantor shall be sold in a transaction the Net Cash Proceeds of which are
applied in accordance with the provisions of Section 3.12 which results in such
Guarantor no longer constituting a Subsidiary, the Trustee is hereby authorized
and directed to execute and deliver
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a release of such Guarantor from its obligations and liabilities under this
Article XI upon receipt by the Trustee of reasonable evidence of compliance with
the requirements of this Section 11.6.
ARTICLE XII
MISCELLANEOUS PROVISIONS
SECTION 12.1 Incorporators, Officers and Directors of Company Exempt from
Individual Liability. No recourse under or upon any obligation, covenant or
agreement contained in this Indenture, or in any Security, or because of any
indebtedness evidenced thereby, shall be had against any incorporator, as such
or against any past, present or future stockholder, officer or director, as
such, of the Company or of any successor, either directly or through the Company
or any successor, under any rule of law, statute or constitutional provision or
by the enforcement of any assessment or by any legal or equitable proceeding or
otherwise, all such liability being expressly waived and released by the
acceptance of the Securities by the holders thereof and as part of the
consideration for the issue of the Securities.
SECTION 12.2 Provisions of Indenture for the Sole Benefit of Parties and
Securityholders. Nothing in this Indenture or in the Securities, expressed or
implied, shall give or be construed to give to any person, firm or corporation,
other than the parties hereto and their successors and the holders of the
Securities, any legal or equitable right, remedy or claim under this Indenture
or under any covenant or provision herein contained, all such covenants and
provisions being for the sole benefit of the parties hereto and their successors
and of the holders of the Securities, except that the provisions of Article X
hereof are included herein for the benefit of the holders of Senior
Indebtedness.
SECTION 12.3 Successors and Assigns of Company Bound by Indenture. All the
covenants, stipulations, promises and agreements in this Indenture contained by
or in behalf of the Company shall bind its successors and assigns, whether so
expressed or not.
SECTION 12.4 Notices and Demands on Company, Trustee and Securityholders.
Any notice or demand which by any provision of this Indenture is required or
permitted to be given or served by the Trustee or by the holders of Securities
to or on the Company may be given or served by being deposited postage prepaid,
first-class mail (except as otherwise specifically provided herein) addressed
(until another address of the Company is filed by the Company with the Trustee)
to Schein Pharmaceutical, Inc., 100 Campus Drive, Florham Park, NJ 07932, Chief
Financial Officer with a copy to the General Counsel. Any notice, direction,
request or demand by the Company or any Securityholder to or upon the Trustee
shall be deemed to have been sufficiently given or made, for all purposes, if
given or made at the Corporate Trust Office.
Where this Indenture provides for notice to Holders, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed,
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71
first-class postage prepaid, to each Holder entitled thereto, at his last
address as it appears in the Security register. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of or irregularities in regular mail
service, it shall be impracticable to mail notice to the Company and
Securityholders when such notice is required to be given pursuant to any
provision of this Indenture, then any manner of giving such notice as shall be
satisfactory to the Trustee shall be deemed to be a sufficient giving of such
notice.
SECTION 12.5 Officers' Certificates and Opinions of Counsel; Statements to
Be Contained Therein. Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent have been complied with,
except that in the case of any such application or demand as to which the
furnishing of such documents is specifically required by any provision of this
Indenture relating to such particular application or demand, no additional
certificate or opinion need be furnished.
Each certificate or opinion provided for in this Indenture and delivered to
the Trustee with respect to compliance with a condition or covenant provided for
in this Indenture shall include (a) a statement that the person making such
certificate or opinion has read such covenant or condition, (b) a brief
statement as to the nature and scope of the examination or investigation upon
which the statements or opinions contained in such certificate or opinion are
based, (c) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with and (d) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of
or representations by counsel, unless such officer knows that the certificate or
opinion or representations with respect to the matters upon which his
certificate, statement or opinion may be based as aforesaid are erroneous, or in
the exercise of reasonable care should know that the same are erroneous. Any
certificate, statement or opinion of counsel may be based, insofar as it relates
to factual matters and information in the possession of the Company, upon the
certificate, statement or opinion of or representations by an officer or
officers of the Company, unless such counsel knows that the certificate,
statement or opinion or representations with respect to
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72
the matters upon which his certificate, statement or opinion may be based as
aforesaid are erroneous, or in the exercise of reasonable care should know that
the same are erroneous.
Any certificate, statement or opinion of an officer of the Company or of
counsel may be based, insofar as it relates to accounting matters, upon a
certificate or opinion of or representations by an accountant or firm of
accountants in the employ of the Company, unless such officer or counsel, as the
case may be, knows that the certificate or opinion or representations with
respect to the accounting matters upon which his certificate, statement or
opinion may be based as aforesaid are erroneous, or in the exercise of
reasonable care should know that the same are erroneous.
Any certificate or opinion of any independent firm of public accountants
filed with the Trustee shall contain a statement that such firm is independent.
SECTION 12.6 Payments Due on Saturdays; Sundays and Holidays. If the date
of maturity of interest on or principal of the Securities or the date fixed for
redemption of any Security shall not be a Business Day, then payment of interest
or principal need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the date of
maturity or the date fixed for redemption, and no interest shall accrue for the
period after such date.
SECTION 12.7 Conflict of Any Provision of Indenture with Trust Indenture
Act. If and to the extent that any provision of this Indenture limits, qualifies
or conflicts with another provision included in this Indenture by operation of
Sections 310 to 317, inclusive, of the Trust Indenture Act (an "incorporated
provisions), such incorporated provision shall control.
SECTION 12.8 APPLICABLE LAW. THIS INDENTURE AND EACH SECURITY SHALL BE
DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL
PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE, WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 12.8 Counterparts. This Indenture may be executed in any number of
counterparts, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
SECTION 12.9 Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
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ARTICLE XIII
REDEMPTION OF SECURITIES
SECTION 13.1 Right of Optional Redemption; Prices. At any time or from time
to time prior to the date which is two years after the Issue Date the Company
may redeem Securities having a principal amount of up to 35% of the original
aggregate principal amount of the Securities within 60 days following one or
more Public Equity Offerings with the net proceeds of such offerings at a
redemption price equal to 110.0% of the principal amount thereof, together with
the accrued and unpaid interest, if any, to the date of redemption (subject to
the right of holders of record on relevant record dates to receive interest due
on relevant interest payment dates); provided that immediately after giving
effect to each such redemption, at least 65% of the original aggregate principal
amount of the Securities remains outstanding.
SECTION 13.2 Applicability of Article. Redemption of Securities at the
election of the Company or otherwise, as permitted or required by any provision
of this Indenture, shall be made in accordance with such provision and this
Article.
SECTION 13.3 Election to Redeem; Notice to Trustee. The election of the
Company to redeem any Securities pursuant to Section 13.1 shall be evidenced by
a resolution of the Board of Directors. In case of any redemption at the
election of the Company, the Company shall, at least 60 days prior to the
redemption date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such redemption date and of
the principal amount of Securities to be redeemed and shall deliver to the
Trustee such documentation and records as shall enable the Trustee to select the
Securities to be redeemed pursuant to Section 13.4(e).
SECTION 13.4 Notice of Redemption; Partial Redemptions. (a) Notice of
redemption to the holders of Securities to be redeemed as a whole or in part
shall be given by mailing notice of such redemption by first class mail, postage
prepaid, at least 30 days and not more than 60 days prior to the date fixed for
redemption to such holders of Securities at their last addresses as they shall
appear upon the registry books. Any notice which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the holder receives the notice. Failure to give notice by mail, or any defect in
the notice to the holder of any Security designated for redemption as a whole or
in part shall not affect the validity of the proceedings for the redemption of
any other Security.
(b) The notice of redemption to each such holder shall specify the
principal amount of each Security held by such holder to be redeemed, the date
fixed for redemption, the redemption price, the place or places of payment, that
payment will be made upon presentation and surrender of such Securities, that
such redemption is pursuant to the mandatory or optional sinking fund, or both
if such be the case, that interest accrued to the date fixed for redemption will
be paid as specified in said notice and that on and after said date interest
thereon or on the portions thereof to be redeemed will cease to accrue. In case
any Security is to be redeemed in part only the notice of redemption shall state
the portion of
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74
the principal amount thereof to be redeemed and shall state that on and after
the date fixed for redemption, upon surrender of such Security, a new Security
or Securities in principal amount equal to the unredeemed portion thereof will
be issued.
(c) The notice of redemption of Securities to be redeemed at the option of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
(d) At least one business day prior to the redemption date specified in the
notice of redemption given as provided in this Section, the Company will deposit
with the Trustee or with one or more paying agents (or, if the Company is acting
as its own paying agent, set aside, segregate and hold in trust as provided in
Section 3.4) an amount of money sufficient to redeem on the redemption date all
the Securities so called for redemption at the appropriate redemption price,
together with accrued interest to the date fixed for redemption. If less than
all the outstanding Securities are to be redeemed the Company will deliver to
the Trustee at least 60 days prior to the date fixed for redemption an Officers'
Certificate stating the aggregate principal amount of Securities to be redeemed.
(e) The Trustee shall select the Securities or portions thereof, either pro
rata or by such method as the Trustee shall deem fair and appropriate,
securities to be redeemed in whole or in part. Securities may be redeemed in
part in multiples of $1,000 only. The Trustee shall, upon the request of the
Company, promptly notify the Company in writing of the Securities selected for
redemption and, in the case of any Securities selected for partial redemption,
the principal amount thereof to be redeemed. For all purposes of this Indenture,
unless the context otherwise requires, all provisions relating to the redemption
of Securities shall relate, in the case of any Security redeemed or to be
redeemed only in part, to the portion of the principal amount of such Security
which has been or is to be redeemed.
SECTION 13.5 Payment of Securities Called for Redemption. (a) If notice of
redemption has been given as above provided, the Securities or portions of
Securities specified in such notice shall become due and payable on the date and
at the place stated in such notice at the applicable redemption price, together
with interest accrued to the date fixed for redemption, and on and after said
date (unless the Company shall default in the payment of such Securities at the
redemption price, together with interest accrued to said date) interest on the
Securities or portions of Securities so called for redemption shall cease to
accrue and, except as provided in Sections 5.5 and 9.6, such Securities shall
cease from and after the date fixed for redemption to be entitled to any benefit
or security under this Indenture, and the holders thereof shall have no right in
respect of such Securities except the right to receive the redemption price
thereof and unpaid interest to the date fixed for redemption. On presentation
and surrender of such Securities at a place of payment specified in said notice,
said Securities or the specified portions thereof shall be paid and redeemed by
the Company at the applicable redemption price, together with interest accrued
thereon to the date fixed for redemption; provided that any semi-annual payment
of interest becoming due on the date fixed for redemption shall be payable to
the holders of such Securities registered as such on the relevant record date
subject to the terms and provisions of Section 2.4.
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(b) If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid or duly
provided for, bear interest from the date fixed for redemption at the rate borne
by the Security.
(c) Upon presentation of any Security redeemed in part only, the Company
shall execute and the Trustee shall authenticate and deliver to or on the order
of the holder thereof, at the expense of the Company, a new Security or
Securities, of authorized denominations, in principal amount equal to the
unredeemed portion of the Security so presented.
SECTION 13.6 Exclusion of Certain Securities from Eligibility for Selection
for Redemption. Securities shall be excluded from eligibility for selection for
redemption if they are identified by registration and certificate number in a
written statement signed by an authorized officer of the Company and delivered
to the Trustee at least 40 days prior to the last date on which notice of
redemption may be given as being owned of record and beneficially by, and not
pledged or hypothecated by either (a) the Company or (b) an entity specifically
identified in such written statement directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the date and year first above mentioned.
SCHEIN PHARMACEUTICAL, INC.
By:________________________
Title:
[list each Subsidiary]
By:________________________
Name:
Title:
___________________________
as Trustee
By:________________________
Name:
Title:
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77
STATE OF___________)
) :ss
COUNTY OF__________)
On the ____ day of January, 1998 before me personally came
_________________to me known, who, being by me duly sworn, did depose and say
that he is Chief Financial Officer of Schein Pharmaceutical, Inc., a Delaware
corporation; and that he signed his name thereto on behalf of such corporation.
___________________________________
Notary Public in and for The
State of New Jersey
Name:______________________________
My Commission Expires:
___________________________________
<PAGE>
EXHIBIT A
[FORM OF FACE OF INITIAL NOTE]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO.), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT
OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT) (AN "ACCREDITED INSTITUTION") OR (C) IT IS NOT A U.S. PERSON AND
IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION AND (2) AGREES THAT IT
WILL NOT, WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY,
RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO SCHEIN PHARMACEUTICAL,
INC. (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE
144A UNDER THE SECURITIES ACT, (C) TO AN ACCREDITED INSTITUTION THAT, PRIOR TO
SUCH TRANSFER, FURNISHES (OR
<PAGE>
HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (E)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT. IN CONNECTION WITH ANY TRANSFER OF THIS
SECURITY WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE HEREOF, IF THE PROPOSED
TRANSFEREE IS AN ACCREDITED INSTITUTION, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES
ACT.
CUSIP NO.
No. $
SCHEIN PHARMACEUTICAL, INC.
Senior Subordinated Conversion Notes due 20__
Schein Pharmaceutical, Inc., a Delaware corporation (the "Company"), for
value received hereby promises to pay to or registered assigns the principal sum
of ___________ Dollars on [five years from the date of issue], in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, and to pay interest at
a rate per annum equal to the greatest of (i) the Treasury Rate (as defined
below) on the date of issuance of this Security plus 6.00% and (ii) the Bear
Stearns High Yield Single B Index Rate on the date of issuance of this Security
plus 1.75%; for purposes hereof, the "Treasury Rate" means (x) the rate borne by
direct obligations of the United States maturing on the fifth anniversary of the
date of issuance of this Security or (y) if there are no such obligations, the
rate determined by linear interpolation between the rates borne by the two
direct obligations of the United States maturing closest to, but straddling the
fifth anniversary of the date of issuance of this Security, in each case as
published by the Board of Governors.
The Company shall pay interest semiannually on February 1 and August 1, of
each year, commencing with August 1, 199_. Interest on the Securities will
accrue from the most recent interest payment date to which interest on the
Securities has been paid or duly provided for, or if no interest has been paid
or duly provided for on the Securities, from [date of issue], until payment of
said principal sum has been made or duly provided for. Notwithstanding the
foregoing, if the date hereof is after January 15 or July 15, as the case
A-2
<PAGE>
may be, and before the following February 1 or August 1, this Security shall
bear interest from such February 1 or August 1; provided that if the Company
shall default in the payment of interest due on such February 1 or August 1,
then this Security shall bear interest from the next preceding February 1 or
August 1 to which interest on the Securities has been paid or duly provided for,
or, if no interest has been paid or duly provided for on the Securities since
the original issue date of this Security. The interest so payable on any
February 1 or August 1 will, except as otherwise provided in the Indenture
referred to on the reverse hereof, be paid to the person in whose name this
Security is registered at the close of business on the January 15 or July 15
preceding such February 1 or August 1, whether or not such day is a business
day; provided that interest may be paid, at the option of the Company, by
mailing a check therefor payable to the registered holder entitled thereto at
his last address as it appears on the Security register.
Interest on this Security will be calculated on the basis of a 360-day
year, consisting of twelve 30-day months.
Reference is made to the further provisions set forth on the reverse
hereof. Such further provisions shall for all purposes have the same effect as
though fully set forth at this place.
This Security shall not be valid or obligatory until the certificate of
authentication hereon shall have been duly signed by the Trustee acting under
the Indenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
SCHEIN PHARMACEUTICAL, INC.
[Seal]
By:________________________________
________________________________
A-3
<PAGE>
[FORM OF REVERSE OF INITIAL NOTE]
SCHEIN PHARMACEUTICAL, INC.
Senior Subordinated Conversion Notes due 2003
This Security is one of a duly authorized issue of debt securities of the
Company, limited to the aggregate principal amount of $103,500,000 (except as
otherwise provided in the Indenture mentioned below), issued or to be issued
pursuant to an Indenture dated as of ________________ , 199_ (the "Indenture"),
duly executed and delivered by the Company and the Guarantors to the Trustee
(herein called the "Trustee"). The terms of the Securities include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as in effect on the date of the Indenture (the "Trust
Indenture Act"). Capitalized terms used herein and not defined have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such terms
and Securityholders are referred to the Indenture and the Trust Indenture Act
for a statement of those terms. The terms of the Indenture shall govern any
inconsistencies between the Indenture and the Securities.
This Security is one of the Initial Notes referred to in the Indenture. The
Securities include the Initial Notes and the Conversion Notes issued in exchange
for the Initial Notes pursuant to the Indenture and the Registration Rights
Agreement. The Initial Notes and the Conversion Notes are treated as a single
class of securities under the Indenture.
Each Guarantor (on a senior subordinated basis) has jointly and severally
guaranteed, pursuant to Article XI of the Indenture, the due and punctual
payment of the principal of, premium (if any) and interest on the Securities and
all other amounts payable by the Company under the Indenture and the Securities
when and as the same shall be due and payable, whether at maturity, by
acceleration or otherwise, according to the terms of the Securities and the
Indenture.
The Securities are subordinated to Senior Indebtedness. To the extent
provided in the Indenture, Senior Indebtedness must be paid before the
Securities may be paid. The Company, the Guarantors and each Securityholder by
accepting a Security agree to the subordination provisions contained in Article
X of the Indenture and authorize the Trustee to give them effect and appoint the
Trustee as attorney-in-fact for such purpose.
The Securities will bear interest at the rate per annum set forth on the
face of this Security.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all the Securities may be declared
due and payable, in the manner and with the effect, and subject to the
conditions, provided in the Indenture. The Indenture provides that in certain
events such declaration and its consequences may be waived by the holders of a
majority in aggregate principal amount of the Securities then outstanding and
that, prior to any such declaration, such holders may waive any past default
under the Indenture and its consequences except a default in the payment of
principal of or premium, if any, or interest on any of the Securities. Any such
consent or waiver by the holder of this
A-4
<PAGE>
Security (unless revoked as provided in the Indenture) shall be conclusive and
binding upon such holder and upon all future holders and owners of this Security
and any Security which may be issued in exchange or substitution herefor,
whether or not any notation thereof is made upon this Security or such other
Securities.
Subject to certain exceptions set forth in the Indenture, the Indenture or
the Securities may be amended with the written consent of the Holders of at
least a majority in outstanding principal amount of the Securities; provided
that no such amendment shall (a) reduce the amount of Securities whose Holders
must consent to an amendment; (b) reduce the rate of or extend the time for
payment of interest on any Security; (c) reduce the principal of or extend the
Stated Maturity of any Security; (d) reduce the premium payable upon the
redemption or repurchase of any Security or change the time at which any
Security may or shall be redeemed or repurchased in accordance with this
Indenture; (e) make any Security payable in money other than that stated in the
Security; (f) modify or affect in any manner adverse to the Holders the terms
and conditions of the obligation of the Company for the due and punctual payment
of the principal of or interest on Securities; or (g) make any change in Section
4.4 or 4.7 of the Indenture or the second sentence of Section 7.2 of the
Indenture, without the consent of each holder of Securities affected by such
amendment.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligations of the Company or the
Guarantors, which are absolute and unconditional, to pay the principal of and
premium, if any, and interest on this Security at the place, times, and rate,
and in the currency, herein prescribed.
The Securities are issuable only as registered Securities without coupons
in denominations of $1,000 and any multiple of $1,000.
The Securities may be exchanged for a like aggregate principal amount of
Securities of other authorized denominations in accordance with and subject to
the limitations provided in the Indenture.
Upon due presentment for registration of transfer of this Security, a new
Security or Securities of authorized denominations, for a like aggregate
principal amount, will be issued to the transferee as provided in the Indenture.
No service charge shall be made for any such transfer, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto.
At any time or from time to time prior to the date which is two years after
the Issue Date the Company may redeem Securities having a principal amount of up
to 35% of the original aggregate principal amount of the Securities within 60
days following one or more Public Equity Offerings with the net proceeds of such
offerings at a redemption price equal to 110.0% of the principal amount thereof,
together with the accrued and unpaid interest, if any, to the date of redemption
(subject to the right of Holders of record on relevant record dates to receive
interest due on relevant interest payment dates); provided that immediately
after giving effect to each such redemption, at least 65% of the original
aggregate principal amount of the Securities remains outstanding.
A-5
<PAGE>
Subject to payment by the Company of a sum sufficient to pay the amount due
on redemption, interest on this Security (or portion hereof if this Security is
redeemed in part) shall cease to accrue upon the date duly fixed for redemption
of this Security (or portion hereof if this Security is redeemed in part).
The election of the Company to redeem any Securities pursuant to Section
13.1 of the Indenture shall be evidenced by a resolution of the Board of
Directors. In case of any redemption at the election of the Company, the Company
shall, at least 60 days prior to the redemption date fixed by the Company
(unless a shorter notice shall be satisfactory to the Trustee), notify the
Trustee of such redemption date and of the principal amount of Securities to be
redeemed and shall deliver to the Trustee such documentation and records as
shall enable the Trustee to select the Securities to be redeemed pursuant to
Section 13.4(e) of the Indenture.
In the event of a Change of Control, the Company will make a Change of
Control Offer to purchase all of the Securities outstanding at a price equal to
101% of the principal amount of the Securities to be repurchased plus accrued
and unpaid interest thereon to the date of purchase, pursuant to an offer made
in conformity with the procedures set forth in Section 3.15 of the Indenture.
In the event of certain Asset Dispositions, subject to certain conditions,
the Company will make an Offer to purchase an aggregate principal amount of
Securities outstanding equal to the amount of Net Available Cash at a price
equal to 100% of the principal amount of the Securities to be repurchased plus
accrued and unpaid interest thereon to the date of purchase.
The Company, the Trustee, and any authorized agent of the Company or the
Trustee may deem and treat the registered Holder hereof as the absolute owner of
this Security (whether or not this Security shall be overdue and notwithstanding
any notation of ownership or other writing hereon made by anyone other than the
Company or the Trustee or any authorized agent of the Company or the Trustee),
for the purpose of receiving payment of, or on account of, the principal hereof
and premium, if any, and, subject to the provisions on the face hereof, interest
hereon and for all other purposes, and neither the Company nor the Trustee nor
any authorized agent of the Company or the Trustee shall be affected by any
notice to the contrary. So long as the Depository, or its nominee, is the
registered holder of the Restricted Global Security for the Initial Notes, the
Depository, or its nominee, will be considered the absolute owner of the Initial
Notes represented by the Restricted Global Security for all purposes under the
Indenture and this Security. Owners of beneficial interests in the Restricted
Global Security will not be considered the owners or Holders of any Securities.
The Securities are subject to defeasance as described in the Indenture.
No recourse shall be had for the payment of the principal of and premium,
if any, or the interest on this Security, for any claim based hereon, or
otherwise in respect hereof, or based on or in respect of the Indenture or any
indenture supplemental thereto, against any incorporator, shareholder, officer
or director, as such, past, present or future, of
A-6
<PAGE>
the Company or of any successor corporation, either directly or through the
Company or any successor corporation, whether by virtue of any constitution,
statute or rule of law or by the enforcement of any assessment or penalty or
otherwise, all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
A-7
<PAGE>
[FORM OF NOTATION ON SECURITY RELATING TO GUARANTEES]
Each Guarantor has unconditionally and irrevocably guaranteed, to the
extent set forth in the Indenture and subject to the provisions in the
Indenture, on a senior subordinated basis to each Holder and to the Trustee and
its successors and assigns all obligations of the Company under this Indenture
and the Securities. Each Guarantor has further agreed that the obligations of
the Company may be extended or renewed, in whole or in part, without notice or
further assent from such Guarantor, and that such Guarantor will remain bound
under Article XI of the Indenture notwithstanding any extension or renewal of
any such obligation.
The obligations of the Guarantors to the holders of Securities and to the
Trustee pursuant to the Subsidiary Guarantees and the Indenture are expressly
set forth in Article XI of the Indenture and reference is hereby made to the
Indenture for the precise terms of the Subsidiary Guarantees.
[LIST OF SUBSIDIARIES]
By:_______________________________
Name:
Title:
Attest:
By:________________________
Name:
Title:
A-8
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the within-mentioned Indenture.
Dated:
___________________________________
as Trustee
By:________________________________
Authorized Signatory
A-9
<PAGE>
[ASSIGNMENT FORM]
For value received____________________________________________________
hereby sells, assigns and transfers unto
____________________________________________________________
____________________________________________________________
Please insert social security or other identifying number of
assignee
Please print or typewrite name and address including zip code of
assignee:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
the within Security and does hereby irrevocably constitute and appoint
_____________________________________ Attorney to transfer the Security on the
books of the Company with full power of substitution in the premises.
Date:____________ Your Signature:_____________________________________
(Sign exactly as name appears
on the other side of this Security)
A-10
<PAGE>
EXHIBIT B
[FORM OF FACE OF CONVERSION NOTE]
CUSIP NO.
No. $
SCHEIN PHARMACEUTICAL, INC.
Senior Subordinated Conversion Notes due 20__
Schein Pharmaceutical, Inc., a Delaware corporation (the "Company"), for
value received hereby promises to pay to or registered assigns the principal sum
of Dollars on [five years from the date of issue], in such coin
or currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, and to pay interest at
a rate per annum equal to the greatest of (i) the Treasury Rate (as defined
below) on the date of issuance of this Security plus 6.00% and (ii) the Bear
Stearns High Yield Single B Index Rate on the date of issuance of this Security
plus 1.75%; for purposes hereof, the "Treasury Rate" means (x) the rate borne by
direct obligations of the United States maturing on the fifth anniversary of the
date of issuance of this Security or (y) if there are no such obligations, the
rate determined by linear interpolation between the rates borne by the two
direct obligations of the United States maturing closest to, but straddling the
fifth anniversary of the date of issuance of this Security, in each case as
published by the Board of Governors of the Federal Reserve System.
The Company shall pay interest semiannually on February 1 and August 1, of
each year, commencing with August 1, 199_. Interest on the Securities will
accrue from the most recent interest payment date to which interest on the
Securities has been paid or duly provided for, or if no interest has been paid
or duly provided for on the Securities, from [date of issue], until payment of
said principal sum has been made or duly provided for. Notwithstanding the
foregoing, if the date hereof is after January 15 or July 15, as the case may
be, and before the following February 1 or August 1, this Security shall bear
interest from such February 1 or August 1; provided that if the Company shall
default in the payment of interest due on such February 1 or August 1, then this
Security shall bear interest from the next preceding February l or August 1 to
which interest on the Securities has been paid or duly provided for, or, if no
interest has been paid or duly provided for on the Securities since the original
issue date of this Security. The interest so payable on any February l or August
1 will, except as otherwise provided in the Indenture referred to on the reverse
hereof, be paid to the person in whose name this Security is registered at the
close of business on the January 15 or July 15 preceding such February 1 or
August 1, whether or not such day is a business day; provided that interest may
be paid, at the option of the Company, by mailing a check therefor payable to
the registered holder entitled thereto at his last address as it appears on the
Security register.
B-1
<PAGE>
Interest on this Security will be calculated on the basis of a 360-day
year, consisting of twelve 30-day months.
Reference is made to the further provisions set forth on the reverse
hereof. Such further provisions shall for all purposes have the same effect as
though fully set forth at this place.
This Security shall not be valid or obligatory until the certificate of
authentication hereon shall have been duly signed by the Trustee acting under
the Indenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
SCHEIN PHARMACEUTICAL, INC.
[Seal]
By:________________________________
___________________________________
B-2
<PAGE>
[FORM OF REVERSE OF CONVERSION NOTE]
SCHEIN PHARMACEUTICAL, INC.
___% Senior Subordinated Conversion Notes due 2003
This Security is one of a duly authorized issue of debt securities of the
Company, limited to the aggregate principal amount of $103,500,000 (except as
otherwise provided in the Indenture mentioned below), issued or to be issued
pursuant to an Indenture dated as of ______, 199_ (the "Indenture"), duly
executed and delivered by the Company and the Guarantors to ____________,
Trustee (herein called the "Trustee"). The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as in effect on the date of the Indenture (the
"Trust Indenture Act"). Capitalized terms used herein and not defined have the
meanings ascribed thereto in the Indenture. The Securities are subject to all
such terms and Securityholders are referred to the Indenture and the Trust
Indenture Act for a statement of those terms. The terms of the Indenture shall
govern any inconsistencies between the Indenture and the Securities.
This Security is one of the Conversion Notes referred to in the Indenture.
Each Guarantor (on a senior subordinated basis) has jointly and severally
guaranteed, pursuant to Article XI of the Indenture, the due and punctual
payment of the principal of, premium (if any) and interest on the Securities and
all other amounts payable by the Company under the Indenture and the Securities
when and as the same shall be due and payable, whether at maturity, by
acceleration or otherwise, according to the terms of the Securities and the
Indenture.
The Securities are subordinated to Senior Indebtedness. To the extent
provided in the Indenture, Senior Indebtedness must be paid before the
Securities may be paid. The Company, the Guarantors and each Securityholder by
accepting a Security agree to the subordination provisions contained in Article
X of the Indenture and authorize the Trustee to give them effect and appoint the
Trustee as attorney-in-fact for such purpose.
The Securities will bear interest at the rate per annum set forth on the
face of this Security.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all the Securities may be declared
due and payable, in the manner and with the effect, and subject to the
conditions, provided in the Indenture. The Indenture provides that in certain
events such declaration and its consequences may be waived by the holders of a
majority in aggregate principal amount of the Securities then outstanding and
that, prior to any such declaration, such holders may waive any past default
under the Indenture and its consequences except a default in the payment of
principal of or premium, if any, or interest on any of the Securities. Any such
consent or waiver by the holder of this
B-3
<PAGE>
Security (unless revoked as provided in the Indenture) shall be conclusive and
binding upon such holder and upon all future holders and owners of this Security
and any Security which may be issued in exchange or substitution herefor,
whether or not any notation thereof is made upon this Security or such other
Securities.
Subject to certain exceptions set forth in the Indenture, the Indenture or
the Securities may be amended with the written consent of the Holders of at
least a majority in outstanding principal amount of the Securities; provided
that no such amendment shall (a) reduce the amount of Securities whose Holders
must consent to an amendment; (b) reduce the rate of or extend the time for
payment of interest on any Security; (c) reduce the principal of or extend the
Stated Maturity of any Security; (d) reduce the premium payable upon the
redemption or repurchase of any Security or change the time at which any
Security may or shall be redeemed or repurchased in accordance with this
Indenture; (e) make any Security payable in money other than that stated in the
Security; (f) modify or affect in any manner adverse to the Holders the terms
and conditions of the obligation of the Company for the due and punctual payment
of the principal of or interest on Securities; or (g) make any change in Section
4.4 or 4.7 of the Indenture or the second sentence of Section 7.2 of the
Indenture, without the consent of each holder of Securities affected by such
amendment.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligations of the Company or the
Guarantors, which are absolute and unconditional, to pay the principal of and
premium, if any, and interest on this Security at the place, times, and rate,
and in the currency, herein prescribed.
The Securities are issuable only as registered Securities without coupons
in denominations of $1,000 and any multiple of $1,000.
The Securities may be exchanged for a like aggregate principal amount of
Securities of other authorized denominations in accordance with and subject to
the limitations provided in the Indenture.
Upon due presentment for registration of transfer of this Security, a new
Security or Securities of authorized denominations, for a like aggregate
principal amount, will be issued to the transferee as provided in the Indenture.
No service charge shall be made for any such transfer, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto.
At any time or from time to time prior to the date which is two years from
the Issue Date the Company may redeem Securities having a principal amount of up
to 35% of the original aggregate principal amount of the Securities within 60
days following one or more Public Equity Offerings with the net proceeds of such
offerings at a redemption price equal to 110.0% of the principal amount thereof,
together with the accrued and unpaid interest, if any, to the date of redemption
(subject to the right of holders of record on relevant record dates to receive
interest due on relevant interest payment dates); provided that
B-4
<PAGE>
immediately after giving effect to each such redemption, at least 65% of the
original aggregate principal amount of the Securities remains outstanding.
Subject to payment by the Company of a sum sufficient to pay the amount due
on redemption, interest on this Security (or portion hereof if this Security is
redeemed in part) shall cease to accrue upon the date duly fixed for redemption
of this Security (or portion hereof if this Security is redeemed in part).
The election of the Company to redeem any Securities pursuant to Section
13.1 of the Indenture shall be evidenced by a resolution of the Board of
Directors. In case of any redemption at the election of the Company, the Company
shall, at least 60 days prior to the redemption date fixed by the Company
(unless a shorter notice shall be satisfactory to the Trustee), notify the
Trustee of such redemption date and of the principal amount of Securities to be
redeemed and shall deliver to the Trustee such documentation and records as
shall enable the Trustee to select the Securities to be redeemed pursuant to
Section 13.4(e) of the Indenture.
In the event of a Change of Control, the Company will make a Change of
Control Offer to purchase all of the Securities outstanding at a price equal to
101% of the principal amount of the Securities to be repurchased plus accrued
and unpaid interest thereon to the date of purchase, pursuant to an offer made
in conformity with the procedures set forth in Section 3.15 of the Indenture.
In the event of certain Asset Dispositions, subject to certain conditions,
the Company will make an Offer to purchase an aggregate principal amount of
Securities outstanding equal to the amount of Net Available Cash at a price
equal to 100% of the principal amount of the Securities to be repurchased plus
accrued and unpaid interest thereon to the date of purchase.
The Company, the Trustee, and any authorized agent of the Company or the
Trustee may deem and treat the registered Holder hereof as the absolute owner of
this Security (whether or not this Security shall be overdue and notwithstanding
any notation of ownership or other writing hereon made by anyone other than the
Company or the Trustee or any authorized agent of the Company or the Trustee),
for the purpose of receiving payment of, or on account of, the principal hereof
and premium, if any, and, subject to the provisions on the face hereof, interest
hereon and for all other purposes, and neither the Company nor the Trustee nor
any authorized agent of the Company or the Trustee shall be affected by any
notice to the contrary.
The Securities are subject to defeasance as described in the Indenture.
No recourse shall be had for the payment of the principal of and premium,
if any, or the interest on this Security, for any claim based hereon, or
otherwise in respect hereof, or based on or in respect of the Indenture or any
indenture supplemental thereto,
B-5
<PAGE>
against any incorporator, shareholder, officer or director, as such, past,
present or future, of the Company or of any successor corporation, either
directly or through the Company or any successor corporation, whether by virtue
of any constitution, statute or rule of law or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issue hereof, expressly waived
and released.
B-6
<PAGE>
[FORM OF NOTATION ON SECURITY RELATING TO GUARANTEES]
Each Guarantor has unconditionally and irrevocably guaranteed, to the
extent set forth in the Indenture and subject to the provisions in the
Indenture, on a senior subordinated basis to each Holder and to the Trustee and
its successors and assigns all obligations of the Company under this Indenture
and the Securities. Each Guarantor has further agreed that the obligations of
the Company may be extended or renewed, in whole or in part, without notice or
further assent from such Guarantor, and that such Guarantor will remain bound
under Article XI of the Indenture notwithstanding any extension or renewal of
any such obligation.
The obligations of the Guarantors to the holders of Securities and to the
Trustee pursuant to the Subsidiary Guarantees and the Indenture are expressly
set forth in Article XI of the Indenture and reference is hereby made to the
Indenture for the precise terms of the Subsidiary Guarantees.
[list of subsidiary guarantors]
By:________________________________
Name:
Title:
Attest:
By:_________________________
Name:
Title:
B-7
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the within-mentioned Indenture.
Dated:
___________________________________
as Trustee
By:________________________________
Authorized Signatory
B-8
<PAGE>
[ASSIGNMENT FORM]
For value received____________________________________________________
hereby sells, assigns and transfers unto
____________________________________________________________
____________________________________________________________
Please insert social security or other identifying number of
assignee
Please print or typewrite name and address including zip code of
assignee:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
the within Security and does hereby irrevocably constitute and appoint
_____________________________________ Attorney to transfer the Security on the
books of the Company with full power of substitution in the premises.
Date:____________ Your Signature:_____________________________________
(Sign exactly as name appears
on the other side of this Security)
<PAGE>
EXHIBIT C
FORM OF TRANSFEROR CERTIFICATE FOR
TRANSFER FROM RESTRICTED GLOBAL SECURITY OR
RESTRICTED SECURITY TO RESTRICTED SECURITY
(Transfers Pursuant to ss. 2.5(b)(ii)
or ss. 2.5(b)(iv) of the Indenture)
_____,.199_
[Trustee]
[Address]
Re: Schein Pharmaceutical, Inc.
Senior Subordinated Conversion
Notes due 2003 (the "Securities")
Reference is hereby made to the Indenture dated as of _________, 199_ (the
"Indenture") among Schein Pharmaceutical, Inc., the Guarantors and
___________________, as Trustee. Capitalized terms used but not defined herein
shall have the meanings given them in the Indenture.
This letter relates to $ ___________ aggregate principal amount of
Securities which are held [in the form of the Restricted Global Security (CUSIP
No.______) with the Depository]** in the name of [name of transferor] (the
"Transferor") to effect the transfer of the Securities.
In connection with such request, and in respect of such Securities, the
Transferor does hereby certify that such Securities are being transferred in
accordance with (i) the transfer restrictions set forth in the Securities, (ii)
to a transferee that the Transferor reasonably believes (a) is an Institutional
Accredited Investor and is acquiring Securities for
- ----------
** Insert and modify, if appropriate.
<PAGE>
its own account or for one or more accounts as to which the transferee exercises
sole investment discretion and (b) is not a pharmaceutical company or an
Affiliate of a pharmaceutical company, and (iii) and in accordance with
applicable securities laws of any state of the United States or any other
jurisdiction.
[Name of Transferor]
By:________________________________
Name:______________________________
Title:_____________________________
Dated:
cc: Schein Pharmaceutical, Inc.
C-2
<PAGE>
EXHIBIT D
FORM OF ACCREDITED INVESTOR TRANSFEREE CERTIFICATE
(Transfers Pursuant to ss. 2.5(b)(ii)
and ss. 2.5(b)(iv) of the Indenture)
_______,. 199_
[Trustee]
[Address]
Re: Schein Pharmaceutical, Inc.
Senior Subordinated Conversion
Notes due 2003 (the "Securities")
Reference is hereby made to the Indenture dated as of ____________ __, 199_
(the "Indenture") among Schein Pharmaceutical, Inc., the Guarantors and
________________________, as Trustee. Capitalized terms used but not defined
herein shall have the meanings given them in the Indenture.
This letter relates to $ ________ aggregate principal amount of Securities
which are held [in the form of the Global Security (CUSIP No. ) with the
Depository]* in the name of [name of transferor] (the "Transferor") to effect
the transfer of the Securities to the undersigned.
In connection with such request, and in respect of such Securities, we
confirm that:
1. We understand that the offer and sale of the Securities have not been
registered under the Securities Act, and that the Securities may not be offered
or sold within the United States or to or for the account or benefit of U.S.
persons, except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Securities, we will do so only (A) to the
Company or any subsidiary thereof, (B) in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as defined therein), (C) to
an institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes (or has furnished on its behalf by a domestic broker-dealer)
to the Trustee (as defined in the Indenture relating to the Securities) a signed
letter containing certain representations and agreements relating to
- ----------
* Insert and modify, if appropriate.
D-1
<PAGE>
the restrictions on transfer of the Securities (the form of which letter can be
obtained from the Trustee), (D) outside the United States in accordance with
Regulation S under the Securities Act (if available), (E) pursuant to the
exemption from registration provided by Rule 144 under the Securities Act (if
available), or (F) pursuant to an effective registration statement under the
Securities Act.
2. We understand that, on any proposed resale of Securities, we will be
required to furnish to the Trustee and the Company such certification, legal
opinions and other information as the Trustee and the Company may reasonably
require to confirm that the proposed sale complies with the foregoing
restrictions.
3. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Securities, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or their investment, as the case may be.
4. We are a corporation, partnership or other entity or person having such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of an investment in the Securities, and we are
(or any account for which we are purchasing is) an Institutional Accredited
Investor, able to bear the economic risk of investment in the Securities.
5. We are acquiring the Securities for our own account (or for accounts as
to which we exercise sole investment discretion and have authority to make, and
do make, the statements contained in this letter) and not with a view to any
distribution of the Securities, subject, nevertheless, to the understanding that
the disposition of our property shall at all times be and remain within our
control.
6. We understand that (a) the Securities will be delivered to us in
registered form only and that the certificate delivered to us in respect of the
Securities will bear a legend substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY
ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT), OR (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
D-2
<PAGE>
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED
INSTITUTION"), OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION AND (2) AGREES THAT IT WILL NOT, WITHIN
THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, RESELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO SCHEIN PHARMACEUTICAL, INC.
(THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN
ACCREDITED INSTITUTION THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS
FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (E)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT. IN CONNECTION WITH ANY TRANSFER OF THIS
SECURITY WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE HEREOF, IF THE
PROPOSED TRANSFEREE IS AN ACCREDITED INSTITUTION, THE HOLDER MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO
THEM BY REGULATION S UNDER THE SECURITIES ACT.
and (b) such certificates will be reissued without the foregoing legend
only in the event of a disposition of the Securities in accordance with the
provisions of Section 2.5 of the Indenture.
7. We agree that we will give to each person to whom we transfer Securities
notice of any restrictions on transfer of Securities.
8. We acknowledge that the Trustee will not be required to accept for
registration of transfer any Securities acquired by us, except upon presentation
of
D-3
<PAGE>
evidence satisfactory to the Company and the Trustee that the restrictions set
forth herein have been complied with.
9. We acknowledge that the Company, the Trustee and others will rely upon
the truth and accuracy of the foregoing acknowledgments, representations or
agreements and agree that if any of the acknowledgments, representations or
agreements deemed to have been made by our purchase of Notes are no longer
accurate, we shall promptly notify the Company and the Trustee.
The Company and the Trustee are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
[Name of Purchaser]
By:________________________________
Name:______________________________
Title:_____________________________
Dated:
cc: Schein Pharmaceutical, Inc.
D-4
<PAGE>
EXHIBIT E
FORM OF LEGAL OPINION ON TRANSFER
_________, 199[ ]
[Trustee]
[Address]
Re: Schein Pharmaceutical, Inc.
Senior Subordinated Conversion
Notes due 2003
Ladies and Gentlemen:
This opinion is being furnished to you in connection with the sale by
__________ (the "Transferor") to __________ (the "Purchaser") of $___________
aggregate principal amount of __________ Senior Subordinated Conversion Notes
due 2003 of Schein Pharmaceutical, Inc. (the "Securities").
We have examined such documents and records as we have deemed appropriate.
In our examination of the foregoing, we have assumed the authenticity of all
documents, the genuineness of all signatures and the due authorization,
execution and delivery of the aforementioned by each of the parties thereto. We
have further assumed the accuracy of the representations contained in the
documents set forth above made by the parties executing such documents. We have
also assumed that the sale of the Securities to the Transferor was exempt from
the registration and prospectus delivery requirements of the Securities Act of
1933, as amended (the "Securities Act").
Based on the foregoing, we are of the opinion that the sale to the
Purchaser of the Securities does not require registration of such Securities
under the Securities Act.
Very truly yours,
E-1
<PAGE>
EXHIBIT F
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
FROM RESTRICTED SECURITY TO RESTRICTED GLOBAL SECURITY
(Transfers Pursuant to ss. 2.5(b)(iii) of the Indenture)
[Trustee]
[Address]
Re: Schein Pharmaceutical, Inc.
Senior Subordinated Conversion
Notes due 2003 (the "Securities")
Reference is hereby made to the Indenture dated as of ___________ __, 199_
(the "Indenture") among Schein Pharmaceutical, Inc., the Guarantors and
___________________, as Trustee. Capitalized terms used but not defined herein
shall have the meanings given them in the Indenture.
This letter relates to $ ____________ aggregate principal amount of
Securities which are held in the name of [name of transferor] (the "Transferor")
to effect the transfer of the Securities in exchange for an equivalent
beneficial interest in the Restricted Global Security.
In connection with such request, and in respect of such Securities, the
Transferor does hereby certify that such Securities are being transferred in
accordance with (i) the transfer restrictions set forth in the Securities and
(ii) Rule 144A under the Securities Act to a transferee that the Transferor
reasonably believes is purchasing the Securities for its own account or an
account with respect to which the transferee and any such account is a Qualified
Institutional Buyer in a transaction meeting the requirements of Rule 144A and
in accordance with any applicable securities law of any state of the United
States.
[Name of Transferor]
By:___________________________
Name:_________________________
Title:________________________
Dated:
cc: Schein Pharmaceutical, Inc.
F-1
<PAGE>
EXHIBIT G
[ASSIGNMENT FORM]
For value received____________________________________________________
hereby sells, assigns and transfers unto
____________________________________________________________
____________________________________________________________
Please insert social security or other identifying number of
assignee
Please print or typewrite name and address including zip code of
assignee:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
the within Security and does hereby irrevocably constitute and appoint
_____________________________________ Attorney to transfer the Security on the
books of the Company with full power of substitution in the premises.
Date:____________ Your Signature:_____________________________________
(Sign exactly as name appears
on the other side of this Security)
G-1
<PAGE>
SCHEDULE 1.1
PERMITTED HOLDERS
G-2
<PAGE>
SCHEDULE 1.2
CORPORATE TRUST OFFICE
G-3
<PAGE>
SCHEDULE 1.3
DESIGNATED SUBSIDIARIES
G-4
<PAGE>
Exhibit D
to the Loan Agreement
Conversion Notes Registration Rights Agreement
SCHEIN PHARMACEUTICAL, INC.
and
SOCIETE GENERALE
Dated as of December 20, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Securities Subject to This Agreement ................................ 1
(a) Definitions ..................................................... 1
(b) Registrable Securities .......................................... 2
2. Registration ........................................................ 2
(a) Conversion Notes Shelf Registration ............................. 2
(b) Registered Exchange Offer. ...................................... 4
3. Alternative Conversion Notes Shelf Registration ..................... 6
4. Holdback Agreements ................................................. 8
(a) Restrictions on Public Sale by Holder of Registrable Securities . 8
(b) Restrictions on Public Sale by the Borrower and Others .......... 8
5. Registration Procedures ............................................. 9
6. Registration Expenses ............................................... 14
7. Indemnification; Contribution ....................................... 15
(a) Indemnification by the Borrower ................................. 15
(b) Indemnification by Holder of Registrable Securities ............. 16
(c) Conduct of Indemnification Proceedings .......................... 17
(d) Contribution .................................................... 19
8. Additional Interest Under Certain Circumstances; Remedies. .......... 21
9. Participation in Underwritten Registrations ......................... 22
10. Rule 144 ............................................................ 23
11. Miscellaneous ....................................................... 23
(a) No Inconsistent Agreements ...................................... 23
(b) Remedies ........................................................ 23
(c) Amendments and Waivers .......................................... 24
(d) Notices ......................................................... 24
(e) Successors and Assigns .......................................... 25
(f) Headings ........................................................ 25
(g) Governing Law ................................................... 25
(h) Severability .................................................... 25
(i) Entire Agreement ................................................ 25
</TABLE>
i
<PAGE>
CONVERSION NOTES REGISTRATION RIGHTS AGREEMENT
This Conversion Notes Registration Rights Agreement (the "Agreement") dated
as of December 20, 1996, is made and entered into by Schein Pharmaceutical,
Inc., a Delaware corporation (together with its successors and assigns, the
"Borrower"), for the benefit of the holders of up to $103,500,000 in principal
amount of Senior Subordinated Conversion Notes (the "Conversion Notes") which
may be issued in connection with certain loans (the "Loans"), which shall be
made to the Borrower pursuant to the Senior Subordinated Loan Agreement (the
"Loan Agreement"), dated as of the date hereof, by and among the Borrower, the
financial institutions party thereto (the "Lenders") and Societe Generate, as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent"). Holders of the Loans and the Conversion Notes, once issued, whether
they are original Lenders of the Loans or original holders of the Conversion
Notes or transferees of such Lenders or original holders, are herein referred to
collectively as the "Holders" and individually as a "Holder." To induce the
Lenders to make the Loans, the Borrower has agreed to provide, as set forth in
this Agreement, registration rights with respect to the Conversion Notes.
Capitalized terms used herein without definition shall have the meanings set
forth in the Loan Agreement.
1. Securities Subject to This Agreement
(a) Definitions.
"Broker-Dealer" means a broker or dealer registered under the Exchange Act.
"Conversion Date" means the date of issuance of the Conversion Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute.
"Holder" means a holder of a Loan or a Registrable Security.
<PAGE>
2
"Registrable Securities" means the Conversion Notes.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
"Selling Holder" means a Holder who is selling Registrable Securities
pursuant to a registration statement.
"Underwriter" means a securities dealer that purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
(b) Registrable Securities. Any Registrable Security will cease to be a
Registrable Security when (i) a registration statement covering such Registrable
Security has been declared effective by the Securities and Exchange Commission
(the "Commission") and it has been disposed of pursuant to such effective
registration statement or (ii) it is sold under circumstances in which all of
the applicable conditions of Rule 144 (or any similar provisions then in force)
under the Securities Act are met.
2. Registration.
(a) Conversion Notes Shelf Registration. (i) The Borrower shall, not later
than December 1, 1997 (60 days prior to the issuance of the Conversion Notes),
prepare and file with the Commission and thereafter shall use commercially
reasonable efforts to cause to be declared effective no later than the
Conversion Date a registration statement on an appropriate form under the
Securities Act relating to the offer and sale of the Conversion Notes by the
Holders thereof from time to time in accordance with the methods of distribution
set forth in such registration statement and Rule 415 under the Securities Act
("Conversion Notes Shelf Registration").
<PAGE>
3
(ii) The Borrower agrees to use commercially reasonable efforts to keep the
registration statement relating to the Conversion Notes Shelf Registration
continuously effective in order to permit the prospectus included therein to be
usable by the Holders of the Conversion Notes for a period of three years from
the Conversion Date or such shorter period that will terminate when all the
Conversion Notes covered by the registration statement have been sold pursuant
to such registration statement; provided that the Borrower shall be deemed not
to have used commercially reasonable efforts to keep the registration statement
effective during the requisite period if it voluntarily takes any action that
would result in Holders of Conversion Notes covered thereby not being able to
offer and sell such Conversion Notes during that period, unless (A) such action
is required by applicable law, rule, regulation or policy, or (B) in the
judgement of the Board of Directors of the Borrower, there is a reasonable
likelihood that the failure to take such voluntary action would adversely affect
any existing or prospective material business situation, transaction, or
negotiation or otherwise materially and adversely affect the Borrower and the
taking of such voluntary action does not cause any such registration statement
not to be effective, or delay the filing of any registration statement, for more
than 90 days. Any such period during which the Borrower fails to keep the
registration statement effective and usable for offers and sales of Conversion
Notes is referred to as a "Suspension Period." A Suspension Period shall
commence on and include the date that the Borrower gives notice that the
registration statement is no longer effective or the prospectus included therein
is no longer usable for offers and sales of Conversion Notes and shall end on
the date when each Selling Holder either receives the copies of the supplemented
or amended prospectus contemplated by Section 5(b) hereof or is advised in
writing by the Borrower that use of the prospectus may be resumed. If one or
more
<PAGE>
4
Suspension Periods occur, the three-year time period referenced above shall be
extended by the number of days included in each such Suspension Period.
(b) Registered Exchange Offer. (i) In the event that the Conversion Notes
Shelf Registration is not declared effective pursuant to Section 2(a) above on
or before the Conversion Date, the Borrower shall take such actions as are
necessary or appropriate to permit the Holders of the Conversion Notes to effect
a sale thereof in compliance with Rule 144A under the Securities Act as soon as
practicable after the Conversion Date. In addition, the Borrower shall prepare
and, within 45 days after the Conversion Date, file with the Commission a
registration statement on an appropriate form under the Securities Act with
respect to a proposed offer (the "Registered Exchange Offer") to the Holders of
the Conversion Notes to issue and deliver to such Holders, in exchange for the
Conversion Notes, a like principal amount of debt securities of the Borrower
identical in all material respects to the Conversion Notes (the "Registered
Conversion Notes"), shall use commercially reasonable efforts to cause such
registration statement to become effective under the Securities Act as soon as
practical after filing and in any event no later than 120 days after the
Conversion Date and, upon the effectiveness of that registration statement,
shall commence the Registered Exchange Offer and shall cause the same to remain
open for such period of time (but no longer than 30 days after the commencement
of the Registered Exchange Offer), and to be conducted in accordance with such
procedures, as may be required by the applicable provisions of the Exchange Act,
it being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange such Conversion Notes for Registered Conversion Notes
(assuming that such Holder is not an Affiliate of the Borrower, acquires the
Registered Conversion Notes in the ordinary course of such Holder's business and
has no arrangements
<PAGE>
5
with any person to participate in the distribution of the Registered Conversion
Notes) to trade such Registered Conversion Notes from and after their receipt
without any limitations or restrictions under the Securities Act or the Exchange
Act and without material restrictions under the securities laws of a substantial
proportion of the several states of the United States.
(ii) The Borrower shall indicate in a "Plan of Distribution" section
contained in the final prospectus constituting a part of the registration
statement relating to the Registered Exchange Offer that any Broker-Dealer who
holds Conversion Notes that were acquired for its own account as a result of
market-making activities or other trading activities (other than Conversion
Notes acquired directly from the Borrower), may exchange such Conversion Notes
for Registered Conversion Notes pursuant to the Registered Exchange Offer.
However, such Broker-Dealer may be deemed an "underwriter" within the meaning of
the Exchange Act and, therefore, must deliver a prospectus meeting the
requirements of the Exchange Act in connection with any resales of the
Registered Conversion Notes received by it in the Registered Exchange Offer,
which prospectus delivery requirement may be satisfied by the delivery by such
Broker-Dealer of the final prospectus contained in the registration statement
relating to the Registered Exchange Offer. Such "Plan of Distribution" section
also shall state that the delivery by a Broker-Dealer of the final prospectus
relating to the Registered Exchange Offer in connection with resales of
Registered Conversion Notes shall not be deemed an admission by such
Broker-Dealer that it is an "underwriter" within the meaning of the Exchange
Act, and shall contain all other information with respect to the resales of the
Registered Conversion Notes by Broker-Dealers that the Commission may require in
connection therewith, but such "Plan of Distribution" shall not name any such
Broker-Dealer or disclose the amount of Registered Conversion Notes held by any
such
<PAGE>
6
Broker-Dealer except to the extent required by the Commission as a result of a
change in law, rule, regulation or policy after the date of this Agreement.
(iii) In connection with such Registered Exchange Offer and the offer and
sale of Registered Conversion Notes by Broker-Dealers as contemplated above, the
Borrower shall take such other and further action, including making appropriate
filings under state securities laws and delivering such number of final
prospectuses relating to the Registered Exchange Offer as any Broker-Dealer
proposing to deliver the same in connection with its resales of Registered
Conversion Notes may reasonably request, as may be necessary to realize the
foregoing objectives. The Borrower shall cause the registration statement
relating to the Registered Exchange Offer to remain continuously effective for a
period of at least 20 Business Days (or longer if required by applicable law)
from the date on which such registration statement is first declared effective,
and shall supplement or amend the prospectus contained therein to the extent
necessary to permit such prospectus (as supplemented or amended) to be delivered
by Broker-Dealers in connection with their resales of Registered Conversion
Notes as aforesaid.
3. Alternative Conversion Notes Shelf Registration. If, because of any
change in currently prevailing interpretations of the Commission's staff, the
Borrower is not permitted to effect a Registered Exchange Offer, as contemplated
by Section 2(b) hereof, the following provisions shall apply:
(a) The Borrower shall promptly file with the Commission and thereafter
shall use commercially reasonable efforts to cause to be declared effective no
later than 120 days after the issuance of the Conversion Notes a registration
statement on an appropriate form under the Securities Act relating to the offer
and sale of the Conversion Notes by the
<PAGE>
7
Holders thereof from time to time in accordance with the methods of distribution
set forth in such registration statement and Rule 415 under the Securities Act
("Alternative Conversion Notes Shelf Registration"). The Borrower will use
commercially reasonable efforts to cause the Alternative Conversion Notes Shelf
Registration to become effective on or prior to the later of (x) the 120th day
after the Conversion Date or (y) the 45th day after the publication of the
change in law or interpretation.
(b) The Borrower agrees to use commercially reasonable efforts to keep the
registration statement relating to the Alternative Conversion Notes Shelf
Registration continuously effective in order to permit the prospectus included
therein to be usable by the Holders of the Conversion Notes for a period of
three years from the Conversion Date or such shorter period that will terminate
when all the Conversion Notes covered by the registration statement have been
sold pursuant to such registration statement; provided that the Borrower shall
be deemed not to have used commercially reasonable efforts to keep the
registration statement effective during the requisite period if it voluntarily
takes any action that would result in Holders of Conversion Notes covered
thereby not being able to offer and sell such Conversion Notes during that
period, unless (A) such action is required by applicable law, rule, regulation
or policy, or (B) in the judgement of the Board of Directors of the Borrower,
there is a reasonable likelihood that the failure to take such voluntary action
would adversely affect any existing or prospective material business situation,
transaction, or negotiation or otherwise materially and adversely affect the
Borrower and the taking of such voluntary action does not cause any such
registration statement not to be effective, or delay the filing of any
registration statement, for more than 90 days. A Suspension Period, as defined
above, shall commence on and include the date that the Borrower gives notice
that
<PAGE>
8
the registration statement is no longer effective or the prospectus included
therein is no longer usable for offers and sales of Conversion Notes and shall
end on the date when each Selling Holder either receives the copies of the
supplemented or amended prospectus contemplated by Section 5(b) hereof or is
advised in writing by the Borrower that use of the prospectus may be resumed. If
one or more Suspension Periods occur, the three-year time period referenced
above shall be extended by the number of days included in each such Suspension
Period.
4. Holdback Agreements.
(a) Restrictions on Public Sale by Holder of Registrable Securities. Each
Holder whose securities are included in a registration statement hereunder
agrees not to effect any public sale or distribution of the issue being
registered or a similar security of the Borrower or any securities convertible
into or exchangeable or exercisable for such securities, including a sale
pursuant to Rule 144 under the Securities Act, during the 14 days prior to, and
during the 90-day period beginning on, the effective date of such registration
statement (except as part of such registration), if and to the extent requested
by the Borrower in the case of a non-underwritten public offering or if and to
the extent requested by the managing Underwriter or Underwriters in the case of
an underwritten public offering.
(b) Restrictions on Public Sale by the Borrower and Others. The Borrower
and its Affiliates agree (i) not to effect any public sale or distribution of
any securities similar to the Registrable Securities (except as part of such
registration statement), during the 14 days prior to, and during the 90-day
period beginning on, the effective date of any such registration statement filed
pursuant to Section 2 or 3 hereof; and (ii) that any agreement entered into
after the date of the Agreement pursuant to which the Borrower issues or agrees
to issue any privately placed securities similar to the Registrable Securities
shall contain a provision under
<PAGE>
9
which holders of such securities agree not to effect any public sale or
distribution of any such securities during the periods described in (i) above,
in each case including a sale pursuant to Rule 144 under the Securities Act
(except as part of any such registration, if permitted).
5. Registration Procedures.
In connection with any Conversion Notes Shelf Registration or any
Registered Exchange Offer or Alternative Conversion Notes Shelf Registration,
the Borrower shall use commercially reasonable efforts to:
(a) prepare and file with the Commission a registration statement on
any form for which the Borrower then qualifies or which counsel for the
Borrower shall deem appropriate and which form shall be available for the
sale of the Registered Conversion Notes or Registrable Securities, as the
case may be, to be registered thereunder in accordance with the intended
method of distribution thereof, and use commercially reasonable efforts to
cause such filed registration statement to become effective and qualify an
indenture relating to the Conversion Notes or the Registered Conversion
Notes, as the case may be, substantially in the form of Exhibit C to the
Loan Agreement (with such appropriate modifications as may be necessary to
reflect the registration of the Conversion Notes pursuant to Sections 2(a)
or 2(b)) under the Trust Indenture Act of 1939, as amended; provided (i)
that before filing a registration statement or prospectus or any amendments
or supplements thereto, the Borrower will furnish to one counsel selected
by the Holders who hold, or will hold, as the case may be, a majority in
principal amount of the Registrable Securities to be covered by such
registration statement or exchanged pursuant to the Registered Exchange
Offer, as the case may be, copies of all such documents proposed to be
filed, which documents will be subject
<PAGE>
10
to the review of such counsel, and (ii) that after the filing of the
registration statement, the Borrower will promptly notify each Holder of
any stop order issued or threatened by the Commission and take all
reasonable actions required to prevent the entry of such stop order or to
remove it if entered;
(b) furnish to each Holder, prior to filing the registration
statement, if requested, copies of such registration statement as proposed
to be filed, and thereafter furnish to such Holder such number of copies of
such registration statement, each amendment and supplement thereto (in each
case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such
other documents as such Holder may reasonably request in connection with
the Registered Exchange Offer or in order to facilitate the disposition of
the Registrable Securities owned by such Holder, as the case may be;
(c) use commercially reasonable efforts to register or qualify such
Registered Conversion Notes or Registrable Securities, as the case may be,
under such other securities or blue sky laws of such jurisdictions in the
United States as may be required in connection with the Registered Exchange
Offer or as any Selling Holder or managing Underwriter reasonably (in light
of the intended plan of distribution) requests and do any and all other
acts and things which may be reasonably necessary or advisable to enable
such Selling Holder or managing Underwriter to consummate the disposition
in such jurisdictions of the Registrable Securities owned by such Selling
Holder; provided that the Borrower will not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise
be required to qualify but for this paragraph (c), (ii) subject itself to
taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction;
<PAGE>
11
(d) use commercially reasonable efforts to cause such Registered
Conversion Notes or Registrable Securities, as the case may be, to be
registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of
the Borrower or its Subsidiaries in connection with the Registered Exchange
Offer or to enable the Selling Holder or Selling Holders thereof to
consummate the disposition of such Registrable Securities;
(e) notify each Holder of such Registrable Securities that is named as
a Selling Holder in any registration statement filed pursuant to this
Agreement, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the occurrence of an event requiring
the preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances in which
they were made, not misleading and promptly make available to each such
Holder any such supplement or amendment;
(f) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such
Registrable Securities;
(g) make available for inspection, during normal business hours and on
reasonable prior notice, by any Selling Holder of such Registrable
Securities, any Underwriter participating in any disposition pursuant to
such registration statement and any attorney, accountant or other
professional retained by any such Selling Holder or Underwriter
(collectively, the "Inspectors") all financial and other records, pertinent
corporate documents
<PAGE>
12
and properties of the Borrower and its Subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the Borrower's and the
Subsidiaries' officers, directors and employees to supply all information
reasonably requested to any such Inspectors in connection with such due
diligence. The Borrower may require the Inspector to agree that Records
which the Borrower determines, in good faith, to be confidential and any
Records which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission of a material fact
in such registration statement or (ii) the release of such Records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction. Each Selling Holder of such Registrable Securities agrees,
and shall cause the Inspectors to agree, that information obtained by it as
a result of such inspections shall be deemed confidential and shall not be
used by it for any purpose whatsoever, other than the exercise of its due
diligence responsibility. Without limiting generality of the preceding
sentence, each Selling Holder of such Registrable Securities agrees, and
shall cause the Inspectors to agree, that information obtained by it as a
result of such inspections shall not be used by it as the basis for any
market transactions in the securities of the Borrower or its Affiliates
unless and until such information is made generally available to the
public. Each Selling Holder of such Registrable Securities further agrees,
and shall cause the Inspectors to agree, that it will, upon learning that
disclosure of such Records is sought in a court of competent jurisdiction,
give notice to the Borrower and allow the Borrower, at its expense, to
undertake appropriate action to prevent disclosure of the Records deemed
confidential;
<PAGE>
13
(h) in the event such sale is pursuant to an underwritten offering,
use commercially reasonable efforts to obtain a comfort letter or comfort
letters from the Borrower's independent public accountants in customary
form and covering matters of the type customarily covered by comfort
letters as the managing Underwriter reasonably requests;
(i) use commercially reasonable efforts to obtain an opinion or
opinions from counsel for the Borrower in customary form; and
j) otherwise use commercially reasonable efforts to comply with all
applicable rules and regulations of the Commission.
Notwithstanding any other provision of this Agreement, the Borrower may
delay the filing of any registration statement for up to 90 days if (i) the
Borrower would, in the opinion of its counsel, be required to disclose in such
registration statement information not otherwise then required by law to be
publicly disclosed and (ii) in the judgment of the Board of Directors of the
Borrower, there is a reasonable likelihood that such disclosure, or any other
action to be taken in connection with any registration statement, would
adversely affect any existing or prospective material business situation,
transaction, or negotiation or otherwise materially and adversely affect the
Borrower.
The Borrower may require each Selling Holder of Registrable Securities to
promptly furnish in writing to the Borrower such information regarding the
distribution of the Registrable Securities as it may from time to time
reasonably request and such other information as may be legally required or
reasonably requested in connection with such registration.
Each Selling Holder agrees that, upon receipt of any notice from the
Borrower of the happening of any event of the kind described in Section 5(e)
hereof, such Selling
<PAGE>
14
Holder will forthwith discontinue disposition of Registrable Securities pursuant
to the registration statement covering such Registrable Securities until such
Selling Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 5(e) hereof, and, if so directed by the Borrower such
Selling Holder will deliver to the Borrower all copies, other than permanent
file copies then in such Selling Holder's possession, of the most recent
prospectus covering such Registrable Securities at the time of receipt of such
notice.
6. Registration Expenses.
In connection with any registration statement required to be filed pursuant
to Section 2 or 3 hereunder, the Borrower shall pay the following registration
expenses (the "Registration Expenses"): (i) all registration and filing fees,
(ii) fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registered Conversion Notes or Registrable Securities, as
the case may be), (iii) printing expenses, (iv) internal Borrower expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), (v) the fees and expenses
incurred in connection with any listing of the Registered Conversion Notes or
Registrable Securities, as the case may be, (vi) fees and disbursements of
counsel for the Borrower and customary fees and expenses for independent
certified public accountants retained by the Borrower (including the expenses of
any comfort letters or costs associated with the delivery by independent
certified public accountants of a comfort letter or comfort letters requested
pursuant to Section 5(h) hereof), (vii) the fees and expenses of any special
experts retained by the Borrower in connection with such registration, and
(viii) reasonable fees and expenses of one counsel (who shall be
<PAGE>
15
selected by Holders of a majority of the Registrable Securities and who shall be
reasonably acceptable to the Borrower) for the Holders incurred in connection
with the registration hereunder. The Borrower shall not have any obligation to
pay any underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities (including, without limitation, fees and expenses of any
qualified independent Underwriter that may be required under the rules of the
National Association of Securities Dealers), or, except as otherwise provided in
clause (viii) above, any out-of-pocket expenses of the Holders (or any agents
who manage their accounts) or fees and disbursements of any counsel for any
Underwriter in any underwritten offering.
7. Indemnification; Contribution.
(a) Indemnification by the Borrower. The Borrower agrees to indemnify and
hold harmless each Selling Holder of Registrable Securities, its officers,
directors, representatives and agents and each person, if any, who controls such
Selling Holder within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation) arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing to the Borrower by such Selling Holder or on
such Selling
<PAGE>
16
Holder's behalf expressly for use therein; and provided that with respect to any
untrue statement or omission or alleged untrue statement or omission made in any
preliminary prospectus, the indemnity agreement contained in this paragraph
shall not apply to the extent that any such loss, claim, damage, liability or
expense results from the fact that a current copy of the prospectus was not sent
or given to the person asserting any such loss, claim, damage, liability or
expense at or prior to the written confirmation of the sale of the Registrable
Securities concerned to such person if it is determined that the provision of
such person with a current copy of the prospectus would have cured the defect
giving rise to such loss, claim, damage, liability or expense. The Borrower also
agrees to indemnify, as applicable, (i) the Broker-Dealers who hold Registrable
Securities acquired for their own accounts pursuant to the Registered Exchange
Offer and their officers, directors and each person who controls such
Broker-Dealers, and (ii) the Underwriters of the Registrable Securities and
their officers, directors and each person who controls such Underwriters, on
substantially the same basis as that of the indemnification of the Selling
Holders provided in this Section 7 if such Broker-Dealers and Underwriters agree
in writing to indemnify and contribute to the Borrower on substantially the same
basis as the Selling Holders indemnify and contribute to the Borrower pursuant
to this Section 7.
(b) Indemnification by Holder of Registrable Securities. Each Selling
Holder whose Registrable Securities are included in a registration pursuant
hereto, shall be deemed to have agreed to indemnify and hold harmless the
Borrower, its directors and officers and each person, if any, who controls the
Borrower within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of
<PAGE>
17
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
provided that the provisions of this paragraph shall apply only insofar as
losses, claims, damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing by such Selling Holder or on such Selling
Holder's behalf expressly for use in any registration statement or prospectus
relating to the Registrable Securities, or any amendment or supplement thereto,
or any preliminary prospectus. In case any action or proceeding shall be brought
against the Borrower, or its directors or officers, or any such controlling
person, in respect of which indemnity may be sought against such Selling Holder,
such Selling Holder shall have the rights and duties given to the Borrower, and
the Borrower or its directors or officers or such controlling person shall have
the rights and duties given to such Selling Holder, by the preceding paragraph.
(c) Conduct of Indemnification Proceedings. Promptly after receipt of
notice of the commencement of any action or proceeding (including any
governmental investigation) brought or asserted against any person entitled to
indemnification under clause (a) or (b) above (an "Indemnified Party") in
respect of which indemnity may be sought from any party who has agreed to
provide such indemnification (an "Indemnifying Party"), if a claim in respect
thereof is to be made against an Indemnifying Party under such clause, the
Indemnified Party shall notify the Indemnifying Party in writing of the
commencement
<PAGE>
18
thereof; provided, that the omission so to notify the Indemnifying Party shall
not relieve it from any liability which it may have under this Section 7 except
to the extent it has been materially prejudiced by such omission; provided,
further, that the omission so to notify the Indemnifying Party shall not relieve
it from any liability which it may have to an Indemnified Party otherwise than
under this Section 7. The Indemnifying Party shall be entitled to assume the
defense thereof, including the employment of counsel reasonably satisfactory to
such Indemnified Party, and shall assume the payment of all expenses indemnified
hereunder. Such Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such separate counsel shall be at the expense of such
Indemnified Party unless (i) the Indemnifying Party has agreed to pay such fees
and expenses or (ii) the named parties to any such action or proceeding
(including any impleaded parties) include both such Indemnified Party and the
Indemnifying Party, and such Indemnified Party shall have been advised by
counsel that there is a conflict of interest on the part of counsel employed by
the Indemnifying Party to represent such Indemnified Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it elects
to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such action
or proceeding on behalf of such Indemnified Party; it being understood, however,
that the Indemnifying Party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
of circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel) at any time for all
such Indemnified Parties, which firm shall be designated in writing by
<PAGE>
19
such Indemnified Parties). The Indemnifying Party shall not be liable for any
settlement of any such action or proceeding effected without its written
consent, which shall not be unreasonably withheld, but if settled with its
written consent, or if there be a final judgment for the plaintiff in any such
action or proceeding, the Indemnifying Party shall indemnify and hold harmless
such Indemnified Parties from and against any loss or liability (to the extent
stated above) by reason of such settlement or judgment.
(d) Contribution. If the indemnification provided for in this Section 7 is
due in accordance with the terms hereof but is held to be unavailable to the
Indemnified Parties in respect of any losses, claims, damages, liabilities or
judgments referred to herein (collectively, "losses"), then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses (i) as between the Borrower and the Selling Holders on the one
hand and the Underwriters or Broker-Dealers, as the case may be, on the other,
in such proportion as is appropriate to reflect the relative benefits received
by the Borrower and the Selling Holders on the one hand and the Underwriters or
Broker Dealers, as the case may be on the other from the offering of the
Registrable Securities, or if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Borrower and the Selling Holders on
the one hand and of the Underwriters or Broker Dealers, as the case may be, on
the other in connection with the statements or omissions which resulted in such
losses, as well as any other relevant equitable considerations and (ii) as
between the Borrower on the one hand and each Selling Holder on the other, in
such proportion as is appropriate to reflect the relative fault of the Borrower
and of each Selling Holder in connection with such statements or omissions, as
well as any other
<PAGE>
20
relevant equitable considerations. The relative benefits received by the
Borrower and the Selling Holders on the one hand and the Underwriters or
Broker-Dealers, as the case may be, on the other shall be deemed to be in the
same proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the
Borrower and the Selling Holders bear to the total underwriting discounts and
commissions received by the Underwriters or Broker-Dealers, as the case may be,
in each case as set forth in the table on the cover page of the prospectus. The
relative fault of the Borrower and the Selling Holders on the one hand and of
the Underwriters or Broker-Dealers, as the case may be, on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Borrower and the Selling
Holders or by the Underwriters or Broker-Dealers, as the case may be. The
relative fault of the Borrower on the one hand and of each Selling Holder on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by such party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Borrower and the Selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Underwriters or Broker-Dealers, as the case may be,
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
Indemnified Party as a result of the losses, claims, damages, liabilities or
<PAGE>
21
judgments referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim and for which it is entitled to be
indemnified hereunder. Notwithstanding the provisions of this Section 7(d), no
Underwriter or Broker-Dealer, as the case may be, shall be required to
contribute any amount in excess of the amount by which the total price at which
the Registrable Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
or Broker-Dealer, as the case may be, has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission, and no Selling Holder shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities of such Selling Holder were offered to the public exceeds the amount
of any damages which such Selling Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 31(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
8. Additional Interest Under Certain Circumstances; Remedies.
(a) In the event that the Conversion Notes Shelf Registration is not
declared effective pursuant to Section 2(a) above on or before the Conversion
Date, and (i) (A) the Registered Exchange Offer registration statement is not
filed on or prior to the 45th day following the Conversion Date, (B) the
Registered Exchange Offer registration statement is not declared effective on or
prior to the 120th day following the Conversion Date or (C) the
<PAGE>
22
Registered Exchange Offer is not consummated on or prior to the 150th day
following the Conversion Date or (ii) changes in law or the applicable
interpretation of the Commission staff do not permit the Issuers to effect the
Registered Exchange Offer and (A) an Alternative Conversion Notes Shelf
Registration with respect to the Securities is not promptly filed pursuant to
Section 3(a) hereof, or (B) is not declared effective under the Securities Act
on or prior to the later of (x) the 120th day after the Conversion Date and (y)
the 45th day after the publication of the change in law or interpretation, the
interest rate borne by the Conversion Notes shall be increased by one-half of
one percent per annum following, in the case of clause (i) (A) such 45 day
period, or in the case of clauses (i)(B) or (i)(C), such 120- or 150-day period,
as the case may be or, in the case of clause (ii), such 45- or 120-day period,
as applicable. The aggregate amount of such increase from the original interest
rate pursuant to these provisions will in no event exceed one-half of one
percent per annum. Such increase will cease to be effective on the date of
filing of the Registered Exchange Offer registration statement, effectiveness of
the Registered Exchange Offer registration statement, consummation of the
Registered Exchange Offer or the effectiveness of an Alternative Conversion
Notes Shelf Registration, as the case may be.
(b) Any amounts of additional interest due pursuant to the paragraph above
will be payable in cash, on the same original interest payment dates as the
Securities. The amount of additional interest will be determined by multiplying
the applicable additional interest rate by the principal amount of the affected
Securities of such Holders, multiplied by a fraction, the numerator of which is
the number of days such additional interest rate was applicable during such
period (determined on the basis of a 360-day year comprised of twelve
<PAGE>
23
30-day month and, in the case of a partial month, the actual number of days
elapsed), and the denominator of which is 360.
9. Participation in Underwritten Registrations.
No person may participate in any underwritten registration hereunder unless
such person (a) agrees to sell such person's securities on the basis provided in
any underwriting arrangements approved by the persons entitled hereunder to
approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements and this
Agreement.
10. Rule 144.
To the extent it is otherwise required to do so, the Borrower covenants
that it will file any reports required to be filed by it under the Securities
Act and the Exchange Act so as to enable Holders to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any Holder, the Borrower will
deliver to such Holder a written statement as to whether it has complied with
such requirements.
11. Miscellaneous.
(a) No Inconsistent Agreements. The Borrower will not hereafter enter into
and is not presently a party to any agreement with respect to its securities
which conflicts with the rights granted to the Holders of Registrable Securities
in this Agreement.
<PAGE>
24
(b) Remedies. Each Holder of Registrable Securities, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Borrower agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate. Any breach of this Agreement shall not
cause a Default or Event of Default under the Notes.
(c) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Borrower has obtained the written consent of Holders holding a
majority in principal amount of the Registrable Securities then outstanding
affected by such amendment, modification, supplement, waiver or departure, which
pursuant to the terms of the Loan Agreement may vote on waivers or amendments.
(d) Notices. All notices and other communications provided for or permitted
hereunder shall be in writing and personally delivered or sent by registered or
certified first-class mail or by telecopy:
(i) if to a Holder at its last registered address, and with a copy to
be sent to each additional address, given by such Holder to the Borrower or
the trustee under the Indenture, as the case may be, in writing; and
(ii) if to Borrower at:
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, NJ 07932
<PAGE>
25
Attention: Chief Financial Officer
Telecopy No.: (201) 593-5580
with a copy to: General Counsel
Telecopy No.: (201) 593-5820
or to such other address as any Holder or the Borrower may give notice of
pursuant hereto.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; or three Business Days
after being deposited in the mail, postage prepaid, if mailed; or when received,
if telecopied.
(e) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties hereto,
including any person to whom Registrable Securities are transferred.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
contracts made and to be performed wholly within that State without regard to
the principles thereof regarding conflict of laws.
(h) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the Holders
shall be enforceable to the fullest extent permitted by law.
<PAGE>
26
(i) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein with respect to such subject matter. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
<PAGE>
27
IN WITNESS WHEREOF, the undersigned has duly executed this Agreement for
the benefit of the Lenders and Holders, as of the date first above written.
SCHEIN PHARMACEUTICAL, INC.
By: _______________________
Name:
Title:
Acknowledged:
SOCIETE GENERALE, as administrative agent
By: _____________________________________
Name:
Title:
<PAGE>
EXHIBIT E
to the Loan Agreement
SUBORDINATED GUARANTEE AGREEMENT dated as of December
20, 1996, between each Subsidiary from time to time party
hereto (each such Subsidiary individually, a "Guarantor" and
collectively, the "Guarantors"), and SOCIETE GENERALE, as
administrative agent (in such capacity, the "Administrative
Agent") for the Lenders (as defined in the Loan Agreement
referred to below).
Reference is made to the Senior Subordinated Loan Agreement dated as of
December 20, 1996 (as amended, restated, supplemented, modified or waived from
time to time, the "Loan Agreement"), among Schein Pharmaceutical, Inc., a
Delaware corporation (the "Borrower"), the financial institutions party thereto
as lenders (the "Lenders"), and Societe Generate, as administrative agent (in
such capacity, the "Administrative Agent").
The Lenders have agreed to make Loans to the Borrower pursuant to, and upon
the terms and subject to the conditions specified in, the Loan Agreement. The
obligations of the Lenders to make Loans are conditioned on, among other things,
the execution and delivery by the Subsidiary Guarantors of a guarantee agreement
in the form hereof. Capitalized terms used herein and not defined herein shall
have the meanings assigned to such terms in the Loan Agreement.
Accordingly, the parties hereto agree as follows:
SECTION 1. Guarantee. Subject to Section 6(b) hereof, each Guarantor
unconditionally guarantees, jointly with the other Guarantors and severally, as
a primary obligor and not merely as a surety, the due and punctual payment of
the Obligations. Each Guarantor further agrees that the Obligations may be
extended or renewed, in whole or in part, without notice to or further assent
from it, and that it will remain bound upon its guarantee notwithstanding any
extension or renewal of any Obligation.
SECTION 2. Obligations Not Waived. To the fullest extent permitted by
applicable law, each Guarantor waives presentment to, demand of payment from and
protest to the Borrower or any other guarantor of any of the Obligations, and
also waives notice of acceptance of its guarantee and notice of protest for
nonpayment. To the fullest extent permitted by applicable law, the obligations
of each Guarantor hereunder shall not be affected by (a) the failure of the
Administrative Agent or any other Lender to assert any claim or demand or to
exercise or enforce any right or remedy against the Borrower or any other
guarantor under the provisions of this Agreement, any Loan Document or
otherwise; (b) any rescission, waiver, amendment or modification of, or any
release from any of the terms or provisions of this
<PAGE>
2
Agreement, any other Loan Document, any guarantee or any other agreement,
including with respect to any other Subsidiary Guarantor under this Agreement;
(c) the release of any security held by the Administrative Agent or any other
Lender for the Obligations; or (d) the failure to perfect any security interest
in, or the release of, any of the security held by or on behalf of the
Administrative Agent.
SECTION 3. Guarantee of Payment. Each Guarantor agrees that its guarantee
constitutes a guarantee of payment when due and not of collection, and waives
any right to require that any resort be had by the Administrative Agent or any
other Lender to collateral security, if any, held for payment of the Obligations
or to any balance of any deposit account or credit on the books of the
Administrative Agent or any other Lender in favor of the Borrower or any other
Person.
SECTION 4. No Discharge or Diminishment of Guarantee. Except as provided in
Section 6(b) hereof, the obligations of each Guarantor hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason
(other than the indefeasible payment in full in cash of the Obligations),
including any claim of waiver, release, surrender, alteration or compromise of
any of the Obligations, and shall not be subject to any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Obligations or otherwise. Without limiting
the generality of the foregoing, the obligations of each Guarantor hereunder
shall not be discharged or impaired or otherwise affected by the failure of the
Administrative Agent or any other Lender to assert any claim or demand or to
enforce any remedy under the Loan Agreement, any other Loan Document, any other
guarantee or any other agreement, by any waiver or modification of any provision
of any thereof, by any default, failure or delay, wilful or otherwise, in the
performance of the Obligations, or by any other act or omission that may or
might in any manner or to any extent vary the risk of any Guarantor or that
would otherwise operate as a discharge of any Subsidiary Guarantor as a matter
of law or equity (other than the indefeasible payment in full in cash of all the
Obligations).
SECTION 5. Defenses of Borrower Waived. To the extent permitted by
applicable law, each of the Guarantors waives any defense based on or arising
out of any defense of the Borrower or the unenforceability of the Obligations or
any part thereof from any cause, or the cessation from any cause of the
liability of the Borrower, other than final and indefeasible payment in full in
cash of the Obligations.
SECTION 6. Subordination. (a) In furtherance of the foregoing and not in
limitation of any other right that the Administrative Agent or any other Lender
has at law or in equity against any Guarantor by virtue hereof, and subject to
Section 6(b) hereof, upon the failure of the Borrower to pay any Obligation when
and as the same shall become due, whether at maturity, by acceleration, after
notice of prepayment or otherwise, each Guarantor hereby promises to and will,
upon receipt of written demand by the Administrative Agent, forthwith pay, or
cause to be paid, to the
<PAGE>
3
Administrative Agent or such other Lender as is designated thereby in cash the
amount of such unpaid Obligations. Upon payment by any Guarantor of any sums to
the Administrative Agent or any Lender as provided above, all rights of such
Guarantor against the Borrower arising as a result thereof by way of right of
subrogation, contribution, reimbursement, indemnity or otherwise, shall in all
respects be subordinate and junior in right of payments to the prior
indefeasible payment in full in cash of the Obligations. In addition, any
indebtedness of the Borrower now or hereafter held by any Guarantor is hereby
subordinated in right of payment to the Obligations (it being agreed that this
Section 6 shall not prohibit the repayment of such indebtedness so long as no
Default or Event of Default shall have occurred and be continuing, or result
therefrom). If any amount shall be paid to any Guarantor on account of (i) such
subrogation, contribution, reimbursement, indemnity or similar right or (ii) any
such indebtedness of the Borrower, such amount shall be held in trust for the
benefit of the Lenders and shall forthwith be paid to the Administrative Agent
to be credited against the payment of the Obligations, whether matured or
unmatured, in accordance with the terms of the Loan Documents.
(b) Anything to the contrary herein notwithstanding, this Agreement is
subject to the subordination provisions of Article VIII of the Loan Agreement
which are incorporated herein by reference as if fully set forth herein,
treating the obligations of the Guarantors hereunder and the Obligations
guaranteed hereby, for all purposes, as Subordinated Indebtedness which is
subordinated to the Senior Indebtedness as provided in such Article.
SECTION 7. Information. Each Guarantor assumes all responsibility for being
and keeping itself informed of the Borrower's financial condition and assets,
and of all other circumstances bearing upon the risk of nonpayment of the
Obligations and the nature, scope and extent of the risks that such Guarantor
assumes and incurs hereunder, and agrees that none of the Administrative Agent
or the other Lenders will have any duty to advise any Guarantor of information
known to it or any of them regarding such circumstances or risks.
SECTION 8. Representations and Warranties. Each Guarantor represents and
warrants as to itself that all representations and warranties relating to it
contained in the Loan Agreement are true and correct.
SECTION 9. Termination. (a) The guarantees made hereunder shall terminate
when all the Obligations have been indefeasibly paid in full and shall continue
to be effective or be reinstated, as the case may be, if at any time payment, or
any part thereof, of any Obligation is rescinded or must otherwise be restored
by any Lender or any Guarantor upon the bankruptcy or reorganization of the
Borrower, any Guarantor or otherwise.
<PAGE>
4
(b) If at any time shares of the capital stock of any Guarantor shall be
sold in a transaction the Net Cash Proceeds of which are applied in accordance
with the provisions of Section 2.11 of the Loan Agreement which results in such
Guarantor no longer constituting a Subsidiary, the Agent is hereby authorized
and directed to execute and deliver a release of such Guarantor from its
obligations and liabilities under this Guarantee upon receipt by the Agent of
reasonable evidence of compliance with the requirements of this paragraph.
SECTION 10. Binding Agreement; Assignments. Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of the Guarantors that are contained in this
Agreement shall bind and inure to the benefit of each party hereto and their
respective successors and assigns. This Agreement shall become effective as to
any Guarantor when a counterpart hereof executed on behalf of such Guarantor
shall have been delivered to the Administrative Agent and a counterpart hereof
shall have been executed on behalf of the Administrative Agent, and thereafter
shall be binding upon such Guarantor and the Administrative Agent and their
respective successors and assigns, and shall inure to the benefit of such
Guarantor, the Administrative Agent and the other Lenders, and their respective
successors and assigns, except that no Guarantor shall have the right to assign
its rights or obligations hereunder or any interest herein (and any such
attempted assignment shall be void), except as expressly contemplated by this
Agreement or the other Loan Documents.
SECTION 11. Waivers: Amendment. (a) No failure or delay of the
Administrative Agent in exercising any power or right hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Administrative Agent
hereunder and of the other Lenders under the other Loan Documents are cumulative
and are not exclusive of any rights or remedies that they would otherwise have.
No waiver of any provisions of this Agreement or consent to any departure by any
Guarantor therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on any Guarantor in any case shall entitle such Guarantor to
any other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Guarantors and the Administrative Agent, with the prior written consent of the
Required Lenders (except as otherwise provided in the Loan Agreement).
<PAGE>
5
SECTION 12. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 13. Notices. All communications and notices hereunder shall be in
writing and given as provided in Section 10.1 of the Loan Agreement. All
communications and notices hereunder to each Guarantor shall be given to it at
its address set forth below, or on Annex I hereto, with a copy to the Borrower.
SECTION 14. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by the Guarantors herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Administrative Agent and the other Lenders and
shall survive the making by the Lenders of the Loans, regardless of any
investigation made by the Lenders or on their behalf, and shall continue in full
force and effect as long as the principal of or any accrued interest on any Loan
or any fee or other amount payable under the Loan Agreement or any other Loan
Document is outstanding and unpaid and as long as the Commitments have not been
terminated.
(b) In the event any one or more of the provisions contained in this
Agreement or in any other Loan Document should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in and of itself
affect the validity of such provision in any other jurisdiction). The parties
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 15. Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one contract, and shall become effective as
provided in Section 11.
SECTION 16. Rules of Interpretation. The rules of interpretation specified
in Section 1.2 of the Loan Agreement shall be applicable to this Agreement.
SECTION 17. Jurisdiction; Consent to Service of Process. (a) The
Administrative Agent and each Guarantor hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of any
New York State court or Federal court of the United States of America sitting in
New York City, and any appellate court from any thereof, in any action or
proceeding arising out of or
<PAGE>
6
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Administrative Agent or any other Lender may otherwise have to bring any action
or proceeding relating to this Agreement or the other Loan Documents against any
Guarantor or its properties in the courts of any jurisdiction.
(b) The Administrative Agent and each Guarantor hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection that it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or
the other Loan Documents in any New York State or Federal court. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of process
in the manner provided for notices in Section 13. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.
SECTION 18. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 19. Additional Guarantors. Subject to Section 5.10 of the Loan
Agreement, each Subsidiary (other than Foreign Subsidiaries) that was not in
existence or not such a Subsidiary, on the date of the Loan Agreement is
required to enter into this Guarantee Agreement as a Guarantor upon becoming a
Subsidiary. Upon execution and delivery, after the date hereof, by the
Administrative Agent and
<PAGE>
7
such a Subsidiary of an instrument in the form of Annex 1, such Subsidiary shall
become a Guarantor hereunder with the same force and effect as if originally
named as a Guarantor herein. The execution and delivery of any instrument adding
an additional Guarantor as a party to this Agreement shall not require the
consent of any Guarantor hereunder. The rights and obligations of each Guarantor
hereunder shall remain in full force and effect notwithstanding the addition of
any new Guarantor as a party to this Agreement.
SECTION 20. Right of Setoff. If an Event of Default shall have occurred and
be continuing and the Administrative Agent shall have declared, or the Required
Lenders shall have requested the Administrative Agent to declare, the Loans
immediately due and payable pursuant to Article VII of the Loan Agreement, each
Lender is hereby authorized at any time and from time to time, to the fullest
extent permitted by law but in all cases, subject to the subordination
provisions of Article VIII of the Loan Agreement and Section 6(b) hereof, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other Indebtedness at any time owing
by such Lender or any Affiliate thereof to or for the credit or the account of
any Guarantor against any of and all the obligations of any Guarantor now or
hereafter existing under this Agreement and any other Loan Documents to which
such Guarantor is a party, held by such Lender, irrespective of whether or not
such Lender shall have made any demand under the Loan Agreement or any such
other Loan Document and although such obligations may be unmatured. The rights
of each Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) that such Lender may have.
<PAGE>
8
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
SCHEIN PHARMACEUTICAL,
INTERNATIONAL, INC.,
by
_______________________
Name:
Title:
SCHEIN PHARMACEUTICAL PA, INC.,
by
_______________________
Name:
Title:
SCHEIN PHARMACEUTICAL SERVICE
COMPANY, INC.,
by
_______________________
Name:
Title:
STERIS LABORATORIES, INC.,
by
_______________________
Name:
Title:
<PAGE>
9
MARSAM PHARMACEUTICALS INC.,
by
_______________________
Name:
Title:
DANBURY PHARMACAL, INC.,
by
_______________________
Name:
Title:
DANBURY PHARMACAL PUERTO
RICO, INC.,
by
_______________________
Name:
Title:
SOCIETE GENERALE, as Administrative
Agent,
by
_______________________
Name:
Title:
<PAGE>
Annex 1 to
the Guarantor Agreement
SUPPLEMENT NO. ____ dated as of _______ to the Subordinated
Guarantee Agreement dated as of December 20, 1996, (as the
same may be amended, restated, supplemented, modified or
waived from time to time, the "Guarantee Agreement"),
between each Subsidiary listed on the signature pages
thereof (individually, a "Guarantor" and collectively, the
"Guarantors"); and SOCIETE GENERALE, as administrative agent
(the Administrative Agent") for the Lenders (as defined in
the Loan Agreement referred to below).
A. Reference is made to the Senior Subordinated Loan Agreement dated as of
December 20, 1996 (as amended, restated, supplemented, modified or waived from
time to time, the "Loan Agreement"), among the Borrower, the financial
institutions party thereto (the "Lenders") and Societe Generale, as
administrative agent (in such capacity, the "Administrative Agent").
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Guarantee Agreement and the Loan
Agreement.
C. The Subsidiaries have entered into the Guarantee Agreement in order to
induce the Lenders to make Loans. Pursuant to Section 5.10 of the Loan
Agreement, each Subsidiary (other than any Foreign Subsidiary) that was not in
existence or not such a Subsidiary or was a subsidiary of the Company on the
date of the Loan Agreement is required to enter into the Guarantee Agreement as
a Guarantor upon becoming a Subsidiary. Section 19 of the Guarantee Agreement
provides that additional Subsidiaries may become Guarantors under the Guarantee
Agreement by execution and delivery of an instrument in the form of this
Supplement. The undersigned Subsidiary (the "New Guarantor") is executing this
Supplement in accordance with the requirements of the Loan Agreement to become a
Guarantor under the Guarantee Agreement as consideration for Loans previously
made.
Accordingly, the Administrative Agent and the New Guarantor agree as
follows:
SECTION 1. In accordance with Section 19 of the Guarantee Agreement, the
New Guarantor by its signature below becomes a Guarantor under the Guarantee
Agreement with the same force and effect as if originally named therein as a
Guarantor and the New Guarantor hereby agrees (a) to all the terms and
provisions of the Guarantor Agreement applicable to it as a Guarantor thereunder
and (b) represents and warrants that the representations and warranties made by
it as a Guarantor thereunder are true and correct on and as of the date hereof,
except to the
<PAGE>
2
extent such representations and warranties speak as of an earlier date. Each
reference to a "Guarantor" in the Guarantee Agreement shall be deemed to include
the New Guarantor. The Guarantee Agreement, as supplemented hereby, is hereby
incorporated herein by reference.
SECTION 2. The New Guarantor represents and warrants to the Administrative
Agent and the other Lenders that this Supplement has been duly authorized,
executed and delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium or other similar laws affecting creditors'
rights generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity).
SECTION 3. This Supplement may be executed in two or more counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one instrument. This Supplement shall become
effective when the Administrative Agent shall have received counterparts of this
Supplement that, when taken together, bear the signatures of the New Guarantor
and the Administrative Agent.
SECTION 4. The New Guarantor hereby represents and warrants that set forth
under its signature hereto is the true and correct location of the chief
executive office of the New Guarantor.
SECTION 5. Except as expressly supplemented hereby, the Guarantee Agreement
shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect,
neither party hereto shall be required to comply with such provision for so long
as such provision is held to be invalid, illegal or unenforceable, but the
validity, legality and enforceability of the remaining provisions contained
herein and in the Guarantee Agreement shall not in any way be affected or
impaired. The parties hereto shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 8. All communications and notices hereunder shall be in writing and
given as provided in Section 13 of the Guarantee Agreement. All
<PAGE>
3
communications and notices hereunder to the New Guarantor shall be given to it
at the address set forth under its signature hereto, with a copy to the
Borrower.
SECTION 9. The New Guarantor agrees to reimburse the Administrative Agent
for its reasonable out-of-pocket expenses in connection with this Supplement,
including the reasonable fees, other charges and disbursements of counsel for
the Administrative Agent.
SECTION 10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
<PAGE>
4
IN WITNESS WHEREOF, the New Guarantor and the Administrative Agent have
duly executed this Supplement to the Guarantee Agreement as of the day and year
first above written.
[NAME OF NEW GUARANTOR],
by
______________________________
Name:
Title:
Address: _____________________
_____________________
_____________________
SOCIETE GENERALE, as
Administrative Agent,
by
______________________________
Name:
Title:
<PAGE>
EXHIBIT F
to the Loan Agreement
INDEMNITY, SUBROGATION AND CONTRIBUTION AGREEMENT dated
as of December 20, 1996, among SCHEIN PHARMACEUTICAL, INC.,
a Delaware corporation (the "Borrower"), each Subsidiary
from time to time party hereto (individually, a "Guarantor"
and collectively the "Guarantors"), and SOCIETE GENERALE, as
administrative agent (in such capacity, the "Administrative
Agent") for the Lenders (as defined in the Loan Agreement
referred to below).
Reference is made to (a) the Loan Agreement dated as of December 20, 1996
(as amended, restated, supplemented, modified or waived from time to time, the
"Loan Agreement"), among the Borrower, the financial institutions party thereto
as lenders (the "Lenders") and Societe Generale, as administrative agent (in
such capacity, the "Administrative Agent") and (b) the Subordinated Guarantee
Agreement dated as of December 20, 1996 (as amended, restated, supplemented,
modified or waived from time to time, the "Guarantee Agreement") among the
Guarantors and the Administrative Agent.
The Lenders have agreed to make Loans to the Borrower, pursuant to, and
upon the terms and subject to the conditions specified in, the Loan Agreement.
The Guarantors have guaranteed such Loans and the other Obligations pursuant to
the Guarantee Agreement (for purposes of this Agreement, the "Guarantees"). The
obligations of the Lenders to make Loans are conditioned on, among other things,
the execution and delivery by the Borrower and the Guarantors of an agreement in
the form hereof. Capitalized terms used herein and not defined herein shall have
the meanings assigned to such terms in the Loan Agreement.
Accordingly, the Borrower, each Guarantor and the Administrative Agent
agree as follows:
SECTION 1. Indemnity and Subrogation. In addition to all such rights of
indemnity and subrogation that the Guarantors may have under applicable law (but
subject to Section 3), the Borrower agrees that in the event a payment shall be
made by any Guarantor under the Guarantee Agreement, the Borrower shall
indemnify such Guarantor for the full amount of such payment and such Guarantor
shall be subrogated to the rights of the Person to whom such payment shall have
been made to the extent of such payment.
SECTION 2. Contribution and Subrogation. Each Guarantor (a "Contributing
Guarantor") agrees (subject to Section 3) that, in the event a payment shall be
made by any other Guarantor under the Guarantee Agreement and such other
Guarantor (the "Claiming Guarantor") shall not have been indemnified by the
Borrower as provided in Section 1, the Contributing Guarantor shall indemnify
the
<PAGE>
2
Claiming Guarantor in an amount equal to the amount of such payment multiplied
by a fraction of which the numerator shall be the net worth (without taking into
account any Obligations) of the Contributing Guarantor on the date hereof (or,
if later, the date such Contributing Guarantor became a party hereto) and the
denominator shall be the aggregate net worth (without taking into account any
Obligations) of all the Guarantors on the date hereof plus the net worth of any
Guarantor becoming a party hereto pursuant to Section 14 on the date such
Guarantor so became a party hereto. Any Contributing Guarantor making any
payment to a Claiming Guarantor pursuant to this Section 2 shall be subrogated
to the rights of such Claiming Guarantor under Section 1 to the extent of such
payment.
SECTION 3. Subordination. Notwithstanding any provision of this Agreement
to the contrary, all rights of the Guarantors under Sections 1 and 2 and all
other rights of indemnity, contribution or subrogation under applicable law or
otherwise shall be fully subordinated to and shall not be exercised prior to the
indefeasible payment in full of the Obligations. No failure on the part of the
Borrower or any Guarantor to make the payments required by Sections 1 and 2 (or
any other payments required under applicable law or otherwise) shall in any
respect limit the obligations and liabilities of any Guarantor with respect to
any Guarantee, and each Guarantor shall remain liable for the full amount of the
obligations of such Guarantor under each such Guarantee.
SECTION 4. Termination. This Agreement shall survive and be in full force
and effect so long as any Obligation is outstanding and has not been
indefeasibly paid in full in cash and shall continue to be effective or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any Obligation is rescinded or must otherwise be restored by any Lender or any
Guarantor upon the bankruptcy or reorganization of the Borrower, any Guarantor
or otherwise.
SECTION 5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. No Waiver. No failure on the part of the Administrative Agent or
any Guarantor to exercise, and no delay in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy by the Administrative Agent
or any Guarantor preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. All remedies hereunder are cumulative and
are not exclusive of any other remedies provided by law. None of the
Administrative Agent and the Guarantors shall be deemed to have waived any
rights hereunder unless such waiver shall be in writing and signed by such
parties.
<PAGE>
3
SECTION 7. Notices. All communications and notices hereunder shall be in
writing and given as provided in Section 13 of the Guarantee Agreement and
addressed as specified in such Section 13.
SECTION 8. Binding Agreement; Assignments etc. Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of the parties that are contained in this
Agreement shall bind and inure to the benefit of their respective successors and
assigns. Neither the Borrower nor any of the Guarantors may assign or transfer
any of its rights or obligations hereunder (and any such attempted assignment or
transfer shall be void) without the prior written consent of the Required
Lenders.
SECTION 9. Survival of Agreement; Severability. (a) All covenants and
agreements made by the Borrower and each Guarantor herein and in the
certificates or other instruments prepared or delivered in connection with this
Agreement or the other Loan Documents shall be considered to have been relied
upon by the Administrative Agent, the other Lenders and each Guarantor and shall
survive the making by the Lenders of the Loans and shall continue in full force
and effect as long as the principal of or any accrued interest on any Loans or
any other fee or amount payable under the Loan Agreement or this Agreement or,
without duplication of the foregoing, under any of the other Loan Documents is
outstanding and unpaid and as long as the Commitments have not been terminated.
(b) In case any one or more of the provisions contained in this Agreement
should be held invalid, illegal or unenforceable in any respect, no party hereto
shall be required to comply with such provision for so long as such provision is
held to be invalid, illegal or unenforceable, but the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 10. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument. This Agreement shall be
effective with respect to any Guarantor when a counterpart bearing the signature
of such Guarantor shall have been delivered to and executed by the
Administrative Agent.
SECTION 11. Rules of Interpretation. The rules of interpretation specified
in Section 1.2 of the Loan Agreement shall be applicable to this Agreement.
<PAGE>
4
SECTION 12. Jurisdiction; Consent to Service of Process. (a) The
Administrative Agent, the Borrower and each Guarantor hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any New York State court or Federal court of the United States
of America sitting in New York City, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Agreement, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York State or,
to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Each of the parties hereto agrees that it
will not institute or seek to institute any action or proceeding arising out of
or relating to this Agreement (other than an action or proceeding seeking
enforcement of a judgment) in any forum other than a New York State court or
Federal court of the United States of America sitting in New York City.
(b) The Administrative Agent, the Borrower and each Guarantor hereby
irrevocably and unconditionally waive, to the fullest extent it may legally and
effectively do so, any objection it may now or hereafter have to the laying of
venue of any suit, action or proceeding arising out of or relating to this
Agreement in any New York State or Federal court of the United States of America
sitting in New York. Each of the parties hereto hereby irrevocably waives, to
the fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of process
in the manner provided for notices in Section 7. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.
SECTION 13. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
<PAGE>
5
SECTION 14. Additional Guarantors. Pursuant to Section 5.10 of the Loan
Agreement each Subsidiary (other than Foreign Subsidiaries) that was not in
existence or not such a Subsidiary on the date of the Loan Agreement is required
to enter into the Guarantee Agreement as a Guarantor upon becoming a Subsidiary.
Upon execution and delivery, after the date hereof, by the Administrative Agent
and such a Subsidiary of an instrument in the form of Annex 1, such Subsidiary
shall become a Guarantor hereunder with the same force and effect as if
originally named as a Guarantor hereunder. The execution and delivery of any
instrument adding an additional Guarantor as a party to this Agreement shall not
require the consent of any Guarantor hereunder or the Borrower. The rights and
obligations of each Guarantor hereunder shall remain in full force and effect
notwithstanding the addition of any new Guarantor as a party to this Agreement.
SECTION 15. Amendment. Neither this Agreement nor any provision hereof may
be waived, amended or modified except pursuant to a written agreement entered
into between the Guarantor and the Administrative Agent, with the prior written
consent of the Required Lenders (except as otherwise provided in the Loan
Agreement).
<PAGE>
6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first appearing above.
SCHEIN PHARMACEUTICAL, INC.,
by
_______________________
Name:
Title:
SCHEIN PHARMACEUTICAL
INTERNATIONAL, INC.,
by
_______________________
Name:
Title:
SCHEIN PHARMACEUTICAL PA, INC.,
by
_______________________
Name:
Title:
SCHEIN PHARMACEUTICAL SERVICE
COMPANY, INC.,
by
_______________________
Name:
Title:
<PAGE>
7
STERIS LABORATORIES, INC.,
by
_______________________
Name:
Title:
MARSAM PHARMACEUTICALS INC.,
by
_______________________
Name:
Title:
DANBURY PHARMACAL, INC.,
by
_______________________
Name:
Title:
DANBURY PHARMACAL PUERTO
RICO, INC.,
by
_______________________
Name:
Title:
SOCIETE GENERALE, as Administrative
Agent,
by
_______________________
Name:
Title:
<PAGE>
Annex 1 to
the Indemnity, Subrogation
and Contribution Agreement
SUPPLEMENT NO. ____ dated as of __________ to the
Indemnity, Subrogation and Contribution Agreement dated as
of December 20, 1996, (as the same may be amended, restated,
supplemented, modified or waived from time to time, the
"Indemnity, Subrogation and Contribution Agreement"), among
SCHEIN PHARMACEUTICAL, a Delaware corporation (the
"Borrower"); each Subsidiary listed on the signature pages
thereof (the "Guarantors"); and SOCIETE GENERALE, as
administrative agent (in such capacity, the "Administrative
Agent") for the Lenders (as defined in the Loan Agreement).
A. Reference is made to the Senior Subordinated Loan Agreement dated as of
December 20, 1996 (as amended, restated, supplemented, modified or waived from
time to time, the "Loan Agreement"), among the Borrower, the financial
institutions party thereto (the "Lenders") and Societe Generale, as
administrative agent (in such capacity, the "Administrative Agent").
B. Capitalized terms used herein and not otherwise defined herein shall
heave the meanings assigned to such terms in the Indemnity, Subrogation and
Contribution Agreement and the Loan Agreement.
C. The Borrower and the Subsidiaries have entered into the Indemnity,
Subrogation and Contribution Agreement in order to induce the Lenders to make
Loans. Pursuant to Section 5.10 of the Loan Agreement, each Subsidiary (other
than any Foreign Subsidiary) that was not in existence or not such a Subsidiary
or was a subsidiary of the Company on the date of the Loan Agreement is required
to enter into the Indemnity, Subrogation and Contribution Agreement as a
Guarantor upon becoming a Subsidiary. Section 14 of the Indemnity, Subrogation
and Contribution Agreement provides that additional Subsidiaries may become
Guarantors under the Indemnity, Subrogation and Contribution Agreement by
execution and delivery of an instrument in the form of this Supplement. The
undersigned Subsidiary (the "New Guarantor") is executing this Supplement in
accordance with the requirements of the Loan Agreement to become a Guarantor
under the Indemnity, Subrogation and Contribution Agreement as consideration for
Loans previously made.
Accordingly, the Administrative Agent and the New Guarantor agree as
follows:
SECTION 1. In accordance with Section 14 of the Indemnity, Subrogation and
Contribution Agreement, the New Guarantor by its signature below becomes a
Guarantor under the Indemnity, Subrogation and Contribution Agreement with the
same force and effect as if originally named therein as a Guarantor and the
<PAGE>
2
New Guarantor hereby agrees (a) to all the terms and provisions of the
Indemnity, Subrogation and Contribution Agreement applicable to it as a
Guarantor thereunder and (b) represents and warrants that the representations
and warranties made by it as a Guarantor thereunder are true and correct on and
as of the date hereof, except to the extent such representations and warranties
speak as of an earlier date. Each reference to a "Guarantor" in the Indemnity,
Subrogation and Contribution Agreement shall be deemed to include the New
Guarantor. The Indemnity, Subrogation and Contribution Agreement, as
supplemented hereby, is hereby incorporated herein by reference.
SECTION 2. The New Guarantor represents and warrants to the Administrative
Agent and the other Lenders that this Supplement has been duly authorized,
executed and delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium or other similar laws affecting creditors'
rights generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity).
SECTION 3. This Supplement may be executed in two or more counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one instrument. This Supplement shall become
effective when the Administrative Agent shall have received counterparts of this
Supplement that, when taken together, bear the signatures of the New Guarantor
and the Administrative Agent.
SECTION 4. The New Guarantor hereby represents and warrants that set forth
under its signature hereto is the true and correct location of the chief
executive office of the New Guarantor.
SECTION 5. Except as expressly supplemented hereby, the Indemnity,
Subrogation and Contribution Agreement shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect,
neither party hereto shall be required to comply with such provision for so long
as such provision is held to be invalid, illegal or unenforceable, but the
validity, legality and enforceability of the remaining provisions contained
herein and in the Indemnity, Subrogation and Contribution Agreement shall not in
any way be affected or impaired. The parties hereto shall endeavor in good-faith
negotiations to replace the invalid,
<PAGE>
3
illegal or unenforceable provisions with valid provisions the economic effect of
which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 8. All communications and notices hereunder shall be in writing and
given as provided in Section 7 of the Indemnity, Subrogation and Contribution
Agreement. All communications and notices hereunder to the New Guarantor shall
be given to it at the address set forth under its signature hereto, with a copy
to the Borrower.
SECTION 9. The New Guarantor agrees to reimburse the Administrative Agent
for its reasonable out-of-pocket expenses in connection with this Supplement,
including the reasonable fees, other charges and disbursements of counsel for
the Administrative Agent.
SECTION 10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
<PAGE>
4
IN WITNESS WHEREOF, the New Guarantor and the Administrative Agent have
duly executed this Supplement to the Indemnity, Subrogation and Contribution
Agreement as of the day and year first above written.
[NAME OF NEW GUARANTOR],
by
______________________________
Name:
Title:
Address: _____________________
_____________________
_____________________
SOCIETE GENERALE, as
Administrative Agent,
by
______________________________
Name:
Title:
<PAGE>
DRAFT - 12/20/96
EXHIBIT G
to the Loan Agreement
December __, 1996
To Societe Generale, as Administrative Agent
To the Lenders under the Loan Agreement
referred to below
Ladies and Gentlemen:
We have acted as special New York counsel to Schein Pharmaceutical, Inc., a
Delaware corporation (the "Borrower"), and the subsidiaries of the Borrower
listed on Annex 1 attached hereto (the "Subsidiaries" and, together with the
Borrower, the "Obligors") in connection with the preparation, execution and
delivery of the Senior Subordinated Loan Agreement dated as of December ___,
1996 (the "Loan Agreement") among the Borrower, the Lenders from time to time
party thereto, and Societe Generale as administrative agent (in such capacity,
the "Administrative Agent"), providing for, among other things, the making of
loans by the Lenders in an aggregate principal amount of $100,000,000. This
opinion is being delivered to you at the request of the Obligors pursuant to
Section 4.2 of the Loan Agreement. All capitalized terms used but not defined in
this opinion have the respective meanings given them in the Loan Agreement.
For purposes of this opinion, we have examined the following documents each
dated the date hereof (collectively the "Loan Documents"):
(a) the Loan Agreement;
(b) the Guarantee Agreement;
(c) the Conversion Note Registration Rights Agreement; and
<PAGE>
(d) the Indemnity, Subrogation and Contribution Agreement.
In giving this opinion, we have assumed, with your permission, the
genuineness of all signatures, the legal capacity of natural persons and the
authenticity of all documents we have examined. As to questions of fact relevant
to this opinion, with your permission and without any independent investigation
or verification, we have relied upon, and assumed the accuracy of, the
representations and warranties of each party in the Loan Documents and have
relied upon certificates of officers of the Obligors (each a "Fact Certificate")
and written statements of certain public officials. We also have assumed, with
your permission and without any independent verification, compliance by each
party to the Loan Documents with its agreements in the respective Loan
Documents, and that each Loan Document constitutes the legal, valid and binding
obligation of each party to it (other than the Obligors) and is enforceable
against each such party in accordance with its terms. In addition, we have
assumed, with your permission and without any independent verification, that:
(i) the execution, delivery and performance of each of its obligations
under the Loan Documents does not and will not conflict with, violate,
breach or constitute a default under, or require any consent under, (A) any
law, rule or regulation to which the Obligors are subject (other than those
as to which we express our opinion in paragraph 6(a) below), (B) any order,
writ, injunction or decree of any court or governmental authority or any
arbitral award (other than those as to which we express our opinion in
paragraph 6(b) below) or (C) any agreement or instrument to which the
Obligors or their properties are subject (other than those as to which we
express our opinion in paragraph 6(c) below); and
(ii) no approval, authorization or other action by, or filing with,
any court or governmental authority (other than those as to which we
express our opinion in paragraph 7 below) is required to authorize or is
required in connection with the execution, delivery or performance by the
Obligors of the Loan Documents or the transactions contemplated by the Loan
Documents.
Based upon and subject to the foregoing and the comments and qualifications
set forth below, we are of the opinion that:
2
<PAGE>
actual knowledge of any actions, suits or proceedings at law or in equity or by
or before any Governmental Authority now pending or threatened against or
affecting any of the Obligors or any business, property or rights of any such
person (a) that involve any Loan Documents or (b) as to which there is a
likelihood of an adverse determination and that, if adversely determined, could
reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect.
9. Neither the Borrower nor any Subsidiary is an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
10. Neither the Borrower nor any Subsidiary is a "holding company" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
The opinions expressed herein are subject to the following qualifications
and comments:
(a) The enforceability of each Loan Document against each Obligor that is a
party to it may be limited by bankruptcy, insolvency, fraudulent conveyance,
fraudulent transfer, reorganization, moratorium and other similar laws relating
to or affecting creditors' rights generally and by general equitable principles
(regardless of whether enforcement is sought in equity or at law), including,
without limitation, principles regarding good faith and fair dealing. In
addition, we express no opinion as to the enforceability of (i) provisions that
purport to establish evidentiary standards, (ii) provisions exculpating a party
from, or indemnifying a party for (or entitling a party to contribution in a
case involving), its own gross negligence, willful misconduct or violation of
securities or other laws, (iii) provisions relating to the availability of
specific remedies or relief, or the release or waiver of any remedies or rights
or time periods in which claims are required to be asserted, (iv) provisions
that allow cumulative remedies or (v) provisions relating to the discharge of
defenses or disclaimers, liability limitations or limitations of the obligations
of any Lender or the Administrative Agent or an Obligor under any of the Loan
Documents.
(b) Insofar as the opinion in paragraph 5 relates to the Guarantee
Agreement, we have with your permission assumed the adequacy of the
consideration that supports the Guarantee Agreement and the solvency and
adequacy of capital of each of the Subsidiaries.
(c) We express no opinion as to (i) the effect of the law of any
jurisdiction in which the Administrative
4
<PAGE>
Agent or any Lender is located (other than the State of New York) that limits
the interest, fees or other charges that may be imposed under the Loan
Documents, (ii) section 10.6 of the Loan Agreement, and any similar provisions
in the other Loan Documents, insofar as such provision authorizes the set-off
and application of any deposits or other funds at any time held, and any other
indebtedness at any time owing, by a party to and for the account of any of the
other parties, (iii) any provision that any Lender purchasing a participation
from another Lender may exercise set-off or similar rights with respect to that
participation, (iv) section 10.15 of the Loan Agreement and any similar
provisions in the other Loan Documents, insofar as such provisions relate to the
subject matter jurisdiction of any State or Federal court in New York, New York
to adjudicate any controversy relating to the Loan Documents and (v) any laws or
other matters administered by or subject to the jurisdiction of the United
States Food and Drug Administration or similar state or foreign Governmental
Authorities.
This opinion is addressed to you and is solely for your benefit and only in
connection with the transactions contemplated by the Loan Documents. This
opinion is limited to the federal law of the United States, the Delaware General
Corporation Law and the law of the State of New York, and we express no opinion
as to the law of any other jurisdiction.
This opinion may not be relied upon by any person for any purpose other
than in connection with the transactions contemplated by the Loan Agreement
without, in each instance, our prior written consent.
Very truly yours,
5
<PAGE>
ANNEX 1
SUBSIDIARIES
Schein Pharmaceutical International, Inc.
Schein Pharmaceutical PA, Inc.
Schein Pharmaceutical Service Company
Steris Laboratories, Inc.
Danbury Pharmacal, Inc.
Danbury Pharmacal Puerto Rico, Inc.*
Marsam Pharmaceuticals, Inc.
* - Shares held by Danbury Pharmacal, Inc.
<PAGE>
EXHIBIT 4.4
OFFERING MEMORANDUM CONFIDENTIAL
$100,000,000
[LOGO] SCHEIN PHARMACEUTICAL
SENIOR FLOATING RATE NOTES DUE 2004
-----------------
Schein Pharmaceutical, Inc. ("Schein" or the "Company") is offering (the
"Offering") $100,000,000 of Senior Floating Rate Notes due 2004 (the "Notes").
Interest on the Notes will be payable quarterly on January 15, April 15, July
15 and October 15 of each year, commencing on January 15, 1998, at a rate per
annum equal to the Applicable LIBOR Rate (as defined herein). Interest on the
Notes will be reset quarterly. The Notes will mature on December 15, 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 redemption prices set forth
herein, plus accrued and unpaid interest thereon, to the date of redemption.
Upon the occurrence of a Change of Control (as defined herein), 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 thereon, to the date of repurchase. The Company currently
expects to repurchase or redeem a portion of the Notes offered hereby. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Notes."
The indebtedness evidenced by the Notes will be senior unsecured obligations
of the Company, will rank pari passu in right of payment with all existing and
future senior 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. Holders of secured indebtedness of
the Company, including the lenders under the Senior Credit Agreement (as
defined herein), will have claims with respect to the assets constituting
collateral for such indebtedness that are prior to the claims of holders of
the Notes. In the event of a default on the Notes, or a bankruptcy,
liquidation or reorganization of the Company, such assets will be available to
satisfy obligations with respect to the indebtedness secured thereby before
any payment therefrom could be made on the Notes. To the extent that the value
of such collateral is not sufficient to satisfy the indebtedness secured
thereby, amounts remaining outstanding on such indebtedness would be entitled
to share with the Notes and their claims with respect to any other assets of
the Company. As of September 27, 1997, as adjusted for the Offering, the
Company and its Restricted Subsidiaries (as defined herein) would have had
secured indebtedness of approximately $160.6 million outstanding. The
obligations of the Company and the Guarantors (as defined herein) under the
Senior Credit Agreement are secured by substantially all of the assets of the
Company and the Guarantors. As of September 27, 1997, as adjusted for the
Offering, the Company would have had approximately $69.8 million of undrawn
availability under the Senior Credit Agreement. The Indenture relating to the
Notes (the "Indenture") will permit the Company and the Restricted
Subsidiaries to incur additional Indebtedness (as defined herein), including
Secured Indebtedness (as defined herein), subject to certain limitations. See
"Description of Notes."
All of the Company's existing and future Restricted Subsidiaries will
unconditionally guarantee on a senior unsecured basis the performance and
punctual payment when due, whether at maturity, by acceleration or otherwise,
of all obligations of the Company under the Indenture and the Notes (the
"Subsidiary Guarantees"). Each of the Guarantors has guaranteed the Company's
indebtedness under the Senior Credit Agreement on a senior secured basis. The
Subsidiary Guarantees will rank pari passu in right of payment with all
existing and future unsecured senior indebtedness of the Guarantors and senior
in right of payment to all future subordinated indebtedness of the Guarantors.
The Subsidiary Guarantee of each Guarantor will be effectively subordinated to
the prior payment in full of all secured indebtedness of such Guarantors,
including secured indebtedness under the Senior Credit Agreement. See
"Description of Notes--Guarantees."
The Notes have been designated eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages (PORTAL) market. The
Company and the Restricted Subsidiaries have agreed, for the benefit of all
holders of the Notes, that, after the sale of the Notes, they will file a
registration statement relating to an exchange offer for the Notes under the
Securities Act (as defined herein) for another series of notes with
substantially the same terms as the Notes offered hereby. See "Exchange Offer
and Registration Rights Agreement."
-----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
-----------------
The offering price of the Notes is 97.500% plus accrued interest, if any, from
December 24, 1997.
-----------------
THE NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND, UNLESS SO
REGISTERED, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. ACCORDINGLY, THE
NOTES ARE BEING OFFERED AND SOLD HEREBY ONLY TO (A) QUALIFIED
INSTITUTIONAL BUYERS (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
IN RELIANCE ON THE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER, AND (B) TO A LIMITED
NUMBER OF INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT EXECUTE AND
DELIVER A LETTER CONTAINING REPRESENTATIONS AND AGREEMENTS.
PROSPECTIVE PURCHASERS ARE HEREBY NOTIFIED THAT SELLERS OF THE NOTES
MAY BE RELYING ON THE EXEMPTION FROM PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A. FOR CERTAIN RESTRICTIONS ON
RESALES, SEE "TRANSFER RESTRICTIONS."
-----------------
The Notes are offered by the Company, subject to prior sale, when, as and if
delivered to and accepted by the Initial Purchaser (as defined herein) and
subject to certain other conditions. The Initial Purchaser reserves the right
to withdraw, cancel or modify such offer and to reject orders in whole or in
part. It is expected that delivery of the Notes to qualified institutional
buyers will be made against payment therefor on or about December 24, 1997, in
book-entry form through the facilities of The Depository Trust Company.
Delivery of Notes to institutional accredited investors will be made in
certificated form on the same date. See "Description of Notes--Book-Entry;
Delivery and Form" and "Description of Notes--Certificated Securities."
SOCIETE GENERALE
Securities Corporation
December 19, 1997
<PAGE>
[INSERT PICTURES.]
The information in the captions above is presented as of December 3, 1997
and is subject to change. No assurance can be given that any of the Company's
products covered by pending Abbreviated New Drug Applications ("ANDAs") or
other products under development will be successfully developed or approved by
the United States Food and Drug Administration ("FDA") or achieve significant
revenue or profitability.
----------------
INFeD(R) is a registered trademark of the Company; and Ferrlecit(R) and
Unipine XL(R) are registered trademarks of Makoff R&D Laboratories, Inc. and
Ethical Holdings plc, respectively.
----------------
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVERALLOTMENT, STABILIZING TRANSACTIONS AND SYNDICATE SHORT COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF
DISTRIBUTION."
THIS OFFERING MEMORANDUM (THE "OFFERING MEMORANDUM") IS BEING PROVIDED ON A
CONFIDENTIAL BASIS TO QUALIFIED INSTITUTIONAL BUYERS AND TO A LIMITED NUMBER
OF INSTITUTIONAL ACCREDITED INVESTORS FOR INFORMATIONAL USE SOLELY IN
CONNECTION WITH THE CONSIDERATION OF THE PURCHASE OF THE NOTES. ITS USE FOR
ANY OTHER PURPOSE IS NOT AUTHORIZED. IT MAY NOT BE COPIED OR REPRODUCED IN
WHOLE OR IN PART, NOR MAY IT BE DISTRIBUTED OR ANY OF ITS CONTENTS BE
DISCLOSED TO ANYONE OTHER THAN THE PROSPECTIVE INVESTORS TO WHOM IT IS BEING
PROVIDED.
THE INFORMATION CONTAINED IN THIS OFFERING MEMORANDUM HAS BEEN PROVIDED BY
THE COMPANY ON A CONFIDENTIAL BASIS SOLELY TO THE PROSPECTIVE PURCHASERS OF
THE NOTES. NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, IS MADE BY THE
INITIAL PURCHASER AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION
CONTAINED IN THIS OFFERING MEMORANDUM (INCLUDING, WITHOUT LIMITATION, THE
FINANCIAL DATA CONTAINED HEREIN), AND NOTHING CONTAINED IN THIS OFFERING
MEMORANDUM IS, OR SHALL BE RELIED UPON AS, A PROMISE OR REPRESENTATION BY THE
INITIAL PURCHASER AS TO THE PAST OR THE FUTURE. THE INITIAL PURCHASER DOES NOT
ASSUME ANY RESPONSIBILITY FOR THE ACCURACY OR COMPLETENESS OF SUCH
INFORMATION. IN MAKING AN INVESTMENT DECISION, PROSPECTIVE INVESTORS MUST RELY
ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING,
INCLUDING THE MERITS AND RISKS INVOLVED. THE CONTENTS OF THIS OFFERING
MEMORANDUM ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS OR TAX ADVICE. EACH
PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN ATTORNEY, BUSINESS ADVISOR AND TAX
ADVISOR AS TO LEGAL, BUSINESS OR TAX ADVICE. PROSPECTIVE INVESTORS MAY OBTAIN
ADDITIONAL INFORMATION UPON REQUEST FROM THE INITIAL PURCHASER OR THE COMPANY
THAT THEY MAY REASONABLY REQUIRE IN CONNECTION WITH THE DECISION TO PURCHASE
ANY OF THE NOTES.
THE NOTES DESCRIBED HEREIN HAVE NOT BEEN REGISTERED WITH, RECOMMENDED BY OR
APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY
OTHER FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY, NOR HAS
ANY SUCH COMMISSION OR REGULATORY AUTHORITY REVIEWED OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS OFFERING MEMORANDUM. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE NOTES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. PROSPECTIVE INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
EACH PURCHASER OF NOTES OFFERED HEREBY WILL BE DEEMED TO HAVE MADE CERTAIN
ACKNOWLEDGEMENTS, REPRESENTATIONS AND AGREEMENTS AS SET FORTH UNDER "TRANSFER
RESTRICTIONS."
EACH PROSPECTIVE PURCHASER OF THE NOTES MUST COMPLY WITH ALL LAWS AND
REGULATIONS APPLICABLE TO IT IN FORCE IN ANY JURISDICTION IN WHICH IT
PURCHASES, OFFERS OR SELLS THE NOTES OR POSSESSES OR DISTRIBUTES THIS OFFERING
MEMORANDUM AND MUST OBTAIN ANY CONSENT, APPROVAL OR PERMISSION REQUIRED TO BE
OBTAINED BY IT FOR THE PURCHASE, OFFER OR SALE BY IT OF THE NOTES UNDER THE
LAWS AND
i
<PAGE>
REGULATIONS APPLICABLE TO IT IN FORCE IN ANY JURISDICTION TO WHICH IT IS
SUBJECT OR IN WHICH IT MAKES SUCH PURCHASES, OFFERS OR SALES, AND NEITHER THE
COMPANY NOR THE INITIAL PURCHASER SHALL HAVE ANY RESPONSIBILITY THEREFOR.
THIS OFFERING MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE NOTES BY ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE AN OFFERING OR A
SOLICITATION.
THIS OFFERING IS BEING MADE IN THE UNITED STATES IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT FOR AN OFFER AND SALE OF
SECURITIES WHICH DOES NOT INVOLVE A PUBLIC OFFERING. EACH PURCHASER OF THE
NOTES OFFERED HEREBY IN MAKING ITS PURCHASE WILL BE DEEMED TO HAVE MADE
CERTAIN ACKNOWLEDGEMENTS, REPRESENTATIONS AND AGREEMENTS AS SET FORTH HEREIN
UNDER "TRANSFER RESTRICTIONS."
This Offering Memorandum is highly confidential and has been prepared by the
Company solely for use in connection with this Offering. The Initial Purchaser
reserves the right to reject any offer to purchase any of the Notes, in whole
or in part, for any reason, or to sell less than all of the Notes offered
hereby or for which any prospective purchaser has subscribed. This Offering
Memorandum is personal to each offeree and does not constitute an offer to any
other person or to the public generally to subscribe for or otherwise acquire
the Notes. Distribution of this Offering Memorandum to any person other than
the offeree and those persons, if any, retained to advise such offeree with
respect hereto is unauthorized, and any disclosure of any of its contents,
without the prior written consent of the Company, is prohibited. Each person
receiving this Offering Memorandum represents that such person's investment
decision is based solely on this Offering Memorandum and that such person is
not relying on any other information it may have received from the Company,
the Initial Purchaser or any other person. Each prospective purchaser, by
accepting delivery of this Offering Memorandum, agrees to the foregoing and to
make no photocopies of this Offering Memorandum or any documents delivered
pursuant hereto and, if the offeree does not purchase the Notes, or the
Offering is terminated, to return this Offering Memorandum and all documents
delivered pursuant hereto to Societe Generale Securities Corporation, 1221
Avenue of the Americas, New York, New York 10020, Attention: High Yield
Capital Markets.
MARKET DATA USED THROUGHOUT THIS OFFERING MEMORANDUM WERE OBTAINED FROM
INTERNAL COMPANY SURVEYS, INDUSTRY PUBLICATIONS AND CURRENTLY AVAILABLE
INFORMATION. INDUSTRY PUBLICATIONS GENERALLY STATE THAT THE INFORMATION
CONTAINED THEREIN HAS BEEN OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE, BUT
THERE CAN BE NO ASSURANCE AS TO THE ACCURACY AND COMPLETENESS OF SUCH
INFORMATION. THE COMPANY HAS NOT INDEPENDENTLY VERIFIED SUCH MARKET DATA.
SIMILARLY, INTERNAL COMPANY SOURCES, WHILE BELIEVED BY THE COMPANY TO BE
RELIABLE, HAVE NOT BEEN VERIFIED BY ANY INDEPENDENT SOURCES.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS OFFERING
MEMORANDUM, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
INITIAL PURCHASER. THE INFORMATION CONTAINED HEREIN IS AS OF THE DATE HEREOF
AND SUBJECT TO CHANGE, COMPLETION OR AMENDMENT WITHOUT NOTICE. NEITHER THE
DELIVERY OF THIS OFFERING MEMORANDUM AT ANY TIME NOR ANY SUBSEQUENT COMMITMENT
TO ENTER INTO ANY FINANCING SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN
OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
ii
<PAGE>
THIS OFFERING MEMORANDUM CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS"
CONCERNING THE COMPANY'S OPERATIONS, OPERATING PERFORMANCE AND FINANCIAL
CONDITION, WHICH ARE SUBJECT TO INHERENT UNCERTAINTIES AND RISKS, INCLUDING
THOSE IDENTIFIED UNDER "RISK FACTORS." ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THIS OFFERING MEMORANDUM. WHEN USED IN THIS OFFERING
MEMORANDUM, THE WORDS "ESTIMATE," "PROJECT," "ANTICIPATE," "EXPECT," "INTEND,"
"BELIEVE" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS.
IT IS EXPECTED THAT DELIVERY OF THE NOTES WILL BE MADE AGAINST PAYMENT
THEREFOR ON OR ABOUT THE DATE SPECIFIED IN THE LAST PARAGRAPH OF THE COVER
PAGE OF THIS OFFERING MEMORANDUM, WHICH WILL BE THE THIRD BUSINESS DAY
FOLLOWING THE DATE HEREOF. SEE "PLAN OF DISTRIBUTION."
Notes to be resold to qualified institutional buyers as set forth herein
will initially be issued in the form of one Global Note (the "Global Note").
The Global Note will be deposited on the date of the closing of the sale of
the Notes offered hereby (the "Closing Date") with, or on behalf of, The
Depository Trust Company (the "Depositary") and registered in the name of Cede
& Co., as nominee of the Depositary (such nominee being referred to herein as
the "Global Note Holder"). Beneficial interests in the Global Note
representing the Notes will be shown on, and transfers thereof to qualified
institutional buyers will be effected through, records maintained by the
Depositary and its participants. Notes that are issued to institutional
accredited investors as described under "Description of Notes--Book-Entry;
Delivery and Form" and "Description of Notes--Certificated Securities" will be
issued in the form of registered definitive certificates (the "Certificated
Notes"). See "Description of Notes--Book-Entry; Delivery and Form" and
"Description of Notes--Certificated Securities."
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER RSA 421-B WITH THE STATE OF NEW HAMPSHIRE NOR THE
FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE
STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT
ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING.
NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE
FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED
IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN
APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR
CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT, ANY
REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
NOTICE TO FLORIDA RESIDENTS
PURSUANT TO SECTION 517.061(11)(a)(5) OF THE FLORIDA SECURITIES ACT, YOU
HAVE THE RIGHT TO RESCIND YOUR SUBSCRIPTION (UNLESS YOU ARE AN INSTITUTIONAL
INVESTOR DESCRIBED IN SECTION 517.061(7) OF THE FLORIDA SECURITIES ACT) BY
GIVING NOTICE OF SUCH RESCISSION BY TELEPHONE, TELEGRAPH OR LETTER, WITHIN
THREE DAYS AFTER YOU FIRST TENDER CONSIDERATION TO THE INITIAL PURCHASER. IF
NOTICE IS NOT RECEIVED BY SUCH TIME, THE FOREGOING RIGHT OF RESCISSION SHALL
BE NULL AND VOID.
iii
<PAGE>
OFFERING MEMORANDUM 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 Offering Memorandum, including
information under "Risk Factors." All references to the Company's operations
for a particular fiscal year refer to the 52-53 week period ended on the last
Saturday in December of that year, and all references to the Company's
operations for a particular fiscal quarter refer to the three month period
ended on the last Saturday in that quarter. Unless otherwise indicated, all
references to "Schein Pharmaceutical," "Schein" or the "Company" refer
collectively to Schein Pharmaceutical, Inc. and its predecessors and
subsidiaries.
THE COMPANY
Schein Pharmaceutical is one of the leading generic pharmaceutical companies
in the United States. The Company develops, manufactures and markets one of the
broadest generic product lines in the pharmaceutical industry through the
integration of its product development expertise, diverse, high-volume
production capacity and direct sales and marketing force. The Schein product
line includes both solid dosage and sterile dosage generic products, and the
Company is also developing a line of specialty branded pharmaceuticals. The
Company's primary branded product, INFeD, is the leading injectable iron
product in the United States. The Company has a substantial pipeline of
products under development, including 24 ANDAs filed with FDA. The Company
supplements its internal product development, manufacturing and marketing
capabilities through strategic collaborations. Schein generated net revenues of
$478.0 million and EBITDA (as defined) of $55.8 million during the 12 months
ended September 1997.
The Company believes it manufactures and markets the broadest product line of
any U.S. pharmaceutical company in terms of number and types of products. The
Company manufactures and markets approximately 160 chemical entities formulated
in approximately 350 different dosages under approximately 200 ANDAs approved
by FDA. Schein is currently the sole manufacturing source for 47 generic
pharmaceutical products, of which 45 are sterile dosage products. The Company's
solid dosage products include both immediate-release and extended-release
capsules and tablets; sterile dosage products include solutions, suspensions,
powders and lyophilized (freeze-dried) products primarily for administration as
injections, ophthalmics and otics. The manufacture of sterile dosage products
is significantly more complex than the manufacture of solid dosage products,
which limits competition in this product area. The Company currently
manufactures approximately four billion solid dosage tablets and capsules and
75 million sterile dosage vials and ampules annually. Solid dosage generic
products and sterile dosage generic products each accounted for approximately
40% of the Company's net revenues in the 12 months ended September 1997.
Since introducing INFeD in 1992, the Company has been developing a portfolio
of branded products, primarily in select therapeutic markets, such as iron
management for the nephrology, oncology and hematology markets. INFeD is used
in the treatment of certain types of anemia, particularly in dialysis patients,
and accounted for approximately 20% of the Company's net revenues in the nine
months ended September 1997. The Company markets INFeD through a 20-person
dedicated sales and marketing force, as well as through co-marketing
collaborations with Bayer Corporation in the nephrology market and MGI Pharma,
Inc. ("MGI") in the oncology market.
The Company believes its 120-person direct sales and marketing force is the
largest in the U.S. generic pharmaceutical industry. Through its customized
marketing programs, the Company markets its products to 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.
1
<PAGE>
The Company's commitment to product development has resulted in 23 ANDA
approvals during the past three years and its current pipeline of 24 pending
ANDAs and over 60 additional products under development. During the past three
fiscal years, the Company, directly and through its strategic collaborations,
has expended approximately $74.0 million on product pipeline development
activities, which the Company believes is among the highest product development
expenditure levels for any independent generic drug company. The Company
pursues product development through its 140-person product development staff
and various collaborations and licensing arrangements with other pharmaceutical
and drug delivery technology companies. The Company's product development
efforts focus on: (i) major branded drugs coming off patent; (ii) drugs for
which patent protection has lapsed and for which there are few or no generic
producers; (iii) drugs whose patents may be susceptible to challenge; (iv)
proprietary and branded products focused in select therapeutic areas; and (v)
generic products that require specialized development, formulation, drug
delivery or manufacturing technology.
The Company supplements its internal product development, manufacturing and
marketing capabilities 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 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 Elan Corporation plc ("Elan") and Ethical Holdings plc ("Ethical"); raw
material supply arrangements with companies such as Johnson Matthey plc
("Johnson Matthey") and Abbott Laboratories ("Abbott"); and sales and marketing
arrangements with Bayer Corporation and other companies such as Elensys Care
Services, Inc. ("Elensys") and MGI.
Schein's objective is to become the leading generic pharmaceutical company in
the approximately $10 billion generic pharmaceutical industry in the United
States. The Company's strategy for achieving this objective comprises the
following five elements:
Leverage Diverse Pharmaceutical Formulation and Manufacturing Capabilities to
Extend the Breadth of Its Generic Product Line. The Company believes it
manufactures and markets the broadest product line of any U.S. pharmaceutical
company. This product line includes both solid dosage and sterile dosage
products comprising approximately 160 chemical entities in approximately 350
dosage forms and strengths under approximately 200 approved ANDAs. Solid dosage
forms include both immediate-release and extended-release capsules and tablets;
sterile dosage forms include solutions, suspensions, powders and lyophilized
(freeze-dried) products primarily for administration as injections, ophthalmics
and otics. The Company believes its diverse high-volume manufacturing
capabilities enable it to participate in segments of the generic drug industry
where competition is limited. As the U.S. generic drug market consolidates and
major drug buyers increasingly purchase from fewer suppliers, the Company
believes its high volume and diverse drug formulation and manufacturing
capabilities will constitute an important competitive advantage.
Pursue Strategic Collaborations to Supplement Product Development and
Manufacturing Resources. Schein has formed product development and marketing
alliances with several bulk pharmaceutical producers, drug delivery technology
companies and other drug manufacturers to expand the breadth of its product
development capabilities. Included among these are collaborations with drug
delivery companies, Elan and Ethical, and several bulk pharmaceutical and
finished dosage form producers. The Company plans to utilize collaborative and
licensing arrangements with third parties to share product development risk and
gain access to sales and marketing rights, dosage forms, proprietary drug
delivery technologies, specialized formulation capabilities and active
pharmaceutical ingredients.
2
<PAGE>
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 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 the Company expects that a New Drug
Application ("NDA") for its next generation injectable iron product will be
filed with FDA in the first half of 1998. The Company also is pursuing
opportunities to broaden its branded pharmaceutical product line by: (i)
formulating and developing, either internally or through development
collaborations, unique products that may be patented; (ii) acquiring products
developed by other drug companies; and (iii) acquiring formulation technologies
for developing new dosage forms of existing drugs.
Expand Market Penetration through Direct Sales and Innovative Marketing
Programs. The Company believes its 120-person direct sales and marketing force
is the largest in the U.S. generic pharmaceutical industry. This sales and
marketing force includes 90 field representatives, 20 telemarketing
representatives and 10 marketing personnel and covers all major customer
groups, including chain and independent drug retailers, managed care
organizations, pharmaceutical wholesalers, hospitals and group purchasing
organizations. The Company has developed market share initiatives with selected
leading chain and wholesale customers and developed and 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 (as
defined herein) in the nephrology market and MGI in the oncology market.
3
<PAGE>
THE OFFERING
Issuer...................... Schein Pharmaceutical, Inc.
Securities Offered.......... $100,000,000 principal amount of Senior Floating
Rate Notes due 2004.
Maturity Date............... December 15, 2004.
Interest Payment Dates...... January 15, April 15, July 15 and October 15 of
each year, commencing on January 15, 1998.
Optional Redemption......... The Notes will be redeemable, in whole or in
part, at the option of the Company, at any time,
at the redemption prices set forth herein, plus
accrued and unpaid interest thereon, to the date
of redemption. See "Description of Notes--
Optional Redemption."
Subsidiary Guarantees....... All of the Company's existing and future
Restricted Subsidiaries will unconditionally
guarantee on a senior unsecured basis the
performance and punctual payment when due,
whether at maturity, by acceleration or
otherwise, of all obligations of the Company
under the Indenture and the Notes. The Subsidiary
Guarantees will rank pari passu in right of
payment with all existing and future unsecured
senior indebtedness of the Guarantors and senior
in right of payment to all future subordinated
indebtedness of the Guarantors. Each of the
Guarantors has guaranteed the Company's
indebtedness under the Senior Credit Agreement on
a senior secured basis. The Subsidiary Guarantee
of each Guarantor will be effectively
subordinated to the prior payment in full of all
secured indebtedness of such Guarantors,
including secured indebtedness under the Senior
Credit Agreement. See "Description of Notes--
Guarantees."
Ranking..................... The indebtedness evidenced by the Notes will be
senior unsecured obligations of the Company, will
rank pari passu with all existing and future
senior 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.
Holders of secured indebtedness of the Company,
including the lenders under the Senior Credit
Agreement, will have claims with respect to the
assets constituting collateral for such
indebtedness that are prior to the claims of
holders of the Notes. In the event of a default
on the Notes, or a bankruptcy, liquidation or
reorganization of the Company, such assets will
be available to satisfy obligations with respect
to the indebtedness secured thereby before any
payment therefrom could be made on the Notes. To
the extent that such collateral is not sufficient
to satisfy the indebtedness secured thereby,
amounts remaining outstanding on such
indebtedness would be entitled to share with the
Notes and their claims with respect to any other
assets of the Company. As of September 27, 1997,
as adjusted for the Offering, the Company and its
Restricted
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<PAGE>
Subsidiaries would have had secured indebtedness
of approximately $160.6 million outstanding. The
obligations of the Company and the Guarantors
under the Senior Credit Agreement are secured by
substantially all of the assets of the Company
and the Guarantors. As of September 27, 1997, as
adjusted for the Offering, the Company would have
had approximately $69.8 million of undrawn
availability under the Senior Credit Agreement.
The Indenture relating to the Notes will permit
the Company and the Restricted Subsidiaries to
incur additional Indebtedness, including Secured
Indebtedness, subject to certain limitations. See
"Description of Notes."
Change of Control........... Upon a Change of Control, each holder of Notes
may require the Company to repurchase any or all
outstanding Notes owned by such holder at 101% of
the principal amount thereof, plus accrued and
unpaid interest thereon, to the date of
repurchase. See "Description of Notes--Change of
Control."
Restrictive Covenants....... The Indenture under which the Notes will be
issued will contain certain covenants pertaining
to the Company and its Restricted Subsidiaries,
including but not limited to covenants with
respect to the following matters: (i) limitations
on indebtedness; (ii) limitations on restricted
payments such as dividends, repurchases of the
Company's or subsidiaries' stock, repurchases of
subordinated obligations and investments; (iii)
limitations on liens; (iv) limitations on
engaging in certain lines of business; (v)
limitations on mergers, consolidations and
transfers of all or substantially all assets;
(vi) limitations on restrictions on distributions
from restricted subsidiaries; (vii) limitations
on sales of assets and of stock of subsidiaries;
(viii) limitations on transactions with
affiliates; (ix) limitations on the sale of
capital stock of restricted subsidiaries; and (x)
limitations on sale and leaseback transactions.
However, all of these covenants are subject to a
number of important qualifications and
exceptions. See "Description of Notes--Certain
Covenants."
Exchange Offer and
Registration................ The Company has agreed to (i) file, within 45
days after the Issue Date (as defined herein), a
registration statement (the "Exchange Offer
Registration Statement") with respect to an offer
to exchange the Notes (the "Registered Exchange
Offer") for a series of notes of the Company with
terms identical in all material respects to the
Notes (the "Exchange Notes"), (ii) use
commercially reasonable efforts to cause such
Exchange Offer Registration Statement to be
declared effective within the earlier of (A) 90
days after the Issue Date or (B) 30 days after
the effectiveness of the consummation of the
initial public offering of the Company's Common
Stock and (iii) consummate the Registered
Exchange Offer within 150 days after the Issue
Date. Such Exchange Notes, if issued, will bear
the rate of interest of the Notes immediately
prior to the consummation of the Exchange Offer
(as defined herein). In the event that the
applicable
5
<PAGE>
laws or interpretations of the staff of the
Commission do not permit the Company to effect
the Registered Exchange Offer, the Company will
use commercially reasonable efforts to cause to
become effective a shelf registration statement
(the "Shelf Registration Statement") with respect
to the resale of Notes and to keep the Shelf
Registration Statement effective until three
years from the Issue Date or such shorter period
that will terminate when all the Notes covered by
the Shelf Registration Statement have been sold.
The Company shall cause such Shelf Registration
Statement to be declared effective on or prior to
the latter of (x) the 120th day after the Issue
Date or (y) the 45th day after the publication of
the change in law or interpretation. In the event
that the Company does not comply with certain
covenants set forth in the Exchange and
Registration Rights Agreement (as defined herein)
to be executed by the Company and the Initial
Purchaser, the Company will be obligated to pay
certain additional interest to the holders of the
Notes. See "Exchange and Registration Rights
Agreement."
Transfer Restrictions;
Absence of a Public Market
for the Notes.............. The Notes have not been registered under the
Securities Act and are subject to restrictions on
transferability and resale. The Notes are new
securities, and there is currently no established
market for the Notes. If issued, the Exchange
Notes will generally be freely transferable
(subject to the restrictions discussed elsewhere
herein) but will be new securities for which
there will not initially be a market.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the
Notes or, if issued, the Exchange Notes. The
Notes have been designated eligible for trading
in the PORTAL market. The Initial Purchaser has
advised the Company that it currently intends to
make a market in the Notes. However, the Initial
Purchaser is not obligated to do so, and any
market making with respect to the Notes may be
discontinued at any time without notice. The
Company does not intend to apply for a listing of
the Notes, or, if issued, the Exchange Notes, on
any securities exchange or on any automated
dealer quotation system. See "Transfer
Restrictions."
Use of Proceeds............. The Company is amending the terms of the Senior
Subordinated Loan Agreement (as defined herein)
to allow for the issuance of the Notes and
intends to use the net proceeds of the Offering
to repay the Senior Subordinated Loan (as defined
herein). See "Use of Proceeds."
RISK FACTORS
Prospective purchasers of the Notes should carefully consider the information
set forth under the caption "Risk Factors" and all other information set forth
in this Offering Memorandum before making any investment in the Notes.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER SEPTEMBER
------------------------------------------------ ----------------------
1992 1993 1994 1995 (1) 1996 1996 1997
-------- -------- -------- -------- -------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $319,875 $393,926 $385,428 $391,846 $476,295 $352,172 $353,829
Cost of sales........... 207,276 217,653 237,380 250,507 320,675 236,721 240,562
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 112,599 176,273 148,048 141,339 155,620 115,451 113,267
COSTS AND EXPENSES:
Selling, general and
administrative........ 55,763 64,489 71,416 73,250 84,366 61,149 57,950
Research and
development........... 14,234 18,055 19,170 28,324 27,030 23,044 22,854
-------- -------- -------- -------- -------- -------- --------
42,602 93,729 57,462 39,765 44,224 31,258 32,463
Amortization of
goodwill and other
intangibles........... -- -- -- 3,399 10,195 7,713 7,722
Special compensation,
restructuring and
relocation (2)........ 7,417 8,426 33,594 -- -- -- --
Acquired in-process
Marsam research and
development (1)....... -- -- -- 30,000 -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating income........ 35,185 85,303 23,868 6,366 34,029 23,545 24,741
Interest expense, net.. 2,315 1,467 1,493 10,005 23,285 16,081 20,456
Other expense (income),
net (3)............... 195 9,215 579 779 4,156 1,745 (4,536)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
provision for income
taxes and minority
interest............... 32,675 74,621 21,796 (4,418) 6,588 5,719 8,821
Provision for income
taxes (4)............. 12,490 29,096 15,165 10,482 5,191 3,573 5,095
Minority interest...... 2,173 (343) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 18,012 $ 45,868 $ 6,631 $(14,900) $ 1,397 $ 2,146 $3,726
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA (as defined) (5). $ 39,748 $ 91,864 $ 61,074 $ 50,396 $ 54,932 $ 39,174 $ 40,037
Depreciation and
amortization........... 6,105 7,328 8,464 17,395 25,450 18,018 19,749
Capital expenditures,
net.................... 17,416 22,806 16,135 13,986 11,309 8,625 8,992
Ratio of earnings to
fixed charges (6)...... 10.6x 26.9x 8.0x -- 1.3x 1.3x 1.4x
PRO FORMA DATA:
Cash interest expense
(7).................... $ 23,488 $ 16,788 $ 17,897
Ratio of EBITDA (as
defined) to cash
interest expense....... 2.3x 2.3x 2.2x
Ratio of total debt to
EBITDA
(as defined) (8)....... -- -- 4.7x
<CAPTION>
DECEMBER AS OF AS ADJUSTED
------------------------------------------------ SEPTEMBER SEPTEMBER
1992 1993 1994 1995 1996 1997 1997 (9)
-------- -------- -------- -------- -------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 82,731 $ 87,035 $ 98,610 $ 92,021 $ 99,111 $ 93,480 $ 89,280
Total assets............ 211,744 227,861 269,729 522,410 544,312 520,699 524,899
Total debt.............. 44,625 27,563 45,927 280,558 286,480 256,413 260,613
Stockholders' equity.... 85,761 130,336 140,164 125,692 129,980 137,084 137,084
</TABLE>
7
<PAGE>
- --------
(1) Includes the results of Marsam from September 1995, the date of purchase.
In connection with the purchase of Marsam, the Company recognized acquired
in-process research and development. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 3 to
the Consolidated Financial Statements of the Company.
(2) Special compensation, restructuring and relocation expenses includes costs
recognized by the Company in connection with its restructuring and
relocation of its corporate headquarters. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Notes 2 and
12 to the Consolidated Financial Statements of the Company.
(3) Other expense (income), net in 1992 includes $0.5 million of an
extraordinary income item.
(4) Provision for income taxes in 1993 includes an adjustment to reduce income
taxes by $1.1 million relating to the adoption of Statement of Financial
Accounting Standards No. 109.
(5) EBITDA is defined as income (loss) before provision for income taxes and
minority interest, interest expense, net and depreciation and amortization,
excluding gains on sales of securities and non-cash items (special
compensation, acquired in-process Marsam research and development,
contingent settlement accruals, equity in net losses of international
investments and other non-cash items). The Company has included information
concerning EBITDA in this Offering Memorandum because it believes that such
information may be used by certain investors as one measure of a company's
historical ability to service debt. EBITDA should not be considered as an
alternative to, or more meaningful than, earnings from operations or other
traditional indications of a company's operating performance.
(6) The ratio of earnings to fixed charges is computed by dividing (i) income
(loss) before provision for income taxes and minority interest plus fixed
charges by (ii) fixed charges. Fixed charges consist of interest on
indebtedness including amortization of debt issuance costs and the
estimated interest component of rental expense (assumed to be one-third).
In fiscal 1995, fixed charges exceeded income (loss) before provision for
income taxes and minority interest by $4.4 million.
(7) Pro forma cash interest expense is defined as historical interest expense,
net adjusted for (i) the exclusion of amortization of deferred financing
fees of $2.2 million in fiscal 1996 and $0.9 million and $2.3 million in
the nine months ended September 1996 and 1997, respectively, (ii) interest
expense as if the Offering had occurred on December 31, 1995 and the
proceeds were used to repay the Senior Subordinated Loan or its predecessor
debt and (iii) interest expense associated with drawdowns under the
revolving credit facility under the Senior Credit Agreement which were used
to pay the $4.2 million in fees and expenses incurred as a result of the
Offering.
(8) The ratio of total debt to EBITDA (as defined) is computed by dividing (i)
EBITDA (as defined) for the twelve months ended September 1997 by (ii)
total debt as of September 1997 as adjusted for the Offering.
(9) As adjusted to give effect to the Offering and the payment of $4.2 million
in fees and expenses in connection therewith, using proceeds from the
Company's revolving credit facility under the Senior Credit Agreement.
8
<PAGE>
RISK FACTORS
Prospective investors in the Notes should carefully consider the following
risk factors, in addition to the other information set forth in this Offering
Memorandum, before making an investment in the Notes offered hereby. This
Offering Memorandum contains statements which constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Those statements appear in a number of places herein and include
statements regarding the intent, belief or current expectations of the
Company, primarily with respect to the future operating performance of the
Company or related industry developments. Prospective purchasers of the Notes
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual
results and industry developments may differ from those described in the
forward-looking statements as a result of various factors, many of which are
beyond the control of the Company. The information contained herein,
including, without limitation, the information set forth below and the
information under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations," identifies important factors
that could cause such differences.
RISK FACTORS RELATED TO THE NOTES
Substantial Leverage
The Company is highly leveraged. As of September 27, 1997, as adjusted for
the Offering, the Company would have had total consolidated indebtedness of
$260.6 million. In addition, subject to certain restrictions set forth in the
Senior Credit Agreement and the Indenture, the Company may incur additional
indebtedness in the future for acquisitions, capital expenditures and other
corporate purposes.
The Company's high degree of leverage could have important consequences,
including the following: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired;
(ii) a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on the Notes and its other
indebtedness, thereby reducing the funds available to the Company for other
purposes; (iii) the financial covenants and other restrictions contained in
the Senior Credit Agreement and the Indenture and other agreements relating to
the Company's indebtedness require the Company to meet certain financial
tests, restrict its ability to borrow additional funds and impose limitations
on the disposition of assets; (iv) obligations in respect of the Senior Credit
Agreement are, and the Notes will be, and other indebtedness of the Company
may be, at variable rates of interest, which expose the Company to the risk of
increased interest rates; (v) all of the indebtedness outstanding under the
Senior Credit Agreement is secured by substantially all the assets of the
Company and matures prior to the maturity of the Notes; (vi) the Company may
be substantially more leveraged than certain of its competitors, which may
place the Company at a competitive disadvantage; and (vii) the Company's
substantial degree of leverage may limit its flexibility to adjust to changing
market conditions and make it more vulnerable to a downturn in general
economic conditions or its business. See "Description of Notes."
The Company's ability to make scheduled payments of the principal of, or
interest on, or to refinance its indebtedness (including the Notes) depends on
its future operating performance, which to a certain extent is subject to
economic, financial, competitive and other factors beyond its control. The
Company believes that, based on its current level of operations and
anticipated growth, its cash flow from operations will be adequate to meet its
anticipated requirements for working capital, capital expenditures, interest
payments and scheduled principal payments over the next several years. There
can be no assurance, however, that the Company's business will generate cash
flow at or above expected levels. If the Company is unable to generate
sufficient cash flow from operations in the future to service its debt, fund
working capital requirements and make necessary capital expenditures, or its
future earnings are insufficient to make all required principal payments out
of internally generated funds, the Company may be required to refinance all or
a portion of its existing debt, sell assets or obtain additional financing.
There can be no assurance that any such refinancing or asset sales would be
possible or that any additional financing could be obtained on terms
acceptable to the Company or at all, particularly in
9
<PAGE>
view of the Company's high level of debt. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Ability to Service Debt
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness will depend on its financial and
operating performance, which in turn will be subject to prevailing economic
conditions and to certain financial, business and other factors beyond its
control. If the Company's cash flow and capital resources are insufficient to
fund its debt service obligations, the Company may be forced to reduce or
delay planned expansion and capital expenditures, sell assets, obtain
additional equity capital or restructure its debt. There can be no assurance
that the Company's operating results, cash flow and capital resources will be
sufficient for payment of its indebtedness in the future. In the absence of
such operating results and resources, the Company could face substantial
liquidity problems and might be required to dispose of material assets or
operations to meet its debt service and other obligations, and there can be no
assurance as to the timing of such sales or the proceeds that the Company
could realize therefrom. In addition, because the Notes will bear interest at
floating rates and the Senior Credit Agreement bears interest at floating
rates, an increase in interest rates could adversely affect, among other
things, the Company's ability to meet its debt service obligations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Notes."
Ranking of Notes
The Notes will be senior unsecured obligations of the Company and will rank
pari passu in right of payment with all current and future unsecured senior
indebtedness of the Company. The Notes will (i) rank senior in right of
payment to all subordinated indebtedness of the Company and (ii) be
guaranteed, on a senior unsecured basis, by the Restricted Subsidiaries of the
Company. The Notes will also be effectively subordinated to all existing and
future indebtedness of any subsidiary of the Company that is not a Guarantor
of the Notes.
The indebtedness incurred under the Senior Credit Agreement is secured by
substantially all of the assets of the Company. In addition, the Indenture
will permit the Company and the Guarantors to incur certain other secured
indebtedness. The holders of all existing and future secured indebtedness will
have a claim prior to the holders of the Notes with respect to any assets
pledged by the Company and the Guarantors as security for such indebtedness.
Further, as of September 27, 1997, as adjusted for the Offering, the Senior
Credit Agreement would have provided the Company with $69.8 million of undrawn
availability, which, if drawn, would effectively rank prior to the Notes and
the Subsidiary Guarantees. Upon an event of default under the Senior Credit
Agreement, the lenders thereunder would be entitled to foreclose on the assets
of the Company and the Guarantors pledged as security for the indebtedness
incurred thereunder. In such event, the assets of the Company and the
Guarantors remaining after payment of such secured indebtedness may be
insufficient to satisfy the obligations of the Company and the Guarantors with
respect to the Notes and the Subsidiary Guarantees. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Description of Notes."
As of September 27, 1997, as adjusted for the Offering, the aggregate
principal amount of secured indebtedness of the Company and the Guarantors
which would have effectively ranked senior to the Notes and the Subsidiary
Guarantees would have been approximately $160.6 million.
Fraudulent Conveyance
The issuance of the Notes and the Subsidiary Guarantees may be subject to
review by a court under federal bankruptcy law or comparable provisions of
state fraudulent transfer law. Under federal or state fraudulent transfer
laws, if a court were to find that, at the time the Notes and Subsidiary
Guarantees were issued, the Company or a Guarantor, as the case may be, (i)
issued the Notes or a Subsidiary Guarantee with the intent of hindering,
delaying or defrauding current or future creditors or (ii)(A) received less
than fair consideration or reasonably equivalent value for incurring the
indebtedness represented by the Notes or a Subsidiary Guarantee
10
<PAGE>
and (B)(1) was insolvent or was rendered insolvent by reason of the issuance
of the Notes or such Subsidiary Guarantee, (2) was engaged, or about to
engage, in a business or transaction for which its remaining assets
constituted unreasonably small capital or (3) intended to incur, or believed
(or should have believed) it would incur, debts beyond its ability to pay as
such debts mature (as all of the foregoing terms are defined in or interpreted
under such fraudulent transfer statutes), such court could avoid all or a
portion of the Company's or a Guarantor's obligations to the holders of the
Notes or subordinate the Company's or a Guarantor's obligations to the holders
of the Notes to other existing and future indebtedness of the Company or such
Guarantor, as the case may be, the effect of which would be to entitle such
other creditors to be paid in full before any payment could be made on the
Notes, and take other action detrimental to the holders of the Notes,
including in certain circumstances, invalidating the Notes. In that event,
there would be no assurance that any repayment on the Notes would ever be
recovered by the holders of the Notes.
The definition of insolvency for purposes of the foregoing considerations
varies among jurisdictions depending upon the federal or state law that is
being applied in any such proceeding. However, the Company or a Guarantor
generally would be considered insolvent at the time it incurs the indebtedness
constituting the Notes or a Subsidiary Guarantee, as the case may be, if (i)
the fair market value (or fair saleable value) of its assets is less than the
amount required to pay its total existing debts and liabilities (including the
probable liability on contingent liabilities) as they become absolute or
matured or (ii) it is incurring debts beyond its ability to pay as such debts
mature.
There can be no assurance as to what standard a court would apply in order
to evaluate the parties' intent or to determine whether the Company or a
Guarantor, as the case may be, was insolvent at the time, or rendered
insolvent upon consummation, of the sale of the Notes or the issuance of a
Subsidiary Guarantee or that, regardless of the method of valuation, a court
would not determine that the Company or a Guarantor, as the case may be, was
insolvent at the time, or rendered insolvent upon consummation, of the
Offering. Nor can there be any assurance that a court would not determine,
regardless of whether the Company or a Guarantor was insolvent on the date the
Notes and Subsidiary Guarantees were issued, that the payments constituted
fraudulent transfers on another ground.
In addition, the Subsidiary Guarantees could also be subject to the claim
that, since the Subsidiary Guarantees were incurred for the benefit of the
Company (and only indirectly for the benefit of the Guarantors), the
obligations of the Guarantors thereunder were incurred for less than
reasonably equivalent value or fair consideration. A court could avoid a
Guarantor's obligation under its Subsidiary Guarantee, subordinate the
Subsidiary Guarantee to other indebtedness of such Guarantor or take other
action detrimental to the holders of the Notes.
Restrictions Imposed by Terms of the Company's Indebtedness
The Indenture will contain certain covenants that, among other things: (i)
limit the ability of the Company and its Restricted Subsidiaries to incur
additional indebtedness, repay other indebtedness and amend other debt
instruments; (ii) restrict the ability of the Company and its Restricted
Subsidiaries to make dividends and other restricted payments (including
investments); (iii) limit the ability of the Company and its Restricted
Subsidiaries to incur certain liens; (iv) limit the ability of the Company to
engage in other lines of business; (v) limit the ability of the Company to
consolidate or merge with or into, or to sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its assets to, another
person; (vi) limit the ability of the Restricted Subsidiaries to create
restrictions on the payment of dividends and other payments; (vii) limit the
ability of the Company and its Restricted Subsidiaries to make sales of assets
and stock of a subsidiary; (viii) limit transactions by the Company and its
Restricted Subsidiaries with affiliates; (ix) limit the sale of capital stock
of Restricted Subsidiaries; and (x) limit the ability of the Company and its
Restricted Subsidiaries to enter into sale and leaseback transactions. In
addition, the Senior Credit Agreement also contains certain other restrictive
covenants which are generally more restrictive than those contained in the
Indenture and limit the Company's ability to prepay its other indebtedness
(including the Notes). The Senior Credit Agreement also requires the Company
to maintain specified consolidated financial ratios and satisfy certain
consolidated financial tests. See "Description of Certain Indebtedness" and
"Description of Notes."
11
<PAGE>
The Company's ability to comply with the covenants in the Indenture and the
Senior Credit Agreement may be affected by events beyond its control,
including prevailing economic, financial, competitive, legislative, regulatory
and other conditions. The breach of any such covenants or restrictions could
result in a default under the Indenture and/or the Senior Credit Agreement,
which would permit the holders of the Notes and/or the lenders under the
Senior Credit Agreement, as the case may be, to declare all amounts borrowed
thereunder to be due and payable, together with accrued and unpaid interest,
and the commitments of the lenders to make further extensions of credit under
the Senior Credit Agreement could be terminated. If the Company was unable to
repay its indebtedness to the lenders under the Senior Credit Agreement, such
lenders could proceed against any or all of the collateral securing the
indebtedness under the Senior Credit Agreement, which collateral will consist
of substantially all of the assets of the Company and the Guarantors. In
addition, if the Company fails to comply with the financial and operating
covenants contained in the Senior Credit Agreement, such failure could result
in an event of default thereunder, which could permit the acceleration of the
debt incurred thereunder and, in some cases, cross-acceleration and cross-
default of indebtedness outstanding under other debt instruments of the
Company, including the Notes. See "Description of Notes."
Limitation on Change in Control
Upon a Change of Control, the Company will be required to offer to purchase
all of the outstanding Notes at a price equal to 101% of the principal amount
thereof plus accrued and unpaid interest thereon to the date of repurchase.
The Senior Credit Agreement also provides that certain change of control
events with respect to the Company constitute a default thereunder. Any future
credit agreements or other agreements to which the Company becomes a party may
contain similar restrictions and provisions. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing the Notes, or
if the Company is required to make an asset sale offer pursuant to the terms
of the Notes, the Company could seek the consent of its lenders to purchase
the Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or refinance such
borrowings, the Company will remain prohibited from purchasing the Notes. In
such case, the Company's failure to purchase tendered Notes would constitute
an Event of Default as defined under the Indenture. If, as a result thereof, a
default occurs with respect to any other senior indebtedness, payments to the
holders of the Notes could be limited.
In addition, the Change of Control provisions may not be waived by the Board
of Directors of the Company or the Trustee without the consent of holders of
at least a majority in principal amount of the Notes. As a result, the Change
of Control provisions of the Notes may in certain circumstances discourage or
make more difficult a sale or takeover of the Company and, thus, the removal
of incumbent management. See "Description of Notes--Change of Control."
Lack of Public Market; Restrictions on Transferability
The Company does not intend to apply for a listing of the Notes, or if
issued, the Exchange Notes, on any securities exchange or on any automated
dealer quotation system. There is currently no established market for the
Notes, and there can be no assurance as to the liquidity of markets that may
develop for the Notes, the ability of the holders of the Notes to sell their
Notes or the price at which such holders would be able to sell their Notes. If
such market were to exist, the Notes could trade at prices that may be lower
than the initial market values thereof depending on many factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. The Notes are expected to be designated for trading in the
PORTAL market. The Initial Purchaser has advised the Company that it currently
intends to make a market with respect to the Notes. However, the Initial
Purchaser is not obligated to do so, and any market making with respect to the
Notes may be discontinued at any time without notice. In addition, such market
making activity will be subject to the limits imposed by the Securities Act
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
may be limited during the pendency of the Exchange Offer or the effectiveness
of a shelf registration statement in lieu thereof. See "Exchange and
Registration Rights Agreement," "Transfer Restrictions" and "Plan of
Distribution."
12
<PAGE>
The Notes are being offered in reliance upon an exemption from registration
under the Securities Act and applicable state securities laws. Therefore, the
Notes may be transferred or resold only in a transaction registered under or
exempt from the Securities Act and applicable state securities laws. Pursuant
to the Exchange and Registration Rights Agreement, the Company and the
Guarantors have agreed to file the Exchange Offer Registration Statement with
the Commission and to use their best efforts to cause such registration
statement to become effective with respect to the Exchange Notes. If issued,
the Exchange Notes generally will be permitted to be resold or otherwise
transferred by each holder without the requirement of further registration.
The Exchange Notes, however, also will constitute a new issue of securities
with no established trading market. The Exchange Offer will not be conditioned
upon any minimum or maximum aggregate principal amount of Notes being tendered
for exchange. No assurance can be given as to the liquidity of the trading
market for the Exchange Notes, or, in the case of non-exchanging holders of
Notes, the trading market for the Notes following the Exchange Offer. See
"Exchange and Registration Rights Agreement."
The liquidity of, and trading market for, the Notes or the Exchange Notes
also may be adversely affected by a general decline in the market for similar
securities. Such a decline may adversely affect such liquidity and trading
markets independent of the financial performance of, and prospects for, the
Company.
RISK FACTORS RELATED TO THE COMPANY'S OPERATIONS
Dependence Upon New Products and Effect of Product Lifecycles
The Company's results of operations depend, to a significant extent, upon
its ability to develop and commercialize new pharmaceutical products in
response to the competitive dynamics within the pharmaceutical industry.
Generally, following the expiration of patents and any other market
exclusivity periods for branded drugs, the first pharmaceutical manufacturers
successfully to market generic equivalents of such drugs achieve higher
revenues and gross profit from the sale of such generic drugs than do others
from the sale of generic equivalents subsequently approved. As competing
generic products reach the market, the prices, sales volumes and profit
margins of the first generic versions often decline significantly. For these
reasons, the Company's ability to achieve growth in revenues and profitability
depends on its being among the first companies regularly to introduce new
generic products. While the Company believes the pipeline of generic drugs and
branded drugs it currently has under development will allow it to compete
effectively, no assurance can be given that any of the drugs in its pipeline
will be successfully developed or approved by FDA, will be among the first to
the market or will achieve significant revenues and profitability. See "--
Dependence on Successful Patent Litigation," "--Competition," "--Dependence on
Regulatory Approval and Compliance," "--Pending Regulatory Matters,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
Dependence on Certain Existing Products
The Company derives and is expected to continue to derive a significant
portion of its revenues and gross profit from a limited number of products.
Net revenues from INFeD in 1996 and the nine months ended September 1997 were
$88.0 million and $72.1 million, respectively, or 19% and 20%, respectively,
of the Company's total net revenues, with gross profit from INFeD as a
percentage of total gross profit being significantly greater. Any material
decline in revenues or gross profit from these products could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Products."
Dependence on Successful Patent Litigation
A significant portion of the Company's revenues and gross profit has been
derived from generic versions of branded drug products covered by patents the
Company has challenged under the Drug Price Competition and Patent Term
Restoration Act of 1984 (the "Waxman-Hatch Act"). In several successful
proceedings, the Company has been advised and represented by an independent
patent attorney (the "Consultant") whose involvement has been substantial. The
Company expects that the Consultant will be involved with the Company
13
<PAGE>
in no more than two additional patent challenges, one of which is currently
being litigated. Through its internal efforts, and with the assistance of
third-party collaborators and advisors, the Company has identified a number of
additional patents that may be susceptible to challenge. There can be no
assurance the Company will successfully complete the development of any
additional products involving patent challenges, succeed in any pending or
future patent challenges or, if successful, receive significant revenues or
profit from the products covered by successfully challenged patents. See "--
Dependence Upon New Products and Effect of Product Lifecycles," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Government Regulations" and "Certain Transactions."
Competition
The pharmaceutical industry is intensely competitive. The Company competes
with numerous companies in the pharmaceutical industry generally and the
generic segment of the industry specifically. These competitors include
generic drug manufacturers and large pharmaceutical companies that continue to
manufacture the branded and/or generic versions of drugs after the expiration
of their patents relating to these drugs. Many of the Company's competitors
have greater financial and other resources than the Company and, therefore,
are able to spend more than the Company on research, product development and
marketing. In addition, following the expiration of patents on branded drugs,
manufacturers of these products have employed various strategies intended to
maximize their share of the markets for these products, as well as, in some
cases, generic equivalents of these products, and are expected to continue to
do so in the future. There can be no assurance that developments by others
will not render any product the Company produces or may produce obsolete or
otherwise non-competitive. See "--Dependence Upon New Products and Effect of
Product Lifecycles," "--Consolidation of Distribution Network; Customer
Concentration" and "Business--Competition."
Dependence on Regulatory Approval and Compliance
The development, manufacture, marketing and sale of pharmaceutical products
is subject to extensive federal, state and local regulation in the U.S. and
similar regulation in other countries. The Company, like its competitors, must
obtain approval from FDA before marketing most drugs, and must demonstrate
continuing compliance with current Good Manufacturing Practices ("cGMP")
regulations. Generally, for generic products an ANDA is submitted to FDA, and
for new drugs an NDA is submitted. Under certain circumstances following
product approval and market introduction, FDA can request product recalls,
seize inventories and merchandise in commerce, move to enjoin further
manufacture and product distribution, suspend distribution or withdraw FDA
approval of the product, and debar a company from submitting new applications.
FDA also can take administrative action against a company to suspend
substantive review of pending applications and withhold approvals, if it
concludes that the data and applications from that company may not be reliable
or that there are significant unresolved cGMP issues pertinent to the
manufacture of drugs at a particular facility of that company. Any such
actions are likely to have a material adverse effect on a company's business.
The Company has ANDAs currently pending before FDA and intends to file
additional ANDAs in the future. Delays in the review of these applications or
the inability of the Company to obtain approval of certain of these
applications or to market the product following approval could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "--Dependence Upon New Products and Effect of Product
Lifecycles," "--Pending Regulatory Matters" and "Business--Government
Regulations."
Pending Regulatory Matters
In early 1996, FDA conducted an inspection of the operations of the
Company's subsidiary, Steris Laboratories, Inc. ("Steris"), located in
Phoenix, Arizona. At the conclusion of that inspection, FDA identified various
cGMP manufacturing and reporting deficiencies in Steris' operations. Steris
has subsequently been advised by FDA that it will not approve any ANDAs for
products manufactured at the Steris facility until FDA confirms that the
manufacturing and reporting deficiencies have been corrected. Ten of the
Company's pending ANDAs have been filed from the Steris facility. Following
the 1996 inspection, Steris implemented numerous measures to correct these
deficiencies and place Steris in compliance with applicable FDA manufacturing
and reporting requirements.
14
<PAGE>
In July 1997, FDA conducted a follow-up inspection of the Steris facility.
At the conclusion of that inspection, FDA identified additional cGMP
deficiencies at the Steris facility. Steris has implemented measures intended
to correct these deficiencies and believes that a full reinspection will be
required before FDA will approve ANDAs for new products manufactured at the
Steris facility. While the Company is currently discussing with FDA the timing
of this reinspection, no assurance can be given as to when it will take place.
Following the 1996 inspection of Steris, FDA's Office of Regulatory Affairs
staff commenced an investigation of Steris' operations that focused primarily
on drug stability issues, including Steris' alleged failure to notify FDA on
an adequate and timely basis of drug stability problems with respect to
certain products manufactured at the Steris facility. On the basis of this
investigation, the U.S. Department of Justice ("DOJ") notified Steris in a
letter dated July 28, 1997 that the alleged reporting deficiencies constituted
serious breaches of regulatory obligations and indicated that it would be
willing to negotiate a settlement of the alleged violations with Steris. The
contemplated settlement will require Steris to pay a substantial misdemeanor
fine for failure to observe application reporting requirements for two drugs
during 1994 and 1995. While the Company does not expect any other sanctions to
arise in respect of this matter, any such sanctions could have a material
adverse effect on the Company's business, results of operations and financial
condition.
In 1995, FDA inspected the operations of the Company's subsidiary, Danbury
Pharmacal, Inc. ("Danbury"), which operates facilities in Carmel, New York and
Danbury, Connecticut. As a result of observations made by FDA relating to
Danbury's compliance with cGMP requirements and the integrity of the data
submitted by Danbury in support of certain ANDAs, Danbury voluntarily audited
all data submitted in connection with 26 of its pending and approved ANDAs.
Since the 1995 inspection, FDA has continued to approve ANDAs for products
manufactured by Danbury. In August 1997, FDA reinspected the Carmel and
Danbury facilities. FDA observed certain cGMP deficiencies which the Company
has corrected in a manner satisfactory to FDA. FDA is currently conducting an
additional inspection of those facilities, which the Company believes
primarily will involve evaluations of the ANDA audits and the procedural
changes Danbury instituted to remedy cGMP deficiencies observed during the
1995 FDA inspection.
In June 1997, FDA conducted an ANDA preapproval and cGMP inspection at the
Company's Marsam subsidiary, located in Cherry Hill, New Jersey. Although the
inspection focused primarily on issues relating to the manufacture of certain
drug products that are the subject of five pending ANDAs, the inspection also
included an examination of Marsam's general compliance with cGMP requirements.
Marsam was informed at the conclusion of the inspection that FDA intended to
withhold approval of the five ANDAs until certain alleged cGMP deficiencies
are corrected. Marsam has provided FDA with information it believes
demonstrates that the alleged deficiencies are not significant and that
corrective measures have been implemented. FDA has begun a follow-up
inspection to determine whether these corrective actions have been implemented
satisfactorily. Seven of the Company's pending ANDAs have been filed from the
Marsam facility.
There can be no assurance that FDA will determine that the Company has
adequately corrected the alleged deficiencies or that approval of any of the
pending or subsequently submitted ANDAs by the Company will be forthcoming. In
addition, there can be no assurance that FDA, following the reinspection of
the Steris, Danbury and Marsam facilities and its review of their respective
responses to the alleged cGMP deficiencies, will not seek to impose additional
regulatory sanctions against the Company and its subsidiaries. See "--
Dependence Upon New Products and Effect of Product Lifecycles" and "Business--
Government Regulations."
Consolidation of Distribution Network; Customer Concentration
The Company's principal customers are wholesale drug distributors and major
drug store chains. These customers comprise a significant part of the
distribution network for pharmaceutical products in the United States. This
distribution network is continuing to undergo significant consolidation marked
by mergers and acquisitions among wholesale distributors and the growth of
large retail drug store chains. As a result, a small number of large wholesale
distributors control a significant share of the market, and the number of
independent drug stores and small drug store chains has decreased. The Company
expects that consolidation of drug
15
<PAGE>
wholesalers and retailers will increase competitive pricing pressure on
generic drug manufacturers. The Company believes this consolidation has caused
and may continue to cause the Company's customers to reduce purchases of the
Company's products. For the nine months ended September 1997 and for the year
ended December 1996, sales to the Company's ten largest customers represented
approximately 70% of the Company's total net revenues. For the nine months
ended September 1997, three customers accounted for 17%, 16% and 11%,
respectively, of the Company's total net revenues. The same three customers
accounted for 16%, 15% and 11%, respectively, of the Company's total net
revenues in 1996. The loss of any of these customers could materially and
adversely affect the Company's business, results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Industry Overview."
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 exist or be able 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
16
<PAGE>
product liability cases, whether or not covered by insurance, will not have a
material adverse effect on the Company's business, results of operations or
financial condition. See "Business--Product Liability; Insurance" and
"Business--Legal Proceedings."
Control of the Company
Several of the Company's current principal stockholders are parties to the
Restructuring Agreements (as defined herein), which govern the voting of their
common stock (the "Common Stock") until March 2000. The shares subject to
these agreements represent a majority of the shares of Common Stock
outstanding. 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. Accordingly, Mr. Sperber is able to control substantially
all matters requiring stockholder approval, including the election of
directors. These agreements remain in effect until March 2000, subject to
earlier termination under certain circumstances. Upon such termination, the
stockholders who are parties to these agreements may be able to control all
matters requiring stockholder approval, including the election of directors.
Bayer Corporation, which owns 28.3% of the outstanding shares of Common
Stock, is a party to an agreement with the Company (the "Standstill") that,
among other things, prevents Bayer Corporation from acquiring or seeking to
acquire control of the Company until May 15, 2001. After such date, Bayer
Corporation has the right to acquire control through open market purchases,
and under certain circumstances within six months of the end of the
Standstill, to acquire from certain principal stockholders of the Company or
from the Company a number of shares that would enable Bayer Corporation to own
a majority of the outstanding shares of Common Stock. During the Standstill,
Bayer Corporation has, under the terms of the Restructuring Agreements, the
right to acquire, including under certain circumstances the right to acquire
from the Company and certain of its principal stockholders, a significant
number of additional shares of Common Stock.
As long as Bayer Corporation owns 10% or more of the outstanding Common
Stock, Bayer Corporation has the right to nominate one member of the Company's
Board of Directors and the right to nominate one or more additional directors,
depending on the number of shares it owns. Until May 15, 2001, the Company may
not undertake certain actions without the consent of Bayer Corporation,
including, among other things, engaging in any business not principally in a
segment of the pharmaceutical or health care industry or amending the
Company's charter or by-laws to require more than majority approval to elect a
majority of the Board of Directors, merge, consolidate or sell all or
substantially all the Company's assets. In addition, until the shares of the
Company's Common Stock held by more than 300 persons who are neither current
stockholders, their permitted transferees nor employees of the Company have a
total market value in excess of $100.0 million, the Company may not undertake
certain other actions without the consent of Bayer Corporation.
Each of the provisions described above may make it more difficult for a
third party to acquire, or may discourage acquisition bids for, Schein. See
"Management--Board of Directors" and "Certain Transactions--Restructuring
Agreements."
Fluctuating Results of Operations
During the past three years, the Company's results of operations have
fluctuated materially on both an annual and a quarterly basis. These
fluctuations have resulted from several factors, including, among others, the
timing of introductions of new products by the Company and its competitors,
timing of receipt of patent settlement revenues, dependence by the Company on
a limited number of products, certain non-recurring expenses related to the
Company's restructuring and relocation in 1994, the Marsam Acquisition (as
defined herein) in 1995 and weak performance by the generic drug industry in
the second half of 1996 and continuing into the first half of 1997. The
Company believes that it will continue to experience fluctuations in net
revenues, gross profit and net income as a result of, among other things, the
timing of regulatory approvals and market introduction of new products by the
Company and its competitors, and downward pressure on pricing for generic
products available from multiple approved sources. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
17
<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 Company is amending the terms of the Senior Subordinated Loan Agreement
to allow for the issuance of the Notes and intends to use the net proceeds of
the Offering to repay the Senior Subordinated Loan.
18
<PAGE>
CAPITALIZATION
The following table sets forth the total short-term debt and total
capitalization of the Company as of September 1997 (i) on a historical basis
and (ii) as adjusted to give effect to the Offering and the payment of $4.2
million in fees and expenses in connection therewith using proceeds from the
Company's revolving credit facility under the Senior Credit Agreement. This
table should be read in conjunction with the Consolidated Financial Statements
of the Company and the notes thereto included elsewhere in this Offering
Memorandum. See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 1997
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
SHORT-TERM DEBT:
Revolving credit facility (1)........................... $ 26,000 $ 30,200
Current portion of term loan facility................... 6,842 6,842
Current portion of capitalized lease obligations........ 101 101
-------- --------
Total short-term debt................................. $ 32,943 $ 37,143
======== ========
LONG-TERM DEBT:
Term loan facility...................................... $123,158 $123,158
Senior Subordinated Loan................................ 100,000 --
Senior Floating Rate Notes Due 2004..................... -- 100,000
Capitalized lease obligations........................... 312 312
-------- --------
Total long-term debt.................................. 223,470 223,470
-------- --------
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; 529 authorized shares, 273
issued
and outstanding, actual and as adjusted................ 3 3
Additional paid-in capital.............................. 38,876 38,876
Retained earnings....................................... 92,107 92,107
Other................................................... 6,098 6,098
-------- --------
Total stockholders' equity............................ 137,084 137,084
-------- --------
Total capitalization................................ $360,554 $360,554
======== ========
</TABLE>
- --------
(1) After giving effect to the Offering, the Company would have had
approximately $69.8 million of borrowing availability under the Senior
Credit Agreement, subject to satisfaction of certain conditions. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's financial position at December 1995 and 1996, and its results of
operations for the years ended December 1994, 1995 and 1996, has been derived
from the audited consolidated financial statements of the Company included
elsewhere in this Offering Memorandum. The selected consolidated financial
information with respect to the Company's financial position at December 1992,
1993 and 1994, and its results of operations for the years ended December 1992
and 1993, has been derived from the audited consolidated financial statements
of the Company which are not included in this Offering Memorandum. The
information for the interim periods is unaudited; however, in the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such information have been included. The
interim results of operations may not be indicative of the results for the
full year. The selected consolidated financial data presented below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Offering
Memorandum.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER SEPTEMBER
------------------------------------------------ ----------------------
1992 1993 1994 1995 (1) 1996 1996 1997
-------- -------- -------- -------- -------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $319,875 $393,926 $385,428 $391,846 $476,295 $352,172 $353,829
Cost of sales........... 207,276 217,653 237,380 250,507 320,675 236,721 240,562
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 112,599 176,273 148,048 141,339 155,620 115,451 113,267
COSTS AND EXPENSES:
Selling, general and
administrative........ 55,763 64,489 71,416 73,250 84,366 61,149 57,950
Research and
development........... 14,234 18,055 19,170 28,324 27,030 23,044 22,854
-------- -------- -------- -------- -------- -------- --------
42,602 93,729 57,462 39,765 44,224 31,258 32,463
Amortization of
goodwill and other
intangibles........... -- -- -- 3,399 10,195 7,713 7,722
Special compensation,
restructuring and
relocation (2)........ 7,417 8,426 33,594 -- -- -- --
Acquired in-process
Marsam research and
development (1)....... -- -- -- 30,000 -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating income........ 35,185 85,303 23,868 6,366 34,029 23,545 24,741
Interest expense, net.. 2,315 1,467 1,493 10,005 23,285 16,081 20,456
Other expense (income),
net (3)............... 195 9,215 579 779 4,156 1,745 (4,536)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
provision for income
taxes and minority
interest............... 32,675 74,621 21,796 (4,418) 6,588 5,719 8,821
Provision for income
taxes (4)............. 12,490 29,096 15,165 10,482 5,191 3,573 5,095
Minority interest...... 2,173 (343) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 18,012 $ 45,868 $ 6,631 $(14,900) $ 1,397 $ 2,146 $3,726
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA (as defined) (5). $ 39,748 $ 91,864 $ 61,074 $ 50,396 $ 54,932 $ 39,174 $ 40,037
Depreciation and
amortization........... 6,105 7,328 8,464 17,395 25,450 18,018 19,749
Capital expenditures,
net.................... 17,416 22,806 16,135 13,986 11,309 8,625 8,992
Ratio of earnings to
fixed charges (6)...... 10.6x 26.9x 8.0x -- 1.3x 1.3x 1.4x
PRO FORMA DATA:
Cash interest expense
(7).................... $ 23,488 $ 16,788 $ 17,897
Ratio of EBITDA (as
defined) to cash
interest expense....... 2.3x 2.3x 2.2x
Ratio of total debt to
EBITDA (as defined)
(8).................... -- -- 4.7x
<CAPTION>
DECEMBER AS OF AS ADJUSTED
------------------------------------------------ SEPTEMBER SEPTEMBER
1992 1993 1994 1995 1996 1997 1997 (9)
-------- -------- -------- -------- -------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 82,731 $ 87,035 $ 98,610 $ 92,021 $ 99,111 $ 93,480 $ 89,280
Total assets............ 211,744 227,861 269,729 522,410 544,312 520,699 524,899
Total debt.............. 44,625 27,563 45,927 280,558 286,480 256,413 260,613
Stockholders' equity.... 85,761 130,336 140,164 125,692 129,980 137,084 137,084
</TABLE>
20
<PAGE>
- --------
(1) Includes the results of Marsam from September 1995, the date of purchase.
In connection with the purchase of Marsam, the Company recognized acquired
in-process research and development. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 3 to
the Consolidated Financial Statements of the Company.
(2) Special compensation, restructuring and relocation expenses includes costs
recognized by the Company in connection with its restructuring and
relocation of its corporate headquarters. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Notes 2 and
12 to the Consolidated Financial Statements of the Company.
(3) Other expense (income), net in 1992 includes $0.5 million of an
extraordinary income item.
(4) Provision for income taxes in 1993 includes an adjustment to reduce income
taxes by $1.1 million relating to the adoption of Statement of Financial
Accounting Standards No. 109.
(5) EBITDA is defined as income (loss) before provision for income taxes and
minority interest, interest expense, net and depreciation and
amortization, excluding gains on sales of securities and non-cash items
(special compensation, acquired in-process Marsam research and
development, contingent settlement accruals, equity in net losses of
international investments and other non-cash items). The Company has
included information concerning EBITDA in this Offering Memorandum because
it believes that such information may be used by certain investors as one
measure of a company's historical ability to service debt. EBITDA should
not be considered as an alternative to, or more meaningful than, earnings
from operations or other traditional indications of a company's operating
performance.
(6) The ratio of earnings to fixed charges is computed by dividing (i) income
(loss) before provision for income taxes and minority interest plus fixed
charges by (ii) fixed charges. Fixed charges consist of interest on
indebtedness including amortization of debt issuance costs and the
estimated interest component of rental expense (assumed to be one-third).
In fiscal 1995, fixed charges exceeded income (loss) before provision for
income taxes and minority interest by $4.4 million.
(7) Pro forma cash interest expense is defined as historical interest expense,
net adjusted for (i) the exclusion of amortization of deferred financing
fees of $2.2 million in fiscal 1996 and $0.9 million and $2.3 million in
the nine months ended September 1996 and 1997, respectively, (ii) interest
expense as if the Offering had occurred on December 31, 1995 and the
proceeds were used to repay the Senior Subordinated Loan or its
predecessor debt and (iii) interest expense associated with drawdowns
under the revolving credit facility under the Senior Credit Agreement
which were used to pay the $4.2 million in fees and expenses incurred as a
result of the Offering.
(8) The ratio of total debt to EBITDA (as defined) is computed by dividing (i)
EBITDA (as defined) for the twelve months ended September 1997 by (ii)
total debt as of September 1997 as adjusted for the Offering.
(9) As adjusted to give effect to the Offering and the payment of $4.2 million
in fees and expenses in connection therewith, using proceeds from the
Company's revolving credit facility under the Senior Credit Agreement.
21
<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
Offering Memorandum. This Offering Memorandum 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 Offering Memorandum should be read as being applicable
to all related forward-looking statements wherever they appear in this
Offering Memorandum. See "Risk Factors."
OVERVIEW
The Company currently manufactures and markets two classes of pharmaceutical
products, generic products and branded products. The Company's results of
operations depend on the Company's ability to develop and commercialize new
pharmaceutical products. Generally, following the expiration of patents and
any other market exclusivity periods for branded drugs, the first
pharmaceutical manufacturers successfully to market generic equivalents of
such drugs achieve higher revenues and gross profit from the sale of such
generic drugs than do others from the sale of generic equivalents subsequently
approved. As competing generic equivalents reach the market, the prices, sales
volumes and profit margins of the earliest generic versions often decline
significantly. For these reasons, the Company's ability to achieve growth in
revenues and profitability depends on its being among the first companies to
introduce new generic products. During the past five years, the Company has
introduced a significant number of generic products to the market at patent
expiration dates and in a number of cases prior to patent expiration of the
branded product by successful challenges to the patent under the Waxman-Hatch
Act.
The Company's dependence on a limited number of products, the product cycles
of such products, and the timing of receipt of patent settlement revenues have
resulted in significant fluctuations in the Company's earnings. Continued
growth in the Company's revenues will depend on continued market demand for
its products, as well as the successful introduction and marketing of new
products.
Net revenues from INFeD as a portion of total net revenues increased from
16% in 1994 to 20% in the nine months ended September 1997. Gross profit
margins on INFeD exceed gross profit margins on the Company's generic products
generally; accordingly, the gross profit from increased sales of INFeD have
offset the reduction in gross profit from generic products during the periods
presented.
The following table sets forth the net revenues of the Company's generic and
branded businesses for each of the periods shown:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER SEPTEMBER
-------------------- -----------------
1994 1995 1996 1996 1997
------ ------ ------ -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Generic business:
Core products......................... $291.9 $300.8 $331.6 $ 247.6 $ 221.4
Nortriptyline......................... 32.6 19.0 9.0 7.3 4.5
Vecuronium bromide.................... -- -- 34.2 23.2 30.8
Patent settlement revenues............ -- 5.0 13.5 13.5 25.0
------ ------ ------ -------- --------
Total generic revenues................ 324.5 324.8 388.3 291.6 281.7
Branded business:
INFeD................................. 60.9 67.0 88.0 60.6 72.1
------ ------ ------ -------- --------
Net revenues........................ $385.4 $391.8 $476.3 $ 352.2 $ 353.8
====== ====== ====== ======== ========
</TABLE>
22
<PAGE>
From 1992 to 1994, the Company engaged in a series of corporate
reorganization transactions, including the separation of the Company from
Henry Schein, Inc., which is engaged in the direct marketing of health care
products and services to office-based health care practitioners. In connection
with these transactions, Bayer Corporation purchased from the Company's
stockholders 28.3% of the Company's outstanding shares for $312.4 million and
agreed with the Company to pursue future strategic alliances. Charges for
special compensation, restructuring and relocation incurred in connection with
the reorganization aggregated $7.4 million, $8.4 million and $33.6 million for
1992, 1993 and 1994, respectively.
The Company acquired all the outstanding capital stock of Marsam (the
"Marsam Acquisition") in September 1995 for $245.0 million in cash, which
expanded the Company's ability to manufacture sterile penicillins and oral and
sterile cephalosporins.
RESULTS OF OPERATIONS
The following table sets forth certain selected income statement data as a
percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER SEPTEMBER
----------------------- ------------
1994 1995 1996 1996 1997
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................... 61.6 63.9 67.3 67.2 68.0
------ ------ ------ ----- -----
Gross profit............................ 38.4 36.1 32.7 32.8 32.0
Costs and expenses:
Selling, general and administrative... 18.5 18.7 17.7 17.4 16.4
Research and development.............. 5.0 7.2 5.7 6.5 6.4
Amortization of goodwill and other
intangibles.......................... -- 0.9 2.1 2.2 2.2
Special compensation, restructuring
and relocation....................... 8.7 -- -- -- --
Acquired in-process Marsam research
and development...................... -- 7.7 -- -- --
------ ------ ------ ----- -----
Operating income........................ 6.2 1.6 7.2 6.7 7.0
Interest expense, net................. 0.4 2.5 4.9 4.6 5.8
Other expense (income), net........... 0.2 0.2 0.9 0.5 (1.3)
------ ------ ------ ----- -----
Income (loss) before provision for
income taxes........................... 5.6 (1.1) 1.4 1.6 2.5
Provision for income taxes............ 3.9 2.7 1.1 1.0 1.4
------ ------ ------ ----- -----
Net income (loss)....................... 1.7% (3.8)% 0.3% 0.6% 1.1%
====== ====== ====== ===== =====
</TABLE>
Nine Months Ended September 1997 Compared to Nine Months Ended September 1996
Net revenues increased $1.6 million, or 0.5%, from $352.2 million in 1996 to
$353.8 million in 1997. In the branded business, sales increased $11.5
million, which offset a decline in sales of generic products of $9.9 million.
The increase in branded product sales reflected largely an increase in units
sold. The decline in generic revenues resulted from a $26.2 million decline in
the sales of core products and a $2.8 million decline in sales of
nortriptyline, offset by an $11.5 million increase in patent settlement
revenues received in the first quarter of 1997 and a $7.6 million increase in
sales of vecuronium bromide. The decrease in sales of core products reflected
the strategic decision in the second half of 1996 to discontinue certain low-
margin manufactured products and to reduce selling efforts on outsourced
products as well as competitive pressures on other core products, which was
offset by the impact of a $6.4 million increase in sales of new products.
Gross profit decreased $2.2 million, or 1.9%, from $115.5 million in 1996 to
$113.3 million in 1997. The gross profit margin decreased from 32.8% in 1996
to 32.0% in 1997. This decline in gross profit was largely comprised of a
decline in gross profit on core products which was partially offset by
increased gross profit on INFeD, vecuronium bromide and new products. Gross
profit from patent settlements received in the first quarters of 1996 and 1997
contributed an additional $5.6 million, reduced by increased manufacturing
variances and other
23
<PAGE>
costs of $4.6 million. In the third quarter of 1997 compared to the third
quarter of 1996, the gross profit margin decreased from 32.6% to 29.7%,
reflecting a less favorable mix of products sold as well as competitive price
pressures.
Selling, general and administrative expenses decreased $3.2 million, or
5.2%, from $61.1 million in 1996 to $58.0 million in 1997. Selling, general
and administrative expenses as a percent of net revenues decreased from 17.4%
in 1996 to 16.4% in 1997. The decrease in selling, general and administrative
expenses was due primarily to the effects of various cost reduction
initiatives, including a reduction in the retail field sales force. In the
third quarter of 1997, the Company experienced increased selling, general and
administrative expenses compared to earlier quarters of 1997 due primarily to
higher brand marketing expenses.
Research and development expenses decreased $0.2 million, or 0.8%, from
$23.0 million in 1996 to $22.8 million in 1997. However, expenses in the third
quarter of 1997 increased compared to earlier 1997 quarters largely reflecting
costs associated with a development project nearing launch stage.
Amortization of goodwill and other intangibles was unchanged compared to the
comparable period in 1996.
As a result of the factors discussed above, operating income increased $1.2
million, or 5.1%, from $23.5 million in 1996 to $24.7 million in 1997.
Interest expense, net increased $4.4 million, or 27.2%, from $16.1 million
in 1996 to $20.5 million in 1997 principally due to higher amortization of
deferred financing expenses of $2.5 million and increased interest costs of
$1.5 million resulting from refinancing of senior debt with higher cost
subordinated debt in December 1996.
Other expense (income), net changed by $6.3 million from an expense of $1.7
million in 1996 to income of $4.5 million in 1997. Gains on the sale of
marketable securities of $9.9 million, primarily in the third quarter of 1997,
offset increased equity losses from the Company's investment in international
joint ventures of $1.0 million and other expenses.
The Company's effective tax rate is higher than the statutory rate due to
the effect of significant non-deductible expenses. The effective tax rate
decreased from 62.5% in 1996 to 57.8% in 1997, primarily as a result of higher
income offsetting fixed non-deductible expenses.
1996 Compared to 1995
Net revenues increased $84.4 million, or 21.6%, from $391.9 million in 1995
to $476.3 million in 1996. In the generic business, net revenues increased
$63.5 million, and in the branded business, net revenues increased $21.0
million, driven by increased unit sales of INFeD. Increased revenues of
generic products consisted of $34.2 million in sales generated by vecuronium
bromide, a new product launched in March 1996, an $8.5 million increase in
patent settlement revenues and a $30.8 million increase in sales of the
Company's core products, offset in part by a decline in nortriptyline sales of
$10.0 million. The sales of core products increased primarily from the Marsam
Acquisition, which increased core product sales by $31.4 million, and from
$7.6 million in sales of new products, offset by an $8.2 million decrease in
sales of the Company's other core products, due primarily to price decreases.
The Company's gross profit increased $14.3 million, or 10.1%, from $141.3
million in 1995 to $155.6 million in 1996. The gross profit margin fell from
36.1% in 1995 to 32.7% in 1996. An increase in gross profit of $31.2 million
was attributable to the Company's branded business, vecuronium bromide and
patent settlement revenues, which was partially offset by a $12.6 million
increase in manufacturing and regulatory costs.
Selling, general and administrative expenses increased $11.1 million, or
15.2%, from $73.3 million in 1995 to $84.4 million in 1996. Selling, general
and administrative expenses decreased as a percentage of net revenues from
18.7% in 1995 to 17.7% in 1996. Selling, general and administrative expenses
increased due primarily to increased sales volume, the full year impact of the
Marsam Acquisition of $2.6 million and an increase in promotional activities
in support of new product launches.
24
<PAGE>
Research and development expenses decreased $1.3 million, or 4.6%, from
$28.3 million in 1995 to $27.0 million in 1996. Acquired in-process Marsam
research and development charges of $30.0 million were fully reflected in
1995.
Amortization of goodwill and other intangibles increased $6.8 million from
$3.4 million in 1995 to $10.2 million in 1996, giving effect to the full year
impact of the Marsam Acquisition.
As a result of the factors discussed above, operating income increased $27.7
million from $6.3 million in 1995 to $34.0 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 debt financing for the Marsam Acquisition and
higher interest rates.
Other expense (income), net increased by $3.4 million from $0.8 million in
1995 to $4.2 million in 1996. Equity losses from the Company's investment in
international joint ventures accounted for $3.0 million of the increase.
The Company's effective tax rate is higher than the statutory rate due to
the effect of significant non-deductible expenses. The 1996 effective income
tax rate of 78.9% represented a decrease from the 1995 effective rate of
237.3% primarily due to the impact of certain non-recurring and non-deductible
expenses, which were largely comprised of the acquired in-process Marsam
research and development charge of $30.0 million.
1995 Compared to 1994
Net revenues increased $6.4 million, or 1.7%, from $385.4 million in 1994 to
$391.8 million in 1995. In the branded business, net revenues increased $6.1
million, and in the generic business, net revenues increased $0.3 million. The
increase in net revenues in the branded business resulted from an increased
number of units of INFeD sold. In the generic business, the changes consisted
of increases of $4.8 million in sales of new products, $5.0 million in new
patent settlement revenues and $14.0 million from the impact of the Marsam
Acquisition. These increases in the generic business were offset by a $13.6
million decrease in sales of nortriptyline and a $4.1 million decrease in
sales of the Company's other core products due primarily to price declines.
The Company's gross profit decreased $6.7 million, or 4.5%, from $148.0
million in 1994 to $141.3 million in 1995. The gross profit margin decreased
from 38.4% in 1994 to 36.1% in 1995. The decrease was primarily a result of a
$12.8 million decrease attributable to lower selling prices of nortriptyline
and decreased gross profit on other core products due to competitive pricing
pressures. This was partially offset by a $4.0 million increase representing
the impact of the Marsam Acquisition, an increase in gross profit in the
Company's branded business and decreased manufacturing and regulatory costs.
Selling, general and administrative expenses increased $1.9 million, or
2.6%, from $71.4 million in 1994 to $73.3 million in 1995. The increase in
selling, general and administrative expenses was due primarily to an increase
in sales volume, an increase in promotional activities in support of the
Company's branded business, new product launches and the Marsam Acquisition.
Selling, general and administrative expenses increased as a percentage of net
revenues from 18.5% in 1994 to 18.7% in 1995.
Research and development expenses increased $9.1 million, or 47.8%, from
$19.2 million in 1994 to $28.3 million in 1995. Of the $9.1 million increase,
$2.1 million represented spending in connection with a worldwide technology
licensing and development agreement which the Company entered into during
September 1994, and the remaining increase in research and development
expenses was attributable to various new in-house development projects.
Amortization of goodwill and other intangibles of $3.4 million and acquired
in-process Marsam research and development charges of $30.0 million in 1995
resulted from the Company's Marsam Acquisition in September 1995. See Note 3
to the Consolidated Financial Statements of the Company.
25
<PAGE>
The corporate reorganization and relocation were completed during 1994,
resulting in a $33.6 million charge. There were no restructuring or relocation
expenses incurred during 1995.
As a result of the factors discussed above, operating income decreased $17.5
million from $23.9 million in 1994 to $6.4 million in 1995.
Interest expense, net increased $8.5 million from $1.5 million in 1994 to
$10.0 million in 1995. The increase was due primarily to the increase in
average debt associated with the debt financing for the Marsam Acquisition
funded in September 1995.
The Company's effective tax rate is higher than the statutory rate due to
the effect of significant non-deductible expenses. The 1995 effective income
tax rate of 237.3% increased from the 1994 effective income tax rate of 69.6%,
primarily due to the impact of certain non-recurring and non-deductible
expenses, which were largely comprised of the acquired in-process Marsam
research and development charge of $30.0 million. The 1994 effective income
tax rate also reflects the impact of non-deductible expenses, primarily
special compensation charges in connection with the corporate reorganization
completed during 1994.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its business operations primarily
through a revolving credit facility and used long-term bank financing to fund
acquisitions. The Company plans to use the proceeds of the Offering as set
forth under "Use of Proceeds."
Net cash provided by operating activities was $27.1 million and $10.8
million in the nine months ended September 1997 and in the year ended December
1996, respectively. The net cash provided by operating activities during 1997
was primarily attributable to net income, as adjusted for non-cash charges, of
$15.9 million and decreases in inventories and accounts receivable aggregating
$11.4 million. The net cash provided by operating activities during 1996 was
primarily attributable to net income, as adjusted for non-cash charges, of
$27.9 million and an increase in accounts payable and accrued expenses of
$11.9 million, offset by an increase in inventories and accounts receivable of
$31.0 million.
Net cash provided by investing activities for the nine months ended
September 1997 and used in investing activities for the year ended December
1996 was $1.2 million and $20.0 million, respectively. Cash provided by
investing activities in 1997 resulted from the proceeds of sales of marketable
securities of $11.6 million, offset primarily by capital expenditures, net of
$9.0 million. The 1996 use of cash in investing activities was primarily due
to capital expenditures, net, purchase of product rights and licenses and
investments in international joint ventures of $17.4 million.
Net cash used in financing activities for the nine months ended September
1997 of $30.1 million resulted from the net repayment of debt. Net cash
provided by financing activities for the year ended December 1996 of $3.6
million was primarily due to net proceeds of debt.
In September 1995, the Company entered into a secured revolving credit and
term loan agreement (as amended, the "Senior Credit Agreement") with a group
of banks to provide funds for the Marsam Acquisition, the repayment of certain
debt, working capital and general corporate purposes. The Senior Credit
Agreement, which expires in December 2001, provided a term loan facility of
$250.0 million and a revolving credit facility of $100.0 million. In December
1996, the Company prepaid $100.0 million of the term loan portion of the
Senior Credit Agreement using the proceeds from a $100.0 million senior
subordinated loan (the "Senior Subordinated Loan") provided by Societe
Generale, New York branch, an affiliate of the Initial Purchaser and a lead-
manager of the Senior Credit Agreement. As a result of this payment and a
scheduled payment, the term loan facility was reduced to $145.0 million at
December 1996. In the first nine months of 1997, the Company made principal
payments of $15.0 million, thus reducing the term loan portion to $130.0
million at September 1997. Quarterly principal payments on the term loan
commence in September 1998 and end in the year 2001. Amortization
26
<PAGE>
amounts will total $13.7 million, $34.2 million, $41.0 million and $41.1
million in years 1998 through 2001, respectively. In addition to such
principal payments, the Company is required to make additional principal
payments in certain circumstances. Amounts outstanding under the revolving
credit facility were $41.0 million and $26.0 million as of December 1996 and
September 1997, respectively.
Borrowings under the Senior Credit Agreement bear interest, which is payable
at least quarterly, at a rate equal to a floating alternate base rate (derived
from the greater of the prime rate of the Credit Agent (as defined herein),
the three-month secondary market rate for certificates of deposit plus 1.00%
and the Federal Funds rate plus 1/2 of 1.00%), plus a margin ranging from zero
to 1.50% or at a rate equal to LIBOR (as defined herein) plus a margin ranging
from 0.75% to 2.50%, depending on the type of borrowing and the Company's
performance against certain criteria. Outstanding borrowings under the Senior
Subordinated Loan through January 31, 1998 bear interest, payable quarterly,
at a rate equal to a floating alternate base rate (derived from the greater of
Societe Generale's prime rate, the three-month secondary market rate for
certificates of deposit plus 1.00% and the Federal Funds rate plus 1/2 of
1.00%) plus a margin of 3.00% or a rate equal to LIBOR plus a margin of 4.00%.
The original obligations under the Senior Subordinated Loan will be
effectively replaced by the Notes offered hereby. See "Description of Certain
Indebtedness."
The Company believes that its existing credit facilities and cash expected
to be generated from operations are sufficient to finance its current level of
operations and currently contemplated capital expenditures.
The Company has signed a non-binding letter dated October 7, 1997 with
Cheminor Drugs Limited and its subsidiaries ("Cheminor") and Dr. Reddy's
Laboratories Limited and its subsidiaries ("Reddy") outlining the parties'
intent to enter into a strategic alliance agreement. Cheminor will make
available to the Company its present and future dosage form generic products
on an exclusive basis in the United States and in certain countries, and the
Company will make available to Cheminor and Reddy its present and future
products on an exclusive basis for sale in India and certain other countries.
Cheminor and Reddy will make available to the Company bulk active
pharmaceutical ingredients. As part of the contemplated arrangement, the
Company would purchase 2.0 million publicly traded shares of Cheminor Drugs
Limited for $10.0 million, and under certain circumstances have the right and
the obligation to purchase an additional 1.0 million shares for $5.0 million.
Cheminor would have the right to make fair market value purchases of the
Company's Common Stock, once the shares are publicly traded; the purchase
price could be payable from profits otherwise due Cheminor from the alliance.
Each party would also be entitled to representation on the other company's
board of directors consistent with its equity interest. See "Certain
Transactions."
In the event the Company makes any significant acquisitions, it may be
required to raise additional funds through the issuance of additional debt or
equity securities. There can be no assurance that such funds, if required,
would be available or, if available, would be on terms acceptable to the
Company.
The Company has filed a registration statement covering an initial public
offering (the "Common Stock Offering") of its Common Stock. Consummation of
each of this Offering and the Common Stock Offering is not contingent upon
consummation of the other. There can be no assurance that the filing will
become effective or that any shares will be sold. If the Common Stock Offering
occurs, the Company intends to use a portion of the net proceeds from the
Common Stock Offering to repurchase or redeem a portion of the Notes offered
hereby.
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.
27
<PAGE>
The following tables present unaudited quarterly financial data for the
years 1995 and 1996, and for the nine months ended September 1997. The Company
believes all necessary adjustments have been included in the amounts stated
below to present fairly the selected quarterly information when read in
conjunction with the Consolidated Financial Statements of the Company and the
notes thereto.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 1995 YEAR ENDED DECEMBER 1996 SEPTEMBER 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED)
---------------------------------- ------------------------------------ --------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Net product
sales.......... $83,978 $98,880 $ 96,344 $107,644 $109,949 $120,398 $108,325 $124,123 $106,839 $114,441 $107,549
Patent
settlements.... 5,000 -- -- -- 13,500 -- -- -- 25,000 -- --
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total net
revenues....... 88,978 98,880 96,344 107,644 123,449 120,398 108,325 124,123 131,839 114,441 107,549
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit..... 34,454 39,141 33,303 34,441 42,420 37,620 35,411 40,169 44,722 36,568 31,977
Cost and
expenses:
Selling, general
and
administrative. $18,214 18,298 17,955 18,783 19,907 20,755 20,487 23,217 19,227 18,478 20,245
Research and
development.... 7,579 7,996 7,331 5,418 7,242 8,119 7,683 3,986 6,744 7,434 8,676
Amortization of
goodwill and
other
intangibles.... -- -- 1,128 2,271 2,548 2,550 2,615 2,482 2,550 2,598 2,574
Acquired in-
process Marsam
research &
development.... -- -- 30,000 -- -- -- -- -- -- -- --
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss).......... 8,661 12,847 (23,111) 7,969 12,723 6,196 4,626 10,484 16,201 8,058 482
Interest
expense, net... 743 954 2,790 5,518 5,321 5,379 5,382 7,203 6,884 6,850 6,722
Other expense
(income), net.. 519 607 456 (803) 126 79 1,539 2,412 1,809 (426) (5,919)
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss)
before
provision for
income taxes... 7,399 11,286 (26,357) 3,254 7,276 738 (2,295) 869 7,508 1,634 (321)
Provision for
income taxes... 2,996 4,571 1,693 1,222 3,343 733 (503) 1,618 3,625 1,315 155
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss).......... 4,403 6,715 (28,050) 2,032 3,933 5 (1,792) (749) 3,883 319 (476)
======= ======= ======== ======== ======== ======== ======== ======== ======== ======== ========
</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
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.
28
<PAGE>
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Results of operations and financial position
will be unaffected by implementation of these new standards. The Company has
not determined whether either of these two standards will have a material
impact on its financial statement disclosure.
RISK MANAGEMENT
The Company is potentially subject to a concentration of credit risk with
respect to its trade receivables, the majority of which are due from
wholesalers, drug store chains and distributors. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
The Company maintains sufficient allowances and insurance to cover potential
or anticipated losses for uncollectible accounts.
The Company considers its investment in international subsidiaries and joint
ventures to be both long-term and strategic. As a result, the Company does not
hedge the long-term translation exposure to its balance sheet. Foreign
currency translations to date have not been material.
YEAR 2000 COMPLIANCE
The Company is modifying its computer systems to be Year 2000 compliant. The
Company does not expect that the cost of modifying such systems will be
material. The Company believes it will achieve Year 2000 compliance in advance
of the year 2000 and does not anticipate any material disruption in its
operations as the result of any failure by the Company to be in compliance.
The Company does not have any information concerning the Year 2000 compliance
status of its suppliers and customers.
29
<PAGE>
BUSINESS
GENERAL
Schein Pharmaceutical is one of the leading generic pharmaceutical companies
in the United States. The Company develops, manufactures and markets one of
the broadest generic product lines in the pharmaceutical industry through the
integration of its product development expertise, diverse, high-volume
production capacity and direct sales and marketing forces. The Schein product
line includes both solid dosage and sterile dosage generic products, and the
Company is also developing a line of specialty branded pharmaceuticals. The
Company's primary branded product, INFeD, is the leading injectable iron
product in the United States. The Company has a substantial pipeline of
products under development, including 24 ANDAs filed with FDA. The Company
supplements its internal product development, manufacturing and marketing
capabilities through strategic collaborations. Schein generated net revenues
of $478.0 million and EBITDA (as defined) of $55.8 million during the 12
months ended September 1997.
The Company believes it manufactures and markets the broadest product line
of any U.S. pharmaceutical company in terms of number and types of products.
The Company manufactures and markets approximately 160 chemical entities
formulated in approximately 350 different dosages under approximately 200
ANDAs approved by FDA. Schein is currently the sole manufacturing source for
47 generic pharmaceutical products, of which 45 are sterile dosage products.
The Company's solid dosage products include both immediate-release and
extended-release capsules and tablets; sterile dosage products include
solutions, suspensions, powders and lyophilized (freeze-dried) products
primarily for administration as injections, ophthalmics and otics. The
manufacture of sterile dosage products is significantly more complex than the
manufacture of solid dosage products, which limits competition in this product
area. The Company currently manufactures approximately four billion solid
dosage tablets and capsules and 75 million sterile dosage vials and ampules
annually. Solid dosage generic products and sterile dosage generic products
each accounted for approximately 40% of the Company's net revenues in the 12
months ended September 1997.
Since introducing INFeD in 1992, the Company has been developing a portfolio
of branded products, primarily in select therapeutic markets, such as iron
management for the nephrology, oncology and hematology markets. INFeD is used
in the treatment of certain types of anemia, particularly in dialysis
patients, and accounted for approximately 20% of the Company's net revenues in
the nine months ended September 1997. The Company markets INFeD through a 20-
person dedicated sales and marketing force, as well as through co-marketing
collaborations with Bayer Corporation in the nephrology market and MGI in the
oncology market.
The Company believes its 120-person direct sales and marketing force is the
largest in the U.S. generic pharmaceutical industry. Through its customized
marketing programs, the Company markets its products to approximately 60,000
customers representing all major customer channels, including pharmaceutical
wholesalers, chain and independent drug retailers, hospitals, managed care
organizations, other group purchasing organizations and physicians.
Schein's objective is to become the leading generic pharmaceutical company
in the approximately $10 billion generic pharmaceutical industry in the United
States. The Company's growth strategy is to: (i) leverage its diverse
pharmaceutical formulation and manufacturing capabilities to extend the
breadth of its generic product line; (ii) pursue strategic collaborations to
supplement product development and manufacturing resources; (iii) focus its
product development on complex and other generic drugs that require
specialized development or manufacturing technology and are therefore expected
to encounter limited competition; (iv) develop and market branded drugs for
select therapeutic categories; and (v) expand market penetration through
direct sales and innovative marketing programs.
The Company's commitment to product development has resulted in 23 ANDA
approvals during the past three years and its current pipeline of 24 pending
ANDAs and over 60 additional products under development. During the past three
fiscal years, the Company, directly and through its strategic collaborations,
has expended
30
<PAGE>
approximately $74.0 million on product pipeline development activities, which
the Company believes is among the highest product development expenditure
levels for any independent generic drug company. The Company pursues product
development through its 140-person product development staff and various
collaborations and licensing arrangements with other pharmaceutical and drug
delivery technology companies. The Company's product development efforts focus
on: (i) major branded drugs coming off patent; (ii) drugs for which patent
protection has lapsed and for which there are few or no generic producers;
(iii) drugs whose patents may be susceptible to challenge; (iv) proprietary
and branded products focused in select therapeutic areas; and (v) generic
products that require specialized development, formulation, drug delivery or
manufacturing technology.
The Company supplements its internal product development, manufacturing and
marketing capabilities from external sources. During 1994, Schein entered into
a strategic alliance with Bayer Corporation, through which Bayer Corporation
became a 28.3% stockholder of Schein, and Bayer Corporation currently
participates with Schein in several collaborations. In 1995, the Company
acquired Marsam, expanding the Company's ability to develop and manufacture
sterile penicillins and oral and sterile cephalosporins. In addition, the
Company has entered into strategic collaborations involving product
development arrangements with companies such as Ethical and Elan; raw material
supply arrangements with companies such as Johnson Matthey and Abbott; and
sales and marketing arrangements with Bayer and other companies such as
Elensys and MGI.
INDUSTRY OVERVIEW
In the U.S., pharmaceutical products are marketed as either 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. In 1996, sales of generic drugs
accounted for approximately $10 billion out of a total U.S. prescription
pharmaceutical market of approximately $83 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 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
31
<PAGE>
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 organizations,
government-based programs and others, have adopted policies that encourage or
mandate generic substitution. In addition, physicians, pharmacists and
consumers are becoming increasingly comfortable with the quality and
therapeutic equivalence of generic drugs.
A significant portion of pharmaceuticals are distributed in the United
States through wholesale drug distributors and major retail drug store chains.
During the past several years, there has been a consolidation of these
distribution channels, resulting in a smaller number of wholesale distributors
and the emergence of fewer, larger regional and nationwide retail drug store
chains. In addition to forcing generic drug manufacturers to lower their
prices and/or provide volume discounts, these customers have also been seeking
to reduce the number of sources from which they purchase pharmaceutical
products.
Participants in the generic drug market include independent generic drug
manufacturers such as the Company, generic drug subsidiaries of large branded
pharmaceutical companies and joint ventures and collaborations between branded
pharmaceutical companies and generic drug manufacturers. The participation of
branded pharmaceutical companies in the U.S. generic industry accelerated
during the first half of the 1990s as pricing pressure and generic
substitution grew. The extent to which the branded pharmaceutical companies
will continue to participate in the generic drug industry segment cannot be
predicted by the Company.
The Company believes it is well positioned to capitalize on these industry
trends by leveraging its product development, manufacturing and marketing
capabilities to expand its market penetration.
STRATEGY
The Company's objective is to become the leading generic pharmaceutical
company in the approximately $10 billion generic pharmaceutical industry in
the United States. The Company's strategy for achieving this objective
comprises the following five elements:
Leverage Diverse Pharmaceutical Formulation and Manufacturing Capabilities
to Extend the Breadth of Its Generic Product Line. The Company believes it
manufactures and markets the broadest product line of any U.S. pharmaceutical
company. This product line includes both solid dosage and sterile dosage
products comprising approximately 160 chemical entities in approximately 350
dosage forms and strengths under approximately 200 approved ANDAs. Solid
dosage forms include both immediate-release and extended-release capsules and
tablets; sterile dosage forms include solutions, suspensions, powders and
lyophilized (freeze-dried) products primarily for administration as
injections, ophthalmics and otics. The Company believes its diverse high-
volume manufacturing capabilities enable it to participate in segments of the
generic drug industry where competition is limited. As the U.S. generic drug
market consolidates and major drug buyers increasingly purchase from fewer
suppliers, the Company believes its high volume and diverse drug formulation
and manufacturing capabilities will constitute an important competitive
advantage.
Pursue Strategic Collaborations to Supplement Product Development and
Manufacturing Resources. Schein has formed product development and marketing
alliances with several bulk pharmaceutical producers, drug delivery technology
companies and other drug manufacturers to expand the breadth of its product
development capabilities. Included among these are collaborations with drug
delivery companies, Elan and Ethical, and several bulk pharmaceutical and
finished dosage form producers. The Company plans to utilize collaborative and
licensing arrangements with third parties to share product development risk
and gain access to sales and marketing rights, dosage forms, proprietary drug
delivery technologies, specialized formulation capabilities and active
pharmaceutical ingredients.
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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 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 the Company expects that an NDA for its next
generation injectable iron product will be filed with FDA in the first half of
1998. The Company also is pursuing opportunities to broaden its branded
pharmaceutical product line by: (i) formulating and developing, either
internally or through development collaborations, unique products that may be
patented; (ii) acquiring products developed by other drug companies; and (iii)
acquiring formulation technologies for developing new dosage forms of existing
drugs.
Expand Market Penetration through Direct Sales and Innovative Marketing
Programs. The Company believes its 120-person direct sales and marketing force
is the largest in the U.S. generic pharmaceutical industry. This sales and
marketing force includes 90 field representatives, 20 telemarketing
representatives and 10 marketing personnel and covers all major customer
groups, including chain and independent drug retailers, managed care
organizations, pharmaceutical wholesalers, hospitals and group purchasing
organizations. The Company has developed market share initiatives with
selected leading chain and wholesale customers and developed and implemented
customized marketing programs to meet specific customer needs, including
customer inventory management, patient-focused education and compliance
programs. With respect to its branded product business, the Company has a team
of approximately 20 sales representatives dedicated to marketing INFeD. This
sales and marketing force is complemented by marketing collaborations with
Bayer in the nephrology market and MGI in the oncology market.
PRODUCTS
The Company believes it manufactures and markets the broadest number of
products of any U.S. pharmaceutical company in terms of number and types of
products. The Company's product line includes both solid dosage and sterile
dosage generic products; the Company is also developing a line of specialty
branded pharmaceuticals. The Company manufactures and markets approximately
160 chemical entities in approximately 350 dosage forms and strengths under
approximately 200 approved ANDAs. Schein is currently the sole generic source
for 47 pharmaceutical products.
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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
---------------------------- NINE MONTHS ENDED
1992 1993 1994 1995 1996 SEPTEMBER 1997
---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C>
Generic business:
Manufactured sterile dosage........ 16% 18% 25% 30% 38% 37%
Manufactured solid dosage.......... 58 55 40 35 28 30
Purchased products................. 18 16 19 18 15 13
--- --- --- --- --- ---
Total generic...................... 92 89 84 83 81 80
Branded business:
INFeD.............................. 8 11 16 17 19 20
--- --- --- --- --- ---
Total............................ 100% 100% 100% 100% 100% 100%
=== === === === === ===
</TABLE>
Generic Products
The Company's generic business consists of the manufacturing and marketing
of sterile and solid dosage products and the marketing of certain additional
purchased products.
The Company's sterile dosage product portfolio is comprised of approximately
110 products and accounted for approximately 37% of the Company's total net
revenues in the nine months ended September 1997. This portfolio includes
vecuronium bromide, an anesthetic product that is currently the Company's
largest selling generic product. The Company is manufacturing and marketing
vecuronium bromide prior to expiration of the patent covering this product
pursuant to a licensing arrangement. None of the Company's other sterile
dosage products accounted for more than 6% of net revenues in the nine months
ended September 1997. Included in the sterile dosage product portfolio are 45
products for which the Company is currently the sole generic source, one of
which is vecuronium bromide.
The Company's solid dosage product portfolio is comprised of approximately
50 products and accounted for approximately 30% of the Company's total net
revenues in the nine months ended September 1997. None of the Company's solid
dosage products accounted for more than 6% of net revenues in the nine months
ended September 1997. The Company's solid dosage portfolio includes two
products for which the Company is currently the sole generic source.
The Company supplements its manufactured product line with purchased
products. The margins received by the Company on these products, however, are
generally lower than the margins received by the Company on products that it
manufactures. In addition, the Company believes its customers are increasingly
seeking to purchase products directly from manufacturers. The percentage of
the Company's total net revenues of generic products manufactured by others
has declined from approximately 18% in 1995 to 13% for the nine months ended
September 1997.
Branded Products
Until 1992, the Company's focus was on generic pharmaceutical products. In
1992, the Company introduced INFeD, its primary branded product, and currently
has other branded products under development. The Company focuses on products
used in the management of iron-related disorders. Currently, INFeD, an
injectable iron dextran used in the treatment of severe anemia or iron
deficiency, accounts for approximately 20% of the Company's net revenues.
INFeD is most commonly used in the U.S. to treat iron deficiency anemia in
patients with end-stage renal disease (ESRD) 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
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<PAGE>
management into the nephrology, hematology and oncology markets. The following
table identifies the Company's branded product marketing and development
activities:
<TABLE>
<CAPTION>
PRODUCT THERAPEUTIC APPLICATION STATUS
- ------- ----------------------- ------
<S> <C> <C>
INFeD Iron management Launched in U.S. in 1992
Ferrlecit Iron management NDA expected to be filed by Makoff R&D
Laboratories, Inc. in first half of 1998
Unipine XL Hypertension Launched in U.K. in 1996
</TABLE>
Iron Management Market
In recent years, there has been increasing focus on improving the quality of
life of patients undergoing chronic disease therapy through, among other
means, iron management. The oxygen carrying component of red blood cells,
hemoglobin, requires iron to function efficiently. In some cases, iron
management requires the treatment of iron deficiency and, in other cases, the
treatment of iron excess. The Company is currently marketing and developing
prescription products for the treatment of anemia in the dialysis and oncology
markets, and seeks to market INFeD for the gastroenterology and bloodless
medicine markets.
Dialysis Market. The dialysis market is currently the largest market for
injectable iron and iron replacement products. Orally administered iron has
historically been, and continues to be, the first form of treatment used by
doctors to treat anemia in dialysis patients. Research has shown, however,
that orally administered iron inadequately treats iron deficiency in dialysis
patients and that injectable iron is more rapidly and directly absorbed in the
body. The National Kidney Foundation's Dialysis Outcome Quality Improvement
(DOQI) guidelines encourage more consistent use of injectable iron to
supplement the use of oral iron in dialysis patients. Approximately 60% to 65%
of dialysis patients are given injectable iron at least once a year. EPO
therapy is currently used to treat approximately 92% of all dialysis patients.
EPO allows patients to generate their own red blood cells, thus greatly
reducing the need for blood transfusions. One of the effects of EPO treatment,
however, is rapid mobilization of iron reserves and depletion of iron stores.
The Company believes that certain studies indicate that INFeD can be used
together with EPO to overcome this iron depletion effect. Accordingly, the use
of EPO therapy has created a need for iron management techniques.
Oncology Market. In the oncology market, which includes patients with cancer
and cancer-related illnesses, anemia is a significant side effect of the
disease and the drugs used in treatment of the disease. Fatigue associated
with anemia is not widely recognized or treated as part of cancer treatment
regimens. Although there is a small base of injectable iron users in this
area, the Company believes there is potential for market expansion.
Hematology and Gastroenterology. INFeD may also have applications in the
area of bloodless medicine. Bloodless medicine is surgery without the use of
blood infusions or transfusions; instead, plasma is supplemented with iron
that is administered to the patient before surgery to build up red blood cells
or after surgery to more rapidly replace red blood cells lost during surgery.
In the gastroenterology market, of the over one million patients with
inflammatory bowel disease, 30% to 70% experience anemia, mostly due to iron
deficiency.
INFeD. INFeD (iron dextran injection, USP 50 mg/mL) is a liquid complex of
ferric hydroxide and dextran that is used in the treatment of patients with
documented iron deficiency in whom oral administration is unsatisfactory or
impossible. INFeD's product label includes the following warning: "Warning:
The parenteral use of complexes of iron and carbohydrates has resulted in
anaphylactic-type reactions. Deaths associated with such administration have
been reported. Therefore, INFeD (iron dextran injection, USP 50 mg/mL) should
be used only in those patients in whom the indications have been clearly
established and laboratory investigations confirm an iron-deficient state not
amenable to oral iron therapy."
Currently, iron dextran is the only injectable iron formulation in the U.S.
market. The Company introduced its injectable iron product, INFeD, in May
1992. INFeD currently has approximately 85% of the injectable iron market, and
iron dextran products are marketed by one other company in the U.S. Net sales
of INFeD in 1996
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<PAGE>
and the nine months ended September 1997 were $88.0 million and $72.1 million,
respectively, and accounted for 19% and 20%, respectively, of the Company's
net revenues. Growth in sales of INFeD has been driven by the expanding use of
EPO and the growing recognition of patient outcomes and quality of life issues
associated with iron deficiency anemia in dialysis patients. For patients
being treated with EPO, injectable iron therapy has become adjunctive therapy
rather than supportive therapy, as studies have shown that anemic patients may
become resistant to EPO and that injectable iron can help to maintain EPO
responsiveness and optimize its effectiveness. The Company believes that the
dialysis market should continue to expand with the expected increase in the
ESRD population, as well as the expanding use of hemodialysis in the treatment
of ESRD patients.
Ferrlecit. Ferrlecit (sodium ferric gluconate complex in sucrose injection)
is intended to be the Company's next generation injectable iron product.
Ferrlecit is administered parenterally to treat hemodialysis patients with
iron deficiency anemia.
Ferrlecit was developed by the Nattermann Company, of Cologne (now Rhone-
Poulenc Rorer GMBH) and is widely used in Europe. In 1996, pursuant to an
exclusive trademark and distribution agreement with Makoff R&D Laboratories
("R&DL"), a specialty renal pharmaceutical company, the Company acquired the
exclusive right to market and distribute Ferrlecit in the U.S. and several
other countries for a period of ten years after market authorization has been
granted by FDA. R&DL has completed Phases I, II and III clinical trials and
expects to file an NDA in the first half of 1998. See "--Government
Regulations--NDA Process."
Other Products
Unipine XL. In the U.K., the Company is currently manufacturing and
marketing Unipine XL, a once- a-day version of nifedipine used in the
treatment of hypertension, pursuant to a license obtained from Ethical. The
Company is also preparing for Unipine XL's launch in Israel, South Africa, the
Caribbean and selected markets in Latin America and Asia.
PRODUCT DEVELOPMENT
The Company seeks to expand its product portfolio through continuing
investment in research and development. As a result of its approximately $74.0
million investment in product development over the past three fiscal years,
the Company has 24 ANDAs pending with FDA and over 60 products under
development internally and with third parties. The Company believes that this
investment in development activities should accelerate its ANDA filings and
launches in the next several years. The Company's product development
activities are conducted by 140 research and development professionals and
supported by others with expertise in manufacturing, technology, legal,
regulatory and intellectual property issues.
The Company's generic product development efforts focus on: (i) major
branded drugs coming off patent; (ii) drugs for which patent protection has
lapsed and for which there are few or no generic producers; (iii) drugs whose
patents may be susceptible to challenge; (iv) proprietary and branded products
in select therapeutic areas; and (v) generic products that require specialized
development, formulation, drug delivery or manufacturing technology. In
furtherance of its strategy to be among the first to market generic versions
of brand drugs, the Company uses its scientific, pharmacologic, manufacturing
and legal expertise to identify brand products covered by patents that are
susceptible to challenge or circumvention. When the Company decides to pursue
development of a generic version of a brand product so identified, it seeks a
source for the drug's active pharmaceutical ingredient, develops a formulation
for the drug, conducts bioequivalence studies on its formulation and prepares
an ANDA filing. The ANDA filing must include a certification from the Company
that the patent on the brand product is invalid or not infringed, and the
patent holder must be provided with notice of the filing and basis for the
certification. If the patent holder commences litigation within 45 days of the
notice, FDA may not approve 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.
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<PAGE>
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 promote the use of its primary branded product, INFeD, beyond the dialysis
market to other therapeutic areas, such as oncology and gastroenterology.
STRATEGIC COLLABORATIONS
To expand its product portfolio and improve its profitability, the Company
will continue to pursue strategic collaborations to access additional dosage
forms, proprietary drug delivery technology, specialized formulation
capabilities and sources of bulk active materials. The Company has product
development arrangements with companies such as Ethical and Elan;
collaborative arrangements for direct access to raw materials with, among
others, Johnson Matthey and Abbott; and sales and marketing arrangements with
companies such as Bayer Corporation, Elensys and MGI. The Company has recently
entered into a non-binding letter of intent regarding Cheminor and Reddy. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
MANUFACTURING AND DISTRIBUTION
The Company operates five manufacturing facilities and two distribution
centers. The following table presents the facilities owned or leased by the
Company and indicates the location and type of each of these facilities:
<TABLE>
<CAPTION>
OWN OR SQUARE LEASE
PROPERTY LOCATION LEASE 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 109,800 (3) 1999
Distribution Centers
Eastern................. Brewster, NY (1) Lease 98,500 2007
Western ................ 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) The Company has an option to purchase this facility.
Manufacturing Facilities
The Company's aggregate manufacturing capacity is among the largest of any
generic pharmaceutical company in the United States. The diversity and
capacity of these facilities are important elements of the Company's strategy
to expand the range of its existing product line and provide several
significant benefits, including (i) the ability to satisfy the growing
preference among many of the Company's customers for buying pharmaceuticals
directly from manufacturers and from fewer sources, (ii) added flexibility in
raw materials sourcing and manufacturing cost control, and (iii) economies of
scale with respect to manufacturing infrastructure functions common to solid
dosage manufacturing and/or sterile dosage manufacturing, such as water
distillation, air purification, drug formulation systems, filling and
packaging lines, and quality control and regulatory compliance. See "--
Strategy" and "--Government Regulations."
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
37
<PAGE>
Company currently produces approximately four billion tablets and capsules and
75 million vials and ampules annually and has the capacity to increase
production to six billion tablets and capsules and 100 million vials and
ampules annually. This range of manufacturing capabilities allows the Company
to participate in segments of the generic industry where competition is
limited. Further, the Company's high-volume production enables it to obtain
favorable access to raw materials, which typically represent a substantial
portion of the cost of producing drug products. See "Risk Factors--Dependence
on Regulatory Approval and Compliance."
The Company is one of only two U.S. generic manufacturers with dedicated
sterile filling facilities for cephalosporin and penicillin antibiotics, which
target the high volume institutional injectable market. In addition, the
Company's ophthalmic and otic drug manufacturing facilities target higher
margin specialty markets.
In accordance with FDA requirements for manufacturers of finished
pharmaceutical products, the Company has developed strict quality control
procedures to ensure the quality and safety of its products. The Company
employs sanitary handling procedures, customized systems for monitoring and
regulating environmental conditions and back-up systems for many of the
critical steps in the production processes. The Company performs sample
testing of raw materials and packaging supplies used in manufacturing its
products and conducts on-site audits of raw material suppliers. In its
manufacturing process, the Company maintains strict quality control procedures
and believes it is in material compliance with FDA's cGMP standards. The
Company has approximately 380 employees dedicated to quality control and
quality assurance. Because developing and obtaining approval of new generic
products requires a large investment and several years of lead time, the
Company believes that companies like itself that have modern, versatile
manufacturing facilities will have a competitive advantage in responding to
market opportunities. See "Risk Factors--Dependence on Regulatory Approval and
Compliance," "Risk Factors--Pending Regulatory Matters" and "--Government
Regulations."
The Company does not manufacture the active pharmaceutical ingredients used
in the preparation of its products. Instead, the Company purchases these
active pharmaceutical ingredients from international and domestic sources. FDA
requires pharmaceutical manufacturers to identify in their drug applications
the supplier(s) of all the raw materials for its products. If raw materials
for a particular product become unavailable from an approved supplier
specified in a drug application, any delay in the required FDA approval of a
substitute supplier could interrupt manufacture of the product, which could
materially and adversely affect the Company's profit margins and market share
for the product. To the extent practicable, the Company attempts to identify
more than one supplier in each drug application. However, in the case of
certain products (including certain products that contribute (or may
contribute) significantly to its sales and net income), the Company has
submitted drug applications that identify only one supplier. The Company has a
program of identifying alternative suppliers where practicable and, in many
cases, filing supplemental applications with FDA for approval.
The Company obtains a significant portion of its raw materials from
international suppliers. Arrangements with international raw material
suppliers are subject, among other things, to FDA, customs and other
government clearances, various duties and regulation by the country of origin.
The Company has a number of collaborative arrangements for exclusive access to
some difficult to source products.
SALES AND MARKETING
The Company believes that it has one of the largest direct sales and
marketing forces in the generic drug industry, with approximately 90 field
representatives, 20 telemarketing representatives and 10 marketing personnel.
This team is focused on enhancing pharmacist and payor knowledge of the Schein
product line and providing a differentiated level of customer service and
support. The sales and marketing force promotes Schein's newly approved
products and supports customers with innovative, value added services in
inventory management and patient education.
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
38
<PAGE>
mail order companies; alternative site customers, such as long term care
companies, home infusion companies and surgery centers; and medical/surgical
suppliers.
Most pharmaceuticals today are sold through national and regional
wholesalers, who command approximately 80% of the U.S. drug distribution
market. While pharmaceutical products are typically distributed via these
wholesalers, pharmaceutical companies often directly enter into contracts with
the retail chains, managed care and institutional customers covering the
actual acquisition price. Under these arrangements, wholesalers often serve as
depots for substantially all of a customer's product needs, allowing it to
maintain minimal inventories and receive overnight deliveries of several
manufacturers' products from a single source. Currently, approximately 64% of
the Company's revenues are sold through wholesalers, with approximately 82% of
these revenues subject to direct contracts between the Company and its
customers. In general, it is the Company's strategy to seek to enter into
purchase contracts with retail, managed care and institutional customers.
Sales to Bergen Brunswig Corporation, Cardinal Health, Inc. and McKesson Drug
Company accounted for 17%, 16% and 11%, respectively, of the Company's total
net revenues for the nine months ended September 1997 and accounted for 16%,
15% and 11%, respectively, of the Company's total net revenues in fiscal 1996.
The vast majority of the Company's products are sold under the "Schein
Pharmaceutical," "Marsam Pharmaceuticals" and "Steris Laboratories" labels. In
addition, the Company sells a limited number of products to distributors under
private labels.
The Company directs its sales and marketing activities through programs
specific to its generic product and branded product businesses.
Generic Products
The Company has one of the largest generic sales and marketing organizations
in the U.S. generic pharmaceutical industry, with a sales and marketing
organization of 120 people serving the retail, institutional, alternative
site, managed care and other generic drug purchasing markets, including a 20-
person telemarketing sales force and 10 marketing personnel supporting the 90-
person field sales organization. The Company's large sales and marketing force
permits effective coverage of all purchasers of generic products. The sales
and marketing force promotes newly approved products, encourages substitution
of the Company's generic products for branded products and supports the
customer with value added services in inventory management and patient
education.
The Company has developed market share initiatives with selected leading
chain and wholesale customers and has implemented customized marketing
programs to meet specific customer needs, including the following:
. The Company has developed and implemented a unique vendor managed
inventory program, Schein Pharmaceutical Managed Auto Replenishment
Technology ("S.M.A.R.T.(TM)"), which monitors customers' inventory levels
daily to ensure adequate stocking levels, minimize the occurrence of back
orders and returned goods and enhance inventory turnover for such key
customers.
. The Company uses state-of-the-art electronic data interchange ("EDI")
systems, which enable it to efficiently exchange data with its key
wholesale and retail customers for a variety of transactions.
. The Company offers a patient compliance program through which consumers
receive prescription refill reminders from their pharmacies.
. The Company has designed the Generic Acceptance and Intervention Network
("G.A.I.N.(TM)"), a patient-focused education program to promote the use
of generic products for its customers.
Branded Products
The Company has a sales and marketing organization of 20 people dedicated to
marketing INFeD. The Company also has established a co-promotion arrangement
with Bayer Corporation under which 150 of Bayer's
39
<PAGE>
specialty sales representatives devote a portion of their time in the United
States and Puerto Rico detailing INFeD to the nephrology market. In addition,
as part of its marketing effort in the oncology market, the Company entered
into a co-promotion arrangement with MGI in 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 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."
40
<PAGE>
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 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.
41
<PAGE>
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.
Even after initial FDA or other health authority approval has been obtained,
further studies, including Phase IV post-marketing studies, may be required to
provide, for example, additional data on safety, and will be required to gain
approval for the use of a product as a treatment for clinical indications
other than those for which the product was initially tested. Also, FDA or
other regulatory authorities require post-marketing reporting to monitor
serious and unanticipated adverse effects of the drug. Results of post-
marketing programs may limit or expand the further marketing of the products.
Further, if there are any modifications to the drug, including changes in
indication, manufacturing process or labeling or a change in manufacturing
facility, an application seeking approval for such changes must be submitted
to FDA or other regulatory authority. Additionally, FDA regulates post-
approval promotional labeling and advertising activities to assure that such
activities are being conducted in conformity with statutory and regulatory
requirements. Failure to adhere to such requirements can result in regulatory
actions which could have a material adverse effect on the Company's business,
results of operations and financial condition.
Other Regulation
The Prescription Drug Marketing Act (the "PDMA"), which amends various
sections of the FDCA, imposes requirements and limitations upon drug sampling
and prohibits states from licensing distributors of prescription drugs unless
the state licensing program meets certain federal guidelines that include,
among other things, state licensing of wholesale distributors of prescription
drugs under federal guidelines that include minimum standards for storage,
handling and record keeping. In addition, the PDMA sets forth civil and
criminal penalties for violations of these and other provisions. Various
sections of the PDMA are still being implemented by FDA and the states.
Nevertheless, failure by the Company's distributors to comply with the
requirements of
42
<PAGE>
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. 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 September 1997, the Company had approximately 1,850 employees, of which
830 were engaged in manufacturing, 380 were engaged in quality control and
quality assurance, 240 were engaged in administration, finance and human
resources, 140 were engaged in research and product development, 140 were
engaged in sales and marketing, 80 were engaged in distribution and 40 were
engaged in regulatory affairs. No employee is represented by a union, and the
Company has never experienced a work stoppage. Management believes its
relationship with its employees is good.
LEGAL PROCEEDINGS
The Company is a defendant in several product liability cases typical for a
company in the pharmaceutical industry. The Company also is involved in other
proceedings and claims of various types. Management believes the disposition
of these matters will not have a material adverse effect on the Company.
In October 1997, the Company received a subpoena from the Department of
Health and Human Services, Office of Inspector General seeking pricing
information for two products formerly marketed by the Company, vinblastine
sulfate and vincristine sulfate. The Company is aware of a number of other
pharmaceutical manufacturers and distributors that have been served with
similar subpoenas, which the Company believes is in connection with a
government investigation into claims for reimbursement by Medicare and/or
Medicaid. The Company intends to comply with the subpoena.
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<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
---- --- ---------
<C> <C> <S>
Martin Sperber 66 Chairman of the Board of Directors, Chief Executive
Officer and President
Marvin Samson 56 Executive Vice President and Director
Dariush Ashrafi 50 Executive Vice President, Chief Financial Officer and
Director
Paul Feuerman 38 Senior Vice President, General Counsel, and Director
David R. Ebsworth* 43 Director
Richard L. Goldberg* 61 Director
</TABLE>
- --------
* Members of the Compensation Committee.
Martin Sperber has been Chairman, Chief Executive Officer, President and
Director of the Company since 1989. From 1985 until 1989, Mr. Sperber was
President and Chief Operating Officer of the Company. Mr. Sperber has been
employed in various positions in the Schein organization for over 40 years.
Mr. Sperber is a member of the Board of the Generic Pharmaceutical Industry
Association, a member of the Board of the American Foundation for
Pharmaceutical Education, a member of the American Pharmaceutical Association
and a member of the Council for Overseers of the Long Island University Arnold
and Marie Schwartz College of Pharmacy. Mr. Sperber received his B.S. degree
in pharmacy from Columbia University.
Marvin Samson has been Executive Vice President and Director since the
Marsam Acquisition. Mr. Samson is also President, Chief Executive Officer and
Chairman of the Board of Marsam, a company he founded in 1985. Prior thereto,
Mr. Samson was CEO, President and founder of Elkins-Sinn, Inc., a manufacturer
of generic injectable products. Currently, Mr. Samson is Chairman of the
Generic Pharmaceutical Industry Association, a member of the board of
directors of Sabratek Corp. (NASDAQ), and a member of the board of trustees of
the Philadelphia College of Pharmacy, the West Jersey Hospital System and the
American Society of Hospital Pharmacists Foundation. Mr. Samson received his
B.S. degree in chemistry from Temple University.
Dariush Ashrafi has been Executive Vice President and Chief Financial
Officer since October 1995, and Director since September 1997 and from May
1995 until September 1995 was Senior Vice President and CFO. From 1990 to
1995, Mr. Ashrafi was Senior Vice President, Chief Financial Officer and
director of The Warnaco Group, Inc., an apparel company. Prior to joining
Warnaco, he spent 18 years with Ernst & Young and became a partner in 1983.
Mr. Ashrafi received his B.S. degrees in Aeronautical and Astronautical
Engineering and in Management Science from the Massachusetts Institute of
Technology and his M.S. in Finance from the Massachusetts Institute of
Technology Sloan School.
Paul Feuerman has been General Counsel since 1991. He has been a Vice
President of the Company since January 1992, Senior Vice President since
February 1997, and a Director since September 1997. Mr. Feuerman previously
was associated with the law firm of Proskauer Rose LLP. He received his B.A.
from Trinity College and his J.D. from Columbia Law School.
David R. Ebsworth became a Director of the Company in September 1994 as part
of Bayer Corporation's investment in the Company. He is currently Executive
Vice President, Bayer Corporation and President, Pharmaceutical Division North
America. Between 1983 and 1993, Dr. Ebsworth held various management and sales
marketing positions with the Bayer companies in Germany and Canada. Dr.
Ebsworth received his B.S. and Doctor of Philosophy degrees from the
University of Surrey (England).
44
<PAGE>
Richard L. Goldberg has been a Director of the Company since September 1994.
He is currently a Senior Partner at Proskauer Rose LLP and has been a member
of that law firm since 1990. Prior to 1990, he was a Senior Partner at Botein
Hays & Sklar. Mr. Goldberg is also a member of the board of directors of
Comtech Telecommunications Corp. (NASDAQ). He is a graduate of Brooklyn
College and received his J.D. from Columbia Law School.
BOARD OF DIRECTORS
The Board of Directors has six directors, four of whom--Martin Sperber,
Marvin Samson, 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.
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 is entitled to nominate a number of members of the Board of
Directors of the Company, rounded down to the nearest whole number, equal to
the product of (a) the number of members of the Board of Directors and (b) its
percentage stockholdings of Common Stock at the time of nomination. In this
regard, Bayer nominated David R. Ebsworth as a member of the Board of
Directors. The Voting Trustee (as defined herein) (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's
nominee(s). Until the Voting Trust Termination Date, Bayer and certain of the
Company's principal stockholders must vote for the election of the Voting
Trustee's nominees.
The Company's officers are elected by the Board of Directors for one-year
terms and serve at the discretion of the Board of Directors. See "Risk
Factors--Control of the Company" and "Certain Transactions."
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.
45
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the Company's remaining executive officers
(the "Named Executive Officers") for the year ended December 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------
ANNUAL COMPENSATION (1) AWARDS PAYOUTS
--------------------------- ---------- -----------
OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL SALARY BONUS COMPENSATION UNDERLYING LTIP ALL OTHER
POSITION (2) (3) ($) ($) ($) OPTIONS PAYOUTS ($) COMPENSATION ($)
------------------ ------- ------ ------------ ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Martin Sperber.......... 700,000 -- 9,929 (4) -- -- 10,305 (4)
Chairman, Chief
Executive Officer and
President
Marvin Samson........... 400,000 70,000 -- 200 -- 37,786 (5)
Executive Vice
President
Dariush Ashrafi......... 341,000 59,700 10,257 (6) 200 75,000 24,321 (6)
Executive Vice
President and Chief
Financial Officer
Paul Feuerman........... 185,000 32,400 7,738 (7) 200 100,000 13,397 (7)
Senior Vice President
and General Counsel
</TABLE>
- --------
(1) The compensation described in this table does not include medical, group
life insurance or other benefits available generally to all salaried
employees of the Company, as well as certain perquisites and other
personal benefits, the value of which does not exceed the lesser of
$50,000 or 10% of the named executive officer's total salary and bonus
reported in this table.
(2) Michael Casey, who served as the Company's Executive Vice President until
September 5, 1997, received $326,442 in Salary, $61,300 in Bonus, options
covering 200 shares of Common Stock, $75,000 in LTIP payouts and $9,477 in
All Other Compensation. All Other Compensation includes $7,260 for profit
sharing contribution, $1,125 in 401(k) employer matching contribution and
$1,092 for the cost of term life insurance coverage provided by the
Company.
(3) James McGee, who served as the Company's Executive Vice President and
Chief Operating Officer until May 15, 1997, received $431,000 in Salary,
$75,400 in Bonus, $98,825 in Other Annual Compensation, options covering
200 shares of Common Stock, $2,000,000 in LTIP payouts and $180,833 in All
Other Compensation. Other Annual Compensation includes $2,515 in tax
payments for a company car, $661 in tax payments for the supplemental
retirement plan, $113 in tax payments for state unemployment insurance and
$95,536 in tax payments for a relocation loan made on behalf of Mr. McGee.
All Other Compensation includes $7,500 for profit sharing contribution,
$1,125 in 401(k) employer matching contribution, $21,550 in supplemental
retirement plan contribution, $1,448 for the cost of term life insurance
coverage provided by the Company, $104,540 for forgiven equity loss loan
and associated tax deposit and $44,670 for the value of split dollar life
insurance policy.
(4) Other Annual Compensation includes $8,426 in tax payments for a company
car, $1,391 in tax payments for supplemental retirement plan and $112 in
tax payments for state unemployment insurance made on behalf of Mr.
Sperber. All Other Compensation includes $7,500 for profit sharing
contribution, $1,125 in 401(k) employer matching contribution and $1,680
for the cost of term life insurance coverage provided by the Company.
(5) All Other Compensation includes $7,500 for profit sharing contribution,
$250 in 401(k) employer matching contribution, $16,660 in supplemental
retirement plan contribution, $909 for the cost of term life insurance
provided by the Company and $12,467 for the value of split dollar life
insurance policy.
(6) Other Annual Compensation includes $10,257 in tax payments for an
allowance in lieu of a company car made on behalf of Mr. Ashrafi. All
Other Compensation includes $7,500 for profit sharing contribution, $1,125
in 401(k) employer matching contribution, $14,550 in supplemental
retirement plan contribution and $1,146 for the cost of term life
insurance coverage provided by the Company.
(7) Other Annual Compensation includes $7,586 in tax payments for a company
car, $39 in tax payments for the supplemental retirement plan and $113 in
tax payments for state unemployment insurance made on behalf of Mr.
Feuerman. All Other Compensation includes $7,500 for profit sharing
contribution, $1,125 in 401(k) employer matching contribution, $4,150 in
supplemental retirement plan contribution and $622 for the cost of term
life insurance provided by the Company.
46
<PAGE>
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Martin Sperber dated
September 30, 1994 pursuant to which Mr. Sperber serves as Chairman of the
Board, Chief Executive Officer and President of the Company. Under this
agreement, the term of Mr. Sperber's employment commenced on January 1, 1994
and terminates on January 1, 1999, unless earlier terminated by the death of
Mr. Sperber, by action of the Board of Directors with or without cause, due to
the disability of Mr. Sperber or by Mr. Sperber upon 30 days written notice or
a material breach by the Company of his employment or stock option agreement
that is not cured within 30 days. If Mr. Sperber is terminated without cause,
in addition to all accrued but unpaid compensation to the date of termination,
he is entitled to receive as severance compensation his base salary from the
date of termination through January 1, 1999 and an amount equal to the product
of (i) a fraction, the numerator of which is the amount of earned incentive
compensation for the last full year before termination and the denominator of
which is 365 and (ii) the number of days from termination until January 1,
1999. If Mr. Sperber voluntarily terminates his employment prior to January 1,
1999 (other than for an uncured breach by the Company), he is only entitled to
such severance pay as is determined by the Compensation Committee. Mr. Sperber
currently receives base annual compensation of $700,000. Mr. Sperber may also
receive incentive compensation in an amount to be determined by the
Compensation Committee. If Mr. Sperber's employment is terminated prior to
January 1, 1999, such incentive compensation shall be based on objective
criteria established by the Compensation Committee or $250,000 plus the
product of (x) the fraction derived by dividing (i) the sum of the actual cash
incentive compensation earned by each of the three most senior executives of
the Company other than Mr. Sperber in the year Mr. Sperber's employment is
terminated less the sum of the minimum cash incentive compensation
contemplated for such executives for such year, by (ii) the sum of the maximum
cash incentive compensation contemplated for such executives for such year
less the sum of the minimum cash incentive compensation contemplated for such
executives for such year and (y) $250,000. Mr. Sperber is prohibited from
competing with the Company during the term of the agreement and until the
second anniversary of the date the Company makes its final base salary payment
to Mr. Sperber pursuant to the agreement.
Following termination of Mr. Sperber's employment other than for cause, Mr.
Sperber will be entitled during his lifetime and for the life of his spouse to
continue to participate in, or receive benefits that, on an after-tax basis,
are the same as those under all medical and dental benefit plans, policies and
programs in effect at the termination of his employment. In addition, unless
Mr. Sperber's employment is terminated for cause, Mr. Sperber will be entitled
to an annual pension, beginning after the termination of his employment and
continuing until the later of the death of Mr. Sperber or his spouse, in an
amount equal to 45% (or 40%, if Mr. Sperber's employment is terminated due to
his voluntary resignation) of the average total cash compensation for the
highest three of the last five years prior to termination, reduced generally
by the sum of the amount Mr. Sperber would be entitled to receive under all of
the Company's qualified retirement plans within the meaning of Section 401(a)
of the Internal Revenue Code and under Social Security if he commenced
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 4,795 shares of Common Stock at a price of $2,000 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).
Pursuant to an employment agreement with Marsam dated July 28, 1995, to
which the Company agreed to be bound by certain provisions, Marvin Samson was
appointed an Executive Vice President and Director of the Company, as well as
President, Chief Executive Officer and Chief Operating Officer of Marsam, for
an initial
47
<PAGE>
term that commenced on the date of the Marsam Acquisition and terminates on
the fifth anniversary of that date (the "Initial Term"), which term is
automatically extended for one-year periods unless earlier terminated upon 180
days advance written notice by either party. During the Initial Term, Mr.
Samson may terminate the agreement at any time, but the Company may only
terminate Mr. Samson for cause. If the Company terminates Mr. Samson's
employment other than for cause during the Initial Term, Mr. Samson is
entitled to severance compensation in the amount of his annual salary, as well
as comparable health and disability insurance coverage (or reimbursement
therefor), for the remainder of the Initial Term (or any extension thereof).
If Mr. Samson terminates the agreement prior to the end of the Initial Term,
he is entitled to continue receiving 50% of his salary and comparable
insurance benefits (or reimbursement therefor) starting on the date of
termination and ending on the earlier of the third anniversary of the
termination or the fifth anniversary of the Marsam Acquisition. Mr. Samson
currently receives base annual compensation of $400,000. In 1996, the
Company's Board of Directors determined to award a $70,000 bonus to Mr.
Samson, payable to Mr. Samson in 1997. Mr. Samson is also entitled to
participate in and receive benefits from the Company's bonus, stock option,
pension, profit-sharing, insurance and other employee benefit plans. In
addition, the agreement provides that during any time when the Company is
obligated to pay Mr. Samson a salary or consulting fee, Mr. Samson is also
entitled to an automobile, or, at the Company's option, an automobile
allowance. Mr. Samson is prohibited from competing with the Company (or owning
more than 3% of the outstanding equity of a competing business) during the
term of his employment or consultancy with the Company, during any period in
which the Company is making severance compensation payments or upon
termination for cause by the Company until the earlier of the sixth
anniversary of the Marsam Acquisition and the fourth anniversary of the
termination.
The Company, at its option, may retain Mr. Samson as a consultant for a
period of one year after the Initial Term (or any extension thereof) or after
Mr. Samson terminates the agreement. As a consultant, Mr. Samson is entitled
to receive a consulting fee in an amount equal to his base salary immediately
prior to termination, as well as comparable health and disability insurance
coverage (or reimbursement therefor). Such consulting fee may be reduced
dollar-for-dollar by any compensation received by Mr. Samson for other
employment that he is engaged in at the time. The Company, at its option, may
terminate the consultancy upon 30 days prior written notice.
The agreement also provides that Mr. Samson, having been elected a director
of the Company effective on the date of the Marsam Acquisition, is entitled to
have his name included in the slate of the Company's management nominees for
re-election as a director during the term of the agreement. Mr. Samson is also
entitled to designate three of Marsam's seven board members.
Following termination of Mr. Samson's employment other than for cause, Mr.
Samson will be entitled to an annual pension for a period of ten years. A
compensation continuation agreement dated October 19, 1991 provides for a
payment in the first year equal to 100% of his prior year base salary and a
payment equal to 50% of his base salary for the subsequent nine years. The
Company has also agreed to provide certain benefits to Mr. Samson in the form
of payments on the split dollar life insurance contract insuring the lives of
Mr. Samson and his wife.
The Company entered into an employment agreement with Dariush Ashrafi dated
May 1, 1995, pursuant to which Mr. Ashrafi serves as Executive Vice President
and Chief Financial Officer of the Company. Under this agreement, the term of
Mr. Ashrafi's employment began on May 1, 1995 and terminates 60 days after
either Mr. Ashrafi or the Company gives written notice that he or it does not
wish to continue the employment, unless earlier terminated for cause or upon
the death or disability of Mr. Ashrafi. Mr. Ashrafi currently receives annual
base compensation of $341,000. In 1996, the Company's Board of Directors
determined to award a $59,700 bonus to Mr. Ashrafi, payable to Mr. Ashrafi in
1997. Pursuant to a deferred compensation agreement dated April 17, 1995,
between the Company and Mr. Ashrafi, Mr. Ashrafi is entitled to receive a
bonus of $300,000, payable in quarterly payments in the amount of $75,000. If
Mr. Ashrafi'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
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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. Mr. Feuerman currently
receives annual base compensation of $225,000. In 1996, the Company's Board of
Directors determined to award a $32,400 bonus, payable to Mr. Feuerman in
1997. Pursuant to a deferred compensation agreement dated August 8, 1996,
between the Company and Mr. Feuerman, Mr. Feuerman is entitled to receive a
bonus of $500,000, payable in two annual installments of $100,000 each
followed by two annual installments of $150,000 each. If Mr. Feuerman'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 for one year following termination
and his 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 May 15, 1997. Under an agreement dated September 20, 1996, Mr.
McGee is entitled to receive as severance a lump sum payment, some portion of
his annual base salary as and when bonuses are paid to certain senior
executives in respect of fiscal 1997 and continuing health and dental
insurance coverage. Until December 31, 1998, Mr. McGee will serve as a
consultant to the Company and is entitled to receive base consulting fees
equal to his annual base salary, plus an additional consulting fee equal to
some portion of his annual base salary to be paid as and when bonuses are paid
to senior executive officers of the Company in respect of fiscal 1998.
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 27,400 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 27,400 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") provides for the granting of options to purchase not more than
an aggregate of 1,000 shares of Common Stock, subject to adjustment under
certain circumstances. Although options granted under the 1993 Plan to
purchase 25,586 shares are still outstanding, no further grants will be made
pursuant to the 1993 Plan. Some or all of the options granted under the 1997
Plan may be "incentive stock options" within the meaning of section 422 of the
Internal Revenue Code of 1986 (the "Code"). The Company has granted options to
purchase 4,252 shares under the 1997 Plan at the then fair market value.
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.
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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 189 shares of Common Stock
under the Non-Employee Director Plan.
The Board of Directors of the Company may amend the Non-Employee Director
Plan from time to time. However, the Board of Directors may not, without
stockholder approval, amend the plan to increase the number of shares of
Common Stock available for option grants under the plan (except for changes in
capitalization specified in the plan).
CERTAIN OTHER EMPLOYEE BENEFIT PLANS
The Company maintains the Retirement Plan of Schein Pharmaceutical, Inc. &
Affiliates (the "Company Retirement Plan"), under which employees (other than
temporary employees) of the Company may participate on the first day of the
first pay period after completing six consecutive calendar months during which
they complete at least 500 hours of service. Effective 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 ($9,500 for the
1997 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. The Company makes a mandatory matching
contribution to the Company Retirement Plan of $.25 for each dollar
contributed to the Company Retirement Plan as a basic contribution, up to the
first 3% of a participant's 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 1997,
the Company made a discretionary, non-matching contribution under the Company
Retirement Plan for 1996 equal to 5% of compensation.
Participants in the Company Retirement Plan have a 100% vested and
nonforfeitable interest in the value of their basic contribution and the
Company's matching contribution, 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.
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Split Dollar Life Insurance Plan. The Company maintains a Split Dollar Life
Insurance Plan (the "Life Insurance Plan"). Under the Life Insurance Plan,
each participating officer owns a life insurance policy. Each policy is
designed to provide at age 65 an annuity equal to a specified percentage of
the participant's projected average annual salary for the final three years of
employment (less Social Security benefits and certain benefits under the
Company Retirement Plan). A cash surrender value, which is owned by the
individual and designed to fund the annuity, accumulates under each
participant's policy. The Company and the employee will share the cost of
premiums. The premiums advanced by the Company will be repaid out of the cash
value of the policies.
1993 Book Equity Appreciation Rights Program. The Company maintains a Book
Equity Appreciation Rights Program (the "Program") to allow certain employees
to benefit from an increase in the Company's book value (calculated according
to a formula defined in the Program). All participants are fully vested in
their book equity appreciation rights ("BEARs"). The Company does not intend
to make any additional grants of BEARs.
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CERTAIN TRANSACTIONS
In 1994, the Company entered into a Heads of Agreement with Bayer
Corporation and Bayer A.G. (collectively, "Bayer"), pursuant to which the
Company and Bayer committed together to explore business opportunities for the
U.S. and abroad.
In 1994, the Company entered into a three-year co-promotion agreement with
Bayer covering the Company's INFeD product. Under the terms of the agreement,
in 1994, 1995 and 1996, in exchange for promotional support, the Company
shared with Bayer the net profits of INFeD in excess of specified threshold
amounts. In early 1997, this agreement was amended and extended to December
1997. The parties are currently negotiating a further extension of this
agreement. This amended agreement provides that in exchange for promotional
support, the Company pays Bayer a fixed dollar amount plus a fixed percentage
of sales above a threshold amount. The Company incurred selling expenses under
these agreements of approximately $3.0 million in 1996 and $2.9 million for
the first nine months of 1997. There were no selling expenses under the first
agreement for 1994 and 1995. See "--Restructuring Agreements."
Since 1994, the Company and Bayer, through their respective affiliates, have
entered into several joint ventures to own, manage or develop generic
pharmaceutical businesses outside of the U.S. Each of Schein and Bayer have
contributed various assets and rights and funded the operations of these
ventures, and in certain circumstances have guaranteed certain liabilities of
these ventures, such as leases and lines of credit. It is contemplated that
the Company and Bayer will sell products to certain of these ventures for
resale in their local markets. Bayer and Schein are each currently evaluating
the extent of their continued participation in certain of these ventures.
The Company, together with the Pharmaceutical, Consumer Healthcare, Afga
Film and Diagnostics divisions of Bayer, has created a collaboration called
Bayer Healthcare Partners. Bayer Healthcare Partners is a marketing tool
through which the various participants combine their sales efforts to offer a
package of goods and services designed to be more attractive to a customer,
most likely a managed health care provider. The participants share in the
costs and profits associated with sales of the covered products to that
customer.
Since 1985, the Company has had a series of non-exclusive agreements
(collectively, the "Consulting Agreement") with the Consultant. Under the
Consulting Agreement, the Consultant and the Company have identified certain
patents on branded pharmaceutical products that might be susceptible to a
challenge, and the Consultant has acted as litigation counsel or advising
counsel to the Company in those instances where the Company decided to proceed
with a patent challenge. For projects in which the Consultant has rendered an
opinion, the Company pays the Consultant half the adjusted gross profit from
the Company's sale of generic versions of the patented product until the date
on which the patent would normally have expired or half the proceeds of any
settlement. In 1995 and 1996, the Company recorded in the aggregate net
product sales and settlements from patent challenges of $106.0 million and
related gross profits of $62.6 million (after deducting payments to the
Consultant of $17.4 million). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations."
The Consultant's services are provided on a non-exclusive basis to the
Company. The Consulting Agreement does not have a specific term and continues
until the current projects under the Consulting Agreement are completed and
all payments due to the Consultant are made. There are two current projects
under the Consulting Agreement, one of which has resulted in a pending patent
challenge initiated by the Company. In accordance with the Consultant's right
to delegate responsibility for defending patent challenge litigation to other
counsel selected with the consent of the Company, responsibility for the
pending patent challenge has been delegated to other counsel. The Consultant
may terminate the Consulting Agreement for certain specified reasons at any
time. Without regard to who terminates the Consulting Agreement or the reasons
therefor, the Consultant will be entitled to payment in conjunction with any
sales or settlements with respect to any patented product for which the
Consultant has previously rendered an opinion setting forth the basis for a
possible patent challenge. The Consultant has rendered opinions with respect
to each of the two patented drug products that are the
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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.
In the conduct of its business, the Company sells pharmaceutical products to
Henry Schein, Inc. for distribution to its customers. Net sales to Henry
Schein, Inc. were $6.4 million, $5.3 million and $8.6 million in 1994, 1995
and 1996, respectively, and $5.5 million and $5.4 million for the nine months
ended September 1996 and the nine months ended September 1997, respectively.
Other than certain common stockholders, there is no affiliation between Henry
Schein, Inc. and the Company, and all transactions between the Company and
Henry Schein, Inc. are on an arm's-length basis.
The Company has signed a non-binding letter dated October 7, 1997 with
Cheminor and Reddy outlining the parties' intent to enter into a strategic
alliance agreement. As part of the contemplated arrangement, Cheminor could
purchase shares of the Company's Common Stock, once the shares are publicly
traded, at fair market value; the purchase price could be payable from the
profits otherwise due Cheminor from the alliance. Cheminor would have certain
rights to acquire additional shares from time to time, at fair market value,
to maintain its percentage interest in the Company. In addition, Cheminor
would have representation on the Company's Board of Directors consistent with
its equity investment through the purchase of the Company's shares once they
are publicly traded. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
In connection with Mr. Ashrafi's relocation, the Company loaned Mr. Ashrafi
$150,000 at an interest rate of 6.875% per annum evidenced by a promissory
note dated May 31, 1996. As of September 1997, an aggregate principal amount
of $150,000 was outstanding on that loan.
Richard L. Goldberg, who is a Director of the Company, is a member of
Proskauer Rose LLP, which has been retained by the Company to provide legal
services.
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"). 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. The Restructuring Agreements
provide that Mr. Sperber may designate certain individuals to succeed him as
Voting Trustee under the Restructuring Agreements.
The Restructuring Agreements provide that, until Bayer Corporation owns less
than 10% of the Company's outstanding Common Stock (the "Governance
Termination Date"), Bayer Corporation shall be entitled to nominate a number
of members of the Board of Directors of the Company, rounded down to the
nearest whole number, equal to the product of (a) the number of members of the
Board of Directors and (b) its percentage stockholdings of Common Stock of the
Company at the time of nomination. The Voting Trustee is entitled, until the
Voting Trust Termination Date, to nominate the balance of the members of the
Board of Directors. Until May 15, 2001, the Voting Trustee and the other
Continuing Stockholders (as defined herein) (to the extent their shares of
Common Stock are not voted by the Voting Trustee) must vote for the election
of Bayer Corporation's
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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 May 15, 2001, the Company may not, without Bayer Corporation's
consent, among other things, (a) own, manage or operate any business not
principally engaged in a segment of the pharmaceutical or health care industry
or any business ancillary thereto, (b) amend or restate the Company's charter
or by-laws to require more than majority approval to elect a majority of the
Board of Directors, merge, consolidate or sell all or substantially all the
Company's assets or (c) engage in transactions with any affiliate on terms
more favorable to the affiliate than could be obtained in an arm's-length
transactions, other than intercompany transactions and transactions under or
identified in the Restructuring Agreements. In addition, until the earlier of
(i) the Governance Termination Date and (ii) the date on which the shares of
the Company's Common Stock that are held by more than 300 persons who are
neither current stockholders, their permitted transferees nor employees of the
Company have a total market value in excess of $100.0 million (the "Qualified
Public Offering Date"), the Company may not undertake certain other actions
without the consent of Bayer Corporation.
The Restructuring Agreements include the Standstill, which imposes certain
restrictions on Bayer Corporation and its affiliates until May 15, 2001 (the
"Standstill Period"). Under the Standstill, 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.
After the Standstill Period, Bayer Corporation has the right, exercisable
within six months of the end of the Standstill Period and if there is an
insufficient number of shares of Common Stock available on the open market for
Bayer Corporation to acquire a majority of the outstanding Common Stock of the
Company on the open market, to acquire from the Family Stockholders and then
from the Company, a number of shares that should enable Bayer Corporation to
own a majority of the outstanding Common Stock of the Company.
Notwithstanding the Standstill, Bayer Corporation generally may acquire
Common Stock (a) unless Bayer Corporation has sold shares of Common Stock
other than to a Permitted Assignee, (I) in connection with its exercise of
certain preemptive rights or (II) if, after the Qualified Public Offering
Date, necessary to own at least 21% more of the Company's outstanding Common
Stock than certain 10% holders and (b) up to the "New Percentage," defined as:
30% of the Company's outstanding common stock between May 15, 1997 and May 15,
1999; 33 1/3% between May 16, 1999 and May 15, 2000; and 36 2/3% between May
16, 2000 and the end of the Standstill Period.
Under the Restructuring Agreements, if Bayer Corporation and its affiliates
for any reason acquire shares in excess of the New Percentage, until May 15,
2001, Bayer Corporation 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 (as defined herein), shall not acquire shares if, as a consequence of
the acquisition such individual, together with such individual's Family Group,
owns in excess of (a) in the case of Marvin Schein and his Family Group,
35.85% of the Common Stock of the Company, (b) in the case of Pamela Schein
and her Family Group, 27.55% of the Common Stock of the Company and (c) in the
case of Pamela Joseph and her Family Group, 12.97% of the Common Stock of the
Company.
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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 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
of the Company 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 of the Company to any one person, its affiliates or
Family Group members in any three-month period and (II) 4% of the outstanding
Common Stock of the Company 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 A.G., if Bayer A.G. 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.
In addition to the above restrictions, the Restructuring Agreements
generally provide that Bayer Corporation and the Continuing Stockholders may
not transfer any of their shares until May 15, 1999. However, Bayer
Corporation may transfer its shares in connection with certain registration
rights granted to Bayer Corporation under the Restructuring Agreements or to a
Permitted Assignee. The Continuing Stockholders may transfer their shares as
provided in the preceding paragraph. A "Permitted Assignee" is (a) a successor
to all or substantially all the business and assets of Bayer Corporation or a
majority-owned subsidiary of Bayer A.G. 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.
Mr. Sperber and Mr. Bergman may not transfer any of their shares to Bayer
A.G. except in certain open market transactions and except to the extent that
Bayer A.G. first offered to purchase such shares from the Family Stockholders
and the Family Stockholders did not sell such shares.
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The Company may not transfer any of its shares to Bayer A.G., except to the
extent that Bayer A.G. 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 A.G. 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 A.G. would own a majority of the shares of Common
Stock of the Company, 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 A.G.
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 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 wishes to
sell the shares of Common Stock.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
As of September 5, 1995, the Company entered into the Senior Credit
Agreement with a group of lenders. The Chase Manhattan Bank (formerly Chemical
Bank) acts as credit agent thereunder. The Senior Credit Agreement, as
amended, provides a term loan facility of $250.0 million and a revolving
credit facility of $100.0 million, each maturing on December 31, 2001. As of
September 27, 1997, the Company had pre-paid $120 million of the term loan
portion of the Senior Credit Agreement and had permanently reduced the
lenders' commitments with respect thereto and had outstandings under the
revolving credit facility of approximately $26.0 million.
The Company's borrowing can be based, at the option of the Company, on a
spread above LIBOR or an alternate base rate ("ABR"). The interest rate spread
applicable to term loan and revolving credit borrowings fluctuates based on
leverage. The spread, in the case of LIBOR loans, can range from 0.75% to
2.50% and, in the case of ABR loans, from 0% to 1.50%. The ABR is based on a
per annum rate which is the greater of (i) the prime rate of the Credit Agent,
(ii) the secondary market rate for three-month certificates of deposit as
published in Federal Reserve Statistical Release H-15 (519), plus 1%, and
(iii) the Federal Funds rate, plus one-half of 1%. A commitment fee ranging
from 0.25% to 0.50% per annum of the unused daily amount of the total
commitment is payable quarterly.
The term loan facility may be prepaid at any time by the Company. Such
facility is subject to quarterly amortization payments, beginning on September
30, 1998. Annual amortization payments will total $13.7 million, $34.2
million, $41.0 million, and $41.1 million in years 1998 through 2001,
respectively. In addition to scheduled amortization, the term loan facility is
subject to mandatory prepayment, without penalty or premium, to the extent of
(a) 75% of excess cash flow for any fiscal year, (b) a specified percentage,
based on leverage, from net proceeds derived from an equity issuance, (c) 100%
of net proceeds from a permitted debt issuance, and (d) 100% of net proceeds
from an asset sale in excess of $1.0 million, all as more fully set forth in
the Senior Credit Agreement.
The Senior Credit Agreement contains a number of affirmative covenants,
including those relating to existence; business and properties; insurance;
taxes; recordkeeping and financial reporting; and notice of certain events, as
well as negative covenants, including: limitations on indebtedness; liens;
sale and lease-back transactions; investments, loans and advances; mergers,
consolidations and sales of assets; dividends and distributions; payment of
dividends by subsidiaries; capital expenditures; transactions with affiliates;
and changes in line of business. The Company is required to maintain specified
financial ratios with respect to leverage, senior debt, fixed charge coverage
and working capital and a minimum net worth.
The Senior Credit Agreement contains customary events of default, including
covenant default, breach of representation and warranty, failure to pay
principal or interest or fees when due, cross-default to other indebtedness,
bankruptcy default, ERISA default, the occurrence of a change in control, the
guarantee agreement or any security document (as defined therein) ceasing to
be in full force and effect and any interest created by a security document
ceasing to be enforceable or ceasing to have the effect and priority purported
to be created thereby.
Borrowings under the Senior Credit Agreement are secured on a senior basis
by mortgages on real property, liens on inventory and receivables and a pledge
of subsidiary stock, which represents substantially all of the Company's
assets. The Company's obligations under the Senior Credit Agreement are
jointly and severally guaranteed on a senior secured basis by the Company's
domestic subsidiaries.
The Senior Subordinated Loan is being repaid from the proceeds of the Notes
offered hereby. See "Use of Proceeds."
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DESCRIPTION OF NOTES
GENERAL
The Notes are to be issued under an indenture, to be dated as of December
24, 1997 (the "Indenture") between the Company, the Guarantors and The Bank of
New York, as Trustee (the "Trustee"), a copy of which is available upon
request to the Company. The following summary of certain provisions of the
Indenture and the Notes does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all the provisions of the
Indenture (including the definitions of certain terms therein and those terms
made a part thereof by the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act")) and the Notes. Capitalized terms used herein and not
otherwise defined have the meanings set forth in "--Certain Definitions."
Under certain circumstances, the Company will be able to designate current
or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries
will not be subject to the restrictive covenants set forth in the Indenture.
As of the date of the Indenture, all of the Company's Subsidiaries other than
Schein Pharmaceutical (Netherlands) B.V., Schein Pharmaceutical (Bermuda) Ltd.
and Schein Farmaceutica de Peru will be Restricted Subsidiaries.
TERMS OF THE NOTES
The Notes will be limited to $100.0 million aggregate principal amount, and
will mature on December 15, 2004. Each Note will bear interest at the floating
rate described below payable quarterly in arrears on January 15, April 15,
July 15 and October 15, commencing on January 15, 1998, to holders of record
on the immediately preceding December 31, March 31, June 30 and September 30,
respectively.
Interest on the Notes will accrue at a rate equal to the Applicable LIBOR
Rate and will be calculated on a formula basis by multiplying the principal
amount of the Notes then outstanding by the Applicable LIBOR Rate, and
multiplying such product by the LIBOR Fraction.
The "Applicable LIBOR Rate" means, for each quarterly period during which
any Note is outstanding subsequent to the initial quarterly period, 300 basis
points over the rate determined by the Company (notice of such rate to be sent
to the Trustee by the Company on the date of determination thereof) equal to
the average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the
offered rates for deposits in U.S. dollars for a period of three months, as
set forth on the Reuters Screen LIBO Page as of 11:00 a.m., London time, on
the Interest Rate Determination Date for such quarterly period; provided,
however, that if only one such offered rate appears on the Reuters Screen LIBO
Page, the Applicable LIBOR Rate for such quarterly period will mean such
offered rate. If such rate is not available at 11:00 a.m., London time, on the
Interest Rate Determination Date for such quarterly period, then the
Applicable LIBOR Rate for such quarterly period will mean the arithmetic mean
(rounded upwards, if necessary, to the nearest 1/16 of 1%) of the interest
rates per annum at which deposits in amounts equal to US$1 million are offered
by the Reference Banks to leading banks in the London interbank market for a
period of three months as of 11:00 a.m., London time, on the Interest Rate
Determination Date for such quarterly period. If on any Interest Rate
Determination Date, at least two of the Reference Banks provide such offered
quotations, then the Applicable LIBOR Rate for such quarterly period will be
determined in accordance with the preceding sentence on the basis of the
offered quotations of those Reference Banks providing such quotations;
provided, however, that if fewer than two of the Reference Banks are so
quoting such interest rates as mentioned above, the Applicable LIBOR Rate for
such quarterly period shall be deemed to be the applicable LIBOR Rate for the
next preceding quarterly period and in the case of the quarterly period next
succeeding the initial quarterly period, the Applicable LIBOR Rate shall be
8.9375%. Notwithstanding the foregoing, the Applicable LIBOR Rate for the
initial quarterly period shall be 8.9375%.
"Interest Rate Determination Date" means, with respect to each quarterly
period, the second London Banking Day prior to the first day of such quarterly
period.
"LIBOR Fraction" means the actual number of days in the quarterly period
divided by 360; provided, however, that the number of days in each quarterly
period shall be calculated by including the first day of such quarterly period
and excluding the last.
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"London Banking Day" means any day in which dealings in U.S. dollars are
transacted or, with respect to any future date, are expected to be transacted
in the London interbank market.
"quarterly period" means the period from and including a scheduled payment
date (or December 24, 1997, in the case of the initial quarterly period)
through the day next preceding the following scheduled interest payment date.
"Reference Banks" means each of: Societe Generale, London Branch; The Chase
Manhattan Bank, London Branch; Deutsche Bank, London Branch; and Rabobank
Nederland, London Branch and any such replacement bank thereof as listed on
the Reuters Screen LIBO Page and their respective successors, and if any such
banks are not at the applicable time providing interest rates as contemplated
within the definition of the "Applicable LIBOR Rate," Reference Banks shall
mean the remaining bank or banks so providing such rates. In the event that
less than two of such banks are providing such rates, the Company shall use
reasonable efforts to appoint additional Reference Banks so that there are at
least two such banks providing such rates; provided, however, that such banks
appointed by the Company shall be London offices of leading banks engaged in
the London interbank market.
"Reuters Screen LIBO Page" means the display designated as page "LIBO" on
the Reuter Monitor Money Rates Service (or such other page as may replace the
LIBO page on that service for the purpose of displaying London Interbank
Offered Rates of leading banks).
If the date due for payment of interest on or principal of the Notes or the
date fixed for redemption of any Note shall not be a Business Day (as defined
herein), then payment of interest or principal need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date of maturity or the date fixed for redemption,
and no interest shall accrue for the period after such date.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the option of the Company, in whole or in
part, at any time, upon not less than 30 nor more than 60 days' prior notice,
at 103.000% of the principal amount thereof, plus accrued and unpaid interest
thereon to, but excluding the date of redemption, if redeemed prior to January
15, 1998 and at the following redemption prices (expressed as a percentage of
principal amount), plus accrued and unpaid interest thereon to, but excluding,
the date of redemption, if redeemed during the 12-month period commencing on
January 15 of each year:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
1998.............................. 103.000%
1999.............................. 101.500%
2000.............................. 100.750%
2001 and thereafter............... 100.000%
</TABLE>
If less than all of the Notes are to be redeemed, the Trustee shall select
the Notes or portions thereof to be redeemed pro rata, by lot or by any other
method the Trustee shall deem fair and reasonable, although no Note of $1,000
in original principal amount will be redeemed in part.
SINKING FUND
The Notes will not be entitled to the benefit of any sinking fund or other
mandatory redemption obligation prior to maturity.
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GUARANTEES
All of the Company's existing and future Restricted Subsidiaries (referred
to herein as the "Guarantors"), will unconditionally guarantee on a senior
unsecured basis the performance and punctual payment when due, whether at
maturity, by acceleration or otherwise, of all obligations of the Company
under the Indenture and the Notes. Each of the Guarantors has guaranteed the
Company's indebtedness under the Senior Credit Agreement on a senior secured
basis. The Subsidiary Guarantee of each Guarantor will be effectively
subordinated to the prior payment in full of all secured indebtedness of such
Guarantors, including secured indebtedness under the Senior Credit Agreement.
Each Subsidiary Guarantee will be limited to an amount not to exceed the
maximum amount that can, after giving effect to all other contingent and fixed
liabilities of the applicable Guarantor, be guaranteed by such Guarantor,
without rendering such Subsidiary Guarantee voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. Each Guarantor will agree to pay,
in addition to the amount stated above, any and all costs and expenses
(including reasonable counsel fees and expenses) incurred by the Trustee or
any holder of a Note in enforcing any rights under the Subsidiary Guarantee
with respect to such Guarantor.
Each Subsidiary Guarantee is a continuing guarantee and shall (a) remain in
full force and effect until payment in full of all the Notes, (b) be binding
upon the relevant Guarantor, and (c) enure to the benefit of and be
enforceable by the Trustee, the holders of Notes and their successors,
transferees and assigns.
RANKING
The indebtedness evidenced by the Notes will be senior unsecured obligations
of the Company, will rank pari passu in right of payment with all existing and
future senior 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 will also be effectively
subordinated to all existing and future indebtedness of any Subsidiary of the
Company that is not a Guarantor of the Notes.
Holders of secured indebtedness of the Company, including the lenders under
the Senior Credit Agreement, will have claims with respect to the assets
constituting collateral for such indebtedness that are prior to the claims of
holders of the Notes. In the event of a default on the Notes, or a bankruptcy,
liquidation or reorganization of the Company, such assets will be available to
satisfy obligations with respect to the indebtedness secured thereby before
any payment therefrom could be made on the Notes. To the extent that the value
of such collateral is not sufficient to satisfy the indebtedness secured
thereby, amounts remaining outstanding on such indebtedness would be entitled
to share with the Notes and their claims with respect to any other assets of
the Company. As of September 27, 1997, as adjusted for the Offering, the
Company and its Restricted Subsidiaries would have had secured indebtedness of
approximately $160.6 million outstanding. The obligations of the Company and
the Guarantors under the Senior Credit Agreement are secured by substantially
all of the assets of the Company and the Guarantors. As of September 27, 1997,
as adjusted for the Offering, the Company would have had approximately $69.8
million of undrawn availability under the Senior Credit Agreement. The
Indenture will permit the Company and its Restricted Subsidiaries to incur
additional Indebtedness, including Secured Indebtedness, subject to certain
limitations.
CHANGE OF CONTROL
If a Change of Control shall occur at any time, then each holder of Notes
shall have the right to require that the Company purchase such holder's Notes
in whole or in part in any integral multiple of $1,000, for a cash purchase
price (the "Change of Control Purchase Price") equal to 101% of the principal
amount of such Notes, plus accrued and unpaid interest, if any, on such Notes
to the date of purchase (the "Change of Control Purchase Date"), pursuant to
the offer described below (the "Change of Control Offer") and the other
procedures set forth in the Indenture.
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Within 15 days following any Change of Control, the Company shall notify the
Trustee thereof and give written notice of such Change of Control to each
holder of Notes by first-class mail, postage prepaid, at his address appearing
in the security register, stating, among other things, (i) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase each Holder's Notes, in whole or in part, at the Change of Control
Purchase Price; (ii) the Change of Control Purchase Price and the Change of
Control Purchase Date which shall be a Business Day no earlier than 30 days
nor later than 60 days from the date such notice is mailed, or such later date
as is necessary to comply with requirements under the Exchange Act; (iii) that
any Note not tendered for purchase will continue to accrue interest; (iv)
that, unless the Company defaults in the payment of the Change of Control
Purchase Price, any Notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Purchase Date; and (v) certain other procedures that a holder of Notes must
follow to accept a Change of Control Offer or to withdraw such acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change of Control Offer. The Senior Credit
Agreement prohibits the purchase of the Notes by the Company prior to full
repayment of Indebtedness thereunder and, upon a Change of Control, all
amounts outstanding under the Senior Credit Agreement may become due and
payable. There can be no assurance that, in the event of a Change of Control,
the Company will be able to obtain the necessary consents from the lenders
under the Senior Credit Agreement to consummate a Change of Control Offer. The
failure of the Company to make or consummate the Change of Control Offer or
pay the Change of Control Purchase Price when due would result in an Event of
Default.
The existence of a right of the holder of Notes to require the Company to
purchase such holder's Notes upon a Change of Control may deter a third party
from acquiring the Company in a transaction which constitutes a Change of
Control.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.
The Company will not, and will not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions
in effect on the Issue Date with respect to Indebtedness outstanding on the
Issue Date and refinancing thereof and customary default provisions) that
would materially impair the ability of the Company to make a Change of Control
Offer to purchase the Notes or, if such Change of Control Offer is made, to
pay for the Notes tendered for purchase.
CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
Limitation on Indebtedness. (a) The Company shall not, and shall not permit
any of its Restricted Subsidiaries to, incur any Indebtedness; provided,
however, that the Company may incur Indebtedness (including through the
issuance of Disqualified Capital Stock) if on the date of such incurrence the
Consolidated Coverage Ratio would be greater than (i) 2.50:1, if such
Indebtedness is incurred prior to the expiration of 24 months after the Issue
Date, and (ii) 3.00:1 if such Indebtedness is incurred on or subsequent to the
expiration of 24 months after the Issue Date.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may incur Indebtedness to the extent set forth below:
(i) the incurrence by the Company of Indebtedness under the Senior Credit
Agreement and the issuance of letters of credit thereunder (with letters of
credit being deemed to have a principal amount equal to the undrawn amount of
the letters of credit plus any unreimbursed drawings thereon) up to an
aggregate principal amount of $250.0 million outstanding at any one time, less
principal repayments of term loans and permanent commitment reductions with
respect to revolving loans and letters of credit under the Senior Credit
Agreement made after the Issuance Date with the Net Cash Proceeds of Asset
Dispositions, if any;
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(ii) Indebtedness (x) of the Company to any Restricted Subsidiary and (y) of
any Restricted Subsidiary to the Company or any other Restricted Subsidiary;
(iii) Indebtedness of the Company represented by the Notes; (iv) any
Indebtedness of the Company (other than the Indebtedness described in clauses
(i) and (ii) above) outstanding on the date of the Indenture; (v) Indebtedness
represented by the Guarantees of the Notes and Guarantees of Indebtedness
incurred pursuant to clause (i) above; (vi) Indebtedness of the Company or any
Restricted Subsidiary under Interest Rate Agreements that are entered into by
the Company or such Restricted Subsidiary for bona fide hedging purposes (as
determined in good faith by the Board of Directors or senior management of the
Company or such Restricted Subsidiary) with respect to Indebtedness of the
Company or such Restricted Subsidiary incurred without violation of the
Indenture or with respect to customary commercial transactions of the Company
or such Restricted Subsidiary entered into in the ordinary course of business;
(vii) Indebtedness (including Capitalized Lease Obligations) incurred by the
Company or any Restricted Subsidiary to finance the purchase, lease or
improvement of property (real or personal) or equipment (whether through the
direct purchase of assets or the Capital Stock of any Person owning such
assets) in an aggregate principal amount which, when aggregated with the
principal amount of all other Indebtedness then outstanding and incurred
pursuant to this clause (vii), does not exceed $25.0 million; (viii)
Indebtedness incurred by the Company or any Restricted Subsidiary constituting
reimbursement obligations with respect to letters of credit issued in the
ordinary course of business, including, without limitation, letters of credit
in respect of workers' compensation claims or self-insurance, or other
Indebtedness with respect to reimbursement type obligations regarding workers'
compensation claims; provided, that upon the drawing of such letters of credit
or the incurrence of such Indebtedness, such obligations are reimbursed within
30 days following such incurrence; (ix) Acquired Indebtedness; provided,
however, that such Indebtedness is not incurred in contemplation of such
acquisition or merger; and provided, further that the Company would have been
able to incur such Indebtedness at the time of the incurrence thereof pursuant
to clause (a) above, determined on a pro forma basis as if such transaction
had occurred at the beginning of such four-quarter period and such
Indebtedness and the operating results of such merged or acquired entity had
been included for all purposes in such pro forma calculation as if such entity
had been a Restricted Subsidiary at the beginning of such four-quarter period;
(x) obligations in respect of performance and surety bonds and completion
guarantees provided by the Company or any Restricted Subsidiary in the
ordinary course of business; (xi) additional indebtedness in an aggregate
amount not to exceed $10.0 million at any one time outstanding; and (xii)
Refinancing Indebtedness; provided, however, that (A) the principal amount of
such Refinancing Indebtedness shall not exceed the principal or accreted
amount (in the case of any Indebtedness issued with original issue discount,
as such) of Indebtedness so extended, refinanced, renewed, replaced,
substituted or refunded (the "Refinanced Indebtedness"), (B) the Refinancing
Indebtedness shall have a Weighted Average Life to Maturity of not less than
the stated maturity of the Refinanced Indebtedness and (C) the Refinancing
Indebtedness shall rank in right of payment relative to the Notes on terms at
least as favorable to the holders of Notes as those contained in the
documentation governing the Refinanced Indebtedness.
(c) Notwithstanding any other provision of this covenant, neither the
Company nor any Restricted Subsidiary shall incur any Indebtedness (i)
pursuant to paragraph (b) above, if the proceeds thereof are used, directly or
indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any
Subordinated Indebtedness unless such Indebtedness shall be subordinated to
the Notes to at least the same extent as such Subordinated Indebtedness or
(ii) pursuant to paragraph (a) or (b) if such Indebtedness is subordinate or
junior in ranking in any respect to any Senior Indebtedness unless such
Indebtedness is expressly subordinated in right of payment to such Senior
Indebtedness.
(d) The Company shall not incur any Secured Indebtedness that is not Senior
Indebtedness.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to holders
of, any shares of its Capital Stock (other than dividends or distributions
payable solely in shares of its Capital Stock (other than Disqualified
Capital Stock) or in options, warrants or other rights to acquire such
Capital Stock and other
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than dividends and distributions paid by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary);
(ii) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, any shares of the Capital Stock of the Company or any
Restricted Subsidiary or options, warrants or other rights to acquire such
Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to the relevant scheduled
principal payment, sinking fund or maturity, any Subordinated Indebtedness;
or
(iv) make any Investment in any Person, including, without limitation,
any Unrestricted Subsidiary (other than a Permitted Investment)
(the foregoing actions described in clauses (i) through (iv) above being
hereinafter collectively referred to as "Restricted Payments") unless after
giving effect to the proposed Restricted Payment, (A) no Default or Event of
Default shall have occurred and be continuing and such Restricted Payment
shall not cause or constitute a Default or an Event of Default; (B)
immediately before and immediately after giving effect to such transaction on
a pro forma basis, the Company could incur $1.00 of additional Indebtedness
pursuant to paragraph (a) under "Limitation of Indebtedness"; and (C) the
aggregate amount of all such Restricted Payments (the amount of any such
Restricted Payment, if other than cash, to be determined in good faith by the
Board of Directors of the Company, whose determination shall be conclusive and
evidenced by a resolution of the Board of Directors) declared or made after
the Issue Date (including such Restricted Payment) does not exceed the sum of:
(i) 50% of the aggregate cumulative Consolidated Net Income (or, if such
aggregate cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss) of the Company accrued on a cumulative basis during the period
(taken as one accounting period) from the fiscal quarter that first begins
after the Issue Date to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the time
of such Restricted Payment;
(ii) the aggregate Net Cash Proceeds received after the Issue Date by the
Company from the issuance or sale (other than to any of its Subsidiaries)
of its shares of Capital Stock (other than Disqualified Capital Stock) or
any options, warrants or rights to purchase such shares of Capital Stock
(other than Disqualified Capital Stock) or other cash contributions to its
capital (excluding amounts used pursuant to clauses (ii) or (iii) of
paragraph (b) below);
(iii) the aggregate Net Cash Proceeds received after the Issue Date by
the Company (other than from any of its Subsidiaries) upon the exercise of
any options, warrants or rights to purchase shares of Capital Stock (other
than Disqualified Capital Stock) of the Company;
(iv) the aggregate Net Cash Proceeds received after the Issue Date by the
Company from Indebtedness of the Company or Disqualified Capital Stock of
the Company that has been converted into or exchanged for Capital Stock
(other than Disqualified Capital Stock) of the Company or options, warrants
or rights to acquire such Capital Stock, to the extent such Indebtedness of
the Company or Disqualified Capital Stock of the Company was originally
incurred or issued for cash, plus the aggregate Net Cash Proceeds received
by the Company at the time of such conversion or exchange;
(v) to the extent not included in Consolidated Net Income, the net
reduction (received by the Company or any Restricted Subsidiary in cash) in
Investments (other than Permitted Investments) made by the Company and the
Restricted Subsidiaries since the Issue Date, not to exceed, in the case of
any Investments in any Person, the amount of Investments (other than
Permitted Investments) made by the Company and the Restricted Subsidiaries
in such Person since the Issue Date.
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(b) Notwithstanding the foregoing, and in the case of clauses (v) and (vii)
below, so long as there is no Default or Event of Default continuing, the
foregoing provisions shall not prohibit the following actions:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would be
permitted by the provisions of paragraph (a) of this "Limitation on
Restricted Payments" covenant (such payment being deemed to have been paid
on such date of declaration for purposes of the calculation required by
paragraph (a) of this "Limitation on Restricted Payments" covenant);
(ii) the repurchase, redemption, or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or warrants,
options or other rights to acquire such stock in exchange for, or out of
the Net Cash Proceeds of a substantially concurrent issue and sale (other
than to a Subsidiary) for cash of, any Capital Stock (other than
Disqualified Capital Stock) of the Company or warrants, options or other
rights to acquire such Capital Stock;
(iii) any repurchase, redemption, defeasance, retirement, refinancing or
acquisition for value or payment of principal of any Subordinated
Indebtedness in exchange for, or out of the net proceeds of a substantially
concurrent issuance and sale (other than to a Subsidiary) for cash of, any
Capital Stock (other than Disqualified Capital Stock) of the Company or
warrants, options or other rights to acquire such Capital Stock;
(iv) the repurchase, redemption, defeasance, retirement or other
acquisition for value or payment of principal of any Subordinated
Indebtedness through the issuance of Refinancing Indebtedness;
(v) Investments in Permitted Foreign Companies in a net aggregate amount
not to exceed $10.0 million in any fiscal year, provided, however, that, to
the extent the net aggregate amount of such Investments in any fiscal year
is less than $10.0 million, 50% of such difference may be carried forward
and added to the $10.0 million permitted amount for the subsequent fiscal
year;
(vi) Investments in Cheminor Drugs Limited and Dr. Reddy's Laboratories
Limited having an aggregate fair market value, taken together with all
other Investments made pursuant to this clause (vi) that are at the time
outstanding, not to exceed $10.0 million; and
(vii) Additional Investments (including, without limitation, Unrestricted
Subsidiaries) having an aggregate fair market value, taken together with
all other Investments made pursuant to this clause (vii) that are at the
time outstanding, not to exceed $15.0 million at the time of such
Investment (with the fair market value of each Investment being measured at
the time made and without giving effect to subsequent changes in value).
The actions described in clauses (i) and (vii) of this paragraph (b) shall be
Restricted Payments that shall be permitted to be taken in accordance with
this paragraph (b) but shall reduce the amount that would otherwise be
available for Restricted Payments under clause (C) of paragraph (a) of this
"Limitation on Restricted Payments" covenant (provided that any dividend paid
pursuant to clause (i) of this paragraph (b) shall reduce the amount that
would otherwise be available under clause (C) of paragraph (a) of this
"Limitation on Restricted Payments" covenant when declared, but not also when
paid pursuant to such clause (i)) and the actions described in clauses (ii),
(iii), (iv), (v) and (vi) of this paragraph (b) shall be permitted to be taken
in accordance with this paragraph and shall not reduce the amount that would
otherwise be available for Restricted Payments under clause (C) of paragraph
(a).
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, incur, assume or suffer to
exist any Lien of any kind upon any of its property or assets (including any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary), whether
owned on the Issue Date or acquired after the Issue Date, or any income or
profits therefrom, except if the Notes (or the Guarantee of the Notes, in the
case of Liens on properties or assets of any Guarantor) and all other amounts
due under the Indenture are directly secured equally and ratably with (or
prior to in the case of Liens with respect to
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Subordinated Indebtedness) the obligation or liability secured by such Lien,
excluding, however, from the operation of the foregoing any of the following:
(a) any Lien existing as of the Issue Date;
(b) any Lien arising by reason of (i) any judgment, decree or order of
any court, so long as such Lien is in existence less than 30 days after the
entry thereof or adequately bonded or the payment of such judgment, decree
or order is covered (subject to a customary deductible) by insurance
maintained with responsible insurance companies; (ii) taxes, assessments or
other governmental charges that are not yet delinquent or are being
contested in good faith; (iii) security for payment of workers'
compensation or other insurance; (iv) good faith deposits in connection
with tenders, leases or contracts (other than contracts for the payment of
borrowed money); (v) zoning restrictions, easements, licenses,
reservations, provisions, covenants, conditions, waivers, restrictions on
the use of property or minor irregularities of title (and with respect to
leasehold interests, mortgages, obligations, liens and other encumbrances
incurred, created, assumed or permitted to exist and arising by, through or
under a landlord or owner of the leased property, with or without consent
of the lessee), none of which materially impairs the use of any property or
assets material to the operation of the business of the Company or any
Restricted Subsidiary or the value of such property or assets for the
purpose of such business; (vi) deposits to secure public or statutory
obligations, or in lieu of surety or appeal bonds with respect to matters
not yet finally determined and being contested in good faith by
negotiations or by appropriate proceedings that suspend the collection
thereof; or (vii) operation of law in favor of mechanics, materialmen,
laborers, employees or suppliers, incurred in the ordinary course of
business for sums that are not yet delinquent or are being contested in
good faith by negotiations or by appropriate proceedings that suspend the
collection thereof;
(c) any Lien now or hereafter existing on property or assets of the
Company or any Guarantor securing Indebtedness of such Person incurred
pursuant to the Senior Credit Agreement;
(d) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of such
Indebtedness by the Company or a Restricted Subsidiary; provided that any
such Lien extends only to the assets that were subject to such Lien
securing such Acquired Indebtedness prior to the related acquisition;
(e) leases or subleases granted by the Company or any of its Subsidiaries
to any other Person in the ordinary course of business;
(f) Liens in the nature of trustees' Liens granted pursuant to any
indenture governing any indebtedness permitted by the "Limitation on
Indebtedness" covenant in each case in favor of the trustee under such
indenture and securing only obligations to pay any compensation to such
trustee, to reimburse its expenses and to indemnify it under the terms
thereof;
(g) Liens to secure Indebtedness (including Capitalized Lease
Obligations) permitted by clause (vii) of paragraph (b) of the "Limitation
on Indebtedness" covenant covering only the assets acquired with such
Indebtedness; and
(h) any extension, renewal, refinancing or replacement, in whole or in
part, of any Lien described in the foregoing clauses (a) through (g) so
long as the amount of property or assets subject to such Lien is not
increased thereby.
Limitations on Lines of Business. The Company shall not, and shall not
permit its Restricted Subsidiaries to, engage in any business other than those
engaged in on the date of the Indenture and any other segment of the
pharmaceutical or health-care industry or ancillary thereto.
Commission Reports. Notwithstanding that the Company may not be subject to
the reporting requirements of Sections 13 or 15(d) of the Exchange Act, so
long as any Notes are outstanding, the Company will furnish to the Trustee and
the holders of Notes (i) within 45 days after the end of each of the first
three fiscal quarters of each fiscal year and 90 days of the end of each
fiscal year all quarterly and annual financial information, as the
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case may be, that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file any
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports. In addition, whether or not required by the rules and regulations of
the Commission, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission
will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. Furthermore, for
so long as any of the Notes remain outstanding, the Company has agreed to make
available to any prospective purchaser of the Notes or beneficial owner of the
Notes, in connection with any sale thereof, the information required by Rule
144(d)(4) under the Securities Act.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary (a) to pay dividends or make any other distributions on
its Capital Stock or pay any Indebtedness owed to the Company or any
Restricted Subsidiary, (b) to make any loans or advances to the Company or any
Restricted Subsidiary or (c) to transfer any of its property or assets to the
Company or any Restricted Subsidiary, except: (i) any encumbrance or
restriction pursuant to an agreement in effect at or entered into on the Issue
Date; (ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness incurred by
such Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on such date; (iii)
any encumbrance or restriction pursuant to an agreement effecting a
refinancing of Indebtedness incurred pursuant to an agreement referred to in
clause (i) or (ii) of this covenant or contained in any amendment to an
agreement referred to in clause (i) or (ii) of this covenant; provided,
however, that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any such refinancing agreement or amendment
are no less favorable in any material respect to the holders of the Notes than
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in such agreements; (iv) in the case of clause (c) above, any
encumbrance or restriction (A) that restricts in a customary manner the
subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset that is the
subject of such encumbrance or restriction, (B) existing by virtue of any
transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by the Indenture or (C) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness, and that do
not, individually or in the aggregate, detract from the value of property or
assets of the Company or any Restricted Subsidiary in any manner material to
the Company or any Restricted Subsidiary; provided that, in each case, such
encumbrance or restriction relates to, and restricts dealings with, only the
property or asset that is the subject of such encumbrance or restriction; and
provided, further, that such encumbrance or restriction does not prohibit,
limit or otherwise restrict the making or payment of any dividend or other
distribution to the Company or any Restricted Subsidiary; (v) any restriction
with respect to a Restricted Subsidiary imposed pursuant to an agreement
entered into for the sale or disposition of all or substantially all the
Capital Stock or assets of such Restricted Subsidiary pending the closing of
such sale or disposition; and (vi) any restrictions on cash or other deposits
or net worth imposed by customers under contracts entered into in the ordinary
course of business.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, make any Asset
Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person
assuming sole responsibility for, any liabilities, contingent or otherwise) at
the time of such Asset Disposition at least equal to the Fair Market Value of
the shares or assets that are the subject matter of such Asset Disposition,
(ii) at least 80% of the consideration therefor received by the Company or
such Restricted Subsidiary is in the form of cash; and (iii) an
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amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by the Company (or such Restricted Subsidiary, as the case may be) (A)
first, to the extent the Company elects (or is required by the terms of the
Senior Credit Agreement), to prepay, repay or purchase such indebtedness
incurred under the Senior Credit Agreement within 180 days after the later of
the date of such Asset Disposition or the receipt of such Net Available Cash,
(B) second, to the extent of the balance of Net Available Cash after
application in accordance with clause (A), to the extent the Company elects,
to secure letter of credit obligations to the extent such related letters of
credit have not been drawn upon or returned undrawn; (C) third, to the extent
of the balance of Net Available Cash after application in accordance with
clauses (A) and (B), to the extent the Company or such Restricted Subsidiary
elects, within one year from the later of the date of such Asset Disposition
or the receipt of such Net Available Cash, to reinvest in, Additional Assets;
and (D) fourth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), to make an offer to
purchase Notes pursuant and subject to the conditions of the Indenture to the
holders of the Notes at a purchase price of 100% of the principal amount
thereof plus accrued and unpaid interest to the purchase date; provided,
however, that, in connection with any prepayment, repayment or purchase of
Indebtedness pursuant to clause (A) or (B) above, the Company or such
Restricted Subsidiary shall retire such Indebtedness and shall cause the
related loan commitment (if any) to be permanently reduced in an amount equal
to the principal amount so prepaid, repaid or purchased. The Company shall not
be required to make an offer for Notes pursuant to this covenant if the Net
Available Cash available therefor (after application of the proceeds as
provided in clauses (A), (B) and (C)) is less than $15.0 million (which lesser
amount shall be carried forward for purposes of determining whether an offer
is required with respect to the Net Available Cash from any subsequent Asset
Disposition).
For the purposes of clause (a)(ii) of this covenant, the following will be
deemed to be cash: (x) the assumption of Indebtedness (other than Disqualified
Capital Stock) of the Company or any Restricted Subsidiary and the release of
the Company or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition and (y) securities
received by the Company or any Restricted Subsidiary of the Company from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (a)(iii)(D) of this covenant, the Company will be required
to purchase Notes tendered pursuant to an offer by the Company for the Notes
at a purchase price of 100% of their principal amount plus accrued interest to
the purchase date in accordance with the procedures (including prorating in
the event of oversubscription) set forth in the Indenture.
(c) The Company shall comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant.
Limitation on Affiliate Transactions. The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, enter into or
conduct any transaction (including the purchase, sale, lease or exchange of
any property or the rendering of any service) with any Affiliate of the
Company (an "Affiliate Transaction") unless: (i) the terms of such Affiliate
Transaction are no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the time
of such transaction in arm's-length dealings with a Person who is not an
Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $1.0 million (unless such Affiliate Transaction
constitutes an agreement with Bayer A.G. or its Affiliate relating to an
Investment by the Company and an Investment by Bayer A.G. or its Affiliate in
a Permitted Foreign Company in which case the requirements of this clause
shall be applicable only if the amount being invested by the Company exceeds
$10.0 million), the terms of such transaction have been approved by a majority
of the members of the Board of Directors of the Company and by a majority of
the disinterested members of such Board, if any (and such majority or
majorities, as the case may be, determines that such Affiliate Transaction
satisfies the criteria in (i) above) and (iii) in the event such Affiliate
Transaction involves an aggregate amount in excess of $15.0 million (unless
such Affiliate Transaction constitutes an agreement with Bayer A.G. or its
Affiliate relating to an Investment by the Company and an Investment by Bayer
A.G. or its Affiliate in a Permitted Foreign Company in which case the
requirements of this clause shall be
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applicable only if the amount being invested by the Company exceeds $25.0
million), the Company has received a written opinion from an independent
investment banking firm of nationally recognized standing that such Affiliate
Transaction is fair to the Company or such Restricted Subsidiary, as the case
may be, from a financial point of view.
The provisions of the foregoing paragraph will not prohibit (i) any
Restricted Payment permitted to be paid or made pursuant to the covenant
described under "Limitation on Restricted Payments," (ii) the performance of
the Company's or a Restricted Subsidiary's obligations under any employment
contract, stock option, collective bargaining agreement, employee benefit
plan, related trust agreement or any other similar arrangement heretofore or
hereafter entered into in the ordinary course of business, (iii) payment of
compensation to employees, officers, directors or consultants in the ordinary
course of business, (iv) maintenance in the ordinary course of business of
benefit programs or arrangements for employees, officers or directors,
including vacation plans, health and life insurance plans, deferred
compensation plans, and retirement or savings plans and similar plans, (v) any
transaction between the Company and a Restricted Subsidiary or between
Restricted Subsidiaries, (vi) any agreement in effect as of the Issue Date or
any amendment thereto or any transaction contemplated thereby, (vii)
transactions required of the Company or any Restricted Subsidiary under, or
contemplated by, the General Shareholders Agreement dated September 30, 1994,
and the Continuing Shareholders Agreement dated September 30, 1994, in each
cased as in effect on the date of this Indenture or (viii) any agreement
entered into in the ordinary course or business between the Company and a
Person who constitutes an Affiliate solely by reason of such Person being an
officer or director of the Company which agreement provides for the repurchase
by the Company, upon or following the termination of such Person's employment
or directorship with the Company, of shares of Capital Stock of the Company
owned by such Person.
Limitation on Sale of Capital Stock of Restricted Subsidiaries. The Company
(i) shall not, and shall not permit any Restricted Subsidiary to, transfer,
convey, sell or otherwise dispose of any Capital Stock of any Restricted
Subsidiary to any Person (other than to the Company or a Restricted
Subsidiary) and (ii) shall not permit any Restricted Subsidiary to issue any
of its Capital Stock to any Person other than to the Company or a Restricted
Subsidiary; provided, however, that the foregoing shall not prohibit the
transfer, conveyance, sale or other disposition of all the Capital Stock of a
Restricted Subsidiary if the Net Cash Proceeds from such transfer, conveyance,
sale or other disposition are applied in accordance with the covenant
described above under "Limitation on Sales of Assets and Subsidiary Stock";
and, provided, further, that this covenant shall not prohibit the transfer,
conveyance, sale or other disposition of less than all of the Capital Stock of
a Restricted Subsidiary or the issuance by any Restricted Subsidiary of any of
its Capital Stock to any Person as long as (A) the Net Cash Proceeds from such
transfer, conveyance, sale or other disposition or issuance are applied in
accordance with the "Limitation on Sales of Assets and Subsidiary Stock"
covenant, (B) immediately after giving effect to such transaction, no Event of
Default shall have occurred and be continuing, (C) immediately after giving
pro forma effect to such transaction, as if such transaction had occurred at
the beginning of the applicable four-quarter period, the Company would be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Consolidated Coverage Ratio test as set forth in paragraph (a) of the
"Limitation on Indebtedness" covenant and (D) immediately after giving effect
to such transaction, such Restricted Subsidiary remains a Restricted
Subsidiary of the Company.
Limitation on Sale and Leaseback Transactions. The Indenture will provide
that the Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company may enter into a sale and leaseback transaction if (i) the Company
could have (a) incurred Indebtedness in an amount equal to the Attributable
Debt (as defined herein) relating to such sale and leaseback transaction
pursuant to the Consolidated Coverage Ratio test set forth in paragraph (a) of
the covenant "Limitation on Indebtedness" and (b) incurred a Lien to secure
such Indebtedness pursuant to the "Limitation on Liens" covenant, (ii) the
gross cash proceeds of such sale and leaseback transaction are at least equal
to the fair market value (as determined in good faith by the Board of
Directors and set forth in an Officers' Certificate delivered to the Trustee)
of the property that is the subject of such sale and leaseback transaction and
(iii) the transfer of assets in such sale and leaseback transaction is
permitted by, and the Company applies the net proceeds of such transaction in
compliance with, the "Limitation on Sales of Assets and Subsidiary Stock"
covenant.
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MERGER AND CONSOLIDATION
The Company shall not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company")
shall be a Person organized and existing under the laws of the United States
of America, any state thereof or the District of Columbia and the Successor
Company (if not the Company) shall expressly assume, by an indenture
supplemental to the Indenture, executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, all the obligations of the Company
under the Notes and the Indenture; (ii) immediately after giving effect to
such transaction (and treating any Indebtedness which becomes an obligation of
the Successor Company or any Restricted Subsidiary as a result of such
transaction as having been incurred by such Successor Company or such
Restricted Subsidiary at the time of such transaction), no Event of Default
shall have occurred and be continuing; (iii) immediately after giving pro
forma effect to such transaction, as if such transaction had occurred at the
beginning of the applicable four-quarter period, the Successor Company would
be permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Consolidated Coverage Ratio test set forth in paragraph (a) of the
"Limitation on Indebtedness" covenant; and (iv) the Company shall have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer and each supplemental
indenture (if any) comply with the Indenture.
The Successor Company shall be the successor of the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
EVENTS OF DEFAULT
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due and payable, continued for 30 days,
(ii) a default in the payment of principal of any Note when due and payable at
its Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, (iii) the failure by the Company to comply with its
obligations under "--Merger and Consolidation," (iv) the failure by the
Company to comply for 30 days after notice with any of its obligations under
"--Change of Control" or under the covenants described under "Certain
Covenants" above (in each case, other than a failure to purchase Notes which
shall constitute an Event of Default under clause (ii) above), (v) the failure
by the Company to comply for 30 days after notice with its other covenants and
agreements contained in the Indenture or the Notes, (vi) Indebtedness of the
Company or any Restricted Subsidiary is not paid within any applicable grace
period after final maturity or is accelerated by the holders thereof because
of a default and the total amount of such Indebtedness unpaid or accelerated
exceeds $10.0 million or its foreign currency equivalent at the time (the
"cross acceleration provision"), (vii) certain events of bankruptcy,
insolvency or reorganization of the Company or a Material Subsidiary (the
"bankruptcy provisions"), (viii) any judgment or decree for the payment of
money in excess of $10.0 million or its foreign currency equivalent at the
time (to the extent not covered by insurance) is entered against the Company
or a Material Subsidiary and is not discharged and either (A) an enforcement
proceeding has been commenced by any creditor upon such judgment or decree and
is not promptly stayed or (B) such judgment or decree shall remain
undischarged or unstayed for a period of 60 days following the entry of such
judgment or decree (the "judgment default provision") or (ix) the failure of
any Subsidiary Guarantee of the Notes to be in full force and effect (except
as contemplated by the terms thereof) or the denial or disaffirmation by any
Guarantor of its obligations under the Indenture or any Subsidiary Guarantee
of the Notes if such failure is not cured, or such denial or disaffirmation is
not rescinded or revoked, within 10 days. However, a default under clauses
(iv) and (v) will not constitute an Event of Default until the Trustee or the
holders of at least 25% in principal amount of the outstanding Notes notify
the Company in writing of the default and the Company does not cure such
default within the time specified in clauses (iv) and (v) hereof after receipt
of such notice.
If an Event of Default (other than an Event of Default specified in clause
(vii) above with respect to the Company) occurs and is continuing, the
Trustee, by written notice to the Company, or the holders of at least
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25% in outstanding principal amount of the Notes, by written notice to the
Company and the Trustee, may declare the principal of, and accrued and unpaid
interest on, all the Notes to be due and payable. Upon such a declaration,
such principal and interest shall be due and payable (i) if no Indebtedness is
outstanding under the Senior Credit Agreement, immediately, and (ii) if any
Indebtedness is outstanding under the Senior Credit Agreement, upon the first
to occur of (x) the acceleration of any such Indebtedness or (y) the fifth
Business Day after receipt by the Company and the Credit Agent of such written
notice of acceleration. If an Event of Default specified in clause (vii) above
occurs and is continuing, the principal of, and accrued and unpaid interest
on, all the Notes shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any
holders. Under certain circumstances, the holders of a majority in principal
amount of the outstanding Notes may rescind any such acceleration with respect
to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any trust or power under the Indenture at the
request, order or direction of any of the holders unless such holders have
offered to the Trustee indemnification satisfactory to it in its sole
discretion against all losses and expenses. Except to enforce the right of any
holder to receive payment of the principal of and interest on the Notes held
by such holder on or after the respective due dates expressed in the Notes, no
holder may pursue any remedy with respect to the Indenture or the Notes unless
(i) such holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) holders of at least 25% in outstanding principal
amount of the outstanding Notes have requested the Trustee to pursue the
remedy, (iii) such holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense, (iv) the Trustee has not
complied with such request within 60 days after the receipt of the request and
the offer of security or indemnity, and (v) the holders of a majority in
principal amount of the outstanding Notes have not given the Trustee a
direction that is inconsistent with such request within such 60 day period.
Subject to certain restrictions, the holders of a majority in outstanding
principal amount of the Notes may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or the Indenture
or, subject to the provisions of the Indenture relating to the duties of the
Trustee, that the Trustee determines is unduly prejudicial to the rights of
other holders (it being understood that, subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee shall have no
duty to ascertain whether or not such actions or forbearances are unduly
prejudicial to such holders) or would subject the Trustee to personal
liability; provided, however, that the Trustee may take any other action
deemed proper by the Trustee that is not inconsistent with such direction.
Prior to taking or refraining from taking any such action hereunder, the
Trustee shall be entitled to indemnification satisfactory to it in its sole
discretion against all losses and expenses caused by its taking or refraining
from taking such action.
The Indenture provides that if a Default or Event of Default occurs and is
continuing and if a Trust Officer has actual knowledge thereof, the Trustee
shall mail to each holder notice of the Default or Event of Default within 90
days after it occurs. Except in the case of a Default or Event of Default in
payment of principal of, or interest on, any Note (including payments pursuant
to the optional redemption or required repurchase provisions of such Note, if
any), the Trustee may withhold the notice if and so long as its board of
directors, the Executive Committee of its board of directors or a committee of
its Trust Officers in good faith determines that withholding the notice is in
the interests of the holders of the Notes. In addition, the Company is
required to deliver to the Trustee: (i) within 5 days after the occurrence
thereof, written notice in the form of an Officers' Certificate of any Event
of Default under clause (vi) above and any event which with the giving of
notice or the lapse of time would become an Event of Default under clause
(iv), (v) or (viii), its status and what action the Company is taking or
proposes to take with respect thereto and (ii) within 120 days after the end
of each fiscal year, written notice in the form of an Officers' Certificate
indicating whether the officers signing such Officers' Certificate had actual
knowledge of any Default that occurred during such previous fiscal year.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the holders of a majority in principal amount of the Notes then outstanding
and any past default or compliance with any provisions may
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be waived with the consent of the holders of a majority in principal amount of
the Notes then outstanding. However, without the consent of each holder of an
outstanding Note affected, no amendment may, among other things, (i) reduce
the amount of Notes whose holders must consent to an amendment, (ii) reduce
the rate of or extend the time for payment of interest on any Note, (iii)
reduce the principal of or extend the Stated Maturity of any Note, (iv) reduce
the premium payable upon the redemption or repurchase of any Note or change
the time at which any Note may or shall be redeemed or repurchased in
accordance with the Indenture, (v) make any Note payable in money other than
that stated in the Note, (vi) modify or affect in any manner adverse to the
holders of the Notes, the terms and conditions of the obligation of the
Company for the due and punctual payment of the principal of or interest on
the Notes or (vii) make any change in the amendment provisions which require
each holder's consent or in the waiver provisions.
Without the consent of any holder, the Company and the Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the
Company under the Indenture, to provide for uncertificated Notes in addition
to or in place of certificated Notes (provided that the uncertificated Notes
are issued in registered form for purposes of Section 163(f) of the Code, or
in a manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code), to add Guarantees with respect to the Notes, to
secure the Notes, to add to the covenants of the Company for the benefit of
the holders of the Notes or to surrender any right or power conferred upon the
Company, to make any change that does not adversely affect the rights of any
holder or to comply with any requirement of the Commission in connection with
the qualification of the Indenture under the Trust Indenture Act.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to the holders a notice briefly describing such amendment.
However, the failure to give such notice to all the holders, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A holder of Notes may transfer or exchange Notes in accordance with the
Indenture. The Company or the Trustee may require any Note presented for
registration of transfer, exchange, redemption or payment to be duly endorsed
by, or be accompanied by a written instrument or instruments of transfer in
form satisfactory to the Company and the Trustee duly executed by, the holder
or his attorney duly authorized in writing. The Company may require payment of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any exchange or registration of transfer of Notes.
No service charge may be imposed for any such transaction. The Trustee may not
be required to exchange or register a transfer of (i) any Notes for a period
of 15 days next preceding the first mailing of notice of redemption of Notes
to be redeemed or (ii) any Notes selected, called or being called for
redemption except, in the case of any Note where public notice has been given
that such Note is to be redeemed in part, the portion thereof not so to be
redeemed. The Notes will be issued in registered form and the registered
holder of a Note will be treated as the owner of such Note for all purposes.
DEFEASANCE
Subject to certain conditions and to the survival of certain of the
Company's obligations under the Indenture, the Company at any time may
terminate (i) all its obligations under the Notes and the Indenture and all
obligations of the Subsidiary Guarantors under the Subsidiary Guarantee and
the Indenture ("legal defeasance option") or (ii) its obligations under
certain covenants described under "Certain Covenants," the operation of the
cross acceleration provision and the judgement default provision described
under "Events of Default" above and the limitations contained in clauses (iii)
and (iv) under "--Merger and Consolidation" above ("covenant defeasance"). The
Senior Credit Agreement prohibits the legal defeasance and covenant defeasance
of the Notes as long as there are obligations outstanding under the Senior
Credit Agreement. However, no deposit of funds shall be effective to terminate
the obligations of the Company under the Notes or the Indenture prior to 123
days following any such deposit.
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The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because
of an Event of Default. If the Company exercises its covenant defeasance
option, payment of the Notes may not be accelerated because of an Event of
Default specified in clause (iv), (v), (vi), (viii) or (ix) under "Events of
Default" above or because of the failure of the Company to comply with clause
(iii) or (iv) under "--Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal of and interest on the
Notes to maturity or redemption, as the case may be, and must comply with
certain other conditions, including delivery to the Trustee of an Opinion of
Counsel to the effect that holders of the Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such defeasance
had not occurred (and, in the case of legal defeasance only, such Opinion of
Counsel must be based on a ruling of the Internal Revenue Service or other
change in applicable federal income tax law).
CONCERNING THE TRUSTEE
The Bank of New York is to be the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the
Notes. The Bank of New York is a lender under the Senior Credit Agreement.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflict of laws to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Restricted Subsidiary or (ii) assumed by the
Company or a Restricted Subsidiary in connection with the acquisition of
assets from such Person. Acquired Indebtedness shall be deemed to be incurred
on the date of the related acquisition of assets from any Person or the date
the acquired Person becomes a Restricted Subsidiary.
"Additional Assets" mean (i) any property or assets (other than Indebtedness
and Capital Stock) to be used by the Company or a Restricted Subsidiary in a
Related Business; or (ii) the Capital Stock of a Person that becomes a
Restricted Subsidiary as a result of the acquisition of such Capital Stock by
the Company or another Restricted Subsidiary; provided, however, that, in the
case of clause (ii), such Person is primarily engaged in a Related Business.
"Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any Person who is a director or
officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any
Person described in clause (i) above. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the covenants described under "Certain Covenants--
Limitation on Sales of Assets and Subsidiary Stock", "--Limitation on
Restricted Payments" and "--Limitation on Affiliate Transactions" only,
"Affiliate" shall also mean any beneficial owner of (x) shares and (y) rights
or warrants to purchase shares (whether or not currently exercisable)
representing in the aggregate 10% or more of the total voting power (assuming
the exercise of any such rights or warrants) of the outstanding voting shares
of Capital Stock of the Company on a fully diluted basis and any Person who
would be an Affiliate of any such beneficial owner pursuant to the first
sentence hereof.
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"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Restricted Subsidiaries (including
any disposition by means of a merger, consolidation or similar transaction)
other than (i) a disposition by a Restricted Subsidiary to the Company or by
the Company or a Restricted Subsidiary to a Restricted Subsidiary, (ii) a
disposition of inventory in the ordinary course of business, (iii) a
disposition of obsolete or worn out equipment or equipment that is no longer
useful in the conduct of the business of the Company and its Restricted
Subsidiaries and that is disposed of in each case in the ordinary course of
business, (iv) a transfer involving assets with a Fair Market Value not in
excess of $5 million, (v) any sale of equity interests in, or Indebtedness or
other securities of, an Unrestricted Subsidiary, and (vi) a disposition of all
or substantially all of the assets of the Company in a manner permitted
pursuant to the provisions described under "--Merger and Consolidation"; and
(vii) any exchange or assignment in the ordinary course of business with any
Person engaged in a Related Business of rights to manufacture and market drugs
or other pharmaceutical products.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bayer A.G." shall mean Bayer A.G., a German corporation.
"Board of Directors" means either the Board of Directors of the Company or
any committee of such Board of Directors duly authorized to act hereunder.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
close.
"Capital Stock" means (i) any and all shares, interests, participations or
other equivalents of or interests in (however designated) corporate stock,
including, without limitation, shares of preferred or preference stock, (ii)
all partnership interests (whether general or limited) in any Person which is
a partnership, (iii) all membership interests or limited liability company
interests in any limited liability company, and (iv) all equity or ownership
interests in any Person of any other type.
"Capitalized Lease Obligations" means, without duplication, all monetary
obligations of the Company or any of its Restricted Subsidiaries under any
leasing or similar arrangement which, in accordance with GAAP, would be
classified as capitalized leases and, for purposes of the Indenture, the
amount of such obligations shall be the capitalized amount thereof, determined
in accordance with GAAP, and the stated maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Change of Control" means (i) any sale, lease or other transfer (other than
a bona fide pledge of assets to secure Indebtedness incurred in accordance
with the Indenture or under the Senior Credit Agreement) by the Company or any
Restricted Subsidiary of all or substantially all of the assets of the Company
to any Person as an entirety or substantially as an entirety in one
transaction or a series of related transactions; (ii) the Company consolidates
or merges with or into another Person pursuant to a transaction in which the
outstanding Voting Shares of the Company are changed into or exchanged for
cash, securities or other property, other than any such
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transaction where (a) the outstanding Voting Shares of the Company are changed
into or exchanged for Voting Shares (other than Disqualified Stock) of the
surviving corporation and (b) the holders of the Voting Shares of the Company
immediately prior to such transaction own, directly or indirectly, not less
than a majority of the Voting Shares of the surviving corporation immediately
after such transaction; (iii) a "person" or "group" (within the meaning of
Section 13(d) or 14(d)(2) of the Exchange Act), other than a Permitted Holder
or a group consisting solely of Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act) of more than 35% of all Voting Shares of the Company then outstanding;
(iv) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company was approved
by a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; or (v) the
shareholders of the Company shall approve any plan or proposal for the
liquidation or dissolution of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" for any period means the Consolidated Net Income of
the Company and its consolidated Restricted Subsidiaries for such period, plus
the following to the extent deducted in calculating such Consolidated Net
Income: (i) income tax expense; (ii) Consolidated Interest Expense; (iii)
depreciation expense; (iv) amortization expense; and (v) any other non-cash
expenses, in each case for such period.
"Consolidated Coverage Ratio," as of any date of determination, means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period
consisting of the most recent four consecutive fiscal quarters ending prior to
the date of such determination to (ii) Consolidated Interest Expense for such
period; provided, however, that (A) if the Company or any of its Restricted
Subsidiaries has incurred any Indebtedness since the beginning of such period
that remains outstanding or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an incurrence of Indebtedness, or
both, Consolidated Cash Flow and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been incurred on the first day of
such period and the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new Indebtedness as
if such discharge had occurred on the first day of such period, (B) if since
the beginning of such period the Company or any of its Restricted Subsidiaries
shall have made any Asset Disposition, Consolidated Cash Flow for such period
shall be reduced by an amount equal to the Consolidated Cash Flow (if
positive) attributable to the assets which are the subject of such Asset
Disposition for such period or increased by an amount equal to the
Consolidated Cash Flow (if negative) attributable thereto for such period, and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense attributable to any Indebtedness of
the Company or any of its Restricted Subsidiaries repaid, repurchased,
defeased or otherwise discharged with respect to the Company and its
continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period (or, if the Capital Stock of any Restricted Subsidiary of the
Company is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent
the Company and its continuing Restricted Subsidiaries are no longer liable
for such Indebtedness after such sale), (C) if since the beginning of such
period the Company or any of its Restricted Subsidiaries (by merger or
otherwise) shall have made an Investment in any Restricted Subsidiary of the
Company (or any Person which becomes a Restricted Subsidiary of the Company)
or an acquisition of assets, including any Investment in a Restricted
Subsidiary of the Company or any acquisition of assets occurring in connection
with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto (including the incurrence
of any Indebtedness) as if such Investment or acquisition occurred on the
first day of such period, and (D) if since the beginning of such period any
Person (that subsequently became a Restricted Subsidiary of the Company or was
merged with or into the
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Company or any Restricted Subsidiary of the Company since the beginning of
such period) shall have made any Asset Disposition or any Investment or
acquisition of assets that would have required an adjustment pursuant to
clause (B) or (C) above if made by the Company or a Restricted Subsidiary of
the Company during such period, Consolidated Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the
amount of income or earnings relating thereto and the amount of Consolidated
Interest Expense associated with any Indebtedness incurred in connection
therewith, the pro forma calculations shall be determined in good faith by a
responsible financial or accounting Officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if
the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Restricted Subsidiaries, plus, to the extent
not included in such interest expense and without duplication, (i) interest
expense attributable to Capitalized Lease Obligations, (ii) amortization of
debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-
cash interest expense, (v) commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing, (vi)
interest actually paid by the Company or any such Restricted Subsidiary under
any Guarantee of Indebtedness or other obligation of any other Person, (vii)
net costs associated with Interest Rate Agreements (including amortization of
fees), and (viii) the product of (a) all Preferred Stock dividends in respect
of all Preferred Stock of Restricted Subsidiaries of the Company and
Disqualified Capital Stock of the Company held by Persons other than the
Company or a Restricted Subsidiary multiplied by (b) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of the Company, expressed
as a decimal, in each case, determined on a consolidated basis in accordance
with GAAP.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Restricted Subsidiaries; provided, however,
that there shall not be included in such Consolidated Net Income: (i) any net
income (loss) of any Person if such Person is not a Restricted Subsidiary,
except that subject to the limitations contained in clause (iv) below, the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (iii) below); (ii) any net income (loss) of
any person acquired by the Company or a Restricted Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any net income (loss) of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions by such Restricted Subsidiary,
directly or indirectly, to the Company, except that subject to the limitations
contained in (iv) below, the Company's equity in the net income of any such
Restricted Subsidiary for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash that could have been distributed
by such Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend (subject, in the case of a dividend that
could have been made to another Restricted Subsidiary, to the limitation
contained in this clause); (iv) any gain or loss realized upon the sale or
other disposition of any assets of the Company or its consolidated Restricted
Subsidiaries which are not sold or otherwise disposed of in the ordinary
course of business and any gain or loss realized upon the sale or other
disposition of any Capital Stock of any Person; (v) any extraordinary gain or
loss; (vi) the cumulative effect of a change in accounting principles; and
(vii) any loss resulting from a charge for acquired in-process research and
development expenses incurred in connection with the acquisition of any other
Person permitted under the Indenture.
"Credit Agent" means The Chase Manhattan Bank, in its capacity as issuing
bank, administrative agent and collateral agent for the lenders party to the
Senior Credit Agreement, or any successor or successors thereto.
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"Default" means any event that is or, with the passage of time or the giving
of notice or both, would be an Event of Default.
"Disqualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person which by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable) or upon the happening
of any event (i) matures or is mandatorily redeemable pursuant to a sinking
fund obligation or otherwise, (ii) is convertible or exchangeable for
Indebtedness or Disqualified Capital Stock or (iii) is redeemable at the
option of the holder thereof, in whole or in part, in each case on or prior to
the first anniversary of the final Stated Maturity of the Notes.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy as determined by the Board of
Directors in good faith and evidenced by a resolution of the Board of
Directors.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting
profession. All ratios and computations based on GAAP contained in the
Indenture shall be computed in conformity with GAAP as in effect on the date
of the Indenture.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and
any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation of any other Person (whether arising
by virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Guarantor" means (i) each of the Company's Restricted Subsidiaries existing
on the date hereof and (ii) each other Person that executes a Guarantee of the
obligations of the Company under the Notes and the Indenture from time to
time, and their respective successors and assigns; provided, however, that
"Guarantor" shall not include any Person that is released from its Guarantee
of the obligations of the Company under the Notes and the Indenture.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of Indebtedness of such Person for borrowed money, (ii) the
principal of and premium (if any) in respect of obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments, (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto) (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in clauses (i), (ii) and (v)) entered into in the
ordinary course of business of such Person to the extent that such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third business day following receipt by such
Person of a demand for reimbursement following payment on the letter of
credit), (iv) all obligations of
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such Person to pay the deferred and unpaid purchase price of property or
services (other than accounts payable to trade creditors arising in the
ordinary course of business), which purchase price is due more than six months
after the date of placing such property in service or taking delivery and
title thereto or the completion of such services, (v) all Capitalized Lease
Obligations of such Person, (vi) all Indebtedness of other Persons secured by
a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by such Person; provided, however, that the amount of Indebtedness of
such Person shall be the lesser of (A) the Fair Market Value of such asset at
such date of determination or (B) the amount of such Indebtedness of such
other Persons, (vii) all Indebtedness of other Persons to the extent
Guaranteed by such Person, (viii) the amount of all obligations of such Person
with respect to the redemption, repayment or other repurchase of any
Disqualified Capital Stock or, with respect to any Restricted Subsidiary of
the Company, any Preferred Stock (but excluding, in each case, any accrued
dividends), and (ix) to the extent not otherwise included in this definition,
obligations of such Person under Interest Rate Agreements. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and the
liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Indenture" means the Indenture as amended from time to time.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar
agreement or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition of Capital
Stock, Indebtedness or other similar instruments issued by such Person.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property, or any filing or recording of any
instrument or document in respect of the foregoing, to secure payment of a
debt or performance of an obligation or other priority or preferential
arrangement of any kind or nature whatsoever.
"Material Subsidiary" means (i) any Subsidiary of the Company which is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under
the Securities Act and the Exchange Act (as such Regulation is in effect on
the date hereof), and (ii) any other Subsidiary of the Company which is
material to the business, earnings, prospects, assets or condition, financial
or otherwise, of the Company and its Subsidiaries taken as a whole.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and
when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other noncash form) therefrom, in each case net
of (i) all legal, title and recording tax expenses, commissions and other fees
and expenses incurred, and all federal, state, foreign and local taxes
required to be paid or accrued as a liability under GAAP, as a consequence of
such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with
the terms of any Lien upon such assets, or which must by its terms, or in
order to obtain a necessary consent to such Asset Disposition, or by
applicable law, be repaid out of the proceeds
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from such Asset Disposition, (iii) all distributions and other payments
required to be made to any Person owning a beneficial interest in assets
subject to sale or minority interest holders in Subsidiaries or joint ventures
as a result of such Asset Disposition and (iv) the deduction of appropriate
amounts to be provided by the seller as a reserve, in accordance with GAAP,
against any liabilities associated with the assets disposed of in such Asset
Disposition and retained by the Company or any Restricted Subsidiary of the
Company after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Officer" means any senior executive officer, the chief financial officer,
the principal accounting officer, the Controller, the Treasurer, the Secretary
or the Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by any senior executive
officer and by the chief financial officer, the principal accounting officer,
the Controller, the Treasurer or the Secretary or any Assistant Secretary of
the Company and delivered to the Trustee. Each such certificate shall comply
with Section 314 of the Trust Indenture Act and include the statements
provided for in the Indenture.
"Opinion of Counsel" means an opinion in writing signed by legal counsel who
may be an employee of or counsel to the Company or who may be other counsel
satisfactory to the Trustee. Each such opinion shall comply with Section 314
of the Trust Indenture Act and include the statements provided for in the
Indenture, if and to the extent required thereby.
"Permitted Foreign Company" means (a) any corporation, business trust, joint
venture, association, company or partnership formed under the laws of a
country (or any political subdivision thereof) other than the United States,
engaged primarily in any segment of the pharmaceutical or health-care industry
or ancillary thereto and at least 50% of the equity interest of which is held,
directly or indirectly, by the Company and Bayer A.G. (provided that, if
applicable local law would not permit 50% of the equity interest in such an
entity to be held by the Company and Bayer A.G., such percentage may be as low
as 49% if the Company and Bayer A.G. otherwise Control the applicable entity),
(b) any subsidiary of a Permitted Foreign Company described in clause (a)
above and (c) any wholly owned foreign subsidiary the only material assets of
which are securities of Permitted Foreign Companies described in clause (a)
above.
"Permitted Holders" means (a)(i) Marvin H. Schein; Trust established by
Marvin H. Schein under trust agreement dated September 9, 1994 (including
trustee thereunder); Trust established by Marvin H. Schein under trust
agreement dated December 31, 1993 (including trustee thereunder); Trust
established by Pamela Schein under trust agreement dated October 26, 1994
(including trustee thereunder); 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 (including
trustee thereunder); Pamela Joseph; Trust established by Pamela Joseph under
trust agreement dated September 28, 1994 (including trustee thereunder);
Martin Sperber; Trust established by Martin Sperber under trust agreement
dated December 31, 1993 (including trustee thereunder); Trust established by
Martin Sperber under trust agreement dated April 28, 1995 (including trustee
thereunder); Stanley M. Bergman; Trust established by Stanley M. Bergman under
trust agreement dated April 28, 1995 (including trustee thereunder); Trust
established by Stanley M. Bergman under trust agreement dated April 14, 1995
(including trustee thereunder); and Voting Trustee under Voting Trust
Agreement dated September 30, 1994 (including trustee thereunder), (ii) any
individual forming part of the senior management of the Company on the date of
this Indenture, (iii) any trust for the benefit of any of the foregoing and/or
any member of their immediate families and (iv) the estate or personal
representative of any of the foregoing, (b) any employee benefit plan (or
related trust) for the benefit of the employees of the Company and its
Restricted Subsidiaries and (c) Bayer A.G. and any of its subsidiaries.
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"Permitted Investment" means an Investment by the Company or any of its
Subsidiaries in (i) a Restricted Subsidiary of the Company or a Person which
will, upon making such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Subsidiary is a Related Business;
(ii) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Subsidiary of the Company;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
of its Subsidiaries, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees (other than those referred to in clause (xi) below) made
in the ordinary course of business not in excess of $2.5 million outstanding
at any time; (vii) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Company or
any of its Subsidiaries or in satisfaction of judgments or claims; (viii)
Interest Rate Agreements which are entered into by the Company for bona fide
hedging purposes (as determined in good faith by the Board of Directors or
senior management of the Company) with respect to Indebtedness of the Company
incurred without violation of the Indenture or to customary commercial
transactions of the Company entered into in the ordinary course of business;
(ix) any Investment (other than a Temporary Cash Investment) evidenced by
securities or other assets received in connection with an Asset Disposition
pursuant to the "Limitations on Sales of Assets and Subsidiary Stock"
covenant; (x) Investments, the payment for which consists exclusively of
Equity Interests (exclusive of Disqualified Capital Stock) in the Company; or
(xi) loans to employees made in connection with the exercise by them of
options to purchase shares of the common stock of the Company, provided that
the proceeds of such loans are used to purchase such shares and that such
loans are secured by a pledge of such shares so purchased.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision hereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in
the most recent consolidated balance sheet of such Person under GAAP.
"Refinancing Indebtedness" means Indebtedness issued in exchange for, or the
proceeds of which are used to extend, refinance, renew, replace or refund any
Indebtedness permitted to be incurred under the "Limitations on Indebtedness"
covenant.
"Related Business" means any segment of the pharmaceutical or health-care
industry or ancillary thereto.
"Representative" for any issue of Indebtedness shall mean the Person acting
as agent, trustee or in a similar representative capacity for the holders of
such Indebtedness, provided that if, and for so long as, any issue of
Indebtedness lacks such a representative, then the Representative for such
issue of Indebtedness shall at all such times constitute the holders of a
majority in outstanding principal amount of the respective issue of
Indebtedness.
"Restricted Subsidiary" shall mean any Subsidiary other than an Unrestricted
Subsidiary.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Securities Act" means the Securities Act of 1933, as amended.
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"Senior Credit Agreement" means, collectively, the Senior Credit Agreement,
dated as of September 5, 1995, by and among the Company, the lenders named
therein, and The Chase Manhattan Bank (formerly Chemical Bank) as Credit Agent
for the lenders, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, as
such credit agreement and/or related documents may be amended, restated,
supplemented, renewed, replaced or otherwise modified from time to time
whether or not with the same agent or lenders and irrespective of any changes
in the terms and conditions thereof. Without limiting the generality of the
foregoing, the term "Senior Credit Agreement" shall include any amendment,
amendment and restatement, renewal, extension, restructuring, supplement or
modification to the Senior Credit Agreement and all refundings, refinancing
and replacements of any facility provided for therein, including any agreement
or agreements, (i) extending the maturity of any Indebtedness incurred
thereunder or contemplated thereby, (ii) adding or deleting borrowers or
guarantors thereunder, or (iii) increasing the amount of Indebtedness incurred
thereunder or available to be borrowed thereunder to the extent permitted
under this Indenture.
"Senior Indebtedness" means all Indebtedness of the Company other than
Subordinated Indebtedness.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Indebtedness" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter incurred) that is subordinate or
junior in right of payment to the Notes.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity (a) of which more than 50% of the total voting power
of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person or (b) that is or would otherwise be treated on a
consolidated basis with such Person under, and in accordance with, GAAP.
Unless otherwise specified herein, each reference to a Subsidiary shall refer
to a Subsidiary of the Company.
"Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized
by the United States of America having capital, surplus and undivided profits
aggregating in excess of $500 million (or the foreign currency equivalent
thereof) and whose long-term debt, or whose parent holding company's long-term
debt, is rated "A" (or such similar equivalent rating) or higher by at least
one nationally recognized statistical rating organization (as defined in Rule
436 under the Securities Act), (iii) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in
clause (i) above entered into with a bank meeting the qualifications described
in clause (ii) above, or (iv) Investments in commercial paper, maturing not
more than 180 days after the date of acquisition, issued by a corporation
(other than an Affiliate of the Company) organized and in existence under the
laws of the United States of America or any foreign country recognized by the
United States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's Investors Service,
Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Trust Officer" means the Chairman of the Board, President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
of America (including any agency or instrumentality thereof) for the
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payment of which the full faith and credit of the United States of America is
pledged and which are not callable or redeemable at the issuer's option.
"Unrestricted Subsidiary" means (i) Schein Pharmaceutical (Netherlands)
B.V., Schein Pharmaceutical (Bermuda) Ltd., and Schein Farmaceutica de Peru,
and (ii) any Subsidiary (other than a Subsidiary which would constitute a
Material Subsidiary) that at the time of determination shall have been
designated an Unrestricted Subsidiary by the Board of Directors of the Company
in the manner provided below and which remains so designated at the time of
determination. The Board of Directors of the Company may, by a Board
resolution delivered to the Trustee, designate any Restricted Subsidiary of
the Company (other than a Material Subsidiary) (including any newly acquired
or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary
unless such Restricted Subsidiary owns any Capital Stock of or holds any Lien
on any property of, the Company or any Restricted Subsidiary, and provided
that no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such designation. The Board of Directors
of the Company may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of the Company, provided that (i) no Default or Event of Default
shall have occurred and be continuing at the time of or after giving effect to
such designation and (ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such designation would, if
incurred at such time, have been permitted to be incurred for all purposes of
the Indenture. Any designation by the Board of Directors of the Company
pursuant to the Indenture shall be evidenced to the Trustee by promptly filing
with the Trustee a copy of the Board resolutions giving effect to such
designation and an Officer's Certificate certifying that such designation
complied with the foregoing provisions.
"voting shares" of a Person means all classes of Capital Stock of such
Person then outstanding and normally entitled to vote in the election of
directors or managers.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Capital Stock, as the case may be, at any date, the number of
years obtained by dividing (a) the sum of the products obtained by multiplying
(x) the amount of each then remaining installment, sinking fund, serial
maturity or other required payments of principal, including payment at final
maturity, in respect thereof, by (y) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the making of such
payment, by (b) the then outstanding principal amount or liquidation
preference, as applicable, of such Indebtedness or Disqualified Stock, as the
case may be.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the Notes will initially be issued in the form of
one or more registered notes in global form without coupons (each a "Global
Note"). Each Global Note will be deposited on the date of the closing of the
sale of the Notes (the "Closing Date") with, or on behalf of, The Depository
Trust Company (the "Depository") and registered in the name of Cede & Co., as
nominee of the Depository, or will remain in the custody of the Trustee
pursuant to the FAST Balance Certificate Agreement between the Depository and
the Trustee. Interests in the Global Note will be available for purchase only
by "qualified institutional buyers," as defined in Rule 144A under the
Securities Act ("QIBs").
Notes that were (i) originally issued to or transferred to institutional
"accredited investors," as defined in Rule 501(a) (1), (3) or (7) under the
Securities Act ("Institutional Accredited Investors"), who are not QIBs or to
any other persons who are not QIBs or (ii) issued as described below under
"Certificated Securities," will be issued in registered definitive form
without coupons (the "Certificated Securities"). Upon the transfer to a QIB of
Certificated Securities, such Certificated Securities may, unless the Global
Note has previously been exchanged for Certificated Securities, be exchanged
for an interest in the Global Note representing the principal amount of Notes
being transferred. For a description of the restrictions on the transfer of
Certificated Securities, see "Transfer Restrictions."
The Depository has advised the Company that it is (i) a limited purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation"
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within the meaning of the Uniform Commercial Code, as amended, and (iv) a
"Clearing Agency" registered pursuant to Section 17A of the Exchange Act. The
Depository was created to hold securities for its participants (collectively,
the "Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical
transfer and delivery of certificates. The Depository's Participants include
securities brokers and dealers (including the Initial Purchaser), banks and
trust companies, clearing corporations and certain other organizations. Access
to the Depository's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. QIBs may elect to hold Notes
purchased by them through the Depository. QIBs who are not Participants may
beneficially own securities held by or on behalf of the Depository only
through Participants or Indirect Participants. Persons that are not QIBs may
not hold Notes through the Depository.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Notes, the Depository will credit
the accounts of Participants designated by the Initial Purchaser with an
interest in the Global Note and (ii) ownership of the Notes will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by the Depository (with respect to the interest of Participants),
the Participants and the Indirect Participants. The laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own and that security interests in negotiable instruments
can only be perfected by delivery of certificates representing the
instruments. Consequently, the ability to transfer Notes or to pledge the
Notes as collateral will be limited to such extent. For certain other
restrictions on the transferability of the Notes, see "Transfer Restrictions."
So long as the Depository or its nominee is the registered owner of the
Global Note, the Depository or such nominee, as the case may be, will be
considered the sole owner or Holder of the Notes represented by the Global
Note for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Note will not be entitled to have Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Certificated Securities, and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to giving of any directions, instruction or
approval to the Trustee thereunder. As a result, the ability of a person
having a beneficial interest in Notes represented by a Global Note to pledge
such interest to persons or entities that do not participate in the
Depository's system or to otherwise take action with respect to such interest,
may be affected by the lack of a physical certificate evidencing such
interest.
Accordingly, each QIB owning a beneficial interest in a Global Note must
rely on the procedures of the Depository and, if such QIB is not a Participant
or an Indirect Participant, on the procedures of the Participant through which
such QIB owns its interest, to exercise any rights of a Holder under the
Indenture or such Global Note. The Company understands that under existing
industry practice, in the event the Company requests any action of holders or
a QIB that is an owner of a beneficial interest in a Global Note desires to
take any action that the Depository, as the Holder of such Global Note, is
entitled to take, the Depository would authorize the Participants to take such
action and the Participant would authorize QIBs owning through such
Participants to take such action or would otherwise act upon the instruction
of such QIBs. Neither the Company nor the Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of Notes by the Depository, or for maintaining, supervising or
reviewing any records of the Depository relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest on
any Notes represented by a Global Note registered in the name of the
Depository or its nominee on the applicable record date will be payable by the
Paying Agent to or at the direction of the Depository or its nominee in its
capacity as the registered Holder of the Global Note representing such Notes
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee may treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payment and for any and all other purposes whatsoever. Consequently, neither
the Company nor the Trustee nor the Paying Agent (if other than the Trustee)
has or will have
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any responsibility or liability for the payment of such amounts to beneficial
owners of Notes (including principal, premium, if any, and interest), or to
immediately credit the accounts of the relevant Participants with such
payment, in amounts proportionate to their respective holdings in principal
amount of beneficial interest in the Global Note as shown on the records of
the Depository. Payments by the Participants and the Indirect Participants to
the beneficial owners of Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Participants or the
Indirect Participants.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depository is no
longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes
in definitive form under the Indenture or (iii) upon the occurrence of certain
other events, then, upon surrender by the Depository of its Global Notes,
Certificated Securities will be issued to each person that the Depository
identifies as the beneficial owner of the Notes represented by the Global
Note. Upon any such issuance, the Trustee is required to register such
Certificated Securities in the name of such person or persons (or the nominee
of any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depository or any Participant or Indirect Participant in identifying the
beneficial owners of the related Notes and each such person may conclusively
rely on, and shall be protected in relying on, instructions from the
Depository for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the Notes to be issued).
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EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
The Company and the Initial Purchaser will enter into an exchange and
registration rights agreement (the "Exchange and Registration Rights
Agreement") prior to or concurrently with the issuance of the Notes offered
hereby. Pursuant to the Exchange and Registration Rights Agreement, the
Company will agree (i) to file with the Commission on or prior to 45 days
after the date of issuance of the Notes (the "Issue Date") a registration
statement (the "Exchange Offer Registration Statement"), with respect to an
offer to exchange the Notes (the "Registered Exchange Offer") for senior notes
of the Company with terms identical in all material respects to those of the
Notes ("Exchange Notes") and (ii) to use commercially reasonable efforts to
cause the Exchange Offer Registration Statement to be declared effective under
the Securities Act within the earlier of (A) 90 days after the Issue Date or
(B) 30 days after the consummation of the initial public offering of the
Company's Common Stock. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company will commence the Registered Exchange
Offer to holders of the Notes who are not prohibited by any law or policy of
the Commission from participating in the Registered Exchange Offer. The
Company will keep the Exchange Offer open for not less than 30 days (or
longer, if required by applicable law) after the date notice of the Exchange
Offer is mailed to the holders of the Notes. If (i) any change in law or
applicable interpretations of the staff of the Commission does not permit the
Company to effect the Registered Exchange Offer as contemplated thereby or
(ii) the Initial Purchaser, as a holder of Notes, (A) is not eligible to
participate in the Exchange Offer or (B) participates in the Exchange Offer
and does not receive freely transferable Exchange Notes in exchange for
tendered Notes, the Company will file with the Commission and use commercially
reasonable efforts to cause to be declared effective on or prior to the latter
of (x) 120 days after the Issue Date or (y) 45 days after the publication of
the change in law or interpretation, a registration statement on an
appropriate form under the Securities Act relating to the offer and sale of
the Notes by the holders thereof, from time to time, in accordance with such
registration statement and Rule 415 under the Securities Act (the "Shelf
Registration Statement").
The Company will use commercially reasonable efforts to have the Exchange
Offer Registration Statement or, if applicable, a Shelf Registration Statement
(each a "Registration Statement") declared effective by the Commission as
promptly as practicable after the filing thereof. Unless the Registered
Exchange Offer would not be permitted by a policy of the Commission, the
Company will commence the Registered Exchange Offer and will use its
reasonable best efforts to consummate the Registered Exchange Offer as
promptly as practicable, but in any event on or prior to 150 days after the
Issue Date. If applicable, the Company will use commercially reasonable best
efforts to keep the Shelf Registration Statement effective for the earlier of
three years from the Issue Date or such shorter period that will terminate
when all the Notes covered by the Shelf Registration Statement have been sold,
subject to certain exceptions, including suspending the effectiveness thereof
as required by law or for certain valid business reasons.
Although the Company intends to file the registration statements described
above, as required, there can be no assurance that such registration
statements will be filed, or, if filed, that they will become effective. In
the event (to the extent applicable) that (i) (A) the Exchange Offer
Registration Statement is not filed on or prior to the 45th day following the
Issue Date, (B) the Exchange Offer Registration Statement is not declared
effective within the earlier of (x) 90 days after the Issue Date or (y) 30
days after the consummation of the initial public offering of the Company's
Common Stock or (C) the Registered Exchange Offer is not consummated on or
prior to the 150th day following the Issue Date or (ii) the Shelf Registration
Statement is not declared effective on or prior to the later of (x) the 120th
day after the Issue Date and (y) the 45th day after the publication of the
change in law or interpretation referred to in the second preceding paragraph,
the interest rate borne by the Notes shall be increased by one-half of one
percent per annum following, in the case of clause (i)(A) such 45-day period,
in the case of clauses (i)(B) such 90- or 30-day period, as the case may be,
or in the case of clause (i)(C), such 150-day period, or, in the case of
clause (ii), such 45- or 120-day period, as applicable. The aggregate amount
of such increase from the original interest rate pursuant to these provisions
will in no event exceed one-half of one percent per annum. Such increase will
cease to be effective on the date of filing of the Exchange Offer Registration
Statement, effectiveness of the Exchange Offer Registration Statement,
consummation of the Registered Exchange Offer or the effectiveness of a Shelf
Registration Statement, as the case may be.
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Any amounts of additional interest due pursuant to the preceding paragraph
will be payable in cash, on the same original interest payment dates as the
Notes. The amount of additional interest will be determined by multiplying the
applicable additional interest rate by the principal amount of the affected
Notes of such holders, multiplied by a fraction, the numerator of which is the
number of days such additional interest rate was applicable during such
period, and the denominator of which is 360.
The Exchange and Registration Rights Agreement will also provide that the
Company (i) shall cause the Exchange Offer Registration Statement to remain
continuously effective for a period of at least 20 Business Days (or longer if
required by applicable law) from its effective date, and shall supplement or
amend the prospectus contained therein to the extent necessary to permit such
prospectus (as supplemented or amended) to be delivered by broker-dealers in
connection with any resale of any such Exchange Notes and (ii) shall pay all
expenses incident to the Exchange Offer and will indemnify certain holders of
the Notes (including any broker-dealer) against certain liabilities, including
liabilities under the Securities Act. A broker-dealer that delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act, and will
be bound by the provisions of the Exchange and Registration Rights Agreement
(including certain indemnification rights and obligations).
Each holder of the Notes that wishes to exchange such Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any Exchange Notes to be received by it
will be acquired in the ordinary course of its business, (ii) it has no
arrangement with any person to participate in the distribution of the Exchange
Notes and (iii) it is not an "affiliate," as defined in Rule 405 of the
Securities Act, of the Company or if it is an affiliate, it will comply with
the registration and prospectus delivery requirements of the Securities Act to
the extent applicable.
If a holder is not a broker-dealer, it will be required to represent that it
is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. If a holder is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Notes that were acquired as a result
of market making activities or other trading activities, it will be required
to acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes.
Holders of the Notes will be required to make certain representations to the
Company in order to participate in the Exchange Offer, and will be required to
deliver information to be used in connection with the Shelf Registration
Statement in order to have their Notes included in the Shelf Registration
Statement. A holder who sells Notes pursuant to the Shelf Registration
Statement generally will be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act
in connection with such sales and will be bound by the provisions of the
Exchange and Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations).
A holder whose Notes are included in a Registration Statement will be
required to agree not to effect any public sale or distribution of the issue
being registered or a similar security of the Company or any securities
convertible into or exchangeable or exercisable for such securities, including
a sale pursuant to Rule 144 under the Securities Act, during the 14 days prior
to, and during the 90-day period beginning on, the effective date of such
Registration Statement (except as part of such registration), if and to the
extent requested by the Company in the case of a non-underwritten public
offering or if and to the extent requested by the managing Underwriter or
Underwriters in the case of an underwritten public offering.
Notwithstanding any other provision set forth above, the Company may delay
the filing of any Registration Statement for up to 90 days if (i) the Company
would, in the opinion of its counsel, be required to disclose in such
Registration Statement information not otherwise then required by law to be
publicly disclosed and (ii) in the judgment of the Board of Directors of the
Company, there is a reasonable likelihood that such disclosure, or any other
action to be taken in connection with any Registration Statement, would
adversely affect any existing or prospective material business situation,
transaction, or negotiation or otherwise materially and adversely affect the
Company.
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Unless the Company is then subject to Section 13 or 15(d) of the Exchange
Act, the Company will continue to provide to holders of the Notes and to
prospective purchasers of the Notes, for so long as the Notes are outstanding,
the information required by Rule 144A under the Securities Act ("Rule 144A"),
as such Rule may be amended, or any similar rule or regulation adopted by the
Commission. The Company will provide a copy of the Exchange and Registration
Rights Agreement to prospective purchasers of Notes identified to the Company
by the Initial Purchaser upon request.
The foregoing description of the Exchange and Registration Rights Agreement
is a summary only, does not purport to be complete and is qualified in its
entirety by reference to all provisions of the Exchange and Registration
Rights Agreement.
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TRANSFER RESTRICTIONS
Each purchaser of Notes from the Initial Purchaser, by its acceptance
thereof, will be deemed to have acknowledged, represented to and agreed with
the Company and the Initial Purchaser as follows:
1. It understands and acknowledges that the Notes have not been
registered under the Securities Act or any other applicable securities law,
and that the Notes are being offered for resale in transactions not
requiring registration under the Securities Act or any other securities
laws, including sales pursuant to Rule 144A and, unless so registered, may
not be offered, sold or otherwise transferred except in compliance with the
registration requirements of the Securities Act or any other applicable
securities laws, pursuant to any exemption therefrom or in a transaction
not subject thereto and in each case in compliance with the conditions for
transfer set forth in paragraph (4) below.
2. It is not an "affiliate" (as defined in Rule 144 under the Securities
Act) of the Company or acting on behalf of the Company and is either:
(a) a "Qualified Institutional Buyer" as defined in Rule 144A
("QIB"), and is aware that any sale of the Notes to it will be made in
reliance on Rule 144A and such acquisition will be for its own account
or for the account of another QIB; or
(b) an "Institutional Accredited Investor" within the meaning of Rule
501(a)(1), (2), (3) and (7) under the Securities Act or, if the Notes
are to be purchased for one or more accounts ("investor accounts") for
which it is acting as fiduciary or agent, each such account is an
Institutional Accredited Investor on a like basis. It is aware that the
minimum principal amount of Notes that may be purchased by an
Institutional Accredited Investor (including each investor account) is
$250,000. In the normal course of its business, it invests in or
purchases securities similar to the Notes and it has such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of purchasing the Notes. It is aware
that it (or any investor account) may be required to bear the economic
risk of an investment in the Notes of an indefinite period of time and
it (or such account) is able to bear such risk for an indefinite
period.
3. It acknowledges that neither the Company, the Initial Purchaser nor
any person representing the Company or the Initial Purchaser has made any
representation to it with respect to the Company or the Offering, other
than the information contained in this Offering Memorandum, which has been
delivered to it and upon which it is relying in making its investment
decision with respect to the Notes. It has had access to such financial and
other information concerning the Company and the Notes as it has deemed
necessary in connection with its decision to purchase the Notes, including
an opportunity to ask questions of and request information from the Company
and the Initial Purchaser.
4. It is purchasing the Notes for its own account or for one or more
investor accounts for which it is acting as a fiduciary or agent, in each
case not with a view to, or for offer or sale in connection with, any
distribution thereof in violation of the Securities Act, subject to any
requirement of law that the disposition of its property or the property of
such investor account or accounts be at all times within its or their
control and subject to its or their ability to resell such Notes pursuant
to Rule 144A or any exemption from registration available under the
Securities Act. It agrees on its own behalf and on behalf of any investor
account for which it is purchasing the Notes, and each subsequent holder of
the Notes by its acceptance thereof will agree, to offer, sell or otherwise
transfer such Notes prior to the date which is two years after the later of
the date of original issue and the last date that the Company or any
affiliate of the Company was the owner of such Notes (or any predecessor
thereto) (the "Resale Restriction Termination Date") only (i) to the
Company, (ii) pursuant to a registration statement that has been declared
effective under the Securities Act, (iii) for so long as the Notes are
eligible for resale pursuant to Rule 144A, to a person it reasonably
believes is a QIB that purchases for its own account or for the account of
a QIB to whom notice is given that the transfer is being made in reliance
on Rule 144A, (iv) pursuant to offers and sales that occur outside the
United States within the meaning of Regulation S under the Securities Act,
(v) to an Institutional Accredited Investor (as defined in Rule 501(a)(1),
(2), (3) and (7) under the Securities Act) that is
87
<PAGE>
purchasing for its own account or for the account of such an Institutional
Accredited Investor, in each case in a minimum principal amount of the
Notes of $250,000 or (vi) pursuant to any other available exemption from
the registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of its
property or the property of such investor account or accounts be at all
times within its or their control. The foregoing restrictions on resale
will not apply subsequent to the Resale Restriction Termination Date. If
any resale or other transfer of the Notes is proposed to be made pursuant
to clause (v) above prior to the Resale Restriction Termination Date, the
transferor shall deliver a letter from the transferee substantially in the
form of Annex A hereto to the Company and the Trustee, which shall provide,
among other things, that the transferee is an Institutional Accredited
Investor that is acquiring such Notes not for distribution in violation of
the Securities Act, and for the transferee's representations to the same
effect as set forth in paragraph 5 below, with respect to the transferee's
purchase and holding of such Notes. Each purchaser acknowledges that the
Company and the Trustee reserve the right prior to any offer, sale or other
transfer prior to the Resale Restriction Termination Date of the Notes
pursuant to clauses (iv), (v) and (vi) above to require the delivery of an
opinion of counsel, certifications and/or other information satisfactory to
the Company and the Trustee. Each purchaser acknowledges that each Note
will contain a legend substantially to the following effect.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR
SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED
INVESTOR WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A
MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE
OR TRANSFER PURSUANT TO CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
EACH OF THEM, AND IN THE CASE OF THE FOREGOING CLAUSE (E), A CERTIFICATE OF
TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED
AND DELIVERED BY THE TRANSFEROR TO THE ISSUER AND THE TRUSTEE. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
88
<PAGE>
5. Each purchaser, by its purchase of the Notes, shall be deemed to have
represented that (i) if it is an insurance company, the funds to be used to
purchase the Notes by it constitute (A) assets of an insurance company
general account maintained by it and the acquisition and holding of each
such Note by such account is exempt under United States Department of Labor
Prohibited Transaction Class Exemption ("PTCE") 95-60 or (B) assets of an
insurance company pooled separate account and the acquisition and holding
of each such Note by such account is exempt under PTCE 90-1, and (ii) no
part of the funds to be used to purchase the Notes to be purchased by it
constitute assets of any plan or employee benefit plan such that the use of
such assets constitutes a non-exempt prohibited transaction under ERISA or
the Code. The representation is based upon the purchaser's determination
that a statutory or administrative exemption is applicable or that the
Company and its Affiliates are not parties in interest or disqualified
persons with respect to the purchaser or holder plan or employee benefit
plan. As used in this paragraph, the terms "employee benefit plan" and
"party in interest" shall have the meanings assigned to such terms in
Section 3 of ERISA, the term "Affiliate" shall have the meaning assigned to
such term in Section 407(d)(7) of ERISA and the terms "disqualified person"
and "plan" shall have the meanings assigned to such terms in Section 4975
of the Code. If any resale or other transfer of the Notes is proposed to be
made pursuant to clause (v) of paragraph 4 above prior to the Resale
Restriction Termination Date, the transferor shall deliver a letter from
the transferee to the Company and the Trustee, which shall contain a
representation of the transferee with respect to the transferee's purchase
and holding of the Notes, substantially as set forth in paragraph 3 of
Annex A hereto.
6. It acknowledges that the Company, the Initial Purchaser and others
will rely upon the truth and accuracy of the foregoing acknowledgments,
representations and agreements and agrees that, if any of the
acknowledgments, representations or warranties deemed to have been made by
it by its purchase of Notes are no longer accurate, it shall promptly
notify the Company and the Initial Purchaser. If it is acquiring any Notes
as a fiduciary or agent for one or more investor accounts, it represents
that it has sole investment discretion with respect to each such account
and that it has full power to make the foregoing acknowledgments,
representations and agreements on behalf of each such account.
89
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the principal U.S. federal income tax
consequences resulting from the ownership and disposition of the Notes by U.S.
Holders (as defined below) that are initial purchasers of Notes. Except where
noted, it deals only with Notes held as capital assets and does not deal with
special situations, such as those of dealers in securities or currencies,
financial institutions, tax-exempt entities, life insurance companies, persons
holding Notes as part of a hedging, conversion or constructive sale
transaction or a straddle or holders whose "functional currency" is not the
U.S. dollar. Furthermore, the discussion below is based upon provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and regulations,
rulings and judicial decisions thereunder as of the date hereof, and such
authorities may be repealed, revoked or modified so as to result in United
States federal income tax consequences different from those discussed below.
Persons considering the purchase, ownership or disposition of Notes should
consult their own tax advisors concerning the United States federal income tax
consequences in light of their particular situations as well as any
consequences arising under the laws of any other taxing jurisdiction.
As used herein, a "U.S. Holder" is (i) a citizen or resident of the United
States, (ii) a corporation or partnership created or organized in or under the
laws of the United States or a State thereof (including the District of
Columbia), (iii) an estate the income of which is subject to United States
federal income taxation regardless of source or (iv) a trust if (a) a U.S.
court is able to exercise primary supervision over the trust's administration
and (b) one or more U.S. persons have the authority to control all of the
trust's substantial decisions. The term also includes certain former citizens
of the United States.
ORIGINAL ISSUE DISCOUNT
For purposes of the Code, each Note will be deemed to have been issued with
original issue discount ("OID") equal to the difference between the Note's
stated redemption price at maturity (i.e., the sum of all payments to be made
on the Note other than stated interest payments) and its "issue price." U.S.
Holders of Notes should be aware that they generally must include OID in gross
income in advance of the receipt of cash attributable to that income. A U.S.
Holder must include in gross income the sum of the daily portions of OID which
accrue under a constant yield method with respect to such instrument for each
day during the accrual period (or portion of the accrual period) in which such
U.S. Holder held such Notes, regardless of the U.S. Holder's method of
accounting for tax purposes. The amount of OID which accrues in an accrual
period is an amount equal to the excess (if any) of (i) the product of the
Note's "adjusted issue price" at the beginning of such accrual period and its
yield to maturity (determined on the basis of compounding at the end of each
accrual period and appropriately adjusted to take into account the length of
the particular accrual period) over (ii) the sum of the stated interest
payments, if any, allocable to the accrual period. The daily portion of OID is
determined by allocating to each day in any accrual period a ratable portion
of OID allocable to the accrual period. The "adjusted issue price" of a Note
at the beginning of any accrual period is the sum of the issue price of such
Note plus the OID allocable to all prior accrual periods reduced by payments
on the Note other than stated interest. An "accrual period" may be of any
length and the accrual periods may even vary in length over the term of the
debt instrument, provided that each accrual period is no longer than one year
and each scheduled payment of principal or interest occurs at the end of an
accrual period. Under these rules, U.S. Holders generally will have to include
in income increasingly greater amounts of OID in successive accrual periods.
Generally, a U.S. Holder's tax basis in the debt instrument will be increased
by the amount of OID that is included in such U.S. Holder's income pursuant to
the foregoing rules through the day preceding the day of disposition and will
be decreased by the amount of any cash payments received (other than a payment
of stated interest).
Special rules apply to the calculation of OID in the case of a debt
instrument whose issuer has an intention to call the instrument before
maturity. The Company intends to take the position that under applicable
Treasury Regulations (the "OID Regulations") the special rules will not apply
to the Notes.
Under the OID Regulations, a U.S. Holder may elect to treat all interest and
discount on a Note (including stated interest and OID) as income by using the
constant yield method applicable to OID, subject to certain limitations and
exceptions. Such an election must be made for the taxable year in which the
U.S. Holder acquires the Note and may not be revoked unless approved by the
IRS.
90
<PAGE>
SALE, EXCHANGE OR REDEMPTION
A U.S. Holder's adjusted tax basis in a Note will, in general, be the U.S.
Holder's cost for the Note increased by OID. The sale, exchange or redemption
of a Note generally will be a taxable event for federal income tax purposes. A
U.S. Holder generally will recognize gain or loss on the sale, exchange or
redemption of a Note in an amount equal to the difference between (i) the
amount of cash plus the fair market value of any property received upon such
sale, exchange or redemption (other than the amount of such consideration
received in respect of accrued but unpaid interest which will be taxable as
such) and (ii) the U.S. Holder's adjusted tax basis in such Note. Such gain or
loss will be capital gain or loss. Under recently enacted legislation, capital
gains of individuals derived in respect of capital assets held for more than
one year are eligible for reduced rates of taxation which may vary depending
upon the holding period of such capital assets. Prospective investors should
consult their own tax advisors with respect to the tax consequences of the new
legislation. The deductibility of capital losses is subject to limitations.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain noncorporate U.S. Holders may be subject to backup withholding at a
rate of 31% on payments made on a Note. Backup withholding will apply only if
a U.S. Holder (i) fails to furnish its taxpayer identification number ("TIN")
which, in the case of an individual, would be his or her social security
number, (ii) furnishes an incorrect TIN, (iii) is notified by the IRS that it
has failed to properly report payments of interest and dividends or (iv) under
certain circumstances, fails to certify, under penalties of perjury, that it
has furnished a correct TIN. Amounts withheld under the backup withholding
rules are not an additional tax and may be refunded, or credited against the
U.S. Holder's United States federal income tax liability, provided that the
required information is furnished to the IRS. The Company will furnish
annually to the IRS and to certain record U.S. Holders of the Notes
information relating to the amount of OID, if any, accruing during the
calendar year. The Company's determination of OID generally is binding on a
U.S. Holder for U.S. federal income tax purposes but is not binding on the
IRS, and there can be no assurance that the IRS will not challenge such
determination.
91
<PAGE>
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Purchase Agreement (the
"Purchase Agreement") by and among the Company, the Guarantors and Societe
Generale Securities Corporation (the "Initial Purchaser"), the Company agrees
to sell to the Initial Purchaser, and the Initial Purchaser agrees to
purchase, $100.0 million principal amount of the Notes.
The Purchase Agreement provides that the obligations of the Initial
Purchaser thereunder are subject to certain conditions precedent, and that the
Initial Purchaser is committed to take and pay for $100.0 million aggregate
principal amount of Notes, if any are taken. The Company will separately pay a
commission to the Initial Purchaser of 3.000% of the principal amount of the
Notes purchased. The Initial Purchaser proposes to offer the Notes at the
applicable initial offering price set forth on the cover page of this Offering
Memorandum (the "Note Offering Price"). After the Notes are released for sale,
the Note Offering Price and other selling terms may from time to time be
varied by the Initial Purchaser.
The Company and the Restricted Subsidiaries have agreed in the Purchase
Agreement to indemnify the Initial Purchaser against certain liabilities under
the Securities Act, and to contribute to payments that the Initial Purchaser
may be required to make in respect thereof.
The Initial Purchaser proposes to offer the Notes for resale in transactions
not requiring registration under the Securities Act or applicable state
securities laws, including sales pursuant to Rule 144A. The Initial Purchaser
proposes to offer the Notes for resale initially at the offering price set
forth on the cover page of this Offering Memorandum. After the initial
offering, the offering price and other selling terms may be changed at any
time without notice. The Initial Purchaser will not offer or sell the Notes
except to persons it reasonably believes to be QIBs or Institutional
Accredited Investors. Each purchaser of the Notes offered hereby in making its
purchase will, by its purchase, be deemed to have made certain
acknowledgements, representations, warranties and agreements as set forth
under "Transfer Restrictions" and, in the case of purchasers that are
Institutional Accredited Investors, will be required to complete and deliver
to the Initial Purchaser a purchaser questionnaire prior to acceptance of any
order.
The Notes have been designated eligible for trading in the PORTAL market.
The Notes have not been registered under the Securities Act and may not be
offered or sold except as set forth above. The Initial Purchaser has advised
the Company that the Initial Purchaser currently intends to make a market in
the Notes; however, it is not obligated to do so and any market making may be
discontinued by the Initial Purchaser at any time without notice. In addition,
such market making activity may be limited during the Exchange Offer described
below and the pendency of the effectiveness of the applicable Registration
Statement. Accordingly, no assurance can be given as to the liquidity of or
the trading market for the Notes.
In connection with the Offering, the Initial Purchaser may engage in
overallotment, stabilizing transactions and syndicate covering transactions.
Overallotment involves sales in excess of the offering size, which creates a
short position for the Initial Purchaser. Stabilizing transactions involve
bids to purchase the Notes in the open market for the purpose of pegging,
fixing or maintaining the price of the Notes. Syndicate covering transactions
involve purchases of the Notes in the open market after the distribution has
been completed in order to cover short positions. Such stabilizing
transactions and syndicate covering transactions may cause the price of the
Notes to be higher than it would otherwise be in the absence of such
transactions. Such activities, if commenced, may be discontinued at any time.
The Company has covenanted with the Initial Purchaser (i) that within 45
days after the Issue Date, the Company will file with the Commission an
Exchange Offer Registration Statement under the Securities Act with respect to
an issue of Exchange Notes and (ii) to use commercially reasonable efforts to
cause such Exchange Offer Registration Statement to be declared effective
under the Securities Act within the earlier of (A) 90 days after the Issue
Date or (B) 30 days after the effectiveness of the registration statement
filed in connection with an initial public offering of the Company's Common
Stock. Upon effectiveness of that Exchange Offer Registration
92
<PAGE>
Statement, the Company will offer to the holders of the Notes the opportunity
to exchange their Notes for a like principal amount of Exchange Notes, which
Exchange Notes will be issued without the legend described above under
"Transfer Restrictions" and (generally other than by an affiliate of the
Company) may be reoffered and resold by the holder without restrictions or
limitations under the Securities Act. The Company has also covenanted with the
Initial Purchaser to consummate the Registered Exchange Offer within 150 days
after the Issue Date. Additionally, the Company has covenanted that if any
change in law or applicable interpretations of the staff of the Commission
does not permit the Company to effect the Registered Exchange Offer, the
Company will file with the Commission and use commercially reasonable efforts
to cause to be declared effective a Shelf Registration Statement with respect
to the resale of Notes and to keep the Shelf Registration Statement effective
until three years from the Issue Date or such shorter period that will
terminate when all the Notes covered by the Shelf Registration Statement have
been sold. The Company shall cause such Shelf Registration Statement to be
declared effective on or prior to the latter of (x) the 120th day after the
Issue Date or (y) the 45th day after the publication of the change in law or
interpretation. See "Exchange and Registration Rights Agreement."
It is expected that delivery of the Notes will be made against payment
therefor on or about the date specified in the last paragraph of the cover
page of this Offering Memorandum, which will be the third business day
following the date hereof.
Societe Generale, an affiliate of Societe Generale Securities Corporation,
is the lender under the Senior Subordinated Loan Agreement, dated as of
December 20, 1996, as amended (the "Senior Subordinated Loan Agreement"), with
the Company and a lender under the Senior Credit Agreement. Societe Generale
and Societe Generale Securities Corporation have from time to time provided
investment banking and financial advisory services to the Company and its
affiliates, and they may continue to provide such services and/or participate
in various general financings and banking transactions with the Company and
its affiliates. The Company has agreed to pay Societe Generale Securities
Corporation a fee of $750,000 for financial advisory services rendered to the
Company in connection with the amendment of the Senior Subordinated Loan
Agreement.
93
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The financial statements of the Company included in this Offering Memorandum
have been audited by BDO Seidman LLP, independent certified public
accountants, to the extent and for the periods set forth in their report
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The legality of the Notes being offered hereby will be 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 food and drug regulatory matters will be passed upon for the
Company by King & Spalding, Washington, District of Columbia. Certain legal
matters in connection with the sale of the Notes offered hereby will be passed
upon for the Initial Purchaser by Simpson Thacher & Bartlett (a partnership
which includes professional corporations), New York, New York.
AVAILABLE INFORMATION
Immediately following the Offering, the Company will not be subject to the
periodic reporting and other informational requirements of the Exchange Act.
Until its acquisition by the Company in 1995, Marsam was subject to the
periodic reporting and other informational requirements of the Exchange Act,
and therefore, its Forms 10-K and 10-Q for periods prior to its acquisition
are available from the Commission. The Company has agreed that,
notwithstanding that it may not be subject to the reporting requirements of
Sections 13 or 15(d) of the Exchange Act, for so long as any Notes are
outstanding, the Company will furnish to the Trustee and the holders of the
Notes (i) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year and 90 days of the end of each fiscal year all
quarterly and annual financial information, as the case may be, that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-
K if the Company were required to file any such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current
reports that would be required to be filed with the Commission on Form 8-K if
the Company were required to file such reports. In addition, whether or not
required by the rules and regulations of the Commission, the Company will file
a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make
such information available to securities analysts and prospective investors
upon request. Furthermore, for so long as any of the Notes remain outstanding,
the Company has agreed to make available to any prospective purchaser of the
Notes or beneficial owner of the Notes, in connection with any sale thereof,
the information required by Rule 144(d)(4) under the Securities Act.
94
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants......................... F-2
Consolidated Balance Sheets as of December 30, 1995, December 28, 1996 and
September 27, 1997 (unaudited)............................................ F-3
Consolidated Statements of Operations for each of the years ended December
31, 1994, December 30, 1995 and December 28, 1996, and the nine-month
periods ended September 28, 1996 and September 27, 1997 (unaudited)....... F-4
Consolidated Statements of Stockholders' Equity for each of the years ended
December 31, 1994, December 30, 1995 and December 28, 1996, and the nine-
month period ended September 27, 1997 (unaudited)......................... F-5
Consolidated Statements of Cash Flows for each of the years ended December
31, 1994, December 30, 1995 and December 28, 1996, and the nine-month
periods ended September 28, 1996 and September 27, 1997 (unaudited)....... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Schein Pharmaceutical, Inc.
We have audited the accompanying consolidated balance sheets of Schein
Pharmaceutical, Inc. and subsidiaries as of December 30, 1995 and December 28,
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
28, 1996. These consolidated financial statements are the responsibility of
the management of Schein Pharmaceutical, Inc. and subsidiaries. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Schein Pharmaceutical, Inc. and subsidiaries as of December 30, 1995 and
December 28, 1996, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 28, 1996
in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
February 7, 1997
F-2
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
IN THOUSANDS ------------ ------------ -------------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............ $ 7,837 $ 2,139 $ 388
Accounts receivable, less allowance
for possible losses of $3,835,
$2,434 and $2,849................... 57,212 72,261 67,574
Inventories.......................... 115,960 131,265 124,011
Prepaid expenses and other current
assets.............................. 7,598 4,070 3,792
Deferred income taxes................ 9,656 9,354 8,843
-------- -------- --------
Total Current Assets............... 198,263 219,089 204,608
Property, Plant and Equipment, net..... 108,566 107,740 107,348
Product Rights, Licenses and Regulatory
Approvals, net........................ 94,566 92,685 88,102
Goodwill, net.......................... 106,786 102,695 99,448
Other Assets........................... 14,229 22,103 21,193
-------- -------- --------
$522,410 $544,312 $520,699
======== ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current Liabilities:
Accounts payable..................... $ 31,225 $ 31,492 $ 30,196
Accrued expenses..................... 34,939 40,755 42,758
Income taxes......................... -- 6,641 5,231
Revolving credit and current
maturities of long-term debt........ 40,078 41,090 32,943
-------- -------- --------
Total Current Liabilities.......... 106,242 119,978 111,128
Long-Term Debt, less current
maturities............................ 240,480 245,390 223,470
Deferred Income Taxes.................. 41,321 40,166 39,979
Other Liabilities...................... 8,675 8,798 9,038
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.01 par value; 529
authorized shares; issued and
outstanding 274 shares at December
30, 1995 and 273 shares at December
28, 1996 and September 27, 1997..... 3 3 3
Additional paid-in capital........... 39,832 38,876 38,876
Retained earnings.................... 86,984 88,381 92,107
Other................................ (1,127) 2,720 6,098
-------- -------- --------
Total Stockholders' Equity......... 125,692 129,980 137,084
-------- -------- --------
$522,410 $544,312 $520,699
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
-------------------------------------- ---------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
IN THOUSANDS ------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues............ $385,428 $391,846 $476,295 $352,172 $353,829
Cost of sales........... 237,380 250,507 320,675 236,721 240,562
-------- -------- -------- -------- --------
Gross profit.......... 148,048 141,339 155,620 115,451 113,267
Costs and expenses:
Selling, general and
administrative....... 71,416 73,250 84,366 61,149 57,950
Research and
development.......... 19,170 28,324 27,030 23,044 22,854
Amortization of
goodwill and other
intangibles.......... -- 3,399 10,195 7,713 7,722
Special compensation,
restructuring and
relocation........... 33,594 -- -- -- --
Acquired in-process
Marsam research and
development.......... -- 30,000 -- -- --
-------- -------- -------- -------- --------
Operating income........ 23,868 6,366 34,029 23,545 24,741
Interest expense,
net.................. 1,493 10,005 23,285 16,081 20,456
Other expenses
(income), net........ 579 779 4,156 1,745 (4,536)
-------- -------- -------- -------- --------
Income (loss) before
provision for income
taxes.................. 21,796 (4,418) 6,588 5,719 8,821
Provision for income
taxes.................. 15,165 10,482 5,191 3,573 5,095
-------- -------- -------- -------- --------
Net income (loss)....... $ 6,631 $(14,900) $ 1,397 $ 2,146 $ 3,726
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 28, 1996 AND NINE MONTHS ENDED SEPTEMBER 27, 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- ------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS OTHER
IN THOUSANDS ------- ------- ------ ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 25,
1993................... 207 $ 207 267 $ 3 $13,685 $127,129 $(10,688)
Net income............ -- -- -- -- -- 6,631 --
Recognition of stock
compensation......... -- -- -- -- 12,965 (3,079) 8,703
Stock issued in
exchange for minority
interest............. -- -- 7 -- 13,182 (1,818) --
Restructuring
charges.............. -- -- -- -- -- (1,508) --
Redemption of
preferred stock...... (207) (207) -- -- -- (25,471) --
Amortization of
options issued as
compensation......... -- -- -- -- -- -- 430
------- ------- --- ---- ------- -------- --------
Balance, December 31,
1994................... -- -- 274 3 39,832 101,884 (1,555)
Net loss.............. -- -- -- -- -- (14,900) --
Amortization of
options issued as
compensation......... -- -- -- -- -- -- 389
Unrealized gains from
marketable
securities........... -- -- -- -- -- -- 39
------- ------- --- ---- ------- -------- --------
Balance, December 30,
1995................... -- -- 274 3 39,832 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............... -- -- (1) -- (956) -- --
Foreign currency
translation
adjustments.......... -- -- -- -- -- -- (835)
------- ------- --- ---- ------- -------- --------
Balance, December 28,
1996................... -- -- 273 3 38,876 88,381 2,720
(Period subsequent to
December 28, 1996 to
September 27, 1997 is
unaudited)...........
Net income............ -- -- -- -- -- 3,726 --
Amortization of
options issued as
compensation......... -- -- -- -- -- -- 292
Unrealized gains from
marketable
securities........... -- -- -- -- -- -- 3,059
Foreign currency
translation
adjustments.......... -- -- -- -- -- -- 27
------- ------- --- ---- ------- -------- --------
Balance, September 27,
1997 (Unaudited)....... -- $ -- 273 $ 3 $38,876 $ 92,107 $ 6,098
======= ======= === ==== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
-------------------------------------- ---------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
IN THOUSANDS ------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Operating activities:
Net income (loss)...... $ 6,631 $ (14,900) $ 1,397 $ 2,146 $ 3,726
Depreciation and
amortization.......... 8,464 17,395 25,450 18,018 19,749
Provision for deferred
income taxes.......... (6,321) 3,084 (3,342) (985) (1,237)
Acquired in-process
Marsam research
and development....... -- 30,000 -- -- --
Special compensation... 29,039 -- -- -- --
Gain on sale of
marketable
securities............ (9,883)
Other.................. 759 694 4,360 2,192 3,530
Changes in assets and
liabilities:
Accounts receivable.... (13,224) (579) (15,743) (9,779) 4,167
Inventories............ (13,187) 69 (15,305) (30,714) 7,254
Prepaid expenses and
other assets.......... (2,056) (3,744) 2,048 572 278
Accounts payable,
income taxes, accrued
expenses and other
liabilities........... 16,064 (12,393) 11,891 9,821 (513)
-------- --------- --------- --------- ---------
Net cash provided by
(used in) operating
activities............. 26,169 19,626 10,756 (8,729) 27,071
-------- --------- --------- --------- ---------
Cash flows from
investing activities:
Capital expenditures,
net................... (16,135) (13,986) (11,309) (8,625) (8,992)
Product rights and
licenses.............. (4,190) (3,035) (4,089) (1,460) --
Acquisition of Marsam,
net of cash acquired.. -- (229,746) -- -- --
Investment in
international joint
ventures.............. -- (3,520) (2,036) (503) (150)
Proceeds from sale of
marketable
securities............ -- -- -- -- 11,575
Other, net............. (358) (1,156) (2,582) (434) (1,188)
-------- --------- --------- --------- ---------
Net cash provided by
(used in) investing
activities............. (20,683) (251,443) (20,016) (11,022) 1,245
-------- --------- --------- --------- ---------
Cash flows from
financing activities:
Principal payments on,
or repayments of,
debt.................. (67,237) (167,119) (261,078) (102,057) (143,067)
Proceeds from issuance
of debt............... 85,601 401,750 267,000 114,000 113,000
Sale (repurchase) of
other non-current
assets, net........... 1,836 (5,700) (2,360) -- --
Restructuring charges.. (1,508) -- -- -- --
Redemption of preferred
stock................. (20,678) -- -- -- --
-------- --------- --------- --------- ---------
Net cash provided by
(used in) financing
activities............. (1,986) 228,931 3,562 11,943 (30,067)
-------- --------- --------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents............ 3,500 (2,886) (5,698) (7,808) (1,751)
Cash and cash
equivalents, beginning
of year................ 7,223 10,723 7,837 7,837 2,139
-------- --------- --------- --------- ---------
Cash and cash
equivalents, end of
year................... $ 10,723 $ 7,837 $ 2,139 $ 29 $ 388
======== ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
NOTE 1--SUMMARY OF ACCOUNTING POLICIES
The Company and Principles of Consolidation
Schein Pharmaceutical, Inc. and its subsidiaries (the "Company") are engaged
in developing, manufacturing, marketing and distributing generic
pharmaceutical products. The Company sells to drug store chains, independent
retail pharmacies, managed care organizations, hospitals and other
institutions, both through drug wholesalers and directly, primarily in the
U.S.
In 1995, Schein Holdings, Inc. ("SHI"), the former parent holding
corporation of Schein Pharmaceutical, Inc., was merged into Schein
Pharmaceutical, Inc. The Company was the only asset held by SHI, and, as such,
the accompanying financial statements reflect the operations of the Company
for the periods reported.
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries. Investments in
unconsolidated affiliated companies are accounted for on the equity method.
All material intercompany accounts and transactions have been eliminated in
consolidation.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
Fiscal Year
The Company reports its operations on a 52-53 week basis ending on the last
Saturday of December. Of the years presented in these statements, 1994
includes 53 weeks.
Interim Financial Information
The financial statements as of September 27, 1997 and for the nine months
ended September 28, 1996 and September 27, 1997 are unaudited but reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of financial
position and results of operations. Operating results for the nine months
ended September 27, 1997 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 27, 1997.
Cash Equivalents
The Company considers all highly liquid debt instruments and other short-
term investments with an initial maturity date of three months or less from
purchase date to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out method.
Property, Plant, Equipment, Depreciation and Amortization
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed primarily under the straight-line method over
estimated useful lives. Amortization of capital leases is computed using the
straight-line method over the lease term.
F-7
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
Long-Lived Assets
The Company adopted in 1995 Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of. In accordance with SFAS No. 121, the carrying
values of long-lived assets are periodically reviewed by the Company and
impairments would be recognized if the expected future operating non-
discounted cash flows derived from an asset were less than its carrying value.
Deferred Loan Fees
Costs incurred in connection with entering into or amending debt agreements
are capitalized to Other Assets and amortized to interest expense using the
effective interest method over the lives of the related debt.
Goodwill and Product Rights, Licenses and Regulatory Approvals
Goodwill is being amortized over 25 years on a straight-line basis. Product
rights, licenses and regulatory approvals are amortized on a straight-line
basis over the expected profitable and useful lives of the underlying products
and manufacturing facilities, generally for periods ranging from 10 to 20
years.
Investments in Marketable Securities
The Company's available-for-sale marketable securities are carried at fair
market value and are included in Other Assets in the accompanying balance
sheets. Unrealized gains are recorded directly to stockholders' equity, net of
applicable income taxes. The Company uses the specific identification method
of determining cost in calculating related gains and losses. The Company does
not own held-to-maturity or trading securities.
Estimated Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities,
approximate fair value because of the current nature of these instruments. The
carrying amounts reported for revolving credit and long-term debt approximate
fair value because the interest rates on these instruments are subject to
changes with market interest rates.
Revenue Recognition
Revenues are recognized when products are shipped. Provisions for estimated
sales allowances, returns and losses are accrued at the time revenues are
recognized.
Research and Development Expenditures
Expenditures for research and development are expensed as incurred.
Taxes on Income
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under this standard, deferred taxes on income are
provided for those items for which the reporting period and methods for income
tax purposes differ from those used for financial statement purposes using the
asset and liability method. Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
F-8
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
Foreign Currency Translations
Assets and liabilities of international affiliates are translated at current
exchange rates and related translation adjustments are reported as a component
of stockholders' equity. Income statement accounts are translated at the
average rates during the period.
Concentration of Credit Risk
The Company is potentially subject to a concentration of credit risk with
respect to its trade receivables, the majority of which are due from
wholesalers, drug store chains, and distributors. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
The Company maintains sufficient allowances and insurance to cover potential
or anticipated losses for uncollectible accounts.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Effect of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
Reporting Comprehensive Income, establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
Statement of Accounting Standards No. 131 ("SFAS No. 131"), Disclosures
about Segments of an Enterprise and Related Information, which supersedes SFAS
No. 14, Financial Reporting for Segments of a Business Enterprise, establishes
standards for the way that public enterprises report information about
operating 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.
F-9
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
NOTE 2--RESTRUCTURING
As discussed in Note 1, SHI, the former parent corporation of the Company,
was merged into the Company in 1995. Prior to September 1994, in addition to
its ownership of the Company, SHI was engaged in the manufacture, distribution
and sale of dental, medical and veterinary products ("Henry Schein"). In 1992,
SHI initiated a series of transactions as part of a corporate reorganization
plan (the "Restructuring") to split off Henry Schein to certain SHI
stockholders and realign the ownership interests of SHI. In September 1994,
the series of transactions culminated when the capital stock of Henry Schein
was distributed to individuals (and certain trusts established by them) who
were holders (or beneficiaries of trusts and estates which were holders) of
SHI's common stock prior to September 30, 1994 ("Historical SHI
Stockholders").
The transactions related to the Restructuring were initiated in December
1992 when SHI contributed the net assets of Henry Schein to a newly formed
company which was owned by SHI. Schein Pharmaceutical, Inc. and Henry Schein
both issued common stock to their respective chief executive officers
("CEOs"), which were forfeitable if certain conditions were not satisfied, and
paid cash bonuses to reimburse them for the personal income tax effects of the
stock issuance and reimbursements. SHI subsequently issued shares of its
common stock in exchange for the Schein Pharmaceutical, Inc. stock issuance
and these shares were reflected in the 1992 financial statements.
The Restructuring continued in 1993, when Historical SHI Stockholders and
Company management agreed to a transaction whereby an investor would purchase
a portion of SHI's outstanding shares from Historical SHI Stockholders and
seek future strategic alliances (the "Minority Investor Transaction").
Following governmental regulatory review and Surrogate Court approval, the
closing occurred on September 30, 1994. The Restructuring transactions
recorded in 1994 are as follows:
(i) SHI distributed the shares of Henry Schein to the Historical SHI
Stockholders.
(ii) SHI issued 6,945 shares of its common stock in exchange for the
minority interest-redeemable stock in Schein Pharmaceutical, Inc.'s
subsidiaries. The $13.2 million fair value of the shares issued exceeded
the minority interest previously recorded by $7.3 million. Of this amount,
$5.5 million was classified as special compensation expense in 1994 (for
Schein Pharmaceutical, Inc. employees) and $1.8 million was recorded as a
distribution by the Company to Henry Schein (for the CEO of Henry Schein).
(iii) As a result of the Minority Investor Transaction described above,
the shares of common stock issued to the CEOs of the Company and Henry
Schein became free of the forfeiture provisions. Accordingly, the shares
were revalued using the September 30, 1994 fair value. The amounts relating
to (1) the Company's CEO totaled $18.6 million and was recorded as special
compensation expense, and (2) Henry Schein's CEO totaled $5.7 million, and
the excess of that amount over the 1992 fair value totaled $3.1 million,
which was recorded as a capital distribution.
(iv) SHI retained the services of investment banking and financial
advisory firms. Of the fees paid to these firms, $1.5 million was charged
to retained earnings, as such amount related to the Minority Investor
Transaction.
(v) SHI redeemed its outstanding preferred stock for $25.7 million,
paying $20.7 million in cash and canceling a $5.0 million loan to a
preferred stockholder.
(vi) SHI established a supplemental retirement program for its CEO and
recognized as current expense the Company's obligation under the plan,
estimated at $5.0 million. This liability is included in Other Liabilities
in the accompanying balance sheets.
F-10
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
Professional fees incurred by the Company of $4.2 million in 1994 in
connection with the Restructuring were recorded as restructuring expense.
NOTE 3--ACQUISITIONS AND INVESTMENTS IN INTERNATIONAL AFFILIATES
The Company acquired all the outstanding capital stock of Marsam
Pharmaceuticals Inc. ("Marsam") in September 1995 for $245.0 million in cash.
Marsam develops, manufactures and markets generic injectable prescription
drugs. The acquisition was accounted for as a purchase. The purchase price of
$245.0 million exceeded the book value of the net assets acquired by $193.0
million. Of the excess purchase price, $92.0 million was allocated to increase
the net assets acquired to fair value, principally related to regulatory
facility and product approvals. Acquired in-process Marsam research and
development projects were valued at $30.0 million and were expensed at the
time of the acquisition. Goodwill of $108.0 million, consisting of the
remaining excess purchase price of $71.0 million and a $37.0 million deferred
tax liability resulting from the write-up of the net assets to fair value. is
being amortized over 25 years. Marsam's results of operations have been
included in the consolidated statements of operations since the date of
acquisition.
The following summarized, unaudited pro forma results of operations for 1994
and 1995 assume the acquisition occurred as of the beginning of 1994. In
preparing the pro forma data, adjustments have been made for the amortization
of goodwill and other intangibles acquired, the interest expense related to
borrowing agreements to finance the purchase price and, in 1994 only, the
write-off of acquired in-process Marsam research and development projects.
Since the valuation of Marsam's net assets and in-process research and
development projects may have differed at January 1, 1994 from amounts
recorded at September 1, 1995, the information presented is not necessarily
indicative of results of operations that would have occurred had the
acquisition been consummated at the beginning of the respective periods, or of
future results of the combined companies.
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Net revenues....................................... $420,441 $417,041
Net income (loss).................................. (39,763) 5,781
</TABLE>
During 1995 and 1996, the Company invested approximately $3.5 million and
$2.0 million, respectively, and $0.2 million for the nine months ended
September 27, 1997, to acquire up to a 50% interest in each of several
international pharmaceutical businesses. These businesses are jointly owned
with subsidiaries of Bayer AG, the parent of Bayer Corp., a minority investor
in the Company. These investments are accounted for under the equity method
and are included in Other Assets in the accompanying balance sheets. The
Company recorded losses of approximately $0.3 million and $3.3 million in
fiscal 1995 and fiscal 1996, respectively, and $1.6 million and $2.7 million
for the nine months ended September 28, 1996 and September 27, 1997,
respectively, as its share of the operating results of these businesses.
Additionally, the Company incurred expenses of approximately $2.1 million and
$2.9 million in fiscal 1995 and fiscal 1996, respectively, and approximately
$2.0 million and $1.8 million for the nine months ended September 28, 1996 and
September 27, 1997, to identify, evaluate, and establish these and other
potential international business ventures. All equity losses and other
expenses resulting from the Company's investments in international businesses
in fiscal 1995 and fiscal 1996 are included in other expense, net, in the
accompanying statements of operations. The Company generally anticipates that
these international businesses will not have significant revenues or
operations for a period of two to three years, during which time the
businesses incur expenses to register products in anticipation of future
sales.
F-11
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
NOTE 4--INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Finished products.................... $ 47,874 $ 59,632 $ 50,223
Work in-process...................... 20,671 27,332 36,893
Raw materials and supplies........... 47,415 44,301 36,895
-------- -------- --------
$115,960 $131,265 $124,011
======== ======== ========
</TABLE>
NOTE 5--PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land................................ $ 4,725 $ 4,725 $ 4,725
Buildings and improvements.......... 60,770 63,019 63,829
Plant and office equipment.......... 85,126 97,825 100,521
Construction-in-progress............ 6,949 3,310 7,976
-------- -------- --------
157,570 168,879 177,051
Less: Accumulated depreciation and
amortization....................... 49,004 61,139 69,703
-------- -------- --------
$108,566 $107,740 $107,348
======== ======== ========
</TABLE>
Depreciation and amortization expense for property, plant and equipment
amounted to $8.3 million, $10.5 million, and $12.1 million in fiscal 1994,
fiscal 1995 and fiscal 1996, respectively, and $9.2 million and $8.5 million
for the nine months ended September 28, 1996 and September 27, 1997,
respectively.
NOTE 6--INTANGIBLE AND OTHER ASSETS
Product Rights, Licenses and Regulatory Approvals, net, consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Product rights and licenses.......... $ 8,522 $ 12,611 $ 12,522
Regulatory approvals, products....... 78,000 78,000 78,000
Regulatory approvals, facilities..... 10,000 10,000 10,000
------- -------- --------
96,522 100,611 100,522
Less: Accumulated amortization....... 1,956 7,926 12,420
------- -------- --------
$94,566 $ 92,685 $ 88,102
======= ======== ========
</TABLE>
Accumulated amortization of goodwill was $1.4 million, $5.8 million and $9.0
million at December 30, 1995, December 28, 1996 and September 27, 1997,
respectively.
F-12
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
Included in Other Assets in the accompanying balance sheets are marketable
securities consisting of equity securities of:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cost................................. $3,317 $ 5,660 $ 3,918
Gross unrealized gain................ 60 6,686 11,322
------ ------- -------
Fair value........................... $3,377 $12,346 $15,240
====== ======= =======
</TABLE>
Included in Other expenses (income), net for the nine months ended September
27, 1997, the Company recorded $9.9 million of realized gains of securities
sold.
NOTE 7--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Included in accounts payable are outstanding checks of approximately $5.4
million, $6.2 million and $5.0 million as of December 30, 1995, December 28,
1996 and September 27, 1997, respectively.
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Salaries and related expenses....... $15,398 $18,300 $17,703
Profit-sharing expenses............. 1,673 8,637 8,060
Other............................... 17,868 13,818 16,995
------- ------- -------
$34,939 $40,755 $42,758
======= ======= =======
</TABLE>
NOTES 8--TAXES ON INCOME
Provisions for Federal, state and Puerto Rico income taxes consist of the
following:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.............................. $15,786 $ 5,736 $7,404
State and Puerto Rico................ 5,700 1,662 1,129
------- ------- ------
21,486 7,398 8,533
------- ------- ------
Deferred:
Federal.............................. (3,497) 2,131 (2,215)
State and Puerto Rico................ (2,824) 953 (1,127)
------- ------- ------
(6,321) 3,084 (3,342)
------- ------- ------
$15,165 $10,482 $5,191
======= ======= ======
</TABLE>
F-13
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
Deferred tax assets and liabilities are classified as current and non-
current as follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred Taxes, Current:
Deferred tax assets........................... $ 9,764 $ 9,354
Deferred tax liabilities...................... (108) --
-------- --------
9,656 9,354
-------- --------
Deferred Taxes, Non-Current:
Deferred tax assets........................... 6,905 8,268
Deferred tax liabilities...................... (48,226) (48,434)
-------- --------
(41,321) (40,166)
-------- --------
$(31,665) $(30,812)
======== ========
</TABLE>
Differences between the Federal statutory rate and the Company's effective
tax rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory rate....................... $ 7,629 $(1,546) $2,309
State and Puerto Rico................ 1,869 1,722 241
Special compensation charges......... 5,553 -- --
Amortization of goodwill............. -- 505 1,515
Effect of partially tax-exempt
operations in Puerto Rico........... -- -- (519)
Equity in net loss of unconsolidated
affiliates.......................... -- -- 1,202
Write-off of acquired in-process
Marsam research and development..... -- 10,500 --
Other, net........................... 114 (699) 443
------- ------- ------
$15,165 $10,482 $5,191
======= ======= ======
</TABLE>
Temporary differences which give rise to a significant portion of deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross Deferred Tax Assets:
Inventory valuation.......................... $ 4,358 $ 5,220
Accounts receivable allowances............... 3,139 2,694
Net operating loss carryforwards, state and
Puerto Rico................................. 1,700 1,880
Deferred compensation expense................ 4,238 4,806
Other........................................ 3,126 3,022
-------- --------
16,561 17,622
-------- --------
Gross Deferred Tax Liabilities:
Write-up of acquired Marsam assets to fair
value....................................... (35,361) (32,692)
Depreciation and amortization................ (12,744) (12,461)
Unrealized gains from marketable securities.. -- (2,489)
Other........................................ (121) (792)
-------- --------
(48,226) (48,434)
-------- --------
$(31,665) $(30,812)
======== ========
</TABLE>
F-14
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
NOTE 9--BORROWINGS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving credit and term loan
agreement......................... $280,000 $186,000 $156,000
Senior subordinated loan........... -- 100,000 100,000
Capitalized lease obligations...... 558 480 413
-------- -------- --------
280,558 286,480 256,413
Less: Current Maturities........... 40,078 41,090 32,943
-------- -------- --------
$240,480 $245,390 $223,470
======== ======== ========
</TABLE>
In September 1995, the Company entered into a secured revolving credit and
term loan agreement (as amended, the "credit agreement") with a group of banks
to provide funds for the acquisition of Marsam, the repayment of certain of
its debt, working capital and general corporate purposes. The credit agreement
provided a term loan facility of $250.0 million and a revolving credit
facility of $100.0 million. In December 1996, the Company prepaid $100.0
million of the term loan portion of the credit agreement using the proceeds
from a new senior subordinated loan (see below). As a result of this payment
and a scheduled payment, the term loan facility was reduced to $145.0 million.
Quarterly principal payments on the term loan commence in September 1998 and
end in the year 2001. The revolving credit usage was $30.0 million, $41.0
million and $26.0 million as of December 30, 1995, December 28, 1996 and
September 27, 1997, respectively. The $100.0 million revolving credit line is
available through December 2001. Amounts borrowed under the revolving credit
facility are expected to be repaid during the next year and, accordingly, are
classified as current in the accompanying balance sheets.
Borrowings under the credit agreement bear interest, which is payable at
least quarterly, at a rate equal to the bank's floating base rate plus a
premium ranging from zero to 1.50%, or at a rate equal to LIBOR plus a premium
ranging from 0.75% to 2.50%, depending on the type of borrowing and the
Company's performance against certain criteria. The effective borrowing rate
was 7.14%, 8.10% and 7.80% at December 30, 1995, December 28, 1996 and
September 27, 1997, respectively. A commitment fee ranging from 0.25% to 0.50%
per annum of the unused daily amount of the total commitment is payable
quarterly.
Borrowings under the credit agreement are secured by a mortgage on all real
property, liens on inventory and receivables and a pledge of subsidiaries'
stock. The debt is guaranteed by the Company's domestic subsidiaries.
The credit agreement contains limitations and restrictions concerning
investments, acquisitions, capital expenditures, debt, liens, transactions
with stockholders, dividend payments and borrowings. In addition, the
agreement requires the Company to maintain minimum net worth levels and
certain ratios (as defined) of leverage to EBITDA, working capital and fixed
charge coverage. Amounts available for dividends as of December 28, 1996 were
not material.
In December 1996, the Company entered into an agreement for a $100.0 million
senior subordinated loan with a lead-manager of the credit agreement. The
proceeds of the loan were used to prepay principal on the term loan of the
credit agreement. The effective borrowing rate was 9.60% and 9.72% as of
December 28, 1996 and September 27, 1997, respectively. Outstanding borrowings
under the senior subordinated loan agreement bear interest, payable quarterly,
at a rate equal to LIBOR plus 4% or the bank's floating base rate plus 3%,
through January 31, 1998. Thereafter, the principal amount of the loan will be
increased to reflect related fees due and will mature in five years. Interest
will be due semi-annually and the interest rate will be fixed at a new rate.
See Note 17--Subsequent Events.
F-15
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
In connection with entering into the credit agreement, the Company incurred
costs of $5.9 million in 1995. During 1996, the Company incurred costs of $2.3
million in connection with entering into the senior subordinated loan and
amending the credit agreement. The Company capitalized these costs, which are
included in Other Assets in the accompanying balance sheets. The amounts
amortized in 1995 and 1996 were $0.7 million and $2.6 million, respectively.
At December 28, 1996, aggregate required principal payments for the
succeeding four years, the remaining term under existing long-term debt
agreements, excluding the revolving credit facility, are $15.3 million in
1998, $38.2 million in 1999, $45.8 million in 2000 and $45.8 million in 2001.
NOTE 10--COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Operating Leases
The Company leases facilities and equipment under operating leases expiring
through 2007. Some of the leases have renewal options and most contain
provisions for passing through certain incremental costs. At December 28,
1996, future net minimum annual rental payments under the noncancelable leases
are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 5,484
1998................................................................ 4,778
1999................................................................ 4,223
2000................................................................ 3,602
2001................................................................ 3,129
2002-2007........................................................... 14,145
-------
Total minimum lease payments........................................ $35,361
=======
</TABLE>
Total rental expense for the fiscal years ended 1994, 1995 and 1996 was
approximately $3.7 million, $4.7 million and $5.4 million, respectively and
$3.9 million and $4.1 million for the nine months ended September 28, 1996 and
September 27, 1997, respectively.
The Company has an agreement to lease warehousing space through September
1999, and then purchase this property for $5.3 million in October 1999. In
1997 the Company intends to exercise its option to purchase this property. The
property consists of a building of approximately 109,800 square feet on
approximately 8.5 acres of land. The purchase price includes a $0.3 million
deposit paid in 1994.
Employee Benefit Plans
During 1996, the Company merged its defined contribution retirement plans
into one plan. The discretionary contributions to the plan vest to employees
over several years. Additionally, employees are permitted to make pre-tax
contributions to the plan with the Company making matching contributions. The
contributions to these plans which were charged to operations, as determined
by the Board of Directors, amounted to approximately $4.2 million, $4.9
million and $3.5 million for the fiscal years ended 1994, 1995 and 1996,
respectively and $3.7 million and $4.7 million for the nine months ended
September 28, 1996 and September 27, 1997, respectively.
The Company has entered into deferred compensation agreements with certain
officers of the Company. As of December 1996, obligations under these
agreements were approximately $6.6 million, assuming the officers remain with
the Company over the vesting period of four years. These agreements provide
for accelerated vesting
F-16
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
if there is a change in control of the Company and under certain other
conditions. The Company expensed $2.7 million, $2.0 million, and $4.8 million
in the fiscal years ended 1994, 1995, and 1996, respectively, and $1.7 million
and $1.1 million in the nine months ended September 28, 1996 and September 27,
1997, respectively, in connection with these agreements.
The Company established an unfunded supplemental retirement program for its
CEO during 1994. The estimated obligation of $5.0 million is included in Other
Liabilities in the accompanying balance sheets.
The Company maintains a Book Equity Appreciation Rights Program (the
"Program") to allow certain employees to benefit from an increase in the
Company's book value as calculated according to a formula defined in the
Program. All participants are fully bested in their book equity appreciation
rights ("BEARs") and the Company does not intend to make any additional grants
of BEARs. Amounts charged to results of operations were not material in any
period presented.
Product Technology Licensing and Development
On September 1, 1994, the Company entered into a worldwide technology
licensing and development agreement with a U.K.-based pharmaceutical
development company for the development of a portfolio of oral controlled
release and/or transdermal products. Under the terms of the agreement, the
Company is obligated to pay product licensing fees and development costs
totaling $32.0 million, dependent on achievement of interim milestones. In
1994, the Company incurred obligations totaling $5.3 million under the
agreement, consisting of a $5.0 million licensing fee, which was capitalized,
and $0.3 million in development costs, which were charged to research and
development expense. The Company paid and expensed $2.1 million in development
costs in 1995. In 1996, the Company incurred obligations totaling $3.0
million, consisting of a $0.5 million licensing fee, which was capitalized,
and $2.5 million in development costs which were charged to research and
development expense. The remaining commitment under the agreement as of
December 28, 1996 was $21.6 million, subject to the completion of interim
milestones.
On September 30, 1996, the Company entered into a marketing and distribution
agreement with a corporation to jointly commercialize a certain product. Under
the terms of the agreement, the Company is obligated to pay product licensing
fees and development costs of $12.0 million, dependent on the achievement of
certain milestones. In 1996, the Company paid and capitalized a $2.0 million
product license fee.
Consulting Agreement
The Company has a series of agreements (collectively, the "Consulting
Agreement") with a patent attorney (the "Consultant"). Under the Consulting
Agreement, the Consultant, together with the Company, identified certain
patents on branded pharmaceutical products which might be susceptible to a
challenge and the Consultant acted as counsel to the Company in those
instances where it decided to proceed with a patent challenge.
The Consulting Agreement generally provides that if a challenge based on an
opinion of the Consultant results in either a favorable judicial determination
which enables the Company to market a generic version of the product or in a
settlement, the Company will pay the Consultant one half of the adjusted gross
profit (as defined) from its sales of the generic versions of the patented
product (until the date on which the patent would normally have expired) or
one half of the proceeds of any settlement.
In 1994, the Company settled two such patent challenges. One of the
settlements involved a license grant to the Company to market the product
which was the subject of the challenge beginning in 1996. The other allows for
future cash payments and/or license rights to the Company. In connection with
the second settlement, the Company received revenues of $5 and $12.5 million
in 1995 and 1996, respectively, and $12.5 million and $25.0 million in the
nine months ended September 28, 1996 and September 27, 1997, which are
included in Net revenues in the accompanying statements of operations.
F-17
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
Profit-sharing expenses pursuant to the Consulting Agreement and included in
Cost of sales were $2.5 million in fiscal 1995, $14.9 million in fiscal 1996
and $9.3 million and $24.5 million for the nine months ended September 28,
1996 and September 27, 1997, respectively. In 1994, there were no related
profit-sharing expenses.
CONTINGENCIES
Litigation
The Company is a defendant in several product liability cases. These cases
are typical for a company in the pharmaceutical industry. The Company also is
involved in other proceedings and claims of various types. Management
presently believes that the disposition of all such known proceedings and
claims, individually or in the aggregate, will not have a material adverse
effect on the Company's financial position, operations or liquidity.
NOTE 11--STOCKHOLDERS' EQUITY AND STOCK OPTIONS
Common Stock
The Company has Class A Common Shares ("Class A") and Class B Common Shares
("Class B"). Each of the two classes of stock are identical except that Class
B shares are currently non-voting. Upon the earlier occurrence of an initial
public offering or May 15, 1999, each authorized share of Class B will be
automatically reclassified as and converted into one new Class A share.
Upon the closing of the Company's planned initial public offering, the Class
A and Class B will convert on a one-for-one basis to new shares of the
Company's common stock.
At December 30, 1995, December 28, 1996 and September 22, 1997, the Company
had 183,722, 183,244 and 183,244 Class A issued and outstanding, respectively.
The Company had 90,020 Class B for all periods presented.
During 1996, the Company agreed to repurchase 478 Common Shares for
approximately $1.0 million from a former executive of the Company. These
shares were retired in 1996.
Stock Option Plan
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock- Based Compensation. SFAS No. 123 encourages
entities to adopt that method in place of the provisions of Accounting
Principles Board Opinion Number 25, Accounting for Stock Issued to Employees
("APB No. 25"), for all arrangements under which employees receive shares of
stock or other equity instruments of the employer or the employer incurs
liabilities to employees in amounts based on the price of its stock. The
Company continues to account for such transactions in accordance with APB No.
25 and, as required by SFAS No. 123, has provided pro forma information
regarding net income as if compensation cost for the Company's stock option
plan had been determined in accordance with the fair value method prescribed
by SFAS No. 123.
Under a 1993 Stock Option Plan, a 1995 Non-Employee Director Stock Option
Plan, and effective March 3, 1997, a 1997 Stock Option Plan the Company may
grant non-qualified and incentive stock options to certain officers, employees
and directors. The options expire ten years from the grant date. The options
may be exercised subject to continued service (three to five years) and
certain other conditions. Accelerated vesting occurs following a change in
control of the Company and under certain other conditions. The Company may
grant an aggregate of 55,797 shares under the plans. However, 3,503 shares
under the 1993 Stock Option Plan will not be granted.
F-18
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
The Company estimates the fair value of each stock option at the grant date
by using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1995 and 1996: no dividend yield,
expected volatility of 0.01%, risk free interest rates of 5% to 7%, expected
lives of 10 years and a discount for marketability of 25%. If compensation
cost for the Company's stock option plan had been determined in accordance
with SFAS No. 123, net income (loss) would have been reduced in 1995 and 1996
by approximately $1.0 million and $2.3 million, respectively.
The following table summarizes information about stock options outstanding
at December 28, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ---------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
NUMBER CONTRACTUAL AVERAGE NUMBER EXERCISE
OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE PRICE
----------- ------------ -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Exercise Prices
$1,000.00............. 1,859 6.9 $1,000.00 1,749 $1,000.00
$2,000.00............. 22,156 7.8 2,000.00 13,507 2,000.00
------ --- --------- ------ ---------
24,015 7.8 $1,922.49 15,256 $1,885.59
====== === ========= ====== =========
</TABLE>
Transactions under the stock option plans and individual non-qualified
options not under the plans are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
Shares under option at December 29, 1993............. 12,340 $1,838.85
Granted (at $2,000.00 per share)................... 5,094 2,000.00
Exercised.......................................... -- --
Canceled (at $2,000.00 per share).................. (1,078) 2,000.00
------ ---------
Shares under option at December 31, 1994............. 16,356 1,878.21
Granted (at $2,000.00 per share)................... 3,601 2,000.00
Exercised.......................................... -- --
Canceled (at $2,000.00 per share).................. (77) 2,000.00
------ ---------
Shares under option at December 30, 1995............. 19,880 1,900.35
Granted (at $2,000.00 per share)................... 4,887 2,000.00
Exercised.......................................... -- --
Canceled (at $1,000.00 to $2,000.00 per share)..... (752) 1,832.70
------ ---------
Shares under option at December 28, 1996............. 24,015 1,922.49
Granted (at $1,500.00 per share)................... 8,031 1,500.00
Exercised.......................................... -- --
Canceled (at $2,000.00 per share).................. (2,365) 2,000.00
------ ---------
Shares under option at September 27, 1997 (at
$1,000.00 to $2,000.00 per share)................... 29,681 $1,801.95
====== =========
Options exercisable at December
1994............................................... 8,951 $1,955.70
1995............................................... 10,780 $1,926.18
1996............................................... 15,256 $1,885.59
Weighted average fair value of options granted dur-
ing:
1995............................................... $ 915.12
1996............................................... $ 896.67
</TABLE>
F-19
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
The Company recorded deferred stock compensation of approximately $2.0
million in 1993, reflecting options granted with exercise prices at less than
fair value. This amount is being amortized over five years.
NOTE 12--SPECIAL COMPENSATION, RESTRUCTURING AND RELOCATION
Special compensation, restructuring and relocation expense in fiscal 1994
consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Special compensation--see Note 2............................. $23,582
Excess of fair value of shares exchanged or amounts paid on
exchange of minority interest............................... 5,457
Professional fees for Restructuring.......................... 4,215
Relocation of corporate headquarters......................... 340
-------
$33,594
=======
</TABLE>
NOTE 13--INTEREST EXPENSE, NET
Interest expense, net, consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
-------------------------------------- ---------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest expense........ $1,875 $10,150 $23,715 $16,165 $20,536
Interest income......... (382) (145) (430) (84) (80)
------ ------- ------- ------- -------
$1,493 $10,005 $23,285 $16,081 $20,456
====== ======= ======= ======= =======
</TABLE>
NOTE 14--RELATED PARTY TRANSACTIONS
In the conduct of its business, the Company sells pharmaceutical products to
Henry Schein for distribution to its customers. Net sales to Henry Schein were
$6.4 million, $5.3 million and $8.6 million in fiscal 1994, 1995 and 1996,
respectively, and $5.5 million and $5.4 million for the nine months ended
September 28, 1996 and September 27, 1997. Included in accounts receivable at
both December 30, 1995, December 28, 1996 and September 27, 1997 are amounts
due from Henry Schein for sale of products of approximately $0.9 million, $0.9
million and $0.8 million, respectively.
In 1994, the Company entered into a 3-year co-promotion agreement with Bayer
Corp. covering a certain product of the Company. Under the terms of the
agreement, in exchange for promotional support, the Company shared with Bayer
Corp. financial results in excess of specified threshold amounts. Included in
selling, general and administrative expenses, the Company recorded selling
expenses under the agreement of approximately $3.0 million in 1996 and $2.9
million for the nine months ended September 27, 1997. There were no selling
expenses under this agreement for 1994 and 1995. Included in Accrued expenses
in the accompanying balance sheet as of December 28, 1996 and September 27,
1997 are approximately $1.3 million and $1.7 million, respectively, of selling
expenses under the agreement.
NOTE 15--SUPPLEMENTAL CASH FLOW INFORMATION
In connection with the Restructuring (see Note 2), there were certain non-
cash transactions. In 1994, non-cash transactions were 1) the issuance of SHI
common stock in exchange for all minority interests in Schein Pharmaceutical's
subsidiaries, the formula value of which approximated $6.2 million, 2) a $1.8
million
F-20
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
distribution to Henry Schein for the excess of the fair value of the common
stock issued in exchange for the minority interest in Schein Pharmaceutical's
subsidiaries over amounts previously recorded, 3) a distribution of $3.1
million to Henry Schein in recognition of the adjusted fair value of the
Company's stock distributed in 1992, and 4) a $5.0 million cancellation of a
preferred stock stockholder loan in connection with the redemption of
preferred stock.
The Company paid taxes of approximately $22.8 million, $8.9 million and $5.8
million for the years ended 1994, 1995 and 1996, respectively. The Company
paid interest of approximately $1.5 million, $8.0 million and $23.2 million
for the years ended 1994, 1995 and 1996, respectively.
In 1994, the Company accrued a $3 million product licensing commitment which
was paid in early 1995. The amount was capitalized under Product Rights,
Licenses and Regulatory Approvals in the accompanying balance sheets.
As discussed in Note 3, the Company acquired all the capital stock of Marsam
for $245 million in 1995. In connection with the acquisition, liabilities were
assumed as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Fair value of assets acquired.................................. $ 293
Cash paid for Marsam stock..................................... (245)
-----
Liabilities assumed............................................ $ 48
=====
</TABLE>
As discussed in Note 11, the Company accrued approximately $1.0 million as
of December 28, 1996 in connection with the repurchase of 478 Common shares.
NOTE 16--MAJOR PRODUCT AND CUSTOMERS
One product generated 16%, 17% and 19% of net revenues for fiscal 1994, 1995
and 1996, respectively, and 17% and 20% for the nine months ended September
28, 1996 and September 27, 1997, respectively.
Four customers contributed 13%, 12%, 12% and 10%, respectively, of 1994 net
revenues. Three customers generated 13%, 11% and 10%, respectively, of 1995
net revenues, respectively. Three customers contributed 16%, 15% and 11%,
respectively, of 1996 net revenues. Three customers contributed 17%, 16% and
11%, respectively, of revenues for the period ended September 27, 1997. In all
periods, these customers are nationwide wholesalers through which the majority
of the Company's products are distributed to the retail, institutional and
managed care markets.
NOTE 17--SUBSEQUENT EVENTS
In November 1997, the Company entered into a Commitment Letter with an
investment banking firm providing for the issuance and sale of $100 million of
Senior Floating Rate Notes due 2004. Interest on the notes will be due
quarterly at a LIBOR-based rate. The Company expects this offering to be
completed in December 1997, at which time the proceeds will be used to retire
the existing $100 million senior subordinated loan (Note 9).
The Company has filed a registration statement covering an initial public
offering under which it anticipates raising net proceeds of approximately $45
million upon the sale of its common stock. If the offering is consummated, the
net proceeds will be used in whole or in part to pay down the Company's debt.
F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Marsam Pharmaceuticals Inc.
Cherry Hill, New Jersey
We have audited the accompanying consolidated balance sheets of Marsam
Pharmaceuticals Inc. and subsidiary as of December 31, 1994 and 1993, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Marsam
Pharmaceuticals Inc. and subsidiary as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
Coopers & Lybrand LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 24, 1995
F-22
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $10,470,300 $ 6,836,700
Investments available-for-sale, at fair market
value............................................. 4,710,000 8,341,900
Accounts receivable, net of reserves of $1,222,400
and $574,600 at December 31, 1994 and 1993........ 6,147,800 6,567,100
Inventory.......................................... 10,830,200 9,602,300
Deferred income taxes.............................. 526,400 --
Other current assets............................... 2,111,800 741,400
----------- -----------
Total current assets............................... 34,796,500 32,089,400
Property and equipment, net of accumulated
depreciation of $7,009,200 and $5,641,300 at
December 31, 1994 and 1993........................ 20,042,100 17,039,100
Deposits for property and equipment................ 250,000 253,600
Deferred income taxes.............................. 253,200 --
Other assets....................................... 1,520,100 --
----------- -----------
Total assets..................................... $56,861,900 $49,382,100
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 2,012,500 $ 1,095,600
Accrued compensation............................... 346,800 391,300
Accrued liabilities................................ 1,342,500 337,400
Deferred revenue................................... 1,175,000 --
----------- -----------
Total liabilities................................ 4,876,800 1,824,300
=========== ===========
Long-term liabilities:
Deferred compensation.............................. 813,800 533,600
Deferred income taxes.............................. 14,500 155,900
----------- -----------
Total liabilities................................ 5,705,100 2,513,800
=========== ===========
COMMITMENTS AND CONTINGENCIES (NOTE 8)
Stockholders' equity:
Preferred stock, par value $.01 per share;
authorized 1,000,000 shares....................... -- --
Common stock, par value $.01 per share; authorized
30,000,000 shares at December 31, 1993; issued and
outstanding 11,047,562 shares at December 31, 1994
and 11,017,986 shares at December 31, 1993........ 110,500 110,200
Additional paid-in capital......................... 51,739,500 51,093,900
Retained earnings (deficit)........................ (693,200) (4,335,800)
----------- -----------
Total stockholders' equity....................... 51,156,800 46,868,300
----------- -----------
Total liabilities and stockholders' equity..... $56,861,900 $49,382,100
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Net sales................................ $35,012,800 $23,500,900 $16,722,400
Cost of goods sold....................... 26,127,600 18,059,500 14,895,900
----------- ----------- -----------
Gross profit............................ 8,885,200 5,441,400 1,826,500
----------- ----------- -----------
Operating costs and expenses:
Selling, general and administrative..... 4,741,900 2,486,800 3,004,300
Research and development................ 2,536,500 2,009,100 2,702,300
----------- ----------- -----------
Total operating expenses................ 7,278,400 4,495,900 5,706,600
----------- ----------- -----------
Income (loss) from operations.......... 1,606,800 945,500 (3,880,100)
Other income, net........................ 1,903,000 1,067,400 1,034,700
----------- ----------- -----------
Income (loss) before income taxes...... 3,509,800 2,012,900 (2,845,400)
Provision for income taxes............... (132,800) 40,000 110,000
----------- ----------- -----------
Net income (loss)...................... $ 3,642,600 $ 1,972,900 $(2,955,400)
=========== =========== ===========
Net income (loss) per common and common
equivalent share........................ $ 0.33 $ 0.18 $ (0.27)
=========== =========== ===========
Weighted average common & common
equivalent
shares outstanding...................... 11,163,100 11,168,000 10,948,900
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
NO. OF PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
---------- -------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1992.......... 10,945,136 $109,500 $50,541,900 $(3,353,300)
---------- -------- ----------- -----------
Exercise of stock options.......... 10,275 100 53,800 --
Common stock grant................. 5,500 0 47,400 --
Net loss........................... -- -- -- (2,955,400)
---------- -------- ----------- -----------
BALANCES, DECEMBER 31, 1992........ 10,960,911 109,600 50,643,100 (6,308,700)
Exercise of stock options.......... 57,075 600 450,800 --
Net income......................... -- -- -- 1,972,900
---------- -------- ----------- -----------
BALANCES, DECEMBER 31, 1993........ 11,017,986 110,200 51,093,900 (4,335,800)
Exercise of stock options.......... 23,826 200 586,800 --
Common stock grant................. 5,750 100 58,800 --
Net income......................... -- -- -- 3,642,600
---------- -------- ----------- -----------
BALANCES, DECEMBER 31, 1994........ 11,047,562 $110,500 $51,739,500 $ (693,200)
========== ======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operations:
Net income........................... $ 3,642,600 $ 1,972,900 $ (2,955,400)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization........ 1,367,900 1,137,700 1,085,100
Inventory write-offs................. (113,900) (155,500) 280,500
Increase in accounts receivable
reserves............................ 647,800 574,600 --
Deferred compensation expense........ 280,200 206,300 253,000
Deferred tax provision (benefit)..... (555,900) 24,800 110,000
(Gain) loss on sale of property...... -- 5,300 (4,200)
Common stock grant................... 58,900 -- 47,400
(Increase) decrease in accounts
receivable.......................... (228,500) (5,929,200) 1,629,900
(Increase) in inventory.............. (1,114,000) (2,465,700) (4,913,100)
(Increase) in other assets........... (1,370,400) (311,100) (93,800)
Increase (decrease) in accounts
payable............................. 916,900 (436,300) 324,700
Increase (decrease) in accrued
expenses............................ 505,800 (840,900) 565,000
Increase (decrease) in deferred
revenue............................. 1,175,000 -- (101,800)
----------- ----------- ------------
Net Cash provided by operating ac-
tivities.......................... 5,212,400 (6,217,100) (3,772,700)
----------- ----------- ------------
Investment activities:
Purchase of investments "available-
for-sale"........................... (500,000) (3,628,300) (4,446,800)
Sale of investments "available-for-
sale"............................... 4,131,900 4,233,200 --
Purchase of property and equipment... (3,662,500) (1,151,400) (2,080,800)
Proceeds from sale of property....... -- -- 8,800
Deposits on property and equipment... (250,000) (150,400) (202,400)
Purchase of long-term investments.... (1,520,100) -- --
----------- ----------- ------------
Net Cash used in investment activi-
ties.............................. (1,800,700) (696,900) (6,721,200)
----------- ----------- ------------
Financing activities:
Proceeds from issuance of common
stock............................... 221,900 451,400 53,900
----------- ----------- ------------
Net cash provided by financing
activities.......................... 221,900 451,400 53,900
----------- ----------- ------------
Increase (decrease) in cash and cash
equivalents........................... 3,633,600 (6,462,600) (10,440,000)
Cash and cash equivalents, beginning of
period................................ 6,836,700 13,299,300 23,739,300
----------- ----------- ------------
Cash and cash equivalents, end of
period................................ $10,470,300 $ 6,836,700 $ 13,299,300
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS:
The Company was founded in 1985 and is engaged in the business of
developing, manufacturing, marketing and distributing generic injectable
prescription drug products. The Company markets penicillin, cephalosporin and
other injectable products.
The Company, prior to 1993, operated under joint venture agreements with
E.R. Squibb & Sons, Inc. ("Squibb") and Geneva Pharmaceuticals, Inc.
("Geneva"). Both joint ventures required the Company to manufacture its
products and ship them to its joint venture partner, with the partner then
being responsible for marketing and distributing the Company's products. The
joint venture agreement with Squibb (as amended, the "Joint Agreement") was in
place from December 1985 to June 1990, and was replaced with a restructure and
release agreement (the "Restructure Agreement") which required each party to
manufacture for the other certain products through May 1993. The Restructure
Agreement was later extended to December 31, 1994.
The joint venture agreement with Geneva (the "Distribution Agreement") was
executed in June 1990 and was in place until July 1992, at which time the
Company filed a complaint against Geneva asserting certain breaches by Geneva
of its fiduciary duties to the Company and of its contractual obligations
under the Distribution Agreement. The financial statements for 1992 include
approximately $1,100,000 of costs related to the termination of the
Distribution Agreement. In July 1993 the Company and Geneva executed a
settlement agreement (the "Settlement Agreement") which resolved the
outstanding litigation between the two companies. Pursuant to the Settlement
Agreement, Geneva paid the sum of $550,000 to the Company to balance the
accounts between the parties and in full settlement of all claims and
counterclaims. In 1993, as a result of the settlement, the Company reduced
previously accrued liabilities by approximately $600,000.
In 1993 the Company began to develop its own sales and marketing force to
sell its products under the Marsam label and other private labels. The Company
markets these products to pharmaceutical wholesalers and distributors,
hospitals, home infusion companies and other medical providers. In 1994, more
than 75% of revenues were from direct sales of Marsam-label products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation:
The consolidated financial statements include to accounts of Marsam
Pharmaceuticals Inc. and subsidiary. All intercompany transactions are
eliminated in consolidation investments in corporate joint ventures in which
the Company has a 20 to 50 percent ownership are accounted for by the equity
method. Other investments, less than 20 percent owned, are carried at their
original cost. Equity and cost investments are included in other assets in the
consolidated financial statements.
Revenue Recognition:
Sales to Geneva in 1992 were at a price equal to the estimated production
cost per unit plus 10% for products manufactured by Marsam and the amount per
unit actually paid plus 5% for sourced injectable products ("Transfer Price").
At the time of shipment to Geneva, revenue was recognized at the Transfer
Price less one-half of the applicable 10% or 5% profit. The portion of the
profit which was deferred was recognized as revenue when Geneva shipped the
Products. Net Proceeds were earned when the products were sold by Geneva. Net
Proceeds were to generally represent Geneva's net sales of the Products less
the applicable Transfer Price and certain specific distribution and operating
costs.
Principal Customers:
Sales to Squibb were $8,090,100, $8,126,500, and $7,375,800 for each of the
years ended December 31, 1994, 1993 and 1992, respectively.
F-27
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Sales to Geneva were $578,700 and $7,297,400 for the years ended December
31, 1993 and 1992, respectively.
Sales of Marsam label products are sold predominately through pharmaceutical
wholesalers to third parties under contract with the Company; thus, no one
customer comprises a significant portion of sales.
Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents, investments, and accounts receivable. The Company invests cash
and cash equivalents in savings and money market accounts of high credit
qualified financial institutions, as well as high credit commercial paper and
time deposits. Investments are placed in investment grade debt. Accounts
receivable are substantially comprised of amounts from sales to relatively few
large contract and wholesale customers. Credit limits, ongoing credit
evaluation and account monitoring procedures are utilized to minimize the risk
of loss. Collateral is generally not required.
Cash Equivalents:
Cash equivalents consist of those securities with maturities of three months
or less when purchased.
Investments:
Effective January 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." There was no cumulative effect of adopting
SFAS 115 as of January 1, 1994, and prior period financial statements have not
been restated. At December 31, 1994 the Company owned current "available-for-
sale" marketable securities which are carried at fair market value on the
balance sheet. Unrealized gains or losses are recorded directly to
stockholders equity, net of applicable income taxes. At December 31, 1994,
there were no unrealized gains or losses related to these securities, as the
cost was equal to fair value on that date.
Prior to 1994, the Company recorded investments in marketable securities at
the lower of cost or fair market value. At December 31, 1993, the Company had
investments with a cost equal to their fair market value.
For the years ending December 31, 1994, 1993, and 1992, the Company realized
interest and dividend income of $732,100, $521,100 and $990,700, respectively,
which is included in other income.
Inventories:
Inventories are stated at the lower of cost or market. Cost is determined by
the first in, first out method.
Property and Equipment:
Property and equipment is stated at cost. Depreciation of property and
equipment is computed using the straight-line method based on the estimated
useful lives of the assets, which range from five to forty years. Amortization
of leasehold improvements is recorded ratably over the remaining lease term or
useful life, if shorter.
Maintenance and repairs are charged to expense as incurred; major renewals
and improvements are capitalized. Gains or losses on the disposition of fixed
assets are reflected in income.
Income Taxes:
The Company records deferred taxes by using the asset and liability method.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets
F-28
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized. Federal tax credits are recognized as
deferred tax assets.
Net Income (Loss) per Share:
Net income (loss) per share was calculated based upon the weighted average
common and common equivalent shares outstanding. Common share equivalents
included in the calculation represent shares issuable upon assumed exercise of
stock options which would have a dilutive effect in years where there are
earnings. Equivalents had no material effect on the computation in 1994, 1993,
or 1992.
Statements of Cash Flows:
At December 31, 1994, 1993 and 1992, approximately $454,800, $85,900 and
$279,700, respectively of amounts payable relating to the acquisition of
property and equipment were excluded from the statement of cash flows. In 1994
and 1992, the Company paid income taxes of $5,200 and $5,800, respectively.
3. INVENTORY:
At December 31, 1994 and 1993, inventory consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1994 1993
----------- ----------
<S> <C> <C>
Raw materials (including components)................. $ 5,954,700 $6,294,900
Work-in-process...................................... 95,900 379,700
Finished goods....................................... 4,779,600 2,927,700
----------- ----------
$10,830,200 $9,602,300
=========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT:
At December 31, 1994 and 1993, property and equipment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
----------- -----------
<S> <C> <C>
Land................................................ $ 548,000 $ 348,000
Building and improvements........................... 10,297,900 6,668,800
Machinery and equipment............................. 9,850,400 7,445,700
Furniture and fixtures.............................. 907,500 818,600
Vehicles............................................ 84,800 84,800
Machinery and equipment and leasehold improvements
under installation................................. 5,362,700 7,314,500
----------- -----------
27,051,300 22,680,400
Less accumulated depreciation and amortization...... 7,009,200 5,641,300
----------- -----------
$20,042,100 $17,039,100
=========== ===========
</TABLE>
F-29
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES:
The provision for (benefit from) income taxes for the years ended December
31, 1994, 1993, and 1992 includes to following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993 1992
--------- ------- --------
<S> <C> <C> <C>
Current provision:
Federal....................................... $ 423,100 $15,200 $ --
State......................................... -- -- --
Deferred provision (benefit):
Federal....................................... $(514,900) $13,900 $110,000
State......................................... (41,000) 10,900 --
--------- ------- --------
$(132,800) $40,000 $110,000
========= ======= ========
</TABLE>
In 1994 and 1993, current federal income tax expense was generated on
alternative minimum taxable income. The current federal income tax provisions
on earnings for 1994 and 1993 were offset by the utilization of federal net
operating loss carryforwards. Utilization of federal net operating loss
carryforwards in 1994, created by tax expense for employee stock options,
resulted in a $365,100 increase to additional paid-in capital. There was no
current federal income tax provision for 1992, due to the loss incurred by the
Company. A deferred federal income tax benefit arose in 1994 due to the
recognition of the Company's deferred tax assets. In the fourth quarter of
1994, a net $300,000 benefit was recognized due to a reduction in the deferred
tax asset valuation allowance. A deferred federal income tax provision arose
in 1993 and 1992 from temporary differences on which net operating loss
carryforwards could not be utilized. At December 31, 1994, the Company had
utilized the balance of its net operating loss carryforwards for federal tax
purposes. At December 31, 1994 the Company had utilized the balance of its
alternative minimum tax net operating loss carryforwards and had available
alternative minimum tax credit carryforwards of $198,600 which do not expire.
The current state income tax provisions for 1994 and 1993 were offset by
utilization of state net operating loss carryforwards. There was no current
state income tax provision for 1992 due to the loss incurred by the Company.
In 1994, a deferred state income tax benefit arose from the recognition of the
Company's deferred tax assets. In 1993, a deferred state income tax provision
arose from temporary differences on which net operating loss carryforwards
could not be utilized. At December 31, 1994, the Company had available state
net operating loss carryforwards of $1,877,600 to offset future state taxable
income. The state net operating loss carryforwards expire 1996 through 1999.
F-30
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the net deferred income tax asset (liability) at December
31, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
---------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards
Federal.......................................... $ -- $ 1,523,900
State............................................ 169,000 391,100
Federal tax credits............................... 936,600 402,100
Accounts receivable, inventory and other
reserves......................................... 624,300 339,400
Deferred revenue.................................. 399,500 --
Other............................................. 462,900 322,100
---------- -----------
2,592,300 2,978,600
Valuation allowance............................... (867,400) (2,630,900)
---------- -----------
Deferred tax assets.............................. 1,724,900 347,700
---------- -----------
Deferred tax liabilities:
Depreciation...................................... 529,400 390,500
Other............................................. 430,400 113,100
---------- -----------
Deferred tax liabilities......................... 959,800 503,600
---------- -----------
Net deferred income tax asset (liability)........ $ 765,100 $ (155,900)
========== ===========
</TABLE>
6. SETTLEMENT AGREEMENT WITH GREAT LAKES CHEMICAL CORPORATION:
On July 18, 1994, the Company and Great Lakes Chemical Corporation ("GLCC")
executed a comprehensive settlement agreement which resolved the outstanding
litigation between them concerning the failure of GLCC to supply the Company
certain raw materials in accordance with the agreement between them. Under the
terms of the settlement, GLCC paid $2.35 million to the Company and agreed to
begin supplying the Company with an inhaled anesthetic raw material commencing
upon the availability of production quantities from its existing facility and
continuing for at least five years after completion of a new, larger
production facility. The payment received by the Company on July 19, 1994, is
being ratably recognized as income during the period of July 1, 1994 through
June 30, 1995, the period during which the Company expected to market the
product but will be unable to market because of GLCC'S failure to supply the
raw material. For the year ended December 31, 1994, the Company recognized
$1,175,000, of the $2.35 million received from GLCC, as other income. The
balance of $1,175,000 is included as deferred revenue at December 31, 1994.
If GLCC fails to deliver agreed quantities of product by specified dates, or
if the product does not receive FDA approval by July 15, 1995, the Company is
entitled to be reimbursed for lost profits associated with the inability of
the Company to market the product. Such payments can be received until January
15, 1998.
7. INVESTMENT IN BUSINESS:
On September 23, 1994, the Company purchased, for $1,500,000, a minority
equity interest in Sabratek Corporation ("Sabratek"), a medical device
manufacturer. The Company received one million shares of cumulative
convertible preferred stock of Sabratek in return for its investment. The
Company has committed to an additional investment of $500,000 provided that
Sabratek achieves certain goals. The Company has also received warrants to
purchase an additional 1.5 million shares of Sabratek. The Company accounts
for this investment under the cost method, as the Company has a less than 20%
interest in Sabratek.
F-31
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
Purchase Commitments:
At December 31, 1994 and 1993, commitments for capital expenditures
approximated $638,000 and $1,592,000, respectively, relating to the purchase
of equipment for the Company's manufacturing facilities.
In January 1994, the Company entered into an agreement to lease warehousing
space on an adjacent property for a 3 year term (67,800 square feet for the
first two years and 109,800 square feet for the final year), expiring February
28, 1997. Future minimum rental payments under the lease are $158,500,
$252,800 and $45,200 in 1995, 1996 and 1997, respectively. The Company has
agreed to purchase this property, which consists of a building of
approximately 109,800 square feet on approximately 8.8 acres of land, in March
1997. The purchase price is $5,319,000 and includes a $250,000 deposit which
was paid during 1994, and two installment payments of $3,000,000 in March 1997
and $2,069,000 in October 1997.
Total rent expense for the years ended December 31, 1994, 1993, and 1992
aggregated $166,700, $78,300 and $70,700.
Product Liability:
The Company has product liability insurance for $5 million per occurrence,
$5 million in the aggregate on a claims made basis. Management is not aware of
any occurrences which could give rise to a product liability claim.
9. CAPITAL TRANSACTIONS:
Stock Option Plan:
On December 6, 1986, the Company adopted a Stock Option Plan (the "1986
Stock Option Plan"), under which an aggregate of 675,000 shares of Common
Stock could have been issued pursuant to nonqualified and incentive stock
options granted to certain officers, employees, directors, consultants and
advisors. Options were granted at an exercise price not less than the fair
market value of the shares on the date of grant. Such options generally became
exercisable in equal installments over a four-year period. Options issued
prior to 1992 expire 5 years from the date of grant. Subsequent options expire
10 years from the date of grant.
On May 26, 1993, the Company adopted a new Stock Option Plan (the "1993
Stock Option Plan"), under which an aggregate of 750,000 shares of Common
Stock may be issued pursuant to nonqualified and incentive stock options
granted to certain officers, employees, directors, consultants and advisors.
All options granted May 26, 1993 and later are from the 1993 Stock Option
Plan. Options under the 1993 Stock Option Plan may be granted at an exercise
price not less than the fair market value of the shares on the date of grant.
Such options generally become exercisable in equal installments over a four-
year period. Options expire 10 years from the date of grant.
F-32
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of share transactions under the Company's Stock Option Plans
follows:
<TABLE>
<CAPTION>
1993 PLAN 1986 PLAN
--------- ---------
<S> <C> <C>
Balances at December 31,
1991 ($4.33-13.75 per
share).................. -- 129,975
Granted ($8.63-14.00 per
share).................. -- 356,250
Exercised ($4.33-10.00
per share)............. -- (10,275)
Canceled ($8.00-14.00
per share)............. -- (8,125)
------- -------
Balances at December 31,
1992 ($4.33-14.00 per
share).................. -- 467,825
Granted ($9.00-22.00 per
share)................. 301,800 102,800
Exercised ($4.33-14.00
per share)............. -- (57,075)
Canceled ($4.33-16.25
per share)............. (3,500) (22,775)
------- -------
Balances at December 31,
1993 ($8.00-22.00 per
share).................. 298,300 490,775
Granted ($11.00-20.25
per share)............. 142,000 --
Exercised ($8.00-14.00
per share)............. -- (23,826)
Canceled ($8.63-19.88
per share)............. (11,700) (4,500)
------- -------
Balances at December 31,
1994 ($8.00-22.00 per
share).................. 428,600 462,449
======= =======
</TABLE>
Total options exercisable under both plans at December 31, 1994 were
292,987. The total number of shares available for option under both plans were
321,400, 451,700 and 132,700 as of December 31, 1994, 1993 and 1992,
respectively.
F-33
<PAGE>
MARSAM PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1995 1994
------------ ------------
<S> <C> <C>
Net revenues......................................... $ 21,310,900 $ 15,619,000
Cost of goods sold................................... 15,589,100 11,337,900
------------ ------------
Gross profit....................................... 5,721,800 4,281,100
------------ ------------
Operating costs and expenses:
Selling, general and administrative................ 2,789,000 2,266,100
Research and development........................... 1,818,100 1,079,500
------------ ------------
Total operating expenses......................... 4,607,100 3,345,600
------------ ------------
Income from operations........................... 1,114,700 935,500
Other income, net.................................... 1,587,000 304,300
------------ ------------
Income before income taxes....................... 2,701,700 1,239,800
Provision for income taxes....................... 810,400 40,000
------------ ------------
Net income......................................... $ 1,891,300 $ 1,199,800
============ ============
Net income per common & common equivalent share...... $ 0.17 $ 0.11
============ ============
Fully diluted weighted average common & common
equivalent shares outstanding....................... 11,454,800 11,158,200
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE>
MARSAM PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1995
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 8,131,600
Investments available-for-sale, at fair market value........... 7,010,000
Accounts receivable, net of reserves of $1,867,400............. 5,958,800
Inventory...................................................... 14,871,300
Deferred income taxes.......................................... 473,800
Other current assets........................................... 2,054,000
-----------
Total current assets......................................... 38,499,500
Property and equipment, net of accumulated depreciation of
$7,857,600.................................................... 20,691,700
Deposits for property and equipment............................ 431,300
Deferred income taxes.......................................... 208,400
Other assets................................................... 1,482,700
-----------
Total assets................................................. $61,313,600
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 4,501,300
Accrued compensation........................................... 508,700
Accrued liabilities............................................ 1,811,900
Deferred revenue............................................... --
-----------
Total current liabilities.................................... 6,821,900
Long-term liabilities:
Deferred compensation.......................................... 966,600
Deferred income taxes.......................................... 49,400
-----------
Total liabilities............................................ 7,837,900
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized
1,000,000 shares.............................................. --
Common stock, par value $.01 per share; authorized
30,000,000 shares; issued and outstanding 11,083,487.......... 110,800
Additional paid-in capital..................................... 52,166,800
Retained earnings.............................................. 1,198,100
-----------
Total stockholders' equity..................................... 53,475,700
-----------
Total liabilities and stockholders' equity................... $61,313,600
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operations:
Net income....................................... $ 1,891,300 $ 1,199,800
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 848,400 617,400
Deferred compensation expense.................... 152,800 108,000
Deferred tax provision........................... 132,300 16,000
Decrease in accounts receivable.................. 189,000 1,533,100
(Increase) in inventory.......................... (4,041,100) (738,500)
(Increase) (decrease) in other assets............ 95,200 (807,800)
Increase in accounts payable..................... 2,424,000 2,951,400
Increase in accrued expenses..................... 631,300 181,800
(Decrease) in deferred liabilities............... (1,175,000) --
------------ ------------
Net cash provided by operating activities...... 1,148,200 5,061,200
------------ ------------
Investment activities:
Purchase of investments available-for-sale....... (2,800,000) --
Sale of investments available-for-sale........... 500,000 1,325,400
Purchase of property and equipment............... (1,433,200) (351,500)
Deposits on property and equipment............... (181,300) (1,128,400)
------------ ------------
Net cash used in investment activities......... (3,914,500) (154,500)
------------ ------------
Financing activities:
Proceeds from issuance of common stock........... 427,600 213,200
------------ ------------
Net cash provided by financing activities...... 427,600 213,200
------------ ------------
Increase (decrease) in cash and cash equivalents... (2,338,700) 5,119,900
Cash and cash equivalents, beginning of period..... 10,470,300 6,836,700
------------ ------------
Cash and cash equivalents, end of period........... $ 8,131,600 $ 11,956,600
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE>
MARSAM PHARMACEUTICALS INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Marsam
Pharmaceuticals Inc. and Subsidiary have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the applicable regulations of the Securities and Exchange Commission.
Accordingly, the accompanying unaudited consolidated financial statements do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have been included. For
further information, reference is made to the financial statements and
footnotes thereto included herein.
The consolidated financial statements include the accounts of Marsam
Pharmaceuticals Inc. and Subsidiary. All intercompany transactions are
eliminated in consolidation. Investments in corporate joint ventures in which
the Company has a 20 to 50 percent ownership are accounted for by the equity
method. Other investments, less than 20 percent owned, are carried at their
original cost. Equity and cost investments are included in other assets in the
consolidated financial statements.
2. INVENTORY
At June 30, 1995, inventory consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, 1995
-------------
<S> <C>
Raw Materials (including components)......................... $ 7,623,200
Work-in-process.............................................. 366,800
Finished goods............................................... 6,881,300
-----------
$14,871,300
===========
</TABLE>
3. SETTLEMENT AGREEMENT WITH GREAT LAKES CHEMICAL CORPORATION
On July 18, 1994, the Company and Great Lakes Chemical Corporation (GLCC)
executed a comprehensive settlement agreement which resolved the outstanding
litigation between them concerning the failure of GLCC to supply the Company
certain raw materials. Under the terms of the settlement, GLCC paid $2.35
million to the Company and agreed to begin supplying the Company with the
inhaled anesthetic raw material commencing upon the availability of production
quantities from its existing facility and continuing for at least five years
after completion of a new, larger production facility. The payment, received
by the Company on July 19, 1994, was ratably recognized as income during the
period of July 1, 1994 through June 30, 1995, the period during which the
Company originally expected to launch the product. For the three and six-month
periods ended June 30, 1995, the Company recognized $587,500 and $1,175,000,
respectively, of the $2.35 million received from GLCC, as other income.
If GLCC fails to deliver agreed quantities of product by specified dates the
Company is entitled to be reimbursed for lost profits associated with the
inability of the Company to market the product. Such payments can be received
until January 15, 1998.
4. INCOME TAXES
The provision for income tax expenses is based on an estimated full year
effective income tax rate. The rate reflects the Company's utilization of
certain federal tax credits and its federal and state net operating loss
carryforwards during 1995. The provision for income tax for the same periods
in 1994 was insignificant due to the availability of federal and state net
operating loss carryforwards.
F-37
<PAGE>
MARSAM PHARMACEUTICALS INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
5. NET INCOME PER SHARE
Net income per share is based on fully diluted weighted average common and
common equivalent shares outstanding for the three and six-month periods ended
June 30, 1995 and 1994.
F-38
<PAGE>
ANNEX A
FORM OF TRANSFEREE LETTER OF REPRESENTATION
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, NJ 07932
Attn: Chief Financial Officer
Ladies and Gentlemen:
This certificate is delivered to request a transfer of $ principal
amount of the Senior Floating Rate Notes Due 2004 (the "Notes") of Schein
Pharmaceutical, Inc. (the "Company").
Upon transfer, the Notes would be registered in the name of the new
beneficial owner as follows:
Name: _________________________________________________________
Address: ______________________________________________________
Taxpayer ID Number: ___________________________________________
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined in Rule
501(a)(1),(2),(3) or (7) under the Securities Act of 1933, as amended (the
"Securities Act")) purchasing for our own account or for the account of such
an institutional "accredited investor" at least $250,000 principal amount of
the Notes, and we are acquiring the Notes not with a view to, or for offer or
sale in connection with, any distribution in violation of the Securities Act.
We have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risk of our investment in the Notes
and we invest in or purchase securities similar to the Notes in the normal
course of our business. We and any accounts for which we are acting are each
able to bear the economic risk of our or its investment.
2. We understand that the Notes have not been registered under the
Securities Act and, unless so registered, may not be sold except as permitted
in the following sentence. We agree on our own behalf and on behalf of any
investor account for which we are purchasing Notes to offer, sell or otherwise
transfer such Notes prior to the date which is two years after the later of
the date of original issue and the last date on which the Company or any
affiliate of the Company was the owner of such Notes (or any predecessor
thereto) (the "Resale Restriction Termination Date") only (a) to the Company,
(b) pursuant to a registration statement which has been declared effective
under the Securities Act, (c) in a transaction complying with the requirements
of Rule 144A under the Securities Act, to a person we reasonably believe is a
qualified institutional buyer under Rule 144A (a "QIB") that purchases for its
own account or for the account of a QIB and to whom notice is given that the
transfer is being made in reliance on Rule 144A, (d) pursuant to offers and
sales that occur outside the United States within the meaning of Regulation S
under the Securities Act, (e) to an institutional "accredited investor"
(within the meaning of Rule 501(a)(1),(2),(3), or (7) under the Securities
Act) that is purchasing for its own account or for the account of such an
institutional "accredited investor", in each case in a minimum principal
amount of Notes of $250,000 or (f) pursuant to any other available exemption
from the registration requirements of the Securities Act, subject in each of
the foregoing cases to any requirement of law that the disposition of our
property or the property of such investor account or accounts be at all times
within our or their control and in compliance with any applicable state
securities laws. The foregoing restrictions on resale will not apply
subsequent to the Resale Restriction Termination Date. If any resale or other
transfer of the Notes is proposed to be made pursuant to clause (e) above
prior to the Resale Restriction Termination Date, the transferor shall deliver
a letter from the transferee substantially in the form of this letter to the
Company and the Trustee, which shall provide, among other things, that the
transferee is an institutional "accredited investor" (within the meaning of
Rule 501(a)(1),(2),(3) or (7) under the Securities Act) that is acquiring such
Notes for investment purposes and not for distribution in violation of the
Securities Act. Each purchaser acknowledges that the Company and the Trustee
reserve the right prior to any offer, sale or other transfer prior to the
Resale Termination Date of the Notes pursuant to clause (d),(e) or (f) above
to require the delivery of an opinion of counsel, certifications and/or other
information satisfactory to the Company and the Trustee.
A-1
<PAGE>
3. We agree on our own behalf and on behalf of any investor account for
which we are purchasing the Notes that (i) if it is an insurance company, the
funds to be used to purchase the Notes by it constitute (A) assets of an
insurance company general account maintained by it and the acquisition and
holding of each such Note by such account is exempt under United States
Department of Labor Prohibited Transaction Class Exemption ("PTCE") 95-60 or
(B) assets of an insurance company pooled separate account and the acquisition
and holding of each such Note by such account is exempt under PTCE 90-1, and
(ii) no part of the funds to be used to purchase the Notes to be purchased by
it constitute assets of any plan or employee benefit plan such that the use of
such assets constitutes a non-exempt prohibited transaction under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or the Internal
Revenue Code of 1986, as amended (the "Code"). The representation is based
upon the purchaser's determination that a statutory or administrative
exemption is applicable or that the Company and its Affiliates are not parties
in interest or disqualified persons with respect to the purchaser or holder
plan or employee benefit plan. As used in this paragraph, the terms "employee
benefit plan" and "party in interest" shall have the meanings assigned to such
terms in Section 3 of ERISA, the term "Affiliate" shall have the meaning
assigned to such term in Section 407(d)(7) of ERISA and the terms
"disqualified person" and "plan" shall have the meanings assigned to such
terms in Section 4975 of the Code.
TRANSFEREE: _________________________
By: _________________________________
Name:
Title:
A-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations other than those contained in this Offering Memorandum, and,
if given or made, such information or representations must not be relied upon
as having been authorized. This Offering Memorandum does not constitute an
offer to sell or the solicitation of an offer to buy any securities other than
the securities to which it relates or any offer to sell or the solicitation of
an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this Offering Memorandum nor
any offer or sale made hereunder shall, under any circumstances, create an
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
time subsequent to its date.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Offering Memorandum Summary............................................... 1
Risk Factors.............................................................. 9
The Company............................................................... 18
Use of Proceeds........................................................... 18
Capitalization............................................................ 19
Selected Consolidated Financial Data...................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 30
Management................................................................ 44
Certain Transactions...................................................... 52
Description of Certain Indebtedness....................................... 57
Description of Notes...................................................... 58
Exchange and Registration Rights Agreement................................ 84
Transfer Restrictions..................................................... 87
Certain Federal Income Tax Consequences................................... 90
Plan of Distribution...................................................... 92
Independent Public Accountants............................................ 94
Legal Matters............................................................. 94
Available Information..................................................... 94
Index to Consolidated Financial Statements................................ F-1
Form of Transferee Letter of Representation............................... A-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$100,000,000
[LOGO] SCHEIN PHARMACEUTICAL
SENIOR FLOATING RATE NOTES
DUE 2004
------------------
OFFERING MEMORANDUM
------------------
SOCIETE GENERALE
SecuritiesCorporation
December 19, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT 5.1
PROSKAUER ROSE LLP
1585 BROADWAY
NEW YORK, NEW YORK 10036-8299
March , 1998
The Board of Directors
Schein Pharmaceutical, Inc.
100 Campus Drive, Suite 375
Florham Park, New Jersey 07932
Ladies and Gentlemen:
You have requested our opinion in connection with the filing by Schein
Pharmaceutical, Inc., a Delaware corporation (the "Company"), with the
Securities and Exchange Commission of a Registration Statement on Form S-1
(the "Registration Statement") under the Securities Act of 1933 (the
"Securities Act") with respect to 3,450,000 shares of common stock, $.01 par
value per share, of the Company (the "Shares").
We have examined such documents as we have considered necessary for this
opinion. In that connection, we have assumed, without investigation, the
authenticity of any document submitted to us as an original, the conformity to
originals of any document submitted to us as a copy, the authenticity of the
originals of such latter documents, the genuineness of all signatures and the
legal capacity of natural persons signing such documents.
Based upon the foregoing, it is our opinion that the Shares have been duly
authorized and are, and, in the case of the Shares to be issued by the
Company, when such Shares are issued and delivered in accordance with the
underwriting agreement described in the Registration Statement, will be,
validly issued, fully paid and nonassessable.
This opinion is limited to the General Corporation Law of the State of
Delaware and does not purport to express any opinion on any other laws.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the prospectus contained in the Registration Statement. In
so doing, we do not admit that we are in the category of persons whose consent
is required under Section 7 of the Securities Act or the rules and regulations
of the Securities and Exchange Commission thereunder.
Very truly yours,
<PAGE>
EXHIBIT 9.1
VOTING TRUST AGREEMENT
Dated September 30, 1994
------------------------
The parties to this agreement are Schein Holdings, Inc., a New York
corporation (the "Company"), Marvin H. Schein, the trust established by Marvin
H. Schein under trust agreement dated December 31, 1993 ("Marvin's 1993 Trust"),
the trust established by Marvin H. Schein under trust agreement dated September
9, 1994 ("Marvin's 1994 Trust"), Pamela Schein, the trust established by the
Trustees under Article Fourth of the Will of Jacob H. Schein for the benefit of
Pamela Schein and her issue under trust agreement dated September 29, 1994 ("Pam
Schein's Issue's Trust"), Pamela Joseph, and the trust established by Pamela
Joseph under trust agreement dated September 28, 1994 ("Pam Joseph's Issue's
Trust") (collectively, the "Shareholders"), and Martin Sperber, as voting
trustee (in such capacity and together with his successors designated in
accordance with section 5, the "Trustee").
The Shareholders own an aggregate of 184,590 shares of the Company's
common stock (the "Shares") and are parties to a general shareholders agreement
and a continuing shareholders agreement (the "Continuing Shareholders
Agreement"), each dated this date (collectively, the "Shareholders Agreements").
The parties agree as follows:
<PAGE>
1. Shares Held in Trust.
--------------------
1.1 Transfer of Shares to Voting Trustee. Simultaneously with the
------------------------------------
execution of this agreement, (a) the Shareholders are delivering to the
secretary of the Company, for cancellation, stock certificates (together with
stock powers executed in blank) for the Shares, free and clear of any claim,
lien, security interest or other encumbrance (a "Lien"), other than Liens
imposed upon such Shares by the Shareholders Agreements and this agreement, and
(b) the Company is issuing and delivering to the Trustee a stock certificate for
184,590 shares of common stock of the Company, registered in the name of the
Trustee, in his capacity as such, and legended to indicate that such shares are
subject to this agreement (which fact also shall be stated in the stock ledger
of the Company). (The shares so issued to the Trustee, together with
any additional securities referred to in section 3, are referred to collectively
as the "Trust Shares.")
1.2 Voting Trust Certificates. Simultaneously with the execution of
-------------------------
this agreement, the Trustee is issuing and delivering to each Shareholder a
trust certificate (a "Trust Certificate") for the number of shares delivered by
that Shareholder under section 1.1(a). The Trustee shall cause accurate records
to be kept setting forth the name and address of each holder of trust
certificates, the number of Trust Shares represented by each trust certificate,
any dividends or other payments or distributions made in respect of the Trust
Shares and
2
<PAGE>
transfers of Trust Shares permitted by this agreement. Such list and record
shall be open at all reasonable times to the inspection of the Company's
shareholders and the holder(s) of trust certificates. The trust certificates
shall be in the form of exhibit A.
1.3 Trustee to Hold Subject to Agreement. The Trustee shall hold
------------------------------------
and vote (including, for all purposes of this agreement, the giving of consent)
the Trust Shares in accordance with this agreement.
2. Authority of Trustee to Vote the Shares.
---------------------------------------
2.1 Authority. The Trustee shall have full and exclusive power and
---------
authority to vote the Trust Shares in person or by proxy as set forth in section
2.2 (or to refrain from voting) at all meetings of the shareholders of the
Company or by written consent in lieu of such meetings, including, without
limitation, (a) for the election of directors, (b) with respect to matters as to
which the Trustee may have a conflict of interest (provided the Trustee
discloses to the board of directors of the Company and the Shareholders before
any such vote any direct or indirect material financial interest or other
material interest of the Trustee (other than solely by reason of his status as
an officer, director or shareholder of the Company or solely by reason of his
status as Trustee under this agreement) in any matter to be voted on (a
"Conflict Transaction")) and (c) with respect to all other matters for which
shares of the Company's common stock are
3
<PAGE>
entitled to vote. The Trustee shall use his best efforts to give the
Shareholders not fewer than 48 hours' prior written notice of any such meeting
or execution of any such written consent, the subject matter of the meeting or
consent, how he intends to vote (or abstain from voting) with respect to the
subject matter of the meeting or consent and, if applicable, a description in
reasonable detail of the nature of any Conflict Transaction that is the subject
matter of the meeting or consent. Notwithstanding anything to the contrary in
this section 2.1, (i) the Trustee may not, without the prior written consent of
holders of trust certificates or stock certificates representing a majority of
the sum of (A) the Trust Shares plus (B) shares of the Company's common stock
----
held by the Trustee or the Trustee's Permitted Transferees (as defined in the
Continuing Shareholders Agreement), vote in favor of (y) a merger or
consolidation of the Company with or into another entity (except for a merger of
the Company into a wholly-owned subsidiary solely for the purpose of effecting a
reincorporation of the Company as a Delaware corporation) or (z) a liquidation
or dissolution of the Company, or a sale, lease or other transfer, in one
transaction or a series of transactions, of all or substantially all the assets
of the Company (whether directly, or indirectly through the transfer of assets
of its subsidiaries) or of a Significant Business Unit (as defined below); and
(ii) (x) with respect to Conflict Transactions, the Trustee shall vote
consistently with the vote of the disinterested directors of the Company, (y) in
voting (or abstaining from voting) the Trust Shares, the Trustee shall be
4
<PAGE>
charged with the same duties of care and loyalty to the Company, as if the
Trustee were a director of a corporation considering a matter to be voted on by
the board of directors of that corporation, and (z) the Trustee shall not vote
the Trust Shares (1) in favor of the Company taking any action that would
violate the Shareholders Agreements or (2) with a view to affecting materially
and adversely any Shareholder's rights under this agreement or the Shareholders
Agreements (it being understood that nothing in this section shall in any manner
adversely affect the right of any Shareholder to assert against the Company a
claim that the Shareholder is entitled to damages resulting from any action
taken by the Company or the Trustee pursuant to any shareholder vote). For
purposes of this agreement, "Significant Business Unit" means a Significant
Subsidiary (as defined in Rule 1-02 of Regulation S-X) of the Company in respect
of which the condition specified in paragraph (c) of the definition of
significant subsidiary in Rule 1-02 of Regulation S-X exceeds 30%.
2.2 Other Matters. Subject to section 6.2, the Trustee's power to
-------------
vote (or refrain from voting) the Trust Shares pursuant to this agreement shall
be irrevocable until the termination of this agreement in accordance with
section 6.1. The Trustee shall have the right to waive notice of any meeting of
shareholders of the Company, provided the Trustee gives each of the Shareholders
at least 10 days prior written notice (except in the case of extenuating
circumstances, in which case notice
5
<PAGE>
shall be given at the earliest practicable date) that the notice of meeting is
being or has been waived. The Trustee may exercise any power or perform any act
under this agreement by proxy or through an agent or attorney (it being
understood, however, that the Trustee may not confer discretionary authority on
any such proxy, agent or attorney).
2.3 No Disqualification. Nothing in this agreement shall be deemed
-------------------
to prevent the Trustee from serving the Company or any of its subsidiaries as an
officer, director, employee or in any other capacity and receiving compensation
for that service or from engaging in any transaction (subject, if appropriate,
to the requirements of section 2.1) or providing any service not otherwise in
contravention of this agreement.
2.4 No Authority to Transfer Shares. The Trustee shall have no power
-------------------------------
or authority to transfer the Trust Shares, except in accordance with section 7,
and any other transfer or attempted transfer shall be void and of no effect.
3. Additional Securities. Any stock certificates for any voting
---------------------
securities of the Company (or any successor (by merger or otherwise, other than
a successor resulting from a Terminating Merger (as defined in section 6.1)) to
all or substantially all of the business of the Company) issued by way of
dividend, stock split, recapitalization, reorganization, merger (other than a
Terminating Merger (as defined in section 6.1)), consolidation, conversion or
any other change or adjustment in respect of the
6
<PAGE>
Trust Shares shall be delivered by the Company to the Trustee, who shall hold
such securities in accordance with this agreement, and the Trustee shall,
immediately following receipt, issue and deliver, or cause to be issued and
delivered, trust certificates for such changed or additional securities to the
appropriate holder(s) of the trust certificates.
4. Dividends. Except as otherwise provided in section 3 with
---------
respect to voting securities, if the Company shall pay dividends on, or
distribute other securities or property in respect of, the Trust Shares, the
Company shall pay or distribute the same to the Trustee, who shall collect and
receive such dividends, other securities or property, and shall promptly, and in
no event later than five days after receipt, deliver such dividends, other
securities or property, without offset or deduction of any kind, to the
holder(s) of the then outstanding trust certificates in proportion to their
interests in the Trust Shares as shown on the books of the Trustee so that such
distribution is identical to the distribution each holder of a trust certificate
would have received had such person been the holder of record of the securities
represented by such trust certificate.
5. Appointment by Trustee of Successors.
------------------------------------
5.1 Voluntary Appointment. The Trustee may at any time resign as
---------------------
voting trustee and appoint a successor voting trustee meeting the qualifications
of section 5.3. The Trustee
7
<PAGE>
shall give prompt notice to each Shareholder of the identity of the successor
voting trustee.
5.2 Appointment Upon Death or Termination for Incapacity or Cause.
-------------------------------------------------------------
In the event of the death or termination of employment with the Company for
mental or physical incapacity or cause (if the Trustee is party to an employment
agreement with the Company that defines those terms, as those terms are defined
in such employment agreement), or during the continuance of the inability to act
by reason of any such incapacity, of the Trustee, and, subject to sections 5.3
and 5.4, a successor to the voting trustee as designated in writing from time to
time by the Trustee shall automatically fill such vacancy as of such death,
termination or incapacity. Subject to section 5.1, the Trustee shall continue
to serve as such, if his employment with the Company is terminated for any
reason other than as specified in the preceding sentence.
5.3 Qualification of Successor. Any person appointed to serve as a
--------------------------
successor voting trustee under this section 5 must have been prior to such
appointment a senior executive officer of the Company who shall have been
devoting substantially all his business time and effort to the Company, or must
have been a senior executive officer in the pharmaceutical or health-care
industry, in each such case for at least the immediately preceding six months,
provided that no such person shall have been an employee or director of Bayer AG
or any of its majority-owned subsidiaries (including Miles Inc. ("Miles") or any
of its
8
<PAGE>
direct or indirect majority-owned subsidiaries) (all such subsidiaries of Bayer
AG being collectively called "Bayer Controlled Subsidiaries") (other than the
Company or any of its subsidiaries) at any time within six months prior to such
appointment or shall have been a party to a voting agreement with Bayer AG or
any Bayer Controlled Subsidiary, or otherwise a holder of, or an officer,
director or affiliate of a corporation (other than the Company or any of its
subsidiaries) that holds, more than 10% of the Company's outstanding common
stock.
5.4 Authority of Successor. Any person appointed to serve as a
----------------------
successor voting trustee under this section 5 shall be vested with all the
duties, obligations, powers and authority as if originally named voting trustee
and shall serve until the termination of this agreement in accordance with
section 6.1. Any person so appointed shall from and after the date of such
appointment be deemed the voting trustee for all purposes of this agreement.
5.5 Execution of Agreement. Any person appointed to serve as a
----------------------
successor voting trustee under this section 5 shall, prior to serving as such,
execute a copy of this agreement, the signature page of which shall specify that
such person is to be bound by all the terms of this agreement applicable to the
voting trustee.
9
<PAGE>
6. Termination of Agreement.
------------------------
6.1 Termination Date. This agreement shall terminate (the
----------------
"Termination Date") on the earliest of (i) the fifth anniversary of the
Qualified Public Offering Date (as defined in the Continuing Shareholders
Agreement), (ii) March 1, 2000 and (iii) the effective date of a Terminating
Merger, and, subject to section 6.2, no sooner. For purposes of this agreement,
the term "Terminating Merger" means a merger, consolidation or combination of
the Company with another business, if, as a result of that transaction, the
Trustee neither (I) holds the position of chairman of the board, president,
chief executive officer or chief operating officer (or any office performing
analogous functions) of the merged, consolidated or combined entity (the
"Successor") nor (II) has the right or ability to designate a majority of the
members of the board of the Successor or, if the board of the Successor is a
classified board, can reasonably be expected to have the right or ability to
designate a majority of the members of the board of the Successor after each
class then in office shall have been subject to election.
6.2 Termination Upon Transfer of Shares. Notwithstanding anything in
-----------------------------------
this agreement to the contrary, this agreement shall terminate with respect to
any Trust Shares transferred in accordance with section 7 at the time of the
transfer (except that this agreement shall not terminate with respect to any
Trust Shares prior to an initial public offering of the Company's common stock
and shall not terminate before or
10
<PAGE>
after such initial public offering with respect to any Trust Shares transferred
to a Permitted Transferee (as defined in the Continuing Shareholders Agreement),
until the Trust Shares are transferred by the Permitted Transferee in accordance
with section 7).
6.3 Transfer of Shares from Voting Trustee.
--------------------------------------
(a) Upon the termination of this agreement in accordance with
section 6.1, (i) each holder of trust certificates shall promptly deliver to the
Trustee any outstanding trust certificates held by that holder (or an affidavit
stating that such trust certificates are lost, without any requirement to post
any security therefor), (ii) promptly thereafter, and in no event later than two
business days after receipt of such trust certificates or affidavits, as
applicable, the Trustee shall deliver to the secretary of the Company or, at the
direction of the Company, to the Company's transfer agent, for cancellation,
stock certificates (together with stock powers executed in blank and any
requisite stock transfer stamps) for all the Trust Shares held by the Trustee
and (iii) the Company shall cause to be issued to each holder of trust
certificates stock certificates for a number of shares of common stock of the
Company equal to the number of Trust Shares represented by the trust
certificates surrendered (or covered by an affidavit delivered) by each such
holder under clause (i) above, free and clear of any Lien (except (1) as
otherwise required by law, (2) as required under the Continuing
Shareholders Agreement or
11
<PAGE>
(3) as created by the holder of the trust certificates (collectively, "Permitted
Liens")) and without any legend (except any legend relating to transfer
restrictions arising under any applicable securities laws (an "Applicable
Securities Law Legend")). The Trustee and the Company shall take such actions as
reasonably may be requested by the holders of trust certificates to effect such
issuances.
(b) If the Trustee does not deliver stock certificates for the Trust
Shares to the Company or to the Company's transfer agent within the two-day
period set forth in section 6.3(a)(ii), the Company or the Company's transfer
agent, as applicable, shall, upon receipt of notice from any holder of trust
certificates stating that such Trust Shares have not been delivered within such
two-day period (a copy of which notice shall be delivered to the Trustee
simultaneously with the giving of such notice to the Company or to the Company's
transfer agent), cancel on the Company's books and records the stock
certificates for the undelivered Trust Shares, and cause to be issued to each
holder of trust certificates stock certificates for a number of shares of the
Company's common stock equal to the number of Trust Shares represented by the
trust certificates surrendered (or covered by an affidavit delivered) by each
such holder under section 6.3(a)(i), free and clear of any Lien (except
Permitted Liens) and without any legend (except any Applicable Securities Law
Legend).
12
<PAGE>
6.4 Death or Incompetence of Trust Certificate Holder. The death,
--------------------------------------------------
disability or incompetence of a holder of a trust certificate during the term of
this agreement shall in no way affect the validity or enforceability of this
agreement.
7. Transfers of Trust Shares and Trust Certificates.
------------------------------------------------
7.1 Transfer of Trust Shares. Each holder of trust certificates may,
------------------------
by written request (a "Transfer Request"), direct the Trustee to transfer any
Trust Shares represented by that holder's outstanding trust certificates;
however, each such holder may direct the Trustee to transfer Trust Shares only
in accordance with and to the extent permitted under the Shareholders
Agreements. However, no transfer of Trust Shares to a Permitted Transferee
shall be permitted (and any such transfer not permitted shall be void and of no
effect), unless, prior to such transfer, the Permitted Transferee executes and
delivers to the Trustee a copy of this agreement, the signature page of which
shall specify that such Permitted Transferee is bound by and takes such Trust
Shares subject to all the rights and obligations under this agreement that were
applicable to the transferor (it being understood that, notwithstanding anything
to the contrary in this agreement, the Trustee shall retain possession of any
Trust Shares so transferred to a Permitted Transferee and shall issue to the
Permitted Transferee appropriate trust certificates in respect thereof).
13
<PAGE>
7.2 Transfer Mechanics.
------------------
(a) In order to effect a transfer of Trust Shares at the request of a
holder of trust certificates in accordance with section 7.1, (i) such holder
shall deliver to the Trustee, along with the Transfer Request, any outstanding
trust certificates representing the Trust Shares to be transferred (or an
affidavit stating that such trust certificates are lost), (ii) the Trustee shall
promptly thereafter, and in no event later than two business days after receipt
of such trust certificates or affidavits, as applicable, deliver to the
secretary of the Company or, at the direction of the Company, to the Company's
transfer agent, for cancellation, stock certificates (together with stock powers
executed in blank and any requisite stock transfer stamps) for the number of
trust shares to be transferred, and (iii) the Company shall cause to be issued
to the transferee(s) specified in the Transfer Request stock certificates for
the number of shares of the Company's common stock equal to the number of Trust
Shares represented by the trust certificates surrendered under clause (i) above,
free and clear of any Lien (except Permitted Liens) and without any legend
(except any Applicable Securities Law Legend). The Trustee and the Company shall
take such actions as reasonably may be requested by the holders of trust
certificates surrendered under clause (i) of the preceding sentence to effect
the issuance as provided for in this section 7.2(a) of shares of the Company's
14
<PAGE>
common stock to, and in the name of, the transferee(s) specified in the Transfer
Request.
(b) If the Trustee does not deliver stock certificates for the number
of Trust Shares to be transferred to the Company or to the Company's transfer
agent within the two-day period set forth in section 7.2(a)(ii), the Company or
the Company's transfer agent, as applicable, shall, upon receipt of a written
request from the holder of trust certificates who requested the transfer
stating that such Trust Shares have not been delivered within such two-day
period (a copy of which request shall be delivered to the Trustee simultaneously
with the giving of such request to the Company or to the Company's transfer
agent), cancel on the Company's books and records the stock certificates for the
undelivered Trust Shares, and cause to be issued to such holder stock
certificates for a number of shares of the Company's common stock equal to the
number of Trust Shares represented by the trust certificates surrendered by such
holder under section 7.2(a)(i), free and clear of any Lien (except Permitted
Liens) and without any legend (except any Applicable Securities Law Legend).
7.3 Transfer of Trust Certificates. Each holder of trust
------------------------------
certificates agrees that, during the term of this agreement, the trust
certificates may be transferred only as expressly permitted by this agreement or
in the same manner and to the same extent as the Trust Shares may be transferred
in accordance with the Shareholders Agreements, and only if, in the
15
<PAGE>
case of a transfer of Trust Shares to a Permitted Transferee, such Permitted
Transferee executes and delivers to the Trustee a copy of this agreement, the
signature page of which shall specify that such Permitted Transferee is bound by
and takes such trust certificates subject to all the terms of this agreement
that were applicable to the transferor. In such event, the Permitted Transferee
shall hold the trust certificates subject to the terms of this agreement and the
Shareholders Agreements.
7.4 Trustee Information. The Trustee shall supply such information
-------------------
with respect to himself as may be required to be included in any registration
statement or other similar document to be filed with the federal or any state
government by the holders of trust certificates in connection with a transfer by
such holders of Trust Shares or trust certificates contemplated by this
agreement, and shall otherwise use all reasonable efforts to cooperate with such
holders in connection therewith.
8. Compensation and Expenses. Subject to section 9, the Trustee
-------------------------
shall not take or receive or have any claim for compensation or other
consideration for performance of his duties or acting as voting trustee under
this agreement. No holder of trust certificates shall be liable or obligated
for payment of any such expenses.
9. Indemnification of Trustee. The Company shall indemnify and hold
--------------------------
the Trustee harmless from and against any loss, liability, damage or expense
(including reasonable
16
<PAGE>
attorneys' fees) arising out of the Trustee's performance under this agreement
or otherwise arising only out of this agreement (it being understood, however,
that the Company's obligation under this section 9 shall not apply to any loss,
liability, damage or expense resulting from the Trustee's wilful breach of this
agreement or the Trustee's gross negligence). The Company shall from time to
time, upon presentation of invoices, reimburse the Trustee for any amount or
amounts the Trustee is reasonably required to pay to defend against any claim in
respect of which the Trustee advises the Company he is entitled to
indemnification under this section 9, as long as the Trustee shall have
furnished the Company an undertaking to repay such amount or amounts if it shall
ultimately be determined by a final and nonappealable judgment of a court of
competent jurisdiction that he is not so entitled to be indemnified. The rights
of the Trustee under this section 9 are in addition to any other rights the
Trustee may have in his capacity as a director, officer, employee or agent
of the Company or its affiliates under any by-law, agreement, vote of
shareholders or directors or otherwise.
10. Miscellaneous.
-------------
10.1 Governing Law. This agreement shall be governed by and construed
-------------
in accordance with the law of the state of New York applicable to agreements
made and to be performed wholly in New York.
17
<PAGE>
10.2 Notices. The Company shall give each of the Shareholders and
-------
others who are holders of Trust Certificates copies of any notice given
generally to shareholders of the Company. Any notice or other communication
under this agreement shall be in writing and shall be considered given when
delivered personally or mailed by registered mail, return receipt requested, at
the following addresses (or at such other address as a party may designate by
notice to the others) or at such addresses as holders of Trust Certificates may
designate by notice to the others:
if to the Company, to:
Schein Holdings, Inc.
c/o Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attention: General Counsel
with a copy to:
Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, New York 10036
Attention: Richard L. Goldberg, Esq.
if to Marvin H. Schein, Marvin's 1993 Trust or Marvin's 1994
Trust, to:
Marvin H. Schein
Cobble Court
Glen Cove, New York 11771
with a copy to:
Peirez, Ackerman & Levine
175 Great Neck Road
Great Neck, New York
Attention: Leslie J. Levine, Esq.
18
<PAGE>
If to Pamela Schein, to:
Pamela Schein
666 Greenwich Street
Apt. 514
New York, New York 10014
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4669
Attention: Peter J. Hanlon, Esq.
If to Pam Schein's Issue's Trust, to:
Irving Shafran
360 East 72nd Street
New York, New York 10017
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4669
Attention: Peter J. Hanlon, Esq.
If to Pamela Joseph, to:
Pamela Joseph
RR#3, Box 140
Pound Ridge, New York 10576
with a copy to:
Schnader, Harrison, Segal & Lewis
Suite 700
108 N. Washington Avenue
Scranton, Pennsylvania 18503
Attention: Morey M. Myers, Esq.
If to Pam Joseph's Issue's Trust, to:
c/o Morey M. Myers, Esq.
Schnader, Harrison, Segal & Lewis
Suite 700
108 N. Washington Avenue
Scranton, Pennsylvania 18503
Attention: Morey M. Myers, Esq.
19
<PAGE>
If to the Trustee, to:
Martin Sperber
c/o Schein Holdings, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
If a successor voting trustee is designated pursuant to section 5, such
successor shall give notice of his or her address to the other parties in
accordance with this section, and any notice required or permitted to be given
to the voting trustee under this agreement shall be given at such address. Any
notice given to a party shall be deemed also to have been given to each of that
party's Permitted Transferees, and such party shall have the obligation to give
the same notice to each of its Permitted Transferees that at the time of such
notice owns Trust Shares. A copy of any notice or other communications given
under this agreement to the Company or the Trustee also shall be given to the
Shareholders.
10.3 Counterparts. This agreement may be executed in counterparts,
------------
each of which shall be considered an original, but all of which together shall
constitute the same instrument.
10.4 Equitable Relief. The parties acknowledge that the remedy at
----------------
law for breach of this agreement would be inadequate and that, in addition to
any other remedy a party may have for a breach of this agreement, that party
shall be entitled to an injunction restraining any such breach or threatened
breach, or a decree of specific performance, without posting any
20
<PAGE>
bond or security. The remedy provided in this section 10.4 is in addition to,
and not in lieu of, any other rights or remedies a party may have.
10.5 Separability. If any provision of this agreement is invalid or
------------
unenforceable, the balance of this agreement shall remain in effect, and, if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
10.6 Entire Agreement. This agreement contains a complete statement
----------------
of all the arrangements among the parties with respect to its subject
matter, supersedes all existing agreements among them with respect to that
subject matter, may not be changed or terminated orally. Any amendment or
modification must be approved in writing by Miles and must be in writing and
signed by the Company, the Trustee (it being understood that the incumbent
Trustee at the time of the amendment or modification rather than any predecessor
Trustee must sign the amendment or modification) and the holders of Trust
Certificates representing a majority of the Trust Shares, provided that no such
amendment or modification may adversely effect the rights or obligations of
21
<PAGE>
any holder of Trust Certificates without that holder's prior written consent.
SCHEIN HOLDINGS, INC.
By: /s/ Martin Sperber
---------------------------
Authorized Officer
/s/ Martin Sperber
------------------------------
Martin Sperber, as voting
trustee
/s/ Marvin H. Schein
------------------------------
Marvin H. Schein
Trust established by Marvin H.
Schein under trust agreement
dated December 31, 1993
By: /s/ Marvin H. Schein
---------------------------
Marvin H. Schein, Trustee
By: /s/ Leslie Levine
---------------------------
Leslie Levine, Trustee
Trust established by Marvin H.
Schein under trust agreement
dated September 9, 1994
By: /s/ Marvin H. Schein
---------------------------
Marvin H. Schein, Trustee
By: /s/ Leslie Levine
---------------------------
Leslie Levine, Trustee
/s/ Pamela Schein
------------------------------
Pamela Schein
22
<PAGE>
Trust established by the
Trustees under Article Fourth
of the Will of Jacob M. Schein
for the benefit of Pamela
Schein and her issue under
trust agreement dated
September 29, 1994
By: /s/ Irving Shafran, as attorney in fact
----------------------------------------
Irving Shafran, Trustee
/s/ Pamela Joseph
---------------------------------
Pamela Joseph
Trust established by Pamela
Joseph under trust agreement
dated September 28, 1994
By: /s/ Morey M. Myers
-----------------------------
Morey M. Myers, Trustee
23
<PAGE>
No.________ EXHIBIT A
VOTING TRUST CERTIFICATE
SCHEIN HOLDINGS, INC.
THIS IS TO CERTIFY THAT
(1) on the termination of the Voting Trust Agreement hereinafter described as
provided in said Voting Trust Agreement, will be entitled to receive, upon
surrender of this certificate, a certificate or certificates for shares
of common stock of Schein Holdings, Inc., a New York corporation (the "Company")
and (2) on the termination of the Voting Trust Agreement with respect to any
shares as provided in section 6 thereof, will be entitled to receive, upon
surrender of this certificate to the extent of such shares, a certificate or
certificates for such number of shares of common stock of Holdings, and/or (in
the case of (1) and (2)) such other securities, if any, as may then be
deliverable in respect hereof in accordance with the terms of said Voting Trust
Agreement, including any such securities referred to in section 3 of said Voting
Trust Agreement, and, in the meantime, will be entitled to receive payment of
any dividends or distributions, other than such as shall be in the form of
voting securities of the Company, received by the Trustee in respect of a like
number of securities of the Company.
Until the termination of said Voting Trust Agreement and the delivery
of the stock certificates called for hereby, or, with respect to any shares as
to which said Voting Trust Agreement terminates in accordance with section 6
thereof, until such termination, the Trustee shall have full and exclusive power
and authority to vote in person or by proxy (or to refrain from voting) at all
meetings of the shareholders of the Company and to execute consents with respect
to all shares of capital stock of the Company held by the Trustee, for any
purpose, whether ordinary or extraordinary, and generally to exercise all the
<PAGE>
powers of absolute owner thereof, subject in each case to the provisions of said
Voting Trust Agreement, it being expressly stipulated that no voting right
passes to the holder hereof by or under this certificate or by or under any
agreement, express or implied.
This certificate is issued pursuant and subject to the terms and
conditions of a certain Voting Trust Agreement dated September ___, 1994 among
the Company, Marvin H. Schein, the trust established by Marvin H. Schein under
trust agreement dated December 31, 1993, the trust established by Marvin H.
Schein under trust agreement dated September 9, 1994, Pamela Schein, the trust
established by the Trustees under Article Fourth of the Will of Jacob M. Schein
for the benefit of Pamela Schein and her issue under trust agreement dated
September ___, 1994, Pamela Joseph and the trust established by Pamela Joseph
under trust agreement dated September ___, 1994, and Martin Sperber, as voting
trustee. A copy of the Voting Trust Agreement is on file at the principal
office of the Company at 100 Campus Drive, Florham Park, New Jersey 07932. The
holder of this certificate, by the acceptance hereof, assents to all the terms
and provisions of said Voting Trust Agreement.
This certificate is transferable only on the books of the Trustee upon
surrender hereof at the office of the Trustee properly endorsed for transfer by
the registered holder hereof, either in person or by attorney duly authorized,
in accordance with the Voting Trust Agreement. The Trustee shall not be
obligated to recognize any person as the owner of this certificate other than
the person in whose name the same shall be registered on the books of the
Trustee.
IN WITNESS WHEREOF, the Trustee has executed this instrument this
day of , 1994.
__________________________________
Martin Sperber, as Trustee
2
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, MARVIN H. SCHEIN hereby sells, assigns and
transfers unto MARTIN SPERBER, AS VOTING TRUSTEE UNDER THE VOTING TRUST
AGREEMENT DATED SEPTEMBER 30, 1994, ONE HUNDRED shares of Class B Common Stock,
par value $0.01, of Schein Holdings, Inc. (the "Corporation") represented by
Certificate No. 2 herewith, and do hereby irrevocably constitute and appoint
-----
attorney to transfer the said stock on the books of
- ---------------------------
the Corporation with full power of substitution in the premises.
Dated: September 30, 1994
/s/ Marvin H. Schein
---------------------------
Marvin H. Schein
In presence of:
/s/ Leslie J. Levine
- --------------------
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, TRUSTEES UNDER THE TRUST ESTABLISHED BY MARVIN H.
SCHEIN UNDER TRUST AGREEMENT DATED DECEMBER 31, 1993 hereby sell, assign and
transfer unto MARTIN SPERBER, AS VOTING TRUSTEE UNDER THE VOTING TRUST
AGREEMENT DATED SEPTEMBER 30, 1994, SIXTY-FOUR THOUSAND SIX HUNDRED FORTY-TWO
AND 50/100 shares of Class B Common Stock, par value $0.01, of Schein Holdings,
Inc. (the "Corporation") represented by Certificate No. 4 herewith, and do
-----
hereby irrevocably constitute and appoint attorney
----------------------------
to transfer the said stock on the books of the Corporation with full power of
substitution in the premises.
Dated: September 30, 1994
/s/ Marvin H. Schein
---------------------------
Marvin H. Schein, Trustee
/s/ Leslie J. Levine
---------------------------
Leslie J. Levine, Trustee
In presence of:
/s/ Paul Feuerman
- -----------------------
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, TRUSTEES UNDER THE TRUST ESTABLISHED BY MARVIN H.
SCHEIN UNDER TRUST AGREEMENT DATED SEPTEMBER 9, 1994 hereby sell, assign and
transfer unto MARTIN SPERBER, AS VOTING TRUSTEE UNDER THE VOTING TRUST AGREEMENT
DATED SEPTEMBER 30, 1994, TWENTY-FIVE THOUSAND TWO HUNDRED SEVENTY-SEVEN AND
50/100 shares of Class B Common Stock, par value $0.01, of Schein Holdings, Inc.
(the "Corporation") represented by Certificate No. 6 herewith, and do hereby
-----
irrevocably constitute and appoint attorney to
--------------------------
transfer the said stock on the books of the Corporation with full power of
substitution in the premises.
Dated: September 30, 1994
/s/ Marvin H. Schein
---------------------------
Marvin H. Schein, Trustee
/s/ Leslie J. Levine
---------------------------
Leslie J. Levine, Trustee
In presence of:
/s/ Paul Feuerman
- -----------------------
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, PAMELA SCHEIN hereby sells, assigns and transfers
unto MARTIN SPERBER, AS VOTING TRUSTEE UNDER THE VOTING TRUST AGREEMENT DATED
SEPTEMBER 30, 1994, SIXTY-THREE THOUSAND TWO HUNDRED AND TWO shares of Class A
Common Stock, par value $0.01, of Schein Holdings, Inc. (the "Corporation")
represented by Certificate No. 3 herewith, and do hereby irrevocably constitute
-----
and appoint attorney to transfer the said stock on
----------------------------
the books of the Corporation with full power of substitution in the premises.
Dated: September 30, 1994
/s/ Pamela Schein
---------------------------
Pamela Schein
In presence of:
/s/
- ---------------------------
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, TRUSTEE UNDER THE TRUST ESTABLISHED BY TRUSTEE
UNDER ARTICLE FOURTH OF THE WILL OF JACOB M. SCHEIN FOR THE BENEFIT OF PAMELA
SCHEIN AND HER ISSUE UNDER TRUST AGREEMENT DATED September 29, 1994, hereby
sells, assigns and transfers unto MARTIN SPERBER, AS VOTING TRUSTEE UNDER THE
VOTING TRUST AGREEMENT DATED SEPTEMBER 30, 1994, FOUR THOUSAND EIGHT HUNDRED AND
FORTY shares of Class A Common Stock, par value $0.01, of Schein Holdings, Inc.
(the "Corporation") represented by Certificate No. 7 herewith, and do hereby
irrevocably constitute and appoint attorney
---------------------------------
to transfer the said stock on the books of the Corporation with full power of
substitution in the premises.
Dated: September 30, 1994
/s/
---------------------------
In presence of
/s/
- -----------------------
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, PAMELA JOSEPH hereby sells, assigns and transfers
unto MARTIN SPERBER, AS VOTING TRUSTEE UNDER THE VOTING TRUST AGREEMENT DATED
SEPTEMBER 30, 1994, FIVE THOUSAND SEVEN HUNDRED AND FIVE Shares of Class A
Common Stock, par value $0.01, of Schein Holdings, Inc. (the "Corporation")
represented by Certificate No. 2 herewith, and do hereby irrevocably constitute
-----
and appoint attorney to transfer the said stock on the
-------------------------
books of the Corporation with full power of substitution in the premises.
Dated: September 28, 1994
/s/ Pamela Joseph
---------------------------
Pamela Joseph,
In presence of:
/s/ Annelore B. Haines
- ---------------------
ANNELORE B. HAINES
Notary Public, State of New York
No. 41-162835O
Qualified in Oueens County
Certificate Filed in New York County
Commission Expires April 30, 1995
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, PAMELA JOSEPH hereby sells, assigns and transfers
unto MARTIN SPERBER, AS VOTING TRUSTEE UNDER THE VOTING TRUST AGREEMENT DATED
SEPTEMBER 30, 1994, NINETEEN THOUSAND EIGHT HUNDRED AND THIRTY shares of Class A
Common Stock, par value $0.01, of Schein Holdings, Inc. (the "Corporation")
represented by Certificate No. 5 herewith, and do hereby irrevocably constitute
-----
and appoint attorney to transfer the said stock on the
----------------------
books of the Corporation with full power of substitution in the premises.
Dated: September 28, 1994
/s/ Pamela Joseph
---------------------------
Pamela Joseph
In presence of:
/s/ Annelore B. Haines
- ---------------------
ANNELORE B. HAINES
Notary Public, State of New York
No. 41-162835O
Qualified in Oueens County
Certificate Filed in New York County
Commission Expires April 30, 1995
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, TRUSTEE UNDER THE TRUST ESTABLISHED BY PAMELA
JOSEPH UNDER TRUST AGREEMENT DATED SEPTEMBER 28, 1994 hereby sell, assign and
transfer unto MARTIN SPERBER, AS VOTING TRUSTEE UNDER THE VOTING TRUST AGREEMENT
DATED SEPTEMBER 30, 1994, NINE HUNDRED AND NINETY-THREE shares of Class A Common
Stock, par value $ 0.01, of Schein Holdings, Inc. (the "Corporation")
represented by Certificate No.6 herewith, and do hereby irrevocably constitute
----
and appoint attorney to transfer the said stock on the
---------------------
books of the Corporation with full power of substitution in the premises.
Dated: September 28, 1994
/s/ Morey M. Myers
---------------------------
Morey M. Myers
In presence of:
/s/ Annelore B. Haines
- ---------------------
ANNELORE B. HAINES
Notary Public, State of New York
No. 41-162835O
Qualified in Queens County
Certificate Filed in New York County
Commission Expires April 30, 1995
<PAGE>
EXHIBIT 10.1
6/24/92
SUPPLY AGREEMENT
----------------
THIS SUPPLY AGREEMENT is made as of the lst day May, 1992 ("Effective
Date"), by and between Abbott Laboratories, an Illinois corporation having a
principal place of business at One Abbott Park Road, Abbott Park, Illinois
60064-3500 ("Abbott"), and Steris Laboratories, Inc., a Delaware corporation
having a principal place of business at 620 North 51st Avenue, Phoenix, Arizona
85043 ("Steris").
WHEREAS, Steris' New Drug Application ("NDA") has been approved by the
United States Food and Drug Administration ("FDA") for the use of the finished
drug product iron dextran ("Product"), which incorporates Drug Substance, as
defined below, in various human pharmaceutical areas;
WHEREAS, Steris' supplement to the NDA for Product, which incorporates Drug
Substance, which names Abbott as the supplier of Drug Substance has been
approved by the FDA;
WHEREAS, Abbott has developed a proprietary process for the manufacture of
Drug Substance; and
WHEREAS, Abbott desires to manufacture exclusively for Steris commercial
quantities of Drug Substance using such proprietary process and Steris desires
to purchase from Abbott such commercial quantities of Drug Substance.
NOW, THEREFORE, in consideration of the above premises and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
<PAGE>
- 2 -
1. Definitions
-----------
As used in this Agreement, the following words and phrases shall have the
following meanings:
1.1 "Affiliate" of a party hereto shall mean any entity which controls, is
controlled by, or is under common control with such party. For purposes of this
definition, a party shall be deemed to control another entity if it owns or
controls, directly or indirectly, at least fifty percent (50%) of the voting
equity of another entity (or other comparable ownership interest for an entity
other than a corporation).
1.2 "Confidential Information" shall mean all written information and data
provided by the parties to each other hereunder and marked as confidential, or
if disclosed orally, is reduced to writing within thirty (30) days of oral
disclosure and identified as being confidential, except any portion thereof
which:
(i) is known to the recipient as evidenced by its written records
before receipt thereof under this Agreement;
(ii) is disclosed to the recipient after acceptance of this
Agreement by a third person who has the right to make such
disclosure;
(iii) is or becomes part of the public domain through no fault of the
recipient; or
<PAGE>
- 3 -
(iv) is independently developed by employees of the recipient who
have not had access to the information disclosed hereunder.
1.3 "Contract Requirements" shall mean one hundred percent (100%) of the
worldwide requirements for Drug Substance of Steris and its Affiliates.
1.4 "Drug Substance" shall mean iron dextran bulk solution, as more fully
described in the Drug Substance Specifications, as defined below.
1.5 "Drug Substance Specifications" shall mean the specifications for Drug
Substance, which are attached hereto and made a part hereof as Exhibit A.
1.6 "Drug Substance Technology" shall mean the manufacturing process for
Drug Substance developed by Abbott from October 30, 1989 until November 2, 1990
under that certain Development Contract between the parties dated December 1,
1989 ("Development Contract").
2. Manufacture and Supply of Drug Substance
----------------------------------------
2.1 Pursuant to the terms and conditions of this Agreement, Steris shall
purchase or have purchased from Abbott, and Abbott shall use its reasonable best
efforts to manufacture, or have manufactured, sell and deliver to Steris the
Contract Requirements; provided, however, Abbott makes no representation,
warranty or guarantee of any kind that Abbott will be able to manufacture the
Contract Requirements. During the term of this Agreement, Abbott shall sell Drug
Substance to Steris on an
<PAGE>
- 4 -
exclusive worldwide basis except as provided in subparagraph 5.4 and paragraph
14 hereof, and Steris shall purchase or have purchased from Abbott Drug
Substance on an exclusive worldwide basis. The provisions of this subparagraph
2.1 shall apply regardless of the technology employed by Abbott in manufacturing
the Drug Substance.
2.2 Drug Substance shall be manufactured to conform with the Drug
Substance Specifications. Drug Substance Specifications may be modified from
time to time by written agreement signed by an authorized representative of each
party without the necessity of amending this Agreement.
2.3 Abbott shall have the right to manufacture, sell, ship, market or
distribute Product; provided that such Product is not manufactured with Drug
Substance or technology relating to Drug Substance obtained from Abbott or a
licensee or sublicensee of Abbott.
2.4 During the term of this Agreement and for a period of one (1) year
following termination or expiration hereof, Abbott shall not sell, distribute,
license, provide or transfer any Drug Substance or Drug Substance Technology or
any rights thereto, except to Steris; provided, however, such restriction shall
not be enforceable by Steris upon the bankruptcy or insolvency of Steris or upon
Steris' breach of this Agreement under subparagraph 4.2 hereof.
<PAGE>
- 5 -
3. Price
-----
3.1 The price for Drug Substance delivered from the Effective Date through
December 31, 1993 shall be *** ******** **** ******* ************ *** ******
******* *********** per liter based on a density factor of **** kilograms per
liter, regardless of which technology Abbott employs in manufacturing the Drug
Substance. Thereafter, on or before July 1 of each calendar year, starting July
1, 1993, Abbott and Steris shall negotiate in good faith to adjust the price for
Drug Substance for the next succeeding calendar year based on market conditions
for Product and Drug Substance; provided, however, the parties shall meet on or
before March 31 of each calendar year, starting March 31, 1994, to review the
then-current price for Drug Substance to determine in good faith whether market
conditions for Product and Drug Substance justify a price adjustment for Drug
Substance for the third and fourth quarters of the then-current calendar year.
If the parties mutually agree in writing that a price adjustment is justified,
such adjustment shall apply to all Drug Substance ordered from Abbott by Steris
and its Affiliates from July 1 through December 31 of the then-current calendar
year.
3.2 Drug Substance shall be delivered to Steris F.O.B. Abbott's plant in
North Chicago, Illinois, by a common carrier selected by Steris.
* redacted pursuant to confidential treatment request.
<PAGE>
- 6 -
3.3 Abbott shall invoice Steris upon shipment of Drug Substance. Payment
shall be made by Steris net thirty (30) days from the date of invoice.
3.4 Any federal, state, county, or municipal sales or use tax, excise or
similar charge, or other tax assessment (other than that assessed against
income), assessed or charged on the sale of Drug Substance sold pursuant to this
Agreement shall be paid by Steris. Notwithstanding the preceding sentence,
Steris may furnish Abbott any exemption certificate for which Steris is entitled
or authorized to issue with respect to the taxes imposed on the sale or use of
Drug Substance sold hereunder.
3.5 Due to the restrictive shipping requirements contained in Abbott's
drug master file for Drug Substance ("DMF"), no Drug Substance shall be subject
to rework.
4. Term and Termination
--------------------
4.1 This Agreement shall commence as of the Effective Date and, subject to
the next following sentence, shall end at midnight on December 31, 1996
("Initial Term"). At the end of the Initial Term, this Agreement shall continue
automatically for successive twelve-month periods under the same terms and
conditions hereunder (except for the price for Drug Substance), until
terminated. Except as otherwise provided herein, this Agreement may be
terminated at the expiration of the Initial Term or at the expiration of any of
the twelve-month extension periods thereafter (i) by Abbott upon not less than
eighteen (18) months
<PAGE>
- 7 -
prior written notice or (ii) by Steris upon not less than six (6) months prior
written notice.
4.2 Either party may terminate this Agreement by giving the other sixty
(60) days prior written notice as follows: (i) upon the bankruptcy or insolvency
of the other party; or (ii) upon the breach of any material provision of this
Agreement by the other party if the breach is not cured within thirty (30) days
after written notice thereof to the breaching party.
4.3 Termination, expiration, cancellation or abandonment of this Agreement
through any means or for any reason shall not relieve the parties of any
obligation accruing prior thereto and shall be without prejudice to the rights
and remedies of either party with respect to any antecedent breach of any of the
provisions of this Agreement. Except as otherwise provided in paragraph 15
hereof, upon termination, expiration, cancellation or abandonment of this
Agreement through any means or for any reason whatsoever, Steris shall have the
complete, exclusive, perpetual and unrestricted right to use and exploit the
Drug Substance Technology without any obligation to Abbott. The foregoing
sentence and subparagraph 2.4 hereof shall survive termination or expiration of
this Agreement.
4.4 In the event Steris terminates this Agreement as a result of the
bankruptcy or insolvency of Abbott or Abbott's breach of this Agreement under
subparagraph 4.2 above, without limiting any other remedy available to Steris,
Abbott shall continue to supply Drug Substance to Steris pursuant to the terms
<PAGE>
- 8 -
hereof for the eighteen (18) month period following the effective date of such
termination.
5. Forecasts Deliveries and Orders
-------------------------------
5.1 Each July 1 during the Initial Term of this Agreement or any extension
thereof, Steris shall provide to Abbott an annual forecast for the next
succeeding calendar year estimating the Contract Requirements for such year.
This forecast shall be non-binding and shall be used for planning purposes only.
Further, during the Initial Term of this Agreement or any extension thereof,
Steris shall issue on the date hereof, and then on or before the first business
day of each calendar quarter thereafter, a non-binding twelve (12) month
forecast estimating in good faith the Contract Requirements for the next
succeeding four (4) quarterly periods.
5.2 Notwithstanding the quantities listed in Steris' rolling twelve (12)
month forecasts, Steris shall be obligated to purchase from Abbott and Abbott
shall be obligated to sell to Steris ***** liters of Drug Substance from the
Effective Date until December 31, 1993. The delivery schedule for the *****
liters of Drug Substance shall be arranged in accordance with the terms of
subparagraph 5.3 below; provided, however the entire ***** liters of Drug
Substance shall be delivered to Steris not later than December 31, 1993. The
foregoing in no respect limits the provisions of subparagraph 2.1 hereof. If
Steris fails to purchase from Abbott at least ***** liters of Drug Substance by
December 31, 1993, then Steris shall pay Abbott, in respect of
* redacted pursuant to confidential treatment request.
<PAGE>
- 9 -
any such shortfall, Abbott's cost of raw materials and other direct costs which
can be supported with reasonable documentation for such shortfall.
5.3 On or before forty-five (45) days prior to each calendar quarter,
Steris shall submit in writing to Abbott a statement quantifying the Contract
Requirements for the next succeeding calendar quarter. Upon receipt of such
statement, Abbott shall have ten (10) days to submit in writing to Steris a firm
delivery schedule setting forth the quantity of Drug Substance Abbott shall be
able to sell and deliver to Steris. Upon receipt of each firm delivery schedule,
Steris shall promptly submit to Abbott a firm purchase order for Drug Substance
for the next succeeding calendar quarter reflecting the same terms of Abbott's
firm delivery schedule. If Abbott fails to timely submit such delivery schedule,
Abbott shall be obligated to sell and deliver to Steris the Contract
Requirements listed in Steris' earlier submitted written statement. Each
purchase order issued by Steris shall be governed by the terms of this
Agreement, and none of the terms or conditions of Steris' purchase order shall
be applicable, except those specifying quantity ordered, delivery dates, special
supply instructions and invoice information.
5.4 During the term of this Agreement, Steris may obtain or receive from
any other party a reference letter with respect to such party's drug master file
required to manufacture, market and sell the Drug Substance in the United States
or in any other
<PAGE>
- 10 -
territory, or initiate or carry out any development work in connection with the
Drug Substance with any other party, for purposes of securing an alternate
source of the Drug Substance in the event of a force majeure as described in
paragraph 14 hereof.
6. Manufacture of Drug Substance
-----------------------------
6.1 Drug Substance shall be manufactured in accordance with current Good
Manufacturing Practices promulgated by the FDA and pursuant to the applicable
DMF prepared by Abbott and filed with the FDA or foreign regulatory authorities
as requested by Steris. Abbott shall promptly advise Steris of any proposed
process change outside the applicable DMF, which change must be approved by
Steris prior to its implementation by Abbott, and which approval shall not be
unreasonably withheld by Steris. Steris shall have the right to audit Abbott for
compliance with current Good Manufacturing Practices at reasonable intervals.
Such audits shall be scheduled at mutually agreeable times upon at least fifteen
(15) days advance written notice to Abbott.
6.2 For each shipment of Drug Substance delivered hereunder, Abbott shall
provide to Steris certificates of analysis, batch record documentation as
specified in Exhibit B, attached hereto and made a part hereof, and final yield
quantity information. Further, Abbott shall follow the procedures described in
Exhibit B.
6.3 Each party shall promptly advise the other of any safety or toxicity
problem or any FDA regulatory or compliance activity of which either party
becomes aware regarding Drug
<PAGE>
- 11 -
Substance or intermediates used in the manufacture of Drug Substance.
6.4 Steris shall pay Abbott for its direct costs pre-approved by Steris
associated with any FDA filing by Abbott requested by Steris of more than one
(1) DMF in support of Steris' regulatory filings with respect to Drug Substance.
Steris also shall pay Abbott's direct costs pre-approved by Steris for any work
requested by Steris to produce and assemble documentation for Drug Substance
registrations outside the United States.
6.5 Abbott shall provide Steris with technical assistance as may be
reasonably requested by Steris from time to time; provided such request relates
to Drug Substance delivered by Abbott or Product manufactured by Steris from
such Drug Substance, including, without limitation, assistance relating to test
methods, specifications, and impurity/degradation product identification. Abbott
shall provide Steris with a written estimate of such technical assistance;
provided, however, Abbott shall not perform any work under this subparagraph
until such time as Abbott and Steris mutually agree to a price for Abbott to
perform such technical assistance.
7. Acceptance of Drug Substance
----------------------------
7.1 Subject to the terms of Steris' NDA for Product, Steris shall have a
period of twenty (20) days from the date of receipt of Drug Substance to inspect
and accept or advise Abbott in writing that a shipment of Drug Substance does
not conform with
<PAGE>
- 12 -
Drug Substance Specifications. If Steris does not accept all or any part of a
shipment of Drug Substance, then the parties shall have ninety (90) days from
the date of Abbott's receipt of Steris' notification to resolve any dispute
regarding whether all or any part of such shipment of Drug Substance conforms
with the Drug Substance Specifications. If the parties are unable to resolve any
such dispute within the ninety (90) day period, Steris shall be deemed to have
rejected the Drug Substance in dispute. Steris shall have the right to return
any Drug Substance which does not conform, whether such non-conformance is
discovered before, during or after processing of Product. All or any part of any
shipment may be held for Abbott's disposition and at Abbott's expense if found
to be not in conformance with the Drug Substance Specifications. Without
limiting subparagraph 9.2 or paragraph 11 hereof, no claims under this
subparagraph 7.1 with respect to rejected Drug Substance shall be greater in
amount than the purchase price of such Drug Substance. Steris' failure to timely
advise Abbott that a shipment of Drug Substance does not conform to the Drug
Substance Specifications shall constitute a waiver of any claims it may have
against Abbott with respect to such shipment. Disputes between the parties as to
whether all or any part of a shipment rejected by Steris conforms with the Drug
Substance Specifications shall be resolved by an independent GMP testing
laboratory or consultant acceptable to Abbott and Steris. In the event that such
independent GMP testing laboratory or consultant cannot be agreed upon, the
<PAGE>
- 13 -
parties shall resolve the issue of whether all or any part of such shipment
conforms with the Drug Substance Specifications through the alternative dispute
resolution ("ADR") described in Exhibit C, which is attached hereto and made a
part hereof.
7.2 Abbott's quality control procedures and in-plant quality control
checks on the manufacture of Drug Substance for Steris shall be applied in the
same manner as those procedures and checks are applied to products manufactured
for sale by Abbott.
8. Representations, Warranties, Covenants and Guarantees
-----------------------------------------------------
8.1 Abbott guarantees and warrants that Drug Substance delivered to Steris
pursuant to this Agreement shall, at the time of delivery, not be adulterated or
misbranded within the meaning of the Federal Food, Drug and Cosmetic Act, as
amended, or within the meaning of any applicable state or municipal law in which
the definitions of adulteration and misbranding are substantially the same as
those contained in the Federal Food, Drug and Cosmetic Act, as such Act and such
laws are constituted and effective at the time of delivery and will not be an
article which may not, under the provisions of Sections 404 and 505 of such Act,
be introduced into interstate commerce.
8.2 Abbott and Steris represent, warrant and covenant to each other that
such party has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby.
<PAGE>
- 14 -
8.3 Abbott and Steris represent and warrant to each other that such party
is not currently debarred or suspended by any United States government agency
from receiving federal contracts.
8.4 Abbott further represents and warrants that:
i) it has the right and is fully empowered to manufacture and sell
the Drug Substance to Steris as contemplated hereby; and
ii) neither the import of any raw material for the manufacture of
Drug Substance as contemplated hereby nor the manufacture of Drug Substance as
contemplated hereby will involve any infringement of any existing patents or
proprietary rights of third parties for or in the Drug Substance, nor has Abbott
received any notice of any claimed infringement (including, without limitation
patent infringement) in connection with the Drug Substance.
8.5 This Agreement is on a principal to principal basis. Without limiting
the terms and conditions of paragraphs 9 and 11 hereof, neither party is
authorized nor shall it incur any liability whatsoever for which the other may
become directly, indirectly or contingently liable; nor shall either party hold
itself out as having authority to represent or act on behalf of the other in any
capacity whatsoever; nor shall the relationship be construed as a co-
partnership, joint venture or principal-agent relationship.
8.6 Abbott warrants that Drug Substance delivered to Steris pursuant to
this Agreement shall conform with the Drug Substance
<PAGE>
-15-
Specifications and shall be in compliance with applicable law and all applicable
regulatory requirements of the FDA. ABBOTT MAKES NO OTHER WARRANTIES, EXPRESS OR
IMPLIED, WITH RESPECT TO DRUG SUBSTANCE. ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY DISCLAIMED BY ABBOTT. IN NO
EVENT SHALL ABBOTT BE LIABLE FOR INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES
OF STERIS OR ITS AFFILIATES; PROVIDED THAT THE FOREGOING SHALL IN NO RESPECT
LIMIT ABBOTT'S OBLIGATIONS UNDER SUBPARAGRAPHS 9.2 AND 11.1 HEREOF.
9. Indemnification
---------------
9.1 Steris shall indemnify and hold Abbott and its employees, servants and
agents harmless from and against any and all liabilities, claims, demands,
actions, suits, losses, damages, costs and expenses (including reasonable
attorney's fees) based upon the death or any actual bodily injury or physical
property damage resulting from the packaging, labeling, handling, storage,
promotion, marketing, distribution, use or sale of Drug Substance or Product by
Steris, its Affiliates, or any third party claiming an interest in Drug
Substance or Product through Steris or its Affiliates (the "Indemnitors") to the
extent any of the foregoing results from the Indemnitors, negligence, willful
misconduct or material breach of any of their obligations under this Agreement.
9.2 Abbott shall indemnify and hold Steris and its Affiliates and their
respective employees, servants and agents
<PAGE>
-16-
harmless from and against any and all liabilities, claims, demands, actions,
suits, losses, damages, costs and expenses (including reasonable attorney's
fees) based upon the death or any actual bodily injury or physical property
damage resulting from Abbott's negligence or willful misconduct in its
manufacture or handling of Drug Substance, or its material breach of any of its
obligations under this Agreement.
9.3 Each of the parties shall promptly notify the other of any such claim
or potential claim covered by any of the above subparagraphs in this paragraph 9
and shall include sufficient information to enable the other party to assess the
facts. Each of the parties shall cooperate fully with the other party in the
defense of all such claims. No settlement or compromise shall be binding on a
party hereto without its prior written consent.
10. Product Recall
--------------
10.1 In the event of a recall ordered by a government agency or a confirmed
Product failure ("Recall"), Steris shall be responsible for the coordination of
Recall activities.
10.2 Where the Recall is caused by Abbott's negligence or willful
misconduct or its material breach of any of its obligations or warranties under
this Agreement, Abbott agrees to pay all costs and expenses of any Recall,
including costs of retrieving Product already delivered to Steris' customers.
Abbott further agrees to reimburse Steris for costs and expenses Steris is
required to pay for notification, shipping and handling charges. Prior to any
such reimbursement, Steris shall provide
<PAGE>
-17-
Abbott with supporting documentation of all reimbursable costs and expenses. If
the Recall is caused by reasons other than Abbott's negligence, willful
misconduct or material breach of any of its obligations or warranties hereunder,
Steris shall pay all of the costs and expenses described above for such Recall.
11. Patent Indemnification
----------------------
11.1 Abbott shall indemnify and hold Steris and its Affiliates and their
respective employees, servants and agents (the "Indemnitees") harmless from and
against any and all liabilities, claims, demands, actions, suits, losses,
damages, costs and expenses (including reasonable attorney's fees) which Steris
may incur, suffer or be required to pay by reason of any patent infringement
suit or claim of violation of any proprietary right of any third party brought
against any of the Indemnitees because of Abbott's manufacture of Drug Substance
or relating to the Drug Substance Technology.
11.2 Steris shall indemnify and hold Abbott and its employees, servants and
agents harmless from and against any and all liabilities, claims, demands,
actions, suits, losses, damages, costs and expenses (including reasonable
attorney's fees) which Abbott may incur, suffer or be required to pay by reason
of any patent infringement suit or claim of violation of any proprietary right
of any third party brought against Abbott because of Steris' formulation or use
of Drug Substance or Product, except to the extent arising from Abbott's
manufacture of Drug Substance or relating to the Drug Substance Technology.
<PAGE>
-18-
11.3 Each of the parties shall promptly notify the other of receipt of any
notice of infringement or violation of any proprietary right and shall permit
the other party to defend such actions in such manner as that party, in its sole
discretion, shall choose to defend it. Further, each party shall cooperate fully
with the other in the defense of any such suit. No settlement or compromise
shall be binding on a party hereto without its prior written consent.
12. Insurance
---------
Each party shall, at its sole cost and expense, obtain and keep in force
comprehensive general liability insurance, including any applicable self-
insurance coverage, with bodily injury, death and property damage limits of Five
Million and 00/100 Dollars ($5,000,000.00) per occurrence and Five Million and
00/100 Dollars ($5,000,000.00) in the aggregate, including contractual liability
and product liability coverage. Upon execution of this Agreement, each party
shall furnish the other with a certificate of insurance signed by an authorized
representative of such party's insurance underwriter evidencing the insurance
coverage required by this Agreement and providing for at least thirty (30) days
prior written notice to the other party of any cancellation, termination or
reduction of such insurance coverage.
13. Confidential Information
------------------------
It is contemplated that in the course of the performance of this Agreement
each party may, from time to time, disclose
<PAGE>
-19-
Confidential Information to the other. Each party agrees to take all reasonable
steps to prevent disclosure of Confidential Information. No provision of this
Agreement shall be construed so as to preclude disclosure of Confidential
Information as may be reasonably necessary to secure from any governmental
agency necessary approvals or licenses or to obtain patents with respect to Drug
Substance, Drug Substance Technology or Product. Such obligations of the parties
relating to Confidential Information shall expire five (5) years after
expiration or termination of this Agreement.
14. Force Majeure
-------------
Any delay in the performance of any of the duties or obligations of either
party hereto (except the payment of money) caused by an event outside the
affected party's reasonable control shall not be considered a breach of this
Agreement, and unless provided to contrary herein, the time required for
performance shall be extended for a period equal to the period of such delay.
Such events shall include without limitation, acts of God; acts of the public
enemy; insurrections; riots; injunctions; embargoes; labor disputes, including
strikes, lockouts, job actions, or boycotts; fires; explosions; floods;
shortages of material or energy; delays in the delivery of raw materials; or
other unforeseeable causes beyond the reasonable control and without the fault
or negligence of the party so affected. The party so affected shall give prompt
notice to the other party of such cause, and shall take whatever reasonable
<PAGE>
-20-
steps are appropriate in that party's discretion to relieve the effect of such
causes as rapidly as possible. Without limiting the foregoing, if any such event
continues for thirty (30) days or more, Steris may purchase Drug Substance from
an alternate source or sources until such time as the affected party is able to
cure the event of force majeure.
15. Technical Exchange
------------------
15.1 Abbott hereby grants to Steris a royalty free, worldwide, perpetual,
exclusive except for Abbott, and irrevocable license for the use and practice of
the Drug Substance Technology commencing as follows:
(i) if notice of termination hereof is provided by either party
after December 31, 1996, the aforesaid Drug Substance Technology license shall
commence on the 30th day following receipt of such notification;
(ii) except as provided in subparagraph 15.1 (iii) below, if notice
of termination hereof is provided by either party on or before December 31,
1996, the aforesaid Drug Substance Technology license shall commence on December
31, 1996; or
(iii) upon the bankruptcy or insolvency of Abbott or a determination
of breach by Abbott under ADR or judicial procedures, the aforesaid Drug
Substance Technology license shall commence on the 60th day following such
event.
15.2 The license granted in subparagraph 15.1 hereof shall be in
consideration of sums and other good and valuable
<PAGE>
-21-
consideration heretofore provided by Steris to Abbott, receipt of which is
hereby acknowledged by Abbott, and shall be at no additional expense to Steris.
The license shall include the right to use all proprietary technical information
and know-how reasonably necessary for the practice of the Drug Substance
Technology, and Abbott shall provide the same to Steris on the applicable
commencement date of the license.
15.3 Abbott hereby grants to Steris the right of first refusal to acquire
the rights to technology other than the Drug Substance Technology relating to
manufacture of Drug Substance, which Abbott may desire to transfer. The
provisions of this subparagraph 15.3 shall survive termination, expiration,
cancellation or abandonment of this Agreement through any means or for any
reason for a period of three (3) years.
16. Notices
-------
All notices hereunder shall be delivered personally or by registered or
certified mail, postage prepaid, or by facsimile or express mail, to the
following addresses of the respective parties:
If to Abbott: Abbott Laboratories
President, Chemical and
Agricultural Products Division
1401 North Sheridan Road
North Chicago, IL 60064-4000
With copy to: Abbott Laboratories
Senior Vice President and
General Counsel
One Abbott Park Road
Abbott Park, IL 60064-3500
<PAGE>
-22-
If to Steris: Steris Laboratories, Inc.
620 North 51st Avenue
Phoenix, Arizona 85043
Attention: President
With copy to: Steris Laboratories, Inc.
General Counsel
26 Harbor Park Drive
Port Washington, NY 11050
Notices shall be effective upon receipt if personally delivered, on the third
business day following the date of mailing if sent by registered or certified
mail, and on the second business day following the date of transmission or
delivery to the express mail service if sent by facsimile or express mail. A
party may change its address listed above by notice to the other party.
17. Applicable Law
--------------
This Agreement shall be construed, interpreted and governed by the laws of
the State of Illinois, except for choice of law rules. Any controversy or claim
arising out of or relating to this Agreement, or the breach thereof, shall be
resolved through ADR procedures.
18. Assignment
----------
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective permitted assigns and successors in
interest; provided, however neither party shall assign this Agreement or any
part thereof without the prior written consent of the other party; and further
provided that either party, without such consent, may assign or sell the same in
connection with the transfer or sale of substantially its
<PAGE>
-23-
entire business to which this Agreement pertains, in the event of its merger or
consolidation with another company or in the event of the transfer or sale to a
wholly-owned subsidiary. Any permitted assignee or transferee shall assume all
obligations of its assignor under this Agreement. No assignment shall relieve
any party of responsibility for the performance of any accrued obligation which
such party then has hereunder.
19. Entire Agreement
----------------
Except for the Development Contract, this Agreement constitutes the entire
agreement between the parties concerning the subject matter hereof and
supersedes all written or oral prior agreements or understandings with respect
thereto.
20. Severability
------------
If any term or provision of this Agreement shall for any reason by held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other term or provision hereof, and this
Agreement shall be interpreted and construed as if such term or provision, to
the extent the same shall have been held to be invalid, illegal or
unenforceable, had never been contained herein.
21. Waiver - Modification of Agreement
----------------------------------
No waiver or modification of any of the terms of this Agreement shall be
valid unless in writing and signed by authorized representatives of both parties
hereto. Failure by either party to enforce any rights under this Agreement shall
not
<PAGE>
-24-
be construed as a waiver of such rights nor shall a waiver by either party in
one or more instance be construed as constituting a continuing waiver or as a
waiver in other instances.
22. Counterparts
------------
This Agreement may be executed in any number of separate counterparts, each
of which shall be deemed to be an original, but which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their duly authorized representatives as of the later date written below.
ABBOTT LABORATORIES STERIS LABORATORIES, INC.
By: /s/ Thomas M. McNally By: [SIGNATURE ILLEGIBLE]
------------------------------ -------------------------------------
Thomas M. McNally
President, Chemical
and Agricultural Title: Vice President, Scientific
---------------------------------
Products Division Operations
Date: June 25, 1992 Date: June 26, 1992
---------------------------- -----------------------------------
<PAGE>
ABBOTT LABORATORIES
AND
STERIS LABORATORIES, INC.
SUPPLY AGREEMENT
EXHIBIT A
---------
Drug Substance Specifications
-----------------------------
**** **** * **** ******* *****
***** * ***** ******* ** ******* *******
******* ******* **** * **** ******* *****
********** **** ***** ********
************** ******
** *** * ***
************ ******* **** * **** ******* *****
******** ******* **** * **** ******* *****
****** *** **** **** ** ******
**** *** **** **** ** ******
**** *** **** **** *** ******
******* *** **** **** * ******
******* ****** ****
********* ******* ** **** ******** *********
***** ********* ***** *** **** **** ** ******
******** ******* *** **** **** *** ******* ***
The Drug Substance delivered hereunder will satisfy conditions for
Iron Dextran bulk solution set forth in Steris' NDA, the DMF
and the United States Pharmacopeia XXII.
* redacted pursuant to confidential treatment request.
<PAGE>
ABBOTT LABORATORIES
AND
STERIS LABORATORIES, INC.
SUPPLY AGREEMENT
EXHIBIT B
---------
I. Documentation
-------------
1. Certificate of Manufacturing Conformance and supporting deviation
reports if applicable.
2. Interim Certificate of Analysis.
3. Full Certificate of Analysis in duplicate.
4. Abbott shall issue a Non-Conforming Material Report to document
deviations from established procedures. Steris shall be provided with
a copy for approval and signature.
5. Abbott shall advise Steris of any changes to the Drug Master File for
the Drug Substance which would require prior approval by the FDA.
II. Procedures
----------
1. Three (3) identification tags will accompany each vessel of Drug
Substance. Tags will list name of product, lot number, gross, net and
tare weight and the sequential number of the vessel in the series.
2. Each vessel shall be sealed in a tamper-evident manner.
3. *********** **** ***** ** ** ******** ** ****** ****** ** ***** *****
**** **** ** ***** *********** ** ******* ********* **** **** **
******** ****** **** *** *****
4. Abbott shall provide an interim Certificate of Analysis with each
batch (see item 3). The Certificate will contain results appearance,
for pH, Iron Content, Dextran Content and Chloride.
5. The final Certificate of Analysis and Certificate of Manufacturing
conformance must be received by Steris within eight (8) days of
compounding by Abbott.
* redacted pursuant to confidential treatment request.
<PAGE>
6. Each vessel shall be a clean depyrogenated vessel. Abbott will not
alter the container/closure system without the approval of Steris.
7. *** **** ******** ***** ** **** ******* ***** ******* ****** *******
** ****** ********
* redacted pursuant to confidential treatment request.
<PAGE>
ABBOTT LABORATORIES
AND
STERIS LABORATORIES, INC.
SUPPLY AGREEMENT
EXHIBIT C
---------
Alternative Dispute Resolution
------------------------------
The parties agree that any dispute that arises in connection with this Agreement
and which cannot be amicably resolved by the parties shall be resolved by
binding Alternative Dispute Resolution ("ADR") in the manner described below.
(a) If a party intends to begin an ADR to resolve a dispute, such party shall
provide written notice to the other party informing the other party of such
intention and the issues to be resolved. Within ten (10) business days
after its receipt of such notice, the other party may, by written notice to
the party initiating ADR, add additional issues to be resolved. Within
twenty (20) business days following the receipt of the original ADR notice,
the parties shall select a mutually acceptable neutral. If the parties are
unable to agree on a mutually acceptable neutral within such twenty (20)
days, a neutral shall be selected by the then President of the Center for
Public Resources ("CPR"), 680 Fifth Ave., New York, New York, 10019. Such
person shall be an individual who shall preside in resolution of any
disputes between the parties. The neutral selected shall not be an
employee, director or shareholder of either party or of an affiliate of
either party. This selection shall be final.
(b) No later than thirty (30) business days after selection, the neutral shall
hold a hearing to resolve each of the issues identified by the parties.
(c) At least twenty-five (25) business days prior to the hearing, each party
shall submit to the other party (the "receiving party") and the neutral a
list of all documents on which such party intends to rely in any oral or
written presentation to the neutral and a list of all witnesses, if any,
such party intends to call at such hearing. Within ten (10) business days
after the receiving party makes a request therefor, which request must be
given at least twenty (20) business days prior to the hearing, such other
party shall deliver to the receiving party (i) one true and correct copy of
each of the documents on the above-referenced list requested by such
receiving party and (ii) a summary of the anticipated testimony of each of
such party's witnesses.
<PAGE>
Except as expressly set forth herein, the neutral shall not require nor
shall there be any discovery by any means, including depositions,
interrogatories or production of documents.
(d) At least five (5) business days prior to the hearing, each party must
submit in writing to the neutral and serve on the other party a proposed
ruling on each issue to be resolved. Such writing shall be limited to
representing the proposed rulings, shall contain no argument on or analysis
of the facts or issues, and shall be limited to not more than fifty (50)
pages.
(e) Each party shall be entitled to no more than five (5) hours of hearing to
present testimony or documentary evidence. The testimony of both parties
shall be presented during the same calendar day. Such time limitation
shall include any direct, cross or rebuttal testimony, but such time
limitation shall only be charged against the party conducting such direct,
cross or rebuttal testimony. It shall be the responsibility of the neutral
to determine whether the parties have had the five (5) hours to which they
are entitled.
(f) Each party shall have the right to be represented by counsel. The neutral
shall have sole discretion with regard to the admissibility of any
evidence.
(g) The neutral may attempt to resolve any disputed issue by proposing a
compromise to the parties. If, however, the neutral does not propose a
compromise or the neutral proposes a compromise and either or both of the
parties fail to accept such compromise, the neutral shall rule on each
disputed issue within ten (10) days following the completion of the
testimony of both parties. Such ruling shall adopt in its entirety the
proposed ruling of one of the parties on each disputed issue.
(h) ADR shall take place at a location agreed by the parties, or if the parties
are unable to agree, then as designated by the neutral. All costs incurred
for a hearing room shall be shared equally by the parties.
(i) The neutral shall be paid a reasonable fee plus expenses, which fees and
expenses shall be shared equally by the parties.
(j) Any judgment on the ruling of the neutral may be entered in any court
having jurisdiction thereof.
<PAGE>
[LETTERHEAD OF ABBOTT APPEARS HERE]
December 2, 1993
Mr. James J. Plaza
Senior Vice President and General Manager
SCHEIN PHARMACEUTICAL, INC.
620 North 51st Avenue
Phoenix, AZ 85043
Dear Mr. Plaza:
This letter agreement shall amend the Supply Agreement dated as of May 1, 1992
between Abbott Laboratories and Steris Laboratories, Inc. ("Agreement") in
accordance with the terms and conditions negotiated between the parties over the
past two months. The amended terms and conditions effective for 1994 are as
follows.
1. The definitions used herein shall have the same meaning as used in the
Agreement.
2. Steris shall purchase from Abbott not less than ***** liters of Drug
Substance at ********* per liter.
3. The price for Drug Substance from ***** to ***** liters shall be *********
per liter.
4. The price for Drug Substance in excess of ***** liters will be negotiated
in good faith by the parties.
5. Abbott shall guarantee the manufacture and delivery of ***** liters of Drug
Substance.
6. This letter agreement and the terms and conditions contained herein shall
be effective as of January 1, 1994. Except as contemplated by item 4,
above, the prices set forth herein shall remain firm and shall not be
subject to adjustment for calendar year 1994.
7. Except as otherwise provided hereunder, all other terms and conditions of
the Agreement shall remain in full force and effect.
* redacted pursuant to confidential treatment request.
<PAGE>
Mr. James J. Plaza
December 2, 1993
Page 2
If the foregoing terms and conditions of this letter agreement are acceptable,
please sign and date both originals and return one original to Abbott.
Sincerely, ACCEPTED:
SCHEIN PHARMACEUTICAL, INC.
/s/ Robert L. Parkinson, Jr.
Robert L. Parkinson, Jr.
Sr. Vice President By: /s/ James J. Plaza
---------------------------
Chemical & Agricultural James J. Plaza
Products Division Vice President
Date: 12/2/1993
-------------------------
<PAGE>
[LETTERHEAD OF SCHEIN PHARMACEUTICAL, INC. APPEARS HERE]
June 9, 1995
Mr. John C. Landgraf
Vice President
Chemical and Agricultural Products Division
Abbott Laboratories
1401 Sheridan Road
North Chicago, Illinois 60064-4000
Dear Mr. Landgraf:
This letter agreement shall amend the Supply Agreement dated as of May 1, 1992
between Abbott Laboratories and Steris Laboratories, Inc. as amended by the
letter agreement dated December 2, 1993 (the "Agreement"). Defined terms shall
have the same meaning as used in the Agreement unless otherwise defined herein.
The parties agree as follows:
1. The term of the Agreement shall be extended through December 31, 1999.
2. (a) The term "Contract Requirements" shall mean one hundred percent (100%)
of the worldwide requirements for Drug Substance of Steris and its
Affiliates through December 31, 1997, seventy percent (70%) of such
worldwide requirements from January 1 through December 31, 1998, and sixty-
five percent (65%) of such worldwide requirements from January 1 through
December 31, 1999. As used hereinafter the term "Steris" shall mean Steris
and its Affiliates. During 1998 and 1999 Steris shall be entitled to
purchase or have purchased the balance of such worldwide requirements from
any source or sources, including Abbott; and Steris may in advance take
appropriate steps to identify and secure such sources (but Steris may not
purchase commercial quantities of Drug Substance from such sources prior to
January 1, 1998).
(b) By April 1, 1996 in respect of calendar year 1998, and by April 1,
1997 in respect of calendar year 1999, Steris shall notify Abbott of the
percent of its worldwide requirements for Drug Substance for the applicable
calendar year that it will purchase from Abbott; provided that in no
respect shall such percentage be less than the Contract Requirements for
that year. Steris shall also submit to Abbott by the April 1 notification
dates described above, Steris' forecast by volume of 100% of its worldwide
requirements for Drug Substance for calendar year 1997 or 1998, as the case
may be. These forecasts shall be non-binding and shall be used only for
planning purposes.
(c) Concurrent with the date Steris notifies Abbott that it will purchase
from Abbott less than 100% of its worldwide requirements of Drug Substance
for the calendar years 1998 and/or 1999, Steris may elect to compensate
Abbott for its diminution in profits resulting from Steris purchasing less
than 100% of its worldwide requirements of Drug Substance from Abbott, by
payment to Abbott, by buying an alternate Abbott product or products
mutually agreed to by the parties, or by some
<PAGE>
Mr. John C. Landgraf
June 9, 1995
Page 2
other mutually acceptable means. If Steris does not so elect, then Abbott
shall have the right to qualify other buyers (including Abbott and its
Affiliates) for Drug Substance and to sell and/or transfer to such buyers
the difference in quantity between 100% of Steris' worldwide requirements
for Drug Substance and the Contract Requirements for that calendar year.
3. Subject to paragraph 4 below, the price of the Drug Substance shall be
********* per liter effective January 1, 1995 through the remainder of the
term of the Agreement. Further, the price for Drug Substance for each
calendar year hereunder beginning with calendar year 1996 shall be subject
to adjustment annually by the increase in the Consumer Price Index - All
Urban Consumers - (CPI-U) over the 1995 average CPI-U.
4. During the first week of each calendar quarter during the term of this
Agreement following the first date on which the Average Selling Price of
INFeD(R) is less than ****** per vial, Steris shall promptly notify Abbott
in writing of the Average Selling Price then in effect (the
"Notification"). As used in this Agreement, the "Average Selling Price"
means the weighted average selling price per vial for INFeD(R) sold by
Steris (or its affiliates) to third parties during the prior calendar
quarter. For purposes of calculating the Average Selling Price see the
example set forth in Schedule B, attached hereto and made a part hereof.
Steris represents that the Average Selling Price calculation will be based
on total INFeD(R) sales to third parties. If at any time during the term of
the Agreement the Average Selling Price of INFeD(R) is less than *******
per vial, then within seven (7) days of Abbott's receipt of a Notification,
the price to Steris of the Drug Substance shall be reduced in accordance
with Schedule A hereto, retroactive to the first business day of the then-
current calendar quarter. Abbott shall have the right at any time within 30
days of receipt of a Notification to commence an audit in accordance with
paragraph 6 herein to confirm the accuracy of the determination of the then
current Average Selling Price. Notwithstanding the foregoing, the price of
the Drug Substance will not be reduced pursuant to this paragraph 4 more
than once per calendar quarter. Fifty percent (50%) of any price reductions
made pursuant to this paragraph 4 also shall apply to Drug Substance
contained in Steris' inventory and which was received by Steris during the
quarter preceding Notification. If at any time during the term of the
Agreement the quarterly Average Selling Price of INFeD(R) increases above
the price contained in the prior Notification, then the price for Drug
Substance shall be adjusted for that quarter to correspond to such
increased Average Selling Price as set forth on Schedule A. Notwithstanding
anything herein to the contrary, if at any time Abbott is entitled to and
makes Drug Substance available to any party (excluding transfers within
Abbott or to its Affiliates, unless the Drug Substance is resold by the
recipient other than to an Affiliate) at a price lower than the price
available to Steris hereunder, then the price of Drug Substance hereunder
shall be reduced to that lower price.
5. Abbott agrees that it will hold in confidence and will not disclose to any
third party the pricing information that may be disclosed to it pursuant to
paragraph 4 above. Abbott will not use any of the pricing information which
it is required to hold in confidence except in connection with any
adjustment of the Drug Substance price as contemplated by paragraph 4
above. Abbott further agrees to restrict access to such
* redacted pursuant to confidential treatment request.
<PAGE>
Mr. John C. Landgraf
June 9, 1995
Page 3
pricing information to the minimum number of its employees within the
Chemical and Agricultural Products Division necessary for the purpose of
such re-evaluation and shall use the same standard of care to preserve and
safeguard the confidential pricing information as is used with its own
information of a similar kind. Abbott agrees that such confidential pricing
information will remain within its Chemical and Agricultural Products
Division and will not be disclosed to any other division, group or
affiliated company including, without limitation, its Hospital Products
Division.
6. Steris shall provide Abbott's independent auditors (reasonably acceptable
to Steris), at Abbott's expense, with access during regular business hours
and upon reasonable prior request (and subject to the confidentiality
obligations contained in the Agreement and in paragraph 5 above) to Steris'
records and documents relating to INFeD(R) solely for the purpose of
verifying the accuracy of the Average Selling Price calculation described
in paragraph 4 above and the Contract Requirements described in paragraph 2
above.
7. Except as otherwise provided hereunder, all other terms and conditions of
the Agreement shall remain in full force and effect.
If the foregoing terms and conditions of this letter agreement are acceptable,
please sign both originals and return one original to Steris.
Sincerely,
ACCEPTED AND AGREED:
STERIS LABORATORIES, INC. ABBOTT LABORATORIES
By: /s/ James Plaza By: /s/ John C. Landgraf
------------------------ ----------------------------
James Plaza John C. Landgraf
Senior vice President Vice president
and General Manager CAPD Commercial Operations
<PAGE>
SCHEDULE A
DRUG SUBSTANCE PRICE**
(PER KILOGRAM,
AVERAGE SELLING DENSITY FACTOR OF
PRICE (PER VIAL)* **** KILOGRAMS PER LITER)
----------------- -------------------------
*** **** ***** *****
** *****
** *****
** *****
** *****
** *****
** *****
** *****
* *****
* *****
* *****
* *** ***** *****
* For Average Selling Prices between whole dollars, the price of Drug
Substance shall be proportionately adjusted.
** Subject to adjustment in accordance with paragraph 3 of this letter
agreement.
* redacted pursuant to confidential treatment request.
A1/1
<PAGE>
SCHEDULE B
CALCULATION OF AVERAGE SELLING PRICE
INFeD(R)
QUARTER ENDING________
Total Net Sales to Third Parties - INFeD(R) $ (A)
Total Unit Sales - INFeD(R) $ (B)
Average Selling Price Per Unit - INFeD(R) $ A/B
B1/1
<PAGE>
EXHIBIT 10.2
AGREEMENT
---------
AGREEMENT entered into this 10th day of June 1994 by and between AKZO
PHARMA INTERNATIONAL B.V. and ORGANON INC. (hereinafter collectively referred to
as "AKZO"), and SCHEIN PHARMACEUTICAL, INC. and STERIS LABORATORIES, INC.
(hereinafter collectively referred to as "SCHEIN").
STATEMENT
---------
Akzo Pharma International B.V. and Organon Inc. are the owner and exclusive
licensee, respectively, of U.S. Patent No. 4,237,126 issued December 2, 1980
("the '126 patent") and U.S. Patent No. 4,297,351 ("the '351 patent") issued
October 27, 1981. By virtue of a terminal disclaimer in the '351 patent, both
patents expire on December 2, 1997. AKZO has FDA approval to market NORCURON(R)
(vecuronium, bromide) for injection. The aforesaid patents are listed in the FDA
Orange Book as patents which cover that approved product.
In April 1993, SCHEIN submitted ANDA 74-334 ("The ANDA") to the Food and
Drug Administration under 21 USC (S) 355(j) seeking FDA approval to manufacture
and sell vecuronium bromide for injection in the United States prior to the
expiration of the '126 and '351 patents. The ANDA contained a certification by
SCHEIN asserting that the aforesaid patents were invalid and not infringed.
Simultaneous with the filing of The ANDA, as required by law, SCHEIN served AKZO
with a detailed statement of the facts
<PAGE>
and law explaining its patent certification. Within forty-five (45) days after
receipt of the Patent Certification Notice, AKZO commenced an action against
SCHEIN in the United States District Court for the District of Arizona (Civil
Action No. CIV 93-1071 PHX EHC) for infringement of the '126 and '351 patents.
The '126 and '351 patents are presumed to be valid and enforceable as a
matter of law and the burden is on SCHEIN in the pending litigation to prove
otherwise by clear and convincing evidence. The cost and risk involved in patent
litigation coupled with the relatively short remaining patent life have led the
parties hereto to conclude that an amicable settlement of the controversy is the
most prudent course of action provided that any such settlement gives due regard
to both the presumptive validity of the patents and to the period of generic
exclusivity which SCHEIN would receive under 21 USC (S) 355(j)(4)(B)(iv) as a
result of a final judgment in its favor in the pending litigation. This
Agreement embodies the terms of that settlement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
hereinafter contained the parties agree as follows:
1. As used in this Agreement:
"Affiliate" shall mean a company which is controlled by, controls or
is under common control with any party hereto, where control means ownership of
50% or more of stock or equity of the controlled company.
2
<PAGE>
"PRODUCT" shall mean vecuronium bromide (for injection) in accordance
with The ANDA, regardless of dosage strength, or in accordance with any other
ANDA filed by SCHEIN or its Affiliates that employs vecuronium bromide
formulated with any pharmaceutically acceptable acid, as such acid is described
in the '126 patent or the '351 patent, for use as an injectable formulation.
"PROCESS" shall mean the manufacture of vecuronium bromide (for
injection) in accordance with The ANDA, regardless of dosage strength, or in
accordance with any other ANDA filed by SCHEIN or its Affiliates that employs
vecuronium bromide formulated with any pharmaceutically acceptable acid as
such acid is described in the '126 patent or the '351 patent.
2.(a) In the foregoing Civil Action No. CIV 93-1071 PHX EHC, the parties
agree to entry of the Consent judgment in the form attached as Exhibit A, or in
such other form acceptable to the parties and the Court and which enjoins SCHEIN
and its Affiliates from any manufacture, use or sale of PRODUCT, or performance
of PROCESS, before March 15, 1996, except as otherwise provided in this
Agreement.
(b) AKZO has no objection to the FDA giving SCHEIN the effective
approval date its ANDA would have been entitled to if no action for infringement
of the '126 and '351 patents had been commenced within the forty-five (45) day
period following service of the Patent Certification Notice. Nothing in this
provision alters the commencement date of the license of paragraph 4(a) of
3
<PAGE>
this Agreement or the injunction referred to in paragraph 4(a) of this
Agreement. AKZO will certify to the FDA the accuracy and effectiveness of this
Agreement and the license granted herein (a copy of which Agreement may be
provided to the FDA on a confidential basis), and will make all submissions
reasonably required by the FDA for the ANDA to receive the benefit of the
effective approval date described in this paragraph 2(b).
3. SCHEIN acknowledges that the '126 and '351 patents are valid and
enforceable and that the manufacture, use or sale of PRODUCT, or the performance
of PROCESS, for, by, or to SCHEIN or its Affiliates in the United States prior
to the expiration of the patents, except to the extent that such activities are
expressly permitted by this Agreement, would be acts of patent infringement
which would cause immediate irreparable harm and damage to AKZO such that they
would be entitled to a temporary restraining order and permanent injunction in
the United States District Court for the District of Arizona enjoining any such
activities by SCHEIN or its Affiliates prior to March 15, 1996, except to the
extent a date earlier than March 15, 1996 is otherwise permitted under the
terms of this Agreement.
4. (a) AKZO hereby grants to SCHEIN a license under the '126 patent and
the '351 patent to make, use and sell PRODUCT in the United States and to
perform PROCESS in the United States, subject to SCHEIN's fulfillment of all the
terms and conditions
4
<PAGE>
of this Agreement, including SCHEIN's obligations to pay royalties. The
aforesaid license shall commence on March 15, 1996 except to the extent a date
earlier than March 15, 1996 is otherwise permitted under the terms of this
Agreement. SCHEIN and its Affiliates are enjoined pursuant to Exhibit A from any
manufacture, use or sale of PRODUCT, or performance of PROCESS, before the
commencement date of the license under this Agreement, except as otherwise
provided in paragraph 4(c) of this Agreement. The license granted to SCHEIN
shall include the right to make and package PRODUCT two weeks prior to the
commencement date of the license provided that no PRODUCT is sold or shipped for
delivery to a customer prior,to the commencement date of the license.
(b) The license granted pursuant to paragraph 4(a) shall be an exclusive
license, except for the following reservations: (i) AKZO and its Affiliates
retain a license (which shall be a license that is nonassignable except as in
accordance with paragraph 16 and does not include a right to sublicense, except
as provided in paragraph 4(b)(ii) and except as required to have third parties
manufacture any products for AKZO and its Affiliates, or to perform any process
for AKZO and its Affiliates, that is covered by any claim of the '126 patent
and/or the '351 patent) to manufacture, have manufactured for AKZO and its
Affiliates, use and/or sell any products, or to perform any process, or to have
any process performed for AKZO and its Affiliates, that is covered by any claims
of the '126 patent and/or the '351 patent and (ii) AKZO retains the right to
grant licenses under the '351 patent and/or the '126 patent to
5
<PAGE>
any third party in connection with an action covered by paragraph 6(d), provided
that no such license under paragraph 4(b)(ii) shall be granted that commences
prior to the date provided in paragraph 6(d) of this Agreement. The license
granted to SCHEIN shall be a non-assignable license that does not include a
right to sublicense.
(c) The license granted pursuant to paragraph 4(a) of this Agreement
includes SCHEIN's right to engage in one or more of the following activities
prior to the commencement date of the license: (i) import raw materials prior to
the commencement date, and throughout the duration of the license, for testing
and research and development purposes, to satisfy FDA requirements, and for
PRODUCT manufacture as permitted by this Agreement; and (ii) conduct activities
(including without limitation manufacture of product exhibit batches) required
to obtain FDA approval. Nothing in this Agreement or Consent Judgment shall be
construed as preventing SCHEIN from engaging in any of the following activities:
(1) soliciting and entering into private labelling agreements for PRODUCT
beginning not more than three (3) months prior to the commencement date of the
license; (2) conducting activities required to obtain state formulary approvals
beginning not more than three (3) months prior to the commencement date of the
license; (3) engaging in pre-marketing promotional activities and soliciting
orders for PRODUCT beginning not more than eight (8) weeks prior to the
commencement date of the license, provided that no PRODUCT is sold or shipped
for delivery to a customer prior to the commencement date of the
6
<PAGE>
license; or (4) entering into agreements beginning not more than eight (8) weeks
prior to the commencement date of the license, to sell and deliver PRODUCT on
and after the commencement date of the license. The parties acknowledge that
SCHEIN may engage in any or all of the activities stated in this subparagraph
4(c), which shall be neither a breach of this Agreement nor a violation of the
Consent Judgment.
5. (a) SCHEIN agrees to pay to AKZO on all PRODUCT which SCHEIN or its
Affiliates sell prior to the expiration date of the '126 and '351 patents a
royalty on its Net Sales of such PRODUCT at the following rates: ***** *** ***
***** ******* ******* ** *** ***** *** ******* **** **** ***** **, **** *******
******* **, ****; **** ******* **** ** *** ***** *** ******* **** **** *******
**, **** ******* *** *, ****; *** *** *** ******** ******* ****** ** *** *****
*** ******* **** **** *** *, **** ******* ******** *, ****.
(b) "Net Sales" shall mean the total amount charged to third parties
by or on behalf of either SCHEIN or its Affiliates for PRODUCT, less only
charges for (i) taxes, (ii) freight and/or insurance that are separately
invoiced and paid by the third party for delivery, (iii) returns for credit, and
(iv) usual, customary and reasonable chargebacks, sales rebates or credits of
the type given in the normal course of business to particular classes of
customers to induce purchases of the PRODUCT for which the discount is given. In
calculating Net Sales, SCHEIN shall include a reasonable chargeback reserve for
estimated future
* redacted pursuant to confidential treatment request.
7
<PAGE>
claims to be made against current sales of PRODUCT. The chargeback provision
shall not exceed five (5) percent of the average monthly sales that are subject
to a chargeback during the licensed period. After each calendar year SCHEIN will
review the reserve amount against actual credits issued during the year on
chargeback claims of PRODUCT, and royalty payments shall be adjusted
accordingly. No other item shall be deducted in determining "Net Sales".
(c) In the event that AKZO shall grant a license to a business entity
that is not an Affiliate of AKZO to utilize the inventions of the '126 patent
and the '351 patent at a more favorable royalty rate than that specified in
paragraph 5(a), AKZO shall notify SCHEIN of the terms of such other license and
SCHEIN shall have the option of adopting such more favorable rate so long as
SCHEIN also adopts all the other terms and conditions of such other license;
provided any such other license shall commence on a date no earlier than that
permitted under paragraph 4(b)(ii) of the Agreement.
(d) The payments to be made by SCHEIN unless otherwise specified,
shall be made quarterly within thirty (30) days after each calendar quarter on
Net Sales of each PRODUCT made during the preceding calendar quarter. Such
payment shall be accompanied by a statement setting forth sufficient information
with respect to sales to enable AKZO to verify the basis for the payment being
made.
(e) SCHEIN shall at all times maintain accurate and complete
manufacturing and sales records with respect to all drug
8
<PAGE>
products for which payments are due in such a manner that the amount or payments
due and payable hereunder may be verified by independent auditors acceptable to
AKZO. AKZO may request such an audit but not more than once during any calendar
year during the term hereof and once within six (6) months after termination of
this Agreement. In the event the accountant determines an underpayment for the
period under audit, then SCHEIN shall pay the amount underpaid plus interest
pursuant to paragraph 5(f) hereof. In addition, if the underpayment is greater
than ten percent (10%), then SCHEIN shall also pay the reasonable cost of the
audit.
(f) SCHEIN shall pay interest to AKZO on any and all amounts of
royalties that are at any time over 30 days past due and payable to AKZO at an
annual rate equal to the prime rate, as published in "The Wall Street Journal"
for the day the royalties were due, from the date the royalties were due and
payable to the date paid.
(g) All payments made by SCHEIN to AKZO hereunder shall be made to
Organon Inc. at its address set forth in paragraph 15 or at such other address
as Organon Inc. shall specify by written notice.
6. (a) The license granted to SCHEIN pursuant to paragraph 4 hereof
shall become effective immediately in the event that a generic version of
NORCURON(R) is offered for sale in the United States by AKZO, or any Affiliate
of AKZO; and AKZO shall notify SCHEIN of its (or its Affiliate's) intention to
so
9
<PAGE>
offer a generic version for sale, no less than ninety (90) days prior to so
offering. For purposes of this Agreement, a "generic version" means any
vecuronium bromide product manufactured by, for or on behalf of AKZO or any
Affiliate of AKZO which does not bear the NORCURON(R) brand.
(b) If AKZO hereafter receives a Patent Certification Notice pursuant
to 21 USC (S) 355(j) which challenges the validity or enforceability of the '126
or '351 patents, AKZO shall provide SCHEIN with a copy of all documents
received as part of the Notice within ten (10) days after receipt thereof.
within forty-five (45) days after receipt of the Notice, AKZO shall inform
SCHEIN as to whether an action for infringement of the aforesaid patents has
been commenced against the party who served the Patent Certification Notice. If
no action is commenced within forty-five (45) days after receiving such a Patent
Certification Notice, the license granted under paragraph 4(a) shall commence on
the 45th day following the receipt of the Patent Certification Notice by AKZO.
AKZO represents to SCHEIN that it has not received, nor has knowledge of, any
Patent Certification Notice from any third party (other than SCHEIN), which
challenges the validity or enforceability of the '126 and/or the '351 patent.
(c) If following receipt of a Patent Certification Notice as
described in paragraph 6(b) an action for infringement of the '126 and '351
patents is commenced by AKZO within forty-five (45) days after receiving a
Patent Certification Notice which challenges the aforesaid patents, AKZO agrees
that
10
<PAGE>
it will provide SCHEIN with a copy of any trial court decision rendered in that
action. If the trial court's decision holds the aforesaid patents invalid, not
infringed or unenforceable then the license under paragraph 4(a) shall commence
on the date on which the trial court decision is rendered.
(d) If an action for infringement of the '126 and '351 patents is
commenced within forty-five (45) days after receiving a Patent Certification
Notice which challenges the aforesaid patents, AKZO agrees it will provide
SCHEIN with immediate written notice of any voluntary dismissal or settlement of
such litigation. Any license granted by AKZO in connection with such dismissal
or settlement shall commence no earlier than September 15, 1996, unless the
license granted to SCHEIN under paragraph 4(a) of this Agreement has theretofore
commenced pursuant to paragraph 6(a) or 6(b), in which event any license granted
by AKZO in connection with such dismissal or settlement shall commence no
earlier than 6 months following the commencement date of the license granted to
SCHEIN.
7. SCHEIN and its Affiliates agree that they will not file a Request for
Reexamination of the '126 patent or the '351 patent in the United States Patent
and Trademark office.
8. (a) If SCHEIN has not received FDA approval pursuant to The ANDA to
commence manufacture and sale of the PRODUCT which is rated AP to NORCURON(R) on
a date which is sufficiently prior to AKZO or its Affiliate offering for sale in
the United States
11
<PAGE>
prior to March 15, 1996 a generic version of NORCURON(R) to enable SCHEIN to
build the inventory needed to fulfill its customers' requirements for PRODUCT
beginning on the date of AKZO's or its Affiliate's first offering a generic
version of NOCURON(R), AKZO agrees that it shall sell PRODUCT to SCHEIN and
shall fulfill SCHEIN's requirements for such inventory in accordance with the
provisions of this paragraph 8, from the date of AKZO's or its Affiliate's first
offering a generic version of NORCURON(R) through the period of the license
granted under paragraph 4(a) of this Agreement, but ending when SCHEIN receives
FDA approval and begins commercial manufacture of PRODUCT.
(b) PRODUCT which AKZO shall supply to SCHEIN-under paragraph 8(a) of
this Agreement shall be packaged and labeled in the same manner as those
products would have been packaged and labeled by SCHEIN for sale to its
customers in accordance with its customary business practices in manufacturing
and selling generic versions of branded pharmaceutical products, provided that
such packaging and labeling are in conformance with AKZO's NORCURON(R) NDA and
provided further that AKZO will cooperate with SCHEIN by providing documentation
as reasonably requested by SCHEIN and which is necessary to identify the PRODUCT
as manufactured under AKZO's NORCURON(R) NDA. SCHEIN shall reimburse AKZO for
all out-of-pocket expenses incurred by AKZO respecting any label, package insert
or packaging change vis-a-vis the present FDA approved specifications under the
NORCURON(R) NDA required for AKZO to supply PRODUCT to SCHEIN under this
paragraph 8, provided all expenses in excess of $1,000 are
12
<PAGE>
approved in advance by SCHEIN. Reimbursement shall take place within 30 days
after each invoice for substantiated expenses is sent to SCHEIN for payment.
Promptly after AKZO gives notice to SCHEIN pursuant to paragraph 6(a) of this
Agreement, representatives of AKZO and SCHEIN shall confer for the purpose of
defining and initiating the steps which may be required to supplement
AKZO's NORCURON(R) NDA and/or The ANDA so that any FDA approval required for
AKZO to manufacture PRODUCT and any state formulary,approvals required for the
sale of PRODUCT by SCHEIN shall be obtained on a date which is sufficiently
prior to the date of AKZO's or its Affiliate's first offering for sale a generic
version of NORCURON(R). AKZO and SCHEIN representatives shall also confer after
AKZO gives notice to SCHEIN pursuant to paragraph 6(a) of this Agreement for the
purpose of establishing estimates of SCHEIN's potential requirements for
PRODUCT, to establish procedures for placing orders for PRODUCT, and to deal
with any other questions which should be resolved in order to assure that SCHEIN
receives its PRODUCT requirements in a timely fashion. Each lot of PRODUCT
delivered by AKZO under paragraph 8 of this Agreement shall be accompanied by a
certificate of analysis.
(c) The price SCHEIN is to pay AKZO for PRODUCT purchased under this
paragraph 8 shall be the lesser of (i) ****** ******* ***** of AKZO's then
current average selling price of NORCURON(R) and (ii) *** ***** AKZO's standard
cost of goods for PRODUCT (but in no event less than AKZO1s standard cost of
goods for PRODUCT). For so long as SCHEIN sells PRODUCT purchased from
* redacted pursuant to confidential treatment request.
13
<PAGE>
AKZO pursuant to paragraph 8 of this Agreement, SCHEIN shall not be required to
pay the royalty set forth in paragraph 5(a) of this Agreement.
(d) AKZO shall at all times maintain accurate and complete
manufacturing and sales records with respect to all PRODUCT sold to SCHEIN under
paragraph 8 for which payments are due in such a manner that the amount or
payments due and payable hereunder may be verified by independent auditors
acceptable to SCHEIN. SCHEIN may request such an audit but not more than once
during any calendar year during the term hereof and once within six (6) months
after termination of this Agreement. In the event the accountant determines an
overpayment for the period under audit, then AKZO shall pay the amount overpaid
plus interest pursuant to paragraph 8(e) hereof. In addition, if the overpayment
is greater than ten percent (10%), then AKZO shall also pay the reasonable cost
of the audit.
(e) SCHEIN shall pay interest to AKZO on any and all amounts of the
price for PRODUCT purchased under paragraph 8 that are at any time over 30.days
past due and payable to AKZO at an annual rate equal to the prime rate, as
published in "The Wall Street Journal" for the day the price for PRODUCT
purchased under paragraph 8 was due, from the date the price for PRODUCT
purchased under paragraph 8 was due and payable to the date paid.
(f) All payments made by SCHEIN to AKZO hereunder shall be made to
Organon Inc. at its address set forth in paragraph 15 or at such other address
as Organon Inc. shall specify by written notice.
14
<PAGE>
(g) AKZO shall provide to SCHEIN information and data regarding the
PRODUCT sold to SCHEIN under paragraph 8 of this Agreement, in the possession or
control of AKZO or any of its Affiliates which is required by SCHEIN for use
before any state or federal regulatory body.
(h) AKZO warrants that the PRODUCT supplied by it under paragraph 8
of this Agreement (i) shall conform to all requirements of the NORCURON(R) NDA,
USP specifications and all applicable federal, state or local law or regulation,
and (ii) at the time of shipment or delivery to SCHEIN shall not be adulterated
or misbranded within the meaning of the Federal Food, Drug and Cosmetic Act, and
not an article which may not, under the provisions of the Act, be introduced
into interstate commerce. AKZO agrees to indemnify and hold SCHEIN and its
Affiliates harmless against any and all claims, liabilities, damages and costs,
including reasonable attorney fees and other costs of defense, arising directly
or indirectly from breach of any of the foregoing warranties, provided that
SCHEIN gives AKZO prompt notice of any such claims, liabilities, damages and
costs.
(i) Promptly after AKZO gives notice to SCHEIN pursuant to paragraph
6(a) of this Agreement, SCHEIN shall use all commercially reasonable efforts to
begin the commercial manufacture of PRODUCT as soon as possible following
approval of The ANDA.
9. Nothing in the Agreement shall be construed as an obligation on the
part of AKZO to furnish any manufacturing or
15
<PAGE>
technical information, except for certificates of analysis when AKZO is selling
PRODUCT to SCHEIN under paragraph 8 of this Agreement.
10. SCHEIN and AKZO agree to maintain the terms and conditions of this
Agreement confidential, and not to otherwise disclose the contents of this
Agreement or its terms, except as required by law or as contemplated by this
Agreement.
Neither SCHEIN nor AKZO will make any public announcement or issue any
press release regarding this Agreement or the relationship between SCHEIN and
AKZO as set forth herein without the prior written approval of the other
parties, except in connection with SCHEIN's promotion and sale of PRODUCT and
then only to the extent to indicate that SCHEIN has a license under the '126
patent and the '351 patent.
11. No obligation is created by this Agreement that shall require AKZO to
enforce the '126 patent and/or the '351 patent against others. AKZO retains the
sole right to enforce the '126 patent and/or the '351 patent.
12. (a) AKZO may terminate this Agreement thirty (30) business days after
written notice to SCHEIN of failure to pay royalties or any other required
payment under this Agreement which are due and payable, if SCHEIN has not cured
any such default during the notice period.
16
<PAGE>
(b) In the event of Termination of this Agreement, all monetary
consideration pursuant to paragraph 5 that has accrued but is unpaid shall
immediately become due and payable.
(c) AKZO's exercise of their termination right does not constitute
waiver of any other rights or remedies that AKZO may have against SCHEIN.
13. The failure of any Party to insist upon the strict performance by any
other Party of any provision of this Agreement, or to exercise any right or
remedy consequent upon a breach thereof, shall not constitute a waiver of such
breach or of such provision or any other provision of this Agreement. The
failure of any Party to exercise its rights to enforce any provision of this
Agreement shall not prevent such Party from fully exercising its rights or
enforcing any provision at another time.
14. This Agreement constitutes the entire agreement between the Parties
and contains all of the agreements between the Parties with respect to the
subject matter hereof. This Agreement supersedes any and all other agreements,
whether oral or in writing, between the Parties with respect to the subject
matter hereof. This Agreement may be amended or modified only by a written
Agreement signed by the parties.
17
<PAGE>
15. All notices or other communications provided for in this Agreement
shall be deemed sufficiently given when set forth in writing and sent by
certified or registered mail, return receipt requested, by overnight express
courier or by telefax or telex, followed by a written confirmation sent in
accordance with this paragraph, and shall be addressed as follows:
For Akzo: Akzo Pharma International B.V.
Wethouder van Eschstraat 1
5340 BH Oss
The Netherlands
Attention: Head of Legal Affairs
For Organon: Organon Inc.
375 Nt. Pleasant Avenue
West Orange, NJ 07052
Attention: Vice President and General Counsel
For Steris: Steris Laboratories Inc.
620 N. 51st Avenue
Phoenix, AZ 85043
Attention: Senior Vice President
and General Manager
For Schein: Schein Pharmaceutical Inc.
100 Campus Drive
Florham Park, NJ 07932
Attention: Chairman
Any party may change the address for the giving of Notices to it by appropriate
notice to the other Parties.
16. None of the rights, obligations, covenants, or license under this
Agreement shall be assignable in whole or in part by any party hereto without
the express prior written consent of the other party, except that AKZO may
assign this Agreement in whole or in part to another entity as part of any
change in the corporate structure,, identity or ownership of AKZO, including,
but not limited to, mergers, acquisitions, sales, etc.
18
<PAGE>
17. This Agreement is made under and shall be construed in accordance with
and governed by the laws of the State of New Jersey and the Court of Appeals for
the Federal Circuit. The United States District Court for the District of
Arizona shall have exclusive jurisdiction in all matters arising under this
Agreement, and the parties hereto expressly consent and submit to the personal
and subject matter jurisdiction of such Court.
18. This Agreement shall be executed by each Party in duplicate originals,
each of which shall be deemed an original, but both originals together shall
constitute only one and the same instrument.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first above written.
AKZO PHARMA INTERNATIONAL B.V. SCHEIN PHARMACEUTICAL INC
By: [SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
------------------------ ------------------------
Authorized officer Authorized officer
By: [SIGNATURE ILLEGIBLE]
------------------------
Authorized officer
ORGANON INC. STERIS LABORATORIES, INC.
By: [SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
------------------------ ------------------------
Authorized officer Authorized officer
By: [SIGNATURE ILLEGIBLE]
------------------------
Authorized officer
20
<PAGE>
EXHIBIT A TO AGREEMENT
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA
_____________________________________
AKZO PHARMA INTERNATIONAL B.V. and )
ORGANON INC., )
)
Plaintiffs, )
) Civil Action No.
V. ) CIV 93-1071 PHX EHC
)
STERIS LABORATORIES INC., )
SCHEIN PHARMACEUTICAL INC. ) CONSENT JUDGMENT
) PURSUANT TO RULE 54(a)
Defendants. ) ----------------------
_____________________________________
As a result of Akzo Pharma International B.V. and Organon Inc. (hereinafter
"Plaintiffs") and Steris Laboratories Inc. and Schein Pharmaceutical Inc.
(hereinafter "Defendants") having executed an Agreement dated June 10, 1994 (the
"AGREEMENT") wherein, inter alia, Defendants have acknowledged the validity and
enforceability of United States Patent No. 4,237,126 (hereinafter the "'126
Patent") and United States Patent No. 4,297,351 (hereinafter the "'351 Patent")
and their infringement of those patents, the parties consent to entry of the
following ORDER and JUDGMENT:
(1) Defendants are enjoined until March 15, 1996 from the manufacture, use
and/or sale of the PRODUCT as defined in the AGREEMENT and the use of the
PROCESS as defined in the AGREEMENT, except as otherwise provided in the
AGREEMENT;
<PAGE>
(2) All counterclaims and defenses raised in this action by Defendants
are dismissed with prejudice, each party to bear its own attorney's fees and
costs;
(3) The AGREEMENT entered into between the parties, which has been filed
with this Court under seal, is adopted by the Court as part of this ORDER and
JUDGMENT;
(4) The '126 Patent and the '351 Patent are valid and enforceable, and
Defendants agree that they are precluded from challenging the validity and
enforceability of these patents, even in subsequent litigation involving the
same or new claims or the same or new causes of action;
(5) The unlicensed manufacture, use and/or sale of the PRODUCT as defined
in the AGREEMENT, and the unlicensed use of the PROCESS as defined in the
AGREEMENT, infringes the '126 Patent and the '351 Patent, and the filing of ANDA
74-334 infringes the '126 Patent and the '351 Patent, and Defendants agree that
they are precluded from challenging that such activities are an infringement of
these patents, even in subsequent litigation involving the same or new claims or
the same or new causes of action; and
2
<PAGE>
(6) This Court retains jurisdiction to enforce this ORDER and JUDGMENT and
the parties' AGREEMENT.
By:__________________________________
Attorney for Plaintiffs
Akzo Pharma International B.V. and
Organon Inc.
By:__________________________________
Attorney for Defendants
Steris Laboratories Inc. and
Schein Pharmaceutical Inc.
IT IS SO ORDERED:
DATED this_____ day of_____, 1994.
__________________________________
The Honorable Earl H. Carroll
United States District Judge
3
<PAGE>
EXHIBIT 10.4
SUBLICENSE, CO-MARKETING AND SUPPLY AGREEMENT
BETWEEN
SCHEIN PHARMACEUTICAL, INC.
AND
MAKOFF R&D LABORATORIES, INC.
<PAGE>
SUBLICENSE, CO-MARKETING AND SUPPLY AGREEMENT
This Sublicense, Co-Marketing and Supply Agreement ("Agreement") is entered
into as of the 30th day of September, 1996, by and between Schein
Pharmaceutical, Inc., a Delaware corporation ("Schein"), and Makoff R&D
Laboratories, Inc., a California corporation ("R&D").
WITNESSETH:
WHEREAS, R&D and Rhone-Poulenc Rorer GmbH, a limited liability company
organized under the laws of the Federal Republic of Germany ("RPR"), have
heretofore entered into that certain Distribution Agreement dated June 24, 1993,
as amended to date (the "Distribution Agreement"), and that certain Trademark
Agreement dated August 26, 1993, as amended to date (the "Trademark Agreement");
and
WHEREAS, the Distribution and Trademark Agreements grant to R&D, upon and
subject to the terms and conditions contained therein, the exclusive license to
import the Products and use and sell the Products in the Territory (as such
terms are defined in the Distribution Agreement) and to use the Trademark
"Ferrlecit" in connection with R&D's activities under the Distribution
Agreement; and
WHEREAS, RPR represents itself as the sole and exclusive worldwide owner of
all proprietary information, compounds, know how, trade secrets, data and
technology relating to the manufacture of the Product (as defined below); and
WHEREAS, R&D and Schein desire to enter into this Agreement in order to
provide for the joint commercialization of R&D's rights under the Distribution
and Trademark Agreements, upon and subject to the terms and conditions contained
herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, Schein and R&D agree as follows:
1. Definitions. As used in this Agreement, the following definitions
-----------
shall apply:
"Affiliate" shall, unless otherwise expressly provided herein, mean
any person, firm, corporation or other business entity which directly or
indirectly controls, is controlled by or is under common control with, R&D or
Schein. The term "control" means possession, direct or indirect, of no less than
a majority of the power to direct or cause the direction of the management and
policies of such entity, whether pursuant to the ownership of voting securities,
by contract or otherwise.
"Confidential Information" shall mean any information pertaining to
the Product from time to time communicated by or on behalf of R&D to Schein
(including without limitation any RPR Know How), or by or on behalf of Schein to
R&D, as the case may be, including, without limitation, trade secrets, business
methods, pricing, cost, supplier, manufacturing and customer information,
whether of a written, oral or visual nature, and it is expressly understood and
agreed that the term "confidential information" means and includes any and all
"RPR know-how" and/or "R&D know-how," as such terms are defined in Subsections
1.6 and 1.7, respectively, of the Distribution Agreement.
"Cost of Goods" shall have the meaning set forth in clause
7(c)(iii)(3) hereof.
<PAGE>
"FDA" shall mean the United States Food and Drug Administration.
"Final Net Profit Determination" shall have the meaning set forth in
clause 7(c)(iv) hereof.
"Foreign Registrations" shall mean the registrations and permits
required by applicable government authorities in the Territory outside of the
United States for the importation into and for the marketing, sale and
distribution of the Product in a country in the Territory.
"Marketing Authorization" shall mean approval by the FDA of the NDA
and the procurement of the Foreign Registrations.
"Marketing Plan(s)" shall mean the annual plan(s) to be developed (in
accordance with the guidelines set forth in Exhibit E hereto) by Schein for each
country in the Territory, subsequent to and consistent with the Strategic
Commercialization Plan(s).
"NDA" shall mean the new drug application, which shall be and remain
owned by R&D, which is prepared by R&D for submission to the FDA in order to
obtain approval to sell the Product in the United States and to manufacture the
Product.
"Net Profit" shall have the meaning set forth in clause 7(c)(iii)(1)
hereof.
"Net Sales" shall have the meaning set forth in clause 7(c)(iii)(2)
hereof.
"Product" shall have the meaning ascribed to it in Subsection 1.5 of
the Distribution Agreement.
"Recall Costs" shall have the meaning set forth in Paragraph 13(b)
hereof.
"R&D Know How" shall mean all (i) patents (if any), proprietary rights
and/or applications of R&D or with respect to which R&D has rights (but only to
the extent of such rights) with respect to the Product, all registrations of R&D
or with respect to which R&D has rights (but only to the extent of such rights)
with respect thereto and all technology, know how and goodwill of R&D or with
respect to which R&D has rights (but only to the extent of such rights)
associated therewith, (ii) proprietary scientific and medical information,
technical data and marketing studies in R&D's possession, or from time to time
invented, developed or acquired by or on behalf of R&D or under the control of
R&D relating to the Product, and (iii) the trademark "Ferrlecit." It is
expressly understood and agreed that the term "R&D Know-How" means and includes
any and all "RPR know-how" and/or "R&D know-how" as such terms are defined in
Subsections 1.6 and 1.7, respectively, of the Distribution Agreement.
"RPR Agreements" shall collectively mean the agreements between RPR
and R&D as follows:
(a) the Distribution Agreement, Amendment 1 thereto dated
November 8, 1994, Exhibit A thereto dated July 6, 1993, Exhibit A/1 thereto
dated December 18, 1995, and Exhibit B thereto dated July 6, 1993, each of which
Exhibits and Amendments has already been provided by R&D to Schein, with it
being acknowledged that said Exhibit B and the Trademark Agreement were provided
to Schein only in redacted form;
2
<PAGE>
(b) the Trademark Agreement; and
(c) any additional executed written amendments, waivers or
modifications to the RPR Agreements that are provided to Schein by R&D prior to
the date hereof.
"Strategic Commercialization Plan(s)" shall mean the plan(s) to be
developed (in accordance with the guidelines set forth in Exhibit F hereto) by
R&D and Schein in accordance with Paragraph 5(a) hereof.
"Supply Agreement" shall mean the Manufacturing and Supply Agreement
between R&D and Schein discussed in Section 6, below, pursuant to which R&D will
supply Schein its requirements of Product.
"Term" shall have the meaning set forth in Section 2 hereof.
"Territory" shall mean the United States, Canada, and those regions
and/or countries set forth in Exhibit A attached hereto, as such Exhibit may be
amended from time to time by mutual consent of the parties hereto.
"United States" shall mean the United States of America and, to the
extent included in the territory covered by the Distribution Agreement, its
territories and possessions.
"Upfront Payments" shall mean the payments by Schein to R&D provided
for in clauses 7(a)(i), 7(a)(ii), 7(a)(iii) and 7(a)(iv).
2. Term. The term of this Agreement (the "Term") shall be coterminous
----
with the term provided for in the Distribution Agreement, subject to earlier
termination as provided in Section 14 hereof. Promptly following the signing of
this Agreement, R&D will use its best efforts to extend the term of the
Distribution Agreement to not less than 15 years following Marketing
Authorization. Upon R&D's obtaining such extension, it promptly shall so notify
Schein in writing, specifying the period and territories covered by such
extension. The term of this Agreement shall be automatically extended for a
period equal to any such extension of such rights of R&D under the RPR
Agreements, if any, at no additional cost to Schein, unless Schein gives written
notice to R&D that it does not wish to extend the Agreement with respect to the
Product in the Territory or part thereof. Subject to Paragraph 14(c) hereof, all
rights granted to Schein under this Agreement shall revert to R&D upon
termination or expiration of this Agreement.
3. Product Registration and Development.
------------------------------------
(a) R&D shall use its best efforts to procure, and thereafter
maintain, Marketing Authorization for the distribution and sale of the Product
in each,country in the Territory. These efforts shall, without limitation,
include (i) gathering, evaluating and presenting all data needed in order to
prepare and submit the NDA, including all applicable sections, to the FDA; (ii)
preparing and submitting the NDA to the FDA and supporting it through the
approval process and thereafter; (iii) preparing and submitting Foreign
Registrations with other applicable authorities in other countries in the
Territory, and (iv) conducting all Phase I, II and III clinical trials (or their
equivalent as required in a particular country) required to obtain Marketing
Authorization in each country in the Territory.
3
<PAGE>
(b) Effective with the date of execution hereof, any and all costs
incurred by R&D on or after the execution of this Agreement directly and/or
indirectly in connection with the activities discussed in clauses (i), (ii),
(iii) and (iv) of Paragraph 3(a) hereinabove shall be paid by R&D. On a monthly
basis thereafter, R&D shall provide Schein with supporting documentation as to
the out-of-pocket portion of such costs and Schein shall reimburse R&D for such
of those out-of-pocket costs as are reasonable ("Qualified Expenditures"), with
it being understood that out-of-pocket costs shall in no event be construed to
include indirect charges such as overhead allocations. Such reimbursement shall
be made to R&D by Schein (subject to the limitation below), within thirty (30)
days of receipt by Schein of the applicable supporting documentation of the
Qualified Expenditures; provided, however, that the Schein reimbursements
required as aforesaid shall be limited to one hundred percent (100%) of the
first Five Hundred Thousand Dollars ($500,000) of Qualified Expenditures and
fifty percent (50%) of the Qualified Expenditures in excess of Five Hundred
Thousand Dollars ($500,000), with R&D being required to absorb fifty percent
(50%) of the Qualified Expenditures in excess of the first Five Hundred Thousand
Dollars ($500,000). In addition, it is further understood and agreed that (i)
R&D shall consult with Schein in advance of any single expense in excess of
Fifty Thousand Dollars ($50,000) if such expense would be a Qualified
Expenditure (although this obligation to consult shall not be construed as an
obligation to obtain approval), (ii) R&D shall consult with Schein with respect
to the incurring of further Qualified Expenditures once the first $1.5 million
of Qualified Expenditures has been incurred, (iii) Schein shall have no
obligation to reimburse any part of any Qualified Expenditures in excess of the
first $2 million thereof unless it shall first consent thereto in writing, and
(iv) for purposes of computing the amount of Qualified Expenditures incurred,
out-of-pocket costs incurred by Schein in pursuance of the matters set forth in
Paragraph 3(a) shall be deemed to be Qualified Expenditures if they have been
incurred with R&D's consent.
(c) Notwithstanding the foregoing, NDA filing fees, if any, and the
cost of any post Marketing Authorization clinical trials that R&D is required to
perform in the future, that Schein may wish to perform, or that the Joint
Marketing Committee deems appropriate to perform in order to exploit the
commercial potential for the Product with a view to optimizing Product sales,
profits and return on investment, shall be borne exclusively by Schein, except
as provided below. In addition to the foregoing, Schein shall provide, at no
cost to R&D, such technical and regulatory assistance of Schein employees as R&D
may reasonably request to obtain Marketing Authorization, and Schein shall be
responsible for any and all costs incurred in connection with Phase IV studies,
whether FDA mandated or undertaken in connection with the marketing of the
Product or otherwise ("Phase IV Studies"). It is expressly understood and agreed
that in the case of NDA filing fees, (i) Schein shall be required to pay only
the user application fee and the first supplemental fee, if any, with R&D being
required to pay the annual product fee and with R&D and Schein being required to
share equally any additional supplemental fees, (ii) R&D shall bear the cost of
any FDA filing fees hereafter enacted as fees different from those referred to
in (i), and (iii) R&D shall use its best efforts to obtain a reduction of the
FDA user fee under the procedures available therefor. It is also understood and
agreed that no costs incurred by R&D or Schein pursuant to this Paragraph 3(c)
shall be considered to be Qualified Expenditures or reimbursements therefor. To
the extent permitted under applicable laws and regulations, Schein shall be
responsible for filing with the FDA annual Product reports and adverse drug
reports for the Product during the Term.
4
<PAGE>
(d) R&D has developed and implemented a program designed to secure
regulatory approval to sell and market the Product in the United States
marketplace. Since entering discussions with Schein related to the collaboration
which is the subject of this Agreement, Schein has provided certain suggestions
and input to R&D concerning this process. Upon execution of this Agreement, R&D
wishes to avail itself as to the Product of Schein's experience and expertise
with respect to gaining regulatory approvals to market and sell products.
Therefore, promptly upon the execution of this Agreement, R&D and Schein shall
form a Research and Development Committee ("R&D Committee").
(i) Prior to FDA acceptance of the filing of the NDA, the R&D
Committee shall serve only in an advisory capacity to R&D. During this period,
Schein's internal research and development resources shall be made available to
R&D, as and to the extent that Schein determines to be reasonable, to assist R&D
in the preparation and submission of the NDA, with such resources being provided
at no cost to R&D.
(ii) After FDA acceptance of the NDA for filing, the R&D
Committee shall cease to be merely advisory and shall be responsible for
managing the NDA until the time Marketing Authorization for the United States is
received. The R&D Committee shall determine the most appropriate methods, plan,
and/or approach to secure regulatory approval for the Product in the U.S., as
well as other countries in the Territory, and to secure Marketing Authorizations
in those other countries. The R&D Committee shall have not less than four (4)
members and such greater number of members as R&D and Schein may agree,
consisting of an equal number of members from both R&D and Schein. All members
shall have equal voting rights. Dr. Rhoda Makoff, if a member, shall be the
chairperson of this Committee. The R&D Committee shall meet on such schedule as
is deemed appropriate by its members.
(iii) All decisions by the R&D Committee shall be made by
majority vote of the authorized number of its members. A quorum for any meeting
of the R&D Committee shall consist of at least two appointees, one of whom shall
be an R&D appointee and one of whom shall be a Schein appointee. Participation
at a meeting may be in person, by telephone, or by video conference, provided
that all participants can hear and be heard by one another at all times
throughout the meeting. All members of the R&D Committee not in attendance shall
be immediately notified of any action taken or approved by the R&D Committee
and provided with written approved minutes of such meetings. The R&D Committee
shall meet on such schedule as deemed appropriate by its members, but no less
frequently than quarterly and with any one member being empowered to call a
meeting of the R&D Committee upon at least ten (10) business days' notice;
provided, however, that no notice of a meeting may be given until any then
previously noticed meeting has actually been held (or holding thereof has been
waived unanimously).
(iv) In the event that the R&D Committee should become
deadlocked, then the deadlock shall be referred to and reviewed by independent
outside firm(s) which shall be mutually agreed by the parties. It is important
to note that the nature of such firms may vary depending on the issue. Each
deadlock referred to such independent outside firm(s) shall be reviewed in
accordance with the overall standards and objectives set forth in this
Agreement. Both parties shall cooperate fully with this firm(s), including
providing such information concerning Product as the outside firm(s) shall
reasonably require. Both parties agree that all decisions of the outside firm(s)
shall be final and binding upon them. Such outside firm(s) shall be guided by
this Agreement in interpreting the intent of the parties. Each party shall bear
its own expenses and shall share the fees and costs of the outside firm(s)
5
<PAGE>
equally. Because of the potential importance that such outside firm(s) could
play in assisting the parties to achieve the mutual objectives set forth herein,
immediately after the execution hereof, R&D and Schein shall work together to
jointly identify such firm(s). However, of course, such firm(s) would not be
engaged until, or unless, necessary.
4. Grant of Rights. Subject to obtaining the written consent thereto of
---------------
RPR, which consent (the "Grant Consent") R&D shall use its best efforts to
obtain promptly, R&D does hereby grant to Schein and its Affiliates, upon and
subject to the terms and conditions provided herein, the exclusive sublicense
and right to use, promote, market, sell and sub-distribute the Product in the
Territory pursuant to and in accordance with the RPR Agreements, and the right,
subject to the RPR Agreements, to use and exploit the R&D Know How in connection
therewith; provided, however, that the grant of any rights hereunder to any
Affiliate of Schein must first receive the written approval of RPR and R&D makes
no representations about the likelihood of such approval being received.
Concurrently herewith, R&D and Schein are executing and delivering the
Limited Liability Company Operating Agreement, which is attached hereto as
Exhibit B. If, by the date that the FDA has provided R&D with the Marketing
Authorization for the United States, R&D has not received the consent of RPR to
the foregoing grant of rights, then, if, but only if, this Agreement has not
theretofore terminated, said Agreement shall immediately become effective as
provided therein. It is understood and agreed that in the event that it should
be determined by competent authority or by agreement of the parties that either
the organization of the entity which is the subject of the aforesaid Operating
Agreement or the contribution to such entity of the rights to be contributed
pursuant to Paragraph 2.2(a) of said Operating Agreement constitutes a default
under or breach of either of the RPR Agreements or is invalid thereunder, then,
if the Grant Consent has not been obtained, Schein and R&D shall work together
and use their best efforts to arrive at an alternative arrangement which would
be permitted by the RPR Agreements and come as close as reasonably possible to
achieving for the parties their economic purposes and expectations in entering
into this Agreement.
5. Marketing of Product.
--------------------
(a) Joint Marketing Committee.
-------------------------
(i) R&D and Schein shall form a Joint Marketing Committee to
develop multi-year Strategic Commercialization Plan(s) for the marketing,
promotion, sale, and distribution of the Product, with the intent of optimizing
Product sales, profits and return on investment. This Committee shall consist of
four (4) members, each having equal voting rights. R&D and Schein shall each
designate two representatives to the Joint Marketing Committee. Schein shall
market, promote, sell and distribute the Product in accordance with the
Strategic Commercialization Plan(s) agreed to from time to time in writing by
the Joint Marketing Committee. This Committee shall be formed immediately upon
execution of this Agreement and shall immediately commence the process of
developing the Strategic' Commercialization Plan(s).
(ii) In general and consistently with the overall goals of
optimizing Product sales, profits and return on investment, Schein shall employ
diligent efforts to develop and maintain sales of the Product in each country in
the Territory and shall employ a level of advertising, sales, marketing, and
promotion efforts in each country in the Territory where Marketing Authorization
for Product has been obtained which is: (1) commensurate with that
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<PAGE>
put forth by other pharmaceutical companies for products of similar market
potential for similar audience size in that country in the Territory, and (2)
sufficient with respect to the potential for that country to fully exploit the
market potential for Product as depicted in the Strategic Commercialization
Plan(s) for that Territory.
(1) within twelve (12) months of execution of this
Agreement and annually thereafter, the Joint Marketing Committee shall evaluate
all countries included in the Territory, with the exception of the United States
and Canada, in order to determine the feasibility of commercialization of the
Product in each such country at that time or in the future, and decisions to
defer commercialization shall be reevaluated in good faith annually, with it
being understood that at each such annual reevaluation the parties shall
consider in good faith whether they reasonably foresee ever considering
commercialization for a country and if, at that time, the Joint Marketing
Committee affirmatively makes the decision that commercialization of the Product
in a particular country in the Territory is not reasonably foreseeable at any
time in the future, then all rights granted hereunder with respect to that
country shall immediately revert back to R&D. It is also understood and agreed
that failure to pursue commercialization in a country can result in a
termination by RPR of R&D's rights with respect thereto as provided in the
Distribution Agreement, which termination by RPR would also terminate Schein's
derivative rights hereunder with respect thereto.
(2) Subject to clause 5(a)(ii)(1), above, the Joint
Marketing Committee shall develop Strategic Commercialization Plan(s), one each
for the United States and Canada and one each for each country in the Territory
in which the Product is to be marketed, for the purpose of optimizing Product
sales, profits, and return on investment in that country. The Strategic
Commercialization Plan(s) will be initiated immediately for the United States
and Canada and will be completed by the later of the date on which the NDA is
accepted by the FDA for filing and June 30, 1997 in the case of the United
States, and six (6) months after the later of such two dates in the case of
Canada. The Strategic Commercialization Plan(s) will be initiated for other
countries in the Territory according to a schedule to be developed by the Joint
Marketing Committee. If by June 1, 1997, it reasonably appears to R&D or Schein
that the Plan(s) for either of those countries may not be completed by the dates
specified for the United States and Canada, respectively, above, then the
parties shall immediately agree upon an outside firm for the resolution, in
accordance with clause 5(a)(ii)(4), below, of all open issues and do everything
necessary so that the Plan(s) are completed by the specified dates.
(3) The Strategic Commercialization Plan(s) shall set
forth estimates of the size of the markets for Product in the Territory in
reasonable detail and shall define the overall strategy for exploitation of the
commercial opportunity for Product in the Territory. The Strategic
Commercialization Plan(s) shall be substantially in accordance with the
requirements set forth in Exhibit F hereto. The Strategic Commercialization
Plan(s) shall address the markets for Product in the Territory in a manner
consistent with that customarily utilized by pharmaceutical companies for
products in markets in that country in the Territory equivalent in size to those
set forth in the Strategic Commercialization Plan(s). Thereafter, from time to
time as necessary, the Joint Marketing Committee shall review the Strategic
Commercialization Plan(s) together and revise them as necessary as the parties
shall mutually agree.
7
<PAGE>
(4) Any dispute concerning the Strategic
Commercialization Plan(s), or their revision, as well as any anticipated
inability to complete a Plan in a timely manner, as contemplated in clause
5(a)(ii)(2) above, shall be referred to and reviewed by independent outside
firm(s) which shall be mutually agreed by the parties. It is important to note
that the nature of such firms may vary depending on the issue. Each dispute
referred to such independent outside firm(s) shall be reviewed in accordance
with the overall standards and objectives set forth in this Agreement, including
the goal of optimizing Product sales, profits and return on investment. Both
parties shall cooperate fully with this firm(s), including providing such
information concerning Product as the outside firm(s) shall reasonably require.
Both parties agree that all decisions of the outside firm(s) shall be final
and binding upon them. Such outside firm(s) shall be guided by this Agreement
in interpreting the intent of the parties. Each party shall bear its own
expenses and shall share the fees and costs of the outside firm(s) equally.
Because of the potential importance that such outside firm(s) could play in
assisting the parties to achieve the mutual objectives set forth herein,
immediately after the execution hereof, R&D and Schein shall work together to
jointly identify such firm(s). However, of course, such firm(s) would not be
engaged until, or unless, necessary.
(5) Within six (6) months following NDA submission in
the United States (and similar submissions in other countries in the Territory),
annually thereafter, and with such more frequent updates as Schein might wish to
make, Schein will prepare and deliver to the Joint Marketing Committee a
Marketing Plan for the next following twelve-month marketing period for the
Product in each country of the Territory substantially in conformance with the
applicable portions of the Strategic Commercialization Plan(s). Each Marketing
Plan shall refine the strategy (or strategies) initially set forth in the
pertinent Strategic Commercialization Plan(s) by including specific tactics to
support those strategies and by identifying specific actions that Schein plans
to take to achieve the objectives set forth in the Marketing Plan. Each
Marketing Plan shall include projections, updated from time to time by Schein,
for expected sale of Product by Schein during the period covered by such
Marketing Plan. These projections shall include both unit projections and
revenue projections.
(6) The Strategic Commercialization Plan(s) shall
govern the commercialization process for Product in the Territory by Schein.
With the intent of optimizing Product sales, profits and return on investment,
Schein shall apply such level of sales, advertising, marketing and promotional
efforts and expenditures in marketing the Product as is consistent with that
level of effort and expenditures made by pharmaceutical companies for
pharmaceutical products of similar market potential for similar audience size in
that country in the Territory, if any. Schein shall have the responsibility and
authority to make all sales, marketing and pricing decisions with respect to the
Product throughout the Term of this Agreement, provided that all such decisions
(x) are consistent with the strategy and general guidelines set forth in the
Strategic Commercialization Plan(s) for a given country of the Territory, and
(y) are subject to any authority expressly reserved to the Joint Marketing
Committee with respect thereto.
(7) Schein shall be deemed not to be using diligent
efforts in any country in the Territory if Schein has not sold at least fifty
percent (50%) of cumulative projected unit sales of Product as set forth in
Schein's most recent Marketing Plan for that country for the three year period
just preceding the fourth anniversary of the first commercial sale of Product in
that country under this Agreement. In that case, if R&D has been ready, willing
and able to supply Schein with Product substantially in accordance with Schein's
requested delivery schedules (formulated in accordance with the Supply
Agreement) so as to
8
<PAGE>
have enabled Schein to have met the minimum requirements of the previous
sentence, R&D, as its exclusive remedy, shall be entitled to identify a person
or entity of R&D's choosing to market the Product with Schein in the country
involved in the capacity of Schein's co-marketing or co-promotion partner (but
under the same brand name), with it being understood and agreed, however, that
R&D will consult with Schein as to who will be chosen (although this obligation
to consult shall not be construed to be an obligation to obtain approval). The
terms of the arrangement to be entered into with the person or entity chosen
shall likewise be within the discretion of R&D, except that (x) R&D shall not
enter into any arrangement that does not permit R&D to review the arrangement by
no later than the end of the second full year thereof in order to permit R&D to
determine whether it wishes to continue the arrangement thereafter or to
identify a new co-marketing partner or dispense therewith (which determination
shall be made by R&D in good faith in its discretion), and (y) the compensation
payable to the person or entity chosen shall be within R&D's discretion, but
(aa) such compensation shall consist solely of commissions, (bb) R&D shall use
its best efforts to obtain a favorable rate, (cc) such rate shall be within the
limits of that which is then reasonable and customary in the industry generally
for arrangements of the nature in question, (dd) such rate shall not exceed
fifty percent (50%) of the stated sales price for units of Product, and (ee)
commissions for any twelve (12) month period during such arrangement shall be
payable only on that incremental portion of unit sales of Product which exceeds
actual unit sales for the twelve (12) full calendar months immediately following
the month in which the arrangement is to be entered into, or the forecast as at
such time for unit sales of Product for the twelve (12) full calendar months
immediately following the month in which the arrangement is to be entered into,
whichever standard R&D elects to use, and pro rated for partial periods.
Notwithstanding the foregoing, it is understood and agreed that whether and on
what terms to engage such person or entity shall be made jointly by R&D and
Schein in the case of any country in the Territory as to which Schein has, with
the approval of the Joint Marketing Committee, sublicensed its marketing and
distribution rights under this Agreement to (or otherwise engaged for marketing
or distribution purposes) a person or entity other than a Schein Affiliate.
(8) If Schein fails to market, promote, sell and
otherwise commercialize the Product in a country in the Territory in accordance
with the applicable Commercialization Plan(s) and Marketing Plan(s) within six
(6) months following Marketing Authorization in that country, Schein shall
forfeit its exclusivity in such country in the Territory and R&D shall be free
to find another commercialization partner or partners (or licensee or licenses)
in that country in the Territory. It is understood that if R&D were then still
unable to introduce the Product in that country by a date twelve (12) months
after obtaining the applicable Marketing Authorization then, pursuant to the
Distribution Agreement, RPR would be able to terminate R&D's license (and, as a
result thereof, Schein's sublicense) as to that country.
(iii) The Joint Marketing Committee shall meet on such
schedule as deemed appropriate by its members, but no less frequently than
quarterly and with any one member being empowered to call a meeting of the Joint
Marketing Committee upon at least ten (10) business days' notice (which notice
shall include a description of all actions to come before the Committee at such
meeting for consideration or action); provided, however, that no notice of a
meeting may be given until any then previously noticed meeting has actually been
held (or holding thereof has been waived unanimously). The first meeting of the
Joint Marketing Committee shall take place prior to January 1, 1997.
9
<PAGE>
At meetings, each member shall have the right to
provide information for consideration and the Joint Marketing Committee shall
consider all such input. All decisions by the Joint Marketing Committee shall be
made by majority vote of the authorized number of its members. A quorum required
for any meeting of the Joint Marketing Committee shall consist of at least two
appointees, one of whom shall be a Schein appointee and one of whom shall be an
R&D appointee. Participation at a meeting may be in person, by telephone, or by
video conference, provided that all participants can hear and be heard by one
another at all times throughout the meeting. All members of the Joint Marketing
Committee not in attendance shall be immediately notified of any action taken or
approved by the Joint Marketing Committee and provided with written approved
minutes of such meetings.
(b) Consulting Agreement. R&D and Schein shall retain Dr. W.
--------------------
Shannon McCool ("McCool") of Bolling, McCool and Twist, Inc., to consult, advise
and support the Joint Marketing Committee with respect to the development of a
Strategic Commercialization Plan. R&D and Schein shall enter into a Consulting
Agreement with McCool for an initial two year term with a minimum annual
retainer of One Hundred Thousand Dollars ($100,000) (exclusive of out-of-pocket
expenses), with successive automatic one-year extensions unless any party
thereto gives notice at least three months prior to the expiration of the then-
current term of its or his election not to extend. The Consulting Agreement
shall commence on the date of the first meeting of the Joint Marketing
Committee. The hourly rate charged by McCool shall be his standard billing rate
for similar consulting services, and shall be credited against the retainer
provided for above. R&D, Schein and McCool shall collectively decide on a
reasonable schedule for McCool to render the consulting services anticipated by
this Paragraph. The parties hereto shall share equally the expense under such
Consulting Agreement.
(c) Promotion. Subject to any Strategic Commercialization
---------
Plan(s) developed by the Joint Marketing Committee, Schein shall commence
marketing the Product in the Territory or part thereof as soon as practical
after Marketing Authorization is obtained and after Schein has inventory of
Product that the Joint Marketing Committee deems sufficient to launch the
Product in that country in the Territory. Subject only to any Strategic
Commercialization Plan(s) developed by the Joint Marketing Committee, Schein
shall develop and implement a Marketing Plan(s) for the Product, the development
and implementation of which shall, subject to said Strategic Commercialization
Plan(s), be within Schein's complete and unfettered discretion and control and
subject to modification by Schein from time to time as it sees fit. To the
extent that R&D participates in the marketing of the Product pursuant to such
Plan(s), it shall be reimbursed by Schein, within thirty (30) days of Schein's
receipt of the supporting documentation relating thereto, for those of R&D's
documented out-of-pocket costs and expenses which are incurred in connection
therewith within the limits provided for in such Plan(s). Schein shall be solely
responsible for the cost of its marketing efforts regarding the Product. Schein
shall promote the Product following Marketing Authorization in the manner set
forth in Schein's Marketing Plans, subject to the Strategic Commercialization
Plan(s) and consistently with the objectives of optimizing Product sales,
profits and return on investment.
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<PAGE>
6. Supply of Product.
-----------------
(a) Product Requirements of Schein; Backup Manufacturing.
----------------------------------------------------
(i) R&D and Schein shall negotiate in good faith in order that
they might execute and deliver, as soon as practicable following the execution
and delivery of this Agreement, a Supply Agreement providing for R&D's supplying
to Schein Schein's requirements of Product for the Territory during the Term.
The Supply Agreement shall contain provisions for such agreements which are
customary in the pharmaceutical industry, including, without limitation,
assurances as to continuous supply; forecast, order, shipment and delivery
terms; the obtaining and maintenance of insurance coverage; supplier
representations and indemnities as to Product quality; and provisions as to
Product packaging and labelling (collectively, "Customary Supply Provisions");
provided, however, that it is understood and agreed that R&D's abilities with
respect to supply are wholly derivative of its rights and remedies under the RPR
Agreements. R&D shall endeavor in good faith to have the RPR Agreements
modified to include Customary Supply Provisions. The price at which R&D shall
sell Product to Schein under the Supply Agreement shall be governed by Section 7
of this Agreement.
(ii) R&D and Schein agree that it would be in their respective
best interests to have a backup manufacturer of Product in the event that RPR
were, unable to supply Schein's requirements for Product. To that end, R&D
agrees to use its best efforts to obtain RPR's consent to the designation of
Schein and/or one of its Affiliates as backup manufacturer, to be called upon to
manufacture as a backup in the event that RPR is unable or unwilling to supply
Product as required hereunder or under the Supply Agreement referred to in
clause 6(a)(i), above.
(1) Upon the obtaining of such consent of RPR, R&D shall
undertake to file, at Schein's expense (notwithstanding any provision of Section
3 hereof to the contrary), such supplements to the NDA as shall be necessary to
permit Schein or its designated Affiliate to be such a backup manufacturer (the
"Backup"), and such costs and expenses shall be neither Qualified Expenditures
nor Product Related Expenses (as the latter term is defined in clause
7(c)(iii)(4) hereof); provided, however, that R&D shall be entitled to approve
or disapprove or discontinue the designation of Schein or one of its Affiliates
as Backup on the basis of reasonable objections based on lack of FDA approval of
the applicable manufacturing facility, failure to be in substantial compliance
with then current Good Manufacturing Practices or lack of assurance as to
adequate capacity, but not on any other grounds.
(2) In the event that Schein or its Affiliate is designated
and approved as Backup as provided above, then Schein shall initially bear all
costs necessary to ready one already existing FDA approved facility to
manufacture Product, subject to reimbursement of the direct out-of-pocket
portion of such costs, only as follows:
(x) One-half (1/2) of not to exceed $3,000,000 of
those costs incurred prior to the time that R&D has consented to the
commencement of the incurring of such costs, if such costs have been incurred
prior to the time that the Backup is actually required for supply, shall be
reimbursable by R&D commencing with the time, if any, at which revenues from
sales of Product (by whomsoever manufactured) commence to be realized, with
R&D's obligation to reimburse to be payable in equal quarterly installments
11
<PAGE>
amortized over one hundred percent (100%) of the Term of this Agreement
remaining as of the later of (aa) the incurring of the cost, or (bb) the
commencement of revenue from the sale of Product;
(y) One-half (1/2) of not to exceed $3,000,000
(including, for purposes of calculating whether the limit has been exceeded, any
costs referred to in clause 6(a)(ii)(2)(x), above) of those costs incurred
subsequent to the time that R&D has consented to the commencement of the
incurring thereof or subsequent to the time that the Backup is actually required
for supply shall be reimbursable by R&D commencing with the time that revenues
from sale of Product (by whomsoever manufactured) commence to be realized, with
R&D's obligation to reimburse to be payable in equal quarterly installments
amortized over one-half (1/2) of the Term of the Agreement remaining as at the
later of (aa) the incurring of the cost, or (bb) the commencement of revenue
from sale of Product; and
(z) No such costs shall be reimbursable by R&D unless
and until there is revenue from sale of Product (by whomsoever manufactured, but
other than sales by R&D to Schein by way of supply) under this Agreement, with
it being understood that if costs exceed or are reasonably expected to exceed
$3,000,000, then R&D shall discuss in good faith with Schein R&D's agreeing to
be liable to reimburse a part of such excess on a basis to be mutually agreed
(but with no obligation on the part of R&D to reimburse with respect to such
excess unless R&D shall first consent thereto in writing).
(3) In the event that the Backup is manufacturing, then the
price to be paid by R&D for Product manufactured by the Backup shall be an
amount equal to one hundred and twenty percent (120%) of the Backup's fully
absorbed cost of manufacture, with such fully absorbed cost ("Fully Absorbed
Cost") to be calculated in a manner consistent with past practice (which
practice R&D shall be entitled to review and discuss with Schein prior to its
application), and subject to R&D's reasonable review, and with all costs of
build-out and all costs of supplemental filings relating to the Backup to be
excluded from Fully Absorbed Cost; provided, however, that, notwithstanding any
other provision of this clause 6(a)(ii) to the contrary, R&D shall be entitled
to designate as Backup a person or entity other than Schein or one of its
Affiliates unless Schein or one of its Affiliates is willing to supply Product
as Backup for no more than one hundred and ten percent (110%) of the price at
which such other person or entity makes a bona fide offer to supply Product to
R&D as Backup for similar quantities of Product for the Term (or such shorter
period of time as Schein or its designated Affiliate has then agreed to supply
Product), except that Schein or its designated Affiliate shall nonetheless be
entitled to be Backup if otherwise entitled to do so under this clause 6(a)(ii)
if the bona fide offer by the other person or entity is at a price which is less
than one hundred percent (100%) of Fully Absorbed Cost but Schein or its
Affiliate agrees to sell manufactured Product to R&D at the greater of one
hundred percent (100%) of Fully Absorbed Cost or one hundred and ten percent
(110%) of the bona fide offer.
(4) It is understood and agreed that nothing contained
in this clause 6(a)(ii) shall be construed to entitle Schein or any of its
Affiliates to obtain from R&D or RPR any information concerning the methods,
processes or know-how pertaining to manufacture of the Product unless and until
Schein has surrendered or there have lapsed all of Schein's rights to terminate
this Agreement under clauses 14(a)(v), (vi) and (vii) hereof. Immediately after
any such surrender or lapse, upon Schein's request and subject to the
confidentiality provisions of this Agreement, R&D shall provide Schein with all
such information and R&D Know How as may be necessary to enable Schein or its
designated Affiliate to be Backup.
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(5) In the event that there should be any dispute as
to what constitutes Fully Absorbed Costs, then such dispute shall be settled in
accordance with the procedures for the Dispute Resolution Auditor set forth in
clause 7(c)(iv) hereof.
(b) Product Packaging and Labeling. Schein will provide R&D with
------------------------------
proposed label copy for the Product, which shall include Schein's name. In
addition, this label copy shall include RPR's name, as is required by the RPR
Agreements, and be approved by RPR and, to the extent permitted by applicable
laws and regulations, the label copy shall also include R&D's name. R&D shall
have the Product packaged and labeled in accordance with the applicable
Marketing Authorizations and in accordance with the Schein label copy, including
additional instructions delivered from time to time by Schein consistent with
the applicable Marketing Authorization. Notwithstanding the foregoing, labeling
language used for the Product shall be subject to the requirements of the
Distribution Agreement.
7. Payments to R&D. Upon and subject to the terms and conditions of this
---------------
Agreement, Schein shall pay to R&D as full consideration for the rights granted
hereunder, the following:
(a) Upfront Payments.
----------------
(i) Simultaneously with the execution of this Agreement,
Schein shall pay R&D the sum of Two Million Dollars ($2,000,000);
(ii) Upon acceptance of the NDA for filing by the FDA - Center
for Drug Evaluation and Research, Schein shall pay R&D the sum of Two Million
Dollars ($2,000,000);
(iii) Schein shall pay R&D the sum of Three Million Dollars
($3,000,000) on January 2, 1998, or such later date upon which the FDA shall
first have accepted the NDA for filing; and
(iv) Schein shall pay R&D the sum of Five Million Dollars
($ 5,000,000) upon the receipt of final FDA Marketing Authorization in the
United States and upon Schein's reasonable satisfaction that R&D can, through
RPR or some other source permitted by RPR, consistently supply Schein's
requirements of Product throughout the Term; provided, however, that (x) Schein
shall pay to R&D Two Hundred and Fifty Thousand Dollars ($250,000) of this Five
Million Dollars ($5,000,000) sum upon receipt of final Marketing Authorization
from the Canadian health authorities (HPB), if such HPB Marketing Authorization
is obtained prior to FDA Marketing Authorization, and (y) Schein shall (subject
to the aforesaid satisfaction as to supply) pay to R&D the sum of Three Million
Dollars ($3,000,000) in lieu of the said Five Million Dollars ($5,000,000)
payment (i.e., a Two Million Dollar ($2,000,000) reduction) if the FDA approves
---
any other injectable iron product (other than an iron dextran product) prior to
FDA Marketing Authorization.
(b) Royalties.
---------
(i) Except if Schein or one of its Affiliates is manufacturing
the Product as contemplated in clause 6(a)(ii) hereof, Schein shall pay to R&D
an aggregate sum equal to ****** ******* ***** of annual Net Sales of the
Product, which amount shall function to compensate R&D both by way of royalty in
respect of its grant of rights pursuant to Section 4 hereof and for R&D's costs
to supply Product to Schein. If Schein or one of its Affiliates manufactures the
Product, in lieu of the amounts called for in the preceding
* redacted pursuant to confidential treatment request.
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sentence, Schein instead shall pay to R&D a royalty in an amount equal to the
following: (x) ****** ******* ***** of the annual Net Sales of the Product, less
(y) Cost of Goods. All amounts payable under this clause 7(b)(i) shall, subject
to the provisions of clause 7(b)(ii) and Paragraph 7(d) hereof, be payable
quarterly, within forty-five (45) days following the end of each of Schein's
fiscal quarters, beginning with the first commercial sale of the Product by
Schein, and amounts payable under this clause 7(b)(i) shall be reduced by
applicable Product Payments made pursuant to Paragraph 7(d) hereof.
(ii) Twenty-five percent (25%) of the amount of each quarterly
payment (or, where Schein or one of its Affiliates is not the manufacturer, the
royalty portion thereof, if, but only if, R&D has disclosed to Schein the Cost
of Goods component of such payment), due and owing to R&D pursuant to clause
7(b)(i) above, shall be excluded from such quarterly payments and retained by
Schein ("Recovered Royalties"). When the cumulative amount of such Recovered
Royalties equals the total of (a) fifty percent (50%) of the Upfront Payments,
plus (b) the accumulated interest (calculated as set forth below), the payments
required by clause 7(b)(i) hereof shall thereafter be made without further
reductions or retention by Schein, but with Schein entitled to keep the full
amount of the Recovered Royalties which it was theretofore entitled to retain.
(iii) For purposes of clause 7(b)(ii), above, interest shall be
calculated quarterly in arrears and, the amount so calculated, accumulated. The
interest rate used in the quarterly calculation of interest, shall be the simple
average of the interest rates from the weekly U.S. Treasury Bill auctions that
occurred during the weeks included in the fiscal quarter in question. Interest
shall not be calculated on that portion of the fifty percent (50%) of Upfront
Payments that has been recouped previously by Schein in the form of Recovered
Royalties. Recovered Royalties shall be credited first against interest and then
against Upfront Payments. Concurrently with each quarterly payment, Schein shall
provide R&D with a statement as to the amount of then unrecouped interest and
Upfront Payments.
(c) Profit Sharing Payments; Definitions; Disputes.
----------------------------------------------
(i) In lieu of the method of payment set forth in Paragraph
7(b), above, R&D shall have the option to receive instead ***** ******* ***** of
the Net Profit from the sale and delivery of the Product by Schein. R&D shall
exercise its right to receive this percentage of Net Profit by delivering to
Schein written notice of its election within thirty (30) days after Schein's
initial commercial sale of the Product. Following any such election, Net Profit
shall be determined by Schein quarterly during the Term, and Schein shall
distribute to R&D payment of its share thereof within forty-five (45) days
following the end of each of Schein's fiscal quarters; provided, however, that
no such election shall be effective (and the provisions of Paragraph 7(b) shall
govern), until fifty percent (50%) of the Upfront Payments, together with
interest as provided above, is recouped in full by Schein.
(ii) Notwithstanding the foregoing, if R&D and Schein form a
joint venture/alliance (other than the entity established pursuant to the
Operating Agreement referred to in Section 4 hereof) for disease management
which by written agreement between R&D and Schein expressly includes the Product
as part of that venture/alliance and replaces this Agreement, then R&D's share
of the Net Profit from the sale and delivery of the Product by Schein and/or
such venture/alliance shall be increased from ***** ******* ***** to *****
******* ***** under the agreement by which such venture/alliance is governed.
(iii) For the purposes of this Section 7, the following
definitions shall apply:
* redacted pursuant to confidential treatment request.
14
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(1) "Net Profit" shall mean Net Sales, less the sum of
(x) Cost of Goods and (y) Product Related Expenses.
(2) "Net Sales" shall mean gross sales of the Product
invoiced by Schein and its Affiliates, less those offsets and reductions set
forth below (collectively referred to as the "Reductions"). The Reductions shall
include any chargebacks, rebates (or any other required payments imposed by a
government agency), free goods, cash discounts, Medicaid rebates (or any other
required payments imposed by a government agency), trade discounts, excise taxes
and consumption taxes to the extent included in Product sales, customs duty,
credits or allowances granted on account of rejection or return of the Product,
and credits for inventory and price protection in the event of any price
decrease, provided that any item to be treated as a Reduction shall be properly
allocable as a charge against sales rather than as a marketing expense, as
determined consistently with industry practice, and with any dispute with
respect thereto to be conclusively resolved and determined by the Dispute
Resolution Auditor process for the resolution of disputes provided for in clause
7(c)(iv), below.
(3) "Cost of Goods" shall mean:
(A) if R&D or a third party supplies the Product
to Schein in packaged and labeled finished dosage form, Schein's acquisition
cost of the Product (which, for Product supplied by R&D or RPR, shall include
only the manufacturing costs and freight); or otherwise
(B) if Schein or its Affiliates manufacture the
Product as contemplated in clause 6(a)(ii) hereof, then an amount determined
under clause 6(a)(ii)(3) hereof.
(4) "Product Related Expenses" shall mean Schein's
sales and marketing costs directly related to the Product, distribution and
related costs in connection with the Product, and marketing costs reimbursed to
R&D by Schein that directly related to the Product, to the extent incurred under
the Strategic Commercialization Plan(s) or the Marketing Plan, and other direct
costs incurred by Schein directly related to the Product beginning with the
actual launch activities for Product, including, without limitation, write-offs
for out-of-date inventory, out-of-pocket legal and regulatory expenses and
product liability insurance premiums. However, such Product Related Expenses
shall exclude the Product registration expenses paid and/or reimbursed by either
party pursuant to Section 3, but it is expressly understood and agreed that
Product Related Expenses shall include any costs of Phase IV Studies (as such
term is defined in Paragraph 3(c) hereof), whenever incurred if incurred by
Schein, and the following pre-launch expenses, if incurred by Schein: sales
meetings; travel; symposia and conventions; and any other expense reasonably
incurred prior to launch for the purpose of launching the Product.
(iv) If Schein or its Affiliates are manufacturing the
Product, thirty (30) days prior to the commencement of each calendar year,
Schein shall provide R&D with its budgeted calculation of fully absorbed
manufacturing costs for the upcoming calendar year. If R&D disagrees with
Schein's calculations and/or the methodology employed in making such
calculations and such disagreement cannot be otherwise resolved between the
parties, then R&D and Schein shall submit the issue(s) to the Dispute Resolution
Auditor (as defined below) for resolution. The finding of the Dispute Resolution
Auditor shall be binding on the parties
15
<PAGE>
and shall determine the revised method and calculation (if any revision is
necessary) that Schein will utilize in allocating its manufacturing costs to the
Product in the calendar year in question.
Within ninety (90) days following each calendar year
during the Term when Schein or one of its Affiliates is manufacturing Product,
Schein will provide R&D with a schedule detailing Schein's calculation of Fully
Absorbed Cost. The parties' determination of their respective costs in
determining Net Profits with respect to each calendar quarter shall be
determinative, subject to the Final Net Profit Determination using the Dispute
Resolution Auditor (as defined below). Within ninety (90) days following the
close of each fiscal year during the Term, R&D and Schein shall provide each
other's independent certified public accountants with access, during regular
business hours and upon reasonable prior notice, and subject to the
confidentiality undertakings contained in this Agreement, to such party's books
and records relating to the Product solely for purposes of verifying the
accuracy of the calculations hereunder and that the methodology used in
allocating manufacturing costs is appropriate for the year then ended.
Once the parties have either agreed that the original
calculations made by Schein are correct, or have agreed on a different
calculation (based on the results provided by the two different certified public
accountants), a correcting payment or refund, together with interest at the
current prime lending rate established by leading New York banks as published in
The Wa# Street Journal, shall be made by the appropriate party within thirty
(30) days thereof. However, if after thirty (30) days such an agreement cannot
be reached, a dispute resolution auditor ("Dispute Resolution Auditor") will be
appointed by the mutual consent of the parties. The Dispute Resolution Auditor
shall review the calculations made pursuant to this Section 7, and/or
methodology used, and then provide the parties with the verification discussed
above (the "Final Net Profit Determination"). The decision of such independent
auditor with respect to the payments if any, to be made pursuant to this
Paragraph 7(c) shall be final and binding on the parties. The costs of such
independent auditor shall be borne equally by the parties.
(d) Certain Product Payments. As an advance against payments
-------------------------
due R&D under Paragraphs 7(b) or 7(c), above, as applicable, Schein shall pay to
R&D a "Product Payment." The amount of any Product Payment shall be an amount
equal to ten percent (10%) of the product obtained by multiplying (x) the
average selling price per unit of Product during the calendar quarter
immediately preceding the one in which the Product Payment being calculated is
to be made (or, if there are no Product sales in the preceding quarter, then the
average selling price shall be deemed to be equal to the projected average
selling price as determined in accordance with Schein's then most recent
Marketing Plan), by (y) the number of units of Product delivered to Schein in
respect of which the Product Payment is being calculated. The Product Payment
shall be paid to R&D not later than one (1) business day preceding the date on
which the corresponding payment for goods must be made by R&D to its supplier
(as certified to by R&D in writing), and shall be made in immediately available
funds.
8. Representations and Warranties.
------------------------------
(a) Each of R&D and Schein represents and warrants to the other as
follows:
16
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(i) It has full corporate power and authority to enter into
this Agreement and consummate the transactions contemplated hereby.
(ii) It has such permits, licenses and authorizations of
governmental or regulatory authorities as are necessary to own its respective
properties and conduct its business to the extent material to the consummation
of the transactions contemplated hereby. Any FDA approvals regarding the NDA and
any Marketing Authorizations are specifically excluded from any R&D
representations and warranties contained in this clause 8(a)(ii).
(iii) It is not currently debarred, suspended or otherwise
excluded by the United States from receiving Federal contracts.
(b) R&D represents and warrants to Schein as follows:
(i) Except to the extent resulting from any action or omission
by Schein following its receipt of such Product or in connection with the
manufacture of Product by Schein or one of its Affiliates, the Product supplied
to Schein under this Agreement shall be, and remain throughout its stated shelf
life, in accordance with the specifications delineated within the FDA-approved
NDA for such Product, the Drug Master File, if any, and the Foreign
Registrations.
(ii) The current manufacturing facility for the Product that R&D
shall provide to Schein is located in Dagenham, UK. This facility has been
approved by the FDA for other drug products. RPR and R&D are currently working
together to prepare the CMC section of the NDA and as necessary to conform
various plant procedures to meet FDA requirements. R&D shall use its best
efforts to have RPR ensure that, prior to such FDA inspection, such facility
conforms in all material respects to applicable laws, regulations and approvals
governing such facility and are adequate to produce the quantities of the
Product reasonably contemplated hereby.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
17
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(iii) All material laboratory, scientific, technical and/or other
data submitted by or on behalf of R&D relating to the Product shall be true and
correct and shall not contain any material falsification, misrepresentation or
omission.
(iv) All Product supplied to Schein under this Agreement, except
to the extent resulting from any action or inaction by Schein or one of its
Affiliates if they are manufacturing the Product, shall have expiry dating of at
least 36 months from delivery to Schein.
(v) The Product supplied by R&D, except to the extent resulting
from any action or inaction by Schein or one of its Affiliates if they are
manufacturing the Product, shall be in accordance with the process set forth in
RPR's patent(s), if any.
(vi) The RPR Agreements are valid and in full force and effect
as of the date hereof. There are no existing or claimed defaults by any party
under the RPR Agreements and no event, act or omission has occurred which (with
or without notice, lapse of time or the happening or occurrence of any other
event) would result in a default by R&D or, to the knowledge of R&D, by RPR,
under the RPR Agreements.
(vii) All clinical studies to support the NDA have been or will
be conducted in accordance with then current Good Clinical Practices, and, to
the extent within R&D's control and, if and to the extent not within its
control, then to the best of its knowledge, all clinical supplies utilized
therein have been or will be manufactured in accordance with current Good
Manufacturing Practices. None of the clinical consultants or investigators
involved in any such clinical studies have or had any financial, equity or other
interest in R&D (but R&D has disclosed to Schein that Shannon McCool and Jur
Strobos have or may acquire shares of the Common Stock of R&D).
Notwithstanding the foregoing provisions of this Section 8, R&D does not purport
to convey any rights with respect to the Product or the Territory which are
greater than those which it has to convey under the RPR Agreements.
9. Other Representations. R&D further represents and warrants to Schein
---------------------
that:
(a) subject to the rights of RPR under the RPR Agreements with
respect thereto, it is the exclusive owner of all rights, title and interest in
the R&D know-how, as such term is defined in the Distribution Agreement;
(b) to R&D's best knowledge, there are no rights of third parties,
other than RPR as set forth in the Distribution and Trademark Agreements, to any
of the R&D Know How which conflict with the rights granted to Schein under this
Agreement.
(c) to R&D's best knowledge there is no infringement by third parties
of any R&D Know How;
(d) there is no pending or, to R&D's knowledge, threatened action,
suit, proceeding or claim by others challenging R&D's rights in or to such R&D
Know How, and R&D is unaware of any facts which would form a reasonable basis
for any such claim;
18
<PAGE>
(e) there is no pending or, to R&D's knowledge, threatened action,
suit, proceeding or claim by others challenging the validity or scope of such
R&D Know How and R&D is unaware of any facts which would form a reasonable basis
for such a claim;
(f) there is no pending or, to R&D's knowledge, threatened action,
suit, proceeding or claim by others that any of the R&D Know How or any rights
granted to Schein under this Agreement infringes or otherwise violates any
patent, trademark, copyright or trade secret rights of others, and R&D is
unaware of any facts which would form a reasonable basis for such a claim;
(g) to R&D's best knowledge there is no patent or patent application
of others which contains claims that dominate or may dominate any R&D Know How.
10. Other Covenants and Agreements.
------------------------------
(a) R&D shall arrange to have RPR provide to Schein a certificate of
analysis for each lot of Product shipped to Schein, listing test results.
Without limiting the foregoing, from each batch of Product produced by R&D, R&D
agrees to use its best efforts to cause to be retained a representative sample
for a period of at least 12 months past the expiration date stated thereon (or,
if longer, as required under any Marketing Authorization), and, upon request, to
supply or arrange for RPR to supply Schein with a portion of such representative
sample, for use in the event later analysis becomes necessary.
b) Without limiting any other remedy available to it, in the event
of Schein's reasonably finding that the quality of the Product is not acceptable
in terms of specifications set forth in this Agreement, Schein shall promptly
notify R&D after making such determination, specifying the respects in which the
quality is unacceptable. As soon as possible and without cost to Schein, R&D
shall replace such non-conforming quantities. In the event that R&D shall
dispute any such determination of Schein, the parties shall use their best
efforts to resolve such dispute amicably. If they are unable to do so, then
absent a determination by a Regulatory Authority (whose determination shall
govern for these purposes), the matter shall be referred for resolution to a
mutually-acceptable independent laboratory located in the United States whose
decision shall be final and binding. Any charges of such laboratory shall be
paid for by the party against whom the dispute is decided.
(c) Schein, in its discretion and at its cost, shall review from time
to time, through independent United States or foreign patent counsel mutually
acceptable to Schein and R&D, any process patent obtained by RPR or R&D for the
manufacture of the Product to determine whether such process patent may infringe
any United States or foreign patent.
(d) R&D and Schein may inspect, from time to time, each other's and
RPR's manufacturing facilities, quality control procedures and records during
normal business hours, upon reasonable prior notice. However, all such
inspections are subject to the provisions of Section 11 hereof and Schein's
inspection of RPR's facilities shall require the written consent of both R&D and
RPR. R&D shall use its best efforts to attempt to obtain such RPR consent.
(e) R&D shall provide to Schein copies of all correspondence from the
FDA and other applicable regulatory authorities relating to the Product, and all
inspection reports issued by the FDA and such other regulatory authorities
during the Term, and related correspondence, including with respect to the
manufacturing site of the Product, as such reports and correspondence become
available.
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<PAGE>
(f) It is understood and agreed that R&D and Schein may, except as
otherwise expressly provided in this Agreement, engage in other business
activities, even such activities as may be in competition with the activities
contemplated herein, and it is understood and agreed that if R&D or Schein
should learn about or develop an opportunity which might be competitive with
the Product, such party shall, except as otherwise provided herein, be under no
obligation to offer such opportunity for exploitation by the other or by the
collaboration contemplated hereby and shall be free to take advantage thereof
for its own account or for the accounts of other persons with whom such party is
or may become associated, in which case the other party hereto shall have no
right to any income or profits derived therefrom. Accordingly, it is expressly
understood and agreed that neither party shall have any right or claim by reason
of the existence of this Agreement under or in respect of any product, device,
formulation, idea, invention, process or other opportunity of any kind or
nature whatsoever which is neither directly competitive with the Product nor
------- ---
reliant upon, to be used in connection with or developed, identified or
discovered, directly or indirectly, using any aspect of the R&D Know How.
Notwithstanding the foregoing, however, it is expressly understood and agreed as
follows:
(i) Any product, device, formulation, idea, invention, process
or other opportunity of any kind or nature whatsoever which becomes known to or
is proposed for development or exploitation by either party and which is reliant
upon, to be used in connection with or developed, identified or discovered,
directly or indirectly, using, any aspect of the R&D Know How shall be brought
to the R&D Committee established pursuant to Paragraph 3(d) hereof. The R&D
Committee shall have sole responsibility for determining whether the
collaboration established by this Agreement will exploit the opportunity and
what amount of funds, if any, is to be expended in connection therewith, and
this responsibility shall be full notwithstanding that the Committee might
otherwise then only be advisory in capacity, with it being understood and
agreed, however, that, notwithstanding any other provision of this Agreement to
the contrary, approval of the Committee shall be deemed to have been obtained if
all Schein members of the Committee have voted for approval, with it being
understood that Schein shall, in such case, be responsible for costs just as
though full Committee approval had been obtained. If the R&D Committee
determines to pursue the opportunity, it shall be pursued in accordance with the
Committee's determination as to the level of funds to be expended in connection
therewith, and all funds required in connection therewith, within the limits
approved by the Committee, shall be provided by Schein and shall constitute
neither Qualified Expenditures nor Product Related Expenses, and R&D shall have
no obligation to provide any of such funds or to reimburse Schein therefor. If
the Committee determines to pursue the opportunity, then, except as to the
question of funding (which shall be handled as aforesaid), the opportunity shall
be treated in all respects under this Agreement as though it had been included
as part of the RPR Agreements and within the definition of Product thereunder,
but Schein shall have complete control over development of the opportunity,
including any product connected therewith. If the Committee determines not to
exploit the opportunity or fails affirmatively to decide to exploit the
opportunity, then neither party shall do so during the Term.
(ii) Disclosure concerning the existence and nature of any
product, device, formulation, idea, invention, process or other opportunity of
any kind or nature whatsoever which becomes known to or is proposed for
development or exploitation by either party and which is not reliant upon, to be
---
used in connection with or developed, identified or discovered, directly or
indirectly, using, any aspect of the R&D Know How but which is potentially
--
directly competitive with the Product shall be made in writing by that party to
the
20
<PAGE>
other party within thirty (30) days of the time at which the presenting party
first decides to proceed with U.S. clinical studies; provided, however, that if
the presenting party intends to pursue such opportunity in combination with any
person other than the person or persons, if any, who brought, or who has rights
(originating prior in time to those of the presenting party) to such opportunity
to the presenting party, then, for a period of one hundred and twenty (120)
days preceding the presenting party's first offering the opportunity to such a
third party, the presenting party and the other party to this Agreement shall
negotiate in good faith to attempt to reach an agreement as to terms upon which
such opportunity might be jointly exploited or pursued by them, failing which
agreement the noticing party shall be free to exploit the opportunity as though
it were a non-competitive one.
(g) During the Term, R&D shall not, except as otherwise provided
herein (including in the case of any reversion of rights provided for herein),
directly or indirectly, sell, ship and/or distribute any injectable iron
pharmaceutical product in any country in the Territory unless agreed to in
writing by Schein.
(h) R&D shall duly perform all of its obligations under the RPR
Agreements so as to prevent any default by it thereunder, and R&D shall provide
Schein with prompt written notice of any default by either party thereunder and
of any event, occurrence or non-occurrence which with the passage of time, would
become an event of default thereunder. R&D shall also use its best efforts to
obtain from RPR amendments to the RPR Agreements which would permit R&D's
sublicensees and assignees thereunder notice from RPR of any default by R&D
thereunder and a reasonable period of time in which to cure any default by R&D,
and R&D hereby agrees to indemnify Schein against and to reimburse it upon
demand for any and all costs of cure.
(i) R&D shall keep Schein apprised of the course of, and consult with
Schein concerning, any negotiations with RPR concerning any proposed
modifications or amendments to any of the RPR Agreements, and R&D will promptly
furnish Schein with copies of any modifications or amendments as and when
executed.
(j) R&D shall be responsible for submitting to the FDA, and
maintaining, a complete and adequate Drug Master File for the bulk active
utilized in the Product. If Schein is the Backup, R&D will provide to Schein a
reference letter for the Drug Master File.
11. Confidentiality.
---------------
(a) The Confidential Information shall be treated by Schein and R&D,
respectively, as confidential and in the manner required by the Distribution
Agreement, shall not be disclosed or revealed to any third party and such
information shall only be used in connection with the performance of this
Agreement; provided, however, that Confidential Information shall not, except as
otherwise provided in the Distribution Agreement, include information that the
parties can document as having been:
(i) public knowledge prior to the disclosure, or which
hereafter becomes public knowledge through no fault of the receiving party;
(ii) lawfully in its possession prior to the time of disclosure
by the other party;
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(iii) received, after the time of disclosure, from a third party
not under a similar obligation of confidentiality to the other party;
(iv) independently developed by its employees without access to
the other party's Confidential Information; or
(v) required to be disclosed pursuant to (1) any order of any
court having jurisdiction and power to order such information to be released or
made public; or (2) any lawful action of a governmental or regulatory agency.
(b) Each party shall take all such precautions as it normally takes
with its own Confidential Information and, as required by the Distribution
Agreement, to prevent any improper disclosure; provided, however, that
Confidential Information may be disclosed within the limits required to obtain
any authorization from the FDA or any other United States or foreign
governmental or regulatory agency or, with the prior written consent of the
other party.
(c) If either party shall breach any of the provisions of this
Section, in addition to and without limiting any other remedies available to
such party at law or in equity, the other party shall be entitled to immediate
injunctive relief in any court to restrain any such breach or threatened breach
and to enforce the provisions of this Section. The parties hereto acknowledge
and agree that there is no adequate remedy at law for any such breach or
threatened breach and, in the event that any proceeding is brought seeking
injunctive relief, the parties shall not use as a defense thereto that there is
an adequate remedy at law.
(d) This Section 11 and the obligations contained herein shall
survive termination of this Agreement, whether pursuant to Section 14 hereof, by
expiration of the Term or otherwise.
12. Indemnification: Insurance.
--------------------------
(a) R&D shall indemnify and hold Schein and its Affiliates harmless
from and against any claim, action, suit, proceeding, loss, liability, damage or
expense (including without limitation reasonable attorneys' fees) arising
directly or indirectly as a result of R&D's negligent acts or omission or breach
of its representations, warranties, covenants or other obligations hereunder,
provided, however that R&D shall not be required to indemnify Schein with
respect to any claim, action, suit, proceeding, loss, liability, damage or
expense arising from or related to Schein's breach of its representations,
warranties, covenants or other obligations hereunder, or from information
supplied by Schein to R&D or contained in regulatory filings prepared by Schein.
Without limiting the generality of the foregoing, R&D shall protect and defend
Schein from any and all claims, actions, suits, judgments, royalties, demands
and causes of action whatsoever arising out of any alleged infringement of the
proprietary rights of others by reason of the performance of this Agreement and
the purchase, importation, distribution, marketing, sale and/or use of the
Product by Schein; provided, however, that notwithstanding the foregoing, the
indemnification available to Schein under this sentence shall be limited to that
which is available to R&D from RPR under the RPR Agreements, with it being
understood and agreed, however, that R&D shall use its best efforts to have RPR
modify the RPR Agreements to provide for a level of indemnification by RPR which
is more in line with that which is customary in the industry.
22
<PAGE>
(b) Schein shall indemnify and hold R&D harmless from and against any
claim, action, suit, proceeding, loss, liability, damage or expense (including
without limitation reasonable attorney's fees) arising directly or indirectly as
a result of Schein's negligent acts or omissions or breach of its
representations, warranties, covenants or other obligations hereunder; provided,
however, that Schein shall not be required to indemnify R&D with respect to any
claim, action, suit, proceeding, loss, liability, damage or expense arising from
or related to R&D's breach of its representations, warranties, covenants or
other obligations hereunder, or from information supplied by R&D to Schein or
contained in regulatory filings or correspondence prepared or delivered by R&D.
(c) The foregoing provisions of this Section 12 and the obligations
contained therein shall survive termination of this Agreement, whether pursuant
to Section 14 hereof, by expiration of the Term, or otherwise.
(d) R&D shall use its best efforts to have RPR agree to have R&D and
Schein named as additional insureds on RPR's product liability insurance. During
the Term, R&D and Schein shall each at all times maintain at least $10 million
of product liability insurance coverage and will, from time to time, review the
appropriate level of insurance to be maintained by them (not necessarily the
same for each) given their respective roles hereunder and the level of insurance
maintained by RPR. R&D and Schein shall each cause the other to be named as
additional insureds on their respective product liability policies immediately
before the commencement of the first sale of Product hereunder.
13. Customer Complaints; Recall.
---------------------------
(a) R&D agrees to notify Schein promptly of any serious and
unexpected adverse reactions reported to R&D resulting from the use of the
Product (whether inside or outside of the Territory). Schein shall notify R&D
promptly of any complaints from third parties reported to Schein involving any
serious and unexpected adverse reactions resulting from use of the Product. All
complaints relating to the Product will be handled as described in Exhibit C
hereto, entitled "Complaint Handling Procedures."
(b) In the event of any recall of the Product, as suggested or
requested by any governmental authority, or any recall to which both parties
agree in writing, R&D and Schein shall perform the recall of the Product sold by
Schein and in the Territory. If the recall arises from Schein's or its
Affiliate's acts or omissions in the manufacturing, packaging, marketing,
distribution, storage or handling of such Product, the cost of goods sold,
distribution expenses and third-party recall expenses (collectively, "Recall
Costs") shall be borne by Schein. If the recall arises from R&D's (or RPR's)
acts or omissions in the manufacturing, packaging, marketing, distribution,
storage or handling of such Product, the Recall Costs shall be borne by R&D. In
all other events, Schein shall bear fifty percent (50%) of the Recall Costs and
R&D shall bear fifty percent (50%) of the Recall Costs.
14. Termination.
-----------
(a) The term of this Agreement may be terminated immediately upon
written notice of termination given by:
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(i) The non-defaulting party in the event that the other party
shall: (A) commit a material breach or default under this Agreement, which
breach or default shall not be remedied within sixty (60) days after the receipt
of written notice thereof by the party in breach or default, except that such
sixty (60) day period shall be fifteen (15) days in the case of a monetary
default; or (B) have made a material misrepresentation of any representation or
warranty contained herein; or
(ii) Schein, in the event that a preliminary injunction or other
order is granted by a court or authority enjoining or restricting the
manufacture and/or distribution of the Product as contemplated hereby; or
(iii) R&D or Schein, if the other shall at any time under the
laws of the United States or any state (A) make an assignment for the benefit of
creditors, (B) permit the appointment of a trustee or receiver of all or a
substantial part of its assets, or (C) institute voluntary proceedings in
bankruptcy or insolvency or permit voluntary institution of such proceedings
against it.
(iv) If a lawsuit has been commenced in a court of applicable
jurisdiction and has resulted in a judgement in that jurisdiction that the
importation, manufacture and/or distribution of the Product as contemplated
hereby infringes any patent or other proprietary right of any other person, firm
or corporation then Schein may terminate this Agreement with respect to the
Product in that jurisdiction.
(v) Either party, (x) in the event that there should, after the
granting of Marketing Authorization by the FDA and the receipt by R&D of all of
the payments contemplated in Paragraph 7(a) hereof, be an adverse development
with respect to the indications for or required warning labeling of the Product
which did not exist at the time of Marketing Authorization by the FDA and which,
if known at the time of entering into this Agreement by the party seeking to
terminate, could reasonably be expected so severely to have affected the
reasonable economic expectations of that party as to the performance of the
Product as to have caused that party not to enter into this Agreement, or (y)
but, only until the Supply Agreement is executed, in the event that the parties
shall have failed, despite having negotiated in good faith to do so, to enter
into the Supply Agreement at or before the granting of Marketing Authorization
by the FDA.
(vi) Schein, for any reason, but if but only if Schein elects to
terminate pursuant to this clause 14(a)(vi) after January 1, 1998 and before the
FDA has accepted the NDA for filing.
(vii) Schein, for any reason, but if but only if Schein elects to
terminate pursuant to this clause 14(a)(vii) after January 1, 1999 and before
Marketing Authorization from the FDA.
(b) Notwithstanding any termination of this Agreement, then subject
to any rights or remedies which one party may have against the other for any
breach of this Agreement, (i) no amounts previously paid or reimbursed by Schein
to R&D through the date of such termination shall be refundable to Schein, (ii)
if R&D has terminated this Agreement upon Schein's breach or Schein terminates
this Agreement where there has been no breach by R&D (including, by way of
example, where Schein's termination is under any one of clause (ii) through
(vii), above, but there has been no breach or default under this Agreement by
R&D), Schein shall be required to reimburse R&D promptly for all Qualified
Expenditures paid
24
<PAGE>
or accrued by R&D prior to the date of such termination up to the limits
provided in Paragraph 3(b) hereof; and (iii) Schein shall also be required to
pay to R&D any and all other amounts accrued hereunder through the date of
such termination.
(c) Notwithstanding anything herein to the contrary, subject to RPR's
approval (which R&D shall use its best efforts to obtain promptly following the
execution and delivery of this Agreement), Schein shall have the right to sell
any quantities of the Product obtained from R&D hereunder after expiration or
termination (other than on Schein's breach) of this Agreement, and R&D shall
fill all of Schein's orders for Product received during the one hundred and
eighty (180) day period following any notice of termination, upon the terms of
this Agreement.
(d) Failure to obtain Marketing Authorizations in any country in the
Territory other than the United States, shall not result in a termination of
this Agreement.
15. Force Majeure. If either R&D or Schein shall be prevented by fire,
-------------
strike, lockouts, war, civil disturbances, acts of God or other similar events
beyond the reasonable control of R&D or Schein from performing its respective
obligations hereunder, neither R&D nor Schein shall be liable to the other for
damages. The party being able to perform may, at its sole option, extend the
duration of this Agreement by a term equal in length to the period during which
the other party was unable to perform its obligations hereunder, or waive such
obligations, but in no event shall the Term be extended hereunder beyond that of
the RPR Agreements.
16. Assignment. This Agreement shall inure to the benefit of, and shall be
----------
binding upon each of, the parties hereto and their respective successors and
assigns. This Agreement can be assigned in whole or in part by either party
subject to prior written consent of the other, which consent will not be
unreasonably withheld or delayed and, to the extent applicable, subject to RPR's
prior written consent. R&D or Schein may, without the prior written consent of
the other, but subject to obtaining such consent, if any, as might be required
under the RPR Agreements (which R&D agrees that it would use its best efforts to
obtain), assign this Agreement, in whole or in part, to an Affiliate or to any
third party acquiring all or substantially all of the assets of Schein or R&D or
with or into whom R&D or Schein may be merged, provided that the assigning party
shall remain fully responsible for performance of the obligations of its
assignees under this Agreement. In any event, the party so assigning shall give
the other party written notice at least sixty (60) days prior to such
assignment.
17. Notices. All notices, reports and other communications required by
-------
this Agreement shall be transmitted by overnight courier service or by facsimile
transmission with confirmed answer back to the other party at its address set
forth below, or such other address as shall be specified by the parties hereto
by written notice given in accordance with this section and shall be effective
upon receipt thereof.
If to Schein: Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, NJ 07932
Telecopier No.: (201) 593-5820
Attention: General Counsel
25
<PAGE>
If to R&D: Makoff R&D Laboratories, Inc.
4640 Admiralty Way, Suite 710
Marina del Rey, California 90292
Attention: Robert G. Weitzman, Esq. Chief Financial Officer
18. Publicity. Except for such disclosure as is deemed necessary, in the
---------
reasonable judgment of a party, to comply with applicable laws or to obtain
Marketing Authorizations, and except for disclosures contemplated under the
Marketing Plans or the Strategic Commercialization Plans, no announcement, news
release, public statement or publication relating to the existence of this
Agreement, the subject matter hereof, or either party's performance hereunder
will be made without the other party's prior written approval, which shall not
be unreasonably withheld. Also, prior to the commencement of the sale of the
Product, advance representative copies of such publications shall also be
provided to RPR by the parties.
19. Amendment and Waiver. This Agreement (including the Exhibits hereto)
--------------------
may be amended, modified, superseded or canceled, and any other of the terms or
conditions hereof may be modified, only by a written instrument executed by both
parties hereto or, in the case of a waiver, by the party waiving compliance.
Failure of any party at any time or times to require performance of any
provision hereof shall in no manner affect the right of such party at a later
time to enforce the same, and no waiver of any nature, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be or considered as
a further or continuing waiver of any other provision of this Agreement.
20. Governing Law, Venue and Arbitration. This Agreement and all rights,
------------------------------------
obligations and liabilities arising hereunder shall be construed and enforced in
accordance with the laws of the State of California. The parties mutually agree
to arbitration in accordance with the rules of the American Arbitration
Association in effect as of the date of this Agreement (which are incorporated
by reference herein), and judgment upon the award rendered by the Arbitrator(s)
may be entered in any court having jurisdiction. Venue for such arbitration
shall be Los Angeles County, California if commenced by Schein and Morris
County, New Jersey if commenced by R&D. Both parties agree that such judgment
shall not be appealable. The arbitration shall proceed in the absence of any
party which, after due notice, fails to be present or fails to obtain an
adjournment. The parties shall have the right to conduct discovery pursuant to
the provisions of Section 1283.05 of the California Code of Civil Procedure, and
the aforesaid arbitration requirement shall not operate to preclude either party
hereto from seeking or obtaining injunctive relief in a court of competent
jurisdiction or from pursuing in a court of competent jurisdiction rather than
through arbitration any relief which it might seek in connection with any
occurrence, matter or question where it is reasonably foreseeable that a third
party (including RPR) might bring a claim with respect thereto, connected
therewith or arising therefrom or be a party thereto in a judicial forum. It is
also understood and agreed that in the case of any arbitration involving
technical claims of a noncommercial nature, arbitrators shall be drawn only from
among persons having appropriate technical background or expertise in the areas
concerned, and it is further understood and agreed that the parties'
negotiations for the entering into of the Supply Agreement shall not be subject
to arbitration.
21. Attorney Fees. In the event that it becomes necessary for either party
-------------
to commence any proceeding or action (including arbitration) to enforce the
provisions of this Agreement, the prevailing party in such proceeding or action
shall be entitled to recover all costs and expenses thereof, including, but not
limited to reasonable attorneys' fees and
26
<PAGE>
customary court costs, with it being understood and agreed, however, that Schein
shall be entitled to offset against any of its payments next otherwise coming
due from it to R&D under this Agreement any and all fees and costs then due from
R&D to Schein under this Section 21.
22. Severability. In the event that any one or more of the agreements,
------------
provisions or terms contained herein shall be declared invalid, illegal or
unenforceable in any respect, the validity of the remaining agreements,
provisions of terms contained herein shall in no way be affected, prejudiced or
invalidated thereby.
23. Entire Agreement. This Agreement, together with the Exhibits hereto,
----------------
contains the entire agreement between the parties hereto and supersedes any
agreements between them with respect to the subject matter hereof.
24. Section Headings. The section headings contained in this Agreement are
----------------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
25. Counterparts. This Agreement may be executed in any number of separate
------------
counterparts, each of which shall be deemed to be an original, but which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SCHEIN PHARMACEUTICAL, INC.
By: /s/ Michael D. Casey
-------------------------
Authorized Officer
MAKOFF R&D LABORATORIES, INC
By: [SIGNATURE ILLEGIBLE]
-------------------------
Authorized Officer)
27
<PAGE>
EXHIBIT 10.5
This Agreement is made the 16th day of August, 1994
BY AND BETWEEN
ELAN PHARMA, LTD.
An Irish company, of Monksland, Athlone, Co. Westmeath, Ireland.
AND
SCHEIN PHARMACEUTICAL, INC.
A US company, of 100 Campus Drive, Florham Park, NJ 07932, USA
(hereinafter referred to as "THE CLIENT")
<PAGE>
2.
WHEREAS
- -------
- - ELAN is beneficially entitled to the use of French Patent No. 7836084
(filing date 22nd December 1978) and various other patents have been
granted or are pending under the International Convention in relation to
the development and production of Drug Specific Dosage Forms for
pharmaceutical products.
- - ELAN is knowledgeable in the development of Drug Specific Dosage Forms and
has developed a unique range of delivery systems designed to provide
newer and better formulations of medicaments.
- - THE CLIENT is desirous of entering into a licensing agreement with ELAN by
virtue of which it will be free to market the PRODUCT under its own label
and trademark in the TERRITORY without infringing any of the patent or
KNOW-HOW rights held by ELAN.
- - ELAN is prepared to develop, license and supply the DSDF in the TERRITORY.
NOW IT IS HEREBY AGREED AS FOLLOWS:
ARTICLE I
- ---------
In the present Agreement the following definitions shall prevail:
1. NORMAL DOSAGE FORM shall mean Cruvail@ 200mg capsules as sold in the
United States or any other agreed comparison product which contains
Ketoprofen as its sole pharmaceutical active ingredient.
2. DSDF shall mean the capsule Drug Specific Dosage Form which ELAN will
develop in the course of the PROJECT containing Ketoprofen as its
sole pharmaceutical active ingredient with an AB substitution rating
to the NORMAL DOSAGE FORM and to meet the specifications set out in
Appendix A, the specifications contained in the ANDA and any
applicable specifications as may from time to time be published under
the US Pharmacopoeia or established by applicable regulatory
authorities (the "Specifications").
3. $ shall mean United States Dollars.
4. NET SALES of the Product shall mean the total invoiced sales by THE
CLIENT of the PRODUCT in the TERRITORY to an arms length third party,
less usual and customary chargebacks, rebates, discounts, returns,
allowances, credit, sales and other consumption taxes. However, the
deduction against total invoiced sales for returns, other than Recall
Costs as defined in Article VII, Section 2 hereof, and bad debts shall
not be more than 5% in total.
<PAGE>
3.
5. KNOW-HOW shall mean all proprietary knowledge, information and
expertise possessed by ELAN or to which Elan has rights relating to
the DSDF, whether or not covered by any patent, patent application
or future patent application, copyright design, trademark or other
industrial or intellectual property rights.
6. PROJECT shall mean all activity in order to develop the DSDF in
accordance with the plan shown in Appendix B.
7. PRODUCT shall mean the DSDF packaged and labelled for sale in the
TERRITORY.
8. PROFITS shall mean Net Sales of the PRODUCT less Full Cost.
9. TERRITORY means the United States of America, its territories and
possessions.
10. ELAN shall mean Elan Pharma Ltd. and any of its parent, subsidiary,
affiliate or associate companies.
11. FDA shall mean the United States Food and Drug Administration.
12. ANDA shall mean the Abbreviated New Drug Application for the DSDF
which ELAN shall file with and seek to have approved by the FDA and
which shall be held by ELAN.
13. FULL COST shall mean ELAN's cost of manufacture which shall be
determined on the basis of the following elements applicable to that
particular function: (a) direct material and labour costs of that
function and (b) such indirect labour, factory, laboratory and other
overhead costs properly allocable to that function under Irish
generally accepted accounting principles. Overhead allocations shall
include expenses of plant maintenance and engineering, plant
management, receiving and warehousing, building occupancy and quality
control, but do not include corporate overhead or profit margins.
ARTICLE II: THE DSDF
- ---------- --------
1. ELAN shall develop the DSDF as laid out in the PROJECT set forth in
Appendix B hereto for the consideration set out hereinafter in Article
IV and shall use its best efforts to complete the Project in
accordance with the timetable set out in Appendix B.
2. ELAN shall remain proprietor of all its relevant trademarks and patent
rights relating to the DSDF and all KNOW-HOW relative thereto, but
hereby grants to THE CLIENT an exclusive licence to prepare, use,
promote, market, sell and distribute the PRODUCT in the TERRITORY
under the terms and conditions set out herein.
<PAGE>
4.
This license shall also cover other AB rated versions including, but
not limited to other strengths, and delivery systems of the NORMAL
DOSAGE FORM which ELAN may develop by agreement with THE CLIENT for
development fees to be agreed. THE CLIENT hereby accepts such license
and confirms that, during the term of this Agreement and so long as
ELAN is providing the PRODUCT to THE CLIENT in accordance with Article
III hereof it will not market directly or indirectly any 200mg product
containing Ketoprofen as its sole Pharmaceutical active ingredient.
3. THE CLIENT shall ensure that all packaging, labelling, promotional
material and publications, scientific or otherwise, prepared by or on
behalf of THE CLIENT for the PRODUCT or concerning the PRODUCT, shall
contain in writing an acknowledgement that the PRODUCT is
manufactured by ELAN, and copies and/or samples thereof shall be
provided to ELAN on written request. Additionally, THE CLIENT
undertakes that all press releases announcements, oral or written
concerning the PRODUCT must refer to it as developed and manufactured
by ELAN for THE CLIENT.
4. THE CLIENT may market, sell and/or distribute the PRODUCT under any
trademark or trademarks, as it may from time to time choose, and THE
CLIENT shall consider the use of the trademark Ketelan. If THE CLIENT
so chooses to use the trademark Ketelan, it may do so without payment
or additional consideration to ELAN. Elan represents and warrants that
it is the owner of the Ketelan trademark and that the use of the
trademark Ketelan as contemplated hereby will not involve any
infringement of any existing trademark or rights of third parties.
Such trademarks, except Ketelan, shall remain the sole property of THE
CLIENT. ELAN shall not use or authorize any third party to use any
such trademark(s) whether during the term or thereafter.
5. ELAN shall, if requested, advise THE CLIENT in any technical matters
as may become necessary for the proper utilisation of its license.
ARTICLE III: PROCUREMENT OF THE DSDF
- -------------------------------------
1. ELAN shall produce and supply to THE CLIENT exclusively its entire
requirements of the DSDF for the TERRITORY at the price, delivery
and other terms contained herein.
<PAGE>
5.
1.1. 0n September 1st, 1995, THE CLIENT will provide ELAN with a
forecast of THE CLIENT's requirements for the Product for the 12
month period following FDA approval of the ANDA. This forecast
will be updated quarterly until ANDA approval of the PRODUCT.
Except as otherwise provided herein, all forecasts made hereunder
shall be made to assist ELAN in planning its production, and THE
CLIENT in planning sales, and are not represented to be binding
purchase orders, and shall be without prejudice to THE CLIENT's
subsequent firm orders for the PRODUCT in accordance with the
terms of this Agreement.
The parties acknowledge that it is in their mutual interest that
launch of the PRODUCT be effected as soon as possible following
ANDA approval, for which, purpose the parties shall, in advance of
the ANDA approval, DISCUSS and agree on the manufacture and
purchase of specific quantities of launch stocks, (the "Launch
Stocks"). In any event and notwithstanding any firm purchase
orders for such Launch Stocks which THE CLIENT has already placed
with ELAN, ELAN will notify THE CLIENT of its receipt of a pre-
approval letter for the ANDA for the PRODUCT from the FDA and THE
CLIENT will within seven (7) days of such notification place a
firm purchase order with ELAN for its Launch Stocks which
notification shall include a copy of the FDA pre-approval letter,
unless such purchase order has been submitted to ELAN prior to
that date. With respect to Launch Stocks ELAN agrees to supply
quantities of capsules of DSDF for delivery within one hundred and
twenty (120) days of placement of purchase orders. THE CLIENT will
use its best efforts to provide forecasts for deliveries for the
balance of the year in which the ANDA is approved which it
requires in addition to the Launch Stocks, on a monthly basis at
the beginning of each month.
Notwithstanding anything to the contrary contained herein, ELAN
agrees to use its best efforts to fill any orders for delivery
(including Launch Stock orders) within ninety (90) days after they
are placed by THE CLIENT provided they are within 25% plus or
minus THE CLIENT's forecast which is current as of the date of the
order. Elan also will use its best efforts to fill THE CLIENT's
requirements in excess of one hundred and twenty five (125%) of
forecasted amounts.
1.2. On September 30th of the year during which the ANDA is approved,
or if after October 1, within 15 days of such approval date, THE
CLIENT shall provide a forecast for purchases for the following
calendar year. The first calendar quarter of such forecast shall
be a binding purchase commitment of THE CLIENT. At the beginning
of each calendar quarter thereafter THE CLIENT will provide a
rolling annual forecast for the period beginning on the first day
of the calendar quarter following the calendar quarter in which
the forecast is made and the first calendar quarter of such
forecast shall be a binding purchase commitment of THE CLIENT.
<PAGE>
6.
ELAN will use its best efforts to fill THE CLIENT's requirements
in excess of one hundred and twenty five (125%) percent of
forecasted amounts. Notwithstanding the foregoing, it shall be
the responsibility of ELAN to maintain reasonably adequate
inventories of the DSDF using its best efforts to satisfy the
requirements of THE CLIENT.
1.3. For all purchase orders for the PRODUCT other than the Launch
Stocks, THE CLIENT shall communicate to ELAN THE CLIENT's firm
purchase order for the PRODUCT for the quarter within forty-five
(45) days before the beginning of each calendar quarter during
the Term after approval of the ANDA by the FDA, specifying
shipment/delivery schedules within the time frames set forth in
Paragraph 1.6 hereof.
1.4. Within seven (7) days of the receipt of each such order, Elan
shall either confirm to THE CLIENT that it will meet THE CLIENT's
requirements for the quarter in accordance with the
shipment/delivery schedule, whereupon the purchase order shall be
confirmed, final and binding on the parties; or in the event of
ELAN's inability to meet such requirements or schedule, ELAN
shall notify THE CLIENT in detail as to the extent to which it
will not meet such requirements or schedule. ELAN may at such
time suggest modifications to THE CLIENT's requirements or
schedule. In the event of ELAN's suggesting any modifications,
THE CLIENT shall communicate to ELAN its acceptance or rejection,
in whole or in part, thereof within seven (7) days after THE
CLIENT's receipt of such communication, whereupon the purchase
order shall be confirmed, final and binding on the parties. To
the extent that THE CLIENT does not accept such suggested
modifications or that ELAN cannot meet THE CLIENT's requirements
or schedule, THE CLIENT may satisfy its requirements and/or
schedule for such quarter by purchasing the PRODUCT from
alternate sources as provided in Section 1.6 hereof. All
communications for the purpose of this Section 1.4 shall, to the
extent practicable, be by fax with confirmed answer back to the
other party, and only in the event of this being not possible for
any reason, will communications be in writing through overnight
courier services.
1.5. Shipments of the PRODUCT shall be made by ELAN promptly against
confirmed purchase orders placed by THE CLIENT with delivery
dates no later than one hundred twenty (120) days from the date
of THE CLIENT's placing the applicable purchase order. Products
shall be shipped F.O.B to THE CLIENT's manufacturing facility in
either the State of New York, the State of Connecticut, Puerto
Rico, or as otherwise instructed by THE CLIENT from time to time.
<PAGE>
7.
1.6. If at any time during the Term, ELAN is or expects that it will
be unable to satisfy THE CLIENTs requirements of the PRODUCT, in
full or in part, ELAN promptly shall so notify THE CLIENT,
detailing the extent to which it will not meet such requirements.
THE CLIENT, without limiting any other remedy available to it,
may in its discretion meet the shortfalls therein from any
alternate source or sources. THE CLIENT, without limiting any
other remedy available to it, may also purchase PRODUCT from
alternate source or sources if a lawsuit has been commenced
alleging that the import, manufacture and/or distribution of the
PRODUCT as contemplated hereby infringes any patent or
proprietary right of any other person, firm or corporation.
1.7. ELAN shall deliver the DSDF to THE CLIENT and/or any party
designated by THE CLIENT in proper bulk packaging so as to permit
safe storage and transport.
1.8. Unless otherwise agreed to in writing between the parties, ELAN
shall supply the DSDF in the form of bulk capsules and THE CLIENT
shall be responsible for the packaging of said bulk capsules into
final market packaging.
1.9. All quantities of the DSDF delivered by ELAN hereunder shall
conform to the Specifications. All claims for failure of any
shipment of the DSDF to conform to Specifications must be made to
ELAN in writing within forty-five (45) days following delivery.
Failure to make a timely claim in the manner prescribed shall
constitute acceptance of the shipment. DSDF which has been
delivered and which does not conform to specifications shall be
replaced at ELAN'S cost. In the event of an unresolved dispute as
to conformity with Specifications of the DSDF, the parties shall
nominate an independent first class laboratory to undertake the
relevant testing. Its findings shall be conclusive and binding
upon the parties. All costs relating to this process shall be
borne exclusively by the unsuccessful party. Nothing contained in
this Paragraph 1.9 shall limit ELAN's indemnification obligations
under Article VIII, paragraph 8 hereof.
ARTICLE IV: REPRESENTATION AND WARRANTIES
- ---------- -----------------------------
1. Each of ELAN and THE CLIENT represents and warrants to the other
that it has such permits, licenses and authorizations of
governmental or regulatory authorities as are necessary to own
its respective properties, conduct its business and consummate
the transactions contemplated hereby.
2. Each of ELAN and THE CLIENT represents and warrants to the other
that it is not currently debarred, suspended, or otherwise
excluded by any United States governmental agency from receiving
Federal contracts.
<PAGE>
8.
3. ELAN further represents and warrants that:
3.1. The PRODUCT sold by ELAN to THE CLIENT pursuant hereto shall be,
and remain throughout its stated shelf-life, in accordance with
the Specifications when packaged and stored according to the ANDA
specification.
3.2. The PRODUCT sold by ELAN to THE CLIENT pursuant hereto be of
good, merchantable and usable quality, free of defects, suitable
for the purposes for which the Product is to be used by, and
shall not be adulterated or misbranded within the meaning of the
US Food, Drug and Cosmetics Act.
3.3. The PRODUCT sold by ELAN to THE CLIENT pursuant hereto conform in
all respects to all applicable laws, regulations and approvals
governing the manufacture, packaging, importation and
distribution of the PRODUCT in the Territory, including, without
limitation, the FDA's current Good Manufacturing Practices.
3.4. Its manufacturing facilities conform in all respects to
applicable laws, regulations and approvals governing such
facility and are adequate to produce the quantities of the
PRODUCT contemplated hereby.
3.5. To the best of ELAN's knowledge, all bulk active ingredient used
in the manufacture of the PRODUCT shall be manufactured at an
FDA-approved manufacturing facility in accordance with current
Good Manufacturing Practices and current Bulk Drug Substances
Guidelines, and shall be in compliance with the applicable
specifications under the bulk product monograph, and shall not be
manufactured, imported or distributed in violation of any rights
of any third party.
3.6. Neither the purchase by THE CLIENT of the PRODUCT as contemplated
hereby nor the manufacture, marketing, sale or use of the PRODUCT
or any information or technology relating thereto, all as
contemplated hereby, will involve any infringement of any
existing patents or rights of third parties, including but not
limited to the NORMAL DOSAGE FORM, nor has ELAN received any
notice of any claimed infringement (including, without
limitation, patent infringement) in connection with the PRODUCT.
3.7. ELAN shall obtain adequate supplies of the bulk active compounds
contained in the PRODUCT to fulfill ELAN's obligations with
respect to the manufacture, sale and delivery of the PRODUCT
under this Agreement subject to purchase orders being received
from THE CLIENT.
<PAGE>
9.
ARTICLE V: FINANCIAL PROVISIONS
- --------- --------------------
1. Development Fees
----------------
In consideration of the development of the DSDF by ELAN under this
Agreement, THE CLIENT shall pay to ELAN a non-refundable development
fee of ****,*** (***** ******* *** ******* **** ******** *******) upon
commencement of Stage II B of the PROJECT.
2. License Fees
------------
In consideration of the rights and license granted to THE CLIENT by
virtue of this Agreement, THE CLIENT shall pay to ELAN License Fees as
follows, which shall be non-recoverable save as provided for in
Article V, Section 2.3 or Article VI, Section 9 below:
2.1. ********** **** ******* ******** on signature of this Agreement.
2.2. ********** **** ******* ******** on filing of the ANDA with the
FDA.
2.3. Subject to Section 2.4. below, on approval of the ANDA by the
FDA, THE CLIENT shall pay to ELAN a one-time license fee of ****
** IMS reported sales for the NORMAL DOSAGE FORM for the 12 month
period preceding FDA approval of the ANDA based on the most
current IMS sales data available at the time of ANDA approval
less **********. At the conclusion of the 60th day following the
entry of the PRODUCT into the generic market place in the
TERRITORY this license fee shall, if necessary, be reduced as set
forth in the table below. If such reduction is required, then THE
CLIENT shall recover the difference in the license fee previously
paid and the reduced license fee amount from ELAN'S first PROFITS
due in accordance with Section 6 herein. THE CLIENT shall also
furnish ELAN with the details and launch dates of any other AB
rated versions of the NORMAL DOSAGE FORM which have been launched
in the United States prior to the ANDA approval of which it has
knowledge. The total license fee payable to ELAN shall be
calculated as:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
Total license fee as percent of IMS reported sales for The PRODUCT's entry in the generic market place
the normal dosage form for the 12 month period
preceding FDA approval of the ANDA
- -------------------------------------------------------------------------------------------------------------------
**** 1st in the market for at least 60 days
- -------------------------------------------------------------------------------------------------------------------
***** 2nd in the market place with at least a 60 day head
start prior to a third entry or I st in the market
for less than 60 days
- -------------------------------------------------------------------------------------------------------------------
***** All other cases
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* redacted pursuant to confidential treatment request.
<PAGE>
10.
2.4. In the event that the amount calculated under Section 2.3 shall
be less than ********** **** ******* ********, then no additional
license fee shall be paid to ELAN, and the difference between the
amount calculated and the ********** **** ******* ********
(i.e., the total payments under Sections 2.1 and 2.2), up to a
maximum of ******** ***** ******* ******** ******** *******
shall be allocable to a new project, to be agreed by the parties
in a manner to be discussed and agreed in good faith, and failing
such an agreement THE CLIENT shall be allowed to recover these
funds against future royalties and manufacturing income to ELAN
received from a licensee for the PRODUCT in the territory.
2.5. For the purpose of Section 2.3 any generic version of the NORMAL
DOSAGE FORM which is launched, distributed, licensed or otherwise
supplied for sale in the United States by or through rights
granted under the New Drug Application approved by the FDA for
the NORMAL DOSAGE FORM shall not be regarded as a competing AB
rated product.
3. Performance
-----------
THE CLIENT agrees to use reasonable commercial efforts in launching
and selling the PRODUCT in the TERRITORY as would be deemed
commensurate with the achievement of its own business aims for a
similar product of its own. THE CLIENT shall during and for a period
of four (4) years after the launch of the PRODUCT communicate with
ELAN regarding its objectives for and performance of the PRODUCT in
the marketplace subject to the confidentiality obligations contained
herein.
4. Additional Expenses
-------------------
THE CLIENT shall reimburse the following expenses within 30 days of
the date of invoicing of the expense.
4.1. Cost of DSDF or PRODUCT produced, at THE CLIENT's request, for
THE CLIENT for purposes other than commercial sale.
4.2. Cost of any additional development or registration work on the
DSDF or PRODUCT carried out by ELAN at the request of THE CLIENT
other than work outlined in Appendix B, including but not limited
to, pharmacokinetic: studies and related assays, stability data
generation, clinical studies and compilation and submission of
dossiers required for registration purposes. ELAN's charges for
this work shall be cost plus fifteen (15%) percent.
* redacted pursuant to confidential treatment request.
<PAGE>
11.
5. Price of DSDF
-------------
5.1. THE CLIENT agrees to apply the same policy in establishing a
sales price for the PRODUCT in the TERRITORY as THE CLIENT would
do in the case of its own products.
5.2. ELAN shall supply DSDF to THE CLIENT at its FULL COST, and ELAN
shall, during the course of the PROJECT, keep THE CLIENT apprised
as to its estimates of the FULL COST. On September 30 of each
year following FDA approval of the ANDA during the term, ELAN
shall notify THE CLIENT of its annual FULL COST increases which
shall be limited to (i) actual cost increases for the bulk
substance contained in the DSDF and (ii) the lesser of either
actual increases or the percentage increase in the consumer price
index in Ireland for all other costs related to the manufacture
of the DSDF. However, at no point shall ELAN be so forced to
supply the DSDF at a price less than the FULL COST as outlined
hereunder and in the event of such an occurrence, the parties
shall amicably discuss the situation with a view to agreeing a
mutually acceptable revised price structure. Payment for DSDF so
supplied shall be made by THE CLIENT within thirty (30) days
receipt of an invoice therefore.
6.1. Profit Allocation
-----------------
Within forty-five (45) days after the end of each calendar quarter
following the launch of the PRODUCT. THE CLIENT will calculate and
deliver to ELAN its share of the PROFITS as set forth below for
such quarter accompanied by an accounting of such PROFITS including
a detailed written statement of its NET SALES of the PRODUCT sold
and shipped to third party customers.
6.2.(i) During the Term and for a four (4) year period commencing with THE
CLIENT's first firm purchase order for PRODUCT, the PROFITS with
respect to all PRODUCT purchased from ELAN under this Agreement and
sold by THE CLIENT to third party customers shall be allocated
between THE CLIENT and ELAN as follows: ***** ******* ***** of
PROFITS shall be allocated to THE CLIENT *** ***** ******* of
PROFITS shall be allocated to ELAN. Thereafter, the PROFITS with
respect to all PRODUCT purchased from ELAN under this Agreement and
sold by THE CLIENT to third party customers shall be allocated
between THE CLIENT and ELAN as follows: ***** ******* ***** of
PROFITS shall be allocated to CLIENT *** ***** ******* ***** **
PROFITS shall be allocated to ELAN.
* redacted pursuant to confidential treatment request.
<PAGE>
12.
6.2.(ii) Notwithstanding the provisions of 6.2(i) if the PRODUCT's
wholesale acquisition cost ("WAC") falls below ****** per capsule
of 200 mg, then THE CLIENT shall receive an additional cumulative
five percent (5%) allocation of PROFITS over and above the
percentage of PROFIT allocated per 6.2.(i) above for every five
percent (5%) of ****** per capsule of 200 mg that the PRODUCT's
WAC falls below ****** per capsule of 200 mg. However, such
provision shall apply only to the point where twenty percent (20%)
of the PROFITS are allocated to ELAN and eighty percent (80%) of
the PROFITS are allocated to THE CLIENT following which there
shall be no further allocation of PROFITS.
7. Audits
------
For the one hundred eighty (180) day period following the close of
each calendar year during the Term, ELAN and THE CLIENT shall
provide each other's independent certified accountants (reasonably
acceptable to the other party) with access, during regular
business hours and upon reasonable prior request, and subject to
the confidentiality undertakings contained in this Agreement, to
such party's books and records relating to the PRODUCT solely for
the purposes of verifying the accuracy of calculations hereunder
for the calendar year then ended.
8. Transfer of Manufacturing
-------------------------
ELAN reserves the right to cease manufacturing the DSDF in the
event that the PROFITS fail to give it a margin of ******* *******
***** on its FULL COST subject to giving CLIENT 6 months prior
written notice. In such an event and if so requested by THE
CLIENT, ELAN shall grant to THE CLIENT the exclusive rights to
manufacture, or have manufactured by a third party designated by
CLIENT and acceptable to ELAN, the DSDF for the TERRITORY. In
return for such a right to manufacture the DSDF, THE CLIENT shall
pay to ELAN ***** ******* ***** of its PROFITS, which shall then
be calculated based on the equivalent FULL COSTS of THE CLIENT or
its appointed third party manufacturer. In the event of such a
transfer of manufacture, the parties shall agree on a reasonable
period of time under which said transfer is to be made and ELAN
shall continue to supply CLIENT with the PRODUCT until such
transfer is fully effected so that CLIENT's supply of the PRODUCT
shall be continuous and uninterrupted.
* redacted pursuant to confidential treatment request.
<PAGE>
13.
9. New Project/Refund
------------------
9.1. In the event that the FDA does not approve the ANDA within five
(5) years from the date of this Agreement, and should THE CLIENT
within a six-month period thereafter then elect not to continue
with this Agreement, then the License Fees paid to ELAN under
paragraph 2.2 of this Article above (**** **********) shall be
allocated to a new project, to be agreed by the parties, in a
manner to be discussed and agreed in good faith. Failing such
agreement, THE CLIENT is allowed to recover these funds through
future royalty and manufacturing income received by ELAN from a
licensee in the territory.
9.2. If any technology covered by any of Elan's patents is utilized in
the development of the PRODUCT and such patent(s) are found by a
court of applicable jurisdiction to be invalid or unenforceable
in the TERRITORY and as result thereof a third party would be
entitled to manufacture or distribute the PRODUCT in the
TERRITORY utilizing any of the technology covered by such
patents, then the percentage of PROFITS to be allocated to ELAN
pursuant to Section 6.2 hereof shall be reduced by an amount
equal to the percentage point reduction of the market share of
the PRODUCT directly attributable to the third-party product.
9.3. If the importation, distribution, marketing, sale and/or use of
the PRODUCT in the TERRITORY as contemplated hereby is found by a
court of applicable jurisdiction to infringe the rights of a
third party and as a result thereof THE CLIENT would be precluded
from the distribution, marketing, sale and/or use of the PRODUCT
in the TERRITORY, then without limiting ELAN's indemnification
undertakings under Article VIII, Section 8, ELAN shall use
reasonable endeavors at ELAN's expense to obtain and maintain
such license as required for THE CLIENT to continue to market the
PRODUCT in the TERRITORY.
ARTICLE VI: REGISTRATION OF THE PRODUCT
- ---------- ---------------------------
1. ELAN shall prepare and shall submit to the FDA, promptly upon
completion of the Project, the completed ANDA for the PRODUCT and
shall use its best efforts to obtain as soon as possible FDA approval
of the ANDA. ELAN shall remit to THE CLIENT a completed copy of said
ANDA within thirty (30) days of its filing with the FDA. ELAN shall at
its sole discretion decide on the content of the ANDA, however, in the
event that ELAN so requests, THE CLIENT shall assist and advise ELAN,
such advice shall be provided free of charge unless THE CLIENT has
provided prior notification of the cost to ELAN on the compilation of
the ANDA.
2. ELAN shall notify THE CLIENT of the filing date and the approval date
of the ANDA within two (2) working days following said dates.
* redacted pursuant to confidential treatment request.
<PAGE>
14.
3. If any additional information or clinical data are requested by the
FDA in order to obtain approval of the ANDA in the TERRITORY, ELAN and
THE CLIENT shall discuss and agree on an appropriate plan of action to
generate such data.
4. ELAN shall in a businesslike fashion keep THE CLIENT updated on the
status of the ANDA filing throughout its review by the FDA and shall
copy THE CLIENT on materially relevant correspondence with FDA
relating to the ANDA and/or the PRODUCT manufacturing facility.
5. THE CLIENT shall be responsible for obtaining all FDA approvals
necessary for THE CLIENT to package the DSDF into final marketing
packaging and for obtaining all applicable state and local regulatory
approvals for the distribution of the PRODUCT in the TERRITORY. ELAN
shall cooperate with THE CLIENT in obtaining such approvals. THE
CLIENT shall develop and provide ELAN with the commercial stability
data to support the ANDA and it shall provide this data in a time
frame consistent with the ANDA target filing date.
ARTICLE VII: CUSTOMER COMPLAINTS: RECALL
---------------------------
1. ELAN agrees to notify THE CLIENT promptly of any serious and
unexpected adverse reactions reported to ELAN outside of the TERRITORY
resulting from use of the PRODUCT, and on a regular basis with respect
to all other reports of adverse reactions. THE CLIENT shall notify
ELAN promptly of any complaints from third parties reported to THE
CLIENT involving any serious and unexpected adverse reactions
resulting from the use of the PRODUCT. All complaints relating to the
PRODUCT will be handled as described in Appendix C hereto, entitled
----------
"Complaint Handling Procedures".
2. In the event of any recall of the PRODUCT, as suggested or requested
by any governmental authority THE CLIENT shall perform the recall of
the PRODUCT in the TERRITORY. If the recall arises from THE CLIENT's
acts or omissions in the packaging, marketing, distribution, storage
or handling of the PRODUCT, the cost of goods sold, distribution
expenses and third-party recall expenses (collectively, "Recall
Costs") shall be borne by THE CLIENT. If the recall rises from ELAN's
acts or omissions in the manufacturing or delivery of the PRODUCT, the
Recall Costs shall be borne by ELAN. In all other events the Recall
Costs shall be shared equally. ELAN shall be responsible for all
recalls of the PRODUCT outside the TERRITORY.
<PAGE>
15.
ARTICLE VIII: SUNDRY CLAUSES
- ------------ --------------
1. Secrecy
-------
1.1. Any information, whether of a written, oral or visual nature
pertaining to the PRODUCT that has been or will be communicated
or delivered by ELAN to THE CLIENT, and any information (whether
of a written, oral, or visual nature) from time to time
communicated or delivered by THE CLIENT to ELAN, including,
without limitation, trade secrets, business methods, and cost,
supplier, manufacturing and customer information, shall be
treated by THE CLIENT and ELAN, respectively, as confidential
information, and shall not be disclosed or revealed to any third
party whatsoever or used in any manner except as expressly
provided for herein; provided, however, that such confidential
information shall not be subject to the restrictions and
prohibitions set forth in this section to the extent that such
confidential information:
(i) is available to the public in public literature or
otherwise, or after disclosure by one party to the other
becomes public knowledge through no default of the party
receiving such confidential information;
(ii) was known to the party receiving such confidential
information prior to the receipt of such confidential
information by such party, whether received before or after
the date of this Agreement;
(iii) is obtained by the party receiving such confidential
information from a third party not subject to a requirement
of confidentiality with respect to such confidential
information; or
(iv) is required to be disclosed pursuant to: (A) any order of a
court having jurisdiction and power to order such
information to be released or made public; or (B) any
lawful action of a governmental or regulatory agency.
1.2. Each party shall take all such precautions as it normally takes
with its own confidential information to prevent any improper
disclosure of such confidential information to any third party;
provided, however, that such confidential information may be
disclosed within the limits required to obtain any authorization
from the FDA or any other United States or foreign governmental
or regulatory agency or, with the prior written consent of the
other party, which shall not be unreasonably withheld, or as may
otherwise be required in connection with the purposes of this
Agreement.
<PAGE>
16.
1.3. Neither ELAN nor THE CLIENT will publicise the terms of this
Agreement in any way without the prior written consent of the
other party except as required by applicable law, regulation, or
judicial order.
1.4. This Article VIII, Section 1 and the obligations contained herein
shall survive for five (5) years after termination of this
Agreement, whether pursuant Article VIII, Section 6, hereof, by
expiration of the Term of otherwise.
2. Patents
-------
With respect to any discoveries, inventions, improvements and
innovations relating to the DSDF and the Project, ELAN shall have the
right to apply for patent protection in its own name and at its own
expense. Should it however be doubtful whether a patent may be
obtained, then ELAN may at its sole discretion decide not to apply for
a patent in the TERRITORY. If such a patent is obtained THE CLIENT
shall have for the duration of this Agreement a right thereunder to
prepare, use and sell the PRODUCT as specified in Article II, Section
2 hereof.
3. Assignments
-----------
This Agreement may be assigned without THE CLIENT's consent by ELAN in
whole or in part subject to ELAN's maintaining full responsibility to
THE CLIENT for ELAN's undertakings, all liabilities, representations
and warranties expressed in this Agreement. ELAN or THE CLIENT may,
without the prior written consent of the other, assign this Agreement,
in whole or in part, to an Affiliate or to any entity which acquires
all or substantially all of the party's assets. For purposes of this
Agreement, an "Affiliate" shall mean any person, firm, corporation or
other business entity which directly or indirectly controls, is
controlled by, or is under common control with, ELAN or THE CLIENT, as
the case may be.
4. Parties Bound
-------------
This Agreement shall be binding upon and enure for the benefit of
parties hereto, their successors and permitted assigns.
5. Effect of Partial Invalidity
----------------------------
If any provision of this Agreement is held by any court or other
competent authority to be void or unenforceable in whole or in part,
this Agreement shall continue to be valid as to the other provisions
thereof and the remainder of the effected provision.
<PAGE>
17.
6. Duration and Termination
------------------------
6.1. Subject to prior termination in accordance with Article V,
Section 9, the term ("Term") of this Agreement shall commence on
the date hereof and shall extend for a period of eighteen (18)
years, or for the life of any relevant patent, whichever is
longer. Thereafter, it shall continue automatically for
additional periods of 1 year unless terminated by THE CLIENT or
ELAN upon serving 12 months prior written notice to the other by
means of registered letter with acknowledgment of receipt.
6.2. Notwithstanding anything in this Agreement construable to the
contrary ELAN shall have the right to terminate this Agreement
if, following approval of the ANDA, THE CLIENT fails to market
the PRODUCT in the United States within three (3) months from the
receipt of the Launch Stocks.
6.3. This Agreement may be terminated in its entirety upon receipt of
a written notice of termination given by:
(1) The non-defaulting party in the event the other party shall:
(a) commit a material breach or default under this
Agreement, which breach or default shall not be
remedied within sixty (60) days after the receipt of
written notice thereof by the party in breach or
default; or
(b) become insolvent or seek protection under any
bankruptcy, receivership, trust deed, creditors
arrangement, composition or comparable proceeding, or
if any such proceeding is instituted against the other
party (which is not dismissed within 60 days); or
(c) fail to promptly secure or renew any license,
registration, permit, authorization or approval for the
conduct of its business in any manner contemplated by
this Agreement or if any such license, registration,
permit, authorization or approval is revoked or
suspended and not reinstated within sixty (60) days
<PAGE>
18.
(II) THE CLIENT, if
(a) a lawsuit has been commenced alleging that the
manufacture and/or distribution of the PRODUCT as
contemplated hereby infringes any patent or other
proprietary right of any other person, firm or
corporation; or
(b) The PROFIT margin on the PRODUCT is less than fifteen
percent (15%); or
(c) the FDA does not approve the ANDA within five (5)
years from the date of this Agreement.
(III) ELAN, if any entity identified in Appendix D, attached
hereto, acquires more than 20% of THE CLIENT's voting
stock.
6.4. Upon exercise of those rights of termination as specified in
paragraphs 6.2 and 6.3, this Agreement shall automatically
terminate and be of no further legal force or effect.
6.5. Upon termination of this Agreement
(i) ELAN and THE CLIENT shall have no further obligations or
liabilities of any kind whatsoever under this Agreement
except as expressly provided in Article VIII, Section 1 and
Article VIII, Section 8.
(ii) Any sums that were due from THE CLIENT to ELAN or from ELAN
to THE CLIENT prior to the exercise of the right to
terminate this agreement as set forth herein, shall be paid
in full within 60 days of termination of this Agreement;
6.6. Termination of this Agreement (whether under this section, on
expiration of the Term or otherwise) shall be without prejudice
to any rights of either party against the other that may have
accrued to the date of such termination.
7. Sales Reports
-------------
The parties hereto agree to meet on a quarterly basis for the
first year following the initial launch of the PRODUCT, on a
semi-annual basis for the second and third year and on an annual
basis thereafter. At such meetings, THE CLIENT will report on the
ongoing sales performance of the PRODUCT in the TERRITORY,
including marketing approaches, promotion and advertising
material and campaigns, sales plans and results, performance
against competitors etc. At the request of ELAN, THE CLIENT shall
provide such information in written form at other times.
<PAGE>
19.
8. Indemnification
---------------
ELAN shall assume the sole and entire responsibility and shall
indemnify and save harmless THE CLIENT from any and all claims,
liabilities, expenses, responsibilities and damages, including
reasonable attorney's fees, by reason of any claim, proceedings,
action, liability or injury related to or arising out of
(i) THE CLIENT's purchase, importation, distribution,
marketing, sale and/or use of the PRODUCT as provided for
in this Agreement to the extent it was caused by the
negligence or wrongful acts or omissions of ELAN;
(ii) The PRODUCT's failure to meet Specifications;
or
(iii) any alleged infringement of the proprietary rights of third
parties by reason of the performance of this Agreement and
the purchase, distribution, marketing, sale and/or use of
the PRODUCT by THE CLIENT.
THE CLIENT shall assume the sole and entire responsibility and
shall indemnify and save harmless ELAN from any and all claims,
liabilities, expenses, including reasonable attorney's fees,
responsibilities and damages by reason of any claim, proceedings,
action, liability or injury arising out of any faults of the
PRODUCT resulting from the transport, packaging, storage or
handling of the PRODUCT by THE CLIENT to the extent that it was
caused by the negligence or wrongful acts or omissions on the
part of THE CLIENT.
This Section 8 and the obligations contained herein shall survive
termination of this Agreement, whether pursuant to Article VIII,
Section 6 hereof, by expiration of the Term or otherwise
9. Applicable Law
--------------
This Agreement shall be governed by and construed and interpreted
in accordance with the State of Georgia without regard to
principles of conflicts of law.
Each of ELAN and THE CLIENT hereby expressly submits to the
jurisdiction of the Federal and State Courts of the State of
Georgia, and agrees that service delivered in accordance with the
provisions of Article VIII, Section 11, hereof, shall be deemed
to be proper service upon it, and hereby waives all objections
and defenses as to personal defenses as to personal jurisdiction
in such jurisdiction or jurisdictions.
<PAGE>
20.
10. New Markets
-----------
In the event that THE CLIENT is presented with the opportunity to
supply or to tender for supply of commercially significant
quantities of the PRODUCT to third parties for sale outside the
TERRITORY, and where THE CLIENT expresses to ELAN its interest in
pursuing such an opportunity, and where ELAN is contractually
free to do so, ELAN and THE CLIENT shall negotiate in good faith
appropriate terms governing such a supply transaction.
11. Notice
------
11.1. Any notice to be given under this Agreement shall be sent
in writing in English by registered airmail or telecopied
or telexed to:
- ELAN at
Elan Pharma Ltd.
Monksland, Athlone, Ireland
Attention: S. Mulligan
Telephone: 353 902 94666
Telefax : 353 902 92427
- THE CLIENT at
Schein Pharmaceutical, Inc.
100 Campus Drive, Florham Park
NJ 07932, USA
Attention: General Counsel
Telephone: 001 201 593 5500
Telefax: 001 201 593 5820
or to such other address(es) as may from time to time be notified
by either party to the other hereunder.
<PAGE>
21.
11.2. Any notice sent by mail shall be deemed to have been
delivered within seven (7) working days after despatch and
any notice sent by telex or telecopy shall be deemed to
have been delivered within twenty-four (24) hours of the
time of the despatch. Notices of change of address shall be
effective upon receipt.
12. Counterparts
------------
This Agreement may be executed in any number of separate
counterparts, each of which shall be deemed to be an
original, but which together shall constitute one and the
same instrument.
13. Relationship
------------
The parties have no ownership interest in the other. The
relationship created by this Agreement is solely that of
buyer and seller. This Agreement does not create any
partnership, joint venture, principal-agent, or similar
business relationship between the parties. Neither party is
a legal representative of the other party and neither party
shall hold itself out as having the authority to represent
or act on behalf of the other in any capacity whatsoever.
Neither party shall assume or create any obligation,
representation, warranty or guarantee, express or implied,
on behalf of the other party for any purpose whatsoever nor
will it incur any liability whatsoever for which the other
party may become directly, indirectly or continentally
liable. Each party shall be fully responsible for all
actions of, and all costs incurred by, its employees,
agents, or representatives in carrying out its obligations
under this Agreement.
14. Insurance
---------
THE CLIENT and ELAN each agree to maintain in force, during
the Term, products liability insurance coverage in
minimum limits of $5,000,000 (five million dollars) and,
upon request, each party shall furnish to the other a
Certificate of Insurance; provided, however to so request
such Certificate shall not be deemed a waiver to the
party's obligations hereunder.
15. Entire Agreement
----------------
This Agreement, together with the Appendices hereto,
contains the entire agreement between the parties hereto
and supersedes any agreement between them with respect to
the subject matter hereof
<PAGE>
22.
IN WITNESS THEREOF the parties hereto have executed this Agreement in duplicate.
Signed by SCHEIN PHARMACEUTICAL, INC.
By: /s/ S Getraer
---------------------------------
Name: STEVEN GETRAER
------------------------------
Title: Executive Vice President
-----------------------------
Executed by ELAN PHARMA, LTD.
By: /s/ Seamus Mulligan
---------------------------------
Name: Seamus Mulligan
------------------------------
Title: Director
-----------------------------
<PAGE>
APPENDIX A
----------
PRODUCT/DSDF SPECIFICATIONS
---------------------------
The DSDF shall be an AB-rated (as the term is defined and accepted by the FDA)
equivalent to the 200mg Oruvail (R) capsule.
<PAGE>
APPENDIX B
----------
DEVELOPMENT PROJECT
-------------------
For the consideration outlined in Article IV of this Agreement, ELAN shall
undertake the following programme of work.
Stage I: Laboratory-scale formulation development to provide a 200mg capsule
- -------
with an in-vitro profile matching that of the NORMAL DOSAGE FORM.
This formulation will then be evaluated in a single-dose cross-over
pharmacokinetic study in up to 12 human male volunteers comparing
up to three formulations of DSDF to NORMAL DOSAGE FORM. Development
of analytical methods will be undertaken. Pilot bulk stability work
will also be undertaken in this Stage I.
COMPLETE MID-OCTOBER, 1994 - REPORT DUE
MEETING WITH SCHEIN TO START STAGE IIA IN NOVEMBER -
COMPLETE EARLY MAY, 1995 - REPORT DUE
Stage II A: Optimisation of the laboratory-scale formulation developed and
- ----------
tested in Stage I. Scale-up of this optimised formulation to pilot-
scale. Product from the pilot-scale batches will be evaluated in a
single-dose cross-over pharmacokinetic specification setting study
in up to 24 human male volunteers using NORMAL DOSAGE FORM as the
reference product. Pilot bulk stability work will also be
undertaken at this stage.
Stage II B: The optimised formulation and process developed in Stage II A of
- ----------
the Project shall undergo Process Transfer to ELAN's manufacturing
unit with consequent further scale-up of the process to full
production - batch size. ELAN will also conduct Process Validation
and establish and validate all analytical methodology, including
analytical chemistry, and establish required quality assurance and
quality control methodologies and procedures. ELAN shall also
conduct a series of pivotal pharmacokinetic studies on commercial -
batch size DSDF as follows:
(i) A pivotal single-dose 2-way cross-over pharmacokinetic study
in 24 human male volunteers comparing the DSDF to the NORMAL
DOSAGE FORM.
(ii) A pivotal single-dose cross-over pharmacokinetic study in 24
human male volunteers comparing the DSDF to the NORMAL DOSAGE
FORM under both fasted and fed conditions.
(iii) A pivotal steady-state (to day 5) 2-way cross-over
pharmacokinetic study in 24 human male volunteers comparing
the DSDF to the NORMAL DOSAGE FORM
ELAN shall also conduct bulk pivotal stability on the capsules of
DSDF manufactured under this Stage II B.
START STAGE IIB EARLY MAY - COMPLETED MID-OCTOBER -
<PAGE>
ANDA FILING MID-OCTOBER, 1995
APPENDIX B
----------
DEVELOPMENT PROJECT (Continued)
-------------------------------
Note 1: It is acknowledged by the parties hereto that in order to
------
secure a timely approval of the ANDA, pivotal stability
in final commercial packaging will need to be made
available during the ANDA prosecution process, and
preferably prior to the filing of the ANDA. ELAN and THE
CLIENT shall discuss and agree separately on a programme
of work and schedule for the carrying out of this work in
a manner which shall jeopardise neither the projected
filing dates or approval dates for the ANDA. In the event
that it is agreed that ELAN shall conduct such stability
work, the parties shall pre-agree the costs therefor,
which THE CLIENT shall be obliged to pay to ELAN as non-
recoverable development fees on commencement of such
work. However, as of the date of this Agreement, it is
the intention of the parties that THE CLIENT shall
undertake all such work at its own expense and to a
schedule designed so that all such finished pack
stability data as would normally be required in a quality
abbreviated new drug application will be available to
ELAN no later than ninety (90) days from completion of
the PROJECT.
Note 2: Following the completion of each of the Stages I and II A
------
ELAN shall furnish a report to THE CLIENT outlining the
results of the work undertaken in these Stages of the
PROJECT.
<PAGE>
APPENDIX C
----------
COMPLAINT HANDLING PROCEDURES
-----------------------------
The purpose of this Appendix is to establish written procedures for the
communication and processing of Product complaints.
Acting in accord with this Agreement will facilitate compliance with Federal
Requirements as set forth in 21 CFR 211.198 (complaint files) and 21 CFR
310.305/21 CFR 314.80 (postmarketing reporting of adverse drug reactions).
A. Complaint Reporting
1. Complaint reports received by The Client will be summarized and
forwarded to the Complaint Division of Elan.
2. Complaints reported directly to Elan will be summarized and forwarded
to the Complaints Coordinator of The Client.
3. All adverse drug experience complaints reported to The Client will be
communicated to Elan within three working days of report receipt. Elan
will be responsible for completion and submission to the Food and Drug
Administration of Form m FDA-1639 where appropriate. A copy of the
completed Form FDA-1639 will be forwarded to The Client by Elan.
B. Complaint Investigation
1. The Client will investigate all Product complaints associated with
distribution or handling.
2. Elan will investigate all complaints associated with Product's active
or inactive ingredients, container/closure system, or general Product
quality.
3. Upon completion of the necessary evaluation, Elan will provide a
written summary to The Client.
C. Communications with Complainant
1. Elan will be responsible for review of complaint evaluation
information and preparation of a written response. Elan's response
will be directed to The Client and The Client will respond to the
complainant with a copy to Elan.
D. Product Recall
1. In carrying out a recall, both parties will fully cooperate in
notifying customers to follow instructions agreed upon by the parties.
<PAGE>
APPENDIX D
TECHNOLOGY COMPETITOR
---------------------
******** **** ********
----------------------
* redacted pursuant to confidential treatment request.
<PAGE>
Dated September 22, 1994
ELAN PHARMA LIMITED
AND
SCHEIN PHARMACEUTICAL, INC.
SUPPLEMENTAL AGREEMENT
<PAGE>
THIS AGREEMENT is made on the 22nd day of September 1994 between ELAN PHARMA,
LIMITED, an Irish Company of Monksland, Athlone, County Westmeath, Ireland,
("ELAN") and SCHEIN PHARMACEUTICAL, INC. a U.S. Company of 100 Campus Drive,
Florham Park, NJ 07932, U.S.A. (hereinafter referred to as "the CLIENT").
WHEREAS
1. ELAN and the CLIENT entered into an Agreement dated as of the 16th day
of August 1994, ("the Principal Agreement") whereby, inter alia, the
CLIENT was licensed to market the PRODUCT under its own label and
trademark in the TERRITORY without infringing any of the Patent or
Know-How rights held by Elan.
2. ELAN and the CLIENT have agreed that PRODUCT shall be supplied by the
CLIENT to NALE under NALE's private label.
NOW IT IS HEREBY AGREED AS FOLLOWS:
ARTICLE I. DEFINITIONS
1. In this Agreement the definitions contained in the Principal Agreement
shall prevail in addition to the definitions as set forth in this
Agreement.
2. "NALE" shall mean Nale Laboratories Limited and any of its parent or
subsidiary companies.
ARTICLE 11. SUPPLY OF PRODUCT
1. The CLIENT shall supply PRODUCT to NALE under NALE's private label to
use, promote, market, sell and distribute in the TERRITORY under the
terms and conditions set out herein.
2. The CLIENT may in its discretion supply Product to NALE under NALE's
private label to use, promote market, sell and distribute in the
TERRITORY within the first 12 calendar months after the commencement
of marketing by the CLIENT of the PRODUCT in the TERRITORY (as
evidenced by written invoice to an independent third party).
3. If CLIENT has not supplied PRODUCT to ELAN pursuant to Article II
paragraph 2, the CLIENT shall supply PRODUCT to NALE under NALE's
private label to use, promote, market, sell and distribute the
PRODUCTS in the TERRITORY commencing not later than the expiry of the
twelfth calendar month after the commencement of marketing by the
CLIENT of the PRODUCT in the TERRITORY (as evidenced by written
invoice to an independent third party).
<PAGE>
ARTICLE III. DURATION AND TERMINATION
1. The supply of PRODUCT under either Article II paragraphs 2 or 3 shall
continue in full force and effect for the duration of the Principal
Agreement and shall terminate upon the termination of the Principal
Agreement for any reason whatsoever.
ARTICLE IV. TERMS OF SUPPLY AGREEMENT
1. At any time following the commencement of marketing by the CLIENT of
the PRODUCT in the TERRITORY (as evidenced by written invoice to an
independent third party), but, in no event later than the expiry of
the twelfth calendar month after the commencement of marketing by the
CLIENT of the PRODUCT in the TERRITORY, the CLIENT shall supply NALE
with PRODUCT under NALE's private label pursuant to the terms and
conditions of a Supply Agreement to be negotiated in good faith
between the parties. The supply price for the PRODUCT shall be
calculated by reference to the CLIENT's published wholesale
acquisition cost ("WAC") for the PRODUCT less ***. Until the expiry of
the first calendar quarter, in which the Supply Agreement is executed,
the relevant WAC shall be the WAC published as of the commencement of
the Supply Agreement. Thereafter the relevant WAC shall be the WAC
published on the last business day of the preceding calendar quarter.
2. The CLIENT shall deliver the PRODUCT to NALE and/or any party
designated by NALE in final market packaging, such packaging being
approved by NALE.
ARTICLE V. NET SALES
1. Sales of PRODUCT by CLIENT to NALE shall constitute NET SALES for the
purposes of the Principal Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate.
SIGNED BY SIGNED BY
SCHEIN PHARMACEUTICAL, INC. ELAN PHARMA LIMITED
Name: [SIGNATURE ILLEGIBLE] Name: [SIGNATURE ILLEGIBLE]
--------------------- ---------------------
Title: EXEC VP Title: DIRECTOR
--------------------- ---------------------
* redacted pursuant to confidential treatment request.
<PAGE>
EXHIBIT 10.6
METHYLPHENIDATE HYDROCHLORIDE, U.S.P.
AGREEMENT NO. 245
<PAGE>
<TABLE>
<S> <C>
CUSTOM MANUFACTURING AGREEMENT................................... 1
1. DEFINITIONS.................................................. 1
2. TERM......................................................... 2
3. PRODUCTION................................................... 2
4. LIMITED WARRANTY AND LIABILITY............................... 3
5. FORECAST OF BUYER's REQUIREMENTS............................. 4
6. GUARANTEED SUPPLY............................................ 5
7. FORCE MAJEURE................................................ 5
8. GROSS INEQUITIES............................................. 6
9. PRICING...................................................... 6
10. SHIPMENT AND DELIVERY SCHEDULES.............................. 8
11. EARLY TERMINATION............................................ 8
12. ENTIRE AGREEMENT.............................................10
13. GOVERNING LAW................................................10
14. ASSIGNMENT...................................................10
15. NOTICES......................................................10
16. CONFIDENTIALITY..............................................11
17. MISCELLANEOUS................................................11
</TABLE>
<PAGE>
AGREEMENT NO: 245
CUSTOM MANUFACTURING AGREEMENT
- ------------------------------
This Agreement is entered into between Johnson Matthey Inc. ("Company") of 1401
King Road, West Chester, PA 19380 and Schein Pharmaceutical, Inc. for itself and
for its Subordinated Affiliates, defined hereinafter (collectively referred to
as "Buyer"), a New York corporation having place of business at 100 Campus
Drive, Suite 375, Florham Park, New Jersey 07932 to establish terms and
conditions upon which Company will sell Methylphenidate Hydrochloride, U.S.P.
(Material), as defined in section 1.2 below, to Buyer. This Agreement may be
referenced in orders and other correspondence related hereto as Agreement No.
245.
1. DEFINITIONS
-----------
1.1. The Effective Date of the Agreement is as of July 1, 1995.
1.2. Material shall mean bulk active Methylphenidate Hydrochloride,
U.S.P., which is to be formulated pursuant to Section 1.3 hereof. Material
shall not include bulk active Methylphenidate Hydrochloride, USP which is
to be formulated in dosage forms other than those described in Section 1.3
hereto.
1.3. Final Dosage Form Product(s) shall mean Material formulated by Buyer
into tablets, which are bioequivalent to 5 mg, 10 mg, and 20 mg immediate
release and 20 mg extended release products marketed by Ciba Geigy
Corporation under the brand name Ritalin/R/, to be sold, swapped or bartered
to third parties.
1.4. Net Sales shall mean total invoiced sales by Buyer and its affiliates
of Buyer's Final Dosage Form Product(s) to unrelated third party customers
using Material supplied by Company, minus all usual and customary rebates,
discounts, returns, allowances, credits and chargebacks to such customer
actually incurred.
1.5. Specifications shall have the meaning ascribed thereto in Section 4. 1
hereof.
1.6 "Subordinated Affiliates" shall mean any corporation, firm,
partnership or other entity of whatsoever nature, which is directly or
indirectly owned by, or is under common ownership with, Buyer to the
extent of at least fifty percent (50%) of the equity, having the power to
vote on or direct the affairs
1
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of the entity, and any firm, partnership, corporation or other entity
actually controlled by or under common control with Buyer.
2. TERM
----
2.1. Subject to Section 11 hereof, this Agreement shall commence on the
Effective Date and shall expire on December 31, 2005, and shall thereafter
automatically renew for additional successive terms of three (3) years
unless either party gives the other notice of termination in writing at
least twenty-four (24) months prior to the expiration of the term or any
renewal term hereof.
3. PRODUCTION
----------
3.1. During the original term of this Agreement and any extensions
thereof, Buyer agrees to buy from Company and Company agrees to produce and
supply to Buyer on an exclusive basis 100% of Buyer's U.S. requirements for
the Material subject to sections 5.2 and 11 hereof. Notwithstanding the
foregoing, it is specifically understood that Company shall be permitted to
supply methylphenidate hydrochloride to Ciba Geigy Corporation using
manufacturing processes supplied to Company by Ciba Geigy Corporation.
Company agrees to process and deliver quantities ordered by Buyer within
three (3) months of the date of receipt of Buyer's written purchase order,
provided that such written purchase order does not order a quantity greater
than Buyer's DEA procurement quota for Material or greater than one hundred
ten percent (110%) of the most recent force, for the applicable month. If
such quantity ordered should exceed one-hundred ten percent (110%) of the
most recent forecast, the parties will negotiate a mutually agreeable
further delivery date for the quantity in excess of one-hundred ten percent
(110%) of the forecast. Buyer shall not order and Company shall have no
obligation to supply any quantity of Material in excess of Buyers DEA
procurement quota. Company certifies and warrants that it will not violate
any process patents or other process patent rights of any third party in its
manufacture of the Material supplied to Buyer under this Agreement.
3.2. Company shall provide Buyer with a reference letter with respect to
its Drug Master File for Material (DMF) as soon as possible after execution
of this Agreement. Company shall provide Buyer, at no cost to Buyer, such
quantities of purified characterized reference standard samples of Material
and degradants and impurities related to Material as Buyer may from time to
time request for its use in obtaining regulatory approvals. Company shall
provide such technical assistance as may be
2
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reasonably requested from time to time by Buyer for the purpose of aiding
Buyer in its efforts to obtain in any such approvals, all at no cost to
Buyer.
4. LIMITED WARRANTY AND LIABILITY
------------------------------
4.1. Company warrants that Material shall conform to Company's Drug Master
File (DMF), the applicable bulk product monograph and the specifications as
described in Exhibit A, attached hereto, as such specifications may from
time-to-time be amended by mutual written agreement or by requirement of the
Federal Food and Drug Administration (FDA), other governmental body or the
then current edition of the U.S. Pharmacopoeia (collectively,
"Specifications"); and Company's production of Material shall conform to all
applicable laws and regulations of the FDA, the Drug Enforcement
Administration (DEA) and other cognizant governmental bodies as required.
4.2. Company warrants and guarantees that, as of the date of each shipment
hereunder of any articles subject to the provisions of the Federal Food,
Drug and Cosmetic Act (the "Act"), such article is not, when shipped,
adulterated or misbranded within the meaning of the Act or of any applicable
state law in which the definitions of adulteration and misbranding are
substantially the same as those contained in the Act, or an article which
may not, under the provisions of Sections 404, 505, or 512 of the Act, be
introduced into interstate commerce. COMPANY MAKES NO OTHER REPRESENTATION
OR WARRANTY OF ANY KIND, EXPRESSED OR IMPLIED, AS TO MERCHANTABILITY,
FITNESS FOR PARTICULAR PURPOSE, OR ANY OTHER MATTER WITH RESPECT TO THE
MATERIAL WHETHER USED ALONE OR IN COMBINATION WITH OTHER SUBSTANCES.
4.3. Buyer shall have the right to inspect from time to time and upon
reasonable prior notice to Company, Company's manufacturing facilities.
4.4. Company will provide Buyer with a Certificate of Analysis containing
the results of all assays required to be run in the Specifications as well
as a preshipment sample from the Material batch. Buyer reserves the right to
expressly waive from time to time the preshipment sample. The preshipment
sample will be deemed accepted by Buyer upon final release by Buyer's
Quality Control Department, but in no event later than sixty (60) days after
receipt of the preshipment sample. During such period, Buyer as it deems
necessary in accordance with its customary practices and procedures, may run
the tests set forth in Exhibit A, no later than sixty (60) days after
receipt of the preshipment sample. Buyer shall notify Company in writing
that the material does or does not meet Specifications. In the event the
preshipment sample does not meet Specifications, the sample shall be
returned by Buyer to Company at Company's expense.
3
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4.4.1. In the event that the preshipment sample does meet Specifications,
or is waived by Buyer, Company will ship Material with a Certificate of
Analysis in accordance with Sections 5 and 10 to Buyer, subject to Section 6
hereof. Material will be deemed accepted by Buyer upon final release by
Buyer's Quality Control Department, but in no event later than sixty (60)
days after receipt of the Material sold hereunder. During such period, Buyer
as it deems necessary in accordance with its customary practices and
procedures, may run tests set forth in Exhibit A hereto as well as any other
applicable tests, and shall examine the Material for any damage, defect or
shortage. Buyer shall promptly notify Company in writing if the Material
does not meet the specifications or is subject to any claim of damage,
defect or shortage. In the event the Material does not meet Specifications,
or is subject to any claim of damage, defect or shortage, the rejected
Material shall not be used by Buyer and shall promptly be returned by Buyer
to Company at Company's expense, or such other mutually agreed upon, written
response shall be undertaken.
4.4.2. Upon return of any rejected Material and/or rejected preshipment
sample, Company will replace the Material at Company's cost and will
resubmit to Buyer within ninety (90) days of receipt of additional raw
materials from Company's suppliers. BUYER'S EXCLUSIVE REMEDY FOR BREACH OF
WARRANTY SHALL BE DAMAGES AND COMPANY'S LIABILITY FOR ANY AND ALL LOSSES OR
DAMAGE FROM ANY CAUSE WHATSOEVER, INCLUDING ALLEGED NEGLIGENCE, SHALL IN NO
EVENT EXCEED THIS OBLIGATION TO REPLACE THE MATERIAL AND RESUBMIT IT TO
BUYER WITHIN THE TIME PERIOD STATED, SUBJECT TO SECTION 4.5 HEREOF. Company
shall not be liable for, and Buyer assumes responsibility for, all personal
injury and property damage resulting from the handling, possession, or use
of the Material following Buyer's receipt of the Material.
4.5. In no event shall Company be liable for special, incidental or
consequential damages, whether Buyer's claim for breach of warranty is in
contract, negligence, strict liability or otherwise. Buyer agrees to
indemnify and hold harmless Company from all losses, liability, damages,
and/or expenses which may be sustained or claimed against Company arising out
of the handling, possession, or use of the Material, following Buyer's
receipt of the Material.
5. FORECAST OF BUYER's REQUIREMENTS
--------------------------------
5.1. Buyer shall, promptly after the effective date of this Agreement and
thereafter at least three (3) months before the beginning of each calendar
year, provide Company with a written forecast of its requirements for that
year. Such forecasts shall be made to assist Company in planning its
production, and shall not be binding. Forecasts shall be revised in writing
by Buyer should a forecasted volume
4
<PAGE>
change exceed seventeen percent (17%) of Buyer's initial projections.
Company shall process and deliver quantities as called forth revised
forecasts subject to Sections 3.1, 6 and 10 hereof.
5.2. If for any reason Company is unable or unwilling to supply such
quantity and/or quality of Material to Buyer as contemplated hereunder
provided that such quantities are not in excess of Buyer's DEA procurement
quota for Material, Company shall so notify Buyer in writing within ten (10)
days of receipt of Buyer's written purchase order. Upon such written notice,
Buyer shall have the right to use an alternate source of Material and
purchase such quantity of Material from such source, without further
obligation to Company hereunder with respect to such Material that Company
does not supply. Within sixty (60) days after written notice by Company to
Buyer that Company is able and willing to supply such quantity of Material
to Buyer, Buyer shall discontinue purchasing such quantity from its second
source, and shall resume purchasing all its requirements for Material from
Company, pursuant to the terms of this Agreement, subject to Buyer's
commitments then outstanding to such second source but in no event to exceed
six (6) months from the date of receipt of Company's notice of ability to
supply.
6. GUARANTEED SUPPLY
-----------------
6.1. The Material is scheduled under the Federal Controlled Substances
Act. Company is required to obtain a quota from the DEA before producing
Material; such quotas are limited therefore, in order to assure Buyer of the
supplies agreed to hereunder, Company agrees to use its best efforts to
obtain a DEA quota sufficient to process Buyer's orders for Material.
6.2. Each party's obligation hereunder is subject to obtaining the
necessary DEA quota. Neither party shall be liable to the other for that
quantity of Material which Company is unable to supply or take as a result
of failure to obtain the necessary DEA quota, provided that Company shall be
relieved of any obligations hereunder for failure to obtain a DEA quota only
so long as it has adhered to the requirements of Section 6.1 hereof, and
provided that Buyer can obtain such quantity of Material from another
source, without further obligation to Company hereunder with respect to such
Material, if Company does not obtain the necessary DEA quota.
7. FORCE MAJEURE
-------------
7.1. Company's obligations to process and Buyer's obligation to take
Material shall be subject to any delays caused by acts of God, fires,
floods, explosion, sabotage, riot, accidents; orders of, or
5
<PAGE>
subject to Section 6.2 failure to issue or continue in effect all necessary
permits by, civil or military authorities whether relating to manufacture
and sale of the Material, or discharge of materials into the environment or
otherwise if beyond such party's reasonable control; delays by suppliers of
fuel, power, raw materials, containers or transportation; breakage or
failure of machines, strikes, lockouts or labor trouble if beyond such
party's reasonable control; perils of the sea; or any other cause beyond
such party's reasonable control.
7.2. The party invoking this Section 7 shall give the other party prompt
written notice of any event that is likely to delay shipment or acceptance.
No such delay shall result in cancellation of quantities required hereunder,
or of this Agreement, provided that either party may cancel or amend the
quantities delayed without penalty if any delay lasts longer than one
hundred and eighty (180) days.
7.3. During any period in which Company is unable to supply Material to
Buyer as Buyer orders hereunder, Buyer shall have the right to purchase such
shortfall from an alternate source, without any obligation to Company with
respect to such Material Company does not supply, as provided under Section
5.2.
8. GROSS INEQUITIES
----------------
8.1. It is the further intent of the parties hereto that they shall
mutually benefit from the terms, conditions and provisions of this
Agreement, and in the event that either party shall suffer a gross inequity
resulting from such terms, conditions or provisions, or from a substantial
change in circumstances or conditions, the parties shall negotiate in good
faith to resolve or remove such inequity. It is mutually understood and
agreed, however, that nothing herein shall be construed to relieve either
party of any of its obligations under this Agreement, unless and until such
resolution or removal has been agreed to in writing by both parties.
9. PRICING
-------
The price for Material sold to Buyer by Company hereunder shall be the
Base Fabrication Price plus the Fabrication Price Adjustment.
6
<PAGE>
9.1 Base Fabrication Price
The Base Fabrication Price for quantities of Material greater than or
equal to one hundred (100) kilograms per order will be ****** per kilogram.
The Base Fabrication Price for quantities of Material less than one hundred
(100) kilograms per order will be negotiated in good faith by the parties.
Terms are thirty (30) days net after receipt of each shipment of Material.
9.2 Fabrication Price Adjustment
The Fabrication Price Adjustment (FPA) will be calculated quarterly as
follows:
FPA = **** * *** ******** ********* * ********* ******* ***** ******
Where "Kg Material purchased" shall mean the total Kilograms of Material
purchased by Buyer from Company during such quarter, and the Weighted
Average Price (WAP) shall be defined as Buyer's Net Sales of Final Dosage
Form Products containing Material during such quarter and the following
calendar quarter divided by the grams of Material contained in such Final
Dosage Form Products. If the WAP as defined herein is less than *****, the
FPA shall be zero.
Buyer shall keep accurate books and records of sales of Final Dosage Form
Product(s) and of all payments due Company hereunder. After the first
commercial sale of any Final Dosage Form Product(s), Buyer shall deliver to
Company written reports of sales of Final Dosage Form Product(s) during the
preceding calendar quarter on or before the 30th day after the end of
following calendar quarter. Such report shall include a calculation of the
FPA due in accordance with the preceding paragraph and be accompanied by
payment of the monies due. For example, the FPA due for the first calendar
quarter of any given year (January 1 through March 31) will be calculated
using the WAP for the period of January 1 through June 30 of that year and
is payable net 30 days from June 30 of the given year.
Company shall have the right, at its own expense, for the period during
which the FPA is due to Company and for one (1) year thereafter, to have an
independent public accountant, to whom Buyer has no reasonable objection,
examine the relevant books and records of account of Buyer upon reasonable
notice during reasonable business hours and not more than once during each
calendar year, to confirm that appropriate FPA payments have been made by
Buyer hereunder for the preceding calendar year. If in any audit a
discrepancy of greater than ten percent (10%) is found by the independent
public accountants, Company reserves the right to audit the prior two years'
FPA payments.
* redacted pursuant to confidential treatment request
7
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9.3 Price Changes
Subject to Section 8 hereof, the Base Fabrication Price for Material shall
be automatically subject to price adjustment on the first day of each
calendar year beginning with January 1, 1997 by a quantity equal to the
increase in the total cost of raw materials utilized in the manufacture of
Material. Along with notification of such adjustment, Company shall provide
Buyer with a detailed analyses of raw material costs, including an itemized
list of raw materials and quantities used, as well as invoices for such raw
materials. Within thirty (30) days of the fifth anniversary of the Effective
Date of this Agreement, Company may request that Buyer and Company amend the
Base Fabrication Price for Material and/or the annual price adjustment
described above. Such amendment, if necessary, will be made by mutual
written agreement between the parties.
9.4 Interest
Buyer agrees to pay an interest charge equal to the prime rate on the
unpaid balance on any invoice not paid within the specified terms. In the
event that Material shipped to Buyer does not meet Specifications pursuant
to Section 4.4.1, any interest charge will not be applicable until thirty
(30) days after replacement of material pursuant to Section 4.4.2.
10. SHIPMENT AND DELIVERY SCHEDULES
-------------------------------
10.1. Material shall be shipped FOB Company's plant in such containers as
may be agreed upon by the parties, packed in accordance with Department of
Transportation (DOT) requirements for interstate shipment of poisonous
materials, in accordance with the established security procedures of DOT,
DEA and any other regulatory agency applicable thereto. Shipments in any
year shall be made in accordance with a delivery schedule provided by Buyer
in Buyer's purchase order to Company at least three (3) months prior to the
desired delivery date. Invoices shall accompany or follow the applicable
shipment of Material.
11. EARLY TERMINATION
-----------------
11.1. In addition to termination as provided for in Section 2, this
Agreement can be terminated by Company for nonpayment of any sums due
hereunder (remaining unpaid for more than thirty (30) days after notice to
Buyer), or by either party at any time with 90 days' advance written notice:
8
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(i) on account of a material violation of the Agreement by the other
party, provided, however, that such notice shall be null and void if the
offending party removes the reason for the notice before expiration of the
ninety (90) days notice period referred to above in this Section 11.1; or
(ii) when the other party makes a general assignment for the benefit of
its creditors, has a custodian, receiver or any trustee appointed for it or a
substantial part of its assets, commences any voluntary proceeding under any
bankruptcy law; or
(iii) when a court having jurisdiction over the other party shall enter
a decree or order for relief in any involuntary case under applicable
bankruptcy law and such decree or order shall continue unstayed and in effect
for a period of sixty (60) days or more.
11.2. Company has the sole right to terminate the Agreement upon sixty
(60) days advance written notice:
(i) if for any calendar half, the WAP is less than ***** per gram of
Material; or
(ii) if Buyer fails to submit an Abbreviated New Drug Application
(ANDA) for at least one Final Dosage Form Product containing Material to the
FDA within seven (7) months from the date of Buyer's receipt of at least
twelve (12) kilograms of Material from company subsequent to the Effective
Date of this Agreement, except in the event of delays in bioavailability
studies which could not have been reasonably avoided by Buyer.
(iii) if in any complete calendar year after approval of Buyer's first
ANDA with respect to Material, Buyer fails to purchase *** ******* ***** ****
kilograms of Material from Company.
(iv) if at any time after a period of one (1) year following approval
of Buyer's ANDA with respect to a Final Dosage Form Product containing
Material, Buyer markets any Final Dosage Form Product described in such ANDA
containing Material not purchased from Company (other than Material purchased
from any alternate source as provided in Sections 5.2 and 7.3).
11.3. Buyer has the sole right to terminate the Agreement upon one (1)
years prior written notice if the WAP is less than ***** per gram of Material.
In the event Buyer elects to so terminate, Company's obligation to exclusively
supply Buyer pursuant to Section 3.1 shall cease upon Company's receipt of
Buyer's written notice.
11.4. Termination for any reason by either party under this Section II
shall not prejudice that party's remaining contractual rights, including without
limitation rights to damages, nor terminate obligations set forth in Sections 4
and 16 hereof.
* redacted pursuant to confidential treatment request
9
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11.5. If Company chooses to invoke its termination rights under Section
11.2(i) or (iii), and, in the event that Buyer has not secured a new supplier
for Material prior to such termination, Buyer way delay said termination date
for a period of one (1) year. During this period all terms and conditions of the
Agreement shall apply except exclusive supply from Company to Buyer as contained
in Section 3.1
12. ENTIRE AGREEMENT
----------------
12.1. This Agreement constitutes the entire agreement between the parties.
No modifications to or supplementation of this Agreement, whether contained in
any purchase order, confirmation or otherwise, shall be effective unless made in
writing and signed by the party to be charged with modification.
13. GOVERNING LAW
-------------
13.1. This Agreement shall be interpreted in accordance with the laws of
the state of Delaware.
14. ASSIGNMENT
----------
14.1. No right or obligation of either party hereunder shall be assignable
without the prior written agreement of the other party; otherwise this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective permitted successors and assigns.
15. NOTICES
-------
15.1. All notices, requests, and other communications hereunder shall be
deposited in the United States mail, registered or certified, postage prepaid,
addressed as follows:
15.2. If to Schein: With a Copy to:
Schein Pharmaceutical, Inc. Schein Pharmaceutical, Inc.
100 Campus Drive, Suite 375 100 Campus Drive, Suite 375
Florham Park, NJ 07932 Florham Park, NJ 07932
Attn.:Chairman Attn.:General Counsel
10
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15.3. If to JMI: With a Copy to:
Johnson Matthey Inc. Johnson Matthey Inc.
Materials Technology Div. Materials Technology Div.
1401 King Road Biomedical Materials Group
West Chester, PA 19380 2003 Nolte Drive
ATTN: Division General Counsel West Deptford, NJ 08066
ATTN: General Manager
16. CONFIDENTIALITY
---------------
16.1. Neither party shall disclose to any third party, except as may be
required by law, or provided for herein, the substance of this Agreement. Each
of Company and Buyer hereby agrees to be and confirms that it is bound by the
terms of a Confidentiality Agreement dated June 12, 1992, and made between
Danbury Pharmacal, Inc. and Company attached as Exhibit B hereof and
incorporated herein as if fully rewritten. All written information provided by
either party to the other hereunder including, but not limited to products
containing Material under development by Buyer, volume requirements, pricing,
and sales information disclosed under Section 9.2, delivery schedules, and
process data, is the disclosing party's confidential proprietary information, as
the same is defined in such Confidentiality Agreement. The receiving party
agrees not to disclose any such information or use such information except for
purposes of performance hereunder, for a period of five (5) years after the
termination of this Agreement, provided that the receiving party may use or
disclose any such information that (1) is already known to it at the time of
disclosure to the receiving party; (2) becomes publicly known through no fault
of the receiving party; or (3) is disclosed to receiving party by a third party
who is free to make such disclosure.
17. MISCELLANEOUS
-------------
17.1. This Agreement may be executed in two (2) separate counterparts, each
of which shall be deemed to be an original, but which together shall constitute
one and the same instrument.
17.2. This Agreement is on a principal to principal basis. Neither party is
authorized nor shall it incur any liability whatsoever for which the other party
may become directly, indirectly or contingently liable.
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17.3. The section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives.
BUYER: COMPANY:
SCHEIN PHARMACEUTICAL, INC. JOHNSON MATTHEY INC.
[SIGNATURE ILLEGIBLE] /s/ Forrest K. Sheffy
------------------------ -----------------------
TYPED NAME: ________________________ TYPED NAME: Forrest K. Sheffy
-----------------------
TITLE: [SIGNATURE ILLEGIBLE] TITLE: General Manager
------------------------ -----------------------
[SIGNATURE ILLEGIBLE] DATE: 7/18/95
------------------------ -----------------------
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EXHIBIT A
---------
JOHNSON MATTHEY INC.
Biomedical Products
FINISHED PRODUCT SPECIFICATION SHEET
Name: Methylphenidate Hydrochloride . USP C\\14\\H\\l9\\N\\02.\\ HC1 CII
--------------------------------------------------------------------------
FP Material Code No.: FPC-93 Sample Size: Sgr #of Samples 2,
------------- --- ---
Testing Procedure No.: FP-093-002
----------------------
- --------------------------------------------------------------------------------
Test SPECIFICATION
- ---- -------------
********** ***** *********** ******
**************
* *** ** ******** ******** **
********* ********
* ******** *** ********
**** ** ****** *** ****
******* ** ********* *** ****
***** ****** *** ******
**************** ***** **** ****** *** **
***** ** **************************
**** ************* *** ****
***** ***** * ******
******** ******* *** **** ***
- --------------------------------------------------------------------------------
Prepared by: [SIGNATURE ILLEGIBLE] Date: 9/18/92
------------------------- -------------------
Approved by: [SIGNATURE ILLEGIBLE] Date: 9/18/92
------------------------- -------------------
* redacted pursuant to confidential treatment request
<PAGE>
EXHIBIT B
[LETTERHEAD OF JOHNSON MATTHEY]
=========================
CONFIDENTIALITY AGREEMENT
=========================
This CONFIDENTIALITY AGREEMENT ("Agreement") is entered into, effective
this 12th day of June 1992, by and between Johnson Matthey Inc. ("JMI") and
Danbury Pharmacal, Inc. ("DPI") for the purpose of holding technical discussions
with JMI relating to the transmission of information regarding the development
of methylphenidate (the foregoing referred to as "Program"). It will be
necessary for each party to disclose to the other certain valuable technical and
trade secret information relating to said Program and to furnish samples of
related materials ("Samples") to the other party. Such valuable technical and
trade secret information and Samples shall be referred to herein as
"Confidential Information". Such Confidential Information, other than Samples,
is defined to be all written information disclosed hereunder that is marked on
its face as confidential and all oral information which is confirmed in writing
as confidential within thirty (30) days from the date of disclosure hereunder.
Such Confidential Information is a commercial asset of considerable value to the
disclosing party and the disclosing party is willing to disclose such
Confidential Information only under the conditions set forth below:
1. The receiving party agrees to maintain in confidence for a period of
five (5) years from the date of this Agreement all Confidential Information
disclosed by the other and not to divulge said Confidential Information, in
whole or in part, to any third party, other than affiliated companies, or
subsidiaries owned 51% or more by the receiving party, and not to make use of
said Confidential Information other than in relation to the Program without the
written permission of the disclosing party. This obligation shall not apply to:
(A) Confidential Information which at the time of disclosure by the
disclosing party is in the public domain; or
(B) Confidential Information which, after disclosure by the
disclosing party, becomes part of the public domain by publication or
otherwise, other than by an unauthorized act or omission by the receiving
party; or
<PAGE>
(C) Confidential Information which the receiving party can show by
written records was in its possession at the time of the disclosure and
which was not acquired, directly or indirectly, from the disclosing party,
provided the receiving party promptly so notifies the disclosing party; or
(D) Confidential Information which the receiving party rightfully
receives from a third party and which was not acquired, directly or
indirectly, from the disclosing party.
Even in the event that any one or more of the foregoing exceptions
are applicable, the receiving party agrees that it will not disclose to any
other party the correlation existing between information acquired from any
other source, including public domain, and the information acquired from
the disclosing party; nor will the receiving party reveal to any other
party that such information is utilized in any way by the disclosing party.
2. Samples furnished by either party shall remain the property of the
disclosing party. The receiving party shall not perform or have performed
any tests to determine the physical or chemical composition of Samples
furnished by the other; nor will the receiving party allow the Samples to
be examined or tested by a third party without the express written
permission of disclosing party. Within a reasonable time after completion
of testing, all Samples shall be returned to the disclosing party
irrespective of the condition of said Samples.
3. The receiving party shall not publish or otherwise divulge to any
third party, the results of its evaluations of Samples without the express
written permission of the disclosing party, except as provided in Section 4
below.
4. In the event that test results are legally required to be disclosed to
the United States Environmental Protection Agency or the Food and Drug
Administration or any similar body having the legal authority to require
such disclosure by one or both parties, such disclosure shall be in a
manner which maintains confidentiality to the extent permitted by law.
5. This Agreement shall be construed and interpreted in accordance with
the laws of the Commonwealth of Pennsylvania.
6. The receiving party agrees further that it shall restrict disclosure
of the Confidential Information within its own organization to those
persons having a need to know it for the purposes of this Agreement, and
that such
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persons shall be advised of the obligations set forth in this Agreement
and shall be obligated in like fashion.
7. Nothing contained in this Agreement shall be construed as granting
or conferring any rights by license or otherwise, expressly, impliedly or
otherwise for any invention, discovery or improvement made, conceived or
acquired prior to or after the date of this Agreement with respect to the
subject matter hereof.
8. Upon completion of activities hereunder, the receiving party shall
return all Samples or written Confidential Information and shall retain no
copies.
9. The parties hereby acknowledge and agree that in the event of any
violation hereof by the receiving party, the disclosing party shall be
authorized and entitled to obtain from any court of competent jurisdiction,
preliminary and permanent injunctive relief, as well as an equitable
accounting of all profits or benefits arising out of such violation, which
rights and remedies shall be cumulative and in addition to any other rights
or remedies to which the disclosing party may be entitled.
10. Any notices required under this Agreement shall be sent by registered
mail, return receipt requested, to the parties at the addresses specified
below, unless notice of a different address is given to the other party:
Johnson Matthey Inc.
Materials Technology Division
1401 King Road
West Chester, PA 19380
Attn: Division General Counsel
Danbury Pharmacal, Inc.
12 Stoneleigh Ave
Carmel NY 10512
Attn: Dr. Edward Cohen
11. If any provisions of this Agreement should be deemed to violate time
or geographical limitations, or any other limitations, permitted by
applicable law in any jurisdiction, such provisions shall be deemed
reformed ln such jurisdiction so as to continue to apply to the maximum
permitted by applicable law, and this Agreement shall continue in full
force and effect with regard to all other provisions.
12. No waiver of any provision, breach or default under this Agreement
shall be deemed a waiver of any subsequent provision, breach or default,
nor shall any such waiver constitute a continuing waiver.
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13. This Agreement constitutes the entire understanding of the parties
with regard to the subject matter hereof and may not be modified, supplemented
or rescinded except by an agreement in writing signed by the parties hereto.
This Agreement shall not be assignable (by operation of law or otherwise) by
either party without the prior written consent of the other party;.provided,
however, that JMI shall have the right to assign this Agreement to its parent,
subsidiary or affiliated corporations.
IN WITNESS WHEREOF, intending to be bound hereby, the parties hereto have
caused their authorized representatives to subscribe their names hereunder.
JOHNSON MATTHEY INC. DANBURY PHARMACAL, INC.
By: /s/ Forrest K. Sheffy By: [SIGNATURE ILLEGIBLE]
---------------------- ----------------------
Name: Forrest Sheffy Name: [SIGNATURE ILLEGIBLE]
----------------------
Title: General Manager
Title: [TITLE ILLEGIBLE]
Date Signed: 6/23/92 ------------------
------------------
Date Signed: 6/26/92
-----------------
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EXHIBIT 10.8
LEASE
THIS LEASE, made as of the 30th day of March, 1992, by and between
HAROLD LEPLER, an individual having an office in care of Covington Management
Company (Attn: Harold Lepler) at Millbrooke Office Centre, Route 22 and
Milltown Road, Brewster, New York 10509. (hereinafter referred to as
"Landlord"), and SCHEIN PHARMACEUTICAL, INC., a corporation organized and
existing under the laws of the State of New York, having an office at 26 Harbor
Park Drive, Port Washington, New York 11050 (hereinafter referred to as
"Tenant").
W I T N E S S E T H
ARTICLE 1
DEMISED PREMISES
----------------
1.1 Landlord hereby leases to Tenant, and Tenant hereby takes from
Landlord, upon and subject to the terms, covenants and conditions hereinafter
set forth, that certain parcel of land (hereinafter referred to as the "Land")
described on Exhibit A attached hereto and outlined on the plot plan attached
hereto as Exhibit B, located in Mt. Ebo Corporate Park (hereinafter referred to
as the "Park") in the Town of Southeast, County of Putnam and State of New York,
together with the building (hereinafter referred to as the "Building") on the
Land, together with all other improvements, and all other easements,
improvements, tenements, appurtenances, hereditaments and rights and privileges
appurtenant thereto, and any and all machinery and equipment installed in said
Building (all such items together with the Land and Building are hereinafter
collectively referred to as the "Demised Premises").
SUBJECT, only, however, to the title and site plan conditions
described on Exhibit C attached hereto (the foregoing being hereinafter referred
to as the "Permitted Encumbrances"), provided the same do not prevent the use of
the Demised Premises for the purposes initially specified in Article 4 hereof.
TO HAVE AND TO HOLD the Demised Premises for the term and at the rents
and upon the covenants, conditions and agreements hereinafter provided.
Tenant hereby expressly covenants to keep, perform and observe all of
the covenants, conditions and agreements contained herein on its part to be
kept, performed and observed.
Landlord hereby expressly covenants to keep, perform and observe all
of the covenants, conditions and agreements contained herein on its part to be
kept, performed and observed.
<PAGE>
ARTICLE 2
TERM
----
2.1 The term (hereinafter referred to as the "Term") of this Lease
shall commence on the Commencement Date (as hereinafter defined) and shall be
for fifteen (15) years, plus the fractional month, if any, between the fifteenth
(15th) anniversary of the Commencement Date, if it falls on a day other than the
first day of a month, and the last day of the month in which the fifteenth
(15th) anniversary of the Commencement Date occurs; otherwise, if the
Commencement Date is the first day of the month, then the Term shall end on the
last day of the month immediately preceding the month in which the fifteenth
(15th) anniversary of the Commencement Date falls; unless the Term of this Lease
is sooner terminated or extended, as hereinafter provided. Tenant shall have
options to renew the Term in accordance with Article 33 hereof.
2.2 Landlord and Tenant have, contemporaneously herewith, entered
into a certain Agreement of even date herewith with respect to the construction
of the Demised Premises (the "Development Agreement").
2.3 Landlord hereby covenants and agrees, at Landlord's sole cost and
expense, to perform the work and all other obligations on the part of the
Developer to be performed under the Development Agreement in accordance with the
terms and conditions thereof ("Landlord's Work"). Landlord agrees to perform
Landlord's Work in a manner which shall cause the least possible interference to
Tenant in the performance of Tenant's Work (as defined in the Development
Agreement) and Tenant's use and enjoyment of the Demised Premises. Landlord
shall continuously keep Tenant fully informed of the progress of Landlord's
Work; and Tenant's representatives at all times shall have access to the Demised
Premises during Landlord's Work for purposes of inspection. In addition,
Landlord shall cooperate with Tenant so that Tenant is able to commence
preparing the Demised Premises for Tenant's use and occupancy.
Tenant is hereby permitted to enter the Demised Premises for the
purpose of doing Tenant's Work and making the same ready for Tenant's occupancy.
Provided that all "Conditions" on the part of Developer to be satisfied pursuant
to and as defined in the Development Agreement have been satisfied in full,
Tenant agrees promptly to commence Tenant's Work and to use due diligence and
continuity to complete Tenant's Work, subject to unavoidable delays caused by
events beyond the control of Tenant. Tenant and Landlord agree that:
(a) Tenant will employ contractors approved by Landlord, which
approval Landlord agrees not to unreasonably withhold;
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(b) Except to the extent that any of Tenant's Work shall constitute a
portion of the Demised Premises with respect to which Landlord shall have an
obligation to maintain or repair in accordance with another provision of this
Lease, Landlord shall not be responsible for any materials installed or
delivered, or any work performed, in connection with Tenant's Work;
(c) Landlord and Tenant will cooperate with each other to coordinate
the schedule of the performance of Tenant's Work and Landlord's Work so that the
installation or delivery of such materials or work performed shall not interfere
with the other's work or the other's workmen;
(d) Any materials so installed or work performed by Tenant shall be
made in conformity with all Laws and Ordinances (as hereinafter defined), shall
not violate any permit issued to Landlord (which Landlord has identified to
Tenant and Tenant's architect) and shall be made after Tenant obtains any
permits required for such materials and work;
(e) Tenant and Landlord shall cooperate with each other to coordinate
the employment of labor for the performance of any work required to be done by
Tenant or Landlord, which is compatible with the labor employed by the other so
as to avoid any labor dispute or work stoppage and agrees to cease work promptly
upon notice from the other if any is threatened; and
(f) Tenant shall, during such period, perform and comply with all the
terms, covenants and conditions of this Lease to be performed by Tenant other
than the payment of any charges for rent or additional rent required to be paid
by Tenant hereunder.
2.4 For the purposes of this Lease, the Commencement Date shall mean
the date on which the last of all the following shall have occurred or have been
performed:
(i) Landlord shall have Substantially Completed Landlord's
Work and Tenant shall have been provided with at least ninety (90) days from the
date on which Landlord has Substantially Completed Landlord's Work to perform
Tenant's Work. As used in this Lease, "Substantially Completed" or "Substantial
Completion" shall mean completed or completion except for details of
construction, decoration and mechanical, electrical or other adjustments, which
do not materially interfere with Tenant's use of the Demised Premises;
(ii) All utilities have been connected in the Building and are
in good working order;
(iii) A temporary or permanent certificate of occupancy shall
have been obtained by Landlord from the
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appropriate local authority indicating that the Demised Premises may be lawfully
occupied for the purposes set forth herein;
(iv) Landlord shall have delivered to Tenant the "Commencement
Date Certificate and Agreement" in the form annexed hereto as Exhibit D;
(v) Landlord shall have obtained from any mortgagee of the
Demised Premises, a Non-Disturbance Agreement, as such term is defined herein;
and
(vi) All other Conditions under and as defined in the
Development Agreement on the part of the Developer thereunder to be satisfied
have been satisfied in full.
In the event that the Commencement Date occurs prior to Landlord's
having obtained a permanent certificate of occupancy, Landlord shall be
obligated to perform all work and supply all material necessary to obtain a
permanent certificate of occupancy prior to the expiration of the temporary
certificate of occupancy.
2.5 Within one hundred twenty (120) days after the Substantial
Completion of the Demised Premises, Tenant shall deliver to Landlord a statement
or statements setting forth the items of work to be performed by Landlord
hereunder, if any, which have not been completed or which are defective.
Landlord agrees to complete such items with reasonable diligence. Landlord shall
not be relieved of its responsibility with respect to Landlord's Work as a
result of Tenant's failure to identify defects in Landlord's Work, unless Tenant
has not notified Landlord of such defects within twelve (12) months from the
Commencement Date of this Lease. Defects which are not reasonably apparent from
Tenant's contemplated use of the Demised Premises shall not be subject to such
twelve (12) month limitation. Landlord agrees to assign to Tenant any warranty
and/or guaranty of work and/or materials from any contractor and/or materialmen
at the end of such twelve (12) month period and shall cooperate with Tenant in
enforcing all such warranties and/or guaranties. Landlord shall not be
obligated to repair or restore any damage to Demised Premises caused by Tenant,
or Tenant's employees or contractors.
2.6 Within thirty (30) days after the request of either party hereto
after the Commencement Date of this Lease shall have been determined, Landlord
and Tenant shall execute, acknowledge and deliver to each other duplicate
originals of an instrument in form and content reasonably satisfactory to them
setting forth such date. The failure of either party to promptly execute and
deliver such instrument shall in no way affect the commencement of the term
hereof.
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At the request of either party, Landlord and Tenant shall promptly
execute, acknowledge and deliver a memorandum with respect to this Lease
sufficient for recording, which Tenant may record at Tenant's cost and expense.
Such memorandum shall not in any circumstance be deemed to change or otherwise
affect any of the obligations or provisions of this Lease.
2.7 Anything set forth in this Lease to the contrary notwithstanding,
this Lease shall not be effective, nor shall Tenant have any obligations to
perform hereunder, unless and until all Conditions under and as defined in the
Development Agreement on the part of the Developer thereunder to be satisfied
have been satisfied in full. In the event that Tenant elects to terminate the
Development Agreement in accordance with the terms thereof, this Lease will
automatically terminate without the necessity of any additional action on the
part of either Landlord or Tenant hereunder.
ARTICLE 3
RENTAL
------
3.1 Tenant agrees to pay to Landlord a fixed minimum rent
(hereinafter referred to as the "Fixed Minimum Rent") at the rates set forth on
Exhibit E attached hereto. Monthly installments of Fixed Minimum Rent, shall be
paid in advance on the first day of each and every calendar month, and, together
with all other amounts payable by Tenant to Landlord hereunder, shall be paid at
the offices of Landlord set forth above, or at such other place or to such other
entity or entities as Landlord may from time to time designate by notice to
Tenant, without notice or demand therefor and without deduction, abatement or
set-off except as herein permitted.
3.2 All costs, charges and expenses which Tenant is obligated to pay
to Landlord pursuant to the provisions of this Lease shall be deemed additional
rent ("Additional Rent"), and in the event of nonpayment thereof, after Tenant's
receipt of notice of nonpayment and the expiration of ten (10) days without
payment (provided that, if Tenant disputes in good faith its obligation to make
all or any portion of such payment, such ten (10) day period shall be extended
with respect to the disputed portion of such payment during the period of such
dispute), Landlord shall have all the rights and remedies with respect thereto
as is provided for herein or by applicable law in case of non-payment of rent
(Fixed Minimum Rent and Additional Rent are sometimes hereinafter collectively
referred to as "Rental"). If the Commencement Date shall be a date other than
the first day of a calendar month, the Fixed Minimum Rent and other charges
shall be prorated for the portion of the calendar month in which the
Commencement Date occurs, and shall be paid by Tenant promptly after being
billed therefor.
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Tenant covenants to pay the Fixed Minimum Rent and Additional Rent as
in this Lease provided, when due, and in lawful money of the United States which
shall be legal tender for payment of all debts and dues, public and private, at
the time of payment. From and after the expiration of the applicable notice and
grace period provided in this Lease, all unpaid sums due and payable as Fixed
Minimum Rent and Additional Rent shall bear interest at the rate of two (2%)
percent per annum over the prime rate of interest announced, from time to time,
by The Chase Manhattan Bank, N.A., New York, New York, or any successor thereto,
to corporate borrowers of the highest credit standing for 90-day unsecured
commercial loans, but in no event more than the maximum permitted by law
(hereinafter referred to as the "Default Charge"), and such interest shall be
deemed to be Additional Rent; provided, however, that no further interest shall
be payable upon such interest.
3.3 If at any time or times during the Term, the Fixed Minimum Rent,
Additional Rent or other charges payable by Tenant hereunder shall not be fully
collectible by reason of any Laws and Ordinances (including, without limitation,
rent control or stabilization laws), then for the period prescribed by such Laws
and Ordinances, Tenant shall pay to Landlord the maximum amounts permitted
pursuant thereto. Upon the expiration of the applicable period of time during
which such amounts shall be uncollectible, Tenant shall pay to Landlord as
Additional Rent, within fifteen (15) days after demand, all such uncollected
amounts that would have been payable for the period absent such legal
restrictions; provided, however, that the retroactive collection thereof shall
then be lawful.
Tenant shall remain obligated under this Lease in accordance with its
terms and shall not take any action to terminate, rescind or avoid this Lease,
notwithstanding any bankruptcy, insolvency, reorganization, liquidation,
dissolution or other proceeding affecting Landlord or any assignee of Landlord
or any action with respect to this Lease which may be taken by any trustee,
receiver or liquidator or by any court.
ARTICLE 4
USE
---
4.1 Tenant initially shall use: (i) the Building for administrative,
executive and general business offices, warehousing of finished goods, raw
materials and packaging components, and distribution, in the conduct of its
pharmaceutical business (the "Initial Building Use") and (ii) the Land, other
than that occupied by the Building, for parking and landscaping as shown on the
final approved site plan; and thereafter the Demised Premises may be used for
any lawful purposes, which are not prohibited by the Permitted Encumbrances and
the other provisions of this Lease (a "Subsequent Building Use").
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4.2 Tenant shall not suffer or permit the Demised Premises or any
part thereof to be used in any manner, or anything to be brought into or kept
therein, which would in any way: (i) cause structural injury to the Building or
any part thereof; (ii) constitute a public or private nuisance; (iii) impair the
appearance, character or reputation of the Building and/or the Park; or (iv)
violate any of Tenant's other obligations under this Lease.
4.3 For purposes hereof the term "Insurance Companies and Boards"
shall mean the companies writing the insurance policies required pursuant to the
provisions of this Lease and the New York Board of Fire Underwriters, or any
other body having similar jurisdiction and any body establishing insurance
premium rates.
ARTICLE 5
COMPLIANCE WITH LAWS
--------------------
5.1 A. Landlord agrees that Landlord's Work in constructing the
Demised Premises shall comply with all Laws and Ordinances on the Commencement
Date and shall permit Tenant's initial use of the Demised Premises.
B. Landlord shall, at its sole cost and expense, comply with all
present and future laws, orders, ordinances and regulations, including, without
limitation, all environmental, health and safety laws and regulations, of all
state, federal, municipal and local governments, departments, commissions and
orders of any public officer pursuant to law, all orders, rules and regulations
of the Board of Fire Underwriters or a similar body ("Laws and Ordinances") and
all requirements of Insurance Companies and Boards applicable to the Building or
the Demised Premises (other than matters for which Tenant is responsible under
the provisions of this Section). Tenant shall, at its sole cost and expense,
comply with all Laws and Ordinances and all requirements of applicable Insurance
Companies and Boards to the extent that such compliance is necessitated by
reason of Tenant's Specific Use (as hereinafter defined) of the Demised
Premises. Anything in this Lease to the contrary notwithstanding, it is hereby
understood and agreed that compliance with Laws and Ordinances: (i) which are of
general applicability to office buildings, warehouses and distribution
facilities, and (ii) which do not arise as a result of Tenant's Specific Use,
shall not be the responsibility of Tenant. For purposes hereof, "Tenant's
Specific Use" shall mean (i) the specific nature of the Initial Building Use of
the Demised Premises by Tenant, (ii) the specific nature of a Subsequent
Building Use of the Demised Premises by Tenant and (iii) the conversion of the
Building from its then existing use to a Subsequent Building Use.
C. If any structural repair or alteration to the Demised
Premises or the Building shall be required under this
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Article 5 and Tenant shall not be obligated to make the same pursuant to the
provisions hereof, such repair or alteration shall be made by Landlord, at
Landlord's sole cost and expense and in such manner so as to not unreasonably
interfere with Tenant's business or reduce the amount of useable space available
to Tenant.
D. In the event that Landlord pays the cost of any capital
expenditure required to be paid by Landlord by reason of any Laws and Ordinances
or the requirements of applicable Insurance Companies and Boards which become
effective after the Commencement Date, then Tenant shall pay to Landlord on the
first day of each calendar month during the period commencing with the calendar
month following completion of such capital expenditure and ending on the earlier
the expiration (inclusive of any Extended Terms elected by Tenant pursuant to
Article 33 below) or earlier termination of this Lease and the date upon which
such capital expenditure has been fully reimbursed by Tenant to Landlord, an
amount equal to the cost of such capital expenditure divided by the number of
months of the useful economic life of such capital expenditure.
5.2 Landlord agrees to remedy, at Landlord's sole cost and expense,
all environmental problems, other than those caused by Tenant, and shall
indemnify, defend and hold Tenant harmless against all loss, liability, damages,
costs and expenses, including reasonable attorneys' fees, relating to any
Hazardous Materials, as hereinafter defined, found in the Demised Premises
during the term of this Lease that are not caused by Tenant. Tenant shall be
responsible to remedy, at its sole cost and expense, all environmental problems
caused by Tenant during the Term, and shall indemnify, defend and hold Landlord
harmless against all losses, liability, damages, costs and expenses, including
reasonable attorneys' fees, relating to any Hazardous Materials found in the
Demised Premises during the term of this Lease that are caused by Tenant.
Without limiting the generality of the provisions of Section 5.lB, Tenant agrees
not to use, generate, manufacture, produce, store, release, discharge or dispose
of (or permit any of the same) or permit to exist on the Demised Premises or
transport (or permit to be transported) to or from the Demised Premises any
hazardous substances, hazardous materials, toxic substances or solid waste as
defined in the Clear Air Act, the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA"), the Resource Conservation and
Recovery Act ("RCRA") and the Hazardous Materials Transportation Act ("HMTA"),
any substances or materials listed as hazardous or toxic in the United States
Department of Transportation Table, by the Environmental Protection Agency or
any successor agency or under any federal, state or local laws or regulations
(collectively, "Hazardous Materials"), except in the ordinary course of its
business and in compliance with all Laws and Ordinances, including, without
limitation, the Clean Air Act, CERCLA, RCRA and HMTA. Tenant
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will immediately remove or cause to be removed from the Demised Premises any
Hazardous Materials not used, stored, generated, manufactured, produced,
released or discharged in the ordinary course of its business. Landlord
expressly acknowledges that Tenant shall from time to time, in the ordinary
course of its business, cause certain Hazardous Materials to be stored or
otherwise be present in the Demised Premises and agrees that such storage or
presence of Hazardous Materials shall be permitted by the terms of this Lease
provided Tenant complies with all applicable Laws and Ordinances relating
thereto.
In the event any Laws and Ordinances, as applied to Tenant's Specific
Use, shall require Tenant to follow special procedures for such emissions or
discharges, whether into the atmosphere, the ground, the water systems and/or
the sewage system, including but not limited to, the pretreatment of sewage
and/or the installation of a monitoring well(s), Tenant shall be responsible for
full compliance therewith and all of the costs and expenses thereof. Landlord
hereby covenants to cooperate with Tenant, to the extent necessary to enable
Tenant to comply with such procedures. Tenant agrees to deliver to Landlord any
and all certifications, affidavits and other documents which may be required
pursuant to Laws and Ordinances during the Term and after the expiration of the
Term, indicating compliance by Tenant with the provisions thereof. Without
limiting the generality of the foregoing, Tenant shall not intentionally
discharge into the sewer systems any Hazardous Materials stored in containers
situated in the Demised Premises.
5.3 If Tenant receives written notice of any violation of any Laws
and Ordinances applicable to the Demised Premises, or any recommendations by any
Insurance Companies and Boards, Tenant shall give prompt notice thereof to
Landlord.
5.4 Tenant, after notice to Landlord, may contest by appropriate
legal proceedings, without cost or expense to Landlord, the validity of any Law
or Ordinance, and may defer compliance therewith; provided, however, that (a)
such noncompliance shall not constitute a crime on the part of Landlord;
(b) Tenant shall diligently prosecute such contest to a final determination by a
court, department or governmental authority or body having final jurisdiction;
(c) Tenant shall indemnify Landlord against any and all liability, loss and
damage which Landlord may sustain by reason of Tenant's failure or delay in
complying therewith; and (d) Tenant shall keep Landlord advised as to the status
of such proceeding. Landlord agrees to cooperate reasonably with Tenant, and to
execute any documents or pleadings reasonably required for the purpose of any
such contest; provided, however, that the same shall be without cost or expense
to Landlord. Provided that Tenant chooses not to initiate a contest pursuant to
this paragraph, Landlord shall have the right, but not the obligation, to
contest by appropriate
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legal proceedings, at Landlord's expense, any such Law or Ordinance.
5.5 Tenant shall, at its own cost and expense, keep in full force and
effect any and all necessary permits, licenses, certificates or other
authorizations required in connection with Tenant's lawful and proper use,
occupancy, operation and management of the Demised Premises, and Tenant shall
obtain any and all necessary permits, licenses, certificates or other
authorization required in connection with Tenant's Specific Use of the Demised
Premises, provided however that nothing in this Section 5.5 shall increase,
enlarge or otherwise affect Tenant's obligations under Section 5.1 above.
5.6 Subject to the provisions of Articles 8, 12 and 17 of this Lease,
no abatement, diminution or reduction of the Fixed Minimum Rent, or of any
Additional Rent or other charges required to be paid by Tenant pursuant to the
terms of this Lease, shall be claimed by, or allowed to, Tenant for any
inconvenience, interruption, cessation or loss of business or otherwise caused
directly or indirectly by any present or future Laws and Ordinances, or by
priorities, rationing or curtailment of labor or materials, or because of civil
commotion, strikes or riots, or any matter or thing resulting therefrom, nor
shall this Lease be affected by any such causes, except for any act, omission or
gross negligence of Landlord; provided, however, that Tenant shall in no event
have any right of offset against the Rental under this Lease, except as provided
in Section 17.2 hereof. Tenant however, may bring a separate action against
Landlord, subject to the limitations set forth in Article 27 hereof, and
provided further that nothing herein contained is intended to affect the
coverage of Landlord as additional insured under the policies of liability
insurance to be maintained by Tenant.
ARTICLE 6
MAINTENANCE AND REPAIRS
AND COVENANT AGAINST WASTE
--------------------------
6.1 Except with respect to replacements, repairs and restorations
which are the obligation of Landlord pursuant to an express provision of this
Lease, including without limitation Section 6.2 and Articles 5, 8 and 12 hereof,
Tenant shall, throughout the Term and at no expense whatsoever to Landlord, take
good care of the Demised Premises and shall not do or suffer any waste with
respect thereto, and Tenant shall promptly make all repairs and replacements to
the Demised Premises necessary to keep the Demised Premises (including the
heating, plumbing, electrical, ventilating and air-conditioning systems) in good
and lawful order and condition, ordinary wear and tear excepted. Tenant shall
keep and maintain all exterior areas of the Demised Premises in a clean and
orderly condition, reasonably free of accumulation of ice, snow, dirt and
rubbish. Tenant agrees to use chemicals for de-icing which are not harmful to
the Demised
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Premises. Tenant agrees not to place a load upon any floor of the Building
which exceeds the load per square foot which such floor was designed to carry
and which is allowed by law.
6.2 Anything to the contrary set forth in this Lease notwithstanding,
during the Term of this Lease and any renewals thereof, Landlord shall, upon
reasonable notice from Tenant, make all necessary structural repairs to the
Building (but excluding the exterior and interior of all windows, doors, plate
glass and signs) and all repairs to the roads and drives located on, or
providing access to, the Demised Premises which roads and drives are owned by
Landlord. In addition, (i) during the first five (5) years and the last two (2)
years of the Term, Landlord agrees to make all replacements and repairs to the
heating, plumbing, electrical, ventilating and air conditioning systems (other
than such routine repairs as are necessary, in the course of Tenant's
maintenance of such systems, to keep such systems in good order and condition)
and (ii) during the first five (5) years of the Term, Landlord agrees to make
all replacements and repairs to the parking areas located on the Demised
Premises. Tenant shall be responsible for the restriping of the parking lots
throughout the Term.
Landlord shall not be required to do any of the work or supply any of
the materials required pursuant to this Section 6.2 in the event any damage is
caused by gross negligence of Tenant or Person Within Tenant's Control (as
hereinafter defined).
6.3 Tenant shall promptly reimburse Landlord for expenditures made by
Landlord pursuant to Section 6.2 above during the last two (2) years of the
Initial Term or any Extended Term if (i) Landlord's obligation to make such
expenditures arises only during the last two (2) years of the Term and (ii)
Tenant thereafter exercises its option to extend the Term.
ARTICLE 7
INSURANCE
---------
7.1 (a) Tenant, at Tenant's cost and expense, will maintain
insurance on the Demised Premises as follows:
(i) Insurance on an all-risk form insuring against the perils
of fire and extended coverage and physical loss or damage, including, without
duplication of coverage, theft, vandalism, malicious mischief, collapse, false
work, temporary buildings and debris removal, in amounts sufficient to prevent
Mortgagee, Landlord or Tenant from becoming a co-insurer of any loss, but in any
event in amounts not less than the actual replacement value of the Demised
Premises, exclusive of foundations, footings and excavations. The policies to be
provided pursuant to this Section 7.l(a)(i) shall be subject to such deductibles
as Tenant may elect, provided that, in the event of a loss covered by any such
policy, Tenant shall be obligated
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to provide from its own funds a sum equal to the amount of such deductible
(which sum to be provided by Tenant shall, for purposes of Article 8 hereof, be
deemed "insurance proceeds").
The actual replacement value of the Demised Premises shall be
determined from time to time, but not more often than once in every two (2)
years, at Landlord's request, by an appraiser designated by an insurer of the
Demised Premises and if the insurance company does not so designate an
appraiser, then by an appraiser designated by Landlord, at Landlord's cost and
expense, except that no such appraisal shall be required for the first two (2)
years of the Term. Appraisals which are requested by the insurer shall be
conducted at the expense of the insurer or Tenant. Notwithstanding the
foregoing provisions of this Section 7.1(a)(i), no appraisals of the Demised
Premises shall be required by Landlord as long as coverage of at least $30
million is provided with respect to the Demised Premises (by Tenant's blanket or
excess coverage policies, or otherwise).
(ii) Rent insurance with the standard extended coverage
endorsements issued in connection with fire insurance policies covering property
similar to the Demised Premises in an amount equal to the aggregate of the Fixed
Minimum Rent, Impositions (as hereinafter defined) and all other charges payable
by Tenant pursuant to this Lease for a period of one (1) year, except that
Tenant may at its election provide such insurance by an appropriate endorsement
to its business interruption policy.
(iii) General comprehensive public liability insurance with
respect to the Demised Premises and its appurtenances in the combined aggregate
amount of not less than Five Million ($5,000,000.00) Dollars with respect to
death and/or injuries suffered in any one accident, including property damage.
Such limits shall be increased from time to time (but not more often than once
every five (5) years) as may be reasonably required by Landlord based upon the
limits which are customary for similar buildings in the general vicinity of the
Building.
(iv) Workers' compensation insurance to the extent required by
the law of the State in which the Demised Premises are located and to the extent
necessary to protect Landlord and the Demised Premises against Workers'
compensation claims.
(v) Such other insurance reasonably requested by Landlord, in
such amounts and against such risks, as is commonly obtained in the case of
property similar in use to the Demised Premises and located in the vicinity of
the Demised Premises are located, with due regard to the height and the type of
the Building, its construction, use and occupancy.
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The insurance described in this Section 7.1(a) shall be written by
companies of nationally recognized good financial standing legally qualified to
issue such insurance and shall name Tenant as insured party and Mortgagee and
Landlord as additional insureds, as their interests may appear.
(b) Every such policy (other than any comprehensive liability or
workers' compensation policy) shall bear a mortgagee endorsement in favor of
Mortgagee; and such policies shall provide that the loss, if any, shall be
adjusted and payable to Landlord to be held and applied by Landlord or Mortgagee
for reconstruction of the Demised Premises. Every policy referred to in this
section (other than the workers' compensation policy) shall not be canceled or
materially altered except after 30 days' written notice to Landlord and the
Mortgagee and the policies referred to in Section 7.1(a)(i) and (ii) shall not
be invalidated by any act or neglect of Landlord or Tenant, nor by occupancy of
the Demised Premises for purposes more hazardous than permitted by such policy,
nor by any foreclosure or other proceedings relating to the Demised Premises,
nor by change in title to the Demised Premises. Tenant will immediately deliver
to the Landlord copies of any notices of cancellation received with regard to
any insurance maintained pursuant to this Article.
(c) Tenant shall deliver to Landlord and Mortgagee original
certificates which set forth the major policy provisions and limits of liability
relating to the Demised Premises (together with such other reasonable
information as may be requested by Landlord or Mortgagee to correctly evidence
the insurance coverage of Tenant covering the Demised Premises) of insurers,
reasonably satisfactory to Mortgagee, evidencing the existence of all insurance
which is required to be maintained by Tenant hereunder, such delivery to be made
(i) promptly after the execution and delivery hereof, and (ii) within ten (10)
days prior to the expiration of any such insurance. Tenant shall have the right
to pay such premiums in installments. Tenant shall not obtain or carry separate
insurance concurrent in form or contributing in the event of loss with that
required by this Article. Any insurance required hereunder may be provided
under blanket policies or excess coverage (umbrella) policies, provided that the
policies otherwise comply with the provisions of this Lease and allocate to the
Demised Premises the specific coverage, without possibility of reduction or
coinsurance by reason of, or damage to, any other property named therein.
7.2 Each insurance policy insuring the Demised Premises and Tenant's
fixtures and contents against loss, shall be written in a manner so as to
provide that the insurance company waives all right of recovery by way of
subrogation against Landlord and Mortgagee in connection with any loss or damage
covered by any such policies, provided that such waiver is available at no
additional cost to Tenant. If an additional charge is imposed to obtain such
waiver, Landlord may elect to
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pay such charge. Landlord and Mortgagee shall not be liable to Tenant, to the
extent of the insurance proceeds actually collected and retained by Tenant, for
any loss or damage caused by fire or any of the risks enumerated in such
policies provided such waiver was in effect with respect to such policies at the
time of such loss or damage. If the release of either Landlord or Mortgagee
shall contravene the provisions of any insurance policy or any law with respect
to exculpatory agreements, the liability of the party in question shall be
deemed not released but no action or rights shall be sought or enforced against
such party unless and until all rights and remedies against such party's insurer
are exhausted and such party shall be unable to collect such insurance proceeds.
ARTICLE 8
FIRE AND OTHER CASUALTY
-----------------------
8.1 (a) Subject to the provisions of Section 8.1(b), Section 8.2,
Section 8.3 and Section 8.4 hereof, if the Building or the Demised Premises
shall be damaged by any casualty, Tenant shall notify Landlord of the same and
if an election to terminate this Lease shall not have been made pursuant to this
Article 8, Landlord shall repair said damage and restore and rebuild the
Building and/or Demised Premises (excluding Tenant Work and the personal
property of Tenant). In such event, the Fixed Minimum Rent payable hereunder
shall be reduced, until such time as the repair and restoration work is
Substantially Completed, Tenant has had an opportunity to Substantially Complete
restoration of Tenant's Work, and Tenant is not prevented by the condition of
the Demised Premises from occupying the Demised Premises for the normal conduct
of its business, in proportion to the extent that the Demised Premises are
rendered unusable for the normal conduct of the business then conducted on the
Demised Premises, and Landlord shall be entitled to receive the proceeds of rent
insurance maintained pursuant to Section 7.1(a)(ii) hereof. Such repair and
restoration work shall be diligently commenced and prosecuted by Landlord until
full completion thereof. It is acknowledged that a casualty affecting a portion
of the Warehouse (as hereinafter defined) may, as a consequence of Tenant's
Specific Use thereof, render the entire Warehouse unusable for the normal
conduct of the business conducted therein by Tenant. The terms of the rent
insurance maintained pursuant to Section 7.1(a)(ii) hereby shall acknowledge
the foregoing.
(b) If the insurance proceeds available to Landlord (or Landlord's
mortgagee) are not adequate to pay for the full cost of such repair and
restoration work, then (i) Landlord shall not be obligated to pay such
deficiency if within thirty (30) days of the date of such casualty, Landlord
sends written notice to Tenant (the "Insurance Deficiency Notice") advising
Tenant of the amount of such deficiency and that Landlord elects not to pay such
deficiency, and (ii) in the event that Landlord delivers the Insurance
Deficiency Notice to Tenant within such thirty (30) day
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period, Tenant shall have the right, at its option, to terminate this Lease by
sending written notice of such termination to Landlord within ninety (90) days
after Tenant's receipt of the Insurance Deficiency Notice, which termination
shall be effective as of any date designated by Tenant, which effective date
shall not be more than twelve (12) months from the date of such termination
notice, or if Tenant does not terminate this Lease as aforesaid, Tenant shall
pay such deficiency. Notwithstanding the preceding sentence, Tenant shall pay
any deficiency attributable to Tenant's failure to maintain in effect any
insurance required to be maintained by Tenant pursuant to this Lease, and, in
such event, Tenant shall not have the right to terminate this Lease (it being
understood that Tenant shall not be responsible for any deficiency that would
not have been paid pursuant to normal policy exclusions). Landlord shall apply
all insurance proceeds received with respect to any insurance required to be
maintained by Tenant hereunder (other than the insurance to be provided pursuant
to Section 7.1(a) (ii) above) for the purposes of fully repairing and replacing
the damage unless an election to terminate this Lease is made pursuant to this
Article 8.
8.2 If the Building and/or Demised Premises shall be damaged by
casualty, to the extent that the portion of the Demised Premises used by Tenant
as a warehouse and distribution facility (the "Warehouse") is rendered unusable
for the normal conduct of Tenant's business then conducted in the Warehouse, and
a reputable contractor selected by Landlord and reasonably approved by Tenant
estimates that the repair of the Warehouse (including Tenant's Work, but
excluding the personal property of Tenant) cannot be Substantially Completed
within seven (7) months after the date of such casualty, Tenant may terminate
this Lease by notice to Landlord given within sixty (60) days of the date of
such casualty. Upon such notice, this Lease shall terminate (and Tenant shall
not be responsible for paying any deficiency pursuant to Section 8.1(b));
provided, however, that the provisions of this Lease which are designated to
cover matters of termination and the period thereafter shall survive the
termination of this Lease. Landlord shall use reasonable efforts to cause such
contractor's estimate to be rendered and delivered to Tenant within thirty (30)
days after the casualty.
8.3 If the Building and/or the Demised Premises shall be damaged by
casualty, to the extent that the portion of the Demised Premises used by Tenant
for office purposes (the "Offices") is rendered unusable for the normal conduct
of Tenant's business then conducted in the Offices, and a reputable contractor
selected by Landlord and reasonably approved by Tenant estimates that the repair
of the Offices (including the leasehold improvements, but excluding the personal
property of Tenant) cannot be Substantially Completed within twelve (12) months
after the date of such casualty, Tenant may terminate this Lease by notice to
Landlord given within sixty (60) days of the date of such casualty. Upon such
notice this Lease shall terminate (and
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Tenant shall not be responsible for paying any deficiency pursuant to Section
8.1(b)), provided, however, that the provisions of this Lease which are
designated to cover matters of termination and the period thereafter shall
survive the termination of this Lease. Landlord shall use reasonable efforts to
cause such contractor's estimate to be rendered and delivered to Tenant within
thirty (30) days after the casualty. Notwithstanding the foregoing, Tenant shall
not have a right to terminate this Lease pursuant to this Section 8.3 in the
event that Landlord is able to provide to Tenant, within thirty (30) days of the
casualty and upon terms reasonably acceptable to Tenant, substitute office
facilities in the immediate vicinity of the Building, which are reasonable
acceptable to Tenant, and which will be available to Tenant during the period
that the repair and restoration work to the offices is being completed.
8.4 If a casualty occurs during the last two (2) years of the Term
and if any portion of the Demised Premises shall be so damaged by such casualty
that the cost of repair or replacement would exceed twenty-five percent (25%) of
the replacement cost of the Building as estimated by a reputable contractor
selected by Landlord and reasonably approved by Tenant, Tenant may terminate
this Lease by notice to Landlord given within sixty (60) days of the date of
such casualty and upon such notice, this Lease shall terminate; provided,
however, that the provisions of this Lease which are designated to cover matters
of termination and the period thereafter shall survive the termination of this
Lease. If Tenant does not choose to terminate this Lease in accordance with
this paragraph within such sixty (60) day period, Landlord may, at its option,
terminate this Lease by notice to Tenant given within ten (10) days of the
expiration of such sixty (60) day period. Landlord shall use reasonable efforts
to cause such contractor's estimate to be rendered and delivered to Tenant
within thirty (30) days after the casualty.
8.5 No damages, compensation, or claim shall be payable by Landlord
for inconvenience, loss of business or annoyance arising from any repair or
restoration of any portion of the Demised Premises, the leasehold improvements,
or the Building. Landlord shall use reasonable efforts to have such repairs for
which it is responsible made promptly so as not to unnecessarily interfere with
Tenant's occupancy.
8.6 In the event of the termination of this Lease pursuant to the
provisions of Section 8.1(b), Section 8.2, Section 8.3 or Section 8.4, this
Lease, the Term and the estate hereby granted shall expire as of the date of
such termination in the same manner and with the same effect as if it were the
date set for the normal expiration of the Term, and Fixed Minimum Rent shall be
apportioned as of the date of termination.
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8.7 (a) If any of the insurance monies paid to Landlord shall remain
after the completion of the repair and restoration, the excess shall be paid to
Tenant, or if Tenant and Landlord funded any deficiency in the insurance
proceeds in order to complete the repair and restoration work, any excess shall
be shared by Landlord and Tenant proportionately to the amount of the deficiency
contributed by each party.
(b) Tenant understands that Landlord will not carry insurance of any
kind on Tenant's furniture or furnishings or on any fixtures or equipment
removable by Tenant under the provisions of this Lease, including Tenant's Work,
and that Landlord shall not be obligated to repair any damage thereto or replace
the same.
8.8 Landlord and Tenant each agrees that it will cooperate with the
other, to such extent as such other party may reasonably require, in connection
with the prosecution or defense of any action or proceeding arising out of, or
for the collection of, any insurance monies that may be due in the event of any
loss or damage, and that they each will execute and deliver to the other party
such instruments as may be reasonably required to facilitate the recovery of any
insurance monies.
8.9 Tenant agrees to give prompt notice to Landlord with respect to
all fires and other casualties occurring in, on, at or about the Demised
Premises.
ARTICLE 9
UTILITIES
---------
9.1 After the Substantial Completion of Landlord's Work, Tenant
agrees that Landlord is not, nor shall it be, required to furnish to Tenant or
any other occupant of the Demised Premises any gas, water, sewer, electric, heat
or any other utility, facility, equipment, labor, materials, services or trash
removal of any kind whatsoever (collectively referred to in this Article as
"Utilities and Services").
9.2 Tenant agrees to obtain all Utilities and Services and to pay all
charges therefor. Provided that Landlord performs all of its obligations under
Article 6 in a timely manner, Tenant expressly agrees that Landlord shall not be
responsible for the failure of supply to Tenant of any of such Utilities and
Services, or any other utility or services, whether similar or dissimilar to
those enumerated in this Article.
9.3 Tenant agrees to limit its consumption of water at the Demised
Premises to not more than l0~000 gallons per day.
9.4 Notwithstanding the foregoing provisions of this Article 9, as
long as water and sewer service is provided to the Demised Premises by an
affiliate of Landlord, unless the water
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and sewer rates are regulated by a state or municipal agency, Tenant's
obligation to pay for water and sewer service shall be limited to the amount
that is computed based upon the average rates approved by the state or municipal
agency then applicable to the provision of water to facilities comparable to the
Demised Premises in the vicinity thereof.
ARTICLE 10
MECHANIC'S LIENS
----------------
10.1 Tenant shall not suffer or permit any liens to be filed against
the Park, Demised Premises or any part thereof or against Tenant's leasehold
estate therein by reason of any work, labor, services or materials done for, or
supplied, or claimed to have been done for, or supplied to, Tenant or any one
holding the Demised Premises or any part thereof through or under Tenant. If
any such lien shall at any time be filed against the Park, the Demised Premises
or any part thereof or against Tenant's leasehold estate therein, Tenant shall
cause the same to be discharged of record within forty-five (45) days after the
date of notice thereof to Tenant, by either payment, deposit, bond or otherwise.
If Tenant shall fail to discharge any such lien within such period, then, in
addition to any other right or remedy of Landlord, Landlord may, but shall not
be obligated to, procure the discharge of the same either by paying the amount
claimed to be due by deposit in court or by bonding, and/or Landlord shall be
entitled, if Landlord so elects, to compel the prosecution of an action for the
foreclosure of such lien by the lienor and to pay the amount of the judgment, if
any, in favor of the lienor with interest, costs and allowances. Any amount
paid or deposited by Landlord for any of the aforesaid purposes, and all legal
and other expenses of Landlord, including reasonable attorneys' fees, in
defending any such action or in or about procuring the discharge of such lien,
with all necessary disbursements in connection therewith, together with the
Default Charge thereon, shall become due and payable forthwith by Tenant to
Landlord.
10.2 Nothing in this Lease shall be deemed to be, or construed in any
way as constituting, the consent or request of Landlord, expressed or implied,
by inference or otherwise, to any person, firm or corporation for the
performance of any labor or the furnishing of any materials for any
construction, rebuilding, alteration or repair of or to the Demised Premises or
any part thereof, nor as giving Tenant any right, power or authority to contract
for or permit the rendering of any services or the furnishing of any materials
which might in any way give rise to the right to file any lien against
Landlord's interest in the Demised Premises.
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ARTICLE 11
ALTERATIONS
-----------
11.1 For the purposes of this Article the term "Alterations" shall
include, without limitation, decorations, installations, changes, restorations,
replacements, additions, improvements and betterments. An alteration shall be
deemed to be structural if it involves or affects (a) the exterior (or the
exterior appearance) of the Building other than landscaping or the restriping of
the parking areas located on the Demised Premises or the other areas of the
Demised Premises outside the Building other than landscaping or the restriping
of the parking areas located on the Demised Premises, or the roof or foundations
of the Building, (b) the supporting members or structural elements of the
Building, or (c) any of the Building systems in a material and adverse manner.
After the completion of Tenant's Work, Tenant shall make no
Alterations in or to the Demised Premises, whether structural or non-structural,
without Landlord's prior written consent, except as follows:
(a) Tenant may make non-structural Alterations in each instance
costing less than Fifty Thousand ($50,000) Dollars and decorative Alterations
costing less than One Hundred Thousand ($100,000) Dollars without obtaining
Landlord's consent.
(b) Landlord agrees that it shall not unreasonably withhold or delay
its consent to any other Alterations to the Demised Premises requested to be
made by Tenant.
(c) No structural Alterations in or to the Demised Premises shall be
made by Tenant without obtaining Landlord's prior consent in each case, which
consent shall not be unreasonably withheld or delayed.
All Alterations: (i) shall be done at Tenant's sole expense; (ii) may
be made at all hours and days; (iii) shall in all events comply with all Laws
and Ordinances and all orders, rules and regulations of Insurance Boards; (iv)
shall be made in a good workmanlike manner using materials comparable in quality
to the quality of the existing materials in the Demised Premises; and (v) shall,
in the case of structural Alterations, non-structural Alterations costing in
excess of Fifty Thousand ($50,000) Dollars and decorative Alterations costing in
excess of One Hundred Thousand ($100,000) Dollars, be made only by contractors
or mechanics approved by Landlord (which approval Landlord agrees not to
unreasonably withhold or delay).
11.2 Prior to commencing any Alterations, Tenant shall furnish to
Landlord, and obtain Landlord's prior written consent (unless said consent is
not required pursuant to subparagraph (a) of Section 11.1) to:
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(i) Plans and specifications (to be prepared by and at the
expense of Tenant), in detail, of such proposed Alterations, and Landlord agrees
that provided Tenant otherwise complies with the provisions of this Article 11,
Landlord shall not unreasonably withhold or delay its consent to plans and
specifications in connection with Alterations, provided that Tenant shall not be
obligated to provide such plans and specifications for non-structural
Alterations costing less than Fifty Thousand ($50,000) Dollars, or decorative
Alterations costing less than One Hundred Thousand ($100,000) Dollars;
(ii) A certificate evidencing that Tenant (or Tenant's
contractors) has (have) procured and paid for workmen's compensation and
employer liability insurance covering all persons employed in connection with
the work who might assert claims for death or bodily injury against Landlord,
Tenant, the Land or the Building;
(iii) Such additional personal injury and property damage
insurance (over and above the insurance required to be carried by Tenant
pursuant to the provisions of Article 7) and builder's risk fire and other
casualty insurance as Landlord may reasonably require in connection with the
work to be done by Tenant; and
(iv) Such permits, authorizations or consents as may be
required by any applicable Law or Ordinance, all of which shall be obtained at
Tenant's expense; provided, however, that no plans, specifications or
applications shall be filed by Tenant with any governmental authority without
first obtaining Landlord's consent (which Landlord agrees not to unreasonably
withhold or delay to the extent provided elsewhere in this Article), except to
the extent authorized under subparagraph (a) of Section 11.1. Landlord agrees to
cooperate with Tenant's efforts to obtain such permits, authorizations and
consents. Without limiting the generality of the foregoing, Landlord shall
execute and deliver and/or join in the execution and delivery of any building or
alteration permit applicable requested by Tenant.
11.3 (Except for the property described in Section 11.5 which Tenant
may remove at the end of the Term) in no event shall any material or equipment
be incorporated in the Demised Premises in connection with any such Alteration
which is subject to any lien, encumbrance, chattel mortgage, security interest,
charge of any kind whatsoever, or is subject to any conditional sale or other
similar or dissimilar title retention agreement.
11.4 Upon the termination of this Lease, Tenant shall be required to
remove all Alterations with respect to which (i) Tenant was required to obtain
Landlord's consent pursuant to subparagraph (a) of Section 11.1 hereof, and (ii)
Landlord notified Tenant, at the time of Landlord's consent to the installation
of such Alteration, that Tenant would have to remove
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the same from the Demised Premises at the termination of this Lease.
11.5 Where furnished by or at the expense of Tenant (except where
same is a replacement of an item theretofore furnished and paid for by Landlord
or against which Tenant has received a credit), all movable property, furniture,
furnishings, trade fixtures and equipment (including such trade fixtures and
equipment which may be attached to the Building due to the nature of Tenant's
business) shall remain the property of Tenant, and may be removed by Tenant on
or before the expiration of the Term, and, in case of damage by reason of the
removal, Tenant shall restore the Demised Premises to good order and condition,
normal wear and tear excepted. If Tenant shall fail to remove such property,
Landlord may remove such property, and dispose of it or place it in storage. Any
of such property not removed by Tenant shall, at the election of Landlord, be
deemed to be abandoned by Tenant, and Landlord may return or dispose of such
property as Landlord shall elect, without any liability to Tenant.
11.6 Except as provided in Sections 11.4 and 11.5, all of Landlord's
Work and all of Tenant's Work shall become the property of Landlord and shall
remain upon, and be surrendered with, said Demised Premises, as a part thereof,
at the end of the Term. Except as provided in Sections 11.4 and 11.5, all
Alterations upon the Demised Premises, made by either party subsequent to
Landlord's Work and Tenant's Work, affixed to the realty shall become the
property of Landlord and shall remain upon, and be surrendered with, said
Demised Premises, as a part thereof, at the end of the Term. Except as provided
in Sections 11.4 and 11.5, in no event shall Tenant be required or permitted to
remove (a) the original installations made by Landlord as part of Landlord's
Work or Tenant as part of Tenant's Work, or (b) Alterations, made by Tenant. Any
Alteration which is not removed by Tenant from the Building at the end of the
Term shall be deemed abandoned by Tenant to Landlord, and Landlord may remove
the same from the Demised Premises.
ARTICLE 12
CONDEMNATION
------------
12.1 In the event that all of the Demised Premises are taken or
condemned for any public purpose, this Lease shall terminate as of the date of
such taking; provided, however, that those provisions of this Lease which are
designated to cover matters of termination and the period thereafter shall
survive the termination hereof.
12.2 In the event that any portion of the Warehouse or more than
twenty percent (20%) of the Offices shall be taken or condemned for any public
purposes, or in the event of any taking or condemnation which prevents Tenant
from having access to any portion of the Warehouse or at least eighty percent
(80%) of the
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Offices or which reduces the number of parking spaces available to Tenant below
ninety percent (90%) of the number of parking spaces available to Tenant
immediately prior to such taking or condemnation, then Tenant shall have the
option, exercisable within thirty (30) days after Tenant receives notice of such
taking or condemnation, to terminate this Lease effective as of the date
specified by Tenant in its notice of termination, which effective date shall not
be more than one (1) year after the date of Tenant's notice of termination;
provided, however, that those provisions of this Lease which are designated to
cover matters of termination and the period thereafter shall survive the
termination hereof; and provided further that Landlord may negate Tenant's
option to terminate this Lease pursuant to Section 12.2 by reason of any taking
of any portion of the Offices or any parking spaces if Landlord provides to
Tenant, in a location and condition satisfactory to Tenant, similar office space
of the same dimensions of those taken or condemned or an equal number of
substitute parking spaces in the immediate vicinity of the Building.
12.3 In the event that a portion, but less than all, of the Demised
Premises shall be taken or condemned for any public purpose or such taking or
condemnation shall result in a denial of access to a portion, but less than all,
of the Demised Premises, then this Lease shall terminate as of the date of such
taking as to the portion of the Demised Premises so taken or denied access, and,
unless Tenant exercises its option to terminate this Lease pursuant to Section
12.2 hereof, this Lease shall remain in full force and effect as to the
remainder of the Premises. In such event, the Fixed Minimum Rent will be
diminished by an amount representing the part thereof applicable to the portion
of the Demised Premise so taken, and Landlord shall restore the balance of the
Demised Premises to an architecturally complete unit with reasonable promptness.
12.4 In the event of the termination of this Lease pursuant to the
provisions of Sections 12.1 and 12.2, the Lease shall expire as of the date of
such termination in the same manner and with the same effect as if that were the
date set for the normal expiration of the Term, and Fixed Minimum Rent shall be
apportioned as of the date of termination. The provisions of this Section shall
apply in the same manner to any partial termination of this Lease pursuant to
the provisions of this Article 12.
12.5 Landlord may appear in any condemnation proceeding or action or
taking to negotiate, prosecute and adjust any claim for an award thereunder.
Landlord shall be entitled to receive the entire award in any condemnation
proceeding or action for taking, without deduction therefrom for any estate
vested in Tenant by this Lease; provided that nothing herein contained shall
prohibit Tenant from seeking severance damages, moving
22
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expenses or any other award so long as any such award does not reduce the award
payable to Landlord.
12.6 If the temporary use or occupancy of all or any part of the
Demised Premises shall be condemned or taken for any public or quasi-public use
during the Term, this Lease shall be and remain unaffected by such condemnation
or taking and Tenant shall continue to pay the full Fixed Minimum Rent payable
hereunder and Tenant shall be entitled to receive the entire amount of any award
made for such taking, whether paid as damages, rent or otherwise, provided,
however, that in the event that: (i) any such temporary taking involves any
portion of the Warehouse or more than twenty percent (20%) of the Offices or
prevents Tenant from having access to any portion of the Warehouse or at least
eighty percent (80%) of the Offices or reduces the number of parking spaces
available to Tenant below ninety percent (90%) of the number of parking spaces
available to Tenant immediately prior to such taking, and (ii) such taking is
for a period of more than six (6) months, Tenant may elect to terminate this
Lease by notifying Landlord of such election within thirty (30) days after
Tenant receives notice of such taking, in which event this Lease shall terminate
as of the date specified in Tenant's notice of termination, which effective date
shall not be later than one (1) year after the date of Tenant's notice of
termination; provided, however, that the provisions of this Lease which are
designated to cover matters of termination and the period thereafter shall
survive the termination hereof. For purposes hereof, Offices and/or parking
spaces shall be deemed available to Tenant if alternative Offices and/or
substitute parking spaces are provided to Tenant in accordance with the
requirements of Section 12.2.
ARTICLE 13
ACCESS TO DEMISED PREMISES
--------------------------
13.1 Tenant shall permit Landlord and the authorized representatives
of Landlord, upon notice of not less than fifteen (15) days (except in
emergency), to enter the Demised Premises at all reasonable times during usual
business hours for the purpose of making any repairs required to be made by
Landlord to fulfill Landlord's obligations under this Lease, or inspecting the
Demised Premises, and after the notice and the expiration of the grace period
provided for in this Lease, for the purpose of curing any defaults on the part
of Tenant in the making of any necessary repairs to the Demised Premises, or in
the performance of any work therein that may be necessary to comply with any
Laws and Ordinances, or that may be necessary to prevent waste or deterioration
in connection with the Demised Premises. No prior notice of such entry shall be
necessary in the case of emergency, but Landlord agrees to provide Tenant with
written notice of its entry as soon thereafter as practicable. Nothing in this
section 13.1 shall imply any duty upon the part of Landlord to cure any such
defaults or to do any such work. The performance thereof by
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Landlord shall not constitute a waiver of Tenant's default in failing to perform
the same. Landlord shall be liable for all damage to Tenant's property caused
by Landlord or Landlord's agents or employees in connection with the making of
repairs or the performance of any work in the Demised Premises or on account of
bringing materials, supplies and equipment into or through the Demised Premises
during the course thereof. Landlord must use its best efforts to minimize any
inconvenience or damage caused by Landlord in connection with the making of
repairs or performance of any work on the Demised Premises and to coordinate the
scheduling of such repairs, maintenance, or work with Tenant.
For a period commencing six (6) months prior to the end of the Term,
Landlord shall have reasonable access to the Demised Premises for the purposes
of exhibiting the same to prospective tenants and for posting any "To Let" or
"To Lease" signs upon the Demised Premises. The size and location of such signs
shall be subject to Tenant's approval, which approval may not be unreasonably
withheld.
ARTICLE 14
ASSIGNMENT, SUBLETTING, MORTGAGING
----------------------------------
14.1 Tenant covenants and agrees that neither this Lease nor the Term
and estate hereby granted, nor any part hereof or thereof, will be assigned,
mortgaged, pledged, encumbered or otherwise transferred, by Tenant or by
operation of law or otherwise, and that neither the Demised Premises, nor any
part thereof, will be sublet or occupied, by anyone other than Tenant, or for
any purpose other than as set forth in this Lease, without the prior written
consent of Landlord in every case, except as expressly provided in subparagraph
(c) hereinbelow.
Notwithstanding the foregoing provisions of this Section 14.1:
(a) Prior to the agreement by Tenant to any assignment or subletting,
Tenant shall submit to Landlord in writing: (1) the name of the proposed
assignee or subtenant; (2) a copy of the proposed written agreement including
all of the terms and conditions of the proposed assignment or subletting,
stating that such agreement shall not become effective unless Landlord hereunder
shall consent thereto in writing and which shall contain a provision complying
with Section 14.4; (3) the nature and character of the business of the proposed
assignee or subtenant and any other information reasonably requested by
Landlord; (4) a financial statement of the proposed assignee or subtenant,
certified to by a certified public accountant as of a date not more than twelve
(12) months prior thereto or if not available, such other financial information
as may be reasonably acceptable to Landlord; and (5) an agreement by Tenant to
indemnify, defend and hold Landlord harmless against any claim or liability for
real estate brokerage commission payable with
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respect to any sublease or assignment by Tenant in accordance with this Article.
Provided Tenant is not in default hereunder (after notice from
Landlord if any be required hereunder and the expiration of any applicable grace
period)1 Landlord's consent to any such proposed assignment or subletting shall
not be "unreasonably" withheld or delayed, in accordance with paragraph (b).
This paragraph (a) shall apply to each and every proposed assignment and
sublease during the Term hereof, and if Tenant fails to consummate any proposed
assignment or sublease to which Landlord shall have consented within one hundred
eighty (180) days after granting such consent, this paragraph (a) shall again
apply to said proposed assignment or sublease.
(b) In determining reasonableness, Landlord may take into
consideration all relevant factors surrounding the proposed sublease or
assignment, including, without limitation, the following:
(i) the financial stability and business reputation of the
proposed assignee or subtenant;
(ii) the nature of the business and the proposed use of the
Demised Premises by the proposed assignee or subtenant in relation to the
majority of other tenants in the Park;
(iii) the proposed assignee or subtenant shall not be a
tenant of other space in the Park, and shall not be entitled directly or
indirectly to diplomatic or sovereign immunity; and
(iv) not more than two (2) unrelated entities shall occupy
the Demised Premises at any time.
(c) Notwithstanding any contrary provision of this Lease, provided
Tenant shall not be in default hereunder (which continues after notice and the
expiration of any applicable grace period), this Lease may be assigned at any
time without the consent of Landlord, to any corporation into which or with
which Tenant may be merged or consolidated, or to any corporation which shall
purchase all or substantially all of the assets of Tenant, or assigned or sublet
in whole or in part to any subsidiary or affiliate of Tenant, provided each of
the following conditions shall be complied with:
(i) If such assignment shall be to a successor by merger or
consolidation, or by acquisition of assets, such successor shall have acquired
all or substantially all of the assets of the assignor;
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(ii) If such assignment or sublease shall be to a subsidiary
or affiliate, such subsidiary or affiliate shall have assumed all of the
liabilities hereunder of the assignor, and the assignor shall have expressly
agreed to continue to remain jointly and severally liable as Tenant hereunder;
(iii) The assumptions and agreement referred to in
subparagraphs (i) and (ii) above, shall be set forth in written instruments
complying with the provisions of Section 14.4 of this Lease; and
(iv) The assignee or sublessee shall at all times use the
Demised Premises for a purpose permitted by Article 4 hereof; and
(v) Subdivision (iv) of paragraph (b) above shall apply.
For the purposes of this paragraph, a corporation shall be deemed to
be a subsidiary of Tenant if fifty (50%) percent or more of its voting stock
shall be owned by Tenant, and a corporation or other person or entity shall be
deemed to be an affiliate of Tenant if it directly or indirectly controls, is
controlled by or is under common control with Tenant.
(d) Notwithstanding the provisions of subparagraphs (b) and (c)
above, Tenant shall obtain, at Tenant's cost and expense, all necessary
governmental consents and approvals for the occupancy of the Demised Premises,
or any portion thereof, by such permitted assignee or sublessee.
(e) In the event of the sale or other disposition of all or
substantially all of the assets of Tenant during the Term of this Lease, the
transferee of assets shall be deemed to have assumed all obligations, covenants
and responsibilities of Tenant under this Lease. Upon request of Landlord, the
transferee of assets shall deliver to Landlord an instrument in recordable form
evidencing the aforesaid assumption of this Lease.
14.2 If this Lease is assigned or if the Demised Premises is sublet
or occupied by anyone other than Tenant, and if Tenant is in default (after
notice from Landlord if any be required hereunder and the expiration of any
applicable grace period), Landlord may collect Fixed Minimum Rent, Additional
Rent and other charges from the assignee, sublessee or occupant, and apply the
net amount collected to the Fixed Minimum Rent, Additional Rent and other
charges herein provided, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of the covenant by Tenant under Section
14.1, nor shall the same be deemed the acceptance of the assignee, sublessee or
occupant as a tenant, or a release of Tenant from the further performance of the
covenants and agreements contained in this Lease on the part of Tenant to be
performed.
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14.3 The consent by Landlord to an assignment or subletting shall not
relieve Tenant, the assignee or subtenant from obtaining the express consent in
writing of Landlord to any further assignment or subletting required pursuant to
this Article 14.
14.4 Each permitted assignee or transferee of this Lease shall assume
and be deemed to have assumed this Lease and shall be and remain liable jointly
and severally with Tenant for the payment of the Fixed Minimum Rent, Additional
Rent and other charges, and for the due performance of and compliance with all
of the terms, covenants, conditions and agreements contained in this Lease on
Tenant's part to be performed or complied with for the Term. No assignment,
sublease or transfer shall be binding on Landlord unless such assignee,
subtenant or transferee of Tenant shall deliver to Landlord a duplicate original
of the instrument of assignment, sublease or transfer which (i) contains a
covenant of assumption by the assignee or transferee (other than a subtenant) of
all of the obligations aforesaid, (ii) contains a confirmation that Landlord
shall have all of the rights set forth in this Article as to any further
assignment or subletting superior to and preemptive of any rights of sublessor
thereunder, and (iii) in every case, other than pursuant to Section 14.1(c)
hereof Landlord shall have consented thereto in advance in writing as required
hereunder. In the event of Tenant's failure to comply with the provisions of
this Article, Landlord may elect to treat such purported assignee, subtenant or
transferee as having assumed this Lease jointly and severally with Tenant,
without in any way or to any extent binding Landlord to consent to such
purported assignment, sublease or transfer.
14.5 If Landlord shall for any reason or cause recover or come into
possession of said Demised Premises before the date hereinbefore fixed for the
expiration of the Term, Landlord shall have the right at its option to take over
any and all subleases or subletting of the Demised Premises or any part or parts
thereof made or granted by Tenant and to succeed to the rights and privileges of
Tenant with respect to said subleases and subletting or such of them as it may
elect to take over and assume, and Tenant hereby expressly assigns and transfers
to Landlord such of the subleases and subletting as Landlord may elect to take
over and assume at the time of such recovery of possession, and Tenant shall
upon request of Landlord execute, acknowledge and deliver to Landlord such
further assignments and transfers as may be necessary, sufficient and proper to
vest in Landlord the then existing subleases and subletting. By its acceptance
of and entry- into a sublease, subtenant thereunder shall be deemed to have
thereby agreed that, at Landlord's election, such subtenant shall be bound to
Landlord for the balance of the term of such sublease and shall attorn to
Landlord, as its landlord, under all of the terms, covenants and conditions of
such Sublease.
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ARTICLE 15
SIGNS. ETC.
----------
15.1 Tenant shall not erect any signs on the Demised Premises without
Landlord's prior written consent, which consent Landlord agrees not to
unreasonably withhold. All such signs must conform to all Laws and Ordinances.
ARTICLE 16
IMPOSITIONS
-----------
16.1 Tenant agrees to pay to the appropriate taxing authority, all
Impositions (as hereinafter defined) and to provide Landlord with proof of the
payment thereof upon Landlord's request. Such Impositions shall be paid prior
to delinquency. If, at Tenant's option, Tenant pays the Impositions to Landlord
rather than to the appropriate taxing authority, Landlord agrees to pay or cause
to be paid all such monies to the appropriate authorities prior to delinquency.
16.2 As used herein the term "Impositions" shall mean: (a) all taxes,
assessments, levies, fees, water and sewer rents and charges, and all other
governmental charges, general and special, ordinary and extraordinary, and
whether or not the same shall have been within the express contemplation of the
parties hereto, together with any interest and penalties thereon, which are
imposed or levied upon or assessed against (i) all or any part of the Demised
Premises, (ii) the Fixed Minimum Rent, Additional Rent or other charges payable
by Tenant hereunder, or (iii) this Lease or the leasehold estate created hereby;
(b) any gross receipts, gross income, rental income or similar taxes which fail
to take into account deductions with respect to the Demised Premises such as
depreciation, interest, taxes or ordinary and necessary business expenses,
imposed or levied upon, assessed against or measured solely by the Fixed Minimum
Rent, Additional Rent or other charges to be paid by Tenant hereunder and
without regard to other income of Landlord; (c) all sales and use taxes which
may be levied or assessed against or be payable by Landlord or Tenant on account
of the leasing or use of all or any part of the Demised Premises; and (d) all
other taxes and charges in the same or similar categories. Tenant shall not be
required to pay any franchise, corporate, capital levy, estate, inheritance,
succession, transfer, federal, state, municipal or other income, profit or
revenue or similar taxes assessed or imposed against Landlord, the Demised
Premises, this Lease or any Fixed Minimum Rent or Additional Rent or other
charges due hereunder (other than any gross receipts, gross income or similar
taxes which fail to take into account deductions with respect to the Demised
Premises such as depreciation, interest, taxes or ordinary and necessary
business expenses, imposed or levied upon, assessed against or measured solely
by the Fixed Minimum Rent, Additional Rent or other charges to be paid by Tenant
hereunder, and without regard to other income of Landlord).
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16.3 To the extent that the same may be permitted by law, Tenant
shall have the right to apply for the conversion of any assessment for local
improvements assessed during the term of this Lease to be payable in annual
installments over the maximum time permitted by the municipal authority imposing
the same and upon such conversion Tenant shall be responsible for the payment of
only such installments thereof as shall be allocable to the term of this Lease.
Impositions, whether or not a lien upon the Demised Premises, shall be
apportioned between Landlord and Tenant at the beginning and end of the term of
this Lease; it being intended that Tenant shall pay only that portion of the
Impositions as is allocable to the term of this Lease; provided, however, that
Landlord need not make any apportionment in Tenant's favor if the term of this
Lease shall be terminated by reason of a default on the part of Tenant hereunder
unless and until such default is cured.
16.4 Tenant, at its own expense, may contest any Impositions,
including a proceeding to reduce the assessed value of the Demised Premises
through tax certiori proceedings, in any manner permitted by law, in Tenant's
name, and whenever necessary in Landlord's name. Landlord agrees that if
requested by Tenant, Landlord will remit Tenant's payments for Impositions to
the appropriate authority under protest. Landlord will cooperate with Tenant
and execute any documents or pleadings reasonably required for such purpose;
provided, however, that the same shall be without cost, liability or expense to
Landlord. Such contest may include appeals from any judgment, decree or order
until a final determination is made by a court or governmental department or
authority having final jurisdiction in the matter. However, notwithstanding
such contest, Tenant shall promptly pay the contested Impositions in the manner
provided for in this Article, if at any time the Demised Premises or any part
thereof shall, as a result of the deferment of such payment, be subject to
forfeiture or if Landlord shall be subject to any criminal liability by reason
of the non-payment thereof. Any tax refund with respect to any Imposition paid
by Tenant shall, to the extent thereof, be the property of Tenant. Landlord, at
its expense, may contest any Imposition only in the event that Tenant is not
actively contesting any such Imposition, provided that Landlord provides Tenant
with written notice of its intention to contest such Imposition prior to the
commencement thereof.
ARTICLE 17
RIGHT TO CURE DEFAULTS
----------------------
17.1 If Tenant shall fail to comply fully with any of its obligations
under this Lease (including without limitation, its obligations to make repairs,
maintain insurance, comply with all laws, ordinances and regulations and pay all
bills for utilities) after receipt of written notice of such failure from
Landlord and the expiration of any applicable grace periods, then Landlord shall
have the right, at its option, to cure such breach
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at Tenant's expense. Tenant agrees to reimburse Landlord for all costs and
expenses incurred as a result thereof together with the Default Charge which
Default Charge shall not begin to accrue until the date that Tenant receives a
written demand for such reimbursement from Landlord.
17.2 Without limiting any rights granted to Tenant under Article 20.3
hereof, and notwithstanding any contrary provision of this Lease, if Landlord
shall fail to fully comply with any of its obligations under this Lease
(including without limitation, its obligations to make repairs or restoration in
connection with a casualty) and such failure shall continue for thirty (30) days
after receipt of written notice of such default from Tenant, Tenant shall
thereafter, upon notice to Landlord, have the right to cure such default at
Landlord's expense; provided, however, that if the said default shall be of a
nature that the same cannot be completely cured or remedied within said thirty
(30) day period and if Landlord shall commence the curing of such default
promptly, then the time of Landlord within which to cure the same shall be
extended for such period as may be necessary to complete the same with all due
diligence. Landlord agrees to promptly reimburse Tenant for any costs and
expenses incurred as a result thereof, together with interest thereon at the
Default Charge. If Landlord does not reimburse Tenant within ten (10) business
days of its receipt of a written request thereof from Tenant, Tenant shall be
entitled to offset and deduct such expenses from the next Fixed Minimum Rent
payment due hereunder.
ARTICLE 18
BANKRUPTCY
---------
18.1 This Lease may be canceled by Landlord after the happening of
any one or more of the following events: (1) the commencement of a case in
bankruptcy or under the laws of any State naming Tenant as the debtor; or (2)
the making by Tenant of an assignment or any other arrangement for the benefit
of creditors under any State statute. Landlord, (a) at any time after receipt of
notice of the occurrence of any such event, or (b) if such event occurs without
the acquiescence of Tenant, at any time after the event continues for one
hundred twenty (120) days, may give Tenant a notice of intention to end the Term
of this Lease at the expiration of five (5) days from the date of service of
such notice of intention and, upon the expiration of said five (5) day period,
this Lease and the Term and estate hereby granted shall terminate with the same
effect as if that date were expressly set forth in this Lease, but Tenant shall
remain liable for damages as hereinafter provided. Neither Tenant nor any person
claiming through or under Tenant, or by reason of any statute or order of court,
shall thereafter be entitled to possession of the Demised Premises but shall
forthwith quit and surrender the Demised Premises.
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18.2 It is stipulated and agreed that in the event of the termination of
this Lease pursuant to Section 18.1, Landlord shall forthwith, notwithstanding
any other provisions of this Lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the excess of the rent
reserved hereunder for the unexpired portion of the Term demised over the then
fair and reasonable rental value of the Demised Premises for the same period. In
the computation of such damages the difference between any installment of rent
becoming due hereunder after the date of termination and the fair and reasonable
rental value of the Demised Premises for the period for which such installment
was payable shall be discounted to the date of termination at the annual rate of
interest payable with respect to the first mortgage encumbering the Demised
Premises. Nothing herein contained shall limit or prejudice the right of the
Landlord to prove for and obtain as liquidated damages (in lieu of other
damages) by reason of such termination, an amount equal to the maximum allowed
by any statute or rule of law in effect at the time when, and governing the
proceedings in which, such damages are to be proved, whether or not such amount
be greater, equal to or less than the amount of the difference referred to
above.
ARTICLE 19
DEFAULT
-------
19.1 If Tenant shall: (a) (i) default in the payment of the Fixed Minimum
Rent or any other item of Rental reserved herein payable on a regular monthly
basis for ten (10) days after Tenant's receipt of written notice of such
default, or (ii) in the payment of any other obligation involving the payment of
money within ten (10) business days after receipt of written notice from
Landlord; or (b) default in the observance of any of the other terms, covenants
and conditions of this Lease (except those expressly enumerated in this Section
19.1) and such default shall continue for more than thirty (30) business days
after written notice of such default, provided, however, that if the said
default shall be of a nature that the same cannot be completely cured or
remedied within said thirty (30) business day period and if Tenant shall
commence the curing of such default promptly, then the time of Tenant within
which to cure the same shall be extended for such period as may be necessary to
complete the same with all due diligence; or (c) if the Demised Premise shall be
occupied by someone other than Tenant in violation of the provisions of this
Lease and such occupancy shall continue for thirty (30) business days after
Tenant's receipt of written notice of such violation, or (d) if this Lease shall
be assigned or pass to or devolve upon one other than Tenant, except as herein
permitted; (e) if a receiver or trustee of Tenant and/or its property shall be
appointed in any proceedings other than bankruptcy proceedings and such
appointments, if made in proceedings instituted by or against Tenant, shall not
be vacated within one hundred twenty (120) business days after it has been
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made; or (f) Tenant shall vacate the Demised Premises or any substantial portion
of the Demised Premises for any consecutive period in excess of eighteen (18)
months, it being agreed that Tenant shall not be in default under this Lease if
Tenant vacates the Demised Premises or any substantial portion of the Demised
Premises for a consecutive period of less than eighteen (18) months provided
that Tenant fulfills all of its obligations under this Lease (including, but not
limited to, the obligations contained in Article 7 hereof) during such period,
and provided further that Tenant provides Landlord with reasonable assurances
that Tenant will continue to fulfill its obligations hereunder, then upon the
happening of any one or more of the defaults or events above mentioned in this
Article and the continuance thereof beyond the applicable cure period, this
Lease and the Term hereof shall upon the date specified in a notice, which date
shall be not less than five (5) business days after the date of sending of such
notice by Landlord to Tenant, wholly cease and expire, with the same force and
effect as though the date so specified were the date hereinabove first set forth
as the date of the expiration of the Term (but Tenant shall remain liable to
Landlord as hereinafter provided); and thereupon, or at any time thereafter,
Landlord may recover possession thereof in the manner prescribed by the statute
relating to summary proceedings, or similar statutes (but Tenant shall remain
liable to Landlord as hereinafter provided), it being understood that no demand
for reentry for condition broken and no notice to quit possession or other
notices prescribed by statute shall be necessary to enable Landlord to recover
such possession but that all right to any such demand and any such re-entry and
any notice to quit possession or other statutory notices or prerequisites are
hereby expressly waived by Tenant to the extent such waiver is permitted by law.
19.2 Notwithstanding any other provision in this Article, no termination,
re-entry, or dispossess by summary proceedings or otherwise, no termination by
operation of law or otherwise, and no reletting of the Demised Premises shall
relieve Tenant of its liabilities and obligations hereunder, all of which shall
survive such termination, re-entry, repossession or reletting.
19.3 In case of any such termination, re-entry, or dispossess by summary
proceedings or otherwise, the Fixed Minimum Rent, Additional Rent and all other
charges required to be paid by Tenant hereunder shall thereupon become due and
be paid up to the time of such termination, re-entry or dispossess, and Tenant
shall also pay to Landlord all reasonable expenses which Landlord may then or
thereafter incur for attorneys' fees, brokerage commissions, and all other costs
paid or incurred by Landlord for recovering and restoring the Demised Premises
to good order and condition and for preparing the same for re-letting. Landlord
may, at any time and from time to time, re-let the Demised Premises, in whole or
in part, either in its own name or as agent
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of Tenant, for a term or terms which at Landlord's option, may be for the
remainder of the Term of this Lease or for any longer or shorter period, and
(unless the statute or rule of law which governs or shall govern the proceeding
in which such damages are to be proved, limits or shall limit the amount of such
claim capable of being so proved and allowed, in which case Landlord shall be
entitled to prove as and for liquidated damages and have allowed an amount equal
to the maximum allowed by or under any such statute or rule of law) Tenant shall
be obligated to and shall pay to Landlord as damages, upon demand, and Landlord
shall be entitled to recover from Tenant damages (payable in monthly
installments, in advance, on the first day of each calendar month following such
termination, re-entry or dispossess, and continuing until the date originally
fixed herein for the expiration of the Term) in an amount or amounts equal to
the excess, if any, of the sum of the aggregate expenses paid by Landlord during
the month immediately preceding such calendar month for all such items as, by
the terms of this Lease, are required to be paid by Tenant, plus an amount equal
to the amount of the installment of Fixed Minimum Rent which would have been
payable by Tenant hereunder in respect of such calendar month, had this Lease
and the Term not been so terminated, or had Landlord not so re-entered, over the
rents, if any, collected by Landlord in respect of such calendar month pursuant
to such reletting (provided that if Landlord acted unreasonably in connection
with such reletting, given the market conditions then existing, Landlord shall
be deemed to have collected the fair market rental value of the Demised Premises
in respect of such calendar month), and any suit or action brought to collect
the amount of the deficiency for any month shall not prejudice in any way the
rights of Landlord to collect the deficiency for any subsequent month by a
similar proceeding. Provided that Landlord acts reasonably and in good faith,
(i) Landlord shall in no event be liable in any way whatever for failure to re-
let the Demised Premises and Landlord shall have no obligation or affirmative
duty to re-let or attempt to re-let the Demised Premises, nor to accept a new
tenant suggested by or supplied by Tenant and (ii) in the event that the Demised
Premises are re-let, Landlord shall not be liable for failure to collect the
rent thereof under such re-letting.
19.4 Landlord, at Landlord's option, may make such alterations, repairs,
replacements and/or decorations in the Demised Premises as Landlord, in
Landlord's sole reasonable judgment, considers advisable and necessary for the
purpose of reletting the Demised Premises; and the making of such alterations
and/or decorations shall not operate or be construed to release Tenant from
liability hereunder.
19.5 In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions of this Lease, Landlord shall have the right to seek an
injunction and the right to invoke any remedy allowed at law or in equity as if
reentry,
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summary proceedings and other remedies were not herein provided for. Mention in
this Lease of any particular remedy shall not preclude Landlord from any other
remedy, in law or in equity.
19.6 No receipt of Rental by Landlord from Tenant after the termination in
any way of this Lease or after giving any notice, shall reinstate, continue or
extend the Term, or affect any notice. No receipt of Rental after the
commencement of suit, or after final judgment for possession of the Demised
Premises, shall reinstate, continue or extend the Term or affect said suit or
said judgment.
ARTICLE 20
SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE
---------------------------------------------
20.1 This Lease, at the option of Landlord or any Mortgagee or
Overlandlord, shall be or shall become subject and subordinate, to all
Overleases, and to all Mortgages, and all advances thereon, which may now or
hereafter affect this Lease or the Demised Premises, and to all renewals,
modifications, consolidations, participations, replacements and extensions of
such Overleases and/or Mortgages; provided, however, any such Mortgagee or
Overlandlord must execute and deliver to Tenant an agreement substantially in
the form of Exhibit F attached hereto (a "Non-Disturbance Agreement") containing
provisions to the effect that, as long as Tenant is not in default under the
terms, covenants and conditions of this Lease beyond any grace period provided
in this Lease for remedying the same, in any action or proceeding to terminate
the Overlease, or to foreclose the Mortgage, Tenant will not be made a party
defendant, that Tenant's possession of the Demised Premises will not be
disturbed, and that Tenant's leasehold estate and its rights and remedies
hereunder will not be affected, impaired or terminated by any such action or
proceeding or by any judgment or order rendered therein. The term "Mortgages" as
used herein shall be deemed to include trust indentures and deeds of trust.
In the event that Landlord, any Mortgagee or any Overlandlord elects to
subject and subordinate this Lease as mentioned in the preceding paragraph, then
Landlord or its Mortgagee or Overlandlord shall give Tenant notice to such
effect, and provided that such Mortgagee or Overlandlord shall have duly
executed and delivered to Tenant a Non-Disturbance Agreement, immediately
thereafter the aforesaid provisions shall be self-operative and no further
instrument of subordination shall be required. In the event Landlord or any
Overlandlord or any Mortgagee desires confirmation of such subordination, Tenant
shall execute promptly a confirmatory certificate in form reasonably acceptable
to Tenant upon Landlord's request.
20.2 Tenant agrees that neither the cancellation nor the termination of
any Overlease, nor any foreclosure of any Mortgage, nor any proceeding to
recover possession of the Demised
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Premises shall by operation of law or otherwise result in the cancellation or
termination of this Lease or the obligations of the Tenant hereunder. Tenant
covenants and agrees that upon delivery of a duly executed Non-Disturbance
Agreement, it shall attorn to any Mortgagee or Overlandlord or to the purchaser
of the Demised Premises in foreclosure or the sale of the Overlease, or any of
their respective successors or assigns or any other person claiming by or
through any such Mortgagee, or the Overlandlord, or by or through any
foreclosure proceeding of any such Mortgage, or any proceeding with respect to
such Overlease, who shall succeed to the rights of Landlord under this Lease;
and Tenant shall recognize such successor as Tenant's landlord under this Lease.
Upon such attornment this Lease shall continue in full force and effect as a
direct lease between Tenant and such successor landlord, upon and subject to all
of the terms, covenants and conditions of this Lease with the same force and
effect as if this Lease had originally been entered into by such successor
landlord and Tenant; except that such successor landlord and each succeeding
landlord shall not be: (a) liable for any act or omission of any prior landlord
(including Landlord); (b) subject to any offset, defense or counterclaim which
Tenant might have against any prior landlord (including Landlord); (c) bound by
any prepayments of more than one (1) month's Fixed Minimum Rent or additional
rent which Tenant may have paid to any prior landlord (including Landlord); or
(d) bound by any amendment or modification of this Lease made without its
consent. The provisions of this Article shall be self-operative, and no
instrument of attornment shall be required or needed. In confirmation of any
such attornment, Tenant shall promptly execute and deliver such instruments as
may be reasonably required.
20.3 In the event of any act or omission by Landlord which would give
Tenant the right to terminate this Lease or claim a partial or total eviction,
or, except pursuant to Section 17.2, make any claim against Landlord for the
payment of money, Tenant will not exercise such right until it has given written
notice of such act or omission to
(i) the Landlord; and
(ii) the Mortgagee and the Overlandlord as to whom Landlord has
instructed Tenant to give copies of all of Tenant's notices to Landlord,
and unless Landlord shall not have remedied such act or omission within thirty
(30) days from its receipt of such written notice, or, if such act or omission
cannot be remedied by the payment of money and is not capable of being remedied
within said thirty (30) day period, Landlord shall not have commenced the remedy
of such act or omission within said thirty day period or shall not diligently
pursue the completion of such remedy. Nothing herein contained shall be deemed
to create any rights in Tenant not
35
<PAGE>
specifically granted in this Lease or under any applicable provision of law.
ARTICLE 21
SURRENDER OF DEMISED PREMISES
-----------------------------
21.1 On the last day or sooner termination of the Term, Tenant shall quit
and surrender the Demised Premises broom clean, in good condition and repair
(reasonable wear and tear, casualty and condemnation excepted), as provided in
Sections 11.4, 11.5 and 11.6 of this Lease. If the Demised Premises be not
surrendered as and when aforesaid and such failure to surrender shall continue
for three (3) months thereafter, Tenant shall indemnify Landlord against loss or
liability directly resulting from the delay by Tenant in so surrendering the
Demised Premises, including, without limitation, any claims made by any
succeeding occupant or prospective occupant of the Demised Premises founded upon
such delay. Upon expiration of the then current term of this Lease, without
premature termination, for the number of days that Tenant remains in possession
of the Demised Premises, without the execution of a new lease, Tenant shall be
deemed to be occupying said Demised Premises at a Rental equal to 125% of the
amount of the Rental (Fixed Minimum Rent), and 100% of the additional charges
herein provided for each month or part thereof and otherwise be subject to all
the conditions, provisions, and obligations of this Lease insofar as the same
are applicable to a month-to-month tenancy.
Tenant's obligations under this Article 21 shall survive the expiration or
sooner termination of the Term.
ARTICLE 22
CERTIFICATES AND FINANCIAL STATEMENTS
-------------------------------------
22.1 Tenant shall, without charge, at any time and from time to time
hereafter but not more often than four (4) times each year, within twenty (20)
days after written request of Landlord, certify by a written instrument duly
executed and acknowledged to any mortgagee or purchaser, or proposed mortgagee
or proposed purchaser, or any other person, firm or corporation specified in
such request: (a) as to whether this Lease has been supplemented or amended and
if so the substance and manner of such supplement or amendment; (b) as to the
validity and force and effect of this Lease, in accordance with its tenor as
then constituted; (c) as to the existence of any default by Landlord hereunder
known to Tenant; (d) as to the existence of any offsets, counterclaims or
defenses thereto on the part of Tenant known to Tenant; (e) as to commencement
and expiration dates of the Term; and (f) as to any other matters as may
reasonably be so requested. Any such certificate may be relied upon by Landlord
and any other person, firm or corporation to whom the same may be exhibited or
delivered; and the contents of such certificate shall be binding on Tenant.
36
<PAGE>
22.2 Landlord shall, without charge, at any time and from tine to time
hereafter but not more often than four (4) times each year, within twenty (20)
days after written request of Tenant, certify by a written instrument duly
executed and acknowledged to any mortgagee, sublessee or assignee or proposed
mortgagee, proposed sublessee or proposed assignee, or any other person, firm or
corporation specified in such request: (a) as to whether this Lease has been
supplemented or amended and if so the substance and manner of such supplement or
amendment; (b) as to the validity and force and effect of this Lease, in
accordance with its tenor as then constituted; (c) as to the existence of any
default by Tenant hereunder known to Landlord; (d) as to the existence of any
counterclaims or defenses thereto on the part of Landlord known to Landlord; (e)
as to commencement and expiration dates of the Term; and (f) as to any other
matters as may reasonably be so requested. Any such certificate may be relied
upon by Tenant and any other person, firm or corporation to whom the same may be
exhibited or delivered; and the contents of such certificate shall be binding on
Landlord.
22.3 In addition to the provisions of Section 22.1 of this Lease, Tenant
agrees to furnish directly to Landlord's proposed lender upon Landlord's
request, within six (6) months from the end of each of Tenant's fiscal years,
Tenant's consolidated financial statements prepared by independent certified
public accountants. Landlord agrees to keep such financial information
confidential; and to deliver such statements only to the party proposing to give
such financing and/or proposing to purchase the Demised Premises or the Park and
only if such party agrees, in a manner reasonably acceptable to Tenant, to
preserve such confidentiality.
ARTICLE 23
WAIVER OF TRIAL BY JURY
-----------------------
23.1 It is mutually agreed by and between Landlord and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connection with this Lease, the relationship of Landlord and Tenant, Tenant's
use or occupancy of the Demised Premises, and/or any claim of injury or damage.
ARTICLE 24
QUIET ENJOYMENT
---------------
24.1 Landlord covenants and agrees with Tenant that upon Tenant paying the
Rental and observing and performing all the terms, covenants and conditions on
Tenant's part to be observed and performed, Tenant may peaceably and quietly
enjoy the Demised Premises without hindrance or ejection by Landlord or
37
<PAGE>
any persons claiming under Landlord; subject, however, to the terms of this
Lease.
ARTICLE 25
BROKER
------
25.1 Tenant covenants, warrants and represents that Tenant has not dealt
with any broker in connection with this Lease, other than Landlord's broker,
Spectra Realty, and any other person or entity identified by Tenant in writing
to Landlord. Tenant agrees to hold Landlord harmless against any liability or
expense arising out of a misrepresentation by Tenant in the preceding sentence.
Landlord agrees to be responsible for any brokerage commissions which may be
payable to Spectra Realty, and hereby agrees to indemnify Tenant from any claims
of Spectra Realty or any other person or entity claiming a commission in
connection with this Lease, including all costs and expenses in connection
therewith.
ARTICLE 26
PARTIES BOUND
-------------
26.1 The obligations of this Lease shall bind and benefit the successors
and assigns of the parties with the same effect as if mentioned in each instance
where a party is named or referred to, except that no violation of the
provisions of Article 14 shall operate to vest any rights in any successor or
assignee of Tenant and that the provisions of this Article shall not be
construed as modifying the provisions of Article 14. All covenants and
agreements of this Lease shall run with the Land. The term "Landlord" as used in
this Lease means only the owner or the mortgagee in possession for the time
being of the Demised Premises so that in the event of any sale of said Demised
Premises or an assignment of this Lease Landlord shall be and hereby is entirely
freed and relieved of all obligations of Landlord hereunder and it shall be
deemed without further agreement between the parties and such purchaser(s) or
assignee(s) that the purchaser or assignee has assumed and agreed to observe and
perform all obligations of Landlord hereunder, subject to the exculpation
provisions of the immediately following paragraph.
Notwithstanding anything to the contrary provided in this Lease, it is
understood and agreed that, except in the case of fraud or intentional
misconduct by Landlord in connection with this Lease or the misapplication of
any funds, insurance proceeds or condemnation awards received by Landlord under
or in connection with this Lease, there shall be no personal liability on the
part of Landlord or any officer, director, shareholder or agent of Landlord (or
any successor corporate landlord or any partner of any limited or general
partnership which may become Landlord or any individual or other entity) to
Tenant with respect to any of the terms, covenants and conditions of this
38
<PAGE>
Lease except to the extent of the Demised Premises and the proceeds thereof, and
Tenant agrees that it shall look solely to the Demised Premises and the proceeds
thereof for the satisfaction of any claims, debts, demands or judgments of
Tenant in the event of breach or default by Landlord under the terms of this
Lease, except in the case of fraud or intentional misconduct by Landlord in
connection with this Lease or the misapplication of any funds, insurance
proceeds or condemnation awards received by Landlord under or in connection with
this Lease. No other property or assets of Landlord shall be subject to
judgment, levy, execution or other enforcement procedure for the satisfaction of
Tenant's remedies under or with respect to this Lease, the relationship of
Landlord and Tenant hereunder or Tenant's use or occupancy of the Demised
Premises. The foregoing shall not limit or restrict Tenant's right to obtain as
against Landlord affirmative or negative injunctive relief or any other relief
similar to such injunctive relief.
ARTICLE 27
NOTICES
-------
27.1 Any notice, consent or approval provided for herein must be in
writing and shall be deemed duly given by the sender thereof to the addressee
thereof only if mailed to such addressee by registered or certified mail,
postage prepaid, or by sending the same via Federal Express, Purolator Courier
or other overnight courier service which delivers only upon signed receipt of
the addressee, return receipt requested, to the addressee as set forth on page 1
of this Lease. If such writing is addressed to Tenant, it shall be to the
attention of General Counsel; and a copy shall be sent in a similar manner to:
Proskauer Rose Goetz & Mendelsohn, 1585 Broadway, New York, New York 10036,
Attention: Perry A. Cacace, Esq. If such writing is addressed to Landlord, it
shall be sent to the attention of Harold Lepler; and a copy shall be sent in a
similar manner to Theodore J. Malvin, Suite 2101, Eleven Pennsylvania Plaza, New
York, New York 10001. The time of the giving of any notice shall be the time of
receipt thereof by the addressee or any agent of the addressee, except that in
the event the addressee or such agent of the addressee shall refuse to receive
any notice given by registered mail or certified mail as above provided the time
of the giving of such notice shall be the time of such refusal. If the sender of
any notice to any addressee shall have previously been given notice by said
addressee of a change of address of said addressee, such changed address shall
thereafter as to such sender be deemed the address to which future notices shall
be sent.
ARTICLE 28
EASEMENTS
---------
28.1 Tenant hereby grants to Landlord an easement or easements for
Landlord or any designee of Landlord in, to, or through all areas of the Demised
Premises, except the Building,
39
<PAGE>
for the installation, repair, maintenance and replacement of pipes, cables,
conduits and wires at reasonable times and upon reasonable written notice to
Tenant to the extent that Landlord may now or hereafter deem to be necessary or
appropriate for the proper operation and maintenance of the Demised Premises or
any other portion of the Park or which may be required by Laws and Ordinances,
provided that Tenant shall have the right to approve the location of such pipes,
cables, conduits and wires and provided further that Landlord's installation,
repair, maintenance or replacement thereof does not substantially interfere with
any of the parking spaces located on the Demised Premises. Landlord agrees to
cause the least interference with Tenant's use of the Demised Premises. All such
work shall be done in such manner as to cause the least interference with
Tenant's use of the Demised Premises, and Landlord shall repair and replace all
areas of the Demised Premises damaged by such installation, repair, maintenance
and replacement to the same condition as existed immediately prior to the
commencement of such work.
ARTICLE 29
OFFICE PARK
-----------
29.1 Landlord and owners of other property intend to develop, or cause to
be developed, a first class corporate/industrial park; but nothing herein
contained shall be deemed a representation by Landlord (or a requirement that
Landlord) construct any portion of the Park or the size of the Park nor shall
Landlord be limited from time to time in changing the size thereof. Tenant
agrees to keep the Land clean of unsightly objects or debris. Tenant shall
maintain the landscaping on the Demised Premises as set forth in the final
approved subdivision plan and as initially installed by Landlord. All
landscaping areas shall be maintained in good order and condition, including
watering when necessary for continued growth and cutting; and no weeds or
underbrush nor unsightly growth of any kind shall be permitted. There shall be
no outside storage, except for adequately screened garbage dumpsters, provided
same are permitted by Laws and Ordinances.
ARTICLE 30
MISCELLANEOUS
-------------
30.1 One or more waivers of any covenant or condition by Landlord shall
not be construed as a waiver of a subsequent breach of the same or any other
covenant or condition, and the consent or approval by Landlord to or of any act
by Tenant requiring Landlord's consent or approval shall not be construed to
waive or render unnecessary Landlord's consent or approval to or of any
subsequent similar act by Tenant. Landlord's failure to prepare any of the bills
for Impositions or any other bills or statements shall not in any way cause
Landlord to forfeit or surrender its rights to collect any of such items of
additional
40
<PAGE>
rent that may have become due during the Term; which right shall survive the
termination of this Lease.
30.2 This Lease (together with the Development Agreement) contains the
entire agreement of the parties with respect to the subject hereof, and no oral
statement or prior written matter (other than the terms of the Development
Agreement) shall have any force of effect. No waiver of any provision of this
instrument shall be effective unless in writing, signed by the waiving party.
Tenant agrees that it is not relying on any representations or agreements other
than those contained in this Lease and the Development Agreement. This Lease
shall not be modified except by a writing subscribed by Landlord and Tenant, nor
canceled by Tenant except with the written consent of Landlord, unless otherwise
specifically provided herein.
30.3 If any provision of this Lease shall be invalid or unenforceable in
whole or in part, the remainder of this Lease shall not be affected thereby and
each and every provision of this Lease shall be enforceable to the fullest
extent permitted by Laws and Ordinances. This Lease shall be interpreted in
accordance with and be governed by the Laws and Ordinances of the State of New
York.
30.4 Tenant waives any and all rights of redemption conferred by statute
or otherwise, to the maximum extent permitted by Laws and Ordinances, upon the
expiration or sooner termination of the Term, or upon the entry of final
unappealable judgment for recovery of possession through any action or
proceeding.
30.5 Wherever herein the singular number is used, the same shall include
the plural, and the masculine gender shall include the feminine and neuter
genders. The paragraph headings used herein are for reference and convenience
only, and shall not enter into the interpretation of this Lease. The words
"reenter" and "reentry" as used herein are not restricted to their technical
legal meaning.
30.6 Nothing in this Lease shall cause Landlord in any way to be construed
as a partner, joint venturer, or an associate of Tenant in the operation of the
Demised Premises.
ARTICLE 31
NON-BINDING EFFECT
------------------
31.1 This Lease is transmitted for examination only and does not
constitute an offer to lease, and, subject to the provisions of Section 2.7
above, this Lease shall become effective only upon execution and unconditional
delivery thereof by both parties hereto.
41
<PAGE>
ARTICLE 32
REPRESENTATIONS AND COVENANTS
-----------------------------
32.1 The execution and delivery of this Lease by either of the parties
hereto shall be deemed to be a representation that this Lease has been duly
authorized and the party executing the same has the proper authority. Each party
shall supply the other reasonable evidence of such proper authorization.
32.2 Tenant agrees to cooperate with Landlord and, at Landlord's sole cost
and expense supply all necessary materials and testimony, including, but not
limited to, expert witnesses, which may be required in order to obtain the
necessary approvals (such as final site plan) for Tenant's Specific Uses of the
Demised Premises.
ARTICLE 33
OPTION TO RENEW
---------------
33.1 Tenant shall have an option to extend the Initial Term for a period
of five (5) years (hereinafter referred to as the "First Extended Term"), upon
the following terms and conditions: (a) said option shall be exercised by
written notice to Landlord given no later than twelve (12) months prior to the
expiration of the Initial Term; (b) there shall not be any uncured defaults (of
which notice has been given to Tenant and with respect to which the applicable
cure periods have expired) by Tenant hereunder at the time of the exercise of
said option or the commencement of the First Extended Term; (c) upon such First
Extended Term taking effect, this Lease shall continue for such additional
period of five (5) years
All of the terms, covenants and conditions of this Lease shall continue in
force and effect during the First Extended Term, except that the Fixed Minimum
Rent shall be at the rates set forth on Exhibit E attached hereto and made a
part hereof.
33.2 Provided Tenant shall have exercised the option for the First
Extended Term, Tenant shall have an additional option to extend the Term for a
period of five (5) years, (hereinafter referred to as the "Second Extended
Term") upon the following terms and conditions: (a) said option shall be
exercised by written notice to Landlord given no later than twelve (12) months
prior to the expiration of the First Extended Term; (b) there shall not be any
uncured defaults (of which notice has been given to Tenant and with respect to
which the applicable cure periods have expired) by Tenant hereunder at the time
of the exercise of said option or the commencement of the Second Extended Term;
and (c) upon such Second Extended Term taking effect, this Lease shall continue
for such additional period of five (5) years.
42
<PAGE>
All of the terms, covenants and conditions of this Lease shall continue in
force and effect during the Second Extended Term, except that the Fixed Minimum
Rent shall be at the rates set forth on Exhibit E attached hereto and made a
part hereof.
33.3 Provided Tenant shall have exercised the options for the First
Extended Term and the Second Extended Term, Tenant shall have an additional
option to extend the Term for a period of five (5) years (hereinafter referred
to as the "Third Extended Term") upon the following terms and conditions: (a)
said option shall be exercised by written notice to Landlord given no later than
twelve (12) months prior to the expiration of the Second Extended Term; (b)
there shall not be any uncured defaults (of which notice has been given to
Tenant and with respect to which the applicable cure periods have expired) by
Tenant hereunder at the time of the exercise of said option or the commencement
of the Third Extended Term; (c) upon such Third Extended Term taking effect,
this Lease shall continue for such additional period of five (5) years; and (d)
there shall be no further right to extend the Term.
All of the terms, covenants and conditions of this Lease shall continue in
force and effect during the First Extended Term, except that the Fixed Minimum
Rent shall be at the rates set forth on Exhibit E attached hereto and made a
part hereof.
33.4 In the event Tenant exercises one or more of the options granted
herein, the word "Term" shall include such option period(s); the period of time
referred to in Section 2.1 of this Lease is sometimes referred to as the
"Initial Term", and each or all, as the case may be, of the option periods are
sometimes referred to as the "Extended Term".
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the day and year first above written.
/s/ Harold Lepler
--------------------------------
HAROLD LEPLER(Landlord)
SCHEIN PHARMACEUTICAL, INC. (Tenant)
By: [SIGNATURE APPEARS HERE], VP - OPERATIONS
---------------------------------------------
43
<PAGE>
EXHIBITS
--------
Exhibit A - Description of Land
Exhibit B - Plot Plan
Exhibit C - Permitted Encumbrances
Exhibit D - Commencement Date Certificate
Exhibit E - Rent Schedule
Exhibit F - Non-Disturbance Agreement
44
<PAGE>
[MAP APPEARS HERE]
SURVEY OF PROPERTY
OF
SECTION ONE
MT. EBO CORPORATE CENTER
PREPARED PER
ROBERT ARNOW
SITUATED IN
TOWN OF SOUTHEAST, PUTNAM CO. NY
MARCH 17, 1992
<PAGE>
Exhibit A
Terry Bergendorff Collins
Professional Land Surveyor
Mt. Ebo Corporate Park
Putnam Lake Road
BREWSTER, NEW YORK 10509
(914) 279-4261 FAX (914) 279-6838
Mt. Ebo Corporate Center
Site 2A - 11.421 Acres
March 19, 1992
All that certain plot, piece or parcel of land situate, lying and
being in the Town of Southeast, County of Putnam and State of New York being a
portion of Site 2 as shown on a filed map entitled "Section One of Mt. Ebo
Corporate Center" filed in the Putnam County Clerk's Office September 13, 1982
as filed map no. 1888 and being more particularly described as follows:
Beginning at the northeasterly corner of the parcel herein described which point
is distant on a curve to the right having a radius of 50.00, a central angle of
103-57-33 and a length of 90.72, S 0-41-52 E 126.51, S 7-00-00 W 391.19 and on a
curve to the left having a radius of 600.00, a central angle of 13-36-03
and a length of 142.43 from the intersection of the southerly side of Putnam
Lake Road and the westerly side of Road "A" as shown on the aforementioned
filed map no. 1888; thence from said point of beginning through lands of Site 2
as shown on said filed map no. 1888 on a curve to the left having a radius of
600.00, a central angle of 7-11-08 and a length of 75.25 to a point: thence S
13-47-11 E 455.96 to a point on a curve to the right: thence along said curve to
the right having a radius of 275.00, a central angle of 44-14-06 and a length of
212.31 to a point: thence still through lands of Site 2 S 30-26-55 W 102.78 to
the southeasterly corner of the parcel herein described and the northerly line
of lands now or formerly Hipotronics: thence along the northerly line of
lands now or formerly Hipotronics and along the mean centerline of a stonewall N
4-10-20 W 28.35, S 87-03-00 W 91.38 and S 80-53-00 W 338.51 to lands now or
formerly Presbyterian Church; thence, along lands now or formerly Presbyterian
Church and continuing along the mean centerline of a stonewall N 1-09-00 W
52.13, N 14-17-00 W 35.79, N 85-03-00 W 90.86, N 77-52-00 W 137.07, N 62-08-00 W
91.06 and N 62-08-00 W 30.40 to the centerline of Old Route 22: thence along the
centerline of Old Route 22 N 3-10-47 W 335.93 to the easterly side of New York
State Route 22; thence along the easterly side of New York State Route 22 N
9-30-12 E 21.68 to a point: thence partly along lands now or formerly Brewster
Properties N 86-58-00 E 222.24 and N 3-02-00 W 100.00 to a point on the
southerly boundary of Site 3 as shown on the aforementioned filed map no. 1888;
thence along the southerly boundary of said Site 3 N 86-57-33 E 201.47 and N 61-
00-00 E 373.52 to the point and place of beginning. Containing within said
bounds 11.421 acres more or less.
<PAGE>
EXHIBIT C
none
<PAGE>
EXHIBIT D
COMMENCEMENT DATE CERTIFICATE AND AGREEMENT
-------------------------------------------
THIS COMMENCEMENT DATE CERTIFICATE AND AGREEMENT, dated the day
---
of, 199 , is by a [general/limited] partnership organized
- ---------------------
and existing under the laws of the State of New York, having an office in care
of Covington Management Company (Attn: Harold Lepler) at Millbrooke Office
Centre, Route 22 and Milltown Road, Brewster, New York 10509 ("Landlord")
WITNESSETH:
WHEREAS Landlord and Schein Pharmaceutical, Inc. ("Tenant") have
entered into that certain Agreement dated as of , 1992 (the
----------
"Development Agreement") whereby Landlord agreed, inter alia, to construct the
----- ----
Building pursuant to the terms thereof;
WHEREAS, upon satisfaction of certain Conditions described in the
Development Agreement, Tenant agreed to lease the Demised Premises from
Landlord, and Landlord agreed to lease the Demised Premises to Tenant pursuant
to the terms of that certain Lease dated as of the day of , 1992 (the
-- ------
"Lease"); and
WHEREAS, the Lease provides that the Commencement Date of the Lease
shall not occur until, inter alia, Landlord shall have delivered this
----- ----
Commencement Date Certificate and Agreement to Tenant.
<PAGE>
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, and as an inducement to Tenant to commence the
performance of its obligations under the Lease, Landlord hereby represents,
warrants and agrees that:
1. The Demised Premises, and the use thereof permitted under the
Lease, complies with all Laws and Ordinances and all requirements of the
Insurance Companies and Boards.
2. The certificate of occupancy issued for the Building (the
"Certificate of Occupancy") bears number , is dated , and
---------- -------------
has not been modified by the relevant municipal authorities. The Certificate of
Occupancy is in effect as of the date hereof and does not prohibit the use of
the Demised Premises for the purposes permitted under the Lease.
3. The Building and Land currently comply with all Laws and
Ordinances, fire insurance regulations and floor load restrictions.
4. The Land, the Building and the Demised Premises are in compliance
with all applicable Laws and Ordinances relating to Hazardous Materials and the
Land and the Building do not contain Hazardous Materials.
2
<PAGE>
5. Except for the Permitted Encumbrances, there are no easements,
restrictions or other exceptions to title affecting the Demised Premises.
6. There are no common area maintenance or similar charges relating
to the Park payable with respect to the Demised Premises except
.
- -------------------------------
7. Landlord hereby agrees to indemnify, defend and hold Tenant
harmless with respect to any and all loss, liability, damages, costs and
expenses (including reasonable legal fees) which may be incurred by Tenant
arising out of or in connection with any breach by Landlord of the
representations and warranties set forth in this Certificate and Agreement.
Any capitalized terms used herein and not otherwise herein defined
shall be given the meanings ascribed to such terms in the Lease.
IN WITNESS WHEREOF, the undersigned has caused this Commencement Date
Certificate and Agreement to be executed as of the date set forth above.
-------------------------------
(Landlord)
By:
----------------------------
3
<PAGE>
EXHIBIT E
---------
The Fixed Minimum Rent to be paid by Tenant pursuant to the provisions
of this Lease for the first year of the Term shall be computed based upon an
annual rate of $7.945 per square foot of space in the Building (adjusted in
accordance with the provisions of Section 6.02 of the Development Agreement),
and shall be increased for each subsequent year of the Term (including each year
of each Extended Term elected by Tenant) by 2.15% of the Fixed Minimum Rent
payable for the preceding lease year.
<PAGE>
EXHIBIT F
NON-DISTURBANCE AND ATTORNMENT AGREEMENT
----------------------------------------
THIS AGREEMENT, made this day of l99 , by and among
---- ---------- -
SCHEIN PHARMACEUTICAL, INC., a New York Corporation, having an office at
(hereinafter referred
- --------------------------------------------------------
to as "Tenant"), and , a , having its
----------------------------- ----------
principal place of business at
----------------------------------------
(hereinafter referred to as "Mortgagee").
WITNESSETH:
----------
WHEREAS, Harold Lepler, as landlord ("Landlord") entered into a
certain Lease with Tenant dated as of , 1992 (the "Lease"), relating
-----------
to a warehouse and office facility located in the Mt. Ebo Office Park in the
Town of Southeast, County of Putnam, State of New York (the "Demised Premises");
and
WHEREAS, Landlord is about to execute a first Mortgage to Mortgagee
dated of even date herewith (the "Mortgage") securing a loan in the amount of
($ ), and Mortgagee has
- -------------------------------------- -------------
refused to make said loan unless it is secured by a mortgage prior in right and
interest to the Lease and the interests of Tenant under the Lease; and
WHEREAS, Tenant has agreed that the Lease shall be subject and
subordinate to mortgages affecting the Demised
<PAGE>
Premises provided that the mortgagee thereunder delivers to Tenant an agreement
in the form of this Agreement.
NOW, THEREFORE, in consideration of the Premises and ONE DOLLAR
($1.00) paid to Tenant, the receipt and sufficiency of which are hereby
acknowledged and intending to be legally bound, Tenant and Mortgagee covenant
and agree as follows:
1. Mortgagee agrees that, for as long as Tenant is not in default
beyond any applicable notice and/or grace period under any of the terms,
covenants or conditions of the Lease, if any action or proceeding is commenced
by Mortgagee for the foreclosure of the Mortgage, Tenant shall not be named as a
party therein, and the right of possession of Tenant to the Demised Premises
shall not be affected or disturbed, and upon the sale of the Demised Premises in
any such action or proceeding, the Mortgagee or other purchaser of the premises
shall accept the attornment of Tenant and recognize the rights of Tenant under
the Lease.
2. In the event that Mortgagee or such other purchaser shall succeed
to the interests of Landlord under the Lease as aforesaid, Tenant agrees to
attorn to and accept Mortgagee or such other purchaser as its landlord under the
Lease for the balance of the term thereof and Mortgagee or such other purchaser
shall be bound to Tenant under all the terms, covenants and conditions of the
Lease and Tenant shall, from and after such event, have the same remedies
against Mortgagee or such other
2
<PAGE>
purchaser for the breach of an agreement contained in the Lease that Tenant
might have had under the Lease against Landlord if Mortgagee or such other
purchaser had not succeeded to the interest of Landlord; provided, however, that
Mortgagee or such other purchaser shall not be:
(i) bound by any payment of rent or additional rent made by
Tenant for more than one month in advance;
(ii) bound by any amendment or modification of the Lease, dated
subsequent to this Agreement, made without the consent of Mortgagee;
(iii) liable for any previous act or omission of any prior
landlord, including Landlord, under the Lease; or
(iv) subject to any offset or counterclaim or defense which shall
theretofore have accrued to Tenant against any prior landlord, including
Landlord, under the Lease.
3. Tenant agrees to give prompt written notice to Mortgagee of any
default of Landlord in the obligations of Landlord under the Lease, if such
default is of such nature as to give Tenant a right to terminate the Lease,
reduce rent or to credit or offset any amounts against future rents. It is
further agreed that such notice will be given to any successor in interest of
Mortgagee in said Mortgage provided that prior to any such default of Landlord
such successor in interest shall have given written notice to Tenant of its
acquisition of Mortgagee's
3
<PAGE>
interest therein, and designated the address to which such notice is to be
directed. Tenant further agrees that notwithstanding any provision of the Lease
to the contrary, no notice of cancellation thereof shall be effective unless
Mortgagee, or such successor in interest, has received such notice of default
within thirty (30) days of the date thereof (or if the default cannot be cured
within thirty (30) days in the exercise of reasonable diligence, has had the
opportunity to commence the cure thereof within said thirty (30) day period) and
thereafter completes the cure with reasonable diligence.
4. All notices and other communications provided for or contemplated
by this Agreement shall be in writing and shall be delivered by hand or
commercial courier guaranting overnight delivery, or mailed by registered or
certified mail, postage prepaid, return receipt requested1 addressed as follows:
If to the Tenant, in all cases to it at:
-------------------------------
-------------------------------
-------------------------------
-------------------------------
Attention:
---------------------
If to Mortgagee, in all cases to it at:
-------------------------------
-------------------------------
4
<PAGE>
-------------------------------
-------------------------------
Attention:
---------------------
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if hand delivered or delivered by overnight courier, or five
days after posting if sent by registered or certified mail, postage prepaid,
return receipt requested, in each case addressed to such party as provided in
this Section. Each party hereto may change its address by providing express
notice of such change to the other in accordance with this Section.
5. The agreements herein contained shall bind and inure to the
benefit of the successors in interest of the parties hereto, and, without
limiting such, the agreement of Mortgagee shall specifically be binding upon any
purchaser of all or any portion of the Mortgagee's interest in the Mortgage, or
of the Demised Premises at a sale foreclosing the Mortgage, or of the Demised
Premises at a sale in lieu of such foreclosure.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused the execution
hereof as of the date first above written.
SCHEIN PHARMACEUTICAL, INC. (Tenant)
By:
---------------------------
Its:
------------------------------
By:
---------------------------
Its:
[NOTE: THIS FORM SHALL BE CONFORMED AS APPROPRIATE IN THE EVENT THAT IT IS
INTENDED TO APPLY TO AN OVERLEASE RATHER THAN A MORTGAGE]
6
<PAGE>
MORTGAGEE
- ---------
STATE OF )
) ss.:
COUNTY OF )
On the _____ day of ___________________, 19__, before me personally
came , to me known, who, being by me duly sworn, did depose and say that he
resides at that he is the ___________________________ of __________________, the
corporation described in and which executed the foregoing instrument, and that
he signed his name thereto by order of the Board of Directors of said
corporation.
--------------------------------------
Notary Public
TENANT
- ------
STATE OF )
) ss.:
COUNTY OF )
On the ____ day of ______________, 19__ , before me personally came
_____________________________________________, to me known, who, being by me
duly sworn, did depose and say that he resides at _________________
_____________________________________________________________; that he is the
___________________________________ of ________________________________________
_______________________________, the corporation described in and which executed
the foregoing instrument, and that he signed his name thereto by order of the
Board of Directors of said corporation.
7
<PAGE>
EXHIBIT 10.9
LEASE
-----
Between
RONALD G. ROTH
--------------
as Lessor
and
SCHEIN PHARMACEUTICAL, INC.
---------------------------
as Lessee
<PAGE>
SCHEIN PHARMACEUTICAL INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Paragraph No. Heading Page No.
<S> <C> <C>
1 PARTIES 1
2 PREMISES 1
3 RENT 1,2
4 TERM AND OPTION 2,3,4,5
5 SECURITY DEPOSIT 5
6 USE OF PREMISES 5,6
7 MAINTENANCE, REPAIRS AND ALTERATIONS 7,8,9
8 INSURANCE AND INDEMNITY 9,10,11
9 DAMAGE OR DESTRUCTION 12,13,14
10 REAL PROPERTY TAXES 15,16
11 UTILITIES 16
12 ASSIGNMENT AND SUBLETTING 16,17
13 DEFAULTS; REMEDIES 18,19,20
14 CONDEMNATION 20,21
15 BROKER'S FEE 21
16 ESTOPPEL CERTIFICATE 21
17 LESSOR'S LIABILITY 21,22
18 SEVERABILITY 22
19 INTEREST ON PAST DUE OBLIGATIONS 22
20 TIME IS OF THE ESSENCE 22
21 ADDITIONAL RENT 22
22 INCORPORATION OF PRIOR AGREEMENTS;
AMENDMENTS 22
23 NOTICES 22,23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Paragraph No. Heading Page No.
<S> <C> <C>
24 WAIVERS 23
25 RECORDING 23
26 HOLDING OVER 23
27 CUMULATIVE REMEDIES 23
28 COVENANTS AND CONDITIONS 23
29 BINDING EFFECT; CHOICE OF LAW 23
30 SUBORDINATION 23,24
31 ATTORNEY'S FEES 24
32 LESSOR'S ACCESS 24
33 AUCTIONS 24
34 SIGNS 24
35 CONSENTS 25
36 GUARANTOR 25
37 QUIET POSSESSION 25
38 OPTIONS 25,26
39 MULTIPLE TENANT BUILDING 26
40 SECURITY MEASURES 26
41 EASEMENTS 26
42 PERFORMANCE UNDER PROTEST 27
43 AUTHORITY 27
44 INSURING PARTY 27
</TABLE>
- 2 -
<PAGE>
LEASE
1. PARTIES. This LEASE, dated, for reference purposes only, this 16th day
of February, 1990, is made by and between RONALD G. ROTH, an unmarried man whose
address is 4515 S. McClintock Dr., Suite 220, Tempe, Arizona 85282 (hereafter
called "LESSOR") and SCHEIN PHARMACEUTICAL, INC., a Delaware Corporation whose
present address is 26 Harbor Park Drive, Port Washington, New York 11050
(hereafter called "LESSEE").
2. PREMISES. Lessor hereby leases to Lessee, and Lessee leases from
Lessor, for the term, at the rental and upon all the conditions set forth
herein, that certain real property situated in the County of Maricopa, State of
Arizona, commonly known as ABCO/43RD AVE. DISTRIBUTION BLDG, PH II, Phoenix,
Arizona, and described as an approximate 171,187 square feet of to be
constructed multi-tenant industrial space, together with certain improvements to
be constructed therein at Lessor's sole cost and expense, (see Exhibits
"A" through "E" attached hereto). Office improvements are to be constructed by
Lessor at its sole cost and expense, as shown on Exhibit "B" attached hereto.
The building tenant improvements and the parking lot improvements are
hereinafter collectively referred to as "Tenant Improvements." Lessor hereby
agrees to use its best efforts to complete the premises for Tenant fixturization
by July 15, 1990.
The building is located at 1825 S. 43rd Avenue, Phoenix, Arizona (see
Exhibit "C" for legal description), hereinafter referred to as the "Real
Property".
The building shall be in conformity with plans and specifications that have
been, or will be, approved jointly by Lessor and by Lessee.
Lessee shall have designated and/or defined exclusive use of specific
parking facilities on the Real Property, as reflected on Exhibit "D".
The square footage of the building space being leased under the terms
hereof, is approximately 81,514 square feet.
Any improvements to the Premises, in addition to the Tenant Improvements
described above, which may be desired by Lessee from time to time during the
Term of this Lease, as may be extended, shall be constructed or installed by
Lessor if requested by Lessee, and provided that Lessor agrees to do so. In the
event Lessor agrees to construct or install such improvements, all costs of such
construction and/or installation shall be paid by Lessee to Lessor at such
times, and in such amounts as may be reasonably agreed to by Lessor and Lessee.
Such real property, including land and improvements, and the parking
facilities, as above described, are hereafter called "the Premises".
3. RENT
3.1 Lessee shall pay to Lessor as Rent for the Premises during the
Initial Term of 120 months, the following amounts:
(a) For the 1st through the 36th months of the Initial Term of
<PAGE>
the Lease, the Rent shall be $22,354.21 per month, plus taxes, if any, imposed
upon such rent by any taxing authority, excluding Federal and State Income Tax.
(b) For the 37th through the 60th months of the Initial Term
of the Lease, the Rent shall be $24,356.91 per month, plus taxes, if any,
imposed upon such rent by any taxing authority, excluding Federal and State
Income Tax.
(c) During the 61st through the 96th months of the Initial Term
of the Lease, the rent shall be $25,812.52 per month, plus taxes, if any,
imposed upon such rent by any taxing authority, excluding Federal and State
Income Tax.
(d) For the 97th through the 120th months of the Initial Term of
the Lease, the rent shall be the sum of $28,086.12 per month, plus taxes, if
any, imposed upon such rent by any taxing authority, excluding Federal and State
Income Tax.
All rent due shall be paid on or before the first day of the month for
which such rent is due during the term of this Lease, and during any extended
term of this Lease if the Option to Extend (Par. 4.5) is exercised.
3.2 The Monthly Rental, during the First Extended Option Term,
(defined as Years 11 through 15) shall be as follows:
(a) During the 60 months of the First Extended Option Term, the
monthly rent shall be $29,566.25 per month, plus taxes, if any, imposed upon
such rent by any taxing authority, excluding Federal and State Income Tax.
3.3 The Monthly Rental during the Second Extended Option Term,
(defined as Years 16 through 20) shall be as follows:
(a) During the 60 months of the Second Extended Term of the
Lease, the monthly rental shall be the sum of $31,079.26 per month, plus taxes,
if any, imposed upon such rent by any taxing authority, excluding Federal and
State Income Tax.
3.4 The Monthly Rental during the Third Extended Option Term,
(defined as Years 21 through 25) shall be as follows:
(a) During the 60 months of the Third Extended Term of the
Lease, the monthly rental shall be the sum of $33,941.15 per month, plus taxes,
if any imposed upon such rent by any taxing authority, excluding Federal and
State Income Tax.
4. TERM AND OPTION.
4.1 The TERM of the INITIAL LEASE PERIOD shall be for One Hundred
Twenty (120) months, commencing on the thirtieth day after the Lessee has use of
the Premises, the "Lease Commencement Date".
4.2 If the Lease Commencement Date occurs on other than on the first
day of the month, the Lessee will pay a pro rata rental for the portion of the
month that the Premises are occupied by Lessee, based upon a full month's
- 2 -
<PAGE>
rental for a month containing 30 days.
4.3 It is anticipated that Lease Commencement date shall be
approximately August 15, 1990. The Occupancy Date (approximately July 15, 1990)
shall be established when a Certificate of Occupancy (temporary or final) is
issued; or upon initial occupancy of premises by Tenant for Tenant
fixturization, whichever occurs first. The representatives of Lessor and Lessee
shall mutually agree to a date that occupancy will commence (or had commenced)
and a letter executed by representatives of both Lessor and Lessee shall be
appended to the Lease.
4.4 In the event Lessor has not completed the premises for Tenant
fixturization by August 30, 1990, then Lessee shall have the right to (i)
complete the Tenant Improvements pursuant to the plans and specifications
therefor, in which event all costs incurred by Lessee in connection with such
work shall be paid to Lessee by Lessor immediately upon demand therefor, (ii)
terminate this Lease, which termination shall be effective thirty (30) days
after notice of termination is delivered to Lessor by Lessee. Notwithstanding
the foregoing, if the Lessor has diligently expended efforts to deliver
possession of the premises, but was precluded by delays outside of his control,
the above dates shall be reasonably extended.
4.5 Lessor does hereby grant to Lessee the Option to Extend the Term
of this Lease for three (3) additional 60 month periods, commencing upon the
expiration of the Initial 120 month Term, upon the following terms and
conditions:
(a) Lessee shall give Lessor written notice at least 240 days
prior to the expiration of the Initial Term, or any extended Term of this Lease,
as applicable. Failure to give such written notice shall extinguish and make
null and void the Option to Extend.
(b) The Option(s) are expressly conditioned upon Lessee's not
being in default at the time notice of election to exercise the option(s) is
given. Such default refers to any requirement under this entire Lease, which
remains uncured by Lessee at the time notice is given, and for which the time in
which to cure such default has expired on the date notice is given.
(c) During the First, Second, and Third Extended Option Term(s),
all the terms and conditions of this Lease shall control the occupancy of the
Premises by Lessee.
(d) Notwithstanding the above, it is understood by Lessor and
Lessee that the 121st through 300th month period is an Option Period and said
rents shall be required only if Option is exercised by Lessee, as required and
set forth herein.
4.6 During the Initial Term of this Lease, and during any Extended
Term, Lessor shall not enter into any Lease affecting any additional space
within the PHASE II (contemplated as PH.IIA & IIB) building which is contiguous
to the Premises, which may from time to time be vacant, without first offering
Lessee an opportunity to lease such space on the terms and conditions Lessor is
willing to lease such space to a third party, except that the Monthly Rental
shall be as set forth below; and the Tenant improvements to be
- 3 -
<PAGE>
installed by Lessor shall include only: demising walls, lighting, evaporative
cooling and ventilating facilities (the "Standard Warehouse Improvements").
Lessor shall offer such opportunity to lease to Lessee by notifying Lessee in
writing of the proposed terms and conditions thereof, or at Lessor's option, by
submitting to Lessee a copy of such offer to lease. If, within ten (10) business
days of the date of receipt of such notice, Lessor has received written notice
from Lessee of its election to lease such space on the same terms and conditions
of such proposed lease, except for Monthly Rental and the Standard Warehouse
Improvements, then Lessor shall not enter into a lease with the Third Party and
Lessor and Lessee shall promptly enter into a separate lease, or addendum
hereto, on the same terms and conditions as set forth in proposed Lease. The
term of such lease or addendum shall correspond with the Term of the Third Party
Proposal, and the Monthly Rental shall be as set forth below. If Lessor has not
received Lessee's written election to lease such space within the 10 business
day period, Lessor shall be free to execute a proposed lease with the Third
Party.
<TABLE>
<S> <C>
Lease Months 0l - 36 (Initial Term) - $.192/SF/MO - NNN
Lease Months 37 - 60 (Initial Term) - $.210/SF/MO - NNN
Lease Months 61 - 96 (Initial Term) - $.222/SF/MO - NNN
Lease Months 97 - 120 (Initial Term) - $.242/SF/MO - NNN
Lease Months 0l - 60 (First Extended Term) - $.255/SF/MO - NNN
Lease Months 0l - 60 (Second Extended Term) - $.287/SF/MO - NNN
Lease Months 0l - 60 (Third Extended Term) - $.323/SF/MO - NNN
</TABLE>
Note: Lease Month 0l (Initial term), corresponds to Initial Lease
Commencement Date.
4.7 Notwithstanding Lessee's right of first refusal as set forth in
Section 4.6 above, Lessee shall have the right at any time during the Initial
Term of this Lease, or any Extended Term, to lease from Lessor any available
contiguous space in the Phase II building, at the rental rate set forth in Par.
4.6; provided, however, that unless otherwise agreed by Lessor and Lessee, (i)
the improvements to be installed by Lessor in such additional space shall
include only the Standard Warehouse Improvements, and (ii) if Lessee notifies
Lessor in the last twenty-four months of the Initial Term, or any Extended Term,
as applicable, that it desires to lease any such additional space, Lessee must
also elect to extend the term of this Lease for at least one Extended Term, as
provided in Section 4.5. For all such additional space, the Monthly Rental shall
be as set forth in Par. 4.6, unless the type and development of the space
differs from same, the proposal, or supplemental proposals, will provide the
basis to establish the Rent.
4.8 In the event that a Lessee's requirements for additional/expansion
space cannot be provided by the Lessor in the subject facility, or the adjacent
facility, within a time frame of nine (9) months, the Lessor shall be obligated
to accomodate Lessee in any other available existing facility, or facilities,
owned by the Lessor. The Lessor may elect to develop and build a new facility to
accomodate the additional growth expansion, or a facility for a total
consolidated facility, at Lessor's option. If the Lessee and Lessor enter into a
Lease for a consolidated facility, this Lease shall terminate upon the
Commencement of the Lease in the new facility.
Notwithstanding the foregoing, the Lessor shall not be obliged to
- 4 -
<PAGE>
provide a consolidated expansion facility, if the Lessee has within a fifteen
(15) month period prior to the request, rejected additional space (of near
equivalent area to the requirement contemplated herein), as set forth in Par.
4.6.
The Rate for any expansion area space shall be as set forth in Par.
4.6. The Rate for a consolidated facility shall be as established within this
Lease for the primary space, and as established in Par. 4.6 expansion space
portion.
4.9 The Lessor shall not for a period of four (4) months after the date
of this lease, proceed with development and/or construction of the Phase IIB
building improvements, which constitutes the space set forth in Par. 4.6 and
4.7, without notice to Lessee.
5. SECURITY DEPOSIT. In lieu of security deposit, first month's rent
payment shall be made at signing of this Lease Agreement.
6. USE OF PREMISES.
6.1 USE. The Premises shall be used and occupied for warehousing
and distribution of pharmaceutical compounds (including controlled substances),
materials required for manufacture of pharmaceuticals, and medical related
products, and any lawful purpose which does not violate any applicable zoning
ordinance, restrictive covenant, or other restriction upon the use of the
Premises.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state
existing on the date that the Lease occupancy commences, does not violate any
covenant or restrictions of record or any applicable building code, regulation
or ordinance in effect on such Occupancy Date. If it is determined that this
warranty has been violated, then it shall be the obligation of the Lessor, after
written notice from Lessee, to promptly and with due diligence, at Lessor's sole
cost and expense, rectify any such violation.
If, during the terms of the Lease, it is determined that there
has been a violation of the warranty of Lessor, Lessee, upon learning of such
breach of warranty, shall give notice of such breach of warranty to Lessor
within 10 days after learning of same, by written notice of such breach, and
thereafter Lessor, at Lessor's sole cost and expense, shall cure such breach. If
such breach cannot be cured by Lessor after notice, and by reason thereof Lessee
is unable to continue its ordinary business upon the Premises, Lessee may
thereupon terminate this lease and be entitled to recover any rent paid and
unearned as of the date of such termination, or Lessee may elect to cure
Lessor's breach, in which event all costs incurred by Lessee in effecting such
cure shall be paid by Lessor to Lessee immediately upon Lessor's receipt of
demand therefor;
(b) Except as provided in paragraph 6.2 (a), Lessee shall, at
Lessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, covenants, and restrictions of record if any, and
requirements in effect during the term, or any part of the term hereof,
- 5 -
<PAGE>
regulating the use by Lessee of the Premises. Lessee shall not use, nor permit
the use of, the Premises in any manner that will tend to create trash or waste
at the exterior portions of the Premises, or a nuisance, or if there shall be
more than one tenant in the building containing the Premises, the use by Lessee
shall not unreasonably disturb the use of other portions of the building by
other tenants.
(c) If a statute, ordinance, rule or regulation or order is
promulgated by a governmental subdivision having jurisdiction over the Premises
which renders it impractical for Lessee to continue the occupancy of the
Premises, then thereupon Lessee shall have the right to terminate this Lease
upon 90 days written notice of its election to so terminate. Such notice shall
cite to Lessor the statute, ordinance, rule, regulation, or order that makes
occupancy impractical, and shall further state the reason for the impracticality
of continued occupancy. Lessor represents and warrants that there are no
covenants and restrictions of record, as of the date of this Lease, that will
require Lessee to incur an expense other than as is herein specifically provided
for in this Lease Agreement.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free
of debris and in a safe condition on the Lease Commencement Date, and Lessor
further warrants to Lessee that the plumbing, lighting, mechanical systems, and
loading doors, in and on the Premises, shall be in new, or operating condition
on the Lease Occupancy Date. If it is determined that the warranty has been
violated, then it shall be the obligation of Lessor, after receipt of written
notice from Lessee, setting forth with specificity the nature of the violation,
to promptly, at Lessor's sole cost, rectify such violation. Lessee's failure to
give such written notice to Lessor within 60 days after the Lease Commencement
Date, or within thirty (30) days after occupancy by Tenant of an expansion
phase(s), shall create the conclusive presumption that Lessor has complied with
all of Lessor's obligations under this Subparagraph 6.3(a). By reason of the
Premises being a newly constructed building, or as applicable to expansion
phase(s), Lessee shall have the benefit of any continuing warranties with
respect to equipment, and a one year warranty with respect to all new
construction. The Lessor shall provide Lessee, within 30 days of commencement
date, a list of subcontractors, suppliers, and related warranties thereto in
effect.
(b) Except as otherwise provided in this Lease, and subject to
Lessor's Warranties set forth in 6.2(a), 6.3(a), and 7.1, Lessee accepts the
Premises in their condition existing as of the Lease Commencement Date, or the
date that Lessee takes possession of the Premises, whichever is earlier, subject
to all applicable zoning, municipal, county and State Laws, ordinances and
regulations governing and regulating the use of the Premises and any covenants
or restrictions of record, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto, provided,
however, that Lessor does hereby expressly warrant that there will be no
violations of any such matters on such Lease Commencement Date. If, subsequent
to occupancy, Lessee discovers that a violation of any such matter has occurred,
and that such violation was in existence at the date of the commencement of the
occupancy of the Premises, then such violation shall be cured at the sole cost
and expense of Lessor. Written notice of any such
- 6 -
<PAGE>
violation shall be given by Lessee to Lessor within 10 days after obtaining
knowledge of such violation.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSEE'S OBLIGATION. Lessee shall keep in good order, condition
and repair, the nonstructural portion of the Premises, and the mechanical
systems utilized for the Premises occupied by Lessee. Any structural repairs,
including, but not limited to, the roof framing (beams and plywood sheeting),
foundation, exterior walls, the floor structural section, as pertains to
settling (not including surface), and portions of the Premises not accessible to
Lessee, shall be maintained at the sole cost and expense of Lessor throughout
the term, and any extended term of the Lease, provided, however, that if there
is damage to the Premises by any act of omission or commission on the part of
the Lessee which causes a structural defect that requires repairs, then in that
event the cost of such repairs shall be paid by Lessee. Lessee shall maintain
plumbing, mechanical, and ventilating systems, electrical, and lighting
facilities, and any other equipment located within the Premises occupied by
Lessee, at Lessee's sole cost and expense. Lessee shall maintain the non-
warehouse area ceilings, floors (except structural defect), windows, doors,
plate glass and skylights located within the leased Premises. Notwithstanding
the foregoing, Lessor shall fully warrant the total Premises, including all
Tenant Improvements installed by Lessor, for a period of twelve (12) months from
the Lease Commencement Date, and for any items covered for extended periods by
manufacturers warranties for the time period of such extended warranties.
Landscaping, driveways, parking lots and fences located adjacent to
the Premises, and the roofing of the building, in which the Premises are
located, shall be maintained by Lessor, the reasonable cost of such maintenance
to be paid by Lessee, on pro rata basis of space leased by Lessee, as compared
to total leasable space in the building, except for maintenance costs
attributable to Lessee's exclusive parking area which shall be the sole
responsibility of Lessee, subject to allocation as may be applicable.
7.2 REPAIR OR SURRENDER. On the last day of the term hereof, or on
any sooner termination, Lessee shall surrender the Premises to Lessor in the
same condition as when received, ordinary wear and tear and construction defects
excepted, and the Premises shall be clean and free of debris. Lessee shall
repair any damage to the Premises occasioned by the installation or removal of
Lessee's trade fixtures, furnishings and equipment.
7.3 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's obligations
under this Paragraph 7, or under any other paragraph of this Lease, Lessor may
at its option (but shall not be required to) enter upon the Premises after ten
(10) days prior written notice to Lessee (except in the case of an emergency, in
which case no notice shall be required), perform such obligations on Lessee's
behalf and put the same in good order, condition and repair, and the cost
thereof shall become due and payable as additional rental to Lessor together
with Lessee's next rental installment.
7.4 LESSOR'S OBLIGATIONS. Except for the obligations of Lessor under
Paragraph 6.2 (a) and 6.3 (a) (relating to Lessor's warranty), Paragraph 9
(relating to destruction of the Premises) Paragraph 14 relating to
- 7 -
<PAGE>
condemnation of the Premises), and Paragraph 7.1 (relating to structural
repairs), it is intended by the parties hereto that Lessor have no obligation in
any manner whatsoever, to repair and maintain the Premises, nor the building
located thereon, nor the equipment therein, whether structural or nonstructural,
except as expressly provided in this Lease, and particularly as set forth in
Paragraph 7.1 above.
If Lessor, for any reason, fails to perform its obligations under this
Paragraph 7, as it relates to other provisions of this Lease in respect to
Lessor's obligations regarding repairs of the Premises, (i) after 10 days
written notice, or in an emergency, immediately then in that event, Lessee may
make such repairs and deduct the cost thereof from the next monthly rental due
under the terms of this Lease, or due under the terms of the extended term of
this Lease, or (ii) after 30 days written notice Lessee may terminate this Lease
immediately upon written notice to Lessor.
7.5 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent,
which shall not be unreasonably withheld, make any alterations, improvements,
additions or Utility Installations in, on, or about the Premises, except for
nonstructural alterations not exceeding $5,000 in cumulative costs during any
six month period, during the term of this Lease. In any event, whether or not in
excess of $5,000 in cumulative costs, Lessee shall make no change or alteration
to the exterior of the Premises, nor the exterior of the building on the
Premises, without Lessor's written consent. As used in Paragraph 7.5, the term
"Utility Installations" shall mean airlines, power panels, electrical
distribution systems, mechanical systems, plumbing, and fencing. Lessor may
require that Lessee remove any or all of said alterations, improvements,
additions or Utility Installations at the expiration of the term and restore the
Premises to their prior condition.
(b) Any alterations, improvements, additions or Utility
Installations in, or about the premises that Lessee shall desire to make, which
require the consent of the Lessor, shall be presented to Lessor in written form,
with proposed preliminary or detailed plans. Lessor shall either approve, or
disapprove with reasonable cause, Lessee's request within ten (10) business days
after receipt of Lessee's request. If Lessor has not responded within said
10-day period, Lessor shall be deemed to have approved Lessee's request. If
Lessor shall give its consent, the consent shall be deemed conditioned upon
Lessee acquiring a permit to do so from appropriate governmental agencies, the
furnishing of a copy thereof to Lessor prior to the commencement of the work and
the compliance by Lessee of all conditions of said permit in a prompt and
expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished, or alleged to have been furnished to or for Lessee at or
for use in the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days notice prior to the commencement of any
work on the Premises, and Lessor shall have the right to post notices of
nonresponsibility in or on the Premises as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense, defend itself and Lessor against the same
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and shall pay and satisfy any such adverse judgement that may be rendered
thereon before the enforcement thereof against the Lessor or the Premises, upon
the condition that if Lessor shall require, Lessee shall furnish to lessor a
surety bond satisfactory to Lessor in an amount equal to such contested lien
claim or demand, indemnifying Lessor against liability for the same and holding
the Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorneys' fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in
Paragraph 7.5 (a), all alterations, improvements, additions and Utility
Installations which may be made on the Premises, shall become the property of
Lessor and remain upon and be surrendered with the Premises at the expiration of
the term. Notwithstanding the provisions of this Paragraph 7.5 (d), Lessee's
machinery, trade fixtures, and equipment, other than that which is affixed to
the Premises so that it cannot be removed without material damage to the
Premises, which damage is incapable of being repaired within ten (10) days after
removal of Lessee's equipment, shall remain the property of Lessee and may be
removed by Lessee, subject to the provisions of Paragraph 7.2.
8. INSURANCE AND INDEMNITY.
8.1 INSURING PARTY. As used in this Paragraph 8, the term "insuring
party" shall mean the party to this Lease who has the obligation to obtain the
particular insurance described in each of the subsections of this Paragraph 8,
with respect to Property Damage to the Premises, Public Liability, and property
damage to property of another, by reason of conduct involving the Premises,
which are the subject of this Lease.
All insurance, as hereafter provided, and any that is required to be
procured by Lessor, shall be at the cost and expense of Lessee, on a pro rata
basis as hereafter provided. The Lessor shall maintain a comprehensive general
liability policy to insure against loss by reason of the ownership of the
property, involving personal injury or property damage to another, however, the
Lessee shall be responsible only for a policy up to a maximum coveage of one
million dollars ($1,000,000) per occurrence. If the Lessor determines to procure
insurance for liability in excess of one million dollars per occurrence, the
cost of such additional coverage shall be paid solely by Lessor. Any such
liability insurance procured by Lessor shall not reflect the Lessee as an
additional insured under such policy.
All insurance that is procured by Lessor, except as to liability
insurance in excess of $1,000,000, shall be at the expense of Lessee and any
other tenants of the building within which the Premises are located, and the
land upon which such building is located. The cost shall be prorated among all
Lessees of any portion of the Real Property, or the building, and the proration
shall be on the basis of the square footage of space occupied by Lessee, as that
bears to the total number of square feet of building occupied by all tenants, or
available for occupancy of tenants, of the real property and building.
8.2 LIABILITY INSURANCE.
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Lessee shall, at Lessee's expense, obtain, pay for directly, and keep
in force during the term of this Lease, a policy of Combined Single Limit,
Bodily Injury and Property Damage Insurance, insuring Lessor and Lessee against
any liability arising out of the ownership, use occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be a combined
single limit policy in an amount not less than $1,000,000 per occurrence. Lessee
shall have the right to provide such insurance coverage, pursuant to blanket
policies obtained by Lessee.
The policy shall insure performance by Lessee of the indemnity pro-
visions of Paragraph 8. The limits of said insurance shall not, however, limit
the liability of Lessee hereunder.
8.3 PROPERTY INSURANCE.
(a) The Lessor shall procure and obtain, and keep in force during the
term of this Lease, at Lessee's expense, a policy or policies of insurance
covering loss or damage to the Premises, in the amount of the full replacement
value thereof, as the same may exist from time to time. The replacement value is
$2,100,000, but in no event less than the total amount required by lenders
having liens on the Premises, against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief, flood,
(in the event same is required by a lender having a lien on the Premises), and
special extended perils ("All Risk" as such term is used in the insurance
industry). Said insurance shall provide for payment of loss thereunder to Lessor
or to the holders of mortgages or deeds of trust on the Premises. A stipulated
value or agreed amount endorsement deleting the coinsurance provision of the
policy shall be procured with said insurance as well as an automatic increase in
insurance endorsement, causing the increase in annual property insurance
coverage by 1% per quarter, or as may be determined from time to time as based
on the cumulative change in CPI, from Lease Commencement. If Lessor shall fail
to procure and maintain said insurance, the Lessee may, but shall not be
required to, procure and maintain the same, but at the expense of Lessee. If
such insurance coverage has a deductible clause, the deductible. amount shall
not exceed $5,000 per occurrence, and Lessee shall be liable for such deductible
amount, in the same proportion as Lessee is liable for the cost of insurance
under the formula set forth above.
(b) The Lessor shall, in addition, obtain and keep in force at
Lessee's expense during the term of this Lease, a policy of rental value
insurance (Loss of Rents) covering a period of one year, with loss payable to
Lessor which insurance shall also cover all real estate taxes and insurance
costs for said period.
(c) If the Premises are part of a larger building, or if the Premises
are part of a group of buildings owned by Lessor which are adjacent to the
Premises, then Lessee shall pay for any increase in the property insurance of
such other building or buildings if said increase is caused by Lessee's acts,
omissions, or use of occupancy of the Premises.
(d) If the Lessor is the insuring party, the Lessor will not insure
Lessee's fixtures, equipment, or tenant improvements unless the tenant
improvements have become a part of the Premises under Paragraph 7 hereof.
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Lessee shall insure its fixtures, equipment, and tenant improvements which have
not become a part of the Premises.
8.4 INSURANCE POLICIES. The insuring party shall deliver to the other
party, copies of policies or such insurance certificates evidencing the
existence and amounts of such insurance, with loss payable clauses as required
by this Paragraph 8. No such policy shall be cancellable or subject to reduction
of coverage, or other modification, except after thirty (30) days prior written
notice to Lessor. If Lessee is the insuring party, Lessee shall at least (30)
days prior to the expiration of such policies, furnish Lessor with renewals or
"binders" thereof, or Lessor may order such insurance and charge the cost
thereof to Lessee, which amount shall be payable by Lessee upon demand. Lessee
shall not do, or permit to be done, anything which shall invalidate the
insurance policies referred to in Paragraph 8.3. If Lessee does or permits to be
done, anything which shall increase the cost of the insurance policies referred
to in Paragraph 8.3, then Lessee shall forthwith upon Lessor's demand, reimburse
Lessor for any additional premiums attributable to any act or omission of
operation of Lessee causing such increase in the cost of insurance. If Lessor is
the insuring party, and if the insurance policies maintained hereunder cover
other improvements, in addition to the Premises, Lessor shall deliver to Lessee
a written statement setting forth the amount of any such insurance cost increase
and showing in reasonable detail the manner in which it has been computed.
Insurance required hereunder shall be with companies holding a "General
Policyholders Rating" of at least B plus, or such other rating as may be
required by a lender having a lien on the Premises, as set forth in the most
current issue of "Best's Insurance Guide".
8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils required to be
insured against hereunder, which perils occur in, on, or about the Premises,
whether due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
8.6 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from
and against any and all claims arising from Lessee's use of the Premises, or
from the conduct of Lessee's business, or from activity, work or other things
done, permitted or suffered by Lessee in or about the Premises, or upon the real
property where such Premises are located and shall further indemnify and hold
harmless Lessor from and against any and all claims arising from any breach or
default in the performance of any obligation on Lessee's part to be performed
under the terms of this Lease, or arising from any negligence of the Lessee or
any of Lessee's agents, contractors or employees, and from and against all
costs, attorneys' fees, expenses and liabilities incurred thereon; and in case
any action or proceeding be brought against Lessor by reason of any such claim.
Lessee, upon notice from Lessor, shall defend the same at Lessee's expense.
Lessee, as a material part of the consideration of Lessor, hereby assumes all
risks of damage to property or injury to persons in, upon or about Premises,
arising from any cause, except for any loss, or claim attributable to a breach
of this Lease on the part of the Lessor, or an
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intentional act of coumission or an intentional act of omission or a negligent
act of omission or commission on the part of Lessor, Lessor's employees, agents
or contractors, from which Lessor shall defend, indemnify and hold harmless
Lessee.
8.7 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of
income therefrom, or for damages to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises, nor shall Lessor be liable for injury to the person of
Lessee, Lessee's employees, agents or contractors (except as may be caused by
negligence by engineering design), and whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, mechanical systems, or lighting fixtures, or from any
other cause, whether the said damage or injury results from conditions arising
upon the Premises, or upon other portions of the building of which the Premises
are a part, or from other sources or places unless the cause of such damage or
injury or the means of repairing the same is inaccessible to Lessee. In
connection with Lessor's repairs, alterations, replacements or improvements to
the Premises, Lessor shall not suspend any utility services to the Premises
during Lessee's normal business hours, except as may be necessary in an
emergency. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. DAMAGE OR DESTRUCTION.
9.1 Definitions.
(a) "Premises Partial Damage" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is less than
50% of the then replacement cost of the Premises. "Premises Building Partial
Damage" shall herein mean damage or destruction to the building of which the
Premises are a part to the extent that the cost of repair is less than 50% of
the then replacement cost of such building as a whole.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or more
of the then replacement cost of the Premises. "Premises Building Total
Destruction" shall herein mean damage or destruction to the building of which
the Premises are a part to the extent that the cost of repair is 50% or more of
the then replacement cost of such building as a whole.
(c) "Insured Loss" shall herein mean damage or destruction which
was caused by an event required to be covered by the insurance described in
Paragraph 8.
9.2 INSURED LOSS. Subject to the provisions of Paragraphs 9.4, 9.5
and 9.6, if at any time during the term of this Lease there is damage which is
an insured loss and which falls into the classification of Premises Partial
Damage or Premises Building Partial damage, then Lessor shall, at Lessor's
expense, repair such damage, but not Lessee's fixtures, equipment or tenant
improvements unless the same have become a part of the Premises pursuant to
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Paragraph 7.5 hereof, within ninety (90) days after the occurence of such
damage, and this Lease shall continue in full force and effect. In the event
such damage is not capable of being repaired by Lessor, working with due
diligence, within said 90 day period, Lessor shall notify Lessee of such fact in
writing within 15 business days after the occurrence of the damage, and Lessee
shall have the right to terminate this Lease by providing written notice of such
termination to Lessor within 10 days after receipt of Lessor's notice. In the
event Lessee elects not to terminate this Lease as provided herein, Lessor shall
repair the Premises with diligence and best efforts. Should Lessor have a
problem acquiring material for repairs, a reasonable extension shall be granted
upon Lessee's receipt of notice of the delay.
9.3 PARTIAL DAMAGE - UNINSURED LOSS.
(a) Subject to the provisions of Paragraphs 9.4, 9.5, and 9.6,
if at any time during the term of this Lease there is damage which is not an
insured loss and which falls within the classification of Premises Partial
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), Lessor may at Lessor's option either (i) repair such damage as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage, of Lessor's
intention to cancel and terminate this Lease, as of the date of the occurrence
of such damage.
(b) Provided, however, that Lessor shall only have the right to
terminate this Lease if the damage is greater than 5% of the then-replacement
cost of the building or Premises, as applicable. In the event Lessor elects to
give such notice of Lessor's intention to cancel and terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's intention to repair such
damage at Lessee's expense, without reimbursement from Lessor, in which event
this Lease shall continue in full force an effect, and Lessee shall proceed to
make such repairs as soon as reasonably possible. If Lessee does not give such
notice within such 10-day period, this Lease shall be cancelled and terminated
as of the date of the occurrence of such damage, and the rental shall abate.
9.4 TOTAL DESTRUCTION. Subject to the provisions of Paragraph 9.5, if
at any time during the term of this Lease (including any extensions and
renewals) there is damage, which is an Insured Loss (including destruction
required by any authorized public authority) falling into the classification of
Premises Total Destruction or Premises Building Total Destruction, the Lease
shall continue in full force and effect. Lessor shall proceed to make such
repairs as soon as reasonably possible and shall use its best efforts to
complete such repairs within 120 days after date of destruction. If Lessor
shall fail to complete such repairs within 120 days after the date of
destruction, Lessee may terminate this Lease. If at any time during the term of
this Lease there is damage which is not an Insured Loss and falls into the
classification of Premises Total Destruction or Premises Building Total
Destruction, this Lease shall automatically terminate as of the date of such
total destruction.
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9.5 DAMAGE NEAR END OF TERM.
(a) If at any time during the last eight months of the term of
this Lease, or an extended term of this Lease, there is damage, whether or not
an insured loss, which falls within the classification of Premises Partial
damage, Lessor or Lessee may at Lessor's or lessee's option, cancel and
terminate this lease as of the date of occurrence of such damage by giving
written notice to the other of their election to do so within 30 days after the
date of occurrence of such damage.
(b) Notwithstanding Paragraph 9.5(a), in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than 30 days after occurrence of an
insured loss falling within the classification of Premises Partial damage during
the last eight months of the term of this Lease. If Lessee duly exercises such
option during said 30 day period, Lessor shall, at Lessor's expense, repair such
damage as soon as reasonably possible, and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option during 30 day period,
then Lessor may at Lessor's option terminate and cancel this Lease as of the
expiration of said 30 day period by giving written notice to Lessee of Lessor's
election to do so within 10 days after the expiration of said 30 day period,
notwithstanding any term or provision in the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraphs 9.2 or 9.3,
and Lessor or Lessee repairs or restores the Premises, pursuant to the
provisions of this Paragraph 9, the rent payable hereunder for the period during
which such damage, repair or restoration continues shall be abated in proportion
to the degree to which Lessee's use of the Premises is impaired. Except for
abatement of rent, if any, Lessee shall have no claim against Lessor for any
damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9, and shall not commence such
repair or restoration within 60 days after such obligations shall accrue, Lessee
may at Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee's election to do so at any time prior to the commencement of
such repair or restoration. In such event, this Lease shall terminate as of the
date of such notice.
9.7 TERMINATION - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Rent payments made by Lessee to Lessor.
9.8 WAIVER. Lessor and Lessee waive the provisions of any statutes
which relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
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10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Beginning upon the date of Commencement of the
Lease, Lessee shall pay the real property tax, as defined in Paragraph 10.2,
applicable to the square footage leased by Tenant as a portion of the total
Premises during the term of this Lease. All such payments shall be made at least
ten (10) days prior to the delinquency date of such payment. Lessee shall
promptly furnish Lessor with satisfactory evidence that such taxes have been
paid. If any such taxes paid by Lessee shall cover any period of time prior to
or after the expiration of the term hereof, Lessee's share of such taxes shall
be equitably prorated to cover only the period of time within the tax fiscal
year during which this Lease shall be in effect, and Lessor shall reimburse
Lessee to the extent required. If Lessee shall fail to pay any such taxes,
Lessor shall have the right to pay the same, in which case Lessee shall repay
such amount to Lessor with Lessee's next rent installment, together with any
penalties and interest imposed by the taxing authority, plus default interest
pursuant to Section 19.
The real property tax that Lessee will be required to pay under this
provision will be that portion of the real property taxes on the real property
and the building located thereon, as set forth in Exhibits "A" and "B", which is
occupied by Lessee, and the ratio shall be determined by the number of square
feet leased by Lessee that bears to the total number of square feet of leasable
space in the entire building. If any additional improvements are made to a
portion of the building not occupied by the Lessee, any increase in taxes
attributable to such addition will be the liability of someone other than Lessee
under this Lease. If Lessor installs additional improvements upon the real
property in addition to the building in which Lessee is located, then the amount
of taxes that will be required to be paid by Lessee shall be in a ratio that is
determined by the number of square feet occupied by Lessee, as that bears to the
total number of square feet of revised building area and improvements on the
real property.
If Lessor is required to pay impounds for taxes to any lending
institution holding a lien on the real property, Lessee will pay his
proportionate share of such impounds, based upon the ratio as above described,
as and when required to be paid by Lessor, under the Deed of Trust or mortgage
securing the Lessee.
The Lessee reserves the right to appeal directly or assist in the
appeal process of the assessment of Property Taxes, by the governing authority.
10.2 DEFINITION of Real Property Tax. As used herein, the term
"real property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Premises by any authority having
the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, as against any legal or equitable interest
of Lessor in the Premises or in the real property of which the Premises are a
part, as against Lessor's right to rent or derive other income therefrom, and as
against Lessor's business of leasing the Premises;
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provided, however, that with respect to any special assessments which may be
paid in a lump sum or in periodic installments, Lessee shall only be required to
pay such assessments in periodic installments and only for the remainder of the
Term, as may be extended. The term "real property tax" shall also include any
tax, fee, levy, assessment or charge (i) in substitution of, partially or
totally, any tax, fee, levy, assessment, or charge hereabove included within the
definition of "real property tax", or (ii) the nature of which was hereinbefore
included within the definition of "real property tax", or (iii) which is imposed
for a service or right not charged prior to August, 1990, or, if previously
charged, has been increased since August, 1990, or (iv) which is imposed as a
result of a transfer, either partial or total, of Lessor's interest in the
Premises or which is added to a tax or charge hereinbefore included within the
definition of real property by reason of such transfer (except for any sales tax
on a transfer of the property), or (v) which is imposed by reason of this
transaction, any modifications or changes hereto, or any transfers hereof.
10.3 JOINT ASSESSMENT. If the Premises are not separately Lessee's
liability shall be a portion of the real property taxes for land and
improvements included within the tax parcel assessed.
The amount of taxes to be paid by Lessee shall be an amount based upon
the ratio of the number of square feet of the building included in the Premises
occupied by the Lessee as that bears to the total amount of area within the
building that is available for use by Lessor or another tenant. If additional
improvements are placed upon the land whereon the building is located from which
the Premises are delineated, any increase in taxes by reason of such
improvements shall not be a liability of Lessee unless such improvement is
placed specifically upon that portion of the building constituting a part of the
Premises which is occupied by the Lessee, in which event Lessee will pay for all
such additional taxes.
10.4 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay, prior to delinquency, all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Lessor.
(b) If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within 10 days after receipt of a written statement setting forth the
taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly to the appropriate agency, for
all water, gas, heat, light, power, telephone and other utilities and services
supplied to the Premises, together with any taxes thereon. If any such services
are not separately metered to Lessee, Lessee shall pay a reasonable proportion,
as determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
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12.1 LESSOR' S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law, assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder within
fifteen (15) days after Lessor's receipt of Lessee's request therefor, and in
the event Lessor fails to respond within said 15-day period, Lessor shall be
deemed to have consented to such assignment or sublease. Any attempted
assignment, transfer, mortgage, encumbrance or subletting without such consent
shall be void, and shall constitute a breach of this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of Paragraph
12.1 hereof, Lessee may assign or sublet the Premises, or any portion
thereof, without Lessor's consent, to any corporation, partnership, or other
entity, which controls, is controlled by or is under common control with Lessee,
or to any corporation, partnership, or other entity, resulting from merger or
consolidation with Lessee, or to any person or entity which acquires all the
assets of Lessee as a going concern of the business that is being conducted on
the Premises, provided that said assignee assumes, in full, the obligations of
Lessee under this Lease. Any such assignment shall not, in any way, affect or
limit the liability of Lessee under the terms of this Lease even if after such
assignment or subletting, the terms of this Lease are materially changed or
altered with the consent of Lessee, the consent of whom shall not be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligation or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed to be waiver by Lessor or any
provision hereof. Consent to assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting. In the event of default by
any assignee of Lessee or any successor of Lessee, in the performance of the
terms hereof, Lessor may proceed directly against Lessee without the necessity
of exhausting remedies against said assignee. Lessor may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees of Lessee, and without obtaining its or their consent
thereto and such action shall not relieve Lessee of liability under this Lease;
provided that Lessor delivers written notice of such subsequent assignment,
sublease, amendment or modification to Lessee.
If there is an assignment or subletting of the rights under this Lease
with the consent of Lessor, and thereafter a default occurs on the part of such
assignee, Lessor shall give Lessee notice of such default, and Lessee shall have
ten days within which to cure or commence to cure such default before this Lease
shall be terminated.
12.4 ATTORNEYS' FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting, or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do,
then Lessee shall pay Lessor's reasonable attorneys' fees incurred in connection
therewith, such attorneys' fees not to exceed $1,000 for each such request.
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13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Lessee.
(a) The vacating or abandonment of the Premises by the Lessee,
provided however, that if Lessee continues to pay the rent and other amounts
required under this Lease, such abandonment or vacating will not constitute a
default.
(b) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of ten (10) days after receipt of
written notice thereof from Lessor to Lessee. In the event that Lessor serves
with a Notice to Pay Rent or Quit pursuant to applicable unlawful detainer
statutes, such Notice to Pay Rent or Quit shall also constitute the notice
required by this subparagraph.
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this lease to be observed or performed by
Lessee, other than described in Paragraph (b) above, where such failure shall
continue for a period of 30 days after written notice thereof from Lessor to
Lessee; provided, however, that if the nature of Lessee's default is such that
more than 30 days are reasonably required for its cure, then Lessee shall not be
deemed to be in default if Lessee commenced such cure within said 30 day period
and thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in U.S.C. 101, or any successor statute thereto (unless, in the case of
a petition filed against Lessee, the same is dismissed within 60 days) (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not by execution or other judicial seizure of substantially
all of Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within 30 days. Provided, however,
in the event that any provision of this Paragraph 13.1 (d) is contrary to any
applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given
to Lessor by Lessee was materially false at the time given to Lessor; provided
however, that Lessee had actual knowledge of the existence of such falsity and
that such materially false financial statement shall not constitute a default so
long as Lessee remains liable under the terms of this Lease and continues to pay
all amounts required to be paid by Lessee under the terms of this Lease.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default or breach, choose any or all of the following:
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(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate, and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event,
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15,
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event, Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate than allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than ten (10) days after receipt of written notice by Lessee to
Lessor, and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been furnished to Lessee
in writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance, then Lessor shall not be in
default if Lessor commences action within such 30 day period and thereafter
diligently prosecutes the same to completion.
Notwithstanding any other provision in this Lease to the contrary or
which provides separate and/or additional remedies for Lessee, in the event
Lessor fails to perform its obligations or fails to initiate performance of its
obligations within said 30-day period, Lessee shall have the right, but not the
obligation, to perform Lessor's obligations, the cost of which shall either be
paid to Lessee by Lessor immediately upon demand therefor, or an offset against
future rentals. In the event Lessee elects not to cure Lessor's failure to
perform and Lessor's failure continues for thirty (30) days after Lessor's
receipt of Lessee's notice, Lessee shall have the right to terminate this Lease
effective immediately upon delivery of written notice of such termination to
Lessor. In the event of such termination by Lessee, each party shall be relieved
of all respective duties and obligations hereunder.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall
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not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a LATE CHARGE equal to the late charge imposed by any
lender of Lessor in connection with the Premises, or 5%, whichever is less, of
such overdue amount. The parties hereby agree that such LATE CHARGE represents
a fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's default with respect to such overdue amount,
nor prevent Lessor from exercising any of the other rights and remedies granted
hereunder.
13.5 IMPOUNDS. If a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of rent, within any Lease
Term, or any other monetary obligations of Lessee under the terms of this Lease,
Lessee shall pay to Lessor, in addition to any other payments required under
this Lease, a monthly advance installment, payable at the same time as the
monthly rent, for real property taxes and insurance expenses on the Premises,
which are payable by Lessee to Lessor under the terms of this Lease. Such
monthly impound shall be an amount equal to 1/12 of the real property tax for
the last taxable year, and 1/12 of the insurance premium for the preceding
insurance year during which insurance premiums were paid for the insurance
required to be paid for by Lessee under the terms of this Lease. Such funds
shall be established to insure payment when due before delinquency of any and
all such real property taxes and insurance premiums. If the amounts paid to
Lessor by Lessee under the provisions of this Paragraph 13.5 are insufficient to
discharge the obligations of Lessee to pay such real property taxes and
insurance premiums as the same become due, Lessee shall pay to Lessor, upon
Lessor's demand, such additional sums necessary to pay such obligations. All
monies paid to Lessor under this Paragraph 13.5 may be intermingled with other
monies of Lessor and shall not bear interest. In the event of a default in the
obligation of Lessee to perform under this Lease, then any balance remaining
from the funds paid to Lessor under the provisions of this Paragraph 13.5, may
at the option of Lessor be applied to payment of any monetary default of Lessee
in lieu of being applied to the payment of real property tax and insurance
premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken
under the power of eminent domain, or sold under the threat of the exercise of
said power (all of which are herein called "condemnation"), and such
condemnation renders the Premises unsuitable for Lessee's use, as reasonably
determined by Lessee, this Lease shall terminate as to the part so taken as of
the date of condemning authority takes title or possession, whichever first
occurs. If more than 10% of the floor area of the building on the Premises, or
more than 25% of the land area of the Premises, or a majority of the parking
area designated for Lessee's use, which is not occupied by any building, is
taken by condemnation, or if such condemnation renders the Premises unsuitable
for Lessee's use or adversely affects Lessee's use of the Premises, as
reasonably determined by Lessee, Lessee may at Lessee's option, to be exercised
in writing only within ten (10) days after Lessee's receipt of written notice of
such taking (or in the absence of such notice, within (10) days after the
condemning authority shall have taken possession) terminate this Lease as of the
date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises
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remaining, except that the rent shall be reduced in the proportion that the
floor area of the building taken bears to the total floor area of the building
constituting the Premises. Any award for the taking of all or any part of the
Premises under which the power of eminent domain or any payment made under
threat of the exercise of such power shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any award for loss of or damage to
Lessee's trade fixtures and removable personal property. In the event that this
Lease is not terminated by reason of such condemnation, Lessor shall, in the
exercise of due diligence, repair any damage to the Premises caused by such
condemnation except to the extent that Lessee has been reimbursed therefor by
the condemning authority.
15. BROKER'S FEE.
(a) Upon the execution of this Lease by both parties, Lessor
shall be responsible for all Broker's Fees connected with this Lease, and in
accord with separate agreement(s) for same. This paragraph is set forth for
information purposes only, and has no binding obligation on the part of Lessee.
16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time, within fifteen (15) days after
written notice from Lessor, execute, acknowledge and deliver to lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults
if any are claimed. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such
statement within such time shall be conclusive upon Lessee (i) that this Lease
is in full force and effect, without modification except as may be represented
by Lessor, (ii) that there are no uncured defaults in Lessor's performance, and
(iii) that not more than one month's rent has been paid in advance.
(c) If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor, such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three years' financial statements of Lessee. All such financial
statements shall be received by Lessor, such lender or purchaser in confidence
and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY
The term "Lessor" as used herein shall mean only the owner or
owners at the time in question of the fee title or a Lessee's interest in a
ground Lease of the Premises, and except as expressly provided in Paragraph 15,
in the event of any transfer of such title or interest, Lessor herein
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named (and in case of any subsequent transfers then the grantor) shall be
relieved from and after the obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease is
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST DUE OBLIGATIONS. Except as expressly herein
provided, any amount due to Lessor not paid when due shall bear interest at the
rate equal to First Interstate Bank of Arizona's "Prime Rate" as announced from
time to time, plus 2%, from the due date. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME IS OF THE ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor
under the terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS.
This Lease, including the Exhibits attached hereto, contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective,
except for Lease Proposal Documents and letters, which are incorporated herein
by reference. This Lease may be modified in writing only, signed by the parties
in interest at the time of the modification. Except as otherwise stated in this
Lease, Lessee hereby ackknowledges that neither the real estate broker listed in
Paragraph 15 hereof, nor any cooperating broker on this transaction, nor the
Lessor or any employees or agents of any of said person has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of said Premises, and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder
shall be in writing and may be given by personal delivery, certified mail, or
overnight delivery, and if given personally or by mail, shall be deemed
sufficiently given if addressed to Lessee or to Lessor at the address noted
below the signature of the respective parties, as the case may be. Either party
may by notice to the other specify a different address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
The notices herein provided for shall be deemed given upon the date
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the personal delivery is made, and a receipt for such notice is signed by an
authorized agent of Lessor or Lessee. If notice is given by certified mail, it
shall be return receipt requested, and shall be deemed given upon the date
indicated as having been delivered by the United States Postal Department on the
return receipt.
Notices to LESSEE shall be sent to:
26 Harbor Park Drive
Port Washington, New York 11050
Notices to LESSOR shall be sent to:
4515 S. McClintock Drive,
Suite 220 Tempe, Arizona 85282
24. WAIVERS. No waiver by Lessor of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by
Lessee of the same or any other provision. Lessor's consent to or approval of
any act shall not be deemed to render unnecessary the obtaining of Lessor's
consent to or approval of any subsequent act by Lessee. The acceptance of rent
hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of
any provision hereof, other than the failure of Lessee to pay the particular
rent so accepted, regardless of Lessor's knowledge of such preceding breach at
the time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the
other, execute, acknowledge and deliver to the other a "short form" memorandum
of this Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in
possession of the Premises or any part thereof after the expiration of the term
hereof, or the extended term, such occupancy shall be a tenancy from month to
month upon all the provisions of this Lease pertaining to the obligations of
Lessee, but all options and rights of first refusal, if any, granted under the
terms of this Lease shall be deemed terminated and be of no further effect
during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease per-
formable by Lessee and Lessor shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
Paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any
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ground lease, mortgage, deed of trust, or any other hypothecation or security
now or hereafter placed upon the real property of which the Premises are a part
and to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this lease assigned, the
Lessor shall give written notice thereof to Lessee, this Lease shall be deemed
prior to such mortgage, deed of trust or ground lease, whether this Lease is
dated prior or subsequent to the date of said mortgage, deed of trust or ground
lease or the date of recording thereof. Upon any subordination, the Lessee
hereunder shall continue to be entitled to peaceable possession of the Premises
so long as Lessee is not in default under any of the terms of this Lease.
(b) Lessee agrees to execute any documents reasonably required to
effectuate an attornment, a subordination or to make this Lease prior to the
lien of any mortgage, deed of trust or ground lease, as the case may be.
Lessee's failure to execute such documents within 10 days after receipt of
written demand shall constitute a material default by Lessee hereunder, unless
the subordination agreement or document does not provide for the continued
peaceable possession of Lessee when not in default under the terms of this
Lease.
31. ATTORNEY'S FEES. If either party named herein brings an action
to enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court.
32. LESSOR 'S ACCESS. Lessor and Lessor's agents shall have the
right to enter the Premises at reasonable times and for upon twenty-four (24)
hours' prior notice to Lessee, or as otherwise agreed to from time to time
between the parties, for the purpose of inspecting of the same, showing the same
to lenders, prospective purchasers, or prospective lessees, and making such
alterations, repairs, improvements or additions to the Premises as Lessor may
deem necessary or desirable. Lessor may not at any time place on or about the
Premises any ordinary "For Sale" signs; without receiving prior written
permission from Lessee, Lessor may at any time during the last 180 days of the
term or extended term hereof place on or about the Premises any ordinary "For
Lease" signs, without receiving prior written permission from Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted,
either voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in the Lease, Lessor shall not be obligated to exercise any standard of
reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises
without Lessor's prior written consent, which shall not unreasonably be
withheld, if in conformity with sign ordinances applicable thereto, and
commensurate with the tenant's signs located on the property and in the
neighborhood,
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except that Lessee shall have the right without the prior permission of Lessor,
to place ordinary and usual For Rent or Sublet signs thereon.
35. CONSENTS. Wherever in this Lease the consent of one party is
required to an act of the other party, such consent shall not be unreasonably
withheld or delayed.
36. GUARANTOR. In the event that there is a guarantor of this Lease,
an addendum or modification to the Lease, defining the scope and/or limitations
of the guarantor, shall be set forth.
37. QUIET SESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof, and extended term,
subject to all of the provisions of this Lease. The individual(s) executing this
Lease on behalf of Lessor, represent and warrant to Lessee that they are fully
authorized and legally capable of executing this Lease on behalf of Lessor and
that such execution is binding upon all parties holding an ownership interest in
the Premises.
38. OPTIONS.
38.1 DEFINITION. As used in this paragraph the word "OPTIONS" has
the following meaning: (1) the right or option to extend the term of this Lease
or to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease, or right
of first refusal to lease the Premises, or the right of first offer to lease the
Premises, or the right of first refusal to lease other property of Lessor or
the right of first offer to lease other property of Lessor.
38.2 OPTIONS ASSIGNABLE ONLY WITH ASSIGNMENT OF LEASE. Each
Option granted to Lessee in this Lease are personal to Lessee and may not be
exercised or be assigned, voluntarily or involuntarily, by or to any person or
entity other than Lessee, provided however, the Option may be exercised by or
assigned to any assignee of Lessee approved by Lessor, pursuant to Paragraph
12.1 of this Lease, or by any Lessee Affiliate as defined in Paragraph 12.2 of
this Lease. The Options herein granted to Lessee are not assignable separate and
apart from this Lease.
38.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
options to extend or renew this Lease, a later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
38. EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to Paragraph 13.1 (b) or 13.1 (c) and continuing until the default
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the day after a monetary obligation to Lessor is due
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from Lessee and unpaid and continuing until the obligation is paid, or (iii) at
any time after an event of default described in Paragraphs 13.1 (a), 13.1 (d),
or 13.1 (e) (without any necessity of Lessor to give notice of such default to
Lessee).
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise
an Option because of the provisions of Paragraph 39.4 (a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of 30 days after such obligation becomes due, or (ii) Lessee fails
to commence to cure a default specified in Paragraph 13.1 (c) within 30 days
after the date that Lessor gives notice to Lessee of such default and/or Lessee
fails thereafter to diligently prosecute said cure to completion, or (iii)
Lessee commits a default described in Paragraph 13.1 (a), 13.1 (d), or 13.1 (e)
(without the necessity of Lessor to give notice of such default to Lessee), or
(iv) Lessor gives to Lessee three or more notices of default under Paragraph
13.1 (b), where a late charge becomes payable under Paragraph 13.4 for each
such default, or Paragraph 13.1 (c), except where the defaults are cured.
39. MULTIPLE TENANT BUILDING. In the event that the Premises are part
of a larger building or group of buildings, then Lessee agrees that it will
abide by, keep and observe all reasonable rules and regulations which Lessor may
make from time to time for the management, safety, care, and cleanliness of the
building and grounds, the parking of vehicles and the preservation of good order
therein as well as for the convenience of other occupants and tenants of the
building; provided, however, that any such Rules and Regulations must apply
uniformly to all tenants in the building and, provided further, that such Rules
and Regulations do not abrogate in any way Lessee's rights under this Lease. The
material violation of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee. If Lessor deems Lessee in breach of this
Paragraph 40, notice of such breach shall be given and a reasonable time to
correct the same on the part of Lessee shall be granted not to exceed 30 days
unless correction cannot reasonably be made within such period of time.
40. SECURITY MEASURES. Lessee hereby acknowledges that the rental
payable to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the overall protection of
Lessee, its agents, and invitees from acts of third parties.
41. EASEMENTS. Lessor reserves to itself the right, from time to
time, to grant such easements, rights and dedications that Lessor deems
necessary or desirable, and to cause the recordation of Parcel Maps and
restrictions, so long as such easements, rights, dedications, maps and
restrictions do not in any way affect Lessee's access to the Premises, or
unreasonably interfere or otherwise adversely affect Lessee's use of and
enjoyment of the Premises. Provided such easements, rights, dedications, maps
and restrictions comply with the foregoing, Lessee shall sign any of the
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aforementioned documents upon request of Lessor.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise
as to any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment, and there shall survive the right
on the part of said party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said party
to pay such sum or any part thereof said party shall be entitled to recover such
sum or part thereof, as it was not legally required to pay under the provisions
of this Lease, together with such party's attorneys' fees and court costs to be
fixed by the Court.
43. AUTHORITY. If Lessee is a corporation, trust, or a general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of said entity. If Lessee is a corporation, trust,
or partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. INSURING PARTY. The Insuring Party under this Lease shall be the
Lessor. Lessee shall be responsible to insure its own property, and the contents
of the Premises to the extent Lessee desires to insure same and to carry such
liability insurance as Lessee may determine is appropriate, and as subject only
to the requirements of Paragraph 8 above.
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The parties hereto have executed this Lease at the place on the dates specified
in the acknowledgments hereto.
LESSEE LESSOR
SCHEIN PHARMACEUTICAL, INC. RONALD G. ROTH
26 Harbor Park Drive 4515 S. McClintock Drive, Suite 220
Port Washington, New York 11050 Tempe, Arizona 85282
By /s/ Martin Sperber By /s/ Ronald G. Roth
------------------------------- ----------------------------
Chairman
------------------------------- ----------------------------
Title Title
Date: 3/29/90 Dated: Mar. 28, 1990
---------------------------- ------------------------
By /s/ Paul Kleutghen
-------------------------------
VP - Operations
-------------------------------
Title
Dated: 3/26/90
---------------------------
STATE OF NEW YORK, COUNTY OF NASSAU:
On the 27th day of March, 1990, before me personally came Paul Kleutghen to me
known, who, being by me duly sworn, did depose and say that he resides in
Suffolk County, New York, that he is the Vice President-Materials Operations of
Schein Pharmaceutical, Inc. the corporation described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the board of directors of said corporation, and that he signed his name
thereto by like order.
/s/ David S. Weinstock
DAVID S. WEINSTOCK
Notary Public, State of New York
No. 4690529
Qualified in Nassau County
Commission Expires April 30, 1991
STATE OF NEW YORK, COUNTY OF NASSAU:
On the 27th day of March, 1990, before me personally came Martin Sperber to me
known, who, being by me duly sworn, did depose and say that he resides in Nassau
County, New York, that he is the Chairman of Schein Pharmaceutical, Inc. the
corporation described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the board of directors
of said corporation, and that he signed his name thereto by like order.
/s/ David S. Weinstock
DAVID S. WEINSTOCK
Notary Public, State of New York
No. 4690529
Qualified in Nassau County
Commission Expires April 30, 1991
- 28 -
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 28th day of
March, 1990, by Ronald G. Roth.
/s/ Lynette M. Campagna
------------------------------
Notary Public
[NOTARY SEAL APPEARS HERE]
My Commission Expires:
December 8, 1990
------------------------------
- 29 -
<PAGE>
[WAREHOUSE FLOOR PLAN APPEARS HERE]
EXHIBIT "A"
Attached to that certain Lease dated February 16, 1990
<PAGE>
[EAST AND WEST WING OFFICE FLOOR PLAN APPEARS HERE]
EXHIBIT "B"
Attached to that certain Lease dated February 16, 1990
<PAGE>
EXHIBIT "C"
Attached to that certain Lease dated
February 16, 1990
LEGAL DESCRIPTION
PHASE ONE AND TWO A
A portion of the Northwest quarter, Section 15, Township 1 North, Range 2 East,
Gila and Salt River Base and Meridian, Maricopa County, Arizona; more
particularly described as follows:
Commencing at the West quarter corner of said Section 15. Thence North (assumed)
along the West line of the Northwest quarter of said Section 15 a distance of
648.46 Ft. to the South line of a parcel of land as recorded in Docket 9581,
page 180, Maricopa County Recorders Office. Thence S-89(degrees)50'00" E along
said South line a distance of 388.29 Ft. to the point of beginning.
Thence continuing S-89(degrees)50'00" E along said South line a distance of
918.99 Ft. to the Southeast corner of said parcel; said corner also being on the
centerline of the Southern Pacific Transportation Company drill track. Thence
S-00(degrees)01'00" E along said centerline of drill track a distance of 251.80
Ft. to a point of curve. Thence Southeasterly along said curve, being concave
Northeasterly having a radius of 294.18 Ft., a central angle of 89(degrees)
37'00", a distance of 459.57 Ft. Thence S-00(degrees)01'00" E along a non-
tangent line, leaving said centerline a distance of 10.00 Ft. to the North right
of way line of the Roosevelt Irrigation District canal; said North right of way
line being 99.00 Ft. North as measured at right angles from the East-West mid
section line of Section 15. Thence N-89(degrees)38'00" W along said North right
of way line a distance of 1214.91 Ft. Thence N-00(degrees)22'00" W leaving said
right of way line a distance of 550.80 Ft. to the point of beginning.
529,882 Sq. Ft.
12.1644 Acres +/- Gross
Includes 15 Ft. for railroad purposes
[REGISTERED LAND
SURVEYOR SEAL
APPEARS HERE]
<PAGE>
[SITE PLAN APPEARS HERE]
EXHIBIT "D"
Attached to that certain Lease dated February 16, 1990
<PAGE>
[EAST WING FLOOR PLAN APPEARS HERE]
EXHIBIT "E"
Attached to that certain Lease dated February 16, 1990
<PAGE>
SECOND ADDENDUM TO LEASE
------------------------
SECOND ADDENDUM TO LEASE made and entered into this 20th day of August 1990
by and between RGR DEVELOPMENT CORPORATION "Lessor", and SCHEIN PHARMACEUTICAL,
INC. "Lessee".
WHEREAS, SCHEIN PHARMACEUTICAL, INC., entered into a Lease dated February
16, 1990, with RONALD G. ROTH, subsequently assigned to RGR DEVELOPMENT
CORPORATION as of May 15, 1990.
WHEREAS, SCHEIN PHARMACEUTICAL, INC. has requested certain additional
Tenant Improvements, and the Parties have amended the size and scope of
improvements connected therewith, hereby agree to the following revisions:
NOW, therefore the Lease is modified as follows:
PAR 2. PREMISES. - fifth paragraph - The square footage of the building
space being leased under the terms hereof, is approximately 81,775 square
feet.
PAR. 3. RENT - revise the RENT amount(s) as follows:
Par. 3.1(a) $24,732.34
Par. 3.1(b) $26,922.97
Par. 3.1(c) $28,514.49
Par. 3.1(d) $30,953.44
Par. 3.2(a) $28,983.65
Par. 3.3(a) $30,738.17
Par. 3.4(a) $33,531.86
All other terms and conditions of the Lease, except as specifically
modified herein, or by Addendum, shall remain in full force and effect.
LESSEE LESSOR
SCHEIN PHARMACEUTICAL, INC. RGR DEVELOPMENT CORPORATION
26 Harbor Park Drive 4515 S. McClintock Drive, Suite 220
Port Washington, New York 11050 Tempe, Arizona 85282
By /s/ Martin Sperber By /s/ Ronald G. Roth
------------------------------- ----------------------------
Chairman President
------------------------------- ----------------------------
Title Title
Date: August 27th, 1990 Dated: Aug. 21, 1990
---------------------------- ------------------------
By /s/ Paul Kleutghen
-------------------------------
VP - Operations
-------------------------------
Title
<PAGE>
STATE OF NEW YORK, COUNTY OF NASSAU:
On the 27th day of August, 1990, before me personally came Martin Sperber to me
known, who, being by me duly sworn, did depose and say that he resides in Nassau
County, New York, that he is the Chairman of Schein Pharmaceutical, Inc., the
corporation described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the board of directors
of said corporation, and that he signed his name thereto by like order.
/s/ Norma Olszewski
----------------------
Notary Public
NORMA OLSZEWSKI
NOTARY PUBLIC, State of New York
No. 41-4914787
Qualified in Queens County
Certificate Filed in Nassau County
Commission Expires Dec. 14, 1991
STATE OF NEW YORK, COUNTY OF NASSAU:
On the 27th day of August, 1990, before me personally came Paul P. Kleutghen to
me known, who, being by me duly sworn, did depose and say that he resides in
Nassau County, New York, that he is the VP - Operations of Schein
Pharmaceutical, Inc., the corporation described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the board of directors of said corporation, and that he signed his name
thereto by like order.
/s/ Norma Olszewski
----------------------
Notary Public
NORMA OLSZEWSKI
NOTARY PUBLIC, State of New York
No. 41-4914787
Qualified in Queens County
Certificate Filed in Nassau County
Commission Expires Dec. 14, 1991
STATE OF ARIZONA )
)ss.
County of Maricopa )
The foregoing instrument was acknowledged before me the 21st day of August, 1990
by Ronald G. Roth.
[NOTARY SEAL APPEARS HERE]
/s/ Tina M. Koester
-----------------------------
Notary Public
My Commission Expires:
-----------------------------
<PAGE>
THIRD ADDENDUM TO LEASE
-----------------------
THIRD ADDENDUM TO LEASE made and entered into this 25th day of September
1990 by and between RGR DEVELOPMENT CORPORATION "Lessor", and SCHEIN
PHARMACEUTICAL, INC. "Lessee".
WHEREAS, SCHEIN PHARMACEUTICAL, INC., entered into a Lease dated February
16, 1990, with RONALD G. ROTH, subsequently assigned to RGR DEVELOPMENT
CORPORATION as of May 15, 1990.
WHEREAS, the parties to the Lease mutually agree to formally establish the
Lease Commencement Date.
NOW, therefore the Lease is modified as follows:
PAR. 4.3 - Revise to: The Lease Commencement Date is herewith established
as being November 1, 1990. The Occupancy Date of the premises is herewith
established as being September 1, 1990.
Early Move-In - The parties herewith agree that the month of October, 1990,
shall be considered as an Early Move-In/additional month for tenant
fixturization, and a monthly rental (Rent) consideration shall be paid
Lessor, as established in Par. 3.1(a)- Second Addendum.
All other terms and conditions of the Lease, except as specifically
modified herein, or by Addendum, shall remain in full force and effect.
LESSEE LESSOR
SCHEIN PHARMACEUTICAL, INC. RGR DEVELOPMENT CORPORATION
26 Harbor Park Drive 4515 S. McClintock Drive, Suite 220
Port Washington, New York 11050 Tempe, Arizona 85282
By /s/ Martin Sperber By /s/ Ronald G. Roth
------------------------------- ----------------------------
Chairman President
------------------------------- ----------------------------
Title Title
Date: October 11, 1990 Dated: 10-3-90
---------------------------- ------------------------
By /s/ Paul Kleutghen
-------------------------------
Vice President, Operations
-------------------------------
Title
Dated: October 11, 1990
---------------------------
<PAGE>
STATE OF NEW YORK, COUNT OF NASSAU:
On the 11th day of October, 1990, before me personally came Martin Sperber to me
known, who, being by me duly sworn, did depose and say that he resides in Nassau
County, New York, that he is the Chairman of Schein Pharmaceutical, Inc., the
corporation described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the board of directors
of said corporation, and that he signed his name thereto by like order.
/s/ Christina Shevchenko
----------------------------------
Notary Public
CHRISTINA SHEVCHENKO
Notary Public, State of New York
No. 30-4810282
Qualified in Nassau County
Commission Expires June 30, 1991
STATE OF NEW YORK, COUNTY OF NASSAU:
On the 11th day of October, 1990, before me personally came Paul Kleutghen to me
known, who, being by me duly sworn, did depose and say that he resides in Nassau
County, New York, that he is the Vice President-Materials Operations of Schein
Pharmaceutical, Inc., the corporation described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the board of directors of said corporation, and that he signed his name
thereto by like order.
/s/ Christina Shevchenko
----------------------------------
Notary Public
CHRISTINA SHEVCHENKO
Notary Public, State of New York
No. 30-4810282
Qualified in Nassau County
Commission Expires June 30, 1991
STATE OF ARIZONA )
)ss.
County of Maricopa )
The foregoing instrument was acknowledged before me the 3rd day of October, 1990
by Ronald G. Roth.
/s/ Patty A. Chasey
------------------------------
Notary Public
My Commission Expires:
------------------------------
[NOTARY SEAL APPEARS HERE]
<PAGE>
EXHIBIT 10.10
MEMORANDUM OF LEASE
-------------------
PLEASE TAKE NOTICE, that on the 1st day of December, 1995, Albert J.
Salame, P.O. Box 766, Danbury, Connecticut ("Landlord") did lease to Danbury
Pharmacal, Inc., 131 West Street, Danbury, Connecticut ("Tenant") space in
buildings located at 131 West Street pursuant to a written lease agreement (the
"Agreement"). The property upon which the buildings are located is described in
Exhibit "A" attached hereto and incorporation herein by reference (the
"Property"). The term of the lease is for ten (10) years commencing January 1,
1996 and terminating on December 31, 2005 and contains an option to extend the
term for an additional ten (10) years. A copy of the agreement is on file at
the office of the Landlord located at 131 West Street, Danbury, Connecticut.
WITNESSES LANDLORD
/s/ /s/
- ------------------------- ---------------------------
/s/
- -------------------------
WITNESSES TENANT
Danbury Pharmacal, Inc.
/s/ /s/
- ------------------------- ---------------------------
/s/ By: SENIOR VICE PRESIDENT AND GENERAL
- --------------------------- MANAGER
---------------------------------
its duly authorized
<PAGE>
State of Connecticut )
) ss. Danbury
County of Fairfield )
The foregoing instrument was acknowledged before me this 1st day of
December, 1995 by Albert J. Salame.
--------------------------
Commission of the Superior
Court
State of New York )
) ss.
County of Putnam )
The foregoing instrument was acknowledged before me this 1st day of
December, 1995 by Jay Cayadd as Senior Vice President and General MGR. of
Danbury Pharmacal, Inc.
--------------------------
Commission of the Superior
Court/Notary Public
Nancy M. Perez
Notary Public, State of New York
No. 4968581
Qualified in Putnam County
Commission Expires July 2, 1996
<PAGE>
EXHIBIT A
127-131 West St., Danbury, CT
All those certain pieces or parcels of land with the buildings and improvements
located thereon, situated in the City of Danbury, County of Fairfield and State
of Connecticut located on West Street and as shown on a certain map entitled
"BOUNDARY MAP - AREA = 5.5436 ACRES MAP PREPARED FOR ALBERT J. SALAME SHOWING
PROPERTY SITUATED AT 127 - 131 WEST STREET, DANBURY, CONNECTICUT SCALE 1" =
40' JAN. 29, 1993", certified substantially correct by Sydney A. Rapp, Jr.,
R.L.S., which map is to be filed with the Office of the Town Clerk of the City
of Danbury.
<PAGE>
Lease
Lease dated as of the 1st day of December, 1995 between Albert J. Salame,
having a mailing address at Salame Plaza, P.O. Box 766, Danbury, Connecticut
06813 ("Landlord"), and Danbury Pharmacal Inc., 131 West Street, Danbury, CT
06810, ("Tenant").
1. DEMISED PREMISES; ENTIRE PREMISES: Landlord hereby Leases to Tenant and
---------------------------------
Tenant hereby Leases from Landlord, subject to the provisions of this Lease, the
following premises (the "demised premises"), being certain buildings owned by
Landlord and located on at 131 West Street, in the City of Danbury, County of
Fairfield, State of Connecticut. All prior leases and agreements between the
parties are terminated effective commencement date of this Lease.
The premises containing 87,680 square feet more or less in the buildings
designated A, B, C, D, and E as shown on the site plan attached hereto as
Exhibit A.
(a) Entire Premises: The term "Entire Premises" shall mean the land
---------------
described in Schedule A-1 hereto attached, together with the building and Common
Facilities from time to time situated thereon.
2. COMMON FACILITIES: the Common Facilities of the Entire Premises shall
-----------------
consist of all those portions of the Entire Premises which are not, from time to
time, Leased to any tenant and are intended for use in common by all tenants,
and those having business with them in the Entire Premises, as facilities for
automobile parking, vehicular and pedestrian access. The general term "Common
Facilities" includes, without limitation, all parking areas, aisles, driveways,
entrances, exits, sidewalks, access ramps of all kinds (whether for regular
pedestrian use, for use by handicapped persons) or otherwise, lighting
facilities of all types and wherever located, if used to illuminate any of the
Common Facilities, surface drainage facilities, pavement striping, traffic
control signs, which exist in the Entire Premises from time to time, and any
plantings and landscaped areas which Landlord elects. The foregoing
notwithstanding Landlord assumes no obligation with respect to nor shall the
term "Common Facilities" include any fence, gate, privacy or security fence or
barrier constructed by Tenant which shall remain the property of the Tenant or
the common area reserved for the exclusive use of the Tenant resulting from the
location of such fence or barrier or other areas privately maintained by Tenant.
Tenant will indemnify and hold Landlord harmless, absolutely from and against
any and all claims, suits,
<PAGE>
actions, damages, costs, expenses including reasonable attorney's fees by reason
of any actual or claimed injury to person or property, or loss of life sustained
in connection with the construction and use by Tenant of any such fence or
barrier.
(a) During the term of this Lease, Landlord hereby grants to Tenant a
nonexclusive license and the right for Tenant, its guests, customers, invites,
employees, and agents in common with Landlord and all persons conducting
business within the Entire Premises and their respective customers, guests,
invites, employees and agents to use those portions of the Entire Premises shown
on Exhibit A-1 hereto as automotive parking areas, pedestrian and vehicular
accessways, sidewalk and passageways, and ingress and egress areas for
pedestrian and vehicular ingress and egress, parking and all purposes for which
such areas would customarily be utilized. Specific parking spaces shall be
designated for Tenants exclusive use on a new site to be prepared by Landlord
subject to the mutual agreement of the parties.
3. TERM: The term of the Lease as modified shall begin on the
----
Commencement date as defined in subsection (a) and shall terminate on
December 31, 2005.
(a) Commencement Date: The "Commencement Date" shall vary with respect to
-----------------
the Demised Premises as follows:
(i) Buildings A, B, C, and D - January 1, 1996
(ii) Building E - (a) as to any portion of the building not requiring
the Landlord's work set forth in paragraph 34 of this lease, January 1, 1996;
(b) as to any portion of the building requiring said work, upon substantial
completion of that work, or the date that work would have been substantially
complete but for Tenant delays. Substantial completion shall mean the work
has been completed in accordance with the work letter referenced in Paragraph
34 excluding any utility relocation work required of Northeast Utilities and the
installation of the asphalt pavement overlay. In the event the work has been
substantially completed on any portion of the Building, then the Lease will
commence as to that portion of the Building even though work remains to be
completed on the remaining portion of the building. In the event the lease
commences on a portion(s) of the building, but not simultaneously on the entire
building, the rent shall be prorated as to that portion(s) on a square foot
basis pending commencement on the entire building. Although the Lease Term as
to Building E may commence on varying dates, it will terminate on December 31,
2005.
(b) The term "Lease Year" shall mean each of the successive periods of
twelve (12) calendar months which fall in the term, beginning with the first
day of the first month following the Commencement Date (or beginning with the
Commencement date, if that is the first day of the month, but if this Lease ends
on a day other than the last day of a Lease Year as defined above) the last
Lease Year shall end on the termination date.
4. RENT: Tenant shall pay the Landlord without demand, a minimum net rental as
----
follows:
(a) With respect to Building A, consisting of 24,000 square feet, a
minimum net rental of $102,470.00 per annum payable in equal monthly
installments of $8,539.l7.
-2-
<PAGE>
(b) With respect to Building B, consisting of 23,000 square feet, a minimum
net rental of $202,000.00 times the percentage increase in the Consumer Price
Index for the Northeast Region for the previous 12 months per annum payable
in equal monthly installments.
(i) At the end of the first Lease Year and on each Lease Year
anniversary date thereafter, the minimum net rental the Tenant shall pay for the
next succeeding Lease Year shall be the minimum net rental for the previous
Lease Year plus the CPI increase. The CPI increase is an amount equal to the
minimum net rental of the previous year times the percentage increase in the
Consumer Price Index for the Northeast Region for that year. Providing,
however, in no one year shall the increase be greater than seven (7%) percent or
less than two and one-half (2.5%) percent.
(c) With respect to Building C, consisting of 12,000 square feet, a minimum
net rental of $105,400.00 times the percentage increase in the Consumer Price
Index for the Northeast Region for the previous 12 months per annum payable
in equal monthly installments.
(i) At the end of the first Lease year and on each Lease Year
anniversary date thereafter, the minimum net rental the Tenant shall pay for the
next succeeding Lease Year shall be the minimum net rental for the previous
Lease Year plus the CPI increase. The CPI increase is an amount equal to the
minimum net rental of the previous year times the percentage increase in the
Consumer Price Index Northeast Region for that year. Providing, however, in no
one year shall the increase be greater than seven (7%) percent or less than two
and one-half (2.5%) percent.
(d) With respect to Building D, consisting of 3,680 square feet, a minimum
net rental of $27,650.00 times the percentage increase in the Consumer Price
Index for the Northeast Region for the previous 12 months per annum payable
in equal monthly installments.
(i) At the end of the first Lease Year and on each Lease Year
anniversary date thereafter, the minimum net rental the Tenant shall pay for the
next succeeding Lease Year shall be the minimum net rental for the previous
Lease Year plus the CPI increase. The CPI increase is an amount equal to the
minimum net rental of the previous year times the percentage increase in the
Consumer Price Index Northeast Region for that year. Providing, however, in no
one year shall the increase be greater than seven (7%) percent or less than two
and one-half (2.5%) percent.
-3-
<PAGE>
(e) With respect to Building E, consisting of 25,000 square feet, the
minimum net rental for the first twelve (12) months shall be $143,750.00 per
annum payable in equal monthly installments of $11,979.17.
(i) Commencing on the thirteenth month, the minimum net rental shall
be $162,500.00 per annum payable in equal monthly installments of $13,541.67.
(ii) Commencing January 1, 1998, the minimum net rental shall be
determined by multiplying the square footage of Building E times the minimum net
rental per square foot of Building D for that year.
(iii) Commencing January 1, 1999, and on each anniversary date
thereafter, the minimum net rental the Tenant shall pay for the next succeeding
year shall be the minimum net rental for the previous year plus the CPI
increase. The CPI increase is an amount equal to the minimum net rental of the
previous year times the percentage increase in the Consumer Price Index
Northeast Region for that year. Providing, however, in no one year shall the
increase be greater than seven (7%) percent or less than two and one-half (2.5%)
percent.
(f) Pending determination of the additional amounts to be paid by the
Tenant as a result of a Consumer Price Index adjustment, the Tenant shall
continue to pay the minimum annual rental due Landlord as of the last adjustment
date or in the case of the first year, the amounts stipulated in this Lease and
when the additional amount has been determined, the Tenant, on the first day of
the month immediately following the furnishing by Landlord to Tenant of the
computation thereof shall pay to the Landlord the increased amount from the
commencement of the Lease Year in question up to and including the first day of
such month.
5. SECURITY DEPOSITS: INTENTIONALLY OMITTED
------------------ ---------------------
6. UTILITIES: Tenant shall, at its own cost and expense pay all charges when
---------
due for water, gas, electricity, heat, sewer and water rentals or charges and
any other utility charges incurred in the use of the Demised Premises except as
or otherwise provided in this Lease.
7. USE OF PREMISES: Tenant agrees to use the Leased Premises for
---------------
pharmaceutical related businesses. Any other unrelated use is prohibited
without the written approval of the Landlord which approval shall not be
unreasonably withheld.
8. CONDITION OF PREMISES, ORDINANCES AND VIOLATIONS:
------------------------------------------------
(a) The Tenant shall make no alteration, addition or improvement in the
premises in excess of $25,000 without the prior
-4-
<PAGE>
written consent of Landlord and in any event only be contractors or mechanics
approved by Landlord, which consent or approval shall not be unreasonably
withheld or delayed;
(b) Throughout the term of this Lease, Landlord agrees to make structural
repairs to the premises which shall be deemed to mean repairs to the structural
frame, exterior of the premises, to the roof and to utilities and facilities
servicing the premises to the extent that they are located outside of the Leased
Premises, as well as to the common areas of the Landlord's premises, except as
previously noted, all at Landlord's expense unless such repairs are necessitated
by the act of Tenant or any of it's employees or business invites. All other
non-structural repairs shall be done by the Tenant at Tenant's expense. All
repairs and replacements shall be at least equal in quality of workmanship and
materials to that existing in Leased Premises at the commencement of this Lease.
Tenant shall indemnify the Landlord against all costs, expenses, liabilities,
losses, damages, suits, fines, penalties, claims and demands, including
reasonable attorney's fees, because of Tenant's failure to comply with the
foregoing covenant. The Landlord shall in no event be required to make any
repair, alteration or improvement to the Leased Premises except as set forth
above. If, upon notice from Tenant, Landlord fails to make any such required
repairs, which affect the habitability of any portion of the demised premises,
Tenant may but shall not be required to make those repairs and deduct the cost
of same from future installments of rent.
(c) The necessity for and adequacy of repairs and replacements to
the Leased Premises shall be measured by the standard which is appropriate
for improvements of similar construction and class, provided that Tenant
shall in any event make all repairs necessary to comply with the building,
health and fire codes of Danbury, Connecticut. Tenant shall not be obligated to
make any repairs or replacements which are structural in nature and are outside
the Leased Premises and generally serve the entire building.
(d) Upon the last day or sooner termination of the term hereof, Tenant
shall surrender to Landlord the Demised Premises in broom clean condition.
All alterations, additions and improvements, whether temporary or permanent
in character, which may be made upon the premises, either by the Landlord or the
Tenant, shall be surrendered with the premises as a part thereof upon the
termination of this Lease without compensation to the Tenant. Tenant may
remove its trade fixtures provided however it shall restore the premises to
substantially the same conditions as existed prior to their installation.
(e) Subject to Landlord's obligations set forth in subpara-
-5-
<PAGE>
graph (b) above, Tenant shall: Suffer no waste or injury to Demised Premises;
give prompt notice to the Landlord of any damage that may occur; execute and
comply with all laws, rules, orders, ordinances and regulations at any time
issued or in force, applicable to the Demised Premises or to the Tenant's use
and occupancy thereof, of the City, State and Federal Governments and Landlord,
and of each and every department, bureau and official thereof, and of the Board
of Fire Underwriters having jurisdiction thereof. An adequate fire protection
system will be installed on the premises and during the term of this lease,
Tenant agrees to maintain a service or maintenance agreement on said system
consistent with the manufacturer's recommendation or to pay its prorata share of
a master maintenance agreement if applicable.
9. ASSIGNMENT: The Tenant shall not assign, mortgage or encumber this Lease in
----------
whole or in part, or subject all or any part of the Leased premises to a sub-
lease without the prior written consent of the Landlord which consent shall not
be unreasonably withheld and in the event of a sale or merger of Tenant's
business to a entity of financial ability similar in all respects to Tenants as
of the commencement of this Lease, Landlord shall be notified but its consent
shall not be required. The consent by Landlord to any assignment or subletting
shall not constitute a waiver of the necessity for such consent to any
subsequent assignment or subletting. This prohibition against assigning or
subletting shall be construed to include a prohibition against assigning or
subletting by operation of law. If this Lease be assigned or if the Leased
premises or any part thereof be occupied by anybody other than the Tenant,
Landlord may collect rent from the assignee, or occupant and apply the net
amount collected to the rent herein reserved, but no such assignment,
underletting, occupancy or collection shall be deemed a waiver of this
provision or the acceptance of the assignee, under Tenant or occupant as lessee,
or as a release of Tenant from the further performance by it of the provisions
on its part to be observed or performed herein. Notwithstanding any assignment
or sub-lease, Tenant shall remain fully liable and shall not be released from
performing any of the terms of this Lease except where the assignment is a
result of a sale or merger of Tenant's business.
10. FIRE AND OTHER CASUALTY: If during the term of this Lease any of the
-----------------------
buildings comprising the Demised Property shall be partially or totally
destroyed by fire or other casualty or peril then the following shall be
applicable:
(a) If, in Landlord's reasonable opinion (to be given to Tenant not later
than ten (10) days after notice to Landlord by Tenant of the happening of such
damage or destruction), the building or buildings cannot be repaired or restored
within a period of one hundred eighty (180) days from the date of such opinion,
then either Landlord or Tenant may, within ten (10) days
<PAGE>
next succeeding the giving of such opinion by Landlord, terminate this Lease by
giving notice to the other of such termination. In that event, this Lease shall
terminate as to that building or buildings but shall remain in effect as to the
remaining building or buildings (unless the only other remaining building is
Building A in which event Tenant may terminate this Lease) and the rent and all
other payments for which Tenant may be liable under the terms of this Lease
shall be prorated and paid in full to the date of such destruction or damage.
If neither Landlord nor Tenant so terminate this Lease, then Landlord shall
repair or restore the building or buildings with reasonable diligence and the
rent shall abate on each damaged building from the date of the happening of such
damage or destruction until that building has been repaired or restored to the
extent reasonably necessary to enable Tenant to again use and occupy the
building, and Landlord shall repair or restore the building with reasonable
diligence. Provided Landlord is proceeding with reasonable diligence to repair
or restore the building, Landlord shall not be responsible for any delays beyond
the reasonable control of Landlord which prevent such repair or restoration from
being completed within such one hundred eighty (180) day period.
(b) If, in Landlord's reasonable opinion (to be given to Tenant not later
than ten (10) days after notice to Landlord by Tenant of the happening of such
damage or destruction), the building or buildings can be repaired or restored
as set forth is subparagraph (b) above within one hundred eighty (180) days from
the date of such opinion, and the damage or destruction is such that a building
is capable of being partially used by Tenant, then, until such damage has been
repaired or restored, the rent shall abate in the proportion which that part of
the building which is rendered unfit for occupancy bears to the whole of the
building, and Landlord shall repair or restore the building with reasonable
diligence. Providing Landlord is proceeding with reasonable diligence to
repair or restore the building, Landlord shall not be responsible for any delays
beyond the reasonable control of Landlord which prevent such repair or
restoration from being completed without such one hundred eighty (180) day
period.
(c) Landlord and Tenant shall fully cooperate with each other regarding the
settlement and adjustment of insurance claims. If Landlord is to repair or
restore any building, Tenant, at Tenant's sole cost and expense, shall remove
any machinery, equipment, furniture, inventory, or other items of personal
property from that building as shall be required by Landlord in order to repair
or restore the Improvements constituting a part of the building.
Also, Landlord shall have the free and uninterrupted right to possession of the
building to repair and restore the Improvements constituting a part of the
building, and such right shall extend to Landlord's employees, contractors,
subcontractors, laborers and suppliers.
-7-
<PAGE>
(d) Notwithstanding anything to the contrary contained herein, Landlord
shall not be obligated to repair or restore any damage to or destruction of the
Demised Property if the costs of repair or restoration, in Landlord's reasonable
opinion, exceeds the amount of insurance proceeds payable to Landlord by reason
of such damage or destruction. In that event, Tenant shall have the option of
either (1) terminating this Lease as it applies to such damaged or destroyed
building or buildings or (2) requiring Landlord to repair or restore the damaged
property in which event Tenant shall assume responsibility for the payment of
all costs and expenses to repair or restore in excess of the insurance proceeds
due Landlord. In the event Tenant elects the latter option and requires
Landlord to repair or restore it shall give written notice to Landlord of that
election within sixty (60) days of the damage or destruction and
contemporaneously with the giving of notice provide Landlord with adequate
security for the payment (based on written estimates) of all excess costs and
expenses. The excess costs incurred by Tenant shall be divided by the years
remaining in the Lease term and the annual rental due in each of the remaining
years shall be reduced by the resulting figure. Anything herein to the
contrary notwithstanding, Landlord shall not be responsible for repairing
or restoring any alterations, additions or improvements made to the Demised
Property by Tenant. Furthermore, in no event shall Landlord be liable for any
loss of or damage to any of Tenant's property.
(e) In the event that the partial destruction or casualty to the entire
Demised Premises is more than fifty percent (50%), the Landlord in its sole
discretion shall determine whether or not to repair the Demised Premises. In
the event that the Landlord decides not to repair the Demised Premises, then and
in that event, this Lease shall cease and be terminated provided however should
such destruction or casualty occur in the final Lease year, Tenant may terminate
this Lease as it applies to the building or buildings so impacted upon notice to
Landlord.
11. INDEMNITY AND INSURANCE: From and after the commencement of this Lease,
-----------------------
Tenant will indemnify and hold landlord harmless absolutely from and against any
and all claims, suits, actions, damages, costs, expenses or judgement, by
reason of any actual or claimed injury to person and/or property or loss of life
sustained in the Demised Premises during the term hereof except for such injury,
property damage or loss of life caused by negligence by Landlord, its employees
or agents. If Landlord is made party to any litigation instituted against
Tenant, to which the foregoing indemnity may relate, Tenant will pay all
expenses, costs, damages, judgement and reasonable fees for counsel incurred
by or imposed on Landlord in connection therewith or as a result thereof.
Without limiting the foregoing and other indemnification provisions herein
contained, Tenant agrees, at Tenant's sole cost and expense, throughout the term
of this Lease, but for the mutual benefit of Landlord and Tenant, to maintain
general public liability insurance against claims for bodily injury or death, or
injury to property, occurring upon or in the Demised Premises, such insurance to
afford protection to the limit of not less than Two Million and 00/100
($2,000,000.00) Dollars in respect of any one accident, and not less than Two
Hundred Thousand and 00/100 ($200,000.00) Dollars in respect to property damage.
All insurance provided for in this paragraph shall name Landlord as owner
and the Landlord's mortgagee as additional
-8-
<PAGE>
insureds as well as Tenant as insured, as their respective interests may appear,
and shall be effected under valid and enforceable policies issued by insurers
licensed to do business in the State of Connecticut. Tenant may carry the
insurance required under this paragraph under a blanket policy. Upon the
commencement of the term of this Lease and thereafter prior to the expiration
dates of the expiring policies thereto-fore furnished pursuant to this
paragraph, original certificates thereof issued by the respective insurers shall
be delivered by Tenant to Landlord. Tenant agrees to pay the cost of any such
insurance and to furnish Landlord, if requested, with evidence satisfactory to
Landlord of such payment. All such policies shall, to the extent obtainable,
contain an agreement by the insurers that such policies shall not be canceled
without at least forty-five (45) days prior written notice to Landlord.
Tenant agrees that if it shall at any time fail to take out, pay for,
maintain or deliver any of the insurance policies as provided for in this
paragraph, or to make any other payment or perform any other act on the part of
Tenant to be made or performed, then Landlord may, but shall not be obligated to
do so, and on not less than fifteen (15) days notice to or demand upon Tenant
(and unless Tenant shall comply with such 15-day period) and without waiving or
releasing Tenant from any obligations of Tenant in this Lease contained, (i)
take out, pay for, maintain or deliver any of the insurance policies provided
for in this paragraph, or
(ii) make any other payment or perform any other act on Tenant's part
to be made or performed as in this Lease provided. All sums so paid by Landlord
and all necessary incidental costs and expenses in connection with the
performance of any such act by Landlord, together with interest thereon at the
rate of twelve (12%) percent per annum from the date of the making of such
expenditure by Landlord, at the option of Landlord, shall be payable to Landlord
on demand or shall be added to any rent then due or thereafter becoming due
under this Lease, and Tenant agrees to pay any such sum or sums with interest as
aforesaid. All sums which may become payable to Landlord by Tenant, as in this
paragraph provided, and all sums payable by Tenant pursuant to any other
provision of this Lease, shall be deemed obligations of Tenant hereunder and
Landlord shall have (in addition to any other right or remedy) the same rights
and remedies in the event of nonpayment of any such sums by Tenant as in the
case of default by Tenant in the payment of rent. The notice provided for herein
shall not in any way affect the other notice provisions of this Lease.
Each party agrees to use diligent efforts to include in each of its
policies insuring against loss, damage or destruction by fire or other insured
casualty a waiver of the insurer's right of
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<PAGE>
subrogation against the other party or, should such waiver be unobtainable (i)
an express agreement that such policy shall not be invalidated if the insured
waives or has waived before the casualty the right of recover against any party
responsible for a covered casualty or (ii) any other form of permission for the
release of such responsible party. If such waiver, agreement or permission
shall not be, or shall cease to be, obtainable without additional charge or at
all, the insured party shall so notify the other party promptly after notice
thereof. If the other party shall agree in writing to pay the insurer's
additional charge therefor, such waiver, agreement or permission shall (if
obtainable) be included in the policy.
As long as Landlord's fire insurance policies include the waiver of
subrogation or agreement or permission to release liability referred to in the
previous paragraph, and the coverage is in amounts sufficient to cover any
claim being made then, Landlord waives, for itself and those claiming through or
under it, any right of recovery against Tenant, any other permitted occupant or
subtenant of the Premises and any of their employees, agents or contractors with
respect to that claim, occasioned by fire or other insured casualty. If at any
time any of Landlord's policies shall not include such or similar provisions,
the waiver set forth in the foregoing sentence shall be of no further force or
effect.
As long as Tenant's fire insurance policies include the waiver of
subrogation or agreement or permission to release liability previously referred
to, Tenant waives for itself and those claiming through or under it, any right
of recovery against any of their employees, agents or contractors, for any loss
occasioned by fire or other insured casualty. If at any time any of Tenant's
policies shall not include such or similar provisions, the waiver set forth in
the foregoing sentence shall upon (20) days notice given by Tenant to Landlord,
be of no further force or effect from and after the giving of such notice.
12. PROPERTY LOSS OR DAMAGE: Landlord or its agents shall not be liable for
-----------------------
any damage to property of Tenant, its employees or of others entrusted to Tenant
except damage caused by the negligence of Landlord, its employees or agents nor
the loss or damage to any property of Tenant by theft or otherwise. Furthermore,
the Landlord or its agents shall not be liable for any injury or damage to
persons or property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water, rain or snow, or leaks from any part of the building housing
the Demised Premises or from the pipes, appliances or plumbing works or from the
roof, street or sub-surface or from any other place or by dampness or by any
other cause of whatsoever nature, unless caused by or due to the negligence of
Landlord, its agents, servants or employees.
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<PAGE>
Landlord or its agents shall not be liable for any such damages caused by
other Tenants or persons in said building or caused by operations in
construction of any private, public or quasi-public work. Tenant shall give
immediate notice to Landlord in case of fire or accidents in the Demised
Premises or in the building, or of defects therein or in any building fixtures
or equipment. If Tenant shall move any safe, machinery, equipment, freight bulky
matter or fixtures which require special handling, Tenant agrees to employ only
persons holding a license to do said work and all work in connection therewith
shall comply with any regulations, law or ordinance affecting such work. Tenant
shall indemnify Landlord for, and hold Landlord harmless and free from damages
sustained by person or property for any damages or monies paid out by Landlord
in settlement of any claims or judgements related to the preceding as well as
for all expenses and reasonable attorney fees incurred in connection therewith
and all cost incurred in repairing any damage to the building or appurtenances.
13. ACCESS: Upon notice to Tenant, and without causing an unreasonable
------
intrusion, the Landlord, its servants and agents, including representatives of
the insurance company or companies carrying insurance on the building containing
the Demised Premises, shall have the right to enter upon the said premises at
any time for inspection of the premises or for repairs to building or equipment
or without notice in an emergency or to take preventative measures to protect
and preserve the property of the Landlord.
Upon notice to Tenant, and without causing an unreasonable intrusion,
Landlord shall have the right to enter the premises during business hours for
purposes of showing the premises to any prospective mortgagee or purchaser of
the premises or during the last twelve (12) months of the Lease for purposes of
reletting the premises.
14. CONDEMNATION: In the event of a condemnation of the premises, which shall
------------
include a taking of all or a substantial part of the building on the premises,
this Lease shall, at the option of either party, terminate upon the completion
of such taking. The rent shall be apportioned as of that date. The condemnation
award shall belong solely to the Landlord. Tenant shall be entitled to
relocation costs, if any, provided said costs may be separately determined as an
element of the award and not included in the determination of the value of the
interest of the Landlord in the Leased Premises. In the event of a partial
taking of the premises in such manner that the Tenant is able to continue
without substantial modifications, the operation then being conducted on the
Demises Premises, then this Lease shall remain in full force and effect and the
Landlord and Tenant shall agree upon an equitable rent adjustment reflecting
such partial taking. Any
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<PAGE>
award for partial taking shall belong solely to the Landlord. Nothing herein
shall be construed to deprive Tenant of its rights upon condemnation as set
forth in the Connecticut General Statutes.
15. SUBORDINATION: This Lease is subject and subordinate to all mortgages
-------------
which may now or hereafter affect such Leases or the real property of which the
Demised Premises form a part, and to all renewals, modifications,
consolidations, replacements and extensions thereof. This clause shall be self-
operative and no further instrument of subordination shall be required by any
mortgage. In confirmation of such subordination, Tenant shall execute promptly
any certificate that Landlord may request. Tenant hereby constitutes and
appoints Landlord as the Tenant's attorney-in-fact to execute any such
certificate or certificates for and on behalf of the Landlord. Landlord,
however, covenants and agrees that it will obtain from all future mortgagees
holding a mortgage on the premises written assurance that so long as the Tenant
is not in default under the terms and conditions of this Lease, Tenant's use,
occupation and possession of the premises and all rights of Tenant under this
Lease shall not be affected or disturbed by the bringing of any action to
foreclose or otherwise enforce any such mortgage.
16. ESTOPPEL CERTIFICATES: The Landlord and the Tenant shall, without charge,
---------------------
at any time, and from time to time, as the same shall be reasonably requested,
within ten (10) days after a written request by the other, certify by a written
instrument to the other, or any person, firm or corporation specified by the
other:
(a) That there is no default under this Lease, that this Lease is
unmodified and in full force and effect, or if there have been any
modifications, that the same is in full force and effect as modified and stating
the modifications.
(b) Whether or not there are then existing any setoffs or defenses against
the enforcement of any of the agreements, terms, covenants, or conditions
contained herein and any modifications hereof upon the part of the Tenant to be
performed or complied with, and if so, specifying the same.
(c) The date, if any, to which the rent and other charges hereunder have
been paid.
(d) That prior to the date of the issuance of the certificate required
hereby, to the best of the knowledge of the signer thereof, there has been no
violation or breach which would constitute a default under this Lease.
17. DEFAULT:
-------
(a) The occurrence of any of the following shall constitute an event of
default:
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<PAGE>
(i) Delinquency in the payment of any rent including supplemental
or additional rent payable under this Lease continuing for a period of ten (10)
days after notice.
(ii) Delinquency by the Tenant in the performance of or compliance
with any of the conditions contained in this Lease other than those referred to
in the foregoing subparagraph (1), for a period of thirty (30) days after
written notice thereof from the Landlord to the Tenant, except for any default
not susceptible of being cured within such thirty (30) day period, in which
event the time permitted to the Tenant to cure such default shall be extended
for as long as shall be necessary to cure such default, provided the Tenant
commences promptly and proceeds diligently to cure such default, and provided
further that such period of time shall not be so extended as to jeopardize the
interest of the Landlord in this Lease or so as to subject the Landlord or the
Tenant to any civil or criminal liabilities.
(iii) Filing by the Tenant in any court pursuant to any statute,
either of the United States or any state, of a petition in bankruptcy or
insolvency, or for reorganization, or for the appointment of a receiver or
trustee of all or a portion of the Tenant's property, or an assignment by the
Tenant for the benefit of creditors.
(iv) Filing against the Tenant in any court pursuant to any statute,
either of the United States or of any state, of a petition in bankruptcy or
insolvency, or for reorganization or for appointment of a receiver or trustee of
all or a portion of the Tenant's property, if within ninety (90) days after the
commencement of any such proceeding against the Tenant such petition shall not
have been dismissed.
(b) Upon the occurrence of an event of default, the Landlord at any time
may give written notice to the Tenant specifying such event of default and
stating that this Lease shall expire on the date specified in such notice, which
shall be at least thirty (30) days after the giving of such notice, and upon the
date specified in such notice this Lease and all rights of the Tenant hereunder
shall terminate.
(c) Upon the expiration of this Lease pursuant to subparagraph 17 (b)
above, the Tenant shall peacefully surrender the Leased property to the Landlord
and the Landlord, upon or at any time after any such expiration, may without
further notice reenter the Leased property and repossess it by summary
proceedings, ejectment, or otherwise, and may dispossess the Tenant and remove
the Tenant and all other persons and property from the Leased property and may
have, hold and enjoy the Leased property and the right to receive all rental
income therefrom.
<PAGE>
(d) At any time after such expiration, the Landlord may relet the Leased
property or any part thereof for such term and on such conditions as the
Landlord, in its uncontrolled discretion, may determination and may collect and
receive the rent therefor. The Landlord shall in no way be responsible or
liable for any failure to relet the Leased property or any part thereof, or for
any failure to collect any rent due upon any such reletting.
(e) No such expiration of this Lease shall relieve the Tenant of its
liability and obligations under this Lease, and such liability and obligations
shall survive any such expiration. In the event of any such expiration, whether
or not the Leased property or any part thereof shall have been relet, the Tenant
shall pay to the Landlord the rent and supplemental and additional rent required
to be paid by the Tenant up to the time of such expiration, and thereafter the
Tenant, until the end of what would have been the term of this Lease in the
absence of such expiration, shall be liable to the Landlord for, and shall pay
to the Landlord, as and for liquidated and agreed current damages for the
Tenant's default;
(i) the equivalent of the amount of the rent and additional rent which
would be payable under this Lease by the Tenant if this Lease were still in
effect, less
(ii) the net proceeds of any reletting effected pursuant to the
provisions of subparagraph 17(d) above, after deducting all the Landlord's
expenses in connection with such reletting, including, without limitation,
all repossession costs, brokerage commissions, legal expenses, reasonable
attorney's fees, alteration costs and expenses of preparation for such
reletting.
(f) The Tenant shall pay such current damages, called deficiency, to the
Landlord monthly on the days on which the rent, supplemental, and additional
rent would have been payable under this Lease if this Lease were still in
effect, and the Landlord shall be entitled to recover from the Tenant each
monthly deficiency as such deficiency shall arise. At any time after such
expiration, whether or not the Landlord shall have collected any monthly
deficiency, the Landlord shall be entitled to recover from the Tenant, and the
Tenant shall pay to the Landlord, on demand, as and for liquidated and agreed
final damages for the Tenant's default, an amount equal to the difference
between the rent and supplemental and additional rent reserved hereunder for the
unexpired portion of the Lease term and the then fair and reasonable rental
value of the Leased property for the same period. If the Lease property or any
part thereof is relet by the Landlord for the unexpired term of this Lease, or
any part thereof, before presentation of proof of such liquidated damages to any
court, commission, or tribunal, the amount of rent reserved upon such
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<PAGE>
reletting shall be deemed prima facie to be the fair and reasonable rental value
for the part or the whole of the Leased property so relet during the term of the
reletting. Nothing herein contained shall limit or prejudice the right of the
Landlord to prove for and obtain as liquidated damages by reason of such
termination an amount equal to the maximum allowed by any statute or rule of law
in effect at the time when, and governing the proceedings in which, such damages
are to be proved.
(g) The Tenant hereby expressly waives, so far as permitted by law, the
service of any notice of intention to reenter provided for in any statute, or of
the institution of legal proceedings to that end. The Tenant, for and on behalf
of itself and all persons claiming through or under the Tenant, also waives any
right of redemption or reentry or repossession or to restore the operation of
this Lease in case the Tenant shall be dispossessed by a judgement or by warrant
of any court or judge or in case of reentry or repossession by the Landlord. In
case of any expiration of this Lease, the Landlord and the Tenant, so far as
permitted by law, waive trial by jury in any action, proceeding, or counterclaim
brought by either of the parties hereto against the other on any matter arising
out of or in any way connected with this Lease, the relationship of Landlord and
Tenant, the Tenant's use or occupancy of the Leased property, or any claim or
injury or damage. The terms "enter", "reenter", "entry", or "reentry", as used
in this Lease are not restricted to their technical legal meaning.
18. COSTS AFTER DEFAULT: The Tenant shall pay and indemnify the Landlord
-------------------
against all legal costs and charges, including counsel fees lawfully and
reasonably incurred, in obtaining possession of the Demised Premises after a
default of the Tenant or after the Tenant's default in surrendering possession
upon the expiration of earlier termination of the term of the Lease or enforcing
any covenant of the Tenant herein contained. In any action between the parties
under this Lease the prevailing party shall be entitled to recover its
reasonable attorney's fees.
19. SIGNS: The Tenant may place and maintain a sign on said Demised Premises
-----
in a location designated by Landlord, which sign shall first be approved by said
Landlord, which approval shall not be unreasonably withheld, and shall be
subject to the approval of the local zoning officer.
20. NOTICES: Notices and demands required herein or permitted to be sent to
-------
those listed hereunder shall be sent either by first class mail, postage
prepaid, Federal Express or other reputable overnight courier services, or shall
be hand delivered and shall be deemed to have given upon delivery or refusal of
delivery. All notices shall be sent or hand delivered to the following
addresses:
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<PAGE>
LANDLORD: Albert J. Salame Company
P.O. Box 766
Danbury, CT 06813
TENANT: Danbury Pharmacal Inc.
131 West Street
Danbury, CT 06810
Attention: Anthony DiMasso
----------------------------
or as such other addresses requested, in writing, by either party upon fifteen
(15) days notice to the other party.
21. CHANGE OF ADDRESS: The persons and places to which notices are to be
-----------------
mailed may be changed from time to time by Landlord or Tenant upon written
notice to the other.
22. SHORT FORM: Either party may request the other to execute a
----------
memorandum of Lease suitable for recording containing information
required by Section 47-19 of the Connecticut General Statutes (Rev.
1958) but specifically excepting the rental provisions hereof.
23. INTERPRETATION: In construing this Lease, the singular shall include the
--------------
plural and the plural the singular, and the neuter gender shall include the
masculine and feminine genders, and vice versa, as the context may require.
If there is more than one party tenant, the covenants of the Tenant shall
be the joint and several obligations of each such party. If the Tenant is a
partnership, the covenants of the Tenant shall be the joint and several
obligations of each of the partners and the obligation of the firm.
24. CAPTIONS: The captions of this agreement are inserted for convenience in
--------
reference only and do not constitute a part of this agreement and shall not be
construed as defining or limiting in any way the scope or intent of the
provisions hereof.
25. SUCCESSORS: This Lease shall be binding upon the parties hereto, and the
----------
respective successors, assigns, heirs, and legal representatives of the parties
hereto.
26. MODIFICATION: This Lease contains the entire agreement between the
------------
parties and shall not be modified in any manner except by an instrument in
writing executed by the parties. If any term or provision of this Lease or the
application thereof to any person or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Lease shall not be invalid and
be enforced to the fullest extent permitted by law.
27. WAIVERS OF LIEN: Landlord herein reserves the right to
---------------
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<PAGE>
request from the Tenant Waivers of Lien in the event Tenant shall commence to do
interior repairs to said premises. In the event the Landlord requests such
Waivers of Lien, he shall supply the same to the Tenant and the Tenant shall
have the same executed by all suppliers of material and labor to said Demised
Premises prior to the commencement of said work.
28. ADDITIONAL RENT - OTHER IMPOSITIONS: Tenant shall bear and pay as
-----------------------------------
additional rent its proportionate share (unless usage is metered or charged
directly to the Demised Premises in which event Tenants will pay such charges
directly) as hereinafter set forth, of all charges for water supplied to the
Entire Premises, including sewer rents, any expenses of any municipal
assessments that may be levied on the land and buildings to the extent that such
assessments are and become due and payable in full or in installments during the
term and any extension of this Lease. The proportionate share to be paid by the
Tenant shall be computed on the basis of the total rentable floor area of the
Demised Premises as it bears to the total rentable floor area of the Entire
Premises. Upon receipt of each bill for such taxes, assessments, or charges,
Landlord shall notify Tenant of the portion thereof payable by Tenant and
enclose a copy of the bill and computation and Tenant shall within fifteen (15)
days thereafter pay such portion to Landlord. The Landlord and Tenant agree that
Tenant's proportionate share of the buildings shall be sixty-five (65%) percent.
Said figure is based upon Tenant's rentable floor area of 87,680 square feet,
and the total rentable floor area in the Entire Premises of 135,000 square feet.
(a) Additional Rent - Common Area: Tenant agrees that it will pay to the
-----------------------------
Landlord as and when bills are rendered therefore, the allocated share taking
into account any costs and maintenance assumed directly by Tenant for area
reserved to its exclusive use of all operating costs excluding mortgage interest
and amortization payments for maintenance of the Common Facilities as herein
defined, including but not limited to the following costs incurred: parking lot
and common area lighting including the replacement of non-functioning or
malfunctioning bulbs; common area and parking lot cleaning and general
maintenance and landscaping; garbage removal; snow and ice removal; premiums on
liability insurance policies for any common area in parking lot; policing and
maintaining of the parking area, walks and ways and for areas common to all
Tenants of the buildings as may be necessary from time to time including
restriping the paved area. Tenant shall contract, maintain, and pay for its own
garbage removal if required by Landlord. Any extraordinary costs or expense
attributable to Tenant's use shall be the sole responsibility of Tenant.
(b) Additional Rent - Real Estate Taxes: Tenant agrees to
-----------------------------------
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<PAGE>
pay as additional rent its proportionate share, as hereinafter set forth, of all
real estate taxes assessed against the land and buildings. The proportionate
share of the cost to be paid by the Tenant shall be computed on the basis of the
total rentable floor area of the Demised Premises as it bears to the total
rentable floor area of the Entire Premises. The Landlord and Tenant agree that
Tenant's proportionate share of the buildings shall be sixty-five (65%) percent.
Said figure is based upon Tenant's rentable floor area of 87,680 square feet,
and the total rentable floor area in the Entire Premises of 135,000 square feet.
Real estate taxes for the buildings will be determined from the assessment of
the land and buildings times the established mill rate. In the event real
estate taxes are assessed separately against any of the demised buildings during
the term of the Lease, the Landlord and Tenant agree the Tenant shall pay its
proportionate share as hereinbefore set forth of the taxes attributable to the
land and shall pay all of the taxes attributable to each separately assessed
Demised Building.
(c) Additional Rent Insurance: Tenant agrees it will pay to the Landlord,
-------------------------
its proportionate share of the costs of all hazard, fire, liability and rental
value insurance incurred for the buildings in which the Demised Premises are
located and also for the Entire Premises. Said insurance shall be for the
minimum of the fair replacement value of said buildings and public liability
insurance in an amount not less than two million and shall be in the form of an
extended coverage policy. The proportionate share of the costs to be paid by
Tenant shall be computed on the basis of the total floor area of the Demised
Premises as it bears to the total floor area of the buildings, and the same
shall be deemed additional rent under this Lease. The Landlord and Tenant agree
that Tenant's proportionate share of the buildings shall be sixty-five (65%)
percent. Said figure is based upon Tenant's rentable floor area of 87,680
square feet which amount may be changed after verification and certification by
Landlord, and the total rentable floor area in Entire Premises of 135,000 square
feet. Notwithstanding the above, in the event the rating of said buildings is
increased because of the use of said buildings by a particular tenant, then in
such event that increase in the insurance premium shall be attributable to the
Tenant.
(d) Payment of Additional Rent: Notwithstanding any other paragraph to the
--------------------------
contrary, Tenant shall pay its additional rent as determined by this paragraph
30 on a monthly basis, on the first day of each month, in addition to the
minimum guaranteed rental. This monthly payment to be determined prior to the
commencement date shall be an estimate based on a total annualized figure per
square foot divided into 12 equal payments. On February 1st of each year during
the Lease term that additional rent is due, the Landlord will compute any over-
payment or under-payment of said
-18-
<PAGE>
additional rent, and shall bill the Tenant within thirty (30) days or shall
credit the Tenant accordingly.
(e) Net Lease: All rent shall be absolutely net to Landlord, so that this
---------
Lease shall, except as hereinbefore provided to the contrary, yield net to the
Landlord the rent, to be paid in each year during the term of this Lease and
any renewal term. Accordingly, the Tenant's proportionate share of all costs,
expenses and obligations of every kind or nature whatsoever, relating to the
Demised Premises or the Entire Premises, or any improvements thereon, which may
arise or become due during the term of this Lease shall be paid by the Tenant,
and the Landlord shall be indemnified and saved harmless by the Tenant from and
against same. Nothing herein contained shall be deemed to require the Tenant to
pay or discharge any liens or mortgages of any character whatever which may
hereafter be placed upon the Demised Premises by the affirmative act of the
Landlord. The Landlord and Tenant agree that Tenant's proportionate share of the
buildings shall be sixty-five (65%) percent.
(f) Landlord agrees to maintain complete records of all costs reimbursable
by Tenant under the terms of this Lease. All such records shall be maintained in
accordance with generally accepted accounting practices and shall be retained
for a period of four (4) years following the date on which such costs were
charged to Tenant. Tenant shall have the right, through its representatives, to
examine, at the Landlord's office, such records at all reasonable times.
(g) If Landlord and Tenant cannot reach agreement on all costs reimbursable
by Tenant under the Lease, then Landlord and Tenant agree the matter shall be
determined by arbitration.
(i) Landlord and Tenant shall each appoint an arbitrator by written
notice given to the other party not later than twenty (20) days after Landlord
and Tenant have failed to agree. If either Landlord or Tenant shall have
failed to appoint an arbitrator within such period of time and, thereafter,
shall have failed to do so by written notice given within a period of ten (10)
days after notice by the other party requesting the appointment of such
arbitrator, then such arbitrator shall be appointed by the American Arbitration
Association or its successor (the branch office of which is located in or
closest to the Premises) upon request of the party who shall have timely
appointed an arbitrator.
(ii) The two (2) arbitrators shall attempt to reach agreement on the
matter at issue. In the event they are unable to reach agreement within
thirty (30) days after their joint appointment, they shall appoint a third
(3rd) arbitrator (the "Referee") by written notice given to both Landlord and
Tenant, and, if they fail to do so by written notice given within thirty
-19-
<PAGE>
(30) days after their appointment, the Referee shall be appointed by the
American Arbitration Association or its successor upon request of Landlord or
Tenant.
(iii) The Referee, selected as aforesaid, shall within thirty (30)
days after his appointment render his decision, which decision shall be strictly
limited to choosing one of the two determinations made by the two arbitrators
chosen by Landlord and Tenant with respect to the matter. The decision of such
arbitrators or the Referee, as the case may be, shall be binding upon Landlord
and Tenant. Duplicate original counterparts of such decision shall be sent
forthwith by the arbitrators or the Referee, as the case may be, by certified
mail, return receipt requested, to both Landlord and Tenant.
29. SURRENDER OF PREMISES: Notwithstanding anything to the contrary in this
---------------------
Lease on the last day of the term hereof, or on any sooner termination, Tenant
shall surrender the Premises to Landlord in the same condition as received,
clean and free of debris, but obsolescence, ordinary wear and tear and damage by
fire or the elements excepted. Tenant shall repair any damage to the Premises
occasioned by the installation or removal of its trade, fixtures, furnishings
and equipment.
30. HOLDING OVER: If Tenant, with Landlord's consent, remains in possession of
------------
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease with fifty (50%) percent premium paid to Landlord, unless other
arrangements are made with Tenant at Leased sale option, pertaining to the
obligations of Tenant.
31. LATE CHARGE: There shall be assessed against the Tenant at the Landlord's
-----------
option in addition to the Landlord's other remedies named herein, a late charge
for rent not received by the Landlord by the end of fifteen (15) days after the
date it is due in the amount of five (5%) percent of the monthly payment.
32. MAINTENANCE OF HVAC SYSTEM: Tenant agrees to maintain during the term of
--------------------------
this Lease and any renewals or extensions thereof, a service or maintenance
agreement in connection with the HVAC system with a company acceptable to the
Landlord for at least a semiannual servicing of said equipment.
33. QUIET ENJOYMENT: The Landlord covenants to the Tenant, subject to the
---------------
conditions and covenants herein contained on paying the rent and performing the
covenants aforesaid, that the Tenant shall and may peaceably and quietly have,
hold and enjoy the Demised Premises for the term aforesaid.
-20-
<PAGE>
34. LANDLORD'S WORK: Landlord at Landlord's sole cost and expense, shall
---------------
perform and complete the construction work set forth in the work letter signed
by the parties and attached hereto as Exhibit B and will apply for and prosecute
any permits and governmental approvals required. All exterior work shall comply
with the requirements of the Americans with Disabilities Act.
35. HAZARDOUS WASTE: The Tenant agrees that the storage or use of any
---------------
hazardous waste substance or petroleum product material shall be in compliance
with all federal, state or local laws or regulations. The Tenant further
agrees that it shall be responsible for all costs, damages or liability that
may be incurred in connection with its hazardous waste discharge, spillage, or
any other violation of any law in connection with its storage or use of
hazardous waste materials or petroleum products. Tenant agrees to notify
Landlord within twenty-four (24) hours of its having any notice, whether actual
or implied, of any hazardous waste or petroleum products discharge or violation
of this paragraph.
The Tenant agrees that it shall be responsible for the cleanup of any
discharge or spillage caused by Tenant. In the event of Tenant's hazardous
waste discharge or spillage, if necessary, the Tenant shall immediately have
said soil tested by a firm specializing in said work and enter into a
contract for the removal of said soils and replacing of soils with clean fill
and for the replacing of any areas disturbed because of said discharge or
spillage. All of said work shall take place within one hundred twenty (120)
days of knowledge of said discharge or spillage.
In the event Tenant fails to perform said work as set forth in this
paragraph, then, in such event, the Landlord may cause the same to be completed
and the Tenant shall be responsible for the payment of same within ten (10) days
after presentation of bill to Tenant for the work performed, together with all
reasonable costs incurred by Landlord in the performance of said work and
repairing any damage to the entire Premises and including any reasonable
attorneys' fees incurred. Any monies paid by Landlord in connection
herewith shall be repaid to Landlord together with interest at the rate of
twelve percent (12%) per annum until paid.
Landlord shall be responsible for any claims, judgments, damages,
penalties, fines, costs, liabilities (including sums paid in settlements of
claims) or loss including attorneys' fees, consultant fees, and expert fees
which arise during or after the term from or in connection with the presence or
suspected presence of toxic or hazardous substances in the soil, groundwater or
soil vapor on or under Building E, as of the Commencement Date of this Lease
unless the toxic or hazardous substances are present solely as a result of the
actions or omissions of Tenant, its officers, employees or agents.
-21-
<PAGE>
36. TENANT ALLOWANCE: Landlord agrees Tenant shall be entitled
-----------------
during each year of the lease to FIVE THOUSAND ($5,000.00) DOLLARS worth of
improvements to the exterior of the premises. All requests for such
improvements shall be submitted in writing to the Landlord prior to the
expiration of each lease year.
In the event Tenant elects to forego the FIVE THOUSAND ($5,000.00) DOLLAR
entitlement in any year or years during the lease term then that year or years
entitlement shall be added to the next succeeding year the intent of the parties
being that the FIVE THOUSAND ($5,000.00) DOLLARS be cumulative during the lease
term providing however, the total entitlement shall not exceed FIFTY THOUSAND
($50,000.00) DOLLARS nor shall Tenant have the right to accelerate any years
entitlement prior to its accrual.
37. RIGHT OF FIRST REFUSAL: Should the Landlord, during the lease term or any
----------------------
extension thereof, elect to sell all or any portion of the leased premises,
whether separately or as a part of the larger parcel, known as 131 West Street,
Danbury, Connecticut, the Tenant shall have the right of first refusal to meet
any bona fide offer of sale on the same terms and conditions of such offer.
Upon the Tenant's failure to meet such bona fide offer within 30 days after
notice thereof from the Landlord, the Landlord shall be free to sell the
premises or portion thereof to such third person in accordance with the terms
and conditions of his offer.
38. OPTION TO EXTEND: The Tenant shall have an option to extend
-----------------
this Lease on the entire 87,680 square feet of demised premises for an
additional ten (10) years.
The minimum net rental per annum on the buildings designated B, C, D, and E
as shown on the site plan attached hereto as Exhibit A in the initial and
succeeding Lease years during the extended Lease term shall be adjusted annually
and shall be the minimum net rental for the previous Lease year times the
percentage increase in the Consumer Price Index for the Northeast Region for the
previous 12 months payable in monthly installments. Providing, however, that in
any one year the increase shall not be greater than seven (7%) percent or less
than two and one-half (2.5%) percent.
The minimum net rental per annum with respect to Building A during the
extended lease term will be $102,470 times the cumulative percentage
increase in the Consumer Price Index for the Northeast Region during the
previous ten (10) years (The Initial Lease Term) payable in equal monthly
installments.
All other terms and conditions of this Lease, except to the extent
modified by this paragraph, shall remain the same and in full force and effect
during the extended term. The Option to Extent must be exercised in writing by
sending written notice thereof to the Landlord not later than one (1) year prior
to the expiration of the original lease term.
-22-
<PAGE>
39. LANDLORD LIABILITY: It is expressly understood and agreed by Tenant that
------------------
none of Landlord's covenants, understandings or agreements are made or intended
as personal covenants, undertakings or agreements by Landlord, and any liability
for damage or breach of non-performance by Landlord shall be collectible only
out of Landlord's interest in the buildings and land and no personal liability
is assumed by, nor at any time may be asserted against Landlord or his heirs, or
legal representatives, all such liabilities, if any, being expressly waived and
released by Tenant. Provided, however, if Tenant obtains a final judgement
against Landlord based upon breach by Landlord of his covenants, warranties,
undertakings or agreements contained in this Lease, and if Landlord does not
satisfy such judgement within thirty (30) days after entry thereof, Tenant may,
successively if necessary (and in addition to all other rights and remedies
provided at law or in equity or elsewhere herein) set off the amount of such
judgement against the rent or any other amounts payable to Landlord by Tenant
hereunder next due under the provisions of this Lease. Anything herein to the
contrary notwithstanding, the waiver of Landlords personal liability set forth
in this Paragraph 39 shall not apply to any liabilities of Landlord arising
pursuant to Paragraph 35, Hazardous Waste, or for over-payment of any rent by
Tenant.
It is further expressly understood and agreed by Tenant that Landlord
reserves the right, at any time during the Lease Term, to transfer title to the
demised premises free from any Right of First Refusal set forth in Paragraph 37
to a Limited Liability Company or other limited liability entity providing
Landlord retains a controlling interest in said company or entity.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals and to a duplicate of the same tenor and date, this 1st day of December,
1995.
Signed, sealed and delivered LANDLORD:
/s/ /s/
- ------------------------- -------------------------
ALBERT J. SALAME
TENANT:
DANBURY PHARMACAL INC.
BY: /s/
- ------------------------- -------------------------
Its: SENIOR VICE PRESIDENT AND GENERAL
MANAGER
---------------------------------
Duly Authorized
State of Connecticut)
) ss. Danbury
County of Fairfield )
On the 1st day of December, 1995, before me personally came Albert J.
Salame to me known or satisfactorily proven to be the individual described in
and who executed the foregoing document in my presence and acknowledged said
signature as a true and free act and deed, before me.
------------------------------
Commissioner of the Superior Court
<PAGE>
State of New York )
) ss.
County of Putnam )
On the 1st day of December 1995, before me personally came Jay Cayado,
who being by me duly sworn did depose and say that he is the Senior Vice
President and General Manager of Danbury Pharmacal, Inc., the corporation
described in which executed the foregoing document, and that he as such Senior
Vice President and General Manager being authorized so to do, executed the
document for the purposes therein contained by signing the name of the
corporation by himself as
/s/ Nancy M. Perez
------------------------------
Notary Public
My Commission Expires
NANCY M. PEREZ
NOTARY PUBLIC, STATE OF NEW YORK
NO. 4968581
QUALIFIED IN PUTNAM COUNTY
COMMISSION EXPIRES JULY 2, 1996
<PAGE>
EXHIBIT A
[MAP APPEARS HERE]
<PAGE>
EXHIBIT A-1
127-131 West St., Danbury, CT
All those certain pieces or parcels of land with the buildings and improvements
located thereon, situated in the City of Danbury, County of Fairfield and State
of Connecticut located on West Street and as shown on a certain map entitled
"BOUNDARY MAP - AREA = 5.5436 ACRES MAP PREPARED FOR ALBERT J. SALAME SHOWING
PROPERTY SITUATED AT 127 - 131 WEST STREET, DANBURY, CONNECTICUT SCALE 1" = 40'
JAN. 29, 1993", certified substantially correct by Sydney A. Rapp, Jr., R.L.S.,
which map is to be filed with the Office of the Town Clerk of the City of
Danbury.
<PAGE>
EXHIBIT B
DANBURY PHARMACAL INC.
131 WEST STREET
DANBURY, CT.
LEASE RENEWAL WORK LETTER
- -------------------------
Albert J. Salame Company will perform the following work listed hereafter, in
connection with Danbury Pharmacal's lease renewal agreement. The work may be
performed in stages on portion(s) of the building.
1) The Dandy Distributor space will be emptied of inventory, furniture,
fixtures and equipment. The space will be cleaned and all remnants of food
processing, handling and/or storage will be removed.
2) Utilities now serving the space are to remain intact along with standard
lighting and heating facilities.
3) Interior partition walls, insulation and refrigerant lines as shown on the
enclosed Existing Floor Plan print dated August 18, 1994, and marked
Attachment (A), will be removed, leaving the space clear and open as
possible except where walls are supporting past structures or are acting as
fire protection dividers.
4) Meat room floor to be purged of all food processing residue and thoroughly
disinfected.
5) New EPDM roofing will be installed on the buildings occupied by Danbury
Pharmacal, in accordance with material and installation specifications and
warranty standards provided by major manufacturers of roofing materials,
e.g., Goodyear, Firestone, Carlisle and/or equal.
6) The Landlord will close in the existing loading dock including the
construction of an architectural feature glass front entry area and leveling
of existing concrete floor. The Landlord and Tenant shall agree on the final
design for these facade improvements.
7) All trees, brush and other vegetation and debris will be removed, to ground
level, from behind the expansion building, to the rear property line.
8) The Tenant and Landlord will jointly pursue state and/or Northeast Utilities
participation in an effort to relocate exisitng overhead utilities
underground, eliminate existing utility poles and pad mount existing pole
mounted transformers.
<PAGE>
9) A new 1 1/2" to 2 1/2" thick asphalt pavement overlay will be installed in
the Danbury Pharmacal parking areas, from the rear (Kingswood Kitchen) gate
to the front landscaped island, to both improve the condition and
appearance of the parking surface and to facilitate positive drainage.
<PAGE>
EXHIBIT A
RESOLVED, that the filing of an application for State financial assistance
from the Department of Economic Development of the State of Connecticut by
the Company in an amount not to exceed $500,000 is hereby approved and
that each of Javier (Jay) A. Cayado, the Senior Vice President and General
Manager of the Company and Anthony J. DiMasso, the Controller of the
Company is directed to execute and file such application with the
Connecticut Department of Economic Development, to provide such additional
information, to execute such other documents as may be required, to
execute an Assistance Agreement with the State of Connecticut for State
financial assistance if such an agreement is offered, to execute any
amendments, recisions, and revisions thereto, and to act as the authorized
representative of the Company;
RESOLVED, that the officers of the Company, or any of them, are hereby
authorized to take such additional actions and execute and deliver such
additional documents or instruments, in the name and on behalf of the
Company, as such officer shall approve as necessary or desirable in order
to give effect to the foregoing resolutions, any such execution and/or
delivery, or the taking of any such action, to be conclusive evidence of
such approval and of the approval of the Board of Directors of the
Company.
<PAGE>
CERTIFIED RESOLUTIONS
I, PAUL FEUERMAN, SECRETARY OF DANBURY PHARMACAL, INC., a Delaware corporation
(the "Corporation"), do hereby certify that the resolutions attached hereto as
Exhibit A were duly adopted by the unanimous written consent of the Board of
Directors of the Corporation as of November 1, 1995, and that said resolutions
have not been rescinded, amended or modified and are in full force and effect as
of the date hereof.
IN WITNESS WHEREOF, I have executed this certificate and affixed the corporate
seal of the Corporation.
Dated as of November 8, 1995 /s/ Paul Feuerman
-----------------
Secretary
Corporate Seal
<PAGE>
EXHIBIT 10.11
AGREEMENT OF LEASE
between
SAMMIS MORRISTOWN ASSOCIATES,
Landlord
and
SCHEIN PHARMACEUTICAL, INC.
Tenant
PARK AVENUE AT MORRIS COUNTY
FLORHAM PARK, NEW JERSEY
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Preamble (Basic Provisions and Definitions)................................ 1
1. Premises, Term and Purpose ........................................... 2
2. Rent ................................................................. 4
3. Operating Expenses ................................................... 4
4. Completion of Improvements and Commencement
of Rent ............................................................. 10
5. Covenants as to Condition of Premises
and Compliance with Laws ............................................ 11
6. Tenant Improvements, Alterations and
Installations ....................................................... 11
7. Various Negative Covenants by Tenant ................................. 12
8. Various Affirmative Covenants of Tenant .............................. 13
9. Building Directory and Signage ....................................... 13
10. Casualty and Insurance ............................................... 14
11. Indemnification ...................................................... 16
12. Non-Liability of Landlord ............................................ 16
13. Remedies and Termination Upon Tenant Default ......................... 16
14. Remedies Cumulative; Non-Waiver ...................................... 17
15. Services; Electric Energy ............................................ 18
16. Subordination ........................................................ 20
17. Curing Tenant's Defaults ............................................. 20
18. Notices .............................................................. 20
19. Quiet Enjoyment ...................................................... 21
20. Security Deposit ..................................................... 21
21. Inspection and Entry by Landlord ..................................... 22
22. Brokerage ............................................................ 22
23. Parking .............................................................. 23
24. Renewal Option ....................................................... 23
25. Landlord's Inability to Perform ...................................... 24
26. Condemnation ......................................................... 24
27. Assignment and Subletting ............................................ 26
28. Environmental Laws ................................................... 27
29. Parties Bound ........................................................ 28
30. Miscellaneous ........................................................ 29
31. Hold Over Tenancy .................................................... 30
32. Tenant's Expansion Options ........................................... 30
33. Right of First Offer ................................................. 32
34. Satellite Dish Antenna ............................................... 32
35. Cafeteria ............................................................ 33
36. Utility Rebates ...................................................... 33
</TABLE>
LIST OF EXHIBITS
----------------
<TABLE>
<CAPTION>
Exhibit
- -------
<S> <C>
A Floor Plan
A-1 Site Plan of Building
A-2 Site Plan of Complex
B and B-1 Work Letter to Lease
C Rules and Regulations
D Cleaning Services
E Subordination, Non-Disturbance and Attornment Agreement
F Option Space A Floor Plan
G Option Space B Floor Plan
H Operating Expense Statement
I Security Services
</TABLE>
-i-
<PAGE>
INDEX OF DEFINED TERMS
----------------------
<TABLE>
<CAPTION>
TERMS PARAGRAPH
----- ---------
<S> <C>
Additional Rent .................................................... Pgh 2(a)
Additional Insureds ................................................ Pgh 10(b)
Building Common Areas .............................................. Pgh 1(d)
Building ........................................................... Preamble
Building Holidays .................................................. Preamble
Building's Proportionate Share of Complex Expenses ................. Preamble
Commencement Date .................................................. Pgh 1(b)
Common Areas ....................................................... Pgh 1(d)
Complex Common Areas ............................................... Pgh 1(d)
Complex Land ....................................................... Pgh 1(a)
Complex ............................................................ Preamble
Complex Expenses ................................................... Pgh 3(a)
Demised Premises ................................................... Preamble
Designated Broker .................................................. Preamble
ECRA ............................................................... Pgh 28
Exclusive Space .................................................... Preamble
Expense Projection ................................................Pgh 3(c)(2)
Expenses ........................................................... Pgh 3(a)
Expiration Date .................................................... Preamble
Fair Market Value .................................................. Pgh 24(a)
Final Plans .........................................Exhibit B, Section 3.1(a)
Fixed Rent ......................................................... Preamble
Hazardous Substance ................................................ Pgh 28(c)
Improvements ....................................................... Pgh 1(e)
Initial Year ....................................................... Pgh 3(a)
Land ............................................................... Pgh 1(a)
Landlord ........................................................... Pgh 30(c)
Late Charge ........................................................ Preamble
Laws ............................................................... Pgh 5(b)
Lease Year ......................................................... Pgh 3(a)
Monthly Fixed Rent ................................................. Preamble
NJDEPE ............................................................. Pgh 28
Non-Exclusive Spaces ............................................... Preamble
Option Space A .................................................. Pgh 32(a)(1)
Option Space B ..................................................... Pgh 32(b)
Permitted Use ...................................................... Preamble
Preliminary Plans ......................................Exhibit B, Section 2.1
Prime Rate ......................................................... Preamble
Projected Expense Increase ...................................... Pgh 3(c) (2)
Real Estate Taxes .................................................. Pgh 3(a)
Renewal Term ....................................................... Preamble
Security Deposit ................................................... Preamble
Tenant Delay ...........................................Exhibit B, Section 3.2
Tenant Improvements .................................Exhibit B, Section 2.1(a)
Tenant's Construction Cost ..........................Exhibit B, Section 2.1(a)
Tenant's Proportionate Share ....................................... Preamble
Term ............................................................... Preamble
Third Floor Offer Space ............................................ Pgh 33(a)
</TABLE>
-ii-
<PAGE>
LEASE AGREEMENT DATED APRIL 16, 1993
BETWEEN SAMMIS MORRISTOWN ASSOCIATES, a California general partnership
("Landlord"), having an office address c/o Gale & Wentworth, 100 Campus Drive,
Florham Park, New Jersey, 07932 AND SCHEIN PHARMACEUTICAL, INC., a New York
corporation ("Tenant"), having an address at 1800 Northern Boulevard, Roslyn,
New York 11576.
PREAMBLE
--------
BASIC LEASE PROVISIONS AND DEFINITIONS.
In addition to other terms elsewhere defined in this Lease, the
following terms whenever used in this Lease should have only the meanings set
forth in this Preamble, unless such meanings are expressly modified, limited or
expanded elsewhere herein.
1. Premises or Demised Premises: The Demised Premises are outlined
----------------------------
in red on the floor plan annexed hereto and made a part hereof as Exhibit A,
consisting of approximately 40,899 square feet of gross rentable area of office
space located on the third floor, together with all fixtures, equipment,
improvements and installations attached thereto, in the building situated on
the Land (as defined in Paragraph 1(a) of this Lease) located at One Hundred
Campus Drive, in the Borough of Florham Park, Morris County, New Jersey, as
shown on the site plan attached hereto and made a part hereof as Exhibit A-1
(hereinafter referred to as the "Building"), the Building being part of an
office complex presently consisting of two office buildings known as Park Avenue
at Morris County, as shown on the plan attached hereto and made part hereof as
Exhibit A-2 (hereinafter referred to as the "Complex") situated on the Complex
Land (as defined in Paragraph 1(a) of the Lease).
2. Term: Twelve (12) years.
----
3. Expiration Date: Midnight on the last day of the calendar month
---------------
occurring twelve (12) years after the Commencement Date or, to the extent that
Tenant exercises the renewal options contained in Paragraph 24 of this Lease,
the last day of the last Renewal Term.
4. Renewal Term: Three (3) Renewal Terms of five (5) years each.
------------
5. Permitted Use: General office use, including, without
-------------
limitation, executive, sales, administrative and data processing offices.
6. Fixed Rent: Twenty-five Dollars ($25.00) per square foot of
----------
gross rentable area of office space per annum, being a total of One Million
Twenty-two Thousand Four Hundred Seventy-five Dollars ($1,022,475) per annum
from the Commencement Date until the day prior to the sixth (6th) anniversary of
the Commencement Date; Twenty-seven Dollars and Seventy-five Cents ($27.75) per
square foot of gross rentable area of office space per annum, being a total of
One Million One Hundred Thirty-Four Thousand Nine Hundred Forty-seven Dollars
and Twenty-five Cents ($1,134,947.25) per annum from the sixth (6th) anniversary
of the Commencement Date until the Expiration Date, subject, however, to the
Rent Abatement provided for in Paragraph 2(d) of this Lease; and Ninety-five
percent (95%) of Fair Market Value, as defined in Paragraph 24 of this Lease,
during the three (3) Renewal Terms.
7. Monthly Fixed Rent: One-Twelfth of Fixed Rent, being Eighty-
------------------
five Thousand Two Hundred Six Dollars and Twenty-five Cents ($85,206.25) per
month from the Commencement Date until the day prior to the sixth (6th)
anniversary of the Commencement Date and being Ninety-four Thousand Five Hundred
Seventy-eight Dollars and Ninety-four Cents ($94,578.94) per month from the
sixth (6th)
<PAGE>
anniversary of the Commencement Date until the Expiration Date, subject, however
to the Rent Abatement provided for in Paragraph 2(d) of this Lease; and One-
Twelfth of the Fixed Rent during the three (3) Renewal Terms.
8. Late Charge: Three percent (3%) of the amount of the payment
-----------
due, subject to the provisions of Paragraph 2(c) of this Lease.
9. Tenant's Proportionate Share: Eleven and Forty-nine hundredths
----------------------------
percent (11.49%) arrived at by dividing the gross rentable area of the Demised
Premises (which for the purposes of this Lease is agreed to be 40,899 square
feet) by the gross rental area of the Building (which at the time of this Lease
Landlord represents is 356,102 square feet).
10. Building's Proportionate Share of Complex Expenses:
--------------------------------------------------
Sixty-Four and Fifty-Nine Hundredths percent (64.59%) determined by dividing the
gross rentable area of the Building (356,102 square feet) by the gross rentable
area of the Complex (which at the time of this Lease Landlord represents is
551,302 square feet, but which may increase from time to time as additional
buildings are constructed by Landlord as part of the Complex).
11. Security Deposit: An amount equal to twice the Monthly Fixed
----------------
Rent, subject to the provisions of Paragraph 20 of this Lease.
12. Tenant's S.I.C. Code (as per most recent S.I.C. Manual as
---------------------------------------------------------
pub1ished by the United States Office of Management & Budget): 2834.
- -------------------------------------------------------------
13. Designated Broker: Alexander Summer Co.
-----------------
14. Number of Tenant Allocated Parking Spaces: One hundred sixty-
-----------------------------------------
four (164) spaces, consisting of six (6) exclusive spaces located in the
Building's executive garage ("Exclusive Spaces") and one hundred fifty-eight
(158) non-exclusive spaces ("Non-Exclusive Spaces"). Parking spaces are subject
to the further provisions of Paragraph 23 of this Lease.
15. Building Holidays: President's Day; Good Friday; Memorial Day;
-----------------
Independence Day; Labor Day; Thanksgiving Day and the day after; Christmas Day
and New Year's Day, the Monday before or the Friday after if Christmas Day, New
Year's Day or Independence Day fall on Tuesday or Thursday; and the Monday after
or the Friday before if Christmas Day, New Year's Day or Independence Day fall
on Saturday or Sunday.
16. Prime Rate: The prime commercial lending rate on ninety (90)
----------
day loans announced by Citibank, N.A. as it "prime or base rate."
The parties hereby agree to the following terms and conditions:
1. Premises. Term and Purpose.
--------------------------
(a) Landlord does hereby lease to Tenant, and Tenant does
hereby lease from Landlord, the Demised Premises located in the Building,
together with the non-exclusive easement and right to use any pedestrian
easements and/or vehicular easements which may exist from time to time for the
benefit of tenants of the Building over any portion of the Complex Land,
together with an easement and non-exclusive right of access to and use of all
other Common Areas, as defined in Paragraph 1(d), for the Term commencing on the
Commencement Date, as defined in subparagraph (b) of this Paragraph 1, and
ending on the Expiration Date, or such earlier date upon which the Term may
expire, or be terminated pursuant to the provisions of this Lease or pursuant to
Law. The
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parcel of land on which the Building is located (hereinafter called the "Land"),
is known and designated as Lot 7, Block 1201 on the tax maps of the Borough of
Florham Park. The parcels of land on which the Complex is located (hereinafter
called the "Complex Land") consist of approximately 135.9 acres, and is known
and designated as Lots 5, 6 and 7, Block 1201 on the tax maps of the Borough of
Florham Park.
(b) For purposes of this Lease the "Commencement Date" shall be
August 1, 1993, subject to the provisions of Paragraph 4(b).
(c) The Demised Premises shall be used by Tenant for the
Permitted Use and for no other use or purpose. The Permitted Use shall not be
deemed to include the following uses which are expressly prohibited:
governmental offices, drive-up facilities, educational, training or similar
classes for members of the general public, union offices, medical or similar
treatments, barber or beauty parlor, gaming or political activities,
pornographic, employment, recruiting or placement activities (except executive
search), retail or wholesale sale and delivery of goods, and repairing,
servicing or receiving for repair or service, and any other use or uses which
are of the same or similar nature or character. Tenant shall not use or occupy
the Demised Premises or any part thereof for any purpose deemed unlawful,
disreputable, or extra-hazardous on account of fire or other casualty, or for
any purposes which shall impair the character of the Building. Tenant, at its
sole cost and expense shall obtain any consents, licenses, permits or approvals
required or obtainable in normal course to conduct its business at the Demised
Premises, other than the certificate of occupancy for the Tenant Improvements,
which shall be the Landlord's responsibility to obtain. Landlord shall enforce
the foregoing use restrictions against all tenants in the Complex in a uniform
and non-discriminatory manner.
(d) The "Common Areas" shall consist of the "Building Common
Areas", as defined herein, and the "Complex Common Areas", as defined herein.
(i) The "Building Common Areas" shall be those parts of the Building and other
improvements designated by Landlord from time to time for the common use of all
tenants of the Building, including among others, facilities, halls, lobbies,
elevators, delivery passages, drinking fountains, public toilets, and the like,
or similar improvements operated, owned or maintained, in whole or in part, by
Landlord with respect to the Building. (ii) The "Complex Common Areas" shall be
those parts of the Complex exterior to the Building and other buildings in the
Complex designated by the Landlord from time to time for the common use of all
tenants in the Complex, including but not limited to, parking lots, service
buildings, parkways, drives, greenspaces, parks, fountains, detention or
retention ponds, or other facilities owned, operated or maintained, in whole or
in part, by Landlord or the owner or operator from time to time of same, for use
by all tenants of the Complex and/or such other owners and operators. The Common
Areas shall be operated and maintained by Landlord and/or such other owners or
operators for the benefit of all tenants in a first class manner. The use of the
Common Areas shall be in common with Landlord, other tenants of the Building and
the Complex and other persons entitled to use the same. Landlord shall not alter
or diminish the Common Areas in any way that has a materially negative impact on
Tenant's ability to conduct its business at the Demised Premises.
(e) For purposes of this Lease the term "Improvements" shall
mean and include all improvements on the Land, whether existing now or in the
future, including the Building, and/or appurtenant structures or improvements of
any kind on the Land, including, without limitation, loading areas, canopies,
walls, waterlines, sewer, electrical and gas distribution facilities, parking
facilities, walkways, streets, curbs, roads, rights of way, fences, hedges,
exterior plantings, poles, and signs. Although
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additional office buildings are planned for the Complex, no new office
buildings will be constructed on the Land.
2. Rent.
----
(a) The rent reserved under this Lease for the Term hereof shall
be and consist of (a) the Fixed Rent payable in equal monthly installments in
advance, on the first day of each and every calendar month during the Term
(except that Tenant shall pay the first monthly installment on the execution of
this Lease); plus (b) such additional rent ("Additional Rent") in an amount
equal to Tenant's Proportionate Share of Expenses (as such terms are defined in
Paragraph 3 of this Lease) and all charges for services and utilities pursuant
to Paragraph 15 hereof, and any other charges as shall become due and payable
hereunder, including, without limitation, all expenses incurred by Landlord in
the enforcement of any of the agreements, covenants and obligations of Tenant
under this Lease, and including reasonable legal fees that may accrue in the
event suit for rent or dispossess proceedings are necessary to obtain the
possession of the Demised Premises or to collect the rent (if Landlord prevails
in any such suit or proceedings), which Additional Rent shall be payable as
hereinafter provided, all to be paid to Landlord at its office stated above, or
such other place within the continental United States as Landlord may designate,
in lawful money of the United States of America; provided, however, that if
the Commencement Date shall occur on a date other than the first calendar day of
a month, the rent for the partial month commencing on the Commencement Date
shall be appropriately pro-rated on the basis of the monthly rent payable during
the first year of the Term.
(b) Tenant does hereby covenant and agree promptly to pay the Fixed
Rent, Additional Rent and any other charges herein reserved as and when the same
shall become due and payable, without demand therefor, and without any set-off,
recoupment or deduction whatsoever, except as expressly set forth in this Lease.
All Additional Rent and other charges payable hereunder, which are not due and
payable on a monthly basis during the Term, unless otherwise specified herein,
shall be due and payable within twenty (20) days of delivery by Landlord to
Tenant of notice to pay the same.
(c) In the event that any payment of Fixed Rent, Additional Rent or
any other charges shall be paid more than five (5) business days after the due
date for same provided herein, Tenant shall pay, together with such payment, the
Late Charge and a like additional Late Charge for each thirty (30) days or
portion thereof that such payment shall remain unpaid; provided, however, that
notwithstanding the foregoing, Tenant shall be permitted to make one payment
during each Lease Year of the Term, and any renewals thereof, including the
Initial Year, as hereinafter defined, after the due date without being assessed
a Late Charge unless such payment is more than thirty (30) days late.
(d) Notwithstanding anything to the contrary contained in this
Paragraph 2, Tenant shall not be required to pay to Landlord the Monthly Fixed
Rent attributable to the second (2nd) through the tenth (10th) months of the
Term ("Rent Abatement") but Tenant shall be required to pay Additional Rent
during said nine (9) month period (other than Tenant's Proportionate Share of
any increase in Expenses which Tenant shall not be required to pay until after
the Initial Year, as set forth in Paragraph 3 of this Lease).
3. Operating Expenses.
------------------
(a) For purposes of this Paragraph, the following definitions
shall apply:
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<PAGE>
"Initial Year" shall mean the calendar year
------------
1994.
"Lease Year" shall mean each calendar year subsequent to
----------
the Initial Year.
"Real Estate Taxes" shall mean the taxes and assessments
-----------------
now or hereafter imposed upon the Land and the Improvements. Real Estate Taxes
shall not include any interest or penalties thereon, provided that the same are
not incurred as a result of any default of Tenant. If, due to a change in the
method of taxation or assessment, any franchise, income, profit or other tax,
however designated, shall be substituted by the applicable taxing authority, in
whole or in part, for the Real Estate Taxes now or hereafter imposed on the Land
or the Improvements, such franchise, income, profit or other tax shall be deemed
to be included in the term "Real Estate Taxes". Landlord represents that it has
not received notice of any pending assessments for municipal improvements
"Expenses" shall mean (i) Real Estate Taxes; (ii) the total
--------
of all the costs and expenses paid or incurred by Landlord with respect to the
management, operation, maintenance, and repair of the Building, the Land and any
other of the Improvements and the services provided tenants therein, [excepting
electrical energy expenses paid directly by tenants (including Tenant) to
Landlord or the applicable utility supplying said service pursuant to Paragraph
15 of this Lease and equivalent provisions of other leases,] including, but not
limited to, the costs and expenses incurred for and with respect to: all
utilities, including without limitation, water, electricity, gas, lighting,
sewer and waste disposal; air conditioning, ventilation and heating (subject to
the deduction hereinafter described); lobby maintenance and cleaning;
maintenance of elevators; protection and security; lobby plantings and interior
landscape maintenance which are appropriate for the continued operation of the
Building in a first class manner; maintenance and painting of non-tenant areas;
fire, all risk, boiler and machinery, sprinkler, apparatus, public liability and
property damage, rent and plate glass insurance; supplies; wages, salaries,
disability benefits, pensions, hospitalization, retirement plans (but excluding
unfunded retirement liabilities), group insurance, workmen's compensation
insurance, payroll, social security, unemployment and other similar taxes with
respect to employees of Landlord to the extent and in such proportion that the
services of such employees are allocable to the management, operation and
maintenance of the Building and/or the Land; uniform and workers clothes for
such employees and the cleaning thereof and other similar employee benefits and
expenses imposed on Landlord pursuant to law or to any collective bargaining
agreement with respect to such employees to the extent and in such proportion
that the services of such employees are dedicated to the operation of the
Building, up to and including the Building manager; the cost for a bookkeeper
and for an accountant and any other professional and consulting fees, including
legal and auditing fees to the extent and in such proportion that the services
of such professionals and consultants are dedicated to the operation of the
Building; association fees or dues; the expenses, including payments to
attorneys and appraisers, incurred by Landlord in connection with any
application or proceeding wherein Landlord obtains or seeks to obtain reduction
or refund of the Real Estate Taxes payable or paid (but only to the extent of
any refund or reduction actually obtained); reasonable management fees of the
Building; and any other expenses of any other kind whatsoever reasonably
incurred in managing, operating, maintaining and repairing the Building, the
Land and any other of the Improvements; and (iii) the Building's Proportionate
Share of Complex Expenses. Expenses shall not include any cost borne by any
other tenant or as to which any other tenant is required to pay the entire cost
of same, whether or not as additional rent.
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<PAGE>
"Complex Expenses" shall mean the total of all the costs
----------------
and expenses paid or incurred by Landlord and/or others to the extent such costs
incurred by others are chargeable to Landlord or contributable to by Landlord
with respect to the management, operation, maintenance and repair of the Complex
Common Areas and the services provided tenants of the Complex therein (excepting
those Expenses described in the immediately preceding subparagraph or otherwise
borne by any other tenant or as to which any other tenant is required to pay the
entire cost of same, whether or not as additional rent) and including, but not
limited to, the cost and expenses incurred for and with respect to: all
utilities, including but not limited to, exterior lighting, electricity and
waste disposal (excepting those utility expenses described in the immediately
preceding subparagraph or otherwise borne by any other tenant or as to which any
other tenant is required to pay the entire cost of same, whether or not as
additional rent); protection and security; maintenance, painting and cleaning of
the Complex Common Areas; exterior landscape maintenance; snow removal, parking
lot maintenance, striping and repairs, maintenance and repairs of the roads,
streets, driveways, utilities, detention and retention ponds and drainage
facilities; all risk, public liability and property damage insurance (excepting
those insurance expenses described in the immediately preceding subparagraph or
otherwise borne by any other tenant or as to which any other tenant is required
to pay the entire cost of same, whether or not as additional rent); supplies;,
wages, salaries, disability benefits, pensions, hospitalization, retirement
plans (but excluding unfunded retirement liabilities), group insurance,
workmen's compensation insurance, payroll, social security, unemployment and
other similar taxes with respect to employees of Landlord to the extent and in
such proportion that the services of such employees are allocable to the
management, operation and maintenance of the Complex Common Areas; uniforms and
working clothes for such employees and the cleaning thereof; and other similar
employee benefits and expenses imposed on Landlord and/or others pursuant to law
or to any collective bargaining agreement with respect to such employees, to the
extent and in such proportion that the services of such employees are dedicated
to the operation of the Complex Common Areas, up to and including the Complex
manager; the cost for a bookkeeper and for an accountant and for any other
professional and consulting fees, including legal and auditing fees to the
extent and in such proportion that the services of such professionals and
consultants are dedicated to the operation of the Complex and not to any
particular buildings therein; association fees or dues; the expenses and
reasonable management fees of the Complex to the extent consistent with market
conditions and any other expenses of any other kind whatsoever reasonably
incurred in managing, operating, maintaining and repairing the exterior areas of
the Complex, Complex Common Areas and Complex Land.
Landlord agrees that with respect to all maintenance, repair,
replacement and improvement expenses referred to in the two immediately
preceding paragraphs involving contracts or individual expenditures exceeding
Twenty-five Thousand Dollars ($25,000.00), other than emergency repairs,
Landlord shall obtain at least two competitive bids and shall utilize the lowest
responsible bidder for such work.
No expenses shall be included as both Expenses and Complex
Expenses, it being the intention of this Paragraph 3(a) (1) that there shall be
no duplication of charges in the calculation of Real Estate Taxes, Expenses or
Complex Expenses hereunder. Expenses and Complex Expenses shall exclude or have
deducted from them, as the case may be and as shall be appropriate:
(i) leasing commissions and expenses for leasing or
renovating space for tenants;
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<PAGE>
(ii) salaries for executives above the grade of Building
manager, with regard to Expenses, or Complex manager, with respect to Complex
Expenses;
(iii) Building and Complex start-up or opening expenses;
(iv) except as provided hereinbelow, expenditures for capital
improvements or other expenses which are capital in nature, as determined
pursuant to generally accepted accounting principles consistently applied except
for those de minimis amounts that are expensed;
(v) advertising, marketing and promotional expenditures;
(vi) legal fees and other professional fees for lease
negotiations and disputes with tenants;
(vii) as a deduction, amounts received by Landlord through
proceeds of insurance to the extent the proceeds are compensation for expenses
which were previously included as Expenses hereunder;
(viii) the cost of repairs or replacements incurred, by reasons
of fire or other casualty, or caused by the exercise of the right of eminent
domain, or compensable to Landlord by virtue of Landlord's insurance;
(ix) expenses for painting, redecorating or other work which
Landlord, at its expense, performs for Tenant or for any other tenant in leased
areas of the Building or the Complex other than painting, redecorating or other
work which is standard for or periodically performed in the Building or the
Complex; and
(x) interest and amortization payments or other payments
(except escrows for items included in Expenses) on any mortgages and rental
under any ground or underlying leases.
If Landlord and/or others shall purchase any item of capital
equipment or make any capital expenditures designed to result in savings or
reductions in Expenses or Complex Expenses, then the costs for same shall be
included in Expenses or Complex Expenses. The costs of capital equipment or
capital expenditures are to be included in Expenses or Complex Expenses for the
calendar year in which the costs are incurred and subsequent calendar years on a
straight line basis amortized over such period of time as reasonably can be
estimated as the time in which such savings or reductions in Expenses or Complex
Expenses are expected to equal Landlord's costs for such capital equipment or
capital expenditure with an interest factor equal to the Prime Rate at the time
of Landlord's having actually incurred said costs. If Landlord and/or others
shall lease any such item of capital equipment designed to result in savings or
reductions in Expenses, then the rentals and other costs paid pursuant to such
leasing shall be included in Expenses or Complex Expenses for the calendar year
in which they were incurred.
If during all or part of any calendar year, including the
Initial Year, Landlord and/or others shall not furnish any particular item(s) of
work or service which would constitute an Expense or Complex Expense hereunder
to portions of the Building or the Complex due to the fact that construction of
the Building or the Complex is not completed, or such portions are not occupied
or leased, or because such item of work or service is not required or desired by
the tenant of such portion, or such tenant is itself obtaining and providing
such item of work or service, or for other reasons, for the purposes of
computing the Additional Rent payable hereunder the amount of the Expenses or
Complex Expenses for such item for such period shall be increased by an amount
equal to the
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additional operating and maintenance expenses which would reasonably have been
incurred during such period by Landlord and/or others if it or they had at its
or their own expense furnished such item of work or service to such portion of
the Building or Complex; it being the intention of this provision that
Landlord's determination of any increase in Expenses not be biased by any
increase attributable solely to an increase in occupancy or the provision of new
services or the like.
(b) In the event (i) that the Commencement Date shall occur on
other than the first day of a calendar year, or (ii) that the Expiration Date or
other termination of this Lease shall be a day other than the last day of a
calendar year, or (iii) of any abatement of the Fixed Rent payable hereunder
pursuant to any provision of this Lease for any period of time not equal to a
full calendar year, or (iv) of any increase or decrease in the gross rentable
area of the Demised Premises or any increase in the gross rentable area of the
Building or the Complex, then in each such event in applying the provisions of
this Article 3 with respect to such calendar year in which such event shall have
occurred, appropriate adjustments shall be made to Tenant's Proportionate Share
of Expenses payable pursuant to Paragraph 3(c) so as to apportion such payment
on the basis of (i) the pro rata portion of the calendar year during which such
payment is to be made and/or (ii) the increase or decrease in Tenant's
Proportionate Share of Expenses by virtue of the changes in any such gross
rentable area.
(c) Tenant shall be responsible for Tenant's Proportionate
Share of any increase in Expenses paid or incurred by Landlord in each Lease
Year during the Term over the Expenses paid or incurred by Landlord during the
Initial Year, as hereinafter provided. Attached hereto as Exhibit H is a true
copy of the statement of Expenses for the Building for the calendar years 1991
and 1992.
(1) During each Lease Year Tenant shall pay to Landlord
monthly, on the first day of each calendar month, as Additional Rent, Landlord's
good faith estimate of Tenant's Share of any increase in Expenses paid or
incurred by Landlord in each Lease Year over the Expenses paid or incurred by
Landlord during the Initial Year.
(2) Prior to the end of the Initial Year and thereafter
for each successive Lease Year, or part thereof, Landlord shall send to Tenant a
statement of the projected increase in Expenses, ("Projected Expense Increase")
for the applicable Lease Year, if any, broken down by categories as set forth in
Exhibit H (an "Expense Projection") and shall indicate what the estimated amount
of Tenant's Proportionate Share of said increase in Expenses shall be, said
amount to be paid in equal monthly installments (rounded to the nearest whole
dollar) in advance on the first day of each month by Tenant as Additional Rent,
commencing January 1st of the applicable Lease Year.
(3) If during the course of any Lease Year, Landlord shall
have reason to believe that the increase in Expenses shall be higher than that
upon which the aforesaid Expense Projection was originally based, as set forth
in subparagraph (c) (2) above, then Landlord shall be entitled to advise Tenant
of an adjustment in future monthly projection amounts to the end result that
Landlord's Projected Expense Increase shall be on a reasonably current basis
each Lease Year.
(4) Within ninety (90) days following the end of each
Lease Year, Landlord shall send to Tenant a statement of the actual increase in
Expenses incurred for the prior Lease Year showing Tenant's Proportionate Share
of the increase in Expenses due from Tenant, which statement shall be certified
as being accurate by Landlord, and which shall show Expenses broken down by
categories as set forth in Exhibit H. In the event that the amount
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prepaid by Tenant exceeds the amount that was actually due based upon actual
year end cost, then Landlord shall pay to Tenant an amount equal to the
overcharge. In the event that Landlord has undercharged Tenant, then Landlord
shall provide Tenant with an invoice stating the additional amount due, which
amount shall be paid in full by Tenant within twenty (20) days of receipt.
(5) Tenant shall have the right, for a period of four (4)
months following the receipt of each statement of the actual Expenses incurred
for the prior Lease Year, to audit the records of Landlord in support of such
statement at the offices of Landlord during regular business hours on a date and
at a time reasonably satisfactory to Landlord and upon at least fourteen (14)
days prior notice to Landlord. Upon the completion of such audit, Tenant shall
file any written objections to the statement with Landlord within said four (4)
month period. In response to the filing of any objections, the parties shall
confer and a final amount shall be agreed upon between the parties within thirty
(30) days thereafter. Upon such settlement, or in the event of the passage of
the period for review by Tenant, the determination shall be final and binding
upon the parties and no further adjustments shall be made with reference to such
Lease Year. If despite good faith efforts, the parties are unable to reach a
complete settlement of any objections filed by Tenant, the parties agree to
refer any unsettled objections to a mutually acceptable independent accountant
with experience in the real estate industry, whose determination shall be
binding on both parties. If the parties are unable to agree on a mutually
acceptable independent accountant, each party shall appoint an independent
accountant acceptable to it and the two independent accountants so appointed
shall appoint the independent accountant to whom the objections matter shall be
referred.
(d) Each and every of the aforesaid Expense Projection amounts
shall for all purposes be treated and considered as Additional Rent and the
failure of Tenant to pay the same as and when due in advance and without demand
shall have the same effect as a failure to pay any installment of the Fixed Rent
and shall afford Landlord all the remedies provided in this Lease therefor,
including, without limitation, the Late Charge as provided in Paragraph 2(c) of
this Lease.
(e) Tenant acknowledges and agrees that Landlord shall have the
right to change the period of the Lease Year (but may not change the period of
the Initial Year), either before or during the Term, to any other fiscal year or
twelve month period, provided that such change shall not result in any item of
Expenses being included twice in either the same or different Lease Years. In
the event that Landlord makes such a change, then the same shall be effective
upon written notice to Tenant and, in such event, Tenant shall pay Tenant's
Proportionate Share of any increase in Expenses paid or incurred by Landlord
over the Expenses paid or incurred by Landlord during the Initial Year for the
period from the end of the initially designated Lease Year, as last billed, to
the beginning of the newly designated Lease Year, prorated for such period,
within twenty (20) days of the rendering by Landlord of the bill for such
interim period. If the Building shall have been less than ninety-five percent
(95%) occupied during the Initial Year or any entire Lease Year, then the
Expenses shall be projected for the Initial Year and such Lease Year as set
forth in the last paragraph of Paragraph 3(a) of this Lease. Real Estate Taxes,
for the purposes of this Lease shall reflect the full assessed value of the
Building as a completed office building multiplied by the tax rate then in
effect. If all the Land, Building and other Improvements have not been included
in the assessed value of the Building for the calculation of Real Estate Taxes,
then the Real Estate Taxes shall be adjusted by Landlord to reflect the amount
of Real Estate Taxes which would be assessed against a fully completed Building,
i.e. those imposed on the Building if all of the Land, Building and
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other Improvements were completed and included in the assessed value of the
Building.
4. Completion of Improvements and Commencement of Rent.
---------------------------------------------------
(a) Landlord agrees to construct the Tenant Improvements (as
such term is defined in Exhibit B attached hereto and made part hereof) in
accordance with the terms, conditions and provisions set forth in Exhibit B.
Landlord shall proceed diligently to complete such work in the manner specified
herein.
(b) The Demised Premises shall be deemed ready for occupancy
and the Commencement Date hereunder shall occur on August 1, 1993 or such later
date that (i) the Demised Premises shall be delivered to Tenant in tenantable
condition, free of violations of any health, safety, fire and other statutes and
regulations governing the Demised Premises and its use, all of which shall be
established by issuance of a certificate (temporary or final) by appropriate
governmental authority, permitting occupancy of the Demised Premises for the
purposes set forth herein; and (ii) Landlord has substantially completed the
initial installations and other work in and to the Demised Premises agreed to be
performed by it pursuant to Paragraph 4(a) (and Landlord shall be deemed to have
substantially completed said installations and other work notwithstanding that
minor or insubstantial details of construction, mechanical adjustment or
decoration remain to be performed within the Demised Premises or any part
thereof, the non-completion of which does not materially interfere with Tenant's
use of the Demised Premises). If the occurrence of any of the conditions listed
in the preceding sentence, and thereby the making of the Demised Premises ready
for occupancy, shall be delayed due to a Tenant Delay (as defined in Section 3.2
of Exhibit B), then the Commencement Date shall be accelerated by a time period
equal to the number of days of Tenant Delay so caused by Tenant; provided,
however, that the Commencement Date shall not be accelerated to a date earlier
than August 1, 1993. In the event that any such Tenant Delay days shall be
asserted by Landlord, Landlord shall notify Tenant of the same as provided in
Section 3.2 of Exhibit B. If the Commencement Date does not occur by August 15,
1993 for any reason other than a Tenant Delay, Landlord shall allow Tenant a day
of free Fixed Rent for each day after August 15, 1993 (net of Tenant Delay days)
until the Commencement Date occurs (which free Fixed Rent shall be in addition
to that allowed under Paragraph 2 (d) hereof). If the Commencement Date does not
occur by December 15, 1993 for any reason other than a Tenant Delay, Tenant may
terminate this Lease by giving written notice of termination to Landlord prior
to the Commencement Date. In the event of such a termination, Landlord shall
refund the Security Deposit and any pre-paid rental to Tenant. If Landlord
obtains a temporary certificate of occupancy, Landlord (i) shall proceed
diligently to complete or correct such items as are necessary to obtain a final,
unconditional certificate of occupancy for the Demised Premises and (ii) shall
be responsible for all costs, fines or penalties imposed as a result of any
delays in completing work required under the temporary certificate of occupancy.
(c) Tenant may occupy the Demised Premises as soon as the same
are ready for its occupancy and the Commencement Date shall have occurred (but
not prior to said date except for installation of Tenant's personal property or
otherwise with the express consent of Landlord). If and when Tenant shall take
actual possession of the Demised Premises, it shall be conclusively presumed
that the same is in satisfactory condition, except as to (i) those items of work
remaining to be performed by Landlord pursuant to this Paragraph 4, (ii) latent
defects in the construction of the Tenant Improvements of which Tenant notifies
Landlord within one year after the Commencement Date, or (iii) any items of work
set forth on a "Punch List" to be submitted to and acknowledged by Landlord in
writing within thirty (30) days after the Commencement
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<PAGE>
Date. Landlord shall proceed diligently to complete such Punch List items.
(d) Upon the occurrence of the Commencement Date, the parties
shall execute a letter agreement confirming the Commencement Date and the
Expiration Date and specifying the amount of Fixed Rent payable during the
initial month if the Commencement Date occurs on a day other than the first day
of the month.
5. Covenants as to Condition of Premises and Compliance with
---------------------------------------------------------------
Laws.
----
(a) Subject to the waiver of subrogation provisions of
Paragraph 10(d) hereof, in the event that the Building or any of the equipment
affixed thereto or stored therein should be damaged as a result of any act of
Tenant, its agents, servants, employees, invitees or contractors, Tenant shall,
upon demand, pay to Landlord the actual reasonable cost of all required repairs,
including structural repairs. Tenant shall commit no act of waste and shall take
good care of the Demised Premises and the equipment affixed thereto and stored
therein, shall maintain the Demised Premises in good condition and state of
repair (including the components of the electrical and HVAC system which
exclusively serve the Demised Premises, but otherwise excluding the Building
systems) and, upon the Expiration Date or other termination of this Lease, shall
deliver up the Demised Premises in good order and condition, wear and tear from
a reasonable use thereof excepted. Landlord shall perform, or cause to be
performed, all such maintenance and repairs and Tenant shall pay to Landlord the
reasonable costs incurred therefor promptly upon demand as Additional Rent.
(b) Tenant, at Tenant's expense, shall promptly comply in all
material respects with all laws, rules, regulations and ordinances, of all
governmental authorities or agencies having jurisdiction over the Demised
Premises, and of all insurance bodies (including, without limitation, the Board
of Fire Underwriters), at any time duly issued or in force applicable to the
Demised Premises or any part thereof or to Tenant's use thereof, including,
without limitation the Americans with Disabilities Act, ("Laws" or, as the
context requires, "laws"); provided that Tenant shall not be deemed to have
complied with such Laws in all material respects in the event that Landlord
would have any liability thereunder as a result of such non-compliance.
(c) Landlord, at Landlord's expense, shall promptly comply with
all Laws applicable to the Common Areas and the Land. Subject to the releases
and waivers of subrogation contained in or required by this Lease, Landlord
shall indemnify and hold Tenant harmless from and against any expense
(including, without limitation reasonable attorneys fees), loss, liability or
damages (excluding consequential damages) suffered or incurred by Tenant as a
result of Landlord's failure to comply with all laws applicable to the Common
Areas. Landlord represents that it has received no notice of any violation of
Laws applicable to the Common Areas.
6. Tenant Improvements, Alterations and Installations.
--------------------------------------------------
(a) With the exception of Tenant's trade fixtures, furniture
and other personalty (including computer and other office equipment and
modular/open plan furniture), all fixtures, equipment, improvements,
alterations, installations which are attached to the Demised Premises, and any
additions and appurtenances made by Tenant to the Demised Premises, shall become
the property of Landlord upon installation. Not later than the last day of the
Term, Tenant shall, at its expense, remove from the Demised Premises all of its
trade fixtures, furniture and other personal property and such improvements as
Landlord elects to have removed;
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provided, however, that Tenant shall not be required to remove any improvements
or fixtures contemplated by the Final Plans (as defined in Exhibit B) or any
improvements or fixtures of similar character which become part of the Demised
Premises as a result of an expansion thereof in accordance with the rights
granted Tenant under Paragraphs 32 and 33 of this Lease. Tenant, at its sole
cost and expense, shall repair injury done by or in connection with the
installation or removal of such improvements. Any equipment, fixtures, goods
or other property of Tenant not removed by Tenant upon the termination of this
Lease, or upon any quitting, vacating or abandonment of the Demised Premises by
Tenant shall be considered as abandoned and Landlord shall have the right,
without any notice to Tenant, to sell or otherwise dispose of the same, at the
expense of Tenant, and shall not be accountable to Tenant for any part of the
proceeds of such sale, if any, unless the proceeds of such sale exceed the total
amount of any sums due to Landlord under this Lease. Landlord may have any such
property stored at Tenant's risk and expense.
(b) Tenant, without Landlord's prior consent, shall have the
right to make non-structural alterations, installations, additions or
improvements in or to the Demised Premises that (i) do not require a building
permit to be issued by any governmental authority to legally make same, and (ii)
do not affect any existing-building systems outside the Demised Premises and do
not impair or adversely affect any existing building systems within the Demised
Premises. No other alterations, installations, additions or improvements
(structural or non-structural) shall be made by Tenant without Landlord's
express prior written approval. Landlord agrees that approval of alterations,
installations and improvements of a non-structural nature and which do not
affect any building systems shall not be unreasonably withheld. Tenant shall
give Landlord prior written notice of any proposed alterations, installations,
additions or improvements (hereinafter called "Alterations") with copies of
proposed plans and as-built plans upon completion of the Alterations. At the
time of granting its approval of any Alterations, Landlord shall notify Tenant
of any such Alterations which must be removed at the expiration of the Term as
provided in Paragraph 6(a) above. All Alterations shall be done at Tenant's sole
expense and the making thereof shall not interfere with the use of the Building
by other tenants. Tenant agrees to indemnify, defend and hold harmless Landlord
from any and all costs, expenses, claims, causes of action, damages and
liabilities of any type or nature whatsoever (including, but not limited to,
reasonable attorneys' fees and costs of litigation) arising out of or relating
to the making of the Alterations by Tenant. Nothing herein contained shall be
construed as constituting the permission of Landlord for a mechanic or
subcontractor to file a lien claim against the Demised Premises and Tenant
agrees to secure the removal of or bond against any such lien which a contractor
purports to file against the Demised Premises as provided in Paragraph 30(g) of
this Lease. All such Alterations shall be effected in compliance with all
applicable laws, ordinances, rules and regulations of government bodies having
or asserting jurisdiction over the Demised Premises.
7. Various Negative Covenants by Tenant. Tenant agrees that it
------------------------------------
shall not, without Landlord's prior written consent:
(a) do anything in or near the Demised Premises which will
increase the rate of fire insurance on the Building, provided that Tenant's use
of the Demised Premises in the manner allowed under Paragraph 1(c) hereof shall
not be deemed to cause such increase;
(b) permit the accumulation of waste or refuse matter in or
near the Demised Premises, except in containers provided therefor;
(c) mortgage, hypothecate, pledge or encumber this Lease in
whole or in part;
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(d) permit any signs, lettering or advertising matter to be
erected or attached to the Demised Premises which is visible from outside of the
Demised Premises except as expressly permitted herein; or
(e) encumber or obstruct the Common Areas surrounding the
Demised Premises, nor cause same to be encumbered or obstructed, nor encumber or
obstruct any access ways to the Demised Premises, nor cause same to be
encumbered or obstructed.
8. Various Affirmative Covenants of Tenant. Tenant covenants
---------------------------------------
and agrees that Tenant will:
(a) At any time and from time to time execute, acknowledge and
deliver to Landlord, or to anyone Landlord shall designate, within ten (10)
business days of receipt of request therefor, a tenant estoppel certificate in
form reasonably acceptable to Landlord or financial institutions requesting the
same relating to matters customarily included in tenant estoppel certificates.
Tenant shall not be required to execute any estoppel certificate which would
result in a alteration of Tenant's rights and obligations under this Lease.
(b) Faithfully observe and comply with the rules and
regulations annexed hereto and made a part hereof as Exhibit C and such
additional rules and regulations as Landlord may hereafter at any time or from
time to time communicate in writing to Tenant, and which, in the reasonable
judgment of Landlord, shall be necessary or desirable for the reputation,
safety, care or appearance of the Building or the Complex, or the preservation
of good order therein, or the operation or maintenance of the Building or
Complex, or the equipment thereof, or the comfort of tenants or others in the
Building or Complex; provided, however, that in the case of any conflict between
the provisions of this Lease and any such rule or regulation, the provisions of
this Lease shall control. Nothing contained in this Lease shall be construed to
impose upon Landlord any duty or obligation to enforce the rules and regulations
or the terms, covenants or conditions in any other lease as against any other
tenant, and Landlord shall not be liable to Tenant for violation of any rule or
regulation by any other tenant, its employees, agents, visitors, invitees,
subtenants or licensees. Notwithstanding the foregoing, Landlord shall not
enforce such rules and regulations against Tenant, or fail to enforce the same
against other tenants in the Building, in a manner which would be unreasonable
and discriminatory as to Tenant.
9. Building Directory and Signage. Provided that Landlord is able
------------------------------
to obtain the necessary governmental permits and approvals to construct an
additional Building monument sign located on Campus Drive at the entrance to the
Building or to expand the existing sign, Landlord shall add Tenant's name at the
top of said additional or expanded Building monument sign. Landlord agrees to
make commercially reasonable efforts to secure such permits and approvals.
Landlord's inability to obtain such governmental permits and approvals shall not
entitle Tenant to an offset or abatement of rent of any kind hereunder or
otherwise permit Tenant to avoid compliance with all terms, covenants and
conditions of this Lease. If Landlord is unable to obtain such governmental
permits and approvals, Landlord shall reconfigure the existing monument sign to
add Tenant's name to the list of tenants presently contained on said sign.
Tenant shall be permitted to display its corporate name at the entrance of the
Demised Premises and on all Building directories.
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10. Casualty and Insurance.
----------------------
(a) In the event of partial or total destruction, by reason of
fire or any other cause, of (i) the Demised Premises or (ii) the Building or any
portion thereof which renders the Demised Premises untenantable, Landlord shall
promptly restore and rebuild (i) the Demised Premises to the standard set forth
in the work letter specifications contained in Exhibit B-1 or (ii) the Building
or such portion thereof as needed to make the Demised Premises tenantable to the
standard existing immediately prior to the occurrence of such fire or other
casualty, at Landlord's expense, unless, subject to the immediately following
sentence, Landlord elects by notice to Tenant within sixty (60) days of said
destruction not to restore and rebuild the Demised Premises and/or the Building,
and, in such case, upon a date specified in said notice by Landlord, this Lease
shall terminate. Landlord may elect to terminate this Lease only if (i) Landlord
is electing to terminate the leases of all tenants similarly situated and
affected by such casualty, or (ii) if such casualty occurs during the last
twelve (12) months of the Term (or, if Tenant has exercised its option to renew
this Lease, if such casualty occurs during the last twelve (12) months of the
final renewal Term). If Landlord elects to restore and rebuild the damage, then
during the period of restoration, Landlord shall notify Tenant of the estimated
time period for completing such restoration and Tenant shall be relieved of the
obligation to pay that portion of the rent herein reserved which relates to the
area of the Demised premises which has been rendered untenantable. If the damage
to the Demised Premises is such that Landlord reasonably estimates that the
restoration of the Demised Premises would require a period of time in excess of
eight (8) months after the date of Landlord's notice, then Tenant shall have the
right to terminate this Lease upon notice to Landlord given within twenty (20)
days after the date that Landlord notifies Tenant of the estimated time period
required for the restoration of the Demised Premises. If for any reason
(including force majeure) Landlord fails to complete the restoration of the
Demised Premises within twelve (12) months of the date on which the casualty
occurs, Tenant may terminate this Lease by giving Landlord written notice of
Termination prior to the completion of the restoration of the Demised Premises.
In the event of a casualty which renders the entire Demised Premises
untenantable which is restored and rebuilt by Landlord, Landlord shall give
Tenant fifteen (15) days notice prior to the completion of the restoration and
re-commencement of the obligation to pay rent hereunder.
(b) Tenant shall, at Tenant's sole cost and expense, except to the
extent prohibited by law with respect to workmen's compensation insurance, for
the mutual benefit of Landlord and Tenant and any Additional Insured (as
hereinafter defined) or any other additional insured as Landlord may from time
to time determine, including the lessors under any ground leases or underlying
leases and any mortgagees, maintain or cause to be maintained; (i) comprehensive
general liability insurance, including but not limited to, premises, bodily
injury, personal injury and contractual liability coverages (provided that
contractual liability coverage shall be required only if available at
commercially reasonable rates) for any and all damage or injury resulting from
any act or omission on the part of Tenant or Tenant's contractors, licensees,
agents, visitors or employees on or about the Demised Premises, including such
claims arising out of the construction of improvements on the Demised Premises,
such insurance to afford protection in the amount of Three Million Dollars
($3,000,000) with respect to injury or death to any one person or to any number
of persons or property damage arising out of a single occurrence, subject to
customary exclusions and to customary and reasonable deductibles; (ii) workmen's
compensation insurance covering all persons employed in connection with the
construction of any improvements by Tenant and the operation of its business
upon the Demised Premises. In the event that Landlord, at any time but not more
often than twice during the Term, reasonably deter-
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mines that Tenant's insurance coverage is inadequate, based upon the coverages
being required by landlords of comparable buildings in the general geographic
area of the Building, Landlord shall have the right to require Tenant to
increase its insurance coverage; provided, however, that such determination
shall not be made arbitrarily or discriminatorily as to Tenant in the context of
Landlord's treatment of other tenants in the Building. All such insurance
shall, to the extent permitted by law, name any mortgagees and ground lessors of
the Land and the Building and their successors and assigns, as additional
insureds (the "Additional Insureds") and shall be written by an insurance
carrier authorized to do business in the State of New Jersey, which shall be
reasonably satisfactory to Landlord.
(c) Prior to the Commencement Date, and at least thirty (30)
days prior to the expiration date of any policy, Tenant shall furnish evidence
of such insurance and of the payment of the premiums thereon to Landlord. Such
insurance shall be in form reasonably satisfactory to Landlord and, without
limitation, shall provide that no cancellation or lapse thereof or change
therein shall be effective until after thirty (30) days' written notice to
Landlord at the address specified in Paragraph 18 of this Lease. Tenant waives
all rights of recovery against Landlord and the Additional Insureds for any
loss, damages, or injury of any nature for which Tenant is insured.
(d) During the Term, Tenant shall maintain in effect in each
insurance policy required under this Lease that relates to property damage a
waiver of subrogation in favor of Landlord and the Additional Insureds from
its then-current insurance carriers, and shall at all times furnish evidence of
such currently effective waiver to Landlord. Such waiver shall be in a form
reasonably satisfactory to Landlord and, without limitation, shall provide that
no cancellation or lapse thereof or change therein with respect to any coverages
or conditions required in this Paragraph 10 shall be effective until after
thirty (30) days' written notice to Landlord at the address specified in
Paragraph 18 of this Lease. During the term of this Lease, Landlord shall
maintain in effect in each insurance policy insuring the Building, the Land or
the Complex Land that relates to property damage a waiver of subrogation in
favor of Tenant from its then-current insurance carriers, and shall at all times
furnish evidence of such currently effective waiver to Tenant. Such waiver
shall be in a form reasonably satisfactory to Tenant and, without limitation,
shall provide that no cancellation or lapse thereof shall be effective until
after thirty (30) days' written notice to Tenant at the address, specified in
Paragraph 18 of this Lease.
(e) Each insurance policy required to be maintained under this
Lease shall state that with respect to the interest of Landlord and the
Additional Insureds the insurance maintained pursuant to each such policy shall
not be invalidated by any action or inaction of Tenant and shall insure Landlord
and the Additional Insureds regardless of any breach or violation of any
warranties, declarations, conditions or exclusions by Tenant.
(f) Each insurance policy required to be maintained under this
Lease: (i) shall state that the insurance provided thereunder is primary
insurance without any right of contribution from any other insurance which may
be carried by or for the benefit of Landlord or the Additional Insureds; and
(ii) shall recognize the indemnification set forth in Paragraph 11 of this
Lease.
(g) Landlord agrees to maintain (i) comprehensive general
liability insurance in the minimum amount of One Million Dollars ($1,000,000)
single limit coverage, and (ii) insurance against loss or damage by fire, and
such other risks as may be included in the standard form of All Risk coverage,
in amounts required by Landlord's first mortgagee or, if none, amounts suffi-
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cient to enable Landlord to obtain physical replacement cost coverage.
11. Indemnification.
---------------
Subject to the releases and waivers of subrogation contained in or
required by this Lease, Tenant shall indemnify, defend and hold harmless
Landlord and the Additional Insureds, from and against any expense (including,
without limitation, reasonable attorneys' fees), loss, liability or damages
suffered or incurred as a result of the negligent acts or omissions or the
willful misconduct of Tenant or Tenant's agents, servants, invitees,
contractors or employees. The liability of Tenant to indemnify Landlord, as
hereinabove set forth, (i) shall not extend to liability resulting solely from
the negligence of Landlord or Landlord's agents or employees, (ii) shall be in
proportion to Tenant's allocable share of any joint negligence or willful
misconduct with Landlord, and (iii) shall not extend to any matter against which
Landlord shall be effectively protected by insurance; provided, however, that if
any such liability shall exceed the amount of the effective and collectable
insurance in question, the said liability of Tenant shall apply to such excess.
If the obligations or liabilities of Tenant under the provisions of this
Paragraph 11 are qualified or contradicted by the specifically expressed
provisions of other paragraphs or clauses of this Lease, this Paragraph 11,
shall be deemed and construed to be modified or controlled by such other
paragraphs or clauses.
12. Non-Liability of Landlord. Landlord shall not be liable for (and
-------------------------
Tenant shall make no claim for) any property damage or personal injury which may
be sustained by Tenant or any other person as a consequence of the failure,
breakage, leakage, inadequacy, defect or obstruction of the water, plumbing,
steam, sewer, waste or soil pipes, roof drains, leaders, gutters, valleys,
downspouts, or the like or of the electrical, gas, power, conveyor,
refrigeration, sprinkler, air conditioning or heating systems, elevators or
hoisting equipment; or by reason of the elements; or resulting from the
carelessness, negligence or improper conduct on the part of any other tenant of
Landlord, or Tenant's or any other tenant's agents, employees, guests,
licensees, invitees, sub-tenants, assignees or successors; or attributable to
any interference with, interruption or failure of any services or utilities to
be furnished or supplied by Landlord. Tenant shall give Landlord prompt written
notice of the occurrence of any events set forth in this Paragraph 12.
13. Remedies and Termination Upon Tenant Default.
--------------------------------------------
(a) In the event that:
(1) Tenant shall default in the payment of any Fixed Rent, or any
Additional Rent, or other charge payable hereunder by Tenant to Landlord, on any
date upon which the same becomes due, and such default shall continue for five
(5) days after Landlord shall have given Tenant a written notice specifying such
default; or
(2) Tenant shall default in the due keeping, observing or
performing of the covenants, agreements, terms, provisions or conditions
contained in Paragraph 1(c) of this Lease on the part of Tenant to be kept,
observed or performed and if such default shall continue and shall not be
remedied by Tenant within two (2) business days after Landlord shall have given
to Tenant a written notice specifying the same; or
(3) Tenant shall default in the due keeping, observing or
performing of any covenant, agreement, term, provision or condition of this
Lease on the part of Tenant to be kept, observed or performed, other than a
default of the character referred to in clauses (1) or (2) of this Paragraph
13(a), and if such
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default shall continue and shall not be remedied by Tenant within twenty (20)
days after Landlord shall have given to Tenant a written notice specifying the
same (unless such default is such that it could not reasonably be cured within a
twenty (20) day period and Tenant shall commence to make a good faith effort to
cure such default within said twenty (20) day period and shall diligently
proceed to completion); or
(4) Should Tenant be evicted by summary proceedings or otherwise;
then, Landlord may, in addition to any other remedies herein contained, as may
be permitted by law, without being liable for prosecution therefor, or for
damages, reenter the Demised Premises and have and again possess and enjoy the
same; and as agent for Tenant or otherwise, re-let the Demised Premises and
receive the rents therefor and apply the same first to the payment of such
expenses, reasonable attorney fees and costs, as Landlord may have been put to
in re-entering and repossessing the same and in making such repairs and
alterations as may be necessary and second to the payment of the rents due
hereunder. Tenant shall remain liable for such rents as may be in arrears and
also the rents as may accrue subsequent to the re-entry by Landlord to the
extent of the difference between the rents reserved hereunder and the rents, if
any, received by Landlord during the remainder of the unexpired Term hereof,
after deducting the aforementioned expenses, fees and costs; the same to be paid
as such deficiencies arise and are ascertained each month. Landlord, at its
option, may require Tenant to pay in a single lump sum payment, at the time of
such termination or re-entry, as the case may be, a sum which represents the
present value (using a discount rate equal to the Prime Rate) of the excess of
the aggregate of the Fixed Rent which would have been payable by Tenant for the
period commencing with such termination or re-entry, as the case may be, and
ending on the originally fixed Expiration Date of the Term, over the aggregate
rental value of the Demised Premises for the same period. Landlord shall make
commercially reasonable efforts to mitigate damages in the event of a default by
Tenant.
(b) Upon the occurrence of any of the contingencies set forth in the
preceding subparagraph (a) of this Paragraph 13, or should Tenant be adjudicated
a bankrupt or insolvent, or placed in receivership, or should proceedings be
instituted by or against Tenant for bankruptcy, insolvency, receivership,
agreement of composition, or assignment for the benefit of creditors (and, if
the proceedings are initiated against Tenant, the same are not vacated within
ninety (90) days of their initiation), or if this Lease or the estate of Tenant
hereunder shall pass to another unaffiliated entity by virtue of any court
proceedings, writ of execution, levy, sale, or by operation of law, Landlord
may, if Landlord so elects, at any time thereafter, terminate this Lease and the
Term hereof, upon giving to Tenant or to any trustee, receiver, assignee or
other person in charge of or acting as custodian of the assets or property of
Tenant, five (5) days' notice in writing of Landlord's intention so to do.
Upon the giving of such notice, this Lease and the Term hereof shall end on the
date fixed in such notice as if the said date was the Expiration Date; and
Landlord shall have the right to remove all persons, goods, fixtures and
chattels therefrom, by force or otherwise without liability for damages.
14. Remedies Cumulative; Non-Waiver.
-------------------------------
The various rights, remedies, options and elections expressed herein are
cumulative and the failure of either party to enforce strict performance by the
other of the conditions and covenants of this Agreement, to exercise any
election or option, or to resort or have recourse to any remedy herein
conferred, or the acceptance by Landlord of any installment of rent after any
breach by Tenant, in any one or more instances, shall not be construed or deemed
to be
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a waiver or a relinquishment for the future of any such conditions and
covenants, options, elections or remedies, but the same shall continue in full
force and effect.
15. Services; Electric Energy
-------------------------
(a) Landlord shall: (i) supply heat, ventilation and air conditioning
to the Demised Premises and the Common Areas during Business Hours in accordance
with the HVAC specifications contained in Exhibit B-1 attached hereto; (ii)
provide snow and ice removal for the parking area, sidewalks and driveways in a
reasonably expeditious manner; (iii) provide refuse removal from a dumpster to
be provided on site to be used for normal paper waste attendant to an office
building; and (iv) provide security services in accordance with the
specifications attached hereto as Exhibit I. "Business Hours" as used in this
Lease, means the generally customary daytime business hours of Tenant but not
before 8:00 A.M. or after 6:00 P.M. on weekdays and 8:00 A.M. to 1:00 P.M. on
Saturdays, and not including Sundays and Building Holidays (except that Landlord
shall provide heat, ventilation and air conditioning service to the Demised
Premises and building security to the Building on Good Friday without charging
Tenant for overtime services). Tenant shall have access to the Demised Premises
twenty-four (24) hours a day, seven (7) days a week at no additional cost except
when overtime services are required as provided in Paragraph 15(b). Tenant
agrees at all times to cooperate fully with Landlord and to abide by all the
regulations and requirements which Landlord may prescribe for the proper
functioning and protection of such air conditioning system. Landlord shall clean
the Demised Premises in accordance with the cleaning schedule annexed hereto as
Exhibit D. The cost of the services and utilities provided pursuant to this
Paragraph 15(a) is included in Expenses as defined in Paragraph 3(a).
(b) Provided Tenant is not then in default of this Lease beyond the
expiration of any applicable grace period, Landlord shall provide to Tenant
overtime services and utilities when and to the extent reasonably requested by
Tenant, or when activated by Tenant's use of an overtime thermostat and time
clock, and in accordance with such reasonable conditions as shall be determined
by Landlord. Tenant shall pay to Landlord, as Additional Rent, a charge
determined by Landlord for such additional service and utilities, which charge
shall cover all costs and expenses of Landlord in providing such overtime
services, including, without limitation, the cost of the utility usage, the cost
of maintenance, repairs and inspections of such building systems and employee
and administrative costs related to such services. Such charge shall constitute
a direct charge to Tenant and not an Expense as defined in Paragraph 3. During
the Initial Year, such charge shall be Fifty-five Dollars ($55) per hour.
Increases in such charge after the Initial Year shall be based upon increases in
the costs incurred by Landlord in supplying such service without mark-up.
(c) Landlord reserves the right, without liability to Tenant and
without constituting any claim of constructive eviction, to stop or interrupt
any heating, lighting, ventilating, air conditioning, gas, steam, power,
electricity, water or other service and to stop or interrupt the use of any
building or Building facilities at such times as may be necessary and for as
long as may reasonably be required by reason of accidents, strikes, or the
making of repairs, alterations or improvements, or inability to secure a proper
supply of fuel, gas, steam, water, electricity, labor or supplies, or by reason
of any other similar or dissimilar cause beyond the reasonable control of
Landlord. No such stoppage or interruption shall entitle Tenant to any
diminution or abatement of rent or other compensation nor shall this Lease or
any of the obligations of Tenant be affected or reduced by reason of any such
stoppage or interruption; provided, however, that if such stoppage
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is within the control of Landlord, the rent reserved hereunder shall abate from
and after the fifth (5th) business day of such stoppage or interruption until
Landlord shall restore service. Further, if such stoppage or interruption
continues for a period of six (6) months, Tenant shall have the right to
terminate this Lease by giving written notice of termination to Landlord prior
to the restoration of service.
(d) Landlord shall furnish to Tenant, through the transmission
facilities installed in the Demised Premises, electric energy to be used by
Tenant, at Tenant's expense as provided for in this Paragraph 15, in the Demised
Premises in such reasonable quantity as shall be sufficient to meet Tenant's
ordinary business needs for lighting and the operation of its business machines,
as specified on Exhibit B-1, including, without limitation, photocopy equipment
and computer and data processing equipment, provided that Landlord shall not be
obligated to provide such electrical energy in any amount in excess of a total
connected load of six (6) watts of electric consumption for all purposes per
square foot of rentable area.
(e) Landlord shall, prior to the Commencement Date, at Landlord's sole
cost and expense, install a separate electrical meter so as to measure the
consumption of electricity in the Demised Premises. Landlord shall charge Tenant
for such electrical usage at Landlord's actual cost therefor (based upon the
average kilowatt hour cost of each invoice) without mark-up and Tenant shall pay
such amount to Landlord as Additional Rent hereunder within thirty (30) days of
Landlord's giving Tenant notice of the amount then due.
(f) If Landlord, by operation of law or as a result of the order of
any governmental authority or utility, is required to discontinue furnishing
electric energy to Tenant, Tenant shall arrange to obtain electric energy
directly from the public utility company furnishing electric service to the
Building. Such electric energy may be furnished to Tenant by means of the then
existing Building system feeders, risers and wiring to the extent that the same
are available, suitable and safe for such purposes. All meters and additional
panel boards, feeds, risers, wiring and other conductors and equipment which may
be required to obtain electric energy directly from such public utility company
shall be installed by Landlord at Tenant's expense. There shall be no
discontinuance of the furnishing of electric current to the Demised Premises by
Landlord until Tenant has completed its arrangements to obtain electric current
directly from the public utility company furnishing electric current to the
Building so that there is no interruption in the continuity of electric service.
(g) In the event that Tenant shall require electric energy for use in
the Demised Premises in excess of the quantity to be initially furnished as
herein provided and if, in Landlord's judgment, such excess requirements cannot
be furnished unless additional risers, conduits, feeders, switchboards and/or
appurtenances are installed in the Building, Landlord, upon written request of
Tenant, shall proceed with reasonable diligence to install such additional
risers, conduits, feeders, switchboards and/or appurtenances, provided the same
and the use thereof shall be permitted by applicable laws and insurance
regulations and shall not cause permanent damage or injury to the Building or
the Demised Premises, or cause or create a dangerous or hazardous condition, or
entail excessive or unreasonable alterations or repairs, or interfere with or
disrupt other tenants or occupants of the Building, and Tenant agrees to pay all
costs and expenses incurred by Landlord in connection with such installation.
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<PAGE>
(h) In order that Landlord may at all times have all necessary
information which it requires in order to maintain and protect its equipment,
Tenant agrees that Tenant shall not make any material alteration or material
addition to the electrical equipment and/or appliances in the Demised Premises
without the prior written consent of Landlord in each instance and shall
promptly advise Landlord of any other alteration or addition to such electrical
equipment and/or appliances. Tenant agrees to advise Landlord in writing as to
any material change in the periods of use of the lighting fixtures and Tenant's
business machines and equipment.
(i) Landlord shall in no way be liable or responsible to Tenant for
any loss or damage or expense which Tenant may sustain or incur by reason of any
failure, inadequacy or defect in the character, quantity or supply of electric
energy furnished to the Demised Premises except for actual damage other than
property damage suffered by Tenant by reason of any negligence of Landlord.
16. Subordination. This Lease shall be subject and subordinate in all
-------------
respects to any underlying leases, ground leases, licenses or agreements, and to
all mortgages which may now or hereafter be placed on or affect such leases,
licenses or agreements or the Land or the Demised Premises and also to all
renewals, modifications, consolidations and extensions of such underlying,
leases, ground lease, licenses, agreements, and mortgages, so long as each such
underlying landlord, ground lessor, or mortgagee shall provide to Tenant a
subordination, attornment and nondisturbance agreement substantially in the form
attached hereto and made part hereof as Exhibit E. Tenant shall execute and
deliver such further instruments confirming such subordination and non-
disturbance agreement as may be reasonably required by any holder of any such
mortgage or by a lessor, licensor or party to an agreement under any such
underlying lease, ground lease, license or agreement, respectively. If any
underlying lease, ground lease, license or agreement to which this agreement is
subject and subordinate terminates, or if any Mortgage to which this lease is
subordinate is foreclosed, Tenant shall, on timely request, attorn to the holder
of the reversionary interest or to the Mortgagee in possession, as the case may
be. Landlord represents that, on the date of the execution of this Lease, there
are no underlying leases, ground leases or mortgages encumbering the Building
with the exception of a construction loan mortgage held by the First National
Bank of Chicago. The parties shall execute and deliver to each other a
subordination, attornment and nondisturbance agreement substantially in the form
of that in Exhibit E with respect to said construction loan mortgage prior to
the Commencement Date.
17. Curing Tenant's Defaults. If Tenant shall fail or refuse to comply
------------------------
with and perform any conditions and covenants of this Lease after notice and the
expiration of the applicable cure period, Landlord may, if Landlord so elects,
carry out and perform such conditions and covenants, at the cost and expense of
Tenant, and the said cost and expense shall be payable on demand, or, at the
option of Landlord, shall be added to the installment of Monthly Fixed Rent due
immediately thereafter but in no case later than one month after such demand,
whichever occurs sooner, and shall be due and payable as such. This remedy shall
be in addition to such other remedies and Landlord may have hereunder by reason
of the breach of Tenant of any of the covenants and conditions in this Lease
contained.
18. Notices. Any notice, demand, statement or other communication which
-------
under the terms of this Lease or under any statute or law must or may be given
shall be given by hand delivery, or by registered or certified mail, return
receipt requested, or by reputable private overnight delivery service
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providing a receipt of delivery or refusal, delivered or addressed to the
respective parties at the following address:
To Landlord: Sammis Morristown Associates
c/o Gale & Wentworth, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attn: Jonathan G. Thorpe
with a copy to: Pitney, Hardin, Kipp & Szuch
200 Campus Drive
Florham Park, New Jersey 07932
Attn: Glenn C. Geiger
To Tenant prior Schein Pharmaceutical, Inc.
to Commencement 1800 Northern Boulevard
Date: Roslyn, New York 11576
Attention: Chairman
with a copy to: General Counsel
(at same address)
To Tenant after Schein Pharmaceutical, Inc.
Commencement Date: 100 Campus Drive
Florham Park, New Jersey 07932
Attention: Chairman
with a copy to: General Counsel
(at same address)
Any such notice, demand, statement or other communication shall be deemed to
have been given or made (i) upon delivery, if hand delivered, (ii) on the second
business day after mailing, if mailed, postage paid, certified or registered
mail, and (iii) on the next business day, if delivered, charges prepaid or
charged to sender, to a reputable private overnight delivery service. Any of the
above addresses may be changed at any time by notice given as provided above.
Legal counsel for the respective parties may provide the requisite notice(s)
hereunder on behalf of their respective client.
19. Quiet Enjoyment. Landlord covenants that Tenant upon keeping and
---------------
performing each and every covenant, agreement, term, provision and condition
herein contained on the part and on behalf of Tenant to be kept and performed,
shall quietly enjoy the Demised Premises without hindrance or molestation by
Landlord or by any other person lawfully claiming by, through or under the same,
subject to the covenants, agreements, terms, provisions and conditions of this
Lease and the effects of the application of same. The foregoing covenant is and
shall be, in addition to and not in derogation of Tenant's implied right to
quiet enjoyment.
20. Security Deposit.
----------------
(a) Tenant has this day deposited with Landlord the Security Deposit
for the payment of the Fixed Rent, Additional Rent and other charges hereunder
and the full and faithful performance by Tenant of the covenants and conditions
on the part of Tenant to be performed. Said sum shall be returned to Tenant,
without interest, after the expiration of the term hereof, provided that Tenant
has fully and faithfully performed all such covenants and conditions and is not
in arrears in Fixed Rent, Additional Rent and other charges. During the term
hereof, Landlord may, if Landlord so elects, have recourse to such security, to
make good any default by Tenant, in which event Tenant shall, on demand,
promptly restore said security to its original amount. Liability to repay said
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security to Tenant shall run with the reversion and title to the Demised
Premises, whether any change in ownership thereof be by voluntary alienation or
as the result of judicial sale, foreclosure or other proceedings, or the
exercise of a right of taking or entry by any mortgagee. Landlord shall assign
or transfer said security, for the benefit of Tenant, to any subsequent owner or
holder of the reversion or title to Demised Premises, in which case the assignee
shall become liable for the repayment thereof as herein provided, and the
assignor shall be deemed to be released by Tenant from all liability to return
such security.
(b) If on the thirty (30) month anniversary of the Commencement Date,
and provided that (i) Tenant's financial condition has not, in the reasonable
opinion of Landlord, declined in any material respect below the condition
existing on the date of the execution of this Lease, (ii) Tenant has not made
more than two (2) late payments of Fixed or Additional Rent beyond the
applicable grace period, and (iii) Tenant is not in default under any other
term, covenant or condition of this Lease beyond the applicable cure period,
the Security Deposit shall be reduced to an amount equal to the monthly Fixed
Rent, and Landlord shall refund the excess over such amount to Tenant.
(c) If on the five (5) year anniversary of the Commencement Date, and
provided that (i) Tenant's financial condition has not, in the reasonable
opinion of Landlord, declined in any material respect below the condition
existing on the date of the execution of this Lease, (ii) Tenant has not made
more than two (2) late payments of Fixed or Additional Rent beyond the
applicable grace period, and (iii) Tenant is not in default under any other
term, covenant or condition of this Lease beyond the applicable cure period, the
Security Deposit shall be returned to Tenant by Landlord; provided, however,
that in the event of a default by Tenant hereunder with respect to Tenant's
obligation to pay Fixed or Additional Rent, Landlord may require, in addition to
such payments as are necessary to cure such default, that Tenant pay an amount
equal to twice the Fixed Monthly Rent to re-establish the Security Deposit.
21. Inspection and Entry by Landlord.
--------------------------------
(a) Tenant agrees to permit Landlord and Landlord's agents, employees
or other representatives to show the Demised Premises to any lessor under any
underlying lease or ground lease or any mortgagee or any persons wishing to rent
or purchase the same; provided that Tenant shall be given twenty-four (24) hours
prior telephonic notice.
(b) Tenant agrees that, upon same day telephonic notice to Tenant
(except for routine maintenance), Landlord and Landlord's agents, employees or
other representatives, shall have the right to enter into and upon the Demised
Premises or any part thereof, at all reasonable hours, for the purpose of
inspecting the same, or reading meters, or performing maintenance, or making
such repairs or alterations therein as may be necessary for the safety and
preservation thereof. This clause shall not be deemed to be a covenant by
Landlord nor be construed to create an obligation on the part of Landlord to
make such inspection or repairs.
22. Brokerage. Tenant and Landlord warrant and represent to each other
---------
that neither has dealt with any broker or brokers regarding the negotiation of
this Lease other than the Designated Broker. Landlord agrees to pay the
commission due and payable to the Designated Broker as a result of the execution
of this Lease in accordance with the terms of a separate agreement between those
parties, and Landlord shall indemnify and hold Tenant harmless from any claim by
the Designated Broker with respect to such commission. Tenant and Landlord agree
to be responsible for
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<PAGE>
and to indemnify and hold the other harmless from and against any claim for a
commission or other compensation by any broker other than the Designated Broker
claiming to have negotiated with the indemnifying party with respect to the
Demised Premises or to have called the said Demised Premises to Tenant's
attention or to have called Tenant to Landlord's attention.
23. Parking. Tenant shall have the right under this Lease to the
-------
exclusive use of the Exclusive Spaces in the Building's executive garage and the
non-exclusive use of the Non-Exclusive Spaces in the parking lot of the Building
in compliance with such reasonable Rules and Regulations as Landlord may
promulgate from time to time. Landlord shall have the right to assign the
location of said non-exclusive parking spaces or may designate the location of
same from time to time. Landlord shall designate and assign to Tenant one (1)
additional Exclusive Space in the Building's executive garage, as and if such
space become available due to the expiration and non-renewal of other tenant's
leases in the Building. If Tenant takes additional space in the Building
pursuant to the rights afforded Tenant in Paragraphs 32 and 33 hereof, subject
to availability, Tenant shall also be allocated one additional Exclusive Space
in the executive garage for each additional ten thousand (10,000) square feet of
gross rentable area of office space leased by Tenant.
24. Renewal Option.
--------------
(a) Tenant is hereby granted three (3) successive options to renew
this Lease for a Renewal Term or five (5) years each, subject to the term of
this Paragraph 24. In the event that Tenant desires to renew this Lease, it
shall give notice in writing to Landlord of its intention to renew the Lease at
least fifteen (15) months prior to the Expiration Date and at least fifteen
(15) months prior to the expiration of each of the first two (2) Renewal Terms,
as the case may be. All of the terms and conditions of this Lease shall remain
in effect during each Renewal Term, except that (i) the Initial Year for
purposes of determining Tenant's Proportionate Share of any increase in Expenses
shall be adjusted to the year preceding the first year of the applicable Renewal
Term, and (ii) the annual Fixed Rent payable during each Renewal Term shall be
ninety-five percent (95%) of the annual fair market rental value of the Demised
Premises during the applicable Renewal Term based on comparable space in the
vicinity of the Demised Premises in comparable condition to that which the
Demised Premises will be in after completion of the Tenant Improvements (the
"Fair Market Value") as of the date which is thirteen (13) months prior to the
commencement date of such Renewal Term. The Fair Market Value of the Demised
Premises for purposes of subparagraph (a) of this Paragraph 24 shall take into
account the adjustment of the Initial Year as provided above and shall otherwise
be determined pursuant to the provisions of Paragraph 24(b). In no event shall
the annual Fixed Rent during any Renewal Term be less than the annual Fixed Rent
payable during the year preceding the first year of each such Renewal Term.
(b) On or before the later to occur of (i) the fifteenth (15th) day
after Landlord's receipt of notice of Tenant's intention to renew this Lease or
(ii) the first day of the fifteenth (15th) month preceding the then Expiration
Date, Landlord Shall notify Tenant of Landlord's determination of the Fair
Market Value. Within fifteen (15) days after Tenant's receipt of Landlord's
determination, Tenant shall notify Landlord whether Tenant accepts or rejects
said determination. If Tenant objects to Landlord's determination, the parties
shall confer and negotiate over the next sixty (60) days in an attempt to
reconcile its differences over the Fair Market Value. If the parties are unable
to resolve the dispute within sixty (60) days after Landlord's receipt of
Tenant's objection, then Tenant shall have
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<PAGE>
the right, at its discretion, to either rescind its notice of intention to renew
this Lease or to implement the appraisal process hereinafter described. If
Tenant elects to rescind its renewal notice, or if Tenant fails to give Landlord
notice of its election to implement the appraisal process by the first day of
the twelfth (12th) month precedinq the then Expiration Date, then in either case
Tenant shall be deemed to have waived its right to renew pursuant to the terms
of this Paragraph. If Tenant elects to implement the appraisal process, then
Landlord and Tenant each agree to be bound by the Fair Market Value determined
by said process. In the event Tenant has elected to implement the appraisal
process, then each party, at their own expense, shall designate an MAI or SREA
appraiser in the Morris County area who shall then determine and promptly report
to both parties in writing the Fair Market Value of the Demised Premises. If,
after receiving the appraisers' reports, the parties are unable to agree on the
Fair Market Value, both parties shall jointly appoint a separate MAI or SREA
appraiser who shall determine the Fair Market Value by selecting either
Landlord's appraiser's Fair Market Value determination or Tenant's appraiser's
Fair Market Value determination according to whichever of the two valuations is
closer to the actual Fair Market Value in the opinion of such third appraiser.
If Landlord's appraiser and Tenant's appraiser can not agree on the selection of
the third appraiser, such selection shall be made by the Morris County
Assignment Judge. The costs of such third appraiser shall be shared equally by
Landlord and Tenant.
(c) It shall be a condition of the exercise or the option set forth in
this Paragraph 24, that at the time of the exercise of said option, Tenant shall
not be in default under this Lease beyond applicable grace periods.
25. Landlord's Inability to Perform. This Lease and the obligation of
-------------------------------
Tenant to pay the rent hereunder and to comply with the covenants and conditions
hereof shall not be affected, curtailed, impaired or excused because of the
Landlord's inability to supply any service or material called for herein, by
reason of any rule, order, regulation or preemption by any governmental entity,
authority, department, agency or subdivision or for any delay which may arise by
reason of negotiations for the adjustment or any fire or other casualty loss or
because of strikes or other labor trouble or for any cause beyond the control of
the Landlord; provided; however, that this Paragraph 25 shall not affect
Tenant's right to an abatement of rent where such right is specifically provided
in another paragraph of this Lease.
26. Condemnation.
------------
(a) In the event that the whole or the Demised Premises shall be
lawfully condemned or taken in any manner for any public or quasi-public use or
purpose or is transferred, under threat of condemnation, by Landlord to any
party having the right of condemnation (any of such acts are referred to herein
as "eminent domain"), this Lease and the term and estate hereby granted shall
forthwith cease and terminate as of the date of vesting of title (hereinafter
referred to as the "date of taking"), and Tenant shall have no claim against
Landlord for, or make any claim for the value of, any unexpired term of this
Lease, and the Fixed Rent and Additional Rent shall he apportioned as of such
date.
(b) In the event that any part of the Demised Premises shall be so
condemned or taken, then this Lease shall be and remain unaffected by such
condemnation or taking, except that the Fixed Rent and Additional Rent
allocable to the part so taken shall be apportioned as of the date of taking,
and Tenant shall have no claim against Landlord for, or make any claim for the
value of, the portion of the unexpired Term of this Lease allocable to the part
so taken, provided, however, that in such event either party may elect to cancel
this Lease, provided that notice of
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<PAGE>
termination is given to the other party not later than sixty (60) days after the
date when title shall vest in the condemning authority. Upon the giving of such
notice, this Lease shall terminate on the thirtieth (30th) day following the
date of such notice and the Fixed Rent and Additional Rent shall be apportioned
as of such termination date and Tenant shall have no claim against Landlord for,
or make any claim for the value of, the unexpired Term of this Lease. Upon such
partial taking and this Lease continuing in force as to any part of the Demised
Premises, the Fixed Rent and Additional Rent shall be diminished by an amount
representing the part of the Fixed Rent and Additional Rent properly applicable
to the portion or portions of the Demised Premises which may be so condemned or
taken and the parking spaces allocable to the Demised Premises shall be reduced
proportionately. If, as a result of the partial taking (and this Lease
continuing in force as to the part of the Demised Premises not so taken), any
part of the Demised Premises not taken is damaged, Landlord agrees with
reasonable promptness to commence the work necessary to restore the damaged
portion to the condition existing immediately prior to the taking, and prosecute
the same with reasonable diligence to its completion. In the event Landlord and
Tenant are unable to agree as to the amount by which the Fixed Rent and
Additional Rent shall be diminished, the matter shall be determined by a
mutually acceptable third party. Pending such determination, Tenant shall pay to
Landlord the Fixed Rent and Additional Rent as fixed by Landlord, subject to
adjustment upon resolution of such dispute.
(c) Nothing herein provided shall preclude Tenant from appearing,
claiming, proving and receiving in the condemnation proceeding Tenant's
reasonable and actual moving and relocation expenses and the value of trade
fixtures provided such claim shall be separate from and shall not adversely
affect Landlord's award.
(d) Subject to the provisions of Paragraph 26(c), the entire award for
any act of eminent domain shall be paid to Landlord, and, in the event of a
partial taking, if this lease is not cancelled by either party pursuant to the
provisions of this Paragraph 26, Landlord, at Landlord's own expense, shall
restore the unaffected part of the Demised Premises to substantially the same
condition and tenantability as existed prior to the taking. Until said
unaffected portion is restored, Tenant shall be entitled to a proportionate
abatement of Fixed Rent and Additional Rent of that portion of the Demised
Premises which is being restored and is not usable until the completion of the
restoration or until the said portion of the Demised Premises is used by Tenant,
whichever occurs sooner. Said unaffected portion shall be restored within a
reasonable time, provided, however, if Landlord is delayed by force majeure the
time for completion shall be extended for a period equivalent to the delay. If
such partial taking shall occur in the last year of the Term, either party,
irrespective of the area of the space remaining, may elect to cancel this Lease
and the term hereby granted, provided such party shall, within sixty (60) days
after such taking, give notice to that effect, and upon the giving of such
notice, the Fixed Rent and Additional Rent shall be apportioned and paid to the
date of expiration of the term specified, which date shall be not more than
thirty (30) days after the date of such notice, and this Lease and the term
hereby granted shall cease, expire and come to an end upon the expiration of the
period specified in said notice. If either party shall so elect to end this
Lease and the term hereby granted, Landlord need not restore any part of the
Demised Premises and the entire award for partial condemnation shall be paid to
Landlord, and Tenant shall have no claim to any part thereof.
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<PAGE>
27. Assignment and Subletting.
-------------------------
(a) In the event that Tenant desires to assign this Lease or sublease
the Demised Premises or any portion thereof to any other party, notice of such
desire shall be given to Landlord in writing at least sixty (60) days prior to
the proposed effective date of any such assignment or sublease. Such notice
shall include, in the case of a sublease, the area of the Demised Premises to
be sublet and the proposed term of such sublease. Landlord shall have the
option, exercisable within thirty (30) days of Landlord's receipt of Tenant's
notice of intent, to recapture this Lease, in the case of an assignment, or, in
the case of a sublease, to recapture the space intended to be sublet, if the
gross floor area of the space to be sublet exceeds (in the aggregate including
all prior subleases) thirty percent (30%) of the gross floor area of the Demised
Premises, such recapture to occur as of the proposed effective date set forth in
Tenant's notice. In such event, Tenant shall be fully released from any and all
obligations hereunder with respect to the Demised Premises, in the case of an
assignment, or with respect to the space to have been sublet, in the case of a
sublease. Any sale or other transfer, whether voluntary or involuntary, by
operation of law or otherwise (including, without limitation, by consolidation,
merger or reorganization), of a majority of the voting stock of Tenant, if
Tenant is a corporation, or a majority of the partnership interests in Tenant,
if Tenant is a partnership, shall be an assignment for purposes of this
Paragraph 27 whether such transfer is accomplished in one transaction or a
series of transactions; provided, however, that the initial public stock
offering by Tenant or a successor entity and subsequent sales of stock sold on a
nationally recognized exchange shall not constitute an assignment for purposes
of this Paragraph 27.
(b) In the event that Landlord elects not to recapture the Demised
Premises or the portion thereof to be sublet as hereinabove provided, whichever
the case may be, Tenant may nevertheless assign this Lease or sublet the whole
or any portion of the Demised Premises, subject to the Landlord's prior written
consent, which consent shall not be unreasonably withheld and shall be granted
or denied within fifteen (15) days of receiving Tenant's request therefor
identifying the name and address of the proposed assignee or sublessee.
Landlord's failure to respond within said fifteen (15) day time period shall be
deemed to constitute consent. Any approval of such request shall be subject to
the consent of any mortgagee or ground lessor, which consent shall also be
granted or withheld within said fifteen (15) day period, and shall be subject to
the following terms and conditions:
(1) The assignee shall assume, by written instrument, all of the
obligations of this Lease, and the sublessee shall agree, by written instrument,
to be subject to all of the obligations of this Lease (but only to the extent
applicable to the space sublet and for the term of the sublease), and a copy of
such agreement shall be furnished to Landlord within ten (10) days of its
execution.
(2) Tenant and each assignee shall be and remain liable for the
observance of all of the covenants and provisions of this Lease including, but
not limited to, the payment of Fixed Rent, Additional Rent and other charges due
hereunder through the entire Term of this Lease, as the same may be renewed,
extended or otherwise modified.
(3) Tenant shall promptly pay to Landlord fifty percent (50%) of
any consideration other than rent received for or in connection with any
assignment or sublease, however denominated (excluding the proceeds of the sale
of Tenant's personal property and trade fixtures at a price not in excess of
depreciated book value), and fifty percent (50%) of all of the rent, as and when
received, in excess of the rent required to be paid by Tenant for the area
assigned or sublet.
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<PAGE>
(4) In any event, the acceptance by Landlord of any rent from any
of the subtenants or the failure of Landlord to insist upon the strict
performance of any of the terms, conditions and covenants herein from any
assignee or subtenant shall not release Tenant herein, from any and all of the
obligations herein during and for the entire term of this Lease.
(5) The assignment or sublease shall provide that there shall be
no further assignments and/or subletting without Landlord's consent in
accordance with the provisions of this Paragraph 27.
(c) Tenant shall pay the actual reasonable legal costs incurred by
Landlord, up to a maximum of Seven Hundred Fifty Dollars ($750) per request, to
cover its handling charges for each request for consent to any assignment or
sublet which is subsequently approved by Landlord, such payment to be made
within ten (10) days of Landlord's notice of approval. Tenant acknowledges that
its sole remedy with respect to any assertion that Landlord's failure to consent
to any assignment or sublet is unreasonable shall be the remedy of specific
performance and Tenant shall have no other claim or cause of action against
Landlord as a result of Landlord's actions in refusing to consent thereto.
(d) Notwithstanding anything to the contrary contained in this Lease,
Tenant, without Landlord's prior written consent thereto and without being
subject to the provisions of this Paragraph 27, except subsection (b)(2) which
shall be applicable, shall have the right at any time and from time to time, to
assign this Lease or sublet all or a portion of the Demised Premises to, or
allow the Demised Premises to be otherwise occupied by (i) any parent,
subsidiary, affiliate, group, or division of Tenant, or to any purchaser of all
or substantially all of Tenant's assets, or to any entity which acquires all or
substantially all of the outstanding capital stock of Tenant; or (ii) any entity
arising from Tenant being restructured as a publicly held company; or (iii) any
entity arising as a result of a leveraged buyout, including any subsequent sales
of stock to the public or otherwise, as applicable.
28. Environmental Laws.
------------------
(a) Tenant agrees to comply with all environmental laws, rules and
regulations, including, but not limited to, the Environmental Cleanup
Responsibility Act (N.J.S.A. 13:lK-6, et seg.) ("ECRA") applicable to the
-- ---
Demised Premises or to the Tenant's use or occupancy thereof. Tenant represents
to Landlord that Tenant's Standard Industrial Classification (SIC) Number is
2834. Tenant represents that its contemplated use of the Demised Premises is
consistent with those uses identified in N.J.A.C. 7:26B-l.8(a)2 and should
thereby qualify for the administrative office exemption from ECRA contained in
said regulation. Tenant shall not conduct any operations at the Demised Premises
that shall cause the Building or the Demised Premises to be deemed an
"industrial establishment" as presently defined in ECRA, or, in the alternative,
shall conduct its operations so as to continue to qualify for an exemption
therefrom.
(b) Tenant hereby agrees to execute such documents Landlord reasonably
deems necessary and to cooperate in the making of such applications as Landlord
reasonably requires to assure compliance with ECRA. Tenant shall bear all costs
and expenses incurred by Landlord associated with any required ECRA compliance
resulting from Tenant's use of the Demised Premises, including, but not limited
to, state agency fees, engineering fees, clean-up costs, filing fees and
suretyship expenses; provided, however, that Tenant shall have no responsibility
for any such costs and expenses arising from (i) conditions at the Demised
Premises or on the Land existing prior to the Commencement Date, (ii) the
affirmative act or negligent omission of Landlord, or Landlord's agents or
employees, or (iii) the construction of the Building or the Demised
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Premises by Landlord and the nature of the materials employed by Landlord with
respect thereto. In addition, Landlord shall be responsible for the cost of
obtaining a Letter of Non-Applicability under ECRA if the triggering event is
the sale or refinancing of the Building by Landlord, or any change in the
ownership or control of Landlord, or any other trigger resulting solely from the
actions of Landlord. As used in this Lease, ECRA compliance shall include
applications for determinations of nonapplicability by the appropriate
governmental authority. The foregoing undertaking shall survive the termination
or sooner expiration of the Lease and surrender of the Demised Premises and
shall also survive the sale, lease or assignment of the Demised Premises by
Landlord. Tenant shall promptly provide Landlord with copies of all material
correspondence, reports, notices, orders, findings, declarations and other
materials pertinent to Tenant's compliance at the Demised Premises and the New
Jersey Department of Environmental Protection and Energy's ("NJDEPE")
requirements under ECRA as they are issued or received by the Tenant.
(c) Neither party hereto shall be permitted to generate, store,
manufacture, refine, transport, treat, dispose of, or otherwise allow to be
present on or about the Demised Premises, any Hazardous Substances with the sole
exception of those Hazardous Substances typically used in operating, cleaning or
maintaining a business office in quantities consistent with such use. As used
herein, "Hazardous Substance" shall be defined as any "hazardous chemical",
"hazardous substance", "hazardous waste", or similar term as defined in the
Comprehensive Environmental Responsibility Compensation and Liability Act, as
amended (42 U.S.C. 9601, et seq.), ECRA, the New Jersey Spill Compensation and
Control Act, as amended, (N.J.S.A. 58:l0-23.llb, et seq.), any rules or
regulations promulgated thereunder, or in any other present or future applicable
federal, state or local law, rule or regulation dealing with environmental
protection.
(d) Tenant agrees to indemnify and hold harmless Landlord and each
mortgagee of the Demised Premises from and against any and all liabilities,
damages, claims, losses, judgments, causes of action, costs and expenses
(including reasonable attorneys' fees) which may be incurred by Landlord or any
such mortgagee or threatened against the Landlord or such mortgagee, relating to
or arising out of any breach by Tenant of this Paragraph 28, which
indemnification shall survive the expiration or sooner termination of this
Lease.
(e) Landlord represents that it has no knowledge of the storage or
disposal of Hazardous Substances anywhere on the Complex Land or any of the
Improvements thereon (i) except in compliance with all applicable federal, state
and local environmental laws, (ii) of a nature as would expose Tenant to any
claims or liabilities as a result of its use and occupancy of the Demised
Premises, or (iii) which would materially impair Tenant's use and occupancy of
the Demised Premises. Landlord agrees to indemnify and hold Tenant harmless
from and against any and all liabilities, damages, claims, losses, judgments,
causes of action, costs and expenses (including reasonable attorneys' fees)
which may be incurred by Tenant as a result of (i) the existence of Hazardous
Substances in the Building or on the Land prior to the Commencement Date, or
(ii) the handling, storage or disposal of Hazardous Substances by Landlord or
Landlord's agents or employees in violation of any applicable federal, state or
local environmental laws.
29. Parties Bound.
-------------
(a) The covenants, agreements, terms, provisions and conditions of
this Lease shall bind and benefit the respective successors, assigns and legal
representatives of the parties hereto with the same effect as if mentioned in
each instance where a party
- 28 -
<PAGE>
hereto is named or referred to except that no violation of the provisions of
Paragraph 7(c) hereof shall operate to vest any rights in any successor,
assignee or legal representative of Tenant and that the provisions of this
Paragraph 29 shall not be construed as modifying the conditions contained in
Paragraph 13 hereof.
(b) Tenant acknowledges and agrees that if Landlord shall be an
individual, joint venture, tenancy-in-common, firm, or partnership, general or
limited, there shall be no personal liability on such individual or on the
members of such joint venture, tenancy-in-common, firm or partnership in respect
of any of the covenants or conditions of this Lease; rather, Tenant agrees to
look solely to Landlord's estate and property in the Building (or the proceeds
thereof) for the satisfaction of Tenant's remedies arising out of or related to
this Lease.
(c) The term "Landlord" as used in this Lease means only the owner, or
the mortgagee in possession, for the time being of the Demised Premises (or the
owner of a lease of the Demised Premises) so that in the event of any sale or
sales of the Land, the Building, or the Demised Premises or of said lease, or in
the event of a lease of the Land, the Building or of the Demised Premises, the
said Landlord shall be and hereby is entirely freed and relieved of all
covenants and obligations of the Landlord hereunder, and it shall be deemed and
construed without further agreement between the parties or their successors-in-
interest, or between the parties and the purchaser, at any such sale, or the
said lessee of the Land, Building or of the Demised Premises, that the purchaser
or the lessee of the same has assumed and agreed to carry out any and all
covenants and obligations of Landlord hereunder.
30. Miscellaneous.
-------------
(a) This Lease contains the entire contract between the parties. No
representative, agent or employee of Landlord has been authorized to make any
representations or promises with reference to the leasing of the Demised
Premises or to vary, alter or modify the terms hereof. No additions, changes or
modifications, renewals, or extensions hereof, shall be binding unless reduced
to writing and signed by Landlord and Tenant.
(b) The terms, conditions, covenants and provisions of this Lease
shall be deemed to be severable. If any clause or provision herein contained be
adjudged to be invalid or unenforceable by a court of competent jurisdiction or
by operation of any applicable law, it shall not affect the validity of any
other clause or provision herein but such other clauses or provisions shall
remain in full force and effect.
(c) The paragraph headings in this Lease are for convenience
only and are not to be considered in construing the same.
(d) If, in connection with obtaining financing for the Building, a
banking, insurance or other recognized institutional lender shall request
reasonable modifications in this Lease as a condition to such financing, Tenant
shall not unreasonably withhold, delay or defer its consent thereto, provided
that (i) such modifications do not in any significant manner increase the
obligations of Tenant hereunder, or affect the leasehold interest created
hereby, or impair the conduct of Tenant's business operations at the Demised
Premises or materially diminish Landlord's responsibilities hereunder; and (ii)
such modifications do not affect the Term, rent, renewal or expansion rights, or
work letter allowances afforded to Tenant hereunder.
(e) This Lease shall be governed by and construed in accordance with
the laws of the State of New Jersey.
(f) The parties agree that any litigation arising out of this Lease
shall be venued in the Superior Court of New
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<PAGE>
Jersey. Each party waives trial by jury in any action or proceeding arising out
of this Lease.
(g) Tenant shall not allow the Demised Premises to be encumbered by a
mechanic's lien. If any mechanic's or material-man's lien is filed against the
Demised Premises, the Building or the Land as a result of any additions,
alterations, repairs, installations, improvements or any other work or act of
Tenant, Landlord shall notify Tenant of same and Tenant shall discharge or bond
same within fifteen (15) days from the date Tenant is notified of the filing of
the lien. If Tenant shall fail to discharge or bond the lien, Landlord may bond
or pay lien or claim for the account of Tenant without inquiring into the
validity of the lien or claim and Tenant shall reimburse Landlord upon demand.
(h) Each party represents to the other that the undersigned officer(s)
have been duly authorized to enter into this Lease and that the execution and
consummation of this Lease does not and shall not violate any provision of any
by-laws, certificate of incorporation, agreement, order, judgment, governmental
regulation or any other obligations to which the parties are subject. Upon
execution hereof, Tenant shall deliver a Secretary's certificate evidencing its
authority to execute this Lease.
(i) Landlord represents that it is the owner in fee, simple of the
Land and the Building and that the title thereto is not subject to any covenant,
restriction or other encumbrance which would preclude the use and occupancy of
the Demised Premises by Tenant for the Permitted Use.
(j) Whenever Landlord's consent or approval is required under this
Lease, Landlord agrees that such consent shall not be unreasonably withheld or
delayed at such times as Tenant is not in default in the performance of any of
its obligations under this Lease beyond this applicable grace period provided
herein. This subparagraph (j) shall not apply to any provision in this Lease
which expressly permits Landlord to arbitrarily withhold its consent or
approval.
31. Hold Over Tenancy. If Tenant shall hold over after the expiration of
-----------------
the term of this Lease or any extensions hereof, Tenant shall be deemed to be
occupying the Demised. Premises as a tenant from month-to-month, which tenancy
may be terminated as provided by New Jersey state law. Tenant acknowledges that
holding over beyond the term of this Lease may cause Landlord damages that are
impossible to estimate or quantify for purposes of this Lease. Therefore, during
such tenancy, Landlord and Tenant agree that Tenant shall pay to Landlord one-
hundred fifty percent (150%) of the Fixed Monthly Rent in effect on the
Expiration Date plus all other sums due hereunder, making such payment in
accordance with this Lease. Tenant shall be otherwise bound by all of the terms,
covenants and conditions contained in this Lease.
32. Tenant's Expansion Options.
--------------------------
(a) Tenant is hereby granted the option to lease an additional six
thousand (6,000) square feet of gross rentable area of office space located on
the third floor of the Building and currently occupied by Gale & Wentworth,
Inc., which area is identified as Option Space A on the floor plan attached
hereto as Exhibit F, subject to reasonable adjustments in the configuration of
the space as may in the future be agreed upon by the parties, ("Option Space A")
at any time between the second and fourth anniversaries of the Commencement
Date. In the event that Tenant desires to lease Option Space A, it must give
notice in writing to Landlord of Tenant's intention to lease Option Space A no
earlier than the eighteen (18) month anniversary of the Commencement Date and no
later than the forty-two (42) month anniversary of the
- 30 -
<PAGE>
Commencement Date. Such notice shall fix a date for the commencement of the
lease of Option Space A which shall be six (6) months after the date of such
notice. Failure of Tenant to provide Landlord with such notice shall be deemed
to be a termination of Tenant's right to lease Option Space A pursuant to the
terms and provisions of this Paragraph 32(a). If said option is exercised, all
of the terms and conditions of this Lease shall remain in effect for Option
Space A except that: (i) the annual and monthly Fixed Rent shall be increased
based upon the increase in the gross floor area of the Demised Premises
resulting from the addition of Option Space A; (ii) Landlord shall provide a
period of rent abatement equal to nine (9) months Fixed Rent (as to Option Space
A only) multiplied by a fraction the numerator of which is the number of years
remaining in the Term on the date on which the lease of Option Space A commences
and the denominator of which is the number twelve (12); and (iii) Landlord shall
provide a construction allowance equal to Thirty-one Dollars ($31) per square
foot of office space in Option Space A if Tenant's notice is given between the
eighteen (18) month and thirty (30) month anniversaries of the Commencement Date
and Twenty-nine Dollars ($29) per square foot of office space in Option Space A
if such notice is given on or after the thirty (30) month anniversary of the
Commencement Date. At such time as the commencement date for Option Space A
begins, Landlord and Tenant shall enter into a separate amendment to this Lease
appropriately incorporating Option Space A into this Lease, including, without
limitation, a recomputation of Tenant's Proportionate Share.
(b) At any time after November 30, 1995, contingent upon the release or
termination of the expansion rights of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Tenant shall be granted the option to lease an additional five
thousand (5,000) square feet of gross rentable area of office space located on
the third floor of the Building, which area is identified as Option Space B on
the floor plan attached hereto as Exhibit G ("Option Space B"). In the event the
Tenant desires to lease Option Space B, it must give notice in writing to
Landlord of Tenant's intention to lease Option Space B after November 30, 1995.
Such notice shall fix a date for the commencement of the lease of Option Space B
which shall be six (6) months after the date of such notice. Failure of Tenant
to provide Landlord with such notice during the Term shall be deemed to be a
termination of Tenant's right to lease Option Space B pursuant to the terms and
provisions of this Paragraph 32(b). If said option is exercised, all of the
terms and conditions of this Lease shall remain in effect for Option Space B
except that: (i) the annual and monthly Fixed Rent shall be increased based upon
the increase in the gross floor area of the Demised Premises resulting from the
addition of Option Space B; (ii) Landlord provide a period of rent abatement
equal to nine (9) months Fixed Rent (as to Option Space B only) multiplied by a
fraction the numerator of which is the number of years remaining in the Term on
the date on which the lease of Option Space A commences and the denominator of
which is the number twelve (12); and (iii) Landlord shall not be required to
provide the same per square foot rate construction allowance as set forth herein
but shall provide instead a work letter allowance of Thirty-one Dollars ($31.00)
per square foot of office space in Option Space B multiplied by a fraction the
numerator of which is the number of years remaining in the Term on the date on
which the lease of Option Space B commences and the denominator of which is the
number twelve (12). At such time as the commencement date for Option Space B
begins, Landlord and Tenant shall enter into a separate amendment to this Lease
appropriately incorporating Option Space B into this Lease, including, without
limitation, a recomputation of Tenant's Proportionate Share.
(c) It shall be a condition of Tenant's right to exercise the options set
forth in Paragraphs 32(a) and 32(b) that at the time of the exercise of said
option that Tenant shall not be in default under this Lease beyond any
applicable grace period.
- 31 -
<PAGE>
33. Right of First Offer.
--------------------
(a) If at any time during the Term (exclusive of any Renewal Term),
Landlord decides to lease space on the third floor of the Building ("Third Floor
Offer Space"), then Landlord shall, before deciding to so lease the space,
provide written notice to Tenant enclosing an offer of the terms and conditions
upon which Landlord would be willing to lease the Third Floor Offer Space, which
notice shall be accompanied by a floor plan of the Third Floor Offer Space. The
fixed rent specified in such notice shall be the greater of (i) the prevailing
fixed rent then being offered to tenants leasing similar space in the Building,
or (ii) the Fixed Rent payable by Tenant hereunder on the date of the notice.
Tenant shall then have a period of ten (10) days after receipt of the notice
containing the offer within which to accept such offer in writing, by notice
given in accordance with Paragraph 18 of this Lease, upon the terms and
conditions specified therein. In the event Tenant shall accept Landlord's offer,
then Landlord and Tenant shall enter into an amendment to this Lease upon the
terms and conditions specified in Landlord's notice to Tenant. In the event
Tenant shall fail to respond to Landlord during such ten (10) day period, then
Landlord shall thereafter be free to lease the First Offer Space to any third
party.
(b) If at any time during the Term, including any Renewal Term, any
storage space located in the lower level of the Building becomes available,
Landlord shall, prior to leasing such available storage space, provide written
notice to Tenant enclosing an offer of the terms and conditions upon which
Landlord would be willing to lease the storage space. Tenant shall then have a
period of ten (10) days after receipt of the notice containing the offer within
which to accept such offer in writing, by notice given in accordance with
Paragraph 18 of this Lease, upon the terms and conditions specified herein. In
the event that Tenant accepts Landlord's offer, then Landlord and Tenant shall
enter into an amendment of this Lease incorporating the storage space on the
terms and conditions specified in Landlord's notice to Tenant. In the event that
Tenant fails to respond to Landlord during such ten (10) day period, then
Landlord shall thereafter be free to lease the storage space to any third party.
(c) It shall be a condition of Tenant's right to exercise its right of
first offer for the Third Floor Offer Space or the storage space as set forth in
this Paragraph 33, that, at the time of such exercise Tenant shall not be in
default under this Lease beyond the expiration of any applicable grace period.
34. Satellite Dish Antenna. Tenant shall have the right, at its sole
----------------------
cost and expense, to install and maintain on the Building's roof the equipment
and satellite dish antenna (or similar transmitting device) required for
Tenant's communications and data transmission network (the "Antenna"). Tenant
shall be solely responsible for obtaining, with Landlord's reasonable
cooperation, if necessary (but at no cost to Landlord), any and all governmental
approvals and permits, including, without limitation, any FCC permit and any
amendment of the Building's site plan approval, which may be required in
connection with the installation and use of the Antenna. The Antenna shall be
located in an area mutually acceptable to both Tenant and Landlord. Landlord
shall have the right to relocate the Antenna, at its sole cost and expense, at
any time and from time to time during the Term, provided such relocation does
not unreasonably interfere with Tenant's business at the Demised Premises and
further provided that Landlord shall provide Tenant with reasonable prior notice
of said relocation and Landlord shall cooperate with Tenant in effectuating said
relocation. Tenant shall not have the exclusive right to use the Building roof
for its Antenna, but rather, shall be subject to the right of Landlord to use
the roof or to permit other tenants of the Building to use the roof for their
needs. In the event that Land-
- 32 -
<PAGE>
lord permits any other tenant to use the roof for equipment similar to the
Antenna, such other tenant's use shall not unreasonably interfere with Tenant's
Antenna. Tenant shall not be permitted to terminate this Lease or be entitled to
a reduction or abatement of the rent due and payable under this Lease in the
event that Tenant is unable to obtain the necessary permits and approvals to
install the Antenna or if conditions beyond Landlord's control interfere with
Tenant's use of the Antenna. Tenant shall be permitted access to the Building
roof and to the risers and conduits within the Building for purposes of
installing and maintaining the Antenna, which access shall not unreasonably
interfere with any other tenant's use and enjoyment of the Building. Tenant
shall pay the cost of any Building modifications or improvements required to
accommodate the Antenna. Tenant hereby indemnifies and holds Landlord harmless
from and against any and all claims, damages, liabilities, costs and expenses
(including without limitation attorneys fees and litigation costs) arising out
of Tenant's construction, installation, replacement, maintenance and general use
of the Antenna. Tenant acknowledges that Landlord has made no representations or
warranties to Tenant that the Antenna is permitted under applicable zoning
ordinances. Tenant shall comply with any such ordinances, at its sole cost and
expense. Tenant's use of the roof space shall not require a separate or
additional rent payment by Tenant.
35. Cafeteria. The Landlord covenants that so long as Tenant or an
---------
affiliate of Tenant, including the entities described in subparagraph 27(d)
hereof, is in occupancy of the Demised Premises Landlord shall maintain a
cafeteria open to the general public in the Building at all times during the
Term; provided, however, that Landlord shall not be considered to be in breach
of this covenant in the event that said cafeteria closes for a brief period of
time, not to exceed ninety (90) days, while Landlord is obtaining a new operator
for said cafeteria, or for a brief period of time, not to exceed one hundred
twenty (120) days, while said facility is being repaired or restored after
damage resulting from a casualty.
36. Utility Rebates. In the event that any of the heating, ventilating,
---------------
or air conditioning equipment, or any other energy systems installed in the
Demised Premises, entitle the purchaser thereof to any rebate of the cost of
purchase, Landlord shall assign to Tenant all of its interest in such rebate.
Landlord shall cooperate with Tenant at no expense to Landlord to enable Tenant
to process any necessary applications for such
- 33 -
<PAGE>
rebates by signing or endorsing any such applications after the same have been
prepared or compiled by Tenant.
IN WITNESS WHEREOF Landlord and Tenant have caused this Lease to be
executed as of the date first above written.
LANDLORD:
--------
SAMMIS MORRISTOWN ASSOCIATES, a
California general partnership
By: Gale & Wentworth, Inc.
authorized management agent
ATTEST:
/s/ [SIGNATURE APPEARS HERE] By:/s/ [SIGNATURE APPEARS HERE]
- ------------------------------- -----------------------------------
Name:
Title:
TENANT:
SCHEIN PHARMACEUTICAL, INC., a
New York corporation
ATTEST:
/s/ Paul Feuerman By: /s/ Oliver Esman
- ------------------------------- -----------------------------------
Paul Feuerman Name : Oliver Esman
Vice President and General Counsel Title: Vice President, Human Resources
-34-
<PAGE>
EXHIBIT "A"
-----------
FLOOR PLAN
----------
PARK AVENUE AT MORRIS COUNTY
PHASE 1 - THIRD FLOOR
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT "A"-1"
---------------
SITE PLAN OF BUILDING
---------------------
[SITE PLAN APPEARS HERE]
PARK AVENUE AT MORRIS COUNTY
MASTER SITE PLAN
<PAGE>
EXHIBIT B
---------
WORK LETTER TO LEASE
Between
Sammis Morristown Associates
and
Schein Pharmaceutical, Inc.
Section 1.1. The provisions of this Exhibit shall have the same force and
effect as if this Exhibit were a numbered Article of the Lease.
Section 2.1. (a) Landlord and Tenant have approved and do hereby
incorporate by reference herein as Exhibit B-1 work letter specifications and
preliminary plans for the construction of the Demised Premises (the "Preliminary
Plans"). The parties acknowledge that the Preliminary Plans were prepared based
upon a Demised Premises of 38,180 square feet of gross floor area of office
space. In finalizing the Preliminary Plans, the gross floor area of the Demised
Premises will be increased to 40,899 square feet and, as a result, the
quantities and allowances set forth in Exhibit B-1 shall be increased by 7.12%
(except for those expressed as an amount per square foot). Subject to the
provisions of this, Lease, Landlord agrees, to construct the Demised Premises in
accordance with the Final Plans (as hereinafter defined) finalized from the
Preliminary Plans, which construction shall be completed in a good and
workmanlike manner and in compliance with all applicable laws and regulations.
The work, fixtures, equipment and other improvements depicted on the Final Plans
are referred to in this Lease as the "Tenant Improvements". Tenant shall pay to
Landlord the sum of One Hundred Seven Thousand Dollars ($107,000) toward the
cost of constructing the Tenant Improvements ("Tenant's Construction Cost");
otherwise, Landlord shall complete the construction at Landlord's sole cost and
expense. Tenant's Construction Cost shall be paid to Landlord on the sooner of
(i) the date on which Tenant takes occupancy of the Demised Premises or (ii) the
date which is five (5) days of the issuance of a temporary or permanent
Certificate of Occupancy for the Demised Premises.
(b) Landlord shall pay the cost of preparing the Preliminary
Plans and the Final Plans up to a maximum of Four Dollars and Fifty Cents
($4.50) per useable square foot as provided in Exhibit B-1. Any revisions to the
Final Plans shall be at Tenant's sole cost and expense thereto.
Section 3.1. (a) In order to finalize the Preliminary Plans or in the event
that Tenant desires any change in the Preliminary Plans before finalization,
Tenant shall submit to Landlord, proposed final plans setting forth the
finalization of the Preliminary Plans, including any proposed finalization by
April 12, 1993. Within two (2) business days after receipt of any proposed
change to the Preliminary Plans, Landlord shall approve or reject same and if
rejecting same shall state the reasons for such rejection. Landlord agrees not
to unreasonably withhold its approval to any changes or to the proposed final
plans. If the proposed final plans included any changes from the Preliminary
Plans, upon the granting of any approval, Landlord shall notify Tenant of the
amount, if any, of the charge to Tenant arising therefrom (which charge shall be
determined after deducting any savings attributable to said change and which
charge shall be paid by Tenant to Landlord within ten (10) days after the
issuance of a temporary or permanent certificate of occupancy for the Demised
Premises). In the event of a rejection by Landlord of any proposed final plans,
Tenant may make changes to the proposed final plans and resubmit them pursuant
hereto. Upon receiving Landlord's approval to any proposed final plans, such
plans shall become the Final Plans (the "Final Plans") hereunder. No plans
submitted to Landlord shall be considered to be Final Plans unless they are
B-1
<PAGE>
submitted to Landlord signed and sealed and in proper and sufficient form for
Landlord to obtain all necessary permits and approvals to construct the Demised
Premises in accordance with such Final Plans. Any delay in the completion of
the Demised Premises caused by the Final Plans being delivered to Landlord,
fully approved and in the proper form as set forth herein, later than May 5,
1993 shall be a Tenant Delay (as hereinafter defined).
(b) In the event that Tenant desires any change in the Final Plans,
Tenant shall submit to Landlord revised final plans setting forth the proposed
change and instructing Landlord whether to cease work or cease any segment of
work while the change is approved (in which case the delay shall be a Tenant
Delay as hereinafter defined) or whether Landlord should continue constructing
the Demised Premises in accordance with the Final Plans notwithstanding the
proposed change thereto. In the event that no such instructions are given,
Landlord shall continue constructing the Demised Premises in accordance with the
Final Plans without regard to the proposed changes thereto. Within two (2)
business days after receipt of any proposed change in the Final Plans from
Tenant, Landlord shall approve or reject same and, if rejecting same, shall
state the reasons for such rejection. Landlord agrees not to unreasonably
withhold its approval to any such change. If Landlord has stopped work, or some
segment thereof, at Tenant's request, Landlord shall resume work, or some
segment thereof, at Tenant's written instructions from Tenant authorizing the
recommencement of such work. Upon the granting of any approval, Landlord shall
notify Tenant of the amount, if any, of the charge to Tenant arising therefrom
(which charge shall be determined after deducting any savings attributable to
said change and which charge shall be paid by Tenant to Landlord within thirty
(30) days after the issuance of a temporary or permanent certificate of
occupancy for the Demised Premises) and Landlord's estimate of the delay in
completion that will be caused by such proposed revision to the Final Plans. In
the event of a rejection by Landlord of a proposed revision, Tenant may make
changes to the proposed revision and resubmit it pursuant hereto. Upon receiving
Landlord's approval to any revision, Tenant shall, as soon thereafter as
practicable, but in no event in excess of two (2) business days, and
understanding that any delay in responding may cause delays in completion
substantially greater than the estimate given by landlord, authorize the work
that Tenant desires by approving in writing the work and the cost thereof, and
submitting to Landlord signed and sealed revised final plans sufficient for
Landlord to obtain all necessary permits and approvals to construct the Demised
Premises in accordance with such revised final plans. Upon the submission of
such revised final plans, such revised final plans shall become the Final Plans
hereunder. Any delay in completion caused by the revision to the Final Plans,
whether greater or less than Landlord's estimate, shall be a Tenant Delay (as
hereinafter defined).
(c) Any reduction in the cost of constructing the Tenant Improvements
resulting from changes to the Preliminary or Final Plans shall result in a
dollar for dollar reduction in Tenant's Construction Cost; provided, however,
that in no event shall Landlord be required to rebate any funds to Tenant due to
cost reductions in excess of Tenant's Construction Cost.
Section 3.2. If (a) a delay shall occur in the completion of the Demised
Premises in accordance with the Final Plans or any revised Final Plans by the
Landlord as the result of any act of or by Tenant or any of its employees,
agents or contractors which materially interferes with the completion of the
Tenant Improvements, including, without limitation, (i) any delay in delivering
the Final Plans to Landlord in the form and on the date required by Section
3.1(a) hereof, (ii) any direction by Tenant that the Landlord delay proceeding
with the work or any segment of the work in anticipation of a possible revision
to the Final Plans by Tenant or for any other reason, (iii) any revision to the
Final
B-2
<PAGE>
Plans authorized by Tenant, or (iv) any additional time required for the
completion by Landlord of its work because of the inclusion therein at Tenant's
request of any item of work not included in the Final Plans, or (v) any other
act or omission of Tenant, its agents, employees or contractors (any of such
events being a "Tenant Delay"), then (b) the Commencement Date shall (even
though no Certificate of Occupancy has been issued or the Demised Premises has
not been completed) be deemed to be one day earlier than provided for in
Paragraph 4(b) of the Lease for each day of such Tenant Delay. Landlord shall
notify Tenant of any event or occurrence which constitutes a Tenant Delay within
five (5) days of such event or occurrence. If Landlord fails to give such
notice, Landlord shall be deemed to have waived such Tenant Delay for the period
prior to the date which is five (5) days prior to the giving of such notice. The
extent of any Tenant Delay shall be determined in the following manner: Landlord
shall notify Tenant of a Tenant Delay and the estimated length of the Tenant
Delay involved as soon as practicable after the information necessary to
estimate such Tenant Delay is available (which notice shall include the basis
for the Landlord's estimate) and, as Landlord obtains the information to
calculate the actual Tenant Delay, Landlord shall so notify Tenant, providing it
with the basis used in calculating such Tenant Delay. In the event of a dispute
concerning the length of any Tenant Delay, Landlord's calculation shall be used
and the Commencement Date shall occur in accordance therewith, provided,
however, that Tenant shall retain its right to challenge Landlord's calculation
of the length of the Tenant Delay, and such dispute shall be submitted to
arbitration by the American Arbitration Association or such other arbitrator as
may be selected by mutual agreement of the parties, such arbitration to be
conducted in accordance with the rules of the American Arbitration Association
pertaining to commercial arbitration.
B-3
<PAGE>
EXHIBIT B-1
WORK LETTER FOR SCHEIN PHARMACEUTICAL, INC.
Park Avenue at Morris County
Third Floor
100 Campus Drive
Florham Park, New Jersey
March 3, 1993
This work letter is based on a plan prepared by Interior Space Specialists,
Inc., titled, Feasibility Study, and dated January 20, 1993. The specifications
for the construction are as follows:
1. General Conditions
------------------
a. An allowance of $4.50 per s.f. for the preparation of the
architectural, structural and engineering construction documents is
included.
b. The cost of obtaining building permits is included.
c. The cost of clean up and rubbish removal is included, as required.
2. An allowance of $10,000 for the furnishing and installation of additional
structural steel for the central file room is included. Engineer fees are
included in #la above.
3. Carpentry
---------
a. All furniture and work stations to be supplied and installed by tenant.
b. Thirty-six (36) l.f. of base and wall cabinetry is included in the
lunch room and pantries. All exposed surfaces will be plastic laminate
with interior shelving to be constructed of melamine.
c. Closet interiors to consist of melamine shelving above a single closet
pole.
d. Four 12' long x 8' high mahogany veneer wood base cabinets with
bookshelves above are included.
4. Doors and Hardware
------------------
a. The double entrance doors are to each be 3' x 9' Herculite glass doors.
<PAGE>
Schein Pharmaceuticals Workletter
February 19, 1993
Page 2
b. Swing doors in the interior space will be 3'0" x 8'10" x 1 3/4" plain
sliced, solid core oak veneer doors stained to match tenant's
selection. Interior door frames shall be knock down hollow metal,
factory primed, field finished and field painted.
c. Closet sliding doors to be 2'-0" or 2'-6" wide as shown on plans.
These doors will also be 8'-10" high and be solid core oak veneer.
d. Door hardware to be Sergeant 10 line lever latch sets. Each door will
have two (2) pair of hinges finished in building standard polished
brass. Sergeant 8100 Series mortise locksets and closures will be
installed on the doors exiting from the tenant space to the corridor.
5. Finishes
--------
a. Proposed partitions within tenant space will extend from floor to
underside of ceiling. Partitions to be constructed of 3 5/8" studs 24"
on center with one (1) layer of 5/8" gypsum board each side, taped and
spackled. Insulation will be installed in the partitions surrounding
the conference rooms, training room, copy rooms, and all perimeter
offices. The offices along column line "h" partitions shall extend
from the floor to the underside of structure above and be insulated
with full thick acoustical insulation top to bottom.
b. A 2' wide x 9' high x 3/8" thick sidelight to be provided at the 5
executive offices along column line "h". This opening will be
sheetrock framed on two sides with a glazing channel on the floor and
a flush channel at the ceiling. All other offices to have 9'-0" high
by full width glass fronts.
c. Ceilings will be 2' x 2' x 3/4" Neo-Step Cirrus tile. The tiles shall
be installed in a 9/16" super-fine exposed white ceiling grid system.
Ceiling height to be nominal 9'-0".
d. Kentile or Armstrong vinyl composition tile will be installed in the
following areas: lunch rooms, storage and copy rooms. A 4" high vinyl
cove base in standard colors will be installed throughout the space.
e. An allowance of $18.00 per s.y. for labor and material is included for
furnishing and installation of carpet and under padding.
<PAGE>
Schein Pharmaceuticals Workletter
February 19, 1993
Page 3
f. Vinyl wall covering will be installed in all exterior perimeter
offices, the reception area, conference rooms and all public areas.
This wall covering is included at an allowance of $2.00 per s.f. for
labor and material. The remaining areas shall be painted with two (2)
coats of flat latex paint. Colors shall be selected from Landlord's
standard Conlux color chart, one (1) color per room. Dark colors,
other than flat latex and accent colors will be considered as an
extra.
g. An allowance of $25.00 per s.f. for labor and material necessary to
provide granite flooring and 4" base from the elevator lobby through
the reception area, between columns H' and G'.
6. Specialty Items
---------------
a. Building standard horizontal mini-blinds will be provided and
installed by Landlord, on exterior perimeter offices only.
b. Two (2) 17' x 9'-0" Modernfold Spacesetter Model #202 folding
partitions, 35 STC rated, to be provided at the conference rooms near
the training room.
7. Mechanical
----------
a. Plumbing
1. Each lunch room and pantry will have one (1) stainless steel sink
installed in the cabinetry, with a 6 gallon hot water heater
installed above the hung ceiling.
2. The cost to furnish and install the following General Electric
appliances with roughing and hookups is included:
3 TBXl8QP Refrigerators with ice makers
1 G5D570 Dishwasher
b. Fire Sprinkler
1. The fire sprinkler system that exists in the building will be
modified and heads will be added and relocated as required to
meet code. All sprinkler heads will be centered in the tile.
<PAGE>
Schein Pharmaceuticals Workletter
February 19, 1993
Page 4
2. A fire alarm system exists in the building and will remain as is.
Additional horn/strobes to be provided as required.
c. Heating, Ventilating and Air Conditioning
1. Furnish and install a complete year-round heating, ventilating
and air conditioning system to provide interior conditions of 78
degrees Fahrenheit when outside conditions are 95 degrees
Fahrenheit, and 68 degrees Fahrenheit when outside temperatures
are 0 degrees Fahrenheit. The air conditioning system shall
provide not less than 15 cubic feet of outside air permanent per
occupant provided that in any given room or area of tenant's
demised premise the occupancy does not exceed one (1) person per
150 square feet of useable area and total electric load does not
exceed 4.0 watts per square foot for tenant lighting and power.
2. The existing distribution system to be utilized, with building
standard VAV boxes with DDC controls to be provided based upon
the following criteria:
a. 1 VAV per exterior office
b. 1 VAV per 4 interior offices
c. 1 VAV per 1,200 s.f. interior open space
d. 1 VAV per conference room
e. 3 VAV's in the training room
f. 1 VAV each in the copy room and equipment room
3. One (1) air cooled 2 ton Liebert Mini-mate to be provided for the
equipment room.
4. One (1) Plenum exhaust fan provided for each conference room and
the lunch room.
5. Two (2) Honeywell F57B electronic air cleaners to be provided.
6. All medium pressure duct to be wrapped with 1 1/2" insulation.
7. All low pressure duct to be lined with 1/2" insulation.
8. 2' maximum flexible duct to be used for each diffuser.
<PAGE>
Schein Pharmaceuticals Workletter
February 19, 1993
Page 5
9. Louver face diffusers and perforated face returns to be provided
throughout. Color to be as selected by tenant's architect.
8. Electrical
----------
a. Service - The usage of tenant power for lighting and receptacles is to
be metered through the use of a Westinghouse Digital Demand Meter. The
distribution of power is based on using a 225 AMP Buss plug; 42
circuit 277/480 volt panel, a 75 AMP transformer, and (2) 42 circuit
110 V panels.
b. Lighting - We will furnish and install one (1) 2' x 4' recessed
fluorescent unit containing three (3) 40 watt rapid start lamps with
silver parabolic deep louvers for every 80 square feet of net rentable
area.
c. As there is no electrical plan at this time, we have made assumptions
and included the following quantities of electrical items:
1. Fifty (50) 150 watt incandescent downlights for use in the
conference and reception areas.
2. One hundred thirty (130) duplex receptacles with maximum of (8)
per circuit.
3. Eighty (80) isolated ground receptacles and feeds, with maximum
(5) per circuit.
4. Ten (10) dedicated circuit receptacles for copiers and fax
machines.
5. Switching provided as required.
6. Fifteen (15) poke-thru receptacles for wiring of work station
panels using (1) circuit for every (2) work stations. Receptacle
wiring within the panels to be supplied by others and installed
by landlord.
7. Three (3) 30 AMP dedicated receptacles.
8. Twelve (12) dimmers for control of incandescent lighting.
9. Emergency and exit lights provided per code.
d. All branch circuit wiring to be BX cable.
<PAGE>
Schein Pharmaceuticals Workletter
February 19, 1993
Page 6
e. All lighting is to be controlled by local switching. There is no tie-
in included to an energy management system nor is there computerized
controls.
f. All exit lighting is to be tied into the emergency generator circuit.
g. One (1) 4 pair Plenum rated communications cable to be provided from
the equipment room to each office, workstation and conference room.
h. The following items are to be by tenant:
1. Surge suppression system
2. Security system
3. All telephone and data devices and final connections.
<PAGE>
EXHIBIT C
---------
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be installed
or displayed on any part of the exterior or interior Common Areas of the
Building without the prior written consent of Landlord. Landlord shall have
the right to remove, at Tenant's expense and without notice, any sign
installed or displayed in violation of this rule. All approved signs or
lettering on doors and walls shall be printed, painted, affixed or
inscribed at the reasonable expense of Tenant by a person chosen or
approved by Landlord.
2. No awning shall be permitted on any part of the Demised Premises. Tenant
shall not place anything against or near glass partitions or doors or
windows which may appear unsightly from outside the Demised Premises.
3. Landlord shall retain the right to control and prevent access to the
Building of all persons whose presence in the judgment of Landlord would be
prejudicial to the safety, character, reputation and interests of the
Building and its tenants; provided that nothing herein contained shall be
construed to prevent such access to persons with whom any tenant normally
deals in the ordinary course of its business, unless such persons are
engaged in illegal activities. Except as required in connection with the
installation and maintenance of the satellite dish antenna in accordance
with Paragraph 34 hereof, no tenant and no employee or invitee of any
tenant shall go upon the roof of the Building.
4. All cleaning and janitorial services for the Building and the Demised
Premise shall be provided exclusively through Landlord and, except with the
written consent of Landlord, no person or persons other than those approved
by Landlord shall be employed by Tenant or permitted to enter the Building
for the purpose of cleaning the same. Tenant shall not cause any
unnecessary labor by carelessness or indifference to the good order and
cleanliness of the Demised Premises.
5. Landlord will furnish Tenant, free of charge, one access card to the
Building and the Demised Premises per employee. Landlord may charge a
reasonable amount for any additional cards requested by Tenant; Tenant
shall not alter any lock or install a new additional lock or bolt on any
door of its Demised Premises. Tenant, upon the termination of its tenancy,
shall deliver to Landlord any cards which have been furnished to Tenant,
and in the event of loss of any cards so furnished, shall pay Landlord
therefor.
6. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions
in their installation.
7. Any freight elevator shall be available for use by all tenants in the
Building, subject to such reasonable scheduling as Landlord, in its
reasonable discretion, shall deem appropriate. No equipment, materials,
furniture, packages, supplies, merchandise or other property will be
received in the Building or carried in the elevators except between such
hours and in such elevators as may be designated by Landlord.
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<PAGE>
8. Tenant shall not place a load upon any floor of the Demised Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord shall have the right to prescribe the
weight, size and position of all equipment, materials, furniture or other
property brought into the Building. Heavy objects shall, if considered
necessary by Landlord, stand on such platforms as determined by Landlord to
be necessary to properly distribute the weight. Business machines and
mechanical equipment belonging to Tenant which cause noise or vibration
that may be transmitted to the structure of the Building or to any space
therein to such a degree as to be objectionable to Landlord or to any
tenants in the Building shall be placed and maintained by Tenant, at
Tenant's expense, on vibration eliminators or other devices sufficient to
eliminate noise or vibration. The persons employed to move such equipment
in or out of the Building must be reasonably acceptable to Landlord.
Landlord shall not be responsible for loss of, or damage to, any such
equipment or other property from any cause, and all damage done to the
Building by maintaining or moving such equipment or other property shall be
repaired at the expense of Tenant.
9. Tenant shall not use or keep in the Demised Premises any kerosene, gasoline
or inflammable or combustible fluid or material other than those limited
quantities necessary for the operation or maintenance of office equipment.
Tenant shall not use or permit to be used in the Demised Premises any foul
or noxious gas or substance, or permit or allow the Demised Premises to be
occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason of noise, odors or vibrations,
nor shall Tenant bring into or keep in or about the Demised Premises any
birds or animals.
10. Tenant shall not use any method of heating or air-conditioning other than
that supplied by Landlord.
11. Tenant shall cooperate fully with Landlord to assure the most effective
operation of the Building's heating and air-conditioning and to comply with
any governmental energy-saving rules, laws or regulations of which Tenant
has actual notice, and shall refrain from attempting to adjust controls
other than room thermostats installed for Tenant's use. Tenant shall keep
corridor doors closed at the end of each business day.
12. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building
provided that the Building name chosen shall not be the name of a competing
pharmaceutical company.
13. Landlord reserves the right to exclude from the Building, between the hours
of 6 p.m. and 8 a.m. the following day, or such other hours as may be
established from time to time by Landlord, and on Sundays and legal
holidays, any person unless that person is known to the person or employee
in charge of the Building and has a pass or is properly identified. Tenant
shall be responsible for all persons for whom it requests passes and shall
be liable to Landlord for all acts of such persons. Landlord shall not be
liable for damages for any error in regard to the admission to or exclusion
from the Building of any person. Landlord reserves the right to prevent
access to the Building in case of invasion, mob, riot, public excitement or
other commotion by closing the doors or by other appropriate action.
C-2
<PAGE>
14. Tenant shall close and lock the doors of the Demised Premises and entirely
shut off all water faucets or other water apparatus and electricity, gas
appliances or compressed air outlets before Tenant and its employees leave
the Demised Premises. Tenant shall be responsible for any damage or
injuries sustained by other tenants or occupants of the Building or by
Landlord for noncompliance with this rule.
15. Tenant shall not obtain for use on the Demised Premises ice, food,
beverage, towel or other similar services, or accept barbering or
bootblacking services upon the Demised Premises, except at such hours and
under such reasonable regulations as may be fixed by Landlord.
16. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown into same. The
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the tenant who, or whose employees or invitees
shall have, caused it.
17. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise
to the general public in or on the Demised Premises. Tenant shall not make
any room-to-room solicitation of business from other tenants in the
Building.
18. Except as expressly provided in Paragraph 34 hereof, Tenant shall not
install any radio or television antenna, loudspeaker or other device on the
roof or exterior walls of the Building. Tenant shall not interfere with
radio or television broadcasting or reception from or in the Building or
elsewhere.
19. Tenant shall not mark, drive nails, screw or drill into the partitions,
woodwork or plaster or in any way deface the Demised Premises or any part
thereof without Landlord's prior approval, which approval shall not be
unreasonably withheld. Landlord reserves the right to direct electricians
as to where and how telephone and telegraph wires are to be introduced to
the Demised Premises. Tenant shall not cut or bore holes for wires. Tenant
shall not affix any floor covering to the floor of the Demised Premises in
any manner except as reasonably approved by Landlord. Tenant shall repair
any damage resulting from noncompliance with this rule.
20. Tenant shall not install, maintain or operate upon the Demised Premises any
vending machine except for a reasonable number of vending machines for
soda, candy, gum and similar convenience items.
21. Canvassing, soliciting and distribution of handbills or any other written
material, and peddling in the Building are prohibited, and each tenant
shall cooperate to prevent same.
22. Landlord reserves the right to exclude or expel from the Building any
person who, in Landlord's judgment, is intoxicated or under the influence
of liquor or drugs or who is in violation of any of the Rules and
Regulations of the Building.
23. Tenant shall store all its trash and garbage within the Demised Premises.
Tenant shall not place in any trash box or receptacle any material which
cannot be disposed
C-3
<PAGE>
of in the ordinary and customary manner of trash and garbage disposal or
which does not originate from materials utilized by Tenant at the Demised
Premises. All garbage and refuse disposal shall be made in accordance with
directions issued from time to time by Landlord.
24. The Demised Premises shall not be used for the storage of merchandise held
for sale to the general public, or for lodging or for manufacturing of any
kind, nor shall the Demised Premises be used for any improper, immoral or
objectional purpose. No cooking shall be done or permitted by any tenant on
the Demised Premises, except that use by Tenant of Underwriters'
Laboratory-approved equipment, including microwave ovens, for re-heating
prepared food and for brewing coffee, tea, hot chocolate and similar
beverages shall be permitted, provided that such equipment and use is in
accordance with all applicable federal, state, county and city laws, codes,
ordinances, rules and regulations.
25. Tenant shall not use in any space or in the public halls of the Building
any hand trucks except those equipped with rubber tires and side guards or
such other material-handling equipment as Landlord may approve. Tenant
shall not bring any other vehicles of any kind into the Building.
26. Without the written consent of Landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the business
of Tenant except as Tenant's address.
27. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency.
28. Tenant assumes any and all responsibility for protecting the Demised
Premises from theft, robbery and pilferage.
29. Except in an emergency, the requirements of Tenant will be attended to only
upon written application to the office of the Building Manager by an
authorized individual.
30. Tenant shall not park its vehicles in any parking areas designated by
Landlord as areas for parking by visitors to the Building. Tenant shall not
leave vehicles in the Building parking areas overnight without the consent
of Landlord, which consent shall not be unreasonably withheld.
31. Landlord may waive any one or more of these Rules and Regulations for the
benefit of Tenant or any other tenant, but no such waiver by landlord shall
be construed as a waiver of such Rules and Regulations in favor of Tenant
or any other tenant, nor prevent Landlord from thereafter enforcing any
such Rules and Regulations against any or all of the tenants of the
Building.
32. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of any lease of premises in the Building. In the
event of conflict between the provisions contained in this Lease and these
Rules and Regulations the provisions of this Lease shall prevail.
33. Landlord reserves the right to make such other and reasonable Rules and
Regulations as, in its judgment, may
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<PAGE>
from time to time be needed for safety and security, for care and
cleanliness of the Building and the Complex and for the preservation of
good order therein. Tenant agrees to abide by all such Rules and
Regulations hereinabove stated and any additional rules and regulations
which are adopted.
34. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and
guests.
C-5
<PAGE>
EXHIBIT D
---------
CLEANING SERVICES
1. General Cleaning:
----------------
Nightly
-------
a. Clean reception area and conference rooms.
b. Empty and clean all waste receptacles, removing waste to a designated
central location for disposal. Landlord is to provide for disposal of
waste.
c. Empty and clean all ash trays and receptacles.
d. Remove all fingerprints, smudges and other marks from metal
partitions, doors and other surfaces.
e. With respect to a kitchen area (if applicable), rinse out coffee pots,
turn off burners to coffee pots, spot clean walls for coffee spillage,
clean sink, and clean tables and chairs in such area.
Weekly
------
e. Hand dust and clean all office furniture that has been cleared of
papers, boxes, and/or personal items, ledges, chair rails, baseboards
and window sills.
2. Floors
------
Group A - Granite, ceramic tile, marble, terrazzo
Group B - Linotile, asphalt, koroseal, plastic vinyl, wood, rubber, or
other composition floors and base.
Nightly
-------
a. All floors in Group A to be swept, wet mopped and rinsed.
b. All floors in Group B to be dry mopped.
Weekly
------
c. All floors in Group B to be damp mopped.
Every six (6) months
--------------------
d. All floors to be scrubbed and buffed.
3. Vacuuming
---------
Nightly
-------
a. Vacuum or carpet sweep all rugs and carpeted areas.
Monthly
-------
b. Brush or dust by hand carpet edges inaccessible to high
pressure vacuum attachments.
D-1
<PAGE>
4. High Dusting
------------
Every six (6) Months
--------------------
a. Dust all clothes closet shelving, pictures, charts, graphs, etc.
b. Dust clean all vertical surfaces such as walls, partitions, door
bucks and other surfaces.
C. Dust all venetian blinds.
Special Service
---------------
Records and General Storage Area
--------------------------------
Floors are to be broom cleaned weekly. Files and exposed open shelves
dusted once every three (3) months.
6. Other Services
--------------
a. Landlord shall supply all soap, towels, and toilet tissue in
both men's and women's rooms and sanitary napkins in coin
dispensers in the women's rooms.
b. Landlord shall supply all coin operated dispensers and shall be
responsible for the servicing of same and for the collection of
money from the machine.
c. During the term of this Lease the dispenser price for sanitary
napkins shall not exceed a price equal to 150% of the wholesale
price paid by Landlord.
7. Carpeting
---------
In addition to the aforementioned nightly and weekly vacuuming,
Landlord shall do the following:
Weekly
------
All carpeting is to be spot cleaned removing all stains, smudges, and
unsightly appearances.
8. Glass
-----
Monthly
-------
a. Clean all partitions and furniture glass.
Annually
--------
b. Clean all perimeter windows, both inside and out.
9. Kitchen Areas
-------------
Nightly
-------
a. Clean all tables, chairs, counters and sinks.
b. Spot cleaning of walls.
c. Cleaning of coffee pots.
D-2
<PAGE>
10. General
-------
a. All lights are to be extinguished and the doors as specified by
Tenant are to be locked after cleaning is completed.
b. All personnel are to be uniformed and clean in appearance during
business hours.
c. Cleaning of all private bathrooms shall be subject to additional
charges shall be determined on a case-by-case basis.
D-3
<PAGE>
EXHIBIT E
---------
PREPARED BY,
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
Pitney, Hardin, Kipp & Szuch
Park Avenue at Morris County
P.O. Box 1945
Morristown, New Jersey 07962-1945
Attention: Glenn C. Geiger, Esq.
By:
-----------------------
Glenn C. Geiger, Esq.
- --------------------------------------------------------------------------------
SPECIFIC ASSIGNMENT OF LEASE, SUBORDINATION,
--------------------------------------------
NON-DISTURBANCE AND ATTORNMENT AGREEMENT
----------------------------------------
NOTICE: THIS SPECIFIC ASSIGNMENT OF LEASE, SUBORDINATION, NONDISTURBANCE
------
AND ATTORNMENT AGREEMENT RESULTS IN THE LEASEHOLD ESTATE IN THE PROPERTY
BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR
LATER SECURITY INSTRUMENT.
THIS SPECIFIC ASSIGNMENT OF LEASE, SUBORDINATION, NONDISTURBANCE AND
ATTORNMENT AGREEMENT (this "Agreement") is made as of February 1992, by and
among SAMMIS MORRISTOWN ASSOCIATES, a California general partnership
("Landlord") whose address is c/o The Sammis Company, 17922 Fitch Avenue, Suite
100, Irvine, California 92714, and SCHEIN PHARMACEUTICAL, INC., a New York
corporation ("Tenant") whose address is 1800 Northern Boulevard, Roslyn, New
York 11576 and THE FIRST NATIONAL BANK OF CHICAGO, a national banking
association ("Lender"), whose principal office is located at One First National
Plaza, Chicago, Illinois 60670.
RECITALS
--------
A. Landlord is the owner of that certain land (the "Land") located in
the Borough of Florham Park, County of Morris, State of New Jersey and more
particularly described in Exhibit A attached hereto and by this reference made a
---------
part hereof. As used herein, the term "Property" shall refer to the Land
together with all improvements located thereon.
B. Landlord and Lender previously have entered into that certain
Construction Loan Agreement dated as of June 9, 1989, as amended pursuant to
that certain Modification Agreement dated July 26, 1989 by and between Landlord
and Lender and as further amended by that certain Second Modification Agreement
(the "Second Modification") dated January 10, 1990, by and between Landlord and
Lender (as modified, the "Loan Agreement"), pursuant to which Lender agreed to
lend and Landlord agreed to borrow up to Ninety Million Dollars ($90,000,000)
(the "Loan") upon the terms and conditions contained therein.
C. The Loan is evidenced by that certain Promissory Note dated as of
June 9, 1989 (the "Note"), executed by Landlord, as maker, and payable to the
order of Lender, as holder, in the principal amount of Ninety Million Dollars
($90,000,000).
D. The Note is secured by, among other things, a Mortgage dated June 9,
1989, executed by Landlord, as mortgagor in favor of Lender as mortgagee, and
recorded on June 14, 1989, in the Office of the Clerk of Morris County, New
Jersey, in Mortgage Book 3016, Page 0241 as modified by that certain Mortgage
Modification Agreement dated July 26, 1989, by and between Landlord, as
E-1
<PAGE>
mortgagor and Lender, as mortgagee, and recorded on August 1, 1989, in the
Office of the Clerk of Morris County, New Jersey in Mortgage Book 3066, Page
0001 and as further amended by that certain Second Mortgage Modification
Agreement dated January 10, 1990 by and between Landlord, as mortgagor, and
Lender, as mortgagee and recorded on March 6, 1990, in the Office of the Clerk
of Morris County, New Jersey, in Mortgage Book 3273, Page 0128 (as amended, the
"Mortgage").
E. The Note is also secured by, among other things, that certain
Assignment of Rents, Leases, Income and Profits dated as of June 9, 1989, by
Landlord, as assignor, in favor of Lender, as assignee, recorded on June 14,
1989, in the Office of the Clerk of Morris County, New Jersey in Mortgage Book
3016, Page 0276, as modified by that certain Assignment of Rents Modification
Agreement dated as of July 26, 1989, by and between Landlord, as assignor, and
Lender, as assignee and recorded on August 1, 1989, in the Office of the Clerk
of Morris County, New Jersey in Mortgage Book 3066, Page 0015 and as further
amended by the Second Modification (as modified, the "Assignment of Rents").
The Mortgage and the Assignment of Rents together with any and all other
documents now or hereafter securing the Note, are collectively referred to
herein as the "Security Documents."
F. Tenant and Landlord have entered into or are about to enter into
that certain lease dated as of April , 1993 by and between Tenant and Landlord
(the "Lease") pursuant to which Landlord leased to Tenant a portion of the
improvements located on the Land and more particularly described in the Lease
(the "Premises").
G. Upon receipt of a nondisturbance agreement, Tenant has obligated
itself under the terms of the Lease to execute any document necessary or
appropriate to subordinate the Lease to the Security Documents.
H. Landlord has obligated itself under the terms of the Lease to
furnish Tenant with an undertaking by Lender as set forth herein and Lender is
willing to provide such undertaking on the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing recitals, which are
incorporated herein by this reference, and for other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby covenant and agree as follows:
1. Landlord does hereby grant, transfer and assign to Lender the
Lease together with all rents and other sums payable under the Lease; provided,
however, that until written demand is made by Lender to Tenant, all rents and
other sums payable under the Lease shall be paid to Landlord, but only as they
become payable. Upon receipt of written notice by Lender to Tenant pursuant to
Paragraph 18 hereof, Tenant shall thereafter pay all rents and other sums
payable under the Lease to Lender. Landlord agrees to indemnify, defend and hold
tenant harmless from and against any and all loss, claim, damage or liability
arising out of Tenant's compliance with such notice.
2. Subject to the provisions of this Agreement, the Security
Documents (and each of them) and all supplements, amendments, and modifications
thereto and all renewals, replacements or extensions thereof, shall
unconditionally be and remain at all times a lien or charge on the Property
prior and superior to the Lease, to the leasehold estate created thereby and to
all rights and privileges of Tenant thereunder, and the Lease, the leasehold
estate created thereby, together with all rights and privileges of Tenant
thereunder; is hereby unconditionally subjected, and made subordinate, to the
lien or charge of the Security Documents (and each of them) in favor of Lender.
Tenant declares, agrees and acknowledges that Lender, in making disbursements
pursuant to the
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<PAGE>
Loan Documents (as defined in the Mortgage), is under no obligation or duty to,
nor has Lender represented that it will, see to the application of such proceeds
by the person or persons to whom Lender disburses such proceeds, and any
application or use of such proceeds for purposes other than those provided for
in such agreement or agreements shall not defeat the subordination herein made
in whole or in part.
3. So long as Tenant is not in default in performance of the terms,
provisions and conditions contained in the Lease beyond any notice and cure
period provided in the Lease, and so long as Tenant observes the provisions of
Paragraph 4 of this Agreement:
(a) Tenant shall not be named or joined in any foreclosure or
other proceeding to enforce the Mortgage unless such joinder be required by
law in order to perfect such foreclosure or other proceeding;
(b) enforcement of the Mortgage shall not terminate the Lease or
disturb Tenant's possession and use of the Premises or affect any of
Tenant's other rights, options and privileges under the Lease; and
(c) the leasehold estate granted by the Lease shall not be
affected in any manner by any foreclosure or other proceeding instituted or
action taken under or in connection with the Mortgage or in case Lender
takes possession of the Premises pursuant to any provision of the Mortgage,
except that a transferee (including, but not limited to, Lender) of the
interest of Landlord as a result of such foreclosure or other proceeding
and such transferee's successors and assigns (such transferee, its
successors and assigns, including, but not limited to, Lender, being
hereinafter referred to as "Purchaser") shall not:
(i) be liable for any damages or other relief
attributable to any act or omission of any prior landlord under the
Lease (including, without limitation, Landlord);
(ii) be liable for any damages or other relief
attributable to any latent or patent defects in construction unless
and only to the extent such defects are the result of such Purchaser's
negligent act or omission, provided, however, this Paragraph 3(c)(ii)
shall not be deemed a waiver or relinquishment by Tenant of any right
or cause of action Tenant may have against any contractor, architect
or other party (other than a Purchaser) for such defect, and provided,
further, any such action against Landlord shall be expressly subject
to Paragraph 2 hereof;
(iii) be liable for any consequential damages attributable
to any act or omission of said Purchaser;
(iv) be liable for any damages or other relief
attributable to any breach by any prior landlord (including Landlord)
under the Lease of any representation or warranty contained in the
Lease;
(v) be subject to any offsets or defenses not
specifically provided for in the Lease and which Tenant may have
against any prior landlord under the Lease; and
(vi) be bound by any prepayment by Tenant of more than one
month's installment of rent or for any security deposit not actually
delivered to Purchaser, or by any modification of or amendment to the
Lease, unless such prepayment, amendment or modification shall have
E-3
<PAGE>
been approved in writing by Lender or by any subsequent mortgagee
under the Mortgage, which approval shall not be unreasonably withheld
or delayed.
4. If the interest of Landlord in the Property shall be transferred
by reason of any foreclosure or other proceeding for enforcement of the Mortgage
or by deed in lieu thereof, the Lease shall continue in full force and effect as
a direct lease between Purchaser and Tenant, and Tenant shall attorn to
Purchaser, including Lender if it be Purchaser, as the landlord under the Lease,
and Purchaser shall assume Landlord's obligations under the Lease for the
balance of the term then remaining, including any renewal options; the
provisions of this sentence shall be effective and self-operative without the
execution of any further instruments upon Purchaser's succeeding to the interest
of the landlord under the Lease. Tenant hereby waives any right to exercise any
purchase option contained in the Lease in the event of any transfer to
Purchaser. Landlord hereby agrees to give Tenant prompt written notice of any
foreclosure or other proceeding for the enforcement of the Mortgage; provided
however, any failure by Landlord to give such notice shall in no way affect the
rights of any Purchaser.
5. In the event of default by Landlord in its performance of the
terms, provisions and conditions of the Note or of any Security Document, Tenant
agrees to recognize the assignment of the Lease made by Landlord to Lender
hereunder and pursuant to the Assignment of Rents and shall pay to Lender, as
assignee, the rents under the Lease, but only those which are due or which come
due to Landlord under the terms of the Lease at or after the time Lender gives
Tenant notice that Landlord is in default under the terms of the Note or
Security Documents. Such payments of rents to Lender by Tenant by reason of
said assignment and of Landlord's default shall continue until the first to
occur of the following:
(a) No further rent is due or payable under the Lease;
(b) Lender gives Tenant notice that the default of Landlord
under the note or Security Documents has been cured and instructs
Tenant that the rents shall thereafter be payable to Landlord; or
(c) The lien of the Mortgage has been foreclosed and Purchaser
gives Tenant notice of such foreclosure. Purchaser shall thereupon
succeed to the interests of Landlord under the Lease as provided in
Paragraphs 2, 3 and 4 hereof, after which time the rents and other
benefits of Landlord under the Lease shall be payable to Purchaser as
the owner thereof.
6. In complying with the provisions of Paragraph 5 hereof, Tenant
shall be entitled to rely solely upon the notices given by Lender which are
referred to in Paragraph 5 hereof and Landlord agrees to indemnify and hold
Tenant harmless from and against any and all loss, claim, damage, or liability
arising out of Tenant's compliance with such notice. Tenant shall be entitled
to full credit under the Lease for any rents paid to Lender in accordance with
the provisions of Paragraph 5 hereof to the same extent as if such rents were
paid directly to Landlord. Any dispute between Lender (or other Purchaser) and
Landlord as to the existence or continuance of a default by Landlord under the
terms of the Note or Security Documents, or with respect to the extent or nature
of such default, or with respect to foreclosure of the Mortgage by Lender, shall
be dealt with and adjusted solely between Lender (or other Purchaser) and
Landlord, and Tenant shall not be made a party thereto (unless required by law).
7. Nothing in this Agreement shall be deemed to be or construed to be
an agreement by Lender to perform any covenant of the Landlord as landlord under
the Lease unless and until it
E-4
<PAGE>
obtains title to the Property by judicial foreclosure or deed in lieu thereof or
obtains possession of the Property pursuant to the terms of the Mortgage.
8. Tenant agrees that during the term of the Lease, without Lender's
prior written consent, Tenant will not:
(a) pay any rent or additional rent more than one month in advance
to any landlord (including, but not limited to, Landlord);
(b) cancel, terminate or surrender the Lease, except at the normal
expiration of the Lease term or otherwise in accordance with the terms and
conditions of the Lease; or
(c) enter into any material amendment or modification of the
Lease, provided, however, no Purchaser shall be bound by any amendment or
modification of the Lease which has not been approved by Lender in writing.
9. Landlord, Tenant and Lender agree that unless Lender shall
otherwise consent in writing, Landlord's estate in and to the Property and the
leasehold estate created by the Lease shall not merge but shall remain separate
and distinct, notwithstanding the union of said estates either in Landlord or
Tenant or any third, party by purchase, assignment or otherwise.
10. Tenant, from and after the date hereof, shall send a copy of any
notice of default under the Lease to Lender at the same time such notice is sent
to Landlord under the Lease. Such notices shall be delivered to Lender in the
manner and at the addresses set forth in Paragraph 18 hereof.
11. Anything herein or in the Lease to the contrary notwithstanding,
in the event that any Purchaser shall acquire title to the Property, said
Purchaser shall have no obligation, nor incur any liability, beyond the then
interest, if any, of said Purchaser in the Property and Tenant shall look
exclusively to such interest of said Purchaser, if any, in the Property for the
payment and discharge of any obligations imposed upon said Purchaser hereunder
or under the Lease, and said Purchaser is hereby released and relieved of any
liability hereunder and under the Lease beyond any such interest in the
Property. As regards said Purchaser, Tenant shall look solely to the estate or
interest owned by said Purchaser in the Property and Tenant will not collect or
attempt to collect any such judgment out of any other assets of said Purchaser.
By executing this Agreement, Landlord specifically acknowledges and agrees that
nothing contained in this Paragraph 11 shall impair, limit, affect, lessen,
abrogate or otherwise modify the obligations of Landlord to Tenant under the
lease.
12. Tenant and Landlord each hereby certifies that as of the date
hereof, to the best of its respective knowledge, there are no defaults on the
part of the other party under the Lease, that the Lease is a complete statement
of the agreement of the parties thereto with respect to the leasing of the
Premises, that the Lease is in full force and effect, and that all conditions to
the effectiveness or continuing effectiveness thereof required to be satisfied
as of the date hereof have been satisfied.
13. This Agreement shall be the whole and only agreement with regard
to the subjection and subordination of the Lease and the leasehold estate
created thereby, together with all rights and privileges of Tenant thereunder,
to the lien or charge of the Security Documents (and each of them) and shall
supersede and cancel, but only insofar as would affect the priority between the
Lease and the Security Documents (and each of them), any prior agreements as to
such subjection or subordination, including, but not limited to, those
provisions contained in the Lease which provide for the subjection or
subordination of the Lease and the
E-5
<PAGE>
leasehold estate created thereby to a deed or deeds of trust or to a mortgage or
mortgages.
14. This Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument. Signature and acknowledgement pages may be detached from the
counterparts and attached to a single copy of this Agreement to physically form
one document, which may be recorded.
15. This Agreement may not be modified orally or in any manner other
than by an agreement in writing signed by the parties hereto or their respective
successors in interest. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
16. In the event any legal action or proceeding is commenced to
interpret or enforce the terms of, or obligations arising out of, this
Agreement, or to recover damages for the breach thereof, the party prevailing
in any such action or proceeding shall be entitled to recover from the non-
prevailing party all reasonable attorneys' fees, costs and expenses incurred by
the prevailing party.
17. The interpretation, validity and enforcement of this Agreement
shall be governed by and construed under the laws of the State of New Jersey.
18. All notices and other communications to be made hereunder to the
parties hereto shall be in writing (at the addresses set forth below) and shall
be given by any of the following means: (a) personal service; (b) electronic
communication, whether by telex, telegram or telecopying (if confirmed in
writing sent by registered or certified first class mail, return receipt
requested); or (c) registered or certified first class mail, return receipt
requested. Such addresses may be changed by notice to the other parties given
in the same manner as provided above. Any notice or other communication sent
pursuant to subsection (a) or (b) hereof shall be deemed received upon such
personal service or upon dispatch by electronic means, and, if sent pursuant to
subsection (c), shall be deemed received five (5) days following deposit in the
mail.
To Lender: The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
Attention: Commercial Loan Department
Real Estate Section
Regional Offices Group
Eastern Division
With
copies to: O'Melveny & Myers
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660
Attention: Paul M. Karssen, Esq.
The First National Bank of Chicago
555 South Flower Street, Suite 3300
Los Angeles, California 90071
Attention: Ms. Barbara K. Loos
To Landlord: Sammis Morristown Associates
c/o The Sammis Company / Gale & Wentworth
100 Campus Drive
Florham Park, New Jersey 07932
Attention: Mr. Jonathan G. Thorpe
E-6
<PAGE>
To Tenant: Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attention: Chairman
with a
copy to: General Counsel
(at the same address)
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
NOTICE: THIS AGREEMENT CONTAINS A PROVISION WHICH ALLOWS THE
PERSON OBLIGATED ON YOUR LEASE TO OBTAIN A LOAN A PORTION OF
WHICH MAY BE EXTENDED FOR PURPOSES OTHER THAN IMPROVEMENT OF
THE PROPERTY.
"Landlord"
SAMMIS MORRISTOWN ASSOCIATES,
a California general partnership
WITNESSES TO ALL SIGNATURES By:
---------------------------
- ----------------------------
Printed Name:
---------------
- ----------------------------
Printed Name:
---------------
"Tenant"
[Corporate Seal]
SCHEIN PHARMACEUTICAL, INC.,
a New York corporation
ATTEST: By:
------------------------------
By:
-------------------------
Printed Name:
---------------
Its:
--------------------
WITNESSES TO ALL SIGNATURES
- ----------------------------
Printed Name:
---------------
- ----------------------------
Printed Name:
---------------
E-7
<PAGE>
[Corporate Seal] "Lender"
THE FIRST NATIONAL BANK OF CHICAGO,
a national banking association
ATTEST:
By:
-------------------------------
Printed Name:
----------------
By:
------------------------
Printed Name: Its:
-------------- ------------------------------
Its:
-------------------
WITNESSES TO ALL SIGNATURES
- ---------------------------
Printed Name:
--------------
- ---------------------------
Printed Name:
--------------
STATE OF ILLINOIS )
) ss.:
COUNTY OF )
On this day of , 1992, in the County and
State aforesaid, before me, the subscriber, a notary public authorized
to take acknowledgements and proofs in said County and State,
personally appeared ________________________________________, the Vice
President of THE FIRST NATIONAL BANK OF CHICAGO, a national banking
association, who I am satisfied, is the person who, as such officer of
said association, signed, sealed and delivered the within instrument
made by THE FIRST NATIONAL BANK OF CHICAGO, and acknowledged to me
that he, as such officer, signed, sealed with the corporate seal and
delivered the same on behalf of said association and that said
instrument is the voluntary act and deed of such association made
pursuant to its bylaws or resolution of its board of directors.
WITNESS my hand and official seal.
----------------------------------------
Name:
Notary Public in and for said State
[Notarial Seal] My Commission Expires:
E-8
<PAGE>
STATE OF NEW JERSEY )
) ss.:
COUNTY OF )
On this , day of , 1993 in the County and State aforesaid,
before me, the subscriber, a notary public authorized to take acknowledgements
and proofs in said County and State, personally appeared , a
general partner of SAMMIS MORRISTOWN ASSOCIATES, a California general
partnership, who, I am satisfied, is the person who, as such general partner,
signed and delivered the within instrument on behalf of said general partnership
for the uses and purposes set forth therein, and that said instrument is the
voluntary act and deed of SAMMIS MORRISTOWN ASSOCIATES, made by virtue of
authority duly given.
------------------------------------
Name:
Notary Public
[Notarial Seal] My Commission Expires:
STATE OF NEW JERSEY )
) ss.:
COUNTY OF )
On this day of , 1993 in the County and State
aforesaid, before me, the subscriber, a notary public authorized to take
acknowledgements and proofs in said County and State, personally appeared
, the of SCHEIN PHARMACEUTICAL, INC.
corporation, who, I am satisfied, is the person who, as such officer of said
corporation, signed, sealed and delivered, the within instrument made by
acknowledged to me that he, as such officer signed, sealed
with the corporate seal and delivered the same on behalf of said corporation and
that said instrument is the voluntary act and deed of such corporation made
pursuant to its bylaws or a resolution of its board of directors.
------------------------------------
Name:
Notary Public in and for said State
[Notary Seal] My Commission Expires:
E-9
<PAGE>
EXHIBIT F
---------
Option Space A Floor Plan
PARK AVENUE AT MORRIS COUNTY
PHASE 1 - THIRD FLOOR
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT G
---------
Option Space B Floor Plan
PARK AVENUE AT MORRIS COUNTY
PHASE 1 - THIRD FLOOR
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT H
OPERATING EXPENSE STATEMENT
PARK AVENUE MORRIS COUNTY-PHASE I
<TABLE>
<CAPTION>
1991 Per Square Foot
---- ---------------
<S> <C>
Total Maintenance $2.48
Utilities $1.32
Administrative $.71
Management Fee $.60
Real Estate Taxes $1.36
---------------
Total Operating Expenses $6.47
</TABLE>
<TABLE>
<CAPTION>
1991 Per Square Foot
---- ---------------
<S> <C>
Total maintenance $2.58
Utilities $1.39
Administrative $0.68
Management Fee $0.69
Real Estate Taxes $1.64
---------------
Total Operating Expenses $6.98
</TABLE>
<PAGE>
EXHIBIT I
---------
PARK AVENUE SECURITY PROCEDURES
--------------------------------
- ---- All Guards shall wear complete uniforms and display an official security
badge and identification name tag;
- ---- Guards shall respond politely and intelligently to all tenant and visitor
inquiries;
- ---- Guard personnel shall canvass the building at least once per hour;
- ---- Guards shall station themselves in the main atrium to monitor and assist
tenants and visitors when not on canvassing patrols;
- ---- During closed building hours tenant doors shall be checked. Entry shall
only be made when doors are found in an unlocked status. Notifications
shall be further made if an investigation proves so.
- ---- Any large or suspicious packages shall be investigated by security upon
either entry or exiting the building.
- ---- Tenants entering the building after hours shall utilize the Schlage
Security System and visitors, after hours, can access the tenants suite by
utilizing the Sentex Annunciator System at the main entrance.
- ---- Security personnel shall also make themselves available to assist tenants
to their automobiles whenever needed.
- ---- Security personnel shall respond expeditiously to stranded tenants with
vehicle malfunctions on building parking lots. Each vehicle is equipped
with starter cables, flashlights and flares.
- ---- Parking lot lights are on until midnight. A certain percentage of site
lights are on all night via photocel.
- ---- All non-business hour deliveries must be pre-arranged thru the Property
Manager's Office.
<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT is made this 26th day of
October, 1994 between VALLEY NATIONAL BANK, as subtrustee ("Landlord"), having
an office address c/o Gale & Wentworth, 100 Campus Drive, Florham Park, New
Jersey 07932 and SCHEIN PHARMACEUTICAL, INC., a Delaware corporation
("Tenant"), having an address of 100 Campus Drive, Florham Park, New Jersey
07932.
P R E A M B L E
- - - - - - - -
A. By Lease Agreement dated April 16, 1993 (the "Lease"), Sammis
Morristown Associates, Landlord's predecessor in title, leased to Tenant and
Tenant leased from said party certain premises therein described on the third
floor of the office building at 100 Campus Drive, Florham Park, New Jersey.
B. The parties desire to amend the Lease to include the demise of
additional premises on the first floor of the Building.
C. All terms not specifically defined herein shall have the meanings
given to them in the Lease.
NOW, THEREFORE, in consideration of the foregoing, the parties agree
that the Lease is hereby amended as hereafter provided, effective as of the
"Effective Date", as defined below:
1. Upon the occurrence of the Effective Date, the Demised Premises
shall be increased to include the portion of the first floor of the Building
outlined on the floor plan which is annexed hereto as Exhibit A-3 (the
"Additional Premises"). The gross rentable area of the Additional Premises is
9,832 square feet.
2. The Term with respect to the Additional Premises shall be
coextensive with the Term with respect to the remainder of the Demised Premises.
The parties confirm and agree that the Expiration Date is August 31, 2005.
<PAGE>
3. Subject to the Rental Abatement described below, the Fixed Rent
with respect to the Additional Premises shall be $20. per square foot of gross
rentable area of office space per annum, i.e., $196,640., payable in equal
monthly installments of $16,386.67, from the Effective Date through August 18,
1999 (the sixth (6th) anniversary of the Commencement Date). commencing August
19, 1999 and throughout the remainder of the Term, the Fixed Rent with respect
to the Additional Premises shall be $23. per square foot of gross rentable area
of office space per annum, i.e., $226,136., payable in equal monthly
installments of $18,844.67. Therefore, as of the Effective Date, the Fixed Rent
for the entire Demised Premises shall be $1,219,115. per annum, payable in equal
monthly installments of $101,592.91, through August 18, 1999. Commencing August
19, 1999 and for the remainder of the Term, the Fixed Rent for the entire
Demised Premises shall be $1,361,083.25 per annum, payable in equal monthly
installments of $113,423.60.
4. Tenant's Proportionate Share with respect to the Additional
Premises is two and 76/100 percent (2.76%). Tenant's Proportionate Share with
respect to the entire Demised Premises shall be fourteen and 25/100 percent
(14.25%).
5. With respect to parking, Tenant shall be entitled to thirty-
nine (39) additional Non-Exclusive Spaces.
6. Notwithstanding the foregoing provisions, Tenant shall not be
required to pay to Landlord the Monthly Fixed Rent with respect to the
Additional Premises attributable to the second (2d) through the fifth (5th)
months after the Effective Date, i.e., February through May, 1995.
7.A. Landlord agrees to fit up the Additional Premises in accordance
with plans and specifications prepared by the architectural firm of Knoll Roslyn
Associates, Inc., after consultation with and approval thereof by both Landlord
and Tenant (the "Tenant Improvements"). Each party agrees that it will not
unreasonably withhold its approval of the plans and specifications.
-2-
<PAGE>
The work to be performed shall be generally consistent with the character and
quality of the existing improvements in the Demised Premises. Tenant shall be
responsible for the Construction Cost, as hereafter defined, of the Tenant
Improvements, against which Tenant shall be entitled to an allowance of
$260,548. (the "Tenant Allowance"). The difference between the Construction
Cost and the Tenant Allowance is hereafter called the "Tenant's Finish Cost."
Tenant's Finish Cost shall be payable to Landlord within thirty (30) days
after the substantial completion of the Tenant Improvements pursuant to
subparagraph C, below. The failure of Tenant to pay Tenant's Finish Cost when
due shall have the same consequences as a failure of Tenant to pay Fixed Rent
when due. Construction Cost as defined herein shall be the actual cost of the
construction of the Tenant Improvements in accordance with the approved plans
and specifications, plus four percent (4%) of such actual cost as profit to
Landlord and six percent (6%) of such actual cost as a payment to Landlord to
compensate Landlord for its overhead costs. Construction Cost shall only include
the following out-of-pocket soft costs to Landlord: permits, blueprints,
cleanup, dumpsters job site supervision, overnight delivery charges,
architectural fees and temporary protection. Construction Cost shall include
the fees of Knoll Roslyn Associates, Inc. paid by Tenant for space planning and
other architectural services with respect to the Additional Premises.
Construction Cost shall not include the fees of Landlord's architect Mancini
Duffy, which fees are the sole responsibility of Landlord. Tenant shall not be
entitled to any portion of the Tenant Allowance not utilized for construction of
leasehold improvements by Tenant in the Building within one year after the
Effective Date. Tenant shall be allowed access to the Additional Premises prior
to the Effective Date for the purpose of furniture erection and fixture and
equipment installation, so long as Tenant and its agents and contractors do not
interfere with the performance of the Tenant Improvements by Landlord.
-3-
<PAGE>
B. The plans and specifications for the Tenant Improvements shall be
prepared giving effect to the outline specifications contained in Exhibit B-l of
the Leased except where any such specification is inconsistent with the express
provisions of this Amendment.
C. The Effective Date shall be the later of January 1, 1995 and the
date of completion of the Tenant Improvements as evidenced by the issuance
of any necessary certificate of occupancy from the Borough of Florham Park. If
such certificate is not issued by January 1, 1995, the Effective Date shall be
extended until the certificate is issued, unless the delay constitutes a Tenant
Delay as defined in Exhibit B to the Lease. If the Effective Date is delayed as
aforesaid, all corresponding dates of the Lease shall be extended for an
equivalent time, with the exception of the Expiration Date. Notwithstanding
the foregoing, if the Effective Date has not occurred by June 30, 1995 and the
delay is not attributable to a Tenant Delay or to a situation beyond Landlord's
reasonable control, Tenant shall have the right to terminate this First
Amendment by notice to Landlord whereupon this First Amendment shall be null and
void, but the Lease shall otherwise remain in effect. Landlord shall be deemed
to have substantially completed the Tenant Improvements notwithstanding
that minor or insubstantial details of construction, mechanical adjustment
or decoration remain to be performed within the Additional Premises or any part
thereof, the noncompletion of which does not materially interfere with Tenant's
use of the Additional Premises. Within thirty (30) days after the Effective
Date, Tenant may submit to Landlord a "Punchlist" of incomplete items with
respect to the Tenant Improvements, and Landlord agrees to proceed diligently to
complete such Punchlist items.
8. Paragraph 3(a) of the Lease is hereby amended to provide that with
respect to the Additional Premises the Initial Year shall be the calendar year
1995.
-4-
<PAGE>
9. Tenant shall be responsible to pay to Landlord, as Additional Rent,
a monthly charge equivalent to the cost to Landlord of estimated monthly usage
of electrical service within the Additional Premises. The initial estimated
monthly charge for electrical service to the Additional Premises shall be $847.
Such monthly charge shall be adjusted from time to time by Landlord on a square
foot basis on the basis of the electricity charges paid by Tenant to Landlord
with respect to the original Demised Premises described in the Lease. Either
party may elect (but not more frequently than once during any calendar year) to
cause a survey of electrical usage of the Additional Premises to be made by a
qualified independent electrical rate consultant, in which event the monthly
charge shall be appropriately adjusted prospectively in accordance with the
results of such survey. The cost of each such survey shall be paid by the party
requesting it.
10. The provisions of Paragraph 33 of the Lease shall also apply to
the portion of the first floor of the Building shown on the floor plan
annexed hereto as Exhibit B-2 (the "First Floor Offer Space"). The terms of
Paragraph 33 of the Lease shall apply to the First Floor Offer Space in the
same manner as they apply to the Third Floor Offer Space.
11. Landlord represents that, as of the date hereof, no mortgage
encumbers the Land.
12. Except and as amended hereby, the Lease remains in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Agreement of Lease as to the date first above written.
ATTEST: VALLEY NATIONAL BANK,
subtrustee
By: Gale & Wentworth, Inc.
as Authorized Management Agent
By
- ---------------------------------- -----------------------------
ATTEST: SCHEIN PHARMACEUTICAL, INC.
BY
- ----------------------------------- ------------------------------
-5-
<PAGE>
EXHIBIT A-3
ADDITIONAL PREMISES
[LOGO] PARK AVENUE AT MORRIS COUNTY
PHASE 1 - FIRST FLOOR
[CHART APPEARS HERE]
<PAGE>
EXHIBIT B-2
FIRST FLOOR OFFER SPACE
[LOGO] PARK AVENUE AT MORRIS COUNTY
PHASE 1 - FIRST FLOOR
[CHART APPEARS HERE]
<PAGE>
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT is made this 31st day of
January, 1995 between VALLEY NATIONAL BANK, as subtrustee ("Landlord"), having
an office address c/o Gale & Wentworth, 100 Campus Drive, Florham Park, New
Jersey 07932 and SCHEIN PHARMACEUTICAL, INC., a Delaware corporation ("Tenant"),
having an address of 100 Campus Drive, Florham Park, New Jersey 07932.
P R E A M B L E
- - - - - - - -
A. By Lease Agreement dated April 16, 1993, amended by First Amendment
to Lease Agreement (the "First Amendment") dated October 26, 1994 (collectively,
the "Lease"), Sammis Morristown Associates, Landlord's predecessor in title,
leased to Tenant and Tenant leased from said party certain premises therein
described on the first and third floors of the office building at 100 Campus
Drive, Florham Park, New Jersey.
B. The parties desire to amend the Lease to include the demise of
additional premises on the third floor of the Building.
C. All terms not specifically defined herein shall have the meanings
given to them in the Lease.
NOW, THEREFORE, in consideration of the foregoing, the parties agree
that the Lease is hereby further amended as hereafter provided, effective as of
the later to occur of (i) February 1, 1995, and (ii) the date on which Landlord
delivers possession of the Additional Premises, as defined below, to Tenant free
and clear of all tenancies and occupancies and in "broom clean" condition (such
later date being hereafter referred to as the "Effective Date"):
1. Upon the occurrence of the Effective Date, the Demised Premises
shall be increased to include the portion of the third floor of the Building
outlined on the floor plan which is annexed hereto as Exhibit A-4 (the
"Additional Premises"). The
<PAGE>
gross rentable area of the Additional Premises is 2,242 square feet.
2. The Term with respect to the Additional Premises shall be
coextensive with the Term with respect to the remainder of the Demised Premises.
The parties confirm and agree that the Expiration Date is August 31, 2005.
3. The Fixed Rent with respect to the Additional Premises shall be
$25. per square foot of gross rentable area of office space per annum, i.e.,
$56,050., payable in equal monthly installments of $4,670.83, from the Effective
Date through August 18, 1999 (the sixth (6th) anniversary of the Commencement
Date). Commencing August 19, 1999 and throughout the remainder of the Term, the
Fixed Rent with respect to the Additional Premises shall be $27.75. per square
foot of gross rentable area of office space per annum, i.e., $62,215.50.,
payable in equal monthly installments of $5,184.63. Therefore, provided that
the First Amendment has become effective, as of the Effective Date the Fixed
Rent for the entire Demised Premises shall be $1,275,165. per annum, payable in
equal monthly installments of $106,263.75, through August 18, 1999. Commencing
August 19, 1999 and for the remainder of the Term, the Fixed Rent for the entire
Demised Premises shall be $1,423,298.75 per annum, payable in equal monthly
installments of $118,608.23.
4. Tenant's Proportionate Share with respect to the Additional
Premises is 63/100 percent (.63%). At such time as the First Amendment is
effective, Tenant's Proportionate Share with respect to the entire Demised
Premises shall be fourteen and 87/100 percent (14.87%).
5. With respect to parking, Tenant shall be entitled to nine
(9) additional Non-Exclusive Spaces. Upon addition of the Additional
Premises to the Demised Premises, Tenant would qualify for one additional
Exclusive Space under Paragraph 23 of the Lease, except that no such space is
currently available for Tenant.
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6. A. The Additional Premises shall be delivered to Tenant "as is" on
the Effective Date and, except as hereafter provided, Landlord shall have no
obligation with respect to the fit-up thereof. Any work performed by Tenant in
the Additional Premises (the "AP Work") shall be subject to all applicable
provisions of the Lease, including Paragraph 6 thereof. Landlord hereby grants
to Tenant an improvement allowance for the AP Work in the amount of $22,420.
(the "Improvement Allowance"). Within thirty (30) days after the presentation
to Landlord of invoices covering AP Work, together with such other documentation
as may be reasonably requested by Landlord, Landlord shall reimburse Tenant for
the amount of such invoices, up to the amount of the Improvement
Allowance. Any unused Tenant Allowance with respect to the premises demised by
the First Amendment may be utilized by Tenant with respect to the AP Work. No
allowance shall be payable by Landlord, except for work actually performed by or
for Tenant in the Additional Premises or in the premises demised by the First
Amendment within one year after the Effective Date. Tenant shall be solely
responsible for the cost of all AP Work which exceeds the Improvement Allowance.
B. Landlord's contractor, Gale & Wentworth Construction Co. ("G&W")
shall have the right to bid for the AP Work against contractors selected by
Tenant from a list of approved contractors prepared by Tenant and approved by
Landlord, which approval shall not be unreasonably withheld or delayed. If the
bid of G&W is equal to, less than or not more than five percent (5%) in excess
of the bid of another contractor which Tenant is willing to accept, Tenant
agrees to accept the bid of G&W to do the AP Work. Furthermore, if the bid of
G&W exceeds the bid of Tenant's preferred contractor by more than five percent
(5%), Tenant shall give G&W the opportunity to match such bid, and Tenant agrees
to award the job to G&W if it does in fact agree to match such bid. The right of
G&W to match the bid of another contractor shall expire unless it is exercised
with five (5) business days after its receipt of notice from Tenant of the terms
of the acceptable bid.
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Notwithstanding the foregoing, Tenant agrees that all contractors performing AP
Work shall perform such work in such a manner as will promote harmonious labor
relations in the Building, and that they must promptly cease any activities or
practices which cause labor unrest in the Building. If Tenant uses a contractor
other than G&W to perform the AP Work, it agrees to pay to G&W a fee of three
and one-half percent (3.5%) of the contract price of the AP Work for its review
of the plans and performance of the AP Work on behalf of Landlord, such fee to
be payable as additional rent within thirty (30) days after the completion of
the AP Work or payment in full to Tenant of the Improvement Allowance, whichever
occurs first.
7. The Initial Year shall remain the calendar year 1994 with respect
to the Additional Premises, pursuant to the provisions of Paragraph 3(a) of the
Lease.
8. Tenant agrees, as part of the AP Work, to connect the electrical
system of the Additional Premises to the electrical meter serving the
original Demised Premises and described in Paragraph 15(e) of the Lease.
Tenant shall pay for the consumption of the electricity used in the Additional
Premises in accordance with the provisions of Paragraph 15(e) of the Lease. If
Tenant fails to connect the electrical system of the Additional Premises to such
meter, Tenant shall be charged for electricity in the Additional Premises on the
same basis per square foot as that provided in Paragraph 9 of the First
Amendment.
9. Landlord represents that, as of the date hereof, there are no
underlying leases, ground leases or mortgages encumbering the Land or the
Building.
10. This Second Amendment to Lease Agreement is contingent upon
Landlord securing, prior to January 23, 1995, a termination of an existing lease
of the Additional Premises from The Arbitration Centre, Inc. If Landlord is
unable to secure such termination by January 23, 1995, this Second Amendment to
Lease Agreement shall be null and void and of no further force or effect, except
that Tenant may, by notice given to Landlord prior to
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January 23, 1995, extend this deadline for a period of up to thirty (30) days.
11. The terms of Paragraph 22 of the Lease apply to this Second
Amendment to such Lease.
12. The parties agree that no additional security deposit shall be
payable by Tenant to Landlord on account of the execution of this Second
Amendment.
13. In any situation in which Landlord is entitled to review plans
for the AP Work in accordance with the provisions of Paragraph 6 of the Lease,
or otherwise, Landlord agrees that it will complete such review within five (5)
business days after submission of such plans. If Landlord fails to object to
any part of said plans within such period, the plans shall be deemed approved
by Landlord.
14. Except and as amended hereby, the Lease remains in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Second Amendment to
Lease Agreement as to the date first above written.
ATTEST: VALLEY NATIONAL BANK,
subtrustee
By Gale & Wentworth, Inc.
as authorized management agent
By
- ---------------------------------- -----------------------------
ATTEST: SCHEIN PHARMACEUTICAL, INC.
BY
- ----------------------------------- ------------------------------
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EXHIBIT A-4
"Additional Premises"
[LOGO] PARK AVENUE AT MORRIS COUNTY
PHASE 1 - THIRD FLOOR
[CHART APPEARS HERE]
<PAGE>
EXHIBIT 10.12
LEASE MODIFICATION AND EXTENSION AGREEMENT
THIS LEASE MODIFICATION AND EXTENSION AGREEMENT, made this 12th day of November
1996, between CHERRY HILL INDUSTRIAL SITES, INC., a New Jersey Corporation
having its principal office at 1998 Springdale Road, Cherry Hill, New Jersey
08003, (hereinafter referred to as LANDLORD), and Marsam Pharmaceuticals,
having an office at Building #31, Olney Avenue, Cherry Hill Industrial Center,
Cherry Hill, New Jersey 08003 (hereinafter referred to as TENANT)
Landlord and Tenant hereby covenant as follows:
1. LEASED PREMISES. Landlord hereby agrees to lease to Tenant, and Tenant hereby
agrees to rent from Landlord Building #15 and adjacent land therto, situated in
Cherry Hill Township, Block 490.01, Lot 1 as follows:
Commencing March 1, 1997 through September 30, 1999 (both dates
inclusive, 31 months), the basic net-net-net monthly rental for shall be THIRTY
EIGHT THOUSAND THREE HUNDRED AND FOUR DOLLARS AND ZERO CENTS ($38,304.00) per
month.
The Term rental for the 31 month term of this Lease shall be ONE
MILLION ONE HUNDRED EIGHTY SEVEN THOUSAND FOUR HUNDRED TWENTY FOUR DOLLARS AND
ZERO CENTS ($1,187,424.00).
Tenant agrees that this Lease shall, unless sooner terminated,
pursuant to the covenants hereof, expires absolutely on the expiration date
without the requirement of any further notice from Landlord.
2. USE. Tenant shall use and occupy the Premises only for laboratories, light
manufacturing, warehousing, offices, distribution, and allied uses pursuant to
I-R zoning of Cherry Hill Township or any subsequent zone designated for the
Premises by Cherry Hill Township.
3. RENT. Rent is payable on the first day of each month, in advance, during the
Term, at the office of the Landlord or such other place as Landlord may
designate.
Tenant shall assume the risk of lateness or failure of delivery of the mails,
and no lateness or failure of the mails will excuse Tenant from its obligation
to have made any payment of rent or additional rent as required under this
Lease.
No payment by Tenant or receipt or acceptance by Landlord of a lesser amount
than the correct rent or additional rent shall be deemed to be other than a
payment on account, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance or pursue any other remedy in this Lease or at law
provided.
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4. SECURITY. VOID
5. ADDITIONAL RENT. Additional rent charges shall be paid to the Landlord within
fifteen (15) days of receipt of notice of a bill sent by the Landlord to the
tenant.
6. LANDSCAPING. Tenant shall do all grass cutting and landscape maintenance
pursuant to standards as established by Landlord. Landlord.
Tenant shall keep the lawn, landscaped areas, paved surfaces, sidewalks
and similar areas free of debris and other waste material at all times. In the
event debris and/or other waste material is present upon any of the
aforementioned areas, or if, in Landlord's reasonable determination debris
and/or waste material originating from Tenant's Premises is upon other
properties owned by Landlord, Landlord may, at its option and WITHOUT PRIOR
NOTICE OR APPROVAL OF TENANT, remove same. All costs and charges relating
thereto shall be payable by Tenant as additional rent. The minimum charge for
this service shall be $50.00 per instance and/or occurrence.
7. SNOW REMOVAL. VOID.
8. UPGRADING. Tenant agrees to pay to Landlord, as additional rent, during the
term of this Lease the sum of $ 400 per month toward Landlord's costs related to
the maintenance and repair of the road easement within Block 490.01 Lot 1 as
shown on exhibits B and C attached hereto and made a part hereof.
9. SPRINKLER SYSTEM SERVICE. Tenant shall pay, as additional rent, one hundred
(100 %) percent of all charges relating to Building # 15 for sprinkler
supervisory service and sprinkler standby fees.
10. UTILITIES. Tenant shall pay for all deposits, costs and charges relating to
heat, water, sewer, CCMUA, electricity, gas and similar services rendered or
supplied to or upon the Premises, or in connection with the use and occupation
of building #15 prior to the date same are due.
Tenant shall not be released or excused from the performance or any of its
obligations under this Lease for any failure, interruption or curtailment of any
utilities or services; nor shall any such failure, interruption or curtailment
constitute a constructive or partial eviction.
11. PERSONAL PROPERTY TAXES. Tenant shall pay all personal property taxes and
other taxes and assessments pertaining to its goods, chattels, machinery,
equipment, fixtures, personal property and similar items prior to the date same
are due.
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12. REAL PROPERTY TAXES. Tenant shall pay to Landlord, as additional rent One
hundred (100%) percent of all real property taxes and assessments levied upon
Block 490.01, Lot 1 (Bldg # 15, with adjoining land) under or by virtue of any
present or future laws or regulations of any governmental or lawful authority
having jurisdiction over the Premises.
If at any time during the Term any governmental or quasi-governmental
authority, having jurisdiction over the Premises imposes (a) a tax, assessment,
levy, imposition, license fee or other charge on the rents collected by
Landlord, or (b) any other additional or substitute tax, assessment, levy,
imposition or charge relating to Block 490.01, Lot 1, any such items shall be
deemed to be included within the term "Real Estate Taxes" for the purposes
hereof.
Landlord may, at its option, appeal any real property tax or assessment
affecting the Premises utilizing such attorneys and/or experts as Landlord deems
advisable. In the event of any successful appeal Tenant shall pay to Landlord,
as additional rent, either the tax savings to the Tenant for one year or one
half of the total tax savings to the Tenant during the remainder of the Term,
whichever is less.
13. INSURANCE. In respect to Landlord's fire insurance policy with standard
extended coverage and difference in condition policy, Tenant agrees: (a) it will
not do nor permit any acts or things which will invalidate or be in conflict
with any provisions thereof or which shall cause the insurance rate on the
Premises to be higher than on the date of the commencement of this Lease; (b) it
shall comply with all present and future rules, regulations and recommendations
thereof and shall promptly make all changes, modifications, replacements and
alterations as are necessary and/or required.
The aforementioned policy shall insure only the Landlord's property
against damage and/or losses for perils specified therein. In no event will
Landlord be responsible for charges and/or costs related to damage, loss, or
repair and/or replacement of any property: (a) caused by conditions, exclusions
or reasons not covered therein; (b) within the deductible provisions of the
aforementioned policies; and/or (c) any property not owned by Landlord.
Landlord's fire insurance policy with standard extended coverage policy,
difference in condition policy and rental income insurance
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policy shall contain a waiver of subrogation of the rights of the Landlord's
insurance carrier to proceed against the Tenant for matters are covered therein.
Tenant is invited and encouraged to review and ascertain the type,
deductibles and limits related to Landlord Insurance policies required herein.
Tenant is responsible for, and hereby saves and holds harmless Landlord, for all
costs, charges and expenses relating to or ensuing from damage, loss, and/or
replacement to/of any property, of whatever nature and from any cause
whatsoever, not covered by or within the deductible limits of Landlords
insurance policies referenced herein.
Tenant shall pay, as additional rent, 100 percent of Landlord's premiums
for fire insurance with standard extended coverage policy, difference in
condition policy and rental income insurance policy to the extent the
aforementioned policies relate to Building # 15, as determined by Landlord One
hundred.
14. TENANT'S INSURANCE OBLIGATIONS. Tenant, as a minimum, shall carry the
following insurance policies applicable to the Premises (and other areas as may
be required herein) with reputable companies authorized to issue policies in the
State of New Jersey having a Moody rating of at least A. The Certificate of
Insurance shall indicate Cherry Hill Industrial Sites, Inc. as the additional
insured under the "description" portion of the certificate, as follows: "Cherry
Hill Industrial Sites, Inc. as additional insured relative to any and all
lease/rental premises utilized by the Tenant":
(a) Comprehensive Public Liability Insurance. Such insurance shall be for
a Combined Single Limit (CSL) for bodily injury (including death) and property
damage or loss (for occurrences in or about the Premises or arising out of
Tenants ownership, maintenance, use or occupancy of the Premises) in the amount
of $1,000,000 for each occurrence, and $3,000,000 in the aggregate.
(b) Personal Property Insurance in amounts and types of coverage to insure
against damage or loss to any property including, but not limited to any Tenant
alterations, improvements or betterments in or about the Premises that is not
the property of Landlord caused by: (1) water, rain, sleet, snow, or ice
entering, seeping or leaking into or through the Premises or any portion
thereof; (2) fire, explosion, tornado, wind, earthquake or any other casualty or
any other similar occurrences; (3) theft, burglary, vandalism, malicious
mischief, or other similar occurrences; (4) accidents of any kind, type or
nature; (5) electrical, gas or water failure, cutoffs, surges or similar
occurrences; (6) loss or damage to property not owned by Landlord by any similar
reason.
(c) Such other insurance, and in such amount, as may from time to time be
reasonably required by Landlord or required by law. No insurance requirements as
set forth in this Lease shall preclude Tenant from obtaining whatever additional
insurance coverages Tenant shall deem necessary or prudent.
(d) NOTE: Tenant shall have the right to procure its required insurance on
a blanket master policy basis and/or an umbrella basis; provided, however, that
all such coverage shall otherwise comply with
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all of the requirements contained herein.
All insurance policies required of Tenant shall: (a) provide at least
thirty (30) days prior notice to Landlord and Tenant of any change,
modifications or cancellation; and (b) contain a waiver of subrogation of the
rights of the Tenant's insurance carrier to proceed against the Landlord for
matters which are required to be or are covered by the Tenant's insurance
policies.
Tenant shall give prompt notice to Landlord in case of any fire, casualty,
accident or similar occurrence.
15. FIRE. If the Premises shall be partially damaged by fire or similar casualty
as is covered under insurance policies carried by Landlord, the damage shall be
repaired by and at the expense of Landlord to the extent provided for pursuant
to the provisions thereof. Any fire or similar casualty damage to the Premises,
within the deductible limits of the aforementioned policies shall be repaired by
Landlord, but paid for by Tenant as additional rent.
The rent, until such repairs are made, shall be apportioned according to
the portion of the Premises which was damaged or which has been made unusable,
whichever is less. Nevertheless the Lease shall continue in full force and
effect.
If the Premises are totally or substantially damaged by fire or similar
casualty as is covered under policies required of Landlord pursuant to the
covenants of this Lease, and if Landlord, at its option, decides not to restore
or not to rebuild same, Landlord shall then, within sixty (60) days after such
fire, give Tenant notice of such decision, and thereupon this Lease shall expire
by lapse of time upon the fifth day after such notice is given. Tenant shall
then vacate the Premises and surrender same to Landlord.
For the purpose of this Lease substantial damage is defined as that which
is greater than twenty (20%) percent of the insured value of the premises as
determined by the cost estimate of Landlord.
Tenant acknowledges that Landlord will not carry insurance on the
furniture, furnishings, inventory, fixtures, equipment, improvements,
alterations, additions, property, appurtenances, or similar items that are not
the property of Landlord in or upon the Premises and agrees that Landlord is not
and shall not be obligated to repair any damage or loss thereto, nor replace
same, nor compensate any person or party for any loss, damage, or destruction
regardless of cause and/or reason.
In the event Landlord, at its option, decides to restore or rebuild the
Premises, no penalty shall accrue for reasonable delay which may arise by reason
of adjustment of insurance on the part of Landlord and/or Tenant, or for delays
on account of labor troubles or other reasons or causes beyond Landlord's
control.
In accordance with this paragraph, Tenant explicitly waives applicability
of N.J.S.A. 46:8-6 and N.J.S.A. 46:8-7.
16. FIRE PREVENTION SYSTEMS.
a. If the National Board of Fire Underwriters or any local Board of Fire
Underwriters or Insurance Exchange (or other bodies hereafter exercising similar
functions) shall require or recommend the installation of fire extinguishers, a
"sprinkler system", fire detection and prevention equipment (including, but not
limited to, smoke detectors and heat sensors), or any changes, modifications,
alterations, or the installation of additional sprinkler heads or other
equipment for any existing sprinkler, fire extinguishing system,
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and/or fire detection system for any reason, whether or not attributable to
Tenant's use of the Premises or Alterations performed by or on behalf of Tenant;
OR
b. If any law, regulation, or order or if any bureau, department or
official of the Federal, State, and/or Municipal Governments shall require or
recommend the installation of fire extinguishers, a "sprinkler system", fire
detection and prevention equipment (including, but not limited to, smoke
detectors and heat sensors), or any changes, modification, alterations, or the
installation of additional sprinkler heads or other equipment for any existing
sprinkler system, fire extinguishing system, and/or fire detection system for
any reason, whether or not attributable to Tenant's use of the Premises or
Alterations performed by or on behalf of Tenant; OR
c. If any such installations, changes, modifications, alterations,
sprinkler heads, or other equipment become necessary to prevent the imposition
of a penalty, an additional charge, or an increase in the fire insurance rate as
fixed by said Board or Exchange, from time to time, or by any fire insurance
company as a result of the use of the Premises whether or not the same is a
permitted use as defined elsewhere herein, then Tenant shall, at Tenant's sole
cost and expense, promptly make such installations within the Premises and make
such changes, modifications, alterations or the installation of additional
sprinkler heads or other required or recommended equipment.
17. REPAIRS, REPLACEMENTS. Tenant shall keep premises in good order and repair
and shall promptly make any and all repairs, maintenance, and replacements to
the Premises of whatever nature, ordinary and extraordinary, foreseen and
unforeseen, except as is specifically provided for herein. All repairs,
maintenance and replacements shall be in quality, usefulness, and class at least
equal to the original installation.
Landlord shall not be required to furnish any services, improvements,
alterations, or similar items, nor to make any repairs, maintenance, or
replacements to the Premises except as is specifically provided for herein.
18. ALTERATIONS. Tenant shall not make any alterations, additions or
improvements without Landlord's approval, which shall not be unreasonably
withheld or delayed.
In the event Tenant proposes any alterations, additions, or improvements,
it shall submit a complete set of plans and specifications relating thereto,
prepared by any architect or professional engineer registered in the State of
New Jersey to Landlord. Landlord, at its option, shall grant or deny approval
within 15 days after receipt. Landlord may impose any conditions and/or
requirements upon Tenant as Landlord considers necessary or prudent to protect
Landlord's interest in the Premises. Tenant must agree in writing to adopt any
such conditions and/or requirements before any approval is effective.
If Landlord shall grant approval for the proposed work and provided Tenant
has agreed to any conditions and/or requirements made a part of such approval,
the following additional conditions shall apply:
a. Prior to making any alterations, additions or improvements Tenant shall
assure itself that the work will not impair the structural integrity of the
Premises, or any portion thereof.
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Approval of the proposed work by Landlord shall not constitute or imply a
warranty or representation by Landlord that the existing Premises, or any part
thereof, is adequate to withstand work proposed by Tenant. By making any
alterations, additions, or improvements, Tenant expressly warrants that the same
will not impair the structural integrity of the Premises nor any part thereof
and are in full compliance with the requirements of all governmental agencies or
authorities having jurisdiction. Landlord reserves the right to approve or
reject Tenant's contractor. If Tenant's proposed alteration involves a tie-in to
building systems, Landlord further reserves the option of requiring Tenant to
use Landlord's contractor.
b. All costs related to the proposed work, irrespective of their nature,
are the sole responsibility of Tenant and shall be promptly paid by Tenant at
such time as they may be due.
c. All contractors, labor and/or material suppliers, and similar parties
shall agree, in writing, prior to the commencement of any work or procurement of
materials, (1) to jointly comply with Tenant with the mechanics lien
restrictions contained elsewhere in this Lease; (2) that they are entering into
any agreements for labor and/or material with Tenant and not on behalf or for
the benefit of Landlord; (3) that the work to be done shall be in conformance
with the last plans and specifications approved by Landlord and that no changes
shall be made thereto without the approval of Landlord and Tenant; and (4) that
they, and their employees and other agents, shall comply with all rules and
regulations contained in Tenant's Lease regarding their conduct on the Premises.
Proof of such agreements shall be given to Landlord prior to the commencement of
the proposed work.
d. Tenant shall insure, indemnify and hold Landlord harmless for any loss
to which Landlord may be subject or which Landlord may sustain relating to
accidents, injury to persons (including death), property loss or damage of any
nature whatsoever, regardless of cause, arising during or ensuing from the work
undertaken by Tenant.
e. All such alterations, additions and improvements upon completion shall
immediately become the property of Landlord, without compensation by Landlord to
Tenant or any other party, and simultaneously become part of the Premises, and
Tenant's obligations and responsibilities pursuant to the terms and conditions
of this Lease shall thenceforth apply to the aforementioned alterations,
additions, or improvements. Upon the termination of the Tenant's lease and/or
Tenant's vacating of the premises, Tenant shall remove said alterations,
additions and improvements at Tenant's expense, if so requested by Landlord.
f. Upon completion of the work, Tenant will submit to Landlord as-built
drawings and certifications of inspections certifying the completion of the
alteration, addition or improvement.
19. COMPLIANCE WITH LAWS. With respect to the Premises or the use and occupation
thereof, Tenant shall promptly comply with all laws, orders, regulations, and
requirements now in force, or which may hereafter be in force, of (a) Federal,
State, County, and Municipal authorities and (b) private, quasi-public and
public utility companies and similar parties providing services.
Tenant acknowledges that during the term of this Lease, a system, or
materials and components thereof, now existing on the Premises may be legally
banned or subject to mandatory modification or conversion to some other system,
material or component. Tenant agrees that it will not, on the basis of such
legal ban or mandatory modification or
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conversion, claim frustration of purpose, seek termination of the Lease, or seek
abatement of rent.
Tenant shall immediately notify Landlord upon receipt of notice of a ban,
conversion requirement, violation or alleged violation of any of the foregoing.
Tenant shall also provide Landlord, upon Landlord's request, affidavits and/or
representations executed by a knowledgeable officer or principal of the company
concerning Tenant's best knowledge and belief regarding Tenant's compliance with
particular laws, orders, regulations and requirements as may be cited by
Landlord in its request.
20. RULES AND REGULATIONS. Without limiting Tenant's obligations pursuant to any
of the terms and conditions of this Lease, Tenant has the following duties:
a. Between April 15 and May 15 of each year Tenant shall provide to
Landlord, in form and content satisfactory to Landlord, a certification from a
reputable heating, ventilating and air conditioning contractor acceptable to
Landlord, or a professional engineer licensed to practice in the State of New
Jersey, confirming that all heating, ventilating and air conditioning systems
within the Premises are in good working order and repair and are being properly
serviced by Tenant.
b. Tenant shall keep: (1) the roof and exterior wall systems in a
watertight condition; (2) gutters, downspouts, drainage, and sewerage systems
free from obstructions and blockages; (3) all yard and exterior wall mounted
lighting on during night time hours; (4) parking areas, driveways, walkways, and
similar items free from snow, ice, potholes and all other defects and/or
hazards; (5) the Premises in a clean, safe, and orderly condition free from
debris, refuse, trash, vermin, pests, defects and/or hazards; (6) the
dissemination of smoke, dust, odors, fumes, and other noxious gases shall be
within the limits of the industrial tolerance standards of the State Department
of Health, Bureau of Adult and Industrial Health.
c. Tenant shall not cause, commit or permit: (1) areas allocated for
driveways, walkways, or the parking of automobile vehicles to be used for any
other purpose; (2) any public or private nuisance; (3) use or occupancy in a
manner reasonably offensive or objectionable to the Landlord by reason of, but
not limited to, noise and/or vibrations; (4) debris, dirt, holes, scuff marks,
smears, graphics and/or similar items on wall, floor, or ceiling surfaces; (5)
any utility service or equipment to be overloaded; (6) anything that will impair
or tend to impair, in Landlord's reasonable judgement, the character, value, or
appearance of the Premises; (7) outside storage of any kind except as is
specifically provided for herein; (8) parking of inoperable vehicles,
non-motorized vehicles or trailers in or about the Premises; (9) any part or the
whole of the sidewalks, entrances, passages, stairways, corridors or halls of
the premises to be obstructed or encumbered or used for any purpose other than
ingress and egress to and from the Premises; (10) any signs, advertisements,
objects, notices or other lettering to be exhibited, inscribed, painted, or
affixed on any part of the outside or inside of the Premises, so as to be
visible from the exterior without prior approval of Landlord; (11) any show
cases or other items to be put in front of or affixed to any part of the
exterior of the building; (12) any water and wash closets and other plumbing
fixtures to be used for any purposes other than those for which they were
designed/constructed, and no sweepings, rubbish, rags or other substances shall
be thrown
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therein; (13) any wires to be installed except in conduits, ducts or outlets
established for that purpose, unless prior written consent of Landlord has been
obtained; (14) disturbance or interference with other Tenants or occupants of
the building or neighboring buildings; (15) canvassing, soliciting or peddling
within the Premises; (16) installation of a television, radio, or two-way radio
antenna, or any other similar antenna, on the roof, in the windows or upon the
exterior of the Premises, without the prior approval of Landlord; (17) any
cooking within the Premises, without the prior written consent of Landlord,
provided, however, that the heating, refrigerating and preparing of beverages
and light snacks for employees shall be permitted if there are appropriate and
adequate facilities and equipment for such purposes; (18) unusual or
objectionable odors to be produced upon or emanate from the Premises; (19)
storage, manufacture or sale of liquor or illegal drugs; (20) any portion of the
Premises to be used for lodging or sleeping or for any immoral or illegal
purpose; (21) animals of any kind to be brought or kept about the Premises
without Landlord's prior approval; (22) notices, posters, or advertising media,
except for purposes of emergency, to be affixed on the exterior of the building;
and (23) burning of trash or garbage of any kind in or about the Premises.
d. Tenant shall: (1) store discarded material temporarily being stored
outside of the building, forming part of the Premises, within fence-enclosed
waste storage containers of a type and at locations approved by Landlord; (2)
arrange for and enforce good housekeeping procedures and practices satisfactory
to Landlord; (3) arrange for liquid wastes and effluents to be discharged into
an approved existing sewage treatment plant in accordance with that plant's
regulations and state and federal regulations, or shall treat its own wastes and
effluents in a treatment plant or process which is in compliance with the New
Jersey State and Federal Statutes and with the requirements of the New Jersey
State Department of Health; (4) shall comply with the New Jersey State Statutes
and requirements of the New Jersey State Department of Labor and Industry
Precaution against fire hazards, radiation, explosion, proper handling and
storage of materials and structural design, and safeguards for the health of
workers.
e. Tenant, its agents, employees, contractors, invitees, licensees, and
similar parties shall not: (1) interfere with the business of Landlord or other
Tenants or persons on any other property owned by Landlord; (2) bring or keep
within the premises any flammable, combustible or explosive fluid, chemical or
substance of types or quantities not permitted by law and/or Landlord's fire and
casualty insurance carrier.
f. Tenant, its agents, employees, contractors, invitees, licensees, and
similar parties shall: (1) obey speed limit, warning and related type signs
posted within the road/driveway system of the Cherry Hill Industrial Center; (2)
obey fire regulations and procedures governing the premises; (3) keep access
lids on exterior waste storage containers in a closed position except when waste
is actually being placed within said containers.
g. Landlord shall have the right to prohibit any advertising by any Tenant
which, in Landlords reasonable judgment, tends to impair the reputation of said
Tenant's Premises or the Cherry Hill Industrial Center, and upon notice from
Landlord, such Tenant shall refrain from or discontinue such advertising.
Landlord shall have the right to enforce this provision by injunction.
h. Landlord's employees shall not be required to perform, and
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shall not be required by tenant to perform, any work outside of their regular
duties, unless under specific instructions from the office of Landlord.
i. Tenant shall immediately notify Landlord of any serious breakage, or
fire or disorder, occurring within the Premises.
j. Landlord reserves the right to rescind, amend, alter or waive any of
the foregoing Rules and Regulations at any time when, in its judgment, it deems
it necessary, desirable or proper for its best interest and/or for the best
interest of the tenants, and no such recission, amendment, alteration or waiver
of any rule or regulation in favor of one Tenant shall operate as an alteration
or waiver in favor of any other Tenant. Any such rescission, amendment,
alteration, or waiver shall become effective ten (10) days after notice by
Landlord to Tenant.
k. Nothing contained in this Lease shall be construed to impose upon
Landlord any duty or obligation to impose the rules and regulations against any
other Tenant or any employees or agents of any other Tenant, and Landlord shall
not be responsible or liable to Tenant or others for non-observance or violation
of the rules and regulations by any other Tenant or its employees, agents,
invitees or licensees at any time.
l. Tenant, its employees, contractors, agents, assignees, sublessees,
invitees, licensees and similar parties shall obey and observe all reasonable
rules and regulations established by Landlord from time to time for the conduct
of Tenant and/or the welfare, care, cleanliness, preservation of good order,
and/or safety of the Cherry Hill Industrial Center. Landlord shall give Tenant
at least (10) days notice of the establishment thereof. Nothing contained in
this Lease shall be construed to impose upon Landlord any duty or obligation to
enforce the rules and regulations against any other Tenant or any employees or
agents of any other Tenant, and Landlord shall not be liable to Tenant or others
for violations of the rules and regulations by any other Tenant or its
employees, contractors, agents, invitees, licensees or similar parties.
21. EMINENT DOMAIN. If the Premises or any portion thereof are taken under the
power of eminent domain, this Lease shall terminate as to the part so taken as
of the date the condemning authority takes title. If more than 10% of the floor
area of the Premises, or more than 25% of the non floor area of the Premises is
taken by condemnation, Tenant may, at Tenant's option, to be exercised by
written notice to the Landlord within 10 days after the Landlord shall have
given Tenant notice of such taking, terminate this Lease as of the date the
condemning authority takes title. If Tenant does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent shall be
reduced in proportion to the floor area of the Premises taken to the total floor
area of the Premises. Any award for taking of all or any part of the Premises
under the power of eminent domain or any payment made under threat of the
exercise of such power shall be the property of the Landlord, whether such award
shall be made as compensation for diminution in value of the Leasehold or for
the taking of the fee, or as severance damages, or other compensation to which
Landlord may be entitled. Tenant may make a separate application for
compensation relating to its trade fixtures or personal property.
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22. FORCE MAJEURE. Except as the effect of this paragraph may be expressly
excluded in other provisions hereof, the parties shall be excused for the period
of any delay in the performance of any obligation hereunder when prevented from
so doing by a cause or causes beyond the parties control which shall include,
without limitation, all labor disputes, civil commotion, war, war-like
operations, invasion, rebellion, hostilities, military or usurped power
sabotage, governmental regulations or controls, fire or other casualty, or
through Acts of God.
23. LANDLORDS NON-LIABILITY. Except as is specifically provided for herein:
Landlord shall not be liable or responsible for any loss or damage to any
property regardless of its nature or ownership at any time on or about the
Premises arising from any cause or reason whatsoever. Nor shall Landlord be
liable or responsible for any harm or injury (including death) to any person at
any time on or about the Premises, arising from any cause or reason whatsoever.
Tenant shall not hold Landlord in any way responsible or liable therefor and
hereby releases and remises Landlord therefrom.
Without limiting or diminishing Landlord's non-liability as provided for
herein, Landlord shall not be responsible or liable to Tenant, its employees,
invitees, agents, or any other party for any loss or damage to any property or
harm or injury to any persons (including death): (a) which is and/or should have
been covered by an insurance policy required of Tenant or which Tenant failed to
obtain or keep in force and effect; (b) caused by work stoppages, business
interruptions, or similar events; (c) caused by other Tenants, its agents,
invitees, employees, and similar parties; (d) caused by operations in
construction of any private, public or quasi-public works; (e) caused by any
latent or patent defects in the Premises or in any part of the building of which
the Premises may form a part; (f) arising out of the design or construction of
the Premises; (g) caused by snow, wind, rain, leakage, and similar events into
or out of any portion of the Premises; (h) caused by leakage, overflows,
obstructions, blockages, explosions, collapse, bursts, surges, and similar
events of any mechanical, structural, or other component and/or part thereof;
(i) arising from or caused by Tenant's business operation, occupancy and/or use
of the Premises and/or the streets, rights of way, and walkways adjacent
thereto, or any other similar reason.
All non-liability, waivers of liability, and save and hold harmless
references in this Lease given Cherry Hill Industrial Sites, Inc., as Landlord,
shall apply to (a) Cherry Hill Industrial Sites, Inc., as General Contractor,
Designer, Contractor, or Subcontractor; and (b) any partner, joint venturer,
director, officer, agent, stockholder, and employee of Cherry Hill Industrial
Sites, Inc.
24. INDEMNIFICATION. Tenant shall not do, nor permit to be done, any act or
thing in or upon the Premises, which may, will, or does subject Landlord to any
claims, penalties, expenses, judgments, responsibility, liability, damages or
similar occurrence by reason of damage or loss to any property or harm and/or
injury (including death) to any persons at any time.
Tenant agrees to and shall hold and save harmless and indemnify the
Landlord from and for any and all payments, expenses, costs, attorney fees,
claims and liability for losses or damage to property
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and/or injury to any person (including death) resulting from any acts or
omissions by the Tenant, or its agents, employees, guests, licensees, invitees,
sub-tenants, contractors and similar parties, or for any cause or reason arising
out of or by reason of Tenant's use and/or occupancy of the Premises and/or the
conduct of Tenant's business and/or the breach by Tenant of any of the terms and
conditions of this Lease and/or similar reason.
25. FAILURE TO GIVE POSSESSION. If Landlord, for any reason, shall be unable to
give possession of the Premises on the date set for the commencement of the
Term, Landlord shall not be subject to any liability for such failure. Under
such circumstances, provided the delay is not caused or contributed to by
Tenant, the rent payments shall not commence until possession of the Premises is
given or the Premises are available for occupancy by Tenant, whichever occurs
first. Failure to give possession on the date of commencement of the term shall
in no way affect the validity of this Lease or the obligations of Tenant
hereunder nor shall it be construed in any way as an extension to the Term or
expiration date of this Lease.
If Landlord, at its option, grants Tenant permission to enter into the
possession of the Premises prior to the date specified as the commencement of
the Term, Tenant agrees that such occupancy shall be pursuant to the terms and
conditions of this Lease.
26. LIENS. Tenant shall not do anything which shall interfere with Landlord's
rights of ownership in the Premises. Tenant shall not permit nor allow any
notice of intention to file any type of lien (including, but not limited to,
mechanics liens) to be filed against the Premises. However, in the event any
notice of intention to file a lien is filed for work to be performed, material
to be furnished, or a lien is filed for work claimed to have been done or for
materials claimed to have been furnished to Tenant, same shall be discharged of
record and satisfied by Tenant within five (5) days thereafter at Tenant's own
cost and expense, or Tenant shall file a bond pursuant to statute releasing such
liens. Failure to do so shall entitle Landlord to resort to such remedies as are
provided herein in case of any default of this Lease, in addition to such as are
permitted by law.
27. ACCESS TO PREMISES. Landlord, its employees and agents shall have the right
to enter the Premises at all reasonable times for the purpose of: (a) examining
or inspecting the same; (b) showing the same to prospective purchasers,
mortgagees or Tenants; (c) making such alterations, repairs, improvements or
additions to the Premises or to the Building as may be necessary; (d) any other
similar or reasonable purpose.
If representatives of Tenant shall not be present to open and permit entry
into the Premises at an time when such entry by Landlord is necessary or
permitted hereunder, Landlord may enter by means of a master key (or forcibly in
the event of an emergency) without: (a) liability to Landlord, its employees,
agents, invitees and similar parties; (b) hindrance or molestation from Tenant,
its employees, and agents; and (c) such entry constituting an eviction of Tenant
or termination of this Lease.
28. ASSIGNMENT.
a. Tenant shall not assign, mortgage, pledge, encumber or in any manner
transfer this Lease or any portion thereof, or any interest
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herein, or sublet the whole or any part of the Premises, without obtaining the
approval of Landlord. In the event of any such occurrence, with or without
Landlord's approval, Tenant shall, nevertheless, remain liable for the
performance of all the terms and conditions of this Lease and will require any
assignee/sublessee to execute and deliver to Landlord an assumption of all of
the terms and conditions of this Lease in form satisfactory to Landlord.
Landlord shall be entitled to, and Tenant shall promptly remit to Landlord, any
profit which may inure to the benefit of Tenant as a result of any partial or
entire subletting of the Premises or assignment of this Lease, whether or not
approved by Landlord.
b. For the purposes of this paragraph, Tenant understands that the
transfer of a majority of Tenant's stock is tantamount to an assignment.
c. As a condition precedent to Tenant's right to sublease the Premises or
to assign this Lease, Tenant shall, at Tenant's own expense, first comply with
ECRA and fulfill all of Tenant's environmental obligations under this Lease
pursuant to paragraph 51 which also arise upon termination of Tenant's lease
term. If this condition is not satisfied, then Landlord shall have the right to
withhold consent to sublease or assignment.
Tenant shall promptly furnish to Landlord true and complete copies of all
documents, submissions and correspondence provided by Tenant to the NJDEP and
all documents, reports, directives and correspondence provided by the NJDEP to
Tenant. Tenant shall also promptly furnish to Landlord true and complete copies
of all sampling and test results obtained from samples and tests taken at and
around the Premises. Tenant shall notify Landlord in advance of all meetings
scheduled between Tenant and NJDEP, and Landlord may attend all such meetings.
d. Should Tenant make an assignment or sublet the Premises or any portion
thereof without the approval of Landlord, then Landlord may, at its option,
terminate this Lease by giving Tenant five (5) days notice of Landlord's
intention to do so and, upon the expiration of five (5) days, this Lease shall
terminate and Tenant shall peaceably quit and surrender the Premises to
Landlord; nevertheless Tenant shall remain liable as provided elsewhere in this
Lease. This Lease shall not, nor shall any interest therein, be assignable as to
the interest of Tenant by operation of law, without the approval of Landlord.
e. Subletting or assigning this Lease to anyone other than an actual user
of the Premises is positively prohibited.
f. Tenant may assign this Lease or sublet the Premises or any part thereof
to a subsidiary or controlled or affiliated concern of Tenant and of its parent,
or a surviving company of a merger or consolidation of any of the foregoing
without the Landlord's consent. Tenant is expressly granted consent to assign or
sublet the Premises, or any portion thereof, to a wholly owned subsidiary.
29. SUBORDINATION. This Lease shall be subject and subordinate at all times to
the lien of any mortgages and/or other encumbrances, common right-of-way's,
easements and similar items existing or hereafter placed upon the Premises by
Landlord, or with the permission of Landlord, without the necessity of any
further instrument or act on the part of Tenant to effectuate such
subordination. Tenant agrees, however, at the election of a mortgagee, to attorn
to any holder of any mortgage to which this Lease is subordinate. Tenant agrees
to
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execute and deliver promptly upon demand, and without charge, such further
instrument or instruments evidencing such subordination of this Lease to the
lien of any mortgage and/or other encumbrance. Tenant hereby irrevocably
appoints Landlord as Tenant's attorney in fact to execute and deliver such
instrument or instruments for and in the name of the Tenant provided same have
not been executed by Tenant within ten (10) days after Landlord's notice to
Tenant.
Landlord agrees that the subordination of the Lease to any future mortgage
relating to the Premises shall be conditional and contingent upon any such
mortgagee's agreeing that, so long as Tenant is not in default under the terms
and conditions of the Lease, such mortgages shall not disturb Tenant's use,
possession and occupancy of the Premises.
30. CERTIFICATIONS. Tenant agrees, within ten (10) days after Landlord's notice,
to execute, acknowledge and deliver to Landlord a written instrument in
recordable form certifying: (1) that this Lease is unmodified and in full force
and effect (or if there have been modifications, that the same are in full force
and effect as modified and stating the modifications); (2) that the Tenant has
accepted possession of the Premises and the date on which the term of the Lease
commenced; (3) the dates to which rent and additional rent have been paid in
advance, if any; (4) whether or not to the best knowledge of the signer of such
certificate, Landlord is in default in the performance of any covenant of this
Lease, and, if so, specifying each such default of which the signers may have
knowledge; (5) any other reasonable stipulation as may be required and/or
requested by Landlord. It is understood that such instrument may be relied upon
by a prospective purchaser of the fee or any mortgagee of the Premises.
Tenant shall provide to Landlord, if requested, its latest audited
financial statement, accurately reflecting its financial condition for the
latest fiscal year of Tenant. It is understood that such statement may by relied
upon by a prospective purchaser of the fee or any mortgagee of the Premises.
31. DEFAULT AND REMEDIES.
a. Default. The occurrence of any of the following shall constitute a
material default and breach of this Lease by Tenant:
(1) Failure of Tenant to accept possession of the Premises within
thirty (30) days after the effective date of the Lease;
(2) The vacating or abandonment of the Premises by Tenant;
(3) The failure by Tenant to pay, when due, any installment of rent
hereunder or any additional rent or any such other sum herein required to be
paid by Tenant;
(4) A failure by Tenant to observe and perform any other provision
or terms and conditions of this lease to be observed or performed by Tenant,
where such failure continues for fifteen (15) days (or a lesser time period when
an emergency or law requires or makes such a reduction for abatement and/or
correction prudent; or when a lessor of non notice provision is specifically
provided for in any covenant of this Lease) after written notice thereof from
Landlord to Tenant provided, however, that if the nature of the default is such
that the same cannot reasonably be cured within such fifteen (15) day period,
Tenant shall not be deemed to be in default if Tenant shall within such period
commence such cure and thereafter diligently prosecute the same to completion;
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b. Remedies. Upon the occurrence of any such event of default set forth
above;
(1) Landlord may (but shall not be required to) perform for the
account of Tenant the curing of any default of Tenant and immediately recover as
additional rent any expenditure made and the amount of any obligations incurred
in connection therewith, plus interest at the rate of four percent (4%) per
annum over the Midlantic National Bank/South prime rate from the date of such
expenditure;
(2) Tenant may cure any monetary default by making payment of the
monies due, together with a late charge of 5% of the amount due not later than
ten (10) calendar days after notice of the default has been given to Tenant. If
said default should continue for a longer period, Landlord may accelerate all
rent and additional rent due for the succeeding nine (9) months of the term of
this Lease and declare the same to be immediately due and payable.
(3) Tenant may cure any non-monetary default by correcting the
default condition described in Landlord's notice to Tenant if said corrections
are completed within twenty (20) calendar days after notice of the default has
been given to Tenant. If said default should continue for a longer period,
Landlord may accelerate all rent and additional rent due for the succeeding nine
(9) months of the term of this Lease and declare the same to be immediately due
and payable.
(4) In the event of default, and the failure of Tenant to cure same
within the designated time period, Landlord, at its option, may serve notice
upon Tenant that this Lease and the then unexpired term hereof and all renewal
options shall cease and expire and become absolutely void on the date specified
in such notice, to be not less than five (5) days after the date of such notice
without any right on the part of the Tenant to save the forfeiture by payment of
any sum due or by the performance of any terms, provision, covenant, agreement
or condition broken; and, thereupon and at the expiration of the time limit in
such notice, this Lease and the term hereof granted, as well as the right, title
and interest of the Tenant hereunder, shall wholly cease and expire and become
void in the same manner and with the same force and effect (except as to
Tenant's liability) as if the date fixed in such notice were the date herein
granted for expiration of the term of this Lease. Thereupon, Tenant shall
immediately quit and surrender to Landlord the Premises, and Landlord may enter
into and repossess the Premises by summary proceedings, detainer, ejectment or
otherwise and remove all occupants thereof and, at Landlord's option, any
property thereon without being liable to indictment, prosecution or damages
therefor. No such expiration or termination of this Lease shall relieve Tenant
of its liability and obligations under this Lease, whether or not the Premises
shall be relet;
(5) Landlord may, at any time after the occurrence of any event of
default, re-enter and repossess the Premises and any part thereof and attempt in
its own name, as agent for Tenant if this Lease not be terminated or in its own
behalf if this Lease be terminated, to relet all or any part of such Premises
for and upon such terms and to such persons, firms or corporations and for such
period or periods as Landlord, in its sole discretion, shall determine,
including the term beyond the termination of this Lease; and Landlord shall not
be required to accept any tenant offered by Tenant or observe any instruction
given by Tenant about such reletting or do any act or exercise any care or
diligence with respect to such reletting or to the mitigation of damages. For
the purpose of such reletting, Landlord may decorate or make repairs, changes,
alterations
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or additions in or to the Premises to the extent deemed by Landlord desirable or
convenient; and the cost of such decoration, repairs, changes, alterations or
additions shall be charged to and be payable by Tenant as additional rent
hereunder, as well as any reasonable brokerage and legal fees expended by
Landlord; and any sums collected by landlord from any new tenant obtained on
account of the Tenant shall be credited against the balance of the rent due
hereunder as aforesaid. Tenant shall pay to Landlord monthly, on the days when
the rent would have been payable under this Lease, the amount due hereunder less
the amount obtained by Landlord from such new Tenant;
(6) The parties recognize and agree that the damage to Landlord
resulting from any failure by Tenant to timely surrender possession of the
Premises will be substantial, will exceed the amount of the monthly installments
of the Rent payable hereunder, and will be impossible to measure accurately.
Tenant therefore agrees that if possession of the Premises is not surrendered to
Landlord upon the expiration date or sooner termination of the Lease, in
addition to any other rights or remedies Landlord may have hereunder or at law,
Tenant shall pay to Landlord, as liquidated damages, for each month and for each
portion of any month during which Tenant holds over in the Premises after the
expiration date or sooner termination of this Lease, a sum equal to two times
the aggregate of that portion of Base Annual Rent and Additional Rent that was
payable under this Lease during the last month of the Term.
(7) Nothing herein contained shall be deemed to permit Tenant to
retain possession of the Premises after the expiration date or sooner
termination of the Lease.
(8) In addition to all remedies provided herein or by law, Tenant
shall pay to Landlord reasonable attorneys fees and court costs and any other
expenses incurred as a result of such breach or default.
32. BANKRUPTCY.
a. Anything elsewhere in this lease to the contrary notwithstanding, this
Lease may be cancelled by Landlord by the sending of a written notice to Tenant
within a reasonable time after the happening of any one or more of the following
events: (1) the commencement of a case in bankruptcy or under the laws of any
state naming Tenant as the debtor; or (2) the making by Tenant of an assignment
or any other arrangement for the benefit of creditors under any state statute.
Neither Tenant nor any person claiming through or under Tenant, or by reason of
any statute or order of court, shall thereafter be entitled to possession of the
premises demised but shall forthwith quit and surrender the premises. If this
Lease shall be assigned in accordance with its terms, the provisions of this
Article 31 shall be applicable only to the party then owning Tenant's interest
in this Lease.
b. It is stipulated and agreed that in the event of the termination of
this Lease pursuant to (a) hereof, Landlord shall forthwith, notwithstanding any
other provisions of this Lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such
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premises or any part thereof be re-let by the Landlord for the unexpired term of
said Lease, or any part thereof, before presentation of proof of such liquidated
damages to any court, commission or tribunal, the amount of rent reserved upon
such reletting shall be deemed to be the fair and reasonable rental value for
the part or the whole of the premises so re-let during the term of the
re-letting. Nothing herein contained shall limit or prejudice the right of the
Landlord to prove for and obtain as liquidated damages by reason of such
termination, an amount equal to the maximum allowed by any statute or rule of
law in effect at the time when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater, equal to, or
less than the amount of the difference referred to above.
33. EXPIRATION. Upon the expiration date of this Lease or prior termination
specified by Landlord pursuant to notice as provided for elsewhere in this
Lease: (a) Tenant shall remove all of its personal property from the Premises;
(b) Tenant shall peacefully quit and surrender to Landlord the Premises, broom
clean and in the same condition in which Tenant has agreed to keep it during the
Term. Tenant's obligation to observe or perform this covenant shall survive the
expiration or prior termination date of this Lease; (c) Tenant, for itself and
on behalf of any and all persons claiming through or under it, including, but
not limited to, creditors of every kind, shall and does hereby waive and
surrender all rights and privileges which it may have under or by reason of any
present or future law, to redeem the Premises or to have a continuance of this
Lease; (d) Landlord may enter and repossess the Premises as of Landlord's former
estate and expel Tenant, and those claiming through or under Tenant from the
Premises; (e) Landlord may remove from the Premises any property of Tenant
and/or the property of those cliaming through or under Tenant and, without
notice to Tenant or others, sell such property or any part thereof at public or
private sale or Landlord may treat such property or any part thereof as
abandoned and dispose of same in any manner as Landlord, at its option, elects,
all at the risk and cost of Tenant and without any liability to Landlord
whatsoever.
If during the last month of the term or prior termination, Tenant has
removed all or substantially all of the Tenant's property from the Premises,
Landlord may, without notice to Tenant, immediately enter the Premises to
renovate and decorate the Premises, without liability to Tenant and without
reducing or otherwise affecting Tenant's obligations hereunder.
34. USE AND OCCUPANCY ON HOLDOVER. Tenant agrees that if possession of the
Premises is not surrendered to Landlord upon the expiration date or sooner
termination of the Lease, in addition to any other rights or remedies Landlord
may have hereunder or at law, Tenant shall pay to Landlord, as use and
occupancy, for each month and for each portion of any month during which Tenant
holds over in the Premises after the expiration date or sooner termination of
this Lease, a sum equal to two times the aggregate of that portion of Base
Annual Rent and Additional Rent that was payable under this Lease during the
last month of the Term.
Nothing herein contained shall be deemed to permit Tenant to retain
possession of the Premises after the expiration date or sooner termination of
the Lease.
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35. NON-WAIVER BY LANDLORD. Landlord may restrain any breach or threatened
breach of any covenant of this Lease by Tenant. However, the recitation herein
of any particular remedy shall not preclude the Landlord from any other remedy
it may have, either at law or in equity. Landlord, at its option, may pursue
more than one remedy available either concurrently or separately. The failure of
Landlord to insist upon the strict performance of any one of the terms and
conditions of this Lease or to exercise any right, remedy or election provided
for in this Lease, or permitted by law, shall not constitute or be construed as
a waiver or relinquishment of such right, remedy or election. Landlord may, at
its option, mitigate any damages caused or arising out of Tenant's breach of any
of the terms and conditions of this Lease, but shall not be under any obligation
or duty to do so. Any rights and remedies of Landlord, whether created by the
terms of this Lease or existing at law, in equity, or otherwise, shall be
distinct, separate and cumulative and no one of them, whether exercised by
Landlord or not, shall be deemed to be in exclusion of any other.
No covenant of this Lease shall be deemed to have been waived by Landlord
unless such waiver is in writing, signed by Landlord.
36. QUIET ENJOYMENT. Landlord covenants that upon Tenant observing and
performing all the terms and conditions of this Lease, Tenant shall and may
peaceably and quietly have, hold and enjoy the Premises for the term
aforementioned.
37. BILLS/NOTICES. Except as otherwise provided in this Lease, any bill,
statement, or notice shall be deemed sufficient if written and delivered to
Tenant personally or sent by certified mail, return receipt requested, to Tenant
at the Premises. The time of mailing of such bill or statement and of the giving
of such notice or communication shall be deemed to be the time when same is
mailed to Tenant as herein provided. Any notice by Tenant to Landlord must be
served by certified mail, return receipt requested, to Landlord at the address
herein given or at such other address as Landlord shall designate.
38. WAIVER OF TRIAL BY JURY. Landlord and Tenant agree that the respective
parties shall and hereby do waive trial by jury in any action or proceeding
brought by either of the parties hereto against the other on any matters arising
out this Lease.
In any action brought by the Landlord against the Tenant, Tenant shall not
interpose any counterclaim against Landlord, but same shall be subject to an
independent action which is not to be consolidated with the Landlord's action.
This Lease shall be construed without regard to any presumption or other
rule requiring construction against the party causing this Lease to be drafted.
If Landlord institutes a dispossess or eviction action in response to
Tenant's refusal to vacate the Premises, Tenant waives its right to invoke
N.J.S.A. 2A.18-60. In any action brought by the Landlord against the Tenant,
Tenant shall not interpose any counterclaim against Landlord, but same shall be
subject to an independent action which is not to be consolidated with the
Landlord's action.
39. SIGNS. The Tenant shall not place nor allow to be placed any signs upon or
about the exterior of the building or the grounds of the
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Premises, or other property of Landlord unless of a design and structure and at
such locations as shall be first approved by the Landlord and then the
appropriate governmental authorities and/or agencies, if required.
Tenant, shall pay, as additional rent, all costs and charges incurred by
Landlord related to the installation, repair, maintenance, or replacement of all
signs related to the Tenant within the Cherry Hill Industrial Center.
40. BROKER. Tenant represents to Landlord that it has not dealt with any
brokerage company regarding this Lease. Tenant shall hold and keep Landlord
harmless from and against any claim for brokerage commissions and all
liabilities and expenses arising therefrom.
41. NO REPRESENTATIONS. (a) Tenant has rented the Premises after a complete
inspection and examination of its present condition and without any
representation on the part of the Landlord, its agents, employees, and similar
parties as to the condition or usefulness of the Premises; (b) Tenant does not
acquire any rights, easements or licenses by implication or otherwise, except as
are specifically provided for herein; (c) Tenant's possession of the Premises
shall be conclusive evidence that the Premises were in good and satisfactory
condition at the time Tenant took possession and that Tenant accepted same "as
is" and in its present condition without any express or implied warranties; (d)
upon execution of this Lease or anytime thereafter Tenant assumes the full and
sole responsibility for the condition, safety, operation and management of the
Premises pursuant to the terms and conditions contained herein.
42. LANDLORD'S APPROVAL. Except where specifically stated otherwise:
Whenever Landlord's approval or consent is required pursuant to any term
or condition of this Lease, such approval shall be in writing and in advance for
each occurrence. Landlord is under no duty or obligation to grant approvals.
Whenever this Lease provides for a Landlord's option, it is agreed such
does not imply or constitute a duty or an obligation of Landlord.
Whenever this Lease provides for Landlord's approval which shall not be
unreasonably withheld, it is agreed that Tenant's remedy in the event of
Landlord's non-approval is limited to specific performance.
43. NET LEASE. It is intended that the rent and additional rent reserved
hereunder shall be an absolutely net return to the Landlord throughout the Term.
The rent and additional rent reserved hereunder shall be paid to the Landlord
without any claim on the part of Tenant, or those claiming under Tenant, for
diminution, setoff, deduction, or abatement except as is specifically provided
for herein.
Tenant's obligation to pay rent and additional rent hereunder, and to
perform the terms and conditions of this Lease shall in no way be affected,
impaired or excused because Landlord is unable to fulfill any of its obligations
hereunder, or because Tenant's use and occupancy of the Premises is disturbed,
for any reason other than "as is" specifically provided for herein.
44. LANDLORD'S BREACH. Tenant shall look solely to a sum that shall not exceed
twenty percent (20%) of the net annual rental or ten
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percent (10%) of the balance of the term rent, whichever is less, for the
satisfaction of the remedies of Tenant in the event of a breach by Landlord of
any of the covenant(s) of this Lease.
45. TENANTS WARRANTY. Tenant warrants that if it is a corporation that: (a) it
is duly incorporated and/or qualified under the laws of the State of NEW JERSEY
and is authorized to do business in the State of New Jersey and is in good
standing; (b) all necessary corporate action necessary to authorize the
execution of this Lease upon the terms and conditions set forth herein have been
duly taken; and (c) the officer(s) executing and delivering this Lease have been
duly authorized to bind the corporation to the terms and conditions herein
contained.
46. ADVERSE POSSESSION. Tenant shall not suffer or permit the Premises, or any
portion thereof, to be used without restriction or in such a manner as might
reasonably tend to impair Landlord's title to the Premises or in such manner as
might reasonably make possible claims of adverse usage or adverse possession, or
of implied dedication of the Premises or any portion thereof.
47. COMPLIANCE WITH THE NJ ENVIRONMENTAL CLEANUP RESPONSIBILITY ACT.
a. Tenant shall, at Tenant's own expense, comply with the Environmental
Cleanup Responsibility Act, N.J.S.A. 13:1K-6 et seq., the regulations
promulgated thereunder and any successor legislation and regulations, and any
amendments or additions thereto, (hereinafter referred to as "ECRA"). Tenant
shall, at Tenant's own expense, make all submissions to, provide all information
to, and comply with all requirements of, the Industrial Site Evaluation or its
successor ("Element") of the New Jersey Department of Environmental Protection
("NJDEP").
b. Tenant's obligations under this paragraph shall arise if there is any
closing, termination or transferring of operations of an industrial
establishment at the premises pursuant to ECRA, whether triggered by Landlord or
Tenant.
c. Provided this Lease is not previously cancelled or terminated by either
party or by operation of law, Tenant shall commence its submission to the
Element in anticipation of the end of the lease term no later than one (1) year
prior to the expiration of the lease term. Tenant shall promptly furnish to
Landlord true and complete copies of communications provided by Tenant to the
Element, and all documents, reports, directives, correspondence and oral or
written communications by the Element to Tenant. Tenant shall also promptly
furnish to Landlord true and complete copies of all sampling and tests taken at
and around the Premises. Tenant shall notify Landlord in advance of all meetings
scheduled between Tenant and NJDEP, and Landlord may attend all such meetings.
d. Should the Element or any other division of NJDEP determine that a
cleanup plan be prepared and that a cleanup be undertaken because of a spill or
discharge of a hazardous substance or waste at the Premises which occurred
during the term of the Lease, Tenant shall, at Tenant's own expense, promptly
prepare and submit the required plan and financial assurances and shall promptly
carry out the approved plans.
e. At no expense to Landlord, Tenant shall promptly provide all
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information requested by Landlord or NJDEP for preparation of a
non-applicability affidavit, de minimus quantity exemption application, negative
declaration application, limited conveyance application or other submission and
shall promptly sign such affidavits and submissions when requested by Landlord
or NJDEP.
f. Should Tenant's operations at the Premises be outside of those
industrial operations covered by ECRA, Tenant shall, at Tenant's own expense,
obtain a letter of non-applicability or de minimus quantity exemption from the
Element prior to termination of the Lease term and shall promptly provide
Tenant's submission and the Element's exemption letter to Landlord. Should
Tenant obtain a letter of non-applicability or de minimus quantity exemption
from the Element, then Tenant shall, at Landlord's option, hire a consultant
satisfactory to Landlord to undertake sampling at the Premises sufficient to
determine whether or not Tenant's operations have resulted in a spill or
discharge of a hazardous substance or waste at or around the Premises. Should
the sampling reveal any spill or discharge of a hazardous substance or waste,
the Tenant shall, at Tenant's expense, promptly clean up the Premises to the
satisfaction of Landlord and NJDEP.
g. If Tenant fails to obtain either: (i) a non-applicability letter; (ii)
a de minimus exemption; (iii) a negative declaration; or (iv) final approval of
cleanup; (collectively referred to as "ECRA clearance") from the Element; or
fails to clean up the Premises pursuant to subparagraph (f) above, prior to the
expiration or earlier termination of the lease term, then upon the expiration or
earlier termination of the lease term Landlord shall have the option either to
consider the Lease as having ended or to treat Tenant as a holdover tenant in
possession of the Premises. If Landlord considers the lease as having ended,
then Tenant shall nevertheless be obligated to promptly obtain ECRA clearance
and to fulfill the obligations set forth in subparagraph (f) above. If Landlord
treats Tenant as a holdover tenant in possession of the Premises, then Tenant
shall monthly pay to Landlord double the regular and additional monthly rent
which Tenant would otherwise have paid, until such time as Tenant obtains ECRA
clearance and fulfills its obligations under subparagraph (f) above, and during
the holdover period all of the terms of this Lease shall remain in full force
and effect.
h. Tenant represents and warrants to Landlord that Tenant intends to use
the Premises for activities relating to the warehousing and distribution of
pharmaceutical products. Tenant's use of the Premises shall be restricted to the
classifications set forth above unless Tenant obtains Landlord's written prior
written consent to any change in use of the Premises. Prior to the commencement
date of Tenant's lease term, Tenant shall supply to Landlord an affidavit of an
officer of Tenant ("Officer's Affidavit") setting forth Tenant's SIC numbers and
a detailed description of the operations and processes Tenant will undertake at
the Premises, organized in the form of a narrative report including a
description and quantification of hazardous substances and wastes to be
generated, manufactured, refined, transported, treated, stored, handled or
disposed of at the Premises. Following commencement of the lease term, Tenant
shall notify Landlord by way of a supplemental Officer's Affidavit, as to any
changes in Tenant's operation, SIC number or use or generation of hazardous
substances and wastes. Tenant shall also supplement and update Officer's
Affidavit upon each anniversary of the commencement of the lease term. Tenant
shall not commence or alter any operations
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at the Premises prior to (i) obtaining all required operating and discharge
permits or approvals, including, but not limited to, air pollution control
permits and pollution discharge elimination system permits from NJDEP, all
governmental or public authorities having jurisdiction over Tenant's operations
or the Premises, and (ii) providing copies of permits and approvals to Landlord.
i. Tenant shall permit Landlord and Landlord's agents, servants and
employees, including but not limited to, legal counsel and environmental
consultants and engineers, access to the Premises for the purposes of
environmental inspections and sampling during regular business hours, or during
other hours either by agreement of the parties or in the event of any
environmental emergency. Tenant shall not restrict access to any part of the
Premises, and Tenant shall not impose any conditions to access. In the event
that Landlord's environmental inspection shall include sampling and testing of
the Premises, Landlord shall use its best efforts to avoid interfering with
Tenant's use of the Premises, and upon completion of sampling and testing shall
repair and restore the affected areas of the Premises from any damage caused by
the sampling and testing.
j. Tenant's indemnification of Landlord as set forth elsewhere within this
Lease shall extend to any and all claims, liabilities, losses, damages, and
costs, foreseen or unforeseen, including without limitation counsel, engineering
and other professional or expert fees, which Landlord may incur by reason of
Tenant's action or non-action with regard to Tenant's obligations under this
paragraph.
k. This paragraph shall survive the expiration or earlier termination of
this Lease. Tenant's failure to abide by the terms of this paragraph shall be
restrainable by injunction without limiting Landlord's right to remedy as
provided for elsewhere in this Lease.
48. RESPONSIBILITY FOR HAZARDOUS SUBSTANCES
a. Hazardous Substances: The term "Hazardous Substances", as described in
this Lease, shall include, but shall not be limited to, flammables, explosives,
radioactive materials, asbestos, polychlorinated biphenyls (PCBs), chemicals
known to cause cancer or reproductive toxicity, pollutants, contaminants,
hazardous wastes, toxic substances or related materials, petroleum and petroleum
products, and substances declared to be hazardous or toxic under any law or
regulation now or hereafter enacted or promulgated by any governmental
authority.
b. Tenant's Restrictions: Tenant shall not cause or permit to occur:
(1) Any violation of any federal, state, or local law, ordinance, or
regulation now or hereafter enacted, related to environmental conditions on,
under, or about the Premises, or arising from Tenant's use or occupancy of the
Premises, including, but not limited to, soil and ground water conditions; or
(2) The use, generation, release, manufacture, refining, production,
processing, storage, or disposal of any Hazardous Substance, on, under or about
the Premises, or the transportation to or from the Premises of any Hazardous
Substance, except as specifically required during the lawful conduct of Tenant's
permitted use, as such is defined elsewhere herein.
c. Environmental Clean-Up
(1) Tenant shall, at Tenant's own expense, comply with all laws
regulating the use, generation, storage, transportation, or disposal of
Hazardous Substances ("Laws").
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(2) Tenant shall, at Tenant's own expense, make all submissions to,
provide all information required by, and comply with all requirements of all
governmental authorities (the "Authorities") under the Laws.
(3) Should the Authority or any third party demand that a cleanup
plan be prepared and that a cleanup be undertaken because of any deposit, spill,
discharge, or other release of Hazardous Substances that occurs during the term
of the Lease, at or from the Premises, or which arises at any time from Tenant's
use or occupancy of the Premises, then Tenant shall, at Tenant's own expense,
prepare and submit the required plans and all related bonds and other financial
assurances; and Tenant shall carry out all such cleanup plans in a timely
manner.
(4) Tenant shall promptly provide all information regarding the use,
generation, storage, transportation, or disposal of Hazardous Substances that is
requested by the Landlord. If Tenant fails to fulfill any duty imposed under
this sub-paragraph within a reasonable time, Landlord may do so; and in such
case, Tenant shall cooperate with Landlord in order to prepare all documents
Landlord deems necessary or appropriate to determine the applicability of the
Laws to the Premises and Tenant's use thereof, and for compliance therewith, and
Tenant shall execute all documents promptly upon Landlord's request. No such
action by Landlord and no attempt made by Landlord to mitigate damages under any
Law shall constitute a waiver of any of Tenant's obligations under this
sub-paragraph c.
d. Tenant's Indemnity.
Tenant shall indemnify, defend and hold harmless Cherry Hill
Industrial Sites, Inc. as Landlord, Landlord and Contractor, and its officers,
directors, beneficiaries, shareholders, partners, agents, and employees from all
fines, suits, procedures, claims, and actions of every kind, and all costs
associated therewith (including attorneys' and consultants' fees) arising out of
or in any way connected with any deposit, spill, discharge, or other release of
Hazardous Substances that occurs during the term of this Lease, at or from the
Premises, or which arises at any time from Tenant's use or occupancy of the
Premises, or from Tenant's failure to provide all information, make all
submissions, and take all steps required by all Authorities under the Laws and
all other environmental laws.
e. Tenant's obligations and liabilities under this paragraph 48 shall
survive the natural expiration or sooner termination of this Lease.
f. Landlord represents that as of the date of the execution of this Lease,
Landlord has no knowledge of, and has not received any notice of any violation
from the NJDEP affecting the Premises.
49. ENVIRONMENTAL REPORTS. Tenant shall promptly provide Landlord with:
a. all documentation and correspondence provided to NJDEP pursuant to the
Worker and Community Right to Know Act, N.J.S.A. 34:5A-1, et seq. and the
regulations promulgated thereunder ("Right to Know Act"), and any amendments or
additions thereto,
b. all reports and notices made by Tenant pursuant to the Hazardous
Substances Discharge Reports and Notices Act, N.J.S.A. 13:1K-15 et seq., and the
regulations promulgated thereunder ("Reports and Notices Act"), and any
amendments or additions thereto, and
c. any notices, correspondence and submissions made by Tenant to NJDEP,
the United States Environmental Protection Agency (EPA), the
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United States Occupational, Safety and Health Administration (OSHA), or any
other local, state or federal authority which requires submission of any
information concerning environmental matters or hazardous waste or substances.
50. ENVIRONMENTAL LIENS. Tenant shall promptly notify Landlord as to any liens
threatened or attached against the Premises pursuant to the Spill Act or any
other environmental law. In the event that such a lien is filed against the
Premises, then Tenant shall, within thirty (30) days from the date that the lien
is placed against the Premises, and at any rate prior to the date any
governmental authority commences proceedings to sell the Premises pursuant to
the lien, either: (a) pay the claim and remove the lien from the Premises; or
(b) furnish either (i) a bond satisfactory to Landlord in the amount of the
claim out of which the lien arises, (ii) a cash deposit in the amount of the
claim out of which the lien arises, or (iii) other security satisfactory to
Landlord in an amount sufficient to discharge the claim out of which the lien
arises.
51. BINDING OFFER. It is understood and agreed by the Landlord and Tenant that
this Lease is an offer only and is submitted to Tenant for signature with the
understanding that it shall not bind Landlord unless and until it has been
executed by Landlord.
52. ENTIRE AGREEMENT. This Lease constitutes the entire agreement between the
parties. No representative, agent, or employee of the Landlord has been
authorized to make any representations or promises or to vary, alter or modify
the covenants hereof. No additions, changes, modifications, renewals or
extensions of this Lease shall be binding unless reduced to writing and signed
by the Landlord and the Tenant.
This Lease may not be cancelled or terminated by Tenant without the
consent of Landlord except as is specifically provided for elsewhere in this
Lease.
53. APPLICATION AND DURATION. Wherever in this Lease an obligation is imposed
upon or required of Tenant, same shall be at Tenant's sole cost and expense.
Obligation of Tenant pursuant to the terms and conditions of this Lease
are: (a) for the Premises as set forth in exhibit "A" unless extended in scope
pursuant to any particular provision and/or as the sense and circumstances of
the text may require; (b) for the duration/term of the Lease unless having
application before the commencement date and/or if they survive the expiration
date or prior termination date pursuant to any provision contained herein.
54. VALIDITY. The terms and conditions of this Lease shall be deemed severable,
if any clause or provision herein shall be adjudged to be invalid or
unenforceable by a court of competent jurisdiction or by the operation of any
applicable law, such an occurrence shall not affect the validity of any other
clause and/or provision herein, and this Lease and such other clauses and
provision shall remain in full force and effect.
Landlord, however, at its option, may pursue the relief or remedy sought
in any invalid clause by conforming the said clause with the provision of the
statutes or the regulation of any governmental agency as if the particular
provisions of the applicable statutes or
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55. COUNTERPARTS. This Lease may be executed in several counterparts, each of
Which shall be deemed to be an original copy, and all of which taken together
shall constitute one agreement binding on all parties hereto, notwithstanding
that the parties shall not have signed the same counterpart.
56. GENDER NEUTER. In all references herein to any pronouns, parties, persons,
entities, or corporation, the use of any particular gender or the plural or
singular number is intended to include the appropriate gender or number as the
sense and circumstances of the context may require.
57. BINDING AGREEMENT. All the terms and conditions contained herein shall be
for and shall inure to the benefit of and shall bind the respective parties
hereto, their heirs, successors and assigns.
58. APPLICABLE LAW. Landlord and Tenant agree that this Lease and any suits
and/or special proceedings under it will be governed and construed pursuant to
the laws of the State of New Jersey.
59. CAPTIONS. The captions are inserted only as a matter of convenience and in
no way define, limit or describe the scope of this Lease nor the intent of any
covenant thereof.
IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and sealed this
Lease as of the date written.
CHERRY HILL INDUSTRIAL SITES, INC.
/s/ [Illegible] Date: 11/12/96 By: /s/ Paul Heise
- -------------------------- -------------------------------
Witness as to Landlord Paul Heise, President
MARSAM PHARMACEUTICALS
/s/ [Illegible] Date: 11/12/96 By: /s/ Marvin Samson
- -------------------------- -------------------------------
Witness as to Tenant Marvin Samson, President
25
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ESTOPPLE CERTIFICATE
TO: SUN NATIONAL BANK
WHEREAS, CHERRY HILL INDUSTRIAL SITES, INC., ("the landlord") has entered
into a lease (the "Lease") with MARSAM PHARMACEUTICALS, INC. ("Tenant") for the
rental of the property located in Building #15, 20 Olney Avenue, Cherry Hill
Township, New Jersey ("Premises"); and
WHEREAS, Landlord has applied to Sun National Bank ("Bank") for a loan
which is secured in part by a mortgage encumbering the Premises;
NOW, THEREFORE, the undersigned, party to the Lease confirms the
following:
1. A true, complete and correct copy of the Lease has previous been
provided to the bank by the Landlord. The Lease is presently in full
force and effect; it has not been amended or modified in any way,
and it represents the entire agreement between Landlord and Tenant.
2. The term of the Lease commenced on March 1, 1994, and will expire on
September 30, 1999. Full rental at the rate per month as set forth
in the Lease is currently accruing thereunder.
3. Tenant has accepted possession of the Premises pursuant to the terms
of the Lease and is in occupancy thereof. All construction and/or
improvements required by the Lease have been completed.
4. Tenant, as of this date, has no claim or offset under the Lease or
otherwise, against rents or other charges due to or become due
thereunder.
5. All rentals and other charges due and payable under the Lease by
Tenant have been paid up to date. No rent under the Lease has been
or will be paid more than thirty (30) days in advance of its due
date.
6. Neither Tenant nor Landlord is now in default in the performance of
any of their respective obligations under the lease.
7. Tenant has not assigned its interest in the Lease, and Tenant has
received no notice of any assignment of the rents accruing under
the Lease.
8. Landlord is holding no security deposit.
<PAGE>
9. Tenant has an agreement to purchase the premises. A copy of which
has been previously provided the Bank by the landlord.
10. Tenant acknowledges that the Bank is relying upon this Estoppel
Certificate in making the Loan to Landlord.
11. Tenant further acknowledges that Tenant will not look to the Bank as
mortgagee, mortgagee in possession, or successor in title to the
Premises for the accountability for any future security deposit held
by Landlord, or any successor landlord, unless said sums have
actually been received by said mortgagee.
IN WITNESS WHEREOF, the party hereto intending to be legally bound hereby
has affixed hand and seal the 24th day of February, 1997.
TENANT: MARSAM PHARMACEUTICALS, INC.
BY: /s/ [Illegible]
- ------------------------ -----------------------------
Witness
/s/ Dale Desanto Witness
- ------------------------ --------------------------------
<PAGE>
SA_9315c
AGREEMENT OF SALE
MODIFICATION SUPERSEDING PRIOR AGREEMENT OF SALE
BETWEEN THE PARTIES DATED JANUARY 18, 1994
This Agreement made this 12th day of November, 1996 by and between CHERRY
HILL INDUSTRIAL SITES, INC., a New Jersey corporation, whose address is 1998
Springdale Road, Cherry Hill, NJ 08003 (hereinafter referred to as the
"Seller"), and MARSAM PHARMACEUTICALS INC., a Delaware corporation, whose
address is Building 31, Olney Avenue, Cherry Hill, New Jersey 08003 (hereinafter
referred to as the "Buyer").
W I T N E S S E T H:
In consideration of the mutual covenants herein contained, the parties,
intending to be legally bound, agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Seller hereby agrees to sell and convey to
Buyer, and Buyer agrees to purchase from Seller approximately 8.50 acres of land
and the building known as Building #l5 located on that certain premises
designated as Lot 1, Block 490.01 on the Tax Map of Cherry Hill Township) on the
Tax Map of the Township of Cherry Hill, County of Camden, State of New Jersey,
as more particularly described in Exhibit A attached hereto, together with all
right, title and interest and estate of Seller in and to the Premises, and the
tenements, hereditaments, appurtenances, and any right of ways and easements
appurtenant thereto; all right title and interest of Seller, if any, in and to
(i) the land lying in the bed of any street or highway in front of or adjoining
the Premises to the center line thereof, (ii) any unpaid award for any taking by
condemnation or any damage to the Premises by reason of a change of grade of any
street or highway, (iii) all improvements located on the Premises, and (iv) all
tangible and intangible rights and interests with respect to the Premises;
subject to the terms and conditions contained herein (the "Premises").
The descriptions attached hereto in Exhibit A have been prepared and
certified by the Seller's surveyor.
2. PURCHASE PRICE. The purchase price for the Premises is FIVE MILLION AND THREE
HUNDRED EIGHTEEN THOUSAND NINE HUNDRED AND NINETY DOLLARS AND ZERO CENTS
($5,318,990.00) ("Purchase Price"), which shall be payable as follows:
a. Buyer has deposited with Seller the sum of TWO HUNDRED FIFTY THOUSAND
and No/100 DOLLARS ($250,000.00) (the "Deposit"). Seller shall hold the DEPOSIT
in a separate interest-bearing account.
The Deposit shall be paid to and deposited in escrow with the Seller and
shall be held by the Seller in an interest bearing separate account. Except as
otherwise provided in this Agreement, the Deposit shall be (i) kept by Seller
until the second installment payment is made by buyer, as provided in this
agreement; (ii) paid to Buyer upon either a permitted termination of this
Agreement as provided herein or a default hereunder by Seller as provided in
this Agreement; or (iii) kept by Seller
<PAGE>
upon a failure hereunder by Buyer to pay the balance of the Purchase Price as
provided in Paragraph 2.b of this Agreement.
All interest accruing on the deposit shall be kept by the seller.
b. Closing shall take place at the office of Seller located at 1998
Springdale Road, Cherry Hill, New Jersey, 08003; or such other place as may be
designated by Seller, no sooner than October 1, 1999 but not later than October
6, 1999.
Buyer shall make a payment of FIVE MILLION AND THREE HUNDRED
EIGHTEEN THOUSAND NINE HUNDRED AND NINETY DOLLARS AND ZERO CENTS
($5,318,990.00) ("Purchase Price") less the deposit referrenced in paragraph 2a,
by cash, or wire transfer into Seller's account, or such other account as Seller
may designate.
The following adjustments and payments shall be made at Closing:
a. Real property taxes for the then current year relating to the Premises
shall be adjusted as of the date of Closing. If the Closing shall occur before
the tax rate is fixed, the apportionment of taxes shall be on the basis of the
tax rate for the immediately preceding year, applied to the latest assessed
valuation;
b. Any assessments levied on the property shall be paid by Buyer;
c. Buyer shall pay the New Jersey Realty Transfer Tax in connection with
the conveyance (which obligation shall survive Closing);
d. Mortgages, liens or judgments of record shall be paid or otherwise
satisfied by Seller in accordance with the terms of this Agreement; and
e. The parties shall each be solely responsible for the fees and expenses
of their respective counsel.
The Deposit shall be paid to and deposited in escrow with the Seller and
shall be held by the Seller in an interest bearing separate account. Except as
otherwise provided in this Agreement, the Deposit shall be (i) kept by Seller
until the second installment payment is made by buyer, as provided in this
agreement; (ii) paid to Buyer upon either a permitted termination of this
Agreement as provided herein or a default hereunder by Seller as provided in
this Agreement; or (iii) kept by Seller upon a failure hereunder by Buyer to pay
the balance of the Purchase Price as provided in Paragraph 2.b of this
Agreement.
<PAGE>
3. TITLE TO PREMISES. At Closing, Seller shall convey to Buyer, by special
warranty deed, good and marketable title of record in fee simple to the
Premises. All costs related to closing shall be paid by Buyer. Such costs shall
be deemed to include real property taxes, real estate transfer taxes, sewer
charges and other municipal and local taxes, assessments and levies upon the
property which are required by the title company or Buyer's lender to be paid.
The Buyer shall be required to accept at closing those restrictions of
record that may appear on the title report to be issued by Continental Title
Insurance Company, 8000 Sagemore Drive, Suite 8202, Marlton, NJ 08053 (Required
Encumbrances). Buyer further agrees that it will execute the easements, attached
hereto as Exhibits B and C, relating to the private road system in the
industrial center in which building #31 and this premises are situated. Buyer
acknowledges that the documents will be recorded along with the deed.
The Seller represents and warrants to the Buyer that it presently has
marketable title in fee simple to the premises subject only to those exceptions
listed in the title report, to be provided. The Seller further warrants that it
will not cause or permit any adverse changes in its title to the premises at any
time prior to the Closing of Title. If the title report requires actions or
payments by the Seller in order to preserve Seller's title, the Seller will
promptly make all of said payments and will promptly perform all of said acts
without permitting any default.
If at the Closing Date there may be any mortgages, liens or encumbrances
which Seller is obligated to pay and discharge, Seller may use all or any
portion of the Purchase Price payable at the Closing to satisfy the same,
provided (i) Seller shall simultaneously deliver instruments in recordable form
and sufficient to satisfy such mortgages, liens and encumbrances of record
together with the cost of recording or filing said instruments which the title
company employed by Buyer shall approve in order to omit such mortgages, liens
and encumbrances from Buyer's title insurance commitment; or (ii) Seller shall
have made arrangements with the title company employed by Buyer in advance of
Closing, which are acceptable to and required by it, to insure the obtaining and
recording of such satisfactions and the issuance of title insurance to Buyer
free of any such liens and encumbrances.
4. COMPLIANCE WITH ECRA. Buyer shall have the obligation of affirmatively
complying with all of the requirements of the New Jersey Environmental Cleanup
Responsibility Act, N.J.S.A. 13:1K-6 et seq ("ECRA"), or, in the alternative, to
obtain a letter of non-applicability stating that the transaction contained in
the agreement of sale is not a transaction which triggers the application of
ECRA.
In the event that the sale of the property requires that the property be
reviewed pursuant to ECRA, then Buyer shall notify the New Jersey Department of
Environmental Protection ("NJDEP") and submit all necessary forms and fees in a
timely manner so that closing is not delayed beyond the time designated in the
agreement.
Buyer shall indemnify, defend and hold Seller harmless from
<PAGE>
and against all claims, liabilities, losses, damages and costs, foreseen and
unforeseen, including, without limitation, counsel, engineering and other
professional expert fees, which Seller may incur by reason of Buyer's action or
non-action with regard to Buyer's obligation under this paragraph. This
paragraph shall survive closing of title.
5. BUYER'S REPRESENTATIONS. Buyer represents and warrants to Seller that:
a. Buyer has the legal right, power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby, and the
execution, delivery and performance of this Agreement have been duly authorized
and no other action by Buyer is requisite to the valid and binding execution,
delivery and performance of this Agreement;
b. The execution and performance of this Agreement shall not be a breach
or violation of any Agreement to which the Buyer is a party.
c. Buyer is acquiring the Property in reliance upon its own investigations
as well as Seller's warranties and representations set forth herein. The Buyer
is not relying upon any oral representations of the Seller that are not
otherwise set forth in writing herein.
6. SELLER'S REPRESENTATIONS. Seller represents and warrants to Buyer that:
a. Seller has the legal right, power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby;
b. The Seller has not entered into any other Agreement for the sale of the
Premises nor does any person or entity other than Buyer have any right or option
to acquire the Premises.
c. Seller has not received written notice, and Seller is not aware, of
pending or contemplated condemnation proceedings affecting the Premises or any
part thereof as of the date of this Agreement, and, if Seller receives any such
written notice or such information prior to Closing, Seller agrees to provide
Buyer with such information, including a copy of any written notice.
d. Seller has not received written notice, and Seller is not aware, of any
default or breach under any covenant, condition, restriction, right-of-way or
easement affecting the Premises, or any portion thereof as of the date of this
Agreement, and, if Seller receives any such written notice or such information
prior to Closing, Seller agrees to provide Buyer with such information,
including a copy of any written notice.
e. Seller is a corporation of the State of New Jersey in good standing.
f. Seller has not received any written notice, and Seller is not aware, of
existing violations of any Federal, State, County, municipal or local laws,
ordinances, orders, regulations or requirements affecting the Premises as of the
date of this Agreement, and, if Seller receives any such written notice or such
information prior to Closing, Seller agrees to provide Buyer with such
information, including a copy of any written notice.
g. Seller has not received any written notice from the holder(s) of any
mortgages upon the Premises, any insurance company which has issued a policy
with respect to the Premises,
<PAGE>
or any board of fire underwriters (or other body of similar functions) claiming
any default in Seller's performance under said documents and, if Seller receives
any such written notice prior to Closing, Seller agrees to provide Buyer with a
copy thereof.
h. Seller has received no written notice, and Seller is not aware, of any
litigation or administrative or governmental proceeding pending or threatened
against or relating to the title to the Premises or which would materially
adversely affect Buyer's purchase, ownership, operation of, construction and
development of the Premises as of the date of this Agreement, and, Seller shall
give to Buyer prompt notice of the institution of any such litigation or
proceeding prior to the Closing of which Seller receives written notice or of
which Seller becomes aware, and Seller agrees to provide Buyer with such
information including a copy of any written notice.
7. CONDITION OF THE PREMISES. Buyer acknowledges and agrees that, other than is
expressly set forth elsewhere in this Agreement, Seller has made no
representations or warranties regarding the Premises, including, without
limitation, its condition, its past use, or its suitability for Buyer's intended
use thereof, and that Buyer is acquiring the Premises on an "AS IS" basis.
8. ASSIGNABILITY. The Buyer may not assign its rights and duties under this
Contract.
9. NOTICE. All notices, requests, consents, approvals or other communications
under this Agreement shall be in writing and mailed by U.S. Registered or
Certified mail.
10. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the
parties. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, legal representatives, successors
and/or assigns.
11. AMENDMENT AND WAIVER. Any provisions of this Agreement may be amended or
waived, but only if such amendment or waiver is in writing and is signed by all
parties to this Agreement.
12. APPLICABLE LAW. This Agreement and the rights of the parties hereunder shall
be construed in accordance with and governed by the laws of the State of New
Jersey.
13. SEVERABILITY. In the event any one or more provisions of this Agreement
shall be determined to be void or unenforceable by a court of competent
jurisdiction or by law, such determination will not render this Agreement
invalid or unenforceable and the remaining provisions hereof shall remain in
full force and effect.
14. Said premises are sold and conveyed subject to the following:
(a) any state of facts an accurate survey or physical inspection may show
provided same does not render title
<PAGE>
unmarketable; (b) covenants, restrictions, easements, reservations,
consents and agreements of record, if any, provided same are not violated
by the existing structure and present use thereof and/or render title
unmarketable; (c) rights, if any, acquired by the utility company to
maintain and operate lines, wires, cables, poles, etc., in, over, and upon
said premises; (d) street widenings, existing or proposed, if any,
provided same do not encroach on existing buildings or violate their
present use; (e) the violations of any covenant or restriction shall not
be deemed an objection to title provided the title company insuring title
shall agree to insure that such improvements may remain in their present
location as long as same shall stand.
15. Seller and Buyer each warrants and represents to the other that it has
dealt with no broker which would result in a commission or other
compensation being due with respect to the sale of the premises and Seller
and Buyer each agree to indemnify and hold the other harmless with respect
to any judgment, damages, legal fees, court costs and any liabilities of
any nature whatsoever arising from breach of its representation.
16. All prior understandings and agreements between Seller and Buyer are
merged into this agreement. It completely expresses their full agreement.
It has been entered into after full investigation, neither party relying
upon any statements made by anyone else that are not set forth in this
agreement.
17. If Seller is unable to transfer title to Buyer in accordance with this
agreement, Seller's sole liability shall be to refund all money paid on
account of this agreement, plus all charges made for (i) examining the
title; (ii) any appropriate additional searches made in accordance with
this agreement, and (iii) survey and survey inspection charges. Upon such
refund and payment this agreement shall be considered concelled, and
neither Seller nor Buyer shall have any further rights against the other.
18. The parties agree, subject to those contingencies and conditions to
closing contained herein, that in the event Buyer fails to comply with any
of the terms of this Agreement and closing does not take place on the
Closing date as set forth in this Agreement, then the damage which Seller
will sustain as a result thereof will be substantial but will be
difficult, if not impossible, to ascertain.
The parties therefore agree that in such event Seller's sole and
exclusive remedy shall be to terminate this Agreement, in which event all
obligations hereunder shall be deemed null and void, and to retain the
Deposit as liquidated damages, to recompense Seller for time spent, labor
and services performed, and loss of the benefit of its bargain.
19. Except as is otherwise specifically provided, no
<PAGE>
representations or warranties by Seller shall survive the passage of the
deed.
20. Closing proceeds will be paid by certified or bank check or draft. Third
party endorsed checks, whether certified or bank checks, and uncertified
funding company, mortgage broker, attorney or private mortgage company
checks or drafts shall not be deemed to be acceptable funds hereunder.
21. In any construction of the terms of this agreement, none of its terms
shall be construed against the Sellers or their attorney by reason of the
fact that the Sellers or their attorney drew the agreement since the final
terms of this agreement are the result of negotiations by parties having
equal bargaining power, with each of the parties having full access to
legal representation.
22. Buyers, at least ten (10) days before the date scheduled for closing,
shall furnish Seller's attorney with any objections to title which may
have been returned by the title company or anyone examining title to the
premises, and if it appears from such objections or exceptions, that time
will be required within which to remove the same, then and in that event,
Sellers shall have reasonable adjournment or adjournments, from time to
time, within which to clear such objections or exceptions.
23. This agreement shall be considered only an offer on the part of the Buyers
and shall not be enforceable as against the Seller until executed by the
Seller.
IN WITNESS WHEREOF, the parties hereto have duly executed this Rider
on the day and year written below.
CHERRY HILL INDUSTRIAL SITES, INC.
A New Jersey Corporation
ATTEST:
/s/ [Illegible] By /s/ Paul Heise
- -------------------------- ------------------------------
Secretary Paul Heise, President
MARSAM PHARMACEUTICALS
A Delaware Corporation
ATTEST:
/s/ [Illegible] By /s/ Marvin Samson
- -------------------------- ------------------------------
Secretary Marvin Samson, President
Date: 11-12-96
<PAGE>
[DIAGRAM]
THIS CERTIFICATION IS MADE ONLY TO ABOVE NAMED PARTIES FOR PURCHASE AND/OR
MORTGAGE TO HEREIN DELINEATED PROPERTY BY ABOVE NAMED PURCHASER. NO
RESPONSIBILITY OR LIABILITY IS ASSUMED BY SURVEYOR FOR USE OF SURVEY FOR ANY
OTHER PURPOSE INCLUDING, BUT NOT LIMITED TO, USE OF SURVEY FOR SURVEY AFFIDAVIT,
RELEASE OF PROPERTY, OR TO ANY OTHER PERSON NOT LISTED IN CERTIFICATION, EITHER
DIRECTLY OR INDIRECTLY. TO: ANY INSUROR OF TITLE RELYING HEREON AND ANY OTHER
PARTY IN INTEREST IN CONSIDERATION OF THE FEE PAID FOR MAKING THIS SURVEY, I
HEREBY CERTIFY TO ITS ACCURACY (EXCEPT SUCH EASEMENTS, IF ANY, THAT MAY BE
LOCATED BELOW THE SURFACE OF THE LANDS OR ON THE SRUFACE OF THE LANDS AND NOT
VISIBLE) AS AN INDUCEMENT FOR ANY INSUROR OF TITLE TO INSURE THE TITLE TO THE
LANDS AND PREMISES SHOWN THEREON. THIS RESPONSIBILITY LIMITED TO THE CURRENT
MATTER AS OF THE DATE OF THIS SURVEY."
/s/ Edward S. McConnell
---------------------------
EDWARD S. MCCONNELL
LICENSED SURVEYOR
NJ 17432
PA 17413
- --------------------------------------------------------------------------------
PLAN OF SURVEY
- --------------------------------------------------------------------------------
Building 15
Cherry Hill Industrial Sites
Cherry Hill Township
Camden County, NJ
- --------------------------------------------------------------------------------
EDWARD S. MCCONNELL ASSOC.
- --------------------------------------------------------------------------------
LAND SURVEYING & LAND PLANNING
P.O. Box 2202 Cherry Hill, N.J. 08034 (609) 482-0662
3119 Bayland Dr. Ocean City, N.J. 08226 (609) 398-8280
- --------------------------------------------------------------------------------
PROJECT NUMBER DW'N. BY C K'D. BY
- --------------------------------------------------------------------------------
102-57-93 [ILLEGIBLE] DAVID
- --------------------------------------------------------------------------------
SCALE DATE
1" = 100' NOVEMBER 22, 1993
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.13 Cover
SCHEIN HOLDINGS, INC.
1993 STOCK OPTION PLAN
(formerly the Schein Pharmaceutical, Inc.
1993 Stock Option Plan)
As of November 5, 1993
<PAGE>
EXHIBIT 10.13 TOC
Table of Contents
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Purposes of the Plan................................................................. 1
2 Definitions.......................................................................... 1
3. Effective Date/Expiration of Plan.................................................... 3
4. Administration....................................................................... 3
(a) Duties of the Committee......................................................... 3
(b) Advisors........................................................................ 4
(c) Indemnification................................................................. 4
(d) Meetings of the Committee....................................................... 4
5. Shares; Adjustment Upon Certain Events............................................... 5
(a) Shares to be Delivered; Fractional Shares....................................... 5
(b) Number of Shares................................................................ 5
(c) Adjustments; Recapitalization, etc.............................................. 5
6. Awards and Terms of Options.......................................................... 7
(a) Grant........................................................................... 7
(b) Exercise Price.................................................................. 7
(c) Number of Shares................................................................ 7
(d) Exercisability.................................................................. 7
(e) Special Rule for Incentive Options.............................................. 7
(f) Acceleration of Exercisability Upon Change of Control........................... 8
(g) Exercise of Options............................................................. 10
7. Effect of Termination of Employment.................................................. 11
(a) Death, Disability, Retirement, etc.............................................. 11
(b) Cause........................................................................... 11
(c) Other Termination............................................................... 11
8. Nontransferability of Options........................................................ 12
9. Rights as a Stockholder.............................................................. 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
10. Determinations....................................................................... 12
11. Termination, Amendment and Modification.............................................. 12
12. Non-Exclusivity...................................................................... 13
13. Use of Proceeds...................................................................... 13
14. General Provisions................................................................... 13
(a) Right to Terminate Employment................................................... 13
(b) Purchase for Investment......................................................... 13
(c) Trusts, etc..................................................................... 14
(d) Notices......................................................................... 14
(e) Severability of Provisions...................................................... 14
(f) Payment to Minors, Etc.......................................................... 14
(g) Headings and Captions........................................................... 15
(h) Controlling Law................................................................. 15
15. Issuance of Stock Certificates;
Legends; Payment of Expenses......................................................... 15
(a) Stock Certificates.............................................................. 15
(b) Legends......................................................................... 15
(c) Payment of Expenses............................................................. 15
16. Listing of Shares and Related Matters................................................ 15
I7. Withholding Taxes.................................................................... 16
</TABLE>
ii
<PAGE>
EXHIBIT 10.13
SCHEIN HOLDINGS, INC.
1993 STOCK OPTION PLAN
1. Purposes of the Plan
--------------------
The purposes of this Schein Holdings, Inc. 1993 Stock Option Plan
(formerly the Schein Pharmaceutical, Inc. 1993 Stock Option Plan) (the "Plan")
are to enable Schein Holdings, Inc. ("Holdings") and its Subsidiaries (as
defined herein) to attract, retain and motivate the employees who are important
to the success and growth of the business of Holdings and to enhance the
long-term mutuality of interest between the Key Employees (as defined herein)
and the stockholders of Holdings by granting the Key Employees options (which
may be either Incentive Stock Options (as defined herein) or non-qualified stock
options) to purchase Holdings' Common Stock (as defined herein).
2. Definitions
-----------
(a) "Act" means the Securities Exchange Act of 1934.
(b) "Board" means the Board of Directors of Holdings.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means such committee, if any, appointed by the Board
to administer the Plan, consisting of one or more directors as may be appointed
from time to time by the Board. If the Board does not appoint a committee for
this purpose, "Committee" means the Board.
(e) "Common Stock" means the common stock of Holdings, par value $0.01
per share, any Common Stock into which the Common Stock may be converted and any
Common Stock resulting from any reclassification of the Common Stock.
(f) "Company" means Holdings, and any of its Subsidiaries whose
employees are Participants in the Plan.
(g) "Disability" means a permanent and total disability, as determined
by the Committee in its sole discretion. A Disability shall be deemed to occur
at the time of the determination by the Committee of the Disability.
(h) "Equity Investor Transaction" means a transaction (or series of
transactions) resulting in the stockholders (or beneficiaries of any such
stockholders which
<PAGE>
are trusts) of the Company receiving after November 1, 1993 and prior to
December 31, 1994 not less than $200 million in the aggregate in respect of the
disposition of shares of Holdings, by cash, dividend or otherwise.
(i) "Fair Market Value" means the value of a Share (as defined herein)
on a particular date, determined as follows:
(i) if the Common Stock is listed or admitted to trading on
such date on a national securities exchange or quoted through the National
Association of Securities Dealers' Automated Quotation ("NASDAQ") National
Market System, the closing sale price of a Share as reported on the
relevant composite transaction tape, if applicable, or on the principal
such exchange (determined by trading value in the Common Stock) or through
the National Market System, as the case may be, on such date, or in the
absence of reported sales on such date, the mean between the highest
reported bid and lowest reported asked prices reported on such composite
transaction tape or exchange or through the National Market System, as the
case may be, on such date; or
(ii) if the Common Stock is not listed or quoted as described
in the preceding clause, but bid and asked prices are quoted through
NASDAQ, the mean between the highest reported bid and lowest reported asked
prices as quoted through NASDAQ on such date; or
(iii) if the Common Stock is not listed or quoted on a national
securities exchange or through NASDAQ or, if pursuant to (i) and (ii) above
the Fair Market Value is to be determined based upon the mean of the
highest reported bid and lowest reported asked prices and the Committee
determines that such mean does not properly reflect the Fair Market Value,
by such other method as the Committee determines to be reasonable and
consistent with applicable law; or
(iv) if the Common Stock is not publicly traded, such amount as
is set by the Committee in good faith.
(j) "Incentive Stock Option" means any Option intended to qualify as
an "incentive stock option", as defined in Section 422 of the Code.
(k) "Key Employee" means any person who is an executive officer or
other valuable employee of the Company, as determined by the Committee,
including those individuals described in Section 5(c)(iv). A Key Employee may,
but need not, be an officer or director of the Company.
(l) "Option" means the right to purchase one Share at a prescribed
purchase price on the terms specified in the Plan. An Option may be an
Incentive Stock Option or a non-qualified option.
2
<PAGE>
(m) "Participant" means a Key Employee of the Company who is granted
Options under the Plan.
(n) "Share" means a share of Common Stock.
(o) "Subsidiary" means any corporation more than 50% of the voting
stock of which is directly or indirectly beneficially owned by Holdings. An
entity shall be deemed a Subsidiary of Holdings only for such periods as the
requisite ownership relationship is maintained.
(p) "Substantial Stockholder" means any Participant who at the time of
grant owns directly or is deemed to own by reason of the attribution rules set
forth in Section 424(d) of the Code Shares possessing more than 10% of the total
combined voting power of all classes of stock of Holdings.
(q) "Termination of Employment" with respect to an individual means
that individual is no longer an employee of Holdings or any of its Subsidiaries.
In the event an entity shall cease to be a Subsidiary of Holdings, there
shall be deemed a Termination of Employment of any individual who is not
otherwise an employee of Holdings or another Subsidiary of Holdings at the time
the entity ceases to be a Subsidiary. A Termination of Employment shall not
include a leave of absence approved for purposes of the Plan by the Committee.
3. Effective Date/Expiration of Plan
---------------------------------
The Plan became effective upon its adoption by the Board of Directors
of Schein Pharmaceutical, Inc., a subsidiary of Holdings ("SPINC"), and approval
by the stockholders of SPINC (the "Effective Date"), and was assumed by
Holdings, a holding company owning all of the capital stock of SPINC at the
time the Plan was assumed and conducting no business other than through SPINC
and its subsidiaries. Grants of Options under the Plan were made after adoption
of the Plan by the Board and from time to time may be made, subject to
stockholder approval to the extent required by law. Contemporaneously with the
assumption of the Plan by Holdings, Options previously granted under the Plan
were automatically converted into Options to purchase Shares of Common Stock of
Holdings. No Option shall be granted under the Plan on or after the tenth
anniversary of the Effective Date (the "Termination Date"), but Options granted
prior to the Termination Date may be exercised after the Termination Date.
4. Administration
--------------
(a) Duties of the Committee. The Plan shall be administered by the
-----------------------
Committee. The Committee shall have full authority to interpret the Plan and to
decide any questions and settle all controversies and disputes that may arise in
connection with
3
<PAGE>
the Plan; to establish, amend and rescind rules for carrying out the Plan; to
administer the Plan, subject to its provisions; to select Participants in, and
grant Options under, the Plan; to determine the terms, exercise price and form
of exercise payment for each Option granted under the Plan; to determine which
Options granted under the Plan shall be Incentive Stock Options; to prescribe
the form or forms of instruments evidencing Options and any other instruments
required under the Plan (which need not be uniform) and to change such forms
from time to time; and to make all other determinations and to take all such
steps in connection with the Plan and the Options as the Committee, in its sole
discretion, deems necessary or desirable. The Committee shall not be bound to
any standards of uniformity or similarity of action, interpretation or conduct
in the discharge of its duties hereunder, regardless of the apparent similarity
of the matters coming before it. Any determination, action or conclusion of the
Committee shall be final, conclusive and binding on all parties.
(b) Advisors. The Committee may designate the Secretary of Holdings,
--------
other employees of the Company or competent professional advisors to assist the
Committee in the administration of the Plan, and may grant authority to such
persons to execute Option Agreements (as defined herein) or other documents on
behalf of the Committee. The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the administration of the
Plan, and may rely upon any opinion received from any such counsel or consultant
and any computation received from any such consultant or agent. Expenses
incurred by the Committee in the engagement of such counsel, consultant or agent
shall be paid by the Company.
(c) Indemnification. No officer of Holdings or SPINC or member or
---------------
former member of the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any Option granted under it. To
the maximum extent permitted by applicable law or the charter or by-laws of
Holdings or SPINC and to the extent not covered by Holdings' or SPINC's
insurance, each officer and member or former member of the Committee or of the
Board shall be indemnified and held harmless by Holdings against any cost or
expense (including reasonable fees of counsel reasonably acceptable to Holdings)
or liability (including any sum paid in settlement of a claim with the approval
of Holdings), and advanced amounts necessary to pay the foregoing at the
earliest time and to the fullest extent permitted, arising out of any act or
omission to act in connection with the Plan, except to the extent arising out of
such officer's, member's or former member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification the
officers, members or former members may have as directors under applicable law
or under the charter or by-laws of Holdings or any Subsidiary of Holdings.
(d) Meetings of the Committee. The Committee shall select one of its
-------------------------
members as a Chairman and shall adopt such rules and regulations as it shall
deem appropriate concerning the holding of its meetings and the transaction of
its business. Any member of the Committee may be removed at any time either
with or without cause by resolution adopted by the Board, and any vacancy on the
Committee may at any time
4
<PAGE>
be filled by resolution adopted by the Board. All determinations by the
Committee shall be made by the affirmative vote of a majority of its members.
Any such determination may be made at a meeting duly called and held at which a
majority of the members of the Committee are in attendance in person or through
telephonic communication. Any determination set forth in writing and signed by
all the members of the Committee shall be as fully effective as if it had been
made by a majority vote of the members at a meeting duly called and held.
5. Shares; Adjustment Upon Certain Events
--------------------------------------
(a) Shares to be Delivered; Fractional Shares. Shares to be issued
-----------------------------------------
under the Plan shall be made available, at the discretion of the Board, either
from authorized but unissued Shares or from issued Shares reacquired by Holdings
and held in treasury. No fractional Shares will be issued or transferred upon
the exercise of any Option. In lieu thereof, Holdings shall pay a cash
adjustment equal to the same fraction of the Fair Market Value of one Share on
the date of exercise.
(b) Number of Shares. Subject to adjustment as provided in this
----------------
Section 5, the maximum aggregate number of Shares that may be issued under the
Plan shall be [27,400]. If Options are for any reason canceled, or expire or
terminate unexercised, the Shares covered by such Options shall again be
available for the grant of Options, subject to the foregoing limit.
(c) Adjustments; Recapitalization, etc. The existence of the Plan and
----------------------------------
the Options granted hereunder shall not affect in any way the right or power of
the Board or the stockholders of Holdings to make or authorize any adjustment,
recapitalization, reorganization or other change in Holdings' capital structure
or its business, any merger or consolidation of Holdings, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or affecting Common
Stock, the dissolution or liquidation of Holdings or any of its Subsidiaries,
any sale or transfer of all or part of its assets or business or any other
corporate act or proceeding. If and whenever Holdings takes any such action,
however, the following provisions, to the extent applicable, shall govern:
(i) If and whenever Holdings shall effect a stock split, stock
dividend, subdivision, recapitalization or combination of Shares or other
changes in Holdings' capital stock, (x) the Purchase Price (as defined
herein) per Share and the number and class of Shares and/or other
securities with respect to which outstanding Options thereafter may be
exercised, and (y) the total number and class of Shares and/or other
securities that may be issued under this Plan shall be proportionately
adjusted by the Committee. The Committee may also make such other
adjustments as it deems necessary to take into consideration any other
event (including, without limitation, accounting changes), if the Committee
determines that such adjustment is appropriate to avoid distortion in the
operation of the Plan.
5
<PAGE>
(ii) Subject to Section 5(c)(iii), if Holdings merges or
consolidates with one or more corporations, then from and after the
effective date of such merger or consolidation, upon exercise of Options
theretofore granted, the Participant shall be entitled to purchase under
such Options, in lieu of the number of Shares as to which such Options
shall then be exercisable but on the same terms and conditions of exercise
set forth in such Options, the number and class of Shares and/or other
securities or property (including cash) to which the Participant would have
been entitled pursuant to the terms of the agreement of merger or
consolidation, if, immediately prior to such merger or consolidation, the
Participant had been the holder of record of the total number of Shares
receivable upon exercise of such Options (whether or not then exercisable).
(iii) In the event of a merger or consolidation in which
Holdings is not the surviving entity or in the event of any transaction
that results in the acquisition of substantially all of Holdings'
outstanding Common Stock by a single person or entity or by a group of
persons and/or entities acting in concert, or in the event of the sale or
transfer of all Holdings' assets (the foregoing being referred to as
"Acquisition Events"), then the Committee may in its discretion terminate
all outstanding Options as of the consummation of the Acquisition Event by
delivering notice of termination to each Participant at least 20 days prior
to the date of consummation of the Acquisition Event; provided that, during
the period from the date on which such notice of termination is delivered
to the consummation of the Acquisition Event, each Participant shall have
the right to exercise in full all the Options that are then outstanding
(without regard to limitations on exercise otherwise contained in the
Options). If an Acquisition Event occurs and the Committee does not
terminate the outstanding Options pursuant to the preceding sentence, then
the provisions of Section 5(c)(ii) shall apply.
(iv) Subject to Section 5(b), the Committee may grant Options
under the Plan in substitution for options held by employees of another
corporation who concurrently become employees of the Company as the result
of a merger or consolidation of the employing corporation with the Company,
or as the result of the acquisition by the Company of property or stock of
the employing corporation. The Company may direct that substitute awards
be granted on such terms and conditions as the Committee considers
appropriate in the circumstances.
(v) If, as a result of any adjustment made pursuant to the
preceding paragraphs of this Section 5, any Participant shall become
entitled upon exercise of an Option to receive any securities other than
Common Stock, then the number and class of securities so receivable
thereafter shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect
to the Common Stock set forth in this Section 5, as determined by the
Committee in its discretion.
6
<PAGE>
(vi) Except as hereinbefore expressly provided, the issuance by
Holdings of shares of stock of any class, or securities convertible into
shares of stock of any class, for cash, property, labor or services, upon
direct sale, upon the exercise of rights or warrants to subscribe therefor
or upon conversion of shares or other securities, and in any case
whether or not for fair value, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number and class of
shares and/or other securities or property subject to Options theretofore
granted or the Purchase Price.
6. Awards and Terms of Options
---------------------------
(a) Grant. The Committee may grant Options, including Options intended
-----
to be Incentive Stock Options, to Key Employees of the Company. Each Option
shall be evidenced by an Option agreement (the "Option Agreement") in such form
as the Committee shall approve from time to time.
(b) Exercise Price. The purchase price per Share (the "Purchase
--------------
Price") deliverable upon the exercise of an Option shall be determined by the
Committee, subject to the following: (i) the Purchase Price shall not be less
than the par value of a Share and (ii) in the case of Incentive Stock Options,
the Purchase Price shall not be less than 100% (110% for an Incentive Stock
Option granted to a Substantial Stockholder) of the Fair Market Value per share
on the date the Incentive Stock Option is granted.
(c) Number of Shares. The Option Agreement shall specify the number of
----------------
Options granted to the Participant, as determined by the Committee in its sole
discretion.
(d) Exercisability. At the time of grant, the Committee shall specify
--------------
when and on what terms the Options granted shall be exercisable. In the case of
Options not immediately exercisable in full, the Committee may at any time
accelerate the time at which all or any part of the Options may be exercised and
may waive any other conditions to exercise, subject to the terms of the Option
Agreement and the Plan. No Option shall be exercisable after the expiration of
ten years from the date of grant (five years, in the case of an Incentive Stock
Option granted to a Substantial Stockholder). Each Option shall be subject to
earlier termination as provided in Section 7 below. Anything herein to the
contrary notwithstanding, no Option shall be exercised until after the
occurrence of an Equity Investor Transaction and all Options shall terminate if
an Equity Investor Transaction shall not occur.
(e) Special Rule for Incentive Options. If required by Section 422 of
----------------------------------
the Code, to the extent the aggregate Fair Market Value of the Shares with
respect to which Incentive Stock Options are exercisable for the first time by
the Participant during any calendar year (under all plans of his or her employer
corporation and its parent and subsidiary corporations) exceeds $100,000, such
Options shall not be treated as Incentive Stock Options. Nothing in this
special rule shall be construed as limiting the
7
<PAGE>
exercisability of any Option, unless the Committee expressly provides for
such a limitation at time of grant.
(f) Acceleration of Exercisability Upon Change of Control. All Options
-----------------------------------------------------
granted and not previously exercisable shall become fully exercisable
immediately upon a Change of Control (as defined herein), if a Change of Control
occurs subsequent to an initial public offering of the Common Stock of Holdings,
or immediately upon a Termination of Employment of the Participant by the
Company without Cause (as defined herein), if the Termination of Employment
occurs subsequent to a Change of Control (without regard to whether an IPO has
therefore occurred). For this purpose, a "Change of Control" shall be deemed to
have occurred upon:
(i) an acquisition directly or indirectly by any individual,
entity or group (within the meaning of Section 13d-3 or 14d-1 of the Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Act) of more than 50% of the combined voting power of
the then outstanding voting securities of Holdings entitled to vote
generally in the election of directors (the "Outstanding Holdings Voting
Securities"); excluding, however, the following: (x) any acquisition by the
Company, (y) any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company or (z) any acquisition by any
corporation pursuant to a reorganization, merger, consolidation or similar
corporate transaction (in each case, a "Corporate Transaction"), if,
pursuant to such Corporate Transaction, the conditions described in clauses
(A), (B) and (C) of paragraph (iii) of this Section 6(f) are satisfied; or
(ii) a change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the Board (the Board
as of the Effective Date shall be hereinafter referred to as the "Incumbent
Board") cease for any reason to constitute at least a majority of the Board;
provided that, for purposes of this Subsection, any individual who becomes a
member of the Board subsequent, to the Effective Date and whose election, or
nomination for election by the Holdings stockholders, was approved by the
members of the Board who also are members of the Incumbent Board (or so
deemed to be pursuant to this proviso) shall be deemed a member of the
Incumbent Board; but, provided further, that any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board shall not be so deemed a member of the Incumbent Board; or
(iii) the approval by the stockholders of Holdings of a
Corporate Transaction or, if consummation of such Corporate Transaction is
subject, at the time of such approval by stockholders, to the consent of any
government or governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation); excluding, however, such a
Corporate Transaction pursuant to
8
<PAGE>
which (A) the beneficial owners (or beneficiaries of the beneficial owners) of
the outstanding Shares and Outstanding Holdings Voting Securities immediately
prior to such Corporate Transaction will beneficially own, directly or
indirectly, more than 60% of, respectively, the outstanding shares of common
stock of the corporation resulting from such Corporate Transaction and the
combined voting power of the outstanding voting securities of such corporation
entitled to vote generally in the election of directors, in substantially the
same proportions as their ownership, immediately prior to such Corporate
Transaction, of the outstanding Shares and Outstanding Holdings Voting
Securities, as the case may be, (B) no Person (other than the Company, any
employee benefit plan (or related trust) of the Company or the corporation
resulting from such Corporate Transaction and any Person beneficially owning,
immediately prior to such Corporate Transaction, directly or indirectly, 20% or
more of the outstanding Shares or Outstanding Holdings Voting Securities, as the
case may be) will beneficially own, directly or indirectly, 20% or more of,
respectively, the outstanding shares of common stock of the corporation
resulting from such Corporate Transaction or the combined voting power of the
then outstanding securities of such corporation entitled to vote generally in
the election of directors and (C) individuals who were members of the Incumbent
Board will constitute at least a majority of the members of the board of
directors of the corporation resulting from such Corporate Transaction; or
(iv) the approval of the stockholders of Holdings of (A) a complete
liquidation or dissolution of Holdings or (B) the sale or other disposition of
all or substantially all the assets of Holdings; excluding, however, such a sale
or other disposition to a corporation with respect to which, following such sale
or other disposition, (x) more than 60% of the then outstanding shares of common
stock of such corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the election
of directors will be then beneficially owned, directly or indirectly, by the
individuals and entities who were the beneficial owners (or beneficiaries of
the beneficial owners), respectively, of the outstanding Shares and Outstanding
Holdings Voting Securities immediately prior to such sale or other disposition
in substantially the same proportion as their ownership, immediately prior to
such sale or other disposition, of the outstanding Shares and Outstanding
Holdings Voting Securities, as the case may be, (y) no Person (other than the
Company and any employee benefit plan (or related trust) of the Company or such
corporation and any Person beneficially owning, immediately prior to such sale
or other disposition, directly or indirectly, 20% or more of the outstanding
Shares or Outstanding Holdings Voting Securities, as the case may be) will
beneficially own, directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (z) individuals who were members
of the Incumbent Board will constitute at least a majority of the members of the
board of directors of such corporation.
9
<PAGE>
(g) Exercise of Options.
-------------------
(i) A Participant may elect to exercise one or more Options by
giving written notice to the Committee of such election and of the number of
Options such Participant has elected to exercise, accompanied by payment in
full of the aggregate Purchase Price for the number of Shares for which the
Options are being exercised.
(ii) Shares purchased pursuant to the exercise of Options shall be
paid for at the time of exercise as follows:
(A) in cash or by check, bank draft or money order payable
to the order of Holdings;
(B) if so permitted by the Committee: (I) through the
delivery of unencumbered Shares (including Shares being acquired pursuant
to the Options then being exercised), provided such Shares (or such
Options) have been owned by the Participant for such period as may be
required by applicable accounting standards to avoid a charge to earnings,
(II) through a combination of Shares and cash as provided above, (III) by
delivery of a promissory note of the Participant to Holdings, such
promissory note to be payable, in the case of an Incentive Stock Option, on
such terms as are specified in the Option Agreement (except that, in lieu
of a stated rate of interest, the Option Agreement may provide that the
rate of interest on the promissory note will be such rate as is sufficient,
at the time the note is given, to avoid the imputation of interest under
the applicable provisions of the Code), or (IV) by a combination of cash
(or cash and Shares) and the Participant's promissory note; provided, that,
if the Shares delivered upon exercise of the Option is an original issue of
authorized Shares, at least so much of the exercise price as represents the
par value of such Shares shall be paid in cash or by a combination of cash
and Shares;
(C) through the delivery of irrevocable instructions to a
broker to deliver promptly to Holdings an amount equal to the aggregate
Purchase Price; or
(D) on such other terms and conditions as may be acceptable
to the Committee and in accordance with applicable law.
(iii) Upon receipt of payment, Holdings shall deliver to the
Participant as soon as practicable a certificate or certificates for the Shares
then purchased.
10
<PAGE>
7. Effect of Termination of Employment
-----------------------------------
(a) Death, Disability, Retirement, etc. Except as otherwise provided
-----------------------------------
in the Participant's Option Agreement, upon Termination of Employment, all
outstanding Options then exercisable and not exercised by the Participant prior
to such Termination of Employment (and any Options not previously exercisable
but made exercisable by the Committee at or after the Termination of Employment)
shall remain exercisable by the Participant to the extent not exercised for the
following time periods (subject to Section 6(d)):
(i) In the event of the Participant's death, such Options shall
remain exercisable (by the Participant's estate or by the person given
authority to exercise such Options by the Participant's will or by
operation of law) for a period of one year from the date of the
Participant's death, provided that the Committee, in its discretion, may at
any time extend such time period to up to three years from the date of the
Participant's death.
(ii) In the event of the Participant's Disability, or the
Participant retires at or after age 65 (or, with the consent of the
Committee or under an early retirement policy of the Company, before age
65), or if the Participant's employment is terminated by the Company
without Cause, such Options shall remain exercisable for one year from the
date of the Participant's Termination of Employment, provided that the
Committee, in its discretion, may at any time extend such time period to
up to three years from the date of the Participant's Termination of
Employment.
(b) Cause. Upon the Termination of Employment of a Participant for
-----
Cause or by the Participant in violation of an agreement between the Participant
and Holdings or any of its Subsidiaries, or if it is discovered after such
Termination of Employment that such Participant had engaged in conduct that
would have justified a Termination of Employment for Cause, all outstanding
Options shall immediately be canceled. Termination of Employment for "Cause"
means (i) the Participant's willful and continued failure substantially to
perform his or her duties with the Company, (ii) fraud, misappropriation or
intentional material damage to the property or business of the Company or (iii)
commission of a felony.
(c) Other Termination. In the event of Termination of Employment for
-----------------
any reason other than as provided in Section 7(a) or 7(b), all outstanding
Options not exercised by the Participant prior to such Termination of Employment
shall remain exercisable (to the extent exercisable by such Participant
immediately before such termination) for a period of three months after such
termination, provided that the Committee in its discretion may extend such time
period to up to one year from the date of the Participant's Termination of
Employment, and provided further that no Options that were not exercisable
during the period of employment shall thereafter become exercisable, unless the
Committee determines that such Options shall be exercisable.
11
<PAGE>
8. Nontransferability of Options
-----------------------------
No Option shall be transferable by the Participant otherwise than by
will or under applicable laws of descent and distribution, and during the
lifetime of the Participant may be exercised only by the Participant or his or
her guardian or legal representative. In addition, no Option shall be assigned,
negotiated, pledged or hypothecated in any way (whether by operation of law or
otherwise), and no Option shall be subject to execution, attachment or similar
process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate
any Option, or in the event of any levy upon any Option by reason of any
execution, attachment or similar process contrary to the provisions hereof, such
Option shall immediately become null and void.
9. Rights as a Stockholder
-----------------------
A Participant (or a permitted transferee of an Option) shall have no
rights as a stockholder with respect to any Shares covered by such Participant's
Option until such Participant (or permitted transferee) shall have become the
holder of record of such Shares, and no adjustments shall be made for dividends
in cash or other property or distributions or other rights in respect to any
such Shares, except as otherwise specifically provided in this Plan.
10. Determinations
--------------
Each determination, interpretation or other action made or taken
pursuant to the provisions of this Plan by the Committee shall be final,
conclusive and binding for all purposes and upon all persons, including, without
limitation, the Participants, Holdings and its Subsidiaries, directors, officers
and other employees of Holdings and its Subsidiaries, and the respective heirs,
executors, administrators, personal representatives and other successors in
interest of each of the foregoing.
11. Termination, Amendment and Modification
---------------------------------------
The Plan shall terminate at the close of business on the tenth
anniversary of the Effective Date, unless terminated sooner as hereinafter
provided, and no Option shall be granted under the Plan on or after that date.
The termination of the Plan shall not terminate any outstanding Options that by
their terms continue beyond the termination date of the Plan. At any time prior
to the tenth anniversary of the Effective Date, the Board or the Committee may
amend or terminate the Plan or suspend the Plan in whole or in part.
Notwithstanding the foregoing, however, no such amendment may, without the
approval of the stockholders of Holdings, effect any change that would require
stockholder approval under applicable law.
12
<PAGE>
Nothing contained in this Section 11 shall be deemed to prevent the
Board or the Committee from authorizing amendments of outstanding Options of
Participants, including, without limitation, the reduction of the Purchase Price
specified therein (or the granting or issuance of new Options at a lower
Purchase Price upon cancellation of outstanding Options), as long as all Options
outstanding at any one time shall not call for issuance of more Shares than the
remaining number provided for under the Plan and as long as the provisions of
any amended Options would have been permissible under the Plan, if such Option,
had been originally granted or issued as of the date of such amendment with such
amended terms.
Notwithstanding anything to the contrary contained in this Section 11,
no termination, amendment or modification of the Plan may, without the consent
of the Participant or the permitted transferee of such Participant's Option,
alter or impair the rights and obligations arising under any then outstanding
Option.
12. Non-Exclusivity
---------------
Neither the adoption of the Plan by the Board nor the submission of
the Plan to the stockholders of Holdings for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting or issuance of stock options, Shares and/or other incentives otherwise
than under the Plan, and such arrangements may be either generally applicable or
limited in application.
13. Use of Proceeds
---------------
The proceeds of the sale of Shares subject to Options under the Plan
are to be added to the general funds of Holdings and used for its general
corporate purposes as the Board shall determine.
14. General Provisions
------------------
(a) Right to Terminate Employment. Neither the adoption of the Plan
-----------------------------
nor the grant of Options shall impose any obligation on the Company to continue
the employment of any Participant, nor shall it impose any obligation on the
part of any Participant to remain in the employ of the Company, subject however
to the provisions of any agreement between the Company and the Participant.
(b) Purchase for Investment. If the Board determines that the law so
-----------------------
requires, the holder of an Option granted hereunder shall, upon any exercise or
conversion thereof, execute and deliver to Holdings a written statement, in form
satisfactory to Holdings, representing and warranting that such Participant is
purchasing
13
<PAGE>
or accepting the Shares then acquired for such Participant's own account and not
with a view to the resale or distribution thereof, that any subsequent offer for
sale or sale of any such Shares shall be made either pursuant to (i) a
Registration Statement on an appropriate form under the Securities Act of 1933
(the "Securities Act'), which Registration Statement shall have become effective
and shall be current with respect to the Shares being offered and sold, or (ii)
a specific exemption from the registration requirements of the Securities Act,
and that in claiming such exemption the holder will, prior to any offer for sale
or sale of such Shares, obtain a favorable written opinion, satisfactory in form
and substance to Holdings, from counsel approved by Holdings as to the
availability of such exception.
(c) Trusts, etc. This Plan is intended to be an "unfunded" deferred
-----------
compensation plan. Nothing contained in the Plan and no action taken pursuant
to the Plan (including, without limitation, the grant of any Option thereunder)
shall create or be construed to create a trust of any kind, or a fiduciary
relationship, between Holdings and any Participant or the executor,
administrator or other personal representative or designated beneficiary of such
Participant, or any other persons. Any reserves that may be established by
Holdings in connection with the Plan shall continue to be part of the general
funds of Holdings, and no individual or entity other than Holdings shall have
any interest in such funds until paid to a Participant. If and to the extent
that any Participant or such Participant's executor, administrator or other
personal representative, as the case may be, acquires a right to receive any
payment from Holdings pursuant to the Plan, such right shall be no greater than
the right of an unsecured general creditor of Holdings.
(d) Notices. Each Participant shall be responsible for furnishing the
-------
Committee with the current and proper address for the mailing to such
Participant of notices and the delivery to such Participant of agreements,
Shares and payments. Any notices required or permitted to be given shall be
deemed given if directed to the person to whom addressed at such address and
mailed by regular United States mail, first class and prepaid. If any item
mailed to such address is returned as undeliverable to the addressee, mailing
will be suspended until the Participant furnishes the proper address.
(e) Severability of Provisions. If any provisions of the Plan shall be
--------------------------
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions of the Plan, and the Plan shall be construed and
enforced as if such provisions had not been included.
(f) Payment to Minors, Etc. Any benefit payable to or for the
----------------------
benefit of a minor, an incompetent person or other person incapable of
receipting therefor shall be deemed paid when paid to such person's guardian or
to the party providing or reasonably appearing to provide for the care of such
person, and such payment shall fully discharge the Committee, the Company and
their employees, agents and representatives with respect thereto.
14
<PAGE>
(g) Headings and Captions. The headings and captions herein are
---------------------
provided for reference and convenience only. They shall not be considered part
of the Plan and shall not be employed in the construction of the Plan.
(h) Controlling Law. The Plan shall be construed and enforced
---------------
according the laws of the State of New York.
15. Issuance of Stock Certificates;
Legends; Payment of Expenses
------------------------------
(a) Stock Certificates. Upon any exercise of an Option and payment of
------------------
the exercise price as provided in such Option, a certificate or certificates for
the Shares as to which such Option has been exercised shall be issued by
Holdings in the name of the person or persons exercising such Option and shall
be delivered to or upon the order of such person or persons.
(b) Legends. Certificates for Shares issued upon exercise of an Option
-------
shall bear such legend or legends as the Committee, in its discretion,
determines to be necessary or appropriate to prevent a violation of, or to
perfect an exemption from, the registration requirements of the Securities Act
or to implement the provisions of any agreements between Holdings and the
Participant with respect to such Shares, including, without limitation, any
right of the Company to purchase Shares issued to the Participant upon the
exercise of Options as contained in the Option Agreement.
(c) Payment of Expenses. The Company shall pay all issue or transfer
-------------------
taxes with respect to the issuance or transfer of Shares, as well as all fees
and expenses necessarily incurred by the Company in connection with such
issuance or transfer and with the administration of the Plan.
16. Listing of Shares and Related Matters
-------------------------------------
If at any time the Board shall determine in its sole discretion that
the listing, registration or qualification of the Shares covered by the Plan
upon any national securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the award or sale of Shares
under the Plan, no Shares will be delivered unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained, or otherwise provided for, free of any conditions not acceptable to
the Board.
15
<PAGE>
17. Withholding Taxes
-----------------
Holdings shall be entitled to withhold (or secure payment from the
Participant in cash or other property, including Shares already owned by the
Participant for six months or more (valued at the Fair Market Value thereof on
the date of delivery) in lieu of withholding) the amount of any Federal, state
or local taxes required by law to be withheld by Holdings for any Shares or cash
payments deliverable under this Plan, and Holdings may defer such delivery
unless such withholding requirement is satisfied.
16
<PAGE>
EXHIBIT 10.14
SCHEIN PHARMACEUTICAL, INC.
1997 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN
--------------------
The purposes of this Schein Pharmaceutical, Inc. 1997 Stock Option
Plan (the "Plan") are to enable Schein Pharmaceutical, Inc. ("SPINC") and its
Subsidiaries (as defined herein) to attract, retain and motivate the employees
who are important to the success and growth of the business of SPINC and to
create a long-term mutuality of interest between those employees and the
stockholders of SPINC by granting those employees options (which may be either
Incentive Stock Options (as defined herein) or Non-Qualified Stock Options (as
defined herein)) to purchase SPINC Common Stock (as defined herein).
2. DEFINITIONS
-----------
(a) "Act" means the Securities Exchange Act of 1934.
(b) "Board" means the Board of Directors of SPINC.
(c) "Code" means the Internal Revenue Code of 1986, as amended. Any
reference to any section of the Code shall also be a reference to any successor
provision.
(d) "Committee" means such committee, if any, appointed by the Board
to administer the Plan, consisting of two or more directors as may be appointed
from time to time by the Board. If the Board does not appoint a committee for
this purpose, "Committee" means the Board.
(e) "Common Stock" means the common stock of SPINC, par value $.O1
per share, any Common Stock into which the Common Stock may be converted and any
Common Stock resulting from any reclassification of the Common Stock.
(f) "Company" means SPINC and any of its Subsidiaries whose employees
are Participants in the Plan.
(g) "Disability" means a permanent and total disability, as
determined by the Committee in its sole discretion. A Disability shall be deemed
to occur at the time of the determination by the Committee of the Disability.
<PAGE>
(h) "Fair Market Value" means, for purposes of this Plan, unless
otherwise required by any applicable provision of the Code or any regulations
thereunder, the value of a Share (as defined herein) on a particular date,
determined as follows:
(i) if the Common Stock is listed or admitted to trading on
such date on a national securities exchange or quoted through the Nasdaq
National Market ("Nasdaq"), the closing sale price of a Share as reported
on the relevant composite transaction tape, if applicable, or on the
principal such exchange (determined by trading value in the Common Stock)
or through the National Market System, as the case may be, on such date, or
in the absence of reported sales on such date, the mean between the highest
reported bid and lowest reported asked prices reported on such composite
transaction tape or exchange or through the National Market System, as the
case may be, on such date; or
(ii) if the Common Stock is not listed or quoted as described
in the preceding clause, but bid and asked prices are quoted through
Nasdaq, the mean between the highest reported bid and lowest reported asked
prices as quoted through Nasdaq on such date; or
(iii) if the Common Stock is not listed or quoted on a national
securities exchange or through Nasdaq or, if pursuant to (i) and (ii) above
the Fair Market Value is to be determined based upon the mean of the
highest reported bid and lowest reported asked prices and the Committee
determines that such mean does not properly reflect the Fair Market Value,
by such other method as the Committee determines to be reasonable and
consistent with applicable law; or
(iv) if the Common Stock is not publicly traded, such amount as
is set by the Committee in good faith.
(i) "Incentive Stock Option" means any Option intended to qualify as
an "incentive stock option", as defined in Section 422 of the Code.
(j) "Non-Qualified Stock Option" shall mean any option awarded under
this Plan that is not an Incentive Stock Option.
(k) "Option" means the right to purchase one Share at a prescribed
purchase price on the terms specified in the Plan. An Option may be an Incentive
Stock Option or a Non-Qualified Stock Option.
(l) "Participant" means an employee of the Company who is granted
Options under the Plan.
2
<PAGE>
(m) "Share" means a share of Common Stock.
(n) "Subsidiary" means any corporation more than 50% of the voting
stock of which is directly or indirectly beneficially owned by SPINC. An entity
shall be deemed a Subsidiary of SPINC only for such periods as the requisite
ownership relationship is maintained.
(o) "Substantial Stockholder" means any Participant who at the time
of grant owns directly (or is deemed to own by reason of the attribution rules
set forth in Section 424(d) of the Code) Shares possessing more than 10% of the
total combined voting power of all classes of stock of SPINC as determined under
Section 422 of the Code.
(p) "Termination of Employment" with respect to an individual means
that individual is no longer an employee of SPINC or any of its Subsidiaries. In
the event an entity shall cease to be a Subsidiary of SPINC, there shall be
deemed a Termination of Employment of any individual who is not otherwise an
employee of SPINC or another Subsidiary of SPINC at the time the entity ceases
to be a Subsidiary. A Termination of Employment shall not include a leave of
absence approved for purposes of the Plan by the Committee.
(q) "Transfer" or "Transferred" shall mean attach, sell, assign,
pledge, encumber, charge or otherwise transfer.
3. EFFECTIVE DATE/EXPIRATION OF PLAN The Plan shall become effective upon its
---------------------------------
adoption by the Board and approval by the stockholders of SPINC (the "Effective
Date"). Grants of Options under the Plan may be made after adoption of the Plan
by the Board, subject to stockholder approval to the extent required by law. No
Option shall be granted under the Plan on or after the tenth anniversary of
the Effective Date (the "Termination Date"), but Options granted prior to the
Termination Date may be exercised after the Termination Date.
4. ADMINISTRATION
--------------
(a) Duties of the Committee. The Plan shall be administered by the
-----------------------
Committee. The Committee shall have full authority to interpret the Plan and to
decide any questions and settle all controversies and disputes that may arise in
connection with the Plan; to establish, amend and rescind rules for carrying out
the Plan; to administer the Plan, subject to its provisions; to select
Participants in, and grant Options under, the Plan; to determine the terms,
exercise price and form of exercise payment for each Option granted under the
Plan; to determine which Options granted under the Plan shall be Incentive Stock
Options; to prescribe the form or forms of instruments evidencing Options and
any other instruments required under the Plan (which need not be uniform) and to
change such forms from time to time; and to make all other determinations and to
take all such steps in connection with the Plan and the Options as
3
<PAGE>
the Committee, in its sole discretion, deems necessary or desirable. The
Committee shall not be bound to any standards of uniformity or similarity of
action, interpretation or conduct in the discharge of its duties hereunder,
regardless of the apparent similarity of the matters coming before it. Any
determination, interpretation or other action made or taken by the Company, the
Board or the Committee arising out of or in connection with the Plan shall be
final, conclusive and binding on all parties.
(b) Advisors. The Committee may designate the Secretary of SPINC,
--------
other employees of the Company or competent professional advisors to assist the
Committee in the admmistration of the Plan, and may grant authority to such
persons to execute Option Agreements (as defined herein) or other documents on
behalf of the Committee. The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the administration of the
Plan, and may rely upon any advice received from any such counsel or consultant
and any computation received from any such consultant or agent and shall not be
liable with respect to any action taken or omitted by it in good faith pursuant
to the advice of counsel. Expenses incurred by the Committee in the engagement
of such counsel, consultant or agent shall be paid by the Company.
(c) Indemnification. No officer or former officer of SPINC, member
---------------
or former member of the Board or the Committee, or person designated pursuant to
paragraph (b) shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted under it. To the maximum extent
permitted by applicable law or the Certificate of Incorporation or By-Laws of
SPINC and to the extent not covered by SPINC's insurance, each officer or former
officer and member or former member of the Committee or of the Board shall be
indemnified and held harmless by SPINC against any cost or expense (including
reasonable fees of counsel reasonably acceptable to SPINC) or liability
(including any sum paid in settlement of a claim with the approval of SPINC),
and advanced amounts necessary to pay the foregoing at the earliest time and to
the fullest extent permitted, arising out of any act or omission to act in
connection with the Plan, except to the extent arising out of such officer's,
former officer's, member's or former member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification the
officers, former officers, members or former members may have as directors under
applicable law or under the Certificate of Incorporation or By-Laws of SPINC or
any Subsidiary of SPINC.
(d) Meetings of the Committee. The Committee shall select one of its
-------------------------
members as a Chairman and shall adopt such rules and regulations, subject to the
By-Laws of SPINC, as it shall deem appropriate concerning the holding of its
meetings and the transaction of its business. Any member of the Committee may be
removed at any time either with or without cause by resolution adopted by the
Board, and any vacancy on the Committee may at any time be filled by resolution
adopted by the Board. A majority of the Committee members shall constitute a
quorum. All determinations by the Committee shall be made by the affirmative
vote of a
4
<PAGE>
majority of its members. Any such determination may be made at a meeting duly
called and held at which a majority of the members of the Committee are in
attendance in person or through telephonic communication. Any determination set
forth in writing and signed by all the members of the Committee shall be as
fully effective as if it had been made by a majority vote of the members at a
meeting duly called and held.
5. SHARES; ADJUSTMENT UPON CERTAIN EVENTS
--------------------------------------
(a) Shares to be Delivered; Fractional Shares. Shares to be issued
-----------------------------------------
under the Plan shall be made available, at the discretion of the Board, either
from authorized but unissued Shares or from issued Shares reacquired by SPINC
and held in treasury. No fractional Shares will be issued or transferred upon
the exercise of any Option. In lieu thereof, SPINC shall pay a cash adjustment
equal to the same fraction of the Fair Market Value of one Share on the date of
exercise.
(b) Number of Shares. Subject to adjustment as provided in this
----------------
Section 5, the maximum aggregate number of Shares that may be issued under the
Plan shall be 27,400. If Options are for any reason canceled, or expire or
terminate unexercised, the Shares covered by such Options shall again be
available for the grant of Options, subject to the foregoing limit.
(c) Adjustments; Recapitalization, etc. The existence of the Plan
----------------------------------
and the Options granted hereunder shall not affect in any way the right or power
of the Board or the stockholders of SPINC to make or authorize any adjustment,
recapitalization, reorganization or other change in SPINC's capital structure
or its business, any merger or consolidation of SPINC, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or affecting Common
Stock, the dissolution or liquidation of SPINC or any of its Subsidiaries, any
sale or transfer of all or part of its assets or business or any other corporate
act or proceeding. If and whenever SPINC takes any such action, however, the
following provisions, to the extent applicable, shall govern:
(i) If and whenever SPINC shall effect a stock split, stock
dividend, subdivision, recapitalization or combination of Shares or other
changes in SPINC's capital stock, (x) the Purchase Price (as defined
herein) per Share and the number and class of Shares and/or other
securities with respect to which outstanding Options thereafter may be
exercised, and (y) the total number and class of Shares and/or other
securities that may be issued under this Plan shall be proportionately
adjusted by the Committee. The Committee may also make such other
adjustments as it deems necessary to take into consideration any other
event (including, without limitation, accounting changes), if the Committee
determines that such adjustment is appropriate to avoid distortion in the
operation of the Plan.
5
<PAGE>
(ii) Subject to Section 5(c)(iii), if SPINC merges or
consolidates with one or more corporations, then from and after the
effective date of such merger or consolidation, upon exercise of Options
theretofore granted, the Participant shall be entitled to purchase under
such Options, in lieu of the number of Shares as to which such Options
shall then be exercisable but on the same terms and conditions of exercise
set forth in such Options, the number and class of Shares and/or other
securities or property (including cash) to which the Participant would have
been entitled pursuant to the terms of the agreement of merger or
consolidation, if, immediately prior to such merger or consolidation, the
Participant had been the holder of record of the total number of Shares
receivable upon exercise of such Options (whether or not then exercisable).
(iii) In the event of a merger or consolidation in which SPINC
is not the surviving entity or in the event of any transaction that results
in the acquisition of all or substantially all of SPINC's outstanding
Common Stock by a single person or entity or by a group of persons and/or
entities acting in concert, or in the event of the sale or transfer of all
or substantially all of SPINC's assets (the foregoing being referred to as
"Acquisition Events"), then the Committee may in its sole discretion
terminate all outstanding Options effective as of the consummation of the
Acquisition Event by delivering notice of termination to each Participant
at least 20 days prior to the date of consummation of the Acquisition
Event; provided that, during the period from the date on which such notice
of termination is delivered to the consummation of the Acquisition Event,
each Participant shall have the right to exercise in full all the Options
that are then outstanding (without regard to limitations on exercise
otherwise contained in the Option Agreement), but contingent on occurrence
of the Acquisition Event, and provided that, if the Acquisition Event does
not take place within a specified period after giving such notice for
any reason whatsoever, the notice and exercise shall be null and void. If
an Acquisition Event occurs and the Committee does not terminate the
outstanding Options pursuant to the preceding sentence, then the provisions
of Section 5(c)(ii) shall apply.
(iv) Subject to Section 5(b), the Committee may grant Options
under the Plan in substitution for options held by employees of another
corporation who concurrently become employees of the Company as the result
of a merger or consolidation of the employing corporation with the Company,
or as the result of the acquisition by the Company of property or stock of
the employing corporation. The Company may direct that substitute awards be
granted on such terms and conditions as the Committee considers appropriate
in the circumstances.
(v) If, as a result of any adjustment made pursuant to the
preceding paragraphs of this Section 5, any Participant shall become
entitled upon exercise of an Option to receive any securities other than
Common Stock, then the number and class of
6
<PAGE>
securities so receivable thereafter shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock set forth in this
Section 5, as determined by the Committee in its discretion.
(vi) Except as hereinbefore expressly provided, the issuance by
SPINC of shares of stock of any class, or securities convertible into
shares of stock of any class, for cash, property, labor or services, upon
direct sale, upon the exercise of rights or warrants to subscribe therefor
or upon conversion of shares or other securities, and in any case whether
or not for fair value, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number and class of shares
and/or other securities or property subject to Options theretofore granted
or the Purchase Price.
6. AWARDS AND TERMS OF OPTIONS
---------------------------
(a) Grant. The Committee may grant Options, including Options
-----
intended to be Incentive Stock Options, to employees of the Company. Each Option
shall be evidenced by an Option agreement (the "Option Agreement") in such form
as the Committee shall approve from time to time. To the extent that any Option
does not qualify as an Incentive Stock Option (whether because of its provisions
or the time or manner of its exercise or otherwise), such Option or the portion
thereof which does not qualify shall constitute a separate Non-Qualified Stock
Option.
(b) Exercise Price. The purchase price per Share (the "Purchase
--------------
Price") deliverable upon the exercise of an Option shall be determined by the
Committee, subject to the following: (i) the Purchase Price shall not be less
than the par value of a Share and (ii) in the case of Incentive Stock Options,
the Purchase Price shall not be less than 100% (110% for an Incentive Stock
Option granted to a Substantial Stockholder) of the Fair Market Value per share
on the date the Incentive Stock Option is granted.
(c) Number of Shares. The Option Agreement shall specify the number
----------------
of Options granted to the Participant, as determined by the Committee in its
sole discretion.
(d) Exercisability. At the time of grant, the Committee shall specify
--------------
when and on what terms the Options granted shall be exercisable. In the case of
Options not immediately exercisable in full, the Committee may at any time
accelerate the time at which all or any part of the Options may be exercised and
may waive any other conditions to exercise, subject to the terms of the Option
Agreement and the Plan. No Option shall be exercisable after the expiration of
ten years from the date of grant (five years, in the case of an Incentive Stock
7
<PAGE>
Option granted to a Substantial Stockholder). Each Option shall be subject to
earlier termination as provided in Section 7 below.
(e) Special Rule for Incentive Options. If required by Section 422 of
----------------------------------
the Code, to the extent the aggregate Fair Market Value of the Shares with
respect to which Incentive Stock Options are exercisable for the first time by
the Participant during any calendar year (under all plans of his or her employer
corporation and its parent and subsidiary corporations) exceeds $100,000, such
Options shall not be treated as Incentive Stock Options. Nothing in this special
rule shall be construed as limiting the exercisability of any Option, unless
the Committee expressly provides for such a limitation at time of grant. Should
the foregoing provision not be necessary in order for the Options to qualify as
Incentive Stock Options, or should any additional provisions be required, the
Committee may amend the Plan accordingly, without the necessity of obtaining the
approval of the stockholders of the Company.
(f) Acceleration of Exercisability Upon Change of Control. All
-----------------------------------------------------
Options granted and not previously exercisable shall become fully exercisable
immediately upon a Change of Control (as defined herein), if a Change of Control
occurs subsequent to an initial public offering of the Common Stock, or
immediately upon a Termination of Employment of the Participant by the Company
without Cause (as defined herein), if the Termination of Employment occurs
subsequent to a Change of Control (without regard to whether an initial public
offering has theretofore occurred). For this purpose, a "Change of Control"
shall be deemed to have occurred upon:
(i) an acquisition by any individual, entity or group (within
the meaning of Section 13d-3 or 14d-1 of the Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Act) of more than 50% of the combined voting power of the then
outstanding voting securities of SPINC entitled to vote generally in the
election of directors (the "Outstanding SPINC Voting Securities");
excluding, however, the following: (x) any acquisition by the Company, (y)
any acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or (z) any acquisition by any corporation
pursuant to a reorganization, merger, consolidation or similar corporate
transaction (in each case, a "Corporate Transaction"), if, pursuant to such
Corporate Transaction, the conditions described in clauses (A), (B) and (C)
of paragraph (iii) of this Section 6(f) are satisfied; or
(ii) a change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the Board (the Board
as of the Effective Date shall be hereinafter referred to as the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board; provided that, for purposes of this Subsection, any individual who
becomes a member of the Board subsequent to the Effective Date and whose
election, or nomination for election by the SPINC stockholders, was
approved by
8
<PAGE>
a majority of the members of the Board who also are members of the
Incumbent Board (or so deemed to be pursuant to this proviso) shall be
deemed a member of the Incumbent Board; but, provided further, that any
such individual whose initial assumption of office is in connection with a
Change of Control described in (i), (iii) or (iv) of this Section 6(f) or
whose initial assumption of office occurs as a result of either an actual
or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board shall not be so deemed a member of the Incumbent Board; or
(iii) the approval by the stockholders of SPINC of a Corporate
Transaction or, if consummation of such Corporate Transaction is subject,
at the time of such approval by stockholders, to the consent of any
government or governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation); excluding, however, such a
Corporate Transaction pursuant to which (A) the beneficial owners (or
beneficiaries of the beneficial owners) of the outstanding Shares and
Outstanding SPINC Voting Securities immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than 60%
of, respectively, the outstanding shares of common stock of the corporation
resulting from such Corporate Transaction and the combined voting power of
the outstanding voting securities of such corporation entitled to vote
generally in the election of directors, in substantially the same
proportions as their ownership, immediately prior to such Corporate
Transaction, of the outstanding Shares and Outstanding SPINC Voting
Securities, as the case may be, (B) no Person (other than the Company, any
employee benefit plan (or related trust) of the Company or the corporation
resulting from such Corporate Transaction and any Person beneficially
owning, immediately prior to such Corporate Transaction, directly or
indirectly, 20% or more of the outstanding Shares or Outstanding SPINC
Voting Securities, as the case may be) will beneficially own, directly or
indirectly, 20% or more of, respectively, the outstanding shares of common
stock of the corporation resulting from such Corporate Transaction or the
combined voting power of the then outstanding securities of such
corporation entitled to vote generally in the election of directors and
(C) individuals who were members of the Incumbent Board will constitute at
least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction; or
(iv) the approval of the stockholders of SPINC of (A) a
complete liquidation or dissolution of SPINC or (B) the sale or other
disposition of all or substantially all the assets of SPINC; excluding,
however, such a sale or other disposition to a corporation with respect to
which, following such sale or other disposition, (x) more than 60% of the
then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of such
corporation
9
<PAGE>
entitled to vote generally in the election of directors will be then
beneficially owned, directly or indirectly, by the individuals and entities
who were the beneficial owners (or beneficiaries of the beneficial owners),
respectively, of the outstanding Shares and Outstanding SPINC Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to
such sale or other disposition, of the outstanding Shares and Outstanding
SPINC Voting Securities, as the case may be, (y) no Person (other than the
Company and any employee benefit plan (or related trust) of the Company or
such corporation and any Person beneficially owning, immediately prior to
such sale or other disposition, directly or indirectly, 20% or more of the
outstanding Shares or Outstanding SPINC Voting Securities, as the case may
be) will beneficially own, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors and (z) individuals who were members of the Incumbent Board
will constitute at least a majority of the members of the board of
directors of such corporation.
(g) Exercise of Options.
-------------------
(i) A Participant may elect to exercise one or more Options by
giving written notice to the Committee of such election and of the number
of Shares with respect to which the Options are being exercised,
accompanied by payment in full of the aggregate Purchase Price for such
Shares.
(ii) Shares purchased pursuant to the exercise of Options shall
be paid for at the time of exercise as follows:
(A) in cash or by check, bank draft or money order
payable to the order of SPINC;
(B) if so permitted by the Committee: (I) through the
delivery of unencumbered Shares (including Shares being acquired
pursuant to the Options then being exercised), provided such Shares
(or such Options) have been owned by the Participant for such period
as may be required by applicable accounting standards to avoid a
charge to earnings, (II) through a combination of Shares and cash as
provided above, (III) by delivery of a promissory note of the
Participant to SPINC, such promissory note to be payable, in the case
of an Incentive Stock Option, on such terms as are specified in the
Option Agreement (except that, in lieu of a stated rate of interest,
the Option Agreement may provide that the rate of interest on the
promissory note will be such rate as is sufficient, at the time the
note is given, to avoid the imputation of interest under the
applicable provisions
10
<PAGE>
of the Code), or (IV) by a combination of cash (or cash and Shares)
and the Participant's promissory note; provided, that, if the Shares
delivered upon exercise of the Option is an original issue of
authorized Shares, at least so much of the exercise price as
represents the par value of such Shares shall be paid in cash or by a
combination of cash and Shares;
(C) through the delivery of irrevocable instructions to a
broker to deliver promptly to SPINC an amount equal to the aggregate
Purchase Price; or
(D) on such other terms and conditions as may be acceptable
to the Committee and in accordance with applicable law.
(iii) Upon receipt of payment and satisfaction of the
requirements, if any, as to withholding of taxes as set forth herein, SPINC
shall deliver to the Participant as soon as practicable a certificate or
certificates for the Shares then purchased. No Shares shall be issued until
payment therefor, as provided herein, has been made or provided for.
(h) Buy Out and Settlement Provisions. The Committee may at any time
---------------------------------
on behalf of SPINC offer to buy out an Option previously granted, based on such
terms and conditions as the Committee shall establish and communicate to the
Participant at the time that such offer is made, and the Participant shall be
entitled to accept or reject such offer in his or her sole discretion.
(i) Modification, Extension and Renewal of Options. Subject to the
----------------------------------------------
terms and conditions and within the limitations of the Plan, the Committee may
modify, extend or renew outstanding Options granted under the Plan (provided
that the rights of a Participant are not reduced without his or her consent), or
accept the surrender of outstanding Options (up to the extent not theretofore
exercised) and authorize the granting of new Options in substitution therefor
(to the extent not theretofore exercised).
(j) Other Terms and Conditions. Options may contain such other
--------------------------
provisions, which shall not be inconsistent with any of the foregoing terms of
the Plan, as the Committee shall deem appropriate including, without limitation,
permitting "reloads" such that the same number of Options are granted as the
number of (i) Options exercised, (ii) shares used to pay for the exercise price
of Options or (iii) shares used to pay withholding taxes ("Reloads"). With
respect to Reloads, the exercise price of the new Option shall be the Fair
Market Value on the date of the Reload and the term of the Option shall be the
same as the remaining term of the Options that are exercised, if applicable, or
such other exercise price and term as determined by the Committee.
11
<PAGE>
7. EFFECT OF TERMINATION OF EMPLOYMENT
-----------------------------------
(a) Death, Disability, Retirement, etc. Except as otherwise provided
----------------------------------
in the Participant's Option Agreement, upon Termination of Employment, all
outstanding Options then exercisable and not exercised by the Participant prior
to such Termination of Employment (and any Options not previously exercisable
but made exercisable by the Committee at or after the Termination of Employment)
shall remain exercisable by the Participant to the extent not exercised for the
following time periods (subject to Section 6(d)):
(i) In the event of the Participant's death, such Options shall
remain exercisable (by the legal representative of the Participant's estate
or by the person given authority to exercise such Options by the
Participant's will or by operation of law) for a period of one year from
the date of the Participant's death, provided that the Committee, in its
discretion, may at any time extend such time period to up to three years
from the date of the Participant's death.
(ii) In the event of the Participant's Disability, or the
Participant retires at or after age 65 (or, with the consent of the
Committee or under an early retirement policy of the Company, before age
65), or if the Participant's employment is terminated by the Company
without Cause, such Options shall remain exercisable for one year from the
date of the Participant's Termination of Employment, provided that the
Committee, in its discretion, may at any time extend such time period to up
to three years from the date of the Participant's Termination of
Employment.
(b) Cause. Upon the Termination of Employment of a Participant for
-----
Cause or by the Participant in violation of an agreement between the Participant
and SPINC or any of its Subsidiaries, or if it is discovered after such
Termination of Employment that such Participant had engaged in conduct that
would have justified a Termination of Employment for Cause, all outstanding
Options shall immediately be canceled. Termination of Employment for "Cause"
means (i) the Participant's willful and continued failure substantially to
perform his or her duties with the Company, (ii) fraud, misappropriation or
intentional material damage to the property or business of the Company or (iii)
commission of a felony.
(c) Other Termination. In the event of Termination of Employment for
-----------------
any reason other than as provided in Section 7(a) or 7(b), all outstanding
Options not exercised by the Participant prior to such Termination of Employment
shall remain exercisable (to the extent exercisable by such Participant
immediately before such termination) for a period of three months after such
termination, provided that the Committee in its discretion may extend such time
period to up to one year from the date of the Participant's Termination of
Employment, and provided further that no Options that were not exercisable
during the period of employment shall
12
<PAGE>
thereafter become exercisable, unless the Committee determines that such Options
shall be exercisable.
8. NONTRANSFERABILITY OF OPTIONS
-----------------------------
No Option shall be Transferable by the Participant otherwise than by
will or under applicable laws of descent and distribution, and during the
lifetime of the Participant may be exercised only by the Participant or his or
her guardian or legal representative. In addition, no Option shall, except as
otherwise provided herein, be Transferable in any way (whether by operation of
law or otherwise), and any attempt to Transfer shall be void, and no such Option
shall in any manner be subject to the debts, contracts, liabilities, engagements
or torts of any person who shall be entitled to such Option, nor shall it be
subject to attachment or legal process for or against such person.
9. RIGHTS AS A STOCKHOLDER
-----------------------
A Participant (or a permitted transferee of an Option) shall have no
rights as a stockholder with respect to any Shares covered by such Participant's
Option until such Participant (or permitted transferee) shall have become the
holder of record of such Shares, and no adjustments shall be made for dividends
in cash or other property or distributions or other rights in respect to any
such Shares, except as otherwise specifically provided in this Plan.
10. DETERMINATIONS
--------------
Each determination, interpretation or other action made or taken
pursuant to the provisions of this Plan by the Company, the Board or the
Committee shall be final, conclusive and binding for all purposes and upon all
persons, including, without limitation, the Participants, SPINC and its
Subsidiaries, directors, officers and other employees of SPINC and its
Subsidiaries, and the respective heirs, executors, administrators, personal
representatives and other successors in interest of each of the foregoing.
11. TERMINATION, AMENDMENT AND MODIFICATION
---------------------------------------
The Plan shall terminate at the close of business on the tenth
anniversary of the Effective Date, unless terminated sooner as hereinafter
provided, and no Option shall be granted under the Plan on or after that date.
The termination of the Plan shall not terminate any
13
<PAGE>
outstanding Options that by their terms continue beyond the termination date of
the Plan. At any time prior to the tenth anniversary of the Effective Date, the
Board or the Committee may amend or terminate the Plan or suspend the Plan in
whole or in part. Notwithstanding the foregoing, however, no such amendment may,
without the approval of the stockholders of SPINC, effect any change that
would require stockholder approval under applicable law.
Nothing contained in this Section 11 shall be deemed to prevent the
Board or the Committee from authorizing amendments of outstanding Options of
Participants, including, without limitation, the reduction of the Purchase Price
specified therein (or the granting or issuance of new Options at a lower
Purchase Price upon cancellation of outstanding Options), as long as all Options
outstanding at any one time shall not call for issuance of more Shares than the
remaining number provided for under the Plan and as long as the provisions of
any amended Options would have been permissible under the Plan if such Option
had been originally granted or issued as of the date of such amendment with such
amended terms.
Notwithstanding anything to the contrary contained in this Section 11,
no termination, amendment or modification of the Plan may, without the consent
of the Participant or the permitted transferee of such Participant's Option,
alter or impair the rights and obligations arising under any then outstanding
Option.
12. NON-EXCLUSIVITY
---------------
Neither the adoption of the Plan by the Board nor the submission of
the Plan to the stockholders of SPINC for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting or issuance of stock options, Shares and/or other incentives otherwise
than under the Plan, and such arrangements may be either generally applicable or
limited in application.
13. USE OF PROCEEDS
---------------
The proceeds of the sale of Shares subject to Options under the Plan
are to be added to the general funds of SPINC and used for its general
corporate purposes as the Board shall determine.
14. GENERAL PROVISIONS
------------------
(a) Right to Terminate Employment. Neither the adoption of the Plan
-----------------------------
nor the grant of Options shall impose any obligation on the Company to continue
the employment of any
14
<PAGE>
Participant, nor shall it impose any obligation on the part of any Participant
to remain in the employ of the Company, subject however to the provisions of any
agreement between the Company and the Participant.
(b) Purchase for Investment. If the Board determines that the law so
-----------------------
requires, the holder of an Option granted hereunder shall, upon any exercise or
conversion thereof, execute and deliver to SPINC a written statement, in form
satisfactory to SPINC, representing and warranting that such Participant is
purchasing or accepting the Shares then acquired for such Participant's own
account and not with a view to the resale or distribution thereof, that any
subsequent offer for sale or sale of any such Shares shall be made either
pursuant to (i) a Registration Statement on an appropriate form under the
Securities Act of 1933 (the "Securities Act"), which Registration Statement
shall have become effective and shall be current with respect to the Shares
being offered and sold, or (ii) a specific exemption from the registration
requirements of the Securities Act, and that in claiming such exemption the
holder will, prior to any offer for sale or sale of such Shares, obtain a
favorable written opinion, satisfactory in form and substance to SPINC, from
counsel approved by SPINC as to the availability of such exception. In addition
to any legend required by this Plan, the certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restriction on Transfer.
(c) Trusts, etc. This Plan is intended to be an "unfunded" deferred
-----------
compensation plan. Nothing contained in the Plan and no action taken pursuant to
the Plan (including, without limitation, the grant of any Option thereunder)
shall create or be construed to create a trust of any kind, or a fiduciary
relationship, between SPINC and any Participant or the executor, administrator
or other personal representative or designated beneficiary of such Participant,
or any other persons. Any reserves that may be established by SPINC in
connection with the Plan shall continue to be part of the general funds of
SPINC, and no individual or entity other than SPINC shall have any interest in
such funds until paid to a Participant. If and to the extent that any
Participant or such Participant's executor, administrator or other personal
representative, as the case may be, acquires a right to receive any payment from
SPINC pursuant to the Plan, such right shall be no greater than the right of an
unsecured general creditor of SPINC.
(d) Notices. Each Participant shall be responsible for furnishing
-------
the Committee with the current and proper address for the mailing to such
Participant of notices and the delivery to such Participant of agreements,
Shares and payments. Any notices required or permitted to be given shall be
deemed given if directed to the person to whom addressed at such address and
mailed by regular United States mail, first class and prepaid. If any item
mailed to such address is returned as undeliverable to the addressee, mailing
will be suspended until the Participant furnishes the proper address.
15
<PAGE>
(e) Severability of Provisions. If any provisions of the Plan shall
--------------------------
be held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions of the Plan, and the Plan shall be construed and
enforced as if such provisions had not been included.
(f) Payment to Minors, Etc. Any benefit payable to or for the benefit
----------------------
of a minor, an incompetent person or other person incapable of receipting
therefor shall be deemed paid when paid to such person's guardian or to the
party providing or reasonably appearing to provide for the care of such person,
and such payment shall fully discharge the Committee, the Company and their
employees, agents and representatives with respect thereto.
(g) Headings and Captions. The headings and captions herein are
---------------------
provided for reference and convenience only. They shall not be considered part
of the Plan and shall not be employed in the construction of the Plan.
(h) Controlling Law. The Plan shall be construed and enforced
---------------
according to the laws of the State of Delaware (regardless of the laws that
might otherwise govern under applicable principles of conflict of laws).
15. ISSUANCE OF STOCK CERTIFICATES;
LEGENDS; PAYMENT OF EXPENSES
----------------------------
(a) Stock Certificates. Upon any exercise of an Option and payment
------------------
of the exercise price as provided in such Option, a certificate or certificates
for the Shares as to which such Option has been exercised shall be issued by
SPINC in the name of the person or persons exercising such Option and shall be
delivered to or upon the order of such person or persons.
(b) Legends. Certificates for Shares issued upon exercise of an
-------
Option shall bear such legend or legends as the Committee, in its discretion,
determines to be necessary or appropriate to prevent a violation of, or to
perfect an exemption from, the registration requirements of the Securities Act
or to implement the provisions of any agreements between SPINC and the
Participant with respect to such Shares, including, without limitation, any
right of the Company to purchase Shares issued to the Participant upon the
exercise of Options as contained in the Option Agreement.
(c) Payment of Expenses. The Company shall pay all issue or transfer
-------------------
taxes with respect to the issuance or transfer of Shares, as well as all fees
and expenses necessarily incurred by the Company in connection with such
issuance or transfer and with the administration of the Plan.
16
<PAGE>
(d) Other Benefits. No Option granted under this Plan shall be deemed
--------------
compensation for purposes of computing benefits under any retirement plan of the
Company nor affect any benefits under any other benefit plan now or subsequently
in effect under which the availability or amount of benefits is related to the
level of compensation.
(e) No Right to Same Benefits. The provisions of Options need not be
-------------------------
the same with respect to each Participant, and such Options to individual
Participants need not be the same under subsequent grants.
(f) Death/Disability. The Committee may in its discretion require
----------------
the transferee of a Participant to supply it with written notice of the
Participant's death or Disability and to supply it with a copy of the will (in
the case of the Participant's death) or such other evidence as the Committee
deems necessary to establish the validity of the transfer of an Option. The
Committee may also require the agreement of the transferee to be bound by all of
the terms and conditions of the Plan.
(g) Section 16(b) of the Act. In the event that SPINC becomes
------------------------
publicly held, all elections and transactions under the Plan by persons subject
to Section 16 of the Act involving shares of Common Stock are intended to comply
with any applicable exemptive condition under Rule 16b-3 under Section 16(b) of
the Act. To the extent applicable, the Committee may establish and adopt written
administrative guidelines, designed to facilitate compliance with Section 16(b)
of the Act, as it may deem necessary or proper for the administration and
operation of the Plan and the transaction of business thereunder. For purposes
of this paragraph, SPINC shall be deemed publicly held when and if SPINC has a
class of common equity securities registered under Section 12 of the Act.
16. LISTING OF SHARES AND RELATED MATTERS
-------------------------------------
If at any time the Board shall determine in its sole discretion that
the listing, registration or qualification of the Shares covered by the Plan
upon any national securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the award or sale of Shares
under the Plan, no Shares will be delivered unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained, or otherwise provided for, free of any conditions not acceptable to
the Board.
17
<PAGE>
17. WITHHOLDING TAXES
-----------------
SPINC shall be entitled to withhold (or secure payment from the
Participant in cash or other property, including Shares already owned by the
Participant for six months or more (valued at the Fair Market Value thereof on
the date of delivery) in lieu of withholding) the amount of any Federal, state
or local taxes required by law to be withheld by SPINC for any Shares or cash
payments deliverable under this Plan, and SPINC may defer such delivery unless
such withholding requirement is satisfied. The Committee may permit any such
withholding obligation with regard to any Participant to be satisfied by
reducing the number of Shares otherwise deliverable or by delivering Shares
already owned. Any fraction of a Share required to satisfy such tax obligations
shall be disregarded and the amount due shall be paid instead in cash by the
Participant.
18
<PAGE>
EXHIBIT 10.15
________________________________________________________________________________
SCHEIN PHARMACEUTICAL, INC.
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(AMENDED AND RESTATED AS OF AUGUST 8, 1996)
________________________________________________________________________________
<PAGE>
EXHIBIT 10.15 TOC
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. Purposes............................................................. 1
II. Definitions.......................................................... 1
III. Effective Date ...................................................... 3
IV. Administration....................................................... 3
A. Duties of the Committee........................................ 3
B. Advisors....................................................... 3
C. Indemnification................................................ 3
D. Meetings of the Committee...................................... 4
E. Disinterested Directors........................................ 4
V. Adjustments.......................................................... 4
A. Shares to be Delivered; Fractional Shares...................... 4
B. Number of Shares............................................... 4
C. Adjustments.................................................... 4
VI. Awards and Terms of Options.......................................... 6
A. Grant.......................................................... 6
B. Date of Grant.................................................. 7
C. Option Terms................................................... 7
D. Expiration..................................................... 7
E. Acceleration of Exercisability................................. 7
VII. Effect of Termination of Directorship................................ 9
VIII. Nontransferability of Options........................................ 9
IX. Rights as a Stockholder.............................................. 10
X. Termination, Amendment and Modification.............................. 10
XI. Issuance of Stock Certificates;
Legends; Payment of Expenses......................................... 11
A. Stock Certificates............................................. 11
B. Legends........................................................ 11
C. Payment of Expenses............................................ 11
XII. Listing of Shares and Related Matters................................ 12
XIII. Withholding Taxes.................................................... 12
XIV. General.............................................................. 12
A. Right to Terminate Directorship................................ 12
B. No Trust....................................................... 12
C. Notices........................................................ 12
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
D. Severability................................................... 13
E. Costs.......................................................... 13
F. Controlling Law................................................ 13
G. Section 16(b).................................................. 13
</TABLE>
ii
<PAGE>
EXHIBIT 10.15
SCHEIN PHARMACEUTICAL, INC.
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(AMENDED AND RESTATED AS OF AUGUST , 1996)
I. PURPOSES
--------
The purposes of this 1995 Non-Employee Director Stock Option Plan
(this "Plan"), as amended and restated effective as of August , 1996, are to
enable Schein Pharmaceutical, Inc. (the "Company") to attract, retain and
motivate directors who will be important to the success of the Company, and to
increase the identity of interest between directors and stockholders of the
Company by granting certain directors options to purchase common stock of the
Company.
II. DEFINITIONS
-----------
For purposes of this Plan, the following terms have the following
meanings:
A. "Act" means the Securities Exchange Act of 1934 and the rules and
regulations under the Securities Exchange Act of 1934.
B. "Board" means the board of directors of the Company.
C. "Committee" means the Board or a duly appointed committee of the
Board to which the Board has delegated its power and functions under this Plan.
D. "Common Stock" means the common stock of the Company, par value
$0.01 per share, any common stock into which such common stock of the Company
may be converted and any common stock resulting from reclassification of such
common stock.
E. "Eligible Director" means an Eligible Director - Class 1 or an
Eligible Director - Class 2.
F. "Eligible Director - Class 1" means a director of the Company
who is not an Eligible Director - Class 2 and who is not an active employee of
the Company or any subsidiary of the Company.
<PAGE>
G. "Eligible Director - Class 2" means a director of the Company
designated by the Board as such at the time the director is first elected to
serve on the Board or, in the case of members of the Board at the time this Plan
is adopted, a director of the Company designated by the Board as such at that
time, and, in each case, who is not an active employee of the Company or any
subsidiary of the Company (it being understood that the Board shall have the
right, but shall not be required, to designate a director as an Eligible
Director - Class 2, and that the Board shall designate a director as an Eligible
Director - Class 2 only if, at the time of the designation, the director shall
have waived all future fees for serving as a director of the Company and for
attending Board and committee meetings (other than fees in the nature of
reimbursement for out-of-pocket expenses for travelling to and from and
attending such meetings)).
H. "Fair Market Value" means the value of a Share as of a
particular date determined as follows:
1. If the Common Stock is listed or admitted to trading on that
date on a national securities exchange or is quoted through the National
Association of Securities Dealers' Automated Quotation ("NASDAQ") National
Market System, the closing sale price of a Share as reported on the
relevant composite transaction tape, if applicable, or on the principal
national securities exchange or through the National Market System, as the
case may be, on that date, or, in the absence of reported sales on that
date, the mean between the highest reported bid and lowest reported asked
prices reported on the relevant composite transaction tape or national
securities exchange or through the National Market System, as the case may
be, on that date.
2. If the Common Stock is not listed or quoted as described in
clause 1, but bid and asked prices are quoted through NASDAQ, the mean
between the highest reported bid and the lowest reported asked prices as
quoted through NASDAQ on that date.
3. If the Fair Market Value would otherwise be determined in
accordance with clause 2 but the Committee determines that that would not
properly reflect the Fair Market Value, by any other method the Committee
determines to be reasonable.
4. If the Common Stock is not publicly traded, an amount
determined by the Committee in good faith.
I. "Option" means the right to purchase one Share at a prescribed
purchase price on the terms specified in this Plan.
J. "Share" means a share of Common Stock.
2
<PAGE>
K. "Termination of Directorship" with respect to an individual means
that individual is no longer a director of the Company.
III. Effective Date
--------------
This Plan became effective January 1, 1995 (the "Effective Date"), and
was approved on September 30, 1995 by holders of a majority of the outstanding
Shares at the time of approval. This Plan was amended and restated as of
August , 1996, subject to the approval of the Plan, as amended and restated, by
holders of a majority of the outstanding Shares at the time of approval.
IV. Administration
--------------
A. Duties of the Committee. This Plan shall be administered by the
-----------------------
Committee. The Committee shall have full authority to interpret this Plan and to
decide any questions and settle any controversies or disputes that may arise in
connection with this Plan; to establish, amend and rescind rules for carrying
out this Plan; to administer this Plan; to prescribe the forms of instruments
evidencing Options and any other instruments required under this Plan, and to
change such forms from time to time; and to make all other determinations and to
take all actions in connection with this Plan and the Options as the Committee,
in its sole discretion, deems necessary or desirable. The Committee shall not be
bound to any standards of uniformity or similarity of action, interpretation or
conduct in the discharge of its duties under this Plan. Any determination,
action or conclusion of the Committee shall be final, conclusive and binding on
all parties.
B. Advisors. The Committee may employ such legal counsel,
--------
consultants and agents as it deems desirable for the administration of this
Plan, and may rely upon any advice or opinion received from any such counsel or
consultant and any computation received from any such consultant or agent. The
Company shall pay all the expenses of any such counsel, consultant or agent.
C. Indemnification. To the maximum extent permitted by applicable
---------------
law, no officer of the Company or member or former member of the Committee or of
the Board shall be liable for any action or determination made in good faith
with respect to this Plan or any Option granted under it. To the maximum extent
permitted by applicable law and the certificate of incorporation and by-laws of
the Company, the Company shall indemnify and hold harmless each officer and
member or former member of the Committee and the Board against any cost or
expense (including reasonable fees
3
<PAGE>
of counsel reasonably acceptable to the Company) or liability (including any sum
paid in settlement of a claim with the approval of the Company), and advanced
amounts necessary to pay the foregoing at the earliest time and to the fullest
extent permitted, arising out of any act or omission to act in connection with
this Plan. Such indemnification shall be in addition to any rights of an
indemnitee under applicable law or the certificate of incorporation or by-laws
of the Company. Notwithstanding anything to the contrary in this paragraph,
however, the rights under this paragraph shall not apply to actions or
determinations by an individual with regard to Options granted to that
individual under this Plan.
D. Meetings of the Committee. The Committee shall adopt such rules
-------------------------
and regulations as it deems appropriate concerning its meetings and the
transaction of its business. All determinations by the Committee shall be made
by the affirmative vote of a majority of its members. Any such determination may
be made at a meeting duly called and held at which a majority of the members of
the Committee are in attendance in person or through telephonic communication.
Any written determination signed by all the members of the Committee shall be as
effective as if made by a majority vote of the members at a meeting duly called
and held.
E. Disinterested Directors. Notwithstanding anything to the contrary
-----------------------
in this Plan, the Committee may not take any action that would cause any
Eligible Director to cease to be a "disinterested person" for purposes of Rule
16b-3 under the Act ("Rule 16b-3") with regard to any stock option or other
equity plan of the Company at any time the Common Stock is subject to section
16(b) of the Act.
V. Adjustments
-----------
A. Shares to Delivered; Fractional Shares. Shares to be issued under
--------------------------------------
this Plan shall be made available, at the sole discretion of the Board, either
from authorized but unissued Shares or from issued Shares reacquired by the
Company and held in treasury. No fractional Shares shall be issued or
transferred upon the exercise of any Option, nor shall any compensation be paid
with regard to fractional shares.
B. Number of Shares. Subject to adjustment as provided in this
----------------
Article V, the maximum aggregate number of Shares that may be issued under this
Plan shall be 1,000. Where Options are for any reason cancelled, or expire or
terminate unexercised, the Shares covered by those Options shall again be
available for the grant of Options, subject to the preceding sentence.
C. Adjustments. The existence of this Plan and the Options granted
-----------
under this Plan shall not affect in any way the right or power of the Board or
the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any
issuance of securities, whether or not senior
4
<PAGE>
to the Common Stock, the dissolution or liquidation of the Company or any sale
or transfer of all or any part of its assets or business, or any other corporate
act or proceeding, but this Article V(C) shall govern outstanding Options in
each such case.
1. If the Company effects a subdivision, recapitalization or
consolidation of Shares or effects a stock dividend on Shares without receipt of
consideration, the aggregate number and kind of shares of capital stock issuable
under this Plan shall be proportionately adjusted, and each holder of a then
outstanding Option shall have the right to purchase under that Option, in lieu
of the number of Shares as to which the Option was then exercisable but on the
same terms and conditions of exercise set forth in that Option, the number and
kind of shares of capital stock the holder would have owned after the
subdivision, recapitalization, consolidation or dividend, if, immediately prior
to the subdivision, recapitalization, consolidation or dividend, the holder had
been the holder of record of the number of Shares as to which that Option was
then exercisable.
2. If the Company merges or consolidates with one or more corporations
and the Company is the surviving corporation, thereafter, upon exercise of an
Option theretofore granted, the holder shall be entitled to purchase under that
Option, in lieu of the number of Shares as to which the Option was then
exercisable, but on the same terms and conditions of exercise set forth in that
Option, the number and kind of shares of capital stock or other property to
which the holder would have been entitled pursuant to the agreement of merger or
consolidation, if, immediately prior to the merger or consolidation, the holder
had been the holder of record of the number of Shares as to which that Option
was then exercisable.
3. If the Company is not the surviving corporation in any merger or
consolidation, or if the Company is to be dissolved or liquidated, then, unless
the surviving corporation assumes the Options or substitutes new options that
are determined by the Board in its sole discretion to be substantially similar
in nature and equivalent in terms and value to Options then outstanding, upon
the effective date of the merger, consolidation, liquidation or dissolution,
any unexercised Options shall expire without additional compensation to the
holders; provided that the Committee shall give notice to each holder at least
20 days prior to the merger, consolidation, dissolution or liquidation that the
Options, if unexercised, will expire upon the merger, consolidation,
dissolution, or liquidation, and each holder has the right to exercise in full,
effective as of the consummation of the merger, consolidation, dissolution or
liquidation, all the holder's then outstanding Options (without regard to
limitations on exercise otherwise contained in the Options, other than pursuant
to Article III) contingent on the occurrence of the merger, consolidation,
dissolution or liquidation, and provided that, if the contemplated transaction
does not take place within 90 days after that notice, the notice, accelerated
vesting and exercise shall be null and void. Notwithstanding the foregoing, the
Options held by persons subject to section 16(b) of the Act that
<PAGE>
would not have vested under this Plan except pursuant to Article VI(E)
prior to the effective date of the merger, consolidation, liquidation
or dissolution shall not expire upon the consummation of the merger,
consummation of the merger, consolidation, liquidation or dissolution,
but shall expire 30 days after they would have otherwise vested under
this Plan and shall, after the merger, consolidation, liquidation or
dissolution, represent the right to receive the number and kind of
shares of capital stock or other property to which the holder would
have been entitled, if, immediately prior to the merger, consolidation,
liquidation or dissolution, the holder had been the holder of record of
the number of Shares as to which that Option was then exercisable.
4. If, as a result of any adjustment pursuant to the preceding
paragraphs of this Article V(C), any holder becomes entitled upon
exercise of an Option to receive any shares of capital stock other than
Common Stock, then the number and kind of shares of capital stock so
receivable shall be subject to adjustment from time to time pursuant to
this Article V(C), mutatis mutandis.
------- --------
5. Except as provided above, the issuance by the Company of
shares of stock of any class or securities convertible into shares of
stock of any class, for cash, property or services, upon direct sale,
upon exercise of rights or warrants or upon conversion of shares or
other securities, whether or not for fair value, shall not affect, and
no adjustment by reason of the issuance shall be made with respect to,
the number of Shares subject to Options granted or the purchase price
per Share.
VI. Awards and Terms of Options
---------------------------
A. Grant. Without further action by the Board or the stockholders
-----
of the Company, each Eligible Director on each Annual Date of Grant (as defined
below) shall be automatically granted options to purchase a number of Shares
determined by dividing $25,OOO (subject to adjustment (the "CPI Adjustment") to
reflect upward changes from the Effective Date to the applicable Annual Date of
Grant in the consumer price index (all items)) by the Fair Market Value on the
Annual Date of Grant, in the case of each Eligible Director - Class 1, and a
number of Shares determined by dividing $62,500 (subject to the CPI Adjustment)
by the Fair Market Value on the Annual Date of Grant, in the case of each
Eligible Director - Class 2, provided that no such Option shall be granted, if,
on the date of grant, the Company shall have liquidated, dissolved or merged or
consolidated with another entity and is not the surviving entity (unless this
Plan shall have been assumed by the surviving entity with regard to future
grants). Notwithstanding the foregoing, if an Eligible Director shall have first
become a member of the Board after the preceding Annual Date of Grant, the
number of Shares subject to the option granted to that Eligible Director shall,
in lieu of the number set forth above, be the number set forth above multiplied
by a fraction, the numerator of which shall be the number of days before the
Annual Date of Grant on which options are being granted
6
<PAGE>
to that Eligible Director during which that Eligible Director shall have been a
member of the Board, and the denominator of which shall be 365.
B. Date of Grant. Grants shall be made annually on the Effective
-------------
Date and each anniversary of the Effective Date (the "Annual Date of Grant");
provided that, if the Common Stock is then publicly traded and that date in any
year is a date on which the national securities exchange or automated quotation
system on which the Common Stock is primarily traded or through which it is
primarily quoted is not open for trading or quotation, the grant shall be made
on the first day thereafter on which the relevant exchange or quotation system
is open for trading or quotation.
C. Option Terms
-----------
1. The purchase price per Share ("Purchase Price") deliverable
upon the exercise of an Option shall be 100% of the Fair Market Value at
the time of the grant of the Option, or the par value of a Share, whichever
is greater.
2. Except as otherwise provided in this Plan, each Option (a)
granted prior to August , 1996 shall be exercisable with respect to 20%
of the Shares subject to the Option on or after the first anniversary of
the date of grant and with respect to an additional 20% of the Shares
subject to the Option on or after each of the next four anniversaries of
the date of grant, and (b) granted on or after August , 1996 shall be
exercisable with respect to one-third of the Shares subject to the Option
on or after the first anniversary of the date of grant and with respect to
an additional one-third of the Shares subject to the Option on or after
each of the next two anniversaries of the date of grant.
3. An Option holder electing to exercise one or more Options
shall give written notice to the secretary of the Company of the election
and the number of Options the holder elects to exercise. Shares so
purchased shall be paid for at the time of exercise in cash or by delivery
of unencumbered Shares (valued, for these purposes, at 100% of the Fair
Market Value at the time) owned by the holder for at least six months (or
such longer period as required by applicable accounting standards to avoid
a charge to earnings) or a combination of cash and such Shares.
D. Expiration. Except as otherwise provided in this Plan, if not
----------
previously exercised, each Option shall expire upon the tenth anniversary of the
date of grant.
E. Acceleration of Exercisability. All Options granted and not
------------------------------
previously exercisable shall become fully exercisable immediately upon a Change
of Control (as defined below). A "Change of Control" shall be deemed to have
occurred upon:
7
<PAGE>
1. any individual, entity or group (within the meaning of
section 13d-3 or 14d-1 of the Act) (a "Person") directly or indirectly
being a beneficial owner (within the meaning of Rule 13d-3 under the Act,
except that a Person shall not be deemed a beneficial owner of securities
solely by virtue of that Person's rights under any voting trust or
shareholders agreement in effect on the Effective Date) of more than 50% of
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Voting Securities"); excluding, however, the following: (x)
the Company, (y) any employee benefit plan (or related trust) sponsored or
maintained by the Company or (z) any corporation that becomes a beneficial
owner pursuant to a reorganization, merger, consolidation or similar
corporate transaction (in each case, a "Corporate Transaction"), if,
pursuant to the Corporate Transaction, the conditions described in clauses
(a), (b) and (c) of paragraph 3 below are satisfied; or
2. a change in the composition of the Board, such that the
individuals who, as of the Effective Date, constitute the Board (the Board
as of the Effective Date, the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided that, for purposes of
this clause, any individual who becomes a member of the Board subsequent
to the Effective Date and whose election, or nomination for election by
the Company's stockholders, was approved by the members of the Board who
also are members of the Incumbent Board (or so deemed to be pursuant to
this proviso) shall be deemed a member of the Incumbent Board; but,
provided further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A under the
Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board shall not be so deemed a
member of the Incumbent Board; or
3. the approval by the stockholders of the Company of a
Corporate Transaction, or, if consummation of the Corporate Transaction is
subject, at the time of such approval by stockholders, to the consent of
any government or governmental agency, the obtaining of the consent (either
explicitly or implicitly by consummation); excluding, however, such a
Corporate Transaction pursuant to which (a) the beneficial owners (or
beneficiaries of the beneficial owners) of the outstanding Shares and
Outstanding Voting Securities immediately prior to the Corporate
Transaction will beneficially own, directly or indirectly, more than 60%
of, respectively, the outstanding shares of common stock of the corporation
resulting from the Corporate Transaction and the combined voting power of
the outstanding voting securities of that corporation entitled to vote
generally in the election of directors, in substantially the same
proportions as their ownership, immediately prior to the Corporate
Transaction, of the outstanding Shares and Outstanding Voting Securities,
as the case may be, (b) no Person (other than the Company, any employee
benefit plan (or related trust) of the Company or the
8
<PAGE>
corporation resulting from the Corporate Transaction and any Person
beneficially owning, immediately prior to the Corporate Transaction,
directly or indirectly, 20% or more of the outstanding Shares or
Outstanding Voting Securities, as the case may be) will beneficially own,
directly or indirectly, 20% or more of, respectively, the outstanding
shares of common stock of the corporation resulting from the Corporate
Transaction or the combined voting power of the then outstanding securities
of that corporation entitled to vote generally in the election of directors
and (c) individuals who were members of the Incumbent Board will constitute
at least a majority of the members of the board of directors of the
corporation resulting from the Corporate Transaction; or
4. the approval of the stockholders of the Company of (a) a
complete liquidation or dissolution of the Company or (b) the sale or other
disposition of all or substantially all the assets of the Company;
excluding, however, such a sale or other disposition to a corporation with
respect to which, following the sale or other disposition, (i) more than
60% of the then outstanding shares of common stock of that corporation and
the combined voting power of the then outstanding voting securities of that
corporation entitled to vote generally in the election of directors will be
then beneficially owned, directly or indirectly, by the individuals and
entities who were the beneficial owners (or beneficiaries of the beneficial
owners), respectively, of the outstanding Shares and Outstanding Voting
Securities immediately prior to the sale or other disposition in
substantially the same proportion as their ownership, immediately prior to
the sale or other disposition, of the outstanding Shares and Outstanding
Voting Securities, as the case may be, (ii) no Person (other than the
Company and any employee benefit plan (or related trust) of the Company or
that corporation and any Person beneficially owning, immediately prior to
such sale or other disposition, directly or indirectly, 20% or more of the
outstanding Shares or Outstanding Voting Securities, as the case may be)
will beneficially own, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of that
corporation and the combined voting power of the then outstanding voting
securities of that corporation entitled to vote generally in the election
of directors and (iii) individuals who were members of the Incumbent Board
will constitute at least a majority of the members of the board of
directors of that corporation.
VII. EFFECT OF TERMINATION OF DIRECTORSHIP
-------------------------------------
Upon Termination of Directorship for any reason other than cause, all
outstanding Options shall continue to vest, and remain exercisable until the
expiration of the Option, in accordance with this Plan. Upon Termination of
Directorship for cause, all outstanding Options shall terminate and become null
and void.
9
<PAGE>
VIII. NONTRANSFERABILITY OF OPTIONS
-----------------------------
No Option shall be transferable by the holder otherwise than by will
or under applicable laws of descent and distribution, and, during the lifetime
of the holder, may be exercised only by the holder or the holder's guardian or
legal representative. In addition, except as provided above, no Option shall be
assigned, negotiated, pledged or hypothecated (whether by operation of law or
otherwise), and no Option shall be subject to execution, attachment or similar
process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate
any Option, or in the event of any levy upon any Option by reason of any
execution, attachment or similar process contrary to the provisions of this
paragraph, the Option shall immediately terminate and become null and void.
IX. RIGHTS AS A STOCKHOLDER
-----------------------
A holder of an Option (or a permitted transferee of an Option) shall
have no rights as a stockholder with respect to any Shares covered by the
holder's Options, until the holder (or permitted transferee) shall have become
the holder of record of the Shares, and no adjustments shall be made for
dividends in cash or other property or distributions or other rights in respect
of any Shares, except as otherwise specifically provided in this Plan.
X. TERMINATION, AMENDMENT AND MODIFICATION
---------------------------------------
This Plan shall terminate at the close of business on the tenth
anniversary of the Effective Date (the "Termination Date"), unless terminated
sooner as provided in this Plan, and no Option shall be granted under this Plan
on or after that date. The termination of this Plan shall not terminate any
outstanding Options that by their terms continue beyond the Termination Date.
The Committee at any time or from time to time may amend this Plan to effect (A)
amendments necessary or desirable in order that this Plan and the Options shall
conform to all applicable laws and regulations, and (B) any other amendments
deemed appropriate, provided that no such amendment may be made if either the
authority to make the amendment or the amendment would cause the Eligible
Directors to cease to be "disinterested persons" with regard to this Plan or any
other stock option or other equity plan of the Company for purposes of Rule 16b-
3, and further provided that the provisions of the Plan relating to the amount,
price and timing of, and eligibility for, awards shall not be amended more than
once every six months except to comport with changes in the Internal Revenue
Code of 1986 and the Employee Retirement Income Security Act of 1974.
Notwithstanding the foregoing, the Committee may not effect any amendment that
would require the approval of the stockholders of the Company under Rule 16b-3,
unless the approval is obtained. In no event, unless no longer required as a
condition of compliance with Rule 16b-3, shall the Committee
10
<PAGE>
without the approval of stockholders normally entitled to vote for the
election of directors of the Company:
1. increase the number of Shares available for grants under this
Plan;
2. reduce the minimum exercise price at which any Option may be
exercised;
3. change the requirements as to eligibility for participation
under this Plan;
4. change the number of Options to be granted or the date on which
Options are to be granted; or
5. materially increase the benefits accruing to the holders of
Options under this Plan.
This Plan may be amended or terminated at any time by the stockholders
of the Company.
Except as otherwise required by law, no termination, amendment or
modification of this Plan may, without the consent of the holder of an Option or
the permitted transferee of the holder's Option, alter or impair the rights and
obligations under any then outstanding Option.
XI. ISSUANCE OF STOCK CERTIFICATES;
LEGENDS; PAYMENT OF EXPENSES
----------------------------
A. Stock Certificates. Upon any exercise of an Option and payment
------------------
of the exercise price as provided in the Option, a certificate or certificates
for the Shares as to which the Option has been exercised shall be issued by the
Company in the name of the person or persons exercising the Option and shall be
delivered to or upon the order of that person or those persons, subject,
however, in the case of Options exercised pursuant to clause 3 of Article V(C),
to the merger, consolidation, dissolution or liquidation triggering the rights
under that section.
B. Legends. Certificates for Shares issued upon exercise of an
-------
Option shall bear such legends as the Committee, in its sole discretion,
determines to be necessary or appropriate to prevent a violation of, or to
perfect an exemption from, the registration requirements of the Securities Act
of 1933 or to implement the provisions of any
11
<PAGE>
agreements between the Company and the holder of the Option with respect to the
Shares.
C. Payment of Expenses. The Company shall pay all issue or transfer
-------------------
taxes with respect to the issuance or transfer of Shares, as well as all fees
and expenses incurred by the Company in connection with the issuance or transfer
and with the administration of this Plan.
XII. LISTING OF SHARES AND RELATED MATTERS
-------------------------------------
If at any time the Board or the Committee determines in its sole
discretion that the listing, registration or qualification of the Shares covered
by this Plan upon any national securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the grant of
Options or the award or sale of Shares under this Plan, no Option grant shall be
effective and no Shares shall be delivered, as the case may be, unless and
until such listing, registration, qualification, consent or approval shall have
been effected or obtained, or otherwise provided for, free of any conditions not
acceptable to the Board.
XIII. WITHHOLDING TAXES
-----------------
The Company shall have the right to require, prior to the issuance or
delivery of any Shares, payment by the holder of an Option of any federal, state
or local taxes required by law to be withheld.
XIV. GENERAL
-------
A. Right to Terminate Directorship. This Plan shall not impose any
-------------------------------
obligation on the Company to retain any Eligible Director as a director, nor
shall it impose any obligation on the part of any Eligible Director to remain as
a director.
B. No Trust. Nothing in this Plan and no action taken pursuant to
--------
this Plan (including, without limitation, the grant of any Option) shall create
or be construed to create a trust of any kind, or a fiduciary relationship,
between the Company and any Option holder or the executor, administrator or
other personal representative or designated beneficiary of a holder or any other
person.
C. Notices. Any notice or other communication to the Company under
-------
this Plan shall be addressed to the Company at its principal executive offices
from time to time. Each Eligible Director shall be responsible for furnishing
the Committee with the Eligible Director's current address for the mailing to
that Eligible Director of notices and
12
<PAGE>
other communications. Any notice or other communication to the Eligible Director
shall, if the Company has received notice that the Eligible Director is then
deceased, be given to the Eligible Director's personal representative, if that
representative has previously informed the Company of his or her status and
address (and has provided such reasonable substantiating information as the
Company may request) by written notice under this section. Any notice under this
Plan shall be deemed to have been given when delivered in person or when
dispatched by telegram or one business day after having been dispatched by a
nationally recognized overnight courier service or three business days after
having been mailed by United States registered or certified mail, return receipt
requested, postage prepaid.
D. Severability. If any provision of this Plan is held invalid or
------------
unenforceable, the invalidity or unenforceability shall not affect any other
provision of the Plan, and this Plan shall be construed and enforced as if
that provision had not been included.
E. Costs. The Company shall bear all expenses included in
-----
administering this Plan, including expenses of issuing Common Stock pursuant to
any Options.
F. Controlling Law. This Plan shall be construed and enforced
---------------
according to the laws of the state of incorporation of the Company.
G. Section 16(b). All elections and transactions under this Plan by
-------------
persons subject to section 16 of the Act involving shares of Common Stock
are intended to comply with all exemptive conditions under Rule 16b-3. To the
extent any provision of this Plan or action by the Committee fails so to comply,
it shall be deemed null and void. The Committee may establish and adopt written
administrative guidelines, designed to facilitate compliance with section 16(b)
of the Act, as it may deem necessary or proper for the administration and
operation of this Plan and the transaction of business under this Plan.
13
<PAGE>
EXHIBIT 10.16
November 29, 1993
Paul Feuerman
77 Park Avenue
Apt #2G
New York, NY 10016
Dear Paul:
We are pleased to confirm the terms of your ongoing employment with Schein
Pharmaceutical, Inc. (the "Company") as Vice President and General Counsel.
1. The Company will employ you as Vice President and General Counsel for
the period from the date of this Agreement and continuing until 60 days after
either you or the Company gives written notice to the other that you or it does
not wish to continue your employment hereunder (a "Non-Continuation Notice").
You accept such employment, and will devote your full time and effort to the
business and affairs of the Company, with such duties consistent with your
position as may be assigned to you from time to time by the President (or such
other officer) or Board of Directors of the Company.
2. In consideration of all services rendered by you during your employment
hereunder, the Company will pay you a base salary at the annual rate of
$150,000, payable in accordance with the Company's payroll practices from time
to time in effect. The Company will review your salary at least once each year
and may in itS discretion increase your salary.
3. For as long as you are employed by the Company you will be entitled to
participate in all bonus, incentive, retirement, profit-sharing, life, medical,
disability and other benefit plans and programs of the Company as are from time
to time generally available to other executives of the Company with comparable
responsibilities, subject to the provisions of those programs.
4. Your employment by the Company: (a) shall terminate upon your death; (b)
shall terminate 60 days after a Non-Continuation notice is given; (c) may be
terminated by the Company for cause at any time; and (d) may be terminated by
the Company if you fail to render the services provided for in this Agreement
for a continuous period of six months by reason of physical or mental illness or
disability.
For purposes of this Agreement, "cause" means (i) your willful and
continued failure substantially to perform your duties with the Company, (ii)
fraud, misappropriation or intentional material damage to the property or
business of the Company or (iii) commission of a felony.
5. If your employment is terminated by the Company's giving a Non-
Continuation
<PAGE>
Notice as provided in Section 1 hereof (the giving of such Notice being a
"Termination Event"), the Company will pay you, in full satisfaction of all of
its obligations hereunder (except for its obligations under paragraphs 6 and 8
hereof), 100% of the amount of compensation (base salary and annual cash bonus)
paid (or payable) by the Company to you in respect of the last full fiscal year
of the Company immediately preceding the date of termination (the "Termination
Payment"). If the Termination Event occurs at any time within two years after a
Significant Date, the Termination Payment will be two times the amount provided
in the preceding sentence reduced by the amount of all compensation actually
paid to you by the Company at any time after the sixth-month anniversary of a
Significant Date; provided that in no event will the Termination Payment be less
than 100% of your compensation for the last full fiscal year preceding
termination, as provided in the preceding sentence. Notwithstanding anything to
the contrary in this Agreement, the maximum amount payable under this Section 5
shall be limited to that amount which when added to all other payments (or the
value of all other benefits) that are "Contingent on a change in control" (as
such term is defined in the Internal Revenue Code of 1986, as amended (the
"Code") of the Company, would not constitute a "parachute payment" (as such term
is defined in the Code). The Termination Payment will be paid in a lump sum and
will be subject to any applicable payroll or other taxes required to be
withheld.
Termination of your employment by the Company for any reason other than
for cause or disability, or your voluntary termination of employment on account
of (i) a 10% or more reduction of your base salary by the Company or (ii) the
Company's assigning you duties or responsibilities that are inconsistent, in any
significant respect, with the scope of duties or responsibilities associated
with Vice President and General Counsel or (iii) relocation of your office other
than to a facility which, as of the date of this Agreement, the Company or any
of its subsidiaries conducts operations, will be deemed a Termination Event.
The Termination Payment will not be subject to offset on account of any
remuneration paid or payable to you for any subsequent employment you may
obtain, whether during or after the period during which the Termination Payment
is made and you shall have no obligation whatever to seek any subsequent
employment.
For purposes of this Agreement, a "Significant Date" means the date on
which the persons (or successors designated by such persons or successors)
presently entitled to elect a majority of the Board of Directors of the company
(the "Parent") controlling the Company, are no longer entitled to elect,
directly or indirectly, a majority of the Board of Directors of the Company,
other than as an immediate result of public sales of stock of the Parent or the
Company; provided however that a Significant Date shall not be deemed to have
occurred if on such date the present Chairman of the Company (including
successors designated by such Chairman or by successors) alone or pursuant to
joint authority with others, are entitled to so elect.
6. For one year following a Termination Event, the Company will also provide
you
<PAGE>
with basic health and medical benefits on the terms that such benefits are
provided to all salaried employees of the Company as of the date of your
termination of employment. If the Termination Event occurs at any time within
two years after a Significant Date, the Company will provide the benefits
described in the preceding sentence until the later of (A) the first anniversary
of the Termination Event and (B) the second anniversary of the Significant Date.
These benefits will cease immediately upon your obtaining other full-time
employment. If the Company is unable to provide any of the foregoing benefits
under then existing plans without costs it considers excessive, the Company will
be entitled to satisfy any such obligation by making a payment to you equal to
two times the cost to the Company during the last full year immediately
preceding the Termination Event of providing such benefits to you.
7. At the time you execute this Agreement, you will also execute and deliver to
the Company the enclosed Confidentiality Undertaking.
8. The Company will reimburse you for reasonable attorneys fees and expenses
incurred by you if you are employed hereunder on a Significant Date and prevail
against the Company with respect to a claim hereunder arising on or after such
date.
9. This Agreement shall be binding upon and inure to the benefit of you and
your legal representatives and the Company and any assignee or successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company.
10. This Agreement: contains the entire agreement between the parties with
respect to the subject matter hereof, may not be modified or terminated orally,
and shall be construed and governed in accordance with the laws of the State of
New York.
If the foregoing is acceptable to you, please execute the enclosed copy
of this Agreement and return it to the undersigned.
Very truly yours,
SCHEIN PHARMACEUTICAL, INC.
By: /s/
-------------------------
Authorized Officer
Agreed to and accepted:
/s/ Paul Feuerman
- ---------------------------
Paul Feuerman
<PAGE>
EXHIBIT 10.17
SCHEIN PHARMACEUTICAL, INC.
DEFERRED COMPENSATION AGREEMENT
Agreement dated August 8, 1996 between Schein Pharmaceutical, Inc. (the
"Company") and Paul Feuerman (the "Employee").
The parties agree as follows:
1. Deferred Compensation. Subject to the provisions of this
---------------------
agreement, the Company shall pay the Employee a bonus of $500,000 (the "Deferred
Compensation Amount"), payable as provided herein. The Company shall pay the
employee (a) $100,000 on December 31, 1996,(b) $100,000 on December 31, 1997,
(c) $150,000 on December 31, 1998, and (d) $150,000 on December 31, 1999,
provided the Employee is in the employ of the Company or any of its subsidiaries
at each such date. Notwithstanding the foregoing, however, if the Employee's
employment with the Company and each of its subsidiaries terminates at any time
before December 31, 1999, the amount, if any, payable to the Employee, and the
time any such amount shall be payable, shall be determined under section 2 of
this agreement. All payments under this agreement shall be subject to applicable
federal, state and local withholdings.
2. Termination of Employment
-------------------------
2.1 General. In the event of a termination of the Employee's
-------
employment by the Company and each of its subsidiaries for any reason including,
without limitation, death or Disability (as defined below), other than a
termination for Cause (as defined in section 2.2) or voluntary termination in
accordance with section 2.3, the Company shall pay the Employee (or his or her
estate), not later than thirty days following the termination of employment, the
balance of any unpaid Deferred Compensation Amount. As used in this agreement,
the term
1
<PAGE>
"Disability" means a permanent disability, as determined by the board of
directors of the Company in its sole discretion. A Disability shall be deemed to
occur at the time of that determination by the board of directors.
2.2 Cause. If the Company or any of its subsidiaries terminates the
-----
Employee's employment for Cause, or the Employee terminates his or her
employment in violation of an agreement with the Company or any of its
subsidiaries, or if it is discovered after such termination of employment that
the Employee had engaged in conduct that would have justified termination if
employment for Cause, the Company shall have no obligation to pay any amount
under this agreement. As used in this agreement, termination of employment for
"Cause" means (a) the Employee's willful and continued failure substantially to
perform his or her duties with the Company and its subsidiaries, (b) fraud,
misappropriation or intentional material damage to the property or business of
the Company or any of its subsidiaries or (c) commission of a felony.
2.3 Voluntary Termination. If the Employee voluntarily terminates
---------------------
his employment with the Company and each of its subsidiaries before any of the
payment dates set forth in section 1, the Company shall have no further
obligation to pay any amount under this agreement.
3. General Provisions
------------------
3.1 Right to Terminate Employment. Notwithstanding anything to the
-----------------------------
contrary in this agreement, nothing in this agreement shall be deemed to impose
any obligation on the Company or any of its subsidiaries to continue the
employment of the Employee, or on the Employee to remain in the employ of the
Company or any of its subsidiaries, subject, however, to the provisions of any
other agreement between the Company or any of its subsidiaries and the Employee.
2
<PAGE>
3.2 Payment not Salary. Any deferred compensation payable under this
------------------
agreement shall not be deemed salary or other compensation to the Employee for
the purposes of computing benefits to which he or she may be entitled under any
pension plan or other arrangement of the Company or an affiliate of the
Company for the benefit of its employees.
3.3 Notices. Any notice or communication under this agreement shall
-------
be in writing and shall be deemed to have been duly given when delivered in
person, or by United States mail, to the appropriate party at the address set
forth below (or such other address as the party shall from time to time
specify):
If to the Company, to:
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attention: Corporate Secretary
If to the Employee, to:
the address indicated on the signature page at the end of this
agreement.
3.4 Severability of Provisions. If any provision of this agreement
--------------------------
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions of this agreement and this agreement shall
be construed and enforced as if such provisions had not been included.
3.5 Headings and Captions. The headings and captions under this
---------------------
agreement are provided for reference and convenience only. They shall not be
considered part of this agreement and shall not be employed in the construction
of this agreement.
3
<PAGE>
3.6 Controlling Law. This agreement shall be construed and enforced
---------------
according to the law of the state of New Jersey applicable to agreements made
and to be performed wholly in New Jersey.
3.7 Counterparts. This agreement may be executed in counterparts,
------------
each of which shall be considered an original, but both of which together shall
constitute the same instrument.
3.8 Entire Agreement. This agreement contains a complete statement
----------------
of all the arrangements between the parties with respect to its subject
matter, supersedes all existing agreements between them with respect to that
subject matter may not be changed or terminated orally, and any amendment or
modification must be in writing and signed by the parties to this agreement.
SCHEIN PHARMACEUTICAL, INC.
By: /s/
----------------------------
Authorized Officer
/s/ Paul Feuerman
----------------------------
Paul Feuerman
77 PARK AVE #2G
----------------------------
Address
NY NY 10016
----------------------------
City, State, Zip Code
4
<PAGE>
EXHIBIT 10.18
May 1, 1995
Dariush Ashrafi
105 Hoover Drive
Cresskill, NJ 07627
Dear Dari:
We are pleased to confirm the terms of your ongoing employment with Schein
Pharmaceutical, Inc. (the "Company") as Senior Vice President and Chief
Financial Officer.
1. The Company will employ you as Senior Vice President and Chief Financial
Officer for the period from the date of this Agreement and continuing until 60
days after either you or the Company gives written notice to the other that you
or it does not wish to continue your employment hereunder (a "Non-Continuation
Notice"). You accept such employment, and will devote your full time and effort
to the business and affairs of the Company, with such duties consistent with
your position as may be assigned to you from time to time by the Chairman (or
such other officer) or Board of Directors of the Company.
2. In consideration of all services rendered by you during your employment
hereunder, the Company will pay you a base salary at the annual rate of
$325,000, payable in accordance with the Company's payroll practices from time
to time in effect. The Company will review your salary at least once each year
and may in its discretion increase your salary.
3. For as long as you are employed by the Company you will be entitled to
participate in all bonus, incentive, retirement, profit-sharing, life, medical,
disability and other benefit plans and programs of the Company as are from time
to time generally available to other executives of the Company with comparable
responsibilities, subject to the provisions of those programs.
4. Your employment by the Company: (a) shall terminate upon your death; (b)
shall terminate 60 days after a Non-Continuation Notice is given; (c) may be
terminated by the Company for cause at any time; and (d) may be terminated by
the Company if you fail to render the services provided for in this Agreement
for a continuous period of six months by reason of physical or mental illness or
disability.
For purposes of this Agreement, "cause" means (i) your willfull and
continued failure substantially to perform your duties with the Company (ii)
fraud, misappropriation or intentional material damage to the property or
business of the Company or (iii) commission of a felony.
5. If your employment is terminated by the Company's giving a Non-Continuation
Notice as provided in Section 1 hereof (the giving of such Notice being a
"Termination Event"), the
<PAGE>
Company will pay you, in full satisfaction of all of its obligations hereunder
(except for its obligations under paragraph 6 hereof), 100% of the amount of
compensation (base salary and annual cash bonus) paid (or payable) by the
Company to you in respect of the last full fiscal year of the Company
immediately preceding the date of termination (the "Termination Payment").
The Termination Payment will be paid in a lump sum and will be subject to any
applicable payroll or other taxes required to be withheld.
Termination of your employment by the Company for any reason other than for
cause or disability, or your voluntary termination of employment on account of
(i) a 10% or more reduction of your base salary by the Company, (ii) the
Company's assigning you duties or responsibilities that are inconsistent, in any
significant respect, with the scope of duties or responsibilities associated
with Senior Vice President and Chief Financial Officer, or (iii) relocation of
your office other than to a facility which, as of the date of this Agreement,
the Company or any of its subsidiaries conducts operations, will be deemed a
Termination Event.
The Termination Payment will not be subject to offset on account of any
remuneration paid or payable to you for any subsequent employment you may
obtain, whether during or after the period during which the Termination Payment
is made and you shall have no obligation whatever to seek any subsequent
employment.
6. For one year following a Termination Event, the Company will also provide
you with basic health and medical benefits on the terms that such benefits are
provided to all salaried employees of the Company as of the date of your
termination of employment. These benefits will cease immediately upon your
obtaining other full-time employment. If the Company is unable to provide any
of the foregoing benefits under then existing plans without costs it considers
excessive, the Company will be entitled to satisfy any such obligation by
making a payment to you equal to the cost to the Company during the last full
year immediately preceding the Termination Event of providing such benefits to
you.
7. At the time you execute this Agreement, you will also execute and deliver to
the Company the enclosed Confidentiality Undertaking.
8. This Agreement shall be binding upon and inure to the benefit of you and
your legal representatives and the Company and any assignee or successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company.
9. This Agreement: contains the entire agreement between the parties with
respect to the subject matter hereof, may not be modified or terminated orally,
and shall be construed and governed in accordance with the laws of the State of
New Jersey.
If the foregoing is acceptable to you, please execute the enclosed copy of
this Agreement and return it to the undersigned.
Very truly yours,
<PAGE>
SCHEIN PHARMACEUTICAL, INC.
/s/
- ---------------------------
Authorized Officer
Agreed to and accepted:
/s/ Dariush Ashrafi
- ---------------------------
Dariush Ashrafi
<PAGE>
EXHIBIT 10.19
Martin Sperber
Chairman and Chief Executive Officer
[LOGO] SCHEIN
PHARMACEUTICAL
April 17, 1995
Mr. Dariush Ashrafi
105 Hoover Drive
Cresskill, NJ 07627
Dear Dari:
I am extremely pleased that you have accepted our offer to become our new
CFO. I have revised the terms of the original offer letter to include those
changes you worked out with Oliver. I hope you enjoyed your vacation in
Mexico. Please call me at your earliest convenience. The specifics of
your offer are described below.
TITLE: Your title will be Senior Vice President and CFO.
REPORTING RELATIONSHIP: You will report to Martin Sperber, Chairman and
CEO, Schein Pharmaceutical, Inc.
BASE SALARY: Your base salary will be $325,000 per annum.
BONUS: You will be eligible to receive an annual discretionary bonus of
between 30-40% of your base salary. This bonus plan is based on both the
performance of the Company and the completion of certain agreed upon goals.
Your bonus for calendar year 1995 will be guaranteed at 30% of your base
salary for 1995.
ADDITIONAL COMPENSATION: You will receive additional compensation in the
-----------------------
amount of $300,000 payable in equal quarterly installments over a four year
------------------------------------------------
period. In the event that you voluntarily leave the Company prior to the
end of the four year period, you will lose the remaining unpaid balance.
If, on the other hand, you are asked to leave the Company through no fault
of your own prior to the end of the four year period, the Company will pay
you the remaining balance.
EMPLOYMENT CONTRACT: The Company will offer you an Employment Contract
which specifies initial salary, benefits and title, including a one year
severance benefit.
COMPANY CAR: The Company will furnish you with an automobile in keeping
with our Company auto policy. The company will reimburse you for all
normal operating costs including insurance, gas, normal maintenance and
repairs.
LONG TERM INCENTIVE PLAN: You will receive an initial option grant of 700
shares, with an exercise price of $2,000 per share and a five year vesting
formula. Currently, Schein is a private Company. However, in public
statements, the Company has communicated its desire to become a public
Company within the next 18-24 months. Attached is a spread sheet which
illustrates the value of your initial options at various company stock
prices.
<PAGE>
Dariush Ashrafi
April 17, 1995
Page 2
At this time, the Company does not have an annual option grant plan in
effect. However, while I can make no firm guarantees, the Company does
contemplate an annual option plan. At that time, the Company could begin
offering option grants to you in the range of 200-300 options per year
based on our current capitalization.
I will be glad to go over this Plan with you. There are formal documents
associated with the Plan which you will receive once you join the Company.
SPLIT DOLLAR LIFE INSURANCE: The Company will purchase a life insurance
policy which will be used to provide both a substantial life insurance
benefit and a cash balance for you upon your retirement. The cash balance
targets a retirement income for you above and beyond the qualified Plan.
Specifically, this Plan targets retirement income of 65% of final base
salary at age 65 after 20 years of service. For people with less than 20
years of service, that percentage is pro-rated. There are documents
associated with this policy that I will go over with you upon joining the
Company.
RETIREMENT PLAN: The Schein Retirement and Savings Plan and certain other
associated plans provide for a discretionary annual contribution to your
retirement plan account. The current discretionary annual contribution is
7% of total compensation.
COMPANY BENEFITS: Attached is a full description of the Schein
Pharmaceutical Benefit Plan. You will accrue four weeks of vacation from
your date of hire.
FINANCIAL COUNSELING: The company has contracted with Clarfeld & Company, a
well-known financial counseling firm to offer certain financial counseling
services including: tax preparation, investment advice and estate planning.
If you are already using a financial planner, the company will reimburse up
to $7,000 per year for covered financial counseling services.
Based on our most recent conversation, you will begin working with us on
Monday, May 1. I look forward to having you on board.
Sincerely,
/s/ Martin Sperber
Martin Sperber
Chairman and CEO
/nn
ENCLOSURE
<PAGE>
EXHIBIT 10.20
EMPLOYMENT AGREEMENT dated September 30, 1994 between SCHEIN
PHARMACEUTICAL, INC., a Delaware corporation (the "Company"), and Martin Sperber
("Sperber").
Sperber is currently Chairman of the Board, Chief Executive Officer and
President of the Company. The Company recognizes that Sperber has made
substantial contributions to the success of the Company over a long period of
time and desires to assure the Company of Sperber's continued service and
Sperber desires to continue to perform services for the Company.
In consideration of the agreements hereinafter set forth, the Company
and Sperber agree as follows:
1. EMPLOYMENT
----------
1.1 Capacity; Duties. The Company hereby employs Sperber as the
----------------
Company's Chairman of the Board, Chief Executive Officer and President. Sperber
shall have supervision over the business and affairs of the Company and its
subsidiaries, shall report and be responsible only to the Board of Directors
of the Company, and shall have powers and authority superior to those of any
other officer or employee of the Company or any of its subsidiaries and any
other person involved with the business and affairs of the Company or any of its
subsidiaries. (While Sperber currently holds certain titles and
responsibilities, it is
<PAGE>
contemplated that, at some point, one or more, but not all, of such titles
and/or responsibilities will with Sperber's consent, which consent may be
withheld in his sole discretion, be conferred by the Board of Directors upon
another person or persons without any diminution in the compensation or benefits
payable to Sperber hereunder, so long as Sperber continues to devote
substantially all of his business time to the Company in at least one of his
current capacities). Sperber accepts such employment and agrees to devote
substantially all of his business time and effort in furtherance of his duties
and responsibilities hereunder. In such connection, Sperber shall not be
required to relocate his residence or perform services which would make the
continuance of his current residence inconvenient to him.
1.2 Employment Period. Sperber's employment shall be for the period
-----------------
commencing on January 1, 1994 and ending on the fifth anniversary thereof (the
"Employment Expiration Date"), unless terminated earlier pursuant to Section 4
hereof (the "Employment Period").
2. COMPENSATION
------------
2.1 Base Salary. As compensation for Sperber's employment hereunder,
-----------
Sperber shall be entitled to receive a base salary (the "Base Salary") at a rate
of $600,000 per annum for the first two years of the Employment Period and
$700,000 per annum for the next three years of the Employment Period, payable
2
<PAGE>
in accordance with the Company's normal payroll practices for its senior
executive officers from time to time in effect.
2.2 Incentive Compensation. Sperber shall be entitled to receive for
----------------------
each year of the Employment Period, in addition to his Base Salary, such
incentive compensation as determined by the Compensation Committee of the Board
of Directors (the "Compensation Committee") based on Sperber's performance
during that year (the "Incentive Compensation"). It is contemplated that the
Compensation Committee will award Incentive Compensation to Sperber in the range
of $250,000 to $500,000 per year, in the absence of extraordinary circumstances,
whether positive or negative, when and as the Company awards incentive bonuses
to its other senior executives; provided that if Sperber's employment is
terminated during any year prior to the Employment Expiration Date, the
Incentive Compensation for such year shall be based on objective criteria, if
any, established by the Compensation Committee; and provided, further, that if
no such objective criteria have been established by the Compensation Committee,
the Incentive Compensation for such year shall be an amount equal to $250,000
plus the product of (x) the fraction derived by dividing (i) the sum of the
actual cash incentive compensation earned by each of the three most senior
executives of the Company (other than Sperber) in the year Sperber's
employment is terminated less the sum of the minimum cash incentive compensation
contemplated for such executives for such year (as set forth in the cash
incentive compensation range established for such executives, in
3
<PAGE>
the absence of extraordinary circumstances, by the Compensation Committee), by
(ii) the sum of the maximum cash incentive compensation contemplated for such
executives for such year (as set forth in the cash incentive compensation range
established for such executives, in the absence of extraordinary circumstances,
by the Compensation Committee) less the sum of the minimum cash incentive
compensation contemplated for such executives for such year (as set forth in the
cash incentive compensation range established for such executives, in the
absence of extraordinary circumstances, by the Compensation Committee) and (y)
$250,000.
2.3 Expenses. The Company shall promptly reimburse Sperber for all
--------
expenses reasonably incurred by him in performance of his duties under this
Agreement, in accordance with the Company's policies and practices in effect
from time to time.
3. BENEFITS
--------
3.1 Benefits. During the Employment Period, Sperber shall be entitled
--------
to participate, to the extent eligible thereunder, in all benefit and perquisite
plans, policies and programs, in accordance with the terms thereof, as are
generally provided from time to time by the Company for its senior executive
officers and without limiting the foregoing, those benefits and perquisites
listed on Schedule 1 attached hereto; provided, that if such benefit or
--------
perquisite is one that is
4
<PAGE>
generally provided by the Company on the date hereof to its senior executive
officers, Sperber's right to participate in such benefit or perquisite plan
shall continue only as long as such benefit or perquisite is provided to the
senior executive officers of the Company. Unless Sperber's employment shall have
been terminated for Cause (as defined in Section 4.3 hereof), during the period
commencing on the date Sperber ceases to be an employee of the Company and
continuing for the life of Sperber and for the life of his spouse, the Company
shall continue the participation of Sperber and his spouse in all health,
medical and dental benefit plans, policies and programs in effect from time to
time with respect to the senior executive officers of the Company generally (at
the same levels and at the same premium cost, if any, to the senior executive
officers of the Company generally); provided that, if Sperber's or his spouse's
continued participation thereunder is not possible under the general terms and
provisions thereof, the Company shall provide such benefits at such levels to
Sperber and his spouse either by obtaining other insurance or by self-insuring
such amounts and shall make such additional payments to Sperber and his
spouse as may be necessary to put the recipient in the same after-tax position
as if such benefits were provided under such plans, policies and programs, net
of any payments or benefits either of them shall receive with respect to health,
medical and dental costs other than pursuant to this Section 3.1.
5
<PAGE>
3.2 Supplemental Retirement Plan. Commencing on the first day of the
----------------------------
month following the month in which Sperber is no longer employed by the Company
on a full-time basis for any reason (including death) other than a termination
for Cause, or such later date as Sperber (or his Spouse, if he is not then
living) shall determine, and continuing monthly thereafter during Sperber's (and
upon Sperber's death, his Spouse's) lifetime, the Company shall pay to Sperber
(and upon Sperber's death, his Spouse if she shall then be living) an amount
equal to 45% of Average Monthly Cash Compensation (as defined below), reduced by
(i) the hypothetical monthly amount that would be receivable by Sperber under
the Company's Qualified Retirement Plans (as defined below) if Sperber's
benefits thereunder were being paid as a straight life annuity commencing at age
65, and (ii) the hypothetical monthly and primary social security that would be
received by Sperber if he commenced social security at age 65. Notwithstanding
the foregoing, if Sperber is married at the time of commencement of the
aforesaid benefit, such benefit (but not including the reduction in the benefit
attributable to amounts to be received under the Company's Qualified Retirement
Plans) shall be actuaria11y adjusted until such time as Sperber shall no longer
be married to his Spouse (including by reason of his Spouse's death) to take
into account the hypothetical payment of a reduced joint-and-50% annuity form of
benefit to Sperber and his Spouse rather than the aforesaid straight life
annuity form of benefit. For purposes of this Section, "Average Monthly Cash
Compensation" shall mean Sperber's Average Total Cash
6
<PAGE>
Compensation divided by 12; "Average Total Cash Compensation" shall mean the
average of the highest three of the last five full fiscal years of Total Cash
Compensation (as defined below) occurring prior to the date Sperber's employment
is terminated; "Total Cash Compensation" shall mean (y) for any full fiscal year
during the Employment Period, the sum of Sperber's Base Salary and Incentive
Compensation earned in respect of such fiscal year, or (z) for any full fiscal
year occurring prior to the Employment Period, the sum of Sperber's aggregate
base salary and incentive compensation earned in respect of such fiscal year as
reflected on the Company's books and records; "Qualified Retirement Plans" shall
mean any plan which the Company sponsors or in which it participates and which
is qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), provided that if the benefit under such plan includes
amounts attributable to Sperber's salary reduction or after-tax contribution to
such plan, the amounts attributable to such contributions and earnings thereon
shall be disregarded in determining the monthly amount attributable to such
plan, and "Spouse" shall mean Sperber's spouse, if any, to whom he is married at
the time of commencement of the benefits described in this Section 3.2. In
converting the benefits into a life annuity form or spousal benefit, the
calculations shall be made at the time of commencement of benefits and not
recalculated (unless and until Sperber shall no longer be married to his Spouse
(including by reason of his Spouse's death)), and an interest rate equal to the
Pension Benefit Guaranty Corporation interest rate for immediate
7
<PAGE>
annuities in effect on the first day of the calendar year in which benefits are
to commence shall be used and the 83 IA Male mortality table shall be used. It
is expressly acknowledged and agreed that the determination of the amounts
payable to Sperber and his Spouse under this Section 3.2 shall not in any way
cause Sperber or his Spouse to elect to take monthly distributions from the
Company's Qualified Retirement Plans or any other payment form, and any and all
permissible payment elections shall be available to him and his Spouse.
4. TERMINATION
-----------
4.1 Termination of Employment. Sperber's employment shall terminate
-------------------------
prior to the Employment Expiration Date only (a) upon Sperber's death; (b) by
action of the Board of Directors with or without Cause or due to Sperber's
Disability (as defined in Section 4.2 hereof); (c) by Sperber following a
material breach of this Agreement or the Sperber Option Agreement by the Company
which is not cured within 30 days after notice from Sperber thereof; or (d) by
Sperber upon 30 days prior written notice to the Company.
4.2 Disability. If, by reason of physical or mental disability,
----------
Sperber is unable to carry out his duties for more than 180 days in any twelve-
month period ("Disability"), the Company may terminate Sperber's employment
hereunder. During any period of Disability prior to such termination, Sperber
shall continue to receive all compensation and other benefits provided
8
<PAGE>
herein as if he had not been disabled at the time, in the amounts and in the
manner provided herein, provided that the Company shall be entitled to a credit
with regard to the amount, if any, paid to Sperber during such period under any
long term or other disability plan maintained by the Company for the benefit of
Sperber.
4.3 Cause. For purposes of this Agreement, the term "Cause" shall be
-----
limited to any action by Sperber during the Employment Period (i) involving
willful malfeasance having a material adverse effect on the Company (other than
his voluntary resignation pursuant to Sections 4.1(c) or 4.1(d) hereof), or (ii)
constituting a material breach of this Agreement which is not cured within 30
days after notice from the Company thereof.
5. CONSEQUENCES OF TERMINATION
---------------------------
5.1 Death. If Sperber's employment hereunder is terminated by reason
-----
of Sperber's death, Sperber's estate shall be paid those obligations accrued
hereunder at the date of his death, consisting of, for this purpose, only (a)
Sperber's unpaid Base Salary through the date of termination, (b) any deferred
compensation earned (together with any accrued earnings thereon) but not yet
paid, (c) any Incentive Compensation awarded to Sperber but not yet paid for the
year preceding the year of termination, (d) any Incentive Compensation for the
year of termination as determined in accordance with Section 2.2 hereof, (e)
any accrued vacation pay, and (f) any other amounts or
9
<PAGE>
benefits owing to Sperber or his beneficiaries under the then applicable benefit
plans, policies and programs of the Company. (Such amounts specified in clauses
(a) through (f) above are hereinafter referred to as "Accrued Obligations".)
Unless otherwise previously directed by Sperber (or, in the case of any benefit
plan qualified under Section 401(a) of the Code (a "Qualified Plan"), as may be
required by such Qualified Plan), all Accrued Obligations shall be paid, to the
extent such obligations are able to be paid in a lump sum, to Sperber's estate
or designated beneficiaries, as the case may be, in a lump sum in cash within 30
days after the date of Sperber's death, and otherwise, in accordance with the
terms of the relevant plan or applicable law. Sperber shall also be entitled to
all rights and benefits, to the extent not duplicative of the Accrued
Obligations, under benefit and incentive plans in accordance with the
respective terms of such plans. Nothing in this Section 5.1 shall be deemed to
limit the right of Sperber's spouse to receive the benefits referred to in
Sections 3.1 and 3.2 hereof.
5.2 Disability. If Sperber's employment is terminated by reason of
----------
Sperber's Disability, unless otherwise directed by Sperber, Sperber shall be
paid all Accrued Obligations, to the extent such obligations are able to be paid
in a lump sum, in a lump sum in cash within 30 days after the date of
termination due to Sperber's Disability, and otherwise, in accordance with the
terms of the relevant plan or applicable law. Nothing in this Section 5.2 shall
be deemed to limit Sperber's and his spouse's
10
<PAGE>
right to receive the benefits referred to in Sections 3.1 and 3.2 hereof.
5.3 Termination for Cause. If Sperber's employment with the Company is
---------------------
terminated for Cause, Sperber shall receive only Accrued Obligations (other than
the obligation specified in clause (d) of Section 5.1 hereof) at the date of
termination, to be paid to Sperber, if able to be paid in a lump sum, in a lump
sum in cash within 30 days after the date of termination, and otherwise, in
accordance with the terms of the relevant plan or applicable law. Benefits and
rights under any benefit or incentive plan shall be paid or retained in
accordance with the terms of such plan.
5.4 Company Termination Without Cause. If Sperber's employment with the
---------------------------------
Company is terminated pursuant to Section 4.1(c) hereof or by the Company
without Cause, the Company shall pay or provide, as the case may be, the
following payments and benefits upon such termination:
(a) The Company shall pay to Sperber, if able to be paid in a lump sum,
in a lump sum in cash within thirty days after the date of termination, and
otherwise, in accordance with the terms of the relevant plan or applicable law,
any Accrued Obligations at the date of termination.
(b) The Company shall pay to Sperber, as severance pay, the Base Salary
payable to Sperber from the date of
11
<PAGE>
termination through the Employment Expiration Date, payable when and as the
Company pays salary to its senior executives.
(c) The Company shall pay to Sperber, as severance pay, when and as the
Company pays salary to its senior executives an amount equal to the product of
(i) a fraction, the numerator of which is the Incentive Compensation earned by
Sperber for the last full year of employment 1mmediately prior to termination,
as determined in accordance with Section 2.2 hereof, and the denominator of
which is 365 and (ii) the number of days from the date of termination
through the Employment Expiration Date; provided, however, that the maximum
-------- -------
amount that the Company shall pay to Sperber under this Section 5.4(c) is the
product of (I) the amount referred to in clause (i) above and (II) 730.
(d) Nothing contained in this Section 5.4 shall be deemed to limit in
any way Sperber's and his spouse's right to receive the benefits referred to in
Sections 3.1 and 3.2 hereof.
5.5 Sperber's Voluntary Resignation. If Sperber voluntarily
--------------------------------
terminates his employment with the Company prior to the Employment Expiration
Date other than pursuant to Section 4.1(c) hereof, the Company shall pay or
provide, as the case may be, the following payments and benefits upon such
termination:
(a) The Company shall pay to Sperber, if able to be paid in a lump sum,
in a lump sum in cash within thirty days after the date of termination, and
otherwise, in accordance with
12
<PAGE>
the terms of the relevant plan or applicable law, any Accrued Obligations at
the date of termination.
(b) The Company shall pay to Sperber, as severance pay, if any, a
lump sum in an amount determined by the Compensation Committee of the Board of
Directors.
(c) Nothing contained in this Section 5.5 shall be deemed to limit
in any way Sperber's and his spouse's right to receive the benefits referred
to in Sections 3.1 and 3.2 hereof.
6. CONFIDENTIAL INFORMATION, NON-COMPETITION, ETC.
-----------------------------------------------
(a) Sperber shall not, without the prior written consent of the Company,
communicate or divulge (other than in the regular course of the Company's
business) to anyone other than the Company, its subsidiaries and those
designated by it, any confidential information, knowledge or data relating to
the Company or any of its subsidiaries or affiliates, or to any of their
respective businesses, obtained by Sperber before or during the Employment
Period from the Company or any of its subsidiaries, except to the extent (A)
Sperber determines in good faith that it is in the best interest of the Company
to do so, (B) Sperber is compelled pursuant to an order of a court or other body
having jurisdiction over such matter to do so (in which case the Company shall
be given prompt notice of such intention to divulge and an opportunity to object
to such disclosure), or (C) such information, knowledge or data is public
knowledge or
13
<PAGE>
generally known within the Company's industry other than through improper
disclosure by Sperber.
(b) Until the second anniversary of the date on which the Company makes
its final Base Salary payment to Sperber pursuant to this Agreement, Sperber
will not (other than on behalf of the Company) directly or indirectly:
(i) as an individual proprietor, partner, stockholder, officer,
employee, director, joint venturer, investor, lender, consultant or in
any other capacity whatsoever (other than as the holder of not more than
three percent of the total outstanding stock of a publicly held
company), engage in the business of developing, producing, marketing or
selling products developed or being developed, produced, marketed or
sold by the Company while Sperber was employed or retained as consultant
by the Company; or
(ii) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company (other than his personal secretary)
to terminate their employment with, or otherwise cease their
relationship with, the Company.
(c) If any restriction set forth in Section 6(b) hereof is found by any
court of competent jurisdiction or arbitrator to be unenforceable because it
extends for too long a period of time or over too great a range of activities or
in too broad a geographic area, it shall be interpreted to extend only
14
<PAGE>
over the maximum period of time, range or activities or geographic area as to
which it may be enforceable.
(d) The restrictions contained in Sections 6(a) and 6(b) hereof are
necessary for the protection of the business and goodwill of the Company and are
considered by Sperber to be reasonable to such purpose. Sperber agrees that any
breach of Sections 6(a) or 6(b) hereof will cause the Company substantial and
irreparable damage and therefore, in the event of any such breach, in addition
to such other remedies which may be available, the Company shall have the right
to seek specific performance and injunctive relief. In no event shall an
asserted violation of the provisions of Sections 6(a) or 6(b) hereof constitute
a basis for deferring or withholding any amounts otherwise payable to Sperber
under this Agreement.
(e) Upon termination of Sperber's employment with the Company, Sperber
shall promptly deliver to the Company all records, files, memoranda, notes,
data, reports, price lists, customer lists, plans, computer programs,
software, software documentation, laboratory and research notebooks and other
documents (and all copies or reproductions of such materials in his possession
or control) belonging to the Company.
7. NO MITIGATION; NO SET-OFF
-------------------------
The Company agrees that if Sperber's employment with the Company is
terminated (including, without limitation, as provided in Section 4.1(c) hereof)
prior to the Employment
15
<PAGE>
Expiration Date for any reason whatsoever, Sperber is not required to seek other
employment or to attempt in any way to reduce any amounts payable to Sperber by
the Company pursuant to this Agreement. Further, the amount of any payment
provided for in this Agreement shall not be reduced by any compensation earned
by Sperber as the result of employment by another employer or otherwise; and the
amount of any benefit (other than the health, medical and dental benefits
provided for in Section 3.1 hereof) provided for in this Agreement shall not be
reduced by any benefit provided to Sperber as the result of employment by
another employer or otherwise. The Company's obligations to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder or under any other agreement shall not be affected by any
circumstances, including without limitation any set-off, counterclaim,
recoupment, defense or other right which the Company or any other person may
have against Sperber.
8. LEGAL FEES
----------
If Sperber sues to collect or negotiates and reaches a settlement
for any part or all of the payments provided for hereunder (or otherwise
successfully enforces the terms of this Agreement) by or through a lawyer or
lawyers, the Company shall advance all reasonable costs of such collection or
enforcement, including reasonable legal fees and disbursements and other fees
and expenses which Sperber may incur, promptly after submission of
documentation reasonably acceptable to the Company in respect
16
<PAGE>
of such costs and expenses. All amounts paid by the Company shall promptly be
refunded to the Company if and when a court of competent jurisdiction issues an
unappealable order to the effect that the Company is entitled to have such sums
refunded.
9. SUCCESSORS; BINDING AGREEMENT
-----------------------------
(a) The Company shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business or assets of the Company to expressly assume and agree in writing
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place,
provided that Sperber need only be the senior executive officer with the
authority, powers and responsibilities set forth in Section 1.1 hereof with
respect to the subsidiary or subdivision which operates the business of the
Company as it exists on the date of such business combination. Failure of the
Company to obtain such express assumption and agreement at or prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle Sperber to compensation and benefits from the Company in the same
amount and on the same terms to which Sperber would be entitled hereunder if the
Company terminated his employment without Cause, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the date of termination. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business
17
<PAGE>
or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(b) The Company may not assign this Agreement except in connection with,
and to the acquiror of, all or substantially all of the business or assets of
the Company, provided such acquiror expressly assumes and agrees in writing to
perform this Agreement as provided in Section 9(a) hereof.
(c) This Agreement shall inure to the benefit of and be enforceable by
Sperber and his personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Sperber should die
while any amount would still be payable to him hereunder had he continued to
live, a11 such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to his devisee, legatee or other
designee or, if there is not such designee, to his estate.
(d) The parties agree that Sperber's current spouse is a third party
beneficiary of the provisions of Sections 3.1, 3.2 and Article 5 hereof, with
the right to enforce such provisions as fully as if she were a party to this
Agreement.
10. MISCELLANEOUS
-------------
(a) Any notices or other communications required or permitted to be
given hereunder shall be in writing and shall be deemed to have been duly made
or given when hand delivered, one
18
<PAGE>
business day after being transmitted by telecopier (confirmed by mail) or sent
by overnight courier against receipt, or five days after being mailed by
registered or certified mail, postage prepaid, return receipt requested to the
party to whom such communication is given at the address set forth below, which
address may be changed by notice given in accordance with this Section:
If to the Company:
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham, N.J. 07932
Attention: Corporate Secretary
If to Sperber:
Martin Sperber
6 Casper Court
Florham Park, N.J. 07932
(b) If any provision of this Agreement shall be declared to be invalid
or unenforceable, in whole or in part, such invalidity or unenforceability shall
not affect the remaining provisions hereof which shall remain in full force and
effect.
(c) No provision of this Agreement may be modified, waived or discharged
orally, but only by a waiver, modification or discharge in writing signed by
Sperber and such officer as may be designated by the Board. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
in compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of
19
<PAGE>
similar or dissimilar provisions or conditions at the time or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
(d) This Agreement represents the entire agreement of the parties and
shall supersede any and all previous contracts, arrangements or understandings
between the Company and Sperber with respect to the subject matter hereof.
(e) This Agreement shall be construed, interpreted, and governed in
accordance with the laws of New York, without reference to rules relating to
conflicts of law.
(f) The section headings herein are for the purpose of convenience only
and are not intended to define or limit the contents of any section.
(g) The parties may sign this Agreement in counterparts, all of which
shall be considered one and the same instrument.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
day and year first above written.
SCHEIN PHARMACEUTICAL, INC.
By: /s/
-------------------------------
Authorized Officer
/s/ Martin Sperber
----------------------------------
MARTIN SPERBER
21
<PAGE>
EXHIBIT 10.21
SCHEIN HOLDINGS, INC.
OPTION AGREEMENT
PURSUANT TO THE
1993 STOCK OPTION PLAN
----------------------
AGREEMENT, dated September 30, 1994 between Schein Holdings, Inc., a
--
New York corporation (the "Company"), and Martin Sperber ("Sperber").
The Stock Option Committee of the Board of Directors of the Company (the
"Committee"), pursuant to the Company's 1993 Stock Option Plan, annexed hereto
as Exhibit A (the "Plan"), has authorized the granting to Sperber, as a
Key Employee (as defined in the Plan), of a nonqualified stock option (the
"Option") to purchase the number of shares of the Company's common stock, par
value $.01 per share (the "Common Stock"), set forth below. The parties hereto
desire to enter into this Agreement in order to set forth the terms of the
Option.
The Shareholders of the Company have approved the terms of the Option
pursuant to an Approval Agreement of even date herewith.
The parties hereto agree as follows:
1. Tax Matters. No part of the Option granted hereby is intended to
-----------
gualify as an "incentive stock option" under Section 422 of the Internal Revenue
Code of 1986, as amended.
2. Grant of Option. Subject in all respects to the Plan and the terms
---------------
and conditions set forth herein, Sperber is hereby granted the Option to
purchase from the Company up to 4,795 Shares (as defined in the Plan), at a
price per Share of $2,000 (the "Option Price").
3. No Vesting. The Option may be exercised by Sperber, in whole or in
----------
part, at any time or from time to time prior to the expiration of the Option as
provided herein.
4. Effect of Termination of Emp1oyment
------------------------------------
(a) Upon Termination of Employment (as defined in the Plan) of Sperber,
all outstanding Options not exercised by Sperber prior to such Termination of
Employment shall remain exercisable by Sperber to the extent not exercised for
the following time periods (subject to Section 5):
(i) In the event of Sperber's death, such Options shall remain
exercisable (by Sperber's estate or by the person
<PAGE>
given authority to exercise such Options by Sperber's will or by operation of
law) for a period of one year from the date of Sperber's death, provided
that the Committee, in its discretion, may at any time extend such time period
to up to three years from the date of Sperber's death.
(ii) In the event of Sperber's Disability (as defined in the Plan), or
Sperber retires at or after age 65 (or, with the consent of the Committee or
under an early retirement policy of the Company, before age 65), or if Sperber's
employment is terminated by the Company without Cause (as defined in Sperber's
Employment Agreement dated of even date herewith), such Options shall remain
exercisable for one year from the date of Sperber's Termination of Employment,
provided that the Committee, in its discretion, may at any time extend such time
period to up to three years from the date of Sperber's Termination of
Employment.
(b) Upon the Termination of Employment of Sperber for Cause in
accordance with the Employment Agreement between Sperber and the Company, or if
it is discovered after any other Termination of Employment that Sperber had
engaged in conduct that would have justified a Termination of Employment for
Cause in accordance with the Employment Agreement, all outstanding Options shall
immediately be canceled.
(c) In the event of Termination of Employment for any reason other than
as provided in Section 4(a) or 4(b), all outstanding Options not exercised by
Sperber prior to such Termination of Employment shall remain exercisable for a
period of three months after such termination, provided that the Committee in
its discretion may extend such time period to up to one year from the date of
Sperber's Termination of Employment.
5. Exercise of Option.
------------------
(a) The Option may be exercised by Sperber by delivering notice to the
Committee (as defined in the Plan) of the election to exercise the Option and of
the number of Shares with respect to which the Option is being exercised, which
notice shall be accompanied by payment in full of the Option Price of the
Shares. Payment for such Shares may be made as follows:
(i) in cash or by certified check, bank draft or money order payable to
the order of the Company;
(ii) (A) through the delivery of unencumbered Shares (including Shares
acquired under the Option then being exercised), provided such Shares (or such
Option) have been owned by Sperber for at least six months, or such longer
period as required by applicable accounting standards to avoid a charge to
earnings, (B) through a combination of Shares and cash as provided above
(C) if so permitted by the Committee, by delivery
2
<PAGE>
of a promissory note of Sperber to the Company or (D) if so permitted by the
Committee, by a combination of cash (or cash and Shares) and Sperber's
promissory note; provided, that, if the Shares delivered upon exercise of the
--------
Option is an original issue of authorized Shares, at least so much of the
exercise price as represents the par value of such Shares shall be paid in cash
or by a combination of cash and Shares; or
(iii) on such terms and conditions as may be acceptable to the
Committee and in accordance with applicable law.
(b) Upon receipt of payment and satisfaction of the requirements, if
any, as to withholding of taxes set forth in the Plan, the Company shall deliver
to Sperber as soon as practicable a certificate or certificates for the Shares
then purchased.
6. Termination. Unless terminated as provided below or otherwise
-----------
pursuant to the Plan, the Option shall expire on the tenth anniversary of this
Agreement, or earlier as provided in the Plan upon a Termination of Employment
of Sperber.
7. Restriction on Transfer of Option. The Option granted hereby is
---------------------------------
not transferable otherwise than by will or under the applicable laws of descent
and distribution and during the lifetime of Sperber may be exercised only by
Sperber or Sperber's guardian or legal representative. In addition, the Option
shall not be assigned, negotiated, pledged or hypothecated in any way (whether
by operation of law or otherwise), and the Option shall not be subject to
execution, attachment or similar process. Upon any attempt to transfer, assign,
negotiate, pledge or hypothecate the Option, or in the event of any levy upon
the Option by reason of any execution, attachment or similar process contrary to
the provisions hereof, the Option shall immediately become null and void.
8. Restriction on Transfer of Shares.
------------------------------------
(a) Except as provided below, Sperber agrees that he will not, prior to
an initial public offering of the Company (an "IPO"), sell, transfer, give,
pledge, exchange, bequest, devise, encumber or otherwise dispose of, whether
voluntarily or by operation of law, all or any part of the Shares issued to
Sperber upon the exercise of this Option, except to members of his immediate
family who agree in writing to take the Shares subject to all of the terms and
conditions set forth in this Agreement, including, without limitation, Sections
8, 9 and 10 hereof.
(b) If Sperber receives a bona fide offer (an "Outside Offer") for
Sperber to sell all or any part of the Shares issued to Sperber upon the
exercise of this Option, and Sperber desires to accept such Outside Offer,
Sperber may not sell such Shares, prior to an IPO, unless Sperber first offers
in writing (the
3
<PAGE>
"Sperber Offer") the Shares desired to be so transferred for sale to the Company
at the Formula Price (as defined in Section 9 below) and otherwise on
substantially the same terms and conditions contained in the Outside Offer. The
Sperber Offer shall state the price and all other material terms contained in
the Outside Offer.
(c) The Company shall have the right (but not the obligation) to accept
the Sperber Offer as to all or any part of the Shares offered within 15 days of
receipt of the Sperber Offer.
(d) At the closing of a purchase hereunder, the Company shall deliver,
at the Company's option, (i) a five-year note in a principal amount equal to the
purchase price of the Shares, such note to bear interest at the rate of interest
charged by banks to its prime commercial customers, (ii) cash in an amount equal
to the purchase price of the Shares or (iii) any combination of (i) and (ii)
above, against receipt from Sperber of certificates for the Shares, free and
clear of all liens, claims, pledges, equities and encumbrances of any nature
whatsoever, duly endorsed in blank or with duly executed stock powers attached,
in proper form for transfer and with such supporting instruments, if any, as
reasonably may be required to effect transfer of registration.
(e) If the Company (through no fault of Sperber) fails to purchase (on
a date and at a time and place designated by the Company) all the Shares as to
which the Company has accepted the Sperber Offer within 90 days of the Company's
receipt of the Sperber Offer, then, unless Sperber sells the Shares in
accordance with the Outside Offer within 30 days of such failure, Sperber shall
again be required to comply with the provisions of this Section 8 as to any
subsequent proposed sale.
9. Repurchase of Shares. If, prior to an IPO, Sperber is no longer
--------------------
employed by the Company (or any of the Company's subsidiaries), the Company
shall have the option, exercisable at any time prior to an IPO, to purchase from
Sperber or Sperber's estate, as the case may be, all or any part of the Shares
issued to Sperber upon the exercise of this Option (other than Shares that have
been sold by Sperber pursuant to Section 9 hereof), at a price equal to the
Formula Price. "Formula Price" means the price determined by multiplying (a)
the Product (as defined below) divided by the aggregate number of shares of
common stock of the Company (whether voting or non-voting) outstanding on the
Quarter End Valuation Date (as defined below) and (b) the number of Shares as to
which the Company's option is exercised. "Product" means the amount determined
by multiplying (x) 48 and (y) the average quarterly After-Tax Earnings (as
defined below) of the Company over the 12 full fiscal quarters ending as of the
last day of the fiscal quarter end coincident with or immediately preceding the
exercise by the Company of such
4
<PAGE>
option. "After-Tax Earnings" shall mean net income as derived from the
Company's applicable statements of income after deduction for all taxes and
dividends declared in respect of the Company's preferred stock and shall be
determined, for the purposes of this Agreement without taking into account
any extraordinary items and any expense recognized in 1992 or 1993 associated
with the corporate restructuring (including, without limitation, the negotiation
and consummation of the transactions relating to the Company on or about
December 24, 1992) or in preparation in 1992 or 1993 for an initial public
offering, net of applicable tax benefit. Except as otherwise expressly provided
herein, After-Tax Earnings of the Company shall be determined by the Company on
a basis consistent with the preceding practice of the Company. "Quarter End
Valuation Date" means the last date of the fiscal quarter coincident with or
immediately preceding the exercise by the Company of such option.
10. Come-Along: Bring-Along; Right to Receive Cash; Right to Put.
------------------------------------------------------------
(a) Prior to an IPO, in the event of an offer for the sale of a
majority of the outstanding shares of common stock of the Company (including,
for this purpose, an offer for a sale of a number of Shares that, when added to
other Shares previously acquired by the offeror or its affiliates, constitutes
such a majority) that the offeree or offerees of such offer desire to accept,
the Company shall use its reasonable best efforts to have the Shares included,
to the extent Sperber desires to have them included, in such sale (or, at the
Company's election, to have the Company purchase the Shares) at the same price
per Share, and on the same terms and conditions, as the other Shares included in
such sale and, to the extent practicable, on a pro rata basis with the other
Shares in accordance with the respective sellers' ownership of Shares.
(b) Prior to an IPO, in the event of an offer for the sale of a
majority of the outstanding shares of common stock of the Company (including,
for this purpose, an offer for a sale of a number of Shares that, when added to
other Shares previously acquired by the offeror or its affiliates, constitutes
such a majority) that the offeree or offerees of such offer desire to accept,
Sperber agrees to have his Shares included, to the extent the offeree or
offerees desire to have such Shares included, in such sale (or, at the Company's
election, to have the Company purchase the Shares) at the same price per Share,
and on the same terms and conditions, as the other Shares included in such sale
and, to the extent practicable, on a pro rata basis with the other Shares in
accordance with the respective sellers' ownership of Shares.
(c) Notwithstanding anything to the contrary herein (but subject to
Section 17 of the Plan), if a Change of Control (as defined in the Plan) occurs
prior to an IPO, Sperber may, but
5
<PAGE>
shall not be required to, elect, by written notice given to the Company within
30 days after the Company gives Sperber written notice of the Change of Control
and by delivery of such documents and instruments of transfer as the Company may
reasonably request to sell, and, upon such election, the Company shall
purchase, all, but not fewer than all, the Shares previously purchased upon
exercise of the Option and all rights with respect to the portion of the Option
that is then exercisable for an amount in cash equal to (i) the product of (A)
the sum of (I) the number of such Shares previously purchased plus (II) the
number of Shares as to which such portion of the Option is then exercisable and
(B) the price per Share paid in connection with the transaction giving rise to
the Change of Control, reduced by (ii) the total exercise price payable for the
number of Shares referred to in (i) (A) (II) above.
11. Rights as a Stockholder. Sperber shall have no rights as a
-----------------------
stockholder with respect to any Shares covered by the Option until Sperber shall
have become the holder of record of the Shares, and no adjustments shall be made
for dividends in cash or other property, distributions or other rights in
respect of any such Shares, except as otherwise specifically provided for in the
Plan.
12. Provisions of Plan Control. This Agreement is subject to all the
--------------------------
terms, conditions and provisions of the Plan and to such rules, regulations and
interpretations relating to the Plan as may be adopted by the Committee and as
may be in effect from time to time. The annexed copy of the Plan is
incorporated herein by reference. If and to the extent that this Agreement
conflicts or is inconsistent with the terms, conditions and provisions of the
Plan, the Plan shall control, and this Agreement shall be deemed to be modified
accordingly.
13. Notices. Any notice or communication given hereunder shall be in
-------
writing and shall be deemed to have been duly given when delivered in person, or
by United States mail, to the appropriate party at the address set forth below
(or such other address as the party shall from time to time specify):
6
<PAGE>
If to the Company, to:
Schein Holdings, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
ATTENTION: Corporate Secretary
If to Sperber, to:
Martin Sperber
6 Casper Court
Florham Park, New Jersey 07932
14. No Obligation to Continue Employment. This Agreement does not
------------------------------------
guarantee that the Company will employ Sperber for any specific time period, nor
does it modify in any respect the Company's right to terminate or modify
Sperber's employment or compensation.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
SCHEIN HOLDINGS, INC.
By: /s/
---------------------
Authorized Officer
/s/ Martin Sperber
--------------------------
MARTIN SPERBER
7
<PAGE>
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT dated as of July 28, 1995 by and between MARSAM
PHARMACEUTICALS INC., a Delaware corporation having its principal office at
Building 31, Olney Avenue, Cherry Hill, New Jersey (the "Company"), and Marvin
S. Samson, residing at 1905 Owl Court, Cherry Hill, New Jersey 08003 (the
"Executive").
The parties are entering into this Agreement to set forth and confirm
their respective rights and obligations with respect to Executive's employment
by the Company.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto mutually agree as follows:
1. Employment and Term. (a) The Company hereby employs the Executive as
-------------------
president, chief executive officer and chief operating officer of the Company
and, as of the Acquisition Date, the Executive shall be appointed an Executive
Vice President of Schein Pharmaceutical, Inc., a Delaware corporation ("SPI")
(collectively, the "Position"). The Executive agrees to serve in the employ of
the Company in the Position for a term (the "Initial Term") which shall commence
on the date of the acquisition by SPI or a subsidiary of SPI of more than a
majority of the outstanding shares of the common stock of the Company on a
fully-diluted basis (the "Acquisition Date"), and, subject to paragraphs l(b)
and l(c) hereof, shall terminate on the fifth anniversary of the Acquisition
Date.
(b) Unless written notice terminating the term of employment is given by
either the Company or the Executive not less than one hundred eighty (180) days
in advance of the termination date of this Agreement, this Agreement shall be
automatically extended, on all of the terms and conditions hereof, for
additional periods of one-year.
(c) The Company shall have the right to terminate the Executive's
employment hereunder prior to the fifth anniversary of the Acquisition Date, but
only for cause. For purposes of this Agreement, "cause" means (i) the
Executive's willful and continued failure substantially to perform his duties
with the Company or SPI, (ii) fraud, misappropriation or intentional material
damage to the property or business of the Company or SPI or (iii) the
Executive's admission or conviction of, or plea of nolo contendere to, any
felony that, in the judgment of the Board of Directors of the Company (the
"Board"),
<PAGE>
adversely affects the Company's reputation or the Executive's ability to carry
out his obligations under this Agreement. The Executive shall not be entitled to
any compensation under this Agreement for any period after such termination
pursuant to this paragraph 1(c) except to the extent the Executive is entitled
to receive benefits under the Plans (as defined herein) following such
termination.
(d) The Executive shall have the right to terminate his employment
hereunder at any time prior to the fifth anniversary of the Acquisition Date.
(e) Anything in this Agreement to the contrary notwithstanding, the
Company, at its option, may retain the Executive as a consultant for a period
(the "advisory period") of one year after (i) the Initial Term (or any extension
under paragraph 1(b) hereof) or (ii) a termination by the Executive pursuant to
paragraph 1(d) hereof, all on the terms and conditions hereinafter provided, in
which event, the Executive shall continue to be bound by the restrictions of
paragraph 7(b) hereof during the advisory period, as if he were an employee for
such period. During the advisory period, the Executive will provide such
advisory services concerning the business, affairs and management of the Company
as may be from time to time requested by the Company, but the Executive shall
not be required to devote more than five (5) days (up to an aggregate of forty
(40) hours) each month to such services, which shall be performed at a time
mutually convenient to both parties. The Company, at its option, may terminate
the advisory period upon not less than thirty (30) days' prior written notice;
provided, that upon termination of the advisory period, the Executive shall no
- --------
longer be bound by the restrictions of paragraph 7(b) hereof. The Executive may,
subject to the restrictions set out in paragraph 7(b) hereof, engage in other
employment during the advisory period, and his advisory services hereunder shall
be required only at times and places consistent with his other employment and
his private activities. During the advisory period, the Company shall pay the
Executive a consulting fee in an amount equal to the Executive's base salary
immediately prior to the termination of employment, payments of such fee to be
made in accordance with the Company's standard payroll policies in effect from
time to time, and provide the Executive and his eligible dependents with health
insurance coverage and disability insurance coverage for the Executive
comparable to coverage while he was an employee hereunder or, at the Company's
option, reimburse the Executive in an amount equal to not more than 125% of the
cost to the Company thereof while an employee during the previous year;
provided, however, that, should the Executive engage in other employment, such
- -------- -------
consulting fee shall be reduced, on a dollar-for-dollar, basis, by an amount
equal to the compensation received by the Executive for such other employment;
and the consulting fee shall be reduced, on a dollar-for-dollar basis, by
compensation paid to the Executive by the Company under paragraph 3(d) hereof
for the
2
<PAGE>
same period of time. Without limiting the application of any other provision of
this Agreement during the advisory period, the Company expressly confirms that
the provisions of paragraph 4 hereof shall apply during the advisory period.
2. Duties. (a) Subject to the ultimate control and discretion of the
------
Board, the Executive shall serve in the Position and perform all duties and
services of an executive nature commensurate with the Position which the Board
may from time to time reasonably assign to him. Except for travel normally
incidental and reasonably necessary to the business of the Company and the
duties of the Executive hereunder, the duties of the Executive shall be
performed in the Cherry Hill, New Jersey area. SPI shall also make available to
the Executive an office for his use in its corporate headquarters.
(b) The Executive shall, consistent with his position as president
and chief executive officer of the Company and executive vice president of SPI,
be responsible for the management of the Company and its organizational
structure, subject to the Board and to the provisions of this Agreement, his
authority to include, without limitation, supplier relationships and salary,
perquisites and, with respect to stock options, (subject additionally to SPI's
Board of Directors) stock options for SPI common stock for the Company's
employees.
(c) The Executive shall, consistent with his position as president
and chief executive officer of the Company and executive vice president of SPI,
be responsible for, and shall co-ordinate, all product development activities
for SPI's and the Company's parenteral products.
(d) The Executive shall, consistent with his position as president
and chief executive officer of the Company and executive vice president of SPI,
be responsible for and shall co-ordinate, all sales and marketing activities for
SPI's and the Company's hospital and home care accounts.
(e) The Executive shall devote all of the Executive's time and
attention during regular business hours to the performance of the Executive's
duties hereunder and, during the term of his employment hereunder, shall not
engage in any other business enterprise which requires the Executive's personal
time or attention, unless granted the prior permission of the Board. The
foregoing shall not prevent the Executive's purchase, ownership or sale of any
interest in, or the Executive's engaging (but not to exceed an average of five
hours per week) in, any business which does not compete with the business of the
Company or SPI or any subsidiary of the Company or SPI or the Executive's
involvement in charitable or community activities, provided, that the time and
attention which the Executive devotes to such business and activities does not
materially interfere with the performance of his duties hereunder.
3
<PAGE>
(f) The Executive shall be entitled to such personal vacations with
full compensation, and to be taken at such time or times, as the Executive and
the Company shall mutually determine.
3. Compensation. (a) For all services to be rendered by the Executive
------------
hereunder, the Company shall pay the Executive an annual salary at a rate of not
less than Four Hundred Thousand Dollars ($400,000) per year, plus such other
compensation as may, from time to time, be determined by the Company. Such
salary and other compensation shall be payable in accordance with the Company's
normal payroll practices as in effect from time to time. At the end of each
fiscal year, the Company shall review the Executive's salary level, and shall
increase such level for the following year to such amount as the Board may
determine.
(b) The compensation provided for in paragraph 3(a) above shall be in
addition to such rights as the Executive may have, during the Executive's
employment hereunder or thereafter, to participate in and receive benefits from
or under any bonus, stock option, pension, profit-sharing, insurance or other
employee benefit plan or plans of the Company which may exist now or hereafter
(collectively, the "Plans"). During the period ending on the first anniversary
of the Acquisition Date, the Executive shall have the right, on a basis
reasonably acceptable to the Company and SPI (such acceptance not to be
unreasonably withheld), to elect to participate (with credit to the greatest
extent possible for prior years of service with the Company), to the extent he
is eligible, and subject to applicable law, in one or more SPI benefit plans in
which senior executives of SPI participate, in lieu of one or more Company
benefit plans relating to the same type of benefit.
(c) If the Company terminates the Executive's employment hereunder,
other than in accordance with paragraph 1(c) above, the Company shall continue
to pay the Executive the salary provided in paragraph 3(a) above, in accordance
with the Company's normal payroll practices in effect from time to time, and
provide the Executive and his eligible dependents with health insurance coverage
and disability insurance coverage comparable to coverage while he was an
employee hereunder or, at the Company's option, reimburse the Executive in an
amount equal to not more than 125% of the cost to the Company thereof while an
employee during the previous year, all for the remainder of the Initial Term or
any extension thereof; and the Executive shall have no further or other rights,
and the Company no further or other liabilities or obligations, under this
Agreement.
(d) If the Executive terminates his employment hereunder prior to the
end of the Initial Term under paragraph l(d) above, the Company shall continue
to pay the Executive 50% of the salary provided for in paragraph 3(a) above, in
accordance with the Company's normal practices in effect from time to time,
4
<PAGE>
and provide the Executive and his eligible dependents with health insurance
coverage and disability insurance coverage comparable to coverage while he was
an employee hereunder or, at the Company's option, reimburse the Executive in an
amount equal to not more than 125% of the cost to the Company thereof while an
employee during the previous year, all for a period beginning on the date of
such termination and ending on the earlier of the third anniversary of the
termination or the fifth anniversary of the Acquisition Date; and the Executive
shall have no further or other rights, and the Company no further or other
liabilities or obligations, under this Agreement.
(e) During any period in which the Company is obligated to pay salary
to the Executive under this paragraph 3 or a consulting fee under paragraph l(e)
of this Agreement, the Company shall provide the Executive with an automobile
or, at the Company's option, an automobile allowance, in accordance with the
Company's policies in effect from time to time.
4. Expenses. The Company shall promptly reimburse the Executive, or
--------
cause the Executive promptly to be reimbursed, for all reasonable expenses paid
or incurred by the Executive in connection with the performance of the
Executive's duties and responsibilities hereunder, upon presentation of expense
vouchers or other appropriate documentation therefor.
5. Additional Covenants. During the Executive's employment under this
--------------------
Agreement, except as otherwise consented to or approved by the Executive and
SPI:
(a) (1) the Board will be comprised of seven members, three to be
designated by the Executive, three to be designated by SPI (the "SPI directors")
and one, who shall be an employee of Bayer Corporation or any of its affiliates
(other than SPI and its subsidiaries), to be designated by SPI, subject to the
approval thereof by the Executive, which approval shall not be unreasonably
withheld (the "Bayer director");
(2) the consent or approval of at least one of the SPI directors
shall be required prior to the Company taking any extraordinary corporate
actions, which, for purposes of this Agreement, shall include, without
limitation, financings; purchases or sales of assets not in the ordinary course
of business; issuances of securities; providing compensation, perquisites or
benefits beyond levels customary in the multisource industry; actions with
respect to the certificate of incorporation or by-laws; reorganizations,
recapitalizations and business combinations; encumbering of assets; and actions
that could result in a violation of agreements relating to indebtedness of SPI
or (with the additional consent or approval of the Bayer director) agreements
between SPI (or any of its affiliates) and Bayer Corporation (or any of its
affiliates);
5
<PAGE>
(3) after consultation with the other directors, the SPI
directors shall be entitled to authorize and approve, as actions of the Board,
corporate actions not inconsistent with the provisions of this paragraph 5,
including, without limitation, financings; issuances of securities; and
encumbering of assets;
(b) the Executive, having been elected a director of SPI effective
upon the Acquisition Date, shall be included in the slate of SPI's management
nominees for re-election as a director;
(c) neither the Company's name nor logo shall be modified in any way,
and the Company may continue to use its name and logo on product labelling and
the like;
(d) the headquarters of the Company shall remain in Cherry Hill, New
Jersey;
(e) the Company shall not be required to sell products to or
manufacture products for SPI or any SPI affiliate on terms less favorable to the
Company than those the Company provides to unaffiliated customers for similar
purchase quantities; and
(f) the Company shall have funds made available to it to the extent
of "Available Cash", which shall equal: cash on hand at the Company at the
Acquisition Date, plus out-of-pocket transaction costs of the Company paid in
----
connection with the acquisition referred to in paragraph l(a), plus 50% of
----
Operating Cash Flow (i.e., net income (after taxes, calculated on a stand-alone
----
basis) plus depreciation plus amortization plus/less working capital
---- ---- ---------
decreases/increases less capital expenditures), plus interest income (at 30-day
---- ----
LIBOR), less interest expense (at SPI's cost of funds), but only in respect of
----
borrowings outstanding when Available Cash is negative, less 50% of negative
----
Operating Cash Flow, to the extent of Available Cash, and thereafter 100% of
negative Operating Cash Flow.
6. Indemnification. The Company shall indemnify the Executive, to the
---------------
fullest extent permitted by law, for any and all liabilities to which the
Executive may be subject, as a result of, in connection with or arising out of
his employment by the Company hereunder, as well as the costs and expenses
(including attorneys' fees) of any legal action brought or threatened to be
brought against him or the Company as a result of, in connection with or arising
out of such employment. The Executive shall be entitled to the full protection
of any insurance policies which the Company may elect to maintain generally for
the benefit of its directors and officers.
7. Confidentiality and Non-competition. (a) The Executive shall not use
-----------------------------------
or disclose at any time during the
6
<PAGE>
Executive's employment with the Company, or at any time thereafter, any trade
secret or proprietary or confidential information of the Company or any of its
affiliates.
(b) During the Executive's employment with the Company; during the
advisory period, if any; during the period the Company continues to make
payments under paragraph 3(c) or 3(d) above; and, in the case of termination of
employment under paragraph l(c) above, until the earlier of the sixth
anniversary of the Acquisition Date and the fourth anniversary of such
termination, the Executive shall not be engaged as an officer, director, or
employee of, or in any way be associated in a management or ownership capacity
with, any corporation, partnership or other enterprise or venture which conducts
a business which is in competition with the business of the Company or SPI or
their subsidiaries as at the time of such termination or expiration, provided,
--------
however, that the Executive may own not more than three percent (3%) of the
- -------
outstanding securities, or equivalent equity interests, of any class of any
corporation or firm which is in competition with the business of the Company or
SPI or their subsidiaries, which securities are listed on a national securities
exchange or traded in the over-the-counter market. The provisions of this
paragraph shall survive the termination or expiration of this Agreement.
8. Representation and Warranty of the Executive. The
--------------------------------------------
Executive represents and warrants that he is not under any obligation,
contractual or otherwise, to any other firm or corporation, which would
prevent his entry into the employ of the Company or his performance of
the terms of this Agreement.
9. Entire Agreement: Amendment. This Agreement, the
---------------------------
Compensation Continuation Agreement dated October 19, 1991 (as currently
in effect) and the Split Dollar Insurance Agreement dated March 25, 1991
(as currently in effect) (which Compensation Continuation Agreement and
Split Dollar Insurance Agreement shall continue in effect in accordance
with their terms unless surrendered by the Executive under the last
sentence of paragraph 3(b) hereof) contain the entire agreement between
the Company and the Executive with respect to the subject matter hereof,
and may not be amended, waived, changed, modified or discharged except
by an instrument in writing executed by the parties hereto and SPI.
10. Assignability. The services of the Executive hereunder are
-------------
personal in nature, and neither this Agreement nor the rights or
obligations of the Company hereunder may be assigned by the Company,
whether by operation of law or otherwise, without the Executive's prior
written consent. This Agreement shall be binding upon, and inure to the benefit
of, the Company and its permitted successors and assigns hereunder. This
Agreement shall not be assignable by the Executive, but shall inure to the
benefit of the Executive's heirs, executors, administrators and legal
representatives.
7
<PAGE>
11. Notice. Any notice which may be given hereunder shall be in writing
------
and be deemed given when hand delivered and acknowledged or, if mailed, one day
after mailing by registered or certified mail, return receipt requested, to
either party hereto at their respective addresses stated above, or at such other
address as either party may be similar notice designate.
12. Specific Performance. The parties agree that irreparable damage
--------------------
would occur in the event that any of the provisions of paragraph 5 or 7 above
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of paragraph 5 or 7 above and to
enforce specifically the terms and provisions of paragraph 5 or 7 above, this
being in addition to any other remedy to which they are entitled at law or in
equity.
13. No Third Party Beneficiaries. Nothing in this Agreement, express or
----------------------------
implied, is intended to confer upon any person or entity other than the parties
(and the Executive's heirs, executors, administrators and legal representatives
as provided in paragraph 10 hereof) and SPI any rights or remedies of any nature
under or by reason of this Agreement.
14. Construction. This Agreement shall be governed by and construed in
------------
accordance with the internal laws of the State of New Jersey, without giving
effect to principles of conflict of laws. All headings in this Agreement have
been inserted solely for convenience of reference only, are not to be considered
a part of this Agreement and shall not affect the interpretation of any of the
provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
MARSAM PHARMACEUTICALS INC.
By
------------------------
Authorized Signatory
---------------------------
Marvin S. Samson
8
<PAGE>
Schein Pharmaceutical, Inc. hereby agrees, commencing on the Acquisition
Date, to be bound by the provisions of Paragraphs 1, 2(a), 2(b), 2(c), 2(d),
3(b), 5(a), 5(b), 5(c), 5(d), 5(e) and 5(f), to the extent they refer to SPI, of
the foregoing Employment Agreement and to cause the Company to perform the
obligations of the Company under the foregoing Employment Agreement.
SCHEIN PHARMACEUTICAL, INC.
By
-----------------------------------
Authorized Signatory
<PAGE>
EXHIBIT 10.23
COMPENSATION CONTINUATION AGREEMENT
-----------------------------------
AGREEMENT made this 19th day of October, 1991, by and between MARSAM
---- -------
PHARMACEUTICALS INC., a Delaware corporation ("Company") and Marvin Samson, 1905
Owl Court, Cherry Hill, New Jersey ("Employee")
BACKGROUND
----------
Employee is and since the Company's inception in 1985 has been, chief
executive officer and a key employee of the Company. Employee and the Company
entered into an Employment Agreement dated as of December 19, 1986, which has
been amended to extend its term to December 31, 1996, and the year to year
thereafter (the "Employment Agreement").
The continued services of Employee and his knowledge of the Company's
activities and of the industry in which the Company participates are of great
value to the Company. The Company believes that it is in its best interests to
provide Employee with the security of a level of continuing payments to Employee
or Employee's designee in the event of his retirement disability or death.
Now, Therefore, intending to be legally bound hereby, the Company and
Employee agree as follows:
1. Term of Agreement. This Agreement shall remain in effect and
-----------------
confer upon Employee the benefits set forth herein so long as Employee's
employment by the Company is not terminated by the Company based upon a clear
showing of due
<PAGE>
cause, as hereinafter defined, and with Employee first having had a reasonable
opportunity to cure. Termination of Employee's employment by the Company shall
be for due cause hereunder in the event that the termination is in connection
with (i) any dishonest action against the Company, (ii) admission or conviction
of any fraud or embezzlement, or (iii) a breach or violation by Employee during
his employment of the confidentiality or non-competition covenants set forth in
paragraph 6 of the Employment Agreement.
2. Retirement. In the event of Employee's retirement, as hereinafter
----------
defined, the Company shall pay to the Employee in the first year following
commencement of retirement an amount equal to Employee's annual base salary
immediately prior to his retirement and, thereafter, fifty percent (50%) of such
amount for each of the next nine years. In the event of Employee's death after
his retirement, there shall be a continuation of the retirement payments for a
period of ten (10) years from the commencement of Employee's retirement, with
the payments after death being made to the beneficiary designated by Employee.
All payment obligations under this agreement shall be met by periodic payments
on the same dates as executive compensation is paid by the Company, except as
otherwise agreed by the parties.
<PAGE>
3. Definition of Retirement. Employee may elect to retire by giving
------------------------
written notice of such election to the Company not less than ninety (90) days
prior to the proposed commencement of retirement, but in no event shall such
retirement be effective prior to the end of Employee's employment term under the
Employment Agreement or any agreement superseding or extending the Employment
Agreement. Furthermore, for the purposes of paragraph 2 hereof, termination of
Employee's employment as the result of either party giving notice of termination
pursuant to paragraph 1 (b) of the Employment Agreement shall be deemed to be
Employee's retirement hereunder. The retirement payments provided for herein
shall be made on the same dates as those on which the Company makes compensation
payments to executive employees generally.
4. Disability. If Employee, while employed by the Company, becomes
----------
unable, for a period of six (6) months during any period of twelve (12)
consecutive months, to perform his duties due to partial or total disability or
incapacity resulting from a mental or physical illness or injury, as certified
by a licensed physician, the Company shall make disability payments to Employee
until the earlier of resumption of employment or the end of the year in which
Employee reaches age sixty-five (65), in an amount equal to Employee's annual
base salary immediately prior to commencement of Employee's disability for the
first year of disability, and
<PAGE>
fifty percent (50%) of said amount in each of the years following. The
disability payments provided for herein shall be reduced to the extent of
payments received by Employee from any disability benefit program arranged and
paid for by the Company, and any fees or other payments by the Company for
services provided by Employee. Upon reaching age 65, Employee, if disabled,
shall be deemed to have retired for purposes of paragraph 2 hereof and shall be
entitled to retirement benefits equal to fifty percent (50%) of Employee's
annual base salary immediately prior to commencement of Employee's disability in
accordance with said paragraph 2.
5. Other Insurance Benefits. During the period of retirement of
------------------------
disability payments under this Agreement, the Company shall continue to provide
Employee with health and medical insurance coverage and benefits to the same
extent as if he had continued to be an executive employee of the Company.
6. Death. In the event of Employee's death while still in the employ
-----
of the Company, the Company shall pay to Employee's designee during the first
year after death an amount equal to Employee's annual base salary immediately
prior to his death and, thereafter, fifty percent (50%) of said amount for each
of the next nine (9) years. In the event of Employee's death while entitled to
disability payments pursuant to paragraph 4 hereof, the Company shall pay to
Employee's designee an amount equal to fifty percent (50%) of Employee's
annual base salary immediately prior to the commencement of Employee's
disability during each of the next nine (9) years.
<PAGE>
Restrictive Covenant. Notwithstanding the time limits set forth in
--------------------
paragraph 6 of the Employment Agreement (or comparable provisions of any
agreement superseding or extending the Employment Agreement) with respect to
Employee's obligations to maintain confidentiality and not compete with the
Company, the payment obligations of the Company under paragraphs 2, 4, and 6
hereof shall cease if the Company, after notice to Employee of its intent to do
so, obtains a judicial determination that Employee's conduct is in violation of
the provisions of the Employment Agreement respecting confidentiality and
noncompetition, or would be in the absence of the time limitation provisions
applicable to such provisions.
8. Binding Effect. This Agreement will be binding on the Company and
--------------
the Employee, their heirs, legal representatives, successors and assigns.
9. Governing Law. Is Agreement shall be deemed to be executed,
-------------
delivered and is intended to be performed in the State of New Jersey and in all
respects is to be governed by the laws of the State of New Jersey.
10. Severance. In the event that performance of any provision hereunder
---------
shall in any way be in contravention of any law, rule or regulation of any
governmental body claiming to have jurisdiction, then, to the extent of such
illegality or violation, this Agreement shall be inoperative without in any
manner impairing its other provisions and obligations.
11. Unfunded Arrangement. The Company shall pay the benefits provided
--------------------
hereunder out of its general assets in cash
<PAGE>
when due. The Company shall not be required to establish any segregated account,
trust escrow, reserve or other arrangement to discharge such benefits. No assets
of the Company shall be deemed segregated or otherwise set aside to discharge
the Company's obligations under this agreement. The rights and benefits of the
Employee or any beneficiary thereof shall be solely those of an unsecured
general creditor.
12. Non-Alienation. None of the payments, benefits or rights of the
--------------
Employee or beneficiary thereof shall be subject to any claim of any creditor of
such person and, in particular, to the fullest extent permitted by law, shall be
free from attachment, garnishment, trustee's process, or any other legal or
equitable process available to any creditor of such person. The Employee or
beneficiary thereof shall not have the right to alienate, anticipate, commute,
pledge, encumber or assign any of the benefits or payments which he may expect
to receive, contingently or otherwise, under this agreement, except the right to
designate a beneficiary or beneficiaries as hereinabove provided.
13. Employment Obligations. This agreement shall not be construed as
----------------------
creating any additional contract of employment between the Company and the
Employee or as giving the Employee, or any person whomsoever, any legal or
equitable rights against the Company unless such rights shall be specifically
provided for in this agreement or conferred by affirmative action of the Company
in accordance with the terms and provisions of this agreement.
<PAGE>
14. Taxes. The Company shall not be responsible for the tax
-----
consequences under federal, state or local law of the Employee under this
agreement. All payments under this agreement shall be subject to withholding
and reporting requirements to the extent provided by applicable law.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Employee has executed this
Agreement, each as of the day and year first above written.
MARSAM PHARMACEUTICALS INC.
By: /s/
----------------------------
Vice President
/s/ Marvin Samson
----------------------------
Marvin Samson
<PAGE>
EXHIBIT 10.24
SPLIT DOLLAR INSURANCE AGREEMENT dated March 25, 1991, by and between
MICHAEL A. SAMSON and ANDREW SAMSON, Trustees under Indenture of Trust of MARVIN
SAMSON, dated October 3, 1989, ("Owner") and MARSAM PHARMACEUTICALS INC., a
Delaware corporation ("Company").
The parties hereto in consideration of the agreements and covenants
hereinafter set forth and intending to be legally bound, agree as follows:
1. This agreement relates to a policy of insurance on the lives of
Marvin Samson and Elaine Samson (together the "Insureds") issued by Phoenix
Mutual Life Insurance Company ("the Insurer"), Policy No. 2487749 ("Policy").
Subject to the conditions hereinafter set forth, Owner shall be the sole owner
of the Policy.
2. The Company has heretofore and so long as Marvin Samson remains an
employee or director of the Company shall continue to pay the portion of the
annual premium on the Policy equal to the Company's "Cash Investment" in the
Policy, which shall be equal to: (i) the annual net premium, minus (ii) the
-----
value of the death benefit to which Owner is then entitled, determined by using
the lesser of (a) the applicable one-year term premium cost computed under
Revenue Ruling 55-747, 1955-2 C.B. 228 (or any superseding ruling thereto) or
- ---------------------
(b) the applicable premium rates charged by the Insurer for initial issue
one-year term insurance.
<PAGE>
The Company shall also pay to or on behalf of the Insureds a bonus equal to the
remaining portion of the annual premium otherwise payable by Owner.
3. In consideration of the payments made pursuant to paragraph 2 hereof,
the Company shall receive from the proceeds of the Policy, upon the death of the
second of the Insureds to die (or upon the surrender of the Policy during the
lifetime of one of the Insureds) an amount equal to the Company's "Cash
Investment" in the Policy as calculated under paragraph 2 hereof. The balance of
the proceeds, if any, shall be paid as provided in the Policy, subject to the
Collateral Assignment Agreement referred to below.
4. To secure the Cash Investment, Owner shall assign to the Company a
security interest in the Policy equal in amount to the Cash Investment and such
security shall be limited to the Company's right to receive such amount out of
the proceeds of the Policy.
5. The assignment to the Company provided for in this agreement shall
be effectuated by the execucion of a Collateral Assignment Agreement
substantially in the form attached hereto as Exhibit "A".
6. Owner shall notify the Insurer of the Collateral Assignment
Agreement and shall take no action that would impair the security interest of
the Company under the Collateral Assignment Agreement. Owner shall have the
right to terminate this agreement and the Collateral Assignment Agreement at any
-2-
<PAGE>
time upon payment to the Company of the Company's Cash Investment in the Policy.
7. Each and every right, interest or incident or ownership associated
with the Policy which is not expressly assigned to the Company by the Collateral
Assignment Agreement shall be retained by Owner, including, but not limited to,
the right to designate and change the beneficiaries of the Policy, the right to
transfer the Policy subject to the rights assigned to the Company, the right to
surrender the Policy subject to the rights assigned to the Company, and the
right to exercise any option provided in the Policy.
8. Subject to taking notice of the Collateral Assignment Agreement when
it is filed at its home office, the Insurer shall have no obligation except as
set forth in the Policy. The Insurer shall not be bound to inquire into or take
notice of any of the covenants herein contained. Upon the death of the second of
the Insureds to die (or upon surrender of the Policy prior to such death), the
Insurer shall be discharged from its obligations upon payment of the proceeds in
accordance with the provisions of the Policy and the Collateral Assignment
Agreement and without regard to this agreement or any amendment hereof.
9. For purpose of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), the Company is the "Named Fiduciary" and "Administrator"
within the meaning of sections 402(a) and 3(16)(A) of ERISA, respectively, and
the
-3-
<PAGE>
fiduciary for deciding claims. All claims shall be resolved under procedures
which comply with regulations promulgated under section 503 of ERISA.
10. Amendments may be made to this agreement by a writing signed by each
of the parties and attached hereto.
11. All matters respecting the vailidty, effect and interpretation of
this agreement shall be determined in accordance with the laws of the State of
New Jersey.
12. This agreement shall be binding upon the parties hereto and their
successors and assigns.
IN WITNESS WHEREOF, this agreement has been executed as of the date
first above written.
MARSAM PHARMACEUTICALS INC. INDENTURE OF TRUST OF MARVIN
SAMSON DATED OCTOBER 3, 1989
By: /s/
-------------------------
Attest: /s/ By /s/Michael A. Samson (SEAL)
--------------------- --------------------
Michael A. Samson
(Corporate Seal)
By /s/A. Samson (SEAL)
-----------------
Andrew Samson
Trustees
-4-
<PAGE>
EXHIBIT A
COLLATERAL ASSIGNMENT AGREEMENT dated ___________________, by and
between MICHAEL A. SAMSON and ANDREW SAMSON, Trustees under Indenture of Trust
of MARVIN SAMSON, dated October 3, 1989 ("Owner") and MARSAM PHARMACEUTICALS
INC., a Delaware corporation (the "Company").
This Agreement relates to Phoenix Mutual Life Insurance Company Policy
No. 2487749 ("Policy") on the lives of Marvin Samson and Elaine Samson (together
the "Insureds").
The parties have entered into a Split Dollar Insurance Agreement
contemporaneously with this Agreement ("Insurance Agreement").
Pursuant to the Insurance Agreement, Owner has agreed to assign to the
Company a security interest in the Policy in order to provide for the payment
to the Company of the Cash Investment as defined in the Insurance Agreement.
The parties hereto, in consideration of the foregoing and the agreements
and covenants hereinafter set forth and intending to be legally bound hereby,
agree as follows:
1. Owner hereby assigns to the Company a security interest in the
Policy in order to secure to the Company the payment of the Cash Investment in
the Policy, consisting of the following rights:
(a) Upon the death of the second of the Insureds to die, the
Company shall have the right to receive so much of the proceeds payable under
the Policy as is equal to the Cash Investment, determined as of the date of
death. The Company may collect such portion of the proceeds directly from the
Insurer.
<PAGE>
(b) In the event the Policy is surrendered by Owner prior to the
death of both Insureds, the Company shall have the right to receive so much of
the proceeds received as is equal to the Cash Investment, determined as of the
date of surrender. The Company may collect such portion of the proceeds on
surrender of the Policy directly from the Insurer.
2. The Insurer is authorized to rely solely on the written statement of
the Company and the Owner for the exercise of any rights under the Policy
assigned herein and as to the amount of the Cash Investment as of any date. The
Insurer is hereby authorized to recognize such statement without investigation
or the giving of any notice. The written acknowledgement of receipt by the
Company for any sums paid to it by the Insurer pursuant to the written statement
of the Cash Investment in the Policy referred to in the first sentence of
this paragraph shall be a full discharge and release of the Insurer with respect
to the Policy. Payment of the Cash Investment shall be made to the exclusive
order of the Company.
3. Each and every right, interest, or incident of ownership associated
with the Policy which is not expressly assigned to the Company by this
Collateral Assignment Agreement is retained by Owner, including, but not limited
to , the right to designate and change the beneficiaries of the Policy, the
right to transfer the Policy subject to the rights assigned to the Company, the
right to surrender the Policy subject to the rights assigned to the Company, and
the right to exercise any option provided in the Policy.
-2-
<PAGE>
4. Each of the undersigned declares that no proceedings in bankruptcy
are pending against them and that their property is not subject to any
assignment for the benefit of creditors.
5. All matters respecting the validity, effect and interpretation of
this Collateral Assignment Agreement shall be determined in accordance with the
laws of the State of New Jersey.
6. This Collateral Assignment Agreement shall be binding upon the
parties hereto and their successors and assigns.
IN WITNESS WHEREOF, the parities have hereunto set their hands and seals
as of the date first above written.
MARSAM PHARMACEUTICALS IN. INDENTURE OF TRUST OF MARVIN
SAMSON DATED OCTOBER 3, 1989
By:
----------------------------
By /s/Michael A. Samson (SEAL)
--------------------
Attest: Michael A. Samson
------------------------
(Corporate Seal)
By /s/Andrew Samson (SEAL)
----------------
Andrew Samson
Trustees
<PAGE>
Exhibit 10 (P)
SPLIT DOLLAR INSURANCE AGREEMENT dated March 25, 1991, by and between
MICHAEL A. SAMSON and ANDREW SAMSON, Trustees under Indenture of Trust of MARVIN
SAMSON, dated October 3, 1989, ("Owner") and MARSAM PHARMACEUTICALS INC., a
Delaware corporation ("Company").
The parties hereto in consideration of the agreements and covenants
hereinafter set forth and intending to be legally bound, agree as follows:
1. This agreement relates to a policy of insurance on the lives of
Marvin Samson and Elaine Samson (together the "Insureds") issued by Phoenix
Mutual Life Insurance Company ("the Insurer"), Policy No. 248749 ("Policy").
Subject to the conditions hereinafter set forth, Owner shall be the sole owner
of the Policy.
2. The Company has heretofore and so long as Marvin Samson remains an
employee or director of the Company shall continue to pay the portion of the
annual premium on the Policy equal to the Company's "Cash Investment" in the
Policy, which shall be equal to: (i) the annual net premium, minus (ii) the
-----
value of the death benefit to which Owner is then entitled, determined by using
the lesser of (a) the applicable one-year term premium cost computed under
Revenue Ruling 55-747, 1955-2 C.B. 228 (or any superseding ruling thereto) or
- ---------------------
(b) the applicable premium rates charged by the Insurer for initial issue one-
year term insurance.
<PAGE>
The Company shall also pay to or on behalf of the Insureds a bonus equal to the
remaining portion of the annual premium otherwise payable by Owner.
3. In consideration of the payments made pursuant to paragraph 2
hereof, the Company shall receive from the proceeds of the Policy, upon the
death of the second of the Insureds to die (or upon the surrender of the Policy
during the lifetime of one of the Insureds) an amount equal to the Company's
"Cash Investment" in the Policy as calculated under paragraph 2 hereof. The
balance of the proceeds, if any, shall be paid as provided in the Policy,
subject to the Collateral Assignment Agreement referred to below.
4. To secure the Cash Investment, Owner shall assign to the Company a
security interest in the Policy equal in amount to the Cash Investment and such
security shall be limited to the Company's right to receive such amount out of
the proceeds of the Policy.
5. The assignment to the Company provided for in this agreement shall
be effectuated by the execution of a Collateral Assignment Agreement
substantially in the form attached hereto as Exhibit "A".
6. Owner shall notify the Insurer of the Collateral Assignment
Agreement and shall take no action that would impair the security interest of
the Company under the Collateral Assignment Agreement. Owner shall have the
right to terminate this agreement and the Collateral Assignment Agreement at any
-2-
<PAGE>
time upon payment to the Company of the Company's Cash Investment in the Policy.
7. Each and every right, interest or incident of ownership associated
with the Policy which is not expressly assigned to the Company by the Collateral
Assignment Agreement shall be retained by Owner, including, but not limited to,
the right to designate and change the beneficiaries of the Policy, the right to
transfer the Policy subject to the rights assigned to the Company, the right to
surrender the Policy subject to the rights assigned to the Company, and the
right to exercise any option provided in the Policy.
8. Subject to taking notice of the Collateral Assignment Agreement when
it is filed at its home office, the Insurer shall have no obligation except as
set forth in the Policy. The Insurer shall not be bound to inquire into or take
notice of any of the covenants herein contained. Upon the death of the second of
the Insureds to die (or upon surrender of the Policy prior to such death), the
Insurer shall be discharged from its obligations upon payment of the proceeds in
accordance with the provisions of the Policy and the Collateral Assignment
Agreement and without regard to this agreement or any amendment hereof.
9. For purposes of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), the Company is the "Named Fiduciary" and "Administrator"
within the meaning of sections 402(a) and 3(16)(A) of ERISA, respectively, and
the
-3-
<PAGE>
fiduciary for deciding claims. All claims shall be resolved under procedures
which comply with regulations promulgated under section 503 of ERISA.
10. Amendments may be made to this agreement by a writing signed by
each of the parties and attached hereto.
11. All matters respecting the validity, effect and interpretation of
this agreement shall be determined in accordance with the laws of the State of
New Jersey.
12. This agreement shall be binding upon the parties hereto and their
successors and assigns.
IN WITNESS WHEREOF, this agreement has been executed as of the date
first above written.
MARSAM PHARMACEUTICALS INC. INDENTURE OF TRUST OF MARVIN
SAMSON DATED OCTOBER 3, 1989
By: /s/
------------------------------
By /s/Michael A. Samson (SEAL)
Attest: /s/ --------------------
-------------------------- Michael A. Samson
(Corporate Seal)
By /s/Andrew Samson (SEAL)
----------------
Andrew Samson
Trustees
-4-
<PAGE>
EXHIBIT 10.25
THE RETIREMENT PLAN OF
SCHEIN PHARMACEUTICAL, INC.
& AFFILIATES
Effective As of January 1, 1992
<PAGE>
PREAMBLE
--------
Schein Pharmaceutical, Inc. (the "Company") established the Schein
Pharmaceutical, Inc. Profit Sharing Plan (the "Plan") for the benefit of its
eligible employees effective December 27, 1987. The Plan was subsequently
amended. Effective January 1, 1992, four other plans were merged into the Plan,
Danbury Pharmacal, Inc. 401(k) Plan, Danbury Pharmacal, Inc. Profit-Sharing
Plan, Steris Laboratories, Inc. 401(k) Plan and Steris Laboratories, Inc.
Profit-Sharing Plan, collectively (the "Merged Plans"). Each of the Merged Plans
were either originally effective January 1, 1989 or amended to comply with the
law in effect at the time of the merger. The Plan was also redesignated as The
Retirement Plan of Schein Pharmaceutical, Inc. & Affiliates.
The Plan is hereby again amended and restated in its entirety effective
January 1, 1992 in order to comply with the Tax Reform Act of 1986, the Omnibus
Budget Reconciliation Acts of 1989 and 1993, the Revenue Reconciliation Act of
1990 and the Unemployment Compensation Amendments Act of 1992. Benefits for any
participant, or beneficiary of such participant, who retired, died or terminated
employment at any time prior to January 1, 1992 will be determined under the
provisions of the Plan as in effect on the date of the participant's retirement,
death, or termination, unless additional benefits are specifically provided by a
subsequent amendment to the Plan. The restated Plan contained herein will apply
to participants, or beneficiaries of such participants, who retire, die or
terminate employment at any time on or after January 1, 1992.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Contents Page
- ------- -------- ----
<S> <C> <C>
I Definitions 1
II Participation 16
III Participant Salary Reduction 19
IV Employer Contributions 28
V Participant Contributions 40
VI Termination of Service 43
VII Time and Method of Payment of Benefits 48
VIII Withdrawals 54
IX Investment of Contributions 56
X Loans 59
XI Employer Administrative Provisions 62
XII Participant Administrative Provisions 64
XIII Committee Duties With Respect to
Participant's Account 69
XIV Fiduciary Duties and Responsibilities 72
XV Top Heavy Rules 74
XVI Exclusive Benefit, Amendment, and Termination 80
Appendix A - Procedures Regarding Qualified
Domestic Relations Orders 87
</TABLE>
<PAGE>
ARTICLE I
DEFINITIONS
Whenever the following words and phrases appear in the Plan, they
shall have the respective meaning set forth below, unless the context clearly
indicates otherwise:
1.01 "Accounting Date" shall be the last day of each calendar month.
Effective July 1, 1994, the Accounting Date shall be the close of each business
day. The fair market value of the Trust's assets will be determined on the
Accounting Date. Further, all contributions and earnings and losses under the
Plan will be allocated as of the Accounting Date.
1.02 "Account Balance" shall mean the aggregate of the amount in the
Participant's Salary Reduction Contribution Account, Voluntary Contribution
Account, Rollover Contribution Account, Matching Contribution Account, Historic
Account, Qualified Non-Elective Contribution Account and Base Contribution
Account as of any date, less any Excess Amounts which must be returned to the
Participant in order to avoid exceeding the limitations of Article IV.
1.03 "Annual Addition" shall mean for any Plan Year the sum of (a)
Employer contributions, (b) Employee contributions, (c) forfeitures, and (d)
amounts allocated to an individual medical account, as defined in Section
415(1)(2) which is part of a pension or annuity plan maintained by the Employer,
and amounts derived from contributions paid or accrued which are attributable to
post-retirement medical benefits allocated to the separate account of a
<PAGE>
key employee, as defined in Section 419A(d)(3) of the Code, under a welfare
benefit fund, as defined in Section 419(e) of the Code, maintained by the
Employer.
1.04 "Base Contribution Account" shall mean the account maintained
for a Participant to record base contributions made by the Employer pursuant to
Article IV.
1.05 "Beneficiary" is a person designated by a Participant who is or
may become entitled to a benefit under the Plan.
1.06 "Break in Service" shall mean a Plan Year during which an
Employee completes less than 501 Hours of Service.
1.07 "Code" means the Internal Revenue Code of 1986, as amended.
1.08 "Committee" shall mean the Plan Committee appointed by the
Company to administer this Plan pursuant to Article XIII hereof. In addition to
its other duties, the Committee shall have full responsibility for compliance
with the reporting and disclosure rules under ERISA as respects this Plan. Each
Committee member is designated a Named Fiduciary under the Plan.
1.09 "Company" means Schein Pharmaceutical, Inc.
1.10 "Compensation" shall mean the total remuneration paid by the
Employer to an Employee for services rendered to the Employer as reflected on
Form W-2 for Federal income tax withholding purposes, including salary,
commissions, overtime and
- 2 -
<PAGE>
bonuses, reduced by reimbursements or other expense allowances, fringe benefits
(cash and non-cash), moving expenses, deferred compensation (e.g. stock options)
and welfare benefits, but including amounts deferred pursuant to Article III. In
the case of any self-employed individual, Compensation shall mean Earned Income.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA'93 Annual
Compensation Limit. The OBRA'93 Annual Compensation Limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect
for a calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA'93
Annual Compensation Limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under Section 401(a)(17) of the Code shall mean the
OBRA'93 Annual Compensation Limit set forth in this provision.
- 3 -
<PAGE>
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the OBRA'93
Annual Compensation Limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA'93 Annual
Compensation Limit is $150,000.
In determining the Compensation of a Participant for purposes of this
limitation, the rules of Section 414(q)(6) of the Code shall apply, except in
applying such rules, the term "family" shall include only the spouse of the
Participant and any lineal descendants of the Participant who have not attained
age 19 before the close of the Plan Year. If, as a result of the application of
such rules the OBRA'93 Annual Compensation Limit is exceeded, then the
limitation shall be prorated among the affected individuals in proportion to
each such individual's Compensation prior to the application of this limitation.
1.11 "Earned Income" shall mean the net earnings from self-
employment in the trade or business with respect to which the Plan is
established, for which personal services of the individual are a material
income-producing factor. Net earnings will be determined without regard to items
not included in gross income and the deductions allocable to such items. Net
earnings are reduced by (1) contributions by the Employer to a qualified plan to
the
- 4 -
<PAGE>
extent deductible under Section 404 of the Code, and (2) the deduction allowed
to the employer by Section 164(f) of the Code.
1.12 "Effective Date" of this Plan is January 1, 1992.
1.13 "Employee" shall mean any employee of the Employer or of any
other employer required to be aggregated under Sections 414(b), (c), (m), (n) or
(o) of the Code.
1.14 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
1.15 "Employer" shall mean the Company and any Participating
Employer which adopts this Plan, as well as any predecessors or successors to
the Employer.
1.16 "Employment Commencement Date" shall mean the date on which the
Employee first performs an Hour of Service for the Employer.
1.17 "Enrollment Period" shall mean the twenty-one (21) day period
preceding the Plan Entry Date.
1.18 "Highly Compensated Employee" shall mean an Employee who,
during the Plan Year or during the preceding 12-month period:
(a) is a more than 5% owner of the Employer (applying the constructive
ownership rules of Section 318 of the Code);
(b) has Compensation in excess of $75,000 (as adjusted by the
Commissioner of Internal Revenue for the relevant year);
- 5 -
<PAGE>
(c) has Compensation in excess of $50,000 (as adjusted by the
Commissioner of Internal Revenue for the relevant year) and is part of
the top-paid 20% group of employees (based on Compensation for the
relevant year); or
(d) has Compensation in excess of 50% of the dollar amount prescribed
in Section 415(b) (1) (A) of the Code and is an officer of the
Employer.
If the Employee satisfies the definition in clause (b), (c) or (d) in
the Plan Year but does not satisfy clause (b), (c) or (d) during the preceding
12-month period and does not satisfy clause (a) in either period, the Employee
is a Highly Compensated Employee only if he is one of the 100 most highly
compensated Employees for the Plan Year. The number of officers taken into
account under clause (d) will not exceed the greater of 3 or 10% of the total
number (after application of the exclusions under Section 414(q) of the Code) of
Employees, but no more than 50 officers. If no Employee satisfies the
Compensation requirement in clause (d) for the relevant year, the Committee will
treat the highest paid officer as satisfying clause (d) for that year.
The term "Highly Compensated Employee" also includes any former
Employee who separated from service (or has a deemed separation from service, as
determined under Treasury regulations) prior to the Plan Year, performs no
service for the Employer during the Plan Year, and was a Highly Compensated
Employee either for the separation year or any Plan Year ending on or after his
55th birthday. If the former Employee's separation from service occurred prior
to January 1, 1987, he is a Highly Compensated Employee only if he satisfied
clause (a) of this Section 1.18 or
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received Compensation in excess of $50,000 during: (1) the year of his
separation from service (or the prior year); or (2) any year ending after his
54th birthday.
The Committee shall also have discretion to use any other definition
of "Highly Compensated Employee" promulgated by the secretary of Treasury.
1.19 "Historic Account" shall mean the account maintained for a
Participant to record any interest as of December 31, 1991 in any Merged Plan,
and earnings and losses thereon.
1.20 "Hour of Service" shall mean:
(a) Each hour of service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to
payment, for the performance of duties during the Plan Year. The
Committee shall credit Hours of Service under this subsection (a) to
the Employee for the Plan Year in which the Employee performs the
duties, irrespective of when paid;
(b) Each hour of service for back pay, irrespective of mitigation of
damages, which the Employer has agreed to pay, or for which the
Employee has received an award. The Committee shall credit Hours of
Service under this subsection (b) to the Employee for the Plan Year(s)
to which the award of the agreement pertains, rather than for the Plan
Year in which the award, agreement or payment is made; and
(c) Each hour of service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to
payment (irrespective of whether the employment relationship is
terminated), for reasons other than for the performance of duties
during a Plan Year, such as Leave of Absence, vacation, holiday, sick
leave, illness, incapacity (including disability), layoff, jury duty,
Military Leave of Absence, or Maternity and Paternity Leave. The
Committee shall not credit more than five hundred one (501) Hours of
Service under this subsection (c) to an Employee on account of any
single continuous period during which the Employee does not perform
any duties (whether or not such period occurs during
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<PAGE>
a single Plan Year). Notwithstanding the above, the Committee shall
credit an Employee with a Military Leave of Absence to the extent
required by law. The Committee shall credit Hours of Service under
this subsection (c) in accordance with the rules of subsections (b) and
(c) of Department of Labor Reg. Section 2530.200(b)-2, which the Plan,
by this reference, specifically incorporates in full within this
subsection (c).
The Committee shall not credit an Hour of Service under more than one
of the above subsections. Furthermore, if the Committee is to credit Hours of
Service to an Employee for the twelve month period beginning with the Employee's
Employment Commencement Date or with an anniversary of such date, then such
twelve month period shall be substituted for the term "Plan Year" wherever the
latter term appears in this Section 1.20. The Committee shall resolve any
ambiguity with respect to the crediting of an Hour of Service in favor of the
Employee.
The Committee shall credit every Employee compensated on an hourly
basis with Hours of Service on the basis of the "actual" method. For purposes
of the Plan, "actual" method means the determination of Hours of Service from
records of hours worked and hours for which the Employer makes payment or for
which payment is due from the Employer.
Employees compensated on other than an hourly basis and for whom hours
are not required to be counted and recorded by any other federal law, such as
the Fair Labor Standards Act, shall be credited with forty-five (45) hours per
week for any week during which the Employee is credited with one (1) Hour of
Service.
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<PAGE>
1.21 "Investment Committee" shall mean the Committee appointed by
the Company to manage the assets of the Plan pursuant to Articles IX and XIII
hereof. Each Investment Committee member is designated a Named Fiduciary under
the Plan.
1.22 "Leased Employee" shall mean an individual (who otherwise is
not an Employee of the Employer) who, pursuant to a leasing agreement between
the Employer and any other person, has performed services for the Employer (or
for the Employer and any persons related to the Employer within the meaning of
Section 414(n)(6) of the Code) on a substantially full time basis for at least
one year and who performs services historically performed by employees in the
Employer's business field. The Plan does not treat a Leased Employee as an
Employee of the Employer.
1.23 A "Leave of Absence" shall mean any absence approved by the
Employer, other than absence which qualifies as a Maternity and Paternity Leave
or Military Leave of Absence, including but not limited to, sick or disability
time.
1.24 "Matching Contribution Account" shall mean the account
maintained for a Participant to record matching contributions made by the
Employer pursuant to Article IV.
1.25 "Maternity and Paternity Leave" shall mean an absence from work
for any period by reason of the Employee's pregnancy, birth of the Employee's
child, placement of the child with the Employee in connection with the adoption
of such child, or
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any absence for the purpose of caring for such child for a period immediately
following the birth or placement. For this purpose, Hours of Service shall be
credited for the computation period in which the absence from work begins, only
if credit therefore is necessary to prevent the Employee from incurring a one
year Break in Service, or in the immediately following computation period. The
Hours of Service credited for a Maternity and Paternity Leave shall be those
which would have normally been credited but for such absence, or, in any case in
which the Committee is unable to determine such hours normally credited, eight
(8) Hours of Service per day. The total Hours of Service required to be
credited for a Maternity and Paternity Leave shall not exceed 501.
1.26 "Merged Plans" shall mean the Danbury Pharmacal, Inc. 401(k)
Plan, the Danbury Pharmacal, Inc. Profit-Sharing Plan, the Schein
Pharmaceutical, Inc. Profit-Sharing Plan, the Steris Laboratories, Inc. 401(k)
Plan and the Steris Laboratories, Inc. Profit-Sharing Plan, or any of them
individually.
1.27 "Military Leave of Absence" shall mean the absence of an
Employee in military service for the United States of America, provided that the
Employee returns to the employ of the Employer prior to the end of any period
prescribed by the laws of the United States during which he has reemployment
rights with the Employer.
1.28 "Named Fiduciary" shall mean a person designated a fiduciary
under this Plan.
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<PAGE>
1.29 "Nonforfeitable" shall mean a Participant's or Beneficiary's
unconditional claim, legally enforceable against the Plan, to the Participant's
Account Balance.
1.30 "Normal Retirement Date" shall mean the date the Participant
attains age 65 and five (5) Years of Service.
1.31 "Owner-Employee" shall mean an individual who is a sole
proprietor, or who is a partner owning more than 10 percent of either the
capital or profits interest of the partnership. If this Plan provides
contributions or benefits for one or more Owner-Employees who control both the
business for which this Plan is established and one or more other trades or
businesses, this Plan and the plan established for other trades or businesses
must, when looked at as a single plan, satisfy Sections 401(a) and (d) of the
Code for the employees of this and all other trades or businesses.
If the Plan provides contributions or benefits for one or more Owner-
Employees who control one or more other trades or businesses, the employees of
the other trades or businesses must be included in a plan which satisfies
Sections 401(a) and (d) of the Code and which provides contributions and
benefits not less favorable than provided for Owner-Employees under this plan.
If an individual is covered as an Owner-Employee under the plans of
two or more trades or businesses which are not controlled and the individual
controls a trade or business, then the contributions or benefits of the
employees under the plan of the trades or businesses which are controlled must
be as favorable as
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<PAGE>
those provided for him under the most favorable plan of the trade or business
which is not controlled.
For purposes of the preceding paragraphs, an Owner-Employee, or two or
more Owner-Employee, will be considered to control a trade or businesses if the
Owner-Employee, or two or more Owner-Employees together:
(1) own the entire interest in an unincorporated trade or business,
or
(2) in the case of a partnership, own more than 50 percent of either
the capital interest or the profits interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or
more Owner-Employees shall be treated as owning any interest in a partnership
which is owned, directly or indirectly, by a partnership which such Owner-
Employee, or such two or more Owner-Employees, are considered to control within
the meaning of the preceding sentence.
1.32 "Participant" is an Employee who is eligible to be and becomes
a Participant in accordance with the provisions of Article II.
1.33 "Participating Employer" shall mean any member of a controlled
group of corporations, as defined in Section 1563(a) of the Code, of which the
Company is a member, which, with the written consent of the Company, adopts this
Plan.
1.34 "Payment Starting Date" shall mean the first day of the first
period for which the Plan pays an amount in any form.
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1.35 "Plan" shall mean The Retirement Plan of Schein Pharmaceutical,
Inc. & Affiliates.
1.36 "Plan Entry Dates" shall mean the Effective Date and thereafter
the first day of the first pay period coincident with, or next following, the
date on which an Employee completes Six Months of Service.
1.37 "Plan Year" shall mean the twelve (12) consecutive month period
commencing on January 1 and ending on December 31.
1.38 "Qualified Non-Elective Contribution Account" shall mean the
account maintained for a Participant to record Qualified Non-Elective
Contributions made by the Employer pursuant to Section 3.05.
1.39 "Rollover Contribution Account" shall mean the account
maintained for an Employee to record any Rollover Contributions accepted
pursuant to Section 5.02.
1.40 "Salary Reduction Contribution" shall mean the amount by which
the Participant elects to reduce his Compensation which is then contributed to
the Trust by the Employer.
1.41 "Salary Reduction Contribution Account" shall mean the account
maintained for a Participant to record Salary Reduction Contributions made on
his behalf by the Employer.
1.42 "Salary Reduction Agreement" shall mean the agreement between
the Participant and the Employer whereby the
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<PAGE>
Participant directs the Employer to contribute a designated percentage of his
Compensation to the Trust.
1.43 "Self-Employed Individual" shall mean an individual who has
Earned Income for the taxable year from the trade or business for which the Plan
is established or an individual who would have had Earned Income but for the
fact that the trade or business has no net profits for the taxable year.
1.44 "Six Months of Service" shall mean a period of six (6)
consecutive calendar months during which an Employee completes at least 500
Hours of Service.
1.45 A "Temporary Employee" shall mean a Leased Employee, any agent
or an independent contractor.
1.46 "Trust" shall mean the trust created under the Plan, known as
the Henry Schein, Inc. Affiliates' 401(k) Trust. Effective July 1, 1994, the
Trust is known as the Employee Benefit Plan Trust, as well as any successor
thereto.
1.47 "Trust Fund" shall mean all property of every kind held or
acquired by the Trustee pursuant to this Plan. Trust assets will be valued at
fair market value.
1.48 "Trustee" shall mean the Dreyfus Trust Company. Effective July
1, 1994, the Trustee shall mean the State Street Bank and Trust Company, or any
successor Trustee appointed pursuant to the terms of the Trust.
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<PAGE>
1.49 "Voluntary Contribution Account" shall mean the account
maintained for a Participant to record any voluntary contributions made by the
Participant pursuant to Section 5.01 and any amount recharacterized as voluntary
contributions.
1.50 "Year of Service" shall mean a Plan Year during which the
Employee completes at least 1,000 Hours of Service. If the Employer maintains
the plan of a predecessor employer, Year of Service shall also include all Years
of Service with such predecessor employer.
1.51 Wherever used herein, the singular shall include the plural and
the masculine shall include the feminine and the neuter, unless the context
clearly indicates otherwise.
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<PAGE>
ARTICLE II
PARTICIPATION
2.01 ELIGIBILITY. Each Participant in the Plan or in any of the
-----------
Merged Plans as of December 31, 1991 who is in the employ of the Employer on the
Effective Date shall become a Participant on the Effective Date. Each other
Employee shall become a Participant on the Plan Entry Date.
Notwithstanding the foregoing, any person who is a nonresident alien
(within the meaning of Code Section 7701(b)), a Temporary Employee or is a
member of a collective bargaining unit is excluded from participation. If a
Participant does not terminate employment but becomes a member of a collective
bargaining unit, then unless the applicable collective bargaining agreement
provides otherwise, during the period that such Participant is a member of a
collective bargaining unit, the Committee shall limit that Participant's sharing
in the allocation of Employer contributions and Participant forfeitures, if any,
under the Plan to the extent of his Compensation paid by the Employer for
services rendered while he is not a member of a collective bargaining unit.
However, during such period, the Participant's Account Balance shall continue to
share fully in Trust Fund earnings and losses.
If an Employee who is not a Participant ceases to be a member of a
collective bargaining unit, he shall participate in the Plan immediately if he
has satisfied the service condition of this Section 2.01 and would have been a
Participant had he not been a
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<PAGE>
member of a collective bargaining unit during his period of service with the
Employer. Furthermore, an Employee shall receive vesting credit under Article VI
for each included Year of Service during his period of service with the Employer
without regard to whether the Employee is a member of a collective bargaining
unit.
For purposes of this Section 2.01, an Employee is a member of a
collective bargaining unit if he is included in a unit of Employees covered by
an agreement which the Secretary of Labor finds to be a collective bargaining
agreement between employee representatives and one (1) or more employers if
there is evidence that retirement benefits were the subject of good faith
bargaining between such employee representatives and such employer or employers.
The term "employee representatives" does not include an organization of which
more than one half the members are owners, officers or executives of the
Employer.
2.02 MONTH OF SERVICE - PARTICIPATION. For purposes of participation
--------------------------------
under Section 2.01, the Plan shall take into account all of an Employee's
consecutive calendar Months of Service with the Employer. Months of Service
shall include all consecutive calendar Months of Service an Employee completes
with an Employer or any entity which is required to be aggregated with the
Employer pursuant to Sections 414(b), (c), (m), (n), or (o) of the Code.
2.03 PARTICIPATION UPON RE-EMPLOYMENT. A Participant whose
--------------------------------
employment terminates shall re-enter the Plan as a Participant on the date of
his re-employment. An Employee who has
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satisfied the eligibility condition of Section 2.01, but who terminates
employment prior to becoming a Participant, shall become a Participant in the
Plan on the date of his re-employment. Any other Employee whose employment
terminates and who is subsequently re-employed shall become a Participant in
accordance with the provisions of Section 2.01 and Section 2.02.
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ARTICLE III
PARTICIPANT SALARY REDUCTION
3.01 SALARY REDUCTION AGREEMENT. A Participant may elect to enter
--------------------------
into a Salary Reduction Agreement with the Employer which will be applicable to
all payroll periods within such Plan Year after the Plan Entry Date following
execution of the Salary Reduction Agreement. The terms of any such Salary
Reduction Agreement shall provide that the Participant agrees to a reduction in
Compensation from the Employer equal to any whole percentage from one percent
(1%) to twelve percent (12%) of his Compensation for each payroll period within
such Plan Year. A Participant who does not elect to enter into a Salary
Reduction Agreement with the Employer shall continue to receive his entire
amount of Compensation in cash.
3.02 CHANGE IN SALARY REDUCTION RATE. A Participant may suspend his
-------------------------------
contributions under his Salary Reduction Agreement at any time. A Participant
may amend his Salary Reduction Agreement during any Plan Year as of the first
day of the first pay period in any calendar quarter by filing twenty-one (21)
days advance written notice of any change. Salary Reduction Agreement
amendments shall be effective as of the first day of the first pay period after
the twenty-one (21) days advance notice. Notwithstanding the above limitations,
the Employer may decrease at any time the Salary Reduction Contribution of any
Participant by any percentage, whether whole or fractional, if the Committee
notifies the Employer
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that such decrease is necessary to ensure that the limitations of Sections 3.04,
3.05 or 4.07 are met for the Plan Year.
3.03 VESTING - SALARY REDUCTION CONTRIBUTION ACCOUNTS. Amounts
------------------------------------------------
credited to a Participant's Salary Reduction Contribution Account shall
be 100% vested and Nonforfeitable at all times. The Committee shall pay all
Salary Reduction Contributions over to the Trust no later than ninety (90) days
after the date the funds were withheld from the Participant's Compensation.
3.04 SALARY REDUCTION CONTRIBUTION LIMITATIONS. Notwithstanding
-----------------------------------------
Section 3.01 hereof, the maximum amount of Compensation a Participant is
permitted to defer during any calendar year is limited to $7,000 as adjusted by
the Secretary of Treasury pursuant to Section 402(g)(5) of the Code. Any amount
that cannot be credited to the Participant's Salary Reduction Contribution
Account due to the foregoing limit shall be paid to the Participant in cash.
For purposes of the limitation of this Section 3.04, the amount contributed to a
Participant's Salary Reduction Contribution Account shall not include any Salary
Reduction Contributions properly returned to the Participant as excess Annual
Additions under Section 4.07.
If a Participant would exceed the limitation of this Section 3.04 when
the amount the Participant elects to contribute to his Salary Reduction
Contribution Account is aggregated with the amounts deferred by the Participant
under other plans or arrangements described in Sections 401(k), 408(k), 403(b),
457 or
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<PAGE>
501(c)(18) of the Code, the Participant may request that the Committee
distribute the excess deferrals to him. Such excess deferrals and income or loss
allocable thereto may be distributed no later than April 15 of the year
following the year in which any such excess deferrals are contributed, to
Participants who claim such allocable deferral contributions for the preceding
calendar year. The Participant's claim shall be in writing; shall be submitted
to the Committee no later than March 1; shall specify the Participant's deferral
contribution amount for the preceding calendar year; and shall be accompanied by
the Participant's written statement that if such amounts are not distributed,
such deferral contributions, when added to amounts deferred under other plans or
arrangements described in Sections 401(k), 408(k), 403(b), 457 or 501(c)(18) of
the Code, exceed the limit imposed on the Participant in accordance with the
applicable provisions of the Code for the year in which the deferral occurred.
To the extent the excess deferral arises under this Plan when combined with
other plans of the Employer, the individual will be deemed to have notified the
Committee of the excess deferral and requested distribution of the excess
deferral.
The income or loss allocable to the excess deferrals shall be the sum
of (1) the amount determined by multiplying the income or loss allocable to the
Participant's accounts containing the excess deferrals for the calendar year by
a fraction, the numerator of which is the excess deferrals on behalf of the
Participant for the calendar year and the denominator of which is the
Participant's
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<PAGE>
account balance in his accounts containing the excess deferrals as of the last
day of the calendar year in which the excess deferrals are made without regard
to any gain or loss allocable to such total amount for the calendar year; and
(2) ten (10) percent of the amount determined under (1) multiplied by the number
of whole calendar months between the end of the calendar year in which the
excess deferrals were made and the date of distribution, counting the month of
distribution if distribution occurs after the 15th day of such month. Excess
deferrals shall be treated as Annual Additions, unless such amounts are
distributed to the Participant no later than April 15 of the year following the
year in which any such excess deferrals are contributed.
3.05 SALARY REDUCTION DISCRIMINATION LIMITATION. The Employer shall
------------------------------------------
not permit a Participant to defer an amount of Compensation that would cause the
Plan to not satisfy at least one of the following tests in any Plan Year:
(a) The Actual Deferral Percentage for the group of Highly Compensated
Employees shall not exceed the Actual Deferral Percentage of all other
eligible Employees multiplied by 1.25; or
(b) The Actual Deferral Percentage for the group of Highly Compensated
Employees shall not exceed the Actual Deferral Percentage for all other
eligible Employees multiplied by 2.0, provided that the Actual Deferral
Percentage for the group of Highly Compensated Employees does not
exceed the Actual Deferral Percentage of all other eligible Employees
by more than two (2) percentage points or such lesser amount as the
Secretary of the Treasury shall prescribe to prevent the multiple use
of this alternative limitation with respect to any Highly Compensated
Employee.
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<PAGE>
The Actual Deferral Percentage for a specified group of Employees for a Plan
Year shall be the average of ratios (calculated separately for each Employee in
such group) of (i) the amount of Salary Reduction Contributions actually paid
over to the Trust on behalf of each such Employee for such Plan Year, to (ii)
the Employee's Compensation for that portion of the Plan Year during which the
Employee was eligible to participate. In computing the Actual Deferral
Percentage, Salary Reduction Contributions shall not include any amounts
properly returned to (i) the Participant as excess Annual Additions under
Section 4.07; or (ii) a non-Highly Compensated Employee as excess deferrals
under Section 3.04. The Actual Deferral Percentage for a Participant who makes
no Salary Reduction Contributions during a Plan Year shall be 0%. Contributions
taken into account for purposes of determining the Actual Deferral Percentage
test must be made before the last day of the twelve-month period immediately
following the Plan Year to which the contributions relate. In computing the
Actual Deferral Percentage, the Committee may include in subparagraph (i) above,
the amount of any Employer contributions which are 100% vested when made and are
subject to the same withdrawal restrictions applicable to Salary Reduction
Contributions. These contributions shall be named "Qualified Non-Elective
Contributions" and shall be placed in the Qualified Non-Elective Contribution
Account of only the Non-Highly Compensated Employees. If matching contributions
are taken into account for purposes of this subparagraph (i), they must meet the
requirements applicable to Employer contributions in the
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<PAGE>
preceding sentence and cannot be taken into account under Section 4.02(i). In
the event Salary Reduction Contributions are used to satisfy the Actual
Contribution Percentage test under Section 4.02, the Actual Deferral Percentage
test must be satisfied both with and without inclusion of the Salary Reduction
Contributions used in the Actual Contribution Percentage test.
The Actual Deferral Percentage for any Employee who is a Highly
Compensated Employee for the Plan Year and who has Salary Reduction
Contributions allocated to his account under two or more plans of the Employer
shall be determined as if all such contributions were made under a single plan.
If the above plans have different plan years, all cash or deferred arrangements
ending with or within the same calendar year shall be treated as a single
arrangement.
In the event that this Plan satisfies the requirements of Sections
401(k), 401(a)(4) or 410(b) of the Code only if aggregated with one or more
other plans, or if one or more other plans satisfy the requirements of Sections
401(k), 401(a)(4) or 410(b) of the Code only if aggregated with this Plan, then
this Section 3.05 shall be applied by determining the Actual Deferral
Percentages of Participants as if all such plans were a single plan. Plans may
be aggregated to satisfy Section 401(k) of the Code only if they have the same
plan year.
For purposes of determining the Actual Deferral Percentage of a
Participant who is a five percent (5%) owner or one of the ten most highly-paid
Highly Compensated Employees, the Salary Reduction
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<PAGE>
Contributions and Compensation of such Participant shall include the Salary
Reduction Contributions and Compensation for the Plan Year of Family Members as
defined in Section 414(q)(6) of the Code. Family Members, with respect to such
Highly Compensated Employees, shall be disregarded as separate Employees in
determining the Actual Deferral Percentage both for Participants who are non-
Highly Compensated Employees and for Participants who are Highly Compensated
Employees.
The Employer shall maintain records sufficient to demonstrate
satisfaction of the Actual Deferral Percentage test. The determination and
treatment of the Actual Deferral Percentage amounts of any Participant shall
satisfy such other requirements as may be prescribed by the Secretary of the
Treasury.
3.06 EXCESS CONTRIBUTIONS. Notwithstanding the foregoing paragraph,
--------------------
with respect to any Plan Year in which Salary Reduction Contributions on behalf
of Highly Compensated Employees exceed the applicable limit, the Committee shall
reduce the amount of the Excess Contributions made on behalf of the Highly
Compensated Employees (by reducing such contributions in order of Actual
Deferral Percentages beginning with the highest), and shall distribute any
Excess Contributions which exist after such reduction, as adjusted by the income
or loss allocable to such Excess Contributions, to the affected Highly
Compensated Employees no later than March 15 of the year following the Plan Year
in which any such Excess Contributions are made, but in no event shall such
amounts be distributed later than the end of the Plan Year fol-
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<PAGE>
lowing the Plan Year in which such Excess Contributions were contributed.
Excess Contributions shall be allocated to Participants who are subject to the
Family Member aggregation rules as defined in Section 414(q)(6) of the Code in
proportion to the Salary Reduction Contributions and amounts treated as Salary
Reduction Contributions of each Family Member that is combined to determine the
combined Actual Deferral Percentage, in the manner prescribed by the
regulations.
For purposes of Section 3.06, "Excess Contributions" shall mean, with
respect to any Plan Year, the aggregate amount of Employer contributions
actually taken into account in computing the Actual Deferral Percentage of the
Highly Compensated Employees over the maximum amount of such contributions
permitted by the Actual Deferral Percentage test. The income or loss allocable
to the Excess Contributions shall be the sum of (1) the amount determined by
multiplying the income or loss allocable to the Participant's accounts
containing the Excess Contributions for the Plan Year by a fraction, the
numerator of which is the Excess Contributions on behalf of the Participant for
the Plan Year and the denominator of which is the Participant's account balance
in his accounts containing the Excess Contributions as of the Accounting Date of
the Plan Year in which the Excess Contribution is made without regard to any
gain or loss allocable to such total amount for the Plan Year; and (2) ten (10)
percent of the amount determined under (1) multiplied by the number of whole
calendar months between the end of the Plan Year in which the Excess
Contributions were made
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<PAGE>
and the date of distribution, counting the month of distribution if distribution
occurs after the 15th day of such month.
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ARTICLE IV
EMPLOYER CONTRIBUTIONS
4.01 MATCHING CONTRIBUTION. The Employer shall make a fixed matching
---------------------
contribution to each Participant's Matching Contribution Account equal to 25% of
the first 3% of such Participant's Salary Reduction Contribution. The Employer
may also elect to make a discretionary matching contribution. Although the
amount to be contributed for each Plan Year by the Employer as a discretionary
matching contribution under this Section 4.01 is purely discretionary, any such
contributed amounts will be allocated to the Matching Contribution Accounts of
each Participant on the basis of a fraction, the numerator of which is equal to
the amount of the Participant's Salary Reduction Contribution, and the
denominator of which is the sum total of all Participants' Salary Reduction
Contributions.
4.02 LIMITATIONS ON MATCHING CONTRIBUTIONS. The Employer shall not
-------------------------------------
make matching contributions to the Plan which would cause the Plan not to
satisfy at least one of the following tests in any Plan Year:
(a) The Actual Contribution Percentage for the group of Highly
Compensated Employees shall not exceed the Actual Contribution
Percentage for all other eligible Employees multiplied by 1.25; or
(b) The Actual Contribution Percentage for the group of Highly
Compensated Employees shall not exceed the Actual Contribution
Percentage for all other eligible Employees multiplied by 2.0, provided
that the Actual Contribution Percentage for the group of Highly
Compensated Employees does not exceed the Actual Contribution
Percentage for all other eligible Employees by more than two (2)
percentage points or such lesser amount as the Secretary of the
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Treasury shall prescribe to prevent the multiple use of this
alternative limitation with respect to any Highly Compensated Employee.
For purposes of this Section 4.02, the Actual Contribution Percentage for a
specified group of Employees shall be the average of the ratios (calculated
separately as a Contribution Percentage for each Employee in the group) of (i)
Employee voluntary contributions and the matching contributions under the Plan
on behalf of the Employee for the Plan Year, to (ii) the Employee's Compensation
for that portion of the Plan Year during which the Employee was eligible to
participate. The Contribution Percentage for a Participant who is not allocated
a matching contribution shall be 0%. For purposes of determining Contribution
Percentages, Salary Reduction Contributions are considered to have been made in
the Plan Year in which contributed to the Trust. Employer contributions will be
considered made for a Plan Year if made no later than the end of the twelve-
month period beginning on the day after the close of the Plan Year. In computing
Contribution Percentages, the Committee may include in subparagraph (i) above,
Salary Reduction Contributions, except for Salary Reduction Contributions which
are properly distributed as excess Annual Additions under Section 4.07, and base
contributions which are 100% vested when made and are not available for
withdrawal under any circumstances.
In computing Contribution Percentages, the Committee shall not include
matching contributions that are forfeited either to correct Excess Aggregate
Contributions under Section 4.03 or because the contributions to which the
matching contributions
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<PAGE>
relate are excess deferrals under Section 3.04, Excess Contributions under
Section 3.06 or Excess Aggregate Contributions under Section 4.03.
The Contribution Percentage for any Employee who is a Highly
Compensated Employee for the Plan Year and who has matching contributions
allocated to his account under two or more plans of the Employer shall be
determined as if all such contributions were made under a single plan. If the
above plans have different plan years, the plans ending with or within the same
calendar year shall be treated as a single plan.
In the event that this Plan satisfies the requirements of Sections
401(m), 401(a)(4) or 410(b) of the Code only if aggregated with one or more
other plans, or if one or more other plans satisfy the requirements of Sections
401(m), 401(a)(4) or 410(b) of the Code only if aggregated with this Plan, then
this Section 4.02 shall be applied by determining the Contribution Percentages
of Employees as if all such plans were a single plan. Plans may be aggregated in
order to satisfy Section 401(m) of the Code only if they have the same plan
year.
For purposes of determining the Contribution Percentage of a
Participant who is a five percent (5%) owner or one of the ten most highly-paid
Highly Compensated Employees, the Contribution Percentage amounts and
Compensation of such Participant shall include the Contribution Percentage
amounts and Compensation for the Plan Year of Family Members as defined in
Section 414(q)(6) of the Code. Family Members, with respect to Highly
Compensated
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<PAGE>
Employees, shall be disregarded as separate employees in determining the
Contribution Percentages both for Participants who are non-Highly Compensated
Employees and for Participants who are Highly Compensated Employees. Excess
Aggregate Contributions shall be allocated to Participants who are subject to
the Family Members aggregation rules of Section 414(q)(6) of the Code in
proportion to the Employee and matching contributions or amounts treated as
matching contributions of each Family Member that is combined to determine the
combined Contribution Percentage, in the manner prescribed by the regulations.
The determination and treatment of the Contribution Percentage of any
Employee shall satisfy such other requirements as may be prescribed by the
Secretary of the Treasury. The Employer shall maintain records sufficient to
demonstrate satisfaction of the Actual Contribution Percentage test.
4.03 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS.
----------------------------------------------
Excess Aggregate Contributions and income allocable thereto shall be distributed
no later than March 15 of the Plan Year following the Plan Year in which any
such Excess Aggregate Contribution were made, but in no event shall the Excess
Aggregate Contributions be distributed later than the last day of the Plan Year
following the Plan Year in which the contributions giving rise to the Excess
Aggregate Contributions were allocated. If Excess Aggregate Contributions are
distributed more than 2 1/2 months after the last day of the Plan Year in which
such excess amounts arose, a ten (10) percent excise tax will be imposed on the
Employer maintaining the
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<PAGE>
Plan with respect to those amounts. Excess Aggregate Contributions shall be
treated as Annual Additions under the Plan.
For purposes of Section 4.03, "Excess Aggregate Contributions" shall
mean, with respect to any Plan Year, the excess of the aggregate Contribution
Percentage amounts taken into account in computing the numerator of the
Contribution Percentage actually made on behalf of Highly Compensated Employees
for such Plan Year, over the maximum Contribution Percentage amounts permitted
by the Actual Contribution Percentage test (determined by reducing contributions
made on behalf of Highly Compensated Employees in order of their Contribution
Percentages beginning with the highest of such percentages). Such determination
shall be made after first determining Excess Contributions pursuant to Section
3.06 and then determining Excess Aggregate Contributions pursuant to this
Section 4.03. The Excess Aggregate Contributions to be distributed to a
Participant shall be adjusted by the income or loss allocable to such Excess
Aggregate Contribution. The income or loss allocable to the Excess Aggregate
Contributions shall be the sum of (1) the amount determined by multiplying the
income or loss allocable to the Participant's accounts containing the excess
amounts for the Plan Year by a fraction, the numerator of which is the Excess
Aggregate Contributions on behalf of the Participant for the Plan Year and the
denominator of which is the Participant's account balance in the accounts
containing the excess amounts as of the Accounting Date of the Plan Year in
which the Excess Aggregate Contribution is made without regard to any gain or
loss allocable
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<PAGE>
to such total amount for the Plan Year; and (2) ten (10) percent of the amount
determined under (1) multiplied by the number of whole calendar months between
the end of the Plan Year in which the Excess Aggregate Contributions were made
and the date of distribution, counting the date of distribution if distribution
occurs after the 15th day of such month.
4.04 FORFEITURE OF MATCHING CONTRIBUTIONS. In the event a matching
------------------------------------
contribution relates to an excess deferral under Section 3.04, or an Excess
Contribution under Section 3.06, the matching contribution and income allocable
thereto shall be forfeited. The income allocable to a matching contribution
shall be determined in accordance with the procedure for determining income
allocable to Excess Aggregate Contributions set forth in Section 4.03. Forfeited
matching contributions and the income allocable thereto shall be used for
payment of Plan expenses and then used to reduce the Employer's matching
contributions obligation. The forfeited amounts are treated as Annual Additions
under the Plan for those Participants from whose Accounts the amounts are
forfeited.
4.05 DISCRETIONARY BASE CONTRIBUTIONS. For each Plan Year, the
--------------------------------
Employer may contribute to the Trust a discretionary base contribution amount if
the Employer deems it advisable. The Employer's base contribution amount will be
allocated only to Participants who are employed by the Employer on the last day
of the Plan Year and who have been credited with one thousand (1,000) Hours of
Service for that Plan Year, except that a Participant
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<PAGE>
whose service with the Employer terminates in a Plan Year because of death,
disability, or retirement on or after Normal Retirement Date, will share in the
allocation of the Employer's base contribution for the Plan Year.
Notwithstanding the foregoing, if a Participant completes 501 or more Hours of
Service, regardless of whether he is employed on the last day of the Plan Year,
he will receive a base contribution if such contribution is necessary to enable
the Plan to satisfy the minimum coverage test of Section 410(b) of the Code or
the minimum participation test of Section 401(a)(26) of the Code. The allocation
of the Employer's base contribution shall be based on a ratio, the numerator of
which is the Participant's Compensation for the Plan Year, and the denominator
of which is the total Compensation for all Participants for that Plan Year.
4.06 EMPLOYER CONTRIBUTIONS. This Plan is intended to be a profit
----------------------
sharing plan to which Employer contributions shall be made without regard to
current or accumulated profits. All contributions by the Employer shall be paid
to the Trustee not later than the time prescribed by law for filing the federal
income tax return of the Employer, including any extensions which have been
granted for the filing of such return.
4.07 LIMITATION ON ALLOCATION TO PARTICIPANT'S ACCOUNT.
-------------------------------------------------
If an Employee does not and has not ever received an allocation of Annual
Additions, the amount of Annual Additions which the Committee may allocate under
this Plan on a Participant's behalf
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<PAGE>
for a Limitation Year shall not exceed the Maximum Permissible Amount. Prior to
the determination of the Participant's actual Compensation for a Limitation
Year, the Committee may determine the Maximum Permissible Amount on the basis of
the Participant's estimated annual Compensation for such Limitation Year. The
Committee shall make this determination on a uniform and reasonable basis for
all Participants similarly situated. As soon as is administratively feasible
after the end of the Limitation Year, the Committee shall determine the Maximum
Permissible Amount for the Limitation Year on the basis of the Participant's
Compensation for the Limitation Year.
If, as a result of the Committee's estimation of the Participant's
Compensation, as a result of a forfeiture allocation, or as a result of a
reasonable error in determining the amount of Salary Reduction Contributions
that may be made with respect to any Participant under the limits of Section 415
of the Code, an Excess Amount exists, any Salary Reduction Contributions or
nondeductible voluntary contributions will be returned to the Participant. To
the extent an Excess Amount still exists, the Committee shall reduce any
Employer contributions and forfeitures to the participant's Accounts at the end
of the Limitation Year by the Excess Amount, and any remaining Excess Amount
shall be carried over to the next Limitation Year. If the participant is not
covered by the Plan as of the end of the Limitation Year, then the Excess Amount
will be allocated to the Accounts of all other
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<PAGE>
Participants in the Plan for the Limitation Year before any other amounts are
allocated for such Limitation Year.
If an Employee is a Participant at any time in both a defined benefit
plan and a defined contribution plan maintained by the Employer, the sum of the
defined benefit plan fraction and the defined contribution plan fraction for any
Plan Year may not exceed 1.0.
The defined benefit plan fraction for any Plan Year is a fraction, the
numerator of which is the Participant's projected annual benefit under the plan
(determined at the close of the Plan Year) and the denominator of which is the
lesser of (1) 1.25 multiplied by the dollar limitation in effect for such Plan
Year under Section 415(b) (1) (A) of the Code as adjusted by Section 415(d) of
the Code; or (2) 1.4 multiplied by one-hundred percent (100%) of the
Participant's average monthly Compensation during the three consecutive years
when the total Compensation paid to him was highest, including any adjustment
under Section 415(b) of the Code. Notwithstanding the above, if the Participant
was a participant as of the first day of the first Limitation Year beginning
after December 31, 1986, in one or more defined benefit plans maintained by the
Employer which were in existence on May 6, 1986, the denominator of this
fraction will not be less than 125 percent of the sum of the annual benefits
under such plans which the Participant had accrued as of the close of the last
Limitation Year beginning before January 1, 1987, disregarding any changes in
the terms and conditions of the plan after May 5, 1986. The preceding
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<PAGE>
sentence applies only if the defined benefit plans individually and in the
aggregate satisfied the requirements of Section 415 for all Limitation Years
beginning before January 1, 1987.
The defined contribution plan fraction for any Plan Year is a
fraction, the numerator of which is the sum of the Annual Additions to the
Participant's Account Balance as of the close of the Plan Year, (including the
Annual Additions attributable to the Participant's nondeductible employee
contributions to all defined benefit plans, whether or not terminated,
maintained by the Employer, and the Annual Additions attributable to all welfare
benefit funds, as defined in Section 419(e) of the Code, and individual medical
accounts, as defined in Section 415(1)(2) of the Code, maintained by the
Employer) and the denominator of which is the sum of the applicable maximum
amounts of Annual Additions which could have been made under Section 415(c) of
the Code for such Plan Year and for all prior years of such Participant's
employment. If the employee was a Participant as of the end of the first day of
the first Limitation Year beginning after December 31, 1986, in one or more
defined contribution plans maintained by the Employer which were in existence on
May 6, 1986, the numerator of this fraction will be adjusted if the sum of this
fraction and the defined benefit fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment, an amount equal to the product of (1)
of the excess of the sum of the fractions over 1.0 times (2) the denominator of
this fraction, will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using
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<PAGE>
the fractions as they would be computed as of the end of the last Limitation
Year beginning before January 1, 1987, and disregarding any changes in the terms
and conditions of the Plan made after May 5, 1986, but using the Section 415
limitation applicable to the first Limitation Year beginning on or after January
1, 1987.
The applicable maximum amount for any Plan Year shall be equal to the
lesser of (1) 1.25 multiplied by the dollar limitation in effect for such Plan
Year under Section 415(c)(1)(A) of the code; or (2) 1.4 multiplied by twenty-
five percent (25%) of the Participant's Compensation for such Plan Year. For
purposes of this limitation, all defined benefit plans of the Employer, whether
or not terminated, are to be treated as one defined benefit plan and all defined
contribution plans of the Employer, whether or not terminated, are to be treated
as one defined contribution plan.
The following definitions apply to this Section only:
(a) "Maximum Permissible Amount" - For a Limitation Year, the Maximum
Permissible Amount with respect to any Participant shall be the lesser
of (i) $30,000 (or, if greater, 25% of the dollar limitation in effect
under Section 415(b)(1)(A) of the Code), or (ii) twenty-five percent
(25%) of the Participant's Compensation for the Limitation Year.
(b) "Compensation" - Compensation as defined but excluding amounts
deferred pursuant to Article III or pursuant to a cafeteria plan as
defined by Section 125 of the Code.
(c) "Employer" - The Employer which adopts this Plan as well as any
entity which must be aggregated with the Employer pursuant to Sections
414(b), (c), (m), (n) or (o) of the Code.
(d) "Excess Amount" - The excess of the Participant's Annual
Additions credited to the Participant's Account for the Limitation
Year over the Maximum Permissible Amount. Any Excess Amount shall be
held in a suspense account
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<PAGE>
which does not participate in the allocation of the Trust's investment
gains and losses. Excess Amounts may not be distributed to
Participants or former Participants, except as otherwise provided in
Section 4.07. Any Excess Amount which is allocated shall be deemed to
be an Annual Addition for the Limitation Year in which it is
allocated.
(e) "Limitation Year" - The Plan Year.
(f) "Projected Annual Benefit" - The annual retirement benefit
(adjusted if such benefit is expressed in a form other than a straight
life annuity or qualified joint and survivor annuity) to which the
Participant would be entitled under the terms of the plan assuming:
(1) the Participant will continue employment until normal
retirement age under the plan (or current age, if later), and
(2) the Participant's Compensation for the current Limitation
Year and all other relevant factors used to determine benefits
under the Plan will remain constant for all future Limitation
Years.
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<PAGE>
ARTICLE V
PARTICIPANT CONTRIBUTIONS
5.01 VOLUNTARY CONTRIBUTIONS. A Participant may make nondeductible
-----------------------
employee contributions ("voluntary contributions") equal to any whole percentage
from one percent (1%) to ten percent (10%) of his Compensation for each payroll
period within such Plan Year. Any voluntary contributions made by a Participant
will be allocated to the Participant's Account Balance no later than 30 days
after the next following Accounting Date. The Committee shall not accept any
Participant's voluntary contributions which when aggregated with matching
contributions made on behalf of the Participant do not satisfy the
nondiscrimination test set forth in Section 4.02. For purposes of Section 4.02,
the Contribution Percentage of a Participant who is not allocated a matching
contribution and does not make a voluntary contribution shall be 0%. A
Participant's voluntary contribution will be considered to have been made in the
Plan Year during which it is contributed to the Trust. To the extent Section
4.02 is not satisfied, any Excess Aggregate Contributions must be returned to
the Participant pursuant to Section 4.03. The Committee shall return voluntary
contributions prior to returning any other Excess Aggregate Contributions. All
voluntary contributions made by a Participant and income accruing thereon shall
be one hundred percent (100%) vested. A separate account will be maintained to
reflect voluntary contributions and income accruing thereon. All voluntary
contributions made after December 31, 1986 and the income allocable
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<PAGE>
thereto shall be treated as a separate contract for purposes of the distribution
rules under Section 72 of the Code. The Committee shall maintain records of
withdrawals, contributions, earnings and losses attributable to each contract.
Each Participant shall have the right to make withdrawals of his
voluntary contributions from the Voluntary Contribution Account, upon twenty-one
(21) days' prior written notice to the Plan Committee. No withdrawal shall be
for less than Two Hundred Fifty Dollars ($250) and only one withdrawal may be
made under this Section 5.01 in any Plan Year. All withdrawals shall be on the
basis of the value of the Participant's Voluntary Contribution Account as of the
Valuation Date that is at least twenty-one (21) days after the request for
withdrawal is made. For purposes of this Section 5.01, the Voluntary
Contribution Account shall be deemed to include the corresponding sub-accounts,
if any, of the Historic Account.
Withdrawals shall be made from pre-1987 voluntary contributions first.
After the contract attributable to pre-1987 voluntary contributions is depleted,
withdrawals can be made from the other contract.
5.02 ROLLOVER CONTRIBUTIONS. Any Employee, with the Committee's
----------------------
consent, may contribute cash to the Trust Fund, if the contribution is a
Rollover Contribution. For this purpose a Rollover Contribution means (a) an
Eligible Rollover Distribution within the meaning of Section 402(c)(4) of the
Code; (b) a contribution by an Employee of a distribution received from the
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<PAGE>
qualified plan of another employer provided the Employee makes the contribution
within 60 days of his receipt of a distribution which satisfied the requirements
of Section 402(a)(5) of the Code before January 1, 1993 and which satisfied
the requirements of Section 402(c)(l) after December 31, 1992; (c) a
contribution by an Employee under Section 408(d)(3) of the Code of the balance
in an individual retirement account or annuity which amount is attributable to a
prior rollover distribution which satisfied the requirements of Section
402(a)(5) of the Code before January 1, 1993 and which satisfied the
requirements of Section 402(c)(1) after December 31, 1992; or (d) a direct
transfer of the Employee's interest from the trustee of a qualified plan
maintained by another employer. Before accepting the Rollover Contribution, the
Committee may require the Employee to furnish satisfactory evidence that the
proposed transfer is in fact a Rollover Contribution that the Code permits a
Employee to make to a qualified plan. The Committee shall not accept any amount
from or attributable to any defined benefit plan or other plan which would
require the Plan to offer or to provide automatic survivor benefits under
Section 401(a)(11) of the Code. A Rollover Contribution is not an Annual
Addition under Section 1.03 or Section 4.07.
Rollover Contributions are 100% vested at all times and, effective
April 1, 1994, follow the distribution restrictions applicable to base
contributions.
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<PAGE>
ARTICLE VI
TERMINATION OF SERVICE
6.01 NORMAL RETIREMENT DATE. Upon reaching his Normal Retirement
----------------------
Date, a Participant shall be fully vested in his Account Balance. A Participant
who remains employed after reaching his Normal Retirement Date shall continue to
fully participate in this Plan. Upon termination of a Participant's employment
for any reason after Normal Retirement Date, the Committee shall direct the
Trustee to commence payment of the Participant's Account Balance to him (or to
his Beneficiary if the Participant is deceased), in accordance with the
provisions of Article VII no later than sixty (60) days after the close of the
Plan Year in which the Participant's employment terminates.
6.02 PARTICIPANT DISABILITY. A Participant shall be fully vested in
----------------------
his Account Balance if he is deemed disabled by the Committee. The Committee
shall direct the Trustee to commence payment of the Participant's Account
Balance to him in accordance with the provisions of Article VII no later than
sixty (60) days after the close of the Plan Year in which the Participant is
deemed disabled. The Plan shall consider a Participant disabled on the date the
Committee determines the Participant, because of a physical or mental
disability, will be unable to perform the duties of his customary position of
employment (or is unable to engage in any substantial gainful activity) for an
indefinite period which the Committee considers will be of long and continued
duration. The Committee may require a Participant to submit to a physical
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<PAGE>
examination in order to confirm disability. If the disabled Participant is a
member of the Committee, a disinterested third party shall be appointed by the
Committee to evaluate the Committee member's condition. The Committee shall
apply the provisions of this Section 6.02 in a nondiscriminatory, consistent and
uniform manner.
6.03 TERMINATION OF SERVICE PRIOR TO NORMAL RETIREMENT DATE. Upon
------------------------------------------------------
termination of a Participant's employment prior to Normal Retirement Date (for
any reason other than death or disability), the Committee shall direct the
Trustee to commence payment of the Participant's vested Account Balance to him
(or to his Beneficiary if the Participant is deceased), in accordance with the
provisions of Article VII, no later than sixty (60) days after the close of the
Plan Year in which the Participant's employment terminates.
6.04 VESTING - EMPLOYER CONTRIBUTIONS. Amounts credited to a
--------------------------------
Participant's Matching Contribution Account shall be one hundred percent (100%)
vested at all times. A Participant's Base Contribution Account and Historic
Account attributable to similar Employer base contribution amounts, shall be one
hundred percent (100%) vested upon reaching his Normal Retirement Date (if
employed by the Employer on or after that date), or if his employment with the
Employer terminates as a result of death or disability. If a Participant's
employment with the Employer terminates prior to his Normal Retirement Date for
any reason other than death or dis-
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<PAGE>
ability, then for each Year of Service he shall earn a Nonforfeitable percentage
of his Base Contribution Account as determined by the following vesting
schedule:
Percent of
Nonforfeitable
Years of Service Base Contribution Account
---------------- -------------------------
0 0%
1 10%
2 20%
3 30%
4 40%
5 60%
6 80%
7 or more 100%
Notwithstanding the above, the Account Balance of a Participant who as
of December 31, 1991 was a participant in the Danbury Pharmacal, Inc. Profit
Sharing Plan and who had at least three (3) Years of Service as of such date
shall be 50% vested upon completion of four (4) Years of Service.
For purposes of determining Years of Service under Section 6.04, the
Plan shall take into account all Years of Service an Employee completes with the
Employer or any entity which is required to be aggregated with the Employer
pursuant to Sections 414(b), (c), (m), (n) or (o) of the Code.
Solely for purposes of determining a Participant's Nonforfeitable
percentage of his Base Contribution Account and Historic Account which accrued
prior to a Forfeiture Break in Service, the Plan shall disregard any Years of
Service after the Participant first incurs a Forfeiture Break in Service. A
Participant incurs a Forfeiture Break in Service when he incurs five (5)
consecutive one-year Breaks in Service.
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<PAGE>
If a Participant who has no vested interest incurs a Break in Service,
the Committee shall disregard the Participant's pre-break Years of Service for
purposes of determining his vested interest in his post-break Account Balance if
the number of the Participant's aggregate one-year Breaks in Service equals or
exceeds the greater of five (5) or the number of the Participant's aggregate
Years of Service.
6.05 FORFEITURE AND REPAYMENT. If a Participant terminates employment
------------------------
before his interest in his Base Contribution Account or Historic Account are
fully vested, that portion which has not vested shall be forfeited as of the
last day of the Plan Year in which (i) he receives a distribution of the
Nonforfeitable portion of his Account Balance or (ii) he incurs a Forfeiture
Break in Service. If the value of the Participant's vested Base Contribution
Account or Historic Account is zero, the Participant shall be deemed to have
received a distribution of such vested Account Balance. If a Participant who
has received a distribution of the Nonforfeitable portion of his Account Balance
is rehired before he incurs a Forfeiture Break in Service, he may repay to the
Trustees an amount equal to the distribution amount. The Participant must make
repayment prior to the earlier of the date he would incur a Forfeiture Break in
Service after such distribution, or five (5) years after the date on which he is
reemployed. Such repayment shall be credited to his Account Balance and an
additional amount equal to the forfeited portion of his Base Contribution
Account and Historic Account will either be allocated
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<PAGE>
to the Participant's Account Balance out of current forfeitures or contributed
by the Employer as of the last day of that Plan Year. It shall be the duty of
the Employer to give timely notification to any rehired Employee if such
Employee is eligible to make a repayment, of his right to make such a repayment,
and of the consequences of not making such repayment. In the case of a
terminated Participant who is deemed to have received a distribution and is
rehired before he incurs a Forfeiture Break in Service, his forfeited Base
Contribution Account and Historic Account shall be restored upon reemployment.
In the case of a terminated Participant who does not receive a distribution of
the Nonforfeitable portion of his Account Balance and whose service resumes
after five (5) consecutive one-year Breaks in Service, the Nonforfeitable
Account Balance shall be maintained as a fully vested subaccount within his Base
Contribution Account and Historic Account.
Subject to any restoration allocation of a forfeited amount on behalf
of a Participant who repays a distribution as described above, and payment of
Plan expenses, the Employer shall use any remaining forfeiture amounts to reduce
any Employer contribution obligation.
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<PAGE>
ARTICLE VII
TIME AND METHOD OF PAYMENT OF BENEFITS
7.01 TIME OF PAYMENT OF ACCOUNT BALANCE. Unless the Participant
----------------------------------
elects in writing, if distribution has not yet commenced pursuant to Sections
6.02 or 6.03, the Committee shall direct the Trustee to commence distribution of
a Participant's Account Balance determined as of the Accounting Date coincident
with or preceding the event causing distribution no later than sixty (60) days
after the close of the Plan Year in which the later of the following events
occurs:
(a) The date the Participant reaches his Normal Retirement Date, or
(b) The date the Participant terminates service with the Employer.
The Committee shall, however, direct the Trustee to commence distribution no
later than the Participant's Required Beginning Date. The Required Beginning
Date is April 1 of the calendar year following the calendar year in which the
Participant attains age 70 1/2, notwithstanding the Participant's continued
employment; except that any Participant who attained age 70 1/2 before January
1, 1988, and who is not a five percent owner in the Plan Year in which he
attained age 66 1/2 or any later Plan Year, need not commence receiving payments
hereunder until April 1 of the year following the year in which he actually
retires.
7.02 DEFERRED DISTRIBUTION. A Participant who separates from service
---------------------
prior to attaining age 70 1/2 may request that the
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<PAGE>
Committee direct the Trustee to defer commencement of his distribution until his
Required Beginning Date.
7.03 FORMS OF PAYMENT. The Participant may elect one of the optional
----------------
forms of payment described herein. The election of such option must be in
writing, in such form as the Committee shall prescribe, signed by the
Participant and filed with the Committee during the 90 day period preceding the
Payment Starting Date. Any election may be revoked by written notice filed with
the Committee at least 30 days prior to the Participant's Payment Starting Date.
Such distribution may commence less than 30 days after the Participant is
advised that he may elect an immediate distribution, provided that:
(a) the Committee clearly informs the Participant that the Participant
has a right to a period of at least 30 days after receiving the notice
to consider the decision of whether or not to elect a distribution
(and, if applicable, a particular distribution option), and
(b) the Participant, after receiving the notice, affirmatively elects a
distribution.
The following optional forms of distribution will be available:
(a) a lump sum payment;
(b) installment payments over a period of five years; or
(c) installment payments over a period of ten years.
7.04 PAYMENT UPON DEATH. If distribution of the Participant's
------------------
Account Balance has commenced in accordance with a method selected pursuant to
Section 7.03 and the Participant dies before
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<PAGE>
his entire interest is distributed to him, the remaining portion of such
interest shall be distributed at least as rapidly as under the method of
distribution selected by the Participant as of his date of death.
If a Participant dies prior to the commencement of distribution of his
Account Balance, distribution of his Account Balance to his designated
Beneficiary shall be completed by December 31 of the calendar year containing
the fifth anniversary of his death, unless one of the following exceptions
apply:
(a) If the Participant's Account Balance is payable to or for the
benefit of a designated Beneficiary, it may be distributed over a
period not extending beyond the life expectancy of such Beneficiary,
provided such distribution commences no later than the December 31
following the close of the calendar year in which the Participant's
death occurred.
(b) In the event that the Participant's spouse is his designated
Beneficiary, distribution to the spouse must commence no later than the
later of the December 31 of the calendar year in which the deceased
Participant would have attained age 70 1/2 had he survived or the
December 31 following the close of the calendar year in which the
Participant's death occurred. If the surviving spouse dies before
distribution to such spouse has commenced, then the five year
distribution requirement of this Section shall apply as if the spouse
were the Participant.
If the Participant has not designated a method of distribution in
accordance with (a) or (b) above, the Participant's designated Beneficiary must
elect the method of distribution no later than the earlier of (1) December 31 of
the calendar year in which distributions would be required to begin under this
Section,
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<PAGE>
or (2) December 31 of the calendar year which contains the fifth anniversary of
the date of death of the Participant. If the Participant has no designated
Beneficiary, or if the designated Beneficiary does not elect a method of
distribution, distribution of the Participant's entire interest must be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
For purposes of this Section, any amount paid to a child of the
Participant will be treated as if it had been paid to the surviving spouse if
the amount becomes payable to the surviving spouse when the child reaches the
age of majority. For purposes of this Section only, distribution of a
Participant's interest is considered to begin on the Participant's Required
Beginning Date (or, if (b) above is applicable, the date distribution is
required to begin to the surviving spouse).
If the Trustee makes distribution in accordance with the exceptions in
either clause (a) or (b), the minimum distribution for a calendar year equals
the Participant's Nonforfeitable Account Balance as of the latest Accounting
Date preceding the beginning of the calendar year (adjusted by distributions
made after the Accounting Date but prior to the end of the calendar year),
divided by the designated Beneficiary's life expectancy without recalculation.
The Committee shall use the unisex life expectancy multiples under Treasury
regulation Section 1.72-9 for purposes of applying this paragraph. In construing
this Section 7.04, the method of distribution to the Participant's Beneficiary
must
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satisfy Section 401(a)(9) of the Code and the applicable Treasury regulations.
7.05 MINIMUM DISTRIBUTION REQUIREMENTS. Notwithstanding anything else
---------------------------------
to the contrary herein, the Committee may not direct the Trustee to distribute
the Participant's Nonforfeitable Account Balance, nor may the Participant elect
to have the Trustee distribute his Account Balance over a period extending
beyond the Participant's life expectancy or over a period extending beyond the
joint life and last survivor life expectancy of the Participant and his
designated Beneficiary. The minimum distribution for a calendar year equals the
Participant's Nonforfeitable Account Balance as of the most recent Accounting
Date preceding the calendar year (adjusted for allocations of contributions,
forfeitures and distributions made after the Accounting Date but prior to the
end of the calendar year, if applicable), divided by the applicable life
expectancy or, if the Participant's spouse is not his designated Beneficiary,
the applicable divisor determined from the table set forth in Q&A-4 of Section
1.401(a)(9)-2 of the proposed regulations. The applicable life expectancy shall
be the life expectancy (or joint and last survivor expectancy) calculated using
the attained age of the Participant (or designated Beneficiary) as of the
Participant's (or designated Beneficiary's) birthday in the first distribution
calendar year reduced by one for each calendar year which elapsed since the date
life expectancy was first calculated. Applicable life expectancies will be
determined under the unisex life expectancy multiples under Treasury
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<PAGE>
regulation Section 1.72-9, and will not be recomputed. The minimum distribution
required for the Participant's first distribution calendar year must be made on
or before the Participant's Required Beginning Date. The minimum distribution
for other calendar years, including the minimum distribution for the
distribution calendar year in which the Participant's Required Beginning Date
occurs, must be made on or before December 31 of that distribution calendar
year. The first distribution calendar year is the calendar year immediately
preceding the calendar year which contains the Participant's Required Beginning
Date. All distributions under the Plan must be made in accordance with Section
401(a)(9) of the Code and the Treasury regulations thereunder. To the extent
provisions of this Plan are inconsistent with Section 401(a)(9) of the Code,
Section 401(a)(9) of the Code will override such provisions.
7.06 IMMEDIATE DISTRIBUTION. If the Participant's Nonforfeitable
----------------------
Account Balance is $3,500 or less, including voluntary contributions, if
applicable, the Committee will immediately distribute such amount to the
Participant without his consent upon his termination of employment. No
distribution may be made pursuant to this Section after the Payment Starting
Date without the consent of the Participant, and if applicable, the
Participant's spouse.
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ARTICLE VIII
WITHDRAWALS
8.01 HARDSHIP WITHDRAWAL. If a Participant elects to withdraw all or
-------------------
any part of his Salary Reduction Contribution Account and his Qualified Non-
Elective Contribution Account prior to the date he attains age 59 1/2, such
withdrawal will require the consent of the Committee and such consent shall be
given only if, under uniform rules of application, the Committee determines that
the purpose of the withdrawal is to meet heavy and immediate financial needs of
the Participant, the amount of the withdrawal does not exceed such financial
needs, and the amount of the withdrawal is not reasonably available from the
other resources of the Participant. Permitted withdrawals include distributions
for (1) payment of college or graduate school tuition and related educational
fees for college or graduate school for the next 12 months for the Participant,
the Participant's spouse, children or dependents; (2) costs directly related to
the purchase of a principal residence for the Participant, excluding mortgage
payments; (3) payments necessary to prevent the Participant's eviction from, or
foreclosure on the mortgage of, the Participant's principal residence; and (4)
expenses for medical care, to the extent not covered by insurance, which have
either been previously incurred by the Participant, the Participant's spouse or
dependents or are necessary for the Participant, the Participant's spouse or
dependents to obtain medical care. Other withdrawals will be
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approved by the Committee on the basis of uniform, nondiscriminatory standards.
The foregoing definition of hardship may be altered by the Committee,
as may the time, amount and manner of distributions under this Section, to the
extent required by the Code or applicable regulations. No distributions may be
made under this Section to the extent that such distributions would be allocable
to income allocable to Salary Reduction Contributions or income allocable to
Qualified Non-Elective Contributions. A hardship withdrawal must be at least
$250 and limited to only one in any Plan Year.
8.02 AGE 59 1/2 WITHDRAWALS. A Participant may withdraw any portion
----------------------
of his Salary Reduction Contribution Account and Matching Contribution Account
and his Qualified Non-Elective Contribution Account for any reason after
attainment of age 59 1/2. Only one such withdrawal will be permitted in any Plan
Year.
8.03 BASE CONTRIBUTION WITHDRAWALS. A Participant may elect to
-----------------------------
withdraw all of any part of his Nonforfeitable Base Contribution Account and,
effective April 1, 1994, his Rollover Contribution Account, prior to the date on
which he attains age 59 1/2, for the same reasons as those explained in Section
8.01. A Base Contribution Account withdrawal must be in the amount of at least
$250 and no more than one such withdrawal per Plan Year will be permitted.
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ARTICLE IX
INVESTMENT OF CONTRIBUTIONS
9.01 FUNDING VEHICLE. The Employer has entered into a Trust
---------------
Agreement with the Trustee providing for the establishment of a Trust to which
all Salary Reduction Contributions, matching contributions, base contributions,
Qualified Non-Elective Contributions, rollover contributions, historic
contributions and voluntary contributions, if any, shall be contributed and from
which all benefits under the Plan shall be paid.
9.02 INVESTMENT FUNDS. The Trustee may, pursuant to the direction of
----------------
the Investment Committee, establish and maintain separate subfunds into which
the Participants may direct the investment of their Accounts.
9.03 INVESTMENT ELECTIONS. If the Trustee maintains separate subfunds
--------------------
pursuant to Section 9.02, each Participant's Account Balance attributable to
Salary Reduction Contributions, matching Contributions, rollover contributions
and voluntary contributions contributed on or after January 1, 1992 shall be
allocated to any or all of the subfunds, in multiples of five percent (5%), as
the Participant shall elect. Such election shall be made by the Participant in
writing and shall be filed with the Committee. A Participant's initial election
shall be made during the Enrollment Period preceding his entry into the Plan.
Separate accounts will be maintained reflecting the interest of each Participant
attributable to each subfund.
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9.04 CHANGE IN INVESTMENT ELECTION. Any investment election made by
-----------------------------
the Participant shall be deemed to be a continuing election until changed. A
Participant may change his investment election with respect to future
contributions by filing an appropriate notice with the Committee at least twenty
one (21) days prior to the first pay period of the next succeeding calendar
quarter for which the election is to be effective. Such change shall be
effective only with respect to future amounts deferred from the Participant's
Compensation, future matching contributions, future rollover contributions and
future voluntary contributions if any. Effective July 1, 1994, a Participant may
change his investment elections on a daily basis.
9.05 TRANSFERS BETWEEN FUNDS. A Participant may direct the Trustee to
-----------------------
transfer designated amounts from one subfund to another. A Participant may not
direct any money in the Historic Account. A Participant may not direct that
amounts be transferred between the Funds more frequently than once during each
calendar quarter. Such transfers will be effective as of the first pay period
of the next calendar quarter. Effective July 1, 1994, a Participant may
transfer all amounts, including Historic Account amounts, on a daily basis.
9.06 INVESTMENT OF EARNINGS. All earnings (whether denominated
----------------------
income, capital gain or otherwise) from investments in each subfund shall be
reinvested in the same subfund.
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<PAGE>
9.07 LOAN FUNDS. Notwithstanding anything in this Article IX to the
----------
contrary, any Employee who borrows from the Trust Fund pursuant to Article X
will be treated as having directed the Trustee to allocate such portion of his
Account Balance as is equal to the borrowed amount to the Employee's Loan Fund.
The Loan Fund, and the promissory note executed by the Employee held therein,
remains a part of the Trust Fund, but to the extent of the loan outstanding at
any time, the borrowing Employee's Loan Fund alone shares in any interest paid
on the loan, and it alone bears any expense or loss it incurs in connection with
the loan. The Trustee may retain in an interest-bearing account any interest and
principal paid on the borrowing Employee's loan in the Loan Fund on behalf of
the borrowing Employee until the Trustee deems it appropriate to add the amount
paid to the Employee's Loan Fund under the Plan (plus interest, if any) back to
the Employee's Account Balance, at the same time reducing the amount treated as
having been allocated to the Employee's Loan Fund by the amount of principal
payments made with respect to the loan.
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<PAGE>
ARTICLE X
LOANS
10.01 LOAN APPLICATIONS. An Employee or a Qualified Beneficiary may
-----------------
make application to the Trustees to borrow from the Trust Fund, and the Trustees
may, in their sole discretion, permit such loan, provided that the reason for
the loan satisfied the conditions for hardship withdrawals of Section 8.01 and
further provided that such loans shall be made available to all such Employees
and Qualified Beneficiaries on a reasonably equivalent basis. Effective April
1, 1994, an Employee or a Qualified Beneficiary may make application to the
Trustees to borrow from the Trust Fund for any reason. A Qualified Beneficiary
for this purpose, is a designated Beneficiary who is a party-in-interest as
defined in Section 3(14) of the Employee Retirement Income Security Act of 1974,
as amended. The authority herein granted to the Trustees to approve loans from
the Trust Fund shall not be used as a means of distributing benefits before they
otherwise become due. A loan must be in the amount of at least two hundred fifty
dollars ($250), and will be made only in multiples of fifty dollars ($50). Only
one loan will be granted in any twelve consecutive month period, and no more
than two loans may be outstanding at any time.
10.02 LOAN TERMS AND CONDITIONS.
-------------------------
(a) The aggregate amount of all such loans to an Employee from this
Plan shall not, at the time any such loan is made, exceed the lesser of (i)
$50,000 reduced by the excess (if any) of the highest outstanding balance of
loans from the Plan during the one year period ending on the day before the date
on which such loan was made, over the outstanding balance of loans
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<PAGE>
from the Plan on the date on which such loan was made, or (ii) fifty percent
(50%) of the vested portion of the Employee's Account Balance at the time of the
making of such loan, or (iii) the Employee's Salary Reduction Contribution
Account. Effective January 1, 1994, the aggregate amount shall no longer be
restricted by condition (iii) above. For purposes of this limitation, all loans
from all qualified plans maintained by the Employer or by any entity which is
required to be aggregated with the Employer pursuant to Sections 414(b), (c),
(m) or (o) of the Code must be aggregated.
(b) Loans shall be made pursuant to notes approved by the Trustees
which shall bear a reasonable interest rate equal to the prevailing rate charged
by lenders for similar loans and shall specify the time and manner of repayment,
as determined by the Trustees.
(c) Loans shall not be made available to Employees who are Highly
Compensated Employees in an amount greater than the amount made available to
other Employees.
(d) An Employee must obtain the consent of his or her spouse, if any,
to use the Account Balance as security for the loan. For all loans, the Employee
and his spouse (if applicable) must consent in writing within the 90 day period
before the making of the loan, to the possible reduction in the Employee's
Account Balance if the terms of the loan are not properly fulfilled and fully
executed. The consent must be in writing, must acknowledge the effect of the
loan, and must be witnessed by a Plan representative or notary public. Such
consent shall thereafter be binding with respect to the consenting spouse or any
subsequent spouse with respect to that loan. A new consent shall be required if
the Account Balance is used for renegotiation, extension, renewal, or other
revision of the loan.
If a valid spousal consent has been obtained, then, notwithstanding any
other provisions of this Plan, the portion of the Employee's vested Account
Balance used as a security interest held by the Plan by reason of a loan
outstanding to the Employee shall be taken into account for purposes of
determining the amount of the Account Balance payable at the time of death or
distribution, but only if the reduction is used as repayment of the loan. If
less than 100% of the Employee's vested Account Balance (determined without
regard to the preceding sentence) is payable to the surviving spouse, then the
Account Balance shall be adjusted by first reducing the vested Account Balance
by the amount of the security used as repayment of the loan, and then
determining the benefit payable to the surviving spouse.
(e) All loans shall be adequately secured. A loan shall be deemed to
be adequately secured if the aggregate amount of all such loans to an Employee
does not exceed fifty percent (50%)
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of the vested amount of the Employee's Account Balance at the time of the making
of such loan. If, at any time, the aggregate amount of outstanding loans to an
Employee does exceed that limitation, then the Trustees shall require the
Employee to repay the amount of principal balance due on such loans to an amount
not in excess of such limitation, or to adequately secure with collateral other
than the vested amount of the Employee's Account Balance the amount by which
such loans exceed the limitation. The Trustees shall have sole discretion to
determine the nature and amount of security required.
(f) The period for repayment of a loan issued pursuant to this
Section must, by the terms of the note, not exceed five (5) years.
Notwithstanding the above, if the purpose or use of the loan, as determined at
the time of issuance, is to acquire any dwelling unit which within a reasonable
time is to be used as the principal residence of the Employee, the period for
repayment of the loan may be extended to ten (10) years. Repayment of a loan
shall be made through payroll deduction, or if an Employee's employment
terminates, via personal check. Any loan shall, by its terms, require that
repayment of principal and interest be amortized at least quarterly over the
period of the loan on a substantially level basis.
(g) In the event the Employee's employment terminates, the loan shall
be accelerated and any amount due shall be paid from the Loan Fund, unless
otherwise satisfied by the Employee.
(h) In the event of default of an active Employee, foreclosure on the
note and attachment of security will not occur until a distributable event
occurs in the Plan. In the event of default of a terminated Employee, the
Trustee shall deduct the total amount of the loan outstanding and any interest
and other charges then due and owing from the terminated Employee's Loan Fund
securing the Loan.
(i) No loans will be made to any shareholder-employee or Owner-
Employee. For purposes of this requirement, a shareholder-employee means an
employee or officer of an electing small business (Subchapter S) corporation who
owns (or is considered as owning within the meaning of Section 318(a)(1) of
the Code), on any day during the taxable year of such corporation, more than 5%
of the outstanding stock of the corporation.
(j) Except to the extent otherwise prohibited by law, the deduction
of the loan shall be made from the Employee's Account Balance in the following
order of priority: Rollover Contribution Account, Salary Reduction Contribution
Account, Matching Contribution Account, Historic Account and Base Contribution
Account.
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ARTICLE XI
EMPLOYER ADMINISTRATIVE PROVISIONS
11.01 INFORMATION TO COMMITTEE. The Employer shall supply current
------------------------
information to the Committee as to the name, date of birth, date of employment,
annual Compensation, leaves of absence and date of termination of employment of
each Employee who is, or who will be eligible to become, a Participant under the
Plan, together with any other information which the Committee considers
necessary. The Employer's records as to the current information the Employer
furnishes to the Committee shall be conclusive as to all persons.
11.02 NO LIABILITY. The Employer assumes no obligation or
------------
responsibility to any of its Employees, Participants or Beneficiaries for any
act of, or failure to act, on the part of its Committee or the Trustees.
11.03 INDEMNITY OF COMMITTEE. The Employer indemnifies and holds
----------------------
harmless the members of the Committee, and each of them, from and against any
and all loss resulting from liability to which the Committee or members of the
Committee may be subjected by reason of any act or conduct (except willful
misconduct or gross negligence) in their official capacities in the
administration of this Plan or Trust or both, including all expenses reasonably
incurred in their defense in case the Employer fails to provide such defense.
The indemnification provisions of this Section 11.03
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<PAGE>
shall not relieve any Committee member from any liability he may have under the
Code or ERISA for breach of a fiduciary duty.
11.04 FACILITY OF PAYMENT. If satisfactory evidence is received that
-------------------
a person entitled to receive any benefits is physically incapable or mentally
incompetent to receive such payment and give a valid release therefor, and
another person or institution has been maintaining or has custody of such
person, payment of such benefit may be made to such person or institution and
the release of such person or institution shall be a valid and complete
discharge of any liability under this Plan.
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<PAGE>
ARTICLE XII
PARTICIPANT ADMINISTRATIVE PROVISIONS
12.01 BENEFICIARY DESIGNATION. The Beneficiary of a married
-----------------------
Participant shall be the surviving spouse. A married Participant may designate a
Beneficiary other than the spouse only if the Participant obtains the written
consent of the spouse to the alternate beneficiary, the spouse acknowledges the
effect of the consent and the spouse's signature is witnessed by a notary public
or Plan representative. Subject to the foregoing limitation, any Participant may
from time to time designate, in writing, any person or persons, contingently or
successively, to whom the Trustees shall pay his Account Balance in the event of
his death. The Committee shall prescribe the form for the written designation of
Beneficiary and, upon the Participant's filing the form with the Committee, it
effectively shall revoke all designations filed prior to that date by the same
Participant.
12.02 NO BENEFICIARY DESIGNATION. If a Participant fails to name a
--------------------------
Beneficiary, or if the Beneficiary named by a Participant predeceases him, then
the Trustees shall pay the Participant's Account Balance (subject to the
provisions of Articles VI and VII) in the following order of priority to:
(a) The Participant's surviving spouse:
(b) The Participant's surviving children, including adopted children,
in equal shares;
(c) The Participant's surviving parents, in equal shares; or
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<PAGE>
(d) The legal representative of the estate of the last to die of the
Participant and his Beneficiary.
The Committee shall direct the Trustees as to whom the Trustees shall
make payment under this Section 12.02.
12.03 PERSONAL DATA TO COMMITTEE. Each Participant and each
--------------------------
Beneficiary of a deceased Participant must furnish to the Committee such
evidence, data or information as the Committee considers necessary or desirable
for the purpose of administering the Plan. The provisions of this Plan are
effective for the benefit of each Participant upon the condition precedent that
each Participant will furnish promptly full, true and complete evidence, data
and information when requested by the Committee, provided that the Committee
shall advise each Participant of the effect of his failure to comply with its
request.
12.04 ADDRESS FOR NOTIFICATION. Each Participant and each Beneficiary
------------------------
of a deceased Participant shall file with the Committee from time to time, in
writing, his post office address and any change of post office address. Any
communication, statement or notice addressed to a Participant or Beneficiary at
his last post office address filed with the Committee, or as shown on the
records of the Employer, shall bind the Participant, or Beneficiary, for all
purposes of this Plan.
12.05 ASSIGNMENT OR ALIENATION. Neither a Participant nor a
------------------------
Beneficiary shall anticipate, assign or alienate (either at law or in equity)
any benefit provided under the Plan, and the
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Trustees shall not recognize any such anticipation, assignment or alienation.
Furthermore, a benefit under the Plan is not subject to attachment, garnishment,
levy, execution or other legal or equitable process. The Committee shall,
however, abide by any Qualified Domestic Relations Order as defined in Section
414(p) of the Code and Section 206(d)(3) of ERISA which is served upon the Plan.
Procedures relating to any Qualified Domestic Relations Order received by the
Committee shall be administered pursuant to Exhibit A, attached to this Plan
document.
12.06 NOTICE OF CHANGE IN TERMS. The Committee, within the time
-------------------------
prescribed by ERISA and the applicable regulations thereunder, shall furnish all
Participants and Beneficiaries with a summary description of any material
amendment to the Plan or notice of discontinuance of the Plan and all other
information required by ERISA to be furnished without charge.
12.07 INFORMATION AVAILABLE. Any Participant in the Plan or any
---------------------
Beneficiary may examine copies of the Plan description, latest annual report,
any bargaining agreement, this Plan and Trust, as well as any contract or other
instrument under which the Plan was established or is operated. The Committee
will maintain all of the items listed in this Section 12.07 in its office, or in
such other place or places as it may designate from time to time in order to
comply with the regulations issued under ERISA, for examination during
reasonable business hours. Upon the written request of a Participant or
Beneficiary the Committee shall furnish
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<PAGE>
him with a copy of any item listed in this Section 12.07. The Committee may
make a reasonable charge to the requesting person for the copy so furnished.
12.08 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. The Committee shall
---------------------------------------
provide adequate notice in writing to any Participant or to any Beneficiary
("Claimant") whose claim for benefits under the Plan the Committee has denied.
The Committee's notice to the Claimant shall set forth:
(a) The specific reason for the denial;
(b) Specific references to pertinent Plan provisions on which the
Committee based its denial;
(c) A description of any additional material and information that is
needed; and
(d) That any appeal the Claimant wishes to make of the adverse
determination must be in writing to the Committee within seventy-five
(75) days after receipt of the Committee's notice of denial of
benefits. The Committee's notice must further advise the Claimant that
his failure to appeal the action to the Committee in writing within the
seventy-five (75) day period will render the Committee's determination
final, binding and conclusive.
If the Claimant should appeal to the Committee, he, or his duly
authorized representative, may submit, in writing, whatever issues and comments
he or his duly authorized representative feels are pertinent. The Claimant,
or his duly authorized representative, may review pertinent Plan documents. The
Committee shall re-examine all facts to the appeal and make a final
determination as to whether the denial of benefits is justified under the
circumstances. The Committee shall advise the Claimant of its decision within
sixty (60) days of the Claimant's written request
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<PAGE>
for review, unless special circumstances (such as a hearing) would make the
rendering of a decision within the sixty (60) day limit unfeasible, but in no
event shall the Committee render a decision respecting a denial for a claim for
benefits later than one hundred twenty (120) days after its receipt of a request
for review.
The Committee's notice of denial of benefits shall identify the name
and address of each member of the Committee to whom the Claimant may forward his
appeal.
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ARTICLE XIII
COMMITTEE DUTIES WITH RESPECT TO PARTICIPANT'S ACCOUNT
13.01 MEMBERS' COMPENSATION AND EXPENSES. The Company shall appoint a
----------------------------------
Committee to administer the Plan, and an Investment Committee to manage the
assets of the Plan, the members of which may or may not be Participants in the
Plan. The members of the Committee and the Investment Committee shall serve
without compensation for services as such, but the Employer shall pay all
expenses of the Committee and the Investment Committee, including the expense
for any bond required under ERISA.
13.02 TERM. Each member of the Committee and the Investment
----
Committee shall serve until his successor is appointed.
13.03 POWERS. In case of a vacancy in the membership of the Committee
------
and Investment Committee, the remaining members of the Committee may exercise
any and all of the powers, authority, duties and discretion conferred upon the
Committee and Investment Committee pending the filling of the vacancy.
13.04 GENERAL. The Committee shall have the following powers and
-------
duties:
(a) To select a Secretary, who need not be a member of the Committee;
(b) To determine the rights of eligibility of an Employee to
participate in the Plan;
(c) To adopt rules of procedure and regulations necessary for the
proper and efficient administration of the Plan;
(d) To enforce the terms of the Plan and the rules and regulations it
adopts;
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<PAGE>
(e) To direct the Trustee as respects the crediting and distribution of
the Trust;
(f) To review and render decisions respecting a claim for (or denial of
a claim for) a benefit under the Plan;
(g) To furnish the Employer with information which the Employer may
require for tax or other purposes;
(h) To engage the services of agents whom it may deem advisable to
assist it with the performance of its duties; and
(i) To exercise broad discretionary authority to determine Employees'
and Participants' eligibility for benefits as well as to construe the
terms of the Plan.
The Committee shall exercise all of its powers, duties and discretion
under the Plan in a uniform and nondiscriminatory manner.
13.05 MANNER OF ACTION. The decision of a majority of the members
----------------
appointed and qualified shall control.
13.06 DELEGATION OF FIDUCIARY DUTIES. In accordance with Section
------------------------------
405(c) of ERISA, the Committee is authorized to delegate to specific persons or
officers any of its fiduciary responsibilities. Without limiting the foregoing
grant of authority, the Committee is specifically authorized to delegate the
duties assigned to it under Section 13.04(b)-(i) hereof. Any delegation of
fiduciary duty pursuant to this Section must be made in writing and agreed to by
a majority of the Committee's members. Such delegation shall not be effective
unless and until it is consented to in writing by the persons appointed to
perform the fiduciary duty being delegated.
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<PAGE>
13.07 INDIVIDUAL STATEMENT. As soon as practicable after each calendar
--------------------
quarter of the Plan Year but within the time prescribed by ERISA and the
regulations under ERISA, the Committee will deliver to each Participant a
statement reflecting the condition of his Account Balance in the Trust as of
that date and such other information ERISA requires be furnished to the
Participant or Beneficiary. No Participant, except a member of the Committee,
shall have the right to inspect the records reflecting the Account Balance of
any other Participant.
13.08 LOAN POLICY. This Section 13.08 specifically authorizes the
-----------
Trustee of the Plan to establish an Employee loan program and to make loans on a
nondiscriminatory basis in accordance with this Plan and the loan policy
established by the Committee. The loan policy must be a written document and
must include the identity of the person authorized to administer the Employee
loan program, a procedure for applying for a loan, the criteria for approving or
denying a loan, the limitations, if any, on the types and amounts of loans
available, the procedure for determining a reasonable rate of interest, the
types of collateral which may secure a loan, and the events constituting default
and the steps the Plan will take to preserve Plan assets in the event of
default.
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ARTICLE XIV
FIDUCIARY DUTIES AND RESPONSIBILITIES
14.01 GENERAL FIDUCIARY STANDARD OF CONDUCT. Each Fiduciary of the
-------------------------------------
Plan shall discharge his duties hereunder solely in the interest of the
Participants and their Beneficiaries and for the exclusive purpose of providing
benefits to Participants and their Beneficiaries and defraying reasonable
expenses of administering the Plan. Each Fiduciary shall act with the care,
skill, prudence and diligence under the circumstances that a prudent man acting
in a like capacity and familiar with such matters would use in conducting an
enterprise of like character and with like aims, in accordance with the
documents and instruments governing this Plan, insofar as such documents and
instruments are consistent with this standard.
14.02 SERVICE IN MULTIPLE CAPACITIES. Any person or group of persons
------------------------------
may serve in more than one Fiduciary capacity with respect to this Plan.
14.03 LIMITATIONS ON FIDUCIARY LIABILITY. Nothing in this Plan shall
----------------------------------
be construed to prevent any Fiduciary from receiving any benefit to which he may
be entitled as a Participant or Beneficiary under this Plan, so long as the
benefit is computed and paid on a basis which is consistent with the terms of
this Plan as applied to all other Participants and Beneficiaries. This Plan
shall not be interpreted to prevent any Fiduciary from receiving any reasonable
compensation for services rendered, or for the
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reimbursement of expenses properly and actually incurred in the performance of
his duties with the Plan; except that no person so serving who already receives
full-time pay from the Employer shall receive compensation from this Plan,
except for reimbursement of expenses properly and actually incurred.
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ARTICLE XV
TOP HEAVY RULES
15.01 MINIMUM EMPLOYER CONTRIBUTION. If this Plan becomes top heavy,
-----------------------------
the Plan guarantees a minimum contribution of three percent (3%) of Compensation
for each Non-Key Employee who is a Participant employed by the Employer on the
Accounting Date of the Plan Year. For purposes of determining whether the
minimum contribution is satisfied, Salary Reduction Contributions and matching
contributions shall be disregarded. The minimum contribution shall not be
forfeited under Sections 411(a)(3)(B) or (D) of the Code. The Plan satisfies
the guaranteed minimum contribution for the Non-Key Employee if the Non-Key
Employee's contribution rate is at least equal to the minimum contribution.
Notwithstanding the above, if the contribution rate for the Key
Employee with the highest contribution rate is less than three percent (3%), the
guaranteed minimum contribution for Non-Key Employees shall equal the highest
contribution rate received by a Key Employee (provided that the Employer does
not also sponsor a defined benefit plan which has designated this Plan to
provide the top heavy minimum). The contribution rate is the sum of Employer
contributions (not including Employer contributions to Social Security) and
forfeitures allocated to the Participant's account for the Plan Year divided by
his Compensation for the Plan Year. To determine the contribution rate, the
Committee shall consider all qualified defined contribution plans maintained by
the Employer as a single plan.
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<PAGE>
15.02 ADDITIONAL CONTRIBUTION. If the contribution rate for the Plan
-----------------------
Year with respect to a Non-Key Employee described in Section 15.01 is less than
the minimum contribution, the Employer will increase its contribution for such
Employee to the extent necessary so that his contribution rate for the Plan Year
will equal the guaranteed minimum contribution. The Committee shall allocate
the additional contribution to the Base Contribution Account of the Non-Key
Employee for whom the Employer makes the contribution.
15.03 DETERMINATION OF TOP HEAVY STATUS. The Plan is top heavy for a
---------------------------------
Plan Year if the top heavy ratio as of the Determination Date exceeds sixty
percent (60%). The top heavy ratio is a fraction, the numerator of which is the
sum of the present value of the Account Balances of all Key Employees as of the
Determination Date and distributions made within the five (5) Plan Year period
ending on the Determination Date, and the denominator of which is a similar sum
determined for all Employees. The Committee shall calculate the top heavy ratio
without regard to the Account Balance attributable to any Non-Key Employee who
was formerly a Key Employee. The Committee shall calculate the top heavy ratio,
including the extent to which it must take into account contributions not made
as of the Determination Date, distributions, rollovers and transfers, in
accordance with Section 416 of the Code and the regulations thereunder.
If the Employer maintains other qualified plans (including a simplified
employee pension plan) this Plan is top heavy only if
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<PAGE>
it is part of the Required Aggregation Group, and the top heavy ratio for both
the Required Aggregation Group and the Permissive Aggregation Group exceeds
sixty percent (60%). The Committee will calculate the top heavy ratio in the
same manner as required by the first paragraph of this Section 15.03, taking
into account all plans within the aggregation group. The Committee shall
calculate the present value of accrued benefits and the other amounts the
Committee must take into account under defined benefit plans or simplified
employee pension plans included within the group in accordance with the terms of
those plans, Section 416 of the Code and the regulations thereunder. The
Committee shall calculate the top heavy ratio with reference to the
Determination Dates that fall within the same calendar year.
15.04 LIMITATION ON ALLOCATIONS. If, during any Limitation Year, the
-------------------------
Participant is a participant in both a defined contribution plan and a defined
benefit plan which are a part of a top heavy group, the Committee shall apply
the limitations of Article IV to such Participant by substituting "1.0" for
"1.25" each place it appears in Section 4.07. This Section 15.04 shall not apply
if:
(a) The Plan would satisfy Section 15.01 if the guaranteed minimum
contribution was one percent (1%) greater than the guaranteed minimum
contribution the Committee otherwise would calculate; and
(b) The top heavy ratio does not exceed ninety percent (90%).
- 76 -
<PAGE>
15.05 TOP HEAVY VESTING SCHEDULE. Notwithstanding the vesting
--------------------------
schedule set forth in Section 6.04, if the Plan becomes top heavy as defined in
Section 15.03, for any top heavy Plan Year, a Participant shall earn a
Nonforfeitable percentage of his Base Contribution Account as determined by the
following vesting schedule:
Percent of
Nonforfeitable
Years of Service Base Contribution Account
---------------- -------------------------
0 0%
1 10%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
This Section 15.05 does not apply to any Participant who does not have an Hour
of Service after the Plan has initially become top heavy. Therefore, such
Participant's Nonforfeitable percentage of his Base Contribution Account shall
be determined without regard to this Section 15.05.
If the Plan subsequently ceases to be top heavy, the vesting schedule
set forth in Section 6.04 shall again become applicable to all benefits accruing
thereafter. Notwithstanding the foregoing, any Participant who has three (3) or
more Years of Service when the Plan ceases to be top heavy may elect to have the
vesting schedule set forth in this Section 15.05 continue to apply to benefits
accruing in the future. The Participant's election shall be made in accordance
with Section 16.02. In no event will the change from the vesting schedule set
forth in this Section
- 77 -
<PAGE>
15.05 to the vesting schedule set forth in Section 6.04 operate to reduce the
Nonforfeitable benefits the Participant accrued while the Plan was in top heavy
status.
15.06 DEFINITIONS. For purposes of applying the provisions of this
-----------
Article XV:
(a) "Key Employee" shall mean, as of any Determination Date, any
Employee or former Employee, or any Beneficiary thereof, who, at any
time during the Plan Year (which includes the Determination Date) or
during the preceding four Plan Years,
(i) is an officer of the Employer who has annual Compensation in
excess of 50% of the amount in effect under Section 415(b)(1)(A)
of the Code;
(ii) one of the ten Employees owning the largest interests in the
Employer with annual Compensation in excess of the dollar limit on
Annual Additions to a defined contribution plan under Section 415
of the Code;
(iii) a more than five percent (5%) owner of the Employer; or
(iv) a more than one percent (1%) owner of the Employer who has
annual Compensation of more than $150,000.
The constructive ownership rules of Section 318 of the Code will apply
to determine ownership in the Employer. The Committee will make the
determination of who is a Key Employee in accordance with Section
416(i)(1) of the Code and the regulations thereunder.
(b) "Non-Key Employee" is an Employee who does not meet the definition
of Key Employee.
(c) "Required Aggregation Group" means: (1) Each qualified plan of the
Employer in which at least one Key Employee participates; and (2) Any
other qualified plan of the Employer which enables a plan described in
(1) to meet the requirements of Sections 401(a)(4) or 410 of the Code.
Any terminated plan that covered a Key Employee and was maintained
within the five year period ending on the
- 78 -
<PAGE>
Determination Date shall also be included in the Required Aggregation
Group.
(d) "Permissive Aggregation Group" is the Required Aggregation Group
plus any other qualified plans maintained by the Employer, but only if
such group would satisfy in the aggregate the requirements of Sections
401(a)(4) and 410 of the Code. The Committee shall determine which
plan to take into account in determining the Permissive Aggregation
Group.
(e) "Determination Date" for any Plan Year is the Accounting Date of
the preceding Plan Year or, in the case of the first Plan Year of the
Plan, the Accounting Date of that Plan Year.
- 79 -
<PAGE>
ARTICLE XVI
EXCLUSIVE BENEFIT, AMENDMENT AND TERMINATION
16.01 EXCLUSIVE BENEFIT. The Employer shall have no beneficial
-----------------
interest in any asset of the Trust and no part of any asset in the Trust shall
ever revert to or be repaid to an Employer, either directly or indirectly; nor
prior to the satisfaction of all liabilities with respect to the Participants
and their Beneficiaries under the Plan, shall any part of the corpus or income
of the Trust Fund, or any asset of the Trust, be used for, or diverted to,
purposes other than for the exclusive benefit of the Participants or their
Beneficiaries. Notwithstanding anything else herein to the contrary, expenses of
administering the Plan, to the extent not paid by the Employer or otherwise, may
be satisfied by payment from the Trust Fund.
Notwithstanding the foregoing, if the Commissioner of Internal Revenue,
upon the Employer's timely request for initial approval of this Plan, determines
that the Trust created under the Plan is not a qualified trust exempt from
Federal income tax, then the Trustees, upon written notice from the
Employer, shall return the Employer's contributions and increments attributable
to the contributions to the Employer. The Trustees must make the return of the
Employer contribution under this Section 16.01 within one (1) year of a final
disposition of the Employer's request for initial approval of the Plan. The
Plan and Trust shall terminate upon the Trustees' return of the Employer's
contributions.
- 80 -
<PAGE>
The Employer contributes to this Plan on the condition that its
contribution is deductible under Section 404 of the Code. If the Employer's
contribution is disallowed as a deduction, or if the Employer's contribution is
attributable to a mistake of fact, the Trustee shall return to the Employer the
amount contributed over, as relevant, the amount that would have been
contributed had no mistake of fact occurred, or the amount of the deductible
contribution. Earnings attributable to the excess contribution may not be
returned to the Employer, but losses attributable thereto must reduce the amount
returned. The excess contributions must be returned within one year of the
disallowance or mistake. Further, if the amount returned to the Employer would
cause any Participant's Account Balance to be reduced to less than the balance
which would have been in his Account had the mistaken or nondeductible amount
not been contributed, then the amount to be returned to the Employer must be
limited so as to avoid the reduction. The Trustee may require the Employer to
furnish it with whatever evidence the Trustee deems necessary to enable the
Trustee to confirm that the amount the Employer has demanded be returned as
properly returnable under the Code and ERISA.
16.02 AMENDMENT BY COMPANY. The Company, through duly authorized
--------------------
action of its Board of Directors, shall have the right at any time and from time
to time to amend this Agreement in any manner it deems necessary or advisable
including any amendment in order to qualify (or maintain qualification of) this
Plan and the Trust created under it under the appropriate provisions of the
- 81 -
<PAGE>
Code. An amendment to the Plan's vesting shall not decrease any Participant's
Nonforfeitable Account Balance as of the later of the date the amendment is
adopted or becomes effective. If the Plan's vesting schedule is amended, each
Participant with three (3) or more Years of Service may elect to have the
vesting schedule applicable immediately prior to the amendment continue to
apply. The period during which such election may be made shall commence with the
date the amendment is adopted or deemed to be made and shall end on the latest
of:
(1) 60 days after the amendment is adopted;
(2) 60 days after the amendment becomes effective; or
(3) 60 days after the Participant is issued written notice of the
amendment by the Employer or Committee.
No amendment shall authorize or permit any of the Trust Fund (other
than the part required to pay taxes and administrative expenses) to be used for
or diverted to purposes other than for the exclusive benefit of the Participants
or their Beneficiaries or estates. No amendment shall cause or permit any
portion of the Trust Fund to revert to or become the property of the Employer;
and the Company shall not make any amendment which affects the rights, duties or
responsibilities of the Trustees or the Committee without the written consent of
the affected Trustee or the affected member of the Committee. No amendment shall
decrease a Participant's Account Balance or eliminate an optional form of
benefit to which the Participant is entitled as a result of service prior to the
amendment. The Company shall make all amendments in writing. Each
- 82 -
<PAGE>
amendment shall state the date to which it is either retroactively or
prospectively effective.
16.03 DISCONTINUANCE. The Company, through duly authorized action of
--------------
its Board of Directors, shall have the right, at any time, to suspend or
discontinue its contributions under the Plan, and to terminate, at any time,
this Plan. Upon complete discontinuance of contributions, the Account Balance of
each affected Participant shall be one hundred (100%) percent Nonforfeitable.
16.04 FULL VESTING ON TERMINATION. Notwithstanding any other
---------------------------
provision of this Plan to the contrary, upon either full or partial termination
of the Plan, an affected Participant's right to his Account Balance shall be one
hundred percent (100%) Nonforfeitable. The Plan shall terminate upon the first
to occur of the following:
(a) The date terminated by action of the Employer provided the Employer
gives the Trustee thirty (30) days' prior notice of termination;
(b) The date the Employer shall be judicially declared bankrupt or
insolvent; or
(c) The dissolution, merger, consolidation or reorganization of the
Employer or the sale by the Employer of all or substantially all of its
assets, unless the successor or purchaser makes provision to continue
the Plan, in which event the successor or purchaser shall substitute
itself as the Employer under this Plan.
16.05 MERGER. The Trustee shall not consent to, or be a party to, any
------
merger or consolidation with another plan, or to a transfer of assets or
liabilities to another plan, unless
- 83 -
<PAGE>
immediately after the merger, consolidation or transfer, the surviving plan
provides each Participant a benefit equal to or greater than the benefit each
Participant would have received had the Plan terminated immediately before the
merger or consolidation or transfer. The Trustee possesses the specific
authority to enter into merger agreements or direct transfer of assets
agreements with the trustees of other retirement plans described in Section
401(a) of the Code and to accept the direct transfer of plan assets, or to
transfer plan assets, as a party to any such agreement.
16.06 DIRECT ROLLOVERS. This Section applies to distributions made on
----------------
or after January 1, 1993. Notwithstanding any provision of the plan to the
contrary that would otherwise limit a distributee's election under this Section,
a distributee may elect, at the time and in the manner prescribed by the
Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.
Definitions:
(a) Eligible rollover distributions: An eligible rollover
distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an eligible
rollover distribution does not include: any distribution that is
one of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under
Section 401(a)(9) of the Code; and
- 84 -
<PAGE>
the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(b) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Section 408(a) of the
Code, an individual retirement annuity the Code, an annuity plan
described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the
distributee's eligible rollover distribution. However, in the
case of an eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity.
(c) Distributee: A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's spouse
or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(p) of the
Code, are distributees with regard to the interest of the spouse
or former spouse.
(d) Direct rollover: A direct rollover is a payment by the plan to
the eligible retirement plan specified by the distributee.
16.07 EMPLOYMENT NOT GUARANTEED. Nothing contained in this Plan or
-------------------------
any modification or amendment to the Plan, or in the creation of any Salary
Reduction Contribution Account, or the payment of any benefit, shall give any
Participant the right to continued employment, or any legal or equitable right
against the Employer, an Employee of the Employer, the Trustee, or their agents
or employees, except as expressly provided by the Plan, the Trust, ERISA or the
Code or by a separate agreement.
- 85 -
<PAGE>
16.08 STATE LAW. New Jersey law shall determine all questions arising
---------
with respect to the provisions of this Plan, except to the extent Federal
statute supersedes New Jersey law.
- 86 -
<PAGE>
EXHIBIT A
---------
PROCEDURES REGARDING QUALIFIED DOMESTIC RELATIONS ORDERS
Section 1. General
-------
The Plan shall pay benefits to the person or persons named in a
Qualified Domestic Relations Order, as defined in Section 2 below, in the amount
and to the extent provided in such order. Payment of benefits pursuant to a
Qualified Domestic Relations Order shall not be considered a violation of the
prohibition against assignment and alienation contained in Section 12.05 of the
Plan.
Section 2. Qualified Domestic Relations Orders
-----------------------------------
In order to constitute a Qualified Domestic Relations Order, the order
must meet all of the following requirements:
(a) The order must create or recognize the existence of the right
of an Alternate Payee, as defined in Section 8, to, or must
assign to an Alternate Payee the right to, receive all or a
portion of the benefits payable under the Plan with respect to
a Participant.
(b) The order must constitute a judgment, decree or order
(including approval of a property settlement agreement) which
relates to the provision of child support, alimony payments or
property rights to a spouse, former spouse, child or other
dependent of a Participant,
- 87 -
<PAGE>
made pursuant to a state domestic relations law (including a
community property law).
(c) The order must specify the following information:
(1) the name and last known mailing address (if any) of the
Participant and the name and last known mailing address
of each Alternate Payee covered by the order,
(2) the amount or percentage of the Participant's benefits
to be paid by the Plan to each Alternate Payee, or the
manner in which such amount or percentage shall be
determined,
(3) the number of payments or periods to which such order
applies, and
(4) the name of each Plan to which the order applies.
(d) The order must not require the Plan to provide any type or
form of benefit, or any option, not otherwise provided under
the terms of this Plan, nor require the Plan to provide
increased benefits (determined on the basis of actuarial
value) nor require the payment of benefits to an Alternate
Payee which are required to be paid to an Alternate Payee
under a previous Qualified Domestic Relations Order.
Notwithstanding the foregoing, the order may require the
payment of benefits to an Alternate Payee while the
Participant is still employed; provided, however, payments are
not required to be made before the earlier
- 88 -
<PAGE>
of (i) the date on which the Participant is entitled to a
distribution under the Plan or (ii) the later of age 50 or the
earliest date on which the Participant would begin receiving
benefits under the Plan if he separated from service. Payments
may be required in any form in which such benefits may be paid
under the Plan to the Participant, except in the form of a
joint and survivor annuity with respect to the Alternate Payee
and his or her subsequent spouse.
Section 3. Payments During Participant's Employment
-----------------------------------------
In the event the Qualified Domestic Relations Order requires payments
to be made to the Alternate Payee while the Participant is employed, payments
shall be computed as if the Participant had retired on the date on which
payments under the order are to begin.
Section 4. Procedures
----------
Upon receipt of any domestic relations order by the Plan, the Committee
shall take the following steps:
(a) The Committee shall promptly notify the Participant and any
Alternate Payee named in such order of the receipt of a
domestic relations order and the Plan's procedures for
determining whether such order is a Qualified
- 89 -
<PAGE>
Domestic Relations Order, as defined in Section 2 above. The
notice to the Alternate Payee shall include a statement that
he or she is entitled to designate a representative for
receipt of copies of any notices that are sent to the
Alternate Payee with respect to a domestic relations order.
The notice shall be sent to the Participant and Alternate
Payee at the address specified in the order, or if none is
specified, at the address of the Participant or Alternate
Payee last known to the Committee.
(b) Within a reasonable period of time after receipt of such
order, the Committee shall determine whether such order is a
Qualified Domestic Relations Order, in accordance with the
provisions of Section 2 above, and notify the Participant and
each Alternate Payee of such determination. In making its
determination, the Committee may seek the advice of legal
counsel as to whether the order meets the requirements of
Section 2 here-of and may, but shall not be required to,
invite written or oral arguments by the Participant and the
Alternate Payee or their Representatives.
- 90 -
<PAGE>
(c) Pending the Committee's determination of whether a domestic
relations order is a Qualified Domestic Relations Order, if
appropriate, the Committee shall instruct the Trustee to
segregate in a separate account the amounts which would be
payable to the Alternate Payee during such period if the
order is a Qualified Domestic Relations Order. If within 18
months from the date on which the first payment would be
required to be made under the Qualified Domestic Relation
Order, it is determined that the order is a Qualified
Domestic Relations Order, the Plan shall pay the segregated
amounts, including any interest thereon, to the person or
persons entitled thereto pursuant to the terms of the
Qualified Domestic Relations Order. If it is determined that
an order is not a Qualified Domestic Relations Order or the
issue as to whether an order is a Qualified Domestic
Relations Order is not resolved within the aforesaid 18 month
period, the Plan shall pay the segregated amounts to the
person or persons entitled to such amounts in the absence of
the order. If it is subsequently determined that an order is
a Qualified Domestic Relations Order, the Plan
- 91 -
<PAGE>
shall pay benefits subsequent to the determination in
accordance with the order. If action is taken in accordance
with this subparagraph, the Plan's obligation to the
Participant and each Alternate Payee shall be discharged to
the extent of any payment made pursuant to the Qualified
Domestic Relations Order.
Section 5. Relationship to Other Plan Provisions
-------------------------------------
To the extent provided in the Qualified Domestic Relations Order, the
Plan shall treat the former spouse of a Participant as the spouse of the
Participant for purposes of the Plan to the extent, and only of the extent, a
spouse has rights pursuant to Sections 205 of ERISA and Sections 401(a)(ll) and
417 of the Code and any spouse of the Participant shall not be treated as a
spouse of the Participant for such purposes.
Section 6. Beneficiary Status
------------------
Each Alternate Payee shall be treated as a Beneficiary under the Plan,
with all the rights accorded to other Beneficiaries under the terms hereof and
as otherwise provided by law.
Section 7. Effective Date
--------------
The above provisions are effective for Qualified Domestic Relations
Orders entered on or after January 1, 1985, except that, in the case of a
domestic relations order entered before January 1, 1985, the Committee (i) may
treat such order as a Qualified
- 92 -
<PAGE>
Domestic Relations Order even though such order fails to meet the requirements
of Section 2 above and (ii) must treat such order as a Qualified Domestic
Relations Order if benefits are being paid pursuant to such order on January 1,
1985.
Section 8. Definition
----------
"Alternate Payee" means the Participant's spouse, former spouse, child
or other dependent of the Participant who is recognized as having a right to
receive all, or a portion of, the benefits payable under the Plan with respect
to that Participant. All other capitalized terms shall have the meanings set
forth in Article 1 of The Retirement Plan of Schein Pharmaceutical, Inc. &
Affiliates.
- 93 -
<PAGE>
AMENDMENT NO. 4 TO THE
RETIREMENT PLAN OF SCHEIN PHARMACEUTICAL, INC.
1. Section 6.04 of Article VI, first paragraph, is hereby amended by deleting
the second and third sentence thereof and inserting in its place the following:
A participant's Base Contribution Account and Historic Account attributable to
similar Employer base contribution amounts, shall be one hundred percent (100%)
vested upon:
a) reaching his Normal Retirement Date (if employed by the Employer on or
after that date),
b) termination of his employment with the Employer as a result of death
or disability,
c) or upon termination of employment with the Employer pursuant to an
employment reduction plan during the period November 1, 1996 through
and including December 31, 1997.
If a Participant's employment with the Employer terminates prior to his Normal
Retirement Date for any reason other than those mentioned above, then for each
Year of Service he shall earn a Nonforfeitable percentage of his Base
Contribution Account as determined by the following vesting schedule:
<TABLE>
<CAPTION>
% of Nonforfeitable
Years of Service Base Contribution Acct.
-------- ------- -----------------------
<S> <C>
0 0%
1 10%
2 20%
3 30%
4 40%
5 60%
6 80%
7 or more 100%
</TABLE>
1
<PAGE>
2. Section 4.04 of Article IV, is hereby amended by deleting the second
sentence thereof and inserting in its place the following:
The Employer's base contribution amount will be allocated only to Participants
who are employed by the Employer on the last day of the Plan Year and who have
been credited with one thousand (1,000) Hours of Service for that Plan Year,
except that a Participant whose service with the Employer terminates in a Plan
Year due to:
a) retirement on or after reaching his Normal Retirement Date,
b) death or disability, or
c) upon termination of employment with the Employer pursuant to an
employment reduction plan during the period November 1, 1996 through
and including December 31, 1997,
will also share in the allocation of the Employer's base contribution for the
Plan Year.
2
<PAGE>
EXHIBIT 10.26
AMENDMENT NO. 1 TO THE
RETIREMENT PLAN OF SCHEIN PHARMACEUTICAL, INC. AND AFFILIATES
Schein Pharmaceutical, Inc. (the "Company") hereby adopts the following
amendments to the Retirement Plan of Schein Pharmaceutical, Inc. and Affiliates
(the "Plan") as follows:
1. Effective January 1, 1994, Section 1.50 of Article I is amended by
deleting the first sentence thereof and substituting the following in its place:
" 1.50 'Year of Service' shall mean a twelve-month period, beginning on
an Employee's date of hire or any anniversary thereof, during which an
Employee has at least one thousand Hours of Service."
2. Effective as of January 1, 1995, Section 4.04 of Article IV is
amended by deleting the third sentence thereof and substituting the following
in its place:
"Forfeited matching contributions and the income allocable thereto shall
be used first for the payment of Plan expenses, and any remaining
forfeitures shall be allocated in the manner described in Section 6.05."
3. Effective as of January 1, 1995, Section 6.05 of Article VI is
amended by deleting the second paragraph thereof and substituting the following
in its place:
"Subject to any restoration allocation of forfeited amounts on behalf of
a Participant who repays a distribution as described above, and the
payment of Plan expenses, remaining forfeiture amounts will be allocated
to all Participants employed on the last day of the Plan Year who have
completed 1000 Hours of Service, on a per capita basis."
4. Effective as of July 1, 1995, Section 10.01 of Article X is amended
by deleting the first and second sentences and
<PAGE>
substituting the following in their place:
"An Employee or a Qualified Beneficiary may make application to the
Trustees to borrow from the Trust Fund, and the Trustees may, in their
sole discretion, permit such loan, provided that such loans shall be
made available to all such Employees and Qualified Beneficiaries on a
reasonably equivalent basis. For purposes of determining the maximum
loan amount available to an Employee, amounts credited to the Employee's
Base Contribution Account will be considered to be a part of his or her
Account Balance for purposes of Section 10.02(a)(ii) only if the
Employee demonstrates that the reason for the requested loan satisfies
the conditions for a hardship withdrawal under Section 8.01."
5. Effective as of July 1, 1995, Section 10.02(a) of Article X is
amended by deleting the second sentence thereof and by deleting from the first
sentence thereof the following:
", or (iii) the Employee's Salary Reduction Contribution Account."
6. Effective as of July 1, 1995, Section 10.02(f) of Article X is
amended by deleting the third sentence and substituting the following in its
place:
"Repayment of a loan shall be made through payroll deductions, or if an
Employee's employment terminates, the Employee may elect, in the manner
prescribed by the Trustees, to make loan repayments directly to the Plan
on a substantially level basis (not less frequently than quarterly)
within the time period set forth in the promissory note representing the
loan. Any loan may be prepaid in full or part at any time."
7. Effective as of July 1, 1995, Section 10.02(g) of Article X is
amended by deleting the phrase "otherwise satisfied by the Employee" from the
first sentence and substituting the following in its place:
<PAGE>
"... the Employee elects, in the manner prescribed by the Trustees to
make, and does make in accordance with such election, loan repayments on
a substantially level basis to the Plan (not less frequently than
quarterly). Any loan shall be subject to such additional acceleration
provisions as shall be determined by the Trustees to be commercially
reasonable."
8. Effective as of January 1, 1995, Section 10.02(j) of Article X is
amended by deleting the words "Historic Account".
9. Effective as of January 1, 1995, Section 10.02(j) of Article X is
further amended by adding the following to the end thereof:
"For purposes of this Section 10.02(j), the Rollover Contribution
Account, Salary Reduction Contribution Account, Matching Contribution
Account and Base Contribution Account shall be deemed to include the
corresponding subaccounts, if any, of the Historic Account."
<PAGE>
AMENDMENT NO.3 TO THE
RETIREMENT PLAN OF SCHEIN PHARMACEUTICAL, INC. AND AFFILIATES
Schein Pharmaceutical, Inc. (the "Company") hereby adopts the following
amendment to the Retirement Plan of Schein Pharmaceutical, Inc. and Affiliates
(the "Plan") as follows:
Effective as of June 1, 1996, Section 8.02 of Article VIII is amended by
inserting the following sentence between the first and second sentences thereof:
"Effective June 1, 1996, a Participant may also withdraw any portion of
his Rollover Contribution Account for any reason after attainment of age
59 1/2."
IN WITNESS WHEREOF, the Company has authorized and directed its duly
authorized officer to execute this Amendment No.3 to the Plan this __ day of
_______, 1996.
Corporate Seal SCHEIN PHARMACEUTICAL, INC.
By:
----------------------------
Attest
Title:
------------------------
<PAGE>
EXHIBIT 10.27
SCHEIN PHARMACEUTICAL, INC.
1993 BOOK EQUITY APPRECIATION RIGHTS PROGRAM
1. Purposes of the Program
-----------------------
The purposes of this Schein Pharmaceutical, Inc. 1993 Book Equity
Appreciation Rights Program (the "Program") are to enable Schein Pharmaceutical,
Inc. ("SPINC") and its Subsidiaries (as defined herein) to attract, retain and
motivate the employees who are important to the success and growth of the
business of SPINC and to enhance the long term mutuality of interest between the
Key Employees (as defined herein) and the stockholders of SPINC by allowing Key
Employees to benefit from an increase in SPINC's book value over the book value
at the time of grant.
2. Definitions
-----------
(a) "BEARs" means book equity appreciation rights granted under
this Program, all as and to the extent provided in this Program.
(b) "Board" means the Board of Directors of SPINC.
(c) "Book Value per Share-Grant Date" means (i) total consolidated
stockholders' equity determined in accordance with generally accepted accounting
principles consistently applied, including, without limitation, common stock,
preferred stock, additional paid-in capital and retained earnings, but excluding
treasury stock and deferred stock compensation ("Book Value"), at the end of the
fiscal year immediately preceding or coinciding with the date of grant, as
specified in the respective BEAR grant (the "Grant Date"), divided by (ii) the
number of outstanding shares of common stock of SPINC at the Grant Date.
(d) "Book Value per Share-as Adjusted-Applicable Date" means (i) Book
Value at the end of the fiscal quarter immediately preceding or coinciding with
the date of the Participant's exercise of the BEAR or Termination of Employment
of the Participant or the date of the Change of Control, or the date the
Committee terminates the Program, as applicable (the "Applicable Date"), plus
amounts attributable to common stock and preferred stock of SPINC
reacquired by the Company, and dividends declared by SPINC in excess of 4% of
net income in any fiscal year (or, in the case of the fiscal quarter ended on
the Applicable Date, if the Applicable Date is other than the last day of a
fiscal year, in such fiscal quarter), in each case after the Grant Date, and
minus amounts attributable to common stock and preferred stock issued by SPINC
<PAGE>
after the Grant Date, divided by (ii) the number of outstanding shares of common
stock of SPINC at the Applicable Date.
(e) "Cause" means (i) the Participant's willful and continued failure
substantially to perform his or her duties with the Company, (ii) fraud,
misappropriation or intentional material damage to the property or business of
the Company or (iii) commission of a felony.
(f) "Change of Control" means:
(i) an acquisition directly or indirectly by any individual,
entity or group (within the meaning of Section 13d-3 or 14d-1 of the
Securities Exchange Act of 1934 (the "Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Act) of
more than 50% of the combined voting power of the then outstanding voting
securities of SPINC entitled to vote generally in the election of directors
(the "Outstanding Voting Securities"); excluding, however, the following:
(x) any acquisition by the Company, (y) any acquisition by an employee
benefit plan (or related trust) sponsored or maintained by the Company, or
(z) any acquisition by any corporation pursuant to a reorganization,
merger, consolidation or similar corporate transaction (in each case, a
"Corporate Transaction"), if, pursuant to such Corporate Transaction,
the conditions described in clauses (A), (B) and (C) of paragraph (iii)
below are satisfied; or
(ii) a change in the composition of the Board such that the
individuals who, as of the date the Program is first adopted (the "Effective
Date"), constitute the Board (the Board as of the Effective Date shall be
hereinafter referred to as the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided that, for purposes of
this Subsection, any individual who becomes a member of the Board and whose
election, or nomination for election by the stockholders, was approved by
members of the Board who also are members of the Incumbent Board (or so
deemed to be pursuant to this proviso) shall be deemed a member of the
Incumbent Board; but, provided further, that any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-ll of
Regulation 14A promulgated under the Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board shall not be deemed a member of the Incumbent Board; or
(iii) the approval by the stockholders of SPINC of a Corporate
Transaction or, if consummation of such Corporate Transaction is subject, at
the time of such approval by stockholders, to the consent of any government
or governmental
2
<PAGE>
agency, the obtaining of such consent (either explicitly or implicitly by
consummation); excluding, however, such a Corporate Transaction pursuant to
which (A) beneficial owners (or beneficiaries of the beneficial owners) of the
outstanding shares of common stock of SPINC (the "Shares") and Outstanding
Voting Securities immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 60% of, respectively, the
outstanding shares of common stock of the corporation resulting from such
Corporate Transaction and the combined voting power of the outstanding voting
securities of such corporation entitled to vote generally in the election of
directors, in substantially the same proportions as their ownership, immediately
prior to such Corporate Transaction, of the outstanding Shares and
Outstanding Voting Securities, as the case may be, (B) no Person (other than the
Company, any employee benefit plan (or related trust) of the Company or the
corporation resulting from such Corporate Transaction and any Person
beneficially owning, immediately prior to such Corporate Transaction, directly
or indirectly, 20% or more of the outstanding Shares or Outstanding Voting
Securities, as the case may be) will beneficially own, directly or indirectly,
20% or more of, respectively, the outstanding shares of common stock of the
corporation resulting from such Corporate Transaction or the combined voting
power of the then outstanding securities of such corporation entitled to vote
generally in the election of directors and (C) individuals who were members of
the Incumbent Board will constitute at least a majority of the members of the
board of directors of the corporation resulting from such Corporate Transaction;
or
(iv) the approval of the stockholders of SPINC of (A) a complete
liquidation or dissolution of SPINC or (B) the sale or other disposition of all
or substantially all the assets of SPINC; excluding, however, such a sale or
other disposition to a corporation with respect to which, following such sale or
other disposition, (x) more than 60% of the then outstanding shares of common
stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors will be then beneficially owned, directly or
indirectly, by the individuals and entities who were the beneficial owners (or
beneficiaries of the beneficial owners), respectively, of the outstanding
Shares and Outstanding Voting Securities immediately prior to such sale or
other disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the outstanding Shares
and Outstanding Voting Securities, as the case may be, (y) no Person (other than
the Company and any employee benefit plan (or related trust) of the Company or
such corporation and any Person beneficially owning, immediately prior to such
sale or other disposition, directly or indirectly, 20% or more of the
outstanding Shares
3
<PAGE>
or outstanding Voting Securities, as the case may be) will beneficially own,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (z) individuals who were
members of the Incumbent Board will constitute at least a majority of the
members of the board of directors of such corporation.
(g) "Committee" means such committee, if any, appointed by the Board
to administer the Program, consisting of one or more directors as may be
appointed from time to time by the Board. If the Board does not appoint a
committee for this purpose, "Committee" means the Board.
(h) "Company" means SPINC, and any of its Subsidiaries whose employees
are Participants in the Program.
(i) "Disability" means a permanent and total disability, as determined
by the Committee in its sole discretion. A Disability shall be deemed to
occur at the time of the determination by the Committee of the Disability.
(j) "Key Employee" means any person who is an executive officer or
other valuable employee of the Company, as determined by the Committee.
(k) "Parent" means Schein Holdings, Inc., a New York corporation, or
any of its successors.
(1) "Participant" means a Key Employee of the Company who is granted
BEARs under the Program.
(m) "Subsidiary" means any corporation more than 50% of the voting
stock of which is directly or indirectly beneficially owned by SPINC.
(n) "Termination of Employment" with respect to an individual means
that individual is no longer an employee of SPINC or any of its Subsidiaries.
In the event an entity shall cease to be a Subsidiary of SPINC, there shall be
deemed a Termination of Employment of an individual who is not otherwise an
employee of SPINC or another Subsidiary of SPINC at the time the entity ceases
to be a Subsidiary. A Termination of Employment shall not include a leave of
absence approved for purposes of the Program by the Committee.
3. Administration
--------------
The Program shall be administered by the Committee, which shall have
full authority to interpret the Program and to decide
4
<PAGE>
any questions and settle all controversies that may arise in connection with the
Program; to establish, amend and rescind rules for carrying out the Program; to
administer the Program, subject to its provisions; to select Participants in,
and grant BEARs under, the Program; to determine the terms for each BEAR granted
under the Program; to prescribe the form or forms of instruments evidencing
BEARs and any other instruments required under the Program (which need not be
uniform); and to make all other determinations and to take all such steps in
connection with the Program and the BEARs as the Committee, in its sole
discretion, deems necessary or desirable. The Committee shall not be bound to
any standards of uniformity or similarity of action, interpretation or conduct
in the discharge of its duties hereunder, regardless of the apparent similarity
of the matters coming before it. Any determination, action or conclusion of the
Committee, including any action to terminate the Program or any action
(including an amendment of the Program) intended to treat Participants and the
Company equitably in light of extraordinary transactions or circumstances that
could otherwise result in inequitable treatment, shall be final, conclusive and
binding on all parties.
4. Grants
------
The Committee may grant BEARs to Key Employees of the Company as the
Committee from time to time shall determine.
5. BEARs
-----
(a) Each BEAR shall entitle the holder thereof to receive an amount
equal to the excess of the Book Value per Share as Adjusted-Applicable Date over
the Book Value per Share-Grant Date as specified in the respective BEAR grant.
(b) One-third of each grant of BEARs to a Participant shall vest on
each of the three December 31's immediately following the date of such grant.
All BEARs granted to a Participant shall become fully vested immediately upon
(i) the Termination of Employment of the Participant by reason of death or
Disability, or as a result of retirement before age 65 with the consent of the
Committee or under an early retirement policy of the Company, or (ii) a Change
of Control, if a Change of Control occurs subsequent to an initial public
offering of shares of common stock of SPINC or the Parent, or immediately upon a
Termination of Employment of the Participant by the Company without Cause (as
defined herein), if the Termination of Employment occurs subsequent to a Change
of Control.
(c) Each year SPINC shall provide to each Participant a statement
setting forth the number of such Participant's BEARs that have vested in the
preceding fiscal year and a calculation of the Book Value per Share-as Adjusted-
Applicable Date of such vested
5
<PAGE>
BEARs, treating the last day of such preceding fiscal year as the Applicable
Date (unless the actual Applicable Date is earlier).
(d) At any time or from time to time prior to the earlier of the
Termination of Employment of a Participant and a Change of Control, the
Participant may elect to exercise (in whole or in part) such Participant's BEARs
that shall have then vested pursuant to the first sentence of Section 5(b).
Such election shall be made by giving written notice to the Committee of such
election and of the number of such vested BEARs such Participant has elected to
exercise (the date of receipt of such notice by the Committee being deemed the
date of exercise). SPINC shall pay to the Participant in cash, not later than
the 90th day following the date of exercise, the amount determined in accordance
with Section 5(a) of each exercised BEAR as of the date of exercise. A
Participant shall not be entitled to receive any amount resulting from an
increase in the Book Value of SPINC after the date of exercise in respect of any
BEARs so exercised.
(e) Upon the occurrence of an event that causes a Participant's BEARs
to vest pursuant to the second sentence of Section 5(b), or otherwise upon a
Participant's Termination of Employment (other than for Cause), SPINC shall
pay to the Participant in cash, not later than the Commencement Date (as defined
herein), an amount equal to the amount the Participant would be entitled to
receive pursuant to Section 5(d), assuming that, immediately prior to the
occurrence of such event or such Termination or Employment, the Participant had
elected to exercise fully all such Participant's BEARs that had then vested
pursuant to the first sentence of Section 5(b). SPINC shall pay to the
Participant in cash, either in a lump sum or, subject to prepayment in whole at
any time or in part from time to time at the option of SPINC, in equal
installments on each of the first five anniversaries of the Commencement
Date, the balance of the amount determined in accordance with Section 5(a);
SPINC also shall pay to the Participant, together with each such installment
payment or prepayment, an amount in the nature of simple interest on the entire
unpaid balance from the Commencement Date to the date of payment or prepayment,
as the case may be, at a rate equal to the yield on five-year United States
Treasury securities at the Commencement Date. The Committee shall have the sole
discretion to determine whether to make a lump sum payment or to pay in
installments or to prepay. In the case of a lump sum payment, payment will be
made as soon as administratively practicable after the occurrence of an event
that causes a Participant's BEARs to vest pursuant to the second sentence of
Section 5(b) or otherwise upon a Participant's Termination of Employment (other
than for Cause), but, in any event, no later than the 90th day after the
occurrence of an event that causes a Participant's BEARs to vest pursuant to the
second sentence of Section 5(b) or otherwise upon a Participant's Termination of
Employment (other than for Cause) (the 90th day following such event or
Termination of Employment being called the "Commencement Date"). A Participant
will not be
6
<PAGE>
entitled to receive any amount resulting from an increase in the Book Value
after the Applicable Date.
(f) Notwithstanding any other provision of the Program, all BEARs and
all rights to any payments in connection therewith shall be discontinued and
forfeited, and the Company shall have no further obligation hereunder to a
Participant, upon the Participant's Termination of Employment for Cause.
6. Nontransferability of BEARs
---------------------------
No BEAR shall be transferable by the Participant otherwise than
by will or under applicable laws of descent and distribution, and during the
lifetime of the Participant may be exercised only by the Participant or his or
her guardian or legal representative. In addition, no BEAR shall be
assigned, negotiated, pledged or hypothecated in any way (whether by operation
of law or otherwise), and no BEAR shall be subject to execution, attachment or
similar process. Upon any attempt to transfer, assign, negotiate, pledge or
hypothecate any BEAR, or in the event of any levy upon any BEAR by reason of any
execution, attachment or similar process contrary to the provisions hereof, such
BEAR shall immediately become null and void.
7. Determinations
--------------
Each determination, interpretation or other action made or taken
pursuant to the provisions of the Program by the Committee shall be final,
conclusive and binding for all purposes and upon all persons, including, without
limitation, the Participants, the Company, the directors, officers and other
employees of the Company and the respective heirs, executors, administrators,
personal representatives and other successors in interest of each of the
foregoing.
8. Non-Exclusivity
---------------
The adoption of the Program by the Board shall not be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, and such arrangements may be either
generally applicable or limited in application.
9. General Provisions
------------------
(a) Right to Terminate Employment. Neither the adoption of the Program
-----------------------------
nor the grant of BEARs shall impose any obligation on the Company to continue
the employment of any Participant, nor shall it impose any obligation on the
part of any Participant to
7
<PAGE>
remain in the employ of the Company, subject however to the provisions of any
agreement between the Company and the Participant.
(b) Trusts. etc. The Program is intended to be an unfunded deferred
-----------
compensation plan. Nothing contained in the Program and no action taken
pursuant to the Program (including, without limitation, the grant of any BEAR
hereunder) shall create or be construed to create a trust of any kind, or a
fiduciary relationship, between SPINC and any Participant or the executor,
administrator or other personal representative or designated beneficiary of such
Participant, or any other persons. Any reserves that may be established by
SPINC in connection with the Program shall continue to be part of the general
funds of SPINC, and no individual or entity other than SPINC shall have any
interest in such funds until paid to a Participant. If and to the extent that
any Participant or such Participant's executor, administrator or other personal
representative, as the case may be, acquires a right to receive any payment from
SPINC pursuant to the Program, such right shall be no greater than the right of
an unsecured general creditor of SPINC.
(c) Notices. Each Participant shall be responsible for furnishing the
-------
Committee with the current and proper address for the mailing to such
Participant of notices and the delivery to such Participant of payments. Any
notices required or permitted to be given shall be deemed given if directed to
the person to whom addressed at such address and mailed by regular United States
mail, first class and prepaid. If any item mailed to such address is returned
as undeliverable to the addressee, mailing will be suspended until the
Participant furnishes the proper address.
(d) Severability of Provisions. If any provisions of the Program
--------------------------
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions of the Program, and the Program shall be
construed and enforced as if such provisions had not been included.
(e) Payment to Minors, Etc. Any benefit payable to or for the benefit
----------------------
of a minor, an incompetent person or other person incapable of receipting
therefor shall be deemed paid when paid to such person's guardian or to the
party providing or reasonably appearing to provide for the care of such person,
and such payment shall fully discharge the Committee, the Company and their
employees, agents and representatives with respect thereto.
(f) Adjustments; Recapitalization, etc. The existence of the Program
----------------------------------
and the BEARs granted hereunder shall not affect in any way the right or power
of the Board or the stockholders of SPINC to make or authorize any adjustment,
recapitalization, reorganization or other change in SPINC's capital structure or
its business, any merger or consolidation of SPINC, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or
8
<PAGE>
affecting Shares, the dissolution or liquidation of SPINC or any of its
subsidiaries, any sale or transfer of all or part of its assets or business or
any other corporate act or proceeding. If and whenever SPINC takes any such
action, however, the total number and class of Shares and/or other securities
used in any Book Value determination under the Program shall be proportionately
adjusted by the Committee. The Committee may also make such other adjustments
as it deems necessary to take into consideration any other event (including,
without limitation to, accounting charges), if the Committee determines that
such adjustment is appropriate to avoid distortion in the operation of the
Program.
(g) Headings and Captions. The headings and captions herein are
---------------------
provided for reference and convenience only. They shall not be considered part
of the Program and shall not be employed in the construction of the Program.
(h) Controlling Law. The Program shall be construed and enforced
---------------
according to the laws of the State of New York.
10. Withholding Taxes
-----------------
SPINC shall be entitled to withhold (or secure payment from the
Participant in cash or other property in lieu of withholding) the amount of any
Federal, state or local taxes required by law to be withheld by SPINC for cash
payments deliverable under the Program.
9
<PAGE>
EXHIBIT 10.28
SCHEIN PHARMACEUTICAL, INC.
1993 BOOK EQUITY APPRECIATION RIGHTS AWARD
To
Schein Pharmaceutical, Inc. ("SPINC") has adopted the Schein
Pharmaceutical 1993 Book Equity Appreciation Rights Program (the "Program").
The Program Committee has determined that you are eligible to receive Book
Equity Appreciation Rights ("BEARs") under the Program and has granted you 60
BEARs, subject to the following terms and conditions:
1. The date of grant is
2. The Book Value per Share-Grant Date of each BEAR hereunder is $321.92.
3. Generally, one-third of the BEARs granted to you will vest on each of the
three December 31's immediately following the date of grant. Please
consult the Program plan document for a more detailed discussion of the
vesting schedule.
4. Generally, you will be able to exercise your vested BEARs, in whole or in
part, any time prior to your Termination of Employment. With respect to
each vested BEAR so exercised prior to your Termination of Employment, you
will be entitled to an amount equal to the excess Book Value per Share-as
Adjusted-Applicable Date of such BEAR as of the date of exercise over the
Book Value per Share-Grant Date of such BEAR. Except as otherwise provided
in the Program, with respect to each vested BEAR not exercised prior to
your Termination of Employment, you will be entitled to an amount equal to
the excess of the Book Value per Share-as Adjusted-Applicable Date over the
Book Value per Share-Grant Date of such BEAR; the amount so due to you will
be paid either in a lump sum or in installments over approximately five
years, as determined by the Committee in its sole discretion.
5. In certain circumstances set forth in the Program plan document, the BEARs
granted to you herein shall become fully vested, and the amount due to you
therefor will be paid either in a lump sum or in installments as set forth
above.
<PAGE>
The grant of BEARs under the Program enables you to share in the
increase in SPINC's Book Value after the date your BEARs are granted. This
letter is intended to provide you with a summary of the terms and conditions
under which your BEARs have been granted. If any conflict should arise between
the summary in this letter and the Program plan document, or if any point is not
covered in this letter or is only partially covered, the terms of the Program
plan document shall govern. All capitalized terms used herein shall have the
respective meanings set forth in the Program plan document.
Date: November 22, 1993
SCHEIN PHARMACEUTICAL, INC.
By:
-----------------------------
Authorized Officer
<PAGE>
EXHIBIT 10.29
SCHEIN PHARMACEUTICAL, INC.
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
Agreement dated August 31, 1995, by and between Schein Pharmaceutical, Inc., a
Delaware Corporation (the "Company"), and_________________ (the "Executive").
The Executive is an employee of the Company or a subsidiary of the Company.
1. PURPOSE
-------
The purpose of the Schein Pharmaceutical Split-Dollar Life Insurance
Agreement is to create a program under which the Company can assist its key
employees in acquiring permanent life insurance coverage.
2. DEFINITIONS
-----------
For purposes of this Program, the following terms have the meanings set
forth below:
2.01 "AGREEMENT" means this agreement as executed by the Company and the
Executive.
2.02 "ASSIGNMENT" means the collateral assignment executed by the Policy
Owner.
2.03 "COMMITTEE" means such committee, if any, appointed by the Board of
Directors of the Company to administer the Program, consisting of one
or one more directors as may be appointed from time to time by the
Board.
<PAGE>
If the Board does not appoint a committee for this purpose,
"Committee" means the Board.
2.04 "COMPANY" means Schein Pharmaceutical, Inc. and any subsidiary or
affiliate of Schein Pharmaceutical, Inc. For purposes of this
agreement "Affiliate" means any entity affiliated with the Company
within the meaning of Internal Revenue Code Section 414(b) with
respect to the controlled group of corporations, 414(c) with respect
to trades or businesses under common control with the Company, 414(m)
with respect to affiliated service groups, and any other entity
required to be aggregated with the Company pursuant to regulations
under Section 414(o) of the Code.
2.05 "COMPANY ACCOUNT" means, with respect to an Executive's Policy, a
bookkeeping entry maintained by the Company, equal to the lesser of
(X) the cash value of the Policy, and (Y) the amount of Policy
premiums paid by the Company and not collected from the Executive.
2.06 "COMPANY PREMIUM" means, with respect to an Executive's Policy, the
total Policy premium payable for the year, less the portion of the
premium to be paid by the Executive.
2.07 "DISABILITY" means that the Executive is receiving disability benefits
under any long-term disability program sponsored by the Company or one
of its subsidiaries or affiliates.
2.08 "EFFECTIVE DATE" means the effective date of the Life Insurance
Program, which is November 23, 1993.
<PAGE>
2.09 "EXECUTIVE" means an employee of the Company who elects to participate
in the Program within sixty (60) days of becoming eligible to
participate, as determined by the Committee.
2.10 "EXECUTIVE ACCOUNT" means, with respect to an Executive's Policy, a
bookkeeping entry maintained by the Company, equal to the excess, if
any, of the cash value of the Policy over the Company Account.
2.11 "EXECUTIVE PREMIUM" means, with respect to each Policy Year (or
portion thereof) the amount of premium paid by the Executive pursuant
to Section 5.02.
2.12 "INSURER" means, with respect to an Executive's Policy, the insurance
company issuing the insurance policy on the Executive's life pursuant
to the provisions of the Program.
2.13 "POLICY" means the life insurance coverage acquired on the life of the
Executive by the Executive or other Policy Owner.
2.14 "POLICY OWNER" means the Executive or that person or entity to whom
the Executive has assigned his or her interest in the Policy.
2.15 "POLICY YEAR" means the twelve month period (and each successive
twelve month period) beginning on the Effective Date of the Agreement.
2.16 "PROGRAM" means the Schein Pharmaceutical Split-Dollar Life Insurance
Program.
2.17 "RETIREMENT" means a termination of the Executive's employment with
the Company under circumstances where the Executive retires at or
after
<PAGE>
age 65 (or, with the consent of the Committee or under an early
retirement policy of the Company, before age 65).
3. ELIGIBILITY
-----------
Executives selected by the Board or the Committee are eligible to
participate in the Program.
4. AMOUNT OF COVERAGE
------------------
The amount of coverage initially shall be an amount provided in Schedule A.
----------
Dividends, if any, will increase this amount through the purchase of paid-
up additions or the Company, in its sole discretion, may purchase
additional policies.
5. PAYMENT OF PREMIUMS
-------------------
5.01 COMPANY PAYMENTS. Within thirty (30) days of the beginning of a
----------------
Policy Year, the Company shall pay the Company Premium for the
Executive's Policy.
5.02 EXECUTIVE PAYMENTS. The Executive shall pay an amount of premium
------------------
equal to the amounts set forth in Schedule A calculated as the value
----------
of the economic benefit attributable to the life insurance protection
provided to the Executive under the Agreement. The value of the
economic benefit shall be calculated by using the lower of the P.S. 58
rates or the Insurer's lowest published yearly renewable term rate
times the excess of the current death proceeds over the Company's
total value of its share of the premium. The amount of premium will
change as coverage changes. The Company shall remit that amount to
the Insurer. The amount shall be
<PAGE>
paid by the Executive to the Company by payroll deductions of equal
installments during the Policy Year or by a full reimbursement at the
beginning of the Policy Year.
5.03 DISABILITY. In the event of the Executive's Disability, this Agreement
----------
shall continue in full force and effect, and until the Executive
reaches ages 65 (or, if earlier, until the Executive elects
Retirement) the Company shall continue to pay the Company Premium for
the Executive Policy in accordance with the terms and conditions of
this Agreement, as well as the premiums provided for in sections 5.02.
6. ACCOUNTS.
--------
With respect to each Policy covered by an Agreement made under this
Program, the Company shall maintain bookkeeping entries reflecting the
Company Account and the Executive Account values.
7. POLICY OWNERSHIP.
----------------
7.01 OWNERSHIP. Except as otherwise provided in this Program, the Policy
---------
Owner shall be the sole and exclusive owner of an Executive's Policy
and shall be entitled to exercise all of the rights of ownership
including, but not limited to, the right to designate the beneficiary
or beneficiaries to receive payment of the portion of the death
benefit under the Policy and the right to assign any part or all of
the Policy Owner's interest in the Policy (subject to the Company's
rights, the terms and conditions of the Assignment specified in
Section 7.02 of this Agreement, and the terms and conditions of this
Program) to any person, entity or trust by the execution of a written
instrument delivered to the Company.
<PAGE>
7.02 COMPANY'S RIGHTS. In exchange for the Company's agreement to pay the
----------------
amounts described in Section 5.01 of this Program, the Policy Owner
shall execute, on a form acceptable to the Insurer, an Assignment to
the Company of the rights provided to the Company under this
Agreement. The Company shall have the right to direct the Policy
Owner in writing to take any action required consistent with these
rights, and upon the receipt of such written direction from the
Company, the Policy Owner shall promptly take such action as is
necessary to comply therewith. The Company agrees that it shall not
exercise any rights assigned to it in the Assignment in any way that
might impair or defeat the rights and interest of the Policy Owner
under this Agreement. The Company shall have the right to assign any
part or all of its interest in the Policy (subject to the Policy
Owner's rights and the terms and conditions of this Program) to any
person, entity or trust by the execution of a written instrument
delivered to the Policy Owner.
7.03 POSSESSION OF POLICY. The Company shall keep possession of the
--------------------
Policy. The Company agrees to make the Policy available to the Policy
Owner or to the Insurer from time to time for the purposes of
endorsing or filing any change of beneficiary on the Policy or
exercising any other rights as the owner of the Policy, but the Policy
shall promptly be returned to the Company.
7.04 POLICY LOANS. Neither the Company nor the Policy Owner may borrow
------------
against the Policy cash values.
7.05 WITHDRAWALS AND SURRENDER. Except as otherwise specifically provided
-------------------------
for in Section 8 of this Program, neither the Company nor the Policy
Owner may withdraw policy cash values or surrender all or a portion of
the Policy (including any paid-up additional insurance) except to pay
<PAGE>
premiums consistent with the Company's obligations under this
Agreement.
8. TERMINATION OF AGREEMENT.
------------------------
8.01 TERMINATION EVENTS. An Executive's Agreement, and the Company's
------------------
obligation to pay premiums with respect to the Executive's Policy
acquired pursuant to this Agreement, shall terminate upon the first to
occur of any of the following events:
a. Termination of employment of the Executive with the Company prior
to the Executive's death for reasons other than Disability.
b. Termination of the Executive's Agreement by mutual agreement of
the Executive and the Company.
c. The written notice by the Company to the Executive following a
resolution by the Board of Directors of Schein Pharmaceutical,
Inc. to terminate this Program and all Agreements made under the
Program in accordance with Section 11.02.
d. At the death of the Executive.
e. After the Release of Assignment pursuant to Section 8.03.
f. At the time the Executive on Disability reaches age 65 or, if
earlier, at the time the Executive on Disability elects
Retirement.
g. At the Executive's Retirement.
<PAGE>
8.02 DISPOSITION OF POLICY.
---------------------
a. In the event of a termination of an Executive's Agreement under
Section 8.01a, 8.01b, or 8.01C of the Program, the Policy Owner
shall be entitled to acquire the Company's rights under the
Executive's Policy by paying to the Company an amount equal to
the Company Account; alternatively, the Policy Owner can require
the Company to withdraw a portion of the cash values from the
Executive's Policy by partially surrendering the Policy
(including any paid-up additional insurance), with the amount to
be specified by the Policy Owner, and the Policy Owner's required
payment to the Company under this Section shall thereby be
reduced to an amount equal to the excess of the Company Account
over the amount withdrawn by the Company (the amount withdrawn
shall equal the amount actually received by the Company after the
application of any surrender charges applicable to the
withdrawal). The Policy Owner may exercise this right to acquire
the Company's interest in the Policy by so notifying the Company
within thirty (30) days after an event of termination under
Section 8.01a, 8.01b, or 8.01c of this Program has occurred.
Within thirty (30) days after receipt of such notice, the Company
shall make any required withdrawal and the Policy Owner shall pay
the Company the applicable payment, if any. Upon receipt of
payment from the Policy Owner, or immediately following the
withdrawal if no payment is required, the Company shall release
the Assignment and the Policy Owner shall have all rights, title,
and interest in the Policy free of all provisions and
restrictions of the Assignment, the Agreement and this Program.
<PAGE>
b. If the Policy Owner fails to exercise his right to acquire the
Company's interest in the Policy pursuant to Section 8.02a, the
Policy Owner shall transfer title to the Policy to the Company,
free of all provisions and restrictions of the Assignment, this
Agreement and the Program.
8.03 RELEASE OF ASSIGNMENT.
---------------------
Within sixty (60) days after the end of the termination of this
Agreement for any reason other than a termination under Section 8.01d
the Company shall withdraw from the Policy an amount equal to the
Company Account by partially surrendering the Policy (including any
paid-up additional insurance). Thereafter, (except in the
circumstances described in Section 8.02b), the Company shall release
the Assignment and the Policy Owner shall have all rights, title, and
interest in the Policy free of all provisions and restrictions of the
Assignment, the Executive's Agreement and this Program.
8.04 ALLOCATION OF DEATH BENEFIT.
---------------------------
In the event of a termination under Section 8.01d of this Agreement,
the death benefit under the Executive's Policy shall be divided as
follows:
a. The Company shall be entitled to receive an amount equal to the
cumulative Company Premium.
b. The beneficiary or beneficiaries of the Policy Owner shall be
entitled to receive the balance of insurance death proceeds.
<PAGE>
8.05 COMPANY UNDERTAKINGS.
--------------------
Upon the death of the Executive while this Agreement is in force, the
Company agrees to take such action as may be necessary to obtain
payment from the Insurer of the death benefit to the beneficiaries,
including, but not limited to, providing the Insurer with an affidavit
as to the amount to which the Company is entitled under this Agreement
and the Program.
9. GOVERNING LAWS & NOTICES.
------------------------
9.01 GOVERNING LAW. This Program shall be governed by and construed in
-------------
accordance with the laws of the State of New Jersey.
9.02 NOTICES. All notices hereunder shall be in writing and sent by first
-------
class mail with postage prepaid. Any notice to the Company shall be
addressed to Schein Pharmaceutical, Inc., Attention: Oliver Esman ,
--------------
Vice President, Human Resources, 100 Campus Drive, Florham Park, New
Jersey 07932. Any notice to the Executive shall be addressed to the
Executive at the address following such party's signature on this
Agreement. Any party may change the address for such party herein set
forth by giving notice of such change to the other parties pursuant to
this Section.
10. NOT A CONTRACT OF EMPLOYMENT.
----------------------------
The Program and any Agreement executed thereunder shall not be deemed to
constitute a contract of employment between an Executive and the Company,
nor shall any provision restrict the right of the Company to discharge an
Executive, or restrict the right of an Executive to terminate employment.
<PAGE>
11. AMENDMENT, TERMINATION, ADMINISTRATION, CONSTRUCTION AND SUCCESSORS
-------------------------------------------------------------------
11.01 AMENDMENT. The Program and this Agreement may be modified or
---------
amended by the Committee, or its delegated representative,
without the consent of any Executive but no modification or
amendment shall be effective so as to decrease any vested rights
or benefits of an Executive unless the Executive consents in
writing to such modification or amendment. Written notice of any
modification or amendment shall be given promptly to each
Executive.
11.02 TERMINATION. The Board of Directors of Schein Pharmaceutical, Inc.
-----------
may terminate the Program without the consent of the Executive.
Provided, however, in the event of a termination of the Program
by the Company, the Executive will have those rights specified in
Section 8.02a of the Program.
11.03 ADMINISTRATION. The Program shall be administered by the Committee.
--------------
The Committee shall have the authority to make, amend, interpret,
and enforce all appropriate rules and regulations for the
administration of the Program and decide or resolve any and all
questions, including interpretation of the Program, as may arise
in connection with the Program. In the administration of this
Program, the Committee may, from time to time, employ agents and
delegate to them or to others (including the Executive) such
administrative duties as it sees fit. The Committee may from time
to time consult with counsel, who may be counsel to the Company.
The decision or action of the Committee (or its designee) with
respect to any question arising out of or in connection with the
administration,
<PAGE>
interpretation and application of the Program shall be final and
conclusive and binding upon all persons having any interest in
the Program. The Committee shall review the status of the Program
at least annually. That review shall include appropriate
actuarial advice as to the liabilities of the Company in respect
of the Program, and such other matters as the committee considers
appropriate. The Company shall indemnify and hold harmless the
members of the Committee and any Executive to whom administrative
duties under the Program are delegated, against any and all
claims, loss, damage, expense or liability arising from any
section or failure to act with respect to the Program, except in
the case of gross negligence or willful misconduct by the
Committee.
11.04 INTERPRETATION. As to the provisions of the Assignment, this
--------------
Agreement and the Program, the provisions of the Assignment shall
control. As between this Agreement and the Program, the
provisions of this Agreement shall control.
11.05 SUCCESSORS. The terms and conditions of the Program shall ensure to
----------
the benefit of and bind the Company, the Executive, and their
respective successors, assignees, and representatives. If,
subsequent to the Effective Date of the Program, substantially
all of the stock or assets of the Company are acquired by another
corporation or entity or if the Company is merged into, or
consolidated with, another corporation or entity, then the
obligations of the Company hereunder shall be obligations of the
acquirer or successor corporation or entity.
<PAGE>
12. CLAIMS PROCEDURE.
----------------
12.01 NAMED FIDUCIARY.
---------------
The Committee is hereby designated as the named fiduciary under
the Program. The name fiduciary shall have authority to control
and manage the operation and administration of the Program.
12.02 CLAIMS PROCEDURE. Any controversy or claim arising out of or
----------------
relating to the Program shall be filed with the Committee which
shall make all determinations concerning such claim. Any
decision by the Committee denying such claim shall be in writing
and shall be delivered to all parties in interest in accordance
with the notice provisions of Section 9.02 hereof. Such decision
shall set forth the reasons for denial in plain language.
Pertinent provisions of the Program shall be cited and, where
appropriate, an explanation as to how the Executive can perfect
the claim will be provided. This notice of denial of benefits
will be provided within 90 days of the Committee's receipt of the
Executive's claim for benefits. If the Committee fails to notify
the Executive of its decision regarding the claim, the claim
shall be considered denied, and the Executive shall then be
permitted to proceeds with the appeal as provided in this
Section.
An Executive who has been completely or partially denied a
benefit shall be entitled to appeal this denial of his/her claim
by filing a written statement of his/her position with the
Committee no later than sixty (60) days after receipt of the
written notification of such claim denial. The Committee shall
schedule an opportunity for a full and fair review of the issue
within thirty (3) days of receipt of the appeal. The decision on
review shall set forth specific reasons
<PAGE>
for the decision, and shall cite specific references to the
pertinent Program provisions on which the decision is based.
Following the review of any additional information submitted by
the Executive, either through the hearing process or otherwise,
the Committee shall render a decision on the review of the denied
claim in the following manner:
a. The Committee shall make its decision regarding the merits
of the denied claim with sixty (60) days following receipt
of the request for review (or within one-hundred twenty
(120) days after such receipt, in a case where there are
special circumstances requiring extension of time for
reviewing the appealed claim). The Committee shall deliver
the decision to the claimant in writing. If an extension of
time for reviewing the appealed claim is required because of
special circumstances, written notice of the extension shall
be furnished to the Executive prior to the commencement of
the extension. If the decision on review is not furnished
within the prescribed time, the claim shall be deemed denied
on review.
b. The decision on review shall set forth specific reasons for
the decision, and shall cite specific references to the
pertinent Program provisions on which the decision is based.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and
year first above written.
SCHEIN PHARMACEUTICAL, INC.
By:___________________________________
Executive:____________________________
Address: _____________________________
-----------------------------
<PAGE>
EXHIBIT 10.30
GENERAL SHAREHOLDERS AGREEMENT
Dated September 30, 1994
------------------------
The parties to this agreement are Schein Holdings, Inc., a New York
corporation (the "Company"), Miles Inc., an Indiana corporation (the "New
Shareholder"), each of the family shareholders listed as such on schedule A
(collectively, the "Family Shareholders"), each of the other shareholders listed
as such on schedule A (collectively, with the Family Shareholders, the
"Continuing Shareholders") and Martin Sperber, as trustee (the "Trustee") under
the voting trust agreement dated this date and referred to in the Continuing
Shareholders Agreement referred to below (the "Voting Trust Agreement"). The
New Shareholder and the Continuing Shareholders constitute all the Company's
shareholders (except for holders of an aggregate of 2,549 shares of the
Company's common stock) and are collectively referred to as the "Shareholders."
Each Shareholder owns the number and class of shares set forth beside
that Shareholder's name on schedule A. The shares of each class of the
Company's common stock are collectively referred to as the "Shares."
The Company and the Continuing Shareholders also are parties to
another shareholders agreement dated this date (the
<PAGE>
"Continuing Shareholders Agreement"), a copy which has been furnished to
the New Shareholder.
The parties agree as follows:
1. Directors.
---------
1.1 Election. From time to time, the New Shareholder shall be
--------
entitled to nominate a number of members of the Company's board of directors
(rounded to the next lower integer, unless the Fraction (as defined below) is
greater than one-half, in which case rounded to the next higher integer) equal
to the product of (a) the total number of members of the board of directors at
the time of the nomination and (b) a fraction (the "Fraction") determined by
dividing (i) the number of Shares owned by the New Shareholder at the time of
the nomination by (ii) the total number of shares of the Company's common stock
then outstanding. If the number of directors the New Shareholder is entitled to
nominate at any time is less than two, the New Shareholder at that time shall be
entitled to nominate one director and to designate a second individual to
receive notices of, and to attend, all board of directors meetings as an
observer (but who shall not otherwise be entitled to participate in those
meetings). The individuals so nominated and designated (and any individual
nominated under section 1.2(b)) shall be required to be reasonably acceptable to
the Company. During the period (the "Voting Trust Period") the Voting Trust
Agreement is in effect, the Trustee and his successors (the "Successor
Trustees") shall
2
<PAGE>
be entitled to nominate the remaining members of the Company's board of
directors. During the period (the "Standstill Period") from the date of this
agreement to the earlier of the fifth anniversary of the Initial Public Offering
Date (as defined below) and May 15, 2001, the Trustee shall, and shall cause the
Successor Trustees to, and, during the Standstill Period, the Continuing
Shareholders (to the extent Shares owned by them are not subject to the Voting
Trust Agreement, by reason of the termination of the Voting Trust Agreement or
otherwise) shall, vote all Shares owned by them, if any, and take all other
action incidental to that vote requested of them by the New Shareholder to cause
the individuals nominated by the New Shareholder to be elected. During the
Voting Trust Period, the New Shareholder and the Continuing Shareholders (to the
extent Shares owned by Continuing Shareholders are not subject to the Voting
Trust Agreement for any reason) shall vote all Shares owned by them and take all
other action incidental to that vote requested of it by the Trustee or the
Successor Trustees to cause the individuals nominated by the Trustee or a
Successor Trustee, as the case may be, to be elected. As used in this
agreement, the term "Initial Public Offering Date" means the first date
immediately following the last closing of an underwritten sale of shares of the
Company's common stock to the public registered under the Securities Act of 1933
(the "1933 Act") on which the aggregate market value of outstanding common
stock (computed by use of the closing price of the stock (determined as set
forth in section 4.1)) held by more than 300 persons who are neither
Shareholders,
3
<PAGE>
nor Permitted Transferees, nor employees of the Company or its subsidiaries nor
affiliates of the Company exceeds $100,000,000, which shares are listed or
admitted to trading on the New York Stock Exchange or the American Stock
Exchange or quoted on the NASDAQ National Market System.
1.2 Removal; Vacancies.
-------------------
(a) (i) If, during the Standstill Period, the New Shareholder
gives written notice to the Trustee or the Successor Trustees, as the case may
be, and if, during the Standstill Period, the Voting Trust Agreement shall have
terminated and thereafter the New Shareholder gives written notice to the
Continuing Shareholders Designee (as defined below) of its wish to remove a
director previously nominated by the New Shareholder and elected in accordance
with section 1.1, during the Standstill Period the Trustee shall, and shall
cause the Successor Trustees to, and, during the Standstill Period, the
Continuing Shareholders (to the extent Shares owned by them are not subject to
the Voting Trust Agreement, by reason of the termination of the Voting Trust
Agreement or otherwise) shall, vote all Shares owned by them, if any, in favor
of removing that director, and take all other action incidental to that vote
requested of them by the New Shareholder to cause that director to be removed.
As used in this agreement, the term "Continuing Shareholders Designee" means
Marvin H. Schein, provided that (A) if the New Shareholder is notified by a
Family Shareholder of Marvin H. Schein's death, legal incapacity or resignation
4
<PAGE>
("Unavailability"), that term shall mean Pamela Schein or, upon Pamela Schein's
Unavailability prior to Marvin H. Schein's Unavailability, a successor
designated by Marvin H. Schein in a writing delivered to the Company and the New
Shareholder prior to his Unavailability ("Marvin's Successor"), and (B) if
Pamela Schein succeeds Marvin H. Schein as the "Continuing Shareholders
Designee" then, if the New Shareholder is notified by a Family Shareholder of
Pamela Schein's Unavailability, that term shall mean the successor designated by
Pamela Schein in a writing delivered to the Company and the New Shareholder
prior to her Unavailability or, if Pamela Schein shall not have so designated a
successor, then such term shall mean Marvin's Successor, or, if no such person
is so designated, it shall mean the Company.
(ii) If, during the Voting Trust Period, the Trustee or a
Successor Trustee, as the case may be, gives written notice to the New
Shareholder and the Continuing Shareholders (who own Shares not subject to the
Voting Trust Agreement for any reason) of his wish to remove a director
previously nominated by the Trustee or Successor Trustee and elected in
accordance with section 1.1, during the Voting Trust Period the New Shareholder
and those Continuing Shareholders shall vote all Shares owned by them in favor
of removing that director, and take all other action incidental to that vote
requested of them by the Trustee or Successor Trustee, as the case may be, to
cause that director to be removed.
5
<PAGE>
(b) (i) If for any reason any director previously nominated by
the New Shareholder ceases to hold office, the New Shareholder shall promptly
nominate an individual to fill the vacancy so created for the unexpired term,
and, during the Standstill Period, after written notice from the New Shareholder
to the Trustee, the Trustee shall, and shall cause the Successor Trustees to,
and, during the Standstill Period, the Continuing Shareholders (to the extent
Shares owned by them are not subject to the Voting Trust Agreement, by reason of
the termination of the Voting Trust Agreement or otherwise) shall, vote all
Shares owned by them, if any, and take all other action incidental to that vote
requested of them by the New Shareholder to cause the individual so nominated to
be elected to fill the vacancy.
(ii) If for any reason any director previously nominated by
the Trustee or a Successor Trustee ceases to hold office, the Trustee or a
Successor Trustee, as the case may be, shall promptly nominate an individual to
fill the vacancy so created for the unexpired term, and, during the Voting Trust
Period, after written notice to the New Shareholder and the Continuing
Shareholders (who own Shares not subject to the Voting Trust Agreement for any
reason) from the Trustee or a Successor Trustee, the New Shareholder and those
Continuing Shareholders shall vote all Shares owned by them and take all other
action incidental to that vote requested of them by the Trustee or
6
<PAGE>
Successor Trustee, as the case may be, to cause the individual so nominated
to be elected to fill the vacancy.
1.3 Classified Board. At any time the Company's board of directors
----------------
is divided into two or more classes, the members nominated by the New
Shareholder shall, to the extent practicable, be included in the respective
classes in the same manner as are the members nominated by the Trustee and the
Successor Trustees. The classification of the board of directors shall not
cause any reduction in the number of directors the New Shareholder otherwise is
entitled to nominate pursuant to this agreement, and nothing in this agreement
shall be construed to permit any amendment to the Company's certificate of
incorporation or by-laws (or comparable governing documents) ("Governing
Documents") in contravention of section 2.5.
1.4 No Action or Meeting without Notice. No action or meeting of
-----------------------------------
directors or shareholders of the Company shall have any force or effect, unless
the action or meeting is taken or held (a) in the case of meetings of
shareholders or directors, or any other action of shareholders or directors,
upon at least 15 business days' prior written notice to the New Shareholder and
the New Shareholder's nominee(s) and any observer, and (b) in the case of any
actions or meetings of directors or shareholders, where, in the good faith
judgment of the chairman of the board of directors of the Company, the
circumstances require an action or a meeting to be held upon fewer than 15
business days' prior written notice, upon at least 24 hours (in the case of
actions or
7
<PAGE>
meetings of directors) and five business days (in the case of actions or
meetings of the shareholders) prior written notice to the New Shareholder and
the New Shareholder's nominee(s) and any observer, unless the New Shareholder or
the New Shareholder's nominee(s), as the case may be, shall otherwise have
expressly agreed to a shorter period of prior written notice or waived such
notice in writing. As long as this section 1.4 remains in effect, (y) the
provisions of this section 1.4 shall be included in the by-laws of the Company
and (z) no provisions of the Company's Governing Documents relating to notice
requirements for meetings of or actions by the Company's shareholders or board
of directors may be amended without the written consent of the New Shareholder.
1.5 Termination. The provisions of sections 1.1 through 1.4 shall
-----------
terminate and be of no force or effect from and after the first date (the
"Governance Termination Date") upon which the Fraction is less than one-tenth.
2. Certain Major Decisions. In the case of clauses 2.1, 2.5 and 2.6
-----------------------
below, during the Standstill Period, and, in each other case, prior to the
earlier of the Initial Public Offering Date and the Governance Termination Date,
the Company shall not, and shall not permit any of its subsidiaries to, and no
officer, employee or other agent of the Company or any of its subsidiaries shall
have the authority, in the name or on behalf of the Company or any of its
subsidiaries, to, take any of the following actions, directly or indirectly,
without the prior
8
<PAGE>
written consent of the New Shareholder (which consent shall be deemed given, if
a majority of the New Shareholder's nominees referred to in section 1.1 consent
in writing (it being understood that consent given in this manner shall not be
deemed the exclusive method of giving consent)):
2.1 own, manage or operate any business not principally engaged in a
segment of the pharmaceutical or health-care industry, or any business ancillary
to the pharmaceutical or health-care industry;
2.2 effect an initial public offering of shares of common stock of
the Company that includes a primary offering by the Company of more than 25% of
the then outstanding common stock of the Company on a fully diluted basis;
2.3 incur any indebtedness to a third party for borrowed money,
which, by its terms, has a maturity of more than one year ("Funded Debt"), or
issue to a third party any shares of preferred stock that, by the terms of the
preferred stock, is required to be redeemed prior to the issuer's liquidation
("Redeemable Preferred Stock"), if, immediately after the incurrence of that
Funded Debt or the issuance of that Redeemable Preferred Stock, the ratio of the
sum of all Funded Debt plus the redemption price of all Redeemable Preferred
Stock of the Company and its consolidated subsidiaries to the Company's
consolidated stockholders' equity (excluding any such Redeemable Preferred
Stock), determined in accordance with generally accepted
9
<PAGE>
accounting principles consistently applied ("GAAP"), exceeds (a) 1 to 1 during
the period from the date of this agreement to May 15, 1995, and (b) 1.5 to 1
thereafter;
2.4 provide compensation to the senior executive management of the
Company or any of its subsidiaries in excess of levels customary in the
pharmaceutical industry at the time such compensation decisions are made;
2.5 amend or restate the Company's Governing Documents in any
respect, (a) as a result of which the ability to (i) elect a majority of the
members of the board of directors, (ii) adopt an agreement of merger or
consolidation, (iii) approve a sale of all or substantially all the assets or
(iv) adopt an amendment to any Governing Document would require the vote of more
than a majority of the outstanding Shares, (b) that would adversely affect the
New Shareholder differently from other holders of the Shares or (c) that, by its
terms, would prohibit any foreign national from holding Company shares or
serving as a director;
2.6 engage in any transaction with an affiliate on terms more
favorable to the affiliate than would have been obtainable in arm's-length
dealings, except for (a) transactions between or among the Company and its
subsidiaries, (b) transactions contemplated by this agreement, the Continuing
Shareholders Agreement or the Voting Trust Agreement, (c) transactions expressly
disclosed in any schedule to the stock purchase agreement (the "Stock Purchase
Agreement") among the
10
<PAGE>
Company, the New Shareholder and the Sellers referred to in that agreement and
(d) transactions of the kind permitted under section 5.02(g) of the Company's
agreement with Citibank, N.A. dated November 25, 1992, as in effect on the date
of this agreement; and
2.7 declare dividends or make distributions in respect of the
Company's capital stock, or redeem, purchase or otherwise acquire any capital
stock of the Company, except for (a) purchases contemplated by this agreement,
(b) purchases from Continuing Shareholders pursuant to section 2.1 of the
Continuing Shareholders Agreement, as in effect on the date of this agreement,
(c) purchases contemplated or required under the Schein Pharmaceutical, Inc.
1993 Stock Option Plan, in the form in which such Plan exists on the date of
this agreement (it being understood that, if such Plan in the form in which it
exists on the date of this agreement is adopted by the Company or a successor to
the Company, such Plan shall, as so adopted, be deemed to be such Plan in the
form in which it exists on the date of this agreement), (d) purchases
contemplated or required under exchange agreements between the Company and
certain of its shareholders relating to an aggregate of 22,250 shares of
non-voting common stock of Steris Laboratories, Inc. and 9,764 shares of non-
voting common stock of Danbury Pharmacal, Inc. substantially in the form as
attached to schedule 4.6(a) to the Stock Purchase Agreement.
11
<PAGE>
2A. Unresolved Disagreements. In addition to any other rights of the
------------------------
New Shareholder under this agreement, from and after May 15, 1997, if the board
of directors of the Company takes any action with respect to which the New
Shareholder's representatives on the board of directors are not in agreement,
and if the New Shareholder shall have made demand for the registration of all
its Shares pursuant to section 10.1, and such registration shall not have been
effected pursuant to section 10, the New Shareholder shall have the right to
require the chief executive officer and the board of directors of the Company to
meet as promptly as practicable (but in any event within 10 business days) with
the New Shareholder to discuss in good faith a procedure either to resolve the
disagreement or to permit and facilitate the rapid divestiture of the New
Shareholder's Shares (it being understood that neither that procedure nor any
outcome of that procedure shall be binding upon the Company or the New
Shareholder, until and unless mutually acceptable definitive agreements are
executed and delivered by the parties).
3. Visitation; Notice. Prior to the Governance Termination Date,
-------------------
the New Shareholder and its representatives may, from time to time, visit and
inspect the properties of the Company and its subsidiaries, examine their books
of account and discuss their affairs, finances and accounts with the Company's
senior management and independent accountants, all at such reasonable times as
the New Shareholder may wish and in a manner that does not interfere with or
disrupt the business in any
12
<PAGE>
material respect and subject to appropriate confidentiality agreements.
4. Rights to Purchase Additional Shares.
------------------------------------
4.1 Preemptive Rights. If at any time during the Standstill Period
-----------------
The Company proposes to issue (whether for cash, property or services) any
Equity Securities (as defined below) to any person or entity (including a
Shareholder) (other than pro rata issuances of Equity Securities to all holders
of the Company's common stock), the New Shareholder shall have the right (which
it may exercise in whole or in part) to purchase, upon the same terms (but
subject to the penultimate sentence of this section 4.1), a proportionate
quantity of those Equity Securities (or Equity Securities as similar as
practicable to those Equity Securities) in the proportion that the aggregate
number of Shares then beneficially owned by Bayer AG and all direct and indirect
majority-owned subsidiaries of Bayer Ag (including the New Shareholder and all
direct and indirect majority-owned subsidiaries of the New Shareholder) (all
such subsidiaries of Bayer Ag being collectively called the "Bayer Controlled
subsidiaries") bears to the total number of Shares then outstanding. (For
purposes of this agreement, Bayer Ag and the Bayer Controlled Subsidiaries shall
not be deemed to own beneficially any Shares subject to the Voting Trust
Agreement or held by any of the other Shareholders, and none of the Continuing
Shareholders shall be deemed to own beneficially any Shares held by any of the
other Shareholders and, in each case, otherwise
<PAGE>
subject to the provisions of this agreement with respect to voting or
disposition.) The Company shall give notice to the New Shareholder setting
forth the identity of the purchaser and the time, which shall not be fewer than
60 days and not more than 90 days, within which, and the terms upon which, the
New Shareholder may purchase the Equity Securities, which terms shall be the
same as the terms upon which the purchaser may purchase the Equity Securities.
Notwithstanding anything to the contrary in this section 4.1, however, in the
case of any issuance of options, rights or securities convertible into, or
exchangeable or exercisable for, Shares, the Company shall not be deemed to have
issued Equity Securities until the issuance of the Shares underlying such
options, rights or securities, and the New Shareholder's right to purchase
Shares under this section 4.1 shall not become effective, unless the number of
Shares the New Shareholder is entitled to purchase at the time under this
section 4.1 is greater than 1% of the then outstanding Shares (but any
entitlement to purchase Shares that is so suspended shall be carried forward and
cumulated, until the cumulative number of Shares so carried forward equals at
least 1% of the then outstanding Shares, at which time the right that had been
suspended shall cease to be suspended for 60 days, at which time the right shall
terminate). Where the right to purchase Equity Securities under this section
4.1 arises from an issuance of Equity Securities (i) to or for the benefit of
employees or directors of the Company or any of its subsidiaries, (ii) in
connection with an acquisition or (iii) pursuant to a warrant or
14
<PAGE>
option issued in connection with any debt or Redeemable Preferred Stock
financing of the Company ((i), (ii) and (iii), collectively, the "Non-Assignable
Preemptive Rights"), the New Shareholder's purchase price per share for the
Equity Securities shall be the current per share market price of those Equity
Securities at the time the Equity Securities are issued or, in accordance with
the immediately preceding sentence, deemed to be issued. As used in this
agreement, (a) the term "Equity Securities" means shares of capital stock of the
Company having the right to vote or generally to participate, in a manner
similar to common stock, in the profits and losses of the Company, or any
options, rights or securities convertible into, or exchangeable or exercisable
for, such shares of capital stock; and (b) the "current per share market price"
of any Equity Security on any date shall be deemed to be the average of the
daily closing prices per share of such security for the 20 consecutive trading
days immediately prior to such date; provided, however, that in the event that
--------- -------
the current per share market price of any Equity Security is determined during a
period following the announcement by the Company of (i) a dividend or
distribution on such Equity Securities payable in such Equity Security or
securities convertible into such Equity Security or (ii) any subdivision,
combination or reclassification of such Equity Securities, and prior to the
expiration of 20 trading days after the ex-dividend date for such dividend or
distribution, or after the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per
15
<PAGE>
share market price shall be appropriately adjusted to take into account ex-
dividend trading or to reflect the current per share market price of the Equity
Security equivalent. The closing price (the "closing price") for each day shall
be the last sale price, regular way, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the principal
national securities exchange on which the applicable Equity Securities are
listed or admitted to trading or, if such Equity Securities are not listed or
admitted to trading on any national securities exchange, the last quoted price,
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use,
or, if on any such date such Equity Securities are not quoted by such an
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in such Equity Securities selected by
the board of directors of the Company. If such Equity Securities are not
publicly held or not so listed or traded or not the subject of available bid and
asked quotes, "current per share market price" shall mean the fair value per
share as determined in good faith by a majority of the disinterested directors
of the Company. A "trading day" shall mean any day on which the principal
national securities exchange on which the applicable Equity Securities are
listed or admitted to trading is open for the transaction of business or, if the
16
<PAGE>
applicable Equity Securities are not listed or admitted to trading on any
national securities exchange, a business day.
4.2 Interim Investment Protection Right
-----------------------------------
(a) If at any time or from time to time after the Initial Public
Offering Date and during the Standstill Period any person or entity (other than
any Continuing Shareholder, the Company, any subsidiary of the Company, any
employee benefit or stock ownership plan of the Company or any of its
subsidiaries or any entity holding Shares for or pursuant to the terms of any
such plan or any person who has reported that it is the beneficial owner of
Shares in a statement on Schedule 13G and who continues to meet the requirements
of Rule 13d-l(b)(l) or (2) promulgated by the Securities and Exchange Commission
(the "SEC") under the Securities Exchange Act of 1934 (the "Exchange Act"))
that, together with all affiliates of that person or entity, becomes the
beneficial owner of 10% or more of the Shares then outstanding (an "Acquiring
Person"), then, notwithstanding anything to the contrary in section 5.1 but
subject to sections 4.6 and 4.7, the New Shareholder shall immediately have the
right (the "Interim Investment Protection Right") to purchase a number of Shares
(the "Interim Investment Spread") that, when added to the number of Shares
that Bayer AG and Bayer's Controlled Subsidiaries then beneficially own, exceeds
the number of Shares beneficially owned by the Acquiring Person and its
affiliates by a number of Shares equal to 21% of the Shares then outstanding.
17
<PAGE>
(b) If at any time during the first 30 days after the New
Shareholder has the right to exercise the Interim Investment Protection Right
the Public Float (as defined in section 4.2(e)) is less than 133% of the Interim
Investment Spread, the New Shareholder shall have the right, exercisable by
written notice given to the Continuing Shareholders Designee and the Company
within that 30-day period, to purchase from the Family Shareholders, if and to
the extent they or any of them so elect in accordance with this section 4, and
otherwise from the Company, and such electing Family Shareholders and/or the
Company, as the case may be, shall be required to sell, an aggregate number of
Shares up to the number of Shares by which the Public Float is less than 133% of
the Interim Investment Spread at a price per Share equal to the average current
per share market price of the Shares over the 20 trading days immediately
preceding the first day on which the Interim Investment Protection Right becomes
exercisable. Notwithstanding the foregoing, however, if, upon any exercise of
the Interim Investment Protection Right, Bayer AG and Bayer's Controlled
Subsidiaries would beneficially own in the aggregate a majority of the then
outstanding Shares, the purchase price payable per Share for such Shares upon
such exercise shall be the acquisition value per Share (as determined in
accordance with section 4.3(b)) rather than the average current per share market
price (as described in the preceding sentence); however, in determining the
acquisition value per Share, the IB Firm (as defined in section 4.3(b)) shall
take into consideration the temporal limitations on
18
<PAGE>
the New Shareholder's rights to vote Shares being acquired by virtue of section
4.6 and the other considerations set forth in section 4.3(b).
(c) The closing of any purchase and sale under this section 4.2
shall be held at the Company's offices on at least two business days notice
after the fifth business day after (i) the New Shareholder shall have given the
written notice referred to in section 4.2(b), in the event that the price to be
paid by the New Shareholder is the average current per share market price, or
(ii) the New Shareholder shall have received the Value Notice referred to in
section 4.3(b), mutatis mutandis, in the event that the price to be paid by the
------- --------
New Shareholder is the acquisition value per Share. At the closing, the New
Shareholder shall pay the purchase price for the Shares it is purchasing, by
certified or official bank check or wire transfer of funds, and the Family
Shareholders and/or the Company, as the case may be, shall deliver the Shares,
duly endorsed, if being sold by a Family Shareholder, and free and clear of any
encumbrances and with all required stock transfer tax stamps attached.
Notwithstanding anything to the contrary in this section 4.2, the New
Shareholder's right to purchase Shares under this section 4.2 shall not become
effective, unless the number of Shares the New Shareholder is so entitled to
purchase at the time is greater than 1% of the then outstanding Shares (but any
entitlement to purchase Shares that is so suspended shall be carried forward and
cumulated, until the cumulative number of Shares so carried
19
<PAGE>
forward exceeds 1% of the then outstanding Shares, at which time the right that
had been suspended shall cease to be suspended).
(d) If the Family Shareholders elect to sell a number of Shares
pursuant to section 4.2 or 4.3 that, in the aggregate, is equal to or less than
the number the New Shareholder shall have elected to purchase pursuant to
section 4.2 or 4.3 respectively, each such Family Shareholder shall sell the
number of Shares that such Family Shareholder shall have elected to sell and the
Company shall sell to the New Shareholder the balance, if any, of the number of
Shares the New Shareholder shall have elected to purchase. If the Family
Shareholders elect to sell pursuant to section 4.2 or 4.3 a number of Shares
that, in the aggregate, is more than the New Shareholders shall have elected to
purchase pursuant to section 4.2 or 4.3, respectively, each such Family
Shareholder shall sell the number of Shares set forth in a written notice given
to the New Shareholder and the Continuing Shareholders Designee by all the
Family Shareholders who are selling Shares at least one business day before the
closing of the purchase and sale or, in the absence of a notice so given, its
proportionate number of Shares (in the proportion that the number of Shares each
Family Shareholder shall have elected to sell bears to the total number of
Shares all the Family Shareholders shall have elected to sell).
(e) As used in this agreement, the term "Public Float" means the
total number of Shares then issued and outstanding (as shown by the most recent
report or statement filed by the Company
20
<PAGE>
with the SEC), less all Restricted Securities (as defined below); provided,
however that the "Public Float" shall be deemed to equal zero, if (i) the
Initial Public Offering Date has not yet occurred at the time or (ii) the Shares
are not listed or admitted to trading on the New York Stock Exchange or the
American Stock Exchange or quoted on the NASDAQ National Market System.
"Restricted Securities" means any Equity Securities that, at the date of
determination, (A) are held by employees or affiliates of the Company and are
subject to contractual restrictions on resale imposed by the Company or any of
its subsidiaries, (B) cannot be sold by the holder except under a registration
statement under the 1933 Act and have not been so registered or (C) remain
subject to the Voting Trust Agreement.
4.3 Final Investment Protection Right.
---------------------------------
(a) Subject to section 4.6, if, on the last trading day during
the Standstill Period, the Public Float is less than 133% of the number of
Shares that, when added to the aggregate number of Shares Bayer AG and Bayer's
Controlled Subsidiaries then beneficially own, equals a majority of the Shares
then outstanding (the "Final Investment Spread"), the New Shareholder shall have
the right (the "Final Investment Protection Right"), exercisable by written
notice given to the Company and the Continuing Shareholders Designee within six
months after the expiration of the Standstill Period, to give notice of its
interest in purchasing (subject to section 4.3(c)) from the Family Shareholders,
if and to the extent they or any of
21
<PAGE>
them so elect in accordance with this section 4, and otherwise from the Company,
and such electing Family Shareholders or the Company, as the case may be, shall
be required to sell (if the New Shareholder elects to purchase in accordance
with section 4.3(c)), an aggregate number of Shares up to the number of Shares
by which the Public Float is less than 133% of the Final Investment Spread at a
price per Share equal to the acquisition value per Share on the last trading day
of the Standstill Period.
(b) The term "acquisition value per Share" means an amount
determined by an internationally recognized, independent investment banking firm
selected by the Company, the New Shareholder and the Continuing Shareholders
Designee; however, if the Company and the Continuing Shareholders Designee, on
the one hand, and the New Shareholder, on the other hand, are unable to agree on
the selection of that firm within 30 calendar days after the date the notice is
given pursuant to section 4.3(a) (the "Notice Date"), each of the Company and
the Continuing Shareholders Designee, on the one hand, and the New Shareholder,
on the other hand, shall promptly (but in no event later than five business days
after the expiration of that 30 calendar day period) designate an
internationally recognized, independent investment banking firm, which firms
shall promptly (but in no event later than five business days after the
expiration of the previous five business day period) select a third
internationally recognized, independent investment banking firm to determine the
acquisition value per Share (the internationally recognized,
22
<PAGE>
independent investment banking firm so selected is referred to as the "IB
Firm"). The IB Firm shall determine the acquisition value per Share by using
generally accepted valuation techniques at the time of the determination, (i)
taking into consideration the value of shares of common stock of comparable
companies, (ii) recognizing, if applicable under the laws of the state of
incorporation of the Company and the Governing Documents at that time, that upon
the exercise of the Final Investment Protection Right control of the Company
will pass to the New Shareholder by reason of its purchase of such Shares, and
(iii) excluding consideration of (x) contractual obligations under this
agreement, the Continuing Shareholders Agreement or the Voting Trust Agreement
that may limit the ability of the Family Shareholders to sell Shares owned by
them or otherwise inhibit the full exercise of their rights as shareholders and
(y) the number of Shares then beneficially owned by Bayer AG and Bayer's
Controlled Subsidiaries (except to the extent necessary to calculate the number
of Shares constituting the Final Investment Spread) and the fact that the New
Shareholder is the beneficiary of the Final Investment Protection Rights. The
parties shall use reasonable efforts to have the IB Firm give written notice of
the acquisition value per Share and of its bases for such calculation to the
Company, the New Shareholder and the Continuing Shareholders Designee (the
"Value Notice") within 30 days after the selection of the IB Firm. The
determination of the acquisition value per Share by the IB firm shall be final,
conclusive and binding on the parties. The fees and expenses of
23
<PAGE>
the IB Firm shall be paid 50% by the Company and 50% by the New Shareholder.
The closing of any purchase and sale under this section 4.3(b) shall be held at
the Company's offices not later than 30 calendar days after the date the New
Shareholder shall have received the Value Notice. At the closing, the New
Shareholder shall pay the acquisition value per Share for each share pursuant to
which it has given notice under section 4.3(a), and the Family Shareholders
and/or the Company shall deliver the Shares, duly endorsed, if being sold by a
Family Shareholder, and free and clear of any encumbrances and with all
required stock transfer tax stamps attached.
(c) Within 30 calendar days after receipt of the Value Notice, the
New Shareholder will have the right to give notice to the Company and the
Continuing Shareholders Designee of its election to exercise the Final
Investment Protection Right. Within five days after the New Shareholder gives
such notice, each of the Family Shareholders shall have the right to elect, by
written notice given to the New Shareholder and the Company, to sell to the
New Shareholder the number of Shares set forth in that Family Shareholder's
notice, and each such Family Shareholder shall sell the number of Shares that
Family Shareholder shall have so elected to sell and the Company shall sell to
the New Shareholder the balance, if any, of the number of Shares that the New
Shareholder shall have elected to purchase. Notwithstanding anything to the
contrary in this section 4.3(c),
24
<PAGE>
this section 4.3(c) is subject to the provisions of section 4.2(d).
(d) If the New Shareholder purchases any Shares from the Company
pursuant to its exercise of the Final Investment Protection Right, the Company
shall as promptly as practicable (subject to any restrictions under applicable
law) make a pro rata distribution to all holders of Shares other than Bayer AG
and Bayer's Controlled Subsidiaries of an aggregate amount equal to (i) the
product of the acquisition value per Share multiplied by the number of Shares
purchased from the Company pursuant to section 4.3(c), reduced by (ii) the
product of the number of such Shares and the average current per share market
price of the Shares over the 20 trading days immediately preceding the end of
the Standstill Period.
4.4 First Refusal. If the Company fails to exercise its right to
-------------
purchase Shares under section 2.1 of the Continuing Shareholders Agreement
within 20 days after an Offer Notice (as defined in the Continuing Shareholders
Agreement) is given, the Company's right to purchase those Shares shall be
deemed to be assigned to the New Shareholder. However, notwithstanding anything
to the contrary in the Continuing Shareholders Agreement, in the case of any
purchase by the New Shareholder under section 2.1 of the Continuing Shareholders
Agreement by virtue of this section 4.4 after the Initial Public Offering Date,
the New Shareholder shall have the right to purchase only the number of Shares
that, when added to the number of Shares
25
<PAGE>
Bayer AG and Bayer's Controlled Subsidiaries then own, equals the New Percentage
(as defined in section 5.1A) of the then outstanding Shares. In the event of a
dispute concerning the purchase price of Shares acquired under section 2.1 of
the Continuing Shareholders Agreement, the dispute shall be resolved between the
New Shareholder and the Continuing Shareholders pursuant to the dispute
resolution mechanisms set forth in section 2.2 of the Continuing Shareholders
Agreement, in all respects as if the New Shareholder were the Company. In the
case of any Shares as to which the Company shall have failed to exercise its
right to purchase under section 2.1 of the Continuing Shareholders Agreement and
the New Shareholder shall have failed to exercise its right to purchase the
Shares under this section 4.4, it is understood and agreed that the Continuing
Shareholder(s) may sell the Shares to the offeror in accordance with the terms
and conditions of the Continuing Shareholders Agreement (subject to the
limitation set forth in section 2.1 of the Continuing Shareholders Agreement to
the effect that, if the sale is not consummated within 75 days following the
expiration of the 40-day period described in section 2.1 of the Continuing
Shareholders Agreement, the Shares specified in the Offer Notice shall again
become subject to section 2.1 of the Continuing Shareholders Agreement).
Notwithstanding anything to the contrary in the Continuing Shareholders
Agreement, if as a result of the New Shareholder's acquisition of any Shares in
accordance with this section 4.4, Bayer AG and Bayer's Controlled Subsidiaries
would beneficially own a majority of the Shares then
26
<PAGE>
outstanding, the New Shareholder shall purchase those Shares at a price equal to
the greater of (a) the price per Share determined in accordance with section 2.1
of the Continuing Shareholders Agreement and (b) the acquisition value per Share
determined in accordance with section 4.3(b) of this agreement; however, in
determining the acquisition value per Share, the IB Firm shall take into
consideration the temporal limitations on the New Shareholder's rights to vote
Shares being acquired by virtue of section 4.6 and the other considerations set
forth in section 4.3(b).
4.5 Certain Equity Financings. Notwithstanding anything to the
-------------------------
contrary in this agreement, prior to the Initial Public Offering Date, the
Company shall not issue any Equity Securities ((a) except for Equity Securities
issued to or for the benefit of employees or directors of the Company or its
subsidiaries, (b) except in acquisitions, (c) except for Equity Securities
issued in connection with financings that are not primarily comprised of Equity
Securities and (d) except in connection with any underwritten sale of shares of
the Company's common stock to the public registered under the 1933 Act).
4.6 Voting. If, immediately after the New Shareholder acquires any
------
Shares under section 4.2, 4.3, 4.4 or 11.5, or otherwise, during the Standstill
Period, Bayer AG and Bayer's Controlled Subsidiaries beneficially own in the
aggregate (a) on or before the Initial Public Offering Date, more than 28.3% of
the then outstanding Shares, or (b) after the Initial Public
27
<PAGE>
Offering Date, more than the New Percentage (as defined in section 5.1A) of the
then outstanding Shares, then, at all times thereafter during the Standstill
Period, (y) that excess number of Shares shall be voted or not voted in meetings
of shareholders and otherwise in accordance with the written instructions of the
Trustee and the Successor Trustees (regardless of whether the Voting Trust
Agreement is still in effect) (and, in the absence of such instructions, the
Shares shall be deemed not to be present or voting), and (z) that excess number
of Shares shall not be included in the number of Shares owned by the New
Shareholder in determining the Fraction.
4.7 Termination of Certain Rights. If during the Standstill Period
-----------------------------
the New Shareholder sells to any unaffiliated third party any Shares, then the
New Shareholder's rights under sections 2, 4.1, 4.2, 4.3, 4.4 and 8 shall
terminate and be of no further force or effect (it being understood, however,
that, notwithstanding any termination of rights under this section 4.7, nothing
in this section 4.7 shall be deemed to affect in any way any such rights as a
consequence of any assignment by the New Shareholder or its permitted assignees
of such rights in accordance with section 12.2).
5. Standstill. Except as otherwise contemplated by this agreement,
----------
or unless the New Shareholder is invited to do otherwise by the Company's board
of directors, during the Standstill Period, the New Shareholder shall not, and
shall not permit any of its affiliates (within the meaning of Rule 12b-2
28
<PAGE>
under the Exchange Act) (including, without limitation, Bayer AG and Bayer's
Controlled Subsidiaries), or anyone acting on behalf of, or in concert with, the
New Shareholder or any of its affiliates, to, directly or indirectly:
5.1 acquire, announce an intention to acquire, offer or propose to
acquire, solicit an offer to sell or agree to acquire, by purchase, by gift, by
joining a partnership, a limited partnership, a syndicate or any group (within
the meaning of section 13(d)(3) of the Exchange Act) or otherwise, any (a)
assets, businesses or properties of the Company or any of its subsidiaries,
other than in the ordinary course of business, or (b) Equity Securities;
5.2 participate in the formation or encourage the formation of, or
join or in any way participate with, any partnership, limited partnership,
syndicate, group or other person or entity that owns or seeks to acquire
beneficial ownership of Equity Securities;
5.3 solicit, or participate in any solicitation of, proxies or
become a participant in any election contest (the terms used in this section 5.3
having the respective meanings given them in Regulation 14A under the Exchange
Act) with respect to the Company;
5.4 initiate, propose or otherwise solicit shareholders for the
approval of one or more shareholder
29
<PAGE>
proposals with respect to the Company or induce any other person to initiate any
shareholder proposal;
5.5 seek to place designees on the board of directors of the Company,
seek the removal of any member of the board of directors of the Company or seek
to have called any meeting of the shareholders of the Company;
5.6 deposit any Equity Securities in a voting trust or subject any
Equity Securities to a voting agreement or other agreement or arrangement with
respect to voting;
5.7 otherwise act, alone or in concert with others, to seek to
control the management, board of directors, policies or affairs of the Company
or solicit, propose, seek to effect or negotiate with any other person or entity
(including, without limitation, the Company) with respect to any form of
business combination or other extraordinary transaction with the Company or any
of its subsidiaries or any restructuring, recapitalization, similar transaction
or other transaction not in the ordinary course of business with respect to the
Company or any of its subsidiaries, solicit, make or propose or negotiate with
any other person or entity with respect to, or announce an intent to make, any
tender offer or exchange offer for any Equity Securities, or publicly disclose
an intent, purpose, plan or proposal with respect to the Company, any of its
subsidiaries or any securities or assets of the Company or any of its
subsidiaries, that would violate the provisions of this section 5, or
30
<PAGE>
assist, participate in, facilitate or solicit any effort or attempt by any
person or entity to do or seek to do any of the foregoing; or
5.8 request the Company (or its directors, officers, employees or
agents) to amend or waive any provision of this section 5 (including, without
limitation, this section 5.8) or otherwise seek any modification to or waiver of
any of the agreements or obligations of the New Shareholder or its affiliates
(including, without limitation, Bayer AG and Bayer's Controlled Subsidiaries)
under this section 5.
Notwithstanding any of the foregoing sections 5.1 through 5.8 and
during the Standstill Period:
5.1A The New Shareholder shall have the right (a) at any time to own
beneficially any securities the Company distributes to it as part of a pro rata
dividend to all holders of common stock, (b) at any time to acquire or solicit
an offer to acquire any Equity Securities in accordance with section 4 and (c)
at any time, to acquire a number of Shares that, when added to the number of
Shares Bayer AG and Bayer's Controlled Subsidiaries then beneficially own,
equals the New Percentage of the then outstanding Shares. As used in this
agreement, the term "New Percentage" means 30% after the earlier of the Initial
Public Offering Date and May 15, 1997 (such earlier date, the "Deemed Initial
Public Offering Date") and before the second anniversary of the Deemed Initial
Public Offering Date, 33-1/3%
31
<PAGE>
thereafter and before the third anniversary of the Deemed Initial Public
Offering Date, 36-2/3% thereafter and before the fourth anniversary of the
Deemed Initial Public Offering Date and 40% thereafter.
5.2A The New Shareholder shall have the right (a) to discuss any
business matters (including, without limitation, subjects that may be within the
matters listed in sections 5.1 through 5.7) privately with the chief executive
officer of the Company (and the Company agrees that its chief executive officer
will make himself reasonably available for such discussions), (b) to discuss any
business matters with the Company's senior executive officers, if, in the good
faith judgment of the New Shareholder, the business matters relate primarily to
the performance or administration of the heads of agreement dated this date
among Bayer AG, the New Shareholder and Schein Pharmaceutical, Inc. and do not
involve a sale of all or substantially all the business and assets of the
Company or a substantial business unit or any shares of the Company (or a
transaction having a similar effect), (c) to discuss any business matters with
members of the Company's board of directors or (d) to discuss with the
Continuing Shareholders matters unrelated to the Company, or related to the
Company but not otherwise prohibited by this section 5; provided, however, that,
notwithstanding anything to the contrary in this section 5.2A, no proposal shall
be made by the New Shareholder that would require any member of the board of
directors of the Company to consider
32
<PAGE>
amending, modifying or waiving, or taking or permitting any action inconsistent
with, any provision of this section 5 or to consider taking or permitting any
action that would have a similar effect. The New Shareholder also may discuss
its investment in the Company with its own shareholders and with the investment
community, provided that such discussions are not for the purpose of
circumventing any of sections 5.1 through 5.8.
5.3A Notwithstanding the provisions of sections 5.1 through 5.8, the
representative or representatives of the New Shareholder on the board of
directors of the Company shall have the right to take such action as they deem
necessary, proper or advisable to fulfill their fiduciary duties (including any
duty of loyalty) to the Company and its shareholders.
5.4A As a holder of Shares, the New Shareholder may exercise rights
issued to it in the future under any shareholder rights or similar plan (i.e.,
---
a so-called "poison pill" plan) and may acquire the securities issuable upon
exercise of those rights.
5.5A The provisions of sections 5.1 and 5.2 shall be suspended in the
event that any third party (other than Bayer AG and Bayer's Controlled
Subsidiaries and their affiliates) publicly commences an unsolicited tender
offer or exchange offer for a number of Shares of the Company's common stock
that, when added to the number of Shares that third party then beneficially
owns, is a majority of the Company's then outstanding Shares (and
33
<PAGE>
provided that (a) the New Shareholder reasonably believes that the third party
has the financial capacity and legal authority to consummate the tender offer or
exchange offer and the New Shareholder so represents in writing to the Company,
(b) Bayer AG and Bayer's Controlled Subsidiaries shall have had no prior direct
or indirect communication with that third party concerning the tender offer or
exchange offer, and the New Shareholder so represents in writing to the Company,
and (c) the suspension referred to above shall terminate when, if and as long as
that third party is enjoined from proceeding with the tender offer or exchange
offer.
6. Restrictions on Transfer Generally.
----------------------------------
6.1 Transfers to be Made Only as Permitted or Required by This
----------------------------------------------------------
Agreement. The Shareholders may not, directly or indirectly, sell, assign,
- ---------
transfer, pledge or otherwise encumber or dispose of (collectively,
"transfer") any Shares, except as specifically permitted or required by this
agreement or the Continuing Shareholders Agreement. Any other purported transfer
shall be void and of no effect.
6.2 Termination of Restrictions. The provisions of section 6.1 shall
---------------------------
terminate on the earlier of the second anniversary of the Initial Public
Offering Date and May 15, 1999.
6.3 Legend. As long as any provision of this agreement remains in
------
effect, each certificate representing Shares shall bear a legend substantially
as follows:
34
<PAGE>
"The shares represented by this certificate are subject to a
shareholders agreement dated , 1994 that
----------------
restricts the transfer of the shares, a copy of which is on
file at the office of the Company."
7. Come-Along. If, at any time before the earlier of the Initial
----------
Public Offering Date and May 15, 2001, any or all of the Continuing Shareholders
and their Permitted Transferees (as defined in section 1.2(d) of the Continuing
Shareholders Agreement) and employees and former employees of the Company and
its subsidiaries (the "Selling Group") sell or agree to sell to a non-affiliated
third party that number of shares of Equity Securities that, when added to the
shares then beneficially owned by Bayer AG and Bayer's Controlled Subsidiaries
and of other selling shareholders selling in that transaction, would be
sufficient under applicable state corporation law to enable the beneficial owner
to effect a short-form parent-subsidiary merger of the Company with the
purchaser following the sale, whether in a single transaction or a series of
related transactions, the Continuing Shareholders shall cause the third party to
purchase all the Shares beneficially owned by Bayer AG and Bayer's Controlled
Subsidiaries, and the New Shareholder and its Permitted Transferees shall sell
those Shares to the third party on the same terms as the members of the Selling
Group sell or agree to sell Shares. The New Shareholder and its Permitted
Transferees shall use reasonable efforts to cooperate with the Selling Group in
connection with any such sale. Nothing in this
35
<PAGE>
section 7 shall be deemed to diminish the rights of the New Shareholder under
sections 4.4 and 8, subject to section 4.7.
8. New Shareholder's Right of First Offer. Subject to section 4.7,
--------------------------------------
if at any time prior to the end of the Standstill Period (or, if earlier, the
date of termination of the New Shareholder's rights under sections 4.1, 4.2 and
4.3) the right of first refusal under section 4.4 is no longer applicable by
virtue of any termination of the Continuing Shareholders Agreement and one or
more Continuing Shareholders (collectively, the "Continuing Shareholder
Offeror") who are permitted under the Continuing Shareholders Agreement and the
Voting Trust Agreement, and are otherwise able (subject only to this section 8),
and in good faith wish, to sell or cause the sale of any of the Shares to a non-
affiliated third party (other than sales under Rule 144 under the 1933 Act,
sales in a Wide Distribution (as defined in the Continuing Shareholders
Agreement) and transfers under sections 1.2(a)(iii)(G) or (H) of the Continuing
Shareholders Agreement), the Continuing Shareholder Offeror shall promptly
deliver a written notice (a "Continuing Shareholder Offer Notice") to the New
Shareholder containing an offer to sell to the New Shareholder all (but not
fewer than all) the Shares the Continuing Shareholder Offeror wishes to sell
(the "Continuing Shareholder Offered Shares") on the same terms as the
Continuing Shareholder Offeror wishes to sell the Continuing Shareholder Offered
Shares. At any time within 45 days after the Continuing Shareholder Offer
Notice is given, the New Shareholder may notify
36
<PAGE>
the Continuing Shareholder Offeror that the New Shareholder shall purchase all
(but not fewer than all) the Continuing Shareholder Offered Shares, on the terms
specified in the Continuing Shareholder Offer Notice (a "New Shareholder
Acceptance Notice"). If the Continuing Shareholder Offeror receives the New
Shareholder Acceptance Notice within that 45-day period, the Continuing
Shareholder Offeror and the New Shareholder shall consummate the transaction
within 90 days following the Continuing Shareholder Offeror's receipt of the New
Shareholder Acceptance Notice. If the Continuing Shareholder Offeror does not
receive a New Shareholder Acceptance Notice within that 45-day period, the
Continuing Shareholder Offeror shall have the right to sell all (but not fewer
than all) the Continuing Shareholder Offered Shares to any person or entity at a
price equal to or greater than the price set forth in the Continuing Shareholder
Offer Notice, and on such other terms as are not materially less favorable to
the seller(s) than those set forth in the Continuing Shareholder Offer Notice.
If a sale is not consummated within 90 days following the expiration of the 45-
day period referred to above, the Continuing Shareholder Offered Shares shall
again be subject to this section 8.
9. Company's and Continuing Shareholders' Rights of First Offer.
------------------------------------------------------------
If, at any time prior to the earlier of the second anniversary of the Initial
Public Offering Date and May 15, 2001, the New Shareholder is able (subject only
to this section 9), and in good faith wishes, to sell any of its shares to a
non-
37
<PAGE>
affiliated third party, the New Shareholder shall promptly deliver a written
notice (a "New Shareholder Offer Notice") to the Company and the Continuing
Shareholders Designee containing an offer to sell to the Company or the
Continuing Shareholders all (but not fewer than all) the Shares the New
Shareholder wishes to sell (the "New Shareholder Offered Shares") on the same
terms as the New Shareholder Offeror wishes to sell the New Shareholder Offered
Shares. At any time within 45 days after the New Shareholder Offer Notice is
given, the Company may notify the New Shareholder (a "Company Acceptance
Notice") that the Company, or the Continuing Shareholders, or any of them, may,
in a single notice, notify the New Shareholder (a "Continuing Shareholders
Acceptance Notice") that such Continuing Shareholders shall purchase all (but
not fewer than all) the New Shareholder Offered Shares on the terms specified in
the New Shareholder Offer Notice. If the New Shareholder receives a Company
Acceptance Notice within that 45-day period, the New Shareholder and the Company
shall consummate the transaction within 90 days after the New Shareholder Offer
Notice is given. If the New Shareholder does not receive a Company Acceptance
Notice but does receive a Continuing Shareholders Acceptance Notice within that
45-day period, the New Shareholder and such Continuing Shareholders shall
consummate the transaction within 90 days after the New Shareholder Offer Notice
is given. If the New Shareholder does not receive a Company Acceptance Notice
or a Continuing Shareholders Acceptance Notice within that 45-day period, the
New Shareholder Offeror shall have the right to sell all (but not
38
<PAGE>
fewer than all) the New Shareholder Offered Shares to any person or entity at a
price equal to or greater than the price set forth in the New Shareholder Offer
Notice, and on such other terms as are not in any material respect less
favorable to the seller(s) than those set forth in the New Shareholder Offer
Notice. If a sale is not consummated within 90 days following the expiration of
the 45-day period referred to above, the New Shareholder Offered Shares shall
again be subject to this section 9.
10. Registration Rights.
-------------------
10.1 Demand Registration. After the earlier of the first anniversary
-------------------
of the Initial Public Offering Date and May 15, 1997, upon receipt of the
written request of one or more Registration Rights Holders (as defined in
section 12.2) (the "Initiating Holders") that the Company effect the
registration under the 1933 Act of all or part of such Initiating Holders'
Shares having a current per share market price of not less than $50,000,000 (a
"Demand Request"), the Company shall promptly give written notice of such
Registration Request to all other Registration Rights Holders, if any, and
thereafter shall use all reasonable efforts to file a registration statement on
a form to be selected by the Company and to effect the registration under the
1933 Act of the Shares designated in the Demand Request (a "Demand
Registration") and all other Shares the Company has been requested to register
by any other Registration Rights Holders entitled to request registration
pursuant to section 10.2 (the "Other Holders") by written request given to the
Company within
39
<PAGE>
15 calendar days after the giving of such written notice by the Company. The
Company shall be obligated to effect three Demand Registrations; however,
notwithstanding anything to the contrary in this agreement, if, for any reason
(other than the fault of any Registration Rights Holder), the registration fails
to become effective and provide for the distribution of all the Shares specified
in the Demand Request, or the effectiveness is not maintained for at least 60
days in accordance with section 10.4(e) or the Company fails to perform all its
obligations under this section 10.1 with respect to that registration, that
Demand Registration shall not reduce the number of Demand Registrations the
Company was required to effect under this section 10.1 prior to that Demand
Registration. The Company's obligations under this section 10.1 shall terminate
on the earlier of the tenth anniversary of this agreement and the first date on
which the Fraction is less than one-tenth, and the Company shall not be
obligated to effect more than one Demand Registration in any period of 365 days.
10.2 Piggyback Registration. If at any time the Company determines
----------------------
or is requested or receives a demand (pursuant to an agreement binding on the
Company) from any person or entity to register under the 1933 Act for sale to
the public any of the Company's securities, on a form that also would permit the
registration under the 1933 Act for sale to the public of any of the Shares held
by any Registration Rights Holder, the Company shall, each such time, promptly
give each Registration Rights
40
<PAGE>
Holder written notice of its intent to effect a registration and, subject to
sections 10.5 and 10.7, shall include in the registration all Shares held by any
Registration Rights Holder with respect to which the Company has received a
written request (a "Piggyback Request") specifying the number of Shares to be
included within 15 days after the Company has given notice to the Registration
Rights Holders pursuant to this section 10.2.
10.3 Obligation of the New Shareholder. Any Demand Request or
---------------------------------
Piggyback Request (a "Request") from a Registration Rights Holder shall express
the New Shareholder's and its Permitted Transferees' present intent to offer for
sale to the public the number of Shares to be included in the registration
statement and contain an undertaking to provide all such information and
materials and to take all such action as may be required to permit the Company
to comply with all applicable requirements of the SEC and to obtain acceleration
of the effective date of the registration statement.
10.4 Obligations of the Company. With respect to any registration
--------------------------
statement referred to in sections 10.1 or 10.2, the Company shall:
(a) use all reasonable efforts to have the registration
statement declared effective as promptly as practicable, and shall promptly
notify each Registration Rights Holder, and such other persons as the
Registration Rights Holder designates, if any, and confirm such advice in
writing, (i) when
41
<PAGE>
the registration statement becomes effective, (ii) when any post-effective
amendment to the registration statement becomes effective and (iii) of any
request by the SEC for any amendment or supplement to the registration statement
or any prospectus relating to the registration statement or for additional
information;
(b) make available for inspection by any underwriters
participating in any planned disposition of Shares and any attorney, accountant
or other agent retained by each Registration Rights Holder or the underwriters,
all financial and other records reasonably necessary to permit them to
demonstrate that they have conducted a reasonable investigation of matters
described in the registration statement and cause the appropriate Company
officers to supply all such information reasonably requested by each
Registration Rights Holder, the underwriters or their agents;
(c) use all reasonable efforts to qualify, not later than the
effective date of the registration statement, the Shares under such "blue sky"
or other state securities laws as the New Shareholder may reasonably request (it
being understood, however, that the obligation under this section 10.4(c) shall
not be construed to obligate the Company to qualify as a foreign corporation or
as a dealer in securities or to execute or file any general consent to service
of process under the law of any such jurisdiction where it is not otherwise so
subject);
42
<PAGE>
(d) furnish to each Registration Rights Holder such number of
copies of the registration statement, each amendment to the registration
statement, the prospectus included in each such registration statement and each
amendment to each registration statement, each amendment or supplement to any
prospectus and such other documents as each Registration Rights Holder may
reasonably request to facilitate the disposition of the Shares;
(e) for a period of at least 60 days from the effective date of
the registration statement, use reasonable efforts to keep the registration
statement in effect and current and from time to time to amend or supplement the
registration statement or the prospectus to the extent necessary to permit the
completion within that period, in compliance with the 1933 Act, of the sale or
distribution of the Shares. If at any time the SEC institutes or threatens to
institute any proceedings for the purpose of issuing a stop order suspending the
effectiveness of any such registration statement, the Company shall promptly
notify each Registration Rights Holder and use all reasonable efforts to prevent
the issuance of any such stop order or to obtain its withdrawal as soon as
possible. The Company shall promptly advise each Registration Rights Holder of
any order or communication of any public board or body addressed to the Company
suspending or threatening to suspend the qualification of any of the Shares for
sale in any jurisdiction; and
43
<PAGE>
(f) insofar as the methods of distribution proposed to be used
are not reflected in the last prospectus filed by the Company as part of the
registration statement or pursuant to Rule 424 under the 1933 Act, each
Registration Rights Holder shall promptly provide the Company with a description
of the method or methods of distribution of the Shares from time to time
contemplated by each Registration Rights Holder and the Company shall file any
and all amendments and supplements necessary to include that description in the
registration statement.
10.5 Conditions to the Obligations of the Company. The Company may
--------------------------------------------
postpone, for up to 90 days, the filing of any registration statement otherwise
required to be prepared and filed by it under this agreement, if, at the time it
receives a Request, the Company would be required to prepare any financial
statements other than those it customarily prepares or the Company determines in
its reasonable judgment that the registration and offering would interfere with
any material financing, acquisition, corporate reorganization or other material
corporate transaction or development involving the Company that is pending or
imminent at the time and promptly gives each Registration Rights Holder written
notice of that determination (it being understood, however, that, in any such
event, the Company shall use all reasonable efforts to minimize the length of
the postponement). If the Company shall so postpone the filing of a
registration statement, each
44
<PAGE>
Registration Rights Holder shall have the right to withdraw the Request by
giving written notice to the Company within 30 days after the receipt of the
notice of postponement and, in the event of the withdrawal, the Request that was
withdrawn shall not be deemed to have been made.
10.6 Expenses of Registration. All expenses (other than fees and
------------------------
disbursements of counsel for each Registration Rights Holder and the Continuing
Shareholders and underwriting or brokerage commissions attributable to the
Shares to be sold) incurred in connection with all registrations under this
agreement and the "blue sky" qualifications referred to in section 10.4(c),
including, without limitation, all registration and qualification fees,
printers' and accounting fees and fees and disbursements of counsel for the
Company, shall be borne by the Company.
10.7 Underwriting Requirements. In connection with any offering
-------------------------
pursuant to a Piggyback Request, the Company shall not be required to register
any Shares held by any Registration Rights Holder, unless such Registration
Rights Holder accepts the terms of the underwriting and then only in such
quantity as will not, in the written opinion of the underwriters, exceed the
maximum number of Shares that can be marketed without materially and adversely
affecting the offering. If, as a consequence of the provisions of the preceding
sentence, the number of Registration Rights Holders' Shares is reduced, such
reduction shall be made pro rata among the Registration Rights Holders
45
<PAGE>
requesting such registration on the basis of the percentage of the Shares of
such Registration Rights Holders requested so to be registered, and the
percentage of the reduction shall not be more than the percentage of reduction
applicable to any other selling shareholder in the offering.
10.8 Other Registration Rights. Except for the registration rights in
-------------------------
this agreement and in the Continuing Shareholders Agreement, the Company is not
a party or subject to any agreement entitling any person or entity to
registration rights. The Company shall not enter into any other agreement
entitling any person or entity to registration rights that would materially and
adversely affect the rights of any Registration Rights Holder under this
agreement (it being understood that any registration rights other than those in
the Continuing Shareholders Agreement that would have the effect of reducing the
number of Shares that would otherwise be included in a registration statement
shall be deemed materially and adversely to affect the rights of the New
Shareholder and its Permitted Transferees under this agreement).
10.9 Indemnification. In the event any Shares are included in a
---------------
registration statement under this section 10 that relates to an underwritten
offering, to the extent permitted by law, the parties to the underwriting
agreement shall indemnify and hold harmless the other parties, and each person,
if any, who is a director, officer, agent, partner or shareholder of, or who
controls, such other parties, against losses, claims, damages or
46
<PAGE>
liabilities customarily indemnified against in underwritten secondary offerings.
Such indemnification shall include contribution in the manner and to the extent
customarily provided.
11. Certain Other Provisions
------------------------
11.1 Financial Statements. Prior to the earlier of the Initial
--------------------
Public Offering Date and the Governance Termination Date, the Company shall
furnish the New Shareholder (a) not later than 60 days after the end of each of
the first three fiscal quarters of each fiscal year, an unaudited consolidated
balance sheet of the Company and its subsidiaries as of the end of that fiscal
quarter, together with the related unaudited consolidated statements of income,
retained earnings and cash flows for that fiscal quarter and the year to date,
prepared in accordance with GAAP and setting forth in comparative form the
information for the corresponding periods of the previous fiscal year, (b) not
later than 120 days after the end of each fiscal year, an audited consolidated
balance sheet of the Company and its subsidiaries as of the end of that fiscal
year, together with the related audited consolidated statements of income,
retained earnings and cash flow for that fiscal year, prepared in accordance
with GAAP and setting forth in comparative form the information for the
preceding fiscal year, together with the related audit report of the Company's
independent accountants and (c) reports provided to its prime lender that are
not otherwise provided to members of its board of directors.
47
<PAGE>
11.2 Reincorporation. The Company shall exercise reasonable efforts
---------------
to reincorporate the Company, prior to the Initial Public Offering Date, in any
jurisdiction in which the ownership of a majority of the outstanding common
stock of the Company would give the beneficial owner of the stock the ability to
effect control of the Company (including, without limitation, those actions
specified in section 2.5) (it being understood that the Company need not
reincorporate in the event that action would, in the good faith judgment of the
Company's board of directors, cause material adverse tax consequences to the
Company or its shareholders).
11.3 Public Float. The Company shall use reasonable efforts to
------------
effect the Initial Public Offering Date as promptly as practicable so that the
number of Shares comprising the Public Float is at all times during the
Standstill Period that the New Shareholder is permitted to purchase additional
Shares not less than 133% of the number of Shares the New Shareholder is then so
permitted to purchase.
11.4 Reservation of Shares. Subject to section 4.6, (a) the Company
---------------------
shall at all times maintain sufficient authorized but unissued or treasury
Shares so that all rights of the New Shareholder to purchase new Shares from the
Company pursuant to this agreement may be exercised without additional
authorization of Shares, after giving effect to the exercise of all other
options, warrants, convertible securities and other rights to purchase Shares,
and (b) the Company shall not, by amendment to
48
<PAGE>
its Governing Documents or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act, avoid or seek to
avoid the observance or performance of any of the covenants or agreements to be
performed under this agreement by the Company.
11.5 Certain Acquisitions.
--------------------
(a) Each Family Shareholder agrees that he, she or it shall not, and
shall not permit his, her or its Family Group (as defined in the Continuing
Shareholders Agreement) members to, acquire any Shares, if, as a consequence of
the acquisition, the Family Shareholder and the Family Shareholder's Family
Group members own at that time more than 35.85%, in the case of Marvin H. Schein
and his Family Group members, 27.55%, in the case of Pamela Schein and her
Family Group members, and 12.97%, in the case of Pamela Joseph and her Family
Group members, of the outstanding Shares at the time (each, a "Maximum
Percentage").
(b) If a Family Shareholder's (together with his, her or its Family
Group's) holdings of Shares exceeds the applicable Maximum Percentage by reason
of such Family Shareholder's (or his, her or its Family Group's) acquisition of
Shares, the Family Shareholder shall promptly so notify the Company and the New
Shareholder in writing (the "Section 11 Notice"). The Section 11 Notice shall
specify (i) the extent by which the Maximum Percentage has been exceeded, and
(ii) the weighted average per Share acquisition price of the Shares most
recently purchased in
49
<PAGE>
excess of the Maximum Percentage (the "Acquisition Price"). Subject to section
11(c), the Company shall, upon five days notice given by the Company (which the
Company shall in good faith endeavor to give as soon as practicable upon first
learning that the applicable Maximum Percentage has been exceeded) at any time
during the period beginning on the date the relevant Family Shareholder's
(together with his, her or its Family Group) holdings of Shares first exceeds
the applicable Maximum Percentage and ending 90 days following the Company's
receipt of the Section 11 Notice, purchase from that Family Shareholder the
number of Shares in excess of the applicable Maximum Percentage at a price per
Share equal to 50% of (x) the Acquisition Price, or if the applicable Family
Shareholder has not given a Section 11 Notice, (y) the current per share market
price (determined in accordance with section 4.1) on the date the Company first
learns that the applicable Maximum Percentage has been exceeded. The closing of
any such purchase by the Company shall be held at the Company's offices. At the
closing, the Company shall pay the purchase price calculated in accordance with
this section 11(b) by certified check or in immediately available funds, and the
Family Shareholder shall deliver the Shares so to be purchased, duly endorsed,
and free and clear of any encumbrances and with all required stock transfer tax
stamps attached.
(c) If the Company, in its reasonable judgment, does not have the
financial resources to consummate the purchase of the Shares in accordance with
this section 11, it shall promptly
50
<PAGE>
so notify the New Shareholder. The New Shareholder may, at its sole election,
make available to the Company the funds to purchase such Shares, on terms and
conditions reasonably acceptable to the Company and the New Shareholder and
consistent with terms and conditions available from unaffiliated commercial
lenders. If the New Shareholder does not elect to make such funds available to
the Company, then the Company shall so promptly notify the relevant Family
Shareholder, and the Company shall have no obligation to purchase the Shares.
If the New Shareholder so elects to make the funds available, but the Company is
not able for any reason under applicable state corporate law to consummate the
purchase, the Company shall so promptly notify the New Shareholder, and the New
Shareholder may, at its sole election upon five days' notice given to the
Company and the relevant Family Shareholder at any time within 30 days after the
New Shareholder first learns that the Company is unable to consummate the
purchase, purchase the Shares upon the terms and conditions of section 11(b),
subject to the provisions of section 4.6.
(d) The parties acknowledge that the remedy at law for breach of
clause (a) of this section 11.5 would be inadequate and that, in addition to any
other remedy the New Shareholder or the Company may have for a breach of clause
(a) of this section 11.5, the New Shareholder or the Company shall be entitled
to an injunction restraining any such breach or threatened breach, without
posting any bond or security.
51
<PAGE>
12. Miscellaneous.
-------------
12.1 Definitions. As used in this agreement:
-----------
(a) Notwithstanding anything to the contrary in this agreement,
the term "Company" means Schein Holdings, Inc., a New York corporation. In the
event that, directly or indirectly (a) the Company shall consolidate with, or
merge with or into, any other person or entity and the Company shall not be the
continuing or surviving corporation of such consolidation or merger; (b) any
person or entity shall consolidate with the Company, or merge with or into the
Company and the Company shall be the continuing or surviving corporation of such
merger or consolidation and, in connection with such merger or consolidation,
all or part of the Shares shall be changed into or exchanged for stock or other
securities of any other person or cash or any other property; or (c) the Company
shall sell or otherwise transfer (or one or more of its subsidiaries shall sell
or otherwise transfer), in one or more transactions, assets or earning power
(including, without limitation, securities creating any obligation on the part
of the Company and/or any of its subsidiaries) representing in the aggregate
more than 50% of the assets or earning power of the Company and its subsidiaries
(taken as a whole) to any person or persons, then, and in each such case, the
term "Company" shall thereafter be deemed to refer to the person that is the
continuing, surviving, resulting or acquiring person or the person that is the
party receiving the greatest portion of the assets or earning power (including,
52
<PAGE>
without limitation, securities creating any obligation on the part of the
Company and/or any of its subsidiaries) transferred pursuant to such transaction
or transactions.
(b) The term "beneficial ownership" has the meaning given it
under Rule 13d-3 under the Exchange Act.
12.2 Assignment. Neither the New Shareholder nor any of its
----------
affiliates may assign any of its rights under this agreement, except (i) to a
successor to all or substantially all the business and assets of the New
Shareholder, or Bayer AG or to any of the direct and indirect majority-owned
subsidiaries of Bayer AG (including all direct and indirect majority-owned
subsidiaries of the New Shareholder), who agree to be bound by all the
obligations of the New Shareholder under this agreement as if it were the New
Shareholder, (ii) the New Shareholder may assign its rights under sections 4.1
(except for any Non-Assignable Preemptive Rights), 4.4 and 8 to a single
purchaser who, immediately after the purchase and for 60 days thereafter,
beneficially owns at least 10% of the Shares then owned by the New Shareholder
and who agrees to be bound by the obligations in section 5 (and who shall not be
entitled to the rights in section 5.1A(b) and (c)) and (iii) the New Shareholder
may assign its rights under section 10 to any person referred to in clause (i)
above and to up to three non-affiliated purchasers (the "Assignees") designated
by the New Shareholder, who, immediately after the respective purchase and for
60 days thereafter, beneficially own in the aggregate at least 20% of the Shares
then
53
<PAGE>
owned by the New Shareholder and who agree to be bound by the obligations in
section 5.1 (and who shall not be entitled to the rights in section 5.1A) (any
such person and, after an initial public offering by the Company of its shares
of common stock, any Continuing Shareholder, a "Registration Rights Holder");
provided that, for purposes of calculating whether an Assignee owns a number of
Shares equal to the New Percentage, the number of Shares of all the Assignees
shall be aggregated.
12.3 Governing Law. This agreement shall be governed by and
-------------
construed in accordance with the law of the state of New York applicable to
agreements made and to be performed wholly in New York.
12.4 Notices. All notices and other communications under this
-------
agreement shall be in writing and may be given by any of the following methods:
(a) personal delivery; (b) facsimile transmission; (c) registered or certified
mail, postage prepaid, return receipt requested; or (d) overnight delivery
service. Notices shall be sent to the appropriate party at its address or
facsimile number given below (or at such other address or facsimile number for
such party as shall be specified by notice given under this section 12.4):
if to the Company, to it at:
Schein Holdings, Inc.
c/o Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attention: General Counsel
Fax: 201-593-5820
54
<PAGE>
with a copy to:
Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, New York 10036
Attention: Richard L. Goldberg, Esq.
Fax: 212-969-2900
if to the New Shareholder or its Permitted
Transferees, to it at:
Miles Inc.
53rd Floor
One Mellon Bank Center
500 Grant Street
Pittsburgh, Pennsylvania 15219
Attention: Leslie F. Nute, Esq.
Senior Vice President and General Counsel
Fax: 412-394-5580
with copies to:
Bayer AG
D-5090
Leverkusen, Bayerwerk
Germany
Attention: General Counsel
Fax: 011-49-214-3062135
Joseph A. D'Arco, Esq.
Vice President and Associate General Counsel
Miles Inc.
400 Morgan Lane
West Haven, Connecticut 06516
Fax: 203-937-2795
Charles A. Schliebs, Esq.
Jones, Day, Reavis & Pogue
One Mellon Bank Center, 31st Floor
500 Grant Street
Pittsburgh, Pennsylvania 15219
Fax: 412-394-7959
if to a Continuing Shareholder or a Continuing
Shareholder Designee, to him, her or it at the
address set forth beside his, her or its name on
schedule A, with a copy to counsel at the address
set forth beside his, her or its name.
55
<PAGE>
All such notices and communications shall be deemed received upon (a) actual
receipt by the addressee, (b) actual delivery to the appropriate address or (c)
in the case of a facsimile transmission, upon transmission by the sender and
issuance by the transmitting machine of a confirmation slip confirming that the
number of pages constituting the notice have been transmitted without error. In
the case of notices sent by facsimile transmission, the sender shall
contemporaneously mail a copy of the notice to the addressee at the address
provided for above. However, such mailing shall in no way alter the time at
which the facsimile notice is deemed received. A copy of each notice given
hereunder shall also be given to the Continuing Shareholder Designee.
12.5 Counterparts. This agreement may be executed in counterparts,
------------
each of which shall be considered an original, but all of which together shall
constitute the same instrument.
12.6 Equitable Relief. The parties acknowledge that the remedy at
----------------
law for breach of this agreement would be inadequate and that, in addition to
any other remedy a party may have for a breach of this agreement, that party
shall be entitled to an injunction restraining any such breach or threatened
breach, or a decree of specific performance, without posting any bond or
security. The remedy provided in this section 12.6 is in addition to, and not
in lieu of, any other rights or remedies a party may have.
56
<PAGE>
12.7 Separability. If any provision of this agreement is invalid or
------------
unenforceable, the balance of this agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
12.8 Entire Agreement. This agreement contains a complete statement
----------------
of all the arrangements among the parties with respect to its subject matter,
supersedes all existing agreements among them with respect to that subject
matter, may not be changed or terminated orally and any amendment or
modification must be in writing and signed by the Company, the Continuing
Shareholders then owning a majority of the Shares owned by all Continuing
Shareholders, and the New Shareholder, provided that no such amendment or
modification may adversely affect the rights or obligations of any Continuing
Shareholder without that Continuing Shareholder's prior written consent.
SCHEIN HOLDINGS, INC.
By: /s/
--------------------------------
Authorized Officer
MILES INC.
By: /s/
--------------------------------
Authorized Officer
57
<PAGE>
/s/ Martin Sperber
------------------------------------------
Martin Sperber, as Trustee under the
Voting Trust Agreement
THE CONTINUING SHAREHOLDERS:
/s/ Marvin H. Schein
------------------------------------------
Marvin H. Schein
Trust established by Marvin H. Schein
under trust agreement dated September 9,
1994
By:/s/ Marvin H. Schein
---------------------------------------
Marvin H. Schein, Trustee
By:/s/ Leslie Levine
---------------------------------------
Leslie Levine, Trustee
Trust established by Marvin H. Schein
under trust agreement dated December, 31,
1993
By:/s/ Marvin H. Schein
--------------------------------------
Marvin H. Schein, Trustee
By:/s/ Leslie Levine
--------------------------------------
Leslie Levine, Trustee
/s/ Pamela Schein
--------------------------------------
Pamela Schein
58
<PAGE>
Trust established by Trustee under Article
Fourth of the Will of Jacob M. Schein for
the benefit of Pamela Schein and her issue
under trust agreement dated September 29,
1994
By:/s/ Irving Shafran as attorney in fact
---------------------------------------
Irving Shafran, Trustee
/s/ Pamela Joseph
---------------------------------------
Pamela Joseph
Trust established by Pamela Joseph under
trust agreement dated September 28, 1994
By:/s/ Morey M. Myers
---------------------------------------
Morey M. Myers, Trustee
/s/ Martin Sperber
------------------------------------------
Martin Sperber
Trust established by Martin Sperber under
trust agreement dated December 31, 1993
By:/s/ Ellen Sperber
---------------------------------------
Ellen Sperber, Trustee
/s/ Stanley Bergman
------------------------------------------
Stanley Bergman
59
<PAGE>
Trust established by Stanley Bergman under
trust agreement dated December, 31, 1993
By:/s/ Marion Bergman
---------------------------------------
Marion Bergman, Trustee
60
<PAGE>
SCHEDULE A
----------
SHAREHOLDERS
------------
<TABLE>
<CAPTION>
# OF SHARES
# OF SHARES ISSUABLE UPON THE
FAMILY SHAREHOLDERS: OWNED* EXERCISE OF OPTIONS
- ------------------- ----- -------------------
<S> <C> <C>
MARVIN H. SCHEIN 100 CLASS B -0-
COBBLE COURT COMMON SHARES
GLEN COVE, NEW YORK 11771
COUNSEL:
LESLIE J. LEVINE, ESQ.
PEIREZ, ACKERMAN & LEVINE
175 GREAT NECK ROAD
GREAT NECK, NEW YORK 11021
TRUST ESTABLISHED BY MARVIN H. SCHEIN UNDER TRUST 25,277.5 CLASS B
AGREEMENT DATED SEPTEMBER 9, 1994 COMMON SHARES -0-
C/O MARVIN H. SCHEIN
COBBLE COURT
GLEN COVE, NEW YORK 11771
COUNSEL:
LESLIE J. LEVINE, ESQ.
PEIREZ, ACKERMAN & LEVINE
175 GREAT NECK ROAD
GREAT NECK, NEW YORK 11021
TRUST ESTABLISHED BY MARVIN N. SCHEIN UNDER TRUST 64,642.5 CLASS B -0-
AGREEMENT DATED DECEMBER 31, 1993 COMMON SHARES
C/O MARVIN SCHEIN
COBBLE COURT
GLEN COVE, NEW YORK 11771
COUNSEL:
LESLIE J. LEVINE, ESQ.
PEIREZ, ACKERMAN & LEVINE
175 GREAT NECK ROAD
GREAT NECK, NEW YORK 11021
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PAMELA SCHEIN 63,202 CLASS A -0-
666 GREENWICH STREET COMMON SHARES
APT. 514
NEW YORK, NEW YORK 10014
COUNSEL:
PETER J. HANLON, ESQ.
WILLKIE FARR & GALLAGHER
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022
TRUST ESTABLISHED BY TRUSTEE UNDER ARTICLE FOURTH 4,840 CLASS A -0-
OF THE WILL OF JACOB M. SCHEIN FOR THE BENEFIT OF COMMON SHARES
PAMELA SCHEIN AND HER ISSUE UNDER TRUST AGREEMENT
DATED SEPTEMBER 29, 1994
C/O IRVING SHAFRAN
360 EAST 72ND STREET
NEW YORK, NEW YORK 10017
COUNSEL:
PETER J. HANLON, ESQ.
WILLKIE FARR & GALLAGHER
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022
PAMELA JOSEPH 25,535 CLASS A -0-
RR#3, BOX 140 COMMON SHARES
POUND RIDGE, NEW YORK 10576
COUNSEL:
MOREY MYERS, ESQ.
SCHNADER, HARRISON, SEGAL & LEWIS
108 N. WASHINGTON AVENUE
SCRANTON, PENNSYLVANIA 18503
TRUST ESTABLISHED BY PAMELA JOSEPH UNDER TRUST 993 CLASS A -0-
AGREEMENT DATED SEPTEMBER 28, 1994 COMMON SHARES
C/O MOREY MYERS, ESQ.
SCHNADER, HARRISON, SEGAL & LEWIS
108 N. WASHINGTON AVENUE
SCRANTON, PENNSYLVANIA 18503
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OTHER SHAREHOLDERS:
- ------------------
<S> <C> <C>
MARTIN SPERBER 3,461 CLASS A 4,795 CLASS A
6 CASPER COURT COMMON SHARES COMMON SHARES
FLORHAM PARK, NEW JERSEY 07932
TRUST ESTABLISHED BY MARTIN SPERBER UNDER TRUST 2,437 CLASS A -0-
AGREEMENT DATED DECEMBER 31, 1993 COMMON SHARES
C/O ELLEN SPERBER
6 CASPER COURT
FLORHAM PARK, NEW JERSEY 07932
STANLEY BERGMAN 1,204 CLASS A -0-
104A MIDDLEVILLE ROAD COMMON SHARES
NORTHPORT, NEW YORK 11768
TRUST ESTABLISHED BY STANLEY BERGMAN UNDER TRUST 1,959 CLASS A -0-
AGREEMENT DATED DECEMBER 31, 1993 COMMON SHARES
C/O MARION BERGMAN
1O4A MIDDLEVILLE ROAD
NORTHPORT, NEW YORK 11768
CONTINUING SHAREHOLDERS DESIGNEE:
- --------------------------------
MARVIN H. SCHEIN
COBBLE COURT
GLEN COVE, NEW YORK 11771
WITH COPIES TO:
LESLIE J. LEVINE, ESQ., PETER J. HANLON, ESQ. AND
MOREY MYERS, ESQ., AT THEIR RESPECTIVE ADDRESSES
SET FORTH ABOVE
</TABLE>
________________________
* IMMEDIATELY AFTER THE CLOSING UNDER THE STOCK PURCHASE AGREEMENT.
<PAGE>
EXHIBIT 10.31
CONTINUING SHAREHOLDERS AGREEMENT
Dated September 30, 1994
------------------------
The parties to this agreement are Schein Holdings, Inc., a New York
corporation (the "Company"), and each of the shareholders listed on schedule A
(collectively, the "Shareholders").
Each Shareholder owns the number of shares and options to purchase the
number of shares of the Company's common stock set forth beside that
Shareholder's name on schedule A. The shares of common stock now owned by a
Shareholder or a Shareholder's Permitted Transferees (as defined in section
1.2(d)) or hereafter acquired by a Shareholder or a Shareholder's Permitted
Transferees from other Shareholders or Permitted Transferees, or by way of
dividend, stock split, recapitalization, reorganization, merger, consolidation
or other change or adjustment in respect of such shares, or upon exercise of
options, are referred to as the "Shares".
The Company, the Shareholders and Miles Inc. ("Miles") also are parties to
another shareholders agreement dated this date (the "General Shareholders
Agreement").
<PAGE>
The parties agree as follows:
1. Restrictions on Transfer Generally.
----------------------------------
1.1 Transfers to be Made Only as Permitted or Required by This
----------------------------------------------------------
Agreement. Until the Termination Date (as defined in section 1.3), the
- ---------
Shareholders may not, directly or indirectly, sell, assign, transfer, pledge or
otherwise encumber or dispose of (collectively, "transfer") any Shares (or
options to acquire Shares), except as specifically permitted or required by this
agreement, the General Shareholders Agreement, the voting trust agreement (the
"Voting Trust Agreement") dated this date among the Company, Marvin H. Schein,
the trust established by Marvin H. Schein under trust agreement dated December
31, 1993 ("Marvin's 1993 Trust"), the trust established by Marvin H. Schein
under trust agreement dated September 9, 1994 ("Marvin's 1994 Trust"), Pamela
Schein, the trust established by Trustee under Article Fourth of the Will of
Jacob N. Schein for the benefit of Pamela Schein and her issue under trust
agreement dated September 29, 1994 ("Pam Schein's Trust"), Pamela Joseph, the
trust established by Pamela Joseph under trust agreement dated September 28,
1994 ("Pam Joseph's Trust"), and Martin Sperber, as voting trustee (the
"Trustee"), or section 7 of the option agreement dated this date between the
Company and Martin Sperber. Any other purported transfer shall be void and of no
effect.
2
<PAGE>
1.2 Permitted Transfers.
-------------------
(a) Any Shareholder may, at any time (and without the consent of
the Trustee (as defined in the Voting Trust Agreement) or any other party to
this agreement), (i) pledge some or all of that Shareholder's Shares to a
financial institution as security for loans or other forebearances or extensions
of credit, (ii) transfer some or all of that Shareholder's Shares to another
Shareholder or members of that Shareholder's or another Shareholder's Family
Group (as defined in section 1.2(d)) or (iii) transfer some or all of that
Shareholder's Shares (A) in a Wide Distribution (as defined in section 1.2(d))
pursuant to section 3, (B) pursuant to a sale under Rule 144 under the
Securities Act of 1933 (the "1933 Act") in an amount up to the Rule 144 Amount
(as defined in section 1.2(d)(iii)), (C) to a financial institution in
connection with the financial institution's exercise of its rights as a pledgee,
(D) in any sale of Shares by a Family Shareholder (as defined in section 1.2(a))
that is expressly permitted by section 4 of the General Shareholders Agreement
(it being understood that nothing in this clause (D) is intended to or shall
have the effect of eliminating or otherwise affecting any requirement that the
Trustee's consent to a transfer under section 4.4 of the General Shareholders
Agreement be obtained prior to the transfer, which requirement would be
applicable in the absence of this clause (D)), (E) pursuant to an exemption from
registration under the 1933 Act to any buyer who (1) together with such buyer's
affiliates (as
3
<PAGE>
defined in section 6.1) and Family Group members owns fewer than 1% of the
number of outstanding shares of common stock of the Company immediately prior to
such transfer and (2) is neither an affiliate nor Family Group member of such
Shareholder, provided that (I) such Shareholder shall not transfer any Shares
pursuant to this section 1.2(a)(iii)(E), if the number of shares that would be
transferred, when aggregated with the number of shares previously transferred by
such Shareholder pursuant to this section 1.2(a)(iii)(E) during the 12-month
period ending on the date of the proposed transfer, exceeds 4% of the number
of shares of common stock of the Company then outstanding, (II) such Shareholder
shall not transfer more than 1% of the number of shares of common stock of the
Company outstanding to such buyer (or such buyer's affiliates or Family Group
members) in any three-month period, and (III) prior to such transfer, such
Shareholder shall provide the Company with an opinion of counsel, in form and
substance reasonably satisfactory to the Company, that an exemption from
registration under the 1933 Act applies to such transfer, (F) pursuant to a
merger or a consolidation that has been approved by the board of directors of
the Company and shareholders owning the number of shares of common stock of the
Company required to approve that transaction under the Company's certificate of
incorporation and applicable law, (G) in a tender offer in which Martin Sperber
(or any member of his Family Group who acquired Shares from Martin Sperber)
sells Shares (provided that Martin Sperber agrees that he shall give notice to
each of the other Shareholders of his intention so to sell Shares at
4
<PAGE>
least three days prior to tendering his Shares) and (H) in a tender offer by a
bidder not affiliated with Bayer AG or any direct or indirect majority-owned
subsidiaries of Bayer AG (including Miles and all direct and indirect majority-
owned subsidiaries of Miles) (all such subsidiaries of Bayer AG being
collectively called "Bayer's Controlled Subsidiaries"), in which the bidder
shall not be permitted to accept any tendered securities, unless (1) immediately
after the tender offer, it beneficially owns a majority of the shares of common
stock of the Company outstanding on a fully diluted basis, and (2) Bayer AG and
all Bayer's Controlled Subsidiaries shall have failed to pursue a tender offer
or other acquisition permitted by section 5.5A of the General Shareholders
Agreement within 15 days after the commencement of the unaffiliated third
party's tender offer (or having pursued such a tender offer or other
acquisition, shall have ceased to pursue that transaction). No transfer to a
Permitted Transferee shall be effective, however, unless the Permitted
Transferee agrees to be bound by all the terms of this agreement and, in the
case of Marvin Schein, Marvin's 1993 Trust, Marvin's 1994 Trust, Pamela Schein,
Pam Schein's Trust, Pamela Joseph and Pam Joseph's Trust (collectively, the
"Family Shareholders") and their respective Permitted Transferees, the Voting
Trust Agreement, as if the Permitted Transferee were the transferring
Shareholder.
(b) Notwithstanding anything to the contrary in this agreement, the
General Shareholders Agreement or the Voting
5
<PAGE>
Trust Agreement, in no event shall Martin Sperber or Stanley Bergman, or any of
their respective Permitted Transferees, transfer any of their Shares to Bayer AG
or Bayer's Controlled Subsidiaries, other than (i) after the Qualified Public
Offering Date (as defined in section 1.3), in an open market transaction
(excluding block trades and transfers pursuant to a tender offer or merger
otherwise permitted by section 1.2(a)) and (ii) sales of shares that were first
offered to be purchased by Bayer AG or Bayer's Controlled Subsidiaries (not
otherwise in contravention of the General Shareholders Agreement) pursuant to a
written offer to each Family Shareholder (which offer sets forth the material
terms and conditions of the offer), where the Family Shareholders (in such
proportions as the Family Shareholders shall have mutually agreed) shall have
failed to agree in writing to sell to Bayer AG or Bayer's Controlled
Subsidiaries all the shares Bayer AG or Bayer's Controlled Subsidiaries shall
have offered to purchase within 20 days after Bayer AG or Bayer's Controlled
Subsidiaries shall have furnished the written offer to each Family Shareholder,
such sales of shares to be on the same terms and conditions as those offered
each Family Shareholder by Bayer AG or Bayer's Controlled Subsidiaries. In no
event shall the Company or any of its subsidiaries transfer any shares of its
capital stock to Bayer AG or Bayer's Controlled Subsidiaries, except as
expressly permitted by the General Shareholders Agreement.
6
<PAGE>
(c) In addition to the transactions contemplated by section 1.2(a)
and subject to section 2, the Family Shareholders and their respective Family
Group members may, at any time, transfer some or all of their Shares with the
consent of the Trustee, which consent may be withheld in the absolute discretion
of the Trustee. Prior to delivering any such consent pursuant to this section
1.2(c), the Trustee shall notify the Continuing Shareholder Designee (as defined
in the General Shareholders Agreement), who shall promptly send a copy of such
notice to the remaining Family Shareholders and their Family Group members then
holding Shares, of the Trustee's intention to consent to a transfer of Shares by
a Family Shareholder, which notice (a "Consent Notice") shall specify the
maximum number of Shares which the Trustee will then consent to be transferred
pursuant to this section 1.2(c). If, within three days of receiving such notice
from the Continuing Shareholder Designee, Family Shareholders (including the
Family Shareholder who first gave notice) and their Family Group members then
holding Shares shall have notified the Trustee of their desire to transfer a
number of Shares pursuant to section 1.2(c) that, in the aggregate, is equal to
or less than the number of Shares specified in the Trustee's Consent Notice, the
Trustee shall consent to the transfer by such Family Shareholders and Family
Group members of the number of Shares that each such Family Shareholder and
Family Group member shall so have elected to transfer. If Family Shareholders
and their Family Group members then holding Shares elect to transfer a number of
Shares pursuant
7
<PAGE>
to section 1.2(c) that, in the aggregate, is greater than the number of Shares
specified in the Consent Notice, each such Family Shareholder and Family Group
member may sell its proportionate number of the number of Shares specified in
the Consent Notice (in the proportion that the number of Shares each such Family
Shareholder and Family Group member elected to transfer bears to the total
number of Shares all the Family Shareholders and Family Group member shall have
so elected to transfer). Notwithstanding anything contained in this section
1.2(c), in no event shall the Trustee be liable for any loss, claim, damage or
liability arising out of or related to the failure of the Continuing Shareholder
Designee, any Family Shareholder or any Family Group member to receive any
notice pursuant to this section 1.2(c).
(d) As used in this agreement, (1) the term "Permitted
Transferee" means any transferee under clause (i), (ii), (iii)(C) or (iii)(E) of
the first sentence of section 1.2(a), (ii) the term "Family Group" (A) of an
individual means (I) the spouse (or former spouse), parents, children,
grandchildren or direct lineal descendants of such individual, (II) any estate
of any of the individuals referred to in clause (I), (III) any executor,
guardian, committee or other fiduciary acting in such capacity (and the estates
and trusts for which they so act) solely on behalf or for the benefit of such
individual, any of the individuals referred to in clause (I) and any individuals
having the relationships referred to in clause
8
<PAGE>
(I) to any individual Family Shareholder (it being understood that, after the
Qualified Public Offering Date, such fiduciary may be acting also on behalf of
or for the benefit of a charity), (IV) an entity owned exclusively by such
individual or the individuals or entities referred to in clause (I), (II) or
(III) and (V) with respect to Pamela Schein, in addition to the individuals and
entities referred to in clauses (I), (II), (III) and (IV), Marvin Schein and
members of his Family Group, and (B) of a trust means any individual who is a
beneficiary of the trust and (iii) the term "Wide Distribution" means a sale of
a number of Shares that exceeds the number specified in paragraph (e)(1) of
Rule 144 (regardless of whether the seller is an affiliate of the Company or
paragraph (k) of Rule 144 is applicable) (the "Rule 144 Amount") in connection
with which the seller or the underwriter confirms to the Company that the seller
or the underwriter, as the case may be, intends that no direct or indirect
purchaser in that distribution will acquire more than the Rule 144 Amount of
shares of common stock in that distribution.
1.3 Termination of Restrictions. The provisions of section 1.1 shall
---------------------------
terminate on the earlier of (x) the fifth anniversary of the Qualified Public
Offering Date and (y) March 1, 2000 (such earlier date, the "Termination Date");
thereafter the Shares shall be free of all restrictions imposed by section 1 and
all transfer restrictions imposed on Shareholders under the Voting Trust
Agreement and the General Shareholders Agreement
9
<PAGE>
(except as otherwise provided in section 8 of the General Shareholders
Agreement). As used in this agreement, the term "Qualified Public Offering
Date" means the first date immediately following the last closing of an
underwritten sale of shares of the Company's common stock to the public
registered under the 1933 Act on which the aggregate market value of the
outstanding common stock (computed by use of the closing sale price of the stock
on whichever of the New York Stock Exchange, the American Stock Exchange or the
NASDAQ National Market System the common stock is then primarily traded) held by
more than 300 parties who are neither Shareholders, nor Permitted Transferees
nor employees of the Company or its subsidiaries nor affiliates of the Company
exceeds $100,000,000.
1.4 Legend. As long as any provision of this agreement (other than
------
the provisions of section 4) remains in effect, each certificate representing
Shares owned by a Shareholder or a Permitted Transferee shall bear a legend
substantially as follows:
"The shares represented by this certificate are subject to a
continuing shareholders agreement dated September 30, 1994,
and a general shareholders agreement dated September 30,
1994, copies of which are on file at the office of the
Company."
2. Company's Right of First Refusal.
--------------------------------
2.1 Right of First Refusal. If, at any time prior to the Termination
----------------------
Date, any Family Shareholder or any members of
10
<PAGE>
the Family Group of that Family Shareholder (an "Offeree") receives from a non-
affiliated third party a bona fide written offer the Offeree wishes to accept to
purchase some or all of the Offeree's Shares (other than under section 1.2(a)),
and the Trustee consents to the transfer in accordance with section 1.2(c), the
Offeree shall promptly deliver a written notice (an "Offer Notice") of the offer
to the Company (setting forth the identity of the offeror, the proposed purchase
price, the payment terms and all other material terms and conditions of the
offer) and the Company, or any one or more of its wholly-owned subsidiaries or
any employee stock ownership plan established by it (collectively, its
"Designee(s)") shall have the option (exercisable by notice (an "Acceptance
Notice") to the Offeree given within 40 days after the Offer Notice is given) to
purchase all, but not fewer than all, the Shares subject to the Offer Notice at
the same price and on the same terms specified in the Offer Notice. If the offer
provides, in whole or in part, for consideration other than cash and the Company
or its Designee(s) exercises the right granted in this section, the Company or
its Designee(s) shall make a payment in cash to the Offeree that reflects a
value attributable to the non-cash consideration determined in accordance with
section 2.2. If an Acceptance Notice is given within that 40-day period, the
Offeree and the Company or its Designee(s) shall consummate the transaction
within 75 days after the Offer Notice is given (or within 10 days of such later
date as the value of the non-cash consideration is determined under section
2.2). If an Acceptance Notice is not
11
<PAGE>
given within that 40-day period, the Offeree may sell all, but not fewer than
all, the Shares specified in the Offer Notice at a price equal to or greater
than the price set forth in the Offer Notice and on the terms set forth in the
Offer Notice. If a sale is not consummated within 75 days following the
expiration of the 40-day period referred to above, the Shares specified in the
Offer Notice shall again be subject to this section 2.1. Notwithstanding
anything to the contrary in this agreement, (a) the rights of the parties under
this section 2 shall be subject to the rights of Miles under the General
Shareholders Agreement; and (b) if an Acceptance Notice is timely given pursuant
to this section 2.1 but the closing specified in this section does not occur
within the period specified in this section (the "First Refusal Expiration"),
and the failure to close results from any default by the Company or any
Designee, this section 2.1 shall thereafter be of no further force and effect
and the Offeree shall be permitted, subject to the rights, if any, of Miles
assigned by the Company under section 4.4 of the General Shareholders Agreement
and subject to the provisions of section 4.7 of the General Shareholders
Agreement, within 75 days following the First Refusal Expiration to transfer the
Offeree's Shares to the original offeror at the same purchase price, and on
substantially the same terms and other material terms and conditions, as in the
Offer Notice.
2.2 Non-Cash Consideration. The value attributable to the non-cash
----------------------
consideration referred to in section 2.1 shall be an
12
<PAGE>
amount agreed to by the Offeree and the Company or its Designee(s), or, if
they do not agree within 10 business days after the Offer Notice is given, the
value attributable to the non-cash consideration shall be determined (a) in the
case of a security listed on the New York Stock Exchange, the American Stock
Exchange or the NASDAQ National Market System, on the basis of the average of
the closing sale prices of the security comprising the non-cash consideration
during the five trading days immediately preceding the date the Offer Notice is
given, or (b) in each other case, by an arbitrator selected by the American
Arbitration Association, whose determination shall be final, conclusive and
binding on the parties.
3. Registration Rights.
-------------------
3.1 Demand Registration. At any time after the earlier of the first
-------------------
anniversary of the Qualified Public Offering Date and the third anniversary of
this agreement, and upon receipt of a written request (the "Demand Request")
from Marvin H. Schein (or his designee), Pamela Schein (or her designee) or
Pamela Joseph (or her designee) (each, a "Demand Rights Holder"), the Company
promptly shall file a registration statement to register under the 1933 Act for
sale to the public all, and not fewer than all, the Shares (which may include
Shares owned by the Demand Rights Holder's Family Group members) specified in
the Demand Request and thereafter shall file such amendment or amendments to
such registration statement as may be necessary to cause it to become effective
(a "Demand Registration"). The
13
<PAGE>
Demand Request shall specify the plan of distribution of the Shares. If the
plan of distribution involves an underwritten offering, the Demand Rights Holder
shall be entitled to select a co-managing underwriter for the offering; however,
if the Qualified Public Offering Date shall not have occurred prior to the third
anniversary of this agreement, the underwriter so selected may, at the Demand
Rights Holder's option, be the lead managing underwriter. The Company shall be
obligated to effect a total of four Demand Registrations under this section 3.1;
however, Pamela Joseph (or her designee) shall not be entitled to make more than
one Demand Request hereunder; and notwithstanding anything to the contrary in
this agreement, if, for any reason (other than the fault of a Family
Shareholder), the registration fails to become effective and provide for the
distribution of all the Shares specified in the Demand Request, or the
effectiveness is not maintained for at least 60 days in accordance with section
3.4(e) or the Company fails to perform its obligations under this section 3.1
with respect to that registration, that Demand Registration shall not reduce
the number of Demand Registrations the Company was required to effect (or a
Demand Rights Holder was entitled to request) under this section 3.1 prior to
that Demand Registration. The Company's obligations under this section 3.1
shall terminate on the tenth anniversary of the Qualified Public Offering Date,
and the Company shall not be obligated to effect more than one Demand
Registration in any period of 365 days or effect a Demand Registration unless
the amount of Shares specified in the Demand Request (when aggregated with the
amount
14
<PAGE>
of Shares that all other Demand Rights Holders elect to register in connection
with such Demand Request) has a value (determined in accordance with section
2.2(a)) in excess of $25,000,000.
3.2 Piggyback Registration. If at any time the Company determines or
----------------------
is requested or receives a demand from any person or entity to register under
the 1933 Act for sale to the public any of the Company's securities (other than
in connection with any sale of the Company's securities that may result from a
demand request by Miles, if at the time of Miles' request there shall not have
been an initial public offering by the Company of its shares of common stock),
on a form that also would permit the registration under the 1933 Act for sale to
the public of any of the Shares held by the Shareholders and their Family Group
members, the Company shall, each such time, promptly give each Shareholder
written notice of its intent to effect a registration and, subject to sections
3.5 and 3.7, shall include in the registration all Shares held by any
Shareholder (other than Martin Sperber and Stanley Bergman and their respective
Permitted Transferees, in the case of a Demand Registration referred to in
section 3.1) and any such Shareholder's Family Group members with respect to
which the Company has received a written request from that Shareholder (a
"Piggyback Request") specifying the number of Shares to be included within 15
days after the Shareholder has been given notice from the Company. The Company's
obligations under this section 3.2 shall terminate on the fifth anniversary of
the Qualified Public Offering Date.
15
<PAGE>
3.3 Obligation of the Shareholders. Any Demand Request or Piggyback
------------------------------
Request (a "Request") shall express the requesting Shareholder's and the
requesting Shareholder's Family Group members' present intent to offer for sale
to the public the number of each such requesting party's Shares to be included
in the registration statement and contain an undertaking to provide all such
information and materials and to take all such action as may be required to
permit the Company to comply with all applicable requirements of the Securities
and Exchange Commission (the "SEC") and to obtain acceleration of the effective
date of the registration statement.
3.4 Obligations of the Company. With respect to any registration
--------------------------
statement referred to in section 3.1 or 3.2, the Company shall:
(a) use all reasonable efforts to have the registration
statement declared effective as promptly as practicable, and shall promptly
notify each Shareholder selling Shares under the registration statement (a
"Participating Shareholder"), and such other persons as the Participating
Shareholder designates, if any, and confirm such advice in writing, (i) when the
registration statement becomes effective, (ii) when any post-effective amendment
to the registration statement becomes effective and (iii) of any request by the
SEC for any amendment or supplement to the registration statement or any
prospectus relating to the registration statement or for additional information;
16
<PAGE>
(b) make available for inspection by any underwriters
participating in any planned disposition of Shares and any attorney, accountant
or other agent retained by a Participating Shareholder or the underwriters, all
financial and other records reasonably necessary to permit them to demonstrate
that they have conducted a reasonable investigation of matters described in the
registration statement and cause the appropriate Company officers to supply all
such information reasonably requested by a Participating Shareholder, the
underwriters or their agents;
(c) use all reasonable efforts to qualify, not later than the
effective date of the registration statement, the Shares under such "blue sky"
or other state securities laws as a Participating Shareholder may reasonably
request (it being understood, however, that the obligation under this section
3.4(c) shall not be construed to obligate the Company to qualify as a foreign
corporation or as a dealer in securities or to execute or file any general
consent to service of process under the law of any such jurisdiction where it is
not otherwise so subject);
(d) furnish to each Participating Shareholder such number of
copies of the registration statement, each amendment to the registration
statement, the prospectus included in each such registration statement and each
amendment to each registration statement, each amendment or supplement to any
prospectus and such other documents as a Participating
17
<PAGE>
Shareholder may reasonably request to facilitate the disposition of the Shares;
(e) for a period of at least 60 days from the effective date of
the registration statement, use all reasonable efforts to keep the registration
statement in effect and current and from time to time to amend or supplement the
registration statement or the prospectus to the extent necessary to permit the
completion within that period, in compliance with the 1933 Act, of the sale or
distribution of the Shares. If at any time the SEC institutes or threatens to
institute any proceedings for the purpose of issuing a stop order suspending the
effectiveness of any such registration statement, the Company shall promptly
notify each Participating Shareholder and use all reasonable efforts to prevent
the issuance of any such stop order or to obtain its withdrawal as soon as
possible. The Company shall promptly advise each Participating Shareholder of
any order or communication of any public board or body addressed to the Company
suspending or threatening to suspend the qualification of any of the Shares for
sale in any jurisdiction; and
(f) insofar as the methods of distribution proposed to be used
are not reflected in the last prospectus filed by the Company as part of the
registration statement or pursuant to Rule 424 under the 1933 Act, the
Participating Shareholder shall promptly provide the Company with a description
of the method or methods of distribution of the Shares from time to time
contemplated by the Participating Shareholder and the
18
<PAGE>
Participating Shareholder's Family Group members and the Company shall file any
and all amendments and supplements necessary to include that description in the
registration statement.
3.5 Conditions to the Obligations of the Company. The Company may
--------------------------------------------
postpone, for up to 90 days, the filing of any registration statement otherwise
required to be prepared and filed by it under this agreement, if, at the time it
receives a Request, the Company would be required to prepare any financial
statements other than those it customarily prepares or the Company determines in
its reasonable judgment that the registration and offering would interfere with
any material financing, acquisition, corporate reorganization or other material
corporate transaction or development involving the Company that is pending or
imminent at the time and promptly gives each Participating Shareholder written
notice of that determination (it being understood, however, that, in any such
event, the Company shall use all reasonable efforts to minimize the length of
the postponement). If the Company shall so postpone the filing of a registration
statement, each Participating Shareholder shall be deemed to have withdrawn the
Request and the Request shall be deemed not to have been made.
3.6 Expenses of Registration. All expenses (other than fees and
------------------------
disbursements of counsel for the Shareholders and underwriting or brokerage
commissions attributable to the Shares to be sold) incurred in connection with
all registrations under this agreement and the "blue sky" qualifications
referred to in
19
<PAGE>
section 3.4(c), including, without limitation, all registration and
qualification fees, printers' and accounting fees and fees and disbursements of
counsel for the Company, shall be borne by the Company.
3.7 Underwriting Requirements. In connection with any offering
-------------------------
pursuant to a Piggyback Request, the Company shall not be required to register
any Shares held by a Shareholder or the Shareholder's Family Group members,
unless the Shareholder and the Shareholder's Family Group members accept the
terms of the underwriting applicable to Participating Shareholders generally and
then only in such quantity as will not, in the written opinion of the
underwriters, exceed the maximum number of shares that can be marketed without
materially and adversely affecting the offering. If, as a consequence of the
provisions of the preceding sentence, the number of a Shareholder's and the
Shareholder's Family Group members' Shares is reduced, the percentage of the
reduction shall not be more than the percentage of reduction applicable to any
other selling shareholder in the offering.
3.8 Other Registration Rights. Except for the registration rights in
-------------------------
this agreement and in the General Shareholders Agreement, the Company is not a
party or subject to any agreement entitling any person or entity to registration
rights. The Company shall not enter into any other agreement entitling any
person or entity to registration rights that would materially and adversely
affect the rights of the Shareholders
20
<PAGE>
and their Family Group members under this agreement (it being understood that
any registration rights other than those in the General Shareholders Agreement
that would have the effect of reducing the number of Shares that would otherwise
be included in a registration statement shall be deemed materially and adversely
to affect the rights of the Shareholders and their Family Group members under
this agreement).
3.9 Indemnification. In the event any Shares are included in a
---------------
registration statement under this section 3, to the extent permitted by law, the
Company shall indemnify and hold harmless the Participating Shareholders and
their Family Group members, any underwriter for the Company or acting on behalf
of any Participating Shareholder and the Participating Shareholder's Family
Group members, and each person, if any, who is a director, officer, agent,
partner or shareholder of, or who controls, any Participating Shareholder and
the Participating Shareholder's Family Group members or such underwriter,
against losses, claims, damages or liabilities customarily indemnified against
in underwritten secondary offerings. Such indemnification shall include
contribution in the manner and to the extent customarily provided.
4. Certain Tax Matters.
-------------------
4.1 Indemnification. Each individual listed on schedule 4.1 (an
---------------
"Indemnifying Shareholder") shall severally (and not jointly), in the proportion
set forth beside that
21
<PAGE>
Indemnifying Shareholder's name on schedule 4.1, indemnify and hold the Company
harmless from and against any tax liability (including taxes imposed by the
United States or any state, county, local or foreign government or subdivision
or agency thereof, and any interest, penalties or additions attributable to such
taxes, but excluding costs and expenses, including attorneys' fees, incurred by
the Company in contesting such taxes) ("Taxes") resulting solely from the
distribution (the "Distribution") of all the shares of Henry Schein, Inc. in
accordance with the agreement and plan of corporate separation and
reorganization of even date herewith among the Company and all its shareholders,
excluding the Taxes attributable to the acceleration of any deferred
intercompany gains from a deferred intercompany transaction (as defined in
Treasury Regulation (S)l.1502-13) that have been realized by the Company through
the day before the Distribution (a "Tax Claim").
4.2 Participation in Contest. If a Tax Claim, including the
------------------------
assertion of any such claim during the audit process, is asserted against the
Company, the Company shall give each Indemnifying Shareholder prompt notice of
the claim (setting forth in reasonable detail the nature, basis and amount of
the claim) (a "Tax Notice") and, provided an Indemnifying Shareholder
acknowledges in writing the Indemnifying Shareholder's obligation to indemnify
the Company in accordance with this section 4 (an "Acknowledging Indemnifying
Shareholder"), that Acknowledging Indemnifying Shareholder shall be entitled, at
the Acknowledging
22
<PAGE>
Indemnifying Shareholder's own expense, to participate in the defense of the
claim (it being understood that, subject to section 4.3, control of the defense
will remain with the Company, but the Company may not agree to any settlement or
compromise of the claim without the written consent of Acknowledging
Indemnifying Shareholders liable for at least one-half of the indemnification
liability under this section 4, which consent may not be unreasonably withheld).
4.3 Control of Defense. If any Tax Claim is asserted, the
------------------
Indemnifying Shareholders may, by written notice given by Marvin H. Schein or
his designee to the Company within 15 days after receiving a Tax Notice (which
notice from Marvin H. Schein or his designee shall be deemed without further
action by any Indemnifying Shareholders to confirm the irrevocable agreement of
each of the Indemnifying Shareholders to indemnify the Company in respect of all
Taxes relating to the Tax Claim in accordance with this section 4), assume the
defense of the Tax Claim (the "Tax Proceeding") with counsel reasonably
satisfactory to the Company (it being understood that Willkie, Farr & Gallagher
is reasonably satisfactory to the Company), provided that the Company shall
continue to have the right to participate at its own expense in the Tax
Proceeding, and provided that, prior to so assuming that defense, the
Indemnifying Shareholders shall deposit with an escrow agent under an escrow
arrangement reasonably satisfactory to the Company an amount sufficient to pay
all Taxes that counsel to the Indemnifying Shareholders advises the Company is
the
23
<PAGE>
highest probable amount that will be payable in respect of the Tax Claim, which
escrow shall be held until the Tax Claim shall have been resolved as set forth
below, at which time the amount remaining in the escrow, if any, shall be
returned to the Indemnifying Shareholders. The Indemnifying Shareholders shall
instruct the Company how the amounts deposited in the escrow arrangement are to
be invested; however, such investments shall be limited to short-term bonds, the
interest on which is tax free to a New York State recipient, which bonds shall
be rated AAA by Standard & Poors or Moody's rating services. The Company agrees
to provide counsel to the Indemnifying Shareholders with (a) such cooperation as
may be reasonably requested in connection with that counsel's defense of the Tax
Claim and (b) such information as such counsel reasonably requests in connection
with that counsel's defense of such Tax Claim. Notwithstanding anything to the
contrary in this agreement, the Company shall control the defense of any Tax
Proceeding to the extent that such Tax Proceeding involves criminal charges
against the Company or any of its affiliates. After the above-described notice,
if any, from Marvin H. Schein or his designee to the Company of the election to
assume the defense, the Indemnifying Shareholders shall not be liable to the
Company for any legal or other expenses incurred by the Company (other than the
indemnity obligation provided in section 4.1) in connection with the Tax Claim.
No Indemnifying Party shall, without the prior written consent of the Company,
which consent shall not be unreasonably withheld, effect any settlement of any
pending or threatened Tax
24
<PAGE>
Claim asserted against the Company for which indemnity has been sought under
this agreement by the Company, unless (a) the Indemnifying Shareholders affirm
their obligation under this agreement to indemnify the Company for other Tax
Claims that may be asserted or obtain a closing agreement from applicable taxing
authorities with respect to such Tax Claims and (b) the settlement does not
involve a payment in respect of a Tax Claim on the part of the Company, other
than the payment of such sums of money as are actually paid or reimbursed by the
Indemnifying Shareholders.
5. Shareholder Rights.
------------------
5.1 Charter and By-Laws Amendments; Written Consent. Until the
-----------------------------------------------
Termination Date, the Company shall not, and shall not permit any of its
subsidiaries to, and no officer, employee or other agent of the Company or any
of its subsidiaries shall have the authority, in the name or on behalf of the
Company or any of its subsidiaries, to, without the prior written consent of the
Family Shareholders, (a) amend or restate the Company's certificate of
incorporation or by-laws in any respect that would materially and adversely
affect the Family Shareholders or their Permitted Transferees differently from
any other holders of the Company's common stock or to provide for action by
shareholders by written consent without a meeting, or (b) by amendment to the
Company's certificate of incorporation or by-laws or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the
25
<PAGE>
observance or performance of any of the covenants or agreements to be performed
under this agreement by the Company.
5.2 Visitation; Advice. Prior to the Termination Date, the Family
------------------
Shareholders and their representatives may, from time to time, visit and inspect
the properties of the Company and its subsidiaries, examine their books of
account and discuss their affairs, finances and accounts with the Company's
senior management and independent accountants, all at such reasonable times as
the Family Shareholders may wish and in a manner that does not interfere with or
disrupt the business in any material respect and subject to appropriate
confidentiality agreements. Prior to the Termination Date, the Company shall
advise the Family Shareholders at least five business days before effecting any
acquisition of a Significant Subsidiary (as defined in Rule 1-02 of Regulation
S-X) or any amendment of the Company's certificate of incorporation or by-laws.
5.3 Financial Statements. Prior to the earlier of the Qualified
--------------------
Public Offering Date and the Termination Date, the Company shall furnish the
Family Shareholders (a) not later than 60 days after the end of each of the
first three fiscal quarters of each fiscal year, an unaudited consolidated
balance sheet of the Company and its subsidiaries as of the end of that fiscal
quarter, together with the related unaudited consolidated statements of income,
retained earnings and cash flows for that fiscal quarter and the year to date,
prepared in accordance with generally accepted accounting principles ("GAAP")
and setting
26
<PAGE>
forth in comparative form the information for the corresponding periods of the
previous fiscal year, and (b) not later than 120 days after the end of each
fiscal year, an audited consolidated balance sheet of the Company and its
subsidiaries as of the end of that fiscal year, together with the related
audited consolidated statements of income, retained earnings and cash flow for
that fiscal year, prepared in accordance with GAAP and setting forth in
comparative form the information for the preceding fiscal year, together with
the related audit report of the Company's independent accountants.
6. Miscellaneous.
-------------
6.1 Definition. As used in this agreement, the term "affiliate" has
----------
the meaning given it in Rule 405 under the 1933 Act.
6.2 Governing Law. This agreement shall be governed by and construed
-------------
in accordance with the law of the state of New York applicable to agreements
made and to be performed wholly in New York.
6.3 Notices. Any notice or other communication under this agreement
-------
shall be in writing and shall be considered given when delivered personally or
mailed by registered mail, return receipt requested, at the following addresses
(or at such other address as a party may designate by notice to the others):
27
<PAGE>
if to the Company, to it at:
Schein Holdings, Inc.
c/o Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attention: General Counsel
with a copy to:
Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, New York 10036
Attention: Richard L. Goldberg, Esq.
if to any Shareholder, to each of the Shareholders at
the addresses set forth on schedule A.
6.4 Counterparts. This agreement may be executed in counterparts,
------------
each of which shall be considered an original, but all of which together shall
constitute the same instrument.
6.5 Equitable Relief. The parties acknowledge that the remedy at law
----------------
for breach of this agreement would be inadequate and that, in addition to any
other remedy a party may have for a breach of this agreement, that party shall
be entitled to an injunction restraining any such breach or threatened breach,
or a decree of specific performance, without posting any bond or security. The
remedy provided in this section 6.5 is in addition to, and not in lieu of, any
other rights or remedies a party may have.
6.6 Separability. If any provision of this agreement is invalid or
------------
unenforceable, the balance of this agreement shall remain in effect, and if any
provision is inapplicable to any
28
<PAGE>
person or circumstance, it shall nevertheless remain applicable to all other
persons and circumstances.
6.7 Entire Agreement. This agreement contains a complete statement of
----------------
all the arrangements among the parties with respect to its subject matter,
supersedes all existing agreements among them with respect to that subject
matter and may not be changed or terminated orally. Any amendment or
modification must be approved in writing by Miles and must be in writing and
signed by the Company and Shareholders then beneficially owning a majority of
the Shares, provided that no such amendment or modification may adversely effect
the rights or obligations of any Shareholder without that Shareholder's prior
written consent.
6.8 Termination. This agreement (other than the provisions of section
-----------
4) shall terminate on the effective date of a Terminating Merger (as defined in
the Voting Trust Agreement). The provisions of section 4 shall survive any
termination of this agreement.
SCHEIN HOLDINGS, INC.
/s/
By:---------------------------------
Authorized Officer
THE SHAREHOLDERS:
/s/ Marvin H. Schein
------------------------------------
Marvin H. Schein
29
<PAGE>
Trust estab1ished by Marvin H. Schein under
trust agreement dated September 9, 1994
By: /s/ Marvin H. Schein
---------------------------------------
Marvin H. Schein, Trustee
By: /s/ Leslie Levine
---------------------------------------
Leslie Levine, Trustee
Trust established by Marvin H. Schein under
trust agreement dated December 31, 1993
By: /s/ Marvin H. Schein
---------------------------------------
Marvin H. Schein, Trustee
By: /s/ Leslie Levine
---------------------------------------
Leslie Levine, Trustee
/s/ Pamela Schein
------------------------------------------
Pamela Schein
Trust established by Trustee under Article
Fourth of the Will of Jacob M. Schein for
the benefit of Pamela Schein and her
issue under trust agreement dated September
29, 1994
By: /s/ Irving Shafran as attorney in fact
---------------------------------------
Irving Shafran, Trustee
/s/ Pamela Joseph
------------------------------------------
Pamela Joseph
30
<PAGE>
By:_______________________________
Leslie Levine, Trustee
Trust established by Marvin H. Schein
under trust agreement dated December
31, 1993
By:_______________________________
Marvin H. Schein, Trustee
By:_______________________________
Leslie Levine, Trustee
__________________________________
Pamela Schein
Trust established by Trustee under
Article Fourth of the Will of Jacob
M. Schein for the benefit of Pamela
Schein and her issue under trust
agreement dated Sept 29, 1994
By: /s/ Irving Shafran
-------------------------------
Irving Shafran, Trustee
__________________________________
Pamela Joseph
Trust established by Pamela Joseph
under trust agreement dated _______,
1994
By:_______________________________
Morey M. Myers, Trustee
__________________________________
Martin Sperber
31
<PAGE>
Trust established by Pamela Joseph
under trust agreement dated September
28, 1994
By: /s/ Morey M. Myers
-------------------------------
Morey M. Myers, Trustee
/s/ Martin Sperber
-------------------------------
Martin Sperber
Trust established by Martin Sperber
under trust agreement dated December
31, 1993
/s/ Ellen Sperber
-------------------------------
Ellen Sperber,Trustee
32
<PAGE>
/s/ Stanley Bergman
----------------------------------
Stanley Bergman
Trust established by Stanley M.
Bergman under trust agreement dated
December 31, 1993
By: /s/ Marion Bergman
-------------------------------
Marion Bergman, Trustee
33
<PAGE>
SCHEDULE A
----------
SHAREHOLDERS
------------
<TABLE>
<CAPTION>
# of Shares
# of Shares Issuable Upon the
Shareholder Owned* Exercise Of Options
- ----------- ----------- -------------------
<S> <C> <C>
Marvin H. Schein 100 -0-
Cobble Court
Glen Cove, New York 11771
Trust established by Martin H. Schein 25,277.5 -0-
under trust agreement dated Sept 9, 1994
c/o Marvin H. Schein
Cobble Court
Glen Cove, New York 11771
Trust established by Marvin H. Schein under 64,642.5 -0-
trust agreement dated December 31, 1993
c/o Marvin H. Schein
Cobble Court
Glen Cove, New York 11771
Pamela Schein 63,202 -0-
666 Greenwich Street
Apt 514
New York, New York 10014
Trust established by Trustee under Article Fourth 4,840 -0-
of the Will of Jacob M. Schein for the benefit of
Pamela Schein and her issue under trust
agreement dated Sept 29, 1994
c/o Irving Shafran
360 East 72nd Street
New York, New York 10017
Pamela Joseph 25,535 -0-
RR#3, Box 140
Pound Ridge, New York 10576
Trust established by Pamela Joseph under trust 993 -0-
agreement dated Sept. 28, 1994
c/o Morey M. Myers, Esq.
Schnader, Harrison, Segal & Lewis
1O8 N. Washington Ave., Suite 700
Scranton, Pennsylvania 18503
Martin Sperber 3,461 4,795
6 Casper Court
Florham Park, New Jersey 07932
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Trust established by Martin Sperber under trust 2,437 -0-
agreement dated December 31, 1993
c/o Ellen Sperber
6 Casper Court
Florham Park, New Jersey 07932
Stanley Bergman 1,204 -0-
104A Middleville Road
Northport, New York 11768
Trust established by Stanley M. Bergman under 1,959 -0-
trust agreement dated December 31, 1993
c/o Marion Bergman
104A Middleville Road
Northport, New York 11768
</TABLE>
________________
* Immediately after the closing under the stock purchase agreement.
<PAGE>
SCHEDULE 4.1
------------
INDEMNIFYING SHAREHOLDERS
-------------------------
<TABLE>
<CAPTION>
Proportion of
Shareholder Indemnification
----------- ---------------
<S> <C>
Marvin H. Schein 50%
Pamela Schein 35.75%
Pamela Joseph 14.25%
</TABLE>
<PAGE>
EXHIBIT 10.32
HEADS OF AGREEMENT
These Heads of Agreement are intended to reflect the understanding of
the parties concerning (a) U. S. domestic cooperation between Miles Inc.
("Miles") and Schein Pharmaceutical, Inc. ("Schein") on developing synergies
in their respective U.S. Pharmaceutical businesses, (b) international
cooperation between Bayer A.G. ("Bayer")/Miles and Schein to build together an
international multisource pharmaceutical business, and (c) supply of chemical
drug ingredients by Bayer/Miles to Schein, in each case following the Closing
(as defined in the Stock Purchase Agreement dated February 15, 1994, as
amended).
The parties presently intend together to explore opportunities in the
following areas, recognizing that these areas, as well as the specific projects
within an area or market and the manner in which areas, markets and projects may
be explored, are subject to change from time to time as the parties' discussions
continue and as the working relationship among the parties develops over time.
DOMESTIC U.S. BUSINESS
- ----------------------
In order to maximize the benefits of the proposed cooperation for both
Miles and Schein in the U.S. domestic market, Miles and Schein will form joint
strategy teams (with
<PAGE>
confidentiality agreements as appropriate). The teams will be formed promptly
following the Closing, and will be composed of operational, technical and
marketing representatives from each company, and involving such other
disciplines as the companies may from time to time decide. The teams will
explore potential areas of mutual interest and cooperation between Miles and
Schein in the U. S. domestic market, and will report to a Domestic Strategy
Committee comprised of representatives of both Miles and Schein.
INTERNATIONAL BUSINESS
- ----------------------
The objective of the Bayer/Miles - Schein international cooperation is
to identify multisource pharmaceutical business opportunities which the parties
can jointly develop. To accomplish this, the companies may share their
expertise, employing Schein and Bayer products as appropriate, Bayer's
knowledge of international markets, production, marketing and distribution, and
each company's production facilities where appropriate. It will be important to
respect the key factors for success within the multisource market, such as early
market share, range of products and branding.
In order to maximize the benefits of the proposed cooperation for both
Bayer/Miles and Schein in the international market, Bayer and Schein will form
an International Management Committee comprised of representatives of both
Bayer/Miles and Schein. Each of Bayer/Miles and Schein will assign staff (with
2
<PAGE>
confidentiality agreements as appropriate), charged with the development of the
international multisource business; or the Committee may decide to hire persons
from outside the organizations if this is considered appropriate. The staff
will prepare market entry proposals for the International Management Committee,
including recommendations as to
(a) Priority markets
(b) Entry strategies
(c) Resource allocations.
Due to the diverse nature of the international markets, various types
of entry strategy are conceivable, potentially including involvement of other
local companies.
The decision to jointly pursue a project in any of these areas in U.S.
domestic or international markets, and the organizational and economic structure
of a project, will require the unanimous approval of the Domestic Strategy
Committee or the International Management Committee, as the case may be. The
allocation of benefits derived from any jointly-pursued project will require the
approval of both Bayer/Miles and Schein, and will be based on separately
negotiated contractual agreements for each such project, which will take into
account the structure and the relative contributions of each party to those
proposed projects. In the event that an agreement as to a particular project
has not been or cannot be reached in an expeditious fashion, each of the parties
shall be allowed to pursue independent strategies.
3
<PAGE>
CHEMICAL SYNTHESIS
- ------------------
A joint Bayer/Miles - Schein team will investigate the possibility of
using Bayer's expertise in the chemical synthesis area to provide Schein with
chemical drug ingredients. This could include, at Schein's request, future
drugs to be launched by Schein, as well as supplying substances for Schein's
current portfolio, all upon terms and conditions as may from time to time be
mutually agreed to by Bayer/Miles and Schein.
While it is the desire and expectation that cooperation as
contemplated by these Heads of Agreements take place, all of this is subject to
the independent decision making, operation, growth and functioning of each of
the companies involved. These Heads of Agreement contemplate a dynamic and
fluid relationship, and to avoid any misunderstanding, it is important that
these and related points will become binding on the parties in respect of a
4
<PAGE>
particular project only upon execution of definitive, mutually satisfactory
documentation.
These Heads of Agreement have been executed as of this 30th day of
September, 1994.
BAYER AG
By: /s/
-----------------------
MILES INC.
By: /s/
-----------------------
SCHEIN PHARMACEUTICAL, INC.
By: /s/
-----------------------
5
<PAGE>
EXHIBIT 10.33
SECOND CONSOLIDATED AGREEMENT
-----------------------------
AGREEMENT effective as of December 15, 1992 by and between Schein
Pharmaceutical, Inc., a corporation organized and existing under the laws of the
State of New York, having an office and place of business at 1800 Northern
Boulevard, Rosyln NY 11576 and its affiliated companies, including Danbury
Pharmacal, Inc. and Steris Laboratories, Inc. (hereinafter referred to as
"SPINC") and Alfred B. Engelberg, an individual residing at 136 Field Point
Circle, Greenwich CT 06830 (hereinafter referred to as ("ENGELBERG").
Statement
---------
SPINC and its affiliates are parties to an Agreement with ENGELBERG
entered into on July 17, 1985, a Supplemental Agreement of April 20, 1988 and a
Second Supplemental Agreement of July 11, 1989, a Consolidated Agreement dated
January 1, 1990 and renewals thereof effective January 1, 1991 and January 1,
1992. Under the terms of those agreements, ENGELBERG has performed certain
services on behalf of SPINC and its affiliates including the commencement and
completion of patent certification litigation involving *************** ********
********** ************* *** ******************* products. ENGELBERG is also
currently engaged in litigation on behalf of SPINC with respect to ********* and
has prepared opinions relating to patent invalidity or infringement avoidance
with respect to ********** ******** *********** *********** ********* ***
**********
This Agreement is intended to fully define the relationship between the
parties from and after its effective date.
* redacted pursuant to confidential treatment request.
<PAGE>
-2-
NOW, THEREFORE, in consideration of the covenants and considerations
hereinafter set forth, the parties agree as follows:
1. Duties and Obligations of ENGELBERG
-----------------------------------
1.1. ENGELBERG agrees to perform the following services for SPINC, during
the life of this Agreement:
(a) The defense of the patent infringement litigation which Bristol-
Meyers Squibb Company has commenced against Danbury Pharmacal, Inc. based upon
the Patent Certification Notice prepared by ENGELBERG with respect to *********.
ENGELBERG intends to be personally responsible for the defense of this action
with such assistance from other counsel as he deems necessary or desirable.
(b) The preparation for and defense of patent infringement litigation, if
any, which may hereafter be commenced against SPINC or its affiliates based upon
the following opinions by ENGELBERG:
(i) The draft Patent Certification Notice covering invalidity and non-
infringement of the listed patents covering ********** ******* dated
December 3, 1992.
(ii) The opinion with respect to patent invalidity or non-infringement of
the listed patents covering ********** containing products dated October
19, 1992.
(iii) The opinion with respect to avoidance of infringement of the listed
patents covering ********** dated July 20, 1990.
(iv) The opinion with respect to avoidance of infringement of the listed
patents covering ********* ************* dated December 3, 1992.
* redacted pursuant to confidential treatment request.
<PAGE>
-3-
(v) The preliminary opinion with respect to a study of the possibility of
avoiding infringement of the listed patent covering ********* *********
dated December 3, 1992.
(vi) Opinions, if any, to be rendered with respect to such products as
ENGELBERG identifies in writing to SPINC within sixty (60) days following
the execution of this Agreement, provided, however, that an Initial Written
Opinion, as defined hereinafter, is rendered with respect to each such
product no later than September 30, 1993; that such Initial written
Opinions are limited to a total of no more than ******* products
belonging to a maximum of ********* different recognized chemical classes
of drugs; and that each such product is not subject to a non-patent
exclusivity which prohibits an ANDA from being filed before December 31,
1994.
(c) The services set forth in Paragraph 1.1(b) shall be performed
personally by ENGELBERG or by individuals retained by ENGELBERG who are acting
under ENGELBERG's personal direction and control. The retention of such
individuals shall be subject to the approval of SPINC, which approval shall not
be unreasonably withheld, it being recognized by SPINC that the compatibility
between ENGELBERG and such individuals is critical to the successful completion
of the purpose of this Agreement. ENGELBERG and SPINC agree that an Initial
Written Opinion with respect to any potential patent challenge, i.e., a written
opinion which includes, a recommendation to proceed with a patent challenge, the
facts, documents and law justifying the challenge and the basic strategy to be
used in defending against a subsequent claim of infringement
* redacted pursuant to confidential treatment request.
<PAGE>
-4-
by the patent owner, is critical to the success of any patent challenge.
ENGELBERG agrees that he shall personally conduct the evaluation necessary to
prepare that Initial Written Opinion and shall author the Initial Written
Opinion. SPINC agrees that subsequent to the preparation of an Initial Written
Opinion, ENGELBERG shall have complete discretion as to the delegation of
responsibility for the defense of patent litigation and is not obligated to
personally devote his full time to the performance of the services set forth in
paragraph 1.1(b). SPINC acknowledges that it has already received an Initial
Written Opinion with respect to ********* ************* ********** *******
******************** ******** ********** *** ********* **************
1.2. Nothing in this Agreement shall prevent ENGELBERG from engaging in any
business or activity including, without limitation, any pharmaceutical business
or activity or any legal activity, including patent challenges involving drugs,
except that ENGELBERG agrees that he will not directly or indirectly engage in
any business or legal activity (i) with respect to any drug product if such
involvement could diminish the exclusivity or market lead time of SPINC with
respect to a product for which ENGELBERG has rendered an Initial Written opinion
under paragraph 1.1 (a) or (b) or (ii) which would involve the use of
confidential business information of SPINC acquired by ENGELBERG in the course
of performing his duties under this Agreement. ENGELBERG further represents that
as of the date of this Agreement he has not had any discussions with any third
party or entered into any Agreement with any third party with respect to the
possibility of engaging in drug patent challenges
* redacted pursuant to confidential treatment request.
<PAGE>
-5-
and that the list of products to be identified by ENGELBERG under paragraph 1.1
(b) (vi) of this Agreement shall include all of the products listed in the
Orange Book which he then intends to study for possible patent challenges.
1.3 Nothing in this Agreement shall be construed as requiring ENGELBERG
to engage in any counseling or consultation with SPINC except with respect to
products which are the subject of ENGELBERG's obligations under paragraph 1.1
(a) or (b).
2. Duties and Obligations of SPINC
-------------------------------
2.1. SPINC agrees that it will perform the following activities during the
life of this Agreement:
(a) Promptly provide ENGELBERG with all assistance requested by ENGELBERG
to obtain information regarding the availability of raw materials or other
technical information, or to take such other actions, as needed, to determine
the feasibility of producing a product for which an Initial Written Opinion has
been or is proposed to be prepared by ENGELBERG.
(b) As to each product identified in paragraph 1.1(b), or any other
product, for which the parties hereto determine that it is appropriate to
prepare and serve a Patent Certification Notice, carry out, at SPINC's sole
expense, all of the work required to formulate a generic drug product and to
obtain the stability, dissolution, bioequivalence and other data required to
obtain approval of an ANDA under the 1984 Act. SPINC recognizes that it is
essential to the objectives of this Agreement that all such
<PAGE>
-6-
technical work be completed and submitted to the FDA in the initial ANDA
application before any Patent Certification Notice can be filed.
(c) Carry out, at SPINC's sole expense, all of the manufacturing and sales
activities relating to each drug product for which an ANDA approval is obtained
for a product containing a Patent Certification Notice prepared as a result of
studies carried out pursuant to this Agreement.
3. Warranties and Representations
------------------------------
3.1. It is understood by the parties hereto that nothing herein shall be
construed as obligating either party hereto to proceed with any patent challenge
or the development of any product unless and until all legal and technical
issues relating to such product are completely evaluated and each party hereto
has independently determined that a patent challenge is justified. However, in
the event that either party decides, for any reason, not to proceed with a
particular product the other party hereto shall be free to do so subject to such
obligations to the other as are set forth in this Agreement.
3.2. Each of the parties agrees to use its best efforts to meet its
obligations as defined in Paragraph 1 and 2 of this Agreement.
3.3. SPINC acknowledges that there is no warranty or other assurance by
ENGELBERG that the studies to be conducted by ENGELBERG under paragraph
1.1(b)(vi) will result in any written opinions recommending patent challenges or
that litigation with
<PAGE>
-7-
respect to the patents on which Initial Written Opinions have already been
rendered will result in a decision holding any patent invalid, unenforceable or
non-infringed despite his best efforts.
3.4. ENGELBERG acknowledges that there is no assurance by SPINC that it can
procure timely approval of an ANDA despite the use of its best efforts.
3.5. SPINC agrees that it will not make any oral or written statements
concerning this Agreement at any time which are inconsistent with the terms of
this Agreement. SPINC further agrees that it will not make any written statement
about this Agreement in connection with any prospectus seeking public or private
investment in SPINC or its affiliates without the prior approval of ENGELBERG,
which approval will not be unreasonably withheld provided that any such
statement calls clear attention to the acknowledgment set forth in paragraph 3.3
of this Agreement and further notes that ENGELBERG is free to terminate his
obligations in accordance with paragraph 6.2 of this Agreement.
4. Reimbursement of Expenses
-------------------------
4.1. SPINC shall either directly pay or shall reimburse ENGELBERG for all
out-of-pocket expenses incurred in the course of performing services under this
Agreement. Such expenses shall include, but are not necessarily limited to, the
cost of obtaining patent copies and patent file histories, technical literature
and patent searches, expert witness fees, fees of additional counsel, court
costs, deposition transcript expenses, and travel expenses. ENGELBERG shall
periodically render detailed invoices covering such expenses, and SPINC agrees
to pay such invoices within forty-five
<PAGE>
-8-
(45) days after receipt thereof. Alternatively, ENGELBERG may forward expense
invoices from third parties directly to SPINC and SPINC agrees to pay such
invoices directly within forty-five (45) days after receipt thereof. None of the
expenses incurred by SPINC shall be recoverable from the amounts to be paid to
ENGELBERG under paragraph 5.1 of this Agreement except for the amounts expressly
authorized in paragraph 5.1 of this Agreement.
4.2. SPINC shall not be responsible for such expenses as ENGELBERG may
incur to maintain an office for the purpose of carry out the services
contemplated under paragraph 1.1 of this Agreement.
4.3. SPINC shall be solely responsible for any damages, counsel fees, costs
or other monetary relief which a Court may award or require to be paid for any
reason with respect to any patent litigation under this Agreement. SPINC shall
be entitled to receive any reimbursement of costs awarded by a Court. Any
attorneys fees awarded to SPINC shall be divided equally with ENGELBERG.
5.0 Compensation
------------
5.1. SPINC agrees to pay ENGELBERG Fifty percent (50%) of the Marginal
Gross Profit in connection with the commercial manufacture and sale of each
product for which SPINC obtains an ANDA approval in an application containing a
certification of patent invalidity, non-infringement, unenforceability or non-
use based upon an Initial Written Opinion with respect to such patent heretofore
or hereafter rendered by ENGELBERG pursuant to paragraph 1.1 (b) of this
Agreement. For the purpose of this Agreement:
<PAGE>
-9-
(a) In the case of ********* *********** *** ********** **********
products and the products referred to in paragraphs 5.7 and 5.8 of this
Agreement, "Marginal Gross Profit" shall mean "Net Sales" less **** of
the Cost of Goods.
(b) As to all products other than those set forth in paragraph 5. (a),
"Marginal Gross Profit" shall mean "Net Sales" less **** of the Cost of
Goods.
(c) "Net Sales" shall mean the total amount received from all sales of a
product in arm's length transactions with third parties, less only charges
for taxes, delivery and other items separately stated and billed on the
invoices to customers, returns for credit and sales rebates or credits of
the type given in the normal course of business to particular classes of
customers to induce purchases of the product for which the discount is
given. No costs incurred in the manufacture, packaging and sale of the
Product shall be deducted in determining "Net Sales". Sales to affiliated
companies at prices which are less than those charged in an arm's length
transaction with a third party shall be adjusted to reflect the amount
which would have been received in an arm's length transaction, except that
no adjustment shall be required in those instances where the lower selling
price results from a successful competitive bid on a hospital or government
contract and the selling price is determined in
* redacted pursuant to confidential treatment request.
<PAGE>
-10-
accordance with past mutual profit reduction practices between SPINC and
its affiliate with respect to such contracts.
(d) "Cost of Goods" shall be determined by adding (i) the actual cost of
materials, including active and inactive ingredients, capsules, packaging
materials and any other materials used to produce a product, and (ii) the
unit labor and unit manufacturing costs determined under existing cost
accounting methods which are uniformly applied to all products manufactured
in the same facility in accordance with generally accepted accounting
principles.
5.2. In the event that the Marginal Gross Profit is zero or less, no
payment to ENGELBERG shall be made under this paragraph 5.2. No payments
pursuant to paragraph 5.1 shall be required for sales of a product which are
made after the expiration date of the last patent listed for any product in the
Approved Drug Products list of the FDA.
5.3. If, as to any product for which SPINC would be obligated to make
payments to ENGELBERG pursuant to paragraph 5.1, SPINC is successful in
negotiating a license agreement with the patent owner which gives SPINC the
right to manufacture the drug product or some other drug product in lieu
thereof, the parties agree that the payments required under paragraph 5.1 shall
apply but the amount paid as a royalty shall be subtracted from Net Sales to
determine the Marginal Gross Profit. If, as to any product for which SPINC would
be obligated to make payments to ENGELBERG pursuant to paragraph 5.1, SPINC
negotiates an agreement with the patent owner
<PAGE>
-11-
which results in a monetary payment to SPINC or in the payment of other
consideration such as goods, trade discounts, etc., in exchange for an agreement
by SPINC to refrain from the independent manufacture or sale of the patented
product, ENGELBERG shall receive fifty (50%) percent of the value of such
monetary payments or other consideration and such payments shall be made to
ENGELBERG promptly after receipt of the payment or benefit by SPINC.
5.4 SPINC may deduct from the payments to be made to ENGELBERG any fees
actually paid to additional counsel who are retained pursuant to either
paragraph 1.1 (c) or 6.3 of this Agreement and such out-of pocket expenses of
such additional counsel as are incurred due to the retention of additional
counsel, e.g. travel, meals, additional copies, etc. Out-of-pocket expenses for
transcripts, depositions, expert witnesses and any other type of expense which
would have been incurred even though no additional counsel had been retained
shall not be deductible from the payments to ENGELBERG. Fees and expenses which
are deductible under this paragraph may be deducted from any payment except that
in the case of buspirone, fees or expenses can only be deducted from a payment
if incurred in connection with ********* after the date of this Agreement. No
deduction may be made for fees or expenses of any kind in connection with
payments for ************* ** ******************* *********
5.5 The payments to be made pursuant to paragraph 5.1, unless otherwise
specified, shall be made quarterly by SPINC within sixty (60) days after each
calendar quarter on all sales of each product made during the preceding calendar
quarter or, for the last
* redacted pursuant to confidential treatment request.
<PAGE>
-12-
calendar quarter in which a payment is owed to ENGELBERG, within sixty (60) days
from the last sale for which ENGELBERG is entitled to receive payment due to
expiration of the patent. Each such payment shall be accompanied by a statement
setting forth sufficient information with respect to sales to enable ENGELBERG
to verify the basis for the payment being made.
5.6 SPINC shall at all times maintain accurate and complete manufacturing
and sales records with respect to all drug products for which payments are due
pursuant to this paragraph 5 in such a manner that ENGELBERG may verify the
amounts of payments due and payable hereunder. Such records shall be open to
inspection by ENGELBERG or his authorized representative during normal business
hours on reasonable notice, but not more than twice during any calendar year.
5.7 The payments required under paragraph 5.1 shall be made by
SPINC with respect to its manufacture and sale of ************* **********
products until November 25, 1992 except that:
(a) The Cost of Goods shall include **** of the royalty paid
to Sandoz.
(b) The estimated final payment for products sold between
October 1, 1992 and November 25, 1992 shall be made to
ENGELBERG by bank wire transfer on December 29, 1992 subject
to adjustment for actual sales allowances and credits.
(c) ENGELBERG shall pay interest to SPINC on the amount of
the final payment for a period of ** days at a rate of ****
per annum, said interest payment to be deducted by SPINC from
the December 29, 1992 payment.
* redacted pursuant to confidential treatment request.
<PAGE>
-13-
5.8 The payments required under paragraph 5.1 shall be made by SPINC with
respect to its manufacture and sale of (a) ************************ products
from October 1, 1992 through February 28, 1993 and (b) ******** products from
October 1, 1992 through January 20, 1993. The payment for sales made by SPINC
between October 1, 1992 and December 31, 1992 shall be made to ENGELBERG by bank
wire transfer on March 1, 1993 and the payment for sales after January 1, 1993
shall be made to ENGELBERG by bank wire transfer on April 29, 1993.
5.9 SPINC expressly acknowledges that the payments due to ENGELBERG under
paragraphs 5.7 and 5.8 of this Agreement are based on services which were fully
performed by ENGELBERG under prior Agreements and are fully due and payable to
ENGELBERG or his estate irrespective of any termination of this Agreement for
any reason.
6. Term and Termination
--------------------
6.1 This Agreement shall continue until such time as the projects which
are the subject of this Agreement are completed and any payments with respect
thereto are due.
6.2 ENGELBERG shall have the right, at his sole option, to terminate this
Agreement upon the happening of any of the following events:
(a) SPINC is in default in performing any obligation under this
Agreement and such default continues for a period of thirty (30) days
after written notice thereof is given to SPINC and such default is not
cured.
* redacted pursuant to confidential treatment request.
<PAGE>
-14-
(b) SPINC is adjudicated bankrupt or insolvent or is placed in
receivership or enters into an insolvency proceeding or composition
with its creditors.
(c) A change in the management or effective financial control of SPINC
which, in the opinion of ENGELBERG, to be reasonably exercised,
seriously or adversely affects the operation or management of SPINC
or its ability to perform the terms and conditions of this Agreement.
(d) ENGELBERG becomes involved in a public service employment which
prevents him from continuing to carry out his duties and obligations
under this Agreement.
Termination of this Agreement by ENGELBERG pursuant to this paragraph shall
relieve him from any and all obligations of any kind under this Agreement.
Notwithstanding termination, ENGELBERG shall be entitled to receive the payments
set forth in Paragraph 5.1 of this Agreement, said payments to be reduced by any
fees or expenses reasonably incurred as a result of ENGELBERG's failure to
perform all of the services contemplated by this Agreement with respect to any
such product.
6.3 SPINC shall have the right to terminate this Agreement only upon the
happening of any of the following events:
(a) ENGELBERG defaults in performing a material obligation under this
Agreement and such default is not cured within thirty (30) days after
written notice thereof.
(b) ENGELBERG dies or becomes physically or mentally unable for a
continuous period of ninety (90) days to perform the services
contemplated by this Agreement.
<PAGE>
-15-
In the event of such termination, SPINC shall have no obligation to ENGELBERG
with respect to any product for which it has not received an Initial Written
Opinion. SPINC shall be entitled to proceed with those products for which
ENGELBERG has rendered an Initial Written Opinion and ENGELBERG or his estate
shall be entitled to receive the payments set forth in Paragraph 5.1 of this
Agreement with respect to those products, said payments to be further reduced by
any fees or expenses reasonably incurred as a result of ENGELBERG,'s failure to
perform all of the services contemplated by this Agreement with respect to any
such product.
7. Miscellaneous
-------------
7.1 The parties mutually acknowledge that each party hereto has fully
performed all of its duties and obligations under all prior Agreements between
the parties; that there are no outstanding claims of any kind for services or
compensation except as expressly set forth in this Agreement; and that this
Agreement supersedes all prior agreements between the parties and shall
hereinafter be the only Agreement governing the rights and obligations of the
parties.
7.2 None of the rights or obligations under this Agreement shall be
assignable by any party hereto without the prior written consent of the other
party.
7.3 This Agreement is made under and shall be construed in accordance with
and governed by the laws of the State of New York.
7.4 Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the commercial arbitration rules of the American
<PAGE>
-16-
Arbitration Association and judgment upon the award rendered by the
Arbitrator may be entered in any court having jurisdiction thereof.
ALFRED B. ENGELBERG
/s/ Alfred B. Engelberg
------------------------------
SCHEIN PHARMACEUTICAL, INC.
/s/ Martin Sperber
------------------------------
Martin Sperber
Chairman of the Board
<PAGE>
EXHIBIT 10.34
LICENCE & DEVELOPMENT AGREEMENT
-------------------------------
AGREEMENT, effective as of this 30th November 1993 (hereinafter referred to as
the "EFFECTIVE DATE"), by and between SCHEIN PHARMACEUTICAL, INC, 100 Campus
Drive, Florham Park, NY 07932 USA, (hereinafter referred to as "LICENSEE") and
ETHICAL HOLDINGS PLC, a company registered in the United Kingdom and having its
principal place of business at Corpus Christi House, 9 West Street,
Godmanchester, Cambridgeshire, PE18 8HG, England (hereinafter referred to as
"ETHICAL").
WITNESSETH THAT:
----------------
WHEREAS, ETHICAL has acquired improved formulations of ********* for once daily
administration in man (hereinafter defined as the "PRODUCT"), combining active
drug agents in a patented pharmaceutical formulation capable of delivering the
drug agents in a controlled release manner after oral administration to man; and
WHEREAS, ETHICAL and LICENSEE have signed a Letter of Intent dated 30 August
1993 and LICENSEE desires to manufacture and/or have manufactured by ETHICAL and
sell the PRODUCT (hereinafter defined) in the TERRITORY; and
WHEREAS, ETHICAL owns valuable ETHICAL KNOW-HOW (hereinafter defined) and has
sought PATENT RIGHTS (hereinafter defined) relating to pharmaceutical
formulations designed to provide controlled release of active constituents from
solid dosage forms; and
WHEREAS, LICENSEE desires to aid the final product development and registration
with the U.S. FDA and LICENSEE will make the regulatory filing and the ANDA will
be held in the LICENSEE's name;
* Page redacted pursuant to confidential treatment request.
Page 1 November 93
<PAGE>
NOW THEREFORE, in consideration of the foregoing and the mutual covenants and
conditions set forth herein, the parties hereto mutually agree as follows:
ARTICLE I. DEFINITIONS
- -----------------------
The following terms shall have the meanings set forth in this Article I:
A. "ETHICAL" means ETHICAL HOLDINGS PLC, Corpus Christi House, 9 West Street,
Godmanchester, Cambs, PE18 8HG.
B. "LICENSEE" means SCHEIN PHARMACEUTICAL, INC, 100 Campus Drive, Florham
Park, NY 07932, USA.
C. "EFFECTIVE DATE" means 30th November 1993.
D. "ETHICAL KNOW-HOW" means all confidential scientific and medical
information, technical data and marketing studies in ETHICAL'S possession
or from time to time invented or developed or acquired by or on behalf of
ETHICAL or under the control of ETHICAL (other than LICENSEE KNOW-HOW)
relating specifically to the registration, marketing, manufacture, use or
sale of PRODUCT including, but not limited to, toxicological,
pharmacological, analytical and clinical data, bioavailability studies,
product forms and formulations, control assays and specifications, methods
of preparation and stability data and specifically including all
information contained in all health registration dossiers to be filed in
various countries of the European Community (EC) and shall further include
all Third Party data which ETHICAL has access to and is free to disclose
without restriction or compensation to such Third Party. Not withstanding
the foregoing, the term 'ETHICAL KNOW-HOW' shall not be deemed to refer to
information and data of the type which would not be required to be
maintained as confidential by either party pursuant to the provision of
Subsections B1 or 2 of Article XI.
Page 2 November 93
<PAGE>
E. "LICENSEE KNOW-HOW" means all confidential scientific and medical
information and technical data from time to time, developed or acquired by
or on behalf of LICENSEE (other than ETHICAL KNOW HOW) relating
specifically to the manufacture or use of the PRODUCT, including, but not
limited to, toxicological, pharmacological, analytical and clinical data,
bioavailability studies, product forms and formulations, control assays and
specifications, methods of preparation and stability data, and specifically
including all information contained in all health registration dossiers
filed in the TERRITORY by the LICENSEE. Not withstanding the foregoing, the
term `LICENSEE KNOW-HOW' shall not be deemed to refer to information and
data of the type which would not be required to be maintained as
confidential by either party pursuant to the provision of Subsections B1 or
2 of Article XI.
F. "PATENT RIGHTS" means the ** patent numbers ********** **********
********** ********** ******** and any and all ****** ****** *** **********
****** patents and patent applications filed by or issued to ETHICAL and
licensed or assigned to ETHICAL relating to controlled release formulations
for oral administration in man, or the manufacture or use of them, together
with any and all patents that may issue or may have issued therefrom,
including any and all divisions, continuations, continuations-in-part,
extensions, additions or reissues of or to any of the aforesaid patent
applications.
G. "PRODUCT" means controlled release ******* ** ******** based on the PATENT
RIGHTS and ETHICAL KNOW-HOW, containing ********* manufactured according
to the technology protected in the PATENT RIGHTS defined above to be used
for human therapy and exhibiting a similar pharmacokinetic profile to
* redacted pursuant to confidential treatment request
Page 3 November 93
<PAGE>
********** ******* ********* ******* sold in the TERRITORY at the EFFECTIVE
DATE under the trade name ******** *** and as further defined in Appendix
1.
H. "FINISHED PRODUCT" means PRODUCT in final consumer package.
I. "TERRITORY" means the ******* ***** ** ******** ********* *** ***********
*** ***********.
J. "NET SALES" of the PRODUCT means the gross sales of FINISHED PRODUCT
actually invoiced by the LICENSEE or LICENSEE's sublicensee hereunder to
INDEPENDENT THIRD PARTY, less chargebacks and rebates specifically related
to volume sales of the PRODUCT (up to a maximum of *** of gross sales), the
total ordinary and customary trade discounts (but not including cash
discounts for prompt payment), rebate for inventory price protection
covering the last 30 (thirty) days' sales by customers claiming such
rebates to counter competitive pressures, excise taxes, other consumption
taxes, customs duty, credits or allowances actually granted on account of
rejection or return of FINISHED PRODUCT.
K. "INDEPENDENT THIRD PARTY" means any party other than ETHICAL and LICENSEE
and their subsidiaries or affiliates.
L. "AGREEMENT" means this agreement duly signed by the Parties.
M. "DEVELOPMENT PROGRAMME" means the detailed schedule as set forth as
Appendix 2 hereto which describes the planned development activities,
project deliverables and timetable presently believed to be required to
obtain regulatory approval to market, promote and distribute the PRODUCT in
the TERRITORY. Without limiting the generality of the foregoing, the
DEVELOPMENT PROGRAMME outlines the obligations of ETHICAL with respect to
pre-clinical
* redacted pursuant to confidential treatment request
Page 4 November 93
<PAGE>
studies and the obligations of LICENSEE with respect to manufacturing
development, including compliance with "Good Manufacturing Practice"
requirements applicable in the TERRITORY. The DEVELOPMENT PROGRAMME may be
amended from time to time by the mutual consent of the parties in light of
periodic progress reviews and regulatory requirements. Neither party shall
be required to perform development work with respect to the PRODUCT except
as set forth in the DEVELOPMENT PROGRAMME as from time to time is in
effect.
N. ***** ***** *** ****** ****** **** *** **** **************.
0. "MARKETING AUTHORISATIONS" means the consent or approval of the *** and any
applicable comparable state agencies required to market or distribute the
FINISHED PRODUCT in the TERRITORY.
ARTICLE II. WARRANTY
- ---------------------
ETHICAL warrants that it is exclusive owner of all rights, title and interest in
and to the PATENT RIGHTS and ETHICAL KNOW-HOW and that it is free to enter into
this AGREEMENT and to carry out all of the provisions hereof including its
agreement to grant to LICENSEE an exclusive licence with the right to grant
certain sub-licences with respect to the PRODUCT in the TERRITORY without any
consents from any third parties.
ARTICLE III. LICENCE GRANT
- ---------------------------
A. Subject to C below ETHICAL hereby grants to LICENSEE the exclusive right
under the PATENT RIGHTS and ETHICAL KNOW-HOW with the right to grant sub-
licenses, to make and/or manufacture, use, promote and sell the PRODUCT and
FINISHED PRODUCT in the TERRITORY.
* redacted pursuant to confidential treatment request
Page 5 November 93
<PAGE>
B. Subject to C below, ETHICAL hereby grants to LICENSEE the exclusive right
to use ETHICAL's KNOW-HOW for marketing and selling the PRODUCT in the
TERRITORY.
C. For the avoidance of doubt, and in addition to Article XI hereof, ETHICAL
shall have a continuing right to make, have made and use for its own
investigational and developmental purposes (but not sell, directly or
indirectly in, or to the TERRITORY) the PRODUCT in the TERRITORY. If
ETHICAL acquires or develops rights to additional claims or indications for
the PRODUCT, it shall make these available to LICENSEE as part of the
licence granted hereunder, without additional compensation to ETHICAL
provided that any additional development costs for such claims or
indications are mutually agreed.
D. All proprietary rights and rights of ownership with respect to the PATENT
RIGHTS, and ETHICAL KNOW-HOW shall at all times remain solely with ETHICAL
and LICENSEE shall have no proprietary rights in or to the PATENT RIGHTS,
and ETHICAL KNOW-HOW other than those specifically granted herein. All
proprietary rights to LICENSEE KNOW-HOW belong to and shall at all times
remain solely with LICENSEE, other than as specifically provided herein.
E. LICENSEE shall exert its best efforts to commercialise and to create a
demand for the PRODUCT and FINISHED PRODUCT in the TERRITORY under its own
trademark and other private labels, consistent with the market potential
for the PRODUCT in the TERRITORY determined by LICENSEE in a commercially
reasonable manner. LICENSEE shall own and retain all right, title, and
interest in and to any trademark or trademarks used by it in the TERRITORY
in connection with the PRODUCT.
Page 6 November 93
<PAGE>
F. LICENSEE will be responsible for ensuring that the sale and supply by
LICENSEE of the PRODUCT and FINISHED PRODUCT within the TERRITORY is in
accordance with the legal and regulatory requirements of the TERRITORY,
subject to the compliance by ETHICAL with its representations and
obligations under this AGREEMENT.
G. For the term of this AGREEMENT, ETHICAL agrees that it will not, directly
or indirectly, market, sell, or distribute in the TERRITORY or develop or
assist in the development for use, marketing, sale or distribution in the
TERRITORY any PRODUCT or FINISHED PRODUCT except as provided in this
AGREEMENT.
ARTICLE IV. PAYMENT PRIOR TO COMMERCIALISATION
- -----------------------------------------------
A. In consideration of the development and technical support to the LICENSEE
in the TERRITORY for the PRODUCT, the LICENSEE agrees to pay ETHICAL *
***** ** *** ********** **** ******** **** ******* ******** ** ********,
("LICENSEE payments"), of which ETHICAL has already received from
LICENSEE the *** ** *** ****** ***** ******* *** *********** ******** **
********. The remainder will be paid in instalments as follows:
a) ********* *********** ******** ** ******** upon signing of this
AGREEMENT.
b) ********** **** ******* * ****** ******** ** ******** upon LICENSEE's
completion of a pilot bioavailability study in no less than 12
(twelve) subjects demonstrating concentration time profile for the
***** strength PRODUCT satisfactory to progress the project on to ANDA
programme.
* redacted pursuant to confidential treatment request
Page 7 November 93
<PAGE>
c) ********** **** ******* * ****** ******** ** ******** upon LICENSEE's
completion of a pilot bioavailability study in no less than 12
(twelve) subjects demonstrating concentration time profile for the
***** strength PRODUCT satisfactory to progress the project on to ANDA
programme.
d) ********* **** ******* * *********** ******** ** ******* upon
satisfactory manufacturing technology transferred to LICENSEE or a
LICENSEE affiliate, or, upon mutual agreement, at ETHICAL's nominated
manufacturer as witnessed by the production of necessary bio-batches
according to the PRODUCT specification agreed to in writing by
LICENSEE and ETHICAL following successful completion of the pilot
bioavailability study referred to in subsection (b) or (c) above and,
in the case of ETHICAL's manufacture of the PRODUCT or ETHICAL's
nominated manufacturer, the execution of a Supply Agreement between
ETHICAL and LICENSEE
e) ********** ***** ******* * ********** ******** ** ******* upon
LICENSEE's filing to the FDA of an application for approval of a *****
strength PRODUCT.
f) ********** ****** ******* * *********** ******** ** ******** upon
LICENSEE's filing to the FDA of an application for approval of a *****
strength PRODUCT.
g) ********** ***** ******* * *********** ******** ** ******** upon FDA
approval of either or both strengths.
B. In the event that scientific results do not indicate that the Product
objectives can be obtained, LICENSEE may nominate an alternative project
(including the development programme relating to ********* *** **** ***
***** ***** ************** as contemplated by the Licence & Development
Agreement dated
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<PAGE>
15th January, 1993 between LICENSEE and ETHICAL (the ***********
Agreement") and apply the payments made under this Article IV A (a) and the
********** ***** ******* * ****** **** ******** ** ******** payment
described in Article IV A to such project, less ETHICAL's documented
out-of-pocket expenses for Product development for the period starting 1st
December, 1993 through completion of the pilot biostudies described below
(the "Development Period"). This right so to nominate expires at the due
date of the payment required under Article IV A(b).
C. These payments are not to be regarded as a pre-payment against royalty as
described under Article V. It is further understood that LICENSEE shall not
be liable to make any payment provided above in Subsection A except upon
the occurrence of the milestone therein specified for such payment.
ARTICLE V. RUNNING ROYALTIES
- ----------------------------
LICENSEE shall pay to ETHICAL running royalties as follows:
A. ******* ** * ********** ** ****** ******** ** *** *** *****.
B. ** *** ***** **** ******* ** **** ****** ********* * ***** *****
************ ** ** ****** *** ******* ** *** ********* *** ****** *****
**** ** ***** ******** ************* ***** **** *** ******** ********* ****
***** ** ** ******* *** *** *** ** * ******** ****** ********* ** **
******** ****** **** ** ********** **** ******* ** *******
C. LICENSEE shall promptly give notice to ETHICAL of the date of first
commercial sale of the PRODUCT in the TERRITORY.
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Page 9 November 93
<PAGE>
D. In the event the royalty rates set forth immediately above exceed those
allowable by applicable law or governmental rule or regulation, they shall
be so modified as to conform to the maximum royalty rate(s) allowable.
E. The obligation to pay running royalties hereunder shall terminate with
respect to sales of the PRODUCT which follow the termination of this
AGREEMENT (except for those royalties contemplated by Article IX hereof).
F. Royalty term may be subject to review and renegotiation in the event of
intensive competitive pressures, and the parties undertake to conduct such
review and renegotiation in good faith.
ARTICLE VI. PAYMENT OF RUNNING ROYALTIES
- -----------------------------------------
A. Running royalties due to ETHICAL under Article V of this AGREEMENT shall
accrue when the FINISHED PRODUCT is invoiced by the LICENSEE in accordance
with the provisions below:
B. Running royalties accruing hereunder shall be due and payable on the 45th
(forty-fifth) day following the close of each fiscal quarterly period of
LICENSEE.
C. Running royalties accruing hereunder shall be paid in U.S. dollars to
ETHICAL or ETHICAL's designee, acceptable to ******** in its reasonable
business judgment, duly named by ETHICAL in written notice to LICENSEE.
D. Running royalties accruing hereunder shall be paid in United States
Dollars.
E. If, at any time, legal restrictions in the TERRITORY prevent the prompt
payment of running royalties or any portion thereof accruing hereunder, the
parties shall meet to discuss suitable and reasonable alternative methods
of reimbursing ETHICAL the amount of such running royalties.
* redacted pursuant to confidential treatment request
Page 10 November 93
<PAGE>
ARTICLE VII. ROYALTY REPORTS
- ----------------------------
A. Each payment of running royalties made to ETHICAL hereunder shall be
accompanied by a written report, prepared and signed by a financial officer
of LICENSEE, showing the NET SALES for the months of the quarterly period
for which payment is being made. In the event that no running royalty is
due to ETHICAL hereunder for any such quarterly period, LICENSEE shall so
report.
B. LICENSEE gun maintain and keep for a period of at least 3 (three) years or,
if shorter, for such period as required by applicable **** ******* ** *****
**** complete and accurate records in sufficient detail to enable any
running royalties which shall have accrued hereunder to be determined.
C. Upon the request of ETHICAL, but not exceeding once in any one yearly
period, LICENSEE shall permit an independent public accountant selected by
ETHICAL and acceptable to LICENSEE, which acceptance shall not be
unreasonably withheld, to have access to such of the records of LICENSEE as
may be necessary to verify the accuracy of the royalty reports and payments
submitted to ETHICAL hereunder. Any such inspection of LICENSEE's records
shall be at ETHICAL's expense, except that if any such inspection reveals a
deficiency in an amount of running royalty actually paid to ETHICAL
hereunder in any quarterly period of ** ***** ******** or more of the
amount of such running royalty actually due to ETHICAL hereunder, then the
expense of such inspection shall be borne by LICENSEE instead of by ETHICAL
Any amount of deficiency shall be paid promptly to ETHICAL.
ARTICLE VIII. REGISTRATION OF THE LICENSED PRODUCT
- --------------------------------------------------
A. ETHICAL and LICENSEE have agreed that PRODUCT development should progress
as specified in Appendices 1 and 2.
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Page 11 November 93
<PAGE>
B. LICENSEE shall bear the cost of all application fees to government
authorities for MARKETING AUTHORISATIONS including, without limitation,
*********** *** **** ************ ******** ***** **** *** or any other fees
concerning approvals from government authorities necessary to commercialise
the PRODUCT in the TERRITORY. The Marketing Authorisations and all ******
in the TERRITORY shall be the sole and exclusive property of LICENSEE.
C. During the course of this AGREEMENT, LICENSEE may wish ETHICAL to develop
additional strengths of the product which ETHICAL will undertake on terms
and conditions mutually acceptable to both parties according to the
principles of this AGREEMENT.
ARTICLE IX. DURATION. TERMINATION
- ---------------------------------
A. DURATION
--------
This AGREEMENT shall come into force as of the EFFECTIVE DATE and remain in
force for the term of any patents issued in the TERRITORY relating to the
PRODUCT and included in the PATENT RIGHTS or for ** ********* ***** from
first commercial sale, whichever is the longer.
This AGREEMENT shall automatically be extended thereafter for successive 2
(two) year terms unless either party notifies the other of its decision not
to renew this AGREEMENT at least 12 (twelve) months prior to the
commencement of any such renewal term. Following any such termination
LICENSEE shall have the right to manufacture and distribute the PRODUCT in
the TERRITORY on a non-exclusive basis for which LICENSEE would pay to
ETHICAL * ******** ****** ***** ** ** ***** ******** of NET SALES of the
PRODUCT in the TERRITORY.
* redacted pursuant to confidential treatment request
Page 12 November 93
<PAGE>
B. TERMINATION FOR CAUSE
---------------------
Either party hereto may terminate this AGREEMENT upon 90 (ninety) days
written notice calculated from the date of receipt of such notice to the
other party of its intention to do so in the event of violation or breach
of any of the material provisions of this AGREEMENT. Should, however, the
other party remedy the default upon which said notice is based within the
said 90 (ninety) day period, the notice shall be without effect and this
AGREEMENT shall continue in full force and effect.
C. (1) In the event this AGREEMENT is terminated prior to the date of its
expiration in the TERRITORY due to fault of LICENSEE, LICENSEE shall
promptly make an accounting to ETHICAL of the inventory of all
PRODUCT which it has on hand in the TERRITORY, if any, as of the date
of such termination and said parties shall thereafter have the right
for a period of 6 (six) months after said termination to sell such
inventory of PRODUCT provided that the NET SALES thereof shall be
subject to the royalty provisions of Article V and so payable to
ETHICAL. Thereafter, any remaining inventory of PRODUCT shall be
disposed of by mutual agreement in accordance with regulatory
requirements.
(2) In the event this AGREEMENT is terminated prior to the date of its
expiration due to fault of ETHICAL, LICENSEE shall have the
unrestricted right to continue to use and sublicense the PATENT RIGHTS
and ETHICAL KNOW-HOW RIGHTS, and to make, manufacture, use, promote
and sell the PRODUCT and FINISHED PRODUCT in the TERRITORY for the
duration as defined in Article IX A above, in which case Article V, A
shall read ** ** ** ********* *** ****** ** **** **** ***** ****
*******.
* redacted pursuant to confidential treatment request
Page 13 November 93
<PAGE>
D. (1) If, within 6 (six) months after receipt of MARKETING AUTHORISATIONS
for the PRODUCT in the TERRITORY, LICENSEE has not commenced
commercial sales of the PRODUCT, then ETHICAL may terminate the
AGREEMENT effective immediately upon giving notice to LICENSEE.
(2) Should LICENSEE proceed to commercialise the PRODUCT in the
TERRITORY and then choose to abandon commercialisation of the PRODUCT
in the TERRITORY for any reasons, then LICENSEE shall promptly notify
ETHICAL of such abandonment of commercialisation, and ETHICAL may
terminate this AGREEMENT, effective immediately upon giving notice to
LICENSEE.
(3) Should LICENSEE make the determination, for any reason, that it does
not intend to commercialise the PRODUCT in the TERRITORY, then
LICENSEE shall promptly notify ETHICAL of the same and ETHICAL may
terminate this AGREEMENT immediately upon giving notice to LICENSEE.
E. Upon any early termination of this AGREEMENT in full due to the fault of
LICENSEE, ETHICAL shall have the right to use, including license to any
Third Party(ies), any LICENSEE KNOW-HOW and any other information and data
developed by or for LICENSEE with respect to the PRODUCT subject to
compensation arrangements to LICENSEE mutually acceptable to LICENSEE and
ETHICAL (including without limitation royalty payments in respect of such
LICENSEE KNOW-HOW).
F. In the event any of the patents included in the PATENT RIGHTS is found by a
court of applicable jurisdiction to be invalid or unenforceable in the
TERRITORY and as a result thereof an INDEPENDENT THIRD PARTY would be
entitled to manufacture or distribute and thereafter commercialises the
PRODUCT in the
Page 14 November 93
<PAGE>
TERRITORY utilising any technology covered by the PATENT RIGHTS, then
LICENSEE in its discretion may terminate this AGREEMENT or, at LICENSEE's
election, continue this AGREEMENT in full force and effect **** * *********
** ******* ********* ** *** *** ******** *******. Such termination would
not be subject to Article IX C (2) of this AGREEMENT.
G. Termination of this AGREEMENT, due to the fault of either party, shall be
without prejudice to any other rights or remedies then or thereafter
available to either party under this AGREEMENT or otherwise.
H. The rights granted either party to terminate this Agreement prior to the
expiration of its term shall not be affected in any way by that party's
waiver of or failure to take action with respect to any previous default
hereunder.
ARTICLE X. PRODUCT MANUFACTURE BY LICENSEE
- ------------------------------------------
If LICENSEE undertakes to manufacture PRODUCT and FINISHED PRODUCT in the
TERRITORY such manufacturing shall be in accordance with prevailing "Good
Manufacturing Practice" in the TERRITORY.
ARTICLE X1. PRODUCT MANUFACTURE AND SUPPLY BY ETHICAL
- -----------------------------------------------------
At the request of LICENSEE, ETHICAL shall use its best efforts to manufacture or
have manufactured and provide to LICENSEE such supply of PRODUCT as is
requested by LICENSEE. ETHICAL shall ensure that it or any nominated
manufacturer or manufacturers comply with the appropriate standards required to
meet US Good Manufacturing Practice, for sale of the PRODUCT in the TERRITORY.
Any such manufacture and supply of PRODUCT will be in accordance with the terms
and conditions of the separate Supply Agreement to be negotiated and agreed upon
in good faith between the parties
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<PAGE>
ARTICLE XII. INFORMATION TRANSFER: CONFIDENTIALITY AND COOPERATION
- ------------------------------------------------------------------
A. Within 30 (thirty) days following the signing of this AGREEMENT, ETHICAL
shall provide to LICENSEE copies of relevant ETHICAL KNOW-HOW.
B. Each party shall hold in strict confidence any tangible information
relating to the PRODUCT marked confidential received from the other party
(or oral information which is reduced to tangible form within 30 (thirty)
days of disclosure and noted to be confidential), unless such information:
1. Is already in its possession.
2. Is already in the public domain or knowledge at the time of disclosure
or later comes into the public domain or knowledge without fault on the
part of the recipient.
3. Is subsequently disclosed to the recipient by a third party who did not
acquire it in confidence from the other party.
4. Is required to be disclosed in connection with any legal proceedings or
in order to obtain permission to manufacture or market the PRODUCT in
the TERRITORY.
This provision shall remain valid for a period of ***** ***** after
termination of this AGREEMENT.
C. For the period starting with the EFFECTIVE DATE and ending with the first
commercial sale of the PRODUCT in the TERRITORY, ETHICAL shall report to
LICENSEE on a monthly basis the progress of the DEVELOPMENT PROGRAMME, as
defined in Appendix 2, of the PRODUCT. LICENSEE will provide a project
update to ETHICAL on a quarterly basis. ETHICAL will use its
* redacted pursuant to confidential treatment request
Page 16 November 93
<PAGE>
best efforts to carry out the DEVELOPMENT PROGRAMME in accordance with the
timetable setforth in Appendix 2. ETHICAL will carry out the DEVELOPMENT
PROGRAMME in accordance with applicable laws and regulations of the
TERRITORY, including, without limitation, *** ***********. All costings
included in the DEVELOPMENT PROGRAMME shall be jointly reviewed every *
***** ****** by ETHICAL and LICENSEE.
D. ETHICAL will on a continuous basis provide to LICENSEE any ETHICAL KNOW-HOW
developed, information acquired or development planned in relation to the
PRODUCT and all improvements and modifications of the PRODUCT from time to
time invented, developed or acquired by or on behalf of ETHICAL. Prior to
the date of first commercial sale of the PRODUCT in the TERRITORY, LICENSEE
shall provide to ETHICAL a summary of its marketing plans for the PRODUCT.
E. ETHICAL shall make available to LICENSEE, on a reasonable consultation
basis without charge to LICENSEE, such advice of its technical personnel as
may reasonably be requested by LICENSEE in connection with the PRODUCT, it
being understood that LICENSEE will reimburse all reasonable out-of-pocket
expenses incurred by ETHICAL attending meetings requested by LICENSEE.
F. LICENSEE shall disclose to ETHICAL and ETHICAL shall disclose to LICENSEE
all reports or other knowledge they my possess with respect to "adverse
drug experiences" *** ******* ** *********** *********** ** *** ****, mis-
labelling, stability failures or microbiological contamination with respect
to the PRODUCT (whether occurring within or outside of the TERRITORY)
within 10 (ten) days of becoming aware of same. With respect to "serious
adverse drug experiences" *** ******* ** ** *** ******* *** *******
*********** ** *** ****, LICENSEE shall disclose to ETHICAL and ETHICAL
shall disclose to LICENSEE all reports and
* redacted pursuant to confidential treatment request
Page 17 November 93
<PAGE>
other knowledge they may possess as soon as possible and in no event later
than 2 (two) business days of the receipt of such report or notification of
the serious adverse drug experience. The content of such disclosure shall
comply with *** *** *********** ********** ** ************ ** *** *** with
respect to such matters. Each party shall promptly deliver to the other,
copies of all correspondence which such party may send to, or receive from,
*** *** with respect to the PRODUCT.
G. During the term of this AGREEMENT, at least semi-annually, ETHICAL shall
furnish to LICENSEE any ETHICAL KNOW-HOW and any other information and data
developed or acquired by or under the control of ETHICAL with respect to
the PRODUCT. ETHICAL hereby acknowledges and agrees that LICENSEE may use,
within the TERRITORY, all such ETHICAL KNOW-HOW and information and data
without restriction and without additional compensation to ETHICAL, other
than as provided in this AGREEMENT, to make, have made, use and sell the
PRODUCT in the TERRITORY.
H. During the term of this AGREEMENT, at least semi-annually, LICENSEE shall
furnish to ETHICAL any LICENSEE KNOW-HOW and any other information and data
developed or acquired by or under the control of LICENSEE with respect to
the PRODUCT, subject to the following sentence. LICENSEE shall be under no
obligation to provide any LICENSEE KNOW-HOW, information or data to ETHICAL
hereunder (i) if the disclosure of such would be in violation of any
obligation LICENSEE owes to any THIRD PARTY, or (ii) until and unless
LICENSEE and ETHICAL have entered into a mutually acceptable arrangement
providing compensation to LICENSEE for ETHICAL's use of any such LICENSEE
KNOW-HOW, information or data. Notwithstanding the foregoing, LICENSEE
agrees to provide to ETHICAL, at no charge to ETHICAL, a summary (without
data) of the results of the bioavailability studies referred to in Article
IV hereof.
* redacted pursuant to confidential treatment request
Page 18 November 93
<PAGE>
ARTICLE XIII. INFRINGEMENT
- --------------------------
A. (1) ETHICAL and LICENSEE each agree to notify the other in writing of any
alleged infringement or potential infringement of any PATENT RIGHTS or
any information or allegations impacting on the validity of any such
PATENT Rights, in the TERRITORY promptly after becoming aware of the
same.
(2) Should ETHICAL elect to take action in its own name against an alleged
infringer, then all recoveries from such action shall inure to the
benefit of the parties in accordance with their mutual agreement taking
into consideration the profits lost by ETHICAL and LICENSEE in respect
of the sales accounted for by the infringer and ETHICAL shall bear the
cost and expense of any such action.
(3) If, within 30 (thirty) days after receipt by ETHICAL of notification of
alleged infringement, ETHICAL does not take action against an alleged
infringer or potential infringer and has failed to notify LICENSEE in
writing of its intent promptly to commence an action to terminate the
alleged infringement or potential infringement, then LICENSEE shall have
the right to commence such action on its own behalf at its own cost and
expense and to use ETHICAL's name in connection therewith, in which case
any recoveries shall inure to the benefit of LICENSEE
(4) ETHICAL AND LICENSEE, each at the request of the other, shall assist
each other and cooperate in any action taken, other than direct
financial assistance, against an alleged infringer or potential
infringer.
B. (1) ETHICAL hereby represents that, to the best of its knowledge, none of
the PATENT RIGHTS or ETHICAL KNOW-HOW infringe on the patent or other
legally protected proprietary rights of any Third Party, and it has not
received
Page 19 November 93
<PAGE>
any notice or claim of any such infringement worldwide. ETHICAL agrees
to hold LICENSEE harmless from any judgements, losses or costs
(including reasonable attorneys' fees) incurred in the event a claim or
legal action is asserted against LICENSEE to the effect that the
manufacture, use or sale of the PRODUCT infringes the PATENT RIGHTS or
other legally protected proprietary rights of THIRD PARTIES.
(2) ETHICAL mid LICENSEE shall each give to the other prompt written notice
of any claim or action made against either of them alleging that any of
the PATENT RIGHTS infringe the rights of an INDEPENDENT THIRD PARTY and
arising from the manufacture, use or sale of the PRODUCT in the
TERRITORY. ETHICAL and LICENSEE agree to cooperate and collaborate with
each other in undertaking a full investigation of the situation and in
taking such action as they shall agree is appropriate in the
circumstances.
C. ETHICAL shall be solely responsible for and bear the cost of the prosecution
and maintenance of the PATENT RIGHTS.
D. The provisions of this Article XIII shall survive termination of this
AGREEMENT.
ARTICLE XIV. TRANSFER OF RIGHTS AND OBLIGATIONS
- -----------------------------------------------
This AGREEMENT, in whole or in part, shall not be assignable by either party
hereto to any INDEPENDENT THIRD PARTY without the prior written consent of the
other party hereto except that either party may assign this AGREEMENT to an
affiliated company or the successor or assignee of substantially all of its
business. It is expressly understood and agreed by the parties hereto that the
assignor of any rights hereunder shall remain bound by its duties and
obligations hereunder.
Page 20 November 93
<PAGE>
ARTICLE XV. DISCLOSURE
- ----------------------
ETHICAL and LICENSEE shall have the right, subject to the written approval of
the other, to disclose to any Third Party(ies) in connection with any
announcement, news release, or for any other reason the existence of this
AGREEMENT entered into with the LICENSEE, but not the terms hereof.
Notwithstanding the foregoing, each party shall have the right to make such
disclosures relating to this AGREEMENT as may be required by applicable laws
and regulations.
ARTICLE XVI. FORCE MAJEURE
- --------------------------
ETHICAL and LICENSEE shall not be liable for delays if such delays are due to
force majeure case, such as strikes, disputes with workmen, failure of supplies
from ordinary sources, fire, floods earthquakes, governmental regulation against
the aims of this AGREEMENT, war, legislation or any other cause, either similar
or dissimilar to the foregoing, beyond the reasonable control of the parties
winch cannot be overcome by due diligence.
ARTICLE XVII. NOTICE
- --------------------
Any notice or report required or permitted to be given or made under this
AGREEMENT by either party to the other shall be in writing, sent by hand or by
registered or express mail or courier, postage prepaid, telex or telefax,
addressed to such other party at its address indicated at the beginning of this
AGREEMENT or to such other address as the addressee shall have last furnished in
writing to the addressor, and shall be effective upon receipt by the addressee.
Page 21 November 93
<PAGE>
ARTICLE XVIII. FURTHER ASSURANCES
- ---------------------------------
From and after the date hereof, without further consideration, ETHICAL and
LICENSEE shall, from time to time during the term of this AGREEMENT, upon
request by the other, perform all actions and execute, acknowledge and deliver
all such further documents or instruments as may be required to give effect to
the purpose and intent of this AGREEMENT Without limiting the generality of the
foregoing, the obligations of ETHICAL and LICENSEE are undertaken with a
principle objective of complying with all pertinent provisions of applicable
law, orders and regulations relating to the manufacture, use or sale in the
TERRITORY of pharmaceutical products; the obligation of ETHICAL shall include
the attendance by representatives of ETHICAL, upon reasonable advance request by
LICENSEE, at meetings with *** *** with respect to *** **** *** *******
*************** ** *** ******** ** *** ******* ** ********* ****** ****
********* All out-of-pocket expenses incurred in attending such meetings will
be paid by LICENSEE.
ARTICLE XIX. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
- -------------------------------------------------------------------
Except as otherwise specifically provided in this AGREEMENT, all
representations, warranties and agreements contained in this AGREEMENT shall
survive the execution and delivery of this AGREEMENT and remain in full force
and effect regardless of any investigation made by or on behalf of either
ETHICAL or LICENSEE.
ARTICLE XX. ARBITRATION
- -----------------------
All disputes arising in connection with the AGREEMENT shall be settled under the
Rules of Conciliation and Arbitration of the International Chamber of Commerce
by one or more arbitrator in accordance with the said RULES, as follows:
* redacted pursuant to confidential treatment request
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<PAGE>
Each of the parties shall designate its arbitrator within 15 (fifteen) days from
notification by registered letter. The two arbitrators thus designated shall
designate a third arbitrator within 30 days from designation of the second
arbitrator, the said third arbitrator shall preside over the arbitration court.
Arbitration should be held in London if ETHICAL initiates the request and if
LICENSEE initiates the request arbitration should be held in *** *****
ARTICLE XXI. DISCLAIMER OF AGENCY
- ---------------------------------
The parties acknowledge that each of LICENSEE and ETHICAL are independent
contractors and nothing herein contained shall be deemed to create any
relationship in the nature of agency, joint venture, partnership or similar
relations between LICENSEE and ETHICAL.
ARTICLE XXII. SEVERABILITY
- --------------------------
Whenever possible, each provision of this AGREEMENT shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this AGREEMENT should be prohibited or invalid under applicable law, such
provision shall be ineffective to the extent of such invalidity without
invalidating the remainder of such provision or the remaining provisions of this
AGREEMENT to the extent such modification does not impair or change the intent
of the parties hereto.
ARTICLE XXIII. PARAGRAPH HEADINGS
- ---------------------------------
The subject headings of the Articles of this AGREEMENT are included for the
purposes of convenience only, and shall not affect the construction or
interpretation of any of its provisions.
* redacted pursuant to confidential treatment request
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<PAGE>
ARTICLE XXIV. ENTIRE AGREEMENT: AMENDMENT
- -----------------------------------------
This AGREEMENT contains the entire understanding of the parties with respect to
the matters contained herein and supersedes any previous agreements and may be
altered or amended only by a written instrument duly executed by both parties
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this AGREEMENT in
duplicate originals.
ETHICAL HOLDINGS LTD SCHEIN PHARMACEUTICAL. INC
- -------------------- --------------------------
BY: /s/ G. W. Guy BY: /s/ Steven Getraer
------------------ ------------------
PRINT: DR. G. W. Guy PRINT: Steven Getraer
-------------- ---------------
DATE: 11/th/ Jan 1994 DATE: 15 Jan 94
--------------- ----------------
Page 24 November 93
<PAGE>
APPENDIX 1 - PRODUCT DEFINITION
-------------------------------
** ** ***** ******* ** *** * *** ** ********* ** ** ********** ** ***
**** ******** ******** ********* ***
* redacted pursuant to confidential treatment request
Page 25 November 93
<PAGE>
[ * ]
* Entire page redacted pursuant to confidential treatment request.
<PAGE>
EXHIBIT 10.35
LICENCE & DEVELOPMENT AGREEMENT
AGREEMENT, effective as, of, this 15th January 1993 (hereinafter referred to as
the "EFFECTIVE DATE"), by and between SCHEIN PHARMACEUTICAL, INC., 1800 Northern
Boulevard, Roslyn, NY 11576, U.S.A., (hereinafter referred to as "LICENSEE") and
ETHICAL HOLDINGS LIMITED, a company registered in the United Kingdom and having
its principal place of business at Cambridgeshire Business Park, Ely,
Cambridgeshire, CB7 4EE, England (hereinafter referred to as "ETHICAL").
WITHESSETH THAT:
WHEREAS, ETHICAL has developed improved formulations of ********** *** **** ***
***** ***** ************** in man (hereinafter defined as the "PRODUCT"),
combining active drug agents in a patented pharmaceutical formulation capable of
delivering the drug agents in a controlled release manner after oral
administration to man; and
WHEREAS, ETHICAL and LICENSEE have signed a Letter of Intent dated 12th November
1992 and LICENSEE desires to sell the PRODUCT (hereinafter defined) in the
TERRITORY; and
WHEREAS, ETHICAL owns valuable ETHICAL KNOW-HOW (hereinafter defined) and has
sought PATENT RIGHTS (hereinafter defined) relating to pharmaceutical
formulations designed to provide controlled release of active constituents from
solid dosage forms; and
WHEREAS, LICENSEE desires to aid the final product development and registration
with the U.S. FDA and LICENSEE will make the regulatory filing and the NDA/ANDA
will be held in the LICENSEE's name;
* redacted pursuant to confidential treatment request
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<PAGE>
NOW THEREFORE, in consideration of the foregoing and the mutual covenants and
conditions set forth herein, the parties hereto mutually agree as follows:
ARTICLE I. DEFINITIONS
The following terms shall have the meanings set forth in this Article I:
A. "ETHICAL" means ETHICAL HOLDINGS LTD, Cambridgeshire Business Park, Angel
Drove, Ely, Cambs, CB7 4EE.
B. "LICENSEE" means SCHEIN PHARMACEUTICAL, INC., 1800 Northern Boulevard,
Roslyn, NY 11576, USA.
C. "EFFECTIVE DATE" means 15th January 1993.
D. "ETHICAL KNOW-HOW" means all confidential scientific and medical information,
technical data and marketing studies in ETHICAL'S possession or from time to
time invented or developed or acquired by or on behalf of ETHICAL or under
the control of ETHICAL (other than LICENSEE KNOW-HOW) relating specifically
to the registration, marketing, manufacture, use or sale of PRODUCT
including, but not limited to, toxicological, pharmacological, analytical and
clinical data, bioavailability studies, product forms and formulations,
control assays and specifications, methods of preparation and stability data
and specifically including all information contained in all health
registration dossiers to be filed in various countries of the European
Community (EC) and shall further include all Third Party data which ETHICAL
has access to and is free to disclose without restriction or compensation to
such Third Party. Not withstanding the foregoing, the term 'ETHICAL KNOW-HOW'
shall not be deemed to refer to information and
Page 2
<PAGE>
data of the type which would not be required to be maintained as confidential
by either party pursuant to the provision of Subsections B1 or 2 of Article
XI.
E. "LICENSEE KNOW-HOW" means all confidential scientific and medical information
and technical data from time to time, developed or acquired by or on behalf
of LICENSEE (other than ETHICAL KNOW-HOW) relating specifically to the
manufacture or use of the PRODUCT, including, but not limited to,
toxicological, pharmacological, analytical and clinical data, bioavailability
studies, product forms and formulations, control assays and specifications,
methods of preparation and stability data, and specifically including all
information contained in all health registration dossiers filed in the
TERRITORY by the LICENSEE. Not withstanding the foregoing, the term 'LICENSEE
KNOW-HOW' shall not be deemed to refer to information and data of the type
which would not be required to be maintained as confidential by either party
pursuant to the provision of Subsections B1 or 2 of Article XI.
F. "PATENT RIGHTS" means the **** patent application number ********* ***** **
**** ******* **** *** *** ****** ****** ******* and any and *** ****** ******
*** ********** ****** patents and patent applications filed by or issued to
ETHICAL and licensed or assigned to ETHICAL relating to controlled release
formulations for oral administration in man, or the manufacture or use of
them, together with any and all patents that may issue or may have issued
therefrom, including any and all divisions, continuations, continuations-in-
part extensions, additions or reissues of or to any of the aforesaid patent
applications.
* redacted pursuant to confidential treatment request
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<PAGE>
G. "PRODUCT" means ********** ******* ******* based on the PATENT RIGHTS and
ETHICAL KNOW-HOW, containing nifedipine manufactured according to the
technology protected in the PATENT RIGHTS defined above to by used for human
therapy and exhibiting a similar pharmacokinetic profile to **********
******* ********** tablets sold in the TERRITORY at the EFFECTIVE DATE under
the trade name ************ and as further defined in Appendix 1.
H. "FINISHED PRODUCT" means PRODUCT in final consumer package.
I. "TERRITORY" shall mean *** ****** ****** ** ******** ********* ***
*********** *** ************
J. "NET SALES" of the PRODUCT shall mean the gross sales of FINISHED PRODUCT
actually invoiced by the LICENSEE or LICENSEE's sublicensee hereunder to
INDEPENDENT THIRD PARTY, less chargebacks and rebates specifically related to
volume sales of the PRODUCT (up to a maximum of 15% of gross sales), the
total ordinary and customary trade discounts (but not including cash
discounts for prompt payment), rebate for inventory price protection covering
the last 30 (thirty) days' sales by customers claiming such rebates to
counter competitive pressures, excise taxes, other consumption taxes,
customs duty, credits or allowances actually granted on account of rejection
or return of FINISHED PRODUCT.
K. "INDEPENDENT THIRD PARTY" means any party other than ETHICAL and LICENSEE and
their subsidiaries or affiliates.
L. "AGREEMENT" means this agreement duly signed by the Parties.
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M. "DEVELOPMENT PROGRAMME" shall mean the detailed schedule as set forth as
Appendix 2 hereto which describes the planned development activities, project
deliverables and timetable presently believed to be required to obtain
regulatory approval to market, promote and distribute the PRODUCT in the
TERRITORY. Without limiting the generality of the foregoing, the DEVELOPMENT
PROGRAMME outlines the obligations of ETHICAL with respect to pre-clinical
studies and the obligations of LICENSEE with respect to manufacturing
development, including compliance with "Good Manufacturing Practice"
requirements applicable in the TERRITORY. The DEVELOPMENT PROGRAMME may be
amended from time to time by the mutual consent of the parties in light of
periodic progress reviews and regulatory requirements. Neither party shall be
required to perform development work with respect to the PRODUCT except as
set forth in the DEVELOPMENT PROGRAMME as from time to time is in effect.
N. ***** ***** *** ****** ****** **** *** **** ***************
0. "MARKETING AUTHORISATIONS" means the consent or approval of the FDA and any
applicable comparable state agencies required to market or distribute the
FINISHED PRODUCT in the TERRITORY.
ARTICLE II. WARRANTY
ETHICAL warrants that it is exclusive owner of all rights, title and interest
in and to the PATENT RIGHTS and ETHICAL KNOW-HOW and that it is free to
enter into this AGREEMENT and to carry out all of the provisions hereof
including its agreement to grant to LICENSEE an exclusive licence with respect
to the PRODUCT in the TERRITORY.
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ARTICLE III. LICENCE GRANT
A. Subject to C below ETHICAL hereby grants to LICENSEE the exclusive right
under the PATENT RIGHTS and ETHICAL KNOW-HOW RIGHTS with the right to grant
sub-licenses, to make and/or manufacture, use, promote and sell the PRODUCT
and FINISHED PRODUCT in the TERRITORY.
B. Subject to C below, ETHICAL hereby grants to LICENSEE the exclusive right to
use ETHICAL's KNOW-HOW for marketing and selling the PRODUCT in the
TERRITORY.
C. For the avoidance of doubt, ETHICAL shall have a continuing right to make,
have made and use for its own investigational and developmental purposes
(but not sell, directly or indirectly in, or to the TERRITORY) the PRODUCT
in the TERRITORY. If ETHICAL acquires or develops rights to additional
claims or indications for the PRODUCT, it shall make these available to
LICENSEE as part of the licence granted hereunder, without additional
compensation to ETHICAL provided that any additional development costs for
such claims or indications are mutually agreed.
D. All proprietary rights and rights of ownership with respect to the PATENT
RIGHTS, and ETHICAL KNOW-HOW shall at all times remain solely with ETHICAL
and LICENSEE shall have no proprietary rights in or to the PATENT RIGHTS,
and ETHICAL KNOW-HOW other than those specifically granted herein. All
proprietary rights to LICENSEE KNOW-HOW belong to and shall at all times
remain solely with LICENSEE, other than as specifically provided herein.
E. LICENSEE shall exert its best reasonable efforts to commercialise and to
create a demand for the PRODUCT and FINISHED PRODUCT in the TERRITORY under
its own trademark and other private labels, consistent
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with the market potential for the PRODUCT in the TERRITORY determined by
LICENSEE in a commercially reasonable manner. LICENSEE shall own and retain
all right, title, and interest in and to any trademark or trademarks used by
it in the TERRITORY in connection with the PRODUCT.
F. LICENSEE will be responsible for ensuring that the sale and supply by
LICENSEE of the PRODUCT and FINISHED PRODUCT within the TERRITORY is in
accordance with the legal and regulatory requirements of the TERRITORY,
subject to the compliance by ETHICAL with its representations and
obligations under this AGREEMENT.
G. For the term of this AGREEMENT, ETHICAL agrees that it will not, directly or
indirectly, market, sell, or distribute in the TERRITORY or develop or
assist in the development for use, marketing, sale or distribution in the
TERRITORY any PRODUCT or FINISHED PRODUCT except as provided in this
AGREEMENT.
ARTICLE IV. PAYMENT PRIOR TO COMMERCIALISATION
A. In consideration of the development and technical support to the LICENSEE in
the TERRITORY for the PRODUCT, the LICENSEE agrees to pay ETHICAL * ***** **
************ ****** ******** ***** ******* * ***** ******** **** ********
("LICENSEE payments"), of which ETHICAL has already received from LICENSEE
*** *** ** ******** ****** ******* *** ***** ******** **** *********. The
remainder will be paid in instalments as follows:
a) ******* ****** ******** **** ********* upon signing of this
contract. In the event that scientific results do not indicate
that the PRODUCT objectives can be obtained, LICENSEE may nominate
an alternative project and apply the payments made under Article
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IV A (a) to such future project, less ETHICAL's out-of-pocket expenses
for PRODUCT development for the period starting 1st January 1993 through
completion of the pilot biostudies described below. This right so to
nominate expires at the due date of the payment required under Article
IV (b).
b) ******** ***** ******* * ****** **** ******** **** ******** upon
LICENSEE's completion of a pilot bioavailability study in no less than
12 (twelve) subjects demonstrating concentration time profile for the 30
mg strength PRODUCT satisfactory to progress the project on to ANDA or
NDA programme.
c) ******** ***** ******* * ****** **** ******** **** ******** upon
LICENSEE's completion of a pilot bioavailability study in no less than
12 (twelve) subjects demonstrating concentration time profile for the **
** strength PRODUCT satisfactory to progress the project on to ANDA or
NDA programme.
d) ********* **** ******* ******** **** ******** upon satisfactory
manufacturing technology transferred to LICENSEE or a LICENSEE affiliate
as witnessed by the production of necessary bio-batches according to the
PRODUCT specification agreed to in writing by LICENSEE and ETHICAL
following successful completion of the pilot bioavailability study
referred to in subsection (b) or (c) above.
e) ********* ****** ******* ******** **** ******** upon LICENSEE's filing
to the FDA of an application for approval of a ** ** strength PRODUCT.
* redacted pursuant to confidential treatment request
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f) ******** ***** ******* ******** **** ******** upon LICENSEE's filing to
the FDA of an application for approval of * ** ** strength PRODUCT.
g) ******** ****** ******* ******** **** ******** upon FDA approval of
either strength.
B. These payments are not to be regarded as a pre-payment against royalty as
described under Article V. It is further understood that LICENSEE shall not
be liable to make any payment provided above in Subsection A except upon the
occurrence of the milestone therein specified for such payment.
ARTICLE V. RUNNING ROYALTIES
LICENSEE shall pay to ETHICAL running royalties as follows:
A. ** ****** ******** ** *** *** ******
B. LICENSEE shall promptly give notice to ETHICAL of the date of first
commercial sale of the PRODUCT in the TERRITORY.
C. In the event the royalty rates set forth immediately above exceed those
allowable by applicable law or governmental rule or regulation, they shall
be so modified as to conform to the maximum royalty rate(s) allowable.
D. The obligation to pay running royalties hereunder shall terminate with
respect to sales of the PRODUCT which follow the termination of this
AGREEMENT (except for those royalties contemplated by Article IX hereof).
* redacted pursuant to confidential treatment request
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E. Royalty terms may be subject to review and renegotiation in the event of
intensive competitive pressures, and the parties undertake to conduct such
review and renegotiatian in good faith.
ARTICLE V1. PAYMENT OF RUNNING ROYALTIES
A. Running royalties due to ETHICAL under Article V of this AGREEMENT shall
accrue when the FINISHED PRODUCT is invoiced by the LICENSEE in accordance
with the provisions below:
B. Running royalties accruing hereunder shall be due and payable on the 45th
(forty-fifth) day following the close of each fiscal quarterly period of
LICENSEE.
C. Running royalties accruing hereunder shall be paid in U.S. dollars to
ETHICAL or ETHICAL's designee, acceptable to ******** in its reasonable
business judgment, duly named by ETHICAL in written notice to LICENSEE.
D. Running royalties accruing hereunder shall be paid in United States Dollars.
E. If, at any time, legal restrictions in the TERRITORY prevent the prompt
payment of running royalties or any portion thereof accruing hereunder, the
parties shall meet to discuss suitable and reasonable alternative methods of
reimbursing ETHICAL the amount of such running royalties.
ARTICLE VII. ROYALTY REPORTS
A. Each payment of running royalties made to ETHICAL hereunder shall be
accompanied by a written report, prepared and signed by a financial officer
of LICENSEE, showing the NET SALES for the months of the
* redacted pursuant to confidential treatment request
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quarterly period for which payment is being made. In the event that no
running royalty is due ETHICAL hereunder for any such quarterly period,
LICENSEE shall so report.
B. LICENSEE shall maintain and keep for a period of at least 3 (three) years
or, if shorter, for such period as required by applicable **** ******* **
***** **** complete and accurate records in sufficient detail to enable any
running royalties which shall have accrued hereunder to be determined.
C. Upon the request of ETHICAL, but not exceeding once in any one yearly
period, LICENSEE shall permit an independent public accountant, selected by
ETHICAL and acceptable to LICENSEE, which acceptance shall not be
unreasonably withheld, to have access to such of the records of LICENSEE as
may be necessary to verify the accuracy of the royalty reports and payments
submitted to ETHICAL hereunder. Any such inspection of LICENSEE's records
shall be at ETHICAL's expense, except that if any such inspection reveals a
deficiency in an amount of running royalty actually paid to ETHICAL
hereunder in any quarterly period of ** ***** ******** or more of the amount
of such running royalty actually due to ETHICAL hereunder, then the expense
of such inspection shall be borne by LICENSEE instead of by ETHICAL. Any
amount of deficiency shall be paid promptly to ETHICAL.
ARTICLE VIII. REGISTRATION OF THE LICENSED PRODUCT
A. ETHICAL and LICENSEE have agreed that PRODUCT development should progress as
specified in Appendices 1, 2 and 3.
B. LICENSEE shall bear the cost of all application fees to government
authorities for MARKETING AUTHORISATIONS including, without limitation,
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*** **** ************ ******* *** *********** *** **** ************ ********
***** **** *** or any other fees concerning approvals from government
authorities necessary to commercialise the PRODUCT in the TERRITORY. The
Marketing Authorisations and all NDA's and ANDA's in the TERRITORY shall be
the sole and exclusive property of LICENSEE.
C. During the course of this AGREEMENT, LICENSEE may wish ETHICAL to develop
additional strengths of the product which ETHICAL will undertake on terms
and conditions mutually acceptable to both parties according to the
principles of this AGREEMENT, with the exception of a 20mg formulation of
********** for twice daily administration.
ARTICLE IX. DURATION - TERMINATION
A. DURATION
This AGREEMENT shall come into force as of the EFFECTIVE DATE and remain in
force for the term of the all patents issued in the TERRITORY relating to
the PRODUCT and included in the PATENT RIGHTS or for ** ********* ***** from
first commercial sale, whichever is the longer.
This AGREEMENT shall automatically be extended thereafter for successive 2
(two) year terms unless either party notifies the other of its decision not
to renew this AGREEMENT at least 12 (twelve) months prior to the
commencement of any such renewal term. Following any such termination
LICENSEE shall have the right to manufacture and distribute the PRODUCT in
the TERRITORY on a non-exclusive basis for which LICENSEE would pay to
ETHICAL * ******** ****** ***** ** ** ****** ** NET SALES of the PRODUCT in
the TERRITORY.
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B. TERMINATION FOR CAUSE
Either party hereto may terminate this AGREEMENT upon 90 (ninety) days
written notice calculated from the date of receipt of such notice to the
other party of its intention to do so in the event of violation or breach of
any of the material provisions of this AGREEMENT. Should, however, the other
party remedy the default upon which said notice is based within the said 90
(ninety) day period, the notice shall be without effect and this AGREEMENT
shall continue in full force and effect.
C. (1) In the event this AGREEMENT is terminated prior to the date of its
expiration in the TERRITORY due to fault of LICENSEE, LICENSEE shall
promptly make an accounting to ETHICAL of the inventory of all PRODUCT
which it has on hand in the TERRITORY, if any, as of the date of such
termination and said parties shall thereafter have the right for a
period of 6 (six) months after said termination to sell such inventory
of PRODUCT provided that the NET SALES thereof shall be subject to the
royalty provisions of Article V and so payable to ETHICAL. Thereafter,
any remaining inventory of PRODUCT shall be disposed of by mutual
agreement in accordance with regulatory requirements.
(2) In the event this AGREEMENT is terminated prior to the date of its
expiration due to fault of ETHICAL, LICENSEE shall have the unrestricted
right to continue to use and sublicense the PATENT RIGHTS and ETHICAL
KNOW-HOW RIGHTS, and to make, manufacture, use, promote and sell the
PRODUCT and FINISHED PRODUCT in the TERRITORY for the duration as
defined in Article IX A above without any royalty or other compensation
to ETHICAL.
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D. (1) If, within 6 (six) months after receipt of Marketing Authorisations for
the PRODUCT in the TERRITORY, LICENSEE has not commenced commercial
sales of the PRODUCT, then ETHICAL may terminate the AGREEMENT effective
immediately upon giving notice to LICENSEE.
(2) Should LICENSEE proceed to commercialise the PRODUCT in the TERRITORY
and then choose to abandon commercialisation of the PRODUCT in the
TERRITORY for any reasons, then LICENSEE shall promptly notify ETHICAL
of such abandonment of commercialisation, and ETHICAL may terminate this
AGREEMENT, effective immediately upon giving notice to LICENSEE.
(3) Should LICENSEE make the determination, for any reason, that it does not
intend to commercialise the PRODUCT in the TERRITORY, then LICENSEE
shall promptly notify ETHICAL of the same and ETHICAL may terminate this
AGREEMENT immediately upon giving notice to LICENSEE.
E. Upon any early termination of this AGREEMENT in full due to the fault of
LICENSEE, ETHICAL shall have the right to use, including license to any
Third Party(ies), any LICENSEE KNOW-HOW and any other information, and data
developed by or for LICENSEE with respect to the PRODUCT subject to
compensation arrangements to LICENSEE mutually acceptable to LICENSEE and
ETHICAL (including without limitation royalty payments in respect of such
LICENSEE KNOW-HOW).
F. In the event any of the patents included in the PATENT RIGHTS is found by a
court of applicable jurisdiction to be invalid or unenforceable in the
TERRITORY and as a result thereof an INDEPENDENT THIRD PARTY would be
entitled to manufacture or distribute and thereafter commercialises
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the PRODUCT in the TERRITORY utilising any technology covered by the PATENT
RIGHTS, then LICENSEE in its discretion may terminate this AGREEMENT or, at
LICENSEE's election, continue this AGREEMENT in full force and effect **** *
********* ** ******* ********* ** *** *** ******** *******. Such termination
would not be subject to Article IX C (2) of this AGREEMENT.
G. Termination of this AGREEMENT, due to the fault of either party, shall be
without prejudice to any other rights or remedies then or thereafter
available to either party under this AGREEMENT or otherwise.
H. The rights granted either party to terminate this AGREEMENT prior to the
expiration of its term shall not be affected in any way by that party's
waiver of or failure to take action with respect to any previous default
hereunder.
ARTICLE X. PRODUCT MANUFACTURE
LICENSEE undertakes to manufacture PRODUCT and FINISHED PRODUCT in the TERRITORY
in accordance with prevailing "Good Manufacturing Practice" in the TERRITORY.
ARTICLE XI. INFORMATION TRANSFER: CONFIDENTIALITY AND COOPERATION
A. Within 30 (thirty) days following the signing of this AGREEMENT, ETHICAL
shall provide to LICENSEE copies of relevant ETHICAL KNOW-HOW.
B. Each party shall hold in strict confidence any tangible information relating
to the PRODUCT marked confidential received from the other party (or oral
information which is reduced to tangible form within 30 (thirty) days of
disclosure and noted to be confidential), unless such information:
1. Is already in its possession.
* redacted pursuant to confidential treatment request
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2. Is already in the public domain or knowledge at the time of disclosure
or later comes into the public domain or knowledge without fault on the
part of the recipient.
3. Is subsequently disclosed to the recipient by a third party who did not
acquire it in confidence from the other party.
4. Is required to be disclosed in connection with any legal proceedings or
in order to obtain permission to manufacture or market the PRODUCT in
the TERRITORY.
This provision shall remain valid for a period of ***** ***** after
termination of this AGREEMENT.
C. For the period starting with the EFFECTIVE DATE and ending with the first
commercial sale of the PRODUCT in the TERRITORY, ETHICAL shall report to
LICENSEE on a monthly basis the progress of the DEVELOPMENT PROGRAMME, as
defined in Appendix 2, of the PRODUCT. LICENSEE will provide a project
update to ETHICAL on a quarterly basis. ETHICAL will use its best efforts to
carry out the DEVELOPMENT PROGRAMME in accordance with the timetable set
forth in Appendix 2. ETHICAL will carry out the DEVELOPMENT PROGRAMME in
accordance with applicable laws and regulations of the TERRITORY, including,
without limitation, *** ************ All costings included in the
DEVELOPMENT PROGRAMME shall be jointly reviewed every * ***** ****** by
ETHICAL and LICENSEE.
D. ETHICAL will on a continuous basis provide to LICENSEE any ETHICAL KNOW-HOW
developed, information acquired or development planned in relation to the
PRODUCT and all improvements and modifications of the PRODUCT from time to
time invented, developed or acquired by or on
* redacted pursuant to confidential treatment request
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behalf of ETHICAL. Prior to the date of first commercial sale of the PRODUCT
in the TERRITORY, LICENSEE shall provide to ETHICAL a summary of its
marketing plans for the PRODUCT.
E. ETHICAL shall make available to LICENSEE, on a reasonable consultation basis
without charge to LICENSEE, such advice of its technical personnel as may
reasonably be requested by LICENSEE in connection with the PRODUCT. It been
understood that LICENSEE will reimburse all reasonable out-of-pocket
expenses incurred by ETHICAL attending meetings requested by LICENSEE.
F. LICENSEE shall disclose to ETHICAL and ETHICAL shall disclose to LICENSEE
all reports or other knowledge they may possess with respect to "adverse
drug experiences" *** ******* ** *********** *********** ** *** ****, mis-
labelling, stability failures or microbiological contamination with respect
to the PRODUCT (whether occurring within or outside of the TERRITORY) within
10 (ten) days of becoming aware of same. With respect to "serious adverse
drug experiences" *** ******* ** ** *** ******* *** ******* *********** **
*** ****, LICENSEE shall disclose to ETHICAL and ETHICAL shall disclose to
LICENSEE all reports and other knowledge they may possess as soon as
possible and in no event later than two business days of the receipt of such
report or notification of the serious adverse drug experience. The content
of such disclosure shall comply with all *** *********** ********** **
************ ** *** *** with respect to such matters. Each party shall
promptly deliver to the other, copies of all correspondence which such
party may send to, or receive from, *** *** with respect to the PRODUCT.
* redacted pursuant to confidential treatment request
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G. During the term of this AGREEMENT, at least semi-annually, ETHICAL shall
furnish to LICENSEE any ETHICAL KNOW-HOW and any other information and data
developed or acquired by or under the control of ETHICAL with respect to the
PRODUCT. ETHICAL hereby acknowledges and agrees that LICENSEE may use,
within the TERRITORY, all such ETHICAL KNOW-HOW and information and data
without restriction and without additional compensation to ETHICAL, other
than as provided in this AGREEMENT, to make, have made, use and sell the
PRODUCT in the TERRITORY.
H. During the term of this AGREEMENT, at least semi-annually, LICENSEE shall
furnish to ETHICAL any LICENSEE KNOW-HOW and any other information and data
developed or acquired by or under the control of LICENSEE with respect to
the PRODUCT, subject to the following sentence. LICENSEE shall be under no
obligation to provide any LICENSEE KNOW-HOW, information or data to ETHICAL
hereunder (i) if the disclosure of such would be in violation of any
obligation LICENSEE owes to any THIRD PARTY, or (ii) until and unless
LICENSEE and ETHICAL have entered into a mutually acceptable arrangement
providing compensation to LICENSEE for ETHICAL's use of any such LICENSEE
KNOW-HOW, information or data. Notwithstanding the foregoing, LICENSEE
agrees to provide to ETHICAL, at no charge to ETHICAL, a summary (without
data) of the results of the bioavailability studies referred to in Article
IV hereof.
ARTICLE XII. INFRINGEMENT
A. (1) ETHICAL and LICENSEE each agree to notify the other in writing of any
alleged infringement or potential infringement of any PATENT
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RIGHTS or any information or allegations impacting on the validity of
any such Rights, in the TERRITORY promptly after becoming aware of the
same.
(2) Should ETHICAL elect to take action in its own name against an alleged
infringer, then all recoveries from such action shall inure to the
benefit of the parties in accordance with their mutual agreement taking
into consideration the profits lost by ETHICAL and LICENSEE in respect
of the sales accounted for by the infringer and ETHICAL shall bear the
cost and expense of any such action.
(3) If, within 30 (thirty) days after receipt by ETHICAL of notification of
alleged infringement, ETHICAL does not take action against an alleged
infringer or potential infringer and has failed to notify LICENSEE in
writing of its intent promptly to commence an action to terminate the
alleged infringement or potential infringement, then LICENSEE shall
have the right to commence such action on its own behalf at its own
cost and expense and to use ETHICAL's name in connection therewith, in
which case any recoveries shall inure to the benefit of LICENSEE.
(4) ETHICAL AND LICENSEE, each at the request of the other, shall assist
each other and cooperate in any action taken, other than direct
financial assistance, against an alleged infringer or potential
infringer.
B. (1) ETHICAL hereby represents that, to the best of its knowledge, none of
the PATENT RIGHTS or ETHICAL KNOW-HOW infringe on the patent or other
legally protected proprietary rights of any Third Party, and it has not
received any notice or claim of any such infringement
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worldwide. ETHICAL agrees to hold LICENSEE harmless from any
judgements, losses or costs (including reasonable attorneys' fees)
incurred in the event a claim or legal action is asserted against
LICENSEE to the effect that the manufacture, use or sale of the PRODUCT
infringes the PATENT RIGHTS or other legally protected proprietary
rights of THIRD PARTIES.
(2) ETHICAL and LICENSEE shall each give to the other prompt written notice
of any claim or action made against either of them alleging that any
of the PATENT RIGHTS infringe the rights of an INDEPENDENT THIRD PARTY
and arising from the manufacture, use or sale of the PRODUCT in the
TERRITORY. ETHICAL and LICENSEE agree to cooperate and collaborate with
each other in undertaking a full investigation of the situation and in
taking such action as they shall agree is appropriate in the
circumstances.
C. ETHICAL shall be solely responsible for and bear the cost of the prosecution
and maintenance of the PATENT RIGHTS.
D. The provisions of this Article XII shall survive termination of this
AGREEMENT.
ARTICLE XIII. TRANSFER OF RIGHTS AND OBLIGATIONS
- ------------------------------------------------
This AGREEMENT, in whole or in part, shall not be assignable by either party
hereto to any INDEPENDENT THIRD PARTY without the prior written consent of the
other party hereto except that either party may assign this AGREEMENT to an
affiliated company or the successor or assignee of substantially all of its
business. It is expressly understood and agreed by the parties hereto that the
assignor of any rights hereunder shall remain bound by its duties and
obligations hereunder.
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ARTICLE XIV. DISCLOSURE
ETHICAL and LICENSEE shall have the right, subject to the written approval of
the other, to disclose to any Third Party(ies) in connection with any
announcement, news release, or for any other reason the existence of this
AGREEMENT entered into with the LICENSEE, but not the terms hereof.
Notwithstanding the foregoing, each party shall have the right to make such
disclosures relating to this AGREEMENT as may be required by applicable laws and
regulations.
ARTICLE XV. FORCE MAJEURE
ETHICAL and LICENSEE shall not be liable for delays if such delays are due to
force majeure case, such as strikes, disputes with workmen, failure of supplies
from ordinary sources, fire, floods earthquakes, governmental regulation against
the aims of this AGREEMENT, war, legislation or any other cause, either similar
or dissimilar to the foregoing, beyond the reasonable control of the parties
which cannot be overcome by due diligence.
ARTICLE XVI. NOTICES
Any notice or report required or permitted to be given or made under this
AGREEMENT by either party to the other shall be in writing, sent by hand or by
registered or express mail or courier, postage prepaid, telex or telefax,
addressed to such other party at its address indicated at the beginning of this
AGREEMENT or to such other address as the addressee shall have last furnished in
writing to the addressor, and shall be effective upon receipt by the addressee.
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ARTICLE XV11. FURTHER ASSURANCES
From and after the date hereof, without further consideration, ETHICAL and
LICENSEE shall, from time to time during the term of this AGREEMENT, upon
request by the other, perform all actions and execute, acknowledge and deliver
all such further documents or instruments as may be required to give effect to
the purpose and intent of this AGREEMENT. Without limiting the generality of the
foregoing, the obligations of ETHICAL and LICENSEE are undertaken with a
principle objective of complying with all pertinent provisions of applicable
law, orders and regulations relating to the manufacture, use or sale in the
TERRITORY of pharmaceutical products; the obligation of ETHICAL shall include
the attendance by representatives of ETHICAL, upon reasonable advance request by
LICENSEE, at meetings with *** *** with respect to *** *** *** *******
*************** ** *** ******** ** *** ******* ** ********* ****** ****
********. All out-of-pocket expenses incurred in attending such meetings will be
paid by LICENSEE.
ARTICLE XVIII. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
Except as otherwise specifically provided in this AGREEMENT, all
representations, warranties and agreements contained in this AGREEMENT shall
survive the execution and delivery of this AGREEMENT and remain in full force
and effect regardless of any investigation made by or on behalf of either
ETHICAL or LICENSEE.
ARTICLE XIX. ARBITRATION
All disputes arising in connection with the AGREEMENT shall be settled under the
Rules of Conciliation and Arbitration of the International Chamber of Commerce
by one or more arbitrator in accordance with the said RULES, as follows:
* redacted pursuant to confidential treatment request
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Each of the parties shall designate its arbitrator within 15 (fifteen) days from
notification by registered letter. The two arbitrators thus designated shall
designate a third arbitrator within 30 days from designation of the second
arbitrator, the said third arbitrator shall preside over the arbitration court.
Arbitration should be held in London if ETHICAL initiates the request and if
LICENSEE initiates the request arbitration should be held in *** *****
ARTICLE XX. DISCLAIMER OF AGENCY
The parties acknowledge that each of LICENSEE and ETHICAL are independent
contractors and nothing herein contained shall be deemed to create any
relationship in the nature of agency, joint venture, partnership or similar
relations between LICENSEE and ETHICAL.
ARTICLE XXI. SEVERABILITY
Whenever possible, each provision of this AGREEMENT shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this AGREEMENT should be prohibited or invalid under applicable law, such
provision shall be ineffective to the extent of such invalidity without
invalidating the remainder of such provision or the remaining provisions of this
AGREEMENT to the extent such modification does not impair or change the intent
of the parties hereto.
ARTICLE XXII. PARAGRAPH HEADINGS
The subject headings of the Articles of this AGREEMENT are included for the
purposes of convenience only, and shall not affect the construction or
interpretation of any of its provisions.
* redacted pursuant to confidential treatment request
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ARTICLE XXIII. ENTIRE AGREEMENT; AMENDMENT
This AGREEMENT contains the entire understanding of the parties with respect to
the matters contained herein and supersedes any previous agreements and may be
altered or amended only by a written instrument duly executed by both parties
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this AGREEMENT in duplicate
originals.
ETHICAL HOLDINGS LTD SCHEIN PHARMACEUTICAL, INC
BY: /s/ Dr. G. W. Guy BY: /s/ Steven Getraer
------------------------- -----------------------
PRINT: Dr. G. W. Guy PRINT: Steven Getraer
---------------------- --------------------
DATE: 16th January 1993 DATE: Jan 16 1993
----------------------- ---------------------
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APPENDIX I - PRODUCT DEFINITION
** ** ***** ******* ** ** * **** ******** ** ** ********** ** *** **** ********
******* ********* **
** ************** ********* ******* ** *** ********* **** ******** *******
************ ** ******* **** ***** ************** ** *** *** *** *********** **
************ *** ******
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APPENDIX 2 - DEVELOPMENT PROGRAMME
(See following pages)
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[ * ]
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APPENDIX 3 - OBLIGATIONS OF PARTIES UNDER DEVELOPMENT
PROGRAMME
*******
** *********** ********* ************ *************
** ********** ** ******** ************* *********
** ********** ** *********** ************* *********
** ***** ********* ***********
** ********* ******* ***********
** *********** ********
******** ***** *********** ******* ********
** *** *********** ***** ***** **********
** ********** *********** **** *********
** *** *********** *** ******** ******** *********
** *** ******** *************** *******
** ******* *** **** ********************* ********
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AMENDMENT TO THE LICENCE AND DEVELOPMENT
----------------------------------------
AGREEMENT BETWEEN SCHEIN AND ETHICAL
------------------------------------
DATED 15TH JANUARY 1993 (the "Amendment Agreement")
---------------------------------------------------
This Amendment Agreement is made 4th day of November 1994 (the "Effective Date")
between Ethical Holdings plc, whose registered office is at Corpus Christi
House, 9 West Street, Godmanchester, Cambs., PE18 8HG, U.K ("Ethical"), and
Schein Pharmaceutical, Inc., whose registered office is at 100 Campus Drive,
Florham Park, NJ. 017932, U.S.A. ("Schein").
WITNESSETH THAT
---------------
Whereas, Ethical Pharmaceuticals, a wholly owned subsidiary of Ethical, whose
registered office is at Gemini House, Bartholomew's Walk, Cambridgeshire
Business Park Angel Drove, Ely, Cambs., CB7 4EA ("Ethical Pharmaceuticals")
has entered into a Licence Agreement and separate Supply Agreement with ***
**** ** ****** ****** *****, ********, ******* *******, both dated ****
******** **** (together the "Agreements") in respect of a once a day controlled
release formulation of ********** to be used for human therapy; and
Whereas, Ethical and Schein have entered into a Licence and Development
Agreement, dated 15th January 1993, in respect of an AB rated generic **********
formulation at two strengths, to be similar to the U.S. marketed ********* **
(the "Licence and Development Agreement"); and
Whereas, Ethical and UCB have agreed in principle that Ethical Pharmaceuticals
shall fully reacquire the licences and rights granted to UCB under the
Agreements; and
Whereas, Ethical and Schein wish to amend the Licence and Development Agreement
as set forth herein.
NOW THEREFORE, in consideration of the above premises and the covenants
contained herein, the parties mutually agree as follows:
1. CONDITION PRECEDENT
-------------------
As a condition precedent it is agreed that this Amendment Agreement shall
automatically terminate and be of no effect and no payment shall be due
under Section 7 hereof unless, on or before 30th November 1994, it has been
proved to the reasonable satisfaction of Schein's in-house legal counsel
(with such satisfaction to be evidenced in writing) that Ethical
Pharmaceuticals has fully reacquired the licences and rights granted to ***
under the Agreements. If such condition precedent is not satisfied, the
Licence and Development Agreement will continue in full force and effect
without modification.
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Subject to the condition precedent having been met the Licence and Development
Agreement is amended as follows:
2. ARTICLE I. DEFINITIONS
----------------------
2.1 Paragraph F is deleted in its entirety and replaced with the following
F. "MULTIPOR PATENT RIGHTS" means the patents and patent
applications set forth in Schedule 1 attached hereto. "EUROPEAN
PATENT RIGHTS" means the patent and patent applications set forth
in Schedule 2 attached hereto. In both cases such definition
shall include any and all United States and non-United States
patents and patent applications filed by or issued to ETHICAL and
licensed and/or assigned to ETHICAL relating to controlled
release formulations for oral administration in man, or the
manufacture or use of them, together with any and all patents
that may issue or may have issued therefrom, including any and
all divisions, continuations, continuations in part, extensions,
additions or reissues of or to any of the aforesaid in any
country in which Ethical has filed, or hereinafter files,
patents. The term "PATENT RIGHTS" shall include both the MULTIPOR
PATENT RIGHTS and the EUROPEAN PATENT RIGHTS.
2.2 Paragraph G is deleted in its entirety and replaced with the
following:
G. "PRODUCT", shall mean controlled release ** ** *** ** ** *******
containing ********** based on the MULTIPOR PATENT RIGHTS and
ETHICAL KNOW-HOW, manufactured according to the technology
protected in the PATENT RIGHTS, to be used for human therapy and
exhibiting a similar pharmacokinetic profile to **********
******* ********** tablets sold in the Unites States at the
EFFECTIVE DATE under the trade name ********* **, as further
defined in Appendix 1 (the "MULTIPOR PRODUCT") and once a day
controlled release ** ** *** ** ** ******* containing **********
based on the EUROPEAN PATENT RIGHTS and ETHICAL KNOW-HOW
manufactured according to the technology protected in the PATENT
RIGHTS (the "EUROPEAN PRODUCT"). For the avoidance of doubt, the
term PRODUCT shall also include all other formulations of
controlled release nifedipine in the event that ETHICAL has the
unrestricted right to licence, free of charge, such formulations
to SCHEIN.
2.3 Paragraph I is deleted in its entirety and replaced with the
following:
I. "TERRITORY" means **** *** ***** ******* ** *** ****** ****
*** ********* ** ******* ***** ***** *** ******** ******
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2.4 Paragraph J is deleted in its entirety and replaced with the
following:
J. "NET SALES" means the gross sales of a PRODUCT actually invoiced
by LICENSEE or LICENSEE's sublicensee hereunder to an INDEPENDENT
THIRD PARTY, less charge backs and rebates, the total ordinary
and customary trade discounts (but not including cash discounts
for prompt payments), rebate for inventory price protection to
counter competitive pressures, excise taxes, other consumption
taxes, customs duty, credits and allowances actually granted on
account of rejection or return.
2.5 Paragraph M "Development Programme" shall be read as if it contained
the word Schedules in place of the word Schedule.
2.6 Paragraph O is deleted in its entirety and replaced with the
following:
O. "MARKETING AUTHORISATIONS" means the ****** ****** **** *** ****
************** and any applicable comparable governmental
agencies whose approval or consent is required to market,
distribute and sell the PRODUCT in any country in the TERRITORY.
3. ARTICLE V. RUNNING ROYALTIES
----------------------------
3.1 Paragraph A is deleted in its entirety and replaced with the
following:
A. ** ****** ******** ** *** *** ****** **** **** *** ** ******* **
****** *** ************* ** *** ***** ** ********* ***********
********** ***** ******* ******** ** *** ********** ******* **
*** ********* ** *** ***** ****** ****** ** ****** ********
********** ********** ******** ******* * ****** ***
************** *** *** ******* ********* ** ******* **** ******
*** ************* ** **** ****** ***** **** ****** ***
************* *** ******* ** ****** ********** *** *******
******* **** ******** ** *** **** ** *** ****** *********
3.2 Paragraph E is deleted in its entirety.
4. ARTICLE IX. DURATION - TERMINATION
-----------------------------------
4.1 Paragraph A is deleted in its entirety and replaced with the
following:
A. This AGREEMENT shall come into force as of the EFFECTIVE DATE and
shall remain in force in respect of each PRODUCT in each country
in the TERRITORY for a period of ** ******** ****** from the date
of the first commercial sale to an INDEPENDENT
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THIRD PARTY of each PRODUCT in such country or the life of any
patents issued in the applicable country in the TERRITORY
relating to a PRODUCT and included in the PATENT RIGHTS,
whichever is the longer.
This AGREEMENT shall automatically be extended thereafter for
successive 2 (two) year terms unless either party notifies the
other of its decision not to renew this AGREEMENT at least 12
(twelve) months prior to the commencement of any such renewal
term; provided, however, that the failure to extend this
AGREEMENT with regard to one PRODUCT in any country in the
TERRITORY shall in no way affect the extension of this AGREEMENT
in any other country in the TERRITORY in respect of that PRODUCT
for which no notice has been given. Following any such
termination, LICENSEE shall have the right to manufacture and
distribute the PRODUCT named in the notice in that country of the
TERRITORY on a non-exclusive basis, for which LICENSEE will pay
to ETHICAL * ******** ****** ***** ** ** ***** ******** ** the
NET SALES of the PRODUCT in that country in the TERRITORY.
4.2 Paragraph C.(2) is deleted in its entirety and replaced with the
following:
(2) In the event this AGREEMENT is terminated prior to the date of
its expiration due to fault of ETHICAL, LICENSEE shall have the
unrestricted right to continue to use and sublicence the PATENT
RIGHT'S and ETHICAL KNOW HOW and to make, manufacture, use,
promote and sell the PRODUCT and FINISHED PRODUCT in the
TERRITORY for the duration as defined in Article IX A above in
which case Article V A shall be read ** ** ** ********* ***
****** ** **** **** *** * **** ********
4.3 Paragraph D is deleted in its entirety and replaced with the
following:
D. On a continuous basis the parties shall jointly review
telephonically (and at least once a year by face to face
meetings) the efforts being made by LICENSEE to obtain MARKETING
AUTHORISATIONS and commercialise the PRODUCT in each country in
the TERRITORY and LICENSEE shall keep ETHICAL informed on whether
or not it has made, or may forseeably make the determination that
it does not intend to obtain MARKETING AUTHORISATION or
commercialise a PRODUCT in any country of the TERRITORY. In the
event that it is agreed that LICENSEE is no longer making, or no
longer intends to make or is no longer able to make such efforts
then LICENSEE's right to commercialise that PRODUCT in that
country shall automatically terminate and ETHICAL shall have such
commercialisation rights together with
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the rights as further detailed in Article IX E subject to
LICENSEE's rights to compensation as also detailed therein.
4.4 The words "which would have a material impact on the NET SALES of a
PRODUCT and such impact can be shown" are added after the words
"technology covered by the PATENT RIGHTS" in the first sentence of
paragraph F of Article IX.
5. ARTICLE X. PRODUCT MANUFACTURE
------------------------------
5.1 Paragraph X is deleted in its entirety and replaced with the
following:
A. LICENSEE undertakes to manufacture or have manufactured the
MULTIPOR PRODUCT in the TERRITORY and shall ensure such
manufacturing shall comply with prevailing Good Manufacturing
Practice for sale of such PRODUCT in the relevant country in the
TERRITORY. LICENSEE may request ETHICAL to supply the Multipor
coating materials required in connection with the manufacture of
the MULTIPOR PRODUCT.
B. In the event that ETHICAL, or upon mutual agreement, an
INDEPENDENT THIRD PARTY manufacturer is to supply a PRODUCT to
the LICENSEE the supply price will be ***** ********
************* **** **** *** ******** ********, such costs to be
defined and set out in a separate supply agreement, to be
mutually agreed upon between the parties.
C. Once in any yearly period, at the request of the LICENSEE,
ETHICAL shall permit an independent public accountant selected by
LICENSEE and acceptable to ETHICAL, such acceptance not to be
unreasonably withheld, to have access (subject to reasonable
confidentiality undertakings) to such of the records and
documentation of ETHICAL as may be necessary to verify that the
supply price being charged to the LICENSEE is equal to *** *****
******** ************* ***** **** *** ******** ******** as set
out in Article X paragraph B above.
6. ARTICLE XI INFORMATION TRANSFER: CONFIDENTIALLY AND COOPERATION
---------------------------------------------------------------
6.1 The words "and shall comply with the laws and regulations of any
relevant country in the TERRITORY in which the PRODUCT is promoted,
marketed, distributed and sold" are added after the word "matters" at
the end of the penultimate sentence in paragraph F of Article XI.
6.2 The last sentence of paragraph D is deleted in its entirety.
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7. CONSIDERATION FOR THE AMENDMENT
-------------------------------
7.1 In consideration of Ethical entering into this Amendment Agreement,
Schein agrees to pay Ethical * ***** ** ****** ******* **** ********
**** ******* *** ***** ******** **** ******** in instalments as
follows:
7.1.1 ********* ****** ******* *** ****** ******** **** ******* on
the signing of this Amendment Agreement.
7.1.2 ********* ****** ******* *** ***** ******** **** ******* on the
delivery by Ethical or its designee of commercial quantities of
the EUROPEAN PRODUCT, sufficient to enable Schein to initiate
commercialisation in the United Kingdom.
7.2 The cost of the ** ** EUROPEAN PRODUCT DEVELOPMENT PROGRAMME,
(approval for the United Kingdom) is ******** ****** ******* ********
**** ******* which will be payable in quarterly instalments of
******** ****** ******** **** ******* each, beginning 28th February
1995. Any additional costs incurred in carrying out further work in
accordance with the regulatory requirements of individual countries in
the TERRITORY shall be agreed in advance and paid by Schein within 30
(thirty) days of receipt of invoice.
7.3 Any payments made in accordance with Article IV of the Licence and
Development Agreement shall be with respect to the achievement of
milestones in connection with the MULTIPOR PRODUCT only.
8. The attached Schedule 3 is added to Appendix 2 of the Licence and
Development Agreement.
For the avoidance of doubt, it is agreed that if there is a conflict then the
provisions of this Amendment Agreement shall take precedence over the provisions
of the Licence and Development Agreement which, except as otherwise amended by
the terms herein, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused the Amendment Agreement to be
executed by their duly authorised representatives at the Effective Date above.
Signed [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE]
--------------------- ---------------------
For and on behalf of For and on behalf of
Ethical Holdings plc Schein Pharmaceutical Inc.
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SCHEDULE I
----------
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SCHEDULE 3
----------
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ETHICAL PHARMACEUTICALS LTD - PATENT LIST
-----------------------------------------
********** **** ******* ***********
******* **********
******* ******* ****** ******
*************** *************
***** ****** ******
****** ************ *********** ******
******************* ******************
** *********
************* *** *********** *********** **************
********* *******
******* ******
******
******* *****
****** *********** **********
********* ******** ************ ********
******** ****** ******* *** ******* ********
****** *********** ******* ************
********* *******
******* ******
******* ********
***** ********
***** ***** *********
*** *********** *******
****** *******
*** ******* ******
CORRECT AT: 26 September 1994
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ETHICAL PHARMACEUTICALS LTD - PATENT LIST
-----------------------------------------
********** **** ******* ***********
******* *********** **********
****** ************ *********** ******
******************* ******************
****** *******
******* **********
******** **********
***
** *********
*********
*****
******** ***** *********
********* ***** ******
********* ***** ********
*********** ***** *********
******* ***** ****
******** ***** ******
******* *** ** ********* ****
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EXHIBIT 10.36
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, NJ 07932
Tel. 201 593-5500
Fax 201 593-5590
[LOGO OF SCHEIN PHARMACEUTICAL APPEARS HERE]
VIA FAX 44-353-667650
Hardcopy to follow
via International Messenger
June 23, 1995
Dr. Geoffrey Guy
Ethical Holdings
Corpus Christ! House
9 West Street
Godmanchester, Cambridgeshire
PE1 8HG
United Kingdom
Dear Geoffrey:
Under the terms of the "Multiproduct Development Agreement" executed on
August 30, 1994, between Ethical and Schein, we hereby notify you that we
desire to have the Prospective Development Product list, detailed in
Schedule 5 of the Agreement, amended to include the following products:
Prospective Products Prospective Products
with Reference Product without Reference Product
********** ********
***************** *********
***************************
********* ********
Please indicate below your acceptance of the foregoing by signing and
returning to me a fully signed original of this letter.
Sincerely,
/s/ Paul P. Kleutghen
Paul P. Kleutghen
Vice President, Business Development
xc: P. Feuerman - General Counsel
Agreed and Accepted:
Ethical Holdings, Inc.
/s/ Dr. Geoffrey Guy
-----------------------
By: Dr. Geoffrey Guy
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REVISED
SCHEDULE 5
EFFECTIVE JULY 21, 1995
List of all Prospective Development Products, i.e. those products about which
discussions of any sort, whether verbal or written, have taken place.
Prospective Development Products Prospective Development Products
with reference products at time of without reference products at time
Effective Date of Effective Date
********** **************
********* **********
************ ***************
********* ********
********** ****** ******** ******
*********************** ********* ******
********** ********* ****************
********** ******************
********** *********
****************** *******
************************* ********
******** ******** *************
*********
************* **** **** ******
*********
************ * **** *** ******** ** **** ******** ** ************ ******* *****
**** * *********** ***** ** ****** ** **** *** ********* *** ****** *********
************
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CORRECT AT: 26 September 1994
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EXHIBIT 10.38
MULTI PRODUCT TECHNOLOGY TRANSFER
---------------------------------
DEVELOPMENT AND LICENSE AGREEMENT
---------------------------------
AGREEMENT, effective as of this 30th August 1994 (hereinafter referred to as the
"Effective Date"), by and between SCHEIN PHARMACEUTICAL, INC, 100 Campus Drive,
Florham Park, NY 07932, U.S.A., (hereinafter referred to as "Schein") and
ETHICAL HOLDINGS PLC, a company registered in the United Kingdom and having its
principal place of business at Corpus Christi House, 9 West Street,
Godmanchester, Cambridgeshire, PE18 8HG, U.K. (hereinafter referred to as
"Ethical").
WITNESSETH THAT:
----------------
WHEREAS, Ethical owns valuable Ethical Know-How (hereinafter defined) and has
sought Patent Rights (hereinafter defined) relating to pharmaceutical
formulations designed to provide controlled release of active constituents from
solid dosage forms; and
WHEREAS, Ethical has a research and development capability in drug delivery
systems and pharmaceuticals in areas, including but not limited to, efficacy,
improved formulations and methods of drug delivery; and
WHEREAS, Schein desires that Ethical develop, as provided for in this Agreement,
****** **** ******** ** ****** **** ******** *** ** ***** *** ***********
******* ** ** *********** *** *** ** **** ****** ***** *** ******* ****-***; ***
WHEREAS, Schein has expressed an interest in entering into an agreement on terms
similar to those contained herein in respect of the development and marketing in
the United States of the ************* ******* (** ******* ** *********** *)
********* *******'* ****-*** ******** ** ************; ***
WHEREAS, Schein desires to effect the final product development and registration
with the regulatory authorities within the United States and outside of the
United States and to make the regulatory filings.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants and
conditions set forth herein, the parties hereto mutually agree as follows:
1. DEFINITIONS
-----------
1.1 In this Agreement, unless the context otherwise requires, the
following terms shall have the meaning set forth in this clause:
1.1.1 "Ethical" means ETHICAL HOLDINGS PLC, Corpus Christi House, 9
West Street, Godmanchester, Cambs., PE18 8HG, UK.
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1.1.2 "Schein" means SCHEIN PHARMACEUTICAL, INC, 100 Campus Drive,
Florham Park, NY 07932, U.S.A.
1.1.3 "Effective Date" means 30th August 1994.
1.1.4 "Ethical Know-How" means all proprietary scientific and medical
information, technical data and marketing studies in Ethical's
possession or, from time to time invented or developed or
acquired by or on behalf of Ethical or under the control of
Ethical (other than Schein Know-How) relating specifically to
the registration, marketing, manufacture or use of its **** **
*********** **** ******** ********** as further detailed in
Schedule 1 including, but not limited to, toxicological,
pharmacological, analytical and clinical data, bioavailability
studies, product forms and formulations, control assays and
specifications, methods of preparation and stability data and
specifically including all information contained in all health
registration dossiers to be filed in various countries of the
world, and shall further include all Improvements and
Independent Third Party data which Ethical has access to and is
free to disclose without restriction or compensation to such
Independent Third Party(and relating to the Designated
Products). Notwithstanding the foregoing, the term 'Ethical
Know-How' shall not be deemed to refer to information and data
of the type which would not be required to be maintained as
confidential by either party pursuant to the provision of
Clause 22.
1.1.5 "Schein Know-How" means all proprietary scientific and medical
information and technical data from time to time developed or
acquired by or on behalf of Schein (other than Ethical Know-
How) relating specifically to the manufacture or use of the
technology and all Improvements including, but not limited to,
toxicological, pharmacological, analytical and clinical data,
bioavailability studies, product forms and formulations,
control assays and specifications, methods of preparation and
stability data, and specifically including all information
contained in all health registration dossiers filed by Schein
relating to the Designated Products. Not withstanding the
foregoing, the term 'Schein Know-How' shall not be deemed to
refer to information and data of the type which would not be
required to be maintained as confidential by either party
pursuant to the provision of Clause 22.
1.1.6 "Patent Rights" means those patents and patent applications
listed in Schedule 2 and any and all patents and patent
applications filed
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by or issued to Ethical and licensed or assigned to Ethical
relating to controlled release formulations for oral
administration in man, or the manufacture or use of them,
together with any and all patents that may issue or may have
issued therefrom, including any and all divisions,
continuations, continuations-in-part, extensions, additions or
reissues of or to any of the aforesaid patent applications in
any country in which Ethical has filed, or hereafter files,
patents.
1.1.7 "Prospective Development Products" means those pharmaceutical
compounds discussed by the parties and thereby listed in
Schedule 5 as amended from time to time.
1.1.8 "Designated Products" means the Prospective Development
Products selected by Schein pursuant to Schedule 3 and which
thereby are no longer included in the definition of Prospective
Development Products.
1.1.9 *********** ******* *********** ****** ********* ********
********** ************ ******* ** ***************
************* ********* ** ********** ************ ***
********** ******* ** ********* ** ***** ******** ** ***
******** ********** *********** *********.
1.1.10 "Territory" means *** ****** ***** ****** ** ******* ** ***
************* ******* ** ***** **** ** ***** **** ****** ***
****** ******* *** *********** *** ***********.
1.1.11 "Net Sales" means the gross sales of a Designated Product
actually invoiced by Schein or Schein's sublicensee hereunder
to an Independent Third Party, less chargebacks and rebates,
the total ordinary and customary trade discounts (but not
including cash discounts for prompt payments), rebate for
inventory price protection to counter competitive pressures,
excise taxes, other consumption taxes, customs duty, credits
and allowances actually granted on account of rejection or
return.
1.1.12 "Independent Third Party" means any party other than Ethical
and Schein and their respective subsidiaries and affiliates.
1.1.13 "Agreement" means this agreement duly signed by the parties.
1.1.14 "Designated Development Programme" means the programme of
development selected by the Notice under Schedule 3 containing
at least the obligations set forth in Schedule 4 prepared by
Ethical and
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approved by Schein for the development of a Designated Product
for manufacture, use, promotion, distribution and sale in the
United States. Each Designated Development Programme may be
amended from time to time by the addition of Designated Product
Extensions or exclusion of any Granted Territory or as set out
under Clause 12 and Schedule 3, Clause 2.7, or otherwise as
agreed between the parties.
1.1.15 "Multi Product Development Programme" means the overall
programme of development in respect of all the Designated
Development Programmes.
1.1.16 "FDA" means the United States Food and Drug Administration.
1.1.17 "Marketing Authorisations" means the consent or approval of the
FDA and any applicable comparable state agencies required to
market and distribute a Designated Product in the United
States, its territories and possessions or the consent or
approval of any government or any governmental agency required
to market and distribute a Designated Product outside of the
United States.
1.1.18 "Improvements" means inventions, discoveries, developments,
ideas and indications relating to the Ethical Know-How and
Patent Rights.
1.1.19 "Granted Territory" shall mean ***** ********* ****** ***
********* ** ***** ******** ** ****** ** ****** * ** ******
****** *** *** ***** ** *** *** ******* *** ****** *******
******* ******** *** ****** ******** *** ** ********* *********
** ***** ********** *********** **** ******* ** *** **** ******
****** ************ ********** ********* *** **** ** *
********** ********
1.1.20 "Quarter" shall mean any of the four quarters commencing 31st
August, 30th November, 28th February and 31st May of any year.
1.2 In this Agreement
1.2.1 the singular includes the plural and vice versa, the masculine
includes the feminine and vice versa and references to natural
persons include corporate bodies, partnerships and vice versa.
1.2.2 any references to Clause or Schedule shall, unless otherwise
specifically provided, be to a Clause or Schedule of this
Agreement. All the Schedules of this Agreement shall have the
same force and
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effect as if they were set out in the main body of the
Agreement.
2. WARRANTY
--------
2.1 Ethical warrants that it is exclusive owner of all rights, title and
interest in and to the Patent Rights and Ethical Know-How and that it
is free to enter into this Agreement and to carry out all of the
provisions hereof including its agreement to grant to Schein an
exclusive licence with the right to grant certain sub-licences with
respect to the Designated Products in the Territory without any
consents from any third parties.
2.2 Ethical represents and warrants that the Designated Development
Programmes shall be in accordance with current Good Laboratory
Practices and current Good Manufacturing Practices, as per statute and
regulations of the FDA and with the laws and regulations of any other
governmental authority applicable thereto and that all laboratory,
scientific, technical and/or other data submitted by or on behalf of
Ethical relating to a Designated Product shall be true and correct and
shall not contain any deliberate or negligent falsification,
misrepresentation or omission.
2.3 Each of Ethical and Schein represents and warrants to the other that
it is not currently debarred, suspended or otherwise excluded by any
United States governmental agency from receiving Federal contracts.
3. LICENCE GRANT
-------------
3.1 ******* ** ****** *** ****** ******* ****** ****** ** ******* *** ***
**** *************** ******** ** **** ********* *** ********* *****
***** *** ****** ****** **** ****** ******** **** *** ***** **
********** ** **** ****** ************ **** ******** *******
********** *** **** *** ********** ******** ** *** **********
3.2 All proprietary rights and rights of ownership with respect to the
Patent Rights, and Ethical Know-How shall, at all times, remain solely
with Ethical and Schein shall have no proprietary rights in or to the
Patent Rights and Ethical Know-How other than those specifically
granted herein. All proprietary rights to Schein Know-How belong to
and shall, at all times, remain solely with Schein, other than as
specifically provided herein.
3.3 For the term of this Agreement, Ethical agrees that it will not,
directly or indirectly, market, sell or distribute in the Territory,
or develop or assist in the development for use, manufacture,
marketing, promotion, sale or distribution in the Territory, any
Designated Product except as provided in
* redacted pursuant to confidential treatment request
Page 5
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this Agreement
3.4 *** *** ********* ** ***** Ethical shall have a continuing right to
make, have made and use for its own investigational and developmental
purposes (but not sell, directly or indirectly in, or to the
Territory) any Designated Product in the Territory. If Ethical
acquires or develops Improvements for the Designated Products it shall
make these available to Schein as part of *** ******* *******
*********.
3.5 *** *** ********* ** ***** *** ****** ******* ** ****** ***** ***
****** ** ********* ********* ******** ** ** ******* ** ************
***** ******** ** *** *** ******* ******** *** ****** ****** **
********* *** ******** ******** ****** *** ****** ********* ******
**** *** ********** ********* *** ********* *** **** ** *** *********.
4. SELECTION OF DESIGNATED PRODUCTS
--------------------------------
4.1 Schein agrees to select, in accordance with Schedule 3, ** ********
********** ******** **** *** *********** *********** *********
4.2 On the date on which each Prospective Development Product is selected
by Schein in accordance with Schedule 3 and thereby becomes a
Designated Product, the following provisions will apply from that date
to each such Designated Product.
4.2.1 Schein and Ethical shall immediately start work under the
Designated Development Programme for the Designated Product.
4.2.2 In the event that Designated Product Extensions are requested
by Schein and mutually agreed then the Designated Development
Programme shall be amended by Ethical and Schein to reflect
such agreed amendments.
4.2.3 For the period starting with the Effective Date and ending with
the first commercial sale of the Designated Product in the
Territory to an Independent Third Party, Ethical shall report
to Schein on a monthly basis the progress of the Designated
Development Programme of the Designated Product. Ethical will
use all reasonable efforts to carry out the Designated
Development Programme in accordance with the timetable set
forth therein subject to Clause 12. Ethical will carry out the
Designated Development Programme in accordance with all
applicable laws and regulations including, without limitation,
applicable United States laws and FDA regulations.
* redacted pursuant to confidential treatment request
Page 6
<PAGE>
4.2.4 Ethical will, on a continuous basis, provide to Schein any
Ethical Know-How developed, information acquired or development
planned in relation to the Designated Product and all
Improvements and modifications to the Designated Product.
4.2.5 Ethical shall make available to Schein, on a reasonable
consultation basis without charge to Schein, such advice of its
technical personnel as may reasonably be requested by Schein in
connection with the Designated Development Programme.
4.2.6 Schein shall disclose to Ethical and Ethical shall disclose to
Schein all reports or other knowledge they may possess with
respect to "adverse drug experiences" (as defined in
regulations promulgated by the FDA), mis-labelling, stability
failures or microbiological contamination with respect to the
Designated Product within 10 (ten) days of becoming aware of
same. With respect to "serious adverse drug experiences" (as
defined in 21 CFR #312.32 and #314.80 promulgated by the FDA),
Schein shall disclose to Ethical and Ethical shall disclose to
Schein all reports and other knowledge they may possess as soon
as possible, and in no event later than 2 (two) business days
of the receipt of such report or notification of the serious
adverse drug experience. The timing and content of such
disclosure shall comply with all FDA regulations applicable to
notification to the FDA with respect to such matters and shall
comply with the laws and regulations of any relevant country in
the Territory in which the Designated Product is promoted,
marketed, distributed and sold.
4.2.7 Throughout the term of each Designated Development Programme,
and in any event no less than 4 (four) times a year, Schein
shall furnish to Ethical any Schein Know-How and any other
information and data developed or acquired by or under the
control of Schein with respect to the Designated Product for
Ethical's use in any Granted Territory, and subject to
corresponding obligations of confidentiality as set forth
herein, all such Schein Know-How and information and data
without restriction and without additional compensation to
Schein, other than provided for in this Agreement, subject to
the following, sentence. Schein shall be under no obligation to
provide any Schein Know-How, information or data to Ethical
hereunder if the disclosure of such would be in violation of
any bona fide agreement with any Independent Third Party and
such violation can be proved by Schein.
Page 7
<PAGE>
5. PAYMENT
-------
5.1 In consideration of the granting of the exclusive licence under Clause
3 to use the Ethical Know-How and Patent Rights, Schein agrees to pay
Ethical **** $********* ***** ******* **** ******** upon the signing
of this Agreement.
5.2 The parties further agree that, subject to Clause 12 and Schedule 3,
Clauses 2.7 and 2.8, Schein pay Ethical the sum of *********** *******
***** ******* **** ********* ******* ******* ***** *** ****** ****
********** ************ ********** **** ********* ****** **** ******
**** ** ** ******* ** ********** **** ******** ** ******* * *** **
5.3 **** ******** ******* ***** ******* *** **** ** ****** ******** **
******* ** *** ********** ******* ** *** ******** **** *** **** **
**** ******* ***** **** ********** *********** ********** ** ** ******
****** *** ***** ****** ** ******** ****** **** *** ********* ** ***
******** ** ******* ** ******** *** ***** ****** *** ** ******** * ***
****** ********* ****** ** ******* ** *** ******** ** ******* ** *
******* ** **** ********** **** ******* **** ******** *** ******** ***
**** ******* ***** ** ******* ** ******* **** ***** *** **** **
******** ******* ** *** ********
5.4 ** *** ***** **** ********** ******* ** *** ******** **** *** ** ****
** *** ********** ******* ********** *** ** ********* ** ** ***
********** *********** ********* ************ ****** ** ********* **
********* *** *** ****** *********** ***** *** ********* ** ***** **
***** *** ******* ** *** ******** **** ** ******* ** *** ******
********* *** ********* ******** ***** **** ********** ***********
********* ** *** **** ** ********** **
5.4.1 ** ********* ********** *********** **********
5.4.2 *** *********** ********* ******* ** ********** *** **** ***
***** ***** ************** ** ************ ** *** ******* *
*********** ********* ***** **** ******* **** ******* ******
*** ********
5.4.3 *** *********** ********* ******* ** ********* *** **** *****
************** ** ************ ** *** ******* * ***********
********* ***** **** ******** ***** **
5.4.4 *** ********** ******* **********
* redacted pursuant to confidential treatment request
Page 8
<PAGE>
5.5 *** *** ***** *** *********** ***** ****** ***** ***** *** ****** **
*** ******** **** **** ** ** *** **** ** ********** **** ***** **
***** ** ******* ** *** ********** *********** ********* ********** **
********* ***** ** ******** ******* *** *********** **********
*********** ********* ******* *** *** ***** *** ****** **********
***** ****** ***** ** ****** ***** ** *** **** *** *** ***** **
******** *** ******* ** ****** ** ********** ********** ** ***
*********** ********** *********** *********
6. THIRD PARTY NEGOTIATIONS
------------------------
6.1 ******* ****** ********** **** **** ****** * ****** ** ** **********
****** ********* **** *** ********* **** *** ***** ***********
*********** ******** *** ***** ***** *** ********* ******** **
********** ** ******** * ******** ******* ** *** * ****** ** * *****
****** ***** *** ************ ** * ********* ******* *** *****
********** ******** *** ***** ** *** ********* **** ***** *** **
********* ******** ** ********** ** ******** * **** ** ** **** *****
**** ** ********** ****** ********* **** *** ********* ****** ** ***
**** ****** ****** ** *** ** ******** ****** ** ******* ******* ***
******** *** ** ***** **** *** ************ ** *********** **** ***
*********** ***** ***** ** ******* ** *** *********** ***********
********
6.2 ** *** ***** **** *********** ** *** ****** *** *** ** ****** ****
******* ****** **** *********** ************ ** *********** **** **
*********** ***** ***** ** ******* ** *** *********** ***********
******* ** ***** ** ****** ****** **** ********** ** ******* ** ***
****** ** ******* *** ******* ******* ****** ******* ** **********
*************** ************* **** *** ***** ** ********** *******
******* **** **** *********** ************ ** *********** *** ****
***** ******* *** ******** ** **** *********** ***** ***** ***
********* ** **** ********* *** *** *** ***** ******* *** *** ********
****** ** * ***** ** **** ********* *** *** *** * ****** *** *********
** *** *********** *********** ******* ****** *** *** ********
*********** *********** ******* ***** ** *** ******* ** ***
*************
6.3 Upon receipt of the Notice, Schein shall have 8 weeks within which to
inform Ethical in writing as to whether or not it wishes Ethical to
prepare a development programme, as set out under Schedule 3, Clause
2.3, in respect of the Prospective Development Product detailed in the
Notice. If no such response is received by Ethical within such a
period, Ethical shall not be under any obligation to consider any
response received subsequently.
* redacted pursuant to confidential treatment request
Page 9
<PAGE>
6.4 **** ******* ** *** *********** ********* ****** ***** **** * ***** **
****** ******* ** ******* ** ** ******* ** *** ** ****** ** ****** ***
*********** ********* ** *** ********** *********** ********** ** **
**** ******** ** ******** ** ******* ****** **** * ******* *******
***** *** ** ***** *** ********** ** ******** *** ******** ********
*************
6.5 *** *** ********* ** ****** ** ** ****** ****** **** ******* ****
****** ** ** ********* **** *** *********** ** ******** ** *******
**** *** *** *** ******** *** ************ ** *********** *** ***
***** **** *** ********** ********* **** *** *********** ***** *****
** ******* ** *** *********** *********** ******* ******** ******
***** ****** ****** **** ****** ** *** *** ***** ****** *** *** ****
******* ***** ******** ***** *** **** ************ ** ************
6.6 In the event that Ethical subsequent to the Effective Date enters in
to substantive negotiations with an Independent Third Party with
respect to any product not included in Schedule 5 it shall have no
obligation to so notify Schein.
6.7 ** *** ***** **** ******** ********** ** *** ****** ******** ** ******
*** *** ********** ** ****** ****** ******** *** ****** **********
********* ****** **** *********** ************ **** ** ***********
***** ***** **** ******* ** *** *********** *********** *******
******* ***** **** ****** ** *** **** ** ******* ****** ***** *** *
****** ** * ****** ***** **** *** **** ** **** ****** **** *** ******
******* ** ********** ******** ***** ****** ******* *** ******** **
****** ** ********** **** ******** * **** *********** ***********
******* ** * ********** ******* ** ******** ** *** ****** *********
************ ******* ** *** ***** **** ****** **** *** ** ****** ****
*********** *********** ******* ** ** *** ***** **** *** **********
******** ****** ** ****** ****** *** **** **** ****** ******** ******
** *** *** ** **** ****** ***** *********** ******
7. FIRST RIGHT OF REFUSAL
----------------------
7.1 ****** ** ******* ***** ****** ** *** ********* ** ****** ** *
********** ******** ******* ***** ****** ****** ** ******* ** ***
******** ** ******** **** * ******* ********* ** ***** **********
*********** **** ** *********** ***** ***** *** *** **** ************
********** ************* ********* *** **** ** **** ********** *******
** *** ******* ****** *** ********* **** ***********
7.2 If Schein agrees to grant the Request (such agreement to be sent to
Ethical in a written notice within 4 [four] weeks of receipt by Schein
of the
* redacted pursuant to confidential treatment request
Page 10
<PAGE>
Request) then Ethical shall have the unrestricted right to use and
sub-licence the Patent Rights and Ethical Know-How and Schein Know-How
to make and/or manufacture, use, promote, market, distribute and sell
that Designated Product in the relevant country (subject to reasonable
and appropriate compensation being paid to Schein, such compensation
to be based on the amount of work and money expended by Schein in
respect of the Designated Product and the country detailed in the
Request).
7.3 Any licence fee received by Ethical pursuant to Clause 7.2 shall
belong exclusively to Ethical. Ethical agrees that Schein shall
receive a ******* ******* ** **** **** *** * **** ******** of net
sales of each such Designated Product (but in no event less than the
running royalty as provided in Clause 13.1) and the royalties shall be
subject to Clauses 13, 14 and 15.
7.4 The minimum royalty set out in Clause 7.3 may be subject to review and
renegotiation in the event of intensive competative pressures, local
pricing policies in any particular country in the Territory or any
other factors which in either party's reasonable commercial opinion
justify a review and the parties undertake to conduct such review and
renegotiation in good faith.
8. RUNNING ROYALTIES
-----------------
8.1 Schein shall pay to Ethical running royalties as follows:
8.1.1 ** ****** ******** of the Net Sales of each Designated Product.
8.1.2 Schein shall promptly give notice to Ethical of the date of
first commercial sale of each of the Designated Products in
each of the counties in the Territory.
8.1.3 In the event the royalty rates set forth immediately above
exceed those allowable by applicable law or governmental rule
or regulation, they shall be so modified as to conform to the
maximum royalty rate allowable.
8.1.4 The obligation to pay running royalties hereunder shall
terminate with respect to sales of the Designated Product which
follow the termination of this Agreement.
8.1.5 Royalty term may be subject to review and renegotiation in the
event of intensive competitive pressures, local pricing
policies in any particular country in the Territory or any
other factors which in
* redacted pursuant to confidential treatment request
Page 11
<PAGE>
either party's reasonable commercial opinion justify a review
and the parties undertake to conduct such review and
renegotiation in good faith.
9. PAYMENT OF RUNNING ROYALTIES BY SCHEIN
--------------------------------------
9.1 Running royalties due to Ethical under Clause 8 of this Agreement
shall accrue when a Designated Product is invoiced by Schein.
9.2 Running royalties accruing hereunder shall be due and payable on the
45th (forty-fifth) day following the close of each fiscal quarterly
period of Schein.
9.3 Running royalties accruing hereunder shall be paid in U.S. dollars to
Ethical or Ethical's designee, acceptable to Schein in its reasonable
business judgement, duly named by Ethical in written notice to Schein.
9.4 Running royalties accruing hereunder shall be paid in U.S. dollars.
9.5 If, at any time, legal restrictions in the Territory prevent the
prompt payment of running royalties or any portion thereof accruing
hereunder, the parties shall meet to discuss suitable and reasonable
alternative methods of reimbursing Ethical the amount of such running
royalties.
10. ROYALTY REPORTS BY SCHEIN
-------------------------
10.1 Each payment of running royalties made to Ethical hereunder shall be
accompanied by a written report, prepared and signed by a financial
officer of Schein, showing the Net Sales for the months of the
quarterly period for which payment is being made. In the event that no
running royalty is due to Ethical hereunder for any such quarterly
period, Schein shall so report.
10.2 Schein shall maintain and keep, for a period of at least 3 (three)
years or, if shorter, for such period as required by applicable U.S.
federal or state law, complete and accurate records in sufficient
details to enable any running royalties which shall have accrued
hereunder to be determined.
10.3 Subject to Clause 10.2 above, and upon the request of Ethical, but not
exceeding once in any one yearly period, Schein shall permit an
independent public accountant, selected by Ethical and acceptable to
Schein, which acceptance shall not be unreasonably withheld, to have
access (subject to reasonable confidentiality undertakings) to such of
the records of Schein as may be necessary to verify the accuracy of
the royalty reports and payments submitted to Ethical hereunder. Any
such inspection
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of Schein's records shall be at Ethical's expense except that, if
any such inspection reveals an underpayment in an amount of running
royalty actually paid to Ethical hereunder in any quarterly period
of 5% (five percent) or more of the amount of such running royalty
actually due to Ethical hereunder, then the expense of such
inspection shall be borne by Schein instead of by Ethical. Any
amount of discrepancy shall be paid promptly to Ethical.
11. PROJECT MANAGERS & REPORTING
----------------------------
11.1 In order to establish and maintain clear and effective
communication, each party shall appoint one of their senior managers
(a "Programme Director") to supervise and co-ordinate its
obligations hereunder and act as the principal interface with the
other party and deal with all matters relating to corporate
liaisons. Each party will promptly, after execution of this
Agreement, notify the other of its senior manager chosen to
discharge such responsibility. Either party may change the Programme
Director chosen provided that notice of the change is promptly given
to the other party.
11.2 Each Programme Director shall be responsible for.
11.2.1 the appointment of employees to be directly responsible for
each of the Designated Development Programmes (the "Project
Managers")
11.2.2 co-ordination and dissemination of all information within
their own organisation; and
11.2.3 dealing with all matters relating to the Designated
Development Programmes and obtaining resolution of any
disputes relating thereto.
11.3 Status meetings between the Programme Directors and/or Project
Managers and/or other employees will be held on a quarterly basis at
mutually agreed locations to review the status of the work being
performed under the Designated Development Programmes. The status
meetings will be chaired by Ethical.
11.4 Status meetings between the chairmen of Ethical and Schein and/or
other management and/or employees will be held on a half yearly
basis at mutually agreed locations. The meetings will be chaired
alternately by Ethical's and Schein's Chairmen respectively. The
agenda for such meetings shall include a review of the Multi Product
Development Programme and a progress report and an assessment of
each Designated Development
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Product. The Programme Directors will deliver reports at such
meetings, such reports to include at least the following
information:
11.4.1 the current status of each party's activities on each
Designated Development Programme;
11.4.2 each party's planned activities for the next reporting period
in respect of each Designated Development Programme;
11.4.3 an expression of whether each party's activities are then on
schedule with each Designated Development Programme and, if
not, a description of why not and what actions are necessary
to return to the Designated Development Programme timetable;
11.4.4 identification of actual and anticipated problems areas which
may affect each Designated Product being developed and
marketed by the estimated dates set out in each Designated
Development Programme;
11.4.5 additions to or deletions from Schedule 5;
11.4.6 a review of the costings included in each Designated
Development Programme;
11.4.7 a review, exchange and update of any additional Ethical Know-
How or Schein Know-How; and
11.4.8 a review of the effort being made by Schein to develop,
obtain Marketing Authorisation and commercialise each
Designated Product and a report by Schein on whether or not
it has made, or may forseeably make, the determination that
it does not intend to develop, obtaining Marketing
Authorisation or commercialise any one of the Designated
Products in any country in the Territory. In the event that
it is agreed Schein is no longer making or no longer intends
to make or is no longer able to make such effort then
Schein's right to commercialise that Designated Product in
that particular country of the Territory shall terminate and
Ethical shall have the rights as further detailed in Clause
7.2 in respect thereof and Schein shall be compensated as
contemplated by Clauses 7.2 and 7.3. Furthermore Schein shall
promptly execute and sign all such applications, instruments
and documents and do all such acts and things as may
reasonably be required by Ethical to transfer any Marketing
Authorisation obtained in respect of the Designated Product
in any applicable country in the Territory to Ethical or its
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<PAGE>
nominee and to enable Ethical or its nominee to be named any
enjoy the benefit of any such Marketing Authorisation to the
exclusion of Schein.
12. ADDITIONAL WORK
---------------
12.1 It is hereby agreed by the parties that the Notional Sums set out in
Clause 5.2 are in consideration of Ethical carrying out its
obligations as detailed in Schedule 4 under each Designated
Development Programme in compliance with all applicable laws and
regulations in order to achieve Marketing Authorisation in the
United States and carry out its other obligations as provided in
this Agreement.
12.2 In the event that additional development activities are required to
be undertaken by Ethical, other than as set out under Schedule 4, in
order to achieve Marketing Authorisation in the United States any
additional costs (the "Special Costs") connected with such work
shall be included in the relevant Designated Development Programme.
The additional work and Special Costs will be discussed and agreed
with Schein in advance and the relevant Designated Development
Programme will be amended accordingly.
12.3 In the event that additional development activities are required in
order to comply with applicable laws and regulations outside the
United States (except in the Granted Territories) Ethical shall be
entitled to undertake that work and make additional charges to
Schein in respect of that work (the "Additional Charges"). The
additional work and Additional Charges will be discussed and agreed
with Schein in advance and the relevant Designated Development
Programme will be amended accordingly.
13. MONIES DUE FROM ETHICAL
-----------------------
13.1 ******* ***** *** ** ****** *** ******* ******** ** *** *******
******* ******** ******** ** ******* **** ** *********** ***** *****
***** * ******** ****** ** ************ ********* ** *****
********** *********** ******** ** *** **** ** * ********** *******
** *** ******* **********
14. PAYMENT OF MONIES DUE FROM ETHICAL
----------------------------------
14.1 The percentage of running royalties due to Schein under clause 13 of
this Agreement shall accrue as and when running royalties are
actually received by Ethical in respect of Designated Product sales
in any Granted Territory in accordance with the provisions below.
14.2 The percentage of running royalties accruing hereunder shall be due
and
* redacted pursuant to confidential treatment request
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payable on the 45th (forty fifth) day following the close of each
fiscal quarterly period of Ethical.
14.3 The percentage of running royalties accruing hereunder shall be paid
in U.S. dollars to Schein or Schein's designee, duly named by Schein
in written notice to Ethical.
14.4 If, at any time, legal restrictions prevent the prompt payment of
monies or any portion thereof accruing hereunder, the parties shall
meet to discuss suitable and reasonable alternative methods of
reimbursing Schein the amount of such percentage of running
royalties.
15. ROYALTY REPORTS BY ETHICAL
--------------------------
15.1 Ethical shall maintain and keep, for a period of at least 3 (three)
years or, if shorter, for such period as required by applicable law
complete and accurate records in sufficient details to enable any
running royalties which shall have accrued hereunder to be
determined.
15.2 Subject to Clause 15.1 above, and upon the request of Schein, but
not exceeding once in any one yearly period, Ethical shall permit an
independent public accountant, selected by Schein and acceptable to
Ethical, which acceptance shall not be unreasonably withheld, to
have access (subject to reasonable confidentiality undertakings) to
such of the records of Ethical as may be necessary to verify the
accuracy of the royalty reports and payments submitted to Schein
hereunder. Any such inspection of Ethical's records shall be at
Schein's expense except that, if any such inspection reveals an
underpayment in an amount of running royalty actually paid to Schein
hereunder in any quarterly period of 5% (five percent) or more of
the amount of such running royalty actually due to Schein hereunder,
then the expense of such inspection shall be borne by Ethical
instead of by Schein. Any amount of discrepancy shall be paid
promptly to Schein.
16. REGISTRATION AND APPROVAL OF THE DESIGNATED PRODUCTS
----------------------------------------------------
16.1 Ethical and Schein agree that Designated Product development should
progress as specified in Schedule 4, attached hereto and that they
shall commit to their respective obligations the necessary resources
to comply with the timetables of any Designated Development
Programme.
16.2 Subject to any agreement to the contrary as contemplated by Clause
11.4.8, Schein undertakes to use all reasonable endeavours to obtain
Marketing Authorisations for each and every Designated Product in
the Territory
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<PAGE>
(except for Marketing Authorisations in any Granted Territory) and
to promptly submit all necessary applications for Marketing
Authorisations in the Territory (except for Marketing Authorisations
in any Granted Territory).
16.3 Schein shall bear the cost of all application fees to government
authorities for Marketing Authorisations including, without
limitation, new drug applications ("NDA") filed with the FDA or any
other fees concerning approvals from government authorities
necessary to commercialise the Designated Products in the Territory,
other than Marketing Authorisations required in any Granted
Territory. The Marketing Authorisations (except for any Marketing
Authorisations in any Granted Territory) and all NDAs in the
Territory shall be the sole and exclusive property of Schein.
17. DESIGNATED PRODUCT MANUFACTURE
------------------------------
17.1 Schein undertakes to manufacture or have manufactured each
Designated Product in the Territory and shall ensure such
manufacturing shall comply with prevailing Good Manufacturing
Practice for sale of the relevant Designated Product in the relevant
country of the Territory (except in any Granted Territory). Schein
may request Ethical to supply the Multipor coating materials
required in connection with the manufacture of the Designated
Products.
17.2 In the event that Ethical or upon mutual agreement a third party
manufacturer is to supply a Designated Product to Schien, *** ******
***** **** ** ***** ******** ************* ***** **** *** ********
******** such costs to be defined and set out in a separate supply
agreement to be mutually agreed upon between the parties.
17.3 Once in any yearly period, at the request of Schein, Ethical shall
permit an independent public accountant selected by Schein and
acceptable to Ethical, such acceptance not to be unreasonably
withheld, to have access (subject to reasonable confidentiality
undertakings) to such of the records and documentation of Ethical as
may be necessary to verify that the supply price being charged to
Schein is equal to the ***** ******** ************* ***** **** ***
******** ******** as set out in Clause 17.2.
18. TERM
----
18.1 The term ("Term") of this Agreement shall come into force as of the
Effective Date and, subject to clause 19, shall remain in force in
respect of a Designated Product in each country in the Territory ***
* ****** ** ** ********* ***** **** *** **** ** *** ***** **********
**** ** ** ***********
* redacted pursuant to confidential treatment request
Page 17
<PAGE>
Third Party of such Designated Product in such country of the
Territory (except the Granted Territories) or the life of any
patents issued in the applicable country in the Territory relating
to such Designated Product and included in the Patent Rights,
whichever is the longer.
18.2 This Agreement shall automatically be extended thereafter for
successive 1 (one) year periods unless;
18.2.1 either party notifies the other of its decision not to renew
this Agreement at least 12 (twelve) months prior to the
commencement of any such renewal term; provided, however,
that the failure to extend this Agreement with respect to one
Designated Product in any country in the Territory shall in
no way affect the extension of this Agreement with respect to
such Designated Product in any other countries in the
Territory or other Designated Products for which no such
notice has been given; or
18.2.2 it is mutually agreed in writing by both parties, and subject
to reasonable additional compensation being payable to
Ethical, to extend the Agreement in respect of a Designated
Product in any country in the Territory by a period of time
greater than 1 (one) year, provided, however, that an
agreement to extend this Agreement with respect to one
Designated Product in any country in the Territory shall in
no way affect the extension of this Agreement with respect to
such Designated Product in any other countries in the
Territory or other Designated Products for which no such
agreement has been reached.
19. TERMINATION
-----------
19.1 If any party shall go into liquidation either voluntary or
compulsory (except for the purpose of amalgamation, reconstruction
or restructuring previously approved of in writing by the parties
hereto) or sell or dispose of its undertaking or the major part
thereof or in any manner assign except as contemplated herein this
Agreement or make any assignment for the benefit of creditors or
cease or threaten to cease to carry on business or is unable to pay
its debts as they fall due; or
19.2 if a receiver or receiver and manager or judicial manager or
administrator is appointed for any party over the whole or any part
of its assets and is not withdrawn within 30 (thirty) days of
appointment; or
19.3 if any party shall commit any material breach (whether remediable or
not) of its obligations under this Agreement and (if remediable)
shall fail to
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<PAGE>
remedy the breach within 90 (ninety) days of written notice,
calculated from the date of receipt of such notice, given by the
other party to the party required to do so
then, upon the happening of any one or more of such events, the other party
shall have the right forthwith by notice in writing to terminate this
Agreement.
19.4 Termination of this Agreement, due to the fault of either party,
shall be without prejudice to any other rights or remedies then or
thereafter available to either party under this Agreement or
otherwise.
19.5 The rights of either party to terminate this Agreement prior to
the expiration of its Term shall not be affected in any way by that
party's waiver of or failure to take action with respect to any
previous breach hereunder.
20. CONSEQUENCES OF TERMINATION
---------------------------
20.1 If this Agreement is terminated prior to the date of expiration
above by fault of Schein;
20.1.1 Schein and Ethical shall promptly make an accounting to one
another of the inventory of all Designated Products which it
has in the Territory and the Granted Territory, respectively,
if any, as of the date of such termination and said parties
shall thereafter have the right for a period of 6 (six)
months after said termination to sell such inventory of
Designated Product provided that the Net Sales thereof shall
be subject to the royalty provisions of Clauses 9 and 13
****** ***** ** *************** ******* ** **** **** ***
********* ***** ****** ***** and so payable to Ethical and/or
Schein as the case may be. Thereafter, any remaining
inventory of Designated Product shall be disposed of by
mutual agreement in accordance with regulatory requirements.
Clauses 8, 9, 10, 13 (as amended by this Clause 20.1.1), 14
and 15 shall survive such termination until all remaining
inventory of Designated Product has been sold.
20.1.2 Ethical shall have the unrestricted right to use and
sublicence Schein Know-How and to make, manufacture, use,
promote, distribute and sell the Designated Products in the
Territory for the Term subject to reasonable and appropriate
compensation being payable to Schein by Ethical including
without limitation the royalties ************ ** ****** **
******* ************** ** **** **** *** ********* *****
****** *****
* redacted pursuant to confidential treatment request
Page 19
<PAGE>
20.2 If this Agreement is terminated prior to the date of expiration
above due to the fault of Ethical, Schein shall have the
unrestricted right to continue to use and sublicence the Patent
Rights and Ethical Know-How and to make, manufacture, use, promote,
distribute and sell the Designated Products in the Territory for the
unexpired balance of the Term, in which case Clause 8.1.1 ***** ****
** ** ** ********* *** ****** **** **** ***** **** ********. Clauses
8 (as amended by this Clause 20.2), 9, 10, 13, 14, and 15 shall
survive such termination.
20.3 If any of the patents included in the Patent Rights is found by a
court of applicable jurisdiction to be invalid or unenforceable in
that jurisdiction in the Territory and as a result thereof an
Independent Third Party would be entitled to manufacture or
distribute and thereafter commercialises any of the Designated
Products in that jurisdiction in the Territory utilising a part of
the technology covered by the Patent Rights which would have a
material impact on the Net Sales of that Designated Product and such
impact can be shown, then Schein in its discretion may terminate
this Agreement with respect to such Designated Product in that
jurisdiction in the Territory or, at Schein's election, continue
this Agreement in full force and effect with respect to such
Designated Product in which case Clause 8.1.1 shall **** ** ** **
********* *** ****** of **** **** ***** **** ********. Clauses 8 (as
amended by this Clause 20.3), 9, 10, 13, 14 and 15 shall survive
such termination.
21 SCHEIN BREAK POINT
------------------
21.1 ****** *** ********* **** ********* ** ******* ****** ** *******
**** ****** ******** ** *** ***** **** ** ***** *** *************
*** *** ****** **** ** ** ** ****** ***** ** ** ****** ****** **
**** *** ********** *********** ********** ********* ** *** *****
*** *** ** **** ********* **** *********** ** ** ********* * *****
****** ***** ******* ** ******* ** *** ***** ****** **** ******
******* ******* ***** **** *** **** ***** ******* **** ************
21.2 ****** *** ********* **** ********* ** ******* ****** ** *******
**** ****** ******** ** *** ***** **** ** ***** *** *************
*** *** ****** **** ** ** ** ****** ***** ** ** ****** ****** **
*** *** ****** **** ** ** ** ****** ***** ** ** ****** ****** **
*** *** ****** **** ** ** ** ****** ***** ** ** ****** ****** **
**** *** ********** *********** ********** ********* ** *** *****
*** *** ** **** ********* **** *********** ** ** ********* * *****
****** ***** ******* ** ******* ** *** ***** ****** **** ******
******* ******* ***** **** *** **** ***** ******* **** ************
* redacted pursuant to confidential treatment request
Page 20
<PAGE>
21.3 ***** **** ****** ** *** ******* ********
****** *** **** ** *** *** *****
********* ****
******* *** *** ***** ***** *****
***** ***** *** *********
****
**** **** ***** ***** ***** **** *****
*** ********* ****
21.4 **** *********** * *** ******** ** * *** ***** *********** ********
****** ******** ******** ****** ********** *** ********* ***** **
*** ******* **** ************ *** ****** ******* ****** ****
*********** *** ****** ****** ** ****** ******* **** ** ***** ******
*********** ****** ******** ******** ****** ********** *** *********
***** ** ***
21.4.1 *** ******* *************** **
21.4.2 ********** ******* **** **** **** ** ******* ******** **
21.4.3 **** ********** ******* *** ** ** **** ****** *** **** **
******** *******
21.4.4 *** ***** ******* ************** ******* **** *******
**********
21.5 **** *********** * *** ******** ** * *** ***** *********** ********
**** *********** * *** ******** ** * *** ***** *********** ********
**** *********** * *** ******** ** * *** ***** *********** ********
**** *********** * *** ******** ** * *** ***** *********** ********
**** *********** * *** ******** ** * *** ***** *********** ********
**** *********** * *** ******** ** * *** ***** *********** ********
21.6 **** *********** * *** ******** ** * *** ***** *********** ********
**** *********** * *** ******** ** * *** ***** *********** ********
**** *********** * *** ******** ** * *** ***** *********** ********
**** *********** * *** ******** ** * *** ***** ***********
********
* page redacted pursuant to confidential treatment request
Page 21
<PAGE>
22. INFORMATION TRANSFER: CONFIDENTIALITY AND CO-OPERATION
------------------------------------------------------
22.1 Within 30 (thirty) days following the signing of this Agreement,
Ethical shall provide to Schein copies of relevant Ethical Know-How.
22.2 Each party shall hold in strict confidence any tangible information
relating to the Prospective Development Products marked confidential
received from the other party (or oral information which is reduced
to tangible form within 30 [thirty] days of disclosure and noted to
be confidential), unless such information:
22.2.1 Is already in its possession;
22.2.2 Is already in the public domain or knowledge at the time of
disclosure or later comes into the public domain or knowledge
without fault on the part of the recipient;
22.2.3 Is subsequently disclosed to the recipient by a third party
who did not acquire it in confidence from the other party;
22.2.4 Is required to be disclosed in connection with any legal
proceedings or in order to obtain permission to manufacture
of market at Designated Product in the Territory; or
22.2.5 Is disclosed with the prior written consent of the other
party, such consent not to be unreasonably withheld.
This provision shall remain valid for a period of * ****** *****
after termination of this Agreement.
22.3 During the Term of this Agreement, at least semi-annually, Ethical
shall furnish to Schein any Ethical Know-How and any other
information and data developed or acquired by or under the control
of Ethical with respect to the Designated Products. Ethical hereby
acknowledges and agrees that Schein may use, within the Territory,
all such Ethical Know-How and information and data without
restriction and without additional compensation to Ethical, other
than as provided in this Agreement, to make, have made, use and sell
the Designated Products in the Territory as envisaged hereunder.
22.4 During the Term of this Agreement, at least semi-annually, Schein
shall furnish to Ethical any Schein Know-How and any other
information and data developed or acquired by or under the control
or Schein with respect to the Designated Products, and Ethical may
use in any Granted Territory
* redacted pursuant to confidential treatment request
Page 22
<PAGE>
all such Schein Know-How and information and data without
restriction and without additional compensation to Schein, other
than provided for in this Agreement, subject to the following
sentence. Schein shall be under no obligation to provide any Schein
Know-How, information or data to Ethical hereunder if the disclosure
of such would be in violation of any bona fide agreement with any
Independent Third Party and such violation can be proved by Schein.
23. INFRINGEMENT
------------
23.1 Ethical and Schein each agree to notify the other in writing of any
alleged infringement or potential infringement of any Patent Rights
or any information or allegations impacting on the validity of any
such Patent Rights, in the Territory promptly after becoming aware
of the same.
23.2 Upon the giving of such notice, Ethical and Schein shall immediately
consult together to decide what steps shall be taken to prevent or
terminate such infringement, and the parties shall take such steps
as they shall so agree, including the institution of legal
proceedings where necessary in the name of one of the parties of the
joint names of Ethical and Schein as appropriate, in which event
costs and expenses incurred and damages recovered shall be share in
such proportions as the parties may agree.
23.3 If, within 30 (thirty) days after such consultation that parties
have failed to agree on the steps to be taken or the proportions in
which costs and damages should be shared, Ethical may take such
steps as it may decided and all damages recovered in any proceedings
shall belong to Ethical.
23.4 If, within 60 (sixty) days after such consultation Ethical does not
take action against an alleged infringer or potential infringer or
has failed to notify Schein of its intent to commence an action to
terminate the alleged infringement or potential infringement, then
Schein shall have the right to commence such action on its own
behalf at its own cost and expense and to use Ethical's name in
connection therewith, in which case any recoveries shall inure to
the benefit of Schein.
23.5 Schein and Ethical shall each provide all such assistance and co-
operate, including the furnishing of documents and information as
may be required to give effect to such joint or independent action
as may be taken under Clauses 23.2, 23.3 and 23.4 above.
23.6 Ethical hereby represents that, to the best of its knowledge, none
of the Patent Rights or Ethical Know-How infringe on the patent or
other legally protected proprietary rights of any Independent Third
Party, and it has not
Page 23
<PAGE>
received any notice or claim of any such infringement worldwide.
Ethical agrees to hold Schein harmless from any judgements, losses
or costs (including reasonable attorney's fees) incured in the event
a claim or legal action is asserted against Schein to the effect
that the manufacture, use or sale of the Product infringes the
patent rights or other legally protected proprietary rights of any
Independent Third Party PROVIDED ALWAYS THAT Schein fulfils its
obligations under Clauses 23.1 and 23.5 above and that Schein has
made no admission of liability either in whole or in part without
Ethical's consent (such consent not to be unreasonably withheld).
23.7 Ethical and Schein shall each give to the other prompt written
notice of any claim or action made against either of them alleging
that any of the Patent Rights infringe the rights of an Independent
Third Party and arising from the manufacture, use or sale of any
Designated Product in the Territory. Ethical and Schein agree to co-
operate and collaborate with each other in undertaking a full
investigation of the situation and in taking such action as they
shall agree is appropriate in the circumstances.
23.8 Subject to Clauses 23.2 and 23.4 above, Ethical shall be solely
responsible for, and bear the cost of, the prosecution and
maintenance of the Patent Rights.
23.9 The provisions of this Clause 23 shall survive termination of this
Agreement.
24. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
------------------------------------------------------
24.1 Except as otherwise specifically provided in this Agreement, all
representations, warranties and agreements contained in this
Agreement shall survive the execution and delivery of this Agreement
and remain in full force and effect regardless of any investigation
made by or on behalf of either Ethical or Schein.
25. ARBITRATION
-----------
25.1 All disputes arising in connection with the Agreement shall be
settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by one or more arbitrator in
accordance with the said Rules, as follows:
25.2 Each of the parties shall designate its arbitrator within 15
(fifteen) days from notification by registered letter. The two
arbitrators thus designated
Page 24
<PAGE>
shall designate a third arbitrator within 30 days from designation
of the second arbitrator, the said third arbitrator shall preside
over the arbitration court. Arbitration should be held in London if
Ethical initiates the request and if Schein initiates the request
arbitration should be held in *** *****
26. DISCLAIMER OF AGENCY
--------------------
26.1 The parties acknowledge that each of Schein and Ethical are
independent contractors and nothing herein contained shall be deemed
to create any relationship in the nature of agency, joint venture,
partnership or similar relations between Schein and Ethical.
27. SEVERABILITY
------------
27.1 Whenever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement should be
prohibited or invalid under applicable law, such provision shall be
ineffective to the extent of such invalidity without invalidating
the remainder of such provision or the remaining provisions of this
Agreement to the extent such modification does not impair or change
the intent of the parties hereto.
28. PARAGRAPH HEADINGS
------------------
28.1 The subject headings of the Articles in this Agreement are included
for the purposes of convenience only, and shall not affect the
construction or interpretation of any of its provisions.
29. TRANSFER OF RIGHTS AND OBLIGATIONS
----------------------------------
29.1 This Agreement, in whole or in part, shall not be assignable by
either party hereto to any Independent Third Party without the prior
written consent of the other party hereto except that either party
may assign this Agreement to an affiliated company or the successor
or assignee of substantially all of its business. It is expressly
understood and agreed by the parties hereto that the assignor of any
rights hereunder shall remain bound by its duties and obligations
hereunder.
30. NOTICES
-------
30.1 Any notice required or report required or permitted to be given or
made under this Agreement by either party to the other shall be in
writing, sent by hand or by registered or express mail or courier,
postage prepaid, telex or telefax, addressed to such other party at
its address indicated at the
* redacted pursuant to confidential treatment request
Page 25
<PAGE>
beginning of this Agreement or to such other address as the
addressee shall have last furnished in writing to the addressor, and
shall be effective upon receipt by the addressee.
31. DISCLOSURE
----------
31.1 Ethical and Schein shall have the right, subject to the written
approval of the other, to disclose to any Independent Third Party in
connection with any announcement, news release, or for any other
reason the existence of this Agreement but not the terms hereof.
Notwithstanding the foregoing, each party shall have the right to
make such disclosures relating to this Agreement as may be required
by applicable laws and regulations.
32. FORCE MAJEURE
-------------
32.1 Ethical and Schein shall not be liable for delays if such delays are
due to force majeure case, such as strikes, disputes with workmen,
failure of supplies from ordinary sources, fire, floods, earthquake,
governmental regulation against the aims of this Agreement, war,
legislation or any other cause, either similar or dissimilar to the
foregoing, beyond the reasonable control of the parties which cannot
be overcome by due diligence.
33. FURTHER ASSURANCES
------------------
33.1 From and after the Effective Date, without further consideration,
Ethical and Schein shall, from time to time during the term of this
Agreement, upon the request by the other, perform all actions and
execute, acknowledge and deliver all such further documents or
instruments as may be reasonably required to give effect to the
purpose and intent of this Agreement.
33. ENTIRE AGREEMENT: AMENDMENT
---------------------------
33.1 This Agreement contains the entire understanding of the parties with
respect to the matters contained herein and supersedes any previous
agreements and may be altered or amended only by a written
instrument duty executed by both parties hereto.
Page 26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate originals.
ETHICAL HOLDINGS PLC SCHEIN PHARMACEUTICAL INC.
-------------------- -------------------------
Sign [SIGNATURE ILLEGIBLE] Sign [SIGNATURE ILLEGIBLE]
--------------------------- ----------------------------
Print /s/ Dr. G. W. Guy Print /s/ MARTIN SPERBER
--------------------------- ----------------------------
Date 30th August 1994 Date 30th August 1994
--------------------------- ----------------------------
Page 27
<PAGE>
SCHEDULE 1
[ * ]
* page redacted pursuant to confidential treatment request
Page 1 of 1
<PAGE>
SCHEDULE 2
----------
******* *** ****** ************ ******** ** *** ************ ********** *******
*********** ***** ****** ** *** ********* ******
* redacted pursuant to confidential treatment request
Page 1 of 10
<PAGE>
[ * ]
* page redacted pursuant to confidential treatment request
Page 2 of 10
<PAGE>
[ * ]
* page redacted pursuant to confidential treatment request
Page 3 of 10
<PAGE>
[ * ]
* page redacted pursuant to confidential treatment request
Page 4 of 10
<PAGE>
[ * ]
* page redacted pursuant to confidential treatment request
Page 5 of 10
<PAGE>
[ * ]
* page redacted pursuant to confidential treatment request
Page 6 of 10
<PAGE>
[ * ]
* Page redacted pursuant to confidential treatment request.
Page 7 of 10
<PAGE>
[ * ]
* Page redacted pursuant to confidential treatment request.
Page 8 of 10
<PAGE>
[ * ]
* Page redacted pursuant to confidential treatment request.
Page 9 of 10
<PAGE>
[ * ]
* page redacted pursuant to confidential treatment request
Page 10 of 10
<PAGE>
SCHEDULE 3
1. Selection of Designated Products
--------------------------------
1.1 Subject to Clause 1.2 of Schedule 3 Schein shall, for a period of no
longer than ** ******* ***** ****** **** *** ********* ***** ****** **
***** * ***** ********** ******* **** *** ***** * ***** ****** **
********** **** ****** * ********* ******* ** * ******* ** ** ********
**** ********** *********
1.2 ** *** ***** **** ****** ****** ** ****** *** ************* *******
*** ******* ** ******** ** ** **** ** ** ** ********** **** ****** *
********* *** ***** ** *** **** ******* ***** *** ******* ** ******
*** ************* ******* ** ****** ** *** **** ********** ** ****
******* **** ****** ****** ******* ****** ********* ** ******** **
******* *** ** ** *******
2. Selection Procedure
-------------------
2.1 ** * ********** ***** ******* *** ****** **** ******* *** **********
************* ** *** *********** *********** ******** ****** **
******** ** ** ******* **** **** ** ***** **** *********** ** ********
*** *** ** ******* *** *** *********** ************* **********
************** ******* ***** *** *********** *****
2.2 ** *** ***** **** ****** ******* ** ****** ** ******* **** *******
************** ** * *********** *********** ******** ** ***** *******
** ******* **** ******* ******** * *********** **********
2.3 ******* ***** **** *** ***** ** ******* *** *********** ********* **
********** **** ******** * *** **** *** **** ** *******
2.4 ****** ***** **** ******* ***** ******* *********** ******* ***
******* ** ********** ******* ** *** ** ****** ** ****** **** ********
*********** ******* ** * ********** ******* *** **** ** ****** **
****** *** *********** ********* ** *** ********** ***********
********** ** *** ***** **** ** ***** ** ***** ****** ******* ** ***
**** ** ******* **** **********
2.5 ** ******* ** *** ******* ******* ***** *********** ******** ***
********** *********** ********* *** *** ********** ******* * **** **
*** ********** *********** ********* ***** ** ******** ** ****
******** **
* redacted pursuant to confidential treatment request
Page 1 of 2
<PAGE>
2.6 In the event that Ethical exercise its rights under Clause 6 this
shall be reflected in amendments to the Designated Development
Programme.
2.7 Any amendments to the Designated Development Programme agreed by the
parties subsequent to Ethical's receipt of the Notice including, but
not limited to, any Additional Charges, Designated Product Extensions,
Special Charges or additional landmarks, shall be clearly evidenced in
that Designated Development Programme. Additional monies due as a
result of such amendments shall also be clearly evidenced in that
Designated Development Programme.
2.8 **** *********** * *** ******** ** * *** ***** *********** ********
**** *********** * *** ******** ** * *** ***** *********** ********
**** *********** * *** ******** ** * *** ***** *********** ********
**** *********** * *** ******** ** * *** ***** *********** ********
**** *********** * *** ******** ** * *** ***** ***********
********
2.9 **** *********** * *** ******** ** * *** ***** *********** ********
**** *********** * *** ******** ** * *** ***** *********** ********
**** *********** * *** ******** ** * *** ***** *********** ********
**** *********** * *** ******** ** * *** ***** *********** ********
**** *********** * *** ******** ** * *** ***** *********** ********
**** *********** * *** ******** ** * *** ***** *********** ********
* redacted pursuant to confidential treatment request
Page 2 of 2
<PAGE>
SCHEDULE 4
----------
Designated Development Programmes.
---------------------------------
1. Each Designated Product shall have a Designated Development Programme
prepared by Ethical and reviewed and approved by Schein which describes
the ******* *********** *********** ******* ************ *** **********
******** ** ** ******** ** ****** ********** ******** ** ******* *******
*** ********** *** ********** ******* ** *** ********** ** ***********
*** ********** *********** ********* **** ******* *** *********** **
******* **** ******* ** ************** ************ ********* ********
*********** ******** ***** *************** ******* *** *******
********** ******** *** *** *********** ** ****** **** ******* ** ***
******* ******* ******* ********** ******* *** **********
************ ********* ********** **** ***** ************* *********
************ ********** ** **** ******* ** *** ********* ******* ***
******* ************* *** ********** *********** ********* *** **
******* **** **** ** **** ** *** ****** ******* ** *** ******* ** *****
** ******** ******** ******* *** ********** ************* ******* *****
***** ** ******** ** ******* *********** **** **** ******* ** ***
********** ******* ****** ** *** ***** ** *** ********** ***********
********* ** **** **** ** **** ** ** ******
2. Each Designated Development Programme will identify ** ***** ***
********** *** *** ** ****** * ***** **** ******* ************ ***
********** ** ********** ** ***** **** ********
2.1 * ********** ******* ** *** ******** *** ** ********** ** ****
****** ********* ***
2.2 * ******* ** ********** ******* *** ******* ******** ** *******
******** ** *** ********** *** ********** ** **** ****** *********
3. ******* ** ******** * ****** *** *** ****** *** *** ****** ********* ***
********** ******** ** *** ******** *** ****
********** ******* **
****** ******** ******** *** ***
*************** ****************
3.1 ********* ** * ********** *******
** *** *** ** ******** ** ***
* redacted pursuant to confidential treatment request
Page l of 2
<PAGE>
SCHEDULE 4
----------
*** ********** ** ********** *** *************
******* ** ************ **
*** ************ ** *** ***** ***************
** ******** ****** ***
*** ********** ** *** **** *** *** ** *** ** ***
************ ** *** ******** *************
**** ** ********** ********** ***
*** ********** ** ***** ****** *********** *********
******* ** *** **** ********* *********** ** ***
********** ******** **
*** ********** ** *** *** ***** *************** **
******** ******** ***
*** ********** ** ************ *************
********** *********** ** ******* ***
*** ********** ** *** ******* *************** ******** ***
* redacted pursuant to confidential treatment request
Page 2 of 2
<PAGE>
SCHEDULE 5
----------
[ * ]
* Page redacted pursuant to confidential treatment request
Page 1 of 1
<PAGE>
EXHIBIT 10.39
LICENCE & DEVELOPMENT AGREEMENT
-------------------------------
AGREEMENT, effective as of this 31st day of March 1994 (hereinafter referred to
as the "EFFECTIVE DATE"), by and between SCHEIN PHARMACEUTICAL, INC, 100 Campus
Drive, Florham Park, NY 07932, USA, (hereinafter referred to as "LICENSEE") and
ETHICAL HOLDINGS PLC, a company registered in the United Kingdom and having its
principal place of business at Corpus Christi House, 9 West Street,
Godmanchester, Cambridgeshire, PE18 8HG, England (hereinafter referred to as
"ETHICAL").
WITNESSETH THAT:
----------------
WHEREAS, ETHICAL has acquired improved formulations or ******** *** **** *****
************** in man, combining active drug agents in a patented pharmaceutical
formulation capable of delivering the drug agents in a controlled release
manner after oral administration to man; and
WHEREAS, ETHICAL and LICENSEE have signed a Letter of Intent dated 28 February
1994 and LICENSEE desires to manufacture and/or have manufactured by ETHICAL and
sell the PRODUCT (hereinafter defined) in the TERRITORY; and
WHEREAS, ETHICAL owns valuable ETHICAL KNOW-HOW (hereinafter defined) and has
obtained PATENT RIGHTS (hereinafter defined) relating to pharmaceutical
formulations designed to provide controlled release of active constituents from
solid dosage forms; and
* redacted pursuant to confidential treatment request
Page 1 March 1994
<PAGE>
WHEREAS, the parties desire to co-develop the PRODUCT and anticipate LICENSEE
will make the regulatory filing in the TERRITORY and the NDA will be held in the
LICENSEE's name and ETHICAL will be responsible for ensuring the regulatory
filings outside the TERRITORY.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants and
conditions set forth herein, the parties hereto mutually agree as follows:
ARTICLE I. DEFINITIONS
- ----------------------
The following terms shall have the meanings set forth in this Article I:
A. "ETHICAL" means ETHICAL HOLDINGS PLC, Corpus Christi House, 9 West Street,
Godmanchester, Cambs, PE18 8HG.
B. "LICENSEE" means SCHEIN PHARMACEUTICAL, INC, 100 Campus Drive, Florham
Park, NY 07932, USA.
C. "EFFECTIVE DATE" means 31st March 1994.
D. "ETHICAL KNOW-HOW" means all confidential scientific and medical
information, technical data and marketing studies in ETHICAL's possession
or from time to time invented or developed or acquired by or on behalf of
ETHICAL or under the control of ETHICAL (other than LICENSEE KNOW-HOW)
relating specifically to the registration, marketing, manufacture, use or
sale of PRODUCT including, but not limited to, toxicological,
pharmacological, analytical and clinical data, bioavailability studies,
product forms and formulations, control assays and specifications, methods
of preparation and stability data and specifically including all
information contained in all health registration dossiers to be filed in
various countries of the European Community (EC) and shall further include
all Third Party data which ETHICAL has access to and is free to disclose
without restriction or
Page 2 March 1994
<PAGE>
additional compensation to such Third Party. Not withstanding the
foregoing, the term `ETHICAL KNOW-HOW' shall not be deemed to refer to
information and data of the type which would not be required to be
maintained as confidential by either party pursuant to the provision of
Subsections B1 or 2 of Article XV.
E. "LICENSEE KNOW-HOW" means all confidential scientific and medical
information and technical data from time to time, developed or acquired by
or on behalf of LICENSEE (other than ETHICAL KNOW-HOW) relating
specifically to the manufacture or use of the PRODUCT, including, but not
limited to, toxicological, pharmacological, analytical and clinical data,
bioavailability studies, product forms and formulations, control assays and
specifications, methods of preparation and stability data, and specifically
including all information contained in all health registration dossiers
filed in the TERRITORY by the LICENSEE. Notwithstanding the foregoing, the
term 'LICENSEE KNOW-HOW' shall not be deemed to refer to information and
data of the type which would not be required to be maintained as
confidential by either party pursuant to the provision of Subsections B1
or 2 of Article XV.
F. "PATENT RIGHTS" means the ** patent numbers ********** **********
********** ********** ********* and any and all ****** ****** *** ****
****** ****** patents and patent applications filed by or issued to ETHICAL
and licensed or assigned to ETHICAL relating to controlled release
formulations for oral administration in man, utilising the technology
described in the above patent numbers, or the manufacture or use of them,
together with any and all patents that may issue or may have issued
therefrom, including any and all divisions, continuations, continuations-
in-part, extensions, additions or reissues of or to any of the aforesaid
patent applications.
G. ******** ****** ******* ***** *** **** ****** *******
* redacted pursuant to confidential treatment request
Page 3 March 1994
<PAGE>
H. "PRODUCT" means controlled release ******* ** ******** based on the PATENT
RIGHTS and ETHICAL KNOW-HOW, containing ******** ************ according to
the technology protected in the PATENT RIGHTS defined above to be used for
human therapy and as further defined in Appendix 1.
I. "FINISHED PRODUCT" means PRODUCT in final package in which the PRODUCT is
sold.
J. "TERRITORY" means the ****** ****** ** ******** ********* *** ***********
*** ************
K. "NET SALES" of the PRODUCT means the gross sales of FINISHED PRODUCT
actually invoiced by the LICENSEE or LICENSEE's co-marketeer or sublicensee
hereunder to INDEPENDENT THIRD PARTY, less the total ordinary and customary
trade discounts (but not including cash discounts for prompt payment),
rebate for inventory price protection covering the last 30 (thirty) days'
sales by customers claiming such rebates to counter competitive pressures,
excise taxes, other consumption taxes, customs duty and credits or
allowances actually granted on account of rejection or return of FINISHED
PRODUCT.
L. "INDEPENDENT THIRD PARTY" means any party other than ETHICAL and LICENSEE
and their subsidiaries or affiliates.
M. "AGREEMENT" means this agreement duly signed by the Parties.
N. "INTERNATIONAL DEVELOPMENT PROGRAMME" means the detailed schedule as set
forth as Appendix 2 hereto which describes the planned development
activities, project deliverables and timetable presently believed to be
required to obtain regulatory approval in the TERRITORY and outside the
TERRITORY to market, promote and distribute the PRODUCT in the TERRITORY
and elsewhere.
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<PAGE>
The INTERNATIONAL DEVELOPMENT PROGRAMME may be amended from time to time by
the mutual consent of the parties in light of periodic progress reviews and
regulatory requirements. Neither party shall be required to perform
development work with respect to the PRODUCT except as set forth in the
INTERNATIONAL DEVELOPMENT PROGRAMME as from time to time in effect.
O. ***** ***** *** ****** ****** ******* **** *** **** ***************
P. "MARKETING AUTHORISATIONS" means the consent or approval of the FDA and any
applicable comparable state agencies required to market or distribute the
FINISHED PRODUCT in the TERRITORY.
Q. ***** ***** *** ****** ****** ******* **** *********** *******
R. "NDA" means the new drug application required to manufacture, market and
sell the PRODUCT and the FINISHED PRODUCT in the TERRITORY.
References in this AGREEMENT to Articles Clauses and Appendices are, unless
otherwise stated, to Articles and Clauses of and Appendices to this AGREEMENT.
In this AGREEMENT the singular includes the plural and vice versa, the masculine
includes the feminine and vice versa and references to natural persons include
corporate bodies, partnership and unincorporated associations and vice versa.
The headings in this AGREEMENT are for ease of reference only and shall not
affect its construction or interpretation.
ARTICLE II. WARRANTY
- --------------------
A. ETHICAL warrants that it is exclusive owner of all rights, title and
interest in and to the PATENT RIGHTS and ETHICAL KNOW-HOW and that it is
free to enter into this AGREEMENT and to carry out all of the provisions
hereof including its
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<PAGE>
agreement to grant to LICENSEE an exclusive licence with the right to grant
certain sub-licences with respect to the PRODUCT in the TERRITORY without
any consents from any INDEPENDENT THIRD PARTIES.
B. Except as expressly provided in this AGREEMENT ETHICAL warrants that it
shall not, during the term of this AGREEMENT or any extension thereof make
and/or manufacture, use, promote or sell or licence or sublicence the right
to make or manufacture, use, promote or sell, directly or indirectly in or
to the TERRITORY, controlled release formulations of ******** for oral
administration to man based on the ******* ****** ****** or otherwise.
ARTICLE III. LICENCE GRANT
- --------------------------
A. Subject to C below ETHICAL hereby grants to LICENSEE the exclusive right
under the PATENT RIGHTS and ETHICAL KNOW-HOW with the right to grant sub-
licenses, to make and/or manufacture, use, promote, market and sell the
PRODUCT and FINISHED PRODUCT in the TERRITORY.
B. For the avoidance of doubt ETHICAL shall have a continuing right to make,
have made and use for its own investigational and development purposes (but
not sell, directly or indirectly in, or to the TERRITORY) the PRODUCT in
the TERRITORY. If ETHICAL or the LICENSEE acquires or develops rights to
additional claims or indications for the PRODUCT, it shall make these
available to the other party without additional compensation to ETHICAL or
the LICENSEE, as the case may be, provided that as a condition precedent of
making the additional claims or indications available, any additional
development costs for such claims or indications are mutually agreed.
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Page 6 March 1994
<PAGE>
C. All proprietary rights and rights of ownership with respect to the PATENT
RIGHTS, and ETHICAL KNOW-HOW shall at all times remain solely with ETHICAL
and LICENSEE shall have no proprietary rights in or to the PATENT RIGHTS,
and ETHICAL KNOW-HOW other than those specifically granted herein. All
proprietary rights to LICENSEE KNOW-HOW belong to and shall at all times
remain solely with LICENSEE, other than as specifically provided herein.
D. LICENSEE shall exert its best efforts to commercialise and to create a
demand for the PRODUCT and FINISHED PRODUCT in the TERRITORY under its own
trademark and other private labels, consistent with the market potential
for the PRODUCT in the TERRITORY determined by LICENSEE in a commercially
reasonable manner including using commercially reasonable efforts to
allocate sufficient resources to make the PRODUCT available in the
TERRITORY to all potential customers. LICENSEE shall own and retain all
right, title, and interest in and to any trademark or trademarks used by it
in the TERRITORY in connection with the PRODUCT.
E. LICENSEE shall have the right but not the obligation to pursue commercial
arrangements with an INDEPENDENT THIRD PARTY to co-market the PRODUCT in
the TERRITORY. At the request of the LICENSEE ETHICAL shall use its best
efforts to assist LICENSEE in identifying a suitable INDEPENDENT THIRD
PARTY.
F. LICENSEE shall each year, promptly and diligently, **** *** * ****
********* ***** **** *** *** ** ******** ***** *** ******** ****
************ Any failure or delay in being assigned **** ********* *****
***** *** constitute a breach of this AGREEMENT provided such failure or
delay was *** *** ** * ****** of LICENSEE's obligations under this Article
III F.
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<PAGE>
G. LICENSEE will be responsible for ensuring that the sale and supply by
LICENSEE of the PRODUCT and FINISHED PRODUCT within the TERRITORY is in
accordance with the legal and regulatory requirements of the TERRITORY
subject to compliance by ETHICAL with the relevant representations and
obligations under this AGREEMENT which directly effect LICENSEE's ability
to carry out its obligations under this Article III G.
H. For the term of this AGREEMENT, ETHICAL agrees that it will not, directly
or indirectly, market, sell, or distribute in the TERRITORY or develop or
assist in the development for use, marketing, sale or distribution in the
TERRITORY any PRODUCT or FINISHED PRODUCT except as provided in this
AGREEMENT.
ARTICLE IV. INVITATION
- ----------------------
A. Upon written invitation by ETHICAL, LICENSEE or its subsidiaries, as
defined by the Companies Act of 1985 as amended, or LICENSEE's designee
(the "Relevant Party"), may submit the terms upon which it is prepared to
enter into a licence agreement or other commercial arrangement for the
manufacture, marketing, sale distribution and/or use of the PRODUCT in
countries outside the TERRITORY,
B. The Relevant Party shall have sixty days from the date it is notified in
writing of the invitation referred to in Article IV A within which to
submit a formal written response. If a response is not received within such
period, ETHICAL shall not be under any obligation to consider any response
received subsequently.
C. For a period of 2 (two) months, from and including the date on which
ETHICAL receives the Relevant Party's response, or such other period as is
mutually agreed
Page 8 March 1994
<PAGE>
in writing by ETHICAL and the Relevant Party, the parties shall negotiate
in good faith, a license or other commercial arrangement in respect of the
PRODUCT in the relevant country or countries.
D. Should ETHICAL, during the period mentioned in Article IV C above, or such
other period as is mutually agreed in writing by ETHICAL and the Relevant
Party, have received a bona fide offer from an INDEPENDENT THIRD PARTY then
ETHICAL shall provide the Relevant Party with the opportunity to meet such
offer. If the Relevant Party fails, in ETHICAL's reasonable opinion, to
meet the offer within a thirty day period of time, ETHICAL shall be under
no obligation to negotiate further with the Relevant Party nor enter into
any licence or commercial arrangement with regard to the TERRITORY then
under discussion.
E. On the expiration of the period mentioned in Article IV C above, or such
other period as is mutually agreed in writing by ETHICAL and the Relevant
Party, ETHICAL shall be under no obligation to negotiate further with the
Relevant Party nor enter into any licence or other commercial arrangement
with regard to the TERRITORY then under discussion.
ARTICLE V. PAYMENT PRIOR TO COMMERCIALISATION
- ---------------------------------------------
A. In consideration of the development and technical support to the LICENSEE
for the PRODUCT in the TERRITORY, and in consideration of the licence
granted herein, the LICENSEE agrees to pay ETHICAL * ***** ** **********
***** ******* *** ****** ******** ** ********, ("LICENSEE payments"), of
which ETHICAL has already received from the LICENSEE *** *** ** **********
**** ******* *** ***** ******** ** ********. The remainder will be paid as
follows:
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Page 9 March 1994
<PAGE>
a) ********** **** ******* *** ****** **** ******** ** ******** upon the
signing of this AGREEMENT.
b) ********** **** ******* * ***** **** ******** ** ******** upon the
LICENSEE's completion of a pilot bioavailability study, in no less
than 12 (twelve) subjects, demonstrating concentration time profiles
for *** ******** of the PRODUCT satisfactory to progress the project
onto a development programme proceeding to an *** *********. In the
event that scientific results do not indicate that the PRODUCT
objectives can be obtained, LICENSEE may nominate an alternative
project and apply the payment made under Article V A a) to such other
project, less ETHICAL's out-of-pocket expenses for PRODUCT developed
for the period starting 1st April 1994 through completion of the pilot
biostudies described herein. On LICENSEE making such nomination the
parties shall terminate this AGREEMENT effective immediately upon the
giving of written notice.
B. The parties further agree that the total international budget in respect of
the INTERNATIONAL DEVELOPMENT PROGRAMME (Product development and clinical
trials) is estimated by both parties to be ************ ****** ******* **
********* The budget for the INTERNATIONAL DEVELOPMENT PROGRAMME in the
TERRITORY is agreed to be ***** ******* ** *** ***** ************* *******
and the budget for the INTERNATIONAL DEVELOPMENT PROGRAMME outside the
TERRITORY is agreed to **** ** ***** ******* ** *** ***** *************
******* The parties further agree that the total international budget in
respect of the INTERNATIONAL DEVELOPMENT PROGRAMME shall be shared equally
and borne in money or monies worth equally by the parties as follows:
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Page 10 March 1994
<PAGE>
a) *** ******* ******** ********* ***** *** ************* ********
*********** ** ** ************* ***** ******* ** ********* ****** ****
*** ******* ********* **** ******* **** ******* ******** ** ********
******* ** ****** * ***** ** ***** ********* *********** ** ********
***** ******* *** ****** ******** **** ******* ** ******** *********
*** ***** *****
b) *** ******* ******** ********* *** ******** ***** *** ******** ******
***** *** ************* *********** ********* *** *** ******* ** *****
*** ********* ********* ***** ******* ** ********* ***** ***** **** **
****** ******* ** **** ***** *** ******** *** ** ******** **********
*** ******** ** *** ***** ******
C. These payments are not to be regarded as a pre-payment against royalty as
described under Article V. It is further understood these amounts are in
respect of the period from the date hereof until the initial filing of ***
****
D. The quarterly installments due to ETHICAL under Clause B.a) above shall be
subject to a review by the parties and may be so prospectively adjusted by
LICENSEE one year from the Effective Date.
E. Subject to Article XIII D (1) any additional costs incurred by either
ETHICAL or the LICENSEE in carrying out further work in accordance with the
INTERNATIONAL DEVELOPMENT PROGRAMME or clinical trials related to the
PRODUCT shall be shared equally between ETHICAL and the LICENSEE. Any such
additional amounts due from either party shall be paid upon receipt of
proper documentation and invoice 30 (thirty) days following the close of
each quarterly period of the party which is due such payment.
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Page 11 March 1994
<PAGE>
F. On a quarterly basis ETHICAL shall submit to LICENSEE an itemized statement
of its progress, including a justification of costs (the "Statement"), for
that quarter such statement to be compared against the INTERNATIONAL
DEVELOPMENT PROGRAMME set forth in Appendix 2. Upon the request of the
LICENSEE, but not exceeding once in any yearly period, ETHICAL shall obtain
from Coopers and Lybrand, or such other reputable firm as from time to time
is appointed as ETHICAL's auditors, an opinion on the Statement reasonably
acceptable to the LICENSEE which it shall promptly send to the LICENSEE.
The full cost of obtaining the opinion described herein shall be borne by
the LICENSEE.
ARTICLE V1. RUNNING ROYALTIES DUE FROM LICENSEE
- -----------------------------------------------
LICENSEE shall pay to ETHICAL running royalties as follows:
A. **** *** *** ***** ******* ******** ** *** *** ******
B. The LICENSEE shall promptly give written notice to ETHICAL of the date of
first commercial sale of the PRODUCT in the TERRITORY.
C. In the event the royalty rates set forth immediately above exceed those
allowable by applicable law or governmental rule or regulation, they shall
be so modified as to conform to the maximum royalty rate(s) allowable.
D. The obligation to pay running royalties hereunder shall terminate with
respect to sales of the PRODUCT which follow the termination of this
AGREEMENT (except for those royalties contemplated by Article XIII C(2)
hereof).
E. Royalty terms may be subject to review and renegotiation in the event of
intensive competitive pressures, and the parties undertake to conduct such
review and renegotiation in good faith.
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Page 12 March 1994
<PAGE>
ARTICLE VII. PAYMENT OF RUNNING ROYALTIES BY LICENSEE
- -----------------------------------------------------
A. Running royalties due to ETHICAL under Article VI of this AGREEMENT shall
accrue when the FINISHED PRODUCT is invoiced by the LICENSEE in accordance
with the provisions below:
B. Running royalties accruing hereunder shall be due and payable on the 45th
(forty fifth) day following the close of each fiscal quarterly period of
the LICENSEE.
C. Running royalties accruing hereunder shall be paid in U.S. dollars to
ETHICAL or ETHICAL's designee acceptable to ****** (such acceptance not to
be unreasonably withheld), duly named by ETHICAL in written notice to
LICENSEE.
D. Running royalties accruing hereunder shall be paid in United States
Dollars.
E. If, at any time, legal restrictions in the TERRITORY prevent the prompt
payment of running royalties or any portion thereof accruing hereunder, the
parties shall meet to discuss suitable and reasonable alternative methods
of reimbursing ETHICAL the amount of such running royalties.
ARTICLE VIII. ROYALTY REPORTS BY LICENSEE
- -----------------------------------------
A. Each payment of running royalties made to ETHICAL hereunder shall be
accompanied by a written report, prepared and signed by a financial officer
of the LICENSEE, showing the aggregate NET SALES for the quarterly period
for which payment is being made. In the event that no running royalty is
due to ETHICAL hereunder for any such quarterly period, the LICENSEE shall
so report.
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Page 13 March 1994
<PAGE>
B. The LICENSEE shall maintain and keep for a period of at least 3 (three)
years or, if shorter, for such period as required by applicable ****
******* ** ***** **** complete and accurate records in sufficient detail to
enable any running royalties which shall have accrued hereunder to be
determined.
C. Subject to Article VIIIB above, and upon the request of ETHICAL, but
not exceeding once in any one yearly period, the LICENSEE shall permit an
independent public accountant, selected by ETHICAL and acceptable to the
LICENSEE, which acceptance shall not be unreasonably withheld, to have
access (subject to reasonable confidentiality undertakings) to such of the
records of the LICENSEE as may be necessary to verify the accuracy of the
royalty reports and payments submitted to ETHICAL hereunder. Any such
inspection of the LICENSEE's records shall be at ETHICAL's expense, except
that if any such inspection reveals a deficiency in an amount of running
royalty actually paid to ETHICAL hereunder in any quarterly period of **
***** ******** or more of the amount of such running royalty actually due
to ETHICAL hereunder, then the expense of such inspection shall be borne by
the LICENSEE instead of by ETHICAL. Any amount of deficiency shall be paid
promptly to ETHICAL.
ARTICLE IX. MONIES DUE FROM ETHICAL
- -----------------------------------
A. ETHICAL shall pay to the LICENSEE *** ****** ******** of any running
royalties actually received by ETHICAL (or its designee) from INDEPENDENT
THIRD PARTY under a licence, supply or distribution agreement or other
commercial arrangement relating to the sale of the PRODUCT outside of the
TERRITORY.
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Page 14 March 1994
<PAGE>
B. On receipt of notice by ETHICAL of the date of first commercial sale of the
PRODUCT outside the TERRITORY ETHICAL shall promptly give written notice of
the same to LICENSEE,
C. The obligation to pay running royalties hereunder shall terminate following
termination of this Agreement (except as contemplated by Article XIII
hereof).
ARTICLE X. PAYMENT OF MONIES DUE FROM ETHICAL
- ---------------------------------------------
A. The percentage of running royalties due to the LICENSEE under Article IX of
this AGREEMENT shall accrue as and when running royalties are actually
received by ETHICAL in respect of PRODUCT sales outside the TERRITORY and
in accordance with the provisions below:
B. The percentage of running royalties accruing hereunder shall be due and
payable on the 45th (forty fifth) day following the close of each fiscal
quarterly period of ETHICAL
C. The percentage of running royalties accruing hereunder shall be paid in
**** ******* to the LICENSEE or the LICENSEE's designee, duly named by the
LICENSEE in written notice to ETHICAL.
D. The percentage of running royalties accruing hereunder shall be paid in
****** ****** ********
E. If, at any time, legal restrictions prevent the prompt payment of monies or
any portion thereof accruing hereunder, the parties shall meet to discuss
suitable and reasonable alternative methods of reimbursing the LICENSEE the
amount of such percentage of running royalties.
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<PAGE>
ARTICLE XI. ROYALTY REPORTS BY ETHICAL
- --------------------------------------
A. ETHICAL shall maintain and keep for a period of at least 3 (three) years or,
if shorter, for such period as required by applicable law, complete and
accurate records in sufficient detail to enable any percentage of running
royalties which shall have accrued hereunder to be determined.
B. Subject to Article XI A above, and upon the request of the LICENSEE, but not
exceeding once in any one yearly period, ETHICAL shall permit an independent
public accountant, selected by the LICENSEE and acceptable to ETHICAL, which
acceptance shall not be unreasonably withheld, to have access subject to
reasonable confidentiality undertakings toy such of the records of ETHICAL as
may be allowable, under ETHICAL's bona fide agreement in respect of the
PRODUCT with INDEPENDENT THIRD PARTIES, and necessary to verify the accuracy
of the royalty reports and payments submitted to the LICENSEE hereunder. Any
such inspection of ETHICAL's records shall be at the LICENSEE's expense,
except that if any such inspection reveals a deficiency in an amount of the
percentage of running royalty actually paid to the LICENSEE hereunder in any
quarterly period of 5% (five percent) or more of the amount of such
percentage of running royalty actually due to the LICENSEE hereunder, then
the expense of such inspection shall be borne by ETHICAL instead of by the
LICENSEE. Any amount of deficiency shall be paid promptly to the LICENSEE.
ARTICLE XII. REGISTRATION OF THE LICENSED PRODUCT
- -------------------------------------------------
A. ETHICAL and LICENSEE have agreed that PRODUCT development should progress as
specified in Appendix 2.
Page 16 March 1994
<PAGE>
B. LICENSEE shall bear the cost of all application fees to government
authorities for MARKETING AUTHORISATIONS including, without limitation, ***
**** ************ ******* ***** **** *** or any other fees concerning
approvals from government authorities necessary to commercialise the PRODUCT
in the TERRITORY. The Marketing Authorisations and all ***** in the TERRITORY
shall be the sole and exclusive property of LICENSEE.
ARTICLE XIII. DURATION - TERMINATION
- ------------------------------------
A. DURATION
--------
This AGREEMENT shall come into force as of the EFFECTTVE DATE and remain in
force for the term of any patents issued in the TERRITORY relating to the
PRODUCT and included in the PATENT RIGHTS or for ** ********* ***** from
first commercial sale, whichever is the longer.
This AGREEMENT shall automatically be extended thereafter for successive 2
(two) year terms unless either party notifies the other of its decision not
to renew this AGREEMENT at least 12 (twelve) months prior to the commencement
of any such renewal term. Following any such termination LICENSEE shall have
the right to manufacture and distribute the PRODUCT in the TERRITORY on a
non-exclusive basis for which LICENSEE would pay to ETHICAL * ******** ******
***** ** ** **** ******** of NET SALES of the PRODUCT in the TERRITORY.
B. TERMINATION FOR CAUSE
---------------------
Either party hereto may terminate this AGREEMENT upon 90 (ninety) days
written notice calculated from the date of receipt of such notice to the
other party of its intention to do so in the event of violation or breach of
any of the material provisions
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Page 17 March 1994
<PAGE>
of this AGREEMENT. Should, however, the other party remedy the default upon
which said notice is based within the said 90 (ninety) day period, the notice
shall be without effect and this AGREEMENT shall continue in full force and
effect.
C. (1) In the event this AGREEMENT is terminated prior to the date of its
expiration in the TERRITORY due to fault of LICENSEE, LICENSEE shall
promptly make an accounting to ETHICAL of the inventory of all PRODUCT
which it has on hand in the TERRITORY, if any, as of the date of such
termination and said parties shall thereafter have the right for a period
of 6 (six) months after said termination to sell such inventory of
PRODUCT provided that the NET SALES thereof shall be subject to the
royalty provisions of Article V and so payable to ETHICAL. Thereafter,
any remaining inventory of PRODUCT shall be disposed of by mutual
agreement in accordance with regulatory requirements. Articles IX, X and
XI shall survive such termination.
(2) In the event this AGREEMENT is terminated prior to the date of its
expiration due to fault of ETHICAL, LICENSEE shall have the unrestricted
right to continue to use and sublicence the PATENT RIGHTS and ETHICAL
KNOW-HOW RIGHTS, and to make, manufacture, use, promote and sell the
PRODUCT and FINISHED PRODUCT in the TERRITORY for the duration as defined
in Article IX A above, in which case Article VI A shall read ** ** **
********* *** ****** ** **** **** ***** **** ********. Articles IX, X and
XI shall survive such termination.
D. (1) In the event that the parties reasonably believe a material increase,
over and above the ***** ******* ** ******* that is presently estimated
to be required to complete the INTERNATIONAL DEVELOPMENT PROGRAMME,
and/or a material amount of additional time than is presently estimated
to be required to complete the INTERNATIONAL DEVELOPMENT PROGRAMME is
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Page 18 March 1994
<PAGE>
necessary to complete the INTERNATIONAL DEVELOPMENT PROGRAMME and
ensure successful commercialisation of the PRODUCT, the parties
shall, within two weeks of becoming aware of the same, meet to
discuss how best to proceed such discussions to include whether to
continue with the INTERNATIONAL DEVELOPMENT PROGRAMME or whether to
terminate this AGREEMENT. Should the parties fail within two months
thereof to agree on how best to proceed, such agreement to be
evidenced in writing and signed by both parties, the LICENSEE may
terminate this AGREEMENT, effective immediately upon the giving of
written notice. In the event of such termination, and subject to
reasonable compensation arrangements to LICENSEE mutually
acceptable to LICENSEE and ETHICAL, ETHICAL shall have the right in
the TERRITORY to use, including licence to any INDEPENDENT THIRD
PARTY, any ETHICAL and/or LICENSEE KNOW-HOW. The compensation
arrangements shall ******* ** **** *** ** * ******* ****** ** **e
****** ******** **** ** *** ******** ***** **** ********** ****** *
********** *** ** * ******* ** ****** ******** ** ****** *******
******** *** **** ** *********** ***** ***** ** ******* ** *******
** *** ***** ** *** ******* ** *** ********** Articles IX, X and XI
shall survive such termination. For *** ********* ** ***** ** **
****** ****** **** ********* ***** ** *** **** ******** **** *** **
** ********* ** ******* **** * ******* *** ********* ***** *** **
******* ** **** ************ **********
(2) In the event that MARKETING AUTHORISATIONS for the PRODUCT are
refused LICENSEE shall immediately notify ETHICAL of the same and
either party may terminate this AGREEMENT, effective immediately
upon the giving of written notice. Articles IX, X and XI shall
survive such termination.
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Page 19 March 1994
<PAGE>
(3) If, within 6 (six) months after receipt of MARKETING AUTHORISATIONS for
the PRODUCT in the TERRITORY, LICENSEE has not commenced commercial sales
of the PRODUCT, then ETHICAL may terminate the AGREEMENT effective
immediately upon giving notice to LICENSEE. Articles IX, X and XI shall
survive such termination.
(4) Should LICENSEE proceed to commercialise the PRODUCT in the TERRITORY and
then choose to abandon commercialisation of the PRODUCT in the TERRITORY
for any reasons, then LICENSEE shall promptly notify ETHICAL of such
abandonment of commercialisation, and ETHICAL may terminate this
AGREEMENT, effective immediately upon giving notice to LICENSEE. Articles
IX, X and XI shall survive such termination.
(5) Should LICENSEE make the determination, for any reason, after receipt of
MARKETING AUTHORISATIONS for the PRODUCT, that it does not intend to
commercialise the PRODUCT in the TERRITORY, then LICENSEE shall promptly
notify ETHICAL of the same and ETHICAL may terminate this AGREEMENT
immediately upon giving notice to LICENSEE. Articles IX, X and XI shall
survive such termination.
E. Upon any early termination of this AGREEMENT pursuant to Article XIII B, C 1
or D, ETHICAL shall have the continuing right to use, including license to
any Third Party, on a non-exclusive basis, any LICENSEE KNOW-HOW, with the
exception of methods of preparation and stability data and the health
registration dossiers filed in the TERRITORY, developed by or for the
LICENSEE with respect to the PRODUCT.
Page 20 March 1994
<PAGE>
F. Should this AGREEMENT be terminated before LICENSEE has made all of the
payments as set out under Articles V and XII the amount of continuing
royalties payable by ETHICAL under this Article XIII shall be
accordingly reduced.
G. In the event any of the patents included in the PATENT RIGHTS is found
by a court of applicable jurisdiction to be invalid or unenforceable in
the TERRITORY and as a result thereof an INDEPENDENT THIRD PARTY would
be entitled to manufacture or distribute and thereafter commercialises
the PRODUCT in the TERRITORY utilising any technology covered by the
PATENT RIGHTS, then LICENSEE in its discretion may terminate this
AGREEMENT or, at LICENSEE's election, continue this AGREEMENT in full
force and effect **** * ********* ** ******* ********* ** *** *** ****
**** *******. Such termination would not be subject to Article XIII C
(2) of this AGREEMENT.
H. Termination of this AGREEMENT, due to the fault of either party, shall
be without prejudice to any other rights or remedies then or thereafter
available to either party under this AGREEMENT or otherwise.
I. The rights granted either party to terminate this AGREEMENT prior to
the expiration of its term shall not be affected in any way by that
party's waiver of or failure to take action with respect to any
previous default hereunder.
ARTICLE XIV. PRODUCT MANUFACTURE BY LICENSEE
- --------------------------------------------
LICENSEE undertakes to manufacture or have manufactured PRODUCT and
FINISHED PRODUCT in the TERRITORY and shall ensure such manufacturing
shall comply with prevailing "Good Manufacturing Practice" for sale of the
PRODUCT and FINISHED PRODUCT in the TERRITORY. LICENSEE may request
ETHICAL to supply the *********** ******* ********* required in connection
with the manufacture of the PRODUCT and FINISHED PRODUCT.
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Page 21 March 1994
<PAGE>
ARTICLE XV. INFORMATION TRANSFER: CONFIDENTIALITY AND COOPERATION
- -----------------------------------------------------------------
A. Within 30 (thirty) days following the signing of this AGREEMENT, ETHICAL
shall provide to LICENSEE copies of relevant ETHICAL KNOW-HOW which has not
previously been provided to the LICENSEE.
B. Each party shall hold in strict confidence any tangible information relating
to the PRODUCT marked confidential received from the other party (or oral
information which is reduced to tangible form within 30 (thirty) days of
disclosure and noted to be confidential), unless such information:
1. Is already in its possession.
2. Is already in the public domain or knowledge at the time of disclosure or
later comes into the public domain or knowledge without fault on the part
of the recipient.
3. Is subsequently disclosed to the recipient by a third party who did not
acquire it in confidence from the other party.
4. Is required to be disclosed in connection with any legal proceedings or in
order to obtain permission to manufacture or market the PRODUCT in the
TERRITORY.
5. Is disclosed with the prior written consent of the other party, such
consent not to be unreasonably withheld.
This provision shall remain valid for a period of ***** ***** after
termination of this AGREEMENT.
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Page 22 March 1994
<PAGE>
C. For the period starting with the EFFECTIVE DATE and ending with the first
commercial sale of the PRODUCT in the TERRITORY, ETHICAL shall report to
LICENSEE on a monthly basis the progress of the INTERNATIONAL DEVELOPMENT
PROGRAMME, as defined in Appendix 2, of the PRODUCT. LICENSEE will provide a
project update to ETHICAL on a quarterly basis for the period starting with
the EFFECTIVE DATE and ending with the first commercial sale of the PRODUCT
in the TERRITORY. ETHICAL will use its best efforts to carry out the
INTERNATIONAL DEVELOPMENT PROGRAMME in accordance with the timetable set
forth in Appendix 2. ETHICAL will carry out the INTERNATIONAL DEVELOPMENT
PROGRAMME in accordance with applicable laws and regulations of the
TERRITORY, including, without limitation, *** ************ All costings
included in the INTERNATIONAL DEVELOPMENT PROGRAMME shall be jointly reviewed
every * ***** ****** by ETHICAL and LICENSEE.
D. ETHICAL will on a continuous basis provide to LICENSEE any ETHICAL KNOW-HOW
developed, information acquired or development planned in relation to the
PRODUCT and all improvements and modifications of the PRODUCT from time to
time invented, developed or acquired by or on behalf of ETHICAL. Prior to the
date of first commercial sale of the PRODUCT in the TERRITORY, LICENSEE shall
provide to ETHICAL a summary of its marketing plans for the PRODUCT.
E. ETHICAL shall make available to LICENSEE, on a reasonable consultation basis
without charge to LICENSEE, such advice of its technical personnel as may
reasonably be requested by LICENSEE in connection with the PRODUCT, it being
understood that LICENSEE will reimburse all reasonable out-of-pocket expenses
incurred by ETHICAL attending meetings requested by LICENSEE.
* redacted pursuant to confidential treatment request
Page 23 March 1994
<PAGE>
F. LICENSEE shall disclose to ETHICAL and ETHICAL shall disclose to LICENSEE all
reports or other knowledge they may possess with respect to "adverse drug
experiences" *** ******* ** *********** *********** ** *** ***** mis-
labelling, stability failures or microbiological contamination with respect
to the PRODUCT (whether occurring within or outside of the TERRITORY) within
10 (ten) days of becoming aware of same. With respect to "serious adverse
drug experiences" *** ******* ** ** *** ******* *** ******* *********** **
*** ***** LICENSEE shall disclose to ETHICAL and ETHICAL shall disclose to
LICENSEE all reports and other knowledge they may possess as soon as possible
and in no event later than 2 (two) business days of the receipt of such
report or notification of the serious adverse drug experience. The content of
such disclosure shall comply with all *** *********** ********** **
************ ** *** *** with respect to such matters. Each party shall
promptly deliver to the other, copies of all correspondence which such party
may send to, or receive from, *** *** with respect to the PRODUCT.
G. During the term of this AGREEMENT, at least semi-annually, ETHICAL shall
furnish to LICENSEE any ETHICAL KNOW-HOW and any other information and data
developed or acquired by or under the control of ETHICAL with respect to the
PRODUCT. ETHICAL hereby acknowledges and agrees that LICENSEE may use, within
the TERRITORY, all such ETHICAL KNOW-HOW and information and data without
restriction and without additional compensation to ETHICAL, other than as
provided in this AGREEMENT, to make, have made, use and sell the PRODUCT in
the TERRITORY.
H. During the term of this AGREEMENT, at least semi-annually, LICENSEE shall
furnish to ETHICAL any LICENSEE KNOW-HOW and any other information and data
developed or acquired by or under the control of LICENSEE with respect to the
PRODUCT, and ETHICAL may use outside the TERRITORY all such
* redacted pursuant to confidential treatment request
Page 24 March 1994
<PAGE>
LICENSEE KNOW-HOW and information and data without restriction and without
additional compensation to LICENSEE, other than provided for in this
Agreement, subject to the following sentence. LICENSEE shall be under no
obligation to provide any LICENSEE KNOW-HOW, information or data to ETHICAL
hereunder if the disclosure of such would be in violation of any bona fide
agreement with any THIRD PARTY and such violation can be proved by LICENSEE.
ARTICLE XVI. INFRINGEMENT
- -------------------------
A. (1) ETHICAL and LICENSEE each agree to notify the other in writing of any
alleged infringement or potential infringement of any PATENT RIGHTS or
any information or allegations impacting on the validity of any such
PATENT Rights, in the TERRITORY promptly after becoming aware of the
same.
(2) Upon the giving of such notice, ETHICAL and LICENSEE shall immediately
consult together to decide what steps shall be taken to prevent or
terminate such infringement, and the parties shall take such steps as
they shall so agree, including the institution of legal proceedings where
necessary in the name of one of the parties or the joint names of ETHICAL
and LICENSEE as appropriate, in which event costs and expenses incurred
and damages recovered, shall be shared in such proportions as the parties
may agree.
(3) If, within 30 (thirty) days after such consultation the parties have
failed to agree on the steps to be taken or the proportions in which
costs and damages should be shared, ETHICAL may take such steps as it may
decide and all damages recovered in any proceedings shall belong to
ETHICAL.
(4) If within 60 (sixty) days after such consultation, ETHICAL does not take
action against an alleged infringer or potential infringer or has failed
to notify LICENSEE of its intent to commence an action to terminate the
alleged
Page 25 March 1994
<PAGE>
infringement or potential infringement, then LICENSEE shall have the
right to commence such action on its own behalf at it own cost and
expense and to use ETHICAL's name in connection therewith, in which case
any recoveries shall inure to the benefit of LICENSEE.
(5) LICENSEE and ETHICAL shall each provide all such assistance and cooperate
including the furnishing of documents and information as may be required
to give effect to such joint or independent action as may be taken under
Article XVI (2), (3) and (4).
B. (1) ETHICAL hereby represents that, to the best of its knowledge, none of the
PATENT RIGHTS or ETHICAL KNOW-HOW infringe on the patent or other legally
protected proprietary rights of any INDEPENDENT THIRD PARTY, and it has
not received any notice or claim of any such infringement worldwide.
ETHICAL agrees to hold LICENSEE harmless from any judgements, losses or
costs (including reasonable attorneys' fees) incurred in the event a
claim or legal action is asserted against LICENSEE to the effect that the
manufacture, use or sale of the PRODUCT infringes the patent rights or
other legally protected proprietary rights of any INDEPENDENT THIRD
PARTY.
(2) ETHICAL and LICENSEE shall each give to the other prompt written notice
of any claim or action made against either of them alleging that any of
the PATENT RIGHTS infringe the rights of an INDEPENDENT THIRD PARTY and
arising from the manufacture, use or sale of the PRODUCT in the
TERRITORY. ETHICAL and LICENSEE agree to cooperate and collaborate with
each other in undertaking a full investigation of the situation and in
taking such action as they shall agree is appropriate in the
circumstances.
Page 26 March 1994
<PAGE>
C. Subject to Article XVI A Clauses (2) and (4) ETHICAL shall be solely
responsible for and bear the cost of the prosecution and maintenance of the
PATENT RIGHTS.
D. The provisions of this Article XVI shall survive termination of this
AGREEMENT.
ARTICLE XVII. TRANSFER OF RIGHTS AND OBLIGATIONS
- ------------------------------------------------
This AGREEMENT, in whole or in part, shall not be assignable by either party
hereto to any INDEPENDENT THIRD PARTY without the prior written consent of the
other party hereto except that either party may assign this AGREEMENT to an
affiliated company or the successor or assignee of substantially all of its
business. It is expressly understood and agreed by the parties hereto that the
assignor of any rights hereunder shall remain bound by its duties and
obligations hereunder.
ARTICLE XVIII. DISCLOSURE
- -------------------------
ETHICAL and LICENSEE shall have the right, subject to the written approval of
the other, to disclose to any INDEPENDENT THIRD PARTY in connection with any
announcement, news release, or for any other reason the existence of this
AGREEMENT entered into with the LICENSEE, but not the terms hereof.
Notwithstanding the foregoing, each party shall have the right to make such
disclosures relating to this AGREEMENT as may be required by applicable laws and
regulations.
ARTICLE XIX. FORCE MAJEURE
- --------------------------
ETHICAL and LICENSEE shall not be liable for delays if such delays are due to
force majeure case, such as strikes, disputes with workmen, failure of supplies
from ordinary sources, fire, floods earthquakes, governmental regulation against
the aims of this AGREEMENT, war, legislation or any other cause, either similar
or dissimilar to the foregoing, beyond the reasonable control of the parties
which cannot be overcome by due diligence.
Page 27 March 1994
<PAGE>
ARTICLE XX NOTICES
- ------------------
Any notice or report required or permitted to be given or made under this
AGREEMENT by either party to the other shall be in writing, sent by hand or by
registered or express mail or courier, postage prepaid, telex or telefax,
addressed to such other party at its address indicated at the beginning of this
AGREEMENT or to such other address as the addressee shall have last furnished in
writing to the addressor, and shall be effective upon receipt by the addressee.
ARTICLES XXI. FURTHER ASSURANCES
- --------------------------------
From and after the date hereof, without further consideration, ETHICAL and
LICENSEE shall, from time to time during the term of this AGREEMENT, upon
request by the other, perform all actions and execute, acknowledge and deliver
all such further documents or instruments as may be required to give effect to
the purpose and intent of this AGREEMENT. Without limiting the generality of the
foregoing, the obligations of ETHICAL and LICENSEE are undertaken with a
principle objective of complying with all pertinent provisions of applicable
law, orders and regulations relating to the manufacture, use or sale in the
TERRITORY of pharmaceutical products; the obligation of ETHICAL shall include
the attendance by representatives of ETHICAL, upon reasonable advance request by
LICENSEE, at meetings with *** *** with respect to *** **** All out-of-pocket
expenses incurred in attending such meetings will be paid by LICENSEE.
* redacted pursuant to confidential treatment request
Page 28 March 1994
<PAGE>
ARTICLE XXII. SURVIVAL OF REPRESENTATIONS WARRANTIES AND AGREEMENT
- ------------------------------------------------------------------
Except as otherwise specifically provided in this AGREEMENT, all
representations, warranties and agreements contained in this AGREEMENT shall
survive the execution and delivery of this AGREEMENT and remain in full force
and effect regardless of any investigation made by or on behalf of either
ETHICAL or LICENSEE.
ARTICLE XXIII. ARBITRATION
- -------------------------
All disputes arising in connection with the AGREEMENT shall be settled under the
Rules of Conciliation and Arbitration of the International Chamber of Commerce
by one or more arbitrator in accordance with the said RULES, as follows:
Each of the parties shall designate its arbitrator within 15 (fifteen) days from
notification by registered letter. The two arbitrators thus designated shall
designate a third arbitrator within 30 days from designation of the second
arbitrator, the said third arbitrator shall preside over the arbitration court.
Arbitration should be held in London if ETHICAL initiates the request and if
LICENSEE initiates the request arbitration should be held in *** *****
ARTICLE XXIV. DISCLAIMER OF AGENCY
- ----------------------------------
The parties acknowledge that each of LICENSEE and ETHICAL are independent
contractors and nothing herein contained shall be deemed to create any
relationship in the nature of agency, joint venture, partnership or similar
relations between LICENSEE and ETHICAL.
* redacted pursuant to confidential treatment request
Page 29 March 1994
<PAGE>
ARTICLE XXV. SEVERABILITY
- -------------------------
Whenever possible, each provision of this AGREEMENT shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this AGREEMENT should be prohibited or invalid under applicable law, such
provision shall be ineffective to the extent of such invalidity without
invalidating the remainder of such provision or the remaining provisions of this
AGREEMENT to the extent such modification does not impair or change the intent
of the parties hereto.
ARTICLE XXVI. PARAGRAPH HEADINGS
- --------------------------------
The subject headings of the Articles of this AGREEMENT are included for the
purposes of convenience only, and shall not affect the construction or
interpretation of any of its provisions.
ARTICLE XXVII. ENTIRE AGREEMENT: AMENDMENT
- ------------------------------------------
This AGREEMENT contains the entire understanding of the parties with respect to
the matters contained herein and supersedes any previous agreements and may be
altered or amended only by a written instrument duly executed by both parties
hereto.
Page 30 March 1994
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this AGREEMENT in duplicate
originals.
ETHICAL HOLDINGS PLC SCHEIN PHARMACEUTICAL, INC
- -------------------- --------------------------
BY: /s/ Dr. G. W. Guy BY: /s/ Steven Getraer
---------------------------- -------------------------------
PRINT: Dr. G. W. Guy PRINT: Steven Getraer
------------------------- ----------------------------
DATE: 31ST MARCH 1994 DATE: 31ST MARCH 1994
------------------------- ----------------------------
Page 31 March 1994
<PAGE>
APPENDIX 1 - PRODUCT DEFINITION
-------------------------------
**** ******* **** ** * **** ***** *********** ** ********* ********* ********
*** *********** ** ** ***** ***** ********* ********** **** ********* ** **
****** ** *** ******* ***** ********* *** ******* ** *** ***********
*************** *****
* redacted pursuant to confidential treatment request
Page 32 March 1994
<PAGE>
APPENDIX 2 - INTERNATIONAL DEVELOPEMENT PROGRAMME
[ * ]
* Entire page redacted pursuant to confidential treatment request.
<PAGE>
[ * ]
* Entire page redacted pursuant to confidential treatment request.
<PAGE>
EXHIBIT 10.40
November 29, 1993
Paul Kleutghen
33 Coventry Road
Mendam, New Jersey 07945
Dear Paul:
We are pleased to confirm the terms of your ongoing employment with Schein
Pharmaceutical, Inc. (the "Company") as Vice President of Business Development.
1. The Company will employ you as Vice President of Business Development for
the period from the date of this Agreement and continuing until 60 days after
either you or the Company gives written notice to the other that you or it does
not wish to continue your employment hereunder (a "Non-Continuation Notice").
You accept such employment, and will devote your full time and effort to the
business and affairs of the Company, with such duties consistent with your
position as may be assigned to you from time to time by the President (or such
other officer) or Board of Directors of the Company.
2. In consideration of all services rendered by you during your employment
hereunder, the Company will pay you a base salary at the annual rate of
$180,000, payable in accordance with the Company's payroll practices from time
to time in effect. The Company will review your salary at least once each year
and may in its discretion increase your salary.
3. For as long as you are employed by the Company you will be entitled to
participate in all bonus, incentive, retirement, profit-sharing, life, medical,
disability and other benefit plans and programs of the Company as are from time
to time generally available to other executives of the Company with comparable
responsibilities, subject to the provisions of those programs.
4. Your employment by the Company: (a) shall terminate upon your death; (b)
shall terminate 60 days after a Non-Continuation Notice is given; (c) may be
terminated by the Company for cause at any time; and (d) may be terminated by
the Company if you fail to render the services provided for in this Agreement
for a continuous period of six months by reason of physical or mental illness or
disability.
For purposes of this Agreement, "cause" means (i) your willful and
continued failure substantially to perform your duties with the Company, (ii)
fraud, misappropriation or intentional material damage to the property or
business of the Company or (iii) commission of a felony.
5. If your employment is terminated by the Company's giving a Non-Continuation
<PAGE>
Notice as provided in Section 1 hereof (the giving of such Notice being a
"Termination Event"), the Company will pay you, in full satisfaction of all of
its obligations hereunder (except for its obligations under paragraphs 6 and 8
hereof), 100% of the amount of compensation (base salary and annual cash bonus)
paid (or payable) by the Company to you in respect of the last full fiscal year
of the Company immediately preceding the date of termination (the "Termination
Payment"). If the Termination Event occurs at any time within two years after a
Significant Date, the Termination Payment will be two times the amount provided
in the preceding sentence reduced by the amount of all compensation actually
paid to you by the Company at any time after the sixth-month anniversary of a
Significant Date; provided that in no event will the Termination Payment be less
than 100% of your compensation for the last full fiscal year preceding
termination, as provided in the preceding sentence. Notwithstanding anything to
the contrary in this Agreement, the maximum amount payable under this Section 5
shall be limited to that amount which when added to all other payments (or the
value of all other benefits) that are "contingent on a change in control" (as
such term is defined in the Internal Revenue Code of 1986, as amended (the
"Code") of the Company, would not constitute a "parachute payment" (as such term
is defined in the Code). The Termination Payment will be paid in a lump sum and
will be subject to any applicable payroll or other taxes required to be
withheld.
Termination of your employment by the Company for any reason other than for
cause or disability, or your voluntary termination of employment on account of
(i) a 10% or more reduction of your base salary by the Company or (ii) the
Company's assigning you duties or responsibilities that are inconsistent, in any
significant respect, with the scope of duties or responsibilities associated
with Vice President of Business Development or (iii) relocation of your office
other than to a facility which, as of the date of this Agreement, the Company or
any of its subsidiaries conducts operations, will be deemed a Termination Event.
The Termination Payment will not be subject to offset on account of any
remuneration paid or payable to you for any subsequent employment you may
obtain, whether during or after the period during which the Termination Payment
is made and you shall have no obligation whatever to seek any subsequent
employment.
For purposes of this Agreement, a "Significant Date" means the date on
which the persons (or successors designated by such persons or successors)
presently entitled to elect a majority of the Board of Directors of the company
(the "Parent") controlling the Company, are no longer entitled to elect,
directly or indirectly, a majority of the Board of Directors of the Company,
other than as an immediate result of public sales of stock of the Parent or the
Company; provided however that a Significant Date shall not be deemed to have
occurred if on such date the present Chairman of the Company (including
successors designated by such Chairman or by successors) alone or pursuant to
joint authority with others, are entitled to so elect.
6. For one year following a Termination Event, the Company will also provide
you
<PAGE>
with basic health and medical benefits on the terms that such benefits are
provided to all salaried employees of the Company as of the date of your
termination of employment. If the Termination Event occurs at any time within
two years after a Significant Date, the Company will provide the benefits
described in the preceding sentence until the later of (A) the first anniversary
of the Termination Event and (B) the second anniversary of the Significant Date.
These benefits will cease immediately upon your obtaining other full-time
employment. If the Company is unable to provide any of the foregoing benefits
under then existing plans without costs it considers excessive, the Company will
be entitled to satisfy any such obligation by making a payment to you equal to
two times the cost to the Company during the last full year immediately
preceding the Termination Event of providing such benefits to you.
7. At the time you execute this Agreement, you will also execute and deliver
to the Company the enclosed Confidentiality Undertaking.
8. The Company will reimburse you for reasonable attorneys fees and expenses
incurred by you if you are employed hereunder on a Significant Date and prevail
against the Company with respect to a claim hereunder arising on or after such
date.
9. This Agreement shall be binding upon and inure to the benefit of you and
your legal representatives and the Company and any assignee or successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company.
10. This Agreement: contains the entire agreement between the parties with
respect to the subject matter hereof, may not be modified or terminated orally,
and shall be construed and governed in accordance with the laws of the State of
New York.
If the foregoing is acceptable to you, please execute the enclosed copy of
this Agreement and return it to the undersigned.
Very truly yours,
SCHEIN PHARMACEUTICAL, INC.
By: [SIGNATURE ILLEGIBLE]
--------------------------
Authorized Officer
Agreed to and accepted:
/s/ Paul Kleutghen
- -----------------------------
Paul Kleutghen
<PAGE>
EXHIBIT 10.41
November 22, 1993
Javier Cayado
30 Sail Harbor
New Fairfield, CT 06470
Dear Jay:
We are pleased to confirm the terms of your ongoing employment with Schein
Pharmaceutical, Inc. (the "Company") as Vice President of Operations, Danbury
Pharmacal, Inc.
1. The Company will employ you as Vice President of Operations, Danbury
Pharmacal, Inc., for the period from the date of this Agreement and continuing
until 60 days after either you or the Company gives written notice to the other
that you or it does not wish to continue your employment hereunder (a "Non-
Continuation Notice"). You accept such employment, and will devote your full
time and effort to the business and affairs of the Company, with such duties
consistent with your position as may be assigned to you from time to time by the
President (or such other officer) or Board of Directors of the Company.
2. In consideration of all services rendered by you during your employment
hereunder, the Company will pay you a base salary at the annual rate of
$180,000, payable in accordance with the Company's payroll practices from time
to time in effect. The Company will review your salary at least once each year
and may in its discretion increase your salary.
3. For as long as you are employed by the Company you will be entitled to
participate in all bonus, incentive, retirement, profit-sharing, life, medical,
disability and other benefit plans and programs of the Company as are from time
to time generally available to other executives of the Company with comparable
responsibilities, subject to the provisions of those programs.
4. Your employment by the Company: (a) shall terminate upon your death; (b)
shall terminate 60 days after a Non-Continuation Notice is given; (c) may be
terminated by the Company for cause at any time; and (d) may be terminated by
the Company if you fail to render the services provided for in this Agreement
for a continuous period of six months by reason of physical or mental illness or
disability.
<PAGE>
For purposes of this Agreement, "cause" means (i) your willful and
continued failure substantially to perform your duties with the Company, (ii)
fraud, misappropriation or intentional material damage to the property or
business of the Company or (iii) commission of a felony.
5. If your employment is terminated by the Company's giving a Non-Continuation
Notice as provided in Section 1 hereof (the giving of such Notice being a
"Termination Event"), the Company will pay you, in full satisfaction of all of
its obligations hereunder (except for its obligations under paragraphs 6 and 8
hereof), 100% of the amount of compensation (base salary and annual cash bonus)
paid (or payable) by the Company to you in respect of the last full fiscal year
of the Company immediately preceding the date of termination (the "Termination
Payment"). If the Termination Event occurs at any time within two years after a
Significant Date, the Termination Payment will be two times the amount provided
in the preceding sentence reduced by the amount of all compensation actually
paid to you by the Company at any time after the sixth-month anniversary of a
Significant Date; provided that in no event will the Termination Payment be less
than 100% of your compensation for the last full fiscal year preceding
termination, as provided in the preceding sentence. Notwithstanding anything to
the contrary in this Agreement, the maximum amount payable under this Section 5
shall be limited to that amount which when added to all other payments (or the
value of all other benefits) that are "contingent on a change in control" (as
such term is defined in the Internal Revenue Code of 1986, as amended (the
"Code") of the Company, would not constitute a "parachute payment" (as such term
is defined in the Code). The Termination Payment will be paid in a lump sum and
will be subject to any applicable payroll or other taxes required to be
withheld.
Termination of your employment by the Company for any reason other than for
cause or disability, or your voluntary termination of employment on account of
(i) a 10% or more reduction of your base salary by the Company or (ii) the
Company's assigning you duties or responsibilities that are inconsistent, in any
significant respect, with the scope of duties or responsibilities associated
with Vice President of Operations, Danbury Pharmacal, Inc., or (iii) relocation
of your office other than to a facility which, as of the date of this Agreement,
the Company or any of its subsidiaries conducts operations, will be deemed a
Termination Event.
The Termination Payment will not be subject to offset on account of any
remuneration paid or payable to you for any subsequent employment you may
obtain, whether during or after the period during which the Termination Payment
is made and you shall have no obligation whatever to seek any subsequent
employment.
For purposes of this Agreement, a "Significant Date" means the date on
which the persons (or successors designated by such persons or successors)
presently entitled to elect a majority of the Board of Directors of the company
(the "Parent") controlling the Company, are no longer entitled to elect,
directly or indirectly, a majority of the Board of Directors of the Company,
other than as an immediate result
<PAGE>
of public sales of stock of the Parent or the Company; provided however that a
Significant Date shall not be deemed to have occurred if on such date the
present Chairman of the Company (including successors designated by such
Chairman or by successors) alone or pursuant to joint authority with others, are
entitled to so elect.
6. For one year following a Termination Event, the Company will also provide
you with basic health and medical benefits on the terms that such benefits are
provided to all salaried employees of the Company as of the date of your
termination of employment. If the Termination Event occurs at any time within
two years after a Significant Date, the Company will provide the benefits
described in the preceding sentence until the later of (A) the first anniversary
of the Termination Event and (B) the second anniversary of the Significant Date.
These benefits will cease immediately upon your obtaining other full-time
employment. If the Company is unable to provide any of the foregoing benefits
under then existing plans without costs it considers excessive, the Company will
be entitled to satisfy any such obligation by making a payment to you equal to
two times the cost to the Company during the last full year immediately
preceding the Termination Event of providing such benefits to you.
7. At the time you execute this Agreement, you will also execute and deliver
to the Company the enclosed Confidentiality Undertaking.
8. The Company will reimburse you for reasonable attorneys fees and expenses
incurred by you if you are employed hereunder on a Significant Date and prevail
against the Company with respect to a claim hereunder arising on or after such
date.
9. This Agreement shall be binding upon and inure to the benefit of you and
your legal representatives and the Company and any assignee or successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company.
10. This Agreement: contains the entire agreement between the parties with
respect to the subject matter hereof, may not be modified or terminated orally,
and shall be construed and governed in accordance with the laws of the State of
New York.
<PAGE>
If the foregoing is acceptable to you, please execute the enclosed copy of
this Agreement and return it to the undersigned.
Very truly yours,
SCHEIN PHARMACEUTICAL, INC.
By: /s/ James C. McGee
---------------------------
James C. McGee
Agreed to and accepted:
/s/ Jay Cayado
- ------------------------------
Jay Cayado
<PAGE>
EXHIBIT 10.42
SCHEIN PHARMACEUTICAL, INC.
DEFERRED COMPENSATION AGREEMENT
Agreement dated August 8, 1996 between Schein Pharmaceutical, Inc.
(the "Company") and Paul Kleutghen (the "Employee").
The parties agree as follows:
1. Deferred Compensation. Subject to the provisions of this
---------------------
agreement, the Company shall pay the Employee a bonus of $500,000 (the "Deferred
Compensation Amount"), payable as provided herein. The Company shall pay the
employee (a) $100,000 on December 31, 1996, (b) $100,000 on December 31, 1997,
(c) $150,000 on December 31, 1998, and (d) $150,000 on December 31, 1999,
provided the Employee is in the employ of the Company or any of its subsidiaries
at each such date. Notwithstanding the foregoing, however, if the Employee's
employment with the Company and each of its subsidiaries terminates at any time
before December 31, 1999, the amount, if any, payable to the Employee, and the
time any such amount shall be payable, shall be determined under section 2 of
this agreement. All payments under this agreement shall be subject to applicable
federal, state and local withholdings.
2. Termination of Employment.
-------------------------
2.1 General. In the event of a termination of the Employee's
-------
employment by the Company and each of its subsidiaries for any reason including,
without limitation, death or Disability (as defined below), other than a
termination for Cause (as defined in section 2.2) or voluntary termination in
accordance with section 2.3, the Company shall pay the Employee (or his or her
estate), not later than thirty days following the termination of employment, the
balance of any unpaid Deferred Compensation Amount. As used in this agreement,
the term
1
<PAGE>
"Disability" means a permanent disability, as determined by the board of
directors of the Company in its sole discretion. A Disability shall be deemed to
occur at the time of that determination by the board of directors.
2.2 Cause. If the Company or any of its subsidiaries terminates
-----
the Employee's employment for Cause, or the Employee terminates his or her
employment in violation of an agreement with the Company or any of its
subsidiaries, or if it is discovered after such termination of employment that
the Employee had engaged in conduct that would have justified termination if
employment for Cause, the Company shall have no obligation to pay any amount
under this agreement. As used in this agreement, termination of employment for
"Cause" means (a) the Employee's willful and continued failure substantially to
perform his or her duties with the Company and its subsidiaries, (b) fraud,
misappropriation or intentional material damage to the property or business of
the Company or any of its subsidiaries or (c) commission of a felony.
2.3 Voluntary Termination. If the Employee voluntarily
---------------------
terminates his employment with the Company and each of its subsidiaries before
any of the payment dates set forth in section 1, the Company shall have no
further obligation to pay any amount under this agreement.
3. General Provisions
------------------
3.1 Right to Terminate Employment. Notwithstanding anything to
-----------------------------
the contrary in this agreement, nothing in this agreement shall be deemed to
impose any obligation on the Company or any of its subsidiaries to continue the
employment of the Employee, or on the Employee to remain in the employ of the
Company or any of its subsidiaries, subject, however, to the provisions of any
other agreement between the Company or any of its subsidiaries and the Employee.
2
<PAGE>
3.2 Payment not Salary. Any deferred compensation payable under
------------------
this agreement shall not be deemed salary or other compensation to the Employee
for the purposes of computing benefits to which he or she may be entitled under
any pension plan or other arrangement of the Company or an affiliate of the
Company for the benefit of its employees.
3.3 Notices. Any notice or communication under this agreement
-------
shall be in writing and shall be deemed to have been duly given when delivered
in person, or by United States mail, to the appropriate party at the address set
forth below (or such other address as the party shall from time to time
specify):
If to the Company, to:
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attention: Corporate Secretary
If to the Employee, to:
the address indicated on the signature page at the end of this
agreement.
3.4 Severability of Provisions. If any provision of this
--------------------------
agreement shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions of this agreement and
this agreement shall be construed and enforced as if such provisions had not
been included.
3.5 Headings and Captions. The headings and captions under this
---------------------
agreement are provided for reference and convenience only. They shall not be
considered part of this agreement and shall not be employed in the construction
of this agreement.
3
<PAGE>
3.6 Controlling Law. This agreement shall be construed and
---------------
enforced according to the law of the state of New Jersey applicable to
agreements made and to be performed wholly in New Jersey.
3.7 Counterparts. This agreement may be executed in
------------
counterparts, each of which shall be considered an original, but both of which
together shall constitute the same instrument.
3.8 Entire Agreement. This agreement contains a complete
----------------
statement of all the arrangements between the parties with respect to its
subject matter, supersedes all existing agreements between them with respect to
that subject matter may not be changed or terminated orally, and any amendment
or modification must be in writing and signed by the parties to this agreement.
SCHEIN PHARMACEUTICAL, INC.
By: [SIGNATURE ILLEGIBLE]
---------------------------
Authorized Officer
/s/ Paul Kleutghen
------------------------------
Paul Kleutghen
33 COVENTRY ROAD
------------------------------
Address
xxxxxxxxxxxxxxxxx
------------------------------
City, State, Zip Code
4
<PAGE>
EXHIBIT 10.43
SCHEIN PHARMACEUTICAL, INC.
DEFERRED COMPENSATION AGREEMENT
Dated November 22, 1993
-----------------------
The parties to this agreement are Schein Pharmaceutical, Inc. (the
"Company") and Jay Cayado (the "Employee").
----------
The Company and its subsidiaries wish to obtain the continuing benefit
of the Employee's services after an Equity Investor Transaction (as defined in
section 1). The purpose of this agreement is to enable the Company and its
subsidiaries to motivate the Employee to remain with the Company after an Equity
Investor Transaction by providing additional cash compensation to the Employee.
The parties agree as follows:
1. Deferred Compensation. Subject to the provisions of this
---------------------
agreement, the Company shall pay the Employee a bonus of $250,000 (the "Deferred
--------
Compensation Amount"), payable as provided herein. The Company shall pay the
employee, not later than thirty days after the applicable anniversary date, an
amount equal to (a) 50% of the Deferred Compensation Amount after the second
anniversary of an Equity Investor Transaction, (b) an additional 25% of the
Deferred Compensation Amount after the third anniversary of an Equity Investor
Transaction, and (c) an additional 25% of the Deferred Compensation Amount after
the fourth anniversary of an Equity Investor Transaction, provided the Employee
is in the employ of the Company or any of its subsidiaries at each such
anniversary date. Notwithstanding the foregoing, however, if the Employee's
employment with the Company and each of its subsidiaries terminates at any time
before the Final Date,
1
<PAGE>
the amount, if any, payable to the Employee, and the time any such amount shall
be payable, shall be determined under section 2 of this agreement. As used in
this agreement, (a) the term "Final Date" means the fourth anniversary of the
consummation of the Equity Investor Transaction, and (b) the term "Equity
Investor Transaction" means a transaction (or series of transactions) resulting
in the stockholders (or beneficiaries of any such stockholders which are trusts)
of Schein Holdings, Inc., a New York corporation of which SPINC is a subsidiary,
receiving after November 1, 1993 and prior to December 31, 1994 not less than
$200 million in the aggregate in respect of the disposition of shares of Schein
Holdings, Inc., by cash dividend or otherwise. All payments under this agreement
shall be subject to applicable federal, state and local withholdings.
2. Termination of Employment.
-------------------------
2.1 General. In the event of a termination of the Employee's
-------
employment by the Company and each of its subsidiaries for any reason including,
without limitation, death or Disability (as defined below), other than a
termination for Cause (as defined in section 2.2) or voluntary termination in
accordance with section 2.3, the Company shall pay the Employee (or his or her
estate), not later than thirty days following the termination of employment, the
Deferred Compensation Amount. As used in this agreement, the term "Disability"
means a permanent disability, as determined by the board of directors of the
Company in its sole discretion. A Disability shall be deemed to occur at the
time of that determination by the board of directors.
2.2 Cause. If the Company or any of its subsidiaries terminates
-----
the Employee's employment for Cause, or the Employee terminates his or her
employment in
2
<PAGE>
violation of an agreement with the Company or any of its subsidiaries, or if it
is discovered after such termination of employment that the Employee had engaged
in conduct that would have justified termination if employment for Cause, the
Company shall have no obligation to pay any amount under this agreement. As used
in this agreement, termination of employment for "Cause" means (a) the
Employee's wilful and continued failure substantially to perform his or her
duties with the Company and its subsidiaries, (b) fraud, misappropriation or
intentional material damage to the property or business of the Company or any of
its subsidiaries or (c) commission of a felony.
2.3 Voluntary Termination. If the Employee voluntarily
---------------------
terminates his or her employment with the Company and each of its subsidiaries
before the second anniversary of an Equity Investor Transaction, the Company
shall have no obligation to pay any amount under this agreement. If the Employee
voluntarily terminates his or her employment with the Company and each of its
subsidiaries thereafter, the Company shall pay the Employee, not later than
thirty days after the applicable anniversary date, an amount equal to (a) 50% of
the Deferred Compensation Amount if the termination of employment occurs after
the second anniversary, but before the third anniversary, of the consummation of
an Equity Investor Transaction, (b) an additional 25% of the Deferred
Compensation Amount if the termination of employment occurs after the third
anniversary of the consummation of an Equity Investor Transaction, but before
the Final Date, and (c) an additional 25% of the Deferred Compensation if the
termination of employment occurs after the Final Date.
3. General Provisions
------------------
3.1 Right to Terminate Employment. Notwithstanding anything to
-----------------------------
3
<PAGE>
the contrary in this agreement, nothing in this agreement shall be deemed to
impose any obligation on the Company or any of its subsidiaries to continue the
employment of the Employee, or on the Employee to remain in the employ of the
Company or any of its subsidiaries, subject, however, to the provisions of any
other agreement between the Company or any of its subsidiaries and the Employee.
3.2 Payment not Salary. Any deferred compensation payable under
------------------
this agreement shall not be deemed salary or other compensation to the Employee
for the purposes of computing benefits to which he or she may be entitled under
any pension plan or other arrangement of the Company or an affiliate of the
Company for the benefit of its employees.
3.3 Notices. Any notice or communication under this agreement
-------
shall be in writing and shall be deemed to have been duly given when delivered
in person, or by United States mail, to the appropriate party at the address set
forth below (or such other address as the party shall from time to time
specify):
If to the Company, to:
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attention: Corporate Secretary
If to the Employee, to:
the address indicated on the signature page at the end of this
agreement.
3.4 Severability of Provisions. If any provision of this
--------------------------
agreement shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other
4
<PAGE>
provisions of this agreement and this agreement shall be construed and enforced
as if such provisions had not been included.
3.5 Headings and Captions. The headings and captions under this
---------------------
agreement are provided for reference and convenience only. They shall not be
considered part of this agreement and shall not be employed in the construction
of this agreement.
3.6 Controlling Law. This agreement shall be construed and
---------------
enforced according to the law of the state of New York applicable to agreements
made and to be performed wholly in New York.
3.7 Counterparts. This agreement may be executed in
------------
counterparts, each of which shall be considered an original, but both of which
together shall constitute the same instrument.
3.8 Entire Agreement. This agreement contains a complete
----------------
statement of all the arrangements between the parties with respect to its
subject matter, supersedes all existing agreements between them with respect to
that subject matter may not be changed or terminated orally and any amendment or
modification must be in writing and signed by the parties to this agreement.
SCHEIN PHARMACEUTICAL, INC.
By: [SIGNATURE ILLEGIBLE]
----------------------------------
Authorized Officer
/s/ Jay Cayado
-------------------------------------
Jay Cayado
30 Sail Harbour Drive
New Fairfield, CT 06812
5
<PAGE>
EXHIBIT 10.44
CO-PROMOTION AGREEMENT
BETWEEN
MILES INC.
AND
SCHEIN PHARMACEUTICAL, INC.
<PAGE>
Co-Promotion Agreement
This Agreement is made and effective as of the 1st day of August, 1994,
(hereinafter referred to as the "Effective Date"), by and between Miles Inc., a
corporation of the State of Indiana (hereinafter"Miles") and Schein
Pharmaceutical, Inc. a corporation of the State of Delaware
(hereinafter"Schein").
WHEREAS, Schein is the holder of an NDA covering a pharmaceutical product
marketed by Schein under the brand name INFeD(R) (iron dextran injection, U.S.P.
50 mg/ml) (hereinafter "Product") indicated for treating iron deficiency, and
Schein desires to enhance market share of Product in the United States
pharmaceutical market place; and
WHEREAS, Miles has considerable knowledge in promoting, detailing and marketing
pharmaceutical products in the United States and has in place a large, well-
experienced detailing force; and
WHEREAS, Miles and Schein believe that a joint promotion and detailing
arrangement regarding Product would be desirable and fully compatible with each
party's business objectives.
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein, Miles and Schein hereby agree as follows:
Article 1: Definitions
- ----------------------
1.01 "Affiliate" shall mean:
(a) An organization which owns, directly or indirectly, a controlling
interest in Miles or Schein by stock ownership or otherwise; or
(b) An organization having its majority ownership directly or
indirectly common to the majority ownership of Miles or Schein.
1.02 "Product" shall mean iron dextran injectable.
1.03 "United States" shall mean the United States of America.
-1-
<PAGE>
1.04 "Net Sales" shall mean *** ******* ***** ****** ** *********** *****
******* ** ****** **** *** ********* ******** ******** ** ************
******* ****** *** *** *********** **** ******* ** *** ******* ** ***
****** ******* **** ***** ********** ************ ****** **************
***** ******* ** ********** ********* ***** ******* ** ******* ** *****
************ ******* ** ******** ** **** ******** ** *******
************* ***************
1.05 "Threshold Value" with respect to a Detailing Year shall mean the
dollar amount specified for such year under Article lil.
1.06 "Joint Detailing Years~' shall mean the period of time commencing on
the Effective Date of this Agreement and ending on the last day of the
Third Detailing Year, subject to extension or termination in accordance
with Section 4.12 and Article VIII. A "Detailing Year" shall be the
twelve (12) month period commencing on each August 1st of the Term.
1.07 "Promotional Costs" shall mean all out-of-pocket costs incurred by
Schein in the marketing and promotion of the Product, including without
limitation in the development and production of promotional materials,
but excluding costs associated with sales representatives and
administrative overhead.
1.08 "Standard Cost" shall mean ******** *** *** ************ *************
******** ****** ********* *** ** ********** **** **** **********
******* *** ********* ******** ********** ********** ************
******** ************ *** ** ********
1.09 "Confidential Information" shall mean information which relates to the
Product, including financial statements, costs and expense data,
production data, trade secrets, secret processes and formulae,
marketing and consumer data or any other information which is not
generally ascertainable from public or published information,
regardless of whether such information was provided pursuant to the
terms of this Agreement, by request of the other party or in any other
manner. Schein reserves the right to limit the disclosure to Miles of
any Confidential Information which, in the sole opinion of Schein. is
not necessary to achieve the purposes of this Agreement.
1.10 In the terms defined herein, the singular shall include the plural and
vice versa.
---- -----
-2-
<PAGE>
Article II: Grants and Obligations
- ----------------------------------
2.01 Schein hereby grants to Miles during the Joint Detailing Years the
right to promote and detail the Product in the United States jointly
with Schein in accordance with the provisions of this Agreement.
2.02 During the Joint Detailing Years, Schein shall not authorize, or grant
the right to, any third party to detail the Product in the United
States.
(a) During the Joint Detailing Years, Miles will be diligent in its
efforts consistent with its customary business practices and legal
requirements to deploy its sales force to promote and detail
throughout the United States the Product in such manner and with
such expedition as Miles itself would have adopted in promoting
and detailing a pharmaceutical product of its own invention.
During the Joint Detailing Years and for a period of one (1) year
thereafter, Miles will not promote or detail any pharmaceutical
product with indications similar to those of the Product.
(b) The Product will be presented in a primary position in at least
fifty percent (50%) of Miles' sales representative calls to
dialysis centers and nephrologists and in no less than a secondary
position in the remainder of such calls.
2.03 During the Joint Detailing Years, Schein will be diligent in its
efforts consistent with its customary business practices and legal
requirements to promote and market the Product throughout the United
States. Notwithstanding the foregoing, the parties acknowledge that it
is Schein's present intention that Schein's brand sales representatives
will continue to promote the Product, and Schein will reassign its
other sales representatives to promote products other than the Product.
-3-
<PAGE>
Article III: Payments
- ---------------------
3.01 (a) Schein shall pay to Miles in each Detailing Year amounts equal to
***** ******* ***** of the Incremental Net Profit.
Incremental Net Profit is calculated as:
*** ***** ** ******* **** ********* ***** **** ************ *****
******* *** *** ********** ********* **** **** *** *** ** ***
******** **** ********** ** *** ****** ** ***** ** *******
********** *** *********** ***** ****** *** **** ** ****** ***
************ ***** ***** ** *** ******* **** ** *** ***********
***** ****** *** ***** *** ******* ** **** ** *********** *****
**** **** *********** ******
*** ** ** ***** ** ******* *******
(b) The Threshold Value for each Detailing Year shall be as follows:
********* **** ********* ***** **** ***********
************** *************** ****************
***** ******** *****
************** *****
***** *********** **********
****** ********** *********
***** ********** *********
(c) Within sixty (60) days prior to the start of the second Detailing
Year and each Detailing Year thereafter, Schein and Miles will
meet for the purposes of reviewing the Threshold Value (and
applicable Base Promotional Costs) for the coming Detailing Year
and negotiating in good faith any appropriate adjustment to the
Threshold Value (and applicable Base Promotional Costs) for
reasons including, but not limited to, the effect of a competitive
product in the market, and additional indications or delivery
systems for the Product.
(d) Within thirty (30) days after the close of each quarter during
each Detailing Year, Schein shall remit to Miles all payments
accruing under this Article during such quarter. The payment shall
be accompanied by an accounting reporting for such quarter Net
Sales both as to aggregate quantities and dollar amounts of such
Net Sales of the Product subject to payments hereunder for such
quarter.
*redacted pursuant to confidential treatment request.
-4-
<PAGE>
Article IV: Cooperation. Rights and Responsibilities
- ----------------------------------------------------
It is among the objectives of the parties, to jointly promote and detail the
Product in the United States in the most effective and efficient fashion during
the Joint Detailing Years. To achieve this objective, the parties agree, during
the Joint Detailing Years, as follows:
4.01 The parties shall each appoint an authorized representative
("Coordinator") between whom communications will be directed. Each
party will notify the other as to the name of the individual so
appointed. Each party may replace its Coordinator at any time, upon
written notice to the other party.
4.02 (a) The Coordinators shall establish a team ("Team") directed by the
Coordinators and consisting of representatives of each party which
will meet from time to time, at mutually agreeable times and
locations, to discuss and coordinate the joint promotion and
detailing of the Product in the United States and the strategies
and programs that should be developed to maximize Net Sales of the
Product. Illustratively, the Team shall:
(i) guide all continuing joint promotion and detailing efforts
with respect to the Product in the United States. Schein will
have the final authority and responsibility, with the
cooperation and assistance of Miles, for developing
detailing, marketing and promotional strategies and other
matters with respect to the Product, and Schein shall have
the final right of approval for all such strategies and other
matters.
(b) From time to time, but in no event less than once a year, the Team
shall develop and formulate joint marketing plans for specified
periods (collectively the "Marketing Plan") which shall set forth
detailing, promotion and marketing strategies relating to the
Product. The marketing planning process shall be a joint effort
under the leadership and authority of Schein. The provisions of
the Marketing Plan shall be agreed to by the Coordinators, and if
the Coordinators cannot agree, then the matters in dispute shall
be referred to the President of Miles Pharmaceutical Division and
the Chairman of Schein. Schein, however, shall have the.final
responsibility for, and control over, and the final right of
approval for, the development and content of the Marketing Plan.
Schein retains the right to determine in its discretion the
appropriate manner and timing of execution of all marketing and
promotional plans and strategies, including without limitation the
selection of ad agencies, the development and production of
promotional materials.
-5-
<PAGE>
(c) A party shall have the right to comment upon and make
recommendations to the other party regarding the other party's
activities under this Agreement, which recommendations the-_ other
party shall thoroughly evaluate and consider.
(d) Each party shall bear its own costs associated with its
participation in the Team and associated with its detailing,
marketing and promotional activities under this Agreement, except
as provided in Section 3.01.
4.03 (a) During the Joint Detailing Years and subject to any other
provision of this Agreement, each party will provide the other
with all information which the disclosing party deems significant
and relevant to the detailing and promotion of the Product within
a reasonable time after such information becomes known to the
party, provided such information is not received under a secrecy
obligation. Within thirty (30) days after the close of each
quarter during each Detailing Year, Miles will provide to Schein a
report of Miles Product detail call activity by medical specialty
for the quarter then ended, along with a summary of feedback from
Miles sales representatives concerning their detailing efforts for
that quarter.
(b) During the Joint Detailing Years, each party shall promptly notify
the other party of all information coming into its possession
concerning unexpected side effects, injury, toxicity or
sensitivity reactions as provided in Appendix I hereto.
4.04 Schein shall retain all proprietary and property interests in the
Product until the point of sale and in all supporting sales and
promotional material. Miles will not have nor represent that it has any
control or proprietary or property interests in the Product or in any
sales or promotional material. Nothing contained herein shall be deemed
to grant Miles, either expressly or impliedly, a license or other right
or interest in any patent, trademark or other similar property of
Sch,Shein or its Affiliates except as may be necessary for Miles to
promote and detail the Product as provided in this Agreement. Miles
acknowledges that Schein shall retain all copyrights in and to all
sales, promotional and training materials created or used in connection
with the promotion of the Product.
4.05 (a) Miles shall not be required to distribute any sales and
promotional material which:
-6-
<PAGE>
(i) does not present Product to the Medical and paramedical
communities and to the trade as joining with Schein in the
detailing and promotion of the Product; and
(ii) does not mention the Product; or
(iii) includes reference to another Schein pharmaceutical in
addition to the Product. At Schein's request and at Miles'
sole option, Miles may distribute sales and promotion
material of the type identified in this subsection (a).
Should Miles elect to distribute such material, it shall be
supplied to Miles by Schein free of all charge. Schein shall
not be require to distribute any sales and promotion
material which contains a reference:
(1) to Miles (other than in connection with the joint
detailing and promotion of the Product in accordance
with this Agreement); or
(2) any Miles pharmaceutical. All materials distributed by
Schein promoting the Product during the Joint Detailing
years and intended to be part of the co-promotion
arrangement covered by this Agreement shall mention
Miles as the joint promoter of the Product.
(b) During the Joint Detailing Years, Schein shall also provide Miles,
at Schein's cost, with reasonable quantities of training materials
which have been created and developed by Schein relating to the
Product. Miles shall have the responsibility for, and control
over, the manner in which it trains its sales force with respect
to the Product.
4.06 In implementing the obligations contained in Article II, each party
shall have sole discretion as to the manner (which shall not be
inconsistent with the Marketing Plan, and provided that Miles will not
utilize any promotional materials not created by Schein) in which it
promotes and details (including any expenditure of funds in connection
therewith) the Product in the United States. Each party shall bear its
own costs incurred in the performance of any obligations hereunder,
subject to the provisions of Section 3.01. Neither party shall have any
responsibility for the hiring, firing or compensation of the other
party's employees or for any employee benefits. No employee or
representative of a party shall have any authority to bind or obligate
the other party to this Agreement for any sum or in any manner
whatsoever, or to create or impose any contractual or other liability
on the other party without said party's authorized written approval.
For all
-7-
<PAGE>
purposes, and notwithstanding any other provisions of this Agreement to
the contrary Miles' legal relationship under this Agreement to Schein
shall be that of independent contractor. Each party shall be
responsible for ensuring that its promotional activities under this
Agreement are in full compliance with all applicable laws, rules,
regulations and orders, including without limitation applicable FDA
regulations, and are consistent with the Product approval and package
insert.
4.07 (a) Schein shall use commercially reasonable efforts consistent with
Schein's overall business strategy, as determined by Schein, to
insure that sufficient stock of the Product will be available in
its inventory to promptly fill orders from the trade in the Joint
Detailing Years for sales of the Product in the United States.
All orders for Products are subject to acceptance by Schein, in
whole or in part.
(b) Prior to or upon the signing of this Agreement and at least
thirty (30) days prior to each calendar quarter during the Joint
Detailing Years, Miles and Schein will confer to establish a
forecast of anticipated sales of Product by month for the
succeeding twelve (12) month period. Such forecasts shall be made
to assist Schein in planning its Product production and shall be
non-binding.
4.08 (a) During the Joint Detailing Years, Miles and Schein will be
presented and described, by each party hereto, to the medical and
paramedical communities and to the trade as joining in the
detailing and promotion of the Product, and all written
information (including, but not limited to, journal
advertisements, direct mail, sales pieces and other promotional
material) and, to the extent practicable, all oral information,
disseminated or presented, respectively, to such communities and
trade regarding the detailing and promoting of the Product in the
United States will state this arrangement, if such information is
intended to be part of the co-promotion arrangement covered by
this Agreement. Neither party shall distribute or have
distributed any such information. ,, which bears the name of the
other without the prior written approval of the other, which
approval shall not be unreasonably withheld. Nothing herein
contained shall require the Miles name or logo to appear on the
Product's label, container label or package insert.
(b) Each party, at its option, may issue press releases or other
public announcements relating to the Product or the arrangement
contemplated by this Agreement, provided, however, that;
-8-
<PAGE>
(i) neither party shall issue a press release or public
announcement which has, as a major focus, either the joint
detailing and promotion of the Product in the United States
or such arrangement, without the prior written approval of
the other party, which approval shall not be unreasonably
withheld; and
(ii) all other press releases and public announcements will
describe the Product and the arrangement contemplated by
this Agreement in a manner consistent with those releases
and announcements previously approved by the other party.
4.09 (a) Schein shall have the sole right and responsibility for, and shall
bear all costs related to, obtaining and maintaining the
authorization and/or ability to market a pharmaceutical product in
the United States including, without limitation, the following:
(1) Responding to Product and medical complaints relating to the
Product. Miles agrees that it shall refer any such complaints
which it receives to Schein in accordance with Appendix I
hereto:
(2) All Product returns must be authorized by Schein. Miles shall
not solicit or accept any returns of Product and shall advise
the customer that Product is to be returned to Schein. If
despite the foregoing any Product is returned to Miles, then
it shall be shipped to Schein's nearest distribution facility
or, at Schein's option, may be handled through the One Box
return system. Costs of returns are to be included in the
computation of Net Sales as provided in Paragraph 1.04.
(3) Handling all recalls of the Product. At Schein's request and
Miles' option, Miles will assist Schein in receiving the
recalled Product and any direct documented costs incurred by
Miles with respect to participating in such recall shall be
reimbursed by Schein;
(4) Communicating with any governmental agencies and satisfying
their requirements regarding the authorization and/or
continued authorization to market the Product in commercial
quantities in the United States; provided, however, that
Miles shall be able to communicate with such agencies
regarding the Product if:
-9-
<PAGE>
(i) in the reasonable opinion of Miles' counsel, such
communication is necessary to comply with the terms of
this Agreement or the requirements of any law,
governmental order or regulation; and
(ii) Miles, if practical, made a request of such agency to
communicate with Schein instead, and such agency
refused such request; but in any such event, unless in
the reasonable opinion of Miles' counsel, there is a
legal prohibition against doing so, Schein shall be
immediately notified of such agency's request and of
Miles' intention to make such communication and Schein
shall be permitted to accompany Miles to any meeting
with such agency, take part in any such communications
and receive copies of all such communications provided
in no event shall Miles take any action which would
impose any liability or obligation on Schein, without
Schein's prior written consent; and
(5) Handling product distribution, inventory and receivables;
except that the costs thereof shall be governed by Section
3.01 (a).
(b) Each party shall respond to medical questions or inquiries
relating to the Product directed to such party. Within a
reasonable time from the date of this Agreement, but in no event
later than the Effective Date, Schein shall provide Miles with all
reasonably necessary information which would enable Miles to
respond properly and promptly to any such questions or inquiries.
Schein shall use its best efforts to keep such information
current. Schein and Miles shall coordinate responses to
anticipated inquiries and questions. Each party shall be
responsible for ensuring that its responses are in full compliance
with all applicable laws, rules, regulations and orders, including
without limitation applicable FDA regulations, and are consistent
with the Product approval and package insert.
4.10 Schein shall send to Miles, on a monthly basis, a copy of its monthly
ex-factory sales report for the preceding month showing ex-factory
sales of the Product.
Additionally, Schein shall authorize Miles to access, on a monthly
basis and at Miles' expense, its monthly DDD sales report on the
Product.
-10-
<PAGE>
4.11 Notwithstanding the Marketing Plan or any other provision herein to the
contrary, Schein will have the right and responsibility for
establishing and modifying the terms and conditions with respect to the
sale of the Product, including the price at which the Product will be
sold, any discount attributable to payments on receivables,
distribution of the Product and the like.
4.12 Subject to Article VII hereof, the joint promotion and detailing of the
Product shall cease at the end of the Third Detailing Year; provided
that the joint promotion and detailing of the Product and the term of
this Agreement shall automatically be extended for successive one (1)
year periods unless at least sixty (60) days before the expiration of
the then-current term-, either party gives written notice to the other
that it does not wish to extend this Agreement. At the end of the Third
Detailing Year (or, if later, at the end of any extension of the term
of this Agreement or on termination under any circumstance) Miles shall
have no further obligations to promote and detail the Product and, upon
request by Schein, shall return to Schein all sales, marketing,
training and other materials which it has in its possession relating to
Product. Schein shall have the right to continue to distribute
materials bearing the Miles name, until the inventories of such
materials are depleted.
Article V: Warranties and Indemnification
- -----------------------------------------
5.01 Each party warrants and represents to the other that it has the full
right and authority to enter into this Agreement, and that it is not
aware of any impediment that would inhibit its ability to perform its
obligations under this Agreement.
5.02 Schein warrants and represents that, to the best of its knowledge, the
Product package insert adequately describes the toxicity and
sensitivity reactions associated with the Product when administered in
accordance with the package insert. Miles acknowledges that the Product
is a "black box" product, with significant known side effects,
including death.
5.03 Schein warrants and represents that it has no knowledge of the
existence of any U.S. patent which would prevent Schein from making,
using or selling the Product in the United States or would prevent
Schein and Miles from jointly promoting or detailing the Product in the
United States. Miles acknowledges that neither Schein nor any of its
Affiliates holds any patent covering the Product.
-11-
<PAGE>
5.04 (a) One party shall indemnify, protect and hold the other party
harmless against any and all damages, costs, expenses, lawsuits
and liabilities directly or indirectly result,resulting from
claims, suits or judgments arising out of said one party's
negligence (as between Schein or Miles) with resect to the Product
or components thereof or the detailing, promoting or other
obligations of said party hereunder. The other party shall
promptly notify said one party of any claims or suits for which
the other party may assert indemnification from said one party
hereunder and the other party shall permit said one party, or its
insurer, at said one party's expense, to assume or participate in
the defense of any such claims or suits and the other party shall
cooperate with said one party or its insurer in such defense when
reasonably requested to do so.
(b) One party shall indemnify, protect and hold the other party
harmless against any and all damages, costs, expenses, lawsuits,
and liabilities directly or indirectly resulting from claims,
suits or judgments with respect to the Product or components
thereof or the detailing, promoting or other obligations of said
one party hereunder to the extent that such damages, costs,
expenses, lawsuits and liabilities are due to the contributory
negligence of said one party. The other party shall promptly
notify said one party of any such claims or suits for which the
other party may assert contribution or indemnification from said
one party and each party shall permit the other party or its
insurer at the other party's expense, to participate in the
defense of any and all such claims or suits and each party shall
reasonably cooperate with the other party or its insurer in such
defense when requested to do so.
(c) Without limitation, as between Miles and Schein, if an above-
described claim, suit or judgment (or any portion thereof) is
based solely on:
(i) the failure of the Product to meet any specifications in the
Schein New Drug Application approved by the U.S. Food and
Drug Administration ("FDA") or supplements thereto;
(ii) misrepresentations or deficiencies in or omissions from the
Product's package insert approved by the FDA;
then Miles shall not be deemed negligent with respect to such
matters and shall be fully and completely indemnified by Schein
under Section 5.04 (a) with respect to such claim, suit or judgment
(or portion thereof) which solely involved such matters, and Schein
-12-
<PAGE>
shall be permitted, at its sole cost, to assume full control over
the defense of any such claim or suit (or portion thereof)0.
(d) This Section 5.04 shall survive the termination of this Agreement.
Article VI: Reports
- -------------------
6.01 Schein shall keep such records as are required to determine accurately
under United States generally accepted accounting principals the sums
due to under this Agreement. Such records shall be retained by Schein
and shall be made available for reasonable review and/or audit, at the
request and expense of Miles by an independent Certified Public
Accountant appointed by Miles and reasonably acceptable to Schein and
subject to appropriate confidentiality undertakings for the purposes of
verifying Schein' accounting reports hereunder and determining the
correctness of such reports during the one hundred and twenty (120) day
period following the close of the applicable Detailing Year, in respect
of New Sales for the Detailing Year then ended.
6.02 All sums due to Miles shall be payable to Miles in U.S. dollars by
Schein at the following address:
Miles Inc.
Pharmaceutical Division
400 Morgan Lane
West Haven, Connecticut 06516
or at such other address within the United States that Miles may
designate in writing to Schein.
6.03 Notwithstanding anything in this Agreement to the contrary, in the
event that Schein' actual Net Sales of the Product in the United States
are reduced, due to Adjustments after such Net Sales have been accrued
pursuant to the terms of this Agreement, then Net Sales for the
Detailing Year in which such Adjustments occur shall: be reduced
accordingly and Miles shall return to Schein within sixty (60) days of
receipt of a notice from Schein requesting such return, any dollar
amounts which were paid to Miles in respect of Net Sales during such
Detailing Year which are in excess of the dollar amounts which would
have been paid to Miles if Net Sales for such period reflected the Net
Sales actually received by Schein, taking into account such
Adjustments.
-13-
<PAGE>
Article VII: Term and Termination
- ---------------------------------
7.01 Unless sooner terminated d as herein provided, or extended in
accordance with Paragraph 4. 12, this Agreement shall expire, subject
to Paragraph 7.03 below. after the Third Detailing Year.
7.02 Either party may terminate this Agreement at any time for any reason
whatsoever with one hundred and twenty (120) days written notice;
provided no such termination shall be effective prior to April 1, 1996,
unless the grounds for termination is Miles' or Schein's failure to
fulfill its obligations under Section 2.02 or 2.03, respectively.
7.03 Termination of this Agreement shall be without prejudice to either
party's right to obtain performance of any obligations provided for in
this Agreement which survive termination by their terms.
Article VIII: Force Majeure
- ---------------------------
8.01 The performance by either party of any covenants or obligations on its
part to be performed hereunder (other than an obligation of either to
pay money to the other) shall be excused by floods, strikes or other
labor disturbances, riots, fires, accidents, wars, embargoes, delays of
carriers, inability to obtain materials from sources of supply, acts,
injunctions, or restraints of governments (whether or not now
threatened), or any cause preventing such performance whether similar
or dissimilar to the foregoing beyond the reasonable control of the
party bound by such covenant or its obligation, provided, however, that
the party affected shall exert its reasonable diligent efforts to
eliminate or cure or overcome any of such causes and to resume
performance of its covenants with all possible speed.
Article IX: Dispute Resolution
- ------------------------------
9.01 Both parties are obligated to undertake all reasonable efforts in order
to solve in an amicable way any controversy arising in connection with
this Agreement. However, in the event that disputes arise that cannot
be resolved at the immediate level, the dispute shall be referred to
the President of Miles Pharmaceutical Division and the chairman of
Schein.
Article X: Miscellaneous Provisions
- -----------------------------------
10.01 This Agreement shall be governed by and interpreted under the laws of
the United States and of the State of New Jersey.
-14-
<PAGE>
10.02,(a) For a period of ten (10) years from the Effective Date of this
Agreement or five (5) years from the termination hereof, whichever
occurs later:
(i) each party agrees not to use Confidential Information
furnished by the other party for any purpose inconsistent
with this Agreement; and
(ii) each party will treat Confidential Information furnished by
the other party as if it were its own proprietary
information and will not disclose it to any third party
other than its Affiliates or consultants without the prior
written consent of the other party who furnished such
information.
(iii) Miles shall not have the right for a period of five (5)
years from the termination of this Agreement to disclose,
publish and/or use for its benefit or for the benefit of any
third party any Confidential Information, sales, marketing,
training or other information provided to Miles by or on
behalf of Schein or its Affiliates received under this
Agreement to promote, achieve and/or maintain the sale and
use of the Product or any other pharmaceutical specialty
with indications similar to those of Product without the
prior written consent of Schein.
10.03 A party shall be relieved of any and all of the obligations of Section
11.02(a) with respect to Confidential Information if:
(a) such Confidential Information was known to the party receiving the
Confidential Information prior to receipt from the disclosing
party; or
(b) such Confidential Information was at the time of disclosure to the
party receiving the Confidential Information generally available
to the public or which became generally available to the public
through no fault attributable to the party receiving the
Confidential Information;
(c) such Confidential Information was made available to the party
receiving the Confidential Information for its use or disclosure
from any third person who was at the time of transmitting such
Confidential Information not under a non-disclosure obligation to
the other party.
10.04 This Agreement shall be binding upon, and shall inure to the benefit of
successors to a party hereto, but shall not otherwise be assignable
without the prior written consent of both parties.
-15-
<PAGE>
10.05 Any notice required to be given hereunder shall be considered properly
given if sent by certified mail, return receipt requested to the
respective address of each party as follows:
Office of the President
Miles Inc.
Pharmaceutical Division
400 Morgan Lane
West Haven. Connecticut 06516
and
Chairman of the Board
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, NJ 07932
or to such other address as the addressee shall have last furnished in
writing in accord with this provision to the addresser.
10.07 If any provision of this Agreement is held to be invalid, such invalidity
shall not affect the validity of the remaining provisions.
10.08 All captions herein are for convenience only and shall not be interpreted
as having any substantive meaning.
10.09 All covenants, agreements, representations and warranties made hereunder
shall be deemed to have been relied upon notwithstanding any investigation
heretofore or hereafter made and shall survive the execution of this
Agreement.
10.10 This Agreement constitutes the entire agreement between the parties hereto
with respect to the within subject matter and supersedes all previous
agreements, whether written or oral. It may be changed only in writing
signed by properly authorized representatives of Miles and Schein.
10.11 Neither party shall be entitled to assign its rights hereunder without the
express written consent of the other party hereto.
-16-
<PAGE>
IN WITNESS WHEREOF, Miles and Schein have caused this Agreement to be duly
executed by their authorized representatives, in duplicate on the dates written
hereinbelow.
Attest: Miles Inc.
By /s/ By /s/ Horst K. D. Wallrabe
___________________________ ___________________________
Horst K. D. Wallrabe,
Executive Vice President
Miles Inc. and
President
Pharmaceutical Division
Date November 11, 1994
--------------------------
Attest: Schein Pharmaceutical, In,
By /s/ P. K. McCullough By /s/ Martin Sperber
___________________________ ___________________________
Martin Sperber
Chairman of the Board and
Chief Executive Officer
Date Dec 9, 1994
--------------------------
-17-
<PAGE>
APPENDIX I
COMPLAINT HANDLING PROCEDURES
The purpose of this appendix is to establish written procedures for the
communication and processing of Product complaints received by Miles.
Acting in accord with this Agreement will facilitate compliance with Federal
Requirements as set forth in 21 CFR 211.198 (complaint files) and 21 CFR
310.305/21 CFR 314.80 (postmarketing reporting of adverse drug reactions).
A. Complaint Reporting:
1. Complaints reported directly to Miles will be summarized and forwarded
to the Supervisor of Clinical Affairs at Schein.
2. All adverse drug experience complaints reported to Miles will be
communicated to Schein within three working days of report receipt.
Schein will be responsible for completion and submission to the Food
and Drug Administration of Form FDA-3500A where appropriate .
3. Complaint reports which may meet NDA-Field Alert Report Criteria t21
CFR 314.81 (b) (1)] will be promptly communicated to Schein enabling
FDA notification by Schein within three working days. Schein will
advise Miles of NDA Field Alert Report submission and forward a copy
of any such report to the Complaint Coordinator (see A.1 above) of
Miles.
B. Complaint Investigation:
1. Schein will investigate all complaints, including complaints
associated with Product's active or inactive ingredients,
container/closure system, general Product quality, distribution or
handling.
C. Communications with Complainant:
1. Schein will be responsible for review of complaint evaluation
information and preparation of a written response.
2. In situations requiring submission of adverse drug experience reports,
Schein will be responsible for any follow-up communications which may
be required in order to facilitate timely completion and submission of
FDA
D. Product Recall:
1. In carrying out a recall, both parties will fully cooperate in
notifying customers to follow instructions as read upon by the
parties.
<PAGE>
AMENDMENT NUMBER 1 TO CO-PROMOTION AGREEMENT
--------------------------------------------
This Amendment to Co-Promotion Agreement (the "Amendment") is entered into
as of the 1st day of January 1997 between Miles, Inc., an Indiana corporation,
now known as Bayer Corporation ("Bayer"), and Schein Pharmaceutical, Inc., a
Delaware corporation ("Schein").
Introduction
------------
A. Bayer and Schein entered into a Co-Promotion Agreement, dated August
1, 1994 (the "Agreement").
B. Pursuant to the terms of the Agreement Bayer and Schein agreed to
jointly promote and detail the Product (as defined in the Agreement) in the
United States.
C. The parties wish to amend the Agreement in accordance with the terms
of this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, and for other good and valuable consideration, it is agreed as
follows:
1. Definitions In This Amendment and Incorporation. Unless otherwise
-----------------------------------------------
defined, all terms used herein shall have the meaning ascribed to them in the
Agreement, and the terms and provisions of the Agreement are incorporated herein
by reference as though set forth in full.
2. Definitions. The following is added to the end of Section 1.06 of the
-----------
Agreement: "Effective as of December 29, 1996, a 'Detailing Year' shall be the
twelve (12) month period commencing on the last Sunday in December of the Term".
3. Grants and Obligations.
----------------------
The second paragraph of Article II, Section 2.01 of the Agreement is
hereby deleted in its entirety and replaced by the following:
"During the Joint Detailing Years, Schein shall not authorize, or
grant the right to, any third party to detail the Product in
the United States in the field of Nephrology: provided, however,
that Schein may authorize, or grant the right to, any third party
to detail and promote the Product in the United States in a field
other than Nephrology.
<PAGE>
4. Payments.
--------
Article III, Subsections 3.01 (a), (b), (c) and (d) of the Agreement
are hereby deleted in their entirety and replaced by the following:
"3.01 (a) Effective January 1, 1997, Schein shall pay to Bayer in
each Detailing Year the following: (i) the aggregate amount of
********** ******* ** **** ***** ************ ** ******** ****,
within sixty (60) days after the close of each fiscal quarter
during a Detailing Year, plus (ii) an amount equal to *** *****
** *** ***** ****** *** ********* ********* *** **** **** ******
*** ******* ****** in each Detailing Year, payable annually
within sixty (60) days after the end of such Detailing Year. The
annual payment relating to *** ***** shall be accompanied by an
accounting of such *** ***** indicating aggregate quantities and
dollar amounts of the Product. For purposes of this Agreement,
***** **** ******* ***** **** *** ********** *** *********** for
the Detailing Year commencing December 29, 1996, and (ii) for
each Detailing Year thereafter, Schein and Bayer shall meet
within sixty (60) days prior to the start of such Detailing Year
for the purposes of reviewing the Base Line Figure for such
****** ********* **** *** *********** ** **** ***** ***
*********** ********** ** *** **** **** ****** *** *******
********** *** *** ******* *** *** ****** ** * ***********
******* ** *** ******* *** ********** *********** ** ********
******* *** *** ******** ******* ** ** ** **** ** **** ********
*** ****** ***** ***** *** *** ********** ************** ********
** ****** ******* *********** **** ******** **** ****** ********
** *** ******* ** *** ********** **** ******* ** *** ** **** ***
***** ********* ** ********
5. Reaffirmation of Agreement and Other Document. Except as modified
---------------------------------------------
herein, all of the covenants, terms and conditions of the Agreement remain in
full force and effect and are hereby ratified and reaffirmed in all respects. In
the event of any conflict, inconsistency or incongruity between the terms and
conditions of this Amendment and the covenants, terms and conditions of the
Agreement the terms and conditions of this Amendment shall govern and control.
6. Counteparts. This Amendment may be executed in two or more
-----------
counterparts each of which together shall constitute an original but which,
when taken together, shall
* redacted pursuant to confidential treatment request.
2
<PAGE>
constitute but one instrument and shall become effective when copies hereof,
when taken together, bear the signatures of all required parties and persons.
IN WITNESS WHEREOF, this Amendment is executed as of the day and year first
above written.
BAYER CORPORATION
By: /s/ Gerald B. Rosenberg
----------------------------
Name: Gerald B. Rosenberg
--------------------------
Title: Senior Vice President and General Manager
-----------------------------------------
SCHEIN PHARMACEUTICAL, INC.
By: /s/ Michael D. Casey
-------------------------
Name: Michael D. Casey
-----------------------
Title: President Retail Specialty Product Division
-------------------------------------------
3
<PAGE>
AMENDMENT NO. 2 TO CO-PROMOTION AGREEMENT
-----------------------------------------
This Amendment Number 2 to Co-Promotion Agreement (the "Amendment") is
entered into as of the 1st day of January 1997 between Bayer Corporation,
formerly known as Miles, Inc. ("Bayer") and Schein Pharmaceutical, Inc.
("Schein").
Introduction
------------
A. Bayer and Schein entered into a Co-Promotion Agreement, dated August 1,
1994 which was amended by Amendment Number 1 to Co-Promotion Agreement dated
January 1, 1997 (collectively, the "Agreement").
B. Pursuant to the terms of the Agreement, Bayer and Schein agreed to jointly
promote and detail the Product (as defined in the Agreement) in the United
States.
C. Bayer Puerto Rico Inc. ("Bayer Puerto Rico") and Schein entered into a
Promotion Agreement, dated February 1, 1995 (the "Puerto Rico Agreement").
D. Pursuant to the terms of the Puerto Rico Agreement, Bayer Puerto Rico and
Schein agreed to jointly promote and detail the Product (as defined in the
Agreement) in Puerto Rico.
E. Bayer and Schein wish to amend the Agreement to include Bayer Puerto Rico's
obligations with respect to promotion of the Product in Puerto Rico in the
Agreement. Bayer Puerto Rico and Schein simultaneously herewith have terminated
the Puerto Rico Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, and for other good and valuable consideration, it is agreed as
follows:
1. Definitions In This Amendment Number 2 and Incorporation. Unless
--------------------------------------------------------
otherwise defined, all terms used herein shall have the meaning ascribed to them
in the Agreement, and the terms and provisions of the Agreement are incorporated
by reference as though set forth in full.
2. Definitions.
-----------
(a) Section 1.03 is deleted in its entirety and replaced with the following:
" `Territory' shall mean the United States and Puerto Rico."
(b) Except for Section 10.01 of the Agreement, in all places where the defined
term "United States" appears it is hereby replaced with the defined term
"Territory."
3. Addition of Bayer Puerto Rico as Party to the Agreement. With respect
-------------------------------------------------------
to its promotion of the Product in Puerto Rico, Bayer Puerto Rico agrees to the
terms and conditions in the Agreement.
4
<PAGE>
4. Reaffirmation of Agreement and Other Documents. Except as modified
----------------------------------------------
herein, all of the covenants, terms and conditions of the Agreement remain in
full force and effect and are hereby ratified and reaffirmed in all respects. In
the event of any conflict, inconsistency or incongruity between the terms and
conditions of this Amendment and the covenants, terms and conditions of the
Agreement the terms and conditions of this Amendment shall govern and control.
5. Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which together shall constitute an original but which,
when taken together, shall constitute but one instrument and shall become
effective when copies hereof, when taken together, bear the signatures of all
required parties and persons.
IN WITNESS WHEREOF, this Amendment is executed as of the day and year first
above written.
BAYER CORPORATION BAYER PUERTO RICO INC.
By:________________ By:________________
Name:______________ Name:______________
Title:_____________ Title:_____________
SCHEIN PHARMACEUTICAL, INC.
By:________________
Name:______________
Title:_____________
5
<PAGE>
EXHIBIT 10.45
SCHEIN PHARMACEUTICAL
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitutes the provisions of the 1998
Employee Stock Purchase Plan of Schein Pharmaceutical.
1. Purpose. The purpose of the Plan is to provide employees of
--------
the Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
------------
(a) "Board" shall mean the Board of Directors of the
-----
Company.
(b) "Code" shall mean the Internal Revenue Code of 1986,
----
as amended.
(c) "Common Stock" shall mean the Common Stock of the
------------
Company.
(d) "Company" shall mean Schein Pharmaceutical.
-------
(e) "Compensation" shall mean all base straight time gross
------------
earnings, including commissions, overtime, shift premium, incentive
compensation, incentive payments, bonuses, and other compensation, but exclusive
of payments for award programs, relocation and non-cash company benefit
programs.
(f) "Designated Subsidiaries" shall mean the Subsidiaries
-----------------------
which have been designated by the Board from
1
<PAGE>
time to time in its sole discretion as eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
--------
the Company or any Designated Subsidiary for purposes of tax withholding under
the Code whose customary employment with the Company is at least twenty (20)
hours per week and more than five (5) months in any calendar year. For purposes
of the Plan, the employment relationship shall be treated as continuing intact
while the individual is on sick leave or other leave of absence approved by the
Company. Where the period of leave exceeds ninety (90) days and the individual's
right to reemployment is not guaranteed either by statute or by contract, the
employment relationship will be deemed to have terminated on the ninety-first
(9lst) day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
(i) "Exercise Date" shall mean the last day of each Offering
-------------
Period.
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange of a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the mean between the
highest and lowest quoted sale price for the Common Stock (or the weighed
average of the means between the highest and lowest sales on the nearest date
before and the nearest date after the valuation date, if no sales were
reported), as quoted on such exchange (or the exchange with the greatest volume
of trading in Common Stock) or system on the date of such determination, as
reported in The Wall Street Journal or such other source as the Board deems
reliable, or;
-2-
<PAGE>
(2) If the Common Stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(k) "Offering Period" shall mean a period of approximately each
---------------
quarter of the calendar year, commencing (i) on the first Trading Day on or
after January 1 and terminating on the last Trading Day in the period ending the
following March 31, or (ii) commencing on the first Trading Day on or after
April 1 and terminating on the last Trading Day in the period ending the
following June 30, or (iii) commencing on the first Trading Day on or after July
1 and terminating on the last Trading Day in the period ending the following
September 30, or (iv) commencing on the first Trading Day on or after October 1
and terminating on the last Trading Day in the period ending the following
December 31, during which an option granted pursuant to the Plan may be
exercised. The duration of Offering Periods may be changed pursuant to Section
4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
----
(m) "Purchase Price" shall mean an amount equal to 85% of the
--------------
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan and the number of shares of Common Stock
which have been authorized for issuance under the Plan but not yet placed under
option.
-3-
<PAGE>
(o) "Subsidiary" shall mean a corporation, domestic or foreign,
----------
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock
-----------
exchanges and the National Association of Securities Dealers Automated Quotation
(NASDAQ) System are open for trading.
3. Eligibility.
-----------
(a) Any employee (as defined in Section 2(g)), who shall be
employed by the Company on a given Enrollment Date shall be eligible to
participate in the Plan, provided however, that any Employee who has been
employed for less than two (2) years must have completed six (6) consecutive
months of service with the Company before becoming eligible.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted a right to purchase Common Stock under the Plan (i)
if, immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding rights to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) which permits his or her rights to purchase stock ander
all employee stock purchase plans of the Company and its subsidiaries to accrue
at a rate which exceeds twenty-five thousand dollars ($25,000) worth of stock
(determined at the fair market value of the shares at the time such right is
granted) for each calendar year in which such purchase right is outstanding at
any time.
4. Offering Periods. The Plan shall be implemented by
----------------
consecutive Offering Periods with a new Offering Period commencing on the first
Trading Day on or
-4-
<PAGE>
after January 1 , April 1, July 1 and October 1 each year, or on such other date
as the Board shall determine, and continuing thereafter until the Plan is
terminated in accordance with Section 18 hereof. The Board shall have the power
to change the duration of Offering Periods (including the commencement dates
thereof) with respect to future offerings without shareholder approval if such
change is announced at least fifteen (15) days prior to the scheduled beginning
of the first Offering Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee (as defined in Section 3) may become a
participant in the Plan at the commencement of the first Offering Period after
the Employee has met the requirements of Section 2(g) and Section 3 by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office at
least five (5) business day prior to the applicable Enrollment Date, unless a
later time for filing the subscription agreement is set by the Board for all
eligible Employees. An eligible Employee (as defined in Section 3) who does not
participate in the first Offering Period after becoming eligible cannot
participate in the Plan until the commencement of a subsequent Offering Period.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll to
which such authorization is applicable, unless sooner terminated by the
participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement authorizing payroll deductions, he or she shall elect to have
deductions made on each payday during the time he or she is a participant at
the rate of 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19 or
20% of his or her Compensation received on each payday
-5-
<PAGE>
during the Offering Period, and the aggregate of such payroll deductions during
the Offering Period shall not exceed twenty percent (20%) of the participant's
Compensation during said Offering Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan. A participant may not make any
additional cash payments into such account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes. The change in rate shall be effective with the first
full payroll period following five (5) business days after the Company's receipt
of the new subscription agreement unless the Company elects to process a given
change in participation more quickly. A participant's subscription agreement
shall remain in effect unless terminated as provided in Section 10 hereof.
(d) At the time the stock is purchased by a participant under
this Plan or at the time some or all of the Company's Common Stock issued under
the Plan is disposed of, the participant must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the purchase or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
Compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
(e) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423 (b)(8) of the Code and Section 3(b) hereof, a
participant's payroll
-6-
<PAGE>
deductions may be decreased to zero percent (0%) at such time during any
Offering Period which is scheduled to end during the current calendar year (the
"Current Offering Period") that the aggregate of all payroll deductions which
were previously used to purchase stock under the Plan in a prior Offering
Period which ended during that calendar year plus all payroll deductions
accumulated with respect to the Current Offering Period equal $25,000. Payroll
deductions shall recommence at the rate provided in such participant's
subscription agreement at the beginning of the first Offering Period which is
scheduled to end in the following calendar year, unless terminated by the
participant as provided in Section 10 hereof.
7. Grant of Option. On the Enrollment Date of each Offering
---------------
Period, each eligible Employee participating in such Offering Period shall be
granted an option to purchase on the Exercise Date of such Offering Period (at
the applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than a
number of Shares determined by dividing $25,000 by the Fair Market Value of a
share of the Company's Common Stock on the Enrollment Date, and provided
further that such purchase shall be subject to the limitations set forth in
sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof,QS and the option shall expire at the end of the day on the last day of
the Offering Period.
8. Exercise of Option. A participant's option for the purchase
------------------
shares will be exercised automatically on the Exercise Date, and the maximum
number of shares, including fractional shares, subject to option shall be
purchased for such participant at the applicable Purchase Price with the
accumulated payroll deductions in his or her account. During a participant's
lifetime, a participant's
-7-
<PAGE>
option to purchase shares hereunder is exercisable only by him or her.
9. Reports. A book-entry system of shares will be maintained for
-------
the Plan and certificates representing the shares purchased upon exercise will
not be issued except as in accordance with Section 10 hereof. Individual
accounts will be maintained for each participant in the Plan. Statements of
account will be given to participating Employees at least annually, which
statements will set forth the amounts of payroll deductions, the Purchase Price,
the number of shares purchased and the remaining cash balance, if any. The
Company will comply with all applicable reporting requirements applicable to
Employee Stock Purchase Plans under the Code.
10. Withdrawal; Termination of Employment.
----------
(a) A participant may withdraw from the Plan at any time by
giving written notice to the Company in the form of Exhibit to this Plan. Upon
a participant's withdrawal from the Plan all the payroll deductions credited to
his or her account and not yet used to exercise his or her option under the Plan
will be automatically exercised on the next Exercise Date. No further payroll
deductions for the purchase of Common Stock will be made after receipt of the
notice of withdrawal. If a participant withdraws from the Plan, he or she must
wait one full Offering Period before resuming participation in the Plan. In
addition such participant must deliver a new subscription agreement to the
Company which will become effective on the Enrollment Date of the applicable
Offering Period.
(b) upon a participant's ceasing to be an Employee for any
reason, he will be deemed to have elected to withdraw from the Plan and the
payroll deductions credited to such participant's account during the applicable
Offering Period will be returned to such participant or, in the case of his
death, to the person entitled thereto under Section 14 hereof, and such
participant's right to purchase Common Stock will be automatically terminated. A
participant ceasing to be an Employee will have ninety (90) days to
-8-
<PAGE>
either sell their shares purchased or have certificates representing such shares
issued, provided, however, that in the case of death, the person designated as
beneficiary pursuant to Section 14 hereof shall have one (1) year to notify the
Company regarding disposition of the account. If the Company has not been
notified by such Employee within ninety (90) days, or such designated
beneficiary within one (1) year, certificates will be issued for full shares and
partial shares will be sold. All certificates shall bear a legend indicating
that such shares were issued pursuant to the Company's Employee Stock Purchase
Plan
11. Interest. No interest shall accrue on the payroll deductions
--------
of a participant in the Plan.
12. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for purchase under the Plan shall be 500,000,
subject to adjustment upon changes in capitalization of the Company as provided
in Section 18 hereof. If, on a given Exercise Date, the number of shares to be
purchased by participants exceeds the number of shares then available under the
Plan, the Company shall make a pro rata allocation of the shares remaining
available for purchase in as uniform a manner as shall be practicable and as it
shall determine to be equitable.
(b) The participant will have no interest or voting right in
shares of Common Stock covered by his right to purchase until such Common Stock
has been purchased.
(c) Shares to be delivered to a participant under the Plan will
be registered in the name of the participant or in the name of the participant
and his spouse.
-9-
<PAGE>
13. Administration.
--------------
(a) Administrative Body. The Plan shall be administered by the
-------------------
Board or a committee of members of the Board appointed by the Board. The Board
or its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties. Members of the
Board who are eligible Employees are permitted to participate in the Plan,
provided that
(1) Members of the Board who are eligible to participate in the
Plan may not vote on any matter affecting the administration of the Plan or the
grant of any right to purchase Common Stock pursuant to the Plan; and
(2) If a committee is established to administer the Plan, no
member of the Board who is eligible to Participate in the Plan may be a member
of the Committee.
(b) Rule 16b-3 Limitations.
-----------------------
Notwithstanding the provisions of Subsection (a) of this Section 13, in the
event that Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any successor provision ("Rule 16b-3") provides
specific requirements for the administrators of plans of this type, the Plan
shall be administered only by such a body and in such a manner as shall comply
with the applicable requirements of Rule 16b-3. Unless permitted by Rule 16b-3,
no discretion concerning decisions regarding the Plan shall be afforded to any
committee or persons that is not "disinterested" as that term is used in Rule
16b-3.
14. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a
beneficiary who is to receive any shares
-10-
<PAGE>
and cash, if any, form the participant's account under the Plan in the event of
such participant's death.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to
---------------
a participant's account nor any rights with regard to the purchase of or right
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise deposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat each act as an election to withdrew
funds from an Offering Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by
------------
the Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll deductions.
17. Adjustments Upon Changes in Capitalization, Dissolution,
-------------------------------------------------------
Liquidation, Merger or Asset Sale.
- ---------------------------------
(a) Changes in Capitalization. Subject to any required action by
-------------------------
the shareholders of the Company, the Reserves as well as the price per share of
Common Stock covered by each right to purchase Common Stock under the
-11-
<PAGE>
Plan which has not yet been exercised shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of, shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to a right of purchase under the Plan.
(b) Liquidation, Merger or Asset Sale. In the event of the
---------------------------------
dissolution or liquidation of the Company or a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each right to purchase Common Stock under the
Plan shall be assumed or an equivalent right to purchase stock shall be
substituted by such successor corporation or a parent or subsidiary of such
Successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, to set a new
Exercise Date (the "New Exercise Date"). If the Board sets a New Exercise Date,
the Board shall notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date has been changed to
the New Exercise Date and that his right to purchase Common Stock will be
exercised automatically on the New Exercise Date, unless prior to such date he
has withdrawn from the Plan as provided in Section 10 hereof.
-12-
<PAGE>
18. Amendment or Termination.
-------------------------
The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in Section 17 hereof, no amendment may make any
change in any purchase right theretofore granted which adversely affects the
rights of any participant. To the extent necessary to comply with Rule 16b-3 or
under Section 423 of the Code (or any successor rule or provision or any other
applicable law or regulation), the Company shall obtain shareholder approval of
termination or amendment of the Plan in such a manner and to such a degree as
required.
19. Conditions Upon Issuance of Shares. Shares shall not be
----------------------------------
issued under this Plan unless the issuance and delivery of such shares shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment
and without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of the law. In addition, any person
receiving shares of Company Common Stock pursuant to this Plan must notify the
Company upon the disposition of such shares.
20. Term of Plan. The Plan shall become effective upon the
------------
earlier to occur of its adoption by the Board or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 18 hereof.
-13-
<PAGE>
21. Notices. All notices or other communications by a
-------
participant to the Company under or in connection with the Plan shall be deemed
to have been duly given when received in the form specified by the Company at
the location, or by the person, designated by the Company for the receipt
thereof.
22. Additional Restrictions of Rule 16b-3.
-------------------------------------
The terms and conditions of the rights granted hereunder to, and the purchase of
shares by, persons subject to Section 16 of the Securities Exchange Act of 1934,
as amended, shall comply with the applicable provisions of Rule 16b-3. This Plan
shall be deemed to contain, and such rights shall contain, in the shares issued
upon exercise thereof shall be subject to, such additional conditions and
restrictions as may be required by Rule 16b-3 to qualify for the maximum
exemption from Section 16 of the Exchange Act with respect to Plan transactions.
-14-
<PAGE>
EXHIBIT A
SCHEIN PHARMACEUTICALS
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
- ------ Original Application Enrollment Date:__________
- ------ Change in Payroll Deduction Rate
- ------ Change of Beneficiary(ies)
1. _______________________________________ hereby elects to
participate in the Schein Pharmaceuticals 1998 Employee Stock Purchase Plan (the
"Employee Stock Purchase Plan") and subscribes to purchase shares of the
Company's Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the
amount of ____% of my Compensation on each payday (not to exceed 20%) in
accordance with the Employee Stock Purchase Plan. (Please note that no
fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for
the purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I understand
that all accumulated payroll deductions will be used to automatically purchase
shares of Common Stock, provided, however, that all accumulated payroll
deductions during the Offering Period of an Employee's termination will be
refunded.
4. I have received a copy of the complete "Schein Pharmaceuticals 1998
Employee Stock Purchase Plan." I understand that my participation in the
Employee Stock
-15-
<PAGE>
Purchase Plan is in all respects subject to the terms Of the Plan
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and spouse only):
- --------------
- --------------------------------------------------------------------------------
6. I understand that if I dispose of any shares received by me pursuant
to the Plan within two (2) years after the applicable Enrollment Date (the date
on which the right to purchase shares of Common Stock was granted) or one (1)
year after the Exercise Date, I will be treated for Federal income tax purposes
as having received ordinary income at the time of such disposition in the amount
equal to the excess of the fair market value of the shares at the time such
shares were purchased over the price which I paid for the shares. I hereby agree
to notify the Company in writing within thirty (30) days after the date of any
disposition of my shares and I will make adequate provision for Federal, State
or other tax withholding obligations, if any, which arise upon the disposition
of the Common Stock. The Company may, but will not be obligated to, withhold
from my Compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by me. If I dispose of such shares at any time after the expiration
of the 2-year and 1-year holding periods, I understand that I will be treated
for Federal income tax purposes as having received income only at the time of
such disposition, and that such income will be taxed as ordinary income only to
the extent of any amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the purchase
price which I paid for the shares, or (2) fifteen percent (15% ) of the fair
market value of the shares on the first day of the applicable Enrollment Date.
The
-16-
<PAGE>
remainder of the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
-17-
<PAGE>
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the Employee
Stock Purchase Plan:
NAME: (Please print) ________________________________________
(First) (Middle) (Last)
- -------------------------------------------------------------------------------
Relationship
==============================
(Address)
Employee's Social
Security Number: ____________________________________________
Employee's Address: ____________________________________________
____________________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN
IN EFFECT UNLESS TERMINATED BY ME.
Dated:______________ ________________________________________
Signature of Employee
________________________________________
Spouses's Signature (If beneficiary
other than spouse)
-18-
<PAGE>
EXHIBIT B
---------
SCHEIN PHARMACEUTICAL
1993 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Schein Pharmaceutical 1998
Employee Stock Purchase Plan which began on_______________ ,19___
(the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from participation. The undersigned understands and agrees that his or
her rights to purchase Common Stock will be automatically terminated, provided,
however, that all payroll deductions credited to his or her account will be
automatically exercised on the next Exercise Date. The undersigned understands
further that no further payroll deductions will be made for the purchase of
shares and the undersigned shall be eligible to participate in the Plan only
after waiting one full Offering Period before resuming participation in the Plan
and delivering to the Company a new Subscription Agreement which shall be
effective on the Enrollment Date of the applicable Offering Period.
Name and Address of Participant:
____________________________________________
____________________________________________
____________________________________________
Signature:
____________________________________________
Date:_______________________________________
-19-
<PAGE>
EXHIBIT 10.46
STOCK PURCHASE AGREEMENT dated February 6, 1998 between Cheminor Drugs
Limited, a public limited company registered under the Indian Companies Act
("Cheminor"), and Schein Pharmaceutical, Inc., a Delaware corporation
("Schein").
WHEREAS, Schein, Cheminor and Dr. Reddy's Laboratories Limited, a
public limited company registered under the Indian Companies Act ("Reddy") and
Reddy-Cheminor, Inc., a New Jersey corporation ("Reddy-Cheminor US"), desire to
enter into a broad strategic alliance that would have as its principal goals (i)
the integration of the solid dosage operations of Schein and Cheminor for
product development, synthesis, bulk manufacturing and dosage manufacturing,
marketing, and sales and distribution; and (ii) the manufacture and supply of
bulk drugs by Reddy and Cheminor for Schein; and
WHEREAS, at the closing contemplated by this Agreement Schein,
Cheminor, Reddy and Reddy-Cheminor US are entering into a Strategic Alliance
Agreement in order to give effect to such principal goals (the "Strategic
Alliance Agreement"); and
WHEREAS, in order to promote an identity of interest between Schein
and Cheminor, Cheminor wishes to issue, and Schein wishes to subscribe for,
2,000,000 shares of Cheminor's equity shares of Rs. 10/- each (the "Common
Shares") on the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
<PAGE>
ARTICLE I
SUBSCRIPTION
Section I.1 Subscription for Shares. Subject to the terms and conditions
-----------------------
of this Agreement, at the Closing, as defined herein, Cheminor shall issue and
allot to Schein, and Schein shall subscribe and pay for, the Common Shares, free
and clear of all claims, liens, security interests and other encumbrances
("Liens"), and which are validly issued, fully paid and nonassessable,
representing 12.79% of the issued and subscribed capital of Cheminor at the
Closing. Schein shall subscribe to the Common Shares in reliance on the
representations and warranties of Cheminor contained in this Agreement and upon
subscription Schein shall be duly registered as a member of Cheminor holding
2,000,000 equity shares in the statutory and other records of Cheminor.
Section I.2 Purchase Price, Payment, Use of Proceeds and Retention of
---------------------------------------------------------
Purchase Price. The aggregate issue price for all the Common Shares being sold
- --------------
shall be U.S.$10,000,000 (the "Purchase Price"). At the Closing, Schein shall
pay the Purchase Price by wire transfer of immediately available funds to an
account designated by Cheminor prior to the Closing; provided such account is in
the name of Cheminor and located in India. The U.S.$10,000,000 received by
Cheminor at the Closing shall be used by Cheminor to pay down certain of its
existing debt; provided, however, that nothing in this Section 1.2 shall be
construed as restricting Cheminor's ability to further incur any indebtedness or
re-borrow any amount so paid down at any time after the Closing, and provided
--------
further, however, that Cheminor shall retain the Purchase Price in such account
- ------- -------
and shall not use the proceeds thereof to pay down certain of its existing debt
or for any other purpose whatsoever and shall hold such Purchase Price in escrow
for reimbursement to Schein in the event that Cheminor fails to make any Post-
Closing Deliveries (as defined in Section 6.3) to Schein pursuant to Section 6.3
hereof. Following Schein's determination pursuant to Section 6.3 that all the
Post-Closing Deliveries have been made prior to the Post-Closing Deliveries
Deadline (as defined in Section 6.3), then Cheminor shall have the right to use
the Purchase Price to pay down such debt.
Section I.3 Closing.
-------
(a) The closing (the "Closing") shall take place at the offices of
Proskauer Rose LLP at 1585 Broadway, New York, New York, at 10:00 a.m., local
time, as soon as practicable after the day on which all of the conditions set
forth in Article 5 hereof are satisfied or waived or on such other date and at
such other time and place as Schein and Cheminor shall agree (the "Closing
Date"). At the Closing (except as provided in Section 6.3 hereof), the parties
shall deliver the documents referred to in Article VI hereof.
(b) This Agreement may be terminated at any time prior to the Closing:
(i) by a written agreement between the parties hereto; (ii) by Schein, if any
condition specified in Section 5.1 or 5.3 shall not have been satisfied or
waived in writing by Schein on or before February 10, 1998; or (iii) by
Cheminor, if any condition specified in Section 5.2 or 5.3 shall not have been
satisfied or waived in writing by Cheminor on or before February 10, 1998. This
Agreement may be terminated at any time after the Closing pursuant to Section
6.2 of the Shareholders Agreement
2
<PAGE>
dated the date hereof by and among Schein, Cheminor and certain shareholders of
Cheminor named therein (the "Shareholders Agreement"). This Agreement and the
Shareholders Agreement shall automatically terminate upon the return of the
Purchase Price pursuant to Section 6.3 hereof. Upon any such termination, no
party shall have any liability or obligation arising out of this Agreement other
than for its willful breach, if any, of Section 4.5 hereof (it being understood,
however, that the parties' obligations under the confidentiality agreement
referred to in Section 4.1 hereof shall survive the termination of this
Agreement, in the absence of a written agreement between the parties thereto to
the contrary and furthermore, it being understood that the obligations of
Cheminor under Section 1.2 and Section 8.3 hereof to retain, under certain
circumstances, the Purchase Price and the Additional Shares Purchase Price,
respectively, and under Section 6.3 and Section 8.6 hereof to return the
Purchase Price and the Additional Shares Purchase Price (as defined in Section
8.3 hereof), respectively, to Schein pursuant thereto, shall survive the
termination of this Agreement following the Closing).
(c) The parties acknowledge that it is imperative the Closing occur as
promptly as practicable and, in any event, not later than February 13, 1998.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CHEMINOR
Section 2. Representations and Warranties of Cheminor. Cheminor
------------------------------------------
represents and warrants to Schein as follows:
Section 2.1 Existence and Power of Cheminor and its Subsidiaries.
----------------------------------------------------
(a) Cheminor is a corporation validly existing and in good standing
under the law of the jurisdiction of its incorporation, and has full corporate
power and authority to enter into and perform this Agreement.
(b) Each of the Subsidiaries, as hereinafter defined, is a corporation
validly existing and in good standing under the law of the jurisdiction of its
incorporation. Cheminor and each Subsidiary has the full corporate power and
authority to carry on its business as now conducted and to own, lease and
operate its properties as it now does. Each of Cheminor and its Subsidiaries is
qualified to do business and is in good standing in each jurisdiction in which
the nature of its business or the properties owned or leased by it requires
qualification, except where the failure to be so qualified or in good standing
would not have a material adverse effect upon the business, properties,
financial condition or results of operations of Cheminor and its Subsidiaries
taken as a whole (a "Material Adverse Effect").
Section 2.2 Authorization. The execution, delivery and performance of
-------------
this Agreement and the Shareholders Agreement, as hereinafter defined, by
Cheminor have been duly authorized by all necessary corporate action of
Cheminor, and this Agreement constitutes, and, upon execution and delivery of
the Shareholders Agreement, that agreement will constitute, the valid and
binding
3
<PAGE>
obligations of Cheminor, enforceable against it in accordance with its
terms, except to the extent enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights in general and subject to general principles of
equity (regardless of whether enforceability is considered in a proceeding in
equity or at law).
Section 2.3 Subsidiaries. Except for the entities listed on schedule 2.3
------------
("Subsidiaries"), Cheminor does not own any equity interest in any other entity.
Except as set forth on schedule 2.3, Cheminor owns, directly or through one or
more wholly-owned subsidiaries, all the outstanding shares of capital stock of
each corporation listed on schedule 2.3, free and clear of all Liens.
Section 2.4 Corporate Records. The copies of the Memorandum of
-----------------
Association and Articles of Association of Cheminor that have been delivered to
Schein are complete and correct, and the minute books of Cheminor that have been
exhibited to Schein are complete and correct in all material respects.
Section 2.5 Consents of Third Parties. The execution, delivery and
-------------------------
performance of this Agreement and the Shareholders Agreement by Cheminor will
not: (a) violate or conflict with the Memorandum of Association and Articles of
Association of Cheminor; (b) conflict with, result in the breach, termination or
acceleration of, or constitute a default under, any lease, mortgage, trust,
indenture, deed, note, license or governmental approval, agreement, commitment
or other instrument to which Cheminor or any of the Subsidiaries is a party or
by which Cheminor or any of the Subsidiaries or any of their respective
properties are bound which would have a Material Adverse Effect on Cheminor and
its Subsidiaries; (c) constitute a violation of any law, regulation, order,
writ, judgment, injunction or decree applicable to Cheminor or any of the
Subsidiaries or any of their respective properties which violation would have a
Material Adverse Effect on Cheminor and its Subsidiaries; or (d) result in the
creation of any material Lien (other than the continued existence of the Liens
listed on schedule 2.5) upon the properties or assets of Cheminor or any of the
Subsidiaries.
Section 2.6 Capitalization.
--------------
Cheminor's authorized share capital is comprised of 20,000,000 equity
shares of Rs. 10/- each, of which 13,634,265 equity shares are issued and
outstanding (the "Shares"), and no equity shares are held in Cheminor's
treasury. Upon receipt of the approvals and consents to be obtained and
evidenced by the Post-Closing Deliveries (as hereinafter defined) all the Common
Shares will be duly authorized for issuance, validly issued, fully paid,
nonassessable and freely transferable, except as transferability may be subject
to the terms of the Shareholders Agreement and applicable law. The Common
Shares will have the same rights and liabilities as the Shares. Except as set
forth on Schedule 2.6, there are no outstanding options or rights of any kind to
acquire any shares of any class of securities or any securities convertible into
any shares of any class of securities of Cheminor or any of the Subsidiaries,
nor are there any obligations to issue any such options, rights or securities.
There will be as of the Closing, no restrictions of any kind on the transfer of
the Common Shares except those imposed by applicable law, the Shareholders
Agreement and the Reserve Bank of India as a condition to its consent to the
purchase of the Common Shares by Schein. There are no
4
<PAGE>
contracts or other understandings (whether formal or informal, written or oral,
firm or contingent) that require or may require Cheminor to repurchase any of
its shares of capital stock.
Section 2.7 Financial Statements. The audited unconsolidated balance
--------------------
sheets of Cheminor and the Subsidiaries as of March 31, 1997, March 31, 1996 and
March 31, 1995, the unaudited unconsolidated balance sheets of Cheminor and the
Subsidiaries as of September 30, 1997 (the "Interim Balance Sheet Date"), the
audited unconsolidated statements of income and cash flow of Cheminor and the
Subsidiaries for the years ended March 31, 1997, March 31, 1996 and March 31,
1995, and the unaudited unconsolidated statements of income of Cheminor for each
of the six months ended September 30, 1997 and September 30, 1996 present fairly
in all material respects the unconsolidated financial condition and results of
operations of Cheminor and the Subsidiaries as of those dates and for the
periods then ended in accordance with generally accepted accounting principles
(in India) consistently applied ("GAAP"). Cheminor and the Subsidiaries do not
have any debts, liabilities or obligations, whether accrued, absolute,
contingent or otherwise, required to be disclosed on a balance sheet as of the
date of this Agreement prepared in accordance with GAAP, other than debts,
liabilities and obligations that are (a) less than $500,000 individually, (b)
reserved or otherwise reflected in the financial statements referred to in this
Section 2.7 or (c) incurred by Cheminor in the ordinary course since the Interim
Balance Sheet Date.
Section 2.8 Absence of Certain Changes. Except for the transactions
--------------------------
contemplated by this Agreement, since the Interim Balance Sheet Date Cheminor
and the Subsidiaries have operated their business (the "Business") in the
ordinary course and there has not been any change in the business, financial
condition or results of operations of the Business that has had a Material
Adverse Effect.
Section 2.9 Taxes. Except as set forth on Schedule 2.9, Cheminor and the
-----
Subsidiaries have (a) filed with the appropriate governmental taxing authorities
all tax returns required to be filed by or with respect to Cheminor and the
Subsidiaries, except where the failure to have filed such tax returns would not
have a Material Adverse Effect, and such tax returns are correct and complete in
all material respects, and (b) paid in full or made adequate provision for the
payment of all taxes shown to be due on such tax returns. Except as set forth
on Schedule 2.9, neither Cheminor nor any of the Subsidiaries has received any
notice of deficiency from any governmental taxing authority with respect to any
material liabilities for taxes of Cheminor or any of the Subsidiaries that have
not been fully paid or finally settled. For the purpose of this Section 2.9
"material" shall mean any liability for taxes in excess of $250,000.
Section 2.10 Defaults. Neither Cheminor nor any of the Subsidiaries is
--------
in default in any material respect of any payment obligation under any loan or
credit agreement to which Cheminor or any Subsidiary is a party.
5
<PAGE>
Section 2.11 Litigation. There is no judicial or administrative action,
----------
proceeding or investigation pending or, to the best of the knowledge of Cheminor
and the Subsidiaries, threatened that questions the validity of this Agreement
or the Shareholders Agreement or any action taken or to be taken by Cheminor
pursuant to this Agreement or the Shareholders Agreement. There is no
litigation, proceeding or governmental investigation pending or, to the best of
the knowledge of Cheminor and the Subsidiaries, threatened, or any order,
injunction or decree outstanding, against Cheminor or any of the Subsidiaries
that, if adversely determined, would have a material adverse effect upon
Cheminor's ability to perform its obligations under this Agreement or the
Shareholders Agreement.
Section 2.12 Permits and Licenses. Except as set forth on schedule 2.12,
--------------------
Cheminor and the Subsidiaries have obtained and currently maintain in full force
and effect all material permits, licenses, franchises and other authorizations
necessary for the conduct of the Business as currently conducted except where
the failure to obtain or maintain such permits, licenses, franchises or other
authorizations would not have a Material Adverse Effect on Cheminor and the
Subsidiaries.
Section 2.13 Related Party Transactions.
--------------------------
(a) Except as set forth on schedule 2.13(a), to the best of its
knowledge, except for transactions between Cheminor, on the one hand, and Reddy,
Dr. Reddy's Research Foundation, or any of Cheminor's majority-owned
Subsidiaries, on the other hand, no Principal Shareholder, officer or director
of Cheminor or any of the Subsidiaries has any material interest (other than as
a non-controlling holder of securities of Cheminor), either directly or
indirectly, in any business entity that presently (a) provides any services or
designs, produces and/or sells any products, intermediates or product lines or
engages in any activity that is the same as, similar to or competitive with any
activity or business in which Cheminor or any of the Subsidiaries is now
engaged; (b) is a supplier of, customer of, creditor of or has an existing
contractual relationship with Cheminor or any of the Subsidiaries on terms that
are less favorable to Cheminor than those Cheminor could obtain form an
unrelated third party on an arms'-length basis; or (c) has any direct or
indirect interest in any asset or property used by Cheminor or any of the
Subsidiaries or any property, real or personal, tangible or intangible, that is
necessary or desirable for the conduct of the business of Cheminor or any of the
Subsidiaries.
(b) Schedule 2.13(b)(i) - (ii) sets forth, with respect to the 12
month period ended December 31, 1997, (i) the dollar amount of product
transactions between Cheminor and Reddy and the costs associated therewith, and
(ii) the dollar amount and types of services rendered to or by Reddy. Except as
set forth on Schedule 2.13(b), during such 12 month period, the aggregate fair
market value of any and all transactions between Cheminor or any of its
Subsidiaries, on the one hand, and Dr. Reddy's Research Foundation, on the other
hand, did not exceed $500,000.
Section 2.14 Consents, Authorizations, etc. Except as set forth on
------------------------------
schedule 2.14, no consent, authorization, approval, permit or order of or filing
with any governmental authority or agency, or regulatory authority is required
for Cheminor to execute, deliver and perform this Agreement and the Shareholders
Agreement or, in order for Cheminor to offer, issue and deliver the Common
Shares to Schein in accordance with this Agreement.
6
<PAGE>
Section 2.15 Business. Attached hereto as schedule 2.15 is a true,
--------
correct and complete copy of Cheminor's most recent annual report. Cheminor's
material lines of business are identified in such report.
Section 2.16 Title to and Sufficiency of Assets. Except as provided on
----------------------------------
schedule 2.16, all of the equipment and tangible property used in the business
of Cheminor and the Subsidiaries is free and clear of material Liens which
impair or prevent the use of said equipment and tangible property for its
intended purpose. The said equipment and tangible property of Cheminor and the
Subsidiaries are in good operating condition and repair (subject to normal wear
and tear consistent with the age of the tangible property and equipment) and are
sufficient for all material operations of Cheminor and the Subsidiaries as
currently conducted.
Section 2.17 Insurance. Set forth on schedule 2.17 is a list of all
---------
policies of insurance in effect relating to the operation and conduct of the
Business.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SCHEIN
Section 3. Representations and Warranties of Schein. Schein represents
----------------------------------------
and warrants to Cheminor as follows:
Section 3.1 Existence and Power. Schein is a corporation validly
-------------------
existing and in good standing under the laws of the state of Delaware and has
the full corporate power and authority to enter into and perform this Agreement.
Section 3.2 Authorization. The execution, delivery and performance of
-------------
this Agreement and the Shareholders Agreement by Schein have been duly
authorized by all necessary corporate action of Schein, and this Agreement
constitutes, and, upon execution and delivery of the Shareholders Agreement,
that agreement will constitute, the valid and binding obligations of Schein,
enforceable against it in accordance with their respective terms, except to the
extent enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
in general and subject to general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
Section 3.3 Consents of Third Parties. Except for conflicts, breaches,
-------------------------
terminations, accelerations, defaults and violations specified in clauses (b)
and (c) that could not reasonably be expected to have a material adverse effect
on Schein's ability to perform its obligations under this Agreement or the
Shareholders Agreement, the execution, delivery and performance of this
Agreement and the Shareholders Agreement by Schein will not: (a) violate or
conflict with the certificate of incorporation or by-laws of Schein; (b)
conflict with, or result in the breach, termination or acceleration of, or
constitute a default under, any lease, agreement, commitment or other instrument
to which Schein is a party or by which it or its properties are bound; or (c)
constitute a violation of any law, regulation, order, writ, judgment, injunction
or decree applicable to Schein or any of its properties or require any
governmental consent or approval.
7
<PAGE>
Section 3.4 Litigation. There is no judicial or administrative action,
----------
proceeding or investigation pending or, to the best of the knowledge of Schein,
threatened that questions the validity of this Agreement or the Shareholders
Agreement or any action taken or to be taken by Schein in connection with this
Agreement or the Shareholders Agreement. There is no litigation, proceeding or
governmental investigation pending or, to the best of the knowledge of Schein,
threatened, or any order, injunction or decree outstanding, against Schein that,
if adversely determined, would have a material adverse effect upon Schein's
ability to perform its obligations under this Agreement or the Shareholders
Agreement.
Section 3.5 Investment. Schein will be purchasing the Common Shares for
----------
investment purposes and not with a view to the resale or distribution of the
Common Shares in violation of applicable securities laws.
Section 3.6 Investigation. Schein is knowledgeable about the industry
-------------
in which Cheminor and the Subsidiaries operate and is experienced in the
acquisition and management of businesses.
Section 3.7 Financial Ability. Schein has all the funds necessary to
-----------------
pay the Purchase Price and the related fees and expenses, and has the financial
capacity to perform all its other obligations under this Agreement.
Section 3.8 Absence of Certain Changes. Except for the transactions
--------------------------
contemplated by this Agreement, since September 30, 1997, Schein has operated
its business in the ordinary course and there has not been any change in the
business, financial condition or results of operations of its business that has
had a material adverse effect upon the business, properties, financial condition
or results of operations of Schein.
ARTICLE IV
CERTAIN COVENANTS
Section 4.1 Access to Information. Prior to the Closing, each party
---------------------
hereto may make such additional investigation of the business and properties of
the other party hereto and its subsidiaries as each party may wish, and, upon
reasonable notice, either party shall give the other party and its counsel,
accountants and other representatives reasonable access, during normal business
hours throughout the period prior to the Closing, to the property, books,
commitments, agreements, records, files and personnel of it and its subsidiaries
and each party hereto shall furnish the other party hereto during that period
copies of documents and information concerning it and its subsidiaries as the
other party hereto may reasonably request, subject to applicable law. Each
party hereto shall, and shall cause its counsel, accountants and other agents
and representatives to, hold all such information and documents in accordance
with and subject to the terms of the confidentiality agreement previously
executed by Schein and Cheminor with respect to this transaction.
Section 4.2 Certain Notifications. Prior to the Closing, each party
---------------------
hereto shall, and Cheminor shall cause such of its Subsidiaries to, promptly
notify the other party hereto of, and
8
<PAGE>
furnish the other party hereto any information the other party hereto may
reasonably request with respect to the occurrence of, any event or the existence
of any facts that would result in any of such party's representations and
warranties not being true if those representations and warranties were made any
time prior to or as of the Closing.
Section 4.3 Governmental Filings. As promptly as practicable after the
--------------------
execution of this Agreement, each party shall, in cooperation with the others,
make or cause to be made the required filing or filings in connection with the
transactions contemplated by this Agreement and, as promptly as practicable from
time to time thereafter, each party shall make or cause to be made all such
further filings and submissions, and take or cause to be taken such further
action, as may reasonably be required in connection therewith.
Section 4.4 Notices. Each party shall promptly notify each of the other
-------
parties of, and furnish them any information they may reasonably request with
respect to, the occurrence of any event or the existence of any facts that would
result in any of that party's representations and warranties not being true if
those representations and warranties were made at any time prior to or as of the
Closing.
Section 4.5 Other Pre-Closing Action. Each party shall use reasonable
------------------------
efforts to cause the fulfillment at or prior to the Closing of all the
conditions to its obligations to consummate the sale and purchase of the Common
Shares under this Agreement.
Section 4.6 Expenses. Each of Cheminor and Schein shall bear its own
--------
expenses in connection with this Agreement and all obligations to be performed
by it or them under this Agreement.
Section 4.7 Publicity. Without otherwise limiting any party's rights
---------
under this Agreement or otherwise, before the Closing (or, if earlier, the
termination of this Agreement), Schein and Cheminor shall consult with and
obtain the consent of the other before issuing any press release or making any
similar public disclosure concerning this Agreement or the transactions referred
to in this Agreement or its Exhibits, unless, in the reasonable judgment of the
party issuing the release or making the disclosure, the release or disclosure is
required as a matter of law (in which case it or they shall consult as set forth
above before issuing the release or making the disclosure).
Section 4.8 Transfer Taxes. Cheminor shall pay all sales, stock transfer
--------------
and other similar taxes and fees in respect of the sale of the Common Shares
under this Agreement.
Section 4.9 Other Transactions. From the date of this Agreement until
------------------
the Closing (or, if earlier, its termination), neither Cheminor nor Schein
shall, nor shall they permit their respective officers, directors or other
agents (collectively, the "Agents"), directly or indirectly, to (a) take any
action to solicit, initiate, encourage, accept or agree to any Strategic
Proposal (as defined below), (b) engage in negotiations with any person or
entity that, to the best of its, his or her knowledge, may be considering
making, or has made, a Strategic Proposal or (c) except as contemplated by
Section 4.7, disclose any non-public information relating to Cheminor or Schein
or afford access to the assets, books or records of Cheminor to any person or
entity that, to the best of its knowledge, may
9
<PAGE>
be considering making, or has made, a Strategic Proposal. As used in this
Section 4.9, the term "Strategic Proposal" means any offer or proposal for, or
any indication of interest in, any transaction involving the products,
obligations, or rights which are the subject of the Strategic Alliance
Agreement. Each of Cheminor and Schein shall, and shall cause its Agents to,
terminate all pending negotiations with respect to any Strategic Proposal by any
person or entity, other than in connection with the transactions contemplated by
this Agreement.
Section 4.10 Supplements to Disclosures. For purposes of determining the
--------------------------
satisfaction of the condition set forth in Section 5.1(a), the schedules
delivered by Cheminor shall be deemed to include only the information contained
in those schedules on the date of this Agreement or as those schedules may be
amended or supplemented in writing by Cheminor with Schein's consent not later
than five days prior to the Closing. For purposes of determining the liability
of Cheminor for misrepresentation or breach of warranty under this Agreement,
the schedules delivered by Cheminor shall be deemed to include the information
contained in those schedules on the date of this Agreement and such other
information as may be set forth in any written amendment or supplement delivered
by Cheminor to Schein prior to the Closing, and, if the Closing shall have
occurred, Schein shall be deemed to have consented to any such written amendment
or supplement delivered by Cheminor to Schein prior to the Closing.
Section 4.11 Further Assurances. From time to time after the Closing and
------------------
the Additional Shares Closing (as defined in Section 8.3), in addition to the
obligations of Cheminor pursuant to Section 6.3 and Section 8.6 hereof, each
party shall take such action and execute and deliver such documents as the other
parties may reasonably request to carry out the transactions contemplated by
this Agreement.
ARTICLE V
CONDITIONS TO CLOSING
Section 5.1 Conditions to Obligation of Schein. The obligation of Schein
----------------------------------
to consummate the purchase under this Agreement is subject to the fulfillment,
prior to or at the Closing, of each of the following conditions (any or all of
which may be waived by Schein in writing):
(a) the representations and warranties of Cheminor to Schein shall be
true and correct in all material respects at and as of the time of the Closing
with the same effect as though made again at and as of that time;
(b) the obligations and covenants required by this Agreement to be
performed or complied with by Cheminor prior to or at the Closing shall have
been performed and complied with in all material respects by it;
(c) Cheminor shall have furnished Schein with (i) a certificate (dated
the date of the Closing) substantially in the form set forth in Exhibit
5.1(c)(i) hereto and (ii) a certificate (dated the date of the delivery thereof)
substantially in the form set forth in Exhibit 5.1(c)(ii) hereto;
10
<PAGE>
(d) Schein shall have been furnished with opinions (dated the date of
the Closing) substantially in the forms set forth in Exhibit 5.1(d);
(e) Cheminor shall have delivered share certificates representing
the Common Shares;
(f) Cheminor and the Subsidiaries taken as a whole shall have suffered
no material adverse change in their business, properties, financial condition or
results of operations between the date of this Agreement and the Closing;
(g) all applicable filings and notices with any U.S. or Indian
governmental or other regulatory authority shall have been made and all consents
and approvals listed on schedule 2.14 shall have been obtained and remain in
full force and effect;
(h) Cheminor's authorized capital stock shall be comprised of
20,000,000 Shares, of which 13,634,265 Shares shall be the only issued and
outstanding shares, and no equity shares shall be held in Cheminor's treasury.
Except as set forth on schedule 2.6(a) or as otherwise provided in the
Shareholders Agreement, there shall be no outstanding options or rights of any
kind to acquire any shares of any class of securities or any securities
convertible into any shares of any class of securities of Cheminor or any of the
Subsidiaries, nor shall there be any obligations to issue any such options,
rights or securities;
(i) Cheminor shall have executed and delivered the Shareholders
Agreement and the Strategic Alliance Agreement; and
(j) Schein shall have completed, to its satisfaction, as determined
in its sole discretion, its due diligence investigation of Cheminor and the
Subsidiaries.
Section 5.2 Conditions to Obligations of Cheminor. The obligation of
-------------------------------------
Cheminor to consummate the sale under this Agreement is subject to the
fulfillment, prior to or at the Closing, of each of the following conditions
(any or all of which may be waived in writing by Cheminor):
(a) the representations and warranties of Schein to Cheminor shall be
true and correct in all material respects at and as of the time of the Closing
with the same effect as though made again at and as of that time;
(b) the obligations and covenants required by this Agreement to be
performed or complied with by Schein prior to or at the Closing shall have been
performed and complied with in all material respects by Schein;
(c) Schein shall have furnished Cheminor with a certificate (dated
the date of the Closing) substantially in the form set forth in Exhibit 5.2(c);
(d) Cheminor shall have been furnished with an opinion of counsel for
Schein (dated the date of the Closing) substantially in the form of Exhibit
5.2(d);
11
<PAGE>
(e) Schein shall have executed and delivered the Shareholders
Agreement and the Strategic Alliance Agreement;
(f) Cheminor shall have completed, to its satisfaction, as determined
in its sole discretion, its due diligence investigation of Schein;
(g) Schein shall have suffered no material adverse change in its
business, properties, financial condition or results of operations between the
date of this Agreement and the Closing; and
(h) all applicable filings and notices with any U.S. or Indian
governmental or other regulatory authority shall have been made and all consents
and approvals listed on Schedule 2.14 shall have been obtained and remain in
full force and effect.
Section 5.3 Conditions to Obligations of Each Party. The obligations of
---------------------------------------
each party to consummate the purchase and sale under this Agreement are subject
to the fulfillment, prior to or at the Closing, of the following condition
(which may be waived by all the parties) that there shall not be in effect any
injunction or restraining order issued by a court of competent jurisdiction in
any action or proceeding against the consummation of the sale and purchase of
the Common Shares under this Agreement.
ARTICLE VI
DOCUMENTS TO BE DELIVERED AT THE CLOSING
Section 6.1 Documents to be Delivered by Cheminor. At the Closing
-------------------------------------
(except with respect to paragraphs (b)(ii), (f), (g), (i), (j), (k), (l) and (m)
below as provided in Section 6.3 hereof), Cheminor shall deliver, or cause to be
delivered, to Schein the following:
(a) a duly certified copy of the resolution of the Board of Directors
of Cheminor authorizing the execution, delivery and performance of this
Agreement by Cheminor and authorizing an officer of Cheminor, to execute this
Agreement for and on behalf of Cheminor, and a certificate of the Company
Secretary of Cheminor, dated the date of the Closing, that such resolutions were
duly adopted and are in full force and effect;
(b) (i) the certificate referred to in Section 5.1(c)(i),and (ii)
the certificate referred to in Section 5.1(c)(ii);
(c) the opinion of counsel referred to in Section 5.1(d);
(d) the Shareholders Agreement and the Strategic Alliance
Agreement duly executed by Cheminor;
12
<PAGE>
(e) a duly certified copy of the resolution of the general meeting of
Cheminor pursuant to Section 81(1A) of the Indian Companies Act authorizing
Cheminor to issue and allot 2,000,000 Common Shares to Schein;
(f) duly stamped share certificates representing 2,000,000 Common
Shares;
(g) certificate of the Company Secretary of Cheminor that Schein
is a duly registered member of Cheminor;
(h) certificate of the Company Secretary of Cheminor certifying that
requirements under the Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997 and under the listing
agreements between Cheminor and the stock exchanges have been duly complied
with;
(i) certificate from the statutory auditors of Cheminor that the issue
of Common Shares to Schein has been made in accordance with the requirements of
the Securities and Exchange Board of India Guidelines on Preferential Issues;
(j) a duly certified copy of the approval of the Reserve Bank of India
under the Foreign Exchange Regulation Act for the issue and allotment of Common
Shares to Schein and for the export of the share certificates;
(k) evidence that all documents required to be filed with the
concerned Registrar of Companies have been duly filed in accordance with the
Indian Companies Act;
(l) duly certified copies of the approvals from the stock exchanges on
which Cheminor is listed for listing of the Common Shares issued to Schein;
(m) a duly certified copy of the resolution of the Board of Directors
of Cheminor authorizing Cheminor to allot the 2,000,000 Common Shares to Schein;
and
(n) any other document that Schein may reasonably request.
Section 6.2 Documents to be Delivered by Schein. At the Closing, Schein
-----------------------------------
shall deliver, or cause to be delivered, to Cheminor the following:
(a) evidence of the payment to Cheminor referred to in Section 1.2;
(b) a copy of the resolutions of the board of directors of Schein
authorizing the execution, delivery and performance of this Agreement by Schein,
and a certificate of its secretary or assistant secretary, dated the date of the
Closing, that such resolutions were duly adopted and are in full force and
effect;
(c) the certificate referred to in Section 5.2(c);
13
<PAGE>
(d) the opinion referred to in Section 5.2(d);
(e) the Shareholders Agreement and the Strategic Alliance
Agreement duly executed by Schein; and
(f) any other document that Cheminor may reasonably request.
Section 6.3 Actions to be Taken by Cheminor Post-Closing; Return of
-------------------------------------------------------
Purchase Price. As soon as practicable following the Closing, Cheminor shall
- --------------
use its best efforts to deliver or cause to be delivered to Schein all of the
certificates, approvals, evidence, documents and similar instruments required to
be delivered pursuant to paragraphs (b)(ii), (f), (g), (i), (j), (k), (l) and
(m) of Section 6.1 hereof (the "Post-Closing Deliveries"). In the event that
Cheminor shall fail to deliver to Schein all of the Post-Closing Deliveries on
or prior to the date which is thirty (30) days following the Closing (the APost-
Closing Deliveries Deadline@), which determination shall be made by Schein in
its sole discretion by written notice thereof to Cheminor, then Cheminor shall
be obligated within ten (10) days following the Post-Closing Deliveries Deadline
to return the Purchase Price to Schein by wire transfer of immediately available
funds to an account designated by Schein.
ARTICLE VII
INDEMNIFICATION AND RELATED MATTERS
Section 7.1 Indemnification by Cheminor.
----------------------------
(a) Subject to the limitations set forth in this Section 7, Cheminor
shall indemnify and hold Schein harmless from and against all losses,
liabilities, damages and expenses (including attorney's fees) (collectively,
ALosses@) resulting from a breach by Cheminor of the representations and
warranties set forth in Sections 2.1(a), 2.2, 2.5(a), 2.6, 2.11 and 2.14 of this
Agreement.
(b) Subject to the limitations set forth in this Section 7, Cheminor
shall indemnify and hold Schein harmless from and against all Losses resulting
from a breach by Cheminor of the representations and warranties set forth in
Sections 2.1(b), 2.3, 2.4, 2.5(b, c and d), 2.7, 2.8, 2.9, 2.10, 2.12, 2.13,
2.15, 2.16 and 2.17 of this Agreement.
Section 7.2 Indemnification by Schein.
--------------------------
(a) Subject to the limitations set forth in this Section 7, Schein
shall indemnify and hold Cheminor harmless from and against all losses,
liabilities, damages and expenses (including attorney's fees) resulting from a
breach by Schein of the representations and warranties set forth in Sections
3.1, 3.2, 3.3(a), 3.4 and 3.5 of this Agreement.
14
<PAGE>
(b) Subject to the limitations set forth in this Section 7, Schein
shall indemnify and hold Cheminor harmless from and against all losses,
liabilities, damages and expenses (including attorney's fees) resulting from a
breach by Schein of the representations and warranties set forth in Sections
3.3(b), 3.3(c), 3.6, 3.7 and 3.8 of this Agreement.
Section 7.3 Specific Limitations on Liability.
---------------------------------
(a) Cheminor's liability to Schein for breach of any representation or
warranty identified in Section 7.1(a) shall not exceed the difference between
(i) the consideration paid by Schein at Closing (including the Additional
Closing) for the Shares and the Additional Shares and (ii) the value of the
Shares and the Additional Shares (as reflected on the Bombay Stock Exchange) on
the date the facts giving rise to such breach are a matter of public disclosure
by Cheminor or otherwise publicly known. In the event that Schein shall make a
claim for indemnification under this Article VII for breach of any
representation or warranty identified in Section 7.1(a) which also constitutes
the basis for a claim for indemnification under this Article VII made by Schein
for breach of any representation or warranty identified in Section 7.1(b), then
the limitation of Cheminor's liability under Section 7.1(a) and not Section
7.1(b) shall apply to Schein's claim for indemnification for breach of such
representation or warranty identified in Section 7.1(b).
(b) Cheminor's liability to Schein for breach of any representation
and warranty referred to in Section 7.1(b) (but not any representations or
warranties referred to in Section 7.1(a)) shall not exceed the difference
between (i) the value (as reflected on the Bombay Stock Exchange) of the Shares
and the Additional Shares on the date of the Closing and (ii) the value of such
Shares and the Additional Shares (as reflected on the Bombay Stock Exchange) on
the date the facts giving rise to such breach are a matter of public disclosure
by Cheminor or otherwise publicly known.
(c) Notwithstanding anything to the contrary set forth in Sections
7.3(a)-(b) above, in the event Schein shall make a claim for indemnification
under this Section 7, or otherwise under this Agreement or the Shareholders
Agreement, Cheminor shall have the option to purchase all of the Shares owned by
Schein for an amount equal to the consideration paid by Schein to Cheminor for
such Shares. If Cheminor elects to purchase the Shares and pays Schein the
amount provided herein, Schein shall have no further claim against Cheminor for
any liability, damage or expense of any kind or nature whatsoever arising out of
this Agreement or the Shareholders Agreement.
(d) Notwithstanding anything to the contrary contained in this Section
7, Cheminor shall have no liability to Schein under Section 7.1(a) if the value
of the Shares and the Additional Shares (as reflected on the Bombay Stock
Exchange) on the date the facts giving rise to such breach are a matter of
public disclosure by Cheminor or otherwise publicly known, shall be greater than
the consideration paid by Schein.
(e) Notwithstanding anything to the contrary contained in this Section
7, Cheminor shall have no liability to Schein under Section 7.1(b) if the value
of the Shares and the Additional Shares (as reflected on the Bombay Stock
Exchange) on the date the facts giving rise to
15
<PAGE>
such breach are a matter of public disclosure or otherwise publicly known, shall
be greater than the value of the Shares and any Additional Shares (as reflected
on the Bombay Stock Exchange) as of the Closing and the Additional Closing, as
the case maybe.
(f) Notwithstanding anything to the contrary contained in this Section
7, Schein's liability to Cheminor under both Section 7.2(a) and Section 7.2(b)
shall be limited to $1,000,000 in the aggregate; provided, however, that such
limitation shall not apply to the failure of Schein to purchase the Additional
Shares pursuant to the terms of Article VIII.
(g) Except as described on Schedule 7.3(g) hereto, if any senior
executive officer of Schein shall have actual personal knowledge at the time of
the Closing that Cheminor is in breach of any of Cheminor's representations or
warranties in Article II of this Agreement, then Cheminor shall not have any
liability to Schein under this Section 7 with respect to such breach. If any
senior executive officer of Cheminor shall have actual personal knowledge at the
time of the Closing that Schein is in breach of any of Schein's representations
or warranties in Article III of this Agreement, then Schein shall not have any
liability to Cheminor under this Section 7 with respect to such breach.
Section 7.4 General Limitations of Liability and Related Matters.
----------------------------------------------------
Except as specifically set forth in this Agreement, no party to this Agreement
has made, or shall have liability for, any representation, warranty or
agreement, express or implied, in connection with the purchase and sale of the
Common Shares contemplated by this Agreement, including any representation or
warranty, express or implied, as to the accuracy or completeness of any
information regarding Cheminor or the Business.
Section 7.5 Time and Manner of Certain Claims. The representations and
---------------------------------
warranties referred to in Section 7.1(a) and Section 7.2(a) of this Agreement
shall survive the Closing indefinitely. The representations and warranties
referred to in Section 7.1(b) and Section 7.2(b) of this Agreement shall survive
the Closing for a period of one (1) year. A party hereto shall have no
liability to the other under this Agreement for breach of warranty or
misrepresentation (other than for a breach of warranty or misrepresentation
under Section 7.1(a) or section 7.2(a)) unless a claim therefor is asserted by
another party in a written notice delivered prior to the first (1st) anniversary
of the Closing. Any notice of any such claim shall set forth in the
representations and warranties with respect to which the claim is made, the
material facts giving rise to and the alleged basis for the claim and an
estimate of its damages. Neither Schein nor Cheminor shall institute a legal
proceeding (other than by assertion of a counterclaim) in respect of any such
claim unless (x) there shall have elapsed at least 90 days and not more than 365
days since it shall have given such notice, and (y) the party from whom
indemnification is sought has not, during such 90-day period, taken such action,
if any, as puts the party seeking indemnification in substantially the same
position it would have been in had the representation and warranty to which such
claim relates been true and correct.
Section 7.6 Defense of Claims by Third Parties. If any third party
----------------------------------
claim is made against a party that, if sustained, would give rise to a liability
of another party under this Agreement, the party against whom the claim is made
shall promptly cause notice of the claim to be delivered to the other party and
shall afford the other party and its counsel, at the other party's sole expense,
the
16
<PAGE>
opportunity to defend or settle the claim. The failure to provide the notice
referred to above shall not relieve the indemnifying party of liability under
this Agreement, except to the extent the indemnifying party has actually been
prejudiced by such failure. If any claim is compromised or settled without the
consent of the indemnifying party, no liability shall be imposed upon the
indemnifying party by reason of the claim.
ARTICLE VIII
SALE AND PURCHASE OF ADDITIONAL SHARES
Section 8.1 Sale and Purchase. Schein has the right to require
-----------------
Cheminor to issue to it and Cheminor has the right to require Schein to
subscribe and pay for up to an additional 1,000,000 Common Shares (the
"Additional Shares") at a purchase price of U.S.$5 per share (the "Put and
Call"). Notwithstanding the foregoing, Cheminor can terminate the Put and Call
before August 31, 1998 upon thirty days written notice to Schein (a "Cheminor
Termination"). Notwithstanding a Cheminor Termination, Schein shall have the
right to require Cheminor to sell the Additional Shares during the thirty-day
period after Schein receives notice of the Cheminor Termination.
Section 8.2 Manner of Exercising the Sale and Purchase. If Schein or
------------------------------------------
Cheminor wishes to exercise its respective rights under this Article, it must
provide notice (the "Put and Call Notice") to the other party hereto in the
manner provided for in Section 9.5 of this Agreement prior to August 31, 1998
or, if earlier, the end of the 30-day period referred to in the last sentence of
Section 8.1 hereof in the case of Schein's rights pursuant thereto.
Section 8.3 Closing of the Purchase of the Additional Shares. The
------------------------------------------------
closing of the purchase of the Additional Shares (the "Additional Shares
Closing") shall occur on the date specified in the Put and Call Notice (which
specified date shall not be more than 30 days after the date the Put and Call
Notice is deemed received pursuant to Section 9.5 hereof) or, if such conditions
are not satisfied by such date, as of the first business day after the
conditions to the Additional Shares Closing, as provided in Sections 8.4 or 8.5,
as applicable, have been satisfied. At the Additional Shares Closing, Schein
shall pay Cheminor an amount equal to the product of the number of Additional
Shares that Schein is purchasing multiplied by U.S. $5.00 (the "Additional
Shares Purchase Price") by wire transfer of immediately available funds to an
account designated by Cheminor prior to the Additional Shares Closing; provided
such account is in the name of Cheminor and located in India. Cheminor shall
retain the Additional Shares Purchase Price in such account and shall not use
the proceeds thereof for any purpose whatsoever and shall hold the Additional
Shares Purchase Price in escrow for reimbursement to Schein in the event that
Cheminor shall fail to make any Additional Shares Post-Closing Deliveries to
Schein pursuant to Section 8.6 hereof. Following Schein's determination
pursuant to Section 8.6 hereof that all Additional Shares Post-Closing
Deliveries have been made prior to the Additional Shares Post-Closing Deliveries
Deadline (as defined in Section 8.6), then Cheminor shall have the right to use
the Additional Shares Purchase Price for any lawful corporate purpose.
17
<PAGE>
Section 8.4 Conditions to Schein's Obligation to Purchase the
-------------------------------------------------
Additional Shares. Upon receipt of a Put and Call Notice from Cheminor, the
- -----------------
obligation of Schein to purchase the Additional Shares at the Additional Shares
Closing is subject to the fulfilment, prior to or at the Additional Shares
Closing (except with respect to the paragraphs (b)(ii), (f), (g), (i), (j), (k),
(l) and (m)of Section 6.1 hereof required to be delivered following the
Additional Share Closing as provided in Section 8.6 hereof). of each of the
following conditions (any or all of which (other than paragraph (b)) may be
waived by Schein):
(a) the representations and warranties of Cheminor to Schein shall be
true and correct in all material respects at and as of the time of the
Additional Shares Closing with the same effect as though made again at and as of
that time and Cheminor shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement, the Shareholders Agreement and the Strategic Alliance Agreement to be
performed, satisfied or complied with by Cheminor at or prior to the Additional
Shares Closing; provided, however, that unless notice of a default under this
Agreement, the Shareholders Agreement or the Strategic Alliance Agreement has
been delivered by Schein to Cheminor prior to the delivery by Cheminor of a Put
and Call Notice, such notice of default and the underlying default related
thereto shall not be a basis for Schein to avoid its obligations under this
Article VIII. Schein shall have received a certificate, executed by the chief
executive officer of Cheminor, dated as of the date of the Additional Shares
Closing, to the foregoing effect and as to such other material matters as may be
reasonably requested by Schein.
(b) Any necessary governmental and regulatory approvals for the
issuance of the Additional Shares shall have been obtained.
(c) Schein shall have been furnished with an opinion of counsel for
Cheminor (dated the date of the Additional Share Closing) substantially in the
form of Exhibit 5.1(d).
(d) Schein shall have been furnished with all of the items set forth
in Section 6.1 hereto except paragraphs (b)(ii), (d), (f), (g), (i), (j), (k),
(l) and (m) thereof and except that all references to 2,000,000 Common Shares
shall refer to the number of Common Shares being purchased pursuant to the Put
and Call.
(e) Prior to August 31, 1998, Cheminor shall have submitted to the
Food and Drug Administration (the "FDA") and within 60 days after the last such
submission the FDA shall have accepted for filing at least ***** abbreviated new
drug applications ("ANDAs") for ***** of the drugs listed on Schedule 8.1
attached hereto.
Section 8.5 Conditions to Cheminor's Obligation to Sell the Additional
----------------------------------------------------------
Shares. Upon receipt of an Additional Share Notice from Schein, the obligation
- ------
of Cheminor to sell the Additional Shares at the Additional Shares Closing is
subject to the fulfilment, prior to or at the Additional Shares Closing of each
of the following conditions (any or all (other than paragraph (b)) of which may
be waived by Cheminor):
* redacted pursuant to confidential treatment request.
18
<PAGE>
(a) the representations and warranties of Schein to Cheminor shall be
true and correct in all material respects at and as of the time of the
Additional Shares Closing with the same effect as though made again at and as of
that time and Schein shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement and the Shareholders Agreement and the Strategic Alliance Agreement to
be performed, satisfied or complied with by Schein at or prior to the Additional
Shares Closing; provided, however, that unless notice of a default under this
Agreement, the Shareholders Agreement or the Strategic Alliance Agreement has
been delivered by Cheminor to Schein prior to the delivery by Schein of a Put
and Call Notice, such notice of default and the underlying default related
thereto shall not be a basis for Cheminor to avoid its obligations under this
Article VIII. Cheminor shall have received a certificate, executed by the chief
executive officer of Schein, dated as of the date of the Additional Shares
Closing, to the foregoing effect and as to such other material matters as may be
reasonably requested by Cheminor.
(b) Any necessary governmental and regulatory approvals for the
issuance of the Additional Shares shall have been obtained.
(c) Cheminor shall have been furnished with an opinion of counsel for
Schein (dated the date of the Additional Share Closing) substantially in the
form of Exhibit 5.2(d).
(d) Cheminor shall have been furnished with evidence of the payment to
Cheminor of the Additional Shares Purchase Price, and all of the items set forth
in Section 6.2 hereof except paragraph (e) and paragraph (a) thereof.
Section 8.6 Actions to be Taken by Cheminor Post-Additional Shares
------------------------------------------------------
Closing; Return of Additional Shares Purchase Price. As soon as practicable
- ---------------------------------------------------
following the Additional Shares Closing, Cheminor shall use its best efforts to
deliver or cause to be delivered to Schein all of the certificates, approvals,
evidence, documents and similar instruments set forth in paragraphs (b)(ii),
(f), (g), (i), (j), (k), (l) and (m) of Section 6.1 hereof and required to be
delivered to Schein by operation of paragraph (d) of Section 8.4 hereof (the
"Additional Shares Post-Closing Deliveries"). In the event that Cheminor shall
fail to deliver to Schein all of the Additional Shares Post-Closing Deliveries
on or prior to the date which is thirty (30) days following the Additional
Shares Closing (the "Additional Shares Post-Closing Deliveries Deadline"), which
determination shall be made by Schein in its sole discretion by written notice
thereof to Cheminor, then Cheminor shall be obligated within ten (10) days
following the Additional Shares Post-Closing Deadline to return the Additional
Shares Purchase Price to Schein by wire transfer of immediately available funds
to an account designated by Schein.
19
<PAGE>
ARTICLE IX
MISCELLANEOUS
Section 9.1 Finders. Each party represents and warrants to the others
-------
that it has not employed or utilized the services of any broker or finder in
connection with this Agreement or the transactions contemplated by this
Agreement.
Section 9.2 Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the laws of India.
Section 9.3 Schedules; Headings. Any matter disclosed on any schedule to
-------------------
this Agreement that provides fair and reasonable notice of that matter shall be
deemed to have been disclosed on all other schedules to this Agreement, to the
extent it should have been disclosed on such other schedules. The Section
headings of this Agreement and titles given to schedules to this Agreement are
for reference purposes only and are to be given no effect in the construction or
interpretation of this Agreement.
Section 9.4 Definitions. As used in this Agreement, (a) the term "to the
-----------
best of its knowledge" or any similar term means to the best of the actual
knowledge of the person or entity (which, in the case of an entity, means the
actual knowledge of any of its senior executive officers), (b) the term
"business day" means any day other than a Saturday, Sunday or legal holiday in
New York, New York and (c) the term "Affiliate" of any party, shall mean any
person or entity in control of, controlled by, or under common control with,
such party..
Section 9.5 Notices. All notices and other communications under this
-------
Agreement shall be in writing and may be given by any of the following methods:
(a) personal delivery; (b) facsimile transmission; (c) registered or certified
mail, postage prepaid, return receipt requested; or (d) overnight delivery
service. Notices shall be sent to the appropriate party at its address or
facsimile number given below (or at such other address or facsimile number for
such party as shall be specified by notice given under this Section 9.5):
If to Cheminor:
Cheminor Drugs Limited
7-1-27 Ameerpet
Hyderabad - 500 016
India
Attention: Managing Director
Telefax: 011 91 40 294 804
with copy to:
20
<PAGE>
Reddy-Cheminor, Inc.
66 South Maple Avenue
Ridgewood, New Jersey 07450
U.S.A.
Attention: President
Telefax: (201) 444-1456
If to Schein, to:
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, NJ 07932
Attention: General Counsel
Telefax: 973-593-5820
All such notices and communications shall be deemed received upon (a) actual
receipt by the addressee, (b) actual delivery to the appropriate address or (c)
in the case of a facsimile transmission, upon transmission by the sender and
issuance by the transmitting machine of a confirmation slip confirming that the
number of pages constituting the notice have been transmitted without error. In
the case of notices sent by facsimile transmission, the sender shall
contemporaneously mail a copy of the notice to the addressee at the address
provided for above. However, such mailing shall in no way alter the time at
which the facsimile notice is deemed received.
Section 9.6 Separability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
Section 9.7 Waiver. Any party may waive compliance by any other party
------
with any provision of this Agreement. No waiver of any provision shall be
construed as a waiver of any other provision. Any waiver must be in writing and
signed by the waiving party.
Section 9.8 Assignments. Neither Schein nor Cheminor may assign its
-----------
rights under this Agreement at any time after the Strategic Alliance Agreement
is terminated. Prior thereto, (i) Schein may assign its rights under this
Agreement only to an Affiliate of Schein, to ***** *********** ** *** ** ***
**********, or to any successor to substantially all of the business of Schein
(whether by merger, consolidation, purchase of assets or the like) (each, a
ASchein Permitted Assignee@) and (ii) Cheminor may assign its rights under this
Agreement only to an Affiliate of Cheminor or to any successor to substantially
all of the business of Cheminor (whether by merger, consolidation, purchase of
assets or the like) (each a ACheminor Permitted Assignee@); provided that each
such assigning party shall also assign its rights under the Strategic Alliance
Agreement and the Shareholders Agreement to such assignee and each such assignee
shall agree in writing to be bound by this Agreement, the Strategic Alliance
Agreement and the Shareholders Agreement, and provided further that each such
successor is not, at the time of such assignment, a Competitor of Cheminor in
the case of an assignment by Schein or a Competitor of Schein in the case of an
assignment by
* redacted pursuant to confidential treatment request.
21
<PAGE>
Cheminor. No assignment by a party of its rights under this Agreement shall
relieve it of any of its obligations to the other parties hereto.
Notwithstanding anything to the contrary contained herein, Schein and Cheminor
may assign their respective rights under this Agreement and the Shareholders
Agreement to any of their respective Affiliates without also assigning their
respective rights under the Strategic Alliance Agreement; provided, however,
-------- -------
that any further assignment by such an Affiliate other than to an Affiliate of
Schein or Cheminor shall also require the assignment of Schein's or Cheminor's
rights, as the case may be, under the Strategic Alliance Agreement. The term
"Competitor" means any person or entity whose annual revenues from the sale of
generic dosage form and/or bulk pharmaceuticals constitute, together with those
of his/her or its Affiliates, in the aggregate at least fifty percent (50%) of
such person's or entity's total annual revenues. Any assignment effected in
violation of this Section 9.8 shall be null, void and of no effect.
Section 9.9 Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
Section 9.10 Entire Agreement. This Agreement (with its schedules and
----------------
Exhibits) contains, and is intended as, a complete statement of all the terms of
the arrangements among the parties with respect to the subject matter hereof,
supersedes any previous agreements and understandings among the parties with
respect to such subject matter, cannot be changed or terminated orally and any
amendment or modification must be in writing and signed by all the parties to
this Agreement.
IN WITNESS WHEREOF, the Agreement has been executed as of the date first
above written.
CHEMINOR DRUGS LIMITED
By:___________________________
Authorized Officer
SCHEIN PHARMACEUTICAL, INC.
By:___________________________
Authorized Officer
22
<PAGE>
Schedule 7.3(g) to
Stock Purchase Agreement
------------------------
*** ******** ** ******* ****** ** *** ********** *** ********* ** ********
****** ********* ******** **** ******** *** **** **** ******** ** ****** ***
******** ** ******* ** *** ******* *** *** ********** ******** *** ***********
** *** ********* ***** *** ******* ******** ** *** ********* ***** ******* ***
** *** *********.
* redacted pursuant to confidential treatment request.
23
<PAGE>
Schedule 2.3
------------
******** *** ** ****** ******** ** **** ***** ********* ***************
**** ****** ************** **** ******** *** ******** *********** **** ********
********** ********* ******** ** ***** ***** ******** ** ** ******** ********
**** *** ** *************** **** **** ** ***** ******** ************* *** **
******** *********** **** ******** ** ******* ******* *** ************* *** **
************** **** ****** ** ***** ********
* redacted pursuant to confidential treatment request.
<PAGE>
Schedule 2.5
------------
******** *****
--------------
** ******* ***** *** ********* ************ *** ************* **** **
***** **** * ************* ** *** ********* ********* ********** ******* **** **
****** **** ***** ** *********
** ******* ***** **** * ******* ****** ** ******* ***** ****** **
****** *** ******* ******* ***** ** *********
** ******* ** *** ******** ******* ***** ******* ********** ****
*********** ********** **** * ******** ****** ** ******* ******* *** *********
********** ** *********
* redacted pursuant to confidential treatment.
<PAGE>
Schedule 2.6
------------
***** ******** **** ****** ** ***** ******** ***** ******* ** **** ****
** *** *******
* redacted pursuant to confidential treatment request.
<PAGE>
Schedule 2.9
------------
*** ****** *******
* redacted pursuant to confidential treatment request.
<PAGE>
Schedule 2.12
-------------
*****
* redacted pursuant to confidential treatment request.
<PAGE>
Supplemental Schedule 2.13 (a)
------------------------------
******** ********* **** ********* ************ ****** ******** ******
********* ** ******** **** ** ******** ** *** ******* ************ *** ***
******* ******** ***********
* redacted pursuant to confidential treatment request.
<PAGE>
Schedule 2.13(b)(i)-(ii)
------------------------
************ **** *** ******* ************ *******
****** *** ****** **** ****** ** ********
**************************************************
***
** ***** ** ***
** ******** ***** ********
** *** ********* *******
********
********
** ********* ** *** ********* **** *** *******
** ************* ********* ************ ***********
********* **** ***
******* ** ***********
**********************
** ****** *********** *******
** ************* *****
** ********** *****
** ******* *****
** ******** ********* *****
** ************* ******** *****
** ********* * ********* *******
** ***** * *********** *****
** ******* ******** ****
** ***** * ************ ******** ****
** ******** * ********** ******** *****
** ***** ******* *****
*******
*******
* redacted pursuant to confidential treatment request.
<PAGE>
Schedule 2.13 (b)
-----------------
***** **** *** **** *** ************ ******* ******** *** *** ** ***
************ ** *** ***** *** *** ******* ******** ********** ** *** ***** *****
***** ** *** ********* ****** * **** ****** ***** ** ********* ****** *** ***
******** ** ****** ********** ****** ********* ******
************** ** ** ******** ** *** **** ****** ************ ** ***
******* ******** ********** *** *** ******* ** ******** *** *** ********* ***
****** ******* ** *********** ********** *** **** ****** *** ********** **
************** **** ** *** ******* ******** ***********
* redacted pursuant to confidential treatment request.
<PAGE>
Schedule 2.14
-------------
********** ******** ********* *** *******
-----------------------------------------
** ******** ******** *********** ******** ** ***** ****** **** ***
******* **** ** ****** ** ****** ***** ************* ***** ******** **** **
****** **** ************ ** ******* ** *** ******* ****** ********** ***********
******** **** *** ***** **** ** ******
** ************ *** ******* ** *** ****** ****** **** *** **********
******* ****** *** ******** ***** ********* ***** ** ***** ************ ** ****
** *** ************ ***********
** ****** **** *** ********* ** ********* ** ********** **** *** ******
********* *** ***** **** ***** ***** ******* ** **** ** *** ************
***********
* redacted pursuant to confidential treatment request.
<PAGE>
Schedule 2.15
-------------
********** ****** ****** *** *** ****** **** ****** ***** *** **** **
*********
* redacted pursuant to confidential treatment request.
<PAGE>
Schedule 2.16
-------------
*****
* redacted pursuant to confidential treatment request.
<PAGE>
Schedule 2.17
-------------
****** *** ******** **** *** ********** ******** ******** *** ***
******** ** ********* ** ****** ******** ** *** ********* *** ******* ** ***
*********
* redacted pursuant to confidential treatement request.
<PAGE>
Schedule 8.1
------------
*** ******* **** ****** **** ******* *** **** ** ******* **** **** ***
**** ** ****** *** ***** *** ***** ***** **** ** *** ***** ** *** **********
*********** ************** ********** ************** ********** ***
************* *** ******* *********** **** ******** **** ******* **** **********
*********** ** *** ***** **** *********** *** ******** ** *** *** ** ** ******
****** *** ***** *** **** *********** ******* **** ******* **** *** ***
********** ********** ** ***** *********** ** *** **** *** ******* ***********
**** *** **** ****** ****** **** *** ** ******** ** ****** *** *****
* redacted pursuant to confidential treatment request.
<PAGE>
OFFICER'S CERTIFICATE
OF
CHEMINOR DRUGS LIMITED
The undersigned,__________, an authorized officer of Cheminor Drugs Limited, a
public limited company registered under the Indian Companies Act (the
"Corporation") hereby certifies as follows:
1. Attached hereto as Exhibit A are true, correct and complete copies of
the Memorandum of Association and Articles of Association of the
Corporation.
2. Attached hereto as Exhibit B is a true, correct and complete copy of the
resolutions adopted by the board of directors of the Corporation
on___________, and such resolutions have not been amended, modified or
rescinded and remain in full force and effect on the date hereof; such
resolutions constitute all of the resolutions of the Corporation's board
of directors concerning (i) that certain Stock Purchase Agreement, dated
February __, 1998 between the Corporation and Schein Pharmaceutical,
Inc., a Delaware corporation (the "Stock Purchase Agreement"), (ii) the
Strategic Alliance Agreement (as defined in the Stock Purchase
Agreement) and (iii) the Shareholders Agreement ((as defined in the
Stock Purchase Agreement), and together with the Stock Purchase
Agreement and the Strategic Alliance Agreement, the "Agreements"), and
the transactions contemplated be each of the Agreements; the adoption of
such resolutions constitutes all of the corporate action of the
Corporation necessary to authorize the Agreements and the transactions
contemplated by each of the Agreements.
3. The representations and warranties of the Corporation contained in the
Agreements are true and correct as of the date hereof in all material
respects.
4. The Corporation has duly complied in all material respects with all
obligations, covenants and agreements contained in the Agreements
required to be performed and complied with by it.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this certificate as of
__________, 1998.
By:____________________________
Name:
Title:
<PAGE>
EXHIBIT 5.1(c)(ii)
------------------
OFFICER'S CERTIFICATE
OF
CHEMINOR DRUGS LIMITED
The undersigned,__________, an authorized officer of Cheminor Drugs
Limited, a public limited company registered under the Indian Companies Act (the
"Corporation") hereby certifies as follows:
The Corporation's equity shares being purchased by Schein pursuant to
that certain Stock Purchase Agreement, dated February _____, 1998 between the
Corporation and Schein Pharmaceutical, Inc., a Delaware corporation (the "Stock
Purchase Agreement") have been duly issued and all legal requirements to such
issuance have been satisfied.
IN WITNESS WHEREOF, the undersigned has executed this certificate as of
February _____,1998.
By: ____________________________
Name:
Title:
<PAGE>
EXHIBIT 5.2(c)
--------------
OFFICER'S CERTIFICATE
OF
SCHEIN PHARMACEUTICAL, INC.
The undersigned,__________, an authorized officer of Schein Pharmaceutical,
Inc., a Delaware corporation (the "Corporation") hereby certifies as follows:
1. Attached hereto as Exhibit A are true, correct and complete copies of
the Certificate of Incorporation and By-laws of the Corporation.
2. Attached hereto as Exhibit B is a true, correct and complete copy of the
resolutions adopted by the board of directors of the Corporation
on_______________, and such resolutions have not been amended, modified
or rescinded and remain in full force and effect on the date hereof,
such resolutions constitute all of the resolutions of the Corporation's
board of directors concerning (i) that certain Stock Purchase Agreement,
dated January __, 1998 between the Corporation and Cheminor Drugs
Limited, a public limited company registered under the Indian Companies
Act (the "Stock Purchase Agreement"), (ii) the Strategic Alliance
Agreement (as defined in the Stock Purchase Agreement) and (iii) the
Shareholders Agreement ((as defined in the Stock Purchase Agreement),
and together with the Stock Purchase Agreement and the Strategic
Alliance Agreement, the "Agreements"), and the transactions contemplated
be each of the Agreements; the adoption of such resolutions constitutes
all of the corporate action of the Corporation necessary to authorize
the Agreements and the transactions contemplated by each of the
Agreements.
3. Attached hereto as Exhibit C is a true, correct and complete copy of a
certificate of good standing for the Corporation.
4. The representations and warranties of the Corporation contained in the
Agreements are true and correct as of the date hereof in all material
respects.
5. The Corporation has duly complied in all material respects with all
obligations, covenants and agreements contained in the Agreements
required to be performed and complied with by it.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this certificate as of
__________, 1998.
By:____________________________
Name:
Title:
<PAGE>
EXHIBIT 5.2(d)
--------------
FORM OF LEGAL OPINION OF PROSKAUER
----------------------------------
ROSE LLP PURSUANT TO SECTION 5.2(d)
-----------------------------------
OF THE STOCK PURCHASE AGREEMENT
-------------------------------
February __, 1998
Cheminor Drugs Limited
7-1-27, Ameerpet
Hyderabad, 500 016
India
Re: Schein Pharmaceutical, Inc.
---------------------------
Gentlemen:
We have acted as counsel to Schein Pharmaceutical, Inc., a Delaware
corporation ("SPI"), in connection with the transactions contemplated by the
Stock Purchase Agreement (the "Stock Purchase Agreement"), dated as of February
__, 1998, by and between SPI and Cheminor Drugs Limited, an Indian corporation
("Cheminor"), the Shareholders Agreement among SPI, Cheminor, and certain
stockholders of Cheminor (the "Shareholders Agreement"), and the Strategic
Alliance Agreement among SPI, Cheminor, Dr. Reddy's Laboratories Limited, an
Indian corporation, and Reddy-Cheminor, Inc., a New Jersey corporation (the
Stock Purchase Agreement, the Shareholders Agreement and the Strategic Alliance
Agreement are collectively referred to herein as the "Agreements"). This opinion
is being delivered to you pursuant to Section 5.2(d) of the Stock Purchase
Agreement. Capitalized terms used and not otherwise defined herein shall have
the meanings ascribed to them in the Stock Purchase Agreement.
We have examined the Agreements and such certificates of public
officials, such certificates of officers of SPI (including the attached
Certificate of Fact of the Vice President and General Counsel of SPI (the
"Certificate of Fact")), the originals (or copies thereof) of such corporate
documents and records of SPI, and such other documents and instruments as we
have deemed necessary or appropriate for purposes of this opinion. In this
connection, we have assumed the legal capacity of natural persons, the
genuineness of signatures on, and the authenticity of, all documents so
examined, the conformity to originals of all documents submitted to us as
copies, and that all corporate records or other information made available to us
by SPI, and on which we have relied, are complete in all respects. As to the
accuracy of matters
<PAGE>
Cheminor Drugs Limited
February __, 1998
Page 2
of fact, we have relied solely upon the above-mentioned certificates and upon
the representations and warranties contained in the Agreements and other
documents delivered pursuant thereto and have assumed that certificates of
public officials dated prior to the date hereof remain accurate as of the date
hereof, and such factual matters were not independently investigated,
established or verified by us.
Based on and subject to the foregoing and subject to the qualifications
below, we are of the opinion that:
(i) SPI is a corporation validly existing and in good standing under the
laws of the State of Delaware.
(ii) SPI has all necessary corporate power and authority to execute and
deliver the Agreements and to perform its obligations thereunder. The
execution, delivery and performance of the Agreements have been authorized
by all necessary corporate action on the part of SPI.
(iii) The execution and delivery by SPI of, and the performance by SPI
of its obligations under, the Agreements do not conflict with or violate (a)
SPI's certificate of incorporation or by-laws, (b) any material provision of
the Delaware General Corporation Law ("DGCL") or any material United
States federal law or regulation applicable to SPI, or (c) to our knowledge,
any existing obligation of SPI under any order, writ, judgment or decree of
any court or governmental authority applicable to SPI.
(iv) Except as contemplated by the Agreements, no approval,
authorization or consent of, or filing with, any United States federal
governmental authority or any state of Delaware governmental authority
pursuant to the DGCL, is required of SPI in connection with the execution
and delivery by SPI of, and the performance at the Closing of SPI's
obligations under, the Agreements, except that we express no opinion about
any approvals, authorizations, consents or filings that might be required of
SPI solely as a result of the involvement, legal or regulatory status of,
the nature of the business conducted by, or facts pertaining to, Cheminor,
Dr. Reddy's Laboratories Limited, and Reddy-Cheminor, Inc.
The foregoing opinions are subject to the following qualification:
No opinion is expressed with respect to any laws, rules, regulations,
filings, approvals, authorizations, consents, orders, writs, decrees or
judgments or other matters
<PAGE>
Cheminor Drugs Limited
February __, 1998
Page 3
administered or promulgated by, or subject to the jurisdiction of, the United
States Food and Drug Administration or similar federal, state or foreign
governmental authorities.
We have further assumed with your permission, without any inquiry,
investigation or verification, the following matters:
(i) That the factual matters (including representations and
warranties) contained in the Agreements and the Certificate of Fact are true
and correct as set forth therein; and
(ii) That any certificate, representation or document upon which
we have relied and which was given or dated earlier than the date of this
letter (including the Certificate of Fact) continues to remain accurate,
insofar as relevant to the opinions contained herein, from such earlier date
through and including the date hereof.
Our opinions hereunder are based solely upon the laws, rulings,
administrative interpretations and regulations in effect on the date hereof and
are subject to modification to the extent that such laws, rulings,
interpretations and regulations are changed in the future. By delivery of this
letter, we have assumed no obligation to update our opinions for changes in such
laws, rulings, interpretations and regulations or for events occurring
subsequent to the date hereof.
This opinion is limited to the matters stated herein and no opinion is
implied or may be inferred beyond the matters expressly stated herein.
This opinion is limited to the DGCL and the federal laws of the United
States of America, and we express no opinion with respect to any other laws.
Whenever any opinion herein with respect to the existence or absence of
facts is qualified by the phrase "to our knowledge," such phrase indicates only
that, during the course of our representation of SPI, no information has come to
our attention that would give us actual knowledge of the existence or absence of
any such facts. We have not undertaken any independent investigation to
determine the existence or absence of any such facts, and no inference as to our
knowledge of the existence of such facts should be drawn from the fact of our
representation of SPI.
<PAGE>
Cheminor Drugs Limited
February __, 1998
Page 4
This opinion is solely for the information of the addressees hereof and
is not to be quoted in whole or in part or otherwise referred to (except in a
list of closing documents), nor is it to be filed with any governmental agency
or other person without our prior written consent. Other than the addressees
hereof, no one is entitled to rely on this opinion without our prior written
consent.
Very truly yours,
<PAGE>
DRAFT
--------
05021998
FORM OF LEGAL OPINION OF RAJINDER NARAIN & CO.
----------------------------------------------
PURSUANT TO SECTION 5.2(d)
--------------------------
OF THE STOCK PURCHASE AGREEMENT
-------------------------------
February __, 1998
To: Cheminor Drugs Limited
7-1-27, Ameerpet
Hyderabad - 500 016
India
Ladies and Gentlemen,
1. We have acted as special Indian legal counsel to Schein Pharmaceutical,
Inc., a Corporation incorporated under the laws of Delaware, U. S. A.
(hereinafter referred to as "Schein") in connection with the
transactions contemplated by the Stock Purchase Agreement (the "Stock
Purchase Agreement") dated as of _____, 1998 by and between Schein and
Cheminor Drugs Limited, an Indian Corporation ("Cheminor"), the
Shareholders Agreement among Schein, Cheminor and certain stockholders
of Cheminor (the "Shareholders Agreement") and the Strategic Alliance
Agreement among Schein, Cheminor, Dr. Reddy's Laboratories Limited, and
Indian corporation and Reddy-Cheminor Inc., a New Jersey corporation
(the "Strategic Alliance Agreement") (collectively referred to as the
"Agreements").
2. This opinion is being rendered pursuant to Section 5.2(d) of the Stock
Purchase Agreement (this "Opinion").
3. Except as otherwise defined herein, expressions defined in the Stock
Purchase Agreement shall have the same meanings when used in this
Opinion as therein.
4. For the purpose of this Opinion we have received and examined executed
copies of the documents listed in Schedule I to this Opinion
(hereinafter referred to as the "Documents").
5. In considering the Documents we have:
<PAGE>
(i) assumed the genuineness of all signatures and the authenticity
of all documents, the conformity with the originals of all
documents submitted to us as copies, and the correctness of all
facts and information stated and given in such documents (which
have not been independently verified by us);
(ii) assumed the due authorization, execution and delivery of each of
the Documents by parties thereto;
(iii) assumed the binding nature of the obligations of all parties
under any applicable law other than the laws of India; and
(iv) confined and given this Opinion on the basis of Indian law in
force, and as interpreted by the Indian Courts, as of the date
hereof and we have not made any investigation of the laws of any
jurisdiction outside India.
6. Based upon and subject to the foregoing and subject to the
qualifications set out in paragraph 7 below, we are of the Opinion, with
respect to Schein's obligations under Indian law, that:
(i) if required to be enforced in India, the courts in India would
consider the Stock Purchase Agreement and the Shareholders
Agreement binding and enforceable obligations of Schein, except
that we express no opinion with respect to the obligations of
Schein under Articles III and IV of the Shareholders Agreement;
(ii) except as set forth in the Agreements, no consent,
authorization, approval, permission, license, order, payment of
fee, registration, filing, recording with or enrollment with any
governmental authority or agency or regulatory authority is
required to be obtained, done, fulfilled or performed in India
by Schein in order (a) to enable Schein to lawfully execute and
deliver, exercise its rights under and perform and comply with
the obligations expressed to be assumed by it in the Agreements,
(b) to ensure that the obligations expressed to be assumed by
Schein in the Agreements are legal, valid and binding and (c) to
make the admissible in evidence in India;
(iii) the execution and delivery by Schein of the Agreements do not,
and the performance by Schein of its obligations expressed to be
assumed thereunder will not violate or conflict with any law,
regulation, rule, order, writ, judgment, injunction, government
policy or decree applicable to Schein or any of its
Subsidiaries;
(iv) except for a stamp tax imposed by the State of Andhra Pradesh,
no stamp, registration or similar tax or duty is required to be
paid in India or in relation to the Documents or any order or
judgment obtained in relation thereto in order to ensure the
legality, validity, enforceability or admissibility in evidence
of the Agreements or any such judgment obtained in relation
thereto, provided that if proceedings are instituted to enforce
any such judgment or order so obtained Indian Court fees may be
payable
<PAGE>
on institution of proceedings for obtaining the same from the
Courts in India; and
(v) under the present laws of India, Schein is not obliged to file,
record or enrol the Agreements with any Court or other
Authority.
7. This Opinion is subject to the following qualifications:
(i) enforcement maybe limited by laws of general application
affecting the rights of creditors;
(ii) equitable remedies such as specific performance and injunction
are at the discretion of the court;
(iii) any judgment or order obtained in a foreign court would be
recognized by the courts in Indian and would be enforceable in
India subject to the provisions of Section 13 of the Indian Code
of Civil Procedure;
(iv) stamp duty is payable in India on each Agreement within three
months of the same first being brought into India to ensure the
admissibility in evidence of the Agreement; and
(v) claims may become barred under the Indian Limitation Act.
8. We express no opinion as to, and disclaim any undertaking or obligation
in this Opinion in respect of, changes or circumstances or changes in
applicable laws or regulations which occur after the date hereof.
9. This Opinion is provided to you solely for your information, and may not
be used by any other person or entity or for any other purpose without,
in each instance, our prior written consent.
Yours sincerely,
___________________
<PAGE>
EXHIBIT 10.47
SHAREHOLDERS AGREEMENT dated February 6, 1998 among Cheminor Drugs
Limited, a public limited company registered under the Indian Companies Act
("Cheminor"), Schein Pharmaceutical, Inc. a Delaware corporation ("Schein"), and
the principal shareholders of Cheminor listed on Schedule A (collectively, the
"Principal Shareholders," and together with Schein, the "Shareholders").
WHEREAS, Schein, Cheminor, Dr. Reddy's Laboratories Limited, a public
limited company registered under the Indian Companies Act ("Reddy") and Reddy-
Cheminor, Inc., a New Jersey corporation ("Reddy-Cheminor US") desire to enter
into a broad strategic alliance that would have as its principal goals (i) the
integration of the solid dosage operations of Schein and Cheminor for product
development, synthesis, bulk manufacturing and dosage manufacturing, marketing,
and sales and distribution; and (ii) the manufacture and supply of bulk drugs by
Reddy and Cheminor for Schein;
WHEREAS, in order to promote an identity of interest,
contemporaneously with the execution and delivery of this Agreement, Schein and
Cheminor are entering into a Stock Purchase Agreement pursuant to which Schein
is subscribing to shares in Cheminor (the "Stock Purchase Agreement");
WHEREAS, the parties hereto desire to provide certain rights to Schein
and Cheminor with respect to such investment by Schein; and
WHEREAS, each Shareholder owns the number of equity shares set forth
beside that Shareholder's name on Schedule A. The equity shares of Cheminor's
issued and subscribed capital are collectively referred to as the "Shares."
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
<PAGE>
ARTICLE I
DIRECTORS
Section 1.1 Election.
--------
(a) At all times during which Schein owns at least ten percent of the
total number of shares of Cheminor's issued and subscribed capital outstanding,
Schein shall be entitled to designate at least one member of Cheminor's board of
directors, or if a greater number, the number of members of Cheminor's board of
directors determined by multiplying (x) the quotient obtained by dividing (i)
the number of shares owned by Schein at the time of the designation by (ii) the
total number of shares of Cheminor's issued and subscribed capital then
outstanding and (y) the number of directors then on Cheminor's board of
directors (and rounding such result to the nearest whole integer). The right to
designate one or more directors pursuant to the preceding sentence shall (I)
continue with respect to the combined entity in the event that Cheminor and
Reddy merge, either directly or indirectly through any subsidiary or successor
of either of them (the "Reddy Merger"), provided that Schein owns at least 5%
of the total number of shares of the combined entity's issued and subscribed
capital outstanding, and (II) terminate upon a "change of control" (as defined
in Section 6.2(c) hereof) of Cheminor or the combined entity in the event of a
Reddy Merger. If (A) Schein is unable to fully exercise its rights provided for
in Section 3.1 of this Agreement as a result of any Law or Regulatory
Requirement, as hereinafter defined (and not the result of any act or failure to
act on the part of Schein), or as a result of Cheminor's failure to comply with
the provisions of Article III hereof, or (B) Schein's ownership of shares falls
below ten percent of the total number of shares of Cheminor's issued and
subscribed capital outstanding (or 5% of the combined entity referred to above)
as a result of the issuance of shares upon exercise of employee stock options
granted in the ordinary course of Cheminor's (or such combined entity's)
business, Schein shall be deemed, for purposes of this Article I to own at least
ten percent of the total number of shares of Cheminor's issued and subscribed
capital then outstanding (or 5% of such combined entity, as the case may be).
If the number of directors Schein is entitled to designate at any time is less
than two, Schein at that time shall be entitled to designate a second individual
who shall be entitled to attend all board of directors meetings as an observer
(but who shall not otherwise be entitled to participate in those meetings) (an
"Observer"). Cheminor shall use reasonable efforts to give the Observer notice
of all such meetings at the same time and manner as the Schein Director (as that
term is hereinafter defined). For purposes of this Agreement, the term "Law"
shall mean any statute, ordinance, law, regulation, rule, order, decree or
judgment of any governmental body, agency or court, and the term "Regulatory
Requirement" shall mean any action taken, consent withheld, or application
denied, by any governmental body or agency, or any regulatory entity, including,
without limitation, the Reserve Bank of India, the Securities and Exchange Board
of India, the Bombay Stock Exchange and any other stock exchange on which
Cheminor's issued and subscribed capital is listed or otherwise admitted for
trading.
(b) At all times during which Schein is entitled to designate and has
designated a director (whether or not such designee has been elected or
installed as a director) pursuant to this Agreement (the "Schein Representation
Period") the Principal Shareholders shall vote all Shares
2
<PAGE>
owned by them and take all other reasonable actions available to the Principal
Shareholders to cause the individual(s) designated by Schein pursuant to Section
1.1(a) hereof to be elected.
(c) At all times during the Schein Representation Period the board of
directors of Cheminor shall use its best efforts to cause the individual(s)
designated by Schein pursuant to Section 1.1(a) hereof to be elected.
(d) Notwithstanding anything to the contrary herein, neither Cheminor,
Cheminor's board of directors nor the Principal Shareholders shall have any
obligations under this Article I with respect to any designee of Schein
hereunder unless (i) such designee is a senior executive of Schein or (ii) prior
to his or her election to Cheminor's board of directors, such designee was
consented to by Cheminor's board of directors, such consent not to be
unreasonably withheld or delayed.
Section 1.2 Removal; Vacancies.
------------------
(a) If, during the Schein Representation Period, Schein gives written
notice to the Principal Shareholders of its wish to remove a director previously
designated by Schein and elected in accordance with Section 1.1 (a "Schein
Director"), the Principal Shareholders shall vote all Shares owned by them in
favor of removing the Schein Director, and take all other action incidental to
that vote requested of them by Schein to cause the Schein Director to be
removed.
(b) If for any reason, including removal, any Schein Director ceases
to hold office, Schein may designate an individual to fill the vacancy so
created for the unexpired term, and the Principal Shareholders shall vote all
Shares owned by them and take all other reasonable actions available to the
Principal Shareholders to cause the individual so designated to be elected to
fill the vacancy.
(c) The board of directors of Cheminor shall use its best efforts to
ensure that the individuals designated by Schein in accordance with Section
1.2(b) be elected.
Section 1.3 Classified Board; Change in Governing Documents. At any time
-----------------------------------------------
Cheminor's board of directors is divided into two or more classes, the members
designated by Schein shall, to the extent practicable, be included in the
respective classes in the same manner as are the members who are otherwise
nominated to serve on the board of directors. The classification of the board
of directors shall not cause any reduction in the number of directors Schein
otherwise is entitled to designate pursuant to this Agreement. If a change in
Cheminor's Governing Documents, as hereinafter defined, results in a reduction
of the total number of members of Cheminor's board of directors, the number of
Schein designees to the board shall be adjusted, if necessary, to conform to
Section 1.1(a), based upon such reduced total number of members, but shall not
be reduced to fewer than one member. For purposes of this Agreement, the term
"Governing Documents" shall mean the certificate of incorporation and bylaws (or
comparable governing documents).
Section 1.4 No Action or Meeting without Notice. At all times during the
-----------------------------------
Schein Representation Period, prior written notice of any Cheminor action or
meeting of directors or
3
<PAGE>
shareholders shall be provided as follows: (a) in the case of regularly
scheduled meetings of shareholders, upon at least 21 days' prior written notice
to Schein, (b) in the case of regularly scheduled meetings of directors, upon at
least 14 days' prior written notice to Schein, each Schein Director and any
Observer and (c) in the case of any other actions or meetings of directors or
shareholders that are not regularly scheduled actions or meetings, upon such
prior notice to Schein or Schein, each Schein Director and any Observer, as the
case may be, as is reasonable under the circumstances.
ARTICLE II
CERTAIN RIGHTS OF SCHEIN
Section 2.1 Visitation; Notice. Prior to the termination of the Schein
------------------
Representation Period, Schein and its representatives may, from time to time,
but not more frequently than once per fiscal year, visit and inspect the
properties of Cheminor and its subsidiaries, and discuss their affairs, finances
and accounts with Cheminor's senior management all at such reasonable times as
Schein may wish and Cheminor senior management may be available and in a manner
that does not interfere with or disrupt the business in any material respect;
provided, however, that Cheminor shall not be obligated to disclose pursuant to
this Section 2.1 any information concerning (i) the identity of Cheminor
customers of bulk substances and finished dosage products, (ii) all matters
related to the sales volume and specific contractual terms of customer
arrangements with respect to bulk substances and finished dosage products, (iii)
any product, business opportunity or circumstances with respect to which Schein
or any of its Affiliates is an active competitor or can reasonably be expected
to become a competitor or (iv) any such matters which cannot be disclosed
pursuant to the terms of an effective confidentiality agreement with a third
party in which event information shall be provided to Schein to the maximum
extent permitted under such confidentiality agreement. Schein agrees not to
provide any information obtained by it pursuant to this Section 2.1 to a Schein
Entity or, except as otherwise required by applicable law, to any other third
party that is not an Affiliate of Schein. Nothing herein contained shall be
construed as limiting the right of any Schein Director to receive any and all
information to which a Schein Director is entitled as a director of Cheminor
subject to such Schein Director's fiduciary duties to Cheminor. In the event
that there shall occur a "change of control" (as defined in Section 6.2(c)
hereof) of Schein to any Competitor (as defined in Section 6.2(a) hereof) of
Cheminor, this Section 2.1 shall terminate and be of no further force and
effect, with no effect upon the remaining provisions of this Agreement except as
provided in Section 6.2(c) hereof. For purposes of this Agreement (except
Section 3.2 hereof), "Affiliate" with respect to any entity means any
corporation or business entity controlled by, controlling, or under common
control with such entity. (For the purpose of this definition, "control" means
direct or indirect beneficial ownership of greater than fifty percent (50%) of
the voting stock of such corporation or other business entity, or the power to
direct or cause the direction of the management and policies of such corporation
or other business entity whether by ownership of voting securities, by contract
or otherwise, or such other relationship as, in fact, constitutes control.)
Section 2.2 Financial Statements. During the Schein Representation
--------------------
Period, Cheminor shall furnish Schein (a) not later than 45 days after the end
of each of the first three fiscal quarters of each fiscal year, unaudited
unconsolidated balance sheets of Cheminor and its subsidiaries as of
4
<PAGE>
the end of that fiscal quarter, together with the related unaudited
unconsolidated statements of income, retained earnings and cash flows for that
fiscal quarter and the year to date, prepared in accordance with generally
accepted accounting principles ("GAAP") and setting forth in comparative form
the information for the corresponding periods of the previous fiscal year, and
(b) not later than 120 days after the end of each fiscal year, audited
unconsolidated balance sheets of Cheminor and its subsidiaries as of the end of
that fiscal year, together with the related audited unconsolidated statements of
income, retained earnings and cash flow for that fiscal year, prepared in
accordance with GAAP and setting forth in comparative form the information for
the preceding fiscal year, together with the related audit report of Cheminor's
independent accountants; provided, however, that if the financial statements to
be furnished to Schein pursuant to this Section 2.2 are not then prepared by
Cheminor in the ordinary course of business, Cheminor shall furnish Schein such
comparable financial statements, if any, as Cheminor then prepares in the
ordinary course of business; and provided further, however, that if Cheminor or
its accountants shall prepare consolidated financial statements of Cheminor and
its subsidiaries at any time, then such consolidated financial statements shall
be furnished to Schein pursuant to this Section 2.2.
Section 2.3 Reservation of Shares; Governing Documents. To the extent
------------------------------------------
permitted to do so under applicable Law and Regulatory Requirements, Cheminor
shall at all times maintain sufficient authorized but unissued Shares so that
all rights of Schein to subscribe for new Shares from Cheminor pursuant to this
Agreement may be exercised without additional authorization of Shares, after
giving effect to the exercise of all other options, warrants, convertible
securities and other rights to subscribe for Shares. Except as expressly
provided in this Agreement, Cheminor shall not, through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, (i) avoid or seek to avoid the observance or performance of any of the
covenants or agreements to be performed under this Agreement by Cheminor, (ii)
adversely affect Schein differently from the other holders of the Shares, or
(iii) prevent any foreign national from holding Cheminor shares or serving as a
director of Cheminor. Nothing in the preceding sentence shall be construed to
prohibit Cheminor from engaging in any transaction contemplated by Section 6.2
hereof.
ARTICLE III
RIGHTS TO PURCHASE SHARES
Section 3.1 Preemptive Rights. At any time prior to the earliest to
-----------------
occur of (i) a "change of control" (as defined in Section 6.2(c) hereof) of
Cheminor occurring after the fifth anniversary of the date hereof, (ii) the
fifth anniversary of the date hereof, if a "change of control" of Cheminor has
occurred prior to such fifth anniversary, and (iii) the termination of the
Schein Representation Period for any reason other than as a result of a "change
of control" of Cheminor as provided in Section 1.1(a) hereof, Cheminor proposes
to issue (whether for cash, property or services) any Equity Securities (as
defined below) to any person or entity (including a Shareholder) (other than pro
rata issuances of Equity Securities to all holders of Cheminor's issued and
subscribed capital and other than the issuance of shares upon exercise of
employee stock options granted in the ordinary course of Cheminor's business),
Schein shall have the right (which it may exercise in whole or in part) to
subscribe for, upon the same terms, a proportionate quantity of those Equity
Securities (or Equity
5
<PAGE>
Securities as similar as practicable to those Equity Securities) in the
proportion that the aggregate number of Shares beneficially owned by Schein
bears to the total number of Shares outstanding immediately prior to such
proposed issuance. Cheminor shall give notice to Schein setting forth the
identity of the purchaser and the time, which shall not be fewer than 60 days
within which, and the terms upon which, Schein may subscribe for the Equity
Securities, which terms shall be the same as the terms upon which the purchaser
may subscribe for the Equity Securities. As used in this Section 3.1, the term
"Equity Securities" means shares of capital stock of Cheminor having the right
to vote or generally to participate, in a manner similar to equity shares, in
the profits and losses of Cheminor, or any options, rights or securities
convertible into, or exchangeable or exercisable for, such shares of capital
stock. Notwithstanding anything to the contrary contained herein, Schein shall
have no rights pursuant to this Section in respect of the first "change of
control" of Cheminor occurring after the date hereof.
Section 3.2 Restriction on Purchases; Divestment of Shares. During the
----------------------------------------------
Schein Representation Period or, if longer, during the period in which Schein
shall have the right to purchase Equity Securities pursuant to Section 3.1
hereof, (a) Schein and its Affiliates shall not acquire Shares which, when
aggregated with the Shares then owned by Schein, would increase its percentage
ownership of such class of Shares to more than **** (b) During the Schein
Representation Period or, if longer, during the period in which Schein shall
have the right to purchase Equity Securities pursuant to Section 3.1 hereof, if
the Reddy Merger shall occur, Schein and its Affiliates shall not acquire shares
of capital stock of the surviving entity (the "Surviving Entity") which, when
aggregated with the shares of capital stock of the Surviving Entity then owned
by Schein, would increase Schein's and its Affiliates' aggregate percentage
ownership of such class of Shares to more than the greater of (i) *** percent of
the total outstanding shares of capital of the Surviving Entity, or (ii) the
percentage of the total outstanding shares of capital stock of the Surviving
Entity owned by Schein as a result of the Reddy Merger. (c) During the Schein
Representation Period or, if longer, during the period in which Schein shall
have the right to purchase Equity Securities pursuant to Section 3.1 hereof, if
Schein, or its Affiliates, directly or indirectly, acquires any entity (whether
by merger, consolidation or otherwise) and, as a result of such acquisition,
Schein, its Affiliates and the acquired entity together own a number of Shares
in excess of the limitations set forth in (a) or (b) above, as the case may be,
then Schein, its Affiliates and/or the acquired entity shall be obligated to
sell as soon as practicable, but in an orderly and reasonable manner as
reasonably determined by Schein, its Affiliates or the acquired entity taking
into account then current market conditions, that number of Shares such that the
aggregate number of Shares owned by Schein, its Affiliates and the acquired
entity shall not exceed the limitations set forth in (a) or (b) above, as
applicable. (d) During the Schein Representation Period or, if longer, during
the period in which Schein shall have the right to purchase Equity Securities
pursuant to Section 3.1 hereof, if any person or entity (an "Acquiror"),
directly or indirectly, acquires Schein (whether by merger, consolidation or
otherwise) and as a result of such acquisition the Acquiror and Schein and its
Affiliates together own a number of Shares in excess of the limitations set
forth in (a) or (b) above, as the case may be, then Schein shall have the option
(except as provided below) to either (i) sell that number of Shares such that
the aggregate number of Shares owned by Schein, its Affiliates and the Acquiror
shall not exceed the limitations set forth in (a) or (b) above, as applicable,
at the rate and in the manner as set forth in (c) above, or (ii) retain all of
the Shares then owned by
* redacted pursuant to confidential treatment request.
6
<PAGE>
it and the Acquiror, in which case of clause (d)(ii) above the Strategic
Alliance Agreement, the Stock Purchase Agreement and this Agreement shall
continue in full force and effect, except that in such case of clause (d)(ii)
above, Schein shall have no further rights under Article I, Article II and
Section 3.1 hereof; provided, however, that if the Acquiror is *****
************ then clause (d)(ii) shall not apply and instead Schein shall be
obligated to sell Shares as provided in clause (d)(i) above. During the period
of time during which Schein or the Acquiror shall hold a number of Shares in
excess of the limitations as set forth in (a) or (b) above (such excess Shares
hereinafter referred to as the "Excess Shares"), either (x) Schein and/or its
acquired entity shall assign its voting rights with respect to such Excess
Shares to Cheminor or its designee (by proxy or otherwise) or, (y) if such
assignment is not legally permissible under Indian law, then Schein and/or its
acquired entity shall vote its Excess Shares as directed by Cheminor or its
designee with respect to the Reddy Merger and any amendment to the certificate
of incorporation of Cheminor providing for an increase in the authorized capital
stock of Cheminor; provided that if neither of the two options in clauses (x)
and (y) is permissible under Indian law, then Schein and/or its acquired entity
shall not exercise its voting rights with respect to the Excess Shares. For
purposes of this Section 3.2, the term "Affiliate" shall mean (i) any person or
entity in control of, controlled by, or under common control with, Schein, and
(ii) any "Schein Entity" as that term is used in the Strategic Alliance
Agreement.
ARTICLE IV
PURCHASE OF SCHEIN SHARES
Section 4.1 Purchase of Schein's Shares by Cheminor. After the Initial
---------------------------------------
Public Offering Date, as defined herein, at any time and from time to time
during the Schein Representation Period, Cheminor shall have the right to
purchase from Schein the number of shares of Schein common stock ("Schein
Common"), which, when aggregated with all shares of Schein Common then owned by
Cheminor and its Affiliates, does not exceed ten percent of the total
outstanding Schein Common. The purchase price per share for such Schein Common
shall be the then current per share market price of Schein Common. As used in
this Agreement, the term "Initial Public Offering Date" means the first date
immediately following the last closing of an underwritten sale of shares of
Schein Common to the public registered under the Securities Act of 1933, as
amended, on which the aggregate market value of the issued and outstanding
shares of Schein Common (computed by use of the closing price of the stock
(determined as set forth in section 5.2(a)(i)) held by more than 300 persons who
are not Shareholders, nor employees of Schein or its subsidiaries nor Affiliates
of Schein exceeds $100,000,000, which shares are listed or admitted to trading
on the New York Stock Exchange or the American Stock Exchange or quoted on the
Nasdaq National Market.
Section 4.2 Directors of Schein.
-------------------
(a) At all times during which Cheminor owns at least ten percent of
the total number of shares of the issued and outstanding Schein Common, Cheminor
shall be entitled to designate at least one member of Schein's board of
directors, or if a greater number, the number of members of Schein's board of
directors determined by multiplying (x) the quotient obtained by dividing (i)
the number of shares owned by Cheminor at the time of the designation by (ii)
the total number of shares
* redacted pursuant to confidential treatment request.
7
<PAGE>
of the issued and outstanding Schein Common and (y) the number of directors then
on Schein's board of directors (and rounding such result to the nearest whole
integer). If the number of directors Cheminor is entitled to nominate at any
time is less than two, Cheminor at that time shall be entitled to designate an
Observer in addition to a director designation, if any. If (A) Cheminor is
unable to fully exercise its rights provided for in Section 4.6 of this
Agreement as a result of any Law or Regulatory Requirement, or as a result of
Schein's failure to comply with the provisions of Section 4.6 hereof, or (B)
Cheminor's ownership of shares falls below ten percent of the total issued and
outstanding shares of Schein Common as a result of the issuance of shares upon
exercise of employee stock options granted in the ordinary course of Schein's
business, Cheminor shall be deemed, for purposes of this Section 4.2 to own at
least ten percent of the total number of issued and outstanding shares of Schein
Common.
(b) At all times during which Cheminor is entitled to designate a
director pursuant to Section 4.2 hereof and has designated a director (the
"Cheminor Representation Period") the board of directors of Schein shall use its
best efforts to cause the individual(s) designated by Schein to be elected.
(c) Notwithstanding anything to the contrary herein, neither Schein
nor Schein's board of directors shall have any obligations under this Article I
with respect to any designee of Cheminor hereunder unless (i) such designee is a
senior executive of Cheminor or (ii) prior to his or her election to Schein's
board of directors, such designee was consented to by Schein's board of
directors, such consent not to be unreasonably withheld or delayed.
Section 4.3 Schein's Board: Removal; Vacancies.
----------------------------------
(a) If, during the Cheminor Representation Period, Cheminor gives
written notice to Schein of its wish to remove a director previously designated
by Cheminor and elected in accordance with section 4.2 (a "Cheminor Director"),
the board of directors of Schein shall use its best efforts to cause the removal
of such Cheminor Director.
(b) If for any reason, including removal, any Cheminor Director ceases
to hold office, Cheminor may designate an individual to fill the vacancy so
created for the unexpired term, and, the Schein board of directors shall use its
best efforts to cause the individual so designated to be elected to fill the
vacancy.
Section 4.4 Schein's Classified Board; Change in Governing Documents. At
--------------------------------------------------------
any time Schein's board of directors is divided into two or more classes, the
members designated by Cheminor shall, to the extent practicable, be included in
the respective classes in the same manner as are the members who are otherwise
nominated to serve on the board of directors. The classification of the board
of directors shall not cause any reduction in the number of directors Cheminor
otherwise is entitled to designate pursuant to this Agreement. If a change in
Schein's Governing Documents, which is otherwise permitted under this Agreement,
results in reduction of the total number of members of Schein's board of
directors, the number of Cheminor designees to the board shall be adjusted, if
necessary, to conform to Section 4.2, based upon such reduced total number of
members.
8
<PAGE>
Section 4.5 No Action or Meeting Without Notice. At all times during the
-----------------------------------
Cheminor Representation Period, prior written notice of any Schein action or
meeting of directors or shareholders shall be provided as follows: (a) in the
case of regularly scheduled meetings of shareholders, upon at least 21 days'
prior written notice to Cheminor, (b) in the case of regularly scheduled
meetings of directors, upon at least 14 days' prior written notice to Cheminor,
each Cheminor Director and any Observer and (c) in the case of any other actions
or meetings of directors or shareholders that are not regularly scheduled
actions or meetings, upon such prior written notice to Cheminor or Cheminor,
each Cheminor Director and any Observer, as the case may be, as is reasonable
under the circumstances.
Section 4.6 Preemptive Rights. If at any time during the Cheminor
-----------------
Representation Period Schein proposes to issue (whether for cash, property or
services) any Equity Securities (as defined below) to any person or entity
(other than pro rata issuances of Equity Securities to all holders of Schein's
issued and outstanding Schein Common, and other than the issuance of shares upon
exercise of employee stock options granted in the ordinary course of Schein's
business) Cheminor shall have the right (which it may exercise in whole or in
part) to purchase, upon the same terms, a proportionate quantity of those Equity
Securities (or Equity Securities as similar as practicable to those Equity
Securities) in the proportion that the aggregate number of Schein Common then
beneficially owned by Cheminor bears to the total number of Schein Common
outstanding immediately prior to such proposed issuance. Schein shall give
notice to Cheminor setting forth the identity of the purchaser and the time,
which shall not be fewer than 60 days, within which, and the terms upon which,
Cheminor may purchase the Equity Securities, which terms shall be the same as
the terms upon which the purchaser may purchase the Equity Securities. As used
in this Section 4.6 the term "Equity Securities" means shares of capital stock
of Schein having the right to vote or generally to participate in a manner
similar to Common Stock, in the profits and losses of Schein, or any options,
rights or securities convertible into, or exchangeable or exercisable for, such
shares of capital stock. Notwithstanding anything to the contrary herein, in
the event a proposed issuance is to be made pursuant to an underwritten public
offering, the notice required in this Section 4.6 shall be given not less than
30 days prior to such issuance; the price at which Cheminor may purchase shares
pursuant to this Section 4.6 shall be the average of the closing price therefor
for the 10-day period ending on the day preceding the date such notice is given;
Cheminor's rights to purchase shares shall terminate on the date which is 15
days after the date such notice is given; and Cheminor shall have no further
rights with respect to such issuance, notwithstanding any change in the number
of shares issued or other terms thereof, including the price, occurring
subsequent to the date such notice was given.
Section 4.7 Visitation; Notice. Upon commencement of the Cheminor
------------------
Representation Period and prior to the termination of the Cheminor
Representation Period, Cheminor and its representatives may, from time to time,
but not more frequently than once per fiscal year, visit and inspect the
properties of Schein and its subsidiaries, and discuss their affairs, finances
and accounts with Schein's senior management all at such reasonable times as
Cheminor may wish and Schein senior management may be available and in a manner
that does not interfere with or disrupt the business in any material respect,
provided, however, that Schein shall not be obligated to disclose pursuant to
this Section 4.7 any information concerning (i) the identity of Schein customers
of finished dosage products, (ii) all matters related to sales volume and
specific contractual terms of
9
<PAGE>
customer arrangements with respect to finished dosage products, (iii) any
product, business opportunity or circumstance with respect to which Cheminor or
any of its Affiliates is an active competitor or can reasonably be expected to
become a competitor or (iv) any such matters which cannot be disclosed pursuant
to the terms of an effective confidentiality agreement with a third-party in
which event information shall be provided to Cheminor to the maximum extent
permitted under such confidentiality agreement. Cheminor agrees, not to provide
any information obtained by it pursuant to this Section 4.7 to an entity in
which Cheminor has an equity interest and which is not an Affiliate of Cheminor
or, except as otherwise required by applicable law, to any other third party
that is not an Affiliate of Cheminor. Nothing herein contained shall be
construed as limiting the right of any Cheminor Director to receive any and all
information to which a Cheminor Director is entitled as a director of Schein
subject to such Cheminor Director's fiduciary duties to Schein. In the event
that there shall occur a "change of control" (as defined in Section 6.2(c)
hereof) of Cheminor to any Competitor (as defined in Section 6.2(a) hereof),
this Section 4.7 shall terminate and be of no further force and effect, with no
effect upon the remaining provisions of this Agreement except as provided in
Section 6.2(c) hereof.
Section 4.8 Financial Statements. During the Cheminor Representation
--------------------
Period, Schein shall furnish Cheminor (a) not later than 45 days after the end
of each of the first three fiscal quarters of each fiscal year, unaudited
consolidated balance sheets of Schein and its subsidiaries as of the end of that
fiscal quarter, together with the related unaudited consolidated statements of
income, retained earnings and cash flows for that fiscal quarter and the year to
date, prepared in accordance with GAAP and setting forth in comparative form the
information for the corresponding periods of the previous fiscal year, and (b)
not later than 120 days after the end of each fiscal year, an audited
consolidated balance sheet of Schein and its subsidiaries as of the end of that
fiscal year, together with the related audited consolidated statements of
income, retained earnings and cash flow for that fiscal year, prepared in
accordance with GAAP and setting forth in comparative form the information for
the preceding year, together with the related audit report of Schein's
independent accountants; provided, however, that if the financial statements to
be furnished to Cheminor pursuant to this Section 4.8 are not then prepared by
Schein in the ordinary course of business, Schein shall furnish Cheminor such
comparable financial statements, if any, as Schein then prepares in the ordinary
course of business.
ARTICLE V
CERTAIN DISPOSITIONS OF SHARES
Section 5.1 Restrictions on Transfer. Except for sales of Shares required
------------------------
pursuant to Section 3.2 hereof, Schein shall not, prior to the earlier to occur
of (i) the second anniversary of the Closing (as defined in the Stock Purchase
Agreement), and (ii) the termination of the Strategic Alliance Agreement, sell
any Shares without the prior written consent of Cheminor, such consent not to be
unreasonably withheld or delayed. The rights under this Agreement shall not be
assigned by virtue of any transfer of the Shares pursuant to this Article V or
Section 3.2 hereof, which rights may be assigned solely to the extent permitted
by Article VI hereof.
10
<PAGE>
Section 5.2 Right of First Offer. If, (i) at any time during the Schein
--------------------
Representation Period, or (ii) at any time that Schein owns more than 50% of the
equity shares purchased by Schein pursuant to the Stock Purchase Agreement,
Schein wishes to sell during any three-month period more than 100,000 Shares to
a non-affiliated third party:
(a) in a private sale, Schein shall promptly deliver a written notice
(a "Schein Offer Notice") to Cheminor and the Principal Shareholders containing
an offer to sell to Cheminor and the Principal Shareholders all (but not fewer
than all) the Shares Schein wishes to sell (the "Schein Offered Shares") on the
same terms as Schein wishes to sell such Schein Offered Shares. At any time
within 30 days after the Schein Offer Notice is given, Cheminor may, on behalf
of itself, the Principal Shareholders, any nominees of Cheminor or any Principal
Shareholders or any of them notify Schein in writing (an "Acceptance Notice")
that such Principal Shareholders, any such nominees, or any of them (the
"Buyers") shall purchase all (but not fewer than all) Schein Offered Shares on
the terms specified in the Schein Offer Notice. If Schein receives an
Acceptance Notice within that 30-day period, Schein and the Buyers shall
consummate the transaction within 10 days after the Acceptance Notice is given.
If Schein does not receive an Acceptance Notice within that 30-day period,
Schein shall have the right to sell all (but not fewer than all) the Schein
Offered Shares to any person or entity at a price equal to or greater than the
price set forth in the Schein Offer Notice, and on such other terms as are not
in any material respect less favorable to Schein than those set forth in the
Schein Offer Notice. If a sale is not consummated within 60 days following the
expiration of the 30-day period referred to above, the Schein Offered Shares
shall again be subject to this Section 5.2. If the Schein Offer Notice provides
that all or any part of the consideration that Schein seeks for the Shares is
non-cash consideration, the Buyers shall be entitled, in the exercise of their
rights hereunder, to pay the cash equivalent of such non-cash consideration,
which, for the purposes hereof shall be deemed (i) in the case of marketable
securities, the average of the closing price therefor for the 10-day period
ending on the day preceding the date of the Schein Offer Notice, and (ii) in the
case of other non-cash consideration, the fair market value thereof, as agreed
upon by Schein and Cheminor, or failing such agreement within five days after
the Schein Offer Notice is given, as determined by an investment banking firm
jointly selected by Schein and Cheminor and failing such selection within ten
days after the Schein Offer Notice is given, the firm of Donaldson, Lufkin &
Jenrette, whose fees and expenses shall be borne equally by Schein and Cheminor.
Notwithstanding anything to the contrary contained in this Section 5.2(a),
Schein may not sell Shares hereunder in a private sale more than twice in any
calendar year and more than an aggregate of five times for the period during
which the Strategic Alliance Agreement is in effect.
(b) in a public market sale, Schein shall promptly deliver a Schein
Offer Notice to Cheminor and the Principal Shareholders containing an offer to
sell to Cheminor and the Principal Shareholders all (but not fewer than all) the
Schein Offered Shares on the same terms as Schein wishes to sell such Schein
Offered Shares. At any time within 48 hours after the Schein Offer Notice is
given, Cheminor may, on behalf of itself, the Principal Shareholders, any
nominee of Cheminor or any Principal Shareholders, or any of them, give Schein
an Acceptance Notice. If Schein receives an Acceptance Notice within that 48-
hour period, Schein and the Buyers shall consummate the transaction within three
days after the Acceptance Notice is given. If Schein does not receive an
Acceptance Notice within that 48-hour period, Schein shall have the right to
sell all (but not fewer than all) the Schein Offered Shares to any person or
entity at a price equal to or greater than the price
11
<PAGE>
set forth in Schein Offer Notice. If a sale is not consummated within 30 days
following the expiration of the 48-hour period referred to above, the Schein
Offered Shares shall again be subject to this Section 5.2. Notwithstanding
anything to the contrary contained in this Section 5.2(b), Schein may not sell
Shares hereunder in a public market sale more than once per calendar quarter.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Governing Documents.
-------------------
(a) Schein shall not amend its Governing Documents in any manner which
has an adverse effect on Cheminor's rights pursuant to Sections 4.1, 4.2, 4.3,
4.4, 4.5 or 4.6 or has the effect of preventing any foreign national from
holding Schein shares or serving as a director of Schein. Nothing in this
Section 6.1(a) shall be construed as restricting Schein's ability to reduce the
total number of members of Schein's Board of Directors pursuant to Section 4.4.
(b) Cheminor shall not amend its Governing Documents in any manner
which has an adverse effect on Schein's rights pursuant to Section 1.1, 1.2,
1.3, 1.4, 2.1, 2.2, or 3.1 or has the affect of preventing any foreign national
from holding Cheminor shares or serving as a director of Cheminor. Nothing in
this Section 6.1(b) shall be construed as restricting Cheminor's ability to
reduce the total number of members of Cheminor's Board of Directors pursuant to
Section 1.3.
Section 6.2 Assignment; Merger; Change of Control.
-------------------------------------
(a) Neither Schein nor Cheminor may assign its rights under this
Agreement at any time after the Strategic Alliance Agreement is terminated.
Prior thereto, (i) Schein may assign its rights under this Agreement only to an
Affiliate of Schein, to ***** *********** ** *** ** *** *********** or to any
successor to substantially all of the business of Schein (whether by merger,
consolidation, purchase of assets or the like) (each, a "Schein Permitted
Assignee") and (ii) Cheminor may assign its rights under this Agreement only to
an Affiliate of Cheminor or to any successor to substantially all of the
business of Cheminor (whether by merger, consolidation, purchase of assets or
the like) (each a "Cheminor Permitted Assignee"); provided that each such
assigning party shall also assign its rights under the Strategic Alliance
Agreement and the Stock Purchase Agreement to such assignee and each such
assignee shall agree in writing to be bound by this Agreement, the Strategic
Alliance Agreement and the Stock Purchase Agreement, and provided further that
each such successor is not, at the time of such assignment, a Competitor of
Cheminor in the case of an assignment by Schein or a Competitor of Schein in the
case of an assignment by Cheminor. No assignment by a party of its rights under
this Agreement shall relieve it of any of its obligations to the other parties
hereto. Notwithstanding anything to the contrary contained herein, Schein and
Cheminor may assign their respective rights under this Agreement and the Stock
Purchase Agreement to any of their respective Affiliates without also assigning
their respective rights under the Strategic Alliance Agreement; provided,
--------
however, that any further assignment by such an Affiliate other than to an
- -------
Affiliate of Schein or Cheminor shall also require the assignment of Schein's or
Cheminor's rights, as the case may be, under the Strategic Alliance Agreement.
The term
* redacted pursuant to confidential treatment request.
12
<PAGE>
"Competitor" means any person or entity whose annual revenues from the
sale of generic dosage form and/or bulk pharmaceuticals constitute, together
with those of his/her or its Affiliates, in the aggregate at least fifty percent
(50%) of such person's or entity's total annual revenues. Any assignment
effected in violation of this Section 6.2(a) shall be null, void and of no
effect.
(b) [Intentionally omitted.]
(c) (i) Within five (5) days after the occurrence of a change of
control (as defined below) of Schein to any Competitor of Cheminor, Schein shall
notify Cheminor in writing of the occurrence of such change of control (a
"Schein Change of Control Notice") and Cheminor shall have the right within
sixty (60) days after receipt of the Schein Change of Control Notice to notify
Schein in writing (a "Cheminor Shares Repurchase Notice") that it wishes to
purchase all of the Shares then held by Schein for the Cheminor Formula Price,
as hereinafter defined, and Schein shall have the obligation to sell such Common
Shares to Cheminor as provided in this paragraph (c), and (ii) within five (5)
days after the occurrence of a change of control of Cheminor to any Competitor
of Schein, Cheminor shall notify Schein in writing of the occurrence of such
change of control (a "Cheminor Change of Control Notice") and Schein shall have
the right within sixty (60) days of receipt of the Cheminor Change of Control
Notice to notify Cheminor in writing (a "Schein Shares Repurchase Notice") that
it wishes to purchase all of the shares of Schein Common then held by Cheminor
for the Schein Formula Price, as hereinafter defined, and Cheminor shall have
the obligation to sell such shares of Schein Common to Schein as provided in
this paragraph (c). The closing of the purchase of shares set forth in (c)(i)
or (c)(ii) above shall take place on the third business day following the
determination of the Cheminor Formula Price or the Schein Formula Price, as the
case may be, as set forth below, or at such other time as the parties hereto may
agree. Upon the completion of such purchase in case of either (c)(i) or (c)(ii)
above, this Agreement and the Stock Purchase Agreement shall terminate and be of
no further force or effect, with no effect upon the Strategic Alliance Agreement
which shall remain in full force and effect. For purposes hereof, (x) the term
"change of control" with respect to Schein or Cheminor means the acquisition by
any third party individual or entity (other than an Affiliate of Schein or
Cheminor or, in the case of Schein, ***** *********** or, in the case of
Cheminor, Reddy) of more than 50% (in any one transaction or in any series of
transactions) of the outstanding shares of capital stock of Schein or Cheminor,
as the case may be, having the right to vote or generally to participate, in a
manner similar to equity shares, in the profits and losses of Schein or Cheminor
(including without limitation, the Schein Common and the Shares), respectively,
and (y) the terms "Cheminor Formula Price" and "Schein Formula Price" mean (I)
in the case where the Shares or the Schein Common are marketable securities
traded on a stock exchange or quoted on an interdealer quotation system, the
average of the closing prices of the Shares or the Schein Common, as the case
may be, for the 10-day period ending on the day preceding the date on which
Schein receives the Cheminor Shares Repurchase Notice or Cheminor receives the
Schein Shares Repurchase Notice, as the case may be, and (II) in the case where
the Shares or the Schein Common are not marketable securities, the fair market
value of the Shares or the Schein Common, as the case may be, as agreed upon by
Schein and Cheminor, or failing such agreement within five (5) days of the
receipt of the Cheminor Shares Repurchase Notice or Schein Shares Repurchase
Notice, as the case may be, as determined by an investment banking firm jointly
selected by Cheminor and Schein, and failing such selection within ten (10) days
after receipt of the Cheminor Shares Repurchase Notice or Schein Shares
Repurchase Notice, as the
* redacted pursuant to confidential treatment request.
13
<PAGE>
case may be, the firm of Donaldson, Lufkin & Jenrette, whose fees and expenses
shall be borne equally by Schein and Cheminor.
(d) (i) In the event of a proposed change of control (as defined in
paragraph (c) above) of Cheminor (whether or not to a Competitor of Schein)
pursuant to which the proposed purchaser(s) is acquiring outstanding Shares from
the shareholders of Cheminor, Cheminor shall give Schein a written notice which
specifies the identity of the proposed purchaser(s), the number of Shares of
Cheminor proposed to be purchased and the consideration proposed to be paid by
such purchaser(s) for each such Share (the "Proposed Change of Control Notice").
(A) Cheminor shall have the option, by written notice thereof to Schein in the
Proposed Change of Control Notice, to require Schein to include in such proposed
sale, on the same terms and conditions as such proposed purchaser proposes to
purchase Shares, the number of Shares owned by Schein (the "Included Shares")
which is calculated in the manner specified in the following sentence and (B) if
Cheminor has not so notified Schein of the exercise of its right in clause (A)
above in the Proposed Change of Control Notice, Schein shall have the option, by
delivering written notice thereof to Cheminor within five (5) days following
receipt by Schein of the Proposed Change of Control Notice, to require Cheminor
and the Principal Shareholders to include in such proposed sale, on the same
terms and conditions as such proposed purchaser proposes to purchase Shares, the
Included Shares. The Included Shares of Schein shall not exceed the number
which is determined by multiplying the number of Shares owned by Schein on the
date that the Proposed Change of Control Notice is delivered by a fraction, the
numerator of which is the number of Shares which the proposed purchaser(s)
desires to purchase and the denominator of which is the total number of Shares
which are outstanding on the date that the Proposed Change of Control Notice is
delivered. Upon the consummation of the change of control transaction in which
all of the Shares of Schein have been purchased, this Agreement and the Stock
Purchase Agreement shall terminate and be of no further force and effect, with
no effect upon the Strategic Alliance Agreement which shall remain in full force
and effect.
(ii) In the event of a proposed change of control (as defined in paragraph
(c) above) of Cheminor (whether or not to a Competitor of Schein) pursuant to
which the proposed purchaser(s) proposes to acquire more than eighty percent
(80%) (in any one transaction or in any series of transactions) of the
outstanding Shares excluding the Shares owned by Schein (whether by merger,
consolidation, purchase of Shares or the like), then Cheminor shall have the
right, in addition to its right pursuant to paragraph d(i)(A) above to require
Schein to include the Included Shares in such proposed sale, by delivering
written notice thereof to Schein in the Proposed Change of Control Notice
delivered pursuant to paragraph (d)(i) above, to purchase all of the remaining
Shares held by Schein upon the consummation of such acquisition transaction, if
any, at the highest price per share as is being paid to any other holder of
Shares of Cheminor in connection with such acquisition transaction. If the
price being paid in such acquisition transaction is non-cash consideration, at
the option of Schein, Cheminor shall pay Schein the cash equivalent of such non-
cash consideration which, for purposes hereof, shall be deemed (i) in the case
of marketable securities, the average of the closing prices thereof for the 10-
day period ending on the day preceding the date on which Schein receives notice
of such repurchase by Cheminor, and (ii) in the case of other non-cash
consideration, the fair market value thereof, as agreed upon by Schein and
Cheminor or failing such agreement within five (5) days after such notice is
given to Schein, as determined by an investment banking
14
<PAGE>
firm jointly selected by Schein or Cheminor and failing such selection within
ten (10) days after such notice is given to Schein, the firm of Donaldson,
Lufkin & Jenrette, whose fees and expenses shall be borne equally by Schein and
Cheminor. The closing of the purchase of the remaining Shares held by Schein
pursuant to this paragraph (d)(ii) shall take place on the same date as the
closing of the acquisition transaction giving rise to its purchase right
pursuant to this paragraph (d)(ii) unless the price being paid in such
acquisition transaction is non-cash consideration and Schein shall have elected
pursuant to the preceding sentence to accept the cash equivalent thereof, in
which case, the closing of such purchase shall take place on the third business
day following the determination of the cash equivalent thereof, which date may
be after the date of such merger or consolidation. Upon completion of such
purchase of the remaining Shares held by Schein pursuant to this paragraph
(d)(ii), this Agreement and the Stock Purchase Agreement shall terminate and be
of no further force and effect, with no effect upon the Strategic Alliance
Agreement which shall remain in full force and effect.
(iii) In the event of a proposed change of control of Cheminor as set
forth in this paragraph (d) which is presented to the shareholders of Cheminor
for their approval, Schein agrees to vote its Shares in the same manner as the
other shareholders of Cheminor, pro rata in proportion to which the other
shareholders of Cheminor have voted their Shares with respect to such proposed
change of control transaction.
Section 6.3 Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the laws of India.
Section 6.4 Notices. All notices and other communications under this
-------
Agreement shall be in writing and may be given by any of the following methods:
(a) personal delivery; (b) facsimile transmission; (c) registered or certified
mail, postage prepaid, return receipt requested; or (d) overnight delivery
service. Notices shall be sent to the appropriate party at its address or
facsimile number given below (or at such other address or facsimile number for
such party as shall be specified by notice given under this section 6.3):
If to Cheminor:
Cheminor Drugs Limited
7-1-27 Ameerpet
Hyderabad - 500 016
India
Attention: Managing Director
Telefax: 011 91 40 294 804
with a copy to:
Reddy-Cheminor, Inc.
66 South Maple Avenue
Ridgewood, NJ 07450
U.S.A.
Attention: President
Telefax: 1 (201) 444-1456
15
<PAGE>
If to Schein:
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
U.S.A.
Attention: General Counsel
Telefax: 1 (973) 593-5820
if to a Principal Shareholder, to him, her or it at the address set forth beside
his, her or its name on Schedule A hereto, with a copy to counsel at the address
set forth beside his, her or its name.
All such notices and communications shall be deemed received upon (a) actual
receipt by the addressee, (b) actual delivery to the appropriate address or (c)
in the case of a facsimile transmission, upon transmission by the sender and
issuance by the transmitting machine of a confirmation slip confirming that the
number of pages constituting the notice have been transmitted without error. In
the case of notices sent by facsimile transmission, the sender shall
contemporaneously mail a copy of the notice to the addressee at the address
provided for above. However, such mailing shall in no way alter the time at
which the facsimile notice is deemed received.
Section 6.5 Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be considered an original, but all of which
together shall constitute the same instrument.
Section 6.6 Equitable Relief. The parties acknowledge that the remedy at
----------------
law for breach of this Agreement would be inadequate and that, in addition to
any other remedy a party may have for a breach of this Agreement, that party
shall be entitled to an injunction restraining any such breach or threatened
breach, or a decree of specific performance, without posting any bond or
security. The remedy provided in this Section 6.6 is in addition to, and not in
lieu of, any other rights or remedies a party may have.
Section 6.7 Separability. If any provision of this Agreement is invalid
------------
or unenforceable, the balance of this Agreement shall remain in effect, and if
any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
Section 6.8 Entire Agreement. This Agreement contains a complete
----------------
statement of all the arrangements among the parties with respect to its subject
matter, supersedes all existing agreements among them with respect to that
subject matter, may not be changed or terminated orally and any amendment or
modification must be in writing and signed by Cheminor, the Principal
Shareholders then owning a majority of the Shares owned by all Principal
Shareholders, and Schein, provided that no such amendment or modification may
adversely affect the rights or obligations of any Principal Shareholder without
that Principal Shareholder's prior written consent.
16
<PAGE>
Section 6.9 Binding Effect. This Agreement shall be binding upon and
--------------
shall inure to the benefit of the parties hereto and their respective
successors, Permitted Assignees (upon assignment in accordance with this
Agreement), legal representatives and heirs.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
CHEMINOR DRUGS LIMITED
By:
_________________________________
Name:
Title:
SCHEIN PHARMACEUTICAL, INC.
By:
_________________________________
Name:
Title:
PRINCIPAL SHAREHOLDERS
____________________________________
Name: *** ** **** *****
____________________________________
Name: ** ****** *****
____________________________________
Name: **** ******
____________________________________
Name: **** ****** ****** ********* *******
* redacted pursuant to confidential treatment request.
17
<PAGE>
DR. REDDY'S HOLDINGS LTD.
By:
_________________________________
Name:
Title:
For purposes of the second sentence of
Section 1.1(a) and Section 6.2 hereof:
DR. REDDY'S LABORATORIES LIMITED
By:
_________________________________
Name:
Title:
18
<PAGE>
SCHEDULE A
PRINCIPAL SHAREHOLDERS
NAME ADDRESS
- ---- -------
*** ********* ************ ** ******** ***** ******* ** ** ******* ** ****
*** ** ********
** *** ** **** ****** ******* ****** ********
** ** ****** ****** ******* ****** ********
** **** ******* ***** ****** ********
** **** ****** ****** ********* ********
******* ****** ******** ***
** *** ******* ******** ***** ********* ******
*********
* redacted pursuant to confidential treatment request.
19
<PAGE>
EXHIBIT 10.48
STRATEGIC ALLIANCE AGREEMENT
Among
SCHEIN PHARMACEUTICAL, INC.
CHEMINOR DRUGS LIMITED
DR. REDDY'S LABORATORIES LIMITED
and
REDDY-CHEMINOR, INC.
Dated February 6, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
DEFINED TERMS 2
ARTICLE II
DOSAGE FORM PRODUCT DISTRIBUTION RIGHTS 8
Section 2.1 Cheminor Dosage Form Products 8
-----------------------------
Section 2.2 Schein Dosage Form Products 9
---------------------------
Section 2.3 Term of Distribution Rights 10
---------------------------
Section 2.4 Existing Arrangements 12
---------------------
Section 2.5 Holder of ANDA 12
--------------
Section 2.6 *** ******* ******** ********** **
-------------------------------
ARTICLE III
BULK PHARMACEUTICAL SUBSTANCES 13
Section 3.1 Supply of Cheminor Bulk Substances 13
----------------------------------
</TABLE>
* redacted pursuant to confidential treatment request.
i
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 3.2 Supply of Cheminor Bulk Currently Purchased by Schein from Third
-----------------------------------------------------------------
Parties 14
Section 3.3 Bulk Supplied by Reddy 14
----------------------
Section 3.4 No Resale of Cheminor Bulk Substances 14
-------------------------------------
Section 3.5 Non-Performance Notice; Schein Dosage Form Product With Cheminor
-----------------------------------------------------------------
Bulk 14
----
Section 3.6 Non-Performance; Schein Dosage Form Product Without Cheminor Bulk 15
-----------------------------------------------------------------
Section 3.7 Non-Performance Notice; Cheminor Dosage Form Product 15
-----------------------------------------------------------------
ARTICLE IV
PROFIT SHARING 15
Section 4.1 Dosage Form Product Pricing 15
----------------------------
Section 4.2 Cheminor Bulk Substance Pricing 15
---------------------------------
Section 4.3 Jurisdiction Specific Calculations 16
-----------------------------------
ARTICLE V
MANUFACTURING 16
Section 5.1 Manufacturing Facility 16
----------------------
Section 5.2 Know-How and Technical Information 17
-----------------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 5.3 Certain Patent Matters 18
----------------------
Section 5.4 Right to Inspect. 19
----------------------
Section 5.5 Adverse Drug Reactions. 19
-----------------------
ARTICLE VI
PRODUCT DEVELOPMENT/MARKETING 19
Section 6.1 Product Development Committee 19
-----------------------------
Section 6.2 Regulatory Approval 20
---------------------
Section 6.3 Patent Challenges 21
---------------------
Section 6.4 Marketing Working Group 22
-------------------------
ARTICLE VII
SUPPLY AND RELATED MATTERS 22
Section 7.1 Supply and Marketing 22
----------------------
Section 7.2 Forecasts, Ordering, Delivery and Purchase Obligations 24
-------------------------------------------------------
Section 7.3 Non-Conforming Goods 25
----------------------
Section 7.4 Terms and Conditions of Sale 26
------------------------------
Section 7.5 Payment 26
-----------
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE VIII
COMPLIANCE WITH LAW 28
Section 8.1 Compliance Concerning Finished Dosage Form Products. 28
-----------------------------------------------------
Section 8.2 Compliance Concerning Bulk Pharmaceutical Substances 28
-----------------------------------------------------
Section 8.3 Mutual Representations and Warranties 29
----------------------------------------
ARTICLE IX
INDEMNIFICATION; PATENT CLAIMS; RECALLS OR SEIZURES 31
Section 9.1 Indemnification 31
----------------
Section 9.2 Patent Claims 32
----------------
Section 9.3 Recall or Seizure 32
------------------
ARTICLE X
TERM 33
Section 10.1 Term/Termination 33
------------------
ARTICLE XI
CONFIDENTIALITY AND NON-USE 35
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 11.1 Confidential Treatment and Non-Use 35
-----------------------------------
ARTICLE XII
MISCELLANEOUS 36
Section 12.1 Insurance. 36
------------
Section 12.2 Notices 36
------------
Section 12.3 Governing Law 37
--------------
Section 12.4 Assignment 38
--------------
Section 12.5 Inability to Perform 38
----------------------
Section 12.6 Entire Agreement 38
--------------------
Section 12.7 Liability of Parties to Each Other 38
------------------------------------
Section 12.8 Rights and Obligations of Cheminor and Schein 39
----------------------------------------------
Section 12.9 Counterparts 39
--------------
Section 12.10 Accounting 39
--------------
SCHEDULE 2.1(b)(i)
TO STRATEGIC ALLIANCE AGREEMENT 1
- -------------------------------
SCHEDULE 2.1(b)(ii)
TO STRATEGIC ALLIANCE AGREEMENT 2
- -------------------------------
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SCHEDULE 2.1(b)(iii)
STRATEGIC ALLIANCE AGREEMENT 3
- -----------------------------
SCHEDULE 2.1(b)(iv)
TO STRATEGIC ALLIANCE AGREEMENT 5
- -------------------------------
SCHEDULE 2.2(a)
TO STRATEGIC ALLIANCE AGREEMENT 6
- -------------------------------
SCHEDULE 2.2(b)
TO STRATEGIC ALLIANCE AGREEMENT 7
- -------------------------------
SCHEDULE 2.4(1)
TO STRATEGIC ALLIANCE AGREEMENT 27
- -------------------------------
SCHEDULE 2.4(2)
TO STRATEGIC ALLIANCE AGREEMENT 28
- -------------------------------
SCHEDULE 4.2(b) 29
SCHEDULE 5.5
TO STRATEGIC ALLIANCE AGREEMENT 30
- --------------------------------
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SCHEDULE 8.3(d)(1)
TO STRATEGIC ALLIANCE AGREEMENT 35
- -------------------------------
SCHEDULE 8.3(d)(2)
TO STRATEGIC ALLIANCE AGREEMENT 37
- -------------------------------
SCHEDULE 8.3(e)(1)
TO STRATEGIC ALLIANCE AGREEMENT 39
- --------------------------------
SCHEDULE 8.3(e)(2)
TO STRATEGIC ALLIANCE AGREEMENT 40
- -------------------------------
SCHEDULE 8.3(g)(1)
TO STRATEGIC ALLIANCE AGREEMENT 42
- -----------------------------
SCHEDULE 8.3(g)(2)
TO STRATEGIC ALLIANCE AGREEMENT 43
- -------------------------------
SCHEDULE 8.3(h)(1)
TO STRATEGIC ALLIANCE AGREEMENT 44
- -----------------------------
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SCHEDULE 8.3(h)(2)
TO STRATEGIC ALLIANCE AGREEMENT 45
- -------------------------------
SCHEDULE 8.3(i)(1)
TO STRATEGIC ALLIANCE AGREEMENT 46
- -------------------------------
SCHEDULE 8.3(i)(2)
TO STRATEGIC ALLIANCE AGREEMENT 47
- -------------------------------
SCHEDULE 8.3(k)(1)
TO STRATEGIC ALLIANCE AGREEMENT 48
- -------------------------------
SCHEDULE 8.3(k)(2)
TO STRATEGIC ALLIANCE AGREEMENT 49
- -------------------------------
SCHEDULE 3.2
TO STRATEGIC ALLIANCE AGREEMENT 50
- -------------------------------
</TABLE>
viii
<PAGE>
STRATEGIC ALLIANCE AGREEMENT dated February 6, 1998 among Schein
Pharmaceutical, Inc., a Delaware corporation ("Schein"), Cheminor Drugs Limited,
an Indian corporation ("Cheminor Drugs"), Dr. Reddy's Laboratories Limited, an
Indian corporation ("Reddy") and Reddy-Cheminor, Inc., a New Jersey corporation
("Reddy-Cheminor US"). Cheminor Drugs, Reddy and Reddy-Cheminor US are
sometimes hereinafter referred to collectively as "Cheminor."
WHEREAS, Schein is engaged in the business of developing,
manufacturing and marketing dosage form generic pharmaceutical products (also
known as "multi source" or "off-patent" drugs);
WHEREAS, each of Cheminor Drugs and Reddy is engaged in the business
of developing, manufacturing and marketing bulk pharmaceutical substances and
dosage form generic pharmaceutical products;
WHEREAS, Reddy-Cheminor US is engaged in the United States and Canada
in the business of importing and marketing bulk pharmaceutical substances and
dosage form generic pharmaceutical products supplied to it by Cheminor Drugs and
Reddy;
WHEREAS, Schein, Cheminor Drugs, Reddy and Reddy-Cheminor US entered
into a Development and Supply Agreement dated May 16, 1997 (the "Development and
Supply Agreement");
WHEREAS, Schein and Cheminor desire to enter into a broad strategic
alliance that would have as its principal goals (i) the integration of the solid
dosage operations of Schein and Cheminor for product development, synthesis,
bulk manufacturing and dosage manufacturing, and marketing, sales and
distribution; and (ii) the manufacture and supply of bulk drugs by Cheminor for
Schein; and
WHEREAS, in order to promote an identity of interest between Schein
and Cheminor, contemporaneously with the execution and delivery of this
Agreement, Schein and Cheminor Drugs are entering into a Stock Purchase
Agreement and a Shareholders Agreement providing for the investment by Schein in
the capital stock of Cheminor Drugs and the potential investment by Cheminor
Drugs in the capital stock of Schein, and certain related matters.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
<PAGE>
ARTICLE I
DEFINED TERMS
As used in this Agreement, the following terms have the meanings
ascribed thereto as follows:
"Affiliate" with respect to any entity means any corporation or
business entity controlled by, controlling, or under common control with such
entity. (For the purpose of this definition, "control" means direct or indirect
beneficial ownership of greater than fifty percent (50%) of the voting stock of
such corporation or other business entity, or a greater than fifty percent (50%)
interest in the income of such corporation or other business entity, or the
power to direct or cause the direction of the management and policies of such
corporation or other business entity whether by ownership of voting securities,
by contract or otherwise, or such other relationship as, in fact, constitutes
control.)
"ANDA" means an Abbreviated New Drug Application filed with the FDA
seeking an "A" rating to market the covered product in the United States.
"Applicable Law" means all applicable laws (statutory and common law),
rules, regulations, decrees, orders and judgments, as any of the foregoing may
be amended or revised from time to time, including, without limitation, the FD&C
Act.
"Bulk Substance" means the pharmaceutically active substance of a
Product in bulk form.
"Cheminor Bulk Substance" means Bulk Substance manufactured by Reddy
or Cheminor.
"Cheminor Distribution Right" has the meaning ascribed thereto in
Section 2.2(a) hereof.
"Cheminor Dosage Form Product" means each and every Cheminor Finished
Dosage Product With Cheminor Bulk and Cheminor Finished Dosage Product With
Third Party Bulk currently produced by Cheminor, under development by Cheminor
or hereafter developed and/or produced by Cheminor prior to the Termination
Date.
"Cheminor Finished Dosage Product With Cheminor Bulk" means a Finished
Dosage Form Product manufactured by Cheminor utilizing Cheminor Bulk Substance.
"Cheminor Finished Dosage Product With Third Party Bulk" means a
Finished Dosage Form Product manufactured by Cheminor utilizing Third Party Bulk
Substance.
"Cheminor Market" has the meaning ascribed thereto in Section 2.2(a)
hereof.
2
<PAGE>
"Commercial Expenses" ***** *** ************ ********** ***** ***
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"Development Costs" ***** *** ************ ********** ***** ***
******** ** *** ***** ****** ******** ** *** *********** *** ****** ** *** ***
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"DMF" means the drug master file.
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**** ********* ********* ** *** ******* ******** ********** *** ***** ***
******* ******** ********** ********** *** ********* *** ********** ******* ***
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"FDA" means the United States Food and Drug Administration.
"FD&C Act" means the Federal Food, Drug and Cosmetic Act of 1938, as
amended, and the regulations thereunder, including current good manufacturing
practice regulations, as the same may be amended or revised.
**** *** ****** ***** *** ** ****** ** **** ******** ****** ****
******* *** ***** ** ********* *********** ***** *** ************ ******** *****
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*******
* redacted pursuant to confidential treatment request.
3
<PAGE>
"Finished Dosage Form Product" means a finished galenical presentation
of a Product, in fully packaged and labeled form or in unpackaged, unlabeled
form, as the context may require, which Product is subject to this Agreement.
"GAAP" means United States generally accepted accounting principles.
"Indemnified Party" has the meaning ascribed thereto in Section 9.1
hereof.
"Indemnifying Party" has the meaning ascribed thereto in Section 9.1
hereof.
"Intellectual Property Costs" means the out-of-pocket payments to
patent and litigation counsel (or other experts, including outside laboratories)
in connection with pre- or post-marketing patent work with respect to a Bulk
Pharmaceutical Substance and/or Finished Dosage Form Product which shall be
recoverable in accordance with Section 7.5(b) hereof, and including, without
limitation, all costs incurred pursuant to Section 5.3 and Section 9.2 hereof.
"Know-How" means all Finished Dosage Form Product related technical
knowledge, manufacturing procedures, expertise, methods, protocols and current
and accumulated experiences which any party hereto acquires in connection with
this Agreement and/or has acquired as a result of scientific research, practical
experiences and otherwise which have a demonstrated usefulness in manufacturing,
obtaining and maintaining Regulatory Approval, including but not limited to (i)
plant validation protocols and specifications; (ii) process validation
procedures; (iii) quality control procedures; (iv) analytical methods and
procedures; (v) bio-equivalence testing protocols and procedures; (vi) cleaning
validation protocols and procedures; (vii) procedures for preparation of
applications for Regulatory Approval; (viii) ongoing regulatory compliance
procedures; and (ix) galenical formulations and processes.
"Launch Date" means the date on which Schein, with respect to any
Cheminor Dosage Form Product or Schein Dosage Form Product with Cheminor Bulk
Substance, or Cheminor, with respect to any Schein Dosage Form Product, makes
its first commercial sale of such Finished Dosage Form Product to an unrelated
third party in an arms' length transaction in a particular jurisdiction but no
later than the later of (i) thirty (30) days after the date on which all
Regulatory Approvals have been obtained, (ii) thirty (30) days after applicable
patent expiration (including General Agreement on Trade and Tariffs extensions)
or (iii) thirty (30) days after product exclusivity expiration, provided
Cheminor has supplied Schein with such Cheminor Dosage Form Product in
accordance with Schein's orders therefor, or Schein has supplied Cheminor with
such Schein Dosage Form Product in accordance with Cheminor's orders therefor.
"Manufacturing Cost" means, *** ******** ****** **** ******* ***
******** **** ********** *** ***** ******** ************* **** ** * ***** ******
*** *** ********** ********** ** ********** **** **** ********** ********** ***
**** ******** ****** **** ******* ** ******** **** ********** ********* *** ***
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********* ***** ** ******** *** ********* **** ** ********** **** ***
*********** ** **** ******** ****** **** ******* ** ******** **** **********
**** ******** ****** ******** ******** ******* **
* redacted pursuant to confidential treatment request.
4
<PAGE>
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"Net Sales" means **** ****** ********** ** ********* *** *********
***** **** *** ***** ******** ***** ***** ****** *** **** ******** ****** ****
******* ** ************ ***** ******* ** ************ ************* *** ******
******** ** **** ********** ******* ********** *** *********** ******** **
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******** ************ *** *** *** ******** ***** ** *****
* redacted pursuant to confidential treatment request
5
<PAGE>
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"New Drug Substance" means any substance that when used in the
manufacturing, processing or packing of a drug causes that drug to be a new
drug.
"Non-Performance Notice" has the meaning ascribed thereto in Schedule
2.1(b)(iv) hereof.
"Product" means a given pharmaceutical substance.
"Product Development Committee" has the meaning ascribed thereto in
Section 6.1 hereof.
"Profit" means *** ***** ** * ******** ****** **** ******* ***** ***
*** ************* **** ** ****** ***** ****** ********* **** ******** ******
**** ******* ******** ******* *** **** *** ********** ******** ** ****** *****
****** ***** ******** **** ******** ****** **** ******* ******** ******* *****
********* *** ** ***** ******* ***** ********* ********** ******** ** **********
**** ** *** ********** ** ******** ****** **** ******* *** **** *********
******** ** **** ******** ****** **** ********* *************** *** **********
** ** *** ****** *** ******* *** ***** ** *** ******* ***** ***** ****** ******
** **** ** ****** **** ***** ******* ***** ** ******** ***** ****** ** **** ***
*** ******* ** *** ***** ***** ** ******** ******* ****** ** ****** *******
***** **** ******* **** **** ***** ********* ******** **** **** ********* *****
*** **** ******** ****** **** ******* *** *** ** ******** **** **** ********* **
********** ** ***** ** ** ** **** ******** ****** **** ********
* redacted pursuant to confidential treatment request
6
<PAGE>
"Reference Drug" means the drug product identified by the FDA as the
drug product to which an applicant refers in seeking Regulatory Approval, as set
forth in the Approved Drug Products With Therapeutic Equivalence Evaluations
issued by the FDA or any successor thereto, or for jurisdictions outside of the
United States, the drug product similarly identified by the applicable
Regulatory Authority.
"Regulatory Approval" means final approval of the applicable
Regulatory Authority to market a Finished Dosage Form Product or to market, sell
or use a Bulk Substance in the manufacture of a Finished Dosage Form Product to
be marketed pursuant to this Agreement and includes the DMF, ANDAs or their
respective non-U.S. equivalents.
"Regulatory Authority" means any governmental agency or other
authority that, pursuant to Applicable Law, is responsible within its
jurisdiction for regulating the development, manufacture and/or marketing of
bulk pharmaceutical substances and/or finished dosage form products which are
the subject of this Agreement.
"Regulatory Notice" has the meaning ascribed thereto in Section
10.1(b) hereof.
"Schein Distribution Right" has the meaning ascribed thereto in
Section 2.1(a) hereof.
"Schein Dosage Form Product" means each and every Schein Finished
Dosage Product With Cheminor Bulk and Schein Finished Dosage Product With Third
Party Bulk currently produced by Schein, under development by Schein or
hereafter developed and/or produced by Schein prior to the Termination Date.
"Schein Finished Dosage Product with Cheminor Bulk" means a Finished
Dosage Form Product manufactured by Schein utilizing Cheminor Bulk Substance.
"Schein Finished Dosage Product with Third Party Bulk" means a
Finished Dosage Form Product manufactured by Schein utilizing Third Party Bulk
Substance.
"Schein Entity" means any non-U.S. entity in the *** *******
********** ***** ******* ****** *** **** ** ***** ****** *** ** ****** ********
*** **** *** ********
"Schein Entity Market" means *** ****** ******** ******* **********
***** ******* ****** *** *****
"Schein Market" has the meaning ascribed thereto in Section 2.1(a)
hereof.
"Specifications" has the meaning ascribed thereto in Section 7.3(a)
hereof.
"Technical Information" means all information and expertise which any
party hereto acquires in connection with this Agreement and/or has acquired
which have a demonstrated usefulness in manufacturing, packaging and labeling
and/or obtaining and maintaining Regulatory Approval of the Finished Dosage Form
Products pursuant to this Agreement, including, but not
* redacted pursuant to confidential treatment request.
7
<PAGE>
limited to, all specifications, manuals and computer programs relating to
manufacturing and similar materials and access to the DMF of Cheminor Bulk
Substance.
"Termination Date" has the meaning ascribed thereto in Section 2.3
hereof.
"Third Party Bulk Substance" means Bulk Substance that has not been
manufactured by Schein, Reddy or Cheminor.
ARTICLE II
DOSAGE FORM PRODUCT DISTRIBUTION RIGHTS
Section 2.1 Cheminor Dosage Form Products.
-----------------------------
(a) Cheminor, for itself and its Affiliates, hereby grants to Schein
and its Affiliates the exclusive right in the Schein Market (meaning Cheminor
and its Affiliates will sell only to Schein), and Schein (on behalf of itself
and its Affiliates) hereby accepts the exclusive obligation (meaning Schein and
the Schein Affiliates will only source from Cheminor and its Affiliates) to
market, sell and distribute in the Schein Market, each and every Cheminor Dosage
Form Product, except as provided in Section 2.1(b) below (the "Schein
Distribution Right"). For the purpose of this Agreement, the term "Schein
Market" means the United States, its territories and possessions and the
Commonwealth of Puerto Rico (and such other jurisdictions as the parties hereto
may in their discretion hereafter mutually agree upon in writing).
(b) Notwithstanding anything to the contrary contained in Section
2.1(a) hereof, Schein and its Affiliates shall have no right to distribute (i)
any Cheminor Dosage Form Product listed on Schedule 2.1(b)(iii) hereto which
Schein (on behalf of itself and its Affiliates) fails to indicate to Cheminor
its intention to market, sell or distribute such Cheminor Dosage Form Product,
by written notice given to Cheminor on or prior to the date which is one hundred
and eighty (180) days after the date of this Agreement; and (ii) any Cheminor
Dosage Form Product developed by Cheminor in the future where Cheminor advises
Schein, in writing, of the development of said Cheminor Dosage Form Product and
Schein fails to indicate to Cheminor, in writing, within one hundred and eighty
(180) days after such advice from Cheminor that it intends to market, sell or
distribute such Cheminor Dosage Form Product. With respect to any Cheminor
Dosage Form Product as to which Schein has made an election pursuant to the
preceding sentence, such election shall be deemed revoked if Schein does not,
prior to the date which is five years prior to the expiration of all patents
applicable to such Cheminor Dosage Form Product in the Schein Market, reconfirm
its intention to market, sell or distribute such Cheminor Dosage Form Product.
(c) Upon the written request of any Schein Entity made on or before
one hundred and eight (180) days after execution of this Agreement (which
request shall identify those products which the Schein Entity intends to market,
sell or distribute), Cheminor and said Schein Entity shall within ninety (90)
days enter into counterparts of this Agreement with such modifications as may be
mutually agreed to by Cheminor and such Schein Entity, with respect to the
jurisdiction within
8
<PAGE>
the Schein Entity Market in which that Schein Entity is located. Notwithstanding
the one hundred and eighty (180) day period set forth above: (a) the Schein
Entities shall not be entitled to distribute certain products in certain
jurisdictions as provided on Schedule 2.1(b)(i); and (b) the Schein Entities
located in ********** ***** ****** *** *** **** must elect by May 1, 1998 the
products listed on Schedule 2.1(b)(ii) or those products shall not be available
in their respective jurisdictions. The parties expressly acknowledge that the
Schein Entities shall not be permitted to sell to each other Products purchased
under this Agreement.
(d) Except as provided in Section 2.1, 2.2, 3.1 and 7.1(b) hereof,
nothing in this Agreement shall, or be construed to, restrict in any manner
whatsoever, Schein's right (or the right of any Affiliate of Schein or any
Schein Entity) to distribute on any basis anywhere in the world any
pharmaceutical products manufactured by Schein or by any person or entity other
than Cheminor, provided, however, that Schein shall not permit any Schein
Affiliates to sell, or assist or encourage any Schein Entity in selling in the
Schein Market or Cheminor Market, any Product which Schein is prohibited by this
Agreement from selling in that market.
(e) The Schein Distribution Right shall become non-exclusive with
respect to any Cheminor Dosage Form Product as to which Cheminor shall have
given Schein a Non-Performance Notice (as the term is defined in Schedule
2.1(b)(iv) hereto) for the Schein Market to the extent provided in Sections 3.5
and 3.7 hereof.
Section 2.2 Schein Dosage Form Products.
---------------------------
(a) Schein, for itself and its Affiliates, hereby grants to Cheminor
Drugs, Reddy and their Affiliates in the Cheminor Market, the exclusive right
(meaning Schein and its Affiliates will only sell to Cheminor), and Cheminor
Drugs and Reddy (on behalf of themselves and their respective Affiliates)
accept, the exclusive obligation (meaning Cheminor Drugs and Reddy and their
respective Affiliates will only source from Schein and its Affiliates), to
market, sell and distribute in the Cheminor Market, each and every Schein Dosage
Form Product, except as provided in Section 2.2(b) below (the "Cheminor
Distribution Right"). For purposes of this Agreement, the term "Cheminor
Market" means the jurisdictions listed on Schedule 2.2(a) hereto (and such other
jurisdictions as the parties hereto may in their discretion hereafter mutually
agree upon in writing).
(b) Notwithstanding anything to the contrary in Section 2.2(a) hereof,
Cheminor and its Affiliates shall have no right to distribute: (i) any Schein
Dosage Form Product listed on Schedule 2.2(b)(i) hereto, which Cheminor (on
behalf of itself and its Affiliates) fails to elect, by written notice given to
Schein on or prior to the date which is one hundred and eighty (180) days after
the date of this Agreement, to distribute such Schein Dosage Form Product; (ii)
any Schein Dosage Form Product developed by Schein in the future, where Schein
advises, in writing, Cheminor of said development and Cheminor fails to advise
Schein, in writing, within one hundred and eighty (180) days after such advice
from Schein that it intends to market, sell or distribute the Schein Dosage Form
Product; and (iii) a future Schein Dosage Form Product where Cheminor is already
* redacted pursuant to confidential treatment request
9
<PAGE>
selling an equivalent Product in the Cheminor Market, unless Cheminor
discontinues the sale of such equivalent Product and sells such Schein Dosage
Form Product exclusively.
(c) Except as provided in Section 2.1 and 2.2 hereof, nothing in this
Agreement shall, or be construed to, restrict in any manner whatsoever,
Cheminor's right or Reddy's right (or the right of any Affiliate of Cheminor or
Reddy) to distribute on any basis anywhere in the world any pharmaceutical
products manufactured by Cheminor, Reddy or by any person or entity other than
Schein, provided, however, that Cheminor shall not permit Reddy or any Cheminor
Affiliate to sell in the Schein Market or Cheminor Market any Product which
Cheminor would not be permitted by this Agreement to sell in that market.
(d) The Cheminor Distribution Right shall become non-exclusive with
respect to any Schein Dosage Form Product as to which Schein shall have given
Cheminor a Non-Performance Notice (as that term is defined in Schedule
2.1(b)(iv) hereto) for a particular jurisdiction to the extent provided in
Section 3.6 hereof.
Section 2.3 Term of Distribution Rights.
---------------------------
(a) The Schein Distribution Right and the Cheminor Distribution Right
shall terminate on ******** *** **** **** ************ ******* *********
******** **** *** *** ****** ************ ***** *** *** ******** ************
****** ** *** **** *** *** ***** *** ****** **** ******* ** *** ************ ***
*** ****** ****** **** ******* ** ******** ****** **** ******* *** ***** **
*********** *** ********** ******** ***** ** ******** ************ ** *********
***** ** ******** *** ***** ***** *** ***** *********** ** *** ***** **********
***** ** **** ************ ** **** ******** ****** **** ******* ** ****** **
********* ** *********** *** **** *** *********** **** ***** ** ********
************* ** ********** ********** ******* ****** ****** ** ******** *****
******* ****** ** *** ***** **** **** ********* ***** *** ***** ****************
********* *** *** ****** ** *********** ** ***** ** ***** **** ***** ***** **
*** *********** **** **** ** ******* ** *** ***** **** ******** ***** ******
****** ** ************ ******** ***** ****** ****** **** ******** ****** ****
******** ** * ************* ***** *** ** ** *** ************** ***** **** *****
*** *********** **** ** *** **** ***** *** ********** ** ********* ** ****
********** ** *** ***** **** ****** ***** ******** ****** ** ************
****** ***** ****** ******** **** ****** ****** **** ******** ** * *************
***** *** ** ** *** ************** ***** **** ***** *** *********** **** ** ***
**** ***** *** ********** ** ********* ** **** ********** ***** ******** ** *
****** ** *********** *** ******* ****** ***** **** ******** ** *** **** ***
******** *********** ** *** ***** ***** *** * ****** ** ** ****** ***** ********
** *** ****** ** *************
* redacted pursuant to confidential treatment request.
10
<PAGE>
**** ******
-----------
<TABLE>
<CAPTION>
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****** ** *********** ****** ** ***********
- --------------------------------------------------------------------------------------
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****** ******** ****** ******** ** ******** ** ******** ** *** ******** **
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*** **** ******** ***** *** ***** ***** ** *** ***** *** ******** *** ****** **
*********** ** *** *** *********** *** **** **** ************** **** **
********* ** *** ***** ******* ************ *** ********** ******** ***** **
******** *********** ******** ** **** ******** ****** **** ******* ** ***** **
****** *** *** ********** ******** *** ** ********** ******** ****** ****
******* ** *** ************* ** ***** *** ***** ******* ******** ****** ****
******* ** ***** **** ** *** **** ** *** ***** ****** ** ************ ******* **
*** *************** ************ ** ******* *** *** *** ********* ** ****** **
* ***** ** **** ******** ** ******* ** ***** **** **** ***** ***** *** *** ***
** *** *********** *** *** ******* ** ******** *** *** ********** ******** ***
** ********** ******** ****** **** ********
(b) Notwithstanding any other provision of this Agreement, either
Schein or Cheminor may terminate the Schein Distribution Right with respect to
any Cheminor Dosage Form Product in a particular jurisdiction if ****** ***
******* ****** **** ***** ****** ***** *** ****** **** **** ******* ** ****
******** ****** **** ******* *** ****** ** **** **** **** ******* **** ** ***
***** ** **** ******** ****** **** ******* ** **** ************* by notice in
writing to the other given no later than one hundred twenty (120) days after the
end of such period; provided, however, that a party may not so terminate the
Schein Distribution Right if its own breach of this Agreement has caused ***
****** ** *** ******** ****** **** ******* *** *** ****** ** ** **** **** ****
******* **** ** *** ****** If Cheminor so terminates the Schein Distribution
Right, Cheminor shall transfer the application for Regulatory Approval (ANDA or
non-U.S. equivalent) for that Cheminor Dosage Form Product in that jurisdiction
to Schein at Schein's cost and expense, at which point Schein may manufacture,
market or sell such Product with no obligation to Cheminor under this Agreement
(except to the extent Schein purchases Bulk Substance from Cheminor). If Schein
so terminates the Schein Distribution Right, Schein shall have no further rights
to such application for Regulatory Approval for such Cheminor Dosage Form
Product in that jurisdiction. In calculating whether ****** **** ******* ** *
******** ****** **** ******* ** **** **** ****
* redacted pursuant to confidential treatment request.
11
<PAGE>
******* **** ** *** ***** ** *** ******* ****** **** ***** ******* *** *******
***** ***** ********* ****** *** *** ****** ****** **** ***** ******* ***** ****
******** **** **** ****** *** ****** ****** ** *** ***** ********** *** ***
***** ******* **** ****** **** ***** ******* *** ***** ******** **** *********
****** ** ******
(c) Notwithstanding any other provision of this Agreement, either
Schein or Cheminor may terminate the Cheminor Distribution Right with respect to
any Schein Dosage Form Product in a particular jurisdiction if ****** ***
******* ****** **** ***** ****** ***** *** ****** **** **** ******* ** ****
****** ****** **** ******* *** ****** ** **** **** **** ******* **** ** ***
***** ** **** ****** ****** **** ******* ** **** ************* by notice in
writing to the other given no later than one hundred twenty (120) days after the
end of such period; provided, however, that a party may not so terminate the
Cheminor Distribution Right if its own breach of this Agreement has caused ***
****** ** *** ****** ****** **** ******* *** *** ****** ** ** **** **** ****
******* **** ** *** ******* If Schein so terminates the Cheminor Distribution
Right, Schein shall transfer the application for Regulatory Approval (ANDA or
non-U.S. equivalent) for that Schein Dosage Form Product in that jurisdiction to
Cheminor at Cheminor's cost and expense, at which point Cheminor may
manufacture, market or sell such Product with no obligation to Schein under this
Agreement. If Cheminor so terminates the Cheminor Distribution Right, Cheminor
shall have no further rights to such application for Regulatory Approval for
such Schein Dosage Form Product in that jurisdiction. In calculating whether
****** **** ******* ** * ****** ****** **** ******* ** **** **** **** *******
**** ** *** ***** ** *** ******* ****** **** ***** ******* *** ******* *****
***** ********* ****** *** *** ****** ****** **** ***** ******* ***** ****
******** **** **** ****** *** ****** ****** ** *** ***** ********** *** ***
***** ******* **** ****** **** ***** ******* *** ***** ******** **** *********
****** ** ******
Section 2.4 Existing Arrangements. Notwithstanding anything to
---------------------
the contrary contained in this Agreement, the rights hereunder of each party
hereto are subject to Schein's existing obligations to third parties as
described on Schedule 2.4(1) hereto, and to Cheminor's existing obligations to
third parties as described on Schedule 2.4(2) hereto.
Section 2.5 Holder of ANDA. Notwithstanding any other provision of
--------------
this Agreement, with respect to Finished Dosage Form Products marketed in the
U.S., Schein shall own/hold the ANDA with respect to Schein Dosage Form Products
and Cheminor shall own/hold the ANDA for Cheminor Dosage Form Products unless
the parties hereto otherwise agree with respect to specific Finished Dosage Form
Products. With respect to Regulatory Approvals in non-U.S. jurisdictions for
the marketing of Finished Dosage Form Products, Schein and Cheminor shall
mutually agree, on a case by case basis, whether Schein or Cheminor will
own/hold the Regulatory Approval.
Section 2.6 *** ******* ******** *********** *** ******* ******
-------------------------------
*********** **** *** ******** ********* ** *** ******* ******** ********** **
*** ******** ********* ***** *** ******* ** ******** ** * *** **** ***********
*** ******* ***** *** ** **** ** ******* ************ ** * ******* ********
******** ******* ** *** ****** ******* *** ******** **** **** ********** ******
*** ******** *** ******* ******** ********** ** ******* ******** *************
** *** ******* ******** ************ *** ******** ********* *** *******
********
* redacted pursuant to confidential treatment request
12
<PAGE>
*********** ** *** **** *********** *** ** *** ****** ******** *** ***** * ***
******** ****** ** ** ******** ** ******* **** ********* *********** ***** **
******* ** * *** ********* ** ** ******** ****** ** ****** *** *** *******
******** ***********
ARTICLE III
BULK PHARMACEUTICAL SUBSTANCES
Section 3.1 Supply of Cheminor Bulk Substances.
----------------------------------
(a) Cheminor shall, on a non-exclusive basis, unless the parties
otherwise agree in a future writing with respect to a specific Cheminor Bulk
Substance, during the period prior to the Termination Date and during the one
hundred and eighty (180) day period referred to in Section 2.3(a) hereof, supply
Schein and its Affiliates such Cheminor Bulk Substances as Schein shall elect
pursuant to Section 3.1(b) and shall require for the manufacture of Schein
Finished Dosage Product with Cheminor Bulk Substance and Schein and its
Affiliates shall, during such period, have the exclusive obligation to purchase
from Cheminor, their requirements of Bulk Substances.
(b) Schein may elect, by written notice given to Cheminor on or prior
to the date which is one hundred and eighty (180) days after the date of this
Agreement, to utilize any Cheminor Bulk Substance listed on Schedule 2.1(b)(iii)
in a Schein Finished Dosage Product with Cheminor Bulk. With respect to any
Cheminor Bulk Substance as to which Schein has made an election pursuant to the
preceding sentence, such election shall be deemed revoked if Schein does not,
prior to the date which is five years prior to the expiration of all patents
applicable to such Product within the Schein Market, reconfirm its intention to
utilize such Cheminor Bulk Substance as aforesaid. Cheminor shall not
manufacture for sale in the Schein Market, a Cheminor Dosage Form Product that
is equivalent to such Schein Dosage Form Product during the period Schein is
selling in the Schein Market such Schein Dosage Form Product.
(c) Notwithstanding Schein's exclusive obligation to source Bulk
Substance from Cheminor as contained in Section 3.1(a), if Cheminor is unable to
deliver Schein's requirements of a Cheminor Bulk Substance on a timetable
established in good faith by Schein and Cheminor, Schein may purchase Third
Party Bulk Substance for that Finished Dosage Form Product (and Schein may in
advance qualify an alternate Third Party Bulk Substance); provided, however,
that Schein shall endeavor in good faith to structure its purchases of Third
Party Bulk Substances from other sources as to permit, at the earliest possible
date from and after the date Cheminor is able to deliver such Bulk Substance
requirements, the purchase of Schein's requirements of such Bulk Substance from
Cheminor.
(d) Notwithstanding anything to the contrary contained in this
Agreement, Schein's costs of (and relating to) qualifying a Third Party Bulk
Substance source shall not be a cost recoverable under, or included in any way,
in this Agreement unless Schein shall be required to utilize that Third Party
Bulk Substance source due to Cheminor's inability to timely deliver, and in that
event, said qualifying costs shall be Development Costs.
* redacted pursuant to confidential treatment request.
13
<PAGE>
(e) Except for the Cheminor Bulk Substances identified on Schedule
4.2(b), Cheminor shall supply Schein's requirements of Cheminor Bulk Substances
on a preferred customer basis, i.e., allocating available product to meet
Schein's orders on a timely basis before supplying any other bulk substance
customer.
Section 3.2 Supply of Cheminor Bulk Currently Purchased by Schein
-----------------------------------------------------
from Third Parties. With respect to Bulk Substances that Schein currently uses
- ------------------
in the manufacture of Schein Finished Dosage Product with Third Party Bulk,
Schein may, but is not obligated to, consult with Cheminor to ascertain whether
Cheminor desires to supply such Bulk Substance to Schein. Cheminor, at its own
discretion, may elect to, but shall not be obligated, to supply such Bulk
Substance to Schein on a non-exclusive basis during the period prior to the
Termination Date and during the 180-day period referred to in Section 2.3(a)
hereof. ** ******** ****** ** ****** *** **** **** ********** **** ****** *****
*** ************ ********** ******* ** ****** *** ************ ** **** ****
********* ***** **** ******** ** **** ** ******** ******* ****** *** **** ****
*********** ** *** ****** ****** ** **** ** ****** *** ************ ** *** ****
**** ********** **** ******** **** **** ********** ***** ** ****** ******* **
******* *** ****** ******* *** ******** ****** ** ********* ****** *** ******
******** ****** *** ******** **** ****** **** ****** ***** ****** ****
******** ******** ** **** ******* *** *** ******** **** ********** ****** **
******** *** *******
Section 3.3 Bulk Supplied by Reddy. Where Cheminor Bulk Substances
----------------------
to be supplied to Schein are manufactured by Reddy, Reddy will supply such
Cheminor Bulk Substances to Cheminor Drugs at *** ***** ********** ** ***
************ ***** *** ****** ******** ****** ******* **** ******** ****
********* **** ** ********* *** ******** **** **** ****** **** ******** ****
********* ** ****** *** *** ********** ** ******* ************* **** ** ****
******** **** ***********
Section 3.4 No Resale of Cheminor Bulk Substances. Notwithstanding
-------------------------------------
anything to the contrary in this Agreement, Schein shall only use the Cheminor
Bulk Substance supplied to Schein pursuant to this Agreement for the purpose of
developing or manufacturing Schein Dosage Form Product and shall not resell
Cheminor Bulk Substance except insofar as it is contained in Schein Dosage Form
Product.
Section 3.5 Non-Performance Notice; Schein Dosage Form Product With
-------------------------------------------------------
Cheminor Bulk.
- -------------
If Cheminor delivers to Schein a Non-Performance Notice (as such term
is defined in Schedule 2.1(b)(iv) hereto) with respect to a Schein Finished
Dosage Product with Cheminor Bulk Substance, then Schein shall file a site
transfer or supplement to its ANDA in order to transfer the manufacturing site
for the Finished Dosage Form Product to Cheminor's manufacturing facility, and
until approval of such transfer or supplement Cheminor shall continue to supply
to Schein the applicable Cheminor Bulk Substance. Following approval of such
transfer or supplement, Cheminor shall manufacture and supply to Schein that
product as a Cheminor Dosage Form Product. If thereafter Cheminor delivers to
Schein a Non-Performance Notice (as such term is defined in Schedule 2.1(b)(iv)
hereto) with respect to that Cheminor Dosage Form Product, then Schein shall
* redacted pursuant to confidential treatment request.
14
<PAGE>
transfer to Cheminor's name its ANDA (and all rights to that ANDA) for that
Product to Cheminor and that Product shall no longer be subject to this
Agreement. The preceding sentence shall not apply to any Cheminor Bulk
Substance supplied pursuant to Section 3.2 hereof.
Section 3.6 Non-Performance; Schein Dosage Form Product Without
---------------------------------------------------
Cheminor Bulk.
- -------------
If Schein delivers to Cheminor a Non-Performance Notice (as such term
is defined in Schedule 2.1(b)(iv) hereto) with respect to a Schein Dosage Form
Product, Schein may, in its sole discretion, convert Cheminor's right to
purchase such Finished Dosage Form Product to a non-exclusive right by giving
Cheminor written notice no later than sixty (60) days after the end of the
rolling twelve (12) month period for which said notice was given. Schein may
then sell such Product (either directly or indirectly) in the Cheminor Market.
Section 3.7 Non-Performance Notice; Cheminor Dosage Form Product.
----------------------------------------------------
If Cheminor delivers to Schein a Non-Performance Notice (as such term
is defined in Schedule 2.1(b)(iv) hereto) with respect to a Cheminor Dosage Form
Product, Cheminor may, in its sole discretion, convert Schein's exclusive right
to purchase such Finished Dosage Form Product to a non-exclusive right by giving
Schein written notice no later than sixty (60) days after the end of the rolling
twelve (12) month period for which said notice was given. Cheminor may then
sell such Product (either directly or indirectly) in the Schein Market.
ARTICLE IV
PROFIT SHARING
Section 4.1 Dosage Form Product Pricing. The price of a Finished
---------------------------
Dosage Form Product purchased pursuant to the Schein Distribution Right or the
Cheminor Distribution Right shall be an amount equal to *** *** *************
**** ******* **** **** ***** ******* ***** ** *** ****** ******** **** *****
**** ** *** *** *** ***** ********* ** **** ******** ****** **** *********
Section 4.2 Cheminor Bulk Substance Pricing.
-------------------------------
(a) General Rule. Except as provided in Section 4.2(b), the price of
------------
a Cheminor Bulk Substance to be used by Schein in the manufacture of a Schein
Finished Dosage Product with Cheminor Bulk shall be an amount equal to ***
********** ************* **** ** **** **** ********* **** **** ***** *******
***** ** *** ****** **** ******* ** **** ****** ****** **** ******** **** *****
**** ** *** *** *** ***** ********* ** **** ****** ****** **** *********
(b) Substitute Bulk. Except as provided in Section 4.2(c), the price
---------------
of Cheminor Bulk Substance purchased by Schein pursuant to Section 3.2 shall be
either *** ********** ************* **** **** ** ***** ***** ** *** **** *******
******** ** ****** ** ********* ** *** ***** *** ******** **** ********* ** ****
** ********* ******** ****** **** ** *** ******* ** ** *** ***** ** ********
****** *******
* redacted pursuant to confidential treatment request.
15
<PAGE>
(c) Except as provided on Schedule 4.2(b), with respect to any
Cheminor Bulk Substance that is supplied to Schein pursuant to Section 3.2,
Schein may at any time propose to Cheminor a change in the price of any such
Cheminor Bulk Substance from the Section 4.2(b) price to the following price:
*** *** ************* **** ******** **** **** ***** ******* ***** ** *** ******
**** ******* ** *** ****** ****** **** ******* ************ ***** **** ********
**** ********** **** ***** **** ** *** *** *** ***** ******** ** **** ******
****** **** ******** If Cheminor accepts such change in the price, such price
shall be determined by ******* **** **** *** ***** of Section 4.2(a) commencing
on such date as the parties may agree. If Cheminor declines such change in the
price, Schein may (i) continue to buy pursuant to the original price set forth
in accordance with Section 4.2(b); or (ii) give prompt notice of its intention
to change suppliers commencing on a date which is no sooner than three (3)
months from the date of said notice. In the event Schein gives Cheminor notice
of its intention to change suppliers, Cheminor shall continue to supply Schein
up to and through the date on which Schein's change of suppliers is approved by
the FDA at the price in effect between the parties at the time Schein proposes
such change in price and Cheminor may, upon receipt of the Schein notice, market
its own product which is equivalent to the Schein Product (as to which Schein is
changing suppliers) in the Schein Market.
(d) Product Development. The price of Cheminor Bulk Substance
purchased by Schein to be used to develop a Schein Dosage Form Product (which
development batches are not sold) (whether pursuant to Section 3.1 or 3.2) shall
be equal to *** ************* **** ** **** ******** **** ********** In the
event said Cheminor Bulk Substance is included in batches which are ultimately
sold, Schein shall pay Cheminor *** ***** ******* ***** ** *** ****** ****
******* ** *** ****** ****** **** ******** **** **** **** ** *** *** *** *****
******** ** **** ****** ****** **** ******* ******** *************** ***
********** *** ******* ** **** ******* ****** *** ******* *********** ********
**** ********* ***** *** ***** ** *** ******** ****** ** ******** *******
Section 4.3 Jurisdiction Specific Calculations. Notwithstanding
----------------------------------
anything to the contrary contained in this Agreement, the price of a Schein
Dosage Form Product, Cheminor Dosage Form Product or a Cheminor Bulk Substance
shall, with respect to Commercial Expenses, Development Costs, Intellectual
Property Costs and Manufacturing Costs, including costs of maintaining a DMF,
ANDA or non-U.S. equivalent of either, be calculated, on a product by product
basis in each jurisdiction.
ARTICLE V
MANUFACTURING
Section 5.1 Manufacturing Facility.
----------------------
(a) ******** *** ********* *********** *** **** ******* *** ** *****
**** ******** *** ***** ******** * ********** ************* ******** **
********** **** ********** *** ********** *** **** ******* ********** ****** **
********** ***** **** *********** ** ******* *** *********** ******** **
********** **** ********** **** Subject to the parties pre-existing
commitments, each party shall dedicate as much of their facility's capacity as
is necessary to carry out this Agreement. Cheminor and Schein shall notify the
other in writing of any pending
* redacted pursuant to confidential treatment request.
16
<PAGE>
inspection, reports and/or legal action by the FDA or other Regulatory Authority
and each party shall have the right, if practicable, to have representatives
present for such inspection of the other party. Each party shall provide the
other with a copy of each FDA or other Regulatory Authority inspection report
(and/or associated notices, correspondence and telephone contact reports)
(redacted as to information as to products not covered by the other party's
distribution rights) within three (3) business days of receipt and a copy of
their reply prior to submittal to the FDA or other Regulatory Authority for the
other party's review and comment thereon.
(b) Cheminor shall establish departments, systems, procedures and
practices supported by adequate, qualified and trained personnel at the Facility
to cover all aspects of developing and manufacturing pharmaceutical products in
compliance with Applicable Law so as to enable it to perform its obligations
hereunder, which shall include without limitation the following: (i) current
good manufacturing practice, safety and environmental compliance; (ii) product
development; (iii) preparation of applications for Regulatory Approval of
Products; (iv) quality control and assurance; (v) regulatory affairs and
compliance; (vi) qualifying and validating all systems, processes and equipment;
(vii) preparing training manuals, standard operating procedures, standard
practice instructions and policies; (viii) responding to all Regulatory Notices
and taking all steps necessary to correct the deficiencies cited therein; (ix)
manufacturing; (x) clinical work and bio-equivalency; and (xi) preparation,
submission and maintenance of applications for Regulatory Approval (including
ANDAs and non-U.S. equivalents).
(c) Schein shall establish departments, systems, procedures and
practices supported by adequate, qualified and trained personnel at its
facilities to cover all aspects of developing and manufacturing pharmaceutical
products in compliance with Applicable Law so as to enable it to perform its
obligations hereunder, which shall include without limitation the following: (i)
current good manufacturing practice, safety and environmental compliance; (ii)
product development; (iii) preparation of applications for Regulatory Approval
of Products; (iv) quality control and assurance; (v) regulatory affairs and
compliance; (vi) qualifying and validating all systems, processes and equipment;
(vii) preparing training manuals, standard operating procedures, standard
practice instructions and policies; (viii) responding to all Regulatory Notices
and taking all steps necessary to correct the deficiencies cited therein; (ix)
manufacturing; (x) clinical work and bio-equivalency; and (xi) preparation,
submission and maintenance of applications for Regulatory Approval (including
ANDA's and non-US equivalents).
Section 5.2 Know-How and Technical Information.
----------------------------------
(a) Subject to the confidentiality obligations contained herein,
Schein shall provide Cheminor and Cheminor shall provide Schein with such
advice, consultation and access to the other's Know-How and Technical
Information, as the other shall reasonably request in support of facility
validation and its product development and supply obligations under this
Agreement. Neither Schein nor Cheminor makes any representations or warranties,
express or implied, with respect to any such Know-How or Technical Information.
At the time the Product Development Committee is reviewing a Finished Dosage
Form Product or Bulk Substance, Schein and Cheminor will inform the other as to
any Know-How or Technical Information which is subject to any
17
<PAGE>
agreement with a third party, including the details of any such restrictions on
use or transfer contained in such agreement.
(b) Each of Schein and Cheminor hereby grants to the other a non-
exclusive, royalty free, non-transferable, perpetual irrevocable license,
without the right to grant sublicenses, to use its Know-How and Technical
Information in support of its Finished Dosage Form Product development and
supply obligations under this Agreement and to enable it to develop, manufacture
and sell Finished Dosage Form Products in accordance with this Agreement.
Notwithstanding the perpetual nature of the license as set forth in the
immediately preceding sentence, the obligation to continue to supply Know-How
and Technical Information shall cease in its entirety on the Termination Date.
The obligation to continue to supply Know-How and Technical Information relating
to a specific Finished Dosage Form Product shall cease as to that particular
Finished Dosage Form Product if the Schein Distribution Right or the Cheminor
Distribution Right, as applicable, is properly terminated as to that Finished
Dosage Form Product.
(c) Notwithstanding anything to the contrary contained in Section 5.2
(a)-(b), either party (and Reddy) may use for their own benefit (but may not
provide to third parties), after termination of this Agreement, any Know-How or
Technical Information received pursuant to this Agreement, subject to any
restriction contained in any agreements with third parties.
Section 5.3 Certain Patent Matters. To ensure that the
----------------------
manufacturing processes and the technology developed under this Agreement shall
not infringe the rights (including any patent or other proprietary rights) of
any third parties, Cheminor and Schein shall jointly investigate such matters
with regard to each Finished Dosage Form Product and Cheminor Bulk Substance in
each jurisdiction included in the Schein Market or the Cheminor Market, as the
case may be, with respect to that Finished Dosage Form Product and Cheminor Bulk
Substance, and shall keep each other informed of all Finished Dosage Form
Product and Cheminor Bulk Substance and process characteristics relevant to any
infringement analysis. A patent evaluation of a Finished Dosage Form Product
and/or Cheminor Bulk Substance to be used in the manufacture of a Finished
Dosage Form Product shall be conducted and completed prior to the start of
definitive biostudies (or the equivalent) for such Finished Dosage Form Product.
Cheminor and Schein shall monitor the relevant patents for each Finished Dosage
Form Product and Cheminor Bulk Substance in each jurisdiction that is the
subject of this Agreement and shall promptly notify each other of any events,
developments or any other information or knowledge that comes into its
possession or to which it has access which may have any potential for claim of
infringement of any such patent by virtue of the transactions contemplated
hereby. In connection with any patent evaluation contemplated by this Section
5.3, Cheminor shall provide Schein with a description of its manufacturing
process for each Cheminor Bulk Substance and each Cheminor Dosage Form Product
and Schein shall provide Cheminor with a description of its manufacturing
process for each Schein Dosage Form Product. Reasonably promptly after
completion of any patent evaluation of a Finished Dosage Form Product or
Cheminor Bulk Substance and in no event later than the start of definitive
biostudies for a Finished Dosage Form Product, Schein and Cheminor will inform
each other whether the results of the evaluation are satisfactory to each of
them, and either party shall have the right to terminate the Schein Distribution
Right or the Cheminor Distribution Right, as applicable, with respect to that
18
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Finished Dosage Form Product (and including, if any, Cheminor Bulk Substance
used in such Product) without penalty, if in its discretion, it determines that
the results are not satisfactory.
Section 5.4 Right to Inspect. Subject to the confidentiality
----------------
obligations contained herein, Cheminor and Schein shall have access to and the
right, upon reasonable notice and at reasonable times, to inspect the
manufacturing and warehousing facilities, supporting systems, documents and
records (including, without limitation, adverse drug reactions, annual product
reviews, stability reports and complaints) of the other that are associated with
a Finished Dosage Form Product and or its associated Cheminor Bulk Substance to
monitor compliance with the DMF, ANDA's or their respective non-U.S. equivalents
and cGMP's. After an inspection, the inspecting party shall provide the
inspected party with a copy of its inspection report and the inspected party
shall promptly provide the other with a written response to such report. If
needed the parties will arrange to meet to discuss the results and
recommendations contained in such inspection report.
Section 5.5 Adverse Drug Reactions. Cheminor and Schein shall keep
----------------------
the other fully informed of (i) any notification or other information, whether
received directly or indirectly, which might affect the marketability, safety or
effectiveness of any Finished Dosage Form Product, or which might result in
liability issues or otherwise necessitate action on the part of either party, or
which might result in recall or seizure of any Finished Dosage Form Product and
(ii) nonclinical reports with respect to any Finished Dosage Form Product. All
complaints for the U.S. market relating to Finished Dosage Form Products will be
handled as described in Schedule 5.5 hereto, entitled "Complaint Handling
Procedures." The parties hereto shall endeavor in good faith to agree upon such
other complaint handling procedures with respect to non-U.S. sales of Finished
Dosage Form Product as shall be reasonably required to comply with Applicable
Law and prudent business practices.
ARTICLE VI
PRODUCT DEVELOPMENT/MARKETING
Section 6.1 Product Development Committee. The parties hereto
-----------------------------
shall establish a committee (the "Product Development Committee") having three
(3) representatives named by Cheminor and three (3) representatives named by
Schein, with a mandate to (i) select Product for development, (ii) rationalize
current Finished Dosage Form Product and Bulk Substance development pipelines,
(iii) establish a Finished Dosage Form Product and Bulk Pharmaceutical Substance
development process to optimize the use of both Schein's and Cheminor's
development infrastructure, (iv) provide each party hereto with access to
product and process development infrastructures to maximize the overall scope of
the parties' combined Product development pipeline and (v) establish a working
group to identify and prioritize future custom synthesized and Product
development projects. Without limiting the generality of the foregoing, the
Product Development Committee shall, among other matters, promptly ascertain
from Schein and Cheminor and review all Products currently produced or under
development, thereafter evaluate all Products under development or proposed for
development by any party hereto at any time prior to the Termination Date,
review and approve a development program to support an application for
Regulatory Approval
19
<PAGE>
for each Product that is subject to either the Schein Distribution Right or the
Cheminor Distribution Right, and monitor the progress thereof, which development
program shall include without limitation the following phases: initiation;
preformulation development; formulation development; scale-up work; submission
batch; validation batch; bio-equivalence; and submission of application for
Regulatory Approval (ANDA or non-U.S. equivalent). The Product Development
Committee shall consider all factors relevant to developing a non-infringing
Product (in compliance with Applicable Law) that is bio-equivalent to the
related Reference Drug and obtaining Regulatory Approval as expeditiously as
possible. The Product Development Committee may consult with outside experts in
making decisions, including without limitation statisticians and patent
advisors. The Product Development Committee shall meet at least once each
calendar quarter and otherwise at the call of either party at a mutually
acceptable location or by telephone if mutually acceptable to the parties. If
Cheminor and Schein cannot agree on a mutually acceptable location, the meetings
shall take place at locations selected alternately by Cheminor and Schein with
the first such location selected by Schein. Each party shall advance its own
costs and expenses in connection with participating in the Product Development
Committee. Such costs and expenses shall be recoverable pursuant to Section 7.5
hereof. A Chairman of the Product Development Committee shall be appointed by
agreement for each meeting; if the members of the Product Development Committee
do not agree on the Chairman, the Chairman shall be selected alternatively by
Cheminor and Schein with the first Chairman selected by Cheminor. A quorum for
the conduct of business at any meeting of the Product Development Committee
shall consist of at least two (2) members representing Cheminor and at least two
(2) members representing Schein. Any action taken by the Product Development
Committee must receive the approval of at least two (2) members representing
Cheminor and two (2) members representing Schein; provided that if the Product
Development Committee cannot resolve any issue within twenty (20) days, the
Presidents of Cheminor Drugs and Schein shall resolve any issue, except the
issue in Section 6.2(b) below, within twenty (20) days. For the period between
the date of the Notice of Termination and the Termination Date, each of the
parties hereto shall maintain a level of new product development and
applications for Regulatory Approval (ANDA submissions and non-U.S. equivalents)
at least equal to the average annual number achieved during the period prior to
the date of the Notice of Termination.
Section 6.2 Regulatory Approval.
-------------------
(a) With respect to each Finished Dosage Form Product subject to the
Schein Distribution Right or the Cheminor Distribution Right, Schein or
Cheminor, as the supplier thereof, shall prepare each application for Regulatory
Approval and shall use its reasonable efforts to obtain Regulatory Approval in
each jurisdiction which is included in the Schein Market or the Cheminor Market,
as the case may be. The party with the Distribution Right in a given
jurisdiction shall provide commercially reasonable regulatory support to the
other party to assist in the submissions for Regulatory Approval. The cost of
preparing each application for Regulatory Approval, the cost of acting as
regulatory agent and the cost of cooperating and assisting efforts to obtain
Regulatory Approval shall be recoverable Development Costs pursuant to Section
7.5 hereof.
(b) If after the biostudy (or equivalent) for any Finished Dosage Form
Product has commenced, the innovator of the brand product for which a Finished
Dosage Form
20
<PAGE>
Product is being developed under this Agreement changes the formulation of the
Finished Dosage Form Product such that the Finished Dosage Form Product as then
being developed hereunder cannot obtain Regulatory Approval in a particular
jurisdiction in the Schein Market or the Cheminor Market, as the case may be,
then the Product Development Committee shall meet and discuss in good faith a
mutually acceptable revised development plan based on such revision(s) to the
brand product. If the parties are unable to agree to a revised development plan,
either party may immediately terminate the distribution rights hereunder with
respect to such Finished Dosage Form Product in that jurisdiction, and the costs
incurred to date will be borne 100% by the party which chooses to continue its
own development program. The party which terminates its interest in the Product
will not develop the Product in the future.
Section 6.3 ****** *********** ***** ** *** *********** ***** ***
-----------------
******* ****** ***** **** ******** ** ****** ****** ********* ************* **
** ********* ***** ** *** **** *** **** ***** ************* ** *** *******
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******** *** *** ********** ********* ** ****** ***
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**** ******* ****** **** ********* ** *** ********* *********** **
**** ***** ** ****** ********* *** ****** *** *********** ****** **
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*** ***** *** ********* ** *** ****** *** ** **** **** ********* **** ****
*********** ** *** ****** **
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******* ** ****** ******** ******** **** * ****** ********* *********** ***
******** ****** **** **** ********* ********* ** * ****** ***** ** ********
****** **** ** ***** ** ******* *** *********** *** ************ ****** ** ***
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********* **** * *****
* redacted pursuant to confidential treatment request
21
<PAGE>
****** ********* ******** **** *** ******* *** *****
***** **** ****** ** **** **** ********* *** ** ***** ** ****** *********
******** ********** ** **** *********** ** *********
Section 6.4 Marketing Working Group. Schein and Cheminor shall set
-----------------------
up a joint working group to oversee and manage the marketing, sales,
distribution and product management of Cheminor Dosage Form Products and Schein
Finished Dosage Products with Cheminor Bulk Substance in the Schein Market (the
"Marketing Working Group"). The Marketing Working Group shall include two
Cheminor personnel performing or participating in these functions within
Schein's organization with Schein maintaining ultimate decision-making authority
and control over marketing, sales, distribution and product management of
Cheminor Dosage Form Products and Schein Finished Dosage Products with Cheminor
Bulk in the Schein Market. The cost, salary and expenses of the members of the
Marketing Working Group will be borne separately by each party and will not be
included as part of Commercial Expenses.
ARTICLE VII
SUPPLY AND RELATED MATTERS
Section 7.1 Supply and Marketing.
--------------------
(a) Cheminor shall supply Schein's forecasted requirements of each
Cheminor Bulk Substance and each Cheminor Dosage Form Product for the Schein
Market and Schein shall supply Cheminor's forecasted requirements for each
Schein Dosage Form Product for the Cheminor Market. Schein may supply Cheminor
Dosage Form Products to its Affiliates for sale in the Schein Market or appoint
(and terminate) distributors for such Cheminor Dosage Form Product in the Schein
Market, and Cheminor may supply Schein Dosage Form Products to its Affiliates
for sale in the Cheminor Market or appoint (and terminate) distributors for such
Schein Dosage Form Product in the Cheminor Market. Schein and Cheminor shall
commence marketing each Finished Dosage Form Product in the Schein Market and
the Cheminor Market, respectively, no later than thirty (30) days after the date
on which final, unqualified Regulatory Approval to market the Finished Dosage
Form Product in the Schein Market or the Cheminor Market, as applicable, is
received, provided Schein or Cheminor, as the case may be, has been supplied
with Finished Dosage Form Product in accordance with its orders therefor (and
all patents and/or product exclusivity periods, if any, have expired).
(b) (i) For purposes of Section 2.1(a), the term "exclusive
obligation" means that neither Schein nor its Affiliates shall (i) source from a
third party, for resale or distribution in the Schein Market, dosage form
product or finished dosage form product which is equivalent to a Cheminor Dosage
Form Product; (ii) market, sell or distribute, in the Schein Market, a dosage
form product or finished dosage form product manufactured by Schein which is
equivalent to a Cheminor Dosage Form Product; or (iii) manufacture, for resale
by others in the Schein Market, a dosage form product or finished dosage form
product which is equivalent to a Cheminor Dosage Form Product.
* redacted pursuant to confidential treatment request
22
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(ii) Schein and its Affiliates shall also have an exclusive
obligation, as defined in (i) above, with respect to any Cheminor Dosage Form
Product which Schein indicates to Cheminor, within the one hundred and eighty
(180) day period provided for in Section 2.1(b)(i) or (ii), that Schein intends
to market, sell or distribute. The exclusive obligation shall not be terminated
by any failure of Schein to reconfirm its intention, or any subsequent
revocation by Schein of its election, to market, sell or distribute a Cheminor
Dosage Form Product pursuant to Section 2.1, subject to Cheminor pursuing
Product development and obtaining Regulatory Approval for the applicable
Finished Dosage Form Product on a timely basis.
(iii) Schein and its Affiliates shall also have the exclusive
obligation (meaning Schein and its Affiliates will only source from Cheminor and
its Affiliates) to purchase all Cheminor Bulk Substances for which Schein has
elected to so source pursuant to Section 3.1 hereof. For purposes of this
Section, the term "exclusive obligation" means that neither Schein nor its
Affiliates shall (A) purchase Third Party Bulk equivalent to a Cheminor Bulk
Substance elected pursuant to Section 3.1, for the manufacture of a dosage form
product or finished dosage form product for sale by Schein, an Affiliate or any
other person or entity, in the Schein Market (provided, however, Schein may
purchase Third Party Bulk to qualify an alternate source as provided in Section
3.1(c)); (B) sell, in the Schein Market, a dosage form product or finished
dosage form product without Cheminor Bulk Substance which is equivalent to a
Schein Finished Dosage Product with Cheminor Bulk Substance elected pursuant to
Section 3.1; or (C) manufacture, for sale in the Schein Market by Schein, an
Affiliate or any other person or entity, dosage form product or finished dosage
form product which is equivalent to the Schein Finished Dosage Product with
Cheminor Bulk elected pursuant to Section 3.1. This exclusive obligation shall
not be terminated by any failure of Schein to reconfirm its intention, or any
subsequent revocation by Schein or its Affiliates of their election, pursuant to
Section 3.1, subject to Cheminor pursuing Product development and obtaining
Regulatory Approval for the applicable Bulk Substance on a timely basis.
(c) Notwithstanding any other provision of this Agreement, if Schein
is unable (or anticipates an inability) to manufacture or deliver a Schein
Dosage Form Product to Cheminor, it shall promptly notify Cheminor in writing of
the period for which such inability (or anticipated inability) to so manufacture
or deliver is expected. If Schein is unable to meet Cheminor's requirements for
a Schein Dosage Form Product, then any obligation to purchase that Schein Dosage
Form Product exclusively from Schein shall be suspended; provided that if Schein
has an inventory of that Schein Dosage Form Product that it is ready, willing
and able to deliver to Cheminor, such remaining inventory shall be ordered prior
to ordering third party Product. If at any time thereafter Schein is able to
manufacture and deliver that Schein Dosage Form Product to Cheminor in amounts
sufficient to meet its requirements, then, subject to Cheminor's contractual
commitments with third parties (which shall to the best of Cheminor's
commercially reasonable efforts only be made for the quantity of that Product
that Cheminor reasonably determines to be the amount Schein will be unable to
supply to it), any obligation to exclusively order that Schein Dosage Form
Product from Schein and not to purchase third party Product shall resume. If
Schein's inability to manufacture or deliver sufficient amounts of that Schein
Dosage Form Product to Cheminor as described in this Section 7.1(c) continues
for a period of eighteen (18) months or more, Cheminor may terminate the
Cheminor Distribution Right to that Schein Dosage Form Product in the particular
jurisdiction as to which such Schein Dosage Form Product has been unavailable,
by notice in writing to Schein.
23
<PAGE>
Any third party Product that is purchased pursuant to this Section 7.1(c), shall
not be included in the computation of Commercial Expenses, Net Sales, Profits or
otherwise included in anyway in this Agreement.
(d) Notwithstanding any other provision of this Agreement, if Cheminor
is unable (or anticipates an inability) to manufacture or deliver a Cheminor
Dosage Form Product or Cheminor Bulk Substance to Schein, it shall promptly
notify Schein in writing of the period for which such inability (or anticipated
inability) to so manufacture or deliver is expected. If Cheminor is unable to
meet Schein's requirements for a Cheminor Dosage Form Product or Cheminor Bulk
Substance, then any obligation to purchase that Cheminor Dosage Form Product or
Cheminor Bulk Substance exclusively from Cheminor shall be suspended; provided
that if Cheminor has an inventory of that Cheminor Dosage Form Product or
Cheminor Bulk Substance that it is ready, willing and able to deliver to Schein,
such remaining inventory shall be ordered prior to ordering third party Product.
If at any time thereafter Cheminor is able to manufacture and deliver that
Cheminor Dosage Form Product or Cheminor Bulk Substance to Schein in amounts
sufficient to meet its requirements, then, subject to Schein's contractual
commitments with third parties (which shall to the best of Schein's commercially
reasonable efforts only be made for the quantity of that Cheminor Dosage Form
Product or Cheminor Bulk Substance that Schein reasonably determines to be the
amount Cheminor will be unable to supply to it), any obligation to exclusively
order that Cheminor Dosage Form Product or Cheminor Bulk Substance Product from
Cheminor and not to purchase third party Product shall resume. If Cheminor's
inability to manufacture or deliver sufficient amounts of that Cheminor Dosage
Form Product to Schein as described in this Section 7.1(d) continues for a
period of eighteen (18) months or more, Schein may terminate the Schein
Distribution Right, to that Cheminor Dosage Form Product in the particular
jurisdiction as to which such Cheminor Dosage Form Product has been
unavailable, by notice in writing to Cheminor. Any Third Party Bulk Substance
that is purchased pursuant to this Section 7.1(d), and the finished dosage form
product which shall be manufactured from that Third Party Bulk and sold, shall
be Finished Dosage Form Product and included for all purposes, including the
computation of Commercial Expenses, Net Sales, Profits and otherwise, in this
Agreement.
Section 7.2 Forecasts, Ordering, Delivery and Purchase Obligations.
------------------------------------------------------
(a) Schein and Cheminor shall use commercially reasonable efforts to
sell each Finished Dosage Form Product subject to the Schein Distribution Right
and Cheminor Distribution Right, respectively, but shall not have any minimum
purchase obligations.
(b) Within a reasonable period of time prior to the anticipated date
of first commercial sales of a Cheminor Dosage Form Product by Schein or Schein
Dosage Form Product by Cheminor in a particular jurisdiction, Schein or
Cheminor, as the case may be, shall submit to the other a non-binding forecast
of the quantity of that Schein Dosage Form Product or Cheminor Dosage Form
Product (or the relevant Cheminor Bulk Substance), that it anticipates ordering
from the other for that Schein Dosage Form Product or Cheminor Dosage Form
Product launch, as the case may be, and during the first twelve (12) month
period thereafter for that jurisdiction. The ordering party shall update such
forecast every three (3) months thereafter with a rolling twelve (12) month
forecast.
24
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(c) Cheminor shall deliver Cheminor Dosage Form Product and Cheminor
Bulk Substances to Schein within one hundred twenty (120) days after the date of
order therefor, unless the order specifies a later date or unless the supplying
party accepts an earlier date, or unless both parties agree on a later date to
resolve supply conflicts and priorities between multiple products.
(d) Schein shall deliver Schein Dosage Form Product to Cheminor within
one hundred twenty (120) days after the date of order therefor, unless the order
specifies a later date or unless the supplying party accepts an earlier date, or
unless both parties agree on a later date to resolve supply conflicts and
priorities between multiple products.
Section 7.3 Non-Conforming Goods.
--------------------
(a) Schein and Cheminor shall replace, at the other's locations, any
Finished Dosage Form Product or Cheminor Bulk Substance, as the case may be,
which it supplied and which is determined by the other not to meet
Specifications, as hereinafter defined, with Finished Dosage Form Product or
Cheminor Bulk Substance, as the case may be, which does meet such
Specifications. For purposes of this Agreement, the term "Specifications" means
the specifications contained in the application for Regulatory Approval (ANDA or
non-U.S. equivalent) of such Finished Dosage Form Product or Cheminor Bulk
Substance, as the case may be, and, with respect to Cheminor Bulk Substance, as
contained in the DMF or the applicable United States Pharmacopoeia ("USP") (or
the applicable local Pharmacopoeia ("ALP")) monograph for such substances unless
changes are required as described in the USP (or ALP), the specifications
contained in the applicable USP (or ALP) monograph and the specifications
contained herein as such specifications may be amended at the request of the
applicable Regulatory Authority or by mutual agreement of the parties hereto
from time to time. The supplying party shall bear the Manufacturing Costs for
such replacement Finished Dosage Form Product or Cheminor Bulk Substance, as the
case may be, and all transportation costs, import duties, if any, taxes,
insurance and handling costs and any other costs or charges incurred in
transporting such replacement Finished Dosage Form Product or Cheminor Bulk
Substance, as the case may be, to the other party's location at which such out-
of-Specification Finished Dosage Form Product or Cheminor Bulk Substance, as the
case may be, is located and shall reimburse the other party for all
transportation costs, import duties, if any, taxes, insurance and handling costs
incurred by the other party in connection with such out-of-Specification
Finished Dosage Form Product or Cheminor Bulk Substance, as the case may be.
(b) If Cheminor and Schein disagree concerning whether a Finished
Dosage Form Product or Cheminor Bulk Substance, as the case may be, delivered
pursuant to this Agreement meets Specifications, Schein and Cheminor shall
jointly investigate whether the Finished Dosage Form Product or Cheminor Bulk
Substance, as the case may be, meets Specifications. If the parties do not
agree after their joint investigation, they shall agree on an independent lab
which shall determine whether the Finished Dosage Form Product or Cheminor Bulk
Substance, as the case may be, meets Specifications. Initially, each party
shall bear its own costs and expenses associated with performing such joint
investigation and the parties shall share third party costs equally. If such
joint investigation or the independent lab concludes that the Finished Dosage
Form Product or Cheminor Bulk Substance, as the case may be, meets
Specifications, then the supplying party shall be reimbursed its reasonable out-
of-pocket costs and expenses associated with such investigation and
25
<PAGE>
the independent lab and for the costs and expenses incurred in connection with
the replacement Finished Dosage Form Product or Cheminor Bulk Substance, as the
case may be, and the out-of-Specification Finished Dosage Form Product or
Cheminor Bulk Substance, as the case may be, above, and if such joint
investigation or the independent lab concludes that the Finished Dosage Form
Product or Cheminor Bulk Substance, as the case may be, does not meet
Specifications, then the supplying party shall reimburse the other for its out-
of-pocket costs and expenses associated with such investigation and the
independent lab.
Section 7.4 Terms and Conditions of Sale. Each party hereto
----------------------------
supplying Finished Dosage Form Product or Cheminor Bulk Substance, as the case
may be, hereunder will retain title and risk of loss to such Finished Dosage
Form Product or Cheminor Bulk Substance, as the case may be, until delivered
Cost, Insurance and Freight (as such term is defined in the ICC Inconterms 1990,
International Rules for the Interpretation of Trade Terms, ICC Publication No.
460) on a duty paid basis to the recipient's facility within the Schein Market
or the Cheminor Market, as the case may be, designated by the recipient. Each
shipment shall be segregated by lot and accompanied by an appropriate
certification of analysis.
Section 7.5 Payment.
-------
(a) Schein or Cheminor, as the case may be, shall transfer Finished
Dosage Form Product or Cheminor Bulk Substance, as the case may be, to the other
** *** ************* ***** The supplying party shall be paid for all Finished
Dosage Form Product or Cheminor Bulk Substance delivered within 30 days from
date of delivery, FOB the recipient's facility, against receipt of commercial
invoice, packing list, inspection certificate, and a certificate of analysis
signed by a representative of the supplying party for each lot of Finished
Dosage Form Product or Cheminor Bulk Substance delivered.
****** *** **** ******** ****** **** ******* ** ******** ****
********* ***** ** ********** ** *** ********* ***** ******** *** *** *********
***** ***** ********** ** *** ********* ***** *** ** **** ******* **** **** **
*** *** *** ***** ********* ** **** ******** ****** **** ******* ** ********
**** ********** ****** ** **** ********* *** *** ** **** ****** ******
The parties agree that costs or expenses which are inadvertently
omitted from a party's calculation of Commercial Expenses, Manufacturing Costs,
Development Costs, Intellectual Property Costs, Net Sales or Profit may be
included by that party in its calculation of same in a later period, but not
later than 18 months after the end of the period as to which it should have been
included. Similarly, should a change occur resulting in a cost or expense
increase or decrease (after a calculation and the related payment is made), the
increase or decrease shall be included in the calculation in the next monthly
period.
(b) ***** **** **** ** **** ******* *********** ***** *** ************
******** ***** **** **** ********** ** ********* ** **** ******* ******* *** ***
*** ***** ******** **** ****** ***** ** **** ** ********* ****** *** ********
*** *** *********** ***** *** ************ ******** ****** ******** ** *** ***
*** ***** ***** ** ********* ** ********* ******* *** ******** ** *** *** ***
***** ***** ** ********* ** ********* ********* ** *** ***** ** *****
********** **
* redacted pursuant to confidential treatment request.
26
<PAGE>
********* ***** ****** *** ***** ****** **** *** ****** *** *** ***** ***** **
********* ** *********** *** ***** ***** ***** **** ***** ***** ** *****
********** ** ********* ****** *** *** *** ***** ***** ***** ** ** ******** ****
****** **** *** **** ************* ** **** ******* ** ********* ****** ****
***** ***** ** **** *** ***** ** *** *** *** ***** ****** ***** **** **** *****
*** *** ** *** ****** ***** *** ***** **** *** *** ***** ** *****
(c) The parties hereto shall maintain a standard set of accounting
policies and practices in accordance with GAAP. Each party hereto shall notify
the other, in writing, of any significant change in its standard accounting
policies and practices which would adversely impact the other under this
Agreement.
(d) The parties hereto shall keep and maintain complete and accurate
records of the Manufacturing Cost, Net Sales, Commercial Expenses, Profit,
Development Costs, Intellectual Property Costs and *** *** ***** for each fiscal
year and shall retain such records for a period of time as required by
Applicable Law. Each party hereto shall submit to the other monthly statements
of its applicable costs, expenses, profit and sales data incurred or generated
in connection with the performance of this Agreement. Subject to the
confidentiality obligations contained herein, each party shall have the right to
nominate a firm of independent certified public accountants reasonably
acceptable to the other party to have access to the records of such other party
during reasonable business hours for the purpose of verifying, at the auditing
party's expense, Manufacturing Costs, Net Sales, Commercial Expenses, Profit,
Development Costs, Intellectual Property Costs and *** *** ***** for the fiscal
year then ended; provided that this right may not be exercised more than once in
any fiscal year. Such accountants shall disclose only information relating to
Manufacturing Costs, Net Sales, Intellectual Property Costs, Development Costs,
Commercial Expenses, Profit and *** *** ****** The results of the accountants'
audit shall be final and binding on both parties. A party required to reimburse
the other party for an underpayment (in any amount) shall do so within thirty
(30) days of its receipt of notice from the other party of the results of the
accountants' audit. In the event that the auditing accountants find that an
underpayment of five percent (5%) or more has been made, the party who made the
underpayment shall also pay the cost of that audit (within thirty (30) days of
its receipt of notice of the results of the audit). In the event that the
auditing accountants find that an overpayment was made, the party which received
the overpayment shall reimburse the other party within thirty (30) days of its
receipt of notice of the results of the audit.
(e) All amounts payable hereunder shall be paid in U.S. dollars.
(f) Schein and Cheminor will provide the other with assistance in
meeting the requirements of the Regulatory Authorities in each jurisdiction in
the Schein Market and the Cheminor Market with respect to Schein Dosage Form
Products or Cheminor Dosage Form Products, including, but not limited to,
providing information relating to changes in Applicable Law relating to the
labeling of the Schein Dosage Form Products or Cheminor Dosage Form Products.
* redacted pursuant to confidential treatment request.
27
<PAGE>
ARTICLE VII
COMPLIANCE WITH LAW
Section 8.1 Compliance Concerning Finished Dosage Form Products.
----------------------------------------------------
Each of Schein and Cheminor shall, with respect to each Finished Dosage Form
Product supplied by it hereunder, (i) submit to the appropriate Regulatory
Authorities an Application for Regulatory Approval, use all reasonable efforts
to obtain such Regulatory Approval and, if issued, shall maintain, such
application for Regulatory Approval (ANDA or non-U.S. equivalent) for each
Finished Dosage Form Product in each jurisdiction as to which the other party
has Distribution Rights to that Finished Dosage Form Product; (ii permit the
appropriate Regulatory Authorities to inspect its manufacturing, packaging,
storage and distribution facilities for each Finished Dosage Form Product in
connection with the review and approval of each application for Regulatory
Approval; (ii manufacture, package, store and distribute in conformity with the
applicable application for Regulatory Approval (ANDA or non-U.S. equivalent) for
the Finished Dosage Form Product and with all Applicable Law (including without
limitation the FD&C Act) and with the Specifications; (iv assure that such
Finished Dosage Form Product is not adulterated or misbranded within the meaning
of Applicable Law, including the FD&C Act, or be a product which would violate
any section of Applicable Law if introduced into interstate commerce; (v)
develop such Finished Dosage Form Product in accordance with Applicable Law; (vi
assure that all laboratory, scientific, technical and/or other data submitted by
or on its behalf relating to a Finished Dosage Form Product shall be true and
correct and shall not contain any deliberate or negligent falsification,
misrepresentation or omission; (vi assure that the manufacturing, packaging,
storage and distribution facilities shall conform in all respects to Applicable
Law, and shall be adequate to produce the quantities of each Finished Dosage
Form Product committed to be supplied by either party pursuant to this
Agreement; and (viii) assure that its marketing, sales and distribution
activities relating to the Finished Dosage Form Product or Cheminor Bulk
Substances, as the case may be, shall conform in all respects to Applicable Law
governing the marketing, sales and distribution of Finished Dosage Form Products
or Cheminor Bulk Substances, as the case may be.
Section 8.2 Compliance Concerning Bulk Pharmaceutical Substances.
----------------------------------------------------
Cheminor shall, with respect to each Cheminor Bulk Substance supplied by it
hereunder, (i) submit to the Regulatory Authorities, including FDA, and
maintain, a DMF (or non-U.S. equivalent); (ii) permit the Regulatory
Authorities, including FDA, to inspect Cheminor's manufacturing facilities for
such Cheminor Bulk Substance; (iii) manufacture in conformance with the DMF
therefor and with all Applicable Law (including without limitation the FD&C Act)
and with the Specifications, (iv) assure that such Cheminor Bulk Substance shall
not be adulterated or misbranded within the meaning of Applicable Law, including
the FD&C Act, or, as applicable, be a product which would violate any Applicable
Law if introduced into interstate commerce; (v) develop Cheminor Bulk Substances
in accordance with Applicable Law, and (vi) assure that all laboratory,
scientific, technical and/or other data submitted by or on behalf of Cheminor
relating to a Cheminor Bulk Substance shall be true and correct and shall not
contain any deliberate or negligent falsification, misrepresentation or
omission; and (vii) assure that manufacturing facilities shall conform in all
respects to Applicable Law and shall be adequate to produce the quantities of
the Cheminor Bulk Substances committed to be supplied by Cheminor pursuant to
this Agreement.
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Section 8.3 Mutual Representations and Warranties. Each party
-------------------------------------
represents, warrants and covenants to the other that:
(a) such party is not debarred under Applicable Law, including the
Generic Drug Enforcement Act of 1992, and that it does not and will not use in
any capacity the services of any person debarred under Applicable Law, including
the Generic Drug Enforcement Act of 1992; neither such party, nor, to the best
of its knowledge, any of its employees, agents or contractors, has engaged in
any activity which could lead to it becoming debarred under Applicable Law,
including the Generic Drug Enforcement Act of 1992.
(b) such party is duly authorized to execute and deliver this
Agreement and consummate the transactions contemplated hereby.
(c) neither the execution, delivery or performance of this Agreement,
nor the consummation of the transactions contemplated hereby, (i) will violate
or conflict with such party's Articles of Incorporation or By-Laws (or
comparable governing documents), (ii) will result in any breach of or default
under any provision of any contract or agreement to which such party is bound,
or to which such party's properties or assets are subject, (iii) is prohibited
by, or requires such party to obtain authorization, approval, registration or to
make any filing under, any law, rule, regulation, order or judgment, or of any
other person (except as contemplated herein), or (iv) will result in the
creation or imposition of any lien, claim, charge, restriction, equity or
encumbrance of any kind whatsoever upon or give to any other person any interest
or right (including the right of termination or cancellation) in or with respect
to any of the properties, assets, contracts or agreements of such party.
(d) set forth on schedule 8.3(d)(1) as to Cheminor and schedule
8.3(d)(2) as to Schein is a true and complete list of the Finished Dosage Form
Product and Bulk Substance Products (in the case of Cheminor) to which exclusive
rights have been granted to third parties in the Schein Market, and the Cheminor
Market.
(e) such party is not in default under any Material Contract, which
default such party reasonably expects will result in termination of the Material
Contract or a claim for material damages under the Material Contract. As used
in this Agreement, Material Contract means any agreement or instrument: (1)
granting rights to such party to any product, formulation or technology; (2) for
supply to such party of any product (dosage form or bulk active) included in the
other party's Distribution Rights; or (3) under which such party leases any of
its manufacturing facilities or laboratories. Attached hereto as schedule
8.3(e)(1) with respect to Cheminor and as schedule 8.3(e)(2) with respect to
Schein is a complete list of such party's Material Contracts.
(f) no person has notified Cheminor or Schein or any of their
Subsidiaries in writing of its intention to cease to perform any of its
obligations under any Material Contract and, to the best of the knowledge of
Cheminor and Schein and each of their Subsidiaries, each of the Material
Contracts is in full force and effect.
29
<PAGE>
(g) to the best of the knowledge of such party and except as set
forth on schedule 8.3(g)(1) as to Cheminor and schedule 8.3(g)(2) as to Schein,
such party is not in violation of any Applicable Law, regulation, ordinance or
other requirement of any governmental body, regulatory or administrative agency,
or court, which violations individually or in the aggregate would have a
Material Adverse Effect (as such term is defined in the Stock Purchase
Agreement), and no written notice has been received by Cheminor or Schein or any
of their Subsidiaries alleging any such violations, which violations
individually or in the aggregate would have a Material Adverse Effect.
(h) each party owns or has the right to the patents and copyrights
("Proprietary Rights") required to conduct its business as it is now conducted
and except as set forth on schedule 8.3(h)(1) as to Cheminor and schedule
8.3(h)(2) as to Schein, such party has used the Proprietary Rights without any
knowledge of any claim adverse to that use.
(i) except as set forth on Schedule 8.3(i)(1) as to Cheminor and
8.3(i)(2) as to Schein, such party is not a defendant in any claim, suit,
action or proceeding relating to the business that involves a claim of
infringement of any Proprietary Right or a claim of infringement by Cheminor or
Schein of any proprietary right of any third party, or has any knowledge of any
existing infringement by any other person of their Proprietary Right. Except as
set forth on Schedule 8.3(i)(1) and 8.3(i)(2) hereto, no Proprietary Right is
subject to any outstanding order, judgment, decree, stipulation or agreement
restricting the manufacture, use or sale thereof by such party or restricting
the licensing thereof to any person by such party.
(j) each party and its Subsidiaries is in compliance in all material
respects with all applicable laws and regulations respecting labor, employment,
employment practices and terms and conditions of employment and is in compliance
with all employment agreements. Neither party nor any of its Subsidiaries has
any unfunded liabilities relating to any benefit plan or arrangement maintained
for the benefit of any of the employees of such party or its Subsidiaries.
(k) there is no judicial or administrative action, proceeding or
investigation pending or, to the best of the knowledge of each party and its
Subsidiaries, threatened that questions the validity of this Agreement or any
action taken or to be taken by such party in connection with this Agreement.
Except as set forth on schedule 8.3(k)(1) as to Cheminor and 8.3(k)(2) as to
Schein, there is no litigation, proceeding or governmental investigation pending
or, to the best of the knowledge of each party and its Subsidiaries, threatened,
or any order, injunction or decree outstanding, against each party or any of its
Subsidiaries that would individually or in the aggregate have a Material Adverse
Effect. To the best of the knowledge of each party and its Subsidiaries, no
person has asserted, and no person has a valid basis upon which to assert, any
claims against each party or its Subsidiaries that would have a Material Adverse
Effect on the consummation of the transactions contemplated by this Agreement.
(l) To the best of the knowledge of each party and its Subsidiaries
there are no complaints of any investors of each party or its Subsidiaries which
have not been resolved.
30
<PAGE>
ARTICLE IX
INDEMNIFICATION; PATENT CLAIMS; RECALLS OR SEIZURES
Section 9.1 Indemnification. Except for intellectual property
---------------
claims governed by Section 9.2 hereof:
(a) Cheminor agrees to indemnify, defend and hold harmless, and to pay
and reimburse, Schein and its Affiliates and its and their respective employees,
agents and representatives, from and against any and all third party claims and
losses, damages and liabilities, including reasonable attorney's fees, relating
thereto, incurred by any of them arising out of, relating to or occurring as a
result of Cheminor negligence or the breach of any representation or warranty
made by Cheminor in this Agreement.
(b) Schein agrees to indemnify, defend and hold harmless, and to pay
and reimburse, Cheminor, its Affiliates, and its and their respective employees,
agents and representatives, from and against any and all third party claims and
losses, damages and liabilities, including reasonable attorney's fees, relating
thereto, incurred by any of them arising out of, relating to or occurring as a
result of Schein's negligence or the breach of any representation or warranty
made by Schein in this Agreement.
(c) If Schein, Cheminor or any other indemnitee (in each case an
"Indemnified Party") receives any written claim which it believes is the subject
of indemnity hereunder, the Indemnified Party shall, as soon as reasonably
practicable after forming such belief, give notice thereof to the indemnifying
party (the "Indemnifying Party"), including all particulars of such claim to
the extent known to the Indemnified Party; provided that the failure to give
timely notice to the Indemnifying Party as contemplated hereby shall not release
the Indemnifying Party from any liability to the Indemnified Party except to the
extent the Indemnifying Party is materially prejudiced in defending any claim by
such failure. The Indemnifying Party shall assume the defense of such claim
with counsel of its choice reasonably satisfactory to the Indemnified Party, and
at the cost of the Indemnifying Party. The Indemnified Party may participate in
the action through counsel of its choice, but the cost of such counsel shall be
at the expense of the Indemnified Party. If the Indemnifying Party fails to
vigorously prosecute such defense, the Indemnified Party may assume such
defense, with counsel of its choice, to be paid or reimbursed by the
Indemnifying Party.
(d) The party not assuming the defense of any such claim shall render
all reasonable assistance to the party assuming such defense, and all reasonable
out-of-pocket costs of such assistance shall be promptly paid or reimbursed by
the Indemnifying Party.
(e) No such claim shall be settled and no admission may be made other
than by the party defending the same, and then only with the consent of the
other party, which shall not be unreasonably withheld; provided that the
Indemnified Party shall have no obligation to consent to any settlement of any
such claim which imposes on the Indemnified Party any liability or obligation
which will not be assumed and performed in full by the Indemnifying Party.
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<PAGE>
(f) This Section 9.1 and the obligations contained herein shall
survive termination of this Agreement, whether pursuant to Section 10.1 hereof
or otherwise.
Section 9.2 ****** ******* ** * ********** ** ********* ********
**************
** ******* ** ************ ** ************ ******** ****** **** ******* ** ***
************ **** ***** ***** *** **** ** *********** ** *** ******** ******
**** ******* ***** ** *** ******* ** **** ********** ******** *** ****** *****
********* **** *** ******* *********** ** ***** ***** ** * ***** ***** ** ****
*********** *** ***** ******* ****** *** ******* *** *********** *********
********* ** ****** ** ********** ******** ********* ** ** ****** ** **********
*** **** ** ********* *** ****** *** ***** ******** ****** *** ******** *****
***** ******* *** ***** ***** *** ******** ******* ** **** *********** ** ***
****** *********** *** ******** ** ******* ***** ** ***** *** ** ****** *** ***
** ********* ***** ********** **** ******** ******** ** *** ***** ***** ***
******** ******** ** ********** **** **** *********** ******** *** ****** *****
***** ********* **** **** ***** ** *** ******* ** *********** ** *** **** ******
***********
Section 9.3 Recall or Seizure.
-----------------
(a) In the event of any recall or seizure of any Cheminor Dosage Form
Product, or any Schein Finished Dosage Product with Cheminor Bulk Substance
arising out of, relating to, or occurring as a result of, any act or omission by
Cheminor, Cheminor shall, at the election of Schein, either (i) replace the
amount of such Finished Dosage Form Product recalled or seized; or (ii give
credit to Schein against outstanding receivables due from Schein in an amount
equal to the amount paid by Schein for such Finished Dosage Form Product so
recalled or seized or otherwise owing by Schein hereunder; plus reimburse (or at
the election of Schein, credit) Schein for the Commercial Expenses allocated
thereto (in the same proportion as such quantity of recalled or seized Finished
Dosage Form Product bears to the total quantity of such Finished Dosage Form
Product sold during such fiscal year), and all transportation costs, export or
import duties, if any, taxes, insurance and handling costs incurred by Schein in
respect of such recalled or seized Finished Dosage Form Product.
(b) In the event of any recall or seizure of any Cheminor Dosage Form
Product arising out of, relating to or occurring as a result of, any act or
omission of Schein, Schein shall be solely responsible for and shall exclude for
purposes of calculating Profit the Commercial Expenses and Cheminor's
Manufacturing Cost allocated thereto (in the same proportion as such quantity of
recalled or seized Cheminor Dosage Form Product bears to the total quantity of
Cheminor Dosage Form Product sold in such calendar year) and all transportation
costs, import duties, if any, taxes, insurance and handling costs incurred by
Schein in respect of such recalled or seized Cheminor Dosage Form Product.
(c) In the event of any recall or seizure of any Schein Dosage Form
Product arising out of, relating to, or occurring as a result of, any act or
omission by Schein, Schein shall, at the election of Cheminor, either (i)
replace the amount of Schein Dosage Form Product recalled or seized; or (ii give
credit to Cheminor against outstanding receivables due from Cheminor in an
amount equal to the amount paid by Cheminor for the Schein Dosage Form Product
so recalled or seized or otherwise owing by Cheminor hereunder; plus reimburse
(or at the election of Cheminor,
* redacted pursuant to pursuant confidential treatment request.
32
<PAGE>
credit) Cheminor for the Commercial Expenses allocated thereto (in the same
proportion as such quantity of recalled or seized Schein Dosage Form Product
bears to the total quantity of Schein Dosage Form Product sold during such
fiscal year), and all transportation costs, export or import duties, if any,
taxes, insurance and handling costs incurred by Cheminor in respect of such
recalled or seized Schein Dosage Form Product.
(d) In the event of any recall or seizure of any Schein Dosage Form
Product arising out of, relating to or occurring as a result of, any act or
omission of Cheminor, Cheminor shall be solely responsible for and shall exclude
for purposes of calculating Profit the Commercial Expenses and Schein's
Manufacturing Cost allocated thereto (in the same proportion as such quantity of
recalled or seized Schein Dosage Form Product bears to the total quantity of
Schein Dosage Form Product sold in such calendar year) and all transportation
costs, import duties, if any, taxes, insurance and handling costs incurred by
Cheminor in respect of such recalled or seized Schein Dosage Form Product.
(e) For purposes of this Section 9.3, "recall" means (a) any action by
Cheminor, Schein, a Schein Entity or any Affiliate of Cheminor or Schein to
recover title to or possession of any Schein Dosage Form Product, Cheminor
Dosage Form Product or Cheminor Bulk Substance, as the case may be, sold or
shipped and/or (b) any decision by any of them not to sell or ship Schein Dosage
Form Product, Cheminor Dosage Form Product or Cheminor Bulk Substance, as the
case may be, to third parties which would have been subject to recall if it had
been sold or shipped, in each case taken in the good faith belief that such
action was appropriate under the circumstances. For purposes of this Section
9.3, "seizure" means any action by any government agency to detain or destroy
Finished Dosage Form Product or Cheminor Bulk Substance, as the case may be.
ARTICLE X
TERM
Section 10. Term/Termination.
----------------
(a) Notwithstanding any other provision of this Agreement, Cheminor,
on the one hand, or Schein, on the other, may terminate this Agreement, by
notice in writing to the other upon or at any time after the occurrence of any
of the following events: (i) if the other commits a material breach of this
Agreement which (a) in the case of a breach capable of a remedy, shall not have
been remedied within sixty (60) days of the receipt of a notice identifying the
breach and requesting its remedy and (b) continues to exist at the time notice
of termination is given; provided that if the breaching party is diligently
pursuing in good faith the remedy of any breach, then such sixty (60) day cure
period shall be extended for such period as may be reasonably required to
effectuate such cure; or (ii) if the other is unable to pay its debts, becomes
bankrupt or insolvent, or enters into liquidation whether compulsorily or
voluntarily, or convenes a meeting of its creditors, or has a receiver appointed
over all or part of its assets, or takes or suffers any similar action in
consequence of a debt, or ceases for any reason to carry on business.
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<PAGE>
(b) Notwithstanding any other provision of this Agreement, Schein may
terminate the Schein Distribution Right with respect to any Cheminor Dosage Form
Product in a particular jurisdiction by notice in writing to Cheminor given
within sixty (60) days after Schein receives notice of any of the following
events: (i) Cheminor has received a written notice of objectionable practices
or deviations from Applicable Law that is prepared by a Regulatory Authority
investigator at the end of an inspection (a "Regulatory Notice") with respect to
such Cheminor Dosage Form Product or the manufacturing facility therefor
(including, without limitation, any FDA Form 483, Warning Letter, or
Establishment Inspection Report) and it has not complied with such Regulatory
Notice within a reasonable time thereafter and is not diligently pursuing
corrective action in response thereto; (ii) Cheminor has violated the fraud
provisions of any Applicable Law in connection with such Cheminor Dosage Form
Product or the manufacturing facility therefor; or (iii) Cheminor has entered
into a consent agreement with a Regulatory Authority or a similar event has
occurred, which significantly impairs Cheminor's ability to manufacture or sell
such Cheminor Dosage Form Product in a particular jurisdiction.
(c) Notwithstanding any other provision of this Agreement, Cheminor
may terminate the Schein Distribution Right with respect to any Cheminor Dosage
Form Product in a particular jurisdiction by notice in writing to Schein given
within sixty (60) days after Cheminor receives notice of any of the following
events: (i) Schein has received a Regulatory Notice with respect to packaging or
labeling or the packaging or labeling facility for such Cheminor Dosage Form
Product and it has not complied with such Regulatory Notice within a reasonable
time thereafter and it is not diligently pursuing corrective action in respect
thereto; (ii) Schein has violated the fraud provisions of Applicable Law in
connection with such Cheminor Dosage Form Product; or (iii) Schein has entered
into a consent agreement with a Regulatory Authority, or a similar event has
occurred, which significantly impairs Schein's ability to package or sell such
Cheminor Dosage Form Product in a particular jurisdiction.
(d) Notwithstanding any other provision of this Agreement, Cheminor
may terminate the Cheminor Distribution Right with respect to any Schein Dosage
Form Product in a particular jurisdiction by notice in writing to Schein given
within sixty (60) days after Cheminor receives notice of any of the following
events: (i) Schein has received a Regulatory Notice with respect to such Schein
Dosage Form Product or the manufacturing facility therefor and it has not
complied with such Regulatory Notice within a reasonable time thereafter and is
not diligently pursuing corrective action in response thereto; (ii Schein has
violated the fraud provisions of any Applicable Law in connection with such
Schein Dosage Form Product or the manufacturing facility therefor; or (ii Schein
has entered into a consent agreement with a Regulatory Authority or a similar
event has occurred, which significantly impairs Schein's ability to manufacture
or sell such Schein Dosage Form Product in a particular jurisdiction.
(e) Notwithstanding any other provision of this Agreement, Schein may
terminate the Cheminor Distribution Right with respect to any Schein Dosage Form
Product in a particular jurisdiction by notice in writing to Cheminor given
within sixty (60) days after Schein receives notice of any of the following
events: (i) Cheminor has received a Regulatory Notice with respect to packaging
or labeling or the packaging or labeling facility for such Schein Dosage Form
Product and it has not complied with such Regulatory Notice within a reasonable
time thereafter and it is not
34
<PAGE>
diligently pursuing corrective action in respect thereto; (ii) Cheminor has
violated the fraud provisions of Applicable Law in connection with such Schein
Dosage Form Product; or (iii) Cheminor has entered into a consent agreement with
a Regulatory Authority, or a similar event has occurred, which significantly
impairs Cheminor's ability to package or sell such Schein Dosage Form Product in
a particular jurisdiction.
(f) Termination of this Agreement or termination of the Schein
Distribution Right with respect to any or all Schein Dosage Form Products or the
Cheminor Distribution Right with respect to any or all Cheminor Dosage Form
Products shall be without prejudice to the right of any party hereto to receive
all payments accrued and unpaid at the effective date of such termination or
suspension, without prejudice to the remedy of any party hereto in respect of
any previous breach of the representations, warranties or covenants herein
contained, without prejudice to any rights to indemnification set forth herein
and without prejudice to any other provision hereof which expressly or
necessarily calls for performance after such termination.
ARTICLE XI
CONFIDENTIALITY AND NON-USE
Section 11. Confidential Treatment and Non-Use. Except for Know-
----------------------------------
How and Technical Information transferred to either party under Section 5.2
hereof which each party acknowledges is subject to a perpetual irrevocable
license, and ANDA Access pursuant to Section 2.3(a) as to which the parties
agree shall also be subject to a perpetual irrevocable license permitting its
use by the receiving party (It being understood that ANDA Access shall only be
for a period of 24 months):
(a) Prior to the Termination Date, and for a period of five (5) years
thereafter, each party shall hold in confidence, not disclose and not use for
the benefit of any party, except the disclosing party, any and all confidential
information provided by the disclosing party, except with the express prior
written consent of the disclosing party, provided that the receiving party shall
not be prevented from disclosing information which (i) at, prior or subsequent
to the time of such disclosure is independently known to the receiving party
without obligation of secrecy or non-use to a third party; (ii) at, prior or
subsequent to the time of disclosure, becomes part of the public knowledge
through no breach hereof by the receiving party; (iii) subsequent to the time of
such disclosure is the subject of another agreement between the parties hereto
which explicitly permits use of disclosure; or (iv) is required by law or
judicial process to be disclosed. Specific information received by either party
hereunder shall not be deemed to fall within any of the foregoing exceptions
merely because it is embraced by general information within any such exceptions.
In addition, any combination of features received as confidential information by
either party shall not be deemed to fall within any of the foregoing exceptions
merely because individual features are separately within any such exception, but
only if the combination itself, and its principles of operation, are within such
exception.
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<PAGE>
(b) Without limiting the generality of the foregoing, each party shall
limit disclosure of the confidential information to its employees who need to
receive the confidential information in order to further the activities
contemplated in this Agreement. Each party shall take sufficient precautions to
safeguard the confidential information, including obtaining appropriate
commitments and enforceable confidentiality agreements. Each party understands
and agrees that the wrongful disclosure of confidential information will result
in serious and irreparable damage to the other party, that the remedy at law for
any breach of this covenant may be inadequate, and that the party seeking
redress hereunder shall be entitled to injunctive relief, without prejudice to
any other rights and remedies to which such party may be entitled.
(c) It is acknowledged that confidential information may be disclosed
not only in writing or other tangible form, but also through discussions between
each party's respective representatives, demonstrations, observations and other
intangible methods.
(d) The above notwithstanding, each party shall have the right, with
the exercise of discretion, and insofar as practical under written
confidentiality agreements having provisions no less stringent than those
contained herein, to make disclosures of such portions of confidential
information to third party consultants, attorneys, contractors, advisors,
Affiliates and governmental agencies where in the recipient's judgment such
disclosure is essential to development, approval or marketing of a Finished
Dosage Form Product (including, if any, the Cheminor Bulk Substance used
therein) pursuant to this Agreement.
(e) Except as otherwise set forth in this Agreement, upon termination
of this Agreement and at the written request of the disclosing party, the
receiving party shall return all the confidential information of the disclosing
party (including all copies thereof) or destroy such confidential information at
the option of the disclosing party.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Insurance. Schein and Cheminor each agree to maintain
---------
in force, product liability insurance coverage with minimum limits of US$10
million. Neither party has the right to recover insurance premiums as part of
Manufacturing Costs or Commercial Expenses.
Section 12.2 Notices. Any notice provided for under this Agreement
-------
shall be in writing, shall be given either by hand or by mail, telegram,
facsimile message or other written means, and shall be deemed sufficiently given
if and when received by the party to be notified at its address first set forth
below. Either party may, by notice to the other, change its address for
receiving such notices:
36
<PAGE>
If to Cheminor:
Cheminor Drugs Limited
7-1-27 Ameerpet
Hyderabad - 500 016
India
Attention: Managing Director
Telefax: 011 91 40 294 804
- and -
Dr. Reddy's Laboratories Limited
7-1-27 Ameerpet
Hyderabad - 500 016
India
Attention: Managing Director
Telefax: 011 91 40 291 955
- and -
Reddy-Cheminor, Inc.
66 South Maple Avenue
Ridgewood, New Jersey 07450
U.S.A.
Attention: President
Telefax: 1 (201) 444-1456
If to Schein:
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
U.S.A.
Attention: General Counsel
Telefax: 1 (973) 593-5820
Section 12.3 Governing Law. This Agreement shall be deemed to have
-------------
been made in the State of New Jersey, and shall be construed in accordance with
and governed by such law without regard to the choice of law principles thereof.
Any action between Schein and Cheminor which relates in any way to this
Agreement or any Schein Dosage Form Product or Cheminor Dosage Form Product or
Cheminor Bulk Substance shall also be governed by New Jersey law without regard
to choice of law principles. The parties agree to submit all disputes which
relate in any way to this Agreement or any Schein Dosage Form Product or
Cheminor Dosage Form Product or Cheminor Bulk Substance, to the jurisdiction of
the Superior Court of New Jersey.
37
<PAGE>
Section 12.4 Assignment. This Agreement may not be assigned by
----------
either party without the consent of the other party, except that all rights and
obligations hereunder may be delegated or assigned to Affiliates or to any
successor to substantially all of the business of either Cheminor or Schein by
purchase of such party's assets, so long as Schein or Cheminor, as the case may
be, remains subject to and responsible for said obligations. This Agreement
shall continue in full force and effect following a Change of Control (as
defined in the Shareholders Agreement) of any party hereto, without any consent
required by the party not subject to the Change of Control (the "Continuing
Party"), provided, however, that if the Change of Control transaction involves a
Competitor (as defined in the Shareholders Agreement) of the Continuing Party,
the Continuing Party shall have the right to terminate this Agreement as to any
Products which, at the time of the Change of Control transaction, are more than
five years from patent expiration (in the jurisdiction in which said Product is
to be terminated) and are not yet under active development. Any assignment
effected in violation of this Section 12.4 shall be null, void and of no effect.
The parties expressly recognize that in the event of the Change of Control of
Cheminor, the acquiring party (i) shall be permitted to continue operating the
business it operated and use the facilities it utilized, as so operated and
utilized prior to the Change of Control transaction, without limitation; (ii)
may use Cheminor's bulk facilities without limitation; and (iii) may not use
Cheminor's finished dosage facilities to manufacture and sell any Product in any
manner which would constitute a breach of Cheminor's obligations under this
Agreement. In the event of the Change of Control of Schein, the acquiring party
(i) shall be permitted to continue operating the business it operated and use
the facilities it utilized, as so operated and utilized prior to the Change of
Control transaction, without limitation; and (ii) may not use Schein's finished
dosage facilities to manufacture and sell any Product in any manner which would
constitute a breach of Schein's obligations under this Agreement..
Section 12.5 Inability to Perform. If the manufacture,
--------------------
transportation, delivery, receipt or use by any party hereto of any material or
services covered hereby is prevented, restricted or interfered with by reason of
any event or cause whatsoever beyond the reasonable control of the party so
affected, such party, upon prompt notice to the other party, shall be excused
from making or taking deliveries hereunder to the extent of such prevention,
restriction or interference.
Section 12.6 Entire Agreement. This Agreement constitutes the
----------------
entire agreement between the parties with reference to the subject matter hereof
(and except for the Development and Supply Agreement), supersedes any prior
agreements with respect to such subject matter, and may not be changed or
modified orally, but only by an instrument in writing, signed by the parties
hereto, which states that it is an amendment to this Agreement. The terms and
conditions of sale contained in the form of purchase order or invoice of any
party hereto shall not modify, alter or add any term or condition of or to this
Agreement.
Section 12.7 Liability of Parties to Each Other. Neither party
----------------------------------
shall be liable to the other party for lost profits or special, consequential,
punitive or indirect damages in connection with any claim or cause of action
arising out of the subject matter of this Agreement.
38
<PAGE>
Section 12.8 Rights and Obligations of Cheminor and Schein. The
---------------------------------------------
rights and obligations of Reddy shall be limited solely to those rights and
obligations which relate to the manufacture and supply of (i) Cheminor Bulk
Substances manufactured by Reddy. The rights and obligations of Schein, Schein
Entities, Cheminor Drugs, Reddy-Cheminor and Reddy are several and not joint.
Any reference to Cheminor herein shall be deemed to be a reference to Cheminor
Drugs and Reddy-Cheminor solely, unless the context relates to the supply and
manufacture of Cheminor Bulk Substances manufactured by Reddy.
Section 12.9 Counterparts. This Agreement may be executed in one or
------------
more counterparts each of which shall for all purposes be deemed to be an
original and all of which shall constitute one and the same instrument.
Section 12.10 Accounting. Each of the parties hereto shall establish
----------
and utilize cost accounting and reporting systems that will facilitate the
determination of costs, expenses, profits and similar items as required
hereunder.
39
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
SCHEIN PHARMACEUTICAL, INC.
By:
_______________________________
Name:
Title:
CHEMINOR DRUGS LIMITED
By:
________________________________
Name:
Title:
DR. REDDY'S LABORATORIES LIMITED
By:
________________________________
Name:
Title:
REDDY-CHEMINOR, INC.
By:
________________________________
Name:
Title:
40
<PAGE>
SCHEDULE 2.1(b)(i)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
******** ****** **** ******** ** ************ *** ********* ** ****** **
--------------------------------------------------------------------------
****** ********
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* Redacted pursuant to confidential treatment request.
1
<PAGE>
SCHEDULE 2.1(b)(ii)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
******** ********* ****** ******
******** ** *** ** ****
-----------------------
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2
<PAGE>
SCHEDULE 2.1(b)(iii)
STRATEGIC ALLIANCE AGREEMENT
----------------------------
******** ********* ************ *** ***** *********** ** ******** ***** ******
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* Redacted pursuant to confidential treatment request.
3
<PAGE>
SCHEDULE 2.1(b)(iii)-CONTINUED
*********** ****** ********** ***
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* Redacted pursuant to confidential treatment request.
4
<PAGE>
SCHEDULE 2.1(b)(iv)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
For purposes of the Strategic Alliance Agreement, the term "Non-
Performance Notice" means a written notice terminating the exclusivity of the
Schein Distribution Right or the Cheminor Distribution Right. Such notice may
be given with respect to any Finished Dosage Form Product if Schein or Cheminor,
as the case may be, does not achieve such Prescription Product Market Share for
a Finished Dosage Form Product, for any rolling twelve (12) month period during
the Term of this Agreement and any renewal thereof, following the initial
eighteen (18) month post Launch period.
Neither party may give the other a Non-Performance Notice if the
purchasing party's failure to achieve such Prescription Product Market Share is
attributable to the supplying party's failure to supply the purchasing party in
accordance with its forecasted requirements hereunder.
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**** *********** **** ************* ******* ****** ******* *** **** ****** ****
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* Redacted pursuant to confidential treatment request.
5
<PAGE>
SCHEDULE 2.2(a)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
*****
******
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6
<PAGE>
SCHEDULE 2.2(b)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
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----------------------------------------------------------------
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* Redacted pursuant to confidential treatment request.
7
<PAGE>
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8
<PAGE>
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9
<PAGE>
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10
<PAGE>
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* Redacted pursuant to confidential treatment request.
11
<PAGE>
<TABLE>
<CAPTION>
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****************************
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* Page redacted pursuant to confidential treatment request.
12
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
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</TABLE>
* Page redacted pursuant to confidential treatment request.
13
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
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</TABLE>
* Page redacted pursuant to confidential treatment request.
14
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
****************************
</TABLE>
* Page redacted pursuant to confidential treatment request.
15
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
****************************
</TABLE>
* Page redacted pursuant to confidential treatment request.
16
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
****************************
</TABLE>
* Page redacted pursuant to confidential treatment request.
17
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
****************************
</TABLE>
* Page redacted pursuant to confidential treatment request.
18
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
****************************
</TABLE>
* Page redacted pursuant to confidential treatment request.
19
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
****************************
</TABLE>
* Page redacted pursuant to confidential treatment request.
20
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
****************************
</TABLE>
* Page redacted pursuant to confidential treatment request.
21
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
****************************
</TABLE>
* Page redacted pursuant to confidential treatment request.
22
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
****************************
</TABLE>
* Page redacted pursuant to confidential treatment request.
23
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
****************************
</TABLE>
* Page redacted pursuant to confidential treatment request.
24
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
****************************
</TABLE>
* Page redacted pursuant to confidential treatment request.
25
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
****************************
</TABLE>
* Page redacted pursuant to confidential treatment request.
26
<PAGE>
SCHEDULE 2.4(1)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
******** ******** ***********
-----------------------------
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* Redacted pursuant to confidential treatment request.
27
<PAGE>
SCHEDULE 2.4(2)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
********** ******** *********** ** ***** *******
------------------------------------------------
******* ******* ** *** ****** ****** ****** ***** *********
-----------------------------------------------------------
****
- ----
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* Redacted pursuant to confidential treatment request.
28
<PAGE>
SCHEDULE 4.2(b)
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******** **** ********* **** ** ****** ****** **** ******* ***** ** *** ***
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* Redacted pursuant to confidential treatment request.
29
<PAGE>
SCHEDULE 5.5
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
Complaint Handling Procedures
-----------------------------
See following four pages
30
<PAGE>
COMPLAINT HANDLING PROCEDURES AND RECALLS
The purpose of this appendix is to establish written procedures for the
communication and processing of product complaints, which includes adverse drug
reactions, and recalls.
Acting in accord with this Agreement will facilitate compliance with Federal
Requirements as set forth in 21 CFR 211.198 (complaint files) and 21 CFR
310.305/21 CFR 314.80 (postmarketing reporting of adverse drug reactions).
Complaint communication and reporting:
ALL COMMUNICATIONS WILL BE PERFORMED VIA FACSIMILE WITHIN TWO WORKING DAYS OF
RECEIPT OF THE INFORMATION/COMPLAINT, EXCEPT WHERE STATED OTHERWISE.
A. Complaints received by Schein Pharmaceutical will be documented using the
Product Quality Report Form (attached) and followed up using Schein's existing
S.O.P. A copy of the Schein complaint form will be forwarded to Poli.
B. Complaint reports received directly by Poli involving U.S. marketed batches
of product will be documented through the use of Poli's form. A copy of Poli's
complaint form will be sent to the Director of Regulatory and Professional
Affairs at Schein Pharmaceutical.
C. Complaint reports which may meet Field Alert Report Criteria [21 CFR 314.81
(b)(1)] will be communicated via facsimile to the ANDA holder within one working
day.
D. Adverse drug reaction complaints will be reported by the recipient to the
ANDA holder, who will be responsible for completing and submitting the adverse
reaction form to the FDA in a timely manner.
Complaint investigation:
A. Schein Pharmaceutical will investigate all product complaints associated
with labeling, packaging, handling, and any other aspect under Schein
Pharmaceutical's control.
B. Poli will investigate all complaints associated with product quality, other
than the above.
C. Poli will provide a written summary of their investigation of B above to
Schein Pharmaceutical's Director of Regulatory & Professional Affairs within 30
days of either party receiving the complaint.
31
<PAGE>
Communication with the complainant:
Schein Pharmaceutical will be responsible for the final response to the
complainant, based on the summary forwarded from Poli (for product quality
problems) or on Schein's own investigations (for labeling, packaging problems,
etc.).
If a complaint involves both product quality concerns and other aspects,
such as labeling problems, Poli and Schein Pharmaceutical will share information
and develop a mutually acceptable final response, to be sent by Schein
Pharmaceutical. Schein Pharmaceutical will forward a copy of all final
complaint responses to Poli on the day the response is sent to the complainant.
Product recall:
Any recall of product will be agreed upon by both parties. The ANDA holder
will be responsible for initiating and ensuring that all aspects of a drug
recall are carried out by the agreed upon party, including communicating with
the FDA, notifying customers, performing the recall effectiveness check, and
submitting monthly reports. Both parties will cooperate fully in recalling any
product.
32
<PAGE>
COMPLAINT INVESTIGATION
PRODUCT QUALITY REPORT FORM
Product Name/Strength_________________________________________________________
Controlled Dangerous Substance? No__________________ Yes____________________
Lot/Control No.________________ Exp. date____________ Size_________________
NDC# __________________________ Imprint (as per complainant):_________________
Manufacturer:__________________
Date/time received at Schein__________________________________________________
COMPLAINANT INFORMATION
Complainant/Title ____________________________________________________________
Company ______________________________________________________________________
Street _______________________________________________________________________
City/State/Zip _______________________________________________________________
Telephone ____________________________________________________________________
COMPLAINT DESCRIPTION
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Signature Date
33
<PAGE>
File No. ____________
COMPLAINT SAMPLE
Date sample requested _______________________ Date sample received _______
Description/quantity of the complaint sample _________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
If no sample obtained, explain _______________________________________________
______________________________________________________________________________
______________________________________________________________________________
COMPLETE ENTIRE BOX IF THIS IS AN ADR FOR A DANBURY-MANUFACTURED PRODUCT;
OTHERWISE SKIP.
POTENTIAL ADR REVIEWED BY REGULATORY AFFAIRS
A. 15-day ADR Yes or No
B. More data needed Yes or No
(If more data needed, how obtained?)
Telephone Return receipt # Priority Mail
COMPLETED ADR TURNED OVER TO REGULATORY AFFAIRS
____________________________________________ ______________________
Signature (for Regulatory Affairs) Date
- -----------------------------------------------------------
Similar complaints on this product? (any strength) Yes ____ No ____
This Control #? Yes ____ No ____ Not applicable
COMMENTS
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
34
<PAGE>
SCHEDULE 8.3(d)(1)
-------------------
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
******** ***** ** ********* ****** ** ****** ****** **
***** ******* ******* *******
-----------------------------
****
- ----
********** ********* **** *********** *** *** ************ *********** ***
*********** *** *********** ******* **** ************ *********** ******
****** **** ********
- --------------------
********** * **
********** * **
********** *** ***
********** * **
********* ******* * **
************ *********** ******************** *********** **** ***
* Redacted pursuant to confidential treatment request.
35
<PAGE>
*** *** **** ** *** ************ ** *** ****** ******** * ** *** ******
* Redacted pursuant to confidential treatment request.
36
<PAGE>
SCHEDULE 8.3(d)(2)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
****** *********** ********** ******** ******** **** ********
-------------------------------------------------------------
********** ** ** ******* *** **** ***** ****** ** *** ********* **********
***** ********
*****
*******
********
***** ********
******
******
*******
*******
*******
******************
******** ********
*********
* Redacted pursuant to confidential treatment request.
37
<PAGE>
SCHEDULE 8.3(e)(1)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
******** ******** **********
----------------------------
******** ** *** * ***** ** *** ********* ******** ** ****** ** ***
********* *********** ** *********** ****** *** * ***** ***** ******* **** *****
***** ***** ********** **** ******* ***** ******** *********** **** **
********** ** ****** ********** *** * ********* **** **** ******* ** ***********
**** *** ******** ****** ******** ******** *** ******* ** **** **********
******** ** *** * ***** ** *** ********* *** ****** ** ******** ** ***
******* ******* **** ** **** ******* ******** ** ******** ************ *******
******** ** *** * ***** ** *** ********* ***** ***** ******** ******
*** ** *** ************* ********** ** *************
* Redacted pursuant to confidential treatment request.
38
<PAGE>
SCHEDULE 8.3(e)(2)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
****** ******** **********
----------------------------
****** ********* ****
* ********** ** ********
* *************** **** **** *********
* **** ******* **** **** *********
*********** ********** ******** *** ********* ****** ** *** ************ *******
************ ******* ***** *** ********* ** ******* *
*********
*********
*********
*********
*********
************
*********
* Redacted pursuant to confidential treatment request.
39
<PAGE>
*********
**************
**************
Facility leases for:
. Distribution facility: Brewster, NY
. Distribution facility: Phoenix, AZ
. Manufacturing plant: Danbury, CT
* Redacted pursuant to confidential treatment request.
40
<PAGE>
SCHEDULE 8.3(g)(1)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
******** ********** ** ***
--------------------------
*****
* Redacted pursuant to confidential treatment request.
41
<PAGE>
SCHEDULE 8.3(g)(2)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
****** ********** ** ***
--------------------------
****** ***** ** *** ********* ******** ** ******** ************ **********
**** *** ******* ** ***** *** ******** ********
**** ******* * ********** ** ********** ******** *** ***********
******* ********** ********
******** * ********** ************
******* ****** ***** ******* *** **** ********** ****** *************
***** ******** ** *** **** ********** ********* ** *** ***************
************ **********
* Redacted pursuant to confidential treatment request.
42
<PAGE>
SCHEDULE 8.3(h)(1)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
******** *********** ****** * ******* ****
------------------------------------------
******** **** *** **** *** ******* ** ********** ******** ** ******* ***
******** ** ** ** *** **********
* Redacted pursuant to confidential treatment request.
43
<PAGE>
SCHEDULE 8.3(h)(2)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
****** *********** ****** * ******* ****
----------------------------------------
*****
* Redacted pursuant to confidential treatment request.
44
<PAGE>
SCHEDULE 8.3(i)(1)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
*****
* Redacted pursuant to confidential treatment request.
45
<PAGE>
SCHEDULE 8.3(i)(2)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
***** ****** ** ** ****** ***********
* Redacted pursuant to confidential treatment request.
46
<PAGE>
SCHEDULE 8.3(k)(1)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
*****
* Redacted pursuant to confidential treatment request.
47
<PAGE>
SCHEDULE 8.3(k)(2)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
****** ***** ** *** ********* ******** ** ******** ************
********** **** *** ******* ** ***** *** ******** ********
**** ******* * ********** ** ********** ******** *** ***********
******* ********** ********
******** * ********** ************
******* ****** ***** ******* *** **** ********** ****** *************
***** ******** ** *** **** ********** ********* ** *** ***************
************ **********
* Redacted pursuant to confidential treatment request.
48
<PAGE>
SCHEDULE 3.2
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
********
******** ******
**********
* Redacted pursuant to confidential treatment request.
49
<PAGE>
EXHIBIT 21.1
SCHEIN PHARMACEUTICAL, INC.
LIST OF SUBSIDIARIES*
Schein Pharmaceutical, Inc.
Danbury Pharmacal, Inc.
Danbury Pharmacal Puerto Rico Inc.
Steris Laboratories, Inc.
Marsam Pharmaceuticals, Inc.
Schein Pharmaceutical PA, Inc.
Schein Pharmaceutical Services Co.
Schein Bayer Pharmaceuticals Australia, Ltd. (Partnership) - 30%
Schein Bayer Pharmaceutical Services, Inc. - 50%
Ranbaxy Schein Pharma, L.L.C. - 50%
Schein Pharmaceutical International, Inc.
Schein Pharmaceutical Canada, Inc. - 50%
Schein Pharmaceutical (Netherlands) B.V.
Triomed (Pty) Ltd. (South Africa)
Schein Pharmaceutical (Bermuda) Ltd.
Ethical Generics Limited (United Kingdom) - 50%
Schein Farmaceutica de Peru
Bayfarma de Columbia S.A - 30%
International Generics Company Ltd. - 50%
________________
* All Companies 100% Owned Unless Otherwise Specified
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Schein Pharmaceutical, Inc.
Florham Park, New Jersey
We hereby consent to the use in the Prospectus constituting a part of
this Registration Statement of our report dated January 30, 1998, except for
Note 1 which is as of , 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.
February 25, 1998
BDO SEIDMAN, LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> DEC-27-1997
<CASH> 804
<SECURITIES> 7,076
<RECEIVABLES> 91,041
<ALLOWANCES> (2,260)
<INVENTORY> 119,142
<CURRENT-ASSETS> 222,762
<PP&E> 182,882
<DEPRECIATION> 72,450
<TOTAL-ASSETS> 534,126
<CURRENT-LIABILITIES> 149,513
<BONDS> 198,705
0
0
<COMMON> 336
<OTHER-SE> 139,379
<TOTAL-LIABILITY-AND-EQUITY> 534,126
<SALES> 490,170
<TOTAL-REVENUES> 490,170
<CGS> 329,761
<TOTAL-COSTS> 329,761
<OTHER-EXPENSES> 112,074
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,578
<INCOME-PRETAX> 21,757
<INCOME-TAX> 10,655
<INCOME-CONTINUING> 11,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,102
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
</TABLE>
