<PAGE>
AS FILED WITH THE SECURITIES EXCHANGE COMMISSION ON APRIL 7, 1998
REGISTRATION NO. 333-45743
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SCHEIN PHARMACEUTICAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2726505
(STATE OF OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
AND SUBSIDIARY GUARANTORS
SCHEIN PHARMACEUTICAL INTERNATIONAL, INC.
SCHEIN PHARMACEUTICAL PA, INC.
SCHEIN PHARMACEUTICAL SERVICE COMPANY
STERIS LABORATORIES, INC.
MARSAM PHARMACEUTICALS INC.
DANBURY PHARMACAL, INC.
DANBURY PHARMACAL PUERTO RICO, INC.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR RESPECTIVE CHARTERS)
DELAWARE 22-3338994
DELAWARE 22-3271171
DELAWARE 22-3331174
DELAWARE 86-0564234
DELAWARE 11-2718528
DELAWARE 52-1760757
DELAWARE 06-0863666
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
2834
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
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100 CAMPUS DRIVE, CORPORATION SERVICE COMPANY
FLORHAM PARK 1013 CENTRE ROAD
NEW JERSEY 07932 WILMINGTON, DELAWARE 19805
(973) 593-5500 (302) 636-5454
(NAME, ADDRESS, INCLUDING ZIP (NAME, ADDRESS, INCLUDING ZIP CODE, AND
CODE, AND TELEPHONE NUMBER, TELEPHONE NUMBER, INCLUDING AREA CODE, OF
INCLUDING AREA CODE, OF REGISTRANTS' AGENT FOR SERVICE)
REGISTRANTS' AGENT FOR SERVICE)
COPY TO:
EDWARD W. KERSON, ESQ.
PROSKAUER ROSE LLP
1585 BROADWAY
NEW YORK, NEW YORK 10036-8299
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, 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
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 16, 1998
PROSPECTUS
SCHEIN PHARMACEUTICAL, INC.
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF ITS
SENIOR FLOATING RATE NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR
EACH $1,000 IN PRINCIPAL AMOUNT OF ITS OUTSTANDING
SENIOR FLOATING RATE NOTES DUE 2004,
OF WHICH $100,000,000 PRINCIPAL AMOUNT IS OUTSTANDING
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON , 1998, UNLESS EXTENDED
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Schein Pharmaceutical, Inc., a Delaware corporation ("Schein" or the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the
"Letter of Transmittal," and together with this Prospectus, the "Exchange
Offer"), to exchange $1,000 principal amount of Senior Floating Rate Notes due
2004 of the Company (the "New Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to an
Exchange Offer Registration Statement (as defined herein) of which this
Prospectus constitutes a part, for each $1,000 principal amount of the
outstanding Senior Floating Rate Notes due 2004 of the Company (the "Old
Notes"), of which $100,000,000 aggregate principal amount is outstanding. The
form and terms of the New Notes are in all material respects the same as the
form and terms of the Old Notes, except that the New Notes will not bear
legends restricting their transfer. The New Notes will evidence the same debt
as the Old Notes (which they replace) and will be issued under and be entitled
to the benefits of the Indenture, dated as of December 24, 1997 (the
"Indenture"), among the Company, the Guarantors (as defined herein) and the
Bank of New York, as trustee (the "Trustee"). The Old Notes and the New Notes
are sometimes referred to herein collectively as the "Notes." See "The
Exchange Offer" and "Description of Notes."
The indebtedness evidenced by the New 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 New 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 New Notes. As of December 27, 1997, the Company and its subsidiaries had
secured indebtedness of approximately $154.4 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. Secured indebtedness under the Senior Credit Agreement is the
only material secured indebtedness of the Company and its subsidiaries. In the
event of a default on the New 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 New 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 December 27, 1997, the Company had $56.0 million of undrawn
availability under the Senior Credit Agreement. The Indenture permits 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 (as defined
herein) will jointly and severally, fully and 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 is effectively subordinated to the prior payment in full of all
secured indebtedness of the Company, including secured indebtedness under the
Senior Credit Agreement. See "Description of Notes--Guarantees."
(Continued on Next Page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is March , 1998.
<PAGE>
(Continued from Cover Page)
Interest on each New Note will accrue from the last Interest Payment Date
(as defined herein) on which interest was paid on the Old Note tendered in
exchange therefor. Holders of Old Notes whose Old Notes are accepted for
exchange will be deemed to have waived the right to receive any payment in
respect of interest on the Old Notes accrued from the last Interest Payment
Date to the date of the issuance of the New Notes. Interest on the New Notes
is payable quarterly on January 15, April 15, July 15 and October 15 of each
year, accruing from the last Interest Payment Date at a rate equal to the
Applicable LIBOR Rate (as defined herein). 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." The Notes will
mature on December 15, 2004, unless previously redeemed. The Notes will be
redeemable in cash at the option of the Company, in whole or in part, at any
time, at the redemption prices set forth herein, together with accrued
interest thereon to the date of redemption. Upon a Change of Control (as
defined herein), the Company will be required to offer to repurchase the Notes
at a purchase price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest thereon to the date of repurchase.
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time on , 1998,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary
conditions. See "The Exchange Office--Conditions."
The Old Notes were sold in an aggregate principal amount of $100.0 million
by the Company on December 24, 1997 to Societe Generale Securities Corporation
(the "Initial Purchaser") in a transaction not registered under the Securities
Act in reliance upon the private offering exemption under Section 4(2) of the
Securities Act (the "Initial Offering"). The Initial Purchaser subsequently
placed the Old Notes with qualified institutional buyers in reliance upon Rule
144A under the Securities Act and with a limited number of accredited
investors (as defined in Rule 501(A)(1), (2), (3) or (7) under the Securities
Act). Accordingly, the Old Notes may not be reoffered, resold or otherwise
transferred in the United States unless registered under the Securities Act or
unless an applicable exemption from the registration requirements of the
Securities Act is available. The New Notes are being offered hereunder in
order to satisfy the obligations of the Company and the Guarantors under the
Registration Rights Agreement (as defined herein) entered into by the Company
and the Initial Purchaser in connection with the Initial Offering. See "The
Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder has no arrangement or understanding with any person to participate in
the distribution of such New Notes. See "The Exchange Offer--Resale of the New
Notes." Each broker-dealer (a "Participating Broker-Dealer") that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. However, if any
holder acquires New Notes in the Exchange Offer for the purpose of
distributing or participating in a distribution of the New Notes, such holder
cannot rely on the position of the staff of the Commission enunciated in such
no-action letters or any similar interpretative letters, and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration
is otherwise available. Further, each Participating Broker-Dealer that
receives New Notes for its own account in exchange for Old Notes, where such
Old Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a Prospectus in connection with any resale of such New Notes.
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such Participating Broker-Dealer as a result of marketmaking activities or
other trading activities. The Company has agreed that, for a period of 90 days
after the Expiration Date, it will make this Prospectus available to any
participating Broker-Dealer for use in connection with any such resale. Any
broker-dealer who acquired the Old Notes directly from the Company in the
Initial Offering, and not as a result of market-making or trading activities,
must, in the absence of an exemption from registration, comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with the secondary resale of the New Notes and cannot rely on the
position of the staff of the Commission enunciated in the no-action and
interpretive letters referred to above; and such broker-dealers cannot use
this Prospectus in connection with resales of the New Notes. See "Plan of
Distribution."
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. The Company
will pay all the expenses incurred by it incident to the Exchange Offer. See
"The Exchange Offer."
There has not previously been any public market for the Old Notes or the New
Notes. There can be no assurance that an active market for the New Notes will
develop. See "Risk Factors--Lack of Public Market; Restrictions on
Transferability." Moreover, to the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Notes could be adversely affected.
Except as set forth below, the New Notes will initially be issued in the
form of one or more Global Notes (as defined herein), which will be deposited
with, or on behalf of, The Depository Trust Company ("DTC" or the
"Depository") and registered in its name or in the name of Cede & Co., it
nominee. Beneficial interests in the Global Notes representing the New Notes
will be shown on, and transfers thereof will be effected through, records
maintained by DTC and its participants. New Notes that are issued in respect
of Old Notes that were originally issued to Institutional Accredited Investors
(as defined herein) will be issued as Certificated Securities (as defined
herein). See "Description of Notes--Book Entry, Delivery and Form."
The Company has filed a Registration Statement on Form S-1 (File No. 333-
41413) in connection with its proposed initial public offering (the "Equity
Offering" or the "IPO") of common stock, par value $.01 per share ("Common
Stock").
<PAGE>
AVAILABLE INFORMATION
The Company and the Guarantors will file with the Commission a Registration
Statement on Form S-4 (the "Exchange Offer Registration Statement," which term
shall encompass all amendments, exhibits, annexes and schedules thereto)
pursuant to the Securities Act, and the rules and regulations promulgated
thereunder, covering the New Notes being offered hereby. This Prospectus does
not contain all the information set forth in the Exchange Offer Registration
Statement. For further information with respect to the Company and the
Exchange Offer, reference is made to the Exchange Offer Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document
filed as an exhibit to the Exchange Offer Registration Statement, reference is
made to the exhibit for a more complete description of the document or matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Exchange Offer Registration Statement, including exhibits
thereto, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, at the Regional Offices of the Commission at 7 World Trade Center,
13th Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, the Company and the Guarantors will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will be required to file
periodic reports and other information with the Commission. The obligation of
the Company and the Guarantors to file periodic reports and other information
with the Commission will be suspended if the New Notes are held of record by
fewer than 300 holders as of the beginning of any fiscal year of the Company
and the Guarantors other than the fiscal year in which the Exchange Offer
Registration Statement is declared effected. The Company has agreed that,
whether or not it is required to do by the rules and regulations of the
Commission, for so long as any of the Notes remain outstanding, it will
furnish to the holders of the New Notes and file with the Commission (unless
the Commission will not accept such a filing) (i) all quarterly and annual
financial information 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 independent auditors 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.
i
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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". On April 3, 1998, the Company effected a 105-for-one
stock split; except as otherwise indicated, the numbers of shares of Common
Stock of the Company referred to in this Prospectus do not reflect that stock
split. All references to the Company's operations for a particular fiscal year
refer to the 52-53 week period ended on the last Saturday in December of that
year, and all references to the Company's operations for a particular fiscal
quarter refer to the three month period ended on the last Saturday in that
quarter. Unless otherwise indicated, all references to "Schein Pharmaceutical,"
"Schein" or the "Company" refer collectively to Schein Pharmaceutical, Inc. and
its predecessors and subsidiaries.
THE COMPANY
Schein Pharmaceutical believes it is one of the leading generic
pharmaceutical companies in terms of United States revenues. The Company
develops, manufactures and markets one of the broadest generic product lines in
the pharmaceutical industry through the integration of its product development
expertise, diverse, high-volume production capacity and direct sales and
marketing force. The Schein product line includes both solid dosage and sterile
dosage generic products, and the Company is also developing a line of specialty
branded pharmaceuticals. The Company believes that its primary branded product,
INFeD, is the leading injectable iron product in the United States in terms of
revenues. The Company has a substantial pipeline of products under development.
The Company enhances its internal product development, manufacturing and
marketing capabilities through strategic collaborations. Schein generated net
revenues of $490.2 million and operating income of $39.0 million during 1997.
The Company believes it manufactures and markets the broadest generic product
line of any U.S. pharmaceutical company in terms of number and types of
products. The Company manufactures and markets approximately 160 chemical
entities formulated in approximately 325 different dosages under approximately
200 Abbreviated New Drug Applications ("ANDAs") approved by the United States
Food and Drug Administration ("FDA"). Schein is currently the sole
manufacturing source for 47 generic pharmaceutical products, of which 45 are
sterile dosage products. The Company's solid dosage products include both
immediate-release and extended-release capsules and tablets; sterile dosage
products include solutions, suspensions, powders and lyophilized (freeze-dried)
products primarily for administration as injections, ophthalmics and otics. The
manufacture of sterile dosage products is significantly more complex than the
manufacture of solid dosage products, which limits competition in this product
area. The Company currently manufactures approximately four billion solid
dosage tablets and capsules and 75 million sterile dosage vials and ampules
annually. Solid dosage generic products and sterile dosage generic products
each accounted for approximately 40% of the Company's net revenues in 1997.
Since introducing INFeD in 1992, the Company has been developing a portfolio
of branded products, primarily in select therapeutic markets, such as iron
management for the nephrology, oncology and hematology markets. INFeD is used
in the treatment of certain types of anemia, particularly in dialysis patients,
and accounted for approximately 21% of the Company's net revenues in 1997. The
Company markets INFeD through a 20-person dedicated sales and marketing force,
as well as through co-marketing collaborations with Bayer Corporation in the
nephrology market and MGI Pharma, Inc. ("MGI") in the oncology market.
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:
1
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(i) leverage its diverse pharmaceutical development and manufacturing
capabilities to extend the breadth of its generic product line; (ii) focus its
product development on complex and other generic drugs that require specialized
development or manufacturing technology and are therefore expected to encounter
limited competition; (iii) develop and market branded drugs for select
therapeutic categories; (iv) pursue strategic collaborations to supplement its
product development and manufacturing resources; and (v) expand market
penetration through direct sales and innovative marketing programs.
The Company's commitment to product development has resulted in 24 ANDA
approvals during the past three years. During the past three fiscal years, the
Company, directly and through its strategic collaborations, has expended
approximately $84.7 million on product pipeline development activities, which
the Company believes is among the highest product development expenditure
levels for any independent generic drug company. The Company pursues product
development through its 150-person product development staff and various
collaborations and licensing arrangements with other pharmaceutical and drug
delivery technology companies. The Company's product development efforts focus
on: (i) major branded drugs coming off patent; (ii) drugs for which patent
protection has lapsed and for which there are few or no generic producers;
(iii) drugs whose patents may be susceptible to challenge; (iv) proprietary and
branded products focused in select therapeutic areas; and (v) generic products
that require specialized development, formulation, drug delivery or
manufacturing technology.
The Company supplements its internal product development, manufacturing and
marketing capabilities with external sources. During 1994, Schein entered into
a strategic alliance with Bayer Corporation, through which Bayer Corporation
became a 28.3% stockholder of Schein, and Bayer Corporation currently
participates with Schein in several collaborations. In 1995, the Company
acquired Marsam Pharmaceuticals Inc. ("Marsam"), expanding the Company's
ability to develop and manufacture sterile penicillins and oral and sterile
cephalosporins. In addition, the Company has entered into strategic
collaborations involving product development arrangements with companies such
as Ethical Holdings plc ("Ethical") and Elan Corporation plc ("Elan"); raw
material supply arrangements with companies such as Johnson Matthey plc
("Johnson Matthey") and Abbott Laboratories ("Abbott"); and sales and marketing
arrangements with Bayer Corporation and other companies such as MGI.
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.
2
<PAGE>
THE INITIAL OFFERING
NOTES
Pursuant to a Purchase Agreement dated as of December 19, 1997 (the "Purchase
Agreement"), the Company sold Old Notes in an aggregate principal amount of
$100.0 million to the Initial Purchaser on December 24, 1997. The Initial
Purchaser subsequently resold the Old Notes purchased from the Company to
qualified institutional buyers pursuant to Rule 144A under the Securities Act
and to certain accredited investors (as defined in Rule 501(A)(1), (2), (3) or
(7) under the Securities Act). The net proceeds from the Initial Offering of
$100.0 million were used to repay the Senior Subordinated Loan (as defined
herein).
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Purchase Agreement, the Company and the Initial Purchaser
entered into an Exchange and Registration Rights Agreement dated as of December
24, 1997 (the "Registration Rights Agreement"), which grants the holders of the
Old Notes certain exchange and registration rights. The Exchange Offer is
intended to satisfy such exchange rights which terminate upon the consummation
of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED.......... $100,000,000 aggregate principal amount of Senior
Floating Rate Notes due 2004 of the Company.
THE EXCHANGE OFFER.......... $1,000 principal amount of New Notes will be
issued in exchange for each $1,000 principal
amount of Old Notes validly tendered pursuant to
the Exchange Offer. As of the date hereof,
$100,000,000 in aggregate principal amount of Old
Notes are outstanding. The Company will issue the
New Notes to tendering holders of Old Notes on or
promptly after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes that New
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that such New Notes are acquired in the
ordinary course of such holder's business and
that such holder does not intend to participate
and has no arrangement or understanding with any
person to participate in the distribution of such
New Notes. Each holder accepting the Exchange
Offer is required to represent to the Company in
the Letter of Transmittal that, among other
things, the New Notes will be acquired by the
holder in the ordinary course of business and the
holder does not intend to participate and has no
arrangement or understanding with any person to
participate in the distribution of such New
Notes.
Any Participating Broker-Dealer that acquired Old
Notes for its own account as a result of market-
making activities or other trading
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<PAGE>
activities may be a statutory underwriter. Each
Participating Broker-Dealer that receives New
Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any
resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and
by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in
connection with resale of New Notes received in
exchange for Old Notes where such Old Notes were
acquired by such Participating Broker-Dealer as a
result of market-making activities or other
trading activities. The Company has agreed that,
for a period of 90 days after the Expiration
Date, it will make this Prospectus available to
any Participating Broker-Dealer for use in
connection with any such resale. See "Plan of
Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose
of participating, in a distribution of the New
Notes could not rely on the position of the staff
of the Commission enunciated in no-action letters
and, in the absence of an exemption therefrom,
must comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction. Failure
to comply with such requirements in such instance
may result in such holder incurring liability
under the Securities Act for which the holder is
not indemnified by the Company.
MINIMUM CONDITION........... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Old Notes
being tendered or accepted for exchange.
EXPIRATION DATE............. 5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended (which in no event shall be more than 60
days after the date of this Prospectus). See "The
Exchange Offer--Expiration Date; Extensions;
Amendments."
CONDITIONS TO THE EXCHANGE The Exchange Offer is subject to certain
OFFER...................... customary conditions, which may be waived by the
Company. See "The Exchange Offer--Conditions."
The Company reserves the right to terminate or
amend the Exchange Offer at any time prior to the
Expiration Date upon the occurrence of any such
condition.
PROCEDURES FOR TENDERING Each holder of Old Notes wishing to accept the
OLD NOTES.................. Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, or an Agent's
Message (as defined herein) in connection with a
book entry transfer together with the Old Notes
and other required documentation to the Exchange
Agent (as defined herein) at the address set
forth herein. By executing the Letter of
Transmittal, each holder will represent to
4
<PAGE>
the Company that, among other things, the New
Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business
of the person receiving such New Notes, whether
or not such person is the holder, and that
neither the holder nor any such other person (i)
has any arrangement or understanding with any
person to participate in the distribution of such
New Notes, (ii) is engaging or intends to engage
in the distribution of such New Notes, or (iii)
is an "affiliate," as defined under Rule 405 of
the Securities Act, of the Company. See "The
Exchange Offer--Purpose and Effect of the
Exchange Offer" and "--Procedures for Tendering."
UNTENDERED OLD NOTES........ Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but
who do not tender their Old Notes will not have
any further exchange rights and such Old Notes
will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Old Notes could
be adversely affected.
CONSEQUENCES OF FAILURE TO The Old Notes that are not exchanged pursuant to
EXCHANGE................... the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may be
resold only (i) to the Company, (ii) pursuant to
Rule 144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States
to a non-U.S. person pursuant to the requirements
of Rule 904 under the Securities Act, or (iv)
pursuant to an effective registration statement
under the Securities Act. See "The Exchange
Offer--Consequences of Failure to Exchange."
SHELF REGISTRATION If (i) any change in law or applicable
STATEMENT.................. 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 Old
Notes, (A) is not eligible to participate in the
Exchange Offer or (B) participates in the
Exchange Offer and does not receive freely
transferable New Notes in exchange for tendered
Old 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 (as defined herein) 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 Exchange Offer
would not be permitted by a policy of the
Commission, the Company will commence the
Exchange Offer and will use its reasonable best
efforts to consummate the Exchange Offer as
promptly as practicable, but in any event on or
prior to 150
5
<PAGE>
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.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such owner
must, prior to completing and executing the
Letter of Transmittal and delivering its Old
Notes, either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable time.
The Company will keep the Exchange Offer open for
not less than 30 business days in order to
provide for the transfer of registered ownership.
GUARANTEED DELIVERY Holders of Old Notes who wish to tender their Old
PROCEDURES................. Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent (as defined herein) (or comply
with the procedures for book-entry transfer)
prior to the Expiration Date must tender their
Old Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date.
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES...... The Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
Time, on the Expiration Date. The New Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange
Offer."
FEDERAL INCOME TAX The exchange of Old Notes for New Notes by
CONSEQUENCES............... tendering holders will not be a taxable exchange
for federal income tax purposes, and such holders
should not recognize any taxable gain or loss or
any interest income as a result of such exchange.
USE OF PROCEEDS............. There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange Offer.
EXCHANGE AGENT.............. The Bank of New York (the "Exchange Agent").
6
<PAGE>
THE NEW NOTES
GENERAL..................... The form and terms of the New Notes are the same
as the form and terms of the Old Notes (which
they replace) except that (i) the New Notes have
been registered under the Securities Act and,
therefore, will not bear legends restricting the
transfer thereof, and (ii) the holders of New
Notes will not be entitled to certain rights
under the Registration Rights Agreement,
including the provisions providing for an
increase in the interest rate on the Old Notes in
certain circumstances relating to the timing of
the Exchange Offer, which rights will terminate
when the Exchange Offer is consummated. See "The
Exchange Offer--Purpose and Effect of the
Exchange Offer." The New Notes will evidence the
same debt as the Old Notes and will be entitled
to the benefits of the Indenture. See
"Description of Notes." The Old Notes and the New
Notes are referred to collectively hereinafter as
the "Notes."
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 April 15, 1998 (each an
"Interest Payment Date").
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 jointly and
severally, fully and 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
7
<PAGE>
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. As of December 27, 1997,
the Company and its Restricted Subsidiaries had
secured indebtedness of approximately $154.4
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.
Secured indebtedness under the Senior Credit
Agreement is the only material secured
indebtedness of the Company and its subsidiaries.
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 December 27, 1997, the Company had $56.0
million of undrawn availability under the Senior
Credit Agreement. The Indenture relating to the
Notes will permit the Company and its 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 New Notes will be
issued contains 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."
8
<PAGE>
Pursuant to the Registration Rights Agreement,
EXCHANGE OFFER AND the Company has agreed (i) to file with the
REGISTRATION............... Commission on or prior to 45 days after the Issue
Date an Exchange Offer Registration Statement,
with respect to an offer to exchange the Old
Notes for the New Notes with terms identical in
all material respects to those of the Old 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 Equity Offering. Upon the
effectiveness of the Exchange Offer Registration
Statement, the Company will commence the Exchange
Offer to holders of the Notes who are not
prohibited by any law or policy of the Commission
from participating in the 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
Old Notes. If (i) any change in law or applicable
interpretations of the staff of the Commission
does not permit the Company to effect the
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 Old 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, 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 Exchange Offer would not be permitted by a
policy of the Commission, the Company will
commence the Exchange Offer and will use its
reasonable best efforts to consummate the
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.
TRANSFER RESTRICTIONS;
ABSENCE OF A PUBLIC MARKET The Old Notes have not been registered under the
FOR THE NOTES.............. Securities Act and are subject to restrictions on
transferability and resale. If issued, the New
Notes will generally be freely transferable
(subject to the
9
<PAGE>
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 Old Notes or, if issued,
the New 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 Old Notes, or, if issued, the
New Notes, on any securities exchange or on any
automated dealer quotation system.
RISK FACTORS
Before tendering the Old Notes for the New Notes offered hereby, holders of
the Old Notes should carefully consider the information set forth under the
caption "Risk Factors" and all other information set forth in this Prospectus.
10
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
------------------------------------------------
1993 1994 1995(1) 1996 1997
-------- -------- -------- -------- --------
<S> <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
======== ======== ======== ======== ========
OTHER DATA:
Depreciation and
amortization............... $ 7,328 $ 8,464 $ 17,395 $ 25,450 $ 25,474
Capital expenditures, net... 22,806 16,135 13,986 11,309 14,446
Ratio of earnings to fixed
charges(4)................. 26.9x 8.0x 0.6x 1.3x 1.8x
Pro forma interest
expense(5)................. 25,147
</TABLE>
<TABLE>
<CAPTION>
DECEMBER
--------------------------------------------
1993 1994 1995(1) 1996 1997
-------- -------- -------- -------- --------
<S> <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) 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.
(5) Pro forma interest expense represents what interest expense, including
amortization of debt issuance costs, would have been had the Initial
Offering occurred on December 29, 1996 and the proceeds thereof used by the
Company to retire the Senior Subordinated Loan.
11
<PAGE>
RISK FACTORS
An investment in the New Notes involves a high degree of risk. Prospective
investors in the New Notes should carefully consider the following risk
factors, in addition to the other information set forth in this Prospectus,
before making an investment in the New Notes offered hereby. This Prospectus
contains forward-looking statements. 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 New 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
Consequences of Failure to Exchange
Untendered Old Notes not exchanged for New Notes pursuant to the Exchange
Offer will remain subject to the existing restrictions upon transfer of such
Old Notes. Additionally, holders of any Old Notes not tendered in the Exchange
Offer prior to the Expiration Date will not be entitled to require the Company
to file the Shelf Registration Statement.
Substantial Leverage
The Company is highly leveraged. As of December 27, 1997, the Company had
total consolidated indebtedness of $255.1 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
12
<PAGE>
principal payments over the next 12 months. 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 view of the Company's high level of debt. See "--
Limitation on Change in Control; Asset Sale Offer" and "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," "--Risk Management" and
"Description of Notes."
Ranking of Notes
The New 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 New 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 New 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.
As of December 27, 1997, the aggregate principal amount of secured
indebtedness of the Company and the Guarantors, which effectively ranks senior
to the Notes and the Subsidiary Guarantees, was $154.4 million. Secured
indebtedness under the Senior Credit Agreement is the only material secured
indebtedness of the Company and its subsidiaries. As of December 27, 1997, the
Senior Credit Agreement provided the Company with $56.0 million of undrawn
availability, which, if drawn, also 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."
13
<PAGE>
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 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 Initial
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 contains 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
14
<PAGE>
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."
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; Asset Sale Offer
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 prohibits the Company from repurchasing the
Notes without the consent of the lenders (except that the proceeds from an
equity or subordinated debt offering may be used to repurchase the Notes). In
the event a Change of Control occurs at a time when the Company is prohibited
from purchasing 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, merger, tender offer or other takeover of the
Company and, thus, the removal of incumbent management, and may in the future
have an adverse effect on (i) on the market price of the Company's securities
and (ii) the ability of the Company to obtain additional financing. The Equity
Offering will not constitute a Change of Control. See "Description of Notes--
Change of Control."
Under certain circumstances, upon a disposition of assets having a fair
market value in excess of $5.0 million, the Company will be required to
purchase all of the outstanding Notes ("Asset Sale Offer") at a price equal to
100% of the principal amount thereof plus accrued and unpaid interest to the
purchase date from resulting net available cash (as defined in the Indenture).
The obligation to repurchase Notes pursuant to an Asset Sale Offer arise only
to the extent the Company does not apply proceeds from asset sales to the
indebtedness
15
<PAGE>
under the Senior Credit Agreement or to reinvestment in additional assets. If
an Asset Sale Offer was required to be made at a time when the Company is
prohibited from purchasing the Notes, the consent of the lenders under the
Senior Credit Agreement would be required. If such consent was not obtained,
an Event of Default would occur under the Indenture by virtue of the Company's
failure to purchase the Notes.
Lack of Public Market; Restrictions on Transferability
Pursuant to the Registration Rights Agreement, the Company and the
Guarantors have filed the Exchange Offer Registration Statement with the
Commission. If issued, the New Notes generally will be permitted to be resold
or otherwise transferred by each holder without the requirement of further
registration. The New Notes, however, will also 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 Old
Notes being tendered for exchange. No assurance can be given as to the
liquidity of the trading market for the New Notes following the Exchange
Offer. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "The Exchange
Offer."
The liquidity of, and trading market for, the New 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.
Waiver of Past Default or Compliance with Indenture
Subject to certain exceptions concerning, among other things, prescribed
principal, interest and premium payments, and stated maturity, which can be
changed only with the consent of each holder of Notes, 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 be waived (except with respect to payment of principal or
interest or other provision requiring unanimous consent of holders of Notes)
with the consent of the holders of a majority in principal amount of the Notes
then outstanding. As a result, the holder or holders of a majority in
principal amount of the Notes could amend the Indenture, and permit a default
under or non-compliance with the terms of the Indenture, which may be contrary
to the interests of other holders of Notes.
Dependence on Company's Subsidiaries for Repayment of Debt
The Company is dependent on the earnings and cash flow of, and dividends and
distributions or advances from, its subsidiaries to provide a portion of the
funds necessary to meet its debt service obligations, including the payment of
principal and interest on the Notes. There can be no assurance that the
Company's subsidiaries will generate sufficient cash flow, and dividend,
distribute or advance funds to the Company, or that the Company itself will
generate sufficient funds, to meet the Company's obligations on the Notes as
they become due.
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."
16
<PAGE>
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 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
17
<PAGE>
business. The Company has ANDAs currently pending before FDA and intends to
file additional ANDAs in the future. Delays in the review of these
applications or the inability of the Company to obtain approval of certain of
these applications or to market the product following approval could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "--Dependence Upon New Products and Effect of Product
Lifecycles," "--Pending Regulatory Matters" and "Business--Government
Regulations."
Pending Regulatory Matters
Over the past several years, FDA has inspected the Company's facilities and
in certain instances has reported inspectional observations that included
significant cGMP and application reporting deficiencies. As a result of these
inspectional observations, for varying periods of time, each of the Company's
facilities (other than its Humacao, Puerto Rico oral solid manufacturing
facility) has been ineligible (and one facility is currently ineligible) to
receive new product approvals.
As a result of its 1996 inspection of the Company's subsidiary, Steris
Laboratories, Inc. ("Steris"), FDA advised Steris that it will not approve any
ANDAs for products manufactured at the Steris facility until cGMP and
application reporting deficiencies noted during the inspection have been
corrected. In a 1997 inspection of the Steris facility, FDA identified
additional cGMP deficiencies, and Steris currently continues to be ineligible
to receive new product approvals. Therefore, none of the 11 pending ANDAs that
have been filed from the Steris facility (out of the Company's total of 23
pending ANDAs) is expected to be approved until FDA has confirmed that Steris
has satisfactorily resolved the noted deficiencies. In addition, as a result
of observations made in the 1996 inspection and an investigation by the FDA's
Office of Regulatory Affairs, Steris entered into a plea agreement with the
U.S. Department of Justice. Under the agreement, Steris pled guilty in January
1998 to misdemeanor violations for failure to observe application reporting
requirements for drug stability problems for two drugs during 1994 and 1995
and, consequently, paid a fine of $1.0 million. Also in early 1998, FDA issued
to Steris a Warning Letter relating to the deficiencies observed in the 1997
inspection of the Steris facility, including FDA's request that Steris
delineate its timetable for correction of cGMP deficiencies and provide FDA
with additional information regarding products for which corrective actions
have not been completed. FDA advised Steris in the Warning Letter that failure
to take prompt corrective action could result in seizure of product, an
injunction, and/or prosecution.
In 1995, FDA's inspection of the Company's subsidiary, Danbury Pharmacal,
Inc. ("Danbury"), which operates facilities in Carmel, New York and Danbury,
Connecticut, resulted in observations regarding compliance with cGMP
requirements and the reliability of data submitted by Danbury in support of
certain ANDAs. As a consequence, Danbury voluntarily engaged independent
experts to audit all critical data in a representative sampling of its pending
and approved ANDAs. Reports of the audits, all of which have been completed,
have been submitted to FDA for evaluation. FDA has not advised Danbury about
its review of the audit reports; however, the agency continues to review and
approve ANDAs submitted by Danbury.
Marsam Pharmaceuticals Inc. ("Marsam") was inspected by FDA during 1997 to
evaluate whether certain pending ANDAs could be approved. Certain cGMP
deficiencies were observed during the inspection, and ANDA approvals were
withheld pending completion of remedial actions by Marsam. Following a
reinspection in late 1997, Marsam has received new ANDA approvals.
There can be no assurance that FDA will determine that the Company has
adequately corrected the alleged deficiencies at its operating sites, that
subsequent inspections will not result in additional significant observations,
that approval of any of the pending or subsequently submitted ANDAs by the
Company will be forthcoming or that FDA will not seek to impose additional
regulatory sanctions against the Company or any of its subsidiaries. The range
of possible sanctions includes FDA issuance of adverse publicity, product
recalls or seizures, injunctions, and civil or criminal prosecution. Any such
sanctions, if imposed, could have a material adverse effect on the Company's
business, results of operations or financial condition. See "--Dependence Upon
New Products and Effect of Products Lifecycles," "--Dependence on Regulatory
Approval and Compliance" and "Business--Government Regulations."
18
<PAGE>
Consolidation of Distribution Network; Customer Concentration
The Company's principal customers are wholesale drug distributors and major
drug store chains. These customers comprise a significant part of the
distribution network for pharmaceutical products in the United States. This
distribution network is continuing to undergo significant consolidation marked
by mergers and acquisitions among wholesale distributors and the growth of
large retail drug store chains. As a result, a small number of large wholesale
distributors control a significant share of the market, and the number of
independent drug stores and small drug store chains has decreased. The Company
expects that consolidation of drug wholesalers and retailers will increase
pricing and other competitive pressures on generic drug manufacturers. The
Company believes this consolidation has caused and may continue to cause the
Company's customers to reduce purchases of the Company's products. In August
1997, Cardinal Health Inc. announced its intention to merge with Bergen
Brunswig Corporation. In addition, in September 1997 McKesson Corporation
announced its intention to merge with AmeriSource Health Corporation. The
proposed mergers among the four largest pharmaceutical wholesalers in the
United States, if consummated, would result in greater consolidation of the
pharmaceutical wholesaling industry and may intensify pricing and other
competitive pressures on generic pharmaceutical manufacturers. Specifically
for Schein, if the Cardinal Health--Bergen Brunswig merger had been
consummated at the beginning of 1997, the resulting combined customer would
have accounted for approximately 37% of the Company's total net revenues in
1997. The Federal Trade Commission ("FTC") has voted to oppose both of these
proposed mergers. While these companies may appeal the FTC decision, the
Company cannot predict whether, or on what terms, if any, these proposed
mergers would be consummated.
For the year ended December 1997, sales to the Company's ten largest
customers represented approximately 69% of the Company's total net revenues.
For the year ended December 1997, three customers accounted for 19%, 18% and
10%, respectively, of the Company's total net revenues. The same three
customers accounted for 16%, 15% and 11%, respectively, of the Company's total
net revenues in 1996. The loss of any of these customers could materially and
adversely affect the Company's business, results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Industry Overview."
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
19
<PAGE>
its products or to obtain or maintain regulatory approval of such products. In
addition, the Company obtains a significant portion of its raw materials from
foreign suppliers. Arrangements with international raw material suppliers are
subject, among other things, to FDA regulation, various import duties and
other government clearances. Acts of governments outside the U.S. may affect
the price or availability of raw materials needed for the development or
manufacture of generic drugs. In addition, recent changes in patent laws in
jurisdictions outside the U.S. may make it increasingly difficult to obtain
raw materials for research and development prior to the expiration of the
applicable U.S. patents. There can be no assurance that the Company will
establish or, if established, maintain good relationships with its suppliers
or that such suppliers will continue to supply ingredients in conformity with
legal or regulatory requirements. See "Business--Strategy" and "Business--
Manufacturing and Distribution."
Risk of Product Liability Claims; No Assurance of Adequate Insurance
The testing, manufacture and sale of pharmaceutical products involve a risk
of product liability claims and the adverse publicity that may accompany such
claims. The Company is a defendant in a number of product liability cases, the
outcome of which the Company believes should not materially and adversely
affect the Company's business, financial condition or results of operations.
Although the Company maintains what it believes to be an adequate amount of
product liability insurance coverage, there can be no assurance that the
Company's existing product liability insurance will cover all current and
future claims or that the Company will be able to maintain existing coverage
or obtain, if it determines to do so, insurance providing additional coverage
at reasonable rates. No assurance can be given that one or more of the claims
arising under any pending or future product liability cases, whether or not
covered by insurance, will not have a material adverse effect on the Company's
business, results of operations or financial condition. See "Business--Product
Liability; Insurance" and "Business--Legal Proceedings."
Control of the Company
Several of the Company's current principal stockholders are parties to the
Restructuring Agreements (as defined herein), one of which governs the voting
of their Common Stock and remains in effect until March 2000, subject to
earlier termination under certain circumstances. Upon such termination, the
stockholders who are parties to these agreements may be able to control all
matters requiring stockholder approval, including the election of directors.
The shares subject to these agreements represent a majority of the shares of
Common Stock to be outstanding immediately following the Equity 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 Equity Offering.
Bayer Corporation, which owns 28.3% of the outstanding shares of Common
Stock immediately prior to the Equity Offering, may purchase shares of the
Company up to a maximum, in the aggregate, of 30% of the Company's outstanding
Common Stock between May 15, 1997 and May 15, 1999, 33 1/3% between May 16,
1999 and May 15, 2000 and 36 2/3% between May 16, 2000 and May 15, 2001. Bayer
Corporation is a party to an agreement (the "Standstill") with the Company
that, among other things, prevents Bayer Corporation from acquiring or seeking
to acquire control of the Company prior to May 15, 2001. After such date,
Bayer Corporation has the right to acquire control through open market
purchases, and under certain circumstances within six months of the end of the
Standstill, to acquire from certain principal stockholders of the Company or
from the Company at fair market value a number of shares that would enable
Bayer Corporation to own a majority of the outstanding shares of Common Stock.
During the Standstill, under the terms of the Restructuring Agreements, Bayer
Corporation has the right to acquire, including under certain circumstances
the right to acquire from the Company and certain of its principal
stockholders, unless Bayer Corporation has sold shares of Common Stock other
than to certain permitted transferees, (i) shares in connection with its
exercise of certain preemptive rights, (ii) after the Qualified Public
Offering Date (as defined below) and before May 15, 2001,
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<PAGE>
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 a current stockholder or employee benefit plan) and
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.
Until Bayer Corporation owns less than 10% of the outstanding Common Stock
(the "Governance Termination Date"), Bayer Corporation has the right to
nominate a number of members of the Board of Directors of the Company, rounded
down to the nearest whole number, (until Bayer holds more than 50% of the
outstanding Common Stock, then rounded up to the nearest whole number), equal
to the product of (a) the number of members of the Board of Directors and (b)
Bayer Corporation's percentage stockholding of Common Stock of the Company at
the time of nomination. Currently, Bayer Corporation has the right to nominate
one director. During the period that Bayer has the right to nominate only one
director, Bayer may designate a second individual to attend Board meetings
solely as an observer without any right to vote or participate in these
meetings.
Until May 15, 2001, the Company may not undertake certain actions without
the consent of Bayer Corporation, including, among other things, (a) engaging
in any business not principally in a segment of the pharmaceutical or health
care industry (b) amending the Company's charter or by-laws to require more
than majority approval to elect a majority of the Board of Directors, or (c)
engaging in transactions with affiliates on terms more favorable to the
affiliate than could be obtained in arm's length transactions, other than
intercompany transactions and transactions under the Restructuring Agreements.
In addition, until the shares of the Company's Common Stock held by more than
300 persons who are neither current stockholders, their permitted transferees
nor employees of the Company have a total market value in excess of $100.0
million (the "Qualified Public Offering Date"), the Company may not undertake
certain other actions (including incurring funded debt in excess of certain
ratios, or declaring certain dividends or making certain distributions in
respect of the Company's Common Stock) without the consent of Bayer
Corporation.
Each of the provisions described above may make it more difficult for a
third party to acquire, or may discourage acquisition bids for, Schein and
could limit the price that certain investors might be willing to pay in the
future for shares of the Common Stock. See "Principal Stockholders--
Restructuring Agreements."
Fluctuating Results of Operations
During the past three years, the Company's results of operations have
fluctuated materially on both an annual and a quarterly basis. These
fluctuations have resulted from several factors, including, among others, the
timing of introductions of new products by the Company and its competitors,
timing of receipt of patent settlement revenues, dependence by the Company on
a limited number of products, the Marsam Acquisition (as defined herein) in
1995 and weak performance by the generic drug industry in the second half of
1996 and continuing into the first half of 1997. The Company believes that it
will continue to experience fluctuations in net revenues, gross profit and net
income as a result of, among other things, the timing of regulatory approvals
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."
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<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
There will be no cash proceeds to the Company from the exchange pursuant to
the Exchange Offer. The net proceeds from the Initial Offering of $100.0
million were used to repay the Senior Subordinated Loan.
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<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of December 27, 1997. 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
--------------
(IN THOUSANDS)
<S> <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........................... 100,000
Capitalized lease obligations................................. 284
--------
Total long-term debt........................................ 198,705
--------
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; 952 authorized shares, 273
issued and outstanding....................................... 3
Additional paid-in capital.................................... 38,778
Retained earnings............................................. 99,483
Other......................................................... 1,451
--------
Total stockholders' equity.................................. 139,715
--------
Total capitalization...................................... $338,420
========
</TABLE>
- --------
(1) As of December 27, 1997, the Company had approximately $56.0 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."
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
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
-------- -------- -------- -------- --------
<S> <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
======== ======== ======== ======== ========
OTHER DATA:
Depreciation and
amortization............... $ 7,328 $ 8,464 $ 17,395 $ 25,450 $ 25,474
Capital expenditures, net... 22,806 16,135 13,986 11,309 14,446
Ratio of earnings to fixed
charges(4)................. 26.9x 8.0x 0.6x 1.3x 1.8x
Pro forma interest
expense(5)................. 25,147
</TABLE>
<TABLE>
<CAPTION>
DECEMBER
--------------------------------------------
1993 1994 1995(1) 1996 1997
-------- -------- -------- -------- --------
<S> <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>
24
<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 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) 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.
(5) Pro forma interest expense represents what interest expense, including
amortization of debt issuance costs, would have been had the Initial
Offering occurred on December 29, 1996 and the proceeds thereof used by
the Company to retire the Senior Subordinated Loan.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Consolidated Financial
Statements of the Company and Notes thereto included elsewhere in this
Prospectus. This Prospectus contains forward-looking statements that involve
risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in
this Prospectus should be read as being applicable to all related forward-
looking statements wherever they appear in this Prospectus. See "Risk
Factors."
OVERVIEW
The Company currently manufactures and markets two classes of pharmaceutical
products, generic products and branded products. Generic products are
comprised of the Company's core products (including methylphenidate and
ketoprofen ER) and patent review products and settlements resulting from the
Company's patent challenge activities. The Company's primary branded product,
INFeD, is the leading injectable iron product in the United States.
The Company's results of operations depend on the Company's ability to
develop and commercialize new pharmaceutical products. Generally, following
the expiration of patents and any other market exclusivity periods for branded
drugs, the first pharmaceutical manufacturers successfully to market generic
equivalents of such drugs achieve higher revenues and gross profit from the
sale of such generic drugs than do others from the sale of generic equivalents
subsequently approved. As competing generic equivalents reach the market, the
prices, sales volumes and profit margins of the earliest generic versions
often decline significantly. For these reasons, the Company's ability to
achieve growth in revenues and profitability depends on its being among the
first companies to introduce new generic products. During the past five years,
the Company has introduced a number of generic products to the market at
patent expiration dates and in a number of cases prior to patent expiration of
the branded product by successful challenges to the patent under the Waxman-
Hatch Act.
The Company's dependence on a limited number of products, the product cycles
of such products, and the timing of receipt of patent settlement revenues have
resulted in significant fluctuations in the Company's earnings. Continued
growth in the Company's revenues will depend on continued market demand for
its products, as well as the successful introduction and marketing of new
products.
The development, manufacture, marketing and sale of pharmaceutical products
is subject to extensive federal, state and local regulation. The Company, like
other industry participants, must obtain approval from the FDA before
marketing most drugs, and must demonstrate continuing compliance with cGMP
regulations in its production. Over the last several years, FDA has inspected
various Company manufacturing facilities. As a result of these inspections,
FDA has required that the Company modify certain of its manufacturing and
other practices and, at times, withheld approval of certain applications for
new products, pending satisfactory resolution of issues identified during the
inspections. However, all the Company's manufacturing facilities have
continued production, and there has been no significant impact on overall
production. Certain significant delays in the review or approval of
applications for new products could have a material adverse effect on the
Company's future prospects. See "Risk Factors--Dependence on Regulatory
Approval and Compliance," "--Pending Regulatory Matters" and "Business--
Government Regulations."
The Company acquired all the outstanding capital stock of Marsam (the
"Marsam Acquisition") in September 1995 for $245.0 million in cash, which
expanded the Company's ability to manufacture sterile penicillins and oral and
sterile cephalosporins.
26
<PAGE>
The following table sets forth the net revenues of the Company's generic and
branded businesses for each of the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
--------------------
1995 1996 1997
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Generic business:
Core products........................................... $284.8 $322.3 $306.2
Patent reviews
Patent challenge product revenues..................... 35.0 52.5 54.6
Settlement revenues................................... 5.0 13.5 25.0
------ ------ ------
Total patent review revenues.......................... 40.0 66.0 79.6
Total generic revenues................................ 324.8 388.3 385.8
------ ------ ------
Branded business:
INFeD................................................... 67.0 88.0 104.4
------ ------ ------
Total net revenues.................................... $391.8 $476.3 $490.2
====== ====== ======
</TABLE>
Patent challenge product revenues and settlement revenues resulted from the
Company's patent review activities. Settlement revenues in 1995, 1996 and 1997
reflect funds received from a pharmaceutical company pursuant to an agreement
reached with the Company in 1994. Under the agreement, which provides that
certain contingent payments may be made to the Company, the Company received a
final payment of $30 million in the first quarter of 1998, half of which was
paid to the Consultant. In addition to the amounts paid to the Consultant, the
Company incurs substantial other costs related to its patent review activities
as part of its overall product development activities. See Note 10 to the
Consolidated Financial Statements of the Company.
In 1992, the Company entered the branded pharmaceutical segment of the
market by introducing INFeD, which is currently the leading iron injectable
product in the U.S. Net revenues from INFeD as a portion of total net revenues
increased from 17% in 1995 to 21% in 1997. Gross profit margins on INFeD
generally exceed gross profit margins on the Company's generic products.
Accordingly, the gross profit from increased sales of INFeD have offset the
reduction in gross profit from generic products during the periods presented.
The Company's product line includes both solid dosage and sterile dosage
generic products. The Company is also developing a line of specialty branded
pharmaceuticals. The following table sets forth the percentages of the
Company's net revenues attributable to its generic and branded businesses:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Generic business:
Manufactured sterile dosage..................... 30% 38% 33%
Manufactured solid dosage....................... 35 28 33
Purchased products.............................. 18 15 13
------ ------ ------
Total generic................................. 83 81 79
Branded business:
INFeD........................................... 17 19 21
------ ------ ------
Total......................................... 100% 100% 100%
====== ====== ======
</TABLE>
During the period from 1995 to 1996, the Company's percentage of net
revenues from manufactured sterile dosage products and INFeD increased and the
percentage of net revenues from solid dosage products declined. This reflects
(i) the Company including Marsam's results (predominantly sterile dosage
products) since its acquisition by the Company in September 1995, (ii) INFeD
sales rising faster than the Company's total net revenues, and (iii) older
solid dosage products experiencing declines in selling prices as competitors
have entered the market. The increase in percentage of net revenues from solid
dosage products in 1997 reflects the approval and launch in that year of
methylphenidate and ketoprofen ER.
27
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain selected statement of operations data
as a percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
-----------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Net revenues.......................................... 100.0% 100.0% 100.0%
Cost of sales......................................... 63.9 67.3 67.3
------ ------ ------
Gross profit.......................................... 36.1 32.7 32.7
Costs and expenses:
Selling, general and administrative................. 19.2 18.3 16.6
Research and development............................ 7.2 5.7 6.0
Amortization of goodwill and other intangibles...... 0.9 2.1 2.1
Acquired in-process Marsam research and
development........................................ 7.7 -- --
------ ------ ------
Operating income...................................... 1.1 6.6 8.0
Interest expense, net............................... 2.5 4.9 5.4
Other expense (income), net......................... (0.3) 0.3 (1.9)
------ ------ ------
Income (loss) before provision for income taxes....... (1.1) 1.4 4.5
Provision for income taxes.......................... 2.7 1.1 2.2
------ ------ ------
Net income (loss)..................................... (3.8)% 0.3% 2.3%
====== ====== ======
</TABLE>
1997 COMPARED TO 1996
Net revenues increased $13.9 million, or 2.9%, from $476.3 million in 1996
to $490.2 million in 1997. In the branded business, sales increased $16.4
million, partially offset by a $2.5 million decline in the generic business.
The increase in branded product sales reflected primarily an increase in units
sold. The decline in generic business resulted from $32.2 million of price
erosion in core products and $20.6 million resulting from a strategic decision
in the second half of 1996 to discontinue certain lower-margin manufacturing
and lower margin outsourced products, partially offset by a $26.6 million
increase in sales of new products, a $10.1 million volume increase in sales of
core products and a $13.6 million increase in total patent review revenues.
The increase in patent review revenues resulted primarily from an $11.5
million increase in settlement revenues. Two new generic products that were
launched in the fourth quarter of 1997 are methlyphenidate and ketoprofen ER,
which had combined revenues of $17.8 million.
Gross profit increased $4.8 million, or 3.1%, from $155.6 million in 1996 to
$160.4 million in 1997. The gross margin was flat at 32.7% in 1996 and 1997.
The increase in gross profit was principally the result of the introduction of
new products, increased revenues of INFeD and an increase in settlement
revenues offset by price erosion in both core products and patent challenge
products. Gross profit from patent review revenues increased $5.1 million from
$30.8 million in 1996 to $35.9 million in 1997 and related gross margin
decreased from 46.7% in 1996 to 45.1% in 1997. Such gross profit reflects,
among other things, net revenue from sales of patent challenge products and
settlement revenues, offset, in part, by payments to the Consultant under the
Consulting Agreement, which payments are included in cost of sales. In that
regard, for projects in which the Consultant has rendered an opinion setting
forth the basis for a possible patent challenge, the Company pays the
Consultant half the adjusted gross profits (as defined), from the Company's
sale of generic versions of the patented product until the date on which the
patent would normally have expired or half the proceeds of any settlement.
Patent review revenues have historically fluctuated and there can be no
assurance of successful patent challenges in the future. See "Risk Factors--
Dependence on Successful Patent Litigation."
Selling, general and administrative expenses decreased $5.5 million, or
6.3%, from $87.3 million in 1996 to $81.8 million in 1997. Selling, general
and administrative expenses as a percentage 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.
28
<PAGE>
Research and development expenses increased $2.4 million, or 8.7%, from
$27.0 million in 1996 to $29.4 million in 1997 as a result of increased
research and development activities generally.
Amortization of goodwill and other intangibles was unchanged from 1996 to
1997.
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 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 branded
product sales largely reflected an increase in units sold. The increase in the
generic business is primarily due to $32.2 million in sales from the Marsam
Acquisition in the third quarter of 1995, and a $20.3 million increase in core
product volume, partially offset by $15.0 million in price erosion. Patent
review revenues increased $26.0 million, due to a $17.5 million increase in
patent challenge product revenues and an increase in settlement revenues of
$8.5 million.
Gross profit increased $14.3 million, or 10.1% from $141.3 million in 1995
to $155.6 million in 1996. The gross margin decreased from 36.1% in 1995 to
32.7% in 1996. The increase in gross profit was largely attributable to
increased revenues of INFeD, an increase in patent challenge settlement
revenues and the full year of Marsam results, partially offset by price
erosion in both core products and patent challenge products. Gross profit from
patent review revenues decreased $0.3 million from $31.1 million in 1995 to
$30.8 million in 1996 and related gross margin decreased from 77.8% in 1995 to
46.7% in 1996. Price erosion on products in respect of which the Company no
longer shares gross profits with the Consultant were partially offset by sales
of a new patent challenge product in respect of which the Consultant shared
gross profits. Gross profit reflects, among other things, net revenue from
sales of patent challenge products and settlement revenues, offset, in part,
by payments to the Consultant under the Consulting Agreement, which payments
are included in cost of sales. In that regard, for projects in which the
Consultant has rendered an opinion setting forth the basis for a possible
patent challenge, the Company pays the Consultant half the adjusted gross
profits (as defined), from the Company's sale of generic versions of the
patented product until the date on which the patent would normally have
expired or half the proceeds of any settlement.
Selling, general and administrative expenses increased $12.0 million, or
15.9%, from $75.3 million in 1995 to $87.3 million in 1996, but decreased as a
percentage of net revenues from 19.2% in 1995 to 18.3% in 1996. Selling,
general and administrative expenses increased due primarily to increased sales
volume, the full year impact of the Marsam Acquisition and an increase in
promotional activities in support of new product launches.
Research and development expenses decreased $1.3 million, or 4.6%, from
$28.3 million in 1995 to $27.0 million in 1996. Acquired in-process Marsam
research and development charges of $30.0 million were fully reflected in
1995.
Amortization of goodwill and other intangibles increased $6.8 million from
$3.4 million in 1995 to $10.2 million in 1996, giving effect to the full year
impact of the Marsam Acquisition.
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.
29
<PAGE>
Interest expense, net, increased $13.3 million from $10.0 million in 1995 to
$23.3 million in 1996. The increase was due primarily to the increase in
average debt associated with the financing for the Marsam Acquisition and
higher interest rates.
Other expense (income), net, increased $2.4 million from income of $1.2
million in 1995 to an expense of $1.2 million in 1996. Equity losses from the
Company's investment in international joint ventures accounted for $3.0
million of the increase.
The Company's effective tax rate is higher than the statutory rate due to
the effect of significant non-deductible expenses, which were largely
comprised of amortization of intangibles and the acquired in-process Marsam
research and development charge.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its business operations primarily
through a revolving credit facility and used long-term bank financing to fund
acquisitions. The Company intends to finance future acquisitions through the
issuance of new common shares, the incurrence of new debt or both. The
incurrence of new debt is subject to certain limitations under the Senior
Credit Agreement and the Notes and the Indenture.
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 an increase in accounts payable and
accrued expenses and a decline in inventories of $27.6 million, offset by an
increase in accounts receivable and prepaid expenses and other assets of $17.6
million. The net cash provided by operating activities during 1996 was
attributable to net income, as adjusted for non-cash charges, of $27.9 million
and an increase in accounts payable and accrued expenses and a decrease in
prepaid expenses and other assets of $13.9 million, offset by an increase in
inventories and accounts receivable of $31.0 million.
Net cash provided by investing activities for 1997 was $0.1 million compared
to net cash used in investing activities in 1996 of $20.0 million. Cash
provided by investing activities in 1997 resulted from the proceeds of
sales of marketable securities of $14.7 million, offset primarily by capital
expenditures, net of $14.4 million. The 1996 use of cash in investing
activities was primarily due to (i) capital expenditures, net, (ii) purchase
of product rights and licenses and (iii) investments in international joint
ventures aggregating $17.4 million.
Net cash used in financing activities for the year 1997 of $36.3 million
resulted from the net repayment of debt. Net cash provided by financing
activities for the year 1996 of $3.6 million was primarily due to net proceeds
of debt.
In September 1995, the Company entered into the Senior Credit Agreement with
a group of banks to provide funds for the Marsam Acquisition, the repayment of
certain debt, working capital and general corporate purposes. The Senior
Credit Agreement, which expires in December 2001, provided a term loan
facility of $250.0 million and a revolving credit facility of $100.0 million.
Amounts outstanding under the revolving credit facility were $41.0 million and
$44.0 million as of year-end 1996 and 1997, respectively.
In December 1996, the Company prepaid $100.0 million of the term loan
portion of the Senior Credit Agreement using the proceeds from a $100.0
million senior subordinated loan (the "Senior Subordinated Loan"). As a result
of this payment and a scheduled payment, the term loan facility was reduced to
$145.0 million by December 1996. In the year 1997, the Company made voluntary
principal payments of $35.0 million, thus reducing the term loan portion to
$110.0 million by year end. Quarterly principal payments on the term loan will
begin in September 1998 and end in the year 2001. In addition to such
principal payments, the Company is required to make additional principal
payments from its excess cash flow, as defined in the 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
30
<PAGE>
Agreement bear interest, which is payable at least quarterly, at a rate equal
to a floating base rate plus a premium ranging from zero to 1.50% or at a rate
equal to LIBOR plus a premium ranging from 0.75% to 2.50%, depending on the
type of borrowing and the Company's performance against certain criteria. The
Senior Credit Agreement also contains restrictions on the payment of dividends
by the Company. The agreement provides that dividends may not be paid unless
Total Debt is below 2.5 times the trailing four quarters of EBITDA, each such
term as defined in the agreement. Dividends may not exceed 25% of the
cumulative net income less any losses from October 1, 1995 to the most recent
fiscal quarter end.
In December 1997, the Company issued the Old 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 of 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 Equity Offering does not
constitute a "change of control" under the Notes. The Notes, which are
unsecured obligations of the Company, 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. The Notes also provide that
additional indebtedness may be incurred as long as, after giving effect to
such incurrence, the consolidated coverage ratio (the ratio of consolidated
cash flows to consolidated interest expense, as each such term is defined in
the Indenture) is greater than 2.5 times for the years 1998 and 1999 and 3.0
times thereafter. Dividends can be paid only if, at the time of payment, the
Company is able to incur an additional dollar of indebtedness by complying
with such ratio. In addition, cumulative dividends cannot exceed 50% of the
cumulative net income and the net proceeds of any equity offering to the most
recent fiscal quarter.
The Company in February 1998 entered into a strategic alliance agreement
with Cheminor Drugs Limited and its subsidiaries ("Cheminor") and Dr. Reddy's
Laboratories Limited and its subsidiaries ("Reddy"). Pursuant to the
agreement, Cheminor will make available to the Company its present and future
dosage form generic products on an exclusive basis in the United States and
certain other countries, and the Company will make available to Cheminor and
Reddy its present and future products on an exclusive basis for sale in India
and certain other countries. Cheminor and Reddy will make available to the
Company bulk active pharmaceutical ingredients. As part of the arrangement,
the Company purchased 2.0 million publicly traded shares of Cheminor Drugs
Limited (12.79% of the currently outstanding shares of Cheminor Drugs Limited)
for $10.0 million using funds from the revolving credit facility under the
Senior Credit Agreement, and under certain circumstances has the right and the
obligation to purchase an additional 1.0 million shares for $5.0 million.
Cheminor will have the right to make fair market value purchases of the
Company's Common Stock, once the shares are publicly traded; the purchase
price may be payable from profits otherwise due Cheminor from the alliance.
Each party will also be entitled to representation on the other company's
board of directors consistent with its equity interest.
In March 1998, the Company entered into an agreement with Elan covering
several products in various states of development. Under the agreement, the
Company is obligated to pay $14.0 million in development and license fees over
the next 12 months. The Company intends to pay such development and license
fees using cash generated from its operations and funds from the revolving
credit facility under the Senior Credit Agreement.
The Company believes that cash generated from its operations, its existing
credit facilities and the availability of $56.0 million under such facilities
as of December 1997 are sufficient to finance its current level of operations
and currently contemplated capital expenditures and strategic investments
through the next 12 months. In the event the Company makes any significant
acquisitions, it may be required to raise additional funds, through the
issuance of additional debt or equity securities. There can be no assurance
that such funds, if required, would be available or, if available, would be on
terms acceptable to the Company.
The Company intends to use all of the proceeds of the Equity 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 Notes, which bear
31
<PAGE>
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 of the term loan
facility and Notes will be permanent. See "Capitalization" and "Business--
Strategic Collaborations."
QUARTERLY INFORMATION
As a result of a variety of factors, including the introduction of new
products by the Company, the timing of receipt of patent settlement revenues
and changes in the degree of competition for the Company's products, the
Company's quarterly results of operations have fluctuated significantly and
are expected to fluctuate significantly in the future.
The following tables present unaudited quarterly financial data for the
years 1996 and 1997. The Company believes all necessary adjustments have been
included in the amounts stated below to present fairly the selected quarterly
information when read in conjunction with the Consolidated Financial
Statements of the Company and the notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 1996 YEAR ENDED DECEMBER 1997
(UNAUDITED) (UNAUDITED)
-------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<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
======== ======== ======== ======== ======== ======== ======== ========
</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.
32
<PAGE>
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.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Results of operations and financial position
will be unaffected by implementation of these new standards. The Company has
not determined whether either of these two standards will have a material
impact on its financial statement disclosure.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 ("SFAS No. 132"), Employers'
Disclosures about Pensions and Other Postretirement Benefits, which
standardizes the disclosure requirements for pensions and other postretirement
benefits. The adoption of SFAS No. 132 in 1998 is not expected to materially
impact the Company's current disclosures.
RISK MANAGEMENT
The Company is potentially subject to a concentration of credit risk with
respect to its trade receivables, the majority of which are due from
wholesalers, drug store chains and distributors. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
The Company maintains sufficient allowances and insurance to cover potential
or anticipated losses for uncollectible accounts.
The Company from time to time hedges a portion of its floating rate interest
exposure using various financial instruments. At December 1997, the Company
had no interest rate hedges in place. In February 1998, the Company entered
into $100.0 million of notional amount interest rate hedge agreements for a
minimum of two years.
The Company considers its investment in international subsidiaries and joint
ventures to be both long-term and strategic. As a result, the Company does not
hedge the long-term translation exposure to its balance sheet. Foreign
currency translations to date have not been material.
YEAR 2000 COMPLIANCE
The Company is modifying its computer systems to be Year 2000 compliant. The
Company does not expect that the cost of modifying such systems will be
material. The Company believes it will achieve Year 2000 compliance in advance
of the year 2000, and does not anticipate any material disruption in its
operations as the result of any failure by the Company to be in compliance.
The Company does not have any information concerning the Year 2000 compliance
status of its suppliers and customers.
33
<PAGE>
BUSINESS
GENERAL
Schein Pharmaceutical believes it is one of the leading generic
pharmaceutical companies in terms of United States revenues. The Company
develops, manufactures and markets one of the broadest generic product lines
in the pharmaceutical industry through the integration of its product
development expertise, diverse, high-volume production capacity and direct
sales and marketing forces. The Schein product line includes both solid dosage
and sterile dosage generic products, and the Company is also developing a line
of specialty branded pharmaceuticals. The Company believes that its primary
branded product, INFeD, is the leading injectable iron product in the United
States in terms of revenues. The Company has a substantial pipeline of
products under development. The Company enhances its internal product
development, manufacturing and marketing capabilities through strategic
collaborations. Schein generated net revenues of $490.2 million and operating
income of $39.0 million during 1997.
The Company believes it manufactures and markets the broadest product line
of any U.S. pharmaceutical company in terms of number and types of products.
The Company manufactures and markets approximately 160 chemical entities
formulated in approximately 325 different dosages under approximately 200
ANDAs approved by FDA. Schein is currently the sole manufacturing source for
47 generic pharmaceutical products, of which 45 are sterile dosage products.
The Company's solid dosage products include both immediate-release and
extended-release capsules and tablets; sterile dosage products include
solutions, suspensions, powders and lyophilized (freeze-dried) products
primarily for administration as injections, ophthalmics and otics. The
manufacture of sterile dosage products is significantly more complex than the
manufacture of solid dosage products, which limits competition in this product
area. The Company currently manufactures approximately four billion solid
dosage tablets and capsules and 75 million sterile dosage vials and ampules
annually. Solid dosage generic products and sterile dosage generic products
each accounted for approximately 40% of the Company's net revenues in 1997.
Since introducing INFeD in 1992, the Company has been developing a portfolio
of branded products, primarily in select therapeutic markets, such as iron
management for the nephrology, oncology and hematology markets. INFeD is used
in the treatment of certain types of anemia, particularly in dialysis
patients, and accounted for approximately 21% of the Company's net revenues in
1997. The Company markets INFeD through a 20-person dedicated sales and
marketing force, as well as through co-marketing collaborations with Bayer
Corporation in the nephrology market and MGI in the oncology market.
The Company believes its 130-person direct sales and marketing force is one
of the largest in the U.S. generic pharmaceutical industry. Through its
customized marketing programs, the Company markets its products to
approximately 60,000 customers representing all major customer channels,
including pharmaceutical wholesalers, chain and independent drug retailers,
hospitals, managed care organizations, other group purchasing organizations
and physicians.
Schein's objective is to become the leading generic pharmaceutical company
in the approximately $7.4 billion generic prescription pharmaceutical industry
in the United States. The Company's growth strategy is to: (i) leverage its
diverse pharmaceutical formulation and manufacturing capabilities to extend
the breadth of its generic product line; (ii) focus its product development
activities on complex and other generic drugs that require specialized
development or manufacturing technology and are therefore expected to
encounter limited competition; (iii) develop and market branded drugs for
select therapeutic categories; (iv) pursue strategic collaborations to
supplement product development and manufacturing resources; and (v) expand
market penetration through direct sales and innovative marketing programs.
The Company's commitment to product development has resulted in 24 ANDA
approvals during the past three years. During the past three fiscal years, the
Company, directly and through its strategic collaborations, has expended $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
34
<PAGE>
licensing arrangements with other pharmaceutical and drug delivery technology
companies. The Company's product development efforts focus on: (i) major
branded drugs coming off patent; (ii) drugs for which patent protection has
lapsed and for which there are few or no generic producers; (iii) drugs whose
patents may be susceptible to challenge; (iv) proprietary and branded products
focused in select therapeutic areas; and (v) generic products that require
specialized development, formulation, drug delivery or manufacturing
technology.
The Company supplements its internal product development, manufacturing and
marketing capabilities from external sources. During 1994, Schein entered into
a strategic alliance with Bayer Corporation, through which Bayer Corporation
became a 28.3% stockholder of Schein, and Bayer Corporation currently
participates with Schein in several collaborations. In 1995, the Company
acquired Marsam, expanding the Company's ability to develop and manufacture
sterile penicillins and oral and sterile cephalosporins. In addition, the
Company has entered into strategic collaborations involving product
development arrangements with companies such as Ethical and Elan; raw material
supply arrangements with companies such as Johnson Matthey and Abbott; and
sales and marketing arrangements with Bayer and other companies such as MGI.
INDUSTRY OVERVIEW
In the U.S., pharmaceutical products are marketed as either branded or
generic. Branded products are marketed under brand names and through programs
designed to attract physician and consumer loyalty. Branded drugs generally
are covered by patents at the time of their market introduction, thereby
resulting in periods of market exclusivity for the patent holders. Following
the expiration of these patents, marketing of branded drugs often continues,
particularly in cases where there is significant physician or consumer
loyalty.
Generic pharmaceuticals (also known as "multi-source" or "off-patent"
pharmaceuticals) are the chemical and therapeutic equivalents of branded
drugs. Under the Waxman-Hatch Act, generic drugs generally may be sold in the
United States following (i) FDA approval of an ANDA that includes evidence
that the generic drug is bioequivalent to its branded counterpart and (ii) the
expiration, invalidation or circumvention of any patents on the corresponding
branded drug and the expiration of any other market exclusivity periods
applicable to the branded drug.
Since the adoption of the Waxman-Hatch Act, generic pharmaceuticals have
become an increasingly important segment of the U.S. pharmaceutical market,
particularly when measured in terms of the increasing rate at which doctors'
prescriptions have allowed generic drugs to be substituted for branded drugs.
In 1996, prescriptions dispensed in the United States for generic drugs
reached 40% of the total drug prescriptions dispensed. In terms of dollar
sales, however, generic drugs have accounted for a much lower percentage of
the total U.S. pharmaceutical market. Sales of generic drugs in 1995 accounted
for approximately $7.4 billion out of a total U.S. prescription pharmaceutical
market of approximately $77.4 billion.
The lower percentage of total dollar sales attributable to generic
pharmaceuticals compared to the growth in the number of generic pharmaceutical
prescriptions dispensed reflects the pricing dynamics for generic
pharmaceuticals. As the number of commercially available generic competitors
of a branded drug increases, their selling prices and gross margins decline
substantially. Generic drugs are generally sold at a 20% to 80% discount from
their branded counterparts. Intense price competition in the generic drug
industry requires companies to introduce new generic drug products regularly
in order to maintain and increase revenues.
Growth of the generic drug industry has been driven primarily by the dollar
volume of branded drugs that have lost patent protection and the rising rate
at which generic drugs have been substituted for branded drugs. Industry
sources estimate that, during the next five years, branded drugs with 1996
U.S. sales of more than $13.0 billion will lose patent protection. The rising
rate of generic substitution has resulted in large part from increasing
pressure within the U.S. health care industry to contain costs. Due to the
lower cost of generic drugs compared to their branded counterparts, third
party payors, such as insurance companies, company health plans, health
35
<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
36
<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>
37
<PAGE>
During the period from 1993 to 1996, the Company's percentage of net
revenues from manufactured sterile dosage products and INFeD increased and the
percentage of net revenues from solid dosage products declined. This reflects
(i) the Company including Marsam's results (predominantly sterile dosage
products) since its acquisition by the Company in September 1995, (ii) INFeD
sales rising faster than the Company's total net revenues and (iii) older
solid dosage products experiencing declines in selling prices as competitors
have entered the market. The increase in percentage of net revenues from solid
dosage products in 1997 reflects the approval and launch in that year of
methylphenidate and ketoprofen ER.
GENERIC PRODUCTS
The Company's generic business consists of the manufacturing and marketing
of sterile and solid dosage products and the marketing of certain additional
purchased products.
The Company's manufactured sterile dosage product portfolio is comprised of
approximately 110 products and accounted for approximately 33% of the
Company's total net revenues in 1997. This portfolio includes vecuronium
bromide, an anesthetic product that is currently the Company's largest selling
generic product, sales of which comprised approximately 8% of the Company's
total net revenues during this period. The Company is manufacturing and
marketing vecuronium bromide prior to expiration of the patent covering this
product pursuant to a licensing arrangement. None of the Company's other
generic sterile dosage products accounted for more than 6% of net revenues in
1997. Included in the sterile dosage product portfolio are 45 products for
which the Company is currently the sole generic source, one of which is
vecuronium bromide.
The Company's manufactured solid dosage product portfolio is comprised of
approximately 50 products and accounted for approximately 33% of the Company's
total net revenues in 1997. None of the Company's solid dosage products
accounted for more than 6% of net revenues in 1997. The Company's solid dosage
portfolio includes two products for which the Company is currently the sole
generic source.
In the fourth quarter of 1997, the Company launched two significant solid
dosage products. Each of these launches represent generic products that
require specialized development or manufacturing expertise and where
competition is expected to be limited. Methylphenidate is the generic
equivalent of Ritalin(R), which is used in the treatment of attention deficit
disorder. Methylphenidate is a controlled substance that is difficult to
produce and although the branded product has been off patent for a number of
years, Schein is only the second generic producer of methylphenidate.
Ketoprofen ER, a once-a-day non-steroidal anti-inflammatory drug developed
using Elan's extended release technology, was introduced late in the fourth
quarter of 1997 as the first generic equivalent to Oruvail(R), a branded
product that has been off patent for a number of years.
Pursuant to a custom manufacturing agreement dated as of July 1, 1995
between Johnson Matthey and the Company, the Company has exclusive purchase
and supply rights for bulk active methylphenidate hydrochloride produced by
Johnson Matthey. The agreement terminates on December 31, 2005, as amended,
with automatic renewals for additional successive three-year terms. Either
party may terminate the agreement on December 31, 2005 or the end of each
renewal with 24-months' prior notice.
Pursuant to a product development, license and supply agreement dated August
16, 1994, as amended, between Elan and the Company, the Company has the right
to package, market, sell and distribute ketoprofen ER in the U.S. under Elan's
ANDA. Pursuant to the agreement, the Company has paid approximately $2.5
million in development and license fees. Currently, the term of the agreement
is 18 years or, if longer, for the life of Elan's patents. In March 1998, the
Company entered into an agreement with Elan covering several products in
various stages of development. Under the agreement, the Company is obligated
to pay $14.0 million in development and license fees, and additional
development and license fees based on achievement of certain milestones.
The Company supplements its manufactured product line with purchased
products from other generic pharmaceutical manufacturers. Generally, the
Company purchases products through purchase orders without formal arrangements
or material long-term commitments. The gross margins received by the Company
on these products are generally lower than the gross margins received by the
Company on products that it manufactures. In addition, the Company believes
its customers are increasingly seeking to purchase products directly from
manufacturers. The percentage of the Company's total net revenues of generic
products manufactured by others has declined from approximately 18% in 1995 to
13% in 1997.
38
<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
39
<PAGE>
rapidly replace red blood cells lost during surgery. In the gastroenterology
market, of the over one million patients with inflammatory bowel disease, 30%
to 70% experience anemia, mostly due to iron deficiency.
INFeD. INFeD (iron dextran injection, USP 50 mg/mL) is a liquid complex of
ferric hydroxide and dextran that is used in the treatment of patients with
documented iron deficiency in whom oral administration is unsatisfactory or
impossible. INFeD's product label includes the following warning: "Warning:
The parenteral use of complexes of iron and carbohydrates has resulted in
anaphylactic-type reactions. Deaths associated with such administration have
been reported. Therefore, INFeD (iron dextran injection, USP 50 mg/mL) should
be used only in those patients in whom the indications have been clearly
established and laboratory investigations confirm an iron-deficient state not
amenable to oral iron therapy."
Currently, iron dextran is the only injectable iron formulation in the U.S.
market. The Company introduced its injectable iron product, INFeD, in May
1992. Based on its evaluation of information from various industry sources,
the Company believes that INFeD currently has approximately 85% of the
injectable iron market, and that iron dextran products are marketed by one
other company in the U.S. Net sales of INFeD in 1997 were $104.4 million and
accounted for 21%, of the Company's net revenues. Growth in sales of INFeD has
been driven by the expanding use of EPO and the growing recognition of patient
outcomes and quality of life issues associated with iron deficiency anemia in
dialysis patients. For patients being treated with EPO, injectable iron
therapy has become adjunctive therapy rather than supportive therapy, as
studies have shown that anemic patients may become resistant to EPO and that
injectable iron can help to maintain EPO responsiveness and optimize its
effectiveness. The Company believes that the dialysis market should continue
to expand with the expected increase in the ESRD population, as well as the
expanding use of hemodialysis in the treatment of ESRD patients.
Pursuant to a supply agreement dated May 1, 1992, as amended on December 2,
1993 and June 9, 1995, between Abbott and the Company, Abbott supplies iron
dextran bulk solution to the Company on an exclusive basis. The agreement
terminates on December 31, 1999. Abbott retains the right to manufacture,
sell, ship, market or distribute a finished iron dextran drug product,
provided the product is not manufactured with bulk solution or technology
relating to bulk solution obtained from Abbott or a licensee or sublicensee of
Abbott.
Ferrlecit. Ferrlecit (sodium ferric gluconate complex in sucrose injection)
is intended to be the Company's next generation injectable iron product.
Ferrlecit is administered parenterally to treat hemodialysis patients with
iron deficiency anemia.
Ferrlecit was developed by the Nattermann Company, of Cologne (now Rhone-
Poulenc Rorer GmbH) and is widely used in Europe. Makoff R&D Laboratories,
Inc. ("R&DL"), a specialty renal pharmaceutical company, acquired the rights
to Ferrlecit from Rhone-Poulenc Rorer GmbH under a distribution agreement
dated June 24, 1993 and a trademark agreement dated August 26, 1993. In 1996,
pursuant to an exclusive trademark and distribution agreement with R&DL, the
Company acquired from R&DL the exclusive right to market and distribute
Ferrlecit in the U.S. and several other countries for a period of ten years
after market authorization has been granted by FDA. R&DL filed its NDA in
December 1997. See "--Government Regulations--NDA Process."
Other Products
Nifedipine OD. In the U.K., the Company is currently marketing a brand
version of Nifedipine OD, a once-a-day version of nifedipine used in the
treatment of hypertension. Pursuant to a license obtained from Ethical, this
product is being produced by a U.K. contract manufacturer. The Company is also
preparing for the product's launch in Israel, South Africa, the Caribbean and
selected markets in Latin America and Asia.
PRODUCT DEVELOPMENT
The Company seeks to expand its product portfolio through continuing
investment in research and development. As a result of its $84.7 million
investment in product development over the past three years, the Company has
23 ANDAs pending with FDA as of February 28, 1998 (11 of which were filed from
the Company's Steris facility and are not expected to be approved until FDA
has confirmed that Steris has
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satisfactorily resolved certain inspectional observations) and over 60
products under development internally and with third parties. The Company
believes that this level of investment in development activities should
accelerate its ANDA filings and launches in the next several years. The
Company's product development activities are conducted by 150 research and
development professionals and supported by others with expertise in
manufacturing, technology, legal, regulatory and intellectual property issues.
See "Risk Factors--Pending Regulatory Matters" and "Business--Pending
Regulatory Matters."
The Company's generic product development efforts focus on: (i) major
branded drugs coming off patent; (ii) drugs for which patent protection has
lapsed and for which there are few or no generic producers; (iii) drugs whose
patents may be susceptible to challenge; (iv) proprietary and branded products
in select therapeutic areas; and (v) generic products that require specialized
development, formulation, drug delivery or manufacturing technology. In
furtherance of its strategy to be among the first to market generic versions
of brand drugs, the Company uses its scientific, pharmacologic, manufacturing
and legal expertise to identify brand products covered by patents that are
susceptible to challenge or circumvention. When the Company decides to pursue
development of a generic version of a brand product so identified, it seeks a
source for the drug's active pharmaceutical ingredient, develops a formulation
for the drug, conducts bioequivalence studies on its formulation (where
required) and prepares an ANDA filing. The ANDA filing must include a
certification from the Company that the patent on the brand product is invalid
or not infringed, and the patent holder must be provided with notice of the
filing and basis for the certification. If the patent holder commences
litigation within 45 days of the notice, FDA may not approve the ANDA for a
period of 30 months, unless the case is resolved earlier in court or by
settlement. A successful patent challenge may result in a court determination
that the patent on the brand product is invalid, not infringed or
unenforceable. Alternatively, a settlement with the patent holder may include
a license to the Company to sell the generic version of the brand product
prior to the expiration of the patent covering the product.
Since 1985, the Company has had a series of non-exclusive agreements
(collectively, the "Consulting Agreement") with the Consultant. Under the
Consulting Agreement, the Consultant and the Company have identified certain
patents on branded pharmaceutical products that might be susceptible to a
challenge, and the Consultant has acted as litigation counsel or advising
counsel to the Company in those instances where the Company decided to proceed
with a patent challenge. For projects in which the Consultant has rendered an
opinion setting forth the basis for a possible patent challenge, the Company
pays the Consultant half the adjusted gross profit from the Company's sale of
generic versions of the patented product until the date on which the patent
would normally have expired or half the proceeds of any settlement.
The Consultant's services are provided on a non-exclusive basis to the
Company. The Consulting Agreement does not have a specific term and continues
until the current projects under the Consulting Agreement are completed and
all payments due to the Consultant are made. There are two projects under the
Consulting Agreement that are currently identified, one of which has resulted
in a pending patent challenge initiated by the Company. In accordance with the
Consultant's right to delegate responsibility for defending patent challenge
litigation to other counsel selected with the consent of the Company,
responsibility for the pending patent challenge has been delegated to other
counsel. The Consultant may terminate the Consulting Agreement for certain
specified reasons at any time. Without regard to who terminates the Consulting
Agreement or the reasons therefor, the Consultant will be entitled to payment
in conjunction with any sales or settlements with respect to any patented
product for which the Consultant has previously rendered an opinion. The
Consultant has rendered opinions with respect to each of the two patented drug
products that are the respective subjects of the current projects under the
Consulting Agreement, and the Company will owe the Consultant payments to the
extent that the Company successfully develops one or both of these products
and challenges the applicable patents and thereafter markets one or both of
these products, or otherwise favorably settles any such challenge. See "Risk
Factors--Dependence on Successful Patent Litigation" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations."
In its branded product business, the Company intends to develop products for
the management of iron-related disorders and select other businesses, as well
as to promote the use of its primary branded product, INFeD, beyond the
dialysis market to other therapeutic areas, such as oncology and
gastroenterology.
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STRATEGIC COLLABORATIONS
To expand its product portfolio and improve its profitability, the Company
will continue to pursue strategic collaborations to access additional dosage
forms, proprietary drug delivery technology, specialized formulation
capabilities and sources of bulk active materials. The Company has product
development arrangements with companies such as Ethical and Elan;
collaborative arrangements for direct access to raw materials with, among
others, Johnson Matthey and Abbott; and sales and marketing arrangements with
companies such as Bayer Corporation and MGI.
Under the arrangements with Ethical and Elan, the Company funds development
costs for designated products. The strategic partner develops the products.
Following regulatory approval, the strategic partner supplies, and the Company
markets, the products and pays the strategic partner a royalty or profit share
from sales. A product covered by the strategic collaboration with Elan is
ketoprofen ER, which the Company is currently marketing. Several products are
in various stages of development under the Company's arrangements with Ethical
and Elan. To date, the Company has paid an aggregate of approximately $19
million in license and product development fees under these arrangements, and
may be obligated to pay approximately $36 million in additional fees as and
when products covered by the arrangements are successfully developed and
certain milestones are achieved. See "--Products."
The Company in February 1998 entered into a strategic alliance agreement
with Cheminor and Reddy. Pursuant to the agreement, Cheminor will make
available to the Company its present and future dosage form generic products
on an exclusive basis in the United States and certain other countries, and
the Company will make available to Cheminor and Reddy its present and future
products on an exclusive basis for sale in India and certain other countries.
Cheminor and Reddy will make available to the Company bulk active
pharmaceutical ingredients. As part of the arrangement, the Company purchased
2.0 million publicly traded shares of Cheminor Drugs Limited (12.79% of the
currently outstanding shares of Cheminor Drugs Limited) for $10.0 million, and
under certain circumstances has the right and the obligation to purchase an
additional 1.0 million shares for $5.0 million. Cheminor will have the right
to make fair market value purchases of the Company's Common Stock, once the
shares are publicly traded; the purchase price may be payable from profits
otherwise due Cheminor from the alliance. Each party will also be entitled to
representation on the other company's board of directors consistent with its
equity interest. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and "--
Products."
MANUFACTURING AND DISTRIBUTION
The Company operates five manufacturing facilities and two distribution
centers. The following table presents the facilities owned or leased by the
Company and indicates the location and type of each of these facilities.
<TABLE>
<CAPTION>
OWN OR LEASE
PROPERTY LOCATION LEASE SQUARE FEET EXPIRATION
-------- ------------------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Manufacturing Facilities
Solid dosage.......... Carmel, NY(/1/)(/2/) Own 112,000 --
Solid dosage.......... Humacao, PR Own 75,000 --
Solid dosage.......... Danbury, CT(/2/) Lease 88,000 2005
Sterile dosage........ Phoenix, AZ(/1/)(/2/) Own 175,000 --
Sterile dosage........ Cherry Hill, NJ(/1/)(/2/) Own 99,700 --
Lease(/3/) 109,800 1999
Distribution Centers
Eastern Distribution.. Brewster, NY(/1/) Lease 98,500 2007
Western Distribution.. Phoenix, AZ Lease 76,000 2000
Corporate Offices....... Florham Park, NJ(/1/) Lease 53,000 2005
</TABLE>
- --------
(1) The Company maintains administrative offices at this facility.
(2) The Company maintains research laboratories at this facility.
(3) In 1998, the Company intends to exercise its option to purchase this
facility. See Note 10 to the Consolidated Financial Statements of the
Company.
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MANUFACTURING FACILITIES
The Company's aggregate manufacturing capacity is among the largest of any
generic pharmaceutical company in the United States. The diversity and
capacity of these facilities are important elements of the
Company's strategy to expand the range of its existing product line and
provide several significant benefits, including (i) the ability to satisfy the
growing preference among many of the Company's customers for buying
pharmaceuticals directly from manufacturers and from fewer sources, (ii) added
flexibility in raw materials sourcing and manufacturing cost control, and
(iii) economies of scale with respect to manufacturing infrastructure
functions common to solid dosage manufacturing and/or sterile dosage
manufacturing, such as water distillation, air purification, drug formulation
systems, filling and packaging lines, and quality control and regulatory
compliance. See "--Strategy" and "--Government Regulations."
The Company has made a substantial investment in plant and equipment and
believes that it is unique in its capacity to produce a broad line of both
sterile dosage products and solid dosage products. The Company manufactures a
variety of product forms and types, including immediate-release and extended-
release solid dosage products and sterile anti-infectives, injectables,
penicillins, cephalosporins, ophthalmics and otics. The Company currently
produces approximately four billion tablets and capsules and 75 million vials
and ampules annually and has the capacity to increase production to six
billion tablets and capsules and 100 million vials and ampules annually. This
range of manufacturing capabilities allows the Company to participate in
segments of the generic industry where competition is limited. Further, the
Company's high-volume production enables it to obtain favorable access to raw
materials, which typically represent a substantial portion of the cost of
producing drug products. See "Risk Factors--Dependence on Regulatory Approval
and Compliance."
The Company believes that it is one of only two U.S. generic manufacturers
with dedicated sterile filling facilities for cephalosporin and penicillin
antibiotics, which target the high volume institutional injectable market. In
addition, the Company's ophthalmic and otic drug manufacturing facilities
target higher margin specialty markets.
In accordance with FDA requirements for manufacturers of finished
pharmaceutical products, the Company has developed strict quality control
procedures to ensure the quality and safety of its products. The Company
employs sanitary handling procedures, customized systems for monitoring and
regulating environmental conditions and back-up systems for many of the
critical steps in the production processes. The Company performs sample
testing of raw materials and packaging supplies used in manufacturing its
products and conducts on-site audits of raw material suppliers. In its
manufacturing process, the Company maintains strict quality control procedures
and believes it is in material compliance with FDA's cGMP standards. The
Company has approximately 380 employees dedicated to quality control and
quality assurance. Because developing and obtaining approval of new generic
products requires a large investment and several years of lead time, the
Company believes that companies like itself that have modern, versatile
manufacturing facilities will have a competitive advantage in responding to
market opportunities. See "Risk Factors--Dependence on Regulatory Approval and
Compliance," "Risk Factors--Pending Regulatory Matters" and "--Government
Regulations."
The Company does not manufacture the active pharmaceutical ingredients used
in the preparation of its products. Instead, the Company purchases these
active pharmaceutical ingredients from international and domestic sources. FDA
requires pharmaceutical manufacturers to identify in their drug applications
the supplier(s) of all the raw materials for its products. If raw materials
for a particular product become unavailable from an approved supplier
specified in a drug application, any delay in the required FDA approval of a
substitute supplier could interrupt manufacture of the product, which could
materially and adversely affect the Company's profit margins and market share
for the product. To the extent practicable, the Company attempts to identify
more than one supplier in each drug application. However, in the case of
certain products (including certain products that contribute (or may
contribute) significantly to its sales and net income), the Company has
submitted drug applications that identify only one supplier. The Company has a
program of identifying alternative suppliers where practicable and, in many
cases, filing supplemental applications with FDA for approval.
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.
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<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 service
substantially all of a customer's product needs, allowing it to maintain
minimal inventories and receive overnight deliveries of several manufacturers'
products from a single source. Currently, approximately 64% of the Company's
net revenues are sold through wholesalers, with approximately 82% of these net
revenues subject to direct contracts between the Company and its customers. In
general, it is the Company's strategy to seek to enter into purchase contracts
with retail, managed care and institutional customers. Sales to Bergen
Brunswig Corporation, Cardinal Health, Inc. and McKesson Drug Company
accounted for 19%, 18% and 10%, respectively, of the Company's total net
revenues for 1997. In August 1997, Cardinal Health Inc. announced its
intention to merge with Bergen Brunswig Corporation. In addition, in September
1997 McKesson Corporation announced its intention to merge with AmeriSource
Health Corporation. The proposed mergers among the four largest pharmaceutical
wholesalers in the United States, if consummated, would result in greater
consolidation of the pharmaceutical wholesaling industry and may intensify
pricing and other competitive pressures on generic pharmaceutical
manufacturers. Specifically for Schein, if the Cardinal Health--Bergen
Brunswig merger had been consummated at the beginning of 1997, the resulting
combined customer would have accounted for approximately 37% of the Company's
total net revenues in 1997. The Federal Trade Commission ("FTC") has voted to
oppose both of these proposed mergers. While these companies may appeal the
FTC decision, the Company cannot predict whether, or on what terms, if any,
these proposed mergers would be consummated.
The vast majority of the Company's products are sold under the "Schein
Pharmaceutical," "Marsam Pharmaceuticals" and "Steris Laboratories" labels. In
addition, the Company sells a limited number of products to distributors under
private labels.
The Company directs its sales and marketing activities through programs
specific to its generic product and branded product businesses.
GENERIC PRODUCTS
The Company believes it has one of the largest generic sales and marketing
organizations in the U.S. generic pharmaceutical industry, with a sales and
marketing organization of 130 people serving the retail, institutional,
alternative site, managed care and other generic drug purchasing markets,
including a 20-person telemarketing 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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<PAGE>
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.
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
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<PAGE>
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 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
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<PAGE>
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
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.
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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. Therefore, none of the 11
pending ANDAs that have been filed from the Steris facility (out of the
Company's total of 23 pending ANDAs) is expected to be approved until FDA has
confirmed that Steris has satisfactorily resolved the noted deficiencies. In
addition, as a result of observations made in the 1996 inspection and an
investigation by the FDA's Office of Regulatory Affairs, Steris entered into a
plea agreement with the U.S. Department of Justice. Under the agreement,
Steris pled guilty in January 1998 to misdemeanor violations for failure to
observe application reporting requirements for drug stability problems for two
drugs during 1994 and 1995 and, consequently, paid a fine of $1.0 million.
Also in early 1998, FDA issued to Steris a Warning Letter relating to the
deficiencies observed in the 1997 inspection of the Steris facility, including
FDA's request that Steris delineate its timetable for correction of cGMP
deficiencies and provide FDA with additional information regarding products
for which corrective actions have not been completed.
The Warning Letter addressed five deficient areas at Steris: polymorph
testing to ensure products conform to appropriate standards of identity,
strength, quality, and purity; process validation; method validation;
microbiological controls; and handling of out-of-specification test results
for finished products. FDA advised Steris in the Warning Letter that failure
to take prompt corrective action with regard to these areas could result in
seizure of product, an injunction, and/or prosecution. Steris has responded to
the Warning Letter and anticipates meeting with FDA in the near future to
determine what additional corrective actions, if any, FDA might require.
In 1995, FDA's inspection of the Company's subsidiary, Danbury Pharmacal,
Inc. ("'Danbury"), which operates facilities in Carmel, New York and Danbury,
Connecticut, resulted in observations regarding compliance with cGMP
requirements and the reliability of data submitted by Danbury in support of
certain ANDAs. As a consequence, Danbury voluntarily engaged independent
experts to audit all critical data in a representative sampling of its pending
and approved ANDAs. Reports of the audits, all of which have been completed,
have been submitted to FDA for evaluation. FDA has not advised Danbury about
its review of the audit reports; however, the agency continues to review and
approve ANDAs submitted by Danbury.
Marsam Pharmaceuticals Inc. ("'Marsam"), located in Cherry Hill, New Jersey,
was inspected by FDA during 1997 to evaluate whether certain pending ANDA's
could be approved. Certain cGMP deficiencies were observed during the
inspection, and ANDA approvals were withheld pending completion of remedial
actions by Marsam. Following a reinspection in late 1997, Marsam has received
five new ANDA approvals.
See "Risk Factors--Pending Regulatory Matters."
OTHER REGULATION
The Prescription Drug Marketing Act (the "PDMA"), which amends various
sections of the FDCA, imposes requirements and limitations upon drug sampling
and prohibits states from licensing distributors of prescription drugs unless
the state licensing program meets certain federal guidelines that include,
among other things, state licensing of wholesale distributors of prescription
drugs under federal guidelines that include minimum standards for storage,
handling and record keeping. In addition, the PDMA sets forth civil and
criminal penalties for violations of these and other provisions. Various
sections of the PDMA are still being implemented by FDA and the states.
Nevertheless, failure by the Company's distributors to comply with the
requirements of
48
<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 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.
49
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Martin Sperber.................. 66 Chairman of the Board of Directors, Chief
Executive Officer and President
Dariush Ashrafi................. 51 Executive Vice President, Chief Financial
Officer and Director
Javier Cayado................... 52 Senior Vice President, Technical Operations
Paul Feuerman................... 38 Senior Vice President, General Counsel, and
Director
Paul Kleutghen.................. 45 Senior Vice President, Strategic
Development
David R. Ebsworth*.............. 43 Director
Richard L. Goldberg*............ 62 Director
</TABLE>
- --------
* Members of the Compensation Committee.
Martin Sperber has been Chairman, Chief Executive Officer, President and
Director of the Company since 1989. From 1985 until 1989, Mr. Sperber was
President and Chief Operating Officer of the Company. Mr. Sperber has been
employed in various positions in the Schein organization for over 40 years.
Mr. Sperber is a member of the Board of the Generic Pharmaceutical Industry
Association, a member of the Board of the American Foundation for
Pharmaceutical Education, a member of the American Pharmaceutical Association
and a member of the Council of Overseers of the Long Island University Arnold
and Marie Schwartz College of Pharmacy. Mr. Sperber received his B.S. degree
in Pharmacy from Columbia University.
Dariush Ashrafi has been Executive Vice President and Chief Financial
Officer since October 1995, and Director since September 1997 and from May
1995 until September 1995 was Senior Vice President and CFO. From 1990 to
1995, Mr. Ashrafi was Senior Vice President, Chief Financial Officer and
director of The Warnaco Group, Inc., an apparel company. Prior to joining
Warnaco, he spent 18 years with Ernst & Young and became a partner in 1983.
Mr. Ashrafi received his B.S. degrees in Aeronautical and Astronautical
Engineering and in Management Science from the Massachusetts Institute of
Technology and his M.S. in Finance from the Massachusetts Institute of
Technology Sloan School.
Javier Cayado has been Senior Vice President of Technical Operations of the
Company since February 1998. From 1993 to 1998, Mr. Cayado was successively
Vice President, Senior Vice President and General Manager of Danbury
Pharmacal, a wholly owned subsidiary of the Company. Prior to joining Schein
in 1993, Mr. Cayado had a 14-year career with Pfizer Pharmaceutical
culminating with his assignment as General Manager of Pfizer's bulk chemical
and pharmaceutical products plants in Puerto Rico. He received his B.S. in
Chemical Engineering from the University of Connecticut.
Paul Feuerman has been General Counsel since 1991. He has been a Vice
President of the Company since January 1992, Senior Vice President since
February 1997, and a Director since September 1997. Mr. Feuerman previously
was associated with the law firm of Proskauer Rose LLP. He received his B.A.
from Trinity College and his J.D. from Columbia Law School.
Paul Kleutghen has been Senior Vice President of Strategic Development of
the Company since February 1998. From 1993 to 1998, he was Vice President of
Business Development. Between 1989 and 1993, he was Vice President of
Materials and Operations. Prior to joining Schein, Mr. Kleutghen was with
Pfizer Pharmaceutical culminating with his assignment as Director of
Production Planning for the U.S. pharmaceutical division. Mr. Kleutghen earned
an undergraduate degree in Engineering and Computer Science from the
University of Leuven in Belgium and an MBA in Finance from the University of
Chicago.
David R. Ebsworth became a Director of the Company in September 1994 as part
of Bayer Corporation's investment in the Company. He is currently Executive
Vice President, Bayer Corporation and President, Pharmaceutical Division North
America. Between 1983 and 1993, Dr. Ebsworth held various management and
50
<PAGE>
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 Equity Offering.
Non-employee directors may receive meeting fees and annual grants of options
to purchase shares of the Company's Common Stock pursuant to the Non-Employee
Director Plan. To date, no meeting fees have been paid to non-employee
directors. See "--Stock Options."
The Company's certificate of incorporation as in effect upon the completion
of the Equity Offering divides the board of directors into three classes, with
each class holding office for staggered three-year terms. The terms of one-
third of the current directors will expire at the annual meeting of
stockholders in each of 1999, 2000 and 2001. At each annual election,
commencing at the annual meeting of stockholders in 1999, the successors to
the class of directors whose term expires at that time will be elected to hold
office for a term of three years to succeed those directors whose term
expires, so that the term of one class of directors will expire each year. The
classification of directors has the effect of making it more difficult to
change the composition of the Board of Directors in a relatively short period.
In addition, the classified board provision could discourage a third party
from attempting to obtain control of the Company, even though such an attempt
might be beneficial to the Company and its stockholders or could delay, defer
or prevent a change in control of the Company.
Pursuant to the Restructuring Agreements (as defined herein), until Bayer
(as defined herein) owns less than 10% of the Company's outstanding Common
Stock, Bayer Corporation is entitled to nominate a number of members of the
Board of Directors of the Company, rounded down to the nearest whole number
(until Bayer holds more than 50% of the Company's outstanding stock, then
rounded up to the nearest whole number), equal to the product of (a) the
number of members of the Board of Directors and (b) its percentage
stockholdings of Common Stock at the time of nomination. In this regard, Bayer
Corporation nominated David R. Ebsworth as a member of the Board of Directors.
The Voting Trustee (currently Mr. Sperber) is entitled under the Restructuring
Agreements to nominate the balance of the members of the Board of Directors
until the Voting Trust Termination Date (as defined herein). Until May 15,
2001, the Voting Trustee and certain of the Company's principal stockholders
must vote for the election of Bayer Corporation's nominee(s). Until the Voting
Trust Termination Date, Bayer Corporation and certain of the Company's
principal stockholders must vote for the election of the Voting Trustee's
nominees.
The Company in February 1998 entered into a strategic alliance agreement
with Cheminor and Reddy. As part of the arrangement, the Company purchased 2.0
million publicly traded shares of Cheminor Drugs Limited (12.79% of the
currently outstanding shares of Cheminor Drugs Limited) for $10.0 million, and
under certain circumstances has the right and the obligation to purchase an
additional 1.0 million shares for $5.0 million. Cheminor will have the right
to make fair market value purchases of the Company's Common Stock, once the
shares are publicly traded; the purchase price may be payable from profits
otherwise due Cheminor from the alliance. Each party will also be entitled to
representation on the other company's board of directors consistent with its
equity interest, at all times during which each party owns at least ten
percent of the total issued and outstanding shares of the other party.
Currently, Cheminor does not own shares of the Company's Common Stock and,
accordingly, is not entitled to representation on the Company's board of
directors.
51
<PAGE>
The Company's officers are elected by the Board of Directors for one-year
terms and serve at the discretion of the Board of Directors. See "Principal
Stockholders," "Risk Factors--Control of the Company" and "Description of
Capital Stock."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has one standing committee: the
Compensation Committee.
The Compensation Committee approves the compensation for senior executives
of the Company, makes recommendations to the Board of Directors with respect
to compensation levels and administers the Company's stock option plans. The
members of the Compensation Committee are Messrs. Ebsworth and Goldberg.
The Company's Board of Directors is expected to appoint directors who are
not affiliated with the Company to an Audit Committee of the Board of
Directors. The Audit Committee will have general responsibility for
surveillance of financial controls, as well as for accounting and audit
activities of the Company. The Audit Committee will annually review the
qualifications of the Company's independent certified public accountants, make
recommendations to the Board of Directors as to their selection and review the
plan, fees and results of their audit.
LIMITATIONS ON LIABILITY
The Company's certificate of incorporation contains a provision that,
subject to certain exceptions, limits the personal liability of the Company's
directors for monetary damages to the Company and its stockholders for
breaches of fiduciary duty owed to the Company or its stockholders.
In addition, the Company has entered into agreements with its directors and
officers providing for indemnification of those individuals under certain
circumstances.
The Company has obtained director and officer liability insurance that
insures the Company's directors and officers against certain liabilities.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the Company's remaining executive officers
(the "Named Executive Officers") for the years ended December 1996 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
------------------------------ ---------- -------------
SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION(9)(10) SALARY BONUS COMPENSATION OPTIONS(#) PAYOUTS($)(2) COMPENSATION
- ---------------------------------- -------- -------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Martin Sperber........... 1997 $700,000 $400,000 $ 9,436 -- -- $10,880 (3)
Chairman of the Board of 1996 700,000 -- 9,929 -- -- 10,305 (3)
Directors, Chief
Executive Officer and
President
Dariush Ashrafi.......... 1997 341,000 93,000 10,300 550 $ 75,000 22,709 (4)
Executive Vice 1996 341,000 59,700 143,725 200 75,000 24,321 (4)
President, Chief
Financial Officer and
Director
Javier Cayado............ 1997 220,000 37,000 398 100 100,000 29,343 (5)
Senior Vice President 1996 220,000 40,500 969 100 125,000 16,910 (5)
Technical Operations
Paul Feuerman............ 1997 225,000 61,000 8,596 150 100,000 17,625 (6)
Senior Vice President, 1996 185,000 32,400 7,738 200 100,000 13,799 (6)
General Counsel and
Director
Paul Kleutghen........... 1997 211,000 37,300 9,362 85 100,000 36,531 (7)
Senior Vice President 1996 211,000 38,800 24,415 200 100,000 47,115 (7)
Strategic Development
Marvin Samson............ 1997 400,000 -- 2,659 1,750 -- 24,754 (8)
Former Executive Vice 1996 400,000 70,000 -- 200 -- 21,126 (8)
President
</TABLE>
52
<PAGE>
- --------
(1) The compensation described in this table does not include medical, dental
or other benefits available generally to all salaried employees of the
Company, as well as certain perquisites and other personal benefits, the
value of which does not exceed the lesser of $50,000 or 10% of the named
executive officer's total salary and bonus reported in this table.
(2) LTIP payouts, reflect Long Term Incentive Plan ("LTIP") payments pursuant
to various deferred compensation agreements.
(3) In 1997 All Other Compensation includes $8,000 for the Company Retirement
Plan discretionary contribution, $1,680 for the cost of term life
insurance coverage provided by the Company and $1,200 for the Company
Retirement Plan matching contribution. In 1996 All Other Compensation
includes $7,500 for the Company Retirement Plan discretionary
contribution, $1,680 for the cost of term life insurance coverage provided
by the Company and $1,125 for the Company Retirement Plan matching
contribution.
(4) In 1997 All Other Compensation includes $12,363 for the Supplemental
Retirement Plan contribution, $8,000 for the Company Retirement Plan
discretionary contribution, $1,200 for the Company Retirement Plan
employer matching contribution and $1,146 for the cost of term life
insurance coverage provided by the Company. In 1996 All Other Compensation
includes $14,550 for the Supplemental Retirement Plan contribution, $7,500
for the Company Retirement Plan contribution, $1,146 for the cost of term
life insurance coverage provided by the Company and $1,125 for the Company
Retirement Plan employer matching contribution.
(5) In 1997 All Other Compensation includes $6,458 for the value of the BEARs
Program, $8,000 for the Company Retirement Plan discretionary
contribution, $7,543 for the value of the Life Insurance Plan, $5,402 for
the Supplemental Retirement Plan contribution, $1,200 for the Company
Retirement Plan employer matching contribution and $740 for the cost of
term life insurance coverage provided by the Company. In 1996 All Other
Compensation includes $1,005 for the value of the BEARs Program, $7,500
for the Company Retirement Plan discretionary contribution, $6,541 for the
Supplemental Retirement Plan contribution, $1,125 for the Company
Retirement Plan employer matching contribution and $739 for the cost of
term life insurance provided by the Company.
(6) In 1997 All Other Compensation includes $2,583 for the value of the BEARs
Program, $8,000 for the Company Retirement Plan discretionary
contribution, $5,086 for the Supplemental Retirement Plan contribution,
$1,200 for the Company Retirement Plan matching contribution and $756 the
cost of term life insurance coverage provided by the Company. In 1996 All
Other Compensation includes $402 for the value of the BEARs Program,
$7,500 for the Company Retirement Plan discretionary contribution, $4,150
for the Supplemental Retirement Plan contribution, $1,125 for the Company
Retirement Plan employer matching contribution, and $622 for the cost of
term life insurance provided by the Company.
(7) In 1997 All Other Compensation includes $3,229 for the value of the BEARs
Program, $12,095 for a forgiven equity loss loan, $8,000 for the Company
Retirement Plan discretionary contribution, $5,713 for a forgiven personal
loan, $4,693 for the Supplemental Retirement Plan contribution, $1,200 for
the Company Retirement Plan matching contribution, $892 for the value of
the Life Insurance Plan and $709 for the cost of term life insurance
provided by the Company. In 1996 All Other Compensation includes $502 for
the value of the BEARs Program, $19,884 for a forgiven personal loan,
$12,095 for a forgiven equity loss loan, $7,500 for the Company Retirement
Plan discretionary contribution, $5,300 for the Supplemental Retirement
Plan, $1,125 for the Company Retirement Plan employer matching
contribution and $709 for the cost of term life insurance provided by the
Company. Mr. Kleutghen has a balance on his equity loss loan of $12,095.
The equity loss loan was issued August 1993 for $60,476. The terms of the
loan state that 1/5 of the loan be forgiven each year. Interest at the
rate of 7% on the balance of the loan is due annually. The balance on the
personal loan is $8,730. The personal loan was issued July 1989 for
$75,000. The terms of the loan state the loan and interest will be
forgiven over a period of 10 years.
(8) Marvin Samson served as the Company's Executive Vice President until
January 7, 1998. In 1997 All Other Compensation includes $15,333 for the
value of the Life Insurance Plan, $8,000 for the Company Retirement Plan
discretionary contribution, $1,200 for the Company Retirement Plan
matching contribution and $221 for the cost of term life insurance
coverage provided by the Company. In 1996 All Other Compensation includes
$12,467 for the value of the Life Insurance Plan, $7,500 for the Company
Retirement Plan discretionary contribution, $909 for the cost of term life
insurance coverage provided by the Company and $250 for the Company
Retirement Plan matching contribution.
(9) Michael Casey served as the Company's Executive Vice President until
September 5, 1997. In 1997 Mr. Casey received $242,308 in Salary, options
covering 850 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 200 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 200 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.
53
<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(1)
------------------------------------------------------- ---------------------
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......... 550 6.5% $1500 2007 $ 586,030 $ 1,421,829
Paul Feuerman........... 150 1.8 1500 2007 159,826 387,772
Jay Cayado.............. 100 1.2 1500 2007 106,551 258,514
Paul Kleutghen.......... 85 1.0 1500 2007 90,568 219,737
Marvin Samson........... 1,750 20.7 1500 2007 1,864,641 4,524,003
Michael Casey*.......... 850 10.1 1500 2007 -- --
</TABLE>
- --------
*Options subsequently canceled
FISCAL YEAR--END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
SHARES ACQUIRED ------------------------- -------------------------
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin Sperber.......... -- -- 4,795 -- -- --
Dariush Ashrafi......... -- -- 347 1,103 -- $ 41,033
Paul Feuerman........... -- -- 242 328 -- 11,183
Jay Cayado.............. -- -- 233 217 -- 7,455
Paul Kleutghen.......... -- -- 290 275 -- 6,337
Marvin Samson........... -- -- 67 1,883 -- 130,463
Michael Casey........... -- -- 347 -- -- --
James McGee............. -- -- 4,577 -- $ 863,100 --
</TABLE>
- --------
(1) Assumes that a 105-for-one stock split will occur immediately prior to the
effective date of the Equity Offering and that the price per share of Common
Stock is $15.00.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Martin Sperber dated
September 30, 1994, as amended as of March 6, 1998, pursuant to which Mr.
Sperber serves as Chairman of the Board, Chief Executive Officer and President
of the Company. Under this agreement, the term of Mr. Sperber's employment
commenced on January 1, 1994 and terminates on January 1, 2000, unless earlier
terminated by the death of Mr. Sperber, by action of the Board of Directors
with or without cause, due to the disability of Mr. Sperber or by Mr. Sperber
upon 30 days written notice or a material breach by the Company of his
employment or stock option agreement that is not cured within 30 days. If Mr.
Sperber is terminated without cause, in addition to all accrued but unpaid
compensation to the date of termination, he is entitled to receive as
severance compensation his base salary from the date of termination through
January 1, 2000 and an amount equal to the product of (i) a fraction, the
numerator of which is the amount of earned incentive compensation for the last
full year before termination and the denominator of which is 365 and (ii) the
number of days from termination until January 1, 2000. If Mr. Sperber
voluntarily terminates his employment prior to January 1, 2000 (other than for
an uncured breach by the Company), he is only entitled to such severance pay
as is determined by the Compensation Committee. Mr. Sperber currently receives
base annual compensation of $700,000. Mr. Sperber may also receive incentive
compensation in an amount to be determined by the Compensation Committee. If
Mr. Sperber's employment is terminated prior to January 1, 2000, such
incentive compensation shall be based on objective criteria established by the
Compensation Committee or $250,000 plus the product of (x) the fraction
derived by dividing (i) the sum of the actual cash incentive compensation
earned by each of the three most senior executives of the Company
54
<PAGE>
other than Mr. Sperber in the year Mr. Sperber's employment is terminated less
the sum of the minimum cash incentive compensation contemplated for such
executives for such year, by (ii) the sum of the maximum cash incentive
compensation contemplated for such executives for such year less the sum of
the minimum cash incentive compensation contemplated for such executives for
such year and (y) $250,000. Mr. Sperber is prohibited from competing with the
Company during the term of the agreement and until the second anniversary of
the date the Company makes its final base salary payment to Mr. Sperber
pursuant to the agreement.
Following termination of Mr. Sperber's employment other than for cause, Mr.
Sperber will be entitled during his lifetime and for the life of his spouse to
continue to participate in, or receive benefits that, on an after-tax basis,
are the same as those under all medical and dental benefit plans, policies and
programs in effect at the termination of his employment. In addition, unless
Mr. Sperber's employment is terminated for cause, Mr. Sperber will be entitled
to a pension, beginning after the termination of his employment and continuing
until the later of the death of Mr. Sperber or his spouse, in an amount equal
to 45% of the average total cash compensation for the highest three of the
last six years prior to termination, reduced generally by the sum of the
amount Mr. Sperber would be entitled to receive under all of the Company's
qualified retirement plans within the meaning of Section 401(a) of the
Internal Revenue Code and under Social Security if he commenced receiving such
benefit payments at age 65. See "--Stock Options."
The Company entered an Option Agreement with Mr. Sperber dated September 30,
1994 under which Mr. Sperber was granted, as a key employee pursuant to the
Company's 1993 Stock Option Plan, a non-qualified option to purchase from the
Company up to 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).
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
55
<PAGE>
each followed by two annual installments of $150,000 each. If Mr. Feuerman's
employment with the Company is terminated under certain circumstances, he is
entitled to receive 100% of his base salary and annual cash bonus paid or
payable by the Company to him in respect of the last full fiscal year
preceding the termination date as one lump sum payment. Further, if Mr.
Feuerman is terminated other than for cause or disability, or if he
voluntarily terminates his employment in certain instances, he is entitled to
receive basic health and medical benefits until the earlier of one year
following termination and his full-time employment elsewhere.
The Company entered into an employment agreement with Jay Cayado dated
November 22, 1993, pursuant to which Mr. Cayado serves as Senior Vice
President Technical Operations of the Company. Under this agreement, the term
of Mr. Cayado's employment began on November 22, 1993 and terminates 60 days
after either Mr. Cayado or the Company gives written notice that he or it does
not wish to continue the employment, unless earlier terminated for cause or
upon the death or disability of Mr. Cayado. In 1997, the Company's Board of
Directors determined to award a $37,000 bonus to Mr. Cayado, payable to Mr.
Cayado in 1998. Pursuant to a deferred compensation agreement dated Feb. 7,
1996, between the Company and Mr. Cayado, Mr. Cayado is entitled to receive an
LTIP payment of $450,000, payable annually in one installment of $125,000, one
installment of $100,000 and three installments of $75,000 each. If Mr.
Cayado's employment with the Company is terminated under certain
circumstances, he is entitled to receive 100% of his base salary and annual
cash bonus paid or payable by the Company to him in respect of the last full
fiscal year preceding the termination date as one lump sum payment. Further,
if Mr. Cayado is terminated other than for cause or disability, or if he
voluntarily terminates his employment in certain instances, he is entitled to
receive basic health and medical benefits until the earlier of one year
following termination and his full-time employment elsewhere.
The Company entered into an employment agreement with Paul Kleutghen dated
November 29, 1993, pursuant to which Mr. Kleutghen serves as Senior Vice
President, Strategic Development, to the Company. This agreement terminates 60
days after either Mr. Kleutghen or the Company gives written notice that he or
it does not wish to continue the employment, unless earlier terminated for
cause or upon the death or disability of Mr. Kleutghen. In 1997, the Company's
Board of Directors determined to award a $37,300 bonus, payable to Mr.
Kleutghen in 1998. Pursuant to a deferred compensation agreement dated August
8, 1996, between the Company and Mr. Kleutghen, Mr. Kleutghen is entitled to
receive a bonus of $500,000, payable in two annual installments of $100,000
each followed by two annual installments of $150,000 each. If Mr. Kleutghen's
employment with the Company is terminated under certain circumstances, he is
entitled to receive 100% of his base salary and annual cash bonus paid or
payable by the Company to him in respect of the last full fiscal year
preceding the termination date as one lump sum payment. Further, if Mr.
Kleutghen is terminated other than for cause or disability, or if he
voluntarily terminates his employment in certain instances, he is entitled to
receive basic health and medical benefits for one year following termination
and the full-time employment elsewhere.
The Company entered into an agreement dated November 29, 1993 with James C.
McGee, pursuant to which Mr. McGee served as the Company's Executive Vice
President. Mr. McGee ceased full-time employment and became a consultant to
the Company on December 31, 1996. Under an agreement dated September 20, 1996,
Mr. McGee has received payments totaling $1,527,461 and is entitled to receive
(a) $116,400 when bonuses are paid to certain senior executives in respect of
fiscal 1997, and (b) continuing health and dental insurance coverage. Until
December 31, 1998, Mr. McGee will serve as a consultant to the Company and is
entitled to receive base consulting fees equal to his annual base salary of
$431,000, plus an additional consulting fee equal to a fraction of his annual
base salary (determined by dividing the aggregate bonuses to be paid to
certain senior executive officers of the Company by such senior executive
officers' aggregate annual base salaries) to be paid as and when bonuses are
paid to senior executive officers of the Company in respect of fiscal 1998.
Pursuant to an agreement dated July 28, 1995, Marvin Samson was appointed an
Executive Vice President and Director of the Company, as well as President,
Chief Executive Officer and Chief Operating Officer and Director of Marsam.
Mr. Samson ceased to be an employee and director of the Company and Marsam on
January 7, 1998. In connection with Mr. Samson's employment agreement, the
Company is paying Mr. Samson compensation through 2000, currently at the
annual rate of $400,000. During this period, the Company also is providing
certain insurance and automobile benefits.
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<PAGE>
A compensation continuation agreement provides for pension payments to Mr.
Samson commencing September 2000 in an amount equal to his annual base salary
immediately prior to retirement and, thereafter, 50% of that amount for each
of the next nine years. The Company has also agreed to provide certain
benefits to Mr. Samson in the form of payments on a split dollar life
insurance contract insuring the lives of Mr. Samson and his wife.
STOCK OPTIONS
The Company's 1997 Stock Option Plan (the "1997 Plan") provides for the
granting of options to purchase not more than an aggregate of 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" 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 1,000 shares of Common Stock, subject to adjustment under
certain circumstances. Although options granted under the 1993 Plan to
purchase 25,268 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 outstanding
options to purchase 9,851 shares of Common Stock which were granted under the
1997 Plan at the then fair market value and plans to grant approximately 9,500
additional options to purchase shares of Common Stock under the 1997 Plan
prior to or at the completion of the Equity Offering at an exercise price
equal to the public offering price. The Company intends to reduce the exercise
price to the public offering price in the Equity Offering for all options
granted under the 1997 Plan and the 1993 Plan to non-director employees that
have an exercise price above such price. Currently, options to purchase a
total of 18,490 shares of Common Stock would be subject to such a reduction in
exercise price.
The Compensation Committee administers the 1997 Plan. The Compensation
Committee has full power and authority to interpret the 1997 Plan, set the
terms and conditions of individual options and supervise the administration of
the 1997 Plan.
The Compensation Committee determines, subject to the provisions of the 1997
Plan, to whom options are granted, the number of shares of Common Stock
subject to an option, whether stock options will be incentive or non-
qualified, the exercise price of the options (which, in the case of non-
qualified options, may be less than the fair market value of the shares on the
date of grant) and the period during which options may be exercised. All
employees of the Company are eligible to participate in the 1997 Plan. No
options may be granted under the 1997 Plan after March 3, 2007.
The Compensation Committee may amend the 1997 Plan from time to time.
However, the Compensation Committee may not, without stockholder approval,
amend the 1997 Plan to increase the number of shares of Common Stock under the
1997 Plan (except for changes in capitalization as specified in the 1997
Plan).
The Non-Employee Director Plan provides for automatic annual grants of
options to purchase shares of the Company's Common Stock to non-employee
directors of the Company in amounts calculated using a formula provided in the
plan. The Company has granted options to purchase 215 shares of Common Stock
under the Non-Employee Director Plan and plans to grant 90 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 Equity 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).
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<PAGE>
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 ($10,000 for the
1998 plan year, subject to cost of living adjustments); the amount of a
participant's basic contribution is generally excluded from gross income for
federal or state income tax purposes. In 1998 the Company will make a
mandatory matching contribution to the Company Retirement Plan of $0.50 for
each dollar contributed to the Company Retirement Plan as a basic
contribution, up to the first 6% of a participant's contribution; the Company
also may make additional matching contributions and may make other non-
matching contributions to the Company Retirement Plan at the discretion of the
Board of Directors. In 1998, the Company made a discretionary, non-matching
contribution under the Company Retirement Plan for 1997 equal to 5% of
compensation (as defined in the Company Retirement Plan).
Concurrently with the IPO, participants in the Company Retirement Plan will
be permitted to invest up to the lesser of 5% or $15,000 of their account
balance in Common Stock at the IPO price. After the Equity Offering,
participants will be permitted to invest, at the then current market price, up
to 5% of their and the Company's contributions to the Company Retirement Plan
in Common Stock. Participants will be allowed to sell their shares of Common
Stock at any time.
Participants in the Company Retirement Plan have a 100% vested and
nonforfeitable interest in the value of their basic contribution and the
Company's matching contribution, and they acquire a 100% vested and
nonforfeitable interest in the Company's non-matching amounts at retirement,
death, disability or termination pursuant to an employee reduction plan. If
their employment terminates prior to the normal retirement date for any other
reason, participants acquire a 10% vested and nonforfeitable interest in the
Company's non-matching contribution amounts for each of the first four years
of service; and a 20% vested and nonforfeitable interest in the Company's non-
matching contribution amounts for each of the fifth, sixth and seventh years
of service; accordingly, after seven years of service, participants have a
100% vested and nonforfeitable interest in the value of the Company's non-
matching contribution amounts.
Participants are entitled to receive the amounts in their Company Retirement
Plan accounts in a single lump-sum payment on death, disability, retirement or
termination of employment. At the election of the participant, the
participant's Company Retirement Plan account is eligible for payment in
installments of either 5 or 10 years. In certain circumstances, participants
may receive loans and hardship withdrawals from their accounts in the Company
Retirement Plan.
Supplemental Retirement Plan. The Company maintains a Supplemental
Retirement Plan (the "Supplemental Retirement Plan"). Under the Supplemental
Retirement Plan, the Company pays non-qualified deferred compensation to
certain of its employees consisting of benefits based on annual compensation
in excess of limitations imposed by the Code on contributions under the
Company Retirement Plan. The Supplemental Retirement Plan is an unfunded
"pension benefit plan" subject to the Employee Retirement Income Security Act
of 1974, as amended.
Split Dollar Life Insurance Plan. The Company maintains a Split Dollar Life
Insurance Plan (the "Life Insurance Plan"). Under the Life Insurance Plan,
each participating officer owns a life insurance policy. Each policy is
designed to provide at age 65 an annuity equal to a specified percentage of
the participant's projected average annual salary for the final three years of
employment (less Social Security benefits and certain benefits under the
Company Retirement Plan and Supplemental Retirement Plan). A cash surrender
value, which is owned by the individual and designed to fund the annuity,
accumulates under each participant's policy. The Company and the employee will
share the cost of premiums. The premiums advanced by the Company will be
repaid out of the cash value of the policies or the proceeds of the death
benefits.
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<PAGE>
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.
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 4,762 shares.
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<PAGE>
CERTAIN TRANSACTIONS
In 1994, the Company entered into a Heads of Agreement with Bayer
Corporation and Bayer A.G. (collectively, "Bayer"), pursuant to which the
Company and Bayer committed together to explore business opportunities for the
U.S. and abroad. Under the agreement, the parties agreed to share expertise,
personnel, products and production facilities where appropriate to (i) explore
potential areas of mutual interest and cooperation in the U.S. domestic
market, (ii) identify multisource pharmaceutical business opportunities abroad
and (iii) explore the use of Bayer's chemical synthesis expertise to provide
the Company with chemical drug ingredients. The agreement provides that any
decision to pursue a project must be approved by both parties and based on a
separately negotiated contractual agreement.
In 1994, the Company entered into a three-year co-promotion agreement with
Bayer Corporation covering the Company's INFeD product. Under the terms of the
agreement, during the periods from 1995 to 1997, in exchange for promotional
support, the Company shared with Bayer the net profits of INFeD in excess of
specified threshold amounts which are based, in part, on the prior year's
sales. In early 1998, this agreement was amended and extended to December
1998. This amended agreement provides that in exchange for promotional
support, the Company pays Bayer Corporation a fixed dollar amount plus a fixed
percentage of sales above a threshold amount. The Company incurred selling
expenses under these agreements (in the form of payments to Bayer) of
approximately $3.0 million in 1996 and $4.2 million in 1997. There were no
selling expenses (in the form of payments to Bayer) under the first agreement
for 1995. Selling expenses in 1998 under the agreement are expected to remain
approximately constant as a percentage of INFeD revenues compared to 1997. See
"Principal Stockholders."
Since 1994, the Company and Bayer, through their respective affiliates, have
entered into several joint ventures to own, manage or develop generic
pharmaceutical businesses outside of the U.S. Each of Schein and Bayer have
contributed various assets and rights and funded the operations of these
ventures, and in certain circumstances have guaranteed certain liabilities of
these ventures, such as leases and lines of credit. It is contemplated that
the Company and Bayer will sell products to certain of these ventures for
resale in their local markets.
During 1995, 1996 and 1997, the Company invested approximately $3.5 million,
$2.0 million and $0.2 million, respectively, to acquire up to a 50% interest
in each of several international pharmaceutical businesses. These businesses
are jointly owned with subsidiaries of Bayer AG, the parent of Bayer
Corporation, a minority investor in the Company. Each party's interest in
profits and losses is proportional to that party's equity investment in a
venture. The Company recorded losses of approximately $0.4 million, $3.4
million and $3.4 million in 1995, 1996 and 1997, respectively, as its share of
the operating results of these businesses. The Company generally anticipates
that these international businesses will not have significant revenues or
operations for a period of two to three years, during which time the
businesses incur expenses to register products in anticipation of future
sales. The Company incurred expenses of approximately $2.1 million, $2.9
million and $2.8 million in 1995, 1996 and 1997, respectively, to identify,
evaluate, and establish these and other potential international business
ventures. Each of Bayer and Schein currently is evaluating the extent of its
continued participation in certain of these ventures.
In 1997, the Company, together with the Pharmaceutical, Consumer Healthcare,
Afga Film and Diagnostics divisions of Bayer Corporation, has created a
marketing collaboration called Bayer Healthcare Partners. Through Bayer
Healthcare Partners, the participants combine their sales and marketing
efforts to offer, on a case-by-case basis, a package of goods and services
designed to be more attractive to a customer, most likely a managed healthcare
provider. The participants share in the costs of these combined marketing
efforts. The Company's participation in Bayer Healthcare Partners is
determined on a year to year basis. In the last six months of 1997, the
Company incurred expenses of approximately $0.1 million and the rate of the
Company's expenditures in 1998 is expected to be similar. Under its existing
arrangement with Bayer Healthcare Partners, the Company is not required to
share revenues or profits with other participants.
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In the conduct of its business, the Company sells pharmaceutical products to
Henry Schein, Inc. for distribution to its customers. Net sales to Henry
Schein, Inc. were $5.3 million, $8.6 million and $10.0 million in 1995, 1996
and 1997, respectively. Certain of the Company's principal stockholders also
are principal stockholders of Henry Schein, Inc. All transactions between the
Company and Henry Schein, Inc. are on an arm's-length basis.
In connection with Mr. Ashrafi's relocation, the Company loaned Mr. Ashrafi
$150,000 at an interest rate of 6.875% per annum evidenced by a promissory
note dated May 31, 1996. As of December 1997, an aggregate principal amount of
$150,000 was outstanding on that loan.
Richard L. Goldberg, who is a Director of the Company, is a member of
Proskauer Rose LLP, which has been retained by the Company to provide legal
services.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of March 12, 1998, by
(i) each person (or affiliated group of persons) known by the Company to own
beneficially more than 5% of the Company's Common Stock, (ii) each director of
the Company, (iii) each of the named executive officers and (iv) all directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
(2) (3)
----------------------
BENEFICIAL OWNER(1) NUMBER PERCENT
- ------------------- ----------- ----------
<S> <C> <C>
Martin Sperber (4)....................................... 195,283 66.2%
Marvin H. Schein (5) (6)................................. 90,020 30.5%
135 Duryea Road
Melville, NY 11747
Bayer Corporation........................................ 77,542 26.3%
100 Bayer Road
Pittsburgh, PA 15205
Trust established by Pamela Schein (5) (6)............... 68,042 23.1%
Pamela Joseph (6) (7).................................... 26,528 9.0%
Dariush Ashrafi.......................................... 346 *
Javier Cayado............................................ 233 *
Paul Feuerman............................................ 242 *
Paul Kleutghen........................................... 290 *
David R. Ebsworth........................................ 19 *
Richard L. Goldberg...................................... 19 *
Directors and Executive Officers as
Group (7 persons) (4)................................... 196,432 66.6%
</TABLE>
- --------
* Denotes less than 1%.
(1) Unless otherwise indicated, the address for each person is c/o Schein
Pharmaceutical, Inc., 100 Campus Drive, Florham Park, New Jersey 07932.
(2) The persons and entities named in the table have sole voting and
investment powers with respect to all of the Common Stock shown as
beneficially owned by them, except as noted below.
(3) The 295,009 shares of Common Stock deemed outstanding includes:
(a) 273,264 shares of Common Stock outstanding; and
(b) 21,745 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
the Equity Offering prospectus.
(4) Includes:
(a) 5,898 shares for which Mr. Sperber is either the direct beneficial
owner or holds in trusts for his family members' benefit; and
(b) 4,795 shares issuable pursuant to the exercise of stock options that
are held by Mr. Sperber and are currently exercisable; and
(c) 184,590 shares over which Mr. Sperber has voting control pursuant to
the voting trust agreement dated September 30, 1994 (the "Voting Trust
Agreement"). Mr. Sperber, acting as voting trustee, is able to control
substantially all matters requiring stockholder approval, including the
election of directors.
(5) Includes all shares for which such stockholder is either the direct
beneficial owner or holds in trust for his or her family members' benefit
and/or charities for which such stockholder is trustee.
(6) All shares are held by Mr. Sperber as voting trustee under the Voting
Trust Agreement. See "--Restructuring Agreements."
(7) Includes 1,737 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., 67.5% of
the outstanding shares of Common Stock. 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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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 Period, 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 current stockholder or employee benefit plan) 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
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
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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.
In addition to the above restrictions, the Restructuring Agreements
generally provide that Bayer Corporation 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. 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 "--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.
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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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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
December 27, 1997, the Company had pre-paid $140 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 $44.0 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
(as defined herein), (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 $11.6 million, $28.9
million, $34.8 million, and $34.7 million in total between the 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.
Societe Generale, an affiliate of Societe Generale Securities Corporation,
was the lender under the Senior Subordinated Loan Agreement, dated as of
December 20, 1996, as amended (the "Senior Subordinated Loan Agreement"). All
borrowings under the Senior Subordinated Loan Agreement (the "Senior
Subordinated Loan") were repaid from the proceeds of the Initial Offering. See
"Use of Proceeds."
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company to the Initial Purchaser
pursuant to the Purchase Agreement. The Initial Purchaser subsequently resold
the Old Notes to qualified institutional buyers in reliance on Rule 144A under
the Securities Act and to a limited number of accredited investors (as defined
in Rule 501(A)(1), (2), (3) or (7) under the Securities Act). As a condition
to the Purchase Agreement, the Company entered into the Registration Rights
Agreement with the Initial Purchaser pursuant to which the Company agreed, for
the benefit of the holders of the Old Notes, at the Company's cost, to (i)
file the Exchange Offer Registration Statement within 45 days after the date
of the original issue of the Old Notes with the Commission with respect to the
Exchange Offer for the New Notes, (ii) use their reasonable best 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 Equity Offering and (iii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
commence the Exchange Offer and use their reasonable best efforts to issue as
soon as practicable, but in any event prior to 150 days after the date of the
original issue of the Old Notes, New Notes in exchange for all Old Notes
tendered prior thereto in the Exchange Offer. Upon the Exchange Offer
Registration Statement being declared effective, the Company will offer the
New Notes in exchange for surrender of the Old Notes. The Company will keep
the Exchange Offer open for not less than 30 business days (or longer if
required by applicable law) after the date on which notice of the Exchange
Offer is mailed to the holders of the Old Notes. For each Old Note surrendered
to the Company pursuant to the Exchange Offer, the holder of such Old Note
will receive a New Note having a principal amount equal to that of the
surrendered Old Note. Each New Note will bear interest from the last Interest
Payment Date. Such interest will be paid with the first interest payment on
the New Notes. Interest on the Old Notes accepted for exchange will cease to
accrue upon issuance of the New Notes. If (i) any change in law or applicable
interpretations of the staff of the Commission does not permit the Company to
effect the Exchange Offer as contemplated hereby 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 Old 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 date of issuance of the Old Notes (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 Exchange Offer
would not be permitted by a policy of the Commission, the Company will
commence the Exchange Offer and will use its reasonable best efforts to
consummate the 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.
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 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
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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 Exchange Offer or the effectiveness of a Shelf
Registration Statement, as the case may be.
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 Registration Rights Agreement provides that the Company (i) shall cause
the Exchange Offer Registration Statement to remain continuously effective for
a period of at least 30 Business Days (or longer if required by applicable
law) from its effective date, and shall supplement or amend the Prospectus to
the extent necessary to permit the Prospectus (as supplemented or amended) to
be delivered by broker-dealers in connection with any resale of any such New
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 Registration Rights
Agreement (including certain indemnification rights and obligations).
Each holder of Old Notes that wishes to exchange such Old Notes for New
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any New 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 New 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.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the New Notes will in general be
freely tradeable after the Exchange Offer without further registration under
the Securities Act. However, any purchaser of Old Notes who is an "affiliate"
of the Company or who intends to participate in the Exchange Offer for the
purpose of distributing the New Notes (i) will not be able to rely on the
interpretation of the staff of the Commission, (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the New Notes, unless such sale or
transfer is made pursuant to an exemption from such requirements.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting New Notes in the Exchange Offer is required
to represent to the Company in the Letter of Transmittal that (i) the New
Notes are to be acquired by the holder or the person receiving such New Notes,
whether or not such person is the holder, in the ordinary course of business,
(ii) the holder or any such other person (other than a broker-dealer referred
to in the next sentence) is not engaging, and does not intend to engage, in a
distribution of the New Notes, (iii) the holder or any such other person has
no arrangement or understanding with any person to participate in the
distribution of the New Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act, and (v) the holder or any such other person acknowledges
that if such holder or any other person participates in the Exchange Offer for
the purpose of distributing the New Notes it must comply with the registration
and prospectus delivery requirements of the
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Securities Act in connection with any resale of the New Notes and cannot rely
on those no-action letters. Each Participating Broker-Dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. See "Plan of
Distribution."
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
New Notes. If a holder is a broker-dealer that will receive New 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 New 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
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.
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.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount
of New Notes in exchange for each $1,000 principal amount of Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only
in integral multiples of $1,000.
The form and terms of the New Notes are the same as the form and terms of
the Old Notes in all material respects except that (i) the New Notes bear a
different CUSIP number from the Old Notes and (ii) the New Notes have been
registered under the Securities Act and hence will not bear legends
restricting the transfer thereof. The New Notes will evidence the same debt as
the Old Notes and will be entitled to the benefits of the Indenture.
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As of the date of this Prospectus, $100,000,000 aggregate principal amount
of Old Notes were outstanding. The Company has fixed the close of business on
, 1998 as the record date for the Exchange Offer for the purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indenture in connection with
the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company in its sole discretion extends the Exchange Offer,
in which case the term "Expiration Date" shall mean the latest date and time
to which the Exchange Offer is extended, which in no event shall be more than
60 days after the date of this Prospectus (unless the Company extends the
Exchange Offer as set forth under "Conditions" prior to the end of the 60 days
from the date of this Prospectus, in which case the "Expiration Date" shall
mean the latest date and time of any such extension).
In order to extend the Exchange Offer, the Company will issue a notice of
such extension by press release or other public announcement prior to 9:00
a.m., New York City time, on the next business day following the previously
scheduled Expiration Date.
The Company expressly reserves the right, in its sole discretion, prior to
the Expiration Date (i) to delay accepting any Old Notes, to extend the
Exchange Offer or to terminate the Exchange Offer if any of the conditions set
forth below under "Conditions" shall not have been satisfied, by giving oral
or written notice of such delay, extension or termination to the Exchange
Agent or (ii) to amend the terms of the Exchange Offer in any manner. Any such
delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice thereof to the registered
holders. If there are any material changes to the terms of the Exchange Offer,
the Company will disclose any such material change or material changes to the
terms of the Exchange Offer in a post-effective amendment to the Exchange
Offer Registration Statement.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes and any other required documents, to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. To be tendered effectively,
the Old Notes, Letter of Transmittal or an Agent's Message (as defined herein)
in connection with a book-entry transfer, and other required documents must be
completed and received by the Exchange Agent at the address set forth below
under "Exchange Agent" prior to 5:00 p.m., New York City time, on the
Expiration Date. Delivery of the Old
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Notes may be made by book-entry transfer in accordance with the procedures
described below. Confirmation of such book-entry transfer must be received by
the Exchange Agent prior to the Expiration Date.
The term "Agent's Message" means a message transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent forming a part of a
confirmation of a book-entry transfer, which states that such book-entry
transfer facility has received an express acknowledgment from the participant
in such book-entry transfer facility tendering the Notes that such participant
has received and agrees to be bound by the terms of the Letter of Transmittal
and that the Company may enforce such agreement against such participant.
By executing the Letter of Transmittal, each holder will make the
representations set forth above in the seventh and ninth paragraphs under the
heading "--Purpose and Effect of the Exchange Offer."
Each Participating Broker-Dealer that receives New Notes for its own account
in exchange for Old Notes, where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities, or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined) unless the
Old Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter
of Transmittal or a notice of withdrawal, as the case may be, are required to
be guaranteed, such guarantee must be by a member firm of the Medallion System
(an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Old Notes at DTC for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in DTC's system may make book-entry delivery of Old Notes by
causing DTC to transfer such Old Notes into the
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Exchange Agent's account with respect to the Old Notes in accordance with
DTC's procedures for such transfer. Although delivery of the Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at DTC,
an appropriate Letter of Transmittal properly completed and duly executed with
any required signature guarantee and all other required documents must in each
case be transmitted to and received or confirmed by the Exchange Agent at its
address set forth below on or prior to the Expiration Date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures. Delivery of documents to DTC does
not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right in its sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Old Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give notification. Tenders of Old
Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Notes into the Exchange Agent's account at DTC), and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account of DTC), and
all other documents required by the Letter of Transmittal are received by
the Exchange Agent upon five New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
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To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must: (i)
specify the name of the person having deposited the Old Notes to be withdrawn
(the "Depositor"); (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case
of Old Notes transferred by book-entry transfer, the name and number of the
account at the DTC to be credited); (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Old Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes into the name
of the person withdrawing the tender; and (iv) specify the name in which any
such Old Notes are to be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no New Notes will be issued with respect thereto unless the
Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate or amend the Exchange Offer as provided herein prior to the
Expiration Date, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable discretion that any of the above
conditions are not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the expiration
of the Exchange Offer, subject, however, to the rights of holders to withdraw
such Old Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer, accept all properly tendered
Old Notes which have not been withdrawn and extend the Exchange Offer for at
least an additional five business days. See "--Expiration Date; Extensions;
Amendments."
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies
of this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
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By Mail By Overnight Courier or Hand Delivery:
THE BANK OF NEW YORK THE BANK OF NEW YORK
101 Barclay Street, 7E 101 Barclay Street
New York, New York 10286 New York, New York 10286
Corporate Trust Services Window
Attention: Reorganization Section--7E; Ground Level
Diana Torres
(registered or certified mail Attention: Reorganization Section--7E;
recommended) Diana Torres
Facsimile Transmission:
(212) 815-6339
Confirm by Telephone:
(212) 815-5789
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telecopy, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value, as reflected in the Company's accounting records on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be expensed
over the term of the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Old Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii) so
long as the Old Notes are eligible for resale pursuant to Rule 144A, to a
person inside the United States whom the seller reasonable believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, (iii)
in accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Company), (iv) outside
the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or (v) pursuant to an
effective registration under the Securities Act, in each case in accordance
with any applicable securities laws of any state of the United States.
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RESALE OF THE NEW NOTES
With respect to resales of New Notes, based on interpretations by the staff
of the Commission set forth in no-action letters issued to third parties, the
Company believes that a holder or other person who receives New Notes, whether
or not such person is the holder (other than a person that is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) who
receives New Notes in exchange for Old Notes in the ordinary course of
business and who is not participating, does not intend to participate, and has
no arrangement or understanding with any person to participate, in the
distribution of the New Notes, will be allowed to resell the New Notes to the
public without further registration under the Securities Act and without
delivering to the purchasers of the New Notes a prospectus that satisfies the
requirements of Section 10 of the Securities Act. However, if any holder
acquires New Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the New Notes, such holder cannot rely on
the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretative letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration
is otherwise available. Further, each Participating Broker-Dealer that
receives New Notes for its own account in exchange for Old Notes, where such
Old Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. Any
broker-dealer who acquired the Old Notes directly from the Company in the
Initial Offering, and not as a result of market-making or trading activities,
must, in the absence of an exemption from registration, comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with the secondary resale of the New Notes and cannot rely on the
position of the staff of the Commission enunciated in the no-action and
interpretive letters referred to above; and such broker-dealers cannot use
this Prospectus in connection with resales of the New Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder in the ordinary course of business, (ii) the holder
(other than a broker-dealer referred to in the next sentence) is not engaging,
and does not intend to engage in the distribution of the New Notes, (iii) the
holder has no arrangement or understanding with any person to participate in
the distribution of the New Notes and (iv) the holder is not an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act. As
indicated above, each Participating Broker-Dealer that receives a New Note for
its own account in exchange for Old Notes must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. For a
description of the procedures for such resales by Participating Broker-
Dealers, see "Plan of Distribution."
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DESCRIPTION OF NOTES
GENERAL
The New Notes are to be issued under an indenture, 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 form and terms of the New Notes are the same as the form and
terms of the Old Notes (which they replace) except that (i) the New Notes have
been registered under the Securities Act and (ii) the holders of New Notes
will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions providing for an increase in the interest
rate of the Old Notes in certain circumstances relating to the timing of the
Exchange Offer, which rights will terminate when the Exchange Offer is
consummated. The following summary of all the material terms 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
Interest on each New Note will accrue from the last Interest Payment Date on
which interest was paid on the Old Note tendered in exchange therefor. Holders
of Old Notes whose Old Notes are accepted for exchange will be deemed to have
waived the right to receive any payment in respect of interest on the Old
Notes accrued from the last Interest Payment Date to the date of the issuance
of the New Notes. Consequently, holders who exchange their Old Notes for New
Notes will receive the same interest payment on the same Interest Payment Date
that they would have received had they not accepted the Exchange Offer.
Interest on the New Notes is payable quarterly on January 15, April 15, July
15 and December 15 of each year accruing from the last Interest Payment Date
at a rate equal to the Applicable LIBOR Rate.
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
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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 8.6875%.
"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.
"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, 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.
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SINKING FUND
The Notes will not be entitled to the benefit of any sinking fund or other
mandatory redemption obligation prior to maturity.
GUARANTEES
All of the Company's existing and future Restricted Subsidiaries (referred
to herein as the "Guarantors"), will jointly and severally, fully and
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 December 27, 1997, the Company and its Restricted
Subsidiaries had secured indebtedness of approximately $154.4 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. Secured indebtedness under the Senior Credit
Agreement is the only material secured indebtedness of the Company and its
subsidiaries. As of December 27, 1997, the Company had $56.0 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
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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.
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 generally prohibits the purchase of the Notes by the Company prior
to full repayment of Indebtedness thereunder (except that the proceeds from an
equity or subordinated debt offering may be used to repurchase the Notes) 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 phrase "all or substantially all," as used with respect to a sale of
assets in the definition in the Indenture of "Change of Control," varies
according to the facts and circumstances of the subject transaction, has no
firmly established meaning under New York law (the law governing the
Indenture) and is subject to judicial interpretation. Accordingly, in certain
circumstances, there may be a degree of uncertainty in ascertaining whether a
particular transaction would involve a disposition of "all or substantially
all" of the assets of a Person and therefore it may be unclear whether a
Change of Control has occurred. Any dispute as to whether or not a Change of
Control was triggered as a result of an asset disposition could require
judicial intervention.
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
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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; (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
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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 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
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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.
(e) 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
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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 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.
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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 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)
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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 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
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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 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
case 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.
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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.
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
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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 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
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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 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
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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.
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.
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"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.
"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.
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"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 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
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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
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
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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.
"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
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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 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.
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"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 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
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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.
"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
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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.
"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
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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 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.
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"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 New 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 upon issuance with, or on
behalf of, 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.
New Notes that are issued in respect of 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.
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" 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.
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
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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 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).
102
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative ruling and practice. There can be no assurance
that the Internal Revenue Service (the "IRS") will not take a contrary view,
and no rules from the IRS has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies, tax-
exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States) may be subject to special rules and not discussed below. The Company
recommends that each holder consult such holder's own tax adviser as to the
particular tax consequences of exchanging such holder's Old Notes for New
Notes, including the applicability and effect of any state, local or foreign
tax laws.
The Company believes that the exchange of Old Notes for New Notes pursuant
to the Exchange Offer will not be treated as an "exchange" for federal income
tax purposes because the New Notes will not be considered to differ materially
in kind or extent from the Old Note. Rather, the New Notes received by a
holder will be treated as a continuation of the Old Notes in the hands of such
holder. As a result, there will be no federal income tax consequence to
holders exchanging Old Notes for New Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 90 days after the Expiration Date, it will make this
Prospectus available to any Participating Broker-Dealer for use in connection
with any such resale. Until , 1998 (90 days after the commencement
of the Exchange Offer), all dealers effecting transactions in the New Notes,
whether or not participating in this distribution, may be required to deliver
a prospectus.
The Company will not receive any proceeds from any sales of the New Notes by
Participating Broker-Dealers. New Notes received by Participating Broker-
Dealers for their own account pursuant to the Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such New Notes. Any Participating Broker-
Dealer that resells the New Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit or any such resale of New Notes
and any commissions or concessions received by any such persons may be deemed
to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by
delivering a Prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date the Company will promptly
send additional copies of the Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in a Letter
of Transmittal. The Company agreed to pay all expenses incident to the
Exchange Offer other than commissions or concessions of any broker-dealers and
will indemnify holders of the Notes (including any broker-dealer) against
certain liabilities, including liabilities under the Securities Act.
103
<PAGE>
LEGAL MATTERS
The validity of the issuance of the New Notes being offered hereby is being
passed upon for the Company by Proskauer Rose LLP, New York, New York. Richard
L. Goldberg, a partner of Proskauer Rose LLP, is a member of the Board of
Directors of the Company.
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.
104
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants......................... F-2
Consolidated Balance Sheets as of December 28, 1996 and December 27, 1997.. F-3
Consolidated Statements of Operations for each of the years ended December
30, 1995, December 28, 1996, and December 27, 1997........................ F-4
Consolidated Statements of Stockholders' Equity for each of the years ended
December 30, 1995, December 28, 1996, and December 27, 1997 .............. F-5
Consolidated Statements of Cash Flows for each of the years ended December
30, 1995, December 28, 1996, and December 27, 1997........................ F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Schein Pharmaceutical, Inc.
We have audited the accompanying consolidated balance sheets of Schein
Pharmaceutical, Inc. and subsidiaries as of December 28, 1996 and December 27,
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
27, 1997. These consolidated financial statements are the responsibility of
the management of Schein Pharmaceutical, Inc. and subsidiaries. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Schein Pharmaceutical, Inc. and subsidiaries as of December 28, 1996 and
December 27, 1997, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 27, 1997
in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
January 30, 1998
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; 952 authorized
shares;
issued and outstanding 273 shares at December 28,
1996
and December 27, 1997............................. 3 3
Additional paid-in capital......................... 38,876 38,778
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
<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
======== ======== ========
</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......... 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
Net income....................... -- -- -- 11,102 --
Amortization of options issued as
compensation.................... -- -- (98) -- 727
Decline in unrealized gains on
marketable securities........... -- -- -- -- (2,046)
Foreign currency translation
adjustments..................... -- -- -- -- 50
--- --- ------- -------- -------
Balance, December 27, 1997 ........ 273 $ 3 $38,778 $ 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 1995, Schein Holdings, Inc. ("SHI"), the former parent holding
corporation of the Company, was merged into the Company. The Company was the
only asset held then by SHI, and, as such, the accompanying financial
statements reflect the operations of the Company for the periods reported.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Investments in unconsolidated affiliated
companies are accounted for on the equity method. All material intercompany
accounts and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
FISCAL YEAR
The Company reports its operations on a 52-53 week basis ending on the last
Saturday of December. All of the years presented in these statements include
52 weeks.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments and other short-
term investments with an initial maturity date of three months or less from
purchase date to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out method.
PROPERTY, PLANT, EQUIPMENT, DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed primarily under the straight-line method over
estimated useful lives. Amortization of capital leases is computed using the
straight-line method over the lease term.
F-7
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LONG-LIVED ASSETS
The Company adopted in 1995 Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of. In accordance with SFAS No. 121, the carrying
values of long-lived assets are periodically reviewed by the Company and
impairments would be recognized if the expected future operating non-
discounted cash flows derived from an asset were less than its carrying value.
DEFERRED LOAN FEES
Costs incurred in connection with entering into or amending debt agreements
are capitalized to Other Assets and amortized to interest expense using the
effective interest method over the lives of the related debt.
GOODWILL AND PRODUCT RIGHTS, LICENSES AND REGULATORY APPROVALS
Goodwill is being amortized over 25 years on a straight-line basis. Product
rights, licenses and regulatory approvals are amortized on a straight-line
basis over the expected profitable and useful lives of the underlying products
and manufacturing facilities, generally for periods ranging from 10 to 15
years.
INVESTMENTS IN MARKETABLE SECURITIES
The Company's available-for-sale marketable securities are carried at fair
market value and are included in Other Assets in the accompanying balance
sheets. Unrealized gains are recorded directly to stockholders' equity, net of
applicable income taxes. The Company uses the specific identification method
of determining cost in calculating related gains and losses. The Company does
not own held-to-maturity or trading securities.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities,
approximate fair value because of the current nature of these instruments. The
carrying amounts reported for revolving credit and long-term debt approximate
fair value because the interest rates on these instruments are subject to
changes with market interest rates.
REVENUE RECOGNITION
Revenues are recognized when products are shipped. Provisions for estimated
sales allowances, returns and losses are accrued at the time revenues are
recognized.
RESEARCH AND DEVELOPMENT EXPENDITURES
Expenditures for research and development are expensed as incurred.
TAXES ON INCOME
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under this standard, deferred taxes on income are
provided for those items for which the reporting period and methods for income
tax purposes differ from those used for financial statement purposes using the
asset and liability method. Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
F-8
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 ("SFAS No. 132"), Employers'
Disclosures about Pensions and Other Postretirement Benefits, which
standardizes the disclosure requirements for pensions and other postretirement
benefits. The adoption of SFAS No. 132 in 1998 is not expected to materially
impact the Company's current disclosures.
F-9
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--ACQUISITIONS AND INVESTMENTS IN INTERNATIONAL AFFILIATES
The Company acquired all the outstanding capital stock of Marsam
Pharmaceuticals Inc. ("Marsam") in September 1995 for $245.0 million in cash.
Marsam develops, manufactures and markets generic injectable prescription
drugs. The acquisition was accounted for as a purchase. The purchase price of
$245.0 million exceeded the book value of the net assets acquired by $193.0
million. Of the excess purchase price, $92.0 million was allocated to increase
the net assets acquired to fair value, principally related to regulatory
facility and product approvals and is being amortized over 15 years. Acquired
in-process Marsam research and development projects were valued at $30.0
million and were expensed at the time of the acquisition. Goodwill of $108.0
million, consisting of the remaining excess purchase price of $71.0 million
and a $37.0 million deferred tax liability resulting from the write-up of the
net assets to fair value is being amortized over 25 years. Marsam's results of
operations have been included in the consolidated statements of operations
since the date of acquisition.
During 1995, 1996 and 1997, the Company invested approximately $3.5 million,
$2.0 and $0.2 million, respectively, to acquire up to a 50% interest in each
of several international pharmaceutical businesses. At December 1997, the
Company has guaranteed $4.7 million of borrowings of these businesses. These
businesses are jointly owned with subsidiaries of Bayer AG, the parent of
Bayer Corp., a minority investor in the Company. These investments are
accounted for under the equity method and are included in Other Assets in the
accompanying balance sheets. Equity losses resulting from the Company's
investments in international businesses in 1995, 1996 and 1997 are included in
Other expenses (income), net, in the accompanying statements of operations.
The Company generally anticipates that these international businesses will not
have significant revenues or operations for a period of two to three years
following their establishment, during which time the businesses are expected
to incur expenses to register products in anticipation of future sales.
NOTE 3--INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Finished products.................................. $ 59,632 $ 45,568
Work-in-process.................................... 27,332 33,160
Raw materials and supplies......................... 44,301 40,414
-------- --------
$131,265 $119,142
======== ========
</TABLE>
F-10
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land.......................................... $ 4,725 $ 5,043
Buildings and improvements.................... 63,019 64,026
Plant and office equipment.................... 97,825 104,260
Construction-in-progress...................... 3,310 9,553
-------- --------
168,879 182,882
Less: Accumulated depreciation and amortiza-
tion......................................... 61,139 72,450
-------- --------
$107,740 $110,432
======== ========
</TABLE>
Depreciation and amortization expense for property, plant and equipment
amounted to $10.5 million, $12.1 million and $11.7 million in 1995, 1996 and
1997, respectively.
NOTE 5--INTANGIBLE ASSETS
Product Rights, Licenses and Regulatory Approvals, net, consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Product rights and licenses.................... $ 12,611 $ 12,732
Regulatory approvals, products................. 78,000 78,000
Regulatory approvals, facilities............... 10,000 10,000
-------- --------
100,611 100,732
Less: Accumulated amortization................. 7,926 14,168
-------- --------
$ 92,685 $ 86,564
======== ========
</TABLE>
Accumulated amortization of goodwill was $5.8 million and $10.2 million at
December 28, 1996 and December 27, 1997, respectively.
NOTE 6--MARKETABLE SECURITIES
Included in Other Assets in the accompanying balance sheets are marketable
equity securities consisting of:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cost........................................... $ 5,660 $3,677
Gross unrealized gains......................... 6,686 3,399
------- ------
Fair value..................................... $12,346 $7,076
======= ======
</TABLE>
Included in Stockholders' Equity--Other as of December 30, 1995, December
28, 1996 and December 27, 1997 are the gross unrealized gain of the above
marketable securities, net of the related tax effect, of $0.1 million, $4.2
million and $2.2 million, respectively.
Included in other income for 1997 is realized gains of $12.7 million from
the sale of marketable securities (see Note 13).
F-11
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Included in Accounts Payable are outstanding checks of approximately $6.2
million and $6.9 million as of December 28, 1996 and December 27, 1997,
respectively.
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Salaries and related expenses.................. $18,300 $16,554
Profit-sharing expenses........................ 8,637 12,567
Other.......................................... 13,818 15,904
------- -------
$40,755 $45,025
======= =======
</TABLE>
NOTES 8--TAXES ON INCOME
Provisions for Federal, state and Puerto Rico income taxes consist of the
following:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.............................. $ 5,736 $7,404 $10,952
State and Puerto Rico................ 1,662 1,129 2,379
------- ------ -------
7,398 8,533 13,331
------- ------ -------
Deferred:
Federal.............................. 2,131 (2,215) (1,705)
State and Puerto Rico................ 953 (1,127) (971)
------- ------ -------
3,084 (3,342) (2,676)
------- ------ -------
$10,482 $5,191 $10,655
======= ====== =======
</TABLE>
The Company has a tax grant in Puerto Rico. The grant provides a 90%
exclusion from Puerto Rico income tax. The grant began in 1996 and expires in
15 years. The grant benefits are recognized in conjunction with the Company's
election to compute its US tax under Internal Revenue Code Section 936 which
reduces the tax by an amount based on the Company's operations. The 936 credit
is estimated to reduce the US tax in 1997 by $0.8 million and in 1996 by $0.5
million.
F-12
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income tax assets and liabilities are classified as current and
non-current as follows:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred Income Taxes, Current:
Deferred tax assets........................... $ 9,354 $ 10,204
Deferred tax liabilities...................... -- --
-------- --------
9,354 10,204
-------- --------
Deferred Income Taxes, Non-Current:
Deferred tax assets........................... 8,268 7,341
Deferred tax liabilities...................... (48,434) (44,421)
-------- --------
(40,166) (37,080)
-------- --------
$(30,812) $(26,876)
======== ========
</TABLE>
Differences between the Federal statutory rate and the Company's effective
tax rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory rate....................... $(1,546) $2,309 $ 7,615
State and Puerto Rico taxes.......... 1,722 241 1,642
Amortization of goodwill............. 505 1,515 1,515
Effect of partially tax-exempt
operations in Puerto Rico........... -- (519) (752)
Equity in net loss of unconsolidated
affiliates.......................... -- 1,202 494
Write-off of acquired in-process
Marsam research and development..... 10,500 -- --
Other, net........................... (699) 443 141
------- ------ -------
$10,482 $5,191 $10,655
======= ====== =======
</TABLE>
Temporary differences which give rise to a significant portion of deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Gross Deferred Tax Assets:
Inventory valuation.............................. $ 5,220 $ 4,682
Accounts receivable allowances................... 2,694 3,961
Net operating loss carryforwards, state and
Puerto Rico..................................... 1,880 1,648
Deferred compensation expense.................... 4,806 4,648
Other............................................ 3,022 2,606
-------- --------
17,622 17,545
-------- --------
Gross Deferred Tax Liabilities:
Write-up of acquired Marsam assets to fair
value........................................... (32,692) (30,309)
Depreciation and amortization.................... (12,461) (12,883)
Unrealized gains from marketable securities...... (2,489) (1,229)
Other............................................ (792) --
-------- --------
(48,434) (44,421)
-------- --------
$(30,812) $(26,876)
======== ========
</TABLE>
F-13
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--BORROWINGS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit and term loan agreement.......... $186,000 $154,000
Senior subordinated loan.......................... 100,000 --
Senior floating rate notes........................ -- 100,000
Capitalized lease obligations and other........... 480 1,145
-------- --------
286,480 255,145
Less: Current maturities.......................... 41,090 56,440
-------- --------
$245,390 $198,705
======== ========
</TABLE>
In September 1995, the Company entered into a secured revolving credit and
term loan agreement (as amended, the "credit agreement") with a group of banks
to provide funds for the acquisition of Marsam, the repayment of certain of
its debt, working capital and general corporate purposes. The credit agreement
provided a term loan facility of $250.0 million and a revolving credit
facility of $100.0 million available through December 2001. The borrowings
outstanding under the revolving credit facility were $41.0 million and $44.0
million as of December 28, 1996 and December 27, 1997, respectively. Amounts
borrowed under the revolving credit facility are expected to be repaid during
the next year and, accordingly, are classified as current in the accompanying
balance sheets.
In December 1996, the Company entered into an agreement for a $100.0 million
senior subordinated loan with a lead manager of the credit agreement. The
proceeds of the loan were used to prepay principal on the term loan of the
credit agreement. The effective borrowing rate of the senior subordinated loan
was 9.60% as of December 28, 1996. As a result of this payment and scheduled
payments, the term loan facility was reduced to $110.0 million at December
1997. Quarterly principal payments on the term loan commence in September 1998
and end in the year 2001.
In December 1997, the senior subordinated loan was repaid when the Company
issued $100.0 million of senior floating rate notes due 2004. Interest on the
notes is payable quarterly at a rate per annum equal to LIBOR plus 3.0%. The
effective borrowing rate was 8.94% as of December 27, 1997.
Borrowings under the credit agreement bear interest, which is payable at
least quarterly, at a rate equal to the bank's floating base rate plus a
premium ranging from zero to 1.50%, or at a rate equal to LIBOR plus a premium
ranging from 0.75% to 2.50%, depending on the type of borrowing and the
Company's performance against certain criteria. The effective borrowing rate
was 8.10% and 7.91% at December 28, 1996 and December 27, 1997, respectively.
A commitment fee ranging from 0.25% to 0.50% per annum of the unused daily
amount of the total commitment is payable quarterly.
Borrowings under the credit agreement are secured by a mortgage on all real
property, liens on inventory and receivables and a pledge of subsidiaries'
stock. The debt is guaranteed by the Company's domestic subsidiaries.
The credit agreement contains limitations and restrictions concerning
investments, acquisitions, capital expenditures, debt, liens, transactions
with stockholders, dividend payments and borrowings. In addition, the
agreement requires the Company to maintain minimum net worth levels and
certain ratios (as defined therein) of leverage to EBITDA, working capital and
fixed charge coverage. Amounts available for dividends as permitted by the
credit agreement as of December 27, 1997 were not material. Currently, the
Company's senior credit agreement and its senior floating rate notes contain
restrictions on the payment of dividends. In addition, the Company, under
certain circumstances, may not declare dividends on Common Stock without the
consent of Bayer Corporation.
F-14
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The senior floating rate notes are fully and unconditionally guaranteed
jointly and severally by each of the Company's domestic subsidiaries, each of
which is wholly-owned by the Company. These subsidiaries sell all of their
products to Schein Pharmaceutical, Inc., the parent company. Summarized
financial information for these wholly-owned subsidiary guarantors (using the
push-down method of accounting) are as follows:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Current Assets:
Inventory.................................... $ 72,586 $ 74,924
Intercompany receivables..................... 107,941 119,191
Other current assets......................... 1,238 4,197
Property, Plant and Equipment, net............. 100,936 104,807
Goodwill, net; Product Rights, Licenses and
Regulatory Approvals, net and Other Assets.... 191,903 178,548
Current Liabilities............................ 89,817 109,800
Deferred Income Taxes and Other Liabilities.... 45,193 44,921
Long Term Debt (pushed down)................... 204,000 186,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Revenues....................... $264,575 $355,262 $373,712
Gross Profit....................... 74,993 91,689 100,151
Operating Income................... (19,268) 14,152 27,193
Net Income (Loss).................. (28,773) (4,179) 7,383
</TABLE>
Separate financial statements of the wholly-owned domestic subsidiary
guarantors are not presented because management believes that they would not
be meaningful to investors.
In connection with entering into the credit agreement, the Company incurred
costs of $5.9 million in 1995. During 1996, the Company incurred costs of $2.3
million in connection with entering into the senior subordinated loan and
amending the credit agreement. The Company capitalized these costs, which are
included in Other Assets in the accompanying balance sheets. In December 1997,
the Company incurred costs of $4.4 million in connection with the senior
floating rate notes. The amounts amortized in 1995, 1996 and 1997 were $0.7
million, $2.6 million and $3.3 million, respectively.
At December 27, 1997, aggregate required principal payments for the
succeeding four years, the remaining term under existing long-term debt
agreements, excluding the revolving credit facility, are $11.6 million in
1998, $28.9 million in 1999, $34.8 million in 2000 and $34.7 million in 2001.
NOTE 10--COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Consulting Agreement
The Company has a series of agreements (collectively, the "Consulting
Agreement") with a patent attorney (the "Consultant"). The Consulting
Agreement generally provides that if a challenge based on an opinion of the
Consultant results in either a favorable judicial determination which enables
the Company to market a generic version of the product or in a settlement, the
Company will pay the Consultant one half of the adjusted gross profit (as
defined) from its sales of the generic versions of the patented product (until
the date on which the patent
F-15
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
would normally have expired) or one half of the proceeds of any settlement.
Under the Consulting Agreement, the Consultant, together with the Company, has
identified certain patents on branded pharmaceutical products susceptible to a
challenge and the Consultant acted as counsel to the Company in those
instances where it decided to proceed with a patent challenge.
In 1994, the Company settled two such patent challenges. One of the
settlements involved a license grant to the Company to begin manufacturing and
marketing the product. Sales of such product commenced in 1996. In connection
with the license grant, profit sharing expenses pursuant to the Consulting
Agreement amounted to $8.6 million and $14.5 million in fiscal 1996 and fiscal
1997, respectively. Profit sharing expenses are included in Cost of Sales in
the accompanying Statements of Operations.
The second settlement allows for cash payments and/or license rights to the
Company. Included in Net Revenues in the accompanying Statements of Operations
are revenues of $5.0 million, $12.5 million and $25.0 million in 1995, 1996
and 1997, respectively. Profit sharing expenses related to this settlement are
included in Cost of Sales and amounted to $2.5 million, $6.3 million and $12.5
million in 1995, 1996 and 1997, respectively.
Operating Leases
The Company leases facilities and equipment under operating leases expiring
through 2007. Some of the leases have renewal options and most contain
provisions for passing through certain incremental costs. At December 27,
1997, future net minimum annual rental payments under noncancelable leases are
as follows (in thousands):
<TABLE>
<S> <C>
1998................................................................ $ 5,817
1999................................................................ 5,277
2000................................................................ 4,714
2001................................................................ 3,848
2002................................................................ 3,498
2003-2007........................................................... 11,505
-------
Total minimum lease payments........................................ $34,659
=======
</TABLE>
Total rental expense for the years ended 1995, 1996 and 1997 was
approximately $4.7 million, $5.4 million and $5.6 million, respectively.
The Company has an agreement to lease warehousing space through September
1999, and then purchase this property for $5.3 million in October 1999. In
1998 the Company intends to exercise its option to purchase this property. The
property consists of a building of approximately 109,800 square feet on
approximately 8.5 acres of land. The purchase price includes a $0.3 million
deposit paid in 1994.
Employee Benefit Plans
During 1996, the Company merged its defined contribution retirement plans
into one plan. The discretionary contributions to the plan vest to employees
over several years. Additionally, employees are permitted to make pre-tax
contributions to the plan with the Company making matching contributions. The
contributions to these plans which were charged to operations, as determined
by the Board of Directors, amounted to approximately $4.9 million, $3.5
million and $4.6 million for the years ended 1995, 1996 and 1997,
respectively.
The Company has entered into deferred compensation agreements with certain
officers of the Company. As of December 1997, future obligations under these
agreements were approximately $2.3 million, assuming the officers remain with
the Company over the remaining vesting period of one to two years. These
agreements provide for accelerated vesting if there is a change in control of
the Company under certain other conditions. The Company expensed $2.0 million,
$4.8 million and $0.8 million in the fiscal years ended 1995, 1996 and 1997,
respectively, in connection with these agreements.
F-16
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company established an unfunded supplemental retirement program for its
CEO during 1994. The estimated obligation of $5.0 million is included in Other
Liabilities in the accompanying balance sheets.
The Company maintains a Book Equity Appreciation Rights Program (the
"Program") to allow certain employees to benefit from an increase in the
Company's book value as calculated according to a formula defined in the
Program. All participants are fully vested in their book equity appreciation
rights ("BEARs") and the Company does not intend to make any additional grants
of BEARs. Amounts charged to results of operations were not material in any
period presented.
Product Technology Licensing and Development
On August 30, 1994, the Company entered into a worldwide technology
licensing and development agreement with a U.K.-based pharmaceutical
development company for the development of a portfolio of oral controlled
release and/or transdermal products. Under the terms of the agreement, the
Company is obligated to pay product licensing fees and development costs
totaling $32.0 million, dependent on achievement of interim milestones. In
1994, the Company incurred obligations totaling $5.5 million under the
agreement, consisting of a $5.0 million licensing fee, which was capitalized.
The Company paid and expensed $2.4 million in development costs in 1995. In
1996, the Company incurred obligations totaling $3.0 million, consisting of a
$0.5 million licensing fee, which was capitalized, and $2.5 million in
development costs which were charged to research and development expense. In
1997, the Company incurred and expensed $2.3 million in development costs. The
remaining commitment under the agreement as of December 27, 1997 was $18.8
million, subject to the completion of interim milestones.
On September 30, 1996, the Company entered into a marketing and distribution
agreement with a corporation to jointly commercialize a certain product. Under
the terms of the agreement, the Company is obligated to pay product licensing
fees and development costs of $12.0 million, dependent on the achievement of
certain milestones. In 1996, the Company paid and capitalized a $2.0 million
product license fee.
CONTINGENCIES
Litigation
The Company is a defendant in several product liability cases. These cases
are typical for a company in the pharmaceutical industry. The Company also is
involved in other proceedings and claims of various types. Management
presently believes that the disposition of all such known proceedings and
claims, individually or in the aggregate, will not have a material adverse
effect on the Company's financial position, operations or liquidity.
NOTE 11--STOCKHOLDERS' EQUITY AND STOCK OPTIONS
COMMON STOCK
The Company has Class A Common Shares ("Class A") and Class B Common Shares
("Class B"). Each of the two classes of stock are identical except that Class
B shares are currently non-voting. Upon the earlier occurrence of an initial
public offering or May 15, 1999, each authorized share of Class B will be
automatically reclassified as and converted into one new Class A share.
Upon the closing of the Company's planned initial public offering, the Class
A and Class B will convert on a one-for-one basis to new shares of the
Company's common stock.
At December 28, 1996 and December 27, 1997, the Company had 183,244 Class A
and 90,020 Class B issued and outstanding.
During 1996, the Company agreed to repurchase 478 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 55,800 shares under the plans. However, 2,122 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.
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
$1,000....... 1,775 5.8 $1,000 1,720 $1,000
$1,500....... 6,994 9.2 1,500 146 1,500
$2,000....... 20,978 7.4 2,000 16,395 2,000
------ ------
29,747 8.1 1,823 18,261 1,902
====== ======
</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............. 16,356 $1,878
Granted (at $2,000 per share)...................... 3,601 2,000
Exercised.......................................... -- --
Canceled (at $2,000 per share)..................... (77) 2,000
------ ------
Shares under option at December 30, 1995............. 19,880 1,901
Granted (at $2,000 per share)...................... 4,887 2,000
Exercised.......................................... -- --
Canceled (at $1,500 to $2,000 per share)........... (752) 1,832
------ ------
Shares under option at December 28, 1996............. 24,015 1,923
Granted (at $1,500 per share)...................... 8,449 1,500
Exercised.......................................... -- --
Canceled (at $1,000 to $2,000 per share)........... (2,717) 1,750
------ ------
Shares under option at December 27, 1997 (at $1,000
to $2,000 per share)................................ 29,747 $1,823
====== ======
Options exercisable at December
1995............................................... 10,780 $1,926
1996............................................... 15,256 $1,886
1997............................................... 18,261 $1,902
Options available for grant:
1995............................................... 8,520
1996............................................... 4,385
1997............................................... 18,261
Weighted average fair value of options granted dur-
ing:
1995............................................... $ 916
1996............................................... $ 897
1997............................................... $ 657
</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 478 common shares.
F-20
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--MAJOR PRODUCT AND CUSTOMERS
One product generated 17%, 19% and 21% of net revenues for 1995, 1996 and
1997 respectively.
Three customers generated 13%, 11% and 10%, respectively, of 1995 net
revenues. Three customers contributed 16%, 15% and 11%, respectively, of 1996
net revenues. Three customers contributed 19%, 18% and 10%, respectively, of
1997 net revenues. In all periods, these customers are nationwide wholesalers
through which the majority of the Company's products are distributed to the
retail, institutional and managed care markets.
NOTE 17--SUBSEQUENT EVENT
The Company has filed a registration statement covering an initial public
offering under which it anticipates generating net proceeds of approximately
$40 million upon the sale of its common stock. If the offering is consummated,
the net proceeds will be used in whole or in part to pay down the Company's
debt.
In connection with the offering, the Company's Board of Directors authorized
the issuance of up to 2,000,000 shares of Preferred Stock, par value $.01 per
share.
Subsequent to year end, the Company acquired 2.0 million shares or 12.79% of
Cheminor Drugs Limited, a publicly traded pharmaceutical company based in
India, for $10.0 million, and under certain circumstances has the right and
the obligation to purchase an additional 1.0 million shares for $5.0 million.
F-21
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS 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 PROSPECTUS 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>
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PAGE
----
<S> <C>
Available Information..................................................... i
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 12
The Company............................................................... 22
Use of Proceeds........................................................... 22
Capitalization............................................................ 23
Selected Consolidated Financial Data...................................... 24
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 26
Business.................................................................. 34
Management................................................................ 50
Certain Transactions...................................................... 60
Principal Stockholders.................................................... 62
Description of Certain Indebtedness....................................... 67
The Exchange Offer........................................................ 68
Description of Notes...................................................... 77
Certain U.S. Federal Income Tax Considerations............................ 103
Plan of Distribution...................................................... 103
Legal Matters............................................................. 104
Experts................................................................... 104
Index to Consolidated Financial Statements................................ F-1
</TABLE>
UNTIL , 1998 (90 DAYS AFTER THE COMMENCEMENT OF THE EXCHANGE
OFFER), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$100,000,000
SCHEIN
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF ITS SENIOR FLOATING RATE NOTES
DUE 2004 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR EACH $1,000
IN PRINCIPAL AMOUNT OF ITS OUTSTANDING SENIOR FLOATING RATE
NOTES DUE 2004
THE EXCHANGE AGENT FOR THE
EXCHANGE OFFER IS:
THE BANK OF NEW YORK
BY FACSIMILE:
(212) 815-6339
CONFIRMATION BY TELEPHONE:
(212) 815-5789
BY OVERNIGHT COURIER OR HAND DELIVERY
101 BARCLAY STREET
NEW YORK, NEW YORK 10286
CORPORATE TRUST SERVICES WINDOW
GROUND LEVEL
ATTENTION: REORGANIZATION SECTION-7E;
DIANA TORRES
BY MAIL
101 BARCLAY STREET, 7E
NEW YORK, NEW YORK 10286
ATTENTION: REORGANIZATION SECTION-7E;
DIANA TORRES
---------------
PROSPECTUS
---------------
MARCH , 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Capitalized terms used but not defined in Part II have the meanings ascribed
to them in the Prospectus.
ITEM 20. 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 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 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
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3.1 Restated Certificate of Incorporation of the Company. (1)
3.2 Amended and Restated By-Laws of the Company. (1)
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
3.3 Restated Certificate of Incorporation of the Company adopted by the
Company on March 6, 1998. (1)
3.4 Amended and Restated By-Laws of the Company adopted by the Company on
March 6, 1998. (1)
3.5 Certificate of Incorporation of Schein Pharmaceutical International,
Inc.
3.6 By-Laws of Schein Pharmaceutical International, Inc.
3.7 Certificate of Incorporation of Schein Pharmaceutical PA, Inc.
3.8 By-Laws of Schein Pharmaceutical PA, Inc.
3.9 Certificate of Incorporation of Schein Pharmaceutical Service Company.
3.10 By-Laws of Schein Pharmaceutical Service Company.
3.11 Certificate of Incorporation of Steris Laboratories, Inc.
3.12 By-Laws of Steris Laboratories, Inc.
3.13 Certificate of Incorporation of Marsam Pharmaceuticals Inc.
3.14 By-Laws of Marsam Pharmaceuticals Inc.
3.15 Certificate of Incorporation of Danbury Pharmacal, Inc.
3.16 By-Laws of Danbury Pharmacal, Inc.
3.17 Certificate of Incorporation of Danbury Pharmacal Puerto Rico, Inc.
3.18 By-Laws of Danbury Pharmacal Puerto Rico, Inc.
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. (1)
4.2 First, Second, Third and Fourth Amendments to the Credit Agreement. (1)
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. (1)
4.4 Indenture dated as of December 24, 1997 among the Company, the
Guarantors (as defined therein) and The Bank of New York. (1)
4.5 Registration Rights Agreement dated as of December 24, 1997 between the
Company and Societe Generale Securities Corporation.
4.6 Purchase Agreement dated December 19, 1997 among the Company, the
Guarantors (as defined therein) and Societe Generale Securities
Corporation.
4.7 Offering Memorandum, dated December 19, 1997 for the Company's
$100,000,000 Senior Floating Rate Note 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. (1)
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. (1)(2)
</TABLE>
II-2
<PAGE>
<TABLE>
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10.2 Agreement, dated June 10, 1994, between Steris Laboratories, Inc., Akzo
Pharma International B.V., and Organon Inc. (1)(2)
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., including
Operating Agreement, dated September 30, 1996. (1)(2)
10.5* Agreement, dated August 16, 1994, between the Company and Elan Pharma
Ltd. (currently Elan Corporation plc). (2)
10.6 Custom Manufacturing Agreement, dated July 1, 1995, between the Company
and Johnson Matthey,
Inc. (1)(2)
10.7 Letter of Intent, dated October 7, 1997, by and among the Company,
Cheminor Drugs Limited and Dr. Reddy's Laboratories Limited. (1)
10.8 Lease Agreement, dated March 30, 1992, between the Company and Harold
Lepler. (1)
10.9 Lease Agreement, dated February 16, 1992, between the Company and Ronald
G. Roth. (1)
10.10 Memorandum of Lease for Danbury, dated December 1, 1995 between Danbury
Pharmacal, Inc. and Albert J. Salame. (1)
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. (1)
10.12 Cherry Hill Lease Agreement, dated November 12, 1996, between the
Company and Cherry Hill Industrial Sites, Inc. (1)
10.13 Schein Holdings, Inc. 1993 Stock Option Plan (formerly the Schein
Pharmaceutical, Inc. 1993 Stock Option Plan) dated as of November 5,
1993. (1)
10.14 Schein Pharmaceutical, Inc. 1997 Stock Option Plan. (1)
10.15 Schein Pharmaceutical, Inc. 1995 Non-Employee Director Stock Option Plan
(amended and restated as of August 8, 1996). (1)
10.16 Employment Agreement, dated November 29, 1993 between the Company and
Paul Feuerman. (1)
10.17 Deferred Compensation Agreement, dated August 8, 1996, between the
Company and Paul Feuerman. (1)
10.18 Employment Agreement, dated May 1, 1995, between the Company and Dariush
Ashrafi. (1)
10.19 Employment offer letter, dated April 17, 1995, from the Company to
Dariush Ashrafi. (1)
10.20 Employment Agreement, dated September 30, 1994, as amended, between the
Company and Martin Sperber. (1)
10.21 Option Agreement Pursuant to 1993 Stock Option Plan dated September 30,
1994 between Schein Holdings, Inc. and Martin Sperber. (1)
10.22 Employment Agreement, dated as of July 28, 1995, between the Company and
Marvin Samson. (1)
10.23 Compensation Continuation Agreement, dated October 19, 1991 between the
Company and Marvin Samson. (1)
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. (1)
10.25 Retirement Plan of Schein Pharmaceutical, Inc. and Affiliates; including
Amendment No. 4. (1)
10.26 Amendment No. 1 to the Retirement Plan of Schein Pharmaceutical, Inc.
and Affiliates. (1)
10.27 1993 Book Equity Appreciation Rights Program. (1)
10.28 Form of Book Equity Appreciation Rights Award. (1)
10.29 Form of Split Dollar Life Insurance Agreement. (1)
</TABLE>
II-3
<PAGE>
<TABLE>
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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. (1)
10.31 Continuing Shareholders Agreement, dated September 30, 1994, by and
among the Company and each of the shareholders listed on schedule A
thereto. (1)
10.32 Heads of Agreement, dated September 30, 1994, by and among the Company,
Bayer Corporation (formerly Miles Inc.) and Bayer A.G. (1)
10.33* Second Consolidated Agreement, dated December 15, 1992, between the
Company, its affiliates, and Alfred B. Engelberg. (2)
10.34* License and Development Agreement, dated November 30, 1993, between the
Company and Ethical Holdings PLC. (2)
10.35 License and Development Agreement, dated January 15, 1993, between the
Company and Ethical Holdings Limited, including Amendment, dated
November 4, 1994. (2)
10.36 Letter Agreement, dated June 23, 1995, between the Company and Ethical
Holdings, Inc., including Revised Schedule 5, effective July 21, 1995.
(1)(2)
10.37 [Intentionally omitted.]
10.38* Multiproduct Technology Transfer, Development and License Agreement,
dated August 30, 1994, between the Company and Ethical Holdings PLC.
(2)
10.39* License and Development Agreement, dated March 31, 1994, between the
Company and Ethical Holdings PLC. (2)
10.40 Employment Agreement, dated November 29, 1993, between the Company and
Paul Kleutghen.
10.41 Employment Agreement, dated November 22, 1993 between the Company and
Javier Cayado.
10.42 Deferred Compensation Agreement, dated August 8, 1996, between the
Company and Paul Kleutghen.
10.43 Deferred Compensation Agreement, dated November 22, 1993, between the
Company and Jay Cayado.
10.44* Co-Promotion Agreement, dated August 1, 1994, between the Company and
Bayer Corporation (formerly Miles Inc.), including Amendment Number 1,
dated January 1, 1997, Amendment Number 2, dated January 1, 1997 and
Amendment Number 3 dated as of January 28, 1998. (2)
10.45 Schein Pharmaceutical, Inc. 1998 Stock Purchase Plan dated January 28,
1998. (1)
10.46* Stock Purchase Agreement, dated February 6, 1998, between the Company
and Cheminor Drugs Limited. (2)
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. (2)
10.48* Strategic Alliance Agreement, dated February 6, 1998, among the
Company, Cheminor Drugs Limited, Dr. Reddy's Laboratories Limited and
Reddy-Cheminor, Inc. (2)
10.49* Development, License and Supply Agreement, dated March 31, 1998,
between the Company and Elan Corporation, plc. (2)
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries. (1)
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).
25.1 Statement of Eligibility of Trustee.
</TABLE>
II- 4
<PAGE>
<TABLE>
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27.1 Financial Data Schedule. (1)
99.1* Revised Form of Letter of Transmittal.
99.2* Revised Form of Notice of Guaranteed Delivery.
99.3* Revised Form of Exchange Agent Agreement.
</TABLE>
- --------
* Filed herewith.
(1) Previously filed and incorporated herein by reference from the Company's
Registration Statement on Form S-1 filed with the Commission on December
3, 1997 (File No. 333-41413).
(2) Portions of exhibit have been omitted and filed separately with the SEC
pursuant to a request for confidential treatment.
(b) Financial Statement Schedules:
Schedule II--Valuation Allowances
ITEM 22. UNDERTAKINGS.
The Registrant hereby undertakes:
(a) To file, during any period in which offerings or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(d) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(e) That every prospectus (i) that is filed pursuant to paragraph (d)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415 (Section 230.415 of this
chapter), will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that,
for purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment 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.
II-5
<PAGE>
(f) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that
is incorporated by reference in the registration statement 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.
(g) 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 15, 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.
(h) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of Form
S-4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(i) To supply by means of post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-6
<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 7TH DAY OF APRIL, 1998.
Schein Pharmaceutical, Inc.
/s/ Martin Sperber
By:
-----------------------------------
MARTIN SPERBER CHAIRMAN OF THE
BOARD, CHIEF EXECUTIVE OFFICER AND
PRESIDENT
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below hereby constitutes and appoints Martin Sperber, Dariush
Ashrafi and Paul Feuerman, or any of them, as his true and lawful attorney-in-
fact and agent, with full power of substitution, to sign on his behalf
individually and in any and all capacities (until revoked in writing), any and
all amendments (including post-effective amendments) to this Registration
Statement on Form S-4, and any registration statement relating to the same
offering as this Registration Statement, to file the same with all exhibits
thereto and all other documents in connection therewith with the Securities and
Exchange Commission, granting to such attorneys-in-fact and agents, and each of
them, full power and authority to do all such other acts and things requisite
or necessary to be done, and to execute all such other documents as they, or
either of them, may deem necessary or desirable in connection with the
foregoing, as fully as the undersigned might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or either
of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURES TITLE DATE
/s/ Martin Sperber Chairman of the
- ------------------------------------ Board, Chief April 7, 1998
MARTIN SPERBER Executive Officer
and President
(principal
executive officer)
/s/ Dariush Ashrafi Chief Financial
- ------------------------------------ Officer, Executive April 7, 1998
DARIUSH ASHRAFI Vice President and
Director
(principal
financial and
accounting
officer)
/s/ Paul Feuerman Senior Vice
- ------------------------------------ President, General April 7, 1998
PAUL FEUERMAN Counsel and
Director
/s/ David R. Ebsworth Director
- ------------------------------------ April 7, 1998
DAVID R. EBSWORTH
/s/ Richard L. Goldberg Director
- ------------------------------------ April 7, 1998
RICHARD L. GOLDBERG
II-7
<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 7th day of April, 1998.
Schein Pharmaceutical International,
Inc.
/s/ Martin Sperber
By: _________________________________
MARTIN SPERBER
CHAIRMAN OF THE BOARD
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-4, and any registration statement relating to
the same offering as this Registration Statement, to file the same with all
exhibits thereto and all other documents in connection therewith with the
Securities and Exchange Commission, granting to such attorneys-in-fact and
agents, and each of them, full power and authority to do all such other acts
and things requisite or necessary to be done, and to execute all such other
documents as they, or either of them, may deem necessary or desirable in
connection with the foregoing, as fully as the undersigned might or could do
in person, hereby ratifying and confirming all that such attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Martin Sperber Chairman of the
- ------------------------------------- Board and President April 7, 1998
MARTIN SPERBER (principal
executive officer)
/s/ Dariush Ashrafi Chief Financial
- ------------------------------------- Officer and April 7, 1998
DARIUSH ASHRAFI Director (principal
financial and
accounting officer)
/s/ Paul Feuerman Secretary and
- ------------------------------------- Director April 7, 1998
PAUL FEUERMAN
II-8
<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 7th day of April, 1998.
Schein Pharmaceutical Pa, 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-4, and any registration statement relating to
the same offering as this Registration Statement, to file the same with all
exhibits thereto and all other documents in connection therewith with the
Securities and Exchange Commission, granting to such attorneys-in-fact and
agents, and each of them, full power and authority to do all such other acts
and things requisite or necessary to be done, and to execute all such other
documents as they, or either of them, may deem necessary or desirable in
connection with the foregoing, as fully as the undersigned might or could do
in person, hereby ratifying and confirming all that such attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Martin Sperber Chairman of the
- ------------------------------------- Board, Chief April 7, 1998
MARTIN SPERBER Executive Officer
and President
(principal
executive officer)
/s/ Dariush Ashrafi Chief Financial
- ------------------------------------- Officer and April 7, 1998
DARIUSH ASHRAFI Director (principal
financial and
accounting officer)
/s/ Paul Feuerman Secretary and
- ------------------------------------- Director April 7, 1998
PAUL FEUERMAN
II-9
<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 7th day of April, 1998.
Schein Pharmaceutical Service
Company
/s/ Martin Sperber
By: _________________________________
MARTIN SPERBER
CHAIRMAN OF THE BOARD
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-4, and any registration statement relating to
the same offering as this Registration Statement, to file the same with all
exhibits thereto and all other documents in connection therewith with the
Securities and Exchange Commission, granting to such attorneys-in-fact and
agents, and each of them, full power and authority to do all such other acts
and things requisite or necessary to be done, and to execute all such other
documents as they, or either of them, may deem necessary or desirable in
connection with the foregoing, as fully as the undersigned might or could do
in person, hereby ratifying and confirming all that such attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Martin Sperber Chairman of the
- ------------------------------------- Board and President April 7, 1998
MARTIN SPERBER (principal
executive officer)
/s/ Dariush Ashrafi Chief Financial
- ------------------------------------- Officer and April 7, 1998
DARIUSH ASHRAFI Director (principal
financial and
accounting officer)
/s/ Paul Feuerman Secretary and
- ------------------------------------- Director April 7, 1998
PAUL FEUERMAN
II-10
<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 7th day of April, 1998.
Steris Laboratories, Inc.
/s/ Martin Sperber
By: _________________________________
MARTIN SPERBER
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
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-4, and any registration statement relating to
the same offering as this Registration Statement, to file the same with all
exhibits thereto and all other documents in connection therewith with the
Securities and Exchange Commission, granting to such attorneys-in-fact and
agents, and each of them, full power and authority to do all such other acts
and things requisite or necessary to be done, and to execute all such other
documents as they, or either of them, may deem necessary or desirable in
connection with the foregoing, as fully as the undersigned might or could do
in person, hereby ratifying and confirming all that such attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Martin Sperber Chairman of the Board
- ------------------------------------- and Chief Executive April 7, 1998
MARTIN SPERBER Officer (principal
executive officer)
/s/ Dariush Ashrafi Chief Financial Officer
and
Director (principal financial
and accounting
officer)
- ------------------------------------- April 7, 1998
DARIUSH ASHRAFI
/s/ Paul Feuerman Secretary and
- ------------------------------------- Director April 7, 1998
PAUL FEUERMAN
II-11
<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 7th day of April, 1998.
Marsam Pharmaceuticals Inc.
/s/ Martin Sperber
By
-----------------------------------
MARTIN SPERBER
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND
TREASURER
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-4, and any registration statement relating to
the same offering as this Registration Statement, to file the same with all
exhibits thereto and all other documents in connection therewith with the
Securities and Exchange Commission, granting to such attorneys-in-fact and
agents, and each of them, full power and authority to do all such other acts
and things requisite or necessary to be done, and to execute all such other
documents as they, or either of them, may deem necessary or desirable in
connection with the foregoing, as fully as the undersigned might or could do
in person, hereby ratifying and confirming all that such attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Martin Sperber Chairman of the
- ------------------------------------- Board, Chief April 7, 1998
MARTIN SPERBER Executive Officer
and Treasurer
(principal
executive officer)
Chief Financial
/s/ Dariush Ashrafi Officer and April 7, 1998
- ------------------------------------- Director (principal
DARIUSH ASHRAFI financial and
accounting officer)
/s/ Paul Feuerman Assistant Secretary
- ------------------------------------- and Director April 7, 1998
PAUL FEUERMAN
II-12
<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 7th day of April, 1998.
Danbury Pharmacal, Inc.
/s/ Martin Sperber
By __________________________________
MARTIN SPERBER
CHAIRMAN OF THE BOARD
CHIEF EXECUTIVE OFFICER
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-4, and any registration statement relating to
the same offering as this Registration Statement, to file the same with all
exhibits thereto and all other documents in connection therewith with the
Securities and Exchange Commission, granting to such attorneys-in-fact and
agents, and each of them, full power and authority to do all such other acts
and things requisite or necessary to be done, and to execute all such other
documents as they, or either of them, may deem necessary or desirable in
connection with the foregoing, as fully as the undersigned might or could do
in person, hereby ratifying and confirming all that such attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Martin Sperber Chairman of the
- ------------------------------------- Board and Chief April 7, 1998
MARTIN SPERBER Executive Officer
(principal
executive officer)
/s/ Dariush Ashrafi Chief Financial
- ------------------------------------- Officer and April 7, 1998
DARIUSH ASHRAFI Director (principal
financial and
accounting officer)
/s/ Paul Feuerman Secretary and
- ------------------------------------- Director April 7, 1998
PAUL FEUERMAN
II-13
<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 7th day of April, 1998.
Danbury Pharmacal Puerto Rico, Inc.
/s/ Martin Sperber
By __________________________________
MARTIN SPERBER
CHAIRMAN OF THE BOARD
CHIEF EXECUTIVE OFFICER
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-4, and any registration statement relating to
the same offering as this Registration Statement, to file the same with all
exhibits thereto and all other documents in connection therewith with the
Securities and Exchange Commission, granting to such attorneys-in-fact and
agents, and each of them, full power and authority to do all such other acts
and things requisite or necessary to be done, and to execute all such other
documents as they, or either of them, may deem necessary or desirable in
connection with the foregoing, as fully as the undersigned might or could do
in person, hereby ratifying and confirming all that such attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Martin Sperber Chairman of the
- ------------------------------------- Board and Chief April 7, 1998
MARTIN SPERBER Executive Officer
(principal
executive officer)
/s/ Dariush Ashrafi Chief Financial
- ------------------------------------- Officer and April 7, 1998
DARIUSH ASHRAFI Director (principal
financial and
accounting officer)
/s/ Paul Feuerman Secretary and
- ------------------------------------- Director April 7, 1998
PAUL FEUERMAN
II-14
<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, 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-15
<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-16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
3.1 Restated Certificate of Incorporation of the Company. (1)
3.2 Amended and Restated By-Laws of the Company. (1)
3.3 Restated Certificate of Incorporation of the Company adopted by
the Company on March 6, 1998. (1)
3.4 Amended and Restated By-Laws of the Company adopted by the
Company on March 6, 1998. (1)
3.5 Certificate of Incorporation of Schein Pharmaceutical
International, Inc.
3.6 By-Laws of Schein Pharmaceutical International, Inc.
3.7 Certificate of Incorporation of Schein Pharmaceutical PA, Inc.
3.8 By-Laws of Schein Pharmaceutical PA, Inc.
3.9 Certificate of Incorporation of Schein Pharmaceutical Service
Company.
3.10 By-Laws of Schein Pharmaceutical Service Company.
3.11 Certificate of Incorporation of Steris Laboratories, Inc.
3.12 By-Laws of Steris Laboratories, Inc.
3.13 Certificate of Incorporation of Marsam Pharmaceuticals Inc.
3.14 By-Laws of Marsam Pharmaceuticals Inc.
3.15 Certificate of Incorporation of Danbury Pharmacal, Inc.
3.16 By-Laws of Danbury Pharmacal, Inc.
3.17 Certificate of Incorporation of Danbury Pharmacal Puerto Rico,
Inc.
3.18 By-Laws of Danbury Pharmacal Puerto Rico, Inc.
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. (1)
4.2 First, Second, Third and Fourth Amendments to the Credit
Agreement. (1)
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. (1)
4.4 Indenture dated as of December 24, 1997 among the Company, the
Guarantors (as defined therein) and The Bank of New York. (1)
4.5 Registration Rights Agreement dated as of December 24, 1997
between the Company and Societe Generale Securities
Corporation.
4.6 Purchase Agreement dated December 19, 1997 among the Company,
the Guarantors (as defined therein) and Societe Generale
Securities Corporation.
4.7 Offering Memorandum, dated December 19, 1997 for the Company's
$100,000,000 Senior Floating Rate Note 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. (1)
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. (1) (2)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.2 Agreement, dated June 10, 1994, between Steris Laboratories,
Inc., Akzo Pharma International B.V., and Organon Inc. (1)(2)
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., including Operating Agreement, dated September 30, 1996.
(1)(2)
10.5* Agreement, dated August 16, 1994, between the Company and Elan
Pharma Ltd. (currently Elan Corporation plc). (2)
10.6 Custom Manufacturing Agreement, dated July 1, 1995, between the
Company and Johnson Matthey, Inc. (1)(2)
10.7 Letter of Intent, dated October 7, 1997, by and among the
Company, Cheminor Drugs Limited and Dr. Reddy's Laboratories
Limited. (1)
10.8 Lease Agreement, dated March 30, 1992, between the Company and
Harold Lepler. (1)
10.9 Lease Agreement, dated February 16, 1992, between the Company
and Ronald G. Roth. (1)
10.10 Memorandum of Lease for Danbury, dated December 1, 1995 between
Danbury Pharmacal, Inc. and Albert J. Salame. (1)
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. (1)
10.12 Cherry Hill Lease Agreement, dated November 12, 1996, between
the Company and Cherry Hill Industrial Sites, Inc. (1)
10.13 Schein Holdings, Inc. 1993 Stock Option Plan (formerly the
Schein Pharmaceutical, Inc. 1993 Stock Option Plan) dated as of
November 5, 1993. (1)
10.14 Schein Pharmaceutical, Inc. 1997 Stock Option Plan. (1)
10.15 Schein Pharmaceutical, Inc. 1995 Non-Employee Director Stock
Option Plan (amended and restated as of August 8, 1996). (1)
10.16 Employment Agreement, dated November 29, 1993 between the
Company and Paul Feuerman. (1)
10.17 Deferred Compensation Agreement, dated August 8, 1996, between
the Company and Paul Feuerman. (1)
10.18 Employment Agreement, dated May 1, 1995, between the Company
and Dariush Ashrafi. (1)
10.19 Employment offer letter, dated April 17, 1995, from the Company
to Dariush Ashrafi. (1)
10.20 Employment Agreement, dated September 30, 1994, as amended,
between the Company and Martin Sperber. (1)
10.21 Option Agreement Pursuant to 1993 Stock Option Plan dated
September 30, 1994 between Schein Holdings, Inc. and Martin
Sperber. (1)
10.22 Employment Agreement, dated as of July 28, 1995, between the
Company and Marvin Samson. (1)
10.23 Compensation Continuation Agreement, dated October 19, 1991
between the Company and Marvin Samson. (1)
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. (1)
10.25 Retirement Plan of Schein Pharmaceutical, Inc. and Affiliates;
including Amendment No. 4. (1)
10.26 Amendment No. 1 to the Retirement Plan of Schein
Pharmaceutical, Inc. and Affiliates. (1)
10.27 1993 Book Equity Appreciation Rights Program. (1)
10.28 Form of Book Equity Appreciation Rights Award. (1)
10.29 Form of Split Dollar Life Insurance Agreement. (1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
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. (1)
10.31 Continuing Shareholders Agreement, dated September 30, 1994, by
and among the Company and each of the shareholders listed on
schedule A thereto. (1)
10.32 Heads of Agreement, dated September 30, 1994, by and among the
Company, Bayer Corporation (formerly Miles Inc.) and Bayer A.G.
(1)
10.33* Second Consolidated Agreement, dated December 15, 1992, between
the Company, its affiliates, and Alfred B. Engelberg. (2)
10.34* License and Development Agreement, dated November 30, 1993,
between the Company and Ethical Holdings PLC. (2)
10.35* License and Development Agreement, dated January 16, 1993,
between the Company and Ethical Holdings Limited including
Amendment, dated November 4, 1994. (2)
10.36 Letter Agreement, dated June 23, 1995, between the Company and
Ethical Holdings, Inc., including Revised Schedule 5, effective
July 21, 1995. (1)(2)
10.37 [Intentionally omitted.]
10.38* Multiproduct Technology Transfer, Development and License
Agreement, dated August 30, 1994, between the Company and
Ethical Holdings PLC. (2)
10.39* License and Development Agreement, dated March 31, 1994,
between the Company and Ethical Holdings PLC. (2)
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. (2)
10.45 Schein Pharmaceutical, Inc. 1998 Stock Purchase Plan. (1)
10.46* Stock Purchase Agreement, dated February 6, 1998, between the
Company and Cheminor Drugs Limited. (2)
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. (2)
10.48* Strategic Alliance Agreement, dated February 6, 1998, among the
Company, Cheminor Drugs Limited, Dr. Reddy's Laboratories
Limited and Reddy-Cheminor, Inc.
10.49* Development, License and Supply Agreement, dated March 31,
1998, between the Company and Elan Corporation, plc. (2)
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges.
21.1 List of Subsidiaries. (1)
23.1* Consent of BDO Seidman, LLP.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
23.2* Consent of Proskauer Rose LLP (contained in opinion filed as
Exhibit 5.1). (1)
24.1 Power of Attorney (set forth on signature page of this
registration statement).
25.1 Statement of Eligibility of Trustee.
27.1 Financial Data Schedule. (1)
99.1* Revised Form of Letter of Transmittal.
99.2* Revised Form of Notice of Guaranteed Delivery.
99.3* Revised Form of Exchange Agent Agreement.
</TABLE>
- --------
* Filed herewith.
(1) Previously filed and incorporated herein by reference from the Company's
Registration Statement on Form S-1 filed with the Commission on December
3, 1997 (File No. 333-41413).
(2) Portions of exhibit have been omitted and filed separately with the SEC
pursuant to a request for confidential treatment.
<PAGE>
[Letterhead of Proskauer Rose LLP]
Exhibit 5.1
March 30, 1998
The Board of Directors
Schein Pharmaceutical, Inc.
100 Campus Drive, Suite 375
Florham Park, New Jersey
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-4
(Commission File No.: 333-45743) (the "Registration Statement") under the
Securities Act of 1933 (the "Securities Act") with respect to $100,000,000
principal amount of the Company's Senior Floating Rate Notes Due 2004 (the "New
Notes"). The Registration Statement relates to the offer (the "Exchange Offer")
by the Company to exchange the New Notes for $100,000,000 principal amount of
the Company's outstanding Senior Floating Rate Notes Due 2004 (the "Old
Notes").
We have examined such records, documents and other instruments as we have deemed
relevant and necessary as a basis for the opinions set forth below. 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 New Notes, when duly
executed by the Company, authenticated by the trustee pursuant to the terms of
the related Indenture and exchanged for the Old Notes in accordance with the
terms of the Exchange Offer, will be duly authorized and validly issued and will
constitute binding obligations of the Company entitled to the benefits of the
Indenture in accordance with their terms, subject as to their binding nature to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject to general principles of equity, including principles of commercial
reasonableness, good faith and fair dealing (regardless of whether enforcement
is sought in a proceeding at law or in equity).
The foregoing opinion is limited to the internal law of the State of New York
and the Delaware General Corporation Law and we express no opinion on any other
law.
<PAGE>
Proskauer Rose LLP
The Board of Directors
Schein Pharmaceutical, Inc.
March 30, 1998.
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references 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,
/s/ Proskauer Rose LLP
<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(R) 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 CLIENT's 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 $375,000 (three hundred and seventy five thousand dollars) 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 ****
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 1st 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 $2,000,000 (two million dollars),
(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 and ***** ******* 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 and ***** ******* *****
of 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 to 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:
(I) 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. Indemnifications
----------------
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
---------------------
AMERICAN HOME PRODUCTS
----------------------
<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 10.33
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 buspirone 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 buspirone.
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 six (6) products
belonging to a maximum of three (3) 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 buspirone hydrochloride, ********* ********
******************** ********* ********** *** ********* **************
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 buspirone, ********* *** ********** **********
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 buspirone 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;
* 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 tablets or capsules based on the PATENT
RIGHTS and ETHICAL KNOW-HOW, containing diltiazem 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 United States of America, including its territories
and possessions.
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 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.
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. "FDA" means the United States Food and Drug Administration.
O. "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 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.
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 a
total of US$2,500,000 (two million, five hundred thousand US dollars),
("LICENSEE payments"), of which ETHICAL has already received from
LICENSEE the sum of US$******* ***** ******* *** *********** ******** **
********. The remainder will be paid in instalments as follows:
a) US$****** ************ ******** ** ******** upon signing of this
AGREEMENT.
b) US$******* **** ******* * ****** ******** ** ******** 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) US$******* **** ******* * ****** ******** ** ******** upon LICENSEE's
completion of a pilot bioavailability study in no less than 12
(twelve) subjects demonstrating concentration time profile for the
***** strength PRODUCT satisfactory to progress the project on to ANDA
programme.
d) US$******* **** ******* * *********** ******** ** ******** 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) US$******* ***** ******* * ********** ******** ** ******** upon
LICENSEE's filing to the FDA of an application for approval of a *****
strength PRODUCT.
f) US$******* ****** ******* * *********** ******** ** ******** upon
LICENSEE's filing to the FDA of an application for approval of a *****
strength PRODUCT.
g) US$******* ***** ******* * *********** ******** ** ******** upon FDA
approval of either or both strengths.
B. In the event that scientific results do not indicate that the Product
objectives can be obtained, LICENSEE may nominate an alternative project
(including the development programme relating to nifedipine for **** ***
***** daily administration as contemplated by the Licence & Development
Agreement dated
* redacted pursuant to confidential treatment request
Page 8 November 93
<PAGE>
15th January, 1993 between LICENSEE and ETHICAL (the "Nifedipine
Agreement") and apply the payments made under this Article IV A (a) and the
US$******* ***** ******* * ****** **** ******** ** ******** 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. Subject to B hereunder, ** ****** ******** ** *** NET SALES.
B. In the event that ETHICAL or upon mutual agreement a third party
manufacturer is to supply the PRODUCT to the LICENSEE, the supply price
will be fully absorbed manufacturing costs plus *** ******** ********, such
costs to be defined and set out in a separate Supply Agreement to be
mutually agreed upon in accordance with Article XI hereof.
C. LICENSEE shall promptly give notice to ETHICAL of the date of first
commercial sale of the PRODUCT in the TERRITORY.
* redacted pursuant to confidential treatment request
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 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.
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 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 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.
* redacted pursuant to confidential treatment request
Page 11 November 93
<PAGE>
B. LICENSEE shall bear the cost of all application fees to government
authorities for MARKETING AUTHORISATIONS including, without limitation,
abbreviated new drug applications ("ANDA") filed with FDA or any other fees
concerning approvals from government authorities necessary to commercialise
the PRODUCT in the TERRITORY. The Marketing Authorisations and all 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.
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 16 (sixteen) years 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 a KNOW-HOW charge equal to ** ***** ******** 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 as if it contained the figure of **** **** ***** ****
********.
* 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 with a reduction
in running royalties to *** *** ******** percent. 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 XI. 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
* redacted pursuant to confidential treatment request
Page 15 November 93
<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 seven years 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
Page 16 November 93
<PAGE>
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, FDA regulations. 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" (as defined in regulations promulgated by the FDA), 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" (as defined in 21 CFR $312.32 and $314.80
promulgated by the FDA), 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 all FDA regulations applicable to notification to the FDA 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,
the FDA 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.
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 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 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 the FDA with respect to the ANDA and causing
representatives of any supplier of the PRODUCT to similarly attend such
meetings. 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:
Page 22 November 93
<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 New York.
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.
Page 23 November 93
<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: 11th 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 nifedipine for **** ***
***** 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 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;
Page 1
<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 patent issued thereon 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.
Page 3
<PAGE>
G. "PRODUCT" means controlled release tablets 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 **********
******* nifedipine 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 the United States of America, including its
territories and possessions.
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.
* redacted pursuant to confidential treatment request
Page 4
<PAGE>
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. "FDA" means the Unites States Food and Drug Administration.
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.
Page 5
<PAGE>
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
Page 6
<PAGE>
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 a total of
US$3,750,000 (three million, seven hundred & fifty thousand U.S. dollars),
("LICENSEE payments"), of which ETHICAL has already received from LICENSEE
the sum of ******** ****** ******* *** ***** ******** **** ******** 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
Page 7
<PAGE>
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.
Page 8
<PAGE>
f) ******** ***** ******* ******** **** ******** upon LICENSEE's filing to
the FDA of an application for approval of a ** ** 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. ** ****** ******** of the NET SALES.
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).
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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 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.
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
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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 U.S. federal or
state law, 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,
* redacted pursuant to confidential treatment request
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new drug applications ("NDA") and abbreviated new drug applications ("ANDA")
filed with FDA 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
nifedipine for ***** 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 16 (sixteen) years 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 a KNOW-HOW charge equal to ** ****** of NET SALES of the PRODUCT in
the TERRITORY.
* redacted pursuant to confidential treatment request
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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 seven years 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, FDA regulations. 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
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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 is
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" (as defined in regulations promulgated by the FDA), 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" (as defined in 21 CFR $312.32 and $314.80 promulgated by
the FDA), 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 FDA regulations applicable to
notification to the FDA 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, the FDA with respect to the PRODUCT.
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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 the FDA with respect to the NDA and causing
representatives of any supplier of the PRODUCT to similarly attend such
meetings. 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:
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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 New York.
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.
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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
** ** ***** ******* ** ** * **** ******** ** ** ********** ** *** **** ********
******* ********* **
** ************** ********* ******* ** *** ********* **** ******** *******
************ ** ******* **** ***** ************** ** *** *** *** *********** **
************ *** ******
* redacted pursuant to confidential treatment request
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APPENDIX 2 - DEVELOPMENT PROGRAMME
(See following pages)
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[ * ]
* Entire page redacted pursuant to confidential treatment request.
<PAGE>
[ * ]
* Entire page redacted pursuant to confidential treatment request.
<PAGE>
[ * ]
* Entire page redacted pursuant to confidential treatment request.
<PAGE>
APPENDIX 3 - OBLIGATIONS OF PARTIES UNDER DEVELOPMENT
PROGRAMME
*******
** *********** ********* ************ *************
** ********** ** ******** ************* *********
** ********** ** *********** ************* *********
** ***** ********* ***********
** ********* ******* ***********
** *********** ********
******** ***** *********** ******* ********
** *** *********** ***** ***** *********
** ********** *********** **** *********
** *** *********** *** ******** ******** *********
** *** ******** *************** *******
** ******* *** **** ********************* ********
* redacted pursuant to confidential treatment request
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EXHIBIT 10.35
AMENDMENT TO THE LICENCE AND DEVELOPMENT
----------------------------------------
AGREEMENT BETWEEN SCHEIN AND ETHICAL
------------------------------------
DATED 15TH JANUARY 1993 (the "Amendment Agreement")
---------------------------------------------------
This Amendment Agreement is made the 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 UCB
S.A. of Avenue Louise B-1050, Brussels, Beligium ("UCB"), both dated 28th
February 1992 (together the "Agreements") in respect of a once a day controlled
release formulation of nifedipine 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 nifedipine
formulation at *** ********** 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 UCB
under the Agreements. If such condition precedent is not satisfied, the
Licence and Development Agreement will continue in full force and effect
without modification.
* redacted pursuant to confidential treatment request
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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 ** ** *** ** ** tablets
containing nifedipine 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 **********
******* nifedipine 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 nifedipine
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 each and every country in the world, with the
exception of Canada, South Korea and mainland China.
* redacted pursuant to confidential treatment request
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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 United States Food and Drug
Administration 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. ** ****** ******** of the NET SALES. This rate 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 factor which, in either parties'
reasonable commercial opinion, justify a review and
renegotiation, and the parties undertake to conduct such review
and renegotiation in good faith. Until such review and
renegotiation has reached an agreed settlement, the running
royalty will continue at the rate of ** ****** *********
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 16 (sixteen years) from the date
of the first commercial sale to an INDEPENDENT
* redacted pursuant to confidential treatment request
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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 a KNOW-HOW charge equal to 4% (four percent) of
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
RIGHTS 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 as if it contained the
figure of **** **** *** * **** ********
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 fully absorbed
manufacturing costs plus *** ******** ********, 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 the fully
absorbed manufacturing costs plus *** ******** ******** 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 a total of $1.55 million (one million,
five hundred and fifty thousand U.S. dollars) 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 $300,000 (three hundred thousand
U.S. dollars 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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[ * ]
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<PAGE>
SCHEDULE I
----------
Page 1 of 4
<PAGE>
[ * ]
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<PAGE>
[ * ]
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<PAGE>
[ * ]
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SCHEDULE 3
----------
<PAGE>
ETHICAL PHARMACEUTICALS LTD - PATENT LIST
-----------------------------------------
********** **** ******* ***********
******* **********
******* ******* ****** ******
*************** *************
***** ****** ******
****** ************ *********** ******
******************* ******************
** *********
************* *** *********** *********** **************
********* *******
******* ******
******
******* *****
****** *********** **********
********* ******** ************ ********
******** ****** ******* *** ******* ********
****** *********** ******* ************
********* *******
******* ******
******* ********
***** ********
***** ***** *********
*** *********** *******
****** *******
*** ******* ******
CORRECT AT: 26 September 1994
* redacted pursuant to confidential treatment request
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<PAGE>
ETHICAL PHARMACEUTICALS LTD - PATENT LIST
-----------------------------------------
********** **** ******* ***********
******* *********** **********
****** ************ *********** ******
******************* ******************
****** *******
******* **********
******* **********
***
** *********
*********
*****
******** ***** *********
********* ***** ******
********* ***** ********
*********** ***** *********
******* ***** ****
******** ***** ******
******* *** ** ********* ****
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<PAGE>
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.
* Page redacted pursuant to confidential treatment request.
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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. Notwithstanding 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 "Designated Product Extensions" means additional dosages,
strengths, indications, changes to specifications,
manufacturing procedures or regulatory compliancies of a
Designated Product in addition to those detailed in the
original Designated Development Programme.
1.1.10 "Territory" means the entire world except in respect of the
************* Product in which case it shall mean solely the
United States, its territories and possessions.
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 those countries within the
Territory in which Ethical, by virtue of Clause 7 or Clause
11.4.8 has the right to use and licence the Patent Rights,
Ethical Know-How and Schein Know-How and to negotiate a licence
or other commercial arrangement with respect to the use, making
and/or manufacture, promotion, marketing and sale of a
Designated Product.
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 Subject to Clause 3.5 below, Ethical hereby grants to Schein, for the
Term (as hereinafter defined) of this Agreement the exclusive right
under the Patent Rights and Ethical Know-How with the right to
sublicence to make and/or manufacture, use, promote, market,
distribute and sell the Designated Products in the Territory.
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
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this Agreement
3.4 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) 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 the licence granted
hereunder.
3.5 For the avoidance of doubt the rights granted to Schein shall not
affect or prejudice Ethical's ability, at the request of Independent
Third Parties, to use the Ethical Know-How and Patent Rights to
formulate new chemical entities and/or new active compounds (other
than the Designated Products) for marketing and sale in the Territory.
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.
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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.
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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 U.S.$ 5,000,000 (five million U.S. dollars) 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 will pay Ethical the sum of $27,000,000
(twenty seven million U.S. dollars), divided equally among the twelve
(12) Designated Development Programmes (the "Notional Sums") such
Notional Sums to be payable in accordance with Schedule 4, Clauses 2
and 3.
5.3 Each Quarter, Ethical shall prepare and send to Schein invoices in
respect of the percentage amounts of the Notional Sums due (if any) in
that Quarter under each Designated Development Programme. It is hereby
agreed the total amount so invoiced shall, with the exception of any
invoices in respect of payments due under Clause 3.8 of Schedule 4 and
unless otherwise agreed in writing by the parties, be subject to a
maximum of U.S.$********* **** ******* **** ******** per Quarter. Any
such amounts shall be payable 30 (thirty) days after the date of
Schein's receipt of the invoice.
5.4 In the event that scientific results do not indicate that one or more
of the Designated Product objectives can be obtained, or if any
Designated Development Programme contemplated hereby is terminated or
abandoned for any reason whatsoever, Schein may nominate or elect to
apply the balance of the Notional Sums in respect of the Common
Landmarks not therefore achieved under that Designated Development
Programme at the date of nomination to
5.4.1 an alternative Designated Development Programme;
5.4.2 the development programme relating to nifedipine for **** ***
***** daily administration as contemplated by the Licence &
Development Agreement dated 15th January 1993 between Schein
and Ethical;
5.4.3 the development programme relating to ********* *** **** *****
************** as contemplated by the Licence & Development
Agreement dated 30th November 1993; or
5.4.4 any Designated Product Extension.
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5.5 For the first two nominations under Clause 5.4.1 above the amount of
the Notional Sums paid up to the date of nomination (the "Paid Up
Sum") in respect of the Designated Development Programme terminated or
abandoned shall be credited against the alternative Designated
Development Programme chosen. For the third and fourth nomination
under Clause 5.4.1 an amount equal to the Paid Up Sum shall be
deferred and payable by Schein on successful completion of the
alternative Designated Development Programme.
6. THIRD PARTY NEGOTIATIONS
------------------------
6.1 Ethical hereby undertakes that for, either a period of 18 (eighteen)
months beginning with the Effective Date for those Prospective
Development Products for which there are reference products as
identified in Schedule 5 attached hereto, or for a period of 6 (six)
months after the introduction of a reference product for those
Designated Products for which at the Effective Date there are no
reference products as identified in Schedule 5 (and in no event less
than 18 [eighteen] months beginning with the Effective Date), or for
such longer period as may be mutually agreed in writing between the
parties, not to enter into any negotiations or discussions with any
Independent Third Party in respect of any Prospective Development
Product.
6.2 In the event that, subsequent to the period set out in Clause 6.1,
Ethical enters into substantive negotiations or discussions with an
Independent Third Party in respect of any Prospective Development
Product it shall so notify Schein (the "Notice"). On receipt of the
Notice by Schein, its General Counsel shall, subject to reasonable
confidentiality undertakings, have the right to reasonable satisfy
himself that such substantive negotiations or discussions are bona
fide. Ethical may disclose to such Independent Third Party the
existence of this Agreement but not the terms hereof, may not disclose
Schein as a party to this Agreement and may not disclose the indentity
of any Prospective Development Product except for the specific
Prospective Development Product which is the subject of the
negotiations.
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.
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6.4 Upon receipt of the development programme Schein shall have 8 weeks to
notify Ethical in writing as to whether or not it wishes to select the
development programme as the Designated Development Programme. 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.
6.5 For the avoidance of doubt, it is hereby agreed that Ethical may,
whilst it is complying with its obligations as detailed in Clauses
6.2, 6.3 and 6.4 continue its negotiations or discussions but not
enter into any definitive agreement with any Independent Third Party
in respect of any Prospective Development Product PROVIDED ALWAYS
THAT, should Schein give notice as set out under Clause 6.3 and 6.4,
Ethical shall promptly cease all such negotiations or discussions.
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 In the event that Ethical, subsequent to the period detailed in Clause
6.1 and subsequent to Schein having selected all twelve Designated
Products, enters into substantive negotiations with an Independent
Third Party with respect to any Prospective Development Product
Ethical shall give notice of the fact to Schein. Schein shall for a
period of 4 (four) weeks from the date of such notice have the right,
subject to additional payments being agreed between the parties, to
select in accordance with Schedule 3 that Prospective Development
Product as a Designated Product in addition to the twelve otherwise
contemplated herein. In the event that Schein does not so select that
Prospective Development Product or in the event that the additional
payments cannot be agreed within the four week period Schein's rights
as set out in this Clause shall irrevocably lapse.
7. FIRST RIGHT OF REFUSAL
----------------------
7.1 Within 24 (twenty four) months of the selection by Schein of a
Designated Product, Ethical shall notify Schein in writing of its
interest in entering into a licence agreement or other commercial
arrangement with an Independent Third Party for the use, manufacture,
marketing, distribution, promotion and sale of that Designated Product
in any country within the Territory (the "Request").
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
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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 minimum royalty of **** **** *** * **** ******** 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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<PAGE>
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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<PAGE>
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
Page 14
<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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<PAGE>
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 Schein, the supply
price will be fully absorbed manufacturing costs plus *** ********
********, 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 fully absorded manufacturing costs plus ***
******** ******** 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 for
a period of 16 (sixteen) years from the date of the first commercial
sale to an Independent
* 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
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<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 shall read
as if it contained the figure **** **** ***** **** ********. 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 read as if it
contained the figure 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 Schein may terminate this Agreement by written notice to Ethical
(the "Break Notice") in the event that it makes the determination
for any reason that it is no longer able, or no longer wishes to
fund the Designated Development Programmes according to the terms
set out in this Agreement such termination to be effective 6 (six)
months after receipt by Ethical of the Break Notice (the "Break
Date"), Clauses 21.2, 21.3 and 21.4 shall survive such termination.
21.2 Schein hereby undertakes that in the event it gives the Break Notice
neither Schein, its affiliates nor in the event of any amalgamation,
reconstruction or restructuring the company succeeding Schein or its
affiliates upon such amalgamation, reconstruction or restructuring
shall for a period of time calculated from the Break Date an in
accordance with the table in Clause 21.3 enter into any commercial
arrangement in the Territory relating to the development, use,
manufacture, promotion, marketing, distribution or sale (the "Non
Compete Activity") of any of the Designated Products other than as
set out in Clauses 21.4.1, 21.4.2, 21.4.3 and 21.4.4.
* redacted pursuant to confidential treatment request
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<PAGE>
21.3 Break Date Period of Non Compete Activity
within one year of the two years
Effective Date
between one and three three years
years after the Effective
Date
more than three years after five years
the Effective Date
21.4 In the event that this Agreement is terminated by a Break Notice
Ethical, subject to Clause 21.5, shall have the unrestricted right
to continue to use and sublicence the Patent Rights, Ethical Know-
How and Schein Know-How and to develop, use, manufacture, promote,
market, distribute and sell the Designated Products in the Territory
except those Designated Products which at the date of Break Notice
21.4.1 are already commercialised; or
21.4.2 regulatory filings have been made in respect thereof; or
21.4.3 such regulatory filings are to be made within the next 12
(twelve) months.
21.4.4 for which pivotal bioavailability studies have already
commenced.
21.5 For the Designated Products described in Clauses 21.4.1, 21.4.2,
21.4.3 and 21.4.4 above Schein shall, subject to the payment of
royalties to Ethical in accordance with Clause 8 (which shall
survive termination as contemplated in this Clause), have the
unrestricted right to develop, use, manufacture, promote, market,
distribute and sell such Designated Products in the Territory.
21.6 Ethical shall pay Schein reasonable compensation, agreed to by
Schein, on a Designated Product by Designated Product basis in
respect of those Designated Products not included in Clause 21.4.1,
21.4.2, 21.4.3 and 21.4.4 in the event that it enters into
satisfactory arrangement with an Independent Third Party in respect
of such Designated Products.
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 5 (five) years
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
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<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
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<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
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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 New York.
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
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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.
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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
--------------------------- ----------------------------
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SCHEDULE 1
** ********* ************ ******* ** *** **********
*** ******* ************* ********* ** ******** ** ******* ***
*************
*** ******** ************* ********* ** ******** ** ******* ***
*************
*** ********** ******** ** * ******* * *********** ********* ***** ****
******* **** ******* ****** *** ********
*** *********** ********** ** ******* ** *** ************* ********
** ************ *** ** ***** **** **** ** **** ** ********* ****
***********
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SCHEDULE 2
----------
******* *** ****** ************ ******** ** *** ************ ********** *******
*********** ***** ****** ** *** ********* ******
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[ * ]
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[ * ]
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[ * ]
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[ * ]
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[ * ]
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[ * ]
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[ * ]
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[ * ]
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[ * ]
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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 24 (twenty four) months from the Effective Date, select at
least (one) Designated Product each and every 2 (two) months in
accordance with Clause 2 hereunder subject to a maximum of 12 (twelve)
such Designated Products.
1.2 In the event that Schein wishes to select the Buprenorphone Product
(as defined in Schedule 5) it must do so in accordance with Clause 2
hereunder and prior to the 31st January 1995. Any attempt to select
the ************* Product by Schein at any time subsequent to 31st
January 1995 shall, unless Ethical agrees otherwise in writing, be
invalid and of no effect.
2. Selection Procedure
-------------------
2.1 On a continuous basis Ethical and Schein will discuss the commercial
possibilities of the Prospective Development Products listed in
Schedule 5, as amended from time to time. Such discussions to include,
but not be limited to, the appropriate technologies, commercial
opportunities, project plans and development work.
2.2 In the event that Schein decides it wishes to proceed with further
investigations of a Prospective Development Product, it shall request
in writing that Ethical prepares a development programme.
2.3 Ethical shall have one month to prepare the development programme in
accordance with Schedule 4 and send the same to Schein.
2.4 Schein shall then decide, after further discussions between the
parties if necessary, whether or not it wishes to select that Possible
Development Product as a Designated Product and that it wishes to
select the development programme as the Designated Development
Programme. In the event that it does, it shall notify Ethical of the
fact in writing (the "Notice").
2.5 On receipt of the Notice, Ethical shall immediately commence the
Designated Development Programme for the Designated Product. A copy of
the Designated Development Programme shall be attached to this
Schedule 3.
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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 In the event that Schein selects the ************* Product as a
Designated Product Ethical shall be entitled, in addition to any other
monies due hereunder, to a further payment of US$********* ****
********* **** ******* ******** ** dollars) on the date of Schein
obtaining the United States Marketing Authorities approval of either
the ********* ** ****** ********* ********** whichever is the earlier.
2.9 Any licence granted to Schein by Ethical for the ************* Product
shall be only in respect of the United States and shall be exclusive
in respect of the ********* ********** and non exclusive in respect
of the ****** ********* ********** to the extent of the rights of the
innovator of such product existing at the Effective Date.
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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 ********* ** * ********** *******
** *** *** ** ******** ** ***
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SCHEDULE 4
----------
*** ********** ** ********** *** *************
******* ** ************ **
*** ************ ** *** ***** ***************
** ******** ****** ***
*** ********** ** *** **** *** *** ** *** ** ***
************ ** *** ******** *************
**** ** ********** ********** ***
*** ********** ** ***** ****** *********** *********
******* ** *** **** ********* *********** ** ***
********** ******** **
*** ********** ** *** *** ***** *************** **
******** ******** ***
*** ********** ** ************ *************
********** *********** ** ******* ***
*** ********** ** *** ******* *************** ******** ***
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SCHEDULE 5
----------
[ * ]
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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 of ******** *** **** *****
************** 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
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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. ******** ****** ******* ***** *** **** ****** ******.
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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 United States of America, including its territories
and possessions.
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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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. "FDA" means the United States Federal Food and Drug Administration.
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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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 bulk substance quota
shall not 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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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
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<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 a total of US$420,000
(four hundred and twenty thousand US dollars), ("LICENSEE payments"), of
which ETHICAL has already received from the LICENSEE the sum of US$*******
**** ******* *** ***** ******** ** ********. The remainder will be paid as
follows:
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a) US$******* **** ******* *** ****** **** ******** ** ******** upon the
signing of this AGREEMENT.
b) US$******* **** ******* * ***** **** ******** ** ******** 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 NDA programme. 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 US$8,000,000 (eight million US
dollars). The budget for the INTERNATIONAL DEVELOPMENT PROGRAMME in the
TERRITORY is agreed to be fifty percent of the total international budget;
and the budget for the INTERNATIONAL DEVELOPMENT PROGRAMME outside the
TERRITORY is agreed to also be fifty percent of the total international
budget. The parties further agree that the total international budget in
respect of the INTERNATIONAL DEVELOPMENT PROGRAMME shall be shared equally
and borne in money or monies worth equally by the parties as follows:
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a) The parties estimate ETHICAL's costs for international PRODUCT
development to be US$********** ***** ******* ** ********* SCHEIN will
pay ETHICAL US$2,500,000 (two million five hundred thousand US
dollars) subject to clause D below in eight quarterly instalments of
US$******* ****** ******* *** ****** ******** **** ******* ** ********
beginning 1st March 1994.
b) The parties estimate ETHICAL's and SCHEIN's costs for clinical trials
under the INTERNATIONAL DEVELOPMENT PROGRAMME for the PRODUCT to be in
the aggregate US$********* ****** ******* ** ********* These costs
will be shared equally as such costs are incurred and as properly
documented and invoiced to the other party.
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 the
NDA.
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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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. ***** **** *** ***** ******* ******** of the NET SALES.
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>
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.
* redacted pursuant to confidential treatment request
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 U.S.
federal or state law, 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.
* redacted pursuant to confidential treatment request
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.
* redacted pursuant to confidential treatment request
Page 15 March 1994
<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, new
drug applications ("NDA") filed with FDA or any other fees concerning
approvals from government authorities necessary to commercialise the PRODUCT
in the TERRITORY. The Marketing Authorisations and all NDA's 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 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 16 (sixteen) years 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 a KNOW-HOW charge
equal to ** **** ******** 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
* redacted pursuant to confidential treatment request
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 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 VI A shall read as if it
contained the figure of **** **** ***** **** ********. 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 eight million US dollars 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
* redacted pursuant to confidential treatment request
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 ******* ** **** *** ** * ******* ****** ** ***
****** ******** **** ** *** ******** ***** **** ********** ****** *
********** *** ** * ******* ** ****** ******** ** ****** *******
******** *** **** ** *********** ***** ***** ** ******* ** *******
** *** ***** ** *** ******* ** *** ********** 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.
* redacted pursuant to confidential treatment request
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.
* redacted pursuant to confidential treatment request
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 seven years after
termination of this AGREEMENT.
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, FDA regulations. 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" (as defined in regulations promulgated by the FDA), 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" (as defined in 21 CFR $312.32 and $314.80 promulgated by
the FDA), 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 FDA regulations applicable to
notification to the FDA 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, the FDA 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
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 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.
(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 the FDA with respect to the NDA. All out-of-pocket
expenses incurred in attending such meetings will be paid by LICENSEE.
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 New York.
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.
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>
APPENDIX 2 - INTERNATIONAL DEVELOPEMENT PROGRAMME
[ * ]
* Entire page redacted pursuant to confidential treatment request.
<PAGE>
[ * ]
* Entire page redacted pursuant to confidential treatment request.
<PAGE>
EXHIBIT 10.44
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 I: 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 III.
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.
---- -----
* redacted pursuant to confidential treatment request.
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<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.
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.
2.02 (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:
*** ***** ** ******* **** ********* ***** **** ************ *****
******* *** *** ********** ********* **** **** *** *** ** ***
******** **** ********** ** *** ****** ** ***** ** *******
********** *** *********** ***** ****** *** **** ** ****** ***
************ ***** ***** ** *** ******* **** ** *** ***********
***** ****** *** ***** *** ******* ** **** ** *********** *****
**** **** *********** ******
Net to be split by parties (50/50)
(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.
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<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
Schein 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
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<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.
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<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.
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<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 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
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<PAGE>
shall be permitted, at its sole cost, to assume full control over
the defense of any such claim or suit (or portion thereof).
(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.
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<PAGE>
Article VII: Term and Termination
- ---------------------------------
7.01 Unless sooner terminated 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.
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<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; or
(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.
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<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.
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<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, Inc.
By /s/ P. K. McCullough By /s/ Martin Sperber
___________________________ ___________________________
Martin Sperber
Chairman of the Board and
Chief Executive Officer
Date Dec 9, 1994
--------------------------
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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 [21
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 Form-3500A's.
D. Product Recall:
1. In carrying out a recall, both parties will fully cooperate in
notifying customers to follow instructions as agreed 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
$3,000,000 payable in four equal installments of $750,000 each,
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 ********* *** **** **** ****** *** ****
****** ********* **** *** *********** ** **** ***** ***
*********** ********** ** *** **** **** ****** *** *******
********** *** *** ******* *** *** ****** ** * ***********
******* ** *** ******* *** ********** *********** ** ********
******* *** *** ******** ******* ** ** ** **** ** **** ********
*** ****** ***** ***** *** *** ********** ************** ********
** ****** ******* *********** **** ******** **** ****** ********
** *** ******* ** *** ********** **** ******* ** *** ** **** ***
***** ********* ** ********
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.
<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:_____________
<PAGE>
AMENDMENT NO. 3 TO CO-PROMOTION AGREEMENT
-----------------------------------------
This Amendment Number 3 to Co-Promotion Agreement (the "Amendment") is entered
into as of the 28th day of January 1998 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 and Amendment Number 2 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 and Puerto Rico.
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. Grants and Obligations.
----------------------
Article II, Section 2.02 is hereby amended to add the following:
"(c) Without limiting the generality of the foregoing,
Bayer will assign ** ********** sales representatives
and ** ************* ********* sales specialists to
promote and detail the Product. Additionally, Bayer will
use best efforts to insure a sufficient amount of
selling time will be allotted to promoting and
detailing the Product. ** ** ********** *** ****** ****
******* ******** ***** ************** **** ** ******
******* *** ****** *** *******."
3. 1998 Base Line Figure.
---------------------
In accordance with Article III, Section 3.01 (a) (u), the Base
Line Figure for the 1998 Detailing Year shall be ***,***,***.
* redacted pursuant to confidential treatment request.
<PAGE>
4. Cooperation Rights and Responsibilities
---------------------------------------
Article IV is hereby amended to add a new Section as follows:
"4.13 Each of Schein and Bayer agrees that during the
term of this Agreement and for a period of one year
after the termination of this Agreement for whatever
reason, neither it nor any of its Affiliates shall,
except with the prior written consent of the other
party, offer employment to or employ any person in the
other party's sales force if such person was involved in
promoting the Product under this Agreement.
5. Reaffirmation of Agreement and Other Documents. Except as
----------------------------------------------
modified herein, all 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. 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
By: /s/ Gerald [illegible]
---------------------------------
Name: Gerald [illegible]
-------------------------------
Title: SR VP/[illegible]
------------------------------
SCHEIN PHARMACEUTICAL, INC.
By: /s/ Adam A. Levitt
---------------------------------
Name: Adam A. Levitt
-------------------------------
Title: V.P. Brand Products Group
------------------------------
<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 1.1 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 1.2 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 1.3 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 "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 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
"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 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
------------
Cheminor has an equity interest in only three entities: Reddy-Cheminor,
Inc. (USA), Reddy-Cheminor S.A. (France) and Cheminor Investments Ltd. (India).
Cheminor's ownership interst in these three entities is as follows: Cheminor
owns 75% of Reddy-Cheminor, Inc. (750 of 1,000 shares), approximately 99% of
Cheminor Investments Ltd. (134,508 of 134,513 shares) and approximately 99% of
Reddy-Cheminor S.A. (2,494 of 2,500 shares).
<PAGE>
Schedule 2.5
------------
Existing Liens
--------------
1. Various Banks and Financial Institutions and Export-Import Bank of
India have a hypothecation of all movables, including machinery, spaces, etc. to
secure Term Loans of Cheminor.
2. Various Banks have a secured charge on certain fixed assets to
secure the working capital loans of Cheminor.
3. Holders of the fourteen percent (14%) Secured Redeemable
Non-Convertible Debentures have a residual charge on certain movable and
removable properties of Cheminor.
<PAGE>
Schedule 2.6
------------
None. Cheminor does intend to issue employee stock options at some time
in the future.
<PAGE>
Schedule 2.9
------------
See Annual Report.
---
<PAGE>
Schedule 2.12
-------------
None.
<PAGE>
Supplemental Schedule 2.13 (a)
------------------------------
Cheminor discloses that Principal Shareholders and/or officers and/or
directors of Cheminor have an interest in Dr. Reddy's Laboratories and Dr.
Reddy's Research Foundation.
<PAGE>
Schedule 2.13(b)(i)-(ii)
------------------------
************ **** *** ******* ************ *******
****** *** ****** **** ****** ** ********
**************************************************
***
** ***** ** ***
** ******** ***** ********
** *** ********* *******
********
********
** ********* ** *** ********* **** *** *******
** ************* ********* ************ ***********
********* **** ***
******* ** ***********
**********************
** ****** *********** *******
** ************* *****
** ********** *****
** ******* *****
** ******** ********* *****
** ************* ******** *****
** ********* * ********* *******
** ***** * *********** *****
** ******* ******** ****
** ***** * ************ ******** ****
** ******** * ********** ******** *****
** ***** ******* *****
*******
*******
* redacted pursuant to confidential treatment request.
<PAGE>
Schedule 2.13 (b)
-----------------
There have not been any transactions between Cheminor and any of the
subsidiaries on one hand; and Dr. Reddy's Research Foundation on the other hand,
which in the aggregate exceed a fair market value of $500,000, except for the
transfer of patent assignment rights discussed below.
Reddy-Cheminor is an assignee on all U.S. patent applications by Dr.
Reddy's Research Foundation for the purpose of applying for and obtaining PCT
patent rights. By contractual agreement, all such rights are reassigned by
Reddy-Cheminor back to Dr. Reddy's Research Foundation.
<PAGE>
Schedule 2.14
-------------
Regulatory Consent, Approvals and Filings
-----------------------------------------
1. Cheminor obtained preliminary approval to issue shares from the
Reserve Bank of India, by letter dated _____. Final approval will be issued upon
confirmation of receipt of the Foreign Inward Remittance Certificate ("FIRC")
from the State Bank of India.
2. Applications for listing of the Common Shares with the Hyderabad,
Bombay, Madras and Calcutta Stock Exchanges shall be filed post-closing as part
of the Post-Closing Deliveries.
3. Filing with the Registrar of Companies in accordance with the Indian
Companies Act shall take place after closing as part of the Post-Closing
Deliveries.
<PAGE>
Schedule 2.15
-------------
Cheminor's annual report for the fiscal year ending March 31, 1997 is
attached.
<PAGE>
Schedule 2.16
-------------
None.
<PAGE>
Schedule 2.17
-------------
Except for medical, auto and disability policies, attached are all
policies of insurance in effect relating to the operation and conduct of the
Business.
<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.
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(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
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<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 23% (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) ten 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
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<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 Bayer
Corporation 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
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<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
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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 Bayer Corporation or any of its Affiliates, 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
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, Bayer Corporation 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
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 Dr. Reddy's Research Foundation................................... 12
-------------------------------
ARTICLE III
BULK PHARMACEUTICAL SUBSTANCES.......................................................... 13
Section 3.1 Supply of Cheminor Bulk Substances................................ 13
----------------------------------
</TABLE>
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
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Section 12.2 Notices.......................................................... 36
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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
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SCHEDULE 2.1(b)(i)
TO STRATEGIC ALLIANCE AGREEMENT........................................................ 1
- -------------------------------
SCHEDULE 2.1(b)(ii)
TO STRATEGIC ALLIANCE AGREEMENT........................................................ 2
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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
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SCHEDULE 2.2(b)
TO STRATEGIC ALLIANCE AGREEMENT.......................................................... 7
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SCHEDULE 2.4(1)
TO STRATEGIC ALLIANCE AGREEMENT......................................................... 27
- -------------------------------
SCHEDULE 2.4(2)
TO STRATEGIC ALLIANCE AGREEMENT......................................................... 28
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SCHEDULE 4.2(b)......................................................................... 29
SCHEDULE 5.5
TO STRATEGIC ALLIANCE AGREEMENT......................................................... 30
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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
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SCHEDULE 8.3(h)(1)
TO STRATEGIC ALLIANCE AGREEMENT......................................................... 44
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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>
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<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" means the commercially reasonable costs and
expenses for marketing, advertising, promoting, and selling a Finished Dosage
Form Product (including but not limited to costs and expenses for launch, sales
force training and materials, samples, conventions, symposia, marketing, direct
mailing, marketing research, public relations, printed materials, medical
information, regulatory activities and distribution), determined in accordance
with the customary accounting policies and practices of the party incurring such
expenses and in a manner consistent with GAAP. Notwithstanding anything to the
contrary contained herein, in calculating Commercial Expenses, the parties
hereto shall not allocate commercial expenses for multiple products which
include such Finished Dosage Form Product to such Finished Dosage Form Product
in a manner that results in a disproportionate allocation of such expenses to
such Finished Dosage Form Product.
"Development Costs" means the commercially reasonable costs and
expenses of any party hereto incurred in the preparation and filing of any and
all applications for, and in obtaining, Regulatory Approval for Cheminor Bulk
Substance or Finished Dosage Form Product, as the case may be, pursuant to this
Agreement, including but not limited to allocated costs for manufacturing,
personnel, packaging, stability, testing, analytical costs, Bulk Substance
supplied for regulatory submission (********** ** ************* ****) and all
costs relating to the development of Finished Dosage Form Product including R&D
(but not including the cost for development of the Bulk Substance),
preformulation, formulation, bio-equivalence, application, preparation,
validation, issuance and submission, including, without limitation, costs
incurred pursuant to Section 6.1 hereof, reimbursable pursuant to Section 7.5(b)
hereof and licensing fees due to third parties from licensing agreements
relating to the acquisition of technology required to support development of
Bulk Substance or Finished Dosage Form Product. When such technology has been
licensed for multiple products, the licensing fees shall be allocated equally
between all such products for which said technology has been licensed whether or
not all such Products are subject to this Agreement. Development Costs also
include costs as defined herein which were incurred by any party hereto prior to
execution of this Agreement.
"DMF" means the drug master file.
"Dr. Reddy's Research Foundation New Chemical Entity" means any New
Drug Substance developed by Dr. Reddy's Research Foundation for which Dr.
Reddy's Research Foundation (including its assignees and licensees) applies for
and is issued a valid patent(s) which covers (i) the identity of a New Drug
Substance, (ii) its uses or modes of administration, (iii) its manufacture, (iv)
its formulation and/or (v) its compositions of matter.
"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.
**** Set Aside means *** of Profit of such Finished Dosage Form
Product set aside to reimburse Development Costs and Intellectual Property Costs
(as hereinafter defined) of both parties in accordance with Section 7.5(b)
hereof.
* 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, for Finished Dosage Form Product and
Cheminor Bulk Substance, the fully absorbed manufacturing cost of a party hereto
and its Affiliates determined in accordance with GAAP calculated separately for
such Finished Dosage Form Product or Cheminor Bulk Substance, including but not
limited to: (i) direct labor (salaries, wages, and employee benefits); (ii)
direct materials (including Third Party Bulk Substance as used); (iii) allocated
operating costs of building and equipment used in connection with the
manufacture of such Finished Dosage Form Product or Cheminor Bulk Substance;
(iv) facility costs, interest carrying charges on
4
<PAGE>
the facilities, depreciation, building repairs and maintenance for the plant and
equipment at the facilities used in connection with the manufacture of such
Finished Dosage Form Product or Cheminor Bulk Substance allocated to such
Finished Dosage Form Product or Cheminor Bulk Substance on the same basis as to
other products manufactured at such facilities; (v) allocated quality and in
process control charges; (vi) an allocation of manufacturing overhead costs
incurred in connection with the manufacturing of such Finished Dosage Form
Product or Cheminor Bulk Substance, including, but not limited to, raw material
supply and manufacturing administration and management; supply and material
management, storage and handling; manufacturing and employee training; (vii) any
charges for obsolescence, out of date product, spoilage, scrap, rework costs and
product loss; (viii) costs and expenses incurred in connection with
transporting, importing (including duty and related importation charges) and
exporting, storing (including the cost of inventory) and handling such Finished
Dosage Form Product or Cheminor Bulk Substance; (ix) all costs and expenses
(including settlements and damage awards), in excess of insurance, in connection
with such Finished Dosage Form Product's or Cheminor Bulk Substance's product
liability claims that are not subject to indemnification pursuant to Section 9.1
of this Agreement; (x) all allocated costs incurred in maintaining the
Regulatory Approval for a Cheminor Bulk Substance or Regulatory Approval of a
Finished Dosage Form Product, including, but not limited to, regulatory costs,
user fees and complaint handling; (xi) any packaging, labeling, stability,
testing and analytical costs not associated with obtaining Regulatory Approval
of the ANDA (or non-US equivalent) but rather associated with commercial sales
(including interest carrying charges on the facility); (xii) costs incurred,
after Regulatory Approval pursuant to Section 5.2 hereof, provided, however,
that all costs incurred pursuant to Section 5.2 hereof prior to Regulatory
Approval shall be Development Costs recoverable pursuant to Section 7.5(b)
hereof; and (xiii) royalties due to third parties under licensing agreements
relating to technology used in the production of Finished Dosage Form Product
(or Bulk Substance included in that Finished Dosage Form Product) pursuant to
this Agreement in each case determined in accordance with the customary cost
accounting policies and practices of the party incurring the same and in a
manner consistent with GAAP. For purposes of items (iii), (iv), (v), (vi), (x)
and (xi) above, the allocation of such costs and expenses shall be based upon
the proportion that the cost of manufacture or packaging of such Finished Dosage
Form Product or Cheminor Bulk Substance bears to the total cost of manufacture
or packaging of all products at such manufacturing or packaging facility (i.e.,
if the cost of manufacture or packaging of the particular Finished Dosage Form
Product, or Cheminor Bulk Substance is one-half of the cost of manufacture or
packaging of all products manufactured or packaged at the facility, it shall be
allocated one-half of the costs). If the manufacturing or packaging of any
Finished Dosage Form Product or any component thereof (including a Bulk
Substance) is performed by an entity not a party hereto (which is not an
Affiliate of a party hereto), then amounts paid to such third party in
connection with the manufacturing or packaging of that Finished Dosage Form
Product or any component thereof (including a Bulk Substance) shall be added to
the aggregate amount of the foregoing items (i) through (xiii).
"Net Sales" means that amount determined by deducting the following
items from the gross invoiced sales price billed for such Finished Dosage Form
Product to unaffiliated third parties in arm's-length transactions: (i) trade,
quantity or cash discounts, service allowances and independent brokers' or
agents' commissions, if any, allowed or paid; (ii) credits or allowances for
such Finished Dosage Form Product, if any, given or made on account of price and
shelf adjustments, returns, bad debts, off-invoice promotional discounts,
rebates, chargebacks, any and all federal, state or local
5
<PAGE>
government rebates or discounts whether in existence now or enacted at any time
hereafter, volume reimbursements, and the gross amount billed for rejected
Finished Dosage Form Product, or Finished Dosage Form Product recalled, seized
or destroyed (voluntarily or at the request of any government agency,
subdivision or department); (iii) any tax, excise or other government charge
upon or measured by the production, sale, transportation, delivery or use of
such Finished Dosage Form Product; and (iv) any surcharge, levy, tax or
assessment mandated by any federal, state or local government or administrative
agency to fund a compensation program or reserve for persons injured by such
Finished Dosage Form Product; in each case determined in accordance with the
customary accounting policies and practices of the party selling such Finished
Dosage Form Product in a manner consistent with GAAP. Notwithstanding anything
herein contained to the contrary, Net Sales shall not include deductions with
respect to any special discounts, rebates, volume reimbursements or other
incentives for any Finished Dosage Form Product that are given as an inducement
for the purchase of other products of the party hereto being supplied such
Finished Dosage Form Product pursuant hereto; that any discounts, rebates or
volume reimbursements offered by such party on the basis of multiple product
purchase which include such Finished Dosage Form Product shall be allocated to
such Finished Dosage Form Product on a proportionally equal basis based on the
respective average invoiced price of each such Finished Dosage Form Product; and
such party shall not sell such Finished Dosage Form Product as a loss leader or
otherwise cause its sales of some other Finished Dosage Form Product to benefit
at the expense of such Finished Dosage Form Product.
"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 Net Sales of Finished Dosage Form Product less: (i)
the Manufacturing Cost of either party hereto supplying such Finished Dosage
Form Product pursuant hereto; and (ii) the Commercial Expenses of either party
hereto being supplied such Finished Dosage Form Product pursuant hereto; (iii)
royalties due to third parties under licensing agreements relating to technology
used in the production of Finished Dosage Form Product (or Bulk Substance
included in that Finished Dosage Form Product). Notwithstanding the foregoing,
if in any period the amounts set forth in (i) through (iii) above reduce Profit
to zero or below, then these amounts shall be deducted until Profit is zero and
the balance of the costs shall be deducted against Profit in future periods
until such amounts have been fully deducted; provided that such carryover costs
for such Finished Dosage Form Product may not be deducted once this Agreement is
terminated in whole or as to such Finished Dosage Form Product.
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 UK, Canada,
Australia, South Africa, Taiwan and Peru in which Schein has an equity interest
but does not control.
"Schein Entity Market" means the United Kingdom, Canada, Australia,
South Africa, Taiwan and Peru.
"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
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 Australia, South Africa, and the U.K. 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
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 December 31, 2007 (the "Termination Date"); provided,
however, that (i) the Schein Distribution Right and the Cheminor Distribution
Right, as the case may be, shall not expire with respect to any jurisdiction for
any Schein Dosage Form Product or Cheminor Dosage Form Product for which an
application for Regulatory Approval (ANDA or non-U.S. equivalent), is submitted
prior to December 31, 2007, until the fifth anniversary of the first commercial
sales in such jurisdiction of such Finished Dosage Form Product by Schein or
Cheminor, as applicable; and (ii) the Termination Date shall be extended
automatically by successive three-year periods unless Schein or Cheminor gives
written notice to the other that such extension shall not occur ("Notice of
Non-Renewal") and the Notice of Non-Renewal is given at least five years prior
to the Termination Date then in effect. In the event that Cheminor gives Schein
Notice of Non-Renewal, Cheminor shall supply Schein with Cheminor Dosage Form
Products on a non-exclusive basis for up to one hundred-eighty (180) days after
the Termination Date on the same terms and conditions as contained in this
Agreement. In the event that Schein gives Cheminor Notice of Non-Renewal, Schein
shall supply Cheminor with Schein Dosage Form Products on a non-exclusive basis
for up to one hundred-eighty (180) days after the Termination Date on the same
terms and conditions as contained in this Agreement. Upon delivery of a Notice
of Non-Renewal the parties hereto shall have "Access" to the ANDA (or non-U.S.
equivalent) as set forth below for a period of 24 months after delivery of the
Notice of Non-Renewal:
10
<PAGE>
ANDA ACCESS
-----------
<TABLE>
<CAPTION>
Product Delivery by Schein of a Delivery by Cheminor of a
Notice of Non-Renewal Notice of Non-Renewal
- --------------------------------------------------------------------------------------
<S> <C> <C>
Cheminor Finished Dosage Schein is not entitled to Schein is entitled to Access
Product with Third Party Access
Bulk
- --------------------------------------------------------------------------------------
Cheminor Finished Dosage Schein is not entitled to Schein is entitled to Access
Product with Cheminor Bulk Access
- --------------------------------------------------------------------------------------
Schein Finished Dosage Cheminor is entitled to Cheminor is not entitled to
Product with Cheminor Bulk Access Access
- --------------------------------------------------------------------------------------
Schein Finished Dosage Cheminor is entitled to Cheminor is not entitled to
Product with Third Party Access Access
Bulk
- --------------------------------------------------------------------------------------
</TABLE>
The term "Access" means the right given to the party who receives the Notice of
Non-Renewal to use all information and data (the "Information") that is
contained in the other party's applications for Regulatory Approval (ANDA or
non-U.S. equivalent) relating to such Finished Dosage Form Product in order to
obtain its own Regulatory Approval for an equivalent finished dosage form
product in the jurisdictions in which the other party's Finished Dosage Form
Product is being sold at the time of the given Notice of Non-Renewal, subject to
the confidentiality undertakings in Section 11. For the avoidance of doubt, if a
party is "not entitled to Access" it means that such party shall not use any of
the Information for the purpose of securing its own Regulatory Approval for an
equivalent finished dosage form product.
(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 during any
rolling twelve (12) month period after the Launch Date with respect to such
Cheminor Dosage Form Product the Profit is less than **** ******* **** of Net
Sales of that Cheminor Dosage Form Product in that jurisdiction 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 the
Profit on the Cheminor Dosage Form Product for the period to be less than ****
******* **** of Net Sales. 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 Profit with respect to a
Cheminor Dosage Form Product is less than ****
* redacted pursuant to confidential treatment request.
11
<PAGE>
******* **** of Net Sales in the rolling twelve (12) month period, the parties
shall first calculate Profit for the entire twelve (12) month period, shall then
subtract from that amount the actual Profit in the least profitable one (1)
month (during that twelve (12) month period) and shall multiply that resulting
amount by 12/11.
(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 during any
rolling twelve (12) month period after the Launch Date with respect to such
Schein Dosage Form Product the Profit is less than **** ******* **** of Net
Sales of that Schein Dosage Form Product in that jurisdiction 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 the
Profit on the Schein Dosage Form Product for the period to be less than ****
******* **** of Net Sales. 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
Profit with respect to a Schein Dosage Form Product is less than **** *******
**** of Net Sales in the rolling twelve (12) month period, the parties shall
first calculate Profit for the entire twelve (12) month period, shall then
subtract from that amount the actual Profit in the least profitable one (1)
month (during that twelve (12) month period) and shall multiply that resulting
amount by 12/11.
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 Dr. Reddy's Research Foundation. The parties hereto
-------------------------------
acknowledge that the products developed by Dr. Reddy's Research Foundation as
New Chemical Entities, which are subject to approval of a New Drug Application
(as defined under the US Code of Federal Regulations) or a similar required
approval outside of the United States, are excluded from this Agreement. Schein
may approach Dr. Reddy's Research Foundation to discuss possible collaboration
on Dr. Reddy's Research Foundation's New Chemical Entities. Dr. Reddy's
Research
* redacted pursuant to confidential treatment request
12
<PAGE>
Foundation, at its sole discretion, may in the future disclose and offer a New
Chemical Entity to be licensed by Schein. Such licensing arrangement would be
subject to a new agreement to be mutually agreed by Schein and Dr. Reddy's
Research Foundation.
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.
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) Cheminor has designed, constructed and will timely, but no later
than December 31, 1998, validate a commercial manufacturing facility in
accordance with Applicable Law (excluding the **** ******* production plant) in
Hyderabad, India, (the "Facility") to develop and manufacture products in
compliance with Applicable Law. 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
<PAGE>
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 Product is being developed under this Agreement changes the
formulation of the Finished Dosage
20
<PAGE>
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 Patent Challenges. Prior to the Termination Date, the
-----------------
parties hereto shall work together to pursue patent challenge opportunities on
an exclusive basis in the U.S. and such other jurisdictions as the parties
hereto may from time to time mutually agree upon unless
(a) Schein brings forward a patent challenge opportunity which
Cheminor has not previously presented to Schein and
(i) Cheminor or Reddy does not have the facilities, technology or
chemistry available to it to produce the Finished Dosage Form Product
or Bulk Substance; or
(ii) Cheminor or Reddy cannot have available Finished Dosage Form
Product and/or Bulk Substance on the timetable established in good
faith by Schein necessary for timely and expeditious filing of the
patent challenge;
(b) a third party brings to Schein a basis for a patent challenge,
conditioned on such third party providing the bulk pharmaceutical
substance and/or Finished Dosage Form Product to Schein, and neither Schein, on
the one hand, nor Cheminor, on the other, has at that time presented that same
opportunity to the other; or
(c) a third party brings to Cheminor a basis for a patent challenge
opportunity, conditioned on the third party providing the Finished Dosage Form
Product and/or marketing, and neither Schein, on the one hand, nor Cheminor, on
the other, has at that time presented that same opportunity to the other.
If Schein, in accordance with clause (a) above, purchases Bulk
Substance from a third party, then it will endeavor to structure any such
arrangement to permit, at the earliest possible date, sourcing such Bulk
Substance from Cheminor (at Cheminor's discretion) pursuant to Section 3.1
hereof. If Schein presents Cheminor with a patent challenge opportunity but
Cheminor cannot have Bulk Substance available on a timely basis as provided
above, then in order to protect the proprietary and confidential nature of the
information disclosed to Cheminor by Schein, Cheminor agrees to maintain the
confidentiality of the information and not to provide any other party with
access to such Bulk Substance for the Schein Market for at least 12 months
following Schein's disclosure of that patent challenge opportunity to Cheminor
if at the time of disclosure by Schein to Cheminor, Cheminor has already
developed a laboratory scale synthesis process for that Bulk Substance and
Cheminor thereafter receives an unsolicited written inquiry for that Bulk
Substance from a third
21
<PAGE>
party, otherwise Cheminor will not provide any other party with access to that
Bulk Substance for at least 36 months following Schein's disclosure of that
opportunity to Cheminor.
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.
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<PAGE>
(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.
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<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.
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<PAGE>
(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 VIII
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; (iii) 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; (vii) 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.
31
<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 Patent Claims. If a litigation is commenced relating to
-------------
charges of infringement of intellectual property rights with respect to the
manufacture, use, sale, offer for sale or importation of any Finished Dosage
Form Product which is the subject of this Agreement, Cheminor and Schein shall
cooperate with one another (regardless of which party is a named party to that
litigation) and shall jointly direct and control the litigation, including
selection of patent or litigation counsel, decisions as to settle or compromise
the case or position, and taking any other actions. Schein and Cheminor shall
share equally all fees, costs and expenses related to such litigation. ** ***
****** *********** *** ******** ** ******* **** ** ***** *** ** ****** *** ***
** ********* ***** ********** **** ******** ******** ** *** ***** ***** ***
******** ******** ** ********** **** **** *********** Cheminor and Schein shall
fully cooperate with each other in the defense or prosecution of any such patent
litigation.
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 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 10.1 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.
33
<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 (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
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.
35
<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
-------------------------------
Cheminor Dosage Form Products By Jurisdiction Not Availalbe to Schein or
------------------------------------------------------------------------
Schein Entities
---------------
Norfloxacin Australia
Enalapril Australia
Ciprofloxacin Australia and Canada
Ranitidine UK
Ibuprofen UK
Ibuprofen will be made available to Schein or the Schein Entities on a
non-exclusive basis.
1
<PAGE>
SCHEDULE 2.1(b)(ii)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
******** ********* ****** ******
******** ** *** ** ****
-----------------------
********** ********* *** ***** ******
********* *********
******** *********
*********** ***** ****** *** **
************* ***** ****** *** **
********** ***** ****** *** **
********* ***** ****** *** **
********** ***** ****** *** **
********** **
*********** **
***********
******* **
* Redacted pursuant to confidential treatment request.
2
<PAGE>
SCHEDULE 2.1(b)(iii)
STRATEGIC ALLIANCE AGREEMENT
----------------------------
******** ********* ************ *** ***** *********** ** ******** ***** ******
***** ** **** ****** ****** *** **** ** **** **********
*********** ******** ****
***** **** ***********
*********** ******** *********
********** ************* ********** *************
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********** ******* ******
*********** *********** *************
************ *** ********** *************
******** ************
********** *************************
*********
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****** ***********
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********* ************* *** ***********
************ ********* *************
************* **********
********** ************* ***********
************ ************* ******* *************
*********** ************* ********* *******
*********** ******** ********
* Redacted pursuant to confidential treatment request.
3
<PAGE>
SCHEDULE 2.1(b)(iii)-CONTINUED
*********** ****** ********** ***
********** ******** ************
********** **********
********** *************** **********
************* **** ******** ***
************* ************* *** ******** ****** ***
********* **********
**************** ********** ***
************ *** *********** ***
********* ************* *** ********* ***
*********** ********** **P
*********** ******* *********** *************
********* ******** *********
********* ******* *** *********** ********
*********** *** **********
************ ******** ***
******* ************* *********
********** *** ********
********** ********** *************
*********** *** *** ****
********** ************* *** ***********
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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.
****** ***** **** ** ******** ** ***** ************ ***** **** ** *
***** ************, ** ******** ** ***** ***** *** *********** **** *** * ****
**** *********** **** ************* ******* ****** ******* *** **** ****** ****
***** *******
<TABLE>
<CAPTION>
******* ******** **** ************ ******* ****** *****
- ---------------------------------------------------- ----------------------------------
- ---------------------------------------------------------------------------------------
<S> <C>
** *** ********** ********* ****** ********* **
******** ** *** **** *** ********
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- ---------------------------------------------------------------------------------------
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- ---------------------------------------------------------------------------------------
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******* ** *** **** ***** *** **** ** ******
********** ** ******* *********** **********
*** *** ******** ****** **** ********
- ---------------------------------------------------------------------------------------
</TABLE>
* Redacted pursuant to confidential treatment request.
5
<PAGE>
SCHEDULE 2.2(a)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
*****
******
*******
*******
*******
**********
*******
**********
**********
*******
**********
************
**********
*******
* Redacted pursuant to confidential treatment request.
6
<PAGE>
SCHEDULE 2.2(b)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
****** ****** **** ******** ******** *** ***** *** ** **********
----------------------------------------------------------------
*** ******* ** *** ********* ******** ******
* Redacted pursuant to confidential treatment request.
7
<PAGE>
<TABLE>
<CAPTION>
*** *********** ******** ******* ****
- ------------- --------------------------------------------------- ----------------- -------------
- ------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
************* ************* ***** *** *** ** ***
- ----------------------------------------------------------------------------------------------------
************* ************* ***** *** *** *** ***
- ----------------------------------------------------------------------------------------------------
************* ************* **** *** *** *** ***
- ----------------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------
************* *********** ***** *** *** ** ***
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- ----------------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------
************* *********** ***** *** *** ** ***
- ----------------------------------------------------------------------------------------------------
************* ********* ***** *** ** ** ***
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************* ********* ***** *** ** ** ***
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************* ********* ***** *** ** ** ***
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************* ******** ***** *** *** ** **
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- ----------------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------
************* ********** ****** ******** *** *** ** ** * * **
- ----------------------------------------------------------------------------------------------------
************* ********** ****** ******** *** *** ** ** * *** **
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- ----------------------------------------------------------------------------------------------------
************* ********** ****** ******** *** * ** ** * *** **
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************* ********** ****** ******** *** * ** ** * ** **
- ----------------------------------------------------------------------------------------------------
************* ********** ****** ******** *** * ** ** * *** **
- ----------------------------------------------------------------------------------------------------
************* ********** ****** ******** *** ** ** ** * *** **
- ----------------------------------------------------------------------------------------------------
************* ********** ****** **** ********** ******** *** ** **
- ----------------------------------------------------------------------------------------------------
************* ********** ***** ** **
- ----------------------------------------------------------------------------------------------------
************* ********** ***** ********* ***** *** ***** ** **
- ----------------------------------------------------------------------------------------------------
************* ********** ***** ********* ***** *** ***** ** **
- ----------------------------------------------------------------------------------------------------
************* ******** **** *** *** **** **** *** **** ** ** * * **
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Redacted pursuant to confidential treatment request.
8
<PAGE>
<TABLE>
<CAPTION>
*** *********** ******** ******* ****
- ------------- --------------------------------------------------- ----------------- -------------
- ------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
************* ******** **** *** *** *** **** ** * **
- ----------------------------------------------------------------------------------------------------
************* ******** **** *** *** **** **** *** ***** ** **
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****
- ----------------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------
************* ************ ***** *** *** ** ***
- ----------------------------------------------------------------------------------------------------
************* ************ ***** *** *** ** ***
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Redacted pursuant to confidential treatment request.
9
<PAGE>
<TABLE>
<CAPTION>
*** *********** ******** ******* ****
- ------------- --------------------------------------------------- ----------------- -------------
- ------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
************* ************ ***** *** *** ** ****
- ----------------------------------------------------------------------------------------------------
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************* ******** ********* *** *** ** **
- ----------------------------------------------------------------------------------------------------
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************
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</TABLE>
* Redacted pursuant to confidential treatment request.
10
<PAGE>
<TABLE>
<CAPTION>
*** *********** ******** ******* ****
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</TABLE>
* Redacted pursuant to confidential treatment request.
11
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
****************************
</TABLE>
* Page redacted pursuant to confidential treatment request.
12
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
****************************
</TABLE>
* Page redacted pursuant to confidential treatment request.
13
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
****************************
</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
-------------------------------
******** ******** ***********
-----------------------------
*********** * ** * ******
********* * ** * ******
***************************** * ** * ******
*********** * ** * ******
********** * **
********** * *** ******* ***** ******* *** ******* ****
********** ** ******* * ********** ****** ******
************ * ****** ******* * *********
********* ******* * ******** * **
********** ** ******** * **
**** ********* * *** ******* *** *****
********* ** ******** * **
* Redacted pursuant to confidential treatment request.
27
<PAGE>
SCHEDULE 2.4(2)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
********** ******** *********** ** ***** *******
------------------------------------------------
******* ******* ** *** ****** ****** ****** ***** *********
-----------------------------------------------------------
****
- ----
******** *** ** ********* **** *********** ****** *** ************ ***********
*** *********** ******* **** ************ *********** ****** **** ********* **
*** ******* ** *** ***** ***** ***** ****** ** ******** *****
****** **** ********
- --------------------
**********
**********
********** ***
**********
********* *******
************ *********** ******************** *********** ****
*** *** **** ** *** ************ ** *** ****** ******** ***** *** *******
* Redacted pursuant to confidential treatment request.
28
<PAGE>
SCHEDULE 4.2(b)
*** ***** ** ******** ******** **** ********* *** ******** ******
******** **** ********* **** ** ****** ****** **** ******* ***** ** *** ***
************* **** ******** **** **** ***** ******* ***** ** *** ****** ****
******* ** **** ****** ****** **** ******* **** ***** **** ** *** *** *** *****
********* ** **** ****** ****** **** ********* *** ***** ** ********** ********
**** ********* *** *** ******** ********* *** *** ** *********** ******** **
******** **** **** ** ******** *********
* 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
-------------------------------
Cheminor Material Agreements
----------------------------
Cheminor is not a party to any agreement granting it rights to any
products, formulation or technology, except for a pilot joint venture with *****
***** ***** concerning bulk activities which Cheminor anticipates will be
terminated by mutual agreement, and a agreement with **** ******* to manufacture
bulk and finished dosage licenses products not covered by this Agreement.
Cheminor is not a party to any agreement for supply to Cheminor of any
product (dosage form or bulk active) included in Schein's Distribution Rights.
Cheminor is not a party to any agreement under which Cheminor leases
any of its manufacturing facilities or laboratories.
* Redacted pursuant to confidential treatment request.
38
<PAGE>
SCHEDULE 8.3(e)(2)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
Schein Material Agreements
---------------------------
Supply Agreement for:
. Ketoprofen ER capsules
. Methylphenidate Bulk Drug Substance
. Iron Dextran Bulk Drug Substance
Development Agreements granting the worldwide rights to use uncontrolled release
technologies covered under the following US patents -
4,557,925
4,629,620
4,629,619
4,824,678
5,178,868
PCT/93/0064L
4,880,830
39
<PAGE>
5,145,683
PCT/GB93/00055
PCT/08/030,265
Facility leases for:
. Distribution facility: Brewster, NY
. Distribution facility: Phoenix, AZ
. Manufacturing plant: Danbury, CT
40
<PAGE>
SCHEDULE 8.3(g)(1)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
Cheminor Violations of Law
--------------------------
None.
41
<PAGE>
SCHEDULE 8.3(g)(2)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
Schein Violations of Law
-------------------------
Please refer to the following sections of Schein's registration statement,
Form S-1 (copies of which are attached hereto):
Risk Factors - Dependence on Regulatory Approval and Compliance;
Pending Regulatory Matters.
Business - Government Regulations.
Warning letter dated January 29, 1998 concerning Steris Laboratories,
Inc., relating to the 1997 inspection described in the above-mentioned
registration statement.
42
<PAGE>
SCHEDULE 8.3(h)(1)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
Cheminor Proprietary Rights - Adverse Uses
------------------------------------------
Cheminor does not have any patents or copyrights required to conduct its
business as it is now conducted.
43
<PAGE>
SCHEDULE 8.3(h)(2)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
Schein Proprietary Rights - Adverse Uses
----------------------------------------
None.
44
<PAGE>
SCHEDULE 8.3(i)(1)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
None.
45
<PAGE>
SCHEDULE 8.3(i)(2)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
None, except as to patent challenges.
46
<PAGE>
SCHEDULE 8.3(k)(1)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
None.
47
<PAGE>
SCHEDULE 8.3(k)(2)
TO STRATEGIC ALLIANCE AGREEMENT
-------------------------------
Please refer to the following sections of Schein's registration statement,
Form S-1 (copies of which are attached hereto):
Risk Factors - Dependence on Regulatory Approval and Compliance;
Pending Regulatory Matters.
Business - Government Regulations.
Warning letter dated January 29, 1998 concerning Steris Laboratories,
Inc., relating to the 1997 inspection described in the above-mentioned
registration statement.
48
<PAGE>
SCHEDULE 3.2
TO STRATEGIC ALLIANCE AGREEMENT
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Naproxen
Naproxen Sodium
Famotidine
49
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EXHIBIT 10.49
Dated 31st March, 1998
ELAN CORPORATION, plc
AND
SCHEIN PHARMACEUTICAL, INC.
DEVELOPMENT, LICENSE AND SUPPLY AGREEMENT
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CONTENTS
CLAUSE 1 PRELIMINARY
CLAUSE 2 TUE LICENSE
CLAUSE 3 INTELLECTUAL PROPERTY
CLAUSE 4 SCHEIN COMPETING PRODUCTS
CLAUSE 5 DEVELOPMENT OF THE PRODUCT
CLAUSE 6 PROJECT TEAM AND PROJECT MANAGEMENT
CLAUSE 7 REGISTRATION OF THE PRODUCT
CLAUSE 8 MARKETING AND PROMOTION OF THE PRODUCT
CLAUSE 9 SUPPLY OF THE PRODUCT
CLAUSE 10 FINANCIAL PROVISIONS
CLAUSE 11 PAYMENTS, REPORTS AND AUDITS
CLAUSE 12 DURATION AND TERMINATION
CLAUSE 13 WARRANTY AND INDEMNITY
CLAUSE 14 CUSTOMER COMPLAINTS AND PRODUCT RECALL
CLAUSE 15 MISCELLANEOUS PROVISIONS
CLAUSE 16 CONDITIONS
SCHEDULE 1 NORMAL DOSAGE FORM
SCHEDULE 4 PRODUCT SPECIFICATIONS
SCHEDULE 5 THE PROJECT
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THIS AGREEMENT is made on 31st March, 1998.
BETWEEN:
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(1) ELAN CORPORATION PLC, a company incorporated in Ireland having its
registered office at Lincoln House, Lincoln Place, Dublin 2, Ireland
(ELAN); and
(2) SCHEIN PHARMACEUTICAL, INC., a company organized under the laws of
Delaware, with offices at 100 Campus Drive, Florham Park, New Jersey,
United States of America (SCHEIN).
RECITALS:
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A. ELAN is beneficially entitled to the use of various patents, including the
ELAN PATENT RIGHTS,which 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 and processes.
B. ELAN is knowledgeable in the development of drug specific oral and
transdermal dosage forms and has developed a unique range of delivery systems
designed to provide newer and better formulations of medicaments.
C. SCHEIN wishes to have ELAN develope A Rated (as defined) equivalent PRODUCTS
of the NORMAL DOSAGE FORMS and ELAN is willing to use its technology to do
so.
D. ELAN is prepared to develope the PRODUCTS for SCHEIN; to grant SCHEIN an
exclusive license of the ELAN PATENT RIGHTS and ELAN KNOW-HOW to package,
import, use, offer for sale and sell the PRODUCTS in the TERRITORY and to
supply the PRODUCTS to SCHEIN.
E. ELAN and SCHEIN are desirous of entering into an agreement to give effect to
the arrangements described at Recitals C and D.
NOW IT IS HEREBY AGREED AS FOLLOWS:
CLAUSE 1 - PRELIMINARY
1.1 Definitions: In this Agreement unless the context otherwise requires:
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A RATED shall have the meaning as defined and accepted by the FDA.
AFFILIATE shall mean any corporation or entity controlling or controlled or
under common control with ELAN or SCHEIN, as the case may be. For the purposes
of this Agreement, "control" shall mean the direct or indirect ownership of more
than 50% of the issued voting shares or other voting rights of the subject
entity to elect directors.
cGCP, cGMP, cGLP shall mean respectively current Good Clinical Practice, current
Good Manufacturing Practice and current Good Laboratory Practice as defined in
the US Federal Food, Drug and Cosmetic Act and the regulations promulgated
thereunder, as may be amended from time to time.
CFR shall mean the US Code of Federal Regulations 21, as amended from time to
time.
CMC SECTION shall mean the chemistry, manufacturing, and controls section of the
REGULATORY FILING as defined in the CFR, as may be amended from time to time,
and/or its equivalent in other REGULATORY FILINGS.
DATE OF FIRST COMMERCIAL SALE shall mean on a PRODUCT BY PRODUCT basis the first
sale under this Agreement in an arm's length transaction to an independent third
party. SCHEIN will provide ELAN with written notice of such date on a PRODUCT by
PRODUCT basis.
DMF shall mean Drug Master File, as defined in the CFR.
DSDF shall mean one or more of the transdermal and solid drug specific dosage
forms which ELAN shall develop or shall have developed in the course of the
PROJECT being A-Rated, or such other dosage forms that may be agreed in writing
by the Parties equivalent to the NORMAL DOSAGE FORMS and to meet the PRODUCT
SPECIFICATIONS.
EFFECTIVE DATE shall mean 31st MARCH 1998.
ELAN shall mean ELAN Corporation, plc and any of its AFFILIATES, including Sano
Corporation.
ELAN KNOW-HOW shall mean all knowledge, information, trade secrets, data and
expertise which is not generally known to the public, owned by ELAN, or to which
ELAN has rights under the terms of a license or licenses in force on the
EFFECTIVE DATE which permit(s) disclosure of same to SCHEIN relating to the
PRODUCTS, or to be developed by ELAN pursuant to the PROJECT, whether or not
covered by any patent, copyright, design patent, trademark, trade secret or
other industrial or any intellectual property rights.
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In the event that ELAN acquires or merges with a third party entity, ELAN KNOW-
HOW shall not include any know-how to the extent that such know-how relates to a
product containing the same active ingredient as the DSDF which has been
approved for marketing or is in development by the said third party entity at
the time of such acquisition or merger. For the avoidance of doubt, the
occurrence of any such acquisition or merger shall not affect the license of the
ELAN KNOW-HOW granted to SCHEIN hereunder.
ELAN PATENT RIGHTS shall mean all patents and patent applications listed in
Schedule 2 as said schedule may be amended from time to time by mutual written
agreement. For the avoidance of doubt, the parties acknowledge that there are no
ELAN PATENT RIGHTS at the Effective Date, but that ELAN PATENT RIGHTS shall
include patents and patent applications emanating from anything developed by
ELAN pursuant to the PROJECT. ELAN PATENT RIGHTS shall also include all
continuations, continuations-in-part, divisionals, and any patents issuing
thereon, and re-issues or re-examinations of such patents and extensions of any
patents licensed hereunder. Extensions of patents shall include extensions under
the U.S. Patent Term Restoration Act.
In the event that ELAN acquires or merges with a third party entity, ELAN PATENT
RIGHTS shall not include any patent rights to the extent that such patent rights
relate to a product containing the same active ingredient as the DSDFS which has
been approved for marketing or is in development by the said third party entity
at the time of such acquisition or merger. For the avoidance of doubt, the
occurrence of any such acquisition or merger shall not affect the license of the
ELAN PATENT RIGHTS granted to SCHEIN hereunder.
FDA shall mean the United States Food and Drug Administration or any other
successor agency whose approval is necessary to market the PRODUCTS in the
TERRITORY.
FDA APPROVAL shall mean the final approval to market the PRODUCTS in the
TERRITORY, including post approval validation and scale up inspection and any
other approval which is required to launch the PRODUCTS in the normal course of
business.
FOB shall have the meaning set forth in the State of New York Uniform Commercial
Code as amended.
INITIAL PERIOD shall mean the initial period of this Agreement, as more fully
described in Clause 12.
IN MARKET shall mean the sale of the PRODUCT in the Territory by SCHEIN or its
AFFILIATES, or where applicable by a permitted sub-licensee, to an unaffiliated
third party, including but not limited to a wholesaler, chain store,
distributor, managed care organization, hospital or pharmacy.
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LAUNCH STOCKS shall mean the quantities of stocks of the PRODUCT required by
SCHEIN to support the commercial introduction of the Product following FDA
Approval.
NORMAL DOSAGE FORM shall mean one or more of the brand name products set forth
in Schedule 1 used as reference products for the PROJECTS, as maybe amended by
mutual written agreement or as otherwise contemplated by this Agreement.
MARKETING COMMITTEE shall have the meaning set forth in Clause 8. 1.
NET SALES PRICE ("NSP") shall mean in the case of PRODUCT sold by SCHEIN or an
AFFILIATE, that sum determined by deducting from the aggregate gross IN MARKET
sales proceeds billed for the PRODUCT by SCHEIN or its AFFILIATE, as the case
may be, the following deductions:
(a) ordinary course trade, quantity and cash discounts, credits and allowances
(including inventory and price protection, chargebacks, volume
reimbursements, Medicaid rebates), contract administration fees, if any
incurred or granted;
(b) marketing, selling and distribution expenses prorated as to the fraction of
the PRODUCTS' sales relative to total generic SCHEIN sales, subject to a cap
of ** of the sum of the aggregate gross IN MARKET sales proceeds less the
deductible items at (a) above;
(c) dedicated direct marketing expenses for each PRODUCT associated with
activities to ******** *********** ************ ******* ***** ******** ****
*** **** ****** *********** ***** **** *** ****** ****** **** ** ***** ***
******** ***** ****** *********** ** *** *********** ******* ** ** ** ***
*** ** ********* ***** ** ****** ***** ******** **** *** ********** ***** **
*** Such marketing programs will be developed in consultation with the
Marketing Committee.
PATENT DETERMINATION PERIOD shall mean on a PRODUCT by PRODUCT basis the period
of time from the EFFECTIVE DATE until such time that Schein makes a PATENT
DETERMINATION in accordance with Clause 3.2.
PRODUCT shall mean one or more of the DSDF packaged and labeled for sale in the
TERRITORY.
PIVOTAL BIO PK STUDY shall mean a pivotal 1 pharmacokinetic bio-equivalency
study in support of a REGULATORY FILING for a PRODUCT in accordance with FDA
requirements and guidelines.
PRODUCT MANUFACTURING COST shall mean the fully allocated cost which is the sum
total of all production related costs for the Product (direct labor, direct
materials, facility overhead and expenses which can be allocated to the PRODUCT,
QA/QC and
* redacted pursuant to confidential treatment request
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analytical charges, packaging and regulatory compliance costs for the Product
including, but not limited to, stability and FDA fees in accordance with United
States General Accepted Accounting Principles).
PRODUCT SPECIFICATIONS shall mean the specifications set forth in the REGULATORY
FILINGS, the specifications set forth in the Agreement, and such specifications
as may from time to time be established by the applicable regulatory
authorities, including without limitation, cGCPs, cGMPs and cGLPs, and such
additional specifications for the PRODUCT as may be agreed by the Parties in
writing.
PROFIT shall mean NSP less PRODUCT MANUFACTURING COST.
PROJECT(S) shall mean all activity in order to develop each of the PRODUCTS,
including activities in accordance with the plan to be attached for each of the
PRODUCTS (other than *************** ***********) in SCHEDULE 3 within ninety
(90) days of the EFFECTIVE DATE.
PROJECT TEAM shall mean the group to be established pursuant to Clause 6.
REGULATORY FILING shall include but shall not be limited to an abbreviated new
drug application ("ANDA"), a new drug application ('NDA') or any other
application acceptable to the FDA for marketing approval for the Product, which
ELAN will file in the TERRITORY, including any supplements or amendments
thereto.
SCHEIN shall mean SCHEIN Pharmaceutical, Inc. and shall include the following
AFFILIATES: Danbury Pharmacal, Inc., Marsarn Pharmaceuticals Inc., Steris
Laboratories, Inc. and Schein Pharmaceutical (Bermuda) Ltd.
SCHEIN TRADEMARK shall mean the trademark(s) of SCHEIN to be applied to the
PRODUCT.
TECHNOLOGICAL COMPETITOR shall mean a company or corporation having a
substantial part of its business in the oral or transdermal drug delivery,
research, development and manufacturing areas of the pharmaceutical industry,
with a market capitalization of $100 million, in the case of a publicly-held
company, or $75 million of annual revenues, in the case of a privately-held
company.
TERRITORY shall mean the United States of America, its territories and
possessions.
$ shall mean United States Dollars.
"US" or "USA" shall mean the United States of America.
* redacted pursuant to confidential treatment request
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1.2 Interpretation: In this Agreement:
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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 reference to a Clause or Schedule, unless otherwise
specifically provided, shall be respectively to a Clause or
Schedule of this Agreement.
1.2.3 the headings of this Agreement are for ease of reference only and
shall not affect its construction or interpretation.
CLAUSE 2 - THE LICENSE LICENSE
2.1 License to SCHEIN:
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2.1. Subject to the terms of this Agreement, ELAN hereby grants to SCHEIN
and SCHEIN hereby accepts for the term of this Agreement an exclusive
license of the ELAN PATENT RIGHTS and the ELAN KNOW-HOW to package,
import, use, offer for sale and sell the PRODUCTS in the TERRITORY.
2.2. ELAN shall possess all rights including, without limitation, the right
to research, develop, experiment with, manufacture, sell, license or
otherwise market the PRODUCTS outside the TERRITORY.
2.3 ELAN shall neither, directly or indirectly, solicit customers for the
PRODUCTS, or make sales of the PRODUCTS, or establish or maintain in
the TERRITORY any branch or distribution depot for the sale or
marketing of the PRODUCTS in the TERRITORY, or assist any party in
doing so. Subject to one agreement which is in existence as of the
EFFECTIVE DATE, in all agreements between ELAN and its customers, ELAN
shall use its reasonable endeavors to require such customers to
represent, warrant and covenant that such customers shall not directly
or indirectly use, market, sell or distribute the PRODUCTS in the
TERRITORY, or assist any other party to do so, and (ii) at such time as
ELAN learns that such customer is directly or indirectly using,
marketing, selling or distributing a Product in the TERRITORY, or that
such customer is assisting any other party to do so, then ELAN shall
immediately notify SCHEIN in writing of such occurrence and immediately
cease supplying the PRODUCTS to such customer.
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CLAUSE 3 - INTELLECTUAL PROPERTY
3. 1. Ownership of ELAN PATENT RIGHTS/KNOW-HOW:
3.1.1 ELAN shall remain the sole owner of the ELAN PATENT RIGHTS and
ELAN KNOW-HOW, whether developed pursuant to the PROJECT or
otherwise.
3.1.2 ELAN shall be entitled to use the ELAN PATENT RIGHTS and ELAN
KNOWHOW, and all technical and clinical data whether generated by
ELAN or SCHEIN pursuant to this Agreement in connection with
ELAN's other commercial arrangements outside the TERRITORY. If
Elan utilizes the PIVOTAL BIO PK STUDIES funded by Schein, then
Elan shall pay to Schein a fee calculated as follows: the product
obtained by multiplying (i) a fraction the numerator of which
shall be the market sales in the country in question as reported
by IMS or similar source, and the denominator of which shall be
the US market sales as reported by IMS or similar source, times
(ii) the expense of the PIVOTAL BIO PK STUDY; provided that such
aggregate amount shall not exceed $200,000.
3.2. Patent Strategy/Patent Determination
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In an effort to provide Schein sufficient time to conduct patent due diligence
with respect to the Products as initially set forth on Schedule 1, the parties
agree that:
3.2.1 Upon execution of an appropriate Confidentiality Agreement,
Schein's outside independent patent counsel shall have adequate
access to all technical information currently available on each of
the Products and to enlist the co-operation of Elan's and Sano's
outside patent counsel who have conducted an infringement/validity
study concerning one or more of the Products with respect to any
third party patents for the purpose of expediting Schein's due
diligence review;
3.2.2 Schein shall report to Elan Schein's decision that Schein believes
the risk of an infringement concerning each Product is or is not
acceptable within a period of not more than 150 days from the
Effective Date of the Agreement; however, Elan and Schein shall
prioritize the order in which the Products are to be reviewed;
3.2.3 If Schein reports that the risk of infringement is unacceptable,
Schein will commission validity studies of the relevant patents to
determine if such patent can be invalidated or rendered
unenforceable and/or, in cooperation with Elan's technical staff,
work to attempt to develop a non-infringing process or
formulation;
3.2.4 If it is determined to Schein's reasonable satisfaction that the
relevant patent (on a Product-by-Product basis) is invalid or
unenforceable, or if Schein believes the risk of infringement is
acceptable, the Product will move forward for further development.
All such decisions will be finalized no later than 150 days from
the Effective Date. The
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failure by Schein to accept or reject the Products by this time
shall cause the Products to be deemed accepted by Schein;
3.2.5 If in Schein's reasonable, independent judgement, the risk of
infringement is unacceptable and the validity study does not
reasonably satisfy Schein that the relevant patent is invalid or
unenforceable and/or the process cannot be re-formulated to be
non-infringing, then the Product in question shall be deemed a
"Patent Determination" In the event of such Patent Determination,
such Product in question shall cease to be deemed a Product for
the purpose of this Agreement;
3.2.6 For each Patent Determination Product, the parties shall mutually
choose a replacement Product which is of approximately equal
market value from those within the capabilities of Elan;
3.2.7 Schein shall be entitled to select one replacement Product for
each of the initial **** Products set forth on Schedule I for
which a Patent Determination arises. This is separate from and not
in place of any "Failure" under Clause 10.3.
3.3. INFRINGEMENTS
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3.3.1. SCHEIN and ELAN shall promptly inform the other in writing of any
alleged infringement of which it shall become aware by the
PRODUCTS of a third party's patent rights ("Defense Infringement")
or of any alleged infringement by a third party of any patents
within the ELAN PATENT RIGHTS ("Enforcement Infringement"). The
Party with such knowledge shall provide the other Party with any
available evidence of alleged infringement.
3.3.2. In the event of any alleged Defense Infringement, ELAN and SCHEIN
shall ***** ******* *** **** ** *** ****** ******. If such third
party institutes proceedings against SCHEIN and/or ELAN jointly or
separately, the Parties shall ***** ******* *** **********
******** in defending such an action (including the reasonable
legal costs and expenses incurred by a party who elects to have
separate legal representation), including reasonable attorney
fees, experts fees etc. and ***** **** ***** *** ********* to one
or more third parties for patent infringement (including a court
order for a lump sum, ongoing royalties or a settlement).
3.3.3. Where the primary issues in the Defense Infringement litigation
concerns the alleged infringement of the process for the
manufacture of the bulk active or compound patents of the active
ingredient for the PRODUCT, SCHEIN shall have principal
responsibility for the direction of all patent litigation
activities including the selection of counsel and will consult
with ELAN on an ongoing basis. SCHEIN shall have due regard to
ELAN's commercial interests and shall not conclude a settlement or
consent to any court order without the prior written consent of
ELAN, not to be unreasonably withheld or delayed.
* redacted pursuant to confidential treatment request
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3.3.4. Where the primary issues in the Defense Infringement litigation
concerns the alleged infringement of a third party's galenical
formulation or galenical patent rights or know how (including the
method or process of manufacturing the PRODUCT), ELAN shall have
principal responsibility for the direction of all patent
litigation activities including the selection of counsel and will
consult with SCHEIN on an ongoing basis. ELAN shall have due
regard to SCHEIN's commercial interests and shall not conclude a
settlement or consent to any court order without the prior written
consent of SCHEIN, not to be unreasonably withheld or delayed.
3.3.5. Where the primary issues in the Defense Infringement litigation
are outside the provisions of Clause 3.3.4. or Clause 3.3.5,
SCHEIN and ELAN shall meet to discuss in what manner the said
Defense Infringement proceedings should be defended having due
regard for the Parties' respective legal and commercial interests.
3.3.6. In the event of any alleged Enforcement Infringement, ELAN and
SCHEIN may decide to institute enforcement proceedings in their
joint names and shall share equally the proceeds of any such
proceedings, and the expense of any costs not recovered, or the
costs or damages payable to the third party. In the event that
either Party decides in writing that it does not wish to institute
such enforcement proceedings, the other Party may at its option
elect to institute proceedings to pursue the alleged Enforcement
Infringement at its own cost and shall retain the proceeds of any
such proceedings and shall bear liability for the costs or damages
payable to the third party. The non litigating Party shall co-
operate with the other party.
3.3.7. Each Party shall provide all reasonable PRODUCT technical
expertise to the other Party to support any Defense Infringement
litigation or Enforcement Infringement litigation (including
complying with requests for orders for discovery and depositions).
Any expenses incurred by ELAN or SCHEIN in providing such PRODUCT
technical expertise shall be included in the total patent
expenses, in accordance with Section 3.3.2.
3.4 Trademarks
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3.4.1 SCHEIN may market, sell and/or distribute the PRODUCTS under any
trademark or trademarks as SCHEIN or its customers may from time
to time select. Such trademarks shall remain the sole property of
SCHEIN or its customers as the case may be, and ELAN shall not use
any such trademark(s) whether during the INITIAL PERIOD or
thereafter, without the prior written consent of SCHEIN.
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3.4.2. For the term of this Agreement Schein shall grant Elan a royalty-
free license to the applicable Schein Trademarks solely to enable
Elan to fulfill its obligation pursuant to the terms of this
Agreement.
CLAUSE 4 - COMPETING PRODUCTS
4.1 Subject to the following paragraph, SCHEIN shall not develop, market or
sell any solid or transdermal formulations for prescription use which are
A Rated to the NORMAL DOSAGE FORMS other than the PRODUCTS ("SCHEIN
COMPETING PRODUCT") in the TERRITORY during the term of the Agreement (or
for one year after the termination of this Agreement if the Agreement is
terminated due to Schein's default of its obligations hereunder beyond any
applicable cure period.)
4.2 SCHEIN has disclosed to ELAN the fact that SCHEIN has contracted with a
third party for the development ** ** ********* *********** ** ** ****
********** ** ******** **** **********. In the event that SCHEIN notifies
Elan in writing that it wishes to proceed with the commercialization of
the said product and not the PRODUCT to be developed by ELAN, Elan shall
be entitled to terminate this Agreement as regards the said Product. In
such event the parties shall negotiate in good faith such provisions as
are appropriate with respect to the Product.
4.3 For the duration of the Agreement, ELAN shall not itself or through a
third party sell in the TERRITORY nor shall ELAN license another party in
the TERRITORY any other solid or transdermal formulations for prescription
use which are A Rated to the NORMAL DOSAGE FORMS ("ELAN COMPETING
PRODUCT"). For the avoidance of doubt the parties agree that the foregoing
provision shall not apply to a combination product of which the active
ingredient for the PRODUCT is only one of two or more active ingredients.
For the avoidance of doubt, with reference to the definition of ELAN
PATENT RIGHTS and ELAN KNOW-HOW in Clause 1, in the event that ELAN
acquires or merges with a third party entity, this provision shall have no
application to any product containing the same active ingredient as the
PRODUCT which has been approved for marketing or is in development by the
said third party entity.
CLAUSE 5 - DEVELOPMENT OF THE PRODUCT
5.1 ELAN shall use its reasonable efforts to successfully complete the
development program on a timely basis in accordance with the PROJECT.
5.2 ELAN and SCHEIN shall undertake their respective obligations under the
PROJECT on a collaborative basis. Accordingly, the Parties shall co-
operate in good faith particularly with
* redacted pursuant to confidential treatment request
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respect to unknown problems or contingencies and shall perform their
respective obligations in good faith and in a commercially reasonable,
diligent and workmanlike manner.
5.3 If requested to do so by ELAN, SCHEIN may at its discretion provide
technical, scientific, regulatory and clinical assistance to ELAN, at
SCHEIN's own cost, during the PROJECT
5.4. ELAN shall conduct the PIVOTAL BIO PK STUDY which may be required in
accordance with the PROJECT for each PRODUCT;
5.4.1 the design and cost of such studies and associated analytical
testing shall be agreed with SCHEIN prior to commencement of each
such study and shall be designed to meet then current FDA
guidelines and requirements for such PRODUCT;
5.4.2. ELAN shall furnish a full and detailed report to SCHEIN on the
results of all such PIVOTAL BIO PK STUDIES;
5.4.3. the Parties agree that in the event that ELAN plans to conduct the
PIVOTAL BIO PK STUDY at its own facility, then ELAN shall obtain a
competitive quote for said PIVOTAL BIO PK STUDY from a third party
who shall be reasonably acceptable to SCHEIN and ELAN's charges for
such PIVOTAL BIO PK STUDY shall be the lower of the quoted costs
and payment for such studies shall be made to ELAN by SCHEIN upon
receipt by Schein of a relevant invoice therefor;
5.4.4. ELAN undertakes that it shall carry out all such pharmacokinetic
studies to prevailing cGCP and cGLP and most specifically in
accordance with the applicable FDA standards and guidelines;
5.6 Pursuant to the PROJECT, ELAN shall use its reasonable endeavors to
develop the dosage strengths of each of the PRODUCTS for commercial sale
as set forth in SCHEDULE 1.
5.7 In the event that SCHEIN wishes to have more than the number of unit
dosage strengths of each of the PRODUCTS developed pursuant to this
Agreement, the Parties shall negotiate in good faith as to the additional
costs to be paid to ELAN for such development and such amendments as are
required to the PROJECT.
5.8 By mutual agreement the parties may pursue, alternate to an ANDA,
regulatory strategies such as NDAs, 505(b)(2) filings or such other
options as may be made available by FDA.
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CLAUSE 6 - PROJECT TEAM AND PROJECT MANAGEMENT
6.1 It is recognized by the Parties that a significant resource shall be
required from each party to accomplish successful FDA APPROVAL in the
TERRITORY and launch of the PRODUCT, particularly in the co-ordination of
logistics, finalization of various specifications, preparation and
agreement of ELAN's clinical study designs and protocols, methodologies
transfer, supply and packaging configurations, shipping and handling
procedures etc. and for this purpose, the Parties will establish a PROJECT
TEAM.
6.2 The PROJECT TEAM shall include a project manager from each Party who shall
act as liaison between the Parties and who shall co-ordinate development
efforts. The PROJECT TEAM shall contain additional business and
development personnel from each Party who are appropriately skilled and
knowledgeable in relation to the PROJECT and who are deemed necessary to
accomplish the work of the PROJECT.
6.3 Unless otherwise agreed by the Parties, the PROJECT TEAM shall meet at
least once each calendar quarter, such meetings to continue until the time
of launch or such later time as may be agreed. The PROJECT TEAM shall meet
alternately at the offices of ELAN and SCHEIN or as otherwise agreed by
the Parties. Each Party shall bear the cost of its own travel expenses.
Meetings shall be chaired alternatively by the project managers of the
Parties. The project managers shall monitor progress against milestones
and shall recommend corrective action when needed. At and between meetings
of the PROJECT TEAM, each Party shall keep the other fully and regularly
informed as to its progress with its respective obligations.
6.4 In the event of a dispute between the project managers of each Party, the
project managers shall refer the dispute to the President of ELAN
Pharmaceutical Technologies and the Schein Senior Vice President of
Strategic Development, who shall discuss the matter and attempt to reach
an amicable solution. In the event that the foregoing officers cannot
resolve the dispute amicably, the said officers shall refer the dispute to
the Chairmen of SCHEIN and ELAN who shall discuss the matter and attempt
to reach an amicable solution. The provisions of this Clause 6.4 shall be
without prejudice to the Parties' other rights and remedies.
CLAUSE 7 - REGISTRATION OF THE PRODUCT
7.1 The primary objectives of the PROJECT are to generate the REGULATORY
FILING and to secure FDA APPROVAL. ELAN shall be responsible for the
compilation and filing of the REGULATORY FILING in respect of the PRODUCTS
with the FDA and shall be the holder of any FDA APPROVALS granted for the
PRODUCTS and the Party principally responsible for interaction with the
FDA.
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7.2 The Parties recognize the expertise developed by SCHEIN in prosecuting
ANDAs in the TERRITORY as well as the proprietary and confidential nature
of ELAN'S PATENT RIGHTS and ELAN KNOW HOW which shall be contained in the
Regulatory Filing. Having regard to the foregoing criteria the Parties
hereby confirm their intention and desire to collaborate and co-operate so
as to obtain FDA APPROVAL for the PRODUCTS in a timely fashion. ELAN shall
consult with SCHEIN during the preparation of the REGULATORY FILING and
shall allow SCHEIN an opportunity to review all of the sections of the
ANDA, except the confidential portions of the CMC SECTION relating to
formulation and manufacturing processes. Prior to submitting the
REGULATORY FILING to the FDA. ELAN shall consider any amendments to the
REGULATORY FILING which may be suggested by SCHEIN but ELAN shall at its
sole discretion decided on the ultimate content of the REGULATORY FILING.
7.3 ELAN shall notify SCHEIN of the date of submission of any REGULATORY
FILING for the PRODUCT in the TERRITORY and shall also notify SCHEIN in
writing of the FDA APPROVAL as soon as is reasonably possible following
said FDA APPROVAL. Each Party shall notify the other in writing as soon as
possible of any notification received by that Party from the FDA to
conduct an inspection of its manufacturing, clinical or other facilities
used in the development, clinical testing (if ELAN conducts the PIVOTAL
BIO STUDIES) packaging, storage or handling of the DSDF and/or the
PRODUCT. Copies of all correspondence with the FDA with respect to the
Product shall be provided to the other Party; such correspondence shall be
subject to redaction by ELAN to the extent that such correspondence
relates to the confidential portions of the CMC SECTION relating to
formulation and manufacturing processes. On or after the date of FIRST
COMMERCIAL SALE, ELAN shall furnish SCHEIN with copies of daily management
reports or summaries prepared in connection with an audit or inspection by
the FDA relating to one or more of the PRODUCTS to the extent that such
reports or summaries are prepared for internal management of ELAN.
7.4 If any additional information or clinical data are requested by the FDA in
order to obtain approval of the REGULATORY FILING in the TERRITORY, ELAN
and SCHEIN shall discuss and agree on an appropriate plan of action to
generate such data.
7.5 ELAN shall be responsible for obtaining all FDA and other approvals
necessary for ELAN to package the PRODUCT into final marketing packaging.
SCHEIN shall be responsible for obtaining all applicable state and local
regulatory approvals for the distribution of the PRODUCTS in the
TERRITORY. SCHEIN shall co-operate with ELAN in obtaining such approvals.
To the extent that SCHEIN packages the *** *** PRODUCT, SCHEIN shall be
responsible for obtaining all FDA and other approvals necessary for SCHEIN
to package the PRODUCT into final marketing packaging, and to provide Elan
with the appropriate documentation relating to the packaging section of
the Products's Regulatory Filing. The commercial stability program will be
the responsibility of Elan.
* redacted pursuant to confidential treatment request
Page 15 of 43
<PAGE>
7.6 It is hereby acknowledged that there are inherent uncertainties involved
in the registration of pharmaceutical products with the FDA in relation to
achieving the PRODUCT SPECIFICATIONS and obtaining the FDA APPROVAL and
such uncertainties form part of the business risk involved in undertaking
the form of commercial collaboration outlined in this Agreement.
CLAUSE 8 - MARKETING AND PROMOTION OF THE PRODUCT
8.1 No later than 30th June 1998, the Parties shall establish a MARKETING
COMMITTEE consisting of at least one representative from each Party who
shall act as liaison between the Parties to ensure that ELAN is up to date
on the prevailing market conditions and SCHEIN's efforts at marketing and
selling the PRODUCTS. Within 90 days of the REGULATORY FILING in the
TERRITORY with respect to a Product, SCHEIN will outline to ELAN the
structure of the promotional activities to be carried out by SCHEIN for
the period up to the First Commercial Sale of the PRODUCT and for a period
of 1 year thereafter. SCHEIN shall both prior to and subsequent to the
launch of a PRODUCT communicate with ELAN regarding its objectives for and
performance of such PRODUCT in the TERRITORY. At such meetings, SCHEIN
shall report on the ongoing sales performance of the PRODUCTS in the
TERRITORY, including marketing approaches, educational campaigns,
promotional and advertising materials and campaigns, sales plans and
results, performance against competitors, its objectives for the PRODUCTS
and its plans for the next year of the Agreement. In addition the
MARKETING COMMITTEE shall review the quarterly royalty statements and in
particular the deductible items (c)and (d) listed in the definition of
NSP.
8.2 Unless otherwise agreed by the Parties, the MARKETING COMMITTEE shall meet
at least once each calendar quarter, such meetings to continue until 2
years after launch of the last PRODUCT or such later time as may be
agreed. Thereafter, the Parties shall meet alternately on an annual basis.
The MARKETING COMMITTEE shall meet at the offices of ELAN and SCHEIN or as
otherwise agreed by the Parties. Each Party shall bear the cost of its own
travel expenses.
8.3 SCHEIN shall control and shall be responsible for all decisions regarding
the pricing policies and strategies with respect to the marketing and
sales of the Products. SCHEIN shall control the format of the promotional
campaign to be submitted to the FDA, but shall inform ELAN thereof and
provide to ELAN a copy of such submissions. SCHEIN shall use reasonable
efforts to obtain approval by the FDA of the promotional campaign for the
PRODUCT.
8.4 SCHEIN shall use reasonable efforts consistent with its normal business
practices to market and promote the PRODUCT throughout the TERRITORY to
all appropriate classes of trade and in doing so, shall use the same level
of effort as with other similar products of similar sales potential which
it markets.
Page 16 of 43
<PAGE>
8.5 SCHEIN shall submit layout and designs for all trade packaging, cartons
and labels and other printed materials to ELAN 6 months prior to First
Commercial Sale of a PRODUCT. ELAN shall provide label and insert copy in
the REGULATORY FILING to the FDA in accordance with current FDA
requirements. To the extent permitted by law, such materials shall include
due acknowledgment that the PRODUCT is developed and manufactured by ELAN.
Such acknowledgment shall take into consideration regulatory requirements
and SCHEIN's commercial requirements.
8.6. The party responsible for packaging the PRODUCT shall mark or have marked
all patent number(s) in respect of the ELAN PATENT RIGHTS on all relevant
packaging and labelling of the PRODUCT, subject to FDA control and
regulations of all packaging copy, or otherwise reasonably communicate to
the trade the existence of any ELAN PATENT RIGHTS for the TERRITORY in
such a manner as to ensure compliance with, and enforceability under,
applicable laws in the TERRITORY.
8.7 SCHEIN shall effect the first full scale commercial launch of each PRODUCT
in the TERRITORY after FDA APPROVAL within thirty (30) days of the
receipt of the LAUNCH STOCKS of the PRODUCT; provided that if litigation
is pending at the time that the FDA APPROVAL is obtained, the Parties
shall mutually agree whether to launch the PRODUCT or withhold the PRODUCT
from launch. The Parties shall maintain under active review whether and
when to launch such PRODUCT.
8.8 SCHEIN warrants that it shall not use any of the PRODUCTS as "loss
leaders" in its marketing programs and shall at all times use its
reasonable efforts in marketing the PRODUCTS.
CLAUSE 9 - SUPPLY OF THE PRODUCT
9.1 Save as otherwise provided in this Agreement, ELAN shall produce and
supply to SCHEIN on an exclusive basis its entire requirements of the
PRODUCT for the TERRITORY. ELAN shall be the sole and exclusive supplier
of the PRODUCT to SCHEIN in the TERRITORY. SCHEIN shall purchase the
PRODUCT exclusively from ELAN in the TERRITORY unless on a PRODUCT by
PRODUCT basis, there is a failure on the part of ELAN to supply PRODUCT as
set out in Clause 9.15.
9.2 The PRODUCT to be supplied to SCHEIN by ELAN shall be packaged in the
galenical form to be agreed by the Parties during the PROJECT and
complying with the PRODUCT SPECIFICATIONS. ELAN shall deliver the PRODUCT
to SCHEIN and/or any party designated by SCHEIN in proper packaging so as
to permit safe storage and transport. The Parties shall agree whether the
*** PRODUCT is to be supplied by ELAN in bulk or final market packaged
form. If in bulk form, SCHEIN shall be responsible for the packaging of
the *** PRODUCT into final market packaging.
* redacted pursuant to confidential treatment request
Page 17 of 43
<PAGE>
9.3 PRODUCT shall be manufactured by ELAN in FDA approved manufacturing
facilities containing active ingredients listed in the DMF from FDA
approved facilities. ELAN shall conduct stability studies to support the
shipping container used in the case of bulk PRODUCT and post market
stability to support PRODUCTS packaged at ELAN.
9.4 Within 120 days following the submission of the REGULATORY FILING to the
FDA, SCHEIN shall provide ELAN with a forecast of SCHEIN requirements for
the PRODUCT for the 18 month period following the first anticipated FDA
APPROVAL in the TERRITORY. The said forecast will be updated quarterly
until the FDA APPROVAL for the said PRODUCT. Except as otherwise provided
herein, all forecasts made hereunder shall be made to assist ELAN in
planning its production and SCHEIN in planning marketing and sales. Such
forecasts shall not be binding purchase orders, and shall be without
prejudice to SCHEIN's subsequent firm purchase orders for the PRODUCT in
accordance with the terms of this Agreement.
9.5 In advance of FDA APPROVAL, the Parties shall discuss and agree upon the
manufacture and purchase of specific quantities of LAUNCH STOCKS;
however, for the avoidance of doubt, the Parties hereby confirm that
ELAN's manufacturing obligations shall only arise on receipt of firm
purchase orders.
9.6 ELAN shall deliver the PRODUCT to SCHEIN within 120 days of the receipt of
a firm purchase order therefore (150 days in the caseSTOCKS). In any event
and notwithstanding any firm purchase orders for LAUNCH STOCKS which
SCHEIN has already placed with ELAN, ELAN will notify SCHEIN within 5
working days of its receipt of an approval letter, or a pre-approval
letter for in respect of a REGULATORY FILING from an FDA. SCHEIN shall
within 15 days of such notification place a firm purchase order with ELAN
for LAUNCH STOCKS, unless such a purchase order has already been submitted
to ELAN prior to that date. In addition, SCHEIN will provide forecasts for
deliveries in addition to the LAUNCH STOCKS for the 12 months after the
FDA APPROVAL is obtained.
9.7 On a PRODUCT by PRODUCT basis, within 15 days after the FDA APPROVAL in
the TERRITORY and on or before the 23rd day of each calendar quarter
thereafter, SCHEIN shall provide a rolling 4 quarter forecast for the
period beginning on the first day of the relevant calendar quarter. The
first calendar quarter of such 12 months' forecast shall be a binding
purchase commitment of SCHEIN and shall be formalized by a firm purchase
order from SCHEIN to ELAN. The remaining non-binding 3 calendar quarters
are provided by SCHEIN to ELAN for planning purposes only.
9.8 ELAN shall make appropriate manufacturing arrangements in order to be able
to supply SCHEIN with between 80% and 120% of the rolling annual
forecasted requirements provided by SCHEIN for each PRODUCT.
Page 18 of 43
<PAGE>
9.9 ELAN will use its reasonable efforts to fulfill SCHEIN's requirements in
excess of 120% of forecasted amounts, but shall not be obliged to meet
such requirements if it is not reasonably practicable to do so provided
that ELAN shall supply the PRODUCT so ordered as soon thereafter as
reasonably practicable.
9.10 Elan Shall advise Schein of a minimum batch size for the manufacture and
supply of each dosage strength of PRODUCT.
9.11 Save as otherwise agreed between the Parties, delivery of consignments of
PRODUCT shall be effected by ELAN FOB ******** *******, or such other
manufacturing facility(ies) designated by ELAN and all risks therein shall
pass to SCHEIN when each such consignment of the PRODUCT is loaded onto
the vehicle of SCHEIN's agent on which it is to be dispatched from the
manufacturing facility designated by ELAN. SCHEIN shall fully insure or
procure the insurance of all consignments of the PRODUCT from the time
when risk passes as aforesaid and shall produce the supporting insurance
when requested by ELAN. At SCHEIN's cost, ELAN shall arrange for delivery
of consignments of PRODUCT to SCHEIN's distribution centers in Brewster,
New York or Phoenix, Arizona or such other site as may be specified from
time to time in writing by SCHEIN.
9.12 After receipt of a PRODUCT shipment, SCHEIN shall visually inspect the
PRODUCT shipment and communicate rejection of all or part of such shipment
as appropriate to ELAN in writing. The parties agree that SCHEIN's visual
inspection consists of (i) comparing the applicable order against the
documentation accompanying the shipment to verify that the delivery date,
identity, quantity and exterior shipment labelling comply with the order
and (ii) visually inspecting the exterior of the PRODUCT shipment to
verify that the shipment appears to be in good condition. Elan is to
provide Schein with a copy of a fully executed Certificate of Analysis for
each batch of Product shipped to Schein. All claims for failure of any
delivery of the PRODUCT to conform to PRODUCT SPECIFICATIONS under Clause
13 shall be made by SCHEIN to ELAN in writing within 45 days following
delivery except in the case of defects not identifiable upon visual
inspection. Claims for defects not discovered during the visual inspection
as set out above, shall be made by SCHEIN to ELAN in writing within 30
days of discovery. Failure to make timely claims in the manner prescribed
shall constitute acceptance of the delivery.
9.13 PRODUCT which has been delivered and which SCHEIN notifies ELAN within the
period designated in Clause 9.12 does not conform to the PRODUCT
SPECIFICATIONS shall be replaced at ELAN's cost within 90 days of the
receipt by ELAN of the failed PRODUCT except where such non-conformity is
due to the negligent acts or omissions of SCHEIN.
9.14 In the event of an unresolved dispute as to conformity in all material
respects of the PRODUCT with PRODUCT SPECIFICATIONS, the Parties shall
within 30 days appoint an independent laboratory to undertake the relevant
testing and its findings shall be conclusive and binding upon the Parties.
All costs relating to this process shall be borne
* redacted pursuant to confidential treatment request
Page 19 of 43
<PAGE>
solely by the unsuccessful party. In the event that the PRODUCT is shown
to have complied with the PRODUCT SPECIFICATIONS or that the failure to do
so is attributable to the negligent acts or omissions of SCHEIN, SCHEIN
shall promptly pay ELAN for the additional PRODUCT supplied.
9.15. On a PRODUCT by PRODUCT basis, in the event that ELAN obtains FDA APPROVAL
for the PRODUCT, and ELAN is unable to supply the LAUNCH STOCKS (as
ordered by SCHEIN in accordance with the provisions of the Agreement) for
a period of more than 180 days from the date of receipt of FDA APPROVAL
for such PRODUCT, ELAN shall use reasonable endeavors to appoint a third
party to manufacture the PRODUCT. In the event that ELAN is successful in
appointing such a third party, ELAN shall invoice SCHEIN at ELAN's
projected manufacturing cost and shall bear any additional costs payable
to the third party. In the event that ELAN or a third party is not in a
position to supply the PRODUCT at the end of the foregoing 180 day period,
SCHEIN may at its option terminate the Agreement in respect of the
relevant PRODUCT in which case the sums paid by SCHEIN to ELAN in respect
of the research and development of the PRODUCT and the pivotal bio studies
shall be credited against the royalties payable by SCHEIN to ELAN in
relation to the other PRODUCTS.
9.16 If at any time during the INITIAL PERIOD, ELAN is or expects that it will
be unable to satisfy SCHEIN's requirements for a PRODUCT as ordered by
SCHEIN in accordance with the terms of the Agreement, in full or in part,
ELAN shall promptly notify SCHEIN, detailing the extent to which it will
not meet such requirements. On a PRODUCT by PRODUCT basis, if there is a
failure by ELAN to supply PRODUCT (other than LAUNCH STOCKS) ELAN shall
use its reasonable endeavors to appoint a third party to manufacture the
PRODUCT. In the event that ELAN is successful in appointing such a third
party, ELAN shall invoice SCHEIN ** ****** ********* ************* ****
*** ***** **** *** ********** ***** ******* ** *** ***** ****** In the
event that ELAN or a third party is not in a position to supply the
PRODUCT and SCHEIN is out of stock for a period of three months SCHEIN may
at its option either terminate the Agreement in respect of the relevant
PRODUCT, or source such PRODUCT elsewhere during the period of supply
interruption by ELAN to ensure that market share position can be
maintained. SCHEIN shall make reasonable efforts to minimize purchases of
such PRODUCT from third parties during the period of supply interruption.
In such event and for the duration of third party supply, **** ***** ***
** ******** ** *** ********** ** *** ****** ******** ** ****** ** ****
********
9.17 When ELAN has remedied the cause of its failure to satisfy SCHEIN's
requirements and is once again able to fulfill its obligations to supply
the PRODUCT, SCHEIN shall cease sourcing the PRODUCT from a third party
and shall resume purchasing the PRODUCT exclusively from ELAN pursuant to
the terms of this Agreement. SCHEIN shall be entitled to sell the PRODUCT
on hand which has been manufactured by the third party. ** ****** *****
***** ** *** ** **** *** ******* ******* **** ***** ********
* redacted pursuant to confidential treatment request
Page 20 of 43
<PAGE>
9.18 ELAN will grant to ELAN Pharma Ltd., ELAN Pharma Inc., Sano Corporation
or any other subsidiaries of ELAN, as necessary or appropriate, a license
of the ELAN PATENT RIGHTS and ELAN KNOW-HOW and other intellectual
property rights necessary for such company or companies to manufacture the
PRODUCT in accordance with the terms of this Agreement.
CLAUSE 10 - FINANCIAL PROVISIONS
10. DEVELOPMENT ROYALTIES:
---------------------
10.1.1 *** *********** ******** ******** ** ***** ****** ** ********* ********
** *** ********** ***** ** ***** ** *****
10.1.2 SCHEIN will bear the full cost of the PIVOTAL BIO PK STUDY definitive
biostudies as evidenced by the invoices of the bio-study clinic ** *****
** ***********. In the event that ELAN and SCHEIN disagree as to whether
a formulation nominated by ELAN should proceed to a pivotal biostudy and
ELAN elects to proceed with such a pivotal biostudy, **** shall bear the
costs of the said biostudy if, and only if, the results of the said
PIVOTAL BIO PK STUDY do not establish bio-equivalence to the formulation
selected.
10.1.3 Development Fees agreed in advance by the Parties in writing shall be
payable if SCHEIN requires ELAN to carry out work or tasks relating to
the development and registration of the PRODUCTS which are not included
in the PROJECT, 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, and market pack stability studies.
10.1.4 SCHEIN shall reimburse ELAN on a quarterly basis for all development
expenses incurred by ELAN in accordance with this Agreement in U.S.
Dollars ($) within 30 days of the receipt of the relevant invoice.
10.1.5 To the extent Schein decides that the *************** *********** Product
is a Patent Determination Product, in consideration for the development
of the replacement Product, SCHEIN shall ********* **** *** ***
*********** ********* ******** ** **** ** *** **** *** ***** **** ** ** *
******* ** **** ********
10.2 LICENSE FEES:
------------
10.2.1 In consideration of the license of the ELAN PATENT RIGHTS and ELAN
KNOW-HOW granted to SCHEIN under this Agreement, SCHEIN shall pay to ELAN
the following license fees:
* redacted pursuant to confidential treatment request
Page 21 of 43
<PAGE>
(i) $14 million due upon execution (subject to Clause 15.13) and payable
as follows: *** ** ******* ****** * ******** **** ** *** *********
***** *** ** ******* ** ****** *** ***** *** ** ******* ** *******
*** ***** *** ** ******* ** ***** *** ****
(ii) ******** upon receipt of the FDA APPROVAL of the ************* **
PRODUCT,
(iii) ******** upon issuance of an ANDA number and receipt of a
REGULATORY FILING acceptance letter by FDA for each of the PRODUCTS
other than the ************* ** PRODUCT; and
(iv) ******** upon receipt of FDA APPROVAL for each of the PRODUCTS other
than the ************* ** PRODUCT.
In the event that ELAN achieves FDA APPROVAL of the *** ** PRODUCT prior to
*** ***** **** (as extended by the Patent Determination Period), then the
******** license fee to be paid to ELAN under this paragraph shall be
increased to ************ However, in the event that FDA APPROVAL is achieved
by ELAN after *** ********* **** (as extended by the Patent Determination
Period), then the ******** license royalty payable here shall be reduced to
*********
In the event that ELAN achieves FDA APPROVAL of the ********* ** PRODUCT
prior to *** **** **** (as extended by the Patent Determination Period), then
the ******** license royalty to be paid to ELAN under this paragraph shall be
increased to ************ However, in the event that FDA APPROVAL is achieved
by ELAN after *** ********* **** (as extended by the Patent Determination
Period), then the ******** license royalty payable here shall be reduced to
*********
10.2.2 In the event SCHEIN receives * ****** * ***** exclusivity in the
TERRITORY for either the *** ** ********* PRODUCTS, either through patent
litigation or as first market entry, then SCHEIN shall pay ELAN an
additional ******** license fee for each such PRODUCT after such ***
***** exclusivity period.
10.2.3 Payment of all license fees shall be made by SCHEIN within thirty (30)
days after the receipt of the relevant invoice from ELAN.
10.3 Failure
--------
10.3.1 If a REGULATORY FILING is not filed for a PRODUCT (other than due to
patent related reasons) within * ***** of the date of signing of the
Agreement or such longer period as the Parties may agree, then SCHEIN
shall be entitled to ******** * *******
* redacted pursuant to confidential treatment request
Page 22 of 43
<PAGE>
***** ***** ** ******** ********** ** *** ******** to replace such failed
PRODUCT ("Replacement Product"). Notwithstanding the foregoing, SCHEIN
shall be entitled to ******** * ******* ** *** *********** ******** ***
** ********** ******* **** ***** ** ******* ** ****** ** **** *** ***
**** *********** *********
10.3.2 ELAN shall bear all development expenses for development of the *****
Replacement Product, excluding the cost of the BIO PK STUDIES which shall
be borne by SCHEIN. For *** ****** Replacement Product, SCHEIN shall bear
no more than ******** of development expense, together with the cost of
the BIO PK STUDIES.
10.3.3 If a REGULATORY FILING is not be filed for a PRODUCT (other than due to
patent related reasons) within * ***** of the date of signing of the
Agreement (as extended by the Patent Determination Period) or such longer
period as the Parties may agree, and the Parties are unable to mutually
agree upon a Replacement Product, ****** *********** ******** *** ***
**** ******* *** ** * ******* ** *********** ***** ** ******** *******
*** ******* ******* ** ****** ** **** ** *** ** **** ** *** *****
******** ******** ** ****** *****
10.3.4 If a REGULATORY FILING is not filed for a ****** PRODUCT (other than due
to patent related reasons) within * ***** of the date of signing of the
Agreement (as extended by the Patent Determination Period) or such longer
period as the Parties may agree and the Parties are unable to mutually
agree upon a Replacement Product ****** *********** ********* *** ***
**** ******* *** ** * ******* ** ********* ***** ** ******** ******* ***
******* ******* ** ****** ** **** ** *** ** **** ** *** ***** ********
******** ** ****** *****
10.4 Price of PRODUCT:
----------------
10.4.1 ELAN shall supply each PRODUCT to SCHEIN ** ************* **** in
accordance with the terms of this Agreement.
10.4.2 Subject to the following paragraph, *** ************* **** of each
PRODUCT may be reviewed by ELAN once per annum and may be adjusted for
the following calendar year reflecting actual changes in direct
manufacturing expenses. ELAN shall provide SCHEIN with written notice of
any such increase in *** ************* **** 60 days before the end of
each calendar year to take effect in the following calendar year.
10.4.3 Any increases or decreases in the cost of the active ingredient or any
other components used in the PRODUCTS in excess of ** from the then
current base are to be passed on in *** ************* **** of the PRODUCT
manufactured from the effective date of use of such active ingredient or
any other component.
* redacted pursuant to confidential treatment request
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10.4.4 Payment for all PRODUCT delivered from ELAN's manufacturing facility to
SCHEIN shall be effected in U.S. Dollars ($) within thirty (30) days of
the date of the delivery of the PRODUCT FOB the applicable ELAN
manufacturing facility.
10.5 LOCATION
--------
10.5.1 In consideration of the license of the ELAN PATENT RIGHTS, ELAN KNOW-HOW
to SCHEIN hereunder, Schein shall pay royalty to Elan as follows:
********* ** *******
*** ** ****** ** ****
******** ***** **** *** ********* ** *******
*** ** ****** ** ****** *** *** ** ****** ** ****
10.5.2 Within four weeks of the end of each calendar quarter, SCHEIN shall
notify ELAN of the NSP of PRODUCT for that previous calendar quarter.
Payments shown by each calendar quarter report to have accrued but which
have not yet been paid shall be included in calculating the NSP for that
quarter.
10.5.3 Payment of PROFIT shall be made once in each calendar quarter within 45
days after the expiry of the relevant calendar quarter.
10.5.4 All payments due hereunder shall be made in U.S. Dollars.
10.5.5 In the event that SCHEIN or any AFFILIATE of SCHEIN shall sell the
PRODUCT together with other products of SCHEIN to third parties (by the
method commonly known in the pharmaceutical industry as "bundling"),
SCHEIN shall not conduct such bundling in such a manner as to discount
one or more of the PRODUCTS at a greater proportion than the other
products bundled by SCHEIN.
CLAUSE 11 - PAYMENTS, REPORTS AND AUDITS
11.1 In accordance with its ordinary business practice, SCHEIN shall keep true
and accurate records of gross sales of each PRODUCT, the items deducted
from the gross amount in calculating the NSP, the NSP and the royalties
payable to ELAN under Clause 10. SCHEIN shall deliver to ELAN a written
statement ("the STATEMENT") thereof within 28 days following the end of
each calendar quarter, (or any part thereof in the first or last calendar
quarter of this Agreement) for such calendar quarter. The STATEMENT shall
outline the calculation of the NSP from gross revenues during that
calendar quarter, the applicable percentage rate, the units of PRODUCTS
sold, marketing, selling and distribution expenses allocated to the
PRODUCT and a computation of the sums due to
* redacted pursuant to confidential treatment request
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<PAGE>
ELAN. The Parties' financial officers shall agree upon the precise format
of the STATEMENT.
11.2. Any income or other taxes which SCHEIN is required by law to pay or
withhold on behalf of ELAN with respect to royalties and any other monies
payable to ELAN under this Agreement shall be deducted from the amount of
such NSP payments, royalties and other monies due. SCHEIN shall furnish
ELAN with proof of such payments. Any such tax required to be paid or
withheld shall be an expense of and borne solely by ELAN. SCHEIN shall
promptly provide ELAN with a certificate or other documentary evidence to
enable ELAN to support a claim for a refund or a foreign tax credit with
respect to any such tax so withheld or deducted by SCHEIN. The Parties
will reasonably cooperate in completing and filing documents required
under the provisions of any applicable tax treaty or under any other
applicable law, in order to enable SCHEIN to make such payments to ELAN
without any deduction or withholding.
11.3 All payments due hereunder shall be made to the designated bank account
of ELAN in accordance with such timely written instructions as ELAN shall
from time to time provide.
11.4. Where meetings of the MARKETING COMMITTEE have ceased and where ELAN so
requests to supplement the information available to ELAN at the meetings
of the Parties pursuant to Clause 8.1, SCHEIN shall provide ELAN with
quarterly sales reports outlining the status of the PRODUCT in the
TERRITORY, including a summary of the market share for each of the
PRODUCTS in their respective market segments.
11.5 For the 90 day period following the close of each calendar year of the
Agreement, ELAN and SCHEIN Will, in the event that the other Party
reasonably requests such access, provide each other's independent
certified accountants (reasonably acceptable to the other party) with
access, during regular business hours and subject to the confidentiality
provisions as contained in this Agreement, to such party's books and
records relating to the PRODUCT, solely for the purpose of verifying the
accuracy and reasonable composition of the calculations hereunder for the
calendar year then ended.
11.6 In the event of a discovery of a discrepancy which exceeds 5% of the
amount due or charged by a party for any period, the cost of such audit
shall be borne by the audited party; otherwise, such cost shall be borne
by the auditing party.
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<PAGE>
11.7 During normal business hours and provided reasonable notice has been
furnished by SCHEIN, ELAN shall make (and where relevant shall procure
that ELAN's subcontractor shall make) that portion of its manufacturing,
testing or storage facility where PRODUCT is manufactured, tested or
stored, including all record and reference samples relating to the
PRODUCT available for inspection by SCHEIN's duly qualified person or by
the relevant governmental or regulatory authority. The investigation
shall be limited to determining whether there is compliance with the
REGULATORY FILING, cGMP and other requirements of applicable law.
CLAUSE 12 - DURATION AND TERMINATION
12.1 This Agreement shall be deemed to have come into force on the EFFECTIVE
DATE and, subject to the rights of termination outlined in this Clause 12
will expire on a PRODUCT by PRODUCT basis:-
12.1.1 on the 15th anniversary of the date of FIRST COMMERCIAL SALE of
the PRODUCT in the TERRITORY; or
12.1.2 upon the expiration of the life of the last to expire patent
included in the ELAN PATENT RIGHTS for such PRODUCT in the
TERRITORY
whichever date is later to occur ("the INITIAL PERIOD").
12.2 At the end of the INITIAL PERIOD, the Agreement shall continue on a
PRODUCT by PRODUCT basis automatically for rolling 2 year periods
thereafter, unless the Agreement has been terminated by either of the
Parties by serving 1 years' written notice on the other immediately prior
to the end of the INITIAL PERIOD or any additional 2 year period provided
for herein.
12.3 In addition to the rights of termination provided for elsewhere in this
Agreement, either Party will be entitled forthwith to terminate this
Agreement by written notice to the other Party if:
12.3.1 that other Party commits any material breach of any of the
provisions of this Agreement, and in the case of a breach capable
of remedy, fails to remedy the same within 60 days after receipt
of a written notice giving full particulars of the breach and
requiring it to be remedied; or
12.3.2 that other Party goes into liquidation (except for the purposes of
amalgamation or reconstruction and in such manner that the company
resulting therefrom effectively agrees to be bound by or assume
the obligations imposed on that other Party under this Agreement);
or
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<PAGE>
12.3.3 an encumbrancer takes possession or a receiver is appointed over
any of the property or assets of that other Party; or
12.3.4 any proceedings are filed or commenced by that other Party under
bankruptcy, insolvency or debtor relief laws or anything analogous
to any of the foregoing under the laws of any jurisdiction occurs
in relation to that other Party; or
12.3.5 the other Party falls to promptly secure or renew any material
license, registration, permit, authorization or approval for the
conduct of its business in any manner contemplated by this
Agreement or if any such material license, registration, permit,
authorization or approval is revoked or suspended and not
reinstated within sixty (60) days; or
12.3.6 on a PRODUCT by PRODUCT basis an award is made against ELAN and/or
SCHEIN in a patent infringement action (which is not appealed, or
is unsuccessfully appealed) so that further development or
marketing of the PRODUCT is prohibited or becomes economically
unviable to ELAN and/or SCHEIN.
12.4 In further addition to the rights and termination provided for elsewhere
in this Agreement, ELAN shall be entitled to terminate the license
granted to SCHEIN on a PRODUCT by PRODUCT basis under this Agreement for
the TERRITORY in the event that:-
12.4.1 SCHEIN fails to effect any one of the commercial launches required
by Clause 8.8 in accordance with the provisions thereof; or
12.4.2 SCHEIN notifies ELAN in writing that it does not wish to
commercialize the PRODUCT in the TERRITORY.
12.4.3 a TECHNOLOGICAL COMPETITOR of ELAN or a company with a directly
competing product acquires *** or more of SCHEIN's voting stock or
where *** or more of such company's voting stock is acquired by
SCHEIN or
12.4.4 the net price payable to ELAN (that is the price of PRODUCT and
the percentage of PROFIT) is less than ************* **** **** ***
for a period of one year; or
12.4.5 if the innovator for such PRODUCT acquires more than *** of
SCHEIN'S voting stock.
12.5 In further addition to the rights and termination provided for elsewhere
in this Agreement, SCHEIN shall be entitled to terminate the Agreement on
a PRODUCT by PRODUCT basis for the TERRITORY in the event that: -
* redacted pursuant to confidential treatment request
Page 27 of 43
<PAGE>
12.5.1 ELAN fails to file the REGULATORY FILING for such PRODUCT within 2
years of the date of this Agreement (as extended by the Patent
Determination Date) or FDA Approval is not obtained within 30
months of the date of a Regulatory Filing, unless otherwise
extended by the Parties in writing, or
12.5.2 ELAN has submitted fraudulent filings to the FDA or has failed to
cure noncompliance notices from FDA; or
12.5.3 ELAN is unable to ship PRODUCT for a period of more than 3 months
during a given calendar year and SCHEIN has elected not to obtain
an alternative source of supply; or
12.5.4 the share of the NET PROFITS payable to SCHEIN is less than *** **
*** ************* **** for the said PRODUCT for a period of one
year.
12.7 Upon exercise of those rights of termination specified in this Clause 12
or elsewhere in this Agreement, this Agreement shall, subject to the
provisions of the Agreement which survive the termination of the
Agreement, automatically terminate forthwith and be of no further legal
force or effect.
12.8 Upon termination of the Agreement by either Party, or upon termination by
ELAN of a license for a particular PRODUCT, the following shall be the
consequences relating to the particular PRODUCT.
12.8.1 subject to the provisions of Clause 10.3.3 and 10.3.4 any sums
that were due from SCHEIN to ELAN under the provisions of Clause
10 or otherwise howsoever prior to the exercise of the right to
terminate this Agreement as set forth herein shall be paid in full
within 30 days of termination of this Agreement and ELAN shall not
be liable to repay to SCHEIN any amount of money paid or payable
by SCHEIN to ELAN up to the date of the termination of this
Agreement;
12.8.2 all confidentiality provisions set out herein shall remain in full
force and effect for a period of 5 years from the date of
termination of this Agreement;
12.8.3 all responsibilities and warranties shall insofar are appropriate
remain in full force and effect;
12.8.4 the rights of inspection and audit shall continue in force for the
period referred to in the relevant provisions of this Agreement;
12.8.5 ELAN shall be entitled to research, develop and commercialize the
PRODUCT for its own benefit in the TERRITORY subject to subsection
(ii) of Clause 12.8.7;
* redacted pursuant to confidential treatment request
Page 28 of 43
<PAGE>
12.8.6 SCHEIN shall have an ongoing right for a period of six (6) months
to sell or otherwise dispose of the stock of any PRODUCT on hand
as of the date of termination of the AGREEMENT, which such sale
shall be subject to Clause 10 and the other applicable terms of
this AGREEMENT.
12.8.7 If the Agreement is terminated by SCHEIN due to a breach or
default of ELAN and the applicable PRODUCT has obtained FDA
APPROVAL, then (i) **** ***** ******** *** ** ******* *** ****
****** ****** ******* ****** ********** ** *** *******
*************** *** *********** ** *** ********* *** **** *******
or (ii) in the alternative, ELAN shall in consideration for a
royalty of *** of NET PROFITS:
12.8.7.1 at the option of SCHEIN grant to SCHEIN a production
license in the TERRITORY so that SCHEIN may manufacture
the relevant PRODUCT without infringing any of ELAN's
patent and/or any other intellectual property rights.
SCHEIN may sub-license the said production license to one
sub-licensee which is not a competitor of ELAN in the
drug formulation and/or product delivery business. Any
such licence shall apply only in regard to the relevant
PRODUCT as well as to the applications of technology
derived from the ELAN PATENT RIGHTS related to its use
with such PRODUCT;
12.8.7.2 provide SCHEIN with any technical data necessary for the
carrying of this into effect. To this end, ELAN shall
impart to SCHEIN the documentation constituting the
required material support, including, without limitation,
practical performance advice, shop practice,
specifications as to materials to be used and control
methods,
12.8.7.3 assist SCHEIN for the working up and use of the
technology necessary to manufacture the relevant PRODUCT
as well as for the training of SCHEIN's personnel. For
this purpose, ELAN shall receive SCHEIN's scientific
staff in its premises for periods the term of which shall
be decided by common consent;
12.8.7.4 the provisions of Clause 10.5 of this Agreement
regulating the payment of royalties shall apply.
12.8.8 On a PRODUCT by PRODUCT basis, in the event that SCHEIN should
market any SCHEIN COMPETING PRODUCT in the TERRRITORY during the
term of this Agreement, ELAN shall be entitled to terminate the
agreement.
12.9 ELAN shall be entitled to use the ELAN PATENT RIGHTS and ELAN KNOW-HOW,
and all technical and clinical data whether generated by ELAN or SCHEIN
pursuant to this Agreement in the TERRITORY following termination of this
Agreement unless termination of
* redacted pursuant to confidential treatment request
Page 29 of 43
<PAGE>
this Agreement is due to Elan's breach of its representations, warranties and/or
obligations hereunder, and Schein elects subsection (ii) of Clause 12.8.7.
CLAUSE 13 - WARRANTY AND INDEMNITY
13.1 ELAN represents and warrants as follows;
13.1.1 Except as set forth in this Clause 13. 1. 1, that it has the sole,
exclusive and unencumbered right to grant the licenses and
rights herein granted to SCHEIN, and that it has not granted any
option, licence, right or interest in or to the ELAN PATENT RIGHTS
or ELAN KNOW-HOW to any third party which would conflict with the
rights granted by this Agreement. The execution of this Agreement
and the full performance and enjoyment of the rights of SCHEIN
under this Agreement will not breach or in any way be
inconsistent with the terms and conditions of any licence,
contract, understanding or agreement, whether express, implied,
written or oral between ELAN and any third party;
**** ******* ****** **** ********* ******* ****** ** ***
********** **** *** ******* **** * ********** ********* ** ***
******* ****** ** *************** *********** ** *** **********
*** ******* ******** ******** *** ***** ***** ******** ***** ****
**** ******* **** **** *** ********* **** **** ****** ****** **
**** **** *** ********* ** **** ********** ** *** ****** *** *****
***** ******** *** *** ** ********* ****** *** ***********
********* ** *** ********* ******** ****** ** **** **** *** ****
******* **** *** ****** **** ********* * ********** ** **** *****
********* *** ******* ** ****** ** *** *************** ***********
********
13.1.2 the PRODUCT supplied by ELAN to SCHEIN under this Agreement will
conform to the PRODUCT SPECIFICATIONS and regulations governing
the conduct of clinical trials and stability requirements;
13.1.3 the PRODUCT sold by ELAN to SCHEIN pursuant hereto shall be of
good, merchantable and usable quality, free of defects, and shall
not be adulterated or misbranded within the meaning of the US
Food, Drug and Cosmetics Act,
13,1.4.ELAN's manufacturing facilities conform in all material respects
to applicable laws, regulations and approvals governing such
facility and are adequate to produce the quantities of the PRODUCT
contemplated hereby;
13.1.5.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 cGMP and
current Bulk Drug Substances Guidelines, and shall be in
compliance with the applicable specifications under the bulk
product monograph.
* redacted pursuant to confidential treatment request
Page 30 of 43
<PAGE>
13.2 SCHEIN represents and warrants as follows;
13.2.1.SCHEIN represents and warrants that it has the sole, exclusive and
unencumbered right to enter into this Agreement and that it has
not granted any obligations to any third party which would
conflict with the terms of this Agreement. The execution of this
Agreement and the full performance and enjoyment of the rights of
ELAN under this Agreement will not breach or in any way be
inconsistent with the terms and conditions of any licence,
contract, understanding or agreement, whether express, implied,
written or oral between SCHEIN and any third party;
13.2.2.SCHEIN is cognizant in all material respects of all applicable
statutes, ordinances and regulations of the TERRITORY with respect
to the handling, packaging, storage, distribution, marketing and
sale of the PRODUCT including, but not limited to, the U.S.
Federal Food, Drug and Cosmetic Act and regulations promulgated
thereunder, including cGLP and cGMP and shall conduct such
activities in a manner which complies with such statutes,
ordinances, regulations and practices;
13.3. Each of ELAN and SCHEIN represents and warrants to the other that:
13.3.1.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; and
13.3.2.Each of ELAN 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.
13.5. Except as expressly stated in this Clause 13, all other warranties,
conditions and representations, express or implied, statutory or
otherwise, including a warranty as to the quality or fitness for any
particular purpose of the PRODUCT are hereby excluded.
13.6 Indemnification
---------------
13.6.1 Elan 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 Elan's negligent acts or omission or breach of its
representations, warranties, covenants or other obligations
hereunder; provided, however that Elan shall not be required to
indemnify Schein with respect to any claim, action, suit,
proceeding, loss, liability, damage or expense to the extent
arising from or related to Schein's breach of its representations,
warranties, covenants or other obligations hereunder, or
information supplied by Schein to Elan or contained in regulatory
filings or correspondence prepared or delivered by Schein.
Page 31 of 43
<PAGE>
13.6.2 Schein shall indemnify and hold Elan harmless from and against any
claim, action, suit, proceeding, loss, liability, damage or
expense (without limitation reasonable attorneys' fees) arising
directly or indirectly as a result of Schein's negligent acts or
omission or breach of its representations, warranties, covenants
or other obligations hereunder, provided, however that Schein
shall not be required to indemnify Elan with respect to any claim,
action, suit, proceeding, loss, liability, damage or expense to
the extent arising from or related to Elan's breach of its
representations, warranties, covenants or other obligations
hereunder, or from information supplied by Elan to Schein' or
contained in regulatory filings or correspondence prepared or
delivered by Elan.
13.6.3 This Clause 13 and the obligations contained herein shall survive
termination of this Agreement, whether pursuant to Clause 12
hereof, by expiration of the Term, or otherwise.
13.7 As a condition of obtaining an indemnity in the circumstances set out in
Clauses 13.6, the Party seeking an indemnity shall:
13.7.1 Fully and promptly notify the other Party of any claim or
proceedings, or threatened claim or proceedings, provided that
failure to do so shall not release the indemnifying party of its
obligations under this Clause 13 except to the extent that it is
actually prejudiced;
13.7.2 permit the indemnifying Party to take full control of such claim
or proceedings;
13.7.3 assist in the investigation and defense of such claim or
proceedings;
13.7.4 neither the indemnifying party or the party to be indemnified
shall compromise or otherwise settle any such claim or
proceedings without the prior written consent of the other Party,
which consent shall not be unreasonably withheld, and
13.7.5 take all reasonable steps to mitigate any loss or liability in
respect of any such claim or proceedings.
13.9 Notwithstanding anything to the contrary in this Agreement, ELAN and
SCHEIN shall not be liable to the other by reason of any representation
or warranty, condition or other term or any duty of common law, or under
the express terms of this Agreement, for any indirect, special,
consequential, incidental or punitive loss or damage (whether for loss
of profits or otherwise) and whether occasioned by the negligence of the
respective Parties, their employees or agents or otherwise except for
third party product liability claims.
Page 32 of 43
<PAGE>
CLAUSE 14 - CUSTOMER COMPLAINTS, PRODUCT RECALL AND INSURANCE
14.1 SCHEIN shall notify ELAN promptly of any complaints from third parties
reported to SCHEIN involving any serious and unexpected adverse
reactions resulting from the use of the PRODUCTS in the TERRITORY. ELAN
shall notify SCHEIN promptly of any complaints from third parties
reported to ELAN involving any serious and unexpected adverse reactions
resulting from the use of the PRODUCTS outside of the TERRITORY.
14.2 SCHEIN and ELAN shall establish a procedure for formal adverse event
handling and reporting. This procedure will be included as Schedule 4 to
the Agreement at a later date. It is envisaged that SCHEIN shall be
responsible for furnishing post-marketing reports to the FDA and other
relevant regulatory agencies and where applicable, ELAN will be
responsible for furnishing such reports to the FDA. SCHEIN and ELAN
shall keep each other informed and shall copy the other party with all
communications with the FDA and other relevant regulatory agencies with
respect to the PRODUCTS.
14.3 Subject to and without in any way limiting the or altering ELAN's
statutory duties and obligations as the holder of the ANDA, ELAN shall
consult with SCHEIN when reviewing whether or not to perform a recall of
PRODUCT and if so, the extent and method of such recall in the TERRITORY
14.4 In the event of any recall of the PRODUCTS, as suggested or requested by
any governmental authority;
14.4.1 SCHEIN shall perform the recall of the PRODUCT in the
TERRITORY
14.4.2 If the recall arises from SCHEIN's acts or omissions in the
manufacturing, packaging (where applicable), or the
transportation, storage, distribution, marketing or sale of the
PRODUCTS, the recall costs shall be borne by SCHEIN.
14.4.3 If the recall arises from ELAN's acts or omissions in the
manufacturing and packaging of the PRODUCTS, the recall costs
shall be borne by ELAN. In such event, ELAN shall be entitled but
not obliged to take over and perform the recall of the PRODUCT and
SCHEIN shall provide ELAN at no cost with all such reasonable
assistance as may be required by ELAN.
14.4.4 If the recall arises from any other reason than set out above, the
recall costs shall be borne by ELAN and SCHEIN in proportion to
the percentage of PROFIT allocated to the Parties for such
PRODUCT.
14.4.5 Neither Party shall be liable to the other Party or to any third
party for consequential or incidental damages which may arise as a
result of the recall of the PRODUCT.
Page 33 of 43
<PAGE>
14.5 SCHEIN and ELAN shall each maintain in force, during the INITIAL PERIOD,
products liability insurance coverage in minimum limits of $10,000,000
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
CLAUSE 15 - MISCELLANEOUS PROVISIONS
15.1 Secrecy:
-------
15.1.1 Any information, whether written or oral (oral information shall
be reduced to writing within one month by the party giving the
oral information and the written form shall be furnished to the
other party) pertaining to the PRODUCT that has been or will be
communicated or delivered by ELAN to SCHEIN, or by SCHEIN to ELAN,
including, without limitation, trade secrets, business methods,
and cost, supplier, manufacturing and customer information, shall
be treated by SCHEIN 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 Clause to the extent that such
confidential information:
(1). 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; or
(2) 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; or
(3) 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
(4) is required to be disclosed pursuant to: (A) any order of a
court having I jurisdiction and power to order such
information to be released or made public or (B) any lawful
action of a governmental or regulatory agency provided that
each Party shall notify the other in writing of any
disclosure of information required under this sub-Clause
prior to such disclosure, or
(5) is independently discovered by the receiving party without
the aid or application of the confidential information.
Page 34 of 43
<PAGE>
15.1.2 Each party shall take in relation to the confidential information
of the other Party 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 applicable FDA or any 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.
15.1.3 Each of the Parties agrees that it will not use, directly or
indirectly, any know-how of the other Party, or other confidential
information disclosed to it by the other Party or obtained by it
from the other Party pursuant to this Agreement, other than as
expressly provided herein.
15.1.4 Neither Party will publicize the existence of this Agreement in
any way without the prior written consent of the other Party
subject to the disclosure requirements of applicable laws and
regulations. In the event that either Party wishes to make an
announcement concerning the Agreement, that Party will seek the
consent of the other Party. The terms of any such announcement
shall be agreed in good faith but in any event shall refer to the
PRODUCTS as having been developed and manufactured by ELAN.
15.2 Assignments/Sub-contracting:
---------------------------
Neither Party shall be permitted to assign or sub-license any of its
rights under this Agreement without the prior written consent of the
other; provided that ELAN and SCHEIN may assign this Agreement to an
AFFILIATE without such consent provided that such assignment has no
adverse tax implications for the other Party and provided further that
such assigning party is not relieved of its obligations hereunder. ELAN
shall also have the right to subcontract all or any portion of the
manufacturing or packaging of one or more of the PRODUCT to one or more
third parties. Each party shall be responsible for the acts and/or
omissions of its respective Affiliates and subcontractors.
15.3 Parties bound:
-------------
This Agreement shall be binding upon and inure for the benefit of Parties
hereto, their successors and permitted assigns.
15.4 Severability:
------------
If any provision in this Agreement is agreed by the Parties to be, or is
deemed to be, or becomes invalid, illegal, void or unenforceable under
any law that is applicable hereto:-
15.4.1 such provision will be deemed amended to conform to applicable
laws so as to be valid
Page 35 of 43
<PAGE>
and enforceable or, if it cannot be so amended without materially
altering the intention of the Parties, it will be deleted, with
effect from the date of such agreement or such earlier date as
the Parties may agree; and
15.4.2 the validity, legality and enforceability of the remaining
provisions of this Agreement shall not be impaired or affected in
any way.
15.5 FORCE MAJEURE:
-------------
Neither party to this Agreement shall be liable for delay in the
performance of any of its obligations hereunder if such delay results
from causes beyond its reasonable control, including, without
limitation, acts of God, fires, strikes, acts of war, or intervention of
a government authority, non-availability of raw materials, but any such
delay or failure shall be remedied by such Party as soon as practicable.
15.6 Relationship of the Parties:
---------------------------
Nothing contained in this Agreement is intended or is to be construed to
constitute ELAN and SCHEIN as partners or members of a joint venture or
either party as an employee of the other. Neither Party hereto shall have
any express or implied right or authority to assume or create any
obligations on behalf of or in the name of the other Party or to bind the
other Party to any contract, agreement or undertaking with any third
party.
15.7 Amendments:
----------
No amendment, modification or addition hereto shall be effective or
binding on either Party unless set forth in writing and executed by a
duly authorized representative of both Parties.
15.8 Waiver:
------
No waiver of any right under this Agreement shall be deemed effective
unless contained in a written document signed by the Party charged with
such waiver, and no waiver of any breach or failure to perform shall be
deemed to be a waiver of any future breach or failure to perform or of
any other right arising under this Agreement.
15.9 No effect on other agreements:
-----------------------------
No provision of this Agreement shall be construed so as to negate, modify
or affect in any way the provisions of any other agreement between the
Parties unless specifically referred to, and solely to the extent
provided, in any such other agreement.
15.10 Applicable Law and Jurisdiction:
-------------------------------
This Agreement shall be governed by and construed in accordance with the
laws of the
Page 36 of 43
<PAGE>
State of New York without regard to principles of conflicts of law. [review the
Uniform Agreement] For the purpose of this Agreement the Parties agree that any
dispute shall be adjudicated upon and hereby submit to the jurisdiction of the
United States District Court for the Southern District of the State of New York.
Each party consents to service of process pursuant to the notice provisions of
this Agreement.
15.11 Notice:
------
15.11.1 Any notice to be given under this Agreement registered airmail or
telecopied to:
ELAN at
ELAN Corporation, p1c.
Lincoln House
Lincoln Place
Dublin 2
Ireland
Attention: Vice-President & General Counsel,
ELAN Pharmaceutical Technologies
Telephone:353 1 7094000
Telefax :353 1 6624960
SCHEIN at
100 Campus Drive
Florham Park,
New Jersey 07932
United States of America
Attention: Senior Vice President and General Counsel
Telephone: 1 973 593 5960
Telefax: 1 973 593 5820
or to such other address(es) and telecopier numbers as may from
time to time be notified by either party to the other hereunder.
Page 37 of 43
<PAGE>
15.12.2 Any notice sent by mail shall be deemed to have been delivered
within 7 working days after dispatch and any notice sent by telex
or telecopy shall be deemed to have been delivered within 24
hours of the time of the dispatch. Notice of change of address
shall be effective upon receipt.
15.13 Hart-Scott-Rodino Filing
------------------------
The parties will prepare and make appropriate filings under Title II of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules promulgated thereunder (16 C.F.R. 801.1 et seq.) ("the Act") as
soon as reasonably practicable. The parties agree to cooperate in the
antitrust clearance process and to furnish promptly to the FTC and the
Antitrust Division of the Department of Justice any additional
information reasonably requested by them in connection with such filings.
This Agreement shall bind Elan and Schein upon execution but the
provisions of this Agreement (other than this subparagraph) shall not
become effective until the waiting period provided by the Act shall have
terminated or shall have expired without any action by any government
agency or challenge to the termination.
In the event the expiration of the waiting period does not occur within
three (3) months after the date first written above, the parties shall
revert to their status prior to signing this Agreement, and Schein shall
have no obligation pay the licence fee at Clause 10.2.1 or otherwise.
Page 38 of 43
<PAGE>
IN WITNESS of which the Parties have executed this Agreement.
Executed by SCHEIN on March 31, 1998
By: /s/ Paul Kleutshen
-----------------------
Name: Paul Kleutshen
-----------------------
Title: Sr. V.P., Strategic Development
-----------------------
Executed by ELAN on March 31, 1998
By: /s/ Seamus Mulligan
-----------------------
Name: Seamus Mulligan
-----------------------
Title: President - EPT.
-----------------------
Page 39 of 43
<PAGE>
SCHEDULE 1
NORMAL DOSAGE FORM
******** ****** ********* ****** * ** *** ** *** ** ********
******** ****** ******** ****** ***** **** *** ***** ****** *****
******** ******** * **** *** ***** ****** *****
********** *********** ********* ******* ** ** *** ** ***** *****
***** ****** * ** *** ** *** *** *******
* redacted pursuant to confidential treatment request
Page 40 of 43
<PAGE>
SCHEDULE 2
PATENT RIGHTS
Page 41 of 43
<PAGE>
SCHEDULE 3
PRODUCT DEVELOPMENT PROJECTS ACTIVITIES
Page 42 of 43
<PAGE>
SCHEDULE 4
COMPLAINT HANDLING PROCEDURE
Page 43 of 43
<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, 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.
BDO SEIDMAN, LLP
/s/ BDO Seidman, LLP
April 3, 1998
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
OFFER FOR ANY AND ALL OUTSTANDING
SENIOR FLOATING RATE NOTES DUE 2004
OF
SCHEIN PHARMACEUTICAL, INC.
IN EXCHANGE FOR
SENIOR FLOATING RATE NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
PURSUANT TO THE PROSPECTUS DATED MARCH , 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON MARCH , 1998, UNLESS THE OFFER IS EXTENDED. TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
By Hand Or Overnight Facsimile Transmissions: By Registered Or Certified
Delivery: (Eligible Institutions Mail:
Only)
The Bank of New York (212) 815-6339 The Bank of New York
101 Barclay Street 101 Barclay Street, 7E
Corporate Trust Services To Confirm by Telephone or New York, New York 10286
Window for Information Call: Attention: Reorganization
Ground Level Section,
Attention: Reorganization (212) 815-5789 7E; Diana Torres
Section,
7E; Diana Torres
Delivery of this letter of transmittal to an address other than as set forth
above or transmission of this letter of transmittal via facsimile to a number
other than as set forth above does not constitute a valid delivery.
The undersigned acknowledges that he or she has received the Prospectus,
dated March , 1998 (the "Prospectus"), of Schein Pharmaceutical, Inc., a
Delaware corporation (the "Company"), and this Letter of Transmittal, which
together constitute the Company's offer (the "Exchange Offer") to exchange
$1,000 principal amount of its Senior Floating Rate Notes due 2004 of the
Company (the "New Notes"), which have been registered under the Securities Act
of 1933, as amended (the "Securities Act") for a like amount of the issued and
outstanding Senior Floating Rate Notes due 2004 of the Company, which have not
been registered under the Securities Act (the "Old Notes").
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
<PAGE>
DESCRIPTION OF OLD NOTES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
AMOUNT TENDERED
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S): CERTIFICATE (IF
(PLEASE FILL IN, IF BLANK) NUMBER(S)* LESS THAN ALL)**
- ---------------------------------------------------------------------------------------
<S> <C> <C>
---------------- -------------------
---------------- -------------------
---------------- -------------------
---------------- -------------------
TOTAL PRINCIPAL AMOUNT OF OLD NOTES TEN-
DERED
- ---------------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry
transfer or in accordance with DTC's ATOP procedure for transfer.
** Need not be completed by holders who wish to tender with respect to all
Old Notes listed. See Instruction 4.
- --------------------------------------------------------------------------------
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined herein).
This Letter of Transmittal is to be used by holders of Old Notes if: (i)
certificates representing Old Notes are to be physically delivered to the
Exchange Agent herewith by such holders; (ii) tender of Old Notes is to be
made by book-entry transfer to the Exchange Agent's account at The Depository
Trust Company ("DTC" or the "Book-Entry Transfer Facility") pursuant to the
procedures set forth in the Prospectus under the caption "The Exchange Offer--
Procedures For Tendering" by any financial institution that is a participant
in the Book-Entry Transfer Facility and whose name appears on a security
position listing as the owner of Old Notes; or (iii) tender of Old Notes is to
be made according to the guaranteed delivery procedures described in the
Prospectus under the captions "The Exchange Offer--Procedures for Tendering"
and "--Guaranteed Delivery Procedures;" and, in each case, instructions are
not being transmitted through DTC's Automated Tender Offer Program ("ATOP")
pursuant to the procedures set forth in the Prospectus under the caption "The
Exchange Offer--Procedures For Tendering."
Holders of Old Notes who are tendering by book-entry transfer to the
Exchange Agent's account at DTC can tender Old Notes through ATOP, where
eligible. DTC participants that are accepting a tender of Old Notes may
transfer their acceptance to DTC, which will verify the acceptance and execute
a book-entry delivery to the Exchange Agent's account at DTC. DTC will then
send an Agent's Message to the Exchange Agent for its acceptance. Delivery of
the Agent's Message by DTC will satisfy the terms of the Exchange Offer as to
execution and delivery of a Letter of Transmittal by the DTC participant
identified in the Agent's Message.
Holders of Old Notes whose certificates (the "Certificates") for such Old
Notes are not immediately available or who cannot deliver their Certificates
and all other required documents to the Exchange Agent on or prior to the
Expiration Date (as defined in the Prospectus) or who cannot complete the
procedures for book-entry transfer on a timely basis, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The
Exchange Offer--Procedures for Tendering" and "--Guaranteed Delivery
Procedures" in the Prospectus.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. NOTE: SIGNATURES MUST BE PROVIDED
BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
2
<PAGE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[_] CHECK HERE IF TENDERED NOTES ARE ENCLOSED
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER (INCLUDING BY ATOP) MADE TO THE ACCOUNT MAINTAINED BY THE
EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE
FOLLOWING:
Name of Tendering Institution: ___________________________________________
Account Number: __________________________________________________________
Transaction Code Number: _________________________________________________
[_] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY
IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name of Registered Holder(s): ____________________________________________
Window Ticket Number (if any): ___________________________________________
Date of Execution of Notice of Guaranteed Delivery: ______________________
Name of Institution which Guaranteed Delivery: ___________________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution: ___________________________________________
Account Number: __________________________________________________________
Transaction Code Number: _________________________________________________
[_] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES
OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: ____________________________________________________________________
Address: _________________________________________________________________
3
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company, the above described aggregate
principal amount of the Company's Senior Floating Rate Notes due 2004 (the
"Old Notes") in exchange for a like aggregate principal amount of the
Company's Senior Floating Rate Notes due 2004 which have been registered under
the Securities Act (the "New Notes") upon the terms and subject to the
conditions set forth in the Prospectus dated March , 1998 (as the same may be
amended or supplemented from time to time, the "Prospectus"), receipt of which
is acknowledged, and in this Letter of Transmittal (which, together with the
Prospectus, constitute the "Exchange Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company in connection with
the Exchange Offer) with respect to the tendered Old Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Old Notes to the Company, or
transfer ownership of such Old Notes on the account books maintained by DTC,
together in either such case, with all accompanying evidences of transfer and
authenticity to, or upon the order of, the Company, upon receipt by the
Exchange Agent, as the undersigned's agent, of the New Notes to be issued in
exchange for such Old Notes, (ii) present Certificates for such Old Notes for
transfer, and to transfer the Old Notes on the books of the Company, and (iii)
receive for the account of the Company all benefits and otherwise exercise all
rights of beneficial ownership of such Old Notes, all in accordance with the
terms and conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL
POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED
HEREBY. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE
EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old Notes
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Old Notes. The
Certificate number(s) and the Old Notes that the undersigned wishes to tender
should be indicated in the appropriate boxes above.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer
for any reason, or if Certificates are submitted for more Old Notes than are
tendered or accepted for exchange, Certificates for such nonexchanged or
nontendered Old Notes will be returned (or, in the case of Old Notes tendered
by book-entry transfer, such Old Notes will be credited to an account
maintained at DTC), without expense to the tendering holder, promptly
following the expiration or termination of the Exchange Offer.
4
<PAGE>
The undersigned understands that tenders of Old Notes pursuant to any one of
the procedures described in "The Exchange Offer--Procedures for Tendering" in
the Prospectus and in the instruction, attached hereto will, upon the
Company's acceptance for exchange of such tendered Old Notes, constitute a
binding agreement between the undersigned, and the Company upon the terms and
subject to the conditions of the Exchange Offer. The undersigned recognizes
that, under certain circumstances set forth in the Prospectus, the Company may
not be required to accept for exchange any of the Old Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the New Notes be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Old Notes, that such New Notes be credited to the account
indicated above maintained at DTC. If applicable, substitute Certificates
representing Old Notes not exchanged or not accepted for exchange will be
issued to the undersigned or, in the case of a book-entry transfer of Old
Notes, will be credited to the account indicated above maintained at DTC.
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please deliver New Notes to the undersigned at the address shown below the
undersigned's signature.
BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY, (II) ANY NEW NOTES TO BE RECEIVED BY THE
UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III)
THE UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO
PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF
NEW NOTES TO BE RECEIVED IN THE EXCHANGE OFFER, AND (IV) IF THE UNDERSIGNED IS
NOT A BROKER- DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND
TO ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF
SUCH NEW NOTES. BY TENDERING OLD NOTES PURSUANT TO THE EXCHANGE OFFER AND
EXECUTING THIS LETTER OF TRANSMITTAL, A HOLDER OF OLD NOTES WHICH IS A BROKER-
DEALER REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS
ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE SECURITIES
AND EXCHANGE COMMISSION TO THIRD PARTIES, THAT (A) SUCH OLD NOTES HELD BY THE
BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR (B) SUCH OLD NOTES WERE ACQUIRED
BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING
ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE PROSPECTUS (AS
AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE REQUIREMENTS OF THE
SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH NEW NOTES (PROVIDED THAT,
BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH BROKER-DEALER WILL
NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE
SECURITIES ACT).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM
TIME TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW)
IN CONNECTION WITH RESALES OF NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES,
WHERE SUCH OLD NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING
ACTIVITIES, FOR A PERIOD ENDING 90 DAYS AFTER THE EXPIRATION DATE (SUBJECT TO
EXTENSION UNDER CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS) OR,
IF EARLIER, WHEN ALL SUCH NEW NOTES HAVE BEEN DISPOSED OF BY SUCH
PARTICIPATING BROKER-DEALER. IN THAT REGARD, EACH BROKER-DEALER WHO ACQUIRED
OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING
ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH OLD NOTES AND
EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE
FROM/OR THE TRUST OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT
WHICH MAKES ANY
5
<PAGE>
STATEMENT CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN
ANY MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A
MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR
INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH
THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS
SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-
DEALER WILL SUSPEND THE SALE OF NEW NOTES PURSUANT TO THE PROSPECTUS UNTIL THE
COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH
MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR
SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY HAS
GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY BE RESUMED, AS THE CASE MAY
BE. IF THE COMPANY GIVES SUCH NOTICE TO SUSPEND THE SALE OF THE NEW NOTES,
THEY SHALL EXTEND THE 90-DAY PERIOD REFERRED TO ABOVE DURING WHICH
PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION
WITH THE RESALE OF NEW NOTES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND
INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE WHEN
PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE SUPPLEMENTED OR
AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE NEW NOTES OR TO AND
INCLUDING THE DATE ON WHICH THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF NEW
NOTES MAY BE RESUMED, AS THE CASE MAY BE.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided
for on such Old Notes prior to the original issue date of the New Notes.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
herein conferred or agreed to be conferred in this Letter of Transmittal shall
survive the death or incapacity of the undersigned and any obligation of the
undersigned hereunder shall be binding upon the heirs, executors,
administrators, personal representatives, trustees in bankruptcy, legal
representatives, successors and assigns of the undersigned. Except as stated
in the Prospectus, this tender is irrevocable.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES
AS SET FORTH IN SUCH BOX.
HOLDER(S) SIGN HERE
SEE INSTRUCTIONS 2, 5 AND 6 (NOTE: SIGNATURE(S) MUST BE GUARANTEED IF
REQUIRED BY INSTRUCTION 2). PLEASE COMPLETE SUBSTITUTE FORM W-9 ON PAGE 14.
This Letter of Transmittal must be signed by registered holder(s) exactly as
name(s) appear(s) on Certificate(s) for the Old Notes hereby tendered, or by
any person(s) authorized to become the registered holder(s) by endorsements
and documents transmitted herewith (including such opinions of counsel,
certifications and other information as may be required by the Trustee for the
Old Notes to comply with the restrictions on transfer applicable to the Old
Notes). If signature is by an attorney-in-fact, executor, administrator,
trustee, guardian, officer of a corporation or another acting in a fiduciary
capacity or representative capacity, please set forth the signer's full title.
See Instruction 5.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
6
<PAGE>
(SIGNATURE(S) OF HOLDER(S)) GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
Date: , 1998
Name(s): _________________________ __________________________________
__________________________________ (AUTHORIZED SIGNATURE)
(PLEASE PRINT) Date: . 1998
Capacity (full title): ___________ Name of Firm: ____________________
Address: _________________________ Capacity (full title): ___________
__________________________________ (PLEASE PRINT)
__________________________________ Address: _________________________
(INCLUDE ZIP CODE)
__________________________________
Area Code and __________________________________
Telephone Number: ________________ (INCLUDE ZIP CODE)
Area Code and
__________________________________ Telephone Number: ________________
(TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER(S))
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6) (SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the New To be completed ONLY if New
Notes or Old Notes not tendered Notes or Old Notes not tendered
are to be issued in the name of are to be sent to someone other
someone other than the registered than the registered holder of the
holder of the Old Notes whose Old Notes whose name(s) appear(s)
name(s) appear(s) above. above, or such registered
holder(s) at an address other
Issue than that shown above.
[_]Old Notes not tendered to:
[_]New Notes, to: Mail
[_]Old Notes not tendered to:
Name(s): _________________________ [_]New Notes, to:
Address: _________________________
__________________________________ Name(s): _________________________
(INCLUDE ZIP CODE) Address: _________________________
Area Code and __________________________________
Telephone Number: ________________ (INCLUDE ZIP CODE)
__________________________________ Area Code and
__________________________________ Telephone number: ________________
(TAX IDENTIFICATION OR SOCIAL __________________________________
SECURITY NUMBER(S)) (TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER(S))
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. To tender Old Notes in the Exchange Offer, physical delivery of
certificates for Old Notes, a properly completed and duly executed copy or
facsimile of this Letter of Transmittal (or a confirmation of a book-entry
transfer into the Exchange Agent's account with the Book-Entry Transfer
Facility of Old Notes tendered electronically) and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at one of its addresses set forth herein prior to the Expiration Date. The
Exchange Agent and DTC have confirmed that the Exchange Offer is eligible for
ATOP. Accordingly, DTC participants may electronically transmit their
acceptance of the Exchange Offer by causing DTC to transfer Old Notes to the
Exchange Agent in accordance with DTC's ATOP procedures for transfer. DTC WILL
THEN SEND an Agent's Message (as defined in the Prospectus) to the Exchange
Agent. Tenders of Old Notes in the Exchange Offer will be accepted prior to
the Expiration Date in accordance with the procedures described in the
preceding sentence and otherwise in compliance with this Letter of
Transmittal. The method of delivery of this Letter of Transmittal, Old Notes
and all other required documents to the Exchange Agent is at the election and
risk of holders of Old Notes. If such delivery is by mail, it is suggested
that holders of Old Notes use properly insured registered mail and return
receipt requested, and that the mailing be made sufficiently in advance of the
Expiration Date, to permit delivery to the Exchange Agent prior to such date.
No alternative, conditional or contingent tenders of Old Notes will be
accepted. Except as otherwise provided below, the delivery will be deemed made
when actually received or confirmed by the Exchange Agent. THIS LETTER OF
TRANSMITTAL AND THE OLD NOTES SHOULD BE SENT ONLY TO THE EXCHANGE AGENT.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY FACILITY DOES NOT CONSTITUTE DELIVERY
TO THE EXCHANGE AGENT.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter
of Transmittal and all other required documents to the Exchange Agent on or
prior to the Expiration Date or (iii) who cannot complete the procedures for
delivery by book-entry transfer on a timely basis, may tender their Old Notes
by properly completing and duly executing a Notice of Guaranteed Delivery
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Procedures for Tendering" in the Prospectus. Pursuant to such
procedures: (i) such tender must be made by or through an Eligible Institution
(as defined below); (ii) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form made available by the Company,
must be received by the Exchange Agent on or prior to the Expiration Date; and
(iii) the Certificates (or a book-entry confirmation (as defined in the
Prospectus)) representing all tendered Old Notes, in proper form for transfer,
together with a Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees and any
other documents required by this Letter of Transmittal, must be received by
the Exchange Agent within five New York Stock Exchange, Inc. trading days
after the date of execution of such Notice of Guaranteed Delivery, all as
provided in "The Exchange Offer--Procedures for Tendering" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Old Notes to be
properly tendered pursuant to the guaranteed delivery procedure, the Exchange
Agent must receive a Notice of Guaranteed Delivery on or prior to the
Expiration Date. As used herein and in the Prospectus, "Eligible Institution"
means a firm or other entity identified in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, as "an eligible guarantor institution,"
including (as such terms are defined therein): (i) a bank; (ii) a broker,
dealer, municipal securities broker or dealer or government securities broker
or dealer; (iii) a credit union; (v) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association that is a participant in a Securities Transfer Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
8
<PAGE>
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof) waives any right to receive any notice of the acceptance of
such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder (which
term, for purposes of this document, shall include any participant in DTC
whose name appears on the register of holders maintained by the Trust as
the owner of the Old Notes) of Old Notes tendered herewith, unless such
holder(s) has completed either the box entitled "Special Issuance
Instructions" or the box entitled "Special Delivery Instructions" above, or
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned "Description
of Old Notes" is inadequate, the Certificate number(s) and/or the principal
amount of Old Notes and any other required information should be listed on a
separate signed schedule which is attached to this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Notes will be
accepted only in integral multiples of $1,000. If less than all the Old Notes
evidenced by any Certificate submitted are to be tendered, fill in the
principal amount of Old Notes which are to be tendered in the box entitled
"Aggregate Principal Amount of Old Notes Tendered (if less than all)." In such
case, new Certificate(s) for the remainder of the Old Notes that were
evidenced by your old Certificate(s) will only be sent to the holder of the
Old Notes, promptly after the Expiration Date. All Old Notes represented by
Certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date. In order for a withdrawal to
be effective on or prior to that time, a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at one of its addresses set forth above or in the
Prospectus on or prior to the Expiration Date. Any such notice of withdrawal
must specify the name of the person who tendered the Old Notes to be
withdrawn, the aggregate principal amount of Old Notes to be withdrawn, and
(if Certificates for Old Notes have been tendered) the name of the registered
holder of the Old Notes as set forth on the Certificate for the Old Notes, if
different from that of the person who tendered such Old Notes. If Certificates
for the Old Notes have been delivered or otherwise identified to the Exchange
Agent, then prior to the physical release of such Certificates for the Old
Notes, the tendering holder must submit the serial numbers shown on the
particular Certificates for the Old Notes to be withdrawn and the signature on
the notice of withdrawal must be guaranteed by an Eligible Institution, except
in the case of Old Notes tendered for the account of an Eligible Institution.
If Old Notes have been tendered pursuant to the procedures for book-entry
transfer set forth in the Prospectus under "The Exchange Offer--Procedures for
Tendering," the notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of Old Notes, in which case
a notice of withdrawal will be effective if delivered to the Exchange Agent by
written, telegraphic, telex or facsimile transmission. Withdrawals of tenders
of Old Notes may not be rescinded. Old Notes properly withdrawn will not be
deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described in the Prospectus under "The
Exchange Offer--Procedures for Tendering."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all
parties. Neither the Company nor the Exchange Agent or any other person shall
be under any duty to give any notification of any irregularities in any notice
of withdrawal or incur any liability for failure to give any such
notification. Any Old Notes which have been tendered but which are withdrawn
will be returned to the holder thereof without cost to such holder promptly
after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the
name(s) as written on the face of the Certificate(s) without alteration,
enlargement or any change whatsoever.
9
<PAGE>
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any, tendered Old Notes are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing and must submit proper evidence
satisfactory to the Company, in its sole discretion, of each such person's
authority so to act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s)
or separate bond power(s) are required unless New Notes are to be issued in
the name of a person other than the registered holder(s). Signature(s) on such
Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Notes listed, the Certificates must be endorsed
or accompanied by appropriate bond powers, signed exactly as the name or names
of the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information
as the Company or the Trustee for the Old Notes may require in accordance with
the restrictions on transfer applicable to the Old Notes. Signatures on such
Certificates or bond powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Notes are to be issued
in the name of a person other than the signer of this Letter of Transmittal,
or if New Notes are to be sent to someone other than the signer of this Letter
of Transmittal or to an address other than that shown above, the appropriate
boxes on this Letter of Transmittal should be completed. Certificates for Old
Notes not exchanged will be returned by mail or, if tendered by book-entry
transfer, by crediting the account indicated above maintained at DTC. See
Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time
of receipt) and acceptance for exchange of any tender of Old Notes, which
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any and all tenders determined by either of them
not to be in proper form or the acceptance of which, or exchange for which,
may, in the view of counsel to the Company, be unlawful. The Company also
reserves the absolute right, subject to applicable law, to waive any of the
conditions of the Exchange Offer set forth in the Prospectus under "The
Exchange Offer--Conditions" or any conditions or irregularity in any tender of
Old Notes of any particular holder whether or not similar conditions or
irregularities are waived in the case of other holders. The Company's
interpretation of the terms and conditions of the Exchange Offer (including
this Letter of Transmittal and the instructions hereto) will be final and
binding. No tender of Old Notes will be deemed to have been validly made until
all irregularities with respect to such tender have been cured or waived. The
Company and the Exchange Agent, or any other person shall not be under any
duty to give notification of any irregularities in tenders or incur any
liability for failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address
and telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a holder whose tendered Old Notes are accepted for exchange is
required to provide the Exchange Agent with such holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the holder or other payee to a $50 penalty. In addition,
payments to such holders or other payees with respect to Old Notes exchanged
pursuant to the Exchange Offer may be subject to 31% backup withholding.
10
<PAGE>
The box in Part 2 of the Substitute Form W-9 may be checked if the tendering
holder has not been issued a TIN and has applied for a TIN or intends to apply
for a TIN in the near future. If the box in Part 2 is checked, the holder or
other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN
is provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-
9. If the holder furnishes the Exchange Agent with its TIN within 60 days
after the date of the Substitute Form W-9, the amounts retained during the 60
day period will be remitted to the holder and no further amounts shall be
retained or withheld from payments made to the holder thereafter. If, however,
the holder has not provided the Exchange Agent with its TIN within such 60 day
period, amounts withheld will be remitted to the IRS as backup withholding. In
addition, 31% of all payments made thereafter will be withheld and remitted to
the IRS until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Old Notes or of the last transferee appearing on the transfers attached
to, or endorsed on, the Old Notes. If the Old Notes are registered in more
than one name or are not in the name of the actual number, consult the
enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the
face thereof, to avoid possible erroneous backup withholding. A foreign person
may qualify), as an exempt recipient by submitting a properly completed IRS
Form W-8, signed under penalties of perjury, attesting to that holder's exempt
status. Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather, the
U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
11. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Old Notes, by
execution of this Letter of Transmittal, shall waive any right to receive
notice of the acceptance of their Old Notes for exchanges.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Notes have been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent. The holder will then be instructed as to
the steps that must be taken in order to replace the Certificate(s). This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost, destroyed or stolen Certificate(s) have been
followed.
13. SECURITY TRANSFER TAXES. Holders who tender their Old Notes for exchange
will not be obligated to pay any transfer taxes in connection therewith. If,
however, New Notes are to be delivered to, or are to be issued in the name of,
any person other than the registered holder of the Old Notes tendered, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes in
connection with the Exchange Offer, then the amount of any such transfer tax
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
11
<PAGE>
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
TO BE COMPLETED BY ALL TENDERING NOTEHOLDERS
(SEE INSTRUCTION 9)
PAYER'S NAME: THE BANK OF NEW YORK
PART I--PLEASE PROVIDE YOUR TIN: _________________
SUBSTITUTE TIN ON THE LINE AT RIGHT Social Security Number
FORM W-9 AND CERTIFY BY SIGNING AND or Employee
DATING BELOW Identification Number
DEPARTMENT OF
THE TREASURY --------------------------------------------------------
INTERNAL PART II--TIN Applied For [_]
REVENUE --------------------------------------------------------
SERVICE CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CER-
TIFY THAT:
(1) the number shown on this form is my correct
taxpayer identification number (or I am waiting
PAYER'S REQUEST FOR for a number to be issued to me).
TAXPAYER IDENTIFICATION
NUMBER ("TIN") AND (2) I am not subject to backup withholding either
CERTIFICATION because (i) I am exempt from backup withholding,
(ii) have not been notified by the Internal
Revenue Service ("IRS") that I am subject to
backup withholding as a result of a failure to
report all interest or dividends, or (iii) the
IRS has notified me that I am no longer subject
to backup withholding, and
(3) any other information provided on this form is
true and correct.
Signature: _______________ Date: __, 1998
--------------------------------------------------------
You must cross out item (iii) in Part (2) above if
you have been notified by the IRS that you are
subject to backup withholding because of
underreporting interest or dividends on your tax
return and you have not been notified by the IRS that
you are no longer subject to backup withholding.
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT
TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
12
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2
OF SUBSTITUTE FORM W-9 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all payments made to me on account of the New Notes
shall be retained until I provide a taxpayer identification number to the
Exchange Agent and that, if I do not provide my taxpayer identification number
within 60 days, such retained amounts shall be remitted to the Internal
Revenue Service as backup withholding and 31% of all reportable payments made
to me thereafter will be withheld and remitted to the Internal Revenue Service
until I provide a taxpayer identification number.
Signature: Date: , 1998
13
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
ANY AND ALL OUTSTANDING
SENIOR FLOATING RATE NOTES DUE 2004
OF
SCHEIN PHARMACEUTICAL, INC.
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's (as defined below) Senior Floating Rate Notes
due 2004, which have not been registered under the Securities Act of 1933, as
amended (the "Old Notes") are not immediately available, (ii) Old Notes, the
Letter of Transmittal and all other required documents cannot be delivered to
The Bank of New York (the "Exchange Agent") on or prior to 5:00 P.M. New York
City time, on the Expiration Date (as defined in the Prospectus referred to
below) or (iii) the procedures for delivery by book-entry transfer cannot be
completed on a timely basis. This Notice of Guaranteed Delivery may be
delivered by hand, overnight courier or mail, or transmitted by facsimile
transmission, to the Exchange Agent. See "The Exchange Offer--Procedures for
Tendering" in the Prospectus. In addition, in order to utilize the guaranteed
delivery procedure to tender Old Notes pursuant to the Exchange Offer, a
completed, signed and dated Letter of Transmittal relating to the Old Notes
(or facsimile thereof) must also be received by the Exchange Agent prior to
5:00 P.M. New York City time, on the Expiration Date. Capitalized terms not
defined herein have the meanings assigned to them in the Prospectus.
The Exchange Agent for The Exchange Offer Is:
The Bank Of New York
By Mail Facsimile Transmissions: By Hand Or Overnight
Delivery
The Bank of New York (Eligible Institutions Only) The Bank of New York
101 Barclay Street, 7E 101 Barclay Street
New York, New York 10286 (212) 815-6339 Corporate Trust Services
Attn: Reorganization Window
Section, Confirm By Telephone: Ground Level
7E; Diana Torres (212) 815-5789 New York, New York 10286
Attn: Reorganization
(Registered or Certified For Information Call: Section,
Mail Recommended) (212) 815-5789 7E; Diana Torres
Delivery of this Notice Of Guaranteed Delivery to an address other than as
set forth above or transmission of this Notice of Guaranteed Delivery via
facsimile to a number other than as set forth above will not constitute a
valid delivery.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Schein Pharmaceutical, Inc., a Delaware
corporation (the "Company") upon the terms and subject to the conditions set
forth in the Prospectus dated March , 1998 (as the same may be amended or
supplemented from time to time, the "Prospectus"), and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate principal amount of Old Notes set forth
below pursuant to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer--Procedures for Tendering."
Signature if the Registered Owner(s) Name(s) of Registered Holder(s): ____
or Authorized Signatory:
____________________________________
____________________________________
Aggregate Amount of Old Notes Address: ____________________________
Tendered:
_____________________________________
_____________________________________
Certificate No(s). of Old Notes (if Area Code and Tel. No.: _____________
available):
_____________________________________
If Old Notes will be delivered by
book-entry at The Depository Trust
Date: _______________________________ Company, Depository Account No.: ____
This Notice of Guaranteed Delivery must be signed by the holder(s) of the
Old Notes as their name(s) appear(s) on certificates for Old Notes or on a
security position listing, or by person(s) authorized to become registered
holder(s) by endorsement and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title
below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):_______________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Capacity:______________________________________________________________________
Address(es):___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as an
"eligible guarantor institution," including (as such terms are defined
therein): (i) a bank; (ii) a broker, dealer, municipal securities broker,
municipal securities dealer, government securities broker, government
securities dealer; (iii) a credit union; (iv) a national securities exchange,
registered securities association or lending agency; or (v) a savings
association that is a participant in a Securities Transfer Association
recognized program (each of the foregoing being referred to as an "Eligible
Institution"), hereby guarantees to deliver to the Exchange Agent, at one of
its addresses set forth above, either the Old Notes tendered hereby in proper
form for transfer, or confirmation of the book-entry transfer of such Old
Notes to the Exchange Agent's account at The Depositary Trust Company ("DTC"),
pursuant to the procedures for book-entry transfer set forth in the
Prospectus, in either case together with one or more properly completed and
duly executed Letter(s) of Transmittal (or facsimile thereof) and any other
required documents within five business days after the date of execution of
this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Notes tendered hereby to the Exchange Agent within the
time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
_____________________________________ _____________________________________
Name of Firm Authorized Signature
_____________________________________ _____________________________________
Address Name
_____________________________________ _____________________________________
Zip Code Title
Area Code and Telephone No.: ________ Date: _______________________________
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
3
<PAGE>
EXHIBIT 99.3
March , 1998
EXCHANGE AGENT AGREEMENT
The Bank of New York
Corporate Trust Trustee Administration
101 Barclay Street--21st Floor
New York, New York 10286
Ladies and Gentlemen:
Schein Pharmaceutical, Inc. (the "Company") proposes to make an offer (the
"Exchange Offer") to exchange its Senior Floating Rate Notes due 2004 (the
"New Notes") which have been registered under the Securities Act of 1933, as
amended (the "Securities Act") for its Senior Floating Rate Notes due 2004
(the "Old Notes"). The terms and conditions of the Exchange Offer as currently
contemplated are set forth in a prospectus, dated March , 1998 (the
"Prospectus"), proposed to be distributed to all record holders of the Old
Notes. The Old Notes and the New Notes are collectively referred to herein as
the "Notes".
The Company hereby appoints The Bank of New York to act as exchange agent
(the "Exchange Agent") in connection with the Exchange Offer. References
hereinafter to "you" shall refer to The Bank of New York.
The Exchange Offer is expected to be commenced by the Company on or about
March , 1998. The Letter of Transmittal accompanying the Prospectus (or in
the case of book entry securities, the ATOP system) is to be used by the
holders of the Old Notes to accept the Exchange Offer and contains
instructions with respect to the delivery of certificates for Old Notes
tendered in connection therewith.
The Exchange Offer shall expire at 5:00 P.M., New York City time, on April
, 1998 or on such later date or time to which the Company may extend the
Exchange Offer (the "Expiration Date"). Subject to the terms and conditions
set forth in the Prospectus, the Company expressly reserves the right to
extend the Exchange Offer from time to time and may extend the Exchange Offer
by press release or other public announcement prior to 9:00 A.M., New York
City time, on the business day following the previously scheduled Expiration
Date.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange
Offer specified in the Prospectus under the caption "The Exchange Offer--
Conditions". The Company will give oral or written notice of any amendment,
termination or nonacceptance to you as promptly as practicable.
In carrying out your duties as Exchange Agent, you are to act in accordance
with the following instructions:
1. You will perform such duties and only such duties as are specifically set
forth in the section of the Prospectus captioned "The Exchange Offer" or as
specifically set forth herein; provided, however, that in no way will your
general duty to act in good faith be discharged by the foregoing.
2. You will establish an account with respect to the Old Notes at The
Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of
the Exchange Offer within two business days after the date of the Prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of the Old Notes by causing
the Book-Entry Transfer Facility to transfer such Old Notes into your account
in accordance with the Book-Entry Transfer Facility's procedure for such
transfer.
3. You are to examine each of the Letters of Transmittal and certificates
for Old Notes (or confirmation of book-entry transfer into your account at the
Book-Entry Transfer Facility) and any other documents delivered or mailed to
you by or for holders of the Old Notes to ascertain whether: (i) the Letters
of Transmittal and any such other documents are duly executed and properly
completed in accordance with instructions set forth therein and
<PAGE>
(ii) the Old Notes have otherwise been properly tendered. In each case where
the Letter of Transmittal or any other document has been improperly completed
or executed or any of the certificates for Old Notes are not in proper form
for transfer or some other irregularity in connection with the acceptance of
the Exchange Offer exists, you will inform the presenters of the need for
fulfillment of all requirements and to take any other action as may be
necessary or advisable to cause such irregularity to be corrected.
4. With the approval of the President, Executive Vice President or Senior
Vice President of the Company (such approval, if given orally, to be confirmed
in writing) or any other party designated by such an officer in writing, you
are authorized to waive any irregularities in connection with any tender of
Old Notes pursuant to the Exchange Offer.
5. Tenders of Old Notes may be made only as set forth in the Letter of
Transmittal and in the section of the Prospectus captioned "The Exchange
Offer--Procedures for Tendering", and Old Notes shall be considered properly
tendered to you only when tendered in accordance with the procedures set forth
therein.
Notwithstanding the provisions of this paragraph 5, Old Notes which the
President, Executive Vice President or Senior Vice President of the Company
shall approve as having been properly tendered shall be considered to be
properly tendered (such approval, if given orally, shall be confirmed in
writing).
6. You shall advise the Company with respect to any Old Notes received
subsequent to the Expiration Date and accept its instructions with respect to
disposition of such Old Notes.
7. You shall accept tenders:
(a) in cases where the Old Notes are registered in two or more names only
if signed by all named holders;
(b) in cases where the signing person (as indicated on the Letter of
Transmittal) is acting in a fiduciary or a representative capacity only
when proper evidence of his or her authority so to act is submitted; and
(c) from persons other than the registered holder of Old Notes provided
that customary transfer requirements, including any applicable transfer
taxes, are fulfilled.
You shall accept partial tenders of Old Notes where so indicated and as
permitted in the Letter of Transmittal and deliver certificates for Old Notes
to the transfer agent for split-up and return any untendered Old Notes to the
holder (or such other person as may be designated in the Letter of
Transmittal) as promptly as practicable after expiration or termination of the
Exchange Offer.
8. Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will notify you (such notice if given orally, to be
confirmed in writing) of its acceptance, promptly after the Expiration Date,
of all Old Notes properly tendered and you, on behalf of the Company, will
exchange such Old Notes for New Notes and cause such Old Notes to be
cancelled. Delivery of New Notes will be made on behalf of the Company by you
at the rate of $1,000 principal amount of New Notes for each $1,000 principal
amount of the Old Notes tendered promptly after notice (such notice if given
orally, to be confirmed in writing) of acceptance of said Old Notes by the
Company; provided, however, that in all cases, Old Notes tendered pursuant to
the Exchange Offer will be exchanged only after timely receipt by you of
certificates for such Old Notes (or confirmation of book-entry transfer into
your account at the Book-Entry Transfer Facility), a properly completed and
duly executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees and any other required documents. You shall issue New
Notes only in denominations of $1,000 or any integral multiple thereof.
9. Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and upon the conditions set forth in the Prospectus and
the Letter of Transmittal, Old Notes tendered pursuant to the Exchange Offer
may be withdrawn at any time prior to the Expiration Date.
2
<PAGE>
10. The Company shall not be required to exchange any Old Notes tendered if
any of the conditions set forth in the Exchange Offer are not met. Notice of
any decision by the Company not to exchange any Old Notes tendered shall be
given (and confirmed in writing) by the Company to you.
11. If, pursuant to the Exchange Offer, the Company does not accept for
exchange all or part of the Old Notes tendered because of an invalid tender,
the occurrence of certain other events set forth in the Prospectus under the
caption "The Exchange Offer--Conditions" or otherwise, you shall as soon as
practicable after the expiration or termination of the Exchange Offer return
those certificates for unaccepted Old Notes (or effect appropriate book-entry
transfer), together with any related required documents and the Letters of
Transmittal relating thereto that are in your possession, to the persons who
deposited them.
12. All certificates for reissued Old Notes, unaccepted Old Notes or for New
Notes shall be forwarded by first-class mail.
13. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other persons
or to engage or utilize any person to solicit tenders.
14. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other than those specifically set
forth herein or as may be subsequently agreed to in writing by you and the
Company;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of
any of the certificates or the Old Notes represented thereby deposited with
you pursuant to the Exchange Offer, and will not be required to and will
make no representation as to the validity, value or genuineness of the
Exchange Offer;
(c) shall not be obligated to take any legal action hereunder which might
in your reasonable judgment involve any expense or liability, unless you
shall have been furnished with reasonable indemnity;
(d) may reasonably rely on and shall be protected in acting in reliance
upon any certificate, instrument, opinion, notice, letter, telegram or
other document or security delivered to you and reasonably believed by you
to be genuine and to have been signed by the proper party or parties;
(e) may reasonably act upon any tender, statement, request, comment,
agreement or other instrument whatsoever not only as to its due execution
and validity and effectiveness of its provisions, but also as to the truth
and accuracy of any information contained therein, which you shall in good
faith believe to be genuine or to have been signed or represented by a
proper person or persons;
(f) may rely on and shall be protected in acting upon written or oral
instructions from any officer of the Company;
(g) may consult with your counsel with respect to any questions relating
to your duties and responsibilities and the advice or opinion of such
counsel shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted to be taken by you hereunder in
good faith and in accordance with the advice or opinion of such counsel;
and
(h) shall not advise any person tendering Old Notes pursuant to the
Exchange Offer as to the wisdom of making such tender or as to the market
value or decline or appreciation in market value of any Old Notes.
15. You shall take such action as may from time to time be requested by the
Company or its counsel (and such other action as you may reasonably deem
appropriate) to furnish copies of the Prospectus, Letter of Transmittal and
the Notice of Guaranteed Delivery (as defined in the Prospectus) or such other
forms as may be approved from time to time by the Company, to all persons
requesting such documents and to accept and comply with telephone requests for
information relating to the Exchange Offer, provided that such information
shall relate only to the procedures for accepting (or withdrawing from) the
Exchange Offer. The Company will furnish you with copies of such documents at
your request. All other requests for information relating to the Exchange
Offer shall be directed to the Company, Attention: General Counsel.
3
<PAGE>
16. You shall advise by facsimile transmission or telephone, and promptly
thereafter confirm in writing to the General Counsel of the Company and such
other person or persons as it may request, daily (and more frequently during
the week immediately preceding the Expiration Date and if otherwise requested)
up to and including the Expiration Date, as to the number of Old Notes which
have been tendered pursuant to the Exchange Offer and the items received by
you pursuant to this Agreement, separately reporting and giving cumulative
totals as to items properly received and items improperly received. In
addition, you will also inform, and cooperate in making available to, the
Company or any such other person or persons upon oral request made from time
to time prior to the Expiration Date of such other information as it or he or
she reasonably requests. Such cooperation shall include, without limitation,
the granting by you to the Company and such person as the Company may request
of access to those persons on your staff who are responsible for receiving
tenders, in order to ensure that immediately prior to the Expiration Date the
Company shall have received information in sufficient detail to enable it to
decide whether to extend the Exchange Offer. You shall prepare a final list of
all persons whose tenders were accepted, the aggregate principal amount of Old
Notes tendered, the aggregate principal amount of Old Notes accepted and
deliver said list to the Company.
17. Letters of Transmittal and Notices of Guaranteed Delivery shall be
stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time you
preserve other records pertaining to the transfer of Notes. You shall dispose
of unused Letters of Transmittal and other surplus materials by returning them
to the Company.
18. You hereby expressly waive any lien, encumbrance or right of set-off
whatsoever that you may have with respect to funds deposited with you for the
payment of transfer taxes by reasons of amounts, if any, borrowed by the
Company, or any of its subsidiaries or affiliates pursuant to any loan or
credit agreement with you or for compensation owed to you hereunder.
19. For services rendered as Exchange Agent hereunder, you shall be entitled
to such compensation as set forth on Schedule I attached hereto.
20. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be amended from time to time), on the
other hand, shall be resolved in favor of the latter two documents, except
with respect to the duties, liabilities and indemnification of you as Exchange
Agent, which shall be controlled by this Agreement.
21. The Company covenants and agrees to indemnify and hold you harmless in
your capacity as Exchange Agent hereunder against any loss, liability, cost or
expense, including reasonable attorneys' fees and expenses, arising out of or
in connection with any act, omission, delay or refusal made by you in reliance
upon any signature, endorsement, assignment, certificate, order, request,
notice, instruction or other instrument or document reasonably believed by you
in good faith to be valid, genuine and sufficient and in accepting any tender
or effecting any transfer of Old Notes reasonably believed by you in good
faith to be authorized, and in delaying or refusing in good faith to accept
any tenders or effect any transfer of Old Notes; provided, however, that the
Company shall not be liable for indemnification or otherwise for any loss,
liability, cost or expense to the extent arising out of your negligence or
willful misconduct. In no case shall the Company be liable under this
indemnity with respect to any claim against you unless the Company shall be
notified by you, by letter or by facsimile confirmed by letter, of the written
assertion of a claim against you or of any other action commenced against you,
promptly after you shall have received any such written assertion or notice of
commencement of action. The Company shall be entitled to participate at its
own expense in the defense of any such claim or other action, and, if the
Company so elects, the Company shall assume the defense of any suit brought to
enforce any such claim. In the event that the Company shall assume the defense
of any such suit, the Company shall not be liable for the fees and expenses of
any additional counsel thereafter retained by you so long as the Company shall
retain counsel satisfactory to you to defend such suit, and so long as you
have not determined, in your reasonable judgment, that a conflict of interest
exists between you and the Company.
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22. You shall arrange to comply with all requirements under the tax laws of
the United States, including those relating to missing Tax Identification
Numbers, and shall file any appropriate reports with the Internal Revenue
Service. The Company understands that you are required to deduct 31% on
payments to holders who have not supplied their correct Taxpayer
Identification Number or required certification. Such funds will be turned
over to the Internal Revenue Service in accordance with applicable
regulations.
23. You shall deliver or cause to be delivered, in a timely manner to each
governmental authority to which any transfer taxes are payable in respect of
the exchange of Old Notes, the Company's check in the amount of all transfer
taxes so payable; provided, however, that you shall reimburse the Company for
amounts refunded to you in respect of your payment of any such transfer taxes,
at such time as such refund is received by you.
24. This Agreement and your appointment as Exchange Agent hereunder shall be
construed and enforced in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely within such state,
and without regard to conflicts of law principles, and shall inure to the
benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of each of the parties hereto.
25. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
26. In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
27. This Agreement shall not be deemed or construed to be modified, amended,
rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged. This Agreement may not be modified orally.
28. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given to such party, addressed to it, at its
address or telecopy number set forth below:
If to the Company:
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Facsimile: (973) 593-5820
Attention: General Counsel
If to the Exchange Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Facsimile: (212) 815-5915
Attention: Corporate Trust Trustee Administration
29. Unless terminated earlier by the parties hereto, this Agreement shall
terminate 90 days following the Expiration Date. Notwithstanding the
foregoing, Paragraphs 19, 21 and 23 shall survive the termination of this
Agreement. Upon any termination of this Agreement, you shall promptly deliver
to the Company any certificates for Notes, funds or property then held by you
as Exchange Agent under this Agreement.
30. This Agreement shall be binding and effective as of the date hereof.
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Please acknowledge receipt of this Agreement and confirm the arrangements
herein provided by signing and returning the enclosed copy.
Schein Pharmaceutical, Inc.
By: _________________________________
Paul Feuerman
Senior Vice President and General
Counsel
Accepted as of the date first above written:
The Bank of New York, as Exchange Agent
By: _____________________________
Name:
Title:
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SCHEDULE I
FEES
[TO BE INSERTED]
7
